WEBVTT - How Iran Taught Donald Trump a Lesson in Economic Warfare

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>I was Stephanie Flander's head of Government and Economics at Bloomberg.

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<v Speaker 2>This is trump Panomics, the podcast that looks at the

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<v Speaker 2>economic world of Donald Trump, how he's already shaped the

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<v Speaker 2>global economy, and what on earth is going to happen next.

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<v Speaker 2>This week, nearly a month since the US and Israel

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<v Speaker 2>started bombing Iran, we thought it was time to take

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<v Speaker 2>stock of the economic consequences of that war, but also

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<v Speaker 2>the broader implications for the US and its allies. And yes, Trumpnomics,

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<v Speaker 2>because watching how this entire conflict is unfolded since late

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<v Speaker 2>February and the deeply suboptimal weighs out of this seemingly

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<v Speaker 2>now for the US, it feels like, far from crumbling

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<v Speaker 2>as President Trump appears to have expected, the Ranian regimes

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<v Speaker 2>not only survived but given the President a lesson in

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<v Speaker 2>how you deploy economic leverage in today's economy. As one

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<v Speaker 2>of our guests today writes in a forthcoming piece, Iran

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<v Speaker 2>didn't want this war, but now it has reasons to

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<v Speaker 2>prolong it. That's a problem for us all, certainly for

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<v Speaker 2>President Donald Trump, who seems unable to reopen the straight

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<v Speaker 2>of Horror moves. Despite its threats. It's a problem for

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<v Speaker 2>the global economy for reasons we can already see and

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<v Speaker 2>some others will discuss in a minute. But it's also

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<v Speaker 2>a problem for future governments because if the straight of

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<v Speaker 2>hor moves can be closed once, it can be closed

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<v Speaker 2>again even if the war ends tomorrow. Iran's key takeaway

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<v Speaker 2>will be how easy and cheap it is for them

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<v Speaker 2>to hold the global economy hostage. Iran has some very

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<v Speaker 2>valuable cards, you might say, and thanks to Donald Trump,

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<v Speaker 2>it now knows how to play them in the UK.

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<v Speaker 2>I'm delighted to go through all of this. We have

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<v Speaker 2>Dina's FOUNDERI our lead geoeconomics analyst for the Middle East

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<v Speaker 2>and also the co author of that I just cited Diina.

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<v Speaker 2>Thank you so much for joining. I know you've got

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<v Speaker 2>a very busy day.

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<v Speaker 1>Thank you so much for having me and.

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<v Speaker 2>In Washington, familiar voice, Tom Or, a chief economist for

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<v Speaker 2>Bloomberg Economicist. Tom, thanks very much for coming back.

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<v Speaker 3>Great to be here. Thanks Stephanie.

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<v Speaker 2>I was struck when we think about counting the cost

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<v Speaker 2>of this conflict. I mean, we had a regular meeting

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<v Speaker 2>with all the economists earlier today starting to think about

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<v Speaker 2>our latest forecast for the world, and that sort of

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<v Speaker 2>forced us to confront the many ways in which the

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<v Speaker 2>picture has changed and may yet change further because of

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<v Speaker 2>this war. Just talk us through some of the basic

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<v Speaker 2>economic consequences that we've seen from this conflict already just

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<v Speaker 2>in four weeks.

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<v Speaker 3>So I think the short answer on what the Iran

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<v Speaker 3>war means for the global economy is nothing good. And

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<v Speaker 3>the long answer is, well, this is going to impact

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<v Speaker 3>on multiple different dimensions. Most obviously, we have energy prices

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<v Speaker 3>already sharply higher. That's going to push inflation up. It's

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<v Speaker 3>going to eat into household's budget for consumption. Higher inflation,

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<v Speaker 3>lower growth. That's not a positive story. We're also seeing

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<v Speaker 3>the Iran war impact financial markets. We're seeing gauges of

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<v Speaker 3>uncertainty rising, We're seeing equity prices falling higher, uncertainty, lower markets.

