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Glad to welcome Ed Morris of Hartree Partners now on set here at seven thirty one, lex Ed, great to have you in the building today. How do you see this war in Iran when you look at past incidents of you know, war in the Gulf or the Arab oil embargo. I mean, we've had a number of hot points in the Middle East. Where does this rank?
So rank somewhere in between. Certainly, this is the third Gulf war we've seen since nineteen ninety ninety one, straight to hor moves. Wasn't closed in the first one or the second one, and it wasn't even closed in the events of the early period of time in the seventies or even the Iranian Revolution. So this is pretty unique. So I put it more serious than anything we've seen since the early nineteen seventies.
Does that mean that, even let's say this somehow resolves in a week time Trump or someone off, is it serious enough that we're going to have a fundamental rethink of the way energy flows and energy markets after this, much like after the air of oil embargo when the SBR came, like after COVID, after Ukraine when we rethoughted just exactly how energy markets are structured.
So I think we should look and see what some major countries are doing, and we're doing even beforehand. China is energy dominant when you think of clean energy, and they have certainly decided, as being very dependent on flows, particularly from the Middle East, that they're going to double down on the clean energy scenario. Europe is already talking
about going back to green energy targets. We'll see what happens in the US, but certainly there's been a kind of worldwide rethink about what to do in terms of dependence, and that includes emerging markets as well. It includes India certainly, as well as China and much of the Far East.
We were playing some sound from the US Energy Secretary Chris Right on yesterday's Sunday Shows, and he was saying, look, this is a fear premium, that it's going to last a couple of weeks, but we're going to start getting shifts through the streets of hormus soon. He seemed pretty sanguine. Do you share his view that this could be relatively short lived?
Well, I share his views that it could be relatively shortly we lived, but I'd say I would turn his remarks of a few weeks to a few months. And that's certainly the case if we look at the nitty gritty of the oil market and the gas market in particular.
So we shouldn't forget that gas prices of skyrocket around the world because twenty percent of the world's available internationally derived natural gas comes from the UAE a little bit and Qatar an awful lot, and that's not going to be turned on for at least a month.
And that's all priced in dollars, by the way, So it hurts them even worse than it hurts us.
It absolutely is, yes, And on the dollar price, by the way, given what you've just talked about, with the increase in the value of the dollar globally, just adds insult to injury. It just makes the inflation for the rest of the world significantly higher than it otherwise might have been. But even the oil, it's not come back like overnight. They'll be testing, they'll see what happens, and
we still have a big risk. Latently in the western side of the Arabian Peninsula, we have the Huthis and they have not activated yet, and they are a proxy still of Iran and we haven't seen a complete shutoff. You know, we've seen a shutoff. If people are arguing, is it ten million barrels a day or sixteen in either case is pretty large, but it can go to the full twenty coming out of the Middle East if we have a closure on the other side of the Arabian Peninsula.
And there just feels to be a disconnect. I'm listening to you and other experts in this that are talking about the potential for this to stretch on and have very big implications. Then I look at what markets are doing. I mean, the backwardation suggests that oil prices resume something close to normal pretty relatively soon. Are we being sanguine about the risk that this could stretch on and have much higher oil prices to come?
I think we're being a little bit too sanguine. The futures curve doesn't tell you very much. It tells you that we've had a spike in the medium in the inter it tells you that bagradation has increased, so there's just not a lot of liquidity in the market, and the fact that ten year prices have not changed very much. It doesn't tell you what's really going to happen in the next few years. So I wouldn't use that as
a predictor. I'd say that's a reflection of where macro funds are placing their short term cash.
We have seen a big spike in prices at the pump, and I thought it was interesting in reading your research that the product prices rise faster than the underlying crude for example, why is that and how do you expect to see gas prices go because I mean, this chart doesn't do justice to what we've seen on the price at the pump. It's the highest in either Trump term.
Yeah, so I've seen prices coming from the lower three dollars range to the mid three dollars range. There's been a what fifteen sixteen percent increase in the price of gasoline. If you look at crude oil, where was crude oil trading two weeks go. Brent was trading at around seventy it even fell below to sixty eight sixty nine and it's now at one hundred and three. And WTI was trading at sixty five, sixty four, sixty three and it's now at one hundred and two, one hundred and three.
