A (2:40)

9:07am 9:07am and I think the story right now is just the degree to which people are realizing more and more energy infrastructure in the region. We're talking about the Iran war, of course. More and more energy infrastructure in the region. I mean, it's literally on fire.

C (2:57)

Yeah. The thing that I've noticed, having recorded these sort of emergency podcasts over the past, I guess, two weeks now, is that we will talk about a hypothetical, like, you know, oh, what happens if Iran strikes the port of Salalah in Oman and then a couple days later it happens, which gives you an indication of how quickly things are progressing. And one thing that has happened in. In just the past day or so since we recorded an episode with Bob Brackett on natgas, is we had Israel bombing Iran's infrastructure in the South Pars gas field.

A (3:33)

Yes.

C (3:33)

And that was kind of a hypothetical that we talked about with Bob, and it happened shortly after. And then after that, we also had Iran bombing Qatari energy assets in the South Pars. So it's. It's just progressing very quickly.

A (3:51)

Our colleague Dylan Griffiths has put together a really excellent list. I mean, the thing was. So we did that episode sort of near the beginning, or I've lost track of the time with Rory Johnston, and he said the closure of the Strait of Hormuz was itself this sort of hypothetical that was so extreme that it was almost not worth contemplating. So I think your framing is really excellent. All of these things that are just sort of like, you think about them as very bad possibilities, and one by one, they become realities. Our colleague Dylan Griffiths has a really excellent just sort of list of energy infrastructure damaged in Iran war piece. And it just goes down through the list. One of the refineries in the world shut down as a precautionary measure. Ras Tinura, a refinery in Saudi Arabia, halted various pipelines, gas facilities and so forth. There is just a lot that's damaged, which of course means that the Strait of Hormuz is only one aspect. Maybe it gets opened. But then there's, of course, the question of, like, all the infrastructure that's been damaged and how long it takes to come back online at anything near full capacity.

C (4:55)

Right. And this raises two interesting questions, I think. One is that it seems like the US and maybe Israel to some extent, weren't expecting Iran to hit back against various energy infrastructure assets or even cities this hard. Right. And I think Trump has said a couple of times that he didn't expect Iran to, for instance, like, go after targets in the UAE and places like that. So questions over what's happening there, like, why did that become a strategy. And then secondly, the thing I'm wondering is how much financial pressure does this actually put on Iran? Because at the moment, yes, so some of its big gas producing things are getting hit and damaged and it seems like that's going to cause some fallout. But on the other hand, if oil prices are spiking and if Iran can still get out some oil to a certain extent to places like China, is that actually a fiscal windfall for them? Like can they withstand some of this chaos better than perhaps other places can?

A (5:57)

Right. And you know, for the US Obviously a lot of this translates into higher prices at the pump for some of the region and Gulf countries. I mean, it's just, it's GDP catastrophe.

D (6:09)

Right.

A (6:09)

And some of the estimates for what some of the countries are expected to see a reduction in GDP, I think I've seen numbers like 15%.

D (6:15)

Yeah.

A (6:15)

Etc. I mean, we're talking about, you know, this depression level declines and so forth. And so the degree to which this drives a serious wedge between Gulf countries in the United States is of course obviously a big part of the story here anyway. And of course that makes the logic of the strikes.

D (6:31)

Right?

A (6:31)

I mean, that makes Iran's logic seem very clear. Drive a wage between us and its friends in the region and so forth. And so anyway, we need to understand both better just how serious this damage is, the long term fallout, because this is very important from economic story. And then the way to think about this damage in the context of war strategy itself and what constitutes success for or Iran here as it tries to

C (6:55)

defend and how all of this is actually playing on the ground in Iran because of course we don't have very good insight at any moment in time into domestic Iranian politics.

A (7:04)

Definitely not. All right, well, we really do have the perfect guest, someone we've spoken to before, someone we turn to frequently when the discussion is about Iran or it's about oil and certainly some combination of the two. We're gonna be speaking, of course. Perfect guest, Greg Brew, senior analyst at Eurasia Group. He is the author of two books that directly relate to this. Petroleum in Progress in Iran, Oil Development in the Cold War and the Struggle for Iran Oil Autocracy in the Cold War. So, Greg, thank you so much for coming back on Odd Lots.

D (7:36)

Hi, Joe. Hi, Tracy. Thanks for having me back.

A (7:38)

It must be nice. You know, you write these academic books with academic prices with names that sound like academic books and suddenly suddenly they're actually in demand.

C (7:49)

They're current events, suddenly they're relevant, which

A (7:52)

cannot be said for all academics, they weren't relevant before.

D (7:54)

They were very boring and only a handful of people cared about them. And now the number is slightly more than a handful, perhaps.

A (8:00)

It's definitely more than a handful. Why don't we just start off with a sort of very big picture, which is, let's just put on your energy analyst hat for a second, then we'll get into all the sort of understanding Iran more, you know, from your energy analyst hat. How shocked are you by the sort of scale of destruction that we've seen with energy infrastructure over, over the last couple of weeks?

