00:00At the end of the week, when Brent topped $107 a barrel and diesel prices in the U.S.
00:05rose above $6 a gallon.
00:07Joining us now is Ziyad Dowd.
00:09He's chief emerging markets economist for Bloomberg Economics.
00:12Ziyad, I just want to ask you, do we know anything more about the specifics of this
00:16strike?
00:17It looks like it was drones possibly launched out of Iraq, but the timing of this is interesting.
00:21Why now and why are we seeing a spike in these assaults, possibly, probably from Houthi actors?
00:28What is the strategic interest here about the timing of this attack?
00:33Well, the strategic interest is that the U.S. and Iran, the two parties in this war, have
00:38different calculus.
00:39For the U.S., it prefers a state of no war, no peace to an outright war if it cannot
00:44get
00:45peace on its own terms.
00:46I don't think that calculus may necessarily hold for Iran.
00:50Because there's a U.S. blockade on Iran, because the economic cost of the war on Iran is significant,
00:55there are some in Iran who might think that an outright war, an escalation at least, might
01:00be better than a state of limbo when there is no peace and no war.
01:04And that's probably why you're seeing the escalation in Yemen on the Red Sea and the
01:08attacks on Saudi Arabia pipeline, which takes Saudi oil from the Gulf to the Red Sea.
01:13Ziyad, let me just ask you about the importance of this pipeline.
01:15So there has been, continues to be so much focus on the Strait of Hormuz.
01:19And as a result of that, there's been a lot of talk about how to find alternative ways
01:23of getting energy out of the region.
01:25This was really touted as a success.
01:27You look at how much oil was passing through that pipeline.
01:29Just place it in a broader context, the importance of this pipeline that's been shut down here
01:34over the last 24 hours.
01:36When there is disruption to the Strait of Hormuz, it's hard to underestimate the importance
01:41of this particular pipeline.
01:43Basically, there are four infrastructure that gets oil out of the Middle East to the world
01:48when the Strait of Hormuz is shut.
01:49By far, the most important of which is this pipeline, the East-West pipeline, that takes
01:54Saudi oil to the Red Sea.
01:56It can take, its total capacity is up to 7 million barrels of oil daily, but it exports
02:02about 4 to 5 million barrels a day.
02:04That's about 5% of global oil supplies.
02:06The other infrastructures, obviously, there's one in the UAE, there's Oman, and there's the
02:10Iraqi-Turkey pipeline.
02:12But they're nowhere near as important as that Saudi pipeline.
02:16And that just reminds us about something, basically, which is, yes, these pipelines are important
02:21to bypass the Strait of Hormuz, but there are fixed infrastructure that could be subject
02:26to attack.
02:27And we're seeing examples of that today.
02:29Ziad, I'm going to do what I do at least once a show and ask a really stupid question.
02:33And that's, why did they have to shut down the pipeline?
02:35Was it just untenable?
02:37Are they concerned that there could be an explosion or spillage if they keep it operating?
02:40Is it just, you just can't operate it with the number of strikes it's taken?
02:43Like, taken, some form of that verb.
02:47So the Saudi statement said a few things.
02:49It said there's a multiple, there have been multiple attacks on the pipeline, and they
02:54closed it as a precautionary measure.
02:56So the, you know, it is closed now, which is significant news.
02:59But the most important thing as well is how long will it be closed for?
03:02And if it is precautionary, if there's no significant damage, if it can reopen within
03:06a few days, then obviously the impact on the oil market will be limited.
03:09If there is damage, if it takes time to repair, then we have issues.
03:15Basically, we have more shortages in the global energy market as a result of that.
03:19But if it's precautionary and they're shutting it down, it seems to me the likelihood of them
03:23having to do this, even from a precautionary standpoint, again in the future, is not nothing.
03:28So are we going to get to a point where, like we find in the strait, it's open, it's
03:31closed, it's open, it's closed.
03:32It's very uncertain for producers and shippers.
03:34Could we end up having the same thing with some of these pipelines?
03:37And that's just a supply uncertainty.
03:40Yes, absolutely.
03:41And this is a point that we emphasize quite a lot in our work.
03:44So what we said is, yes, the strait of Hormuz is shut.
03:47But these alternative routes to the strait of Hormuz, whether it's the Saudi pipeline,
03:51the UAE pipeline, the Omani ports, the Iraq-Turkey pipeline, these are not immune from war.
03:56The war is not very far away from them.
03:58They could be subject to attacks.
03:59They could be subject to sabotage.
