Rachel Abrams: From the New York Times, I'm Rachel Abrams and this is the Daily. Since the war with Iran began, President Trump has insisted that rising energy prices would be temporary. But the strikes last week on important natural gas facilities in Qatar and elsewhere in the Gulf have made the prospect of a quick recovery seem less and less likely. Today, my colleague Patricia Cohen explains why the economic impacts may be felt for years. It's Wednesday, March 25th. Hi Patty Cohen.

Patricia Cohen: >> Hey Rachel.

Rachel Abrams: >> You are a first time guest I think.

Patricia Cohen: >> Yes, first time guest. Longtime listener.

Rachel Abrams: >> That's what we like to hear. >> So Patty, at the beginning of the war, so much of the conversation about energy prices focused on the strait of Hormuz getting oil and gas out of the Persian Gulf. And because the straight of Hormuz has been closed, oil prices spiked super quickly because the uncertainty about when the straight would actually open again, that is still a huge issue. But it seems like in the last few days, the energy situation has expanded beyond the street. So tell us what's been going on.

Patricia Cohen: So I would say that the attacks that we saw last week on some of the energy infrastructure really moved the war into another phase >> in terms of both energy supplies and the global economy. Instead of talking about the impact in terms of days and weeks, now we're talking about it in terms of months and years.

Rachel Abrams: >> And why is that? Because what you had is that the production capacity, the ability to supply one of the world's really important energy supplies, which is liqufied natural gas. Those facilities were bombed.

Rachel Abrams: >> You're talking about different attacks, right? You're talking about the Israel attacks on the Iran energy infrastructure and the Iranian attacks on infrastructure in Qatar, right?

Patricia Cohen: Right.

Rachel Abrams: >> Israel hit a major Iranian gas complex on Wednesday. So the Israelis attacked Iran's infrastructure,

Rachel Abrams: >> prompting Iran to strike another major facility in Qatar

Rachel Abrams: >> and then Iran retaliated.

Rachel Abrams: >> The world's biggest liquefied natural gas facility, Qatar's Raslafan, was damaged by an Iranian missile strike and attacked the gas fields in Qatar.

Rachel Abrams: >> The attacks quote fundamentally reshaped the global LNG outlook. And that was a big deal because Qatar is a big producer of liqufied natural gas.

Rachel Abrams: >> I mean, so before we were looking at basically a transportation issue, when the straight was closed,

Rachel Abrams: >> now we're looking at something that's longerlasting, which is the ability to produce liqufied natural gas or LNG. Let's refer to it as that. It's a little bit easier.

Patricia Cohen: >> Yes, for sure. So, what exactly was struck in Qatar? So what was destroyed were two LNG trains and they're not really trains. What they are are plants that process and convert natural gas into a liquid.

Rachel Abrams: >> Trains feels a little misleading. This is a facility.

Patricia Cohen: >> I know. Yeah, it's a facility. I know it's a it's a kind of a weird word, but it's kind of a facility and it's a very expensive facility and it takes a long time to build. M.

Patricia Cohen: >> And what happens is that you take gas and you freeze it to 240 or 260° below zero.

Patricia Cohen: >> And then you compress it. And so it takes up 600 times less space than gas cuz you turn it into a liquid. And so that's complicated. And then you have to transport it in the same specialized container so that you can bring it somewhere else. It is not as simple as oil, it sounds like,

Rachel Abrams: >> right? I mean, oil is a lot easier to store and transport and that's what makes this particularly worrisome because it's hard to store and transport LG and now you've just taken capacity offline.

Patricia Cohen: So in total, whatever was destroyed in Qatar, what percentage of the global supply of LG is this? So, Qatar is the world's largest producer of LNG. It supplies about 20% of the world's liqufied natural gas. It's one of the biggest exporters.

Rachel Abrams: >> So, what happened at the beginning of the war because transit was halted?

Patricia Cohen: Basically, it suspended its production cuz it just had no place to put it. Their storage facilities are only so big.

Rachel Abrams: >> So, that's obviously a temporary problem.

Patricia Cohen: But what happened last week was that because of Iran's attack, nearly 20% of Qatar's ability to produce LG was destroyed. And that will take several years to fix, maybe as many as five. And the reason why we're talking about all of this is that unlike the straight of Hormuz that could theoretically be opened or closed relatively easily. We are talking about damage to infrastructure, oil and gas infrastructure, that is a much longer term disturbance into the oil market and to the global supply etc. Exactly. So let's say the war ends tomorrow. You could open up the straight of Hormuz and traffic would start flowing again. But cutter is not immediately going to be able to repair

Rachel Abrams: >> and start producing that LG again.

Patricia Cohen: >> I'm sure a lot of people have heard of LG, but just tell us what is it actually used for?

