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

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Speaker 2: We could call it a tremendous success right now as

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Speaker 2: we leave here, I could call.

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Speaker 3: It, or we could go further, and we're going to

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Speaker 3: go further.

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Speaker 4: President Trump began to signal on Monday that the US

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Speaker 4: had already achieved victory in Iran, saying in a press

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Speaker 4: conference that evening that the war will end quote very

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Speaker 4: soon Sundays.

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Speaker 3: I think soon, okay, and very soon.

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Speaker 4: The comments triggered a twenty five percent drop in crude

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Speaker 4: oil prices, bringing some relief to the global economy, after

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Speaker 4: oil had searched to a four year high of nearly

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Speaker 4: one hundred and twenty dollars a barrel overnight Sunday into Monday.

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Speaker 2: The mote we spend on energy the last that we

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Speaker 2: spend off something else.

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Speaker 4: Even though the spike in oil prices was brief, Bloomberg

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Speaker 4: Opinions Javier Blast says that sustained high oil prices can

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Speaker 4: quickly become an issue for the US and for global economies.

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Speaker 2: If it's a few days, no problem. Is a few day,

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Speaker 2: a few weeks, it starts to be a problem. If

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Speaker 2: it's a few months, certainly it is a problem. It's

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Speaker 2: not just gasoline, but the bigger impact, the more potentially

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Speaker 2: damaging for inflation, is that everything else needs to be

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Speaker 2: reprised at the higher level. Because everything gets transported. The

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Speaker 2: uber driver is spending more money into gasoline, that fares

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Speaker 2: needs to go up.

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Speaker 3: Jet fuel goes higher. Every airline in.

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Speaker 2: The world increase their first But also think about the supermarket.

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Speaker 2: If the cost of transportation of groceries go up, and

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Speaker 2: that means that at some point the grocery costs have

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Speaker 2: to go higher.

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Speaker 4: The jump in oil prices is due to a near

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Speaker 4: standstill in the Strait of Hormuz, a crucial shipping lane

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Speaker 4: off the coast of Iran where twenty percent of the

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Speaker 4: world's oil is transported. Now. Trump has suggested the US

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Speaker 4: can offer oil tankers safe passage through the strait, but

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Speaker 4: oil supply will likely be constrained for as long as

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Speaker 4: the conflict drags out. That's in part by design, as

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Speaker 4: that's one of Iran's major points of leverage.

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Speaker 2: Unless the traffic on the Street of Hormones restart, the

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Speaker 2: prices are going to go creeping higher and higher, and

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Speaker 2: that's bad news for the economy. But it's also bad

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Speaker 2: news politically, President Trump doesn't want to be fighting mid

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Speaker 2: channelations with those kinds of prices because the price of

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Speaker 2: gasoline is also very visible and it has this kind

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Speaker 2: of magnifying impact.

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Speaker 4: I'm Stacey Mannix Smith and for Sarah Holder and David Gora,

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Speaker 4: and this is the big take from Bloomberg News, sitting

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Speaker 4: on the show, why the global economy is so sensitive

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Speaker 4: to oil hitting one hundred dollars a barrel and how

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Speaker 4: long the impact of even a brief spike could last heavier.

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Speaker 4: You watched the price of oil a lot, and you

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Speaker 4: spend a lot of time thinking about the implications all

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Speaker 4: over the world. When you saw oil go up over

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Speaker 4: one hundred dollars a barrel?

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Speaker 3: What went through your My day is ruined?

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Speaker 2: What mean?

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Speaker 4: What do you mean your days?

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Speaker 3: Right?

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Speaker 2: Well, the market the market reopened on Sunday at ten

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Speaker 2: o'clock at night in the evening here in London when

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Speaker 2: I'm based, so I was watching the market reopen. I

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Speaker 2: was expecting more or less one hundred dollars oil almost

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Speaker 2: immediately because I was talking to traders, I knew were

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Speaker 2: more or less where everyone was going to go into

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Speaker 2: the opening. I mean, what is the difference between ninety

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Speaker 2: nine and a half and a hundred. Well, it's not

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Speaker 2: a triple digit. It's completely psychological. But I know that

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Speaker 2: the moment that we hit one hundred dollars is on

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Speaker 2: every news bulletin at night on television. Everyone is worry

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Speaker 2: My dad is funny me and saying, trul I buy

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Speaker 2: more petrol for the more gasoline for the car. Everyone

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Speaker 2: is talking immediately about oil, and that means that the

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Speaker 2: stock market probably is going to go down. The bond

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Speaker 2: market is going to also suffer.

