The Price of Peace in Iran: Richard Nephew

actually addresses those problems, and you're giving way too much sanctions relief to

try and get it. Frankly, you're just bailing out the IRG, you said. I'm host Michael Allen with Beacon Global Strategies. Today, I'm joined by Mr. Richard Nephew, a senior research scholar at Columbia University and the former director for Iran at the National Security Council. Mr. Nephew joins us to discuss the latest on Iran, including the fragile state of the US Iran ceasefire, ongoing negotiations over a longer

term settlement, and the sticking points that could still unravel the deal. Stay with this as we speak with Richard Nephew.

Richard Nephew, welcome back to NatSec matters. Thanks very much for having me. It was

good to be back. Well, we've had several conversations on this through the latest

“Iran crisis. I remember we spoke around the eve of military action. I think we spoke”

again in the midst of it. And here we are looking at a new Iran deal that allegedly exists. And we're trying to sort through what the terms may be, but there seems to be a lot of confusion about what's actually in the document. Before we get to sort of your opinion about how we got here and the rest, what do you believe to be the terms of the new agreement? So I think probably best to start off with how far it goes, you know,

kind of the structure and then kind of get into some of the specifics. So I think what we've heard thus far, and I think both the Iranians and the president of confirm, we're in memorandum of understanding territory here, MOU, not a treaty, you know, not a formal agreement.

Basically, this is the softest structure for an agreement that you can really think of.

“And I think it's important because the plan is really to have a structure upon which future”

talks can be had on more specifics, and that may change. But that that kind of creates a little bit of boundaries to what our expectations are. I don't think anybody reasonably can expect an MOU to cover all issues, all issues equally, or be permanent binding multi-year those sorts of things. So I think, you know, from that standpoint, it's reasonable to expect that not everything's going to be in there and that priority issue is going to be dealt

with to create a basis for additional talks. And the big issue, you know, ultimately to be able to allow for for talks to proceed. At this point, has been whether or not ships are going to be able to traverse the straight-of-war moves and, you know, Gulf of Oman, you know, therefore covering both the Iranian enclosure and the US blockade. And one of the terms for release, you know, what kinds of ships are going to be allowed to

go through how fast to regulate that, whether or not there's any money exchanging hands in the case of the Iranians. And you know, how long this will potentially last. You know, how durable this commitment would be to reopen those those waterways. And then you get to, you know, issues that are a little bit peripheral to that primary one, which have been made of primary importance to the two sides. For the US, it's some kind of expected resolution

to the issue of Iran's highly Iranian. And for the Iranians, it's sanctions relief. And it seems based on what we've been able to see from reporting what people like the President have said that the actual, you know, progress has been stymied less by issues around the state of the blockade and more about the HEU and the sanctions leave. Hmm, got it. Let me ask you this. Do you think there are two schools that thought here, and since you actually

have dealt with the Iranians through the years, do you think we're even going to come to a formal written agreement that's released or will it be an informal understanding with

“a lot of vagueness just to keep the process going? So I think the problem with a vague”

understanding is that we're trying to get commercial actors comfortable with the idea of traversing the straight. And we've already seen over the course of this crisis, multiple attempts by the United States into a lesser extent by the Iranians on kind of episodic basis to provide some degree of comfort that you can go. You can go through that, that things will be okay. And I think it could be very hard to give in ship owners and insurance companies

and the like that the straight is open unless they can see something written down that would give them a little bit more confidence that this isn't just the President saying that that the

again, whether or not we're talking about a 60 day thing. You know, that's that's part of what's

on the table is a 60 day process to allow for comprehensive deal on the nuclear side to be finished. But no one really thinks that's terribly likely. So if you're a ship owner or insurance company, you're going to see it's not just 60 day and then cliff, you're probably going to want to see that there's some chance of an extension, some chance that this is actually continue.

