HOUSTON — The CEOs of the world’s most powerful oil and gas companies issued a somber message this week about the impact of the Iran war on energy supplies and the long-term impact on the global economy.
Executives gathered in Houston, Texas, for S&P Global’s annual energy conference, CERAWeek, to reflect on the war. They warned that the market did not reflect the scale of the oil and gas supply disruption.
Executives said Asia and Europe would face fuel shortages if the war dragged on. Even if the conflict ends, oil prices are likely to remain high as countries replenish depleted reserves, they said.
“We cannot take 8 million to 10 million barrels per day of oil and 20 percent of the (liquefied natural gas) market off the world stage without significant consequences.” conocophilips CEO Ryan Lance told CERAWeek attendees:
Sheikh Nawaf al-Sabah, CEO of Kuwait Oil Corporation, said that by blocking the Strait of Hormuz, Iran has essentially imposed an economic blockade on oil-producing countries in the Middle East. The strait is an important artery connecting Gulf Arab oil producers’ oil exports to global markets.
“This is not only an attack on the Gulf, but an attack that is holding the global economy hostage,” Al-Sabah told the conference. The CEO warned that war would have a “domino effect” across the global economy.
“The cost of this war goes beyond the geographical boundaries of the region,” al-Sabah said. “They are spread throughout the supply chain.”
Paul Sankey, an independent analyst at Sankey Research, said the oil shock was the worst since the 1973 Arab oil embargo against the United States and other Western countries over their support for Israel in the Middle East war.
“This is the worst situation I’ve ever seen,” said Sankey, who started his career at the International Energy Agency in 1990. “We haven’t seen a situation like this since probably 1973. We’ve never seen the Strait of Hormuz closed.”
“We are effectively in a situation where Iran has control of the Strait,” Sankey said. “The situation is therefore very serious.”
Calling on the U.S. military to protect energy
The executives’ comments stood in contrast to the Trump administration’s efforts to reassure a worried industry and volatile oil market.
Energy Secretary Chris Wright told CNBC that the market faces “short-term disruption.” The long-term benefits of exposing Iran’s teeth are worth the price, he said.
But the cost is very high for the oil and gas industry, whose assets are under attack. Conoco is “begging” the Trump administration to allow the military to “protect U.S.-owned assets and hundreds of millions of dollars in investments in Qatar,” Lance said.
Iran has forced the closure of the world’s largest liquefied natural gas facility in Qatar with a drone attack. Conoco is the primary investor in the facility.
“We had to evacuate a lot of our staff and non-essential staff,” Lance said. “It’s been bothering me the last few weeks.”
Crude oil prices remain high
Oil prices have been volatile this week, falling as hopes for a negotiated end to the war grew and rising as tensions were perceived to flare up again. On Monday, President Donald Trump walked back his threat to bomb Iranian power plants. He maintained throughout the week that Iran wanted a deal to end the conflict.
But in the end, investors remained nervous, with oil prices settling at their highest in more than three years on Friday. usa crude oil Since the US and Israel attacked Iran on February 28, prices have increased 49% to $99.64 per barrel. brent priceThe international benchmark dollar soared more than 55% to $112.57 per barrel.
“You hear and read a lot about prices and things like that, which are all interesting, but it’s the physical flow that matters.” shell CEO Wael Sawan said: “Our customers need molecules and electrons.”
chevron CEO Mike Wirth said the physical supply of crude oil is much tighter than futures market prices indicate. The CEO said the market was reacting based on “poor information” and “awareness”.
“There are very real, physical signs of the closure of the Strait of Hormuz moving around the world and through the system, and I don’t think that’s fully factored into the oil futures curve,” Wirth said.
Kuwait Oil CEO Al Sabah said it would take three to four months for production to fully recover as the Gulf Arab state had to close oil wells due to the strait closure.
Conoco’s Lance said the “floor probably needs to go up” for oil prices, suggesting that despite reassurances from the Trump administration, oil prices are unlikely to fall to pre-war levels anytime soon.
CheniereThe company, one of the world’s largest LNG exporters, is doing its best to meet demand from Asian countries that rely heavily on natural gas imports from Qatar, CEO Jack Fusco said. But the company has already reached peak production, Fusco said.
“We will strive to deliver as many molecules as possible to Asian countries that really need them,” the CEO said. “But it’s a 28-day journey from the Gulf Coast to anywhere in Asia, so it’s not going to happen overnight.”
fuel shortage
Shell CEO Sawant said fuel supplies were facing even bigger disruptions than oil. Jet fuel supplies have already been affected, he said, and diesel will be next, followed by gasoline.
The CEO said the war would cause a ripple effect of shortages that would spread to major economies in Asia and reach Europe by April. He said governments around the world are stockpiling and protecting their own supplies.
“We need to make sure that it doesn’t add to the serious physical burden,” Sawan said.
Jet fuel and diesel prices rose by $200 and $160 per barrel, respectively. total energy CEO Patrick Pouyanne. China has banned the export of petroleum products and Thailand said it was rationing gasoline.
“The crisis is really starting to impact our customers,” Pouyanne told CNBC.
“It all depends on how long this conflict lasts,” the CEO said. “I hope it’s not too long or there will be very dramatic consequences.”
Likely to escalate
Vali Nasr, an Iran expert at Johns Hopkins University, said the war is unlikely to end soon and the risk of escalation is high. Nasr said Iran is not seeking a ceasefire with President Trump. The Iranian government wants a grand deal that would give it control of the strait, economic compensation and security, he said.
Gen. Jim Mattis, who served as secretary of defense during Trump’s first term, said that while the United States is conducting limited air operations, Iran is waging an all-out war. He said the goal of regime change in Tehran was a delusion. Mattis said the conflict is at a stalemate and one side could escalate further.
The U.S. Navy will have a hard time protecting the shipping lanes from the Persian Gulf through the Strait of Hormuz to the Gulf of Oman, he said. He said Iran has hundreds of miles of sea lanes that can be attacked and that the United States needs to protect.
This war could destroy the economic model that the Gulf Arab states have built. Mr Sankey said Iraq, Qatar, the United Arab Emirates and potentially Saudi Arabia could see gross domestic product (GDP) decline by 30% annually.
Mattis said the United States did not consult with its Gulf Arab allies before going to war, and Trump would not be able to just declare victory and walk away. Iranians have the right to vote on when the war ends, he said.
“I don’t think we can just run away from this problem,” Mattis said. “We are in a tough situation.”
—CNBC’s Pippa Stevens and Brian Sullivan contributed to this report
