Mark Finley analyzes the Iran conflict's unprecedented disruption to global energy, noting that while 15 million barrels daily still flow through the Strait of Hormuz, Saudi diversions and alternative routes mitigate total supply shocks. Despite U.S. net oil exports, reliance on imported refined products drives domestic gasoline up over a dollar and diesel nearly two dollars, potentially costing families $1,000 annually if sustained. Finley dismisses strategic reserves as insufficient for such scale, highlights industry focus on profitability over rapid expansion, and concludes that balancing market efficiency, national security, and environmental goals remains the critical policy challenge. [Automatically generated summary]
Joining us now to discuss global energy prices in relation to the conflict in Iran is Rice University Baker Institute's non-resident fellow, Mark Finley.
Mark, thanks so much for being with us this morning.
In the Oil and Gas Journal, you wrote that here the headline is, is the golden rule of oil of the oil market and understanding global price dynamics and emerging exceptions.
Now, you wrote that the supply or disruption, supply disruptions or relief anywhere after prices affect prices everywhere.
What does that mean and how does it apply to what folks are experiencing now?
unidentified
What it means is that oil is a global marketplace.
And so even though the United States is the biggest producer of oil in the world and actually produces more than it consumes, we are still vulnerable to prices at the pump going up if something goes wrong somewhere else in the world.
And the reason is because the people, most Persian Gulf supplies that are disrupted by the closure of the Strait of Hormuz go to Asia.
But when Asian buyers can no longer access that supply, they come and compete against our sources of supply.
And so the prices go up here just like they do everywhere in the world.
Can you talk about which and how, which specific sources of energy are being affected by the conflict in Iran that's now entering its six-week?
And how are they being impacted?
unidentified
So roughly 20% before the crisis, roughly 20% of the world's oil supplies flowed through that one narrow choke point of the Strait of Hormuz.
And that was oil production and refined products that were produced by refineries in that region, including Iran, Iraq, Saudi Arabia, Kuwait, the United Arab Emirates, and a couple of smaller emirates.
Also, about 25% of the world's liquefied natural gas trade also flowed through the Strait.
And so I think it's what's important is, A, this is by far the biggest disruption of global energy supplies the world has ever seen.
Far bigger than the Arab oil embargo or the Suez crisis or the earlier Gulf Wars.
And it's not just crude oil.
The region is a significant exporter of refined products, as well as I mentioned, natural gas.
And so what we've seen is that the price of crude oil has gone up.
The price of refined products, and especially jet fuel and diesel fuel, have skyrocketed way beyond the price of crude oil.
And the price of traded liquefied natural gas cargoes has also skyrocketed.
Now, I want to ask you, because the President says that the Strait of Hormuz is open unless they shoot it down, they bomb it.
Iran has let some ships go through, specifically those who they have come into an agreement with and that aren't the U.S. and Israel.
How much product is moving through there right now?
Because we know the executive director of the International Energy Agency recently said that disruption is the greatest threat to global energy security in history.
I know that you said something similar.
How much product is actually moving through there?
unidentified
So of that original 20 million that was coming out of barrels a day, 20 million barrels a day, Iranian exports have continued unabated.
So that's maybe one or two million barrels a day.
Saudi Arabia, to its great credit, in the name of energy security, had a backup pipeline that could take a significant share of its crude oil exports away from the Persian Gulf and over to the Red Sea.
So about 5 million barrels a day have been diverted in that way.
The United Arab Emirates has also built a pipeline that bypasses the strait, and Iraq has been able to get some oil out through Turkey.
So all told, maybe half of the crude oil that has been disrupted has found other markets.
But that's not the case for refined products, nor is it the case for liquefied natural gas exports.
Those have been essentially bottled up still, other than, as you note, an occasional cargo, say, of propane that Iran lets through to go to India where it's used in restaurants.
Five million, excuse me, five million barrels a day are going through.
Obviously, that's, you know, that would leave 15 million here or there.
Are there any other ways in which oil is able to get out of that area or is it basically stuck?
unidentified
This is the critical choke point for the world's oil system.
And so it's not like there's been a lot of talk about whether the Houthis in Yemen might close the strait on the other side of the Arabian Peninsula, the Bab el-Mandab.
If they were to try to do that, oil could go through the Suez Canal and a pipeline that follows it.
Other people talk about the Strait of Malacca in East Asia.
Well, that strait you can sail around.
The Hormuz Strait is the one choke point there's no getting around.
And so other than the options that are bypassing the strait that we discussed a minute ago, there is no other option.
Now, before we continue, Mark, I want to invite more of our callers to join in, or our viewers to join in on the conversation.
Here are your lines.
