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- [00:00]
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- [01:01]
Bloomberg Host
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.
- [01:24]
Kelly
This war between Iran and the US and Israel now in its third day, and President Trump suggesting it could for days or weeks more. Speaking at the White House earlier today, he suggested this campaign could last for four or five weeks, as he had done previously in other interviews, but also suggested that the US Military has the capability to go for far longer than that. Just how long, I suppose, will depend on how quickly the US can achieve its objectives, which until earlier today were still pretty loosely defined. But the president tried to make them clear when he spoke earlier.
- [01:59]
Rick Davis
This was our last best chance to strike what we're doing right now and eliminate the intolerable threats posed by this sick and sinister regime. And they are indeed sick and sinister. Our objectives are clear. First, we're destroying Iran's missile capabilities, and you see that happening on an hourly basis and their capacity to produce brand new ones and pretty good ones they make. Second, we're annihilating their navy. We've knocked out already 10 ships.
- [02:35]
Kelly
So those were objectives one and two. The president went on to list a third and a fourth. The third, he said, is ensuring that the world's number one sponsor of terror can never obtain a nuclear weapon, and the fourth ensuring that the Iranian regime cannot continue to armed, arm, fund or direct terrorists outside of its borders. So for more we turn to Bloomberg's Tyler Kendall, who is live on the North Lawn of the White House. So, Tyler, while we did hear this statement from President Trump, once again, he did not answer any questions from reporters.
- [03:09]
Tyler Kendall
Right, Kelly? He didn't. And this has been the case since the US Launched these military operations over the weekend. Though two senior administration officials did take some questions from reporters earlier today. And what was considered to be the first Pentagon briefing in actually months with Secretary Pete Hegseth, as well as the chair of the Joint Chiefs of Staff, Dan Kaine. And they reiterated a lot of what we heard from President Trump, including that the US Is prepared to sustain this military operation until its objectives are achieved. As you just outlined there, we got a few of them from President Trump. Now, Secretary Hegseth said that this will not be an endless war, in his words, but that Americans should be prepared, that it will take time for the US to achieve its goals. In fact, chair, the chair of the Joint Chiefs of Staff Kaine ultimately said that the US Right now is currently surging additional resources to the region, as currently hundreds of missions have been deployed by land and by sea, saying that this is going to, quote, continue to scale this. As we are learning here at Bloomberg News that regional allies are urging the Trump administration privately to pursue a route of diplomacy. Now, President Trump himself did say in an interview over the weekend he could be open to potential negotiations with the transitory government that is currently in place in Iran. Iran, though reports that Iran had reached out to the US for talks was batted down by the country's security chief overnight. President Trump has also, of course, as we've been covering, urged the Iranian people to take over their government. But Kelly, it's really interesting because just within the last hour we got this report from the AFP saying that a drone hit a fuel tank terminal in Abu Dhabi. Of course, two of those top regional allies, according to our reporting, that are urging the Trump administration to find an off ramp are the UAE and Qatar. As we saw Qatar also take off line atop LNG export facility earlier after being hit in an Iranian drone strike.
- [05:07]
Kelly
Yeah. Any further damage to energy infrastructure in the Gulf is going to be something that the oil market and markets more widely very closely watched. Tyler, to your point, on what we heard publicly from the Defense secretary, Pete Hegseth and the chair of the Joint Chiefs of Staff, General Kaine, earlier today, I would imagine that there will be more detail than what was given this morning given when they join others in the administration in briefing lawmakers on Capitol Hill in the coming days.
- [05:33]
Tyler Kendall
Right. And this is something that we are closely watching as lawmakers demand more information from the Trump administration. As you well know, we're tracking likely war power votes later this week that are considered to be more symbolic in nature than actually changing the scope or the scale of the Trump administration's plans when it comes to Iran. And that is because congressional lawmakers are demanding more information now. It is our understanding that Secretary Rubio will be on Capitol Hill later today in briefing the so called Gang of Eight lawmakers. We also have reporting that those members on key committees, including Intelligence, Foreign affairs and Armed Services, will be given their separate briefings as well. It is something to track very closely here, Kelly, as legality questions come up. And we're hearing from both sides of the aisle that they do want more information pertaining to what the Trump administration says could be a military operation that extends in some cases to four or five weeks or even further than that until the White House is able to achieve its objectives.