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<v Speaker 3>That's not a positive for growth either. The last piece

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<v Speaker 3>of it is what this means for central banks and

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<v Speaker 3>borrowing costs. I think heading into twenty twenty six, the

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<v Speaker 3>expectation was this is going to be the year where

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<v Speaker 3>inflation finally gets back to target. Certainly we're not going

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<v Speaker 3>to see any more rate hikes and probably we're going

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<v Speaker 3>to see a bunch of rate cuts. While that narrative

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<v Speaker 3>has now very significantly changed. If we look at what

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<v Speaker 3>markets are betting on, they've taken all the rate cuts

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<v Speaker 3>off the TI and for the Bank of England and

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<v Speaker 3>the European Central Bank. Actually the expectation of many investors

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<v Speaker 3>is there could be rate hikes coming now. Whether or

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<v Speaker 3>not you believe that forecast is true, the fact that

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<v Speaker 3>that's what investors are betting on is already having an impact.

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<v Speaker 3>So we're seeing higher borrowing costs for businesses, borrowing costs

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<v Speaker 3>for households. That's an additional drag on growth.

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<v Speaker 2>What you brought out there, which I think is important,

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<v Speaker 2>and we're seeing more now than we did in the

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<v Speaker 2>first week or two when the expectations were still that

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<v Speaker 2>it was going to be potentially a very short conflict.

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<v Speaker 2>Is those broader knock on effects. The O price goes up,

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<v Speaker 2>headlines around that were now at maybe I don't know,

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<v Speaker 2>one hundred and ten something like that dollars a barrel.

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<v Speaker 2>That's obviously affecting petrol prices in the US. That on

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<v Speaker 2>the road diesel price has risen by more than a

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<v Speaker 2>dollar per Gallon since the end of February, which people

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<v Speaker 2>in America obviously notice. But there's also the sort of

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<v Speaker 2>there's all those indirect consequence and the biggest, as you've mentioned,

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<v Speaker 2>is what happens to financial conditions and interest rates, Dina.

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<v Speaker 2>The piece I sort of liberally quoted earlier, you're highlighting,

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<v Speaker 2>along with our chief emergy market economist Asadode, a basic asymmetry,

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<v Speaker 2>which is that Iran has reasons now to prolong this

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<v Speaker 2>war ironically, whereas the US, thanks to all this economic pain,

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<v Speaker 2>wants it to end as soon as possible. For some people,

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<v Speaker 2>that will sound counterintuitive when you consider the amount of

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<v Speaker 2>damage being inflicted on Iran on a daily basis. So

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<v Speaker 2>maybe just take us through that, sure.

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<v Speaker 1>I think the first thing that's important to note is

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<v Speaker 1>that for the Islamic Republic, the moment is existential. It

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<v Speaker 1>really is. This is about survival of the Iranian government.

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<v Speaker 1>They face a perfect storm of crises, a political one,

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<v Speaker 1>an economic one that's been around for decades, and a

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<v Speaker 1>social and environmental crisis. And we saw this spill over

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<v Speaker 1>a couple months ago with the protests inside the country,

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<v Speaker 1>also saw the really harsh government prac down that demonstrated

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<v Speaker 1>that they really are out of tools for dealing with

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<v Speaker 1>these crises other than using just brute force. So what

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<v Speaker 1>are they going to try to do with this conflict.

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<v Speaker 1>They have two main goals. The first is they have

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<v Speaker 1>to survive it, obviously, but the second is, in order

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<v Speaker 1>to ensure that they last as a government, they also

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<v Speaker 1>have to re establish to terrence visa vi the United

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<v Speaker 1>States and Israel, and that means basically imposing such a

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<v Speaker 1>significant cost on everyone in order to ensure that the

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<v Speaker 1>US and Israel do not regroup and come back in

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<v Speaker 1>six months time and reattack Iran, which is pretty much

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<v Speaker 1>what happened this time around. So really this strategy of

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<v Speaker 1>imposing a cost is on three levels. The first one

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<v Speaker 1>was obviously hitting the US in Israel directly because they're

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<v Speaker 1>the warring parties. The second was hitting the region, especially

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<v Speaker 1>the Gulf Arab states, so they hit infrastructure in those

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<v Speaker 1>countries but also energy infrastructure. And the third was really

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<v Speaker 1>to impose a global cost for the war by closing

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<v Speaker 1>the Straight of Foremons and again hitting regional energy infrastructure,

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<v Speaker 1>which inevitably was going to impact the rest of the world.

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<v Speaker 2>We talked about the economic pain that the world is

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<v Speaker 2>feeling from the conflict. In your piece, you sort of

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<v Speaker 2>highlight there's another asymmetry that the Iranian economy is actually

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<v Speaker 2>doing potentially better than it would have done before the war.

