← Breaking Points with Krystal and Saagar
Breaking Points with Krystal and Saagar
4/2/26: US Allies Turn On Trump, Israel Takes Massive Fire, Iran War Ending US Dominance, AI Bubble
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- [00:00]
Krystal Ball
This is an iHeart podcast.
- [00:02]
Sponsor/Ad Voice
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- [01:35]
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- [02:21]
Krystal Ball
Hey guys, Sagar and Crystal here.
- [02:23]
Saagar Enjeti
Independent media just played a truly massive role in this election and we are so excited about what that means for the future of this show.
- [02:30]
Krystal Ball
This is the only place where you can find honest perspectives from the left and the right that simply does not exist anywhere else.
- [02:36]
Saagar Enjeti
So if that is something that's important to you, Please go to BreakingPoints.com, become a member today and you'll get access to our full shows unedited ad free and all put together for you every morning in your inbox.
- [02:47]
Krystal Ball
We need your help to build the future of independent news media and we hope to see you@breaking points.com.
- [02:56]
Saagar Enjeti
so I mentioned earlier some of the talk in Trump's speech about the straight of Hormuz, and he's still on this whole thing of like, well, we did all the hard part. And so now you all who really use the Strait of Hormuz, it's your job to come in and take it back. Let's take a listen to a little bit of how he presented that case
- [03:12]
Donald Trump
and completely decimated Iran. They are decimated both militarily and economically and in every other way. And the countries of the world that do receive oil through the hormones strait must take care of that passage. They must cherish it. They must grab it and cherish it. They can do it easily. We will be helpful. But they should take the lead in protecting the oil that they so desperately depend on. So to those countries that can't get fuel, many of which refuse to get involved in the decapitation of Iran, we had to do it ourselves. I have a suggestion. Number one, buy oil from the United States of America. We have plenty. We have so much. And number two, build up some delayed courage. Should have done it before, should have done it with us as we asked. Go to the strait and just take it, protect it, use it for yourselves. Iran has been essentially decimated. The hard part is done. So it should be easy. And in any event, when this conflict is over, the strait will open up. Naturally. It'll just open up. Naturally. They're going to want to be able to sell oil because that's all they have to try and rebuild. It will resume the flowing and the gas prices will rapidly come back down. Stock prices will rapidly go back up. They haven't come down very much, frankly. They came down a little bit, but they've had some very good days over the last couple of days.
- [04:42]
Saagar Enjeti
So soccer, grab it and take it and cherish it. But also it's just going to open up naturally anyway at some point. So I don't know, do they open up all. It's just going to naturally open up? Yeah, I mean, it will. If you go and you pay the toll and you make a deal with Iran and you denominate your ship in Chinese Yuan, then the strait is actually not closed at all for you if you wanna go down that path. And I think that is the path that they will pursue.
- [05:06]
Krystal Ball
President Macron, just speaking this morning in Japan was asked specifically about this. He said that Trump contradicts himself all the time and that there is no military solution to the Straits of Hormuz and that it will be resolved diplomatically. So that is a major NATO power, obviously France. And by the way, in Japan, again, not that anybody over here cares at all, all of these people, but Japan, South Korea, the country's Pro most affected U.S. trading partners and U.S. allies by this crisis who are freaking out, having currency problems and whose presidents, I mean, just this morning, the South Korean president, remember we played last show how he was like, I can't sleep at night. This morning he's like, I implore. Or I guess nighttime his time, he's like, everyone, please don't drive. If you can, please take public transportation, do so he said something like, please save every scrap of oil that you can. That's how bad things are getting over there. So what are they gonna do when Iran comes and says, hey, pay up, they're gonna pay it. And this is the big problem for the United States. Are we gonna sanction South Korea? Are we gonna sanction Japan, France, Germany, the uk, all of these other countries which are basically and emphatically saying, we are not getting into this mess with you. We may clean it up, but we're not gonna clean it up on your terms. That's the problem. Let's put C2 up there on the screen too. Trump is threatening to stop weapons for Ukraine unless Europe joins the Hormuzzi coalition. And by that, again, let's be very clear, he doesn't mean a diplomatic Hormuz coalition. He means a military campaign. He's desperate to get the Europeans to join the United States in their bombing campaign and at least in some sort of international coalition that would seize the strait or force the strait open again, though they don't wanna do that. And in fact, you have the major heads of basically all top economies in the G7 or in NATO coming out and saying this is not going to happen. Here's the Prime Minister, Keir Starmer, of the saying this. Let's take a listen.
- [07:03]
Keir Starmer
Conflict in the Middle east has now entered a second month. And while we're working at pace for de escalation and peace, it is now clear that the impact of this war will affect the future of our country. First, let me say once again, this is not our war. We will not be drawn into the conflict, conflict that is not in our national interest. And the most effective way we can support the cost of living in Britain is to push for de escalation in the Middle east and a reopening of the Strait of Hormuz, which is such a vital route for energy. To that end, we're exploring each and every diplomatic avenue that is available to us. The Foreign Secretary and the Chancellor have met their counterparts in the G7. The Defence Secretary has been in the Middle east speaking to our partners. And the UK has now brought together 35 nations around our statement of intent to push as one for maritime security across the Gulf. And today I can announce that later this week the Foreign Secretary will host a meeting that brings those nations together for the first time, where we will assess all viable diplomatic and political measures that we can take. We will also convene our military planners to look at how we can marshal our capabilities and make the strait accessible and safe after the fighting has stopped. Because I do have to level with people on this. This will not be easy.
- [08:58]
Krystal Ball
This will not be easy. He's prepping them all for a crisis ahead, but he's still saying we're not joining the war. And he keeps saying, I just is all. All I ever wanted was a leader who would say things. And I'm not even sure he means it when he's like, I will always act in Britain's national interests. Why is that so hard to find here in the United States? And to see the Euros saying stuff like this again, the most globalist people on the planet, you're like, wow, what exactly have we done? But it's.
