 America. Something we have to watch all the time. Maybe we don't pay enough attention to it. It's part of our economy. It's part of our global economy. And every couple of weeks we have a show with E-prink Energy Policy Research Organization in Washington, a think tank that does energy globally. And today we have Max Peasier. He's an energy research market analyst at E-prink. Hi, Max. Welcome to the show. Greetings, Jay. Greetings to everyone there. Thank you again for having me. Absolutely. So we want to talk today about the effect of the U.S.-Iran tensions on world prices in oil and other energy resources. That's complicated, isn't it? And it seems to me, like at first, if most of the oil in the world goes through the Strait of Hormuz and there are tensions there, that would affect the price of oil. But it's not clear exactly what has happened. So can you tell us where we are in terms of Hormuz and oil and global economy? Well, on any given day, about 20 percent of crude oil that's used in the world, that's produced moves through the Straits of Hormuz. The Straits of Hormuz are down... Countries of Oman and Iran are the two critical countries that come closest to the Straits. If this was the 1970s and these geopolitical tensions that have been escalating between the Trump administration and Iran, you would have panic all over the world. That's what you were having back in the 1970s. For clear reasons these days, despite all the political tensions that we have, the geopolitical conflicts, not only Iran but also in Venezuela, in Libya, those things are muted by other factors that are taking place in the world. That's the payload for this show. So boys and girls, what Max tells us now is really important to understand exactly how these areas of tension are affecting oil prices and thus the global economy. I'm sitting on the edge of my chair, Max. Thank you. There is a considerable amount of drama. What's going on in Iran? What's going on in Libya? What's going on in Venezuela? Those are true crises. People are... Innocent lives are being affected by these things. But because despite these bullish indicators for crude oil prices, we in the United States since 2008 have had a surge in production. And that has offset considerably the threats, the potential threats that we have from places like what's taking place in Iran, what's taking place in Venezuela, what's taking place in one other country. Libya, thank you. So these technological innovations that we've had put in place over the last 10 years here in the United States have effectively offset the threats that could arise and that have proven to a risen in the past. That could arise if we haven't had the surge in production in the last 10, 15 years. Did we intend this, Max? Have we taken a few steps to avoid an effect of these crises? I think it's an unintended consequence. So the fact that we have the Jude political ramifications of U.S. surge in crude oil productions, I don't think they were clearly factored in by any major policymaker. Certain people did take note of it. They realized that this control that exists in the Middle East countries, the OPEC, the oil producing countries in the Middle East, that that control has dissipated, has been muted. But no major policymaker, I think, has really come out and said that the Jude political threat in particular has been, I wouldn't say extinguished, but pulled back considerably. So what you're describing is a kind of a leveling of the playing field, a leveling of the market, where the resources are coming from different places, more places. It's diffused now, where 10 years ago it was all about the Middle East. You must be reading my mind, because those are the words that I would have just would have used just now. Diffused, you have rather than having a centralization, you have diffusion, you have multifarious, you know, to try a $25 word, set up of producing centers throughout the world, not just localized in one particular region. And that has made an impact geopolitically, that we can withstand these kinds of tensions that we have in the Western Hemisphere, Venezuela in particular, in Africa, Libya, in the Middle East, between the United States and Iran, or between Trump administration in Iran. So that leaves us with two directions to inquire about. The first direction is that somehow, and I'm not confident this will happen, somehow the tension between the United States and Iran will alleviate, that whatever the Washington's foreign policy is, if you can say Washington has a foreign policy, you're not clear to me. In fact, not clear to a lot of people. I think that's the attribute of the Trump administration. You don't know what's going to happen next. I mean, you had an escalating situation, you had a drone shot down, you had harsh words on the part of the president, then they were muted right away, and then they're escalated again, and then withdrawn again. So who knows which way. I mean, you've gone past the point of risk where you could quantify things, you're now at the point of uncertainty, you just don't know what's going to happen. Well, you know, that's so interesting because I think the same process exists in the stock market. If you have a situation where nobody can anticipate what Washington, what Trump is going to do from day to day, where nobody can anticipate whether the tensions will be up or down or sideways on a given day, then I think people, don't