Transcription
This is America, and this is a new Corolla carrying the last shipment of oil to leave the Middle East for California since before the Iran war began. I'll be back later to tell you about how long the 2 million barrels on board will last and how it will affect people here on the West Coast. But first, here's Sirill Vanier in our Washington DC studio.
>> John Hendren, thank you. Californians are feeling the economic pinch from the Iran war, and it's about to get worse. The state has roughly 6 weeks of oil and gas left. A big part of its supply normally comes from the Gulf. But now that energy route through the Strait of Hormuz is shut indefinitely. As John just showed us, the last oil tanker to make it out before the war has arrived in Long Beach. And when that is empty, California and by extension America needs a plan B. A reality that US President Trump has so far ignored. The United States imports almost no oil through the Hormuz Strait and won't be taking any in the future. We don't need it. We haven't needed it, and we don't need it.
>> Compare prices at the pump before the war versus now in the US. On February 23rd, so about a week before the war started, the nationwide average was just above $2.90 a gallon. In California, the prices were already significantly higher than that. The price per gallon topped $4.44. Now, fast forward to May 4th, so a little more than 2 months into the war. The nationwide average for a gallon of gas was $4.45, up from $2.90. And in California, the price has jumped even higher to almost $6 a gallon, as some petrol stations have even been warned for putting up higher prices at $8 a gallon. And California's governor, Gavin Newsom, says that Donald Trump's decision to attack Iran is the sole reason for gas price increases. "We've seen gas prices spike because of his decision, cause and effect across the United States of America. We've seen markets roaring. Those baseline costs have been static, but the cost at the pump has not been for one reason, Donald Trump's recklessness as it relates to the war in Iran. Period. Full stop."
>> These price increases are affecting consumers and businesses in California and beyond. John Hendren is in Long Beach, one of the busiest commercial ports in the country, where the last oil tanker to make it out of the Strait of Hormuz before the war has now arrived. A global conflict thousands of miles away is exposing California's reliance on foreign oil and is raising urgent questions about affordability, energy security, and the state's transition from fossil fuels. The state's energy system is undergoing a new stress test as the final shipment of oil is arriving here in Long Beach from the Middle East. Since the Iran war began, California imports roughly a third of its foreign oil from the Middle East. And it's scrambling to replace hundreds of thousands of barrels each day with the Strait of Hormuz remaining effectively closed. With gas prices topping $6 a gallon, that is raising questions about the state's ability to handle global conflict and supply shocks. California imports about 75% of its crude oil. 61% of that comes from foreign imports. Of that, a third comes from the Gulf. 16% comes from Alaska, and the other 23% is produced in-state.
>> Here at the Port of Long Beach, we lead the nation in container. As the busiest port in America, virtually everything you expect to find on the store shelves enters the United States US Gateway. So when the price of oil goes up, it cascades across the economy. Uh, we feel it at the gas pump, but virtually everything we buy as consumers, uh, goes up as well. Multiple refinery shortages and outages tightened fuel supplies before the current crisis. Analysts say the shortages could first appear as price spikes, and those will hit low-income drivers the hardest. State officials say reserves, including those from the new Corolla, could last for several weeks, but nobody knows what will happen after that. John Hendren, Al Jazeera at the Port of Long Beach in California.
>> As John was saying, California imports around 3/4ers of its crude oil. But why does it have to import so much, especially when the US is the largest producer of crude in the world? There are two key reasons. As you can see on this map, California and the entire West Coast really are not connected to the mainland pipeline network. The orange lines are the crude pipelines. So that means that the oil from Texas cannot easily be transported out west in bulk quantities. The second reason is that the refineries and pipes that are in California are designed to treat the heavy crude oil that is largely found in the Middle East, not the light sweet crude found across the US. To try to retrofit California's infrastructure would be a long and costly process. Fuel prices are going up across the country. That will likely get worse if California runs out of oil. So, let's do some math here. If a truck driver wanted to get from, say, Long Beach Port on the West Coast, where the new Corolla is currently docked, across the country, let's say, to Washington DC, the nation's capital on the East Coast. How much would that cost? The drive is around 4,300 km or 2,600 miles. A semi-truck would need around 400 gallons of diesel to make the journey. Before the war, with diesel at $3.80 80 cents a gallon, the whole trip would have cost just over $1,500. Now, the average nationwide diesel price has spiked by 48%, which means it currently stands on average at $5.64 a gallon. That means, if you do the math, the same trip costs just over $2,200. So, up from $1,500 to $2,200 now for the same trip.
