Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: I think you do need some foreign policy nerds like
Speaker 2: me to come in and explain where the rules of
Speaker 2: engagement are being changed before our eyes. And that's why
Speaker 2: someone like me can say this is the most significant
Speaker 2: uptick in Middle East risk for at least twenty years.
Speaker 3: Welcome to the City of London, the City of the City,
Speaker 3: the City of London.
Speaker 1: We need mind the gap between the tree and the platform,
Speaker 1: the financial hearts of the country.
Speaker 3: The city, the city.
Speaker 2: Welcome to in the city.
Speaker 3: Band, clear of the door.
Speaker 1: Pease from Bloomberg Studios in the heart of the Square mile.
Speaker 1: This is our weekly look and the conversations motivating powerbrokers,
Speaker 1: policy makers and financiers the world over. I'm Francine Laqua
Speaker 1: and Dave. You're back in New York this week.
Speaker 3: I am indeed h fancy, Hi David.
Speaker 1: It's been quite a start to the week. It was
Speaker 1: quite a weekend actually, you know, we were texting about
Speaker 1: what we were going to discuss this week, and there
Speaker 1: was no question we need to discuss the escalating tensions
Speaker 1: in the Middle East.
Speaker 3: That's right. The weekend really was momentous. The images of
Speaker 3: the attack that Iran launched at Israel drones and missiles
Speaker 3: flying over the dome of the Rock in the center
Speaker 3: of Jerusalem really struck home what a historic moment it was.
Speaker 1: Yeah, I mean a lot of people are actually really
Speaker 1: scared that this would turn into a world war. And
Speaker 1: do you remember when Ian Bremmer in our first episode
Speaker 1: of the year came on with his top ten risks.
Speaker 1: He was saying, look, it's really the Middle East that
Speaker 1: we need to watch out for on the brink, and
Speaker 1: he said that we're probably not smart enough for lucky
Speaker 1: enough to avoid an escalation over the coming month.
Speaker 3: That's right, talking about the sort of you the more
Speaker 3: pessimistic outlook for this, and it has come to pass,
Speaker 3: of course. However, we are still waiting. We're taping this
Speaker 3: on Tuesday. We are still awaiting Israel's response to that
Speaker 3: barrage of missiles and drones ninety nine percent of which
Speaker 3: also the vast majority of which it managed to intercept
Speaker 3: and shoot down. But there is this feeling that the
Speaker 3: world is on a brink of something potentially much worse,
Speaker 3: even than we've seen in the past few months.
Speaker 1: Yeah, the group of seven members, including the Prime Minister
Speaker 1: of the UK spoke with one another on Sunday and
Speaker 1: said they would try to stop an uncontrollable regional escalation.
Speaker 3: And of course, all of this is against the backdrop
Speaker 3: of Israel's war in Gaza, which has now passed the
Speaker 3: six month mark. It has left Garza's population of more
Speaker 3: than two million people without access proper access to water, food, power, medicine.
Speaker 3: It's displaced one and a half million people into the
Speaker 3: southern part of the Gaza strip, and according to the
Speaker 3: Hamas run local health authorities, it is killed more than
Speaker 3: thirty three thousand people. Of course, after the horrific attacks
Speaker 3: that her Master launched on Israel on October the seventh,
Speaker 3: which killed more than twelve hundred is raised.
Speaker 1: So let's have a conversation about how long standing tensions
Speaker 1: between Israel and Iran came to a head, where those
Speaker 1: tensions could go next, and what it means for the
Speaker 1: overall stability of the region. Joining us in the London
Speaker 1: studio geopolitical strategist Tina Fordham. Tina is the founder of
Speaker 1: Fordum Global Foresight, an independent consultancy dedicated to advising boards
Speaker 1: and the c suite about geopolitical, socioeconomic and financial Risks.
Speaker 3: Tina, thanks so much for joining us on in the city.
