00:00Joining us now is Karen Young. She's a senior research scholar at Columbia Center on Global Energy Policy and a
00:04senior fellow at the Middle East Institute.
00:06And Karen, there's a lot to talk about, eager to talk to you about oil and gas, the broader region.
00:09But let's start with its issue, if we could. I'm very curious of how you watch this conversation unfolding.
00:15Yes, the initial proposal there from the president that he would help Saudi Arabia with its civilian nuclear program.
00:20And then this turn that we saw a little bit later in the week, that there was this very important
00:24caveat that he was placing on that agreement.
00:28That's right. It's been full of surprises. And this is typical Trump in some ways, post hoc, you know, changing
00:35the terms of the deal or some arm twisting to sweeten the deal.
00:40Normalization, as far as we know, has never been part of the Saudi nuclear agreement with the United States.
00:47And this agreement is something that's been in the works, part of negotiations in the Biden administration and in the
00:53Trump administration,
00:54and had really been sitting very much completed since the end of last year.
00:59So, I mean, it raises questions like why the announcement now and then why the kind of turnabout after it
01:06was announced and putting this sort of onus on Secretary Wright,
01:10that perhaps the terms weren't what the White House wanted.
01:14It creates a sense of chaos, frankly.
01:18I know this deal has been around for a while, like you mentioned, but I don't know if it has
01:22been around.
01:22Has it always been around in this form?
01:24Obviously, the controversial bit of this deal is the fuel and whether or not that's going to be enriched in
01:29Saudi Arabia and what the limitations on that will be,
01:33whether it be some form of a black box system that the U.S. controls.
01:36Was that always part of the deal, or at some point did this deal look a lot more like what
01:40the U.S. entered into with the UAE in 2009,
01:43which is considered the gold standard of these arrangements, where they have nothing to do with the fuel, there's no
01:47capacity for enrichment.
01:48It is a purely civilian nuclear program.
01:52Well, we have to see the actual language, and it hasn't been released.
01:55But in general terms, Saudi Arabia has wanted to reserve the right for enrichment into the future,
02:02simply because they have large supplies domestically of uranium,
02:06and they wanted to be able to have the capacity to use what they have at home.
02:10This is still a one-two-three agreement, and those are the agreements that the U.S. government makes with
02:15other governments
02:16to share nuclear technology.
02:18So it's similar to the one that was signed and is in place with the United Arab Emirates.
02:23But, you know, supposedly there's a bit of difference in terms of the kind of 10-year review period for
02:29enrichment,
02:30for the fuel cycle, and also a bit different in terms of the standard for the IAEA inspections.
02:41And so those are the two kind of points that perhaps are in language are different from previous agreements in
02:46the region.
02:47I want to play some sound here from Secretary of State Marco Rubio.
02:49He was at the ASEAN conference a little bit earlier this week,
02:52talking about the prospect for there being some sort of diplomatic solution to the impasse that we see in the
02:57Middle East.
02:57Let's take a listen to what he had to say just about the administration's approach to that currently.
03:02These people who are calling us every day, begging let's do a deal,
03:05they send us messages through other countries, third countries.
03:08I mean, they're running out of countries to send.
03:09Even I had countries here coming up to me,
03:11oh, I just spoke to the Iranians, they want to do a deal.
03:13The problem is every time these people do a deal, they either break it or after they make it,
03:17they want to change the deal.
03:19So they're probably not ready to do a deal yet, but they will be soon.
03:23Karen, I want to get your sense of sort of where we are in this.
03:26I heard you in conversation on a podcast a few weeks back talking about the volatility that we've been having
03:29and are likely to expect here in the months ahead.
03:31But we have seen obviously that MOU not being worth the paper that it was printed on.
03:35We've seen the ceasefire dissolve here in recent days.
03:38As you listen to the Secretary of State talking about the Iranian appetite for there being a deal,
03:43you hear the president saying they want a deal, but we're not there yet.
03:47How do you see all of this unfolding?
03:49What is going to be the forcing mechanism, do you think,
03:51that's going to bring both of these parties back to the table, if they in fact do?
03:57So, you know, as I have said, we should expect volatility for some time.
04:01We're not seeing any kind of restoration of 100 percent pre-February 28th traffic in the Strait of Hormuz,
04:08and we might not ever.
04:09We're going to get the diversions.
04:10We're going to rely on those more.
04:12And it's just going to be a long time coming.
04:16But, you know, the idea that we could get a settled agreement with Iran
04:21is probably going to be kicked down the road, I would imagine,
04:27simply because the U.S. and others still expect that we are creating change inside of Iran
04:33and that the dealmakers themselves might be different in the months to come.
04:38Now, what's interesting, the signal that I think you mentioned at the outset of the program,
04:42is that last night we did not see strikes on Iran or retaliations by Iran on the region.
04:48And so we have expected we've entered this kind of what some call the third and final push of the
04:54conflict,
04:55Trump making an effort to really go hard on Iran.
