Pod Insights Prof G Markets War With Iran: Why Oil Didn’t Spike As Expected About this episode Ed Elson breaks down how the war with Iran is impacting oil and energy with Matt Smith. Then he discusses OpenAI’s latest funding round and the escalating tension between Anthropic and the Pentagon with Alex Heath. Finally, Ed explains how he thinks the Iran war will impact investors.
Matt Smith is an oil analyst at Kpler. Alex Heath is the author of The Sources newsletter and co-host of the Access podcast.
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Transcript 5,897 words · 16 speakers
Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
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2:04 Ed Elson? Welcome to Profy Markets. I'm Ed Elson. It is March 3rd. Let's check in on yesterday's market vitals. The major indices rode out a volatile session after the US-Israel strikes on Iran. More on that in a moment. Still, the indices ended the day in the green. Meanwhile, the yield on 10-year Treasury surged the most since April. Oil spiked, the dollar rose, and gold climbed above $5,300.
2:31 Ed Elson? Okay, what else is happening? The United States is at war with Iran. The US and Israel struck the country on Saturday, killing Supreme Leader Ayatollah Khomeini. Iran responded with retaliatory strikes across the region, including attacks on US military bases. The president said the military operation will last around four to five weeks, but could continue for, quote, "as long as it takes." Markets opened in the red on Monday, but by midday, the major indices had recovered. Meanwhile, Brent Crude, the global price gauge for oil, jumped 7% to just over $77 per barrel. Oil prices were already up 17% this year in anticipation of a possible
3:12 Ed Elson? attack. Joining us to discuss what this war means for us, what it means for markets, we're speaking with Matt Smith, oil analyst at energy consulting firm Kepler. Matt, welcome to the show. Let's get right into it. Obviously, quite rattling news for all of us for many reasons. When you look at what's happened in the markets here, what is jumping out to you? What are the markets telling us about what is unfolding in Iran right now?
3:45 Speaker 09 Yeah, sure. So there's been sort of some undulations, I would say, across the various different commodities. So, you know, everyone has been focused on crude and breathing a bit of a sigh of relief, to be honest, because there was the expectation we could open up fifteen, twenty percent and we only opened up twelve percent. As you just mentioned, we closed up about seven, something like that. So not the worst case scenario. And the reason there's such a concern about crude is because you have that reflected straight through into prices at the pump. So in the US, even though it's very much insulated from the supply shocks, you still get affected because crude is a global benchmark and that's the input price
4:27 Speaker 09 to refine for that gasoline. But some other things that we saw across the the the energy complex was with natural gas. So we've we've seen a difference this time around to the twelve day war of last year where Iran just retaliated against Israel. This time it's sending missiles, drone strikes to to many different countries and attacking energy infrastructure. So while everyone has been watching that crude price, you've actually seen diesel prices up fifteen percent because you saw the Rastanura refinery in Saudi Arabia get hit. And then with natural gas prices in Europe, they're actually up as nearly
5:06 Speaker 09 as much as fifty percent today because we saw Qatar, an LNG terminal struck there as well. And so there's ripple impacts across all of these various different energy commodities. Actually, beyond that as well, in terms of fertilizer, a third of fertilizer in the world exported on seaborne basis comes out of the Middle East. So lots of ramifications here.
5:28 Ed Elson? Why is it that oil didn't rise as much as everyone thought it would? I mean, I remember a week ago, perhaps, perhaps a few days ago, and the consensus was if this happens, oil is going to absolutely rip. It went up, but it didn't go up nearly as much as people seems to think.
5:48 Speaker 09 Yeah.
5:49 Ed Elson? Why is that?
5:50 Speaker 09 It's interesting actually because we've we've kind of got the worst case scenario in terms of of the Strait of Hormuz here. So there's a there's a rumor hitting right now that Iran is closed, has closed the Strait of Hormuz. Regardless if that's true or not, the threat of them hitting a tanker with a missile or a drone strike has stopped that flow that flow of of crude and products and every other tanker going through there. And so we are kind of hitting that worst case scenario here now. And so you would perhaps expect prices to rally more. Maybe it's just because with President Trump, he's saying that these strikes are going to be persistent. We've just had Marco Rubio talking about how the these strikes on Iran are going to get even
6:33 Speaker 09 worse. And so there's going to be this absolute pummeling of Iran in the near term here. And so perhaps people are thinking this is going to be a short term event and and we're going to get over this in a few days.
