Pod Insights Odd Lots Greg Brew on Surging Energy and the 'Strategic Trap' of the War in Iran About this episode The war in Iran has already lasted longer than many people might have expected. There was an initial assumption, after oil prices started surging, that President Trump could just declare victory at any moment. But that hasn't happened, and the longer this goes on, the more damage is being done to the region's energy infrastructure. Already a key gas plant in Qatar has been damaged so badly that it's expected to take it years to repair. On this episode, we speak with return guest Gregory Brew, a senior analyst at Eurasia Group who specializes in energy and Iran. Beyond his current work, Greg is the author of two books on the history of oil in Iran. We discuss the logic of the war from both the Iranian and American perspectives, and why the Trump administration may have walked into a "strategic trap" with no easy way to declare victory and get out. Read more:Iran Leaves an Isolated Trump Grappling With Historic Oil CrisisHow Iran Has Effectively Closed the Strait of Hormuz Only Bloomberg - Business News, Stock Markets, Finance, Breaking & World News subscribers can get the Odd Lots newsletter in their inbox each week, plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlots Subscribe to the Odd Lots NewsletterJoin the conversation: discord.gg/oddlotsSee omnystudio.com/listener for privacy information.
Transcript 10,688 words · 7 speakers
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0:26 Speaker 01 This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting
1:08 Speaker 01 and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at chatgpt.com.
1:52 Speaker 01 Bloomberg Audio Studios. Podcasts, radio, news.
2:07 Joe Weisenthal? Hello and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.
2:13 Tracy Alloway? And I'm Tracy Alloway.
2:14 Joe Weisenthal? Tracy, we're recording this the morning of March 19th around 9:00 AM and-
2:19 Tracy Alloway? That's how you know it's bad, when you have to throw in the hour and the minutes. 9:07 AM.
2:23 Joe Weisenthal? 9:07 AM. And I think the story right now is just the degree to which people are realizing more and more energy infrastructure in the region. We're talking about the Iran war, of course. More and more energy infrastructure in the region. I mean, it's literally on fire.
2:38 Tracy Alloway? Yeah. The thing that I've noticed, having recorded these sort of emergency podcasts over the past, I guess, two weeks now, is that we will talk about a hypothetical, like, you know, oh, what happens if Iran strikes the port of Salala in Oman? And then, a couple of days later, it happens, which gives you an indication of how quickly things are progressing. And one thing that has happened in just the past day or so, since we recorded an episode with Bob Brackett on Nat Gas, is we had Israel bombing Iran's infrastructure in the South Pars gas field.
3:14 Joe Weisenthal? Yes.
3:15 Tracy Alloway? And that was kind of a hypothetical that we talked about with Bob, and it happened shortly after. And then after that, we also had Iran bombing Qatari energy assets in the South Pars. So it's, it's just progressing very quickly.
3:33 Joe Weisenthal? Our colleague Dylan Griffiths has put together a really excellent list. I mean, the thing was, so we did that episode sort of near the beginning, or I've lost track of the time, with Rory Johnston. And he said, "The closure of the Strait of Hormuz was itself the sort of hypothetical that was so extreme that it was almost not worth contemplating." So I think your framing is really excellent. All of these things that are just sort of like, you think about them as very bad possibilities, and one by one, they become realities. Our colleague Dylan Griffiths has a really excellent, just sort of, list of energy infrastructure damage in Iran war piece, and it just goes down through the list. One of the refineries in the world- Shut down as a precautionary measure.
4:15 Joe Weisenthal? Roshtanura, a refinery in Saudi Arabia halted. Various pipelines, gas facilities and so forth. There is just a lot that's damaged, which of course means that the Strait of Hormuz is only one aspect. Maybe it gets opened, but then there's of course the question of like all the infrastructure that's been damaged and how long it takes to come back online at anything near full capacity.
4:36 Tracy Alloway? Right, and this raises two interesting questions, I think. One is that it seems like the US and maybe Israel to some extent weren't expecting Iran to hit back against various energy infrastructure assets or even cities this hard, right? And I think Trump has said a couple of times that he didn't expect Iran to, for instance, like go after targets in the UAE and places like that. So questions over what's happening there, like why did that become a strategy? And then secondly, the thing I'm wondering is how much financial pressure does this actually put on Iran? Because at the moment, yes, some of its big gas producing things are getting hit and damaged.
5:19 Tracy Alloway? And it seems like that's going to cause some fallout. But on the other hand, if oil prices are spiking and if Iran can still get out some oil to a certain extent to places like China, is that actually a fiscal windfall for them? Like, can they withstand some of this chaos better than perhaps other places can?
5:39 Joe Weisenthal? Right, and you know, for the US, obviously, a lot of this translates into higher prices at the pump. For some of the regioning Gulf countries, I mean, it's just, it's GDP catastrophe, right? And some of the estimates for what some of the countries are expected to see a reduction in GDP, I think I've seen numbers like 15%.
5:56 Tracy Alloway? Yeah.
5:57 Joe Weisenthal? It's, I mean, we're talking about, you know, this depression level declines and so forth. And so the degree to which this drives a serious wedge between Gulf countries and the United States is of course, obviously, a big part of the story here. Anyway, and of course, that makes the logic of the strikes, right? I mean, that makes Iran's logic seem very clear. Drive a wedge between US and its friends in the region and so forth. And so anyway, we need to understand. And both better, just how serious this damage is, the long term fallout, because this is very important for my economic story. And then the way to think about this damage in the context of war strategy itself and what constitutes success for Iran here as it tries to defend.
6:37 Tracy Alloway? And how all of this is actually playing on the ground in Iran, because of course, we don't have very good insight at any moment in time into domestic Iranian politics.
6:45 Joe Weisenthal? Definitely not. All right. Well, we really do have the perfect guest, someone we've spoken to before, someone we turn to frequently when the discussion is about Iran or it's about oil and certainly some combination of the two. We're going to be speaking, of course, perfect guest Greg Bruce, senior analyst at Eurasia Group. He is the author of two books that directly relate to this. Petroleum in Progress in Iran, Oil Development to the Cold War, and The Struggle for Iran Oil Autocracy in the Cold War. So Greg, thank you so much for coming back on Odd Lots.
