The war with Iran: what does the disruption in the Strait of Hormuz mean for global energy?

17:49Chris Aversano:And they've done that in the Red Sea, and apparently they're doing it now in the Straits of Hormuz. But again, whatever we're seeing go through are generally smaller and generally kind of general cargo, small ships just trying to get out, maybe just that are more for local type shipping.

18:07Amy Myers Jaffe:Right. So just to clarify those numbers, then you're saying, again, in normal times pre-war, you'd have had about 150 to 175 ships going through the Strait of Hormuz. Correct. Every day. Correct. And now you're saying what we've had, maybe 10 in total. And this is counting the ships that have gone dark and everything.

18:25Chris Aversano:No, we've had about 8 to 10 a day going through, plus another 10 or so of the bigger tankers where they kind of go dark. So then you're really ramping it up to about 11, maybe 12 a day, give or take. That's it.

18:43Amy Myers Jaffe:Got it. And to be clear about what that going dark means, so the AIS, this is Automatic Identification System beacons, right? Right. So this is what every ship has that tells everyone where it is. And this is one of the crucial things that ship tracking services like ours use to find where they are.

19:03Chris Aversano:And it also provides data with their radar. And I believe it could identify your call sign and the ship and things like that. So it's also an aid to navigation. It's a safety issue. So when you shut that off, you still can see the ping. In other words, you can still see the radar imagery. You just don't have the associated data with it. I'm dating myself. When I was sailing, we didn't have this. So I'm describing on how it was described to me. But think of it like when you see airlines and the black box. It's the same, not really a black box, but when you see the airlines and it has the flight number and it's the same idea for that.

19:42Chris Aversano:And, yes, we do have that service, but you could also see on the ship. So when you go dark, you kind of lose that ability to know what the other ship is exactly out there.

19:55Amy Myers Jaffe:Right. And you're saying you can spoof it as well. But if you're not a Chinese vessel, you can say, hey, we are actually Chinese.

20:01Chris Aversano:No, it's actually apparently the Chinese vessels are doing this. But yes, there is also a lot of spoofing, which is going to make keeping track of who's in and who's out a lot more difficult. And this is something that we've already started to see. Spoofing incidences have gone up. and just even keeping track because what happens is they start to spoof themselves in clusters. It makes the counting of these numbers a lot more difficult, and we're seeing that already, actually.

20:29Amy Myers Jaffe:And so in terms of, as you say, the big tankers, which are the ones that really matter for global energy, you're saying maybe one or two a day, what, of oil or of these LNG tankers? What is moving and where is it going, do you think?

20:46Chris Aversano:It's the crude oil tankers. So the bigger the crude oil ships. I haven't heard or seen anything on the LNG side. And just to give you a reference of what stuck, we did some analysis. We can count about 25 or so product tankers. In other words, some of the products, refined products. Amy, to your point, you know, where they had the double edged sword of the crude oil coming out and the refined product.

21:11Amy Myers Jaffe:And that would be things like what, gasoline or diesel or jet fuel?

21:15Ed Crooks:Well, I think the big thing is, I mean, jet fuel, you're talking about 1.1 million barrels a day of supply that normally comes out through Strait of Hormuz. So that's, you know, 17, 19 % of the market for jet fuel.

21:31Chris Aversano:Yeah. And we have what we're counting right now is a total of about 25 ships, about 1.8 million tons. The big chunk that's sitting inside the Gulf is about a half a million barrels of naphtha, actually, that we have. To your point, we count about 419 ,000 metric tons of jet fuel that's sitting on this side, on the inside of the AG right now. That's what we're counting.

22:04Ed Crooks:and i've seen like ed if you look at the charts that people are putting out about what percentage of the global market for different products are being held up you know naphtha is at the top of the list yeah right there it's something like 30 of the global market for naphtha comes out from

22:23Amy Myers Jaffe:the gulf which is typically what used as a petrochemical feedstock is that something for the petrochemicals industry you'd say you'd use naphtha for or for refining right i mean it's

22:32Ed Crooks:mostly affects the petrochemical industry. I mean, I think the thing that is sort of at least a little bit helpful is that in other parts of the world, like the United States, as I was saying, petrochemicals were kind of in the doldrums. And so there is supply that can be, you know, you have production that can be increased in the United States and other locations that can make up for some of that. But for individual businesses or individual suppliers, you know, losing that much nap is a big loss.

23:05Chris Aversano:And just to give you something, because this sort of came up in another context, which we could talk about in a few minutes, and that is to go from the just let's just say Fujairah or any center point in the Gulf to Singapore is about 10 or 11 days, give or take. To go from the U.S. Gulf is, you know, about 33, 34 days. So that 21-day delta, right, of that you can't get supply, basically, right? Because right now you're on the train of, you know, it's a 10-day voyage from load or, let's say, a three-plus-week round trip if you're just on the same ship doing it over and over. And now all of a sudden that becomes different.

