1 00:00:02,360 --> 00:00:06,720 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:11,640 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,840 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,919 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:36,080 Speaker 2: Terminal and the Bloomberg Business app. 10 00:00:36,280 --> 00:00:39,040 Speaker 3: And the Savannas. This morning, the FED Chair stay and put. 11 00:00:40,960 --> 00:00:43,599 Speaker 4: If my successor is not confirmed by the end of 12 00:00:43,680 --> 00:00:46,199 Speaker 4: my term as chair, I would serve as chair pro 13 00:00:46,320 --> 00:00:49,120 Speaker 4: tem until he is confirmed. I have no intention of 14 00:00:49,200 --> 00:00:52,360 Speaker 4: leaving the board until the investigation is well and truly over, 15 00:00:52,720 --> 00:00:55,640 Speaker 4: with transparency and finality. On the question of whether I 16 00:00:55,680 --> 00:00:58,080 Speaker 4: will then continue to serve as a governor after my 17 00:00:58,240 --> 00:01:01,400 Speaker 4: term ends and after the investigation or I have not 18 00:01:01,560 --> 00:01:02,680 Speaker 4: made that decision yet. 19 00:01:02,880 --> 00:01:03,720 Speaker 3: So here's the latest. 20 00:01:03,760 --> 00:01:06,120 Speaker 2: This morning, the FED Chair Jay Powell, vowing to stay 21 00:01:06,120 --> 00:01:09,440 Speaker 2: on at the Central Bank until the DOJ investigation into 22 00:01:09,480 --> 00:01:11,959 Speaker 2: him comes to an end. Joining us now to Viscasis 23 00:01:12,000 --> 00:01:15,039 Speaker 2: Kristna of Evercorn now Christa welcome. First of all, we've 24 00:01:15,080 --> 00:01:16,759 Speaker 2: asked this question a number of times in the last 25 00:01:16,760 --> 00:01:19,200 Speaker 2: twenty four hours. I'd love your perspective on it. Does 26 00:01:19,240 --> 00:01:22,760 Speaker 2: that provide consistency or invite controversy? 27 00:01:23,560 --> 00:01:28,000 Speaker 5: I think Powell has made explicit something that I think 28 00:01:28,280 --> 00:01:31,119 Speaker 5: was very clear to anyone who knew him. There is 29 00:01:31,319 --> 00:01:35,760 Speaker 5: simply no way that he would even consider leaving the 30 00:01:35,840 --> 00:01:40,480 Speaker 5: FED under the cloud of this investigation, not really because 31 00:01:40,520 --> 00:01:43,120 Speaker 5: of what it means for him, but because of the 32 00:01:43,160 --> 00:01:47,280 Speaker 5: precedent that it would create that a future FED official, 33 00:01:47,440 --> 00:01:51,120 Speaker 5: even FED chair, could be, on the face of it, 34 00:01:51,480 --> 00:01:54,120 Speaker 5: driven out or at least helped to the door by 35 00:01:54,160 --> 00:01:56,040 Speaker 5: a DOJ investigation. 36 00:01:57,360 --> 00:02:01,080 Speaker 2: This line here, though, I think, is this interesting. The 37 00:02:01,120 --> 00:02:03,640 Speaker 2: first line from the chairman was that if my successor 38 00:02:03,680 --> 00:02:05,840 Speaker 2: is not confirmed by the end of my term as chair, 39 00:02:05,880 --> 00:02:09,760 Speaker 2: I'll stay on. That makes sense, that's continuity. Market wants 40 00:02:09,760 --> 00:02:11,720 Speaker 2: to see that. The second line was I have no 41 00:02:11,760 --> 00:02:14,120 Speaker 2: intention of leaving the board until the investigation is well 42 00:02:14,160 --> 00:02:18,239 Speaker 2: and truly over with transparency and finality. So ultimately a 43 00:02:18,280 --> 00:02:21,919 Speaker 2: lot of people will view that as defending central bank independence. Granted, 44 00:02:22,240 --> 00:02:24,239 Speaker 2: the third point is interesting though, and this is the 45 00:02:24,280 --> 00:02:25,760 Speaker 2: bit where I'm intrigued. 46 00:02:25,840 --> 00:02:27,720 Speaker 3: Krishner this line. At the moment on the. 47 00:02:27,720 --> 00:02:29,680 Speaker 2: Question of whether I will continue to serve as a 48 00:02:29,720 --> 00:02:32,480 Speaker 2: governor after my term ends and after the investigation is over, 49 00:02:32,560 --> 00:02:35,600 Speaker 2: I have not made the decision on that yet. What's 50 00:02:35,639 --> 00:02:37,399 Speaker 2: the value of putting that out there? 51 00:02:38,840 --> 00:02:41,640 Speaker 5: Well, I think you're absolutely right that that was a 52 00:02:41,760 --> 00:02:46,760 Speaker 5: very strong statement by Powell. And as you'll recall, it 53 00:02:46,840 --> 00:02:50,120 Speaker 5: wasn't something he was forced to say because of questioning. 54 00:02:50,440 --> 00:02:53,600 Speaker 5: It's something he volunteered. He had it written down, he 55 00:02:53,680 --> 00:02:57,520 Speaker 5: knew he wanted to say that. Look, there's a sort 56 00:02:57,560 --> 00:02:59,680 Speaker 5: of narrow sense in which we can interpret that in 57 00:02:59,680 --> 00:03:04,080 Speaker 5: a why sense. The narrow sense is that Powell doesn't 58 00:03:04,120 --> 00:03:07,320 Speaker 5: want to look like he's offering a deal. If you 59 00:03:07,440 --> 00:03:11,440 Speaker 5: drop the investigation, I walk right, that's almost as bad 60 00:03:11,720 --> 00:03:15,640 Speaker 5: as looking like you're being hounded out by the investigation itself. 