Transcription
Europe under pressure as the conflict in the Middle East continues. Now competing with Asia for scarcer oil and gas supplies. Rocking prices benefit Russia and weakened sanctions over the Ukraine war. With Europe wary of antagonizing Donald Trump. So how's the Iran war impacting all of these? This is Inside. Hello and welcome to the program. I'm Imran Khan.
Like everywhere else, Europe has been plunged into an energy price crisis in a matter of days. The US and Israel began attacking Iran less than a fortnight ago. Now, Europeans face stiff competition for oil and gas from Asia with reports of ships being diverted to higher bidders. The Ukraine war upended European energy policy. The EU imposed sanctions on its main supplier, Russia, and Moscow is now benefiting from higher oil and gas prices because of the offensive against Iran. European leaders continue to tiptoe diplomatically around President Donald Trump, hoping he'll broker a Ukraine peace deal that they can back. It's a complex picture, not least because Trump, along with Israel, is responsible for starting the present war. So, how might this all play out? We'll ask our guests shortly. But first, this report from Amma Bhutang.
Global energy markets are on edge once again. The conflict in the Middle East is causing sharp fluctuations in oil and gas prices. European leaders, still haunted by the 2022 energy crisis, are bracing for another potential economic shock. The bloc imports only about 10% of its liquefied natural gas from Qatar. But rising global competition for cargo is already pushing prices higher. Since the beginning of this conflict, gas prices have risen by 50%. And oil prices have risen by 27%. If you translate this in euros, the 10 days of war have already cost European taxpayers an additional €3 billion in fossil fuel imports. Economists warn it could fuel inflation and slow growth across the continent. But the surge in prices could also make Russia the main beneficiary and by extension strengthen its war effort against Ukraine.
It gains new resources to finance its war against Ukraine. As energy prices rise, it profits from the diversion of military capabilities that could otherwise have been sent to support Ukraine. And it benefits from the reduced attention to the Ukrainian front as the conflict in the Middle East takes center stage.
The European Union had been preparing to introduce a ban on its remaining Russian energy contracts. In response, President Vladimir Putin warned that Moscow could redirect its exports to prioritize other markets. "Russia is a reliable supplier of energy. It has always been so. We will continue to supply oil and gas to countries that are reliable counterparts. I mean, not only our partners in the Asia-Pacific region, but also states in Eastern Europe, such as Slovakia and Hungary."
The situation has been further complicated by comments from US President Donald Trump, signaling Washington could ease sanctions on some nations to stabilize global energy supplies. Although he didn't specify which countries, Russia is a possibility. Washington has already granted India a 30-day waiver to continue buying Russian oil as part of its efforts to ease price volatility as the conflict in the Middle East increasingly reshapes global energy markets. Its ripple effects are being felt far beyond the battlefield. I'm Avoeng Al Jazer for Inside Story.
Now, let's bring in our guests. Joining us from Berlin is Steven Erlanganger, the chief diplomatic correspondent for Europe at the New York Times. In Moscow is Chris Weir, CEO of Macro Advisory, a strategic consultancy focused on Russia and Eurasia. And in Riverdale Park in Maryland is Alan Tonelson, who is an economist and founder of the reality check blog. A welcome to you all. Let me start in uh Maryland with Alan. Alan, uh this is a victory for Russia if Donald Trump eases sanctions. It's going to plunge Europe into crisis and it was completely avoidable. I mean, do you have any sympathy with that argument?
I have no sympathy with that argument, or whatever. And the main reason is that however discouraging things look right now economically and also geopolitically, and especially for Europe, not for the United States, especially for Europe, we have to ask ourselves how much worse would this situation be if Iran had acquired nuclear weapons? How much power would these mullahs, these Islamic fanatics have had over the entire world economy if they acquired nuclear weapons? And I would submit to you it is glaringly obvious that things would be much worse.
And by the way, President Obama's 2015 Iran nuclear deal at best kicked the problem down the road a bit, and it was very flawed regarding inspections.
Well, let's bring that to um Steven. Stephen, this is a typical argument right from the Americans. You had to stop uh Iran getting a nuclear weapon. But that was what the negotiations were for, and they were ongoing. So do you have any sympathy with the position that um Allan takes?
Well, I don't want to see a nuclear-armed Iran, and I don't think anyone really wanted to see a nuclear-armed Iran. Now, the mullahs kept saying we would never have a, never have a nuclear weapon, but of course, they were enriching uranium to 60%, which is very close to bomb grade. Now, I don't think they were going to have one very quickly, but had they chosen to have one, uh, it could have happened. But, um, I do believe the JCPOA, the Iran deal in 2015, though Mr. Trump's right, it was limited. In fact, it's now expired 10 years later, it did limit Iran's uh, enrichment to 3.67%, which is pretty reasonable. So now we have an Iran with at least 10 or 11 bombs' worth of 60% highly enriched uranium buried somewhere, we think, under Isfahan. And so that's a danger. Now, does this war make the chance of Iran going nuclear more likely or less likely? That's a very serious question. I don't know the answer, but I worry that if the regime survives, which it seems to be doing, it will make the chance of an Iranian bomb more likely rather than less likely. But I'm not a prophet, and we, and we shall see.
