The Global Economic Outlook

Summary

Bloomberg Surveillance Podcast: "The Global Economic Outlook"

Date: June 19, 2026
Hosts: Tom Keene, Paul Sweeney
Notable Guests: Annika Trian (ING), Janet Henry (HSBC), Vanya Stavrock (London Business School), Ambassador Puneet Talwar

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Episode Overview

This packed episode of Bloomberg Surveillance explores the shifting landscape of global markets, monetary policy, inflation dynamics, and persistent geopolitical instability—particularly in the Middle East. The hosts and expert guests delve into:

• How investors and clients are adapting to ongoing volatility
• Diverging trajectories between the US, UK, and Europe
• The implications of Middle Eastern turmoil—especially recent developments in Iran and the Strait of Hormuz—on energy, currencies, and global stability
• Evolving strategies among central bankers amid inflation and changing growth patterns

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Key Segments and Insights

1. Adapting to Global Volatility: The European and US Investment Outlook

Guest: Annika Trian, ING
[01:55 - 08:08]

Client Behavior in a Volatile World

• Volatility is now "normalized": Investors, especially in Europe, have become more resilient through successive global shocks (COVID, Ukraine, Middle East).
• Quote: “It feels like volatility is becoming increasingly normalized... clients are just increasingly resilient and steadfast... sticking to convictions.” — Annika Trian [02:59]

Asset Flows: Europe vs US

• Brief outflows from US to Europe after tariffs; quickly reversed as US earnings outshone Europe.
• US still dominates with expected 20% earnings growth vs Europe's 10-15%.
• Quote: “We've had this amazing earnings bonanza... especially driven by the US. US equities again, year to date, it’s been an amazing quarterly earnings season.” — Annika Trian [04:02]

European Investment Trends

• Europeans are investing more, especially the younger population, but strong home bias remains.

European Attitudes Toward US Growth and Tech

• Europe is “leaning in” to capitalism, deploying more capital, but lacks pension infrastructure like 401(k)s in the US.
• US champions (tech, data centers) draw European capital, but local investment remains favored.

Disinflation or ‘Inflationary Before Deflationary’?

• Any “peace dividend” (e.g., Middle East ceasefire) may not translate to rapid deflation due to persistent supply constraints.
• Quote: “It does feel like it's going to be inflationary before deflationary... shortage of power, shortage of compute, shortage of labor... this supply shortage I do still think has an inflationary edge.” — Annika Trian [07:19]

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2. Global Macroeconomic Update: Central Banks and Policy Scenarios

Guest: Janet Henry, Global Chief Economist, HSBC
[10:41 - 16:03]

Central Banks Remain Cautious Amid Uncertainty

• HSBC operates with scenario overlays; recent (ceasefire-related) events in the Middle East have increased confidence, but risks remain.
• Quote: “The news could have been a lot worse. There's still a lot that can go wrong, but at least we can look towards some kind of gradual reopening at the moment.” — Janet Henry [11:08]

US Federal Reserve Outlook

• No immediate expectation of further rate cuts. US is a “relative winner” (energy exporter, tech leader).
• Quote: “The US Economy is pretty robust... Relative winners and relative losers. The US... absolutely at the forefront of this whole air boom that is underway globally.” — Janet Henry [12:36]

UK’s Post-Election Economic Landscape

• UK outlook has deteriorated due to spiking oil prices. No expectation BoE will hike rates soon, but political and fiscal challenges loom for any incoming Prime Minister.
• Quote: “It's not an easy palette of choices that face any of our recent prime ministers in the UK... Difficult political choices are going to have to be taken.” — Janet Henry [14:09]

Currency Outlook

• Persistent dollar strength expected to continue; euro likely to weaken slightly from 1.1460.
• Quote: "So we look for a broad based firmer dollar and that does include a slight euro even from these kind of levels." — Janet Henry [15:22]

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3. Inflation, Monetary Regimes, and US vs UK Growth

Guest: Vanya Stavrock, London Business School
[18:53 - 24:48]

Are We in a New Era of Higher Inflation?

