Jan: It's not the biggest waterway. The

straight of Hormuz is only about 167 km

long and just [music] 39 km wide at its

narrowest point. But it is one of the

biggest [music] stories in the world

right now. That's because it's the only

maritime passage connecting [music] the

Persian Gulf and the Arabian Sea and

about 1/5if of the world's oil [music]

and natural gas passes through it. Or at

least that's what happens in normal

times. These however are not normal

times. In response to the USIsrael

[music] war against Iran, that country

has effectively shut down all traffic

through the strait [music] and

threatened to attack ships that defy

them. The result, global markets are

rattled, raising fears we'll get the

kinds of widespread shortages, [music]

price spikes, and disruptions much of

the world hasn't seen since the 1970s.

So, how does this moment compare to

previous crises? and just how bad could

it get? [music] We break down the

possible scenarios and risks and where

this all leaves Canada. This is the

rundown.

Jan: We've seen oil [music] crises before.

The Suez crisis of the mid-50s, the Arab

oil embargo in the mid70s. So, how does

this current crisis compare? And what

happens if Iran keeps the straight of

Hormuz closed?

Jan: [music]

Bob Yoger is a commodity specialist with

Mazuo Americas and he joins me now on

the program. Bob, great to see you. How

are you doing?

Bob Yoger:

Very good. Thank you for having me.

Jan:

I want to pull up some uh some data that

is probably no you're no stranger to.

You have seen this. This is a chart of

the price history of West Texas

Intermediate Oil since 1970. Uh you can

see when we start sort of in the 70,

we're looking at $3 US per barrel. When

we look towards the 2020s, there have

been some moments in history where we

have hit about a hundred and sometimes

over $100 US per barrel. The sharp

increases that you'll see indicate some

kind of oil shock and there have been

many over the years. Bob, help us

understand right now what's happening

with the strait of Hormas. Hormuz has

never been closed uh to tankers like

this before. Some have gone on to say

that this what we're seeing is

unprecedented. Why aren't we seeing oil

prices higher uh than say in the early

2000s, mid200s?

Bob Yoger:

The big reason is because the United

States and to a lesser degree Canada are

now oil producing superpowers. We, the

United States, we produce way, we

produce 13.8 million barrels a day of

crude oil back in those early 20s or

going back to the first uh war in Iraq.

Uh I worked on the floor then. Uh when

we liberated Kuwait, we were probably

producing 6 million barrels a day if we

were lucky. Now we're at 13.8 million

barrels. We have energy security in

North America, in the Americas in

general. That was not the case back in

those days. was not the case even

through the first uh uh through the

second uh Iraqi war with the second

President Bush. Uh that was still not

the case. Um and that the the the the

technology that we have at our hands now

can bring a lot of crude oil out of a

very tight space. It can suck basically

crude oil out of rock. And uh we've got

we are very good at that in Canada.

You're very good at it also. And uh if

if you could build more pipeline in

Canada, you would even be able to

produce a lot more crude oil. So yeah,

we have an abundance of crude oil. We're

we're going to have an abundance of

crude oil for a long time. And that kind

of takes the shock effect out of the uh

out of price, especially for North

American WTI crude oil. You'll see today

at one point the international benchmark

Brent contract was trading at basically

a 20-year high $20 premium to US crude

oil. In other words, crude oil from the

North Sea was $20 more expensive than

the barrel from West Texas today. So

what happens then is crude oil

[clears throat] there's no real reason

for crude oil in the United States to go

rally above and beyond. But with that

$20 premium to the international

benchmark, we're going to be like we are

going to be exporting barrels for size

here in coming weeks. The crude oil is

trapped in this in this in the Persian

Gulf is going to divert their customers

to the United States who are going to

sell them a lot of WTI crude oil which

is a good crude oil makes a lot of

gasoline. Uh the Canadian barrel which

generally comes down through the uh

midcontinent of the United States is a

thicker crude oil. It makes a lot of

diesel and heating oil that has trouble

making it to the sea. But we will if we

sell if you sell us the oil, we can

divert some of those our supplies to the

Gulf Coast and sell them even more

barrels. So look, the the alltime record

is about 5.6 million barrels a day of US

exports. We were at about 4.9 million

barrels in yesterday's storage report.

