Chapter 1: What impact is the war in Iran having on global oil supply?
All right, what if, and just hear me out now, what if the markets are an idiot? From American Public Media, this is Marketplace. In Los Angeles, I'm Colin Risdell. It is Monday. Today, this one is the 23rd of March. Good as always to have you along, everybody. All right.
It was perhaps a little bit harsh to characterize the market's reaction to the news of the day, as I just did, because it does make some sense, after all, for traders and their algorithms to react to presidential promises that things are going to get better, whatever the actual facts might show.
But one cannot help but wonder whether the markers of market based capitalism that we use might be just a bit too focused on the short term. That is that they haven't priced in the long run economic challenges that this war is going to bring. Robin Brooks is a senior fellow at the Brookings Institution. Robin, it's good to have you back on the program.
Great to be back, Kai.
All right.
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Chapter 2: How does the current oil shock compare to the oil crises of the 1970s?
Test my premise. Do you think markets are not, as I said, pricing in the long term challenges no matter what the president happens to say on any given day?
So I think there's two big questions. And I think the question you're asking is totally valid. The first question is, is what just happened? On Friday, we were de-escalating. On Saturday, we were escalating. We were going to bomb power plants in Iran. This morning, we're de-escalating again. And I think it's worth thinking about how much weight should the market put on any one pronouncement.
The whole thing reminds me of the tariff standoff with China a year ago when tariffs went to 150%. And for a while, the president was almost negotiating with himself, escalating, de-escalating. And ultimately, that ended up with China kind of winning that standoff. And perhaps... That's what's going to happen here, too. Iran will kind of emerge with the upper hand.
And I think that's kind of what the market is betting on, that Trump is backing off and kind of doing a taco, as people say. The other question, obviously, that you're also getting to is, you know, is there not enough lasting damage to the economy for the stock market to rally today? So we can discuss that next, maybe.
Well, let's go ahead and go there. What do you suppose the lasting damage factor might be? Because for every day this thing goes on, it will take, I don't know, I'm making this number up, but it's going to take a week, 10 days to unpack it, you know?
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Chapter 3: What are the long-term economic challenges posed by the war in Iran?
Oh, totally. So I think there's two things going on, right? Oil prices, which obviously impact prices at the pump, and that's incredibly important for the U.S. consumer. You know, oil prices are a function of two things, a physical shortfall in the market now and So that's the de facto closure of the Strait of Hormuz or severe encumberment.
And then second of all, there's a big expectations component, which is basically the market guessing how long will it take for the Strait of Hormuz to reopen tomorrow, the week after, the month after, three months from now. And today, the market basically said, okay, This pronouncement from the president means this conflict is going to be a lot shorter.
And so therefore, my expectations component, I'm going to rein that in. And so that's the reason that the market rallied today.
One hates to bring Jay Powell into the conversation seemingly unnecessarily, but the word that comes to mind here is transient, right? Powell got in trouble in the post-pandemic period and in the pandemic period saying that inflation was going to be transitory. And it does seem to me... that people writ large are expecting the economic fallout from this war to be transient. You know what I mean?
That it's not going to endure. And I wonder if you agree, because, you know, once prices go up, whatever the cause, they're really slow to come down.
Yeah, Kai, I think that's a really important point. I think we all have a little bit of trauma from 2021 and 2022 when inflation rose so much that after a decade when inflation was almost written off. And of course, the Federal Reserve also was slow to recognize that inflation shock. But I think a bunch of things are different now. 2021, 2022, we were obviously recovering from COVID.
The global economy was gunning. That's not at all the situation now. We don't have the kind of fiscal stimulus that we had then. And so the global economic picture is genuinely weaker now. And if at the end of the day, we're talking about a conflict that is a matter of one month or something like that, then I think the case for transitory is stronger.
30 seconds to answer this next question. What do you think is the bigger threat as it stands right now, the inflation threat or the threat to global growth?
Definitely the threat to global growth. We are in a relatively good position because we're a net oil exporter. But Europe, for example, not only is getting hit by oil prices, but also a big spike in natural gas prices. So that's really bad news for others.
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Chapter 4: How are skyrocketing natural gas prices affecting U.S. data centers?
