The Global Economic Fallout: Week 5 Iran War | EYES ON GEOPOLITICS

This is a music for your honor. The video is also released on Windows with Shopify, which can be used as a real help. Let's start with a test today for one of your pronouns, on Shopify.de/record. I'm Theresa and my experiences in all entrepreneurs started with Shopify. I'm sure that Shopify is already on the first day, and the platform does not make any problems. I have many problems, but the platform is not a one-stop. I have the feeling that Shopify is a platform that can continue to optimize. All is super, simple, integrated and balanced.

And the time and the money that I can invest at the expense of the company can be invested in. For everyone in WaxTomb. Now, the test of Shopify.de/record. Hey everybody, welcome to another episode of Eyes on Geopilot, because I'm Dimite Kontakos. I'm here with Jonathan Hackett, Jack Murphy, Nick Trick, Tricket,

our very special guest, TZ, an associate director at S&P Global Energy. He knows his stuff basically when it comes to this.

And we always talk -- all of our shows we talk about, you know, the bullets in the bombs.

And like John said before we started, we got to start talking about the beans too, because it all, you know. You can't talk about one without talking about the other, so I figured let's have a smart guy come on and like teach the -- teach the tragladites, what's going on. Besides, it's me and Jack are the traglides. John's actually pretty pretty intelligent, so I'll keep a mad at this. Oh, how many crayons have you made me?

That's true, too, yeah. He wasn't marine for a long time, so don't hold that against them. Yeah, Nick, thanks for coming on, really appreciate it. Yeah, thank you for having me. Of course. My first thing, as I was like, we've seen, you know, the S&P for one, like, because there's so many factors that we, you know, we try to judge like what's going on in the economy.

“The S&P really hasn't taken a huge hit. I think it's down like 6% ish since the war started,”

which is like, it's at an all-time high, so, you know, the 6% can be gained quickly back. I want -- give us kind of a lay of a land of what we should kind of expect in the next coming few weeks. Oh, God, that's tough. Okay, so I'm pretty broad. Sorry. No, no, it was fine. So, I mean, just to start off just to be clear, I think I'm saying it's kind of a personal capacity. So, I'm not going to try to represent, like, my company's used and all that.

But you started by, you know, mentioned the S&P 500 is kind of this way that we think about assessing the relative effects of the crisis. It's incredibly unhelpful.

There are a couple of reasons for that. One is equity markets aren't always, you know,

the real world, right? Like, there's this disconnect, but the bigger thing to think about here is that a huge portion of the market's concentrated in tech. And that story for now is still relatively resilient. I mean, obviously, there's been several of some people are finally cooling on it, but in general, that a lot of those gains and the hope that this is going to be short-term is sustaining that kind of relatively, like, surprisingly, okay performance given how scared people are.

So, first, I started by just saying the equity market doesn't yet understand what they're in for,

“fully, because people can't accept it, because this is really, really, really bad. So, I think”

the easiest way to think of like the scale, you know, we're talking about losing in the range of 10 million barrels a day of oil supply. In a market that's kind of consuming somewhere in the range of

102 million barrels a day. And, you know, there's enough inventory, I don't know, on the water

or in storage for crude oil, specifically, that you can manage that for, like, a bit, you know, what I mean, but every single day that that supply is not reaching the market, that's 10 more billion more, more billion barrels you've got to find to source somehow, right? And it's not just the loss of the physical supply that matters. And I'm like in metals now, so I'm going to speak in generalities as opposed to specific, you know, where refineries are not universal, right? They're

designed for specific blends of crude oil. Like any given crude oil that you see traded, like a benchmark, it's kind of like a way of maintaining quality control. You have a specific brand that blends with specific specific crude oil from specific oil fields, right? Then gets packaged into this kind of benchmark price. When you start getting interruptions of the kind of delivery of the crude oils that your refineries are optimized for, you know, when you, when you, if you buy alternatives that aren't

quite what you need, the products that you yield from refining them aren't quite the same in terms of, like, the balance. So that's one thing, right? So that's, so the point is, like, the kind of oil supply chain for, like, a better word is a bit more fragile and complex than, you know, we might think over the last five years, given how many shocks we've gone through the way it seems to have been resilient, right? The second point is that, you know, unlike, say, the 70s, you know, there's

also a lot, a lot of natural gas that's been disrupted. From, look, a fine natural gas in particular

“from Qatar, but then just that's, then that's a hugely important market because that's that provides,”

you know, mostly power in this case for like, a specific, but also, you know, if the heating needs

swing supplier in between the two, right? And, you know, in the 70s, when we had the last oil shocks, yes, the world technically speaking was more dependent on oil because we were less efficient at using it, but, you know, we didn't use gas the same way, other other commodities weren't as affected. So, for instance, about 10% in the range of 10% of the world's aluminum supply right now is affected by what's happening in the state of form moves. So, you know, the longer this goes on,

you know, the likelihood is that like Arizona IST's going to cost like four bucks a can. It's absolutely unacceptable. Like, it's like that kind of, and like, and there's already problems there because US tariffs and stupidity we can't have a means that we have or having harder time sourcing aluminum than for imports and all that. So, log story short, you know, it's not just the gasoline, the price, the pump, it's a broader energy complex that's affected

and that power complex that's affected. And so, what's happening first is, you know, what we're

seeing in Asia already is markets basically preparing for just real scarcity and we already have governments in posing rationing to some extent, you know, we have governments moving to four day work weeks where they can. The EU is telling people now, for example, not to travel as much and like that's going to get worse and worse. I mean, the UK where I know where I'm living,

“basically I think they're, yes, they're today accepted the last kind of cargo of jet fuel”

from the Middle East that is going to get. And so, when people talk with the oil price, especially on line in like American finance, Twitter and like, in like kind of the New York tech pros and mostly pros who think it's going to be okay, they're referring to Brent typically. And Brent is the kind of global benchmark crude price because Brent oil, crude oil is like, it's a blend of the North Sea in Europe. It's like your ideal, like platonic ideal of

barrel of oil in terms of the products that you get out of it because of its qualities. That's a physical market, right? Like like that benchmark is referring to physical barrels that are being delivered in price and there's some other stuff in the US now involved in that, but like bottom line, that physical market has not been disrupted yet. So that price is not actually

accurate to the physical market's elsewhere. If you look in Singapore, the price of oil is basically

somewhere between 160, 180 barrels of dollars a barrel already. You know, the price for jet fuel

“is still going vertical in Singapore. I think it's higher than 230 dollars a barrel right now.”

