I like to remain you know, calm and collected during times of crisis.
That seems to be a very rare trait, a very rare trait for anyone.
Yeah, yeah, I mean it's it's it's tough when things are happening so quickly. Yes, and when something like this happens that really nobody saw coming. Was the thing. I mean, we were having meetings. I was having meetings the week before the Hamas attack on Israel where the question of sort of Middle East tensions or Middle East crisis would come up, and the general feeling was that, like, no, things look pretty quiet. We've got Saudi is Iran normalization.
You know, oil seems to be flowing, although there's always the US OPEC problems. You have Saudi's and israelis kind of slowly moving towards normalization. Things seems pretty quiet, and then bam, something huge happens that nobody really anticipated.
I did a deadlift one, okay, uh barges. This isn't special, except.
I've decided I'm going to base my entire personality going forward on campaigning for a strategic pork reserve in the US.
Where's the best with imposta?
These are the important question, is it robots taking over the world. No.
I think that like in a couple of years, the AI will do a really good job of making the odd launch podcast and people today, I don't really need to listen to Joe and Tracy anymore.
We do have the perfect.
Well in the meantime, this is lots more.
A weekly chat about whatever is on our minds.
This is one of those episodes where I feel like we need to get the recording date right at the top, which is October eighteenth, because things are moving so quickly and we are going to be discussing the Israel Hamas conflict, and there's just new headlines every hour, it feels like.
So we are here in the studio with Gregory brew he is an analyst at the Eurasia Group. We've had him on the podcast before. We talked about Guyana last time we did Yeah, but.
That was a happier story.
I feel, yes, the country with the fastest growing oil, but the current crisis that we're seeing, the war that's going on. This is right in your wheelhouse because it's geopolitical and your background other than studying oil, which is what we talked to you about last time, in the history of oil. You have a expert on the history of Iran as well, so Tuck.
Yeah, no, Yeah, It unfortunately happens to combine the two things that I've done the most work on, and whenever that happens, it generally doesn't tend to bode very well because it means there's you know, crises, there's disruptions, there's tensions, and yeah, I mean the crisis right now does seem to be contained to Israel and the violence in Gaza, but everyone is concerned about how this could spill over
into oil. You saw a very surprising reaction this morning from Iran's foreign minister making a wild claim about an oil and bargo on Israel, suddenly sending oil prices up surprisingly. So I think there's a lot of I think there's jumpiness. I think there's concerns, broadly speaking, that this crisis could eventually spill over and start affecting oil.
Wait, you said it was kind of a wild threat. Why And also how crazy is it that we're talking about an oil embargo, like exactly fifty years after the Arab oil embargo that like contributed to nineteen seventies inflation. I find that mind blowing like almost to the day.
Right, Yeah, I mean history does seem to be rhyming, right. I mean the attack, the Hamas attack happened exactly fifty years and one day.
After the outbreak of.
The Omkapur War in nineteen seventy three, so obvious parallels and I think so yeah, turning things back a bit, you know, Iran's foreign minister, who's currently in Saudi Arabia of all places, made kind of a wild claim in front of press. He said Iran was going to call on all Muslim countries, including countries like Saudi Arabia and the UAE and Kuwait, to embargo oil shipments to Israel, very clearly trying to replicate what happened in nineteen seventy three,
or at least a version of it. And the reason why it strikes me and I think a lot of other analysts who watch Iran and oil closely, why it strikes me as kind of a wild claim is that, first of all, Iran doesn't sell any oil to Israel. Iran and Israel are antagonists, they're competitors, you know, and honestly, not many other Middle East countries sell oil to Israel either or at least what oil that they do sell.
It's a fairly small amount, and there really isn't any appetite i think, within OPEC or the broader Middle East for another nineteen seventy three, certainly not for another embargo. So I saw those comments, and also, it needs to be said, Iranian officials, including the Foreign Minister Supreme Leader Ali Kramene, they've been talking a lot of tough talk over the last couple of days about how this crisis could escalate, about how Iran might have to get involved.