D (8:26)

So I think I'm officially shocked after the events of the last 24 hours, where you saw both Israel attack the South Pars gas field in Iran, which supplies 70% of Iran's gas supply, and then quite quickly, within hours, Iran responding by striking the Raslafan LNG processing facility in Qatar. But of course, over the last few weeks, we've seen widespread strikes on energy targets throughout the region. And then, of course, the closure of the Strait of Hormuz, which, as you mentioned, and I've had very similar experiences to Rory in this way over the last few years. Whenever anybody asked me, you know, is Iran going to close the Strait of Hormuz? I would say only as a last resort, only in the event that the regime feels that its survival is being threatened. And most of the time I've been saying we're not there yet. You know, whatever crisis this is, it's, it's not that bad. But this war, this attack was interpreted by Iran as a threat to its survival, a threat to the regime's survival, and it responded in a way that it has been saying it would respond for a long time. So I have been shocked. But if I were a better Iran and energy analyst, maybe I shouldn't have been.

C (9:36)

Well, okay, explain that further, because some people would say intuitively, if you strike Iran and immediately take out the Supreme Leader, that immediately frames the conflict as an existential one for Iran. Right. So why this reluctance to believe up until, you know, maybe a day or so ago that they would go this far in their response?

D (9:59)

Well, I think the kind of collective understanding initially was that even though the war began with Israel assassinating Supreme Leader Ali Khamenei, which, incidentally, the Iranians kind of expected, they had been making plans for the last several months of what to do in the event that Khamenei was assassinated. But I think the collective understanding of the war initially was that it was going to be a short war because the United States, and because President Donald Trump didn't want a long war. So there was this belief that, okay, things are bad. Iran has been attacked, it's being heavily bombed by the US And Israel, it's closing the Strait of Hormuz. But Trump is going to deescalate and it's going to end like, this isn't going to turn into a prolonged conflict. That's part of the reason why oil prices didn't really respond as aggressively initially as I think they've responded since. That's why futures didn't move very much in the first week or so of the war, because I think everyone was maybe in a state of shock and denial that the situation was as bad as it really was and that things were going to be wrapped up, things were going to be de escalated. And I think on some basis that was stemming from historical experience, like the war between Iran and Israel last June was also very intense, but it ended very quickly with a very, very rapid ceasefire that allowed oil prices to fall. And in the past, Iran had done aggressive things. It had fired missiles at Israel, it had fired drones, but usually in a calibrated kind of proportional way. And I think there was, over the first week of the war, there was this belief that, oh, Iran's not going to go that far. Right. That they are going, ultimately, they're going to be deterred from being too aggressive. And I think on both sides, this understanding that Trump was going to de escalate quickly and that Iran was going to be restrained, both of those assumptions proved to be very inaccurate. And now that we're in the third week of the war, I think it's really settling. And how bad this is, how bad this is to be going going to be, and how much work it's going to take to de escalate.

A (11:59)

Well, you know, obviously, a big part of the reason that we want to talk to you is we think that you have greater insight into the sort of domestic politics in Iran better than most energy analysts that you're going to come across. But actually, let me flip the question and maybe not go to your academic wheelhouse, but just your take. You know, the expectation is Trump is going to taco because he can't stand oil at $100 or more, and that this will prove to be a forcing mechanism for him to one day just decl victory. That'll say, you know what, We've taken out enough infrastructure. They're no longer a threat. And as you mentioned, he hasn't. And if anything, it seems like we're Bringing more assets to bear on the region. So this has taken people by surprise. As of right now, Brent crude trading for about 113, very close to the crazy highs of Monday, March 9th. Do you have an idea for why perhaps the collective assumption of an imminent Trump Taco has not borne out and why he is actually seems to be willing to accept some economic pain and prolong this longer than just, you know, declaring victory anytime?

D (13:02)

Sure thing. I will say the only thing that's somewhat more challenging for an analyst in my position, more challenging than diving into the psychology of the Islamic Republic, is diving into the psychology of Donald Trump. But I'm going to give it a shot.

A (13:14)

Okay.

D (13:14)

So yeah, again, going off of historical experience, here was an individual, a person who had been in the public eye for decades, who, who always seemed to be preoccupied by the price of gasoline. You go back over the last 30, 40 years, Trump is always talking about gas prices, right? Keeping gas prices low, how gas prices reflect poor governance, poor economic performance. You gotta keep gas prices low if you wanna be successful. He talked about it a lot in his first term. He talked about it a lot last year, coming up into this crisis. And then suddenly we're in the context of a war. Straight up. Hormuz is closed. 20% of the global oil supply is being disrupted or shut in in some way. Gas prices are climbing to highs that we haven't seen in years. Oil is over 100. And then suddenly Trump is acting like that doesn't matter, like he doesn't care. It's curious. I think it comes down to a couple of things. I think it comes down to in this context, he is maybe more conscious of looking weak than taking the Taco and taking the short term win. And seeing the economic indicators, the financial indicators, swing back in his favor. I think the size and scale of this conflict, the fact that it's not just sort of the adventure in Venezuela or putting pressure on Russia, it's a war. There are dozens of US warships, hundreds of planes, thousands of US personnel, GCC states, allies to the United States that are under consistent fire. It's a big deal. And to Taco now would not only, I think, expose the President to criticism in a way that maybe he hasn't been exposed over previous foreign policy adventures where he's always sort of managed to escape, looking very tough, you know, looking very assertive. If he does back down right now, it feeds directly into the Iranians narrative of victory. This sense that Iran is tougher, more resilient, more able to withstand pain. And that eventually they will outlast not only the United States, but more specifically the US President. That is entirely what is driving Iran's strategy from the opening of the war.

