President Trump’s promise to protect the Strait of Hormuz with naval escorts and provide government-backed marine insurance underscores the urgent need to restore flows of energy from the Middle East before soaring prices rip through the world economy.
As of Wednesday, day five of the war on Iran, several thousand ships were stuck inside and outside the Persian Gulf, trapping roughly a fifth of the oil and liquefied natural gas the world consumes each day. The blockage is cascading through the region’s industry as storage tanks fill up with oil that can’t set sail, forcing producers to slash output.
The problem is most acute in Iraq, the world’s fifth-biggest producer. Output has more than halved, oil officials in the country said, with cutbacks at the southern Rumaila and West Qurna 2 fields.
The oil market has become used to quickly recovering from geopolitical threats. Could this time be different?
Brent crude futures have jumped 8% to roughly $78 a barrel after the Iran conflict began over the weekend. There are two scenarios that could cause a more severe and lasting impact on pump prices. One is a prolonged disruption to the flow of oil tankers through the Strait of Hormuz, through which about 20 million barrels a day of oil—or a fifth of global oil production—transits. Second is serious damage to the region’s oil production or infrastructure, especially the kind that would disrupt spare capacity in Saudi Arabia and the United Arab Emirates.
The worst-case scenario is one where Iran does serious damage to neighboring countries’ oil facilities, especially the export terminals that are difficult to repair and are within striking distance of Iran’s weapons systems, according to Clayton Seigle, senior fellow at the Center for Strategic and International Studies. He estimates that this kind of damage could send oil prices higher than $130 a barrel, which was the peak after Russia’s invasion of Ukraine.
Russia is one of the biggest winners in the early days of the largest U.S. military confrontation in decades, as Iranian missiles deplete stocks of Patriot interceptors that Ukraine needs for its defense.
Even before the Iran campaign, production bottlenecks in the U.S.-made Patriot system had drained Ukraine’s reserves and left European allies on yearslong waiting lists. Those shortfalls have allowed Russia to punch through gaps in Ukraine’s air defenses, devastating its power infrastructure and casting Ukrainian cities into blackouts.
U.S. and Gulf states have fired hundreds of interceptors in the opening days of the war to repel Iranian missile and drone barrages. Gulf states possess only days of interceptors under sustained attack, analysts estimate, potentially forcing Washington to pull from Indo-Pacific and other regional stockpiles, weakening its forward posture elsewhere.
Assemblymember Anna Kelles, of Ithaca, introduced legislation last week that would require the state’s major electric utilities to create “virtual power plants” — networks of home batteries, smart thermostats, electric vehicles, and other devices that companies can draw on to keep the lights on at peak times. It aims to rapidly scale up the programs by creating new incentives for customers to participate.
The idea behind the bill is gaining traction among energy experts as states contend with rising electricity demand and soaring energy bills, as New York Focus recently reported. How a More Flexible Grid Could Save New York Billions Jack Carroll and Colin Kinniburgh
Flexible grid programs could help New Yorkers save money and cut pollution, a highly sought-after combination amid a bruising fight over the costs of achieving the state’s climate targets. A mammoth report published last fall by the state energy authority NYSERDA found that virtual power plants will be one of the key tools to achieve a reliable, zero-emissions grid, as the state’s climate law requires — and that they are cheaper and quicker to deploy than some of the other technologies the state envisions, like hydrogen or next-generation nuclear.
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