How many oil crises can the world track at once? There’s the supply chain crisis, the price crisis, and now the OPEC membership crisis, as the United Arab Emirates says it will leave the energy cartel. To understand what it all means, BBTW columnist Peter Green spoke with Boston University oil expert Prof. Robert Kaufmann. 

This interview was condensed and edited for clarity 

Peter Green: When the UAE says it may pull out of OPEC. Is this a big deal for oil prices?

Robert Kaufmann: It’s an interesting story, but I don’t think it’s going to have much impact on price. If you look at UAE, it produces around three and a half million barrels per day. And it had about a little over a million barrels a day in what we call shut-in, or spare capacity. It shut in some supply to help keep oil prices high, but it’s not like the UAE was either a big member of OPEC or shouldering a big portion of the shut-in capacity. Remember, the world oil market has never really been a free market. The period that my parents remember as the golden age of petroleum, the 1950s and 60s, when oil prices were low and stable, that was actually a noncompetitive market in which the Texas Railroad Commission acted like a pre-OPEC. It decided how many days per month oil fields in Texas could pump oil. And its goal was to stabilize oil prices, to shut in production to balance supply and demand. When OPEC started, that was their original goal, to balance supply and demand. But they quickly realized, “we have the upper hand here,” and they were able to raise oil prices. Recently, OPEC is back in that role of the Texas Railroad Commission, balancing supply and demand, shutting in some capacity. So if OPEC really falls apart, which some people seem to be rooting for, consumers are going to lose because oil prices will go back to fluctuating wildly.

Who will that hurt?

The biggest losers will be U.S. frackers, because fracking requires a fairly high price for them to make a profit on. And if oil prices are going to fluctuate greatly, frackers are not going to invest huge sums of money drilling wells that may or may not be profitable. So the end of OPEC is not good for U.S. consumers or U.S. producers. But I do not think that UAE leaving spells the end of OPEC.

Other countries, including Indonesia, have left OPEC, and four of the world’s top five oil producers aren’t members: The U.S., Russia, Canada and Iraq. But why would the UAE leave OPEC?

OPEC’s goal is to stabilize oil prices and defend an official price. And the way they do that is they get together every three months, and say, oh, we think the world needs, you know, 30 million barrels per day of oil from OPEC to keep supply and demand in balance. But we as a group can produce 35 million barrels per day. So what they’re going to then do is ration production among the members. They’re going to tell them, you shut in half a million barrels per day, you shut in a million barrels per day. And so that’s why all these countries have, a level of production and spare capacity. By leaving OPEC, they will no longer have to abide by a quota, so they can produce more oil and in effect free ride on the fact that the Saudis are shutting in production.

Does OPEC still have enough weight to set the price of oil?

Let’s be very clear. It doesn’t set the price. It can influence a range of prices. The price of crude oil is set on very thickly traded markets like the New York Mercantile Exchange, where you buy and sell futures contracts for what’s known as West Texas Intermediate, or the International Petroleum Exchange, where you buy and sell futures for Brent crude. OPEC can influence what traders are willing to buy and sell at, but it’s not like the olden days where they set an official price. They don’t have that power.

Looking beyond OPEC, what happens if the current oil shock keeps going?

If the Strait of Hormuz remains shut for the next six months, crude oil could be $200 a barrel. And there will be shortages. You know, you will only be using crude oil for the most necessary uses because it’ll be $200 a barrel. So you won’t be flying anywhere on vacation,and you’ll be setting your home thermostat at 55.

Would the United States actually face shortages, or would the impact be worse elsewhere?

In the U.S., we probably won’t have shortages, per se, because we produce a lot of oil domestically. But I’m not sure I would fly to Europe this summer. Their airports are starting to run out of jet fuel. Unlike being in California or Florida, if you’re stuck in Denmark, there’s no other way to get home than flying.

If the crisis ended quickly, how fast would oil prices come down?

