Will the strait of Hormuz torpedo Trump’s war?

0:00This is The Guardian.

0:08Today, could the Strait of Hormuz dictate the end of the war?

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0:55Jillian Ambrose:I started my career as a journalist as a market reporter covering energy commodities. And the Strait of Hormuz was always this example used to terrify young market reporters. Gillian Ambrose is The Guardian's energy correspondent. Understanding how oil and gas move around the world is her thing. This is a tiny choke point in the Middle East, which can affect the entire global market in minutes, if not hours. It's almost mythic in its proportions. It's the ultimate sum of all fears for the market. The Strait of Hormuz. You've probably heard quite a lot about it by this point. It's a stretch of water between the Gulf of Oman and the Persian Gulf out to the Arabian Sea.

1:43and it's kind of like the world's petrol pump. 20 % of the world's oil is transported through a strip of water that is just 21 miles wide. And as the US in Israel's war on Iran has ramped up, the thing that keeps energy reporters up at night, it's happening. Today will be, yet again, the highest volume of strikes that America has put over the skies of Iran, ramping up and only up.

2:17While the US and Israel have been bombing Iran from the sky, Iran has launched its fight back from the sea. Iran's Revolutionary Guards warning that any ship passing through the narrow strait is a target. It's shut down the strait.

2:35Jillian Ambrose:This crisis has reverberated from a tiny geographical quirk in the Gulf, rippling through the global economy and will affect absolutely everyone from schools in Bangladesh being closed down to stone cottages in Northern Ireland running on heating oil, which has more than doubled in price. From The Guardian, I'm Noshin Iqbal. Today in Focus, the narrow channel of water pushing the world into chaos.

3:10Ginny Nambro is your The Guardian's energy correspondent and you've been keeping a very close eye on the impact that the war on Iran is having on global oil and gas prices. Let's begin with why the Strait of Hormuz, a stretch of water between the Persian Gulf and the Gulf of Oman. Can you tell me a bit more about the geography of it and, you know, which countries border it and why it's so crucial to understanding this story?

3:37Jillian Ambrose:Absolutely. This really is a story about geography. And if you think about the Strait of Hormuz and the Persian Gulf, it's useful to think of a literal geographical bottleneck. It's not a two-way system. It's enclosed and you've got this really small narrow neck where 20 % of global oil trade flows through from this very oil rich region into the global market. As well as 20 % of global seaborne oil trade, there's also the world's largest exporter of gas, which is Qatar. They are also within the Gulf. And this flow of vessels that needs to go through really doesn't have any other options. there's one or two pipelines which can connect to the Red Sea or bypass the Strait of Hormuz.

4:25Jillian Ambrose:But other than those very few pipelines, the only way is through the strait. And Iran knows that, and the market knows that. And the narrowest part is right below Iran. And that is something which the regime has always threatened to exploit. It's something that even days before the attacks began, I think analysts were still seeing as a worst case scenario, the kind of last resort tactic of a desperate regime. And it happened far sooner than we thought. So as you said, it is an essential passage for some of the world's largest oil producers and exporters. And crucially with Iran overlooking its narrowest point and using it as a frontier in this war.

5:11So where the US and Israel have used airstrikes and bombarded the country, Iran is fighting back with the strait. Gillian, can you tell me about what it's actually looked like out there and the impact that that's then had on the global supply and price of energy?

5:27Jillian Ambrose:Absolutely. We're now entering the third week of this conflict. It began on Saturday morning with airstrikes from the US and Israel on Iran. What we didn't realise perhaps was that Iran would effectively close the strait. Iran's Revolutionary Guard is sending radio transmissions to ships, warning them that, quote, no ship is allowed to pass the Strait of Hormuz. They've not formally officially shut it down, but they have said that they will set ablaze any tanker that tries to move through. For any shipping owner, for any insurer, that is as good as closed. Donald Trump has threatened Iran with death, fire and fury if it jeopardises the transport of oil through the Strait of Hormuz.

