The Iran war and the future of energy

0:00This message comes from Mint Mobile. If you're tired of spending hundreds on big wireless bills, bogus fees, and free perks, Mint Mobile is for you. Shop plans at mintmobile.com slash switch. Taxes and fees extra. See Mint Mobile for details. WBUR Podcasts. Boston. There's no obvious big changes in production or any changes in the straight-up-home condition. It's really changing expectations. Gas prices jump overnight, spiking the national average to$4.30 a gallon.

0:49It's Thursday, April 30th, and this is Here and Now Anytime from NPR and WBUR Boston. I'm Shiko Thimuri. Today on the show, could this ongoing global oil crisis birth a new world order? If the Strait of Hormuz remains closed, it's only going to get more difficult. And what countries are doing is rationing supplies where they're really hard hit. But people will be saying, well, we need to think much more about energy security than we have in the past. But first, oil prices are up again. Overnight, prices jumped to their highest point since 2022, as investors fear the U.S. and Iran are still far from a peace deal.

1:33Prices have since fallen back today, just as the Commerce Department released a report showing GDP grew 2 percent in the first quarter of the year. Mike Regan is managing editor at Bloomberg, and he breaks down the latest with Scott Tong. Well, a big part of it is just traders in the energy markets are obviously looking at every bit of news coming between the negotiations between President Trump and the leaders of Iran. And when Axios reported yesterday, it was the first report anyway, that Trump basically was rejecting Iran's latest offer because it did not resolve the nuclear weapon issue. It just made it clear that this closure of the Strait of Hormuz, through which something like 20 % of all the world's energy flows through, all of its crude oil at least, it just confirmed their fears that this issue is not going to get resolved anytime soon, that that really important choke point for the world's energy markets will remain closed until further notice.

2:42So really just a tough pill to swallow for the energy markets. Interpreting it as a prolonged stoppage going forward, perhaps. Now, for Americans, first of all, this country pumps a lot of crude oil, and yet you and I pay the same price the rest of the world pays, which is$4.30 in the U.S. right now. Crude oil, we know, also goes into jet fuel, into diesel, trucking. Are we seeing other measures of price inflation pushing up? Yeah, we really are, especially on sort of that industrial wholesale level. When you think of all of the various industrial materials and gases and petrochemicals that are either derived from oil or heavily relying on it in their production, things like polyethylene, PVC, even the fertilizer complex, helium, one that surprised a lot of people.

3:41obviously used in party balloons, but also very important in many industrial applications. Semiconductors making, yeah. Yeah, making semiconductors. So right now we've really seen spikes on the wholesale level for these materials, but they're used in so many of the goods that we consume. And when fertilizer is lumped in, even the food we eat. So, you know, the worry is that those price increases will feed into everyday prices for all of us the longer this goes on. Yeah. Now, most of the oil and natural gas from the Persian Gulf that was flowing was flowing to Asia, where things are much worse.

4:22We know flights are canceled in Vietnam. Four-day work weeks are in place in Sri Lanka. the Philippines declared a national emergency. Mike, are people starting to use a longer term term here like energy shock? Yeah, they certainly are, Scott. And it's one of those terms that doesn't have a real concrete textbook definition, but it's certainly being used left and right by economists who are saying either we have entered one already or one is on the way. And that means They're cutting their estimates for economic growth, raising their estimates for inflation. And to your point, at one point, it becomes a bigger issue than just higher prices, which are obviously a big enough issue on their own.

5:10But we start thinking about potential shortages. If you can think back to the 70s when some gas stations in the US just ran out of gas and people were unable to fill their tanks. That's going to be, I think, a bigger issue, at least in the near term, overseas, to your point about Asia, and as the winter approaches in Europe, too. These are going to become, I think, bigger and bigger storylines as we move forward. Back in this country, Mike, we got GDP numbers out today, 2 % growth in the U.S. economy in the first quarter of the year, a little bit lower than many expected, though. What do you see?

5:47What's going on? Yeah, less than the 2.3 % average estimate. Remember, so that's for the first quarter, which really only included the first month of the war in March. But what it really is showing, Scott, is that this artificial intelligence frenzy that we've seen in the U.S. and globally, really, is really what's driving growth right now. The spending to build out all these data centers and fill them with computers to run these artificial intelligence applications is really driving the bus with the economy right now. Business outlays on equipment and structures increased 10.4 % in the first quarter.

