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- [00:00]
A
So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now a global workforce of 300,000 can use AI to fill their HR questions, resolving 94% of common questions, not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business IBM
- [00:33]
B
Bloomberg Audio Studios Podcasts Radio news. You're listening to the Bloomberg Balance of Power podcast. Catch us live weekdays at noon and 5pm Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.
- [00:55]
C
The markets, specifically global energy and wider commodity markets, are laser focused. The Strait of Hormuz, which means effectively shut outright controlled at this time by Iran amid the ongoing war with the US And Israel, which of course shows no signs of abating, even as President Trump today suggests. At least right now, he is not thinking about sending ground troops in in order to secure the Strait. But he also, of course, has repeatedly called on allies to come in and assist with this endeavor to a lukewarm reception. I think we could say, of course, one of the allies who was on the receiving end of that request and had been previously berated by President Trump for not helping out more substantially was Japan as a major importer of Middle Eastern energy products. And the Japanese Prime Minister Takechi was in the Oval Office and has a full state visit today with President Trump as we speak. They are actually having discussions at the White House right now. But the president did have a bit more of a congenial tone when talking about Japan in their bilateral earlier.
- [01:55]
D
We've had tremendous support and relationship with Japan on everything. And I believe that based on statements that were given to us yesterday, the day before yesterday having to do with Japan, they are really stepping up to the plate.
- [02:11]
A
Stepping up to the plate as Bloomberg's Tyler Kendall steps up on the North Lawn of the White House in the throes of this visit. Tyler, it's great to see you. It sounds like the prime minister who was projecting concern, as Kelly said ahead of this meeting, said all the right things.
- [02:26]
E
Right, Joe? A relatively warm welcome for Japanese Prime Minister Taka Ichi here at the White House as you heard President Trump comparing Japan to NATO allies, saying that the country is, quote, stepping up to the plate, though it was still evident that some tensions still do remain. It's not totally clear exactly what Japan is offering here when it does come to the conflict in Iran or potential support in securing the Strait of Hormuz. Though President Trump did indicate that the pair will talk about Japan's minesweeping capabilities in dialogue behind closed doors later today. The Japanese prime minister herself saying that she has brought to the U.S. quote, Concrete proposals to help calm the energy markets and of course condemned the closure of that critical waterway as data shows that Japan gets about 90% of its crude oil imports through the Strait of Hormuz. And this is comes as those disruptions really do continue. And attacks on energy infrastructure due to as Israeli state media is reporting that an oil refinery in the country was hit in a barrage of strikes earlier today as President Trump has taken to truth social overnight to urge a stopping to attacks on energy infrastructure in the region from both Iran and Israel. Joe and Kelly. In a rare public rebuke, President Trump said that he told Israeli Prime Minister Benjamin Netanyahu to not strike any more energy infrastructure. After we saw Israel strike Iran's largest natural gas field yesterday, which kicked off this wave of retaliation by Iran to Gulf energy infrastructure indeed.
- [03:55]
C
All right, Bloomberg's Tyler Kendall on the North Lawn of the White House. Thank you so much. And when we consider that retaliation against energy infrastructure, of course the largest LNG facility in Qatar was hit in the Qatar Energy CEO told Reuters that some 17% of that capacity could be offline now because of the damage and that it could take three to five years to repair. So for more on this we go to Mike McGlone, Bloomberg Intelligence senior commodity strategist. And Mike, obviously we've talked to you a lot about the near term versus longer term case, longer term case for oil and natural gas. But if we're talking infrastructure damage and capacity that may not come back online for that long that far into the future. How is that changing your thesis if at all?
- [04:37]
F
It's. It's sticking with my thesis. Caitlin, keep the thing key theme is here is the longer this lasts and the higher prices go, most notably crude oil. You mentioned natural gas. It's more of a problem for the rest of the world. The more likely this energy crisis is going to tilt over to a global recession and did what it did in 2008. Just key thing to remember, crude oil peaked at 147 in 2008 with CPI at 5.6% and the end of the year down at 32 and CPI bottom the next year minus 2%. That's what I think is happening. That's what Traders get. And you're starting to see that little bit in the long bond. The long bond yield starting to tick down today because it sees an end game. And you're seeing that with metals collapsing. This is starting to show the delayed deflation, delay deflationary recessionary forces from this energy crisis.
