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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. It's the latest this morning.
The Trump administration seeking to curb crude volatility, saying the US Navy willissis and escorting tankers through the stratiformers quote soon as a runds new Supreme Issues, Supreme Leader issues of statements, saying the crucial waterway should remain closed. Gene Soroka, the executive director of the Port of Los Angeles, joins
us now for more. Gene, welcome to the program. Can we start with the operational consequences here and can you talk us through a picture of what you see the transit times that have had to be extended now because of the difficulties getting through that very tight straight offor moods.
What's going on now, Well, good morning, John, not much.
There are thousands of vessels that are stuck in the Arabian Gulf and just to the east outside of the Strait of Horror moves about one hundred and fourteen hundred and fifteen container ships, balance bulkers, tankers, and those energy ships that you've talked about in the previous segment. The companies do not have an interest right now, nor is there enough money for insurance to transit those ships through
the strait. Risking the life and limb of crew is just not an option for the private sector companies today.
So Gene, you're saying that for many they're just doing a hands off approach and have canceled a lot of transits.
That's right on the container side, John.
The Middle East and especially those countries in the Gulf, think of the United Arab Emirates, Bahrain, Kuwait, Iraq. They're consuming public much like we are here in the United States. So exports from Asia of furniture, footwear, clothing, electronics, and appliances have all but halted. Those factories in Asia are trying to segment that product, move it to the side so they can continue servicing us here in the United States,
Latin America, European Continent, and the UK. It's a matter of time to see if that starts coming up the works at ports through Asia. But so far supply chains moving here to the United States are smooth. Yet the cost of the fuel has doubled over the last ten days.
Has that affected Gene anything about the number of ships, the number of the scope of demand that you've seen at the port of Los Angeles, just based on the fuel costs alone.
Not so much right now, Lisa. But we're watching this very closely. The cargo moving today following Lunar New Year's in our traditional slack season, so the flow of goods will be a little bit slow until we hit the middle of April. Then we'll start seeing spring and summer fashion arrive.
But the fuel component right now is.
About twenty five percent of the overall freight cost, almost double or much higher than it normally is. Yet it's not impeding purchase orders. From what I hear out of retailers and manufacturers alike. Those pos in Asia are remaining solid. We're not seeing a drove of cancelations how much.
You also seeing supply chains start to regionalize in a more concrete way. I mean, we've been talking about this for a significant period of time. People trying to localize where they get things to avoid some of these disruptions.
Is that accelerating, Yeah, it's interesting depending on hubs of production. Think of the automotive industry here in the United States with their tiered suppliers, as they're all within one hundred or two hundred mile radius of those oem plants. Folks are looking at scenario building around supply chains, whether it's tariffs, cost Now this war in the Middle East that's impacting the fuel costs across the board in a variety of areas.
Not only do we see it at the pump here up sixty cents over the last two weeks, but that bunker fuel for the big container ships, cruise ships, and airline tickets have risen substantially over this period of time, adding to that fuel adjustment factor. On the manufacturing side, these supply chains can't move that quickly, and they've been designed in ways to allow for some adaptation, and that's why we typically see closed loop services in the Middle East.
Those ships that are coming from Asia will offload the cargo, pick up a small amount of exports and a lot of empty containers, and head straight back to Asia. Here in the Transpacific trade, we don't see a lot of interdependence of crews, assets, or those vessels themselves. So the supply chain folks across the board are continuing to look for ways to refine. Yet it the inertia is not going to happen that quickly.
Jane, you lived through a lot of crisises. You also worked in the Middle East. There was the pandemic, there was the Red Sea at one point shut for about six months essentially. On top of that, we recently had a lot of issues regarding tariffs. What does this remind you of the.
