WEBVTT - US and Iran Trade Blows in the Middle East 0:00:02.520 --> 0:00:10.520 Bloomberg Audio Studios, Podcasts, radio News. This is Bloomberg Business 0:00:10.560 --> 0:00:14.440 Week Daily reporting from the magazine that helps global leaders 0:00:14.440 --> 0:00:18.400 stay ahead with insight on the people, companies, and trends 0:00:18.400 --> 0:00:23.400 shaping today's complex economy. Plus global business finance and tech 0:00:23.480 --> 0:00:27.360 news as it happens. The Bloomberg Business Week Daily Podcast 0:00:27.680 --> 0:00:31.760 with Carol Masser and Tim Stenebeck on Bloomberg Radio. 0:00:32.680 --> 0:00:35.440 Well Iron fired missiles at a US air base, and 0:00:35.479 --> 0:00:40.479 Cutter after promising it would respond proportionately and decisively to 0:00:40.520 --> 0:00:43.600 President Trump's weekend air strikes on three of its nuclear facilities. 0:00:43.640 --> 0:00:47.040 Cutter said the barrage at Aluded Base, the biggest such 0:00:47.120 --> 0:00:49.879 US facility in the Middle East, was intercepted, and that 0:00:49.920 --> 0:00:51.120 there were no casualties. 0:00:51.680 --> 0:00:51.920 Carol. 0:00:51.920 --> 0:00:53.920 For a look at US national security in the US's 0:00:54.000 --> 0:00:56.480 role in global security, We're going to bring in Nick Wadams, 0:00:56.520 --> 0:00:59.160 Bloomberg News National Security Team leader. He joins us from 0:00:59.160 --> 0:00:59.960 our Washington DCA. 0:01:00.520 --> 0:01:02.080 Hey, Nick, good to have you here. I know it's 0:01:02.080 --> 0:01:03.800 been a busy week and a busy day. We're trying 0:01:03.800 --> 0:01:07.000 to understand a little bit what feels like military choreography, 0:01:07.120 --> 0:01:09.399 maybe on the part of the US and on the 0:01:09.400 --> 0:01:13.400 part of Iran. Right, missile strike on Cutter was telegraphed 0:01:13.520 --> 0:01:15.720 and had been expected by the US and its allies, 0:01:15.959 --> 0:01:19.240 according to a person familiar. And it's also you know, 0:01:19.240 --> 0:01:21.480 you've got President Trump. He was telegraphing it's going to 0:01:21.480 --> 0:01:23.919 be within two weeks. And so did that give Iran 0:01:23.959 --> 0:01:27.280 a warning? You understand this world? Help me understand how 0:01:27.520 --> 0:01:29.360 military works today? 0:01:30.520 --> 0:01:30.800 Right? 0:01:30.880 --> 0:01:34.120 I mean, so choreography is a really good word here. 0:01:34.200 --> 0:01:37.800 There is a sort of delicate dance going on. After 0:01:37.840 --> 0:01:42.800 the President telegraphed his plans well in advance and then 0:01:43.160 --> 0:01:46.120 sort of tried to gauge what the potential reaction would be. 0:01:46.640 --> 0:01:49.320 US carried out those strikes, and then afterwards had a 0:01:49.320 --> 0:01:51.840 bunch of US officials go on TV and say, hey, listen, 0:01:51.880 --> 0:01:53.960 this was a limited strike. It was aimed at the 0:01:54.040 --> 0:01:59.200 nuclear program, not against Iran. Writ large, then Iran feels 0:01:59.240 --> 0:02:02.360 it needs to retaliate, and then it wants to sort 0:02:02.440 --> 0:02:05.480 for its domestic audience portray this as a very big, 0:02:05.520 --> 0:02:09.239 overwhelming response. But then the indication we're getting from Cutter 0:02:09.280 --> 0:02:12.760 and elsewhere, As you mentioned, this was telegraphed well in advance. 0:02:13.080 --> 0:02:15.960 It targeted a base that had been largely evacuated of 0:02:16.080 --> 0:02:20.480 valuable US military assets, So a symbolic show of force, 0:02:20.560 --> 0:02:22.959 but it looks like when you dig a little bit. Actually, 0:02:23.360 --> 0:02:27.320 the Iranian desire was not to cause too much damage, 0:02:27.560 --> 0:02:31.040 So the interpretation there is okay, now they want to 0:02:31.040 --> 0:02:34.320 push toward a potential new conversation with the US. They 0:02:34.320 --> 0:02:37.919 want an off ramp. Two complicating factors to that. One noise, 0:02:38.000 --> 0:02:40.680 of course, that Iran and Israel are still engaged in 0:02:40.720 --> 0:02:43.880 tit for tat exchanges, so that conflict hasn't ended. The 0:02:43.960 --> 0:02:46.440 other is, which we don't know, is this the end? 0:02:46.600 --> 0:02:49.440 Is Iran planning further attacks? They haven't issued a statement 0:02:49.480 --> 0:02:51.880 to say, hey, we're done here, let's move on. 0:02:52.120 --> 0:02:52.280 Right. 