Iran, Hormuz and the Hidden Energy Shock: Dr. Umud Shokri

Good evening and welcome to today's session of Middle East Macro Media about the shifting dynamics of the US-Iran confrontation and the escalating pressure on global trade and energy security. My name is Omid Shokri, and I'm delighted to moderate today's discussion. We are meeting at a time when the conflict between the US and Iran is in a frozen state. While there's no active fighting taking place, there's no real dialogue going on as well, leaving us in a— leaving us in a really volatile standoff. However, the economic consequences continue to ripple globally. Ongoing tension in the Strait of Hormuz remains a major flashpoint, keeping markets on edge and causing lasting damage to global trade. Just today, the UAE announced its decision to quit OPEC dealing a heavy blow to the oil-exporting group. This comes at a time when the war with Iran has already caused a historic energy shock and unsettled the global economy. Amid this situation, there is rising threat of Iran cutting undersea fiber optic cables in the Strait if the conflict expands, an action that could have a disastrous impact on a whole whole new scale. Joining us to navigate these complex dynamics is Dr. Omid Shokri. Dr. Omid is a senior visiting fellow at George Mason University. He's a renowned, uh, energy strategist and senior foreign policy advisor with over 20 years of experience in global energy dynamics. He is the author of US Energy Diplomacy in the Caspian Sea Basin and a leading voice on the intersection of geopolitics and energy security. Dr. Omid, it's a privilege to have you.

Thanks for having me in this conversation, and I will be glad to share the last development in global energy market with your readers and your network as well. And please go ahead.

Dr. Omid, much of the world's attention has been on the sort of physical blockage of ships in the strait. However, if the conflict shifts to the seabed, and those fiber optic lines are damaged, what kind of impact that can have for the regional economies, you know, like the UAE and Saudi Arabia?

Yeah, it's a great question. Let me start with the why UAE made a decision to quit from the OPEC in some sentence and then focus on your question and for understanding the current dynamic in OPEC and global energy market as well. You know, UAE and besides Saudi Arabia and some other countries has extra capacity to produce oil in the market and create a balance in the market. In the summertime, other countries reach these countries to produce more, to use their extra capacity to create a balance in the market, to oil price goes down. And we know that we are, we are the huge, we have huge development in global energy transition as well. And every country which rely on the revenue comes from the exporting hydrocarbons such as oil, gas, and LNG, trying to pump more oil and gas in the market to use this opportunity before that the energy transition reach all countries, no matter developed, underdeveloped, and poor countries as well. Due to UAE try to make, made a decision to quit OPEC+ to produce more oil because has a long-term plan to increase oil production capacity to about 6 or 7 million barrels per day. And if wants to follow the policy has to quit the OPEC+ as well. And as I mentioned, we have the limit time for pumping more oil in the market. UAE wants to use both opportunity for getting more revenue from exporting oil and gas. At the same time, UAE has investment in energy transition, renewable energy, nuclear energy, especially solar and wind. And also we know that some private company has a huge investment in more than 40 countries in energy transition process from the, from the Central Asia to North Africa. We can see huge investment via UAE energy companies as well. Repeating your question, during the last years, we have seen a new term, war of connectivity, in the international relations between the scientific and scholars. And our— the new paper entitled War of Connectivity, and they mentioned about the importance of the digital infrastructure security in this era. And as you mentioned, if Iran targeted the undersea cables and fibers and something like that, it's a digital infrastructure very critical for global energy pricing and trade. It's such global energy trade and pricing need high-speed internet, high-speed internet, and also reliable and updated transmission system. And this pricing mechanism without such infrastructure face the global energy market with huge shock and the major oil countries which are relying on exporting oil and gas, especially UAE and Saudi Arabia, immediately affected such attacks. And after that, we can see gradually the effect of such attacks with regional and global energy market as well. You know, after that, the COVID and after that, the start of the Russia invasion of Ukraine, we saw that oil price goes up and the European faced a huge energy crisis. And also Biden administration faced the same crisis and trying to release some SPR to create a balance in the market. But if any question and if want to sum up in some sentence, targeting such digital infrastructure and in other infrastructure such as cable and fiber directly affected the firstly GCC and other energy procedure economy directly such as UAE and Israel. And the second statement, meter affect global energy trading, energy pricing mechanism as well. And we can see high inflation rate around the world, no matter poor, underdeveloped, and developed country as well, because high inflation rate means high production cost, high transportation cost, and high grocery price in the market. It's directly affected daily life of every, every man around the world, from Ethiopia to the US as well.