So, you’ll see a big jump down. My guess is if oil prices are now $105, it’ll probably come down into the $80s. Once oil starts flowing again, yes, people want it for their car and their jet, but refiners are going to want to rebuild their inventories. I teach my students about the relation between futures markets and inventory markets. Inventories prevent oil prices from going up very quickly, but they also prevent prices from dropping very quickly. My guess would be oil prices are not going back down to $55.

—Peter S. Green

Big Businesses mentioned this week

$GM ( ▲ 0.35% )  $ORCL ( ▼ 1.49% )  $PSKY ( ▼ 0.05% )  $WBD ( ▲ 0.04% )  $LULU ( ▲ 0.57% )  $NKE ( ▲ 0.32% )  $SBUX ( ▼ 0.5% )  $META ( ▼ 8.65% )  $UAL ( ▲ 1.56% )  $AAL ( ▲ 3.45% )  $DEL ( 0.0% )  $BF.B ( ▲ 1.93% )  

This week, big business!

• War Story

• The usual suspects

• Trumplandia

• Elon’s World

War Story

• It looks like the U.S. Navy is going to be parked by the Strait of Hormuz for a while longer, and that’s got some major implications for the global economy. President Trump told aides to prepare for an extended blockade, the Wall Street Journal reported, until Iran “says uncle,” and Sec of Defense Pete Hegseth said the war has cost about $25 billion so far, while asking for a record $1.5 trillion for defense next year, a nearly 50% increase. That would certainly boost defense stocks, but with the national debt now at $39 trillion, and $10.1 Trillion  of that added by Trump in his two terms, it may be hard to find that cash. And with oil now trading at over $100 a barrel, and likely to rise and stay there, even China is beginning to feel the hurt. A massive net energy importer, China gets70–75% of its crude oil and 40–45% of its natural gas from abroad. But nine weeks into the war, China is showing the strain. Retail car sales are down 26% from a year earlier, retail sales are slowing, its giant energy reserves have given it some resilience, but production of everything from toys to cars is falling, with buyers spending their disposable income on energy. And even as the U.S. restores sanctions on Iranian oil exports, Russia is still free to sell whatever oil isn’t burning from Ukrainian drone attacks, and General Motors $GM ( ▲ 0.35% ) says its sales of gasoline-powered cars  and pickups are holding up, and a $500 million tariff refund helped it beat analysts estimates, even as the war has raised its costs, and gas prices rise to a national average of $4.11 a gallon this week. Europe and Asia’s oil shortage sent West Texas Intermediate crude to $110 a barrel early Thursday, a blessing for US crude exports, which soared by 1.6 million barrels a day to a record 6.4 million a day last week. 

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The usual suspects

• Ellison’s money blues? Oracle $ORCL ( 0.0% ) founder Larry Ellison (pictured above) is at the center of a whole lotta stuff these days: $40-billion dollar deals to build AI data centers, helping to fund a takeover of the U.S. operations of China’s TikTok, and bankrolling his son David’s successive media takeovers of Paramount $PSKY ( ▼ 0.05% ) and now Warner Bros Discovery $WBD ( ▲ 0.04% ) , all while remaining a trusted adviser of President Trump. But a deep dive by the Wall Street Journal suggests that Ellison’s $215 billion fortune (Bloomberg pegs him as the world’s sixth richest person) is becoming a house of cards, threatening the success of all of these ventures. Some 80% of Ellison’s fortune comes from Oracle shares, and about a third of those are pledged to back various loans and investments. But those investments are looking increasingly shaky, meaning the other 56% of Ellision’s fortune could collapse in value if any of these projects falter. A few Fawlty Towers candidates include the $40 billion Oracle has agreed to spend to buy Nvidia $NVDA ( ▼ 4.43% ) chips for the Stargate AI centers that OpenAi is building with SoftBank $SFTBY ( ▲ 5.81% ) . OpenAI is not generating the use or revenue it would need to rent the chips’ computing power from Oracle. Then there’s the WBD deal, which depends on $24 billion from Saudi, Qatari and Abu Dhabi sovereign wealth funds, which are now being redeployed to rebuild energy infrastructure destroyed in the Iran War. Ellison owns about 40% of Oracle, but the company’s share price has  dropped by half since peaking last September. 

