WEBVTT - Amos Hochstein Talks Oil Markets, Iran War

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. Almost Hakstein is with

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<v Speaker 1>us here at Milkin. We should remind everybody we're in

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<v Speaker 1>Beverly Hills today, which is a bit different at the

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<v Speaker 1>Milkin Global Conference. And of course, former Middle East senior

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<v Speaker 1>advisor to President Biden and a life long diplomat with

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<v Speaker 1>a real sense of nuance when it comes to the

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<v Speaker 1>energy markets.

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<v Speaker 2>Almost, it's great to see you. Welcome back to Bloomberg.

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<v Speaker 2>Thank you, It's always good to be here.

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<v Speaker 1>Many questions about how we rationalize what we're seeing right now,

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<v Speaker 1>the fact that oil is lower by simply even though

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<v Speaker 1>Iran is shooting at ships. But one statement from the

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<v Speaker 1>government that the ceasefire remains in place and we're selling

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<v Speaker 1>oil today, is that the move Well two things.

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<v Speaker 3>One, remember that we're saying that oil is lower. Yes,

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<v Speaker 3>oil is at one hundred and ten. Well, that's right,

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<v Speaker 3>we're still in so world digit So one, we're at

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<v Speaker 3>one hundred and ten at the start of the year,

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<v Speaker 3>it's sixty sixty, so we're basically almost double where we were,

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<v Speaker 3>and we're talking about nobody thinks of one hundred and

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<v Speaker 3>ten ever as a low oil bran Well, that's fair.

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<v Speaker 2>That is a very high directtion only speaking though.

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<v Speaker 3>But here's what's happening. The market really wants to rally.

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<v Speaker 3>They don't like bad news. Market the stock market, the

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<v Speaker 3>stock market, the physical market and the stock market are

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<v Speaker 3>divergent at the moment.

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<v Speaker 2>We may get convergence at some point. We probably will be.

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<v Speaker 3>We don't know if the convergence will be when the

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<v Speaker 3>stock market realizes where the real physical market actually.

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<v Speaker 2>Is, or that the war actually ends.

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<v Speaker 3>We have an opening, and then the physical market will

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<v Speaker 3>go to where the stock market is, but they are

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<v Speaker 3>not in the same place. One hundred and ten dollars

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<v Speaker 3>of brent oil is only available on a Bloomberg terminal.

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<v Speaker 2>You can't buy that barrel.

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<v Speaker 3>That barrel of brent oil is selling for one hundred

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<v Speaker 3>and fifty, one hundred and forty five some days one

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<v Speaker 3>hundred and fifty five, even one hundred and seventy.

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<v Speaker 2>Because it's only paper. It's people on Wall Street.

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<v Speaker 3>The real market, the real market right now, is that

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<v Speaker 3>there is no not enough oil. We're in a demand

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<v Speaker 3>destruction in certain countries, but they're poor countries first, so

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<v Speaker 3>stock market doesn't care. So we are in a place

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<v Speaker 3>where every day that goes by now with fake headlines

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<v Speaker 3>and what happened today at the Pentagon, it's fake headlines.

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<v Speaker 3>We're not really in a ceasefire because missiles are flying.

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<v Speaker 3>That's usually the definition of a seasfire. Those missiles don't

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<v Speaker 3>fly two days in a row. We don't have a

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<v Speaker 3>ceasfire in Lebanon because we still have fighting in Lebanon,

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<v Speaker 3>despite the fact that we say it's a seasefire, and

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<v Speaker 3>tankers are not moving, despite the fact that we have

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<v Speaker 3>government officials say they are moving, they're not. So that

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<v Speaker 3>means that there's no tankers on the water going to Asia,

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<v Speaker 3>going to Europe, none, zero, and so that is that

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<v Speaker 3>bite will have will deepen every day.

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<v Speaker 4>Okay, So I guess I don't know how do you

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<v Speaker 4>then look at things longer term? Because I think what

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<v Speaker 4>most folks are also thinking off of this war, the

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<v Speaker 4>things are going to be changed forever in terms of

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<v Speaker 4>people thinking about We talked about this yesterday about country's

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<v Speaker 4>access to strategic commodities, whether it's oil, whether it's really

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<v Speaker 4>ensuring that their supply chains are solid, that they can't

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<v Speaker 4>be disrupted, and that means a lot of domestic production,

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<v Speaker 4>that means probably higher costs around the world. It feels

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<v Speaker 4>like it's a very different global economy going forward.

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<v Speaker 2>So I think that should we prepare for that?

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<v Speaker 3>I think we will prepare for that, And in fact,

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<v Speaker 3>some of it has already happened.