6:13Jillian Ambrose:We've seen the number of vessels moving through the Strait absolutely dwindle. And these vessels are now effectively stuck. I think there's around 200 tankers still stuck in the Strait of Hormuz. Right. I think in the first week of the crisis, we actually saw quite a muted response from the market. It was almost like everyone was holding their breath, waiting to see what would happen. Would this be a short-lived thing? and would trade through the Strait of Hormuz be able to resume as normal. It's doing well. The market's holding up well. I figured we'd be hit a little bit, but we were hit probably less than I thought and we'll be back on track in a pretty short while.

6:53Jillian Ambrose:But what we've seen since is that this could be a far more drawn-out conflict than they had originally assumed. As missiles fly over the Middle East, crude prices are busting at the seams. Oil prices have risen at one point, hitting$100 a barrel again. Briefly surging towards$120 a barrel. Prices are coming down very substantially. Oil will be coming down. That's just a matter of war. We saw prices in the second week absolutely rocket up into, I think it was$116 a barrel at one point. And this has been allayed in some senses because the International Energy Agency, the sort of unofficial energy watchdog of the world, has called on governments to release emergency stocks of crude into the market to help cool the market a little bit.

7:43Jillian Ambrose:As soon as that was on the table, I think we did start to see prices moving down again. CNN is learning Iran has begun laying mines in the Strait of Hormuz. It's another major complication. But everyone has been very clear that unless ships are moving through the Strait of Hormuz, oil prices will continue to rise.

8:09Well, Gillian, over the weekend, the US attacked Iran's Karg Island. It now says that it may attack again, to quote, just for fun. I don't know if you saw over the weekend, but, you know, as long ago as 1988, Trump, in an interview with Polly Toynbee, had his eye on Karg Island. He said, I'd do a number on Kayak Island. I'd go in and I'd take it. And it's just astonishing given where we are now. But what can you tell me about the island itself and why it is so significant?

8:38Jillian Ambrose:Yeah, the island is absolutely the heartbeat of the Iranian economy. This is where 90 % of its oil is exported from. It's effectively an island which hosts a giant processing facility and export hub. So this is where tankers will arrive. They'll load up with Iranian crude and they will then transit through the Strait of Hormuz. By taking that, you're taking the petro-state's economic lifeblood. It is a major blow to the Iranian regime. At the moment, there has been no damage done to the oil infrastructure there. And I think that is really important because if it did, that would be crippling to Iran, not just now, but potentially for years and years into the future.

9:24Jillian Ambrose:But it would also compound the crisis that we're seeing in the global oil market, too. And that is something that I think Trump would definitely want to avoid. So he's talking quite tough, but I think it would be a case of cutting your nose despite your face if you did damage that oil infrastructure on Carg Island. President Trump today reiterating his calls for allies to help protect global oil shipments through the Strait of Hormuz, saying that protecting the waterway is supposed to be a team effort. Well, on Sunday, he did also then urge a number of countries, including the UK, to deploy warships to the Strait, which sort of goes some way to indicate how crippling the Iranian stronghold of the Strait could be for the global economy, or is rather.

10:11Gillian how did the UK and its allies respond?

10:15Jillian Ambrose:I would say it's been tepid the response I think this plan to have military escorts help these tankers to cross through the strait into the global market is something that could help a little bit but it certainly wouldn't resolve the crisis I don't think you'd be able to move tankers through at nearly the pace that the market needs Japan and Australia have said that they are not sending military assistance at this stage And the UK is, I believe, offering mind sweeping to help in that regard. But what I cynically noted on Sunday with a lot of this talk about military escorts is that Trump makes these comments right before the markets open and start trading again in the new week in Australia.

10:59Jillian Ambrose:And a lot of these comments, I think, perhaps might be designed to calm the markets before trading starts again. We didn't see that. We saw a 3 % rise instantly. As soon as markets opened, oil jumped back up to$106 a barrel. And it just shows that this is not the solution that the market is looking for. The market is looking for business as usual. They want tankers moving through the Strait of Hormuz. They want barrels of crude getting into the global market. An escort might help a little bit. Pipelines rerouting might help a little bit. But the market doesn't need a little bit of help. it needs a solution.

