Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Hello and welcome to another episode of the Odd Thoughts podcast.
Speaker 3: I'm Tracy Alloway and I'm Joe. Isn't thal Joe.
Speaker 2: It is currently April tenth, That's right, it's a Friday.
Speaker 2: It's a beautiful friday outside. We always say when we're
Speaker 2: recording things nowadays, because we never know what's going to
Speaker 2: change in the next hour or day or week. But
Speaker 2: at the moment, there is some sort of ceasefire, yes,
Speaker 2: between the US and Iran. Israel is rather more uncertain
Speaker 2: at the moment, but it seems that whatever happens in
Speaker 2: the short term with this particular conflict, that the region,
Speaker 2: the Gulf region and the Middle East has already been vastly,
Speaker 2: vastly changed.
Speaker 3: Yeah, it seems almost of that in many different dimensions.
Speaker 3: I mean, look, you know, first of all, there's just
Speaker 3: been the little physical damage. You can have a ceasefire,
Speaker 3: but there's going to be energy and time to get expended,
Speaker 3: et cetera. Then, of course, and we already have done
Speaker 3: an episode for example, about Dubai real estate in particular,
Speaker 3: or Dubai in particular, and the question of like, here's
Speaker 3: this country that was perceived really by people around the
Speaker 3: world is maybe one of the most stable places that
Speaker 3: you could live. And obviously some of that is being
Speaker 3: called into question. But then, like you know, here's just
Speaker 3: a gigantic war, and wars, even short ones potentially have
Speaker 3: all kinds of ripple effects and scars and so forth,
Speaker 3: and it'll change obviously the course of the region.
Speaker 2: Yeah, the way I think about it is the Gulf
Speaker 2: region was sort of a center of let's say three things,
Speaker 2: so energy mm hmm, oil and resulting petrochemicals. Yes, we've
Speaker 2: talked a lot about capital capital. There's a lot of
Speaker 2: money emanating from the region because of it oil wealth,
Speaker 2: and that flows into all sorts of things from you know,
Speaker 2: US tech stocks to infrastructure investments, and I love that.
Speaker 2: And then thirdly, it's well, I guess I could add trade.
Speaker 2: It's a purveyor of trade routes for sure, but setting
Speaker 2: that aside, thirdly, it's also a capital of living standards
Speaker 2: and this idea of we're going to build a diversified
Speaker 2: Gulf city state where people can come and live, and
Speaker 2: we sort of talked about on the Dubai episode, but
Speaker 2: today we're going to be talking about maybe all three
Speaker 2: or four of those things, and what this particular conflict
Speaker 2: actually means for them for a region that has really
Speaker 2: built itself around this idea of energy, capital, living standards,
Speaker 2: and trade.
Speaker 3: And then the one thing I would just point out
Speaker 3: is that obviously the region has almost a reputation for
Speaker 3: being in some version of constant war or there is
Speaker 3: constant tension, et cetera. Right, so at various time do
Speaker 3: you disagree.
Speaker 2: I mean, the Iran threat has always been there, but
Speaker 2: one of the key themes of the UAE, for instance,
Speaker 2: it's becoming this haven of stability was that it wasn't
Speaker 2: expected to erupt in this way.
Speaker 3: That is indisputable, and that is part of why it's
Speaker 3: so shocking. But you know, tensions in the Middle East
Speaker 3: on some level is almost like a cliche in the news,
Speaker 3: et cetera. And so the you know, over years, we're
Speaker 3: in multiple Gulf wars et cetera. The war in Gaza
Speaker 3: that's been taking place over the last multiple years, I mean,
Speaker 3: there's just extraordinary. There's a long history of conflict.
Speaker 2: Yes, so we are going to be talking about how
Speaker 2: the latest conflict is going to impact the region potentially forever.
Speaker 2: So we have the perfect guest. I'm very happy to
Speaker 2: say we are going to be speaking with the chief
Speaker 2: emerging markets economist over at Bloomberg Economics, Zia Daoud, someone
Speaker 2: we've spoken to before. I think our last episode with
Speaker 2: him was about Egypt, but someone I used to speak
Speaker 2: to a lot more when I was actually based in
Speaker 2: Abu Dhabi and he was based in Dubai. He's about
Speaker 2: to go back to Dubai after being in London for
Speaker 2: the past few weeks. So, Zied, thank you so much
Speaker 2: for coming back on our thoughts.
Speaker 4: Thank you for having me John Tracy.
Speaker 2: So out of curiosity, what have the past few weeks
Speaker 2: been like for you as someone who is not, you know,
Speaker 2: not just living and breathing golf economics, but also physically
Speaker 2: living in the region for the past few years.
Speaker 4: It's been intense because although we've been expecting the war
Speaker 4: to take place, the intensity of it, the reaction and
Speaker 4: feeling it rather than expecting it and living through it
Speaker 4: rather than expecting it has been unprecedented I think for
Speaker 4: the region. But yeah, it was expected, but it was
Speaker 4: still different when you feel it when they need just
Speaker 4: anticipate it.
Speaker 3: When you say it was expected, do you mean it
Speaker 3: was expected in the sense that by early February that okay,
Speaker 3: you know clearly the rhetoric and the actions and ship
Speaker 3: movements instead of or appointing to possible war or is
Speaker 3: it something deeper, long standing, We're there was this tension
Speaker 3: that was eventually perhaps going to come to a boil
Speaker 3: or come to a head in some manner or another.
Speaker 4: I think for us, and we've done this in writing,
Speaker 4: and I've done that mostly with my colleague Dinas Fandi,
Speaker 4: is that since the last war in June, the Twelve
Speaker 4: Day War, it felt like there was unfinished business and
Speaker 4: there'll be a second round of this war. So we've
Speaker 4: written multiple pieces saying this is not over, there'll be
Speaker 4: another rand of escalation. And towards the beginning of the year,
Speaker 4: as you had more US mobilization, as you had more
Speaker 4: threats from President Trump, it became increasingly lucky that a
Speaker 4: war was going to take place. I personally canceled some
Speaker 4: trips because I thought the war would erupt all I'm
Speaker 4: abroad and I didn't want to be stuck abroad. And
Speaker 4: we also thought that it was going to start on
Speaker 4: a weekend. Actually we thought it was going to start
Speaker 4: either on a Friday or a Saturday. So I think
Speaker 4: from January onwards, every Friday at the office US for expectations.
