WEBVTT - Countdown to a Global Energy Shock 0:00:02.720 --> 0:00:07.240 Bloomberg Audio Studios, podcasts, radio news. 0:00:08.240 --> 0:00:12.920 We have the strongest and most powerful by far military 0:00:12.960 --> 0:00:18.280 in the world, and we will easily prevail. We're already 0:00:19.040 --> 0:00:23.200 substantially ahead of our time projections. But whatever the time is, 0:00:23.520 --> 0:00:24.920 it's okay, whatever it takes. 0:00:34.520 --> 0:00:37.840 I'm Stephanie Flanders, head of Government and Economics at Bloomberg, 0:00:38.120 --> 0:00:40.640 and this is Trumponomics, the podcast that looks at the 0:00:40.760 --> 0:00:44.360 economic world of Donald Trump, how he's already shaped the 0:00:44.360 --> 0:00:47.600 global economy and what on earth is going to happen next. 0:00:50.080 --> 0:00:54.400 One common element of that Trump shaped economy is there's 0:00:54.440 --> 0:00:58.560 a wide range of possible outcomes. Recording this Wednesday morning 0:00:58.600 --> 0:01:02.320 in Europe, the range of potential consequences from the conflict 0:01:02.400 --> 0:01:06.040 underway between the US and Israel and Iran looks about 0:01:06.080 --> 0:01:08.800 as wide as it could be. And we're focused for 0:01:08.840 --> 0:01:11.440 the next twenty five minutes or so on just the 0:01:11.480 --> 0:01:15.160 economic piece of that. The human and social impacts we 0:01:15.280 --> 0:01:18.520 leave to others. But since America's first strike on Iran 0:01:18.600 --> 0:01:21.640 on Saturday, oil and gas traders have watched us in 0:01:21.720 --> 0:01:25.319 many ways, the worst case scenario unfolded for Middle East 0:01:25.400 --> 0:01:30.240 energy supplies. That critical strait of Hormus is effectively paralyzed. 0:01:30.880 --> 0:01:35.240 Saudi Arabia's largest oil refinery is closed, and Iranian missiles 0:01:35.280 --> 0:01:38.800 and drones have shut down the largest liquefied natural gas 0:01:38.800 --> 0:01:43.520 refinery on the planet in Katar. Predictably, oil and especially 0:01:43.560 --> 0:01:47.240 gas prices have jumped, stocks have taken a hit, and 0:01:47.280 --> 0:01:50.360 long term interest rates have jumped as traders see less 0:01:50.440 --> 0:01:53.720 chance of further cuts from central banks. All of that 0:01:54.440 --> 0:01:57.960 could deal a severe blow to the global economy at 0:01:57.960 --> 0:02:01.960 an already uncertain time. But what matters, of course, is 0:02:02.000 --> 0:02:04.800 what happens from here. As I record this, it still 0:02:04.840 --> 0:02:09.040 seems perfectly possible that Washington and Tehran will somehow find 0:02:09.080 --> 0:02:12.280 an off ramp, oil will settle back to its pre 0:02:12.400 --> 0:02:16.080 conflict average of around sixty five dollars a barrel, and 0:02:16.120 --> 0:02:19.240 the global economy will dodge a blow. But as you're 0:02:19.280 --> 0:02:22.160 hearing this conversation I had on Tuesday with two of 0:02:22.200 --> 0:02:26.639 Bloomberg's sharpest analysts, there are some much darker scenarios out 0:02:26.680 --> 0:02:29.240 there which could be a lot more damaging, especially for 0:02:29.280 --> 0:02:32.519 countries without a lot of backup plans. That's one lesson 0:02:32.680 --> 0:02:36.000 I took from this discussion that the negative impacts of 0:02:36.040 --> 0:02:39.920 this mess will not land evenly and may indeed land 0:02:40.040 --> 0:02:44.000 especially heavily on some key American allies Europe for one, 0:02:44.400 --> 0:02:50.520 but interestingly also South Korea, Taiwan. Russia, by contrast, emerges 0:02:50.560 --> 0:02:53.839 as a big winner both its budget and its war 0:02:53.880 --> 0:02:58.760 effort in Ukraine another lesson, It really matters how quickly 0:02:58.880 --> 0:03:01.120 the US can reopen the straight of home. 0:03:01.040 --> 0:03:01.880 Moves with me. 0:03:02.240 --> 0:03:05.480 I'm delighted to say Javier blast is back Bloomberg opinion 0:03:05.480 --> 0:03:08.919 columnists covering energy and