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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordernt. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business app. So here's the latest
this morning. The US of Iran wearing a fresh round of talks before the ceasefire ends next week, joining us now as Rachel's ZEMBA of the Center for a New American Security. Rachel, Welcome to the program. Anne, Marie and Victoria coaches. We're talking about this in the previous hour. The American strategy has changed. They've gone from lifting some sanctions on some Iranian crude to ultimately blockading all Iranian crude. What do you expect to be the outcome of this shift in strategy?
Yeah, well, the US government. Thanks for having me, John. The US government is really hoping that this blockade will bring Iran to the not only back to the table, but make more concessions. I would note that the Iranian response to the US twenty year moratorium has been to come back with another five year one, which I think is similar to what they were offering back in February before this war. So we'll see how much movement we've seen.
But ultimately, what this means is that oil flows, is that the oil flows from Iran, if this blockade is effective, could could fall. That could be two million barrels a day further offline that was going to China, you know, putting you know, taking you know, outages from the Gulf from ten to eleven million barrels a day to maybe thirteen or so. So it would just increase the outage that we're seeing here. But the US government is hoping
that we get to a resolution. But right now we're sort of we're seeing a few sanctioned vessels making their way through the strait. Will they be stopped by US military when they get further out into the Gulf of Oman, We'll see. I think that will be one of the stories for today in the next few days.
Rachel speaking of that blockade. If the United States does take over a tanker, is it clear to where exactly they would bring it.
No, it's not. You know, we were in in charted territory. There was a point earlier this year, before the war where the US was I mean I called it at the time, they were using you know, kinetic force to implement financial sanctions. They did it with Venezuela a little bit with the tankers going to Cuba, couple Iranian tankers, but a lot of them just sort of spent time out at sea. Some of the Venezuelan ones eventually came
to the United States or went to Caribbean ports. It's possible some of these could go to Aman, could go somewhere else and get processed, could go to friendly countries in Asia. But it's not clear to me that Scentcom has been charged to stop these vessels. It's not clear that they have a guidance about what to do with them after the fact. This is really a point of leverage that the US government is trying to impose on both Iran and China. Right China has been the buyer
of first and last resort for Iran. It's also been the primary buyer of the Russia sanctions. And I know it as well that the US government let you I'm sure I've talked about this, but have let the Russia sanctions lapse within the last couple of days, largely because China was the one who was still buying most of that oil.
In order for the Iranians maybe capitulate for the United States. Does the blockade need to go on for longer? Because before the blockade, and we were just discussing the sanction lift on Iranian crewed at sea, the regime brought in hundreds of millions of dollars because they were allowed to now export without the sanctions, so out of much higher premium.
You're spot on, Anne, Marie. Iran has been earning more in the last couple of months. They got more vessels out ahead of the war compared to what they were normally doing. It's pretty volatile oil flows out of Iran, I must admit, and they've been able to sell at much higher prices now. The sanctions relief that well hasn't yet expired, but has been converted into this military blockade, did not lift any of the sanctions on what Iran
could buy, how they could spend there their resources. That's one of the reasons they want to be paid in crypto or Redmond b or assets that don't touch the US treasury. But undeniably, you know, Iran's military led government has been able to support itself, and you know it's sitting on more cash now even as more cash is locked up. Now, that's not going to be enough for rebuilding Iran, but it could be enough for the regime
to remain in place. And so I think that's where the US government's view that this could be just a couple more weeks of pain. The timelines might not line up in my view.
Stay with us. More Bloomberg surveillance coming up after this, we understand this morning. According to headlines, the fronts of the UK is co hosting a summit this weekend to discuss safeguarding international shipping. I'm very pleased to say we can have that conversation right now around this table because joining us is roll on the skill. The French Minister for the Economy and Finance Minister, good morning, it's good to see you. Good morning, Thank you for having welcome
to New York City. Let's talk about the objectives for this meeting. What can we hope for over the next week.