So this kind of fits within that broader sort of rhetorical campaign that Iran's been running of the last couple of days, that they haven't really followed through with in terms of direct action. So I saw the comments and I thought like, well, Iran's talking tough, there's not going to be an embargo, but markets seems to react, right. Brent shot up from ninety one fifty to ninety two
to fifty. It's come back down since then, but clearly there's there's wariness and jumpiness out there about how this crisis could start affecting the broader market.
To reiterate for people listening, we're recording this on the eighteenth, and so, you know, who knows what will happen in this war, this crisis by the time people are listening to it. But this is why, you know, the oil perspective is obviously one that we're particularly interested. Brent is still below where it was like at the end of September. I mean, yeah, it's been a pickup in oil prices.
I mean, first of all, could it be that the concern is not so much embargo, but that the more the rhetoric gets tightened up and perhaps something where the you know, sort of broadening out of the war itself. I know, there was a lot of talk about the Biden administration having been particularly rigorous about sanctions enforcement. You to listen what's going on with.
The Yeah, totally so, I think, you know, as soon as the attack happened and this crisis started growing and started taking on the proportions that it has, the immediate thought was how was Iran involved? How will the US and Israel respond? Right, Iran backs Hamas has for years. It's a major supporter of Hamas. It supplies it with
weapons and funding and training. There still isn't any clear answer as to whether Iran was involved in the attack, and Iran has, as I mentioned, it's been talking tough, but it really hasn't been taking a direct role. But the bigger concern is, yes, will the US and Israel decide to retaliate against Iran for its support for Hamas And one of the major vectors that has been speculated on or discussed is this question of will the US
titan restrictions on Iran's oil exports. It's been a big story this year, right the recovery of Iran as a major oil exporter. Exports were you know, around seven hundred thousand barrels a day last year. They're now in the range of one point five one point six million barrels a day today. Yeah, I mean, and Iran is still technically under sanction, right, so there's been a lot of discussion of has the US eased off sanctions is as part of a bigger deal between the US and Iran?
And now that this crisis has broken out, will the US respond by tightening sanctions? And to me, it's a lot more complicated than just you know, President Biden having a big button on his desk sanctions, no sanctions, and then pushing it and suddenly Iran oil exports fall. Like the range of action that the US could take to cut off the flow of oil, It's not quite as simple as just adding new sanctions to Iran. Iran is
already under heavy, heavy sanctions. It's also a question of, you know, if the US tries to do that, how will that affect the broader market? How will that affect prices? It'll certainly send prices up, and also how will it affect the one country who is taking almost all of Iran's oil China?
Right, we talk.
About have sanctions been lowered or reduced? Not really. What's been happening is that China and small Chinese refiners have been willing to take more and more Iranian oil at low prices. Right, Iran is putting a big discount on its crude, and they're taking this oil through somewhat shady means. There's ship to ship transfers, the oil is being disguised in Chinese customs data. China still technically doesn't take any
Iranian oil. It all gets redirected through other venues. So there's a lot of shadiness to this oil trade, which makes imposing sanctions by the US a lot harder. But if you're cutting off the supply of oil to China, which is what tougher sanctions enforcement would do. The Chinese are bound to respond, right, They're not going to like that, and I think the Biden administration is wary of provoking China.
And anything you do to disrupt Iran's oil exports is going to have an impact on the broader market and it's going to send oil prices up, and that's also something that the Biden administration doesn't really want to do. So you have operational constraints on how sanctions would even work. You have provoking the Chinese, you have potentially provoking the Iranians, and everything that you do is going to increase the price of oil, something that this administration has really been
tried to trying to avoid. So I think it's in the conversation right, tougher sanctions on Iranian and oil exports. I still think the risk is fairly limited, and I think if the US were to consider doing it, it would be deterred by some of these more negative knock on effects.
Yeah, what kind of response could you expect from opek here, because like it feels like there's been a lot of I mean, there's always internal drama at OPEK, but it feels like there's been even more recently with regards to you know, output and slack, extra capacity and things like that. But it's such a disparate group, like in any case, do you get a sense of like what they might do here?