Look for that record to fall in coming

weeks.

Jan:

I do have to ask, you know, prolonged

high oil prices can test any nation. uh

it doesn't matter if you are an export

or an import. I am curious, help us

position what we are seeing right now

sort of in the history books here. What

past oil shocks did not lead to a global

recession?

Bob Yoger:

It it's pretty much a layup to a large

degree. Uh yeah, it's it certainly

increases the odds. I mean, we traded

$100 yesterday that we're in the range

where inflationary pressures are going

to be on the move and it's going to

threaten a recession here. I just read

before I left the desk that the uh

traders are pricing in no rate cuts this

year. They have to have that rate

increase in their back pocket

possibility to combat inflation moving

ahead here. So, uh, it's not looking

it's not a good situation. It looks it's

looking more and more like a low growth,

uh, possibly low job environment moving

forward from here. And, uh, that is not

good. Uh, I will tell you the big

problem here in the States. I mean,

we're not immune to all this despite the

fact that we're pretty far away from the

Persian Gulf or the Middle East and the

fact that we don't import barrels in

there anymore. However, the price of

gasoline here in the United States is up

over 30% in 18 days. Since the beginning

of the of the war, the price of crude of

gasoline at the pump has been higher for

18 days in a row. It's been higher for

every day of the war so far. Uh so that

is going to put pressure on the on the

consumer. That is the easiest way to get

to inflation is high energy prices

because it bleeds through so many

different industries. So, yes, it's a

real it's a real problem here. It's not

only an inflationary problem, it's a

political problem for the G for the

administration. We have the midterm

elections coming up uh in November. And

if people are driving and they're paying

$4, $5 for gasoline during summer

driving season, they'll remember that

when they go to the polls.

Jan:

Bob, how would you compare this oil

shock to those of the past? say the 1973

oil embargo or when oil prices traded at

$147

per barrel briefly in 2008.

Rory Johnson: The 2008 scenario was kind of a a drift

higher. It wasn't necessarily a one day

10% spike higher. It was and it wasn't

just one factor. It was geopolitical

mayhem basically in Iraq. It was the the

increasing demand by China uh to next

level uh demand numbers and it was also

a uh a a uh the dollar. Those three

forces conspired to to rally crude oil

to the highest level of all time. But

there there was like it was more of a a

gradual thing. It wasn't like a big one

day event. Uh so I would say this time

because of the the quickness it's uh

it's it's it's a big event. However, I

would also say that the Russian war in

Ukraine that was a big one that that

left a lot of

the European Union's access to what they

had bet would be their

oil and gas uh supplies for millennium

off the market. and they had to scramble

really fast to secure new supplies and

those numbers went to the moon and that

that was a big shock to the system. That

was a big shock to one of the biggest uh

economies, the European Union of all

time to any any economy. And uh so that

was a big one. There's a lot of in in

some ways you could say that was worse.

Um but it's you know it's it's it's

apples and oranges at this point to a

large degree. We still haven't traded to

the levels that we were at in the

Russian war in Ukraine. Uh Brent traded

to $119.50

at the beginning of the war, traded to

$119 today, but that's still a good 1112

away from where we were at during the

Russian war in Ukraine.

Jan:

If hostilities were to cease tomorrow,

how long would it take for global oil

and gas to balance itself? maybe perhaps

come back to where it was uh February

27th before uh the US and Israel

attacked Iran.