- [09:26]
Saagar Enjeti
Well, they have no choice.
- [09:27]
Krystal Ball
Exactly.
- [09:28]
Saagar Enjeti
They really have no choice.
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Krystal Ball
They don't have a choice. They can't join the war.
- [09:31]
Saagar Enjeti
And there's a couple things I want to note about his comments in particular. So first of all, he talks about where he's Marshall getting this meeting together. So while he's, you know, sort of pushing the U.S. you know, putting us at arm's length, he's looking for greater collaboration between other European nations. And what he says is, we're going to just, we're going to explore all diplomatic and political solutions. And then he goes on to say something about, you know, we're going to marshal also our military resources to, to keep the strait open and safe after the fighting has ended. So, you know, he wants to get in there something about, yeah, well, our military will do something, but not right now. Not right now. Maybe once this is all died down, we'll like play some role in making sure it stays in a new status quo or whatever. But right now what we're looking at is the political and diplomatic approaches here. And you know, to your point earlier about, oh, is the US Going to sanction, you know, South Korea or Japan or whoever tries to purchase oil from Iran? No, I mean already we've backed off of sanctions on Iran. You know, we've already given them sanctions relief. Why? Because we can't take oil going, you know, higher per barrel. We can't take the higher prices at the pump. Trump politically certainly cannot sustain that. So, no, he's going to, as he already is, allow countries to go in and make deals with Iran, make deals with Russia. And so those two countries in particular will end up being some of the major beneficiaries here. And that's not to say that of course Iran is taking a lot of damage. I mean they're, you know, steel industry has been hit very hard. That's a major part of their non oil economy. So that is significant. It's going to take a lot of time to rebuild. They're going to lose, you know, several points probably on their gdp. All of that is very real. But in terms of long term strategic perspective, you know, Trump keeps saying, and his defenders keep saying short term pain for long term gain. Yes, short term pain of the entire world for long term gain of Iran and Russia and China is basically what we're looking at at this point. And we could put C4 up on the screen. This is just some of the details here from the Guardian about these talks with 35 countries, four straight of Hormuz. You know, they're, they're just scrambling, trying to figure out what they can do because the economic fallout for all of the European countries is going to be extraordinarily grave. And then we also see, you know, and some of this is like, you can look at it and it's a little too little too late. We'd like to hear some more forceful condemnations of what's going on here, this illegal war. But you do see some moves starting to be made. We can put C5 up on the screen. France has now joined the list of countries that is refusing airspace specifically to Israel to transfer US Weapons for the Iran war. So they haven't directly rebuked the US in quite the same way, but obviously Israel being our key partner in this whole war. That is very significant. We can put C6 up on the screen. Italy had already denied US aircraft access to their military base. This is incredibly significant. Italy has a right wing leader. You know, there was a lot of thought that she, that Meloni and Trump would be very close. In a lot of ways, they're ideologically aligned, but she's also been under tremendous pressure domestically. They've had general strikes against the, you know, support for the genocide in Gaza. They have, you know, sort of like activated, you know, mobilized actual labor power in the state. That makes it puts more pressure on her perhaps, than in other places. And they can put C7 up on screen. Just to give you a sense, Germany being one of the largest economies in the world, their growth forecast already cut, as according to the Washington Post, Europe scrambles to contain the price shock from the Iran war. And then let me put this last one up on the screen, you know, because this has major political and economic implications here in the U.S. so foreign central banks increasingly are selling U.S. treasuries. There's a lot of, you know, somewhat complicated technical reasons for that, but part of it is just decoupling from the US and seeking other potentially safer avenues of investment. And so as the demand for US Treasuries goes down, the price we have to pay so that interest rate, that bond yield goes up, up. That's what makes our debt increasingly expensive. So that means more money out of our pockets to have to pay off that debt. And it creates a lot of problems. That's why Trump seems to really watch the bond market and the bond yields so incredibly closely and has made all kinds of moves, not just in this war, but, you know, with his tariffs in another places during his presidency when the bond yields get too high to try to control those prices.
- [14:23]
Krystal Ball
Yeah, the bond market obviously is dramatically important in all of Trump's decision making, but it also, look, I mean, it's trite to talk too much about the petrodollar, but it does matter. One of the reasons why allies are so mad at us right now is the currency problem. So I've talked about this with Japan. Because crude is so high in price, the Indians, the Japanese, the South Koreans are having to sell off their currency into dollars, which is pushing the dollar up devaluing their currency just to be able to buy the more expensive oil from the crisis that we created. So we're actually creating a major fiscal crisis in a lot of these countries. I believe Japan and South Korea are both trying to pass emergency budgets right now to deal with the crisis. The Indian rupee, I think it sank to a couple days ago to a 14 year low. They're trying their best to buy Russian oil. People are now engaging in all these insane schemes to try and buy Iranian oil with Yuan. But you know, the same ability to convert into that and or into crypto isn't exactly one to one. But the Chinese banking system, the shadow banking system outside of US control is trying to be built up for exactly transactions like this between treasuries currency and everything. Remember like that really, really makes it more difficult for America to maintain its economic supremacy and it will create some sort of different in the future, which is where things continue to look. And look, I think everybody knows I'm no fan of NATO. I mean if anything a silver lining is like maybe this would be the end of NATO and we could actually make some real allies and have some security agreements which makes sense for us and not like North Macedonia or something like that. But you don't throw the baby out with the bathwater, right? Like the UK and Australia, I would say two most critical allies, Anglosphere literally that we're supposed to be with. Well, look at how they're handling. I mean their prime ministers or presidents are both going before the public and are being like, this is a disaster, this is a crisis. We are having serious hits. And then what I'm watching is, I don't know if you saw this one, Mark Dubowitz from fdd, chair of the Israel Lobby, basically here in Washington of regime change from the foundation of defensive democracies. And he said, you know, five Eyes is useless. We should go to countries which are really good for us, like Israel and Ukraine. I was like, what? Israel and Ukraine are good intelligence partners. Not, you know, not Australia or New Zealand, like the five Eyes partners that have long blood brothers and have been allies now for decades. Like this is the issue that we have, I would say in the G7, if you look at the rest of the G7, we have marginally or majorly hurt every single one of those countries. Those are the countries that I would care about the most. And to see that happen, it's, I mean, shocking from an actual ally perspective.