Yeah, I mean, that's a really it's an interesting question because of course OPEC's been pursuing you know, supply management, market management. They've been maintaining their cuts. The Saudia's have been adding additional voluntary cuts to try to push prices upward. And you know, curiously enough, this has been happening while Iran has been increasing its exports, and it's also been happening while Saudi and Iran pursue normalization. So there's you know,
there seems to be some cross purposes here. There does seem to be a certain paradox and how the Saudis
particularly are approaching managing this market. But in terms of what OPEK might do if the US suddenly cracked down in Iran in a way that would really reduce the flow right in a way that would create physical a change in the physical market to fundamentals, I don't know if OPEK or the Saudis would respond immediately because, as I said, anything that the US would do would send prices higher, and that's exactly what the Saudis want, right,
They want a higher price floor. They want to rise prices maybe into the nineties, maybe close to one hundred. So initially I don't think they would do a whole lot, right.
It feels like in the market there's still an assumption that, like well, OPEC could ramp up capacity if it needed to, But like to your point, Gragle, I don'uld see why they would want to in that scenario.
Yeah.
Yeah.
Prior to the attack by Hamas, as you mentioned, one of the big stories had been the sort of loosening in some sense of the physical market for Ronnie and all the other I think it was a headline the day before the attack. I think it was from the Wall Street Journal about Saudi talking about maybe lifting its
production as part of an Israel normalism. Yeah. Yeah, you had a very strong condemnation from the Kingdom of Saudi Arabia towards Israel about the bombing at the hospital, which, of course people don't really know what happened, but obviously the public stance from Saudi and other golf countries is pretty strong. What is Saudi's position here, How does it affect where it was going with its talks on Israel and so forth.
Yeah, I mean, you have to remember, even though we've seen a lot over the last year or so on Saudi Israel normalization, and even with the you know, the so called Abraham Accords came together at the end of the Trump administration, right, Israel normalizing with a number of Arab states, you have to remember that formal relation between Israel and the rest of the Middle East or specifically the Arab world is still a very touchy, complicated issue.
There's still a great deal of history of sentiment that Arab leaders, specifically, particularly in conservative Arab states like Saudi Arabia, they have to be sort of wary of managing. And I think the Saudi approach to this crisis has been trying to thread that needle.
Right.
You've seen Saudi condemnations of Israeli actions in Gaza, You've seen the Saudis, I mean MBS Muhammad bin Salman, the Crown Prince of Saudi Arabia. He took a phone call with President Raisi of Iran last week, the first time they ever spoke right, and he did that in the context of this crisis. So Saudi Arabia has been trying to sort of maintain a middle line of not appearing too friendly with Israel while also I think largely staying on the sidelines of the crisis. Now, what does that
mean for this Israeli Saudi normalization. You mentioned the peace that came out right before the crisis. It kind of got buried this news that Saudi Arabia was opening up a little bit to this idea that it would try to lower oil prices as part of this grand bargain with the US and Israel. That news came out, it was greeted with a certain amount of skepticism because this generally speaking, that wouldn't really align up with how the Saudis have been trying to manage markets. But it did
suggest that there was progress on this deal. Now, where's the deal now? Given the crisis is happening, the crisis is escalating, I would say that it's on ice, but it's not necessarily dead. I think the Saudi government has to take the line that it's taken for political concerns, for domestic concerns. It's concerned about regional stability. But in private, I would imagine that there is still quite a lot of interest from MBS in this deal because remember what
were the terms of the deal being discussed. Saudi Arabia would get a security guarantee from the United States, it would get US support for a civilian nuclear program. Israel and Saudi Arabia would form a sort of a United security front to contain Aron. These are all things that Saudi Arabia NBS is interested in getting. I think he's still interested in getting them now. He just maybe isn't willing to talk about them publicly given the crisis that's happening.
