Bloomberg Audio Studios, podcasts, radio news.
I think you do need some foreign policy nerds like me to come in and explain where the rules of engagement are being changed before our eyes. And that's why someone like me can say this is the most significant uptick in Middle East risk for at least twenty years.
Welcome to the City of London, the City of the City, the City of London.
We need mind the gap between the tree and the platform, the financial hearts of the country.
The city, the city.
Welcome to in the city.
Band, clear of the door.
Pease from Bloomberg Studios in the heart of the Square mile. This is our weekly look and the conversations motivating powerbrokers, policy makers and financiers the world over. I'm Francine Laqua and Dave. You're back in New York this week.
I am indeed h fancy, Hi David.
It's been quite a start to the week. It was quite a weekend actually, you know, we were texting about what we were going to discuss this week, and there was no question we need to discuss the escalating tensions in the Middle East.
That's right. The weekend really was momentous. The images of the attack that Iran launched at Israel drones and missiles flying over the dome of the Rock in the center of Jerusalem really struck home what a historic moment it was.
Yeah, I mean a lot of people are actually really scared that this would turn into a world war. And do you remember when Ian Bremmer in our first episode of the year came on with his top ten risks. He was saying, look, it's really the Middle East that we need to watch out for on the brink, and he said that we're probably not smart enough for lucky enough to avoid an escalation over the coming month.
That's right, talking about the sort of you the more pessimistic outlook for this, and it has come to pass, of course. However, we are still waiting. We're taping this on Tuesday. We are still awaiting Israel's response to that barrage of missiles and drones ninety nine percent of which also the vast majority of which it managed to intercept and shoot down. But there is this feeling that the world is on a brink of something potentially much worse, even than we've seen in the past few months.
Yeah, the group of seven members, including the Prime Minister of the UK spoke with one another on Sunday and said they would try to stop an uncontrollable regional escalation.
And of course, all of this is against the backdrop of Israel's war in Gaza, which has now passed the six month mark. It has left Garza's population of more than two million people without access proper access to water, food, power, medicine. It's displaced one and a half million people into the southern part of the Gaza strip, and according to the Hamas run local health authorities, it is killed more than
thirty three thousand people. Of course, after the horrific attacks that her Master launched on Israel on October the seventh, which killed more than twelve hundred is raised.
So let's have a conversation about how long standing tensions between Israel and Iran came to a head, where those tensions could go next, and what it means for the overall stability of the region. Joining us in the London studio geopolitical strategist Tina Fordham. Tina is the founder of Fordum Global Foresight, an independent consultancy dedicated to advising boards and the c suite about geopolitical, socioeconomic and financial Risks.
Tina, thanks so much for joining us on in the city. Thank you for having me so As Francin and I were just saying, it really was a momentous weekend. I'm sitting in the US on Saturday, there was this sense of real foreboding about how events might unfold. Did you feel that this was as historic and as momentous an act by Iran when you saw this unfold over the weekend?
Yes, in many ways, because Iran has broken the taboo first of all, of launching an attack from its own territory. And let's remember that this so called shadow war that has been in existence for some years between Israel and Iran has been fought through proxies. That's what his Polah do in Hamast to a certain extent, and the Huthi rebels, they are helping Iran achieve its aims without triggering a
conventional military response. And so the decision in Tehran to launch these hundreds of ballistic and cruise missiles and drones from its own territory into Israel was a major uptick in the risk level. And I think market participants have completely got it wrong with the idea that it was somehow meant to be symbolic, But so why did it happen?
So this is in retaliation okay, an Israeli strike on Damascus.
Yes, and that also broke the rules and.
Which killed Iranian general.
In Iranian generals, but in the Iranian consulate in Damascus. And remember that in international law that is sovereign territory.
If we take a step back, there's three hundred explosive drones and ballistic missiles. What was the endgame of Iran? Was it showing a force and telling Israel don't mess with us? Or was it actually trying to hit targets.