- [06:30]
Kelly
All right, Bloomberg's Tyler Kendall live at the White House for us on Bloomberg TV and radio. Thank you so much. And as we consider what this administration, this US Military is willing to do in order to reach those objectives, noteworthy that earlier today in that Pentagon press briefing that Tyler was alluding to when asked directly about the prospect of putting boots on the ground, this was the response from the secretary of Defense.
- [06:54]
Rick Davis
We're not going to go into the exercise of what we will or will not do. I think it's one of those fallacies for a long time that this department or presidents or others should tell the American people and our enemies, by the
- [07:06]
Public Ad Narrator
way, here's exactly what we'll do, here's
- [07:08]
Rick Davis
exactly how long we'll go, here's exactly how far we'll go. Here's what we're willing to do and not do. It's foolishness. And so President Trump ensures that our enemies understand we'll go as far as we need to go to advanced American interests. But we're not dumb about it. You don't have to roll 200,000 people in there and stay for 20 years.
- [07:28]
Kelly
So in summary, Defense Secretary Pete Hegseth is not ruling it out. So we want to get more analysis now as we turn to Heather Conley, who is joining me here in our Washington studio. She is non resident Senior fellow at the American Enterprise Institute, also former Deputy Assistant Secretary of State for the Bureau of European and Eurasian Affairs. Heather, thank you so much for joining us in what is such a historic and frankly, very dangerous moment, one could argue in the Middle east, when we consider what could be necessary in the coming weeks. If the US Is really intending on achieving this long list of goals and taking out so much capability that Iran still has, is it going to require more than just an aerial form of combat?
- [08:14]
Heather Conley
Yeah, it seems to me very clearly that the four to five week air campaign is going to do and is doing devastating damage to the Iranian regime, to their missile capability capability. But transforming a government requires what we saw in Iraq and Afghanistan, and that's clearly not what the Trump administration is interested in. As many have said, we don't have experience with changing regimes from the air. We had the experience of Libya where we tried to change it from the air, and it turned out to be, you know, quite devastating, a fragmentation of the country. So I think this is going to be a test of wills between Iran and the United States, how long they can absorb the hits, the economic hits, the military hits. And now the entire region is swept in this. So this is no longer a US Iranian 12 day war, as we saw last year. This is now a regional conflict and it has unintended consequences, as we saw today with Kuwait, you know, responding to a defensive need, but shooting down three American jets. So that's going to happen more and more, unfortunately, the longer this operation goes forward.
- [09:27]
Kelly
Yeah, three F15, though it's worth noting all six pilots did safely eject, though. Four American, four lives of service members have been lost to this point. To what you were just speaking about, though, Heather, the idea that you can't achieve regime change, at least historically, in this way. It's interesting that administration officials aren't really using that kind of regime change language. Instead, what President Trump at least was describing was we want to guarantee that Iran is no longer going to be able to fund or direct terrorists outside of its borders. Thinking about the proxy network here, can that, can you guarantee that that will not be the case without new leadership, without complete regime change?
- [10:07]
Heather Conley
You know, Kayla, it's a great question. And what we understand of the Iranian regime For the past 47 years, the nuclear component is essential to that regime. So in some ways we're saying the same thing. Without an Iran having a nuclear capability, this regime cannot survive. So I think really what we're saying is total elimination of the nuclear element means that this would not be the same government in place. So it's the same thing.
- [10:34]
Kelly
Is it realistic to think that the Iranian people, some kind of opposition movement, can rise up to form a government? Because the President is actively calling for that, he said in a video statement yesterday. Now it's up to you.
- [10:45]
Heather Conley
So this is where what we've seen, I mean, the horrific attacks in January, this regime will brutally suppress the Iranian people. The Iranian people do not have arms themselves to fight against this regime. So, again, and I appreciate that one of the targets is the internal structures of the Iranian Revolutionary Guards to try to break some of that structure. But at this point, it is unlikely that these citizens would be able to overcome the regime unless they would lay down their arms. And we have no evidence that they are doing that right now.