And like, and this is, I mean, we're going to be flying a lot less. The second half of this year, if we don't force this quickly, right? And that's before you factor in LNG, you have governments across the Asia Pacific. It's friendly to get coal back up, you know, we started nuclear reactors. You see other conversations kind of type Taiwan, South Korea, Japan, you know, because they've relied on LNG, so if they look quite natural gas,

to kind of keep the light on, right? And that's disrupted. And then all these things are being felt first in the Asia Pacific, then they'll be felt in Europe and kind of emerging markets in Africa, um, in tandem, and then it spreads to the U.S. in the Americas. So it's like a slow rolling wave where we don't really fully see the effects in the U.S. yet, but we will eventually. But I mean, if this goes on for a couple more weeks, we're already in a world where rationing

is now a thing the governments have to do. I mean, it's not the scale of it could be reversed if this was to suddenly open tomorrow, but the realities, if, you know, even if the U.S. somehow manages to reach a situation where Iran agrees that it's let's up past freely, there's going to be a new premium for all those prices baked in. The people will have to pay because they don't know what's going to happen. And the markets can also kind of create a premium

for people to just like buy security. You know what I mean? Like to anything you can get your hands on,

“you want to stockpile right now. And, um, so yeah, so I think like we're heading towards, um,”

like the worst energy crisis the last 60 years, it's kind of we're already kind of in it, but it's still regional in terms of the the most obvious effects, but it's kind of spreading. Australia's only got about three weeks a few left, um, you know, like New Zealand's got similar concerns. China has been, China has, you know, excess capacity to refine oil and also massive reserves, like strategic reserve of oil, and they've been banning exports. So that's kind of crimping

some of the supply and not all of it, they're still sending a little bit out, but all the all that's already happening. And we just haven't realized yet. And so to take take this back to where you open with the S&P 500, you know, if you're running out of LNG and you're running out of power long enough, you're going to have a lot of semiconductor fabs in the Asia Pacific that have to, you know, get power somehow. And the government has to decide do we keep making ships and and holding the

global economy up or do we keep people's lights on? Um, and that's, and then on top of that,

cutter provides about a third of the world of helium, and you need helium to make ships,

and it's not the gas kind of, you need liquid helium. And and basically that's that boils off when it's in storage. So you can't really store it from usually like more six to six eight weeks as a matter of standing, and that's kind of the inventory you're working with. Um, and so yeah, this is all stuff that like the market just isn't pricing because everybody's convinced Trump

level of a shock is happening. Nick, I'm curious, I think we have these shocks that we're currently

“inside of now. Uh, what do you think? Like, I'm thinking back to COVID, you know, the shift from”

in person work to remote work is an example. What do you think economically will persist after this conflict changes? I see some talk about EVs, perhaps, demand might increase, but it's not really increasing. What do you think might be the residue that kind of comes out of this? Oh, do EV demand is absolutely increasing a lot. It's not, it's not slow. The reason why people don't

think it's increasing is because the US is basically an increasingly insular market where people think

that the US is the world and don't really pay attention on what's happening elsewhere. I mean, if you look globally, uh, like, where basically a tipping point, right? If you include hybrids and plug-in electrics and look at the kind of range of non-pure combustion engine vehicles, this year is probably the year where a majority of global light vehicle production is already not just purely combustion engine. You know what I mean? And like, and I push it like Indonesia,

for example, like the market penetration rate for like battery electrics, not even plug-in hybrids, is kind of hit like a hundred percent sometime in like 20/27 at the current rate. Vietnam is, you know, already, is already probably, is already a majority EV market. China is an majority EV market. And that's the biggest lot of market in the world, right? I mean, Japan's been kind of further behind that I think we'll probably pick up the pace. Like the EV story is there.

So this shock is, in my opinion, is probably going to accelerate peak oil demand. The exact timeline is up and up and, you know, up for debate. But like, I think significantly faster than then we were probably assuming, even though I'm also kind of bearish on demand. So I'm probably not the best representative from my industry. So that's locked in. You know, I think renewables are skyrocketing right now, like even in the UK, like the man for solar panels in the last

month is up something like 50 percent. Because people are just like, look, I need to make sure

that I have some kind of power, right? So like they're just reacting to the shock, they can afford it,

“they'll do it. And with solar specifically, also, it's important. I think people have kind of missed”

this that like in the last 15, 18 months, two years. You know, it's, it's, it's increased significantly. And like, there's a real uptick in the last, in the last kind of half of last year. But like, people living in emerging markets and kind of developing countries in general, they're just going for solar off grid. It's, it's cheap enough that it is the best option they have. And if they, if they they don't have access to reliable power, they'll do it at home. If they can afford it in a more

middle class, they'll buy a battery as well. But that's locked in. You know what I mean? Like, obviously, that doesn't solve all the problems. Like, you might have, like, if you want to build heavy industry, you still need reliable power. So that's, probably, natural gas, coal, or something, else like that, when nuclear, if you can manage it. But I mean, that's, I think that's a given. So that's probably only to accelerate because people are going to be so afraid of not having

power. And it's just cheap, right? And trying to, trying to, trying to, has also slack capacity to produce these things isn't a better position to weather the shock that we're going to going at the moment than most. And on top of that, you know, even though clean tech is affected by what's happening in this market. So for example, like aluminum goes in a solar panels, right? So it, but it's a relatively small share of aluminum demands. So, and then that market is flexible enough.