Each of those took about 5 million barrels a day of oil supply off of the market. Samantha Gross at the Brookings Institution says today, with the Strait of Hormuz largely closed, we've lost maybe 15 million barrels a day or 15 percent of supply.
So this supply shock is three times bigger than the ones that we saw in the 1970s.
This is also not the 1970s.
The United States now is less dependent on oil imports than we were 50 years ago.
Hugh Daigle at the University of Texas at Austin says that's why gas prices here are spiking, but we're not seeing shortages.
But countries like Pakistan, India, Thailand, China, Japan, they are really being hurt by this.
because they are more dependent on oil from the Gulf. Many Asian and Western European countries also rely heavily now on liquefied natural gas, or LNG, from the region.
This goes back to what happened in 2022 with Russia invading Ukraine. Western Europe said, hey, we can't be so dependent on Russian gas anymore. And so they started importing a lot more LNG. And now that infrastructure has been damaged.
And some of that damage to gas and oil infrastructure could take years to repair. Clayton Siegel at the Center for Strategic and International Studies says how deep and lasting the global economic damage from all of this is will depend on how long the war lasts.
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Chapter 5: What are the implications of the natural gas market changes for AI industries?
He says it would take years of investment to expand export infrastructure, and even then domestic prices for data center energy would likely remain low. Ira Joseph at the Center on Global Energy Policy at Columbia says our gas surplus could end up supercharging demand for U.S. data centers even more.
You know, rather than building them in the Middle East or in Europe or somewhere else in the world that may or may not have cheap gas,
But there's a byproduct of natural gas production that could affect AI, at least in the short term. Helium. Yeah, the gas you fill balloons with. Phil Kornbluth is a helium industry consultant.
Helium has a number of unique physical properties that make it indispensable for semiconductor chip manufacturing, which is the largest application for helium.
Chips are also the single largest budget item for AI data centers, and the plants that manufacture them in South Korea and Taiwan get most of their helium from the Middle East.
Those first few months before the supply chain gets reconfigured are going to be challenging, and everybody is going to be subject to either price surcharges or price increases.
Kornblas says helium doesn't contribute much to the overall cost of semiconductors, but a lengthy disruption could leave supplies a little light. I'm Megan McCarty Carino for Marketplace.
If you happen to be a perspicacious shopper, you've perhaps already noticed at your local Kroger or Best Buy maybe that there are electronic price labels on some of those store shelves. They are, we're told, the next big thing in retail.
But in keeping with the truism that nothing is a done deal in retail until Walmart says it is, the news the other day that that company is going to roll out electronic price labels in all of its U.S. locations within the next year has put them on the fast track. Marketplace's Kristen Schwab has more on that one.
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Chapter 6: How is Beaver County, Pennsylvania adapting to its economic challenges?
I'm Kristen Schwab for Marketplace.
Coming up... My very great friend, Tony Vanilla. He owns a wood shop in northwest Portland.
You know, Tony. But first, let's do the numbers. Yeah, there's a little number we like to call the sad happy music because... Come on, read the room, right? Dow Industrials up 631 today, 1.4% finished at 46,208. The Nasdaq advanced 299 points, 1.4%, 21,946. The S&P 500 gained 74 points, about 1.1%, 65, and 81.
Kristen Schwab was just telling us about how Walmart's digital price labels are the new, new thing. Walmart picked up 1.4% today. Elsewhere, an American retail target charged up 1.5%. Kroger, whose subsidiaries, in case you didn't know, include King Soopers, Ralph's, Fred Meyer, and Food for Less. Chopped off three quarters of 1%.
Amazon MGM Studios had its first big box office hit with the sci-fi film Project Hail Mary this weekend. Earned $80.5 million in the U.S. and Canada. I will tell you, I saw it. Loved the book. Kind of meh on the movie. Don't at me. Bonds up. Yield on the 10-year T-note down 4.35%. You're listening to Marketplace. This is Marketplace. I'm Kai Risdahl.
Once upon a time, Beaver County, Pennsylvania, just northwest of Pittsburgh, was steel country. The people who lived there made the steel that was used in the Empire State Building and in military hardware going back 100 years. But the last steel mill in Beaver County closed decades ago. The population's been falling since 1970, and the economy and the way these things go has suffered accordingly.
