Bloomberg Audio Studios, Podcasts, radio News.
This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordern. 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 our front and center.
Is this one? This story at the moment crude climbing on renewed uncertainty through the stred of for mers Am world of the Atlantic Council writing, instead of trying to jawbone markets with positive sentiment, the president should stick with messaging from a position of strength and no vacillation. And then joined us now for more Adan, Welcome to the program. I was speaking to a market contact earlier who had a basic question, is the worst of it behind us?
Is this the post Liberation day picture of the market right now? Is it a similar story or is it different this time?
I'm not sure whether we're really whether the worst is passed. So I think that the US actually commandeering or blockading these ships is pretty much an escalation of events. It depends I guess, whether we see more active bombing and whether we see Iran responding to that by hitting its neighbors. I think that that's absolutely still in the cards, though the fact that the ceasefire is I guess technically still in place, though I'm not sure you can say it's still in place.
If we've had.
Iranian ships firing on ships trying to transit the Straight and the US firing on Iranian ships, I'm not sure we can really call that a ceasefire. But it does seem to still be in place, and so I wouldn't be too hesitant to say that the worst is passed, but it's could get worse very very quickly.
Let me ask you what you think was more likely that in the next twenty four forty eight hours an extension of the ceasefire or a resumption of hostilities.
I think an extension of the ceasefire is more likely, but only maybe a little over fifty percent, I would put it at.
So at this point, Ellen, how feasible do you see the outcome that the market is pricing in. This is sort of what we're trying to get our head around, because it seems like people come on the show who are in the equity space or who even trade oil, and they say, well, you know, this actually roughly games out what's probable, and an oil commodity strategist come on and they say, absolutely not, that seems highly unlikely.
What's your take.
I think it's it's pretty unlikely right now. I think the market is over exuberant in terms of.
A fast fix to all of this.
I think that despite what President trum tweeted on Friday, Iran and the United States are leagues and leagues and worlds apart in terms terms of what they want, and Iran has absolutely no incentive to give in on anything at this point, because, first of all, it doesn't see anything wrong with higher oil prices, whereas Trump keeps going back to these very positive statements to try to get
prices down and get the Dow drones up. And yet I think it's pretty clear at this point that once everything actually is resolved, we're going to go back to where we.
Were in a hurry.
Prices will go to oil prices will go down, equities will go up, and so it seems like it's kind of confusing to me. So why he keeps trying to make things seem better than they are, just to get things looking better at the beginning of the week or when market's open, when you know, let it be, you know, say say your position holds strong, because that's clearly what he wants to do, and then let it all, you know, but let the cards fall where they will when it ends.
Ellen, you wrote the book on Saudi Arabia Saudi Inc. Talking about how the kingdom really came to fruition and some of the monetary backing of the oil complex. Do you have a sense of how much Saudi Arabia and the other Golf countries are shifting alliances moving away from the US maybe amid this conflict.
I do think that we're in a different paradigm than we used to be. Really, you know, Asia is the most important customer now for Saudi Arabia and the UAE and other big oil exporters. It used to be that the US was their most important customer. However, China and Asian countries are not big military suppliers. China's Navy is never going to go into the Persian Gulf, whereas the US Navy, they're the ones.
That are there.
So it's a slightly different dynamic in that the US is still very important financially, very important as a military supplier and as a naval force and an air force in the region, but it's not that it doesn't play that same role as buyer of oil. And so that means that these countries have a bit less leverage over the US than they used to.
But at the same time, they're not going to want to create all this friction with their security blanket, are they exactly?
And so it is a bit of a careful line that they're walking because they need the military protection, but they can't necessarily say to the US, hey, we're we're going to you know, we're going to control oil supplies now, and to make sure we get that. It's it's not so much of a quid pro qo here, And I think that they do need to tread carefully, and we're
seeing them tread carefully. You know, they haven't been all that vocal about about what's going on, and I think that that that's a sign that they know that their position is perhaps a little more precarious than it used to be.
Well, there are of courts of mahome Ben Salmon had a phone call with Shijingping earlier. Today. Are the Golf arab partners you think pressing on China to put the thumb on the scale on Iran?
I think they absolutely could, because China is one partner of Iran. They that has that economic pull with Iran.