Republicans, your line is 202-748-8001.
Democrats, your line is 202-748-8000.
Independents, your line is 202-748-8002.
You can also reach us by text message at 202-748-8003.
We are talking about oil and gas in relation to the Iran war.
I wanted to ask you, because we know we heard a few weeks ago that the IEA was releasing barrels, the U.S. release barrels from their strategic tap.
How does that offset what we're seeing blocked in the Strait of Hormuz?
And are we seeing that come as a relief to Americans?
unidentified
Believe it or not, the system for energy security for managing oil is actually a pretty well-developed toolkit here in the United States and with its allies around the world.
So for more than 50 years, the United States and its allies in the International Energy Agency have wargamed disruption scenarios.
They've built up strategic stocks of oil and in some countries refined products like gasoline and diesel fuel.
They have treaties that obligate them to share supplies between each other.
Additionally, as I mentioned, the country of Saudi Arabia, uniquely that I'm aware of in the history of the world, has committed to building a buffer of spare production capacity also to be used in times of emergency.
So that energy security system that has been built up over the last 50 years is being severely tested right now.
Consumers might hear that and say, Well, then why am I paying more at the pump?
Can you answer that?
unidentified
Well, because, again, it's a global marketplace.
And what we're seeing happening is the President is right that the United States is a large exporter of both crude oil and refined products to the world, but we are also a large importer.
And we're very tightly connected to that global marketplace.
And so, as a result, in a functioning market, and the world oil market is very efficient at sorting out little bumps and big bumps that we're working on right now.
But the result is that, think of it this way: the gasoline or the diesel fuel that you're going to buy, somebody in Asia wants to buy it as well.
And with lots of tankers that can carry crude oil and refined products like diesel and gasoline, there's a bidding war going on, and the price of the pump follows that.
My question is: we've seen gas and diesel fuel go up in America, and that really, I hate to say, filters down, but it does come down to the grocery store.
It comes down to everything: businesses paying more.
How much has gas gone up in France or Switzerland, please?
And the other thing is that, you know, Easter just happened, and I thank the Lord pointing school in Switzerland, I had economics.
But there is a Bible verse that if you support anybody that oppresses poor people, you only end up in poverty.
And isn't this 20% closure of the oil coming through Kuwait won't that take America into a recession?
And thank you.
Thank you, Craig.
So I don't have data on what's happening with prices at the pump in places like France or Switzerland, but I can certainly say that the wholesale price of gasoline has gone up sharply in Europe and in Asia as well.
And beyond that, I think you're exactly right that when you see a disruption like this and prices rise sharply, who gets disadvantaged most?
Poor people, both poor people here in the United States and poor countries who can't compete in the bidding war.
And I've estimated that the increase in prices at the pump that we've seen so far, just for gasoline alone, if they stay in place for a year, it would cost every American family on average another thousand dollars a year.
So we're talking real money here.
And whether that points us into a recession or not, I mean, gasoline by itself is a small part of the overall spending in the economy, but two things.
One, gasoline is only about 40% of the oil we consume.
And so we also have to think about what the higher cost of diesel fuel and jet fuel and other products mean, petrochemicals, fertilizer.
But also, gasoline punches above its weight when it comes to how it impacts us.
I mean, what else do you buy that has a price screamed at you from every street corner in foot-high numbers?
And you know what it costs to the tenth of a cent.
So not only does it impact our pocketbooks, but it also has an outsized impact on things like consumer and business confidence, as well as the approval ratings of political leaders.
My income is too short to compete on the global market.
And the last I checked, I saw $4.47 for gas here in the state of Maryland.
But I wanted to ask you a question about the way in which the media is characterizing all of this.
This disruption to the global sort of economy is coupled very closely to war crimes.
But whenever the media talks about this disruption, I guess, to the energy flows or whatever, they never bring up the fact that our president and his administration in our name is committing war crimes.
And there was even just an interview on this network where they was talking about the presidential threats on his Truth Social or whatever.
But the presidential threats was to commit war crimes.
And I just, I think that if we start talking about it in a fair and objective and honest way, maybe the American people might try to pull their congresspeople, their representatives, and say, look, we've got to do something, impeach or something.
But I'm curious about your thoughts about the way the media has characterized this, including this network.
Thank you for the questions, Ray.
And I'm sorry for the financial pain that it's causing on you and on so many people around the country.
And it's, I mean, energy has always been seen as a strategic commodity.
Hidden Costs of Energy Subsidies00:07:19
unidentified
And so it's not just the prices at the pump.
It's how it impacts our national security, our relationships with countries around the world, how it impacts our own domestic politics.