Head Sha Castro reports. Sarah, that is indeed a hefty price for a truck driver to pay just to cover fuel. So, they are adapting. For one, they are not accepting as many long-haul loads. I spoke with Steve Fowler, who has a fleet of semi-truck trailers in Virginia. To save on diesel fuel, which has already jumped by 50%, he avoids cross-country deliveries, and he's raising delivery prices just a bit for now, but he might have to raise them again more later.
>> "You know, along the way, we eat a little bit, our customers eat a little bit, and the consumer is going to eat the rest."
>> In other words, it is a lose-lose-lose situation for everyone. Mr. Fowler and all the other trucking companies are paying higher fuel costs to move goods around the country. In turn, they're passing some of those extra costs on to the manufacturers and the businesses receiving the goods. Then, you guessed it, those companies pass those costs on to you and I, the consumers. So, everyone along the chain ends up paying higher prices. And the pain is not just coming from the highways because fuel drives everything. Like the boat I rode on with Maryland fisherman CJ Cami. The crabbing season is just beginning, and every morning he makes a wager. He bets that the cost of driving his boat to reach the crab pots will be offset by a nice big catch. And sometimes he's wrong.
>> "A lot of times it's just a loss for me. I don't get to pass my cost on to the customer like most businesses do."
>> Because if you're an American who's already struggling with rising gas prices, you're not going to be treating yourself to an expensive crab dinner. You'll eat something less pricey. But there is a problem. Even simple food staples are reflecting the growing cost of farming.
>> "You want to know what it looks like spending an astronomical amount of money at one time? Here it goes."
>> A Virginia farmer by the name of Joe Gray showed me why. He's paying 50% more for fertilizer than he normally does. That's because much of the fertilizer that he and all the other farmers need is stuck on ships that can't get through the Strait of Hormuz. And the timing couldn't be worse. It's corn planting season when you need the most fertilizer. He has no choice but to pay big now, and he'll find out in 5 months whether he'll make his money back with a hopefully bountiful harvest.
>> "You have to uh have three people in your back corner: your good wife, the good Lord, and an understanding banker."
>> All three men who showed me their trades – the trucker, fisherman, and farmer – say they hope President Trump can bring the war to a permanent end soon, so their costs come down and so that more fuel and fertilizer can quickly reach American shores.
>> We're joined now by Stan Voyer, senior fellow in economic policy studies at the American Enterprise Institute, and Ben Cahill, non-resident senior fellow with the Atlantic Global Energy Center. Ben, can California run out of energy? Is that really feasible? They have six weeks left of oil and gas as we speak.
>> Well, I think the fear is not so much that they're going to run out. We'll experience shortages. It's just high prices. And remember that California already has the highest gasoline prices in the nation. This is mostly due to state policies around taxes, um, and regulations. We've had some refinery closures in the state in the last year that reflected kind of the difficulty for refiners to operate in the state. So I think Californians are already used to paying high prices, but obviously the situation in the last couple months with the war and the Strait of Hormuz closure has added a lot of that pressure. So prices could certainly go up from here. Um, we have not resolved this conflict, and frankly, I think that a lot of the buffers that have helped the market get through for the last 60 days, um, have been worn away. And, um, there's a lot of reasons to think that the crude oil price, and therefore, you know, the price that refiners pay that gets passed on to consumers, could rise from here.
>> Well, buffers is exactly what we're talking about today because we've been tracking the very last tanker that made it out of the Strait of Hormuz right, right before the war started. The last tanker that was bound for the US carrying crude oil, and it just arrived a few days ago in, in Long Beach, California. So I think that was the buffer. It takes about 2 months, by the way, to go from Iraq, where it came from, to, to get to California. And really, today's conversation is about what happens when that buffer gets thinner and thinner. Is there a breaking point?
