Jacob Shapiro: Trump Has Two Weeks to End This War
Summary
Market Outlook: The Iran conflict and risks at the Strait of Hormuz elevate oil risk premia, but supply chains are unlikely to permanently reroute given the region’s indispensable crude flows.
Energy Security: Discussion of potential export bans, fragmented energy spheres, and a shift toward price volatility rather than a straight-line inflation scenario.
Fertilizer Supply: LNG and fertilizer disruptions imply food inflation in 6–9 months, with longer-term production likely shifting to countries with cheap natural gas like the U.S., Argentina, and Russia.
Regional Risks: The long-term investment case for the Gulf States is questioned due to geopolitical instability and non-neutral foreign policies undermining a “Dubai playbook.”
China: China is less exposed near term, building massive renewables and nuclear, is unlikely to police Hormuz for the U.S., and features prominently in a potential multipolar world.
Opportunities/Risks: Expect higher oil price volatility, structurally higher risk premia, and EM vulnerability to rising food costs; energy flows could normalize a month or two after fighting stops.
Companies: No specific public companies or tickers were pitched; the focus was on commodities, regions, and policy-driven macro risks.
Transcript
If this goes on for three, four more weeks, then yes to global recession and yes to higher prices and yes to a really, really rough second half of the year brought on by a war of choice by an American president in the Middle East. Hello and welcome to Wealthy on Maggie Lake. Joining me today to discuss the potential long-term impact of the Iran war is geopolitical analyst Jacob Shapiro. Hi Jacob. It's so good to see you. >> It's good to see you too, Maggie. I can't imagine we're going to find enough things to talk about today. >> I know. I know. Which is always the case, I think, when we catch up, but especially now. And listen, we are in a situation that's evolving rapidly. I know you are trying to pull the lens back and take a look at what this might look like for the region one, two, five years out, you know, sort of separate some of the shortterm noise from the, you know, the more sort of important trends. Um, which which I really appreciate. So with that in mind, um let's take a crack at some of it. So I think the thing we're all wondering, you know, now that we all know, we can identify where the straight of Hermuza are, though for you always have been able to, but the rest of us know too. Um have supply chains been permanently altered around the strait as a result of this war or do you think see things snapping back once the missiles stop flying? >> Yeah. Um thanks Maggie. And yeah, I've I've known where the straight of Hormuza since my first day at Stratfor back as as an intern. Uh we were we were worrying about the scenario 15 years ago. The US government's been worried about the scenario and the British were worried about the scenario decades ago and finally um we're sort of in the scenario in general. Um the short answer to your question is no. Uh this is not going to result in a permanent shift of global supply chains because it's not possible for there to be a global shift in supply chains. thing the thing that makes the straight of Hormuse so important um is the fact that there is a lot of oil behind it that has to get through it and that's why it's a choke point and there is no good way to substitute for the oil that is coming from the Gulf um even if you had other sources of oil max out with investment in infrastructure everything else first of all you're talking about years second of all even in the most aggressive sort of projection you're probably talking about adding 6 to 7 million barrels per day. You've got 15 million to 20 million barrels per day coming through the straight of Hormuz during normal times. If you say, well, maybe we're going to build pipelines and go around the straight of the straight of Hormuz. Okay, the Saudis built a pipeline. There's maybe 7 million barrels per day going through that. But as we learned with Nordstream, too, pipelines are very easy to blow up. All it takes is one rocket or one drone strike or one operation to blow up a pipeline. It's just not viable. Um now there's a lot of LNG and there's a lot of fertilizer and other things that are coming out through the straight of hormones that those commodities I think it is realistic to shift over time and if I was cutter I would be really worried about what this looks like for my LNG dreams and all the capacity I have coming online in different years that would still be very difficult I think for global commodity markets to to deal with. But the simple answer to your question is the oil is behind the straight of Hormuz and unless you can completely 100% protect pipelines that are going to be built to go around it. Ships are going to have to go through the straight of Hormuz for the global economy to function just period. So those supply chains really can't shift in any meaningful sense over the next 5 10 years. So that's, you know, that's potentially problematic because now that it feels to me, correct me if I'm wrong, that clo total closure of the straight or hermuz and we can debate whether that's actually happening is is was sort of the nuclear option. No one really wanted to do it. But now that now that that's been attempted and you have this change in the nature of warfare with drones and little boats and and the cost has come way down, doesn't that run the risk of this happening more often? Well, this is why the Trump administration's stated efforts on the war uh ring so hollow. And it it's amazing to me that success of US governments h haven't learned this. I mean, watching Pete Hegsath and Donald Trump thunder away about we've destroyed this many ships and this many planes. I mean, McNamera was saying saying the same thing in Vietnam. Bush was saying the same thing in the Second Gulf War. Have Have we not learned yet that you can't just blow up a bunch of things and that's going to affect change? No matter how many ships and planes they blow up, as long as Iran can make ship captains not want to go through the straight of Hormuz, then Iran has an asymmetric advantage here. This has always been Iran's asymmetric advantage. So unless you can change geography, unless you can, you know, dig a canal through mountains around the straight of Hormuz or or do something like that that fundamentally changes Iran's geographic advantage there. or if you can replace the regime, um you're going to be dealing with an asymmetric disadvantage where Iran is going to be in charge um of that geography. And yes, I do think now that Pandora's box has been opened, now that Iran has messed with the straight of Hormuz in this way, if you are a risk analyst or if you're a ships captain or if you're a commodity trader or anything like that, if you're one of the countries that is exporting or if you're one of the countries that is importing, you now have this new risk formula that you have to have in mind. Is the straight going to be shut in the future? What does the future of the Iranian regime look like? If the Iranian regime falls apart and Iran turns into waring ethnic groups, do those groups start taking pot shots at the straight of Hormuz? How does the how do the Houthies work into this? How does the the Babel Mundub and the Suez route work into all this? It just creates all of these different uncertainties um and questions. The that sounds very negative. The positive spin is to say we've actually been here before in a sense. um as part of the the Iran Iraq war which was from 1980 to 1988 which probably most western listeners or observers are not quite aware of but for for Iranians and Iraqis this was also an existential conflict from about 84 to 88 the Iraqis were trying to hit Iranian tankers or tankers that were taking Iranian crude and the Iranians were trying to hit Iraqi tankers so you had a 4-year period in the straight of Hormuz where actually there was significant risk and you were getting tankers and other ships that were being hit. It wasn't this globalized conflict with the US attacking Iran. And it was more of this regional conflict. And the reason I bring up that story is because if you look at a chart, oil prices went down during that time period. The big spike in oil prices was around the revolution in Iran in 7980 when everyone was freaking out about what the results were going to be. Four or five years in, you get used to that level of risk. So this is why I say supply chains are not going to change permanently. We're going to have to readjust our risk premium. We might have to readjust cost. We might have to readjust how these things get transported, what convoys, and what political arrangements are there. You can already see this in real time with the Iranians negotiating with some nations and saying the US and Israel and these other ships can't come through. It's going to evolve here, but those permanent supply chains have to go through the straight of Hormuz. And that is Iran's only ace in the deck. It's literally the only thing they have going for them in the conflict right now. And they're not going to lose it unless Donald Trump has something up his sleeve that I'm not aware of. So it sounds like and and you're you're focusing on crude which clearly is is the thing that people are most worried about but you know I've heard a lot of conversations about fertilizer too sort of take a backseat but very very you know very critical um for food supply and for everyone around the world. Are would we would you expect to see a higher price range as PE as that risk premia that higher risk premia is factored in? Are we just in a higher price range for commodities now? >> I don't think you can speak about commodities as a whole there. We're certainly in a higher price range for oil and oil is the easy first of all it's the most important one. It's the one that most everyone uses. It's immediate. There's you can chart an immediate market reaction uh from that point of view and it's also the ones that it's the one that people that you can draw direct impact to. So, oh, these many barrels are off per day. That means this for China and this for India, this for South Korea. It's really easy to analyze. Fertilizer is a little bit more difficult because farmers um want want to apply fertilizer right now because they're planting and then you're only going to see the impacts of that um manifest in food prices maybe 6 to9 months down the road. And so, there's a butterfly effect. 