Speaker 3: Thank you for having me so As Francin and I
Speaker 3: were just saying, it really was a momentous weekend. I'm
Speaker 3: sitting in the US on Saturday, there was this sense
Speaker 3: of real foreboding about how events might unfold. Did you
Speaker 3: feel that this was as historic and as momentous an
Speaker 3: act by Iran when you saw this unfold over the weekend?
Speaker 2: Yes, in many ways, because Iran has broken the taboo
Speaker 2: first of all, of launching an attack from its own territory.
Speaker 2: And let's remember that this so called shadow war that
Speaker 2: has been in existence for some years between Israel and
Speaker 2: Iran has been fought through proxies. That's what his Polah
Speaker 2: do in Hamast to a certain extent, and the Huthi rebels,
Speaker 2: they are helping Iran achieve its aims without triggering a
Speaker 2: conventional military response. And so the decision in Tehran to
Speaker 2: launch these hundreds of ballistic and cruise missiles and drones
Speaker 2: from its own territory into Israel was a major uptick
Speaker 2: in the risk level. And I think market participants have
Speaker 2: completely got it wrong with the idea that it was
Speaker 2: somehow meant to be symbolic, But so why did it happen?
Speaker 1: So this is in retaliation okay, an Israeli strike on Damascus.
Speaker 2: Yes, and that also broke the rules and.
Speaker 1: Which killed Iranian general.
Speaker 2: In Iranian generals, but in the Iranian consulate in Damascus.
Speaker 2: And remember that in international law that is sovereign territory.
Speaker 1: If we take a step back, there's three hundred explosive
Speaker 1: drones and ballistic missiles. What was the endgame of Iran?
Speaker 1: Was it showing a force and telling Israel don't mess
Speaker 1: with us? Or was it actually trying to hit targets.
Speaker 2: It was upping the ante. They couldn't have known the
Speaker 2: kind of performance of the Israeli air defenses, nor the
Speaker 2: cooperation or the extent of the cooperation between the UK,
Speaker 2: the US, France and Jordan and possibly others, so it
Speaker 2: was taking a big risk. They didn't appear to have
Speaker 2: targeted population centers or things that would have really increased
Speaker 2: the risk level dramatically. But this was intended to send
Speaker 2: a message that there would be punishment for Israel for
Speaker 2: attacking the generals on the sovereign territory of their consulate.
Speaker 2: And now Israel is in this rather terrible position of
Speaker 2: trying to calibrate its response.
Speaker 3: But do you think, Tina, that it was a miscalculation
Speaker 3: then from the Iranians, that the Israeli air defenses would
Speaker 3: be so effective at shooting them down, and that there
Speaker 3: would be a coalition that would emerge, including Arab states
Speaker 3: to intercept the missiles, sort of rallying to Israel's defense.
Speaker 3: And doesn't that make Iran actually look rather weak?
Speaker 2: Absolutely? I mean the end result, without being able to
Speaker 2: read the minds of the mullahs that run Iran, the
Speaker 2: end result has been that Iran's formidable military is not
Speaker 2: looking so so formidable. So Iran is looking weaker. Remember
Speaker 2: that it also sells those drones to Russia to use
Speaker 2: in the case of Ukraine. So Iran ends up looking exposed.
Speaker 2: And the other way that this attack backfired is that
Speaker 2: it has been a gift to Israeli PM Netanyahu, who's
Speaker 2: you know, time on the political clock in Israel was
Speaker 2: really running short. Remember just the day before huge protests
Speaker 2: not against his prosecution of the war in Gaza, but
Speaker 2: for not bringing the Israeli hostages held by Hama's home.
Speaker 3: And so Natsigna, who seems to have been given a
Speaker 3: bit of a break by this attack, and so what
Speaker 3: does he do with it? And what does he do
Speaker 3: with it exactly? Does he keep the conflict with Iran going?
