You're listening to a free Landia edition of the Energy Transition Show. Whenever you get a commodity market where demand tends to be very inelastic, it doesn't take much of a supply disruption to really upset things. The illusion of lease was that the US was now freeing its own hands in the Middle East, could pursue sanctions on countries like Iran and Venezuela with a degree of market and punty if you like, not fearing an oil price spike. For March 25th, 2026, this is the Energy Transition Show with Chris Nelder. It's now been just shy of a month since the US and Israel commenced their bombing of Iran, and I suspect the world is realizing that it's never going to return to the way things were before the conflict. The global energy order has been fundamentally altered, and the recovery from it, when it happens, will see oil and gas importers trying to reduce their dependence on those fuels, not merely refill their storage tanks. Because the damage to the Persian Gulf producers and exporters of oil and gas has been extensive, and it will take many years to repair and restore the flows of those fuels. It's not just a matter of turning the taps back on. And by the time those repairs have been made, importers will have made strides away from the Petro State Model and toward the Electrostate Model, as we discussed back in Episode 267, and that will create its own additional momentum toward further electrification and reliance on homegrown renewable energy. Nobody will want to return to their former dependence on imported oil and gas if they can avoid it. Because, of course, they've just had a bracing reminder that their supply of those fuels can be disrupted any time. We recorded this interview on March 19th, about a week before this show launches. That's lightning speed for our show, but the events in the Gulf are unfolding so quickly, it's hard to even imagine what might happen by the time it launches. But I'm fairly confident that the war will still be on, and that the flow of oil and gas exports will still be extremely reduced from pre-war levels. I'm doubtful that the straight of Hormuz can even be reopened by that. We discussed the previous global energy crunch in the fourth quarter of 2021 in Episode 158. Back then, the world was struggling to recover from the disruption of the COVID-19 shutdowns, so the market for many things, especially gas, was already tight in early 2022 when Putin invaded Ukraine. It took several years for stability to return to the global flows of fuels after that, but the world had changed fundamentally in the interim. For one thing, Europe went from getting roughly 45% of its gas from Russia to just barely over 10%. And sanctions on Russia's oil exports reconfigured the entire global trade in oil as importers switched suppliers. But the overall flow rates at a global level didn't change all that much. This time is different. The capacity of Persian Gulf countries to produce and export oil and gas has been materially damaged. It's not simply a case of routing around blockages and sanctions. This time, it's not a crunch. It's a global energy crisis, and it's going to put a permanent dent in the global demand for oil and gas. To help us understand these new realities, which again are changing by the hour, I asked Roy Johnson to join us and share his insights. He's an oil market researcher, the founder of the commodity context newsletter, and the host of the oil ground up podcast among other things. I followed his work for years, and I think he's got as good a read on the global oil markets as anybody. As an astute observer of them, he's been in great demand lately as a media guest on many platforms, so I'm very grateful that he found time to be on our show as well. Whether you're an oil veteran or a noob, I'm sure you'll find many useful insights in this conversation. And because this is such an urgent story that will affect the entire world, we decided to make it one of our occasional land-yapp shows and publish it without the subscriber paywall. We promise our paying subscribers to complete shows per month, but we actually publish every two weeks, so we actually produce 26 shows a year instead of 24. So we put the extra shows in front of the paywall to give subscribers and non-subscribers alike the chance to hear the full shows. We call those our land-yapp shows. That's what they call a little something extra in New Orleans, like the 13th bagel in a baker's dozen. So non-subscribers, now you can see what you've been missing, and we hope that you will all share this episode widely with your friends and colleagues because it cuts through the fog of war and disinformation and tells you straight what you're going to experience as a result of the war. Then in the new segment, we'll note the Trump's latest effort to stop offshore wind in the US. We'll check out a new proposed coal plant in Alaska. We'll check in on the grid in Cuba, we'll mark down a rock's oil output, and we'll consider the potential impetus that the war may give drivers to switch to electric vehicles. And now our conversation with Rory Johnston recorded March 19th, 2026. So let's bring them into the conversation now. Welcome Rory to the Energy Transition Show. Thanks for having me, Chris. We followed each other's work for years, and I'm so glad to finally have a chance to bring you on to the show, especially given all your excellent work on your own podcast. Thank you so much. I remember you were one of the first kind of major accounts I connected with the energy space back when I was actually working in DC as an intern, but a dozen years ago, and it feels like an eternity. Yeah, no doubt, no doubt. Well, you've been a keen observer and analyst on energy markets and especially oil markets for over a decade now. And for the past five years, you've been publishing your own newsletter called Commodity Context with more than 20,000 free subscribers to date in addition to paying subscribers. So congratulations on competing successfully in the ever so competitive attention economy. Thank you so much. It's been a wild ride in the past five years. I've been especially eventful in the oil market and very conducive to building a brand around it. I've been lucky on that front. Unfortunately, the luck has come with the expense of the global energy economy. And I'd imagine the last three weeks have kept you pretty busy. Yeah, the last two and a half weeks is definitely the busiest stretch in my career to date. And that was after what was previously the busiest stretch of my career today, which was in January following Trump's capture of Maduro and Venezuela and then declared takeover Venezuela. So I thought that was as busy as I had yet. And guess what? There's always the next level. Well, the attacks on Iran by the US and Israel have really upended not only the global markets, but really all sorts of markets, globally, because oil is still the lifeblood of the global economy. Just about every kind of good that goes from point A to point B goes there on the back of oil. And so when oil prices increase, it tends to drive up the prices of just about everything. And that's why the package of energy related incentives pushed through under the Biden administration was called the Inflation Reduction Act. We last talked about that back in 2024 and episode 221 titled Fossil Flation. And look, who's back in the news today, but fossil flation. So look, there are a lot of angles to explore here, but I think I'd like to start with the economic basics, supply, demand, and price. And with your forbearance, I'm just going to take a minute here to kind of lay out the basic facts and frame this up for those who don't carry all this data around in their heads all the time like you and me. So first demand other than the dip in 2020 and the recovery year of 2021, global oil demand has been fairly stable around 100 million barrels a day since 2019 plus or minus. So that's the demand that has to be met to keep the markets in balance 100 million barrels a day. Broadly speaking, supply and demand have to be kept in balance, although there is a storage capacity spread throughout the global supply chain that can store up occasional surpluses as well as the strategic petroleum reserves that some countries maintained for supply disruptions just like this. Nobody really knows just how much of that there is globally. I don't think largely because I don't think anybody really knows how big China's SPR is. And just a quick note to Benay here, the numbers I'm quoting here are for what's generally called oil, but there are lots of different things lumped in under that word, including conventional crude oil, unconventional oil from shale and oil sands, gas condensates, and the slight increase in volume known as refinery gains when crude is refined into final products like gasoline and diesel. And then there are additional liquid fuels from sources like biomass, corn, synthetic derivatives of coal and natural gas and so on. And all that pushes up the total supply of liquid fuels to around 109 million barrels a day, I believe. Last year we got up to that and we're a bit below that now. And sometimes that number is also called oil, especially in the generalist media, but we're just going to be in a couple of oil geeks. We're going to stick with the strict definition here. We're going to talk about 100 million barrels a day in this conversation. During the last oil price spike in 2022, the concern was that Russian oil supplies would be curtailed due to Western sanctions. Russia was producing over 11 million barrels a day at its peak in 2019 and was still producing around 10 and a half million barrels a day when it invaded Ukraine. So that put as much as 10% of the global supply at risk. In response, the International Energy Agency, IEA, coordinated a release of the strategic stockpiles of its member countries to the tune of about 240 million barrels, equivalent to a two and a half day supply for total demand. And that was enough to relieve the pressure on oil prices. The Brent benchmark for crude oil, which is the European benchmark, zipped from around $67 a barrel before the invasion to 115 at the peak. And then after the release of the stockpiles, Brent was back down to around 85, around four months later. But something different is happening this time. Oil prices started at about the same point around $72 a barrel. The day before the US and Israel attacked Iran on February 28th, Iran said it was closing the state of her moves through rich around 20% of the world's oil supply and natural gas supply transits. And over the following week, prices shot up reaching almost $120 a barrel on March 8th. Then oiled briefly dipped back to around 83 on March 10th.