>> I think, I, I generally agree with Ben that you shouldn't think of it as a, a binary question of do we have access to oil and gas or do we not, right? What's going to happen is we'll have less oil coming in from the Gulf, but, you know, the US produces its own oil, imports from other places. California specifically, uh, imports from Alaska, for example. Um, you're already seeing some oil getting rerouted from the Gulf Coast to California. Um, and of course, uh, as prices, as there's upward price pressure in California, it'll become attractive for producers and shippers elsewhere to start trying to sell as much oil in California. Right? So that will trigger, uh, new supply. At the same time in California, as prices creep up, uh, demand will go down. And so that's, I think, how you should think of the market getting to a new equilibrium at higher prices, slightly lower volume, but not necessarily with shortages. But I don't think people show up at the gas station and there's not going to be gas. You'll just have some people who will decide not to buy as much gas as they used to.
>> Yeah. As you've both said, there's not going to be shortages. That's unlikely, but there will be higher prices. So California is going to have to pay more for its gas. Um, by the way, can California refine the oil that it gets from other places? Because we were just explaining earlier in the show that California's entire oil infrastructure is, is really more better suited and adapted to the heavy crude that it gets has been importing from the Gulf than to the light sweet crude that the US makes.
>> For sure. In addition, as Ben pointed out, California has reduced its refining capabilities.
>> They lost two refineries.
>> That's right. So, it may, in some cases, may have to be, you know, you ship the refined products directly to California. Um, but I think it, it still remains true that prices can only go, uh, out of line with the rest of the country so much, right? Because at some point, it becomes worth it to, to ship the refined products by rail, uh, by truck to California. Now, of course, that can still mean that you could see oil prices in California go up quite a bit, which will have an immediate impact on prices consumers pay in California. Um, as a thought experiment, say oil gas price in California now about $6 a gallon. Say they go up to $9 a gallon, right? That's a 50% price increase in oil prices.
>> Californians are crying right now if they're listening to you.
>> Oh, households spend about, say, 4% of their budgets on, on, on gas, right? So that alone would increase inflation in California by about 2 percentage points, right? So you'd go from where we are now, 3% or so, to five, right? That would be the consequence of just that increase in the price of gas. Of course, that, that's very real. That's something people in California would feel.
>> And of course, energy prices affect all sorts of other products and services as well, right? So the, the actual impact would probably be even bigger. But so that's the kind of order of magnitude I think we should be thinking about.
>> Um, Ben, listen to this. Donald Trump, the US president, has been, uh, saying since the start of the war that energy prices are going to come down. And even when they don't come down, he doubles and triples down on it. Listen to this.
>> "Well, I think your gas prices as soon as that's over are going to come tumbling down."
>> "The gas will go down. As soon as the war is over, it'll drop like a rock."
>> "Now, when this war ends, gasoline and oil and everything, it's going to come tumbling down. It's going to come crashing down as soon as this war is over. And I knew it would be short-term. That's a very small price to pay for getting rid of a nuclear weapon."
>> So, it's been two and a half months since the start of this war. The gas prices have not come down. Will they at some point soon?
>> The ultimate metric for whether or not prices come down is whether we have a resumption of oil exports from the Middle East through the Strait of Hormuz. This is the largest oil disruption that we've seen in modern market history. Um, the amount that's been erased from the market is enormous. So ultimately, the only thing that matters is whether or not tankers start to transit the Strait. And what we've seen day after day is maybe one or two make it through. Um, some tankers are turning off their transponders and going dark. There's a little bit of that happening, but by and large, the exports from the region have mostly stopped.
>> There have been some efforts to use bypass pipelines. Um, some of that has been successful, but still the volume lost is huge. And I think where we are at this point in the war is that, as I mentioned, some of these buffers have been worn away. So a lot of the oil that was loaded before February 28th has now found its way to its destinations.
>> That provided the buffer for a while. There was an emergency release of strategic stocks by the United States, Japan, South Korea, lots of countries around the world that the IEA organized. That provided a bit of buffer. That's now been erased. And what we've seen is that companies, sorry, countries have drawn down their inventories. So oil and storage has been drawn down, whether that's floating storage at sea or onshore. Again,
>> And California storage, as we know, six weeks left.
>> Yeah. So California is an interesting case study. It, in a way, it's a state that is in a situation akin to lots of importing countries, right, in Northeast Asia and elsewhere. You know, countries that really depend on that continued flow of oil imports from the Middle East. Um, they may have kept some, uh, some crude oil and some refined products, you know, in storage.