I mean, that clearly sets out the American uh position. I want to bring uh Chris in here. But lifting of the sanctions, if that happens, it's already a propaganda victory for the Russians, but if the, if the, if the lifting happens, you know, that is a knock-on effect on Europe completely, right? I mean, it's, it's a problem for Europe.
Um, well, it, it is to the extent that the European Union, as you said, the introduction is already agreed, uh, and has adopted a plan to, uh, completely cut itself off from all Russian uh, energy, oil and gas uh, by the end of this year. It starts on, it's supposed to start on April 25th with a ban on any new short-term LNG contracts, uh, and then a ban on all contracts by December 31st uh, this, this year. So, uh, I guess the, the assumption that Europe made when it, it adopted this plan is that it would be easily able to get as much energy as it needed from the global market, from, from the Gulf and elsewhere. And now that clearly has got an enormous question mark over it. So Europe's energy uh, strategy is in tatters. They are definitely facing a potential crisis uh, if they get the next moves, uh, get next moves wrong. And remember the backdrop here is that uh, European gas reserves coming out of this winter are at an historic low. They used a lot of gas uh, for heating this, this winter. Uh, they would normally need to start rebuilding those reserves for next winter, uh, certainly by June at the latest, and now there's an enormous question mark over where are they going to get that gas and how much will they have to pay for it. So, if you like, Europe's problems with regard to energy are only just beginning.
And Alan, that situation there is very, very stark, but it begs the question, did Donald Trump know what he was doing when he got into the Iran war? Did he know that this was going to have an impact on oil prices, gas prices this severely?
Well, certainly Donald Trump knew what he was doing when in 2018 he asked the Europeans, "Why are you still so dependent on Russian energy sources at the same time you're expecting the United States to protect you from Russia?" And I found it fascinating to just find out this morning that four years after the Ukraine invasion, Europe still has not cut itself off from Russian energy supplies. Uh, for decades, we've heard about Eurosclerosis in terms of the continent's poor economic performance. And now it's very, very clear that concerning matters like like energy resilience, that term Eurosclerosis applies even more strongly.
Stephen, do you think Donald Trump knew what he was doing?
That's a very good question. I can't read into his head. He was warned by General Kaine, uh, the chief of the armed armed forces, that uh, this could be a very difficult and long war that would test America's supply of interceptors. It's one reason why they waited a few weeks to get a second aircraft carrier off the coast of Iran. Um, but I think they expected a short war, to be honest. I don't think they expected it to go on this long. Trump said publicly that the, the jump in energy prices would be a short-term blip, as it had been in the last June bombing, which lasted 12 days, and it would soon go back to normal. I don't think they thought through, I don't know why the Strait of Hormuz shutting down, essentially, because for the last 50 years, people have been worried about the Strait of Hormuz. This is hardly a new topic in, in, in security anxieties. So I do think he expected a quicker victory. I think he expected the decapitation of the regime to result in a different government fairly quickly that would talk to him. Uh, so far, that's not proved to be true. The war continues. We don't know for how long. But I think the markets are beginning to have an impression on the White House, which could, after all, declare victory any time, um, and, and, and leave. But to lose a war against Iran, I think would be, um, a very difficult thing for Americans to understand.
Chris, without Russia firing a shot, it seems to be the only winner uh in this particular conflict. I mean, is that something that you think is true?
Um, well, Russia is definitely gaining financially uh, from this situation. Um, remember that Russia, because of the sanctions that the US announced in late October, which then took effect in late November, uh, Russia's seen a significant fall, fall in oil and gas export revenue uh, for the last three months, December, January, and February, because not only was it finding it difficult to get, find customers for oil, I mean, there's certainly reports of oil literally floating around in tankers looking for a buyer, but they've had to sell a lot of that oil at significant discounts. So while Brent, for example, was trading at about $65, there were reports that Russia was selling its oil for about $45. Now, as of early last week, uh, we know that almost all of that surplus oil has been snapped up by Asian buyers and at close to market price. So our calculation, our back-of-the-envelope calculation is that Russian export value rose by, by at least $3 billion uh, last week. Roughly the same amount that the European Union says has cost energy higher in cost has cost Europe. So Russia clearly is benefiting, but it's not the only one. Remember, a significant beneficiary uh, will be the major, sorry, the oil producers in, uh, if you like, the, the US oil states. Uh, the, the Dallas Fed, Federal Reserve Bank, late last year issued a report or a warning saying that a lot of the particularly independent oil producers in states like Texas, Oklahoma, etc., which, as I understand it, are strongly Republican states, that they were close to financial, uh, financial strain, saying that they needed at least $60 West Texas just to survive. So they will gain a lot from this higher oil price, and this is a say strong backing uh, for the Republicans here, for Donald Trump, but also gas producing states. Australia is a big energy producer, as is, uh, Canada is a big oil producer. So Russia is not the only country that is gaining from this, but it certainly makes its budget management a heck of a lot easier at these oil prices and with demand for Russian oil and the fact that they don't have to sell at a discount.
