00:00The war in Iran has shaken the Gulf region, cost lives and billions of dollars, and roiled financial markets.
00:07Afsaneh Beshalas of Rock Creek knows the region and its importance like few others,
00:11having grown up in Tehran before leaving ahead of the Islamic Republic's rise to power.
00:16We spoke with her before the U.S. and Iran agreed to a ceasefire
00:19and asked about some of the second-order effects of the conflict on the global economy.
00:26Depending on which way it goes, David, it could be, you know, if oil prices stay up
00:31for the global economy will be in a much lower growth rate, a higher inflation, interest rates would hike.
00:37You know, Kevin Warsh was selected by the president to reduce interest rates in the U.S., his first act.
00:44Even if it's not to, you know, reduce, certainly may be to keep it neutral,
00:49or there might be a scenario of a hike, which is the opposite of what we would have thought a
00:55few months ago.
00:56So there's a lot of repercussions in the U.S.
00:59The biggest repercussion is obviously outside the U.S. in the oil importing countries
01:05because oil prices, even if they go, you know, you get away from this 100 to 150,
01:11it's not just a question of prices, but it's a question of supply.
01:15What we've seen the last few weeks where a lot of people are rationing, particularly lower-income countries,
01:21are rationing to even cook food or to run their cooling and heating, whatever their energy needs are,
01:29that could be a huge impact on those countries.
01:32So that's, again, my sort of negative scenario.
01:35The positive is, you know, we go back.
01:38The big question is if there's not regime change in Iran,
01:42it may not be such a big deal for the rest of the world, but it will be very sad
01:45because if this regime stays on, they will continue to terrorize the Iranians who are living there,
01:52as they did kill 30,000, 40,000 people in January and really got away with it.
01:57So in that scenario, I think they will be more belligerent altogether, and that would be worrisome.
02:04When you talk about oil-importing countries, perhaps the two largest are China and India.
02:10Yes.
02:10What does this mean for China?
02:12Because China has had fairly friendly relations with Iran.
02:16Yes, and that's the really big question because I think close to 30 percent of China's energy,
02:25a very large share of India's energy, come from the strait, from Saudi, UAE, Qatar, Kuwait, etc.,
02:32and some of the natural gas.
02:34So they've definitely been hugely impacted.
02:38Also, we keep on talking about energy intensity in the U.S. has gone down,
02:42where we're still buying and using the same goods.
02:45Our energy intensity has gone down because we're more services,
02:48we're more financial services, etc., technology.
02:51But the goods that we're buying from China, India, and the rest of the world
02:55are still very energy intensive, and they are getting hit very badly right now.
02:59Now, China, as you know, has been diversifying its sources of energy very rapidly
03:05through doing more in power, doing, you know, from the car industry,
03:11which has become much more concentrated on EVs compared to the rest of the world.
03:15They are diversifying into nuclear.
03:17They can build nuclear power plants in a couple of years.
03:21It takes us 10 years to do it.
03:22It takes them maybe two, three years.
03:24So there's the longer term and the shorter term.
03:28In the short term, they're certainly currently impacted,
03:30and they will continue to get impacted.
03:32The big question, David, is whether there's a scenario under which
03:37we have ships that are under Chinese protection or Indian protection
03:43or Russian protection coming in somehow into the strait
03:46and being safe compared to American or, you know, European-aligned tankers.
03:53So that is the big question.
03:55That has not really sort of been a thing in the last few weeks,
03:58but it will be something to watch out for.
04:01What does this mean for the rest of the world?
04:02I mean, we focus on the big players.
04:04We focus on the Middle East and the U.S.
04:06But what does this mean for Africa?
04:08What does this mean for the rest of Asia, some of the developing countries?
04:11So, again, if you're a big Asian country right now, if you're a Japan or, again,
04:17even, you know, China, the biggest countries, Korea, you can buy energy at spot prices.
04:25You can afford to still import energy as we speak.
04:30You're paying a lot for it, but you're able to afford it.
04:34If you are a poor country like the Philippines or Bangladesh, you have two problems.
04:40One is that you can't afford to buy at spot price, so, you know, you're going to suffer.
04:45And two, it's not even a question of just price.
04:48It's a question of supply to you because the U.S. and other people who are selling
04:53will prefer to sell to the bigger, richer versus the lower-income countries.
04:58So they will get hit again.
05:00So together with all the other forces going on in the economy between what's happening with AI,
05:07what's happening with this war, you could be what's happening with climate and, you know,
05:12the parts of Africa that are running out of water, you're going to have potentially very major problems,
05:19particularly for Europe when it comes to immigration.
05:24As profound as the effects of the war are on the rest of the world,
05:28nowhere is it felt more, or more immediately, than in the Gulf states like Saudi Arabia,
05:33the United Arab Emirates, and Qatar.
05:36Before the ceasefire was agreed to, Stephen Cook of the Council on Foreign Relations told us
05:40that the critical importance of the Strait of Hormuz was not lost on those closest to it.
05:46Anybody who was looking at this situation and was concerned about the outbreak of hostilities
05:52between the United States and Iran, or Iran and anybody,
05:55had to be concerned about freedom of navigation through the Strait of Hormuz.