Most, probably, Anne Marie accommodation of all of those. When I lived and worked in the Middle East, we were going through the Second Iraqi War, and while there was a lot of cargo flowing in to support the troops that were on the ground and help rebuild Iraq, there was always this fear of the Strait of Horror Moves being closed and that twenty one mile gateway that allows cargo product ag doll aluminum and of course the energy
products going through there. That was a fear for many, many decades, and now we're seeing what it really looks like the price of these energy products is on an international level. So even though the United States now is a net exporter of energy, we're still feeling it right here at home. This is how important that geography is.
And while it's only about eight to twelve percent of container shipping volume and assets worldwide, it's going to have knock on effects if this lasts longer than some experts had originally predicted. So it's adding all these pieces together
and it's that continued unknown. What CEOs and executives are telling me and Marie is their planning horizons have shrunk two months, if not less than that right now, trying to understand how best they can move tactically because longer range strategy is very difficult at this point in time.
Given your contacts around the world, have you heard of any companies asking the US directly for that naval escort?
No, I have it.
We just had last week the large Transpacific Maritime conference here in southern California that was by the S and P Global and Journal e Commerce groups over forty four hundred delegates, many of the shipping line executives, and as we started trying to plan or scenario build just a little bit follow on conversations this week, no one has raised their hands saying they want to start.
Pushing through again.
The safety of those crews is omnipresent in their thoughts, and then the risk of those assets containers. You're not going to be able to recoup that if anything disastrous happened, ever, and you're going to have to live with it. There's also this risk, a war risk insurance premium that's been levied by a number of carriers about three thousand dollars per container for any cargo that would be transiting in
that region. And it's simply an outcome of the fact that they can't get insurance for the vessels or cargo or the protection of the crew. So to be at a standstill now, we'll continue for some time until we have some level of surety that that region will be safe again.
Stay with us Multilemberg.
Savannah's coming up off to this, the retired Lieutenant General Robert Walsh of Academy Securities, writing restoring normal shipping could take weeks if a significant number of naval minds are deployed. Lieutenant General Welsh joins us. Now for more, Lieutenant General, welcome back to the program, Sir. I want to give to you just the quote that we heard from the Supreme Leader, supposedly a quote from the Supreme Leader yesterday. The leader of the straight ofform mers must certainly continue
to be used. Studies have been conducted on opening other fronts where the enemy has little experience and would be highly vulnerable. Now we're going to get to the ram of speculation, Lieutenant General, But what do you suppose the Supreme Leader is addressing there?
Well, I think what the'se trying to say, And first off, thanks Jonathan for having me this morning. But I think what he's trying to say is, you know, they're trying to work against our strength. They're using asymmetric warfare. You know, it's one of the things the Chinese philosopher Son Sou said, don't work against an enemy strength, work against their weaknesses. And this is one of the those areas where they
can work asymmetrically. And Iran feels like they want to get leverage whenever they go into whatever negotiations may be. This could go long term, and he wants to have that leverage, and he's going to get against our One of our key problems is trying to keep the straits over Moose open.
Well, yesterday the Treasury Secretary said that his belief is that as soon as it is militarily possible, the US Navy, perhaps with an international coalition, will be escorting vessels through. Can you walk us through what this even looks like.
Yeah, sure, am Marie. That's great.
I think the one point you hit on was an international coalition trying to bring partners together to open the straights up, because this is an international problem. So the more the US can always leverage international problems, problems like this, the better off it's going to be. And we've got a lot of international partners that have a lot of
capabilities in this. I think you can see right now that the US has a great ability right now to suppress Aroan's missile drone capabilities to kind of maintain air superiority over that. And now the real question would be would around start delay minds in there, because that's another opportunity they've got to choke off the straits of Hormuse.
That's another asymmetric capability that if you look at the way the US Navy operates, they would rather just like we've seen the first parts of the air campaign, it's like they would rather stand off than stand in. When you start putting, you know, warships into contested areas like contested lottorals like we have in the Gulf in the Straits there, they would like to set the conditions first.
And that's why I think you're seeing time before the escorts start to happen, setting those conditions right before we start conducting the operations.