7:17 Speaker 03 Hi, Joe. Hi, Tracy. Thanks for having me back.
7:20 Joe Weisenthal? It must be nice, you know, you write these academic books with academic prices with names that sound like academic books. And suddenly, suddenly, they're actually in demand. They're their current events.
7:32 Tracy Alloway? Suddenly, they're relevant.
7:33 Joe Weisenthal? Which cannot be said for all academics.
7:35 Speaker 03 They weren't relevant before. They were very boring and only a handful of people cared about them. And now the number is slightly more than a handful, perhaps.
7:42 Joe Weisenthal? It's definitely more than a handful. Why don't we just start off with a sort of very big picture, which is, let's just put on your energy analyst hat for a second, and then we'll get into all this sort of understanding Iran more. You know, from your energy analyst hat, how shocked are you by the sort of scale of destruction that we've seen with energy infrastructure over the last couple of weeks?
8:07 Speaker 03 So I think I'm officially shocked after the events of the last 24 hours, where you saw both Israel attack the South Pars gas field in Iran, which supplies 70% of Iran's gas supply, and then quite quickly, within hours, Iran responding by striking the Raslafan LNG processing facility in Qatar.
8:28 Speaker 03 But of course, over the last few weeks, we've seen widespread strikes on energy targets throughout the region. And then, of course, the closure of the Strait of Hormuz, which, as you mentioned, and I've had very similar experiences to Rory in this way, over the last few years, whenever anybody asked me, you know, is Iran going to close the Strait of Hormuz? I would say, only as a last resort. Only in the event that the regime feels that its survival is being threatened. And most of the time, I've been saying, we're not there yet. You know, whatever crisis this is, it's not that bad. But this war, this attack, was interpreted by Iran as a threat to its survival, a threat to the regime's survival. And it responded in a way that it has been saying it would respond for a long time.
9:12 Speaker 03 So I have been shocked. But if I were a better Iran and energy analyst, maybe I shouldn't have been.
9:18 Tracy Alloway? Well, OK, explain that further. Because some people would say intuitively, if you strike Iran and immediately take out the supreme leader, that immediately frames the conflict as an existential one for Iran. Right? So why this reluctance to believe, up until, you know, maybe a day or so ago, that they would go this far in their response?
9:41 Speaker 03 Well, I think the kind of collective understanding initially was that, even though the war began with Israel assassinating Supreme Leader Ali Khamenei, which, incidentally, the Iranians kind of expected. They had been making plans for the last several months of what to do in the event that Khamenei was assassinated. But I think the collective understanding of the war initially was that it was going to be a short war because the United States and because President Donald Trump didn't want a long war. So there was this belief that, OK, things are bad. Iran has been attacked. It's being heavily bombed by the US and Israel. It's closing the Strait of Hormuz. But Trump is going to de-escalate, and it's going to end. Like, this isn't going to turn into a prolonged conflict.
10:24 Speaker 03 That's part of the reason why oil prices didn't really respond as aggressively initially as I think they've responded since. Why, you know, futures didn't move very much in the first week or so of the war. Because I think everyone was maybe in a state of shock. And denial that the situation was as bad as it really was. And that things were going to be wrapped up, things were going to be deescalated. And I think on some basis, that was stemming from historical experience. Like, the war between Iran and Israel last June was also very intense, but it ended very quickly, with a very, very rapid ceasefire that allowed oil prices to fall. And in the past, Iran had done aggressive things.
11:06 Speaker 03 It had fired missiles at Israel, it had fired drones, but usually in a calibrated, kind of proportional way. And I think there was, over the first week of the war, there was this belief that, oh, Iran's not going to go that far. Right? That they are going, ultimately, they're going to be deterred from being too aggressive. And I think on both sides, this understanding that Trump was going to deescalate quickly, and that Iran was going to be restrained, both of those assumptions proved to be very inaccurate. And now that we're in the third week of the war, I think it's really settling in how bad this is, how bad this is going to be, and how much work it's going to take to deescalate.
11:40 Joe Weisenthal? Well, you know, obviously, a big part of the reason that we want to talk to you is we think that you have greater insight into the sort of domestic politics in Iran, better than most energy analysts that you're going to come across. But actually, let me flip the question and maybe not go to your academic wheelhouse, but just your take. You know, the expectation is Trump is going to taco because he can't stand oil at $100 or more, and that this will prove to be a forcing mechanism for him to one day just declare victory. That he'll say, you know what, we've taken out enough infrastructure, they're no longer a threat. And as you mentioned, he hasn't. And if anything, it seems like we're bringing more assets to bear on the region. So this has taken people by surprise.
12:21 Joe Weisenthal? As of right now, Brent crude trading for about 113, very close to the crazy highs of Monday, March 9. Do you have an idea for why perhaps the collective assumption of an imminent Trump taco has not borne out, and why he is actually, seems to be willing to accept some economic pain, and prolong this longer than just, you know, declaring victory anytime?
12:44 Speaker 03 Sure thing. I will say, the only thing that's somewhat more challenging for an analyst in my position, more challenging than diving into the psychology of the Islamic Republic, is diving into the psychology of Donald Trump. But I'm going to give it a shot.
12:55 Joe Weisenthal? Okay.
12:56 Speaker 03 So yeah, again, going off of historical experience, here was an individual, a person who'd been in the public eye for decades, who always seemed to be preoccupied by the price of gasoline. You go back over the last 30, 40 years. Trump is always talking about gas prices, right? Keeping gas prices low. How gas prices reflect poor governance, poor economic performance. You've got to keep gas prices low if you want to be successful. He talked about it a lot in his first term. He talked about it a lot last year, coming up into this crisis. And then suddenly, we're in the context of a war. Straight-up foreign moves is closed. 20% of the global oil supply is being disrupted or shut in in some way. Gas prices are climbing to highs that we haven't seen in years. Oil is over 100.