A (15:35)

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B (16:37)

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D (17:06)

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C (17:37)

Greg's point about Donald Trump having a long history of talking about oil prices, not many people know that there is in fact a deleted scene from Home Alone 2 in which he stops to talk to Macaulay Culkin about high prices at the pump.

A (17:48)

Are you serious?

C (17:49)

No.

D (17:51)

Yeah, they talk about gas taxes.

C (17:52)

Yeah, that's right. They just start rambling in the in the hotel halls. Okay, I realize this is kind of a difficult question because I'm not even sure that Trump himself knows, but do you get a sense of what victory actually looks like in his mind for this particular situation?

D (18:09)

So I think, and there's been some good reporting on this, so I think we can accept it as fact, although it's irrelevant for the reasons I'll state going into this. There was a belief in the administration and perhaps a belief from the President himself, that there was an opportunity in Iran to replicate the experience in Venezuela, that there was a way to kill Ali Khamenei, the Supreme Leader, and that in the wake of his death, a group of Iranian leaders would come to the fore and would pursue policies that aligned with U.S. interests. There was a belief that that was possible. Now, the problem which they encountered immediately was that the individuals they expected to lead that political shift inside Iran were also killed alongside Ali Khamenei in the opening hours of the war. So the opening, the opportunity to achieve a Venezuela disappeared in the opening hours, leaving the President, I think, and the United States with a problem regarding war goals. Now, they have done tremendous damage to Iran's military capabilities, missiles, missile stockpiles, missile productions. Iran's Navy, as the White House loves to advertise, has been taking tremendous damage. So Iran is absolutely being weakened by this war. But I don't know if that's enough for the President to justify the war, the war scale, the economic cost, the risks that were associated. If the war ends with just Trump saying, we've weakened Iran, we're not going to have to deal with them again, that's insufficient because he is probably getting advice inside the White House and from the Pentagon that if the war ends now, Iran will likely rebuild. You know, they rebuilt the damage that was done to them following last year's war. They rebuilt most of that damage within six months. It'll probably take them longer to rebuild the damage from this war, but they will almost certainly do it. Also, if the war ends now, Iran will leave probably feeling emboldened, having felt that their strategy of targeting the strait, targeting GCC states worked. So if the war goal is just to weaken Iran militarily, they've done that, but it's probably insufficient right now. What I imagine the President is thinking about is what can I do against Iran that allows me to claim a more decisive victory and offers me a politically and also strategically viable off ramp. The problem I think they're dealing with right now is that there are no good options to pursue that outcome.

A (20:36)

I'M trying to think about how to ask this question in a way that doesn't. Well, that's accurate and a little bit sound sensitive, but I have this feeling, this sense, and I'm very far from an Iran expert, an Iranian history expert, but I have this sense that Western commentators, particularly older ones, who perhaps sort of remember the Cold War, etcetera, Have this vision of Iranian society as one in which there is a very broad mass of people that are like, deep down, liberals who are dying to cast off their hijabs, who want to dance lasciviously to rock music and live as Westerners, et cetera, and that there is this very small group of religious hardliners oppressing them that have no credibility within society, and that the moment you decapitate these bearded mullahs that everyone will suddenly live the free Western liberal life that they've been longing to for decades, et cetera, and that all you needed to do is topple this. First of all, is that an accurate characterization of how many sort of think tank thinkers in D.C. view Iran? And how different is that gap between the complexities and realities of essentially Iranian domestic politics?

D (21:58)

