How the big oil and gas CEOs think the Iran war supply disruption will play out
HOUSTON — The CEOs of the world’s most influential oil and gas companies delivered a sobering message this week about the impact of the Iran war on energy supplies and the long-term consequences for the global economy.
The executives gathered in Houston, Texas, for S&P Global’s annual CERAWeek energy conference to take stock of the war. They warned that the market is not reflecting the scale of the disruption to oil and gas supplies.
Asia and Europe will face fuel shortages if the war drags on, the executives said. Oil prices are likely to remain high even if the conflict ends as countries restock depleted reserves, they said.
“You just can’t take 8 to 10 million barrels a day of oil and 20 or so percent of the [liquefied natural gas] market off the world stage without having some significant repercussions,” ConocoPhillips CEO Ryan Lance told CERAWeek attendees.
Iran has basically imposed an economic blockade against the oil producers in the Middle East by closing the Strait of Hormuz, said Sheikh Nawaf al-Sabah, the CEO of Kuwait Petroleum Corporation. The Strait is the vital artery that connects the Gulf Arab producers’ oil exports to global markets.
“This is an attack not only against the Gulf, but it is an attack that is holding the world’s economy hostage,” al-Sabah told conference. The CEO warned that the war will have a “domino effect” across the global economy.
“The costs of this war don’t stay within geographical lines in this region,” al-Sabah said. “They extend all the way through supply chain.”
The oil shock is the worst since the Arab oil embargo against the U.S. and other Western nations over their support for Israel in 1973 Mideast war, said Paul Sankey, an independent analyst at Sankey Research.
“This is the worst I’ve seen,” said Sankey, who started his career at the International Energy Agency in 1990. “We’ve seen nothing like this, possibly since 1973. We’ve never seen the Straits of Hormuz shut.”
“We’re in a de-facto situation where the Iranians are controlling the Strait,” Sankey said. “So the situation is extremely grave.”
Call for U.S. military to protect energy
The executives comments stood in contrast to the Trump administration’s efforts to reassure a worried industry and volatile oil market.
Energy Secretary Chris Wright told CNBC the market is facing a “short-term period of disruption.” The price is worth paying in order to achieve the long-term benefits of defanging Iran, he said.
But the price is very high for an oil and gas industry whose assets are now exposed to attack. Conoco is “pleading” with Trump administration for military “protection around the US-owned assets in Qatar and hundreds of millions of dollars of investment,” Lance said.
Iran has forced the closure of the world’s largest liquefied natural gas hub in Qatar with drone attacks. Conoco is a major investor in that facility.
“We’ve had to evacuate a number of our staff, our non-essential staff,” Lance said. “That’s been a chore over the last couple of weeks.”
Oil prices to remain high
Oil prices were volatile this week, falling whenever hopes rose for a negotiated end to the war and rising when perceived tensions reignited. On Monday, President Donald Trump backed down from his threat to bomb Iran’s power plants. Throughout the week, he claimed that Iran wants to cut a deal to end the conflict.
But ultimately investors remained on edge, with oil prices settling Friday at their highest level in more than three years. U.S. crude oil prices have surged 49% to $99.64 per barrel since the U.S. and Israel attacked Iran on Feb. 28. Brent prices, the international benchmark, have soared more than 55% to $112.57 per barrel.
“I hear and I read a lot about talks about prices and the like, all interesting, but it’s physical flows that matter,” Shell CEO Wael Sawan said. “Our customers need the molecules, need the electrons.”
Chevron CEO Mike Wirth the physical supply of oil is much tighter than prices in the futures market indicate. The market is reacting based on “scant information” and “perception,” the CEO said.
“There are very real, physical manifestations of the closure of the Strait of Hormuz that are working their way around the world and through the system that I don’t think are fully priced into the futures curves on oil,” Wirth said.
It will take three to four months for Gulf Arab countries to fully restore production because they have had to close down oil wells due to the Strait’s closure, Kuwait Petroleum CEO al-Sabah said.
The oil price “floor probably has to rise,” said Conoco’s Lance, indicating that prices are unlikely to fall to pre-war levels anytime soon despite the Trump administration’s reassurances.
Cheniere, one of the world’s largest LNG exporters, is doing its best to meet demand from Asian countries that are heavily dependent on natural gas imports from Qatar, CEO Jack Fusco said. But the company is already running at peak production, Fusco said.
“We’re going to try to get as many molecules as we can to those countries in Asia that really need it,” the CEO said.
It will take 28 days to travel from the Gulf Coast to Asia, so it won’t happen overnight. Fuel shortages are becoming a bigger issue than oil, with jet fuel and diesel supplies already affected. This war-triggered disruption is spreading across major Asian economies and will reach Europe by April. Governments are stockpiling supplies to prevent further strains. Jet fuel and diesel prices have surged, with China banning oil product exports and Thailand rationing gasoline. The conflict is unlikely to end soon, and the risk of escalation is high. Iran is waging total war while the U.S. conducts a limited campaign. The U.S. Navy may struggle to protect shipping lanes, and Gulf Arab nations could see a significant drop in GDP. The U.S. did not consult its allies before going to war, and victory may not be easily declared. The Iranians have a say in when the war ends. This situation presents a tough spot that cannot be easily walked away from.
