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00:00So to help us break this down, we've got Becca Wasser.
00:03She's Bloomberg Economics Defense Lead.
00:05And Chris Kennedy, he is the lead for Economic Statecraft.
00:08Becca, I want to start with you because I know you've been covering the stockpile and its depletion and where
00:13we are with these numbers.
00:14How real is the concern over the defensive missile supply for the U.S.?
00:18It seems interesting, if these reports are accurate, that the U.S. is now prescribing policy based on the integrity
00:24of the supply.
00:26Yeah, I think we're at a really interesting inflection point where right now in the course of the conflict, there
00:32is a huge strain on U.S. air defense interceptors.
00:37That's not to say that the U.S. does not have any left, but rather that there's a clear strain
00:43on the existing stockpiles, which are running low after this extended conflict with Iran,
00:50in part because of the sheer need not only from the United States, which is trying to protect bases and
00:57troops and some U.S. allies in the region,
01:00but also the allies themselves who have depleted most of their air defense stockpiles and have been asking the United
01:08States for more.
01:10So at the end of the day, it's a pretty stark place to be in, but it's not necessarily the
01:16only thing that is dictating U.S. military policy.
01:19We've seen this song and dance before where President Trump has threatened high escalation only to step back at the
01:26last moment to leave some room for diplomacy.
01:28We've also seen President Trump enter into feints in the past where he said that there will be no strikes
01:35only to go ahead with that large operation.
01:37However, from my experience, if I'm looking at things right now, the U.S. does not have sufficient defenses to
01:44weather the blowback that would likely come from Iran
01:49if the U.S. were to rapidly and extremely ramp up this conflict.
01:54We'll get to Chris Kennedy here in just a minute, but, Becca, one more question to you as I look
01:57at your most recent piece for Bloomberg on all of this.
01:59You write, the U.S. lacks the munitions depth to bomb Iran in perpetuity.
02:04The bigger risk is the U.S. may run low of the right kinds of missiles.
02:08Help me understand what we know and what we don't know.
02:11My understanding is the size and scale of these arsenals is classified.
02:15We have some sense of what the U.S. has.
02:18How blind are we when it comes to kind of assessing what the U.S. has at its disposal?
02:23We're pretty blind, but I think there are a few different rules of thumb that we can always rely on.
02:28We've seen, at least in the initial fighting during Operation Epic Fury, U.S. officials said that there were over
02:3513,000 munitions that were expended,
02:38and most of those were some of these higher-end, long-range missiles that are in demand all over the
02:45globe.
02:45And so the U.S. is likely having wound down some of its stockpiles for those critical munitions,
02:52which means that it is either likely going to need to pull some of those missiles from other regions like
02:57the Indo-Pacific,
02:58which could leave a potential gap for others to exploit,
03:01or try and find ways to bolster the production of munitions, which the U.S. is doing.
03:07But that's a slow-moving effort.
03:09We are talking months, if not years, to try and just produce a few more of some of those most
03:15advanced missiles and munitions.
03:18Wow. Chris Kennedy, thank you for hanging in there.
03:20We do want to ask you more about the economic impact of all this,
03:24because oil hit $100 a barrel for the first time in weeks.
03:27We now have concerns not only about what's going on in the strait, as it seems to drag on,
03:31and just the cost of doing business with this level of instability,
03:34but now you have these threats from the Houthis, which is compromising exports not only in the Red Sea,
03:39but possibly production within Saudi Arabia.
03:42They can and have before hit refineries and facilities there.
03:46What is your take on that second front, and if we're going to see that,
03:49if we have seen that start to price in the markets?
03:53Yeah, so it's definitely a challenge.
03:57So the Red Sea has now been the subject of several different attacks by the Houthis.
04:02I just looked at the recent tanker traffic through the Red Sea,
04:08and it is dropping over the past few days.
04:10Of course, many ships might be traveling without their transponders on,
04:12so it'll take a few days to really see what the impact has been on traffic.
