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Speaker 1: So there is a tremendous amount of talk about how

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Speaker 1: what's happening with the straight up Hormuz affects the US

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Speaker 1: oil markets. We're up a dollar a gallon. You can't

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Speaker 1: deny that reality. You can't deny the reality that that's

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Speaker 1: not good for a Republican Party already in an uphill

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Speaker 1: climb to win midterms. And if this stays for months

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Speaker 1: with US, that's a problem.

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Speaker 2: Now.

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Speaker 3: I have set my timeline as the summer.

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Speaker 1: If July you're still in the high oil prices of July,

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Speaker 1: you're still at some of these levels of inflation, it's

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Speaker 1: a death noel for the Republican Party.

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Speaker 3: That's my take. We haven't asked ourselves how.

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Speaker 1: These oil issues are affecting Russia in China, our adversaries, China,

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Speaker 1: thirsty country that no longer gets oil through Russia from Venezuela,

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Speaker 1: and the Russians, which has oil to sell and trying

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Speaker 1: to distribute to Cuba. Tony Katz, Tony Katz today, good

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Speaker 1: to be with you, EJ. And Toni joins me right

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Speaker 1: now from the Heritage Foundation, Acting Director of the Thomas A.

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Speaker 1: Row Institute for Economic Policy Studies, Chief economist Richard Astor Fellow.

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Speaker 1: That is more titles than I have. Everybody e j

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Speaker 1: Antoni has got them all. It's good to see you.

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Speaker 1: We don't talk about how this hasn't effect worldwide and

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Speaker 1: how this affects what other world actors quasi superpower actors

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Speaker 1: then act. But before anything, let's talk about what we're

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Speaker 1: seeing in the Strait of Hormuz, what we're seeing with

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Speaker 1: oil prices, where we have seen things top one hundred

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Speaker 1: and nineteen dollars a barrel. We've been playing in the

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Speaker 1: drede hundred and five hundred and seven on the Brent crude,

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Speaker 1: and you have some people out there who you may know,

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Speaker 1: talking about, well, we're going to see two hundred dollars

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Speaker 1: a bar oil and the Saudis are saying one hundred

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Speaker 1: and eighty dollars a barrow oil. If you want to

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Speaker 1: fear monger, I guess this is the thing that you do,

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Speaker 1: and you kind of play into those futures. Maybe you're

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Speaker 1: gonna tell me, oh no, there's a story here. What

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Speaker 1: is really moving these oil markets and how does this resolve?

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Speaker 4: Well, Tony, the last I guess two or three questions

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Speaker 4: there are all really really closely related.

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Speaker 2: So let's tackle those first.

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Speaker 4: Nobody, and I mean nobody knows exactly how this thing

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Speaker 4: is going to play out. We don't know what this

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Speaker 4: is going to be like six days from now, let

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Speaker 4: alone six weeks. We don't even know what it's going

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Speaker 4: to be like six hours from now. That's how fluid

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Speaker 4: the situation is, and that's how fast things are changing.

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Speaker 4: Look at what just happened with the Israeli strike on

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Speaker 4: natural gas infrastructure and Iran, for which Iran responded in

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Speaker 4: kind to infrastructure throughout the region. And now there's conflicting

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Speaker 4: reports as to whether or not the US knew about

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Speaker 4: that or whether we didn't, But whatever the case may be,

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Speaker 4: that was a big curve ball that was thrown at

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Speaker 4: energy markets right and futures, and then later when trading

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Speaker 4: sessions open, prices reflected that. And so the volatility that

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Speaker 4: we're seeing in energy markets, whether that's WTI, whether that's BENT,

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Speaker 4: whether it's natural gas at various hubs around the world,

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Speaker 4: all of that price volatility reflects the fact that nobody

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Speaker 4: has any idea where things are actually going here, and

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Speaker 4: that's why you get these wildly ranging forecasts some of

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Speaker 4: what you just mentioned, which are calling for one hundred

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Speaker 4: and eighty or two hundred dollars oil, and then you

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Speaker 4: have others on the opposite end of the spectrum. We're

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Speaker 4: saying we're going to be back to seventy dollars a

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Speaker 4: barrel like that. So again, it really just runs the

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Speaker 4: gamut because nobody knows which way the conflict is actually headed.

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Speaker 1: By the way, the WTI guys is West Texas Intermediate crewed.