Bob Yoger:

Market would fall really fast in one day

for starters. It would be a 10 $15 move

to the downside. Um it probably would be

another one the day after that. This has

happened before. This has happened in

the first Gulf War. Uh the market would

trade limit down uh multiple times in

one day. That would probably happen

again to a certain degree if they just

wrapped it up today from out of nowhere,

which I wouldn't say is likely, but I

would I would say there's a 1, two, 3%

chance that it does happen. Uh if that

were to happen, it would it would pull

back fast. However, there is no doubt

that there's significant infrastructure

destruction in the uh production space

in the Middle East in the Persian Gulf

at this as of right now. Uh Kuwait

Energy was putting out this morning that

it would take as long as five months to

them to fix the damage that has been

done to their facility, which is the

largest LG facility on the planet that

moves 20% of all LG supplies on the

planet is has been damaged. And I that's

longer than I thought, but they are

putting out five months to to fix that.

Today, three refineries representing 1.2

2 million barrels of refining capacity

were were were were targeted by the

Iranians today. Uh in earlier part of

the war, the fourth largest refinery in

the world in the United Arab Emirates

was targeted, that's 800,000 barrels a

day. And the largest refinery in the in

Saudi Arabia for 550 million barrels a

day was also targeted. that production

is not going to come back from those

refineries on day one. You'll get the

big move in in crude oil. You would get

the big crude oil move in crude oil, but

oil infrastructure is going to take

longer to come back.

Jan:

All right, Bob, we are going to have to

leave it there. Really appreciate your

insights on this and [music] thanks for

the history lesson as well.

Bob Yoger:

Did you know that Canada is the fourth

largest global producer of crude oil and

the fifth largest producer of natural

gas? Meaning when global energy markets

are shaken, we are in a unique position.

So what moves should we be making right

now politically and economically? And

could we be headed toward a recession?

Jan: [music]

Bob Yoger is a commodity specialist with

Misso Americas joins us again. And Rory

Johnson is an oil market researcher and

founder of the commodity context

newsletter. and Heather Exnerpo is the

director of energy, natural resources,

and environment at the McDonald Laurier

Institute. Great to have you all on the

program. Rory, I'm gonna start with you.

The petro dollar system began in the

1970s. This is where, you know, Middle

Eastern oil producers sell their

products in US dollars. They spend those

earnings, of course, on US assets like

treasuries. It helps Americans fund,

America fund its spending, also some

exchange for security as well in the

Middle East. help us understand what is

the future now of the petro dollar

system.

Rory Johnson:

Well, part of the challenge is that

those Gulf producers aren't currently

making any money. So, there's not many

petro dollars to recycle into that

system. So, that is obviously a massive

drain of liquidity from the financial

system globally and and obviously

transfers directly into the US dollar.

Um, but again, I think this situation

remains untenable to last. I think

something's going to have to move

because these are we're currently at

existential levels of kind of despair of

the of the Gulf producers between Iraq,

Kuwait, Saudi Arabia, and the UAE. Um,

to name to name but a few, we've already

had, you know, we're at 20 million

barrels a day lost through the strait.

Um, and just to put that in perspective,

I think it's important to kind of

understand how big a number that is.

That was roughly the peak of global

demand loss during the peak of COVID in

March and April of 2020. So when not a

plane was in the sky, we were all locked

in our homes. That's the current level

if the straight remains closed that we

are going to need to see some degree of

demand destruction to kind of close that

gap. So imagine trying to replicate the

mobility issues of CO but without a

pandemic and without lockdowns. What

price would you require to get there? So

I think back to this question about the

the GCC producers uh the Gulf producers,

you've already seen more than 9 million

barrels a day of production shut in.

That's not just blocked. That's

production. these wells aren't producing

anymore. This is going to take weeks,

months to get back up and running.

There's not a lot of money coming in.

Jan:

All right, Heather, Rory's painted a

picture there. Uh what is the future now

uh for the pro dollar system as you see

it?

Heather Exnerpo:

Yeah. Well, just to reiterate, you know,

Rory's alarmism and and Rory is usually

a pretty balanced guy, but things are

bad. I was just with some Australian

miners yesterday. Some of the lithium

mines, they're down to five days of

storage. They're going to have to shut

in their mine. So the idea that oh just

move to electricity, you know, just move

to renewables, the the availability of

oil and all the things it produces

greases the wheel of every other facet

of our economy. And so there's no doubt

that we will have a hangover, you know,

however this ends and and whenever it

ends. And I agree with Rory, politically

it's it's untenable. Uh and so people

are looking for exit ramps right now.