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<v Speaker 2>So this is similar to two other events.

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<v Speaker 3>One is the nineteen seventies, which led us to build

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<v Speaker 3>a strategic reserve, created the IEA, the International Energy Agency.

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<v Speaker 3>Structures of the energy market were different moving forward after

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<v Speaker 3>the nineteen seventies.

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<v Speaker 2>They were very different before changed.

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<v Speaker 3>Forever, COVID changed how we think about supply chains. We

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<v Speaker 3>suddenly got shocked by the supply chains, which is why

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<v Speaker 3>we started stockpiling. We started thinking about making sure that

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<v Speaker 3>we didn't live on one supplier, et cetera. And now

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<v Speaker 3>what's going to happen is the straight up removes under

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<v Speaker 3>running and control for a basically for the foreseeable future,

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<v Speaker 3>regardless of nobody in the market should look at what

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<v Speaker 3>the deal as eventually and believe it on straights, iran

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<v Speaker 3>will control the straits. Everybody in Washington may will believe it.

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<v Speaker 3>Nobody in the Gulf, no one in the Golf will

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<v Speaker 3>believe they know the Iranians and not going to control this.

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<v Speaker 3>What does that mean? It means you got to change Carowa.

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<v Speaker 3>You said you got to build out infrastructure that does

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<v Speaker 3>two things.

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<v Speaker 2>One bypasses the straight up removes.

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<v Speaker 3>It's possible to do. Yeah, it's not even that expensive.

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<v Speaker 3>A few billion dollars, but a few billion dollars in

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<v Speaker 3>what we're talking about doesn't cost very much. The redundancy

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<v Speaker 3>is important. Second, build out more storage facilities in destination countries.

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<v Speaker 3>So we already have some storage in place like Singapore,

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<v Speaker 3>but build them, build them out in Tokyo and Delhi,

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<v Speaker 3>and China already has not just of oil, but of

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<v Speaker 3>jet fuel. Airports should probably hold a little bit more

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<v Speaker 3>jet fuel capacity exactly, not to them. I think everybody,

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<v Speaker 3>if you're if you're an American listening to this and

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<v Speaker 3>you think you're going on vacation this summer plan for

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<v Speaker 3>a very very expensive one. Driving is going to be

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<v Speaker 3>very expensive, and so will r vs. Ur vs will

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<v Speaker 3>be even more expensive because diesels through the room and

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<v Speaker 3>jet fuels.

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<v Speaker 4>Can I ask you why this is happening right now?

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<v Speaker 4>If it was President Biden and you were advising him,

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<v Speaker 4>you know, were you guys pushing to do something to

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<v Speaker 4>this effect? In Iran? They have been a threat for

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<v Speaker 4>how many decades, right.

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<v Speaker 3>We used to joke and every people come and say,

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<v Speaker 3>oh my god.

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<v Speaker 4>We're We've had people come on and say, listen, this

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<v Speaker 4>was long overdue. It was time to do something. We

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<v Speaker 4>knew this was a country that hated America.

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<v Speaker 2>Yes, by the way, they're not alone. If we're going

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<v Speaker 2>to war against every country that hates America.

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<v Speaker 3>Then there's a list that we may have to go

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<v Speaker 3>to war for a few more months, a few more years.

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<v Speaker 3>North Korea is very funny act. North Korea is doing

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<v Speaker 3>a lot on nuclear they hate America. We're not going

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<v Speaker 3>to war there. Iran is a place where we First

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<v Speaker 3>of all, we had a deal with Iran to not

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<v Speaker 3>go to a nuclear weapon called JCPOA in twenty fifteen.

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<v Speaker 2>President Trump got out of that in twenty nineteen.

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<v Speaker 3>Probably should have stayed in because the deal we're talking

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<v Speaker 3>about now that we will get is going to be

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<v Speaker 3>very similar to that.

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<v Speaker 2>There'll be some cosmetic changes, be very similar. We didn't

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<v Speaker 2>have to do this war.

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<v Speaker 3>I understood some of the rationale of the June War

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<v Speaker 3>several months ago. They were cheating on the nuclear side.

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<v Speaker 3>If they're not going to go back into a deal,

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<v Speaker 3>a limited strike and the Orionings didn't strike back, and

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<v Speaker 3>the proxies didn't strike back, they didn't close the straits.

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<v Speaker 3>It was limited in scope, it was limited in time,

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<v Speaker 3>and so I understood that this war was a moment

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<v Speaker 3>of opportunity. There were a lot of protests that were

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<v Speaker 3>rising up, and President Trump said, helps on the way,

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<v Speaker 3>and all of a sudden got painted into the corner

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<v Speaker 3>and then started coming up with the reasons why we're

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<v Speaker 3>in this war. Nobody really knows why we're in this war.

