$100 Oil is Back

0:00Joe Wallace:Legal teams face more data and more scrutiny than ever. They need AI built for both. Relativity is the AI platform for legal work, delivering defensible AI that handles the tedious tasks so judgment stays where it belongs, with you. Learn more at relativity.com forward slash WSJ.

0:21Joe Wallace:The Persian Gulf oil shock is here. We'll get the latest as prices top$100 a barrel and attacks on infrastructure escalate. The growing number of strikes between Iran and all of its neighbors, including Israel and the U.S., have increasingly taken on a new target in this war, which is critical infrastructure. Plus, what Iran's new supreme leader tells us about the country's eagerness to keep fighting and President Trump's sons back a new drone company banking on sales to the U.S. military. It's Monday, March 9th. I'm Luke Vargas for The Wall Street Journal, and here is the AM edition of What's News, the top headlines and business stories moving your world today.

1:05Joe Wallace:Oil prices have crossed$100 a barrel for the first time since Russia's invasion of Ukraine rattled oil markets in 2022. The Journal's Joe Wallace has been tracking the war with Iran's impact on oil markets. He joins us now with the latest. Joe, I guess we can say it now. It has been a history-making week for oil markets, U.S. futures registering their biggest weekly rise ever. We've got Brent and West Texas Intermediate crude having both spiked today to almost$120 a barrel, though they have settled down a little bit from there. Just walk us through the movement we're seeing in energy markets and why, as you and your colleagues reported over the weekend.

1:43Joe Wallace:All of this amounts to the Persian Gulf oil squeeze that many people had long been fearing.

1:49Luke Vargas:I think when the war broke out, there was a degree of complacency in the oil market. The market thought that the closure of the Strait of Hormuz was the boy that cried wolf. This didn't happen last year, even during the 12-day war. And likewise, Iran had mostly in the past refrained from attacking regional energy infrastructure. By the Sunday after the attack, it was clear that both of those assumptions were out of the window. But even so, it took the market until really Friday to realise the full implications, especially of the closure of the strait, which is that with nowhere for the oil to go, massive producers in the region were going to have to cut production because they don't have enough space to store the oil.

2:28Luke Vargas:And Kuwait, for example, simply hadn't built much storage space down the years because its oil fields are close to the coastal ports. And the assumption was this soil will just flow out to the market. And that's clearly no longer the case.

2:39Joe Wallace:You've reported that the straits are not technically closed, but you only need to look at the number of ships in the Gulf waiting to pass through to kind of get a read on effectively what the situation is.

2:49Luke Vargas:Precisely. The Iranian messaging has been mixed. The Iranian delegation to the United Nations said last week the strait is open, but at the same time, ships in the region have reported receiving radio messages purportedly from Iranian naval captains saying don't pass through. The IRGC has warned that ships from Europe and Israel and the US are legitimate targets. And as of Sunday, at least nine ships had been attacked and one sailor had been killed. So you can see why most ship owners don't want to go through right now.

3:21Joe Wallace:And on top of that, there is a fear, a growing fear, seems well founded, that disruptions to infrastructure are going to continue. This is something that our correspondent Thomas Grove has been watching, and he filed this update for us. This weekend, we really saw an uptick in attacks on critical infrastructure in the Gulf. We saw Israel taking aim at Iran's oil depots, which has left clouds and fire in the air, black rain that's being caused in Tehran. And most recently, we've seen an Iranian attack near a Bahrain oil refinery that has left 32 civilians injured. And then over the weekend, we saw a very new critical phase of this conflict, which is countries going for each other's desalination plants.

4:01Joe Wallace:And this is very important because the region depends on desalinated water for its drinking water, for its economies, basically, to grow and function. Now, these countries have been stockpiling water for years. They have critical reserves of this stuff. But some of the smaller nations, like Bahrain, for example, which was struck over the weekend, they don't have huge reserves. In fact, some analysts say that even over a number of days, those stocks could be drawn down and you could see a crisis in the country. Joe, I know you're not a water supply expert, but obviously Tom is painting a good picture there of why that's obviously a really critical concern for these countries.