• Fed’s new playbook acknowledges the need for stronger control over inflation ("prepared for fiscal dominance").
• Stock market wealth effects seen as fueling inflation; reining them in is challenging.
• Quote: “We are in the beginning of a regime change... The job is not going to be easy because… the fact we have such high stock valuations is probably an important driver of the inflation that we’re seeing.” — Vanya Stavrock [19:39]

US vs UK Divergence

• UK’s weak productivity, impact of financial crisis, and Brexit hurt growth and currency; high tax burden stifles innovation.
• Quote: “The UK hasn't really had much of a growth since the global financial crisis. The US is a very different story.” — Vanya Stavrock [21:38]

Globalization and Inflation

• Onshoring/friend-shoring are pushing inflation higher, but global trade has absorbed much of the shock so far.
• Quote: “A big chunk of that inflation is because of globalization… but also what's surprising is that the global economy has remained quite resilient.” — Vanya Stavrock [22:49]

The Future for the Fed

• Expect unconventional tools, not just rate changes: “He is going to try all kinds of new instruments… he’s a fan of regaining control of the broad money supply.” — Vanya Stavrock [24:01]

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4. Geopolitics: The Middle East, Iran, and the New Regional Reality

Guest: Ambassador Puneet Talwar (former US Ambassador to Morocco)
[27:52 - 35:27]

Enduring Instability

• The Middle East remains in a multi-decade cycle of unrest, now intensified.
• Iran's Revolutionary Guard has emerged more powerful post-conflict; theocracy remains but is less dominant.
• Quote: “The IRGC is in a more dominant position... The hardliners have been strengthened through this war.” — Puneet Talwar [29:55]

Strait of Hormuz: The New Memorandum

• 60-day ceasefire/reopening is a reflection of realities on the ground; Iran emerges strategically stronger.
• US has lost two key levers: credible use of force and oil sanctions.
• Quote: “A war that started on that premise actually has resulted in an Iran that is in a stronger strategic position.” — Puneet Talwar [30:58]

Implications for the US and Allies

• The US now must rely more on incentives, including a $300B reconstruction fund, and mend relationships across allied nations.

Regional Ripple Effects

• Morocco remains stable, but faces economic consequences (falling fertilizer exports due to supply disruptions); remains wary of a strengthened Iran.

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Notable Quotes & Highlights (with Timestamps)

• “Volatility is becoming increasingly normalized... clients are just increasingly resilient and steadfast...” — Annika Trian [02:59]
• “Europe is just keen to get involved and deploy capital... but they don’t want to neglect their own continent.” — Annika Trian [05:32]
• “It does feel like it's going to be inflationary before deflationary... this supply shortage has an inflationary edge.” — Annika Trian [07:19]
• “No central bank at the moment is going to give any hint that they are not prepared to take the kind of action that they might need to take...” — Janet Henry [12:36]
• “The US is... at the forefront of this whole air boom that is underway globally.” — Janet Henry [12:36]
• “The UK hasn't really had much of a growth since the global financial crisis. The US is a very different story.” — Vanya Stavrock [21:38]
• “The IRGC is in a more dominant position... The hardliners have been strengthened through this war.” — Puneet Talwar [29:55]
• “A war that started on that premise actually has resulted in an Iran that is in a stronger strategic position.” — Puneet Talwar [30:58]

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Important Timestamps

• 01:55 – Annika Trian (ING) on client conversations and volatility
• 04:02 – US vs Europe: Asset flows, tech, growth
• 07:19 – Inflation/disinflation post Middle East conflicts
• 10:41 – Janet Henry (HSBC) on scenario planning, central bank attitudes
• 14:09 – UK economic and political outlook
• 15:22 – Currency/FX expectations
• 18:53 – Vanya Stavrock (LBS) on inflation, Fed playbook, regime change
• 21:38 – UK vs US productivity and growth
• 24:01 – The future Fed toolkit
• 27:52 – Ambassador Puneet Talwar on Middle East cycles of unrest
• 30:58 – The new Memorandum of Understanding: Strait of Hormuz, leverage lost
• 33:47 – Impact on Morocco and broader region

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Episode Tone and Style

The tone is direct, analytical, and highly informed, with the hosts pressing guests for actionable insights and perspective. There is a subtle note of urgency and realism regarding persistent global risks—whether market, political, or systemic—tempered by a search for opportunity and resilience amid change.