You can probably work around these disruptions to keep making stuff. As long as you keep the

“lights on, you know, and the power you need to, obviously, for revenue. So I think that's a given.”

Work from home is, necessarily, a possibility, but I don't, I don't think it's going to be that effect today. I think people will see it more as an emergency measure. And you see governments already using it actually as a way to say fuel. But I don't, I don't see, I think that's less relevant. I think the bigger thing is simply that we're entering a period of no longer living in a world where we really rely on the U.S. to preserve freedom of navigation. And in that

world for energy, because how interconnected all these markets are, everybody's going to want to make their power at home. And it's, it's much more rational to want to have to import, like a clean technology from China and pay for it once. Then have to pay for a molecule that you have to burn every single time you have to burn it. And so that's just the basic economic rationale. It doesn't mean that people are just going to drop fossil fuels, like coal, I think is going to have a longer

lifetime life kind of span it for for for peak demand than we expected because of this, just because they had to gas. But I don't think oil and gas are ever quite going to recover. They're kind of

expected demand in the future, because everybody's going to want to basically make power on shore.

They're diversified their options for where they get their energy from and where they can accelerate processes that use electricity, especially clean tech to basically make replacement molecules. So, you know, you do use hydrogen in a process that a natural gas where you can, or you're trying to make fertilizer, you know, without without the input. So, for example, over 40% of the sulfur that's exported globally transit the straight-of-ormose.

And without that sulfur, you're making fertilizers a lot more expensive. And actually, also, it affects metals. So, because for some metals, production techniques, you basically use sulfuric acid to extract metal from like a body of ore. And so, all these things are compounding right now. No, no, no, no, no, no, it's how they're going to

I think, in the US, at least talk and talk about fossil fuels. It's like a pragmatic solution, you know, like we have to be pragmatic and not rely too much on renewables, because it's woke. Like, look, I live in Europe. Like, obviously, there's an ideological component to what's

gone wrong with European energy policy, but the reality is that it was just really cheap to

Instructantly detect and renewables got really cheap. People installed. I mean, and then in batteries got cheaper, people started putting batteries on stuff. And the problem is this narrative about the reliability of fossil fuels is, you know, reliance upon just having, like, reliable trade.

“And like, we don't live in that world anymore. So, I think that that's kind of dying in real”

time, as an assumption people have. I wanted to talk about maritime security. You know, we talked on the show a few times about insurance, how these vessels, even if it was actually safe from the straights of hormones, the insurance companies might still hesitate to spite the insurance is that they're safe and I'm curious what you see as the effect of this conflict on insurance long-term, especially maritime insurance. See, I mean, I'm not like a specialist by

the stretch, but it's safe to say it's going to bake in a larger premium, and it's going to significantly raise the costs of ensuring these vessels. You know, if this will go from like a tiny tail risk event that people, you know, had to be sure of it, but didn't really affect your overhead to like, you know, insurance, like, like, a payment equal to like 5% of the value of what you're shipping. You know, I mean, like, it's like that level of shock from like a, a marginal

like point, however much percent for it to that. And at that point, that passes through to consumers. So, so commodities are going to be more expensive. That's just, I think, going to be, but I don't think that's a forever thing. I think actually that people are overexaggerating the kind of the inflation side of that problem. But I do think that structurally there's going to be an increase in prices

at least for a while, because the market just has to accommodate risks it never had to before. I think

of it is kind of whiplash from last year. Like, the Trump administration already kind of showed us how crazy they could be. And we just took it a face value that it was mostly talk, but like, I mean, living in Europe, it's like, once Greenland was on the menu, it wasn't like anyone could think, oh, he's just saying that like we had to plan as if that was a possibility. You only mean,

“like, we had to assume that it was possible. And once you have to assume it's possible, even if it's”

like less than 1% chance it happens, it just radically changes the way you think about risk. I think it's fascinating. You know, when we used to talk about peak oil, people were talking about us running out of oil. Like, the world was just going to run out of oil. And that obviously hasn't happened, but now we're having this conversation. I've never, I mean, I guess I have heard it, but, you know, it's interesting to hear you talk about it, the concept of peak oil demand that

it's not that we're running out of fossil fuels. It's just that the dynamics of energy politics are changing so dramatically and the technology. Yeah. Yeah. I mean, as I people debated, I think realistically, pre-war, most assumptions probably had to demand peaking around 2030 to 2032 as kind of like a safe cautious, you know, like like not nodding towards the transition, well, not well, also making sure the fossil fuel people were happy. That's probably been blown up.

We don't exactly know, but that's probably been blown up because if one of the, I think the most difficult parts of the forecasting is for a very long time, it was assumed that developing countries had to kind of pick up the slack for demand, because China really drove a lot of the marginal demand the last quarter century in terms of the growth of imports. You know, and it's China, obviously, that's going electric fastest. They're the ones building EVs. They're they're

exporting them. They're, you know, they're putting out in the market. And that kind of assumption collapsed in the last three years because it got so cheap for an emerging market to buy imported EVs. I mean, you could buy like a decent Chinese EV model for $10,000.

