World Tour: The choke point

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NICK EICHER, HOST: Coming up next on The World and Everything in It: World Tour.

Soon after the start of the war with Iran, traffic through the Strait of Hormuz dropped by 90%. That cut off some 20% of the world’s supply of oil and set off global supply problems. Here’s how one politician from the United Arab Emirates put it:

SULTAN AL JABER: When ​Iran holds Hormuz hostage, every ⁠nation pays the ransom ​at the gas pump, at ​the grocery store, at the pharmacy.

LINDSAY MAST, HOST: Those relying on oil passing through the Strait have had to find different energy solutions and may not see a return to normalcy for many months.

WORLD’s Emma Eicher has the story.

EMMA EICHER: Control of the Strait has become a focal point for the war. Iran quickly restricted access, then began a process to impose a toll system, pressuring oil producers to pay as much as $2 million per vessel.

Now the U.S. blockade targeting vessels traveling to and from Iranian ports ups the economic ante for Iran.

With the Strait still tightly controlled, it’s unclear how long it will take to get back to regular oil production.

DAVID STRASSNER: The spigot has been turned off at the Strait of Hormuz.

David Strassner is a longtime independent operator and producer in the oil and gas industry.

STRASSNER: Even if the Strait is open tomorrow, it's still going to have repercussions over the next six months to 18 months in terms of oil pricing.

For now, the six week squeeze has left many countries facing supply shortages.

The International Energy Agency recently recommended energy-saving measures, such as working from home, lowering speed limits on highways, and opting for public transportation.

Fatih Birol is the executive director of the Agency.

FATIH BIROL: But the biggest problem today is the emerging, developing countries, they are hit the worst. Especially now starting with Asia, Africa, Latin America …

Countries in Asia have been hit hard by the shortfall and some have turned to coal.

India ramped up its already heavy use of coal, and its energy plants are burning at max capacity. But it imports LPG—Liquefied Petroleum Gas—for cooking. Much of the LPG comes through the Strait, and the country has prioritized sending it to households.

That’s left hotels and restaurants scrambling for ways to prepare food.

Meanwhile, South Korea’s government is also burning coal, while criticizing its use. President Lee Jae Myung urged the country to move away from fossil fuels.

LEE JAE MYUNG: [KOREAN] If we continue to leave our current economic and industrial structure which depends on fossil fuels, we will remain exposed to these kinds of geopolitical risks in the future as well.

He says it’s time to turn to renewable energy sources and limit reliance on the Middle East for fuel.

Japan also delayed planned shutdowns at its coal-plants to continue energy production. Price hikes in household electricity bills are on the horizon.

Over in Africa, fuel prices for vehicles have skyrocketed.

South Africa heavily relies on imported fuel, and prices at the pump have reached record-highs.

Kenya is also feeling the pinch, though its government recently said it has adequate fuel supplies on hand.

BEN HALL: Every couple of days there's fuel and then there's not.

Ben Hall is a missionary located near Nairobi, the nation’s capital. He says the availability of gas has become a calculation in daily life.

HALL: I had to drive from the town where we live down to Nairobi, and along the way, I probably stopped two or three different times in the three hour drive before I finally found a gas station that had something.

The Western Hemisphere has felt the effects of the closure, but may also be part of the global solution.

The United States is the world’s leading exporter of both Liquefied Natural Gas and crude oil. President Donald Trump promoted oil and gas exports to other countries to help alleviate the global shortage.

TRUMP: The United States has never been better prepared economically to confront this threat.

The U.S. released millions of barrels of oil from the Strategic Petroleum Reserve in mid-March, which is a modest reduction of its total stockpile. But with the national average of gas topping $4 a gallon …

TRUMP: Many Americans have been concerned to see the recent rise in gasoline prices here at home.

And they might face higher food prices as well. Oil producer David Strassner again.

STRASSNER: A significant component in creating fertilizer comes from oil and gas, and higher price for fertilizer means people are going to use less of it, and so you may end up with lower crop yields.

Strassner says it will take months for oil supply chains to return to normalcy. And the worst is yet to come.

STRASSNER: There's not going to be an instantaneous crisis, because what people needed was already on the sea. We may see repercussions 60 or 90 days from now in terms of energy costs.

But he’s optimistic that supply chains can restart soon, depending on some factors.

STRASSNER: I think that there is a likelihood of return to normal, particularly if the Venezuelan crude starts flowing again.

If Venezuela kicks up oil exports, it may prove key to filling in the gaps.

STRASSNER: With the new change of regime in the Venezuelan theater. I think there's a pretty good chance in the next year or so that we could see increased exports to the world from Venezuela.

Even after the Strait reopens, analysts predict a slow recovery. Many ships have already been rerouted from the Strait of Hormuz and need time to resume course. Producers will wait to start up operations again until travel is secure. And attacks have damaged at least 40 energy assets in the Gulf. Repairs could take weeks to months.

That’s this week’s World Tour. I’m Emma Eicher.

MAST: Strassner is a member of the nonprofit board that governs WORLD and this program.

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