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Speaker 1: We talk about it here, West Texas coming out of

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Speaker 1: the ground, brand crude coming out of the oceans. It's

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Speaker 1: the most simple way I have of explaining it for

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Speaker 1: my own needs talking to EJ. And Tony of the

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Speaker 1: Heritage Foundation, Thomas A. Row Institute for Economic Policy Studies

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Speaker 1: and Chief Economists. Yes, we aren't sure how this is

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Speaker 1: going to play out, but there have been some questions

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Speaker 1: of we seem to have a very archaic way of

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Speaker 1: moving the oil through an area we've always known to

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Speaker 1: be dangerous. For what reason because we have a better

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Speaker 1: relationship with Saudi Arabia? What everything of the politics inconsequential

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Speaker 1: to the reality. How come we never built a pipeline

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Speaker 1: across Saudi Arabia to be able to move the oil

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Speaker 1: over to the Red Sea. Was was this an economic conversation?

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Speaker 1: Was this a oil doesn't work this way conversation. I

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Speaker 1: might be out of your pantheon of expertise here, but

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Speaker 1: I'm assuming economists have asked themselves, is this the only

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Speaker 1: way to get oil out of the area from Saudi Arabia, Kuwait,

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Speaker 1: et cetera.

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Speaker 4: Well, part of the problem here is geography. You know,

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Speaker 4: it's not as if you have this perfectly flat landscape

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Speaker 4: from which you're going to take the oil all the

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Speaker 4: way across Saudi Arabia, for example, And several people have

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Speaker 4: pointed out that you don't even need to go all

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Speaker 4: the way across to the Red Sea. Geographically, it's a

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Speaker 4: lot closer to just go right to the Persian Gulf

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Speaker 4: across a you know, much smaller portion of Saudi Arabia.

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Speaker 2: But you're dealing with a massive mountain range to do that.

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Speaker 2: So look, is no easy way to do this.

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Speaker 4: The other problem with if you do go to the

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Speaker 4: Red Sea literally across the whole way across the Arabian peninsula,

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Speaker 4: now you're dealing with two other choke points.

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Speaker 2: You have the Suez Canal right up in the north, and.

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Speaker 4: Then you have a choke point down south, which is

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Speaker 4: larger than the Strait of Horror Moves. But again it's

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Speaker 4: similar where it is still a bottleneck, and it is

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Speaker 4: an area where concentrated missile and drone strips from a

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Speaker 4: nation like Iran could pose serious issues in terms of shipping.

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Speaker 4: That's not to say that it's the exact same, it's not,

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Speaker 4: but you do have at least similar similar difficulties. And

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Speaker 4: again it's just very, very expensive to build all of

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Speaker 4: this new infrastructure and to pipe oil all the way

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Speaker 4: across the peninsula like that instead of sending it by

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Speaker 4: ship like we do right now, or like we used to.

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Speaker 3: But that's just it. So here's what we hear.

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Speaker 1: And so this is why I bring you in because

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Speaker 1: we're not the only ones dealing with this. The Russians

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Speaker 1: and the Chinese are now. The Russians have a tremendous

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Speaker 1: amount of their own oil. As the late Centator John

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Speaker 1: McCain used to say, this is a gas station masquerading

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Speaker 1: as a country. Maybe the only really good line the

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Speaker 1: man ever had, depending on who you are and looking

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Speaker 1: at him. The Chinese are unbelievably thirsty and they can't

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Speaker 1: get oil anymore from the ghost tankers that were coming

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Speaker 1: utilizing the sanctioned oil from Venezuela.

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Speaker 3: We know this to be the case, and we know these.

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Speaker 1: Ghost ships have been in many, many, many ways shut down.

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Speaker 1: But what we're hearing is that twenty seven percent of

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Speaker 1: the world's oil supply comes through this area, but only

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Speaker 1: one or two percent of hour oil supply.

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Speaker 3: So this is really the rest of the world's problems.

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Speaker 1: It's why you've heard President Trump say, why does it

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Speaker 1: NATO or European nations make sure this is safeguarded. It's

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Speaker 1: their oil, But what of our adversaries? How does this

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Speaker 1: affect China and Russia?

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Speaker 4: Well, unfortunately, this is actually kind of helping our adversaries

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Speaker 4: in certain ways. I'm not saying that overall, if you

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Speaker 4: do a complete cost benefit analysis on every aspect of

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Speaker 4: this conflict, that it is a net positive.