- [11:21]
Kelly
So when we consider this wider cast of characters, then it was striking to me that in an interview with ABC yesterday, President Trump said the US had identified possible candidates to take over Iran if the Supreme Leader was taken out. But he said, quote, the attack was so successful, it knocked out most of the candidates. It's not going to be anybody, we were thinking, because they are all dead, second or third place is dead. What does that say to you, Heather?
- [11:47]
Heather Conley
So, yes, I mean, it was a devastating decapitation of the first few hours,
- [11:51]
Kelly
but could we also have miscalculated?
- [11:53]
Heather Conley
Well, look, the Iranians have an interim council, Supreme Council right now, and in fact, the head of their National Security Council, Larajani, is really calling the shots right now. So, yes, there is disorganization. And we can, we can see that with some of the attacks that aren't clearly coordinated, but they still have an interim internal structure. And this will not be the United States selecting the leader to control this, as we saw in Venezuela. This would have to be a complete collapse of the current regime, in my view, complete laying down of arms to allow another potential candidate outside the country to come in. But again, how can you do that without a ground force? Although it seemed the administration was suggesting all options are on the table, boots on the ground could be introduced, although I find that very unlikely.
- [12:47]
Kelly
So when we consider whoever is making the decisions right now in Iran, let's talk about the decisions they are making. The choice to go after other Gulf states, that we are seeing bombs and sirens over places like Dubai and Abu Dhabi, that we're talking, as you alluded to, about damage that we don't know necessarily, according to the afp, just how widespread the damage is to that fuel tank terminal in particular, but damage to energy infrastructure. Is Iran essentially deciding to, and I don't want to use this phrase glibly because we are talking about war, but essentially blow it all up.
- [13:22]
Heather Conley
Yeah, I mean, there is some, when you have a regime that is now this is existential to their survival, I believe their calculation is to widen this War impose as many costs on the global economy, therefore the American economy as much as possible to try to bring a change in the Trump administration posture as well as Israel. So this is where, for as long as it takes, I just want everyone to hold that thought. Because if this is going to go on for four to five weeks, continued operations, that means the Iranians can continue to fly drones and missiles and create economic havoc in the strait, in the global economy. This is to widen the conflict, make those costs as significant as possible to try to bring change. So this has got unintended consequences, a spiraling of both the human costs potentially for our U.S. armed forces, but also incredibly high global economic costs that I think we're not quite calculating enough. Five, six, potentially longer conflict.
- [14:22]
Kelly
So you would see a sustained closure of the Strait of Hormuz is likely here.
- [14:26]
Heather Conley
I would, simply because this is the Iranian advantage to impose as much global economic costs as they can. So as long as they can. So the question is whether Iran can sustain this. Do they have the missile and drone production and capabilities to continue to attack across the region for the next several weeks, or will the US And Israeli campaign be able to stop their ability to do that? That's the test that we will see.
- [14:56]
Kelly
Well, and I'm glad you said the US And Israeli campaign, because I don't want to lose sight of the fact that this is not the US Going it alone. Even if President Trump were to want to pursue some kind of off ramp or American casualties get to a level, or gas prices get to a level that he no longer is willing to tolerate, can we necessarily say that the same pressures will exist for Israel? Right.
- [15:16]
Heather Conley
And certainly Israel sees a critical window of opportunity here to really accomplish a transformation of the Middle East. And I think, look, we cannot say that that won't happen. There could be an opportunity for complete transformation here. It just, it's difficult to see that pathway forward. I think this would be something if the US Would stop, begin to pull back. It would have to be a very close consultation with Israel, with the Israeli Defense Forces, as there was close coordination as this was beginning. So it would be something that would be challenging for Israel. I think, again, they want to seize this incredible moment, but we'll see what the political and economic costs are for President Trump to bear here at home the longer this, this goes well.
- [16:03]
Kelly
And so when we think about that political cost in our final moments here, Heather, more widely, this was a president who said he did not want any more wars, that he wanted to be a bringer of peace. He campaigned as someone who was going to be much more an isolationist than an interventionist. Whether you're looking at what's happening with Iran now or Venezuela or potentially what we could see with Cuba, for example, are we learning that actually this president may be one of the most interventionists in modern history?