All of these things are what make the kind of energy disruptions that we're talking about and the big moves in prices at the pump that we're seeing so deeply important and why we're here today talking about it.
In the past, presidents like Bush and Obama, when gas prices went up, they used our reserves and federal funding to bring prices at the pump down because gas affects a wide range of products in our society.
Why hasn't the administration done done the same?
Thank you, Barbara.
And actually, this administration has followed the same energy security playbook that previous presidents have in crisis that, you know, I've mentioned has been built up over the last 50 years.
The key element of U.S. energy security policy, in addition to having, you know, relying on efficient functioning markets, is a strategic petroleum reserve.
The U.S. holds more than 400 million barrels of crude oil in storage caverns in the Gulf of Mexico region in Texas and Louisiana.
And a few weeks ago, the President announced, in coordination with our allies in the International Energy Agency, a release of 400 million barrels of strategic stocks from all of our member countries of the IEA.
The U.S. contribution is planned to be over 100 million barrels of oil released into the market to help contain the upward pressure on prices.
But the size of the magnitude of the disruption that we've seen so far mean that the release of strategic stocks as they begin to happen, and they're still ramping up, will at best partly offset the disruption.
And it's really a measure to try to buy time to get to some kind of political solution where the strait is open and oil starts to flow again.
Debbie from Williamsburg, Ohio, and Independent, you're next.
Good morning, Debbie.
unidentified
Good morning.
I was checking through Google.
One of the callers had brought up a negotiation that the United States is making with China to give them rights to our oil and gas in Alaska.
Supposedly it's supposed to go into effect in 26.
It started in 2017.
It doesn't make sense to me unless there's some sort of alliance for the money that is being spent and not given to the United States that's going to these allies for profit.
We've got deals going on all over the world with different countries that we're not even aware of.
And who's getting the profits off of that?
Because we're not.
And all we're doing is our country is suffering due to the fact that people are getting rich off of us and we don't even know what's going on.
And you can't necessarily believe anything that Trump says because he lies.
So I'd kind of like some information on that and maybe let the general public know that we're having a cover pulled over our head.
Thank you, Debbie.
I mean, you're right.
We've talked about the impact of prices at the pump and what it means for consumers.
But as the President has pointed out, U.S. oil production has actually grown.
I mean, 20 years ago, the United States was the biggest importer of oil in the world.
And now we are on net terms an exporter of oil.
And so while when prices spike, certainly consumers and businesses feel the pinch who are buying fuel, U.S. drillers and the states that collect tax revenues from where that production happens will do better.
It's also interesting you mentioned the point about Alaska and natural gas.
While U.S. oil, while prices at the pump have gone up, domestic prices of natural gas have not gone up, even though natural gas supplies are also disrupted through the Strait of Hormuz.
And the reason for that is because while the U.S. is the biggest exporter of liquefied natural gas on the planet, our export facilities are already running flat out.
And so there's no opportunity for buyers of liquefied natural gas in Asia and Europe who are getting pinched to buy additional quantities of natural gas from us here.
And so that's, I think, a very important difference to think about this crisis and its implications both in the United States and around the world, how different they are for oil versus natural gas.
Hey, Mike, I wonder if you have a question for Mark.
unidentified
Yes.
Take the corruption out of oil and gas, quit subsidizing oil and gas with taxpayers' money and continue our clean energy projects that don't cost Americans anything.
Thank you, Mike.
Diversifying Beyond the Dollar00:07:11
unidentified
You're exactly right that there's been a lot of volatility in domestic policy when it comes to trying to favor fossil fuels versus renewable forms of energy or other energy options like greater efficiency for fuel efficiency for cars, for example.
And that's the policy dilemma that we're in.
I think it's also interesting to note, though, that even though, as you note, the president very actively sought the support of the domestic oil and gas industry during his campaigns, he also campaigned on driving down prices at the pump and blamed former President Biden for the inflationary impacts of higher gasoline prices that had happened under his administration.
And the irony here is that you can't have both lower prices at the pump and higher profits for the domestic oil and gas industry because they're both driven off the price of oil.
And one depends on it going up and one depends on it going down.
So I think that that also highlights how tough these choices are for us as a society in picking, trying to pick where we want to strike the balance here.
Now, one question that we got online, Mark, is from Denise in Redwood Falls, Minnesota.
And it says, what effect will it have on the dollar if the EU accepts a deal with Iran using Euros to pay for the oil that Iran will let through the Strait of Hormuz?
unidentified
Yeah, the dollar, you'll notice, and this was from Denise.
We noticed that the price of oil is quoted in dollars per barrel pretty much anywhere in the world to do business.