• Yoga ain’t toothpaste: That’s what Lululemon $LULU ( ▲ 0.57% ) founder and board rattler Chip Wilson said in his umpteenth letter to shareholders this week, urging them to pick his three nominees for the board of the foundering women’s athleisure wear brand. The company’s shares have plunged 73% since a December 2023 peak above $500. That’s despite revenue that hasn’t stopped growing since the company went public back in 2007. But the growth rate has slowed - up less than 1% last year, amid pressure from rivals including Alo Yoga and Vuori, falling demand and import tariffs. Wilson says the forthcoming appointment of ex-Nike $NKE ( ▲ 0.32% ) exec Heidi O’Neill shows the board just doesn’t understand the brand, and needs to hire a chief “who can deliver on the newest zeitgeist.” Wilson wrote: “Lululemon is not a toothpaste brand.” Blood in the water from the boardroom turmoil is attracting sharks: activist hedge fund Elliott Management has built a stake of more than $1 billion in the $16.45 billion company.

• Starbucks turnaround? Has the Chipotle Kid done it? Starbucks $SBUX ( ▼ 0.5% ) CEO Brian Niccol, the former burrito chain boss, said sales are bouncing back and he raised the company’s growth forecast for 2026, amid signs that his turnaround for the storied coffee concern may be working. Starbucks has invested hundreds of millions of dollars in improving its stores, changing workflows and boosting barista pay. “Customers now believe their Starbucks purchase is worth it compared to a year ago,” Niccol said on a conference call. Shares are up 18 percent in the past month, and 25% for the year. Although if you’d invested in the S&P500 when Niccol took over, you’d have made a comparative killing:

• The used car market will soon be flooded with electric cars. While Detroit keeps pumping out gas guzzlers, Volkswagen is rolling out new, low-price EVs across its brands (VW, Skoda and Cupra), with a 25,000-euro VW Polo, aiming to compete with cheaper Chinese EV’s. BYD’s entry-level Dolphin Surf sells in Europe for 23,000 euros. And while China may be leading the world with electric car uptake, the three most profitable publicly traded Chinese carmakers Geely Automobile Holdings, Chery Automobile and BYD, all reported double-digit declines in net profit in the first quarter, reflecting a worsening domestic economy and the expiration of tax incentives for car buyers. Meanwhile back in the U.S., leases will be expiring later this year on hundreds of thousands of EVs, flooding the market with used vehicles that dealers expect will be cheaper than used gasoline-powered cars. By 2028, 800,000 off-lease EVs will be entering the market each year, Automotive News reports. That’s good news for drivers (and the environment) but may make a new $60,000 Tesla Model Y a tough sell. 

• The holy Spirit? President Trump’s announcement that the federal government may offer failing Spirit Airlines $SAVEQ ( ▲ 0.43% ) $500 million in cash to save it from bankruptcy, in exchange for warrants for 90% of the carrier, was already a bad idea, many in the industry have suggested. As United $UAL ( ▲ 1.56% ) CEO Scott Kirby said last week, “The Spirit business model is fundamentally flawed, and it’s going to fail.” But other budget airlines want some of that bailout cash. The Association of Value Airlines wants $2.5 billion in loans for its members to help offset the high price of jet fuel. That’s setting up a  civil war in the airline industry. Majors like American $AAL ( ▲ 3.45% ) , Delta $DEL ( 0.0% ) and United don’t like the pressure discounters’ prices put on their own margins. And the discounters will need to get Congress to find the cash somewhere first. “I don’t have that money,” Transportation Secretary Sean Duffy said Monday when asked about the $2.5 billion needed to buy the company.

• KPMG gets marching orders: The U.S. Army hasn’t passed an audit in eight years of trying, so it’s making the logical move and firing its auditors. Big Four firm KPMG has lost its $60 million annual contract, and will move 450 staff to other projects. Defense Sec. Pete Hegseth said he’s consolidating audits and financial reporting across the military ahead of a 2028 deadline by Congress to account for America’s trillion-dollar defense budget.

