Analysis by Energy Workforce President Tim Tarpley
At the time of writing this column, the Iran crisis continues, with the Strait of Hormuz still closed to most traffic. The war has forced the shutdown of at least 12 million barrels a day, about 12% of the world’s supply, from the Middle East, with Brent crude still hovering around $109 per barrel. The price for a physical barrel of oil in some locations in Europe and Asia has reached $150 a barrel. In addition to the price shock, some countries around the world are beginning to feel the supply crunch. South Korea has seen panic buying of plastic products, and India has seen long fuel lines and gas shortages that have led to shutdowns in the ceramics industry. Vietnam’s state media is reporting that the country’s airlines were planning to cut operations, and President Ferdinand Marcos declared a state of national emergency due to short supplies. Australia has seen over 600 service stations run out of fuel, and New Zealand has also reported a significant risk of shortages. South America has also seen significant disruptions and fertilizer shortages.
The situation creates many questions for the OFS sector and energy as a whole. First, and most importantly, how long will this last? Nobody has the answer to this question. Iran appears still to have access to weapons, drones and long-range missiles; however, it is becoming harder and harder to determine how long these supplies will last accurately. On one hand, they clearly still have capabilities as they continue to hit targets, including shooting down two US fighter jets over the weekend. However, it is also clear that they have slowed their attacks significantly since the beginning of the conflict, perhaps to conserve their stockpiles. Additionally, it is very hard to gauge how much internal strife there is in Iran and how tightly the regime is still actually in control. We have not seen media reporting of large-scale protests against the regime as we saw a few months back; however, this could just be because people are too scared to go out in public or because the media is not able to get such reporting out of the country. So, it is reasonable to assume that this could go on for quite some time.
Regimes like the Iranian one are quite difficult to remove without the use of ground troops, and it is unclear if President Trump is willing or would have the support to launch a full-scale invasion of Iran. This brings up the very real possibility that hostilities could drag on for a few more weeks or months, at which point the Iranian regime could survive in some form. They may even retain some control over the strait in which they could work out deals with some countries to let their boats go through and stop others. In this scenario, we may not see a “return to normal” in the Middle East for quite some time.
On the other hand, early this week, a Pakistan-brokered ceasefire appears to have been put in place, which requires the Iranians to reopen the Strait and for the US and Israel to agree to a two-week cessation in hostilities. The markets reacted positively to this news. However, the ceasefire quickly became tenuous, and time will tell how long these positive movements continue. Both sides claimed victory with this announcement, and at the time of writing, we do not know if this ceasefire will hold or for how long.
One thing we can be certain of is that, regardless of how long the current crisis lasts, the politics around energy policy will be forever altered. Most analysts believe we are living through the largest energy disruption since the 1970’s. Many countries are again learning the lesson that the world was reminded of after the Russian invasion of Ukraine, that energy security is incredibly important. We can expect a “safe barrel” of oil to be worth more than a “risky” barrel going forward. Additionally, there appears to be ever more certainty that oil and gas are absolutely critical to the world supply chain, and that is not going to change anytime soon. A disruption of this magnitude has reminded us how interconnected the world is to oil and gas.
Tim Tarpley, Energy Workforce President, analyzes federal policy for the Energy Workforce & Technology Council. Click here to subscribe to the Energy Workforce newsletter, which highlights sector-specific issues, best practices, activities and more.