6:44 Ed Elson? That is interesting that because we're going to be, it is presumed that we will be harsher perhaps on Iran, hit them harder than most analysts thought, that that will mean that there will be more oil flow essentially, that that oil will continue to move freely through the Strait of Hormuz, which I'm term, I'm sure we're going to be hearing a lot of the next few weeks and months. Why is that exactly? And I know that I'm now asking you to basically play military analyst, but it's interesting as an energy analyst, you kind of have to.
7:19 Speaker 09 Sure.
7:20 Ed Elson? Why does hitting Iran hard necessarily mean for the analysts that oil will will be good and that oil will make its way out of the region?
7:32 Speaker 09 Yeah, sure. And so whether it's that the the US is going after a regime change, which there's some doubt whether that's the case, or whether it's just simply they're trying to obliterate any nuclear ambitions in Iran there, or whether it's just, you know, attacking the the military side of things, wiping them out there. Once you get past that, then there is the situation where the the uncertainty is lifted and the the likes of Iranian barrels could even flow stronger. So. It's really important to bear in mind what happened last year in terms of that 12 day war. As soon as those nuclear sites were hit, you had President Trump come out on the, on the, uh, the, the presser. And he was like, okay, now that this has happened, we've, we've got what we wanted.
8:15 Speaker 09 Now China start buying that Iranian oil again. And so he, he went straight to getting those oil prices down. And so it's like, once these ambitions and goals are achieved, then the potential flow of prices afterwards is, is perhaps a much more likely proposition. But maybe it's that, or maybe it's just the fact that we just didn't get a bunch of tankers on fire in the, uh, around the Strait of Hormuz today.
8:40 Ed Elson? Is there an outcome that energy investors and energy analysts, those who work with oil and gas? Is there an outcome that most want? I mean, when, when, when, when an oil firm, a consulting firm, or even an oil investment firm sees what's happening in Iran?
9:00 Speaker 09 Yeah.
9:00 Ed Elson? I mean, obviously this is a political issue. Some people support what's happening, some people don't support what's happening. But say you're an investor.
9:06 Speaker 09 Yeah.
9:06 Ed Elson? In this stuff, what do you think when America strikes Iran?
9:11 Speaker 09 Yeah, and I think it's, it's a stability thing, right? So OPEC as a whole, this group of oil producers, they want stability of price. I think oil investors want stability in terms of the geopolitical backdrop, right? And so I think if, if Iran is addressed here in the same ways we've had Venezuela addressed. It's one more hot potato that the market doesn't have to think about or deal with. And so that taken out of it gives way less uncertainty. And so that's a positive thing for investment. So I, I think that's perhaps the best way to look at it.
9:44 Ed Elson? Yeah, certainty, understanding what the path forward is. And it sounds like what the analysts seem to say, what maybe the price is telling us is that people believe that Trump is going to conclude this.
9:56 Speaker 09 Yes.
9:56 Ed Elson? Or at least that this will be far less uncertain now than it was, I'm suppose a year ago.
10:02 Speaker 09 Yeah, no, no, absolutely, absolutely. And that's the thing here as well, right? You've, you've got this really interesting situation with sanctioned barrels in the. Global market here where you've got, you know, Russia is pushing out three and a half million barrels a day. That is a massive discount that isn't open to all of the world. You've got India that is buying that. You've got China that is buying that. So you've essentially got a two-tier market here. It's the same thing for Iranian crude, where all of that crude is basically going to China because nobody else will buy it. And it's the same thing with Venezuela, or it was until there was the incursion there. Now that Venezuelan crude is not at a steep discount and only going to China, it's now going to the broader market at a more fair market price.
10:45 Speaker 09 So you're essentially going to be doing the same thing in theory with Iranian crude. If that situation, the situation gets resolved there. Sanctions are eased. Those barrels that were only previously going to China at a big discount could be making its way into the market at a market price, which would bring all prices down essentially. So that's maybe the path we see from here. And then you've only got Ukraine, Russia to deal with.