Speaker 4: Who thinks that there will be a war this coming weekend?
Speaker 4: And sure enough it did her up on February twenty eighth.
Speaker 4: So yeah, in some sense it was expected. I was
Speaker 4: on alert every weekend waiting for something to happen.
Speaker 2: One thing that I think was more unexpected was the
Speaker 2: retaliation by Iran on places like the UAE. And I
Speaker 2: think it's probably fair to say that if you were
Speaker 2: a leader in the UAE or Saudi Arabia for that matter,
Speaker 2: who had invested heavily in Trump in various ways politically,
Speaker 2: this was maybe not what you were expecting to be
Speaker 2: dragged into this particular conflict and see some of your
Speaker 2: infrastructure directly hit. What's the mood like for UAE and
Speaker 2: Saudi leaders at the moment?
Speaker 4: For them, I think is probably their worst nightmare. In
Speaker 4: some sense, it is an outcome they had tried and
Speaker 4: lobbed to avoid for a long time. That just during
Speaker 4: this Trump's term of presidency, which started in January twenty
Speaker 4: twenty five, the golf leaders hosted Trump on his first
Speaker 4: planned foreign trip. If you exclude the trip to the
Speaker 4: Vatican when the Pope died. Or Peckplus, which is led
Speaker 4: by Saudi Arabia and it has a number of golf
Speaker 4: countries as important producers, started raising oil output in April,
Speaker 4: shortly after Trump's inauguration by a month, so far bigger
Speaker 4: than markets were expecting. And that came after months of delay,
Speaker 4: and we were, among other people were asking why did
Speaker 4: they do this against probably their economic interests, And one
Speaker 4: potential hypothesis is that they were trying to please Trump
Speaker 4: because he liked lower oil prices, so they hosted him
Speaker 4: on his first trip. They gave him, you know, they
Speaker 4: injected a lot more barrels of oil into the market
Speaker 4: to lower oil prices, potentially against some of their economic interests.
Speaker 4: They pledged trillions and trillions of dollars of investments and
Speaker 4: deals in the US. So they gave all of this,
Speaker 4: and I think they wanted one thing, which is basically
Speaker 4: no regional war, because they thought they'd be caught in
Speaker 4: the crossfire. And what did they get. Trump visited the
Speaker 4: Golf three golf states in May twenty twenty five. He
Speaker 4: visited the UAE, He visited Saudi Arabia and he visited Cutter.
Speaker 4: A month later, war erupted between Israel and Iran, which
Speaker 4: the US intervened in. Four months later, Israel bombed Toheim Cutter,
Speaker 4: where Trump was in May, and about less than a
Speaker 4: year later, in fact, we have a regional war in
Speaker 4: in which these countries are in the crossfires. So I
Speaker 4: think it's an outcome that they tried hard to avoid.
Speaker 4: But for Trump, when it became a choice between what
Speaker 4: the golf wanted and what Israel wanted, Trump had the
Speaker 4: clear basically choice which he choices Israel over the golf.
Speaker 3: One of the things you hear about people talk about
Speaker 3: is okay, the US is an important security partner for
Speaker 3: the region. It provides a quote security umbrella, et cetera.
Speaker 3: What does it mean to be an important security partner?
Speaker 3: Or if infrastructure was in fact hit, not all of
Speaker 3: it was able to stop the US was not able
Speaker 3: or has not been able to open the Strait of
Speaker 3: Hormuz unilaterally and actually at the moment, Iron clearly controls.
Speaker 3: It does this fundamental premise like setting aside how people
Speaker 3: feel if the US does not have the capability the missiles,
Speaker 3: the missile defense, et cetera, to actually keep secure the
Speaker 3: infrastructure to keep the strait of Hormoves open. Does it
Speaker 3: change the discussion or the thinking of what a security
Speaker 3: relationship even means.
Speaker 4: I think it does. But there are two dimensions to this.
Speaker 4: There's a dimension where you have the military equipment, and
Speaker 4: there's a dimension where you have sort of the political
Speaker 4: will and the strategic side of it. In terms of
Speaker 4: military equipment, I think the US military equipment may have
Speaker 4: proven their worth. Okay, a lot of drones, a lot
Speaker 4: of missiles were thrown at the Gulf, and very few
Speaker 4: percentage of this has filtered through. Yes, some have, but
Speaker 4: it could have been a lot worse. And the reason
Speaker 4: why it wasn't a lot worse is because they were
Speaker 4: using state of the art US military equipment, which has
Speaker 4: proven their worth. So I don't think that will stop. Actually, interestingly,
Speaker 4: if you look at the golf trade relationship, there was
Speaker 4: a big change. So the US used to be an
Speaker 4: important trade partner, then China took over around twenty ten,
Speaker 4: and now trade with China is at least three times
Speaker 4: as big as trade with the US. Except in one
Speaker 4: area where defense, the US completely dominates, so that side
Speaker 4: and I don't think that will change. And then there
Speaker 4: is the political and sort of the strategic side. This
Speaker 4: is not the first time that the US security umbrella
Speaker 4: disappoints the Gulf. This is one episode out of several.
Speaker 4: There's this current one which is probably the biggest. There
Speaker 4: was an episode in twenty seventeen one cutter Face to
Speaker 4: blockade from its neighbors and didn't get the US protection
Speaker 4: that it wanted. You know, in twenty eighteen and nineteen
Speaker 4: there were attacks on energy facilities in the Gulf, both
Speaker 4: in the Persian Gulf but as well as the attack
Speaker 4: on Aramquo in twenty nineteen, and the US was nowhere
Speaker 4: to be seen. So I think the security umbrella, the
Speaker 4: political umbrella for the US security is definitely there's a
Speaker 4: challenge there and hasn't delivered on certain important points of time.
Speaker 4: But when it comes to the military equipment, I think
Speaker 4: that has proven its worth.
Speaker 2: Can we talk about intra golf relationships for a second,
Speaker 2: because it's hard to keep up from what I remember.