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Speaker 2: That's not what I'm saying. But I do think.

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Speaker 4: It's important that we outline some of the ways in

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Speaker 4: which this is helping Russia. You know, previously Russia was

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Speaker 4: having to export sanctioned oil. You know, you can think

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Speaker 4: of it as under the table. They were having to

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Speaker 4: sell at a steep discount, and that's how they were

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Speaker 4: getting around these sanctions. Well, now as we lift the

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Speaker 4: sanctions on Russia, because we have to do everything we

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Speaker 4: possibly can to alleviate the supply crunch since we are

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Speaker 4: co dependent on nations like Iran, what's happening now is

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Speaker 4: Russia is actually increasing exports. They are selling more and

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Speaker 4: not only are they selling it at market prices instead

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Speaker 4: of selling it at a discount, but the market price

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Speaker 4: has gone way up.

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Speaker 2: It's basically double tony.

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Speaker 4: So now they are selling much more oil and at

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Speaker 4: much higher prices. In other words, this is a windfall

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Speaker 4: to Vladimir Putin and his war machine that is not

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Speaker 4: going to do the West any favors when it comes

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Speaker 4: to the conflict in the Ukraine. Another big problem that

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Speaker 4: we're seeing is regarding China. You're right, as China was

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Speaker 4: importing a lot less than as whale and crude, they

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Speaker 4: were having to rely on other sources. They get a

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Speaker 4: lot of oil from Iran. A lot of Iranian exports

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Speaker 4: were going to China. And you might think with the

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Speaker 4: Strait being closed that that is another figot that's been

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Speaker 4: shut off. But guess what, Iran is not stopping their

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Speaker 4: own vessels from going through the Strait. They're allowing their

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Speaker 4: vessels through because it's their own oil, right, And as

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Speaker 4: a consequence, they are now by a lot of estimates.

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Speaker 4: I've seen it reported by Wall Street Journal. I've seen

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Speaker 4: it estimated by Goldman Sachs now that Iran is actually

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Speaker 4: exporting more oil to China today than when the conflict began.

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Speaker 1: Talking to EJ and TONI, a chief economist over the

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Speaker 1: Heritage of Foundation, people will look at that and say,

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Speaker 1: how is that even possible?

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Speaker 3: Right the idea of winning the war.

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Speaker 1: Certainly we have the advantage on the warfare. We have

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Speaker 1: taken out systems, we have taken out structure, we have

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Speaker 1: taken out a host of people. We need to keep

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Speaker 1: this up, and I believe that you don't leave until

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Speaker 1: the regime is completely and totally gone. But the thing

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Speaker 1: that I think is amazing to people, based on what

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Speaker 1: you're talking about, EJ, is that Iran is still able

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Speaker 1: to sell oil. I mean, this brings up a carg

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Speaker 1: Island conversation. But Iran is still able to move oil.

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Speaker 1: How is that possible? Or is it a kind of

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Speaker 1: a concept and economic concept that if you were to

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Speaker 1: stop the oil from getting to China, you would create

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Speaker 1: a larger scale problem worldwide that nobody wants, and we're

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Speaker 1: trying to keep the conflict in a certain region and

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Speaker 1: in a certain context.

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Speaker 2: He Lo Coconi.

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Speaker 4: The sad reality is we're co dependent on nations like Iran,

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Speaker 4: whether they're good actors or bad actors. Same thing with Russia,

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Speaker 4: same thing with Venezuela and countless other energy producers around

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Speaker 4: the globe. Look, it doesn't matter if a barrel of

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Speaker 4: oil is being sold by Canada or if it's being

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Speaker 4: sold by Iran. You still need that barrel of oil

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Speaker 4: just as much. Now, granted, there's differences in quality of

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Speaker 4: crude right in different places around the world. You know,

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Speaker 4: West Texas is light sweet, a lot of the stuff

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Speaker 4: coming out of the Middle East is heavy sour. So again,

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Speaker 4: different types of crude, and there's there are differences there

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Speaker 4: that we can talk about if you'd like.

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Speaker 2: But at the end of the day, we still need

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Speaker 2: the oil. And so this is why, for example, the.

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Speaker 4: President said, after Israel and Iran we're exchanging fire on

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Speaker 4: natural gas infrastructure.

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Speaker 2: The President said, no more, no more. Israel, don't do that.