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<v Speaker 2>I mean that's in some respects. Obviously we're seeing enormous

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<v Speaker 2>amount of damage from the attacks, and that seems to

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<v Speaker 2>be now not just in military targets, but more broadly

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<v Speaker 2>across the country. Some other aspects are actually doing slightly better. Tom.

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<v Speaker 2>I know you've been looking at that a little bit,

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<v Speaker 2>some of the ways in which the Iranian economy has

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<v Speaker 2>actually been doing better.

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<v Speaker 3>Yeah, I think that's right, Stephanie. This war is driving

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<v Speaker 3>up energy prices. Who gains from that, Well, it's countries

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<v Speaker 3>that can continue to export oil and capture the higher price, right,

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<v Speaker 3>So who's on that list, Well, Iran is on that list.

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<v Speaker 3>The Strait of Hormuz is closed, but it's not closed

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<v Speaker 3>to Iran's own tankers. Iran's exports of oil are down

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<v Speaker 3>a little bit since the start of the war, but

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<v Speaker 3>relative to other Gulf oil producers, they're not down very much,

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<v Speaker 3>and they're able to capture the benefits of significantly higher

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<v Speaker 3>oil prices. And so one way we see that reflected

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<v Speaker 3>is this kind of slightly extraordinary move in the US

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<v Speaker 3>and Iranian currencies. Here we have the US, the world's

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<v Speaker 3>greatest power, pummeling Iran with the world's most advanced military kit,

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<v Speaker 3>but whose currency is up since the start of the war.

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<v Speaker 3>It's Iran's currency, right, And I think that tells you

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<v Speaker 3>a story about a sort of slightly unusual and unexpected

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<v Speaker 3>dynamic a work here.

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<v Speaker 2>The extra level of that really sort of made people

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<v Speaker 2>sit up this weekend, or certainly me was the Treasury

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<v Speaker 2>Secretary also announcing the removal of the US sanctions on

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<v Speaker 2>the Iranian oil at sea, which is of course directly

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<v Speaker 2>putting money in their pockets to potentially buy more drone

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<v Speaker 2>equipment from China or elsewhere. I mean, Dina, you've already

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<v Speaker 2>highlighted some of the sort of asymmetries that are feeding

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<v Speaker 2>into this. We're seeing at so many different levels. It's

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<v Speaker 2>not just that the economic pain is being felt more

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<v Speaker 2>by the US and its allies than by others, but

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<v Speaker 2>also this massive cost difference between the cost of what

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<v Speaker 2>the US has to do to keep attacking Iran or

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<v Speaker 2>indeed take hold of the straight orfore moves versus how

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<v Speaker 2>relatively cheap it is for Iran to continue to defend

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<v Speaker 2>these things.

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<v Speaker 1>Absolutely. Iran, when it comes to this war, is on

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<v Speaker 1>the right side of the cost curve. So the munitions

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<v Speaker 1>that Tehran is using. The missiles, of course, are expensive

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<v Speaker 1>to produce, and Iran has a limited number of them,

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<v Speaker 1>but they're also relying quite a lot on drones on Shahad.

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<v Speaker 1>Drones that are really cheap to produce can be produced

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<v Speaker 1>pretty much anywhere in facilities that would look like any

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<v Speaker 1>commercial production industrial facility, which means they're really difficult to

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<v Speaker 1>find and target for the United States and Israel, and

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<v Speaker 1>it can produce a lot of them. So Iran is

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<v Speaker 1>producing these drones quite cheaply. When it comes to blocking

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<v Speaker 1>the strait, it relies on drones, it relies on missiles,

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<v Speaker 1>but it can rely on a whole range of other

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<v Speaker 1>very cheap options. Sea mines are one of them. It

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<v Speaker 1>could literally use little wooden boats with explosives and send

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<v Speaker 1>them out into the middle of the Strait and that

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<v Speaker 1>would be enough to pose a threat to close the strait.