11:40So Gillian is it fair to say that we are currently facing a new oil crisis and if so just how bad could it get?

11:48Jillian Ambrose:I would say not only is this a new oil crisis but it is the greatest oil supply shock in the history of the market. Wow. That was the message from the International Energy Agency last week that its member states would need to release more emergency crude stocks into the market to temper prices than has ever been seen before. They only do these releases every so often. It's really to address major crisis situations. And it is by far the largest release of crude, more than double what was released in the 2022 crisis after Russia invaded Ukraine. I've seen some banking analysts, notably Goldman Sachs, which is a major player in the oil market, saying that the impact of shutting the Strait of Hormuz will be 17 times the impact of Russia stopping its exports.

12:39Jillian Ambrose:Wow. So it is massive. It's hard to quantify. It's hard to wrap your head around. But this is a major crisis for the oil market and it leaves nothing untouched.

12:57Gillian, could you explain how that, this crisis in the oil market then does just trickle down and affect everyone. Because, you know, what does the oil industry ultimately become? And why is it having the impact it has? Absolutely.

13:13Jillian Ambrose:The energy costs, in so many ways, are the ultimate economic contagion. It just gets into absolutely every part of the economy. If you think about your day-to-day life, the goods that you consume, the services that you use, they all rely on energy at some point. So when the cost goes up, everything that you consume or use will become more costly too. So it's an economy-wide problem. It is likely to stoke inflation and this could even affect your mortgage because interest rates might not be able to come down as fast as they might have. And it worries me quite a lot because you think about families who are only just getting their heads above water.

14:00Jillian Ambrose:The UK at the moment has record high levels of household energy debt. That's been rising since the Ukraine crisis. What this means for people is quite far reaching and it's devastating for families. It can be devastating for small businesses. it's difficult to look anywhere in your daily life and not see an area that that would be impacted by a surge in energy costs but it's terrifying when you put it like that i mean i was thinking about the impact it has on like the global south like it's absolutely huge and it's kind of immediate but of course it trickles down to everyone no matter where you are in the west literally everyone a lot of the emerging economies in in asia are like particularly exposed what we're seeing in countries like Pakistan and Bangladesh is what they call demand destruction in the market.

14:49Jillian Ambrose:That's basically when you can't afford the energy, so you need to turn it off yourself. Even if you could access it, it's just too expensive. So we are seeing almost COVID style lockdown initiatives. Schools are being closed, people being asked to work from home, all to conserve energy. And it's also worth noting that those countries already have policies of load shedding in place which they have for years which means that they there are certain times which certain districts have to turn all the gas off or they don't have the lights on you know it already exists so to have this on top of that it's just mind-blowing yeah if you look at how reliant different countries are on middle east and oil and gas you can see that a lot of these countries are perhaps overly reliant and that's why it's just hitting them so much harder there is nowhere else to go.

15:38Jillian Ambrose:Europe has a more diverse range of supplies. The UK actually relies on Gulf energy stocks for a very small proportion of our energy, but it still affects the global market. So we're still paying those prices. So what have oil producing nations and importers been doing to counter all of this and how is that going? I think those in the Gulf have been trying their absolute best to keep their production running. You've seen storage tanks filling up. and pipelines which can bypass the Strait of Hormuz being used at much higher capacities. Saudi Arabia, for example, has a 746-mile-long pipeline which stretches from its east coast all the way to the west, which meets the Red Sea.

16:24Jillian Ambrose:So it has already doubled the amount of oil it sends through that pipeline. It expects to increase that even further and hopefully keep its exports at about 70 % of its usual rate. Otherwise, it's going to shut down to major oil fields, which doesn't sound like a big deal because we can't get the oil anyway. But for the producers, it is because it can take weeks or even months to set these fields up again to start producing. And that's what's keeping prices high at the moment. We know we're not going to get any oil through the Strait of Hormuz, but what we don't know is whether the same oil suppliers will be around even if the war ended tomorrow.