It was upping the ante. They couldn't have known the kind of performance of the Israeli air defenses, nor the cooperation or the extent of the cooperation between the UK, the US, France and Jordan and possibly others, so it was taking a big risk. They didn't appear to have targeted population centers or things that would have really increased
the risk level dramatically. But this was intended to send a message that there would be punishment for Israel for attacking the generals on the sovereign territory of their consulate. And now Israel is in this rather terrible position of trying to calibrate its response.
But do you think, Tina, that it was a miscalculation then from the Iranians, that the Israeli air defenses would be so effective at shooting them down, and that there would be a coalition that would emerge, including Arab states to intercept the missiles, sort of rallying to Israel's defense. And doesn't that make Iran actually look rather weak?
Absolutely? I mean the end result, without being able to read the minds of the mullahs that run Iran, the end result has been that Iran's formidable military is not looking so so formidable. So Iran is looking weaker. Remember that it also sells those drones to Russia to use in the case of Ukraine. So Iran ends up looking exposed. And the other way that this attack backfired is that it has been a gift to Israeli PM Netanyahu, who's you know, time on the political clock in Israel was
really running short. Remember just the day before huge protests not against his prosecution of the war in Gaza, but for not bringing the Israeli hostages held by Hama's home.
And so Natsigna, who seems to have been given a bit of a break by this attack, and so what does he do with it? And what does he do with it exactly? Does he keep the conflict with Iran going?
Well, this is the conundrum, right, So you know, I get a lot of emails and have conversations with investors and other you know, sort of business leaders, and every one of them said, but surely BB won't bite the hand that feeds him and go against the US, And to which I said, have you not been paying attention the kind of incredible diplomatic pressure that the White House has put the Natanyahu government under to deliver humanitarian aid
and everything else. This is a consequence of the end of the Pax Americana, right that Washington can't just call the shots.
But I guess the question is, Tina, does this play to Nathanael's hand because he got so much support to dealing with Iran, So he was in tricky hot water because of what he's doing in Gaza. But then as soon as you get intact from Iran, then the Allies show up.
Yes, And so how does he interpret that extra space that he's been given and what does he do with it? Because he's hanging on by a thread politically, remember, and his coalition is all hardliners who are saying, go big, let's end this problem once and for all. We've heard the Israeli cabinet using the Hiroshima metaphor saying that's what ended the World War two was the America's use of
the atomic weapon, and that's all terrifying stuff. And yet the market consensus is that Israel will send a response that's within the gray zone right, sends a message but won't inflict damage. That is a hard line to tread.
Do you think the markets are miscut plating as well here that I think you said this at the beginning, Tina, that markets were not sensitive enough to these risks. But should they pay more attention to what people sitting around Nettigna who's cabinet table are actually saying?
I think that there's an overly simplistic interpretation. I mean, let's be clear, the capacity for conflict and dislocation in the Middle East to inflict price action on markets is much reduced thanks to the onset of US energy independence and shale gas. So it is certainly true that even in the worst case scenario, we're not probably looking at a thirty dollars a barrel increase, maybe five or six.
I'd argue that still matters in an environment when markets are very focused on what the Fed does next and have downgraded their expectations for rate cuts. War is inflationary.
You mentioned the Pax Americana and the end of Obviously, we're in a big election year here in the United States as well, and we've seen Donald Trump come out and grandstanding about this if you want to call it that, about how iron never dared to attack Israel if the president.
Well, that's funny because Iran did attack when he was president and the US didn't respond.
But sorry, okay, yeah, memory there for you. But so, how much is the domestic American political situation I think here influencing what is going on in the Middle East.
So the Biden administration is in the midst of a fight for reelection, right, and the election is just months away. The last thing it wants to be doing is trying to intervene diplomatically to prevent World War III from happening in the Middle East and to prevent Russia from achieving a victory in Ukraine. The combination of these two conflicts both of which have the potential to become systemic. Moving beyond regional is the worst constellation of geopolitical risks that
we have faced for some thirty years. The period between now and US elections, everybody's going to try on what they can get away.