23:51Chris Aversano:So what that does for the shipping market is create a lot of inefficiency, which is driving freight rates up as well. I've read people talk about freight rates being more paper rates because nobody's actually done the voyages. It's just what's being bid right now. But certainly it's going to have that impact.

24:10Ed Crooks:Right. And Chris, to your point, people don't even know whether to do it. You know, is the strait going to stay closed for 20 days, in which case they should do it and the U.S. petrochemical industry should gear up? Right. Or are we going to reopen in three days, in which case that would look like a dumb expense? Right.

24:25Chris Aversano:And then you're going to have an oversupply in, let's just call it Singapore or a tank terminal in Asia, for example.

24:33Ed Crooks:Right. So it's a very, I think, as a business proposition, I think it's a very difficult decision tree about what to do.

24:40Amy Myers Jaffe:Yeah, that's a really good point. For as long as there is uncertainty, people have an incentive not to commit to things. There is inefficiency, friction being introduced into the system, delays that pushes the cost of everything up. In time, we could adjust, but takes a long time potentially. And as you say, at the moment, Amy, we don't know whether to adjust or not, because we don't know how long this is going to go on for.

25:05Ed Crooks:To that point, Ed, part of the problem with the Russia-Ukraine conflict when it began, and we got to early 2022, the market did eventually adjust, and it turned out there wasn't really that big a supply change. It was just reasserting, like, who's supplying whom. In this case, it's much more complicated because of the uncertainty. It's not clear. You know, I mean, when the war started in Ukraine, nobody thought that was going to be a fast thing. In this case, people are trying to reassess. Are we talking about a long duration conflict? I mean, the Russian conflict, you know, we're 2026 and it's still raging on.

25:47Ed Crooks:So, you know, trying to think through what the consequences could be and what parties can last and who can't last. And, you know, you're just seeing a lot of speculation about that. But we're already 10 days in and the strait is still effectively shut down.

26:04Amy Myers Jaffe:Yeah, indeed. So just going back, Chris, to what you were talking about in terms of maybe one or two tankers a day going through with the beacons off and kind of slipping through having gone dark. um are these the very largest tankers that would a kind of a huge vlcc carries what maybe two

26:22Chris Aversano:million barrels of oil a vls is generally two if i remember correctly from my numbers it was two vls three suez maxes which is a million barrels and then a panamax so that's four million plus seven million barrels plus uh a panamax which is about 350 000 barrels as well That's on the sanctioned compliance ships. And then there's some other tonnage. That's the Iranian ships. I don't have any guidance on VLs or Suez Maxes. That's generally what they have that have gone through.

26:58Amy Myers Jaffe:Right. But anyway, that is an absolute trickle there compared to that 15 million barrels a day that was moving before the war. Correct.

27:06Chris Aversano:Yeah. And so let's just say we're 10 days out. You're talking maybe a billion, maybe, maybe probably less than that, actually, because they're not all VLs. So or, yeah, maybe a million and a half or something like that. It's not it's not what it was. And some of it some of it could already well be spoken for. So it's not it's kind of built into the system, not what's coming down the line.

27:30Ed Crooks:Well, and I think what's scaring the market is really that you're already seeing countries, Iraq specifically, but now increasingly people are talking about the same thing with Kuwait, is you're seeing countries have to shut in their production because they're running out of tankage to store oil. That worries the market in different ways because now I'm worrying about, well, how long would it be down and what would be the process to bring it back online and is there going to be some kind of delay with that? And then, you know, you have the example of what happened with Qatar with LNG, where they announced force majeure.

28:16Ed Crooks:They said they're going to be down for some much more lengthy period of time. Not we're talking about maybe a month or two or three, not a week or two or more. And and Chris, you can help the listeners understand what that means, because these kind of facilities, It's not like your light switch where you're switching it on and off. And same thing for the tankers. And so the longer it goes on, the longer it takes to bring it back online. Maybe you can help the listeners understand that in terms of the shipping side.

28:46Chris Aversano:Yeah, absolutely. And I think it's a real concern, especially when it comes down to the LNG carriers. So when you refer to tankers, you're generally referring to the oil tankers. So whether that's clean petroleum products, like we talked about, NAPTA and other things, or VLCCs, which is generally crude, SuezMax is generally crude, those are a little bit fundamentally simpler. Again, not easy, but just fundamentally simpler. And kind of the time between those cargos, there's not that much to do beforehand, right? Unless you're sitting for like a year or two, then it becomes a different story. But let's say even if you're waiting for three weeks, four weeks, a month, there's not a ton to do as long as you maintain the ship and you could do a bunch of things internally.

29:40Chris Aversano:It becomes interesting when you talk about LNG carriers. And really, there's a handful of different, let's call it, layups or different layups that they use. The first one is called a hot layup. And when we talked about this earlier, Ed, it was funny. You kind of said hot should be cold and cold should be hot. I get that. We'll explain why in a second.

30:03Ed Crooks:Because it's cryogenic.

30:04Amy Myers Jaffe:Because the gas is being carried at a very low temperature.