“And I think that that argues in favor of something being written down, but I think the expectation”

that we all ought to have is something short, something fairly simple, something that does not address all those issues in depth. And I think, you know, probably is more aspirational about what might happen with respect to sanctions relief in the nuclear issue rather than anything binding or would reduce, you know, the security concerns that the very sides have. Well, I've heard one way to get around that about the shipers is to have Iran affirmatively

state that they will not be targeted as they move through the streets. Now, maybe they say you got to coordinate with us and maybe that's code for syndicatol by way of crypto. But that do the trick if Iran speaks aloud and says, you know what, we're going to let people through no more shooting. Well, so they have done that a couple of times and depending on, you know, whether or not you believe the foreign minister or you believe the president of Iran, you know,

“that you've not really seen a lot of movement and I think that that doesn't speak well for”

people's confidence that those guys are speaking on behalf of the broader Iranian system, the IRGC. I think that, you know, a clear statement certainly helps. I frankly, I think what needs to happen is a, you know, a ship or two needs to then go through with whatever process has been agreed to actually being followed in a timely sort of way for ships to believe. Okay, I saw I saw those, those first one, two or three getting through without having to pay a bunch of money.

And so, you know, now I know that I'm going to be okay. But the problem is every time we've seen

movement towards the ceasefire in the past, you know, maybe one ship gets through and there's reports that it's paid, you know, some money to the IRGC and then other ships starts and as a tax. So I don't think it's going to be just a mere element of statements. You're going to need to see some continued performance. And then whatever the process is going to have to be sorted out. Now,

“you brought up the issue of, you know, having to pay the Iranian script to look, that's what's been”

happening, right? Is that there have been, you know, fees or tolls or fines or whatever you want to call it, you know, being paid. The Iranians are kind of sort of straighted back away from that, but instead they're talking about it as an administrative fee. And, you know, it's been a lot of time working on anti-corruption issues. When I start hearing about, it's not a toll, it's an administrative fee. And it happens to be the same amount as the toll. It gives me a little skepticism

that we're not in, in totally territory. Sounds like an airline trying to charge us. Yeah, love it. So I keep hearing that when I'm surprised by this, I guess, that we're not actually dealing directly with the IRGC. I've heard that the foreign minister, Iranchi, is very involved. Of course, there were news reports that the speaker, and Iranchi were in, I think it was cutter the last few days. Yeah. But what's your sense of who

we're negotiating with? And do they have the ability to deliver the IRGC? So I think the people we're still dealing with are your Iraq cheese, your Hollywood offs, you're not actually dealing with, you know, a survey member of the IRGC. And I think that's in part a security concern from

the Iranian standpoint. You know, if you remember the first couple of rounds that we're taking

place in Islamabad, or at least the first round, and then the attempt to, you know, the second round. You know, there was talk about, you know, the negotiators, if they're not able to, you know, come to a deal, well, then, then we're going to start targeting them as well, right? And I think given that the United States has, in fact, targeted political leadership of Iran, you know, some of the Israelis. I think there is probably a concern, not an illegitimate one, that if a

senior IRGC officers were to join in the process, they would be also targeted by the United States or by Israel, because we know where they are. And I think that security concern is quite real. I do think on whether or not they can deliver, you know, look, I think Iraqchi, if you asked me these questions three months ago, I would have been pretty confident that he's still speak some behalf of the entire system, that the IRGC trusts them, and so forth. I think there have been

some indications that, you know, he's a little bit less central to, you know, not necessarily to the process, because the IRGC they're calling shots, but he's considered as, as respected as he was in the past. I think there's some signs that maybe he's lost a little bit of that lustre over the course of the last couple months, and part because they're open debates as to what the strategy ought to be. But I think, as a practical matter, he's still the only guy who's

if for no other reason in self interest, I think the IRGC respected, the problem is, is that

“sometimes those negotiating instructions seem off, and I think the communications challenges”

inside of Iran are quite severe. And so getting consistent and rapid instructions out to Iraqchi is proven, I think pretty difficult. Yeah. Okay. All right. Well, let's move on to what you actually think of the process and the apparent or or potential provisions. I had another podcast earlier in the week with some of the voices on the right. And their view was definitely, well, they're worried. They're concerned. And they're very skeptical that this leads to any lasting real agreement.