0:02:52.320 --> 0:02:53.839 That's a really good point. I mean, they did say 0:02:54.120 --> 0:02:58.600 proportionately and decisively, this doesn't seem proportional to attacks on 0:02:58.680 --> 0:03:02.200 three of its nuclear facilities. I think it doesn't take 0:03:02.240 --> 0:03:06.360 a nuclear scientist to make that conclearsion. Nick, You know, 0:03:06.560 --> 0:03:09.079 I was thinking about this over the weekend. Other presidents 0:03:09.120 --> 0:03:12.880 have had the opportunity to strike Iran's nuclear targets. Did 0:03:12.880 --> 0:03:15.040 they avoid it because of fears of retaliation? 0:03:16.480 --> 0:03:16.720 Yeah? 0:03:16.800 --> 0:03:19.040 I mean I think there were a lot of questions there. 0:03:19.040 --> 0:03:21.280 The reasons why they avoided it. I mean, it was 0:03:21.320 --> 0:03:26.080 seen as too risky potentially in terms of retaliation by Iran. 0:03:26.520 --> 0:03:28.919 The other question is a matter of efficacy, and one 0:03:28.960 --> 0:03:31.359 thing we don't know about these strikes how much they 0:03:31.440 --> 0:03:36.200 actually obliterated the Iranian nuclear program, as President Trump claimed. 0:03:36.240 --> 0:03:39.800 So there is a potential unintended consequence which as you 0:03:39.880 --> 0:03:44.840 drive Iran's nuclear program deeper underground, both figuratively and literally. 0:03:44.880 --> 0:03:48.360 So does this produce the outcomeing you want? The other is, obviously, well, 0:03:48.400 --> 0:03:52.800 what are the third, fourth, fifth order consequence consequences of this, 0:03:52.920 --> 0:03:55.400 the unknown unknowns that we don't know about. You look 0:03:55.400 --> 0:03:58.840 at the Iraq War two thousand and three. Folks thought, okay, 0:03:58.880 --> 0:04:01.119 we were going to be greeted as liberators when US 0:04:01.160 --> 0:04:03.320 troops went in there, and then you look at what 0:04:03.440 --> 0:04:06.200 a mess everything became, the rise of the Islamic State, 0:04:06.200 --> 0:04:06.680 et cetera. 0:04:06.800 --> 0:04:08.520 So the question is is. 0:04:08.440 --> 0:04:11.440 This something Trump can just do and then get out 0:04:11.600 --> 0:04:15.080 or does this lead to a whole new conflict the 0:04:15.200 --> 0:04:17.120 likes of which we just can't imagine right now. 0:04:17.160 --> 0:04:20.839 Well, Nick, on a global security basis, I mean, what 0:04:21.040 --> 0:04:23.680 are the implications and kind of optics of the US 0:04:24.200 --> 0:04:26.560 actually getting involved, right. You know, that's one thing that 0:04:26.600 --> 0:04:29.719 they're behind the scenes and helping out and supporting, But 0:04:29.839 --> 0:04:31.120 they're involved. 0:04:31.560 --> 0:04:35.920 Right, and you know they're the first order consequences the 0:04:35.960 --> 0:04:39.880 issue of what the potential Iranian retaliation might be in 0:04:39.920 --> 0:04:44.000 the future, what this actually does to Iron's nuclear program. 0:04:44.279 --> 0:04:46.760 But then you have the other element, which is the 0:04:46.880 --> 0:04:50.919 United States just attacked a sovereign country even though the 0:04:51.080 --> 0:04:55.080 US intelligence community assessed that there was no imminent threat 0:04:55.400 --> 0:04:58.760 to the US. So you could call this deterrence or 0:04:58.800 --> 0:05:04.360 a preventive strike. But is it you know, was it 0:05:04.400 --> 0:05:07.559 too precipitous When you have a country like the US 0:05:07.560 --> 0:05:10.920 that essentially says, hey, we're going to uphold this global 0:05:11.080 --> 0:05:14.520 order and then condemn a country like Russia for an 0:05:14.560 --> 0:05:17.840 attack on a sovereign country ie Ukraine, What does that 0:05:18.000 --> 0:05:22.479 do to US legitimacy and questions around US authority when 0:05:22.480 --> 0:05:25.280 it goes after a sovereign country like Iran. You know, 0:05:25.320 --> 0:05:28.760 there's a concern that it's essentially opening up a Pandora's box, right, 0:05:28.839 --> 0:05:31.359 and maybe opening it up to other countries doing the 0:05:31.400 --> 0:05:31.839 same thing. 