Global industries squeezed as Iran war enters third month
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Good morning from the Financial Times. Today is Monday, May 4th, and this is your FT News briefing. We're counting the cost of the war in Iran as industries face shortages and disruption. Plus, Britain's governing party is bracing for local elections this week.
We're expecting a devastating set of results for Labour. It could be their worst ever showing at a local election in England.
I'm Victoria Craig, and here's the news you need to start your day.
The U.S.-Israeli war on Iran is now in its third month. The critical Strait of Hormuz, where a fifth of the world's oil traveled before the war, is still closed. And that is causing a commodity shock that's hitting a lot of industries.
What are the global impacts of the Iran war on industries?
Firstly, airlines. They're slashing thousands of flights globally because they're worried about running out of fuel in the coming weeks. Since the start of the war in late February, the cost of jet fuel has doubled. But driving instead of flying might not be any cheaper. Not only are petrol prices soaring, but the cost to buy a car might also soar too. U.S. automakers estimate they're going to take a $5 billion hit from the war this year. That's because the domino effect from stalled oil shipments in the Gulf is making everything from aluminum to plastics and paint harder to get. If those weren't enough shortages to worry about, agriculture is on edge, too. Prices of the world's most widely used fertilizer have also doubled since the start of the war.
Now, one of the world's leading fertilizer companies, Emirati Fertiglobe, will start trucking its cargo out of the Gulf rather than shipping it through the Strait of Hormuz. The OPEC Plus group of oil producers said Sunday they will increase June production by 188,000 barrels a day, and slightly less than May's increase. It was the first decision without the United Arab Emirates. That country's shock departure announced last week became official on May 1st. But despite the boosted production, there is still no plan to reopen the Strait of Hormuz. And that has the world wondering where it can turn for more supplies longer term if needed. The answer, at least for now, seems like it's not to U.S. oil majors.
Stephanie Findley is our correspondent in Houston, Texas. She's been talking to a couple of the biggest American oil producers and joins me now. Hi, Stephanie. Hi there. So ExxonMobil and Chevron told you they do not have plans to increase production. Why?
The US oil majors have decided not to deviate from their pre-war plans because they are focused on capital discipline. So this is a recurring theme in the sector after boom and bust cycles and, more recently, a wave of consolidation. So we're seeing companies are focused on being efficient and having healthy balance sheets over chasing higher prices that may fall just as fast as they rose. Additionally, and I think we've talked about this before, it's not easy to ramp up production. Fracking requires a large amount of investment per well and complex coordination to bring in all the necessary equipment and crews to get it done. So it's not something you can just turn on and off like a light switch.
In a reflection of this caution and discipline, Chevron chief executive Mike Worth said on the earnings call that with so much uncertainty out there for now, it's really steady as she goes. And that was his words.
On the consumer side of this equation, you know, we've seen gas prices here in the U.S. soar to more than $4 a gallon on average. In some places, it's much higher than that. since the start of the war. If domestic companies do decide that they want to pump more, would that make a difference to prices at home? And how quickly might that happen?
Let's say there was a light switch you could turn on and off and up production by millions of barrels. It would take months to get the rigs up and running, and then it would need to be refined. And U.S. refiners are already running at capacity. But administration can ask to boost supply, but it's obviously not so simple. Almost 50% of the retail price of gasoline is made up of crude oil, which means a change in the price of oil reflects in the price at the pump.
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