So I think it's fair to say there's a lot of anxiety on the right. And I'm not sure as I survey

for example, X or all the other places that I read that anybody's really happy. Yeah. What's

happening right now. And, you know, I'd love to hear from you on this process. And then I'd love for you to explain what your tweets are about when you were in spirited debates with people about the process around the JCPOA, which of course was the Obama, Iran deal.

“Yeah. No. I mean, like, this might be an example of bipartisan agreement. Because I think you're right.”

I don't think anybody, um, left or right and certainly in the center is terribly comforted with what we're hearing this far. And that's both because of process concerns as well as the substance of what's there. Look, I think everybody is in reasonable agreement. There are probably some outliers

that getting to some kind of deal regarding the straight or her moves in the blockade is essential

for globally economic stability. And I think at this point, it doesn't seem likely that there's going to be a military solution to that as a problem. So you're back to diplomacy and that requires some kind of give-and-take between the blockade and the straight. Now, there may be some people out there saying, "Ah, if you just keep the blockade for, you know, it's hair longer, everything will be great." I think that may be true insofar as the Iranians are concerned, but the global economy will melt

“down in the meantime. And I think that's the fundamental reason why that's just not a long term”

feasible sort of strategy. I think where people start to get a little bit more nervous is when we're seeing what's in scope in terms of the nuclear and the sanctions leave provisions. And, you know, my big concern, bluntly, is that we're at risk of overpaying and not getting the kind of durable, verifiable nuclear agreement that would justify it. And that's on two grounds. One, it's, you know, after the attacks of June last year and then to the lesser extent the attacks of this, of this

round, we've lost a lot of continuity of knowledge of the Iranian nuclear program. You know, we know, or we think we know, where the HEU is at S. Fahhan, you know, those tunnels that we've talked about before, but all the rest of the Iranian and Iran, you know, has been seen by the I.E.A. in getting on a year. And, you know, there's been a lot of loss of knowledge of both that as well as Iran's center futures. And frankly, where they may be able to continue to richer in the map to weapons levels,

you know, in the future. And so all that adds up to a lot of anxiety that I have and others have as well as to lack of verification and lack of baseline. And then you get to the sanctions leaf part. So, you know, the basic construct of the JCPOA has been the basic construct that goes back to the P5+1 offers, you know, these original offers by the permanent five members of the security council in Germany that, you know, frankly, you, you and I were given back and in, you know,

May of 2006, you know, we'll give you sanctions relief and exchange for nuclear relief. That construct is free for free. That's right. You know, that fundamental construct is still there. But now, I think there's at least some reports that the President may overpay by giving a lot of sanctions relief. And frankly, not get a verifiable nuclear deal in exchange. You know, my big concern, you know, yes, for my think it is. My big concern is at this point. If you're not getting a verifiable

nuclear deal, it actually addresses those problems. And you're giving way too much sanctions relief to try and get it. Frankly, you're just bailing out the IRGC. And I think that is a mistake on a variety of security levels. Even before we get to, you know, frankly, more or less, use about whether or not we should be giving a lot of money to people who killed, you know, tens of thousands of Iranians, you know, not too long ago as well. So, I think there are lots of

good strategic reasons to be skeptical of this. I think the best reason to go back into a deal is if it gives you the ability to control the nuclear program. But again, that's where I've got a lot of questions. Yeah. Okay. So, let's say that it seems to be the most likely thing

will reduction of the of our blockade. And let's say there will be no sanctions relief

until HEU leaves the country. They could even make it in 10 different steps and outline the sanctions or unfreezing of assets that would occur as they shipped or downloaded uranium. Would that, would that do the trick? So, it would start to modify some of those concerns. I do think that we would still have a pretty big verification challenge. And of course, we've still got a fundamental question of whether or not you want to give a lot of sanctions relief

