U.S. Could Hit Tank Bottoms In July - w/ Economist Jeff Currie

Added: 2026-05-12

[00:00:00]is, why the market just doesn't doesn't seem to care about any of this.

[00:00:07]That's my question to you. Might you like why? Like for me this everyone I speak to every analyst we're we're already live, yeah. Every analyst I speak to um just tells me how unprecedented this is in many ways and and how it's impacted on multiple levels and and multiple supply chains.

[00:00:25]And yeah, I look at the markets and you know, look at oil and and other commodities and it just doesn't seem priced in. I'm not the expert, but I'd love to get your thoughts. That's a good first question.

[00:00:36]Well, I I think there's several factors why the market is discounting this.

[00:00:41]One is when they look at any of these disruptions like Abqaiq in September of 2019, it was a non-event when the Iranians struck one of the the Saudi fields. So, a lot of people in these markets that have been trading them for quite some time or more recently, you know, over the last decade or so have never seen anything of this magnitude, you know, you got to go back into like Libya in 2011 and um you know, go back into the '80s and '70s to see something of this magnitude to really appreciate the potential impact it could have on the markets. But I think a couple of other factors more near-term that are driving it is right now, we are in a deficit, not a shortage. That means that demand exceeds supply, we're drawing our inventories, but we haven't run out of anything. It's like basically, we are borrowing oil from the future to keep demand going. In fact, you know, I liken it to that scene in Jaws where the mayor comes out and he goes, "Beaches are open." Yet, you see the fin swimming around the shoreline and you go, "You know something bad is still in the water." And I think it's that the fact of the matter is you have really robust demand, everything feels good, you're drawing your inventories, but what happens when you run out? And I think that that is put in in some parts of the world it's happening. Europe it's probably you know, sometime in the next month to month and a half. US it's probably sometime in in July. By the way, the stock draws in in the US were you know, 2 weeks ago where you know, some of the highest I've ever seen. And we look at everybody goes it was only 11 million barrels. Um Stock draws that's from the from the storage that is the emergency storage. Exactly. And it just By the way, the US was a net exporter of oil. Let's remember everybody talks energy dominance, but the United States was is still short crude oil. It's a net exporter with the products, but with the crude oil it is short. And for the first time since the 1940s, it exported so much oil um over the you know, several weeks ago that it's now a net exporter. And it's drawing down those strategic reserves, exporting them to the rest of the world such that their refineries are going to have a problem, you know, look out in once month and a half it's going to be start to begin to bite. Um so, that's one. And the other point is you'll listen to most of the macro people.

[00:03:13]They're going to tell you no problem, no problem. You know, oil is a very small share of global GDP. It it has shrunk. Now, I want to be careful about the statement.

[00:03:25]I'm going to agree relative to prices, the price of oil spiking just doesn't matter. But just like the magnets that went into the the doors of Detroit cars as a price matter, they don't matter.

[00:03:38]But when China threatened to take them away, you would shut down Detroit cuz you don't have those critical minerals.

[00:03:44]Oil is the same thing. From a price perspective and a share of GDP it doesn't matter, but you pull it out of the out of the system, it matters. And the reason I bring this up is I like to emphasize the volumes matter. We in commodities, well, how do we quote things? We go millions of barrels per day or millions of metric tons, millions of bushels per day. We don't quote in notional. Macro people quote in dollars. Financial people quote in dollars. And that is a very important distinction. And And I remember we go back to it's very similar during COVID. I remember we were going, "You guys you have a problem. You got a problem. It's coming your direction."

[00:04:23]Every commodity guy said, "You got a big problem." Every macro guy, every finance guy said, "Oh, no, no, no, no." Boom, inflation's up 10% year-over-year. And it's because they do not respect the the idea of volumetric change. And I I I just want to give you an example like this. Let's say um I know I give you a hundred million dollars and you give it to some rich guy, he goes to Tiffany's and buys one necklace, all the diamonds on it and everything. Does it contribute to GDP?

[00:04:53]Absolutely, yes. The notional value will be a hundred million dollars. Does it create any stress on the system? No, not really. Now, let's take that same hundred million and give it to a bunch of low-income guys. What are they going to do? They're going to go out and they're going to buy corn. And because then the volumetric impact it has on the economy is much larger. So, notional hundred million dollars is the same, but the volumetric impact is radically different. And you know, one of the key points that we made back in COVID is who has that money and who spends it determines what kind of impact it would have in terms of volume. And so, when we think about this, people are going to you know, we look at notionally it doesn't really matter. I agree with that statement. It doesn't matter. It's small. But volumetrically, you pull it out, ouch. And I think that's what the world's going to learn sometime in the next, call it, three to eight, maybe 12 weeks when we start to run out of these commodities.

[00:05:53]Interesting. So, the way they measure it when they look at it notionally, they don't understand how significant it is when you start looking at it from a metrics perspective, volumetrically, then you start That's a better forward-looking indicator. Kind of gives you an idea of the impact it would have.

[00:06:08]That's a good example, by the way, of the diamond necklace and the $100 million versus coin and necklace versus coin.

[00:06:14]Um So, how if this continues, if we see a blockade for another, let's say, two to four weeks, um Wait, wait, I love how you say two to four weeks. Everybody has been saying two to four weeks since this started.