So I think the deal, Yeah, the deal is on ice, but it's not dead. It will take some time to revive it though. I mean, like this crisis could go on for weeks, it could go on for months. The worst things get in Gaza, the harder it will be for governments like Saudi Arabia to look friendly with Israel. And that all works against a deal in the short term. But I wouldn't say that it's dead. I mean NBS is going to be in charge in Saudi Arabia for
a long time. He can afford to wait for this crisis to subside or potentially even blow over, and revisit a deal with Israel at some point in the future. But I don't think we're going to see much talk about it anytime soon.
I have a q slightly off topic, but not really your research on Iran. I'm assuming you never actually got to go to the country given existing sanctions, but I'm just curious, like what the actual process was like of gathering that information, and like did you travel, did you talk to people on the ground, that sort of a shing.
I love these kinds of questions because it reminds me of, you know, being a historian, which is my training. Before I came to Yourrasier group, I was at Yale. I was mostly working on my next book, so I wasn't able to go to Iran. That's right. I'm an American national, and at the time that I was doing my research, this was twenty seventeen or so, it was dangerous. I think for researchers who were Americans to go to Iran, you ran the risk of physical harm, you ran the
risk of arrest. There have been Americans who have gone to Iran to do historical research who have been arrested and have remained in prison for years. I mean what we just saw the recent prisoner exchange between the United States and Iran. Some of those individuals, none of them were historians, but they had some of them had been held in prison for nearly ten years for really no reason. So it wasn't possible for me to go to Iran
to do research. But that being said, I was doing research on the fifties and sixties, you know, the Cold War, and there's actually quite a lot of information of documentary evidence in Farsi, in Persian that's available in the US in Europe. A lot of it is in the form of memoirs or interviews, but there are sort of collections of documents that you can find that have been published.
So I, you know, writing the book that I wrote, which was mostly about oil the Cold War US Iranian relations, I tried to use as many of those sources as I could, right, I really really strove to incorporate an Iranian perspective as much as I could, because I thought that perspective was important. Even if I wasn't able to go to Iran and do research there, I still felt that, you know, I couldn't write just another book about the US and oil I had to incorporate to the Iranians.
So what is your forthcoming book.
Well, it's very much in progress, Joe. But what I'm going to try to do, so my last book was about the US and Iran specifically in the Cold War. I wrote another I co wrote another book about the nineteen fifty three coup in Iran, which also celebrated an anniversary this year. But my next book is going to be about oil and the US more broadly in the
twentieth century. What I'd really like to do is examine how oil has helped sort of form the foundation for American power in the twentieth century, and how the oil industry companies like Exon Mobil, but also smaller companies that are operating in Texas and other places, how they served as tools of US foreign policy and formed a part of the US conception of national security. So oil national security in the twentieth century is kind of the broad focus,
but it's still, you know, in the early stages. So I'll let you know what I make more progress.
All right, Well, we'll be back on for that, yeah, I hope. So, speaking of going back to the market, reaction. There's like a couple interesting things. I mean, I'm in a way, I've been surprised that, you know, you expressed surprise oil popped on these headlines which you didn't think
had much teeth to them. In general, though, I've been surprised Tracy at like most markets for the last you know, ten days lighter than I might have expected overall, across oil, across raids, across stocks, which are more or less flat or actually slightly up over the last two weeks. Is not what I would have guess, given the intensity of the headlines and the just uncertainty of world.
This is going now, I know what you mean. Although I do think today, hold on, I'm just looking at this. It looks like today is like kind of the first day where we've seen a significant pop in gold, which is like a classic yes war reaction, asset flight to safe haven kind of thing. True, So that's interesting to see.
It does feel like today with that explosion, the deadly explosion at that hospital, it feels like things have like shifted a little bit, even though there's no certainty about what exactly just happened.
Yeah, we're still trying to piece together precisely what happened right, whether it was a rocket misfire, whether it was something caused from the Israeli side, something caused from Hamas or another group active in Gaza. I think the evidence is still kind of coming together, but there was an immediate reaction to the explosion across the Arab world. There were spontaneous protests in places like Jordan, in the West Bank, even in Iran, where the struggle in Palistine or the
issue of the Palestinian people is followed quite closely. And you saw, as Joe mentioned, quite quick condemnations of the Israeli action from governments across the region.
