Hormuz on the Brink, Energy Markets in Shock [Special episode]

Middle East escalation has put the Strait of Hormuz; the world’s key energy chokepoint, under threat. We assess the impact on Brent crude, European gas (TTF), and global LNG, with a focus on Qatar’s supply and Europe’s exposure.

Joined by Hussein Ibish, Senior Resident Scholar at the Arab Gulf States Institute, Dan Marks, Research Fellow for Energy Security at RUSI, and Henning Gloystein, Eurasia Group, they discuss whether Iran would truly close Hormuz, the risks to shipping and infrastructure, and what comes next for global energy markets.

Host: Richard Sverrisson - Editor-in-Chief, Montel News

Guests: 

Hussein Ibish - Senior Resident Scholar at the Arab Gulf States Institute

Dan Marks - Research Fellow for Energy Security at RUSI

Henning Gloystein - Eurasia Group

Laurence Walker - Montel News

Editor: Alex Carlon, Oscar Birk

Producer: Alex Carlon

Subscribe to the podcast on our website, via Apple Podcasts or Spotify

#StraitOfHormuz #HormuzCrisis #OilPrices #LNG #QatarLNG #EnergyMarkets #EnergyCrisis #GasPrices #BrentCrude #TTF #EnergySecurity #MiddleEast #Geopolitics #ShippingDisruption #GlobalMarkets #RUSI

Transcript

Richard Sverrisson - Editor-in-Chief, Montel News: 0:07

Hello listeners and welcome to Plugged In - the Energy News podcast from Montel, where we bring you the latest news issues and changes happening in the energy sector. As the Middle East War intensifies, wonder the world's most vital energy lifelines, The Strait of Hormuz through which roughly 20% of global oil and LNG normally flows, has effectively ground to a halt. Amid threats and attacks on shipping that sent European gas prices sharply higher after a long winter of low stocks and tight supplies. Underscoring how fragile the global energy system has become. In this special release episode, I'm joined by a team of experts to unpack how serious the risk is to EU gas supply. What worst case scenarios could look like, and whether the Strait of Hormuz could remain closed for days, weeks, or even longer. Now I'm joined by Lawrence Walker, our deputy editor-in-Chief. And he also heads up our LNG coverage now. And we'll talk to us today about the impact the war has had on markets and prices. So a warm welcome to you, Laurie.

Laurence Walker - Montel News: 1:17

Good morning, Richard.

Richard Sverrisson - Editor-in-Chief, Montel News: 1:18

First question really is so how serious is this war for EU gas supply, given that it comes after a long cold winter? We've got low gas stocks and a tight global supply situation.

Laurence Walker - Montel News: 1:32

Yes, it is an extremely serious situation. We've effectively had 20% of global LNG supply cutoff since the weekend. And as you mentioned, it's at a time of already low stocks, stuff supply insecurity to some extents and this is gonna have massive ramifications for the market. Already we've seen huge spikes. We were at three year highs this morning, and we've seen the kind of jumps of, you know, 55% yesterday, over 20% today. It's it's a massive thing for the gas market.

Richard Sverrisson - Editor-in-Chief, Montel News: 2:03

I mean, we are, we're recording this on Tuesday morning. Just for those listeners, what is the market saying in terms of the worst case scenario? I suppose everything hinges on how long this war is gonna last, does it not?

Laurence Walker - Montel News: 2:16

Yes. In many ways we're already experiencing the worst case scenario. This is something people were very worried about. That's, that this straight of almost would actually close or be effectively closed as it were. And that's what's happened. Now on top of that, we've seen some infrastructure being targeted as well, so I think, obviously the worst case scenario is a really prolonged outage a really prolonged lack of shipping from Qatar to the market because this is gonna result in sort of huge competition between buyers for the remaining global suppliers. And as we said before, you know when you take a fifth out of a global market that's a lot of supply to, to replace and it's gonna be reflected very much in the prices going forward for as long as this conflict lasts.