[00:06:28]>> It's like Yeah, exactly.

[00:06:29]>> By the way, I just want to emphasize the Red Sea um is still shut down 2 years later.

[00:06:37]It's only gotten back down 75%.

[00:06:40]The Houthis are not as wealthy as the Iranians, and they have kept it shut for 2 years. So, you have one evidence How do you believe this one's going to open?

[00:06:51]Where do you get your two to four weeks?

[00:06:53]You just randomly pull it out of thin air, just like everybody else, like these investment banks that are out going, "Don't worry, it'll be over with in two to four weeks." All of this >> So, so what happens if if the [snorts] Red Sea one is interesting because the Houthis have are not attacking ships. They haven't attacked a ship for months now, I think since September last year, from what I understand.

[00:07:13]How is it that many ships still don't go through the Red Sea?

[00:07:17]But would you risk it knowing they're still there? Would you If you're providing insurance, would you let them do it? And by the way, let's be very clear. Why haven't the Houthis attacked?

[00:07:26]Have you ever looked at the flags of those ships leaving Yambu? All Chinese.

[00:07:32]Um So, they don't basically I think I also I don't think people really grasp the idea is that, you know, China is an ally of Iran. Russia is an ally. This is BRICS versus the G7 essentially. And when we think about you know, who's going through there, there's no Western flag vessels going through that that that area in the Red Sea. So, part of the reason why is hey, I you know, are you going to let me ask you this as a as you know, would you get as a crew on one of these ships and go through the main passage of the Straits of Hormuz in the next 3 months or um one probably not. If you're an insurance company, are you going to provide insurance for a ship going through there for the next 3 months? So, let's say, you know, I think we get an announcement out of President Trump somewhere around 1:00 p.m. Eastern time today. Um they let's say they make that announcement um and everything's peace.

[00:08:26]I don't buy that's going to be the case.

[00:08:28]I'm not a believer that that's the outcome. But, let's say that does happen. Are people going to get in these ships and start going tomorrow?

[00:08:34]Absolutely not.

[00:08:36]In fact, you want to be absolutely sure as an insurance provider, there's no guys sitting up in the caves up there with you know, rocket launchers, drones, or whatever. You got to make sure there's no um there's no um mines sitting in there.

[00:08:50]This is going to take an extraordinarily long time. So, I go back to the point, we have one observation, Red Sea, it's still not open.

[00:09:01]That is really bizarre.

[00:09:03]Like if there is a peace deal between both countries, I'm still struggling to understand why ships wouldn't go through. And what are there there's no alternatives. The the world needs what comes out of the Strait of Hormuz. So, I understand there's a risk involved, but it's not like there's alternatives. The Red Sea, there are alternatives. But, when it comes to the Strait of Hormuz and the amount the volume of energy that comes out of there, oil and gas, and fertilizers, etc., that there is there is no alternative they could replace it with.

[00:09:27]I I I I I personally would not get in one of those ships and sail through there tomorrow morning if there was a peace deal announced this this Um and I don't most of your listeners probably wouldn't either.

[00:09:40]But during the tanker wars, from what I understand, ships kept going through the Strait of Hormuz. Technology was radically different. There was no such thing as drones.

[00:09:49]Technology was not sophisticated back then. Um, and now you have very highly sophisticated $40,000 drones that can sit, maybe launch from places up in You know, I think it's important to think about the the topography there. On the UAE side, you know, it's flat desert. On the Iranian side, it's steep hills up in there.

[00:10:10]Um, so the ability to hide this stuff in there. And also the IRG is incredibly fragmented. So, you don't even know who cut the deal. So, again, I'm the crew guy, I'm not getting on that boat. I'm the insurance guy sitting here in London and I can, you know, I'm in London, by the way. With somebody sitting in London, am I going to underwrite as Lloyd's, uh, you know, one of these ships going through there? I'm not going to. And I don't think they will, either.

[00:10:34]I want to be really sure that the situation has stabilized. And I think that's one of the key issues here. And by the way, then, let's say you've dealt with that problem, then you got to go and restart the fields that have been shut in.

[00:10:48]And so, you then you're going to go there I don't know if I should point out in COVID, we shut these fields down. How long did it take for them to come back on? 2 years to get it back up in many cases.

[00:10:58]Um, and I'd like to point out, Iran, in 1979, they shut in at at 6 million barrels per day during the Iranian Revolution, and only got up to four. And it took a really long time to get back up to four. So, and then you got to re-drill it. By the way, for as an investment recommendation, I love the drillers. Why do I love the drillers?

[00:11:16]Um, you're going to have to go in there and start re-drilling these wells. In fact, I'm on the board of Board Drilling, who I is going to be one of these entities having to operate in there. And so, I, you know, I really think if, you know, people are underestimating how much CapEx, how much money. And also, we don't know the damage. My bet is it's a lot worse than anybody has let on at this point.

[00:11:37]A damage to the energy infrastructure of the Iranians? By the way, just shutting a well. That some of these technologies are relatively old and they have high water cuts.

[00:11:47]Um so, the question is what kind of damage do you do when you shut them in?

[00:11:50]And then the question is how much of actual physical kinetic type damage have they suffered? We don't know the answers to those questions right now. What we do know, we know um Ross LeFon um it's probably has big chunks of it that are likely to be out not for months, but years.