- [16:29]
Heather Conley
He is very interventionalist, I would say. He's also an internationalist. He, he really, he, he seeks the international stage. And whether it's negotiating peace deals or inflicting military action to try to transform the situation, this is perhaps the most international president we have seen. But this is cry from focusing on the domestic agenda, agenda affordability and cost of living. And those are the two forces he is going to have to reconcile with in the coming months.
- [16:57]
Kelly
Well, especially as we get closer to the midterms in November. It's not just about him who cannot run for reelection, obviously, but the Republican Party more widely. Heather, so appreciate you joining us with your insight. Heather Conley is nonresident senior fellow at the American Enterprise Institute, also former deputy assistant secretary of state for the Bureau of European and Eurasian Affairs. And what Heather was just touching on the notion of the political consequences of this conflict, how it will play for both Republicans and Democrats, what role Congress will play if we are to see further operations in the Middle east when it comes to war powers. We'll get into all of that with our political panel next. On Balance OF Power.
- [17:33]
Rick Davis
Stay with us On Balance of Power. We'll have much more coming up after this.
- [17:40]
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- [18:53]
Bloomberg Host
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 11:30 welcome
- [19:12]
Kelly
back to Balance of Power on Bloomberg TV and radio. And of course, Washington will get a lot busier over the next few days as Congress makes their return to town. We are expecting that members of Congress will be briefed by senior administration officials over the coming days about the operations ongoing in Iran, which again are in their third day. And President Trump suggests that it could continue for weeks to come and is not ruling out putting boots on the ground. He says, and to quote him directly via the New York Post, he has no yips about that. But would Congress have yips about that? Should Congress play a role constitutionally in declaring formally war here? Of course, if you listen to most Democrats, their answer would be yes. It certainly was the case when we spoke to Democratic Congresswoman Madeline Dean of Pennsylvania last night.
- [20:00]
Jeannie Shan Zaino
Only Congress has the power to declare
- [20:02]
Kelly
war again because we are closest to
- [20:05]
Jeannie Shan Zaino
the people, and no power to declare
- [20:07]
Kelly
war should be in a single hand again. What I worry about is an escalation of this fighting and an incendiary message around the region and to our allies
- [20:19]
Jeannie Shan Zaino
and friends in the region, not to
- [20:21]
Kelly
mention the economic impact.
- [20:22]
Jeannie Shan Zaino
This president was elected to reduce prices
- [20:25]
Kelly
for everybody, to get things under control, to bring peace. What are we watching now? And of course, while Democrats are beating the drum toward a war powers vote, it's not to say that Republicans, at least some of them, aren't either. One Republican Congressman Tom Massie, who of course often finds himself on at odds with the administration, is going to be one of the co sponsors of a War Powers Resolution vote in the House this week. But there's another Republican to watch as well, Congressman Warren Davidson of Ohio, who posted this on X earlier today, quote, congress declares war. America is at war. Congress did not declare war, he says. This week we'll either see real intel, hear a persuasive explanation with the defined mission and declare war and authorize a mission, or Congress must pass this War Powers Resolution and cease work in Iran. For more, we turn now to our political panel here on Bloomberg TV and Radio. Bloomberg Politics contributors Rick Davis and Jeanne Shann Zaino are With me, Rick Stone, Court Capital partner and Republican strategist, junior Democratic analyst and Democracy visiting fellow at Harvard Kennedy School's Ash Center. Jeannie, when we think about the idea that it does seem there are at least some Republicans that are wary of this effort going on without congressional approval, will a War Powers Resolution be anything more than a signal than symbolic because President Trump can just veto it?
- [21:50]
Jeannie Shan Zaino
Yeah, Kelly, I think it will definitely be symbolic. It also is political to the extent that it's forcing all members to go on the record. And, and as we all lived through when that happened with the war in Iraq, that can come back to have devastating consequences for political futures going forward if people are on the wrong side of history. So for those reasons, it's important. But it doesn't seem like even if it passed the House and Senate that they would be able to break a Senate filibuster. So from that extent, it's symbolic. And of course, it's a one in many reminders as to why elections are so important because that's really going to be the opportunity for the public and of course, voting begins tomorrow for the primaries in Texas and North Carolina to be able to voice their view as to how they feel about this and so many other things going on in Washington, D.C. today.
