♪ ♪ >> ERIC: IRAN HAS A NEW SUPREME LEADER, AYATOLLAH MOJTABA KHAMENEI.

IN A WRITTEN STATEMENT, THE NEW LEADER SAID HE WOULD KEEP THE STRAIT OF HORMUZ CLOSED, STOPPING AROUND 20% OF THE WORLD'S OIL SUPPLY FROM DISTRIBUTION.

YOU'VE LIKELY SEEN AN UPTICK AT THE GAS PUMP THIS WEEK AS A RESULT, AND MORE SUPPLY CHAIN INTERRUPTIONS COULD IMPACT MINNESOTANS IN THE WEEKS AHEAD.

JOINING US TO TALK SUPPLY CHAINS, KINGSHUK SINHA, DEPARTMENT CHAIR OF THE SUPPLY CHAIN AND OPERATIONS DEPARTMENT AT THE U OF M'S CARLSON SCHOOL OF MANAGEMENT.

WELCOME.

WHY DOES THE STRAIT OF HORMUZ GET SUCH TOP BILLING AND IS SO IMPORTANT TO THE SITUATION IN THE MIDDLE EAST?

>> WELL, IT'S A SIMPLE SUPPLY-DEMAND CONNECT OR DISCONNECT ISSUE.

YOU KNOW, WE HAVE A LOT OF THESE COUNTRIES, THE STRAIT OF HORMUZ CONNECTS THE PERSIAN GULF WITH THE GULF OF OMAN THAT FLOWS INTO THE IS THAT FLOWS INTO THE I ARABIAN SEA.

SO IF YOU LOOK AT THE GEOGRAPHY AND LOOK AT THE COUNTRIES THAT ARE DOTTED AROUND THE PERSIAN GULF, YOU GO BACK TO ALL THE MAJOR OIL PRODUCING COUNTRIES ARE RIGHT THERE.

SO ON ONE SIDE, OF COURSE THERE IS IRAN, BUT THEN DOWN THE ROAD, YOU HAVE IRAQ, KUWAIT, AND QATAR, UNITED ARAB EMIRATES, OMAN.

SO ALL THESE COUNTRIES WHICH PRODUCES OIL ARE RIGHT THERE.

AND SO A LOT OF THE OIL TRAFFIC, I THINK THE NUMBERS THAT YOU'RE TALKING ABOUT, 20%, 20 MILLION OF THE OIL CONSUMPTION, THE GLOBAL IL CONSUMPTION, WHICH IS ABOUT 20 MILLION BARRELS, PER DAY, IS FLOWING THROUGH THAT, ABOUT 100-MILE LONG STRAIT, WHICH IS REALLY IS ANYWHERE FROM 60 TO ABOUT 24 MILES.

THAT'S THE SORT OF THE GEOGRAPHY.

>> Cathy: AND THANK YOU FOR THAT.

THANK YOU FOR THAT -- FOR SKETCHING THAT OUT FOR US.

I'M WONDERING BECAUSE OF YOUR DEEP BACKGROUND IN THE OIL INDUSTRY THEN, WHEN THEY SAY THIS IS THE LARGEST OIL SUPPLY DISRUPTION IN HISTORY, CAN YOU TALK A LITTLE BIT ABOUT THE REVERBERATIONS TO OTHER ECONOMIES ACROSS THE WORLD?

>> YES, AND I THINK THE -- ONE OF THE KEY ELEMENTS OF WHERE DOES THIS OIL FLOW TO, RIGHT?

SO THIS OIL THAT GOES THROUGH THE STRAIT OF HORMUZ LARGELY CATERS TO THE DEMAND FROM SOME OF THE MAJOR CONOMIES AND GROWING ECONOMIES LIKE CHINA, INDIA, SOUTH KOREA, AND JAPAN.

AND SO -- AND T'S NOT JUST THE OIL.

I MEAN, THERE IS THE OIL THAT FLOWS, THERE IS LIQUEFIED NATURAL GAS THAT FLOWS.

THERE IS ALSO THE FERTILIZERS THAT FLOW.

SO ALL OF WHICH ARE FLOWING IN, AND ALL OF THAT HAS IMPLICATIONS.

SO IN TERMS OF THE -- UNTIL THE SHORT RUN, I THINK THOSE ARE REALITIES THAT'S WHAT'S GOING TO IMPACT THESE MAJOR ECONOMIES AND GROWING ECONOMIES WHICH ARE HUGE CONSUMERS OF THE MIDDLE EAST OIL.

>> Eric: WHAT HAVE THE SURROUNDING COUNTRIES IN THE MIDDLE EAST TO IRAN, HAVE THEY COME UP WITH A SUPPORTING IRAN, SUPPORTING THE U.S., NEUTRAL?

WHAT IS THEIR STANCE IN ALL THIS?

>> WELL, YOU KNOW, THE ONE THING THAT I COULD TELL YOU, I MEAN, NOT LET ME NOT GET INTO THE POLITICS OF THE IDDLE EAST, BUT WHAT I COULD TELL YOU, IN PRINCIPLE, IS THAT THERE ARE AT LEAST SOME -- WHICH IS NOT 20 MILLION BARRELS OF OIL, BUT THERE S A PIPELINE THAT GOES FROM SAUDI ARABIA, FROM EAST TO WEST, SO WHERE, YOU KNOW, BASICALLY, YOU KNOW, IT'S CALLED EAST-WEST PIPELINES, AND THAT HAS CAPACITY OF SOMEWHERE IN THE TUNE OF ABOUT 7 MILLION BARRELS.