Speaker 2: The blockade of Katar was the big story when I
Speaker 2: was in the region in like twenty seventeen, and since
Speaker 2: then it seems like kat a kind of made up
Speaker 2: with Saudi and the UAE but there are still some tensions. Meanwhile,
Speaker 2: Saudi Arabia and the UAE are still maybe best described
Speaker 2: as frenemies at this point, I don't know what's the
Speaker 2: current status of those relationships. And does the conflict in
Speaker 2: Iran maybe start to bring some of those regional superpowers
Speaker 2: closer together.
Speaker 4: Right, So, the big story in the golf in terms
Speaker 4: of intragolf relations before February twenty eighth was there was
Speaker 4: a big Saudi and UAI rift. It was visible, it
Speaker 4: was out in the open. It reminded a lot of
Speaker 4: people of the rift with Katar in twenty seventeen, although
Speaker 4: I didn't think it would escalate to that level. And
Speaker 4: the points of disagreement where basically the two policies, two
Speaker 4: contradictory policies on Yemen, on Libya and on Sudan. I think,
Speaker 4: if you think about the golf, there are so many
Speaker 4: common things in the golf, you know they share. There
Speaker 4: are almost the same ethnicity, same language, same religions, same coastline,
Speaker 4: same geography, even at times, same external threats. But there
Speaker 4: are also points of disagreement. I think if you think
Speaker 4: about the economics, all of these countries are trying to
Speaker 4: diversify away from oil, and they're sort of sometimes they
Speaker 4: overlap on the same sectors at times. They have different
Speaker 4: visions for how to manage the oil wealth, which is
Speaker 4: important and that sometimes shows up in OPEC plus meetings.
Speaker 4: And on the security and national security and geopolitics. There
Speaker 4: is disagreement about the role of political Islam in the region.
Speaker 4: There are disagreements on how to deal with the other
Speaker 4: regional powers Turkey, Iran, and Israel. And there are different
Speaker 4: visions for what to do with the wider region, with Yemen,
Speaker 4: with Sudan, with Libya, and even Egypt than the Horn
Speaker 4: of Africa. So the current state is basically these countries
Speaker 4: have different visions in different paths, and I think even
Speaker 4: after this conflict, there'll be different visions on how to
Speaker 4: deal with the US. The question that Jaw asks, you
Speaker 4: know there is a disappointment in the US. What do
Speaker 4: we do? I think some countries like the UE with
Speaker 4: double down on its relationship with the US and possibly Israel.
Speaker 4: I think a country Lakata will stick to the US
Speaker 4: but tries to create a rift between the US and
Speaker 4: Israel while it has an alliance with Turkey. I think
Speaker 4: if you're Saudi Arabia, where the US wanted from you
Speaker 4: is money, is deals, but also a normalization with Israel
Speaker 4: because every US president thinks that they can get the
Speaker 4: nobel peace price if they deliver that that looks distant
Speaker 4: now in the context of the current war, and Saudi
Speaker 4: had to choose where it aligns itself relative to the
Speaker 4: others Oman is a completely neutral country that is talking
Speaker 4: to everyone and quietly doing things its own way, and
Speaker 4: Bahrain is again somewhere in between. So I think we
Speaker 4: used to think about the Gulf as one entity. This
Speaker 4: these six countries are all monarchies, all in gas producers,
Speaker 4: that have the same foreign relations or foreign relations strategy,
Speaker 4: and it's actually very different now that at least three
Speaker 4: or four sides to it.
Speaker 2: The other point of contention that I think was sort
Speaker 2: of like coming to the fore, although it was never
Speaker 2: as explos some of the foreign policy stuff was it
Speaker 2: felt like everyone was trying to do the same thing
Speaker 2: economically at the same time, which was diversify the economy,
Speaker 2: so not just have oil, but also build up petrochemicals,
Speaker 2: build up toursm build up the technology centers. Everyone's going
Speaker 2: to be, you know, like a big data center play,
Speaker 2: And the question in my mind was always like, well,
Speaker 2: can everyone be doing this at exactly the same time.
Speaker 4: That's that's a great question, Tracy, And possibly the likely
Speaker 4: answer is no, and you're right. So they faced the
Speaker 4: common question, which is basically, their economies are extremely dependent
Speaker 4: on oil and gas. If you look at the exports,
Speaker 4: if you look at government revenues, they're dominated by oil
Speaker 4: and gas. They knew they need to diversify away from this.
Speaker 4: They need to diversify away from this because all prices
Speaker 4: were volatile. Because if all processes drop by fifty percent,
Speaker 4: you can't have your incomes drop by fifty percent without
Speaker 4: adjusting your spending, which is usually painful. So it's good
Speaker 4: to diversify. So what they did is they went to
Speaker 4: consultants and ask them, you know, what sectors should we target,
Speaker 4: and they got the same answer. You should move to petrochemicals,
Speaker 4: you move up the hydrocarbon value chain. You should be
Speaker 4: a financial center, a tourism hub, a logistical hub. And
Speaker 4: now it's called AI. It used to be called knowledge
Speaker 4: based economy and big data at some points.
Speaker 2: For a while there.
Speaker 4: Yeah, the problem with this is you're talking about small
Speaker 4: geography and the same time zone almost So do you
Speaker 4: really need multiple mega airports with multiple global airlines? Probably not.
Speaker 4: Do you need multiple megaports, probably not. You probably need
Speaker 4: one or two. Do you need multiple financial centers. It's
Speaker 4: a financial center in Dubai, another one Abu Dhabi, an
Speaker 4: old one in Manama and Bahrain. Qatar has one, Saudi
Speaker 4: has one. Probably not. You probably just need one. So
Speaker 4: you have this sort of crowding out again tourism. Yes,
Speaker 4: like in January and December, it's beautiful over there. The
Speaker 4: weather is great when the rest of the world is dark,
Speaker 4: cold and rainy. But probably people are not going to
Speaker 4: come and spend you know, six weeks instead of ten
Speaker 4: days there. They're going to split that ten days between
Speaker 4: different countries. So that Chris a form of cannibalization and competition,
Speaker 4: and that asked to basically the intra sort of GCC
Speaker 4: competition which comes to the surface at times.
Speaker 3: Tracy, do you know the name of Cutter's first LNG carrier?
Speaker 2: I have no idea what is it?
Speaker 3: It's a very random trivia question. I came across the
Speaker 3: other day.