- [17:20]
Bethenny Frankel
And
- [17:22]
Krystal Ball
it will really punish our standing with them in the future. There's talk and stuff about Greenland, et cetera. But this is way beyond that. Like when you put foreign economies who are allies for decades into recessions or you create these types of crises, they will have the same reaction that America did after the oil shock of the 1970s. We cannot rely on these people, period. We are going to have to do something else. And look, as I said, I'm no great fan of NATO. However, the dissolution of NATO today, I stole this from my friend Bruno Masais. It would have nothing to do with Russia. It would basically enable a Israeli war on Turkey. That would be the net effect, right? Because the Turks and the Israelis hate Turkey. That's basically what it would open its door to, another Middle Eastern war. I mean, already half of NATO is seeding that we have to even defend Turkey, even though, of course, they have their own domestic political interests and they're furious with what's happening with Israel. So that's the most likely war that would erupt if there's any withdrawal or end of NATO. Is it an Israeli war on Turkey, which at this point I'm certain the United States would somehow get dragged in, even though The Turks are 50,000 times better allies than the Israelis.
- [18:38]
Saagar Enjeti
Now, we wouldn't get dragged in. We would join them to get in. Because I think Trump like Israel. So Israel is basically just a permanent war economy now, right? Like, that's, that is the way that state is structured. That's what keeps Benjamin Netanyahu in power. That is the whole, like, logic of their genocidal state. And increasingly, that is, I mean, that's when Trump says we can't do health care, we can't do Medicare, we can't do childcare because we've got to just be at permanent war. That's the vision for this country that he is articulating as well. Now, Trump is an old man. Who knows how long he's going to be around. I think after this, regardless at this point of how this war is brought to a conclusion, it's going to be humiliating one way or another. So I think this is pretty much the end of his presidency, but that is the way that he is viewing the direction of the United States as well. So, yeah, he would be eager to find a new country to go to war with because that is the logic of this state that he has created as well. So you're absolutely right, as with many Trumpian things, like he can take something that is already bad and that there's a genuine critique of and then find a way to make it infinitely worse. And that's what would happen with this direction of how Naito would end. I thought Professor Pape made made a great point yesterday with Ryan and Emily and everybody should go watch that interview. It was quite extraordinary actually, how he laid things down. He's like, NATO's already over. Because do you really think that, you know, if you have this US Led, US Led coalition and there's an order that comes down from this president or another, that all the NATO countries are just going to fall in line and take it and do what? No, he's like, no, it's already dead. Like, it's already all but dead. So we're just living with this sort of zombie organization for the time being.
- [20:22]
Krystal Ball
That's all been true. And yet, you know, look, I don't even care, you know, necessarily. I think there should just be a forced peace deal on Russia and Ukraine. But for those of the people who allegedly do care, congratulations, you know, you went after Iran. Okay, nice work. Now Russia is very rich. It is almost certain. You know, we were talking about jet fuel. Well, jet fuel, let's say if the things continue to be closed, where did the Europe buy all of its jet fuel from before? Russia and Ukraine from Russia. Well now, if you're going to remove all of this refined product from the market and then they have to come to the United States to try and buy it, what's more likely, they're just going to keep doing that to support Ukraine or are they just going to open things up and they're going to buy from Russia on a long enough timeline, that's the almost certain way that things are going to normalize. So congratulations, you actually bailed Russia out. Not that it necessarily needed it, but it will almost certain if this crisis continues, there will be more normalization with Russia than would have happened if this war had not continued, which actually really bolsters them. Cause they didn't give a single inch on sanctions or on the war in Ukraine. And then the Ukrainians themselves are basically in a last gasp trying to hit all of these Russian oil facilities, which is only driving the price higher, which only makes the logic of normalizing relations with Russia even better as the price of oil continues to go up. So nobody's going to win in this one if you're allegedly on the Ukrainian side. But that's almost certainly what's going to happen. So.
- [21:51]
Saagar Enjeti
All right. And I'm just checking, just checking the markets now. Oil right at this moment at 855, up at 111 and actually the West Texas intermediate is a little bit higher than Brent crude at this point. Point 111 is where we are per barrel.
- [22:05]
Krystal Ball
That is so hot. That's. What is that an 11% jump in a single day before.
- [22:09]
Saagar Enjeti
Yeah, that exactly what happens.
- [22:11]
Krystal Ball
So off the top of my head, that's like 420 a gallon nationwide. Yikes. That's. That's not good. That's really bad.
- [22:19]
Saagar Enjeti
Great speech you gave last night. Let's move on to war.