4:37Joe Wallace:But over on the oil side, what we've seen must just have every country that possesses energy infrastructure worried that they're next and traders fearing the same.

4:45Luke Vargas:Very much so. And I think the water attacks are personal even to oil because it shows that the gloves are off and anything might now be considered fair game. A huge oil field in Saudi Arabia, the Bari oil field, was targeted on Saturday. Saudi intercepted the drone. There was some minor damage done. There are even bigger fields that might now be considered in the crosshairs. Qatar's LNG exporting plant, the biggest in the world, is offline. These are attacks that are interrupting operations across energy markets. It's refined fuels, it's oil, it's liquefied natural gas, it's even helium.

5:22Joe Wallace:Not hard to see then why traders are so nervy about where this is going to leave prices, not just, you know, sort of in the coming weeks and months. I mean, what is the oil price outlook as you're hearing it from traders? And of course, it's not just the prices directly, what people are paying at the pump, but all sorts of other ramifications here to inflation, to other commodities prices. There's a lot to watch.

5:42Luke Vargas:Yeah, forecasting the oil price is a bit like putting your finger in the wind at a moment like this. But Goldman Sachs, for example, put out some forecasts saying that if this goes on for some time prices could shoot through$150 a barrel. That would be a record in nominal terms. It would need to go a bit higher to surpass the 2008 record in inflation adjusted terms. There will be a point at which high prices start to lead consumers to drive less, fly less, burn less fuel. And that's the point at which maybe the rally will start to peter out. Having said that, we've never had 20 % of the world's oil supplies unable to reach world markets.

6:19Luke Vargas:So it's a bit of a filter and trying to forecast exactly where this is going to top out.

6:24Joe Wallace:Joe, what can policymakers, if anything, do to try to contain some of the price shock here?

6:28Luke Vargas:Well, the US and other major economies have stockpiles of crude that they build up for emergencies. And the Financial Times reported overnight that G7 ministers will be discussing a potential emergency release from those reserves this morning that could calm the market somewhat. What in China's built up a particularly enormous stockpile of crude over the past few years, that's something that could come to market and call prices. Then there's the potential for a military intervention in the strait to make it safe or to try to make it safe for ships to sail through. President Trump mooted naval escorts last week, no sign of those so far.

7:04Luke Vargas:And then, you know, I think it's important to note that a lot has changed since the biggest oil shock of all, which was in 1973, when golf producers placed an embargo in oil. Engines became much, much more efficient. The world uses more natural gas these days. Renewables are a growing share of energy. And the U.S. is a net energy exporter. Exactly, which insulates the U.S. Although that's all to say that this is really a historic shock to oil supply, it would need to go on for some time for the kinds of price rises that we saw in the early 70s and even the late 70s.

7:35Joe Wallace:I've been speaking to Wall Street Journal reporter Joe Wallace. Joe, thank you so much. Thanks, Luke. Meanwhile, Iran has a new supreme leader. The country's Assembly of Experts has appointed Moshtaba Khamenei to succeed his late father, Ayatollah Ali Khamenei, an announcement that sparked celebrations on the streets of Tehran.

8:00Joe Wallace:Security correspondent Benoit Foucombe says the lifetime appointment signals Tehran's defiance of President Trump and Israel, which on Saturday said a new supreme leader would be subject to fresh strikes.

8:12Benoit Faucon:The regime is kind of hankering down and closing ranks. The fact they chose the closest replica to the father, which is the son, is significant in the idea that they basically don't want to change anything. So all the possible options that always existed in the regime, either obviously a more conciliatory stance to the West, especially in the nuclear program, political opening, economic opening, that's unlikely to happen. He's a very conservative clerical figure. His connections are more with the clerical nationalist group, which is very much in support of supporting insurgencies in the Middle East, very conservative religious views in the country.