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<v Speaker 3>No American really knows why.

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<v Speaker 2>We're in this war.

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<v Speaker 4>I don't even think.

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<v Speaker 2>Yeah, but that doesn't matter from the administration, but they change.

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<v Speaker 2>But they changed in storage. Though.

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<v Speaker 1>I want to ask you about what's about to happen

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<v Speaker 1>in Iran when it comes to their own oil storage,

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<v Speaker 1>because there's nowhere to put the oil. At this point,

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<v Speaker 1>they're loading tankers almost they're putting oil supposedly on trains

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<v Speaker 1>to China. The President says the whole underground infrastructure is

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<v Speaker 1>going to blow up, which I'm not sure is true.

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<v Speaker 1>But if they have to start shutting wells, that's going

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<v Speaker 1>to be a pretty major moment in something that could

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<v Speaker 1>happen in days or weeks, do you.

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<v Speaker 2>Well, First of all, it was supposed to happen already

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<v Speaker 2>several days ago. So that's so it didn't happen.

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<v Speaker 3>Here's the fine, because I've dealt with there is real

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<v Speaker 3>economies of oil where you look at the Baker Hughes

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<v Speaker 3>manual of what you do in this situation.

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<v Speaker 2>Then there's wartime and stress time. They're very different.

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<v Speaker 3>I was spent I spent a lot of time in

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<v Speaker 3>southern Iraq trying to help them refix and so. And

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<v Speaker 3>if you went down there, no manual told you to

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<v Speaker 3>do it. They were they should have been shutting There

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<v Speaker 3>is a way. Iran is a very good engineering country.

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<v Speaker 3>They have remarkable engineering talent. They've been in the oil

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<v Speaker 3>business one hundred years. They know what they're doing when

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<v Speaker 3>we did them. I was in charge of the sanctions

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<v Speaker 3>fifteen years ago to twenty twelve, and we took them

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<v Speaker 3>down to like nine hundred.

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<v Speaker 2>Thousand dolls of exports.

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<v Speaker 3>And instead of doing all of what President Trump suggests,

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<v Speaker 3>you know, things blowing up and just shutting everything down,

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<v Speaker 3>there are ways for them to do wartime economizing. Right,

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<v Speaker 3>So you shut down one field, do some maintenance on it,

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<v Speaker 3>then you bring.

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<v Speaker 2>It back, you shut down the next one.

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<v Speaker 3>You can do a rotation, you can put you can

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<v Speaker 3>set fields on fire, which is a by design which

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<v Speaker 3>doesn't put any pressure on the pipes below ground.

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<v Speaker 2>I don't expect to see any explosions.

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<v Speaker 3>They are hurting economically, they are devastating economic pain and

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<v Speaker 3>ron and.

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<v Speaker 4>Yet here we are still at war with them.

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<v Speaker 3>This is I mean, they can handle the pain. I'm

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<v Speaker 3>just saying they can handle the pain. And their view

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<v Speaker 3>is how long can you handle the pain? And I'll

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<v Speaker 3>tell you this, We're going towards a cliff on oil

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<v Speaker 3>and oil products by the end of this month.

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<v Speaker 2>Physical shortages.

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<v Speaker 3>We have physical shortage already, but it just in countries

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<v Speaker 3>we don't care about. So then they they will write

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<v Speaker 3>because they're poor. But then it'll go to middle income

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<v Speaker 3>countries like Vietnam and Thailand. Then it goes to Japan

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<v Speaker 3>and Korea, and then it comes here.

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<v Speaker 2>And here's the thing. You want to fly out of

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<v Speaker 2>the United States. You can say we have oil, we

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<v Speaker 2>have jet fuel. Okay, can't take it with you when

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<v Speaker 2>you fly out.

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<v Speaker 3>You've got to be able to refill somewhere else.

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<v Speaker 4>Its way through manufacturing.

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<v Speaker 2>Some legends like you are feeling it, and.

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<v Speaker 3>It spends a lot of money, hundreds of billions of dollars,

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<v Speaker 3>which is not dependent on but they're not depending on consumer.

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<v Speaker 3>What happens when consumers say I can't spend this, I

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<v Speaker 3>have no money.

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<v Speaker 1>I almost thank you. It's great to have you on Bloomberg.

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<v Speaker 1>I hope milk and treats you well. Alongside Carol Master.

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<v Speaker 1>I'm Joe Matthew. This is balance of power. Lie from

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<v Speaker 1>La Only.

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<v Speaker 2>I'm Bloomberg.