War in Iran Triggers Chaos in Global Oil Market

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As the war on Iran enters its second week, concerns about a global energy crisis start growing.

In the last week, as Iran tightened its chokehold on one of the world's most vital shipping routes, and the Trump administration sent mixed signals about how long the war would last. Oil was on another roller coaster again today. Oil prices have swung wildly. It shot up like a geyser to $119 a barrel, but they searched to their highest levels in years.

Today, oil prices closed down about 9%. At $86 a barrel. And then suddenly plunged. The war with Iran is impacting 20% fifth of the world's oil supply. Making this the worst oil disruption the world has ever experienced.

Today, my colleague Rebecca Elliott on how the volatility has exposed just how much the world depends on the narrow waterway at the center of the growing crisis. The straight of hormones and how quickly shutting that straight down can throw global energy markets into utter chaos. It's Wednesday, March 11th.

Rebecca, welcome to the daily first time on the show.

Thank you for being here. Yeah, thanks so much for having me Natalie.

“So we are coming to you because you are, I think it's fair to say, an undisputed authority on oil here at the times.”

And over the last week, the concerns over the war in the Middle East have grown to include not just a very real and dangerous conflict, but also building panic over a potential global energy crisis stemming from that conflict. And all of that worry has focused on this one shipping route that butts up against Iran, which is the straight of hormones. So tell us about that straight. The straight sits between Iran to the north and then Oman United Arab Emirates to the south.

It is essentially a choke point through which about a fifth of the world's oil and a lot of natural gas normally goes every day. It allows oil and gas from the Persian Gulf to reach world markets. And the challenge with the straight is that it's really narrow. It's only about 21 miles wide at its narrowest point. And the shipping lanes are even smaller.

The Oman's maritime security center says an oil tanker has been attacked in the state of Hormuz, injuring for crude oil. And so what has been happening since this war started is that some vessels passing through the straight have been attacked. Attention all ships, attention all ships, attention all ships. But I'm no one.

And what you're seeing is that traffic through the straight has just slowed to a trickle. While this is not an officially recognized closure, shipping has been completely stalled in the straight. For a combination of reasons, one physical security. Iran has attacked a number of vessels in the region since the war started. And so people are worried for their safety.

Sure, worried about, okay, what happens if there is an attack on a tanker that is filled with oil.

Revolutionary guards commander did say that they will set fire to any ship trying to pass that is.

“You also have a lot of insurance companies saying, you know what?”

This isn't for us, right? So it's a lot harder and a lot more expensive to get the kind of financial backing that you would want to make this journey. Okay, and you said these tankers are backed up. What's the fallout of that? So what you have is vessels essentially waiting stock on either side of the straight.

Shredded, stranded tankers can't get in to pick up the oil and gas that they're meant to. And they can't get out. And so that means that a huge amount of energy is not reaching world markets.

This is gas that has been cooled so that it can be put on a ship.

More than 80% of that from this region normally goes to Asia. Wow. And so without being able to count on that energy arriving soon. You're starting to see prices rise really dramatically. And oil prices have been really volatile since the war started.

And one of the starkest examples of that happened this past Sunday evening into Monday.

“When you saw prices swing by as much as I think around 30 dollars a barrel, which is a lot, which is a lot, right?”

So prices on Sunday night reached above a hundred dollars a barrel for the first time since 2022, which of course was in the aftermath of Russia's invasion of Ukraine.

Yep. And they really swung a huge amount throughout the day as people tried to figure out how long is this war going to last. How long is it going to remain difficult to get oil out of the Persian Gulf? And people trying to read the tea leaves of President Trump's remarks about the war. Which seemed to change every day.

It seems like we get a new piece of information from Trump sometimes contradictory information about how long this is going to go on.

“Yeah, it's really unclear sitting here today what exactly the goal posts are.”

And the answer to that question means a lot for the energy market. Gasoline has gotten more expensive. Diesel has gotten more expensive in the US. So it's more expensive to fill up your car than it was before the war started. And you're seeing governments in many parts of the world start to make policy changes.

Russian energy.

Some really good examples that my colleagues have written about in the last few days is South Korea said it would cap prices at the pump for the first time in almost 30 years.