And to some extent that's for a domestic audience that the public protests and then the leadership feels it has to take.
Us oide totally. A lot of it is out of concern for how the public, how the so called Arab street is, how it's referred to, how the public will respond to violence in Gaza. You know, perceived attacks by Israel against Palestinians tend to have ripple effects across the
public opinion across the entire Arab world. So you saw that quite quickly, and then you saw Arab governments issuing condemnations I think maybe to get ahead of public opinion even before the evidence could confirm exactly what had happened at the hospital, and that has caused a shift. I mean, you saw President Biden was supposed to go to Jordan
to meet with various Arab leaders. That meeting apparently is now off the table, so he is flying to Israel to just meet with the Israeli government, which is not going to look good I think for the President broadly speaking, as he tries to contain this crisis.
So we have a question from our discord. It is from Materials Dan, which is you know, a good name for materials Dan, and he's asking about materials So he's asking, how does the conflict affect relative demand for different products like petrol, kerosene, distillates.
Huh, that's a good question. You're gonna make you do this in real time, one that I would expect from Materials Dan. Thanks Dan. Right now. Yeah, like market is kind of taking it in stride the product market. I think, I think people are still I think it's real important to look at the picture that was coming together in fundamentals and sentiment before the crisis broke out. There's been some signs that Chinese demand in the fall was a
little stronger than some head thought. That's maybe encouraging a more bullish outlook for twenty twenty four. As far as products are concerned, the crisis hasn't really spilled out into markets quite yet. Yeah, right, there hasn't been actual physical disruptions. There's been some movement in Brent, I think caused by positions shifting, although those came, you know, after the calamitous eleven dollars plunge that Brent took right before the crisis happened,
so you know, you saw sentiment shifting there. The crisis hasn't really affected physical flows quite yet. It has caused I think a slight spike in some prices in disease, but I think the factors to still focus on are the fundamentals and the supply picture, the suply demand picture. Moving into twenty twenty four, where I still think there's a lot of uncertainty there, right. Could the US slip into a minor recession, could demand fall off in the EU?
Will China keep having the problems it's been having. This is pushing back against a little bit of the bullishness that OPEC I think was putting out for the end of this year about where prices were going to be.
Joe, you know one physical disruption that has happened. It's actually not an oil but our old friend Evergreen declared force masure on a container ship on an Israel which I guess isn't really surprising. It's funny, how like, whenever there seems to be a physical disruption of any sort, like you will find Evergreen and their fleet of interestingly named ships. This one was called the ever Cozy affected in one way or another.
Oh, man, I think about that weekly. The suis Yeah, it's your Roman Empire. Yeah it's my Roman Empire. But I think about Roman Empire daily, as I think we all.
I never got into that.
There's still time.
I'm looking at the ever Cozy is built in twenty twenty one. Oh, that's interesting. So this is a relatively newer ship that was built. It was built in twenty twenty one, built at the peak of the shipping boom and now global freight prices. This is interesting. Despite the strength of the US consumer generally, you would think that you know, the particularly still strong, very strong goods demand.
I think you would expect like freight and trucking prices to be more robust than they have been, but they really have it. I think I saw global container freight rates fell to a five year low.
Yeah, we're going to have to do another freight episode, I think definitely, because a lot of people were predicting that it would be bad, but it has indeed turned out to be quite bad.
A lot of we have to do an episode at a time when a prediction turned out to be true because it sounds like what you're saying medium term for this crisis, this war, what are you looking for? What are going to be the sort of tells in terms of how long this could go on?
So far?
Yeah, I mean it's in an interesting phase right now because it's coming up on two weeks. A week and a half or so since the attack. Israel has been Bombardi Gaza and has been planning an offensive but still hasn't gone in. And I think a lot of the medium term fallout from this crisis will depend on what the Israeli offensive in Gazo looks like and what their goal is. They still haven't said what they want to do.