Well, we can hope for the escalation. I mean, you know that France wasn't part of the conflict, as we're not a belligerent, we're not even warned that it was going to happen. But now we are where we are and we feel with others, the UK and others, we can be part of the solution. We need the escalation first, we need those talks that are happening and which hopefully we'll keep on happening between a Run and the US
to move towards some kind of solution. But if we do have the escalation, we feel that a coalition of the winning countries from all over the place that have a part in the problem, because as you know, this straight over most story is affecting a soul economically in Asia dramatically and in Europe as well, that we can help pacify the strait. That straight is the notot of the economic impact of that conflict. If we can undo that not we know that we don't be in a
better place. So whatever we can do once that's the escalation that's important to help make the straight up our moves more freed. We will do and that's what's happening on Friday.
Does that actually mean in reality whatever we can do, does that mean you'd have a military presence in the straight up?
Foremost?
What does that actually mean?
What's happening in the Red Sea? And it has happened for a while. You know, there was hooties there that were making passage dangerous for ships, and we have, we had and we still have coalition of partners that are just making it safe, just preventing deterring attacks from the hooties. And you know we are in there. There's Spanish in there,
and there's a few countries in there. Obviously the straight up our moose would be probably a bigger deal to do, but we can do it provided again that we have the escalation, we have some path to lasting seas fire that will require I mador headway on nuclear on ballistic capabilities of Iran that have to be gone. But once we have that, there's a case for non beligerent country to be part of the solution to pacify the stretch, which again is the not of the economic impact.
We have to talk about consequences as well. I'm not sure how well understood the energy mixed story is in France. At the European level, it's been a bit of a mess in places like Germany, particularly the UK that's been highlighted so many times. Could you briefly describe the energy mix in France, how different it is and how insulated you might be.
You know, I remember Ram Manuel when Barack Obama came into office, that said you should never let a good economic crisis go to waste. Well, this is what Frans did in the seventies when we had an old shot. Then France decided to embark on a major nuclear program that allowed us to go down from ninety percent hydro camber you know, energy mix to sixty, so forty percent of our energy now it's coming from nuclear, it's carbon free, it's cheap, and it's completely sovereign. It doesn't depend on
anyone else. And because we don't want these economic crisis good to ways, we've just announced that we're doubling down. So we're going to bring that energy mix from ninety to sixty to thirty five by investing again in nuclear as well as hydro as well as renewables. At the end of the day, we have a convengen star of three major driving forces that we haven't interested in investing geopolitical issues. We have to be sovereign, We have to
be more independent of what's happening againstwhere the environment. You know, I think climate is coming back because it's been on a bit of a back burner for a while, but because we see we're depending way too much of one region of the Gulf and of hydro camebra, it's coming back. But also jobs. By doing this, we're going to create hundreds of thousands of jobs because building a little barre station, you know, building wind farms and solo farms are helpful for the jobs on the ground.
This is all expensive and it takes money to time where the amount of debt globally has reached record highs has surged dramatically since the pandemic. How much fiscal headroom do you have, Well.
It's all going to be about priorities. You know, we can't have it all. And today we have one priority, which is seigny, which has two pinness, defense sovereignty. We will have doubled defense spending in France between twenty seventeen and twenty twenty seven. By the time we get there next year, an energy seventy so that means we have to save and swhere. You know, we have to save on our spending. We have to seven and retirement spending,
and you know, it's a big debate in France. We've done so, We've managed to get a budget through and I can tell you it wasn't easy with Congress that looks, you know, as I said to my Italian colleague, a bit like an Italian Congress, you know, lots of different groups having to discuss and model through. But we did and we're going to have to do it again. But most importantly, I think that's a presidential election taking place next year and the condidates are going to have to
make that choice. Two they one priority on soverignty, defense and electricity and energy to make France and at the end of the day, Europe a stronger place. Do we still want to be stuck in the past of things we have to change and reform.
Do you expect growth to have to go down because you're saving in these other areas to preserve the sovereignty in respect with respect to energy, with respect to defense.
Well, we entered that crisis on quite strong footing. I heard Jimmy Diamond saying that the US academy is resilient. So it's the French economy. It was pretty strong getting into that crisis. So we we have a slow down in the short run, but again what we're doing is investment. At the moment, when someone wants to put a data center somewhere not in the US, they look at France because we have carbon free ample and cheap electricity and
they need that. So at the end of the day, this is investment in the French economy, in the europe and economy, but it is attracting investments, including from the part of US investors. We want to diversify. We're having you know, the Magnificent Seven looking at Frants to invest. We're having US banks looking to invest, and we have French and European companies also looking to invest.
THO.
