The War on Iran Is Reshaping the Global Economy

Iran’s Revolutionary Guards have warned a “new stage of war” has begun after Israel bombed Iran’s South Pars gas field — the largest known natural gas reserve in the world. This comes as the price of oil has spiked to $118 a barrel, a 60% jump since the U.S. and Iran attacked Iran on February 28.

Professor of Gulf studies Laleh Khalili lays out the global economic implications of the effective closing of one of the world’s “major choke points for oil,” the Strait of Hormuz. “It doesn’t benefit the average U.S. citizen … at the gas stations, but it does benefit the oil companies,” says Khalili. “The higher the price of oil goes up, the relatively cheaper it becomes to actually have sustainable alternatives. Of course, that means that it benefits China … since China is way ahead of the rest of the world in producing these technologies.”

TRANSCRIPT

This is a rush transcript. Copy may not be in its final form.

AMY GOODMAN: This is Democracy Now!, democracynow.org. I’m Amy Goodman, with Nermeen Shaikh.

NERMEEN SHAIKH: Global oil and natural gas prices are soaring after Israel bombed a massive natural gas reserve in Iran, the largest in the world. Iran retaliated by twice attacking the world’s largest liquid natural gas production facility, located in Qatar. Iran also attacked key energy infrastructure in Saudi Arabia, Kuwait and the United Arab Emirates. At one point today, the price of oil reached $118 a barrel, a 60% jump since the U.S. and Israel launched its war on Iran.

In a post online, Trump threatened to blow up the entire South Pars gas field if Iran continues to target the Qatari facility. Trump also claimed the U.S., quote, “knew nothing” about the Israeli attack on the South Pars gas field, but The Wall Street Journal reports Trump approved the strike to pressure Iran to open up the critical Strait of Hormuz.

AMY GOODMAN: About 20% of the world’s oil exports flows through the Strait of Hormuz. President Trump has asked other countries to send warships to help force open the strait, but many nations are rejecting the request.

We’re joined now by Laleh Khalili, professor of Gulf studies at University of Exeter and the author of several books, including her latest, Extractive Capitalism: How Commodities and Cronyism Drive the Global Economy. She also wrote Sinews of War and Trade: Shipping and Capitalism in the Arabian Peninsula.

Professor Khalili, thanks so much for being with us. Can you start off by talking about the state of the Strait of Hormuz right now, its closure; President Trump, according to Reuters, perhaps sending in thousands of troops, what exactly this means; and the Israeli bombing of the South Pars gas field, the largest in the world? President Trump said, in a rare rebuke, the U.S. didn’t know. Most people are saying that is highly unlikely, that is probably untrue.

LALEH KHALILI: So, the Strait of Hormuz is one of the most important choke points for oil — a choke point being an area during which, if it’s closed down, you end up getting a major disruption in the flow of global trade. So, the Strait of Hormuz is one. The Suez Canal is another one. The Panama Canal is another one. And there are a number of these different choke points all around the world. Now, what’s specific about Hormuz and what’s distinctive about it is that it is the choke point where the quantity of oil that goes through is higher than any other commodity that actually flows across the strait. As you just mentioned, about 30% of the global oil flows through that. And part of the reason for that is, of course, that the world’s biggest oil producers — some of the biggest oil producers are all sitting around the Persian/Arabian Gulf, so Iran, Iraq, Kuwait, Saudi Arabia and Qatar, Abu Dhabi, which all are huge producers of oil in the first place, and then natural gas in the case of Qatar and Iran in the second place.

Now, what has been fascinating is that anybody who has one of these apps that you can put on your phone, like MarineTraffic or VesselFinder, you can actually take a look at the flow of traffic, the flow of vessel traffic, flow of ship traffic, through these different seas in the world. And if you zoom in on the Strait of Hormuz, what you’ll find is that instead of seeing actually a steady traffic of little usually pink or green arrows going through, which indicate tankers, what you end up seeing are major clusters of ships that are bunched up very near ports where oil is produced and usually put on ships. What that indicates is that, basically, for a number of different reasons — and I’m going to go into that in a minute — the flow of ships, the flow of ship traffic, has basically come to a halt.

Now, the reasons behind this are multifold. Of course, there is, number one, that Iran is attacking a number of the ships that are going through, and the way that it’s attacking them is through the use of very cheap either drones or sea mines, and that means that it’s basically almost impossible to deal with this particular threat, because the drones are produced so extensively in terms of number and they’re so inexpensive that they can basically be replenished even if they are destroyed. Also being smaller, they’re much harder to target, etc., etc. So, there has been a number of drone attacks against ships carrying oil through the channel, and so, of course, that scares a lot of carriers, a lot of tankers.

