Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Krisner. The
Speaker 2: crude oil and natural gas markets have been forced to
Speaker 2: consider the possibility of an energy crisis. All of this
Speaker 2: is after the US and Israeli military action in Iran.
Speaker 2: Now shipping through the Strait of horm Moves is at
Speaker 2: a near standstill. You know, roughly twenty percent of global
Speaker 2: oil exports passed through this narrow waterway. It was late
Speaker 2: Monday when an advisor to the Islamic Revolutionary Guard said
Speaker 2: Iranian forces will set fire to any ship attempting to
Speaker 2: pass through the strait. I think the quote was, we
Speaker 2: won't allow a single drop of oil to leave the region.
Speaker 2: For a closer look, I'm joined by Bloomberg Stephen Stepchinsky.
Speaker 2: Stephen is team leader for Asia Energy and he joins
Speaker 2: from our studios in Singapore. Stephen, thank you for being here.
Speaker 2: What is the biggest question in your mind right now
Speaker 2: as we look at the various scenarios, If I can
Speaker 2: put it that way, I.
Speaker 3: Think there are two things that the market is watching
Speaker 3: very very closely. Obviously, as you talked about the Strait
Speaker 3: of Hormoves, is a key waterway. How long will it
Speaker 3: stay shut and what ships will be willing to go through.
Speaker 3: A lot of companies, like Japan's Mitsui Osk Lines has
Speaker 3: said that they will not allow their ships to go through.
Speaker 3: They've told them to salt. Meanwhile, other ship owners are
Speaker 3: dealing with rising insurance prices. How much are they willing
Speaker 3: to pay? Can they get the war insurance that they need,
Speaker 3: because a lot of those war insurance terms are actually
Speaker 3: getting canceled this week as the situation on folds. That's
Speaker 3: horror moves. The other is infrastructure, right, so horror moves
Speaker 3: that could quickly be resolved if there's some sort of
Speaker 3: piece deal and flows could resume again. But if infrastructure,
Speaker 3: oil exports, gas production facilities, pipelines are damaged as the
Speaker 3: conflict unfolds, then we're seeing an oil or gas market
Speaker 3: where where production is affected potentially for longer. You know,
Speaker 3: I have to remind you that the Middle East is
Speaker 3: a major producer of oil and gas for consumers all
Speaker 3: around the world, from Europe to Asia, and already over
Speaker 3: the last twenty four hours we saw Iranian drones hit
Speaker 3: a Saudi Arabia's largest refinery, and we've also seen Qatar's
Speaker 3: ras Lafa and Energy Complex get Hit that includes the
Speaker 3: world's biggest look fed natural gas export facility. It provides
Speaker 3: twenty percent of the world's LNG.
Speaker 2: So China, i know, is a big buyer of Iranian crude,
Speaker 2: even though that crude oil has been sanctioned by the US.
Speaker 2: Do you have a sense of the impact on China
Speaker 2: if there is a prolonged closure of the strait or
Speaker 2: it becomes difficult for those vessels to reach Chinese mainland refineries.
Speaker 3: So in a way, Beijing has been preparing for this
Speaker 3: for years, you know. I think if you think about
Speaker 3: the twenty twenty two energy crisis after Russia invaded Ukraine
Speaker 3: and upended oil and gas markets, it actually led to
Speaker 3: some energy shortages in China, and since then Beijing has
Speaker 3: been working really hard to increase their own oil and
Speaker 3: gas production, find alternative supplies, increase coal production for power generation,
Speaker 3: as well as talk to other partners across the region.
Speaker 3: China has turned more and more to Russia, for example,
Speaker 3: for oil and gas supplies as well. So if this
Speaker 3: let's look at oil. If this were to be prolonged, yes,
Speaker 3: oil would would be This would become an issue for
Speaker 3: some refiners in China, they'd have to scramble on fine alternatives.
Speaker 3: But we are entering a period of a glut in
Speaker 3: the oil market, and if you're just talking about sheer barrels,
Speaker 3: there is supply available, they have to pay the price.
Speaker 3: Maybe the supply wouldn't be available for a few weeks
Speaker 3: or month, but it wouldn't lead to widespread shortages or
Speaker 3: anything in China. Meanwhile, they also have very large inventories
Speaker 3: that they've built up. Now turning to gas, which is
Speaker 3: used in industries to a small degree power generation as
Speaker 3: well as heating, that could be more of an issue.
