March 2, 2026 • 26 mins
Iran has cut off one of the world’s most strategically important choke points.
About a fifth world’s total oil consumption passes through the Strait of Hormuz.
Iran’s revolutionary guards commander-in-chief has warned that “if anyone tries to pass” they will “set those ships ablaze”.
The narrow sea passage sits between Oman and Iran.
Experts have said a prolonged conflict in the Middle East could lead to a sustained rise in oil prices, fueling inflation, and having global economic effects.
Today on The Front Page, geopolitical analyst Dr Geoffrey Miller is with us to take us through why the blocking of just over three kilometres of water can have global ramifications.
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You can read more about this and other stories in the New Zealand Herald, online at nzherald.co.nz, or tune in to news bulletins across the NZME network.
Host: Chelsea Daniels
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Producer: Jane Yee
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Episode Transcript
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Speaker 1 (00:05):
Kiyota. I'm Chelsea Daniels and this is the Front Page,
a daily podcast presented by The New Zealand Herald. Iran
has cut off one of the world's most strategically important
choke points. About a fifth of the world's total oil
consumption passes through the Strait of Hormuz. Iran's Revolutionary Guards
(00:31):
commander in chief has warned that if anyone tries to pass,
they will set those ships ablaze. The narrow sea passage
sits between Oman and Iran. Experts have said a prolonged
conflict in the Middle East could lead to a sustained
rise in oil prices, fueling inflation and global economic effects.
(00:53):
Today on the front Page, geopolitical analyst doctor Jeffrey Miller
is with us to take us through why the blocking
of just over three kilometers of water can have global ramifications. Jeffrey, So,
tell me what is the importance of the Strait of
hall Moos? What has made it so critical to trade?
Speaker 2 (01:17):
Yeah, the Straight of hor Moves is one of the
world's choke points. I guess you could put it in
the same category as the Sewers Canal, which flows into
the Red Sea, also in the Middle East. Or the
Strait of Malacca in Asia, where ships just have this
very narrow corridor to transit through, and it's where there's
a lot of geopolitical tensions at play. So the Strait
(01:40):
of hor Moos it is separates Iran in the north
from Oman and the United Arab Emirates in the south.
It is very narrow. It's only thirty three kilometers at
the narrowest point. The shipping lanes within it are even
narrower still, they're around three kilometers in each direction. I mean,
(02:01):
the Persian Golf is relatively shallow, but it is deep
in parts, so the ships can flow, can transit through
that straight without issues in terms of the depth. You
need that because you're talking about big oil tankers that
are very large and size, but the actual usable part
(02:22):
of that strait is actually very very, very very small.
And you just add the fact that the neighborhood that
it's in with a war going on. Now that is
the significance because a huge amount of the world's oil
comes through that through that narrow corridor. Twenty percent of
the world's oil transit through the straight upull moves I said,
(02:45):
Persian Golf is disputed. Persian golf. Arabian golf will distantly.
Golf is often the way it's referred to. Now those
golf countries raq Kuwait, Saudi Arabia and the UAE. They
account for roughly half of the world's oil production. So
that's the significance globally that if you choke off the
(03:06):
Strait of hor Moves, you're choking off a huge proportion
of the world's oil. And of course that is used
not just the vehicles all around the world, but for
all manner of production. So when the Strait of hor
moonves sneezes, the world really catches a cold. And that's
what we're really seeing at the moment with oil prices spiking.
Speaker 1 (03:26):
Well, in terms of those countries that you mentioned before,
would they be a part of or are they OPEC members,
because usually when we talk about hor Moves or Swez,
we're talking about OPEC members. What kind of relationship do
they have to that channel.
Speaker 2 (03:41):
OPEK is a cartel and it was set up in
nineteen sixty to control oil supplies, but not all oil
production countries obviously are members of OPEK. In the Gulf,
several of them are, notably Iraka Ruck was where OPEK
was founded back in nineteen sixty, so is Kuwait Saudi Arabia.
(04:02):
The UAE Katar is no longer an OPEQ member though,
and left back in twenty nineteen. So OPEK is significant.
Perhaps is not as influential as it once was, and
that is because in part of non OPIQU members, in
particular the United States pumping a lot more oil. The
(04:22):
United States has had its shale revolution where you can
pump a lot more oil using new technologies since the
early two thousands. That means a lot of oil has
come on stream in the United States, to the point
that the US is now a net oil exporter. But
still these countries are hugely significant. OPEQ still has a
(04:42):
significant sway over production. Around forty percent of oil production
comes from the twelve OPEK members. Not all of OPEQ
members are in the Middle East, some are in Africa.
Venezuela is also an OPIQ member, so forty percent of
oil product and around eighty percent of the world's proven
oil reserves found in OPEC country, so it still has
(05:08):
it still has a lot of importance. There is also
OPEK Plus that was founded around a decade ago. That's
wider grouping of countries notably including Russia, and those countries
coordinate oil supplies, but at the moment the way OPEK works.