Speaker 2: Well, this is the conundrum, right, So you know, I
Speaker 2: get a lot of emails and have conversations with investors
Speaker 2: and other you know, sort of business leaders, and every
Speaker 2: one of them said, but surely BB won't bite the
Speaker 2: hand that feeds him and go against the US, And
Speaker 2: to which I said, have you not been paying attention
Speaker 2: the kind of incredible diplomatic pressure that the White House
Speaker 2: has put the Natanyahu government under to deliver humanitarian aid
Speaker 2: and everything else. This is a consequence of the end
Speaker 2: of the Pax Americana, right that Washington can't just call
Speaker 2: the shots.
Speaker 1: But I guess the question is, Tina, does this play
Speaker 1: to Nathanael's hand because he got so much support to
Speaker 1: dealing with Iran, So he was in tricky hot water
Speaker 1: because of what he's doing in Gaza. But then as
Speaker 1: soon as you get intact from Iran, then the Allies
Speaker 1: show up.
Speaker 2: Yes, And so how does he interpret that extra space
Speaker 2: that he's been given and what does he do with it?
Speaker 2: Because he's hanging on by a thread politically, remember, and
Speaker 2: his coalition is all hardliners who are saying, go big,
Speaker 2: let's end this problem once and for all. We've heard
Speaker 2: the Israeli cabinet using the Hiroshima metaphor saying that's what
Speaker 2: ended the World War two was the America's use of
Speaker 2: the atomic weapon, and that's all terrifying stuff. And yet
Speaker 2: the market consensus is that Israel will send a response
Speaker 2: that's within the gray zone right, sends a message but
Speaker 2: won't inflict damage. That is a hard line to tread.
Speaker 3: Do you think the markets are miscut plating as well
Speaker 3: here that I think you said this at the beginning, Tina,
Speaker 3: that markets were not sensitive enough to these risks. But
Speaker 3: should they pay more attention to what people sitting around
Speaker 3: Nettigna who's cabinet table are actually saying?
Speaker 2: I think that there's an overly simplistic interpretation. I mean,
Speaker 2: let's be clear, the capacity for conflict and dislocation in
Speaker 2: the Middle East to inflict price action on markets is
Speaker 2: much reduced thanks to the onset of US energy independence
Speaker 2: and shale gas. So it is certainly true that even
Speaker 2: in the worst case scenario, we're not probably looking at
Speaker 2: a thirty dollars a barrel increase, maybe five or six.
Speaker 2: I'd argue that still matters in an environment when markets
Speaker 2: are very focused on what the Fed does next and
Speaker 2: have downgraded their expectations for rate cuts. War is inflationary.
Speaker 3: You mentioned the Pax Americana and the end of Obviously,
Speaker 3: we're in a big election year here in the United
Speaker 3: States as well, and we've seen Donald Trump come out
Speaker 3: and grandstanding about this if you want to call it that,
Speaker 3: about how iron never dared to attack Israel if the president.
Speaker 2: Well, that's funny because Iran did attack when he was
Speaker 2: president and the US didn't respond.
Speaker 3: But sorry, okay, yeah, memory there for you. But so,
Speaker 3: how much is the domestic American political situation I think
Speaker 3: here influencing what is going on in the Middle East.
Speaker 2: So the Biden administration is in the midst of a
Speaker 2: fight for reelection, right, and the election is just months away.
Speaker 2: The last thing it wants to be doing is trying
Speaker 2: to intervene diplomatically to prevent World War III from happening
Speaker 2: in the Middle East and to prevent Russia from achieving
Speaker 2: a victory in Ukraine. The combination of these two conflicts
Speaker 2: both of which have the potential to become systemic. Moving
Speaker 2: beyond regional is the worst constellation of geopolitical risks that
Speaker 2: we have faced for some thirty years. The period between
Speaker 2: now and US elections, everybody's going to try on what
Speaker 2: they can get away.
Speaker 3: With, including the Chinese.
