Front Burner - Iran war sparks energy crisis

Episode Date: March 10, 2026

The world could face one of the most severe shocks to energy markets since the 1970s as we enter week two of the war in the Middle East.The strait of Hormuz, the artery for 20 per cent of the world’s oil and gas, has been effectively shut down. Qatar, which makes up one fifth of the world’s liquefied natural gas exports, has stopped production of LNG after Iran struck two of its sites. In the aftermath natural gas prices spiked in Asia and Europe.Jim Krane, a fellow in Middle East Energy Studies at Rice University’s Baker Institute for Public Policy, is here to talk through the high stakes. Jim also reported for the Associated Press in the Middle East for years.For transcripts of Front Burner, please visit: https://www.cbc.ca/radio/frontburner/transcripts

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This is a CBC podcast. Hi everyone, I'm Jamie Poisson. We are well into week two of the war in the Middle East, and the world is facing one of the most severe shocks to energy markets since the 1970s. Oil prices have now surged to over $100 a barrel, the highest they have been in years, driving up fuel prices for consumers around the world. The Strait of Harmuz, the artery of 20% of the world's oil and gas,

is effectively shut down. Iran has threatened to set on fire any ship that dares to cross. Qatar has shut down production of liquefied natural gas after Iran struck two of its sites. The country makes up one fifth of the world's LNG exports. In the aftermath, we've seen natural gas prices spike in both Asia and Europe. The fear of an energy crisis that threatens the global economy is no longer theoretical. To talk through the very high stakes here, I am joined by Jim Crane. He is a fellow in Middle East energy studies at Ruebvre.

Rice University's Baker Institute for Public Policy in Texas. Jim was also a longtime associated press reporter based in the Middle East. Jim, hi. Thanks so much for coming on to the show. It's really great to have you. Thanks, Jamie. It's great to be here. Let's start with this straight of Hormuz. These oil producers are not sending their tankers through this narrow maritime choke point off Iran's southern coast. And as a result, oil producing countries in the region are slowing or stopping production. This is the fear, an oil tanker apparently hit by a drone off the coast of Oman. It's unclear who launched it. But Iran's warning vessels do not pass. Attention, all ships, attention, all ship from now on. All navigating through the Strait of Hormuz is forbidden.

How significant is this straight? Well, yeah, I mean, it's huge, right? So the Strait of Hormuz is just one of those critical nodes in the global economy that, you know, really the economy cannot function without. So, you know, world consumes about just over 100 million barrels a day and about 20 pass through the straight. And natural gas, right? LNG also about 20% of liquefied natural gas cargoes pass through the straight. And as we're finding out now, lots of other really important stuff passes through the straight, you know, both directions, right? So, aluminum, fertilizer, sulfur, you know, glass. It is super important.

As far as the precedent for this, we don't really have one. So this has never happened before. The situation we're in now is the rationale for all these strategic petroleum reserves around the world. So the one we have here in the U.S., there's various others, you know, China, you know, all the OECD countries have them. And that's why we have them for something just like this. So it's a big deal. Yeah, I want to get to those reserves with you in a couple of minutes. But first, on Sunday, according to Fox News, Trump said, quote, these ships should go through the Strait of Hermuz and show some guts.

There's nothing to be afraid of. We sunk all of their ships. He's like referring to the Iranian Navy. What do you make of that? Well, I mean, I don't think anybody's taken orders from Trump. I'm sure they'd like to. They'd love to get through the straight. You know, if they're tankers with full cargoes waiting to get out or empty tankers trying to get in.

But they're unwilling to do it because it's super easy to hit one of those tankers ships. I mean, we saw it in the tanker war in the 80s. You had, you know, more than 200 oil tankers hit and about, I think, 55 of them actually sunk, went to the bottom. And then we just saw just over a year, the Houthi, you know, much. less capable quasi-state actor, I guess you could call them, they were able to completely shut another global choke point to Bablomandab and prevent transit of the Red Sea, even with the U.S. Navy there, right? The Houthi don't have a Navy either. So you don't need a Navy to block the Strait of Hormo moves. And could these tankers take an alternate route here? No, there's just one entry and one exit from the Persian Gulf. So you did have an alternate in the Red Sea, right? Yeah.

So if you can't get out the Babel Monday, but, you know, if the Houthis are blocking it, you can go out to Suez Canal at the top, right? But we're not in that situation here. If this goes on for several more weeks or months, I just wonder if you could play it out for me. Who will be the hardest hit here? What are some of the ramifications? We are looking at, you know, I don't know how long it could be closed.