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<v Speaker 1>So for Tehran it's very easy and comparatively cheap to

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<v Speaker 1>cause this much disruption, and of course that is Tehran

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<v Speaker 1>mean lesson learnt. On the other side, for the United

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<v Speaker 1>States and its partners in the region, missile defense interceptors

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<v Speaker 1>are quite expensive to produce, and they cost a multiple

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<v Speaker 1>of the cost of a shah head drone. And while

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<v Speaker 1>they are now using different methods to protect themselves against

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<v Speaker 1>these drones, generally the use of interceptors against drones just

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<v Speaker 1>puts you on the wrong side of the cost CUF,

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<v Speaker 1>making it very expensive to defend yourself.

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<v Speaker 2>It's an exaggeration, but of course Vietnam is the conflict

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<v Speaker 2>that sort of hangs over some of these discussions in

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<v Speaker 2>the US. And I guess what's striking about this is

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<v Speaker 2>there's a slightly self perpetuating element to this, or self

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<v Speaker 2>financing element to this on the Iranian side that the

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<v Speaker 2>worse it gets, the higher the oil price goes, and

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<v Speaker 2>the more funds that Iran potentially has to continue the war,

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<v Speaker 2>which is actually not a direct dynamic that you saw

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<v Speaker 2>in the case of Vietnam. Tom are we getting carried

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<v Speaker 2>away also with just the degree to which Iran is

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<v Speaker 2>holding the US, the world's biggest economy hostage at some level,

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<v Speaker 2>The US does have powerful weapons here it could apply

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<v Speaker 2>some have talked about having a full blockade of Iranian oil,

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<v Speaker 2>seizing of Iranian tankers, for example, rather than lifting sanctions.

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<v Speaker 2>Are we underestimating the chances of that, given that it

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<v Speaker 2>is somewhat embarrassing for the US to be in this

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<v Speaker 2>position in theory.

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<v Speaker 3>Just briefly on the Vietnam War analogy, Stephanie, that remarkable

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<v Speaker 3>move by the US over the weekends to de sanctioned

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<v Speaker 3>Iran's oil actually reminded me of that famous quote from

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<v Speaker 3>one of the US soldiers in the Vietnam War, it

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<v Speaker 3>became necessary to destroy the village in order to liberate it. Right,

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<v Speaker 3>in the Iran War context, it turns out it's become

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<v Speaker 3>necessary to liberate Iran's oil in order to destroy Iran.

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<v Speaker 3>Coming back to your question, I think Iran is certainly

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<v Speaker 3>demonstrating some powerful asymmetric capabilities here. But you're certainly right

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<v Speaker 3>that the United States, as the world's superpower, as the

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<v Speaker 3>world's most powerful military, as the world's most powerful economy,

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<v Speaker 3>does have a number of levers which it can pull. Right.

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<v Speaker 3>I think one question, sitting here in DC and hearing

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<v Speaker 3>frankly rather contradictory messages flying around Iran has forty eight

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<v Speaker 3>hours to open the Straight of Hormuz or will decimate

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<v Speaker 3>their power infrastructure. We have a fifteen point plan for

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<v Speaker 3>Iran that we are happy to discuss and potentially will

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<v Speaker 3>have a truce while we discuss it. For me, that

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<v Speaker 3>raises the question, Well, the US has a number of

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<v Speaker 3>powerful leavers of economic statecraft that it could pull to

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<v Speaker 3>start shifting the dynamic in global energy markets. But is

0:14:13.040 --> 0:14:17.280
<v Speaker 3>there anybody here who is thinking through those options in

0:14:17.360 --> 0:14:21.760
<v Speaker 3>a coherent way? Is this an administration which is positioned

0:14:22.280 --> 0:14:27.320
<v Speaker 3>to deploy the formidable set of economic statecraft tools that

0:14:27.360 --> 0:14:28.440
<v Speaker 3>they have at their disposal.

0:14:29.400 --> 0:14:32.200
<v Speaker 2>Staying with you, Tom, if we're sort of thinking now

0:14:32.720 --> 0:14:37.160
<v Speaker 2>slightly longer term about potential paths and what the implications

0:14:37.200 --> 0:14:40.080
<v Speaker 2>are for the global economy. I mean, we talked at

0:14:40.080 --> 0:14:42.680
<v Speaker 2>the start about the damage that we're already seeing, and

0:14:42.720 --> 0:14:47.280
<v Speaker 2>in fact we're seeing it in the now cast. The

0:14:47.400 --> 0:14:50.920
<v Speaker 2>very sort of short term forecast for inflation, even for

0:14:51.040 --> 0:14:53.360
<v Speaker 2>just the month that we're in now for March, have