>> Commercial refiners do this. Governments keep strategic reserves. They've drawn these down pretty successfully. And in fact, I think one of the reasons why the oil price hasn't risen even higher is because, uh, China is starting to draw down its inventories in a huge way. So that's provided a little bit of, um, comfort to the market. But again, you can only do this for so long. Um, the math is, uh, undefeated. So if this lasts for, you know, another 30 days, I think a lot of the oil and gas analysts are expecting that the situation's going to tighten and the prices will reflect that.
>> So we wanted to look back to the 1970s to see if there were lessons to be learned there. Oil prices at the time more than quadrupled when shipping in the Strait of Hormuz was already at the time disrupted by war. Crucially, though, the Strait at the time was not closed entirely, unlike now. And as Al Jazeera's Ross Jordan reports, that is not the only similarity between then and now.
>> In 1973, the US was importing a third of its oil from the Middle East. President Richard Nixon said it was time for Americans to cut back. "They will make a very substantial contribution to our immediate goal of ensuring that we have enough fuel to be adequately warm in our homes this winter, that we are able to get to work, and that we experience no serious disruptions in the normal conduct of our lives."
>> Nixon's call took on new urgency after October 6th, 1973, the start of the Arab-Israeli war. After the US sent weapons to Israel, OPEC fired back with an oil embargo.
>> "I think we can cut down production to let's say 20%. Instead of 25%, it will be 80%. You think Europe or or Japan or the United States can survive with this?"
>> The US economy was shocked. Gas prices quadrupled, air travel fell by 10%, and businesses were urged to cut their operating hours. Nixon signed laws creating a national speed limit and making daylight saving time year-round. It took 6 months for the US and OPEC to end the embargo and more than a year for the stock markets to recover. Washington then created the Strategic Petroleum Reserve and the Department of Energy, and it launched a new conservation campaign. "But if we all cooperate and make modest sacrifices, if we learn to live thriftily and remember the importance of helping our neighbors, then we can find ways to adjust."
>> Then a new oil crisis in 1979. The fall of the Shah and the rise of the Ayatollahs in Iran disrupted oil tanker traffic in the Strait of Hormuz. As a result, worsened by Iraq's declaration of war on Iran a year later. Once again, Americans were hit with inflation and long lines at fueling stations. After decades of access to cheap energy, Americans were rocked by the 1973 and 1979 oil crises. But that was more than 50 years ago. Now history is repeating itself with Americans' dependence on oil making them vulnerable once again to events halfway around the world. Rosalyn Jordan, Al Jazeera, Washington.
>> So Stan Voyer, this is really the '70s. The oil shocks and energy, uh, the, the energy shocks and price shocks then that came as a knock-on effect from that are really the major reference points. Um, how accurate, how useful is it to compare today's situation to the '70s?
>> I think there are similarities and there are differences. It's obviously the case that we're going through an oil price shock. Economically, I see two big differences. One, the US is much more of a producer now in the oil and gas space than it was in the '70s. And so for the macroeconomic consequences, that matters, right? There are people in the US who stand to gain as well as people who stand to lose from increasing oil prices. Two, and the, the clips nicely illustrate this. I think in this shock, we're going to rely much more on adjustment coming just through the price mechanism. Prices go up, people adjust their behavior. I don't think we're going to hear politicians talk about thriftiness and how, you know, we should reduce our consumption for pro-social reasons. In part, that's because the economy is just a little less oil and gas intensive than it was then, but in part, I think it's just a shift in the, in the tide. I think economically, those are two big differences. Politically, I think there is one very striking similarity, which is that we just, similarity to '78 in particular, which is that we just came off of another inflation spike. And so people are already, uh, very concerned about affordability, about the price level. And so I think the political dynamics are, in that sense, comparable to what, uh, Jimmy Carter went through in 1978.
>> Yeah. What do you see as the impact of, let's say, short-term and then long-term? If we, if you could do both, when we look back at this 10 years from now and look at this moment, are we going to be writing reports and is this going to become another turning point in history? A cautionary tale of what happens when you choke off completely or partially the Strait of Hormuz?