04:58I think that will probably persist another week or so.
05:02And the president sometimes changes his mind.
05:05What the military has been in place to do, he may back down.
05:10And we don't know, and many would argue,
05:13that increased military pressure on Iran doesn't necessarily change their calculus.
05:18It just sort of reinforces their own bargaining positions and their willingness to sustain more damage.
05:24I mean, the one thing I think everyone learned from this conflict is that it's not just the nuclear card
05:29Iran can play.
05:30It is that they can now close the strait at will,
05:32which is almost even a more of immediate effect on the global economy.
05:36So we've seen a lot of these producers and talks of ramping up ways to get that oil out a
05:41different way,
05:42out through these pipelines, through the Red Sea.
05:43What we were talking to our colleague in Singapore, Stephen Szynski, about earlier is that you now have the Houthis
05:50kind of revving up and starting to strike Saudi Arabia.
05:53They claim that they hit Saudi with some missiles last night.
05:56And I'm wondering, I'm going to ask you the same question I asked him.
05:59It seems to me there's two issues here.
06:01There's conflict and danger at the actual export point in the Red Sea.
06:05And then there is the danger to production if the Houthis start being able to target refineries and oil-producing
06:11facilities inside Saudi.
06:12Which of those seems, are they both a threat?
06:14And what are the big concerns here, especially for the global energy market?
06:19The Houthis are absolutely a concern.
06:21And this has always been an issue, you know, to what extent are the Houthis a proxy of Iran?
06:25To what extent are they making their own decisions and having their own kind of side negotiations with Saudi Arabia?
06:31And they had been in a truce for several years.
06:34And Saudi Arabia had been paying, for example, the public sector salaries of the Yemeni government in order to sort
06:40of keep some of that peace in place.
06:42So the attacks on Jizan are very serious.
06:45Threats, of course, to Yambu are very, very serious.
06:48Because, you know, what has basically been the relief valve from the Strait of Hormuz has been Saudi exports through
06:54the East-West Pipeline,
06:55which are exported at Yambu, and then go through the Bab al-Mandeb.
06:59And that's going to be about 5 million barrels a day of exports that we would see in danger.
07:04So the Houthis have a card there, but they also have their own agency.
07:09And so I would expect that Saudi Arabia is going to enter into negotiations with them as quickly as possible
07:15and try to calm this down.
07:17And the Houthis can be placated and not directly, in all forms, you know, controlled by Iran.
07:24Though they do certainly rely on Iran for support and certainly military supplies.
07:30Karen, we saw oil creep up again this week over $100 a barrel.
07:34And I had a number of conversations last week at the Aspen Security Forum with Megan O'Sullivan and Fatih Birol
07:39about global complacency as this war got underway.
07:43And we've heard the president say time and time again, look, I heard, as I considered launching these strikes, oil
07:48could get to $200 a barrel, say.
07:50And lo, it didn't.
07:51And I think with that is born this level of complacency that maybe this didn't have the ramifications that a
07:56lot of people feared.
07:57Are you of the camp that believes that if this war continues in the way in which it seems it
08:03is, there are going to be dramatic spikes?
08:05There's going to be a lot more difficulty here.
08:06We've seen reserves drawn down and we haven't seen them replenished.
08:09How do you see this playing out over the next 6 to 12 months if status quo doesn't change?
08:14That's right.
08:15I see continued volatility.
08:16It doesn't necessarily mean $200 a barrel.
08:19But this is really contingent on a couple of things.
08:21Chinese demand, for one, we've seen a reduction of about 4 million barrels a day not being used or wanted
08:28in China.
08:29When and how that rebounds will really matter a lot.
08:33And the second thing is the inventory question.
08:36So we've drawn down quite a bit.
08:38Can we do that one, two, three more times?
08:41Probably not.
08:42So if we get a real obstruction in the Strait of Hormuz and in the Bab al-Mandeb, we're going
08:47to have to rely on inventory releases.
08:49If that's a one-month closure, maybe that's a 200 million barrel release needed again.
08:55If that's two or three months, it's probably twice that.
08:58That's analysis by J.P. Morgan.
09:00And it's not really clear that we have sort of the international will to do so or the capacity to
09:05do so.
09:06So we could still see by the end of this year certainly temporary spikes in prices well above $100.
09:14And then, you know, if we see easement of shipments happening again.
09:17What made June so interesting and why we saw this, like, rush of flow, a lot of that was, you
09:24know, cargos that were laden, sitting in the Gulf, ready to go out and sit in the waters outside of
09:29China, about 120 million barrels of oil.
09:31That's not going to happen again either.
09:34So, you know, the relief that we saw in the middle of the summer when the MOU was in place,
09:39it's hard to imagine that we get to another, even another temporary agreement with Iran where you would see the
09:46same relief to oil markets.
09:48So, you know, the relief that we saw in the middle of the summer when the MOU was in place,
09:48it's hard to see the same relief to oil markets.
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