Speaker 3: Qatar depends. Qatar supplies thirty percent of China's LNG imports.
Speaker 3: They're a major supplier to the country and that would
Speaker 3: be harder to immediately replace. They would have to scramble
Speaker 3: to other exporters like Australia, the US, or maybe Southeast
Speaker 3: Asian suppliers, and that could result in higher prices as
Speaker 3: well as maybe some curtailment of gas to certain industries.
Speaker 2: So in the States, we are told the Trump administration
Speaker 2: has no immediate plans to release oil from the Strategic
Speaker 2: Petroleum Reserves. That would be tapped in case of an
Speaker 2: emergency such as this. Can you give me a sense
Speaker 2: on the magnitude or the size of the petrol olium
Speaker 2: reserves that China has access to.
Speaker 3: I mean, it's also massive. I mean I think to
Speaker 3: give you some context, the oil market last year, it
Speaker 3: would have been much weaker if it weren't for China's
Speaker 3: enormous buying of oil. But for most of the year
Speaker 3: they were filling up those reserves, among the largest reserves
Speaker 3: on Earth. I mean, you have to remember that China
Speaker 3: is the world's biggest crude importer and they take this
Speaker 3: energy security very seriously. So yes, they do have mass
Speaker 3: or reserves on the same scale as other large oil
Speaker 3: producers or importers. I think one other thing to note though,
Speaker 3: is unlike other countries, China has been to a degree
Speaker 3: reducing its dependence on gasoline as well. They've been building
Speaker 3: an enormous ev fleet. Like if you go to Beijing
Speaker 3: or Shanghai and you hire a taxi, it will most
Speaker 3: likely be an electric vehicle. So not only do they
Speaker 3: have the reserves, but they're also changing their entire economy
Speaker 3: to depend more on things that are fueled by electricity,
Speaker 3: and that means that they depend more on coal, and
Speaker 3: coal a lot of which they produce domestically.
Speaker 2: There are two countries that I'm thinking of, in particular
Speaker 2: in the Asia Pacific, both of which happen to be
Speaker 2: US allies and both are heavy oil importers. I'm thinking
Speaker 2: of Japan and South Korea. What is the situation as
Speaker 2: it relates to those countries So so.
Speaker 3: Far, we've heard from both of them that the situation
Speaker 3: to a degree is under control. They're not looking to
Speaker 3: release their own strategic reserves yet, but they are in
Speaker 3: touch with their allies and they are following the situation
Speaker 3: very closely. I do to remind you that we're just
Speaker 3: three or four days into this, and so there is
Speaker 3: enough fuel on the water. That being said, you know,
Speaker 3: if we if we do see a situation where oil
Speaker 3: supplies are cut off for weeks, then they are going
Speaker 3: to have to scramble. They're going to have to release
Speaker 3: their own reserves and have to work with International Energy
Speaker 3: Agency to do a global potentially a global release, and
Speaker 3: on top of that find alternative suppliers. Again, there is
Speaker 3: enough oil in the market, so we're not necessarily in
Speaker 3: a panic, and you're seeing that represented in Brent oil prices. Right,
Speaker 3: prices rose from Brent to the seventy five seventy eight
Speaker 3: dollars level. When the war in Ukraine was happening. In
Speaker 3: twenty twenty two, oil prices for Brent were well above
Speaker 3: one hundred dollars. There's more of a crisis feeling. So
Speaker 3: the US could come to the aid as well to
Speaker 3: Korea and in Japan and could be a larger supplier
Speaker 3: of crude to those countries, but that also takes time.
Speaker 3: The US is far away and a lot of that
Speaker 3: oil would have to go around the Cape of Good
Speaker 3: Hope through the Panama Canal, and that takes time to
Speaker 3: get there. But there isn't quite a panic in Tokyo
Speaker 3: and Soul yet as far as what we're reporting.
Speaker 2: So we're being told that both the UAE and CUTTER
Speaker 2: privately lobbied allies to persuade President Trump to keep operations
Speaker 2: against Iran very very short. Do you think can you
Speaker 2: imagine that the UAE or CUTTER would reach out to
Speaker 2: countries in the Apac region to try to put some
Speaker 2: pressure on President Trump.
