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Countdown to a Global Energy Shock · Trumponomics

0:02
Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
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Speaker 2: We have the strongest and most powerful by far military
0:12
Speaker 2: in the world, and we will easily prevail. We're already
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Speaker 2: substantially ahead of our time projections. But whatever the time is,
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Speaker 2: it's okay, whatever it takes.
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Speaker 3: I'm Stephanie Flanders, head of Government and Economics at Bloomberg,
0:38
Speaker 3: and this is Trumponomics, the podcast that looks at the
0:40
Speaker 3: economic world of Donald Trump, how he's already shaped the
0:44
Speaker 3: global economy and what on earth is going to happen next.
0:50
Speaker 3: One common element of that Trump shaped economy is there's
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Speaker 3: a wide range of possible outcomes. Recording this Wednesday morning
0:58
Speaker 3: in Europe, the range of potential consequences from the conflict
1:02
Speaker 3: underway between the US and Israel and Iran looks about
1:06
Speaker 3: as wide as it could be. And we're focused for
1:08
Speaker 3: the next twenty five minutes or so on just the
1:11
Speaker 3: economic piece of that. The human and social impacts we
1:15
Speaker 3: leave to others. But since America's first strike on Iran
1:18
Speaker 3: on Saturday, oil and gas traders have watched us in
1:21
Speaker 3: many ways, the worst case scenario unfolded for Middle East
1:25
Speaker 3: energy supplies. That critical strait of Hormus is effectively paralyzed.
1:30
Speaker 3: Saudi Arabia's largest oil refinery is closed, and Iranian missiles
1:35
Speaker 3: and drones have shut down the largest liquefied natural gas
1:38
Speaker 3: refinery on the planet in Katar. Predictably, oil and especially
1:43
Speaker 3: gas prices have jumped, stocks have taken a hit, and
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Speaker 3: long term interest rates have jumped as traders see less
1:50
Speaker 3: chance of further cuts from central banks. All of that
1:54
Speaker 3: could deal a severe blow to the global economy at
1:57
Speaker 3: an already uncertain time. But what matters, of course, is
2:02
Speaker 3: what happens from here. As I record this, it still
2:04
Speaker 3: seems perfectly possible that Washington and Tehran will somehow find
2:09
Speaker 3: an off ramp, oil will settle back to its pre
2:12
Speaker 3: conflict average of around sixty five dollars a barrel, and
2:16
Speaker 3: the global economy will dodge a blow. But as you're
2:19
Speaker 3: hearing this conversation I had on Tuesday with two of
2:22
Speaker 3: Bloomberg's sharpest analysts, there are some much darker scenarios out
2:26
Speaker 3: there which could be a lot more damaging, especially for
2:29
Speaker 3: countries without a lot of backup plans. That's one lesson
2:32
Speaker 3: I took from this discussion that the negative impacts of
2:36
Speaker 3: this mess will not land evenly and may indeed land
2:40
Speaker 3: especially heavily on some key American allies Europe for one,
2:44
Speaker 3: but interestingly also South Korea, Taiwan. Russia, by contrast, emerges
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Speaker 3: as a big winner both its budget and its war
2:53
Speaker 3: effort in Ukraine another lesson, It really matters how quickly
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Speaker 3: the US can reopen the straight of home.
3:01
Speaker 1: Moves with me.
3:02
Speaker 3: I'm delighted to say Javier blast is back Bloomberg opinion
3:05
Speaker 3: columnists covering energy and commodities for Bloomberg and the co
3:09
Speaker 3: author of the World for Sale, Money Power and the
3:12
Speaker 3: Traders who barter the Earth's resources. Have you? Thank you
3:16
Speaker 3: very much. This almost smoke coming out of your ears
3:18
Speaker 3: because I know you've been working very hard the last
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Speaker 3: few days, but I really appreciate you.
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Speaker 4: Thank you for having me and did.
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Speaker 3: Dubai Zi Daoud, chief Emerging market's economists for Bloomberg Economics,
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Speaker 3: also a regular guest on this show, So yeah'd love
3:30
Speaker 3: you to see you.
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Speaker 1: Wonderful to be here.
3:35
Speaker 3: We're going to talk about the sort of shortish term
3:39
Speaker 3: economic impact for the sort of broader economy around the
3:42
Speaker 3: world and also for oil markets in particular, and then
3:46
Speaker 3: maybe get into some of the sort of longer term stuff.
3:48
Speaker 3: But zied I know we have what we call this
3:51
Speaker 3: global shock model, which allows you to put different scenarios
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Speaker 3: for the global economy into the model and work out
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Speaker 3: what the impact is. For example, this kind of increase
4:02
Speaker 3: in energy prices, what do we get if we just
4:05
Speaker 3: feed in what's happened in the last few days and
4:08
Speaker 3: assume that it sticks around for a while.