30:07Chris Aversano:For a hot layup, the engines and systems are live and tested every couple of days. But you can keep about 40 % of your crew. You're at anchor. And you can reactivate about one to three days. And I haven't heard of anybody being in any of these statuses yet for this reason. Warm layup is like your next level. And as power sources and systems are stripped back to essential, you have about five people. You're still at anchor. Reactivation now, you talk about one to two weeks ahead, right? Because you got to bring people back in. You have to start to warm up the tanks or cool down the tanks, excuse me.

30:44Chris Aversano:And then the last one is called cold layup, which is where the power systems are off. You have no electricity coming in. You're at anchor or link to shoreside power. It's about a month to reactivate. And some estimates are between one to two million dollars to reactivate. And that's to get, you know, your tanks warm, cool down. I think all these have a varying capacity of not keeping the tanks absolutely cold. But in this case, you're starting from scratch. And that's the most, you know, expensive and lengthy one for sure.

31:20Amy Myers Jaffe:Right. And so what you're saying is that of these LNG carriers, we don't know which ones might have been put in these various different kinds of layout. But that's going to be an important thing to watch, presumably, when we're trying to get an indication of how long is this going to go on, how long is this expected to go on, and in what forms it's going to take. Keep an eye on what people do with their carriers.

31:38Chris Aversano:Right. And I think what we're actually seeing a little bit, putting aside what's coming out of Qatar, is we're seeing now ships that were bound, let's say, to go to Europe from the U.S., but now are turning around and going to the Far East to start to replace these cargoes here. So we're going to start seeing more and more of this. Right now, it seems to be anecdotal, but I'm sure in the next couple of days, we'll get numbers about the ships that are doing that very thing.

32:13Ed Crooks:So let's talk a few statistics. 45 % in recent years of the LNG that was signed up into contracts worldwide went to what we call portfolio players. So that's companies like the Shells and BPs that, you know, sometimes remarket the barrels, basically, and sell them to different markets. Right. The interesting thing is the expectations were that 2026, we were going to have a 10 or 13 BCM surplus of LNG. Right now, we're talking about Qatar's portfolio, which before they were starting up the additional expansion of the Dome, North Dome, which is their main, which is their only, Ras Lafon, which was been disrupted by the war.

33:10Ed Crooks:Their export portfolio was 170 to 179 BCM. And if you think about, well, how many months disruption are we talking about? I mean, a three-month disruption is going to go way beyond this 10 or 13 BCM surplus that people were expecting in the market. And then you're going to add on top of that the fact that there were customers that were expecting to get new contract did volumes from Qatar later in the year. So it's really, on the LNG side, a very big disruption. And ironically, it's a disruption that's coming into a market where a giant surplus was expected to emerge. And now, at least temporarily, we're in a very different situation.

34:03Amy Myers Jaffe:Yeah, and I think that's a fantastic point. And definitely something I want to get onto in a moment is a discussion of the sort of wider impacts of this disruption on the global energy system. Before we do that, though, Chris, I wanted to go back to you about something, which is the question of, given this traffic has slowed to a trickle, as we've been saying, why is that? You hear a lot of people talk about insurance as being an issue. And this is something then which the US has moved to address. on Friday we had the US government announcing this 20 billion dollar facility backed by the Development Finance Corporation essentially insuring ships and their cargoes for moving through the Gulf with the idea that this would then fix that problem of insurance and make it possible for more shipping to move.

34:55Amy Myers Jaffe:How big of an issue is that really? Is it insurance that's been stopping ships moving and if so will this new u.s facility actually help them to get going

35:04Chris Aversano:so i don't know the second part to your question will it get going uh again i think there's a lot of uncertainty in that insurance market right because there's kind of and maybe you can keep this in maybe you can't but there's in generally i understand to be three big buckets of insurance okay there's your cargo insurance which is the cargo just the cargo itself there's what they call the hull and machinery, which is exactly what it sounds like. It's the ship itself. And then there's something called protection and indemnity. That's if you have a slip and fall, or that's if you have a cargo spill and then you pollute everything.

35:43Chris Aversano:Who's responsible for all that? And you have spill insurance, you have all these other things. So there's all these different buckets of insurance. So I think there's a lot of uncertainty about what, if anything, that the U.S. government will cover on these sort of things. Okay, we could pay for your ship, but we're not going to pay for the oil spill.

36:04Amy Myers Jaffe:Yeah, that's, as I understand it, that's exactly what they've said, that they've said we'll cover hull and machinery and the cargo, but only those two things. Yeah, but not liability.

36:14Chris Aversano:Right, and let's take the aforementioned VLCCs. The price of those are$120,$150 million brand new at$90 a barrel for 2 million barrels. It's$180 million. So 180 plus let's call it 120 for easy math because I'm a ship guy is$300 million. Fine. But what about the spill resulting in that accident that now messed up somebody's desalinization unit, which we haven't talked about yet, and you've polluted everything in a 30-mile radius? Who's responsible for that? So where does this fund take care of it? And I think that that's part of some of the questions. I haven't heard of anybody on the insurance side, what they're doing yet.

