00:00Why focus on Iran and not so much on the White House?
00:03Well, thanks very much to both of you.
00:05Obviously, President Trump is still trying to balance domestic politics in the election with this military operation.
00:11And so that reduces his leverage in the short term.
00:14You know, over the long run, the U.S. has the capability, along with its allies, to seize back control
00:19of this chokehold geographically and to clear passage, free passage for ships and tankers.
00:26But in the near term, the president is sort of trying to do a diplomatic solution or trying to avoid
00:31escalating the economic shock that's going to ramify back on on him and his ruling party.
00:38But what happened? I mean, if the U.S. does pull out of this and that essentially does leave Iran
00:43to keep on having this tight grip on the Strait of Hormuz, I mean, what would it take, Matt, to
00:50really reopen this waterway now?
00:52Well, see, that's the thing. So the Kuwait tanker that was just struck off Dubai, which you all have been
00:59talking about, that's the real critical signal.
01:02Because remember that it's now been a week since President Trump sort of pivoted and started trying to move toward
01:06negotiations.
01:07He's given several ultimatums. He's extended the deadline.
01:10And the question was, would the Iranians retaliate or would they reciprocate?
01:15Now what it looks like they've done is retaliate. And so it will it will drastically reduce the market's confidence
01:21in the ability of the president to do a diplomatic solution.
01:24So if he actually and I'm not sure that I believe this report that's going around saying, you know, that
01:31he would pull out without clearing the Strait.
01:33But let's say he did. That means he's putting the onus on Iran and Iran would then look like they're
01:39the you know, they're they're the bad guy because they're the one attacking shipping.
01:42But if they continue to attack shipping, well, that would impede the oil flow and push up the oil price
01:47and he'd have to reintervene.
01:49And so it's just not a very credible report.
01:52The only thing you could have is maybe both sides are just winking at each other and the Iranians stop
01:56attacking ships while the president stops the assault.
02:00And that would effectively be a backroom negotiation.
02:05So what is the what is the likely off ramp?
02:11I mean, and is it still one off ramp or to your point, can we I don't know, can we
02:16disentangle the two now?
02:18The the global energy story and the actual political strat political objectives that they had originally between Israel, the U
02:28.S. and Iran.
02:30Right. So if you're looking for like an endgame, the United States is definitely going to assert control over the
02:36waterway and free passage.
02:37And it has the capability of doing that. And again, with allies in particular, it would ultimately be able to
02:42do it.
02:43The question is, can it do it without such an extensive energy shock and economic shock that we end up
02:49with a really negative global economy and instability?
02:53You know, and obviously that's not that's not part of the objective.
02:57So there can be a sort of tacit agreement for the U.S. to call off the assault.
03:03And then if the Iranians stopped attacking shipping, then that may be a temporary solution.
03:08But of course, ultimately, the U.S. also wants to prevent Iran from getting a nuclear weapon.
03:14And one key demand that they will continue to make is that at least that they find the highly enriched
03:20uranium that is unaccounted for.
03:22And the Iranians may not give that up.
03:24And so the fighting could then escalate later, particularly after the election, when the U.S. doesn't care as much
03:29about the oil price.
03:33The news this week, Matt, was the Houthis have entered into this conflict and that, you know, the Red Sea
03:40is now at risk of seeing what we're seeing in the Strait of Hormuz.
03:44Do you see that? Do you see that this next chokehold is going to be at the Red Sea?
03:50I don't think that'll be the important one.
03:52But yes, it could definitely escalate and you could have some ships struck there.
03:55And that would that would certainly add to the sense of panic in the markets.
03:58But investors should stay focused on Hormuz.
04:01That's what really matters in terms of volume.
04:03And that's where you don't have alternate entry and exit routes.
04:07So that's the true bottleneck.
04:08With the Red Sea, you can always go around Africa.
04:11There's multiple enter entries and exits.
04:14So also the Houthis just don't have the same capability.
04:17And countries have been dealing with the Houthis for a while.
04:19So it's sort of a sideshow.
04:21It could add to some of this negative sentiment.
04:24But really, what we need to see is Iran and the U.S. and Israel stop targeting critical shipping and
04:32energy infrastructure.