AND IT LANDS IN ONE OF THE PORT CITY OF JAKUB, WHICH IS ON THE RED SEA.

SO THAT IS ONE POTENTIAL AVENUE FOR CONTINUED SUPPLY OF THE -- THIS OIL THAT WE ARE TALKING ABOUT.

THERE IS ANOTHER ONE THAT, YOU KNOW, GOES FROM ABU DHABI AND GOES TO FUJARI, EVEN THOUGH IT'S A UNITED ARAB EMIRATES, TUS ACTUALLY ON THE GULF OF OMAN.

SO IN SOME SENSE, THE OIL THAT GOES THROUGH THERE CAN STILL BE TRANSPORTED.

>> Cathy: I SEE.

>> SO I'M TALKING ABOUT ROUGHLY 8 OR 10 MILLION.

SO I THINK THOSE THINGS ARE REALLY THERE.

BUT THE REALITY STILL IS THAT RIGHT NOW AS WE SPEAK, THERE ARE A BUNCH OF TANKERS THAT ARE ALL STACKED UP, LOADED, BUT STACKED UP IN -- IT'S STILL PART OF UNITED ARAB EMIRATES, WAITING TO GO THROUGH THAT STRAIT.

>> >> Eric: CAN THERE BE ESCORTS TO GET THE SHIPS THROUGH?

>> YOU KNOW, THAT IS A VERY SIGNIFICANT QUESTION.

TO DATE, IT IS A NON-TRIVIAL ISSUE TO PROVIDE THE ESCORT FOR A WHOLE VARIETY OF DEFENSE REASONS, THE MINE REASONS.

THERE'S ALSO THE ISSUE OF WHO'S WILLING TO DO IT.

FOR EXAMPLE, THE INSURANCE IS GOING THROUGH THE OOF.

I WAS HEARING HE CEO OF MARSH, WHICH HAS A LOT OF OIL FLOWING THROUGH THAT STRAIT, AND THEIR BASIC ARGUMENT HERE IS, FIRST AND FOREMOST, WE CARE ABOUT OUR CREW.

WE CARE ABOUT OUR ASSETS, WHICH IS OUR SHIPS AND CARRIERS AND WE CARE ABOUT THE CARGO.

AND THE INSURANCE HAS TO BE SIGNIFICANT BEFORE HIS CAN HAPPEN.

SO IT IS NOT A SIMPLE MATTER OF ESCORTS.

THE QUESTION IS, THERE HAS TO BE EVEN -- OF THE ESCORTS.

SKOE THE PEOPLE WHO ARE IN THIS BUSINESS, AND I'M USING MARSH AS AN EXAMPLE BECAUSE THEY ARE ONE OF THE PREMIERE CARRIERS, THEY'RE NOT WILLING TO PICK UP ON THIS IDEA OF ESCORTS RIGHT NOW.

>> Cathy: FINAL QUESTION FOR YOU, PROFESSOR, ABOUT A MINUTE LEFT.

WHAT IS THE WORST CASE SCENARIO IN THIS WHOLE SITUATION FOR YOU?

>> YOU KNOW, THE WORST CASE SCENARIO IS THE STATUS QUO IS GOING O CONTINUE.

THE OTHER WORST CASE SCENARIO IS THE MIDDLE EAST IS ENGULFED IN WAR, GOD FORBID, WHICH BASICALLY MEANS EVEN THE PRODUCTION, RIGHT NOW THE PRODUCTION IS HAPPENING, AND SOME OF IT IS BEING IMPACTED, YOU KNOW, REFINERIES BEING IMPACTED, SO PROCESSING AND SO ON.

EVERYTHING STOPS.

SO THAT'S REALLY THE WORST CASE SCENARIO.

AND WE KNOW THAT IS NOT, YOU KNOW, IMPOSSIBLE.

I MEAN, THE PRICE IS ALREADY HOVERING AROUND 100-PLUS.

I THINK THE PRICE COULD EASILY GO ABOVE 200, WHICH IS I THINK SOME STATED GOALS OF THE IRANIAN -- THE GOVERNMENT.

AND SO THERE ARE OTHER AVENUES.

I THINK, YOU KNOW, U.S.

MAYBE A LITTLE BIT MORE PROTECTED BECAUSE OUR SUPPLY, YOU CAN CLEARLY SEE THE U.S.

GOVERNMENT HAS ACKNOWLEDGED THE REALITIES FOR INDIA, FOR EXAMPLE, TO ALLOW FOR RUSSIAN OIL TO GET -- BEING USED.

SO THERE ARE OTHER SOURCES, BUT THIS IS GOING TO BE A VERY SIGNIFICANT DISRUPTION AND HE PRICES CAN GO ABOVE 200.

AND PURELY IN TERMS F OIL AND GAS, THIS IS -- THIS COULD BE A DOOMS DAY IN THAT REALITY.

AND THEN THERE ARE ALL THESE CASCADING EFFECTS.

>> Eric: WISH WE HAD MORE TIME.