6 to9 months down the road, I think we're already we should book in higher food prices. And it's really hard to predict what the disruption is going to be, but there's going to be major disruption around that. I would take you back to the last time we had a true spike in food prices around 2007208. Also related to some some inefficiencies in the fertilizer market. Um, and you can draw a direct line between those higher food prices and the Arab Spring >> and the rise of ISIS. Remember the the guy who self- emilated in Tunisia that started the Arab Spring was a vegetable salesman. Most of those conflicts started because you had young hungry Sunni men who had nowhere to go with that anger and they eventually threw it at their governments where they went to they adopted this jihadist ideology or whatever or whatever else. So we're going to book like book in higher food prices 6 to9 months from now and it's going to be there. I think longer term though if you're thinking two five years down the road the only reason that fertilizer is being made there is because you've got really cheap natural gas with all the LG capacity that's coming online. There are other places with cheap natural gas and it would not cost that much to create other centers where you could replace some of that fertilizer supply. So what I would expect to happen over a 5year time period is that if you have countries that have really really cheap natural gas, they will look at this situation as a potential opportunity and two five years from now maybe you're not thinking about that. But that does nothing Maggie to help us with okay what do food prices look like 9 months from now and for emerging markets for countries that are dependent on importing food. What does that mean? Modern-day fertilizers account for the food that roughly 4 billion people in the world eat. If we don't have fertilizer 4 billion people don't eat. Now, we're not taking fertilizer completely off the market. That's hyperbole. I'm just saying like if you start to take those things off, there is going to be impact and it's already booked in. Like, we'll just have to see how it evolves towards the end of the year. >> Yeah. But, as you point out that that looming crisis uh there's nothing that motivates uh folks looking for opportunity than to try to try to react quickly to that. And to a certain extent, we've seen how quickly things can move. very hard when you're talking massive capex, but if you're trying to sort of solve for that immediate problem, um then it might be an opportunity. Wh which countries would stand to benefit or would maybe look to step in and fill that role if the fertilizer hub moves away from that region? Who's best positioned to do that? >> It's any country that has a really really cheap cost of energy and in particular cheap natural gas. So the United States, ironically, would be front and center here. Um, we'll see. Uh, I think Argentina has potential there, especially with all of their their shale that's coming online. Uh, Russia's already a big fertilizer player because they have cheap natural gas. So, you're looking for any player who has very cheap natural gas and then can do that investment on top of it. That's the profile of the player you're looking for. >> Yeah. I'm I'm so glad we're we're sort of having this conversation where we're trying to look a little bit further out because everyone feels like they want to knee-jerk react to the to the events happening on the ground and they're unfolding so quickly and I know you've discussed that in your Substack. Um but to try to try to think about these longer term trends is super important. We have a community that's really interested in learning and investing more in hard asset space. So this really matters to them. Um so I think that's you know these are the things that we really need to focus on. So in terms of how things transpire, um do you think dealing with what is going to be a disruption at least for if this is not something that is going to be wrapped up in a couple weeks, you see this as something that even if even if somehow there's the the the sort of military aspect of it cools down, you think this is going to disrupt things on the energy front for a a while. Is that correct? >> Well, energy is can can go back to I mean normal that there is no normal, but those energy supply chains can sort of reset themselves over a period of weeks, maybe months. And my base case is still that this war gets finished in the next week or two. Now, the Trump administration is is pushing my analysis there for all it can, and my my confidence interval has been declining a little bit. Um, but you've got Iran basically trying to impose economic cost, not just on the United States, but on the world to say to the world, you can't do this. You can't just come in and bomb us. They have to enact that cost to make them feel that way. And then it's can the United States, from a domestic political perspective, can Trump continue to do this? Can he weather the inflation reports that are coming? Um, and then there's also the missile math. Does Israel have enough interceptors? Does the United States have enough um um do they have enough missiles and everything like that to stay in the conflict? And it looks like the United States can at least for now. So that's the sort of match that we're at. And I do think that energy can in a relatively short time horizon come back. Fertilizer can't. The farmers need fertilizer today. So that when I say that that is already a fat comple like that's already done. But we could a month from now or two months from now if the fighting stops we could see maybe a normalization of some of these supply chains and I expect a higher re a higher risk premium in the price. But maybe you go back to some of the dynamics that were there before. But that doesn't change the longer term pattern. And to your point about trying to understand the longerterm implications, I mean just this morning we got President Trump saying that he wants to delay his meeting with Xiinping next month. And that was the sort of thing that made me stop in my tracks because I wasn't even thinking about it, you know, 72 hours ago. We only started thinking about it over the weekend when Trump and Besson started leaking that, oh, maybe this thing is going to get postponed. And that also raises big questions to exactly what you're talking about because the United States, I would guess, was probably asking for China's help, whether it was policing the strait, which whatever, but probably more putting pressure on Iran to stop and to get this wrapped up. And I imagine the Chinese just said, "We're not helping you with this. This this is a trade negotiation. This has nothing to do with your war that you started. Like, what do you want from us? Iran's not even our ally." Which I think has also gotten misreported um in general. But yeah that I I would say that um I rambled a little bit there to bring it back to your question. I think energy can get back to relative normaly maybe a month or two after the fighting but the fighting has to stop and then there has to be a stable enough regime in Iran that there aren't rogue groups or you know IRGC crazies that are just taking pot shots into the street which which neither of which are foregone conclusions. >> Yes. Not at all. So, do you do you see a a situation where um that where countries would consider banning exports to stabilize domestic prices? Are we going to see uh a pivot to very sort of nationalistic or national interest first type of scenario? And is that a risk for these global materials >> that's already been floated by the Trump administration? Um the United States banned exports of crude um in the 1970s precisely because there was a global energy crisis and because US production was starting to decline just as uh we had huge surges in energy consumption due to things like refrigeration, air conditioning, um all of these new appliances and things like that. I have been out there for years now saying I fully expect at some point that the if all these numbers about energy consumption for data centers and AI and everything else if all of that is true I fully expect at some point the United States will ban exports um of crude and of natural gas. Now we might be years away from that. It also might never happen. It's one of my probably most contrarian takes. Uh but if we get into a point where the United States is feeling energy insecure, uh absolutely the president is very clear. The United States government will go in and that precedent has been clear for multiple states even in the unipolar era where we were all listening to third eye blind and and wearing fanny packs like countries were restricting exports if there were problems uh related to national security with commodities. I just think you're going to see more of those proliferate because now relations are so much harder between some of these countries. You're also going to get preferential relationships probably between countries. We're already seeing that India and China are picking up cheaper Russian supplies that used to be going to Europe, but the Europeans don't want to deal with them. So imagine the world 5 years from now. I don't think the Europeans will be importing significant amounts of energy from Russia ever again. I mean, I guess it's possible that Putin falls and a liberal democracy springs up in Moscow. But, you know, the hope hope springs eternal, but I don't think that's the case. So probably Europe's not going to deal with Russia anymore. So Russia has to be a Chinese gas station or it has to be an Indian gas station. So then other folks have to service the European market. And if you've got problems in the straight of Hormuz, then the Europeans have to go looking off the coast of East Africa or West Africa or messing around in in um South America. So you go very quickly from a globalized market where in the in the case of crude, crude is funible basically. You know, one barrel is one barrel and everybody's trying to buy the same barrel where you have these different spheres of influence and everyone competing within their sphere for the right energy mix or for the right commodity in general. So, it's a it's it's a pretty fractured world if we come to that sort of um if that's what ends up happening. >> Yeah. And I think this is where people get really worried about an inflationary environment because all of that sounds like higher prices uh you know moving forward. Are you concerned about inflation and and do you feel that this disruption and higher risk premia threatens to push the global economy into recession? >> Yeah, there's a couple questions in there. So the the first part I would just say is um I don't think we're headed towards say a straight line inflationary environment. I think we're headed to an environment of volatile pricing. So some commodities will have periods where they go up and then they go down and things will be dependent on scientific discoveries or geopolitical issues or markets phasing out dependence on one commodity for another commodity. I actually think towards the end of the decade, energy probably looks deflationary because if you just look at the LG capacity coming online, the barrels that are there in terms of supply, the rise of renewables and some of these other like you know the the reemergence of nuclear as an option for at least some countries probably by the end of the decade you get a deflationary energy force. Now the the line from here to there is not going to be down and to the right. It might be up considerably for six months and then it goes down for a little bit and then it comes back up. So I just I just don't think we're necessarily in that sort of period. I think you have to prepare for um volatility. And remind me the second part of the question. >> Recession. >> Recession. Yeah. I mean um you know I I I struggle to make that call. I I think I I I I really don't know. I mean I think there's too much uncertainty to make that call with much confidence. And in some ways it's the least important question to me because all you need for a recession is two consecutive quarters of growth being negative. Could I see that being true? Sure. I could also see markets doing great even if we are in a technical recession based on some of the things we're talking about. Look at how markets are reacting to this war that like if you had told me two years ago or 10 years ago or that young intern who was assigned to look up what the straight of hormuz was that hey the straight of hormuz is going to be closed. What do you think markets are going to do? I would have said oh my god markets are going to absolutely freak out. Markets are fine. Um so I think overindexing on whether there's going to be a recession is tough. I do think there's going to be higher food prices and we know which markets that's going to affect. I do think you're looking at structurally higher energy prices. So, we know exactly which countries that's going to hurt and which countries that's going to help. Um, and I do think we are continuing to move away from a unipolar world or even a bipolar world into a multipolar world. Um, and I think that means things for uh China and for the United States and for some of these markets in general. So, that's a very sophisticated way of punting your question, Maggie. Um, sure, like, call it yes, there's going to be a global recession. I don't know that having the answer to that question gives you any edge on how you're dealing with markets. I think all these other things I talked about are actually more important and is what's going to drive it. But, sure, like, let's say that there's a narrative around