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Speaker 1: It.

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Speaker 2: Just one hundred dollars oil put oil absolutely center of

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Speaker 2: the global economy. You think about the last time that

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Speaker 2: we have high oil prices was in twenty twenty two,

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Speaker 2: after Russia in Bay Ukraine. I was checking before I

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Speaker 2: came to the studio. How many days in twenty twenty

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Speaker 2: two the price of oil close at the end of

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Speaker 2: the day about one hundred dollars a barrel. One hundred

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Speaker 2: and ten days we so far on these crisis have

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Speaker 2: yet to get. At the time that we are recording this,

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Speaker 2: we have yet to see a closing price above one

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Speaker 2: hundred dollars. You know, we need many, many, many days

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Speaker 2: of one hundred dollars plus to really damage the economy.

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Speaker 2: So we are really at the beginning of this. If

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Speaker 2: three months from now we are still talking about this,

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Speaker 2: then certainly we have a problem.

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Speaker 4: Why is this conflict and this little passageway between the

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Speaker 4: Persian Gulf and the Arabian Sea, why is that able

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Speaker 4: to have such a huge, huge impact on global prices.

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Speaker 2: Well, there are three reasons why the crisis is having

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Speaker 2: such an impact on the market. One is that around

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Speaker 2: that body of water we have some of the world's

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Speaker 2: largest oil producing countries Saudi Arabia, kube iraq Iran, Katar,

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Speaker 2: the United Arab Emids, Barraying. These are the kind of

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Speaker 2: countries that they are associated with oil productions. Then it's

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Speaker 2: a very narrow straight The channel on the water where

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Speaker 2: the vessels, the big oil tankers can go is only

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Speaker 2: two miles wide. It is really really narrow.

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Speaker 4: Have you seen it.

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Speaker 2: I have seen it. I've been in the street the Hormones.

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Speaker 2: I have been with a small boat going in and out.

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Speaker 2: And you know, the tankers are humungous. I mean we

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Speaker 2: are talking about about three hundred and fifty meters long tankers.

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Speaker 2: I mean each tanker carries about two million barrels of

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Speaker 2: oil which is enough to supply for a full day

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Speaker 2: a country like France, So it is narrow, and then

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Speaker 2: you cannot really bypass in size is twenty million borrowers

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Speaker 2: a day of crude oil and refine products. We have

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Speaker 2: some bypass options, but they give us about seven million

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Speaker 2: borrowers a day of bypass at best. So even if

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Speaker 2: you get all the bypass working, you can't buy pass

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Speaker 2: about a third, but you still have two thirds of problem. Typically,

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Speaker 2: when we have a problem with oil production anywhere in

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Speaker 2: the world, we say, okay, can we tap the spear capacity.

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Speaker 2: So say that we have a hurricane hitting the Gulf

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Speaker 2: course in the United States and we lose production. We

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Speaker 2: lose a million barrooers a day. It has happened in

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Speaker 2: the past over the last twenty years a couple of times.

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Speaker 2: So Saudi arabi are ramp up production and offset that lost.

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Speaker 2: The main problem is that all the spare capacity is

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Speaker 2: concentrated inside the Strait of Hormuz. Now you cannot go

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Speaker 2: to Saudi Arabia because they cannot get the barrels out,

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Speaker 2: and that's really what is exacerbating the crisis.

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Speaker 4: I wanted to run some basic math by you, so

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Speaker 4: I spoke over the weekend with Christopher Knittl. He's an

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Speaker 4: energy economist at MIT, and he gave me this kind

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Speaker 4: of useful equation that I wanted to run by you.

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Speaker 1: So a good rule of thumb is every ten dollars

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Speaker 1: increase in the price of oil raises our gas prices by.

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Speaker 3: About twenty cents. Yeah, that's about right.

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Speaker 2: That's a very well known back of the envelope, Matt,

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Speaker 2: that you could use in the industry. As always, this

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Speaker 2: is a rough estimate.

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Speaker 4: Oil before the conflict, I think was it around sixty

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Speaker 4: five ish dollars a barrel?

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Speaker 2: Is that right?

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Speaker 3: Yeah?

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Speaker 4: What is it now?

