MICHEL MARTIN, HOST:
Let's dig in a bit more on what this war, especially the closure of the Strait of Hormuz, is doing to the oil market. We've called Clay Seigle for this. He's an energy industry analyst with experience in the private sector and the U.S. Department of Energy. He's now with the Center for Strategic and International Studies. Good morning, Clay.
CLAY SEIGLE: Good morning.
MARTIN: So is there any modern precedent for this - basically, a closure of this crucial shipping lane?
SEIGLE: No, there's really not. We've had, over the years and the decades, intermittent disruptions, smaller disruptions of traffic out of this region of the world and other producing regions. But nothing like the Mideast Gulf, all of its exports - 20 million barrels a day of oil, 10 billion cubic feet a day of liquefied natural gas - completely shut off for a period of a week or more. It's never happened before. And even in the tanker wars from the 1980s that you'll read about, lots of tankers came under fire and they had difficult conditions with naval escorts, but you never had a complete shut-off like this.
MARTIN: Do you feel comfortable sort of projecting or guesstimating how high oil prices could get? I mean, right now they're sort of hovering around $100 a barrel, a little bit less, maybe a little bit more. What do you think?
SEIGLE: It's all about the volume and the duration of the disruption. You know, when I talk to policymakers in Washington, I try to emphasize the fact that there is really no substitute for reopening the Strait of Hormuz and restoring exports of that oil and gas from that part of the region. All of the kind of compensatory measures that are being bandied about - they're really not a substitute for having that one-fifth of energy supply restored back to world markets. So if this thing is protracted and the war continues to disrupt these export flows, I think that you get pricing that's so high that it actually causes demand curtailments. We started to see that in the last price spike that happened in 2022 after Russia invaded Ukraine. But then, when there was no real removal of barrels from the market, which we are facing this time, prices did come down relatively quickly after a few months. If we don't have that in this case and we really kind of want to, you know, die on this hill with the war in the Gulf, we could see prices as high as $200 a barrel before people really start to curtail travel and you have other negative effects in the economy.
MARTIN: What would it mean if we saw prices climb to, say, $200 a barrel?
SEIGLE: Well, what it means is that a lot of discretionary travel and other uses of energy are going to be curtailed. And so, like I said, we saw that in 2022. When it comes to things like jet fuel and airline ticket purchases, when it comes to non-essential driving, you know, all of that stuff could be in play. And then there's the bigger effect on consumer and business confidence that makes people confident about spending money, going forward with spending and investment plans. If you see negative effects, for example, in the stock market and people's 401(k)s are down, corporate earnings are down because of these higher energy costs, they're going to be spending less, and it also filters through that way.
MARTIN: So Jackie was telling us that Middle East oil is primarily exported to Asia, that absorbs over 80% of deliveries at key destinations - you know, China, India, Japan, South Korea. OK. Why is it that U.S. gas station prices are increasing even though, presumably, whatever's being sold here was refined weeks or months before the war began?
SEIGLE: Yeah. It's a great question. The answer is because in global commodity markets, a disruption anywhere raises prices everywhere because prices rebalance the market. So think of it like this. The world just has, like, one big pool of oil supply. So if the supply to Asia is cut, then supply from other regions is going to divert there. It's going to flow there because it's going to follow the market-clearing prices, and so we'll have less over here. And that's how the market rebalances.
MARTIN: So the Trump administration pressured India to stop buying Russian oil earlier this year. This was obviously an attempt to limit the money that Russia uses to fund its war in Ukraine. So now the U.S. seems to be easing restrictions and allow Indian refineries to buy Russian oil. What do you make of that?
SEIGLE: You know, what we've seen so far is a really limited step in that direction. It said for a lot of these Russian barrels that are kind of stranded at sea because of the sanctions, we're willing to give a short-term, 30-day waiver and let India go ahead and receive those barrels that are just kind of stuck on the water. That's just a very short-term, kind of Band-Aid approach. It's definitely better than not doing it when it comes to a little bit of price relief. But as I said before, we need those 20 million barrels a day from the Gulf to world markets. And these - the short-term measures can just buy us some time to restore security of energy supply.
MARTIN: Before we let you go, Clay, and this is - we only have about 40 seconds left here. Is there anything consumers can do to, I don't know, sort of insulate themselves even a little bit from these price shocks?
SEIGLE: You know, it's tricky because we all have to face the prices that we see on the marquee at the gas station when we go to and from work every day, and then it's going to filter through as well to electricity bills. So I think the thing to do is to be smart about the money that's in the bank and your purchasing requirements, and hope that the policymakers see the translation between these geopolitical events and the U.S. economy.
MARTIN: That's Clay Seigle. He focuses on energy security in his role at the Center for Strategic and International Studies. Clay, thanks so much for joining us.
SEIGLE: My pleasure. Transcript provided by NPR, Copyright NPR.
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