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Summary Takeaways

• Normalization of Volatility: Investors have adapted to a world where shocks are commonplace and resilience, not panic, is the rule.
• US Still the Growth Engine: Despite policy, geopolitical, and economic crosswinds, US equity and tech leadership continue to draw global attention and capital.
• Central Bank Vigilance: Policymakers remain cautious, prepared for unconventional tactics in the face of persistent inflation.
• Geopolitical Shifts: Middle East turmoil has led to a stronger, more emboldened Iran, altered global leverage, and created ripple effects for allies and rivals alike.
• Europe and the UK: Facing their own unique, slower-growth challenges, with political transitions and fiscal policy at the forefront.
• Inflation’s New Regime: Higher for longer is the new norm, with supply bottlenecks and wealth effects reinforcing the trend.

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This episode is a must-listen for anyone seeking clear, smart, and timely analysis on the forces shaping the rapidly evolving global economic landscape.

Transcript

[Tom Keene]

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[Paul Sweeney]

We're going to start with a quick good view here to get to June 30 on hand for the next six months from ING, Annika Trian joins us, Global Head of Private Banking and Wealth with her work out of the London School of Economics. Annika, have you written a mid year review or do you in the Netherlands have to rewrite it given the news flow?

[Annika Trian]

A mid year review? What do you mean by a mid year review?

[Paul Sweeney]

In America, everybody in banking has to write a 6-30-12 that is dead July 15th. That's the way it rules. If you've written a major reviewer, are you people smarter than us and you don't even do a major review?

[Annika Trian]

Well, we're not. We're not doing a long memo like that. No, we. We're fortunate. I would say so Annika, what's the

[Tom Keene]

conversation you're having with your clients these days? I mean, you know, there's the, you know, the uncertainty surrounding the geopolitics over in Iran, not to mention Ukraine. What are your conversations like with your clients?

[Annika Trian]

Yeah, I think it's, I mean it's a sad, it's a sad thing I would say because of all the human sort of tragedies going on around the world. But it feels like volatility is becoming increasingly normalized. And that's exactly what we see with our conversation with clients. And I mean practically you see it in markets, but we see it in parallel in clients behavior. So you know, post a Covid, you saw a market reaction -30% post Ukraine, -20 post Liberation Day, -15 and post the recent Middle Eastern conflicts, -10. So you see that clients are just increasingly resilient and steadfast with what they're doing, why they're doing it, and sticking to convictions.

[Tom Keene]

So what is the conviction? One of the trades that we saw when the tariffs were initially put out last year was some asset flows out of the US into other parts of the world, including in Big way Europe. Is that still the sentiment out there or is that reversed a little bit in your mind?

[Annika Trian]

What's really interesting. So I think two things. First of all, indeed that, that that happened and I think Europeans were very excited because it's been a long time coming. We've been talking about systematic valuation mismatches between Europe, US etc. But then something happened and what happened was of course we've had this amazing earnings bonanza and that's especially driven by the U.S. u.S. Companies, U.S. equities again, year to date, it's been an amazing quarterly earnings season and I think that is just reforged the notion that European companies are just not able to grow at the speed of U.S. companies. So I mean 20% earnings growth for U.S. equities this year, as expected, 10 max, 15 for Europe. So I think that makes things tricky. On the other hand, what's interesting, if you talk about Europeans and how Europeans are deploying their capital, number one, we're seeing a lot more Europeans start to actually invest and this is a really important thing. And number two, you do see quite a home bias. You do see that Europeans like to buy Europe. We do notice this also this year.

[Paul Sweeney]

I think this is a brilliant, brilliant statement. And in America our understanding is, is that Europe believes in American technology, Europe believes in American initiative, innovation and the rest. What's the first derivative of that right now? Is Europe leaning into America into 2027?