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Speaker 4: Iran, don't you dare do it either, because if you do,

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Speaker 4: we're going to retaliate in a really big.

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Speaker 2: Way because we need the energy.

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Speaker 4: All of the volatility that we're seeing, all of these

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Speaker 4: these explosions in prices at the pump, Tony, this is

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Speaker 4: all just mere speculation that you're going to see a

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Speaker 4: lot of a lot more damage in terms of energy infrastructure,

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Speaker 4: and a lot more supply disruption. Now imagine if that

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Speaker 4: supply disruption actually happens, it would be it would be

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Speaker 4: incredibly detrimental. And so again we have sadly this kind

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Speaker 4: of codependent relationship, if you want to call it that,

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Speaker 4: with nations like Iran. And going back to something you

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Speaker 4: had said earlier, this idea that look, we have all

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Speaker 4: our own energy, Why did it really affect us? Because

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Speaker 4: you have a nation like Japan, a close friend and

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Speaker 4: ally of the United States, right that gets ninety five

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Speaker 4: percent of its oil from the Middle East, and right

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Speaker 4: now their supplies have been largely choked off. Well guess what,

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Speaker 4: they're now coming and knocking on our door to buy

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Speaker 4: WTI because they can't get the stuff that they were

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Speaker 4: buying previously, And so that's going to help bid up

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Speaker 4: prices here at home as well. And to be clear,

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Speaker 4: we actually already export a lot of our oil. Most

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Speaker 4: of the refineries, for example in the Golf region, a

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Speaker 4: lot of those refineries, Tony aren't even optimized. They're not

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Speaker 4: set up to optimally handle a light suite crude like

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Speaker 4: Texas that we get out of the ground in Texas

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Speaker 4: or Oklahoma. They're actually better set up to handle the

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Speaker 4: crew that's coming out of the ground in Venezuela or

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Speaker 4: places like Iram and so a lot again, a lot

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Speaker 4: of the crud that we get out of the ground

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Speaker 4: here we actually send overseas, and we are importing other crude.

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Speaker 4: That's not to say you can't do one versus the other.

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Speaker 4: It's just that your refinery is not going to operate

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Speaker 4: as efficiently. But I think it really does underscore just

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Speaker 4: how global these markets are.

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Speaker 3: I got sixty seconds talking to EJ.

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Speaker 1: And Tony, chief economist the Heritage Foundation, really quick on

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Speaker 1: the PPI, the Producer Price Index wholesale prices point seven

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Speaker 1: percent inflation, which puts you at an eight point four

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Speaker 1: I had texted you, like, what do you take of

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Speaker 1: this number? I won't even say what you wrote back

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Speaker 1: to me, although I could say it on air.

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Speaker 3: Your take on where this on? Where this number?

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Speaker 1: Whether you believe this inflation number because translated out times

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Speaker 1: twelve is eight point four percent, it's a Biden error

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Speaker 1: kind of number. And whether you think this is something

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Speaker 1: that could be easily tamped down, what would it take

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Speaker 1: the administration to do that.

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Speaker 4: So PPI is much more volatile than CPI. This is

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Speaker 4: the producer price index versus the consumer price index. So

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Speaker 4: you might just have literally a very large one month

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Speaker 4: spike that is later revised down. It might be followed

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Speaker 4: by later months where you don't even see an increase

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Speaker 4: at all, you see decreases, but it should still be

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Speaker 4: setting off alarm bells here right. What I think policy

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Speaker 4: makers need to take from this is that we cannot

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Speaker 4: we simply cannot sustain a one hundred dollars oil.

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Speaker 2: In this economy. You can't.

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Speaker 4: So if this conflict is only going to last literally

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Speaker 4: a few more days, that's not a big deal. That's

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Speaker 4: basically going to be an economic speed bump. But if

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Speaker 4: you drag this out for weeks and for months on end,

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Speaker 4: and we are still dealing with this well into the summer,

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Speaker 4: you're going to see a lot of pain inflicted on

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Speaker 4: the economy and on American families. If energy prices stay high.

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Speaker 1: Next time we talk, we're going to get into whether

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Speaker 1: tariffs actually made a difference.

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Speaker 3: This is going to require some detail analysis. EJ.

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Speaker 1: And Tony from the Heritage Foundation, chief Economist. I appreciate

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Speaker 1: you taking the time to be with us. More coming

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Speaker 1: up on Tony Katz. And this is Tony Katz today