commodities for Bloomberg and the co 0:03:09.000 --> 0:03:12.760 author of the World for Sale, Money Power and the 0:03:12.800 --> 0:03:16.320 Traders who barter the Earth's resources. Have you? Thank you 0:03:16.560 --> 0:03:18.480 very much. This almost smoke coming out of your ears 0:03:18.520 --> 0:03:20.040 because I know you've been working very hard the last 0:03:20.040 --> 0:03:21.360 few days, but I really appreciate you. 0:03:21.600 --> 0:03:23.360 Thank you for having me and did. 0:03:23.360 --> 0:03:27.800 Dubai Zi Daoud, chief Emerging market's economists for Bloomberg Economics, 0:03:27.840 --> 0:03:30.880 also a regular guest on this show, So yeah'd love 0:03:30.880 --> 0:03:31.360 you to see you. 0:03:31.720 --> 0:03:32.600 Wonderful to be here. 0:03:35.080 --> 0:03:39.320 We're going to talk about the sort of shortish term 0:03:39.360 --> 0:03:42.920 economic impact for the sort of broader economy around the 0:03:42.960 --> 0:03:46.080 world and also for oil markets in particular, and then 0:03:46.120 --> 0:03:48.600 maybe get into some of the sort of longer term stuff. 0:03:48.600 --> 0:03:51.200 But zied I know we have what we call this 0:03:51.400 --> 0:03:55.880 global shock model, which allows you to put different scenarios 0:03:55.920 --> 0:03:59.240 for the global economy into the model and work out 0:03:59.240 --> 0:04:01.960 what the impact is. For example, this kind of increase 0:04:02.000 --> 0:04:05.040 in energy prices, what do we get if we just 0:04:05.480 --> 0:04:08.000 feed in what's happened in the last few days and 0:04:08.440 --> 0:04:10.200 assume that it sticks around for a while. 0:04:10.600 --> 0:04:12.760 We'd publish a piece on this with my colleagues Jamie 0:04:12.840 --> 0:04:15.160 Russi and Beyond fa Envoy and actually spend some time 0:04:15.200 --> 0:04:17.280 before coming to the podcast playing some more of the 0:04:17.320 --> 0:04:17.919 shock model. 0:04:18.440 --> 0:04:19.520 And here's the conclusion. 0:04:20.160 --> 0:04:23.120 It is very, very hard to generate a significant recession 0:04:23.440 --> 0:04:25.560 in the US with all prices alone. 0:04:25.839 --> 0:04:26.719 Yes, you can get. 0:04:26.560 --> 0:04:29.800 Two consecutive quarters of negative growth, but the magnitude is 0:04:29.880 --> 0:04:33.119 rather small. So for the US, the shock from oil 0:04:33.320 --> 0:04:35.679 is not a growth shock. It's more of an inflation shock. 0:04:36.160 --> 0:04:39.039 That is different to other countries in the UK, in 0:04:39.080 --> 0:04:42.360 the Euro Area, in China and possibly and even in India, 0:04:43.320 --> 0:04:46.960 oil prices would mean slower growth and it'd mean higher inflation. 0:04:47.440 --> 0:04:49.680 You almost sound disappointed in saying you just haven't been 0:04:49.720 --> 0:04:51.560 able to get a recession out of this. No, matter 0:04:51.560 --> 0:04:54.279 how hard you tried with the model. We're very glad 0:04:54.279 --> 0:04:55.919 obviously that we don't get a recession out of this, 0:04:56.160 --> 0:04:58.640 But what are we looking at in terms of inflation, 0:04:59.000 --> 0:05:01.760 say in Europe the UK as a result of this 0:05:01.839 --> 0:05:03.000 and the impact on growth. 0:05:03.400 --> 0:05:06.480 So if we plugging an extreme ore price increase, which 0:05:06.520 --> 0:05:09.200 is one hundred and eight dollars all price, if you're 0:05:09.200 --> 0:05:11.640 thinking about the euro Area and the UK, we're talking 0:05:11.680 --> 0:05:14.680 about a growth shock which is like half a percentage 0:05:14.720 --> 0:05:17.719 point at peak, and an inflation shock of around one 0:05:17.720 --> 0:05:21.160 percentage point. These are not exigible numbers, but you know, 0:05:21.720 --> 0:05:24.040 for the US is much smaller than what used to be. 0:05:24.200 --> 0:05:26.160 So it's depending on where you are. It's a kind 0:05:26.200 --> 0:05:29.320 of half a percentage point on the inflation rate, maybe 0:05:29.320 --> 0:05:31.280 a little bit