Speaker 4: Do you know, No, I don't know.
Speaker 3: Their first LNG carrier is the ship the Rex Tillerson
Speaker 3: because he got involved to end that blockade you talk
Speaker 3: about the twenty seventeen one, So he was the one
Speaker 3: that sort of crafted the diplomatic solution. So it is
Speaker 3: an honor to him their first LNG carrier.
Speaker 2: Then that's amazing.
Speaker 3: Yeah, it's right.
Speaker 4: Now, it wouldn't be the case that Trux Tellison used
Speaker 4: to be the CEO of Excellent, one of the one
Speaker 4: of the early companies that went into the industry.
Speaker 3: There you go, So that's right. So like he you know,
Speaker 3: he's like a patron saint of the country basically, and
Speaker 3: so he got they named the ship after him. Something
Speaker 3: I'm curious about is, you know, you mentioned in your
Speaker 3: first answer this disappointment nightmare scenario because ultimately Trump, despite
Speaker 3: the visits and all this stuff, like went to war
Speaker 3: with Iran. At least it chose the security preferences of Israel.
Speaker 3: Is maybe perhaps a neutral way to put it or
Speaker 3: something like that, that he prioritized Israel's security interests over
Speaker 3: the rest of the region. What I'm curious about is like, Okay,
Speaker 3: so the regional players, they're very disappointed with that, but
Speaker 3: they're probably gonna grit their teeth et cetera, and they'll
Speaker 3: continue to you know, you mentioned you you may double
Speaker 3: down on its US relationship grit their teeth continue. Does
Speaker 3: that create problems though domestically now and even beyond just
Speaker 3: this war obviously the war in Gaza, et cetera. Does
Speaker 3: that create domestic stability problems for these countries? Is just
Speaker 3: in terms of like, why aren't our government taking a
Speaker 3: more confrontational stance on this entire issue.
Speaker 4: I think there's a few things here. I think the
Speaker 4: first thing is is you're right to point out the
Speaker 4: flare up in the Middle East did not start on
Speaker 4: February twenty eighth, twenty twenty six. The Middle East has
Speaker 4: been enormous, constant state of war at least since October
Speaker 4: twenty twenty three. It's just we're feeling it more in
Speaker 4: the global economy because you have the closure of the
Speaker 4: Strait of Hormos, and because energy facilities in the Gulf
Speaker 4: are being hit and it has been weaponized now unlike
Speaker 4: the what was happening before February twenty eighth. I think
Speaker 4: you're also right that what happened in Gaza has definitely
Speaker 4: led to a level of anger and fury in the
Speaker 4: Arab world. That's probably unprecedented, and we've reported and this
Speaker 4: my colleagues San Dagar and others have written about this
Speaker 4: for Bloomberg. I think the Gulf though, is sort of
Speaker 4: different to other states. And the unique thing about the
Speaker 4: Golf from the rest of the Middle East, which is
Speaker 4: why why they were insulated from the volatility in the region,
Speaker 4: is that for the most part, maybe with the exception
Speaker 4: of Saudi Arabia, these are small countries or small populations,
Speaker 4: and at least three of them create the UAE and
Speaker 4: cut or have enormous hydrocarbon wealth relative to the size
Speaker 4: of the population. And if you have that, then that
Speaker 4: can lubricate a lot of things, and that can calm
Speaker 4: a lot of things done.
Speaker 3: That's a very different condition than say Jordan, right, which is.
Speaker 4: Egypt or other places. Yes, that's exactly right. That's the
Speaker 4: unique thing about the God is the level of wealth.
Speaker 4: And I think that's another motivation for why they want
Speaker 4: to diversify away from oil if in the future, because
Speaker 4: all again has not just created an economy and petro
Speaker 4: dollars and sovereign wealth funds and reinvestments into the global economy,
Speaker 4: it has created a political economy, a social contract and
Speaker 4: a political system, and a political system that remains calm
Speaker 4: and stable in the face of a volatile region. And
Speaker 4: what you want to do is to make sure that
Speaker 4: you maintain do Com. You have a source of income
Speaker 4: that maintains dot Com and that cohesiveness when oil becomes
Speaker 4: worthless in the future versus now. And this is why
Speaker 4: you have this big push towards diversification. But I think
Speaker 4: the fact, yeah, the level of wealth versus the size
Speaker 4: of the population creates different dynamics and trade offs versus
Speaker 4: other bigger countries in the region.
Speaker 2: Wait, can we go back to the Rex tillersonship for
Speaker 2: a second, because this is actually a serious question. But
Speaker 2: Katar famously doesn't actually pipe anything through the ground. It
Speaker 2: sends all of its gas out on ships because it
Speaker 2: distrusts its only land border, which is with Saudi Arabia.
Speaker 2: When we're talking about physical changes to the Middle East
Speaker 2: and maybe physical changes in the way that oil actually
Speaker 2: flows out of the region, could we see a situation
Speaker 2: where starts to actually pipesuff through the ground instead of
Speaker 2: just ship it out.
Speaker 4: I mean, this war has exposed something. A couple of
Speaker 4: things are very important. First, that the Middle East Despite
Speaker 4: the rise of renewables, despite the rise of shell oil
Speaker 4: in the US, despite the rise of alternative sources of energy,
Speaker 4: the Middle East is still super important for global energy supplies.
Speaker 4: And the second thing, most of the energy that comes
Speaker 4: from the delease goes through this small choke point that's
Speaker 4: called the Strait of Hormos, which exposes the world because
Speaker 4: it can cost supply. But also it's important for these
Speaker 4: countries to get there. They're oil out and get and
Speaker 4: gas out and get their their money in so they
Speaker 4: can you know, sustain their economies and investments and so on. Now,
Speaker 4: I think this war has tortu is a third thing.
Speaker 4: If you have a root out of the Strait of Hormos,
Speaker 4: you're probably insulated and you are in a better position than.
Speaker 2: Otherwise a route besides the Strait of Hormones, right not
Speaker 2: or an.