Richard Sverrisson - Editor-in-Chief, Montel News: 3:00

And obviously that's gonna affect global gas prices and global supply of the fuel. But are there any markets in particular in Europe that will be most affected by this lack of Qatari supply? Laurie.

Laurence Walker - Montel News: 3:13

I think obviously Italy is by far the biggest importer of Qatari LNG, so they took, last year, took more than half of the Qatari supply that came to Europe. I mean, Europe isn't a massive importer of Qatari LNG compared with Asia, for example, which takes 80 more than 80% of their gas. But obviously with Asia not being able to take those cargoes, they're gonna look elsewhere and so they'll be competing directly with European buyers with buyers from across the globe. Yes. In terms of destinations, Italy is the biggest. There are others who to take more. In terms of the markets it's gonna affect everyone in Europe because, likewise there's a knock on effect for everything else. So Italy's gonna have to take gas from somewhere else. And so we're all gonna feel the pinch.

Richard Sverrisson - Editor-in-Chief, Montel News: 3:56

There are kind of echoes of 2022 here. Do you feel that Laurie as well?

Laurence Walker - Montel News: 4:01

Yes, to some extent. Certainly in a way this is worse because at least there were alternatives there were things to take so that we saw, again, massive price surges while everyone grappled for alternative market. We saw also turning to other markets so people rushed to get, coal to replace and things of this sort. Obviously we've got a lot less coal capacity than we had in 2022 as well, so that's less of an option. Yes, there's more US LNG than there was back then. So that's a positive I guess. And there, there has been other, supply sources coming online or increasing. But it's not going to alleviate the fact that we have lost a massive amount of gas in the meantime, which is gonna be reflected very much through pricing for anyone who wants to actually secure it or wants to secure the replacement gas.

Richard Sverrisson - Editor-in-Chief, Montel News: 4:47

A very concerning and wiring development Laurence. Thank you very much.

Laurence Walker - Montel News: 4:50

Thank you, Richard.

Richard Sverrisson - Editor-in-Chief, Montel News: 4:52

It's my pleasure to be joined by two experts in the field Hussein Ibish, who's senior resident scholar at the Arab Gulf State Institute. A warm welcome to you, Hussein.

Hussein Ibish - Senior Resident Scholar at the Arab Gulf States Institute: 5:02

Thank you.

Richard Sverrisson - Editor-in-Chief, Montel News: 5:04

And also to Dan Marks who's a research fellow for energy security at RUSI. A warm welcome you to you too.

Dan Marks - Research Fellow for Energy Security at RUSI: 5:11

Thanks for having me.

Richard Sverrisson - Editor-in-Chief, Montel News: 5:12

So Hussein, I'd like to start by asking you, the strait of Hormuz. That's the big issue here at the moment. As well as obviously an LNG facility that was hit by an Iranian drone. But is closing or severely disrupting the strait of Hormuz actually in Iran's strategic interest? Or is it a last resort move?

Hussein Ibish - Senior Resident Scholar at the Arab Gulf States Institute: 5:31

If they were to actually physically disrupt the ability of shipping to traverse the strait of Hormuz, then I think it's not in their interest because they are dependent on passage through the strait for their own exports and imports, and so it, it would really be a very self-defeating thing to try to physically barricade the strait. What they've done is they've declared it closed right through the IRGC, the Revolutionary Guard Corps Naval Forces. They've announced that they consider it closed, meaning that everyone is on notice that if they try to conduct commercial shipping through that crucial root and let's just be clear, 20% of the world's petroleum and also something like 20% of LNG traverses the straid of Hormuz. It's really a major artery for the global economy. Especially the economy. The economies from India to Japan, all of that eastern half of Asia is really dependent on the energy that comes out of the Gulf region and through the strait of Hormuz. There are alternative pipelines and things, but it, those are rudimentary compared to the amount that goes through shipping through the strait of Hormuz. So I think that Iran is unlikely to try to physically block the strait and if they did, the US has very well established lands for reopening it.

Richard Sverrisson - Editor-in-Chief, Montel News: 7:01

It could be self-defeating and also could risk alienating neutral actors like, like China, for example.

