Bloomberg Audio Studios, podcasts, radio news. On Monday, Iran responded to the US's weekend strike on its nuclear facilities by launching missiles at a US air base in Qatar. Qatar said it intercepted the Iranian strike. No casualties were reported, and oil prices dropped.
The biggest story of the reaction of the oil market to the conflict in the Middle East is one of what has not happened.
Javier Blass is an opinion columnist for Bloomberg. He's covered oil markets for the last twenty five years, and he says, after past flare ups of violence in the Middle East, oil prices have spiked, but not this time.
You have asked people what was their biggest political race for the oil market that was an open conflict between Israel, Iran and also involving in the United States, and what was going to be the back of the oil market.
The answer was triple digit oil. There was a debate.
About it was one hundred, one hundred and fifty two two hundred and fifty and that has not happened.
When the market opened, Brent oil futures were trading at around eighty dollars a barrel, and after Iran struck the US air base Monday afternoon, oil prices started falling, at one point dipping below seventy dollars a barrel.
It is lower than where we started the year.
It is lower than where we were when the origins of the conflict in twenty twenty three, with the attack by Hamas into Israel happened. And it's about the price of about twenty years ago.
And while it tracks that oil prices would go down because markets interpreted the attack from Iran as a de escalation, which watchers say it was, Javier says oil prices were already less vulnerable to this conflict than one would expect because there's a relatively new dominant player in the global oil market, the US. I'm Sarah Holder, and this is
the big take from Bloomberg News Today. On the show what war in the Middle East means for global oil markets and what it doesn't, Bloomberg Opinion columnist Javier Blass says the conventional wisdom has long been that conflict in the Middle East equals an increase in the price of oil. It was a given that with one would come the other.
Because the Middle East is so important for global supply, and particularly the stray the hormones is so important to global supply, the conventional cuiston. And actually the reality has been that every time that we have been involved in conflict in the Middle East, the oil price have increased.
It just because the market was pricing the potential of a disruption, and because of the centrality of the region into the global supply, a price increase will happen almost every time that conflict has happened.
There, but that hasn't happened this time. Javier says there's two reasons why. First, oil markets have learned not to increase prices because of the fear of a future disruption and supply because often those disruptions haven't materialized.
The second reason is that this is really the first time that we see Middle East conflict in what I will call the post US sale revolution era. The US has gone from producing around seven and a half million borrows a day when you count all the barrels twenty years ago, to produce almost twenty one million borrows a day today, and his dependence on the flow of oil from the astrata hormones have come down significantly. So again, from a psychological point, when you are less reliant on
that waterway. Perhaps traders feel that they don't need to put as much price raise for a potential disruption.
Well, the US shell revolution is so significant to the story. As you're saying, the US pumps more than a fifth of the world's total oil right now. That's more than Russia, that's more than Saudi Arabia. Can you say more about what happened over those past twenty years?
The sheale revolution started about twenty years ago when some American oil engineers and business people try to crack a new.
Type of rock called shale.
They discovered that they could drill vertical wells, then turn the drill bad ninety degrees and go horizontal to tap those very fine shale rock formations. And then the problem is that the oil will not flow until one crack at the rock and to crack it. What they discovered is what we call today fracking or hydraulic fracturing, which consists of injecting water, sun and chemicals underground at huge pressure until they create fractures.
On the rock that allow the oil to flow.
That really unlock a significant amount of new deduction in the United States, particularly in Texas and New Mexico.
So one of the effects of the Shell Revolution is that the US is less reliant on Middle Eastern oil. What has the reaction been in the Middle East then, to the dominance of US shale.
The reaction has been several times to try to kill that revolution, bring prices down. That's what OPEK, led by Saudi Arabia did in twenty fourteen to twenty sixteen, trying to bring prices down to make shale an economic. And now I think that what the Saudias have discovered is that shale continues to grow and they are trying to increase production to recover market share that they have been
losing against Shell. And that is also very interesting right now because the crisis has come at a time where shale production was booming and Saudi production was also increasing in an effort to recover market share.