[00:12:07]The Qatari one?

[00:12:09]The one that goes in Qatar and Iran?

[00:12:11]Yeah.

[00:12:13]I was reading somewhere, I'm trying to find the article. I was reading somewhere that Iran has found alternatives and and it was a detailed article in um in showing they don't have to shut down their wells. One of them is using old tankers to store the the oil in the Persian Gulf. Number two is land-based routes. They kind of started developing their own land-based routes, alternatives to the Strait of Hormuz.

[00:12:33]And number three, slowing the extraction of oil so the wells don't have to be shut down. And a few other things that the article went into detail >> is another port they can use on the other side. By the way, they they they've been doing this for how long?

[00:12:46]Um you know, it's the you know, they they've been thinking about this for decades.

[00:12:51]Um you know, the Iraq, you know, there's a lot of ways for them, you know, to get back What I don't understand that Bloomberg article that came out a few hours ago about that Iran pulled over that shiny ship and it had Iranian oil in it. I don't understand why that was news and why they pulled it over, but it it points out that there's stuff moving.

[00:13:08]There's a lot of stuff moving.

[00:13:12]Just not American and Western flags stuff that's moving.

[00:13:16]So, this is like this seems like great news. This whole thing is just a blessing for China.

[00:13:22]And just terrible for the West. Is that Is that fair to say? 100% and um because what does China China make? They make the electron world. They make solar panels. They make batteries, EVs. They got 50 million units of EV capacity that's idle. They don't know what to do with it all.

[00:13:44]So this is almost like a blessing and you think about the parts of the world they're going to get hit hard. It's going to be the emerging markets. When we think about COVID, it the developed markets got really they got hit hard.

[00:13:54]Here the emerging markets are going to get hit hard and who are going to be the potential buyers of all of this that that China has to provide is potentially going to be the emerging markets. So when I think about you know your point here is you know it's a fine delicate balancing act, but I think the other point is that people really didn't highlight was what happened over the weekend with orders 834 and 835 orders from the Chinese that essentially said if you obey US sanctions, you are in violation of Chinese law. They just went on the offensive. Um and >> Can you explain that further? That's the first time they do this, isn't it? Yes.

[00:14:35]You know it's part of the it's it's one of these rare earth moments. It It was in October of last year when they when they countered President Trump's tariffs with guess what? We're going to cut critical minerals. They basically weaponized the periodic table. And once they do that and it's like 22 of them that they had taken out and then everybody realized uh-oh, I need that magnet in that door to produce that car in Detroit and now they've just done the same thing with oil. And remember they have 1.4 billion barrels of strategic inventories built up and they built another according to the IEA built another 40 million barrels in the month of March.

[00:15:15]So they've got a huge cushion.

[00:15:17]>> In one month.

[00:15:18]Yes. And remember because their allies Russia, Iran and remember that ultimately what was Venezuela I like to point out you look at Russia, Iran, and Venezuela. They were essentially yeah, I hate to use this word, you know, colonies for China. You know, China was the one funding and investing in these places and essentially taking all of the output of the commodities back into their country again. So, when we looked at um the balances, you take Iran, Venezuela, Russia, um and then you take it relative to China, China's essentially it's got the same energy dominance that the America does when you factor in its colonies.

[00:15:55]Now, it's lost the 800,000 barrels a day that it was taking from Venezuela and it's probably not very happy about that cuz it pumped hundreds of billions of dollars into Venezuela for that production. Um and which is why you look at China, it's what's really changed here, they went on on on the offense.

[00:16:11]We're going to see what President Trump announces later on this afternoon, but I think actually for me it's in the afternoon. The um but I think the you know, the the the issue here is I I'd be surprised if he actually goes next week cuz um the situation in Iran hasn't actually improved that much. And also you look at China, they they have become more aggressive.

[00:16:33]And there's reports now of clashes between the US and Iran as we speak in the Strait of Hormuz according to Iranian media.

[00:16:40]Which goes to your point that this is going to someone told me yesterday, one of my guests, like my they expect us to become the norm.

[00:16:47]They expect this to the the the clashes back and forth which uh for we can highlight your point that it's not safe yet for ships to go through and traders don't understand the significance of uh of the crisis.

[00:16:59]I want to go back to Well, I want to be careful. Commodity traders understand the significance of the crisis.

[00:17:04]Financial traders do not understand the significance of the crisis.

[00:17:11]Uh I want to go back to um Iran. So, Iran, let me find it. Sorry, China. The US sanctioned five Chi- five Chinese refineries for buying Iranian oil. China's response, a formal legal order declaring those sanctions null and void inside China and prohibiting Chinese companies from complying with them. This is the first time China has ever formally activated its blocking blocking rules, a legal mechanism it created in 2021 specifically for this moment. The practical effect, banks, shippers, and multinationals operating in China now face two contradictory legal obligations simultaneously. Obey Washington or obey Beijing.

[00:17:48]Um, so that was a few days ago and then yesterday there was a report from Bloomberg that China's financial regulator has quietly instructed major banks to halt new loans to US sanctioned refineries with Iranian oil ties.

[00:18:01]So, I was I was a bit confused when I saw that report from Bloomberg yesterday and then the initial report three days ago.