[Annika Trian]

I think Europe, I think there's two things. First of all, we've waited for a long time for the continent of Europe to basically lean, I call it leaning in into capitalism, right? Really putting capital to work. We have trillions lying in deposits and the US versus Europe is a very different story, right? The average European household has less than a third of the wealth invested. The average U.S. household more than half. So number one, you are seeing that Europeans are really starting to invest. We don't have the 401k system that you have in the US so these are deliberate choices that are being increasingly made also by younger populations, which is great. The feeling towards the US from Europe is talking about earnings growth. I think what's happening is we are in a world where, you know, we used to be very demand driven in the last decade and I think what's happening now, supply is the new demand, right? So all these enormous supply constraints, the need for compute, the need for data centers, etc. And all the technology, you see, there are just these US champions and Europe is just keen to get involved and keen to deploy capital in that way. So I think Europeans are very pro US constructive on growth that comes out of US companies but they don't want to neglect their own continents.

[Paul Sweeney]

And one final question, I want to dive back to the economic history of the London School of Economics. The model is a war ends and there's like celebration and all that as there should be with any ending war. And then there's a vector of disinflation and at times outright deflation. Should we expect, given the headlines that with an end of this middle war in Iran within the eastern Mediterranean, that we're going to be surprised by some form of tone of disinflation?

[Annika Trian]

You know, it's interesting because we've indeed been walking a disinflation path. Then this conflict spiked up pricing, etc. We've even seen the ECB have to adjust rates in response. But indeed, if, you know, if things are settling down, which they seem to be, that can bring us back to the path. What is interesting though I, which we, I think we all believe will be a disinflationary force, it does feel like it's going to be inflationary before deflationary. And back to what I was saying earlier, there is a radical issue when it concerns supply shortages, shortage of power, shortage of compute, shortage of labor in, you know, in a less of a globalized labour mobility world, etc. And this, this supply shortage I do still think has an inflationary edge to

[Paul Sweeney]

its and you can. Thank you so much. Really, really appreciate it this morning with ING on this special edition of Bloomberg Surveillance from Queen Victoria street in London. Stay with us. More from Bloomberg Surveillance coming up after this.

[Tom Keene]

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[Bloomberg Surveillance Announcer]

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[Paul Sweeney]

We continue to be fortunate with Janet Henry, Global Chief Economist at HSBC and truly a wonderful student of the linkage of the United States with the continent and all of these events. Janet, you've got to rewrite your global economics overview. Unfinished business? Get James Pomeroy to work. How do you rewrite the HSBC midyear review?

[Janet Henry]

Well, like a lot of central banks, Tom, we have been thinking about the world with different scenarios and for our base case scenario, I'd say we actually have a higher degree of confidence than we did just a month ago because we've been working on the basis that the strait would start to reopen in the course of June. We were getting nervous that that might not happen, that we would be in our bad or our uglier scenarios. So yes, we still talk about scenarios, but the news could have been a lot worse. There's still a lot that can go wrong, but at least we can look towards some kind of gradual reopening at the moment during this day cease fire and hope that during that time some progress is made towards some kind of a deal. So I'll still be fall out from it, but. But yes, we're still in a scenario overlay but a little bit more confident.

[Paul Sweeney]

What's amazing about this, Paul, I think we're staggering to day 59, the first day of the 60 day cease fire.

[Tom Keene]

Yes.

[Paul Sweeney]

And the news has changed three times.

[Tom Keene]

It has changed three times here. I'm not sure where we are, but. So Janet, given some of the crosswinds that Tom highlights here, how are central banks reacting? We heard from our Federal Reserve and our new Federal Reserve chief this week, but it seems like they're staying put. But they might be thinking about raising rates at some point. How do you see that?

[Janet Henry]

I think that's absolutely fair. If we go back to even January of this year or even late last year, we certainly never expected the Fed to cut again. We thought there'd be 75 basis points of easing and that would be it. The US Economy is pretty robust and obviously we've got the tax cuts already and relative to the rest of the world. And I do talk relative. It's relative winners and relative losers. Losers. And the US obviously an energy exporter and absolutely at the forefront of this whole air boom that is underway globally. So is a relative winner and no central bank at the moment is going to give any hint that they are not prepared to take the kind of action that they might need to take because even in a positive environment we haven't seen the lasting impact of it. At best we're going to see a peak in inflation but then get a hump for some time. They've got to keep all expectations very anchored.