There has been a glimpse of hope or two over the past handful of years, but as Marketplace's Kaylee Wells reports, nothing has really ever paid off.
Daniel Rossi-Keene has lived in Beaver County for 15 years. He runs a local community development nonprofit called Riverwise. He's touring me through small town after small town along the Ohio River, past lots of people in Pittsburgh sealers beanies, plus boarded up storefronts and closed down factories and power plants.
It's like in West Virginia. You know, can we just get back to coal? You know, it's like in Detroit, can we just make cars in America again? That sensibility is very strong.
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Chapter 7: What role do small businesses play in local economies like Beaver County?
There will be new jobs and tax revenue and prosperity, just like the old days. But instead of steel, it's plastic. The Commonwealth of Pennsylvania granted a $1.65 billion tax break, the largest in its history. Beaver County resident Jolene Atkins says her neighbors were thrilled. What I've learned about this area because of the steel boom and then the steel decline is
I can understand why it sounded like such a great addition to the county.
Years of construction brought in thousands of new temporary jobs. The plant is a giant lattice of pipes with a line of stacks billowing white plumes on one side. It's a bit sci-fi, but since it opened in 2022. It doesn't, I don't know, it just kind of doesn't seem like the employment cash cow that it was supposed to be.
The American Chemistry Council, a trade group, estimated that plants like this one in Beaver County generate more than 17,000 direct and indirect jobs. Shell said in a statement that it employs 500 people full-time and 400 contractors. The plant has faced millions of dollars in penalties for environmental violations.
Several local news outlets say Shell is trying to sell the plant, although it wouldn't confirm that. Meanwhile, incomes for Beaver County residents are down and reliance on food assistance is up.
If the argument was that this was going to be a rising tide that lifted all boats, a lot of boats are doing worse off than they were in 2012.
Nick Messinger, senior economist at the think tank the Ohio River Valley Institute, says Shell's plant has been a bust for a few reasons. Other companies built new plants like Shell's, so there's a glut of production capacity. Meanwhile, more of us opted for reusable water bottles instead of the single-use ones made from the plant's plastic.
He also says this idea of a community putting all its proverbial eggs in one basket might have worked in the age of the steel plants, but not a great bet today.
A lot of the economics research indicates that small businesses are actually and local businesses are actually the number one job creator in the country anywhere you go.
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Chapter 8: What lessons can be learned from the economic shifts in Beaver County?
So we had to kind of think on our feet to figure out a strategy that would be way less capital intensive, but still produce a quality product at the level we needed it to be produced. So around the end of October is when we started working with some local manufacturers to help produce the product.
My very great friend, Tony Vanilla, he owns a wood shop in northwest Portland, and he was the first one to call me and say, yo, let's get this done. And then the other one I found through my wood supplier, Emerson Hardwoods, I just kind of called my rep and was like, hey, do you know anybody who might be interested in doing this?
And maybe six hours later, I get a call from the owner of this shop, and we started off. So our first immediate challenge was to build 200 pieces as fast as possible. We got it done in about six weeks, which was pretty amazing. That was kind of a huge accomplishment and kind of helped us feel like everything was going to be all right.
Our capacity before the fire was about 100 a week, and now we can do around 150 to 200 a week, which is really great because before we would have to kind of temper sales because we had to make sure that we could still make everything in a timely manner. And now it's kind of given us the ability to kind of blow the doors wide open.
Starting December to this year, we're right back up to previous fire levels for sales, which is a huge relief because that was one of the things I was worried about is if we disappear from the world, are we going to be able to come back to where and match what we were doing? And it seems like we were not only on the path to match what we were doing, but we're on the path to grow from that too.
Matt Wicker there. He is the proprietor of Wicker Woodworks in Portland, Oregon. This final note on the way out today in which equities traders do not have a monopoly on short-term thinking. Crude oil today, the global benchmark Brent North Sea, down 10%, $100.06 a barrel. Check back here tomorrow, though, because you never know what the news is going to bring.
Amir Babawi, Caitlin Esch, John Gordon, Noykar, and Stephanie Seek are the Marketplace editing staff. Kelly Silvera is the news director. I'm Kyle Risdahl. We will see you tomorrow, everybody. This is APM.
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