Iraq Oil at Risk If Mediterranean Refiners Lose Access, Lee Says

And for details. Now and more details about what's going on in Iraq, we want to bring in Julian Lee, oil strategist for a Bloomberg first Word, and I encourage everyone to read his latest column having to do with the tensions with the Kurdish separatists. And I'm just wondering,

you know, Julian, great to have you with us. It's kind of difficult to even put the nomenclature this correctly because Curtis Stan has a regional government and it just voted for full independence, and yet Iraq's government doesn't want to have anything to do with this and now has launched an assault on the city of kirk Kut. I wonder if you could explain why this is relevant and what do you believe is going on behind the scenes. Okay, well, thank you for for having me. I mean, it's it's

great to be on the show. Um, I think we have to to sort of look at a little bit of history here. The city of Kirkuk has been disputed between the Kurdish government and the government in Baghdad really since the fall of Saddam Hussein, and has been a disputed city long before that. Um. It's not in the Kurdish region of Iraq, it's just outside it, so it

wasn't under control of the Kurdish regional government. When Iraqi forces fled northern Iraq in fourteen in the face of the insurgency from the so called Islamic State, the Kurds moved in. Kurdish forces moved into protect Ka Cook, protects surrounding oil fields, and effectively established de facto control over the city of Kurdistan and over neighboring oil fields, a couple of which subsequently were taken over and managed by

a Kurdish company. Now that Islamic State has been kicked out of northern Iraq, the federal government wants the city of Kerkook and wants those oil fields back. Um. The the Kurdish referendum really has has thrown fuel on the fire because the Baghdad government doesn't want to see Iraq split up, and indeed nor do international governments, particularly those of Iraq's neighbors. So how much of this Julian is a purely economic issue? Who gets control over these oil fields?

And how important are these oil fields strategically? I think the issue is is it's certainly for for Iraqis and for Kords, is much bigger than just control of oil. It is about national destiny and the shape of Iraq going forwards. The oil is undoubtedly important, it's we're not talking huge volumes in terms of the total production of Iraq itself. Most of Iraq's oil production comes from the south, near the Persian Gulf. They're exporting something over three million

barrels a day from the Persian Gulf. From northern Iraq, they're exporting about six hundred thousand barrels today, so you know, roughly a fifth of what they're exporting from the south. But the reason that it's important is that it's delivered by pipeline directly to an export terminal on Turkey's Mediterranean coast. That makes it a very close source of supply for

Mediterranean refiners. And that is very attractive to them. So the loss of this oil, or even a part of it, would I think cause a dislocation for Mediterranean refiners as they look to replace this Kurdish and Northern Iraqi oil with supplies from elsewhere. And that's where I think the

real importance lies. Add to that the fact that we seem to be in a situation again where Middle Eastern geopolitics and the threat of conflict or indeed the actuality of conflict in oil producing countries in the Middle East is starting to have an impact on prices. And what about the ability of Iraqi oil producers to get the product to market. Producers in the south of the country in the who, well, yeah, I know that the south is find producers in the north have a big problem.

The only way at the moment to get oil out of northern Iraqi is through a Kurdish pipeline which runs from the northern end of the kirk cook Field, which Kurdistan has operated for a decade and a half U and that runs up to the Turkish border and then across Turkey to a terminal on on Turkey's Mediterranean coast. That is the only way of getting oil out of northern Iraq in any significant quantity, whether that's Kurdish produced and controlled oil or oil that is produced and controlled

by the national government. So everybody needs the pipeline to keep running. Julian real quick, I'm trying to get an understanding of why we're seeing oil prices rise on this news. Is it because of the threat of a wider conflict or is it because this could potentially take oil offline. I think it's it's that it could potentially take oil offline. It could take as much as six hundred thousand barrels

a day. There doesn't seem to be risk of the conflict spreading, although Turkey did threaten at the time of the referendum that if if Kurdistan went ahead with independence, it could and would close the pipeline. Julian Lee, thank you so much for joining us, and your story was really terrific. I recommend everyone read it. Bloomberg dot Com, slash goad Fly Julian Lee, oil strategist for Bloomberg, First

Word and a Gadfly columnists. President Trump last week asked the US Congress to toughen the terms of a fifteen Iranian nuclear agreement saying it doesn't do enough to contain Iranian ambitions. Here to discuss this Ariel Cohen, Senior Fellow at the Atlantic Council, also Director of the Center for Energy, Natural Resources and Geopolitics at the Institute for Analysis of Global Security. Ariel, thank you so much for joining us.