- [22:49]
Kelly
Well, so Rick, weigh in here as to whether or not congressional authorization should be necessary. Are we not not at war at present?
- [22:59]
Rick Davis
Well, there is something called the authorization of military force that was passed right after 911 that gives the president, United States, the ability to deploy forces in a defensive way. This is the rationale, I think, that the Trump administration has chosen to take, saying things like we were under an imminent threat and that that Iran regime poses such. So there are legal frameworks that have been used by previous presidents, both Republicans and Democrats, since 911 to allow them to deploy forces in efforts such as this. Look, there's no question that there should be a debate in Congress around the use of military force. In this instance and other instances, there was a discussion around the 12 day war, war that really didn't ultimately go anywhere. But it's a healthy debate to have amongst the public, and Congress's role is to do that. Whether or not they could sustain a presidential veto on a War Powers resolution is highly skeptical. But it's worth the discussion. And ultimately, if Congress really wants to do something about their war powers, they ought to pass a law that takes away the ability for a president to use an authorization of military force. Congress, they put that into effect, they can take it away. So there are many things for this Congress and future Congresses to consider when they think about the balance of power with the military.
- [24:33]
Kelly
Well, when we think about the composition of future Congresses, Rick, that's going to be decided in November. And to Jeannie's point about even if a war powers resolution can't, can't do anything if the president can veto it, it does put members on the record. If you are a vulnerable Republican in the swing district, knowing that at least, least the Trump economy is not overwhelmingly popular and looking what's happening with oil and by extension, what is likely to happen with gas prices, what kind of position does that put you in?
- [25:02]
Rick Davis
Yeah, I mean, when you change from a discussion about the proper role of Congress in the Constitution and you want to talk about politics, that's a totally different kettle of fish. And in this case, sure, nobody wants to be the party in power going into a midterm elections talking about a war in Iran. They want to be talking about affordability because that's ultimately what the voters care most about. And by and large, voters will give a little leeway to the president, but probably not their congressman. And so it's going to be a tough slog. It was going to be a tough slog anyway for Republicans in this midterm because of the situation that the public feels like they're in economically. But this is kind of piling on at this stage, use of resources, you know, putting our bravest men and women at risk. You know, these are all things that weigh heavily on voters. And I suspect this will be resolved before the midterms. But the question is how much before the midterms can Republicans potentially get past this in order to really address the issues that are the burning kitchen table issues like inflation and, and affordability and cost of goods.
- [26:13]
Kelly
Well, and so on that affordability question, Jeannie, as we, as we consider gas prices, but also what this could do simply to consumer confidence, if gas prices are indeed higher, if there is concern about how this conflict could spread elsewhere, maybe even in the homeland, if we consider the threat of potential terrorism here at home, which is always a concern when it comes to Iran, how, how would you, how quickly would you expect that materialize and how lasting, to Rick's point, will that be, is that necessarily something that will be sustained through November?
- [26:48]
Jeannie Shan Zaino
It absolutely. On the issue of affordability, inflation, cost of living, oil, all those things you mentioned and more, Kelly, those will sustain, and I think it is the height of a profound misunderstanding of what has happened and the extent of it this weekend to suggest this is going to be like Venezuela one and done. We're going to get in and out. You know, the president is talking about weeks. That really depends on what his objective is, which by the way, he has not been clear about at all. And anybody who knows Iran knows that this is not going to be resolved. We are not talking about Venezuela. We are talking about a theocracy with a deep state, with 93 million people, a long history. And so these kinds of things are not resolved easily or quickly. And even if you suggest that the president has these objectives of regime change, well, let's just stop and think about that. We are in a war of choice. We have taken preemptive action to kill a leader of another country and we are talking about regime change in a regime like Iran that is going to take months and resources, all of that impacting what happens here domestically. And I think this is really, really must be very frustrating for Republicans in Congress who are going to go on the record and be forced to Rick's point to defend this when they themselves followed this president down this garden path of repeatedly saying we are not going to get entangled in foreign wars, of saying about Kamala Harris, she was going to get us involved in this endless war in Iran and we would never do such a thing. And yet here they find themselves and stunning enough, we've only had a few drop offs like Massey and others so far and they will pay the price of that electorally. So this thing has legs and the president seemingly just doesn't care. He wants to make his name historically. And the impact on all the other Republicans seems to be his view is, let it be damned.