37:03Chris Aversano:I know that the insurance cover, I think, stopped on the 5th because you have to give notice. You just can't pull cover. I think it stopped on the 5th. So now today's the 9th. I haven't really heard any sort of changes. It sounds like the cost of cover has gone up exponentially to make a transit. it. But honestly, you know, I think I've read somewhere it's about a million dollars or something, depending on the size of the ship. But if you're talking about all the shut ins and other things, would people want to do it? Well, yeah, they'll pay it. But then it becomes, do you get the crews on board?

37:39Chris Aversano:You know, it goes back to these sort of things. There are some ship owners who were, would be willing to pay their crew more and send them through. And that's been well documented. There are other ship owners who will not do that until they have more assurances in terms of safety, not necessarily in terms of liability protection. And I think that for some of those owners, the reason why is because their seafarers live in their communities. I'm thinking of Italian and some Greek ship owners. So it's this balance, right? It's a huge balance that they're playing right now. And I haven't really heard much about will people start to move the needle in terms of insurance and, you know, want to go through.

38:21Chris Aversano:Amy, it comes back to your point. It's a massive amount of uncertainty. Right.

38:27Amy Myers Jaffe:And so then the question is, what can the U.S. do to resolve that uncertainty by presumably using military action to ensure that the passage of those tankers and other shipping is safe? I mean, I think back to the tanker war in the 1980s as a possible parallel there, right? When during the Iran-Iraq war, the US Navy deployed to the Gulf. It was the largest deployment of the US Navy at that time since World War II. And that actually seems to have been quite effective, wasn't it? That the Navy did manage. They had some missteps. There were some issues, but they did manage to get tanker traffic through.

39:10Amy Myers Jaffe:Is it plausible they could do something like that again, Amy, do you think? Is that what we're heading for?

39:15Ed Crooks:I mean, we're definitely heading for that. And just to remind people, not only did we have this military escort of the tankers through the Strait of Hormuz, but we had these wonderful minesweeper ships that went through and got rid of the mines because the Iranians had mined the Gulf. And so it wasn't even just that you had to worry about being shot at from your tanker. You had to worry that it would hit a sea floating mine. I think, again, not to harp on, you know, how the technology has changed. You know, absolutely, we're looking at different kind of plans for escorts. You have some NATO countries sending shipping down.

39:59Ed Crooks:The intention is to have those European militaries also escort ships through the straits. So I think sort of an escort plan is definitely in the works. But then I think there's this question, and we've already activated, again, which we can go down that rabbit hole in a minute, we've already activated pipeline bypass routes for some of the countries. And of course, a lot of the countries, whether you're talking about Saudi Arabia or Abu Dhabi and Kuwait, they own their own tankers. So it's not one of these ship broker, can I get someone to commit a tanker thing? They have their own tankers. So, you know, they're making their own logistical choices about how to go to these bypass routes and what that's going to look like.

40:50Ed Crooks:But still in all, the question is going forward, how does the United States convey to the market that they are taking actions to shut down these other kinds of risks, whether that's for the safety of the seafarers or whether that's because of this, you know, protection and indemnity, which, I mean, everyone in the Gulf always 24-7, even in peacetime, worries about a spill, especially because of desalination, but also because of the ecology of the Gulf and tourism. And, you know, there's just so many different reasons why the Gulf countries are, you know, unified in trying to protect that waterway.

41:35Ed Crooks:So, you know, how do we get to the point where some of the uncertainty is lifted? So, you know, you're never going to get to the point where you can 100 % say there's never going to be, you know, someone with a thing on their shoulder. But, you know, what about sort of really going for a number of days? Like, can we get to the point where we go for a number of days where it's quiet and And people say, oh, look, we're gaining on it. I'm going to move my ship.

42:06Amy Myers Jaffe:Yeah, so this is what I really wonder about. And this is what I wonder about, Chris, with reference to the Red Sea that you mentioned earlier, which is, I mean, it is clear that the US and Israel have massively degraded Iran's military capabilities. And if you look at the numbers of missiles and drones that have been launched, those have come right down. it is not clear that Iran's ability to hit shipping in the Gulf has been wiped out and that I don't have a good feel for at all but I think when you look at what happened in the Red Sea where the Houthis operating obviously on very limited resources and with strikes against them in order to try and suppress them and stop them attacking shipping they were able to carry on that campaign and stop some ships going through the Red Sea for a protracted period, weren't they?

43:03Amy Myers Jaffe:I mean, what's your sense of this?

43:05Chris Aversano:Well, I think it goes back to what we talked about earlier, and that was the supply chain just kind of absorbed the shock, right? And that was really more of a container ship issue, which we haven't really talked about, obviously, consumer goods.

43:20Amy Myers Jaffe:Yeah, sorry, just to be, just jump in, but to be clear what the shock was. So container ships, what, stopped moving through the Suez Canal on the Red Seal?

43:28Chris Aversano:Container ships were going generally going from Asia to the Mediterranean and then on to Northern Europe.

