How will Middle East conflict impact energy and the economy? With Claudio Galimberti

0:00 – 4:00 Noah Brenner: Before we get into the energy implications of this, we at Rystad Energy want to first say that our thoughts are with our many colleagues, clients, and all the people who are experiencing this conflict firsthand in the region. This is Let’s Talk Energy, your go‑to podcast for smart energy insights. I'm Noah Brenner, and each week we bring you an inside look at the dynamics shaping global energy markets through in‑depth conversations with our own Rystad Energy experts as well as some special guests. After years of threats and indirect attacks and even a short‑lived direct conflict in 2025, on February 28th the US and Israel launched massive strikes on Iran, killing its supreme leader and others in its political and military organizations. Iran has oil production capacity of some 3.75 million barrels per day and was exporting a little more than a million barrels per day at the end of last year, mostly to China. It also produces more than 250 billion cubic meters of natural gas annually for its own consumption and some regional exports, and of course sits at the critical Strait of Hormuz choke point for global energy flows. As of our taping at about 10:00 a.m. US Eastern time on Tuesday, March 3rd, retaliation by Iran and its proxies has almost completely halted traffic through the strait, locking about 15 million barrels per day of oil and more than 77 million tons of LNG capacity out of global markets. We've also seen attacks on the Ras Tanura refinery in Saudi Arabia, the Ras Laffan LNG plant in Qatar, and the port of Fujairah. So, what has been the immediate impact on global oil, natural gas, and product markets? How long could the price spikes that we're seeing last? And what should we be watching to understand where markets are going next? And finally, what are some potential scenarios for Iran's future, and what do they mean for the long‑term outlook of the world's energy supplies? To help us understand the near‑term and long‑term implications of the conflict between Iran and the US and Israel, I'm joined today from Houston by Claudio Galimberti, Rystad Energy's chief economist. Claudio, welcome back to the program. Claudio Galimberti: Thank you for inviting me back, Noah. Noah Brenner: Well, let’s talk energy. We’ve got a lot to cover, and I want to make sure we have time to get into the energy implications. So we’re not going to focus too much on the details of the conflict other than those that have energy impacts. I want to start with what’s happening right now in oil markets. Where are oil prices? How much have they moved since Friday evening when the conflict started? And what’s driving these price movements? Claudio Galimberti: This is Tuesday morning, Houston time, and currently Brent prices are floating between $83 and $85 per barrel, roughly $12–13 higher than the close on Friday… (continues as in transcript) 4:00 – 8:00 Claudio Galimberti: …Let’s look at what happened when markets opened on Monday. There was a price spike at around $82, then Brent went down to $76 on Monday and closed yesterday at around $78. It’s very important to look at the price dynamic here, Noah, and I use another conflict—another very important war that happened recently four years ago—to understand the market reaction. During the war in Ukraine on February 24th, 2022, the market didn’t really react for three or four days. It was only on the fifth day when you saw a huge price spike. Prices went from $95 per barrel to well above $110, and that was the realization that Ukraine was able to mount a counteroffensive and the war wouldn’t end in a few days. Right now, we are probably at the same point in terms of understanding the dynamics. It’s very important to realize what happened over the weekend. There was a massive attack by Israel and the United States on Iran’s senior leadership. The supreme leader was killed, and over the weekend people were trying to understand the situation on the ground. Iran is so far probably able to mount a counteroffensive. Why is this important? The market is beginning to price that in today because of all the production facilities in the Middle East—Saudi Arabia, Kuwait, UAE, Qatar for LNG, Iran itself for crude and condensate, and of course the Strait of Hormuz. Close to 20% of crude and 20% of LNG goes through the Strait of Hormuz. This is a massively important situation. Currently, the Strait of Hormuz is closed. We don’t have tankers going through it. This is a massive market situation. We have not seen this in the history of the strait. The price of gas (TTF in Europe) doubled—from $30 per MMBtu to $60. Brent is starting to show the impact of the closure. 