- [22:24]
Sponsor/Ad Voice
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- [23:25]
Krystal Ball
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- [24:56]
Krystal Ball
So we have very ominous warnings about potential ground operations. We do want to reiterate what that would actually look like. The President, remember he pointed to Mark Levin saying we need to go and get the uranium. Well, let's go and put this up here on the screen now from the Washington Post, confirmed some of the Wall Street Journal reporting that we have brought you all before about what exactly it would take to go and to get all of this uranium. So let's just go through the plan, shall we? The plan would represent enormous difficulty, would require the airlift of hundreds or thousands of troops, heavy equipment to support the excavation and recovery of radioactive material. It could take weeks and would take place under fire deep inside of Iran. So literally would entail not only dropping in troops, but also excavators. They would have to build a Runway, a temporary Runway to have to come in and come out. They would have to drop the Special Operations force and they would have to drop a force to protect the Special Operations force. And it would take close air support and ground operations to make sure that nobody could even come close to them as they take the weeks and or months to actually carry out this mission. And a lot of people obviously think that that's totally crazy. But what's even crazier is that it could even be in the works. Remember, the 82nd Airborne is there. You've got special operations units. But we wanted to flag this. This is a viral video that came out from San Diego. Can we go and put this video up here on the screen where a user actually took this video of excavators that were moving via train to the naval boatyards in San Diego. They said, look, we don't know obviously why all this equipment is moving in, but you could see that it was very clearly moving on the train to potentially a good reason. There's a lot of use for military assets and for things like that. But don't forget San Diego. All of the special operations forces and conventional forces that are all stationed there, not to mention the naval base. So we did want to flag it as. At the very least, you can see some of this type of equipment which is making its way to the base and who knows from where it could go. I don't even really know if it would have to be shipped over there, of course, if they have to also drop it in via air. But you can see very clearly what this would entail. It's not just some grab and go style mission. The Iranians know you're coming. And remember in our last show, Crystal, we told everybody they hit that ammunition dump in Isfahan. Not a missile city, an ammunition dump, specifically of artillery and of weapons which would be used as defense in some sort of ground combat operation. I don't think that was a mistake that they hit that and that you're seeing all of this not saying it's going to happen, but saying if they did, they're setting the ground if they want to.
- [27:41]
Saagar Enjeti
I mean, those are some of the signs we talked earlier about, the 8 10s. That would be another sign, you know, that those are going to the region. You've got also reports that some additional infrastructure around Isfahan has been struck. Things like, you know, bridges and other logistical infrastructure that would make it more difficult for Iranians to respond to any sort of an attack there. Also worth noting that this completely insane plan to seize this nuclear material, this was drawn up apparently at Trump's request, per this report from the Washington Post. So this wasn't something the military was like, okay, here's one of your options. Here's another option. Here's the carg island idea. Here's this. I know he was like, what would this actually look like? Which I think is just a demonstration that this is the, this is a direction that he is very interested in. You know, it has a lot of Trumpian hallmarks. He would be able to have some sort of a victory narrative. He would be able to claim, as he did after the 12 Day War, that their nuclear program was completely obliterated and there was no chance for them to, to develop a nuclear weapon. And so, you know, he would be able to assert some sort of a victory out of this whole mess. But very likely, given the highly risky nature of what is being contemplated here, it could be a complete and utter disaster where it just completely fails. At the very least, it's highly likely you will have significant casualties to come out of such a risky operation. And then once you've had a large number of American service members killed, do you really, are you really able to just walk away at this point at that Point and how does Iran respond, how does Israel respond, et cetera. So, you know, if I had to say this is the direction that his psychology would most lead him towards. I'm not even sure whether he's particularly made up his mind about exactly what he wants to do. It seems like he's getting a bunch of assets in the region to have a whole lot of different options. But to me, the idea that they're just going to continue this air only campaign for another two to three weeks, it's not going to fundamentally change anything in terms of the strategic objectives. And then he's just gonna walk away with his presidency in shambles and having effectively, you know, de facto declared a complete surrender to the Iranians. That's very difficult for me.
- [30:07]
Krystal Ball
Other problem with this whole two to three week timeline is, you know, the war is gonna continue and it's not just us bombing them, it's them bombing us and Israel. So let's put some of this video up here on the screen that we have. Israel continues to get pounded every night and remember they're rationing missile interceptors. They are having a lot more sites that are struck. Anybody can go and can watch video of all of the damage that has happened in Tel Aviv. Just yesterday they were multiple foreign journalists and others reporting the number of intense missiles barrages that were coming in as a result of Iranian ballistic missiles which were not being intercepted and were actually striking, as you guys can see, just from the ground of like what it looks like. You did not see much of this in the very opening days of the war when their interceptor stockpile was much more. That was, I believe it was an oil refinery that you all are watching right now on your screen. And you can actually see, let's put the Times of Israel report up there. They are even admitting right now Iran and Hezbollah launch attacks as Israelis are hosting the Passover Seders, sending the millions into the shelters. But they also note that the number of strikes was more than at any time since the first week of the war. So it's actually an increase in the number of missiles that you saw that were coming directly into Israel, not to mention again all of the targets across the Gulf. Let's go ahead and put D5 and some of the other video that we have from the Gulf strikes. This was a very striking video that came out. This was an Iranian missile coming in and hitting a facility near US troops. You can actually see one of the troops there who's in the video. There's multiple other videos that even came out overnight. Before we started the show of facilities, US Facilities in Jordan that were being struck, I mean, just all across the Middle East. And you remember that there's an intense amount of censorship that is coming out. We do know that some 300 or so US troops have been wounded now. So far, I believe six remain seriously wounded. The vast majority have returned to service. But this continues for two to three weeks. You just don't know. You had the refueling tanker that went down over Iraq that claimed the lives of some forest service members. You got 13 now who've been confirmed dead, several hundred who have been wounded. I believe a dozen or so who were seriously wounded and six or so who remain, you know, in critical care. So it's not like that we haven't had a toll ourselves. Not to mention all of the energy infrastructure and other things that continue to be targeted every day. You can watch and see the uae, Straits of Hormuz, you know, attacks in the Straits of Hormuz. You've seen attacks in the Dubai, like in the port against Saudi Arabia. There were multiple missile strikes that happened there. And they still have the capability and the capacity to launch strikes at the critical energy infrastructure. They're holding off on it for right now, but they're ready to go if they need to if there's some sort of escalation. So just keep that in mind. And we do have D6. This is part of the problem about the strategic logic which is happening is that the Axios is reporting the Saudis sound like Mark Levin. They want the US to finish the job by wiping Iran off the globe. Now, we don't want to. Is what you have now is a situation where the UAE and Saudi who have gone all in with America, right? Well, now they're held hostage their entire economies by Iran in the streets of Hormuz. They don't wanna pay the hostage toll, even though that would be the rational thing to do at this point. It would probably be easier for everybody involved. So they're pushing the U.S. they're like, no, you have to finish the job. You have to finish the job. And then America's in a very tough position, right, Crystal? Because, well, we can follow their lead. We could do what they want to the detriment of our people and of course, of our forces, our nation. But if we don't do what they want, then maybe they're gonna say, well, okay, then all your troops have to go. So we're in a very tough position where the people who are in the region who are US Allies are the people who are actually gonna push us the hardest to continue on with the war. It's only Qatar and Oman really, which are the ones who are like, look, we can find some sort of diplomatic solution. And remember, that's only because they're much closer to Iran. The rest of em, who are really all in and who have their own problems, they are really pushing America to escalate this war. So it's an alignment of Gulf interests and of Israeli interests to continue the war.
