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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. On Monday, Iran responded

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Speaker 1: to the US's weekend strike on its nuclear facilities by

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Speaker 1: launching missiles at a US air base in Qatar. Qatar

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Speaker 1: said it intercepted the Iranian strike. No casualties were reported,

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Speaker 1: and oil prices dropped.

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Speaker 2: The biggest story of the reaction of the oil market

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Speaker 2: to the conflict in the Middle East is one of

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Speaker 2: what has not happened.

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Speaker 1: Javier Blass is an opinion columnist for Bloomberg. He's covered

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Speaker 1: oil markets for the last twenty five years, and he says,

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Speaker 1: after past flare ups of violence in the Middle East,

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Speaker 1: oil prices have spiked, but not this time.

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Speaker 2: You have asked people what was their biggest political race

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Speaker 2: for the oil market that was an open conflict between Israel,

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Speaker 2: Iran and also involving in the United States, and what

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Speaker 2: was going to be the back of the oil market.

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Speaker 3: The answer was triple digit oil. There was a debate.

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Speaker 2: About it was one hundred, one hundred and fifty two

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Speaker 2: two hundred and fifty and that has not happened.

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Speaker 1: When the market opened, Brent oil futures were trading at

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Speaker 1: around eighty dollars a barrel, and after Iran struck the

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Speaker 1: US air base Monday afternoon, oil prices started falling, at

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Speaker 1: one point dipping below seventy dollars a barrel.

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Speaker 3: It is lower than where we started the year.

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Speaker 2: It is lower than where we were when the origins

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Speaker 2: of the conflict in twenty twenty three, with the attack

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Speaker 2: by Hamas into Israel happened. And it's about the price

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Speaker 2: of about twenty years ago.

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Speaker 1: And while it tracks that oil prices would go down

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Speaker 1: because markets interpreted the attack from Iran as a de escalation,

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Speaker 1: which watchers say it was, Javier says oil prices were

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Speaker 1: already less vulnerable to this conflict than one would expect

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Speaker 1: because there's a relatively new dominant player in the global

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Speaker 1: oil market, the US. I'm Sarah Holder, and this is

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Speaker 1: the big take from Bloomberg News Today. On the show

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Speaker 1: what war in the Middle East means for global oil

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Speaker 1: markets and what it doesn't, Bloomberg Opinion columnist Javier Blass

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Speaker 1: says the conventional wisdom has long been that conflict in

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Speaker 1: the Middle East equals an increase in the price of oil.

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Speaker 1: It was a given that with one would come the other.

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Speaker 2: Because the Middle East is so important for global supply,

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Speaker 2: and particularly the stray the hormones is so important to

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Speaker 2: global supply, the conventional cuiston. And actually the reality has

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Speaker 2: been that every time that we have been involved in

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Speaker 2: conflict in the Middle East, the oil price have increased.

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Speaker 2: It just because the market was pricing the potential of

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Speaker 2: a disruption, and because of the centrality of the region

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Speaker 2: into the global supply, a price increase will happen almost

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Speaker 2: every time that conflict has happened.

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Speaker 1: There, but that hasn't happened this time. Javier says there's

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Speaker 1: two reasons why. First, oil markets have learned not to

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Speaker 1: increase prices because of the fear of a future disruption

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Speaker 1: and supply because often those disruptions haven't materialized.

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Speaker 2: The second reason is that this is really the first

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Speaker 2: time that we see Middle East conflict in what I

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Speaker 2: will call the post US sale revolution era. The US

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Speaker 2: has gone from producing around seven and a half million

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Speaker 2: borrows a day when you count all the barrels twenty

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Speaker 2: years ago, to produce almost twenty one million borrows a

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Speaker 2: day today, and his dependence on the flow of oil

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Speaker 2: from the astrata hormones have come down significantly. So again,

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Speaker 2: from a psychological point, when you are less reliant on

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Speaker 2: that waterway. Perhaps traders feel that they don't need to

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Speaker 2: put as much price raise for a potential disruption.

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Speaker 1: Well, the US shell revolution is so significant to the story.

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Speaker 1: As you're saying, the US pumps more than a fifth

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Speaker 1: of the world's total oil right now. That's more than Russia,

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Speaker 1: that's more than Saudi Arabia. Can you say more about

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Speaker 1: what happened over those past twenty years?

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Speaker 2: The sheale revolution started about twenty years ago when some

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Speaker 2: American oil engineers and business people try to crack a new.

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Speaker 3: Type of rock called shale.