[00:18:07]Is China still you know, not abiding by those sanctions and and pushing back against the US and how significant is this? But I I think I'm I didn't I don't I can't confirm this, but I think there was a threatening response out after 8:34, 8:35 was just what you're referring to from you know, you know, the the the Treasury Secretary Scott Bessent. Now, I think it's important to understand how these secondary sanctions work.

[00:18:36]>> Bessent sorry, Bessent commented Bessent commented on this? Yes, I I think there was another comment in between that. But if I am China if you secondary sanction something like one of these oil companies, it's not that that bad. If you secondary sanction one of your banks, you got a problem.

[00:18:53]Which I I I if I'm China, I probably do that. So, I think it's important to understand this is that the way these the way they get you is through the Swift system. And by the way, China has its competing system which is CIPS, which is cross-border inner payment system. It's still not you know, in terms of you know, Swift is the dominant one. The banks still have to finance, you know? So, if you think about like these refineries I hang with, you know, they they got a ship that comes in there, they you know, the port, you know, they don't want to touch it as it goes through there. They're willing to take that kind of hit through there. You hit one of your banks and you cut them off from the Swift system, you got a much bigger problem. Um and because you're going to have other bunch of goods going in and out, going to US, going to Europe from these different ports, the last thing you want is one of your big financiers getting taken out.

[00:19:38]So, you know, couple ways. I think initially people go, "Oh, they're abiding by it."

[00:19:42]No, I'm just they're just playing safe at this point because you don't you don't want it. But, I think there was a By the way, if I was the US, once they did that, I would have countered with something pretty aggressive. And then but the equivalent is I I'm China, you know, I I actually want to make sure that when these secondary sanctions hit, I don't end up shutting down, you know, key exporting parts of the economy. And by the way, these the secondary sanctions are a nuclear option here. They're they're hardcore. I remember I was at Goldman at the time in 2018 when Mnuchin used it against Russia for election tampering.

[00:20:17]And I remember that morning, woke up, everything shut down. You didn't everything was a hot potato. You didn't want to touch anything. And even I think Mnuchin turned around and went, "Whoa, what is this thing?" And then By the way, from that point forward was the de-dollarization trade. From that it was March of 2018. I remember that day so clearly. From that day forward, Russia sold down all of its treasuries.

[00:20:38]You know, it was something like 94 billion. They replaced 40 billion dollars of gold and 40 billion dollars of physical greenbacks in case they had to actually con transact in dollar bills, so they used the physical so they couldn't get hit with Swift. And then then the big event was when in 2022 when Europe and the United States froze the central bank assets of Russia. It was roughly about a 300 billion-dollar freeze. At that point, China and the rest of the emerging markets were done with dollars.

[00:21:13]And so they started de-dollarizing, and that's when gold started its, you know, epic ascent and going going going forward. So I think this is just part of a bigger de-dollarization story that I don't think is it hasn't even ran its course.

[00:21:27]So you you look at gold reserves, you know, they've got a long ways to go in China, you know, to get up to levels of gold that would be equal to the reserves like many of the different Western central banks. So that's why right now I'd be bearish gold given what's going on with the hawkishness of the central banks and the fact that you're going to have to sell.

[00:21:48]We actually is the Polish central bank said, "I'm going to sell gold to pay for defense, pay for energy."

[00:21:53]So I'm short gold right now, but once the banks turn the central banks turn dovish, I'd be locking and loading on gold, you know, and the upside here is massive cuz this de-dollarization story is just getting going. And I would argue what you're talking about is just reinforcing it. You know, the question is they're going to be looking at multinationals going, "Take your choice.

[00:22:15]Are you going to be in Swift or are you going to be in CIPS?" Which basically it's just reinforcing we got a US block or China block. And by the way, everybody was talking about that oil glut way back when. What they failed to realize is you have two supply chains.

[00:22:29]You got a supply chain based upon CIPS in China, and then you have a supply chain based upon Swift in the United States. And that other one's getting bigger and bigger.

[00:22:39]CIPS Who who uses CIPS right now?

[00:22:41]Most like all of the Hang Seng and all of those those anybody who transacts in sanctioned commodities uses CIPS. And by the way, it's not on the global trade >> who who would it be? Iran, Venezuela before Russia. Yeah. Yeah. And and roughly when you looked at it last time I looked at the numbers it was like November October. It was small. It was like 2 to 3% of global trade. So, it's still relatively small, but the point is it's growing. And events like what you're referring to with with the the counter sanctions by by China just re- By the way, that means they're they're going on the offensive and they're now getting aggressive. I think that is really the key message here. So, but the first point was last October when Trump hit them with tariffs and they go, "Okay, we're cutting your your your critical minerals." Again, that's when they weaponized the the the periodic table. And by the way, immediately um the US goes, "All right, truce. Let's give it a Let's give it 1 year."

[00:23:39]Um and the main idea was that the Americans were, "Oh, we can get some of our own critical minerals somewhere."

[00:23:43]Well, they haven't achieved that. And at the same time, the Chinese go, "Oh, we'll take the this year to readjust our economy to become more consumer-based."

[00:23:51]They haven't done that either. So, we'll see what happens. But both of them are buying that time to be able to to smooth out their situation.

[00:23:59]In a way, it's good to have them both dependent on each other as long as possible.