Again, short term resilience, but a bit of a risk. Long term, we need to invest in the future and that's the only ad. Growth is the way ad.
When you look at the long term, when will France finally stop buying Russian fossil fuels, Well, you.
Know we're committed to that. We already committed to stopping gas import. There's no new contracts. This has been decided that the open avount this year and any gas impot is going to be stopped by January. So we are on the past. The only thing we wanted to do is to make sure that this was done respecting international laws.
We are a low binding country and EU is a low binding country, so we did it respecting some contracts that we're still in the go, respecting European decisions, the sanctions decision as well, and this is all taking place the way it should be, respecting international law.
Russia doesn't a final question an important one. You've used the word perlligerans to describe others. The US might be in that group in your mind. You can confirm that if you want to. The other question, and the other answer you've offered is the word solvereign. This is important with regards to the future of a relationship with the US. Just what is the transatlantic relationship given the way the discourse has evolved over the last month.
We've been friends for two hundred and fifty years, you know, and this is going to go beyond the ups and downs, and there are some of the somewhat interpersonal relationship or some somewhat disagreement on the short term way of dealing with such and such problem. What gets us together. It's much stronger than what divides us. And I can see it every day when I talk to us and French and Europen companies. We need those companies to keep on working together to give us the right example of what
we need to do when we disagree. I'm going to chair a G seven meeting this week. Sometimes we don't agree on everything with our finance colleagues. We address it. We address it in close rooms. We are allies and friends, and this needs to go beyond what's going on in the ground. We have the solutions to the problem together and we need to make sure that everyone understands this. We are stronger together than divided. Despite sometimes the somewhat
short term disagreement. We need to look beyond that and make sure.
We do stay with us. More Bloomberg surveillance coming up after this. Let's talk about the shaken and the commodity market, and not include go snapping a two day losing stream with inflation concerns easing on, renewed optimism for a peace deal with the ram Amy G. Morgan Stanley right, The longer term effects of current events in the Middle East, the more bullish than bearish for metals if they bring more stock pilot. Amy joins us now for more Amy,
good Mornich, and welcome to New York as well. Let's talk about the degree of disruption you've seen in your space over the last six weeks. How things changed.
Yeah, so, look, the big change we've seen is really the aluminium market. This has been the most physically disrupted from the conflict so far. First of all, it was a question of we couldn't ship anything out. The region is about nine percent of global aluminium production. Then we started worrying about getting those raw materials into the aluminum box site, and then we actually had some strikes on facilities and on energy infrastructure, and so we've lost about
four percent of global aluminium production. And bear in mind and commodities, we care about those very small imbalances. It's the price is set at the margin. So aluminium has been one of the standout performers so far. And what you typically see is when these disruptions happen, you're looking at twelve months to fix them. So that's been the big disrupted one. And then of course we've had some changes in these macro factors that have been a big
driver for metals, so things like the dollar. The dollar weakness had been a big tailwind that reversed briefly. Obviously, coming back towards weakness again changes an interest rate expectation, so that has taken a bit of the wind out of the sales.
For some of the others. Let's just stick on that line. Twelve months to fix, twelve months to fix the production, to get back to where we were pre war. What does it mean for the demand story over the next year. How do you we anticipate that's going to change.
Yeah, look at we anticipate there'll be about a two million ton seplus in the aliminium market, which is a lot of demand to try and destroy. I think what we're seeing at the moment, similar to oil, we've got a very steep backuidation, so downward slope in the aluminium curve.
What that's trying to do is disincentivize holding excess infantry end users at the moment, So we're sort of trying to incentivize everyone holds as little as possible for now while we try and figure out where we can get a bit more supply, and we might also start to see a bit of switching, So could you see perhaps some substitution towards things like steel in the auto sector. But I think it's going to stay a very very tight market.
How much have you seen different regions pull up the slack given the fact that the Middle Easter there has been a destruction to facilities and a destruction to suppliers, So you're seeing, for example, South America start to ramp up production, Australia. How much do you see sort of a shifting to different parts of the world.
