Biden-Mideast tensions: Taking the temperature of the oil market - Yahoo Finance

Biden-Mideast tensions: Taking the temperature of the oil market

Middle East tensions are driving current oil market trends and vice versa. Yahoo Finance Senior Columnist Rick Newman highlights the ways in which the Israel-Hamas conflict, President Biden's diplomacy, and Iran's speculated involvement in geopolitical events are being reflected in the energy market.

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Video Transcript

JULIE HYMAN: Well, in the United States. There's a great push for renewable energy. The country passing a sweeping set of renewable energy incentives. And more and more Americans are looking to buy an electric vehicle. Yet oil is dominating geopolitics and an escalating Middle East war, much as it has for the last 75 years.

Yahoo Finance's Rick Newman has the story. Rick, and you write about the persistence of oil, which the oil companies themselves would tell you, you know, it's not going anywhere, which is why you see things like Exxon making the deal it just made.

RICK NEWMAN: Right. I mean, it's really astonishing in a way, because we are making all the same calculations in the Middle East today as we would have made 60, 70 years ago. We've gone to war how many times in the Middle East in 1990 and '91 because of Iraq's invasion of Kuwait. We went again because of terrorists, Qatar in 2003.

But this is-- it's just amazing the extent to which everything revolves around oil. And we are clearly moving away from fossil fuels. You know, electric vehicles are the fastest growing segment of the car market. Biden just signed into law last year the most sweeping incentives for renewable energy ever in US history. And yet here we are again. Oil is driving the whole agenda in the Middle East and all of these concerns about an escalating Middle East war.

The main reason they matter, I mean, it would be ugly. And there would be-- it would be a humanitarian catastrophe. But the reason it is a paramount US national interest is because of oil. And Iran is the linchpin here. Iran, interestingly, only produces about 4% of the world's oil. But you had Lindsey Graham over the weekend saying we might consider shutting down Iran's oil industry.

This would have profound effects here in the United States through the familiar old lever of energy prices and gasoline prices to include possibly threatening Joe Biden's re-election in 2024 if oil prices were to go above 100. If we have a real war in the Middle East, they could easily go above 150.

And we're talking about gasoline prices here of $6 or $7 a gallon. Now none of this is inevitable. and, you know, there are a lot of things President Biden and other world leaders can do. But it's almost like we're having the same conversations we had in the 1970s and 1980s.

JULIE HYMAN: Yeah. Although we did talk to Ed Morris of Citi last week. And he talked about that there are more sort of supply levers, if you will. There's more Petroleum Reserve capacity, not just here, but in other SPRs around the globe, I guess. But I think all of that goes out the window if you've got rhetoric that gets heated up, not just that sort of marginal capacity that you talked about Iran having but if then the region as a whole gets drawn into something larger.

RICK NEWMAN: Right. I mean, there are many scenarios here. You know, so from the-- on the scary scenario, if there were some kind of concerted effort to take Iran's oil business offline, Iran has attacked oil facilities in Saudi Arabia before. Iran has threatened to shut the Strait of Hormuz, where all those tankers taking oil from Kuwait and other Persian Gulf nations sail through.

So the good news is, as the prior guest, was saying, the United States is now the world's largest oil producer, which was obviously not the case in the 1970s or the 1980s. But guess who the world's swing producer is? The country that can quickly produce more oil if the world needs more oil, that is not the United States. That is Saudi Arabia. And the reason is that the Saudis and most of the other OPEC nations have nationalized oil industries where the government decides.

We do not have that here in the United States. The government does not tell Exxon or Chevron, hey, we need you to drill more oil because there's a crisis in the Middle East. That's a market decision these companies make. And they certainly can produce more oil here in the United States. And they do. But they do that for economic reasons when the price is high.

So if we did get a spike in oil prices, you would see more US production, which would help bring prices down at some point. But it's just-- we still are surprisingly stuck, dependent on oil. And I will also just one thing I'll finish up with here, guys. You know, forecast for peak oil, we're not there yet. We are still not at peak world demand for oil. That might come around 2030 and then sort of slowly drift down from there. But this is a problem we're just going to be dealing with for a long time.

JOSH LIPTON: Rick Newman, thank you for that insight, sir.

RICK NEWMAN: See you.