13:39 Speaker 03 And then suddenly, Trump is acting like that doesn't matter. Like he doesn't care. It's curious. I think it comes down to a couple of things. I think it comes down to, in this context, he is maybe more conscious of looking weak than taking the taco and taking the short-term win and seeing the economic indicators, the financial indicators, swing back in his favor. I think the size and scale of this conflict, the fact that it's not just sort of the adventure in Venezuela or putting pressure on Russia, it's a war. There are dozens of US warships, hundreds of planes, thousands of US personnel, GCC states, allies to the United States that are under consistent fire. It's a big deal.
14:22 Speaker 03 And to taco now would not only, I think, expose the president to criticism in a way that maybe he hasn't been exposed over previous foreign policy adventures, where he's always sort of managed to escape looking very tough, you know, looking very assertive. If he does back down right now, it feeds directly into the Iranians' narrative of victory. This sense that Iran is tougher, more resilient, more able to withstand pain, and that eventually they will outlast not only the United States, but more specifically, the US president. That is entirely what is driving Iran's strategy from the opening of the war.
15:17 Joe Weisenthal? There are some market stories where you want every detail. Tracy and I have made quite a few podcasts on that basis, but sometimes you've only got 10 minutes and need to know what's moving markets and why. That's the Barclays Brief Podcast. Every week, experts from Barclays Markets and research get you up to speed on what matters and what to watch next. About the time it takes to grab a coffee. So search Barclays Brief wherever you get your podcasts.
15:43 Speaker 01 This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices,
16:26 Speaker 01 but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.
17:06 Tracy Alloway? Joe, to Greg's point about Donald Trump having a long history of talking about oil prices, not many people know that there is in fact a deleted scene from Home Alone 2 in which he stops to talk to Macaulay Culkin about high prices at the pump.
17:18 Speaker 03 Are you serious?
17:18 Tracy Alloway? No.
17:19 Speaker 03 Yeah, they talk about gas taxes.
17:22 Tracy Alloway? Yeah, that's right. Just start rambling in the hotel halls. Okay, I realize this is kind of a difficult question because I'm not even sure that Trump himself knows, but do you get a sense of what victory actually looks like in his mind for this particular situation?
17:38 Speaker 03 So I think, and there's been some good reporting on this, so I think we can accept it as fact, although it's irrelevant for the reasons I'll state. Going into this, there was a belief in the administration and perhaps a belief from the president himself, that there was an opportunity in Iran to replicate the experience in Venezuela, that there was a way to kill Ali Khamenei, the supreme leader, and that in the wake of his death, a group of Iranian leaders would come to the fore and would pursue policies that aligned with US interests. There was a belief that that was possible. Now, the problem, which they encountered immediately, was that the individuals they expected to lead that political shift inside Iran were also killed alongside Ali Khamenei
18:23 Speaker 03 in the opening hours of the war. So the opening, the opportunity to achieve of Venezuela disappeared in the opening hours, leaving the president, I think, and the United States with a problem regarding war goals. Now, they have done tremendous damage to Iran's military capabilities, missiles, missile stockpiles, missile productions. Iran's navy, as the White House loves to advertise, has been taking tremendous damage. So Iran is absolutely being weakened by this war, but I don't know if that's enough for the president to justify the war, the war's scale, the economic cost, the risks that were associated. If the war ends with just... Trump saying, "We've weakened Iran.
19:08 Speaker 03 We're not going to have to deal with them again." That's insufficient because he is probably getting advice inside the White House and from the Pentagon that if the war ends now, Iran will likely rebuild. You know, they rebuilt the damage that was done to them following last year's war. They rebuilt most of that damage within six months. It'll probably take them longer to rebuild the damage from this war, but they will almost certainly do it. Also, if the war ends now, Iran will leave probably feeling emboldened, having felt that their strategy of targeting the straight, targeting GCC states worked. So if the war goal is just to weaken Iran militarily, they've done that, but it's probably insufficient. Right now, what I imagine the president is thinking about is, what can I do against
19:52 Speaker 03 Iran that allows me to claim a more decisive victory and offers me a politically and also strategically viable off-ramp? The problem I think they're dealing with right now is that there are no good options to pursue that outcome.
20:05 Joe Weisenthal? I'm trying to think about how to ask this question in a way that doesn't, well, that's accurate and a little bit sensitive, but I have this feeling, this sense, and I'm very far from an Iran expert, an Iranian history expert, but I have this sense that Western commentators, particularly older ones who perhaps sort of remember the Cold War, et cetera, have this vision of Iranian society as one in which there is a very broad mass of people that are like deep down liberals who are dying to cast off their hijabs, who want to dance lascivously to rock music and live as Westerners, et cetera, and that there's
20:49 Joe Weisenthal? this very small group of religious hardliners oppressing them that have no credibility within society and that the moment you decapitate these bearded mullahs, that everyone will suddenly live the free Western liberal life that they've been longing to for decades, et cetera, and that all you need to do is topple this. First of all, is that an accurate characterization of how many sort of think tank thinkers in DC view Iran? And how different is that gap between the complexities and realities of essentially Iranian domestic politics?
21:27 Speaker 03 Well, I'll avoid naming names because a lot of the think tank folks in DC are friends of mine. But I will say this, you know, the Secretary of State Marco Rubio likes to say this a lot. I think it's a line that he thinks conveys meaning and significance. And I actually think he's right. There is a huge gap between the Iranian people and the Iranian regime, the regime of the Islamic Republic. There's overwhelming evidence to suggest that most Iranians don't support most of the policies that the regime pursues. Both the social policies at home, very restrictive policies on how you can dress, how you can act, the kinds of businesses that cannot be operated. There are laws prohibiting co-ed activities. Increasingly, I should note that a lot of these laws are being flouted openly.