61 00:03:16,120 --> 00:03:18,399 Speaker 5: So there's a narrow way in which we might interpret 62 00:03:18,440 --> 00:03:21,400 Speaker 5: that language. But I'm inclined to read it also in 63 00:03:21,440 --> 00:03:24,520 Speaker 5: a broader way. The Powell is telling us that he 64 00:03:24,639 --> 00:03:28,360 Speaker 5: is seriously considering staying on as a governor, as a 65 00:03:28,400 --> 00:03:31,520 Speaker 5: regular governor, at least for some time after the end 66 00:03:31,520 --> 00:03:35,840 Speaker 5: of his term as chair, even if that investigation is dropped. 67 00:03:36,000 --> 00:03:38,800 Speaker 5: That is not something I would have really brought into 68 00:03:39,400 --> 00:03:43,200 Speaker 5: a few months ago. But I think the DOJ investigation 69 00:03:43,280 --> 00:03:47,360 Speaker 5: has backfired terribly on the administration, and I think that 70 00:03:47,480 --> 00:03:51,960 Speaker 5: it feels like Powell is inclined to stay possibly either 71 00:03:51,960 --> 00:03:52,960 Speaker 5: way at this juncture. 72 00:03:53,360 --> 00:03:55,640 Speaker 1: I'm struck by the historical parallel, and we were talking 73 00:03:55,640 --> 00:03:58,120 Speaker 1: about this yesterday. The last person who is FED chair 74 00:03:58,160 --> 00:04:01,000 Speaker 1: who then stayed on as governor was Baroner Eccles. His 75 00:04:01,120 --> 00:04:03,160 Speaker 1: term ended as FED chair in nineteen forty eight, and 76 00:04:03,200 --> 00:04:05,080 Speaker 1: he stayed on for a number of years after that. 77 00:04:05,360 --> 00:04:07,840 Speaker 1: This is following the Breton Woods Accord, It followed the war, 78 00:04:07,960 --> 00:04:11,560 Speaker 1: It followed a highly tumultuous period in central banking history. 79 00:04:11,960 --> 00:04:14,720 Speaker 1: Are we marking another period which is sort of setting 80 00:04:14,720 --> 00:04:17,320 Speaker 1: off a new era for central banks where they have 81 00:04:17,400 --> 00:04:20,440 Speaker 1: less power or frankly, they don't necessarily drive the bus, 82 00:04:20,440 --> 00:04:23,520 Speaker 1: where Generation Q, as Michael Hartner just said, is over. 83 00:04:24,520 --> 00:04:28,520 Speaker 5: Well, certainly, you know the note we published on the 84 00:04:28,560 --> 00:04:32,760 Speaker 5: FED meeting yesterday said specifically what you've just mentioned that, Look, 85 00:04:32,839 --> 00:04:36,560 Speaker 5: this was actually in the circumstance is a pretty dubvish 86 00:04:36,880 --> 00:04:41,520 Speaker 5: FED meeting, and it came with bullish upgrades to growth forecast. 87 00:04:41,720 --> 00:04:45,200 Speaker 5: But we wrote the FED is not driving the bus. Now, 88 00:04:45,520 --> 00:04:49,040 Speaker 5: that's in the specific context of a war, and a 89 00:04:49,040 --> 00:04:52,720 Speaker 5: war that generates a very large shock to energy prices. 90 00:04:53,360 --> 00:04:56,400 Speaker 5: I'd be wary of making a generalized statement with central 91 00:04:56,400 --> 00:04:59,200 Speaker 5: banks don't matter anymore. I think that would be and 92 00:04:59,200 --> 00:05:01,080 Speaker 5: I'm not saying you're say that, but that would be 93 00:05:01,800 --> 00:05:04,880 Speaker 5: far too sweeping. But certainly in the here and now, 94 00:05:05,240 --> 00:05:08,200 Speaker 5: this is a context where the central banks are to 95 00:05:08,279 --> 00:05:11,240 Speaker 5: a very large degree in reactive mode. They are not 96 00:05:11,400 --> 00:05:15,200 Speaker 5: setting the agenda, They are not shaping where we are going. 97 00:05:15,760 --> 00:05:18,680 Speaker 5: Does it feel to Powell potentially like this is a 98 00:05:18,720 --> 00:05:21,800 Speaker 5: complex moment, both in terms of the world and in 99 00:05:21,880 --> 00:05:26,200 Speaker 5: terms of the Fed's institutional situation, where it may be 100 00:05:26,240 --> 00:05:28,640 Speaker 5: advisable for him to stay for a while. I guess 101 00:05:28,720 --> 00:05:32,039 Speaker 5: that's certainly something that you know he will be considering here. 102 00:05:32,279 --> 00:05:34,000 Speaker 5: One question I think is whether it would be a 103 00:05:34,040 --> 00:05:38,200 Speaker 5: disaster for Chair Wash if Powell stayed on. Not clear 104 00:05:38,240 --> 00:05:41,480 Speaker 5: to me that's the case. I'm not sure they're particularly close, 105 00:05:41,520 --> 00:05:46,120 Speaker 5: to say the least, But Powell is underlying pretty dubvish 106 00:05:46,320 --> 00:05:49,320 Speaker 5: and there are versions of the world where Powell staying 107 00:05:49,320 --> 00:05:53,960 Speaker 5: on as a regular governor could ultimately help bridge to 108 00:05:54,080 --> 00:05:57,360 Speaker 5: getting one or two cuts done later this year. 109 00:05:57,520 --> 00:06:00,800 Speaker 1: Underwash, just real quick, here as the bar right