“The power turbulence in Europe and the Center East, notably because the 2019 assault on Abqaiq, seems to have baked geopolitical threat resilience into the market. Power markets are nicely equipped. U.S. manufacturing stays important, regardless of predictions of modest declines in 2026.
In a Cipher Temporary Subscriber+ unique interview, we talked with Roule about demand, the general international market and the impression of Chinese language stockpiles.
Norman T. Roule
Norman Roule is a geopolitical and power marketing consultant who served for 34 years within the Central Intelligence Company, managing quite a few packages regarding Iran and the Center East. As NIM-I at ODNI, he was accountable for all facets of nationwide intelligence coverage associated to Iran, together with IC engagement with senior policymakers within the Nationwide Safety Council and the Division of State.
The Cipher Temporary: The President has given Iran two weeks to simply accept a diplomatic resolution to calls for that it quit its ambitions to develop a nuclear weapon, which the U.S. and Israel insist is the main target of the nation’s nuclear program. What energy-related developments do you count on to be occurring behind the scenes over the subsequent two weeks?
Roule:The U.S. is sort of definitely working with the Saudis and Emiratis, who will use their diplomatic channels with Iran to discourage escalation, to handle OPEC, and to organize their oil sectors for elevated manufacturing and export via various channels to interchange any oil misplaced because of the closure of the Strait of Hormuz (SoH). I’d additionally count on that the U.S. is working with these international locations to offer assist for his or her air defenses. Washington shall be busy in the case of working with different regional companions.
The 2-week delay in a U.S. assault will present welcome time for planning, in addition to to work with international shopper companions to organize for releases from strategic oil stockpiles. On this final level, our strategic wants differ considerably from these of a long time previous, given our sturdy home manufacturing. Nonetheless, this disaster reinforces the necessity to keep away from drawdowns of our strategic oil stockpile for political causes alone, as some have claimed was completed within the current previous.
The Cipher Temporary: What’s the near-term outlook for oil costs then, and the way do you count on greater oil costs to impression the worldwide financial system?
Roule:So long as the specter of a U.S. assault on Iran stays a chance, costs are more likely to stay within the higher 70s, with attainable additional spikes pushed by dramatic moments within the battle. Relying on the depth of the battle, costs might attain $120 or $140. If the battle is transient, the impression is more likely to be minimal. However longer and better oil costs deliver a mixture of points. Oil-producing international locations, together with the US, will profit from greater oil revenues, whereas creating international locations and people with restricted power import reserves are more likely to undergo. Greater oil costs will contribute to greater inflation, constraining development and can sharpen the decision for rate of interest cuts. President Trump has already complained that this disaster has pushed up oil costs and sophisticated his efforts to deliver down inflation.
The Cipher Temporary: Iran has threatened to shut the Strait of Hormuz a number of occasions over the previous few years, realizing that could be a highly effective solution to acquire the eye of the world’s diplomats and media. As we see this menace resurface, which international locations are most probably to be affected if Tehran makes good on the menace?
Roule:The oil from the SoH reaches international customers, however the overwhelming majority goes to Asian markets. China, India, South Korea, Pakistan, and Japan are the first purchasers.
The U.S. imports little crude oil and condensate from the SoH. In 2024, our imports from the area reached round 500,000 b/d, or solely round seven % of our complete crude and condensate imports. So, a call by Iran to close the SoH wouldn’t immediately harm the U.S., and so they realize it.
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The Cipher Temporary: What are the alternate options to maneuver oil exterior of the area if the Strait of Hormuz is closed?
Roule:Up entrance, we have to remind ourselves that we’re speaking about changing an artery that strikes round fifteen per cent of world crude oil provide and 20% of liquefied pure fuel. That could be a super quantity of power. When it comes to nationwide supply, I imagine over a 3rd of the oil that transits the SoH is produced by the Saudis. The area additionally sees heavy container visitors. Jebel Ali Port, for instance, is the tenth largest container port on the planet.
Nevertheless, sticking to grease, there are extra routes, however they can’t change the SoH by way of amount. We must also keep in mind that Iran might select to assault these routes within the occasion of a battle. Nevertheless, using these choices might present some reduction, each by way of exports and prices. Ships utilizing these retailers would save on supply prices and keep away from the excessive insurance coverage premiums related to conflict zones.
Crucial could be the Saudi East-West Pipeline. This 1,200-kilometer pipeline connects Saudi Arabia’s Japanese Province oil fields and amenities at Abqaiq to an export terminal in Yanbu on the Crimson Sea. The pipeline has a capability of round 5 million barrels per day. I imagine it carries solely a tenth of that right now. In 2019, Riyadh transformed a few of the system’s pure fuel strains to deal with crude oil, which allowed the path to deal with round seven million barrels. Utilizing this route would add distance to these destined for Asia and would require shipments to move via Yemen, thus exposing them to Houthi assaults.