because Trump said the war was very complete. And Secretary of Energy Chris Wright said that the Navy had escorted an oil tanker through the street. But then Secretary Wright quietly deleted the post without further explanation and the White House press secretary had to admit that the escort never happened. That aroused suspicion. And then it became clear that the straight was still closed. And around 15 to 20 million barrels a day of oil supply is still stranded and unable to get to market and then prices started rising again. But here's the difference with 2022. The IEA again coordinated this release of oil stock piles on March 11th. Only this time they were aiming for around 400 million barrels, like twice as much oil as was released in 2022. But the market shrugged it off. And prices continued to march up past $100 a barrel on March 12th. As we speak today, I'm not exactly sure where we are of about 110, 111. Where are we? Yeah, we're sitting at just about $110 a barrel on Brent right now and we peaked at over 118 this morning. OK, so what happened here? What is the difference between what happened in 2022 and what happened now? Why wasn't the largest stockpile release in history by IEA member countries able to tamp prices back down again? Yeah. And I think 2022 is our most natural parallel here. But there are a bunch of important differences about the preconditions and what the actual shock look like and how it rolled through. So in the preconditions ironically, in 2022, the market actually started very tight. We were tight in 2021. We were already seeing prices rise before Russian invaded Ukraine. And it was only after that that you kind of got this tight market. OPEC wasn't keeping up with its pledge production increases, coming unwinding the cut that they used to kind of rescue the oil market in 2020. And then Russia invaded Ukraine. The IEA warned at one point in its April oil market report, the kind of flagship oil market report that everyone follows for data. They warned that you could lose upwards of 3 million barrels a day of Russian supply. Now, at the time, we were already tight market and there was a staggering considered loss. The irony though, is that we didn't lose 3 million barrels a day of Russian supply. We lost briefly maybe upwards of a million barrels a day of Russian supply. And then actually what really ended up taking all of the wind out of the sales of that oil rally was partly the SPR release. But I would say even more acutely the fact that later that year China then locked down for COVID-0, which feels like a million years ago now. But at that point in 2022, it was the first annual average demand contraction in China in something like 30 years. So China's normally prior to COVID was half structurally of global demand growth in 2022 and in 2023 that basically contracted on annual average basis, which was crazy. And that I think was actually, so we didn't lose Russian supply like we thought we were going to. We did lose a bunch of Chinese demand on top of that you had at the time the largest SPR release in history. - Okay, so the actual tightness in the market wasn't nearly as tight in 2022 as we thought it might be. - Exactly. And I would say that if anything, I supported the Biden administration's release at the time. I would say if there was any criticism of it, it's that when they decided to do the release in kind of April, it was a slam dunk, obvious thing to do. But by the time the SPR really hit its stride in terms of its maximum actual pace of releases that over a million barrels a day, by that stage, it was pretty clear that the crisis had already passed. And I think it speaks to one of the limitations of the SPR and the kind of bureaucracy behind it is that it can't move as quickly to react to conditions in a very dynamic and changing oil market. But just to kind of contrast with today, ironically going into this market, we were oversupplied. I've been bearish on oil prices for at least the past year. We saw kind of at the beginning of this year, inventories climbing, visibly globally, surplus were up towards around three million barrels a day. And just for those perspectives, I mean, it sounds only three out of a hundred million barrels. But in the kind of peak crises and pre-COVID when everything got wonky, a million or two million barrels a day of oversupply or under supply on a sustained basis was all that drove virtually all of our past oil price climbs and collapses. It doesn't take a lot to move this market. So in this current crisis that we're facing, we went in oversupplied, building stocks globally, but all of a sudden that three million barrel a day oversupply was just absolutely swamped by the 20 million barrel a day loss of supply through the straighter from this. And just again, put in perspective, this is the largest supply shock in the history of the oil market by a landslide. Like nothing has even come close. Not the energy crisis of the '70s, nothing else. To put in perspective what 20 million barrels a day means at the peak of COVID era kind of demand loss when you and I were locked in our houses, when there wasn't a plan in the sky in March and April of 2020. When basically we had no one at any of it was going on, at that stage basically we had 20 million barrels a day of demand loss globally. At that point it was the largest demand loss in history. And we achieved that through government-mandated lockdowns and deep kind of ubiquitous fear across basically the entire world. If the straight does not reopen today, and we'll talk about all the ways that it could or couldn't or whatever else, but if it doesn't, just to really drive this point home, where you would need to destroy 20 million barrels a day of oil demand globally, which means we would need to replicate the demand losses of COVID without a pandemic and without lockdowns through only prices alone. So the question is, how high do prices need to be at the pump for you to basically go back to lockdown? And the answer is, for most people in wealthy advanced societies, there really is no price high enough that would destroy that level of demand again, which is why when we're talking about where this demand loss will come from, we can talk about how in advanced markets this is going to be a debilitating recessionary, but if it continues depressionary kind of price shock, sapping consumer, just suppose to income and causing all the crises and inflation that we normally think about. But in the global south, in emerging markets and poorer countries, those consumers will not be able to pay those high prices, and you will literally see a lack of physical supply and physical shortages emerge. And that for many of these countries will be a deadly proposition. So I think that is the extent of why, and as we will talk about, why do not think this can continue? It is too big a shock wherever we end up. There is no scenario where the straight can remain closed in its current status in perpetuity. It's too big a shock, and the global economy will literally wrench itself apart. - So the global south or anybody else who's unable to pay unprecedentedly high prices for oil and all the products associated or that are derived from oil are really going to be in a world of hurt. And you've been pointing out in some of your recent work that this 20 million barrel a day supply shock is basically producing what you're calling an air pocket that's kind of working its way through the system. Tell us about what that will look like. - Yeah, so I think three weeks ago, immediately prior to the war, the start of the war, you still had tankers leaving the Gulf, largely destined for Asia. That's where most of the crude that comes to the state of musgos is in Asian markets. Those tankers take three to four weeks to get to where they're going, and we haven't been three to four weeks into this fully yet. So there were tankers that left prior to the war that still haven't landed to their destination. Because of that, we still haven't felt the true acute physical shortages that are about to hit this market. That'll only happen when basically at this stage where what are we 19 days into the war now? Let's say 20 for easier math. 20 million barrels a day, 20 days, a 400 million barrel equivalent air pocket in normal X Gulf and kind of trade into Asia, when that hits, and probably the next week or two. That is when we will see inventories globally begin to drain like someone's pulled the looney tunes plug out the tank. And one other thing we've seen, so that's on the crude oil side, on the refined product side, we're actually already seeing that bite. And the reason for that is that many Asian refineries terrified it with the prospect of actually need to shut down for lack of crude supply, have preemptively, and in a precautionary manner, reduced run rates to kind of preserve their crude that they have left, so they can continue operating for as long as they can, because even though refined product prices are crazy now, if this continues, they're gonna get crazier. So you wanna hold on as long as you can to capture those margins on the other side of this. But because of that, while the air pocket in crude is still on water, the air pocket or the scarcity of petroleum products in Asia has already hit. And last week we already saw Singaporean jet fuel trade for over $200 a barrel. That's where this is going. And even on the crude side, while we're looking at, we're talking about Brented about 110, WTI's even cheaper, $100 or less right now. Meanwhile, physical crude cash availability in Dubai right now, physical barrel, if you could like get a tanker there, that based off the coast of Amman, traded this morning for $170 a barrel. Oh, that's where this is going if this continues, which is why I view it as people like, well, I wouldn't you just buy a WTI barrel instead of that $100 and seven dollar, sure that it's cheaper. And obviously it is. The challenge is that all commodity prices, a particularly crude, are priced for a particular type of crude and a particular physical location at a particular point in time. If you're buying the front of the WTI futures curve or like what we would consider like prompt WTI futures prices, that's not for delivery until next month. Then it's going to take another month for you to get that barrel, get it to the middle east, and then further to get to Asia. It's just not available where it needs to be fast enough. and the right.
The reason I think overall markets still aren't in a greater state of alarm is there's an expectation that this will end some point because it has to end. For all the reasons I described it has to end. Yeah, unsustainable things do have to end. Definitely. But I mean, I've been very puzzled looking at this market. And I know because I've been listening to your podcast and reading your stuff that you've been puzzled and other people that you speak to have been puzzled by how the market has just sort of shrugged it off, especially in equities. This seems like traders and refiners have been sort of front-running crude. I mean, I think that part of the market is always a little bit anticipatory. But it does seem like they've been very complacent and maybe not recognizing the real extent of the damage here. 100%. And again, I want to be very, very clear about what I've been wrong about thus far. Yeah, fair. I did not think we would make it three weeks into this war. I don't think Trump thought he would make it three weeks into this war. And I think the rest of the markets, both oil and equities and every other market, is kind of on the same wavelength. And I think that what we even saw so last week or two weeks ago, basically in the second weekend of the war, you saw oil prices explode higher coming out of the weekend because, again, there was an expectation, mine as well, that Trump was going to figure out a way to declare victory, wrap it up and go home. Right? That was the expectation. I had to plan to do that and by now had planned to be rolling over on Cuba after Venezuela. And now he's kind of stuck in this quagmire in the Gulf. And I think what you saw on that Monday, price exploded upwards. And then you saw the first, well, Trump, like you said, the war is mostly over later in the quote, it was, but it's only just beginning. And there's this constant double speak, but it was enough to shake traders out of those positions. Because again, everyone expects this to happen. So we're waiting, we're hunting for that confirmation. And I think that because of that, future prices have not been able to anticipate as much. I think now it's waiting for the physical market to drag us higher by the nose. So going back to this air pocket about to impact Asia in particular, let's say that the straight could be reliably opened and that full 20 million barrels a day of supply starts to flow again. And let's say that happens a week from now. Okay. So we'll have a month of outage. What would that actually look like for the refineries in Asia? I mean, as you said, they've reduced their run rate, so they're stretching their supply and trying to keep operating as long as possible. But it seems like they would be in for well more than a month of hurt. Oh, absolutely. I think let's not even talk if it ended in like a month or whatever. Like let's just say if it ended today, what would happen? Like let's say not just ended, but there was some kind of ceasefire and full-blown kind of traffic resume through the straight today. I still think we are in for months, months and months and months of pain because at this age, again, we have a 400 million barrel air pocket in the system. Even if we resume our kind of oversupplied state as we did kind of like at the beginning of the year, we're doing so at a 400 million barrel lower inventory level than we went into it with. So