now 110 00:06:00,839 --> 00:06:02,080 Speaker 1: for the FED to hike rate at. 111 00:06:01,960 --> 00:06:07,320 Speaker 5: Some point, Well, the term some point obviously is elastic, right, 112 00:06:07,640 --> 00:06:11,040 Speaker 5: But I think the bar to the FED hiking rates, 113 00:06:11,360 --> 00:06:14,320 Speaker 5: let's say this year, I think is incredibly high. It's 114 00:06:14,360 --> 00:06:19,120 Speaker 5: not literally impossibly high, but I think it's very, very high. 115 00:06:19,520 --> 00:06:22,880 Speaker 5: You know, look, we have an economy that faces growth 116 00:06:22,880 --> 00:06:26,599 Speaker 5: as well as inflation risks, but one where you know, 117 00:06:26,600 --> 00:06:30,400 Speaker 5: in the baseline case, both growth and core inflation in 118 00:06:30,440 --> 00:06:35,960 Speaker 5: the US ought to be relatively relatively resilient, as in 119 00:06:36,160 --> 00:06:40,320 Speaker 5: limited effect compared with the other economies in the rest 120 00:06:40,320 --> 00:06:43,159 Speaker 5: of the world. So it's not obvious that this juncture 121 00:06:43,200 --> 00:06:46,960 Speaker 5: a major shift in the direction of policy is appropriate. 122 00:06:47,000 --> 00:06:50,919 Speaker 5: The market obviously has been pushing back and shaving FED 123 00:06:51,000 --> 00:06:54,120 Speaker 5: rate cuts. That seems like the vector that is in 124 00:06:54,200 --> 00:06:57,320 Speaker 5: play at the moment. I tell you, we still think 125 00:06:58,080 --> 00:07:01,120 Speaker 5: that it's possible to get to a couple of cuts 126 00:07:01,160 --> 00:07:04,120 Speaker 5: this year, under Chair War. So our take is more 127 00:07:04,160 --> 00:07:08,000 Speaker 5: dubvish than the market right now would think that all 128 00:07:08,040 --> 00:07:11,680 Speaker 5: fared signals yesterday, they're still inclined to cuts the one 129 00:07:12,040 --> 00:07:15,200 Speaker 5: rather than two. And the question is could the data 130 00:07:15,520 --> 00:07:19,400 Speaker 5: plus the new chair potentially certainly lock in that one 131 00:07:19,480 --> 00:07:20,680 Speaker 5: and maybe get them to two. 132 00:07:21,400 --> 00:07:22,040 Speaker 3: Stay with us. 133 00:07:22,360 --> 00:07:34,440 Speaker 2: More Bloomberg surveillance coming up after this. So here's the 134 00:07:34,520 --> 00:07:37,239 Speaker 2: lisis this morning energy price is soaring as President Trump 135 00:07:37,240 --> 00:07:40,120 Speaker 2: looks the curb attacks on infrastructure in the Middle East, 136 00:07:40,160 --> 00:07:42,920 Speaker 2: claiming the US knew nothing. These ready strike on the 137 00:07:42,960 --> 00:07:45,880 Speaker 2: critical South Pass gas field in Iran. This is what 138 00:07:46,000 --> 00:07:48,400 Speaker 2: Edward Fishman of the Council on Foreign Relations has to 139 00:07:48,400 --> 00:07:50,880 Speaker 2: say rise the following Iran his waging war on the 140 00:07:50,920 --> 00:07:54,360 Speaker 2: global economy. Its strategy is clear, keep the stratiformers effectively 141 00:07:54,400 --> 00:07:57,440 Speaker 2: closed until prices rise enough to force President Trump to 142 00:07:57,520 --> 00:07:59,800 Speaker 2: back down. The author of choke Points American Power in 143 00:07:59,840 --> 00:08:02,360 Speaker 2: the Age of Economic Wolfat joins us now for more 144 00:08:02,400 --> 00:08:03,080 Speaker 2: Atie good Monk. 145 00:08:03,200 --> 00:08:03,800 Speaker 6: Good to see John. 146 00:08:03,840 --> 00:08:05,880 Speaker 2: That's sounds some books. Let's talk about the significance of 147 00:08:05,880 --> 00:08:08,520 Speaker 2: this chuck point. He's got control of this Iran. 148 00:08:08,720 --> 00:08:10,800 Speaker 7: I think that's the one thing we've learned is that 149 00:08:10,840 --> 00:08:14,080 Speaker 7: Iran has established very clear control over the straight off 150 00:08:14,080 --> 00:08:16,840 Speaker 7: hor moves and there's very little that the United States 151 00:08:16,880 --> 00:08:20,280 Speaker 7: can do without committing ground forces to stop that. Trump 152 00:08:20,440 --> 00:08:23,880 Speaker 7: entered the war assuming that Iran would not close the strait. 153 00:08:23,920 --> 00:08:25,200 Speaker 6: Because the theory. 154 00:08:25,000 --> 00:08:26,800 Speaker 7: Was that they would have to put thousands of sea 155 00:08:26,840 --> 00:08:28,680 Speaker 7: mines in the strait to close it. And if they 156 00:08:28,680 --> 00:08:31,160 Speaker 7: did that, what would happen? Iran would not be able 157 00:08:31,160 --> 00:08:34,199 Speaker 7: to sell its own oil, so it would be economically suicidal. Well, 158 00:08:34,240 --> 00:08:36,640 Speaker 7: Iran has kind of created a new kind of economic 159 00:08:36,679 --> 00:08:40,120 Speaker 7: warfare with just using cheap drones that cost you ten 160 00:08:40,120 --> 00:08:43,480 Speaker 7: thousand dollars a pop and only hitting about a dozen ships. 161 00:08:43,520 --> 00:08:45,400 Speaker 6: Right, they haven't hit that many ships. 