President Donald Trump claims that when oil prices rise, the United States “makes a lot of money.” Certainly, U.S. oil producers could be on track to generate tens of billions of dollars in additional revenue this year if crude prices remain around current levels. But that does not make the U.S. a winner. When prices go up, producers tend to come out ahead, while consumers are the ones who pay the price. However, this is not a typical oil price crisis. The Middle East remains the heart of the supply chain, with the Strait of Hormuz as its main artery. The impact of a de facto blockade and attacks on energy infrastructure in the region has hit producers in the Gulf, such as Qatar and Saudi Arabia, hard, while Tehran is targeting U.S. allies. As customers seek alternative sources, countries like Norway and Canada could be the ones to benefit. Following Russia's invasion of Ukraine in 2022, when many countries sought to reduce their dependence on Russian gas, Norway managed to increase its production and take advantage of the situation. Meanwhile, Canada's Energy Minister, Tim Hodgson, has been quick to position his nation as a “stable, reliable, predictable, and values-based energy producer.” However, it is unlikely that the U.S. fully anticipated some of these economic consequences, as it formulated its strategy before launching attacks against Iran. And if the war drags on, the greater the risk not only of damage to individual countries but also of contagion and global repercussions.
Nevertheless, there are other potential beneficiaries. As some countries increase their coal consumption, a highly attractive opportunity arises for major exporters like Indonesia, as the price of this fuel is also on the rise.
The Losers
And what about the United States itself? So, who are the winners?
The Winners
Despite all efforts to promote renewable energy, we still heavily depend on oil and gas. Abundant reserves often promise great wealth. As Washington relaxes regulations to alleviate the global supply shortage, sales of Russian crude to India have rebounded by 50%. Some estimates suggest that Moscow could gain an additional $5 billion by the end of March and is on track to record its highest fuel revenue year since 2022. The U.S. risks granting Moscow a hefty, unexpected gain at the expense of Gulf nations. First, because some producers are heavily exposed to disruptions in the Middle East. For example, ExxonMobil has operations at the Ras Laffan industrial complex in Qatar, where production has been paralyzed since early March and has now come under Iranian missile attacks, causing “extensive damage.” Second, after years of cutting capacity amid falling wholesale prices, many shale oil producers cannot quickly ramp up production. Most importantly, on a per capita basis, Americans are the world's largest consumers of oil and gas. From heating homes during harsh Midwest winters to fueling the summer road travel season, they are highly exposed to fluctuations in fossil fuel prices. Oxford Economics economists warn that if oil prices were to surge to $140 and stay at that level, the economy would risk contracting. Of course, Americans are not the only ones sharing this vulnerability.
The Impact in Asia
Asia gets 59% of its crude oil from the Middle East. In the case of South Korea, this figure rises to 70%. As stocks there have fallen due to concerns over supply disruptions and costs, politicians have also warned of the risk to the country's chip-making industry. South Korea produces more than half of the world's memory chips. Elsewhere, fuel rationing, four-day workweeks, and school closures are among the measures adopted by countries like Sri Lanka, Bangladesh, and the Philippines. However, the continent's largest energy consumers have managed to stay largely clear of these difficulties through strategic planning and diplomacy. China has reserves equivalent to several months of consumption and, according to various reports, has stepped up its oil purchases from Iran. The same goes for India, which is also taking advantage of this temporary green light to turn to Russia as a supplier. Of course, the final outcome will ultimately depend on the evolution of the conflict. Moreover, it is highly uneven. Alongside a long list of those at risk of being severely affected, there are some who are benefiting. Dharshini David - Economics Subeditor, BBC News.