- [34:36]
Saagar Enjeti
Yeah, and we can put D8 up on the screen here, which speaks to that. With regard to uae, I mean, basically they're sort of feeling like, all right, we're in. And for them it truly is existential because you know, Dubai, Abu Dhabi, you know, these family US backed monarchies that are installed there, they do not feel that at this point, given the way that they've been hit by Iran and the risk that would persist if the US just walks away, they don't think that that's something they can bear. So they asked the UN to approve this measure to force the Strait of Hormuz open. You know, not that the UN really has any teeth in this regard, but trying to get some sort of international consensus around the idea that what Iran is doing with the Strait of Hormuz is in violation of international law. And then this report, D9 we can put up on the screen from the Wall Street Journal also was quite extraordinary. They say UAE wants to force Hormuz open and is willing to join the fight. So. Meaning they would not just allow the US to, you know, use bases in, in their country, but they would also actively join as combatants, which would be extremely significant. And so, yeah, if you join as a combatant and then the war ends without Iran, you know, without the strait being opened with Iran maintaining significant military capabilities, that is going to be a dire situation for the uae. So that's the logic that they've, you know, that they've adopted at this point. And so if Trump tries to sort of unilaterally walk away, which to me is looking less than less likely all the time, but let's say he tries to do that. Well, Saudi is going to be calling him, UAE is going to be calling them and basically being like, what the hell, you can't do this. So one of Iran's major goals that they've talked about from the beginning of this war is we don't want US bases in the region. And a lot of these countries are going to look in the aftermath of this and say, was this really worth it? To have these US Forces on our soil and make us and our countries and our people and our key assets, to make them a target as well.
- [36:46]
Krystal Ball
That's the problem. I mean, I really do get it from their perspective. You're Saudi, you're the uae. You have bought tens of billions of dollars from the United States. You have invested hundreds of billions, if not trillions, into the US Economy. It was built on a singular, singular promise. We do this, you protect us. Now, we created a situation where literally almost 100% of their economy is reliant on the straight to Hormuz, which we have now created a situation where it's closed and we're telling other countries, hey, you gotta go and you gotta open it. Which is not like Saudi and the UAE can. So they're like, hey, what was all this money for? We literally, this is the reason that we did it. So you gotta go and you gotta finish the job. But we don't want to. So then for them, I mean, what are they gonna do? They're gonna rewrite the way that they have their entire economy or security relationship with the US that seems untenable. It seems equally untenable for them. I mean, they just took all these missiles and all these hits from Iran. Can they really just sit there and be sitting ducks? Theoretically, yes. But you would need a bunch of security guarantees and other operations from the US which are not going to happen. Or you could abandon America, which also seems equally disastrous for them because now they do have this reality, existential threat. So they're really in a real tough spot. I don't see any situation in the near future where they're paying the Iranian toll. I just. I can't see it right now because the amount of pain they've experienced, it's not enough to get to that threshold where you want to make a deal with your enemies, even though, unfortunately, they'll probably get there at some point if we stay the course of where we are, or we're just going to escalate to an insane and dramatic occupation which also seems, you know, very, very likely if we continue on this course. And, you know, you can just see, though, that the damage that they're taking in Israel and in the Gulf, that only points in one direction you know, to rational people. Maybe people like watching, listening to this are like, wow, we should get out of this. Yes, we agree. But for them, it only pushes them up the escalation ladder and increases the logic of total war, which would, of course draw us in and create this conflict in an even more prolonged situation. It's really bad. All right, we've got Nicholas Mulder. He is a historian of economic warfare and a professor at Cornell University. He's going to join us now to talk about the end of the ability of the US to wage unilateral economic warfare.
- [39:14]
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- [41:32]
Krystal Ball
Joining us now is Nicholas Mulder. He is a professor at Cornell University. He's an expert on economic warfare, sanctions, and he wrote a very interesting piece in the Financial Times that we wanted to talk to him about. Let's go ahead and put this up here on the screen. This really grabbed my attention. What you wrote is that the era of US Dominance and economic warfare is over. America has long used sanctions to coerce adversaries, but Iran and China can wield powerful economic weapons, too. Nicholas, tell us a little bit about the study that you've made here now so far of US Sanctions, their effectiveness now and how they're working out in this war with Iran.
- [42:10]
Nicholas Mulder
Yeah, so the United States came into this century, the 21st century, with a really unique position of economic power, and it's been using that for years against many countries to impose economic and financial sanctions. So Iran has been under sanctions since 2009. They were briefly lifted, and then there was a nuclear deal, and then Trump got out of that nuclear deal in 2018 and reimposed maximum pressure sanctions. But if you look at any number of other conflicts, the war in Ukraine, of course, there were big sanctions imposed against Russia, export controls on chips going to China. So it's been a big part of US Stock, a Chinese competition, North Korea, Cuba, Venezuela, all of the conflicts I think that we are seeing at the moment really involve the use of sanctions. And the United States has been using them a lot, really, because it gives an easy alternative to boots on the ground and to directing more military effort towards these conflicts. But increasingly, you see that the sanctions not only don't really work or they take a very long time to work, they also have really counterproductive effects. One of them is that the targets of these sanctions begin to cooperate more. So a lot of these countries are driven together more by the fact that they are all exposed to this US Pressure. We can see that at the moment, particularly in the rise of this big shadow fleet. So a very large part of the global transport infrastructure that is now being devoted to basically trading oil outside of the reach of US Sanctions, and increasingly also regimes that are exposed to it. Countries that are exposed to sanctions becoming more and more hardline. They don't see any real reason to negotiate with the United States and they don't really trust the United States negotiating position. And for that reason, I think that sanctions, often first billed as an alternative to war, have now really become kind of an on ramp to war. And this is a conflict where we see that too. Really?