Well besides the UK Navy, who's signing up for this international coalition, I.
Think that would be something that have to be worked with the international partners like Saudi Arabia. I think the UAE, we've had the French in there in Australia have mind
color measures capabilities. They would be the ones and I think you'd have a better chance at performing that once the conditions are set where it's safe to go in to conduct escort and mind clearing operations, because these would really be more looked at by the International Committee as defensive operations and not offensive operations, and why you'd have a better chance of getting a coalition with those partners.
Lieten in general, do you think that still there is the possibility of ground troops going into Iran, particularly to get the industry radium still there at least?
That's a really hard question to say.
I certainly don't see large ground forces going in there. There could be significant operations that would go into key sites like you just mentioned for nuclear capabilities, very dangerous operations. We have the capabilities to do it. Again, those conditions would have to be set for those forces to go in. But at the end of the day, I don't see any risk that the US wants to take by putting large ground forces in and putting them at risk into some type of long extended campaign.
Lieutenant General, do you think you can end up in a long extended campaign even if you don't want to.
I think this warfare change as it goes on, and what we're starting to see from the Iranians is even with the massive power the US has along with the Israelis bringing all this power to bear and taking down, you know, the missile capabilities somewhat the drone capabilities, we're seeing those numbers drop way down. We've seen them destroyed pretty much the entire navy of Iran. But at the same time, like I said, the Ranians have looked at this problem just as the US has looked at it
for a very long time. They understand the strengths of what the US does, how the US comes to war, and what they have worked against is those weaknesses, and a weakness they see here is that regime is willing to hang on for a long long time. And then that's what we see as regimes like this are not willing to give up power. They're willing to entrench themselves
for a long time. And what they're seeing is by using this asymmetric threats by firing the drones in particular the missiles also you know, at our allies and partners, and threatening the straits to keep them closed. That's an asymmetric way where they've got leverage, and they're going to use that as best they can to get in negotiations where they've got leverage to try to get the things they want coming out of it as the war comes to an end.
When that comes to an end, stay with us.
More Bloomberg surveillance coming up after this. Rachel's of the sense for a new American security right In the following traders will assume the US will continue such measures as long as Homer's is shut, and will be skeptical of post war pressure on Russia due to a widening gap between the US and the EU. Rachel joins us now for more. Rachel, welcome to the program. Thanks for having How much for mess are we in right now?
I think we're in quite a mess and the issue now is I mean, the most charitable read on the decision last night was that Russian oil prices were already high and that if this lifting, if the sanctions easing didn't happen, that China would be getting all of all
of the game. The challenges here that it's not enough barrels, and that at the end of the day, it's not clear that we're getting closer to the end of the war and reopening hormones, and at the end of the day, for the energy markets, that's what needs to happen, and it means but this uncertainty means that even US producers here can't really benefit because they don't want to start investing more in the risk that there's demand destruction ahead or that suddenly the war is over. And this fifty
million barrels is back on the market. So you know, here in the US, we don't have lots of surplus capacity that we can flood the market with.
So I think it's it's a very difficult situation.
I'm sure you've seen the research coming out of the banks. This was Goldman deadly. Oil price is likely to exceed the two thousand and eight peak. It flows through the strain, remain to press through March. What's the day on the calendar that you're focused on.
Yeah, I mean, I think right now it's hard. Everybody has their model.
It's hard to think about where the prices go because at a certain point it's more symbolic than actually based on market models. But I am really watching, you know where we are in early April, right, that's when the physical supply risks of you know, sort of really mount, right because a number of energy producers, especially Ron but also Saudi Arabia they front loaded, they sent more vessels out and and that's so that's when I think, you know,
things would start to bite. That's also when we'll be watching, are have these additional barrels from the G seven from the IA, you know, stockpile release are they coming to market. And I'm watching as much not just crude oil, but product markets, diesel, jet fuel, and also the cascading effects that we're seeing in Asia of chemical plants shutting down
and the like. So I think if we're not at a point where they're ceilings are reopened towards the end of the month, we'll be in a well even more difficult situation.