0:05:31.920 --> 0:05:33.680 All right, good to check in with you, Like I said, 0:05:33.720 --> 0:05:36.520 I know you guys all there in DC are super busy. 0:05:36.640 --> 0:05:39.359 Nick Wadams, Bloomberg News National Security Team leader, joining us 0:05:39.400 --> 0:05:40.680 from our Washington d C burea. 0:05:40.800 --> 0:05:41.240 Nick, Thank you. 0:05:41.320 --> 0:05:43.880 Okay, So look at how US government is thinking about 0:05:43.920 --> 0:05:47.520 potential retaliation from Iran. For more on how Iran navigates 0:05:47.560 --> 0:05:49.640 after the US bombings over the weekend, we turned to 0:05:49.680 --> 0:05:53.160 Arial Cohen, non resident Senior Fellow at the Atlantic Council's 0:05:53.160 --> 0:05:55.799 Eurasia Center, also a member of the Council of Foreign Relations. 0:05:55.800 --> 0:05:59.160 He joins us from Washington d C. Doctor Cohen, good 0:05:59.200 --> 0:06:01.080 to have you with us this afternoon. I have a 0:06:01.120 --> 0:06:04.960 lot of questions about proportional retaliation, but I want to 0:06:04.960 --> 0:06:08.480 know what, in your view, Iran is actually capable of 0:06:08.600 --> 0:06:11.920 right now? What is the state of Iran's military, it's 0:06:12.000 --> 0:06:13.840 armed forces right now? What are they capable of? 0:06:15.360 --> 0:06:18.640 I believe that in a short range missile such as 0:06:18.640 --> 0:06:23.279 the missiles that they fired against US based and Kutar 0:06:24.040 --> 0:06:27.239 potentially US based in Iraq. 0:06:27.240 --> 0:06:32.000 And Syria, we may see more attacks. 0:06:33.279 --> 0:06:38.880 The main news here is that Iran went through sort 0:06:38.920 --> 0:06:41.080 of kind of performative retaliation. 0:06:41.640 --> 0:06:44.320 This was not mother of old. 0:06:44.200 --> 0:06:49.560 Retaliations because a they signaled and b they use the 0:06:49.600 --> 0:06:54.000 systems that were intercepted, and they knew that US and 0:06:54.080 --> 0:06:59.520 Cutter could intercept their missiles. So what does it tell me? 0:06:59.720 --> 0:07:05.599 Tell me that they did not throw the caution out 0:07:05.640 --> 0:07:10.760 of the window. They probably had intervention from China because 0:07:10.840 --> 0:07:16.440 China is a major customer poor Iranian oil. Up to 0:07:16.520 --> 0:07:20.120 fifteen percent of Chinese oil and even more so of 0:07:20.280 --> 0:07:26.960 Iranian oil goes to China and the Golf States, because 0:07:27.920 --> 0:07:32.120 Qatar is a member of Golf Corporation Council, so is Amad. 0:07:32.560 --> 0:07:36.880 If they try to block the Strait of Horrormus, they. 0:07:36.760 --> 0:07:40.760 Would need to do it in the Omani waters, that's 0:07:40.800 --> 0:07:44.360 where the passage is, so they would be in conflict 0:07:44.400 --> 0:07:48.559 with all of the Golf Corporation Council, which is Arab 0:07:48.600 --> 0:07:54.120 of course and Sunni. And then you could couch this 0:07:54.680 --> 0:07:59.920 conflict in the in terms of Arab versus Iranian, Sunni versus. 0:08:00.760 --> 0:08:01.920 They did not want to do it. 0:08:01.960 --> 0:08:06.000 They're not there yet in terms of are they going 0:08:06.080 --> 0:08:10.840 to do more retaliations. It really depends on the balance 0:08:10.880 --> 0:08:16.560 of power in Tehran. We see reports that Ayatola is 0:08:17.000 --> 0:08:20.840 in hiding and nowhere to be found. That Ayatola has 0:08:20.840 --> 0:08:26.720 to sign everything, so I do believe that once the 0:08:26.800 --> 0:08:32.040 elite in Tehran digests the severity of the blows both 0:08:32.080 --> 0:08:37.640 Israeli and American, there will be massive changes in the regime. 