S1: Welcome in San Diego , it's Jade Hindman. On today's show , a San Diego based ship fired on an Iranian cargo ship. We'll talk about how that's impacting the ceasefire agreement and peace talks. Also , we'll talk about the economic impact of the U.S. blockade and the Strait of Hormuz. This is Midday Edition , connecting our communities through conversation. The US Navy continues to impose a blockade on ships entering and exiting Iranian ports. On Sunday , a San Diego based warship fired on an Iranian cargo ship attempting to run the blockade. The action has further strained ongoing peace efforts between the U.S. and Iran , which are currently under a cease fire agreement. Both countries were set to resume peace talks in Pakistan today , but that appears to be on hold at least at the moment. Joining me with the details is KPBS military and veteran affairs reporter Andrew Dyer. Andrew , welcome. Hi.
S2: Hi. Thanks for having me.
S1: Always good to have you on here. Um , so , you know , tell me what's going on here. I mean , give us a breakdown of what happened on Sunday and how it escalated to this point.
S2: Well , you know , the U.S. is enforcing a blockade of Iranian seaports. That includes , of course , the Strait of Hormuz. But , you know , they've got coastline at the in the Persian Gulf and the Gulf of Oman. I'm on there. And , um , according to the Pentagon , the ship was trying to run the blockade , trying to make it to a port. And they were warned. They released video and audio of of the encounter. They were warned via radio not to breach the blockade. There's a I think there's like a 24 hour , like , standard radio message going out to all the ship traffic about the blockade. Um , and then they told them vacate your engine room were about to fire on you. Um , because they didn't want to hurt anybody , you know. But they fired a few shells from the five inch gun into the ship's engine room , which disabled the vessel. And then , uh , some Marines from the 31st MEU , uh , you know , raided and seized the ship. Hmm.
S1: Hmm. So they don't run the risk of sinking it when they fire upon it.
S2: Ideally , they are aiming above the waterline , so to speak. They are trying to just make the ships stop moving. They are not trying to sink it or blow it up. You know , there's different types of shells. They can fire through this five inch gun. Um , these shells are more like bullets , right ? Like just inert. They weren't , um , there's no explosive tip on them. Um , so they're just trying to basically poke holes through the , the engine room to , to disable it. And that is what happened.
S1: So while they're in the midst of of peace talks and a cease fire , the US fired upon a ship. An Iranian ship. Tell me more about this. This warship that fired upon the Iranian cargo ship.
S2: It's kind of the workhorse of the Navy. Um , we have a lot of destroyers. We have about ten of them out there right now in the Middle East. Um , at least ten by. By my count , at least. Um , these are about 350 sailors on board. Um , their main job is to , you know , launch , you know , guided missiles , uh , from the sea into inland targets. But they're able to do. I mean , they're like a Swiss army knife , right ? Like they can do anti-submarine warfare. They can do command and control. They can do air defense , which we saw , um , when we were having the issues with the the Houthi rebels in Yemen. Um , attacking ships in the Red sea. It was destroyers out there doing the air defense , uh , knocking down drones and missiles. Um , and and , you know , they can do this type of conventional sea warfare , which we don't see a lot in in modern , modern times. Right.
S1: Right. And , um , it's one of two warships based in San Diego that are currently out there enforcing the blockade.
S2: There's another destroyer , the , uh , the USS Pinckney , and there's also the aircraft carrier Abraham Lincoln , which is , um , so there's a total of three ships. Two of them are destroyers from San Diego , and that's of about a dozen , at least a dozen that are out there. And I think , um , a carrier , the one another carrier just entered the Red sea , uh , over the last few days. So we have a second carrier in the , in the area and a third if you count the Mediterranean.
S1: You mentioned that this is unconventional for modern times. You actually spoke to an expert who said it's rare for Navy warships to engage in hostile fire on another ship. Talk more about that. Yeah.