just baseline. We're starting in a much more bullish high price environment, even if the kind of delta from there going forward is negative. But I don't think that we will be able to snap back in even if traffic resumed. And because we've seen in addition to the actual loss of flow through the straight, we've also seen unprecedented shut-ins in the Gulf by which I mean producers forcibly shutting in their production. So it's not just not being exported, it's not being produced at all. Yeah. And we're going to talk about that. But I want to come back for a moment to this point about the IEA release because I mean, I think in as much as the world has any tools for this problem, this is the main tool is releasing from the strategic petroleum reserves, right? So yeah, in its oil market report from March 2026, IEA said that global stocks in January were at their highest level since February 2021 before the Russian invasion at a little over 8 billion barrels. They said that half of that is held in OECD countries, 15% in China, 25% in tankers on the water, and the remaining 10% in other non-OECD countries. So against the total stock of over 8 billion barrels, even a 400 million barrel release doesn't sound like that big of a deal. And I've also heard some scuttle butt recently that maybe they're going to try to release even more. But that's just the stock, right? Like what about the flows? Like do we know what the approximate flow rate of the oil being released globally is or what the maximum flow rate is from SPR globally and how quickly it can get to market? The great question, because yeah, the stock is obviously what you would consider inventory, the flow or the pace of that stock release is effectively what we would treat as substitute supply. We haven't yet gotten full details on all the various member releases. What we have had is a rough timeline kind of presented by Energy Secretary Chris Wright who has said that the US portion would be completed over 120 days. So let's say four months, let's use that as our reference for the entire 400 million release. That's roughly 3.3 million barrels a day, which to be clear is massive. Like it's such a big volume that I can't believe we're going to talk about how it's insufficient, but that's more than we feared losing, you know, after Russian-Vad Ukraine. This is a massive amount. But. And I think an unprecedented rate for the US. Absolutely. I mean, in 2022 and Biden released, we saw it kind of peak around 1.11.2 million barrels a day of release. So I think we could expect a similar kind of pace now. But I think overall, yeah, 3.3 million barrels a day is a lot, but it's not a lot when the whole you have to fill is upwards of 15 to 20 million barrels. Right. Okay. Now, for one more tool to sort of work around the problem, there's a few pipelines that Gulf producers have that they're using to route around the blockage and the straight of hormones. How much of the gap can they fill or have they filled and are those facilities still operational at this point after Iran's counterattacks? Yes. So the single largest reroute option is the Saudi Arabia's East-West pipeline, also known as the petrol line, which stretches from basically the facility at Abkake on the Gulf Coast all the way to the Red Sea and terminates at the port of Yombo. That pipeline has a nameplate capacity of 5 million barrels, but Ramco is assured us now that it can go up to 7 million barrels a day. It theoretically can divert upwards of a quarter of the lost flow out of hormones. So let's say that knocks it down from a 20 million barrel a day lost to a 15 million barrel a day loss. The challenge is a couple different things. So one, even if you can get that much out of the pipeline, the port of Yombo itself, there's serious questions about how much it can load, so maybe it can only load 5.5 million barrels or something like that. So there are limitations there. The other challenge is that up until very recently, Iran wasn't the concern in the region. It was the Houthis and the Red Sea. So they have been shockingly quiet through a lot of this, and it would not take a lot for them to begin harassing the traffic, particularly the Asian bound traffic, going back through their basically straight right off the Yemeni coast. So I think if that continues, that's an area to worry about as well. And then again, all of this is going to be a little time lag tier, but last night, as we're talking, this is March 19th, we had attacks in the Red Sea, either from Iran or the Houthis. That part is unclear at the stage, but there was a missile launch at the port, and there was a drone that hit the refinery at Yombo as well. So this is vulnerable to attack at the point of exit, as well as vulnerable to attack anywhere along the pipeline itself or any of the numerous pumping stations to support the pipeline. So I think that is, it's currently the most important source of reroute, but it is also quite fraught in the scheme of kind of risk there. Right. The other point that you've mentioned is the MRADI, the UAE's pipeline that basically goes from the Gulf Coast side over to the Gulf of Oman, which terminates at a major blending and kind of marketing hub called Fuzera. That area as well, baby, you could get an extra 500,000 or half a million barrels a day of supply through there based on pipes maximum capacity and what people thought they were shipping earlier, but the challenge there as well is that Fuzera has been repeatedly hit by drone attacks every other day. You get a picture and like there's like full blown kind of flames coming out of one of the storage tanks or they've stopped loading. So it itself is also quite vulnerable to attack, even if it's on the, what I'll call the good side of the straight. It still is one of these things where that could be a very big problem. And Iran knows these things exist. So if it wants to ratchet up the pain, that's where it knows it's going to hit. Okay. So taking into account the closure of the straight and these workarounds, pipelines, etc. And now all this additional damage that's happened, I'm trying to figure out how much we're short at this point. I prepared a whole bunch of data here that I'd cobbled together from various sources a week ago and this already seems obsolete. By your tally, I think we were short about eight and a half million barrels a day confirmed shut in given the amount of additional damage that we've seen here in Iraq, Kuwait, the Emirates, Saudi Arabia, all the way down the line. How much are we short globally at this point? Do you have any idea? That's obviously the big questions everyone is wondering and a lot of it depends on for instance how much like if we haven't seen the full 5 million barrel a day swing in Yonbu yet, we've only maybe seen two to three, which is a lot again, but not the full amount. And again, remember that we went into this likely oversupplied, so maybe we're like 5 to 8 million barrels a day under supplied. But again, that assumes the SPR release that counts the drawdown of Russian oil on water that had been built out
up over the past basically half a year, those aspects are temporary. And they, by definition, can't go on forever. Even the IEA 400 million barrel SPR release is 400 million out of a total, kind of, tapable reserve of 1.2 billion barrels. So they could do that, let's say, they could do it again twice over. I'm sure that people would get very nervous if we started drawing down SPRs to literal bear tank bottoms. And I'm sure it causes all sorts of other operational concerns. We also could have more releases from China that could help stop the gap in the interim. China likely has over a billion barrels of either explicit SPR or what they're calling commercial strategic reserves. All of these things could help in the meantime. But I do not think any of them even together are sufficient to prevent the fact that we will be seeing, kind of, fairly acute drawdowns in stocks. And markets are showing that across the board. Backwardation is exploding, which is the kind of the steepness at the front of the futures curve. That essentially manifests as an opportunity cost for commercial inventory holders to say, like, give this barrel to the market. It's in demand right now. It's much more valuable today than it is next month. And even if they wanted, they could basically lend the barrel to the market by selling the barrel today and then buying the same barrel back a month or two in the future and pocketing a handsome profit off of it. But that's how the market is going to incentivize these inventory drawdowns to try and close that hole because, again, to your point, supply and demand always have to actually line up in a given moment. Whether or not that supply is coming from draining down inventories or not, it always needs to clear. So we're gonna need to get the barrels from somewhere, otherwise we're just gonna have outright shortages in the immediate term. - Okay, so we're already out at least five million barrels a day short. Maybe eight, and again, that depends on all the other things that you just mentioned actually coming through. - Yep. - So I wonder, and I'm sure the biggest question on everyone's mind is, what's the outlook for price? Not even a fair question. (laughing) Who the hell knows what's gonna happen? Everything is changing so much on a day-to-day basis and we haven't even talked about gas yet. But what's your expectation at this point? - I mean, look, I tried always like pull back from like a larmist clickbait-y kind of price calls, but I've been going with like $200 minimum. - Wow. - If this continues, we are going to blow past every historical parallel. We will blow past the all-time high and inflation adjusted terms in 2008, which I believe now is up to $2.230. We will blow past these levels. And we are already seeing again, nominal spot prices in the Middle East already hitting all time highs. And we're only two and a half weeks into this. Like this is the thing, I think people expect this to kind of like the immediate consequences to just be apparent. But it's fundamentally a crisis of lost time that every day this goes on, it gets worse and worse, which is why I think again, something has to budge. Otherwise like in three weeks in a month, this is a whole different beast. And again, I think that by May, by June, if this hasn't wrapped up, we will be sitting at all time high. Crude prices will be sitting at $5, $6.00 gallon average, U.S. gasoline prices. We're already over $5.00 of gallon diesel price average in the United States. We're going to blow past all of the records we set in 2022. Because again, something has to give, and the system can't heal itself fast enough. There are no supply responses fast enough, except for a supply response from Hormuz itself. And I think we talked about demand destruction. I think there's one other thing that is important to talk about here is, prices right now on the bad side of the Gulf are now deeply negative. No one's quoting them anymore 'cause they don't really make any sense. But you're probably a negative $50 a barrel or more for crude oil on the block side of the Gulf, which is why people are shouting in production. On the good side of the Gulf, and over on the Gulf of Oman, you have $170 cash prices. So if you literally get a VLCC tanker, it carries two million barrels of crude. If you can get that, even if you pay the absurdly high war insurance premiums of 5% of your ship or $5 million for the voyage now, which is crazy. But even with that, you're still making a king's ransom just getting across the strait. And that price dislocation, that arbitrage opportunity will continue to grow. And the market's gonna try and solve it that way. Like how much money can we throw at you to risk your lives to cross the strait? Is essentially the bet now. And I think whether it's the war insurance premium on the ship or you're gonna end up paying each of your semen on the crew $200,000 USD bonuses, with multiples of their annual income, just for like literally a one day voyage. That's what we're talking about. And my understanding is that there are some tankers getting through bearing oil from Iran or bearing oil shipped by its allies like China. Do we have any idea how much is actually getting through? - Yeah, so Iran itself is probably getting most of its oil through. The irony through all of this, and actually this morning, there was literally a quote from Treasury Secretary Besant talking about how they might actually be removing sanctions on floating Iranians storage. Because everyone's a desperate for crude. This is what winning looks like, right, Chris? I mean, and can I just say how absolutely bonkers it is that we're getting security briefings from the Treasury Secretary? Anyway. - Or military escort briefing that end of being fake from the Energy Secretary. - Right. Oh God. So anyway, do we know how much is actually getting through? - Most the estimates show that traffic through Kormuz overall is down 90 to 95%. The vast majority of the tankers and the ships still getting through our Iranian themselves. You are also seeing a smattering of, I mean, the latest ones that have gotten through were Indian flag vessels or LPG tankers or like a five petroleum gas tankers that are destined for India. The LPG market in India is especially important. It's a major source of cooking fuels and other things. I think it's over a fifth of Indian demand for petroleum is actually an LPG. So that's very important for them. And I think there was a direct kind of plea from the Modi government to whatever element the regime is still speaking publicly in Tehran. So that's what we're seeing. We've also seen a smattering. (laughs) You know, the people trying to pull like a Leroy Jenkins here, like absolutely yoloing across the street. And those have