0:08:38.320 --> 0:08:41.000 My sources are saying more than sixty percent. 0:08:42.280 --> 0:08:47.400 Chances that the Ayatollah will not stay here by the 0:08:47.480 --> 0:08:48.120 end of this year. 0:08:48.600 --> 0:08:51.360 Regime change, wow, okay, better. 0:08:51.320 --> 0:08:55.600 Internal internal, not US imposed, not Israeli posed. 0:08:56.120 --> 0:08:57.400 But things will shift. 0:08:57.600 --> 0:09:02.240 And we know for years that i RGC, the Islamic 0:09:02.280 --> 0:09:04.920 Revolutionary Guard a corn the. 0:09:06.480 --> 0:09:09.880 Fifth of the regime, is not happy with the rule 0:09:10.120 --> 0:09:13.440 of the clerics. They want to run the show. They 0:09:13.520 --> 0:09:15.040 want to control all the goodies. 0:09:15.440 --> 0:09:19.360 They are aware that the Iranian economy was run into 0:09:19.400 --> 0:09:22.559 the ground by the clerics and the Iran is very isolated. 0:09:22.840 --> 0:09:26.480 And as usual, they're different wings. They're more anti Western wing, 0:09:26.520 --> 0:09:28.679 more radical wing, and more pragmatic wing. 0:09:29.160 --> 0:09:32.599 I have a couple questions. First of all, regime change. 0:09:34.120 --> 0:09:36.280 Will be for the better or we don't know, like 0:09:36.360 --> 0:09:38.720 who is in the wings waiting to take over. 0:09:41.040 --> 0:09:42.480 Let's let's go down the list. 0:09:42.920 --> 0:09:46.600 I mentioned IRGC, and I mentioned that there's a split 0:09:46.720 --> 0:09:47.760 within IRGC. 0:09:49.040 --> 0:09:54.560 This is the military wing of the Islamic regime. 0:09:54.679 --> 0:09:58.360 In addition, there's a regular army, which is less idea, 0:09:59.040 --> 0:10:04.480 less ideological, less politicized. They are a separate body. Some 0:10:04.520 --> 0:10:08.200 of these officers were officers back in the day, even 0:10:08.280 --> 0:10:11.120 under the shop. Now of course that generation is gone. 0:10:11.880 --> 0:10:17.280 Then they're liberals or technocratics in the regime. Then they're 0:10:17.320 --> 0:10:25.679 the monarchists. The crown Prince of Iran, Reza lives about. 0:10:25.440 --> 0:10:28.600 What five miles from where I live in Potomac, Maryland. 0:10:28.840 --> 0:10:34.480 Yeah, And then they're the Mujahiden, the Marxist wing that 0:10:34.840 --> 0:10:38.400 was fighting desperately with this regime. 0:10:38.920 --> 0:10:41.040 These are atheists and. 0:10:42.559 --> 0:10:47.840 Once violent. Some people call them terrorists. That's another far 0:10:47.960 --> 0:10:51.640 left which so you see the spectrum and what the 0:10:51.679 --> 0:10:56.960 islamister are doing. Them are monopolizing power. They're not transitioning 0:10:57.520 --> 0:11:04.000 that pretty sophisticated modern society into some semblance of a 0:11:04.200 --> 0:11:09.360 democratic machine that could balance the interest of different groups. 0:11:09.400 --> 0:11:12.840 So, doctor Coni dosick, if we do see a regime change, 0:11:13.160 --> 0:11:16.719 or largely a regime change, is it better is such 0:11:16.720 --> 0:11:19.280 a poor word, But is it better on the other side, 0:11:19.320 --> 0:11:24.200 for the people of Iran, for Iron's role in the region, 0:11:24.640 --> 0:11:27.000 and maybe even you know, globally. 0:11:28.720 --> 0:11:35.520 Look, this is a highly opaque situation, very difficult to predict. 0:11:36.080 --> 0:11:39.160 I would say that if the system opens up, if 0:11:39.200 --> 0:11:42.720 the system avoids a civil war, which is a possibility 0:11:42.760 --> 0:11:48.040 also not necessarily a high possibility, but a possibility, if 0:11:48.080 --> 0:11:51.200 the system brings more participation from the society. 0:11:51.760 --> 0:11:55.320 Imagine they have the urban. 