4:10
Speaker 5: We'd publish a piece on this with my colleagues Jamie
4:12
Speaker 5: Russi and Beyond fa Envoy and actually spend some time
4:15
Speaker 5: before coming to the podcast playing some more of the
4:17
Speaker 5: shock model.
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Speaker 1: And here's the conclusion.
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Speaker 5: It is very, very hard to generate a significant recession
4:23
Speaker 5: in the US with all prices alone.
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Speaker 1: Yes, you can get.
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Speaker 5: Two consecutive quarters of negative growth, but the magnitude is
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Speaker 5: rather small. So for the US, the shock from oil
4:33
Speaker 5: is not a growth shock. It's more of an inflation shock.
4:36
Speaker 5: That is different to other countries in the UK, in
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Speaker 5: the Euro Area, in China and possibly and even in India,
4:43
Speaker 5: oil prices would mean slower growth and it'd mean higher inflation.
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Speaker 3: You almost sound disappointed in saying you just haven't been
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Speaker 3: able to get a recession out of this. No, matter
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Speaker 3: how hard you tried with the model. We're very glad
4:54
Speaker 3: obviously that we don't get a recession out of this,
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Speaker 3: But what are we looking at in terms of inflation,
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Speaker 3: say in Europe the UK as a result of this
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Speaker 3: and the impact on growth.
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Speaker 5: So if we plugging an extreme ore price increase, which
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Speaker 5: is one hundred and eight dollars all price, if you're
5:09
Speaker 5: thinking about the euro Area and the UK, we're talking
5:11
Speaker 5: about a growth shock which is like half a percentage
5:14
Speaker 5: point at peak, and an inflation shock of around one
5:17
Speaker 5: percentage point. These are not exigible numbers, but you know,
5:21
Speaker 5: for the US is much smaller than what used to be.
5:24
Speaker 3: So it's depending on where you are. It's a kind
5:26
Speaker 3: of half a percentage point on the inflation rate, maybe
5:29
Speaker 3: a little bit more in the US, and then a
5:31
Speaker 3: sort of somewhat less than that on the growth rate,
5:34
Speaker 3: at least if you're in the Europe or UK. And
5:36
Speaker 3: I do notice one immediate result, which is a bit
5:38
Speaker 3: closer to home, is vestors were expecting and economists we
5:42
Speaker 3: were expecting a second interest rate cut this year in
5:46
Speaker 3: the UK, which will obviously would feed into a lot
5:48
Speaker 3: of people's mortgages, and as of today, there's almost no
5:54
Speaker 3: expectations that's going to happen in the next month. In
5:56
Speaker 3: the US is less affected because it might get the
6:00
Speaker 3: higher inflation, but then that would stimulate lots of those
6:05
Speaker 3: shale producers to get going.
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Speaker 5: Yeah, so I think there's a lot of analogies to
6:10
Speaker 5: the Iraq War in two thousand and three. People are
6:12
Speaker 5: comparing the twenty twenty six war in Iran to the
6:15
Speaker 5: two thousand and three invasion of Iraq. One thing that
6:18
Speaker 5: has changed significantly in the US since then is positioned
6:21
Speaker 5: as a net oil exporter. In two thousand and three,
6:25
Speaker 5: the US was a huge net oil importer. Today is
6:29
Speaker 5: a small exporter. What that means is that when you
6:33
Speaker 5: get an all price shock, some segments of the US
6:35
Speaker 5: economy benefit from this. Now, I know the shock inaggurgate
6:39
Speaker 5: may not seem so big, by in economics these days
6:42
Speaker 5: we think about inequality as well, so it doesn't spread
6:45
Speaker 5: out evenly. The segments of the US economy that benefit
6:48
Speaker 5: from how all prices are energy companies. But there's a
6:52
Speaker 5: whole segment of consumers in the US who will suffer
6:56
Speaker 5: from how all prices. As fuel prices start to increase,
7:00
Speaker 5: there is an inequality effect here, and it matters. It
7:03
Speaker 5: matters because President Donald Trump when he came to office,
7:07
Speaker 5: if you think about his economic agenda, lower interesturation is
7:10
Speaker 5: definitely up there, and lower oil prices were there, and
7:13
Speaker 5: this war that's a threat to both.
7:15
Speaker 3: And we have certainly heard some concerns around that in
7:18
Speaker 3: the US, have you. A Ziah has mentioned one of
7:21
Speaker 3: the big things that means that we tend to say
7:23
Speaker 3: all price shocks and not what they used to be
7:26
Speaker 3: in their impact, namely that the US is now a
7:29
Speaker 3: big exporter of energy, is not nearly as reliant or
7:32
Speaker 3: at all reliant really on Middle East oil. But we
7:35
Speaker 3: are seeing a reaction in markets to the disruption on
7:39
Speaker 3: the straits of forem moves, which are still pretty important
7:41
Speaker 3: to the global economy. So what are the risks there?