162 00:08:45,600 --> 00:08:49,040 Speaker 7: They've changed the risk calculus of the entire entire shipping industry, 163 00:08:49,240 --> 00:08:51,600 Speaker 7: and so they've really created this very low cost way 164 00:08:51,600 --> 00:08:53,600 Speaker 7: of disrupting shipping and we don't have a great answer 165 00:08:53,600 --> 00:08:53,840 Speaker 7: for it. 166 00:08:53,840 --> 00:08:55,280 Speaker 8: I'm glad you brought up the costs because these are 167 00:08:55,280 --> 00:08:57,560 Speaker 8: howdie drones are ten to twenty thousand dollars to produce. 168 00:08:57,720 --> 00:09:00,720 Speaker 8: How many is Iran right now have in stock. Because 169 00:09:00,760 --> 00:09:03,960 Speaker 8: how cheap they are to produce, means they could potentially 170 00:09:04,040 --> 00:09:06,640 Speaker 8: prolong this war for as long as possible. 171 00:09:06,760 --> 00:09:09,040 Speaker 7: I think that they could prolong as war as long 172 00:09:09,080 --> 00:09:11,400 Speaker 7: as they want. If it's if we're talking about producing 173 00:09:11,520 --> 00:09:14,520 Speaker 7: and using low cost drones, they've got tens of thousands 174 00:09:14,520 --> 00:09:16,520 Speaker 7: of them. But I think more to the point, the 175 00:09:16,600 --> 00:09:19,120 Speaker 7: room we're sitting in right now is bigger than you 176 00:09:19,120 --> 00:09:21,120 Speaker 7: would need to actually produce to headrones. 177 00:09:21,360 --> 00:09:22,640 Speaker 6: And Iran is a huge country. 178 00:09:22,640 --> 00:09:24,839 Speaker 7: I think it's the fifteenth or sixteenth largest country in 179 00:09:24,880 --> 00:09:27,240 Speaker 7: the world. So even in a scenario in which we've 180 00:09:27,240 --> 00:09:30,199 Speaker 7: got air strikes for the next year and destroy every 181 00:09:30,240 --> 00:09:32,800 Speaker 7: single thing in the country that looks like a military target, 182 00:09:32,920 --> 00:09:34,600 Speaker 7: we're not going to be able to stop them from 183 00:09:34,600 --> 00:09:35,480 Speaker 7: producing drones. 184 00:09:35,880 --> 00:09:38,960 Speaker 8: Members of Iran's parliament right now are debating potentially making 185 00:09:39,000 --> 00:09:41,960 Speaker 8: it basically like we have on our transit system, you 186 00:09:42,000 --> 00:09:44,240 Speaker 8: have to pay a fee in order to get through 187 00:09:44,240 --> 00:09:46,960 Speaker 8: the Strait of Hermose. So basically, is the United States 188 00:09:46,960 --> 00:09:51,040 Speaker 8: at some point seating all control of this international waterway 189 00:09:51,160 --> 00:09:51,800 Speaker 8: to the regime? 190 00:09:52,080 --> 00:09:55,960 Speaker 7: Yeah, I mean, look, one of the core factors underlying 191 00:09:55,960 --> 00:09:58,439 Speaker 7: American hegemony for decades has been that the United States 192 00:09:58,440 --> 00:10:01,439 Speaker 7: provides open sea lanes. What Iran has shown now is 193 00:10:01,480 --> 00:10:03,960 Speaker 7: that they actually control the Strait of Horn Moves. And 194 00:10:04,040 --> 00:10:06,600 Speaker 7: even if this war were to end without regime change. 195 00:10:06,640 --> 00:10:09,960 Speaker 7: So if this war ends and Iran's decimated militarily, but 196 00:10:10,000 --> 00:10:13,600 Speaker 7: you still have the IRGC in control, Iran still controls 197 00:10:13,640 --> 00:10:16,720 Speaker 7: the Strait of Horror Moves. And to your point, Anne Marie, 198 00:10:16,720 --> 00:10:20,679 Speaker 7: I mean, it's quite remarkable Iran negotiating bilaterally with not 199 00:10:20,720 --> 00:10:22,960 Speaker 7: only the Indians and the Turks and the Chinese, but 200 00:10:23,040 --> 00:10:25,560 Speaker 7: the French and the Italians. You know, US allies about 201 00:10:25,600 --> 00:10:28,120 Speaker 7: creating kind of like a TSA pre check line to 202 00:10:28,160 --> 00:10:30,240 Speaker 7: get through the Strait of Horror Moves. I mean, talk 203 00:10:30,280 --> 00:10:33,680 Speaker 7: about leverage. It's quite remarkable and not honestly anything I 204 00:10:33,679 --> 00:10:35,439 Speaker 7: would have expected going into this conflict. 205 00:10:35,480 --> 00:10:38,280 Speaker 1: You said, it's hard to see out unless US, the 206 00:10:38,400 --> 00:10:41,040 Speaker 1: US makes real concessions, or the US ends boots in 207 00:10:41,080 --> 00:10:43,600 Speaker 1: the ground. What would boots in the ground look like? 208 00:10:43,840 --> 00:10:46,240 Speaker 7: Sure, I think this is a really important point, because 209 00:10:46,400 --> 00:10:48,680 Speaker 7: I do really think there's a binary right here. There's 210 00:10:48,720 --> 00:10:51,360 Speaker 7: sort of two ways to reopen the strait. One is 211 00:10:51,520 --> 00:10:54,040 Speaker 7: you cut a deal with the Iranians in which you're 212 00:10:54,080 --> 00:10:57,720 Speaker 7: making painful concessions, probably leaving almost certainly leaving the regime 213 00:10:57,760 --> 00:10:59,720 Speaker 7: in power. But beyond that, maybe drawing down