It could stay closed the entire war. I mean, I know Trump's got got an idea for a couple ideas for reopening it, whether or not those workers. So if we assume it's going to stay closed, you know, things get increasingly dire, right? We're seeing price jumps. So the oil price has been jumping, not as much as I would have expected. But it's, you know, it was up over, was close to $120 for a little. little while today. Natural gas prices are way up. So that's being affected. LNG prices in Europe and in Asia,

which, you know, Asia's where most of the oil and the gas is going. So that's where probably where a lot of the pain will start for oil and gas is, you know, the importing countries, you know, if they actually cannot get their hands on supply, you know, that would affect them. But the exporting countries are the ones who are really under the spotlight right now. They're having to shut in their fields. So Iraq started. Now Kuwait is shutting in production. I've heard Saudi Arabia is either thinking about it or is already started. So yeah, I mean, there's lots of pain for exporting countries in that region. And then eventually for importing countries. I mean, you know, oil importing countries, the more developed, the more developed. ones have a have a buffer. The ones that don't have oil and storage are probably the ones that are going to see more pain in the short run. Like who? So Pakistan, Bangladesh, India.

I've heard Taiwan was in a tough spot here. I read that as well. Yeah. Yeah. So I don't know, you know, either how much storage they have or, you know, whether it's, you know, that's something if it's another problem. You know, you mentioned that Trump has maybe some ideas to Trump. try and open it back up, I guess. But if all you need is like a missile to take out one of these ships, like, how could they even force its reopening?

Yeah. So we did in the 80s, the U.S. Navy, you know, reflagged oil tankers with U.S. flags and then escorted them out in convoys with the U.S. ships. And it worked. You know, the, you know, so that was a war between Iran and Iraq. and they were targeting all sorts of oil infrastructure and shipping. But the U.S. was, you know, and that war not a combatant. I think that's key here. You know, we started this war.

You know, our Navy is, you know, the legitimate military targets for the Iranians. So it would seem to me to be very easy to cause lots of trouble with even simple weapons, like even a single person with a shoulder-fired missile or some type of anti-exam. ship missile from the Iranian side. The straight is only 20 miles across. You can see Iran very easily. I mean, I used to spend time on the Umani side of the Strait of Hormuz on the Musandum Peninsula. You can see the Iranian side. You can see the tankers going past right in front of you. That's still to come potentially. This ascent isn't for everyone. You need grit to climb.

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You know, could U.S. commandos or Israeli commandos seize it, you know, sort of the Venezuela playbook? I mean, possibly. I mean, there's no compliant actor inside Iran yet, you know, that could work with the U.S. as we have in Venezuela. I've seen some analysts say that if there is a ground invasion, that the island would be one of the most strategic targets, right, where 90% of Iran's oil export comes from. Just, you know, Iran's crude oil reserves make up about 12% of the world's total.

And so just from the U.S.'s perspective, what could seizing that, along with their own shale and what they're doing in Venezuela. What does it mean kind of for the U.S. strategic interest, right? Because you hear people talk about how maybe oil is part of their end game here. I'm just trying to like understand that. Well, I mean, I think right now the U.S. would like Iran to keep exporting because that oil is needed in the global economy. I mean, ironically, it seems like the ships that are able to get through the straight of hormones right now are mostly Iran. carriers or ships that are carrying Iranian crude.

And, you know, it's helping keep prices a little bit less than they might otherwise be if, you know, if Carg Island was seized. So I think, you know, even though the Iranians are getting that revenue for the strategic calculations, the U.S., I think they'd like to keep it going just to keep that extra oil, you know, for the same reason. And that's why we're temporarily giving sanctions waivers on Russian crude. Right. Do you think that greater control over Iran's oil industry is part of their plan here? I think it would be really hard for the U.S. to control Iran's oil industry. It's a big country. There's 92 million people there.

It is not in the same sad shape that Venezuela was in. There's so much opposition. It would take so many, you know, boots on the. ground to capture Iranian oil infrastructure and keep that flowing if there was a government in Tehran that was bent on that not happening. So I don't think the U.S. could really commandeer Iran's oil industry. I mean, I think Iran has strategic value because it has an oil industry and, you know, oil exporting countries tend to attract more military intervention because of their strategic importance. But I think it would be really, really hard.

