IEA Says Iran War Causing Biggest-Ever Supply Disruption

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Luke Vargas (0:17)

Oil rallies yet again as Iran strikes several tankers in the Persian Gulf. Plus, President Trump returns to the tariff drawing board, targeting a number of big exporters. And a new study finds that AI isn't lightening workloads quite the opposite.

Ray Smith (0:33)

And so basically the conclusion was that AI doesn't necessarily create as much efficiency as many had hoped. What it instead does is replaces that with even more work and different kinds of work, but more work nonetheless.

Luke Vargas (0:48)

It's Thursday, March 12th. I'm Luke Vargas for The Wall Street Journal, and here is the AM Edition of What's News, the top headlines and business stories moving your world today. The war in the Middle East is causing the biggest disruption to oil markets ever seen, according to the International Energy Agency. The IEA this morning slashed its forecasts for oil supplies, saying it now expects supply to grow by just 1.1 million barrels a day this year, a dramatic cut from the 2.4 million daily barrels expected previously. All supply growth is now expected to come from outside of the OPEC Plus Alliance, with the conflict forcing major Gulf producers to curb output and effectively shutting this strait of Hormuz. Overnight, crude prices topped $100 a barrel after Iran attacked three cargo ships trying to transit the waterway and hit two oil tankers in Iraqi waters with projectiles. And the threat to international shipping isn't confined to the Persian Gulf any longer. Iranian media is reporting that Houthi rebels in Yemen could join the fight against the US and its partners and force the closure of a narrow passage at the southern tip of the Arabian Peninsula. The Bab el-Mendeb Strait is the world's fourth largest shipping choke point and allows vessels to access the Suez Canal via the Red Sea. Meanwhile, 13 days into the war, the economic winners and losers are coming into focus. It's something reporter Chelsey Dulaney has been doing the math on. Chelsey, I think we've got to start by talking about energy first. Earlier, we quoted the barrel price of oil, but that's not what people are paying at the pump. Tell us what we're seeing there specifically in the US so far.

Chelsey Dulaney (2:28)

The conflict in the Middle East has very quickly filtered through into gas prices at the pump for Americans. Across the US., gas prices have risen about 20% since the attacks on Iran. But if you look at specific states, the move has been much more dramatic. For example, in California, gas prices are nearly at $5.40.

Some areas it's less than that, parts of the Midwest. But this is very quickly filtering through it into people's everyday lives. And that has a big economic consequence because the more you spend on gasoline, the less you have to spend elsewhere.

Luke Vargas (3:03)

Bad news for households and probably other businesses reliant on fuel costs as well.

Chelsey Dulaney (3:08)

Yeah. I mean, for companies, energy prices are a huge input for a lot of industries. So if you think about tourism operators, cruise lines, airlines, they have been hit pretty hard by the conflict in the Middle East. It will very quickly raise their prices. We're already seeing air fares going up. For companies that use a lot of energy for production, steel companies, companies in the industrial sector, this also has a big impact. The longer this goes on, the more it filters through to everything. So pretty much everything we have in our lives is transported to us by ship, by truck, all of those prices go up whenever fuel prices go up.

Luke Vargas (3:42)

So there's our inflationary risk. Beyond the US, there are other losers on the energy front unsurprisingly as well.

Chelsey Dulaney (3:50)

Yes, most of the world will see inflation rise because of this, especially import-dependent countries like Japan. China is the largest crude importer in the world. They're seeing higher energy prices. Europe in particular depends quite a lot on imported energy for about 60% of its energy supplies. So all of these countries are seeing energy prices go up and that is expected to drive up inflation and that is expected to contract growth.

Luke Vargas (4:15)

The Gulf, particularly hard hit as well, even though often in conflicts, their energy exporting status has been a bit of a cushion for them.

Chelsey Dulaney (4:22)

It's probably no surprise that the Gulf is the most exposed part of the world to this. Obviously, a lot of these countries in the Gulf are major energy exporters, but they can't actually sell it because the ships are getting attacked and the Strait of Hormuz, their facilities are getting attacked. So a lot of them have shut down production or drastically paired it back, which means they actually can't capitalize on this rise in energy prices at all. And this will have an economic impact. For economies in the Gulf, if this war is brief, they could see their economies contract by about 2% this year, according to Capital Economics. But if this drags on, which increasingly looks like it will, that could move to a 15% contraction, which is quite dramatic. And one of the other areas where the Gulf is very vulnerable is on tourism. Right now, that's ground to halt, flights have been canceled. And so tourism economics is now expecting that international visitors to the Middle East could fall by as much as 30% this year. And that would be a huge loss of revenue. They say about $56 billion in lost revenue for these economies.