you agree Max, there's a fatigue factor. I know I'm fatigued, I can't follow it anymore. I don't know which way it's going, so I kind of give up. Well, I'm with you there. There's certainly a fatigue factor. I mean, you're seeing this as it's been reported in today's Wall Street Journal, consumer confidence is slipping. You don't know which way the conflicts in trade, say with Mexico and Canada and China are going to go. Again, in the Wall Street Journal, there was a report on Federal Express, how Federal Express being an intermediary of globalization, moving goods between not just within the United States, but across continents, they're seriously affected by this disruption, not knowing what to expect. Not when will the trade discussions will end, but if the trade discussions will end. That right there is moving from, if you win, then you can quantify something. If you don't know when, then you have just uncertainty and you withdraw and just wait on the sidelines and that's what's taking place. That's the other set of factors that's facilitating the drop in oil prices is that you have this uncertainty, you have slowing job growth, you have the trade conflicts which are escalating and there's no clear understanding of when these things might end. You suggest there's a linkage between oil prices and I really want to understand this. These days, there's a linkage between oil prices and the global economy. If oil prices are going down, it's a reflection of a decline in the global economy. Oil prices are going up, it's a reflection of an improvement in the global. Am I right about that? Where do you stand on that? I mean, as we were discussing beforehand, before we went on the air, it's a two-factor problem. The first thing is you have a surge in oil production in the United States, in North America, Canada also, but mostly in the United States and that's a muting factor on higher oil prices. But then, the second component is all of this uncertainty that comes, economic uncertainty that comes from the trade conflicts, from dropping consumer confidence, slowing job growth. So, it's twofold. It's not just one thing. That's the way I would reply to the question that you presented there. These factors you just described actually suggest a slowing of global economy anyway, right? Right, exactly. I mean, because of the trade conflicts, you have US Steel shutting down the plants that it reopened in Granite City, Illinois because demand for steel has been muted. No longer do you have a certainty or the knowledge that there will be not just domestic demand for the steel that you produce, but say demand in Mexico, Canada or China and vice versa. There are numerous examples like that. That's the point that's been... That's the second set of factors that pulls back. That affects crude oil prices. Now, let me try to make it a sort of a pure inquiry here and say on the one side, hypothetically, the administration would change its unpredictable conduct and it would become predictable and it would become positive and it would be able to cut a moderated deal with Iran and thus diminish the crisis in the Gulf rather than the Straits of Hormuz. Let's assume that for a moment. Let's assume that all is light and goodness in that area of the world and there's no longer a crisis between the US and Iran. What happens to oil prices? Well, then my suspicion is that they would continue to slide. You have OPEC trying to control the supply component, but even if marital bliss broke out in the Straits of Hormuz, Iran, you still have all of the other component which is trade conflicts with China, Mexico, Canada. The critical ones. Those are the critical ones and still uncertainty in Europe with Brexit. Not just marital bliss in the Straits of Hormuz, but also if we could just temper the provocations on the part of the Trump administration with Mexico, the provocations against China. If there was some settlement to those issues, that's where you would see an uptick on the economic side. And then maybe you would see a stabilization, maybe not an increase, but a stabilization in the dropping oil precedent. Please go ahead. I think a stabilization of these unpredictable moves by the administration would have a huge effect in not only in oil, but in geopolitical relations and in the economies of so many countries around the world, simply by virtue of, as you put it before, confidence, confidence in general, that we're going to be okay here. So it seems to me that all those things touch each other. The consumer's confidence, the jobs, the economies, and the oil prices. But if I told you, Max, just hypothetically now, that that's not going to happen. In my heart, I believe this is probably the reality. It's not going to happen. And in fact, as to tit for tat thing that's going on between the United States and Tehran, it's going to get worse. If I tell you that it's going to wind up, you know, in my own theory, a battle of cyber war. Because that's what Trump has started, a battle of cyber war, where grids come down in various places in the world. And cities are, you know, dysfunctional. The cities stop functioning and people die because of the lack of electricity and so forth. If I tell you that, if I tell you we're going to get into it with Iran in the next few weeks, hypothetically, then I would ask you, how will that affect oil prices and all those other factors considered? Don't answer