In particular Saudi Arabia, which is the world's biggest oil
the exporter and has an outsized impact on the world's
(05:30):
oil supplies, they've been trying to pump more oil and
not less, particularly Saudi Arabia. It wants market share, it
wants the revenue, and it also wants to curry favor
with Donald Trump. So Saudi Arabia has tried to increase
supplies of oil into the market, which is also one
reason why oil prices there. They're certainly elevated now around
(05:53):
the eighty dollar eighty US dollar a barrel mark, but
they haven't perhaps gone up as much as some might
have thought. They haven't gone up to one hundred dollars
a barrel of mark yet. I would caution that with
the word yet. And there's still potential for oil prices
to go higher. But just in general, oil prices have
been held in check over the last few years just
(06:15):
due to a range of factors. The fact that the
US pumps more oil these days is one of them.
The fact that Saudi Arabia sees it's in its interest
to pump more oil is another. And the fact that
the world is shifting more to renewables, there's less demand
perhaps for oil than there was five years ago, ten
years ago. If you think of all the electric vehicles
(06:35):
now being used around the world, it's still small, but
it does take some of the demand away for oil.
But yet oil are still crucial. We're a long way
off from being oil independent.
Speaker 1 (06:48):
Well, it's not just oil that is transported through the
straight Hey, and you mentioned Katar before as well. They're
among the world's biggest supplier of liquefied natural gas or LNG. Right.
Speaker 2 (07:00):
Indeed, both Kuta and Iran huge producers of natural gas,
and a huge proportion of the world's natural gas comes
out of the Gulf region as well. And many European
countries became very eager to talk to Kutar, in particular
after the war in Ukraine began. If you recall, European
(07:23):
countries were very dependent on Russian gas supplies for heating.
Then after the war began, they cut off Russian supplies
and sought to gain independence there from Russian fuel and
instead they turned to the likes of Cutter for their
energy and for the lergy supplies, and of course New
(07:45):
Zealand is looking to build an LNG facility, some of
that may end up coming from Cuta this part of
the world. Australia is also quite a big producer of
lerg as well, so there are just a hand of
countries that hold outsized influence on oil and gas. When
it comes to oil, Saudi Arabia is obviously the biggest player,
(08:10):
the biggest the export, has the biggest proven oil reserves.
When it comes to natural gas, you're looking at the
likes of Katta, You're looking at the likes of Iran Australia.
It's a small group of countries, a surprisingly small group
of countries. Even if there are plenty of oil exporters
around the world, then the number that can really move
markets is actually quite a small number. And that's because
(08:34):
a range of factors, but just simply the amount of
reserves is a big one, and the caustic of producing
oil in Saudi Arabia that's a lot lower, the cost
of production is a lot lower. It's a lot easier
to get the oil out of the ground than it
is in many other parts of the world.
Speaker 3 (08:58):
Most of our East Asian trading partners are heavily reliant
on oil coming out of those Middle East countries, which
where it currently can't flow at the moment. For example,
most of our refined petrol and diesel comes out of Singapore,
and that all comes basically from the Middle East. We've
got very low stocks of these sorts of things on hand,
(09:18):
only sort of two to three weeks depending on when
the boat last turned up. So you can kind of
see how it's not just going to be a question
of the price. It's going to be about how much
of it is actually available as.
Speaker 1 (09:28):
Well when you look at what's happening at the moment.
I know, I've seen that India, for example, have gone
ahead with some contingency plans because it gets almost half
of its crude oil I think from the Strait of
hor moves in terms of contingency plans. Should everyone have had,
(09:48):
you know, have seen this coming?
Speaker 4 (09:51):
Well?
Speaker 2 (09:51):
Yes, and though I mean it's always been this geopolitical
choke point really since the days of the world starting
to consume oil in large quantities, But the reality is
that there isn't really a substitute for oil in many
production processes. You think of all the trucks on our roads.
(10:13):
They need oil. You can substitute oil to some degree
for small passenger vehicles with electric vehicles, but the reality
is the world still needs oil and will need oil
for many years to come. So there's little you can
do except in my view, trying to avoid conflict. And
that comes back to the political situation here that we
(10:36):
now have this enormous war in the Middle East involving
really a dozen countries now because all of the golf
countries have been hit by Iran's rechalitory strikes, and that
has led to of course many shipping country, many shipping companies, MASK, CMA, CGM,
all the big players have all told their tank to
(11:00):
avoid the area, and insurance premiums are going up massively.
We had three oil tankers were hit within the first
twenty four hours of this war getting underway on Saturday.
Even if Iran is not blockading the Strait of ms
and I don't think they're really undertaking a formal blockade
at the moment, they're certainly not mining the strait, which
(11:22):
is one option that's open to Iran to really create trouble.
They can drop mines that will stop shipping passing through
the region, it will blow them up. Basically, they're not
doing that at the moment, but just the fact that
there's a war going on and there are missiles flying
across the Strait of Formos attacking those Gulf states Bahrain, Kuwait, Oman,
(11:45):
Saudi Arabia, Kuwait and the United Arab Emirates. That's enough
to make anyone think twice about sending your oil tankers
through that region. Remember, these are just commercial ships. These
are just merchant ships. They're not warships. They don't have
air defense, they don't have anything. They're just commercial tankers
(12:07):
taking oil to markets around the world. They've got no
real defense. So you're going to avoid that corridor if
you can, and that means, of course, the oil is
not being brought to market. On top of that, you've
got the fact that Iran is also reportedly attacked Saudi
Aramco Facility to Order oil facility oil refinery on the
(12:31):
eastern coast of Saudi Arabia. That's where most of Saudi
Arabia's oil production is, on the Golf itself or on
the Golf coast, So that is that refinery alone refined
somewhere around half a million barrels of oil a day.