more in the US, and then a 0:05:31.360 --> 0:05:33.920 sort of somewhat less than that on the growth rate, 0:05:34.000 --> 0:05:36.400 at least if you're in the Europe or UK. And 0:05:36.440 --> 0:05:38.880 I do notice one immediate result, which is a bit 0:05:38.920 --> 0:05:42.680 closer to home, is vestors were expecting and economists we 0:05:42.680 --> 0:05:46.560 were expecting a second interest rate cut this year in 0:05:46.640 --> 0:05:48.560 the UK, which will obviously would feed into a lot 0:05:48.560 --> 0:05:54.080 of people's mortgages, and as of today, there's almost no 0:05:54.160 --> 0:05:56.640 expectations that's going to happen in the next month. In 0:05:56.680 --> 0:06:00.880 the US is less affected because it might get the 0:06:00.920 --> 0:06:04.520 higher inflation, but then that would stimulate lots of those 0:06:05.080 --> 0:06:06.839 shale producers to get going. 0:06:07.839 --> 0:06:10.159 Yeah, so I think there's a lot of analogies to 0:06:10.200 --> 0:06:12.320 the Iraq War in two thousand and three. People are 0:06:12.360 --> 0:06:15.000 comparing the twenty twenty six war in Iran to the 0:06:15.040 --> 0:06:18.240 two thousand and three invasion of Iraq. One thing that 0:06:18.279 --> 0:06:21.520 has changed significantly in the US since then is positioned 0:06:21.560 --> 0:06:25.640 as a net oil exporter. In two thousand and three, 0:06:25.800 --> 0:06:29.680 the US was a huge net oil importer. Today is 0:06:29.720 --> 0:06:33.080 a small exporter. What that means is that when you 0:06:33.120 --> 0:06:35.719 get an all price shock, some segments of the US 0:06:35.720 --> 0:06:39.480 economy benefit from this. Now, I know the shock inaggurgate 0:06:39.560 --> 0:06:42.840 may not seem so big, by in economics these days 0:06:42.880 --> 0:06:45.599 we think about inequality as well, so it doesn't spread 0:06:45.600 --> 0:06:48.720 out evenly. The segments of the US economy that benefit 0:06:48.760 --> 0:06:52.800 from how all prices are energy companies. But there's a 0:06:52.880 --> 0:06:56.880 whole segment of consumers in the US who will suffer 0:06:56.920 --> 0:06:59.600 from how all prices. As fuel prices start to increase, 0:07:00.000 --> 0:07:03.160 there is an inequality effect here, and it matters. It 0:07:03.320 --> 0:07:06.839 matters because President Donald Trump when he came to office, 0:07:07.080 --> 0:07:10.200 if you think about his economic agenda, lower interesturation is 0:07:10.200 --> 0:07:13.440 definitely up there, and lower oil prices were there, and 0:07:13.480 --> 0:07:15.240 this war that's a threat to both. 0:07:15.720 --> 0:07:18.160 And we have certainly heard some concerns around that in 0:07:18.200 --> 0:07:21.200 the US, have you. A Ziah has mentioned one of 0:07:21.240 --> 0:07:23.880 the big things that means that we tend to say 0:07:23.960 --> 0:07:25.840 all price shocks and not what they used to be 0:07:26.560 --> 0:07:29.120 in their impact, namely that the US is now a 0:07:29.160 --> 0:07:32.480 big exporter of energy, is not nearly as reliant or 0:07:32.480 --> 0:07:35.800 at all reliant really on Middle East oil. But we 0:07:35.920 --> 0:07:39.560 are seeing a reaction in markets to the disruption on 0:07:39.600 --> 0:07:41.880 the straits of forem moves, which are still pretty important 0:07:41.920 --> 0:07:44.400 to the global economy. So what are the risks there? 0:07:44.400 --> 0:07:45.360 How are you looking at it? 0:07:45.600 --> 0:07:46.200 So far? 0:07:46.880 --> 0:07:50.280 So good or considered? I mean, you have asked me 0:07:50.760 --> 0:07:54.800 decay the goo tomind the market reaction to what has 0:07:54.920 --> 0:07:58.360 unfolded over the last few hours since Saturday. I will 0:07:58.360 --> 0:08:02.640 have expected much much higher oil prices, certainly about one 0:08:02.720 --> 0:08:06.000 hundred dollars by now. And I don't want to sound 0:08:06.000 --> 0:08:08.240 this as a celeboratory that it has not happened. I mean, 0:08:08.720 --> 0:08:11.920 the price of oil has increased quite significantly already. We 0:08:11.960 --> 0:08:14.720 are talking about already a ten to fifteen percent increase 0:08:15.040 --> 0:08:18.080 since the hostility started, and it's still early hours. 