global recession because of these higher prices. That's fine for me. >> I I love it and that's so fair. So, so let's let's look at it a slightly different way. And I think this is why I'm asking. Let's talk at the about the political implications because um you mentioned uh Trump before. We have midterms coming up. So, uh, if the economists call it a recession or not, if people feel like they're doing less well, if they're dealing with higher prices, if at the same time unsure about job creation and there's uh a focus abroad for the US when they want their, you know, pocketbook issues solved, does that create a political issue for the Republican party, for the Trump administration? Um, what does that look like for the midterms? >> People already felt that way. His his approval ratings on the economy are roughly where Joe Biden's were when Joe Biden left office. I'll say that again. John Donald Trump's approval ratings on the economy are where Joe Biden's were when Joe Biden left office. And we don't talk about it because Donald Trump is the reality TV show presidency. Every week is a new episode. And he's able to distract us from what's actually going on, which is to quote my fellow Louisian James Carville, it's the economy, stupid, and people don't think the economy is working for them. And it's been fascinating to watch Trump fall into the same trap that Biden did. You remember back in 2022 when inflation spiked under Biden, you had Biden out there being, "Oh, but that yeah, that's a data and base effect. Really, you guys are doing better than ever before. Build back better is working." The It wasn't. People weren't feeling that way. You had high gasoline prices and you had higher food prices and people just didn't buy it. Trump's doing the exact same thing. He's telling people everything's fine. We've never had a better economy and it's okay. We could deal with higher energy prices. If there's a war for a while, it's worth it. That's not what the American consumer thinks. The Republicans are almost certainly going to lose the House. Now they need to think about whether they're going to lose the Senate or not, which is really going to gum things up for Trump. And I think the out there scenario to if I'm President Trump is, I mean, we have plenty of data that show that the tariffs are illegal, that some of the things that he's been doing are illegal, that there's corruption all over the place. What is it going to take for twothirds of US senators to agree to the impeachment uh articles that I'm sure the House will bring once the House is in the hands of the Democrats? I would be worried about that if I was President Trump because if things get bad enough on the inflation front and in the economy front, they will use any political excuse they can to get rid of their association with the president in general. Now, I'm sure I'm going to get accused of TDS. So, let me flip that on its head and say there's a world in which this works for President Trump. >> There's a world in which the Iranian regime either collapses or can't keep up with the assault that the Israelis and the Americans are imposing on them. And the Straight of Hormuz is open in 3 weeks. and we don't have the Ayatollas and that thuggish horrible theocratic regime calling the shots there anymore and that can be a net win and then he'll be on to Cuba and he can start saying I did Venezuela, I did Iran and I did Cuba. That's still not going to help him with the economy. Americans don't care about foreign policy. George HW Bush learned that he had all sorts of foreign policy successes. Clinton whipped him. So somehow Trump is going to have to get the economic situation going better. But maybe maybe he can get a deal with the Chinese going and maybe he can actually send inflation lower after a spike after a month or two. Like there's a there is still a scenario out there for Trump to turn this around. But man, the further he goes into this war, the less likely that scenario gets. And that's why I say I think he's got to end this thing in the next week or two. Because if he doesn't end this in the next week or two, that rosy scenario that I just painted, poof, it's gone. It's off the table. I think it's probably off the table already, but it's still at least there. I can see the sliver of it if he's able to wrap this up in a week or two. But if this goes on for three, four more weeks, then yes to global recession and yes to higher prices and yes to a really really rough second half of the year brought on by a a war of choice by an American president in the Middle East. I can't believe it's 2026 and we're saying that again. >> Yeah, especially because we know the base. I I will say you're right. Americans don't care about foreign policy, but Florida cares a lot about Cuba and they're a big state that votes. >> They sure do. They sure do. I I don't think they were voting for Democrats anytime soon, but yes, they should. >> Yes, exactly. So, maybe that's not not necessarily a win. So, um I want to get back to China in a moment, but I just want to before we move on, ask about politically what this means for the for the Gulf region because, you know, you've got Iran shooting major infrastructure there. This does this change the dynamic there? And you mentioned Qatar should be worried about LNG. you know, we've got now tourists and and you know, uh, destinations being bombed and so suddenly do you want to go there? That was a big industry they were trying to grow. Does this does this have a lasting impact on countries in that region that have been such a such a destination for a lot of investment? You know, all the conferences we hear about are happening in in uh in that region, the Gulf region. Anything permanent change there for that for that group? >> Yes. Uh, let me preface what I'm about to say with I hope what I am about to say is wrong. I never want to root for countries not doing well. And I think sometimes my confidence in what I'm about to say, people think that I'm like almost gleeful about and I'm not. I'm not happy about what I'm about. >> I see as probabil risk probabilities that you're gaming out, but thank you for clarifying that. >> I I never bought this mirage in the Gulf. It's it's we're talking about countries that are in the desert that are that are only relevant because they've been commodity exporters because people want the people in the rest of global markets want to get their hands on their exports. And even if even if they can execute the extremely hard policies that they need to in order to modernize their states and their societies and their economies and everything else, they are still sandwiched in the most unstable region in the world geopolitically and has been that for almost half a century. So even if the Saudis do absolutely everything right, you are still smooshed between Iran on one side, Turkey and Israel on the other side, and the ISIS guys are running around too. So on just sort of a plain Jane, you know, uh G give it to me simple. I never understood why people thought this was going to be an area of great prosperity or great stability. There's nothing in their history that shows that they can accomplish that. I also think if you're these countries, if you're going to become that kind of politically neutral destination that is trusted for the rule of law, a Singapore in the Middle East or a Switzerland in the middle of the Middle East, you don't have the luxury of offensive and aggressive foreign policy. You have to be the one that is stable. You have to preserve stability at all costs. None of these countries have done that. The UAE is messing around in the Sud Sudin civil war, which is the worst human humanitarian catastrophe of the last 12 months. It's horrible. They're messing around in what looks like another Ethiopian civil war, which could be yet another uh thing there as well. I mean, let's talk about Yemen and the different things that these countries have done with Yemen. Cutter has its own political ideology and its relationship in terms of media and with Islamism. For a while, they were hosting Hamas. Uh we can go back to the Saudis and their relationships with spreading, you know, radical Islam. So, all I'm saying is like these countries are not behaving like Switzerland either. So even if you could say install a liberal democratic Iran and Turkey decides to rejoin the West and join the European Union, we all hold hands and sing Kumbaya and the Israelis promise never to bomb anyone ever again and these countries pull off everything that we're talking about. You're still talking about countries that are not behaving in a politically neutral way and that means that they are going to run into problems in terms of great power conflict. So just any way you dice it, I never thought that this was a particularly good bet. I haven't been there on the ground in part because I've been so critical of it in part because I've said I think there are better opportunities out there and I I've I've been joking recently um you know if somebody from Naibukle's government sees this like give credit where the environment was due. El Salvador this could be their opportunity. There are citystates out there that can take the Dubai playbook and say, you know what, we can replicate that in a different geography in the world and we can go without messing around in Sudan or Ethiopia or disagreeing with our neighbors or having Iran next door and having this being um such a colossal enemy and also not having global interest on us based on our commodity exports because ultimately, yes, a lot of folks and especially Westerners have flocked to the Gulf because there's money there. It's like moths to a flame. the money's there because of the oil. And if the oil stops flowing, if you start messing around with Westerners oil, look at what they are doing to Iran. That's what happens to you if you don't ultimately do what the West and even what the Asian countries want because they want your oil. Like, so I I just no matter how you dice it, it doesn't seem like a place personally where I would think of it as a safe haven >> or where I would that's not top of my list for where I want to go as a tourist. Um it's I've just never really understood um the idea behind it >> of that diversification. I think that's a really interesting um a really interesting comment and um and something that's going to bear watching over the next few years because that >> and Maggie I'll I'll just say I've I've I've looked like an idiot for the past 5 years saying that because I've been saying it for literally years and they were going from strength to strength in the region and maybe maybe this regime will get replaced in Iran and 3 years from now I will look like an idiot again. But this is part of the the exercise of thinking long term. If you're not saying things that are a little out there, you're actually just with the herd. You have to say things that challenge the conventional wisdom and hope that your analysis and your facts and all the research that you've done, you know, point you in the right direction. So I I fully like m maybe they go back to making me look stupid three years from now. I hope they do. That means those countries will have been doing well. I I just don't see it. I don't I don't see it there in the data. I don't see it there in the model. I don't see it there in the geography. None of it makes sense. Well, I and I think the the important exercise for us listening is that if you I mean that this was a big investment destination. First of all, if you are if you are, you know, investing in hard assets or the companies that service that or, you know, have locations everywhere um and then just direct investment, their stock exchanges have been doing well. A lot of people did buy that. So, if you're an investor, you want to just these conversations challenge you to make sure you're sure about what you're doing and the reasons you believe they will be successful. And you we could find some, right? we could find some that maybe maybe will work out. Um they certainly have a very educated population and if you talk to some of the ministers and the