How the big oil and gas CEOs think the Iran war supply disruption will play out

HOUSTON — CEOs of the world’s most influential oil and gas companies offered a thought-provoking message this week about the impact of the Iran war on energy supplies and its long-term consequences on the global economy.

Executives gathered in Houston, Texas, to assess the state of play for S&P Global’s annual CERAWeek energy conference. They warned that the market did not reflect the extent of disruption to oil and gas supplies.

Executives said that if the war continues, Asia and Europe will face fuel shortages. Oil prices will likely remain high even if the conflict ends as countries restock depleted reserves, experts said.

“You can’t get 8 to 10 million barrels of oil a day and 20 percent of the oil. [liquefied natural gas] “We aim to exit the world stage and the market without creating any significant side effects.” ConocoPhillips CEO Ryan Lance told CERAWeek attendees.

Kuwait Oil Company CEO Sheikh Nawaf al Sabah said that by closing the Strait of Hormuz, Iran is basically imposing an economic blockade against oil producers in the Middle East. The Bosphorus is a vital artery connecting oil exports from Gulf Arab producers to global markets.

In his speech at the conference, Al Sabah said, “This is not only an attack on the Gulf, but also an attack that holds the world economy hostage.” he said. The CEO warned that the war would create a “domino effect” on the global economy.

“The cost of this war does not remain within the geographical borders in this region,” Al Sabah said. “They extend all the way to the end of the supply chain.”

Independent analyst Paul Sankey of Sankey Research said the oil shock was the worst since the Arab oil embargo imposed on the United States and other Western countries over their support for Israel in the 1973 Middle East war.

“This is the worst thing I’ve ever seen,” said Sankey, who began his career at the International Energy Agency in 1990. “We haven’t seen anything like this since probably 1973. We’ve never seen the Strait of Hormuz closed.”

“We are in a de facto situation where the Iranians control the Strait,” Sankey said. “So the situation is extremely serious.”

Call for the US military to protect energy

The executives’ comments contrasted with the Trump administration’s efforts to reassure a worried industry and unstable oil market.

Energy Minister Chris Wright told CNBC that the market is facing a “short-term period of disruption.” He said the price was worth paying to reap the long-term benefits of defending Iran.

But that price is too high for an oil and gas industry whose assets are now under attack. Conoco “begged” the Trump administration for military protection of U.S. assets in Qatar and hundreds of millions of dollars in investment, Lance said.

Iran forced the closure of the world’s largest liquefied natural gas center in Qatar with drone attacks. Conoco is a major investor in this facility.

“We had to evacuate a few of our staff, non-essential staff,” Lance said. “This has become a chore for me over the last few weeks.”

Oil prices will remain high

Oil prices followed a volatile course this week; It fell when hopes for a negotiated end to the war rose, and rose when the perception of tension reignited. President Donald Trump on Monday backed down from his threat to bomb Iran’s power plants. He claimed throughout the week that Iran wanted to make a deal to end the conflict.

But ultimately investors remained nervous and oil prices hit their highest level in more than three years on Friday. US crude oil Since the US and Israel attacked Iran on February 28, prices have risen 49% to $99.64 per barrel. Brent pricesOil prices, the international benchmark, rose by more than 55 percent to $112.57 per barrel.

“I’ve heard and read a lot about prices and the like, it’s all interesting, but it’s the physical flows that matter.” Shell CEO Wael Sawan said: “Our customers need molecules, they need electrons.”

Strip CEO Mike Wirth noted that physical oil supply is much tighter than prices on the futures market indicate. The CEO said the market was reacting based on “insufficient information” and “perception.”

“There are very real, physical manifestations of the closure of the Strait of Hormuz around the world and through the system that I don’t think are fully priced in the futures curves of oil,” Wirth said.

Kuwait Oil CEO al-Sabah said that it will take three to four months for the Gulf Arab countries, which had to close their oil wells due to the closure of the Bosphorus, to fully restore production.

Conoco’s Lance said the “floor” for oil prices “probably needs to increase,” noting that prices are unlikely to fall to pre-war levels anytime soon despite assurances from the Trump administration.

ŞöniyerLNG, 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 Fusco said the company is already operating at its highest production level.

“We will try to deliver as many molecules as possible to the countries in Asia that really need them,” the CEO said. “But it’s a 28-day trip from the Gulf Coast to anywhere in Asia, so it won’t happen overnight.”

fuel shortage

Fuel supplies face a bigger disruption than oil, Shell CEO Sawan said. He said jet fuel supplies have already been affected and diesel will come next, followed by gasoline.

The war has triggered a ripple effect of famines spreading across major Asian economies and will reach Europe by April, the CEO said. Governments around the world are stockpiling and preserving their own supplies, he said.

“We have to make sure this doesn’t amplify serious physical strain,” Sawan said.

It was stated that jet fuel and diesel prices increased by $200 per barrel and $160 per barrel, respectively. Total Energies CEO Patrick Pouyanné. He said China had banned the export of petroleum products and Thailand had rationed gasoline.

“The crisis is really starting to impact customers,” Pouyanné told CNBC.

“Everything will depend [on] How long will this conflict last?” said the CEO. “I hope it won’t last too long. “Otherwise, we will face very, very dramatic consequences.”

Rise likely

Vali Nasr, an Iran expert from Johns Hopkins University, said the war is unlikely to end anytime soon and the risk of escalation is high. Nasr said Iran is not seeking a ceasefire with Trump. He said Tehran wants a grand bargain that gives them control of the Bosphorus, economic compensation and security guarantees.

General Jim Mattis, who was secretary of defense during Trump’s first term, said Iran is waging an all-out war while the United States is waging a limited air campaign. He said that the goal of regime change in Tehran was imaginary. Mattis said the conflict had reached a stalemate and one side could now escalate further.

The US Navy has said it will fight to protect shipping lanes from the Persian Gulf to the Strait of Hormuz and then to the Gulf of Oman. He said there are hundreds of kilometers of sea lanes that the Iranians could attack and that the United States must protect.

War could disrupt the economic model developed by Gulf Arab nations. Iraq, Qatar, the United Arab Emirates and potentially Saudi Arabia could see a 30% drop in annual gross domestic product, Sankey said.

Mattis said the United States did not consult its Arab allies in the Gulf before entering the war and that Trump cannot simply declare victory and walk away. He said Iranians have the right to vote on when the war will end.

“I don’t think we can just walk away from this,” Mattis said. “We are in a difficult situation.”

— CNBC’s Pippa Stevens And Brian Sullivan Contributors to this report