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Speaker 3: We had at the ataight?

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Speaker 4: Actually, okay, so eighty eight, Like, that's roughly twenty dollars

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Speaker 4: a barrel more than it was before the conflict. So

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Speaker 4: that would be roughly forty cents a gallon more.

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Speaker 2: Yeah, that's about forty cents a gallon mode And that's

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Speaker 2: more or less what we have seen already happening on

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Speaker 2: the market and the US gasoline price it just goes immediately.

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Speaker 2: There are other countries, particularly in Europe, where taxes are

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Speaker 2: very important on price formation for gasoline, but in the

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Speaker 2: US they really they drive it feel the impact of

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Speaker 2: the oil market literally the following morning.

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Speaker 4: Well, it was interesting because when I spoke with Knittl,

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Speaker 4: he was actually driving and he was actually thinking about

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Speaker 4: gas prices as well. He was mapping out his trip.

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Speaker 3: I got it in.

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Speaker 1: Two Sparry, Massachusetts, and it was three dollars ninety nine cents.

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Speaker 4: Again, WHOA, what did you think when you were filling

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Speaker 4: up your car?

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Speaker 1: I actually didn't fill up all the way because I

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Speaker 1: know I'm going to be stopping later where I'm in

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Speaker 1: New Hampshire, where I'm expecting it to be much lower.

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Speaker 4: So this is apparently happening all over the country. People

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Speaker 4: are kind of mapping out their trips and thinking about

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Speaker 4: gas prices all the time. What other prices might we

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Speaker 4: see go up in addition to gas prices.

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Speaker 2: If the conflict lasts, and I think that that's the

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Speaker 2: big if I mean we were to be in a

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Speaker 2: situation of many, many many weeks, I will start really

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Speaker 2: getting worried about diesel easily is important because of the

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Speaker 2: freight industry, transportation, all those big trucks service in everything else,

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Speaker 2: So groceries that will go up over time. Inside the

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Speaker 2: Strada Hormuz area we have not only lost production of

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Speaker 2: crude oil, we have also lost production of refined products

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Speaker 2: and a number of refineries and one.

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Speaker 4: Fuel, gasoline, like all the things that come from.

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Speaker 2: All all all those kind of things that they come

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Speaker 2: from the barrel, but we rely a lot in certain

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Speaker 2: parts of the world. We rely a lot of from

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Speaker 2: that that region refining capacity for get fuel. So I'm

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Speaker 2: expecting the first impact that we're going to see all

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Speaker 2: of us the price of gasoline. Second impact traveling around

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Speaker 2: holiday summer airfares, they're gonna go up.

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Speaker 3: HM.

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Speaker 4: Take Asia right now, like, what is the situation there?

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Speaker 1: Is?

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Speaker 4: Their situation the same as we're seeing in the US.

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Speaker 4: Ors is different.

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Speaker 2: It's worse, much worse than the United States because Asia

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Speaker 2: relies on the Middle East a lot for the oil.

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Speaker 2: In in the oil market, we talk about being priced

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Speaker 2: out from the market. We have less supply, so we

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Speaker 2: need to destroy some demand. And typically that demand destruction

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Speaker 2: happens in poorer countries that they don't have The citizens

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Speaker 2: don't have exactly the same money to keep up with

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Speaker 2: every other person in every other country that is happy.

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Speaker 2: It's not happy, it's unhappy paying the high price. But

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Speaker 2: they can't afford it, So places like Bangladesh, Pakistan, other place, Vietnam, Philippines.

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Speaker 2: In Asia, we are beginning to see demand destruction via

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Speaker 2: you know, there is less oil, there is less gasoline.

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Speaker 3: Diesel, et cetera, et cetera.

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Speaker 2: So governments have to announce some measures like you know,

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Speaker 2: asking citizens not to travel too much, et cetera, et cetera.

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Speaker 2: So in Asia is really where where this crisis is

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Speaker 2: hitting harder.

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Speaker 4: How have the markets been reacting to these kind of increases?

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Speaker 4: In all this volatility in the price of oil, it has.