some US 214 00:10:59,760 --> 00:11:02,800 Speaker 7: four in the region, maybe providing some security guarantees to 215 00:11:02,840 --> 00:11:04,880 Speaker 7: Iran in the form of Russian or Chinese boots on 216 00:11:04,920 --> 00:11:07,080 Speaker 7: the ground, a kind of trip wire in Iran the 217 00:11:07,080 --> 00:11:11,640 Speaker 7: way that the United States has in NATO countries. I 218 00:11:11,640 --> 00:11:13,360 Speaker 7: think if you were to put boots on the ground, 219 00:11:13,400 --> 00:11:14,679 Speaker 7: what would you need to do If the goal is 220 00:11:14,720 --> 00:11:17,360 Speaker 7: reopening the strait? You need two things. One, you need 221 00:11:17,480 --> 00:11:19,720 Speaker 7: naval patrols in the straight over moves. The US Navy 222 00:11:19,720 --> 00:11:22,040 Speaker 7: has not wanted to do this because we could lose 223 00:11:22,080 --> 00:11:26,080 Speaker 7: these exquisite, exquisite warships just by short range missiles or drones. 224 00:11:26,240 --> 00:11:29,880 Speaker 7: But two, we would also need to occupy quite a 225 00:11:29,920 --> 00:11:32,040 Speaker 7: lot of the coastal part of Iran in the Persian 226 00:11:32,040 --> 00:11:34,800 Speaker 7: Gulf to get enough of a buffer zone so that 227 00:11:34,840 --> 00:11:36,560 Speaker 7: it's out of range of the drones. To the point 228 00:11:36,559 --> 00:11:38,480 Speaker 7: we made before, they're going to have drones, so we 229 00:11:38,520 --> 00:11:41,239 Speaker 7: need to actually build a very big buffer zone to prevent. 230 00:11:41,000 --> 00:11:42,280 Speaker 6: Them from using them against ships. 231 00:11:42,320 --> 00:11:44,320 Speaker 1: How much of a tipping point is this in terms 232 00:11:44,360 --> 00:11:47,400 Speaker 1: of the Middle East power as a financial center, as 233 00:11:47,440 --> 00:11:49,560 Speaker 1: a place that's been attracting a lot of money, as 234 00:11:49,600 --> 00:11:52,280 Speaker 1: sort of a new growth area that everyone wants to 235 00:11:52,280 --> 00:11:53,560 Speaker 1: get into, at least until now. 236 00:11:54,080 --> 00:11:55,280 Speaker 7: You know, I think this is one of the more 237 00:11:55,320 --> 00:11:57,680 Speaker 7: tragic elements of this war, because I think in the 238 00:11:57,720 --> 00:12:01,360 Speaker 7: last few years golf countries have made really substantial strides 239 00:12:01,400 --> 00:12:02,720 Speaker 7: to diversify away. 240 00:12:02,480 --> 00:12:04,040 Speaker 6: From just being commodities producers. 241 00:12:04,320 --> 00:12:08,240 Speaker 7: We've seen the UAE Saudi really invest in the future economy, 242 00:12:08,280 --> 00:12:12,280 Speaker 7: becoming sort of hubs for data infrastructure AI et cetera. Well, 243 00:12:12,280 --> 00:12:14,520 Speaker 7: guess what we've now seen for the first time in 244 00:12:14,559 --> 00:12:18,720 Speaker 7: wartime a handful of data AWS data centers struck by Iran. 245 00:12:19,280 --> 00:12:21,559 Speaker 7: And the real question I think that will come out 246 00:12:21,600 --> 00:12:25,199 Speaker 7: of this is, even if there is some stability, will 247 00:12:25,480 --> 00:12:29,439 Speaker 7: investors feel confident putting these really important AI data centers 248 00:12:29,480 --> 00:12:30,080 Speaker 7: in the Middle East? 249 00:12:30,280 --> 00:12:31,760 Speaker 6: I'm not so sure. And then for the. 250 00:12:31,760 --> 00:12:33,599 Speaker 7: Perspective of the golf countries, they're going to have a 251 00:12:33,640 --> 00:12:36,360 Speaker 7: big reconstruction bill. I mean, all these investors who come 252 00:12:36,400 --> 00:12:38,600 Speaker 7: on your show, who are they going to for LPs. 253 00:12:38,679 --> 00:12:41,680 Speaker 7: It's the sovereign wealth funds of these golf countries. They're 254 00:12:41,679 --> 00:12:43,240 Speaker 7: not going to have as much money, I think, to 255 00:12:43,880 --> 00:12:46,960 Speaker 7: splurge on Western private equity funds if they're needing to 256 00:12:47,000 --> 00:12:51,959 Speaker 7: invest in rebuilding. The Rosla fund natural gas facility in cutter. 257 00:12:51,840 --> 00:12:54,839 Speaker 2: Had a funal question forty seconds round, a speculation will 258 00:12:54,840 --> 00:12:56,960 Speaker 2: be forgating in the future. Because this is a super 259 00:12:56,960 --> 00:12:59,160 Speaker 2: fluid situation. How do you think this sends? 260 00:13:00,400 --> 00:13:01,600 Speaker 6: Well, please do forgive me. 261 00:13:01,960 --> 00:13:06,319 Speaker 7: I do think that it's likelier that Trump escalates than 262 00:13:06,360 --> 00:13:07,120 Speaker 7: that he caves. 263 00:13:07,600 --> 00:13:08,920 Speaker 6: So I've always. 264 00:13:08,640 --> 00:13:12,240 Speaker 7: Been skeptical that Taco applies in this scenario. Taco in 265 00:13:12,240 --> 00:13:15,480 Speaker 7: a trade war, Trump can utilaterally suspend tariffs, and no 266 00:13:15,480 --> 00:13:16,520 Speaker 7: one's all the wiser. 