mainly been extremely risk tolerant Greek tankers, which again, they're following that massive, massive arbitrage value. You could make like a year's profit in a weekend if you're making these strips right now. And that's where this is still trying to go. The market's trying to incentivize clearance. And we're not there yet. - Those Greek shippers are a special breed, aren't they? - Very much more resilient than I am, Chris. (laughs) - Okay, so it seems quite clear that the straight is not gonna be reopened anytime soon. I mean, on March 14th, Trump called on other countries to send in their own warships to keep the straight while the war moves open. I'm not sure if we can call those countries allies anymore after more than a year of him denigrating and threatening and terrifting them and just treating them like shit. Frankly, and unsurprisingly, none of them have committed all the European countries rejected his proposal as far as I know. Last I saw China and the other loans in South Korea had not given a response, but anyway, he doesn't have anybody backing him up over there. They kind of look at it as like, well, dude, you broke it, you live with it. And so it looks like the US and Israel really also are gonna have to continue living with the consequences of this attack. But again, this is gonna hurt the whole world. And the straight could remain unsafe for foreign tankers to transit for quite some time now. I mean, as of today, all the parties are still in a full aggressive posture, right? With no talk of a ceasefire or anything of this sort. So I don't think this is gonna end anytime soon, do you? - Yeah, I agree. I mean, I think that my most basic kind of base case scenario is almost working back from the unthinkability of the straight remaining closed. So to this point, if it's unsustainable, it can't be sustained, definitionally, it can't happen. Really. So if it can't happen, how do we get some other result? And that means someone backs away from the war. There are three major kind of participants in the war. You've got the United States, Israel and Iran. Israel has wanted to do this for decades and they will keep pummeling as long as they are allowed to basically do so. Iran is gonna continue hitting regional infrastructure and threatening oil and gas assets in the Gulf as long as it continues to be bombed. And then Trump. So far, sticking in far longer than I would have expected. But again, the political cost, again, this is a midterm election year, everything else as well. The political cost would be so untenable that I think he will be forced to pull back. And people, I think reasonably criticize this position like, well, how is he gonna do that? How could you get Israel to pull back? How could, how could, how could, right? I just think they lack imagination for how bad things are going to get if this continues and God gets worse. So with that in mind, I think that if Trump decides to pull back, and I'm not saying that he fully acquiesces to Iran's demands, which is they've demanded the right to enrich uranium, they've demanded reparations for the war, all these things. I don't know if it goes that far, but I think if Trump just unilaterally said, we're going to stop bombing Iran now. And by the way, Israel, you need to stop bombing Iran now too, or we're gonna stop defending you to the degree we have. I think that ends the major hostilities. And then it falls to Iran. And I think Iran, quite likely, is going to keep pinching a little bit longer and harder, just to kind of say, like, don't ever do this again. But I think they as well don't want this, they don't want to get bombed. They want the regime to survive. So this is how I think this turns out eventually. But again, I've been wrong thus far on when this wraps up. But again, I just think the outcome of it doesn't, is just so,
apocalyptic. I just can't see you continuing. Well, it seems like a fair assessment to me. Again, we haven't even talked about gas yet. We've got to talk about gas, because this is also such a huge part of the picture, and I think it hasn't really quite received the same level of news coverage. For a lot of parts of the world, it's an even more important part of the damage that's been done here than the oil. Do you know how much of the global trading gas has been affected at this point? Is there an air pocket there that we have to worry about? Yes. My disclaimer here is that while I used to cover gas when I was at Scotiabank, I no longer actively cover gas markets, one of the benefits of being my own bosses. I just focus entirely on oil now. But to your point, yes, roughly a similar volume of the global gas supplies also travel through the straight, let's say a fifth, prior to the net states taking the crown, Cotter was the largest LNG shipper in the world. And actually, this is another thing that happened last night that really got crazy. And I think escalated us to another peak in this crisis, is that Israel attacked and bombed Iran's south-pars field, which is its massive natural gas operation. And Iran didn't like that. Up until now, there hadn't been attacks on upstream production. You had seen another kind of very flashy, very problematic attack when Israel bombed a fuel depot in downtown Tehran. But up until now, production has mostly been spared. And as soon as Israel attacked the south-pars field, then Iran launched a bunch of missiles at the Cotari LNG facilities immediately across the straight. The Iranian south-pars field is what Cotter calls the Northfield, because they south-versus-Northrun on other sides. It's the same gas field. So they are both producing from that. But so basically for them, it was tit for tat. In the south-pars field, we take out Cotari LNG. And there is an exclusive report this morning from Reuters. The base says, "Aron attack wiped out 17% of Cotters' LNG capacity for up to five years." The photos of the attack are heroin. The entire facility was on fire. There are just craters everywhere. So again, it's like, this is a taste of how much worse they can get. That's gas. That's almost a fifth of Cotters, the world's third largest LNG exporter now behind the US and Australia. But massive, massive, massive. And that's what we could see in oil, if say Iran decides to, again, like they did in 2019, attack the massive Saudi oil processing facility at Abkhake. These types of things we could see again in oil very quickly. But again, for now, it was a tit for tat. You had our gas, we'll hit your gas. But yeah, this stuff is going to ripple for years. Well, and for that matter, Trump came out and said, Israel can't attack gasfield anymore or something like that, which is kind of a crazy thing to say. And then he said, and if they don't, we're going to bomb it. So, who do we even know is what's going to happen there? Well, even if we don't know how much of an air pocket there is in LNG supply globally, it seems quite clear that there is one. And that's already having an impact. So I'll run down just a couple of very early news reports just sort of from the first two weeks here. Like within a week of the attack on around, we started to see Asian countries taking measures to curb their consumption of oil and gas. India invoked emergency measures to redirect supplies of LPG away from industrial users to households. Times of India reported that LPG for cooking and fertilizer plants were given top priority because as you pointed out, LPG liquefied petroleum gas is a key fuel for cooking in India. Bangladesh shut its universities early to save power and halted operations at nearly all of its state-run fertilizer factories in order to save the gas for its power plants. China announced the biggest retail fuel price cap increase in four years for retail, petrol and diesel. Thailand ordered a civil service to use the stairs instead of elevators and work from home. South Korea and Thailand capped petrol prices, Vietnam urged its citizens to work from home. The Philippines announced plans for a four-day work week for most public offices. Myanmar's junta announced a fuel rationing system for private vehicles under which even numbered plates would only be allowed to drive on even dates and odd number plates on odd dates. As you said, this disruption of oil and gas is affecting Asia so much more than the rest of the world because they are largely supplied by these golf producers. One kind of impact that might be underappreciated is that the higher prices for natural gas also drove off the price of electricity in countries that mainly import gas and where gas is a marginal source of power generation. Primarily, the UK. This has now become a big issue, but also for Italy and other European countries. Simon Evans of Carbon Brief had a great post about that that I've linked to the show notes. But basically, wholesale power prices have doubled in the UK since the war began as a result of the doubling of natural gas prices. But I also wonder about how much price pressure gas will be exerting outside of Europe, especially in Asia and Africa. Any thoughts on that? Yeah, I think this is something that's just going to continue trickling through. One thing I've been saying, again, I don't follow the gas market as closely. I think all of the things you've said are very, very on point. Two things I will point out. The one is along all of these kind of Asian country attempts to kind of forcibly ration back demand already. The other important thing here is that I mentioned earlier that you would see affordability issues and outright shortages in the global south. Many of these countries, particularly in Asia, also subsidize fossil fuel pump prices, diesel, etc. etc., particularly LPG. If that continues through this crisis, you shift this from a human available energy crisis and energy security crisis over to a fiscal crisis as well. So this could bankrupt many of these countries if they attempt to subsidize their way through it, which is obviously kind of another side of this. But just to your point about the long term implications, I think, well, this is absolutely obviously bullish for prices in the near term. I would say, all of this equal, this guarantees in a decade that Asia will be consuming less oil and gas than it did prior to going into this crisis. All of the various ENGOs and the just up oil folks, etc., I think for a while the climate, the kind of moral framing was beginning to lose. It's effectiveness, particularly in a moment of inflation and cost of living concerns, etc. So I think this has kind of been the political zeitgeist over the last at least two years. But if you can reframe that as an energy security question, as a question of affordability in and of its own right, that's going to be a much more effective argument, particularly paired with everything else. So I think we'll be talking about this for decades as the kind of example, again, like we saw out of the 70s, the 70s themselves, the price spikes, they caused a massive retrenchment in global oil demand structurally. You had not just temporary price induced kind of supply, you know, demand loss, you had permanent structural substitution to away from oil towards gas or coal or the beginning of renewables. I think this is something we will see right now and there are many more viable alternatives today than there were in the 70s. Indeed, and I'm really glad you pointed that out because there is no question that in the wake of all of this, the whole world, and especially developing countries in Asia, are going to be looking very skeptical. Very skeptically at a future based around fossil fuels and are going to be looking at the manifold benefits of relying on renewables instead, which are domestic, which do not get hung up on a straight anywhere else, which keep money in the country, which are far, far cheaper than any of this other fossil based stuff. And there also, I think, going to be looking very carefully at the economic damage. So the energy transition ultimately, I think, will benefit from all of this horrific disruption and damage that we're seeing in the Gulf. But it's not going to be without some pain and suffering, especially for the Gulf producers. You know, there was a Goldman Sachs analysis recently that said, if the straight of our moves remains closed for most of March, every Gulf economy would shrink between 2 and 5% this year. With a prolonged conflict with a straight blocked until the end of April, they estimate that Saudi Arabia's economy could shrink by 5% to UAE's by 8% cutter and co-8% by 14%. And these countries are going to have to rebuild their fossil fuel exporting infrastructure in a damaged and shrinking economy. So they're going to be in real pain. And this physical damage to the energy infrastructure across the Gulf countries also continues to mount. You pointed out the attack on the South Pires, offshore gas field, cutters, Rosalphon refinery, extensively damaged by Iranian missiles. As you pointed out, 17% of cutters, LNG export facility offline for at least 3 to 5 years, cutters, exports of condensate LPG helium, NAFTA, all of that dropping significantly. And as I mentioned earlier, the European benchmark for gas, TTF, that went up 35% last night. So now we're at more than double the pre-crisis level of 32 euros at about 67 euros per megawatt hour in Europe. This is also going to make Europe look very carefully at its continued and significant dependency on gas. And I think it's going to cause them ultimately to accelerate their energy transition ambitions. And so I do wonder how much damage there will be before this conflict ends and where it will leave us. But I agree with your conclusion that it's ultimately going to accelerate the energy transition. Yeah, and I think for a while that was the underlying argument when I was growing up when I was getting into this industry.