On the other hand, I do think that you know, these calls could be all about just maintaining, you know, maintaining the conversation about the fact that you know, China has a lot of investments in Saudi Arabia that are not doing all that well right now because they can't get oil out and you know, there are issues with the petrochemicals, and so I wouldn't be surprised to see the Saudis and counterparts in the UA reaching out to people in China to assure them that the relationship is
strong that once this is over, you know, things are going to be repaired and go back to everyone making money the way it used to be.
And what happened on Friday, can we just finish on that. Between eight and nine am Eastern time, On Friday, there was a series of messages from one delegate coming out of Iran and another in the US making the case of the stratiform merc that reopened and we were sitting care thinking maybe it has let's say, let's wait and find out. And then we found out pretty quickly it
has an And so what happened that? Was it something the US diad or was it just that the Iranians committed to something that ultimately not all Iranians and all interested parties had a great suit.
Yeah, I think it's I think it's both.
It's it's a bit of both here, because there's a bit of over exuberance on the part of Trump to say the street reforms is open, Iran has agreed to everything we want, you know.
Let's let's move on now.
I think there's a huge amount of pressure, particularly from Trump, to for that to be the message on Iran's part. On the other hand, remember these are these are not These parties are not talking to each other. They're talking to intermediaries who are then talking to each other, who
are then going and talking to the other parties. So so Iran and the US are not communicating with each other, and so there's a bit of a dance in the wordplay that comes over comes around the US may say we want X, Y and Z, and with that message gets to the Iranians. It's not the same as exactly what the US said. And so when Iran agrees to something they're agreeing to, what would they think they're agreeing to could fly with their people, which is not necessarily
what Trump thinks they're agreeing to. And this happens a lot in diplomacy, particularly when the parties are not actually sitting down at the same table as each other and not speaking the same languages. And so I think this means there's a lot more to bridge. Iran also needs to message to its own people, and as you mentioned on the program earlier, we're not entirely sure exactly who
we're speaking to with regards to Iran. There's the IRGC and there's the elected government, and those are not necessarily the same and don't have the same opinion and don't even necessarily have the same elements under their control in the country.
Stay with us more Bloomberg surveillance coming up after this. President Donald Trump threatenings a quote knock out every single power plant and every single bridge in Iran if adal is not reached.
Wallways.
On global infrastructure, Sodak Wabba of Ice Squad Capital is remaining positive on the sector, writing the fundamental need for infrastructure in this part of the world doesn't disappear because the environment is difficult. If anything, it intensifies. Sodak joins us now for more. Good morning, sir, it's good to see you. Thank you, thank you very much for being care so in your opinion, in your mind, the war of the last two months or so doesn't upend infrastructure, it might accelerate it.
Unfortunately in that sense. Yes, So two things. First, you're going to get at least sixty billion dollars probably more in terms of direct infrastructure damage. The problem is that's the physical damage, but you have consequences in addition to that, meaning it will take you a couple of years to rebuild some of that infrastructure. You'll have to spend on defense. So overall, the governments of the GCC have probably another hundred billion dollars that they need to spend over the
coming years. What that will do, in my view, is it will push these governments into investing in these projects through direct government intervention and national oil companies, but then let the private sector focus on the remaining infrastructure over the course of the coming decade. If you look at the share, for example, in Saudi of non government oil, that's about forty percent. What's that number in the US
about fifteen percent. So that share of government expenditure needs to come down any way over the coming years, and that I think will be accelerated because of what has happened.
What do you think the key priorities will be now?
I think there are two key priorities. One is redundancies and the other one is accelerated growth. So redundancies because we've seen that there's too much concentration in particular areas. So for example, twenty percent of the oil goes through the Strait of Homos. Twenty percent of the energy goes through the Strait of Homos. So what the GCC countries will need to do is to create redundancies, more pipelines,
more storage facilities. And you're talking, by the way, they're already talking about that, right, it's not something that is speculative. What kind of pipeline do we need to build to remove that reliance on the Strait of homost one kind of storage facilities do we need to put in. So you're going to get a huge boost and investment in that kind of infrastructure to reduce that reliance. So that's one aspect. The second aspect of it is if you look at the non energy infrastructure, a lot of it
has been concentrated in particular geographic areas. So for example, take data centers. One of the highest penetrations by the way of mobile phones, fantastic, but the digital infrastructure is highly concentrated in a few hubs, so a few hubs. Global cloud dependency, a fiber optic comes in particular geographic areas which we don't need to mention, so all concentrated in those areas, So that will have to change over the coming years. So one is data center. Another one
is water resources. Sixty seven of the population in the GCC relies exclusively on diesel water and all the diesel plants are along that coast which is in the Gulf of Pressure, so you'll need to create a new infrastructure for water. Water reserves that need to be put in.