Can we just go over what the main issues are that President Trump is responding to and how widely his UH skepticism about this deal really is. It is shared, fest of all. Thank you for having me, fest of all. Because Trump is consistent. He criticized the deal with Iron called j C p o A the Obama era deal,

because it is not a good deal for the United States. UH. The deal allows Iran to continue uranium enrichment, although this is low enriched uranium that is used in medical research and in civilian UM power stations, but the capacity can be easily upgraded UH to UM create the uranium for nuclear weapons. Secondly, the deal does not stop Iranian development of ballistic missiles, including we get indications the development of

I C B M intercontinental ballistic myself in the longer term. UH. Thirdly, the deal does not fate to stop Iran from interfering throughout the Middle East. Iran is a major supporter of the brutal regime of Vashar Alasta in Syria. It interferes in Yemen. It effectively pursues policy of surrounding our allied Saudi Arabia both from the north. It supports Katar UH. It supports Shia minority inside Saudi, it supports Shia majority

in Bahrain and the Ushia rebels and Yemen. So both in terms of geopolitics, in terms of facts on the ground in the Middle East, and in terms of nuclear capability, the deal did not achieve u S strategic goals, and this is why Trump is not UH scuttling it. But it is the company of Ministrusion is trying to push Iran to get to the negotiating table and to renegotiate the deal. Is there any evidence, Ariel, that the strategy that the Trump administration is employing has ever worked. UH.

The strategy has not been fully announced. I believe that des certifying Iran is the first step, but the strategy has not been articulated, and if there is one, UH, they probably are not going to fully expose it for public consumption. UH. In a game with the Iranians that I cracked around for decades. In the game of the Iranians, you don't show your cards. You keep your cards closed to your chest. Iran is a place where the chess

they was invented. Granted, the Russians played the chest well, but the Iranians other original auctors their tough nego shares. They've been in the area for over three thousand years, even before UH the introduction of Islam occupation by the Arabs in the seventh century a d uh. So these guys built a huge empire that you remember from history, clashed with ancient Greece and Rome, and fought with Greece and Rome for over a thousand years. So these are

masters of political games. We should not tell them what we're planning to do. Well, Ariel, I want to talk a little bit about the broader reaction to President Trump's moves. The European Union is opposed to bringing Iran back to the table and trying to renegotiate this. They're hoping that

US Congress keeps this nuclear agreement intact. I'm just wondering, you know, there has been talk that perhaps UH taking a hard line could actually be advantageous for Russia, what's your take on how much political will there is to really renegotiate this. Uh. The European position, the Russian position, and the Chinese position are all going to be crucial UH in the strategy of the U S is pursuing.

And of course, UH, just as in case of North Korea, we would much rather achieve our strateistic goals through negotiations and not for war. UH, not through the use of force.

Having said that, we still have a lot of means short of the use of force, short of war, including banking and economic sections against terrorist organization UH and the Iranian Revolutionary Guard core mega terrorist organization that has an air force UH, controls ballistic missiles that we were on, is developing the nuclear program and has presence all over the world. So it's much bigger than Al Qaina ever was.

The IRG SEE finally finally was declared a terrorist organization, which it is UH, and now the consequences to their businesses are coming. The chickens are coming home to roost. Aria. Let me let Aria, let me just break in here, because all of what let's let's just put all of what you said just aside for just just a second. And if you can just focus on the idea that Iran is the second largest exporter of oil from OPEC, it's the world's fourth largest oil producer. What are the

goals that you believe can be exchanged. I don't mean in terms of passing legislation in the United States or getting European allies to agree with the Trump administration's uh yet to be revealed strategy, but what goals can be achieved in dealing with what you describe as a hostile or confrontational force that just happens to have ten percent of the world's proven oil reserves and of its gas.

Uh you're putting your finger on a very important uh here economic if you want issue, and that is a competition between Saudi Arabia and Iran for the regional dominance of the Middle East. The Saudis as soon as Irainians a Shia, we can and we should work with the Saudias um to keep the oil pricess down. But the Saudis the suffering, and the Saudis and the Russians they're talking about cutting production. If production is cut, oil prices are going up, and our shell producers are going to

step in. UH so the oil prices. Uh if we are looking at the you know, fifty five sixty uh marks, they may go up and that will benefit Iran. So what can we do? We can, and we should talk to main consumers to prefer oil from the United States and from our allies, from Canada, from Saudi not from Iran, and keep Iranian oil off the markets and try to decrease their revenues. All right, We're gonna leave it there, but I want to thank you very much for joining