Did I, did I, did I never to sell that price to you if you live in the US or in your

ever? Yeah. Because they can, you know what I mean? They can obviously add, they can ask for more, but, but you can. And so like, like, these cars are just better tech. They're better experiences

“to drive and a cheap. And I think that that, that really disrupted a lot of assumptions about”

where demand growth will come from because the hope is that like, once China peaks or but sure, as wherever the phrase you want to use is, you know, India will pick up the slack and then we'll, you know, Africa will over time, even though it's from from a very, very low base will pick up the slack, you know, Latin America might have some more and at least we'll have more. And it's just like not visibly the case over time. Yeah. So the industrial revolution happened unevenly. And

some countries just skipped right over it and got it right into the digital age. And they didn't have the same evolution as other countries did. Yeah, for sure. And on top of that, I mean, like, like, they're massive problems with what China's then economically for it's kind of global, the global side effects that has for other countries trying to industrialize or, you know, you know, manufacture things. I mean, look at the US. But, but that said, like, you know,

if you think about the way that the current shock is changing the energy market, you know, a lot of the narrative that the US has leaned on the last five years was basically like, well, okay, Russia wants to weaponize gas. We'll sell you gas, you know, like Iran wants to close the street. We can sell, we can sell you hydrocarbons, right? We can sell oil gas, whatever. And it's like,

wakes up tweets and then suddenly we're bombing targets. Like, it's just not that's not like a

“irrational strategy. You might, you might rely on it in the short term, but you wouldn't plan for that”

long term. And so the irony is that like China is that now for like developing countries that are

really, really sensitive to price and the cost of imports because they basically have to spend

their harder and kind of foreign currency on imports, right? Like, and so they have to have to have to export something to be able to earn dollars wherever it is to buy that import. You know, for them, it's more rational to use EVs or to use clean tech because it minimizes the the money that's outgoing towards buying energy. And so China is like an ideal energy security partner for these countries, not the US. So that's just the reality. The US can definitely do stuff that

China can't when it comes to like a lot of financing of specific specific instruments. The Chinese companies can do, but it's not like the way they typically go about developing. But the reality is that like we basically seated the field to try to unclean tech. And then we decided to do something

“so disastrously short-sighted that it makes them like the ideal partner coming out of this conflict.”

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Now, the show is on top of Shopify.de. The oil coming from the Persian Gulf ends up in Europe and Asia. Not so much the United States. But how is it affecting us and what do you foresee the effects being in the coming weeks and months? Sure.

The idea that, like, because the US is an exporter now of crude oil, it's kind of insulated, it's just not true. It's comforting. It's true that the scale, obviously, of the price shock might be different, because we have a bit more of a buffer and we produce more than we consume. Just because the crude oil from the Middle East typically goes to the Asia Pacific or Europe doesn't

really, it's still a global market, products still have to flow globally.

“It's important to also remember that nobody actually consumes crude oil as a consumer.”

They consume something that's been refined from crude oil. The issue is not so much the barrels of crude even though they're obviously the key supply choke point. It's like once you run at a jet fuel in Asia, you've got to go somewhere else to buy it. So you're going to start buying it from Europe and then Europe has to buy it from the US. So our airfare, it takes up massively, because the jet fuel in the tank is like a quarter of the cost

of any given flight. The same thing for gasoline and diesel, I mean gasoline. Americans actually are uniquely sensitive to gasoline prices because Europeans don't drive as much for as far. That has an impact, but it's not felt the same way. I think psychologically, for the Americans, when they see gas prices go above like 450 a gallon, it's just like a break-lass kind of a moment. We're going that's the world we're living in.

shock. As it's more deeply felt, but it just takes weeks for that stuff to clear through the system. Right now, you're already seeing a take-up in California, for example, because California

basically imports this production Asia Pacific. That specific market is totally screwed.

They're effectively in Asia and Asian market in terms of how they get their oil products. It's different in the Gulf. It'll be different in the Northeast. It varies a bit regionally in the US, but we are all heading for a world where this stuff's really expensive. The flip side is that the irony is that when you're a major exporter of a good, your economy is actually more exposed to a price shock than if you're just an importer,

because also the people producing it are affected by that shock and that changes their own economics.

“Think of it this way. Diesel is probably the most important lever for how to think about”

how inflation filters into what you buy every day, because diesel is used for trucking. It's used for trucking. It's used for power generators at mines and other industrial sites, et cetera. That's going to get more expensive in the next couple of weeks to month, maybe a little longer in the US. It'll take time for companies to raise prices to reflect that, but that's immediately going to happen. You're going to see this kind of price increase,

be slightly delayed, because companies will want to delay as long as possible,

how much they're passing on to their customers, because they always want to hope for better,

and they want to kind of not piss people off too much. But by the time we get to like, I mean, April's one, it's a lot of it's going to fall, but the time we get to May, I mean, it's going to be felt. You're going to visibly see it. It's going to be really expensive to fill up, you know, your gas tank prices for goods will start going up.

“I would not, I think the US is the much better shape, but it comes to gas. So the gas price for”

heating or power in the US will stay relatively low compared to global prices. In a base still can increase, because we do export a lot of gas, right? So that's still actually filtered into the system sum. So like, I would, I would probably say we're not going to see the same kind of level of shortages. You're not going to see people like being forced to ration and then riding as if it's COVID lockdowns again. But you are going to see like the kind of scale of price increases

that like are are like really, really like bleak politically in the US, but also just socially, people just really, really feel it. I can't really quite like a hard number on it, but like I would not be shocked if like national gas prices for $8 to $8 to $6 to $6 a gallon, depending on how bad the shortages get elsewhere. So, Nick, I got a question on kind of price efficiencies like looking at Iran, let's say we solved the Iran problem today. Suddenly Iran is on our side. All the sanctions

are removed. What do you think are kind of the global macroeconomic effects of something like that happening? We're all the things that Iran has had as true in the economy for the past 47 years or suddenly dissolved. And I'm sure there would be efficiencies gained obviously, but do you think there