you know kind of civil service in those countries, they're doing some really interesting things. They've definitely been pushing technology. Um they're trying to get water out of the the air for instance. You know they sandbox a lot of interesting things but but as you point out there are really really big challenges. So I just think it's an informed decision. So I appreciate when you do that um Jacob. So let's talk about China. It's like the 800 pound gorilla in the room and we've we've everyone I think is watching this and thinking what does it mean first of all what does China do here now if the US summit is postponed I think that is is very interesting and a bit worrying um do they step in as someone who can figure out an uh an offramp and has the ear of the uh Iranians um does this hurt them does this drive a wedge a further wedge between the US and China some have suggested that all of these foreign policy moves are a way for the US to hurt China. >> Yeah. Honestly, the first thing I thought of when you said that was I was up at 4:00 in the morning cuz my three-year-old was screaming that she had a gorilla in her room cuz she was having a nightmare. So, um that they ate her. >> Maybe these poor kids. The ideas we're putting in their heads. >> Well, no, she wasn't thinking about China. She was thinking about we just went to the zoo and she thought a simpler time. We should all be so lucky to for that to be our worst problem in our day. Um Maggie, this is the most important question long term that we're going to talk about today. Full stop. It's the most important. And for me, it's the most important because when I'm thinking about how I'm setting, you know, my expectations over the next five, ten years, I've said this before, I'll say it again. Probably people are going to get bored of it. I think we're headed towards a multipolar world. So, I don't think it's a unipolar world where there's one hegeimon. I don't think it's a bipolar world, the US versus China. I think it's a multipolar world with different and competing rising and falling great powers. China and the United States will both be rising powers. They'll both be very powerful in this world. But I see a role for the EU. I see a role for Turkey. I see a role for Brazil. I'm worried about where Russia's going based on its trajectory. The reason I say what you're talking about is the most important question is because it raises the question of is it is it really going to be multipolar or is it going to be bipolar? Is everything going to come down to Washington and Beijing talking and that's what's going to affect global geopolitics. Um I don't you know maybe the Trump administration convinced itself that by doing what it did in Iran and in the Middle East it was somehow hurting China. If they did I think it's asinine. I think it's a fundamental misunderstanding of how China deals with the world. Um, the Chinese government does not have permanent allies or relationships. The only defense treaty relationship China has is with North Korea. Um, China is actually living up to George Washington's admonition to the Young Republic after he finished his presidency, which was not to have permanent relationships, was really only to have interest. That's how China works. So, is China a partner of Iran? Yes. Will they import their cheap oil? Sure. Did they see them as a potential balancer into a region backed the Saudis backed to the hilt by the United States, Turkey a NATO member, Israel backed by the United States? Sure, it'd be nice to have another player on the board. And if China can do that in a lowcost way, it helps them to sort of build that up. But China's also watched the United States exposure to the Middle East over the past 20, 30 years. It doesn't want to be there. It doesn't want to be projecting force into the Middle East to make sure that it can get the oil out of the straight of Hormuz. Look at what China's been doing in the last couple of years. It is building so much solar and wind and everything else capacity. It's dwarfing the entire world by comparison. Is that cost-effective necessarily? No. This is a state-led authoritarian communist government. They've decided they don't want to be dependent on these things anymore. So, they don't care what the cost is. Let's build more solar than the rest of the world combined and let's churn out nuclear reactors like it's nobody's business and everything else. The point being of the major Asian economies that are dependent on the straight of hormones, they're not at the top of my worry list. I am way more worried about India and Pakistan and South Korea and Japan. China's been rolling out all this renewable capacity. They've got at least three months um of reserves on hand. If they really are going to struggle, they've got Russia next door. They've got other options that they can go to. So, I don't see any world in which you are actually effectively hurting China in the sense and I think part of maybe what is happening between the US and China is that the Trump administration decided to undertake this war. We can debate whether it's going as well as they think or not as well as they think. But what's not debatable is that they've started to call in China to help. Whether that is with actual ships in the straight of Hormuz or putting pressure on Iran, which is probably what would be more valuable. I don't think a couple Chinese ships are going to help. And the Chinese response is why would we do that? What what is in it for us? I I even bet that the Trump administration was thinking ah maybe the Chinese will buy some oil from us as part of the trade deal because the straight of four moves is closed. And I'm sure the Chinese reaction to that was probably why would we do that? Why would we make our why would we go from dependence on this choke point to dependence on a country that has done nothing but level tariffs against us and you know give Taiwan weapons and do all these things that runs the foul of our geopolitical interest. Um obviously the talks in Paris um over the past week in the trade negotiations didn't go well. Um, so I assume the Trump administration and the Chinese government realize that and they're not going to put Trump and Xi Jinping in the room unless there is some kind of understanding. And so what this tells us is is that there isn't an understanding. And my question there is really I think there will be a deal at some point between the United States and China. But I think the the real question we have to think about on a 5-year time horizon is is are those the only two players that matter here? Is what's going to happen between these two Olympians going to set everything else? for is there room for some of these other powers to make advantages out of this or to push forward. So there there's a lot to unpack there, but that's at least how I would start the conversation about China. >> Yeah. Uh it's funny you said that they have they only have interests. They have no real allies. They're sort of it sounds like transactional and that's what people always said about Trump that he was transactional. He doesn't really have a sort of like firm feeling. He just wants to make a deal and and it it just depends on who's across the table. And yet there has been no ability to to it seems like for there be for there to be any breakthrough when it comes to China. >> I mean they've come a long way with China and I still expect there to be some kind of breakthrough with China. Now I think it'll be relatively superficial but I think I think you're exactly right. I think President Trump has been transactional but President Trump also has a sense of power and he is willing to use US alliances or wants to use US alliances as leverage when he gets in the room with China. The problem is he's been transactional with all the allies and now he's expecting the allies to help out with Iran and also to go along with some of his China trade policies and the allies are finally I mean it took them it really took until the Greenland situation but the allies are looking at Washington and saying maybe not like maybe we're not going to do that maybe we're going to figure things out for ourselves because we've seen you know how you treat your friends I mean just imagine how you're going to treat your enemies in that sort of situation so yeah I think that you're right that President Trump is transactional but he inherited an international order that was built on US alliance networks and he's been using them as leverage which was effective for short-term deals really effective for the reality TV presidency that he's been operating from but long-term the damage he's done to those relationships the lack of trust that he's put into countries both rivals of the United States and partners that's not going to go away there's no way to put Pandora back in that box either and so China is just the the most capable competitor rival of the United States that is out there. A country like Venezuela, they can't stand up to the United States. Cuba, that's done. Like, the United States is probably going to do that and there's not going to be a whole lot of opposition. Even Iran, the United States is going to pummel Iran. It's going to set back Iran decades. That's going to be the cost of of of Iran having pursued this policy of resisting US interest. You can't do that to China. None of that works with China. And China's been very patient here from the beginning. They understand that if the Trump administration doesn't come to the table with them or if they push too hard on China, it's mutually assured destruction. We're worried about oil and natural gas and fertilizers through the straight of Hormuz. Just look at how many different things the United States is dependent on importing from China. Just look at the Trump administration's own list of critical minerals and things like that. All of that is mostly coming from China because they're the ones that refine it and process it. If you really want to go after the Chinese, >> they're willing to go after it and they can say, "Hey, this is all the fault of the United States. This is why we're dealing with these huge economic issues and get their people to rally around the flag sort of in that sense. And I say that about China. This is also why to go back to the multipolar question like that's not going to work on Brazil. It's not going to work on Turkey. It's not going to work on Europe. Yes, it will work on some of these peripheral issues. And yes, you can claim these short-term victories, but in the long run, you're actually just creating this fracturing world with these different blocks that are going against you. And if you give the Trump administration the benefit of the doubt, and if you give their national security strategy the benefit of the doubt, you say, "Cool, the international order wasn't working for us. The international order was taking advantage of us. We rebuilt Germany. We rebuilt Japan. We're the the Europeans have been having cappuccinos and baguettes on our large S because we defend them. They should do a little bit more." Okay, just careful what you wish for. The Germans are going to start turnurning out tanks and ammunition again. They're going to do a little bit more. Are we going to be comfortable when they are when we call the allies to do something and they say, "Hey, we we thought that we had an understanding here. We're not This is not the way the relationship works anymore." What are you going to do when they say that? We're sort of seeing that happen in real time. That dissipates. >> Fantastic stuff. Jacob, uh, you not only give us so much wisdom, focus our mind on these important sort of longer term questions we need to be considering. Um, but you always bring such great humor. And who else can drop Dune references in their in their articles? I mean, it's amazing. I went down the rabbit hole uh on the last one. So, thank you so much. Really appreciate your time as always. >> Yeah, I mean Dune is the best. If if an analyst can't drop a Dune reference, I don't really trust the analysts. So, thanks. You set the bar high. But thanks, Dick. Appreciate you.