8:00 – 12:00 Noah Brenner: I want to touch on a number of the points you brought up, including gas and our outlook for Iran. But first, it seems like markets are weighing duration of the conflict and severity of impacts on regional infrastructure. Is that the correct way to think about what’s driving prices? And what does it tell us about how markets were pricing this risk in the first place? Claudio Galimberti: It’s about duration and the impact on infrastructure—and therefore the mass balance. We need to quantify how much production is potentially offline. As of this morning, Ratawi in Iraq—450,000 barrels per day—is offline because it’s been hit. Fujairah depots have been hit and closed. The Ras Tanura refinery has been hit—550,000 barrels per day. The duration of the closure of the Strait of Hormuz becomes the most important variable. Over the weekend, shippers were self‑restraining. Now there is a credible military threat from Iran that they could significantly hit any tanker going through the strait. Was the market complacent? Probably not. We didn’t know when the attack would be carried out. There was evidence of military buildup, but timing was unclear. Prices had already risen from $60 to $70 in the previous two weeks. Noah Brenner: How are we looking at global storage? Has storage kept a lid on even more dramatic price increases? Claudio Galimberti: China probably has close to 100 days of storage. They’ve been stockpiling SPR for years. The US also has ample SPR—415 million barrels. The US is no longer a net oil importer, so it’s in a strong position. Europe is more complicated—diesel and gasoil stocks are low, which explains the spike in cracks. 12:00 – 16:00 Noah Brenner: Could the IEA step in with a stock release? Claudio Galimberti: I wouldn’t be surprised if the IEA decides on a major SPR release, especially if the strait remains blockaded. That could cool prices somewhat. But SPRs are limited. If the strait remains closed for weeks, you cannot withstand that with SPR alone. Eventually the market will price at very high levels. There’s also the question of production in Saudi Arabia, UAE, Kuwait, Qatar, and Iran. There is still some storage capacity, but not for long. If the strait remains closed, production will need to be shut in—something everyone wants to avoid. Noah Brenner: On Sunday, OPEC+ announced a slightly larger monthly production increase. What’s their calculus? Claudio Galimberti: Most OPEC production goes through the strait. The increase—200,000 barrels per day—is slightly above expectations but does not move the needle. Nothing can compensate for 15 million barrels per day being blocked. Noah Brenner: You mentioned massive price spikes in European gas markets. Why is the response so outsized? Claudio Galimberti: Qatar’s LNG—77 million tons—is extremely important. Most goes to Asia, some to Europe. European storage is extremely low. LNG is a global market, so Europe must compete for molecules. That’s why TTF doubled. 16:00 – 20:00 Noah Brenner: China has less gas storage—around 45 days. Is that pressuring global prices? Claudio Galimberti: Yes. The LNG market is global, and Qatar being locked out is a major shock. Noah Brenner: Could we see a relaxation of Western restrictions on Russian energy? Claudio Galimberti: We are in the middle of a major crisis. Agreements can come into question, including sanctions. But because of the history of the Ukraine war, any decision would need to go through EU governments and likely be blessed by the US. It would be a long process. Noah Brenner: If the strait reopens, does everything go back to normal immediately? Claudio Galimberti: There is no precedent. If the strait remains closed for two weeks, the backlog would take another two weeks to clear. So roughly four weeks of disruption—equivalent to 160 million barrels delayed. A major shock. 20:00 – 24:00 Noah Brenner: Before the conflict, we laid out five scenarios for Iran’s future. The top two—nuclear deal or limited strikes—are off the table. What about the remaining three? Claudio Galimberti: The bottom three are now more relevant: extensive conflict with a pragmatic successor extensive conflict with a confrontational successor civil unrest Civil unrest is still least likely. The other two are more likely. Based on recent statements, a confrontational successor seems most probable, meaning we may be in for weeks of conflict. Noah Brenner: What about the US mindset? Gasoline prices are rising rapidly. Claudio Galimberti: The Trump administration was elected on ending forever wars. Venezuela is an example of a swift regime‑change success. They likely aim for the same in Iran. But Iran’s counteroffensive is strong, putting the US in a tight spot. The US does not want a prolonged conflict. Gasoline prices are politically sensitive. If Brent goes to $100, you’ll see $5 per gallon gasoline in the US—very uncomfortable ahead of midterms. 24:00 – 28:00 Noah Brenner: What are the knock‑on effects of high energy prices? Claudio Galimberti: Inflation is still above target in the US—2.7% to 3%. Interest rates are high. Tariffs introduced in 2025 may have contributed to inflation. High oil prices usually impact growth, but there are exceptions—like 2011–2014, when oil was above $100 but global growth was strong because inflation was low. In 2008, high oil prices contributed to the financial crisis. In 2026, we will likely see very high Brent and gas prices for weeks. That will be a problem for global GDP growth, especially in the US.