Hussein Ibish - Senior Resident Scholar at the Arab Gulf States Institute: 7:06

Absolutely. I it puts China in an impossible situation. China has a much bigger percentage of its imported energy than 20%. It's probably double that comes through the strait of Hormuz. And yeah, they're, right now they're not taking position on this conflict and they're, seen as being basically pro Iranian or what have you. But the point is that yeah, actually disrupting shipping over a long time in the strait would antagonize the Chinese. Certainly the Indians, certainly the Japanese and South Koreans, a very large number of countries that would be negatively affected. And Iran itself, as I say, relies on using those waters to sell its oil primarily to China and also to bring in necessary imports from abroad. You know, I think actually attempting to blockade the strait in a physical way is not very likely. But all Iran has to do is threaten commercial shipping, which will push insurance prices up. And you know it when under these circumstances, ships can pay up to a quarter, a million dollars per trip in insurance only. And that's a lot of money. And the, most of the major shippers have declared that they're going to either suspend shipping or send it around the Cape of Good Hope in Africa, which is a much more expensive trip, but one that can be insured for a lot less. And it's a very disruptive thing. The Houthis did the same thing by harassing shipping in the Bab-el-Mandeb on the other side of the Arabian Peninsula that leads from the Red Sea up towards the Suez Canal. So then another, those are the three major choke points around the Arabian Peninsula the Suez Canal, Bab -el, and the strait of Hormuz. And what the Houthis were basically doing was extorting money and political concessions. And they started getting hit by the United States and they also got payoffs under the table from shippers. And so the whole thing became an exercise in extortion. And it's possible that they may put pressure on international shipping in those waters as well because they fancy themselves to be great allies and champions of Iran. But again, it's a political posture. It's a political polls.

Richard Sverrisson - Editor-in-Chief, Montel News: 9:18

Dan what's your view here? It's, is it can the strait actually be closed? Can Iran actually close it?

Dan Marks - Research Fellow for Energy Security at RUSI: 9:23

Yeah. As Hussein said it's not necessarily about physically closing the strait. It's about can you, what kind of disruption can you cause to shipping? And that unfortunately is, does not require very sophisticated methods. You can use mines, you can fire from the shore. You don't need to necessarily hit a lot of ships before everything gets very difficult. Even if you don't manage to stop shipping, you might enforce convoying and things like that. I think the strait of Hormuz is so important that. I'm not sure that you the US and others words would allow it to completely stop in the sense that you can always try and convoy ships through and protect them, but in terms of whether it's in around strategic interest, I think it does depend how much pressure the regime feels it is under and how existential a moment it is. For the leadership at the time, which, hey may not be an incredibly experienced leadership when it comes and may be quite chaotic in its decision making. So you could have a situation where effectively does the leadership, consider that the only pressure it can really bring to bear on the United States is a serious disruption of energy costs in order to basically force the US to back off. It may make the calculation at some point if it's under so much pressure that it is, and there's a few ways it could do that. It's not necessarily just through the strait. It could also start targeting energy infrastructure in the region that might invite reprisals. Yes. But it depends whether the lead, the leadership of around at the time thinks that trade off is worth the risk because, the it very high oil prices, it's not clear how long Donald Trump with withstands that politically the rest of the world would be under a lot of putting on a lot of pressure. Gas I think is in many cases more severe, a constraint than oil in the sense of you could have availability crisis after a period of time, especially if you're hitting infrastructure rather than just shipping. 'cause shipping, you can restart infrastructure, you can't. So I think there, there is a scenario, but I don't think we are there yet at all. But there is a scenario where the leadership. Whoever that may be does decide that they're gonna, they're gonna roll the dice. And it may be because they don't see they have any other options to exert pressure.

Richard Sverrisson - Editor-in-Chief, Montel News: 11:54

How long do you think this dis disruption could go on for Dan?