0:11:55.160 --> 0:11:58.640 Dweller, the city society that is educated, a lot of 0:11:58.679 --> 0:12:02.320 people whose college education. A lot of people are looking 0:12:02.360 --> 0:12:06.960 towards the West, not towards China, not towards Russia to 0:12:07.200 --> 0:12:12.360 model their society, and they're aware that women fifty percent 0:12:12.400 --> 0:12:15.960 of the population are abused and severely. 0:12:16.160 --> 0:12:18.760 Oppressed by that regime. 0:12:19.520 --> 0:12:22.679 We saw nine hundred plus nine hundred and eighty two 0:12:22.720 --> 0:12:27.280 people I believe in twenty twenty four killed. We see torture, 0:12:27.600 --> 0:12:32.600 we see execution of gays, we see all kinds of brutal, 0:12:33.040 --> 0:12:39.080 barbaric behavior that a lot of city dwellers, educated Iranians 0:12:39.320 --> 0:12:43.280 are totally rejecting. There's a lot of sympathy towards the West, 0:12:43.520 --> 0:12:46.640 towards the United States, and even towards Israel. And the 0:12:46.679 --> 0:12:50.800 fact that the Israeli intelligence and other intelligences so effective 0:12:51.160 --> 0:12:54.720 is because there is a lot of corporation by the 0:12:54.760 --> 0:12:57.480 Iranians with Western intelligence services. 0:12:57.600 --> 0:13:02.320 That is fascinating to hear before even the possibility of 0:13:02.320 --> 0:13:07.960 talking about a different regime in Tehran. I think there 0:13:08.000 --> 0:13:12.079 are some questions now that Americans in the US military 0:13:12.120 --> 0:13:16.480 and the President wants the answers to, For example, where 0:13:16.520 --> 0:13:21.440 is the enriched uranium now? If it left fourdoh? Do 0:13:21.480 --> 0:13:22.199 we have any idea? 0:13:22.200 --> 0:13:25.440 Absolutely, we don't know if it left fourdo. But I 0:13:25.440 --> 0:13:26.480 can tell you one thing. 0:13:27.160 --> 0:13:32.000 That uranium is enriched to sixty percent, which is twenty 0:13:32.160 --> 0:13:33.839 times more. 0:13:33.840 --> 0:13:37.160 Enriched than what they need for the. 0:13:36.880 --> 0:13:41.360 Civilian nuclear reactor for electric power generation. That was a 0:13:41.440 --> 0:13:46.520 step before enriching to eighty ninety percent for the bomb. 0:13:47.559 --> 0:13:50.920 They have enough uranium, according to open sources, to eight 0:13:51.000 --> 0:13:54.240 or nine bombs. They could have taken that uranium at 0:13:54.280 --> 0:13:58.319 sixty percent as they have it currently, package it into 0:13:58.400 --> 0:14:03.720 regular explosion with regular explosives, containerize it and blow it 0:14:03.840 --> 0:14:06.880 up in Israel, in the United States, in Europe, you 0:14:06.960 --> 0:14:07.320 name it. 0:14:07.760 --> 0:14:10.000 So it's a clear and present danger. 0:14:10.400 --> 0:14:15.240 And I disagree with the intelligent community assessment and with 0:14:15.320 --> 0:14:19.000 the gentleman who spoke before me, your security desk chief, 0:14:19.480 --> 0:14:24.800 because no country builds a ballistic missile arsenal with long 0:14:25.000 --> 0:14:30.240 range missiles that could reach Europe and are reaching Israel, 0:14:30.840 --> 0:14:33.600 and all you need to do is add one more 0:14:33.680 --> 0:14:37.080 stage to that missile to make it an ICBM. 0:14:37.400 --> 0:14:39.360 And Iran already is building. 0:14:39.040 --> 0:14:43.000 That capacity because they're putting satellites in space. So with 0:14:43.200 --> 0:14:48.200 sixty percent enrichment, that a step just before putting it 0:14:48.240 --> 0:14:51.440 in a warhead. And they can get the warhead technology 0:14:51.600 --> 0:14:55.560 from North Korea, Russia, from China, from Pakistan. So they 0:14:55.680 --> 0:15:00.960 are at a threshold country. And what the United States 0:15:01.000 --> 0:15:05.600 and President Trump did was absolutely correct for the interest 0:15:05.640 --> 0:15:06.640 of the United States. 