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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Krisner. The

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Speaker 2: crude oil and natural gas markets have been forced to

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Speaker 2: consider the possibility of an energy crisis. All of this

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Speaker 2: is after the US and Israeli military action in Iran.

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Speaker 2: Now shipping through the Strait of horm Moves is at

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Speaker 2: a near standstill. You know, roughly twenty percent of global

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Speaker 2: oil exports passed through this narrow waterway. It was late

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Speaker 2: Monday when an advisor to the Islamic Revolutionary Guard said

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Speaker 2: Iranian forces will set fire to any ship attempting to

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Speaker 2: pass through the strait. I think the quote was, we

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Speaker 2: won't allow a single drop of oil to leave the region.

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Speaker 2: For a closer look, I'm joined by Bloomberg Stephen Stepchinsky.

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Speaker 2: Stephen is team leader for Asia Energy and he joins

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Speaker 2: from our studios in Singapore. Stephen, thank you for being here.

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Speaker 2: What is the biggest question in your mind right now

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Speaker 2: as we look at the various scenarios, If I can

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Speaker 2: put it that way, I.

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Speaker 3: Think there are two things that the market is watching

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Speaker 3: very very closely. Obviously, as you talked about the Strait

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Speaker 3: of Hormoves, is a key waterway. How long will it

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Speaker 3: stay shut and what ships will be willing to go through.

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Speaker 3: A lot of companies, like Japan's Mitsui Osk Lines has

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Speaker 3: said that they will not allow their ships to go through.

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Speaker 3: They've told them to salt. Meanwhile, other ship owners are

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Speaker 3: dealing with rising insurance prices. How much are they willing

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Speaker 3: to pay? Can they get the war insurance that they need,

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Speaker 3: because a lot of those war insurance terms are actually

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Speaker 3: getting canceled this week as the situation on folds. That's

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Speaker 3: horror moves. The other is infrastructure, right, so horror moves

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Speaker 3: that could quickly be resolved if there's some sort of

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Speaker 3: piece deal and flows could resume again. But if infrastructure,

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Speaker 3: oil exports, gas production facilities, pipelines are damaged as the

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Speaker 3: conflict unfolds, then we're seeing an oil or gas market

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Speaker 3: where where production is affected potentially for longer. You know,

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Speaker 3: I have to remind you that the Middle East is

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Speaker 3: a major producer of oil and gas for consumers all

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Speaker 3: around the world, from Europe to Asia, and already over

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Speaker 3: the last twenty four hours we saw Iranian drones hit

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Speaker 3: a Saudi Arabia's largest refinery, and we've also seen Qatar's

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Speaker 3: ras Lafa and Energy Complex get Hit that includes the

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Speaker 3: world's biggest look fed natural gas export facility. It provides

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Speaker 3: twenty percent of the world's LNG.

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Speaker 2: So China, i know, is a big buyer of Iranian crude,

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Speaker 2: even though that crude oil has been sanctioned by the US.

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Speaker 2: Do you have a sense of the impact on China

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Speaker 2: if there is a prolonged closure of the strait or

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Speaker 2: it becomes difficult for those vessels to reach Chinese mainland refineries.

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Speaker 3: So in a way, Beijing has been preparing for this

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Speaker 3: for years, you know. I think if you think about

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Speaker 3: the twenty twenty two energy crisis after Russia invaded Ukraine

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Speaker 3: and upended oil and gas markets, it actually led to

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Speaker 3: some energy shortages in China, and since then Beijing has

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Speaker 3: been working really hard to increase their own oil and

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Speaker 3: gas production, find alternative supplies, increase coal production for power generation,

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Speaker 3: as well as talk to other partners across the region.

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Speaker 3: China has turned more and more to Russia, for example,

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Speaker 3: for oil and gas supplies as well. So if this

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Speaker 3: let's look at oil. If this were to be prolonged, yes,

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Speaker 3: oil would would be This would become an issue for

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Speaker 3: some refiners in China, they'd have to scramble on fine alternatives.

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Speaker 3: But we are entering a period of a glut in

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Speaker 3: the oil market, and if you're just talking about sheer barrels,

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Speaker 3: there is supply available, they have to pay the price.

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Speaker 3: Maybe the supply wouldn't be available for a few weeks

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Speaker 3: or month, but it wouldn't lead to widespread shortages or

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Speaker 3: anything in China. Meanwhile, they also have very large inventories

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Speaker 3: that they've built up. Now turning to gas, which is

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Speaker 3: used in industries to a small degree power generation as

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Speaker 3: well as heating, that could be more of an issue.