Dan Marks - Research Fellow for Energy Security at RUSI: 11:57

Disruption could last for as long as the conflicts lasts. In fact, I think it almost certainly will last as long as the conflict lasts. Again, it comes back to the point that these are not hard attacks. So I think that the Houthis show that, that you can disrupt shipping relatively easily, but they were pushed to back off with some attacks. But the fact is that the Houthis weren't fighting, the United States at the time, they were supporting hammers. They had different kind of set of motivations for their attacks. Iran will be, disrupting shipping for its national interest, for its own security in the kind of survival of the regime. So it may be willing to push it quite a lot further. If it does, then it's quite hard to stop just because it's not a difficult thing to do in terms of disruption. That's not to say that they won't necessarily cause a massive spike to their oil and gas prices 'cause it depends the extent of the disruption and Iran itself again can escalate and deescalate and may want to calibrate what it's doing. It could last quite a long time. In terms of just disruption, in terms of a really severe constraint, I imagine it would force a question, right? So either, what did the US and Israel do? And this is why it might be tempting, if there was a real inability to get. Or they guess out, do the US and Israel escalate and try and remove the regime as fast as possible, or just protect enough, or do they back off in case it doesn't last very long? So that would be a relatively short term scenario. So you might expect that it wouldn't last that long. These things, they're. It is in, is inherently impossible to predict. There's so many scenarios.

Richard Sverrisson - Editor-in-Chief, Montel News: 13:32

What's the realistic sort of worst case scenario? You've highlighted some what's the worst case here? Are we misfired missile away from shutting down a fifth of global energy supply, both gas and oil.

Dan Marks - Research Fellow for Energy Security at RUSI: 13:43

That's a good, that's a good question. I think there are quite a lot of pretty dire scenarios possible. That's not to say that they're necessarily likely, there's always the chance of a tanker being sunk and environmental catastrophe that entails and potentially physically preventing ships going through. There's a major spill. As just saying, said like a full blockade may not be able to be sustained that long, but if there is very significant attacks from land, you might find that can be sustained for a longer period of time. One very significant or very serious scenario would be a kind of tit for ta escalation on for tax on energy infrastructure itself in the region. I mean that, that's fairly vulnerable as has been shown in the past when Iran attack facilities in Saudi Arabia. Obviously there's more defensive assets in the region now these are spread over a wide area and obviously for assets like Qatar, it's shared with Iran, so it's very difficult to protect these things. So if there wasn't an escalation there, that could be long term damage. These things take some time to medium term actually, or medium to long. So these can take weeks or months to, to repair. You take quite a chunk out of global supply if you then combine that with significant disruption to shipping. Then, you have a bad scenario. On the other hand, your oil markets are much more sophisticated than they were in the past. Gas markets less it's hard to predict what the impact will be, but I think, the impact on prices may be linked to how long traders expect disruption to go on for and how significant they expect it to be. So if there are attacks on infrastructure, there may be a view that this is going to last longer and also that the US and Israel are losing control of the situation and that's when you might get very significant price spikes.

Richard Sverrisson - Editor-in-Chief, Montel News: 15:33

It's obviously a very jittery market at the moment, and when prices move so dramatically because of a shutdown, of Qatari the Qatari LNG facility, then, that's maybe a sign of things to come, unfortunately. But, Hussein what is the big plan here? What. Yeah. Good. Good to have you back Hussein. Yes. Yeah, absolutely. I know it's, you're in Beirut and it's probably not the best internet connection, but I'm asking about President Trump's big plan here and how,