That was largely the argument of people arguing to phase away from fossil fuels. About energy security. It was about affordability. You bet. I was making that argument 20 years ago. Right. I think then we went through this period of kind of hydrocarbon abundance, particularly coming out of the US shale patch. But even more, we've seen massive expansions of Canadian oil sands, of massive new fields discovered in Guyana, the exploitation of pre-salt fields offshore Brazil. You've seen so many areas of growth and at really compelling prices. And I should say that if this persists, we will see a diversification away from the golf over a period of years. We will see US producers growing at two million barrels a day every year. We will see all these other countries grow at exorbitant levels. But then there's this question of, okay, if that happens and then the straight is reopened. Then we basically have free oil on the other side, which is the, I mean, this bowl of effects are so pernicious that it's going to be hard to see where any of this ends because we don't know how long it's gonna stay closed. We don't know how much production we're actually going to lose physically in the golf. And the rest of the producers don't know how to get ahead of this because if they start, it's not like everyone's gonna go out and commission a new $20 billion oil sands mine tomorrow. Like that's a decade-long project. There's so much going on. So this is the other thing is that there's going to be this hesitation uncertainty period in the middle where we're just kind of left holding a massive, expensive bag. I can't wait to see IEA's oil demand scenario later this year. Yeah, where's oil demand going at $400 a barrel? Let's just say I'm glad that I'm not responsible for producing that scenario. Yeah. Okay, well, let's talk for a minute about those who stand to win from this disruption. In a post on true social, Trump wrote, quote, "The United States is the largest oil producer in the world by far. So when oil prices go up, we make a lot of money." End quote. Well, cold comfort for those who are going to be paying $5 a gallon and upward for gasoline. But when he says, "We," I assume he means himself and his friends in the oil business, they're going to be making a lot of money that comes out of the pockets of us, the oil consumers. The one thing I'll push back on you here is that I would say that while the oil patch was squarely behind Trump going into this, since he's taken office, they were not very pleased to hear that in his first week, he basically demanded more oil from OPEC, that he basically flipped the Maduro regime in Venezuela in order to get more Venezuelan oil in the U.S., rather than get more, you know, drill baby drill and go on state side. So I do think there has been a very complicated and kind of hurt relationship in the U.S. oil patch towards President Trump. And even now, I do not think that the majority of particularly U.S. majors have any interest in seeing this crisis persist. They know how debilitating is. They know what we were just saying about how if this goes on, this harms long term process for the industry. But to your point, I think let's split this into two. I think one, just talking about Trump's comment for a second, I think he has been the most pumped price-obsessed president in history. And he's always been a low oil guy. I mean, he has comments back to the 80s. As low oil prices are better, high oil prices are theft from us, etc, etc, etc, which is why he brought OPEC in the first place in 2025. But I see this less as kind of an actual truth that he believes. And more as something like he's goalposts moving. I think, again, at the beginning, he was like, don't be a panicking, don't bid oil prices too high. This is going to be over soon. But when he starts moving to actually high oil prices are good for us. What's concerning about that for me is he's moving goalposts. He's figuring it away that he can keep going at this longer and deeper. And I think that's actually the most concerning point is I think that comment is just like deeply concerning about his thinking about the way this is going to go. Yeah. Well, I take your point. The oil producers that are able to keep moving their oil to market, including the US producers are going to be making a lot more money for their barrel in the short term. But in the long term, it's going to hurt demand. And independent oil companies like we have in the US, the IOCs, they do care very much about the long term because especially in this world, they often have to make investment decisions with sort of a 10 or 20 year longer horizon, don't they? Yeah, absolutely. And I think if we're thinking about other potential quote winners out of this, I think I'm Canadian. I spend a lot of my time focusing on the oil sands and the Canadian industry. This will be great for a kind of quote brand Canada, but the Canadian interest and investment always benefits when energy security is top of the line because Canada is just always seen as a very reliable, stable, secure supplier. And I think in terms of the immediate term, the greatest single beneficiary of this has been Moscow that if anything, I will say something nicer at the Trump administration. So bear with me. The Trump administration has actually done a surprisingly good job at tightening the vice around the Russian oil trade over the past six months between the sanctions, the designation, the sanctioned designation on Ross Nefchen-Luke oil in October, followed by punitive tariffs on India for the import of Russian oil. You had actually seen Russian oil differentials explode or discounts that were born by their barrels, you know, rise dramatically. You saw an increasing amount of Russian oil stranded on water without a place to go. And you saw Indian imports of Russian crude fall for more than two million barrels a day to roughly a million barrels a day, more than half. The Trump administration had done a good job turning the screws in Russian oil, but that was over like six to eight months and that entire progress has been unwound immediately in two weeks. We've already seen India yesterday secured 30 million barrels of Russian crude floating on water. US Treasury has explicitly removed sanctions on Russian oil on water. I mean, heck, they even, again, I was just saying earlier, they removed sanctions on, or they're musing removing sanctions on Iranian oil on water, which is again, is flabbergassing in the concept. But even to the point, even in Europe, which is always the most staunchly, I mean, understandably, the most staunchly kind of anti-Moscow through this ever since 2022, even have elements in Europe clamoring for some kind of sanctions relief or import ban relief to get crude flowing back through the Druzeva pipeline again, which has been largely empty since Russia's invasion of Ukraine, or at least since the import ban was imposed at the end of 2022 and beginning of 2023. And where does that pipeline run? That runs into the, into kind of Eastern European countries and does terminate in Germany as well. But I mean, you're talking like hungry and kind of other countries on the, on the Eastern flank. And they, in many cases, need that oil and they are very, very dependent on imported oil. So there has been kind of a bid there as well. So the sanctions being lifted on the Russian oil, that my understanding was there was about 130 million barrels of Russian oil that was at sea when they lifted the sanctions. But the promise was that once that oil got to its destination in India primarily, but wherever it went to, that the sanctions would be imposed again, I'm betting that doesn't happen. I mean, not if this persists, right? I mean, yes. So they technically, the sanctions waiver that was issued by OFAC, the sanctions arm of Treasury, it was essentially for barrels that were loaded before March 12th, which basically means this refers mainly to the floating barrels and also excluded any sanctions on, and also wave sanctions on the shadow fleet. So basically, if there's a barrel of Russian oil and water, you can have that and is kind of what's going on here. And technically, that waiver lasted for a month. So it lasted until mid-April. I also assume that if this continues, we're not going to see those sanctions reimposed. Yeah. I've thought very seriously about doing a whole episode just on the shadow fleet because it's not something that I think most people who aren't deeply embedded in this stuff I've ever even hear about. But there has been a gray market trade, let's say, in Russian exports going to China and India and all sorts of places under this sanctions regime imposed because of their aggression in Ukraine. And that oil has been flowing. And I agree with your conclusion that the big winner in all of this, if there is anybody, is Russia. I mean, they don't even have any direct skin in the game there. They're not militarily involved in the Gulf at all. I suppose you could argue that they are indirectly because they've been sort of a security partner, shall we say, to Iran. But they're just basically enjoying lifted sanctions and higher prices for their product. 100%. And again, I think there was at some point, and then if you look back at 2022, the reason that the Biden administration didn't go more intensely against Russian oil was because they were both Biden and Secretary, beyond. They were terrified that you would have kind of further-- What do we have today? Basically, right? Yeah. So they imposed a price cap so that would put some pressure on Moscow, but would keep Russian oil flowing. Now we're in a situation where, again, I mean, even prior to this, Trump had always, again, Trump has low oil president. That's his kind of stick. But most of what he had done since entering office, particularly on the sanction side, has all been overwhelmingly bullish for oil. That, as I mentioned, we had a pretty acute oversupply last year, particularly through the end of the year, that would have had much more depressing effects on prices if not for these sanctions in this build up of oil and water, which absorbed probably upwards of half of that surplus. So I think that what he's done so far, again, he always thinks what he's doing. There's a classic post-talk at Ergo Proctor Hawk, to him, that like, prices were falling while he's doing sanctions, therefore they're falling because of the sanctions. And that's obviously not the way it works. They would fall in much, much more if he had just a nothing that we would have had much lower oil prices today. I mean, certainly today. We would have had much lower oil prices in January if Kamala Harris is one of the presidents. Yep. No doubt about it. Well, in terms of the effect of all this in the US, I've seen a lot of mainstream media commentators assert that because the US is a net exporter of oil, the issue
should be fairly insulated against the price shocks experienced by countries that depend heavily on imports. But that is not correct. I mean, that misses a lot of complexity of the role that the US plays in the global oil trade because the US depends heavily on foreign refiners and imports a lot of heavy crude, including the crude that passes through the straight of hormones. And all of the refined product is traded globally. And if you look at a chart of let's say the RBO ETF representing Brent crude and the UCO ETF representing US crude, it's basically the same line since all this broke out, right? So it's not like the US can refine what it needs from its own crude production and remain insulated from global prices for refined products like gasoline and diesel, is it? I mean, I realized we could spend a couple hours just talking through all the details of that question. But, you know, maybe you could just sort of briefly summarize like why US consumers are still exposed to global prices for crude and refined products even though it's a net exporter. Yeah. And you know that it's trade that when you have in the US, the US is itself the world's largest oil producer, sure. But much of that production, about 7 million barrels or so, is in natural gas liquids. So propane, butane, ethane. Which is why I'm sorry to interrupt you, but this has been bugging me for years. I actually wrote an article about this years ago saying that the US would never be a bigger oil producer than Saudi Arabia because if you just look at the crude and not the natural gas liquids, Saudi Arabia was a larger producer of oil than the US for years while everyone was saying the US was the largest producer. Yeah. Anyway, just a little hobby or some mind, sorry. No, Tony, but more recently, even on crude, the US is overwhelmed. It has now, yes. Yeah. And it's just like, again, the shell patch is insatiable. The volumetric growth was just, again, the world had never seen anything like it and probably will never see anything like it again in the future. And won't see it that much longer either, but anyway, that's for another day. We may disagree on the long term process of oil. Sometimes we'll have to have that conversation separately when it's not our crisis. But I think to this point, yeah, the US produces roughly 13 to 14 million barrels a day of crude oil specifically, but consumes upwards of 16, 17 million. So it still has an import gap on crude specifically that it needs to fill. Most of that is in heavy sour crude, as you noted. Two thirds of total oil imports into the United States come from Canada now. And three quarters of all heavy oil imports come from Canada. So in that sense, you don't need to worry that much because Canada is actually pipeline locked at the hip with the United States for finery industry. So that is not great from our perspective, particularly in this kind of price as, but