Well, I'll avoid naming names because a lot of the think tank folks in D.C. are friends of mine, but I will say this. You know, the Secretary of State, Marco Rubio, likes to say this a lot. I think it's a line that he thinks conveys meaning and significance. I actually think he's right. There is a huge gap between the Iranian people and the Iranian regime, the regime of the Islamic Republic. There's overwhelming evidence to suggest that most Iranians don't support most of the policies that the regime pursues. Both the social policies at home, very restrictive policies on how you can dress, how you can act, the kinds of businesses that can be operated. There are laws prohibiting co ed activities. Increasingly, I should note that a lot of these laws are being flouted openly. People are just aren't obeying them anymore, and the regime is having a hard time enforcing them. More broadly, there's resistance to a lot of the policies the regime has pursued, backing foreign proxies or regional proxies like Hezbollah or the Houthis in Yemen, you know, spending money propping up Assad in Syria, spending huge amounts of money building up a nuclear program which resulted in incredibly onerous Western and US sanctions. And then just the general sense that there are elections in Iran, but they're not really free or fair. Lots of candidates that people would vote for are barred from running for office. There are candidates there are politicians who have spoken out on the subjects of reform, on democratization, they are silenced, they are arrested or put under house arrest. So it's an incredibly restrictive political environment and one that a lot of Iranians don't support. On the sort of broader ideological frame, there is a core of support for the Islamic Republic as a political experiment. There is still this group of people inside the country. It's hard to estimate precisely their size, but one estimate you can go on is when there are elections for president. For instance, there was1 In 2024, the super hard line candidate, the candidate who is extremely anti us, who's all for doubling down on hijab and other tough social policies. That candidate usually gets 14 to 15 million votes. And when the regime has demonstrations, when there are official days of celebration, when they come out and they hold marches, very often these marches are pretty well attended. People do show up. The regime can probably count on the support of a hardcore of maybe 10 to 15 to 20% of the population. Okay, that's probably enough for them to stay in power. The other aspect of this, and you know this, is it's not a uniquely Iranian story. Decades of repression and monitoring political dissent, restricting the political environment. What that means is that there's really no organized political opposition inside Iran. There's no opposition candidate or opposition leader who's fighting the good fight. There are some individuals, but they're not really at the level that they could organize an alternative government. The other aspect of it is there are whole institutions that are built into the fabric of the Islamic Republic. The irgc, the Islamic Revolutionary Guard Corps, kind of being the most important. But it's really just one of many who exist solely to preserve the regime from internal and external threats. They also happen to have all of the guns. So as with other authoritarian governments, not just today, but going back 50, 60 years, this is an environment, this is a political context where the mass of people don't really support the government and would love to see a different government, but it's difficult for them to implement change given the obstacles that they face. And unfortunately, January was illustrative of all of those realities. The attempt to effect change through popular demonstration was put down with overwhelming and lethal force.

C (25:43)

Just going back to Trump and potential off ramps here. I mean, one thing we know about Trump is that he really seems to like owning stuff, right? And he seems to like taking stuff that he doesn't necessarily have explicit sovereignty over. And there have been some rumblings recently about possibly taking the Strait of Hormuz and having some sort of coalition with allies where they would control that particular passage? First of all, do you get the sense that that's actually an off ramp that he's thinking seriously about? And then secondly, is that realistically an option for the US to do, given that its allies in particular don't seem to be particular fans of the Trump administration at this moment in time?

D (26:27)

Yeah. So on the first question, I think, again, speaking to how kind of problematic the context of this crisis is for Trump, politically and strategically, if he chooses to de. Escalate, you know, he looks weak and he hands Iran a pretty significant win. I also think that it's. It's difficult for him to deescalate with the situation in Hormuz being what it is, with traffic at a standstill. And, you know, to make matters worse, the Iranians allowing certain ships through. Yeah, right. They've been making bilateral deals with Pakistan, with India, to allow a couple of ships through at a time, demonstrating for all intents and purposes that they control the Strait of Hormuz, not the United States or not anyone else. So I think it's very problematic for Trump to. To decide to wind down combat operations, wind down this war against Iran, without having dealt with the Strait in some way. The problem is there are no good ways of doing that. They're trying to degrade Iran's capabilities, you know, bombing its drones, bombing its missiles to a point where ships will feel comfortable moving through the Strait. But it's taking them a long time to do that because Iran has a lot of missiles and it has a lot of drones. And the geography of the Strait of Hormuzzi, parts of it are extremely mountainous. Iran has spent decades building positions to do this. I mean, again, it speaks back to their strategy. They've been preparing for this for a long time. This is a war that they've been thinking about fighting for a very long time. So it's taking the US A while to weaken Iran to the point that the tankers and the other ships feel comfortable using the Strait. On the question of an international coalition, bringing in more states, more countries, bringing in more ships would make this easier. The problem, of course, is that the United States, the Trump administration, doesn't have the best relationship with most of its European allies. There was an attempt initially to put together an international group to bring in the French, bring in the British, bring in others, and the Europeans were initially on board. The problem, though, was that that shifted with Trump using this maybe as a source of leverage of trying to get the Europeans to actively join the war. And bomb the Iranians, not just protect ships, also using this to maybe move the Europeans on issues like NATO funding, on issues like Russia, Ukraine. And so the Europeans moved from saying, okay, we'll help you to you're on your own. You know, we'll come and help move ships through the Strait, but only if there's de escalation. So it's another aspect of the kind of strategic trap that the United States finds itself in. It's fighting an enemy who can't really be fully deterred or degraded, an enemy that is resisting being coerced or forced into capitulating. An enemy that can't undergo a political change through decapitation. They're killing leaders, but those leaders are just being replaced very often by more hardline figures. And the problems associated with reopening the Strait are just proving to be, I think, far more challenging than they had expected, if they had expected to deal with this at all. There's evidence to suggest that the administration didn't really think too much about Hormuz when it launched this war.

A (29:30)

Can you talk to us about just, I mean, you mentioned the European allies. Can you talk to us just about the future of America's relationship with some of the Gulf friends, the uae, Saudi, et cetera, and the degree to which this could permanently alter the trajectory of that relationship? I mean, they didn't start this war and now they're all, they have all this damage to their economy.