22:11 Speaker 03 People are just aren't obeying them anymore and the regime is having a hard time enforcing them. More broadly, there's resistance to a lot of the policies the regime has pursued. Backing foreign proxies or regional proxies like Hezbollah or the Houthis in Yemen, you know, spending money propping up Assad in Syria, spending huge amounts of money, building up a nuclear program, which resulted in incredibly onerous Western and US sanctions. And then just the general sense that there are elections in Iran, but they're not really free or fair. Lots of candidates that people would vote for are barred from running for office. There are candidates, there are politicians who have spoken out on the subjects of reform, on democratization. They are silenced, they are arrested or put under house arrest.
22:54 Speaker 03 So it's an incredibly restrictive political environment and one that a lot of Iranians don't support. On the sort of broader ideological frame, there is a core of support for the Islamic Republic as a political experiment. There is still this group of people inside the country. It's hard to estimate precisely their size, but one estimate you can go on is when there are elections for president, for instance, there was one in 2024, the super hardline candidate, the candidate who is extremely anti-US, who is all for doubling down on hijab and other tough social policies, that candidate usually gets 14 to 15 million votes. And when the regime has demonstrations, when there are official days of celebration, when they come out and they hold marches,
23:39 Speaker 03 very often these marches are pretty well attended. People do show up. The regime can probably count on the support of a hardcore of maybe 10 to 15 to 20% of the population.
23:48 Joe Weisenthal? Okay.
23:49 Speaker 03 That's probably enough for them to stay in power. The other aspect of this, and you know, this is, it's not a uniquely Iranian story. Decades of repression and monitoring political dissent, restricting the political environment. What that means is that there's really no organized political opposition inside Iran. There's no opposition candidate or opposition leader who's fighting the good fight. There are some individuals, but they're not really at the level that they could organize an alternative government. The other aspect of it is there are whole institutions that are built into the fabric of the Islamic Republic. The IRGC, the Islamic Revolutionary Guard Corps, kind of being the most important,
24:29 Speaker 03 but it's really just one of many, who exist solely to preserve the regime from internal and external threats. They also happen to have all of the guns. So as with other authoritarian governments, not just today, but going back 50, 60 years, this is an environment, this is a political context where the mass of people don't really support the government and would love to see a different government, but it's difficult for them to implement change, given the obstacles that they face. And unfortunately, January was illustrative of all of those realities. The attempt to effect change through popular demonstration was put down with overwhelming and lethal force.
25:12 Tracy Alloway? Just going back to Trump and potential off-ramps here. I mean, one thing we know about Trump is that he really seems to like owning stuff, right? And he seems to like taking stuff that he doesn't necessarily have explicit sovereignty over. And there happened some rumblings recently about possibly taking the Strait of Hormuz and having some sort of coalition with allies where they would control that particular passage. First of all, do you get the sense that that's actually an off-ramp that he's thinking seriously about? And then, secondly, is that realistically an option for the US to do, given that its allies in particular don't seem to be particular fans of the Trump administration at this moment in time?
25:56 Speaker 03 Yeah, so on the first question, I think, again, speaking to how problematic the context of this crisis is for Trump politically and strategically, if he chooses to de-escalate, you know, he looks weak and he hands Iran a pretty significant win. I also think that it's it's difficult for him to deescalate with the situation in Hormuz being what it is, with traffic at a standstill. And, you know, to make matters worse, the Iranians allowing certain ships through.
26:21 Tracy Alloway? Yeah.
26:21 Speaker 03 Right, they've been making bilateral deals with Pakistan, with India, to allow a couple of ships through at a time, demonstrating, for all intents and purposes, that they control the Strait of Hormuz, not the United States, or not anyone else. So I think it's very problematic for Trump to decide to wind down combat operations, wind down this war against Iran, without having dealt with the Strait in some way. The problem is, there are no good ways of doing that. They're trying to degrade Iran's capabilities, you know, bombing its drones, bombing its missiles, to a point where ships will feel comfortable moving through the Strait. But it's taking them a long time to do that, because Iran has a lot of missiles and it has a lot of drones. And the geography of the Strait of Hormuz, parts of it are extremely mountainous.
27:05 Speaker 03 Iran has spent decades building positions to do this. I mean, again, it speaks back to their strategy. They've been preparing for this for a long time. This is a war that they've been thinking about fighting for a very long time. So it's taking the US a while to weaken Iran, to the point that the tankers and the other ships feel comfortable using the Strait. On the question of an international coalition, you know, bringing in more states, more countries, bringing in more ships, would make this easier? The problem, of course, is that the United States, the Trump administration, doesn't have the best relationship with most of its European allies. There was an attempt, initially, to put together an international group, to bring in the French, bring in the British, bring in others. And the Europeans were initially on board.
27:48 Speaker 03 The problem, though, is that that shifted with Trump using this maybe as a source of leverage, of trying to get the Europeans to actively join the war and bomb the Iranians, not just protect ships. Also, using this to maybe move the Europeans on issues like NATO funding, on issues like Russia, Ukraine. And so the Europeans moved from saying, "Okay, we'll help you," to, "You're on your own." You know, "We'll come and help move ships through the Strait, but only if there's de-escalation." So it's another aspect of the kind of strategic trap that the United States finds itself in. It's fighting an enemy who can't really be fully deterred or degraded.
28:28 Speaker 03 An enemy that is resisting being coerced or forced into capitulating, an enemy that can't undergo a political change through decapitation. You know, like they're killing leaders, but those leaders are just being replaced very often by more hardline figures. And the problems associated with reopening the strait are just proving to be, I think, far more challenging than they had expected. If they had expected to deal with this at all. There's evidence to suggest that the administration didn't really think too much about war moves when it launched this war.
28:59 Joe Weisenthal? Can you talk to us about just, I mean, you mentioned the European allies. Can you talk to us just about the future of America's relationship with some of the Gulf friends, the UAE, Saudi, et cetera, and the degree to which this could permanently alter the trajectory of that relationship? I mean, they didn't start this war and now they're all, they have all this damage to their economy.