Alan, Russia is the only, not the only winner here. In fact, uh, as Chris was saying, you know, some Republican states are going to get a financial bonanza here, but Russia is the only one that's at war with Ukraine. West Texas isn't. And that's a dangerous precedent. If you give Russia that money, which effectively you have, you're extending the war in Ukraine.
Oh, there's no question about that. At the same time, we really have to to keep in mind that the oil industry, in fact, the entire fossil fuel industry is a classic boom and bust industry. And the big successful companies, the uh, the big successful western companies in particular that dominate production in the US and the rest of the western world are very good at navigating these these ups and downs. And as we think just heard, as as global oil prices rise, US producers have much more incentive to put more supply on stream. And that's clearly what's going to happen. And we're going to, we're going to see these oil price fluctuations continue certainly for, certainly for the next few months as the Persian Gulf situation remains very uncertain. But it's also, but it's also very clear, um, that at least from the US standpoint, that the situation is very well in hand in large part because the US economy has become much less fossil fuel intensive than it's ever been.
Now I want to bring in Stephen here. Stephen, you know, capitalism will do what capitalism does best, right? It'll react to a market. That's exactly what's happening with the energy price sector. But Europe uh is now competing with Asia uh when it comes to getting gas physically into their borders. So, you know, this, what, what are the options here for Europe? And is Europe panicked about this? Are the people you're speaking to in diplomatic circles panicked about this?
Well, panic, no, because I, I don't think people think this is going to go on forever. I mean, the problem is uh, Europe having weaned itself from a great deal of Russian energy, to be sure, not all of it, um, is, is more vulnerable now. Um, it does need to get gas before next winter, but next winter is several months away. The problem will be, I think, price in the end, rather than supply. Um, so I don't think panic yet. No. Um, but there are some European countries, Hungary and Slovakia, which get direct oil from Russia. There's a pipeline that got damaged going through Ukraine. So, they're struggling with that. The big problem Europe has is the security of Ukraine. The way this war in the Middle East is using up Patriot missiles and other kinds of interceptors, uh, which have a very small number of them in the world, uh, is taking them away from Ukraine, which needs them to protect itself from Russian missiles and and and drones. So, I think the big worry Europe has is less, you know, energy, though that's real, um, then it is, uh, protecting Ukraine from a longer struggle that uses up, um, important, uh, interceptor missiles that the Europeans are buying from the Americans, but which the Americans are diverting sometimes for their own use in Iran. So, it's a, it's a very good point you make, is the bigger worry.
It's a very good point you make because South Korea is actually worried about this. We're talking about Asia because they, they, the Americans are moving their THAAD missile interceptors out of South Korea and diverting them to the war effort in Iran. I want to come to Chris here. Chris, there is a strategic advantage here for Russia. There's a political advantage here for Russia, but there's also a military advantage here for Russia when it comes to uh Ukraine. May Russia use this to push further into Ukrainian territory and, you know, put Europe on a knife edge?
Well, I don't think so. Uh, I mean, they, you know, the conflict's been going on for four years now. Uh, Russia does appear to be making some gains, but it's literally inch by inch. Um, you know, they, of course, we, we talk and we know a situation with regards to possible supply tightness on interceptor missiles, etc. But the Ukrainian military is very effective. It's well dug in. Um, the fact that Russia maybe is earning an extra $3 billion in exports, uh, even per week, is not going to change that uh, dynamic on, on the ground. It's not going to help the Russian military accelerate its gains uh, in East Ukraine, for, for example. In fact, I would say that the fact that Russia is uh, making this extra money really doesn't make much of a difference. It, it certainly makes the finance minister sleep better at night until he has less money to borrow to balance the budget, but it doesn't really change anything. Russia was not heading towards any sort of financial crisis, even in January or February, with the low oil receipts. It was not facing any sort of economic pressures that would force it to compromise at the peace talks, and that situation really hasn't changed just because it's earning a lot more money today. The fact is that it would appear from all reports that fighting in East Ukraine is pretty much bogged down, and, and what's happening in the energy markets uh, financially isn't going to change that. But what might change that, I guess, to address your point, is that if Europe, for example, were to end up in a more difficult energy situation, perhaps even facing an energy crisis, particularly with regard to gas when in the next few months when it needs to start rebuilding for next winter, then I guess from the Russian perspective, they may hope that Europe would be more inclined perhaps to press President Zelensky for more compromises at the negotiating table, something which, of course, they have not done. They strongly support President Zelensky's position. But the Russian view is that if the energy crisis gets worse, then Europe's political position may have to change in the next couple of months. That clearly depends on, on what happens in the Gulf and how long it lasts. But that's some of the narrative that we're beginning to hear here in Moscow.