[00:24:03]>> Mutually assured destruction.

[00:24:05]Exactly, exactly.

[00:24:06]Um talking about the Swift and the Sift, is it A lot of people are talking about this war in Iran being all about the dollar, or at least the dollar playing a role in that. And Iran was being, you know, using the Sift and being an alternative to the dollar and being one of the countries that is uh um that is part of the de-dollarization process.

[00:24:24]Is there truth to that in your opinion?

[00:24:26]Do you think that played a role in Trump's decision to start this war?

[00:24:29]No, I don't think so. It's too small relative. I I think this was more by accident than by strategic um planning cuz I think the target was to take out the regime. I mean, that was the Take out the regime and focus on and containing the the the risk of a nuclear weapon. That was the primary reason.

[00:24:50]That's what they state as being the I'm going to even go That's what they told you was the primary. I So, I I think the dollar was there, but I And also, let's go back to what Bretton Woods is all about. Bretton Woods, which was signed in 1944, was centered around it was called the grand bargain. The grand bargain was that the that the Americans now with this dominant huge navy at the time, which by the way they inherited from the British. And it's not the ships, it was all those islands like Diego Garcia and everything like that around the world, which by the way the British inherited from the Spanish. So, it's kind of the Western's navy. Um and they said, "We're going to protect global sea lanes.

[00:25:31]And we're not going to be like previous conquerors and overtake you. We're going to give you money. We're going to protect global sea lanes and we want you guys to trade.

[00:25:40]The only condition is you got to use the US dollar." And by the way, nobody used oil before um Bretton Woods and World War II. The United States was 95% of global oil consumption at that point in time.

[00:25:54]That's part of the reason why it won won the Second World War is because it was so dominant in in energy at that point in time. So, what was the most important commodity in Bretton Woods? It was oil.

[00:26:04]So, I like to say that the the dollar was the heart of the system, the US navy was the muscle of the system, and the oil was the blood that through flowed through the veins of the system. And importantly, the stats that came out last week were the first ones since 1944 where the United States was a net exporter of oil. And that's important because that period from over that whole time period, the US was a net importer.

[00:26:29]So, it had an incentive to protect global supply chains because it had to move that oil into the United States.

[00:26:38]And so, by around 2021, 2022, it became a net importer exporter of product. So, you know, the shale revolution go, do I we really need that deal anymore? So, it don't So, that whole point about dollars, I don't think is it. But I want to emphasize to Americans is that that exorbitant privilege, that grand bargain, that the fact of the rest of the world uses the dollar, provided cheap credit for Americans. You know, I like to point this out. Right now, today, if you go to Switzerland, you can get a 30-year fixed mortgage for 50 basis points.

[00:27:12]Why? Because everybody has bought Swiss francs like gold to protect themselves.

[00:27:18]And when that strong currency gives the Swiss people the ability to borrow money really cheap. Americans get that exorbitant privilege. So, now, if you go in there and you create an environment which you don't force people to use a dollar and keep the dollar as being the dominant reserve currency, it'll drive up the cost of everything in the United States.

[00:27:38]But, then the US is in a position now where militarily, which is the the the final leverage, the final card, militarily, they need to ensure the dollar remains the global reserve currency.

[00:27:49]Um So, won't we see Why why why why why why why do you say that?

[00:27:56]Economically, I agree with that, but not militarily.

[00:27:59]>> Yeah.

[00:28:00]But, because like it's almost existential to them.

[00:28:03]It's existential to the American economy, especially with all the debt.

[00:28:06]So, they're in a position where enforcing the US dollar as a reserve currency has become so existential that if it means militarily enforcing it, so be it.

[00:28:17]That's a worry long-term.

[00:28:19]But, if you meant if if it was military force, then why why are they blocking the the straits right now? It goes against the grand bargain. The grand bargain is what keeps the dollar as the reserve currency. And so, if I'm Saudi Arabia, I'm Kuwait, and I'm UAE, and I'm Qatar, I go, "Hey, wait. I have all these military bases here. I signed up to the grand bargain, and why can't get my oil out?" If you're like doing that, you're going, "Hey, um, know, what am I going to do next?"

[00:28:48]And I think it you have the strategic alliances are going to get rewritten on the back side of this.

[00:28:53]But those true but those Gulf countries also don't want Iran controlling the Strait of Hormuz.

[00:28:59]Right. But isn't it but isn't the United States supposed to prevent you from pre- prevent them from happening?

[00:29:05]And also, if I And here's the problem with the US military and its dominant position is we look at, you know, a part This was I I'd argue this was bound to happen, no matter what, because it was too expensive for the Americans to continue.

[00:29:18]And by the way, as Stephen Moran wrote that paper making this point, it's too expensive to maintain the global hegemon of that dominant system. Now, it has a cost. If you lose it, you lose the exorbitant privilege.

[00:29:31]But we look at what happened, you know, in the last, I think it was 24 months when interest rates went higher, um, you know, Medicaid and and social security are the number one line item. Number two is the interest payments, and number three is defense.

[00:29:46]Um, so at that point, maintaining that huge military, but I know the Trump administration wants to take the budget up over a trillion dollars, which I don't know how you're going to pay for it.