43:37Amy Myers Jaffe:And has that traffic been restored there? No, no. There was actually still not to this day.

43:42Chris Aversano:There was some talks about those ships at the end of the year in 2025. there was you started to hear chatter in the market about ships starting looking into going back through the Red Sea. And then this happened and nope, we're just going to keep going around, going around Africa and go servicing the markets that way. But really, it was a shock of the ships getting to the Horn of Africa and saying, we're not going through there, but we have an alternative and going around. And if I remember correctly, it was an extra 20 to 24 days, depending on where you were going. So yes, you would have a supply shock for those 24 days.

44:25Chris Aversano:But then as the ship started to route, as you adjusted your inventories, you were able to, for lack of a better term, figure it out. I think we're seeing a very little bit of this right now. And talking about, Amy, you mentioned earlier, some of the alternative pipelines which came into effect. Obviously, the east-west pipeline going from the Gulf side of Saudi Arabia into Yambu has basically gone a little bonkers. For example, we have some analysis that we've done internally with our maritime group. Yambu is averaging about 730 ,000 barrels a day lifting, which is, let's call it about half of a VL every day.

45:07Chris Aversano:So one VL every two days. since this started, there's been nine VLs loaded with two more loading as we speak, pushing up to somewhere around two and a half million barrels a day. So it's completely changed. All of those, except for one, have gone north into the Ain Sukna pipeline. Again, another alternative pipeline. So all of those have gone north and eventually they'll either continue north via the canal or go into the pipeline and then and then end up in Sydney Korea but generally servicing the European markets one ship was slated to go to Malaysia

45:48Amy Myers Jaffe:right that's fascinating so then because I was about to say well is the Red Sea not really safe for tankers either so they don't want to be coming down out of the Red Sea would they stay north now

46:00Chris Aversano:again so far eight of the nine that have been fully loaded as of this morning are indicating And it sounds like either they'll just drop everything off at Ein Sukhne and come back or they'll drop cargo just to get in and then go through the canal. I believe one or two ships are actually just shuttling. They're just going to go from drop it off at the pipeline and then go back to Yambu. so there is that happening again going through the Red Sea through that choke point where the Houthis controlled it if it's a ship going to Malaysia they could maybe send up the same sort of AIS signal that says we're Chinese we have nothing to do with this please don't hit us sir and you know go full steam ahead I'm not sure what will happen with that ship but that's what's happening right now.

46:52Chris Aversano:And again, it's a limited thing, but you are seeing that diversion of cargoes. Right.

46:58Amy Myers Jaffe:Just to check the places we've been talking about then. So Yanbu is the place on the west coast of Saudi Arabia where the pipeline ends and the tankers pick up the oil. And then they, as you say, sail north up the Red Sea to Ainsukna. Ainsukna, which is on the Red Sea side.

47:14Chris Aversano:Yep.

47:15Amy Myers Jaffe:And that's in Egypt, is it?

47:16Chris Aversano:In Egypt. Right. And then there's a pipeline that It goes from Einstruck to City Career, which is in the Mediterranean. Right. And you could pick up there. A lot of the VLCCs, the big ships, can't go in the Suez Canal fully laden. So they have to drop off part of their cargo and they either pick it up or a smaller ship will pick it up and the bigger ship goes on its way. I remember trading when I was a broker. We used to do tons of cargo out of City Career. and you would go to places that the big VLCCs can't go. For example, Augusta in Sicily.

47:54Ed Crooks:So the interesting thing is that the pipeline that the Saudis have can do a lot more volume than 2.5 million barrels a day. They can get, I mean, you know, 6, 7 million barrels a day, especially if they use drag reduction agents to enhance the flow rate.

48:11Amy Myers Jaffe:Again, just a footnote, what is a drag reduction agent? So that's a chemical you put in the pipeline, right? Right.

48:16Ed Crooks:And it makes the oil flow faster so you can get more to flow through with the same number of pumping stations. They use that in Colombia and places where the pipeline would get blown up. And then they put in DRAs, you know, to make up the volume that was lost. And, you know, you have a pipeline coming from the United Arab Emirates. So the question is going to be, again, like how how important did those pipelines become? Do they go to full capacity? Do they go beyond full capacity? You know, who's going to buy the oil that way? How desperate are people to get that oil? As Chris is saying, you know, is it how fast and efficient can we be, you know, going going through Ainsuchner and then picking it up again in the med?

49:04Ed Crooks:So I think it was designed to solve this exact problem. So it'd be interesting to see how it turns out operationally the longer things drag on. Right.

49:18Amy Myers Jaffe:But I want to be absolutely clear about this then. So as you say, there is extra logistical difficulty involved. There is friction. There is increased cost. But this is a partial solution. but it's very important to remember it is only a partial solution. This cannot replace the ability to get cargoes out in tankers through the Strait of Hormuz itself, right? I mean, it can mitigate the impact, not wipe it out. Or am I wrong? Go on.