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Speaker 3: Qatar depends. Qatar supplies thirty percent of China's LNG imports.

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Speaker 3: They're a major supplier to the country and that would

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Speaker 3: be harder to immediately replace. They would have to scramble

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Speaker 3: to other exporters like Australia, the US, or maybe Southeast

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Speaker 3: Asian suppliers, and that could result in higher prices as

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Speaker 3: well as maybe some curtailment of gas to certain industries.

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Speaker 2: So in the States, we are told the Trump administration

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Speaker 2: has no immediate plans to release oil from the Strategic

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Speaker 2: Petroleum Reserves. That would be tapped in case of an

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Speaker 2: emergency such as this. Can you give me a sense

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Speaker 2: on the magnitude or the size of the petrol olium

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Speaker 2: reserves that China has access to.

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Speaker 3: I mean, it's also massive. I mean I think to

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Speaker 3: give you some context, the oil market last year, it

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Speaker 3: would have been much weaker if it weren't for China's

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Speaker 3: enormous buying of oil. But for most of the year

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Speaker 3: they were filling up those reserves, among the largest reserves

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Speaker 3: on Earth. I mean, you have to remember that China

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Speaker 3: is the world's biggest crude importer and they take this

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Speaker 3: energy security very seriously. So yes, they do have mass

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Speaker 3: or reserves on the same scale as other large oil

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Speaker 3: producers or importers. I think one other thing to note though,

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Speaker 3: is unlike other countries, China has been to a degree

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Speaker 3: reducing its dependence on gasoline as well. They've been building

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Speaker 3: an enormous ev fleet. Like if you go to Beijing

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Speaker 3: or Shanghai and you hire a taxi, it will most

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Speaker 3: likely be an electric vehicle. So not only do they

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Speaker 3: have the reserves, but they're also changing their entire economy

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Speaker 3: to depend more on things that are fueled by electricity,

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Speaker 3: and that means that they depend more on coal, and

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Speaker 3: coal a lot of which they produce domestically.

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Speaker 2: There are two countries that I'm thinking of, in particular

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Speaker 2: in the Asia Pacific, both of which happen to be

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Speaker 2: US allies and both are heavy oil importers. I'm thinking

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Speaker 2: of Japan and South Korea. What is the situation as

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Speaker 2: it relates to those countries So so.

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Speaker 3: Far, we've heard from both of them that the situation

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Speaker 3: to a degree is under control. They're not looking to

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Speaker 3: release their own strategic reserves yet, but they are in

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Speaker 3: touch with their allies and they are following the situation

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Speaker 3: very closely. I do to remind you that we're just

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Speaker 3: three or four days into this, and so there is

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Speaker 3: enough fuel on the water. That being said, you know,

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Speaker 3: if we if we do see a situation where oil

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Speaker 3: supplies are cut off for weeks, then they are going

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Speaker 3: to have to scramble. They're going to have to release

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Speaker 3: their own reserves and have to work with International Energy

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Speaker 3: Agency to do a global potentially a global release, and

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Speaker 3: on top of that find alternative suppliers. Again, there is

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Speaker 3: enough oil in the market, so we're not necessarily in

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Speaker 3: a panic, and you're seeing that represented in Brent oil prices. Right,

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Speaker 3: prices rose from Brent to the seventy five seventy eight

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Speaker 3: dollars level. When the war in Ukraine was happening. In

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Speaker 3: twenty twenty two, oil prices for Brent were well above

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Speaker 3: one hundred dollars. There's more of a crisis feeling. So

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Speaker 3: the US could come to the aid as well to

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Speaker 3: Korea and in Japan and could be a larger supplier

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Speaker 3: of crude to those countries, but that also takes time.

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Speaker 3: The US is far away and a lot of that

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Speaker 3: oil would have to go around the Cape of Good

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Speaker 3: Hope through the Panama Canal, and that takes time to

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Speaker 3: get there. But there isn't quite a panic in Tokyo

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Speaker 3: and Soul yet as far as what we're reporting.

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Speaker 2: So we're being told that both the UAE and CUTTER

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Speaker 2: privately lobbied allies to persuade President Trump to keep operations

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Speaker 2: against Iran very very short. Do you think can you

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Speaker 2: imagine that the UAE or CUTTER would reach out to

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Speaker 2: countries in the Apac region to try to put some

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Speaker 2: pressure on President Trump.