267 00:13:16,520 --> 00:13:19,040 Speaker 6: Everyone says, Okay, well, you know we won in this. 268 00:13:19,480 --> 00:13:22,520 Speaker 7: If Trump backs down militarily, he has to walk away 269 00:13:22,559 --> 00:13:25,360 Speaker 7: with his tail between his legs, and we never know 270 00:13:25,440 --> 00:13:28,240 Speaker 7: if Iron actually will even allow ships to go through 271 00:13:28,240 --> 00:13:29,000 Speaker 7: the straight erformance. 272 00:13:29,520 --> 00:13:30,199 Speaker 3: Stay with us. 273 00:13:30,520 --> 00:13:43,079 Speaker 2: More Bloomberg surveillance coming up after this take squeeze in 274 00:13:43,160 --> 00:13:46,319 Speaker 2: gas prices, particularly in Europe. Brent the big move overnight, 275 00:13:46,360 --> 00:13:49,760 Speaker 2: of course, rising close to one twenty as around remps 276 00:13:49,800 --> 00:13:52,679 Speaker 2: up attacks on energy infrastructure in the Middle East. Samantha 277 00:13:52,720 --> 00:13:55,120 Speaker 2: down of Goldman Sax rights in the following. The developments 278 00:13:55,200 --> 00:13:58,439 Speaker 2: underscore upside risk to our price forecasts from longer Holmers 279 00:13:58,440 --> 00:14:04,040 Speaker 2: disruptions and persist damage to energy production even after Homer's reopens. 280 00:14:04,200 --> 00:14:05,960 Speaker 2: Sam joined US now for more, Sam, good morning, get 281 00:14:05,960 --> 00:14:08,480 Speaker 2: to see you. Let's start where we kicked off this 282 00:14:08,520 --> 00:14:12,040 Speaker 2: program this morning, Brent at one point fifteen, WTI at 283 00:14:12,120 --> 00:14:15,000 Speaker 2: nineta and a spread starting to open up even more. 284 00:14:15,000 --> 00:14:15,880 Speaker 2: What do you think it speaks to? 285 00:14:16,600 --> 00:14:19,160 Speaker 9: So I think the market is pricing in this probability 286 00:14:19,160 --> 00:14:22,800 Speaker 9: that maybe the US government will restrict exports, and if 287 00:14:22,840 --> 00:14:25,600 Speaker 9: you're not exporting TI to the rest of the world, 288 00:14:26,000 --> 00:14:29,400 Speaker 9: then you have a bigger oversupply within the US. So 289 00:14:29,720 --> 00:14:32,080 Speaker 9: the WTI prices would stay on the low end and 290 00:14:32,120 --> 00:14:35,200 Speaker 9: sort of disconnect from international prices. 291 00:14:35,280 --> 00:14:37,360 Speaker 2: Can we explore that a little bit further? What would 292 00:14:37,360 --> 00:14:40,400 Speaker 2: happen if they actually introduce that policy. 293 00:14:41,080 --> 00:14:44,360 Speaker 9: So if you're blocking exports, I think the main risk, 294 00:14:44,440 --> 00:14:48,560 Speaker 9: for example, especially product experts that everybody's talking about, the 295 00:14:48,720 --> 00:14:51,680 Speaker 9: main risk is that the refineries in the Golf Coast 296 00:14:51,960 --> 00:14:54,920 Speaker 9: will lose those high margins they are seeing in the 297 00:14:54,960 --> 00:14:57,400 Speaker 9: market right now, and they may choose, Okay, I don't 298 00:14:57,440 --> 00:14:59,320 Speaker 9: have the same incentive to produce that I did just 299 00:14:59,360 --> 00:15:03,760 Speaker 9: a minute ago. I might reduce my production. So it's 300 00:15:03,840 --> 00:15:06,880 Speaker 9: not obvious what the net impact will be in terms 301 00:15:06,880 --> 00:15:10,440 Speaker 9: of product prices to the rest of the US. Also, 302 00:15:10,560 --> 00:15:13,840 Speaker 9: because we don't know if other countries might retaliate at 303 00:15:13,880 --> 00:15:17,040 Speaker 9: the moment. If you look at the northeast of the US, 304 00:15:17,360 --> 00:15:19,840 Speaker 9: it has to net import products, same thing with the 305 00:15:19,840 --> 00:15:24,160 Speaker 9: West coast that and Marie mentioned earlier. So it's not 306 00:15:24,640 --> 00:15:29,240 Speaker 9: that easy to balance everything. Even on the crude side. Yes, 307 00:15:29,320 --> 00:15:31,600 Speaker 9: the US produces a lot of light crude, but we 308 00:15:31,720 --> 00:15:33,880 Speaker 9: import a lot of heavy crude. A lot of our 309 00:15:33,920 --> 00:15:37,520 Speaker 9: refineries are set up to run a heavier type of crude. 310 00:15:37,680 --> 00:15:41,040 Speaker 9: So what if other countries retaliate on exporting that to 311 00:15:41,200 --> 00:15:45,000 Speaker 9: the US. So it's not an obvious answer. It can 312 00:15:45,120 --> 00:15:48,880 Speaker 9: lower the WTI prices, it can potentially even lower product 313 00:15:48,920 --> 00:15:52,640 Speaker 9: prices for the rest of the country, but we don't 314 00:15:52,680 --> 00:15:55,680 Speaker 9: know what other ramifications might be. And when we saw 315 00:15:55,720 --> 00:15:58,520 Speaker 9: that in the past, we saw the oil industry lobby 316 00:15:58,640 --> 00:16:01,520 Speaker 9: against those types of manas. So I am curious to 317 00:16:01,560 --> 00:16:03,560 Speaker 9: see where those conversations end today. 