would also be inefficiencies anywhere within the market now that Iran is allowed to play basically

unrestrained? That's a great question. And I'm unfortunately in Iran specialist, but like a, you know, in general, in general terms. So, first off, it'll still take a couple of months for like the current shocked filter through the system. You know, I mean, so even if it opened tomorrow, we're still talking about two months of pain. Maybe even three months of pain. You know, it might not be as extreme, but it's still kind of bad at baked in. But if Iran was suddenly allowed to basically freely trade

and freely produce and kind of track foreign investment and so on. I mean, I mean, you're talking about lower oil prices, materially. I mean, expectations are going to come down. So you probably talk about low interest rates in terms of people's expectations, substantial banks and fields, much pressure on oil and gas, which is the net positive globally, right? That's probably positive for growth. I mean, Iran makes a lot of steel. It can probably export some of that, but steel is

over supplied globally because of China. It did promise them all the metals. I could export. I mean,

“I think it would mostly be like an Iran story, right? I mean, the commodities I would matter,”

but the thing is, if you think of this way, like, we were really over supplied coming into this year without the conflict. And so, you know, if that supply all returns to market, then it's a crowded market and Iran can't just necessarily ramp up as easily. I mean, it could. But, you know, something tells me that OPEC will be really pissed at it because they're still level of which you need some price stability, right? Like, it gives. And real terms, because of how high inflation's been

in dollar terms in the US, you know, oils worth, like, a third less in nominal terms, you know, or we're starting real terms than it was, like, in 2020. You know, I mean, like, it's a massive, so it's a 60 bucks today for a barrel is way different than it was in 2020. And I mean, that's sad. The American producers have gotten way more efficient. So, you know, it's not all doom and gloom, but I just think that like, it would more be like an Iran-specific story as to how that change goes.

I also, I'm very skeptical of Sanchez relief, fundamentally changing things because countries,

they tend to become more atart, atartic, and they have to kind of develop an economic model that is just not necessarily concordance with, like, exploiting free trade, right? And you have domestic lobbies.

“You have to make, you keep happy. You probably want to protect your domestic industries where you can.”

And, and also typically experiencing sanctions is a lot like experiencing a big financial shock, like if you, if there's a run on your currency, for instance, the response typically is to just stockpile foreign currency. So you have to export more than you import. You have to have it relatively, you know, conservative kind of fiscal policy for your budget to make sure you're not spending too much, not buying out borrowing too much, because you just want to maintain confidence in your currency at all times.

And sanctions have a similar effect. You know what I mean? And that, and that redundancy itself actually leads to lower growth rates, and it has its own kind of knock on effects that I don't, I can't

speak to Ron really, I don't know Russia's specialist, but ultimately by training,

but I imagine that those structures can't really be undone very quickly. And there's a lot of political kind of pressure to maintain that system, even if you have sanctions really. When do we get to the point where this is going to do permanent damage to the economy? I mean, you kind of made reference to, you know, this is going to change or speed up some of the existing dynamics, but will there come a point where if we reopen the streets, even by military force,

down the line, but it's just too way. It's not really going to matter or it won't matter.

“I mean, I think the damage is actually done structurally, because the market will stop the price”

in a premium. Obviously, the scale that premium is up for debate, but it's going to be pretty high for a while. So the oil prices won't be like so, so disruptive that the entire global economy goes into recession, which is like the flight path we're on right now in terms of energy, right? But but that said, you know, once you've lived through a shock this extreme that no one can make sense of, like no American ally right now is like, oh, we were consulted in this makes sense, right?

You really have to basically adopt an economic approach, an energy security approach that's built on

resilience. And resilience is expensive. Resilience requires redundancy. And it requires a lot of investment into capacity that isn't actually going to be used necessarily. So you basically, you're talking about like a net increase of the share of GDP that energy takes up by necessity to basically protect yourself from like a future shock like this. And that world is one where we grow more slowly, you know, things are less efficient from like a pure market perspective.

“Not that I think that's necessarily always bad. You know, although there's a lot of our policy intervention,”

the shape markets and you have kind of what was already happening really since last 2016, but like last year on trade, they've kind of got super charged. You have that applied to energy. You know, I mean, you just have a very, very different like working model going forward for how much money you're going to spend to make sure you feel safe. And so in that sense, I think the damage is done. I think that that imposes his own costs that like, they're not, maybe not as bad or as extreme as like

just running out of jet fuel and diesel, but still add up and still ultimately are kind of a net negative.

I do think that that a line of having a more negative impact on the U.S. actually over time and meet then even Europe, not that I'm super, super bullish on Europe though. I think people are kind of unnecessarily negative about it. But like the U.S. a lot of the U.S. growth stories also benefited from being an energy exporter and that's going to come to a threat over time because of this kind of shift than people's behavior as consumers of energy.

You know, another question that I wanted to ask you since we have you here, I've heard from certain people in the, you know, national security space who have told me that they see that what's going on right now, that going after Venezuela, then going after Iran is a way of strategically choking off China's access to energy, that it's this sort of part of a larger strategy around against China. And I was wondering if, you know, from your perspective,

from someone who studies the economics of global energy trade, does this make sense strategically to you? I mean, does does does that pan out at all? I mean, does the Pope shit in the woods? Like, I don't like us. Like on it, well, it's from Chicago now, so I should probably add. No, but, but like, no, like, I think that like it's, it's absurd to me that people think that and say that. It is so irrational and hard. It's like the 40 chess arguments is we've already seen so many

other things that have happened, you know, from from U.S. policy in the last 15 months that just prove that we have no idea what's what we're doing, what's going on anymore, that I just don't understand how someone can credibly claim this, but setting that aside. Now, first off, the energy shock does hit China, but it hits everybody and the U.S. caused it. So like, who would people get a blame? Like the U.S. And there's obviously these really component, but ultimately the U.S.