“to this particular Iranian government, given all of that. Yeah. But I think the more fundamental”

kind of concern I've got and this goes back to the, you brought the issue of process. And, you know, it's a, it's a net-sec, you know, podcast, you know, people, people are interested in process stuff. Well, I think the process on this has been frankly really messed up for a while. You don't seem to have people who are steeped in the nuclear specifics or the sanctions specific on the U.S. team. You do definitely have those people on the Iranian team. And so, one of the big

things that we tried to do very carefully in both the joint plan of action, the predecessor around nuclear deal, then of course, in the joint comprehensive plan of action, was to try and have a nicely packaged set of sequences, things that they do things that we do that are balanced in terms of the benefits that we get from a security standpoint and from an economic standpoint to the Iranians. Now, people debated and disagreed about whether or not we achieve that with the

JCPOA, happy to have those, those are the arguments in the future. Right now, what the Iranians appear to be asking for is a considerable hunk of their frozen assets abroad. You know, I've seen

reports of anywhere from 12 to 25 billion being unfrozen. That far outstrips what was on offer

for the joint plan of action, which is kind of the analog to what I'm seeing here. Something only addresses one problem to HEU, you know, for something that addresses, you know, a significant economic issue for the Iranians. That's, that's a lot of money. And that's potentially enough to help the Iranians whether the economic storm that they're presently in and doesn't give you a lot of confidence in getting to other enriched training and sources to really get to the bottom

where there's centrifuge program, it isn't similar. So, to me, I think the actual way I would construct this if I was, you know, setting down to say how I would do a deal. I frankly wouldn't do anything until you have a verification baseline. You have the IEA going in, verifying we're all the nuclear materials, our centrifuge parts, all of that. To give you at least a sense that we know the universe of the things that we want to then be negotiating over. And that's the kind of thing

that you potentially have to offer some sanctions to live to get. You know, I take that on onboard the Iranians are going to accept that for free. But it's the kind of sequencing step that I think is necessary. And candidly, might be wrong, happy to be proven wrong. I've not seen a lot of

“evidence that that's what's part of the process right now. We're going to take a quick break and”

we'll be right back with more of our discussion with Richard nephew. Beacon Global Strategies is the premier national security advisory firm. Beacon works side by side with leading companies to help them understand national security policy, geopolitical risk, global technology policy, and federal procurement trends. Beacon's insight gives business leaders the decision advantage, founded in 2013 Beacon develops and supports the execution of bespoke strategies

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their toughest challenges. I will let's talk a second about verification. As you mentioned,

the IAEA is a favored international institution that seems to do great work and forcing the provisions of the non-proliferation tea treaty and the additional protocol sort of an amendment, which outlines what government obligations they've taken towards not going nuclear at least weapons grade or highly enriched uranium, and otherwise cooperating with the international security community. As I understand it, we would prefer if it's not international policy that

we have any time, any place, inspections for the IAEA. Did you all, were you all able to get that

“for JCPOA? Do you think the Iranians would ever give the IAEA that kind of access?”

Yeah, I mean, we weren't. We got expanded inspector access, we got the additional protocols you mentioned,

expedited process to insist upon it. And again, that might seem very process heavy and things like

“that, but I think people can appreciate that, you know, if normally you might, you know,”

dicker over whether or not this inspector access is required and you know how long it's been, having an expedited process to bring directly back to the decision makers at the IAEA in assistance that Iran provide that access, you know, potentially would have been quite useful and certainly would be useful in the event of a breach. And that was part. That was built into the JCPOA. So, you know, the only times that we've seen that kind of any time anywhere access that you were

speaking of is basically Iraq after the two wars that we fought and where we were in occupation mode,

at least in one of them. And then you arguably, you could say elements of Libya, but even then, not really, because the Libya is more facilitating an access. So, you know, that kind of goes back to a point of, you know, countries are unlikely to give that kind of access unless defeated in war. And the problem with the current conflict is that while certainly we have achieved significant battlefield successes certainly, the U.S. military has performed, you know, significantly on a tactical level,

the Iranians aren't defeated, they just aren't. And they are still in control of their country, they are still in a position to resist the idea that we would get that kind of access. And we're not in a position to, to insist upon it unless we're going to put start putting grand trips in place.