And so there have been always talk about petro dollars, oil used to pay for dollars and where they flow around the world for 50 years now.
And there is certainly a lot of talk now about paying for oil in other currencies.
I've seen talk about dealing with Chinese currency, even crypto assets, as well as the Euro that you mentioned.
At the end of the day, on an economic basis, it's just a matter of calculating an exchange rate.
And so in a big, global, deep, efficient market, what currency you use isn't really a big driver of it.
But psychologically, if these trends really take off and start to move international focus from the dollar as the default currency around the world, that could certainly play a role down the line in weakening the dollar's critical role in international finance.
Sally Su says, what's your take on whether this latest shock will finally accelerate a more resilient path beyond concentrated fossil fuel vulnerabilities?
For you, Mark.
unidentified
Yep, it's a great question, Sally.
And we've kind of, we've been through this before.
I mean, at the time of the first Arab oil embargo, oil accounted for half of all of the world's energy use.
And after the shocks, the world said, all right, we need to get more efficient.
We need to diversify our sources of energy.
And oil today is about a third of the world's energy mix.
And so it has lost a lot of market share.
In addition, the world's economy and the U.S. economy, by the way, have gotten way more efficient in the way they use oil to produce GDP.
And so I think it's very a great question to say, if this shock is, if these price hikes are sustained, I would certainly expect other forms of energy to become more competitive and to grow more rapidly and government policies increasingly to try to favor them, as well as finding ways of using energy more efficiently.
But the key point is, these things change over decades.
They don't change overnight.
And so we have to make sure that we have kind of a long-term perspective.
And it's really not about, in that case, about the spike of prices today, but what we think it might be years down the road that's really going to drive this.
Barbara from Michigan and Independent, you're next.
Good morning, Barbara.
unidentified
Good morning.
I have a, I guess it's a question, comment, pull together.
I'm just wondering, I've heard Mr. Trump say that we have all this oil that's available.
He wants everybody to buy the oil from us.
Now we have plenty.
And that he's releasing millions of barrels of oil.
Well, if that's true, why do our gas prices keep going up?
It doesn't make sense.
He wants the rest of the world to buy from us now because we have plenty, plenty.
But our gas prices keep going up.
It just doesn't make any sense to me.
And if I could just make one comment real quick and then I'm done.
A lot of people refer to Mr. Trump as a dictator, but I never heard the word dictator from anybody when Biden was forcing people to take the COVID vaccine.
A lot of people lost their jobs because they wouldn't do it.
You said why Trump keeps saying that and why a price has gone up.
unidentified
So, I think, Barbara, both of these things are true at the same time.
I mean, the United States is the biggest producer of oil in the world.
We are the biggest exporter of refined products.
We are one of the biggest exporters of crude oil.
But we are also one of the biggest importers of crude oil.
We also import refined products.
We're deeply connected to the marketplace.
And so, yes, right now, tankers are being pulled away from the United States and taking, for example, jet fuel and diesel fuel, as well as crude oil, to other parts of the world that have been disrupted by the Strait of Hormuz.
So, there is that, but that means in a global market that the price has to go up here as well.
Now, I think the President is also referring to the fact that we have the potential to produce even more oil and natural gas and to export it around the world.
But that's a slow-moving thing.
And in fact, just recently, the Dallas Federal Reserve Bank surveyed oil companies in its area and asked them, well, do you plan to ramp up drilling in response to the price spike that we're seeing right now?
Remember, the U.S. oil industry, when it was in its big growth mode for shale, was actually spending all of its cash flow and more for a decade.
And only since the pandemic have they really been focusing on trying to make money instead of breakneck growth that we'd seen.
Because of that new found financial discipline, only about a quarter of the companies surveyed by the Dallas Fed said that they plan to significantly increase their drilling.
Voting on Future Energy Policy00:08:05
unidentified
And those companies tended to be the smaller ones.
And so right now, it doesn't look like we're likely to see a dramatic impact on domestic production of oil anytime soon, even with these higher prices.
The oil companies love ethanol because it takes about two and a half gallons of diesel to finally get the end product.
It pollutes probably double.
But the other thing is the windmills, so yeah, the ethanol is a disaster, but windmills, 78,000 windmills.
And you don't realize that each one of those have a door.
And I don't know how many stories are up, some 57 feet.
Something has to go up and grease all those.
So 78,000 doors to make electricity that costs 400 to 500% more for the public.
So we're going doing ethanol and doing the wind thing.
And the other thing was that the birds travel, they have certain areas where you're not allowed to build a chicken house because that's where the birds have their flyway.
So you never to now that the windmills are put into the highest airflows in the country, that's changing their flight.
They were flying over chicken houses and the bird flew.