[00:29:57]Um, but I think, you know, the key point here is that's a really expensive operation. You need to have that dominant dollar position, but that dominant dollar position is driven by the the fact that you keep trade open.

[00:30:12]Like, I want to point this out. When China moves a cargo of copper from Chile to to China in Shanghai, um, it does because the United States protects all those sea lanes in the Pacific. So, the United States is paying for that, but it better get the benefit that people use the dollar, keep their borrowing costs relatively low. So, I think that these are really serious questions that have been brought up as the Americans have now To de-dollarize, someone needs to replace the naval power of the US to be able to enforce global trade along with the US. So, that dependence on US for global trade makes it harder to de-dollarize, no?

[00:30:52]Yes, but well, but actually >> has been doing selective enforcement now, instead of enforcing global trade and freedom of navigation everywhere.

[00:30:59]Actually, somebody made the point is we always had a global hegemon since Waterloo, 1820, when the when the British knocked off the the French, they became the global hegemon. And by the way, that's when carbon consumption started. They put coal on the ships, and they had this big navy they could run around the you know, in fact, the neighborhood I live in here was here in London was created around that time period.

[00:31:22]Um, that's when globalization started.

[00:31:24]We had had a hegemon since 1820 until now. And and in 1940s was when they British gave up the title of hegemon and gave it to the Americans. Actually, some before then, the world worked with like the Dutch East India Trading Companies.

[00:31:39]Are we going to go cuz right now, China can't be a hegemon.

[00:31:42]Indicates the US have the money to continue to be the hegemon. These are questions that that need that need to be asked. And you know, in fact, I I have Chinese friends here that they sit on their on their phones, and they know where the position of the USS George Washington is. It's in Tokyo right now.

[00:31:58]The fact that they have it on their phones and know where it is is they're going, "Hey, it has to sail to Iran. 10 10 days they got to consolidate the Pacific." Um, and the fact you look at the the the USS Gerald Ford, kitchen fire, is sailing back to Norfolk. It's going to be in in port for, you know, a um, a year and a half, I hear. I I'm not an expert, so don't quote me on that point, but it's but the reason I'm bringing this up, the system is stretched.

[00:32:27]So, with the question of what are you going to replace it with? And actually, somebody made this point to me and he and then they're um, talking their book probably cuz they provide um, uh, defense you know, equipment. But they, you know, may the point. We go back to a world. Is it like the Dutch East India Company where you have big state-sponsored, um, commercial entities?

[00:32:49]Um, they have to provide their own defense on their ships. They got drones and everything like that. And we're not trading in the dollar. We're trading in tokenized whatever, you know, stable coins or, you know, tokenized gold, tokenized silver. Yeah, I know I sound like I'm sci-fi here right now. That's not that far off from reality. Um, so, you know, I think we we're we're going into a new world. And By the way, you know, the, you know, I will say this is President Trump asked all the right questions. I don't want us get into debate whether or not it's the right answer.

[00:33:20]Uh, but I think the, you know, these are these are issues they they were percolating anyway, long before this ever happened. Um, and so, when we think about, you know, the the the the question, because the, by the way, the reason why this all happened now, interest rates went back to 5%. Interest rates went to basically zero after September 11th in '02, '03. I remember um, that's, by the way, we can get into finance and row rows. And actually, it was '04, risk on, risk off, because interest rates were basically zero. They stayed that way all the way until '22, '23. And boom, they popped back up into that 4 or 5% and wallah, now interest rates are above defense and everybody's going, uh-oh, this is really expensive to maintain.

[00:34:04]And so, those 0% interest rates just hid all these problems for about a decade.

[00:34:11]Hid, but not solved. You can't solve those problems.

[00:34:13]>> Hid, hid, very good point. Hid, but not solved. You said something earlier, China cannot be that global hegemon. Um, why?

[00:34:22]The, it's not big enough, doesn't have the resource base. Um, also, the reason why the Americans, everybody goes, oh, you can replace, you know, the yuan as being the petro yuan and it all works.

[00:34:32]No, it does not work. They are a net exporter and they're not a net importer.

[00:34:36]The United States imports goods and exports capital. Um and China is not that big yet and it doesn't have that capability and it doesn't have the consumer. Remember reason why um the US needed that time and that truce on that tariff trade battle to basically try to get its own critical minerals. Um China needed it cuz it needs a consumer.

[00:34:59]By the way, neither one of them are solving their problems. And to get the consumer, by the way, I do wonder and ask the question, did the consumer Nobody's ever seen a consumer like the American consumer. Was it a function of the grand bargain which gave them the cheap capital and the credit to go out and consume and do all this? The Chinese will never get that opportunity. I don't think the Chinese can create. Nobody's ever created a consumer like the American. So, I don't know if the Chinese are you know are capable of it.

[00:35:25]But, the other point, too, is that navy the United States has.

[00:35:29]Again, let's take Diego Garcia. The Spaniards got it way back when and then the Portuguese, then the British inherited from them. That's the West.

[00:35:38]This thing that US Navy just didn't pop up in 1942 overnight. A lot of it was developed by the West over centuries.