04:16But we are getting anecdotal reports about ships turning around,
04:20having to traverse the Cape of Good Hope at the southern tip of Africa,
04:23and that just adds time to get oil to market.
04:26On top of the Middle East conflict, we've also seen Ukraine ramp up its attacks on Russian oil export infrastructure,
04:33tankers.
04:34And so that's another bit of pressure that's been growing in the background as this conflict has continued.
04:40Becca, you gamed out sort of what the president and his team might be thinking about
04:45when it comes to the future of this war, and you came up with three options.
04:49The U.S. could continue to bomb Iran, could intensify the blockade and guidance of ships,
04:54or could launch an operation to forcibly reopen the Strait of Hormuz.
04:58I wonder if you could kind of put those in order of likelihood as you see it,
05:01maybe order of difficulty as well, and where you think the administration might be headed right now.
05:07I think the administration is firmly in that first bucket.
05:10They're looking at ways to potentially intensify the air war,
05:14to launch additional air and missile strikes against Iran,
05:17because that's the playbook that the president has relied upon.
05:21But at this juncture in the conflict, the president is starting to feel pressure
05:25where he probably needs to do something different,
05:28in part because some of those economic pressures that Chris has mentioned.
05:32So if that's the case, there's, you know, the two additional options.
05:35One would be to try and enforce the blockade even further.
05:40But really, with that, try and make it so that the U.S. can get more ships through the Strait
05:46of Hormuz,
05:47which is becoming even more of a choke point than it already was.
05:50That means that the U.S. military would need to shift to a direct escort mission,
05:55which is something that is incredibly resource intensive
05:58and may not necessarily be on the table at this point in time.
06:03And then the last one is a operation to open the strait,
06:07and that requires putting boots on the ground in Iranian soil.
06:11It is high risk.
06:12It is resource intensive.
06:14And once that happens, the escalation in this conflict is likely to go sky high.
06:20And that's where the conversation that we've been having about air defense interceptors is so important,
06:25because those troops would need to be protected as best possible,
06:29as well as other U.S. forces and allies across the region.
06:34In addition to that, the U.S. could also potentially look at entering the fray in the Red Sea.
06:40That would further overstretch U.S. forces and assets,
06:44particularly some of those air defense missiles, too.
06:47Chris, we also have another front that is really impacting the price of oil,
06:52and that's the war in Ukraine and the conflict in Russia
06:55and how Ukrainian drones are penetrating Russian defenses
06:58and getting to hit these manufacturing and refining facilities.
07:02But now also you have reports potentially of Ukraine going after an Iranian vessel in the Caspian Sea.
07:08Everything is connected when you look at global economies,
07:12but also when you look at politics.
07:13And as the economic statecraft lead, those seem to fold in nicely together.
07:17What is your take on how these two conflicts are antagonizing each other
07:21and working together to kind of make it at a hard time for oil prices
07:26kind of even more difficult?
07:27Where do you see this going?
07:29Well, yeah, as you mentioned, the Iranians did not respond well
07:32to Ukraine's targeting of this particular ship,
07:36which I believe Ukraine said that it was involved in the transfer of weapons
07:39between the two countries, Russia and Iran.
07:43I do think what we're seeing is this pressure building on the global energy system.
07:48So just stepping back.
07:49The U.S. publishes weekly updates on energy inventories, oil inventories.
07:54We're probably going to see a 16th straight week of oil stocks falling in the United States.
08:01We had a little bit of respite from this MOU period.
08:04We saw commercial stockpiles rise a little bit.
08:07But these releases from the Strategic Petroleum Reserve have continued unabated.
08:13So we're estimating that those releases will essentially run out by October.
08:18It's possible the U.S. could offer another release.
08:21But these stocks are limited.
08:23And so the additional pressure, you know, Russia has banned the export of diesel because of these attacks.
08:29Russia historically has provided about 10% of the global exported diesel supply.
08:34So that's a pretty significant hit.
08:35It hits the real economy everywhere.
08:37You know, another unknown is how long China can continue to effectively pause many of its oil imports.