Bob Yoger:

Bob,

I I think I agree with them to a certain

degree. those those dollars are locked

in right now. And uh I would tend to

think that it's going to be the case for

a good two week two months or up to

Memorial Day weekend is is where I'm

looking for kind of to wrap this up at.

Uh the Trump administration cannot

afford to take this into summer driving

season. So I'm looking for it to end

about there. But uh there's a lot of oil

out there. On the other hand, the global

economy would be able to survive. Pri

prior to this, the International Energy

Agency was estimated there was about 3.8

million barrels of surplus every single

day. So, there's a lot of oil out there,

but uh it it is definitely

a problem.

Jan:

All right, I want to pull in a a chart.

This looks at Canadian oil prices uh

from 2014 to 2026, but I want to keep

our focus onto the right hand side of

this chart here. Prices of Canadian oil

rose around the same time that the war

began in the Middle East. A huge kind of

spike right there. But uh they are still

well short of all-time highs, which was

of course in 2022.

Rory Johnson: Rory, is Canada in for an oil and

natural gas windfall because we, you

know, we're a reliable, some would say

secure, democratic supplier of those

resources. Is this an opportunity here?

Bob Yoger:

I think in the initial term, absolutely.

I think what we're already seeing with

Brent prices, you know, we're currently

at about $110 a barrel. WCS

differentials or the the discount borne

by Western Canadian select barrels, our

main heavy sour export. Uh they had

actually been under pressure uh earlier

this year following uh the kidnapping

and kind of regime change in in

Venezuela following the kidnapping of

Nicholas Maduro. Uh the re-entry of

those Venezuelan heavy sour barrels

similar to our own was weighing on GF

Coast uh discounts. Um but basically

what's happened through the Iran war

already is in two weeks that discount

has been entirely erased again. Uh and

the reason for this is that the majority

of barrels coming out of the Middle East

coming out of the straight hormuz are

medium to heavy sour barrels. So we are

benefiting as Canadian exporters both on

the kind of overall price level as well

as a better differential or discount.

The challenge is is I think the longer

this goes on I'm I'm pretty alarmed as

as Heather was saying I'm very alarmed

and I don't think this is just

recessionary. I think this is

depressionary if this continues for as

long as it could. And I think that's why

I can't I can't see this lasting. But

even in a scenario of higher oil prices,

Canada will hurt from the economic pain

globally if this does spread into a

global economic catastrophe, which is

where which is where it's looking like

it's going right now.

Jan:

Heather, when we talk about countries

that are hurting right now because of

this situation, we can look to countries

in Asia, China, India, uh Sri Lanka,

other nations. But I want to focus a

little bit on uh Canada's sort of new

forge relationships with China for

example. I am curious what does this

supply disruption in the Middle East

mean for these relationships for Canada

say amongst China and the other Asian

countries.

Heather Exnerpo:

Yeah. So Rory's right that this is is

hurting everyone. Canadian consumers

will not benefit from this. But if any

country is looking like it may be a

winner, you know, in the medium and long

term out of this, I think it's Canada.

Russia might have some claim to that as

well. But the reason for that is that we

are an enormous oil and gas exporter. We

are able to export off the west coast.

Uh now to some extent we're looking to

export more oil off the east coast and

we ship through the Gulf of Mexico. So

we have quite a lot of diversity of

where we can ship things through.

Obviously Carney has been very focused

on improving those Asian alliances. He's

been to Japan, India and China.

Obviously energy led those discussions.

Uranium is also on the agenda but is

very much oil, natural gas and LPGs. And

if you're one of those buyers and you're

already thinking about Canada, well, we

are we just keep our brand keeps getting

better and better. The premium that you

might assign to that reliability to that

Canadian optionality is probably getting

better. And I would say that helps, for

example, as we're expanding Trans

Mountain to get buyers in Asia to take

off excess production that we could send

through there. I think it probably helps

get the final investment decision on LG

Canada too and solic LG and and just

overall I think people will may you know

if you can have optionality and Canada's

an option now I think that would be

attract to just about everyone.

