00:00Joining me now is a special guest, Anas Alaji, is energy market expert and someone who's a keynote speaker and
00:08writes on energy and comments on it.
00:11Daily Energy Report, appreciate your joining us, Mr. Alaji.
00:15We've just seen global crude prices surge above $111 per barrel earlier today after President Trump's clock is ticking, warning
00:24the recent drone attacks on UAE and Saudi Arabia.
00:28How bad could it get?
00:31Thank you for having me.
00:33Just a clarification here on a few points.
00:35The first one is the UAE said that the attack came from the West, which means that it did not
00:42come from Iran.
00:43The Saudis already confirmed that the attacks on Saudi Arabia came from Iraq.
00:48So both attacks did not come from Iran.
00:51And the suspects basically are the Iraqi militias probably taking advantage of the changing government in Iraq.
01:01So these are Iran cronies.
01:03And we don't know whether they are acting on their own or they are directed by someone else within Iran
01:09itself.
01:11That's the first point.
01:12The second point is when we talk about the announcement by Iran that they have an agreement with the United
01:19States to allow Iranian oil to flow the Hermes Strait, prices declined at that time.
01:25But the news came from Iran only.
01:29And here we have to be very careful with two points.
01:32The first point is the U.S., just before the blockade, allowed Iranian oil to be sold in the market.
01:39So there was an exception that's been made after the attack on Iran.
01:45And what that made is, and this is one of the ironies, that the price of Iranian oil tripled in
01:52the market.
01:53But the problem is mostly China bought that oil because there was a problem with payments.
01:58Yes, you can import Iranian oil because the government of Trump allowed it.
02:03But how are you going to pay the Iranians?
02:06So the Iranians are not willing to sell to anyone except the one that will pay.
02:11So that is an issue.
02:13So assuming that what the Iranians are saying today is correct, who is going to buy it besides China and
02:21pay Iran?
02:22At the same time, if it is true, it is most likely the result of the Trump visit to China,
02:29not as a result of the negotiations with Iran and Pakistan.
02:33So where does that, you know, given what you have just said, given the uncertainty that surrounds it,
02:39clearly oil prices react very sensitively to any kind of uncertainty.
02:45You've got a situation at the moment, as I said, that the outbreak of, ever since the outbreak of the
02:52conflict,
02:53we're seeing a huge gap between supply and demand.
02:56Are we going to see oil prices, in your view, therefore climb further before they come down?
03:02Let me clarify this point about the gap between supply and demand.
03:07One of the issues we have, and this is a big problem in investment bank reports that we've been getting
03:13at the media,
03:14that they are comparing the supply before the crisis to after the crisis.
03:20And this is not the case.
03:22You mentioned this correctly, it's a gap between supply and demand, but the gap between supply and demand is very
03:29small relative to the gap between the supply before and after.
03:33And simply because we have demand destruction and demand decline.
03:38There is a difference between demand destruction and demand decline.
03:41Destruction cannot be recovered.
03:44Demand decline can be recovered over time.
03:47Am I right in saying the global reserves have fallen by nearly 380 million barrels since the war began?
03:56The supply declined by about 11 million, but the gap between supply and demand now because of the decline in
04:03demand is way, way smaller than that.
04:06So if you look at the number of flights being cancelled, for example, we have globally over 100,000 flights
04:14being cancelled.
04:15That is demand decline in jet fuel as a result of that.
04:21But we have demand decline in so many ways.
04:24Even if you look at India, for example, look at India's imports, for example, in March and April.
04:30It declined substantially, declined significantly, but now basically it is back to almost normal for India.
04:40We've seen a decline in inventories in India.
04:42We've seen a decline in India's petroleum exports because you need to use that domestically.
04:50So we are seeing all those reactions to higher prices and shortages around the world.
04:56So the gap between supply and demand right now is way smaller than what we've seen before.
05:03But I'm trying to understand this, that are we staring at a situation where some are saying that Brent crude
05:12rockets to $180, $200 a barrel, causing surging inflation?
05:16Do you believe that's being alarmist at this moment?
05:20Those who are saying this, basically, they missed a very important point.
05:23Oil prices did reach this level.
05:27We have prices in $173, $175, with some reports oil being sold close to $200, but that wasn't the spot
05:35market.
05:36For Brent to reach $180, that's the future, it's very hard to see that.
05:41And the reason why, because our model shows that once Brent reach $160 or oil prices reach $160,
05:48we will see major global demand destruction and decline.
05:54And we've already seen that.
05:56So it is very hard to see this.
05:58The world is adjusting.
05:59Demand is declining.