S2: Yeah. So this this war with Iran has been a little bit of a renaissance for , you know , I mean , World War Two style naval warfare. We saw a submarine sink an Iranian warship with a torpedo , which is the first , uh , you know , launch of a torpedo against an enemy vessel since World War two. Um , and then this this action with the with the the cargo ship , um , now , these destroyers , they a lot of times that five inch gun can be used more as , like a warning shot to get somebody to stop. You know , they've been involved in , like , drug interdiction in the Caribbean and stuff. Um , I can't think of the last time a ship shot at another ship in a conflict. Not just like in target practice. Um , but , you know , the Navy is , you know , they're. This is why our Navy is , you know , the world's , like , strongest navy , right ? We are a they are able to do these types of operations , um , wide variety of things , whether it's the air defense , the blockade , the strikes in Iran. Um , a lot of this , if not most of it is happening from , you know , Navy ships. Yeah.
S1: Yeah.
S2: Um , they called it piracy. Uh , maritime piracy. Uh , you know , the Iranians have been frustrated by obviously being bombed in all the airstrikes and some of the , uh , mixed messages coming from the US as far as demands go on peace negotiations. Um , this , this action Sunday , you know , happened right as another round of talks were supposed to begin in Islamabad. Um , the US did not respond to Iranian , uh , demands according to their state media. So there's been a pause. The vice president was supposed to travel today. He's not now. Uh , at least it's it's not canceled. But it is , you know , delayed and , um. Yeah , the the seizure on Sunday and plus a second , uh , an oil tanker that was not flagged by any country was also seized yesterday by Navy Seals in the Indian Pacific Ocean area. Um , the Pentagon says that this was Iranian oil on this , um , flagged vessel , but so that's , you know , two , um , see , indications of assets the Iranians may see as theirs. Yeah.
S1: Yeah.
S2: I would say that traditionally the US has been a good faith partner in negotiations. Um , you know , they we negotiated a peace deal with the Taliban. And , you know , even when that led to the fall of Afghanistan , um , you know , we stuck to it. But , um , I think in Iran , there's something else happening here where you have a lot of pressure on the administration from the the rise in global oil prices. Um , they're getting pressure from allies on this , on this action. And , um , you also just have this kind of mentality and bluster where , you know , we don't back down and we don't negotiate. So you have these conflicting priorities really straining the process. And that's just on the American side. Um , the Iranians have , you know , they're fighting for their survival , right ? And , you know , they they don't have a great negotiating position , but they're also not going to just accept everything that the US demands.
S1: To your point , on the US side.
S2: Um , he's trying to get a better deal. Now , if you believe what he's what he claims. But it's very difficult because the president does make different depending on the the time of day , almost what his goals in Iran are. Um , he'll say it's regime , regime change. Um , he'll say it is the total defeat of Iran. Um , it's the end of the nuclear program. Um , these are all kind of different goalposts , which would be need different , you know , concessions from the Iranian state. And so , you know , you kind of have to understand why they may be frustrated because it's not always clear exactly what they need to do to get the the fighting to stop. Um , we are still in a cease fire that is set to expire tomorrow. And , um , I think that's one of the things that made these , this last round of talks , you know , so important was that they really wanted to get in there before this ceasefire ended. And now it's not clear that will happen. Yeah.
S1: Yeah. Well , you know , you've been reporting on the connections between San Diego and the war between the U.S. and Iran since it began.
S2: Um , just somewhat. Um , we've had for years and years issues in the surface Navy with maintenance timelines. We lost the USS Bonhomme Richard in 2022 , a fire that really left a hole in the fleet. So when one ship isn't there , other ships have to do more. And , um , you know , given the prolonged operations in the Red sea since the , um , the Israel-Palestinian war started a couple of years ago. Um , coupled with now the actions in Iran , you just have a , you know , a navy that is being asked to do a lot of things. And , um , you know , the the gentleman I spoke with yesterday from Rand , you know , he just said , we need a bigger Navy if we're going to keep keep doing these , these things and , you know , these destroyers that are part of this blockade , they're kind of overkill for that job. Yeah.
S1: Yeah.
S2: There's a marine expeditionary unit from Camp Pendleton that is still in the Pacific that , you know , we've reported like almost a month ago at this point that they are on their way to the Middle East. They're not there yet. Um , it's not clear what they'll be used for if they're just going to replace the 31st MEU , which is there now , so they can rotate back to Japan , or if we will have two , um , moves in the area , which basically doubles our marine footprint. Um , so yeah , I'm just waiting to see what the next step is and whether the ceasefire holds. Yeah.