318 00:16:03,680 --> 00:16:05,840 Speaker 1: Are you saying that you think the market's wrong, that 319 00:16:05,880 --> 00:16:08,080 Speaker 1: you think that this gap has to close one way 320 00:16:08,160 --> 00:16:12,480 Speaker 1: or another, potentially with WTI coming up to meet Brent Krude. 321 00:16:12,880 --> 00:16:16,360 Speaker 9: No, I think with these conversations happening, the market is 322 00:16:16,440 --> 00:16:19,280 Speaker 9: just trying to price a probability that they go ahead 323 00:16:19,280 --> 00:16:21,840 Speaker 9: with it, and I think because of the sharp spike 324 00:16:22,080 --> 00:16:25,560 Speaker 9: in prices that we've seen so far, it almost puts 325 00:16:25,560 --> 00:16:28,840 Speaker 9: everything on the table and in the hopes that, Okay, 326 00:16:28,920 --> 00:16:30,680 Speaker 9: we produce a lot of oil, we produce a lot 327 00:16:30,680 --> 00:16:33,760 Speaker 9: of products, maybe we can pull this off. So I 328 00:16:33,800 --> 00:16:36,760 Speaker 9: think it's correct to price in a probability that happens. 329 00:16:36,840 --> 00:16:40,080 Speaker 9: I just don't know if the outcome will be. 330 00:16:40,040 --> 00:16:40,960 Speaker 6: The desired one. 331 00:16:41,200 --> 00:16:44,240 Speaker 1: Are you surprised that the market, the paper market isn't 332 00:16:44,280 --> 00:16:46,440 Speaker 1: reacting more strongly to what a lot of people are 333 00:16:46,440 --> 00:16:48,400 Speaker 1: saying is a real shift that we saw yesterday. We're 334 00:16:48,440 --> 00:16:52,560 Speaker 1: suddenly gas facilities came under attack, Suddenly oil facilities came 335 00:16:52,640 --> 00:16:56,160 Speaker 1: under attack, both suffering damages that could potentially take them 336 00:16:56,200 --> 00:16:59,080 Speaker 1: offline for a longer period of time. Are you surprised 337 00:16:59,360 --> 00:17:01,880 Speaker 1: that there is an even bigger reaction, not only in 338 00:17:01,960 --> 00:17:05,840 Speaker 1: current futures, but also three months, six months, twelve months out. 339 00:17:06,320 --> 00:17:07,600 Speaker 6: Yes, I am. 340 00:17:08,119 --> 00:17:12,360 Speaker 9: What we've seen is that your Middle East price rows 341 00:17:12,440 --> 00:17:14,119 Speaker 9: up the most, and that makes sense, that's where the 342 00:17:14,119 --> 00:17:18,240 Speaker 9: shock is. And when you look at Brent, not quite 343 00:17:18,400 --> 00:17:21,040 Speaker 9: as much. You still see a big differential, and even 344 00:17:21,040 --> 00:17:24,560 Speaker 9: in the Middle East, when you look at their physical prices, 345 00:17:24,600 --> 00:17:28,200 Speaker 9: they are even higher than their financial prices. So it's 346 00:17:28,200 --> 00:17:31,240 Speaker 9: almost like the market is saying, maybe this can still 347 00:17:31,280 --> 00:17:34,040 Speaker 9: be a short lived event. So you price the most 348 00:17:34,280 --> 00:17:38,679 Speaker 9: your physical local market, then second you price your local 349 00:17:38,920 --> 00:17:42,280 Speaker 9: financial market, and third you price the financial markets elsewhere. 350 00:17:43,080 --> 00:17:45,800 Speaker 9: When this is not a given today that is going 351 00:17:45,840 --> 00:17:48,080 Speaker 9: to be short lived. In fact, the escalation that we 352 00:17:48,119 --> 00:17:52,560 Speaker 9: saw over the past few hours would I think suggest 353 00:17:52,560 --> 00:17:55,200 Speaker 9: an increased risk that this goes on for a little 354 00:17:55,200 --> 00:17:58,440 Speaker 9: bit longer. So yes, I am surprised, and I would 355 00:17:58,480 --> 00:18:01,440 Speaker 9: expect the longer this goes, the more those financial prices 356 00:18:01,520 --> 00:18:05,280 Speaker 9: will embed those risks in it and will go higher. 357 00:18:05,320 --> 00:18:06,520 Speaker 6: I'm glad you bring up this point. 358 00:18:06,640 --> 00:18:08,760 Speaker 8: The essential closure straight of her moose is short lived 359 00:18:09,119 --> 00:18:12,320 Speaker 8: because that can reopen if there's a day hunt actually 360 00:18:12,400 --> 00:18:16,680 Speaker 8: hitting energy infrastructure and long term damage as already long term. 361 00:18:16,720 --> 00:18:18,840 Speaker 8: How long for this all to be rebuilt and the 362 00:18:18,840 --> 00:18:21,840 Speaker 8: supply chains to get back to normal when actually the 363 00:18:21,920 --> 00:18:23,560 Speaker 8: product itself is getting hit. 364 00:18:24,280 --> 00:18:26,320 Speaker 9: That is a key point. I like to say that 365 00:18:26,359 --> 00:18:30,119 Speaker 9: there are two variables first to watch in all this confusion. 