With, including the Chinese.
Yes, well they're doing it in the Philippines. Yes, everyone's busy. This is the perfect time to try to take a bite out of territory that you would like back, change the facts on the ground. And this is the other fundamental point that market participants miss. No one is business might be waiting until US elections to do deals or whatever. For challenger actors, which is the term I use. Now's the time to increase your negotiating position so that you
can keep what you've got. That's what you hope. So that's why Pucin is going for Harkyve, third largest city that extends his territory, because he knows that when there is a peace discussion, they're going to say, okay, we want all the things that we've already got. So he's going to try to get as much as possible. And Chinese actions in the Philippines are significant. They're blockading the delivery of food aid to Filipino sailors.
And Congress does nothing or is frozen.
Congress is frozen because it can't. Governments can only do one thing at a time, and the Middle East is now it.
Bloomberg Economics have done some projections and they're saying a direct war between his run and Iran could push oil up by more than sixty dollars about and tip the world economy into recession. That is the sort of the worst case scenario. But even a confined war hits global GDP and sends oil up. So again, it feels like markets and you've said this now a couple of times seemed to be baring their head in the sand on this.
And because so many people, as you said, growing up through these decades of the US dominated global order just can't imagine a scenario when that really breaks down.
I think that's what explains it, you know, I call it kind of behave ye. Finance meets geopolitics. Remember it wasn't that long ago we were having these conversations about whether Putin would invade Ukraine. Would he really do that? He's just playing three dimensional chess. This is just saber rattling to increase oil prices putin, by the way, is a major beneficiary of this kind of geopolitical foment. How do you kind of price this, how do you rebalance
your portfolio? I'm not sure I have the advice about that, but what I do know is that when there is a step change in trend, when you have a disconnect between this incredibly sang Win market sentiment and what pretty much every geopolitical analyst is saying, this is serious, that is at least a reason to pay more attention instead of being as dismissive as we're hearing.
So is there a world in which the US sort of reasserts itself and tries to kind of firm up the packs American as I've been saying that, it seems that we may get a vote in the US House on funding for Israel and potentially look again at the question of funding for the Ukrainians, which has been of
course held up now for so long. Could a shock like this kind of wake America up a bit to the need for it to continue to fund the resistance against Russia and Ukraine, continue to fund its allies around the world, and kind of reassert itself on the world stage, or do you think that status is kind of forever gone.
It's a really important question, and I think it also just exposes I mean, here you have me and Francine in an American and Italian living in London, and you and Britain in the US. I've never been more conscious of the kind of geographic disconnect and risk perception. I mean, Americans really do feel inviable. You know, in many ways, US markets are performing, the US is growing. This is Europe's problem. Investors have really taken on board the Trump
talking points Europe should be paying more for defense. I come back to them and say, Europe is paying more. There are very few countries not paying the two percent at NATO. The US periodically goes through these waves of isolation, and this is one of them. But I think it is also due to the fact that Americans don't appreciate how they benefit from the globalized economy and financial markets too.
But tin can the US afford it? So if Donald Trump gets the richest white try in the world, it doesn't mean they can afford it.
Right, It doesn't mean they're willing to pay.
Right, It doesn't mean they're willing to pay It doesn't mean that, you know, they can continue going into debt. It doesn't mean that the next president will support all of this. Do they have the bandwidth of doing of trying to get involved in so much foreign affairs?
You know, I had an interesting observation from one of my clients in Washington, D C. Said, Trump is a shadow president and as long as you know he is in that position kind of pulling the strings in the House, we won't get that aid bill, sixty million in aid to Ukraine, which is something that the American public supports and that the US Congress supports, now being held up in the House. And it is existential, not only for Ukraine.
Let's maybe if you want to be brutal and take the humanitarian consideration out of it, the fact that Ukraine will cease to as an entity in many ways. Again, it's about that perception of what constitutes US security and is in the US national interest and self interest, and I think that link has been broken in many ways.