7:44
Speaker 3: How are you looking at it?
7:45
Speaker 4: So far?
7:46
Speaker 6: So good or considered? I mean, you have asked me
7:50
Speaker 6: decay the goo tomind the market reaction to what has
7:54
Speaker 6: unfolded over the last few hours since Saturday. I will
7:58
Speaker 6: have expected much much higher oil prices, certainly about one
8:02
Speaker 6: hundred dollars by now. And I don't want to sound
8:06
Speaker 6: this as a celeboratory that it has not happened. I mean,
8:08
Speaker 6: the price of oil has increased quite significantly already. We
8:11
Speaker 6: are talking about already a ten to fifteen percent increase
8:15
Speaker 6: since the hostility started, and it's still early hours.
8:18
Speaker 4: I have kind of chwer scenarios on my mind.
8:20
Speaker 6: It's one that I'm not particularly concerned because we don't
8:24
Speaker 6: get two one hundred dollars, and if we get thereabout that,
8:28
Speaker 6: this is not like a long lasting price shock. We
8:32
Speaker 6: are eighty to one hundred for a couple of weeks.
8:34
Speaker 6: It's nothing for the global economy. I'm expecting still I
8:37
Speaker 6: get a lower mortgage rate this year. But this is
8:41
Speaker 6: a thing that the United States has four or five
8:44
Speaker 6: days to reopen the Stralia hormos before it gets really
8:48
Speaker 6: really ugly. I mean, we can all make worst cases
8:51
Speaker 6: scenarios and best cases scenarios. I mean, the best case
8:54
Speaker 6: scenario is that by the end of the week the
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Speaker 6: oil market is lower because the Australia hormos has real
9:00
Speaker 6: The worlst case scenario is that these last three months
9:04
Speaker 6: and we don't get a drop of Middle East and
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Speaker 6: oil on that period, in which case I don't want
9:09
Speaker 6: to give ideas, but I think that Siad needs to
9:12
Speaker 6: put an oil price on the shock model that it
9:15
Speaker 6: starts with a two and probably followed by a five
9:18
Speaker 6: and then a zerial.
9:18
Speaker 3: So I think lots of people are familiar with the
9:21
Speaker 3: shale revolution in the US and what that's done for
9:23
Speaker 3: the US, But a lot of people in the last
9:25
Speaker 3: few days have highlighted that China, for example, gets a
9:28
Speaker 3: significant chunk of its oil from Iran and India. Other
9:34
Speaker 3: countries also potentially quite reliant on straight to form moves
9:39
Speaker 3: for their oil. They also have more alternatives, alternative roots
9:44
Speaker 3: for the oil and also alternative sources of energy.
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Speaker 4: Is that the difference.
9:50
Speaker 6: I think that we all have a skin on the
9:52
Speaker 6: game on the straight of hormones and what is happening
9:54
Speaker 6: just generally on the Middle East. Whatever you get the oil,
9:57
Speaker 6: it doesn't matter because it's going to be priced on
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Speaker 6: a global market, and therefore you're affected by the same price.
10:02
Speaker 6: Even you are important or your oil say from Brazil
10:06
Speaker 6: far far away from the conflict across the Atlantic, you
10:09
Speaker 6: will be still paying a global pride that is determined
10:12
Speaker 6: by what is happening in the Middle East.
10:14
Speaker 4: So effectively everyone has the skin of the game.
10:16
Speaker 6: China is the largest buyer of crude oil from the
10:19
Speaker 6: Persian Gulf, so it has a lot of interest in
10:22
Speaker 6: that that remains open. And it was interesting that yesterday
10:26
Speaker 6: the Chinese authorities were on the phone with the Iranian
10:29
Speaker 6: authorities and this morning Beijing has pood estainment just basically
10:33
Speaker 6: reiterating we want to see the street hormones open. Of
10:36
Speaker 6: course it was a Chinese statement, so it was on
10:38
Speaker 6: the one hand, on the other just basically as all
10:41
Speaker 6: the parties, including the United States, to stop bombing each other.
10:44
Speaker 6: But the focus on the shipping lanes from China was
10:47
Speaker 6: not missed. And I wonder whether at some point we
10:52
Speaker 6: are going to have I think that rather quickly, and
10:55
Speaker 6: I believe that that's happening already behind the scenes.
10:58
Speaker 4: We have a conversation that is going to.
11:00
Speaker 6: Involved multiple navies, multiple regional players trying to keep the
11:05
Speaker 6: hormones open for the sake of the global economy. Whether
11:09
Speaker 6: we can see something similar to Ernest World, which was
11:15
Speaker 6: an operation in the eighties where the US provided escort
11:19
Speaker 6: to convoys of oil tankers in and out of the
11:21
Speaker 6: Persian Gulf. I think that that is one of the
11:23
Speaker 6: things that the industry is right now discussing with the
11:25
Speaker 6: US government.