29:23 Speaker 03 Exactly, exactly. And it also, you know, it speaks to the longer term issues that this war represents. Because if you assume that the war is going to end in some kind of limited fashion, right? The Islamic Republic's not going to collapse. There's not going to be a regime change. The war is going to end with Iran still having a couple of drones and missiles left over, very weakened, but still there. The issue for the GCC, for the Gulf states with that scenario is that it's extremely dangerous. They are now facing a regional power that is comfortable attacking them aggressively if it gets attacked, even if they had nothing to do with it. And again, it's part of Iran's strategy. They're trying to impose as much pain as they can on everybody in order to raise the costs of this ever happening again.
30:07 Speaker 03 They're thinking not only about this war, but they're thinking about future wars. They're trying to restore deterrence. And this puts the GCC states in a very, very awkward position. On the one hand, many of them would like to see this war end more conclusively with the threat of Iran not just degraded, but neutralized because leaving it in place is so dangerous to them. On the other hand, they likely know that that's impossible, that this isn't going to end with regime change. So what do they do? I think, counterintuitively, in the short term, most of them are going to pursue closer relationships with the United States because they have no other choice. They need to improve their security. Most of them right now are relying on US support for their air defenses. They need the US to restock their supply of interceptors.
30:52 Speaker 03 They need the US to help them shoot down Iranian drones, Iranian missiles. Also, historically, all the states of the GCC depend on the United States for protection. They have their own militaries. They are generally not regarded as being extremely capable. So they do need ties to the US to secure themselves. And this war has, if anything, made that relationship with the US all the more important. But that's not enough because they've now seen that if the US attacks Iran, they will be on the front lines. So they're likely going to have to balance that somehow. They're likely going to have to balance that by perhaps pursuing closer relationships with each other. You know, there was already kind of some momentum before this war on regional security relationships.
31:37 Speaker 03 Saudi and Egypt becoming closer. The UAE and Israel pursuing closer ties. Saudi and Pakistan have a mutual defense treaty now. They like, they will come to each other's protection. They will come to each other's aid if they're attacked. Although Pakistan is not attacking Iran, even though Iran is attacking Saudi Arabia. So the full value of that agreement is maybe somewhat suspect. But that, I think, is another potential avenue that they may go down. They may look to one another to improve their security rather than depending on the United States, which is proving to be, in the short term, a crucial ally, but in the long term, a very problematic partner.
32:12 Tracy Alloway? So on that note, why did Iran actually decide to go after countries that did not attack them? You know, Gulf countries, ex-Israel, and the United States? Because again, like, it's never really done this before. And the expectation, certainly, of people who moved to places like Dubai and Abu Dhabi, and I count myself in that bracket, was that Iran probably wasn't going to ever target them.
32:36 Speaker 03 It relates to Iran's broader strategy. Not only its strategy for surviving this war, but its strategy for improving its deterrence and reducing the possibility of this happening again, of future attacks. The bigger scenario that the Iranians are more concerned about is a scenario where Iran turns into Lebanon. Or Iran turns into Syria, a country that you can just bomb, that Israel can just bomb whenever it wants to. They're very, very concerned about that becoming the new status quo. So that is what's driving their strategy. They want to restore deterrence. And their way of doing that is indicating to everyone, the United States, Israel, the
33:15 Speaker 03 GCC, but the entire world, that attacking us is not worth it, that we will respond by imposing more pain, more costs on you than you can impose on us. The Iranians love to demonstrate this, they love to talk about this, and I think they are illustrating it, that they are more resilient, that they can take the hit, that it doesn't matter that the US and Israel have air superiority over Iran, it doesn't matter that they're killing leaders or striking targets in the hundreds and the thousands, that at the end of the day, the Iranian government, the Iranian military, is more resilient and can outlast any of its competitors. Now, the reason why they're striking the GCC, there are two reasons for this.
33:55 Speaker 03 One, more immediately, the GCC is a more tempting target. These are soft targets. Energy infrastructure, it's fairly easy to do damage to a level that causes the facilities to have to be shut down for repairs. The GCC do have air defenses, but the targets the Iranians have been going after are not hardened in the way that, you know, US bases or Israel are hardened. Israel is extremely well defended with its multi-layered air defense systems, with its civil defense, you know, systems. Israel is kind of a fortress state in many ways because it has sort of lived under the threat of outside attack for so long. The GCC isn't like that. And on top of that, it speaks directly, Tracy, to what you're saying.
34:37 Speaker 03 The Iranians are trying to show the GCC states, and particularly the UAE, your model of economic development, this idea that you can turn the Gulf into an island of stability with tourism, with finance, with tech, with hotels, all of that will go away if we keep being attacked. If the US and Israel keep bombing us, we are going to turn the Gulf into a live-fire zone, and eventually that will make your economic development plans impossible to achieve. So they're imposing all these pain, they're imposing all this cost. The second reason they're doing this is they are indicating to the GCC that their relationship with the United States is untenable, that so long as they allow the US to have
35:20 Speaker 03 bases in the region, so long as they allow the US to support their security, that from the point of view of Iran, they are US allies, they are US instruments, and that makes them legitimate targets.
35:31 Tracy Alloway? Yeah, Joe, just on the UAE, I think this is a really important point to stress because I think a lot of people don't realize that they're not seeing everything that's happening in places like Dubai and Abu Dhabi at the moment because you have, you know, very strict state control on the images that are allowed to come out there. And in fact, I think we've seen at least one person arrested for sharing a photo of a drone strike or something like that. So stuff is happening there and it's stuff that if you're an expat who came to that city thinking that it is safe and secure, you never really would have imagined.
36:07 Joe Weisenthal? By the way, headline breaking just now from Reuters, Iran's Attacks Damage 17% of Qatar's LNG Capacity For 3 to 5 Years.
36:17 Tracy Alloway? Wow.
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37:57 Joe Weisenthal? Greg, tell us about Karg Island. I'd never heard of it before a week ago.