yet, Max, because we're going to take a short break. And I think everybody is going to be listening when we come back. They're going to want to know your answer. That's easier. Of E. Prink in Washington, D.C., an energy research market specialist. We'll be right back and we'll get his answer to that question. What a cliffhanger, eh? Absolutely. Absolutely. I want to know what I'm going to say, too. We'll be right back. Aloha. I'm Dennis Wong, a host here at Think Tech Hawaii, a digital media company serving the people of Hawaii. We provide a video platform for citizen journalists to raise public awareness in Hawaii. We are a Hawaii nonprofit that depends on the generosity of its supporters to keep ongoing. We'd be grateful if you'd go to ThinkTechHawaii.com and make a donation to support us now. Thanks so much. Aloha. I'm Jane Sugimura, a host here at Think Tech Hawaii, a digital media company serving the people of Hawaii. We provide a video platform for citizen journalists to raise public awareness in Hawaii. We are a Hawaii nonprofit that depends on the generosity of its supporters to keep ongoing. We'd be grateful if you'd go to ThinkTechHawaii.com and make a donation to support us now. Thank you so much. I could hardly wait for the end of that break. So, Max, have you thought about it? Is there an answer? Maybe it's unanswerable. Well, no. I've thought about it. Thank you for the challenge. I don't see a dystopian situation to the one that you portray. I think cyber threats are serious. Thankfully, the institutional structure of the United States is such that we have the Department of Homeland Security, we have the National Security Agency, and they, on the cyber front, and especially the infrastructure, things such as power plants and related components, they, thankfully, are robust. They can certainly be straightened, but given the research that I've done, it would take a long time to bring down the grid of the United States. I mean, certainly the threats are there, but because of the institutional infrastructure department that is run by the Department of Homeland Security and a lot of other things, it'll be a while before a country like Iran or St. North Korea or China could begin doing the kind of damage they describe it. And then the second part of the question was, if this dystopian nightmare actually comes true, what do they do for petroleum product demand? Well, obviously, it's going to collapse, but we're not there yet, and I think we're a considerable distance from that. Oh, good. Well, that's comforting. I hope I've offered you some comfort there. Just remember, this is on video, Max. Absolutely. Talk about the change in circumstances, the diffused sources of energy we're getting these days. I'd like to dig into that a little bit. Right now, as opposed to 10 years ago, the United States is in better shape, because it controls, maybe to a larger extent, where it is getting energy. It has LNG. Maybe it's getting oil within its boundaries or nearby, and it's getting renewable energy as well. I'm a little troubled, and I hope you factor this into your answer. I'm a little troubled by the administration's change last week from the Obama Clean Energy Renewable Energy Policy to a policy focused on coal. That seemed to me to be going backward. I don't know if it'll have any effect, but that's what he said. The question is, where are we in terms of our call it diffused energy resources? Where are we? I think coal is being very strongly challenged by low-priced natural gas in stationary use. It's stationary is categorized electricity generation, industrial usage, such as paper mills, refineries, cement production, and home use, home and commercial use, heating buildings, heating water, things of that nature. The new renewables in the category of solar and wind, they're attractive to certain constituencies, but actually being effective and providing baseload electricity, for example. I'm not as optimistic for that to be a resource as perhaps some environmental constituencies. The wind doesn't blow all the time, the sun doesn't always shine, and then these installed bases. Just to give you an example, a nuclear power plant that is sited on 400 or 500 acres. To generate that same amount of electricity from a wind farm, you're going to need 170,000 acres. Oh, wow. Right, so right away you can see the scale difference, whereas the nuclear power plant can run the whole time, a wind farm situated on 170,000 acres can only run as long as the wind is blowing, and you have to site the turbines in such a way that they don't take energy away from each other. If you put one propeller close to another one, it pulls energy away from another retrieving mechanism. The physics of it is, it can be intuitively explained, but it's not easily explained. So consequently, the siding is huge. So to somehow think that wind and solar energy is imminent, people really haven't factored in the land usage consequences. Have you heard of this case pending in the Federal District Court in, I think it's Eugene Oregon called the Juliana case? It was on 60 minutes a few days ago, and it's a case by 21 young people who claim that the right to a safe climate, a climate free of climate change, is an inalienable right under the Constitution. It's a constitutional right. When the Constitution says life, liberty, the pursuit of happiness, whatever it says, that that includes action by the government to deal