8:51Benoit Faucon:So what he says is a hard line stance going forward, no concession.

8:56Joe Wallace:And while the appointment provides continuity for the regime for now, Benoit said its longer-term prospects are uncertain.

9:03Benoit Faucon:The appointment of Moshtaba Khamenei does signal the regime closing rank, but it does increase the risk for the regime of losing power. The lack of opening, the lack of oxygen in a country where the majority oppose the regime, even though they don't have access to weapons or political power, makes it potentially more dangerous going forward because the regime's base is narrowed. And even though they control the military, there could be a potential breaking point. So that risk has increased, even though in the short term, it looks like the regime is consolidating. That was The Journal's Benoit Foucault.

9:38Joe Wallace:Coming up, we've got the rest of the day's news, including how the Trump family is getting into the drone business and a look at what's got VW dealers up in arms. Those stories and more after the break.

9:53Joe Wallace:Legal teams face more data and more scrutiny than ever. They need AI built for both. Relativity is the AI platform for legal work, delivering defensible AI that handles the tedious tasks so judgment stays where it belongs, with you. Learn more at relativity.com forward slash WSJ.

10:16Joe Wallace:We're exclusively reporting that President Trump's sons Eric and Donald Jr. are backing Power Us, a new drone manufacturer aiming to supply the Pentagon following a ban on Chinese drones. Through a reverse merger with a golf course holding company backed by the Trumps, the Florida-based drone company plans to debut on the Nasdaq in the coming months. Power Us CEO Andrew Fox says the move will provide the capital needed to scale production to 10 ,000 drones a month and that the drone market, quote, is certainly going to grow faster than, say, golf courses are. Meanwhile, activist investor Starboard Value has built a sizable stake in French fry maker Lamb Weston and is planning to push for changes to boost the Idaho company's underperforming stock.

11:02Joe Wallace:Lamb Weston is the largest producer of French fries in North America and the second biggest globally, with customers including McDonald's and Chick-fil-A.

11:13Joe Wallace:And finally, for generations, buying a car meant a trip to your local dealership. That model began to crack, though, when Tesla started selling direct, followed by electric newcomers Rivian and Lucid. And now Volkswagen, one of the world's largest automakers, wants to cut out the middleman too by selling its built-in America trucks and SUVs direct to consumer under its brand Scout Motors, which has plans to build 100 company-owned showrooms and service centers nationwide. However, Journal Auto's reporter Christopher Ott says that VW dealerships are fighting to prevent that. The dealers really see this as an absolute existential threat to their business model.

11:55Joe Wallace:The only way for an automaker to go around dealers in the United States is to never have had dealers in the first place. Because of state laws, because of how entrenched this system is, and what has the dealership body across the United States so up in arms about this, is that Scout Motors is very much a creation of the most legacy of legacy automakers in Volkswagen. Scout regularly talks about all the benefits they get being backed and wholly owned by Volkswagen, such as negotiating with suppliers to get better prices. The notion is if any legacy automaker can just invent a new brand, shift all their executives over to the new brand, and go direct to consumer, Well, that is cutting the dealers out of the equation.

12:50Joe Wallace:VW's plans could soon be tested in federal court as dealers seek class action status for suits that could force Scout to rethink its sales model. U.S. state laws broadly guarantee that only independent dealers, not manufacturers, can sell vehicles to consumers. And that's it for What's News for this Monday morning. Today's show was produced by Hattie Moyer and Daniel Bach. Our supervising producer is Sandra Killhoff. And I'm Luke Vargas for The Wall Street Journal. We will be back tonight with a new show. Until then, thanks for listening.

13:28Joe Wallace:legal teams face more data and more scrutiny than ever they need ai built for both relativity is the ai platform for legal work delivering defensible ai that handles the tedious tasks so judgment stays where it belongs with you learn more at relativity.com forward slash wsj