38:01 Speaker 03 It's a place that's very close to my heart, Joe, because it's, I researched a little bit about it when I wrote my book, which is all about, you know, the 50s, the 60s, the sort of origins of Iran's oil industry. I didn't get around to actually mentioning it, though, unfortunately. I think I had to cut that reference for, for space.
38:16 Tracy Alloway? I hate it when that happens, yeah.
38:18 Speaker 03 I know, it's a real, it's a real bummer. So, Karg Island is a very-
38:20 Joe Weisenthal? I was gonna say, Karg Island has the name of like a leg- like, for, for thousands of years invaders have tried to take Karg Island.
38:29 Tracy Alloway? The lost treasure of Karg Island.
38:30 Joe Weisenthal? Yeah, every, every, all the great civilizations have met their demise on Karg Island. It has that sort of sound, like, great powers all like, taking the Nia- but anyway, tell us what Karg Island is.
38:42 Speaker 03 Oh, sure. Their, their ghosts haunt the beaches to this very day. So, Karg Island is a very small island. It's smaller than Manhattan. It's just off the coast of Iran, about 50 miles off the coast. It's at the north end of the Persian Gulf, so a little bit close to Kuwait, that neighborhood. And it is Iran's principal oil exporting terminal. It handles around 80 to 90% of Iran's crude exports. Iran exports around 1.5, 1.6 million barrels a day. Almost all of it goes through Karg. And there are kind of two big reasons for that. Because Iran does have other export ports that it can export crude products, LPG, from. Karg is the big one. The two reasons for it is it's designed to handle VLCCs, the biggest oil tankers.
39:27 Speaker 03 It has several berths that can handle, I think, up to seven tankers at a time. So it's a very large facility. It was originally built, incidentally, it was built in the early 1960s by Western companies that were active in Iran at the time, specifically because it was favorable for birthing the largest tankers. So that's what it was originally designed for. It's also close to Iran's main oil fields. So it's fed by a number of pipelines from the coast that bring crude directly from Iran's major oil fields in the province of Khozestan in southwest Iran. So geographically, it's well positioned. The facilities there are designed to handle a lot of oil better than any other facility in Iran, and that's what makes it so important.
40:08 Speaker 03 And that's why the US is so interested in it, because there is a belief, there is a theory, that if you seize Karg Island, or if you destroy it, but I think they're thinking more about taking it, then you have sufficient leverage over Iran that you can get them to do what you want, because you've cut off their financial lifeline. You've eliminated their ability to export oil. Ergo, they will be forced to do what you want in order to start exporting oil again. That's the thinking. The problem I have with that theory is that I don't think it's right.
40:40 Tracy Alloway? All right, say more.
40:41 Speaker 03 Okay. So first of all, as I mentioned, Iran has other means of exporting oil. It has other export terminals. There's one at the town of Jask, east of the Strait of Hormuz, that the Iranians have built up precisely because they're concerned about their reliance on Karg. It's smaller, but it can still handle probably about a million barrels a day with the other terminals operating. So if they lose Karg, they can still export crude. But let's say that the US goes all out and takes out all these terminals, right? Either bombs them or sends in the Marines to storm the beaches and seize the terminals, and Iran suddenly can't export any oil from these ports. Iran still has a limited capability of exporting oil by rail. They have a rail link with Russia. They're trying to build out a rail link with China. Now, they can't move much, but open source and Iranian media has revealed that they
41:25 Speaker 03 have several hundred oil tanker cars that are sufficient for moving probably the equivalent of 100,000 to 150,000 barrels of oil a day if they were running all out. The other element of this is that Iran has, because it's been operating under sanction for so long, Iran, or I should say the regime, has means of moving oil that are not as easily observed. So oil gets smuggled out, particularly through Iraq. It gets loaded onto smaller tankers and smuggled out. Iran is a very, very large refining base, and it's been very profitable for groups attached to the Islamic Revolutionary Guard Corps to buy crude inside Iran, refine it,
42:07 Speaker 03 and then smuggle it out of the country and sell it for huge profits because oil is subsidized inside Iran, so you can get it for virtually nothing, and then you can sell it. So there's other ways that they can move energy and move oil without having to rely on Carg. A lot of those ways are controlled by the IRGC, which would probably become even more powerful in the event that Iran loses Carg, because suddenly they have greater control over a smaller fiscal pie. And this also speaks to the psychology of the event. The Americans, I think, assume, or perhaps elements of the Trump administration assume, oh, if we take Carg, then they have to do what we say because they're going to want to export oil again. I think that misunderstands, let's say, psychological characteristics of not only the Islamic Republic,
42:51 Speaker 03 but also of the Iranian state. They will respond extremely negatively to US soldiers on Iranian soil. They will respond very negatively to any overt attempt to force capitulation. And I think, certainly for the short term and probably for the medium and long term as well, they would rather live under greater financial pressure and an inability to export oil in volume than to capitulate to a US pressure campaign that involves the invasion of Iranian territory.
43:23 Tracy Alloway? This reminds me of something that I wanted to ask exactly on this point, which is, I think, one of the, like, underappreciated facts of this particular situation is that Iran's been sanctioned for a while.
43:34 Speaker 03 Yeah.
43:35 Tracy Alloway? And this gray market infrastructure already exists. And so I'm curious, but assuming that if the US were to try to crack down on some of that sanctioned oil and the way it actually gets out of the country, would you expect that gray market system to start to break? Or would you expect to see it sort of like... I guess maybe formalized to an extent or grow even stronger in the face of US pressure like on Karg Island.