11:27
Speaker 3: So yeah, I mean you're sitting in Dubai. We've had
11:30
Speaker 3: quite a lot of discussion here, you know. Of course
11:32
Speaker 3: it's been a sore point for the UK government. There's
11:35
Speaker 3: a lot of talk, sort of anecdotal evidence of people
11:38
Speaker 3: moving to Dubai, and it's more than anecdotal from a
11:41
Speaker 3: Bloomberg standpoint, because we see clients hedge fund investors moving
11:47
Speaker 3: their accounts from London to Dubai. But part of that
11:51
Speaker 3: was that Dubai was felt to be not just very
11:54
Speaker 3: low tax or no tax, but safe and secure. What's
11:58
Speaker 3: at stake if economically for Dubai, which doesn't have relative
12:03
Speaker 3: to its neighbors, doesn't have a huge amount of oil,
12:06
Speaker 3: if you have a lot of tourism and air plane
12:10
Speaker 3: disruption over the next few months, and people just generally
12:13
Speaker 3: stop thinking it's a safe place to go, or at
12:16
Speaker 3: least think it's a less safe place to go.
12:19
Speaker 1: Yeah.
12:19
Speaker 5: I think in terms of the business model, I think
12:22
Speaker 5: Dubai and the rest of the GCC is trying to
12:24
Speaker 5: diversify away from oil, and Dubai has basically succeeded in this,
12:28
Speaker 5: and one sector where the whole region has succeeded is
12:31
Speaker 5: moving into logistics, having big airports, big airlines, big ports.
12:35
Speaker 1: That is obviously that model is under That business model
12:37
Speaker 1: is under threat. Now my hunch for.
12:40
Speaker 5: Dubai is it's probably going to be the business model
12:42
Speaker 5: is going to be more resilient than we expect. And
12:45
Speaker 5: it's more resilient because I think if you're a logistical hub,
12:48
Speaker 5: it's hard to change geography. You're sitting somewhere between Asia,
12:51
Speaker 5: Europe and Africa. You probably need somewhere in the middle
12:55
Speaker 5: to be a hub. I think a lot of Dubai's
12:57
Speaker 5: residents do like living here and they're for the more
13:00
Speaker 5: stick event than we think, although a lot of them
13:02
Speaker 5: are foreign. And I think also if the conflict ends,
13:06
Speaker 5: whenever that ends, Dubai does tend to benefit from conflicts
13:10
Speaker 5: and money that flows in from conflict zones.
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Speaker 1: So I think the business model I'm less worried about.
13:15
Speaker 5: What I'm worried about is a security model of the GCC,
13:17
Speaker 5: not just to buy, but the whole of the Gulf.
13:20
Speaker 5: You know, one pillar of the GCC is the American
13:22
Speaker 5: security umbrella, and that did fail in the past, and
13:25
Speaker 5: that's definitely failing now. Let's remember under the current Trump administration,
13:30
Speaker 5: the GCC hosted Trump for his first presidential visit. Excluding
13:33
Speaker 5: the Vatican. They have pledged trillions of dollars to Trump
13:39
Speaker 5: in terms of investment and purchases and even O PET plus,
13:42
Speaker 5: which is about said the Arabia started to increase all
13:45
Speaker 5: apps significantly short shortly after Trump took office after months
13:49
Speaker 5: of delay.
13:50
Speaker 1: And what did they get.
13:51
Speaker 5: Other got attempt directly by is roll back in September.
13:54
Speaker 5: When it came to lobbying between the GCC, which did
13:57
Speaker 5: not want a ward to start with Iran and which
14:00
Speaker 5: wanted to start the World Iran, the GCC came second
14:03
Speaker 5: to Israel. And now it's the question about Iran. Whatever
14:07
Speaker 5: system ends up happening ends up taking place in Iran,
14:09
Speaker 5: whether it's a current system or a new one. They
14:12
Speaker 5: know that if they want to lash out of the US,
14:14
Speaker 5: the GCC is sort of a soft spot that is nearby.
14:18
Speaker 5: And I think that security model will probably be a
14:20
Speaker 5: revised in the GCC when this war ends, and which.
14:23
Speaker 4: Just remind people.
14:24
Speaker 3: So the GCC is the Golf Cooperation Council, which is
14:27
Speaker 3: basically all of the countries that you would think would
14:28
Speaker 3: be in a group of countries in the Gulf have you,
14:32
Speaker 3: there's a few other pieces that we should unpack that
14:33
Speaker 3: are also perhaps a little bit less familiar to people,
14:37
Speaker 3: and gas was the one I wanted to ask you
14:39
Speaker 3: about because a liquid natural gas, a liquified natural gas
14:43
Speaker 3: has obviously been sort of one of the big new
14:46
Speaker 3: newish players in the energy scene, and it seems like,
14:50
Speaker 3: certainly from reading our coverage was much less prepared for
14:55
Speaker 3: what's happened in the last few days than the ore markets.