0:14:53.480 --> 0:14:57.000
<v Speaker 2>already gone up by potentially half a percentage point or

0:14:57.000 --> 0:14:59.440
<v Speaker 2>more in most of the major economies just because of

0:14:59.480 --> 0:15:03.280
<v Speaker 2>this shock. A few weeks ago. We could have In fact,

0:15:03.280 --> 0:15:06.200
<v Speaker 2>we did talk about a sort of short shot shock

0:15:06.320 --> 0:15:09.840
<v Speaker 2>scenario which wouldn't have brought very much lasting damage to

0:15:09.920 --> 0:15:13.640
<v Speaker 2>inflation or to growth. That ship has sailed or got

0:15:13.800 --> 0:15:16.040
<v Speaker 2>stuck in the strait of what page? But what are

0:15:16.080 --> 0:15:19.440
<v Speaker 2>the possible paths from here? How much of that economic

0:15:19.480 --> 0:15:21.480
<v Speaker 2>pain you talked about is now baked in for the

0:15:21.520 --> 0:15:24.000
<v Speaker 2>rest of the year. I mean, are we looking at recessions?

0:15:24.280 --> 0:15:25.400
<v Speaker 2>What should we be looking for?

0:15:25.840 --> 0:15:28.960
<v Speaker 3>So I think the first question is how long does

0:15:29.000 --> 0:15:33.120
<v Speaker 3>the war continue and at what intensity? So if we're

0:15:33.160 --> 0:15:37.280
<v Speaker 3>in a world where the war continues but at a

0:15:37.480 --> 0:15:41.920
<v Speaker 3>moderated intensity, and we're in a world of say one

0:15:42.000 --> 0:15:44.640
<v Speaker 3>hundred to one hundred and ten dollars oil in the

0:15:44.680 --> 0:15:49.160
<v Speaker 3>second quarter, that's a world where inflation is markedly higher,

0:15:49.480 --> 0:15:53.080
<v Speaker 3>perhaps between zero point five and one percentage point. So

0:15:53.480 --> 0:15:57.160
<v Speaker 3>if you were thinking about inflation of two point five percent,

0:15:57.520 --> 0:15:59.680
<v Speaker 3>you should probably be thinking about inflation of three to

0:15:59.760 --> 0:16:03.240
<v Speaker 3>three and a half percent. It's a world where growth

0:16:03.360 --> 0:16:06.960
<v Speaker 3>is lower. If we're looking at the Euro Area, for example,

0:16:07.320 --> 0:16:10.640
<v Speaker 3>shaves around half a percentage point of growth for a

0:16:10.680 --> 0:16:13.480
<v Speaker 3>region which is already grown pretty slowly. And it's a

0:16:13.480 --> 0:16:16.160
<v Speaker 3>world where central banks have a difficult decision. Do they

0:16:16.680 --> 0:16:20.280
<v Speaker 3>hike to contain inflation and inflation expectations, or do they

0:16:20.280 --> 0:16:24.480
<v Speaker 3>cut to support growth. But that's a manageable shock, right.

0:16:24.920 --> 0:16:27.680
<v Speaker 3>If the war continues at a much at a higher

0:16:27.720 --> 0:16:31.200
<v Speaker 3>level of intensity, if the straight of horn Mooz stays closed,

0:16:31.520 --> 0:16:35.320
<v Speaker 3>well that's a world where our modeling suggests we could

0:16:35.360 --> 0:16:38.480
<v Speaker 3>have oil moving markedly higher, perhaps as high as one

0:16:38.520 --> 0:16:41.240
<v Speaker 3>hundred and seventy dollars a barrel. That's a world where

0:16:41.240 --> 0:16:44.280
<v Speaker 3>you have a much larger increase in inflation, a much

0:16:44.440 --> 0:16:47.960
<v Speaker 3>lower a much more significant blow to growth, a much

0:16:47.960 --> 0:16:51.440
<v Speaker 3>more difficult decision for central banks. And that's a world

0:16:51.440 --> 0:16:55.280
<v Speaker 3>where you start thinking more about stagflation risk, more about

0:16:55.360 --> 0:17:00.280
<v Speaker 3>recession now looking a bit further forward, and about too

0:17:00.280 --> 0:17:04.000
<v Speaker 3>optimistically anticipating the end of the war. I think the

0:17:04.160 --> 0:17:08.200
<v Speaker 3>critical question for oil prices and for the global economy

0:17:08.520 --> 0:17:11.720
<v Speaker 3>is going to be, firstly, well, how much lasting damage

0:17:11.760 --> 0:17:12.480
<v Speaker 3>has been done?