escape the damage ultimately, even though the U.S. isn't that exporter of oil gas, it doesn't

“fix the problem that you're still exposed to these global markets. And, you know, China has like the”

world's largest strategic inventories of oil. It's not like kind of totally bailed them out, but like, for example, you know, to talk to the U.S. I was a Houston for the work conference right last week, and like you talked to people, like if a colleagues are based in China, and like they'll say, people feel calm in Beijing or in Shanghai. You know what I mean? People are not panicking. And if there's any country that exists right now, that can find a way to

engineer its way around this problem, it is literally China. And they're doing it, right? Like they I mean, the entire basis of their energy security approach has been to try to reduce their exposure to, you know, the straight of Malacca, and they've done it successfully, right? And I mean, EVs like have taken off, you know, they are electrifying trucks faster than everybody else, so in trucks obviously consume diesel. They built high-speed rail that is actually, you know,

like effective, so people don't fly all the same trips. Like there are so many ways in which they are still well positioned. And on top of that, because they have these, you know, inventories, of oil and so on, and they have the capacity to refine lots of oil. They can also do things, at least in the near term, to kind of, I'll say medium term, like, in terms of months, not like years, that allow them to, like, offer, not bailouts, but help to countries that are struggling,

right, or in trouble if it, if it benefits them politically. And it puts pressure on people to cut deals with them. You know, I mean, like, if there's one thing that could push the US out of the

Asia Pacific, it's literally doing this where we basically incentivize everybody to turn around

and try to partner with them, because they, they have to make sure that, like, people's homes are lit and heated, you know? Choose your strategic partner. Yeah, so like, you know, so the kind of strategic argument about the 40-trass would try to, to me, it's just dumb. It's, it's like trying to reverse engineer some sort of cause for this insanity. When you literally cannot find, like, a single win, especially when, even the administration's own state of goals was changed every day.

Anyway, you know, when they were to reopen the straight-of-war moves, it's like, the straight was only closed because of what we did. So like, in what world does this make sense as a rational endgame that benefits us, right? So like, like, yeah, like, I, I mean, fair enough that it is a problem for China, but like, I wouldn't really bet against the ability to, like, build other stuff to get power they need and also to act ruthlessly to make sure they get what they need. And obviously,

Iran, as a relatively small share of their actual net imports, or else the manager will share, people also forget this, they're still like oil going to China. Because if they can control who's transiting the straight, they can also let stuff through, right? And they're limited to that,

“but like, if they're going to let any ships anywhere through, it's going to be the China, right?”

I mean, China's helping them defend themselves right now. They're actually earning more exports currently to China since the war started then before the war started. Yep. Yeah, exactly. So like, if, so, so, so the other thing is that like, if the argument that this is for the stress is that the straightest close, the irony is that argument would have to assume that the US Navy is the one close in the straight. And we're actually not. And we can't even reopen it

with the US Navy based off our own assumptions. I mean, you know, if they can fire like a missile at a ship off a technical within 100 miles of the coast, in what universes a US Navy, going to expose itself to fire from three sides from mountain range and like an actually hold that thing open. Like, it's not going to happen. So, repeat hex up this morning so that their Navy is completely obliterated and they're like 90%

destroyed. Yeah, and Ukraine ran the Russian Navy out of the Black Sea without a Navy. So like, I don't think that that argument makes sense anymore, you know? Like, Nick talked to me a little bit about bond markets. How does this affect bond like a bond,

“the bond markets? But you, you'll fan a bonds. Is that a, yeah, like a dabble?”

Great. At least this is not probably marked it, guys. Yeah, well, I'm, I, I, I'm a US national. So the stuff I can actually, like, buy without massive IRS liabilities in the US are in the, and he's the nightmare. So like, I end up getting shafted on the stuff over there, but anyway, I mean, rates go up, rates go up. Initially, obviously, it's, I actually don't think it's a given that that's true later in the year.

I think the US, the irony is that because the US has more energy that it can produce, but also is like letting its own labor market on fire over time by deporting, you know, like, people aren't here legally, unnecessarily and so on. You know, you're going to see like a higher kind of inflation effect in the US that you would in Europe, where the initial effect is incredibly inflationary, because the price of skyrocket, but then like nobody has a job.

So then obviously, the essential banks have to cut rates. So the irony is that like, if the damage

is more acutely fell faster in the US, rates would actually probably go lower faster,

the world, you know, what might start with a rate hike might end up actually leading to rate cuts late in the year, because people realize the scale, the shock is so immense that they just need to do it to be able to finance and pay for keeping things alive. You know what I mean, just like like keeping companies afloat and so on in the crisis situation. Good, God, Nick. Is there any silver lining in this at all? No, dude. This is the end

of Burnafter Reading. Like that's, that's, that's, that's the, this is the difference right now. Oh my God. What do we learn from all of this? Yeah. Yeah. That's literally it. Like, it's from an economic perspective, there's, there's basic interaction out, and it's all, it's all downside. You know, so like, I, I, you know, I'm sure there's literally a world in which we could see some kind of more positive outcome. If, you know, a flowering democratic Iran was a reality, but I don't really

see that happening, right? And I don't think that even if that was happening, we're still talking about one month of issues before this stuff gets uncorrect and kind of resolved. It's assuming that it ends like tomorrow. And like the latest that of the White House was that we're thinking about just like declaring victory and leaving, even if the street is closed. So leave it to somebody else's, yeah, you know, somebody else's problem, even though we can destroy it. Yeah. And that could obviously,