Speaker 3: I mean, when not just President Trump, but wouldn't they
Speaker 3: also want to put pressure on Iran? As well. You
Speaker 3: look at China, for example, China is an enormous buyer
Speaker 3: of Iranian oil. They're also a big buyer of products
Speaker 3: from Qatar and the UAE. So are they getting pressure
Speaker 3: to put also force on top of on top of
Speaker 3: Iran to try to come to a deal. Are they
Speaker 3: putting pressure on the United States? I mean, I think
Speaker 3: this is a pressure point. The fuel, the supply of
Speaker 3: fuel that is so important to China, And while they
Speaker 3: do have alternatives, the longer this goes on, the more
Speaker 3: it risks China overall, it doesn't necessarily risk the United States.
Speaker 3: The US is the world's biggest oil and one of
Speaker 3: the big biggest oil exporters and the world's biggest LNG exporter.
Speaker 3: In fact, this benefits their producers. The US is in
Speaker 3: a very good spot at the moment, and if you
Speaker 3: look at just natural gas prices in the US, it
Speaker 3: is a fraction of the prices that are being paid
Speaker 3: by customers in Europe and Asia, just because it's so
Speaker 3: well insulated.
Speaker 2: I'm remembering recently that the Trump administration put pressure on
Speaker 2: the Indian government to stop buying Russian crude oil. So
Speaker 2: when you consider the situation that India is in right now.
Speaker 2: If it's being squeezed to resist the temptation to reach
Speaker 2: out and tap into Russian crude oil, what type of
Speaker 2: situation is India in right now?
Speaker 3: Yeah, I mean India is also in a challenging spot.
Speaker 3: You know, I think they have been over We had
Speaker 3: a big take story on the Bloomberg terminal and the
Speaker 3: website just this morning that kind of highlighted how Indian buyers,
Speaker 3: especially of natural gas, have been sort of scrambling. They
Speaker 3: depend on Koutar for about thirty percent of their LNG
Speaker 3: needs and the situation more than thirty percent actually, and
Speaker 3: in the situation in Delhi is getting quite dire. They're
Speaker 3: looking at different scenarios, one of which is doing some
Speaker 3: sort of government to government deal with with different suppliers. So, yeah,
Speaker 3: they are getting squeezed by this and it's very unfortunate,
Speaker 3: and you're going to see a situation where refineries might
Speaker 3: need to go back to potentially look at the unsanctioned
Speaker 3: supply from Russia, maybe try to make deals with other
Speaker 3: potential partners or again. You know, this is a topic
Speaker 3: that keeps coming up. Curtail supply, right, you know, curtail consumption,
Speaker 3: try to find ways to reduce demand at home so
Speaker 3: that the less supply that they get goes a longer way.
Speaker 2: Before I let you go, Steve, and I have to
Speaker 2: ask about the impact that higher oil may have in
Speaker 2: terms of accelerating inflation. That was one of the things
Speaker 2: that manifest in the New York session where treasury yields
Speaker 2: started to rise quite a bit. I think both the
Speaker 2: two and the tenure were up around ten basis points.
Speaker 2: Is there a conversation in the Asia Pacific on the
Speaker 2: inflationary impact of higher oil?
Speaker 3: Absolutely. You know, Asia is a big importer of oil
Speaker 3: and gas, and the higher prices does put more pressure
Speaker 3: on these countries. And you know, you look at just
Speaker 3: Japan for example. This was supposed to be the year
Speaker 3: where oil prices were going to fall, but instead prices
Speaker 3: are right because there was going to be a global
Speaker 3: glood of supply, but instead, because of the geopolitical risk,
Speaker 3: prices keep rising. And that's putting a lot of pressure
Speaker 3: on Japanese households that for decades have been dealing with deflation.
Speaker 3: Now suddenly there's larger than expected increases in prices. Gas
Speaker 3: line prices are increasing. You know, companies have to deal
Speaker 3: with higher energy costs. Japan's power prices spot electricity price
Speaker 3: just on Monday popped up fifteen percent, is probably going
Speaker 3: to rise even more. So you look at just Japan
Speaker 3: for example, the household has to pay more because the
Speaker 3: higher the prices are for oil, gas and coal, it
Speaker 3: actually directly increases power bills on a monthly basis. And
Speaker 3: it's not just su Japan issue. This is something that
Speaker 3: South Korea, China, India. Sitting here in Singapore, Singapore is
Speaker 3: a major buyer of Katari LNG. It affects all of us,
Speaker 3: and it's something that's being closely watched and monitored. When
Speaker 3: it was supposed to be a here where all these
Speaker 3: prices were supposed to come down.