11:09 Ed Elson? Right. Just final question before we let you go. Are there any blind spots that you think that energy investors perhaps are displaying here, something that they're missing? And what I'm getting at with this question is, it seems that there is a sense, not necessarily of certainty among the investment community, but maybe less uncertainty than we thought. I mean, prices have gone up, but not as much as we thought, which reflects that maybe they're feeling a little less anxious about the situation than perhaps one would have predicted. Is there anything that maybe they are missing? I, as an observer, I'm looking at what's happening in Iran. I feel anxious.
11:51 Speaker 09 Yeah.
11:52 Ed Elson? I feel concerned. Is there perhaps too much certainty or not enough uncertainty?
11:59 Speaker 09 I think we just don't know how this is going to play out, right? Because it could play out just over the next couple of days, as we've talked about with an absolute pummeling of Iran. Or it could be the one to four weeks as Trump has talked about. But I think the one concern from an oil investor perspective is that if this issue gets cleared away, then you essentially have one less uncertainty in the market. And the broader fundamentals for the oil market have been fairly soft. We've had this kind of excess in the market in terms of supply. So you could really have this geopolitical premium unwound in prices here. We could really head considerably lower from where we are. So that's positive for prices at the pump. It's positive for consumers, not necessarily positive for oil investors.
12:43 Speaker 09 And it's just the flip side of this is that if this does continue on for weeks and potentially into a month or two, you have the Middle East Gulf here where even we're seeing now is tankers are building up there, they're loading crude, they're loading products, but they're sat there and they can't get out. Eventually that gets bottlenecked up, right? And you have to see these Middle East Gulf producers starting to shut in production because they simply can't export the stuff. And so that's a consideration to think about too.
13:14 Ed Elson? Lots of interesting stuff here. Matt Smith, oil analyst at energy consulting firm Kepler. Matt, thank you. We really appreciate your time.
13:22 Speaker 09 Thank you.
13:25 Ed Elson? After the break, OpenAI's record funding round and Anthropic gets into a fight with Trump. And for even more markets insights, you can subscribe to my weekly newsletter, simply put at edward else dot sub stack dot com.
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15:18 Ed Elson? We're back with Prof G Markets. OpenAI just closed the largest private fundraising round in history. The company said on Friday that it raised $110 billion. That is more than double its record-breaking raise from a year ago. The round boosts OpenAI to a $730 billion pre-money valuation, nearly double the valuation of its closest rival Anthropic. Its backers include Amazon, who put in $50 billion, and Nvidia and SoftBank, who each contributed $30 billion. Meanwhile, the ongoing Anthropic-Pentagon dispute came to a head on Friday. Trump blacklisted the company and directed every federal agency to immediately stop using Anthropic's products.
16:01 Ed Elson? That order came after Anthropic refused to loosen its AI guardrails for surveillance and lethal strikes. Within 24 hours, OpenAI swooped in and signed its own deal with the Pentagon. Users then called for a boycott of OpenAI, which sent Claude, Anthropic's chatbot, to number one on the US App Store. Tons of drama, tons of developments here in the AI race. Here to unpack all of it, we're speaking with Alex Heath, author of the Sources newsletter and co-host of the Access podcast. Alex, good to see you. I'm going to jump right into it. First, let's just start with what I think is the more boring news, which is OpenAI raising $110 billion. A month ago, that would have been incredible. But now that Trump is fighting
16:45 Ed Elson? with Anthropic, it sort of disappears into the background. Initial reactions to OpenAI's fundraising round.
16:53 Alex Heath? We knew this round was happening for a while. They've been putting it together. The thing that jumped out to me was that it was, I think, about 10 billion oversubscribed, right? I think they were shooting for 100, and it sounds like there's going to be billions more still contributed by sovereigns and other large firms in the coming weeks and months. The Amazon partnership is a big one. My read of that is Antho- is that OpenAI knows that it has essentially lost the Apple partnership to Google, which, as we know, just did that recent Gemini deal. OpenAI, for, you know, for how well ChatGPT is doing, they still need more distribution. They need hardware, touchpoints, voice assistant
17:34 Alex Heath? touchpoints. Amazon provides a lot of that in addition to the AWS and trainee and benefits that they have. So this seems to be like a reshuffling of the strategic alliances, I guess, between the Mag7 and OpenAI, where if you have thought maybe two years ago, OpenAI is going to be getting closer to Apple, I think their hardware work with Johnny Ive and just how that initial Siri partnership went has shown that maybe those two are not meant to be together long term. And so I think this is OpenAI deciding that Amazon is the new horse it's going to attach itself to.