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Speaker 3: I mean, when not just President Trump, but wouldn't they

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Speaker 3: also want to put pressure on Iran? As well. You

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Speaker 3: look at China, for example, China is an enormous buyer

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Speaker 3: of Iranian oil. They're also a big buyer of products

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Speaker 3: from Qatar and the UAE. So are they getting pressure

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Speaker 3: to put also force on top of on top of

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Speaker 3: Iran to try to come to a deal. Are they

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Speaker 3: putting pressure on the United States? I mean, I think

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Speaker 3: this is a pressure point. The fuel, the supply of

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Speaker 3: fuel that is so important to China, And while they

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Speaker 3: do have alternatives, the longer this goes on, the more

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Speaker 3: it risks China overall, it doesn't necessarily risk the United States.

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Speaker 3: The US is the world's biggest oil and one of

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Speaker 3: the big biggest oil exporters and the world's biggest LNG exporter.

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Speaker 3: In fact, this benefits their producers. The US is in

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Speaker 3: a very good spot at the moment, and if you

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Speaker 3: look at just natural gas prices in the US, it

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Speaker 3: is a fraction of the prices that are being paid

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Speaker 3: by customers in Europe and Asia, just because it's so

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Speaker 3: well insulated.

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Speaker 2: I'm remembering recently that the Trump administration put pressure on

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Speaker 2: the Indian government to stop buying Russian crude oil. So

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Speaker 2: when you consider the situation that India is in right now.

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Speaker 2: If it's being squeezed to resist the temptation to reach

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Speaker 2: out and tap into Russian crude oil, what type of

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Speaker 2: situation is India in right now?

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Speaker 3: Yeah, I mean India is also in a challenging spot.

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Speaker 3: You know, I think they have been over We had

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Speaker 3: a big take story on the Bloomberg terminal and the

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Speaker 3: website just this morning that kind of highlighted how Indian buyers,

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Speaker 3: especially of natural gas, have been sort of scrambling. They

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Speaker 3: depend on Koutar for about thirty percent of their LNG

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Speaker 3: needs and the situation more than thirty percent actually, and

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Speaker 3: in the situation in Delhi is getting quite dire. They're

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Speaker 3: looking at different scenarios, one of which is doing some

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Speaker 3: sort of government to government deal with with different suppliers. So, yeah,

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Speaker 3: they are getting squeezed by this and it's very unfortunate,

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Speaker 3: and you're going to see a situation where refineries might

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Speaker 3: need to go back to potentially look at the unsanctioned

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Speaker 3: supply from Russia, maybe try to make deals with other

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Speaker 3: potential partners or again. You know, this is a topic

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Speaker 3: that keeps coming up. Curtail supply, right, you know, curtail consumption,

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Speaker 3: try to find ways to reduce demand at home so

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Speaker 3: that the less supply that they get goes a longer way.

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Speaker 2: Before I let you go, Steve, and I have to

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Speaker 2: ask about the impact that higher oil may have in

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Speaker 2: terms of accelerating inflation. That was one of the things

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Speaker 2: that manifest in the New York session where treasury yields

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Speaker 2: started to rise quite a bit. I think both the

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Speaker 2: two and the tenure were up around ten basis points.

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Speaker 2: Is there a conversation in the Asia Pacific on the

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Speaker 2: inflationary impact of higher oil?

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Speaker 3: Absolutely. You know, Asia is a big importer of oil

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Speaker 3: and gas, and the higher prices does put more pressure

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Speaker 3: on these countries. And you know, you look at just

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Speaker 3: Japan for example. This was supposed to be the year

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Speaker 3: where oil prices were going to fall, but instead prices

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Speaker 3: are right because there was going to be a global

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Speaker 3: glood of supply, but instead, because of the geopolitical risk,

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Speaker 3: prices keep rising. And that's putting a lot of pressure

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Speaker 3: on Japanese households that for decades have been dealing with deflation.

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Speaker 3: Now suddenly there's larger than expected increases in prices. Gas

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Speaker 3: line prices are increasing. You know, companies have to deal

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Speaker 3: with higher energy costs. Japan's power prices spot electricity price

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Speaker 3: just on Monday popped up fifteen percent, is probably going

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Speaker 3: to rise even more. So you look at just Japan

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Speaker 3: for example, the household has to pay more because the

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Speaker 3: higher the prices are for oil, gas and coal, it

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Speaker 3: actually directly increases power bills on a monthly basis. And

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Speaker 3: it's not just su Japan issue. This is something that

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Speaker 3: South Korea, China, India. Sitting here in Singapore, Singapore is

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Speaker 3: a major buyer of Katari LNG. It affects all of us,

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Speaker 3: and it's something that's being closely watched and monitored. When

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Speaker 3: it was supposed to be a here where all these

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Speaker 3: prices were supposed to come down.