- [44:07]
Saagar Enjeti
Yeah. That's a fascinating insight and I think an important one. The other one, well, you have a number of insights here, but another significant insight in this piece is just how consequential it will be if Iran maintains control and there's a new status quo with regard to the Strait of Hormuz because that effectively gives them sanction, a powerful sanctionability as well.
- [44:27]
Nicholas Mulder
Yes, absolutely. And it'll be very interesting to see in the next few weeks if a regime for the control of the Strait of Hormuz emerges. There are some indications now in the last few days that Iran has begun to levy tolls on ships that can pass and moreover that it is implementing a kind of tiered system of egress so of being able to leave the Strait of Hormuz friendly countries that are friendly to Iran. So we have confirmations that Pakistan, but also the Philippines and China have been able to send tankers and ships through the Strait of Hormuz can go through it without any problem. Then there seems to be a group of neutrals that are forced to pay tolls. And here the question is really whether Iran imposes a very heavy toll or if it to be a light one. One of the things about this current energy crisis caused by the war is that actually the cost of one or two dollars per barrel toll is not that much. So it actually, I think is going might be surprising how quickly countries see this as a price worth paying to regain access to some of their energy flows. After all, right. The United states has imposed 15% tariffs on most other countries last year and most countries accept that too. So it's actually, I think possible that countries accept this more quickly than we might expect. And then the final group of countries that those are hostile countries, in Iran's words, they are continued to be, they're continuing to be denied access to the Gulf and also the ability to leave from there. And I think one of the things we might see is that Iran is going to really use that three tiered system to try and break up some of the coalition behind the war and to try and move countries that the US Is now hoping might help open to Strait of Hormuz and bring tear those countries away from the United States, try and explore some rifts in that coalition and particularly Asian Countries are in a very dire situation, so they really need access, so we'll have to see how it's used. But potentially a very powerful source of diplomatic leverage for Iran here.
- [46:23]
Krystal Ball
Got it. So, Nicholas, you just referenced this. Put E1 up here on the screen. This is about secret codes and demands for WAN fees to get ships through Iran Hormuz tollbooth. What you're saying is that sanctions, and specifically, I really think the Ukraine sanctions created the Runway for this new ecosystem of oil and these shadow fleets that move across the seas, and that Iran in this situation is really the beneficiary of that and could accelerate that trend of booking oil on Chinese yuan or on crypto entirely outside of the US Banking system, which makes sanctions effectively irrelevant in any sort of future conflict. Is that right?
- [47:02]
Nicholas Mulder
Yeah, that certainly seems to be one hope. Whether they can do it is an open question, but they definitely have means available to them in the infrastructure that's grown up around that shadow fleet to make those payments and receive them. And the question is, how many neutral countries and other traders in the rest of the world are going to enter that system and use it basically to settle these trades, even if they, in doing so, run the risk of being exposed to US Financial sanctions? And that's going to be a difficult calculus to make. But I think as this energy crisis gets worse, we will see more and more countries trying to run the risk of being entangled in U.S. financial sanctions. Because ultimately, what you would like more and what countries need more for their economy is energy, fertilizer, all the things that pass through the straightforward moves. Right? So there's a real premium on being able to access the physical goods, and some measure of financial sanctions risk may need to be tolerated. And moreover, we've seen also the Trump administration already lift some sanctions on Iranian oil already at sea. They've lifted them on Russian oil at sea. That wasn't intended at all. It was really an improvisation to deal with the second order effects of their own economic war and their direct military attack on Iran. But it's already shown in principle, the US Is willing to lift some of those sanctions. And that too, I think, will strengthen the Iranian negotiating position. So one question is, depending on how long this war goes on, whether Iran will ultimately agree maybe to open Hormuz to all countries in return for a much broader sanctions lifting. So that's also financial sanctions on Iran. That means the ability of other countries to invest in Iran and potentially help reconstruct some of its economy, things the Iranians have been wanting for many many years, and they've always lacked the means to do so. And potentially now they have an instrument in their hands with which they can try and negotiate for that broader access to the world economy.
- [48:56]
Krystal Ball
Got it.
- [48:57]
Saagar Enjeti
Let's talk about Russia a little bit more here because saga and I've been tracking, you know, the, I guess, degradation of the US Sanctions regime, especially as it applies to Russia's war on Ukraine. And, you know, we made Russia the most sanctioned country on the planet, and certainly it had a negative impact on them, but they also had planned for that, and they've been able to withstand that, you know, aggressive sanctions regime. And now de facto, they are getting some significant sanctions relief because of our desperation, the desperate situation that we find ourselves in because of a war of choice in Iran. So how impactful do you see those developments as being in terms of sort of, you know, creating an alternative financial infrastructure that allows people to evade sanctions and also in demonstrating that there are severe limits to the ability of the US to really extract, you know, effective pain or force some sort of regime overthrow with our sanctions?