6:29That's a huge number. So from the headline of economic expansion, it's good news, but a lot of questions about, well, what is this AI going to mean for the economy in the longer term? Is it going to be used by companies to increase their efficiency and then hire less and maybe even fire a bunch of workers that they don't need. So, you know, it is pumping. But for now, they're constructing, as you're saying. Yeah, for now, the build-out is in full force. But, you know, the longer-term implications of this really have a lot of people worried. Yeah. It's Mike Regan, managing editor at Bloomberg. Mike, thanks as always.

7:10Thank you, Scott.

7:17Coming up next, we get perspective from an economic historian about how this oil shock could rebalance global power. Stay with us.

7:39Hi, I'm Erica Henningsen, and in The Midnight Rebellion, I play Dr. Elizabeth Green, a brilliant physicist who is not afraid to speak her mind. She is passionate, fierce, and she is a mom who cares deeply for her family. I can't wait for you to hear her story. Listen to The Midnight Rebellion from WBUR wherever you get your podcasts.

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9:08Will this reshape the energy world? Daniel Juergen is an energy historian and vice chairman at S &P Global. His 1992 book, The Prize, won the Pulitzer Prize, and his recent book is The New Map, Energy, Climate, and the Clash of Nations. Dan, welcome back. Thank you. So real quick, crude oil is very expensive. The average price of a gallon of gas in the U.S. today is$4.30. Are energy prices going to stay high right now? By all indications, energy prices will stay high, and there's a risk they'll go higher as long as the Strait of Hormuz is closed. And what we're seeing in the United States is higher gasoline prices in other parts of the world.

9:49They're seeing actual shortages and rationing. Yeah, I do want to ask you about that. But just kind of contextualizing this moment, many analysts are comparing this current shock and the closure of the Strait of Hormuz to the COVID pandemic back in 2020. Supply chains failed, right? Not enough masks, not enough ventilators. Now it's our energy supply chain that is failing in a way. Are we seeing countries now taking action to Hormuz-proof their energy economies? Are they thinking about backups now? Everybody is trying to figure out what do you do to minimize what is the biggest disruption in the history of modern energy.

10:29But there's not a lot that you can do in short term. If the Strait of Hormuz remains closed, it's only going to get more difficult. And what countries are doing is rationing supplies where they're really hard hit. But people will be saying, well, we need to think much more about energy security than we have in the past. Yeah. Well, I've been reading about the energy. I mean, crisis, crisis in some Asian countries. Laos has shut down gas stations. In India, restaurants have closed because they don't have enough petroleum to make food. The Philippines has an energy emergency. Vietnam has canceled flights.

11:04But there's also an electricity issue. Many Asian countries rely on natural gas from the Persian Gulf. And so now several Asian countries are restarting their coal plants. And I want to ask you about that. Coal is dirtier for the air, puts up more carbon dioxide than alternatives. Could we see a longer term rise in coal? I think that we are seeing people turning back to coal, using coal, and as long as their short supply of natural gas or it's very high priced, they will do whatever they can to keep their electricity going and their economy going. It is, Scott, striking why this disparate effect around the world.

11:45And it's because economically, the Strait of Hormuz basically, in economic terms, flowed east. 80 % of the oil from the Persian Gulf, 90 % of the LNG, the natural gas, all went to Asia. And by comparison, the United States is, relative to everybody else, is in a very strong position because it's energy independent and, in fact, a major supplier of energy to the world. Four countries that are still very dependent on fossil fuels from the Persian Gulf. Many of them have been moving toward renewables, wind and solar. Could they speed that up? Not necessarily for the climate, but to make them again Hormuz proof?

12:25I think that's a shift now in terms of looking at renewables, wind and solar, in terms of energy security, not in terms of climate. And that's a big turnaround. And I think that's going to be one of the lasting effects. That addresses electricity. And even before the crisis, 90 % of the new generating capacity adding around the world was wind and solar. It doesn't replace liquid fuels, which you need for transportation or people use for cooking in India. We can go down the list of things or making fertilizer, for instance. But I think this is definitely a boost for renewables as part of an energy security matrix.