India temporarily suspended cremations using gas. So you're seeing governments basically try to fast track energy efficiency measures and kind of implement other tools meant to prevent them from running out. Right, they're trying to basically limit their usage for now as much as possible. Exactly, many countries that depend on energy from outside of their borders are saying we might not be able to count on getting more. So let's do the best we can with what we have now. Right, and as the conflict has dragged on and on the conversation seems to have turned much more to the possibility that what we may be looking at is a genuine oil shock, a genuine supply shock.

“And I think one of the main questions that people are asking is how bad is this going to get?”

Honestly, anyone's guess it is so hard to predict oil prices and in trying to answer this question, I've been thinking a lot about the oil shocks that the world experienced in the 1970s. So 1973 Israel was in a war against Egypt and Syria. The United States backed Israel. World wars among big powers are quite possible to control dwindling oil supplies. And in response, the Arab members of an oil cartel known as OPEC cut the U.S. off from oil, produced in that region.

The Middle East War produced developments all over the world today. The oil producing countries of the Arab world decided to use their oil as a political weapon. So overnight, the United States lost access to a tremendous amount of oil. If the Arab countries keep that pledge, it would reduce their production by almost 50% in one year. Members of OPEC at the time were also raising prices. And so what you saw between October 1973 and early that following year was oil prices quadrupled.

This extraordinary, which is just extraordinary. And so the shocks to economies around the world were huge. To increase the supply of heating oil that will be available this winter, we must adjust production schedules. And divert petroleum, which might normally go for the production of gasoline to the production of more heating oil.

Not only was energy a lot more expensive almost overnight, there also wasn't enough of it. But my son is trying to see how much gas we have left in the tank. Everybody can make it out on the sawmill river parkway. So he's stuck his walkie talking at 10 in the tank, which I do not see if we're going to get out. And so you had fuel rationing.

“Now you will on the slowdown to 50 miles an hour? No. Why not? Because it's stupid, you know?”

The government implemented a nationwide 55 mile per hour speed limit on US highways. I've been in two gas lands already. This morning is morning.

I learned you wait for the first man in both lines, over hour.

And I'm out of gas, dead out. Really long lines to get gasoline. This is unreal, isn't this disgusting? Why doesn't anybody contact the president? Why is he letting this happen to us? People were panicking. Yeah, it's kind of wild to imagine oil rationing in the United States.

Do we really think that's a possibility today?

“How apt is the comparison between that shock and what we're experiencing now?”

The world looks really different today than it did 50 some years ago. And that's partly to do with changes that many countries made in response to that energy crisis. You had major efforts to reduce dependency on oil, whether by figuring out how to use it more efficiently or by transitioning to alternative forms of energy. One example that I just learned about was in Japan in an effort to try to use air conditioning less.

The prime minister pushed for people to start wearing short sleeve suits, apparently it never caught on.

What an image. I wish it had. It would be kind of an interesting look, definitely.

“You know, those are some examples of ways that countries tried to use less oil.”

Fuel economy standards are a legacy of that moment. And you also saw many places shift toward alternative such as nuclear energy. And this is, you know, really motivated by concerns about energy security. You're saying the shift toward prioritizing things like fuel efficiency and cars, toward drawing on other fuel sources.

That's primarily about countries trying to secure their own energy independence, trying to protect themselves, essentially, from a repetition of what happened in 1973. Right. And in the US, one of the biggest differences is that the country went from being a net importer of oil to a net exporter today. And how did that happen? Fracking, drilling down horizontally under the earth and fracturing the rock to let oil and gas come up.

And this really revolutionized the US oil and gas industry and helped the country become the world's top producer of oil and gas, passing Saudi Arabia, passing Russia. And this, in combination with the buildout of renewables in recent years, has made the country much less dependent on oil and gas from the Gulf than it used to be.

Basically, since 1973, the whole world in response to that crisis has become a lot less dependent on oil relatively speaking.

And the US in particular has become much less dependent on foreign countries for the oil that it does consume. That's right. Things look very different today than they did in the 1970s. Oil meets a much smaller share of the world's energy needs. That said, it still matters in big ways for the economy. Oil and gas are used for a whole lot of things that we need every day.