D (29:53)

Exactly, exactly. And it also, you know, it speaks to the longer term issues that this war represents. Because if you assume that the war is going to end in some kind of limited fashion. Right. The Islamic Republic is not going to collapse. There's not going to be regime change. The war is going to end with Iran still having a couple of drones and missiles left over. Very weakened, but still there. The issue for the gcc, for the Gulf states with that scenario is that it's extremely dangerous. They are now facing a regional power that is comfortable attacking them aggressively if it gets attacked, even if they had nothing to do with it. And again, it's part of Iran's strategy. They're trying to impose as much pain as they can on everybody in order to raise the costs of this ever happening again. They're thinking not only about this war, but they're thinking about future wars. They're trying to restore deterrence. And this puts the GCC states in a very, very awkward position. On the one hand, many of them would like to see this war end more conclusively with the threat of Iran not Just degraded but neutralized because leaving it in place is so dangerous to them. On the other hand, they likely know that that's impossible, that this isn't going to end with regime change. So what do they do? I think counterintuitively, in the short term, most of them are going to pursue closer relationships with the United States because they have no other choice. They need to improve their security. Most of them right now are relying on US Support for their air defenses. They need the US to restock their supply of interceptors. They need the US to help them shoot down Iranian drones, Iranian missiles. Also, historically, all the states of the GCC depend on the United States for protection. They have their own militaries. They are generally not regarded as being extremely capable of. So they do need ties to the US to secure themselves. And this war has, if anything, made that relationship with the US all the more important. But that's not enough because they've now seen that if the U.S. attacks Iran, they will be on the front lines. So they're likely going to have to balance that somehow. They're likely going to have to balance that by perhaps pursuing closer relationships with each other. There was already kind of some momentum before this war on regional security relationships. Saudi and Egypt becoming closer, the UAE and Israel pursuing closer ties. Saudi and Pakistan have a mutual defense treaty now. They will come to each other's protection. They will come to each other's aid if they're attacked, although Pakistan is not attacking Iran, even though Iran is attacking Saudi Arabia. So the full value of that agreement is maybe somewhat suspect. But that, I think, is another potential avenue that they may go down. They may look to one another to improve their security rather than depending on the United States, which is proving to be, in the short term, a crucial ally, but in the long term, a very problematic partner.

C (32:42)

So on that note, why did Iran actually decide to go after countries that did not attack them? You know, Gulf countries, ex Israel and the United States? Because, again, like, it's never really done this before, and the expectation certainly of people who move to places like China, Dubai and Abu Dhabi, and I count myself in that bracket, was that Iran probably wasn't going to ever target them.

D (33:07)

It relates to Iran's broader strategy, not only its strategy for surviving this war, but its strategy for improving its deterrence and reducing the possibility of this happening again of future attacks. The bigger scenario that the Iranians are more concerned about is a scenario where Iran turns into Lebanon or Iran turns into Syria, a country that you can just bomb, that Israel can just bomb whenever it wants to. They're very, very concerned about that becoming the new status quo. So that is what's driving their strategy. They want to restore deterrence. And their way of doing that is indicating to everyone, the United States, Israel, the gcc, but the entire world, that attacking us is not worth it. That we will respond by imposing more pain, more costs on you than you can impose on us. The Iranians love to demonstrate this. They love to talk about this. And I think they are illustrating it, that they are more resilient, that they can take the hit. That it doesn't matter that the US And Israel have air superiority over Iran. It doesn't matter that they're killing leaders or striking targets in the hundreds, in the thousands. That at the end of the day, the Iranian government, the Iranian military, is more resilient and can outlast any of its competitors. Now, the reason why they're striking the gcc, there are two reasons for this. One, more immediately, the GCC is a more tempting target. These are soft targets. Energy infrastructure, it's fairly easy to do damage to a level that causes the facilities to have to be shut down for repairs. The GCC do have air defenses. But the targets the Iranians have been going after are not hardened in the way that US bases or Israel are hardened. Israel is extremely well defended with its multi layered air defense systems, with its civil defense systems. Israel is kind of a fortress state in many ways because it has sort of lived under the threat of outside attack for so long. The GCC isn't like that. And on top of that, it speaks directly, Tracy, to what you're saying. The Iranians are trying to show the GCC states, and particularly the UAE, your model of economic development. This idea that you can turn the Gulf into an island of stability with tourism, with finance, with tech, with hotels, all of that will go away. If we keep being attacked, if the US and Israel keep bombing us, we are going to turn the Gulf into a live fire zone. And eventually that will make your economic development plans impossible to achieve. So they're imposing all these pain, they're imposing all this cost. The second reason they're doing this is they are indicating to the GCC that their relationship with the United States is untenable. That so long as they allow the US to have bases in the region, so long as they allow the US to support their security, that from the point of view of Iran, they are US allies, they are US instruments, and that makes them legitimate targets.