Hussein Ibish - Senior Resident Scholar at the Arab Gulf States Institute: 15:56

Let me break it down for you because it's really fascinating. It's a, it's an experiment, right? This is a wild gamble at the great roulette wheel, at the giant casino of fate. Because what he's done is to try to engineer regime change. The nature of which is TBD through air power alone. This has never happened in human history. Absolutely. There is no example of it as far as I know of. The thing is Trump is saying the regime is very weak. It almost fell a few weeks ago to the point that they shot between six and 36,000 people in a couple of days. So they obviously felt they were on the brink of potentially being overthrown and panicked and it was do or die. So they were willing to crush it with the utmost force. It's a kind of massacre that we really haven't seen historically, at least in a long time from any government, no matter how repressive. So they were obviously very weakened a few weeks ago. So the idea is that by pushing on the regime now weakening its capabilities, internal and external humiliating it wrecking up its command and control, destroying its political authority, destroying its strength in every way. And making it inviting the Iranian people both in World indeed to come in and take over and replace the regime with something else. And the problem is. That something else is unknown. So there are lots of fill in the blanks here. We know for sure the US and Israel are doing X, y, and Z thing, the bombing, this and that. They're bound and determined to destroy certain things, including Iran's navy, which has to do with the choke points we were talking about, especially the strait of Hormuz. But mainly the idea is clearly to weaken the regime so that some group of Iranians, either outside the regime or in the military or inside the regime will do something. Fill in the blank, that will produce a new government. That will be something else. Fill in the blank. Just not the old government, how different it is. I don't think Trump cares. He the ideal scenario from his point of view, I think would be a Venezuela scenario where you get the Iranian version of Delcy Rodriguez, someone within the regime who steps forward to say. There will be rough continuity with the exception that we will give into two or three of your major demands, and then we will continue to rule much as we did before, with the exception that we will give you what you want in order to remain in power. Now, that was pretty easy in Venezuela because the demands were so limited, right? Access. Oil industry for certain companies that you know may or may not be profitable in the end. And Maduro's head and some minor reforms. That was all that was asked for. Now in Iran, it looks like he's gonna want a lot more, a change in the basic system, a change in the relationship with these outside proxy groups. A renunciation of the use of most major long range missiles. Above all renunciation of the military nuclear program and, it's. It remains very much to be seen if this can be done with these tools. I think it's incredibly ambitious agenda, even at its most narrow. It's incredibly ambitious and the means don't logically produce the results, at least if history is anything to go by. So there's every possibility of what you end up with rather than a regime Change is a battered, beaten, angry, resentful Iran, right? That's frame at the edges with unrest in the provinces, Baluchi and Kurdish provinces. That's already happening and that is seeking revenge against its neighbors, biting its time, and is a wounded lion that is maybe more dangerous than ever in certain ways, and that's entirely possible. Another plausible scenario. Is that the government falls, but there's nothing clear to replace it. So that what you get then is a chaotic war torn Iran that spews violence in refugees in all directions. And that's another reason why most of Iran's neighbors, other than Israel didn't want this war to happen at all, including those that are very antagonistic towards the regime because they see the regime as greatly weakened and not nearly as much of a threat as it used to be. And also they worry about the alternatives especially when they don't see any plausible alternative government. When the US invaded Iraq, it was pretty clear who was going to take over the pro Iranian Shiite groups in Iraq would be the beneficiaries. I was saying that before, long before the invasion happened in fact in 2002, I was telling crowds in my speeches in the US that you don't know about the supreme Council for the Islamic Revolution of Iraq. You better learn about them because they and their friends are going to inherit power in Iraq. If we invade and overthrow Saddam Hussein, it was completely obvious who the viable alternative opposition would be

Richard Sverrisson - Editor-in-Chief, Montel News: 20:39

Hussein. I'll be a very fair point. We have to draw us to close, but Dan, if I can ask you, how do you see this playing out over the coming weeks and months? Hussein's laid out some scenarios here. Some, what could happen. What's your feeling?