Yeah, Look, the challenge with aluminium is it's really all about electricity supply. And if we think about everything that's going on in the world with data centers and AI, the one thing that we're struggling with is electricity supply. The two regions where really you would think you could
have a bit of response is China and Indonesia. Now China is actually capped on its capacity and potentially there's a room to increase slightly your amperage and get a little bit more out of it, but that there's not that much that China can do. And then Indonesia has a good pipeline. But we kind of knew that that was coming already. They can't really do much quickly, and again takes twelve months to fix a smelter, also takes time to ramp one up, and power costs just becoming
very very difficult. I mean, even in the US we've had smelters being sold to data centers, even where in the US you've not just got aluminium prices, but you've got this record Midwest premium. So the all in price here is about six thousand dollars and that's still not been enough.
So this sounds really problematic. This sounds like it should be moving markets more. It seems like a shortage, seems like something that's going to cause inflation. Are you as seguin as the rest of markets that seem to be just sort of declaring that all clear mission accomplished.
I think, look, there's a clearly an element of positioning and flows here. Aluminium was already a very very long market coming into this, so I would say it's not like the market was caught short and had to suddenly cover, And I think that explains partly it. Some of this is playing out also in the physical premiums in different regions. So for example, in Europe, used to pay about three hundred dollars on top of the aliminium price to get metal.
We're now paying six hundred, so that's doubled in the Midwest as well, keeps rising japan premiums. So I think we are seeing it, but I would say the physical realities of this are going to be hung clear as time goes on.
I mean, this is just the latest shark when it comes to sky in the Middle East. A lot of importers were also dealing with the on and off potential of what was going on with Donald Trump's tariff policies. Are you seeing more countries stockpile base metals?
So I think we're seeing more countries, definitely talk about it. At the moment, we haven't seen too much in terms of what we could say extra buying. But what we see is, first of all, this started off with the US Project Vaults talking about, you know, we need to have stockpiles, we need to make sure we've got security
of supply chains. We're now seeing the EU, the UK, Australia, South Korea, everyone's starting to bring up that word stockpiling, and so I think as we've had enough supply shocks now we had this in COVID that definitely drove increased inventries at the company level. But this time governments are paying attention to so I think this is going to be a theme for the next few years. That's actually going to be pretty bullish for the complex.
How much of a premium is that aiding to prices?
So I think this will probably keep your prices well above sort of Typically we would say a prices should be anchored around cost support or incentive price what you need to bring on for a new mine. But if you think about inventory building, it's essentially demand. So that
allows us to trade at a premium. So for example, in copper, we would say that kind of incentive price is more like ten thousand dollars a ton to bring on a new mine, but we forecast price is staying well above that sort of twelve thousand dollars through the medium term. Just to take into a count that stockpiling.
Can we finish on gold save the five K what's going to happen to demand for gold now? And how has that shifted? How has that changed? We've talked so much about this massive tail wind of central bank buying. Is that still going to be the story was that ended.
So I think the central bank buying has been the sort of stable level of gold demand under the surface, although what we did see in March was Turkey's selling gold to underpin the lira. In contrast, though we had China actually buying the most gold they had bought since January twenty twenty five, so a bit of a reaction to that pullback in prices. I think the bigger factor that's going to swing around is what the exchange traded
funds are doing. So last year they bought nearly as much gold as the central banks, having bought zero the year before, so they are the ones that really swing their behavior. That's much more dependent on interest rates. So again they have been selling, and I think also there was quite a lot of buying that was just related to how well gold was doing. So I think the fact that has come off we've sort of reconnected with
that real yield story as well. I think maybe that stops a bit of the near term upside and just keeps it a little bit more to do with fundamental.
Jo this morning, slightly zero point eight percent, Just one final question, slightly outside of your remit, but trying and indulge me in this market, particularly in equities, they've taken a lot of comfort from the shape of the future's curve in crude. At the very front, you've got these very elevated prices. The closer you get to the physical spot price, you've got a lift in the price. Further
out you've got a massive decline. That's the banquidation people have been talking about now for weeks, six weeks, more than a month. People in equity see that as a market implied bet on the future price of crude. Is that the right way of looking at things when you look at a future's curve.
Yeah, so, look, I think the way we would think about the future's curve is more a reflection of inventories and flows rather than a forecast for the price. And there's a place to metals as well. Typically, when you have that downward slope, spot price is higher than futures. That's telling people when we need to clear everything out of inventory, we need as much oil as you can
give us at the moment. So, if anything, that downward slope is usually a bullish signal for commodity is rather than a bearish one.
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