0:08:18.640 --> 0:08:20.560 I have kind of chwer scenarios on my mind. 0:08:20.600 --> 0:08:24.440 It's one that I'm not particularly concerned because we don't 0:08:24.480 --> 0:08:28.320 get two one hundred dollars, and if we get thereabout that, 0:08:28.440 --> 0:08:31.920 this is not like a long lasting price shock. We 0:08:32.000 --> 0:08:34.559 are eighty to one hundred for a couple of weeks. 0:08:34.679 --> 0:08:37.680 It's nothing for the global economy. I'm expecting still I 0:08:37.720 --> 0:08:41.080 get a lower mortgage rate this year. But this is 0:08:41.160 --> 0:08:44.520 a thing that the United States has four or five 0:08:44.640 --> 0:08:48.360 days to reopen the Stralia hormos before it gets really 0:08:48.400 --> 0:08:51.520 really ugly. I mean, we can all make worst cases 0:08:51.559 --> 0:08:54.400 scenarios and best cases scenarios. I mean, the best case 0:08:54.440 --> 0:08:57.200 scenario is that by the end of the week the 0:08:57.280 --> 0:08:59.920 oil market is lower because the Australia hormos has real 0:09:00.640 --> 0:09:04.200 The worlst case scenario is that these last three months 0:09:04.280 --> 0:09:06.520 and we don't get a drop of Middle East and 0:09:06.600 --> 0:09:09.880 oil on that period, in which case I don't want 0:09:09.880 --> 0:09:12.640 to give ideas, but I think that Siad needs to 0:09:12.679 --> 0:09:14.960 put an oil price on the shock model that it 0:09:15.000 --> 0:09:17.720 starts with a two and probably followed by a five 0:09:18.120 --> 0:09:18.880 and then a zerial. 0:09:18.960 --> 0:09:21.520 So I think lots of people are familiar with the 0:09:21.559 --> 0:09:23.839 shale revolution in the US and what that's done for 0:09:23.880 --> 0:09:25.400 the US, But a lot of people in the last 0:09:25.440 --> 0:09:28.040 few days have highlighted that China, for example, gets a 0:09:28.040 --> 0:09:34.000 significant chunk of its oil from Iran and India. Other 0:09:34.080 --> 0:09:39.280 countries also potentially quite reliant on straight to form moves 0:09:39.320 --> 0:09:44.920 for their oil. They also have more alternatives, alternative roots 0:09:44.960 --> 0:09:48.560 for the oil and also alternative sources of energy. 0:09:48.640 --> 0:09:49.480 Is that the difference. 0:09:50.240 --> 0:09:52.000 I think that we all have a skin on the 0:09:52.040 --> 0:09:54.040 game on the straight of hormones and what is happening 0:09:54.160 --> 0:09:57.120 just generally on the Middle East. Whatever you get the oil, 0:09:57.320 --> 0:09:59.400 it doesn't matter because it's going to be priced on 0:09:59.440 --> 0:10:02.360 a global market, and therefore you're affected by the same price. 0:10:02.400 --> 0:10:06.000 Even you are important or your oil say from Brazil 0:10:06.440 --> 0:10:09.800 far far away from the conflict across the Atlantic, you 0:10:09.880 --> 0:10:12.480 will be still paying a global pride that is determined 0:10:12.480 --> 0:10:14.000 by what is happening in the Middle East. 0:10:14.160 --> 0:10:16.400 So effectively everyone has the skin of the game. 0:10:16.760 --> 0:10:19.400 China is the largest buyer of crude oil from the 0:10:19.400 --> 0:10:22.280 Persian Gulf, so it has a lot of interest in 0:10:22.320 --> 0:10:26.560 that that remains open. And it was interesting that yesterday 0:10:26.640 --> 0:10:29.480 the Chinese authorities were on the phone with the Iranian 0:10:29.600 --> 0:10:33.800 authorities and this morning Beijing has pood estainment just basically 0:10:33.840 --> 0:10:36.560 reiterating we want to see the street hormones open. Of 0:10:36.559 --> 0:10:38.560 course it was a Chinese statement, so it was on 0:10:38.600 --> 0:10:41.079 the one hand, on the other just basically as all 0:10:41.120 --> 0:10:44.080 the parties, including the United States, to stop bombing each other. 