0:15:06.840 --> 0:15:08.480 We do not forget that. 0:15:08.480 --> 0:15:12.080 Since ninety seventy nine, for forty six years, every Friday, 0:15:12.320 --> 0:15:15.320 these people are chanting death to America, death to Israel, 0:15:15.680 --> 0:15:19.760 and they killed over a thousand Americans, the tortured American officers, 0:15:20.000 --> 0:15:24.320 military officers, the killed American servicemen in the Cobar towers, 0:15:24.320 --> 0:15:24.840 et cetera. 0:15:25.640 --> 0:15:28.640 They are a hostile power and they what. 0:15:28.520 --> 0:15:31.000 Trump is trying to do is to put them down 0:15:32.000 --> 0:15:35.200 a peg and possibly consumed doctor Villain Freeman. 0:15:35.560 --> 0:15:38.360 In your view, did the US go far enough with 0:15:38.520 --> 0:15:42.480 the bombing campaign on Saturday evening into the early hours 0:15:42.520 --> 0:15:44.960 of Sunday, or does the US need to do more. 0:15:46.280 --> 0:15:49.440 I think we went as far as we could. 0:15:49.760 --> 0:15:59.360 We used cutting edge technology, the heavy bunk bunker buster bombs, 0:15:59.480 --> 0:16:02.760 and we need to do a damage assessment. Once we 0:16:02.880 --> 0:16:05.680 have a damage assessment and it will be classified, I 0:16:05.720 --> 0:16:12.200 won't know it then Trump, he said, Chief of Joint Chiefs. 0:16:12.600 --> 0:16:16.160 The Head of Joint Chiefs will reassess it with the 0:16:16.280 --> 0:16:21.640 National Security Council, with the intelligence community, reassess it and decide. 0:16:21.680 --> 0:16:24.920 But I think President Trump is trying to de escalate now. 0:16:25.160 --> 0:16:29.200 And I think what this attack is telling me that 0:16:29.520 --> 0:16:33.240 the Iranians are playing ball. They want to walk away 0:16:33.240 --> 0:16:38.480 from this situation because they realize they're kind of crazy. 0:16:38.520 --> 0:16:40.760 But they're not, you know, they're not stupid. 0:16:41.440 --> 0:16:45.880 They're trying to They're realizing that more bombing campaign, both 0:16:45.880 --> 0:16:49.360 from Israel and from the United States may signal the 0:16:49.440 --> 0:16:50.160 end of that regime. 0:16:51.120 --> 0:16:53.480 AH many more questions I'd love to ask you. Can 0:16:53.520 --> 0:16:57.000 I just ask you thirty seconds? Does China, being somewhat 0:16:57.040 --> 0:17:00.360 a lot allied with Ron, complicate things. 0:17:00.120 --> 0:17:00.960 Very quickly if you could? 0:17:01.040 --> 0:17:01.840 Like twenty five. 0:17:02.480 --> 0:17:07.400 Has a four hundred billion dollar investment agreement. 0:17:07.480 --> 0:17:08.760 I think it's twenty five. 0:17:08.600 --> 0:17:14.000 Years stretch, and they are buying a lot of Iranian. 0:17:13.520 --> 0:17:15.920 Oil, and they're doing a lot of other. 0:17:15.760 --> 0:17:20.480 Things the Chinese do infrastructure, roads, airports, etc. The Chinese 0:17:20.520 --> 0:17:24.760 do not want that agreement to be destroyed. And I 0:17:24.800 --> 0:17:29.040 would recommend to anybody who is engaged in Iran tell 0:17:29.080 --> 0:17:32.440 the Chinese, don't worry, your investment is safe. Same thing 0:17:32.480 --> 0:17:35.160 as we should have done with the Russians in Iraq. 0:17:35.560 --> 0:17:36.960 I advocated that back in. 0:17:36.880 --> 0:17:40.080 Two thousand and three, and the Bush administration did not 0:17:40.320 --> 0:17:42.440 listen and we turned Russia against US. 0:17:43.119 --> 0:17:46.240 Now the Russians are being very cautious. 0:17:46.720 --> 0:17:51.439 The Russians had that defense agreement with Iran, but it 0:17:51.560 --> 0:17:57.919 did not include mutual defense, mutual military activity. And the Chinese, 0:17:58.440 --> 0:18:02.320 again it's very opaque. We do not know what they're supplying. 0:18:02.840 --> 0:18:06.359 Possibly some miss cell technology too. Iran came from China, 0:18:06.400 --> 0:18:06.880 we don't know. 0:18:06.880 --> 0:18:07.440 That for sure. 0:18:07.800 --> 0:18:10.679 But the Chinese are very very cautious because they don't 0:18:10.720 --> 0:18:14.399 have the power projection capability in the Gulf like the 0:18:14.480 --> 0:18:15.280 United States. 0:18:15.400 --> 0:18:18.879 Very interesting, Thank you so much, so appreciate your time today. 