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Speaker 2: Been a wild period on the market. We have seen

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Speaker 2: trade range in one single day where the price of

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Speaker 2: oil at the lowest point of the day compared to

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Speaker 2: the highest point of the day will be more than

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Speaker 2: thirty dollars. That is very unusual. I have been covering

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Speaker 2: this market for twenty five years. I have seen that

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Speaker 2: a couple of times on my career. I mean, there's

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Speaker 2: a lot of tension on the market. We see the

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Speaker 2: price at times reacting five six, seven, eight percent using

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Speaker 2: like two three seconds because a headline has flashed on

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Speaker 2: the screens of oil traders saying that you know, Iran

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Speaker 2: has done that, or the United States is saying that,

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Speaker 2: do you see the.

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Speaker 4: Markets pricing in a long term conflict or do the

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Speaker 4: market seem to think it's going to be pretty short lived?

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Speaker 2: Now at the moment, the market is pricing a very

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Speaker 2: short conflict. If the market was pricing a long conflict

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Speaker 2: measured in months rather than days, we will be trading

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Speaker 2: above one hundred and fifty dollars.

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Speaker 4: After the break. What happens if this conflict stretches out

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Speaker 4: for weeks or even months? And how hard will it

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Speaker 4: be to bring prices back down? Have you we talked

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Speaker 4: about the possible reverberations of high oil prices around the

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Speaker 4: global economy. Let's talk about some of the fallout we

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Speaker 4: could see from all of that, from that chain reaction.

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Speaker 4: First of all, one of the things that's been coming

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Speaker 4: up a lot is US treasuries, US treasury bonds. Is

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Speaker 4: this conflict destructive or helpful for US treasuries? What have

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Speaker 4: we been seeing?

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Speaker 2: We are a week and a half into the conflict.

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Speaker 2: For getting really too painful action to the treasury market

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Speaker 2: or even the dollar, we will need many, many.

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Speaker 3: Weeks of the conflict and very high prices.

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Speaker 4: We talked about the relationship between oil prices and the

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Speaker 4: cost of gas, also the cost of goods and services,

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Speaker 4: and the increased volatility in the market. So if the

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Speaker 4: conflict ended tomorrow, how long would it take for things

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Speaker 4: to come back down in cost, the price of oil

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Speaker 4: to restabilize, and the price of gas to come back

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Speaker 4: down to where it was before the conflict.

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Speaker 2: It's always it goes up very fast and it comes

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Speaker 2: down a bit slower. But in the US typically that

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Speaker 2: process is very quick, So you know at most a

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Speaker 2: week of a difference between the price of oil coming

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Speaker 2: down and the price of gasoline coming down.

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Speaker 4: If it goes on a little longer, might it take

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Speaker 4: longer for the price to fall. One of the things

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Speaker 4: that Chris Knittle told me from the road was that

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Speaker 4: there's something called the rocket and feather phenomenon.

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Speaker 1: Gas prices tracked oil prices almost immediately when oil prices

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Speaker 1: are going up.

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Speaker 3: But then when oil prices are going down.

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Speaker 1: Oh wo behind, And we called the rockets the rockets

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Speaker 1: and feathers phenomenon.

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Speaker 4: So that's I guess, the idea that when oil prices

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Speaker 4: go up, gas prices go up really fast, almost in tandem.

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Speaker 4: But sometimes when oil prices fall, gas prices take their

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Speaker 4: sweet time following.

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Speaker 2: It's almost more than a feather. I think it's a

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Speaker 2: feather with a parachute. At times it takes you know,

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Speaker 2: not a few hours, it takes maybe a week, but

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Speaker 2: we are talking about a week. I mean, I will

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Speaker 2: be concerned is if we have, say three months of

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Speaker 2: high prices, because it filters around the economy and then

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Speaker 2: you know, will a supermarket I have to increase my

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Speaker 2: box of cereals, Will they immediately lower the prices? No,

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Speaker 2: because they have to go through that All that is

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Speaker 2: talk that was transported by that track where the frame

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Speaker 2: was more expensive, and that's where things take a bit

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Speaker 2: more time. But we are not really there yet in

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Speaker 2: terms of those kinds of impacts.

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Speaker 4: I mean, that's that delay in the return to normal.

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Speaker 4: If the conflict isn't resolved in days, that does seem

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Speaker 4: like a really big political risk for President Trump. I mean,

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Speaker 4: if gas prices stay high through the end of the year,

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Speaker 4: even I mean that would go through the midterm elections.

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Speaker 4: I mean, how might that impact Trump's party, the Republicans,

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Speaker 4: and that midterm election.