13:03You mentioned the United States. You and I have spoken over the years how the U.S. has become an oil and natural gas super producer, right, largely because of this technology to fracture or frack rocks that have oil and natural gas inside. And yet today, Americans are paying on average$4.30 a gallon. Remind us why that's the case. The reason is that at the end of the day, there's only one global oil market, even if it's fractured somewhat, and the prices from the rest of the world radiate back to the United States. We're not seeing shortages. We're not seeing gas lines or anything like that. But we are seeing prices tick up because of that.

13:44The other thing to keep your eye on is jet fuel. Persian Gulf, those Arab countries were major sources of jet fuel, and shortages of jet fuel are developing around the world. Airlines are canceling flights. But the U.S., relatively to everybody else, is in a much better position because of our energy endowment. Another big oil exporter, of course, is Russia. And now in this war, it is selling each barrel for a lot of money, more than 100 U.S. dollars, in part because sanctions against Russian oil have been paused. So they're making a lot more money. To what degree is Moscow another winner here in the world energy map?

14:23Oh, Russia is definitely a winner. I saw an excerpt of Putin speaking at the Kremlin about a week or so ago, and he looked so smug and so self-satisfied. Now, the Ukrainians are doing everything they can to disrupt the Russian supply chains, attacking refineries, attacking export ports. But basically, Putin is doing well out of this, as China is doing well out of this relatively. And then there's a question of OPEC. tomorrow. We know the cartel is going to lose a key member, key exporter, the United Arab Emirates, which in this war, of course, has been attacked by Iran, another OPEC member. We spoke this week to here and now business analyst Robin Farzad, and here's what he told us.

15:04They can't feign friendship anymore. You know, you guys hold hands and there's unanimity when there are OPEC and OPEC plus meetings. But let's not forget what's just happened between Iran and the rest of the Arab Gulf. UAE in particular has been shelled, what, 2 ,800 times? So they're supposed to go back to the table after this and pretend that nothing happened. So Dan Juergen, OPEC with fewer members and with more oil in the world produced outside of OPEC, including in the United States, is OPEC going to, going forward, have less influence? Yeah, I think that's definitely the case. It's a very important step.

15:39Smaller countries, Smaller producers like Ecuador and Angola have left OPEC in the past, and it really hasn't mattered. But the UAE is a big producer that intends to become a bigger producer and wants to go along its own path. And I think this reflects tensions. Iran has attacked the UAE more than it's attacked Israel. But also, you know, there's a competition between Saudi Arabia and the UAE. And I think it also has to do with sending a message to Washington. Dan Yergin, another big structural change in world energy is all these data centers going up around the world, certainly not far from me in northern Virginia, to power the AI race.

16:23These data centers are so energy thirsty. With this demand and with the fragility in natural gas and oil, what sources of energy are going to make all this electricity? The big tech companies, the hyperscalers, are going to spend upwards of$700 billion this year on building data centers. And some estimate that that's equal to about half of all of U.S. economic growth. Our estimates are that data center consumption of electricity in the U.S. will rise from a current level about 5 % to as much as 14%. Some say 17 % by 2030, which is not very far off. So there's a real race to assure that the electricity supplies are there.

17:04And even before the boom started, we were already looking at tight supplies for electricity in the U.S. So this is a major question. And the challenge is where's electricity going to come from? How much is going to be generated by natural gas? How much by renewables? When will nuclear start to become a bigger element again? And one of the striking things is the turnaround from five years ago in terms of nuclear, where it was sort of seen on its way out. Yeah. And these nuclear power plants were going to be closed. We're actually seeing nuclear power plants that were closed that are now being brought back to life again because of electricity needs.

17:41And, of course, there's a lot of focus on nuclear technologies like small modular reactors, although that will take time. But we think of energy security in terms of oil and gas, but it's also now very much a question of electricity. Daniel Juergen is an economic historian and vice chair at S &P Global. Dan, always good to talk to you. Thanks so much. Thank you.

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18:59Louisiana and other southern states plan to suspend congressional primaries to redraw voting maps in line with what the conservative high court deems constitutional. The high court's ruling could spark the largest ever decline in Black members elected to Congress. And Democrats say this will send America straight back to the Jim Crow era. The recent record makes clear that ongoing voting discrimination is alive and well in ways that specifically intended to, but also have the clear effect of locking out Black voters and other voters of color. And so the protections of the law are necessary. The picture of progress should not be one used to blind us to the fact that we still face challenges when it comes to accessing democracy.

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