Dr. Amud, you mentioned digital infrastructure is critical for global pricing, and I imagine everything happens in real time. And you also touched on the point that this could lead to high inflation across the world. So sort of turning to the US perspective on this point, there's often a sense of geographic distance from Gulf conflicts, but if these cables are severed, Would the average person in the States feel the shock at the pump? And could we see a sort of scenario where a digital disruption in the Middle East directly accelerates domestic pressure, you know, inflation and pressure on the government in the US?

Yeah, it's a great question. Let me give you an introduction information about the US current situation in the global energy market and also discuss the possible effect from the targeting undersea cables and the fibers from Iran and its effect to US global and US energy security as well. Energy security in the US equals gas price in the pump station. That's it. And every administration, no matter Republican and the Democrats, trying to every time oil gas price in the pump station down to be able to get more votes from the US people to win the upcoming election. As you know, we have next November upcoming election. And today, the global energy market directly affected the Republican votes and Trump and Republicans are very concerned about the possible effect and the losing some seats in the Senate and other assembly as well. Briefing your question, yes, US is after that, during the Obama administration and after that, the shale gas revolution, US will be able to energy sufficient and the world first and the largest oil producer. But at the same time is the world first oil importer as well. US using benchmark market, I mean West Texas intermediate and Brent. And at the same time, oil prices directly affected the gas and oil price in the US domestic market. Any disruption, no matter from the physical infrastructure, oil and gas and the pipeline, and also digital infrastructure, directly affected the US. Why? Because the US is a part of the global energy market. And due to high energy price, it means high inflation rate. Due to after that, the COVID and start of the US invasion of Ukraine, US faced high inflation rate during the last 4 decades. Why? Because of the high energy pricing. And if we get such scenario and such disruption in the energy transition, I mean, in digital transition, interbank transition and such targeting affected pricing and the trade flow. I don't— no matter we can see oil and gas physically through the consumer market, but due to targeting the digital infrastructure, it directly affected the US economy as well. And you can see high inflation rates, especially in the transport, aviation, and also manufacturing and service goods, especially food and grocery. And it's directly affected the US ordinary people. And due to Trump administration to use all mechanisms to create a balance in the market, energy price goes up. First for US economy and second for the Republicans and lastly for the global energy as the global energy dynamic as well, because at present, US, besides Russia, is the energy superpower and trying to reshape all energy dynamic, no matter from the fossil fuel to energy transition. And just to give some information, we know that the next month Trump will be traveling to Beijing to discuss with the Chinese strategic one, Strait of Hormuz. Sorry, one Strait of Hormuz. And also about the Iranian continuing oil import from— sorry, Iranian continue oil export to China. And also both countries great competition over critical minerals and energy transition technology because in some cases China has upper hand in critical minerals and also energy transition. So no matter solar power plant, electric vehicle, and something like that, altogether it comes back to the energy security and infrastructure, digital infrastructure security, and in the GCC as well.

And Dr. Omid, you talked about today's development with, you know, UAE leaving OPEC. So, you know, if I understand correctly, UAE has different priorities than the grouping itself and the other stakeholders like Saudi Arabia. But the UAE's exit sort of effectively dissolved OPEC's united front and its ability to reassure global investors. So without a coordinated response from the world's largest producers, can every, you know, minor incident in the Strait of Hormuz now trigger much more extreme and unpredictable price swings?

Globally? Yeah, it's a good question. Let me give more information about the OPEC current status in shaping a global energy dynamic, especially oil market after the 40 Years War and during the COVID and also Russia-Ukraine war. Leaving your question, if other countries such as Kuwait or Iraq trying to make a substitution like UAE and quit from this OPEC, it means that OPEC no longer is a huge and major factor in reshaping global energy dynamic in oil market, you know, and this is the best chance for the producers such as the US, Brazil, and Canada from North America to pump more oil in the market to reshaping new dynamic in the global energy market, especially oil market. And ripping your question, for the next decade, state-owned oil companies keep their strategic importance for global energy transit. But as you know, Saudi Arabia, UAE, And also Iraq is trying to use Turkish infrastructure to send more oil in the market. I think all countries in the next decade trying to bypass the Hormuz Strait and trying to create, to establish new pipeline, new method, new transit route to decrease the important dependency of the Strait of Hormuz. And Iran is losing its strategic card in the regional and global energy dynamic. I mean, creating instability in the state of Hormuz to get more geopolitical benefit from the regional and global, global equations. Right.

