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- [00:06]
Jessica Mendoza
In the hours after the US and Israel began striking Iran on Saturday, a message was broadcast to ships in a critical waterway.
- [00:14]
Rebecca Fungi
From now on, all navigating through the serenity of Hormuz is forbidden. No ship in every type is not
- [00:22]
Announcer/Commercial Voice
allowed to pass from a serena of
- [00:24]
Rebecca Fungi
hormones till next notice is saying that the Strait of Hormuz is closed. And basically warning that the vessels not to go through
- [00:35]
Announcer/Commercial Voice
from now on is
- [00:36]
Harriet Tory
banned for all ships.
- [00:39]
Jessica Mendoza
Roughly a fifth of the world's oil supply moves through the Strait of Hormuz. On a normal day, it's the main way Saudi Arabia, Kuwait, Iraq, the UAE and Iran get oil out to the rest of the world. Here's our colleague Rebecca Fungi.
- [00:53]
Rebecca Fungi
That was like the initial warning seemingly from Iran, not to enter the strait.
- [00:58]
Jessica Mendoza
And what was your initial reaction when you heard the warning?
- [01:02]
Rebecca Fungi
Very, very bad. That was my reaction because closing it, it's like the doomsday scenario. So my first reaction is like, oh no, here we go.
- [01:15]
Jessica Mendoza
After ships were banned from moving through the strait, much of the world's oil supply became stuck around the Persian Gulf.
- [01:22]
Rebecca Fungi
Since the conflict began over, the prices have jumped. Yeah, it's very dramatic.
- [01:28]
Jessica Mendoza
Oil and gas prices spike today. US oil traded 7.6% higher at $72.12 per barrel, while international standard Brent was up 8.6% at $79.11 per barrel. Growing fears of prolonged war sending the stock market tumbling and oil prices surging. If things don't resolve soon in this conflict, what could it mean for the world oil market and the global economy?
- [02:00]
Rebecca Fungi
It could be pretty disastrous. Oil prices are massively important for the global economy and it has knock on effects on consumer behavior and everything because it affects prices of the pump. So if that goes up, then transportation, manufacturing, logistical costs all go up and inflation goes up as well.
- [02:30]
Jessica Mendoza
Welcome to the Journal, our show about money, business and power. I'm Jessica Mendoza. It's Wednesday, March 4th. Coming up on the show, will the Iran war show up at your gas pump?
- [03:00]
Announcer/Commercial Voice
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- [04:03]
Jessica Mendoza
Rebecca says that since the Iran conflict broke out, she's been talking to a lot of nervous oil traders and brokers.
- [04:10]
Rebecca Fungi
I was talking to this one trader and then he was like, oh, I went into the office at 11pm on Sunday and stayed all the way until Monday because he just needed to be there. And then like when I was looking for people to comment on this, it was never easier to find people who are working.
- [04:30]
Jessica Mendoza
Traders are working nonstop because they're trying to figure out just how bad this conflict and the closing of the Strait of Hormuz could be for oil prices.
- [04:39]
Rebecca Fungi
On a typical day, that strait handles 20 million barrels a day, 20% of the world's daily oil supply. So on a typical day it's very busy, basically like in peace time. There are around 140 daily crossings on average at that strait. And then some of it are like massive oil tankers. These are like skyscraper sized oil tankers. So yeah, it's usually a very, very busy port.
- [05:07]
Jessica Mendoza
But after that radio message went out to ships in the area, traffic through the strait started to slow. Oman's Maritime Security center says an oil tanker has been attacked in the Strait of Hormuz. On Sunday, Iran attacked three commercial vessels around the Strait of Hormuz, killing one seafarer.
- [05:29]
Rebecca Fungi
You know, after Sunday, traffic further slow just because that's like very, very big warning to anyone wanting to pass through the strait, which is the message is basically like don't do it because we could attack you.
- [05:42]
Jessica Mendoza
Then on Monday, several international insurers said they were canceling some coverage for ships sailing near Iran, at least temporarily to negotiate at higher prices.
- [05:52]
Rebecca Fungi
It's basically like a move that they're canceling these specialized policies that cover vessels in high risk waters. And basically if you want to sell, then you will sail without insurance. So that just basically slow traffic to a trickle.
- [06:09]
Jessica Mendoza
Iran's Revolutionary Guard has since threatened ships that attempt to pass through the strait. A senior official with Iran's Revolutionary Guards said the strait is closed and if anyone tries to pass, Iran will, quote, set those ships ablaze.
- [06:23]
Rebecca Fungi
So I think that's as official as it gets. Ships are afraid. So effectively it's paralyzed.
- [06:30]
Jessica Mendoza
As of this morning, at least eight tankers have been Attacked near the strait. President Trump is trying to help get ships through the strait. On social media yesterday, he said the US Would provide insurance for ships, and he said, if necessary, the US Navy would begin escorting tankers through the strait, quote, as soon as possible. Beyond slowing the distribution of oil through the Strait of Hormuz, the conflict is also affecting the production of oil and gas. On Monday, Iran directly attacked its Middle Eastern neighbors, hitting some important energy infrastructure. There was a hit in Qatar, an
- [07:10]
Announcer/Commercial Voice
attack on the Ras Lafan export hub. This is a major, major part of Qatar's economic apparatus.