This is a lot of money, and it's even more money when you think about how much the commodity prices are increasing as a result of all of this infrastructure build Where is the money going to come from. Is it going to be diverted from other initiatives that these Middle East countries are now investing in, whether it's golf or whether it's the premier league in football, or is it going to be coming from outside investors.
I think it will come primarily from outside investors. So take a private equity firm like Iceweat Capital. We're looking to deploy easily over two billion dollars in the coming years in the region in that kind of infrastructure. It could be in water resources data centers, which already doing renewables. Renewables penetration in that area is five to seven percent, US is twenty world overall globally it's about thirty percent. Europe is sixty percent, So the weigh behind in terms
of integrating renewables power into their system. So I think you're going to get a lot of investments. It should come primarily from foreign direct investments, private capital, and that's already happened in the last couple of years.
Do you get the sense that there is an allegiance in terms of where the money comes from to go into some of these projects, the infrastructure projects. And I say this at a time where it seems like the world is kind of fracturing and there's a real question about US money going into the region or is it Asian money that's going into the region. At a time when this used to be sort of the new financial capital,
that's kind of been called to a question. I mean, do you have a sense of where the flows are going to be coming from.
I think, interestingly, the flows are going to continue to come from the US because we are the largest, deepest capital markets in the world. There's no doubt about that. We tend to be sometimes short term and forget about the long term. Asia tend to be more longer term. But you have a huge base of private equity investors in the US that is looking to invest in the region and will continue to invest in the region and
are willing to take a longer term view. I don't think that was the case ten years ago, because you've seen fundamental changes in the region notwithstanding the war. But sorry, but Asia capital your point, I think, is going to be very aggressive, like it has been in Latin America likely it's been in Europe through Belton Road, through other mechanism that China has developed.
Absolutely, Sometimes there's a habit to talk about the region as a monolith, but it's not who's hit the hardest right now? Is it Bahrain in Kuwait? Are they you don't need the most money.
The truth is the people think of these as different countries, which of course they are, but they all rely on that energy infrastructure which has been hit that I think will need to be rebuilt very quickly. Some of it will take years. As I said, because I'll give you an example today, I want to build in the US a power plant. We have huge needs for power plants right because of data centers. For me to order a turbine from Siemens Mitsubishi ge five to seven years. So
think about that region where they have to rebuild. It's not as much as the cost, as much as the time that's going by, so they will have to wait quite a bit to be able to rebuild that. So it's honestly across all of the energy sector. What has been most hit is of course anything that has to do with the US, so US basis where US activities occurred that was hit.
What about the trillions of dollars these countries have pledged to invest into the United States if the President made that huge foreign policy trip last year.
Yes, I was actually part of that trip with President Trump. I think those investments will happen, but maybe will happen over a longer period of time than expected. Let's put it that way.
That's what I heard.
I heard all those investments are now getting kicked down the road, kick the can. But for the president, I say, this was a huge foreign policy win.
Yes, you see, there's an irony to that. I think those economies are willing to invest in the US. The question is in what sector and are we able? Do we have the mechanism to take on those investments. So it's easy to invest in the stock market, it's much more difficult to invest in a multi billion dollar pipeline that needs to be built. So ironically, it's the availability
of projects in the US that is the challenge. The permitting, the regulatory frameworks, all that is effectively slowing down the ability to observe that kind of capital.
At least, try to ask the question, and do you think the Sundias will stick with liftgolf? Have you got an opinion on that, sir?
None?
But I think they will stick. Yes, stay with us. More Bloomberg surveillance coming up after this and the Savannahs this morning. A change of course, we're going to focus on a Federal Reserve confirming Kevin Walsh.
It's time to move on from this. So the petitions to the court have been rejected, and I think it's time to move on from the case and put our attention around getting Kevin Warsh confirmed by the United States Senate. Let President Trump have a new partner at the Fed. What Treasury Secretary of Bessett have a new partner in bank supervision and monetary policy. It's time and I think it's important to.