How is that sort of impacting strategy and geopolitics it comes to this conflict, like why is there such a game changer for American presidents, for example, thinking about intervening and entering conflicts in the Middle East. Did the fact that the US is less reliant on oil from around play into President Trump's decision to strike around this weekend.
Every time that the US has faced conflete in the Middle East, the White House knew that the consequence of that was going to be an increase in oil prices, and that means more expensive gasoline in America.
And I expoke to senior.
Advisors on oil for former President George W. Bush and Barack Obama, and they told me that they knew that, however they intervened, there was going to be a price, and the price potentially was a recession in America because of high inflation, high interest rates, and that always acted as a break. I think that for the first time, President Trump perhaps is the first American president that doesn't
really to worry as much. Yes, the oil price can be still painful, and I don't think that President Trump enjoys anything close to seventy five dollars a barrel.
But he can intervene in.
The US without almost be certain that the country is going to go into recession.
Well, it's interesting. This morning Donald Trump posted on True Social Drill, Baby Drill, telling the Department of Energy to start drilling more to keep oil prices down. What did you make of that? What did that mean?
So President Trump wants two things at the same time that they cannot happen. Either you have fifty dollars oil and not much drilling, or you have seventy five dollars oil and a significant amount of drilling. And I think seventy five dollars is about right. It is good enough for the shale industry in places like Texas New Mexico,
oil companies are going to be doing well. They're going to be drilling, but the price is not high enough to be a problem for the economy, and certainly not high enough that this summer driving season people are going to be complained in about high castleine prices.
So you think Trump should be happy with seventy five dollars a barrow.
Let me put it this way.
I think that many other presidents in the White House facing a Middle East crisis will have been happily take seventy five dollars a barrel. I mean, every other time the president will have been facing one hundred dollars oil, which is really painful for the economy.
Seventy five is just fine. Take the win move on.
One of the most amazing things that is happening right now in the market is that if you look at the price of regular gas in the United States today, with all what has already happened in the Middle East, is lower that it was on the last period of
heavy driving in America around the Easter holiday. Three dollars a gallon three two three, Three dollars a gallon is a quite reasonable price if you consider the experience that we we have in past years when Russia in Ukraine, the price of gas in the United States when all the way to five dollars. I don't see that happening again during this crisis, and I would expect that prices stay around this level for the next few weeks.
After the break. What leverage Iran still has over global oil markets and why the Strait of Hermos isn't the biggest concern So far, the war between Israel and Iran hasn't dramatically increased the price of oil, even after the US bombed Iranian nuclear facilities this weekend. But as the conflict has escalated, so too have fears that Iran might try to up the ante by closing the Strait of
her Moves. So I asked Bloomberg opinion columnist Javier Blass to tell us about this unique waterway that transports so much of the world's oil.
The Australia Hormos is.
It's very important for the oil market for one reason. It is the chalkpoint, the waterway for which twenty percent of the world's oil flow into the international market. All the oil from Iran, most of the oil from Idak, significant portion of the Saudi oil, Emidiati oil, all of the oil from Kubait. They need to go through the Straight of Hormus to reach global oil refineries.
If the Straight the.
Hormos was to be closed, oil prices will rise significantly because we will lose a significant chunk of supply. And as I said, it's twenty percent of the world's oil goes through it. These are huge tankards, so you cannot miss them.
How could a run shut down the Strait of Hormose? Does it need UA's buying.
Now They can do it alone.
If Iran wanted to shut it down the strait for a brief period, they can't do it. They need to turn to violence. So it will involve probably firing meatiles against oil tankers, which will prompt every other oil tanker to turn around and avoid the strait. They can mine use sea mines to mine the waters of the Strait, So there are a number of elements that they could
deploy to try to close it. But obviously every other country in the region, and significantly the United States and perhaps China, will react to that and try to reopen the strait right away.
On Sunday, Iranian State TV reported that Parliament has approved a measure to close the strait. That doesn't mean it's happening. They need more than just parliamentary approval. But can you game it out for us? What would shutting down the straight mean for global trade? Even short term?
