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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and Amrie Hordert. Join us each day

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Speaker 2: for insight from the best in markets, economics, and geopolitics

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Speaker 2: from our global headquarters in New York City. We are

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Speaker 2: live on Bloomberg Television weekday mornings from six to nine

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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or

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Speaker 2: anywhere else you listen, and as always on the Bloomberg

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Speaker 2: Terminal and the Bloomberg Business App. Tracking a whole host

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Speaker 2: of news stories this morning, of course, with one central

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Speaker 2: focus developments in the Middle East. This this morning, just

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Speaker 2: dropping you've all seen reports I'm sure about three down jets,

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Speaker 2: three down to US jets over Qwa. The latest from

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Speaker 2: the United States. They say those three jets were down

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Speaker 2: due to apparent friendly fire over Qa or six air

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Speaker 2: crew have ejected safely, the jets mistakenly shot down by

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Speaker 2: qwaity air defenses. Those headlines just crossing months ago. To

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Speaker 2: build on this conversation a much more, I'm place to

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Speaker 2: say the Norman Rule, the former senior US intelligence official

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Speaker 2: and senior advisor at CSIS joins us now for more normal,

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Speaker 2: so much to cut through, Let's start with this. Who

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Speaker 2: is in command of the IGC as things stand?

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Speaker 3: The commander of the IRGC is an individual named Ahmed Vihidi.

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Speaker 3: He's highly experienced, born in nineteen fifty eight. He joined

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Speaker 3: the IRGC in nineteen seventy nine. He was the predecessor

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Speaker 3: of cost Some soul Mine in the Koods Force and

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Speaker 3: was extensively involved in terrorism and has indeed been red

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Speaker 3: listed for his involvement in the ammy of bombing in Argentina.

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Speaker 1: Many years ago. He is an individual with a very

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Speaker 1: dark history.

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Speaker 3: So we have an individual who was cut from the

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Speaker 3: same playbook as his predecessors in the IRGC.

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Speaker 4: Norman given the layers of concentric power in Iran in

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Speaker 4: the IRGC and a new leader already stepping in, what

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Speaker 4: does it actually look like and what does it take

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Speaker 4: to have true regime change in our well?

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Speaker 3: At present we have the regime has already been changed.

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Speaker 3: Their strategic power has been severely diminished. We've had two

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Speaker 3: thousand air strikes by the United States and Israel. Yesterday,

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Speaker 3: the IRGCY headquarters is rubble and beginning yesterday and today,

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Speaker 3: the United States is conducting a massive tectonic strikes on

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Speaker 3: Iran's missile, nuclear and other subterranean holdings. So Iran's strategic

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Speaker 3: capacity is being reduced. Its missile launchers are being whittled away.

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Speaker 3: That doesn't mean it won't have capacity to fire, but

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Speaker 3: Iran's strategic resources are being already transformed.

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Speaker 1: The Supreme leader is dead.

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Speaker 3: His successor is being selected according to the standard process.

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Speaker 1: So the regime has changed.

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Speaker 3: It's still the same type of administration and the besieged

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Speaker 3: their militias on the street, armed, keeping the protesters down

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Speaker 3: as before. We have a similar type of regime, but

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Speaker 3: it is severely weakened.

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Speaker 4: What do you then understand about what this president of

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Speaker 4: the United States aims are in Iran? Than Norman and

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Speaker 4: his initial address, he gave a variety of reasons of

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Speaker 4: why the US was attacking Iran, it became clear that

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Speaker 4: he wanted that regime shift. What is the president's goal

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Speaker 4: at this moment? What does that tell you about how

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Speaker 4: long a conflict may last?

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Speaker 3: Well, to be clear, I think the goals are consistent

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Speaker 3: to reduce to end Iran's capacity to rebuild a nuclear

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Speaker 3: enterprise and the military operations that are being conducted now

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Speaker 3: will achieve that, although Iran could make a decision to

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Speaker 3: rebuild that at some point in the future absent of

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Speaker 3: political decision to second to end the missile threat at present,

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Speaker 3: although Iran could rebuild that in the future unless it

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Speaker 3: was a political change. And finally, to severely degrade Iran's

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Speaker 3: regional adventurism in goods force and we destroyed the i

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Speaker 3: ERGC headquarters and are conducting strikes against a revolutionary guard capacity.