- [05:25]
A
Wow. All right, I want to hear more about that, Mike, because you're right, metals are falling out of bed. And so mining stocks, we're looking at gold right now down over $300 an ounce or 6% just below 4600. The headline on the terminal gold mining stocks set to erase 2026 gains as rate cut bets fade. There's more at work here than Iran it sounds like.
- [05:46]
F
Well absolutely. Copper did it, silver did it. Silver was up 63% in January. Now it's down almost 3% in the year. This is just getting started. The reason I say that Joe is my key theme still hasn't happened. If you look at 60 day volatility on the S&P 500, it's on the year despite what's happening. So to me that trickle up from all that massive volatility in crude oil and sorry gold last year and crude oil this year it's very rare not to go to the stock market right now we're seeing wobbling and I think that's what the market's starting to worry about. Is this triggering what it did with 911? It triggered the acceleration in the downward trend in the stock market.
- [06:23]
A
Well it's interesting just quickly Mike, we've got gold down for a seventh session. What happened to buying gold in times of war?
- [06:29]
F
Well that wasn't me gold told us gold the trend was gold was last year it preemptively gold warned us and gold was very, very much looked front ran it and now that it went up, gold's looking forward to that more secure future. When Mr. Trump by Merton midterms was going to say well Iran and Russia have lost Venezuela, Syria, Iran and potentially Cuba. It's looking forward to the opening of Strait of Hormuz and potentially maybe we've reached as bad as it can get.
- [06:59]
A
Fascinating. Mike, as always. Mike McGlone with us from our Miami bureau Bloomberg Intelligence Senior commodities strateg interest as we consider the conversation on Capitol Hill. Yes about oil and what we're seeing in the markets but also about an ask for more money. It is coming at some point from the White House. The president was asked about it today with reports now floated that the Pentagon is going to ask the White House to approve a more than $200 billion request about four times the size of what was already being floated here, at least privately or quietly in Washington. In fact, we asked Senator Ron Johnson, a budget hawk in the Republican led Senate last evening about this idea, maybe a $50 billion request. Here's what he said.
- [07:43]
D
We haven't seen any numbers. That's the number of people have been talking about. You know, from my standpoint, we went from 4.4 trillion of spending in 2019 to 7.4. I've laid it out. I mean, we're spending hundreds of billions of dollars way in excess of what we spent 2019 plus up for inflation and population. So if we get that supplemental, I will certainly make an attempt to offset
- [08:04]
G
it in areas of spending where we shouldn't.
- [08:10]
A
So here's a yes, potentially, but it's going to need to be offset by cuts. And that just reminds us of the very intense debate that will likely follow on Capitol Hill, something I suspect Congressman Sam Licardo is bracing for. The Democrat from California's 16th district joins us right now on Bloomberg TV and radio, serving on the Financial Services Committee. Congressman, it's great to see you. What would you do with a request for $200 billion?
- [08:36]
D
I would reject it. We know that in times when you're facing a budget deficit, as so many American families do, struggling every day to make ends meet, they set their priorities and they fund those priorities. They have to pay their rent. That's where the money goes first. We have massive challenges in this country. And there was no voter a year and a half ago who thought where we need to spend money is $200 billion on a war in Iran. This is a war of choice by this president that is really essentially bankrupting the American public, both as taxpayers and as consumers, as we're seeing higher prices at the pump and soon for our groceries as well.
- [09:23]
C
Well, and when we consider those higher prices, Congressman, I'm not sure if you just heard our colleague, our analyst there, Mike McGlone, suggesting that he sees kind of 2008 recessionary type is at play here, that ultimately he is expecting the check on higher energy prices is going to be demand destruction and a real growth slowdown. Is that also your assessment here as a member of the Financial Services Committee?