That's a double increase from what we've seen in gasoline. So we've seen a very slow reaction, so to speak, on the gasoline side. That's due to a whole bunch of factors, including you deliver out of what you have from storage in the light. But we're seeing a curtailment on the product side. We've seen the big curtailment out
of the Middle East. The Middle East, while they're exporting sixteen million barrels a day or so through the Strait of Hormuz, two million of that is product, and we've seen that product, which largely goes into Asia, having a dramatic impact on jet fuel prices in Asia, on gasoline prices in Asia, on diesel diesel diesel prices in Asia. And that's much more than the fifteen percent increase seen
in the US. So the US is a lagrate and if we see what's happening in the rest of the world, it tells you that we're going to see four dollars at the pump more more sooner than we.
Otherwise well ed, what does it mean that IMAX catches up to Brent? I thought it was interesting the other day I looked at a WTI quote and I thought it was a mistake in the graphics that it was actually Brent, because usually there's a five dollars gap between the two. I'm you know, rounding, But now we're at the same level.
Well, don't forget that there's more crude coming out of the United States than there is at a northwest Europe, and the US has available incremental crew that can be bid up. We don't have restrictions on exports. So we're seeing the demand for WTI related crewde skyrocketing in a way that makes it get closer to where Brent has been trading. We're seeing more ban in Dubai at a ten dollars increment even above where Brent is trading. So that tells you that the world pricing is sorting itself out.
So for one O two on bront right now and not sort of this out saying that your calls about a fifty percent chance likelihood that we see a rise of fifty percent in prices, What does that scenario look like, how do we get there and how long does that price elevated price? Last?
Well, one scenario is one I just mentioned. The houthis get to work and we see the western part of the middle in the Arabian Peninsula also shut off. That's twenty million a day. We're not going to see the battlefield ending pretty soon. We're going to see at least two good weeks. I suspect of continued bombing of energy infrastructure in Iran and in the western part of the Gulf. The Ranians are not slowing down as far as I
can tell. We're going to see inevitably, if there are some ships trying to get through to the Strait of Hormoves, we'll see those being attacked, and we'll see tankers being attacked. We have to remember that Iran has just reaffirmed the hardline approach by putting in place the son of the form of Supreme Leader. And they had a big debate about that. It was a week long debate which way are they going to go? And they chose the hard
line way. So they're there for an existential threat and they're going to fight for the existential survival of the regime.
I want to actually zero in on that because you talked about that in your notes. We could have seen Iran after the Ayahtola if he had been let to die of natural causes. Right, go with a more I guess, reformist supreme leader. But it seems as if this attack by Israel and the US has at least, you know, helped to push them towards a more hard line leader. So I wonder what do you think were the justifications
for this war. We haven't heard much from the administration in the way of an official, you know, line of why we did this.
Well, that's the the interesting question of why did we do this? And we did it for all of the reasons I suspect that we've heard from the White House. We've done it because that regime has been a threat and it's been a threat to the economies of the part of the world for a while. It's been a threat to Saudi Arabia, it's been a threat to the UAE. The bombings that came in when ABCAK was hit in twenty nineteen was not an accident. It came from Iran.
The proxy attacks come from Iran. So there's been that threat for a long time. Yes, there was regime change in the minds of some people, including the President. He said it too often for you to not believe their regime change was certainly there.
In this case, it's pretty much worse than what we had.
Well original we expected, we expected, I suspect they expected. I didn't expect it. They expected this to be over in a couple of days, and that certainly didn't happen.
Well, so it's a president at the same time who's been making this push for affordability at you advised presidents before you'd advised government, you've advised governments. We have finance leader ministers of the G seven meeting right now discussing a possible release reserves of oil. The US is surely trying to figure out how to stem some of the issues. To what would you be advising governments at the moment to try to mitigate some of the price rises.
Well, I think they're doing what they have to do. The governments that have better control than the US government does on local electricity prices, is, you know, is keeping the weight of the increase in the hands of utilities, many of which are public sector anyway, the US doesn't have that privilege exactly. We have very independent regulatory agencies for power generation, and power prices are certainly going to
go up. So the affordability issue can only be met to a certain extent by the risk of releasing strategic stocks, and we're seeing what's going to happen in the next hour. I suspect on what the G seven are going to decide.
They're talking about big numbers, talking about three to four hundred million barrels of a release, which is bigger than the release after Russian invasion of Ukraine, which was a very large release to say the lease, and that didn't stop prices from going up because it takes a while to redeploy oil when you have some of the you know, the major oil pass sanctioned immediately after that Russian attack, So it's going to be a while. I think it'll be a good month or two before we see the
weight of strategic stocks coming in the market. The release will obviously cause the market to fall, but how long that will last is another matter.
And we should hear from them in about fifteen minutes time after that readout ed. It's such an honor and a joy to have you on. Ed Morris of Hard Tree Partners