06:01And it's very hard to see something like this unless we have another major supply disruption that we are not
06:08counting for.
06:08What do you see happening in countries like India, which are heavily dependent on oil imports, a large part of
06:16our oil and gas coming through the Strait of Hormuz?
06:19What happens to countries like India?
06:21Are countries like China, for example, which you mentioned at the outset, far better placed?
06:25And how do you see the scenario unfolding for India in the next month?
06:30Assuming the war continues.
06:32Assuming the blockade continues.
06:35India is in a very difficult situation, not only when it comes to oil and gas.
06:40As you know, there was a problem in LPG, and still we have a problem in LPG.
06:45We have a problem with fertilizers.
06:47We have a problem with helium.
06:49So the problems are not only oil and gas, and they extend to other things.
06:54So India is really in a difficult position, and simply because India was growing at very high rates.
07:00So the impact on economic growth is very significant because of this high growth.
07:07What India basically, the pain that India already had and the pain that India will have next month is already
07:17a done deal.
07:17We cannot do much about it.
07:19But the issue here is what are the lessons that we learned from this experience so this will not happen
07:27again?
07:27And one of the issues that I've been talking about for many years, that why India until now is not
07:36building enough strategic oil reserves similar to those of the United States and China?
07:42Because if you look at India's economy, you look at India's population, et cetera, the strategic petroleum reserves are still
07:50very small.
07:51And the idea that India wants to store oil in another country does not make sense, because in case of
08:00shortages, you cannot get that oil.
08:03You still need to ship it.
08:04So it does not help you.
08:06The whole idea of strategic petroleum reserves is you have them under your hand, and you have the oil within
08:15two to three days.
08:16You don't want to wait until other countries allow shipments to come to your country.
08:21So what India needs, one of the main lessons of this experience is that India needs to triple its strategic
08:28petroleum reserves.
08:30That's one lesson, triple your strategic oil reserve.
08:33The other is diversify.
08:35You know, India was buying oil from the Russians.
08:39The United States could well sell oil to India.
08:42Do you believe that's the solution?
08:44The more you diversify, the less dependent you are on West Asia.
08:48Now, in theory, that is correct.
08:50But there is a problem.
08:52You've got to look at the configuration of the Indian refineries, because that determines the crude quality they need.
09:00And that's why they are importing a lot of oil from Russia, because of the crude quality.
09:04U.S. crude, the one that is being released from the strategic petroleum reserves, is good for India to buy.
09:12But shale oil, which is the majority of U.S. exports, does not help much, because shale oil is light
09:19crude.
09:19It produces mostly gasoline and nafta.
09:22But what you are going to do about diesel?
09:24What you are going to do about the heavier products?
09:27You still need base oil, base oil, that including lubricants and others.
09:32You still need that.
09:33So that comes from heavy crude.
09:35So that's why we are seeing India returning to Venezuelan oil that it used to import before 2018, simply because
09:46of that crude quality.
09:47So while diversification is a good idea, the configuration of the refineries will determine the crude quality and where to
09:55get the oil from.
09:56My final question, do you believe, therefore, inevitable more fuel hikes, particularly for a country like India, no option, more
10:04petrol than diesel hikes?
10:08Well, that's very difficult to tell, because one of the problems we are looking at right now is inventories of
10:14each worldwide and where do they exist.
10:17While people are focusing, for example, on diesel or petrol in India, the problem in EU and Australia is jet
10:25fuel.
10:26So it depends on where the nearest source for that.
10:32India has massive refining capabilities, and it can circumvent those crises.
10:39But one of the problems we have right now is maintenance, where some refineries went on maintenance in India.
10:44And they have to, by the way. So this is not a choice, simply because if they don't go to
10:49maintenance, they might end up with explosions or fires or other things.
10:52So they did it at a difficult time, but they have no choice.
10:58So we were still not sure, therefore, that you're saying whether there will be more fuel prices.
11:02But the longer this continues, the pressure will become greater, is what you're really saying.
11:08That this is now reaching almost the same, this is a major, major unprecedented situation, similar to what we saw
11:16in the 70s.
11:17Am I correct?
11:19No, this is worse. This is way worse.
11:22This is the, we call it now the Hermes crisis, and it's not an energy crisis only, because we had
11:29the fertilizer crisis with it.
11:31So this is the worst crisis the world is experiencing since World War II.
11:38Well, that's a very, very strong statement to make, Mr. Al-Aji, but I'll leave it at that.
11:43That'll echo a bit.
11:44This is the worst crisis that we are seeing since World War II.
11:48Thank you very much, though, for joining me at the top of the show.
11:51Thanks very much.
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