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Speaker 2: Steven, good stuff, Thank you so very much. We'll leave

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Speaker 2: it there, Bloomberg Steven Stepchinski. He is team leader for

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Speaker 2: Asia Energy. Joining from our studio in the Lion City

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Speaker 2: of Singapore here on the Daybreak Asia Podcast. Welcome back

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Speaker 2: to the Daybreak Asia Podcast. I'm Doug Krisner. President Trump

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Speaker 2: said earlier today the US will keep up its military

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Speaker 2: offensive against Iran for as long as it takes. We

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Speaker 2: also heard from Secretary of State Marco Rubio. He said,

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Speaker 2: the objective is to destroy Iran's ballistic missile program as

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Speaker 2: well as its naval fleet and attacked owns. Here is Rubio.

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Speaker 4: No matter what, Ultimately this operation needed to happen. That's

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Speaker 4: the question of why now. But this operation needed to

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Speaker 4: happen because Iran in about a year or a year

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Speaker 4: and a half would cross the line of immunity, meaning

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Speaker 4: they would have so many short range missiles, so many

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Speaker 4: drones that no one could do anything about it because

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Speaker 4: they could hold the whole world hostage. Look at the

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Speaker 4: damage they're doing now and this is a weekend Iran,

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Speaker 4: imagine a year from now.

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Speaker 1: So that had to happen.

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Speaker 2: That a Secretary of State Marco Rubio, And it helps

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Speaker 2: set up our conversation with Mona Yakubian. Mona is the

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Speaker 2: director and Senior Advisor of the Middle East Program at CSIS.

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Speaker 2: She spoke to Bloomberg TV host Devon Mann and David Nglaize,

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Speaker 2: and Devon started the conversation with a question on the

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Speaker 2: rationale behind the US and Israel striking Iran over the weekend.

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Speaker 5: I think there's still a very disturbing lack of clarity

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Speaker 5: as to the rationale. I mean, we've heard numerous reasons raised,

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Speaker 5: from Iran's nuclear and ballistic missile capabilities to addressing the

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Speaker 5: leadership in Iran, et cetera. None of it really seems

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Speaker 5: to make sense in terms of available intelligence reporting, none

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Speaker 5: of which points to an imminent threat. And therefore this

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Speaker 5: really looks more to have been a war of choice

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Speaker 5: rather than a war of necessity. And we are seeing

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Speaker 5: play out now, just entering the fourth day of this conflict,

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Speaker 5: the multiple downside risks from energy market hits, to US

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Speaker 5: soldiers being killed in combat, to security risks, and American

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Speaker 5: embassies being targeted to multiple countries now becoming embroiled in

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Speaker 5: this conflict. We are truly watching a region wide conflagration

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Speaker 5: unfold before our eyes.

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Speaker 6: So i'mon, among the many risks, what do you think

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Speaker 6: is most pertinent at the moment? If I know, that's

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Speaker 6: almost an impossible question to isolate that, But where do

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Speaker 6: I need to be looking?

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Speaker 1: Well?

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Speaker 5: I think the energy markets are in particular significant given

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Speaker 5: this part of the world's crucial role in both oil

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Speaker 5: and gas markets, and your analyst that was on before me,

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Speaker 5: was laying down these historic jumps in gas prices. I

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Speaker 5: think The problem is we don't know the duration of

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Speaker 5: this conflict obviously, and frankly, it's very hard to imagine

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Speaker 5: that this is going to be a replay of the twelve.

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Speaker 1: Day war that we saw this past June.

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Speaker 5: This is far more complex and involves far many more countries,

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Speaker 5: and of course, with the assassination of the Supreme Leader

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Speaker 5: and questions about who's even in charge in Iran and

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Speaker 5: what's Iran's risk tolerance? I would argue Iran's risk tolerance

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Speaker 5: is very high because they are facing existential threats. And

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Speaker 5: so if we are watching something that could last for

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Speaker 5: weeks and maybe even months, that is going to have

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Speaker 5: enormous reverberations across global energy and shipping markets. And of

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Speaker 5: course we also have to look at lives that are

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Speaker 5: at risk across the region.

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Speaker 6: I mean, might not want to pick up on that

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Speaker 6: this now involves many other parties. Might be a dumb question.

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Speaker 2: I don't know.

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Speaker 6: I don't have the answer. Why is Iran bombing its neighbors?

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Speaker 6: So I get why, I get why they would target

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Speaker 6: places with US basis, but Dubai for example, and how

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Speaker 6: does that then affect those regional powers in their response

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Speaker 6: to Iran I mean, I.