- [49:53]
Nicholas Mulder
Yeah, I think that the shadow fleet as it's emerged in the last decade, decade and a half, has really been an important factor in continuing to facilitate this trade. And it has now also created a whole network of shell companies. Oftentimes these are in jurisdictions where individuals and companies also go to evade taxation. So this is an offshore economy that also exists for the benefit of corporations and of people with a lot of money who put their assets there. And the shadow fleet is using those same jurisdictions. So we're talking about Caribbean islands. The Emirates actually are an important hub of this as well, Hong Kong and places like this. And the shadow fleet depends really on a network of brokers and intermediaries that can incorporate companies in those jurisdictions. And the question then is, can the sanctions policymakers in the United States and in Europe track down those companies quickly enough to put them on the sanctions blacklist before these people create new companies? And it's a real cat and mouse game. And we've seen right in the global fight against tax evasion that no matter how well intentioned you are, it is very difficult to keep tracking these offshore entities quickly enough. It's possible, but we are going to need a big investment in state capacity to do that. And more broadly to your question, Kristel, about the limits of US Leverage, I think one of the things that the Russia sanctions have really shown is that Asia is the absolutely pivotal economic player in the world economy when it comes to making sanctions effective and particularly making them hermetic. And one of the things that was sorely underestimated in the run up to the war in Ukraine is that Western policymakers believe that if they launched very big sanctions, those would be sufficient and they didn't really need to incorporate large Asian economies. And what the last three, four years have shown is that if only China and India continue to buy Russian oil, that is actually enough to keep the Russian economy afloat and even doing reasonably well. The sanctions are definitely imposing costs on Russia, but they can survive for the time being and they're not under any immediate, very strong pressure and that's really key. So I think that the Russia Ukraine war is the first geopolitical crisis where we see that Western economic power alone is not enough to make sanctions decisive. You really need to have Asian countries on board and even all the major Asian economies. And that's exactly what you see in this crisis too. It really, I think, is going to be a question of how Iran and the Asian economies negotiate because those links are the most important and that's I think where we're going to see the most important developments about what might stabilize out of of this Hormuz control weapon.
- [52:38]
Krystal Ball
Yeah, got it. Well, thank you so much for joining us, Professor. We appreciate it and we'll continue to read your work. So thank you. Appreciate your time.
- [52:45]
Nicholas Mulder
Thanks very much for the invitation. Pleasure.
- [52:48]
Sponsor/Ad Voice
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- [54:17]
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- [54:59]
Saagar Enjeti
So very much related to the war, although a bit of a separate issue. We've been tracking some signs of concern, we'll say, in the massive AI sector, in the AI data center sector in particular, which has been the backbone of what's kind of kept the US Economy afloat in spite of declines in almost every other sector of the economy. So let's put this up on the screen. I saw this with quite a lot of interest yesterday from Bloomberg. They are saying that half of U.S. data centers planned for 2026 are expected to be delayed or canceled. One big reason is a shortage of electrical equipment such as transformers, switch gear and batteries. US does not have the manufacturing capacity forcing it to rely on imports. And very much Sagar related to the last segment we did on economic sanctions and economic power. Most of those imports come from China. So we are, you know, really betting the whole farm on this AI revolution. The particular approach that we have taken, that our AI companies have taken is building out as many of these data centers as they possibly can. There is an insane amount of money being spent here. You also have a political backlash in all of these localities. You know, that's really cross partisan against these data centers being located in the town. And then while this big bet is being placed at the same time, they're projecting out all these data centers that they don't even have the parts to build and you know, are trying to Import from China, et cetera. But even trying to import them, they simply don't have the materials to build out what they have promised investors they are going to build out. So seems like a pretty alarming situation.
- [56:50]
Krystal Ball
Well, let's also remember what did Ryan Emily cover in their very first show yesterday? Amazon facility got hit in the Gulf. And I actually don't think we can take this away from the war because let's think about it, the AI data center is fundamentally needs cheap power. Like the reason why we are in a crisis with data centers in the first place, why it actually is like a binary choice between data center or our own electricity, is because we don't have the electrical grid capacity right now. LNG and gas prices are actually pretty good here in America. And it's largely because we don't have the capacity to liquefy it and to send it abroad, which doesn't make it as much of a global commodity. However, it's very possible in the future that we may have to ramp up liquefication and export in order to backfill a complete closure of the Straits of Hormuz. And remember, that's what Donald Trump wants. He wants Europeans and others to come and buy LNG and other products from America. Well, that would actually increase the overall price of our own electricity prices here in the US which would make it much more difficult for these AI models and others and data center projects which need cheaper power. And then on top of all of that, you have venture capital investment. A massive portion of venture capital investment comes from the Gulf. Also it comes from all over the rest of the world, sovereign wealth funds, et cetera. Guess what, what's happening with all that money? It's drying up or at the very least they're having to massively pause a lot of their build out. So there's like multiple factors as to why this is all going to continue to spiral. And the AI bubble, you know, itself was propped up on big tech valuations which were obviously disconnected from reality. But, but fundamentally like what is the US economy? We don't really make a lot of shit, we just buy it. We're a massive consumer economy. Well, we're all about to tick take a huge haircut on consumer spending because of gas prices and because of inflation, which just means by definition consumer spending is gonna go down, that's gonna drag down everything, not just AI bubble plus consumer sentiment. So you put all this stuff together and you can see how the real economy would go down. Why an AI bubble pop is very, very much, I think in an open conversation. And that was the only thing propping up our GDP at all, was building out these data centers. It's another reason why the war. What a folly. What a folly. You're gonna go to war and hit the energy supply of the whole world at a time when that's the only thing that's boosting the United States economy and then drop the bottom out of consumer spending too. It's a mess.