- [28:57]
Tyler Kendall
Well.
- [28:58]
Kelly
And while all of this is going on, it's happening as the Department of Homeland Security is currently shut down. It is not funded. Jeannie, does this actually put more pressure on the Democrats to, to go ahead and break the stalemate and to fund it if not to guarantee the safety of the homeland or to do the best they can?
- [29:17]
Jeannie Shan Zaino
Yeah, I think there's going to be pressure. And to your point earlier we, we heard that that horrible shooting in Austin, people were speculating in the security arena there may be ties to what's going on in Iran. We are vulnerable. They are vulnerable in Europe. For certain, there will be pressure. But at this point, I don't see Democrats buckling on their very common sense requests to the administration and to the Republicans in Congress, the de masking, the better training and all of those things. So there will be pressure, but I don't think it's enough yet that they are going to sort of pull back on any of those demands of ice age regions.
- [29:53]
Kelly
Rick, we just have a minute left, but same question to you. Does this unlock something?
- [29:58]
Rick Davis
Yeah, I think it could certainly. You know, the Republican pushback now is that we're going to have a lot more risk in the homeland and need to be ready for business. And really, it's not something I would think the Democrats want to spend a lot of time on. I mean, they have the advantage of the economic argument. They want to talk about that that homeland security is getting in the way of a broader, you know, much more politically salient conversation that open up that agency as soon as they can.
- [30:28]
Kelly
All right, Rick Davis and Jeannie Shan Zaino, Bloomberg Politics contributors. The both of them, thank you so much.
- [30:33]
Rick Davis
Stay with us. On Balance of Power. We'll have much more coming up after this.
- [30:40]
Public Ad Narrator
Support for the show comes from Public. Lately it feels like there are two types of investing platforms. Some are traditional brokerages that haven't changed much in decades, and others feel less like investing and more like a game. Public is positioned differently. It's an investing platform for people who are serious about building their wealth on public. You can build a portfolio of stocks, options, bonds, crypto without all the bugs or the confetti. Retirement accounts. Yep. High yield cash? Yes again, they even have direct indexing. Public has modern design, powerful tools and customer support that actually helps go to public.com market and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com market ad paid for by Public Holdings Brokerage Services by Public Investing Member FINRA SIPC Advisory Services by Public Advisors SEC Registered Advisor Crypto Services by ZeroHash. All investing involves risk of loss. See complete disclosures@public.com disclosures.
- [31:41]
Bloomberg Host
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.
- [31:57]
Kelly
More analysis on what's happening with oil and the energy sector amid this conflict between the US Israel and Iran that, of course has also engulfed other Gulf states as well. When we think about Iran's retaliation and just how far it could go, whether this will ult ultimately result in a full closure of the Strait of Hormuz, of course, a waterway in which about a fifth of the world's oil and natural gas flows through. And of course, there's energy infrastructure in the region in question as well. Whether or not that could be targeted. All of that is what is contributing to the gains we are seeing in oil prices today. Those Charlie noted we are well off the highs of the session. We had a taste of what Brent above $80 a barrel would be like once again. But right now we're back down at 76. But as far as where as prices go next, this is something that we've been speaking about here at Bloomberg. Experts all across the board, including Jeff Curry, the chief strategy officer of energy pathways at Carlyle, who had this to say earlier today.
- [32:50]
Rick Davis
This market going into this was priced for a high level of complacency. We've been talking about a security premium in energy prices now for over a year.
- [33:00]
Kelly
I think this is it.
- [33:01]
Rick Davis
This is going to be a structural repricing. And you know, I would not fade this current spike. The probability that this thing gets protracted in other regions I think is quite high. So the volatility is going to be high, the situation fluid. I wouldn't fade it.