When does demand destruction kick in.
I think we're starting to see it already, maybe more so in Asia. We're seeing mandated moves across Southeast Asia to reduce demand, when we're seeing it even in Europe. I think on the power side, the gas natural gas spiked even more quickly than oil just once the kateries started to shut in production and we saw TTF spike up. Was that last week and now we're sort of seeing it flat in part because at those prices, people.
Don't want to buy, and that's going to kick in.
Especially later this year, when normally producers would be injecting more fuel.
It's at storage time.
So I think we'll start seeing some switches to coal where that can happen. We'll start seeing some rationing, and you know here in the United States. We're a bit more sheltered on on especially the natural gas side, because we can't export a lot more capacity than we're already doing. But still we're already at a point where electricity prices we're a salient political issue in the midterms.
There were a big issue in the.
Off year elections last year, and so now we're looking at prices of the pump being more expensive as well as electricity bills.
Well, I guess the key question for economists has been when does this end up suppressing growth in a material way? And most people seem to say not until it goes on for months.
Or a longer period of time.
And then I think of that spring break and how a number of people are saying, I'm not going to fly anywhere because the prices have gone up forty percent, thirty percent and it's not worth it. I mean, are we already seeing that start to trickle in on the margins in the US or is that mostly an Asia story a Europe story for now?
I think it's mostly an Asia Europe story.
I guess it depends how quickly how short term people buy their spring break tickets. I often sometimes I travel short term, but a lot of times. You know, I have I have some trips booked out through the spring. I'd be more worried about how people are going to travel and drive this summer.
People are making those decisions.
We're seeing airlines in Asia and elsewhere start to put on fuel surcharges.
So those dynamics now here in the US. I think.
You know, we've seen the drivers of growth be largely around AI and AI roll out imports have been driven by AI.
Some of that will continue, but.
That's where I start to worry about. You know, memory ship prices we're already going up, and now they're helium shortages.
Helium's used in semiconductors.
Taiwan is one of the countries that is quite high on a pain point schedule level, however you measure it not having a lot of reserves and the like, and then other countries like India.
My senses in the US.
The worry is more, are we going to be in some version of a growth slow down?
And you know, the dread it.
I'm not ready to call at stake inflation yet, but you know, we were seeing prices of other goods start to go up, especially you know, healthcare and the like and so I do think this puts the FED in a tricky you know, in a tricky position. That being said, the right thing to do from just a commodity shock
like this is probably to look through it. But this is an economy where we're not adding jobs really right, and where prices are going up, and so I think globally this is more of a risk to growth rather than sign of some sort of recession. But you know, there's also a risk that investments slowed down as well, a long term investments infrastructure projects, both in the Golf region, but also questions internationally.
Two months ago and ten days the United States captured Nicholas Maduro, we have seen companies like Chevron say they're going to expand production. Could that be a lever this administration leans more into given what's going on in the region.
Yeah, I think it will reinforce their priority on that. We've seen a brow of different administration officials in Caracas, their investor trips I think going on this month, you know, and we've seen Venezuela and production go basically back up to where it was in the fall of last year, maybe getting close to where we were at the beginning of the second Trump administration one and change million barrels
a day. The challenge is it's not easy to bring a lot of more supply online quickly, so it's more Again, we're back to this medium term question of is the demand going to be there a year from now, five years from now. So I think we'll see producers already present adding, you know, in the neighborhood of a few hundred thousand barrels a day. Every barrel helps to be clear, But I don't think we're going to see the kind of investment that takes.
Us to, you know, that helps us fill this gap. This is ten millisian barrels a.
Day gap of things that either are not going through the strait of hormones or can't be diverted through other pipelines.
This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, angiopolitics. You can watch the show live on Bloomberg 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 Bloomberg Terminal and the Bloomberg Business app.