Tina, Can I ask you about the alliances in the Middle East that have been forged or reforged right because of this threat coming from Iran. So suddenly Israel was supported by Jordan, certain parts I think is also supported by Saudi Arabia. Does this change anything in Nataniel's mind?
This is a very interesting kind of reshuffle of strange bedfellows going on, because you will have seen the veement denials of an Arab Israeli coalition of the willing emerging. And I don't think that's really part of Natanyahu's story. But Jordan says, for its part, it was defending its own airspace. If a foreign object trespasses its airspace, it's going to shoot it down. And I think that makes
a lot of sense. But what it really underscores is the mutual self interest amongst these countries in the region. And Jordan and Israel have had a peace treaty for decades. Let's not forget the UAE and Saudi cooperating. Is that unusual? Remember Iran and Saudi were at war until Saudi and
Tehran agree to a pause normalization of relations. And then we have the fact that Saudi itself is saying that the Hamas attack was meant to foil the normalization of relations between Israel and near our world without something being done about the Palestinians.
Do you know, will we see a ceasefire in Gaza.
I don't think that the Israelis will agree to a cease fire without the release of the hostages.
Put it that way, so that means an assault on Raffa that has to happen, does it not?
I think that is right back on the table. I don't think that this Iranian attack on Israel changes the military calculus for Israel in Gaza, despite the international condemnation and the fact that you know, just about every international authority has said that famine is happening, a man made famine happening in Gaza.
Now the stated goal of the Israeli government to wipe her mass off the face of the earth, I think is the phrase they've used. There are interesting parallels, aren't there after the September the eleventh, two thousand and one attacks in the United States, with President George W. Bush's war on terror and how that lasted for so many years and set up these goals that were really unachievable.
Surely is it not an impossible aim to completely eradicate in Hamas, and well, Israel not have to get to the point where they admit that and call ass Faracarpas.
I think we can agree that eradicating a non state actor like Hamas or the Taliban is extremely difficult, if not impossible, to do. I don't know that means Israel will stop trying to do it.
Is there anything the US can do to make them stop?
Well, we saw the kind of veiled threats to reduce aid. But remember that for Republicans in Congress, particularly the evangelical Christians like Johnson, the Speaker of the House, the support for the state of Israel is in a different bucket than support for Ukraine and for even for Taiwan. Interestingly, so Natina, who will really be testing the patients the limits of the American political establishment because even its sort
of core support amongst American Jews is under threat. Israel's international reputation has been damaged by the offense in Gaza. Can that be rebuilt? It's going to be difficult, and this Iranian attack is not enough, certainly to put Israel back in the kind of victim place in the equation.
I mean, another scenario that seems quite likely as well, assuming that Iran and Israel step back from direct confrontation, is a flare up of facilities with Hezbollah in Lebanon, and so that's going back to more of a proxy war, but a full blown conflict between Hezbollah and Israel. How do you see that playing out? Does Israel have the capacity to fight war on multiple fronts at the moment?
I think we should underestimate the collective trauma that was meted out on Israelis after the October seventh attack, and the willingness to defend the state of Israel and the sense that this is an existential crisis. And it seems hard, you know, for people outside the region to appreciate that, and if you read the Israeli pressed you can see it. And the real challenge is the choreography, if you will, And that's where these gray zone kinds of responses come
into play. And how do you calibrate a response that inflicts damage on your enemy on the aggressor without provoking a full scale military conflict which everyone says they don't want, or alienating your number one supporter because Israel probably can't do without US support. And that is why Biden has taken this risk, really alienating the left wing of the Democratic Party in support of Israel because of the fear of an all out conflagration.
Tina, thank you so much.
Thank you for having me.
Thanks for listening to this week's In the City from Bloomberg.
This episode was hosted by me Francine lakwaw Merit.
It was produced by Summer Sadi, with additional editing by Blake Maples.
Brendan Newman is our executive producer. Sage Bauman is head of Podcasts.
Well special thanks to Tina Fordham. Please do you subscribe, rate, and review wherever you listen to podcasts