Jacob Shapiro: Trump Has Two Weeks to End This War
Summary
Transcript
If this goes on for three, four more weeks, then yes to global recession and yes to higher prices and yes to a really, really rough second half of the year brought on by a war of choice by an American president in the Middle East. Hello and welcome to Wealthy on Maggie Lake. Joining me today to discuss the potential long-term impact of the Iran war is geopolitical analyst Jacob Shapiro. Hi Jacob. It's so good to see you. >> It's good to see you too, Maggie. I can't imagine we're going to find enough things to talk about today. >> I know. I know. Which is always the case, I think, when we catch up, but especially now. And listen, we are in a situation that's evolving rapidly. I know you are trying to pull the lens back and take a look at what this might look like for the region one, two, five years out, you know, sort of separate some of the shortterm noise from the, you know, the more sort of important trends. Um, which which I really appreciate. So with that in mind, um let's take a crack at some of it. So I think the thing we're all wondering, you know, now that we all know, we can identify where the straight of Hermuza are, though for you always have been able to, but the rest of us know too. Um have supply chains been permanently altered around the strait as a result of this war or do you think see things snapping back once the missiles stop flying? >> Yeah. Um thanks Maggie. And yeah, I've I've known where the straight of Hormuza since my first day at Stratfor back as as an intern. Uh we were we were worrying about the scenario 15 years ago. The US government's been worried about the scenario and the British were worried about the scenario decades ago and finally um we're sort of in the scenario in general. Um the short answer to your question is no. Uh this is not going to result in a permanent shift of global supply chains because it's not possible for there to be a global shift in supply chains. thing the thing that makes the straight of Hormuse so important um is the fact that there is a lot of oil behind it that has to get through it and that's why it's a choke point and there is no good way to substitute for the oil that is coming from the Gulf um even if you had other sources of oil max out with investment in infrastructure everything else first of all you're talking about years second of all even in the most aggressive sort of projection you're probably talking about adding 6 to 7 million barrels per day. You've got 15 million to 20 million barrels per day coming through the straight of Hormuz during normal times. If you say, well, maybe we're going to build pipelines and go around the straight of the straight of Hormuz. Okay, the Saudis built a pipeline. There's maybe 7 million barrels per day going through that. But as we learned with Nordstream, too, pipelines are very easy to blow up. All it takes is one rocket or one drone strike or one operation to blow up a pipeline. It's just not viable. Um now there's a lot of LNG and there's a lot of fertilizer and other things that are coming out through the straight of hormones that those commodities I think it is realistic to shift over time and if I was cutter I would be really worried about what this looks like for my LNG dreams and all the capacity I have coming online in different years that would still be very difficult I think for global commodity markets to to deal with. But the simple answer to your question is the oil is behind the straight of Hormuz and unless you can completely 100% protect pipelines that are going to be built to go around it. Ships are going to have to go through the straight of Hormuz for the global economy to function just period. So those supply chains really can't shift in any meaningful sense over the next 5 10 years. So that's, you know, that's potentially problematic because now that it feels to me, correct me if I'm wrong, that clo total closure of the straight or hermuz and we can debate whether that's actually happening is is was sort of the nuclear option. No one really wanted to do it. But now that now that that's been attempted and you have this change in the nature of warfare with drones and little boats and and the cost has come way down, doesn't that run the risk of this happening more often? Well, this is why the Trump administration's stated efforts on the war uh ring so hollow. And it it's amazing to me that success of US governments h haven't learned this. I mean, watching Pete Hegsath and Donald Trump thunder away about we've destroyed this many ships and this many planes. I mean, McNamera was saying saying the same thing in Vietnam. Bush was saying the same thing in the Second Gulf War. Have Have we not learned yet that you can't just blow up a bunch of things and that's going to affect change? No matter how many ships and planes they blow up, as long as Iran can make ship captains not want to go through the straight of Hormuz, then Iran has an asymmetric advantage here. This has always been Iran's asymmetric advantage. So unless you can change geography, unless you can, you know, dig a canal through mountains around the straight of Hormuz or or do something like that that fundamentally changes Iran's geographic advantage there. or if you can replace the regime, um you're going to be dealing with an asymmetric disadvantage where Iran is going to be in charge um of that geography. And yes, I do think now that Pandora's box has been opened, now that Iran has messed with the straight of Hormuz in this way, if you are a risk analyst or if you're a ships captain or if you're a commodity trader or anything like that, if you're one of the countries that is exporting or if you're one of the countries that is importing, you now have this new risk formula that you have to have in mind. Is the straight going to be shut in the future? What does the future of the Iranian regime look like? If the Iranian regime falls apart and Iran turns into waring ethnic groups, do those groups start taking pot shots at the straight of Hormuz? How does the how do the Houthies work into this? How does the the Babel Mundub and the Suez route work into all this? It just creates all of these different uncertainties um and questions. The that sounds very negative. The positive spin is to say we've actually been here before in a sense. um as part of the the Iran Iraq war which was from 1980 to 1988 which probably most western listeners or observers are not quite aware of but for for Iranians and Iraqis this was also an existential conflict from about 84 to 88 the Iraqis were trying to hit Iranian tankers or tankers that were taking Iranian crude and the Iranians were trying to hit Iraqi tankers so you had a 4-year period in the straight of Hormuz where actually there was significant risk and you were getting tankers and other ships that were being hit. It wasn't this globalized conflict with the US attacking Iran. And it was more of this regional conflict. And the reason I bring up that story is because if you look at a chart, oil prices went down during that time period. The big spike in oil prices was around the revolution in Iran in 7980 when everyone was freaking out about what the results were going to be. Four or five years in, you get used to that level of risk. So this is why I say supply chains are not going to change permanently. We're going to have to readjust our risk premium. We might have to readjust cost. We might have to readjust how these things get transported, what convoys, and what political arrangements are there. You can already see this in real time with the Iranians negotiating with some nations and saying the US and Israel and these other ships can't come through. It's going to evolve here, but those permanent supply chains have to go through the straight of Hormuz. And that is Iran's only ace in the deck. It's literally the only thing they have going for them in the conflict right now. And they're not going to lose it unless Donald Trump has something up his sleeve that I'm not aware of. So it sounds like and and you're you're focusing on crude which clearly is is the thing that people are most worried about but you know I've heard a lot of conversations about fertilizer too sort of take a backseat but very very you know very critical um for food supply and for everyone around the world. Are would we would you expect to see a higher price range as PE as that risk premia that higher risk premia is factored in? Are we just in a higher price range for commodities now? >> I don't think you can speak about commodities as a whole there. We're certainly in a higher price range for oil and oil is the easy first of all it's the most important one. It's the one that most everyone uses. It's immediate. There's you can chart an immediate market reaction uh from that point of view and it's also the ones that it's the one that people that you can draw direct impact to. So, oh, these many barrels are off per day. That means this for China and this for India, this for South Korea. It's really easy to analyze. Fertilizer is a little bit more difficult because farmers um want want to apply fertilizer right now because they're planting and then you're only going to see the impacts of that um manifest in food prices maybe 6 to9 months down the road. And so, there's a butterfly effect. 6 to9 months down the road, I think we're already we should book in higher food prices. And it's really hard to predict what the disruption is going to be, but there's going to be major disruption around that. I would take you back to the last time we had a true spike in food prices around 2007208. Also related to some some inefficiencies in the fertilizer market. Um, and you can draw a direct line between those higher food prices and the Arab Spring >> and the rise of ISIS. Remember the the guy who self- emilated in Tunisia that started the Arab Spring was a vegetable salesman. Most of those conflicts started because you had young hungry Sunni men who had nowhere to go with that anger and they eventually threw it at their governments where they went to they adopted this jihadist ideology or whatever or whatever else. So we're going to book like book in higher food prices 6 to9 months from now and it's going to be there. I think longer term though if you're thinking two five years down the road the only reason that fertilizer is being made there is because you've got really cheap natural gas with all the LG capacity that's coming online. There are other places with cheap natural gas and it would not cost that much to create other centers where you could replace some of that fertilizer supply. So what I would expect to happen over a 5year time period is that if you have countries that have really really cheap natural gas, they will look at this situation as a potential opportunity and two five years from now maybe you're not thinking about that. But that does nothing Maggie to help us with okay what do food prices look like 9 months from now and for emerging markets for countries that are dependent on importing food. What does that mean? Modern-day fertilizers account for the food that roughly 4 billion people in the world eat. If we don't have fertilizer 4 billion people don't eat. Now, we're not taking fertilizer completely off the market. That's hyperbole. I'm just saying like if you start to take those things off, there is going to be impact and it's already booked in. Like, we'll just have to see how it evolves towards the end of the year. >> Yeah. But, as you point out that that looming crisis uh there's nothing that motivates uh folks looking for opportunity than to try to try to react quickly to that. And to a certain extent, we've seen how quickly things can move. very hard when you're talking massive capex, but if you're trying to sort of solve for that