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Speaker 1: Think there are two ways to look at it. You're

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Speaker 1: absolutely right, David.

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Speaker 5: I mean, on the face of it, they've managed to

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Speaker 5: galvanize these Gulf countries frankly against Iran.

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Speaker 1: Iran is now completely alone.

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Speaker 5: These are countries that were advocating against conflict against it

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Speaker 5: with Iran, and so in a way it does look

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Speaker 5: sort of fool hardly, foolhardy and hard to understand.

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Speaker 1: On the other hand, if for Iran.

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Speaker 5: The stakes are existential, then at this point I think

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Speaker 5: they are making a gamble that they are going to

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Speaker 5: race up the escalation ladder and impose higher costs and

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Speaker 5: sort of in a way, invite.

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Speaker 1: A prolonged conflict.

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Speaker 5: And that's exactly what they're doing, perhaps with the calculation

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Speaker 5: that ultimately, especially these energy producing Gulf countries are going

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Speaker 5: to really push hard on the United States to find

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Speaker 5: an off ram to de escalate this conflict because of

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Speaker 5: the disruption that it is causing. So in a way,

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Speaker 5: Iran is taking a sort of an asymmetric approach to this.

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Speaker 7: We've been talking about a lot about the risk of

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Speaker 7: a more wider regional war. I'm just wondering in terms

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Speaker 7: of the Iran proxies right that the Hufis, the hes Blahs.

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Speaker 7: You know, does Iran have a can maintain control of

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Speaker 7: some of these groups here right now or is there

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Speaker 7: actually a chance that they could actually mobilize.

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Speaker 5: Well, it's really interesting on I mean, we just saw

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Speaker 5: in the last twenty four hours, among the different types

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Speaker 5: of escalation that we've witnessed is the more intensive use.

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Speaker 1: Of Iran's proxies.

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Speaker 5: We see this most notably in Lebanon, where Hezbollah, which

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Speaker 5: frankly is under greater Iranian influence than it's ever been

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Speaker 5: undertook rocket attacks against Israel quite frankly, relatively weak rocket attacks.

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Speaker 1: They didn't cause any damage.

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Speaker 5: But this has now brought an onslaught an offensive by

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Speaker 5: Israel against Lebanon, and so we'll have to see how

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Speaker 5: that evolves. I think the key proxy that has yet

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Speaker 5: to really raise its head again are the Houthis, and

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Speaker 5: that will be significant if the Houthis choose to get involved.

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Speaker 5: Should they seek to re start attacks on shipping in

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Speaker 5: the Red Sea to snarl the Babel Mendeb, another critical

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Speaker 5: choke point in the area, then I think we could

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Speaker 5: see the disruptions that were already watching unfold grow exponentially,

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Speaker 5: and this could have an enormous impact not only on

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Speaker 5: the region but globally.

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Speaker 6: Mona, just quickly, if you could, where does this leave

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Speaker 6: the nuclear assets or the ability to specify the ability

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Speaker 6: of Iran to enrich to a certain level, and do

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Speaker 6: we circle back to a negotiating table at some point

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Speaker 6: here on those.

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Speaker 5: Well, David, I mean there were already questions as to

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Speaker 5: whether or not Iran had started to move back toward

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Speaker 5: restarting its nuclear program. The program, the facilities certainly sustained

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Speaker 5: significant damage in the US and Israeli strikes this past summer,

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Speaker 5: and so there was no suggestion that Iran's ability to

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Speaker 5: begin enriching uranium again was imminent. Perhaps they were looking

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Speaker 5: to restart or start to repair those facilities, as some

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Speaker 5: of the imagery is showing. The US has gone back

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Speaker 5: and hit some of these sites again, the US and

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Speaker 5: israel I should say, and so I think Iran's nuclear

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Speaker 5: capability remain dramatically curtailed.

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Speaker 2: That was Mona Yakoubian, director and Senior Advisor of the

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Speaker 2: Middle East Program at CSIS, speaking with Bloomberg TV host

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Speaker 2: Von Mann and David Nglace, bringing you their conversation here

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Speaker 2: on the Daybreak Asia podcast. Thanks for listening to today's

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Speaker 2: episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,

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Speaker 2: we look at the story shaping markets, finance, and geopolitics

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Speaker 2: in the Asia Pacific. You can find us on Apple, Spotify,

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Speaker 2: the Bloomberg Podcast YouTube channel, or anywhere else you listen.

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Speaker 2: Join us again tomorrow for insight on the market moves

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Speaker 2: from Hong Kong to Singapore and Australia. I'm Doug Prisoner

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Speaker 2: and this is Bloomberg