Summary
Highlights
The conflict involving the United States and Israel against Iran has severely damaged Iran's military capabilities, leading to Iranian counterattacks that have targeted critical energy supplies in the region, particularly shipping through the Strait of Hormuz. This disruption, where one-fifth of the world's oil transits, has caused the largest supply disruption in the history of the global oil market, significantly impacting global fuel and gas prices and underscoring the interconnectedness of industrial bases worldwide. Reliable energy infrastructure is crucial for US economic and national defense needs. Joseph Majkut, director of the energy security and climate change program at CSIS, details these implications.
The Strait of Hormuz is a critical choke point for the global energy system, with approximately 20% of global oil flowing through it. The current near-total shutdown of shipping due to Iranian threats has created a remarkable market effect. Unlike the coordinated OPEC embargo of 1973, this is an uncoordinated blockade where ships cannot get insurance due to safety concerns. The primary impact is on Asian markets, as the US is now a significant oil exporter, and global markets have reoriented towards Asia's growth. US consumers will feel the effects through global price increases.
A long-term shift in energy sourcing is expected, as any settlement to the war is unlikely to reduce risk premiums for shipping through the Gulf. Countries will seek alternative energy supplies and transportation routes. The US military has used substantial amounts of expensive munitions defending energy infrastructure, raising questions about long-term strategy. Research indicates that revitalizing the American defense industrial base (DIB) requires significant energy. Joseph Majkut's report examines the energy implications across different scenarios: baseline, build-up, and war rates, comparing modern DIB needs to historical energy shortages during World Wars.
The most energy-intensive systems and raw materials in the modern defense industrial base include electronics (semiconductors, chips), aluminum, steel, and titanium. Despite having ample energy in the US, the concentration and geography of production facilities pose challenges. Two key regions with strained energy systems and projected fast growth are the Mid-Atlantic (PJM electricity market) and Texas, where semiconductor manufacturing and steelmaking are prominent. These regions face deliverability problems and reliability challenges due to data centers, suggesting a need for policymakers to consider long-term rebuilding of the DIB alongside broader economic growth.
For the industrial base, energy-related needs include faster interconnection for new facilities (currently taking up to 8 years in some regions), high reliability (especially for sensitive manufacturing like semiconductors), and sustainability (low carbon intensity). The US possesses abundant energy resources, including renewables and natural gas, which can provide a low-emissions energy source. However, building the requisite infrastructure to ensure electricity and gas reliability is essential to fully leverage these resources and support the industrial base effectively. Recognizing the significant impact of commercial industries like energy and semiconductors on national security is crucial for building resilience across the entire industrial base.