- [33:17]
Kelly
So let's add another voice to this conversation. Bob McNally, the founder and president of Rapidan Energy Group is here with us on balance of power. He's former special assistant and senior director for international energy on the National Security Council under President George W. Bush. Bob McNally, welcome back. We, of course spoke to you just last week when the strikes against Iran were still just a question of whether or not they would happen at all. Now we find ourselves in day three of these combat operations. You suggested at the time, when we spoke last week that we could potentially see oil going up to $100 a barrel depending on how this conflict plays out. What is your assessment now?
- [33:54]
Bob McNally
Hi, Kelly. Yes. So we did expect the conflict to happen. I'm a little surprised at how quickly it has devolved into some of the more worst case scenarios, meaning being a full on attack. It wasn't a selective attack. It wasn't a blockade. So we're into the the big attack version of this. Of course, we saw Ross Lafan, the world's biggest LNG plant, 20% of supplies get shut in today and damage done to Ross Tenora, the Saudi refinery, it's also a loading terminal, but it looks like the refinery was injured. So and as far as we can tell, Hormuz is pretty much shut and many of the insurance companies are canceling war insurance. So we're into the, the, if not the worst case, the one of the more dire cases. You know, Kayla, we've talked about it. I think there's complacency about how quickly the US Military will be able to guarantee safe commercial passage of Hormuz. I think we talked about that in the past, and I think that's one of the reasons we're only up $4 now and not 14, for example. And so I think there's a real risk. And our base case would be that this will last more like weeks. We're thinking 15 days as sort of our new base case, with more or less Hormuz pretty much closed. And if that turns out to be correct, then we have a lot higher to go in both oil, refined product, and even natural gas prices.
- [35:33]
Kelly
Well, so when we can we think about duration here? And as you're speaking to the US Capability to ensure the safe passage of these vessels that would need to be navigating the strait, we have kind of seen something at least that has parallels to this. Just in recent years, when we think about what the Houthis were doing in the Red Sea, forcing commercial shipping vessels to be going around the Horn of Africa because the waterways were not safe, and the US Firepower that was present at that time could not guarantee that they would be. Is that essentially the parallel we should be drawing here, knowing that the Houthis were just a proxy for Iran? Not necessarily, you know, the state itself, with all of its armaments that it has.
- [36:10]
Bob McNally
Yes, it's that type of asymmetric conflict that we should be thinking about. Not the first Gulf War or the second Gulf War, which were resolved in a matter of days in terms of the military conflict, but that was large formations of U.S. ground troops against enemy. Formations of ground troops. Troops. That's very different than what we're talking about here. Iran has the ability, through its many drones, missiles, small boats, mines, to, again, you don't have to stop every single ship. You just have to hit a few and convince the rest not to go through and to make Hormuz unsafe. And as you noted, the Houthis, who have much more inferior weaponry and even coastline to operate from, held off the US military for 52 days. And we lost. We didn't even succeed in opening up the Baba Mandab back then, back in April. Now we are throwing a lot more at the Iranians than we did at the Houthis, to be fair. But still, I think the likelihood is, if Iran chooses to contest Hormuz and use its capabilities, this will go on longer than a few days.
- [37:23]
Kelly
Well, so let's talk about the calculations then, Bob, that factor into that choice. If you're Iran and you have just had most of your leadership decapitated Taken out. It's clearly a volatile kind of power vacuum, period. And the remaining remnants of what was the regime are probably about survival here. Right? From an economic standpoint, if you are trying to ensure the economic survival of Iran, are you willing to take these risks with energy, knowing you yourself, yourself want to be able to sell your oil to China?
- [37:52]
Bob McNally
Yeah, I think you do, because you're desperate. And the thing that the Iranian survived successionist government, such as it is, requires is leverage over Donald Trump. They have no leverage. Since June, their military capabilities have been degraded. We have air air superiority now. We can go anywhere almost at any time. Iran needs leverage. And the only leverage it can get over President Trump, in my view, is through the oil price. By inflicting a catastrophic oil price on the US on its allies and so forth, along with attacking GCC and other countries, we're already starting to see them call for an end to this. You know, Iran has to make the problem bigger, and it has to make a problem for Donald Trump, and that's through the oil problem price. And if it can do that, I think Iran will bet maybe they can get President Trump to back off. Other than that, it has to capitulate.