44:07 Speaker 03 Well, it's been a long running dilemma for the United States, which is, you know, how to make sanctions work on Iran. I mean, part of the reason why we're now in a shooting war with Iran is because sanctions didn't work. Sanctions were designed to change Iran's behavior, to force them to make concessions. Iran found ways around the sanctions, refused to make concessions, and the US felt, I think, compelled to some extent to use military force, although I think there were lots of other reasons on top of that. If the US were to, let's say, take Karg, but also to try to really vigorously eliminate Iran's ability to export oil. First of all, I think it would have to be pretty comprehensive, and I think it would have to be pretty aggressive, and it would have to be sustained for quite a
44:48 Speaker 03 while, right? Patrolling Iran's coastlines, about 1,200 kilometers long, stopping any and all ships that are trying to exit Iran's export terminals, clamping down on overland routes. Iran smuggles oil through Iraq. It also smuggles a certain amount of oil through Turkey and into the Caucasus and into Pakistan. That trade is much more difficult for the US to interdict. So, and that's where a lot of this illicit kind of gray market activity happens, on top of the black market activity. So I think the upshot of trying to cut off the flow of oil with the means that the US has, including military force and interdiction, only incentivizes the Iranians to turn to these alternative routes. At the same time, what you're doing on the market level is you're putting more upward pressure on prices.
45:33 Tracy Alloway? Yeah.
45:34 Joe Weisenthal? Yeah.
45:34 Speaker 03 You're creating an environment of higher prices, which only further incentivizes gray and black market activity, because now the profits are even better.
45:40 Joe Weisenthal? It's interesting, any country that has some heavily subsidized domestic price of anything, we're going to keep the domestic price of gasoline or oil well below the global market price. I mean, that's just a banana for smugglers, right? I mean, like, that must be just like, the more you press that button, the greater the incentive is for someone to find that and move it on to the world market. I mean, I think this was, of course, a story in the sort of late Soviet era. You have these like price controls. And then you have these quasi state companies just absolutely making a fortune finding a way to like, you know, sell the locally made toaster in Europe or whatever it is. Just make a fortune. I hadn't really thought about that, though, in the context of Iranian oil.
46:25 Joe Weisenthal? All right, let's just go back to the pure energy question. I mentioned the damage that we've already seen in just a few weeks of the war to LNG exports and etc. There has been this obvious mismatch in expectations. A lot of people think Trump would fold. Perhaps the reason oil isn't higher currently right now is still this sort of embedded expectation that Trump can't take this much longer. Let's just say it goes on, like, how bad could this get? And do you think that still today the price of oil reflects perhaps an unrealistic expectation that this war is going to end soon? And how much do things just compound and metastasize the longer this goes on? And where might we see the price of some of this stuff?
47:09 Joe Weisenthal? What does it look like in your crystal ball?
47:12 Speaker 03 So I think expectations are definitely shifting or have shifted to the belief that this is likely going to go on for a while and that the supply effect is now such that prices are going to stay high for the rest of this year. High relative to what we thought that they would be, right? When we entered 2026, there was this broad expectation that this was going to be a pretty soft market, that there was going to be an imbalance, a supply over demand. Demand growth was going to be pretty soft, pretty sluggish. And that was going to keep prices low, was going to keep them in the 60s, maybe in the 50s per barrel. That has all changed now. I think seeing oil prices fall below $75 barrel by the end of the year is pretty unlikely, even if this conflict wraps up very quickly. I mean, looking at three things. The front month, the Brent front month, being at about 113, 112.
47:55 Speaker 03 I think that's approaching realistic expectations because Hormuz is still closed.
48:01 Speaker 03 Because some amount of crude is getting out via Saudi and UAE pipelines, but those pipelines are vulnerable and they can be disrupted. And as we've seen, Iranians have the ability to do pretty significant damage to energy infrastructure if they really go for it. I mean, Joe, you mentioned the damage done to the Qatar facility last night. That was, I believe, one missile that got through.
48:21 Joe Weisenthal? Wow.
48:22 Speaker 03 And caused enough damage that they'll have to keep the facility off for a long time and has now cut production for years to some extent. And so that's, that's one missile. And they could, I think they could do more if they wanted. They could go after tankers more aggressively. Like, they're keeping their powder dry in the Strait of Hormuz for the most part, right? They're usually, they're mostly operating off of threats. So if things were to get worse, which they very well could, prices could go higher. The other price point to look at is spot price for physical cargoes coming out of the region, right? If the front month is around 111 and that's the futures, the price of a barrel of Oman crude right now, you go to Oman, you buy a barrel of oil, is over $150 a barrel. That's the premium that's now being placed on Middle East production out of Oman, out of the UAE.
49:07 Speaker 03 And those prices are coming through Asia and the Asians are now bidding up the price of oil coming from other markets. So you're going to start seeing that reflected elsewhere, right? Oil coming out of the US is going to start ticking up. Oil coming out of other production hubs is going to start ticking up. The final point that I would say, the final sort of price point that I would look at is, when you look at the curve, when you look at prices over the next 12 months, all of them are higher than they were a week ago and they're still coming up. They're still rising. The expectations are that this isn't going to end soon. And even if it does, the size of the physical disruption that we've seen so far is going to create constraints on supply going through the next 12 months. And that's even with releases from strategic petroleum reserves, right?
49:51 Speaker 03 The US releasing oil, other IEA members releasing oil. That's going to alleviate the pressure somewhat. But at the same time, those are stockpiles that are going to have to be refilled. And I think everybody is going to be very concerned about having a low inventory of oil when this war is over because everyone's going to be thinking about this happening again. If the Iranians survive, which they are likely to.
50:12 Tracy Alloway? Also, doesn't it take a while for oil released from the SPR to actually get into the market, which I think is also underappreciated?
50:19 Speaker 03 Yes, it's slow. It's a slow process. The US can only, they say that they can release 1.4 million barrels a day. It's probably more like 1 million barrels a day, and it eats into US crude export capacity. So if you're releasing oil from the SPR, you're kind of holding back on crude exports from commercial producers because they all come out of the same infrastructure. The SPR releases are more a signal. They're more a saying like to inventories, you know, here's oil that will be on the market over the next three to four months to make up for a physical shortfall, an actual shortfall of supply. Because if there weren't SPR releases and everyone was just forced to eat the supply loss, which is approximately 10 million barrels
50:59 Speaker 03 a day right now, I mean, that's 10% of global supply that is just not getting to where it needs to go.