[Paul Sweeney]

Janet, I've got to go to these stunning elections that we've seen a set of elections in the United Kingdom, the HSBC collapse of real GDP 4% United Kingdom 0.4% United Kingdom maybe 1.4% out there in an inflation that goes from 9% down to 3% is well, what kind of economy will the next prime minister, whether Starmer or Burnham, what kind of economy will they have?

[Janet Henry]

Well, I think if we start the year looking back on the UK things were finally getting to a slightly better place. Yes, a fairly robust start to the year. Without a doubt. Without the spike in oil prices, we would have seen inflation below 2% as soon as April. We were certainly looking for some pretty big rate cuts in the course of this year. So unlike for the US the outlook has changed considerably in the UK So it's not an easy palette of choices that face has faced any of our recent prime ministers in the UK and we've had quite a few in recent years. The fiscal dynamics are not easy. Difficult political choices are going to have to be taken and you know, any prime minister is going to have to get people on board with making those necessary political decisions and to restore global confidence in the outlook for the UK but actually we now think that the bank of England won't actually have to raise interest rates, even if they can't tell anyone that anytime soon.

[Paul Sweeney]

HSBC has such a grasp of foreign exchange. What's your euro call here? Do we have weaker euro from a 1 1460?

[Janet Henry]

Yes, actually we do now look for a slightly weaker dollar. Obviously since the beginning of the war, the dollar's had the upper hand. It's been moving with the oil prices and while some of the oil exporting currencies have actually weakened a little bit, especially the likes of Norway and others, actually the US Dollar has remained pretty firm on that whole exceptionalism story. So we look for a broad based firmer dollar and that does include a slight euro even from these kind of levels.

[Paul Sweeney]

Dr. Henry, thank you so much. Janet Henry, how I have to say it. She knows they hate when I say this. The Hong Kong and Shanghai Banking Corporation.

[Tom Keene]

There you go.

[Paul Sweeney]

It's so romantic. I mean it's like, you know, you got to say it. Hsbc, thank you so much, Janet Henry, stay with us. More from Bloomberg Surveillance coming up after this.

[Tom Keene]

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 [e-mail] Disclosures Game Night Rush or any night of the week really Genius keeps every order moving from online ordering to your kitchen to the front counter. Big league reliability for any business. That's genius.

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[Bloomberg Surveillance Announcer]

You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10am Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.

[Paul Sweeney]

Joining us now, last time she was on Spectacular. Vanya Stavrock joins us here from the London Business School with all sorts of other good affiliations. Behind it is prodigious mathematics from Franklin and Marshall. I want to talk Vanya about, as you say, a view from 60,000ft on inflation, persistence, slowing growth, geopolitics. The fact is, looking backwards, Vanya, I have a central bank regime, particularly the fed, in a 3% range, nowhere near a supposed 2% range. Are we in an era where we're losing 2% and we're going to A higher inflation regime.

[Vanya Stavrock]

So thank you so much for having me and it's lovely to join you. From the London office, I do believe Kevin Walsh is laying out a completely different playbook for the Federal Reserve, which in many ways I do believe is a positive change. So we are in the beginning of a regime change that acknowledges that effectively the Fed has to regain control over inflation because it needs to be prepared for fiscal dominance. Regime, regime. And I believe that his first speech that we witnessed just a couple of days ago was precisely about that. Now, the job is not going to be easy because even though he emphasizes the importance of regaining control over the broad money supply, so effectively the balance sheet of the central bank, which is front and center in his view of how central banks should conduct monetary policy, one thing that he kept mentioning during that speech is that at the moment, the fact that we have such high stock valuations is probably an important driver of the inflation that we're seeing, right? We have a K shaped growth in the US economy. So the higher the stock market is, the more demand there is by these high income consumers that also hold the stock market. And even if you hike interest rates to the extent that the stock market is driven by this boom, you might need to hike by a lot in order to put a dentist in stock market valuations, which will in turn put a lot of pressure on housing markets, clearly the cost of borrowing for government. So it is a very different difficult situation he finds himself in, given that getting the stock market under control is not something that is easy to do or he might be willing to do, but it's an important driver. This wealth effects an important driver of the inflation that we see in the US at the moment.

