Iran Conflict Brief: How Renewed Strikes Impact Global Energy

**Daniel Sternoff** (0:01)
Events in the Middle East are changing quickly, and the complexities of understanding the global energy landscape grow deeper by the hour. Join me as we talk to leading experts on the latest developments in the region and what it means for the rest of the world.
Welcome to our rapid response series, the Iran Conflict Brief, a special edition of the Columbia Energy Exchange podcast. I'm Daniel Sternoff, a senior fellow at the Center on Global Energy Policy.
We are recording this podcast on Friday, July 9th at 930 a.m. in Washington, DC., 5 p.m. in Tehran, and 530 and 430 p.m. respectively in Abu Dhabi and Riyadh. Twenty-three days ago, President Trump signed the U.S.-Iran Memorandum of Understanding in the same palace where Woodrow Wilson signed the ill-fated Treaty of Versailles in 1919, a treaty that set up German resentments that fed into World War II.
It was an inauspicious location to sign a deal, and events this week showed why. The deal extended to ceasefire until late August, but in the three weeks since it was signed, the US and Iran have been exchanging fire every five or six days. These incidents have followed the same pattern. Iran attacks vessels using an internationally backed sea lane in Omani territorial waters, followed by US retaliatory strikes on Iranian military infrastructure, then followed by Iranian strikes on US bases across the region. This week, alongside funeral processions for the assassinated Ayatollah Ali Khamenei, Iran struck three more vessels, including a Qatar-flagged LNG carrier and a Saudi-flagged crude oil tanker.
The US amped up its reaction, rescinding an Iranian oil export license and then hitting 170 Iranian targets over two nights in the largest operation since April. Trump called Iranian officials scum and declared the ceasefire over, but has quietly blessed efforts by Qatari and Pakistani mediators to de-escalate tensions and continue negotiations. Both the US and Iran are still signaling they preferred diplomacy over a return to full-scale war. The MOU was always a flawed and fragile document that papered over deep strategic differences over Iran's nuclear program, Lebanon and the Strait of Hormuz. But it has succeeded at least partly in one key goal, to bring some relief to global energy markets. Despite this week's events, Brent crude oil prices are trading at $77 a barrel, only $5 above levels that preceded the war. Some 200 million barrels of oil stranded on vessels and in storage have managed to exit the strait since late May and Gulf producers have restored an estimated four to five million barrels per day and shut in production. Physical spot oil markets are amply supplied, especially with Chinese and other Asian demand still weaker. But this crisis is far from over. Inventories of crude oil and oil products have been severely depleted. The trapped oil that has exited Hormuz represents only several weeks of supply, and perhaps eight million barrels per day of production remains shut in, and Qatar has yet to restore its LNG production. Sustainably restoring output requires reliable and secure flow of tankers both in and out of the strait. Some traffic will continue along Iranian controlled lanes to those who play by the IRGC's rules, and the US will continue supporting dark transits from GCC countries through Omani territorial waters.
But current flows are only somewhere between a third and a half of pre-war levels, and it's hard to see stability if shooting will erupt on a weekly basis. Notwithstanding President Trump's statement that in the Middle East, a ceasefire is when you are shooting in a more moderate manner. I'm joined today by Anne-Sophie Corbeau and Karen Young, experts here at the Center on Global Energy Policy. Given all of this news and the rapidly developing implications, I can think of no one better to give us an idea of what's actually happening and break down these latest events. So good morning Anne-Sophie and Karen, actually good morning Karen and good afternoon Anne-Sophie, and thank you for joining.

**Karen Young** (4:07)
Thank you, Daniel.

**Anne-Sophie Corbeau** (4:09)
Thank you.

**Daniel Sternoff** (4:09)
So Karen, let me start with you. When this MOU was signed, many noted it was front-loaded on benefits for Tehran. Just for promising nuclear talks, it got a lot of benefits, the release of frozen assets, the end of the US Naval blockade, sanctions waivers that could let it sell oil to any buyer without discounts and with no limits on how that money is spent.
So even if this agreement would ultimately break down, it's a little surprising that they've been taking actions to undo it within weeks. Why is Iran doing this?

**Karen Young** (4:44)
That is the question, Daniel. Is the motive to really demonstrate the political and coercive control over the Strait and to be able to set into place a system that could last for decades? We're talking about a tolling system or a fee system, or simply the power of intimidation of the neighbors.