- [09:45]
D
I mean, we should look at the last year. We have just seen the largest tax cut in human history. You would think we'd be supercharging job growth throughout the country. We've seen zero job growth in the last six months since Liberation Day when Trump started hiking all these tariffs when we're supposed to be building a lot of manufacturing jobs. We've lost 72,000 manufacturing jobs, United States. That should tell us something. They're doing everything they can to prime the pump, and jobs are not responding. That really portends a very dark future for us, particularly as we're now looking at spending on other priorities when we could be focused on critical issues here at home.
- [10:27]
A
We saw a statement a short time ago from Taxpayers for Common Sense, Congressman, and pretty interesting here. The the group's president, Steve Ellis, says taxpayers haven't gotten any clarity from the administration about the goals, the costs of war, which he outlines now, the $200 billion supplemental request. He says, to be clear, this funding is not about supporting the troops. The Pentagon got an 18% boost in spending this year. If that's the case, Congressman, what is it about? Is this a Pentagon that's bracing for a longer war?
- [11:04]
D
Well, that's a good question. I think we're all deeply concerned about that. I'm not sure this president has the attention span for a longer war. And frankly, we haven't articulated or we haven't seen this president articulate any achievable objective with a short or a long war. So I think we need to first understand what is the objective with this war, because so far, all we've seen is certainly a degradation of Iran's military capacity. We know our troops are the best in the world, but we haven't seen the actual accomplishment of any objective. We know we have higher oil prices. We know we've got all of our allies that are furious with us and won't help us in the Strait of Hormuz precisely because. Because of our willingness to go it alone. And we've helped our adversaries. Russia and China, of course, are benefiting from our willingness to reduce sanctions on Russian oil. This is not a war that has accomplished any meaningful objective for the American public.
- [12:02]
C
Well, as we consider higher oil prices, which you mentioned, Congressman, obviously that is translating to prices at the pump. I believe on average in California, gas prices are well above $5 a gallon. If the White House were to come to Congress, Congress, and request a gas tax holiday, would you be supportive of that in the name of relief at the pump for your constituents?
- [12:22]
D
Well, I'm certainly open to considering many options, but we know what happens if that gas tax goes away. It means we don't have the basic infrastructure we critically need in this country. I think a better approach is let's wrap up this war and refocus US Public resources on US Infrastructure year because that's what that gas tax funds and what we really need to be doing is investing in this country and not spending abroad.
- [12:47]
A
Well, you know, a lot of economists would tell you that the gas tax holiday simply would increase demand which sends prices even higher. Congressman, what are you paying last time you filled the tank in California.
- [12:58]
D
Yeah, we're paying a lot. I drive an electric car, so I couldn't tell you what I might. My neighbors pay way too much already. Look, I think those economists are right. Fundamentally, simply priming the pump with more demand is not going to help provide tax or price relief that so many consumers are burdened by. And let's keep in mind all the other ways this is affecting consumers. We know a huge hit is being felt by an awful lot of farmers as a result of a big spike in fertilizer costs. A third of the world's fertilizer comes from this region. That means we're all going to be paying for it many months to come at the grocery aisle.
- [13:35]
C
Well, and then there's also the borrowing costs consideration. We saw a red headline cross the terminal earlier today, Congressman. Mortgage rates at a three month high with the 30 year average at 6.22%. Obviously there is now a live conversation of a Federal Reserve that might not only not be cutting this year, but whether rate hikes could be back on the table. If we're going to see an inflationary shock from energy on mortgage rates though, given you sit in the Financial Services Committee, can you tell us what's going to happen in with the housing bill that would address it more from the supply side? Are you going to conference? Is that your anticipation?
- [14:08]
D
Well, I certainly hope we can get to conference. I know that right now the battle seems to be between Republicans in the House and Republicans in the Senate about what's going to happen. Obviously they control both houses. I was happy to see a few of my bills get included in the version that approved by by both houses. But the bottom line is we need to get to Yasser. We critically need more housing supply. That is something that Democrats and Republicans can agree upon. So let's get this piece of legislation passed. There's much more we need to do to be able to help get red tape out of the way and accelerate housing production in this country.
- [14:42]
A
We only have a minute left, Congressman. The Department of Homeland Security has been closed now for 33 days and we saw the President's pick to run the department Clear committee. On the Senate side this morning, Mark Wayne Mullen. I'm wondering your thoughts on what happens next year. TSA agents are driving Uber instead of going to work to make money. How long will this last? We're at 33 now. What number will we be talking about when it ends?