[Tom Keene]

Professor, we know you have some political issues there. The Prime Minister does with the election earlier yesterday and up in Birmingham, talk to us about the divergence between another pass of economic growth in the US versus the uk. What is it all AI or what else is going on?

[Vanya Stavrock]

Well, sadly, the UK has been hit by a number of negative productivity growth shocks. So first of all, the global financial crisis impacted London and the economy UK much more and much more negatively than the US Granted that the financial sector was the main driver of growth in the United Kingdom. We never recovered from that. And you can see from the pound, right, the pound is a very good barometer of the, of the state of the economy. And after the pound depreciated with the onset of the global financial crisis, it never really recovered against the dollar. And the second big shot was Brexit. So essentially The UK hasn't really had much of a growth since the global financial crisis. The US is a very different story. We have of course, the high taxation, the high tax burden, which doesn't help with innovation, creating new job, retention of companies, startups, attracting high talent individuals. So yeah, the UK is in a much more challenging position than the US in that sense.

[Tom Keene]

So here one of the other phenomena over the last several years has just been the decline of globalization. The onshoring shoring, maybe the French shoring and some concerns that that structurally will push global inflation higher. You ascribe to that thought?

[Vanya Stavrock]

Well, what's interesting is that yes, we have seen inflation being higher and probably a big chunk of that inflation is because of globalization, if you wish. But also what's surprising is that the global economy has remained quite resilient. It is possible that a lot has been absorbed by firms, lowering markups in sector sectors and industries that are essentially more competitive. But I'm not seeing the main issue with inflation around globalization, at least as of yet, because the de facto tariff rates are not as high yet and hopefully will not be.

[Paul Sweeney]

Vanya, I'm sure it's Franklin and Marshall. You crush your first exam on dynamic stochastic general equilibrium theory. Clarity told me that. Okay, said Vanya's down at Franklin and Marshall just killing it.

[Tom Keene]

Yeah.

[Paul Sweeney]

Vanya, when you look at the mathematics of all this, is the worst Fed going to be as ex post after the fact is the Powell Fed is. The bottom line is they're just going to have to wait to see what the data is. Like mere mortals that put their pants on one leg at a time.

[Vanya Stavrock]

I mean they will look at the data, but I think they will try to use completely new set of tools. They will try to push unconventional monetary policy to a completely new level. I'm not talking about forward guidance, quantitative easing. This is old news at the moment. I do believe he is going to try all kinds of new instruments. And you know, it's no surprise that he favors the old regime where we had required reserve ratios that could be used to manipulate the money supply, etc. You know, he, he's the fan of essentially regaining control of the broad money supply. So in principle is that useful? Yes, the more tools you have, you don't have to use a single blunt instrument. Having said that, it's not easy to achieve, so we'll have to wait and see. And it's one thing to say I want inflation to go down to 2%, it's another thing to deliver. And you would have to show some actions behind that.

[Paul Sweeney]

Dr. Serbicova, thank you. Thank you so much for joining us today from London Business School. Really appreciate it. Stay with us. More from Bloomberg Surveillance coming up after this.

[Tom Keene]

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[Paul Sweeney]

We are honored to bring you now a gentleman who perhaps more than any American, spans Robert D. Kelly chaplains the Loom of time from Morocco over to Persia. Ambassador Puni Tower is the United was former United States Ambassador to Morocco and is directly involved with many negotiations with Iran. Ambassador, thank you so much for joining Bloomberg this morning.

[Puneet Talwar]

It's great to be with you both.

[Paul Sweeney]

Ambassador, I look at this moment at hand and I want you to take it back to Albert Harani and his definitive 1 volume on the history of the Arab people. Is the Arab world from your Morocco to your Iran, is it blown up?

[Puneet Talwar]

The Middle east has been in a period of incredible turmoil for at least a century, especially following the collapse of the Ottoman Empire. So what we're seeing today is really a continuation of this cycle that has been going on for many decades now. It's intensified, it's quiet for periods of time, but it has been largely in this period of disquiet and unrest for a long period of time. And of course, as you know, Persia is not Arab, but they have a significant influence on parts of the Arab world, especially through their ties to the Shia communities and their support under this ideological Iranian regime for non state actors like Hamas, Hezbollah, so including non Shia groups.