S1: Yeah. So many questions around this. I've been speaking with KPBS military and veteran affairs reporter Andrew Dyer. We'll link the full story on KPBS. Andrew. Thank you.
S2: Thank you.
S1: Still to come , the economic impacts as the Strait of Hormuz remains blocked. KPBS Midday Edition returns. Welcome back to KPBS Midday Edition I'm Jade Hindman. The war in Iran continues to disrupt the global economy. Normally , about one fifth of the world's oil and natural gas passes through the Strait of Hormuz. But now the ongoing blockade is creating all kinds of economic impacts. Joining me to talk about that is David Victor. He's a professor of innovation and public policy at UC San Diego's School of Global Policy and Strategy. Professor Victor , welcome back to Midday Edition.
S3: Jane , it's great to be back. Thank you.
S1: Great to have you here. So let's start with some context. For those who don't fully understand what's going on with the Strait of Hormuz. Can you bring us up to speed ? Sure.
S3: I mean , as you said in your intro , in normal times , about about a fifth of all the world's oil goes through the strait and about a fifth of all the liquefied natural gas goes through the strait. And for some countries , the liquefied natural gas is really important because they don't have natural gas supplies or their own. Think about Japan or Korea , Germany and so so all of that normally flows through this one strait. The war has effectively shut the strait. A few cargoes have gone through here and there in the early parts of the war. It was just too dangerous to travel through the strait. People weren't captains , weren't sure if their boats would be hit. Insurance costs went up by a factor of five and then basically became impossible to obtain insurance. And so various countries tried to put together patches , but that didn't work very well. As the war has dragged on , in addition to the damage to the risks of running through the strait have been the direct attacks on the oil infrastructure. And so you've got this mess where when the war ends , presumably the strait will open and the markets will start to recover fairly quickly , but then there's going to be a long term damage to the infrastructure in the region that in some cases , like the natural gas export facilities in Qatar , look like they'll take 4 or 5 years , maybe longer to repair.
S1:
S3: And if it misses a little bit of that , oil prices go up. And what we've seen now is , is effectively the net loss of about 10 million barrels per day. So some of the oil that would have gone through the Strait of Hormuz has been redirected. So , for example , the Iranians five years ago opened a port , a smaller port of their own so they can send oil from Iran into the Gulf of Oman without going through the strait. The biggest of these is a pipeline that goes from Saudi Arabia west to the Red sea. And that pipeline is actually some of the facilities around that have been attacked by some successful Iranian attacks a few weeks ago , but that that allows a few million barrels per day to move to the Red sea. Now , the Red sea is not exactly the safest place in the world. So that's where we saw a few years ago the Houthi attacks on tankers and other ships in the region. So but the strait really remains the bottleneck. It's not the only bottleneck in the world. The Straits of Malacca , which are Malaysian controlled straits , are actually the world's busiest strait. So one of the things that people are a little worried about , the more than a little bit worried about in the markets , is that you have this closure of the Strait of Hormuz , and then on top of it , you could have something that might close Suez , or you could have some kind of an accident or a storm that might close or reduce the capacity through Malacca. And then you've got a scenario that right now , it's actually kind of amazing how the world markets have have grappled with the loss of this oil supply. Prices have not gone as berserk as people originally feared. But if you add to that strain something else , then we're really in deep trouble.
S1: Is that because there's sort of this delay in the realization of how this could impact us ? Yeah.
S3: And the delay has really been very interesting to watch. And the way the delay is most visible is by looking at the difference between what's called financial barrels and physical barrels of oil. So the oil indexes that we typically are quoted in the news , like what's called Brent , which is a North Sea oil marker , or West Texas Intermediate , which is a widely used , uh , Texas. That's probably Texas , uh , in marker. These are financial indicators. So so they reflect scarcity in the global market. They reflect the opportunity to arbitrage and things like that. And then we have a few places in the world where the physical scarcity , the actual loss of barrels , is now starting to create huge economic consequences. This is most visible right now in Europe , where the refineries just can't get enough oil. And so some of the , the , the supplies of oil in the European region that can reliably be delivered there. Those prices have gone up much , much higher than the than the financial barrels. And there's a disconnect between the physical barrels and the financial barrels is going to be is becoming over the last week or so , ten days. It's become a much bigger part of the story because the longer this whole crisis drags on , the more we have these just just logistical problems of what happens to a refinery if it doesn't have enough oil , they have to shut it down. It's very hard to restart after that. What happens to an oilfield if it doesn't have a place to send its oil , it has to shut down. And when you shut in a field , it takes a while to get it started. And those kinds , that kind of clutching and gearing is now starting to have a much bigger impact on the overall picture.
