Photo-Illustration: Intelligencer; Photo: Getty Images
More than three weeks into the Iran war, President Trump has failed to accomplish any of the constantly changing objectives he has laid out along the way. Iran, meanwhile, has shown that even when weakened, it is able to inflict major damage on the world economy. It has all but closed off shipping in the vital Strait of Hormuz, through which about 20 percent of the world’s oil supply flows as well as a major portion of liquefied natural gas. And though Iran’s ballistic-missile capacity has been severely damaged, the country has been able to wreak havoc on oil and gas facilities in Iraq, Bahrain, Saudi Arabia, and other countries in the region nonetheless, oftentimes using cheap drones. Last week, it hit a LNG hub in Qatar where a significant percentage of the country’s gas is produced, and which will now require years of repair.
In the face of this chaos, the price of oil has spiked to well over $100 a barrel per the Brent crude international benchmark, well up from around $70 before the war — though it fell on Monday morning after Trump said on social media that he had ordered a pause in strikes on Iranian power plants and energy infrastructure as a possible (and possibly fictional) deal comes together. But energy-industry expert Ellen Wald says that as chaotic as things are, it wouldn’t take much to go from bad to worse. I spoke with Wald, who runs Transversal Consulting and is a senior fellow at the Atlantic Council’s Global Energy Center, about how that might happen and whether there’s still hope that this crisis won’t spiral fully out of control.
You wrote a book about Saudi oil. Officials there recently forecast that prices could go past $180 a barrel if the war keeps going until late April. Is that price realistic? And what’s your sense of the worst-case scenarios if this persists several more weeks?
It’s important to recognize that Saudi officials are modeling various scenarios and what they could expect oil prices to be. And everyone’s doing this: JP Morgan does it; the Energy Information Administration does it. They’re looking at a variety of different things, and we don’t have insight into their models, how they weigh various things. What’s significant about this is that they came up with a number that’s so high, a number that jumps off the page.
In terms of how bad this can get: Prior to last week, we hadn’t seen any real direct hits to oil facilities in the Middle East. Then we started to see targeting. Israel and the U.S. targeted a big oil and gas field in Iran, and then we saw Iran target the LNG production area in Qatar and an oil port in the UAE. We’ve seen them send missiles or drones to Shaybah Oil Field, which is a big facility in the Empty Quarter in Saudi Arabia. And they also sent ballistic missiles to the port of Yanbu, which is where Saudi Arabia is exporting all of its oil. That’s all the way on the other side of Saudi Arabia, on the Red Sea. But so far there hasn’t been a major hit.
I don’t know if you remember those scenes in the Gulf War with all the oil wells in Kuwait burning. We’re not there yet. But all Iran needs is one big direct hit that shuts things down. It could be to a pipeline, it could be to an oil field in Iraq, which has actually shut down almost all of its oil production because it doesn’t have storage to get it out. That could be restarted very quickly once things get going again. But if it’s damaged, it could lead to long-term outages in the future, and that could lead to longer-term price hikes. That’s why I would say we’re not quite yet in a crisis that would take a long time to reverse, but we’re moving there every day.
And countries are running out of their existing stocks of oil?
Saudi Arabia is basically the only Persian Gulf oil producer, other than maybe Oman, that is able to ship out significant quantities of oil and meet customer needs, because they have this port on the other side of the Gulf. They also have a huge amount of oil storage where the Sumed Pipeline ends. But they’ve been going through that, and at a certain point, that storage is going to dry up, and we’re going to see price hikes in the amount that they’re charging for their premium brand of oil pretty soon. And that’s going to show up in the Brent benchmark and other things.
Since this thing has started, oil prices have actually been very moderate, considering there’s basically no shipping out of the Strait of Hormuz and we’re now past week three. I do think that we are in for higher prices. Though when you compare this to other times when we’ve had high oil prices, you have to remember that there’s been a significant amount of inflation. So a $120 barrel of oil today is not necessarily the same thing as it was in, say, 2012. But the sticker shock is still significant, and people’s purchasing power may be less. It’s a pretty dire scenario. We’re getting to the point where the fact that no oil is getting out of the Persian Gulf is really going to start hitting certain economies, mostly in Europe and Asia.
Yeah, the knock-on effects in Asia are already very dramatic — changes to work and school schedules, gas stations closing everywhere, and so on.