It's just I mean, some of the implications here are
(12:52):
just massive, and I just think we need to really
get across all the implications of what's going on in
this or because it is going to get, in my view,
a lot worse before it gets better, and it does
have real implications even down here in New Zealand. We
might be a long way from the Golf thousands and
thousands of kilometers away, but yet New Zealand is very
(13:14):
much affected by everything that's going on.
Speaker 1 (13:16):
Well, that's what I was going to say, right, So,
New Zealand imports most of it's oil obviously, and I
understand that even if we don't import it directly from
the Persian Gulf, we're still vulnerable to these price surges.
What could be the knock on effect? And I suppose
how quickly will this be felt in consumers pockets?
Speaker 2 (13:35):
Yeah. I recently completed my PhD on New Zealand's relations
with the Golf States and it was really interesting as
part of that looking at the trade figures, because you
suddenly see a real drop off in twenty twenty two
from in terms of the number of the amount of
imports from the Golf and you kind of think, well,
(13:55):
what happened then suddenly, why if imports are created? The
simple answer is that New z Edand closed the Marsden
Point oil refinery in twenty twenty two and it is
now simply an importer of refined product. But so in
the past, New Zealand did import the raw crew that
(14:17):
mostly came out of the Middle East. I mean, that's
just where most of the production is that was coming
to this part of the world, to the Asia Pacific.
Now New Zealand instead imports its fuel, its petrol and
diesel refined form from the likes of Singapore, from Japan,
(14:38):
from Indonesia. But these are not massive oil product producing countries.
Singapore is simply refining. The crew that still comes from
the Middle East, still comes from the Strait of Hormus,
comes from the Golf In. Three quarters of the oil
that comes out of the Golf countries goes to Asia
(15:00):
ultimately and ultimately to US. So while New Zealand is
not importing this rural crew directly, it's importing the refined
product that is coming in the end from the same place.
So it's more of a technicality. It means imports from
the likes of Singapore have gone up, imports from the
Gulf have gone down. But really it is just more
(15:23):
of a technicality in a sense, the oil is coming
from the same place. New Zealand is going to be
subject to the same impacts as everyone else. Oil is
a globally traded commodity. New Zealand pays the market price,
and the fact is also now versus twenty twenty two
when we had that last spike in oil prices after
(15:43):
the war in Ukraine began. The New Zealand dollar is
considerably weaker against the US dollar, so eighty US dollars
for a barrel of oil at the moment, it's probably
closer to the same the impact as ninety dollars or
one hundred dollars per apps back then, just because the
New Zealand dollar is probably weakened by around a fifth,
(16:05):
I would say, in that time. So we'll see that
at the pump later this week. No doubt that will
filter through to consumers. Exactly how much it goes up
by and how long that impact lasts, well, that all
depends on the outcome of this war, and if this
war drags on. Donald Trump is talking about weeks, not days.
(16:29):
Four weeks. We'll see what Iran has to say about
the matter as well. Could be ending, could end up
a lot longer than that, could be months potentially. I mean,
wars are very easy to start and they can actually
prove to be quite hard to stop and learning it
to look at say the war in Ukraine for an
example of that, which is now in its fifth year.
Speaker 1 (16:47):
I was trying to think whether something like this has
happened before, because we know this conversation, We've already had
this conversation about there being these kind of trade choke
holds around the world and in these kinds of areas,
especially in the Middle East. And I suppose I came
to the Sewez Channel incident that was twenty twenty one
March twenty twenty one. I think, tell us what happened there,
(17:11):
and did we feel the ramifications of that incident as
a as much as we thought we would, and how
long did it take to recover from that.
Speaker 2 (17:23):
Indeed, your viewers and listeners will probably recall the pictures
of the Evergreen, the ship that blocked the Sewers Canal
for six days back in March twenty twenty one and
stopped cargo flying through the Sewers Canal, and the Sewers
Canal is massively important to global trade because it connects
Europe with Asia. It's the fast route from the Mediterranean
(17:44):
into the Red Sea and then into the Indian Ocean.
So ten billion dollars worth of cargo ten billion US
dollars with cargo every day was stopped from flowing through
the Sewer's canal and ships were rerouting around the Cape
of Good Hope, the long way around run the coast
of Africa to get to Asia. Fortunately they managed to
(18:07):
get that ship refloated and it was only only six days,
and it was also not a war situation. It was
more mismanagement that the ship managed to block the canal,
but it showed the impact on global trade. This is
far worse than that because it's a war situation and
(18:29):
you know, it's out of control. In my view, it's
spiraled out of control with we're only we're not even
seventy two hours into this war as I speak. But
there have been others. You know, if you look back
in history, the viewers and listeners will who have studied
history will probably recall the Siviz Crisis of nineteen fifty
six when Britain tried, and Britain and France tried to
(18:52):
take back the Sewiz Canal that Egypt had nationalized, and
there was a war then was ultimately and the British
were told by Dwight Eisenhower, the US President, to get out. Now,
Egypt sunk a number of ships in that conflict that
blocked the canal, that caused massive delays and issues. There
(19:13):
was petrol rationing in the United Kingdom for months afterwards
as a result. It was a huge disaster of course
to British prestige. The Prime minist antinied and had to
resign over the matter, which just shows you just how
significant this part of the world can be. And then
when you come to the Strait up for moves itself.