0:10:44.400 --> 0:10:47.480 But the focus on the shipping lanes from China was 0:10:47.520 --> 0:10:52.320 not missed. And I wonder whether at some point we 0:10:52.360 --> 0:10:55.599 are going to have I think that rather quickly, and 0:10:55.640 --> 0:10:58.080 I believe that that's happening already behind the scenes. 0:10:58.280 --> 0:11:00.040 We have a conversation that is going to. 0:11:00.080 --> 0:11:05.800 Involved multiple navies, multiple regional players trying to keep the 0:11:05.840 --> 0:11:09.920 hormones open for the sake of the global economy. Whether 0:11:09.960 --> 0:11:15.320 we can see something similar to Ernest World, which was 0:11:15.360 --> 0:11:18.720 an operation in the eighties where the US provided escort 0:11:19.000 --> 0:11:21.200 to convoys of oil tankers in and out of the 0:11:21.240 --> 0:11:23.400 Persian Gulf. I think that that is one of the 0:11:23.440 --> 0:11:25.520 things that the industry is right now discussing with the 0:11:25.600 --> 0:11:26.280 US government. 0:11:27.559 --> 0:11:30.679 So yeah, I mean you're sitting in Dubai. We've had 0:11:30.760 --> 0:11:32.840 quite a lot of discussion here, you know. Of course 0:11:32.880 --> 0:11:35.800 it's been a sore point for the UK government. There's 0:11:35.840 --> 0:11:38.880 a lot of talk, sort of anecdotal evidence of people 0:11:38.920 --> 0:11:41.600 moving to Dubai, and it's more than anecdotal from a 0:11:41.679 --> 0:11:47.560 Bloomberg standpoint, because we see clients hedge fund investors moving 0:11:47.559 --> 0:11:51.320 their accounts from London to Dubai. But part of that 0:11:51.440 --> 0:11:54.080 was that Dubai was felt to be not just very 0:11:54.080 --> 0:11:58.440 low tax or no tax, but safe and secure. What's 0:11:58.480 --> 0:12:03.240 at stake if economically for Dubai, which doesn't have relative 0:12:03.320 --> 0:12:06.040 to its neighbors, doesn't have a huge amount of oil, 0:12:06.520 --> 0:12:10.439 if you have a lot of tourism and air plane 0:12:10.600 --> 0:12:13.880 disruption over the next few months, and people just generally 0:12:13.880 --> 0:12:16.240 stop thinking it's a safe place to go, or at 0:12:16.320 --> 0:12:18.120 least think it's a less safe place to go. 0:12:19.080 --> 0:12:19.360 Yeah. 0:12:19.440 --> 0:12:22.000 I think in terms of the business model, I think 0:12:22.400 --> 0:12:24.240 Dubai and the rest of the GCC is trying to 0:12:24.240 --> 0:12:27.839 diversify away from oil, and Dubai has basically succeeded in this, 0:12:28.600 --> 0:12:31.040 and one sector where the whole region has succeeded is 0:12:31.040 --> 0:12:35.199 moving into logistics, having big airports, big airlines, big ports. 0:12:35.480 --> 0:12:37.720 That is obviously that model is under That business model 0:12:37.760 --> 0:12:40.080 is under threat. Now my hunch for. 0:12:40.200 --> 0:12:42.960 Dubai is it's probably going to be the business model 0:12:42.960 --> 0:12:45.200 is going to be more resilient than we expect. And 0:12:45.240 --> 0:12:48.480 it's more resilient because I think if you're a logistical hub, 0:12:48.480 --> 0:12:51.319 it's hard to change geography. You're sitting somewhere between Asia, 0:12:51.960 --> 0:12:55.080 Europe and Africa. You probably need somewhere in the middle 0:12:55.160 --> 0:12:57.600 to be a hub. I think a lot of Dubai's 0:12:57.640 --> 0:13:00.600 residents do like living here and they're for the more 0:13:00.640 --> 0:13:02.440 stick event than we think, although a lot of them 0:13:02.480 --> 0:13:06.160 are foreign. And I think also if the conflict ends, 0:13:06.160 --> 0:13:10.559 whenever that ends, Dubai does tend to benefit from conflicts 0:13:10.559 --> 0:13:12.800 and money that flows in from conflict zones. 0:13:13.120 --> 0:13:15.080 So I think the business model I'm less worried about. 