‘the Worst I’ve Seen’: Oil Industry Grapples With The Fallout From Trump’s War With Iran

HOUSTON — Global energy leaders have been jolted by the enormity of what President Donald Trump’s war against Iran means for their business — and they’re not liking what they’re seeing.

It’s the second time in four years that top White House officials have taken the stage at the CERAWeek by S&P Global conference to plead with producers to ramp up their drilling to cover supply disruptions from war-driven oil and natural gas price shocks. But unlike the coordinated international response to counter Russia’s 2022 attack in Ukraine, the Trump administration’s war against Iran has drawn little support from allies and has seemed disturbingly ad hoc, industry executives said, leaving the industry feeling unsure on how to react.

“We’ve not seen anything like this — there's been no disruption of this scale in the past,” Gareth Ramsay, chief economist at oil and gas giant BP, told the conference. “It’s every oil analyst’s study piece or worst nightmare — one that we never thought would happen.”

The energy market fallout is becoming political as well. Trump’s approval rating fell to 36 percent amid the public’s anger over the war and the steep jump in gasoline prices, according to a Reuters poll released Tuesday. The dissatisfaction threatens to doom Republicans’ attempts to keep control of Congress in this year’s mid-term elections.

Executives from the world’s largest oil companies appeared more astonished about the scale of the supply disruption from the war than thrilled about the higher prices. The war has snarled the Mideast operations for several companies, some of whose CEOs — including Exxon Mobil and Saudi Aramco — skipped the conference even as high prices boosted their profits.

For many in the sector, Trump’s war has turned their worst fear — the closure of the Strait of Hormuz — into reality. The waterway through which 20 percent of the world’s oil leaves the Middle East to reach the wider market has been targeted by Iran, which has also destroyed or heavily damaged major refineries, oil and gas fields and gas export plants around the Persian Gulf.

“This is the worst I’ve seen,” Paul Sankey, senior adviser at consulting firm Oliver Wyman and a longtime energy market analyst, said of the turmoil in the oil market due to what he called “Gulf War III.”

“How do you replace all this gas, all this oil, helium? The list goes on,” he said.

The White House said tankers would again move through the Strait freely — and energy prices fall — once the United States achieves its military goals.

“President Trump knows exactly what he is doing, and his entire energy team has taken many actions to mitigate the effects of these short-term disruptions,” White House spokesperson Taylor Rogers said in a statement. “Ultimately, once the military objectives are completed and the Iranian terrorist regime is neutralized, oil and gas will flow more freely than ever before and prices will rapidly drop again.”

The sheer scale of the chaos the war has brought to the industry poked some holes in the face of the conference itself: Some of the world’s top oil producers who are regulars at the annual Houston gathering were notable in their absence. Exxon Mobil CEO and Chair Darren Woods, whose company has major oil and gas operations in the Gulf, and Amin Nasser, CEO of national oil company Saudi Aramco, skipped this year to address the disruptions. Top executives from the state-run oil companies in Kuwait and the United Arab Emirates appeared virtually.

“We are outraged by this attack against us,” Shaikh Nawaf Al-Sabah, CEO of Kuwait Petroleum Corp., said of recent strikes by Iranian projectiles that damaged a major refinery there. “This is an attack against not only the Gulf, but it is an attack that is holding the world’s economy hostage.”

Trump administration officials, including Energy Secretary Chris Wright and National Energy Dominance Council Executive Director Jarrod Agen, have been meeting with industry executives throughout the week in Houston and have projected confidence that oil companies will heed their calls to speed their drills.

“Markets do what markets do,” Wright said on Monday, noting surging crude prices should encourage their companies to ramp up production. And Agen told the POLITICO Pub at CERAWeek that producers are “all on board” with the administration’s push and he’s heard no pushback.

“President Trump knows exactly what he is doing, and his entire energy team has taken many actions to mitigate the effects of these short-term disruptions,” White House spokesperson Taylor Rogers said in a statement. “Ultimately, once the military objectives are completed and the Iranian terrorist regime is neutralized, oil and gas will flow more freely than ever before and prices will rapidly drop again.”

But privately, members of the oil, natural gas, investment and insurance industries at CERAWeek expressed a mix of disbelief that the Trump administration thought it could quickly hobble Iran — and worries about how it will hurt their businesses and the broader economy.

ConocoPhillips CEO and Chair Ryan Lance said his conversations with administration officials have focused on protecting oil and gas fields, export plants and refineries in the Middle East.

“A lot of my conversations with the administration are really pleading to try to get some extra protection around the U.S.-owned assets in Qatar,” Lance said.

One investment analyst bemoaned to POLITICO that oil traders are having to make quick decisions based on Trump’s social media posts, only to see Trump deliver a starkly different message soon after. Oil markets have swung in a $40 range during the first three weeks of the war.

BP’s Ramsay said he doubted producers would approve any production increases due to the conflict, calling the volatility in crude prices “not something any oil company wants to see.”

“Over the sort of short timeframe we're talking about, at the moment, there is no supply response,” he said. “There is no potential supply response.”

Geoffrey Pyatt, who led the energy office at the State Department under the Biden administration, said there were echoes to the 2022 crisis, when Energy Secretary Jennifer Granholm’s call for producers to turn up their drills at the same conference drew a tepid response.

“Maybe the most important thing that I learned working on these issues in government was the limitation that we faced trying to pull levers to incentivize new investment or new production in a sector where the [return on investment] is measured in decades, and where the timeline for implementing projects runs into years,” Pyatt said in an interview.

NEDC’s Agen said Venezuela and Alaska were two locations that could quickly make up for the losses in supply from the Persian Gulf. And Wright said Venezuela had already upped its production by 200,000 barrels a day.

But some major companies have also rebuffed the idea of investing in Venezuela, and executives said they need to see much more reform from Caracas to assure them that the country is ready for large-scale increases in production.

“They have a lot of ways to go to make the country competitive globally — to attract the kinds of billions of dollars in investments required,” ConocoPhillips’ Lance said. “Not only do you need the physical safety and security, you need contract sanctity, you need policy durability.”

Chevron, the only major U.S. oil company still operating in Venezuela, is looking at small-scale increases in production through existing infrastructure, CEO Mike Wirth said on Monday.

“There’s still things that need to happen to encourage investment at the scale that people would like to see,” Wirth said. “To get to [production] levels that the country was at 20 years ago will require tens of billions of dollars and time.”

The only thing the industry can see clearly as of now regarding the war — which Trump has at times said would last mere weeks and other times he would end when he “feels it in my bones” — is that the effects will be long lasting.

The industry will not only have to rebuild billions of dollars of lost infrastructure in the Middle East, but countries dealing with the extreme price hikes for imported energy will likely look to develop supplies closer to home, executives said.

“There will be knock-on effects, tailwind effects for a not insignificant period of time,” said Tom Donilon, vice president at investment management firm BlackRock and a former national security adviser in the Obama administration.

Fuel prices will remain elevated even after hostilities subside, analysts said. Companies will likely buy more fuel than they normally would have pre-war to increase their inventory on hand. The higher price on fossil fuels will offer “a second chance” for renewable energy, said Brian Falik, chief investment officer at commodities trading firm Mercuria.

“We'll see some stockpiling, and it won't be just toilet paper this time,” Falik said of the fuel market.

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