Speaker 2: Steven, good stuff, Thank you so very much. We'll leave
Speaker 2: it there, Bloomberg Steven Stepchinski. He is team leader for
Speaker 2: Asia Energy. Joining from our studio in the Lion City
Speaker 2: of Singapore here on the Daybreak Asia Podcast. Welcome back
Speaker 2: to the Daybreak Asia Podcast. I'm Doug Krisner. President Trump
Speaker 2: said earlier today the US will keep up its military
Speaker 2: offensive against Iran for as long as it takes. We
Speaker 2: also heard from Secretary of State Marco Rubio. He said,
Speaker 2: the objective is to destroy Iran's ballistic missile program as
Speaker 2: well as its naval fleet and attacked owns. Here is Rubio.
Speaker 4: No matter what, Ultimately this operation needed to happen. That's
Speaker 4: the question of why now. But this operation needed to
Speaker 4: happen because Iran in about a year or a year
Speaker 4: and a half would cross the line of immunity, meaning
Speaker 4: they would have so many short range missiles, so many
Speaker 4: drones that no one could do anything about it because
Speaker 4: they could hold the whole world hostage. Look at the
Speaker 4: damage they're doing now and this is a weekend Iran,
Speaker 4: imagine a year from now.
Speaker 1: So that had to happen.
Speaker 2: That a Secretary of State Marco Rubio, And it helps
Speaker 2: set up our conversation with Mona Yakubian. Mona is the
Speaker 2: director and Senior Advisor of the Middle East Program at CSIS.
Speaker 2: She spoke to Bloomberg TV host Devon Mann and David Nglaize,
Speaker 2: and Devon started the conversation with a question on the
Speaker 2: rationale behind the US and Israel striking Iran over the weekend.
Speaker 5: I think there's still a very disturbing lack of clarity
Speaker 5: as to the rationale. I mean, we've heard numerous reasons raised,
Speaker 5: from Iran's nuclear and ballistic missile capabilities to addressing the
Speaker 5: leadership in Iran, et cetera. None of it really seems
Speaker 5: to make sense in terms of available intelligence reporting, none
Speaker 5: of which points to an imminent threat. And therefore this
Speaker 5: really looks more to have been a war of choice
Speaker 5: rather than a war of necessity. And we are seeing
Speaker 5: play out now, just entering the fourth day of this conflict,
Speaker 5: the multiple downside risks from energy market hits, to US
Speaker 5: soldiers being killed in combat, to security risks, and American
Speaker 5: embassies being targeted to multiple countries now becoming embroiled in
Speaker 5: this conflict. We are truly watching a region wide conflagration
Speaker 5: unfold before our eyes.
Speaker 6: So i'mon, among the many risks, what do you think
Speaker 6: is most pertinent at the moment? If I know, that's
Speaker 6: almost an impossible question to isolate that, But where do
Speaker 6: I need to be looking?
Speaker 1: Well?
Speaker 5: I think the energy markets are in particular significant given
Speaker 5: this part of the world's crucial role in both oil
Speaker 5: and gas markets, and your analyst that was on before me,
Speaker 5: was laying down these historic jumps in gas prices. I
Speaker 5: think The problem is we don't know the duration of
Speaker 5: this conflict obviously, and frankly, it's very hard to imagine
Speaker 5: that this is going to be a replay of the twelve.
Speaker 1: Day war that we saw this past June.
Speaker 5: This is far more complex and involves far many more countries,
Speaker 5: and of course, with the assassination of the Supreme Leader
Speaker 5: and questions about who's even in charge in Iran and
Speaker 5: what's Iran's risk tolerance? I would argue Iran's risk tolerance
Speaker 5: is very high because they are facing existential threats. And
Speaker 5: so if we are watching something that could last for
Speaker 5: weeks and maybe even months, that is going to have
Speaker 5: enormous reverberations across global energy and shipping markets. And of
Speaker 5: course we also have to look at lives that are
Speaker 5: at risk across the region.
Speaker 6: I mean, might not want to pick up on that
Speaker 6: this now involves many other parties. Might be a dumb question.
Speaker 2: I don't know.
Speaker 6: I don't have the answer. Why is Iran bombing its neighbors?
Speaker 6: So I get why, I get why they would target
Speaker 6: places with US basis, but Dubai for example, and how
Speaker 6: does that then affect those regional powers in their response
Speaker 6: to Iran I mean, I.