366 00:18:30,440 --> 00:18:33,520 Speaker 9: One is how much volume is out of the market, 367 00:18:33,720 --> 00:18:37,359 Speaker 9: and that hasn't really changed because you're hitting infrastructure that 368 00:18:37,560 --> 00:18:40,960 Speaker 9: wasn't really sending product or oil or gas through the 369 00:18:41,000 --> 00:18:44,320 Speaker 9: strait to begin with. So you're not changing today what's 370 00:18:44,359 --> 00:18:47,040 Speaker 9: coming out of the market. But the second variable to 371 00:18:47,080 --> 00:18:50,600 Speaker 9: watch is how long this lasts. And the strait of 372 00:18:50,640 --> 00:18:52,919 Speaker 9: her moose, to your point, is just one part of 373 00:18:52,960 --> 00:18:56,360 Speaker 9: that answer. The second part is, well, if you're desjoying infrastructure, 374 00:18:56,600 --> 00:18:58,760 Speaker 9: this may take longer to fix. 375 00:18:59,119 --> 00:19:01,200 Speaker 6: This might not be a four. 376 00:19:00,960 --> 00:19:04,600 Speaker 9: Week run up of operations in a refinery that you 377 00:19:04,920 --> 00:19:07,600 Speaker 9: chose to shut down. This might take longer. It might 378 00:19:07,600 --> 00:19:10,320 Speaker 9: take a few months if you have extensive damage in 379 00:19:10,359 --> 00:19:13,560 Speaker 9: some of that infrastructure. So that second variable, the risk 380 00:19:13,640 --> 00:19:16,919 Speaker 9: of how long the disruption lasts. You're essentially making that 381 00:19:17,080 --> 00:19:20,720 Speaker 9: risk higher. The more infrastructure gets hit, the higher the 382 00:19:20,840 --> 00:19:23,080 Speaker 9: risk that disruptions last longer. 383 00:19:23,240 --> 00:19:25,800 Speaker 8: As we look ahead to Jdvan's vice president staying down 384 00:19:25,800 --> 00:19:28,080 Speaker 8: with oil executives, the United States is not a monolith. 385 00:19:28,359 --> 00:19:30,600 Speaker 8: If we have an export band control, what does this 386 00:19:30,720 --> 00:19:32,919 Speaker 8: do for the West Coast that are so relyingt on 387 00:19:33,000 --> 00:19:34,480 Speaker 8: Asian imports for their products. 388 00:19:34,600 --> 00:19:37,320 Speaker 9: Yeah, and it's difficult to move, so you produce a 389 00:19:37,320 --> 00:19:39,440 Speaker 9: lot of those products in the Golf Coast and it's 390 00:19:39,440 --> 00:19:41,879 Speaker 9: difficult to move to the west coast in particular because 391 00:19:41,920 --> 00:19:44,280 Speaker 9: you're not going to have enough pipeline capacity to do it, 392 00:19:44,480 --> 00:19:46,359 Speaker 9: so you have to ship it around and it's not 393 00:19:46,440 --> 00:19:49,520 Speaker 9: quite as easy as shipping to the east coast, so 394 00:19:50,080 --> 00:19:55,440 Speaker 9: it'll be a bit clunky, not without friction, which means 395 00:19:55,480 --> 00:19:57,399 Speaker 9: prices can still stay higher. 396 00:19:57,119 --> 00:19:58,119 Speaker 6: For a little bit longer. 397 00:19:58,240 --> 00:20:01,240 Speaker 2: We've seen big knaves and cred big amazing gas prices. 398 00:20:01,320 --> 00:20:03,720 Speaker 2: Have you started to see anything happen in acts in 399 00:20:03,760 --> 00:20:05,560 Speaker 2: self commodities off the back of. 400 00:20:05,480 --> 00:20:08,520 Speaker 9: This, we're definitely getting a lot of questions on it, 401 00:20:08,600 --> 00:20:13,959 Speaker 9: and we also see direct headlines saying Pakistan, Bangladesh, India 402 00:20:14,080 --> 00:20:18,359 Speaker 9: supply to fertilize their plants in those locations already being 403 00:20:18,440 --> 00:20:21,480 Speaker 9: curtailed because they don't have enough natural gas to do it. 404 00:20:22,400 --> 00:20:24,840 Speaker 9: So we were talking to our chemicals and analysts in 405 00:20:24,880 --> 00:20:28,880 Speaker 9: the US asking, well, the US still has supply, do 406 00:20:28,920 --> 00:20:31,960 Speaker 9: we have any spare capacity to fill in that gap? 407 00:20:32,359 --> 00:20:35,120 Speaker 9: But the answer is well, the US has cheaper nature 408 00:20:35,160 --> 00:20:37,800 Speaker 9: guests than everybody else to begin with, so we're already 409 00:20:37,840 --> 00:20:40,960 Speaker 9: cranking this up as high as possible, so you don't 410 00:20:40,960 --> 00:20:44,000 Speaker 9: have spare capacity to crank this up and planting season 411 00:20:44,080 --> 00:20:46,399 Speaker 9: is coming, so everybody's going to need a lot of 412 00:20:46,440 --> 00:20:47,360 Speaker 9: this stuff coming soon. 413 00:20:47,400 --> 00:20:49,760 Speaker 3: When do you think we'll be confronted by that reality. 414 00:20:50,520 --> 00:20:50,720 Speaker 5: Oh? 415 00:20:51,040 --> 00:20:53,360 Speaker 9: I don't think it takes long at all, because already 416 00:20:53,480 --> 00:20:56,560 Speaker 9: supply is being affected, the production of fertilizers being affected, 417 00:20:56,600 --> 00:20:57,960 Speaker 9: and planting season is coming. 418 00:20:58,800 --> 00:21:02,320 Speaker 2: This is the bloombergs Availments podcast, bringing you the best 419 00:21:02,400 --> 00:21:05,480 Speaker 2: in markets, economics, and geo politics. You can watch the 420 00:21:05,480 --> 00:21:08,600 Speaker 2: show live on Bloomberg TV weekday mornings from six am 421 00:21:08,640 --> 00:21:11,800 Speaker 2: to nine am Eastern. Subscribe to the podcast on Apple, 422 00:21:12,080 --> 00:21:14,919 Speaker 2: Spotify or anywhere else you listen, and as always, on 423 00:21:14,920 --> 00:21:17,440 Speaker 2: the Bloomberg Terminal and the Bloomberg Business app.