0:13:15.120 --> 0:13:17.560 What I'm worried about is a security model of the GCC, 0:13:17.960 --> 0:13:19.559 not just to buy, but the whole of the Gulf. 0:13:20.200 --> 0:13:22.360 You know, one pillar of the GCC is the American 0:13:22.440 --> 0:13:25.679 security umbrella, and that did fail in the past, and 0:13:25.720 --> 0:13:30.240 that's definitely failing now. Let's remember under the current Trump administration, 0:13:30.320 --> 0:13:33.959 the GCC hosted Trump for his first presidential visit. Excluding 0:13:33.960 --> 0:13:38.320 the Vatican. They have pledged trillions of dollars to Trump 0:13:39.000 --> 0:13:42.439 in terms of investment and purchases and even O PET plus, 0:13:42.440 --> 0:13:45.040 which is about said the Arabia started to increase all 0:13:45.080 --> 0:13:49.120 apps significantly short shortly after Trump took office after months 0:13:49.120 --> 0:13:49.600 of delay. 0:13:50.080 --> 0:13:50.960 And what did they get. 0:13:51.200 --> 0:13:54.160 Other got attempt directly by is roll back in September. 0:13:54.800 --> 0:13:57.680 When it came to lobbying between the GCC, which did 0:13:57.720 --> 0:14:00.559 not want a ward to start with Iran and which 0:14:00.600 --> 0:14:03.520 wanted to start the World Iran, the GCC came second 0:14:03.559 --> 0:14:06.800 to Israel. And now it's the question about Iran. Whatever 0:14:07.000 --> 0:14:09.720 system ends up happening ends up taking place in Iran, 0:14:09.720 --> 0:14:12.240 whether it's a current system or a new one. They 0:14:12.280 --> 0:14:14.160 know that if they want to lash out of the US, 0:14:14.200 --> 0:14:17.680 the GCC is sort of a soft spot that is nearby. 0:14:18.120 --> 0:14:20.840 And I think that security model will probably be a 0:14:20.840 --> 0:14:23.960 revised in the GCC when this war ends, and which. 0:14:23.880 --> 0:14:24.520 Just remind people. 0:14:24.560 --> 0:14:27.040 So the GCC is the Golf Cooperation Council, which is 0:14:27.040 --> 0:14:28.880 basically all of the countries that you would think would 0:14:28.920 --> 0:14:31.760 be in a group of countries in the Gulf have you, 0:14:32.000 --> 0:14:33.920 there's a few other pieces that we should unpack that 0:14:33.960 --> 0:14:36.680 are also perhaps a little bit less familiar to people, 0:14:37.120 --> 0:14:39.440 and gas was the one I wanted to ask you 0:14:39.480 --> 0:14:43.520 about because a liquid natural gas, a liquified natural gas 0:14:43.920 --> 0:14:45.880 has obviously been sort of one of the big new 0:14:46.040 --> 0:14:50.400 newish players in the energy scene, and it seems like, 0:14:50.640 --> 0:14:54.960 certainly from reading our coverage was much less prepared for 0:14:55.480 --> 0:14:58.440 what's happened in the last few days than the ore markets. 0:14:59.320 --> 0:15:02.560 So just talk through why do we get that significant 0:15:02.800 --> 0:15:06.040 response and what's potentially the impact for countries that are 0:15:06.080 --> 0:15:08.000 quite reliant on this gas. 0:15:07.920 --> 0:15:12.600 LNG is dominated by Qatar. They produce twenty percent of 0:15:12.640 --> 0:15:17.480 the walls LENG. And with oil, we have a couple 0:15:17.520 --> 0:15:21.400 of bypass routes where oil can get out of the 0:15:21.560 --> 0:15:24.320 Persian Gulf. There is a pipeline that runs from the 0:15:24.480 --> 0:15:28.480 eastern coast of Saudi Arabia into the west coast, effectively 0:15:28.480 --> 0:15:30.880 from the Persian Gulf into the Red Sea that is 0:15:31.120 --> 0:15:33.840 a deep bottled neck in some oil will continue living 0:15:34.280 --> 0:15:37.760 the area. There is a pipeline effectively from Abu Dhabi 0:15:37.920 --> 0:15:40.920 area to Fujia which is in the Araby and c 0:15:41.120 --> 0:15:44.520 outside the Strada hormos, so that that kind of provides 0:15:44.600 --> 0:15:47.400 some relief for the oil market. It's not like shutting 0:15:47.400 --> 0:15:50.280 down the strait of hormones does in shutdown completely the 0:15:50.360 --> 0:15:53.400 sport capacity or some of the countries with LNG we 0:15:53.440 --> 0:15:56.440 do not have that advantage. Everything has to go by 0:15:56.520 --> 0:16:00.080 tanker through the straight of hormones. And I think that 0:16:00.080 --> 0:16:02.920 that also there is a lot more concern about the 0:16:02.960 --> 0:16:07.720 facilities themselves. I mean these are very concentrated facilities in 0:16:07.840 --> 0:16:11.760 one single point in Katar. We have oil facilities all 0:16:12.000 --> 0:16:15.880 around the person Gulf, multiple oil fields, multiple oil refineries, 0:16:15.960 --> 0:16:19.960 multiple oil poorts. If one is attacked, we still have 0:16:20.000 --> 0:16:22.880 some resilience. And here we are talking about something that 0:16:23.040 --> 0:16:28.560 is an area of fifty by fifty miles where fourteen huge. 0:16:28.240 --> 0:16:30.800 Allergy trains concentrate in Katar. 0:16:31.360 --> 0:16:34.760 You attack that and it is goodbye for twenty percent 0:16:34.760 --> 0:16:38.400 of the world's allergic capacity for years, not weeks, no months, 0:16:38.440 --> 0:16:39.239 but years. 0:16:39.400 --> 0:16:41.880 So that is what the concern is. 0:16:42.560 --> 0:16:45.120 I mean, good news is we are in the shoulder 0:16:45.160 --> 0:16:48.360 season for natural gas. You're going to have a problem 0:16:48.440 --> 0:16:51.360 with natural gas supply. Right now is about the best 0:16:51.400 --> 0:16:54.120 time of the year because in the northern hemisphere we 0:16:54.160 --> 0:16:56.240 are getting out of the winter into the springs, so 0:16:56.280 --> 0:16:59.600 the money is literally dropping by the day and in 0:16:59.680 --> 0:17:02.400 a yeah, it's not yet the summer, so the air 0:17:02.440 --> 0:17:06.919 conditioning nies are not really great. And we use natural 0:17:06.960 --> 0:17:10.560 gus in Asia to fire power plans to produce electricity 0:17:10.600 --> 0:17:12.879 to run air conditioning, so we are we have a 0:17:12.920 --> 0:17:15.600 bit of time, and perhaps that's the reason why the 0:17:15.640 --> 0:17:18.520 market has not reacted as much as you will expay 0:17:18.600 --> 0:17:22.040 yes prices when I have fifty percent yesterday, twenty percent today. 0:17:22.760 --> 0:17:25.639 But we're around fifty euros per megab the hour. 0:17:25.760 --> 0:17:28.960 We reach three hundred and fifty during the crisis in 0:17:29.040 --> 0:17:32.000 twenty twenty one, twenty twenty two, so it's not as bad. 0:17:32.040 --> 0:17:34.840 But it can get really bad on LNG. And again 0:17:35.320 --> 0:17:38.520 it's the duration of the disruption. A few days the 0:17:38.560 --> 0:17:42.640 system can manage. There is not buffer everywhere. If by 0:17:43.680 --> 0:17:46.480 kind of end of week, say Friday, the market starts 0:17:46.520 --> 0:17:49.400 to get conveniced that actually we are really hitting into 0:17:49.480 --> 0:17:52.359 a four or five week period, then I think that 0:17:52.560 --> 0:17:56.320 things change a lot. What if this is actually four 0:17:56.400 --> 0:17:58.640 or five weeks, we are talking about forty days rather 0:17:58.640 --> 0:18:02.320 than twelve, that match really changed things. And in LNG 0:18:02.960 --> 0:18:04.440 it will be dramatic. 0:18:04.280 --> 0:18:05.960 And in a few days it should be said We've 0:18:05.960 --> 0:18:09.760 had a lot more ordnance fired and I'm sure a 0:18:09.800 --> 0:18:13.760 lot more damage on the ground in Iran and of 0:18:13.800 --> 0:18:15.960 course human implications of that than we had in the 0:18:16.520 --> 0:18:19.320 war last year. We're not going into that because that 0:18:19.400 --> 0:18:21.520 is not the focus of this podcast. But it is 0:18:21.560 --> 0:18:25.840 always a lesson these times in the connectedness of the 0:18:25.880 --> 0:18:29.320 global economy and in some unexpected ways. So reading your 0:18:29.320 --> 0:18:32.720 piece and reading some of the other analysis haveavier, you 0:18:32.800 --> 0:18:36.680 discover it's not just China that is pretty dependent. China's 0:18:36.840 --> 0:18:39.800 