it is the relationship that our physical infrastructure has guaranteed. But part of it you were saying, they do import some barrels from other sea-borne destinations. Most of it coming from Latin America, which is Mexico and Venezuela now, etc. But still some from the Gulf and everywhere else as well. Because again, refineries take a little bit of all types of oil because they're basically chemical inputs to a big chemistry set that you can do different things with. But each of those regions, so in oil analysts, Nomenclay, we talk about pads or petroleum areas for defense districts. If you ever look at an EIA energy information administration map, it's always broken out into these regions. That's right. The US Gulf Coast is kind of the oil and gas powerhouse that's pad three that's mostly Texas, New Mexico, Louisiana. That area obviously has a lot of crude oil production, but it's net exporter of crude, light sweet because the US can't consume all of its light sweet crude because it's for fineries are geared for medium to heavier showers. And even in the Gulf Coast, you've seen an attempt to kind of force as much of this light sweet stuff as possible into refineries. When we talk about this heaviness, we typically measure it in what's called API gravity and the higher the number of the later is. So the average barrel refined in the US Gulf Coast in 15 years ago was about 30 degrees API. That's now 34 degrees API. So that we have seen an increase, a fairly notable increase in the lightness of that refined product, but even then, you still import a lot of heavy sour. That is going to be a concern. So let's see you band trade, you band exports. There's two things on crude that would happen and then we're going to talk about products. On crude, you can't process all that light sweet. So basically it piles up in inventories with the US would be building inventories while the rest of the world saw them plummeting. And the price for those light sweet barrels in the US system would plummet. So you would see the gap. We've already seen a very, very wide gap emerging Brent and WTI, Brent being the global basket and WTI being the kind of inland US basket that is most commonly used. That would explode. And this kind of setting and that happened, you see $50, $100 spreads between Brent and WTI. That would crater the incentive for the US shell patch. And again, if Trump is Mr. Drill Baby Drill, that's the opposite incentive. And there's always this risk that once you start imposing trade walls that other people will also start imposing trade walls. And they might not sell you the other oil you need to finish off your slate. So that's just on the new outside. On the refined products, I would say I actually think is more likely because we actually had comments today from Secretary Wright and others that were kind of saying like, we're not going to ban the export of crude oil was the quote. So my main question was like, so it's products then. And we actually saw that in 2022, regrettably, that the Biden administration itself toyed around with the idea of refined product export bands to help with the chaotic energy and kind of fuel price space at that time. The challenge with that is that I mentioned all these regions are unbalanced. You have excess production of certain products in the Gulf Coast and you typically have a net importer status on both the other East and West coast. If let's say the US Gulf Coast mainly exports diesel, if you can export that diesel, the immediate consequences of an export ban on products, which actually be quite favorable to the administration, which is why we're either going to do it. So you basically bottle up that diesel in the US Gulf Coast and all of a sudden gradually diesel prices in the US Gulf Coast states would plummet because that's how supply and demand works. But the price is going down to stimulate more domestic demand. But eventually, I don't think that you're going to be able to consume all that diesel domestically in pad three in the US Gulf Coast. So what that will eventually end up prompting is run cuts of refineries. And then you could like in the most pernicious situation, you could almost end up in a situation where like, you're needing to import gasoline into pad three, which is just bonkers. I was saying earlier that while much of the rest of the global south will likely face kind of devastating shortages to this, I was saying that most advanced countries won't, we'll just see awful prices, but we will be able to pay those prices. Once you start mocking with trade, that can short circuit that price-clarity mechanism, and then you will see shortages even in wealthy energy rich areas of the world. Wow, so complicated. You know what? And I guess maybe I should just take a minute for those who don't know the history. Let's say the first 50 years or so of US oil production, we mainly produced light-sweet crude because that was the easy to get at stuff. You stick a straw on the ground and you suck it out and under it comes out of a natural pressure. And then US oil production hit its first peak, circa 1970. We did a whole long episode about that. I think it was episode 13 back in the day. That was the genesis of the peak oil hypothesis. And then we started importing more crude from abroad, primarily Saudi Arabia and other parts of the Gulf. And as you say, you know, Venezuela and a few other producers that make heavy sour. And so we changed the nature of our refining complex in the US to switch it over to process heavy sour. And that meant converting our fleet from what was called a simple refinery fleet to a complex refinery fleet. And that's not something that you ever want to have to reverse. It's really expensive. And so we've remained reliant on these heavy sour grades to run our refineries. And as a result, we've exported a lot of the light-sweet. And you know, as the US production complex has moved over to producing from these shale formations using fracking, that gives you light-sweet by and large. And so a lot of that oil that we've been producing that has been part of this much ballyhoud resurgence of oil production in the US has produced light-sweet, which then gets exported to refineries elsewhere in the world that do still process light-sweet. And then they send us back the diesel and the gasoline and other refined products. And the US still is, I think, the largest consumer of gasoline in the world. I think on a net basis where a diesel exporter, am I still up to date on everything I've just said here? Yep. More or less. Okay. And so we are very much bound to the global trade in oil, even if you take crude out of the picture, we're still totally dependent on imported refined product in a lot of ways. So the US consumers cannot be insulated from all of these geopolitical disruptions, even though we are still the world's largest producer of oil. And so I just think this is sort of a failure of our media to really explain the complexity of all of this and why the US being the world's largest exporter doesn't really give you a lot of protection here. Agreed. And if anyone's lacking additional context, I encourage you to check out commoditycontext.com. All right. Well, look, there's been a lot of other consequences from this war already beyond energy. Commodities of all sorts have risen in price. Fertilizer prices have increased by anywhere from 20 to 40% to 40% depending on what part of the world you're looking at since the war began. And so, the US commercial fertilizers are made from natural gas. There are serious concerns about whether or not the global fertilizer
industry can meet demand as farmers in the Northern Hemisphere prepare to plant their spring crops. And all that will add further cost pressure to food prices globally. And if you look at where we started this conversation, apart from the impact on availability and prices of key commodities, I think we can expect that this conflict will have an inflationary effect pretty much globally. Just in the U.S. gasoline prices are already up significantly at least 25 percent. I haven't checked the data lately. Diesel is up now, I think 50 percent compared with a year ago. The highest prices for this time of year since Russia invaded Ukraine in 2022. And when the price of diesel goes up, the price of basically everything goes up because most goods are still transported by big trucks consuming diesel. Jet fuel in Europe is up over 83 percent over the previous month, out, spring and summer vacations just got a bit more expensive, I think, for those flying internationally by how much I don't know. 30-year mortgage rates are back above 6 percent in rising. And the Fed just came out and said, "No, we're not looking at any kind of a rate cut. We don't want any more inflation. Thank you very much. We're already at whatever it is, 2.8 percent well above the Fed's 2 percent target." And it seems we're right back into this fossil-flation dynamic that we discussed. Again, back in 2024, I would expect that this inflation will translate to more hawkish central banks even, and probably not just in the U.S. And probably a long-term dampening effect on equities. Now, I realize this is all well outside of your focus on oil, but I just wondered if you want to react anything there. No, the one thing I would say is just when we think about when you were talking about diesel prices, just to kind of put in perspective how an oil analyst would look at them. So for most of you all, they were just buying it. They'll just look at whatever the price is. But there's two major pieces to the cost of the price of any of these refined fuels. And you've got the core underlying cost of crude oil. And then we have what we call a crack spread, or effectively a refining margin on top of that. So, in normal moments, and again, pre-COVID, the average or the typical refining margin for diesel was like 20 bucks a barrel, which wasn't a lot in the scheme of things, in the scheme of a cost of refining everything else. Refining margins were actually quite thin historically, and they were typically not the area where any company made its money. It was much more in the upstream. But since COVID, and since the loss of all the refining capacity through COVID and just generally tight markets and changes in crude slates and more likely to be talking about which yields less, diesel naturally. You've seen the middle distillates, so diesel, gas, oil, and jet fuel all command much higher premia. And they've kind of been the epicenter of the tightness in global oil markets. And going into this crisis, even before the war started, diesel crack spreads. And this is not global. This is actually in New York Harbor. Those futures contracts were trading at around a $40 crack spread, which is again about twice what the pre-COVID norm was. And as I'm looking at my screen right now, they're sitting at more than $73 a barrel. So we've seen almost a doubling of cracks spread specifically. So when we're talking about, let's say, a barrel of Brent right now at $110, the effective price for a barrel of USD's was $180. Wow. So I guess we could assume that at least some refiners might benefit from all this as well. Certainly, I think for a while. And again, if you're a refinery, they can get crude because part of this challenge is that we're going to see massive crude shortages. And that is not Ipsofacto. If for many different reasons, a good thing for refineries because they are consumers. They are the only real customers for crude oil. That I think is going to be one of these things that like right now, they're refining margins are booming. But eventually, once this fully works itself out and normalizes globally, I do think that you will see more of this shift back to the crude side because our tightness isn't necessarily in refining capacity right now. It's in crude oil supply. And I think that's where this is going to shift back to. Was there anything else that I said in my little history about the US refining complex there that you think you needed to correct? I would say the one thing that's often misappreciated is how much, and again, I'm Canadian. I do a lot of work on the Canada-US energy relationship. And I just did all of this work on Venezuela back when I thought my first quarter was going to be about pipelines and Canadian pipeline politics and maybe then Venezuela. And now it's entirely about other things. When I was doing that, I did a lot of research about kind of how historically the US Gulf Coast was the largest importer of heavy crude. And the US Midwest was a relatively small consumer of heavy crude. But that's entirely switched. And the reason for that switch is actually the availability of Canadian heavy. That when you saw the growth in the oil sands, those barrels essentially got dumped out into the Midwest. And if you were a finery, you had a very, very compelling economic incentive to invest in additional refining equipment, things like co-curs and other things that basically help you process heavier crudes in order to capture that arbitrage. So it's one misnomer I often hear in this industry. I'm not saying that you did this, but the one thing I just wanted to straighten out because if people hear it, if people say, oh, well, it's the wrong crude, no one's going to use it. But supply of these fuels ultimately drives demand. That when you have supply availability, people are going to figure out how to use it. And I think that's what's going to happen here as well. That right now, for instance, maybe we're going to be very, very short heavies now, or soures coming out of the Middle East. But there's going to be an incentive to figure out better ways of processing light because the challenge is that a heavier crude, because if you think about what crude