We couldn't even do it in Syria. So, you know, I think Iran would be just a bridge too far. You've already brought up some kind of historical examples here. But, you know, there were a couple of big oil shocks in the 1970s. I want to parse with you. There was one in 1973 when some Arab states cut off oil production and limited exports and protests of the U.S. as support for Israel and the U.S. as support for Israel and the U. Yom Kippur War. To increase the supply of heating oil that will be available this winter,

we must adjust production schedules and divert petroleum, which might normally go for the production of gasoline to the production of more heating oil. I am asking tonight that all gasoline filling stations close down their pumps between 9 p.m. Saturday night and midnight Sunday every weekend, beginning December 1. prices quadrupled within three months. And then in 1979, following the revolution in Iran, can you remind us what happened then? Yeah. I mean, so prices went from three to 12 in the, you know, U.S. dollars in 73. And then in 78, 79, the Iranian Revolution and then the Iran-Iraq War pushed them up into the $40 range above $40 in the in the early 80s. Iran completely halted oil exports in 1978. So that was sort of the start of that second oil crisis in the 70s.

The energy crisis is not yet overwhelmed us, but it will if we do not act quickly. It's a problem that we will not be able to solve in the next few years. And it's likely to get progressively worse through the rest of this century. We must not be selfish or timid if we hope to have a decent world for our our children and our grandchildren. We simply must balance our demand for energy with our rapidly shrinking resources. You had all this panic buying that was going on. I'm in here for now already. There's no shortage. I don't believe there's a shortage. This is the second gas line this morning. What happened at the first? They ran out. I've been in two gas lines already. This morning? This morning.

How long did you wait for the first? I've been in both lines over hour. And I'm going to out of gas, dead out. There was, you know, Iraq and Iran fought a really long war with more than a million people killed. You know, Iraqi exports were also, you know, compromised. And then you had that tanker war that kicked off with all those ships hit. What's happening is that the war on land between Iran and Iraq is spilling over into the sea, with Western tankers being the sitting targets for both sides. It's a voyage through the area where 14 oil tankers have now been.

hit by air attack from Iran or Iraq. Missiles against tankers are the weapons that both sides are using to try and break the stalemate in their war on land. Iraq began with exocets. Iran has hit back at ships like this one, the chemical venture. Really a terrible time in oil markets, but big differences with what we have today, right? So, you know, at that time, the global economy was way more oil intensive, right? We used a lot more oil per dollar of GDP then than we do now. We've made enormous efficiency improvements in use of oil, right?

Especially in the transport sector, you know, back in the 70s, I mean, cars were just not very efficient, right? And now they're more efficient than they were back then. And now you can completely insulate yourself from geopolitical risk in the oil market if you buy an electric vehicle, right? So there's like substitutes now for oil that didn't exist back then. But, you know, this is a bigger outage than we had in the 70s, right? This is, you know, between 10 and 20 million barrels a day. Yes, markets have some slack in them still. They're still oversupplied, which, you know, in the 70s, they were really tight.

But we have the U.S. as a, not as more of a neutral observer for this time. We're a combatant. I mean, it's the U.S. that actually caused this problem. So we are a combatant. we're a target in this situation. And, you know, we're supposed to be the player that guarantees the security of our allies in the Gulf. And our Gulf allies are finding out that, oh, our security provider is not only causing the insecurity, but its security forces and embassies are actually the target set, you know, for Iran, you know, to hit inside our country. So, you know, it's a very, you know, it's a much messier situation that this time around than you had last time.

And also these countries own infrastructure and energy infrastructure too, right? I think Saudi Arabia was saying that they shot down a drone that was aimed at one of their oil fields, I think. I want to come back to this idea of reserves. The Trump administration is saying that they have more leeway to act because there's ample supply. How much of a buffer is that? there here. There's weeks and weeks of buffer, you know, or oil and storage in some places. So Japan has got between 100 and 200 days worth of total imports in storage inside Japan. So China has got 1.2 billion barrels of oil in storage from what I hear. So that's about what the entire OECD has

in storage. So they've got it, you know, basically the same amount is as the entire developed world in storage in China. You know, the U.S. has the Strategic Petroleum Reserve, but unfortunately, we did not refill it after the, you know, Biden administration, you know, drained it during, you know, high oil prices at election time, 2022. The Department of Energy would release another 15 million barrels from the Strategic Petroleum Reserve, extending our previously announced release through the month of December. I've told my team behind me here to be prepared to look for further releases of the months of head if needed. So we're not in quite as secure a situation, I guess, with our reserves, but, you know, the U.S. is also a net oil exporter. So we might take a hit

on prices here in the U.S. and Canada. But, you know, I don't think the supply is at risk. in the U.S. or in Canada like it is during, you know, in these net oil importing countries. I wonder if you could explain to me a little bit more why countries like Canada and the U.S. would take a hit on prices when supply isn't really an issue. Well, we're relatively minor exporters compared to the Saudis and the big producers in the Persian Gulf. I mean, that's where oil prices are formed in the Gulf. I mean, Saudi Arabia is the world's largest oil exporter. And so when it changes production, you know, it usually does this through OPEC and makes a big announcements, you know, that that moves the price.