14:59
Speaker 3: So just talk through why do we get that significant
15:02
Speaker 3: response and what's potentially the impact for countries that are
15:06
Speaker 3: quite reliant on this gas.
15:07
Speaker 6: LNG is dominated by Qatar. They produce twenty percent of
15:12
Speaker 6: the walls LENG. And with oil, we have a couple
15:17
Speaker 6: of bypass routes where oil can get out of the
15:21
Speaker 6: Persian Gulf. There is a pipeline that runs from the
15:24
Speaker 6: eastern coast of Saudi Arabia into the west coast, effectively
15:28
Speaker 6: from the Persian Gulf into the Red Sea that is
15:31
Speaker 6: a deep bottled neck in some oil will continue living
15:34
Speaker 6: the area. There is a pipeline effectively from Abu Dhabi
15:37
Speaker 6: area to Fujia which is in the Araby and c
15:41
Speaker 6: outside the Strada hormos, so that that kind of provides
15:44
Speaker 6: some relief for the oil market. It's not like shutting
15:47
Speaker 6: down the strait of hormones does in shutdown completely the
15:50
Speaker 6: sport capacity or some of the countries with LNG we
15:53
Speaker 6: do not have that advantage. Everything has to go by
15:56
Speaker 6: tanker through the straight of hormones. And I think that
16:00
Speaker 6: that also there is a lot more concern about the
16:02
Speaker 6: facilities themselves. I mean these are very concentrated facilities in
16:07
Speaker 6: one single point in Katar. We have oil facilities all
16:12
Speaker 6: around the person Gulf, multiple oil fields, multiple oil refineries,
16:15
Speaker 6: multiple oil poorts. If one is attacked, we still have
16:20
Speaker 6: some resilience. And here we are talking about something that
16:23
Speaker 6: is an area of fifty by fifty miles where fourteen huge.
16:28
Speaker 4: Allergy trains concentrate in Katar.
16:31
Speaker 6: You attack that and it is goodbye for twenty percent
16:34
Speaker 6: of the world's allergic capacity for years, not weeks, no months,
16:38
Speaker 6: but years.
16:39
Speaker 4: So that is what the concern is.
16:42
Speaker 6: I mean, good news is we are in the shoulder
16:45
Speaker 6: season for natural gas. You're going to have a problem
16:48
Speaker 6: with natural gas supply. Right now is about the best
16:51
Speaker 6: time of the year because in the northern hemisphere we
16:54
Speaker 6: are getting out of the winter into the springs, so
16:56
Speaker 6: the money is literally dropping by the day and in
16:59
Speaker 6: a yeah, it's not yet the summer, so the air
17:02
Speaker 6: conditioning nies are not really great. And we use natural
17:06
Speaker 6: gus in Asia to fire power plans to produce electricity
17:10
Speaker 6: to run air conditioning, so we are we have a
17:12
Speaker 6: bit of time, and perhaps that's the reason why the
17:15
Speaker 6: market has not reacted as much as you will expay
17:18
Speaker 6: yes prices when I have fifty percent yesterday, twenty percent today.
17:22
Speaker 4: But we're around fifty euros per megab the hour.
17:25
Speaker 6: We reach three hundred and fifty during the crisis in
17:29
Speaker 6: twenty twenty one, twenty twenty two, so it's not as bad.
17:32
Speaker 6: But it can get really bad on LNG. And again
17:35
Speaker 6: it's the duration of the disruption. A few days the
17:38
Speaker 6: system can manage. There is not buffer everywhere. If by
17:43
Speaker 6: kind of end of week, say Friday, the market starts
17:46
Speaker 6: to get conveniced that actually we are really hitting into
17:49
Speaker 6: a four or five week period, then I think that
17:52
Speaker 6: things change a lot. What if this is actually four
17:56
Speaker 6: or five weeks, we are talking about forty days rather
17:58
Speaker 6: than twelve, that match really changed things. And in LNG
18:02
Speaker 6: it will be dramatic.