immediate problem, um then it might be an opportunity. Wh which countries would stand to benefit or would maybe look to step in and fill that role if the fertilizer hub moves away from that region? Who's best positioned to do that? >> It's any country that has a really really cheap cost of energy and in particular cheap natural gas. So the United States, ironically, would be front and center here. Um, we'll see. Uh, I think Argentina has potential there, especially with all of their their shale that's coming online. Uh, Russia's already a big fertilizer player because they have cheap natural gas. So, you're looking for any player who has very cheap natural gas and then can do that investment on top of it. That's the profile of the player you're looking for. >> Yeah. I'm I'm so glad we're we're sort of having this conversation where we're trying to look a little bit further out because everyone feels like they want to knee-jerk react to the to the events happening on the ground and they're unfolding so quickly and I know you've discussed that in your Substack. Um but to try to try to think about these longer term trends is super important. We have a community that's really interested in learning and investing more in hard asset space. So this really matters to them. Um so I think that's you know these are the things that we really need to focus on. So in terms of how things transpire, um do you think dealing with what is going to be a disruption at least for if this is not something that is going to be wrapped up in a couple weeks, you see this as something that even if even if somehow there's the the the sort of military aspect of it cools down, you think this is going to disrupt things on the energy front for a a while. Is that correct? >> Well, energy is can can go back to I mean normal that there is no normal, but those energy supply chains can sort of reset themselves over a period of weeks, maybe months. And my base case is still that this war gets finished in the next week or two. Now, the Trump administration is is pushing my analysis there for all it can, and my my confidence interval has been declining a little bit. Um, but you've got Iran basically trying to impose economic cost, not just on the United States, but on the world to say to the world, you can't do this. You can't just come in and bomb us. They have to enact that cost to make them feel that way. And then it's can the United States, from a domestic political perspective, can Trump continue to do this? Can he weather the inflation reports that are coming? Um, and then there's also the missile math. Does Israel have enough interceptors? Does the United States have enough um um do they have enough missiles and everything like that to stay in the conflict? And it looks like the United States can at least for now. So that's the sort of match that we're at. And I do think that energy can in a relatively short time horizon come back. Fertilizer can't. The farmers need fertilizer today. So that when I say that that is already a fat comple like that's already done. But we could a month from now or two months from now if the fighting stops we could see maybe a normalization of some of these supply chains and I expect a higher re a higher risk premium in the price. But maybe you go back to some of the dynamics that were there before. But that doesn't change the longer term pattern. And to your point about trying to understand the longerterm implications, I mean just this morning we got President Trump saying that he wants to delay his meeting with Xiinping next month. And that was the sort of thing that made me stop in my tracks because I wasn't even thinking about it, you know, 72 hours ago. We only started thinking about it over the weekend when Trump and Besson started leaking that, oh, maybe this thing is going to get postponed. And that also raises big questions to exactly what you're talking about because the United States, I would guess, was probably asking for China's help, whether it was policing the strait, which whatever, but probably more putting pressure on Iran to stop and to get this wrapped up. And I imagine the Chinese just said, "We're not helping you with this. This this is a trade negotiation. This has nothing to do with your war that you started. Like, what do you want from us? Iran's not even our ally." Which I think has also gotten misreported um in general. But yeah that I I would say that um I rambled a little bit there to bring it back to your question. I think energy can get back to relative normaly maybe a month or two after the fighting but the fighting has to stop and then there has to be a stable enough regime in Iran that there aren't rogue groups or you know IRGC crazies that are just taking pot shots into the street which which neither of which are foregone conclusions. >> Yes. Not at all. So, do you do you see a a situation where um that where countries would consider banning exports to stabilize domestic prices? Are we going to see uh a pivot to very sort of nationalistic or national interest first type of scenario? And is that a risk for these global materials >> that's already been floated by the Trump administration? Um the United States banned exports of crude um in the 1970s precisely because there was a global energy crisis and because US production was starting to decline just as uh we had huge surges in energy consumption due to things like refrigeration, air conditioning, um all of these new appliances and things like that. I have been out there for years now saying I fully expect at some point that the if all these numbers about energy consumption for data centers and AI and everything else if all of that is true I fully expect at some point the United States will ban exports um of crude and of natural gas. Now we might be years away from that. It also might never happen. It's one of my probably most contrarian takes. Uh but if we get into a point where the United States is feeling energy insecure, uh absolutely the president is very clear. The United States government will go in and that precedent has been clear for multiple states even in the unipolar era where we were all listening to third eye blind and and wearing fanny packs like countries were restricting exports if there were problems uh related to national security with commodities. I just think you're going to see more of those proliferate because now relations are so much harder between some of these countries. You're also going to get preferential relationships probably between countries. We're already seeing that India and China are picking up cheaper Russian supplies that used to be going to Europe, but the Europeans don't want to deal with them. So imagine the world 5 years from now. I don't think the Europeans will be importing significant amounts of energy from Russia ever again. I mean, I guess it's possible that Putin falls and a liberal democracy springs up in Moscow. But, you know, the hope hope springs eternal, but I don't think that's the case. So probably Europe's not going to deal with Russia anymore. So Russia has to be a Chinese gas station or it has to be an Indian gas station. So then other folks have to service the European market. And if you've got problems in the straight of Hormuz, then the Europeans have to go looking off the coast of East Africa or West Africa or messing around in in um South America. So you go very quickly from a globalized market where in the in the case of crude, crude is funible basically. You know, one barrel is one barrel and everybody's trying to buy the same barrel where you have these different spheres of influence and everyone competing within their sphere for the right energy mix or for the right commodity in general. So, it's a it's it's a pretty fractured world if we come to that sort of um if that's what ends up happening. >> Yeah. And I think this is where people get really worried about an inflationary environment because all of that sounds like higher prices uh you know moving forward. Are you concerned about inflation and and do you feel that this disruption and higher risk premia threatens to push the global economy into recession? >> Yeah, there's a couple questions in there. So the the first part I would just say is um I don't think we're headed towards say a straight line inflationary environment. I think we're headed to an environment of volatile pricing. So some commodities will have periods where they go up and then they go down and things will be dependent on scientific discoveries or geopolitical issues or markets phasing out dependence on one commodity for another commodity. I actually think towards the end of the decade, energy probably looks deflationary because if you just look at the LG capacity coming online, the barrels that are there in terms of supply, the rise of renewables and some of these other like you know the the reemergence of nuclear as an option for at least some countries probably by the end of the decade you get a deflationary energy force. Now the the line from here to there is not going to be down and to the right. It might be up considerably for six months and then it goes down for a little bit and then it comes back up. So I just I just don't think we're necessarily in that sort of period. I think you have to prepare for um volatility. And remind me the second part of the question. >> Recession. >> Recession. Yeah. I mean um you know I I I struggle to make that call. I I think I I I I really don't know. I mean I think there's too much uncertainty to make that call with much confidence. And in some ways it's the least important question to me because all you need for a recession is two consecutive quarters of growth being negative. Could I see that being true? Sure. I could also see markets doing great even if we are in a technical recession based on some of the things we're talking about. Look at how markets are reacting to this war that like if you had told me two years ago or 10 years ago or that young intern who was assigned to look up what the straight of hormuz was that hey the straight of hormuz is going to be closed. What do you think markets are going to do? I would have said oh my god markets are going to absolutely freak out. Markets are fine. Um so I think overindexing on whether there's going to be a recession is tough. I do think there's going to be higher food prices and we know which markets that's going to affect. I do think you're looking at structurally higher energy prices. So, we know exactly which countries that's going to hurt and which countries that's going to help. Um, and I do think we are continuing to move away from a unipolar world or even a bipolar world into a multipolar world. Um, and I think that means things for uh China and for the United States and for some of these markets in general. So, that's a very sophisticated way of punting your question, Maggie. Um, sure, like, call it yes, there's going to be a global recession. I don't know that having the answer to that question gives you any edge on how you're dealing with markets. I think all these other things I talked about are actually more important and is what's going to drive it. But, sure, like, let's say that there's a narrative around global recession because of these higher prices. That's fine for me. >> I I love it and that's so fair. So, so let's let's look at it a slightly different way. And I think this is why I'm asking. Let's talk at the about the political implications because um you mentioned uh Trump before. We have midterms coming up. So, uh, if the economists call it a recession or not, if people feel like they're doing less well, if they're dealing with higher prices, if at the same time unsure about job creation and there's uh a focus abroad for the US when they want their, you know, pocketbook issues solved, does that create a political