“Yeah. Okay. So, I think I'm hearing in an agreement, we need to be very specific about the”

verification we seek in terms of which sites or potential sites, because we're not going to get any time, any place, but we need to negotiate out front that we're going to be able to inspect. Well, I guess we would do S. Fahan. I think they would want to see pickaxe mountain, which is supposedly the newest under construction in any way, future centrifuge hall buried deeper in a mountain than Fortale, which was the site we were able to blow up in June. Is that the way it ought to be,

it ought to be enumerated out clearly about what kind of verification ought to occur? Well, that definitely should be part of it. And then there needs to be a, you know, again, consistent with the additional protocol, because the additional protocol does provide for the inspectors have the ability to go anywhere they want to go to. They just have to explain why. And the Iranians under the additional protocol have the ability to say, no, but if they say no,

then there needs to be a response mechanism. This is where I come back to, you know, I think you can still have the principle of inspectors ought to be able to go where they need to go, but it's a question of, you know, what is the time required for them to submit a request?

Anytime, anywhere is basically either even inspectors to get in a truck shop anywhere and go

immediately inside, right? That's the level of access that we're talking about otherwise.

“And that's what I think is just impractical, but you could have a detailed list of places”

that need to be inspected. You named some good ones. I think also you'd want to see some places where some weaponization related work allegedly was been going on. And again, there's, there's lists of those at the IEA has, there's lists that have been put out in the Think Tank universe. And then you need to have a catch-all provision that if the IEA has credible information that there are activities covered by the terms of the agreement that need to be

subject to inspections, that they would be able to request that access. And the Ryan's would generally say yes. And if they said no, there'd be a process to respond to. Those are all things that need to be built in to make a verification system actually potentially function. And it's worth noting this was tested under the JCPOA. And it was working. The one test that could have been done, but unfortunately, it didn't was when these railies acquired that nuclear archive from Iran.

And they had a number of sites that hadn't been inspected before. That could have been a test of one of the Iranians were going to comply, but unfortunately these railies just put it out in public. And then it made it very difficult for the IEA to get that kind of access. Yeah, gotcha. Okay, so let's get to, you know, I can tell you have misgivings, probably we all have misgivings about how we got to this place. But let's talk about what you would do now.

You touched on it somewhat earlier. I think the people on the right wish we would do an escort mission were at least this guiding mission that was supposedly project freedom, even if the Gulf Arabs are objecting to it because they're fearful that they will absorb the retaliation

from the Iranians. There's always going back to war, but if anything is clear here,

it seems like President Trump does not want to go back to war. And then I guess it's just

or what would you do? Yeah, I mean, look, I think given the bounding conditions that we have,

“I think some kind of negotiated resolution of the straight and the blockade issue is frankly”

the only option. You mentioned the escort mission. And look, I can see the virtue of that.

I can see the virtue of explaining military operations, but the reality is you said,

is the President doesn't want to go there in frankly, now that it is the American public. And I think, you know, if I were in the White House right now, giving you advice, you know, I would say listen on a strategic level, if we're prepared to absorb a lot of casualties potentially, if we're prepared to absorb casualties and damage being done to our Gulf Arab state partners, if we're prepared to risk this becoming a much longer term conflict,

well, then there is a path forward that includes military force and sending escort missions and things like that. But the bounding condition of what we don't want to do that. Well, okay, we're back to the diplomacy door. I mean, you know, there are only so many different doors that you can you can walk down. So that's where I come back to. Okay, so how do we structure a deal that advances our broader interests? Doesn't harm our broader interests and solves the near-term

problem. And I keep coming back to a fairly straightforward straight or her moves for blockade trade that involves a managed regulated path through the straight, especially while there are still mines in the water. But doesn't result in, you know, crypto being deposited and running in bank