18:04
Speaker 3: And in a few days it should be said We've
18:05
Speaker 3: had a lot more ordnance fired and I'm sure a
18:09
Speaker 3: lot more damage on the ground in Iran and of
18:13
Speaker 3: course human implications of that than we had in the
18:16
Speaker 3: war last year. We're not going into that because that
18:19
Speaker 3: is not the focus of this podcast. But it is
18:21
Speaker 3: always a lesson these times in the connectedness of the
18:25
Speaker 3: global economy and in some unexpected ways. So reading your
18:29
Speaker 3: piece and reading some of the other analysis haveavier, you
18:32
Speaker 3: discover it's not just China that is pretty dependent. China's
18:36
Speaker 3: important about a third of its lerg from Katar last year,
18:39
Speaker 3: but places like Pakistan ninety nine percent of its gas
18:44
Speaker 3: came from Katar. You have Pakistan, India, Bangladesh. They're in
18:48
Speaker 3: the frame. I mean, I take your point. Havevier that
18:50
Speaker 3: timing wise is not heating up in those countries yet,
18:54
Speaker 3: but are they potentially more significantly affected short term? They
18:59
Speaker 3: don't have the same kind of buffers that China has.
19:01
Speaker 3: They're gonna be very effective. In China has a lot
19:04
Speaker 3: of buffers. First of all, in terms of lergy. It
19:06
Speaker 3: can just literally shut down any use which is not
19:10
Speaker 3: very large, any use of gas in the electricity system,
19:13
Speaker 3: go to col can do call to chemicals to replace
19:16
Speaker 3: one of the gas in the chemical industry. India can
19:19
Speaker 3: do a bit of that, but I think that countries
19:21
Speaker 3: like Pakistan Banglades, they do not have many other options.
19:24
Speaker 3: And if this crisis last, it is going to be
19:26
Speaker 3: really felt in Asia in terms of leng where where
19:30
Speaker 3: things are gonna get very ugly.
19:32
Speaker 4: You allow me.
19:33
Speaker 6: There are two other commoities that I think that they're
19:36
Speaker 6: going to be critical that we have not talked about,
19:38
Speaker 6: and they're going to be inside the Persian Gulf. One
19:41
Speaker 6: just generally is food. The region produces very little food.
19:46
Speaker 6: A lot of it comes imported by ship and air,
19:49
Speaker 6: and those supply chains have been disrupted. Yes there are stockpiles,
19:55
Speaker 6: but this goes down four or five weeks. Some food
19:59
Speaker 6: items will not be on the menu in the Persian
20:02
Speaker 6: Gulf region.
20:03
Speaker 4: The other one that I am.
20:05
Speaker 6: Extremely concerned and can't really make a huge escalation that
20:11
Speaker 6: I don't wish to see, but it's to me the
20:13
Speaker 6: most important commodity in this world, and it could make
20:17
Speaker 6: it and in hours is water. The region relies on
20:22
Speaker 6: the salinization. Some countries ninety percent of their drinking water
20:27
Speaker 6: come front plants that process seawater into drinking water. Shut
20:32
Speaker 6: down those by attack, and it's three or four days
20:37
Speaker 6: before the countries really get very thirsty.
20:39
Speaker 4: They will not be water.
20:41
Speaker 6: In Kuwai Bahrain, the eastern coast of Saudi Arabia, the
20:45
Speaker 6: uie Katar READD itself relies ninety percent of its water
20:50
Speaker 6: supply on a single desalinization plan.
20:53
Speaker 4: In the course of the Persian Gulf.
20:56
Speaker 6: Those are absolutely critical items. If Iran moves to attack that,
21:02
Speaker 6: I will expect a massive retaliatory action by the Persian
21:06
Speaker 6: Gulf countries and also the United States. But that to
21:09
Speaker 6: me is something that has not been really as spoke
21:12
Speaker 6: so far because it's almost taboo. No one one to
21:16
Speaker 6: address that because it will really change the dynamic.
21:31
Speaker 3: We tend to think about big cities in Europe and
21:35
Speaker 3: elsewhere being very vulnerable in the modern world to a
21:40
Speaker 3: power cust or not getting food for a few days
21:42
Speaker 3: because of how tightly wired our economies are now. But
21:46
Speaker 3: I get that seems even more true at a very
21:49
Speaker 3: basic level.
21:50
Speaker 1: For the golf, yeah, absolutely.
21:51
Speaker 5: I mean a reductive model for the golf is that
21:55
Speaker 5: it exports oil and gas and imports everything else.
21:58
Speaker 1: Including food location.
22:00
Speaker 6: The joke in the oil industry has been always that
22:05
Speaker 6: the Middle East esports hydro carbons and imports carbohydrates. That's
22:11
Speaker 6: the equation.
22:14
Speaker 1: And we've seen a sample of this. I mean, it's
22:15
Speaker 1: not a secret.
22:16
Speaker 5: Every single Gulf country has a food security program, usually
22:21
Speaker 5: part of this several wealth fund. We've seen a sample
22:24
Speaker 5: of this when there was the blockade on Katar in
22:26
Speaker 5: twenty seventeen and supply chains moved, except that was much simpler.