issue for the Republican party, for the Trump administration? Um, what does that look like for the midterms? >> People already felt that way. His his approval ratings on the economy are roughly where Joe Biden's were when Joe Biden left office. I'll say that again. John Donald Trump's approval ratings on the economy are where Joe Biden's were when Joe Biden left office. And we don't talk about it because Donald Trump is the reality TV show presidency. Every week is a new episode. And he's able to distract us from what's actually going on, which is to quote my fellow Louisian James Carville, it's the economy, stupid, and people don't think the economy is working for them. And it's been fascinating to watch Trump fall into the same trap that Biden did. You remember back in 2022 when inflation spiked under Biden, you had Biden out there being, "Oh, but that yeah, that's a data and base effect. Really, you guys are doing better than ever before. Build back better is working." The It wasn't. People weren't feeling that way. You had high gasoline prices and you had higher food prices and people just didn't buy it. Trump's doing the exact same thing. He's telling people everything's fine. We've never had a better economy and it's okay. We could deal with higher energy prices. If there's a war for a while, it's worth it. That's not what the American consumer thinks. The Republicans are almost certainly going to lose the House. Now they need to think about whether they're going to lose the Senate or not, which is really going to gum things up for Trump. And I think the out there scenario to if I'm President Trump is, I mean, we have plenty of data that show that the tariffs are illegal, that some of the things that he's been doing are illegal, that there's corruption all over the place. What is it going to take for twothirds of US senators to agree to the impeachment uh articles that I'm sure the House will bring once the House is in the hands of the Democrats? I would be worried about that if I was President Trump because if things get bad enough on the inflation front and in the economy front, they will use any political excuse they can to get rid of their association with the president in general. Now, I'm sure I'm going to get accused of TDS. So, let me flip that on its head and say there's a world in which this works for President Trump. >> There's a world in which the Iranian regime either collapses or can't keep up with the assault that the Israelis and the Americans are imposing on them. And the Straight of Hormuz is open in 3 weeks. and we don't have the Ayatollas and that thuggish horrible theocratic regime calling the shots there anymore and that can be a net win and then he'll be on to Cuba and he can start saying I did Venezuela, I did Iran and I did Cuba. That's still not going to help him with the economy. Americans don't care about foreign policy. George HW Bush learned that he had all sorts of foreign policy successes. Clinton whipped him. So somehow Trump is going to have to get the economic situation going better. But maybe maybe he can get a deal with the Chinese going and maybe he can actually send inflation lower after a spike after a month or two. Like there's a there is still a scenario out there for Trump to turn this around. But man, the further he goes into this war, the less likely that scenario gets. And that's why I say I think he's got to end this thing in the next week or two. Because if he doesn't end this in the next week or two, that rosy scenario that I just painted, poof, it's gone. It's off the table. I think it's probably off the table already, but it's still at least there. I can see the sliver of it if he's able to wrap this up in a week or two. But if this goes on for three, four more weeks, then yes to global recession and yes to higher prices and yes to a really really rough second half of the year brought on by a a war of choice by an American president in the Middle East. I can't believe it's 2026 and we're saying that again. >> Yeah, especially because we know the base. I I will say you're right. Americans don't care about foreign policy, but Florida cares a lot about Cuba and they're a big state that votes. >> They sure do. They sure do. I I don't think they were voting for Democrats anytime soon, but yes, they should. >> Yes, exactly. So, maybe that's not not necessarily a win. So, um I want to get back to China in a moment, but I just want to before we move on, ask about politically what this means for the for the Gulf region because, you know, you've got Iran shooting major infrastructure there. This does this change the dynamic there? And you mentioned Qatar should be worried about LNG. you know, we've got now tourists and and you know, uh, destinations being bombed and so suddenly do you want to go there? That was a big industry they were trying to grow. Does this does this have a lasting impact on countries in that region that have been such a such a destination for a lot of investment? You know, all the conferences we hear about are happening in in uh in that region, the Gulf region. Anything permanent change there for that for that group? >> Yes. Uh, let me preface what I'm about to say with I hope what I am about to say is wrong. I never want to root for countries not doing well. And I think sometimes my confidence in what I'm about to say, people think that I'm like almost gleeful about and I'm not. I'm not happy about what I'm about. >> I see as probabil risk probabilities that you're gaming out, but thank you for clarifying that. >> I I never bought this mirage in the Gulf. It's it's we're talking about countries that are in the desert that are that are only relevant because they've been commodity exporters because people want the people in the rest of global markets want to get their hands on their exports. And even if even if they can execute the extremely hard policies that they need to in order to modernize their states and their societies and their economies and everything else, they are still sandwiched in the most unstable region in the world geopolitically and has been that for almost half a century. So even if the Saudis do absolutely everything right, you are still smooshed between Iran on one side, Turkey and Israel on the other side, and the ISIS guys are running around too. So on just sort of a plain Jane, you know, uh G give it to me simple. I never understood why people thought this was going to be an area of great prosperity or great stability. There's nothing in their history that shows that they can accomplish that. I also think if you're these countries, if you're going to become that kind of politically neutral destination that is trusted for the rule of law, a Singapore in the Middle East or a Switzerland in the middle of the Middle East, you don't have the luxury of offensive and aggressive foreign policy. You have to be the one that is stable. You have to preserve stability at all costs. None of these countries have done that. The UAE is messing around in the Sud Sudin civil war, which is the worst human humanitarian catastrophe of the last 12 months. It's horrible. They're messing around in what looks like another Ethiopian civil war, which could be yet another uh thing there as well. I mean, let's talk about Yemen and the different things that these countries have done with Yemen. Cutter has its own political ideology and its relationship in terms of media and with Islamism. For a while, they were hosting Hamas. Uh we can go back to the Saudis and their relationships with spreading, you know, radical Islam. So, all I'm saying is like these countries are not behaving like Switzerland either. So even if you could say install a liberal democratic Iran and Turkey decides to rejoin the West and join the European Union, we all hold hands and sing Kumbaya and the Israelis promise never to bomb anyone ever again and these countries pull off everything that we're talking about. You're still talking about countries that are not behaving in a politically neutral way and that means that they are going to run into problems in terms of great power conflict. So just any way you dice it, I never thought that this was a particularly good bet. I haven't been there on the ground in part because I've been so critical of it in part because I've said I think there are better opportunities out there and I I've I've been joking recently um you know if somebody from Naibukle's government sees this like give credit where the environment was due. El Salvador this could be their opportunity. There are citystates out there that can take the Dubai playbook and say, you know what, we can replicate that in a different geography in the world and we can go without messing around in Sudan or Ethiopia or disagreeing with our neighbors or having Iran next door and having this being um such a colossal enemy and also not having global interest on us based on our commodity exports because ultimately, yes, a lot of folks and especially Westerners have flocked to the Gulf because there's money there. It's like moths to a flame. the money's there because of the oil. And if the oil stops flowing, if you start messing around with Westerners oil, look at what they are doing to Iran. That's what happens to you if you don't ultimately do what the West and even what the Asian countries want because they want your oil. Like, so I I just no matter how you dice it, it doesn't seem like a place personally where I would think of it as a safe haven >> or where I would that's not top of my list for where I want to go as a tourist. Um it's I've just never really understood um the idea behind it >> of that diversification. I think that's a really interesting um a really interesting comment and um and something that's going to bear watching over the next few years because that >> and Maggie I'll I'll just say I've I've I've looked like an idiot for the past 5 years saying that because I've been saying it for literally years and they were going from strength to strength in the region and maybe maybe this regime will get replaced in Iran and 3 years from now I will look like an idiot again. But this is part of the the exercise of thinking long term. If you're not saying things that are a little out there, you're actually just with the herd. You have to say things that challenge the conventional wisdom and hope that your analysis and your facts and all the research that you've done, you know, point you in the right direction. So I I fully like m maybe they go back to making me look stupid three years from now. I hope they do. That means those countries will have been doing well. I I just don't see it. I don't I don't see it there in the data. I don't see it there in the model. I don't see it there in the geography. None of it makes sense. Well, I and I think the the important exercise for us listening is that if you I mean that this was a big investment destination. First of all, if you are if you are, you know, investing in hard assets or the companies that service that or, you know, have locations everywhere um and then just direct investment, their stock exchanges have been doing well. A lot of people did buy that. So, if you're an investor, you want to just these conversations challenge you to make sure you're sure about what you're doing and the reasons you believe they will be successful. And you we could find some, right? we could find some that maybe maybe will work out. Um they certainly have a very educated population and if you talk to some of the ministers and the you know kind of civil service in those countries, they're doing some really interesting things. They've definitely been pushing technology. Um they're trying to get water out of the the air for instance. You know they sandbox a lot of interesting things but but as you point out there are really really big