[00:35:47]And so, when we think about China, it it builds puts sand in the ground to try to create its own islands, you know? So, it to say it can go out and be the hegemon overnight, I I don't I don't know. You know, I there's no way you could replace it. It can have a functioning bond market like America, the consumer like the America. It can't have all those ports all over the world like the British and the Americans did. It's just it's inconceivable. Um but the but the problem is the Americans don't have the money to do this. It made sense in 1944 when the United States had all the world's production capacity, all of the the world's military. Um now we're 80 years past that and that that that stability of that equilibrium that existed then doesn't right now. So, we're ultimately I think what the the the heritage of this Straits of Hormuz issue, you know, I think it's going to turbocharge commodities, which we'll talk about later, but I think the bigger issue is going to rewrite global alliances. And I think what's happening is we're getting the world more dependent upon commercial or transactional alliances and less on strategic alliances.

[00:36:54]Yeah. That's a very good point. Very very good point. I think the Gulf has learned that the hard way. Asia and Europe learned it the hardest and Asia's learned it probably the hardest as well.

[00:37:03]Now, they need China. They need Chinese reserves. I heard that China China's considering giving some of their reserves to neighboring countries. Is that true?

[00:37:10]Yeah. They got They got basically As part of a way of doing it, is they they let up on the the export ban. And so, they're exporting to places like Philippines, Thailand, and those parts of of Southeast Asia. Because it's a fine line for them to balance. They kind of like this because they want to provide all of, you know, the the electrons into that world. Cuz think about United States is a petrostate.

[00:37:33]It's a molecule state. Russia is a molecule state.

[00:37:37]China is an electron state and Europe is an electron state. And so, if you're building all the electronic equipment, you want to make sure that these emerging markets end up being dependent upon electrons, not upon molecules.

[00:37:54]So, how's So, if we're going to see You haven't mentioned multipolar world once. Why is that?

[00:38:01]Because it's a bipolar world.

[00:38:04]So, just China and the US? China Who who who even comes close to it? I just Didn't I say that Russia, Iran, and Venezuela are colonies to China?

[00:38:14]>> But So, the Russia's not a not part of this India and the Europe as a block obviously they they're lagging right now and they're lacking stuff.

[00:38:20]>> Europe's the one I I you know, I live here.

[00:38:23]You know, I dual passport American and British. I love Europe and I do believe Europe will come out of this much much stronger. But right now, you know, it's it's it's in it's in a it has an identity crisis. But the situation for Europe Europe's the one that's I it's like you talk about, you know, not paying attention to what's going on around here. It was that day that Ross LaFon got blown up. I remember dinner here.

[00:38:52]Mark Carney was visiting and Kier Starmer and Mark Carney were over here jogging in the Hyde Park. There was not one emergency ministerial meeting. I'm doing some talks here actually in in Madrid here soon and it's all about AI. Not even about energy.

[00:39:09]Yet this is the part of the world >> AI is energy.

[00:39:12]Yes, exactly. AI is energy. Energy AI dominance equals energy dominance.

[00:39:19]And I And if you ask me, where is this disconnect coming from? And the disconnect comes from the fact that every policy maker is telling you don't worry about this.

[00:39:28]And and again, I think it goes back to that point I was talking about notional versus versus volume. They don't they they they go, oh, it's small point. It's not going to matter. By the way, it was catastrophically bad for Europe in 2022. This is bigger than 2022 by a substantial magnitude. Why are they asleep?

[00:39:54]Okay, so we'll we'll cross Europe out.

[00:39:56]Not that I put it there anyway.

[00:39:58]>> No, no, I I can't cross it out. By the way, I I I love this part of the world and but it's just it struggles politically. And I think that but ultimately I think when you have a crisis come How did America finally become 13 colonies and become the United States of America?

[00:40:16]It was through crisis. And I think that this crisis the time that that And by the way, again, Trump identified the problem. Europe needed a divorce from the United States. Yeah, it does going to be painful. It's going >> yeah, yeah, yeah. It's like it's like when you It's like it's like if you have a loved person and you support them financially all their life, they become dependent on you. They don't build their own life, their own job, their own indepe- inde- independence. So then, you know, you thinking you're doing the the right thing by supporting them financially, you you're actually just sabotaging them. Or the old saying, "It gives someone Don't give them fish, give them learn them how to fish instead." or whatever it is.

[00:40:51]>> Yeah. Yeah. That's Europe. Or and India?

[00:40:55]India?

[00:40:56]>> I noticed earlier but it's part of the >> part of the It's part of the BRICS world. Um, you know, in terms of, you know, that's the one thing about, you know, the the LPG is a problem right now in China. That's the liquefied petroleum gas because the Gulf was a huge provider. But, you know, if you're Russia, those India is part of your your alliance. You get it's the BRICS. By the way, the BRICS are part of this, too, is, you know, they never get consulted in anything. They're always been second fiddle to the G7. So, when they look at this, they're going, "Hey, they're They want respect. They want to be included at the table. They want to be a part of the decision-making process."

[00:41:33]Um, you know, I'm not going to get in the poli- I don't want to go near all these geopolitics and these these issues here. But, I think there's a lot of it issues that are driving a lot of this going, "Hey, um, you know, respect us in a way." And I think part of what goes on with Iran, they want they just want the sanctions re- lifted. Do they really If you listen to the older Khomeini, he never wanted to use the bomb. They used the enrichment and the bomb. They just want sanctions left and respect and be part of the the broader world. I don't want to get in the geopolitics of this anything like that.

