Bonus: A US shale pioneer on the Middle East war

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0:17Since the beginning of the Iran War, global oil markets have experienced a seismic shock. The conflict has sparked what the head of the International Energy Agency calls the worst oil supply crisis in history. Shipping traffic in the Strait of Hormuz has been effectively stifled, although both Iran and the United States have expressed some willingness to reopen the strait. Parts of the world are already grappling with higher gas prices and energy shortages. I'm Michaela Tendera, and today on a special edition of the FT News Briefing, we're taking a deep dive into how the oil sector is coping with this unprecedented disruption.

1:10Jamie Smith is the FT's U.S. energy editor, and he's been focused on making sense of this constantly changing situation in the oil and gas industry. Hi, Jamie.

1:20Jamie Smyth: Hello, Michaela. We're sitting down on a Friday afternoon after the U.S. and Iran both said they wanted to reopen in the Strait of Hormuz. But there's still disagreement and a lot's up in the air here. Can you just recap for us a bit? You know, since the war began in February, what has the impact of that been on oil? What we're seeing is the Iran war has created this blockage in the Strait of Hormuz. That's this narrow waterway between Iran and Oman, which carries about a fifth of the world's oil and about a fifth of the world's liquefied natural gas. So Iran started firing missiles at tankers and that sort of shut things down.

2:02Jamie Smyth: And then the US set up its own blockade to prevent Iranian tankers from getting out and providing oil to China and India. So that brought all oil and gas shipments out of the strait to a total standstill. So by blocking this strait, essentially you are forcing up prices all around the world of oil, of liquefied natural gas, of petrol, diesel, jet fuel. And we're beginning to see shortages in Asia. And people think this is going to spread to other parts of the world, Europe and even the United States within weeks. Now we're beginning to see a willingness from the United States and Iran to reopen the strait.

2:50Jamie Smyth: There are moves to go about doing this, but it's all uncertain and we're not quite clear yet how it's going to proceed. So this war's impact on oil markets is reaching historic proportions. But how does this compare to other events from the past? So the last big impact that we saw on markets was the Russia-Ukraine war in 2022. But that actually didn't create a physical shortage of oil. Not like we're seeing now. This is unprecedented because we're seeing a huge physical shortage. And that's really impacting markets. The oil producers are finding it difficult to get their products to market because of the blockage in the Strait of Hormuz.

3:38Jamie Smyth: Some of their facilities have become under attack. That has a huge impact on global markets. I really wanted to talk to some oil industry executives who've been around in the industry. And that's why I reached out to Scott Sheffield and his son, Brian. Now, Scott is really an important figure within the U.S. oil industry. He played a critical role in the fracking and horizontal drilling boom in the 2000s. He actually has lived in Iran. He moved there in the 1960s. When his father was sent to Tehran, he was a petroleum engineer. My father, he was an engineer with ARCO, Atlantic Richfield. He got the family together one Sunday in Houston and said we're being transferred over to Tehran, Iran.

4:31And I loved history. And so it reminded me of the Persian Empire going back to Darius Xerxes. I went over there when I was 13, entered the ninth grade, played American football on the U.S. Embassy grounds. I learned how to snow ski, one of my favorite sports over there. I loved traveling to the Tehran Bazaar with my mother. I learned how to negotiate with merchants and shop owners in the Tehran Bazaar, probably one of the largest in the world. I loved Iranian culture, Iranian people, and Iranian food. I will always remember one of the trips my father took me on. I was about 16. He took me down to Karg Island.

5:13Jamie Smyth: Now, that is the center of Iran's oil and gas industry. There's lots and lots of facilities there, storage facilities, refineries. And that's come under heavy missile attack during the U.S.-Iran war. I remember it was flat, desolate. There was a lot of tanks, large storage tanks. There was no really any military there at that point in time. Very calm, desolate, flat. I think the whole experience of living in Iran really impacted Scott. You know, it's something that he's brought up before in lots of conversations that we've had. Living in a foreign country is much different than visiting countries.

5:51Most Americans, as we all know, travel abroad, but they don't, they never get a chance to live in a foreign country. So you learn to work with the people and adopt their culture. You just can't take the U.S. culture into a foreign country. You've got to learn to eat their foods, learn to work with their governments. It's really important to establish yourself that way. And that probably was the greatest lesson I learned. So, Jamie, it sounds like Scott's unique experience growing up really taught him a lot and shaped how he eventually did business in the oil industry. And he's best known for being a pioneer of fracking and horizontal drilling in the U.S.

6:28So tell me more about that.

6:30Jamie Smyth: He's really considered one of the fathers of the so-called shale revolution. He sold his business, Pioneer Natural Resources, to Exxon in 2023 for$60 billion. So the shale revolution was based on a new technology of fracking and horizontal drilling, which enabled oil producers to dig into the earth and split the rocks to access oil and gas that previously had been unobtainable. And that really transformed America from being a net oil importer to a net oil exporter. And that's really boosted the independence of the United States now, compared to what it was like in the 1970s, when it was really dependent on Middle Eastern oil.

7:18Right, but I think a lot of our listeners might be hearing about this energy independence you're mentioning here and wonder, you know, if the U.S. has this dominant position, thanks to shale, why am I seeing higher gas prices right now?

7:32Jamie Smyth: One of the interesting things about the United States is it's awash with oil and gas. It is the biggest oil and gas producer in the world. What we're seeing is that United States oil is much in demand. A lot of Asian customers are turning to America. They're buying up U.S. oil and other petroleum products, such as diesel and gasoline, and bringing them off to fill the shortage in Asia. And what that means is that actually petrol prices have risen quite sharply here in the United States and diesel prices have also risen sharply. Now, Jamie, Scott's son, Brian, who's also in the oil business, he's a significant shareholder in an energy business with assets in Australia.