Producing electricity, producing gasoline and diesel and jet fuel. So when you don't have access to those fuels, it ripples through the global economy in ways that will get much worse. The longer the straight remains effectively closed.

I'm Robin and I am excited to open my crossplay app. I'm challenging John. My colleague at the New York Times. Robin played the word "grunge" which has a G which is four points. She got that triple word multiplier. I'm going to take facts and make it facts is for 30 points. I might just take another two-letter word here with Woe gets me at 23.

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Crossplay, the first two-player word game from New York Times games.

Download it for free today. I think he thinks he has this in the bag, but I'm not so sure. Rebecca, you've made it clear that the effects of this building crisis are going to compound. They're going to get worse and worse each day that the shutdown continues. You told us earlier that there were currently many ships just stranded,

waiting to pass through the straight of hormones with very few actually making it. What is the outlook for those stranded tankers? As far as sparring the war ending, is there any way the situation changes in the straight, in the near term? The straight is one of Iran's very big points of leverage.

And Iran has said that it will attack vessels that go through.

And so it's hard to imagine the situation shifting considerably in the near term. The United States, President Trump, have floated some ideas. During this brief disruption, the United States is offering political risk insurance. Any tankers operating in the Gulf? One being providing additional insurance options.

“We'll perhaps go alongside of them for protection when I think it'll be necessary.”

The other being a naval escort for tankers through the straight. And if they do anything, the price will be incalculable. So far, the US has not escorted a vessel through the straight. So we'll see. But remember, if you're a mariner, Iran has committed to disrupting the straight.

Yeah, several tankers have been attacked. A shipyard worker died in Bahrain. There are huge physical risks here at the moment associated with making this journey. And I think until that changes whatever that looks like, it's still going to be very difficult to get energy out of the Persian Gulf.

So what about the oil companies? Obviously, this is a huge problem for them too. They have all this oil just sitting around and they can't get it to where it's supposed to go. That's right. And they're running out of places to put it.

Storage tanks are filling up. And so you've started to see countries throughout the region cut back production. Turn off wells and reduce refinery processing. So that means they're turning less oil into gasoline and diesel and other products. And just explain Rebecca why it's such a big deal that they are turning off the spigot.

What does that actually mean? It's not the same thing as turning off your faucet, where when you turn it back on water just comes right back out again. It's called shutting in a well. When you do that, you can risk damaging the well essentially.

And so when you try to turn it back on, maybe there's not enough pressure. Not as much oil is going to come out. And so the risk is that these disruptions last longer than the war.

“And what countries are going to be most affected by what's happening?”

Who's going to feel it first and most deeply?

I'm going to oversimplify and divide the world between producers and consumers. If we're talking about the consuming countries, many of those that are going to be affected fastest are those in Asia, for example, that depend really heavily on imported oil and natural gas. And then on the producer side,

it's the countries that can't get anything out. One of the countries that acted really quickly was Qatar, which is a huge natural gas producer and exporter.

they decided to stop cooling natural gas for export.

That caused prices basically immediately to rise considerably in Europe and in Asia.

Right. These are pretty major decisions. Right. I mean, it's not just major for the countries that produce it. It's the countries that are depending on it. It hasn't immediate impact.

“Absolutely. And remember, oil markets in particular are global.”

So even though in the United States, we produce tremendous amounts of oil, we're still affected by higher prices elsewhere. Right. Just because we're not dependent on the street in the same way, we are still affected by the disruption to it.

And the chaos that it unleashes on the market. And to that end or back up, is there anything the administration could do to limit the potential impact of all this on consumers in the US, especially as the war keeps going on? The Trump administration has a few options.

One of the first is what's known as the strategic petroleum reserve.

So going back to the oil crisis in 1973, after that the US created a strategic stockpile of oil. And so in moments like these, the US has the option of releasing some of that oil into the market. And that has been an active conversation in recent days,

not just in the US, but among other countries known as the G7. Another option that would have potentially limited effect would be to temporarily lift the gasoline tax, which would save people 18 cents on a gallon.

So that would take some of the pressure off.