“accounts or whatever, you know, as as Iran may may choose. And I think the problem we have is the default”

circumstance right now is the Iranians are making money off of ships that are prepared to send them crypto, right? The Iranians are able to pick and choose who is going to be able to go through. So the default setting is still up here to be that there is some amount of transit that the Iranians are potentially going to allow some amount of leakages going through the blockade. So, again, you're coming back to, you know, if things were perfect, we could do things differently, but they're not.

So we've got to accommodate ourselves to doing some kind of deal. The worry that I've got is that the longer this goes on, the Iranians are actually getting the impression that their leverage is growing. They aren't in a feeling now that they are under siege and you can see this in them starting to, you know, open up the internet again inside of Iran, then starting to, you know, trying to get back to a little bit more of a normal, you know, operating status. Those are the

kinds of indications you have that the Iranians are not feeling under stress. And not under stress, that just means they're going to try and dig in more and submit their positions more. Got it. So let me just, I should have also mentioned the blockade in the policy options question.

So I want to come back to that in a second. But you've said a couple of times that ships have

gotten through by paying the toll. Right. Now, I assumed they had because if you were a ship and you hugged the Iranian coastline. Right. Obviously, you have some sort of arrangement, maybe money that's changed hands, because that would be your maximum period of vulnerability. But right, have I missed the sourcing on this? Do we know for a fact that people are definitely paying tolls? Well, so there's been tanker traffic, you know, basically imagery and

ship identification system tracking, you know, companies that have identified ships that have started in one place and gone to another place. And, you know, about a month or so ago, the reports that both Indian Pakistan had some of their flag vessels go through and there were at least press reports that they had paid money to do so. You know, I don't know that we have got a, you know, a set of invoices that we can kind of point to. But I certainly think that the Iranians are structuring,

you know, their approach to the straight is if they are going to be setting up this toll booth. And, in fact, just last night the United States opposed sanctions on this new authority that the Iranians have said, basically, to be their toll booth and to be their collector. Right. And that is indicative to me that we are seeing at least that this is a more real concern,

“potentially even, you know, starting to see money, you know, change hands. Now, I think the fact”

that we've subject to sanctions is going to complicate some of that payment process. But again, this is where I think long term, especially as we get, you know, deeper into the summer and deeper

into this crisis. And, you know, 50 million barrels a day still not making it to market.

You know, you're going to find that even countries that want to abide by US sanctions are going to say, what options do I have? And, you know, at the point in which the US is then in a position we're having imposed sanctions on, you know, ships from, you know, South Korea or, you know, use our blockade to shop, you know, stepships going to Indian whatnot. I mean, that's not only just going to complicate our foreign policy, it's going to start completing our, you know, economic policy

as well as we start to see, you know, again, the blockade really pinching on the global supply even more than it already has in combined with the Iranian actions. Yeah, gotcha. All right. Well,

mentioned the blockade. Let's just take this quickly. Are you of the view? And maybe it's just

conventional wisdom that the blockade is working. They are suffering. But they're able to take a punch and pressure on the regime on the people is different than pressure on the regime. So therefore, they were going to be able to hang in for an extended period of time and President Trump, maybe even the United States and the global economy just can't wait that long. Is that right? Or