- [38:49]
Kelly
So if it is really about manipulating the oil price for leverage, I know you just suggested that if we see the Strait of Hormuz closed off for more than just a period of days, that could do it. But for that to be a kind of sustained price move, one that will test the willpower of the president to withstand it, is what would it need to require more robust attacks on the infrastructure and the energy production capacity of other Gulf nations?
- [39:14]
Bob McNally
Yeah, I don't think so. All they have to do is conduct enough attacks on tankers to convince those tanker owners and operators and insurance companies to not transit Hormuz. The situation we have today pretty much make it too risky, too dangerous. That's all they have to do. They don't even have to destroy or hit onshore infrastructure. They just have to make Hormuz unsafe for commercial passage for a matter of several weeks. If they can do that, unfortunately, I think that will send oil prices much higher, equity markets much lower, and start to raise concerns about the macro economy.
- [39:54]
Kelly
All right, Bob McNally, we so appreciate your insight of Rapidan Energy Advisors joining us on day three of this war with Iran. Thank you so much. And as Bob was just speaking to the notion of, of what tanker rates could do, we have seen oil supertanker rates today surging to a record on this conflict. It's something we will continue to track as we also continue to track the headlines that are crossing the Bloomberg terminal pertaining to these combat operations. US Central Command now saying that last night US B1 bombers struck deep inside Iran in order to degrade Iran's ballistic missile capabilities. Again, that was one of the objectives that President Trump outlined at the White House earlier this hour. So as we keep track of the military operations, we also want to track the impact it is having on financial markets with asset classes across the board. We obviously just focused on commodities, on energy and natural gas. But we want to turn to the other aspects as Christine Aquino joins us. She's managing director, managing editor rather for Bloomberg Markets Live blog. Christine, it's incredible to see obviously the fluctuations we're getting in oil. A big move on yields in the treasury market. We're up 13 basis points on the 10 year right now. Now and stocks in the green. Where is this risk appetite coming from?
- [41:03]
Bloomberg Host
Yeah, very interesting indeed. Kaylee and I would characterize it less as a return of risk appetite and more kind of a receding of that risk aversion that we did see overnight both in the Asia and European sessions and indeed earlier at the opening of the U.S. session. Right. And I think it really is just a tiny attests to markets tendency to kind of sell first and ask questions later. This is a phenomenon that we've observed time and time again when we did have geopolitical risk breaking out over the weekend and then, you know, by the time that we finish the day in the US Session, traders have kind of realized, okay, there's really not enough to sustain the selling here until we get more details. And that's exactly I think what's happening now that we're hitting that midpoint of the U.S. equity session.
- [41:56]
Kelly
Well, and that's of course when we're looking at kind of the surface level, headline level of the equity market. What about beneath it, Christine? Obviously the, the place we look first is energy, given the move we're seeing in oil. But what other sectors are you keeping an eye on?
- [42:08]
Bloomberg Host
Yeah, I mean when it comes to kind of the pass through from that oil move, very interesting what's happening both in the bond markets as you mentioned, yield higher across the curve, but also what's happening in the rate markets, especially as it pertains to expectations for interest rates. Right. I mean that is something of course that drives a large swath of the market what the Federal Reserve is going to do. And just before I came over here actually I was just writing about how markets are now kind of toeing the line when it comes to expecting two rate cuts from the Federal Reserve this year. They've pared that back a little bit just before I headed over here and that really speaks to again this balance between the fact that that there has been an expectation for two rate cuts up until this point and now higher oil prices getting traders to rethink, well, what is that going to do with longer term inflation expectations?
- [43:01]
Kelly
All right, Christina Kino of the Markets Live blog, thank you so much. Just type mlive M L I V go on your terminal to get her analysis along with the analysis of our other colleagues as we continue to work our way through the implications of this ongoing conflict. Conflict in Iran.
- [43:19]
Rick Davis
Thanks for listening to the Balance of Power podcast. Make sure to subscribe if you haven't already at Apple, Spotify or wherever you get your podcasts. And you can find us live every weekday from Washington D.C. at Noontime eastern@bloomberg.com
- [43:34]
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- [43:36]
Bloomberg Host
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