is, what hydrocarbons are a period, is there just literally long chains of hydrogen carbon molecules, basically, various hydrocarbon molecules and the length, the heaviness, as we talk about it, or the density, is actually just a reflection of how long those hydrocarbon chains are. Light crudes, shorter hydrocarbon trains, it's easier to find into light fuels like gasoline. Heavy fuels, you have to do a lot more breaking. And this is what we call them cracking, right? These are crack spreads. That element, it's much easier to crack a heavy crude into various light components than needing to somehow fuse a light crude into heavier components, which is much, much more energy intensive and generally is not economic to do. So when we think about, this is why, for instance, Middle Distilits have become increasingly scarce, is that all the light-sweet crude coming from the U.S. shell patches, for example, has a higher natural yield of gasoline, and the lack of these heavies has meant that diesel or other heavier fuels are in sparser supply. So I think that's the other thing to note here is that, well, you can always get additional refining equipment to better break down a heavy crude. You can't really do the same to light crudes. You can't refuse them together into longer hydrocarbons. You can, I mean, should say, it's just extraordinarily energy intensive. Whenever you see these, oh, we have this new technology that can take CO2 and make jet fuel out of it. Oh, sure. If you expend ungodly sums of money and energy to basically fuse hydrocarbons together, then yeah, you can do it. But there are much easier ways. And in this sense, this is the problem we have is we're going to have too much light sweeten the system, particularly now. Yeah, it's a lot easier to take a long chain hydrocarbon and break it into the bits that you want than it is to take small bits and assemble them into a longer chain that you want. You know, I was looking at Valero just now. I was thinking back to my days of being closely watching the oil markets in 2008. Valero was a major US refiner as I recall that relied a lot on heavy sour imports from the Gulf. Is that correct? Yeah, more or less. And they're stock is up about 20% since this conflict started. Yeah, and this is the other thing. And the other thing is that a lot of these refineries were also benefiting from the reintroduction of Venezuela and Korea. I think it's also like all of these trends take a little bit of time to work themselves through. So we're like, there's this element of, oh gosh, it's a little bit of the post-hoggerical prop-rock, right? But when we're layering all of these fairly historic events on top of one another and it's getting hard to sort out which ones driving any of the market reactions. Yeah, the causality isn't quite clear. Yeah, exactly, because I mean, there's just too many things going on. This is why most administrations would never do this because each one of these things is a massive kind of administration defining adventure. And Trump's just trying to do them all at once. Well, just to kind of bring us back to the key question of the moment here and wrap this up. I mean, I think everyone wants to know how long it's going to take the world to recover from this. No, obviously we're in the middle of a hot conflict that's expanding with every single day. But what I know is what's going to happen tomorrow, let alone over the next month. I've seen several commentators observe that it took the world well over a decade to really recover from the 1973 Arab oil embargo. And that was just an embargo, right? I mean, that was just saying, no, you can't have our oil. That wasn't massive damage to actual physical infrastructure. Yeah, 100%. But that was of a similar magnitude, maybe 9% of global supplier thereabouts. You think that's a good analog for the situation that we're in or could give us any useful guidance on how long it'll take to recover from this? I mean, based on your comments today so far, I think you're saying no, we're in uncharted territory now. I think we are deeply in uncharted territory. And I think even in the 1970s example, you did see like a loss of certain directional supply and to say Israel, the United States, Great Britain, et cetera. But measure that was just a verdict to other markets. It wasn't like your point. We didn't lose 10% of global supply overnight. It was just kind of they were mucking around with the trade event. Same in '79 after the Iranian Revolution. You lost some supply. very briefly a lot of it came back and much of what we saw the academic
and then, Mark Lertrilo, let's look back at this now, generally finds that you had a, it was like a precautionary demand shock that people got so worried with logistics that you basically caused this price spike from like a panic. This is just different. This is like a fundamental loss of supply. It's just an acute hole in the entire system that prices are gonna try and fill. And again, I have no idea how long this is going to last. It's unfathomable to see it last months more because the system is just too broken to continue. - The damage would just be immense. But again, I mean, if you think about what's actually driving this aggression, boy. I mean, even if the US were to just totally cease hostilities like today, Israel has its own mind and its own ambitions and its own motivations for doing all this. Trump and Israel have effectively touched off our regional conflict now. It's not just about them and around anymore. We now have missiles and bombs and drones flying back and forth across the Gulf between all sorts of countries attacking each other. We have extensive damage in all sorts of infrastructure. That's not just about the straight of our moves anymore. So I really do wonder where this will leave us or what a conclusion to this conflict would even look like. - I agree, it's increasingly hard to see the way we get out of this in any kind of clean sense. The two real scenarios in front of us are basically that either Trump doubles down and goes for months or a year or more of bombing and deploying troops to the coast of Iran, like boots on the ground and full bore and attempt to recapture and re-secure the straight through might alone or he backs out somehow, which is again, is my bias here, but that doesn't leave us in a good situation. It leaves us in a deeply unstable, long-term, untenable situation in its own right. Iran has now bombed all of its neighbors. - Yeah, and so the US pulls out tomorrow, that doesn't stop all of its neighbors from continuing to bomb Iran. - Yeah, and I would say to my point, I do think that if the US pulled out all of the regional countries would have an interest in seeing something resolve. Like I don't think the Gulf states and Israel would combine forces to go after Iran with it the US support. It's possible, but I don't think it's gonna happen. I think that Israel would pull back without the US defense umbrella, but even in that situation, I don't think it's a tolerable situation for the Gulf states of Iran thinks it can charge a toll for tankers passing through the street, which is one of the things it's talked about doing. This is all intolerable. So what we really have is we already had a, if you believe Trump, like an intolerable situation in the Gulf, now it's actually an intolerable situation in the Gulf that he has now started, that either we go long and hard and basically speedrun the end of the world in terms of oil prices and do this for a year or more. And again, that's optimistic, 'cause it's not like the US has a great experience with quick wrap-ups to be even a year and war isn't the Middle East. But I thought of that, or we see some kind of quasi-hybrid regime emerge where you have some kind of more durable, erawning control of the street, which is itself very problematic. In that's in the best case, we just have periodic blowups like this kind of going forward, which again, is intolerable. - Well, I think you are correct to say that ultimately, this is going to benefit the energy transition. Ultimately, I think this is gonna be a big wake-up call for the parts of the world that still depend on fossil fuels. It's going to make the Trump administrations love for fossil fuels and great animus toward the energy transition look very silly historically and like an extremely wrong-headed move, which of course it is. And it's gonna cause a lot of damage globally. I mean, I think the US is going to suffer even more loss of credibility, loss of face, loss of trust across the world for having touched off this regional conflict without any obvious or at least credible reason for doing it, especially. We've just bought ourselves a whole world of hurt here. All right, well, just look, to close this out, why don't you go ahead and pimp your newsletter and podcast a bit for those who really wanna go deep on this oil data? - Yeah, so you can find all of my kind of actual published work at comartycontext.com. I've got usually two to three reports a week. I've got a weekly, I publish every Friday called Oil Context Weekly that kind of wraps up major market developments, developments in time spreads like we've been talking about the curve structure, refined products, market positioning and the commensurate traders report kind of your general weekly pulse on the global oil market. I have three different month through reports that I put out on global oil balances, North American oil trade in detail and OPEC production and compliance with quotas. And then finally I do a lot of thematic work. Up until now it was on Venezuela, now it's a lot of Iran. Who knows whether it's going to be next week. And on top of that, I'm also the host of my own podcast called the Oil Groundup Podcast that's published with the Clear Commodity Network. And we've kind of been trying to keep up with this as well. So I encourage you to go check us out there as well. Thank you so much for having me on Chris. - My pleasure, just an impressive amount of output. I've really found it useful to review your stuff recently. And thanks very much for making the time. I know you're in great demand right now. So thanks very much for making the time to be on our show. - Thanks for having me. - That was Rory Johnston speaking with us from Toronto. Less you think today's conversation was a bit hyperbolic. I'll note that the following day, March 20th, I.A. executive director Fatibar Al called this crisis, quote, "The greatest global energy security threat in history," end quote, and said, quote, "I believe the world has not yet well understood the depth of the energy security challenge we are facing." End quote. I.A. also said that, quote, "supply side measures alone "can not fully offset the scale of the disruption," end quote. And it admonished governments to take steps to conserve fuel, including urging their citizens to drive more slowly, work from home, take public transport, and car sharing, avoid air travel, and switch to electric cooking." The last time I.E.A. called for such wide-ranging demand reduction was in the 1973 Arab oil embargo. The same day, veteran oil sector journalist John Kemp issued a newsletter in which he estimated that about 10 million barrels a day of golf oil exports are still shut in, saying the market's, quote, "speed and scale does not match the magnitude "of the disruption of oil supplies, "causing many seasoned observers to express concern, "traders and investors are underestimating the scale "of the crisis," end quote. End quote, "until the conflict is resolved "or the straight is reopened by force, "the gap between perceptions and reality "will continue to widen," end quote. Kemp believes that the Trump administration has successfully employed a reality distortion field to keep markets from panicking, resulting in a significant underpricing of the actual risk. I agree with Rory and Barole and Kemp here. I think the markets are nowhere near pricing in the actual damage to the golf oil and gas supply system nor the peril that the world is now in. To wrap this up, I want to try to put these terrible events back into the context of the energy transition, and there are some great observations to be had from many astute observers. For starters, the UK's Climate Change Committee found that reaching net zero would cost the country about four billion pounds a year or close to 100 billion pounds by 2050. That's roughly equivalent to the energy-related costs of the fossil fuel shocks that followed Russia's invasion of Ukraine. In other words, the cost of one oil shock would be sufficient for the UK to reach net zero. And the energy-related costs of this fossil fuel shock will certainly be even greater. The best and most cost-effective option for the future economy, the Climate Change Committee found, is to eliminate the UK's reliance on fossil fuels by adopting renewable energy and switching to electric vehicles and heat pumps. After this latest oil and gas shock, it's going to be very difficult for the opponents of the UK's energy transition to continue arguing that remaining dependent on oil and gas is in any way cheaper or better, not that they won't try mind you. Others have noted that the increased deployment of solar, wind, and batteries in several countries since the shocks of 2021, 2022, has significantly dampened the financial damage of this one. On March 17, Laurie Milyverta, the China expert who joined us most recently in episode 271 and 138 before that, pointed out on LinkedIn that Pakistan Solar Boom, which was in response to the 2021-2022 gas crisis, has allowed the country to avoid over $12 billion in oil and gas import costs since then, and will help it avoid another $7 billion in fossil fuel import costs this year alone. I asked Laurie to compare that with the cost of Pakistan Solar Panel import costs. And he said they amounted to about $7.8 billion. So the country's solar investment will pay for itself more than twice over by the end of this year. On March 12, Laurie responded to those speculating that this fuel crisis will drive a rebound to coal by pointing out that fossil fuel demand will fall, not just shift. Fuel switching between coal and gas is temporary, but the accelerating energy transition is structural. As we can see from the way the world's energy mix and electrification changed in response to the 2021-2022 gas crisis. In fact, he observed that crisis pushed coal off the grid even faster than it had been prior to the crisis. Ultimately, the war in Iran will make coal more expensive, too, making it even less competitive against clean energy. So this crisis will reduce fossil fuel consumption both in the short term and in the long term. An article by Ava Brendel in Bloomberg notes a report from Robobank estimating that we're not for the cushioning effects of Europe's expanded renewable fleet since the 2022 crisis. European electricity prices would already