0:17:13.000 --> 0:17:13.160
<v Speaker 2>Right?

0:17:13.520 --> 0:17:15.640
<v Speaker 3>It's not just the strait of her moves being closed.

0:17:15.800 --> 0:17:20.080
<v Speaker 3>There's also drones hitting very very significant parts of Gulf

0:17:20.200 --> 0:17:24.000
<v Speaker 3>energy infrastructure. An important question is how quickly can that

0:17:24.080 --> 0:17:27.480
<v Speaker 3>be fixed? And an additional question is, well, how much

0:17:27.520 --> 0:17:31.080
<v Speaker 3>of a geopolitical risk premium stays in the market, right,

0:17:31.359 --> 0:17:34.480
<v Speaker 3>how much to oil traders say, Okay, the war's over,

0:17:35.240 --> 0:17:37.960
<v Speaker 3>We're back to the world of sixty five dollars oil,

0:17:38.160 --> 0:17:39.880
<v Speaker 3>And how much do they say, yeah, the war's over.

0:17:40.200 --> 0:17:42.840
<v Speaker 3>But you know what, this could kick off again. We

0:17:42.920 --> 0:17:45.240
<v Speaker 3>need to keep a geopolitical risk premium in the price.

0:17:46.200 --> 0:17:50.120
<v Speaker 2>How things go from here for Iran and its relations

0:17:50.119 --> 0:17:53.359
<v Speaker 2>with the broader regime is actually going to affect the

0:17:53.440 --> 0:17:56.680
<v Speaker 2>answer to Tom's question. I mean, many people will think

0:17:56.680 --> 0:17:59.959
<v Speaker 2>that we've been making Iran sound too good and painting

0:18:00.040 --> 0:18:03.720
<v Speaker 2>it as this kind of skillful regime that's managed to

0:18:04.359 --> 0:18:07.520
<v Speaker 2>play its cards very effectively. But as you pointed out

0:18:07.560 --> 0:18:12.480
<v Speaker 2>the beginning, this is a tyrannical regime that had weakening

0:18:12.760 --> 0:18:15.840
<v Speaker 2>power in many ways, had been forced to brutally suppress

0:18:15.920 --> 0:18:18.679
<v Speaker 2>its population earlier in the year, and it's using the

0:18:18.680 --> 0:18:22.400
<v Speaker 2>only tools it has at the risk of massively alienating

0:18:22.800 --> 0:18:27.200
<v Speaker 2>countries that hadn't been as negatively disposed to it. Has

0:18:27.240 --> 0:18:30.600
<v Speaker 2>it overplayed some of the few cards it has as

0:18:30.640 --> 0:18:35.440
<v Speaker 2>particularly in sort of alienating other Gulf countries, hitting civilian

0:18:35.480 --> 0:18:39.040
<v Speaker 2>targets there, and by all accounts, really putting them on

0:18:39.080 --> 0:18:40.560
<v Speaker 2>America's side.

0:18:40.840 --> 0:18:43.800
<v Speaker 1>So I think Iran is going to face a really

0:18:43.880 --> 0:18:48.200
<v Speaker 1>tough moment once this war finally winds down. You pointed

0:18:48.240 --> 0:18:50.760
<v Speaker 1>out domestically, it's going to struggle because it is out

0:18:50.800 --> 0:18:54.520
<v Speaker 1>of tools, and none of those realities will have gone anywhere.

0:18:54.520 --> 0:18:58.480
<v Speaker 1>The only thing the war did was divert attention elsewhere,

0:18:58.960 --> 0:19:02.240
<v Speaker 1>focus Iranians tension more on the US and Israel bombing

0:19:02.280 --> 0:19:05.640
<v Speaker 1>campaign than on their own government. At some stage, they're

0:19:05.680 --> 0:19:08.199
<v Speaker 1>going to have to deal with the grievances that the

0:19:08.240 --> 0:19:13.160
<v Speaker 1>Iranian population have, and again they're still out of those

0:19:13.200 --> 0:19:16.960
<v Speaker 1>tools unless they're able to make some kind of deal

0:19:17.000 --> 0:19:19.879
<v Speaker 1>where they could get some sanctions relief and allow the

0:19:19.920 --> 0:19:23.479
<v Speaker 1>government to really put in place an economic plan with

0:19:23.560 --> 0:19:27.240
<v Speaker 1>reforms et cetera, etc. That would help improve the domestic situation.