>> Well, I think over the long term, this is the second major energy shock that's happened in the last 5 years after the Russia-Ukraine war in 2022. Um, so I think it's been a reminder to governments and companies about the importance of energy security, the importance of careful planning, planning for external shocks. But as Dan said, the diff, one of the major differences here is the biggest structural change in the oil market for the last 20 years has been the rise of the US as a major producer. The shale revolution in the United States, the US is now the world's largest producer of oil and natural gas. It's a huge exporter of crude oil, refined products, natural gas liquids. And in fact, one of the ways that the global market has been able to cope with the shock over the last two months has been the increase in US oil exports. And there's been a pretty dramatic increase of US exports of both crude oil and petroleum products. So, as a short-term, uh, consequence of this disruption in the Middle East, in a way, it's kind of highlighted the, the role of the US in providing this kind of, um, security measure. I think over the long term, it's going to make a lot of countries re-evaluate their vulnerability to the Middle East, to single suppliers. It's going to make them think about different fuel sources in substantial ways. Remember, this is not just an oil shock. It's about natural gas as well. I think it does raise questions about the long-term role of natural gas and liquefied natural gas as a short-term consequence. More countries in South Asia, Southeast Asia are burning coal. I think they'll look to accelerate renewable energy. So, we're still in the middle of this crisis, and I think it's kind of hard to forecast some of these longer-term evolutions, but, you know, there will be really significant changes.
>> So, you're both saying one major difference between now and then, now and the '70s, is that the US has become an energy producer. Now, the CEO of the port in Long Beach, California, where that last tanker from the Gulf has arrived. He's, he's really warning the rest of the nation about what it means for them if California is in trouble. Listen to this.
>> "Well, oil powers the entire supply chain. You can make the argument that oil powers the economy. So, anytime there's a blockage or there's a disruption that interrupts the the global energy sector, it cascades across the globe very quickly. Here today in LA County locally, we're already seeing $6 a gallon gas and it didn't take very long, uh, from the time that the Strait of Hormuz was blocked. Many partners have already announced surcharges. Many companies have already levied additional fees in efforts to try to offset the additional cost of fuel. As the busiest port in America, virtually everything you expect to find on the store shelves enters the United States through this gateway. So when the price of oil goes up, it cascades across the economy. Uh, we feel it at the gas pump, but virtually everything we buy as consumers, uh, goes up as well. And this is why it's so important that, uh, we find a way to work through this disruption at the Middle East."
>> Stan Voyer, is that kind of the countervailing argument to to what you were saying? You were both saying there's a there's a limit to how much damage this energy and ultimately this, this, um, cost crisis can do to the US because the US has energy and is now a producer. The CEO of one of the busiest ports in the US is saying, "Yeah, but when when our prices increase here in California, they're going to increase across the rest of the country."
>> So, it's absolutely true that the, the costs of the, of the oil price spike, they accrue to other people than the benefits, right? The people who, um, work for oil companies, who live in Texas, Oklahoma, who own stock in oil companies, they stand to benefit. Other people will lose. And so that is certainly a, a source of concern.
>> Um, Ben, what does California need to do right now because, as we said, the clock is kind of ticking.
>> Well, frankly, I think they need to find alternative sources and they'll probably have to pay more for it. Um, I think what you're getting at here is there's a bit of a paradox. The United States is a huge oil exporter, >> but we still import. We still import a huge amount of crude oil from Canada, we still import refined products to the East and West Coast. So even though the US has emerged as this enormous oil producer and exporter, we're not insulated from global energy market conditions. And the prices that consumers pay at the pump for gasoline and diesel still reflect what's going on in the rest of the world. So it's a challenging time for refiners. It's a challenging time for policymakers. I think they're looking at a lot of different measures, like a gas tax holiday. There are always rumors that there could be some suspension of crude oil exports. Um, I think many people have argued that that could have really negative consequences. I hope that doesn't happen, but the stress of increased prices can lead to some negative policy outcomes.
>> All right, that's all the time we have for today. I want to thank you very much. Stan Voyer, senior fellow in economic policy studies at the American Enterprise Institute, and Ben Cahill, non-resident fellow with the Atlantic Global Energy Center. Thank you very much to both of you. And that's all from the team here in our studio in Washington DC. For now, we'll hand back to John Hendren in Long Beach, California, and Al Jazeera's global headquarters in Doha. And don't forget, wherever you are in the world, you can always watch This Is America Monday through Friday at 18:30 GMT or 11:30 a.m. Pacific time if you're here in the US. Until then, from all of us here in Long Beach, bye for now. Oh, hey.