How the US-Israel war with Iran is affecting oil prices | Global News Podcast

Welcome to the BBC's Global News podcast. on YouTube. Hello, I'm Oliver Conway and. today we're looking at the US Israeli. war with Iran and what it means for the. oil price and the wider global economy. We're joined by the BBC's business. editor Simon Jack and Simon the war has. been going on for more than a week. Why. did we see prices shoot up at the. weekend and how serious is this moment? >> Well, it came into two phases really. There's the bit leading up to the. outbreak of hostilities when we saw the.

price of oil and gas begin to edge up. since the beginning of the year because. people thought something like this might. happen. We then saw last week when gas. prices shot up very very sharply. Oil. prices went up but not by as much and. then to this week we've seen oil prices. playing catch up. Now the reason for. that is that in the first instance Qatar. is the biggest producer of liquid. natural gas in the world, certainly in. the Gulf and produces 20% of the world's. supply. And what's interesting is that.

liquid natural gas has become the kind. of balancing the bit of the energy you. get at the end to make up your stocks. and so has been very very volatile. So. we saw a sharp rise in gas prices. On. oil, the supply is much more diversified. around the world and so not so much of. it goes through the Strait of Hormuz. between Oman and Iran where there's a. bottleneck there. So you can get oil from different places. but this week what we've seen is as the.

conflict has spread we've now seen Iran. for example targeting the energy. infrastructure of neighboring Gulf. states and that is quite on purpose. They see that the best way to exert. leverage and pain on the rest of the. world, particularly the US and others is. by knocking out some of that energy. infrastructure. So you've seen attacks. on oil refineries in Saudi etc. And so. the rest of I think in a way the kind of. complacency that it's all going to be. fine, it's going to be over in you know. within a few weeks. As the conflict has.

spread, as those variables get harder. control, people are now baking in in. their minds a longer conflict and that's. seen oil prices. you know up well one point today they. hit $120 a barrel from from from just a. hundred so it was up sort of some sort. of 20%. It has since come down to $103 a. barrel at the time we're recording right. now. Part of that is due to the fact. that the International Energy Agency has. announced it's going to have a meeting. with G7, the big economies of the world,

to release what they call the strategic. oil reserve. This is oil set aside by. companies and countries for moments. exactly like this. >> Yeah, we'll see if that has an impact. >> Which I think it already has actually. It's it's come down from 120 to 103. Now. in a way it doesn't mean that you just. pull some massive lever and all this oil. goes washing out. There's no big big vat. of oil which has got break glass in. emergency. It what it is is that. countries around the world require their. producers to keep a little bit in the. terminals and refineries and whatever.

for moments like this. 90 day supply. generally speaking. And what that does. is rather than you know release lots. more oil into the world, it gives a. sentiment boost that the internet the. big economies are looking at it. Governments are in the room. They. understand the concerns and they're. trying to address it in a concerted way. So in a way it's a sentiment booster and. it seems to some some extent to have. worked today. >> Okay, a slight improvement but a few. days ago you mentioned Qatar the Qatari.

energy minister said oil could reach. $150 a barrel and quote bring down the. economies of the world. Could it really. get that bad? >> It can certainly play an enormous. threat. Oil obviously is incredibly. pervasive. The cost of oil gets into. just about everything. Obvious things. like petrol. It also and gas controls. the price of heating and also. electricity. So, you obviously have a. cost of living massive squeeze. You also. get to a point, and I remember the last. time it was around the $150 a barrel.

moment was just before the financial. crisis back in 2007-2008. when it hit $147 a barrel, not inflation. adjusted for anyone who's going to pick. me up on that, so it was probably. cheaper. But at some point, what you do is you. hit a level of what they call demand. destruction. So, people things start. getting so expensive that rather than. carry on doing them at a more expensive. rate, you stop doing them at all because. it becomes an uneconomic. Like then so. that means the economic activity that.

would have happened does not happen. because the price of energy is so. prohibitive. That demand destruction. phase does begin to kick in. People. think at around 120 to about $150 a. barrel. And so at that point, you do. start to see economies begin to. potentially slide into recession cuz. inflation is a double whammy. It. does two things at the same time, both. of which are poisonous to economies. It. puts up the cost of doing business and. borrowing money to do business at the.

same time as it's taking money out of. the pockets of the customers that you're. trying to sell your stuff to. So, that's. why inflation can be an economy killer. and oil with its pervasive nature is. definitely a very virulent way of. getting that into the the bloodstream of. the world economy. So, at $150 a barrel, you do start to think about economy. sliding into recession, yes. >> And are we already seeing damage to the. global economy? Where are we seeing it? Is it in the markets? Is it in people's. pockets? >> Seeing it in the markets in the first. instance. It's in stock markets fall.