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Speaker 2: They discovered that they could drill vertical wells, then turn

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Speaker 2: the drill bad ninety degrees and go horizontal to tap

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Speaker 2: those very fine shale rock formations. And then the problem

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Speaker 2: is that the oil will not flow until one crack

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Speaker 2: at the rock and to crack it. What they discovered

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Speaker 2: is what we call today fracking or hydraulic fracturing, which

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Speaker 2: consists of injecting water, sun and chemicals underground at huge

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Speaker 2: pressure until they create fractures.

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Speaker 3: On the rock that allow the oil to flow.

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Speaker 2: That really unlock a significant amount of new deduction in

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Speaker 2: the United States, particularly in Texas and New Mexico.

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Speaker 1: So one of the effects of the Shell Revolution is

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Speaker 1: that the US is less reliant on Middle Eastern oil.

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Speaker 1: What has the reaction been in the Middle East then,

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Speaker 1: to the dominance of US shale.

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Speaker 2: The reaction has been several times to try to kill

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Speaker 2: that revolution, bring prices down. That's what OPEK, led by

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Speaker 2: Saudi Arabia did in twenty fourteen to twenty sixteen, trying

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Speaker 2: to bring prices down to make shale an economic. And

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Speaker 2: now I think that what the Saudias have discovered is

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Speaker 2: that shale continues to grow and they are trying to

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Speaker 2: increase production to recover market share that they have been

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Speaker 2: losing against Shell. And that is also very interesting right

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Speaker 2: now because the crisis has come at a time where

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Speaker 2: shale production was booming and Saudi production was also increasing

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Speaker 2: in an effort to recover market share.

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Speaker 1: How is that sort of impacting strategy and geopolitics it

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Speaker 1: comes to this conflict, like why is there such a

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Speaker 1: game changer for American presidents, for example, thinking about intervening

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Speaker 1: and entering conflicts in the Middle East. Did the fact

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Speaker 1: that the US is less reliant on oil from around

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Speaker 1: play into President Trump's decision to strike around this weekend.

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Speaker 2: Every time that the US has faced conflete in the

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Speaker 2: Middle East, the White House knew that the consequence of

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Speaker 2: that was going to be an increase in oil prices,

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Speaker 2: and that means more expensive gasoline in America.

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Speaker 3: And I expoke to senior.

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Speaker 2: Advisors on oil for former President George W. Bush and

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Speaker 2: Barack Obama, and they told me that they knew that,

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Speaker 2: however they intervened, there was going to be a price,

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Speaker 2: and the price potentially was a recession in America because

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Speaker 2: of high inflation, high interest rates, and that always acted

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Speaker 2: as a break. I think that for the first time,

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Speaker 2: President Trump perhaps is the first American president that doesn't

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Speaker 2: really to worry as much. Yes, the oil price can

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Speaker 2: be still painful, and I don't think that President Trump

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Speaker 2: enjoys anything close to seventy five dollars a barrel.

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Speaker 3: But he can intervene in.

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Speaker 2: The US without almost be certain that the country is

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Speaker 2: going to go into recession.

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Speaker 1: Well, it's interesting. This morning Donald Trump posted on True

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Speaker 1: Social Drill, Baby Drill, telling the Department of Energy to

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Speaker 1: start drilling more to keep oil prices down. What did

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Speaker 1: you make of that? What did that mean?

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Speaker 2: So President Trump wants two things at the same time

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Speaker 2: that they cannot happen. Either you have fifty dollars oil

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Speaker 2: and not much drilling, or you have seventy five dollars

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Speaker 2: oil and a significant amount of drilling. And I think

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Speaker 2: seventy five dollars is about right. It is good enough

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Speaker 2: for the shale industry in places like Texas New Mexico,

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Speaker 2: oil companies are going to be doing well. They're going

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Speaker 2: to be drilling, but the price is not high enough

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Speaker 2: to be a problem for the economy, and certainly not

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Speaker 2: high enough that this summer driving season people are going

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Speaker 2: to be complained in about high castleine prices.

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Speaker 1: So you think Trump should be happy with seventy five

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Speaker 1: dollars a barrow.

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Speaker 3: Let me put it this way.

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Speaker 2: I think that many other presidents in the White House

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Speaker 2: facing a Middle East crisis will have been happily take

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Speaker 2: seventy five dollars a barrel. I mean, every other time

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Speaker 2: the president will have been facing one hundred dollars oil,

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Speaker 2: which is really painful for the economy.

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Speaker 3: Seventy five is just fine. Take the win move on.