Patricia Cohen: Basically, it's a source of energy, right? So, you've got oil, you've got natural gas, you've got coal, you've got solar power some places, you got wind power some places, you've got nuclear power some places. And these are all energy supplies that countries use to different degrees. Okay. So, LNG, a lot of countries switch to it from coal because coal is really dirty. So, that's one of the reasons particularly in Asia, Korea and Japan switch from using coal to liqufied natural gas. It's also much cleaner than oil.

Rachel Abrams: >> So, it's about 30% cleaner than oil. And so countries were diversifying their energy supplies because you didn't want to put all your eggs in one basket, right? So you had oil, you had coal, you had natural gas. A lot of countries of course are trying now to increase renewables, their use of solar and wind.

Rachel Abrams: >> But safe to say for a lot of countries, particularly some of these countries in Asia, liqufied natural gas is the main source of energy that people use for their homes.

Patricia Cohen: I wouldn't say it's the main source of energy, but it's an important source of energy. So, so Japan for instance decreased its dependence on nuclear power and coal and increased its use of LNG. So now LNG makes up about 21% of Japan's total energy supply, but it's used to generate 30% of its electricity. So that's, you know, how you power your cell phone, your laptop, your hair dryer, your oven, your washing machine. It's how big factories and industry use to power and run their machines and such. Korea LNG makes up about 20% of its total energy supply and it generates about 25% of its electricity and Korea is an interesting example because that's a country that in the last 25 years has increased its use of LG by more than 200%. So you can understand why all this is so disruptive to some of these countries.

Rachel Abrams: >> Exactly. And on top of that, there's a lot of other byproducts that are really important in industrial production. So one of them is Napa, which is probably something you've never heard of, but it's really important in making plastics and other gas products. Helium is really important for making semiconductors. And then there's nitrogenbased fertilizers which are crucial to the world's food supply and fertilizer prices have soared and farmers are really worried one can they even afford to buy fertilizer and two will it even be available for them to use.

Patricia Cohen: This is what we hear when we hear people talk about fears about rising food costs. I feel like fertilizer is the thing that is cited the most right now.

Rachel Abrams: >> Exactly. Exactly. So, how has the world felt the impact of this LG shortage so far? Like, what has that looked like for some of these countries that you mentioned or other countries that are so reliant on this source of energy? So, remember, we're in the middle of an energy shock. Already, we're dealing with higher prices of oil and that this oil can't get to where it needs to go. And so for countries that also use a lot of LNG, it's like a double whammy because now prices of that are going up. And so for poor countries, it's really hard because they have trouble affording even the energy supply that's available.

Patricia Cohen: The fallout from the war is reaching South Asia and millions of lives. Fragile economies particularly are in trouble. Which is why in Pakistan skyrocketing fuel prices has been accompanied with power shortages. We've seen in places like Sri Lanka and Pakistan, schools are being closed, government offices are being closed,

Rachel Abrams: >> and Thailand is ordering government workers to save energy by suspending overseas trips and working from home.

Patricia Cohen: >> In Thailand, they're asking people to take the stairs instead of elevators. Work weeks are being shortened to 4 days. These are countries who are taking extreme measures because they fear if the conflict goes on they're going to be in a dangerous dangerous situation. Let's put the focus right now.

Rachel Abrams: >> But rich countries are having an impact as well.

Patricia Cohen: South Korea is imposing a fuel cap for the first time in 30 years as it seeks alternative sources of energy beyond the street of Harmuz. In South Korea, they've started this energy savings campaign, urging people to take shorter showers, to ride bicycles.

Rachel Abrams: >> The price of gas in Europe is more than double the level seen before the conflict began.

Rachel Abrams: >> And you're seeing effects in other rich countries, too. Like in Europe, which also uses LNG, although it's not quite as dependent as Asia, prices have gone up a lot. So what you've seen in a lot of countries are leaders talking about trying to help consumers afford heating bills. So they've cut taxes on some of their energy.

Patricia Cohen: We should remember energy prices in Europe were already more expensive to begin with before the war in Ukraine and that only made it even more expensive. So if people didn't need to heat particular rooms in their homes or businesses, they might not.

Rachel Abrams: >> Exactly. So I just happened to look at the price of gas in Britain for instance. I live in London and oh my god, natural gas prices have increased in Britain by 40%.

Patricia Cohen: >> Wow.

Rachel Abrams: >> Just since the Iran war started.

Rachel Abrams: I want to turn to the United States because the headlines here about how people are going to be affected are pretty dire. So talk to us about how Americans are feeling these shortages or might feel these shortages of LG. Well, you know, I think it can be confusing for Americans because we know that the United States is actually the biggest producer of oil and it also produces a lot of LG. In fact, Europe buys a lot of its LG for the United States.