important about a third of its lerg from Katar last year, 0:18:39.800 --> 0:18:44.040 but places like Pakistan ninety nine percent of its gas 0:18:44.080 --> 0:18:48.639 came from Katar. You have Pakistan, India, Bangladesh. They're in 0:18:48.680 --> 0:18:50.600 the frame. I mean, I take your point. Havevier that 0:18:50.760 --> 0:18:54.080 timing wise is not heating up in those countries yet, 0:18:54.520 --> 0:18:59.199 but are they potentially more significantly affected short term? They 0:18:59.200 --> 0:19:01.400 don't have the same kind of buffers that China has. 0:19:01.600 --> 0:19:04.400 They're gonna be very effective. In China has a lot 0:19:04.400 --> 0:19:06.919 of buffers. First of all, in terms of lergy. It 0:19:06.960 --> 0:19:10.159 can just literally shut down any use which is not 0:19:10.320 --> 0:19:13.240 very large, any use of gas in the electricity system, 0:19:13.440 --> 0:19:16.360 go to col can do call to chemicals to replace 0:19:16.359 --> 0:19:19.240 one of the gas in the chemical industry. India can 0:19:19.280 --> 0:19:21.280 do a bit of that, but I think that countries 0:19:21.320 --> 0:19:24.119 like Pakistan Banglades, they do not have many other options. 0:19:24.160 --> 0:19:26.439 And if this crisis last, it is going to be 0:19:26.480 --> 0:19:30.240 really felt in Asia in terms of leng where where 0:19:30.320 --> 0:19:32.119 things are gonna get very ugly. 0:19:32.800 --> 0:19:33.399 You allow me. 0:19:33.800 --> 0:19:36.040 There are two other commoities that I think that they're 0:19:36.040 --> 0:19:38.520 going to be critical that we have not talked about, 0:19:38.800 --> 0:19:41.520 and they're going to be inside the Persian Gulf. One 0:19:41.720 --> 0:19:46.680 just generally is food. The region produces very little food. 0:19:46.760 --> 0:19:49.680 A lot of it comes imported by ship and air, 0:19:49.960 --> 0:19:54.840 and those supply chains have been disrupted. Yes there are stockpiles, 0:19:55.440 --> 0:19:59.520 but this goes down four or five weeks. Some food 0:19:59.560 --> 0:20:02.560 items will not be on the menu in the Persian 0:20:02.560 --> 0:20:03.360 Gulf region. 0:20:03.880 --> 0:20:05.480 The other one that I am. 0:20:05.520 --> 0:20:10.919 Extremely concerned and can't really make a huge escalation that 0:20:11.000 --> 0:20:13.800 I don't wish to see, but it's to me the 0:20:13.840 --> 0:20:17.440 most important commodity in this world, and it could make 0:20:17.480 --> 0:20:22.119 it and in hours is water. The region relies on 0:20:22.200 --> 0:20:27.159 the salinization. Some countries ninety percent of their drinking water 0:20:27.520 --> 0:20:32.920 come front plants that process seawater into drinking water. Shut 0:20:32.920 --> 0:20:36.960 down those by attack, and it's three or four days 0:20:37.080 --> 0:20:39.400 before the countries really get very thirsty. 0:20:39.680 --> 0:20:40.720 They will not be water. 0:20:41.040 --> 0:20:45.600 In Kuwai Bahrain, the eastern coast of Saudi Arabia, the 0:20:45.760 --> 0:20:50.359 uie Katar READD itself relies ninety percent of its water 0:20:50.400 --> 0:20:53.080 supply on a single desalinization plan. 0:20:53.480 --> 0:20:56.360 In the course of the Persian Gulf. 0:20:56.920 --> 0:21:02.000 Those are absolutely critical items. If Iran moves to attack that, 0:21:02.960 --> 0:21:06.840 I will expect a massive retaliatory action by the Persian 0:21:06.840 --> 0:21:09.679 Gulf countries and also the United States. But that to 0:21:09.760 --> 0:21:12.280 me is something that has not been really as spoke 0:21:12.800 --> 0:21:16.199 so far because it's almost taboo. No one one to 0:21:16.280 --> 0:21:19.640 address that because it will really change the dynamic. 0:21:31.080 --> 0:21:35.520 We tend to think about big cities in Europe and 0:21:35.560 --> 0:21:40.359 elsewhere being very vulnerable in the modern world to a 0:21:40.400 --> 0:21:42.720 power cust or not getting food for a few days 0:21:42.920 --> 0:21:45.959