(19:33):
I mean back in the nineteen eighties, the Irana Iraq
War was fought from nineteen eighty to nineteen eighty eight,
and as a subset of that war, there was what
was called the tanker War between Iraq and Iran, where
they started realizing the potential to target tankers as part
of their war strategies, and third countries ended up being
(19:55):
caught up in that as well. So the US intervened
ultimately to try and stop that, not without taking casualties.
I might add with that the two US ships were hit.
The number of US sailors died well over thirty died
in the first incident when they were hit by a
(20:17):
rocky aircraft. So as a sensitive part of the world,
it has been pretty much for the entirety of the
twentieth century then to the twenty first century. Ever since
the world became addicted to oil. We have known about
it for years and it's often been talked about what
would happen if this war broke out, an open war
(20:38):
between Iran and the United States, would around block the
Strait of hom moves. I think what we're seeing now
it doesn't even take that formal blockade for it to
have a massive impact. And that's simply because if you're
a shipping company, you're not going to send your ships
in an area, whether in missiles and drones or flying around.
And you know, this is the reality of the war.
Speaker 4 (21:07):
We projected four to five weeks, but we have capability
to go far longer than that.
Speaker 1 (21:14):
We'll do it.
Speaker 4 (21:15):
Whatever somebody said today, they said, oh, well, the president
wants to do it really quickly. After that he'll get bored.
I don't get bored. There's nothing boring about this. Do
you agree with that, Pete? I don't think there's anything
mister General, there's nothing boring about it. Somebody actually said
from the media, I think he'll get bored after about
(21:35):
a week or two. No, we don't get bored. I
never get bored. If I got bored, I wouldn't be
standing here right now. I guarantee you that.
Speaker 1 (21:44):
I've seen in response to the last seventy two odd
hours and the Iran strikes, that they could be ramifications
of global proportions, and some people calling it a potential
for a global eco economic crisis. Do you think that
that's putting it lightly or is that being over exaggerated.
Speaker 2 (22:06):
Look, everything depends on what happens in this war. If
this war is short lived, and that's what Israel and
the United States think it will be, they think that
they can destroy the stocks of ballistic missiles and the
missile launchers, and the drone stock piles and all the
military infrastructure in their view, I mean, their strategy is
(22:29):
based on the fact that they will gain full air superiority.
They've already achieved that to some degree. And that they
will destroy all of Iran's offensive capabilities. They will annihilate
their navy, that was the word that Donald Trump used.
Then they won't have the ability to block the strait
(22:49):
of hormones and these attacks on the Gulf States will stop.
Speaker 4 (22:57):
Now.
Speaker 2 (22:57):
If that comes to pass, then that maybe we go
back to some sense of normality. But I just think
that everything's on the table at this point because Iran
is absolutely furious the Supreme leader Iatla Alejamine has been killed.
They've got nothing to lose almost at this point, the
(23:19):
United States and Israel on regime change. They're going to
throw the kitchen sink here. And Iran's power structure is
quite diffuse. It's more of a horizontal power structure than
a vertical one, and there are a lot of competing
power centers. The Islamic Revolutionary Guard called the IRGC, is
(23:40):
just one of them in Iran, and they've got all
kinds of I think, ideas and strategies up their sleeves
as well. They've had a long time to prepare for
this conflict, and so I wouldn't bet on this ending
anytime soon. Even if the war does end, the initial
conflict does subside, you've got the fact that Iran has
(24:02):
no leadership in place. The forty nine leaders have been
killed according to Donald Trump, and the supreme leader is gone.
Iran has to somehow rebuild. Do you end up with
a civil war? That's what happened in Iraq in two
thousand and three. For example, George W. Bush stood there
on the aircraft carrier with mission accomplished back in May
(24:23):
two thousand and three, that mission accomplished banner behind him,
but then the hard part started the civil war that
broke out in Iran, and it was chaos and destruction
and devastation for years in Iraq. Afterwards, do we get
the same thing in Iran? Well, what impact does that
then have on the likes of this trader for moves?
(24:44):
Does this trader will Moves become then caught up in
any civil war in Iran and the aftermath? So I
think chaos is far more likely than stability at this
point in this region. And that's what the reality of
what's happened Donald Trump and Menumunet, who have opened a
(25:04):
Pandora's box, They've ignited a powder caick across the Middle East,
and now we're all going to be dealing with the
fallout from that, and what happens at this point is
just anyone's guest.
Speaker 1 (25:17):
Thanks for joining us, Jeffrey, it's.
Speaker 2 (25:18):
A pleasure, Chelsea. Thank you very much for having me
on the program.