Jan:

Bob Heather says you know Canada is a

potential winner here but I want to talk

about infrastructure. Uh does Canada

have the ability to ramp up oil and gas

production quickly? Uh I know we talked

about uh you know pipelines as well

whether we have enough of that uh or

not. Uh can we do this?

Bob Yoger:

No. No. The US would be the best

customer and that's where almost all the

barrels would go. That's where the

pipelines go at this point. They go into

the midcontinent and the the refineries

US refineries in midcontinent soak up

that crude oil and uh it's reliable. It

moves every day perfectly. What Canada

needs is another larger pipeline to the

west coast where they can export barrels

to to basically to China, but there'll

also be barrels that would go to Japan

and um South Korea also. Now, barrels

actually go to a large degree to

California and the West Coast also, but

they need a bigger pipe. Build a bigger

pipe and uh the producer will add more

barrels. They will increase production.

It's as simple as that. But financing

that pipe is no easy task. And building

the pipe would be an architectural

wonder of the world. Uh it's not easy.

It's it's pretty long ways and you got

the Rocky Mountains in the way too. It

can be done, but it costs a lot of money

and uh you need that kind of commitment.

Jan:

Heather, I'll get you get you in on on a

response to Bob there.

Heather Exnerpo:

Well, I mean Bob's absolutely right. So

we have the expansion of Trans Mountain.

The obvious customers for those are in

Asia that's likely to happen. and that

would probably be about 360,000 barrels.

So that's what we're focused on. Now LNG

is a bit of a different story than oil.

We all want that Northwest Coast oil

pipeline, but to Bob's point, it's

easier to go to the United States. And

also, we've attached a $20 billion

carbon capture project to a new

Northwest Coast oil pipeline, which on

top of the financing and then

engineering difficulties makes that more

of a long shot. And so you have seen

that what is actually happening in real

time is producers are looking to send

more south andbridge is is expanding its

main line optimizing it and now we're

having the revival of Keystone XL and so

that the you know oil is going in in the

shortest route and the smoothest route

it can find and most of that happens to

be the United States.

Jan:

Rory, Canada produces about 6 million

barrels of oil a day and has a dozens of

refineries across the country. What is

preventing this country from being

self-sufficient when it when it comes to

using our own oil and gas products like

making gasoline or diesel?

Rory Johnson:

Yeah. So, Canada actually I I wrote I

wrote a report with Heather at the

McDonald Laurier Institute specifically

on this question of Canadian refining

sufficiency. And as a country overall,

we actually roughly refine as much fuels

as we consume. The challenge is is that

for instance some of our our refineries

on the east coast can't get access to

the crude oil produced in the you know

in western Canada. This is where we

initially had arguments for things like

the energy east pipeline that would

connect the two uh sides of the country.

We saw this with the TC energy mainline

connecting in gas uh you know a very

very long time ago now. Um this is what

you would need as well. The challenge is

economics. It's always going to be

cheaper to Heather's point uh to go

south. It's always going to be cheaper.

And I think when people bemoone the

overd dependence on the US market, they

kind of say it's a government failure. I

would argue the opposite. I would say

that this is what the private sector is

going to do if left to its own devices.

If we do want the optionality, if we

want the energy security in eastern

Canada and we want the optionality of

westward uh exports, you know, for

instance, servicing the Indian market

directly, which currently we can only

service through reexports of the US Gulf

Coast, that's going to require this much

more expensive Northwest Coast oil

pipeline that I fundamentally believe

will not be built if left only to the

private sector. It will need government

money and that's a strategic element

that only government can incorporate.

The private sector can't value that.

Jan: Bob, I'm hoping you can help pull the

curtain a little bit. I'm curious, what

do you think Canadian oil executives are

talking about right now in boardrooms as

they are watching sort of the chaos uh

in the Middle East right now?