Patricia Cohen: But what you have to remember is that the price of energy is set on a global market. And so when that's going up, that's going to affect everything. But there's something more that I think is important to remember. And that is not only the direct effects of price increases, but there's also going to be other indirect effects, knock on effects down the road that are very important. We'll be right back.

Rachel Abrams: Patty, you mentioned that there are some indirect effects of all of this energy disruption. Tell us what some of those are. All right. So, let me start with one which is the idea of safety and trust. Mhm.

Patricia Cohen: >> So the increase in the price of energy and LNG is not just affected by what was destroyed, that very physical damage,

Rachel Abrams: >> but

Patricia Cohen: >> it's also set a precedent. You know, the Persian Gulf has been this magnet for investment, for people to move to. It's been seen as a really safe place to both live and work in and invest in.

Rachel Abrams: >> And now there there's a rumbling underneath. Is it really as safe as we thought?

Patricia Cohen: What you're describing, this instability, this risk, this lack of safety, all of this is basically the worst nightmare for these Gulf States, right? Because they have been spending years trying to attract foreign investment.

Rachel Abrams: >> Exactly. And so another knock-on effect, remember, we're talking about energy prices increasing,

Rachel Abrams: >> which increases prices of everything because it's not just the cost of growing an avocado. It's not just the cost of producing a pair of sneakers. You got to transport that. That's becoming much more expensive. What does that mean? That means inflation or the possibility of inflation and prices, not just of energy rising, but prices of everything across the board rising. And one response to increasing inflation is that central banks might be more likely to raise interest rates.

Patricia Cohen: >> And that causes a whole other set of economic problems,

Rachel Abrams: >> right? How much it cost to borrow money for example?

Patricia Cohen: Exactly. So let's talk about AI, right? What does artificial intelligence have to do with any of this?

Rachel Abrams: >> So what does it have to do with any of this?

Patricia Cohen: So think about it. So number one, what we know is that data centers which they're building use an enormous amount of energy. So now the cost of energy is going up. But secondly, they also require huge amounts of loans to build. They're really expensive just building these data centers. Forget about the energy centers. Exactly. And so if interest rates go up, that means that the cost of borrowing money to build them goes up. And what some Wall Street analysts have told me is that building these AI data centers, that's something that's very sensitive to interest rates increases. And at least for Americans, remember AI, these data centers have been driving the US economy,

Rachel Abrams: >> right? They've been propping up the stock market. They've been propping up the stock market. Exactly.

Rachel Abrams: >> Are we kind of talking around the rword recession?

Patricia Cohen: No. And I think it's important to take a moment and say, you know, we're talking about the future and we are in an incredibly volatile period. Things are so unpredictable and it's really hard to know what's going to happen next. M

Patricia Cohen: I should also add it's bad for business because when consumers are worried about what's happening they don't want to spend as much and remember the US economy is really driven by consumer spending 70% of it. >> Secondly it also means that businesses are reluctant to invest because they don't know what's happening in the future. So there's a crisis of confidence a little bit. But what I will say is if energy prices stay high, if oil, let's say, goes up to $180 a barrel or higher, then it's going to be very difficult to avoid a recession. So, I don't think we're there yet, but you know, we're in this world of uncertainty. There's a lot we don't know. How much longer is this war going to last? Are there going to be more attacks on energy infrastructure?

Rachel Abrams: >> What if there aren't, Patty? What if the war literally ends tomorrow? No more strikes in energy infrastructure. I know you told us at the top of this conversation that people are saying just based on what's already happened, it will take months, if not years, to rebuild some of the facilities. But given all of that, if there were no more strikes, how long would it take for things to go back to normal?

Patricia Cohen: Right. Well, you know, I guess one question is what is normal? Let's let's talk about

Rachel Abrams: >> price pre Iran war prices. So So yesterday the head of the International Energy Agency said that he thought it would take at least 6 months even if the war were to end tomorrow just to get production up to where it was. Why is that?

Patricia Cohen: That's because a lot of the production stopped when the war started. Mhm.

Rachel Abrams: >> So even though the facilities were intact, they turned it off and that's going to keep prices high for a while. And then there's all these other uncertainties that are going into energy prices and how long is that going to last? Given all of that, are there other levers to pull to ease the LG shortage? Are there other solves here? Well, I mean, the US has already released more supplies from its petroleum reserves and the International Energy Agency has done that as well to ease supply.

Patricia Cohen: One other thing that has happened is that President Trump has lifted the sanctions on Russia, which a lot of countries in Europe are against and is very disturbing obviously to President Zullinsky and Ukraine

Rachel Abrams: >> because this is of course funding Russia's war effort with Ukraine.