18:09 Ed Elson? Which also seems interesting because Amazon is a very large investor and shareholder in Anthropic, too.
18:14 Alex Heath? Everyone's invested in everyone at this point.
18:16 Ed Elson? Right.
18:17 Alex Heath? These two companies need-
18:18 Ed Elson? There's no distinction, yeah.
18:19 Alex Heath? They're capital incinerators. And at this point, I was talking to an investor in both last week, and they're just like, yeah, I mean, they just want money. They just need money. And there's, there's finite pools of it left for these size of rounds.
18:31 Ed Elson? It's also interesting that you say it was $10 billion oversubscribed, suggesting that maybe the price should be even higher than what it is.
18:43 Ed Elson? That seems to stand out as well, no?
18:44 Alex Heath? I guess. There's just so much FOMO and I think because OpenAI is not public and, you know, optimistically may be public by the end of this year. I think there's just tremendous investor appetite to get into the name before it's opened up to retail. I mean, had this round been instead an IPO, you know, maybe OpenAI would have raised more. Maybe we'd have a two trillion market cap right now. We're kind of in peak bubble froth mania. So in the same way that people in San Francisco talk about escaping the permanent underclass, maybe that's how investors are thinking about getting into OpenAI right now. Get in while you can, right?
19:23 Ed Elson? So I feel, let's talk about Anthropic and the Pentagon. Trump has called Anthropic a, quote, radical left AI company. Anthropic has been blacklisted as a supply chain risk. Federal contracts have been cut. He's saying that anyone who, that the government won't do any business with anyone who does any business with Anthropic, which that part seems really crazy. We talked about this a few weeks ago. It's amazing how it has developed. What does this say about the AI risk right now?
19:56 Alex Heath? I think it shows how powerful these companies are. It was surprising to me, actually. I mean, I knew about Anthropic's government work, but that they were the most fully integrated model in the government behind classified walls up until this point. I wasn't quite fully aware of until this whole blow up. And it's interesting that that has been the case, given that Anthropic has historically been the, I guess you could say more doomer of the other AI labs, right? The one that is always talking about the potential pitfalls and safety risks happened to be the AI lab that was the close, most closely integrated with the US government before this.
20:37 Alex Heath? It's interesting. It's interesting that OpenAI swooped in and got a deal that is effectively what Anthropic said that it wanted. And to me, that suggests, you know, based on what we know about this administration, egos. Can run hot and heavy, especially looking at some of the players involved specifically in this. You've got Emile Michael, the very strong armed head of growth and business for Uber back in the day. For Travis Kalanick, you one could argue the Sam Altman before Sam Altman in terms of the amount of capital he raised for Uber at the time, which then was record setting. Who understands tech and goes back with all these players is an Elon loyalist.
21:21 Alex Heath? And then Pete Hedgesmith and all the other players involved. I mean, it really, I think it just speaks to the ego. You know, I don't really know if there's much more. I don't know if like, you know, you see some of the reports about, you know, they were arguing about like theoretical missile strikes. And Dario saying, Amade, the CEO of Anthropic saying, oh, you'd have to call us first if you wanted to use Claude to like defend against a missile strike. And that just suggests a level of like bravado and chest pumping in these negotiations that I imagine, given all the personalities involved, did not work out well. And, you know, this could end up to be catastrophic for Anthropic. My gut says it won't be. There's too much money at stake. There's too many investors in Anthropic who have ties to the White House.
22:06 Alex Heath? I'm sure that, yeah, Anthropic loses this $200 million contract. That's not really a factor for them financially. But it certainly shows that OpenAI can be shrewd, as Sam Altman has been known to be, and swoop in here and get closer as Anthropic pulls apart from the government.