08:44And we don't really know what's going on in China, but they've certainly helped to act as a buffer for
08:49the global energy system over the past five months by essentially dropping off, you know, 40% of their imports
08:55from the world.
08:57So, you know, there are all of these different variables.
08:59Some are uncertain.
09:01Many of them are outside of the control of this president, certainly.
09:05And they're going to be adding pressure to his decision making.
09:08Beck, as I'm listening to Chris, I'm still stuck on something you said, which is about the U.S. kind
09:12of engaging with the Houthis.
09:14And my mind wanders back to April of 2025 when we saw the U.S. do that.
09:20And there was that moment when I think a super hornet fell off the USS Harry Truman into the ocean.
09:25It was a difficult fight that they were waging there.
09:27And I wonder sort of what that portends about the U.S. kind of reengaging in that way.
09:32How difficult would it be for the U.S. to fight the Houthis, who have kind of reared their heads
09:35here several months into this conflict?
09:37That's a great question.
09:38Let's think about what happened last time.
09:40You mentioned that there were aircraft that rolled off the deck of a carrier and were lost at sea.
09:47But there was also over 1,000 U.S. airstrikes on Yemen at that time, which ate into munition stockpiles.
09:55Additionally, U.S. air and naval forces shot down over 480 Houthi drones.
10:02And that left stockpiles pretty low for some of the important air defense interceptors as well,
10:09with U.S. Navy officials saying that they cost in the billions of dollars and that stockpiles were nearly depleted.
10:16And that was just from some of these one-off attacks from the Houthis during that time period.
10:22Right now, if the U.S. were to enter the fray, it would be like that once again.
10:27But that also means that that's occurring at the same time that the U.S. is prosecuting a blockade in
10:33the Strait of Hormuz
10:34and using munitions and equipment and readiness to conduct that,
10:39as well as continuing its air campaign against Iran, which has been paused for two nights but could pick up
10:46at any moment,
10:46which again is depleting critical readiness, using U.S. forces and using up some of the most important munitions
10:54that the U.S. might need in a potential future conflict.
10:58And Chris, it's not just complicating supplies of munitions and oil, but other commodities as well.
11:03I see you retweeting a friend of the show, Stephen Chisinski, who we had on yesterday, him talking about LNG.
11:08He said a global fight for LNG is brewing and Europe is losing.
11:12Europe's strategy of delaying LNG purchases until Hormuz reopens is backfiring, threatening efforts to refill storage for winter.
11:19What is going on there and how critical is this?
11:21This is a really serious issue for Europe.
11:24Of course, the U.S. is in pretty good shape for LNG.
11:28And if we could export more, but we're really capped out at how much we can export right now
11:32and help to backfill for Europe and other economies.
11:35I think the challenge right now is that Europe is competing with Asian economies that are also trying to ensure
11:40that they have sufficient supplies of LNG, which goes into everything from power generation to petrochemical manufacturing.
11:47So Europe is in a position where they need to start resupplying their stocks before the winter.
11:54They can't count on Russia, of course, and there's limited amounts of export from the U.S.
11:59So if this conflict doesn't resolve, if we don't get these LNG supplies coming out of the Gulf again,
12:05that's going to cause some pain in Europe.
12:08And I'll also note that we saw early in the war that Iran targeted some of Qatar's LNG facilities.
12:14And these are very sensitive facilities.
12:16And if they are subject to significant, you know, kinetic attacks, that can cause, you know, long periods of them
12:24being offline.
12:26So that's, I think, one of the bigger risks of further escalation at this point.
12:30Chris, we only have a couple seconds, but before we go, is it we can't export more because we lack
12:34the trains
12:35or the facilities to convert it into a movable quantity?
12:37Or is it shipping or where is the where's the rub there?
12:40It sees export facilities, so these LNG export terminals.
12:44So between now and the next five years, we're expecting to be able to double our export capacity.
12:49But right now, the U.S. is drowning in LNG and we just can't get it out fast enough.
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