- [15:06]
D
That's an important question. I know. A very painful reality for a lot of employees, our Coast Guard, tsa, many others who critically deserve to get paid. I co sponsored legislation that would enable us to pay all the other employees, including TSA and Coast Guard, so that we can hash out what we need to resolve with regard to reforms to ice, get them paid separately. That currently that bill is as a subject of a discharge petition because the House leadership on the Republican side won't allow it to get to the floor. So we're hoping we can get some Republicans on board and get a vote.
- [15:43]
C
All right, Congressman, thank you so much for joining us. Democratic Congressman Sam Licardo of California's 16th district, live from Capitol Hill here On Balance of Power. And we have much more coming up. We'll turn to our political panel, Rick Davis and Jeannie Shan Zaino next right here on Bloomberg TV and Radio.
- [15:58]
A
Stay with us. On Balance of Power. We'll have much more coming up after this.
- [16:06]
H
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- [17:05]
B
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- [17:24]
A
President Trump meeting with the Prime Minister of Japan today. She's still in the building and they will have dinner in the state dining room later. Having met in the Oval Office to talk about a number of things, including the war in Iran. Before we got to that point, though, there was a Pentagon briefing. Defense Secretary Pete Hegseth along with the chairman of the Joint chiefs. This is 10 tends to be how they do it lately. Get the reporters out there, the Pentagon, 8 o' clock in the morning to talk about what happened. In the big news today was the supplemental budget request that is looming. You've probably seen this by now, reported by Bloomberg. $200 billion is the expectation, which is far beyond any number that we have heard yet remembering, of course, the Pentagon is currently enjoying its first ever trillion dollar budget. Pete Hegseth was asked about that number earlier in that briefing.
- [18:08]
D
Listen, as far as $200 billion, I think that number could move. Obviously, it takes money to kill bad guys. So we're going back to Congress and folks there to ensure that we're properly funded for what's been done, for what we may have to do in the future, ensure that our ammunition is everything's refilled and not just refilled, but above and beyond.
- [18:34]
A
It takes money to kill bad guys. The president was asked about this earlier in the Oval with the prime minister. He too did not deny the idea of a $200 billion request and said we're asking for a lot of reasons beyond even what we're talking about in Iran, pointing to vast amounts of ammunition. But it was taken down by giving so much to Ukraine. Now, lawmakers still haven't received the request, as we just established with Congressman Licardo, who says he's already a no on this. Also standing by to pour cold water on the idea is Maya McGinnis, the president of the group Taxpayers, I should say, what's the name of it? Kaylee Committee for Responsible Budget, for a Responsible Federal Budget. Here's what she said.
- [19:17]
C
We don't want to be deciding national security based on our budget. And we have switched to that where that's the situation. If there are needs for defense increases, we have to budget for them. We have to be willing to figure out where we're either going to pay more in taxes or reduce spending in other parts of the budget. But right now, this offhanded sort of approach, if we can just increase the defense budget by 50%, there's no room in the budget for that. And this is the moment that people have been warning about that the world is very risky and we have a budget that now makes us very vulnerable. So let's get into this now with our political panel, Bloomberg Politics contributors Rick Davis and Jeannie Shannon Zaino are back with us. Rick, of course, partner at Stone Court Capital and Republican strategist Jeannie, Democratic analyst and Democracy visiting fellow at Harvard Kennedy School's Ash Center. Welcome to you both. Jeannie. When we consider this supplemental funding request and the size of it potentially, though clearly this number is not yet firm. This is not yet on paper and delivered to the Hill. But how difficult would you expect it to be for even a Republican controlled Congress with the many budget fiscal hawks that are within it to actually pass something like that?