The second reason, which I actually think is perhaps even more significant, in part because it is actually not something that either the U.S. or Iran can control, is that the moment something like this happens, the moment that there is a threat against ships, what you end up having is that insurance brokers, primarily situated in London, but there are, of course, some also in the U.S., China and in Europe, but really the center for provision of maritime insurance is London, at Lloyd’s, and the ship brokers end up putting a specific war risk premium on ships. And that means that going from something like 1% of the cost of the hull, meaning the ship’s body, or the cargo, meaning what it’s carrying, goes to something like 5%, or it goes from one fraction of 1% to, say, 5%. And so, that means that suddenly, instead of paying in the hundreds of thousands for insurance for a super tanker, what you’re looking at is millions in insurance, which, of course, increases the cost of the oil that is traveling. So, that’s the second reason.

The third reason is something that the Houthis noticed when they were blockading the Red Sea in support of the Palestinians when Israel was committing genocide against Palestinians. And that is that sometimes the threat alone suffices in getting the ships to stop going through or, indeed, to make declarations that allows for them a degree of protection. So, the Houthis, when they had blockaded the sea, had asked that any ships that claimed that they were not touching Israel, meaning they were not delivering to or picking up from Israel, could be allowed to go through the canal. And so, it happened that this automatic identification system that a lot of ships — well, all ships carry — it’s called the AIS system, and the AIS system indicates what ship is in the vicinity of the system, what it’s carrying and what flag it has, meaning which authorities it responds to. And so, now what we’re seeing is that apparently Iran has mentioned that any ship, for example, that is going to China will be let through, or any ship that is not coming from one of these allied states to the U.S. will be allowed through. Of course, there is a lot of variation in what kind of thing they have requested or what is being reported, so it’s a lot harder to see what exactly the AIS systems are being on these ships.

And as I said, we are mostly seeing them clustering and waiting in these locations, one of the main ones being the Port of Fujairah, which is actually not in the Persian Gulf. It is in the Gulf of Oman. And oil from Abu Dhabi, which is on the Persian Gulf side, is shipped to Fujaira through a pipeline. So we’re seeing a cluster of ships near Fujaira. Iran, of course, also attacked Fujaira port. And then we’re seeing a cluster of ships near Ras Laffan, which is the main gas production and gas lifting port in Qatar. And the third is, of course, around the oil fields of Saudi Arabia, a little bit further up the Persian Gulf. And so, these clusters of ships are waiting there and hoping to be able to at some point pick up oil to be carried out. But we’re not seeing much of that flow anywhere at all.

NERMEEN SHAIKH: Professor Khalili, you mentioned that there are — they are looking for, the Iranians, to see which vessels in the Strait of Hormuz — to what countries they’re affiliated, looking at their flags. Chinese vessels have reportedly been permitted to pass through the strait. China imports about 40% of its oil from the Middle East and has been one of the largest buyers of Iranian oil. There are also reports that the Iranians are suggesting they’d consider allowing a small number of oil tankers to pass through the strait if the oil cargo is traded in Chinese yuan rather than —

LALEH KHALILI: Yes.

NERMEEN SHAIKH: — U.S. dollars. If you could comment on that?

LALEH KHALILI: This is really fascinating, because, of course, we know that the fundamental basis of the U.S. imperial order since the end of the Second World War has been, on the one hand, petroleum and, on the other hand, the U.S. dollar. The globe’s production and finance worlds are dependent on the petroleum that the U.S. has guaranteed the flow of since the end of the Second World War, and which, until the nationalization of oil in the 1970s and ’80s, basically controlled something like 60% of the world’s oil reserves. After nationalization, that percentage dropped dramatically, but the U.S. dollar continues to be, and the financial channels that the U.S. has crafted continue to be, a very significant bolster for the empire.

So, the fact that Iran is actually looking for alternatives to the dollar in order to challenge the petrodollar regime, which is, you know, as I said, one of the fundaments of the U.S. empire, is a really interesting and quite clever indication of how the Iranians are hoping to influence the crafting of a world post this war, or a new world order post this war, where there’s a multipolar financial system, where, for example, the dollar is no longer a single currency that rules the world and the U.S. is the only channel that control — or, the only power that controls financial channels, because, of course, the U.S. has used this inordinate power to strong-arm various states, to institute sanctions, to make it difficult for its enemies, for example, to purchase oil. And, of course, it has used it to coerce a lot of countries, as we see, for example, in the case of Cuba or Iran, or indeed Russia, to do its bidding. So, the fact that Iran is calling for petroyuans to become an alternative to petrodollars is actually quite significant also in indicating that the Iranians are well aware of how extensively the U.S. has used its coercive sanction capabilities, through its control of the financial channels and through its mastery of the petrodollar, and are trying to erode that power.