0:18:19.040 --> 0:18:22.280 Eryl Cohen, non resident Senior Fellow at the Atlanta Council's 0:18:22.320 --> 0:18:24.840 Eurasia Center and a member of the Council of Foreign Relations, 0:18:24.920 --> 0:18:27.040 joining us from Washington, DC. 0:18:27.800 --> 0:18:31.680 You're listening to the Bloomberg Business Week Daily Podcast. Catch 0:18:31.760 --> 0:18:34.400 us live weekday afternoons from two to five eas during 0:18:34.640 --> 0:18:38.560 Listen on Applecarplay and Android Otto with the Bloomberg Business app, 0:18:38.720 --> 0:18:41.320 or watch us live on YouTube. 0:18:41.600 --> 0:18:43.959 Well against the backdrop of the war in the Middle East, 0:18:44.320 --> 0:18:46.960 that the US is now involved in an ongoing tariff 0:18:46.960 --> 0:18:49.560 trade war, we're just a few weeks from that July deadline, 0:18:49.800 --> 0:18:53.679 rising oil prices, Carol, potential disruptions, and chipping through the 0:18:53.720 --> 0:18:56.840 crucial strait of horror moves. The macro economic background is 0:18:56.880 --> 0:18:59.480 certainly complex. There's a lot for investors to wade through. 0:18:59.720 --> 0:19:03.120 Yeah, absolutely, although risk go on in today's straight Torston's 0:19:03.160 --> 0:19:06.520 Lack is chief economist partner of at Apollo Global Management, 0:19:06.600 --> 0:19:09.400 joining us from New York. Tourston, you did send, first 0:19:09.440 --> 0:19:12.080 of all, welcome, welcome, good to have you here. You 0:19:12.160 --> 0:19:14.680 sent a note out this morning that included data for 0:19:14.760 --> 0:19:17.560 ship crossings in the Strait of Hormus. It's Bloomberg data. 0:19:17.960 --> 0:19:20.000 It does show decline in traffic both. 0:19:19.880 --> 0:19:21.359 West to east, east to west. 0:19:21.640 --> 0:19:24.479 Is this your main macroeconomic concern when it comes to 0:19:25.160 --> 0:19:26.720 what we are watching in the Middle East? And the 0:19:26.760 --> 0:19:30.360 potential for even further escalations escalation, and. 0:19:30.320 --> 0:19:34.439 I guess not just escalation, but a longer duration of conflict. 0:19:34.640 --> 0:19:36.720 I think the bigger picture really here is that we 0:19:36.840 --> 0:19:40.560 already have an economy that is experiencing techflation. We have 0:19:40.720 --> 0:19:45.000 terms higher means, higher inflation, lower GDP growth. We also 0:19:45.080 --> 0:19:48.880 have restrictions on immigration, many deportations. Meaning if you lower 0:19:48.960 --> 0:19:51.639 the labor falls at the moment, the administration has the 0:19:51.680 --> 0:19:54.800 stated goal of lowering labor falls but about a million people. 0:19:55.280 --> 0:19:56.600 And of course if you do that. 0:19:56.560 --> 0:19:59.320 You would also begin to have more upward pressure on inflation, 0:19:59.400 --> 0:20:02.520 specifically wa inflation, and of course also downward pressure on 0:20:02.680 --> 0:20:04.840 employment and therefore economic activity. 0:20:05.080 --> 0:20:07.320 And if we add to that the risks here to 0:20:07.359 --> 0:20:07.879 oil prices. 0:20:07.960 --> 0:20:10.320 Yes, I do understand that oil prices are now going 0:20:10.359 --> 0:20:10.880 down and. 0:20:11.320 --> 0:20:12.520 Some special reasons for that. 0:20:12.880 --> 0:20:15.760 But the fear of course here is that if the 0:20:16.240 --> 0:20:19.159 oil price increase that we've seen since the beginning of June, 0:20:19.520 --> 0:20:22.680 if that is continuously hanging at the current levels or 0:20:22.720 --> 0:20:25.400 even goes higher, of course that will also be staflation, 0:20:25.520 --> 0:20:28.359 meaning putting up our pressure on inflation and downward pressure 0:20:28.359 --> 0:20:28.760 on GDP. 0:20:28.880 --> 0:20:31.840 So, in summary, adding everything together, where we stand. 0:20:31.640 --> 0:20:34.200 At the moment, We just have that the economy is 0:20:34.280 --> 0:20:37.399 hit by a number of shocks that have the same characteristics, 0:20:37.640 --> 0:20:40.040 namely high inflation and lower. 