22:30
Speaker 5: Then Ata had to import the dairies from Turkey and
22:34
Speaker 5: Iran instead of getting the stairies from Saudi Arabia. You know,
22:37
Speaker 5: if the straight performance is shot and you can't get
22:39
Speaker 5: your input from anywhere else in the world, that's a
22:42
Speaker 5: much tougher problem to solve. I guess emergency airlines would
22:45
Speaker 5: be the solution, but it's obviously no ideal given the
22:48
Speaker 5: size of the population.
22:49
Speaker 4: Amazing.
22:50
Speaker 3: Have you remember you when we talked about Venezuela a
22:53
Speaker 3: few months ago, you also highlighted the importance of food
22:56
Speaker 3: and the lack of food in that country. So I
22:58
Speaker 3: appreciate that you're not always the thinking about oil. You've
23:00
Speaker 3: also got your right to the other potentially more important commodity.
23:04
Speaker 3: But another thing you said on that show was you
23:06
Speaker 3: made the point that that operation in Venezuela, along with
23:11
Speaker 3: the other policies in Latin America, were potentially greatly increasing
23:15
Speaker 3: the US effective control over the energy market. I mean,
23:19
Speaker 3: if there's a world in which the US is quote
23:22
Speaker 3: unquotes running Iran in the way that it's running Venezuela,
23:28
Speaker 3: how much does that increase that kind of that control
23:33
Speaker 3: over the energy market.
23:34
Speaker 6: It's quite funny, if I may put it that way.
23:36
Speaker 6: I was talking to European a diplomat this morning who
23:40
Speaker 6: said to me that the White House must be one
23:44
Speaker 6: of the luckiest organization in this planet, because every time
23:48
Speaker 6: that they go to our country to liberated it, they
23:52
Speaker 6: find oil. And I thought that the diploma had a point.
23:57
Speaker 6: I hesitate to make a parallel between Venezuela and Iran.
24:00
Speaker 6: Oil is always part of American foreign policy, but maybe
24:06
Speaker 6: the first time that I say this, but this war
24:09
Speaker 6: in the Middle East is not about oil this time.
24:12
Speaker 6: I do think that it's about the influence of Israel
24:15
Speaker 6: in the US administration, and it's about the policies of
24:18
Speaker 6: the Iranian regime or missiles and nuclear et cetera.
24:21
Speaker 4: Et cetera.
24:22
Speaker 6: I mean, obviously, will the US care about Iran the
24:25
Speaker 6: same way that it cares if then't have oil.
24:27
Speaker 5: No.
24:27
Speaker 6: Will Iran be able to finance a nuclear program and
24:30
Speaker 6: a missile program the way that has been able to
24:33
Speaker 6: withow oil. No, absolutely impossible. But I don't think that
24:37
Speaker 6: this is a war where the US wants the Iranian oil.
24:40
Speaker 4: That's a fair point.
24:41
Speaker 3: I mean, I think at the basic level, they clearly
24:42
Speaker 3: want a change in the regime, in its policy. It's
24:46
Speaker 3: interesting that even in that long sort of shopping list
24:49
Speaker 3: of changes they want from the government, it doesn't talk
24:51
Speaker 3: about who they're sending the oil to or anything up.
24:53
Speaker 3: So I think you're probably right. You can't help thinking, though,
24:56
Speaker 3: have you? And one of our columnists, Mark Champion, made
24:59
Speaker 3: this point in a slightly different way this morning. Longer term,
25:03
Speaker 3: one of the winners from this policy could be President Putin.
25:08
Speaker 3: I mean, we've tended to see him as a loser
25:09
Speaker 3: because Iran was an ally. He's been unable to support
25:14
Speaker 3: that ally, So it sort of sends a message that
25:16
Speaker 3: it's not so great being friends with Russia. It also
25:18
Speaker 3: potentially could strengthen its hands and selling oil to places India,
25:24
Speaker 3: China that are not able or don't find it run
25:27
Speaker 3: a reliable source anymore. And crucially having more resources in
25:32
Speaker 3: Ukraine at a time when the US is going to
25:34
Speaker 3: be even less keen to provide things that can go
25:37
Speaker 3: to Ukraine.
25:38
Speaker 4: So is Russia a winner from this? I think that
25:40
Speaker 4: Rassia is a winner.
25:41
Speaker 6: You see some of the commentary emerging from the Kremlin
25:45
Speaker 6: on social media. They barely can hide their satisfaction to
25:48
Speaker 6: see the oil price going up. The traditional said an
25:51
Speaker 6: American foreign policy has been that that Rasia is a
25:55
Speaker 6: gas station mascaradeing as a country, and I think that's
25:58
Speaker 6: largely true, at least the financing of the country. All
26:01
Speaker 6: of a sudden, the price of oil is much higher,
26:03
Speaker 6: and it was only a few days ago ten fifteen
26:05
Speaker 6: to twenty percent higher. At the price of Russian oil
26:09
Speaker 6: is even much higher because Russia was really struggling this
26:12
Speaker 6: time to sell his oil in the black market, because
26:15
Speaker 6: a number of countries the market, the global oil market
26:18
Speaker 6: was so well supplied that some countries were able to
26:20
Speaker 6: switch from Russian oil blacklisted oil to say the mainstream market.