Speaker 4: Alternative Yeah, okay, yeah, so I think for example, I
Speaker 4: think now so the Araba is probably making more money
Speaker 4: out of all exports compared to the pre war periods
Speaker 4: simply because they have that pipeline that goes from the
Speaker 4: east of the country to the Red Sea. If you
Speaker 4: think about it, just just simple maths, you know, Saudi
Speaker 4: Arabia exports thirty percent less now, but all processes are
Speaker 4: up by a lot more So if it takes sort
Speaker 4: of that back of the envelope calculation, that tells you
Speaker 4: Saudi is probably making more income out of his all
Speaker 4: exports despite what is going on in the region, obviously,
Speaker 4: like the threats that this pipeline could be attacked and
Speaker 4: the port in the Red Sea could be attacked, But
Speaker 4: as things stand, it's probably making more money now than
Speaker 4: it did before the war. So if you're Saudi, if
Speaker 4: you're the UAA and you have these alternative routs to Hormus,
Speaker 4: it's probably one of the better investments that you've made
Speaker 4: over the past few decades and it's paying off now.
Speaker 4: You know, Geography is kind to you because you could
Speaker 4: do this unilaterally. You can just have a pipeline from
Speaker 4: Abu Dhabi to Fijeira. You don't need to go through
Speaker 4: other countries. You can have a pipeline from the east
Speaker 4: Saudi Arabia to the west of Saudi Arabia doesn't have
Speaker 4: to go through other countries. Other nations don't have that
Speaker 4: sort of geographical dividend. If you're Kuwait, if you're Bahraining,
Speaker 4: if you're cotter. You have to do it through other countries.
Speaker 4: Other has only one land border, which is Saudi Arabia.
Speaker 4: So if they want to have an alternative to having
Speaker 4: restellers in LNG tanker or other tankers, then have to
Speaker 4: do a pipeline, and the pipeline probably go through Saudi Arabia.
Speaker 4: I'm not an expert enough. I dodn't they to go
Speaker 4: an underground pipeline to Iran or all the way. I
Speaker 4: do know to Kuwait via Iraq, but I think the
Speaker 4: most feasible thing is vy Saudi Arabia. Is that going
Speaker 4: to happen? I don't know. Let's see, I don't know.
Speaker 4: I'm fifty to fifty on.
Speaker 3: That global is issue. Is so beautiful because I'm just
Speaker 3: sorry I'm reading about the rex Stellers and more so,
Speaker 3: first of all, it's the first conventional size l G carrier,
Speaker 3: the Verstord that the country had. The naming ceremony though,
Speaker 3: was held at the Hudong zhang Wi Shipyard in China,
Speaker 3: which of course is where it was built. It's just
Speaker 3: so beautiful.
Speaker 2: Was the rextellers in there?
Speaker 3: I don't know. I hope you got to like smashed
Speaker 3: the glass or you're gonna smash the champagne glass.
Speaker 4: Is that still an active tanker or yeah, yeah, yeah
Speaker 4: it is.
Speaker 3: Because I'm looking at Marine Traffic dot Com. It's in
Speaker 3: the kind of near the Gulf of Mexico right now.
Speaker 3: Looks like I don't know what it's doing there, but yeah,
Speaker 3: maybe it's leaving the Port of Houston or something like that.
Speaker 4: But then being stuck in the gulf.
Speaker 3: Yeah, yeah, it's not stuck. Actually, that was one of
Speaker 3: the interesting things that we talked about in her episode
Speaker 3: with Bob Brackett, which is that actually a lot of
Speaker 3: the guitars LNG revenue right now is from exports from
Speaker 3: the Port of Houston because it's involved in the investment there,
Speaker 3: et cetera. Let's talk about so we mentioned one of
Speaker 3: the topics that we've discussed is just like the phenomenon,
Speaker 3: the global phenomenon known as Dubai.
Speaker 1: Right.
Speaker 2: Oh, I'm so sorry, I'm I'm googling the Rex till
Speaker 2: I go on, and I just learned. I just learned
Speaker 2: that Rex Tillerson is not the only American official to
Speaker 2: have energy carrier named after them. Guess what the other
Speaker 2: one is, Okay, Chevron once named an oil tanker, the
Speaker 2: Condoaliza Rice.
Speaker 3: That's great.
Speaker 4: I love that.
Speaker 3: But let's talk about the phenomenon known as Dubai and
Speaker 3: all around the world. If you're an influencer and you're
Speaker 3: good looking and you like to post selfies or you
Speaker 3: made a bunch of money and crypto and you don't
Speaker 3: really have anything to do, it's like, okay, Like I
Speaker 3: know there's more of the Dubai economy than that. To
Speaker 3: be a little bit facetious, et cetera. But does this
Speaker 3: change the trajectory at all or from your view, given
Speaker 3: you know the relative I don't know that. Basically, the
Speaker 3: trends of people who are looking for a very stable
Speaker 3: place with low taxes and wonderful weather, et cetera. Will
Speaker 3: they Will that trend continue in the same way that
Speaker 3: it had been.
Speaker 4: So let me just tell you something about the Dubai attractiveness. Yeah,
Speaker 4: every time I came to London and obviously o Blomberg
Speaker 4: offices in the city, and I saw old friends. Seriously,
Speaker 4: every time people ask me how can we move to
Speaker 4: the Middle East and how can we move to Dubai?
Speaker 4: And these are people how to know links to the
Speaker 4: Middle East.
Speaker 3: That's incredible.
Speaker 4: I think it's in. And let me just give you
Speaker 4: another example. Actually, in late twenty twenty four, I took
Speaker 4: sabbatical from Bloomberg and I was I was teaching at
Speaker 4: Tarvard and twenty percent of my office hour was people
Speaker 4: asking me how to get jobs in the Middle East.
Speaker 3: Incredible, we were these Americans asking you mixed Yeah, But
Speaker 3: so it's not just influences and pretty people.
Speaker 4: It's like a lot of brainy people also wanted to
Speaker 4: move there.
Speaker 3: I feel like, for as much as we know about
Speaker 3: all everyone who has moved to Dubai, the big like
Speaker 3: it actually remains perhaps an even underreported story, the sort
Speaker 3: of like exit loyalty and voice, the exit people wanting
Speaker 3: to get out of what they see is crumbling, high
Speaker 3: techs unsafe Western world where the margaret.