- [20:26]
I
It's going to be very tough, Kelly. We already heard from people like Lauren Boebert who said she is a no, usually historically for these kinds of things you're going to need some crossover. It's got to be a bipartisan effort. So the big question is will any Democrats go along and let's not forget, you know, Joe mentioned $1 trillion trillion dollars. The Pentagon has this is a Pentagon that also for eight years in a row since they were mandatory, has not yet passed an audit. Imagine working in a place leading a place that can get 1 trillion and not pass an audit for almost a decade and you go back and ask for 200 billion more on the day that the deficit hits $39 trillion. These are outstanding numbers when you think about them and not in a good way, Kelly. Outstanding in a stunning way. And they're going to go back a president who can articulate what that money would be for. That's a big question. And it also seems to have taken leadership on the Hill by surprise because today John Thune, Mike Johnson, they seem to say, you know, we'll consider it, we'll think about it. But it was clear the groundwork for this had not been laid by the White House. I'm thinking of this as a trial balloon. As Pete Hegson said, we can play with that number.
- [21:44]
A
Well, maybe this is just the start of a negotiation, Rick. But as we heard from Maya at the Committee for a Responsible Federal Budget, we also heard today from Steve Ellis at Taxpayers for Common Sense who says this is much more than the direct cost of the war so far and likely more than will be needed anytime soon. His statement begs the question, Rick, is the Pentagon just trying to pad its already massive budget or is the administration planning for a protracted war? How would you answer that?
- [22:12]
J
Well, I don't think there is a clear answer to that. I think he makes a good point. I mean, all the reporting I've seen has this war currently costing us, you know, around $12 billion when you add up all the money we've spent on Atlantic Resolve, the war in Ukraine, that's only a little over $180 billion. So I mean, are we replenishing the funding and the materials for the last, you know, know, since, since February of 2022, which includes all the expended ordinance in Ukraine? I mean, we haven't been given any information about this, but the idea that we're going to be able to pack a $200 billion supplemental in under the guise of, you know, Operation Epic Fury is just going to be an incredibly hard sell, especially because of what Jeannie said, which is with the national debt hitting 39 billion, I mean, think about the political ramifications of that ticking up to $40 trillion when we get to election day in the midterms. That could be a tipping point for making the national debt a real salient political issue. We've kicked the can for a long time, but those chickens may be coming home to roost now.
- [23:30]
C
Well, so then I have to wonder, Rick, if that is actually going to lead to even more fissures within the Republican Party itself for the kind of Ron Johnson or as the Jeannie mentioned, Lauren Boebert of the world versus others in leadership who may be more inclined to try to get the Pentagon and the president exactly what he wants here.
- [23:49]
J
Yeah, Ron Johnson made the point the other day that, you know, the national debt has increased by $3 trillion just in the last year. That's an incredible acceleration leading us to the point where it could hit 40 trillion by the midterms. And he's made a point. Why don't we just return to pre pandemic spending? I think Maya McGinnis makes the case. It's not that we don't want to spend money to support our troops and have a strong national defense. We do, and every member of Congress is sensitive to that. But we can't do it in a vacuum. We can't keep just piling these supplementals up, up against ever increasing defense budgets and think that that's sustainable over the long run. So I think this could spark a complete conversation, especially around the 27 budget that says what? Where are we going with expenditures and, and can we bring them down, especially to a point which wasn't that long ago in before we really started hitting these huge, you know, special spending increases, pre pandemic levels.
- [24:56]
A
To what extent would ground troops change this conversation? Jeannie, you've probably seen this Reuters report today. It's the latest and there have been several, but this one says the administration is considering deploying thousands of US Troops to reinforce the operations, including a potential deployment on Iran's shoreline to secure the Strait of Hormuz. Troops could also be used on Kharg island if that's something that we wanted to do as well, potentially to secure the enriched uranium that has gone missing. The Pentagon has already shipped out the 31st Marine Expeditionary Unit that they took out of Japan. That's about 2200 Marines, Jeannie, but they won't get there till next week. So this would clearly take additional troop movements. If this was going to happen, what would Democrats say in that world?