05:59And, of course, despite the fact that, you know, the major heavyweight Gulf states,
06:04Saudi Arabia, the United Arab Emirates, Qatar, have all placed billion-dollar, trillion-dollar bets
06:11on their countries to undertake a model of development that is beyond hydrocarbons.
06:18They still all rely on hydrocarbons, and therefore they all rely on the Strait of Hormuz.
06:24So that's one of the reasons why they sought a diplomatic solution ahead of hostilities,
06:31because I think everybody, with perhaps the exception of the President of the United States,
06:37understood that the Iranians would at least try to close the Strait.
06:44Do the Gulf states at this point have President Trump's ear,
06:47or is it just Bibi Netanyahu and his alliance with Israel?
06:52Well, I think there's been a lot of furious lobbying on the part of the Gulf leadership on the President.
06:59They all have direct lines to the President in one way or another.
07:02And they have made it clear now that the war is underway and now five weeks old
07:10that even though they didn't want the conflict, they don't want the President to end it prematurely.
07:17Their feeling is that if Iran were to have some measure of control, if not outright control, of the Strait
07:24of Hormuz,
07:25if it still retained the ability to menace these countries with drones and missiles at will,
07:33it would undermine their model of development, which they have nurtured over the course of the better part of the
07:40last decade.
07:41And that model includes being open to the world, welcoming investment from around the world in high tech,
07:47logistics, entertainment, tourism, those kinds of things that have been sources of success and development
07:56beyond hydrocarbons would be a question if these countries are threatened by an even weakened Iran.
08:03Did the Gulf states anticipate the level of effectiveness of the Iran attacks?
08:08Because they've been hit pretty badly. UAE has been. Saudi Arabia has been.
08:11Did they anticipate them being this effective?
08:14I think that no one anticipated how effective the Iranian response would be.
08:20We know they're getting help from the Russians in terms of targeting.
08:25And I think that there was an expectation that the Iranians might respond,
08:31but that there would be a limit to their response.
08:34And after the first week or two, there was a sense that the rate of fire from the Iranians would
08:40decrease significantly
08:41and they'd be able to get back to some sense of normalcy.
08:43That just has not happened.
08:45And I think that this is a very significant miscalculation on the part of the United States,
08:49on the part of Israel.
08:51And I think that the Gulf states, although very concerned about what would happen to their cities,
08:59cities like Dubai, Abu Dhabi, Manama, Riyadh even,
09:03and critical infrastructure in and around those countries,
09:06I think that they were worried about it,
09:08but didn't expect this relentless fire for five weeks and counting.
09:13At some point, this will settle down or be resolved, however it's resolved.
09:18How much damage has already been done to the Gulf states?
09:22You mentioned before the billions, even trillions of dollars that they've been investing
09:25and making that a real center for investment, for tourism, for everything else.
09:30Has that been permanently damaged, do you think?
09:32Well, the Gulf states have certainly taken a beating.
09:36Their air defense systems have worked better than some had expected,
09:41but still, the damage is undeniable.
09:44Gulf airspace has been open only at limited times and for limited purposes
09:51over the course of the last five weeks.
09:53And this entire model of development is based on attracting the best and brightest from around the world,
10:00attracting tech companies, providing entertainment venues for tourists, and the like.
10:06And I think at the moment, at least, that model has been significantly damaged.
10:11My sense is that when the crisis is over, there will be a deviation from this model
10:16so that the Gulf countries can harden their cities and invest in their defense
10:22and tighten, in some cases, their relationship with the United States in support of that.
10:28But then we'll return to this model of openness to the world so that people will come and invest
10:39and that they can proceed along some semblance of the path that they were on prior to the outbreak of
10:47hostilities on February 28th.
10:48One of the foreign policy initiatives that President Trump has been proudest of are the Abraham Accords.
10:54He thought he should have gotten the Nobel Peace Prize the first time around for what was done there.
10:58In light of what's happened, what's left of that initiative? Can it be revived?
11:02Well, what's been surprising about the Abraham Accords is how actually durable they've been.
11:08Setting aside for just a moment the current conflict through two years of very intense combat in the Gaza Strip
11:17in which tens of thousands of Palestinians were killed, the Abraham Accords survived.
11:23The core countries of the Abraham Accords have never broken diplomatic relations with Israel.
11:30And throughout this conflict, there has been some measure of coordination between Israel and countries in the Gulf
11:38just by dint of the fact that they are all members of Central Command,
11:42the combatant command from which the United States secures the Middle East.
11:47So it is certainly a surprise that they've been durable through these last now almost three years of conflict throughout
11:56the Middle East.
11:57The big question prior to Hamas' October 7th attacks on Israel was when Saudi Arabia and Israel would normalize.
12:06Now the question is if Saudi Arabia and Israel will normalize.
12:09And I think that as a result of both the conflict in the Gaza Strip and the sense among Saudi
12:16leaders that Israel has been an agent of chaos here,
12:19that the price of normalization between those two countries has gone up and is much further away than some would
12:29like to admit.
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