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Speaker 3: So again, the president is conducting military operations to achieve

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Speaker 3: all of those goals. The challenge becomes he's got to

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Speaker 3: now have an Iranian government that in order to survive

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Speaker 3: and sustain the regime, they've got to say we will

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Speaker 3: agree to not rebuild that in order to survive, have

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Speaker 3: a normal relationship with our neighbors, and sanctions relief. That

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Speaker 3: government has not yet agreed to do this. But again

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Speaker 3: I must say, we're one day into a conflict, so

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Speaker 3: these are still early days.

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Speaker 2: So let's go through what we know and what we've

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Speaker 2: seen so far. I think a notable feature for many

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Speaker 2: over the weekend with account of strikes across the Gulf.

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Speaker 2: Do you see those strikes as maybe risking bringing others

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Speaker 2: into this war or producing a different response, getting gunners

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Speaker 2: in the golf to push back against the interactions they've

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Speaker 2: seen so far.

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Speaker 3: The response was entirely expected. Iran's goals would have been

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Speaker 3: as following. First, they're going to try to achieve as

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Speaker 3: much losses in the United States to promote a political

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Speaker 3: debate within the United States against the press.

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Speaker 1: And second, they're.

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Speaker 3: Going to want to punish or attack golf partners in

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Speaker 3: other countries to cause them to turn to the president

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Speaker 3: and say and the conflict.

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Speaker 1: Now, what we've seen.

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Speaker 3: Is actually a diminished attack. Normally you would have seen

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Speaker 3: saturation strikes by the Iranians of missile drone and it

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Speaker 3: hasn't been mentioned cyber strikes as well. The fact that

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Speaker 3: these have actually been on a fairly reduced scale shows

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Speaker 3: the relative success of American strikes in limiting the number

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Speaker 3: of launchers. Now, it's still been a terrible impact. We've

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Speaker 3: had losses that are significant, but this is far less

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Speaker 3: than Iran would have hoped to achieve. And I must

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Speaker 3: also say that Iran has transformed its relationship with the golf.

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Speaker 3: It's a terrible defeat for the Iranian diplomacy. They've literally

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Speaker 3: turned their relationship with the Golf one hundred and eighty

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Speaker 3: degrees from a detante to enemies. And this will last

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Speaker 3: for a generation for the Iranians.

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Speaker 2: No, and do you see a path to de escalation

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Speaker 2: in the coming days.

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Speaker 3: Yes, The Iranians, in essence, through this conflict will have

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Speaker 3: to be compelled to through defeat, through a military defeat,

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Speaker 3: to accept the President's terms. That's the path at this point.

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Speaker 3: There is not a path through diplomatic negotiations. At this point,

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Speaker 3: there is not going to be a path through mediations.

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Speaker 3: The Iranians are going to have to accept that they

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Speaker 3: cannot in order to survive, in order to stay alive,

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Speaker 3: they're going to have to accept that they're going to

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Speaker 3: have to come to terms. And again, we're about one

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Speaker 3: day in two thousand strikes, and they've watched multiple colleagues

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Speaker 3: be killed, the Supreme leader, the heads of their military.

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Speaker 3: The lifespan of an Iranian leader is not a very

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Speaker 3: long one at present.

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Speaker 2: Stay with us. More Bloomberg surveillance coming up after this.

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Speaker 2: So here's the LISUS this morning, the President telling the

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Speaker 2: New York Times the assault on Iran could last four

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Speaker 2: to five weeks, the President calling on Tehran's leaders to

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Speaker 2: sink power to the nation's people, and the former National

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Speaker 2: Security Council member, Retied Colonel Joe Rapen joins us now

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Speaker 2: for more conor Raye, but welcome to the program soon.

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Speaker 2: Thank you for joining us in your experience, given what

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Speaker 2: you've seen over the weekend, do you see a path

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Speaker 2: to de escalation here?

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Speaker 5: Well, yes, because I mean in this military phase, the

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Speaker 5: outcome is essentially it's concluded already.

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Speaker 6: It's just a matter of time.

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Speaker 5: The Iranian regime has lost control of its own airspace

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Speaker 5: over its capital. The Israeli Air force, US Air Force

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Speaker 5: is essentially control. It can strike targets at its leisure

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Speaker 5: over Tehran. You just simply can't continue and organize a

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Speaker 5: defense against that kind of military pressure.

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Speaker 2: What kind of nuisance do you think Iranian proxy still

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Speaker 2: can cause in the region?

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Speaker 5: Just that a nuisance. They're not going to be able

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Speaker 5: to tip the strategic balance. You saw overnight a group

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Speaker 5: that was probably Hesbala launched six missiles from Lebanon into Israel.

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Speaker 5: That's essentially that's fairly suicidal. If Hezbala were to try

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Speaker 5: to escalate, they don't have any capacity to resist Israeli

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Speaker 5: pressure there either, and I'm sure the Israelis have a

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Speaker 5: pretty robust war plan contingency to be able to take

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Speaker 5: out those kind of Hesbala assets if it does escalate.

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Speaker 4: So, if it is a weekend regime that needs to negotiate, Colonel,

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Speaker 4: what does that look like, What do negotiations look like,

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Speaker 4: and what sort of leadership do you estimate will arise

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Speaker 4: and or on.

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Speaker 5: I would think if you do go into a scenario,

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Speaker 5: as the President sort of outlined Venezuela type of scenario,

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Speaker 5: you'd be looking at the remnants of Revolutionary Guards leadership

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Speaker 5: reaching out. There are some political factions and figures that

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Speaker 5: are also associated with the Revolutionary Guards. I would expect

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Speaker 5: them to be sort of at the head of the

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Speaker 5: remnants of the regime to reach out. I've always thought

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Speaker 5: that figures such as the RANNIE in Parliament Speaker Mohammed

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Speaker 5: Baker Khlobov, for example, I know his name's not really

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Speaker 5: known in the West, but he's.

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Speaker 6: Very well known in Iran.

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Speaker 5: This is a guy who is a former Revolutionary Guards general,

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Speaker 5: was also the mayor of Tehran and is now Speaker

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Speaker 5: of the Parliament. He's always been, He's had one foot

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Speaker 5: in politics and one foot in the revolutionary guards.

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Speaker 6: He's not alone. There are different figures like.

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Speaker 5: That who, if they survive the coming week or so,

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Speaker 5: I would think I would be voted most likely to

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Speaker 5: be the Delce Rodriguez figure in Tehran for.

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Speaker 6: An interim phase.

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Speaker 5: I don't think that that means that that kind of

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Speaker 5: regime would be sustainable because of the intense popular pressure

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Speaker 5: against that regime in its own week in state, But

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Speaker 5: at least for a transitional phase, as the President was

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Speaker 5: referring to, I think you would have figures like that

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Speaker 5: who are sort of pragmatic survivors as opposed to ideologically

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Speaker 5: driven millenarians who are just looking for martyrdom.

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Speaker 4: So if you then have an Iran that's more willing

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Speaker 4: to speak and to negotiate with the US, what does

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Speaker 4: that mean of China's position? Who not only witnessed that

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Speaker 4: happen in Venice, one of its key allies, but now

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Speaker 4: we witness the same change happening in Iran. What is

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Speaker 4: the country? What is leadership? What does in President She

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Speaker 4: do in this scenario?

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Speaker 5: Yeah, it's a tough situation for President She, because the

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Speaker 5: Iranian regime has been such as an energy supplier as

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Speaker 5: well as a strategic military lever that the Chinese have

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Speaker 5: been able to use from time to time. So they're

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Speaker 5: going to be looking very hard at what comes in

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Speaker 5: the wake of this common day regime.

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Speaker 6: They're going to have an enormous stake in trying to.

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Speaker 5: Retain their influence in Tehran with a follow on regime,

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Speaker 5: no matter whether that's a remnant regime of the Islamic

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Speaker 5: Republic or that's some kind of new democratic regime. The

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Speaker 5: Chinese have a huge stake in trying to ensure that

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Speaker 5: it's that it's a China friendly regime. So they will

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Speaker 5: be in there competing, but so will all the other

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Speaker 5: regional powers in the world powers. It's going to be

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Speaker 5: an incredible race for influence in Tehran if there is

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Speaker 5: a follow on regime.

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Speaker 2: Acono, it's been unbelievable that as we've already seen in

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Speaker 2: twenty twenty six, you mentioned Venezuela and what we saw

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Speaker 2: out at Carancas just two months ago, and now in Iran,

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Speaker 2: it's there a coherent strategy here in your mind that

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Speaker 2: we should be following.

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Speaker 6: A national security strategy.

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Speaker 5: Mean, I think there is I think and I think

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Speaker 5: with President Trump, it's he has an instinct for essentially

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Speaker 5: trying to trying to reduce the influence and the capacity

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Speaker 5: of this crank alliance or coalition if you will. It's China, Russia, Iran,

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Speaker 5: North Korea and some of its other satellites like Venezuela,

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Speaker 5: like the Cuban regime were formerly you know, the Assaud regime,

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Speaker 5: and some of their non state actors like Hesbala. I

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Speaker 5: do think the president, and I saw this in the

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Speaker 5: in the first administration as well when I was on

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Speaker 5: the National Security Council staff, he has an instinct to

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Speaker 5: try to break up that coalition using different levers of power,

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Speaker 5: including the economic lever of power, which is I think

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Speaker 5: his instrument choice, if you will.

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Speaker 2: What do you think the next step will be.

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Speaker 6: In Iran or in the national security strategy?

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Speaker 5: I think in Iran, look, the military phase is not

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Speaker 5: going to last too long. I know people are apprehensive

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Speaker 5: about that right now, but we're talking about an Iranian

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Speaker 5: regime that simply doesn't have the military capabilities to continue

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Speaker 5: for very long. They have a finite number of missile

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Speaker 5: launchers which are being hunted right now, and eventually those

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Speaker 5: will come down to a level where they're not operationally

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Speaker 5: significant anymore.

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Speaker 6: So we're really talking about what will be the political

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Speaker 6: next step in Tehran.

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Speaker 5: Will there be a Venezuela or Delsea Rodriguez type of

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Speaker 5: interim phase there where there will be there will be

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Speaker 5: a remnant regime that will say, okay, okay, no Moss,

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Speaker 5: let's talk about those four demands you had of us

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Speaker 5: a couple of weeks ago. And if you get to

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Speaker 5: that stage, then I think you can see things stabilized.

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Speaker 5: And also that would open up a window of opportunity

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Speaker 5: for a very different Middle East, because the common A

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Speaker 5: regime has been so destabilizing over the last three decades.

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Speaker 5: It's absence already is going to have a huge impact

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Speaker 5: regardless of how things go forward.

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Speaker 2: Connel, just finally and just quickly, with regards to the

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Speaker 2: national security strategy as they developed, sent around pattaying to that,

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Speaker 2: what would the next steps be?

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Speaker 5: Well, I think it's very Look you're talking about suddenly

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Speaker 5: the removal of a key lynchpin, a Hinge member of

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Speaker 5: this strategic military coalition of China, Iran and Russia, and

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Speaker 5: it's going to be a huge setback to both China

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Speaker 5: and Russia in their regional ambitions. The absence of the

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Speaker 5: Kamine regime is going to have a ripple effect in Ukraine,

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Speaker 5: for example, I would say it's going to put vlader

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Speaker 5: been putting under a lot more pressure because he will

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Speaker 5: have lost his drone and missile supplier, as well as

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Speaker 5: an energy partner and a strategic intelligence ally. And you

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Speaker 5: have to think that over in Asia will have a

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Speaker 5: ripple effect too on the kind of pressure that President

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Speaker 5: She is able to put on the local region.

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Speaker 2: Stay with us, all Bloomberg Savannah's coming up after this,

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Speaker 2: Let's talk about energy under Savannahs this morning a standstill

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Speaker 2: in Homer's.

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Speaker 7: While President Trump, like his predecessors, do not want to

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Speaker 7: see high oil prices, he is willing to take risk

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Speaker 7: of high oil prices. Iran has the means, the ability

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Speaker 7: to make Hormuz unsafe for longer than the market I

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Speaker 7: think expects. The only real leverage the Iranian regime could

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Speaker 7: hope to have is over the price of oil.

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Speaker 2: So here's the lacest this morning in crude spiking the

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Speaker 2: most in almost four years. As tensions are escalating in

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Speaker 2: the Middle East. Tank of traffic through the straight and

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Speaker 2: foremost effectively halted threatening about a fifth of the world's

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Speaker 2: crued Stephen Shark of the Short group right in the following,

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Speaker 2: A regime fighting for its survival would eventually make a

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Speaker 2: move The surprises position for volatility, not direction. Stephen joined us.

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Speaker 2: Now for more, Stephen, welcome your line from over the weekend.

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Speaker 2: Whether the template from June twenty twenty five is the

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Speaker 2: right one, is this different?

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Speaker 8: It very well could be. Now we actually have two

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Speaker 8: templates to play with here. Of course, we have what

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Speaker 8: occurred in the late nineteen nineties, in early nineteen ninety

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Speaker 8: one when Iraq invaded Kuwait, and then of course we

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Speaker 8: had the twelve Day war back in June. In both instances,

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Speaker 8: we saw a significant spike in prices immediately, but in

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Speaker 8: even greater drop in prices afterwards, and that was the

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Speaker 8: market's way of telling us that the resolution was going

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Speaker 8: to be quick and it was going to be positive.

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Speaker 8: In nineteen ninety one, it was kicking Sodom out of

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Speaker 8: Kuwait that was a positive prices crash, and twelve day

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Speaker 8: war the objective we had a finish line. It was

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Speaker 8: to neutralize, excuse me Iran's nuclear program, and that was

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Speaker 8: for the time being achieved quick resolution prices crashed.

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Speaker 1: Now we have the asymmetry.

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Speaker 8: We have an open line, now we have no finish line,

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Speaker 8: and so the stated goal is to overthrow the theocracy

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Speaker 8: in Tehran, So whether that happens quickly or not depends,

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Speaker 8: So that is the key asymmetry. So what we are

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Speaker 8: concerned about, and the only catalysts that will drive oil

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Speaker 8: prices sustained higher would be a disruption in long term

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Speaker 8: disruption to the flow of oil.

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Speaker 1: So of course we're talking about the straight Amos now.

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Speaker 8: Right now we do have an effective blockade on the street,

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Speaker 8: being that we have now made it unensurable, so there

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Speaker 8: are no tankers that are going to.

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Speaker 1: Transit the Straight, So that is the key situation.

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Speaker 8: But if we do get a quick military resolution, that

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Speaker 8: blockade effectively gets lifted immediately, and there we have the

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Speaker 8: scenario loyal oil prices. The concern now is that the

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Speaker 8: theocracy in Tehran is able to hold on. We're no

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Speaker 8: longer dealing with a rational player. Back in June, there

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Speaker 8: was no concern about a closure to the Straight of

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Speaker 8: Homoves because the regime did not they're threatened. Regime wasn't

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Speaker 8: going to alienate itself from its arrob trading partners in

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Speaker 8: the Golf or its clients in India and China.

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Speaker 1: Therefore, they had consequences.

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Speaker 8: A regime that is now under threat does not fear consequences.

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Speaker 8: So there is the very real threat now that we

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Speaker 8: go beyond a soft blockade of the Strait and a

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Speaker 8: hard a blockaded straight with either mining or missile attacks

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Speaker 8: on vessels transit in. So, by the way, it all

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Speaker 8: comes down now to timing, how quickly is this resolved.

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Speaker 8: It's resolved quickly. I eat in a couple of weeks.

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Speaker 8: That blockade gets lifted immediately.

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Speaker 1: And let's not.

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Speaker 8: Let's recall that we have about one point seven billion

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Speaker 8: barrels sitting in can I.

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Speaker 4: Ask about that blockade and the likelihood of it because

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Speaker 4: a lot of digital link has been spilled, that perhaps

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Speaker 4: Iran doesn't have the capabilities to fully issue a blockade,

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Speaker 4: that they don't have unlimited supply of weapons, that laying

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Speaker 4: down minds would be costly for them themselves once they

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Speaker 4: want to reopen the waterway. What, in your summation is

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Speaker 4: the full extent of pain that Iran can have when

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Speaker 4: it comes to oil energy infrastructure in the state.

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Speaker 8: Of hormous Yeah, absolutely so, The big threat now here

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Speaker 8: is first of all, with the blockade, they don't need

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Speaker 8: to take a hard blockade. As we said, you've made

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Speaker 8: it straight right now, unpassable, it's unensurable.

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Speaker 1: Therefore, you do effectively have your blockade. Now.

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Speaker 8: The real concern now is what do we do about

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Speaker 8: oil production. Well, there have been reports that around has

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Speaker 8: gone after some of Saudi Qatari as we know, has

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Speaker 8: been shut down, and that is a real concern. The

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Speaker 8: concern that we do not have from a US Israeli

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Speaker 8: standpoint is we do not have any sort of threat

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Speaker 8: on Iran's oil production. We are not going through That

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Speaker 8: is not a threat back in June and is not

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Speaker 8: a threat today. That is the worst thing that the

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Speaker 8: Israelis or the Unastates could do. What we want, what

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Speaker 8: the stated goal is is to overthrow the theography and

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Speaker 8: bring in a more democratic, egalitarian government into Iran. That

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Speaker 8: government's going you need cash go, the need income to succeed.

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Speaker 8: That income comes to the form of oil production. So

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Speaker 8: oil production is not under threat at this point. From

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Speaker 8: a standpoint of being attacked by the US or Israeli

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Speaker 8: or even Arab forces in reaction to attacks unerve infrastructure,

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Speaker 8: the concern here now is once again we have an

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Speaker 8: irrational player. What did Saara Hussein do when he lost

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Speaker 8: He burned Kuwaiti's oil fields.

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Speaker 1: So that is your threat at this point limited, but

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Speaker 1: it is a threat.

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