Rory Johnson:

They're most concerned about the

differential between uh WCS and WTI. Uh

they want to see that spread narrow and

the Canadian barrel become more uh

attractive. uh that's how they will

maximize uh the dot their their

production going forward from here. So

that that did narrow after the

Venezuelan situation. Venezuelan

situation was very negative Canada that

was worst possible scenario and then the

president talked it up as if it was the

solution to all these heavy barrels and

that was that that actually drilled the

market down to an artificially low

level. In other words, the Canadians

were getting kind of ripped off a little

bit. the price was too cheap. Uh,

nobody's going to take those Venezuelan

barrels instead of Canadian barrels. The

US refiner wants Canadian barrels. It's

it's it's politically stable. They're on

time. There's no chance of force majour.

It's a dream market. Uh, but it's for

the Canadians defense. It's not a

minus$16 market. They deserve better

than that. Somewhere around a minus 11

bid at -13. And that's what the producer

right now is looking at. and he wants to

see the market settle into that range.

Jan:

Rory, I am curious. I I want to get back

to to the Middle East. Do you think we

have enough information to gauge what is

really happening with oil supply right

now? Is there something that perhaps we

are missing?

Rory Johnson: I think part of the challenge I think

some of the disconnect because I think

the futures markets as an example here

have been very very volatile and

arguably have lagged where many analysts

like myself think that the price of oil

should be given the level of alarm that

I think is justified. But uh what we've

seen over the past couple weeks is that

the jawboning or kind of talking down of

the conditions uh in the oil market by

the White House, by Trump, by bestcent,

the the Treasury Secretary, Energy

Secretary, right? These have all kind of

taken the wind out of these out of these

positions. We saw this in remarkable

fashion two Mondays ago when we saw a

$35 barrel spread intraday for these

prices. Many traders got blown out and I

think there's a weariness to get too

long ahead of physical markets here. But

I'm just looking at my screen right now.

Cash crude right now off the coast of

Dubai, basically on the Omani uh Gulf,

is currently trading at $170 a barrel.

That's the type of prices that we are

going to see coming towards us. And it's

like a shock wave rippling out. It's

going to take time. We're seeing it hit

Brent before we're seeing it hit WTI.

All of these things, but eventually

these are fungeable barrels to a degree.

The market will become more uniform.

We're still in just the very, very early

stages of the shock.

Jan: Heather, you get

the last word here. If Canada does

become a more attractive source uh of

oil and gas, does that mean we will see

more foreign or domestic investment to

follow?

Heather Exnerpo:

Well, absolutely. And I'll say, you

know, one thing, since the beginning of

the year, oil sands producers, their

stock prices have far exceeded, you

know, the S&P 500, but even the the

average the average of energy producers.

And so, oil sands, Canadian oil is

looking very attractive. People are

betting that it's going to have a good

couple of years and I think now is a

time you know we're still negotiating

atou there's still some of our own hopes

to get an order in Canada what will be

the industrial carbon price a lot of

uncertainty on our own side to to you

know to be topped off with what's

happening global markets I hope we get

our act together very quickly so that

producers can start making those

investment decisions pipeline companies

can make their investment decisions and

we can plot out what is it that Canada

can be doing in in the short and medium

and then hopefully long term as well.

Jan:

All right, we are going to have to

leave it there. I'm probably not going to

have all of that information on my computer

like Rory does or Bob does all the time.

Uh, but it's a story that we of course

are going to continue to follow. Uh,

Bob, Rory, Heather, really appreciate

your insights. Thank you.

Bob Yoger:

Thank you.

Rory Johnson:

Thank you.

Heather Exnerpo:

Thank you.

Jan:

I'm Jan. Thanks for watching the

rundown. We'd love to know what you

think, so send us [music] your

suggestions and feedback at

tvo.org/runddown. org/runddown feedback

or leave us a comment on YouTube. Until

then, I'll see you next week.