us and giving us your thoughts. Ariel Cohen as a Senior Fellow at the Atlantic Council and director of the Center for Energy, Natural Resources, and Geopolitics at the I A. G. S. Well, where were you on October nine, eighty seven? Well, some people may not have been born by seven, so they're in lies the quandary when it comes time to at least remember Black Monday in seven. So here to help us do so is Matt Mayleie. He is managing director

and equity strategist at Miller tay Back. He is on site at the Boston Convention and Exhibition Center of course, Boston, home to Bloomberg one oh six one Boston, Newbray Fort and Metro and the South Shore. Matt Malee, did you know that in nineteen eighties seven, the federal the interest rate, the prevailing interest rate was like eight and three quarters of a percent, and a gallon of gasoline was eighty nine cents eighty nine cents, heavin forbid, and then the

the rates were ever that high. I mean's I'm on enough to remember them when they were in the team. Indeed, indeed, thank you. Don't don't encourage me, um, when you were driving your Ford Escort down to uh, you know, the Solomon Brothers trading room. Tell us a little bit about what it was like that day and and what are some of the things that you were put together to explain what happened on October the nineteenth seven. Well, it

was kind of a perfect storm. And we had, you know, the stock market have been going up for a long time, and uh and and remember the investors and managers alike had all remembered the back of the end, had remember the horrible bear market of the nineteen seventies. And then of course they at all at least had some sort of a memory or very much from their parents of

the Great Depression. So jeez, they're starting to get nervous about this uh uh, this this market having a big run, and people in the institutional side we're buying portfolio insurance that we've all heard about. But individual investors again, they also were worried because they had a lot of money and mutual funds. Then there was a third like that a lot of people don't talk about, and that was

in the takeover areas. I mean, I even boasting these guys with the big stars back down on Wall Street, and the takeover stocks were highly, highly leveraged. And what happened, and a lot of people don't know is that the real catalyst really came out of Washington, d C. When the Ways and Means Committee came out and decided they well, at least they floated a trial balloon about changing the tax the way these takeovers or the debt on these

takesovers would be taxed. And these leveraged risk arbitrage guys all started getting some margin calls, started selling an aggressive way, and that kind of started the the the whole thing rolling. When you know, the dominoes started falling after that, Matt,

your note is really tremendous. You also talk about that people were worried about longer term interest rates rising, and they weren't as worried about the effect of rising yields and lower prices in their bond portfolios as much as they were about potential takeover deals that would collapse due to tighter credit conditions. So, really putting things into perspective before we delve too far into history, Lane, can you

draw any parallels from that period to today? Are we sort of setting ourselves up for a similar type of crash or do you think that that was really a confluence of idiosyncratic events that will not be repeated today. Well, I yes and no or both, like is the way to put it? I guess on the one yes, I do not think that we could have a one day disaster like that. We have all the circuit breakers and and the FED is uh. I think all central banks are We're ready and willing to provide liquidity when when

it is needed. Uh So, I think I'm very, very, very surprising we have to be some sort of uh huge black swan uh to cause a twenty percent or thirty percent move in, you know, just in a day or two, because a lot of people forget that it was actually about a thirty five percent drop over several

days if you all in. But but at the same time, we have a lot of you know, whether it be you know, we heard a lot about these algos and these high frequency tradeers and of course UH in the e t F. These are all rules based UH investors and when the market goes to a certain things, they're going to automatically buy. Well, that's we've we've seen that in a nice way in the last couple of years. But the flips that can happen as well, So at some point we're gonna have another bearer market. Of bearer

markets have not been outlawed, I'm do afraid. I am afraid that it could be again, not a crash over a couple of periods, a couple of days, but we could see a twenty orcent move over just a few weeks, which is not something that people will like very much. That there are not circuit breakers in certain bond markets. Do you think that they're more susceptible to a crash, Well, that that's certainly thing. I mean, it was only just a year ago or a year and a half ago,

I should say. One of the things that you know, the real problem with with the decline in oil prices that took place in the latter half of two thousand fifteen and very early two thou sixteen was the almost crash in the high yield market. And like you said, no, no circuit breakers. Liquidity can be very small there. Uh So when you get that kind of uh, forced selling. I mean that's the whole thing, is that crashes only take place because of forced selling, not because of actual

fundamental issues. And when you get highly leveraged uh sixth income markets and they start to you know, the bids disappear, Uh, it could have gone serious problem. There's no question, Matt. Is there something about Friday trading and Monday trading that you can draw from history? Well, the one thing is, I mean it's funny. It's it's it's said, you know, people on Friday's are worried about Jesus, I won't be able to get to my money or not get to my money, or get do a trade over, you know,