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Speaker 2: One of the most amazing things that is happening right

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Speaker 2: now in the market is that if you look at

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Speaker 2: the price of regular gas in the United States today,

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Speaker 2: with all what has already happened in the Middle East,

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Speaker 2: is lower that it was on the last period of

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Speaker 2: heavy driving in America around the Easter holiday. Three dollars

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Speaker 2: a gallon three two three, Three dollars a gallon is

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Speaker 2: a quite reasonable price if you consider the experience that

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Speaker 2: we we have in past years when Russia in Ukraine,

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Speaker 2: the price of gas in the United States when all

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Speaker 2: the way to five dollars. I don't see that happening

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Speaker 2: again during this crisis, and I would expect that prices

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Speaker 2: stay around this level for the next few weeks.

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Speaker 1: After the break. What leverage Iran still has over global

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Speaker 1: oil markets and why the Strait of Hermos isn't the

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Speaker 1: biggest concern So far, the war between Israel and Iran

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Speaker 1: hasn't dramatically increased the price of oil, even after the

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Speaker 1: US bombed Iranian nuclear facilities this weekend. But as the

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Speaker 1: conflict has escalated, so too have fears that Iran might

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Speaker 1: try to up the ante by closing the Strait of

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Speaker 1: her Moves. So I asked Bloomberg opinion columnist Javier Blass

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Speaker 1: to tell us about this unique waterway that transports so

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Speaker 1: much of the world's oil.

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Speaker 3: The Australia Hormos is.

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Speaker 2: It's very important for the oil market for one reason.

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Speaker 2: It is the chalkpoint, the waterway for which twenty percent

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Speaker 2: of the world's oil flow into the international market. All

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Speaker 2: the oil from Iran, most of the oil from Idak,

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Speaker 2: significant portion of the Saudi oil, Emidiati oil, all of

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Speaker 2: the oil from Kubait. They need to go through the

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Speaker 2: Straight of Hormus to reach global oil refineries.

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Speaker 3: If the Straight the.

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Speaker 2: Hormos was to be closed, oil prices will rise significantly

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Speaker 2: because we will lose a significant chunk of supply. And

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Speaker 2: as I said, it's twenty percent of the world's oil

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Speaker 2: goes through it. These are huge tankards, so you cannot

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Speaker 2: miss them.

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Speaker 1: How could a run shut down the Strait of Hormose?

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Speaker 1: Does it need UA's buying.

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Speaker 3: Now They can do it alone.

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Speaker 2: If Iran wanted to shut it down the strait for

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Speaker 2: a brief period, they can't do it. They need to

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Speaker 2: turn to violence. So it will involve probably firing meatiles

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Speaker 2: against oil tankers, which will prompt every other oil tanker

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Speaker 2: to turn around and avoid the strait. They can mine

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Speaker 2: use sea mines to mine the waters of the Strait,

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Speaker 2: So there are a number of elements that they could

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Speaker 2: deploy to try to close it. But obviously every other

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Speaker 2: country in the region, and significantly the United States and

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Speaker 2: perhaps China, will react to that and try to reopen

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Speaker 2: the strait right away.

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Speaker 1: On Sunday, Iranian State TV reported that Parliament has approved

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Speaker 1: a measure to close the strait. That doesn't mean it's happening.

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Speaker 1: They need more than just parliamentary approval. But can you

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Speaker 1: game it out for us? What would shutting down the

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Speaker 1: straight mean for global trade? Even short term?

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Speaker 2: Every day that we were to lose twenty percent of

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Speaker 2: the global supply will increase the price of oil significantly.

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Speaker 2: And if we were to be only a few days

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Speaker 2: of the shutdown, there will be panic buying, particularly for

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Speaker 2: countries that depend on Middle Eastern oil for a lot

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Speaker 2: of the supply. I'm thinking about China, India, Japan, South Korea,

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Speaker 2: ta one. So those countries will go into the market

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Speaker 2: that will buy oil from whatever other origin, whatever other price,

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Speaker 2: and the price will go up a lot. Will the

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Speaker 2: price is stop at one hundred dollars, No, I don't

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Speaker 2: think so. I think that will go significantly higher than

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Speaker 2: one hundred dollars, but we get.

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Speaker 1: Our triple digit oil prices.

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Speaker 2: Yeah, we will have absolutely, we will have triple digit

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Speaker 2: oil prices. But how likely is that very very unlikely?

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Speaker 1: Just so I understand what are Iran's incentives to close

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Speaker 1: the straight up her moos right now in the middle

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Speaker 1: of this conflict, and what's the main incentive not to

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Speaker 1: close the straight?

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Speaker 2: The main incentive for Iran to close the straight that

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Speaker 2: her mooves will be to weaponize oil, to turn oil

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Speaker 2: into part of the conflict, potentially to force the United

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Speaker 2: States to tall to Israel so Israel stops the bombing

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Speaker 2: and the United States thing twice in the future about

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Speaker 2: bombing Iran is just using oil as a weapon and

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Speaker 2: force probably a diplomatic negotiation around the world. That is

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Speaker 2: the biggest upside for Iran to close the straight of hormones.