I mean, that could theoretically, three, a free-up some supply, but like, if you're, if you're Tehran, you just won. So you're going to keep pressing. So why wouldn't you want to try to get the, yeah, go, I'm sorry. No, I'm saying, like, why would you just be like, all right, dude, you want to kind of deal over harm, most fine, you better leave our end, too. Yeah. Like,

you're always on our $2 million toll for every ship that comes here. Yeah. But like, but like,

with, at that point, like, why would you stop? I mean, I know that we had the speaker, whatever, recently, just earlier today say that, you know, they're, they're open to negotiating, but like, he hasn't led negotiations at any point in the process. So like, see, I mean, if I'm them, like, I would just keep, I would, I would see this indication that they're winning. And then you just keep pressing your advantage when you're winning in a situation,

because ultimately their goal is to kick the US out of the golf. Like, that's the, that's the ball game, right? Um, thanks. Uh, good god, man. Yeah, I'm all right. I'm fine. I'll love making a portfolio as fuck. No, I'm just kidding. Jack, do you have anything else? Oh, my son. I mean,

“I think that's about it. Um, what I'll tell you, we covered that's important to this to the”

Persian goal. I mean, Nick, what are you tracking in terms of economics? You know, I did just for the record for everybody to know. I had helium and aluminum and other commodities on my notes to talk to you about what you brought it off. So I just want to make sure everybody knows that. I mean, it's not as directly

affected, but I do keep an eye on copper. Um, I obviously cover that for work, but they basically,

the short version of it is basically that, um, a lot of production in the DRC, which is kind of one of the main countries that's driven supply growth. The last five years relies on sulfuric acid. So if that market gets tight, that, that, that can affect production negatively. So it can, it can take off copper supply, but also copper is like historically the best commodity to kind of give you a sense of how healthy the economy is doing. And compared to oil, for instance, actually,

it's, I think it's actually a little bit down compared to one of the conflicts started. And I, and I actually think the market doesn't really know how to price it right now, but it's kind of, like, is assuming that the demand destruction is coming. So like, there's, there's already a signal

there, right? It might be a strong one to this there. Um, but yeah, I mean, the most important

stuff right now is to focus on like the physical markets for oil. So don't just look at, at brands, look at like what's clearing and Singapore and like, like, like, you know, it's from different blends.

“You know what I mean? Like, you have to kind of look market by market.”

Henry Hub is the name of the US kind of national gas benchmark. Look at the non-US benchmarks for national gas. So like TTF in Europe, aka for the LNG contracts going to like Japan and the Asia Pacific, track that, helium is a really transparent, it's a small market, but yeah, aluminum for sure. But I mean, the other thing too, to keep an eye on, to get a sense of like the scale of the, it's not the damage, the expected damage is like, like, look at like the announcements about like

EV sales when, you know, solar installations, battery installations, not even in the US, but like, you know, in Europe and across Africa, you know, in poor countries in Asia Pacific, like, that's actually really useful indicator for how much stress people are feeling. And I think that actually is a better way of understanding how structurally significant the current shock is that like, people in the US can take for granted the reliability of also fuel, you know, power and so on, but that's not going to be

“the case for a lot of people in the world. Nick, are you still writing on sub-stack?”

I'm starting it up against slowly. It's just like, the, the last like month was the worst

and then I'll just run. It's like, this is not happening. But right now, you had some of the

“good, good, good, really good, Russia centered stuff on there as I recall. Tell people where they can”

go to find that. Yeah, so the, the new sub-stack name is sick transition Gloria. So, you know, like, like, playing off the Latin phrase, but it's just, it's sub-stack.com. It's going to be a bit more open, so it's going to be some personal stuff. It'll have some stuff on just like metals, but it's, you know, I'm, I'm going to make sure that there's Russia content in there and it kind of comes back to Russia because I am what we're all going to, oh, I'm going to get some nightlife.

Well, I got to promote the, the book that I'm still finishing, hopefully for late summer on the Russian economy. So it's just like, nice. And that's called Empire of austerity. That's with hers publishers. And yeah, but we'll see exactly when it comes out. I'm, I have to go through the kind of last rounds of the editing process the moment, but it covers the evolution of the kind of political economy of the regime from the 90s up to last year through the lens of fiscal policy as like the

main character of like the kind of the original sin for lack of a better phrase of like, however, then came together. We want to hit that real quick before we get going just the Russia stuff. I was going to ask, I was going to ask a specific question about Russia. Like, I've seen that, due to the war, like parts of segments of the economy have like sparked up again, right? Like, they're manufacturing and building weapons and stuff like that in shells. Is there, have they built

up to the point where there are lobbying like the government to like keep it going because we're making up ton of money and like money's being injected into certain areas that didn't have it for a long time? So the unfortunate answer is yes and no. It's big enough that if you are a military

“manufacturer, you're obviously saying, give a key, keep giving us money, but your costs are increasing”

so quickly that you're not actually seeing a higher profit necessarily. Okay. The reality is the

Russian economy right now is probably already in recession. I mean, it was officially, it officially contracted to you're on your resid January, but the civilian economy has been in recession basically since late 2024 and initially it was very mild. You know, it was more like stagnation kind of a tiny take down, but it's been speeding up over time. And there's no like relief inside of a higher oil prices and really helping them. First off, they've lost 40% of their export capacity

for crude oil because Ukrainian strikes on the Baltic ports. Whereas, you know, Ukraine, Twitter will say, you know, Ukrainian sanctions. But like, you know, now that Ukraine has its own ballistic missiles, they can do a lot more damage to refineries into these targets and Russia is also just running out of AD like like the irony is that when Russia's size is its biggest liability when it comes to stuff,

