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Israel's war with Gaza is putting global energy markets at risk

AYESHA RASCOE, HOST:

Israel is intensifying its assault on Gaza after the October 7 attacks by Hamas on Israeli civilians. We're following developments on the fighting and on the humanitarian situation in Gaza, where necessities are in short supply, and people are dying as a result. You can find updates throughout this program and at npr.org/mideastupdates.

The war has implications far beyond Gaza, the West Bank and the shifting lines of demarcation in and around Israel. Karen Young is a senior research scholar at Columbia University's Center on Global Energy Policy, and she tells us that if the conflict widens, there's risk of a global energy shock.

KAREN YOUNG: It's absolutely Iran as the wild card. And so Iran has already suggested to OPEC to embargo Israel the way that happened in 1973. OPEC and OPEC+, including Russia, have not been in favor of that idea. Saudi Arabia is not in favor of that idea. But Iran can do a lot of things directly or indirectly, particularly through its proxies, including Hezbollah in Lebanon, including Shia militias inside of Iraq, including militia groups and terrorist groups inside of northern Syria, and the potential activation of the Houthis, which have been fighting a war against Saudi Arabia and have a history of lobbing missiles and drones into Saudi territory and even into the territory of the United Arab Emirates. And that will be a real risk and an elevation to potential oil prices. So, of course, any direct Iran engagement changes the outlook considerably. But even the use of Iranian proxies, if they target oil infrastructure in Saudi Arabia or in the Emirates or perhaps even in Kuwait, would be extremely risky and escalate prices.

RASCOE: Do you see any parallels between the situation now and, say, you know, the aftermath - the immediate aftermath of 9/11 and the U.S. invasion of Afghanistan?

YOUNG: The risk to high gasoline prices in the United States - it's a bit complicated. But what we're essentially worried about, if oil prices were to spike to $120 a barrel, up from where they are about 90 right now - that would require some sort of block in the transit of oil through the Strait of Hormuz, around the Arabian Peninsula, up the Red Sea corridor, into the Suez. So that means it has to be a widening conflict in which Iran or Iranian proxies engage directly. We're not to that point. But if things do escalate, that would be the risk to oil prices, and then that would translate to a higher price for American consumers for refined product, for gasoline.

RASCOE: And at this point, does the market - does the oil market in particular - like, is there slack there? Or are we in a very tight market?

YOUNG: We're not really in a tight market. We're in a politicized market. And so that's a result of sanctions. And one lever that the United States is already preparing to use is to loosen sanctions on Venezuela and Venezuelan production. So that's why that's happening. It's a bit of a kind of safety valve to understand that there may be more supply available. We're also not really standing in the way of Iranian production and export. And so Iran is currently producing quite a bit of oil and exporting quite a bit to China. In fact, Iran has surpassed Saudi Arabia in its exports to China currently. And Russian oil is still getting to market, including - you know, even though we have a price cap on Russian oil. It's still getting to buyers, including in China and in India. So the market is not in an exceptionally tight position. And, of course, we have spare capacity also in that Saudi Arabia could produce much more than it is currently.

RASCOE: And what about the other major players? You know, the U.S. is the world's No. 1 oil producer at this point. You know, Russia's No. 3. China's No. 6.

YOUNG: So the U.S. is a major producer, but we're not so much of an exporter in the way that Saudi Arabia can really kind of calibrate its exports and its ability to increase supply in the market. We don't really have that capacity. But we do have the capacity to use our Strategic Petroleum Reserve. Unfortunately, we have used a lot of it in the last couple of years, but there is still quite a bit there. And so in terms of our own domestic supply and security, that is also an option for us.

RASCOE: That's Karen Young of Columbia University's Center on Global Energy Policy. Thank you so much for joining us.

YOUNG: Thank you, Ayesha. 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.

Ayesha Rascoe is a White House correspondent for NPR. She is currently covering her third presidential administration. Rascoe's White House coverage has included a number of high profile foreign trips, including President Trump's 2019 summit with North Korean leader Kim Jong Un in Hanoi, Vietnam, and President Obama's final NATO summit in Warsaw, Poland in 2016. As a part of the White House team, she's also a regular on the NPR Politics Podcast.
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