0:19:27.400 --> 0:19:32.040
<v Speaker 1>So that's domestically in the region. Iran, before the war

0:19:33.160 --> 0:19:35.960
<v Speaker 1>was in somewhat of a better place with some of

0:19:36.000 --> 0:19:39.320
<v Speaker 1>its bellfare of neighbors. Over the last few years, they

0:19:39.359 --> 0:19:42.439
<v Speaker 1>had begun to build ties. It had mended some of

0:19:42.480 --> 0:19:45.800
<v Speaker 1>its tensions with Saudi Arabia and the UAE in particular.

0:19:45.880 --> 0:19:48.840
<v Speaker 1>It had a good working relationship with the others. The

0:19:48.880 --> 0:19:52.720
<v Speaker 1>Glfaer of States really tried hard to lobby against a

0:19:52.800 --> 0:19:56.879
<v Speaker 1>war with Iran with President Trump, and given what had

0:19:56.880 --> 0:19:58.640
<v Speaker 1>happened in the region over the course of the last

0:19:58.680 --> 0:20:02.240
<v Speaker 1>few years, the GOLFA Up States began to see Israel

0:20:02.280 --> 0:20:04.480
<v Speaker 1>as a bigger threat than Iran, so that was actually

0:20:04.480 --> 0:20:07.000
<v Speaker 1>a pretty good position for Iran to be in. But

0:20:07.160 --> 0:20:11.760
<v Speaker 1>with this bombing campaign, with some of Iran's retaliation and

0:20:11.840 --> 0:20:15.600
<v Speaker 1>the region, the new reality is that the bigger threat

0:20:15.640 --> 0:20:18.959
<v Speaker 1>for the Golfare Up States once again is Iran, and

0:20:19.000 --> 0:20:21.720
<v Speaker 1>they're going to have to adjust the way they deal

0:20:21.800 --> 0:20:25.200
<v Speaker 1>with Iran as a result of that, so they are

0:20:25.400 --> 0:20:29.199
<v Speaker 1>likely to boost defense investments even more than they have

0:20:29.280 --> 0:20:31.600
<v Speaker 1>in the past. The golfare Up States are likely to

0:20:31.600 --> 0:20:34.199
<v Speaker 1>double down and become even closer to the United States,

0:20:34.240 --> 0:20:38.000
<v Speaker 1>even though many of them are very frustrated with President Trump,

0:20:38.320 --> 0:20:41.840
<v Speaker 1>and they're likely to focus on containing Iran rather than

0:20:41.880 --> 0:20:45.119
<v Speaker 1>engaging it, which will mean that Iran will find itself

0:20:45.119 --> 0:20:48.880
<v Speaker 1>in a difficult position regionally, especially since many of its

0:20:48.920 --> 0:20:52.840
<v Speaker 1>regional non state partners have been weakened over the course

0:20:52.880 --> 0:20:54.160
<v Speaker 1>of the last two three years.

0:20:54.440 --> 0:20:56.400
<v Speaker 2>Do you know I guess our final thought from you.

0:20:56.480 --> 0:20:59.920
<v Speaker 2>I've had conversations with Tom on this show over the year,

0:21:00.119 --> 0:21:04.000
<v Speaker 2>and one of the things we've noticed from the US

0:21:04.119 --> 0:21:08.000
<v Speaker 2>efforts to apply economic leverage visa v. China have inspired

0:21:08.119 --> 0:21:12.040
<v Speaker 2>China to double down on finding alternatives in order to

0:21:12.080 --> 0:21:16.400
<v Speaker 2>not have that kind of vulnerability. I mean, now everyone's

0:21:16.440 --> 0:21:21.640
<v Speaker 2>been reminded very vividly of n Iran's ability to hold

0:21:21.680 --> 0:21:26.720
<v Speaker 2>the world hostage in that very small strait. Surely we're

0:21:26.760 --> 0:21:30.240
<v Speaker 2>going to see a lot more efforts to find alternatives

0:21:30.280 --> 0:21:32.160
<v Speaker 2>on that front as well. I mean, is one consequence

0:21:32.200 --> 0:21:33.600
<v Speaker 2>going to be that in five or ten years the

0:21:33.640 --> 0:21:36.159
<v Speaker 2>straight uform moves is not as important as it is today.