Patricia Cohen: Exactly. So Russian oil had been selling at a discounted price, probably about $60 a barrel before, and now it's about $90 a barrel. And also, this sounds crazy, but the US has lifted sanctions on Iran's exports of oil.

Rachel Abrams: >> Right. This is basically a multi-billion dollar war with Iran to buy oil from Iran.

Patricia Cohen: Exactly. I mean the one thing obviously that would go a long way in terms of helping this problem as well as others is the development of alternative energy sources particularly renewable energy sources. That's a huge investment upfront but actually the cost once you do that investment of solar and wind is really much lower. And so I think that you will see that there will be more development maybe not in the United States because it's such a political issue here but other places development of solar wind and I do think nuclear power

Rachel Abrams: >> and just to be clear what you're saying is that those renewable sources of energy would help because it would decrease the dependence on natural gas LNG and oil. So anything that you do to increase the supply of energy is going to help both in terms of diversification of supply as well as bringing down the cost. But the world is an interconnected place

Rachel Abrams: >> and it's just going to remain that way.

Patricia Cohen: Right? In other words, you can diversify your energy supply. You could try to come up with your own energy independent strategies, but at the end of the day, we are living in a global economy and that will not insulate you completely from future.

Rachel Abrams: >> Absolutely. I mean, look, this is just like we were talking about the United States. It's one of the biggest producers of energy in the world, but it's still subject to global prices.

Rachel Abrams: Right, Patty? Trump had threatened to attack Iran's energy infrastructure. And so far, he's put a pause on those threats. But if we did see that, the folks that you talked to every day, the industry experts, the analysts, what are they telling you that they are concerned about in that scenario?

Patricia Cohen: I think one of the surprises of this war has been how effective Iran's responses have been. I mean, it's so much weaker relative to the United States and Israel, and yet it's been able to exert enormous leverage over the global economy.

Rachel Abrams: >> It does speak to the changing nature of warfare.

Patricia Cohen: One guy on a speedboat with a bomb in the straight of Hormuz could screw up all international shipping.

Rachel Abrams: >> Exactly. I mean, we've just talked about this one attack that happened last week and how that could have an impact a few years down the road. What happens if there's more damage to cutter's gas fields and to other processing facilities in the region, not only in Qatar, but in Saudi Arabia and other places? So, that's a big worry. And we talked a lot on the show about how the Iranian regime perhaps out of desperation is willing to do anything it can to stay in power. So, it doesn't seem like what you're talking about is super far-fetched in terms of escalation,

Rachel Abrams: >> right? I mean, there does seem to be a seeming miscalculation on the part of the administration,

Rachel Abrams: >> the Trump administration.

Patricia Cohen: Yeah. And I think what's been overlooked in terms of decisionmaking is that the people in control of Iran now see this as an existential threat. >> And so it is their survival and therefore they are willing to do anything it takes. And I think the other thing that people didn't really think about was just how far the ripple effects could go. I mean, you have three countries, the US and Israel, at war with Iran and Iran responding. And meanwhile, you're feeling the effects halfway around the world. I mean, every country, every spot around the globe is feeling the impact of this. I mean, we're only in the fourth week of the war, and already the head of the International Energy Agency has called this the greatest global energy security threat in history. I mean, we just don't know exactly how things are going to play out. And so, it's a scary time. Patty Cohen, thank you so much. Thank you, Rachel. We'll be right back.

Rachel Abrams: Here's what else you need to know. The Trump administration has sent Iran a 15-point plan for ending the war, reflecting a desire to find an off-ramp to a conflict that has deeply rattled the global economy. President Trump said on Tuesday that negotiations to end the war had begun and that the Iranians would like to quote make a deal. Iran has maintained publicly that no negotiations have been underway. At the same time, the Pentagon has ordered about 2,000 airborne soldiers to deploy to the region. It's unclear where exactly the paratroopers would go, but officials said they'd be within striking distance of Iran. And a preliminary investigation into the deadly runway collision at LaGuardia Airport on Sunday suggests both technical and staffing errors were to blame. The fire truck that collided with an Air Canada jet didn't have a transponder, which made it difficult for the airport's warning systems to track its location. And investigators say the two air controllers on duty had more responsibilities than they might have had with more staffing.

Rachel Abrams: Today's episode was produced by Mooch Sadi, Diana Wyn, and Ricky Netski. It was edited by MJ Davis Lynn, Paige Cowat, and Patricia Willins. Contains music by Marian Lozano, and Pat McCusker. Our theme music is by Wonderly. This episode was engineered by Chris Wood. That's it for the Daily. I'm Rachel Abrams. See you tomorrow.