• Last call? Kentucky’s Brown family, who control Jack Daniel’s maker Brown-Forman $BF.B ( ▲ 1.93% ) have called off sale talks with Pernod-Ricard, rejecting the French distiller’s offer that reportedly tied up 80% of the offer in Pernod stock, which, like Brown-Forman, has lost about two-thirds of its value in the past five years. Blame changing tastes, poor marketing and Trump tariffs for the decline. Now, New Orleans-based Sazerac, another family-run (and family-owned) distiller, is back in the mix, with a $15 billion all-cash offer to match Pernod’s. Whiskey Bible author Noah Rothbaum says that deal’s much more likely, and could see the Brown family keep control of their original brand, Old Forester, as part of a sale to Sazerac. Brown-Forman shares dropped about 10% on Tuesday. Down the hatch!

Tech talk

• Truly mag-nificent? The Mag-7 tech companies reported earnings this week, and business-wise things are looking good for almost everyone—except for investors: They appear to be getting nervous about the massive scale of planned tech spending this year —an unprecedented $650 to $700 billion—and whether there will be enough demand to pay for it all. Five of the seven stocks fell Thursday morning, despite rising revenue. Here’s what happened:

• China’s limits on foreign tech also hit hard this week: Goldman Sachs $GS ( ▲ 1.99% ) told its Hong Kong bankers to stop using Anthropic, for fear of violating both its agreement with Anthropic and Chinese tech laws, and Beijing said Monday it would force the Chinese founders of a Singapore-based AI company called Manus to unwind their four-month-old sale to Meta $META ( ▼ 8.65% ) , claiming the deal violated export rules on Chinese tech.

Trumplandia

• The umpire strikes back: He may be on the down escalator, but outgoing Fed chair Jerome Powell still has some teeth. At this week’s meeting of the rate-setting Federal Open Markets Committee rates were held steady, though tea-leaf readers say the Fed’s post-meeting statement suggests growing support for further cuts, particularly if data show the war hurting the economy. Powell also announced he’ll be staying on as a governor even after the new chair, Kevin Warsh, is confirmed. That means Trump’s only placement on the board, Stephen Miran, will have to step down when Walsh takes office. And Warsh’s installment took a  step forward when the Dept of Justice yielded to threats from Sen. Thiom Tillis, the North Carolina Republican, who vowed not to approve any Fed nominees until the DoJ dropped its investigation of Powell over the Fed’s headquarters reconstruction.

• Blame Canada? They’re doing alright up north, despite the Trump tariffs and a simmering trade war with Washington. (“They suck,” U.S. Commerce Sec. Howard Lutnick said of Canada last week, musing that the current free trade pact with Canada should be renegotiated). Prime Minister Mark Carney told Parliament this week the economy will grow 2% this year, up from 1.7% last year, with rising oil prices boosting government revenues. He's also launching a Canadian sovereign wealth fund of 26 billion Canadian dollars ($19 billion USD).

Elon’s World

• About that SpaceX IPO: It looks like Musk is about to pass into Don Quixote territory, dreaming the impossible dream. If SpaceX hits a market value of $7.5 trillion, and establishes a permanent human colony on Mars with at least 1 million people, Musk gets 200 million super-voting shares, according to an SEC filing obtained by Reuters. He gets another 60.4 million shares if SpaceX puts 100 terawatts of computing activity into space. For comparison, the U.S. currently can generate 1.3 terawatts of electricity. An IPO planned for June would value the company at about $1.75 trillion. As of December 31, Musk held 68.8 million Class B stock options with a strike price of about $42. The IPO would value those shares at around $600 or more, giving Musk a profit of over $550 per share, or $38.39 billion. That’s left SpaceX and Tesla $TSLA ( ▲ 2.41% ) dueling for Musk’s attention. 

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Peter S. Green is a veteran reporter and editor who has spent more than two decades covering business and finance from Eastern Europe to New York City, and has worked for Bloomberg News, The New York Post, The New York Times and The Messenger. He lives in New York City and is always looking for the next big story. Email him here.