Dan Marks - Research Fellow for Energy Security at RUSI: 20:50

I think at this point it's more or less impossible to say as Hussain says. So I think the, perhaps it's best to go back to the kind of worst case, best case scenarios. And again, for that, like I think you, again, reflecting on what Hussein says you are worst case scenarios really involve more or less two options. One is that Iran does manage to really close the strait to traffic, a large proportion of it to shipping and that this causes the US to back off. And that you then get a threat that this will just be used and reused so that there'll be continuous threats to, to the strait of Hormuz. And everybody knows that it's a very difficult thing to, to deal with. The other kind of significant scenario is that, Iran descends two civil war or some kind of chaotic chaotic state where there are extreme elements that fire on shipping like houthis elements or that kind of thing. It's obviously not Houthis, but in that kind of vein threaten shipping, threaten the kind of neighbors, increasingly used terrorist tactics. Target energy infrastructure. Don't necessarily have the same concerns about at that point, especially, don't have the same concerns about, the continuation of the state. They're no longer so worried about hyperinflation and about Iranian revenues and things 'cause they're a, it's more like a non-state armed group. Like these kind of scenarios. I think your worst case where you have real kind of chaos near your. Best cases are that the situation stabilizes relatively quickly. As we always with these things, that's what you hope, I think there's an interesting scenario of what happens if this ends up in a kind of uneasy, stalemate type situation that actually the forces inside Iran are not able to topple the regime or they just don't exist that kind of as a coherent force, the opposition. But the regime perhaps makes concessions. Perhaps those are accepted after a period of time. Certainly on the nuclear program, perhaps some concessions on ballistic missiles and then you end up going back to some kind of business as usual, perhaps with a weakened Iran with, for the time being, but still a lot of that infrastructure in place. So I think at this point it's too early really just to tell. I think the most troubling signs are that this is escalating. Iran has like deliberately and very specifically targeted across the region, made this a regional conflict, presumably that is to get maximum international opposition to this. Already most countries are uncomfortable with this as a military action. Is it legal? It's clearly a choice that I think is particularly troubling as a sign of things to come, like if you're attacking energy infrastructure directly, is it symbolic? Does it escalate? Is are there reciprocal attacks? Will, would the US or Israel attack kind of oil facilities in Iran? Especially there's port facilities and refining I think that's where you watch from an energy market perspective. Is this contained or is or is it kinda spiraling outta control?

Richard Sverrisson - Editor-in-Chief, Montel News: 24:03

Yep. Those are exactly the areas which we'll be looking at very closely over the days and weeks to calm down. But thank you very much Dan and Hussein for being guests on the Plugged In podcast.

Dan Marks - Research Fellow for Energy Security at RUSI: 24:13

Thanks very much.

Richard Sverrisson - Editor-in-Chief, Montel News: 24:14

To unpack how the strategic risks are now translating into market reality. I'm joined by Henning Gloystein of Eurasia Group to discuss what is escalation means for energy flows, prices, and the global economic outlook. Welcome back to the podcast, Henning.

Henning Gloystein - Eurasia Group: 24:29

Thank you, Richard. Good to be back, even if the reasons are a bit less good.

Richard Sverrisson - Editor-in-Chief, Montel News: 24:33

Yes. Which brings me I won't dilly dally or go straight to the subject at hand. Henning, events in the Middle East have taken a dramatic turn. Were you taken by surprise?

Henning Gloystein - Eurasia Group: 24:42

Yes and no. I'll start with the no. So Eurasia group we had last Friday, so end of February we put out our latest updates on this and we said where there's a 80% likelihood that there would be a US led strike against Iran. Okay, so that happened. We said it would happen by April 30th. We should have said it happened, would happen by March 1st. So that's the first thing that we, it happened very much sooner than than we thought it might, I mean by April 30th within Think it will happen in end of April, but we we had no idea when it would be. But the other thing is our base case scenario was another round of limited strikes as we saw last middle of last year when the US and Israel targeted military facilities in Iran, targeted some revolutionary guard leaders, and and then stopped and gave Iran a chance for limited retaliation and then move on. That's obviously not happened since of the last weekend. We know that the Iranian leadership especially has been taken out. He's dead. Several of his closest advisors, most senior people have been killed as well, and the US and Israel have attacked literally the entire country and they're continuing to do that. So that was on the most severe escalation that we expected. And it was more severe than we thought it would be. And the other thing that's of course now happened is the Iranian retaliation has been much more severe than we thought it would be, including, of course, now everyone's seen the images the attacks in Dubai on Abu Dhabi, Bahrain, Qatar. It's like literally the entire GCC countries are being targeted by by the Iranians, and we didn't expect that either. So Yeah, it's much more severe than we thought it would be.