NERMEEN SHAIKH: Professor Khalili, you know, the U.S. is now the world’s largest oil producer, but because oil is a globally priced commodity, the price goes up in the U.S. if the world market price goes up. But —

LALEH KHALILI: That’s right.

NERMEEN SHAIKH: — how important do you think this might be in Trump’s calculation? Because another consideration, another aspect of this, may be that as oil supplies diminish from the Middle East, the U.S. could benefit, because it is the world’s largest oil producer, and the price of its oil will go up, and the demand for its oil.

LALEH KHALILI: Absolutely. What a fantastic question, because, in fact, we have seen that when the Russian invasion of Ukraine began and the Nord Stream gas, natural gas, pipelines to Europe were sabotaged, we now — there are now indicatrions that this may have been done at the behest of the U.S. and its Ukrainian allies. But nevertheless, when that sabotage happened, it actually translated into massive gains for U.S. natural gas production.

The thing is that there are a number of reasons why oil is not — why the U.S. cannot become the sole oil producer for the whole of the world. One is the question of proximity, for example. The second is the question of capacity that the U.S. has in order to actually replace, for example, the oil that is produced by Saudi Arabia or by Iran or, indeed, by Russia. But the third factor — and I think that this is the one that I think we should look out for — is that in the last 10 or 15 years, China has actually begun generating an alternative set of fuels, sustainable fuels, and developing technologies, particularly of electric and battery technologies, that will allow for, for example, solar or wind energy to displace fossil fuels.

And the more that the price of oil goes up, which, of course, we’ve seen that happen, as you mentioned earlier — and, in fact, this also translates into major windfalls for U.S. oil companies. This oil prices going up benefits Chevron. It benefits Exxon. It doesn’t benefit the average U.S. citizen at the petrol stations, at the gas stations, but it does benefit the oil companies. So, it definitely does — that does happen. But the higher the price of oil goes up, the relatively cheaper it becomes to actually have sustainable alternatives, which, of course, that means that it benefits China in a major way, since China is way ahead of the rest of the world in producing these technologies and in producing them cheaply. So, the solar panels that are being produced in China are a fraction of the price of solar panels that were being produced something like 15 or 20 years ago. And I think this shift is actually a major long-term concern for the oil companies. So, in the short term, they’re taking all the windfall that they can get. But this, again, is — the kind of a postwar order that we will see will likely also have major implications for the kind of energy people are paying to use or people are willing to use, actually.

AMY GOODMAN: We just have 20 seconds. But the effect of the bombing of the South Pars facility, the largest gas facility in the world, what it means for Iran, what it means for the world, and President Trump denying the U.S. had anything to do with, which most do not believe?

LALEH KHALILI: No, absolutely not. There is no way that Israel would have actually done this without coordination with the United States. And, in fact, the channels that deny, for example, that the U.S. coordinated, or report Trump’s denials, are the channels that are often used to feed us the kinds of lies that the administration tells us.

But what is quite significant about South Pars — and I know it’s a very short time left, so I’m going to be very quick about it — is that the South Pars field is actually shared between Iran and Qatar. The North Dome, which is on the south part of the Persian Gulf, is Qatar’s share of this major field, and Iran’s bit is in the northern part of the Persian Gulf. And so, the destruction of the infrastructure there will not only have an effect on Iranians’ ability to produce electricity and fuel their various kinds of industries and/or homes, but it will also have an effect on the infrastructures that are used by the Qataris and which the Iranians and Qataris have been using in an extraordinary degree — to an extraordinary degree of coordination since the fields have been utilized. So, this actually also affects Qatar. The bombing itself also affects Qatar. And I don’t think that this is a calculation that the rather know-nothing Trump administration has taken into account.

AMY GOODMAN: Laleh Khalili, we want to thank you so much for being with us, professor of Gulf studies at University of Exeter, author of several books, including her latest, Extractive Capitalism: How Commodities and Cronyism Drive the Global Economy. Thanks so much for being there.

Up next, we go to Washington, D.C., to speak with Congressmember Ro Khanna about the War Powers Act and about the Epstein files. Why did Democrats walk out of a surprise closed-door hearing with AG Pam Bondi? Back in 15 seconds.

[break]

AMY GOODMAN: “People Have the Power” by Patti Smith, joined by Michael Stipe, performing at Democracy Now!’s 20th anniversary. On Monday, Democracy Now! will be celebrating our 30th anniversary with Patti Smith, Michael Stipe and so many others. Watch the live stream at democracynow.org.