Speaker 1 (25:24):
That's it for this episode of the Front Page. You
can read more about today's stories and extensive news coverage
at enzidherld dot co dot enz The Front Page is
hosted and produced by me Chelsea Daniels. Caine. Dicky is
our studio operator, Richard Martin, our producer and editor, and
our executive producer is Jane Ye. Follow the Front Page
(25:47):
on the iHeart app or wherever you get your podcasts,
and join us next time for another look beyond the headlines.
Kiyota. I'm Chelsea Daniels and this is the Front Page,
a daily podcast presented by The New Zealand Herald. Iran
has cut off one of the world's most strategically important
choke points. About a fifth of the world's total oil
consumption passes through the Strait of Hormuz. Iran's Revolutionary Guards
(00:31):
commander in chief has warned that if anyone tries to pass,
they will set those ships ablaze. The narrow sea passage
sits between Oman and Iran. Experts have said a prolonged
conflict in the Middle East could lead to a sustained
rise in oil prices, fueling inflation and global economic effects.
(00:53):
Today on the front Page, geopolitical analyst doctor Jeffrey Miller
is with us to take us through why the blocking
of just over three kilometers of water can have global ramifications. Jeffrey, So,
tell me what is the importance of the Strait of
hall Moos? What has made it so critical to trade?
Speaker 2 (01:17):
Yeah, the Straight of hor Moves is one of the
world's choke points. I guess you could put it in
the same category as the Sewers Canal, which flows into
the Red Sea, also in the Middle East. Or the
Strait of Malacca in Asia, where ships just have this
very narrow corridor to transit through, and it's where there's
a lot of geopolitical tensions at play. So the Strait
(01:40):
of hor Moos it is separates Iran in the north
from Oman and the United Arab Emirates in the south.
It is very narrow. It's only thirty three kilometers at
the narrowest point. The shipping lanes within it are even
narrower still, they're around three kilometers in each direction. I mean,
(02:01):
the Persian Golf is relatively shallow, but it is deep
in parts, so the ships can flow, can transit through
that straight without issues in terms of the depth. You
need that because you're talking about big oil tankers that
are very large and size, but the actual usable part
(02:22):
of that strait is actually very very, very very small.
And you just add the fact that the neighborhood that
it's in with a war going on. Now that is
the significance because a huge amount of the world's oil
comes through that through that narrow corridor. Twenty percent of
the world's oil transit through the straight upull moves I said,
(02:45):
Persian Golf is disputed. Persian golf. Arabian golf will distantly.
Golf is often the way it's referred to. Now those
golf countries raq Kuwait, Saudi Arabia and the UAE. They
account for roughly half of the world's oil production. So
that's the significance globally that if you choke off the
(03:06):
Strait of hor Moves, you're choking off a huge proportion
of the world's oil. And of course that is used
not just the vehicles all around the world, but for
all manner of production. So when the Strait of hor
moonves sneezes, the world really catches a cold. And that's
what we're really seeing at the moment with oil prices spiking.
Speaker 1 (03:26):
Well, in terms of those countries that you mentioned before,
would they be a part of or are they OPEC members,
because usually when we talk about hor Moves or Swez,
we're talking about OPEC members. What kind of relationship do
they have to that channel.
Speaker 2 (03:41):
OPEK is a cartel and it was set up in
nineteen sixty to control oil supplies, but not all oil
production countries obviously are members of OPEK. In the Gulf,
several of them are, notably Iraka Ruck was where OPEK
was founded back in nineteen sixty, so is Kuwait Saudi Arabia.
(04:02):
The UAE Katar is no longer an OPEQ member though,
and left back in twenty nineteen. So OPEK is significant.
Perhaps is not as influential as it once was, and
that is because in part of non OPIQU members, in
particular the United States pumping a lot more oil. The
(04:22):
United States has had its shale revolution where you can
pump a lot more oil using new technologies since the
early two thousands. That means a lot of oil has
come on stream in the United States, to the point
that the US is now a net oil exporter. But
still these countries are hugely significant. OPEQ still has a
(04:42):
significant sway over production. Around forty percent of oil production
comes from the twelve OPEK members. Not all of OPEQ
members are in the Middle East, some are in Africa.
Venezuela is also an OPIQ member, so forty percent of
oil product and around eighty percent of the world's proven
oil reserves found in OPEC country, so it still has
(05:08):
it still has a lot of importance. There is also
OPEK Plus that was founded around a decade ago. That's
wider grouping of countries notably including Russia, and those countries
coordinate oil supplies, but at the moment the way OPEK works.
In particular Saudi Arabia, which is the world's biggest oil
the exporter and has an outsized impact on the world's
(05:30):
oil supplies, they've been trying to pump more oil and
not less, particularly Saudi Arabia. It wants market share, it
wants the revenue, and it also wants to curry favor
with Donald Trump. So Saudi Arabia has tried to increase
supplies of oil into the market, which is also one
reason why oil prices there. They're certainly elevated now around
(05:53):
the eighty dollar eighty US dollar a barrel mark, but
they haven't perhaps gone up as much as some might
have thought. They haven't gone up to one hundred dollars
a barrel of mark yet. I would caution that with
the word yet. And there's still potential for oil prices
to go higher. But just in general, oil prices have
been held in check over the last few years just
(06:15):
due to a range of factors. The fact that the
US pumps more oil these days is one of them.