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Speaker 1: So saying you thought you were insulated from oil supply,

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Speaker 1: but you're not, like you really need us.

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Speaker 2: Yeah, and it just generally the United States, even if

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Speaker 2: the United States suffers not a lot, the United States

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Speaker 2: has an interest on a healthy global economic growth. So

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Speaker 2: other allies will suffer. Japan will suffer, Korea will suffer.

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Speaker 2: The European countries will suffer, and typically that's not in

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Speaker 2: the interest of the United States. The biggest downside for

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Speaker 2: Iran is that if you close the straight of hormones,

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Speaker 2: no one can esport oil, and that includes Iran. And

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Speaker 2: for the Iranian regime, oil is really the cash coke,

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Speaker 2: that's where the money is coming. So yes, Iran will

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Speaker 2: close the straight of hormones and it will create trouble

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Speaker 2: for everyone else, but they will shut themselves on the

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Speaker 2: food because they cannot sell their oil. It will also

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Speaker 2: heard some of the biggest allies of Iran, like China

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Speaker 2: and China will not really enjoy that, and I don't

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Speaker 2: think that Iran can afford losing diplomatic support from China

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Speaker 2: right now. My personal view is that Iran will not

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Speaker 2: close the straight of her moos. I don't think that

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Speaker 2: they have when you put everything on balance, a good

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Speaker 2: incentive to do it.

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Speaker 3: Can it happen?

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Speaker 2: I suppose that one should not say never, but I

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Speaker 2: don't see it.

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Speaker 1: So maybe this closing the straight of her moves isn't

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Speaker 1: the biggest concern that we should be thinking about right now.

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Speaker 1: Are there other major risks that were in the Middle East?

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Speaker 1: Raises for the global oil trade or energy markets overall.

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Speaker 2: I do think that there are other big rays, and

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Speaker 2: perhaps they don't get as much attention, but they are

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Speaker 2: more important. The Saudi oil fields are within range of

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Speaker 2: Iranian missiles and a proxy of Iran. The hooties of

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Speaker 2: German attack saw the oil fields in twenty nineteen disrupting

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Speaker 2: supplies significantly, even for a brief period of time. Do

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Speaker 2: I think that that's likely? Again, I don't think so,

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Speaker 2: But that would be far more devastating that anything happening

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Speaker 2: in the industry or hormones, And to me, that is

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Speaker 2: perhaps the worst case scenario that you are talking about.

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Speaker 1: So we've been talking about some hypotheticals what might come next,

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Speaker 1: But right now we're still sort of processing what happened

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Speaker 1: over the weekend. What do the events of this weekend

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Speaker 1: and potential further involvement from the US and this conflict

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Speaker 1: mean for American oil production going forward.

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Speaker 2: What we know is that American oil production was heading

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Speaker 2: down because prices have dropped significantly. The US oil benchmark

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Speaker 2: a few weeks ago was changing hands dues around sixty

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Speaker 2: dollars a barrel. At that price point, American oil production

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Speaker 2: goes down since then because of all what has been

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Speaker 2: happening in the middle is prices have recovered to around

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Speaker 2: seventy five dollars a barrel, and that has allowed shale

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Speaker 2: companies to lock in future prices. And that means that

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Speaker 2: probably American oil production is going to be higher that

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Speaker 2: we were expecting a few weeks ago, both in the

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Speaker 2: second half of twenty twenty five and also into twenty

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Speaker 2: twenty six.

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Speaker 1: But shale is not an infinite resource, right and Trump

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Speaker 1: has been very resistant to invest in green energy sources.

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Speaker 1: What happens if oil production doesn't keep going at the

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Speaker 1: rate that's expected. What's the long term plan here?

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Speaker 2: Shale is a great resource, and America is extremely lucky

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Speaker 2: with his geological endowment, but it doesn't last forever, and

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Speaker 2: you cannot increase production year after year and expect that that's.

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Speaker 3: Going to continue for a very long time.

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Speaker 2: At some point, American oil production will reach at senate

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Speaker 2: and it means that perhaps if the demand remains at

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Speaker 2: the current high level, that will imply that the United

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Speaker 2: States will need to start importing a lot of oil

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Speaker 2: as it did twenty years ago, perhaps not as much,

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Speaker 2: but potentially it could go back to the old Days

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Speaker 2: of twenty twenty five years ago.

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Speaker 1: This is the Big Take from Bloomberg News. I'm Sarah Holder.

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