26:25
Speaker 4: India was a case in point.
26:27
Speaker 6: Russia was keeping up his production, but it was filling
26:30
Speaker 6: up loading tanker after tunker, and those tankers were sitting
26:33
Speaker 6: in the high seas unable to dis charge because they
26:36
Speaker 6: didn't have a client. They didn't have a customer for
26:38
Speaker 6: that oil. All of a sudden, we are going to
26:41
Speaker 6: see that oil that is floating around near the coast
26:43
Speaker 6: of China, near the course of India's going to find
26:46
Speaker 6: a home.
26:46
Speaker 4: India and China are going to be taking those barrels, and.
26:49
Speaker 6: Russia is going to be able to set a price
26:52
Speaker 6: that is going to be much higher than a few
26:53
Speaker 6: days ago where it had to be really salinated at
26:57
Speaker 6: these stress levels because only by for in huge discounts,
27:01
Speaker 6: it will entice the Indian refiners to buy and risk
27:05
Speaker 6: the potential blowback from America and the White House. Now
27:09
Speaker 6: I will expect that the White House is going to
27:11
Speaker 6: be turning a blind eye to any Indian or Chinese
27:14
Speaker 6: refiner buying Russian oil. Therefore, the Russian field that they
27:17
Speaker 6: have been on a stronger hand, those discounts are no
27:20
Speaker 6: longer there, and it's just basically I Yuana, weare oil,
27:23
Speaker 6: which by the way, is the only oil of a
27:25
Speaker 6: label right now to you Indian refiner. The price is
27:29
Speaker 6: the market price, take it or live it, and they
27:31
Speaker 6: are taking it.
27:32
Speaker 3: And I guess last word to you, going back to
27:35
Speaker 3: that global model, I mean one thing that is pretty
27:37
Speaker 3: striking when you look at the way the impacts, the
27:41
Speaker 3: economic impacts of this war are being distributed. It feels
27:46
Speaker 3: like the biggest costs are often going to be felt,
27:50
Speaker 3: or at least the risks are potentially being felt by
27:53
Speaker 3: some of America's biggest allies, and the Gulf. In Europe,
27:58
Speaker 3: the UK householders who aren't going to get their rake cart,
28:03
Speaker 3: and Russia's one of the winners, and the US economy
28:07
Speaker 3: overall relatively unaffected. Or do you think still you should
28:11
Speaker 3: need to keep an eye on that gasoline price.
28:13
Speaker 1: I think you need to keep an eye on the
28:15
Speaker 1: gasoline price.
28:16
Speaker 5: You know, if you think about the winners and losers
28:17
Speaker 5: in the US, you have a few companies that are
28:19
Speaker 5: winning and a large number of consumers who are losing.
28:22
Speaker 5: And you know, in terms of if you're going into elections,
28:25
Speaker 5: the numbers are not equal. There's a larger number of
28:28
Speaker 5: consumers then there is a number of companies. And I
28:32
Speaker 5: think even if you think about the winners in Russia
28:35
Speaker 5: as economically a winner, every old producer is a winner
28:37
Speaker 5: in this case if you're not part of this region.
28:39
Speaker 5: Of course, I think also US remember that Russia shares
28:43
Speaker 5: borders with Iran. It's already lost influence in Syria, and
28:48
Speaker 5: it US applies it with Drunze for as war in
28:51
Speaker 5: Ukraine and losing that government if it ends up losing it,
28:54
Speaker 5: and that sort of ally might be a political loss,
28:58
Speaker 5: which partly of says the economic game bag guests from
29:01
Speaker 5: higher oil prices.
29:03
Speaker 3: Well, I can imagine that we will have plenty more
29:05
Speaker 3: to talk about on this in the coming weeks, at
29:07
Speaker 3: least if it does carry on for those five or
29:10
Speaker 3: six weeks that have been talked about. But z Dode,
29:13
Speaker 3: Javier Blast, thank you so much for making the time
29:15
Speaker 3: on a very busy day. Thank thanks for listening to
29:28
Speaker 3: Trumpnomics from Bloomberg. It was hosted by me Stephanie Flanders,
29:30
Speaker 3: and I was joined this week by Bloomberg opinion columnist
29:33
Speaker 3: Javier Blass and Zia Dold, chief Emerging Market's economists for
29:37
Speaker 3: Bloomberg Economics. Trumpnomics was produced by Summer Sadi and Moses,
29:41
Speaker 3: and we've helped this week from Stephen Carroll, Andrew Gavin
29:44
Speaker 3: and Amy keen sound design by Blake Maples and Kelly Garry,
29:48
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