“there are other parts of this? No, that's right. And the only thing I would add to that is the”

impact of higher energy prices, you know, because, you know, again, Iran is a supplier. And so therefore, they're getting the benefit of $110 oil. And, you know, if the Iranians were previously taking a discount in order to get their sanctioned oil into markets, they're not having to do that

or certainly not having to take as much of a discount now. And so, you know, for me, it's a simple

math equation. If the Iranians were selling oil at $60 a barrel, and now they're selling it at $120 a barrel. Well, they're making two times as much. So that means they can lose half of their exports and still be okay. And I think one of the things that we're seeing in the blockade is that bigger ships are being stopped in your spirit, but not necessarily smaller ships, again, based on tanker tracker, you know, kind of information that's been out there. And, you know, okay, that doesn't

sound very great. But, you know, again, if the Iranians are only able to put, let's say 500,000 barrels per day out on the water and export. Okay. That's a significant accomplishment. That means we've, you know, cut by two thirds around the oil exports. But if the price is doubled, they kind of mitigates a lot of the impacts there. Yeah, interesting. Okay. So, let's talk about the oil situation and the price of oil. Now, we keep hearing it's going to go up. And as I understand it, the oil

futures are $150 a barrel or something like that. But it hasn't really bitten yet. And I keep hearing, first I heard mid-May that would be this cliff. Now, I'm hearing towards the end of June, the inventories, the efforts by government to in Asia, especially to destruct demand will have played out completely, same with our strategic reserves in general. And so, the problem will go, will grow more acute for the international economy when physically,

some oil is not available. Oil and gas isn't physically available. Give me your sense. Do I have that right? Um, but give me your sense of where we are on on energy and why hasn't

“the price for barrel gone up? Yeah. So, I think there's a couple of things in play here. You know,”

first, you know, before this all started, you know, your real oil market people were saying

we had a glut, right? And a glut of potentially as high as 2 million barrels per day. So, that's

suggest that under planned economic activity for this year, people were already kind of building in, actually we got 2 million more than we need. And so, that automatically mitigates some of the impact of losing 15 to 20 million barrels per day, you know, that are stuck up in the in the goal. Then on top of that, as you pointed to inventories exist, you know, and I knew just talking about strategic petroleum reserves and we're talking about just normal inventories that are being

held by companies. And so, you know, those have been tapped into as well. Then you've got the issue of, as you said, demand destruction and, you know, people trying to ramp down use. But it's worth kind of stepping back and thinking about what all those things mean. So, if you're depleting your inventories now and you want to usually have those inventories to just sort of manage day-to-day fluctuations, well, you're going to want to rebuild those inventories. Okay,

if you're going to have demand destruction, what does that really mean? Let's not just that, you know, I didn't drive in yesterday and still I took the metro into DC. It's that you're starting to have companies shut down production lights, right? They're starting to not produce petrochemicals, so they're not, you know, starting to reduce how much they're producing of this thing or that thing to try and insulate and reduce, you know, some of the impacts that are being felt. But that has

impacts throughout the supply chain. You know, if all of a sudden you have 15% of x, y, or z being produced, well, if it's an input to something else, that's not going to happen now either. So what you're

“really having, I think, is that the impact of these loss barrels is just simply being felt”

throughout the economy because it's being diffused by the private sector primarily. And that means that you've got a little bit of ability to, you know, whether the storm and prices have gone up. I mean, it's worth pointing out. They went from 70 to in the hundreds, so that, you know, that is actually an increase. But they haven't gotten as spectacular as they might, just simply because at adaptation that governments and the private sector have taken. But we're not talking about the loss of one plant

out of the Gulf and all the effects that, you know, happen on the various different products that

would normally come out of that on top of which we've got things like fertilizers on top of which we've got things like, you know, normal shipping transit, which has been, you know, a hindered by people not being able to go through Dubai and so forth. And all that adds up to a longer time frame for these impacts to be felt. But it also would mean that recovery would take a lot longer.

“And this to me is a crucial point, because I think there's some expectation that the”

straights are going to be open and everything's going to go back to normal. I don't think anyone at this point thinks that you're going to have loss production because, you know, actual, you know, oil fields are going to take a long time to come up. There might be damage there.

But then there's going to be a desire to rebuild inventories. And then you've got that demand

that was destroyed that potentially is going to come back. So I think it's more that we should be planning for durable increased prices, even if this were to end tomorrow. And if it doesn't, well, then we are looking at much sharper cliffs as we're going into the summer. Yeah, we've got it. All right, that was terrific. Okay. So let's talk as we begin to wrap up here about the, let's just talk about the geopolitical implications of this entire endeavor.