- [59:24]
Saagar Enjeti
And antagonize China too. And at a time when you have not built out the industrial capacity to be self sufficient, far to the contrary. I mean a lot of, during the Trump administration, in fact, we've gone backwards in a lot of regards with respect to trying to build out our own industrial capacity. So you're, you know, antagonizing the entire world supposedly, you know, the way that the Trump administration and these heads of American AI tech companies, the way they see things as this like existential race versus China to be the first to dominate the AI sphere, and yet we're still in the most basic level, fundamentally dependent on China to be able to import these parts for a bunch of these rare earths, you know, all sorts of portions of this. We've also talked about helium being disrupted in the strait of hormones and how that ties in as well. So just on multiple levels, we've created a massive crisis for the AI industry that we've decided to apparently better whole economy on. And those cracks are just starting to show. There were some. And let's put F3 up on the screen. You know, it's hard to say what's going on here behind the scenes, why these decisions are being made. But we've got Claude code users who are hitting usage limits faster than expected and they're putting in some limits for, you know, people who are getting extensively using Claude, sort of trying to pull back, especially during the highest use hours, pull back some of the usage of Claude. You also had this story, F4, where Sora, the video generation site from Open AI, has been completely, it's being completely shut down, ending in April. This was announced with a lot of fanfare. This, this was a central sort of core promise and achievement of OpenAI. The idea was that Sora was going to be a major part of their plans for the future and now that is being shut down as well. Some of this too, Sagar, speaks to the fact that the business models just haven't as of yet really panned out. You know, it has a lot of similarities to the early Internet phase where you had all these websites and all this promise and yet a lot of, and obviously the Internet worked down and a lot of companies did make a lot of money. But in the early days, some of the business models didn't make any sense. And so what these AI companies needed was a lot of time and bandwidth and patience from investors, willingness to continue to funnel them tons and tons and tons of money, cheap energy to continue this data center build out while they figure out some sort of revenue model that is actually going to generate profit, that justify these massive investments. And what the impact of the war I think is effectively to dramatically shrink those timelines and put a lot more pressure on all of these companies.
- [62:16]
Krystal Ball
Yeah, I just think, you know, looking at, first of all, no, no tears for Sora or for their Disney porn, which is, let's call it what it is, that's what it was about. And all of their erotica that they just abandoned with ChatGPT. But really, I think, look, look, limits and server time is really about power. Like, this is an entire conversation about power. And by the way, I mean, it's pretty shocking that we're in this crisis and not a single national leader is saying, hey, doesn't this mean that we should just like become more energy independent? And the answer is obviously yes. I actually anticipate all of the Asian countries and maybe a lot of the European countries, this could finally push them over the edge to nuclear power to overcome their, you know, 50 year hangover over the issue. They're burning more coal right now in Asia than probably ever before. And they will continue to do so as long as this crisis continues because people need electricity. But here at home, like, this should be the impetus to be like, hey, we need to be 100% energy independent. Because even if we are a net exporter of oil, with oil at a global commodity, we're still very vulnerable to a shock. This is the, I mean, why are we still paying $4 a gallon in gas if we are a net exporter? And the answer is because of this global commodity which we still remain entirely reliant on, but where there's no like real vision or even plan really, you know, to do anything about that. And if you want a data center, you can have that too. If there's cheap and abundant power, then none of us really have to pick and choose. But that's what I think that this whole conversation is gonna be about in the future. And that's really bad for AI. And the worst part is that probably just means a recession. I mean, already, you know, things were on the Edge in terms of inflation and consumer sentiment. But with gas at $4 a gallon for at least a few months, likely, you know, at this time, I don't know how can you possibly, you know, pull out of a spiral like that because of all the follow on effects. Now you have high inflation, that means high rates and no rate cuts. There's going to be, you know, drop in the stock market already. I think the stock market is down a couple percent at the very least year to date. It could have an entirely down year overall. All of these things are just bad. Also, you know one story you and I haven't talked about, private credit. I'm not sure if you've been reading or to keeping your eye on that. Yeah, the private credit markets are really drying up. That has a lot of impact actually on tech, on venture capital and more. So that could be another place where everything would, could blow up. Especially on top of what's happening with Iran. It's a majorly important financial story.
- [64:48]
Saagar Enjeti
Yeah, I was just looking, there was actually a headline that came across this morning that I was just looking for. Blue Owl capped redemptions after investors asked to withdraw 22% of the private credit giants $36 billion fund. So another private credit giant that's saying that's effectively experiencing bank run and this is, you know, not the first worst instance of this that we've seen over the past several weeks. But you know, zooming out to your point, I think nuclear, yes is a potential option and renewables. And the US under Trump has effectively bet like we're going to steal Venezuela's oil. We obviously have a lot of fossil fuel production ourselves. Trump has said multiple times now, you know, what he wants to do in Iran is take their oil as well. I think the bet from the the US in terms of energy was we are going to be this fossil fuel behemoth. And obviously it's not working out too well for us in terms of the Iran war. But that was the idea. China meanwhile has aggressively invested in renewable technology. You know, they are at the bleeding edge in terms of solar panel development. Those renewable technologies have gotten much, much better. And obviously we've talked a lot about how their EV tech is just like blows Tesla anybody in the US out of the water. So you know, they're well positioned on that front as well. Not to mention having been much more strategic about securing the supply lines to enable that technology as well. So that's the direction that they decided to, you know, that's where they decided to place their bets. And you know, I think there's going to be a lot that's going to be pushing the world in that direction because it feels a lot more secure than, you know, hoping that the oil supply through the Strait of Hormuz remains open and free and safe from any sort of interference. There was one last story that I just wanted to get in here because it is significant. F2 on AI, which is that anthropic, which is supposed to be the paragon of safe AI development, these are supposed to be the responsible players in the field. They accidentally leaked 500,000 lines of their own source code and contained in here was obviously all sorts of information about how, you know, the product works and their approach, et cetera. There were also, there were also product updates that haven't been released yet that gave, you know, everybody in the world, including their competitors, insight into, okay, here's what Claude code is going to be the direction that they're moving in next, next. And I'm sure there's, I mean, of course Anthropic is embarrassed and it's a major blow to them. It's a big problem for them. But to me, the significant piece is just even the ones who are supposed to be the responsible good guys, being safe and cautious, etcetera, are prone to really self destructive, incredible, sloppy, humiliating errors. And I don't think that that should comfort anyone about the direction that AI is going to in.
- [67:48]
Krystal Ball
Very true. All right, thank you guys so much for watching. We appreciate it. There'll be a Friday show for everybody tomorrow and we're of course we're all on ground invasion watch, so we'll see you all later.
- [68:16]
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Krystal Ball
This is an I Heart podcast.
- [70:00]
Saagar Enjeti
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