Speaker 2: Yes, well they're doing it in the Philippines. Yes, everyone's busy.
Speaker 2: This is the perfect time to try to take a
Speaker 2: bite out of territory that you would like back, change
Speaker 2: the facts on the ground. And this is the other
Speaker 2: fundamental point that market participants miss. No one is business
Speaker 2: might be waiting until US elections to do deals or whatever.
Speaker 2: For challenger actors, which is the term I use. Now's
Speaker 2: the time to increase your negotiating position so that you
Speaker 2: can keep what you've got. That's what you hope. So
Speaker 2: that's why Pucin is going for Harkyve, third largest city
Speaker 2: that extends his territory, because he knows that when there
Speaker 2: is a peace discussion, they're going to say, okay, we
Speaker 2: want all the things that we've already got. So he's
Speaker 2: going to try to get as much as possible. And
Speaker 2: Chinese actions in the Philippines are significant. They're blockading the
Speaker 2: delivery of food aid to Filipino sailors.
Speaker 3: And Congress does nothing or is frozen.
Speaker 2: Congress is frozen because it can't. Governments can only do
Speaker 2: one thing at a time, and the Middle East is
Speaker 2: now it.
Speaker 3: Bloomberg Economics have done some projections and they're saying a
Speaker 3: direct war between his run and Iran could push oil
Speaker 3: up by more than sixty dollars about and tip the
Speaker 3: world economy into recession. That is the sort of the
Speaker 3: worst case scenario. But even a confined war hits global
Speaker 3: GDP and sends oil up. So again, it feels like
Speaker 3: markets and you've said this now a couple of times
Speaker 3: seemed to be baring their head in the sand on this.
Speaker 3: And because so many people, as you said, growing up
Speaker 3: through these decades of the US dominated global order just
Speaker 3: can't imagine a scenario when that really breaks down.
Speaker 2: I think that's what explains it, you know, I call
Speaker 2: it kind of behave ye. Finance meets geopolitics. Remember it
Speaker 2: wasn't that long ago we were having these conversations about
Speaker 2: whether Putin would invade Ukraine. Would he really do that?
Speaker 2: He's just playing three dimensional chess. This is just saber
Speaker 2: rattling to increase oil prices putin, by the way, is
Speaker 2: a major beneficiary of this kind of geopolitical foment. How
Speaker 2: do you kind of price this, how do you rebalance
Speaker 2: your portfolio? I'm not sure I have the advice about that,
Speaker 2: but what I do know is that when there is
Speaker 2: a step change in trend, when you have a disconnect
Speaker 2: between this incredibly sang Win market sentiment and what pretty
Speaker 2: much every geopolitical analyst is saying, this is serious, that
Speaker 2: is at least a reason to pay more attention instead
Speaker 2: of being as dismissive as we're hearing.
Speaker 3: So is there a world in which the US sort
Speaker 3: of reasserts itself and tries to kind of firm up
Speaker 3: the packs American as I've been saying that, it seems
Speaker 3: that we may get a vote in the US House
Speaker 3: on funding for Israel and potentially look again at the
Speaker 3: question of funding for the Ukrainians, which has been of
Speaker 3: course held up now for so long. Could a shock
Speaker 3: like this kind of wake America up a bit to
Speaker 3: the need for it to continue to fund the resistance
Speaker 3: against Russia and Ukraine, continue to fund its allies around
Speaker 3: the world, and kind of reassert itself on the world stage,
Speaker 3: or do you think that status is kind of forever gone.
Speaker 2: It's a really important question, and I think it also
Speaker 2: just exposes I mean, here you have me and Francine
Speaker 2: in an American and Italian living in London, and you
Speaker 2: and Britain in the US. I've never been more conscious
Speaker 2: of the kind of geographic disconnect and risk perception. I mean,
Speaker 2: Americans really do feel inviable. You know, in many ways,
Speaker 2: US markets are performing, the US is growing. This is
Speaker 2: Europe's problem. Investors have really taken on board the Trump
Speaker 2: talking points Europe should be paying more for defense. I
Speaker 2: come back to them and say, Europe is paying more.