Speaker 4: And yeah, I think what it offers you. And this
Speaker 4: is why I think there's two sides to this. I
Speaker 4: think there are people who live there. I haven't heard
Speaker 4: a single person saying I want to move out of
Speaker 4: Dubai permanently as a result of this war. Okay, some
Speaker 4: people have relocated temporarily. I think some people on the
Speaker 4: margin might to leave, but I haven't heard that yet.
Speaker 4: And I think what it offers you is obviously like
Speaker 4: incredible safety, is well connected, the weather is good six
Speaker 4: months of the year, and obviously for a lot of people,
Speaker 4: taxes is just like zero taxes is appealing. And if
Speaker 4: you're on the right I wouldn't say you're right extreme
Speaker 4: of the income distribution, but if you're on the right
Speaker 4: of the right half of the income distribution, it's actually
Speaker 4: a nice life. So I think people who live there,
Speaker 4: I think they're going to prove to be stickier than
Speaker 4: we think. I think where there will be probably challenge
Speaker 4: is that the questions I've been getting about, can you know,
Speaker 4: how can I move to Dubai and how can I
Speaker 4: get there? They might become fewer as this war develops,
Speaker 4: and it depends on how long this this wall was.
Speaker 4: I think there's something else that happened in Dubai way
Speaker 4: it is attractiveness increased after the pandemic, is that you
Speaker 4: have the network effect. People have the friends moved into Dubai.
Speaker 4: Sure they thought, oh, you know what, the weather is good,
Speaker 4: taxes are really really zero, and you know, life is nice,
Speaker 4: and you get all the support that's on the x rans.
Speaker 4: Things are convenient, and then people had that. You know,
Speaker 4: a network of friends that are already they are already there,
Speaker 4: and they're willing to move there and live there. So
Speaker 4: I think that's that's the element of it. I think. Yeah,
Speaker 4: So I think in terms of the long term aspect
Speaker 4: of it, I think people who live there are probably
Speaker 4: going to prove stickier than we think. The attraction of
Speaker 4: new people is probably going to ease on the margin,
Speaker 4: But again, there was a whole long queue of people
Speaker 4: who wanted to move there, and probably, yeah, that might
Speaker 4: that much slow a bit, but probably not significant. I
Speaker 4: think the other thing with Dubai is, I know this
Speaker 4: war is different because it's hitting it directly, but it
Speaker 4: did benefit from previous wars. Money did tend to move
Speaker 4: to Dubai as a result of conflicts, whether it's in
Speaker 4: the Middle East or even in the case for example
Speaker 4: of Russia Ukraine, where we saw a lot of money
Speaker 4: going into Dubai. We saw the pandemic was beneficial to Dubai.
Speaker 4: A lot of Brits moved to Dubai as a result
Speaker 4: of that, and you know that's one of the reasons
Speaker 4: what the real estate market has taken since twenty twenty.
Speaker 3: Just one related question on this, how can I move
Speaker 3: to Dubai as.
Speaker 4: What do I do?
Speaker 3: What is what are the basic.
Speaker 2: First of all, you'll still be paying taxes, Joe as
Speaker 2: an American, forget about that. Can we do like local
Speaker 2: economics in Dubai for a second, because if I go
Speaker 2: on some of the message boards and again, I think
Speaker 2: like one important thing to recognize here is that social
Speaker 2: media in the UAE can be fairly controlled. I see
Speaker 2: a lot of posts right now about like I just
Speaker 2: lost my job, I need to leave the country. I'm
Speaker 2: taking out a new credit card in order to buy
Speaker 2: my flight out of Dubai, which might be a little
Speaker 2: bit extreme, but just from an economic perspective, like how
Speaker 2: many jobs do we expect to be available locally in
Speaker 2: Dubai given some of the pressures that we're seeing.
Speaker 4: On your questions, Tracy, I think it depends on the
Speaker 4: duration of war. If the war ends tomorrow, or if
Speaker 4: even it continues at a lower intensity where you have
Speaker 4: some you know, ships going through the Strait of Hormus,
Speaker 4: where the attacks on Dubai ease a bit, and the
Speaker 4: UAE in general and the golf in general, that is
Speaker 4: very different world from if the world continues until I
Speaker 4: don't know June or July or August for six months.
Speaker 4: So I think the economic impact depends on the duration
Speaker 4: of war, and that is a big uncertain aspect. On
Speaker 4: your question, Joe, who's moving to Dubai. A lot of
Speaker 4: HETCH funds and as the managers are actually moving to
Speaker 4: the UAE a lot, So you know, the people that
Speaker 4: move are there, and then you have the sort of
Speaker 4: the supporting environment that supports these these companies. Every every
Speaker 4: company that were We are in Dubai, for example, we're
Speaker 4: in the Dubai International Financial Center and that has grown
Speaker 4: significantly since the pandemic. They're doing a new expansion and
Speaker 4: offices are full, and we've even our Bloomberg office we
Speaker 4: expanded into a new floor in Dubai.
Speaker 2: Actually, that reminds me since we're talking about the DIFC.
Speaker 2: You know, I mentioned in the intro there is this
Speaker 2: huge capital component in the Golf region. There's a lot
Speaker 2: of money there and it tends to flow outward into
Speaker 2: other things. Talk to us about how you anticipate changes
Speaker 2: to some of those capital flows, as perhaps some of
Speaker 2: the oil money is reduced. Although I take your point
Speaker 2: that Saudi Arabia might be making more than ever, would
Speaker 2: you still expect that outward flow or would you maybe
Speaker 2: expect some of the golf countries to have to start
Speaker 2: directing it more inward to maybe rebuild the infrastructure that
Speaker 2: they've lost, so a few things.
Speaker 4: I think so Saudi's not making more money than ever,
Speaker 4: it's just making more money than when oil is at
Speaker 4: sixty five dollars per barrel.
Speaker 2: Sure, sure, oh, yes, of course, yes, yeah.