Speaker 1: Think there are two ways to look at it. You're
Speaker 1: absolutely right, David.
Speaker 5: I mean, on the face of it, they've managed to
Speaker 5: galvanize these Gulf countries frankly against Iran.
Speaker 1: Iran is now completely alone.
Speaker 5: These are countries that were advocating against conflict against it
Speaker 5: with Iran, and so in a way it does look
Speaker 5: sort of fool hardly, foolhardy and hard to understand.
Speaker 1: On the other hand, if for Iran.
Speaker 5: The stakes are existential, then at this point I think
Speaker 5: they are making a gamble that they are going to
Speaker 5: race up the escalation ladder and impose higher costs and
Speaker 5: sort of in a way, invite.
Speaker 1: A prolonged conflict.
Speaker 5: And that's exactly what they're doing, perhaps with the calculation
Speaker 5: that ultimately, especially these energy producing Gulf countries are going
Speaker 5: to really push hard on the United States to find
Speaker 5: an off ram to de escalate this conflict because of
Speaker 5: the disruption that it is causing. So in a way,
Speaker 5: Iran is taking a sort of an asymmetric approach to this.
Speaker 7: We've been talking about a lot about the risk of
Speaker 7: a more wider regional war. I'm just wondering in terms
Speaker 7: of the Iran proxies right that the Hufis, the hes Blahs.
Speaker 7: You know, does Iran have a can maintain control of
Speaker 7: some of these groups here right now or is there
Speaker 7: actually a chance that they could actually mobilize.
Speaker 5: Well, it's really interesting on I mean, we just saw
Speaker 5: in the last twenty four hours, among the different types
Speaker 5: of escalation that we've witnessed is the more intensive use.
Speaker 1: Of Iran's proxies.
Speaker 5: We see this most notably in Lebanon, where Hezbollah, which
Speaker 5: frankly is under greater Iranian influence than it's ever been
Speaker 5: undertook rocket attacks against Israel quite frankly, relatively weak rocket attacks.
Speaker 1: They didn't cause any damage.
Speaker 5: But this has now brought an onslaught an offensive by
Speaker 5: Israel against Lebanon, and so we'll have to see how
Speaker 5: that evolves. I think the key proxy that has yet
Speaker 5: to really raise its head again are the Houthis, and
Speaker 5: that will be significant if the Houthis choose to get involved.
Speaker 5: Should they seek to re start attacks on shipping in
Speaker 5: the Red Sea to snarl the Babel Mendeb, another critical
Speaker 5: choke point in the area, then I think we could
Speaker 5: see the disruptions that were already watching unfold grow exponentially,
Speaker 5: and this could have an enormous impact not only on
Speaker 5: the region but globally.
Speaker 6: Mona, just quickly, if you could, where does this leave
Speaker 6: the nuclear assets or the ability to specify the ability
Speaker 6: of Iran to enrich to a certain level, and do
Speaker 6: we circle back to a negotiating table at some point
Speaker 6: here on those.
Speaker 5: Well, David, I mean there were already questions as to
Speaker 5: whether or not Iran had started to move back toward
Speaker 5: restarting its nuclear program. The program, the facilities certainly sustained
Speaker 5: significant damage in the US and Israeli strikes this past summer,
Speaker 5: and so there was no suggestion that Iran's ability to
Speaker 5: begin enriching uranium again was imminent. Perhaps they were looking
Speaker 5: to restart or start to repair those facilities, as some
Speaker 5: of the imagery is showing. The US has gone back
Speaker 5: and hit some of these sites again, the US and
Speaker 5: israel I should say, and so I think Iran's nuclear
Speaker 5: capability remain dramatically curtailed.
Speaker 2: That was Mona Yakoubian, director and Senior Advisor of the
Speaker 2: Middle East Program at CSIS, speaking with Bloomberg TV host
Speaker 2: Von Mann and David Nglace, bringing you their conversation here
Speaker 2: on the Daybreak Asia podcast. Thanks for listening to today's
Speaker 2: episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,
Speaker 2: we look at the story shaping markets, finance, and geopolitics
Speaker 2: in the Asia Pacific. You can find us on Apple, Spotify,
Speaker 2: the Bloomberg Podcast YouTube channel, or anywhere else you listen.
Speaker 2: Join us again tomorrow for insight on the market moves
Speaker 2: from Hong Kong to Singapore and Australia. I'm Doug Prisoner
Speaker 2: and this is Bloomberg