51:06 Tracy Alloway? So I just have one last question. Since the theme of this conversation, or one of the themes, has been this idea of hypotheticals turning into reality, just going back to the old Strait of Hormuz closure thought experiment that probably everyone in oil and gas has dedicated some time to in recent decades. Now that it's actually happening, is there anything about the situation that has surprised you as it's been playing out?
51:33 Speaker 03 And, you know, honestly, what's been surprising to me, two things that have been surprising to me, how little the Iranians have needed to do to Hormuz to keep it shut. They've struck about a dozen tankers. They haven't sunk any, as far as I know. They haven't laid more than a few mines, as far as anyone is aware. Activity at Hormuz has been pretty quiet because as soon as the war began and as soon as the Iranians said Strait of Hormuz is now closed, all the shippers stopped. Nothing was moving. The threat was enough to keep it closed, which I thought was surprising. The second surprising point, and this kind of feeds into the first, is that I was told, my understanding was that this was a scenario the US Navy had prepared for. They had lots of plans in place. They
52:15 Speaker 03 knew what they needed to do to keep Hormuz open in the event that the Iranians tried to shut it. And then the Iranians shut the Strait of Hormuz and the US response has been insufficient.
52:27 Speaker 03 It's not only that they haven't like done enough to open the strait. It's that they didn't seem to have expected this at all. That the Iranians would respond to this kind of an attack by playing their principal Trump card. So between the effectiveness of the Iranian strategy and the lack of a strong US response, a strong US effective response has been really surprising to me.
52:50 Joe Weisenthal? Greg Brew, fascinating conversation. Love catching up with you. Truly the perfect guest. Thank you so much for coming back on the pod.
52:58 Speaker 03 Thank you so much for having me back.
53:12 Joe Weisenthal? Greg's just the best.
53:13 Tracy Alloway? So good.
53:14 Joe Weisenthal? He's so good. I mean, you know, all of our guests are perfect guests.
53:18 Tracy Alloway? That's right. That's right.
53:20 Joe Weisenthal? But Greg is a, Greg is the perfect guest.
53:23 Tracy Alloway? Truly the perfect guest. No, that was a fascinating conversation. I mean, I think he laid out very clearly the strategic difficulties that the US now faces. And actually, you know, you mentioned Carg Island sounding like, you know, a place where great powers have like.
53:38 Joe Weisenthal? Julius Caesar met his demise at Carg Island. Alexander, the great, you know, whatever.
53:43 Tracy Alloway? So I was thinking like, one of the things that still amazes me is that geography still matters in the world. Right? Like you have all this high tech, high tech missiles, high tech drones, but actually we're still limited by geography in many ways.
53:56 Joe Weisenthal? I had that thought when he mentioned how mountainous the areas were around the Strait of Hormuz. And it's like, okay, why can't the US simply take out Iran's capacity to fire drones and missiles at the ships going through? Well, it's heavily fortified, deep in the mountains in the area, not easy to spot, not easy to target, et cetera. So yes, geography, geology, et cetera, extremely important to this question.
54:22 Tracy Alloway? The other thing I was thinking, this is a very serious conversation and this is not a very serious comment. But, you know, he mentioned very large crude carriers, the LCCs. I love how literal that name is. Whenever I hear anyone mention that, I just think like. There was a guy one day who invented the ship and he was like, you know what? We're not going to call it like a brig or a schooner or something. We're just going to call it what it is, a very large crude carrier.
54:47 Joe Weisenthal? That is very funny, actually. Look, there was a lot there. The other thing, and I think it was the last point, is this idea that, and it's sort of ominous, which is everyone sort of assumed that the Navy would have had a straight forward moves plan, given the amount of time and energy that's been thought about contingencies and what a disaster this would be.
55:09 Tracy Alloway? And yet.
55:09 Joe Weisenthal? And then it closes and it's like, oh, what? What are we doing? We're going to have a plan. And you know, it's very, everything felt so far as we are planning to have a plan and so forth. And so the idea that you'd start this war with at least the possibility of the street being closed and then it's closed and you basically do nothing and nothing passes at all. Pretty worrisome on, I suppose, both a sort of immediate and long-term level about what the, the state of planning and then the state of military capacity for what should have been at least a possibility understood from the very beginning.
55:44 Tracy Alloway? Yes. And also, there's just an asymmetry at play here, which is like every day that goes on that sees some significant energy asset, whether it's in Iran or in Qatar or elsewhere in the Gulf region, that like echoes for months, right? Like the daily timeframe for those assets getting destroyed is very short. So just in two or three weeks, we've seen a lot of stuff get damaged. But the timeframe for the actual impacts of all of that to come to fruition and ripple throughout the economy are very, very long.
56:19 Joe Weisenthal? Yes.
56:20 Tracy Alloway? And so I just think like the, with every day this goes on, with every additional bit of infrastructure damage, it just gets worse and worse.
56:29 Joe Weisenthal? It gets worse and worse. And as you said, these are one missile, right? And in some of these instances, and you're talking about years of damage to infrastructure, which is pretty ominous for any sort of expectation that. Again, Trump could taco, right? He could declare war and still talk about years of repercussions from this. So yes, pretty serious consequences to all of this.
56:51 Tracy Alloway? All right. On that note, shall we leave it there?
56:52 Joe Weisenthal? Let's leave it there.
56:53 Tracy Alloway? This has been another episode of the Odd Lots Podcast. I'm Tracy Alocke. You can follow me at Tracy Alocke.
56:58 Joe Weisenthal? And I'm Joe Weisenthal. You can follow me at the Stalwart. Follow our guest Gregory Brew at G Brew 24. Follow our producers Carmen Rodriguez at Carmen Arment, Dasho Bennett, Dashbot, and Kale Brooks, Kale Brooks. And for more Odd Lots content, go to Bloomberg.com/oddlots, where we have a daily newsletter on all of our episodes. And you can chat about all of these topics 24/7 in our Discord, discord.gg/oddlots.
57:22 Tracy Alloway? And if you enjoy Odd Lots, if you like it when we continue to roll out these emergency episodes, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.
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