49:47Ed Crooks:Well, let's be specific, okay? Doesn't help Iraq, doesn't help Kuwait, right? There was a time when people talked about building a little spur from Kuwait to the Saudi pipeline. You know, doesn't the UAE pipeline's capacity is smaller than its export rate? I think for the Saudis, it won't be barrel for barrel. But if they had, you know, Aramco is an extremely capable organization. I mean, you saw how fast they managed the problem when the Abkei processing unit got bombed in 2019. They repaired it in a miraculous way. They used inventories to keep the market whole in miraculous ways. So I would have confidence in them, if they needed to, to use this Yenbu line in a very effective manner.

50:47Ed Crooks:And one would imagine they got the spare parts and whatever it is they need if that pipeline got hit by a drone, right? I would imagine that they're in a pretty good shape in terms of really getting as much oil as possible out that way if it turned out to be a long-term thing.

51:04Chris Aversano:And then the other piece is it's not going to help the other products. So the refined products, not a question. And then the million-dollar question or the billion-dollar question is LNG. It's not an LNG pipeline. This is strictly crude oil looking at it from the macro view of the market. We can get some crude oil out that'll, like you said, maybe mitigate some of the headaches, not get rid of it. And the ships are there to do it, and they can do what they can.

51:37Ed Crooks:Like many things, and Chris, I'd love your opinion on this, money's money. At some point, if the price of oil was really high, people are going to take the risk on the tanker. you know, some trading company, I won't name names, is going to say to themselves, we'll find this number of seafarers that are willing to go through the straits. We're going to pay for the tanker. We're going to make so much money getting this oil through. We're going to take that risk. I mean, if we really came to it, I think, again, I won't name names. We can all imagine the trading companies that might take on that risk in a long-term way.

52:15Chris Aversano:Yeah. And I think and I think there's mechanisms for seafarers to, you know, to try to double their salaries. And, you know, is there some sort of thing in the charter party clause like you're going to identify the owner of any spill? I mean, there are all sorts of ways that people can can work on charter parties and come to agreements between the cargo owner and the ship owner. And even with just be a little bit careful, even with some of the ships that are controlled long term, you know, by, let's say, an entity, there's still an obligation with the ship owner when it comes to things like this.

52:53Chris Aversano:It's not like a carte blanche, right? Yeah, I understand. Even when you're building your own ship and you work for that company, you know, there still is the unions and the representation of the seafarers. But in general, yeah, you should be able, I would imagine at some point you may see somebody waiving a lot of money.

53:12Ed Crooks:Right, especially if we're having convoys and NATOs involved and so forth.

53:17Amy Myers Jaffe:Okay, so put you both on the spot. How likely is it that we will see normal or near normal flows of shipping through the Strait of Hormuz in a month or two months or three months? Is it likely that we will see the flows of trade coming back again, 50 million barrels a day of oil, 20 % of the world's LNG within a few weeks? $64 ,000 question. I'm looking at Chris. You're looking at each other to answer this one.

53:54Chris Aversano:You're a political expert, not some ex-ship guy.

53:56Ed Crooks:No, I'm just, tell us from a shipping point of view, because Chris, you make a good point, which is not just, am I willing to put my physical ship at risk, or do I trust some military escort? It has to do also with the sea fish.

54:08Chris Aversano:Yeah, I mean, right now there's so much up in the air, and we see things are changing moment by moment. I don't know if you guys have this same sort of thing, but a little bit of social media anxiety when you wake up in the morning and you look and check your news feed. And I think that that's not just indicative of me as a person, but, you know, an industry person. Right. So forwarding this to the human element of a seafarer, boy, a couple of months. I mean, if I'm a seafarer and I see gray holes around me. OK, I feel a little bit better, whether they're American or Dutch or or French or whoever.

54:49Chris Aversano:Right. Indonesian. I know they were involved when we had the piracy. I think there was some Indonesian Navy that was involved when we had piracies off the Horn of Africa 10, 15 years ago. So so do you get a coalition of Navy running in and out with kind of these kind of littorial combat sized ships? You know, you don't need a battleship. Maybe I feel a little bit better, you know, if I'm on a, you know, on a dry bulk ship with aluminum or something or, you know, something for a smelter. I feel OK about that. Again, LNG, different story. But I feel we're so far away because the sides just don't feel like they will feel like talking to each other right now.

55:29Chris Aversano:and if I'm a seafarer, you know, I'm very concerned about running through right now. Again, you've had a couple of reports of ships doing it with the AIS turned off. Maybe the price was right or maybe they had an agreement with the owner. That's one thing, but wholesale, I feel like we're a little further away than what you think. Amy, what do you think?

55:51Ed Crooks:So what I would say is that there's definitely a military effort, not only to think about how an escort system would work, but also to think about units whose job it is to shut down asymmetric warfare. So I think that in the early days, fog of war, you don't see that progress being made. Maybe as we kind of time goes on, you're going to see more and more progress in that regard. And so I think the question, that's why I say this thing, like how much money does it, you know, does have to be at risk before you start to see people take a different attitude. I think it's really like how low can we get the level of risk?

