Clay Siegel analyzes the historic energy crisis triggered by the Iran conflict, noting the International Energy Agency's warning of the largest supply disruption in oil market history. He details a paralysis affecting 20 million barrels of daily oil and 10 billion cubic feet of natural gas from Qatar, forcing Asian nations to draw down inventories while U.S. gasoline prices surge toward 2022 levels despite domestic production advantages. Siegel explains Iran's asymmetric strategy in the Strait of Hormuz, which threatens global exports and has prompted President Trump to call for international defense, fundamentally altering geopolitical energy security. [Automatically generated summary]
To either reverse course and chart a new path for the nation or allow the U.S. to slip further toward decline and chaos.
Mr. Kent reportedly worked closely with Director of National Intelligence Tulsi Gabbert.
Later this week, she'll be on Capitol Hill with FBI Director Kash Patel and CIA Director John Ratcliffe to testify on global security and likely face questions on the war with Iran.
You can watch that hearing live on Thursday at 8.30 a.m. Eastern on C-SPAN 3.
Also on C-SPAN Now, our free mobile video app, and online at c-SPAN.org.
Welcome back to Washington Journal.
Joining us now to talk about the impact on global energy of the Iran conflict is Clay Siegel.
He's Energy and Geopolitical Geopolitics Chair at the Center for Strategic and International Studies.
Clay, welcome.
Hi, Mimi.
The International Energy Agency said recently, quote, the war in the Middle East is creating the largest supply disruption in the history of the global oil market.
Do you agree with that?
Yes, it's true.
We've never faced a situation where all oil and gas exports from the Middle East Gulf have been paralyzed, even halted for a period of weeks, even in the original oil price shock from the early 1970s.
And another big difference then was those countries made a political decision to throttle oil supplies.
And as soon as they were done and reached their political objectives, they just reversed it.
In this case, the threat is, and the consequences from it are a lot more formidable.
First of all, we're talking about 20 million barrels per day of oil.
That's crude oil and refined products like gasoline and jet fuel that are cut off from the world.
And then on the natural gas side, you know, Qatar is a really important exporter to the world, and they produce 10 billion cubic feet per day.
Both of those volumes, the oil volume and the gas volume, happen to both be 20% of the world market for those two commodities.
So this is quite a serious situation with these exports now paralyzed and unable to exit the Gulf with a few exceptions for several weeks now.
So continue then with that, what happens when that oil and gas doesn't flow into the market.
It doesn't get to its destination.
Sure.
So the oil and gas that comes from the Middle East supplies customers all over the world, but the region where the lion's share of these energy exports go is Asia.
It's Japan, which gets 78% of their oil from the region.
Korea, 62%.
China, almost half.
And so those countries have an outsized dependence on the region.
When it stops flowing, they have to draw down inventories, which is basically oil that they have on hand in storage tanks.
And the markets start to perceive that the supply is not going to be flowing from that part of the world.
And eventually the refineries are facing a physical shortage of crude oil.
That's the stuff that they run through the refinery in order to make the fuels.
And when that happens, they have to think about paring back their operation.
We call those run cuts.
And that means that they're going to be producing less fuel.
So that effect is starting to happen already in Asia.
And it's just going to get worse if the Gulf stays closed to exports.
So that's Asia.
Why does it impact the United States?
And why are we almost immediately paying more at the pump?
Great question.
Well, first of all, it does affect countries like the United States and others around the world because oil is a global and fungible, meaning it's largely substitutable commodity.
And there's one global market for it.
And just imagine like one big tank of oil or pool of oil that countries from all over the world take according to their needs.
When there's a supply disruption in one region, it means that because of market forces, the area that's short is going to pull supply from other regions.
For example, in the Atlantic basin and the United States area.
Now, you're right that the United States has some advantages that are indemnifying us and protecting us from a larger shock so far, because we produce a whole lot of oil and gas right here at home.
Now, that can help us in the short term, but it's not going to give us a complete protection from those global forces at work.
You're right that gasoline prices are already moving higher, but they're nowhere near the high watermark that we saw in 2022 after the Russian invasion of Ukraine made us fear that we could be losing five, seven million barrels per day.
And famously, we got to the first time $5 a gallon nationwide average.
It was a lot higher in certain states.
So even though we've gone from like about $3 a gallon to $380, it's a noticeable increase, but we're nowhere near kind of that $5 territory that we saw in 2022.
If this continues, will we get to $5?
That's a good question.
Yeah, the fear is if we continue to have most of that oil shut off from the Gulf.
And there are some cargoes that are getting through now, so there's some silver lining here this morning.
But if we still have the lion's share of that oil cut off, I do think that we're probably looking at higher gasoline prices in the months to come.
Some are getting through.
Who's getting through?
How much?
I mean, tell us what's happening in the strait right now.
Here's the state of play.
The state of play is that, and it sounds hard to say this from United States interests perspective, but Iran is in control of the Strait of Hormuz and the larger Middle East Gulf.
And it's paralyzed the cargoes that normally move through in order to get to world markets.
That's the reality of the situation.
The United States is working very hard to get those export flows resumed, but it's kind of a high hurdle because the Iranians are approaching it with what we call an asymmetric strategy.
They know that they don't have the Air Force or the missiles or other capabilities that we do by a long shot, but they do have the ability, if they want to keep fighting, to harass shipping, to fire on ships, which we've seen, and to fire on assets, facilities in the region that are so important for loading the ships.
As long as that situation continues, where Iran has the capability to hit the ships and the facilities, and it also wants to keep fighting, this could go on for quite some time.
One of those two things needs to change in order to wrap this conflict up.
If you'd like to join our conversation with Clay Siegel of CSIS about the oil market and the Iran conflict and the impact to oil, you can start giving us a call now.
Democrats are on 202, 748, 8000.
Republicans 202, 748, 8001, and Independents 202, 748, 8,002.
President Trump has called on other nations to come and defend the Strait of Hormuz, to