We didn’t see that happen at the end of week one because there was a lot of stock left. But this is going to hit developing economies in Asia first, and then it’s going to continue moving. Japan has something like 254 days’ worth of oil in its storage facilities, so it is not going to run out of it, but it’s going to get more expensive. But places like Bangladesh don’t have that, and they get most of their supplies from the Persian Gulf. We’re also seeing issues in terms of electricity supply and natural-gas supply, because Qatar’s liquefied natural gas supplies are offline and could remain offline for the rest of 2026. We don’t know the extent of the damage there. So I think the first thing we’ll see is countries that rely on importing natural gas for electricity switching to coal. Places like India have a lot of coal available, and China as well.
So this is great for the planet, on top of everything else.
Exactly. The gains that we may have made by not having so much shipping — because shipping causes a lot of pollution — will be counteracted by all of the coal that a lot of countries are going to start burning.
Let’s take the absolute best-case scenario, where the war ends today. How long does it take to get back to relative normal? It feels like there are two questions here, one about opening the Strait of Hormuz and one about getting production facilities going again.
It also involves insurance issues. And ships have been sitting here for so long that apparently they’re running out of supplies for the crew. This is not just like “turn on your engines and go.”
We’re at a point where if this goes on for another month, we’ll be in a very bad situation. Economies are going to start to collapse, with developing economies first. If there isn’t a whole lot of long-term damage, the Strait of Hormuz gets opened in the next two weeks, then I think prices of Brent crude are back down to the 60s by the midterms without a doubt. But every week that this goes on, the danger and the risk that prices remain higher for longer remains.
Is this playing out pretty much as you had envisioned when the war started?
I thought oil prices would be higher sooner. We’ve been seeing a lot of jawboning from the White House; they’re trying to move the price of oil based on talk. Trump will come out and say, “The war is going great. We’re going to be done soon.” Impressively, I think, they’ve kept oil prices in a very moderate area considering what is going on. I think there’s a lot of assumptions by traders right now that this will end soon, and that six months from now things will basically be back. They’re placing trades based on that, and that’s keeping the prices a bit lower for now. However, if we run out of those next week and we start to run out of these stocks, floating storage and other stocks, and we see Aramco start to charge $145 for a barrel of Arab Light, that will show up in the global benchmarks.
America is the world’s largest oil producer and is somewhat insulated from the fallout here. But gas prices have ticked up noticeably. If this drags on in the scenario we just discussed, what would other repercussions look like?
The United States isn’t really concerned about shortages, which is a good thing. If this had happened in 2000 or 2010, we’d be in serious trouble.
Yeah, it would be more like the 1970s oil crisis.
Yes, exactly. We’re not really concerned all that much about shortages. Our biggest foreign source of oil right now is Canada, which is a good thing. When I talk about energy security, I like to talk about it as North American energy security, because really our energy ecosystems are very much entwined, especially with Canada and also with Mexico.
But when prices tend to get above $3.50 a gallon, you start to see consumers making choices — not to say “fill it up.” And so you start to see some level of demand destruction. Obviously, that depends. California is a very different story — it has $6-plus gasoline, so demand destruction looks a little different there because they’re used to higher prices. I would say the biggest issue we’re facing right now is the price of diesel, because we didn’t have as much of that in storage. That’s really hitting consumers in a much more significant way. The national average is over $6 a gallon for diesel. And that really reverberates throughout the economy, because diesel is used in trucking, which is really the lifeblood of the economy in the United States. You’re in New York, right?
Yes, Brooklyn.
Okay, so if you want to get your Florida strawberries, they’re coming to you in a truck that runs on diesel. That I think is where we’re going to start to see the first signs, potentially, of economic slowdown. You’re also going to start to see consumer prices rising due to higher costs of transportation. And the last part is jet fuel. We’re already seeing issues — a lot of international-flight prices have gone way up. Some airlines are canceling flights not just because of high prices but concerns over jet-fuel availability. In the U.S., we’re not seeing that domestically yet, but we absolutely could see higher prices. A lot of airlines will hedge and buy jet fuel in advance to have on hand, but as it runs out, they’ll have to pay more. Even if this conflict ends, we could see higher prices over the summer. So book your domestic flights now, I guess.
But the other aspect is that even though the U.S. and maybe Canada are probably the best insulated from this particular conflict, we’re not immune to increases in prices because oil prices are set globally — it’s a globally treated commodity — and because the price of gasoline is determined by the price of oil. There are things politicians can do. They can decide to suspend the gas tax, for example, which would mean that consumers would pay less. But the prices would still be high for someone.
This interview has been edited for length and clarity.
