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Festive music from the band Sweet Crude blared at a party minutes after President Donald Trump\u2019s former defense secretary warned that ending the war now would cede ownership of the narrow Strait of Hormuz\u2014the world\u2019s most critical choke point\u2014to Iran.<\/p>\n
\u201cWe\u2019re in a tough spot, ladies and gentlemen,\u201d said retired Gen. Jim Mattis at the CERAWeek by S&P Global conference in Houston. \u201cI can\u2019t identify a lot of options.\u201d<\/p>\n
The dichotomy of the celebratory, yet nerve-wracking vibes dominated the unofficial \u201cDavos of energy\u201d event this week that still attracted a record of over 11,000 attendees from 90 countries\u2014a veritable who\u2019s who of the energy sector around the world\u2014not counting the fossil fuel protestors outside.<\/p>\n
The mood was meant to be triumphant. There\u2019s ongoing crude oil and gas growth, but most prominent is the unprecedented wave of electricity demand from AI, triggering an infrastructure boom for pipelines, export hubs, and power, including gas-fired generation, renewables, nuclear, and more\u2014truly an all-of-the-above energy renaissance that could still suffer from geopolitical turmoil.<\/p>\n
So, the extension of the unexpected Iran war overshadows everything. The industry still cannot come to grips with the previously unfathomable scenario of the strait staying shuttered for a prolonged period of time. The Strait of Hormuz is the narrow, precarious waterway between Iran and the Musandam Peninsula through which flows roughly 20% of the world\u2019s oil and natural gas, fertilizer for agriculture, helium for semiconductors, and petrochemicals that go into almost everything. Much of the world, especially in developing Asia, is already suffering the consequences and the ripple effects will continue to spread the longer the war draws out.<\/p>\n
\u201cThere\u2019s a lot of somber talk,\u201d said Arjun Murti, energy macro and policy partner at the Veriten research and investment firm. \u201cThe strait does need to open in some fashion pretty soon. It\u2019s not good for anybody.\u201d<\/p>\n
Even if American oil, gas, and chemicals producers rake in higher profit margins for now, they\u2019ll suffer from the volatility and longer-term demand destruction later, especially if a global recession\u2014or worse\u2014takes hold.<\/p>\n
Iran dominated the news so much that Venezuela seems like old news. The in-person appearance at CERAWeek of Venezuelan opposition leader and Nobel Peace Prize winner Mar\u00eda Corina Machado\u00a0was almost an afterthought. The four-hour-long security lines at Houston\u2019s airports were a much more prominent topic of conversation.<\/p>\n
With oil prices trading above $100 per barrel\u2014up about 75% since the beginning of the year\u2014Chevron CEO Mike Wirth warned the real impacts are only starting to take hold and that commodities remain underpriced. \u201cThere are very real physical manifestations of the closure of the Strait of Hormuz that are working their way around the world through the system that I don\u2019t think are fully priced in,\u201d he said, adding that markets are trading off \u201cscant information.\u201d<\/p>\n
Shell CEO Wael Sawan said energy supply shortfalls could hit Europe very soon. Releases of emergency oil supplies only fill part of the gap. \u201cSouth Asia was first to get that brunt. That\u2019s moved to Southeast Asia, Northeast Asia, and then more so into Europe as we get into April.\u201d<\/p>\n
The Dow chemical CEO said the inflationary effects will extend at least through the end of this year. \u201cThe die is being cast for the rest of the year for what\u2019s going to happen in the markets,\u201d said CEO Jim Fitterling. \u201cIt\u2019s like the unwind we saw on supply chains during COVID.\u201d<\/p>\n
Jack Fusco, CEO of Cheniere Energy\u2014now the leading liquefied natural gas exporter in the world as a result of Qatar\u2019s supplies being severely damaged and offline\u2014said the final waterborne shipments from before the war from Qatar just made landfall, so the physical shortfalls are only beginning. \u201cI don\u2019t think you\u2019ve seen a real impact just as of yet,\u201d Fusco said, adding that he\u2019s literally taking phone calls of \u201cHelp!\u201d from Asia.<\/p>\n
Political massaging<\/p>\n
Key members of the Trump administration trekked to Houston, including Energy Secretary Chris Wright and Interior Secretary Doug Burgum, attempting to assuage the concerns of industry leaders and encourage them to produce more oil and gas.<\/p>\n
This occurred as President Trump declared the war won\u2014while sending more troops to the Persian Gulf for a potential escalation\u2014and said oil prices would quickly fall again, which doesn\u2019t exactly motivate more oil production.<\/p>\n
\u201cMarkets do what markets do,\u201d said Wright, a former oil and gas CEO, arguing that \u201cprices have not risen enough yet to drive meaningful demand destruction.\u201d<\/p>\n
\u201cIt\u2019s short-term disruption right now, but to end a multi-decadal problem and lead to a world that\u2019s much more peaceful, can be much more prosperous, and much more securely energized,\u201d Wright told the CERAWeek audience.<\/p>\n
The next day, Wright, who remained in Houston most of the week, said investors are wrong when they pigeonhole energy as a single sector.<\/p>\n
\u201cEnergy is not one sector. Energy is the enabler of absolutely everything we do,\u201d Wright said. \u201cEnergy is life.\u201d<\/p>\n
That sentiment is exactly what makes everyone so nervous about the continuation of the Iran war\u2014one started by the U.S. and Israel\u2014and the greatest energy supply shock in history.<\/p>\n
There\u2019s a sense of a freeze across the energy industry, stifling long-term planning\u2014except for examining many potential scenarios\u2014and allowing for only short-term operational adjustments. Many top CEOs avoided interviews outside of the main stage for fear of speculating on the war and politics. Houston-based Exxon Mobil CEO Darren Woods didn\u2019t come at all. And top Middle Eastern leaders, such as the CEO of Saudi Aramco, canceled their travel plans.<\/p>\n
Some sent recorded video messages instead. Sultan Ahmed Al Jaber, the CEO of the Abu Dhabi National Oil Company (ADNOC), accused Iran of \u201cchoking the throat\u201d of the \u201cglobal economy.\u201d<\/p>\n
\u201cWeaponizing the Strait of Hormuz is not an act of aggression against one nation. It\u2019s economic terrorism against every nation,\u201d Al Jaber said. \u201cAnd no country should be allowed to hold Hormuz hostage. Not now, not ever.\u201d<\/p>\n
Kuwait Petroleum CEO Sheikh Nawaf al-Sabah said he is \u201coutraged\u201d by Iran\u2019s unprovoked counterattacks against its Gulf neighbors. Kuwait and Iraq have already shut off most of their oil production, while Saudi Arabia and the United Arab Emirates have implemented major cutbacks as well.<\/p>\n
\u201cIt\u2019s a domino effect,\u201d al-Sabah said. \u201cThe costs of this war don\u2019t stay within geographical lines in this region. They extend all the way through the supply chain.\u201d<\/p>\n
The unknowns are really what\u2019s scariest, said Veriten founder and CEO Maynard Holt.<\/p>\n
\u201cYou have this confluence of factors\u2014an administration keeping a very tight circle to maintain the element of surprise, the Europeans taking a limited role, energy players and various other Middle East actors deciding not to speculate in public, all with a backdrop of a potentially calamitous extended blockage of Hormuz,\u201d Holt told Fortune.<\/p>\n
\u201cThat whole stew just raises the overall anxiety while also limiting the public discussion.\u201d<\/p>\n
#Uneasy #mix #celebration #anxiety #dominates #Davos #energy #Iran #war #drags<\/p>\n","protected":false},"excerpt":{"rendered":"
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