I mean they want to destroy Hamas, that's clear. But how do you do that without Do you have to occupy Gaza? Do you have to carve it up into separate zones? Does the IDF have to occupy parts of the territory or push the population out? There's the refugee problem, right where do you move hundreds of thousands of Gazas if Egypt won't take them, if they can't be moved into Israeli territory? How do you launch a huge offensive
when there's so many civilians in the line of fire. So, while the IDF continues to plan this offensive, I think everyone's kind of in a holding pattern because the scale of the offensive may determine how or how or if other actors get involved. And there I would look specifically at what Hezbolah in Lebanon is doing. I mean, Hesbelah is a you know, lar large armed militia. It dominates large portions of Lebanon. It's very closely tied to Iran.
And there's been this constant skirmishing happening between Hesbelah and the Israeli military since the attack took place, sort of kind of each side's warning the other to back off right in case either side tries to take advantage of this crisis, and if things start to get really bad in Gaza, if the Israeli offensive sort really starts to push at what Middle East public opinion will accept, you may start to see signs that Hesbelah could escalate. There you have a US threat too, right the US has
moved two carrier groups into the Eastern Mediterranean. President Biden and Secretary Blincoln have made very clear that the US is going to back Israel. They've sent very clear deterrent signs against Iran to not get involved. So there's a potential risk for the US to become entangled in this
depending on how bad things get. But right now, I think everyone is kind of holding their breadth to see what the outcome of Biden's visit is, what the Israeli offensive in Gaza looks like, and also how regional public opinion continues to digest not just the disaster at the hospital, but the continued bombings of Gaza and the outcomes there.
Greg you mentioned Hezbolah, and I just got a flashback to one of the books that I read when I was heading out to Abu Dhabi and trying to do a crash course in Middle East history, which is pretty much impossible. That's the thing I learned. But there's this great book. It had one of the most fantastic titles that I've ever seen. It was called the Media Relations Department of Hezbolah which is you a Happy Birthday. Unexpected
Encounters in the Changing Middle East. And it is funny because I think back to that book and like, so much has changed, even you know, in the past ten years since that book was published or so. But it just feels like, I mean, how many books are going to be written about this current conflict. I can't even imagine.
Yeah, And it also gets to one other element that maybe doesn't get quite the attention that it deserves, which is that these groups Hamas hezbolah Aran as well, they're fighting a war on several fronts.
Right.
They're fighting it with weapons and arms and you know, forces on the ground. They're also fighting what they see as being a war of ideas on social media and in the press. These are political organizations. They conceive of themselves as having constituencies, right, people who will support them, and they have ideologies, right, They're selling ideas as much as they are trying to fight a war against Israel. Or the IDEF. So that's another thing to bear in mind,
particularly when we look at things that Iran says. Right, Iran is putting out rhetoric, putting out tough talk, because in many ways they're trying to talk up their own sort of propaganda, their own ideology, their own perspective of the conflict. That doesn't necessarily mean they're going to do anything right, that they might not actually get involved, but it's important to bear in mind that these actors are
engaging in this conflict on multiple levels. Some of them are on social media, some of them are just you know, involving ideas, trying to get more support for their particular positions.
Greg other than your own book what should I download on my kendle this weekend? If I want to be a little bit smaller about all this.
Oh boy, man, I mean there's I very often point people towards the work of Rashid Khalidi, who's a historian of the Middle East. They're old now, but the writings of Edward Sayid, who's a Palestinian intellectual of the twentieth century, are always great.
Oh wait, Edward Sayid is like a little bit that's slightly controversial suggestion here controversial.
Older, but I think still, you know, still still vital to understanding where the conflict is coming from. I mean, there's so many books written more recently and articles as well. I mean, for understanding Iran's role in this, I would point people towards the work of Afshan Ostovar. He had a great article in War in the Rocks, I think just yesterday about Hamas and Iran's relationship. I mean, the
list is endless. Really, there's as you said, Tracy, you could read forever on this subject, and still I don't not fully understand how it goes.
I tried. I tried for a few months, and I didn't get very far. Joe, you know what I just remembered. We should have back remember the episode we did on Iranian stocks, the fund manager who is investing in Iranian equities. That would be a super interesting perspective to have right now, All right, let's do it.
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