This weekend’s military strikes on Iran have rattled global markets as they reopened today.
Shares in airlines and cruise operators, global hotel chains are all taking a hit. Energy prices are rising sharply, with benchmark oil prices hitting points not seen since the Iran-Israel conflict last year.
And it’s not just oil, natural gas futures and futures for fuel used for transportation and industrial purposes are all spiking by double digits.
All of this has huge ripple effects for Texas — from its massive petrochemical industry to our shipping infrastructure and, eventually, the prices. Texans will be paying for gasoline and perhaps energy more broadly.
Matt Smith, lead energy analyst at Kpler, joined Texas Standard with a breakdown of what to expect. Listen to the interview above or read the transcript below.
This transcript has been edited lightly for clarity:
Texas Standard: Maybe we should begin at a critical point. All eyes seem to be focused on this waterway, the Strait of Hormuz. Tell us about why that’s such a critical choke point.
It’s so critical because you see about a third of the world’s crude exports passing through there.
So it’s from the Middle East, essentially, the crude that is going out into the world. 90% of it is going to Asia. So it is Saudi Arabia, from UAE, from Iraq, all these different countries, Iran as well.
It’s not just the crude side of things either. You see about 19% of the world’s LNG exports passing through there. 23% of natural gas liquids, a third of the world’s fertilizer.
And so what we’ve seen essentially is this concern about passing through the Strait of Hormuz because the risk of being hit by missiles, by drone strikes from Iran. And so we are monitoring this, and we’re seeing that traffic basically grinding to a halt.
I didn’t realize fertilizer. That’s obviously going to have some repercussions, implications for Texas and the agricultural industry.
I want to pull back though and look at what’s been going on over the past 24/48 hours, especially in the Strait of Hormuz. You mentioned that traffic has ground to a halt. It was my understanding that part of the U.S. presence there was to attack Iranian naval capabilities to choke off the strait. How’s that going?
The thing is, it’s not like Iran has come out and said, “we’ve closed the Strait of Hormuz.” It’s the threat of a tanker being hit that is causing the hesitancy.
So you’re seeing all of these tankers building up outside of the Streat of Hormuz. They’re ballast. Basically, they’re empty. They’re waiting to go in and load.
You’ve got over 80 million barrels of crude that has loaded in the Mideast Gulf that isn’t leaving. That’s the highest we’ve seen in many years.
So this is the thing, you have insurance companies, you have ship owners that don’t want these tankers to be passing through the Strait of Hormuz because of the potential of them getting hit. So that’s why you’re not seeing these tankers passing through.
Understood, and it’s also understandable given what you’re describing that we’re going to see oil prices spiking with this escalation.
That’s it. Well, the difference between last year with the Twelve-Day War and this time around, you’re seeing Iran hitting multiple different countries, right? So just overnight, we’ve seen a Saudi Arabia refinery being hit there. And that’s why diesel prices are rallying more than crude today. They’re up about 15%.
And then you go, you look at Qatar, you’ve had the Ras Laffan LNG terminal hit as well there. That’s causing natural gas prices in Europe to spike nearly 50% because suddenly one of their key suppliers can not only get the LNG out of the region, but it’s also had its terminal hit.
So there are multiple different elements of energy that are getting hit here.
When we have these refineries production facilities being hit, it’s not just if you can restore traffic in the Strait of Hormuz, it is that there may be some period of lag because you’re going to have to rebuild some of these facilities, no?
Yes, but I think the immediate concern comes if this lasts for a week, two weeks, and you’ve seen that halting in those flows, right? You have Europe that gets a lot of its jet fuel from the Middle East, and suddenly they’re not going to be getting that, you know?
There’s going to these multiple ripple effects because of this, the longer that this goes on.
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So what are you watching for right now as you monitor the traffic and the prices?
It’s really to see the escalation. You know, President Trump has been very clear all the way along about what his actions are going to be next. Now, what he’s saying is that this could continue for a week to up to four weeks.
There is going to be this seeming bombardment of Iran hitting these strategic targets with Israel and with the U.S. tackling those, ultimately with the goal of getting a regime change in Iran there. And so until they have Iran coming to the table to want to negotiate or regime change, then this is just going to continue.
Is it true that OPEC met yesterday, and if so, what does that mean for prices?
So OPEC was meeting yesterday anyway, but I think what their decision was yesterday was very much influenced about what’s happened in recent days.
So what they’ve done is they’re increasing production by a couple of hundred thousand barrels a day across the group there incrementally in the coming months. So we were expecting them to increase, but not by quite as much.
All right. Let’s talk about the ripple effects for Texas consumers. We’ve been enjoying some really low gasoline prices here in recent weeks. Now what?
They’re going to go higher. And so it depends upon how long this situation goes on.
But we’re already seeing oil prices popping. That’s going to be reflected into gasoline prices in the coming days here. If we see further developments and oil prices move higher, it’s just going to continue to push that part of the pump higher, too.
Do those oil prices necessarily have to go higher, though, because of course we’re a leading supplier of LNG and of gasoline and oil.
That’s a really good point. And so you may not see WTI, that U.S. benchmark, rally as much as you’re seeing with Dubai benchmark, with the North Sea benchmark Brent, but it is still increasing.
And so because of that, because of these refineries getting hit and also the global bucket of gasoline supply getting hit, you’re going to be seeing that rise coming through across all commodities.