- [25:43]
I
Yeah, and I'm so glad you brought this in because of course the President was asked about it and some people are reporting that he said he would not send in troops. I heard him say, you know, I'm not going to tell you. Which to me is one of the typical non answer answers. So I'm not sure he ruled it out in the White House just a few minutes ago. And of course this intimately involves Congress. So this is the problem the administration has. They denied Congress a role in or a debate over voting to authorize this war or excursion, as the President likes to call it. But this is what this debate over funding is going to turn into. It's going to be a substitute for everything congressmen and women senators could not talk about. And you know, they love to talk, Joe. So everything they could not talk about because they didn't have the authorization debate, they're going to have it over this debate for funding. And that is going to be a very, very tough conversation. If that involves either really or potentially boots on the ground, that conversation becomes even more fraught for the White House. And so again we have no clarity from the President who again in the White House just a few minutes ago when asked will you put boots on the ground said no, but I wouldn't tell you if I was going to. Another non answer. And this is this sort of encapsulates this entire war that we are now involved in 20 Days In.
- [27:12]
C
Rick, we have less than a minute left, but do you see the President as trying to essentially keep his options open or trying to basically not trying to rule out putting boots on the ground?
- [27:25]
J
Yeah. Kelly, I think there's enormous pressure on the President to make this a short excursion as he calls it. And Pete Haggs had said the same thing in the briefing he did this morning, that this is going to be a not a protracted war fighting effort. So you're hopeful that that is the strategy. Look they've really accounted for almost all their objectives. And so the question is, what are we really gaining by continuing to pound Iran? And we need that straight a Hormuz
- [27:56]
A
open Fascinating insights as always and great analysis from Bloomberg Politics contributors Rick Davis and Jeannie Shann Zaino. Thank you both so much. I'm Joe Matthew alongside Kailey Leinz. Kurt Volker joins us. Coming up next, former ambassador to NATO. Stay with us on Balance of Power. We'll have much more coming up after this.
- [28:16]
H
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- [29:29]
B
You're listening to the Bloomberg Balance of Power podcast. Catch us live weekdays at noon and 5pm Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg 1130 checking
- [29:49]
C
on Brent crude at 109. Of course it got a taste of more like 120 earlier today as Iran continues its attacks on energy infrastructure of Gulf states. And of course effectively has the Strait of Hormuz closed, which the US Is calling to be reopened and other allies now are actually joining the United States in that the UK, Japan, Germany, France, Italy and the Netherlands all putting out a joint statement today that in part calls on Iran to cease immediately its threats and attempts to block the strait to commercial shipping. But it goes on even further to say that the leaders are expressing readiness to contribute to appropriate efforts to ensure safe passage through the strait. This of course is after President Trump requested that US allies, many of them of course more reliant on the energy products leaving the Middle east than the US itself is to do just that, to help get the strait opened up. The question for President Trump though is is this now too little, too late? He seemed to suggest in the Oval Office earlier that indeed the time has passed.
- [30:46]
D
We're defending the strait for everybody else. And then in the case of NATO, they don't want to help us defend the strait and they're the ones that need it. But now they're getting much nicer because they're seeing my attitude. They're getting much nicer, but it's as far as I'm concerned, it's too late.
- [31:05]
A
This after he posted on Truth Social, I'm not surprised by their action referring to NATO allies because I always considered NATO, where we spend hundreds of billions of dollars a year protecting these same countries, to be a one way street. We will protect them, but they will do nothing for us in particular in a time of need. Just yesterday he also drew the contrast between what he sees a lack of NATO support following the United States support in Ukraine. He said we've helped them in Ukraine, but they're not helping us. Now. We want to explore this contrast with Kurt Volker, who knows more about this than most people. You will hear from today as the former U.S. special representative for Ukraine negotiations and former ambassador to NATO. Former U.S. ambassador Ambassador Volcker, it's great to see you. Welcome back to Bloomberg TV and Radio. Is the president driving down a road that will end with the United States withdrawing from NATO?
- [32:01]
G
I don't think so because even though President Trump does doesn't say so, or maybe even doesn't believe it, NATO is fundamentally in the US Interest. It creates a vast secure space in Europe that is beneficial to the U.S. it's a great trading partner, investment partner, the largest investors in the U.S. largest trading partner. It's where we have our large military bases from which we can go to the Middle East. So it is vastly in US Interest. He's wrong when he says NATO has never come to help the US either. That's not true. After 9 11, it was the only time that Article 1 or Article 5 was invoked by NATO. After the 911 attacks, NATO went with us to Afghanistan. They supported us in Iraq, in Kosovo and Bosnia. Going back in time, the U.S. did about 15% of the load. NATO did 85%. So he just, he just doesn't appreciate NATO, but it's very much in the U.S. interest. And I don't think anyone in the country, the public, Congress, others, are going to want to see him walk away from it.