- [07:19]
Rebecca Fungi
These are serious disruptions to the energy supply globally. So Qatar actually halted production of liquefied natural gas after intercepting two Iranian drones targeting its energy facility in Raslafan. And that had a very, very immediate effect on natural gas prices in Europe. I remember seeing the announcement from Qatar Energy and then at the same time seeing European gas prices shot up by 50%. That was quite scary.
- [07:51]
Jessica Mendoza
So it was immediate.
- [07:53]
Rebecca Fungi
It was pretty immediate.
- [07:55]
Jessica Mendoza
That same day, Iran hit Saudi Arabia.
- [07:58]
Announcer/Commercial Voice
The latest Iranian drone struck an Aramco oil refinery in Saudi Arabia.
- [08:05]
Rebecca Fungi
There is another drone attack on Saudi Arabia, which caused a fire and kind of forced the state oil company there, Saudi Aramco, to halt productions at a refinery in Rastanura oil complex. This one is located on Saudi Arabia's Persian Gulf coast. And it's sort of the kingdom's core departure point for crude exports to Asia and, like, just central to global oil supplies. So it's also kind of like this cornerstone of the kingdom's energy sectors.
- [08:37]
Jessica Mendoza
Rastanur's loading terminal and refinery complex was targeted by an Iranian drone again today, but didn't cause any damage, Kingdom officials said. According to Wall Street Journal reporting, Saudi Crown Prince Mohammed bin Salman had set attacks on the kingdom's oil facilities as a red.
- [08:55]
Rebecca Fungi
Previously, Saudi Arabia has always kind of exercised pretty strict restraint when it comes to entering conflicts. So now it's just been pushed into, like, closer and closer to direct military retaliation against Iran.
- [09:11]
Jessica Mendoza
Saudi Arabia has not directly retaliated thus far. What is the status overall now of energy production and movement in the Middle
- [09:21]
Rebecca Fungi
east when it comes to the Strait of Hormuz? I think the latest we've got there is just that currently there are more than 3,000 vessels stuck in the Persian Gulf ports, kind of waiting to move across the Strait. That's not good.
- [09:37]
Jessica Mendoza
What about Qatar and Saudi Arabia? What do we know about the extent of the damage to their energy sites?
- [09:43]
Rebecca Fungi
That's unclear. The two sites being hit, none of them have started production again. Because they all just halt production. We haven't got like messages saying that they restart. And I guess it depends on the degree of the damage. Like it might take a while for them to come back to 100% production. So it just seems to me that there will be supply disruptions and supply shortage, frankly, like when it comes to global oil and gas supply.
- [10:14]
Jessica Mendoza
As of today, Brent crude prices, the global benchmark for oil, are at $81 a barrel. Before the conflict began, they were at $73.
- [10:24]
Rebecca Fungi
So far, Brent prices jumped quite a bit, but to be honest, like, not as much as analysts had previously said.
- [10:33]
Jessica Mendoza
Still, the traders and brokers Rebecca talked to are worried about the future.
- [10:38]
Rebecca Fungi
So now, like, I think the oil market is definitely scared and everyone's just waiting for further developments. Like everyone's glued to their phone watching the news and everything.
- [10:50]
Jessica Mendoza
So how concerned should consumers be about rising prices? That's after the break.
- [11:03]
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- [12:04]
Announcer/Commercial Voice
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- [12:40]
Jessica Mendoza
Can you just introduce yourself please and tell us what you cover?
- [12:43]
Harriet Tory
Yep. My name is Harriet Tory and I cover the US economy.
- [12:47]
Jessica Mendoza
I called up our colleague Harriet to understand how the war in Iran is affecting US consumers. Americans no doubt have a lot of questions about the Iran conflict, but a big one is is this going to make life more expensive. So how much does the global price of oil factor in into affordability here?
- [13:07]
Harriet Tory
It's definitely an issue. It's not as big an issue as it might have been in the past. In the 1970s, there were two major recessions that were caused in part by oil price shocks. But since then, you know, the US economy has changed a great deal. It's much less dependent on oil from the Middle East. The US is actually now a net energy exporter. That's largely thanks to fracking. So the US is technically energy independent, but at the same time, the price of oil is global. This is a global market. And when there are constraints on oil supply, it does have an impact.
- [13:41]
Jessica Mendoza
That impact on prices is likely to be felt more in Asia and Europe, which are more dependent on energy from the Middle East. How quickly does oil prices jumping up in the global market affect gas prices in the U.S. it's a good question
- [13:57]
Harriet Tory
because, you know, of course it takes time for, you know, a barrel of oil to arrive at a refinery, get cracked into gasoline or diesel, and then enter the US supply chain. So it shouldn't happen overnight. But a big part of oil prices, of course, are sentiment. So when we do see these big upsets in oil supply in the Middle east and these concerns about shipping lanes not being open and facilities going offline, that does cause a sentiment shock. But economists say that what we're seeing now is probably just the outset. It will take time for all of these different factors to work their way through oil prices.