56:43Ed Crooks:and how high does the penalty of not sailing become? Because it's not just about, you know, we're doing this podcast and a lot of people are listening to this podcast and they're sitting in the United States or they're sitting in Europe and we're talking about oil prices. But for the countries in the Gulf, not only is there this horrific human element of, you know, air raid sirens and the kind of things that, you know, come about at a time of war. There's also just the fundamentals, how much of your economy and your budget is tied to getting these products out to market and getting that revenue in.

57:30Ed Crooks:And so I think that decision makers are going to have this many different things to weigh in terms of the decision making. You know, that's why I think that the pipelines make sense. I think that worrying about civilian targets and worrying about upstream targets by upstream targets, I mean my critical infrastructure, as opposed to ships or berths or some of these things that are kind of maybe easier to repair. Yeah.

58:08Amy Myers Jaffe:So that's things like oil fields, gas fields, processing plants, pipelines on land, all of that.

58:15Ed Crooks:Pipelines actually are pretty easy to repair. I mean, our experience with war has been pipelines are easy to repair. But, you know, I mean, everybody has to sit and think about their strategies. There's so many things to think about. Can you launch a drone without a truck? Right. Right. So, for example, when you look at because there's a lot of criticism about whether or not, you know, should they have picked bombing fuel depots or this or that? Like it's hard to launch a drone without the truck platform. And if you don't have fuel for the trucks, then, you know, guess what? Right. So there's many different ways to approach some of this risk.

58:57Ed Crooks:and those of us who are watching from a distance and you just wake up in the morning and you immediately go to social media to see if anything got blown up, like that's strainful, but there are people who are really skilled, you know, working on the problem at many different levels, thinking strategically how to shut it down. So I like to give them credit and hope that we're not having a podcast at the same level of intensity in three months than we are now for the next couple of days. But, you know, it's complicated.

59:32Chris Aversano:Well, no, I think the other piece, too, is we're talking about getting products and goods on a ship out of the Gulf, but there's a lot of products and goods that aren't coming into the Gulf, particularly food and other things. Going back, again, outside of the normal field of kind of this discussion, but talking about container ships, MSC, the Mediterranean Shipping Company, just declared end of voyage at the end of last week for their ships, for their container ships. What does that mean? Well, if you have a container that is, let's say, in the Pacific Ocean or in the Indian Ocean heading for a Gulf state, they basically said, nope, we're going to drop the container off at the nearest port.

1:00:20Chris Aversano:We're going to, I think, have a surcharge of$800 for dropping it off early. And that's it. We're done. We're not going to take accountability for this cargo. So I think we've been looking at this problem from an outbound cargo point of view of getting exports out. But they need to get some imports in, you know, in order to sustain. So I think that that could be another point of pressure. does food run out do supply you know then you talk about medical supply you talk about food you talk about all these other things not just for the the gulf state residents but then ships run out of food too right like so then you know the cruise so that could be another pressure point of hey we don't have stores like we've run out of fresh milk or we've run out of meat or we've run out of you know usually ships are good for a few weeks right but after a while so i think there's

1:01:18Amy Myers Jaffe:going to be a multiple pressure points here. Yeah, that's a great point. So look, as a final thought, I just want to ask about what this is going to mean for the future of energy, perhaps in the short term and the longer term. As I was saying earlier, this is in a sense a very predictable crisis. It was predicted and discussed for decades before it eventually hit. Do you think that the world of energy is going to be very different as a result of it.

1:01:51Ed Crooks:So this is my feeling. This is where I think, Ed, you might not agree with me. OK, so anytime that so that started in 2022, I'm India, I'm Pakistan, I'm countries in Asia. And I suddenly realize that LNG was not this reliable commodity that I thought it was, that the prices are crazy volatile. It's messing up my economy. I mean, the Chinese made that decision about oil and gas, you know, decades before. That's why they have their whole program in cleantech. So if I can control cleantech inside my country, then I feel more secure. Once I put a solar panel up, it's there. Once I put a wind installation in, it's there.

1:02:40Ed Crooks:So there's still this sort of what's happening in critical minerals markets. That's still a thing. But if I have supply chains and I can switch to this thing that I can control, I'm interested. So I personally think it helps clean tech. And indeed, on the flip side of that, you know, and I've talked about this study in the past, and it's going to be one of those studies that every three or four years I'm going to say, oh, look at this study I did, you know. So together with a scholar from Rice University, we looked at, is clean tech investment pro-cyclical to oil? In other words, when oil prices are up, do people invest more in clean tech startup companies and technologies and renewable projects or not?

1:03:34Ed Crooks:And the answer is yes. When oil prices are going up, people invest more. Countries do more R &D. Governments subsidize things more. The American oil companies, the big oil companies, the Exxon Mobiles and the BPs and companies like that have extra revenue and they use them to invest in new technologies and batteries and things like that. technology. So if this turned out to be prolonged, I do think it's actually good for clean tech. And I think it's good for the environment. And I think that people might come away and say, oh, geez, I want to go towards clean tech. Now, the flip side is, let's say it's not as prolonged.