Speaker 2: There are very few countries not paying the two percent
Speaker 2: at NATO. The US periodically goes through these waves of isolation,
Speaker 2: and this is one of them. But I think it
Speaker 2: is also due to the fact that Americans don't appreciate
Speaker 2: how they benefit from the globalized economy and financial markets too.
Speaker 1: But tin can the US afford it? So if Donald
Speaker 1: Trump gets the richest white try in the world, it
Speaker 1: doesn't mean they can afford it.
Speaker 2: Right, It doesn't mean they're willing to pay.
Speaker 1: Right, It doesn't mean they're willing to pay It doesn't
Speaker 1: mean that, you know, they can continue going into debt.
Speaker 1: It doesn't mean that the next president will support all
Speaker 1: of this. Do they have the bandwidth of doing of
Speaker 1: trying to get involved in so much foreign affairs?
Speaker 2: You know, I had an interesting observation from one of
Speaker 2: my clients in Washington, D C. Said, Trump is a
Speaker 2: shadow president and as long as you know he is
Speaker 2: in that position kind of pulling the strings in the House,
Speaker 2: we won't get that aid bill, sixty million in aid
Speaker 2: to Ukraine, which is something that the American public supports
Speaker 2: and that the US Congress supports, now being held up
Speaker 2: in the House. And it is existential, not only for Ukraine.
Speaker 2: Let's maybe if you want to be brutal and take
Speaker 2: the humanitarian consideration out of it, the fact that Ukraine
Speaker 2: will cease to as an entity in many ways. Again,
Speaker 2: it's about that perception of what constitutes US security and
Speaker 2: is in the US national interest and self interest, and
Speaker 2: I think that link has been broken in many ways.
Speaker 1: Tina, Can I ask you about the alliances in the
Speaker 1: Middle East that have been forged or reforged right because
Speaker 1: of this threat coming from Iran. So suddenly Israel was
Speaker 1: supported by Jordan, certain parts I think is also supported
Speaker 1: by Saudi Arabia. Does this change anything in Nataniel's mind?
Speaker 2: This is a very interesting kind of reshuffle of strange
Speaker 2: bedfellows going on, because you will have seen the veement
Speaker 2: denials of an Arab Israeli coalition of the willing emerging.
Speaker 2: And I don't think that's really part of Natanyahu's story.
Speaker 2: But Jordan says, for its part, it was defending its
Speaker 2: own airspace. If a foreign object trespasses its airspace, it's
Speaker 2: going to shoot it down. And I think that makes
Speaker 2: a lot of sense. But what it really underscores is
Speaker 2: the mutual self interest amongst these countries in the region.
Speaker 2: And Jordan and Israel have had a peace treaty for decades.
Speaker 2: Let's not forget the UAE and Saudi cooperating. Is that unusual?
Speaker 2: Remember Iran and Saudi were at war until Saudi and
Speaker 2: Tehran agree to a pause normalization of relations. And then
Speaker 2: we have the fact that Saudi itself is saying that
Speaker 2: the Hamas attack was meant to foil the normalization of
Speaker 2: relations between Israel and near our world without something being
Speaker 2: done about the Palestinians.
Speaker 1: Do you know, will we see a ceasefire in Gaza.
Speaker 2: I don't think that the Israelis will agree to a
Speaker 2: cease fire without the release of the hostages.
Speaker 3: Put it that way, so that means an assault on
Speaker 3: Raffa that has to happen, does it not?
Speaker 2: I think that is right back on the table. I
Speaker 2: don't think that this Iranian attack on Israel changes the
Speaker 2: military calculus for Israel in Gaza, despite the international condemnation
Speaker 2: and the fact that you know, just about every international
Speaker 2: authority has said that famine is happening, a man made
Speaker 2: famine happening in Gaza.