04:34And if that's happening, even if they're still hitting each other's military bases or things,
04:39the market will tend to look through it if they think that there's that silent agreement to allow oil to
04:45reach the global markets.
04:48There's a massive ground force that is U.S. ground force that is building in that part of the world.
04:53Just lay out what you think we should be expecting in as far as that specific card is concerned.
05:00Yeah, generally, there's zero chance that the U.S. is going to invade in a large-scale way.
05:05This is not a ground operation to hold territory for a long time in Iran.
05:10You could use special forces.
05:13And if you had the intelligence and the confidence that you could seize the highly enriched uranium,
05:17then that would be a very clear use of special forces, although also extremely risky.
05:23But the other thing you could do is maybe you could provide better targeting for U.S. forces,
05:28particularly with regard to the drone-making capabilities in the drone launch sites,
05:34because that's a tricky thing.
05:36And as we just saw, this Kuwait tanker was hit by a drone.
05:38Drones are hard to stop.
05:41But you're not talking about the number, you know, 5,000 to 15,000 forces or marine expeditionary units.
05:47These are not units that are designed to take and hold territory for a long time.
05:51And they're not large enough to do that against, you know, Iranian armed forces.
05:57So, and then finally, like with Karg Island, you hear people talk about,
06:00well, that's sort of like going for the jugular vein of the regime.
06:02You would be cutting off its oil revenue.
06:04But you could bomb Karg Island if that was your intention.
06:07You'd massively escalate the conflict, and they would retaliate against energy infrastructure.
06:12But you don't necessarily need to put boots on the ground for that mission.
06:16So I think it'll be selective and surgical, and it'll be special forces if it happens.
06:21And do you think, Matt, if that is the case, is the U.S. slash Israel, are they any closer
06:29to, I guess,
06:31the broad objectives of either or both regime change or deterring Iran from pursuing nuclear weapons?
06:39Which, after this, I can't imagine how Iran wouldn't be tempted at having those as a deterrent.
06:47Yeah, it's tricky.
06:48You know, they have been pursuing nuclear weapons.
06:52It's obviously, it's debatable.
06:53But they had a very highly enriched uranium stockpile that they'd been developing,
06:58and they'd been developing ballistic missiles.
06:59So, you know, you can go figure on that one.
07:02But Operation Midnight Hammer really set back their nuclear program, and now they've been also punished severely.
07:09So the idea is that they've been set back.
07:12And it could be that the U.S. and Israel could have to pursue similar operations in the future
07:16if they keep returning to an attempt to build nuclear weapons.
07:19But they would also, remember, their economy has collapsed,
07:22and they have and will continue to have enormous social unrest.
07:25So it's not clear that the regime will pursue the same strategy going forward.
07:30And in the end, as I'm saying, the U.S. and its allies will be able to take Hormuz back.
07:35The only question is whether they can do it without, you know, a global, major global slowdown or recession.
07:41And it's looking unfortunate on that front.
07:44I mean, I think the markets are still in for a rude awakening as to the full economic ramifications here.
07:51What does that mean for oil prices then, Matt?
07:53Do you think that, you know, 100, I mean, I hear 140, I hear 200, if this keeps going on,
08:00and this is a prolonged sort of conflict, will we ever get back to kind of sub-100 oil?
08:06Yeah, well, you know, so we have to think in scenarios here.
08:09Right now, the president offered an off-ramp and a diplomacy,
08:13and the Iranians did exactly what they were, you know, threatening to do and not supposed to do,
08:18which was they attacked an oil tanker.
08:20So right now, I think we're going to go back up to 120, and we could even have a melt
08:25-up phase
08:25if this is not resolved over the next two weeks.
08:29You know, a melt-up phase could be really hyperbolic.
08:32I mean, you could end up with oil going up to 150, 180, you know.
08:36But at that point, you're killing global demand, and it's going to end up coming right back down
08:40as global consumption is damaged and the global economy contracts.
08:46And so what the best-case scenario here is you end up in negotiations,
08:50but then you've still got an uncomfortably high level around 100
08:53as everyone hoards oil, trying to make sure they have a stockpile in case fighting reemerges.
08:58So here it is.
08:58Okay.
08:59Oh.
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