EMILY KWONG, HOST:
Iran is a major oil producer, and much of the world's oil and gas is produced in the Middle East. So how will the U.S. and Israel's war with Iran, which has now spread through the region, affect energy prices? NPR's Julia Simon has been tracking that and joins us now. Hi, Julia.
JULIA SIMON, BYLINE: Hi, Emily.
KWONG: How big of a deal is Iranian oil for global markets? Let's start there.
SIMON: Yeah. So Iran is a major oil exporter to China, even despite U.S. sanctions. But that's not the biggest worry here, Emily - one, because China has massive oil reserves. They're pretty insulated, even if they lose Iranian oil.
KWONG: OK.
SIMON: The real worry for global oil markets is about where all this fighting is taking place.
KWONG: Yes, it's spreading throughout the region, and we've been hearing a lot about shipping lanes in and out of the Persian Gulf.
SIMON: Yes, this is a big issue. The Strait of Hormuz - it's this key shipping route. If you're picturing the Persian Gulf, it's big body of water. You have Iran, Qatar, Iraq, Kuwait, the UAE, Saudi Arabia. All these countries have energy exports. To get to foreign markets, those exports go through the Strait of Hormuz. About 20% of global oil and oil products go through that strait normally.
KWONG: Wow.
SIMON: But not right now. I've been tracking oil tankers online, Emily. Many of those tankers are just stopped, anchored outside the strait not going in. So when oil markets in Asia open, this will have a dramatic impact on prices.
KWONG: Yeah, 20% of global oil and oil products is a lot.
SIMON: Yep.
KWONG: Aside from the oil impacts, this war will also impact likely the market for liquefied natural gas, LNG. Basically, LNG is gas transported by big ships, right?
SIMON: That's right, and about 20% of global LNG also goes through the Strait of Hormuz. Qatar is this huge LNG producer. If Iran attacks Qatar's LNG terminals, that would also impact supplies. Anne-Sophie Corbeau is an international gas expert at Columbia University. She says many countries have some extra oil in storage, but there isn't a lot of spare LNG lying around. It's the end of winter. Gas storage levels are really low.
ANNE-SOPHIE CORBEAU: The big problem is that in the LNG world, I mean, there is no such thing as spare capacity. So this is absolutely massive. It's going to impact everybody who is importing LNG.
SIMON: So it's not just oil prices that will go up.
KWONG: Yeah.
SIMON: Natural gas prices will likely go up, too, which is not great for people's electricity bills.
KWONG: Yeah, it just has me thinking about how so much of the global economy runs on oil and gas and just how vulnerable countries are when those supplies get disrupted.
SIMON: Exactly. The world is still very reliant on fossil fuels, but more and more countries have adopted solar and wind, battery storage, electric vehicles. They're less vulnerable to oil and gas price shocks. We're seeing many European countries really prioritize renewables after early price shocks tied to Russia's war on Ukraine. Here's Paasha Mahdavi, oil expert at UC Santa Barbara.
PAASHA MAHDAVI: This is a reminder that a better and safer world is possible, one in which we do rely on renewable resources that no one country can threaten or stop.
SIMON: Another reason, Emily, why renewable energy isn't just a climate solution but can be an energy security solution too.
KWONG: That's interesting. Well, Julia, any insight on what oil trading will look like today and tomorrow?
SIMON: Well, oil prices are expected to be up when trading opens soon. Today, the oil producer group, OPEC, did announce it's going to increase production, but we're expecting a very volatile day today.
KWONG: That's NPR's Julia Simon. Thank you so much for speaking to us.
SIMON: Thank you, Emily. Transcript provided by NPR, Copyright NPR.
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