Move So here's the laces this morning, Kevin WASH's confirmation hearing. Facing headwinds. Senator Tom Tiller is still voving to block the nomination until the DOJ ends its probe into the Central Bank joining us now as Claudia sum of New Century Advisors, Claudia, thanks for making some time for today once again ahead of an important hearing. I have to say, but you're anticipating more theater than signaled and insight in the next twenty four hours.
Well.
Confirmation hearings always have an aspect of political theater to them. But this one, frankly, I think Kevin Worsh might almost be a sideshow at his own confirmation hearing.
President Trump is going to.
Loom very large in these hearings tomorrow and the pressure campaign he's put on the FED, and we might learn not so much about Kevin Warsh and his views on monetary policy.
That's that, Claudia.
It feels like people are on tenter hooks waiting for him to give some signal of how high the bar is for him to cut rates and exactly what he plans to do with the balance sheet? Are you expecting no signal from him with respect to cutting rates at this moment, given the fact that Secretary Treasury Secretary Scott Besson essentially gave him a green light to be a little more hawkish than perhaps President Trump would like.
Well, first of all, somebody's got to ask him about it, right again, That's where I mean him not being part of the center of focus. If a lot of the questions are about President Trump and FED independence and like, that.
Just wouldn't get to what's Kevin.
Worsh's reaction function, Like how does he think about what the federal funds rate should be what is he balancing?
And it is difficult.
Over his career, it's a bit of an enigma what his reaction function is. So I think that's absolutely what we should be learning about tomorrow. I hope we get more guidance from him on this, but again senators have got to ask him about and really push him on how does he think about setting the federal funds rate.
We might get some of that tomorrow, but I suspect we're not.
Going to get as much as we really should be getting to kind of think about him as a candidate, Claude, are you.
Surprised that the market's been relatively sanguine in the face of some real drama and real questions around a who's going to be atop the Federal Reserve and be what would the composition look like given some of the drama with current Fed share J Powell.
So there has been absolutely nothing normal about this transition in leadership at the FED.
And again that doesn't go back to Kevin Warre.
Since President Trump has chosen to run the vetting process in a certain way, being very clear that he's only putting someone in place that wants low interest rates like he does the fact that we have an open criminal investigation against the current FED chair that's holding.
Up the confirmation vote.
We have another governor whose job is before the Supreme Court because the president's.
Trying to remove him. Like, nothing about this is normal. I mean, I think it will be good.
There's a potential for Kevin Wosh to come in and kind of set the tone about how he's going to smooth out this leadership transition, because right now it's really it's quite chaotic.
If Senators Jack read or Mark Warner Cythia Lumis are watching this morning, what would you ask them to ask Kevin.
Warsh Again, I think it's really important to help us understand how does Kevin worsh think about rates policy. There's been a lot of times where he's talked about the balance sheet. We understand that he doesn't like the tool of the balance sheet. He wants a smaller balance sheet. One thing that I've been concerned about is often he said, well, as we drink the balance sheet, that's going to give
us space to lower interest rates. Okay, his agenda to shrink the Fed's balance sheet requires a real change to the framework that is going to take a lot of time. Okay, say he doesn't get that, is that what rate policy is tied to? Is him getting a smaller balance sheet? If not, what is it that rate policy is tied to?
And how is he going to make these arguments because again he's had very hawkish positions in the past and now he has very dubvish positions, and he's just trying to make sense of it, like what is his past? And I think for the Republican senators as well, they need to understand who is this person that they are elevating to fence here? How does he really process information about the economy. And there's just there's a lot of
question marks. Confirmation hearing is where question marks should get resolved totally.
Just to find a question from us in your opinion, your opinion, what is the most convincing argument right now for lower interest rights?
Like right today, there isn't a convincing argument. There really is too much uncertainty about what's happening with the conflict and the Middle East. We still haven't had the tear eff effects roll off. I think we can still build a case for the next move is a rate cut.
I think that is still appropriate.
I'd like to hear how Kevin worsh build that, because I would build that with some weakness in the labor market potential. That's not something we've ever heard from him per se on this. But there's a case for the next move is a rate cut. But it's really hard to say that should be happening right now and these should be big cuts. And that's where I think, you know, if he wants to make that case, it would be really interesting to hear him make it.
This is the Bloomberg Survandons podcast, bringing you the best in markets, economics, an gio politics. You can watch the show live on bloombog TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloombog terminal and the Bloomberg Business app