“right, Ukraine can have a much denser air defense network than Russia can. And so I think that's”

finally having a bit more of an impact. But like the wartime boom is people kind of thought of it

was mostly a myth and it was really the first half of 2023 that people saw their wages grow in real terms because of some kind of quirks of the Russian economy, like the way the way the way the labor market structure it and so the short version of it to be nerdy is that like in the way that the budget system works when you have a procurement contract for like a federal project or with like a kind of a state-owned company. Typically, you're limited to pay 30 to 50% of that contract

upfront and the rest is paid on delivery. But in the beginning of 2023, because they really had to get mobilization going and getting more more stuff to the front, they allowed people to pay 90% upfront. So you just had this flood of money hit the market all at once, which created this kind of catalytic effect for suddenly all these factory workers either way to start rising because there's like a lot of demand for their labor and that smells over, right? And then on top of that you have

the wartime bonuses, so guys get, I mean, literally if you sign up and serve the front and die the front, your family gets the equivalent of like 35 years of like the average salary pay. So you're literally worth more dead than alive in a lot of parts of the country to like your loved ones in terms of how like the way the economy structure.

So they didn't use like mass transcription. They're they're broadening people to die. That's basically

the way that the regime is doing it, right? And and that has some positive effect, because obviously that money goes into people's pockets and they do spend it, but like you can't like you can't escape the fact that like virtually all the production increases in the economy are military since the war began. And you have high inflation domestically from a lack of labor and also sanctions, but like freezing like lack of labor because every single day we working age men are dying and

you're not replacing them and like it's not like massive, but they are cracking down a bit on like immigrant labor. So they're squeezing that more because the regime has become a lot more like kind of native as populist in the way that it approaches the rhetoric of these things, even if it acknowledges that it needs them. So yeah, I mean, I would also, I also wouldn't trust the

food and staples account for about 40% of the average households budget. The price of food and staples has grown at like twice three times and that's five times

“the rate of like official inflation in a given year since the war began. You know what I mean?”

So clearly something's going on there. You know, services for like tourism government, expensive because people couldn't fly abroad as easily. So like all the Russian domestic tourism

got a lot of price here. Like it's just you name it basically. There's a price issue of some kind,

even if like officially inflation is not too high because interest rates are really high and it come down some, but like that enough to immediately change the game. I mean, if you're still talking about an interest rate at like between 12 and 15% as low, you know, that's not that's not good. So yeah, I mean, I think if you were to live sanctions tomorrow, Russia would probably still contract economically for several years. Yeah. I mean, I want everyone to check out Nick's

sub stack. I want to put a link in the description as well. And when your book comes out, we'd love to have you back on to deep dive and give it a good push, especially.

“Yeah, of course. Jack, do you have anything? No, no. I think this is great. Thank you, no. Yeah.”

I mean, every time you do a show like this, it's like never good news. It's like never good news.

I need I need like a good news show or something like that. Or just give me some tips or something Nick, you know, I got a crowdfund a bunker. That's it. Yeah. I mean, the look, I mean, right now cash is came like stocks are probably going to lose value. So can't you want to have cash to deploy once things kind of settle a bit more? You come out of these, obviously, you save to hold in the sense that they're a hedge. So like if you know what you're buying,

but the problem is that like the scale of demand destruction will be so big late in the year that that's you can't always, you can't timing that's going to be a bit of a mess. You know, I mean, so like you can, so by the by any tf go ahead, but like it's going to be a bumpy ride. So we're short and stuff is what you're saying. Yeah. I mean, I would I would definitely, I go long on food. I mean, thinking if you if you like, if you prepare for food prices,

go up, like, and that's that takes longer to feed in the system because fertilizer obviously is planting season, right? So it takes months, but it shows up. Get ready for that. You know, that's probably safe. You know, if you if you if you have any exposure, but maybe a timber read. No shit. As best people start burning more of the stuff at home. I mean, I don't see a kind of exaggerating, but like the really weird stuff that is like a safe haven and the kind of current

shock. Good God, man. All right. So the end of the day is coming. What happens if the AI bottom falls out while this is going on? Well, I mean, when do you want to retire? I don't know. I mean, that's all. I mean, I just want teamhouse and revenues to continue to grow.

“That's what I want. Yeah. No, I mean, look, the AI was already a bubble everybody knew it.”

So the scale of the bubble is debatable and I don't know. I don't know. And I want to say

bubble. I don't necessarily mean catastrophic because obviously there could be a breakthrough of

like some productivity gains or whatever that leads to a search of revenue, but physically it's really clear that the scale, the data center build, the people are assuming is on shaking around. It can still literally materialize, but like getting that much power to grid that fast in the US is really hard and not really happening. There is definitely people like overreacting the kind of the assumptions about need because they're still going to be efficiency gains, they're still going to be other stuff. It kind of shows up.

But if that bottom falls out and the S&P 500 is going to take a massive dive. And, you know, I think that it would really be a reset on the narrative. Maybe not the reality, but I'm a narrative around power and energy stuff because a lot of the energy conversation last year has been like, how do we basically build like the grid and like the power we need to power these data centers? And, you know, if Taiwan, South Korea and Japan, etc., maybe even China,

I don't try it would be different. I'm making fewer chips later in the year or aren't making chips because they're running out of energy or like healing mode, that also is going to be an issue because like these data centers burn through chips right quickly, right? Like the high-end ones. Like if you talk about the highest end part of the market, it's like a couple of years whatever that they they depreciate. So, so like it totally changes the way we'd have to think

about the next couple of years for the investment plans. And I think that like ironically, that might have to be healthier. You know what I mean? I might actually be a better market in that sense. Yeah. But it would definitely take a big chunk out of the S&P 500 and people's kind of, I think expectations for growth. All right, you heard it here for a short everything, guys. Just about everything. Nick, again, really appreciate it, man.

Yeah, thank you. The link to your sub stack is down in the description. So please, everybody check it out. Everything else, all our stuff is down in the description. Check it out there.

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