Richard Sverrisson - Editor-in-Chief, Montel News: 26:31

And obviously we've seen markets react. Oil prices are massively up as are gas and power prices, and primarily 'cause of concerns about the shipping lanes and the strait of Hormuz in particular. Henning, what, we can see it's, effectively closed at the moment very little going through it. What are your expectations here?

Henning Gloystein - Eurasia Group: 26:50

Things have responded. Markets have responded very much in line with what we expected. We said, okay, there will probably be a eight to $10 initial price surge by Brent. That's pretty much exactly what happened. We went $80 in a bit and now would down a little bit again. Give or take there, the reason why it hasn't been more severe is global crude oil markets are quite well supplied. There hasn't actually been severe attacks against oil infrastructure yet. I say severe because the biggest Saudi oil refinery has shut down because of a drone attack. It's not quite clear whether it actually targeted the refinery or not, but this is not sure yet. And of course there have been incidents in the strait of Hormuz already. As you say, officially it's still open UK marathon trade operations, which is the body that oversees it says proceed with caution, but nobody wants to proceed with caution. So the fact as you say, Richard, it's no crude or tanker or LNG tanker is currently passing through. How long will that last is? We actually think not that long because as soon as this lasts for a few days, nothing comes in or out gas markets and oil markets would become quite severely distressed. And there are plans for maritime convoys to be put up so that oil and gas tankers could get in and out. You wouldn't be able to do normal shipping volumes. So for instance, in crude oil, that's 20 million barrels per day. Normally going through it would be probably two thirds of that at best. Even when you have maritime escorts some mines and some drones might get through. So you might have images of burning tankers. So it's not a business as usual, but that might be set up. What's going on at the moment is, first of all, the maritime operations need to be put in place by the naval hazard in the region to do that. And probably the global authorities like governments, EU, UK, US will be talking to the insurance industry to see whether you can do a collective war insurance deal for oil and gas tankers that are passing through under escorts to have a limited insurance premium on this so that they don't go bananas. And that will probably take a few days. And on top of that I reckon that the US forces will be trying in the meantime to take out a lot of Iranian capabilities to even attack tankers. It should happen at some point if there's no deescalation end time soon, which I don't think there will be in the next couple of days, but it won't happen overnight.

Richard Sverrisson - Editor-in-Chief, Montel News: 29:10

So you could see maybe to some extent shipping returning to near normal levels by early next week.

Henning Gloystein - Eurasia Group: 29:18

Near normal levels. That's I think depends on the point of view here is, we put the comparison here. So if 15 million barrels per day out of the absolute normal of 20 million barrels per day is near normal, then yeah. Okay. But that's still a 5 million barrels per day reduction of supply. And so if you let that happen, if this is were to happen for let's say a week or two. This wouldn't cause crude oil shortages anywhere in the world, but it would really tighten the market. That's a, it's a, that would be a, like a super effective opex supply cut there because, 5 million barrels per day, over 10 days, that's a lot of oil off the market. But I actually think the more at risk here is the energy market. The natural gas market. The global market isn't as well supplied. And the storage levels aren't that high in particular in Europe. It's coming out of a long as, the, the long cold winter inventory levels across Europe, in particular Germany, very low. So if this if there's a reduction in Qatari LNG through Hormuz. Or even a disruption some how attacked that, that could be quite severe. And you saw that in TTF prices today. They reacted more severely than crude oil markets.

Richard Sverrisson - Editor-in-Chief, Montel News: 30:27

Absolutely. And I think and those markets which are reliant on Qatari LNG. So I'm thinking if for those countries that Italy, Greece Belgium, potentially others as well, should they be worried now, Henning?