The fact that Saudi Arabia sees it's in its interest
to pump more oil is another. And the fact that
the world is shifting more to renewables, there's less demand
perhaps for oil than there was five years ago, ten
years ago. If you think of all the electric vehicles
(06:35):
now being used around the world, it's still small, but
it does take some of the demand away for oil.
But yet oil are still crucial. We're a long way
off from being oil independent.
Speaker 1 (06:48):
Well, it's not just oil that is transported through the
straight Hey, and you mentioned Katar before as well. They're
among the world's biggest supplier of liquefied natural gas or LNG. Right.
Speaker 2 (07:00):
Indeed, both Kuta and Iran huge producers of natural gas,
and a huge proportion of the world's natural gas comes
out of the Gulf region as well. And many European
countries became very eager to talk to Kutar, in particular
after the war in Ukraine began. If you recall, European
(07:23):
countries were very dependent on Russian gas supplies for heating.
Then after the war began, they cut off Russian supplies
and sought to gain independence there from Russian fuel and
instead they turned to the likes of Cutter for their
energy and for the lergy supplies, and of course New
(07:45):
Zealand is looking to build an LNG facility, some of
that may end up coming from Cuta this part of
the world. Australia is also quite a big producer of
lerg as well, so there are just a hand of
countries that hold outsized influence on oil and gas. When
it comes to oil, Saudi Arabia is obviously the biggest player,
(08:10):
the biggest the export, has the biggest proven oil reserves.
When it comes to natural gas, you're looking at the
likes of Katta, You're looking at the likes of Iran Australia.
It's a small group of countries, a surprisingly small group
of countries. Even if there are plenty of oil exporters
around the world, then the number that can really move
markets is actually quite a small number. And that's because
(08:34):
a range of factors, but just simply the amount of
reserves is a big one, and the caustic of producing
oil in Saudi Arabia that's a lot lower, the cost
of production is a lot lower. It's a lot easier
to get the oil out of the ground than it
is in many other parts of the world.
Speaker 3 (08:58):
Most of our East Asian trading partners are heavily reliant
on oil coming out of those Middle East countries, which
where it currently can't flow at the moment. For example,
most of our refined petrol and diesel comes out of Singapore,
and that all comes basically from the Middle East. We've
got very low stocks of these sorts of things on hand,
(09:18):
only sort of two to three weeks depending on when
the boat last turned up. So you can kind of
see how it's not just going to be a question
of the price. It's going to be about how much
of it is actually available as.
Speaker 1 (09:28):
Well when you look at what's happening at the moment.
I know, I've seen that India, for example, have gone
ahead with some contingency plans because it gets almost half
of its crude oil I think from the Strait of
hor moves in terms of contingency plans. Should everyone have had,
(09:48):
you know, have seen this coming?
Speaker 4 (09:51):
Well?
Speaker 2 (09:51):
Yes, and though I mean it's always been this geopolitical
choke point really since the days of the world starting
to consume oil in large quantities, But the reality is
that there isn't really a substitute for oil in many
production processes. You think of all the trucks on our roads.
(10:13):
They need oil. You can substitute oil to some degree
for small passenger vehicles with electric vehicles, but the reality
is the world still needs oil and will need oil
for many years to come. So there's little you can
do except in my view, trying to avoid conflict. And
that comes back to the political situation here that we
(10:36):
now have this enormous war in the Middle East involving
really a dozen countries now because all of the golf
countries have been hit by Iran's rechalitory strikes, and that
has led to of course many shipping country, many shipping companies, MASK, CMA, CGM,
all the big players have all told their tank to
(11:00):
avoid the area, and insurance premiums are going up massively.
We had three oil tankers were hit within the first
twenty four hours of this war getting underway on Saturday.
Even if Iran is not blockading the Strait of ms
and I don't think they're really undertaking a formal blockade
at the moment, they're certainly not mining the strait, which
(11:22):
is one option that's open to Iran to really create trouble.
They can drop mines that will stop shipping passing through
the region, it will blow them up. Basically, they're not
doing that at the moment, but just the fact that
there's a war going on and there are missiles flying
across the Strait of Formos attacking those Gulf states Bahrain, Kuwait, Oman,
(11:45):
Saudi Arabia, Kuwait and the United Arab Emirates. That's enough
to make anyone think twice about sending your oil tankers
through that region. Remember, these are just commercial ships. These
are just merchant ships. They're not warships. They don't have
air defense, they don't have anything. They're just commercial tankers
(12:07):
taking oil to markets around the world. They've got no
real defense. So you're going to avoid that corridor if
you can, and that means, of course, the oil is
not being brought to market. On top of that, you've
got the fact that Iran is also reportedly attacked Saudi
Aramco Facility to Order oil facility oil refinery on the
(12:31):
eastern coast of Saudi Arabia. That's where most of Saudi
Arabia's oil production is, on the Golf itself or on
the Golf coast, So that is that refinery alone refined
somewhere around half a million barrels of oil a day.