Every day that we were to lose twenty percent of the global supply will increase the price of oil significantly. And if we were to be only a few days of the shutdown, there will be panic buying, particularly for countries that depend on Middle Eastern oil for a lot of the supply. I'm thinking about China, India, Japan, South Korea, ta one. So those countries will go into the market that will buy oil from whatever other origin, whatever other price,
and the price will go up a lot. Will the price is stop at one hundred dollars, No, I don't think so. I think that will go significantly higher than one hundred dollars, but we get.
Our triple digit oil prices.
Yeah, we will have absolutely, we will have triple digit oil prices. But how likely is that very very unlikely?
Just so I understand what are Iran's incentives to close the straight up her moos right now in the middle of this conflict, and what's the main incentive not to close the straight?
The main incentive for Iran to close the straight that her mooves will be to weaponize oil, to turn oil into part of the conflict, potentially to force the United States to tall to Israel so Israel stops the bombing and the United States thing twice in the future about bombing Iran is just using oil as a weapon and force probably a diplomatic negotiation around the world. That is the biggest upside for Iran to close the straight of hormones.
So saying you thought you were insulated from oil supply, but you're not, like you really need us.
Yeah, and it just generally the United States, even if the United States suffers not a lot, the United States has an interest on a healthy global economic growth. So other allies will suffer. Japan will suffer, Korea will suffer. The European countries will suffer, and typically that's not in the interest of the United States. The biggest downside for Iran is that if you close the straight of hormones,
no one can esport oil, and that includes Iran. And for the Iranian regime, oil is really the cash coke, that's where the money is coming. So yes, Iran will close the straight of hormones and it will create trouble for everyone else, but they will shut themselves on the food because they cannot sell their oil. It will also heard some of the biggest allies of Iran, like China and China will not really enjoy that, and I don't think that Iran can afford losing diplomatic support from China
right now. My personal view is that Iran will not close the straight of her moos. I don't think that they have when you put everything on balance, a good incentive to do it.
Can it happen?
I suppose that one should not say never, but I don't see it.
So maybe this closing the straight of her moves isn't the biggest concern that we should be thinking about right now. Are there other major risks that were in the Middle East? Raises for the global oil trade or energy markets overall.
I do think that there are other big rays, and perhaps they don't get as much attention, but they are more important. The Saudi oil fields are within range of Iranian missiles and a proxy of Iran. The hooties of German attack saw the oil fields in twenty nineteen disrupting supplies significantly, even for a brief period of time. Do
I think that that's likely? Again, I don't think so, But that would be far more devastating that anything happening in the industry or hormones, And to me, that is perhaps the worst case scenario that you are talking about.
So we've been talking about some hypotheticals what might come next, But right now we're still sort of processing what happened over the weekend. What do the events of this weekend and potential further involvement from the US and this conflict mean for American oil production going forward.
What we know is that American oil production was heading down because prices have dropped significantly. The US oil benchmark a few weeks ago was changing hands dues around sixty dollars a barrel. At that price point, American oil production goes down since then because of all what has been happening in the middle is prices have recovered to around seventy five dollars a barrel, and that has allowed shale
companies to lock in future prices. And that means that probably American oil production is going to be higher that we were expecting a few weeks ago, both in the second half of twenty twenty five and also into twenty twenty six.
But shale is not an infinite resource, right and Trump has been very resistant to invest in green energy sources. What happens if oil production doesn't keep going at the rate that's expected. What's the long term plan here?
Shale is a great resource, and America is extremely lucky with his geological endowment, but it doesn't last forever, and you cannot increase production year after year and expect that that's.
Going to continue for a very long time.
At some point, American oil production will reach at senate and it means that perhaps if the demand remains at the current high level, that will imply that the United States will need to start importing a lot of oil as it did twenty years ago, perhaps not as much, but potentially it could go back to the old Days of twenty twenty five years ago.
This is the Big Take from Bloomberg News. I'm Sarah Holder. To get more from The Big Take and unlimited access to all of Bloomberg dot com, subscribe today at Bloomberg dot com slash podcast offer. If you liked this episode, make sure to follow and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow.