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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: We begin the week with the US and around having

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Speaker 2: reached an interim deal to end hostilities and reopened the straits.

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Speaker 3: Of Hall news.

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Speaker 2: You sent oil prices lower and sparctor relief rally across

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Speaker 2: Asian markets. Officials from both countries sit to MEETNA in

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Speaker 2: Switzerland on June the nineteenth, where the agreement will be formally.

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Speaker 3: Everyone has discovered from the past six years that these big,

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Speaker 3: one off, supposedly one off disruptions can happen with frequency.

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Speaker 2: That's Bloomberg's Tracy Allyway. Tracy co hosts the Odd Lats

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Speaker 2: podcast and she spends a lot of time looking at

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Speaker 2: the long term impacts of geopolitics on the global economy.

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Speaker 3: And so the lesson that everyone's been internalizing is that

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Speaker 3: you need to build up stockpiles, you need to have

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Speaker 3: independence in terms of your crucial supplies, You need to

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Speaker 3: have additional capacity.

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Speaker 2: And few places have shown the new need for independence

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Speaker 2: and extra capacity more clearly than in Asia. Over the

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Speaker 2: past few months, after the US and Israel went to

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Speaker 2: war with Iran, the straight Up her Moose grounded to

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Speaker 2: a halt, choking off supplies of virtually every major commodity,

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Speaker 2: including one fifth of the world's oil. But I think

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Speaker 2: a lot of great things are going to happen in

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Speaker 2: the Middle East right now, and very importantly, the oil

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Speaker 2: is plummeting down. At the G seven summit in France,

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Speaker 2: President Trump touted a deal the US reached with Iran's

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Speaker 2: regime over the weekend, which he says will reopen the

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Speaker 2: Straight Up her Moose.

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Speaker 3: Essentially, ships are starting to go out now. On Friday,

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Speaker 3: it'll be completely opened.

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Speaker 2: Across Asia, countries are welcoming the US Iran peace deal

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Speaker 2: that would help to stabilize global energy prices and reopen

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Speaker 2: a vital shipping route, but many are skeptical that will happen,

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Speaker 2: and even if it does for Asia, that shift might

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Speaker 2: be too little, too late.

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Speaker 4: There is this brewing but not yet impacting food issue

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Speaker 4: that will arise in Southeast Asia specifically.

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Speaker 2: That's Bloomberg's Joe Wisenthal. He co hosts odd Lots with Tracy.

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Speaker 4: The closure of the Strait of Hormuz is going to

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Speaker 4: create a food stress in much of the world during

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Speaker 4: the next planting season. And if there's food stress, people

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Speaker 4: will be buying food and not random manufactured goods in

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Speaker 4: China come that time, and so there may be an

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Speaker 4: element where China is choosing to reduce its imports so

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Speaker 4: that its customers of manufacturers have more capacity come next year.

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Speaker 2: Welcome to the Big Take Asia from Bloomberg News. I'm

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Speaker 2: wanh Today I'm sitting down with my colleagues Tracee Alloyway

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Speaker 2: and Joe Wisenthal, co host of Bloomberg's Odd Lots podcast.

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Speaker 2: We recorded this conversation just before news broke that Iran

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Speaker 2: and the US may have struck a deal to reopen

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Speaker 2: the Strait of Hormuse, and as you'll hear, this discussion

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Speaker 2: is arguably just as relevant now as when we taped it.

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Speaker 2: While the reopening of the strait would be a welcome relief,

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Speaker 2: the structural shifts caused by the conflict have fundamentally changed

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Speaker 2: businesses across Asia, and the resulting pressure on food and

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Speaker 2: energy supplies and prices isn't going away anytime soon. On

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Speaker 2: today's show, we dive into why Asia is feeling more

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Speaker 2: economic pain from this conflict than Western nations and what

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Speaker 2: the new normal looks like for the region and the

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Speaker 2: rest of the world. While the details of the proposed

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Speaker 2: new deal between the US and Iran remain unclear. Thing

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Speaker 2: is certain. War in Iran and the virtual closure of

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Speaker 2: the Strait of Vermouse have effectively slapped a war tax

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Speaker 2: on vital products, and it's impacted every corner of the

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Speaker 2: global economy. You've probably felt the pinch in one way

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Speaker 2: or another, but its effects haven't been distributed evenly. Wealthy

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Speaker 2: countries like the US and Japan have opted to drain

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Speaker 2: their stockpiles of crude oil. In other corners of the world,

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Speaker 2: governments are turning to demand destruction by encouraging industries and

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Speaker 2: consumers to use less, but that risks slowing economic growth

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Speaker 2: and triggering recession. It's a glaring disparity, and Bloomberg's Tracey

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Speaker 2: Allyway says it highlights a structural vulnerability.

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Speaker 3: They're often poorer countries. They don't have as big stockpiles

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Speaker 3: of oil inventory. And the one thing we've seen developed

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Speaker 3: countries do across the world is really start to dig

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Speaker 3: into those stockpiles and release barrels in order to I

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Speaker 3: guess cush and the higher prices and so for a

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Speaker 3: poorer country, I think that's one of the reasons in

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Speaker 3: Asia you're seeing the governments really focused on demand destruction

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Speaker 3: rather than propping up prices. So you've had I think

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Speaker 3: India was encouraging people not to go on flights. People

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Speaker 3: are being urged not to drive to work, things like that.

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Speaker 3: China is doing pretty much all the heavy lifting in

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Speaker 3: terms of demand destruction, or like the bulk of it.

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Speaker 3: So I saw a JP Morgan estimate I think saying

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Speaker 3: that demand for oil from China had fallen like nine percent.

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Speaker 3: I think that's one point five million barrels a day. Yeah,

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Speaker 3: it's a pretty big deal. And again it stands in

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Speaker 3: stark contrast to a lot of the developed nations like

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Speaker 3: the US that are really digging into their stockpiles.

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Speaker 2: You know, I don't know if you guys have noticed

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Speaker 2: in your time here the prices at gas stations. Do

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Speaker 2: you know how much gas in Hong Kong costs? Yeah,

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Speaker 2: about thirty three Hong Kong dollars leader, which is its

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Speaker 2: equivalent of about sixteen dollars per gallon.

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Speaker 1: Wow.

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Speaker 2: Right, that's up about fifteen percent since the Ran War began,

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Speaker 2: and diesel prices have actually jumped like near fifty percent.

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Speaker 2: And I wonder how does this stack up to what

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Speaker 2: we've seen in the US. And I guess more importantly,

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Speaker 2: how does that feed into inflationary pressures?

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Speaker 4: I mean, if we had sixty dollars gasoline in the US,

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Speaker 4: that we definitely that's.

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Speaker 1: For sure.

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Speaker 4: Clearly inflation is trending up in the US for a

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Speaker 4: number of reasons.

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Speaker 1: One of them is oil. And so you might say, well.

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Speaker 4: You stripped that out because that goes into headline red

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Speaker 4: and core inflation. But then when you think about like

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Speaker 4: everything has oil or energy in it, especially because of

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Speaker 4: transport costs, it just builds that upward pressure. Throw in

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Speaker 4: all the data center spending, and the story is just

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Speaker 4: like building heat and pressure on everything, and oil is just.

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Speaker 1: Part of it.

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Speaker 2: In some countries with limited resources, governments are left with

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Speaker 2: little choice but to turn the lights off. But wealthier

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Speaker 2: countries are playing a very different game. Instead of asking

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Speaker 2: citizens to cut back, the countries who can afford it

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Speaker 2: are spending heavily to absorb the sticker shock at the pump.

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Speaker 2: Here in Hong Kong, the government is actually putting aside

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Speaker 2: the equivalent of two hundred and thirty million US dollars

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Speaker 2: in a subsidy program to help manage soaring fuel prices.

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Speaker 2: It does seem like there's this imbalance in how the

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Speaker 2: burden of the conflict is being carried. Right, You've got

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Speaker 2: developed economies like Hong Kong and Germany able to afford

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Speaker 2: these subsidies, while you've got emerging countries who literally can't

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Speaker 2: keep the lights on. What do you guys make of

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Speaker 2: that disparity? And I guess the question is is this

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Speaker 2: something the US policymakers even think about.

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Speaker 3: Probably not, to be honest. One of the interesting things

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Speaker 3: here is to me is how long the US can

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Speaker 3: actually offset the pain of higher prices. They've obviously been

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Speaker 3: releasing a lot from the Strategic Petroleum Reserve. The question

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Speaker 3: is how long can you actually keep doing it? And

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Speaker 3: apparently the US is now getting pretty close to its

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Speaker 3: operational minimum. So I think I think the minimum is

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Speaker 3: like two hundred and fifty million barrels, and we're now at.

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Speaker 4: Three hundred and forty nine million. Yeah, it is the lowest.

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Speaker 4: We're back to the post COVID lowers.

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Speaker 3: Yeah, that's right. So the issue in the US is

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Speaker 3: like crunch time could come right, Like they're going to lose.

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Speaker 2: Up buffer pretty soon. Yeah, And I think Asia does

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Speaker 2: seem caught in this trap that really is not of

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Speaker 2: its own making right. You've got interest rates that are

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Speaker 2: rising globally, of course, driven by the war shocks and

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Speaker 2: the AI investment boom centered in the US and the West.

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Speaker 2: You've got the US dollar really strong right now. What

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Speaker 2: do you think is impact of the US dollar strengthening

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Speaker 2: on emerging Asian economies?

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Speaker 3: Not good. So there's the outlook for economic growth, and

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Speaker 3: there's the outlook for the fiscal side, let's say. And

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Speaker 3: so if you're spending money to subsidize oil prices, and

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Speaker 3: you're running through your stockpiles in some instances, then it

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Speaker 3: becomes more expensive the longer it goes on. One of

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Speaker 3: the theories I've seen for the falling gold price recently is

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Speaker 3: that governments are selling our central banks are selling reserve

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Speaker 3: assets in order to raise more foreign FX so that

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Speaker 3: they can buy more oil at the higher prices. So

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Speaker 3: it exacerbates foreign currency exposure for emerging markets and probably

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Speaker 3: weakens their fiscal position in the future, and then in

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Speaker 3: terms of economic growth. So obviously, if you can't get oil,

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Speaker 3: if you can't get feedstock for plastics, that's pretty much

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Speaker 3: in everything, and so you'll see less economic activity. But

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Speaker 3: on the other hand, if we see some countries respond

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Speaker 3: to higher oil prices by actually building out more clean

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Speaker 3: energy capacity, selling more ev for instance. Then like that

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Speaker 3: could be a little bit of an economic boost. And

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Speaker 3: I'm not saying that it's enough to fully offset the impact,

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Speaker 3: but like it's something at least.

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Speaker 4: So, like, let's get back to the context of the question.

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Speaker 4: It doesn't matter what the price of the dollar is.

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Speaker 4: People are going to spend a crazy amount of money

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Speaker 4: on memory chips from Korea.

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Speaker 1: Period.

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Speaker 4: The long could go up, the long could go down,

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Speaker 4: it doesn't matter. We're going to be shipping a lot

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Speaker 4: of dollars to Korea and Taiwan for key infrastructure for

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Speaker 4: the AI build out. And so I think, yes, absolutely,

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Speaker 4: like the strength of the dollar is real. But I

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Speaker 4: think we're in this very odd moment where because the

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Speaker 4: AI race feels existential, that the traditional macro signals that

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Speaker 4: we would look at like rates and FX are being

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Speaker 4: swamped by the spending that everyone has just chosen to

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Speaker 4: make for existential reasons on so many aspects of AI.

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Speaker 2: Yeah, and to your point, Asia is the backbone of

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Speaker 2: the global AI ecosystem. Factories here produce the chips that

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Speaker 2: power the AI revolution. But those factories rely heavily on

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Speaker 2: energy and raw materials. Right, So what happens if there's

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Speaker 2: ongoing uncertainty or disruption at the Strait of hormoose should

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Speaker 2: we do helium?

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Speaker 1: Yeah? I was gonna yeah, go for it.

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Speaker 4: Now you start, well, I was just gonna say, like,

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Speaker 4: both of our minds went to helium at the same time.

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Speaker 4: So it's like this is pretty important in advanced semiconductor manufacturing.

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Speaker 1: Helium. Please don't ask me exactly.

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Speaker 4: Why, but it has to do something with like it's

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Speaker 4: a ability to go down to incredibly cold temperatures, which

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Speaker 4: is helpful in all kinds of different ways. But there

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Speaker 4: is not a lot of elasticity in helium supply, and

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Speaker 4: so if there's going to be like one link where

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Speaker 4: the persistent closure of the Strait of hormoz might actually

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Speaker 4: intersect with that, it would be if they truly run

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Speaker 4: out of helium, and then you just really have a

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Speaker 4: much harder time making chips.

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Speaker 2: Now I want to shift to interest rates for a bit.

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Speaker 2: Japan's wholesale inflation accelerated in May at its fastest pace

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Speaker 2: in three years, and its producer price index also surged

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Speaker 2: to six point three percent. Was quite high that puts

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Speaker 2: a lot of pressure on the Bank of Japan to

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Speaker 2: hike interest rates, and across Asia you are seeing countries

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Speaker 2: raising their inflation projections and pushing interest rates higher. What

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Speaker 2: do you think would be the broader impact of prolonged

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Speaker 2: inflation across Asia? And what does it mean for US consumers?

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Speaker 3: So the inflationary impact is there, right, and it's not

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Speaker 3: even necessarily oil. It's also those petrochemicals which go into everything,

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Speaker 3: And then the other thing in terms of inflation. Governments

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Speaker 3: and companies around the world are learning that it's important

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Speaker 3: to build up stockpiles, and it's important to build out

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Speaker 3: your energy capacity, or your petrochemical capacity, or your chip's capacity,

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Speaker 3: things like that. If you have everyone all at once

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Speaker 3: trying to do this, that consumes resources, right, that is

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Speaker 3: de facto inflationary. And I think that's probably the lesson

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Speaker 3: we have collectively learned from the past few years, is

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Speaker 3: that you don't want to be left high and dry

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Speaker 3: if there's a big disruption, it is really important to

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Speaker 3: have extra stuff, and extra stuff, you know, means higher prices.

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Speaker 2: After the break. Why we may not yet have seen

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Speaker 2: the full extent of damage caused by the closure of

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Speaker 2: the Strait up Armouse, and how the fallout from the

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Speaker 2: war is reshaping Asia's relationship with the rest of the world.

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Speaker 2: The supply shock caused by the closure of the Strait

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Speaker 2: of Hormuse is arguably the biggest ever, but by draining reserves,

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Speaker 2: finding workarounds, and managing demand, governments have tried to shield

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Speaker 2: their citizens from the pain or delaying it at least

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Speaker 2: even if the strait does open this weekend. Bloomberg's Joe

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Speaker 2: Wisenthal and Tracy Alloway say that pain might still be coming.

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Speaker 2: Richer countries will be able to spend to ease it,

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Speaker 2: but poorer countries in Asia don't have those resources, and

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Speaker 2: that could spell trouble for everyone. You guys spoke with

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Speaker 2: a former farmer, Lorkin Kelly on one of your recent episodes.

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Speaker 5: The problem's going to arise in six months and twelve

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Speaker 5: months time when their decisions be made today about do

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Speaker 5: I plant that fiel Luis or do I reed more.

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Speaker 5: Cattle pection and pharmac are gonna say no, we're not

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Speaker 5: going to do that.

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Speaker 2: You know, across Southeast Asia right now, farmers are now

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Speaker 2: skipping this planting season because they can't afford the diesel

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Speaker 2: for the tractors. They can't afford the diesel for the

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Speaker 2: water pumps, right that they need to cultivate the crops,

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Speaker 2: and some are actually choosing to leave crops rotting in

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Speaker 2: the ground because they can't afford to harvest. I mean,

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Speaker 2: that's huge, right.

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Speaker 4: This is so, this is what I was saying earlier

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Speaker 4: that perhaps one of the shoes that may be yet

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Speaker 4: to drop is a food crisis in Asia.

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Speaker 1: And it's perhaps the hierarchy of needs.

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Speaker 4: Right, If you're struggling to buy food, you're not going

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Speaker 4: to be buying electronics right from China whatever it else.

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Speaker 4: And so perhaps one part of the logic for China

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Speaker 4: to reduce its imports is to ease a little bit

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Speaker 4: of that squeeze.

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Speaker 1: But what I've heard, which is.

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Speaker 4: That there is this brewing but not yet impacting food

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Speaker 4: issue that will arise in Southeast Asia, specifically.

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Speaker 3: When it comes to the impact of fertilizer. We're talking

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Speaker 3: about longer timeframes because there are planting seasons, as you

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Speaker 3: just mentioned. One historical anecdote that I learned from Atom

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Speaker 3: two's is that apparently in ancient Roman times, emperors would

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Speaker 3: try to time wars so that they weren't during the

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Speaker 3: planting season so they wouldn't disrupt food supplies, and also

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Speaker 3: so that farmers could actually go off and be soldiers.

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Speaker 3: But clearly we seem to have forgotten that lesson. I

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Speaker 3: want to stay on food for a bit.

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Speaker 2: You know, in Thailand, I was there in bank Cotious

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Speaker 2: a couple of weeks ago and talked to our colleagues there.

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Speaker 2: I mean, they've done some really great reporting on how

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Speaker 2: fishermen in Thailand are keeping their boats anchored because fuel

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Speaker 2: eats up more than half of the cost of every trip.

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Speaker 2: So you know, they basically can't raise the price of

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Speaker 2: their catch, right, so they they're deciding not to go out.

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Speaker 2: And I wonder to what extent should policymakers and leaders

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Speaker 2: worry about this, you know, turning into a political problem, right,

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Speaker 2: this ag issue.

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Speaker 4: Yeah, I mean, look, I don't know if I ever

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Speaker 4: fully bought the theory, but you know, there was a

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Speaker 4: There are many people who argued, for example, that the

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Speaker 4: catalyst for the Arab spring was wheat prices that year.

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Speaker 4: And you know, our leadership is other things on their mind.

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Speaker 4: If we're talking about this is very classic type of

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Speaker 4: thing that creates real political disruption. And I don't think

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Speaker 4: we should have the hubris to assume that these cycles,

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Speaker 4: which will probably have data points going back thousands of years,

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Speaker 4: have suddenly stopped.

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Speaker 2: And I guess with sanctions, I do wonder to what

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Speaker 2: extent that the oil crunch would lead to the weakening

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Speaker 2: of essentially one of the US's biggest non military weapons,

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Speaker 2: right sanctions.

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Speaker 4: There was an interesting article in the Wallhet Journal that

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Speaker 4: the North Korean economy is doing surprisingly well. They're actually

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Speaker 4: building a lot of housing, and they're sort of quite

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Speaker 4: a little evidence of like improving standard of living and

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Speaker 4: so forth. And of course here is, you know, one

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Speaker 4: of the most sanctioned countries on Earth for a very

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Speaker 4: long time. I just think, like the degree to which

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Speaker 4: sanctions are a powerful tool, or that they could really

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Speaker 4: be used to like crush any enemy, all of it's

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Speaker 4: been called into question right now.

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Speaker 2: Now, let's say the war ends next week. How do

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Speaker 2: you think the world has fundamentally been changed because of

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Speaker 2: this war and how it's played out.

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Speaker 3: So I think it goes back to, I guess, the

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Speaker 3: idea of the choke point economy. So everyone has discovered

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Speaker 3: from the past six years that these big one off

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Speaker 3: supposedly one off disruptions can happen with frequency, right, so

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Speaker 3: each disruption is slightly different in what it actually is,

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Speaker 3: but they're happening more often. I mean, I'm sure both

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Speaker 3: of us, having been in Hong Kong during the pandemic,

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Speaker 3: I will always keep an extra supply of toilet paper

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Speaker 3: from now until forever. Basically we all learn that, and

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Speaker 3: so I think that impulse is going to stick around

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Speaker 3: for a long time.

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Speaker 1: The world is very globalized.

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Speaker 4: I feel like for me coming here to Hong Kong,

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Speaker 4: it's been very helpful reminder like how integrated the world

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Speaker 4: still is. But these are the wheels are all spinning

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Speaker 4: in the opposite direction of where they were in you know,

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Speaker 4: the second half of the twentieth century, trade barriers are

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Speaker 4: going up and countries don't trust each other, and that

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Speaker 4: is going to have consequences for both productivity and prices.

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Speaker 2: This is The Big Take Asia from Bloomberg News. I'm wanha.

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Speaker 2: To get more from The Big Take and unlimited access

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Speaker 2: to all of Bloomberg dot Com, subscribe today at Bloomberg

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Speaker 2: dot com slash Podcast Offer. If you liked the episode,

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Speaker 2: make sure to subscribe and review The Big Take Asia

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Speaker 2: wherever you listen to podcasts. It really helps people find

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Speaker 2: the show. Thanks for listening, See you next time.

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Speaker 3: Bosting Claim met him