04:01And they could be subject to disruption.
04:03And I think if you think about the long term, beyond the short term here, I think what is
04:07happening now is going to change the way the Middle East is going to be supplying its energy
04:11to the rest of the world.
04:12I think more of it is going to be held as storage abroad, and it will be supplying to
04:15the world abroad, rather than going directly from the region.
04:19But that's something in the long term.
04:20In the short term, we're thinking about the damage to that pipeline, how much damage there
04:25is, and when it can be back online.
04:27I underscore the part of that statement from the Ministry of Energy, any further developments
04:32will be announced in due course.
04:33So some indefiniteness to the announcement that they made yesterday.
04:37Let me ask you about diesel.
04:38That has been such a huge story here in the United States as we've seen those prices go
04:42up.
04:42We talk about this workhorse fuel, how important it is for agriculture in particular and for
04:47logistics and distribution in this country.
04:50Could you just explain why price?
04:52Is this still just a refining story here, a global refining story?
04:55And what, if anything, could policymakers do to bring down those prices of diesel?
05:00Well, it is partly a refining story, but it's also partly now with the disruption that
05:06we're getting in the Middle East is basically the crude oil that is used to be refined and
05:13get diesel is also there are shortages there as well.
05:15So it's a combination of shortages of crude oil and shortages in refining capacity.
05:22And that's what's leading diesel prices in the US to go up.
05:25And that's probably going to lead to higher inflation in different parts of the economy.
05:30What can policymakers do?
05:31Well, in the short term, very little.
05:33I mean, you can't build up capacity in a few days.
05:37And therefore, in the US, there's basically two options.
05:41One is to try and bring more supplies into the market fairly soon, either by producing more
05:46or releasing from strategic reserves, or the second option is try and restrict the diesel
05:51that leaves the US going abroad and keep it in the country and make sure there's enough
05:55supply in the US before it goes abroad.
05:57Let me pull an audible here.
05:58All these options are very difficult, of course.
06:00Yes, of course.
06:01Let me pull an audible here with our chief emerging markets economist.
06:03We've been watching the BRICS summit unfolding in India.
06:06And I'd love to ask you just sort of how you view the importance of that body, that group
06:10of nations that's meeting in India today and tomorrow.
06:13And a question we put to Dan Strumpf, our colleague in New Delhi just a few moments ago,
06:16is how much might does it exercise on the international scene?
06:20It has metamorphosed from being this marketing tool for Goldman Sachs into this entity of itself.
06:25How do you look at it?
06:27How do you view the power of the BRICS that are gathering in New Delhi this weekend?
06:31In theory, it should have a lot of power.
06:33There's a lot of global GDP in that meeting today.
06:36But there's also, there's a lot of, it's a unique sort of platform.
06:40It's a unique platform because it brings the world's biggest importers of oil, China and
06:45India, with some of the world's largest exporters of oil, like Russia and the UAE.
06:51But just like everything else in the world and the global economy, it has been touched by
06:54the Iran war.
06:55Two of the members of the BRICS, the UAE and Iran, the UAE basically said, I'm not going
07:00to trade with Iran anymore.
07:01So you can see, like, you know, how can you start a block in which two of its members,
07:07two of the new members, two additional members, decided not to trade with each other as a result
07:13of a war that's going on in the Middle East.
07:15So much like everything else, it's been touched by the Iran war and it's been touched negatively
07:19by the war that's taking place in the Middle East.
07:22Before we let you go, I do want to ask you about one of the members at that summit, and
07:25that's China, because China has started buying oil again.
07:28And China's pullback from the global markets is one of the things that kind of softened
07:32the blow of this crisis.
07:33Do we know why they're picking back up their oil purchases and what impact that's likely
07:37to have on global markets?
07:40I wouldn't know the details of why China decided to cut its oil imports and why it's picking
07:45up again.
07:46But from an economic perspective, China is one of the biggest importer of oil in the
07:51world.
07:52If it starts to purchase oil again, if its demand comes back into the market, then that
07:56would be an upward pull on oil prices.
07:59But also part of how basically what the war did in the Middle East is that it created shortages
08:05in oil and we cannot consume more oil than we can produce.
08:08The price of oil goes up.
08:09If China steps back in, the price will go further, higher up.
08:14And then somewhere else around the world has to cut consumption because they cannot afford
08:18oil.
08:18This is what higher oil prices do.
08:19They make sure that demand falls.
08:22It's happened in China so far, but it could happen in other parts of the world as well.
Comments