about one-third higher today. Over on LinkedIn, Ember's Pauview Shizok noted that Spain's power markets are now among the cheapest in Europe thanks to its rapid deployment of wind and solar capacity. Between December 2019 and June 2025, Spain doubled its wind and solar capacity adding over 40 gigawatts. That's more than any EU country except Germany, a power market twice the size of Spain's. As a result on March 16, Spain's electricity prices were nearly a quarter of Italy's. Following the attacks by the US and Israel on Iran as European gas prices surged 50%, gas only influenced Spain's electricity prices during around 15% of the hours in 2026, compared to a whopping 89% of the hours in Italy. Over a carbon brief, the stalwart Simon Evans, who joined us in episodes 142, 143, 171, 202, published a Q&A about the implications of the Iran War for the energy transition. It contained dozens and dozens of quotes, but I'll just offer a few here from national leaders. Teresa Rivera, the executive vice president of the European Commission, said, "The answer is not new dependencies, but faster electrification, renewables, and efficiency." And quote, "The real risk is not moving too fast on clean energy, but too slowly. The clean transition is Europe's shield against volatility." UK Prime Minister Kieristarmer said, "We have the right plan for our energy supplies, building up clean British energy like never before, decreasing our dependence on volatile international markets, and creating the energy security and independence we need." South Korean president Lee Jae-myeong said the crisis presented, quote, "a good opportunity to swiftly and extensively transition to renewable energy." Indian Prime Minister Narendra Modi said the nation needed to become less reliant on imported energy, citing the expansion of solar power as a way to achieve greater independence. Egyptian president Adel Fatah LCC said that while securing gas supplies was important in the near term, integrating 2.5 gigawatts of new renewables before next summer was also a core pillar of the government's planning. Simon Steele, the UN climate chief, said that the crisis, quote, "shows yet again that fossil fuel dependence leaves economies, businesses, markets, and people at the mercy of each new conflict or trade policy lurch," end quote, end quote. There is a clear solution to this fossil fuel cost chaos. Renewables are now cheaper, safer, and faster to market, making them the obvious pathway to energy security and sovereignty." UN Secretary General Antonio Guterres said that renewable energy offers countries, quote, "an exit ramp away from fossil fuel dependence," end quote, "the fastest path to energy security, economic security, and national security is clear. Speed up a just transition away from fossil fuels into renewable energy." As always, log into our website, which is the only place you can find them to find links to all of those sources in the show notes. And now a quick look at some recent news items, item 1. Note that all of its attempts to halt offshore wind projects in the U.S. have been blocked by federal judges. The Trump administration is considering a new strategy, buying them out. The New York Times reported on March 17th that senior administration officials are drafting settlement agreements that would pay nearly $1 billion to total energies. The French energy company behind two wind farms off New York State and North Carolina in exchange for the company abandoning its plans to begin building the wind farms and allowing the interior department to cancel the leases in federal waters for their projects. I have not been able to find any precedent in which the U.S. government has attempted to pay a clean energy project developer to walk away. The closest analog seemed to be when the government paid to shut down nuclear power plants after the three mile island meltdown to terminate the Yucca Mountain Nuclear Waste Facility or to cancel oil pipelines. But the very idea of spending $1 billion of taxpayer money to not produce clean energy can only make sense to a fossil fuel industry tool. It is unclear whether total energies will accept the proposed settlements. If the company refuses the offers, the Trump administration would still cancel the leases the documents show, leading to costly litigation that both sides might be eager to avoid. Trump has repeatedly disparaged offshore wind power since 2012, making all sorts of wild and false claims about them and their alleged dangers. For a detailed recounting of the move that the Trump administration has made against offshore wind and other energy transition projects in the U.S. Listen to episode 269. Item 2 Those who listen to our miniseries on Alaska in episodes 255/257/258 may be surprised to hear that a proposed new coal project is planned for the West Susitna region, a remote community northwest of Anchorage. The proposed Terra Energy Center coal project would be the first investment in new U.S. coal power in more than a decade. Interestingly, Alaska is also where the last new coal plant to be built in the United States is located at the University of Alaska Fairbanks. The move is part of Trump's expansive plan to reshape the U.S. energy landscape promoting fossil fuels over renewables. As we noted in episode 269, the U.S. Energy Department has also ordered five coal plants that were set to retire to remain in service and has indicated that it may issue similar orders to other sites that are preparing to shut down. The heart of the proposed project is a roughly 400 megawatt supercritical coal and biomass fired plant paired with a new coal mine, capping local reserves, and a carbon capture and storage system designed to reduce emissions. Captured carbon dioxide would be transported 60 miles by pipeline to the depleted Baluga River gas field for sequestration. Developers estimate total costs as approximately $2.2 billion for the plant itself and another $1.3 billion for carbon capture infrastructure with potential offsets from federal tax credits and possible grants from the U.S. Department of Energy. The proposed plant could help alleviate demand for South Central Alaska's constrained natural gas supplies on the rail belt grid, as we discussed in detail, and are nearly two and a half hour episode 258. But as we also noted in that episode, the cheapest and best solution by far for the rail belt communities is to switch to local renewables. However, that is proved politically impossible in Alaska, which is overwhelmingly dominated by fossil fuel interests. Coal now accounts for roughly 16 percent of U.S. electricity generation down sharply from more than 50 percent in previous decades, as utilities have shifted toward natural gas, renewables, and other sources. Item 3. It got a bit buried beneath the news flow about the war in Iran, but on March 16th, Cuba was plunged into an island-wide blackout as its grid collapsed. It was the third major blackout in Cuba over the past four months. Power has reportedly been restored, but the country's aging grid, combined with a U.S. energy blockade ordered by Trump in January, have made it precarious. Critical oil shipments from Venezuela were halted after the U.S. attacked the country in early January and arrested its president, Nicolás Maduro. Cuban President Miguel de Azacanel said the island had not received oil shipments in three months, and was operating on solar power, natural gas, and thermal electric plants burning heavy sour oil, and that the government has had to postpone surgeries for tens of thousands of people. Cuba produces 40 percent of its petroleum and has been generating its own power, but it hasn't been sufficient to meet demand as its electric grid continues to crumble. Trump is demanding the Cuba release political prisoners and move toward political and economic liberalization in return for a lifting of sanctions and has raised the possibility of a takeover of the island of 11 million people. On March 16, Trump said, "You know, all my life I've been hearing about the United States and Cuba. When will the United States do it? I do believe I'll be the honor of having the honor of taking Cuba. That'd be good, that's a big honor. Taking Cuba. Taking Cuba in some form, yeah. Taking Cuba, I mean, whether I free it, take it, I think I could do anything I want with it. A very weak intonation right now. They were for a long time. Very violent leaders. Castro was a very violent leader. His brother is a very violent leader. Extremely violent. That's how they governed. They governed with violence, but a lot of people would like to go back. Item 4. On March 20, Iraq, yes, Iraq, not Iran. North-Earth-Fource Mjure on all oil fields developed by foreign oil companies after military operations in the region disrupted navigation through the Strait of Hormuz, halting most of the country's crude exports. Because the strait has been closed, Iraq has been unable to export its oil. Instead, it has diverted it to storage, but now the storage capacity has reached its limits. So the oil ministry had to declare forced mjure so that it could order a full shutdown of production at affected concession areas without having to compensate the oil producers. Iraq's oil ministry said crude production at Bazaar oil company had been cut to 900,000 barrels a day from 3.3 million barrels a day after exports from the country's southern ports were halted. And no, that loss of an additional roughly 2.5 million barrels a day of production was not accounted for in our interview with Rory, which took place the previous day. The drop in production and exports is set to strain Iraq's already fragile finances, as the state relies on crude sales for nearly all public spending and more than 90% of its income. The U.S. Israeli War with Iran has already spilled beyond Iran's borders, as Tehran has responded by hitting Israel and Arab Gulf states hosting U.S. military installations.
Israel has launched fresh attacks in Lebanon after the Iran-aligned militia Hezbollah fired across the border. Good God, yo. And finally item 5. According to Bloomberg NEF, the total cost of ownership for EVs becomes lower than for gasoline-powered vehicles when gasoline prices top $4 per gallon, broadly speaking. The exact crossover point depends on local prices for both gasoline and electricity, of course, but it's a decent rule of thumb. Well, guess what? With gasoline now over $5 a gallon, California is already at that point, even with its relatively high electricity costs. A AAA survey from 2022, likewise found that $4 a gallon is the threshold at which a majority of Americans will make changes to their driving habits or lifestyles. As of this writing, on March 20th, the average price of gasoline across the US is just about 20 cents short of that $4 a gallon threshold. And given what we heard today, it seems inevitable that we'll be over that mark very soon. Edmunds.com has reported an uptick in search traffic for EVs since the war started on February 28th. It's too soon to tell whether that interest will convert to more purchases, but when prices surged at the outset of the war in Ukraine, sales of electrified vehicles rose as well. From January through March 2022, EVs share of car sales in the US climbed 69 percent, with hybrids jumping 32 percent. According to data from Cox Automotive, the price premium for EVs compared with new gasoline powered cars is now at a record low of $6,532. By my simple math, at $4 a gallon and a fuel economy of 30 miles per gallon, that premium would be made up after buying gasoline for less than 50,000 miles of travel. The gap is even narrower at $1,334 for used EVs, and the price of a used EV is now lower than its gasoline equivalent for 18 of 26 brands. Dan Walter of Ember, who joined us in episode 259, pointed out in March 18th article that EVs already displaced around 1.7 million barrels of oil per day, which is equivalent to about 70 percent of Iran's oil output. In closing, thank you for supporting the show. Since we are entirely subscriber-supported, it could not exist without you. Be sure to log into our website to explore our extensive show notes, interview transcripts, and the text of the news items for each episode, all of which are only available on our website. And if you have an annual or group subscription, check out our exclusive job board and complete back catalog of evergreen shows. If you have feedback to share about the show or suggestions for future shows, don't hold back. I love hearing from our listeners. Just use the comment form on any show page or email me directly at
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