challenges. So I just think it's an informed decision. So I appreciate when you do that um Jacob. So let's talk about China. It's like the 800 pound gorilla in the room and we've we've everyone I think is watching this and thinking what does it mean first of all what does China do here now if the US summit is postponed I think that is is very interesting and a bit worrying um do they step in as someone who can figure out an uh an offramp and has the ear of the uh Iranians um does this hurt them does this drive a wedge a further wedge between the US and China some have suggested that all of these foreign policy moves are a way for the US to hurt China. >> Yeah. Honestly, the first thing I thought of when you said that was I was up at 4:00 in the morning cuz my three-year-old was screaming that she had a gorilla in her room cuz she was having a nightmare. So, um that they ate her. >> Maybe these poor kids. The ideas we're putting in their heads. >> Well, no, she wasn't thinking about China. She was thinking about we just went to the zoo and she thought a simpler time. We should all be so lucky to for that to be our worst problem in our day. Um Maggie, this is the most important question long term that we're going to talk about today. Full stop. It's the most important. And for me, it's the most important because when I'm thinking about how I'm setting, you know, my expectations over the next five, ten years, I've said this before, I'll say it again. Probably people are going to get bored of it. I think we're headed towards a multipolar world. So, I don't think it's a unipolar world where there's one hegeimon. I don't think it's a bipolar world, the US versus China. I think it's a multipolar world with different and competing rising and falling great powers. China and the United States will both be rising powers. They'll both be very powerful in this world. But I see a role for the EU. I see a role for Turkey. I see a role for Brazil. I'm worried about where Russia's going based on its trajectory. The reason I say what you're talking about is the most important question is because it raises the question of is it is it really going to be multipolar or is it going to be bipolar? Is everything going to come down to Washington and Beijing talking and that's what's going to affect global geopolitics. Um I don't you know maybe the Trump administration convinced itself that by doing what it did in Iran and in the Middle East it was somehow hurting China. If they did I think it's asinine. I think it's a fundamental misunderstanding of how China deals with the world. Um, the Chinese government does not have permanent allies or relationships. The only defense treaty relationship China has is with North Korea. Um, China is actually living up to George Washington's admonition to the Young Republic after he finished his presidency, which was not to have permanent relationships, was really only to have interest. That's how China works. So, is China a partner of Iran? Yes. Will they import their cheap oil? Sure. Did they see them as a potential balancer into a region backed the Saudis backed to the hilt by the United States, Turkey a NATO member, Israel backed by the United States? Sure, it'd be nice to have another player on the board. And if China can do that in a lowcost way, it helps them to sort of build that up. But China's also watched the United States exposure to the Middle East over the past 20, 30 years. It doesn't want to be there. It doesn't want to be projecting force into the Middle East to make sure that it can get the oil out of the straight of Hormuz. Look at what China's been doing in the last couple of years. It is building so much solar and wind and everything else capacity. It's dwarfing the entire world by comparison. Is that cost-effective necessarily? No. This is a state-led authoritarian communist government. They've decided they don't want to be dependent on these things anymore. So, they don't care what the cost is. Let's build more solar than the rest of the world combined and let's churn out nuclear reactors like it's nobody's business and everything else. The point being of the major Asian economies that are dependent on the straight of hormones, they're not at the top of my worry list. I am way more worried about India and Pakistan and South Korea and Japan. China's been rolling out all this renewable capacity. They've got at least three months um of reserves on hand. If they really are going to struggle, they've got Russia next door. They've got other options that they can go to. So, I don't see any world in which you are actually effectively hurting China in the sense and I think part of maybe what is happening between the US and China is that the Trump administration decided to undertake this war. We can debate whether it's going as well as they think or not as well as they think. But what's not debatable is that they've started to call in China to help. Whether that is with actual ships in the straight of Hormuz or putting pressure on Iran, which is probably what would be more valuable. I don't think a couple Chinese ships are going to help. And the Chinese response is why would we do that? What what is in it for us? I I even bet that the Trump administration was thinking ah maybe the Chinese will buy some oil from us as part of the trade deal because the straight of four moves is closed. And I'm sure the Chinese reaction to that was probably why would we do that? Why would we make our why would we go from dependence on this choke point to dependence on a country that has done nothing but level tariffs against us and you know give Taiwan weapons and do all these things that runs the foul of our geopolitical interest. Um obviously the talks in Paris um over the past week in the trade negotiations didn't go well. Um, so I assume the Trump administration and the Chinese government realize that and they're not going to put Trump and Xi Jinping in the room unless there is some kind of understanding. And so what this tells us is is that there isn't an understanding. And my question there is really I think there will be a deal at some point between the United States and China. But I think the the real question we have to think about on a 5-year time horizon is is are those the only two players that matter here? Is what's going to happen between these two Olympians going to set everything else? for is there room for some of these other powers to make advantages out of this or to push forward. So there there's a lot to unpack there, but that's at least how I would start the conversation about China. >> Yeah. Uh it's funny you said that they have they only have interests. They have no real allies. They're sort of it sounds like transactional and that's what people always said about Trump that he was transactional. He doesn't really have a sort of like firm feeling. He just wants to make a deal and and it it just depends on who's across the table. And yet there has been no ability to to it seems like for there be for there to be any breakthrough when it comes to China. >> I mean they've come a long way with China and I still expect there to be some kind of breakthrough with China. Now I think it'll be relatively superficial but I think I think you're exactly right. I think President Trump has been transactional but President Trump also has a sense of power and he is willing to use US alliances or wants to use US alliances as leverage when he gets in the room with China. The problem is he's been transactional with all the allies and now he's expecting the allies to help out with Iran and also to go along with some of his China trade policies and the allies are finally I mean it took them it really took until the Greenland situation but the allies are looking at Washington and saying maybe not like maybe we're not going to do that maybe we're going to figure things out for ourselves because we've seen you know how you treat your friends I mean just imagine how you're going to treat your enemies in that sort of situation so yeah I think that you're right that President Trump is transactional but he inherited an international order that was built on US alliance networks and he's been using them as leverage which was effective for short-term deals really effective for the reality TV presidency that he's been operating from but long-term the damage he's done to those relationships the lack of trust that he's put into countries both rivals of the United States and partners that's not going to go away there's no way to put Pandora back in that box either and so China is just the the most capable competitor rival of the United States that is out there. A country like Venezuela, they can't stand up to the United States. Cuba, that's done. Like, the United States is probably going to do that and there's not going to be a whole lot of opposition. Even Iran, the United States is going to pummel Iran. It's going to set back Iran decades. That's going to be the cost of of of Iran having pursued this policy of resisting US interest. You can't do that to China. None of that works with China. And China's been very patient here from the beginning. They understand that if the Trump administration doesn't come to the table with them or if they push too hard on China, it's mutually assured destruction. We're worried about oil and natural gas and fertilizers through the straight of Hormuz. Just look at how many different things the United States is dependent on importing from China. Just look at the Trump administration's own list of critical minerals and things like that. All of that is mostly coming from China because they're the ones that refine it and process it. If you really want to go after the Chinese, >> they're willing to go after it and they can say, "Hey, this is all the fault of the United States. This is why we're dealing with these huge economic issues and get their people to rally around the flag sort of in that sense. And I say that about China. This is also why to go back to the multipolar question like that's not going to work on Brazil. It's not going to work on Turkey. It's not going to work on Europe. Yes, it will work on some of these peripheral issues. And yes, you can claim these short-term victories, but in the long run, you're actually just creating this fracturing world with these different blocks that are going against you. And if you give the Trump administration the benefit of the doubt, and if you give their national security strategy the benefit of the doubt, you say, "Cool, the international order wasn't working for us. The international order was taking advantage of us. We rebuilt Germany. We rebuilt Japan. We're the the Europeans have been having cappuccinos and baguettes on our large S because we defend them. They should do a little bit more." Okay, just careful what you wish for. The Germans are going to start turnurning out tanks and ammunition again. They're going to do a little bit more. Are we going to be comfortable when they are when we call the allies to do something and they say, "Hey, we we thought that we had an understanding here. We're not This is not the way the relationship works anymore." What are you going to do when they say that? We're sort of seeing that happen in real time. That dissipates. >> Fantastic stuff. Jacob, uh, you not only give us so much wisdom, focus our mind on these important sort of longer term questions we need to be considering. Um, but you always bring such great humor. And who else can drop Dune references in their in their articles? I mean, it's amazing. I went down the rabbit hole uh on the last one. So, thank you so much. Really appreciate your time as always. >> Yeah, I mean Dune is the best. If if an analyst can't drop a Dune reference, I don't really trust the analysts. So, thanks. You set the bar high. But thanks, Dick. Appreciate you.