Well, I mean, here here to the Don't Sound Terrible, the Gulf Arabs have said they're going to increasingly rely on the United States. They're doubling down with us against Iran. They need our weaponry, etc. Right. The other thing I hear is, you know, of course, UAE, Saudi, you're going to expand their pipeline capacity to bypass the streets of Hormuz. So that's a future knock on effect. Now, there's also a lot of commentary about the United States looks

weak and we've shown China our hand and how does this affect Taiwan? But, you know, zoom out for us. What are the big takeaways that we're going to write about in the future

“about this period of time? So I think, you know, a couple of things. One, you know, even while there”

is adaptation and certainly you would expect to see that out of the Gulf States and that's great, it's worth stating, I think, that Iran has learned a lot of things about what it can do and it has taken pretty significant punches and kept on going and that's going to have an impact. You know, it's not that all of a sudden Iran had a capability to attack the street of Hormuz and, you know, march of this year. Iran's had that capability. They just have been only to do it

because of the downside risks. And the Iranians have learned that taking that risk actually was quite beneficial from the standpoint of negotiating with greater leverage and pushing back on the United States and international actors. That's an important dynamic. And especially, if you believe, as I do, that the Iranians security thinking believes that has been too conservative and too to risk averse over the course of the last couple of years. You know, think about the reaction

when Hezbollah in Israel wearing conflict, you know, think about the reaction even when you know, Israel was attacking, you know, Iranian missile sites, the Iranians were attacking Israeli, of course. You know, all of that adds up to a sense of, actually, if you're bigger, if you're more aggressive,

“if you're bolder, then you can have a greater impact. So I think the Iranian strategic picture”

is worryingly more risk tolerant now going forward. And I think that's going to have an impact, especially if you think, yeah, you can build stuff to fight planes to go around the straight or most, but it's all still with the Iranian missile range. And pumping stations are still subject to being targeted, you know, even if you can't stop ships. I think the second big thing that we're going to look back on is, I don't necessarily believe that the Chinese look at this and say,

oh, this just proves, you know, the US is never going to defend Taiwan and so forth.

And I actually think they're much bigger indications are taking on us not defending Taiwan. I want you to find very troubling and worrying. I think the bigger issue that they're going to take from it is again a demonstration that our willingness to fight is potentially not very durable. And I think this is what worries me about the lack of planning for this entire conflict is, you know, it was expected, I believe, by the White House, that this was going to be over with

in a matter of days. And the President said hours, but even it take away his normal exaggerations. You know, I don't think they think this is going to be gone for months. And the American public is completely not with them. And so if you're the Chinese, I actually think the bigger problem is that they've had proof after proof after proof that the United States is just simply unwilling to get into long-term durable conflicts in which there are costs that are being born. And I think

that is a much more profound strategic lesson that the Chinese are potentially taking into other adversaries as well. And I think that absolutely applies to allies too. And I think that's where

weren't consulted and they're bearing a lot of costs. You know, in the United States,

“we're paying five dollars a gallon for gas. And that's a lot. And pumping my, you're putting”

gas in my car this weekend was an experience. But, you know, if you are sitting in India,

if you are sitting in Thailand, if you're sitting in Europe, the costs are much more significant.

“And to not having been consulted in this, I think it's just going to reduce a lot of”

people's willingness to absorb costs for us in the future. And that is only going to compound

all the rhetoric that's been around NATO and other allies going back years. So I think that that

“is a bigger cost that will come out of this that will absorb too. Yeah, gotcha. All right, Richard”

Nephew. Thank you so much for joining us on NatSec matters. Thanks for having me. It was good talking to you. That was Richard Nephew. I'm Michael Allen. Please join us next week for another edition of NatSec matters. NatSec matters is produced by Steve Dorsey with assistance from Ashley Berry. NatSec matters is a production of beacon global strategies.