So their inability to get oil to market is moving the price as well. So, you know, if you imagine the global oil market, like a bathtub with lots of spigots pouring oil into it, lots of different players increasing and sometimes decreasing. Right now there's a, you know, a couple of spigots. have either turned all the way off or starting to. And, you know, we're still taking just as much oil out of the drain. So that causes the price to go up. So sometimes it happens through OPEC. You know, they sort of calibrate it carefully. And this time it's not. It's happened in much more chaotic way. And nobody really knows how we're going to be affected by all that. I take your point there. But I wonder if we could spend a little bit of time sort of trying to make this a little bit more

concrete for people in how this could affect their everyday lives, right? And I know you talk about how everything we buy and consume has an energy signature. And I just, I wonder if you could just elaborate for me a little bit more on what you mean by that and how this could affect sort of how people go about their days and their lives in the coming days and weeks and beyond that. Yeah, I mean, our research shows that every $10 increase in the price of a barrel of oil pushes up gasoline prices here in the U.S. by about 25 cents. Since we use oil as our main transportation fuel, it's about 90-ish percent of global transportation services are provided by oil-based fuels. Because of that, you know, it's not easy to substitute for oil. And transportation

is one of those things that people are just willing to pay for no matter how much it costs, right? There's not a lot of price elasticity in transportation. If you've got a 20-mile commute to work every day and the prices of your fuel doubles, you still need to get to work. You don't have a lot of options. So it's going to trickle into the economy as inflation. It's triggering inflation in transportation costs for individuals, but also for moving goods around the world. this crisis isn't just hampering oil supply. It's also keeping fertilizer, you know, off the market. You know, so the Gulf countries are also really, really big fertilizer exporters, you know, without enough fertilizer, food yields, crop yields will go down. And food will get a lot more expensive. Yeah. And all of a sudden, like, sorry, a loaf of bread costs more because the fertilizer used to grow, it is stuck in like a Qatari port.

Yeah, and then your wheat field isn't going to produce as much wheat. And it's also having ripple effects in metals, right? So it turns out sulfur is used in refining nickel and copper and other metals, right? You need to make sulfur acid to do that. And 50% of the global sulfur supply comes out of the Gulf. And so, you know, countries are scrambling to find new sources of sulfur. Also, there's a big aluminum smelting industry inside the Gulf. So they can't get their bauxite in.

to smelt it and they can't get the finished aluminum out. So there's a force majeure there, too. And then alternate fuel. So for LNG, you know, we talked a little bit about liquefied natural gas being, you know, the 20% of that global supply is bottled up inside the Gulf right now. That's causing a price spike in coal, right? So coal is a substitute in the power market for gas. So yeah, and dirtier. Yeah. Way dirtier. Yes. Yes. So there's a lot of really bad things. Yeah, I was just going to say, this is really bad, Jim. I'm glad you kind of wrapped it up there. Qatar's energy minister has warned that an energy crisis triggered by the Iran conflict could, quote, bring down the economies of the world. You know, and as we've talked about, this is obviously very bad for those countries that depends so much on exporting oil.

I just wonder if you think that statement is hyperbolic or if you think that he has a point. And if he does, what would the warning signs for that look like? Well, he's definitely got a point for the cuttery economy, right? So, I mean, you know, that basically exporting liquefied natural gas is the basis of the cuttery state, right? I mean, that's the richest in the world on a per capita income basis and its economy and even its political. system are based on getting natural gas out of the straight-hormoos into markets. So for other countries, I mean, it might be a bit hyperbolic for now. I mean, if you're not in as tight a spot, you know, if you're a country that doesn't import so much from the Gulf,

you'll have to deal with with higher prices on a lot of goods. There'll be a lot of inflation, maybe stagflation we're starting to hear about. So economic growth, you know, starts to, to stagnator fall as prices go up, which is really painful. So yeah, I mean, I think the world would be in for a real tough patch. Is it an existential crisis for everybody? No, it's not. Okay. That feels like a good place for us. And Jim, thank you so much for this. Really appreciate it. Hey, my pleasure, Jamie. You know, anytime. All right. That's all for today. I'm Jamie Pueblo. And thanks so much for listening. Talk to you tomorrow. www.ca.com podcasts.