It happened that way.
And then a quarter, it takes a quarter acre for every windmill.
So I just wanted to know your thoughts on that.
Thank you, Daniel.
Well, this is, I mean, what has kept me working in this field for 40 years is that, you know, energy is so central to so many parts of our life.
And there's always this tension between, you know, both for the companies as well as for policymakers and for all of us as citizens in how we vote is there's a lot of times a tension between the efficiency of the marketplace and other legitimate concerns like national security or environmental considerations.
And so there's always this tension and juggling act between how do we have an efficient market that delivers the cheapest energy possible.
And let's face it, energy is what our economy runs on.
And we couldn't get to school.
We couldn't heat our homes.
We couldn't live our lives without access to a lot of energy.
But how to balance the need for efficiency and low cost with other things like security is the big challenge here.
I think one of the wrinkles here for us to think about in the specific context of discussing windmills is that, believe it or not, virtually no oil is used in generating electricity in the United States.
It's primarily been chased out of power generation over the last 50 years due to a combination of cost and security considerations.
And the biggest sources for generating electricity now in the United States are natural gas, but also coal, nuclear power, and renewables like windmills.
I just wanted to say that I live in Virginia and our gas prices are up over $4 a gallon.
And I noticed earlier a gentleman asked you, he just wanted you to comment on how Donald Trump was making millions of dollars while he's in office and his family's making millions of dollars while he's in office and how he's fleecing America.
And you talked about everything else but that.
And I'd like to ask you now, can you comment on that?
We know it's all wrong.
Nobody's able to do anything about it.
But we want to know what you think about it and how you would assess it.
Well, Michael, thank you for the question.
And I noticed that you had Professor Sapato on earlier today talking about domestic politics.
He knows way more about that issue than I do.
I'm the barrel counting energy guy.
But what I would say is, I've talked a lot about how the U.S. and global oil market is a big, very efficient marketplace.
One of the reasons why we have such a successful market is because competition is allowed to play out.
Does that mean government's not involved?
Of course not.
I mean, government is always involved in energy because it's a strategic commodity.
But I think the faith and trust that we have in whether the market is working or not depends a lot on whether you believe that somebody is unfairly putting a finger on the scale or not, and having a conversation about when is it appropriate for government to intervene in these processes in the name of national security or in the name of environmental considerations, and when is it important to let the market work?
These are central questions that occupy not just people in Washington, D.C., but people buying things at the pump and the way they vote every day.
One question from Mickey in Minneapolis says, can President Trump invoke the War Powers Act and prevent U.S. oil companies from exporting oil outside of the U.S.?
unidentified
My understanding, it was Mickey, was it?
Yeah.
My understanding, Mickey, is that the president does have authorities.
I don't know if it's under the War Powers Act or other laws, but he does have the authority to put temporary bans on exports in the name of national security.
There are other policy levers that he also has the ability to impact.
I mean, we saw in the previous administration, President Biden put a moratorium on the development of new liquefied natural gas export terminals, partly out of fear that building more of those would drive up the domestic price of natural gas.
We saw that the president also has released strategic stockpiles and put new leases on the market for eventual development of oil and gas resources that the federal government has control of.
So there are a lot of levers, but at the end of the day, in this global marketplace, the amount of influence that any U.S. president or political leader has over the price of oil is pretty limited, given how big these markets are and how complex.
Gas and oil are too addictive, but if Americans had built a green energy backup security system, would Americans not, or it says Americans would not be facing an economic disaster?
Question mark.
unidentified
Well, I think there's a fair point there.
I mean, building diversity and resilience can help.
We talked about the example of Saudi Arabia having a pipeline that allows it to bypass the Strait of Hormuz that the Saudi government has paid for and maintained for decades.
But there's the rub bought for and paid for.
And so these systems cost more money.
And so the question, again, is what's a worthwhile investment in the name of energy security or what's a worthwhile investment in the name of environmental considerations?
And how do we, as a society, rank the cost-benefit analysis of relying on a marketplace versus interfering in that marketplace to accomplish other objectives?
And it's an open question, and it's only one that we can decide through the way we vote.
All right, Mark Finley of Rice University, thanks so much for being with us.
Live Forum on Defense Issues00:01:20
unidentified
C-SPAN's Washington Journal, a live forum inviting you to discuss the latest issues in government, politics, and public policy from Washington, D.C. to across the country.
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And then Brad Bowman of the Foundation for Defense of Democracies on the U.S.-Israeli conflict against Iran.
And Democratic strategist and founder of Solidarity Strategies, Chuck Rocha, on the Democratic Party's path forward towards the 2026 midterm elections.
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