- [33:04]
C
Well, if that's what's in the United States interest, what about the interests of other NATO countries who have indicated they don't want to get mired in a conflict that the US And Israel began with Iran, but at the same time, they very much, Ambassador, are going to feel the economic ramifications. Is there not going to be an economic incentive for these companies to actually have to get more active in the Middle East?
- [33:24]
G
Yeah, well, clearly, clearly there is. And the statement that we saw indicates that they were taken by surprise. There were no consultations, there was no joint operation. There was no plan as to what was going to happen. They just woke up one day and saw the US Attacking Iran. Then when the President suggested that they send naval vessels to escort carriers through the Straits of Hormuz, that's clearly an operation that's not going to succeed when Iran is able to take out the vessels, take out the escorts as well. They've got missiles, they've got drones. So it is not ripe for an escort operation unless there is some other larger plan of taking out everything that Iran's got or negotiating with the government if it goes that way. But I think what they, they did is they finally got their messaging right. The message to the US should not be, no, we can't do that if just simply because it's not a workable plan. The answer should be, and now is yes, we want to help in appropriate ways. Let's talk about it.
- [34:30]
A
$200 billion, Ambassador, is the number that's being reported. Now. The administration is about to request in supplemental funding to help pay for this operation. As someone who has your experience, I'm just wondering how you read that number, if that really is about paying for a limited operation. The President says we have a lot of munitions to replenish after providing much to Ukraine, but this is beyond what we've ever given to Ukraine. What does this tell you about timeline and resources that the administration might be considering?
- [35:01]
G
Well, I think it's several things. First off, it's a psychological figure. It is designed to show that we have enormously deep pockets and we can destroy anything that Iran can put on the table. So it's meant for the psychological purposes of being enormous. In addition to that, it is exactly as you said, it is paying for the expenses of this operation thus far. As well as replenishing munitions that we have been using in this war, defending Israel prior to this, some of the things we have transferred to Ukraine for sale that would now have to be bought again by the US So there's a lot that's in this and it's partly a message to China. We can't forget that either, that we have to signal to China that we may be running low on a few things like patriots compared to where we would like to be. But we have plenty of money to throw at this and we will have a robust military going forward.
- [35:56]
A
Isn't that the why the Pentagon has its first ever trillion dollar budget? What's all that money going to?
- [36:02]
G
Well, also the same thing. It is designed to build up a very, very strong and capable military to show our adversaries that they will not be any match for us, that we have very deep pockets, we have the best weapons systems, we are prepared to spend the money and we're prepared to use force if we have to.
- [36:23]
C
Okay, so clearly there is a desire to continue funding the U.S. war machine. I'd also like to ask you, Ambassador, about the Russian war machine, which is getting a bit of a, of a lifeliner at the very least. Least a cash injection due to not just higher oil prices, but the actual relief of sanctions as a result of this supply problem in the Middle East. Yeah, please. What impact ultimately is this going to have?
- [36:44]
G
It, it's really, it's really remarkable. The oil price surge is of course a windfall for Vladimir Putin because he sells oil and now he gets a lot more money for it. The estimates I've seen are about an extra $5 billion a month that he's going to be getting from these higher prices. But on top of that, to allow them to, to lift the sanctions, to allow them to sell their oil. That just doesn't make any sense because they are helping Iran and they're providing drones, their drone technology, intelligence and targeting. Why on earth do we want to help Russia at this time?
- [37:21]
A
Interesting. As someone who is our Ambassador to NATO, Kurt Volcker, I'm wondering your thoughts about the repeated attempts to lob missiles at Turkey. This of course could resolve in an Article 5 violation if Turkey in fact pursued it. Why do you think President Erdogan has chosen not to do that? And if he did, would, would we see a much wider war with Iran?