22:24 Ed Elson? Yeah, it's striking how relevant the politics are becoming in these tech stories and these AI stories. And you, you mentioned the bravado there, which I think is probably true. But then I think there's another reading of it, which is, you know, maybe Dario Amade and Anthropic, they just have values. And their values are, we're not going to be used in mass surveillance on Americans. We're not going to be used for autonomous weapons. That's our line. And then they get pushed by the government and then he just holds the line, which I agree takes a level of. Confidence and maybe bravado, but also I kind of respect it as, okay, you're just sticking to your values. And then I think what is striking is that we're now seeing this play
23:07 Ed Elson? out in the consumer economy where people are saying, we're done with ChatGPT because ChatGPT sold out to the administration. And then people are saying, we're going to embrace Claude now. It becomes the number one downloaded app in the country. And it seems as though the politics of this all is actually shaping and shifting the trajectories of the businesses themselves. And what I can't quite figure out is, did he make the right business decision by standing up to Trump? And if you look at the App Store and the rankings, the App Store would tell you, yes, he did. But maybe over the long run, if they're losing these contracts to the government, OpenAI is taking them and said, maybe it's not the right business decision.
23:50 Ed Elson? What do you think from a business viewpoint? Who won here?
23:54 Alex Heath? I think it's too early to tell. I mean, on the consumer side, who knows how many people are paying for those ChatGPT subscriptions for the app they're downloading, but certainly seems to be a near term win. You know, hearing you talk, I'm reminded of the delete Uber campaign. I think it was in around 2017. There was a similar thing where it was like, oh, Uber is caving in and is morally bankrupt. And there was mass protests and delete campaigns. And guess what? Uber is a much, much larger company now than it was then. These moments in time, I think, tend to get a lot of attention and then they are looked back at as blips.
24:34 Alex Heath? Whether that's the case here, we're in the middle of it. We can't say. I do think the reality is often more nuanced than what you're saying in terms of like, oh, he just held the line and he's more moral and therefore OpenAI is not. There's a lot of nuance here. But if you read the way that the Department of War has responded, if you read how OpenAI has talked about their deal, it seems to me like Anthropic has, in their view, legitimate concerns that extend beyond how the law currently operates today. And maybe that's the difference is that OpenAI was willing to operate.
25:17 Alex Heath? And the constraints of how the law in the United States works today and Anthropic was not. And that's Anthropic's right as a private company and they should exercise that right. And people should want to support that and if they feel aligned with that. But I think suggesting that it's anything more than that at this point feels premature. I don't know. That's just my read of the situation at this moment, but again, we're getting things in real time every minute here.
25:43 Ed Elson? What do you think? How will the public view this ultimately? Because, I mean, I agree, there's probably some nuance, but I still think that he probably stuck with his values and they didn't like that because they told him do this and he said no and they got upset. But I agree, I'm sure there's some nuance and I don't think this means that ChatGPT and OpenAI are evil. That's not my assumption here, but it does seem that the public opinion will shape things quite significantly here. And it's interesting you bring up delete Uber. It's possible that maybe the public forgets. And they decide, actually, we don't care about this. And I could see that happening too.
26:22 Ed Elson? But how the public views this is quite essential if they want to be consumer apps, if they want to be consumer facing companies, which they do both want to be.
26:33 Alex Heath? Yes.
26:33 Ed Elson? And so I guess my question for you would be, how will the crowd see this at this point?
26:40 Alex Heath? Well, the headlines have been written and Anthropic's done a really good job of coming out and stating how it feels this whole saga went down and what it stands for. And those are admirable virtues, right? Not surveilling Americans, not using AI for autonomous weapons. And I think they're winning on that front, right? I mean, we talked about Claude being at the top of the app store. They've shipped a feature where you can quickly import your ChatGPT memory into Claude, which is really smart. I think they're going to push full, full, you know, full hog on this, like, you know, some version of the Super Bowl ad. You know, I've seen some jokes of like replacing ads with like autonomous weapons and that banner on the Super Bowl ad, right?