for another couple of days. So sometimes they you know, they panic a little bit on Friday's And it's the same thing, uh on Mondays. Is because over the weekend they start talking to each other. I mean I literally, I mean that's kind of what happened. People started talking to each other and said, oh my gosh, the stock prank was down a hundred points. Back then, that was

like unheard of. And people started panicking and they started calling one eight hundred mutual funds and redeeming their mutual funds. And so that's how the whole thing kind of started clicking in, and the thing is is today. I mean, there is a reason that the stock market is open the Friday after of of Thanksgiving because they don't want the market closed four days in a row because if that happens, if something big happens, panic, real panic could

sit in over four days. That's really the reason why they don't close the day after Thanksgiving, no other reason. Matt, mainly, thank you so much for joining us. Truly a fascinating note and direct mand people read it. Matt Malie is a managing director and equity strategist at Miller TVAC and Company. The holy grail in the food industry to create something

that tastes decadent but allows you to stay slim. Here to talk about one development in the sugar industry is Iran Banniel, Chief executive officer and president of do mat Talk, which is based in Potactica in Israel. Here is in our eleven three oh studios today and Iran. Your company makes a sugar product that basically just enhances how we taste sugar correct, rather and reducing the amount of sugar included, rather than having an artificial substitute. Correct, Can you tell

us a little that absolutely correct? What we do is we load the sugar onto a carrier, a mineral very common in food. A tiny little bit of mineral is enough to carry a whole lot of sugar. And when those clusters of sweetness arrive at the receptors, they download the sugar at the receptors and cheating and if you wish the receptors to report something which is mild sweeter than the amount of sugar that you've put there. About reduction, I believe at least that is that for sugar consumption.

If this were introduced, yes you have here. I brought you two examples. The jelly bellies are fifty sugar reduction and the chocolate is thirty just to show you, but we got complained that the chocolate was still too sweet a reduction, so we are continuing to reduce. You know, one big question about the science behind reducing sugar is that if your body is expecting and experiencing a certain sweetness,

it prepares for the calories that accompany it. In other words, if people eat something that is calorie reduced, they may eat more after the words, to compensate for the lack of calories that they received for the amount of sugar. This is one sort of complaint with the artificial sweeteners. What have you found with respect to that. It's interesting that you say that it's a wonderful question, because what happens without sugar is that sweetness is a teeny bit belated,

but then lingers on. So you did you really won't reach out for the next bite so fast because you really get a full sugary impression, taste, and satisfaction. So it's actually a way to reduce even further the temptation to take too much. So it's a lingering story too. Give us an update on how far along you are in the commercialization of this. I know you're raised what about eight a little bit more than eight million dollars recently you're announcing that where are you in the commercialization?

And does this then go into the food service industry, perhaps in addition to just in a direct retail way. We were very fortunate. We did very little pr It was usually to say, hey, we got some money invested in us or something, and what followed was an avalanche of emails to the website, etcetera. The whole world is looking for a sugar reduction solution which tastes great, which

doesn't have all those aftertastes, etcetera. So what happened is wherever we had early success, like with chocolate, without naming names because obviously I can't, but I wouldn't exaggerate. I think if I say, this startup from israelis talking to over sixt of the sugar of the chocolate industry in the world, and I'm meaning all the big You have a big you have an ex nest ly an espresso executive as part of your executive team. I believe that

is true. So how much more expensive is it to produce these chemicals that have sugar on them, that are that are expressed as sweeter. I don't terribly go for the expression chemicals because it sounds like, oh, you know, we are using a mineral, and the mineral is the most common mineral on Earth. I love I love this. By the way, you know, everything that we have is chemicals, right, I mean their chemical coursing for our bodies. But it has taken on a sort of negative connotation. So we'll

call it a mineral. Okay, So mineral with sweetener on it. Yeah, And um, what happens is that we don't have one let's say, suck rose, the normal table sugar, not one. We've got three or three different models. They differ by the surface of the mineral that we use, and they

are better each for certain categories of applications. So we've got our sugar which works marvelously in chocolate dry applications basically, and we have our sugar that works great in baked goods, and we talked to some of the giants there as well. We have more difficulties with so does obviously the sugar brakes the tongue. So does our water, and and we are less effective in solids. I want to thank you

very much for coming in and enlightening us. Uh Eron ban Yell is the chief executive officer and the president of dou MAT Talk that is d O U x M A t okay Thanks for listening to the Bloomberg p m L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo wits one. Before the podcast, you can always catch us worldwide on Bloomberg Radio