It's just I mean, some of the implications here are
(12:52):
just massive, and I just think we need to really
get across all the implications of what's going on in
this or because it is going to get, in my view,
a lot worse before it gets better, and it does
have real implications even down here in New Zealand. We
might be a long way from the Golf thousands and
thousands of kilometers away, but yet New Zealand is very
(13:14):
much affected by everything that's going on.
Speaker 1 (13:16):
Well, that's what I was going to say, right, So,
New Zealand imports most of it's oil obviously, and I
understand that even if we don't import it directly from
the Persian Gulf, we're still vulnerable to these price surges.
What could be the knock on effect? And I suppose
how quickly will this be felt in consumers pockets?
Speaker 2 (13:35):
Yeah. I recently completed my PhD on New Zealand's relations
with the Golf States and it was really interesting as
part of that looking at the trade figures, because you
suddenly see a real drop off in twenty twenty two
from in terms of the number of the amount of
imports from the Golf and you kind of think, well,
(13:55):
what happened then suddenly, why if imports are created? The
simple answer is that New z Edand closed the Marsden
Point oil refinery in twenty twenty two and it is
now simply an importer of refined product. But so in
the past, New Zealand did import the raw crew that
(14:17):
mostly came out of the Middle East. I mean, that's
just where most of the production is that was coming
to this part of the world, to the Asia Pacific.
Now New Zealand instead imports its fuel, its petrol and
diesel refined form from the likes of Singapore, from Japan,
(14:38):
from Indonesia. But these are not massive oil product producing countries.
Singapore is simply refining. The crew that still comes from
the Middle East, still comes from the Strait of Hormus,
comes from the Golf In. Three quarters of the oil
that comes out of the Golf countries goes to Asia
(15:00):
ultimately and ultimately to US. So while New Zealand is
not importing this rural crew directly, it's importing the refined
product that is coming in the end from the same place.
So it's more of a technicality. It means imports from
the likes of Singapore have gone up, imports from the
Gulf have gone down. But really it is just more
(15:23):
of a technicality in a sense, the oil is coming
from the same place. New Zealand is going to be
subject to the same impacts as everyone else. Oil is
a globally traded commodity. New Zealand pays the market price,
and the fact is also now versus twenty twenty two
when we had that last spike in oil prices after
(15:43):
the war in Ukraine began. The New Zealand dollar is
considerably weaker against the US dollar, so eighty US dollars
for a barrel of oil at the moment, it's probably
closer to the same the impact as ninety dollars or
one hundred dollars per apps back then, just because the
New Zealand dollar is probably weakened by around a fifth,
(16:05):
I would say, in that time. So we'll see that
at the pump later this week. No doubt that will
filter through to consumers. Exactly how much it goes up
by and how long that impact lasts, well, that all
depends on the outcome of this war, and if this
war drags on. Donald Trump is talking about weeks, not days.
(16:29):
Four weeks. We'll see what Iran has to say about
the matter as well. Could be ending, could end up
a lot longer than that, could be months potentially. I mean,
wars are very easy to start and they can actually
prove to be quite hard to stop and learning it
to look at say the war in Ukraine for an
example of that, which is now in its fifth year.
Speaker 1 (16:47):
I was trying to think whether something like this has
happened before, because we know this conversation, We've already had
this conversation about there being these kind of trade choke
holds around the world and in these kinds of areas,
especially in the Middle East. And I suppose I came
to the Sewez Channel incident that was twenty twenty one
March twenty twenty one. I think, tell us what happened there,
(17:11):
and did we feel the ramifications of that incident as
a as much as we thought we would, and how
long did it take to recover from that.
Speaker 2 (17:23):
Indeed, your viewers and listeners will probably recall the pictures
of the Evergreen, the ship that blocked the Sewers Canal
for six days back in March twenty twenty one and
stopped cargo flying through the Sewers Canal, and the Sewers
Canal is massively important to global trade because it connects
Europe with Asia. It's the fast route from the Mediterranean
(17:44):
into the Red Sea and then into the Indian Ocean.
So ten billion dollars worth of cargo ten billion US
dollars with cargo every day was stopped from flowing through
the Sewer's canal and ships were rerouting around the Cape
of Good Hope, the long way around run the coast
of Africa to get to Asia. Fortunately they managed to
(18:07):
get that ship refloated and it was only only six days,
and it was also not a war situation. It was
more mismanagement that the ship managed to block the canal,
but it showed the impact on global trade. This is
far worse than that because it's a war situation and
(18:29):
you know, it's out of control. In my view, it's
spiraled out of control with we're only we're not even
seventy two hours into this war as I speak. But
there have been others. You know, if you look back
in history, the viewers and listeners will who have studied
history will probably recall the Siviz Crisis of nineteen fifty
six when Britain tried, and Britain and France tried to
(18:52):
take back the Sewiz Canal that Egypt had nationalized, and
there was a war then was ultimately and the British
were told by Dwight Eisenhower, the US President, to get out. Now,
Egypt sunk a number of ships in that conflict that
blocked the canal, that caused massive delays and issues. There
(19:13):
was petrol rationing in the United Kingdom for months afterwards
as a result. It was a huge disaster of course
to British prestige. The Prime minist antinied and had to
resign over the matter, which just shows you just how
significant this part of the world can be. And then
when you come to the Strait up for moves itself.