And, and one more related, I think, a more important point, uh, regarding this, this subject is, um, you know, UAE and, and Saudi Arabia, they, you know, they have a relationship, but it's at times, uh, uh, you know, been called a difficult relationship. So does this move provide UAE more or less leverage as they navigate the ongoing energy shocks caused by the Iran war? And how do they manage their relationship with Saudi Arabia after leaving OPEC? You know, I'm sure Saudis are not happy seeing UAE leave the group.

Yeah, UAE quit from the OPEC+ has both advantage and disadvantage for Saudi Arabia. Why Saudi Arabia has extra capacity will be able to pump more oil in the market and keep its location and position as the leader in the OPEC, between OPEC+ countries. But at the same time, if UAE wants to use high technology to boost oil production capacity, it means that trying to reach oil market, some market dominated by Saudi Arabia. And once if you want to send more oil with this special discount to some countries such as China or India, because China is a major export destination for Saudi Arabia, and energy diplomacy in Saudi relations with both countries play a very important role. If UAE wants to play such a role and to follow the policy, we can see some, uh, dissatisfaction from the Royals. But if UAE follows the policy, we can see some tension between Saudi and the UAE. But At the same time, instability in the region, it's not, it's not in favor of the UAE and Saudi Arabia, and they share some interest in the region and trying to keep their interest. And also, but at the same time, trying to sell more energy in the market. As I mentioned this earlier question, we have short time for the pumping more fossil fuel because of energy transition. All country trying to more focus on the domestic energy resource, especially energy transition, solar and electric vehicle, wind, hydro and something like that. And due to all countries in the OPEC trying to sell more, but it needs active energy diplomacy, high technology, and finding financial capability comes from the foreign countries as well. I think I tried to answer your question directly, I hope.

Yes. To wrap things up, I want to ask you about, as I mentioned in the introduction, that, you know, dialogue between the US and Iran is sort of in a frozen state. Not much is happening. We hear a lot from reports, but, you know, not much is really happening. I want to ask you, you know, if there's— eventually there's a deal which is acceptable to both sides, how long will it take for everything in terms of infrastructure which has been damaged, energy infrastructure across the Gulf region, and even, you know, and the prices themselves, for them to return to pre-state, pre-war state? What do you think is likely? What is the timeline?

It's a great question. If the gas fees today, we have this deal between US and Iran. In the short term, especially in the end of this year, we cannot expect that energy price goes down. We have to expect 1 or 2 years to see some stability in the market because due to, as you mentioned, energy infrastructure, especially natural gas field and also salt gas field shared between Iran and Qatar targeted by Iran, and Qatar needs at least 5 years and $20 billion invest to recover its LNG production capacity. You know, it's the best chance for the US to produce more energy to export to the EU and other countries to keep its location as the world's first energy producer. And it gives more financial capability to the US energy sector, I mean, private sector. But at the same At the same time, it's a challenge for Qatar to retake its share in the global energy market, especially Southeast Asia, China, South Korea, Japan, and European market as well. I think in the— I'm optimistic we need at least one decade, at least one decade. GCC will be able to attract financial capability, has a good financial capability, will be able to attract foreign high technology from the US, China, and other countries to recover, to at the same time to increase the current level of production, no matter gas, LNG, and oil. But from the Iran side, Iran, Iran at the present facing energy crisis. And in the last years, Iran in the summer and the winter, natural gas and electricity shortage. And due to targeting some power plant and some energy infrastructure during the recent war, Iran needs about $200 billion to recover, to reach the level of production before the war, you know. And it means that Iran has to sign a deal with the US to withdraw all sanctions, especially sector sanctions imposed by the US, and will be able to attract foreign countries' capability and technology. And also Iran has to decrease the role of the IRGC in its energy infrastructure. As you know, IRGC controls about 80% of Iran energy infrastructure from the power plant to— but the GCC, we need at least between 3 or 5 years to recover, for Iran at least 1 decade.

Right. Thank you very much, Dr. Omid, for your analysis and joining us on the show. My name is Omid Shokri, and thank you for watching.

Thanks for having me. Just trying to share the last development from my point of view as an energy expert and Hope this will be interest for you and your network as well.

Thank you.