Speaker 4: In terms of the direction of captain and you're right,
Speaker 4: I think the way I think about the golf is
Speaker 4: that the golf give supplies the world with three inputs,
Speaker 4: supplies it with energy, supplies it with capital, and supplies
Speaker 4: it with trade routes, and all three are being hit
Speaker 4: by the current war. And it gets from the world
Speaker 4: to three prices. It gets the price of interest rates
Speaker 4: because they have PEX to the dollar, it gets the
Speaker 4: price of the dollar exchange rate, and it gets the
Speaker 4: price of oil. Doesn't determine the price of oil that
Speaker 4: comes from the global economy. In terms of direction of capital,
Speaker 4: I think the answer for me is fairly clear. The
Speaker 4: direction is going to go down, and it's going to
Speaker 4: go down because you having the interruptions to oil exports,
Speaker 4: because that source of capital is that you export oil
Speaker 4: and gas. You get the income, you spend some of
Speaker 4: it domestically, and then the surplus you invest a broad
Speaker 4: I think the second thing, the defense spending will go up,
Speaker 4: one because they need to replenish on the defense systems
Speaker 4: that they've been using over the past six weeks. And
Speaker 4: second because they're realizing that the world is a far
Speaker 4: more dangerous place than it was six weeks ago. Iran
Speaker 4: is more dangerous, Israel's more expansionist, and then you have
Speaker 4: these you know, non state actors, Iraqi militant groups, who
Speaker 4: is in Yearmen. I think this conflict would probably create
Speaker 4: new groups that we haven't heard about before, and they
Speaker 4: are a threat. So I think they'll be spending more
Speaker 4: on defense, and that if you spend more on defense,
Speaker 4: and if your income is lower, that necessarily means that
Speaker 4: what you sent to the world in terms of capital
Speaker 4: exports will come down. And that is important. That is
Speaker 4: important not just for you know, English foot book clubs,
Speaker 4: and I don't know real estate in London or in Egypt,
Speaker 4: or Turkish bank deposits or tech companies. You guys hosted
Speaker 4: my colleague Tom Orlik and Jamie rush On the book
Speaker 4: that Boomberg Economics wrote on the Price of Money. We
Speaker 4: had the chapter on that on petro dollars and how
Speaker 4: petro dollars actually suppressed long term interest rates in the US. Okay,
Speaker 4: it was twenty five basis points. But given the size
Speaker 4: of the US economy and the size of his debt,
Speaker 4: that's still tens of billions of dollars every year. If
Speaker 4: there's less flow into there, that will affect not just
Speaker 4: these smaller markets, but also the deepest market in the world,
Speaker 4: which has the US treasuries.
Speaker 3: So you mentioned something there that I thought was important,
Speaker 3: you know. Okay, One effect is going to be likely
Speaker 3: an increase in military spending for obvious reasons, setting aside
Speaker 3: the fact that we don't know how or when this
Speaker 3: war is going to end. It's something we haven't really
Speaker 3: talked about yet. But setting aside that we don't know
Speaker 3: how this is going to end, it may emerge. And
Speaker 3: right now many people probably say this is likely that
Speaker 3: at the end of this war, our estimation at Viran
Speaker 3: as a major power will have increased. It may be
Speaker 3: a toll collector for the strade of her moves going forward.
Speaker 3: It is established that the government is actually quite strong.
Speaker 3: Several months ago, maybe people thought it was teetering on
Speaker 3: the edge. It may turn out that actually this strengthens
Speaker 3: the IRGC and the stability of the existing regime established
Speaker 3: that it has a military that can to some extent
Speaker 3: withstand the fall might or at least the partial might
Speaker 3: of the United States. How does that change the region
Speaker 3: that Okay, everyone's view of Iran as a sovereign security
Speaker 3: state has to rise or seems very likely to rise
Speaker 3: as a result of this war.
Speaker 4: I think there's a couple of things to mention here.
Speaker 4: The first thing is, as far as Iran is concerned,
Speaker 4: I think this last past six weeks have taught us something.
Speaker 4: And I keep saying, you know, things talk to something,
Speaker 4: but we keep learning from the world was happening now.
Speaker 4: And that's basically, if you have clear and achievable goals,
Speaker 4: you can punch above your weight. Iran had just basically
Speaker 4: two simple goals because they were completely cornered, which is
Speaker 4: basically survival of the system and the terrence so that
Speaker 4: they don't get attacked again in a few months. And
Speaker 4: they thought they could achieve this. So it's very very
Speaker 4: clear goals, very existential. They thought that they could achieve
Speaker 4: this by impoison costs on the neighbors, by hitting the
Speaker 4: golf on the global economy, by hitting the golf and
Speaker 4: closing the Strait of Hormos and hitting energy facilities. Israel
Speaker 4: had that clear goal, but it probably wasn't achievable, which
Speaker 4: is a regime change in Iran, and the US is
Speaker 4: just confusing what they're doing in terms of this war,
Speaker 4: Like there's no clear, well articulated goal for this current war.
Speaker 4: And I think that's why Iran is punching above his weight.
Speaker 4: What does that mean. I don't know if it's going
Speaker 4: to you know, Iran is going to emerge as a power.
Speaker 4: But given that, you know that is punching above his weight,
Speaker 4: given that it's controlling the Strait of Hormos, given that
Speaker 4: it actually has discovered that the weight to pressure the
Speaker 4: US and Israel is by imposing costs on the global
Speaker 4: economy via attacking the golf. That's not a safe world
Speaker 4: that the golf want to be in. And I think
Speaker 4: for the golf they're thinking now about, you know, giving
Speaker 4: that because even if this current system in Iran does
Speaker 4: not survive and we have a new system you know
Speaker 4: they've learned the same lesson, which is basically, if you
Speaker 4: get attacked, if you're cornered, this is how you get
Speaker 4: out of it by closing the straight up homos and
Speaker 4: by attacking the Gulf. For the Gulf. That's a challenge,
Speaker 4: and that's the challenge that they need to address and
Speaker 4: think about because they haven't faced that sort of threat before.
Speaker 2: Can I ask one more question, which is you mentioned
Speaker 2: the expansion of the Dubai Financial Center DOIFC two point
Speaker 2: zero and I'm looking at some of the mockups for it.
Speaker 2: It's supposed to be completed in twenty forty, but all
Speaker 2: of the mockups very beautiful, lots of shiny glass buildings.
Speaker 2: And when I'm thinking about potential changes from the Iran War,
Speaker 2: one very visible one would be, well, maybe maybe there
Speaker 2: aren't as many very tall glass buildings in places like
Speaker 2: Dubai that can end up getting damaged by drones, Like
Speaker 2: would you expect an actual physical change to the city's
Speaker 2: architecture as a result of this?