(19:33):
I mean back in the nineteen eighties, the Irana Iraq
War was fought from nineteen eighty to nineteen eighty eight,
and as a subset of that war, there was what
was called the tanker War between Iraq and Iran, where
they started realizing the potential to target tankers as part
of their war strategies, and third countries ended up being
(19:55):
caught up in that as well. So the US intervened
ultimately to try and stop that, not without taking casualties.
I might add with that the two US ships were hit.
The number of US sailors died well over thirty died
in the first incident when they were hit by a
(20:17):
rocky aircraft. So as a sensitive part of the world,
it has been pretty much for the entirety of the
twentieth century then to the twenty first century. Ever since
the world became addicted to oil. We have known about
it for years and it's often been talked about what
would happen if this war broke out, an open war
(20:38):
between Iran and the United States, would around block the
Strait of hom moves. I think what we're seeing now
it doesn't even take that formal blockade for it to
have a massive impact. And that's simply because if you're
a shipping company, you're not going to send your ships
in an area, whether in missiles and drones or flying around.
And you know, this is the reality of the war.
Speaker 4 (21:07):
We projected four to five weeks, but we have capability
to go far longer than that.
Speaker 1 (21:14):
We'll do it.
Speaker 4 (21:15):
Whatever somebody said today, they said, oh, well, the president
wants to do it really quickly. After that he'll get bored.
I don't get bored. There's nothing boring about this. Do
you agree with that, Pete? I don't think there's anything
mister General, there's nothing boring about it. Somebody actually said
from the media, I think he'll get bored after about
(21:35):
a week or two. No, we don't get bored. I
never get bored. If I got bored, I wouldn't be
standing here right now. I guarantee you that.
Speaker 1 (21:44):
I've seen in response to the last seventy two odd
hours and the Iran strikes, that they could be ramifications
of global proportions, and some people calling it a potential
for a global eco economic crisis. Do you think that
that's putting it lightly or is that being over exaggerated.
Speaker 2 (22:06):
Look, everything depends on what happens in this war. If
this war is short lived, and that's what Israel and
the United States think it will be, they think that
they can destroy the stocks of ballistic missiles and the
missile launchers, and the drone stock piles and all the
military infrastructure in their view, I mean, their strategy is
(22:29):
based on the fact that they will gain full air superiority.
They've already achieved that to some degree. And that they
will destroy all of Iran's offensive capabilities. They will annihilate
their navy, that was the word that Donald Trump used.
Then they won't have the ability to block the strait
(22:49):
of hormones and these attacks on the Gulf States will stop.
Speaker 4 (22:57):
Now.
Speaker 2 (22:57):
If that comes to pass, then that maybe we go
back to some sense of normality. But I just think
that everything's on the table at this point because Iran
is absolutely furious the Supreme leader Iatla Alejamine has been killed.
They've got nothing to lose almost at this point, the
(23:19):
United States and Israel on regime change. They're going to
throw the kitchen sink here. And Iran's power structure is
quite diffuse. It's more of a horizontal power structure than
a vertical one, and there are a lot of competing
power centers. The Islamic Revolutionary Guard called the IRGC, is
(23:40):
just one of them in Iran, and they've got all
kinds of I think, ideas and strategies up their sleeves
as well. They've had a long time to prepare for
this conflict, and so I wouldn't bet on this ending
anytime soon. Even if the war does end, the initial
conflict does subside, you've got the fact that Iran has
(24:02):
no leadership in place. The forty nine leaders have been
killed according to Donald Trump, and the supreme leader is gone.
Iran has to somehow rebuild. Do you end up with
a civil war? That's what happened in Iraq in two
thousand and three. For example, George W. Bush stood there
on the aircraft carrier with mission accomplished back in May
(24:23):
two thousand and three, that mission accomplished banner behind him,
but then the hard part started the civil war that
broke out in Iran, and it was chaos and destruction
and devastation for years in Iraq. Afterwards, do we get
the same thing in Iran? Well, what impact does that
then have on the likes of this trader for moves?
(24:44):
Does this trader will Moves become then caught up in
any civil war in Iran and the aftermath? So I
think chaos is far more likely than stability at this
point in this region. And that's what the reality of
what's happened Donald Trump and Menumunet, who have opened a
(25:04):
Pandora's box, They've ignited a powder caick across the Middle East,
and now we're all going to be dealing with the
fallout from that, and what happens at this point is
just anyone's guest.
Speaker 1 (25:17):
Thanks for joining us, Jeffrey, it's.
Speaker 2 (25:18):
A pleasure, Chelsea. Thank you very much for having me
on the program.
Speaker 1 (25:24):
That's it for this episode of the Front Page. You
can read more about today's stories and extensive news coverage
at enzidherld dot co dot enz The Front Page is
hosted and produced by me Chelsea Daniels. Caine. Dicky is
our studio operator, Richard Martin, our producer and editor, and
our executive producer is Jane Ye. Follow the Front Page
(25:47):
on the iHeart app or wherever you get your podcasts,
and join us next time for another look beyond the headlines.
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