[00:42:01]>> this this whole episode upsets me so much. So unnecessary. Um, so how bad could it get? If this I know you said if this blockade continues two to four weeks, if this blockade continues um and and we don't have a peace deal soon and an opening of the Strait of Hormuz, which again an opening doesn't immediately mean an opening, we could see clashes like what we saw just a few a few minutes ago again have pop up. But what would it work in the how bad could it get for the global economy? Are we talking like could it get to the level of what we saw in '08, the financial crisis or that this we're far from that.

[00:42:36]I By the way, the the only '08 financial crisis was driven by too much private debt. That's just a different animal. By the way, Very very different. What I mean is that the impact on the world, not not in the the same type of crisis.

[00:42:50]But I the situation here, um if you ask me if we were doing this 3 months ago, what what would the story I would have told you? I would have told you the world is out of hard assets. We I called it the revenge of the old economy. We've been putting all of our money in new economy asset light. Why, you know, like Mag 7, infinitely scalable at zero marginal cost. So all the money went into this. What do you want to call it? New economy asset asset light, um Mag 7, um I'm probably missing another term.

[00:43:24]What I would have said is we've starved the investment that should be going into hard assets low obsolescence or halo or heavy asset, whatever you want to call it. But actually I heard another one for hard halo, which is hard asset local operations. They're all kind of the same story. We know that. And by the way, it was working. I I by the way, I personally had that trade on. It's the great rotation. We're going to rotate out of Mag 7, out of all of those into these halo assets.

[00:43:56]Um the pricing was moving that direction. We have to. How are we ever going to do AI? You need to have What did I pound the table on? Buy copper. Um buy all you know, all of the you know the turbines, Um the you know the transformers, the grids, all of this hard assets and then you needed military equipment here in Europe. You needed infrastructure.

[00:44:19]You needed all of these investments because they've been so neglected and ignored at the expense of new economy and tech since 2014. By the way, I want to remind everybody in 2013 and 2014 you could not give Microsoft away. You could not give Google away. All they wanted was energy and commodities. I got to point I was like I used to call myself in 2014, 2015 rockstar turned wedding singer. You know, I couldn't do anything wrong in 2013, 2014 because everybody wanted commodities. And by the way, it was the end of the party. It was just like today. It looked you know everybody wanted you know people talking about energy companies, gold companies, all this stuff. They could do nothing wrong. And then 2014 happened, the bottom fell out of it and we went into that tech boom. And by way, historically, there's only two industries that matter.

[00:45:10]Energy [snorts] and tech. Either you got to turn the lights on and not nothing happens which is energy or if you don't innovate, you'll never progress. And that's why we rotate and you look at it goes from Exxon to IBM, IBM to Exxon, Exxon to Microsoft, Microsoft to PetroChina or Exxon. It just rotates back and forth.

[00:45:30]Right now, tech is at the top. And by way, Exxon's lower today than what it was before the war started. So anyway, that was a story I told you that in this warehouse >> possible? Why is Exxon lower now than before the war? People don't think there's a problem. They think the same thing you just said. This is over with in two to two to very that's why I questioned you immediately. But no, even if it's even if it's over in two to four weeks, that's not a good thing. Two to four weeks is still a lot of damage to the economy and the straight of almost doesn't suddenly become peaceful.

[00:45:57]So I'm saying over as in like a peace deal is signed but not the problem is If you listen to if you listen to all these people they're buying equities like this 1999 in fact if you why wait in 1999 the NASDAQ I think we were at 82% that was getting to the end of that by the way how did what how did that tech boom end it ended with September 11th the big geopolitical event you rotated out of new economy into old economy in fact I remember it was in February of 02 we coined the term the revenge of the old economy because then you go okay we've been putting all of our money into dot com choking off the investment into old economy by the way it's the same story you replace data centers with broadband everybody wanted energy cap you know you know it was a exact same story then you rotated into the old economy and also China how did it come into existence is it came directly out of September 11th George you know President Bush at the time needed to use force in the Middle East traded admission into the WTO for a vote in the UN Security Council to go use force and boom we're off to the race in China so these big geopolitical events that occur typically sit in these rotations out of out of new economy into old economy we're in the old economy a boom until 2014 and then it ended by the way ended in spectacular fashion and so you know I've been doing this stuff for 30 years I lived through the 10102 and lived through it 2014-15 we're in one of these big transitions right now today I think this one is going to be bigger than anything we've ever seen in any of our lifetimes And it goes back to something you started with which I really like I actually wrote it down and this world the US is drawing from the future what with us oil with us increasing that debt or the reputation the relationship with all their allies short term you know they've been sacrificed for American interests but long term is going to backfire and that kind of links to the the 01 thing that led to China rising So, that could be very similar. But, um Jeffrey, it's a I really enjoyed the conversation. I I thank you for for giving us your time.

[00:48:03]Perfect. Thanks for having me. It was enjoyable. Thank you so much. Thank you.

[00:48:07]All right, everyone. I'm um I really enjoyed these conversations where I just learn something new. I'm sitting there listening and learning. And um you know, these are the conversations I enjoy. I'll be going live again in exactly 2 to 3 minutes with Aaron Maté again.

[00:48:22]A regular guest to discuss the latest developments in the world. So, I'll see you soon.