So how can both things be true at the same time?

Well, first off, I think it's important to think about the conflict between the U.S. and Iran right now as effectively a standoff.

Neither side really wants to significantly escalate.

The U.S. isn't ready to go back to full-scale operations along the lines of what we saw in March and April.

Similarly, the Iranians are trying to ratchet up pressure.

They're trying to maintain their position in the Strait of Hormuz.

And of course, they're trying to escalate via their proxies.

How much can it get worse? And at what point is the pain going to be something that we all care about? more about?

You had some real major diplomatic moves this spring that seemed to portend a new equilibrium, and it seems like none of that has really helped.

Yeah, I think there are a couple of reasons.

Some of them are deeply structural and speak to decades of experience on both sides with this stop-start diplomatic process.

I mean, there were discussions between U.S. and Iranian officials yesterday During the Clinton era, there was an attempted opening up in the late 1990s, early 2000s under Iranian President Khatami.

There were discussions under the Bush administration.

There were, of course, the negotiations that led to the JCPOA, the nuclear deal under Obama that were initially successful.

And then, of course, it came to nothing when Trump withdrew from the deal in 2018.

Right.

Why has usage of this southern route provoked Iran so much?

So there are actually three routes that are worth considering in the Strait of Hormuz.

The first is the northern Iranian route, uh, which the Iranians created during the war.

Uh, it should be noted that when the war began back in late February, early March, initially Iran was able to continue to export oil and was also allowing, uh, ships to move through the strait, albeit at a reduced volume, so long as they used their route that hugged the northern coastline of Iran, went around Larak and Qeshm islands.

There is also the second route, uh, which hugs the coastline of Oman.

That route has been sponsored by the United States, as well as the International Maritime Organization and the Joint Maritime Information Center, international organizations that are really focused on ensuring, uh, safe navigation, safety of ships.

They've been encouraging ships to use the southern route that hugs the Omani coast.

Who is actually in control in Iran or at least in decision-making in what happens in Hormuz?

So kinda talk me through how you're initially thinking about where we stand right now.

Sure thing.

So when the US and Iran reached their MOU deal to end their war, this is a few weeks ago, my sense of it was that it really only did two things.

First, it ended the war.

You know, both sides seemed to have reached the conclusion that more war was bad, that a return to general hostilities really didn't serve either purpose.

Uh, so there was an agreement to deescalate, broadly speaking.

The second thing that the MOU, uh, at least purported to do was to reopen the strait.

Yeah.

Is that moving to renewables or other alternative energy sources? Is that part of this equation in any sizable way?

In the short term, not really.

Um, as I mentioned, when we think of gasoline consumption, it tends to be fairly inelastic, right? Consumers can't just buy an EV if suddenly gasoline becomes more expensive than it was a month ago.

That tends not to happen.

Now, if gas prices stay high or are structurally volatile, then that does encourage consumers, and it also encourages governments and industries to move away from depending on oil because they can't be confident that the price will remain stable, and that's exactly what we saw after the Russian invasion of Ukraine, this sense that the global oil market and also the global gas market, even if prices were going to get low, was simply too volatile, too unstable to really depend on.

I think this war has re-emphasized that point, but in the short term, the kind of demand destruction we've seen take place may not prove to be too durable because it, it hasn't really been driven by this larger structural shift away from oil, away from gas.

In most cases, it's industries getting by with consuming less-

Why is supply predicted to get so high?

Is that moving to renewables or other alternative energy sources? Is that part of this equation in any sizable way?

In the short term, not really.

As I mentioned, when we think of gasoline consumption, it tends to be fairly inelastic.

Consumers can't just buy an EV if suddenly gasoline becomes more expensive than it was a month ago.

That tends not to happen.

Now, if gas prices stay high or are structurally volatile, then that does encourage consumers, and it also encourages governments and industries to move away from depending on oil Because they can't be confident that the price will remain stable.

And that's exactly what we saw after the Russian invasion of Ukraine.

Why is supply predicted to get so high?

So Gregory, if the Strait of Hormuz remains basically closed, or new hostilities break out and more oil and gas infrastructure in the Gulf region is destroyed, what could that look like in terms of pricing?

Well, Anderson, the prices are already quite high.

They're maybe not as high as they should be, uh, the president does have a point there, at around 107, $108 a barrel.

They don't really reflect the magnitude of this disruption.

As you mentioned, this is 20% of the global oil supply that has now been kept off the market for three weeks, and the physical effects of this, uh, of this disruption are only now just being felt in refinery runs, in markets like Australia and Asia.

But if the conflict continues, and if the Strait of Hormuz remains closed, and if we start to see more aggressive attacks on regional energy infrastructure, the disruption will get worse, the effects on the market will get worse, and the price will climb probably over $120 a barrel pretty soon.

We're not getting a lot of oil through the Strait of Hormuz," why the price... why what's happening in the strait affects US prices?

Well, the oil market is a global market.

Okay.

Both the social policies at home, very restrictive policies on how you can dress, how you can act, the kinds of businesses that cannot be operated.

There are laws prohibiting co-ed activities.Increasingly, I should note that a lot of these laws are being flouted openly.

People are just aren't obeying them anymore, and the regime is having a hard time enforcing them more broadly.

There's resistance to a lot of the policies the regime has pursued backing foreign proxies or, ah, ah, regional proxies like Hezbollah or the Houthis in Yemen.

You know, spending money propping up Assad in Syria, spending huge amounts of money building up a nuclear program which resulted in incredibly onerous Western and US sanctions and then just the, the general sense that there are elections in Iran, but they're not really free or fair.

Lots of candidates that people would vote for are barred from running for office.

Yeah