AYESHA RASCOE, HOST:
Here in the U.S., consumers are watching the conflict in the Middle East cautiously.
RESAN SHARIF: I'm nervous about gas prices getting higher. I don't see any resolve to what's going on kind of worldwide right now. Paying for groceries on top of gas, and all the other bills are kind of increasing at the same time. It's concerning.
RASCOE: Resan Sharif (ph) lives with his wife and son in Louisville, Kentucky.
SHARIF: The unleaded is $4 here, but the premium is almost $5. Now, I have an older car. That's recommended to use the premium, but recently, I've been using the unleaded gas. I have not been filling up all the way - got to fill it up (ph) halfway, just to kind of see if prices go down.
RASCOE: Gas prices are top of mind for many people across the U.S. David Goldwyn is a former energy envoy for the State Department and assistant secretary of energy. He joins us now. Good morning.
DAVID GOLDWYN: Pleasure to be here.
RASCOE: So President Trump has said gas prices will go down quickly once the war with Iran ends. Is that true?
GOLDWYN: It's not. I wish it were. And that's for a couple of reasons. First, assuming there's actually a ceasefire and that Iran is interested in respecting it, it's going to be at least a couple of months. And the reason are what I call the six re's (ph). Reopening of the straits will be slow because it may have been mined. Also, the logistics of getting all the ships that are trapped in out and the ones that are out in will be slow. Repair - there's been a lot of damage to infrastructure. We don't know how bad, takes time to get the crew ins (ph).
There's also restart. A lot of the oil fields have been damaged in Iraq and in other places. You can't turn them on fast with old infrastructure or you can damage the fields. So the restart is going to be slow. Refine - you got to get that crude to the refineries. They got to make it. You got to put it on a ship. It's 45 days to the United States. It's 20 days to Asia, so that's not going to happen really quickly. Restock - all these inventories that have been cushioning prices are going to be refilled, so demand will be high. And then there's also repricing. If Iran's charging $2 million a ship each way, it's going to be more expensive. So of this $111 we've got now, maybe 10% is the fear premium or the risk premium. Eighty dollars is the floor, 85...
RASCOE: And that's the cost of oil per barrel...
GOLDWYN: That's right.
RASCOE: ...That we're talking about. Yes, yeah. And so - but, I mean, so you said the fear premium. It's also like, they keep saying, or what the administration keeps saying is that, well, the U.S. makes a lot of oil. The U.S. is producing so much, and maybe we don't even need the strait. But it seems like, also, the strait is really important. So can you explain that?
GOLDWYN: Sure. Oil is a global - globally priced commodity. So even though we won't have a physical shortage here because we've got Canada for heavy oil, and we produce our own, the reality is that the price is global, and there's a real physical shortage. And so we don't escape that price impact, and that translates to what it costs a refiner to buy the crude and therefore what you pay for gasoline at the pump. So we are not immune from that. We're a little bit more immune on - 'cause we make our own gasoline. Asia, they import it from the Gulf, so jet fuel is really scarce there. So here, our prices, if this continues for another two months, might go to $6 or $7. It's $10 over in Europe, or they can't get it at all.
RASCOE: You said $6 or $7 a gallon?
GOLDWYN: That would be a gallon. If this continues for two months, you're looking at $150, $200 crude and regular - as your...
RASCOE: Yes.
GOLDWYN: ...Listener said, regular could be 6-, $7.
RASCOE: OK. But as we know, I mean, those type of prices act as a tax on consumers and a regressive tax at that. I mean, that - so you're saying that would be the long-term effects of continued fighting. What are some of the other long-term effects of this sort of fighting on energy markets?
GOLDWYN: Well, it depends on how long this lasts.
RASCOE: Yeah.
GOLDWYN: I think the - you know, if this lasts for two months, as opposed for another two weeks, then you're looking basically at 2008 COVID-style recession. The economists call it demand destruction, which is pretty antiseptic. It means people aren't making things and buying things. And so the way this ripples around the world, two more months, it means Asia doesn't have fertilizer for food. They're going to bid supplies from the East Coast and from the United States over there in order to just have the jet fuel to fill a jet to come back.
Everything you buy which comes overseas, either by jet or by boat, is going to be paying higher jet fuel and things like that. So Oxford Economics and the others are all projecting recession. Essentially, two more months, we're looking at, you know, 4% decline in the Gulf, you know, huge declines in Asia, more inflation here. And so one of two things happen, either the economy craters, and that helps weaken demand and prices, you know, or prices go up, and you've got inflation, and things aren't affordable. But two more months would be really bad. We've been living off buffer stocks, and they're almost all gone now.
RASCOE: When you talk to - you used to work at the State Department, obviously. So what do you think are the geopolitical consequences of this war as it relates to energy? - because as you said, you know, this is - oil is on a global market. Will countries start thinking differently about energy security?
GOLDWYN: I think it will. It depends on how it ends, especially if it ends with Iran essentially being in control of the straits. The Western hemisphere looks pretty good because we're immune from those kind of disruptions. But for the GCC, you're talking about having to build pipelines to the Red Sea to escape it. I think countries are going to rethink renewables and rethink nuclear, which will be good, but they're also going to use a lot more coal because that's what's available right now.
RASCOE: That's David Goldwyn, a former energy envoy and assistant secretary for energy. Thank you so much for speaking with us.
GOLDWYN: Pleasure to be here.
(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.
NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.
