How an energy crisis unfolds

Katie Martin (0:09)

If you're listening to this here podcast, you're maybe driving your car or walking the dog or just generally going about your life as usual. Happy days. But in large parts of the world, the energy crisis coming from the war in Iran is really starting to bite. In the Philippines, people are being asked to work from home. Thailand is asking residents to turn down their aircon. Zambia has declared a fuel emergency. Pakistan has kicked off its cricket league to empty stadiums as people try to save on super pricey fuel. In Europe, airlines are warning they may have to cancel flights in the summer. It's everywhere and it's pretty grim, especially for poorer countries. And even in a best case scenario, where world peace breaks out tomorrow, you can't just flip a switch and get supplies back to normal. Today on the show, who's really feeling the pinch and how bad is this going to get? This is Unhedged, the Markets and Finance podcast from the Financial Times. I'm Pushkin. I'm Katie Martin, a markets economist here at FT Towers in sunny London. About to get out of here for four whole days of a super long holiday weekend. And joining me in the studio, it's another Brit takeover, folks. We have Malcolm Moore, the FT's energy editor, and a very busy man, taking time away from the fire hose of energy market news to tell us muggles what's what. Malcolm, thanks for coming.

Malcolm Moore (1:35)

Our pleasure to be here.

Katie Martin (1:36)

We know you've got a lot on your plate. Now, so one thing that I keep mentioning on this pod is that when I talk to people in stock markets, they're like, la la la, taco trade, everything's fine. I'm sure this is going to work out. When I talk to people in the energy market, they're like, holy moly, I cannot overstate how bad this situation is. How much are people in your world freaking out right now?

Malcolm Moore (1:59)

Yeah, I mean, I think that they've been freaking out for probably a month now, let's say. You're absolutely right. The energy world sees how much we all depend on the Middle East for our oil and for our fuel, and actually for a whole range of other things, some of which have been mentioned, but some of which are kind of being ignored a little bit. Helium, for example, very important for chip making. A lot of that comes from the Middle East. So we depend on the Middle East for all sorts of things, and the energy world can see it because they're trying to manage getting hold of these supplies in a world where a fifth of them have just been knocked out.

Katie Martin (2:36)

Yeah, because it can't get through the straight of Hormuz, and that's just that.

Malcolm Moore (2:40)

Exactly.

Katie Martin (2:41)

So I was reading your story today that you did with our colleague Leslie Hook about how oil traders went into this situation. Basically, just like the rest of us, they called this totally wrong. They were all expecting oil prices to fall further over the course of this year, and whoops, that did not work out.

Malcolm Moore (3:00)

So let's just go back to the beginning of this year. At the beginning of this year, everybody was saying there was a glut in the oil market. If you remember around the turn of the year, the Brent oil price, so Brent is the international benchmark. The Brent oil price was around $60 a barrel. And everybody was saying, okay, it's going to be $60 a barrel all year, and oil company is going to really struggle. How is anybody going to make any money in this environment? In the US, you had people in the shale patch saying, well, we're going to shut down, we're not going to produce anymore. The world was supposed to be awash with oil. And then of course, we had little taste of unpredictability with Venezuela.

But that was pretty brief, right? The Venezuela episode didn't last very long, and everyone's like, oh, okay, okay.

Katie Martin (3:53)

We've all forgotten about that. Yeah, yeah, yeah.

Malcolm Moore (3:55)

It's fine.

And if anything else happens, maybe that will also be brief. And I think the expectation, there was obviously a lot of signaling going into the Iran war that the US was going to do something, right? They were moving aircraft carriers, they were moving troops into positions, so everybody could kind of see stuff. But I think there was still an assumption that, okay, what's the worst-case scenario? Worst-case scenario is maybe it's going to be a short, quick thing. Nobody thought, oh my god, this is going to go on for months, and the main export route for Middle Eastern oil and gas is going to be knocked out, and the world's biggest liquefied natural gas facility was going to be hit by missiles. Nobody had that on their bingo card.