How the escalating conflict in Iran could affect data centers and electricity costs

Shortly after the Trump administration launched its war on Iran, I called Reed Blackmore, director of research and programs at the Atlantic Council’s Global Energy Center, to talk to me. Talk about consequences. While oil and gas prices were already rising, there was still greater hope that the impact of the conflict would be short-lived. At the end of our conversation, Blackmore said pointedly: “Let’s get on the call again (next week)… We’ll have a much clearer picture of what the conflict will look like and what the story will really be for the energy moving forward.”

It has been a week and the conflict has escalated since the United States and Israel launched strikes against Iran, killing Supreme Leader Ayatollah Ali Khamenei. Energy infrastructure It became a major pressure point in the ongoing war Israel bombs Iranian fuel depots and Iran targets oil and gas infrastructure in neighboring Gulf states In its own strikes, the Iranian paramilitary Revolutionary Guard threatened, on Tuesday, not to “Not allowing the export of even one liter of oil from the region to the hostile party and its partners until further noticeIran has also reportedly begun to do so Laying mines in the strategic Strait of Hormuzof which five Global oil consumption and Liquefied natural gas (LNG) trading. Used to move.

I spoke to Blackmore again today about what Iran’s continued stranglehold on the Strait of Hormuz means for energy costs and the rush by US tech companies to build power-hungry AI data centers.

This interview has been edited for length and clarity.

What are your expectations now about how a potential conflict will affect oil and gasoline prices?

Reid Blackmore: The key issue now, in terms of the ramifications of the energy conflict, is how the market reacts to the uncertainty about safe passage through the Strait of Hormuz.

At the beginning of the conflict when we saw insurance premiums on these ships rising, we were talking about that largely in the context of, Hey, it’s getting a lot more expensive for a ship to cross the Gulf, so they’re staying out.

We have gone from that to actual concerns about the security of passage through the Strait in the first place, so this is no longer an issue of insurance cost as much as it is an issue of safety and security.

We have virtually no traffic through the Strait of Hormuz. Many countries have started to stop production. So, there’s really this ripple effect emerging just because the market and the tankers are fundamentally concerned about whether or not they’ll be able to safely pass through the strait.

The other feature that I think we’ve seen the market react to strongly in the last few days is a sense of how long this struggle is going to continue. I think you can look at comments From the President over the past 72 hours and the market reaction as key evidence to that end. Moving into the weekend where the crackdown clearly escalated, the uncertainty about how open or not the Strait of Hormuz will be has begun to reach a fever pitch. The response of the markets when they opened in Asia on Sunday which went above $100 a barrel to nearly $120 a barrel is actually a result of the market not feeling like this is going to end anytime soon. Which The decline we witnessed yesterday It was basically in response to the president saying that Hey, we have an end in sight to this conflict.

The United States is a Major oil producer. I believe that the US energy dominance strategy played an important role in protecting American consumers from the initial market consequences that may result from the decision to go to war with Iran. The price increases we have seen so far have been more in response to market volatility. This has given the administration a little bit of time in terms of how long it will take until we see gasoline prices actually start to rise locally. But as this struggle continues and the volatility in the market continues, we will start to see upward pressure on gasoline prices, unfortunately, over time.

There is little American energy dominance can do to protect American consumers from what is a globally traded market for oil. Because the United States is a major domestic oil producer, it has the ability to put some downward pressure on its gasoline prices.

But because it participates through its oil exports in the global market, it is exposed to the fluctuations of the global oil market.

Do we expect electricity prices to rise as well? Why?

For the US, the gas story is a little better, but it is not immune to the global market either. Natural gas is traded largely regionally within the United States. The United States is a major producer of natural gas for domestic consumption, which increases its isolation. This makes the US case very different from the gas price sensitivity seen in Europe, Japan, or other parts of East Asia.

The problem is similar to the oil story, because the United States is a major exporter of liquefied natural gas. As natural gas prices rise elsewhere, LNG exporters will be incentivized to export more gas because that is where the arbitrage opportunity exists, and this will create upward pressure on prices domestically in the US.

What risks does this pose for technology companies and this push to build more AI data centers and related energy infrastructure?

In the United States, the majority of data centers are powered by natural gas. We will not see electricity prices reach crisis point in the United States in the short term because of this conflict. The time horizon we’re talking about for gas and therefore electricity prices is probably going to be in the months rather than the weeks time horizon that you would expect for oil.

However, the longer this conflict goes on and the more distress we see in the global gas market – which will eventually trickle down into the US and create upward pressure on gas prices in a way that then impacts electricity prices and then that creates the data center question.

I think the unique thing is that it doesn’t necessarily impact the ability of data centers to purchase power. Electricity costs represent a relatively marginal percentage of the cost of building and operating a data center. What it does is only further inflame the energy affordability challenges that are currently degrading the country’s social license for data centres. So the impact on electricity prices likely won’t directly hurt data center construction. The challenges that additional affordability will create will further entrench it Public dissatisfaction with data center constructionBecause data centers simply are Which makes consumers’ electricity bills much more expensive.