with climate change, to preserve the environment for generations to come. This is actually gotten by a number of motions to dismiss that the Trump administration has filed in order to stop the suit. So the suit, according to the 60 minutes piece, is still alive. It's very interesting because it would change all of constitutional law. It would certainly change all of the law around climate change. But assume with me for a moment that that suit or some other suit or the will of the electorate coming soon in 2020 requires the government to take affirmative and perculean steps to deal with climate change. And that would include whether it's economically efficient or not, that would include spending tons of money on renewables. How is that going to affect the energy mix in this country? I know there's a lot of speculation around that question, but how would that affect your answer that you were talking about before? That sort of changes the mix, doesn't it? Well, yes. I mean, it's what you're describing, I think, is jurisdiction shopping, where you try and find a court that will favorably rule on give you a favorable judgment on a particular case, especially in an environmental way. Something like that has already happened. We have the best example that I know of is something that is known as 2007 Massachusetts versus CPA, which went to the Supreme Court. One of the things that's been problematic for environmentalists is getting legislation at the national level that proclaims that greenhouse gases are some sort of a threat. So that particular court action, Massachusetts versus CPA as it was ruled in 2007, it was close decision four to three. Justice Stevens wrote the majority opinion and he was the one who in the opinion said that carbon dioxide is a pollutant. That judgment, that ruling effectively empowered the EPA to begin regulating greenhouse gas emissions at the national level. So you had all sorts of legislation that came out of that. So the case that you describe in the state of Oregon isn't the first one. I mean, it's the first one that I hear of that there's an inalienable right provision. But as far as court decisions that have been made with respect to the environment, the 2007 one is one of the, it's the clearest one that I know of where judicial intervention has affected, categorically affected the implementation of national policies. Without that decision, please go ahead. Assume with me that this case, and it's a long shot, have to agree. This case and other cases and maybe even congressional action finally accepts and adopts and acts on the notion that climate change is a serious problem affecting humanity, that climate change is correctable if you take affirmative action and you stop generating emissions and stop using fossil fuel. And these courts or maybe Congress itself, after a new election, I don't know, decides to take affirmative steps to stop the use of coal, to stop the use of fossil fuel, and to say to us, the American people and American business, you can't use fossil fuel anymore. Cannot do it. You have to find another way, even if it costs you more money, even if it's not economically efficient. Suppose that happens. It's a logical possibility, although right now I wouldn't put any money on it. Suppose that happens. Well, if the odds are good, there's always a good bet out there. But you know, most likely the bookies are working against you, but that's a whole different problem. If that happens, and it seems to me that nobody in this country, I mean by law, would be able to use fossil fuel like gasoline. I don't know how it would come down on LNG, probably badly. So what happens to our energy mix then? And what happens to the price of oil? And if oil declines around the world, what happens to the world economy if this country, just this country, decides that climate change is important and rules out any fossil fuels? Well, again, you're going with these dystopian scenarios. The first one was with the major cyber takedown of the U.S. power grid. The same thing here. I can't envision a world without fossil fuel usage because it's ramification. It's not just energy production. It's also the whole petrochemical complex and how from containers to building materials to medicines, all these things are infused with and run on the foundation of fossil fuel production. So it's a scenario that's just really difficult to contemplate. Obviously, creative legislators are there. They certainly, in the same way that the Supreme Court decision that I described came about, and the ensuing legislation that came from that, entrepreneurial legislators exist all over the place. Somebody can put together a deal, find the votes, and produce this sort of thing. My hope is that through judicial intervention and stalling, you put this sort of scenario that you've described to me as far off as possible into the future. There would have to be a significant trade-off in terms of what we could do as a society in civilization. I envy you, Max, because you're right there watching it and seeing if these dystopian things could ever come true and seeing those charts and graphs come and go. It's really interesting. You live in interesting times. Actually, we all live in interesting times. Absolutely, yes. Thanks, Max. It's your market researcher in energy in E. Prink in Washington. Thank you so much, Max. Aloha until the next time. Thank you very much. Aloha. Yes, thank you.