8:16You talked to him back at the beginning of the year, and he said that American oil producers need to look elsewhere for oil, that we've reached a peak, which really threatens this energy independence idea, doesn't it? What does Brian say about this now?

8:32Jamie Smyth: Yes, Brian's view is that the United States is running out of inventory. It's running out of the best drilling prospects that we've seen in the shale patch. And that's why companies will need to go overseas now. And as Brian told me, he sees real opportunity in Venezuela, where the U.S. earlier this year forced regime change and where President Trump has expressed interest in encouraging American companies to go explore and drill for more oil resources. We as an industry running out of inventory in our fields in America for the past few years. We've added more rigs. We're drilling longer, which means we're ripping through our inventory even faster.

9:14And that's what makes Venezuela interesting. There's infrastructure everywhere, right? And there's fields everywhere. And by the way, there are service companies there. So a lot of checks in the boxes, but it's like, will the politics stay in place? Are they going to be pro oil and gas? Are they going to be pro-America?

9:31Jamie Smyth: So what some of the shale entrepreneurs say is now is the time to go overseas, go to Argentina, go to Australia, go to the Middle East, other areas where there are possibilities to bring American fracking technology and know-how and exploit the resources in other countries. Yeah, that seems like something that's already been on Scott and Brian's minds. So when it comes to Iran, what does Scott think about the Trump administration's decision to go to war and the way that that's affected the oil industry? Yes, I asked him about that and whether President Trump was right to start this war in the first place.

10:12Jamie Smyth: And this is what he told me. I want the ability for people to travel back to Iran. I would like to go back someday. So I'm a firm believer in regime change. It's going to be hard, but people want a democratic country there, I promise you. I hope he can achieve it. It's going to be tough. He's got to solve the Strait of Hormuz. He has to get it open. We can't let Iran control the Strait of Hormuz. We have to open that up. It's got to be probably a joint force with Europe and with Asia eventually to open that up. And with the other Persian Gulf countries around the Arabian Gulf. And the same with Venezuela.

10:51I was glad to see what he did with Maduro in Venezuela.

10:54Jamie Smyth: I asked both Scott and Brian whether what's happening with the Strait of Hormuz is an existential threat to their industry. I do think that things will change. There's going to be less buying in the Persian Gulf over time. There needs to be diversification. So it's going to get everyone to rethink everything. I'm very positive that something's going to happen over the next few weeks that opens up the strait. My personal belief is that NATO will come in, countries in Europe will eventually come in under that scenario. So we don't see$140 to$150 oil. The world can't afford it. It's not good for the world.

11:30It's not good for the world's economy. So I think we'll do everything we can to control the strait with joint forces, even if it means putting troops on the ground around the Strait of Hormuz. Jamie, have you interviewed anyone else in the industry who shares the same view as Scott, that there should be, as he said, troops on the ground?

11:50Jamie Smyth: I think the oil industry was not cheerleading for this war to go ahead. It was an extremely risky operation, which the Trump administration pushed ahead with. One of the big problems was that over the last 20 years, successive United States administrations have done role playing. and they've looked and they've showed that the Strait of Hormuz was a critical choke point which could bring the world to its knees in terms of energy supplies. And the oil industry knew this and it had told the administration and yet the administration went ahead anyway with this war. And I think that was of grave concern to the oil and gas industry.

12:34But once the war started, the industry itself felt, I think, that, you know, at all costs,

12:43Jamie Smyth: The United States has to reopen this strait and make sure that tankers of oil and liquefied natural gas and other products can pass through the strait and they can't leave the Iranians in control. I did an interview with the head of the American Petroleum Institute, Mike Summers, and he told me that the United States had to do everything possible to reopen the Strait of Hormuz and end this war. And that included the concept that boots on the ground might be necessary. Just a note that the White House has said it had no option but to attack Iran to prevent it from developing a nuclear weapon, a claim denied by the Iranian leadership.

13:27Now, Jamie, another thing that's come out of this war is the question of what effect this is going to have on the medium and long term future of the fossil fuel industry.

13:37Jamie Smyth: Yes, the loss of 20 percent of the world's oil supplies, 20 percent of the world's liquefied natural gas is a huge shock. And what it's showing governments is that energy security is really key. And being dependent on fuel from a volatile part of the world is a risky business. So I asked the Sheffields this question about whether the Iran war will be the end of oil dominance as we know it. And this is what Brian said. The world's going to look at this a lot different in a positive way. They need us. They need independence. We need these resources to help lift poverty. And it's just an education.

14:18And yes, we need to be good stewards in the environment. We just need to be proactive as an industry to be better. And this war is going to make everyone focus. People want cheap energy, right? And I think it's just really going to help natural gas. There's so much natural gas out there and we need to go find it. That's what this business is about. It's a treasure hunt. We're going to continue to find that treasure to deliver to the consumers. Jamie, what's your reporting shown on this?

14:47Jamie Smyth: I think what's going to happen is that governments are going to look at their energy systems and they're going to try and ensure that they use as much homegrown energy as possible. And that probably means looking more at renewables, looking more at nuclear energy and trying to reduce their dependence on, you know, long supply chains for oil and gas all across the world. Now, it won't mean that there's going to be an immediate switch. That's impossible because our energy systems are all based 80 percent on fossil fuels. So it's going to take time, but I think this is going to be another impetus which pushes us possibly towards a rather quicker energy transition away from fossil fuels.

15:38This has been a really interesting conversation. And if listeners want to read more on this topic and past reporting on the Sheffields, you can check out the links in our show notes. Jamie Smith is the FT's U.S. Energy Editor. Thanks for your time, Jamie.

15:53Jamie Smyth: It was great to be here.

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