S1: That's interesting.
S3: Nobody really knows when this thing's going to end. If you look at the futures markets , the futures markets are telling us because price of oil is lower. They're telling us that traders expect the crisis to be over sometime soon. Um , and the it just continues to continues to drag on. There are other crises of this magnitude. The first Arab oil embargo jacked up prices by a factor of three. The what we're called the after the Iranian revolution , what we call the tanker wars between Iran and Iraq had a loss of a lot of capacity. We saw a big surge in oil prices from that. One of the big differences today , compared to those earlier crises , is that the global economy itself is less dependent on oil. We do more things that don't require an oil , at least directly as an input. And the oil markets themselves are much more , much deeper and more effective than today. That to me is an analyst is really , really surprising. Here is the markets have taken this up to a point kind of in stride.
S1: You mentioned the markets are less dependent on oil now.
S3: The US dependence is mixed here. US consumers are paying a lot more for gasoline and for diesel and so on , and that's a harm to the economy. And we're starting to see that in the data. US producers who are able to sell the oil a much higher prices than refiners who are able to get higher margins for this. Those they've been beneficiaries. And so you see both these effects. And so the net effect of the US economy has not been that large yet. Contrast that with , say , Australia , which is enormously dependent on imported , especially diesel. Australia is a big country that move a lot of stuff around by truck. The Australian news right now is whenever a tanker arrives with diesel , diesel fuel on it , it's national news in Australia. And so the Australian economy is really , really vulnerable. Frankly , European economies are also extremely vulnerable. And as or many others , India is , as a notable case , quite vulnerable. And a lot has happened in the Indian economy and fertilizer production , which requires natural gas. Cremations have been that use natural gas have been stopped. The Indian refineries have had to throttle back quite a lot , and all of that has had a big economic impact on India.
S1:
S3: For the most part , the world's energy system is divided into two main two two very different energy systems. One is the system that more or less depends on oil liquids. And there there are some renewable supplies. Think about growing ethanol from corn in the United States or Brazil , or sugar in Brazil. Soybeans that are turned into into an oil that can be used for diesel or for for jet fuel. There are some alternative supplies there , but for the most part over the near term , the oil just doesn't have any serious rivals. Electricity is a very , very different story. And so more solar , more wind has have allowed countries that have installed a lot of those supplies to be less dependent on natural gas , not completely independent , but less dependent on natural gas. As a as a fuel source for the electric power system. And that's reduced their economic vulnerability. So what we've seen around the world , the United States is kind of a different picture. But we've seen around the world as is. This crisis has produced a lot of interest in more alternatives , including nuclear power and also electric vehicles , which is one of the major ways of reducing dependence on oil.
S1:
S3: The the answer mainly has been we need more production , although there's frankly not very much the federal government can do over the short term to increase to increase production. So that's most of that's talk. It might be reality over time. The states we've seen just tremendous variation. California is doubling down on its strategy to to use more electric vehicles. Private investors in Texas are doubling down on on more solar and also , frankly , more nuclear to power these incredible surge in data centers that use a lot of electricity. So we see an incredibly varied picture around around the country and a lot of chaos at the federal level. So I think investors aren't quite sure what to believe in terms of federal policy. And so they're looking much more to fundamentals. And in that sense , the fundamentals , high energy prices for fossil fuels have created a more tailwinds for for renewables and for nuclear power and all the alternatives to conventional fossil fuels. Hmm.
S1: Hmm. What does this all mean for people in their everyday expenses ? You know , from gas to electricity bills. And I mean , it could more than just just energy sources be impacted by all this. Yeah.
