Scott Detrow (3:03)

It's consider this from npr. The Iran conflict has thrown global oil markets in into an uproar. The price of crude oil rose above $100 a barrel last night for the first time since Russia launched its full scale invasion of Ukraine. This has had huge implications for the global economy. And joining us to talk about this is Rafael Nam, NPR's senior business editor, as well as Camila Dominosky who covers the oil industry. Hi to both of you.

Camila Domonosky (3:28)

Hey, hey, hey there.

Scott Detrow (3:29)

Camila, I'm going to start with you. Why is it so significant that we passed $100 a barrel benchmark?

Camila Domonosky (3:35)

Yeah, I mean, look, it's psychological. It's triple digits, right? And the price actually got very close to $120 overnight, which was a huge increase from around $70 a barrel before the US and Israel had attacked. Now since then, prices have come down quite a bit. I was looking right before we talked. It's a little after 4pm Eastern and they're around $90 now. I will say if the conflict does stretch on, a lot of analysts expect these prices to go up. And if anything, it surprising that prices weren't much higher than this much sooner, the flow of traffic through the key waterway, the Strait of Hormuz, that dried up more than a week ago. Amina Bakker is the head of Middle East Insights at Kepler, which is a trade intelligence group. She spoke to me from Dubai and she says that straight closure was catastrophic. So not having oil prices react to that was, was quite a shock, to be honest, to me. And she's far from the only analyst I have spoken with who thinks that really prices ought to be higher than they have been given the scale, scale of the crisis.

Scott Detrow (4:40)

Interesting. Now, given that, Rafael, what has been the reaction in the financial markets?

Rafael Nam (4:44)

You know, the reaction in stock markets has also not been as bad as people feared. I mean, the main, the main benchmark, the Dow Jones Industrial average actually rose today after falling as much as nearly 900 points in the morning. But it's still down about 2% or over 2% since the war started. So investors are nervous, definitely, but we're not seeing the level of panic we could have seen given the economic stakes here.

Scott Detrow (5:07)

Why do you think that is?

Rafael Nam (5:08)

Well, there's a couple of reasons, Scott. One is that despite all the negative factors in the market recently, there's the continued uncertainty behind tariffs, the uncertainty about AI, investors are all in all, still optimistic about the US Economy which has held up better than many had expected. And even more importantly, there's still hope Trump will eventually decide that the economic consequences of a continued war with Iran are just too high. I talked to John Canavan, who's an analyst at Oxford Economics, and this is how he put it.

John Canavan (5:37)

And there is that chance that this war could end at any moment if President Trump decides to end it. And given that, I think market participants are hesitant to become overly bearish on the financial markets, only to have to turn on a dime if the war does end, if the Strait of Hormuz does reopen, if things do calm down.

Rafael Nam (6:01)

So, basically, investors don't want to get too bearish, meaning too pessimistic about the markets, at least not yet.

Scott Detrow (6:07)

Camilla, we've seen a lot of different kinds of attacks so far in this war. Attacks on military bases. There was this deadly strike on a school. What kind of attacks are moving markets when it comes to oil prices?

Camila Domonosky (6:18)

Yeah, two specifically attacks on ships and then attacks on oil facilities. So these strikes on ships, that's what's been disrupting transit through the Strait of Hormuz, that tremendously important waterway. 20% of global oil and liquefied natural gas typically passes through that bottleneck. Barely any is getting through now because ship owners simply view the passage as too risky. And the thing is that that is actually causing countries in the region to have to stop producing oil in some cases, because they literally have nowhere to put it. Here's Aminabaker again. Storage tanks are filling up and their export routes are blocked, and they've had to cut production. I'm talking specifically here about Iraq, Kuwait and Bahrain. And it can take some time to restart production after you close it down like that. And second, there are these attacks on oil facilities specifically. We have seen both sides in this conflict attacking oil facilities across the Gulf. And if those kinds of facilities wind up being destroyed, it would be very difficult to restore production, even if a ceasefire is called.

Scott Detrow (7:23)

This is such a big part of the oil production of the world, but it's a fluid market. How quickly can the rest of the world compensate for this oil cutoff?

Camila Domonosky (7:32)

Yeah, so some of it can be redirected. Saudi Arabia has a pipeline to get oil out through the Red Sea. For instance, there's some Russian crude production that the US had put sanctions on that's been lifted so that India can buy that oil. The world also has billions of barrels of oil in reserve. After the oil Crisis in the 1970s, a lot of countries agreed to keep backup supplies around some major economies called the G7 Met today to discuss tapping those reserves. That could be one thing that's helped oil markets stabilize, but they have not actually decided to release that oil. And even if they do, if you add it all up, experts say there is still a gap. I asked Jim Burkhardt, the head of research for oil markets at S and P Global, how well the world can offset this shock.

Scott Detrow (8:16)

Well, the quick answer is it can't because the scale of this disruption is

Camila Domonosky (8:22)

so large and it gets harder the longer the conflict goes on. Every analyst who I've spoken to about oil says that nothing would stabilize markets like reopening the straight wood. There's just no substitute for peace.

Scott Detrow (8:34)

Rafael, what are the implications here for the broader global economy?

Rafael Nam (8:38)

It really all depends on when this conflict ends. And the longer this goes on, the more people are going to start feeling really alarmed. I mean, moments like this remind you of just how important oil remains to the global economy. Now, analysts do say the US Economy is probably better able to absorb this cost because it's more energy independent than it was in the 70s, given that there's far more domestic production. But that doesn't mean the US Will be immune. Higher oil prices are going to mean higher gas prices. And if it remains that way for long, it means we could be seeing more inflation in the US and this at a time when Americans are so concerned about affordability already. And the impact could be even more dire for the economies in Asia and Europe, which rely heavily on Middle Eastern oil and natural gas supplies. Not only that, there are critical things like fertilizer and agricultural commodities that travel through the Strait of Hormuz, and that's raising big concerns about food security.

Scott Detrow (9:31)

Camila, real quick, what has this done for gasoline prices at the pump?

Camila Domonosky (9:34)

They are up. They're expected to increase even more and diesel is up even higher.

Scott Detrow (9:39)

That is NPR's Camila Dominoski as well as Rafael Nam. Thanks to both of you. Thank you.

Camila Domonosky (9:44)

Thanks.

Scott Detrow (9:49)

This episode was produced by Mia Venat. It was edited by Courtney Dorning, Cara Platoni and Louise Clemens. Our executive producer Producer is Sami Yenigun. It's considered this from npr. I'm Scott Detrow.

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