17:11And as you said, Trump has been trying to reassure allies and markets that everything is under control, often with these wildly contradictory statements. Well, it's only good if you win, you know, you can only do it. And we've won. Let me say we've won. Are you ready to officially declare victory?

17:33But throughout all the threat of continued airstrikes, Iran is clearly at a military disadvantage, but its ability to choke the strait is an incredibly powerful one. Gillian, do you think it's possible that it could, in fact, end the war?

17:48Jillian Ambrose:I struggle, to be honest, and I don't say this lightly. I struggle to see how this conflict can resolve. I see Donald Trump as a leader who wouldn't want to back down, who wouldn't want to admit defeat. And I see Iran as holding a lot of the cards in this conflict. I was looking at some data earlier today which showed that Iranian exports of crude through the Strait of Hormuz are actually slightly higher today than they were before the crisis. Right. So they're okay. They're making money. They're shipping. Their crude is sanctioned, but it is still being bought by Chinese buyers. Right. And that trade is still happening.

18:25Jillian Ambrose:So when the Iranians make comments like, get ready for$200 barrel oil, I think the market's listening to that. They're hearing that when they say, we're not actually having talks with the White House about, you know, sort of negotiating an end to this. Why would we? And Trump is saying a lot of reassuring things, but it just doesn't seem to scan on the ground. I just can't see what he's seeing. I can't see how this plays out.

19:02Gillian, as of recording, oil prices are still hovering above$100 a barrel. And at the start of this year, we were beginning to imagine a move away from the energy spikes caused by Russia's invasion of Ukraine. And of course, now here we are. And I guess what I want to know is, what powers does the Chancellor, Rachel Reeves, or the Energy Secretary, Ed Miliband, have against price rises and inflation? And, you know, should we be tapping into North Sea more, as has been suggested?

19:32Jillian Ambrose:Yeah, I think an energy crisis always seems to fuel a debate about how the UK handles its own energy. In the Russia-Ukraine crisis, we saw a lot of people talking about doubling down on North Sea. Even fracking is back in the energy discourse when we start talking about security of supply. At the same time, if you are someone who leans more green, then this is a clear sign that we should be doing more green energy, become more self-sufficient in homegrown renewables, for example. So these energy crisis points tend to polarise the existing debate around how we handle energy. There is one lesson from this crisis, Laura, and only one in my view for the long term on energy policy, and that is we need homegrown, clean power that we control.

20:22Jillian Ambrose:My view, really, is that we do need to look at both sides. We do need to move to greener energy, of course, and then be more self-sufficient. There are so, so many good economic and environmental reasons for doing that. But I think we also do need to think about fossil fuels while we're still using them. Do we have enough gas storage, for example? Are there ways that we can be better connected to European supplies? But all of these questions and theories are going to do very little to help us today. I think what the government right now is looking at is if things get really bad, how can we help families?

21:01Jillian Ambrose:And that's important because I think the government can't afford to step in every time there is a crisis to bail people out. The Treasury coffers just won't support that. So the government will have to make some really tough decisions in the weeks and months ahead. Coming up, does the oil and gas crisis mean a quicker move to green energy?

21:36Scotland has natural beauty in abundance, but beyond the stunning landscapes, it's a fertile ground to build, grow and succeed, filled with people who are ready to push boundaries in the pursuit of breakthrough ideas. That's why today, Scotland is a dynamic hub of opportunity across growth sectors, from clean energy and life sciences to digital technology and space innovation. Scotland, for the head, heart and the spirit. Discover more at theguardian.com forward slash Brand Scotland. This message was paid for by Brand Scotland. I are Wiccan Willera here from the Athletic FC podcast. Ever feel your workload is out of control, like you're wearing every hat and you're expected to be everywhere at once?

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