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Speaker 2: It is one of the reasons that I have been

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Speaker 2: skeptical that this is gonna go for loan I have

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Speaker 2: taken ABEU that this is not gonna turn into an

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Speaker 2: energy crisis. And the main reason for that is because

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Speaker 2: I don't think that President Trump wants that, and I

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Speaker 2: don't think that politically he can afford it. So sometimes

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Speaker 2: when something cannot be possible, it's just not gonna happen.

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Speaker 2: I think that at some point President Trump will declare pictory,

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Speaker 2: whether that's right or not.

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Speaker 3: He will say, look, we achieve awad objectis.

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Speaker 2: With the stoylot of the missiles, the drones, the navy,

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Speaker 2: the supreme leader is gone. I won't of course, one

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Speaker 2: knows how he starts at war, but it doesn't know

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Speaker 2: how it's gonna finish it. Because the Iranians have a

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Speaker 2: boat here. President Trump made a clear victory and say

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Speaker 2: I'm done. I'm not gonna fight anymore. You know we

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Speaker 2: we we got what we wanted. And the Iranians may say, well,

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Speaker 2: actually we don't. I mean like, we're gonna continue hitting

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Speaker 2: you with missiles and we're gonna make the life of

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Speaker 2: the oil tankers in the the Hormones impossible.

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Speaker 4: Is there anything the US can do to bring down

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Speaker 4: oil prices if the conflict does not wrap up quickly?

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Speaker 2: Naval escortes through the Strada hormones. At a possibility, the

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Speaker 2: United States can use the Navy to protect oil tankets

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Speaker 2: crossing the Strada hormones.

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Speaker 3: That has been done in the past.

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Speaker 2: It's possible, but it's very risky and it probably will

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Speaker 2: put American lives and military assets at risk, and it

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Speaker 2: may not completely work.

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Speaker 3: So that's one option.

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Speaker 2: The other option is that the United States can release

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Speaker 2: that is, to take petroleum reserves, and that will really

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Speaker 2: float the market, bring the prices down for a while,

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Speaker 2: et cetera, et cetera.

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Speaker 4: President Trump said the war objectives were largely complete and

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Speaker 4: oil did fall. It went down to less than hundred

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Speaker 4: ninety dollars a barrel. Is that a signal that he's

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Speaker 4: feeling the pressure of high oil prices and can he

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Speaker 4: keep talking oil down?

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Speaker 2: The White House started really to try to toll down

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Speaker 2: the market over the last couple of days, very very heavily.

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Speaker 2: So as an indication that close to one hundred dollars

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Speaker 2: it starts to be painful. I think there's also you're

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Speaker 2: gonna see countries like China, Japan, some of the Europeans,

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Speaker 2: India certainly fonding the White House and saying the White House,

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Speaker 2: I mean the ha White House team around the president.

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Speaker 2: What's going on, what's the plan? Uh, this is bad

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Speaker 2: for our economies. So I think that that's one one

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Speaker 2: of the questions. But the reaction of the market also,

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Speaker 2: it was very interesting because it really indicates to us

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Speaker 2: that the moment that the war is over, prices can

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Speaker 2: go down quite rapidly. And this is the whole premise

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Speaker 2: of the White House right now. The messaging is, yes,

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Speaker 2: we know, prices are high. We knew this was going

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Speaker 2: to happen. I have some questions mark about whether they

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Speaker 2: really anticipated that we were gonna go all waight to

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Speaker 2: weight one hundred dollars. But the messaging is, yes, we know,

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Speaker 2: we hear you. But this is gonna be over soon,

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Speaker 2: and when it's over, the prices are gonna go down sharply.

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Speaker 2: I think largely is true, provided that the war really

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Speaker 2: ends soon and I mean days rather than many weeks,

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Speaker 2: and certainly not months. And it's true as far as

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Speaker 2: Iran doesn't damage any production facilities, because at the moment,

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Speaker 2: all what we have is a blockade on the straight

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Speaker 2: of hormones. But nothing is run with oil production facilities.

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Speaker 2: Everything is working, some of the vessels are already loaded

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Speaker 2: with glude oil ready to go the moment that reopens.

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Speaker 3: So I think that it is true.

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Speaker 2: But if Iran was to attack oil fields or oil

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Speaker 2: terminals and destroy them, that will be a complete different

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Speaker 2: scenario because that will mean that when the war ends,

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Speaker 2: we don't have a quick restart production and esports, and

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Speaker 2: that will be a big problem.

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