Speaker 3: Now the stated goal of the Israeli government to wipe
Speaker 3: her mass off the face of the earth, I think
Speaker 3: is the phrase they've used. There are interesting parallels, aren't
Speaker 3: there after the September the eleventh, two thousand and one
Speaker 3: attacks in the United States, with President George W. Bush's
Speaker 3: war on terror and how that lasted for so many
Speaker 3: years and set up these goals that were really unachievable.
Speaker 3: Surely is it not an impossible aim to completely eradicate
Speaker 3: in Hamas, and well, Israel not have to get to
Speaker 3: the point where they admit that and call ass Faracarpas.
Speaker 2: I think we can agree that eradicating a non state
Speaker 2: actor like Hamas or the Taliban is extremely difficult, if
Speaker 2: not impossible, to do. I don't know that means Israel
Speaker 2: will stop trying to do it.
Speaker 1: Is there anything the US can do to make them stop?
Speaker 2: Well, we saw the kind of veiled threats to reduce aid.
Speaker 2: But remember that for Republicans in Congress, particularly the evangelical
Speaker 2: Christians like Johnson, the Speaker of the House, the support
Speaker 2: for the state of Israel is in a different bucket
Speaker 2: than support for Ukraine and for even for Taiwan. Interestingly,
Speaker 2: so Natina, who will really be testing the patients the
Speaker 2: limits of the American political establishment because even its sort
Speaker 2: of core support amongst American Jews is under threat. Israel's
Speaker 2: international reputation has been damaged by the offense in Gaza.
Speaker 2: Can that be rebuilt? It's going to be difficult, and
Speaker 2: this Iranian attack is not enough, certainly to put Israel
Speaker 2: back in the kind of victim place in the equation.
Speaker 3: I mean, another scenario that seems quite likely as well,
Speaker 3: assuming that Iran and Israel step back from direct confrontation,
Speaker 3: is a flare up of facilities with Hezbollah in Lebanon,
Speaker 3: and so that's going back to more of a proxy war,
Speaker 3: but a full blown conflict between Hezbollah and Israel. How
Speaker 3: do you see that playing out? Does Israel have the
Speaker 3: capacity to fight war on multiple fronts at the moment?
Speaker 2: I think we should underestimate the collective trauma that was
Speaker 2: meted out on Israelis after the October seventh attack, and
Speaker 2: the willingness to defend the state of Israel and the
Speaker 2: sense that this is an existential crisis. And it seems hard,
Speaker 2: you know, for people outside the region to appreciate that,
Speaker 2: and if you read the Israeli pressed you can see it.
Speaker 2: And the real challenge is the choreography, if you will,
Speaker 2: And that's where these gray zone kinds of responses come
Speaker 2: into play. And how do you calibrate a response that
Speaker 2: inflicts damage on your enemy on the aggressor without provoking
Speaker 2: a full scale military conflict which everyone says they don't want,
Speaker 2: or alienating your number one supporter because Israel probably can't
Speaker 2: do without US support. And that is why Biden has
Speaker 2: taken this risk, really alienating the left wing of the
Speaker 2: Democratic Party in support of Israel because of the fear
Speaker 2: of an all out conflagration.
Speaker 1: Tina, thank you so much.
Speaker 2: Thank you for having me.
Speaker 3: Thanks for listening to this week's In the City from Bloomberg.
Speaker 1: This episode was hosted by me Francine lakwaw Merit.
Speaker 3: It was produced by Summer Sadi, with additional editing by
Speaker 3: Blake Maples.
Speaker 1: Brendan Newman is our executive producer. Sage Bauman is head
Speaker 1: of Podcasts.
Speaker 3: Well special thanks to Tina Fordham. Please do you subscribe, rate,
Speaker 3: and review wherever you listen to podcasts