Expert warns Middle East energy infrastructure will take months to recover

[0:00] Well, even with this shaky ceasefire, some warn the energy infrastructure in the Middle East will [0:04] take months to recover and prices may not drop as much as hoped. Our William Brangham has more [0:10] on this part of the story. William? That's right, Jeff. As we mentioned, it is unclear if the [0:16] strait is really open. And even if so, there is still great hesitation about sending multi-million [0:22] dollar vessels through it. Separately, there were additional attacks earlier today on energy [0:27] infrastructure. One thing that is clear, consumers are feeling the pain at the pump. Gas prices are [0:33] over $4 a gallon nationally. So for more on what this all means, we are joined by Jason Bordoff. [0:39] He's the founding director of the Center on Global Energy Policy at Columbia University. Jason, [0:45] thank you so much for joining us. Does this alleged ceasefire, as much as we can call it that, [0:52] give you any sense about what happens going forward with regards to energy prices? [0:59] Well, as you've been talking about with your correspondence, the only thing lacking from [1:03] this ceasefire is for people to cease firing. And we've seen Iran today strike many of its [1:09] neighbors, Israel strike Lebanon. And as long as that's the case, that does not give confidence to [1:15] the oil tankers sitting in the Gulf trying to get out to deliver oil to the market to go through. [1:21] We saw maybe three or four reports differ. A couple of tankers move through today. [1:26] But until oil starts flowing again, and it is not yet, and this ceasefire, as you said, [1:30] is very tenuous, the market is still short. And we saw the sort of traded price of oil come down. [1:37] But the physical price that people were willing to pay is still quite high. And it's going to keep [1:41] going higher unless the oil starts to flow again. If Iran maintains control over the strait, [1:47] which we should say it did not have before this war began. Is it your sense that it is just too [1:53] financially scary for shippers to go through there? Is it an insurance issue? What what is it in [1:59] particular? I think first and foremost, it's just confidence. Certainly you need insurance. You need [2:05] signals from Iran that tankers will be allowed to pass, that their military is not going to [2:11] arbitrarily stop some and not others. I don't think anyone in the oil industry, I saw a quote today from [2:17] someone in the industry who said, we didn't have to pay a few million dollars in fees before. And I [2:21] thought we won this conflict, meaning the United States. So no one's going to be happy about paying [2:26] a toll. If it was just a toll, the cargo is valuable enough that people would do it. But right now, [2:32] there's just no confidence that you can move tankers through the strait. And that's just to clear [2:36] the oil that's sitting there in tankers for the last 40 days waiting to get to market. If you want to [2:41] start producing again in the region, you need the rest of the world's tankers to be willing to go to [2:46] the wrong side of the strait back into the Gulf and load up. And they don't want to get stuck if [2:51] this thing falls apart again in a couple of days or a week or two. And separate from that, a lot of [2:57] energy infrastructure was targeted. I believe it's at least nine countries saw facilities targeted [3:03] successfully by Iran. How long does that take to both rebuild and then restart a legitimate supply [3:10] of energy? You know, we've seen an escalation there. And so even today with a reported attack by a drone [3:18] on the major Saudi pipeline to the Red Sea, the East-West pipeline, as far as we know, most of [3:25] the oil-related infrastructure damage is still modest. There's a bit of a mutually assured [3:30] destruction dynamic where I think Iran knows that if they really target things in a serious way, [3:35] they'll be targeted as well. So we're still at a point where within weeks, maybe a month or two, [3:39] you can probably get the infrastructure back up and running. That could change if this escalates in a [3:45] tit-for-tat way and we start to see more significant damage. And then again, no one's going [3:49] to start restarting production. We have nearly 10 million barrels a day that is shut in. People [3:54] stopped producing. That is costly and it can do damage to the wells to restart. No one's going to [3:59] do that until they have long-term confidence they can get the oil to market. Crude oil prices we saw [4:05] did start to come back down. I believe it was a 13 percent drop today. But U.S. gas prices, [4:10] as I mentioned, still remain high. How long should consumers be expecting here in the U.S. to be [4:17] bracing for those kinds of spikes? Well, it is a well-known phenomenon that when oil prices rise, [4:24] gasoline prices rise quickly. And when oil prices fall, gasoline prices fall much more slowly, [4:29] maybe two weeks or so. And so that would be the time frame if the oil starts flowing and that sharp [4:36] reduction in price we saw today is matched by the physical reality of the oil market. But that's still to be [4:42] seen. If the ceasefire holds, if tankers are willing to go through, if none of that happens, [4:46] again, the price people have physically been willing to pay for oil has been quite a bit higher [4:50] than that oil price you just mentioned that fell about 10 or 15 percent today. That price will rise [4:57] again if we don't see the oil start to flow quickly. And same thing we saw with jet fuel prices and a lot [5:03] of consumers reporting today that airlines were now tacking on all sorts of new fees. Again, is that just [5:09] what consumers should be expecting going forward? I think jet fuel, the same as gasoline, the same [5:16] as diesel. And it's even worse in some other parts of the world. Asia, you're seeing physical shortages. [5:21] You're seeing not just airlines raise prices, but some airlines canceling flights to Asia because [5:26] they're not sure they can refuel. And so that's only going to change once we start to see, you know, [5:31] millions of barrels a day of oil transiting through the strait again. And until that happens, [5:37] people should still be ready for higher gasoline prices and airline prices and all the other ways [5:42] oil prices trickle through the economy. And are there any other, lastly, just any other [5:47] downstream consequences we ought to be looking out for? Fertilizer, food prices? [5:54] Well, the strait of Hormuz is just one of the most critical transit, maritime transit places in the [6:01] world. So we've seen it with oil. We've seen it with natural gas. And there, there has been real [6:05] physical damage to the Qatari LNG plant. So natural gas prices have been rising, particularly [6:10] in Europe and in Asia. And then, as you said, petrochemicals, aluminum, fertilizer, which could [6:16] have really significant impacts as we enter harvesting season in particularly low and middle [6:20] income countries. All of that is going to get much more painful if that strait is not reopened [6:24] quickly. Jason Bordoff, thank you so much for being here. Really appreciate it. [6:28] Thank you. Support journalism you trust. Support PBS News. Donate now, or even better, start a [6:48] monthly contribution today.