Alan, once again, given everything our guests have just said and that you've been listening to, this was all completely avoidable. You knew that the Strait of Hormuz was going to...
Completely disagree.
I'm sorry. I completely disagree.
You, you, you predicted that the energy infrastructure would get hit and therefore prices would go up because I don't think anybody was talking about that uh, just a fortnight ago when this started. I don't think anybody expected that Persian Gulf military operations were going to leave global energy markets unaffected. Nobody was, nobody in their right mind would have ever seen that. What was clearly thought was that the overriding imperative was to make sure that Iran never acquired nuclear weapons because that would have been absolutely catastrophic not only for global energy markets but for the global economy period and for global security as well. And when you face situations like this, you have competing priorities, you have to choose. And I think that the United States has chosen correctly.
The United States surely has just chosen the United States though, Alan.
Quickly. What, what else do you expect the United States government to do? I mean, certainly we, certainly we, we don't ignore the interests of foreign countries, especially American allies. But, but American leaders are elected to safeguard and to promote the interests of the American people first. But I would also have to add that once again, preventing Iran from getting a nuclear weapon in the long run will be a tremendous benefit for the entire world, and nobody should overlook that. I mean, I will point out here that the, the last supreme leader did have a fatwa saying Iran wasn't going to uh, go for a nuclear weapon, which is effectively law in Iran. But I want to come to uh, Steven uh, here. Stephen, America has basically abandoned Europe, right? That's what's happened.
Not in the least. We have 70,000 American soldiers in Europe along the frontiers with Russia, in Germany, in Poland, in Romania, defending NATO, deterring anything that might happen. The United States has not abandoned Europe. What the United States wants to do is Europe to take more responsibility for its own defense. It is true that on this war, I don't think America really cared what Europe thought. I mean, it didn't consult, nor did it warn. But in terms of abandoning Europe, I think that's simply not true.
Chris, there's a pivot here that Russia can do quite effectively. If it winds up that its biggest market, its most pre, um, prestigious market in many ways, is going to be Asia because of just the sheer value of it, it can position itself uh, from weaning itself from what Europe wants, and that's a political victory for it because it becomes slightly more independent.
Well, I think, you know, the position or the narrative in, in Moscow, and what we hear in Moscow a lot is that that, you know, initial talk about an Asia pivot has definitely moderated. Uh, you know, the, the Russians don't want to be any more, you know, dependent on China as they say they were with, with Europe. Uh, they would, the, the whole narrative in Moscow is much more about diversification, having more trade partners, more investment partners, more political partners. But, but you, you are right that uh, sort of over, over the medium term, Russia has already gone through the pain of, you know, diverting its energy resources away from, you know, what was it, its dominant market, the European Union, to Asia. It's taken that financial hit in 2023, and it's now, you know, almost entirely shifted its focus towards China, and, you know, just go back to what you were saying earlier, you know, Europe certainly is in the most vulnerable economic position. You know, militarily, certainly it's a different issue, but economically, it is in the most vulnerable uh, position. The US is certainly in a very comfortable position because it's, its energy self-sufficient, it produces enough oil for its domestic needs, and it's a big exporter of...
Chris. I'm going to stop you there. I'm going to stop you there because we're running out of time, and I want to come to Alan just for a very quick, uh, quick answer because we are running out of time. Alan, what's the appetite here for the Americans? Will they stomach a $200 a barrel oil price if that happens? What's the appetite here for the war?
Well, that's the $64,000 question. And certainly, um, we've seen in the recent past that the appetite that the American people have, mainly for more military casualties, is really quite limited. And I would imagine that, uh, folks are going to be very, very unhappy if oil prices stay this high for much longer, much less if, and much less if they rise further.
Uh, I want to thank all of you, uh, Steven Erlanganger, Chris Weir, and Alan Tonelson. And thank you too for watching. You can see the program again anytime by visiting our website, aljazeera.com. And for further discussion, go to our Facebook page. That's facebook.com/AJInsideStory. And you can also join the conversation on X. Our handle is @AJInsideStory. From me, Imran Khan, and the whole team here. Bye for now.