0:21:36.520 --> 0:21:39.399
<v Speaker 1>I think it will have less importance than today. I

0:21:39.400 --> 0:21:41.359
<v Speaker 1>think it will still be important because I think the

0:21:41.400 --> 0:21:43.560
<v Speaker 1>golf are up. States are going to continue to get

0:21:43.600 --> 0:21:48.600
<v Speaker 1>their oil out somehow. They are likely to divert some

0:21:48.680 --> 0:21:50.800
<v Speaker 1>of their oil so that it doesn't go through the strait. So,

0:21:50.880 --> 0:21:53.840
<v Speaker 1>for example, Saudi Arabia is diverting much of its oil

0:21:53.880 --> 0:21:57.920
<v Speaker 1>through pipelines that goes to the Red Sea. But none

0:21:57.920 --> 0:22:02.800
<v Speaker 1>of these alternative ways of getting oil out are particularly safe.

0:22:02.880 --> 0:22:05.120
<v Speaker 1>After all, the Hothees are present in the Red Sea,

0:22:05.160 --> 0:22:08.160
<v Speaker 1>and while they haven't joined the war yet, the threat

0:22:08.200 --> 0:22:11.080
<v Speaker 1>looms large that they will. The golf airb states are

0:22:11.160 --> 0:22:14.840
<v Speaker 1>likely to invest a lot more in building more pipelines.

0:22:16.240 --> 0:22:21.040
<v Speaker 1>Clients of energy from the region are also likely to adjust.

0:22:21.920 --> 0:22:24.600
<v Speaker 1>There is likely to be some rerouting of oil, perhaps

0:22:24.640 --> 0:22:28.280
<v Speaker 1>from Asia to Europe, with Asia having to look elsewhere,

0:22:30.240 --> 0:22:33.480
<v Speaker 1>something similar for gas for example. But there's likely to

0:22:33.480 --> 0:22:36.520
<v Speaker 1>be re routing, There's likely to be diversion, there will

0:22:36.560 --> 0:22:40.720
<v Speaker 1>be changes, but it won't be enough to completely wipe

0:22:40.720 --> 0:22:42.520
<v Speaker 1>out Hormons. It's importance.

0:22:44.400 --> 0:22:47.760
<v Speaker 2>Both of you have brought home. Long term, there's going

0:22:47.800 --> 0:22:50.160
<v Speaker 2>to be enormous cost of this conflict for both sides

0:22:50.320 --> 0:22:54.320
<v Speaker 2>and maybe especially for Iran. But short term they have survived,

0:22:54.400 --> 0:22:58.399
<v Speaker 2>and they seem able to survive a good deal of

0:22:58.400 --> 0:23:01.720
<v Speaker 2>collateral damage, perhaps more than the US. Thank you very much,

0:23:02.359 --> 0:23:23.080
<v Speaker 2>Thanks Stephanie, Thank you, thanks for listening to Trumpomics from Bloomberg.

0:23:23.119 --> 0:23:25.280
<v Speaker 2>It was hosted by me Stephanie Flanders, and I was

0:23:25.359 --> 0:23:28.240
<v Speaker 2>joined this week by Tom Orlick and Dina s Fanduri

0:23:28.400 --> 0:23:32.359
<v Speaker 2>from Bloomberg Economics. Trumpnomics was produced by Samma Sadi and

0:23:32.440 --> 0:23:36.280
<v Speaker 2>Moses And with help from Amy Keen, and sound design

0:23:36.359 --> 0:23:40.160
<v Speaker 2>was by Blake Maples and Nick Johnson. To help others

0:23:40.160 --> 0:23:43.040
<v Speaker 2>find the show, please rate it and review it highly.

0:23:43.160 --> 0:23:45.280
<v Speaker 2>Wherever you listen to podcasts, I know there's a lot

0:23:45.320 --> 0:23:47.600
<v Speaker 2>of people listening who have not rated it, and I

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<v Speaker 2>would really appreciate it if you did, as long as

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<v Speaker 2>it's a high rated