And in a very extreme scenario, you could see Congress stepping in to ban oil exports. That type of a ban was actually in place until 2015. Oh wow, you couldn't export oil from the US. And then Congress lifted that during the Obama administration

as the US became the biggest oil producer in the world, largely because of fracking. I haven't kind of heard that as being realistic scenario or quite on the table yet, but that is the kind of extreme option that the US might have. Okay, so not a lot on the table and what is available that could make a real difference may be quite radical.

What about longer term solutions here? I'm thinking about the 1973 oil embargo and how that compelled many countries, including the US to reduce their dependence on oil. Do you see this crisis as having a similar potential effect

“forcing policymakers, lawmakers to rethink their energy needs to redesign them?”

In other words, what do you think the long term lessons of this crisis could be? That's going to depend a lot on how long the situation lasts, how high energy prices get and how long they stay there. In a scenario where they remain expensive for a long time, I think that thinking about 1973 and the aftermath is instructive.

Big events like this do tend to change behavior, change how people think about energy. The reaction may be different in the United States, which is very rich in oil and gas. Right, and where Trump has been very adverse to these alternative fuel sources. I mean, it's hard to imagine him jumping back into renewables in a way that we'd been seeing in the past.

Right, this is all happening as the Trump administration is making it more difficult to install solar panels and wind turbines and other equipment that would enable us to harness the sun and harness the wind.

“So I think the reaction will differ regionally, but in countries that are really dependent on foreign sources of oil and natural gas,”

they may think more seriously about how do we move to alternatives perhaps even more quickly than we were before.

just end up looking at this episode and blaming Trump and Israel for it for all the disruption that has followed from the initial attack.

“Like, this appears, I think, to many as a war of choice, and those strikes are what prompted all of this.”

And so it seems possible that there would be some reticence to see this as revealing some sort of structural problem, and more of a willingness to see it as potentially a one-off attributable to these two leaders in this moment and their decisions. It's certainly possible, but what I think has been very clear over the last several days and weeks is that this huge risk that energy experts have been talking and thinking about for years, the risk that the straight of hormones would close is now playing out in real time.

I think it's hard to imagine that people just go back and say, "Okay, this is fine."

People remember gas prices.

It's one of those things that is in your face all the time every day, right? And it's hard to imagine that especially if prices rise further and stay there for a long time, that it won't shape and change how people think about energy. It's exposing a big vulnerability in the global energy system. And we know from price shocks in the past that when events like this happen, people change the whole world changes.

Well Rebecca, thank you so much. Thank you for having me. We'll be right back.

“Here's what else you need to know today.”

The U.S. military said on Tuesday evening that it had attacked 16 Iranian mind-laying vessels near the straight of hormones.

Earlier on the day, Trump had threatened Iran over reports that mines were being deployed in the straight. The news kept off a day of confusion about the viability and security of the passageway. After the U.S. Energy Secretary posted on social media that a Navy warship had successfully escorted a tanker through the straight, oil prices plunged in a sign of new optimism about the route opening up. But then shortly afterward, a military official said that hadn't happened.

The social media post was deleted and prices went back up. And on Capitol Hill.

“He emerged from this briefing as dissatisfied and angry, frankly, as I have from any past briefing in my 15 years in the Senate.”

After receiving a classified briefing from Trump officials on the war, Senate Democrats warned that the administration was not close to achieving its goals. We seem to be on a path toward deploying American troops on the ground in Iran. And demanded public hearings on the objectives and endgame for the war. This is a disaster of epic proportions. It's already getting Americans killed.

It's driving up prices here at home. This is just been a tobacco, a 10-day tobacco. And air strikes continued in Lebanon on Tuesday. Where Israel's massive evacuation orders and bombing campaign have made the country a new front in the expanding war. A humanitarian crisis is looming there.

And the United Nations has said that 700,000 people in Lebanon have been displaced from their homes. The Pentagon said on Tuesday that Iranian air strikes had wounded 140 U.S. service members. In addition to the seven U.S. service members who have been killed. Today's episode was produced by Caitlyn O'Keef, Diana Winn and Nina Feldman. It was edited by Deventeller and Lisa Chappell.

And contains music by Dan Powell and Marion Lasano. Our theme music is by Wanderley. This episode was engineered by Alyssa Masley. That's it for the Daily.

See you tomorrow. (gentle music)