Speaker 4: So this is what I think. Also, the war would
Speaker 4: hit like unexpected corners beyond defense and relationship with the
Speaker 4: US and the Strait of Hormos it's also architecture. You know,
Speaker 4: there's a lot of building that's taking place in all
Speaker 4: these cities in the Gulf are growing. The problem is
Speaker 4: that when you were in Dubai, you know, living on
Speaker 4: the twentieth floor, and you get the alert saying you
Speaker 4: know it's under attacks, stay away, don't go out and
Speaker 4: stay away from windows. You know your places is floor
Speaker 4: to ceiling of windows.
Speaker 2: Hey, you have to go down into the car park
Speaker 2: where there's no air conditioning.
Speaker 4: Some people did, some people did. And also I don't
Speaker 4: know if it's safe to be next to cars or
Speaker 4: insight cars. So the mudurithinking about this, the Mudi thinking,
Speaker 4: you know, this is this is what wars do. They
Speaker 4: change a lot of things and a lot of perspectives
Speaker 4: on things, and that goes into corners that we didn't
Speaker 4: think about before, and including architecture. I always think the
Speaker 4: example of Kuwait is a clear one. Kuwait in nineteen
Speaker 4: ninety or before nineteen ninety, relative to its neighbors, it
Speaker 4: was fairly advanced. You know, it had culture, It was
Speaker 4: an open society, It had a participatory political system times
Speaker 4: a parliament that was quite loud and vocal. Infrastructure was
Speaker 4: modern and all of a sudden, Iraqi tanks rollin. There's
Speaker 4: an Iraqi invasion of Quait in nineteen ninety and things
Speaker 4: changed in Kuwait. And the big thing that happened there
Speaker 4: is that they started investing lesson tom and sending most
Speaker 4: of their wealth abroad, and over decades that means deteriorated infrastructure.
Speaker 4: If you think about Kuwait. There's a couple of news
Speaker 4: items recently that Kuwait might have power cuts, which for
Speaker 4: an oil powerhouse, one of the most richest countries in
Speaker 4: the region and one of the hottest countries in the world,
Speaker 4: to have power cuts is strange. But you can trace
Speaker 4: what is happening there in terms of the electricty shortages
Speaker 4: in Kuwait in twenty twenty six to an event that
Speaker 4: happened in nineteen ninety. So yeah, it will. Yeah, it
Speaker 4: may not be the same lesson everywhere else, but I
Speaker 4: think the lessons will be deep and broad and they'll
Speaker 4: go to unexpected corners, including architecture trades.
Speaker 2: All right, da Daoud, thank you so much for coming
Speaker 2: back on all thoughts. Truly at the perfect guest to
Speaker 2: walk us through all of this. Really appreciate it.
Speaker 4: Thank you for having me.
Speaker 2: Joe that was a great conversation with Yeah, as always
Speaker 2: truly the perfect guest. There's so many things that stuck
Speaker 2: out at me. But I think his last comment about
Speaker 2: how war, you know, kind of unfolds and changes things
Speaker 2: in unexpected ways. Yeah, it was very interesting. I'm the
Speaker 2: Kuwait example he cited was very compelling.
Speaker 3: No, that's fascinating. I would have had no idea and
Speaker 3: I'm reading this right now Kuwait, here is this energy
Speaker 3: powerhouse that quates schedules electricity cuts to do maintenance, and
Speaker 3: that the lack of maintenance that had happened through the
Speaker 3: domestic infrastructure could be traced to fiscal priorities and the
Speaker 3: wake of a war that happened over thirty five years.
Speaker 3: It's really wow. Yeah, I mean like, yeah, I wouldn't
Speaker 3: have thought about that, but it's obvious. And so this
Speaker 3: is going to reshape the region. Obviously in these we
Speaker 3: can't anticipate. It was very ominous that when he was
Speaker 3: talking about various non state actors he mentioned including non
Speaker 3: state actors we've never heard of that will now get stronger,
Speaker 3: that will emerge out of this. So again, even if
Speaker 3: you know, we look at our screens and the markets
Speaker 3: back and maybe hopefully, you know, maybe the ceasefire will
Speaker 3: hold longer, or will the ceasefire will turn into the
Speaker 3: end of the war, et cetera. It seems obvious there's
Speaker 3: going to be major ramification.
Speaker 4: Yeah.
Speaker 2: The other thing that stood out to me was the
Speaker 2: short comment about petro dollars, which is really what we
Speaker 2: mean when we're talking about capital emanating from the golf
Speaker 2: and I think, like to some extent that hasn't really
Speaker 2: been appreciated yet. If you think that these golf economies
Speaker 2: are maybe going to have to rebuild infrastructure that was damaged,
Speaker 2: if you think they're going to have to build new
Speaker 2: infrastructure as a result of nervousness around what happens with
Speaker 2: the strait of horror moves in the future, if you
Speaker 2: think that maybe they have to do stimulus for their
Speaker 2: local economies because of jaw losses, it just feels like
Speaker 2: there's going to be potentially a lot less money circulating
Speaker 2: in the global economy.
Speaker 3: Yeah. And then another way to think about it too
Speaker 3: is that we're already in a period of resource constraints,
Speaker 3: and so just like the rebuilding of various infrastructure in fact,
Speaker 3: and I don't know that you know, one of the
Speaker 3: facilities that was hit. I think there is a basic issue,
Speaker 3: which is that they need natural gas turbines. And we
Speaker 3: know that natural gas turbines are among the scarcest thing
Speaker 3: in the world right now due to the AI data
Speaker 3: center build out, and so here you have even further
Speaker 3: strain and demand being placed on the sort of physical
Speaker 3: building blocks of the modern world at a time when
Speaker 3: they were already very tight.
Speaker 2: Yeah, it feels very inflationary.
Speaker 3: Yeah, yeah, exactly.
Speaker 2: All right, shall we leave it there.
Speaker 3: Let's leave it there.
Speaker 2: This has been another episode of the Authoughts podcast. I'm
Speaker 2: Tracy Alloway. You can followow me at Tracy Alloway.
Speaker 3: And I'm Joe Wisenthal. You can follow me at the Stalwart.
Speaker 3: Follow our guest Zi Daoude He's at zod m daoud
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