C (36:02)

Yeah, Joe, just on the uae, I think this is a really important point to stress because I think a lot of people don't realize that they're not seeing everything that's happening in places like Dubai and Abu Dhabi at the moment because you have, you know, very strict state control on the images that are allowed to come out there. And in fact, I think we've seen at least one person arrested for sharing a photo of a drone strike or something like that. So stuff is happening there. And it's stuff that if you're an expat who came to that city thinking that it is safe and secure, you never really would have imagined.

A (36:38)

By the way, headline breaking just now from Reuters, Iran's attacks damage 17% of Qatar's LNG capacity for three to five years Wow.

B (37:03)

For many men, mental health challenges aren't recognized until they've already taken a toll. Work pressure, financial stress, changing relationships, and traditional expectations around masculinity can quietly wear men down, often without clear warning signs. In season three of the Visibility Gap, Dr. Guy Winch and his guests explore how these pressures show up, how to spot them earlier, and how men can access meaningful support. Listen to the new season of the Visibility Gap, a podcast presented by Cigna Healthcare.

D (37:34)

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C (38:02)

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A (38:36)

tell us about Kurg Island. I'd never heard of it before a week ago.

D (38:40)

It's a place that's very close to my heart, Joe, because I researched a little bit about it when I wrote my book, which is all about the 50s, the 60s, the origins of Iran's oil industry. I didn't get around to actually mentioning it though. Unfortunately, I think I had to cut that reference for for space.

C (38:55)

I hate it when that Happens.

D (38:56)

Yeah, I know. It's a real. It's a real bummer. So Carg island is.

A (38:59)

I just want to say Carg island has the name of, like, alleged. Like, for. For thousands of years, invaders have tried to take Carg island, the lost treasure of Carg Island. Every, every. All the great civilizations have met their demise on Carg Island. It has that sort of sound like great power is all, like taking the knee. But anyway, tell us what Kharg island is.

D (39:21)

Oh, sure. Their ghosts. Haunted.

A (39:23)

Yeah, that's right.

D (39:25)

So Carg island is a very small island. It's smaller than Manhattan. It's just off the coast of Iran, about 50 miles off the coast. It's at the north end of the Persian Gulf, so a little bit close to Kuwait, that neighborhood. And it is Iran's principal oil exporting terminal. It handles around 80 to 90% of Iran's crude exports. Iran exports around 1.5, 1.6 million barrels a day. Almost all of it goes through Carg. And there are kind of two big reasons for that. Because Iran does have other export ports that it can export crude products. LPG from CARG is the big one. The two reasons for it is it's designed to handle VLCCs, the biggest oil tankers. It has several berths that can handle, I think, up to seven tankers at a time. So it's a very large facility. It was originally built, incidentally. It was built in the early 1960s by Western companies that were active in Iran at the time, specifically because it was favorable for birthing the largest tankers. So that's what. That's what it was originally designed for. It's also close to Iran's main oil fields. So it's fed by a number of pipelines from the coast that bring crude directly from Iran's major oil fields in the province of Khazistan. And it's southwest Iran. So geographically it's well positioned. The facilities there are designed to handle a lot of oil better than any other facility in Iran. And that's what makes it so important. And that's why the US is so interested in it, because there is a belief, there is a theory that if you seize Kharag island or if you destroy it, but I think they're thinking more about taking it, then you have sufficient leverage over Iran that you can get them to do what you want because you've cut off their financial lifeline, you've eliminated their ability to export oil, ergo, they will be forced to do what you want in order to start Exporting oil. Again, that's the thinking. The problem I have with that theory is that I don't think it's right.

C (41:20)

Say more.

D (41:21)

Okay, so first of all, as I mentioned, Iran has other means of exporting oil. It has other export terminals. There's one at the town of Josk, east of the Strait of Hormuz, that the Iranians have built up precisely because they're concerned about the reliance on carg. It's smaller, but it can still handle probably about a million barrels a day with the other terminals operating. So if they lose carg, they can still export crude. But let's say that the US Goes all out and takes out all these terminals, right? Either bombs them or sends in the Marines to storm the beaches and seize the terminals. And Iran suddenly can't export any oil from these ports. Iran still has a limited capability of exporting oil by rail. They have a rail link with Russia. They're trying to build out a rail link with China. Now, they can't move much, but open source and Iranian media has revealed that they have several hundred oil tanker cars that are sufficient for moving probably the equivalent of 100,000 to 150,000 barrels of oil a day if they were running all out. The other element of this is that Iran has, because it's been operating under sanction for so long, Iran, or I should say the regime, has means of moving oil that are not as easily observed. So oil gets smuggled out, particularly through Iraq. It gets loaded onto smaller tankers and smuggled out. Iran has a very, very large refining base, and it's been very profitable for groups attached to the Islamic Revolutionary Guard Corps to buy crude inside Iran, refine it, and then smuggle it out of the country and sell it for huge profits because oil is subsidized inside Iran. So you can get it for virtually nothing, and then you can sell it another. So there's other ways that they can move energy and move oil without having to rely on carg. A lot of those ways are controlled by the irgc, which would probably become even more powerful in the event that Iran loses carg, because suddenly they have greater control over a smaller fiscal pie. And this also speaks to the psychology of the event. The Americans, I think, assume, or perhaps elements of the Trump administration assume, oh, if we take Karg, then they have to do what we say because they're going to want to export oil. Again, I think that misunderstands the, let's say, psychological characteristics of not only the Islamic Republic, but also of the Iranian state. They will respond extremely negatively to US soldiers on Iranian soil. They will respond very negatively to any overt attempt to force capitulation. And I think certainly for the short term, and probably for the medium and long term as well, they would rather live under greater financial pressure and an inability to export oil in volume than to capitulate to a US pressure campaign that involves the invasion of Iranian territory.