- [14:38]
Jessica Mendoza
As of today, the average price of gasoline in the US is at $3.20, 31 cents higher than a month ago, according to AAA. That's still well below the surge that happened at the beginning of the war in Ukraine, which was the last major spike. Then the average price of gas across the US was over $5. Still, Harriet says Americans are very attuned to the price of gas.
- [15:04]
Harriet Tory
People spend more than 30%, you know, about a third of their income on housing, and they spend about 14% on food. They only spend about 3% on gas. It's actually a very small amount of your monthly spending across the board. And Then perhaps another 3% will be spent on other energy services like electricity and natural gas and so on. So this is actually quite a small part of Americans day to day spending. But because it's such a visible part, people are just very aware of gas prices because, you know, you drive around all and you see them everywhere you go. So when they go up, you think, oh yeah, okay, why is that? Happening. And swings in gas prices do have, have an impact on the way that people feel about, you know, their ability to continue spending.
- [15:49]
Jessica Mendoza
Also, it's not just about the price of gas at the pump. The cost is baked into basically all consumer goods.
- [15:56]
Harriet Tory
So when gasoline prices increase, that has an impact on inflation. You know, analysts estimate that a $10 increase in the price of a barrel of crude oil will push up gasoline prices by 10 or 15 cents a gallon. And then economists say that a 5% increase in oil prices will raise year over year inflation measures by about 0.1 percentage point. So these are all quite small sounding increases in isolation, but when they start to pile up, they can add up.
- [16:28]
Jessica Mendoza
Can you give some examples of that?
- [16:31]
Harriet Tory
So, for instance, let's say most food is driven around in trucks and shipped in trucks. And if we see a big increase in the price of diesel or in the price of gasoline, the cost of shipping will increase. And that will of course be reflected in higher prices at the grocery store. So grocery prices go up or higher fuel prices often has a big impact on airline ticket prices. So maybe we'll see an increase in that. So the longer that this lasts, the more it can sort of spread through the economy and push up prices overall.
- [17:01]
Jessica Mendoza
So what is the worst case scenario here?
- [17:04]
Harriet Tory
Well, the analysts that I've spoken to about this have said that the probably the worst case scenario is if we continue to see a huge amount of volatility. You know, oil prices go up to sort of $100 a barrel, that would really hurt American consumers. We would see a big increase in inflation that would make life more difficult for the Fed. Certainly rate cuts would be perhaps a more difficult proposition in that circumstance. And inflation has been very difficult sort of tiger to try and vanquish these past couple of years. So that would be tough. And the concern is that a big oil price shock and inflation could really hurt the US Economy and hurt consumers and hurt the labor market.
- [17:46]
Jessica Mendoza
Harriet, you're painting what could be a pretty dim picture for the economy. But is there any upside to higher oil prices?
- [17:53]
Harriet Tory
Well, so there are always winners and losers from these types of situations. So for consumers, really there's not much upside at all for prices going up. But on the flip side, if you are an energy producing company, let's say say in Texas or in New Mexico, then you're in a situation where this is beneficial for those companies. They can sell their products at higher prices. And so there's that impact that maybe this helps economic growth. So it's sort of a double edged sword for people in America.
- [18:25]
Jessica Mendoza
U.S. secretary of State Marco Rubio told reporters on Capitol Hill on Monday that the U.S. had plans to offset oil price increases.
- [18:32]
Announcer/Commercial Voice
There is a plan in place. We anticipated this could be an issue and Secretary Wright and Bessem will begin to roll out those steps, starting tomor mitigate to mitigate against the impact that could have
- [18:43]
Jessica Mendoza
On Tuesday, in a bilateral meeting with German Chancellor Friedrich Merz, President Trump was asked about the war's economic impact. Merz said that the war is, quote, damaging our economies. Trump responded, if we have a little
- [18:57]
Rebecca Fungi
high oil prices for a little while, but as soon as this ends, those prices are going to drop, I believe
- [19:04]
Jessica Mendoza
lower than than even before. Trump has been talking a lot lately about making life more affordable for Americans. Did that job just get harder with this war?
- [19:18]
Harriet Tory
It's hard to say at this point because we don't know if this jump in gasoline prices is going to be sustained or if this might just be a short term blip that, you know, fades. It is obviously something that the administration is concerned about. American consumers for five years have been dealing with inflation that's been above the Federal Reserve's 2% target and in some cases very far above that target. And it's still not entirely back down. Prices haven't gone into reverse. They are still much, much higher than they were a few years ago. And many people just feel the pain. But you know, it is a difficult situation because really nobody knows how this is going to play out.
- [20:09]
Jessica Mendoza
That's all for today. Wednesday, March 4 the Journal is a co production of Spotify and the Wall Street Journal. Additional reporting in this episode by Benoit Faucon, Georgi Kanchev Costas Paris and Summer said. Thanks for listening. See you tomorrow.
- [20:29]
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