[Paul Sweeney]

When you look at Iran and you take it from the span of the 79 revolution to their horrific war with Iraq and the balance between the theocracy and maybe a middle class in Iran, where does the theocracy of Iran place right now versus the military that seems so dominant?

[Puneet Talwar]

That's a great question and that still has to shake out a little bit prior to this war. The Islamic Revolutionary Guard Corps, the defenders of the revolution, if you will, have had the upper hand in the Iranian decision making process. And that has only been strengthened through this war. The campaign of assassinations, the taking out of the supreme leader who is a theocrat, the chief theocrat, if you will, in Iran has been replaced now by his son who's still untested. And what we've seen is that the IRGC is in a more dominant position. So the hardliners have been strengthened through this war and we have to see how this shakes out and whether the theocracy and the clerics will actually take more of a not a backseat, but maybe not having as dominant a position as they once did in past.

[Tom Keene]

Ambassador, can you give us an assessment of the Memorandum of Understanding? What's your view?

[Puneet Talwar]

Sure. I think it's not a very good deal, but I think it reflects a reality, a reality of a war that was started on faulty assumptions, the assumption that Iran was so weak following those massive protests which killed thousands of innocent protesters, that a quick military operation could essentially either topple the government or force it to capitulate. And neither of those things happen. So war that started on that premise actually has resulted in an Iran that is in a stronger strategic position. And this memorandum essentially will for 60 days reopen the Strait of Hormuz, restoring it to the way it was. After 60 days, it seems to contemplate the potential for Iran to collect fees. And if Iran is unhappy with this at any time, they can continue to regulate the flow of traffic. It's not necessarily an on off switch. And they're getting a significant amount of upfront sanctions relief, which will undercut, I think, the leverage that the administration will want for the second phase of this deal to get into the nuclear discussions.

[Tom Keene]

So I guess that begs the question. It seems like we're no better than we were before the war, maybe worse off. If this strait is now weaponized in the future, how does the US Move from here?

[Puneet Talwar]

That's a good question. We are worse off, I think. Iran certainly has been set back in terms of its conventional military capabilities, its defense industrial base. But the United States has now lost two key pieces of leverage. The use of force is no longer credible because we've shown the limitations of that. And Iran has withstood this powerful assault. And the oil sanctions, which were our most powerful piece of leverage on the sanctions front, those are being waived at this point. And so what we have to go back to is really the drawing board and what the administration can offer now to get to that nuclear deal that we all want to see, to constrain their program and to prevent them from getting a weapon is essentially incentives, incentives of over $300 billion in a reconstruction fund. And we have to try to rebuild our alliance structures as well, which are in bad shape in many parts of the world.

[Paul Sweeney]

Ambassador, to span this from the Arab Spring in Tunisia in Cairo, and bring it over to your Morocco, where you were our representative and in Marrakesh and in all of all of the kings, Morocco. How does this war destabilize the distant Arab world? How does this war destabilize Morocco and Mohammed vi?

[Puneet Talwar]

Well, Morocco, I don't think is fundamentally destabilized by this. Morocco's actually, this is our 250th anniversary. We're going to be celebrating this year. It's actually a moment to remember that Morocco was the first country to recognize American independence. So this is an old long standing relationship. Morocco is an incredibly stable country. It's one of two countries in Africa that has has reached investment grade status and it's going in a great direction under very progressive king. Now that said, they're having some some influence from this. What we're seeing is that sulfur, for example, which is necessary for fertilizer exports, the biggest export earner for Morocco. Those have been affected and as a result Morocco's fertil their exports will be hurt this year. Moreover, Morocco is no friend of Iran. They've broken relations with them twice. They actually have no relations right now. Part of that goes back to the fact that they actually hosted the Shah after he was overthrown. And so they have no love lost and they're probably very concerned, just like many other allies in the region, that Iran is apparently emerging from this in a stronger position. They want to see Iran put in a corner and and not have the ability to expand its tentacles all across the region.

[Paul Sweeney]

Ambassador Talmay, thank you so much for joining us today. Paul Sweeney and Tom Keene here at Bloomberg. The former Ambassador to Morocco, Puneet Talwar, with us at Tal War Global Strategies and of course with the Council on Foreign Relations.

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