C (44:02)

This reminds me of something that I wanted to ask exactly on this point, which is I think one of the like underappreciated facts of this particular situation is that Iran's been sanctioned for a while and this gray market infrastructure already exists. And so I'm curious, but assuming that if the US were to try to crack down on some of that sanctioned oil and the way it actually gets out of the country, would you expect that gray market system to start to break or would you expect to see it sort of like, I guess, maybe formalized to an extent or grow even stronger in the face of US pressure like on Carg Island?

D (44:46)

Well, it's been a long running dilemma for the United States, which is, you know, how to make sanctions work on Iran. I mean, part of the reason why we're now in a shooting war with Iran is because sanctions didn't work. Sanctions were designed to change Iran's behavior, to force them to make concessions. Iran found ways around the sanctions, refused to make concessions, and the US felt I think, compelled to some extent to use military force, although I think there were lots of other reasons. On top of that, if the US were to, let's say, take Kharg, but also to try to really vigorously eliminate Iran's ability to export oil, first of all, I think it would have to be pretty comprehensive and I think it would have to be pretty aggressive and it would have to be sustained for quite a while. Patrolling Iran's coastline, it's about 1200km long, stopping any and all ships that are trying to exit Iran's export terminals, clamping down on overland routes. Iran smuggles oil through Iraq. It also smuggles a certain amount of oil through Turkey and into the Caucasus and into Pakistan. That trade is much more difficult for the US to interdict. And that's where a lot of this illicit kind of gray market activity happens, on top of the black market activity. So I think the upshot of trying to cut off the flow of oil with the means that the US has, including military force and interdiction, only incentivizes the Iranians to turn to these alternative routes. At the same time, what you're doing on the market level is you're putting more upward pressure on prices. You're creating an environment of higher prices, which only further incentivizes gray and black market activity because now the profits are even better.

A (46:19)

It's interesting. Any country that has some heavily subsidized domestic price of anything, we're going to keep the domestic price of gasoline or oil well below the global market price. I mean, that's just a bonanza for smugglers, right? I mean, like, that must be just like the more you press that button, the greater the incentive is for someone to find that and move it onto the world market. I mean, I think this was, of course, a story in the sort of late Soviet era. You have these, like, price controls and then you have these quasi state companies just absolutely making a fortune, finding a way to like, you know, sell the locally made toaster in Europe or whatever it is, just make a fortune. I hadn't really thought about that, though, in the context of Iranian oil. All right, let's just go back to the pure energy question. I mentioned the damage that we've already seen in just a few weeks of the war to LNG exports and etcetera, There has been this obvious mismatch and expectations a lot of people think Trump would fold. Perhaps the reason oil isn't higher currently right now is still this sort of embedded expectation that Trump can't take this much longer. Let's just say it goes on. Like, how bad could this get? And do you think that still today the price of oil reflects perhaps an unrealistic expectation that this war is going to end soon? And how much do things just comp and metastasize the longer this goes on? And where might we see the price of some of this stuff? What does it look like in your crystal ball?

D (47:51)

So I think expectations are definitely shifting or have shifted to the belief that this is likely going to go on for a while and that the supply effect is now such that prices are going to stay high for the rest of this year. High relative to what we thought that they would be. Right. When we entered 2026, there was this broad expectation that this was going to be a pretty soft market, that there was going to be an imbalance, especially supply over demand. Demand growth was going to be pretty soft, pretty sluggish, and that was going to keep prices low. It was going to keep them in the 60s, maybe in the 50s per barrel. That has all changed now, I think seeing oil prices fall below $75 a barrel by the end of the year. Is pretty unlikely, even if this conflict wraps up very quickly. I mean, looking at three things. The front month, the Brent front month being at about 113, 112, I think that's approaching realistic expectations because Hormuz is still closed because some amount of crude is getting out via Saudi and UAE pipelines. But those pipelines are vulnerable and they could be disrupted. And as we've seen, the Iranians have the ability to do pretty significant damage to energy infrastructure if they really go for it. I mean, Joe, you mentioned the damage done to the Qatar facility last night. That was, I believe, one missile that got through.

A (49:00)

Wow.