S3: Yeah. So for Americans , the really big hit has been immediately in gasoline costs. And for for people who drive a lot that's been been massive. And all these stories , including here in California , the big surge , you know , dollar a gallon in San Diego , roughly , uh , and and durable , possibly more in the future. Um , that's kind of really big and an immediate effect on , on average Americans , especially those with lower income levels. What we're going to see over time is this affect consumer prices overall because goods move around , especially by truck. And the costs of of trucking have gone up the airlines themselves. Many of the airlines actually have bankruptcy threats under them right now. And airline ticket prices have gone up because jet fuel prices have gone up so much. So you're starting to see this ripple through the rest of the through the rest of the economy.
S1:
S3: And we don't have any major accidents along the way. Those are a lot of ifs. When that happens , we'll see future prices come down fairly quickly and it'll start looking more like normal. We're in for at least 4 to 6 months of massive disruption in the global trading system , because these tankers are all in the wrong places right now. A lot of tankers have been sent to the Gulf of Mexico to pick up oil they would have otherwise gone to the to the Persian Gulf. The Australia case that we talked about a moment ago , there was something like five dozen tankers full of diesel fuel , mainly headed to Australia. Those tankers are all in the wrong places and that'll take some time to to to work through. But after a while it'll start to look like normal. I think the really big question now is going to be whether this is going to lead some countries to to rethink their energy strategies and to pay much more attention to energy security. And I think that's happening. That's what the Chinese have been doing in a pretty major way. That's why they're investing in so many alternative technologies. The Europeans are now doubling down on reducing their dependence on imported natural gas and imported fossil fuels. They had this experience with Russia , whose supplies were basically cut off after Russia invaded Ukraine. Now they've got this from this from the crisis and the Persian Gulf. The Europeans have had enough. India is a phenomenally interesting case where India is very , very dependent on these imports and has been importing quite a lot of oil from Russia , of all countries , and they've got to find a way forward on that. Hmm.
S1: Hmm. Well , you know , you argue that international cooperation is needed for energy security initiatives to actually work.
S3: Traditionally , the United States is the country that organized a lot of this international cooperation on energy , on trade and other topics. And right now , folks aren't sure what to believe coming from the United States. One of the reasons the oil prices are not higher than they would be otherwise is that after the war started , ideally it should have happened before as countries got together and agreed to release 400 million barrels of oil that were in stockpiles , including 170 million barrels from the United States. That kind of cooperation is what keeps these markets stable. Cooperation on trade and technology , a variety of other things. And and so I think the single most important question right now is what's American credibility ? Is the United States going to play a role here ? And if countries don't see the United States playing a helpful role , and they're going to do what Mark Carney talked about in Davos , which is go off and try and build their own cooperative arrangements without the United States because they're not sure what to believe.
S1: We've talked a lot about oil and energy and consumers and , you know , really just about the economic toll of this war in Iran.
S3: The Iranian community is horrified. They all have family back in Iran. And the toll there has been enormous. The toll and the rest of the Gulf has been enormous as well. Dubai , for example , used to be a place that was attractive for many people to move because it was seen as safe and and all kinds of amenities , and happened to be in the middle of the Persian Gulf. Now you have pictures of of apartment buildings with holes in the side of them , airports closed for long periods of time , people trapped there , folks trying to figure out how to move overland out of the region. Plus , you have the ongoing conflicts between Israel and Hamas in Lebanon. And so the whole region is a degree of instability and chaos and and harm to humanity that , you know , is not unfamiliar. But it's been going on for a long time. And I think that's led a lot of people to really rethink , um , whether and how to locate investments in the Persian Gulf region , what to do in the future. And then , frankly , in the near term , you're going to see a boom again , because a lot of stuff's going to need to be rebuilt. Hmm.
S1: Hmm.
S3: Um , the the biggest challenge the markets have had is the is they don't know what to believe In terms of information about the end of the end of the war. The markets are pricing things as if the war is going to end very soon. That that is probably a little too optimistic. There are a lot of reasons to think this could drag on for a long time , because nobody is sure who to believe and who to trust.
S1: I've been speaking with David Victor. He is a professor of innovation and public policy at UC San Diego's School of Global Policy and Strategy. Professor Victor , thank you so very much.
S3: Always terrific to be on your program. Thanks , Dade.
S1: That's our show for today.
S4: I'm your host , Jade Hindman. Thanks for tuning in to Midday Edition. Be sure to have a great day on purpose , everyone.