0:20:39.760 --> 0:20:43.520 GDP Trsten, You've been beating this drum for a while, 0:20:43.560 --> 0:20:46.359 and I was surprised because I read the notes that 0:20:46.400 --> 0:20:49.440 you send. Perhaps I was surprised to hear j. Powell 0:20:49.880 --> 0:20:54.000 essentially say last week that everything is okay, there are 0:20:54.040 --> 0:20:56.880 no issues starting to form anywhere. That was the takeaway 0:20:56.880 --> 0:21:00.160 I got. Maybe we'll hear something different tomorrow and Wednesday 0:21:00.440 --> 0:21:02.680 when we hear from the Fed chair on Capitol Hill. 0:21:02.720 --> 0:21:04.760 Do you think that the Fed chair is incorrect with 0:21:04.800 --> 0:21:06.560 his assessment of the economy? 0:21:07.119 --> 0:21:09.560 Tim this is really really important because what's also very 0:21:09.560 --> 0:21:12.400 interesting is that last week Chris Waller began to talk 0:21:12.440 --> 0:21:14.879 about rapcut in July, and today we had Mickey Bowman 0:21:15.000 --> 0:21:17.840 first talk about rapcot also now in July, and now 0:21:17.840 --> 0:21:20.520 we also have goals by talking about that, Well, the 0:21:20.640 --> 0:21:22.879 dust may have been cleared in the air and maybe 0:21:22.920 --> 0:21:25.720 there's no room for cutting rates. That's very interesting. When 0:21:25.800 --> 0:21:29.640 Japal last week very clearly said word for word, we 0:21:29.760 --> 0:21:33.280 expect a meaningful increase in inflation over the coming months, 0:21:33.440 --> 0:21:36.240 so it's telling you that this rise in inflation that's 0:21:36.280 --> 0:21:38.960 coming as a result of oil prices already haven't gone up, 0:21:39.160 --> 0:21:41.440 this as a result of tariffs already having of course 0:21:41.480 --> 0:21:43.560 gone up, and also as a result of potential up 0:21:43.560 --> 0:21:46.240 by pressure on wage inflation, that the FED is deciding 0:21:46.240 --> 0:21:49.159 to almost look through the coming rise in inflation and 0:21:49.200 --> 0:21:52.400 focus more on the worries about growth slowing down. So yes, 0:21:52.680 --> 0:21:55.919 FED watching here at the moment is very interesting simply 0:21:55.920 --> 0:21:59.080 because the dual mandate is torn in opposite directions. 0:21:59.240 --> 0:22:01.200 On the one hand, when inflation is going up, the 0:22:01.280 --> 0:22:03.240 fetch would be hiking. On the other hand, where he 0:22:03.240 --> 0:22:05.280 grows is slowing down, the fetcher be cutting. So where 0:22:05.280 --> 0:22:07.880 do they put that weight? And the last few fitzpeakers 0:22:07.880 --> 0:22:09.240 have clearly said, including. 0:22:08.920 --> 0:22:11.639 Today Will Goalsby and Bowman, that the focus should be 0:22:11.680 --> 0:22:13.919 on growth slowing down. So that's why we are probably 0:22:13.960 --> 0:22:17.239 moving more towards more rate cuts coming faster than what 0:22:17.280 --> 0:22:19.600 the marker was pricing just even a few days ago. 0:22:19.800 --> 0:22:22.879 I just want to add in one caveat from Austin 0:22:22.920 --> 0:22:26.280 Gooseby towards him where he said, of course, Federal Reserve 0:22:26.320 --> 0:22:28.600 Bank of Chicago President Austin Goolsby. He says the Central 0:22:28.600 --> 0:22:32.359 Bank could resume interest rates cuts if the inflation hit 0:22:32.400 --> 0:22:35.359 from tariff's remains subdued. Don't we have to kind of 0:22:35.440 --> 0:22:40.200 wait a few months to see because ultimately we're going 0:22:40.240 --> 0:22:42.879 to find out hopefully very soon in terms of what 0:22:42.920 --> 0:22:44.800 the tariffs really are and how they play out. But 0:22:45.160 --> 0:22:47.920 at any rate it is going to be higher than 0:22:47.920 --> 0:22:52.720 it was before. There will be some cost pressures potentially. 0:22:52.440 --> 0:22:55.600 Absolutely, And that's why what's really interesting in Harold about 0:22:56.359 --> 0:22:58.680 this issue and this debate is, of course this difference 0:22:58.680 --> 0:23:01.840