27:23 Alex Heath? Autonomous, AI is coming to autonomous weapons or not, not Claude or something. So I can imagine they'll lean into it and they should, right? They should take, take advantage of the moment. What that does to their long-term, you know, relationships with other governments who see this and go, hey, like, can we actually rely on you as a partner or are you going to decide that? Um, your interpretation of the law is is better than ours. Who knows? It'll probably be a blip in time, but for now, you're right. I mean, people are looking for ways to advocate for what they feel are infringements of civil liberties in the United States and a government that they don't see eye to eye with. You're seeing that with, you know, um, your, your
28:05 Alex Heath? partner Scott's, you know, delete and unsubscribe movement, right? And so I kind of see that as in the same vein here where this is something people can latch on to, to, um, to express the beliefs they have. Uh, and that's American and that's awesome. Uh, at the end of the day, like, it's good that this can happen, you know? One of the most positive reads of this that I've seen is like, at the very least, what Amadea has done is shine a light on how we should be thinking about AI used in these contexts, all right? What happens when, um, Claude Code can be used inside, uh, the NSA and not just to help you get your taxes done faster? Uh, and, and so I think that's a good thing that we're thinking about that and that Dario thrust that into the spotlight, whether it's good for anthropic or not.
28:50 Ed Elson? All right. Alex Heath, author of the Sources Newsletter, co-host of the Access Podcast. Alex, thank you. We really appreciate your time.
28:58 Alex Heath? Thanks, Ed.
29:04 Ed Elson? So, the airstrikes have begun. Trump said they will continue and it appears, although the language has been confusing, that we are at war with Iran. Now, there are plenty of implications that we could spend hours, even days discussing. And the idea of asking how this will affect markets seems a little bit of a ridiculous question because there are some things like war that are just bigger than markets. Having said that.
29:33 Ed Elson? We will end here with a few thoughts, not just on what this will do to markets, but also what this will do to your life, what being at war with Iran actually means for our daily experience as Americans. Now, there is the fact that we will be reading about this pretty much every day, and that is significant, but there will also be some more material implications with this war as well. For example, gas prices. As we discussed, oil prices are currently rising and it's possible they will rise even more, and that will affect prices at the pump for you. To be more specific, a $5 increase in the price of a barrel of oil translates to a roughly $0.10 increase in the cost per gallon of gas at the pump.
30:18 Ed Elson? So a $10 or $15 increase in the price of oil isn't that bad. That's kind of what we're seeing, but the question will be if it goes even higher than that. If oil hits, say, $100 a barrel, then that will have a real impact on the pump. It will have a real impact on the cost of living at home. Something else that will be impacted is the price of liquid natural gas, or LNG. This is the fuel we use for heating and electrical power and energy storage, et cetera. And also, a fifth of the world's liquid natural gas flows through the Strait of Hormuz. So that means that global LNG supply is now going to be significantly constrained. And while America does have its own liquid natural gas supply, we will likely be exporting
31:03 Ed Elson? more of that over to Europe, who will be in desperate need for LNG, thus reducing the supply and raising prices here at home. This is exactly what happened during the Russia-Ukraine invasion, and it's why your heating and electric bills started to go up back then. A similar scenario could easily play out today. And finally, For the investors who listen to the podcast, I think you can safely assume that because of this war, your stock portfolio is about to become even more volatile than it already was. There are currently around 60 military conflicts ongoing around the world right now. That is the highest level of global violence that we've seen since
31:46 Ed Elson? World War II. Geopolitical uncertainty is rising. AI uncertainty is also rising, as we've discussed, which means that investors now have more reasons to panic today than at any time in recent memory. And that means they are going to be making some very rash decisions. They might start panic selling. They also might start panic buying. Either way, it will translate to a highly erratic market, which will make all of us even more anxious than we already were. In other words, the days of metaverse projects and NFTs and speculative investments such as those are firmly over. Investors are now looking
32:28 Ed Elson? for one thing and one thing alone, and that is safety. Physical safety, technological safety, personal safety, financial safety, all kinds of safety. As the world becomes more and more dangerous, the demand for safety is only going to go up. And if we were safe last year, or even the year before that, well, now the consensus on Wall Street is pretty clear, we're not so safe anymore.
32:58 Ed Elson? Okay, that's it for today. This episode was produced by Claire Miller and Alison Weiss, edited by Joel Patterson and engineered by Benjamin Spencer. Our video editor is Brad Williams. Our research team is Dan Jilan, Isabella Kinsel, Kristin O'Donoghue, and Mia Silverio. And our social producer is Jake McPherson. Thank you for listening to Profitey Markets from Profitey Media. If you liked what you heard, give us a follow. I'm Ed Elson. I will see you tomorrow.
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