Henning Gloystein - Eurasia Group: 30:43

Yeah. Yeah. Of course it's a, it's such a escalation. This is a real war now. This isn't what we saw last year where there was limited attacks and the Iranian retaliation was almost announced by time and location. This is the Iranian leadership fighting for survival. And the way they're doing this is they're trying to, they're going all in by escalating maxim maximum escalation that within their means, by hoping that this is so severe, getting the GCC in it looks like CYP Britain's Afro space and Cyprus has been hit by a drone as well, although it's unconfirmed. But, escalate so far in the hope that a mercurial guy Donald Trump gets called feet and says, whoa, okay, let's do a deal. Because otherwise it's deaf. And the US government on Donald Trump is really doing a hard bet here as well. It looks like they're going to, that he wants to, push aside the entire leadership as, and the Israelis definitely want to be doing this. It's like sort of Benjamin Netanyahu once in, in a lifetime opportunity to get rid of that enemy. But if that fails, you are risking to, to throw the entire region into disarray, maybe civil war or even configuration. We saw Lebanon's been attacked again. So this is really quite serious. And of that is why of sorry for the long, windy answer. Yes, you have to worry. Any import reliant entity company or country that relies heavily on strait of Hormuz supply. The moment must be a bit worried. And I say this in the knowledge that last year at this point I was saying like, don't worry. It's gonna be fine. Hormuz will stay open, but this is much more serious than last year.

Richard Sverrisson - Editor-in-Chief, Montel News: 32:22

Yeah, absolutely. And it then also reinforces the dependence on, on another supplier, the US in a sense, this action. One would hope as well would accelerate the energy transition so that, maybe weaning off the fossil fuels would also be very firmly on the agenda. But Henning, last real questions here. What do you think are the long-term plans in the region for the US? Is this, it doesn't strike me as being incredibly well thought out in terms of part of a long term strategy, but I could easily be wrong. I'm not a geopolitical analyst.

Henning Gloystein - Eurasia Group: 32:53

My, my insights there are they're not that deep either with the caveat I've talked to US colleagues overnight a lot, and it sounds as though that the US intelligence itself is a bit split here. So if you take the maximalist supporters in the US government who are aligned with Mr. Netanya in Israel, their goal here is we need to not just remove the top leadership in Iran not allow B Team to come of the same regime or government structure to, to say for say, we need to get rid of them all, and this is our opportunity here. And if that view is successful, so this is maximum success point of view. From that point of view would be okay, you managed to install some maybe secular military leadership in Iran that deescalates it says we will let Hormuz shipping go under disturb. We will stop shooting drones and no nuclear enrichment. Thank you very much and peace for everybody. Trump has already said that he would consider dropping sanctions if that was the case. So this is what they're planning. And then Trump would be able maybe to go to the press and said since 1979, every single US president has failed to address this problem properly. Thank you very much. It was me. It's the best, most successful military action in history. And by the way, it follows the second most successful one when I removed Nicolás Maduro of Venezuela that narco terrorists and voila. And maybe then he'll get a ceasefire in Ukraine by shoving something down Ukraine's throat that they don't like, but Trump likes. And then midterm elections happen and he composed amazing success. I sound ironic here because I think the risks of that not happen, not working to plan are enormous. And that seems like there are significant parts of the US intelligence and, this leadership that are skeptical here as well. And that fear. That what will happen is that there's not a good plan, as you said, Richard, and they just wanted a quick hit that looks great, how many years gone and then let the, another team of the same sort of government, same place, or maybe even a civil war breaks out, but then they lose interest and leave the place in tatters and the entire region at risk of configuration. I dunno which one will work or which one will happen. But I think given the risks that this won't end terribly well, I dare I say, I don't think it was a particularly good idea. And of course, let's face the, a true thing here. The fact that the United States, together with Israel just interfered at this massive scale and just removed another sovereign leadership by killing them is quite, international law, convention, whatever, it's, we should all be shocked, but we're almost not anymore because it's so radical.

Richard Sverrisson - Editor-in-Chief, Montel News: 35:35

Yeah. I mean it's certainly very dramatic and a very high risk strategy. So Henning thank you very much for joining the Plugged In Podcast.

Henning Gloystein - Eurasia Group: 35:44

Thank you very much.

Richard Sverrisson - Editor-in-Chief, Montel News: 35:47

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