very sharply, and the rule of thumb is. the more you're reliant on imported. energy, the more your stock market. falls. There's been a reason why if you. wake up each morning as I do, you know, and look at the markets, there's a. reason why, for example, Korea has been. one of the first to actually sort of. have a circuit breaker because it's. fallen so quickly they'll suspend. trading. And that's because Korea is. massively dependent on oil imports. But. so is China. And I think there's a very. interesting, perhaps underreported, element to this entire drama, this this.

this this these hostilities, which is that China gets about 3% of its. oil from Venezuela. That now is. effectively controlled by the US. It. gets about 16% of its oil from Iran. Well, that is effectively shut off at. the moment. And something like 50% of. its imports come from somewhere in the. Gulf. So, you can see that a lot of people are. saying that quite apart from the, you. know, the advertised reasons for this, um, which have been a little unclear. depending on who you're talking to in. any given point, uh, of the of the.

nuclear disarmament or the degrading of. the nuclear program, a lot of people are. seeing this as a power play. The US is. pretty much self-sufficient in energy. China is not. So, don't don't forget. about the US versus China dimension to. what's going on here. >> Yeah, and while we're talking about big. powers, what does all this mean for. Russia? >> Well, I I China's dependence on oil. imports could force it closer into the. arms of Russia. The other thing for. Russia is this is a bit of a bonus for. them because, obviously, they they are.

huge oil and gas producers. The price of. that is going up. They've managed to. find a way to sell it to people who. which is not the EU, for example, who've. basically put a moratorium on Russian. gas and oil purchases. But there's no. doubt that rising energy prices are good. for the Russian war machine, um, and. that will not be lost, of course, on. Ukraine. Um, and just goes to show how. the, you know, the many tentacles there. are of this and how. energy policy, energy conflicts find.

their way into every walk of life. For. example, I was trying to explain to. someone, a friend of mine, the other day. how, you know, their chance of getting a. cheaper mortgage next week has just gone. down because with inflationary pressures. central banks around the world which. were beginning to see inflation fall so. they could lower interest rates, those. bets are off now and actually a lot of. the betting is the next move in interest. rates may well be up. So you can just. see the if you join the dots between. these things how what's going on in the.

Gulf can start to affect the price of. your next mortgage. >> And can anything be done other than. stopping the war to reversal? >> Well, we've seen as I I mentioned. earlier the release of the potential. release of the strategic oil reserve to. try and, you know, calm things just a. little bit. But I think, you know, most analysts. will tell you that the long-term effect. of what is going on on the global. economy depend almost entirely on how. long this particular phase of the war.

lasts. What is interesting, there are. some key Iranian facilities which have. not been targeted because what the US. does not want and that what where the US. and Israel fallen out slightly is that. Israel has been targeting lots of the. energy infrastructure. to a degree that the US doesn't really. want. The US does not want to see the. energy infrastructure of the Gulf, you. know, destroyed. It would like for a lot. of it still to be in place and. functional afterwards. What you're. seeing is basically all the onshore and.

boat and floating oil. storage vessels in the Gulf that side of. Hormuz, you know, that that that the top. end of the Gulf are already full. So at some point you're going to have to. stop producing because there's nowhere. to put the oil you're producing. If you. stop producing the oil, it can take. weeks to actually get it going again. So. that is bothering people because as I. say, the duration of this. is one of the most important things and. if you have to start shutting down. production which takes weeks to put on,

you are lengthening. in a damaging way, you know, the the of. of these interruptions. >> And what about Donald Trump's. high-profile suggestion that they send. warships to escort tankers through the. Strait of Hormuz? Could that work? >> Well, I've spoken to two people about. that proposal. The first one was on from. a military dimension, which is that Iran. kind of looks down on the Strait of. Hormuz. So, if you had a a little. corridor either side of US warships,

unless you're going to do a ground. invasion, you could take potshots at. those warships all day long from up on. the hill. The other people I've spoken. to are insurance underwriters who say. they don't think that that wouldn't. materially lower the cost of insuring a. vessel to go to take the risk of going. through that. And two of the things. which are actually pushing up oil. prices, not just the oil itself, is the. cost of insuring and it's the cost of. renting the tankers, both of which have. exploded in recent weeks. So, I'm not. sure I mean, I think that might help,

but I'm not sure it'd solve the problem. >> Simon Jack, the BBC's business editor. Thank you. If you like this episode, please subscribe here on YouTube. If. there's any story you'd like us to. cover, leave a comment below. And for. more international stories, download the. Global News Podcast wherever you get. your BBC podcasts.