- [37:46]
G
I don't think that a couple of missiles would be viewed collectively within NATO as an armed Article 5 attack. It's not threatening the territory of a NATO country in the sense that Iran's going to be taking over part of Turkey and NATO and Turkey together have shot down these missiles. So we've, we've defended that territory. And I don't think anyone in NATO wants to escalate into a wider war, you know, a whole regional war. And Turkey is going to have to live in that neighborhood after this operation is over. So I don't think it wants to have as hostile a relationship with Iran as it could turn into. If they can avoid that, they may even see themselves as part of a solution at some point. So I think they want to keep their powder dry as well.
- [38:33]
C
So when we consider solutions, Ambassador, obviously you worked in diplomacy. Do you see a path forward for diplomacy here when the US Is openly saying we don't even know who we should be negotiating with?
- [38:46]
G
Yeah, well, look, diplomacy works when the balance of forces are right to achieve the goals. So this is why, for example, nothing is working in negotiations with Russia's war in Ukraine because Russia just wants to take over the country. They don't feel any pushback, so they're not going to negotiate seriously in this case. It depends on how President Trump frames our goals. And I have to say if is still unclear what the goal actually is. He seems reluctant to say regime change, but I think that is the only thing that will assure future security. If we have a different regime in Iran that we can then deal with, that will treat its own people well, respect its neighbors, have renounced nuclear weapons. If we have that, then I think we can build security. If we leave the current regime in place, weakened for now, it's going to be a source of terrorism. It's going to be a threat to shipping and oil and neighboring countries in the Gulf region for years and years to come. So I think we have to clarify that that should be the goal, regime change. But if it's not, if President Trump doesn't want to do that and he's prepared to live with a weakened form of the current regime, then we got to say that. And then you negotiate something different. You try to negotiate a security framework for shipping in the Persian Gulf that a lot of countries are going to have to participate in to police.
- [40:09]
A
You talked about the psychological impacts of some of the dollar figures that are being thrown around right now, Ambassador, a trillion dollar defense budget, a $200 billion supplemental. To what extent are these reports about the president considering thousands of US Ground troops, troops also part of the psychological warfare that's at play, or are these leaks to Reuters and other agencies correct?
- [40:35]
G
Well, there are two things. It is part of the psychological warfare to let the Iranians think that, okay, we may actually be coming with ground troops and so maybe they should call an end to this. But on the other hand, it is actually give the president the option. And one of the options that has been kicked around is not taking over the entire country, not going to Tehran, but taking over the oil fields controlling Iran's energy export and production, this Carg island terminal, the oil fields in the south, controlling these areas. So that you're denying the regime the financial benefit of having them. And you're also more capable, not fully capable, but more capable of protecting shipping in the Gulf.
- [41:23]
C
Ambassador, we only have about a minute left here, but as we talk about this conflict in the Middle east, knowing President Trump and others in the administration and now also openly talking about the Cuban regime, they've expressed of course, desire when it comes to taking control of Greenland as well. Well, would you be taking your eye off those other balls at this point?
- [41:42]
G
Well, no, I think with Greenland, if I were Denmark, I would be actively proposing, proposing what could be done to assure security in the Arctic. Everything is on the table in terms of possibilities. Doesn't need to be sovereign US Territory. We can do this together. So they should be proposing that. And I wouldn't sit back and wait to see if Trump wakes up and talks about Greenland again. On Cuba, this is much more a result of our operation in Venezuela and strangling the Cuban, Cuban economy that is likely to snap at some point and we are going to have a lot of responsibility in the Caribbean to make sure that there's just not a humanitarian catastrophe that emerges.
- [42:24]
C
All right, Ambassador, thank you so much for joining us. We appreciate your time and insight. Ambassador Kurt Volker, of course, former U.S. special representative for Ukraine negotiations and former ambassador to Naito.
- [42:36]
A
Thanks for listening to the Balance of Power podcast. Make sure to subscribe if you haven't already, Apple, Spotify or wherever you get podcasts. And you can find us live every weekday from Washington D.C. at Noontime eastern@bloomberg.com
- [42:51]
B
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A
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