00:00We are thinking a lot about, is this a new normal? It does feel like we're in a bit of
00:04a standstill.
00:06Iran knows the Strait of Hormuz is its power, its leverage. I think it's safe to say this White
00:12House wants this war over. They don't want to spend, they want to move on, there's midterms
00:16coming. Are we headed, though, to a new normal, which comes with new metrics on energy markets
00:22and more when it comes to the U.S.-Iran relationship? And if that's true, what do you
00:28see as that new normal? Well, if this is the new normal, I'm not quite sure it's sustainable for
00:34either country. One of the things that the Islamic Republic has learned from this crisis is they
00:41have an ability to disrupt global economies by disrupting global commerce and maritime commerce
00:47to the Gulf. And that is not going to change. One of the reasons, in my view, these negotiations
00:52are stalemated is not necessarily because of the nuclear issue, although there are many
00:57disagreements between the two sides on that. But moving forward, the Iranians believe they have
01:02a right to have a say in what goes through the Gulf and what stays out of the Gulf. And
01:09that includes
01:09perhaps monetizing their geographic position, charging tolls for various ships and so forth on
01:15some kind of a discriminatory basis, and the basis of that discrimination being politics. So they have
01:20learned that this new situation gives them leverage, a security guarantee. And unlike nuclear weapons,
01:28nuclear weapons are something that they could not really use. No country can use it effortlessly.
01:33But, you know, blocking straight traffic is something they can do whenever they wish, as they are doing
01:39it now. So we're in a situation where status quo ante, in my opinion, is not really, is not really
01:45to be
01:46recreated. And maybe the president knows that, maybe he doesn't.
01:49So, if that's not to be recreated, then how does the U.S. and how do the U.S. and
01:56Iran move past this
01:57standstill that we're seeing right now?
01:59The only way the Gulf can be secure, the only way traffic can get through Gulf with some degree of
02:07confidence of safe passage would be considerable concentration of American naval assets for a prolonged,
02:15if not indefinite, period of time. That is not a commitment that the president has asked the
02:21American people to make. But that would essentially ensure that any national waterway is operated free
02:28of Iranian hazards. Besides that, you're going to have to come to some agreement with the Iranians,
02:34where they have some leverage over what gets through and whatnot. But also, there's a considerable cost
02:39to the Iranian government themselves. Right now, we're playing this game. Both countries are imposing costs on
02:44each other. Obviously, the United States can impose significantly more economic costs on Iran than
02:50Iran can on the U.S. But the question isn't the magnitude of the pressure that we can impose
02:56and they can impose. The question is, which body politic is better prepared or more willing to endure that
03:03pressure? United States with higher gas prices or Iran with a crumbling economy? That's the contest.
03:09And I'm not sure if their president have prepared the public for that particular context, the way the
03:14Iranian government is trying to do with however degree of success with its own people.
03:18So, Ray, is it more about then? It's interesting what you just said. It's not about
03:22Iran necessarily having nuclear weapons that they can't really use, but this important channel,
03:29the Strait of Hormuz and controlling that. Is this about kind of changing their economy and so
03:35being able to charge for people who go through that and then create, you know, broaden out their
03:41economy? I bring that up because there's so many fascinating stories on the Bloomberg about,
03:47you know, UAE and talks about a possible financial lifeline. It just struck me as odd. I just thought
03:52this whole region was so wealthy. But we also know that they've been trying to change their economy.
03:57We had another story about the Saudi Gulf, Live Gulf, right, that they're hinting, you know,
04:04that they, I think, had talked about getting out of it or shutting it down, the losses. They've all
04:08been trying to change their economies, evolve their economies, make it less energy independent or
04:14make it less energy dependent. Is that what Iran is trying to do? Well, paradoxically enough,
04:20given the fact that the sanctions that Iran has to live with, 50% of the Iranian economy doesn't
04:28rely on oil revenues. So this is essentially an economy, I wouldn't say it has diversified,
04:33but it has certainly, by compulsion of sanctions, managed to essentially develop other sectors. And
04:40whenever you have 92 million people in the country, you have a domestic economy of some sort in terms of
04:44internal arrangements and so forth. But the Gulf, the ability to exert influence over the Gulf is not
04:52just in terms of monetizing it and getting financial dividends. It's also a strategic lever. It is a
04:59strategic deterrent because the way they essentially try to safeguard their boundaries, their border,
05:04their territorial integrity from being attacked as they were twice in June and March is by playing
05:09the Gulf card. And this is not just directed against the United States. I'm not sure if the United
05:13States has an appetite for another military campaign in Iran, but it's really also directed
05:18against Israel. The Israelis do recognize that the containment of Iran will require periodic military
05:25attacks. And now I'm not sure if that's in their court anymore. But it raises the question to Carol's
05:32point about what happens in the region if the US and Iran agree to something, but Israel's not
05:38necessarily party to that. I'm not quite sure on the nuclear issue that can happen. The
05:43Israelis obviously have to be part of it. But in terms of the Gulf traffic, I don't know if United
05:49States and Iran can agree to kind of ensure the safety of the traffic of the Gulf. I think that's
05:53an American obligation. I don't put that much stock into the Europeans doing so. And as I said, this is
05:59not the case that the president has made. It certainly is not the case because the American people are
06:04opposed to this war by a two to one margin. That is not a basis for sustained policy in any
06:10region,
06:11much less in a volatile region such as the Middle East.
06:14So come back to this global insight piece that our team put out there, our Bloomberg economics team,
06:19no peace, no war, the new US-Iran, normal. Do we stay maybe in this situation for a lot longer?
06:27Well, we can stay in this situation if we're prepared to absorb the costs in terms of economic
06:36penalties, gas prices and so forth. I'm not quite sure if that's the situation. It's a particularly
06:42dire circumstances for the Europeans and for many developing countries, whether it's India,
06:47Africa and so forth. So this is not just about the American economy, it's about the global economy.
06:52And that obviously has an effect on how American economy becomes stable or unstable. The Iranians
06:58have one advantage, the economy is a basket case. So they're already living in sort of a primitive
07:04economic conditions. But even they have a problem because their economic situation can lend itself
07:10to political revolt and that creates a domestic unrest problem that they would have to deal with.
07:15This is not an easy situation for any of the actors involved. The United States seem to have
07:21gotten into this war without having clear reasons why. They're not really sure how to prosecute this
07:27war that they find themselves in the middle of and no one has an exit strategy or an off ramp
07:32that
07:32they're willing to take.
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