1:04:24Ed Crooks:I mean, could we do an optimistic scenario where there's actually peace in the Middle East? I mean, under a scenario where there's peace in the Middle East? I don't know. How many years would it take me to believe in that so that I stop investing in clean tech?

1:04:42Amy Myers Jaffe:I agree, in fact, with the first point you were making, which is that just in terms of risk management, because we're in a position of uncertainty. We don't know what's going to happen to fossil fuel supplies and fossil fuel prices in the future. Diversifying away from them as much as possible in order to minimize your exposure looks even more compelling now than it did two weeks ago. I think that is very clear. If you think about Europe, which is now seeing its gas prices soar again for the second time in four years, The case for investing in renewables, in nuclear power, in more transmission to connect grids together, in demand response, VPPs, all those technologies we talk about a lot on this show.

1:05:28Amy Myers Jaffe:That case is becoming even more compelling now, I think, because of this. One way to view what we're seeing at the moment is it's a reminder of just how reliant the world is on fossil fuels, just how important they are. That's definitely true. And it shows how completely embedded they are in our economy and how we can't move away from them quickly. It's got to be a slow transition. But even so, it does also tell us that where you can make a transition, it's probably worth doing. and so I think that kind of competing impulse and as you say you talk about China when you think about everything China's done in terms of developing its cleantech industry investing so much in EVs the way that EVs have soared as a share of China's vehicle market all of those moves have been absolutely vindicated by what we're seeing right now in terms of the spike in oil prices.

1:06:29Ed Crooks:And literally BYD just this week announced some$9 ,000 vehicle that can charge in like one tenth the time of, you know, a Tesla.

1:06:39Amy Myers Jaffe:Yeah, absolutely. And to be fair, you know, BYD has got its problems. It's absolutely not the case that everything about that Chinese industrial strategy has been perfect and brilliant. There have been some real problems with it along the line and there's some real problems with it now but it is still at least something which is cushioning the impact of this on China and so again when you think about what Chinese policy is going to look like I'm sure a redoubling of those efforts towards renewables and nuclear so again I think it is the case that just putting climate considerations entirely to one side and obviously coal does nothing for the climate if you're going to burn more of it but as I say taking only an energy security perspective, the arguments for diversifying away from oil and gas are very much being underlined by what's happening at the moment.

1:07:35Ed Crooks:And, you know, it's very interesting because, of course, you know, you're right about the resurgence of coal. The interesting question will be for countries that are climate oriented, Would this mean that, you know, CCS for coal plants is going to find its moment? But I think the other thing is the Chinese five-year, new five-year plan is starting to, sort of the details are starting to trickle out. And one of the high points, in fact, is that China's looking more at pumped hydro as, and other kinds of innovative storage off of the electricity system. and incorporating more integration of renewables in ways into their electricity system is coming out to be a bit of a priority on the energy side.

1:08:26Ed Crooks:So that's kind of going to be an interesting development. And of course, once they come up with a solution that's working, they export that solution.

1:08:35Amy Myers Jaffe:Absolutely. And then another industry that could really get a boost from this, I think, is green hydrogen. I was talking at the beginning of the show about how important the Gulf and Strait of Hormuz is for the global trade in urea for fertilizer an alternative route to get that is by electrolyzing water making green hydrogen and turning that into ammonia and using that that could be a viable source particularly in areas that have low-cost production like China like India and if conventional sources of fertilizer as a supply are disrupted, these new sources could come to be increasingly viable.

1:09:17Amy Myers Jaffe:So that's definitely another thing to watch, I think, is that green hydrogen value chain really rising towards commercial viability much more rapidly.

1:09:29Ed Crooks:And I think that, Ed, you know, to your point, it's not just that we have the disruptions of 2022 and have this coming so close along in time. There's also COVID, which disrupted all kinds of supply chains. So countries, again, you know, maybe it's not efficient and there's reasons why we trade globally to, you know, lower costs and, you know, hamper, damp. There's reasons we trade globally to lower costs, to dampen down inflation, et cetera, et cetera. But when you have these crises, like even when they're temporary, they have a psychological impact. And it does really make politicians focus squarely on what can we do inside our own economy to control this.

1:10:20Amy Myers Jaffe:So we are going to leave it there, but it's been fantastic talking to you both. Many thanks, Amy.

1:10:26Ed Crooks:Thank you, Ed.

1:10:27Amy Myers Jaffe:Many thanks, Chris. Thanks for having me on, Ed. it's been a great pleasure again everyone check out chris's podcast the last dinosaur wherever you get your podcasts hopefully we'll get you back on again to talk very soon and we can follow the latest developments in what is obviously a very fast moving story and still potentially big changes to come many thanks to our producers stuart duffy toby biggins gilchrist and dan cotrell and above all as ever many thanks to all of you for listening we really value your feedback Please do keep that coming. And we'll be back very soon with all the latest news and views on the future of energy.

1:11:03Amy Myers Jaffe:Until then, goodbye.