We even have the Emirati outlet in Fujairah. This line fluctuates between 1.5 and 1.8 million barrels per day, to some extent exterior the SoH that’s house to the world’s largest underground oil storage facility. Abu Dhabi makes use of a 400-kilometer pipeline to ship Murjan crude from the Habshan oil fields. This line can carry about 500,000 b/d of crude. We’re already seeing elevated curiosity by Asian patrons in contracts for masses from this supply, in addition to Omani crude, which additionally masses exterior the SoH.
Final, Iran would attempt to use Jask Port. Opened in 2021 on the Gulf of Oman, the port might enable Iran to export round 300,000 b/d from a pipeline that begins at Goreh within the north.
The Cipher Temporary: How would Iran attempt to shut the SoH, and the way tough would it not be for U.S. forces to reply?
Roule: My sense is that not one of the actors concerned within the present battle, together with Iran, wish to see the conflict develop into the Persian Gulf. Israel’s focus shall be on Iranian power targets. Tehran can do minor harm to Israel within the Gulf, and closure of the Gulf will harm Tehran as a lot as its adversaries. Iran is determined by the waterway for its export and import commerce. Shutting the Strait would harm the world financial system, alienate Tehran’s few diplomatic allies, and doubtlessly might contribute to the demise of the regime. Tehran could imagine it has no alternative however to assault U.S. bases within the wake of a U.S. strike on Fordow, or it might imagine actions within the Gulf would stress the U.S. and Europe to finish the battle.
Nonetheless, Tehran has numerous disruption choices. On the low finish, we might see efforts at GPS interference, which might make it tough for ships to navigate the crowded waters and could lead on some to cross into Iranian-claimed territory inadvertently. We’ve already seen studies of GPS jamming, indicating that Tehran has carried out this tactic. Cyber-attacks in opposition to ships and regional power entities are a possible possibility for Tehran to repeat.
Subsequent, we’ve got harassment by drones, navy guards in velocity boats, requires sanitary inspections, claims of smuggling, or intrusions into nationwide waters. U.S. forces might help right here by accompanying vessels. Final, Iran might mine the SoH or use its submarines or use coastal or ship-borne missiles in opposition to tankers or oil platforms.
The U.S. would reply shortly after all, drawing upon current regional naval and air models in addition to these introduced by our service activity forces. Washington would additionally seemingly search companions. The UK is already on web site, and burden sharing may additionally lengthen to India. New Delhi has sturdy strategic pursuits in retaining the waterway open, and there’s a precedent right here. In 2019, India escorted its oil tankers within the Strait of Hormuz throughout a interval of heightened tensions with Iran. This is able to seemingly require a several-week navy marketing campaign.
The Cipher Temporary: Given the overproduction in OPEC+, wouldn’t the group have the ability to change oil misplaced via a closure of the SOH?
Roule:The problem is that whereas a lot of OPEC’s spare capability may very well be introduced on inside a couple of weeks, the majority could be locked within the Persian Gulf.
The Cipher Temporary: What about potential strategic surprises from China?
Roule: Maybe the one shock about China on this disaster is that some anticipated it to behave otherwise from the way in which it has previously. China stays the first purchaser of Iranian oil at deeply discounted charges. These purchases are important to its smaller refineries, which might be unwilling to pay the complete value demanded by any Emirati or Saudi alternative oil. Iran is a key part of China’s Belt and Street Initiative, the BRICs, and the Shanghai Cooperation Group. Nevertheless, China has prevented involvement in regional safety points, leaving that to the US.
Even in an excessive situation the place the Islamic Republic might fall and get replaced by a pro-U.S. authorities, China has little incentive to intervene. Riyadh and Abu Dhabi are pro-U.S. and but they continue to be important and worthwhile companions for Beijing. There isn’t any motive to assume a pro-U.S. Tehran could be any totally different.
The Cipher Temporary: What haven’t we talked about? Any wildcards?
Roule:Each disaster produces secondary and tertiary impacts. The pure fuel story appears the most probably to trigger such penalties right here. Qatar produces roughly 20 % of the world’s LNG, and all of its product should transit via the Strait of Hormuz (SoH). Violence within the Gulf will threaten this necessary power supply for a lot of international locations.
An Israeli strike on a small portion of the South Pars Fuel Area – shared by Qatar and Iran – concerned a drone strike on a small refinery within the 200-mile subject. But it made headlines. Any violence in opposition to that subject will contact the markets. Any Iranian assaults on Israel’s fuel business will impression Egypt and Jordan. Israel exported round ninety % of the manufacturing of its Leviathan fuel subject – its largest – to those two international locations in 2024.
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