D (49:01)

And caused enough damage that they'll have to keep the facility off for a long time and has now cut production for years to some extent. So that's. That's one missile. And they could, I think they could do more if they wanted. They could go after tankers more aggressively, like they're keeping their powder dry in the Strait of Hormuz for the most part. Right. They're usually. They're mostly operating off of threats. So if things were to get worse, which they very well could, prices could go higher. The other price point to look at is spot price for physical cargoes coming out of the region. Right. If the front month is around 111, and that's the futures, the price of a barrel of Omani crude right now, you go to Oman, you buy a barrel of oil is over $150 a barrel. That's the premium that's now being placed on Middle east production out of Oman, out of the uae. And those prices are coming through Asia. And the Asians are now bidding up the price of oil coming from other markets. So you're going to start seeing that reflected elsewhere. Oil coming out of the US is going to start ticking up. Oil coming out of other production hubs is going to start ticking up. The final point that I would say, the final sort of price point that I would look at is when you look at the curve, when you look at prices over the next 12 months, all of them are higher than they were a week ago. And they're still coming up. They're still rising. The expectations are that this isn't going to end soon. And even if it does, the size of the physical disruption that we've seen so far is going to create constraints on supply going through the next 12 months. And that's even with releases from Strategic Petroleum Reserves. Right. The US Releasing oil, other IEA members releasing oil, that's going to alleviate the pressure somewhat. But at the Same time, those are stockpiles that are going to have to be refilled. And I think everybody is going to be very concerned about having a low inventory of oil when this war is over, because everyone's going to be thinking about this happening again if the Iranians survive, which they are likely to.

C (50:51)

Also, doesn't it take a while for oil released from the SPR to actually get into the market, which I think is also underappreciated?

D (50:58)

Yes, it's slow. It's a slow process. The US can only. They say that they can release 1.4 million barrels a day. It's probably more like 1 million barrels a day. And it eats into US crude export capacity. So if you're releasing oil from the spr, you're kind of holding back on crude exports from commercial producers because they all come out of the same infrastructure. The SPR releases are more a signal. They're more saying, like the inventories, you know, here's oil that will be on the market over the next three to four months to make up for a physical shortfall, an actual shortfall of supply. Because if there weren't SPR releases and everyone was just forced to eat the supply loss, which is approximately 10 million barrels a day right now, I mean, that's 10% of global supply. That is just not getting to where it needs to go.

C (51:46)

So I just have one last question. Since the theme of this conversation, or one of the themes has been this idea of hypotheticals turning into reality, just going back to the old straight of Hormuz closure thought experiment that probably everyone in oil and gas has dedicated some time to in recent decades. Now that it's actually happening, is there anything about the situation that has surprised you as it's been playing out?

D (52:12)

And you know, honestly, what's been surprising to me, two things that have been surprising to me, how little the Iranians have needed to do to Hormuz to keep it shut. They've struck about a dozen tankers. They haven't sunk any as far as I know. They haven't laid more than a few mines. As far as anyone is aware, activity at Hormuz has been pretty quiet because as soon as the war began and as soon as the Iranians said strait of Hormuz is now closed, all the shippers stopped, Nothing was moving. The threat was enough to keep it closed, which I thought was surprising. The second surprising point, and this kind of feeds into the first, is that I was told, my understanding was that this was a scenario the US Navy had prepared for. They had lots of plans in place. They knew what they needed to do to keep Hormuz open in the event that the Iranians tried to shut it. And then the Iranians shut the Strait of Hormuz. And the US Response has been insufficient. It's not only that they haven't, like, done enough to open the Strait, it's that they didn't seem to have expected this at all. That the Iranians would respond to this kind of an attack by playing their principal trump card. So between the effectiveness of the Iranian strategy and the lack of a strong U.S. response, a strong U.S. effective response has been really surprising to me.

A (53:29)

Greg Brew, fascinating conversation. Love catching up with you. Truly the perfect guest. Thank you so much for coming back on op.

D (53:37)

Thank you so much for having me back.

A (53:51)

Greg's just the best.

C (53:53)

So good.

A (53:53)

He's so good. I mean, you know, all of our guests are perfect guests.

C (53:57)

That's right. That's right.

A (53:59)

But Greg is a perfect guest.

C (54:02)

Truly the perfect guest. No, that was a fascinating conversation. I mean, I think he laid out very clearly the strategic difficulties that the US now faces. And actually, you know, you mentioned Carg island sounding like, you know, a place where great powers. Yeah.

A (54:17)

Julius Caesar met his demise at Carg Island. Alexander the Great, you know, whatever.

C (54:22)

So I was thinking, like, one of the things that still amazes me is that geography still matters in the world. Right. Like, you have all this high tech, high tech missiles, high tech drones, but actually we're still limited by geography in many ways.

A (54:35)

I had that thought when he mentioned how mountainous the areas were around the Strait of Hormuz. And it's like, okay, why can't the US simply take out Iran's capacity to fire drones and missiles at the ships going through? Well, it's heavily fortified, deep in the mountains, in the area, not easy to spot, not easy to target, etc. So, yes, geography, geology, etc. Extremely important to this question.

C (55:01)

The other thing I was thinking, this is a very serious conversation, and this is not a very serious comment, but, you know, he mentioned very large crude carriers. I love how literal that name is. Whenever I hear anyone mention that, I just think like, there was a guy one day who invented the ship and he was like, you know what? We're not gonna call it like a brig or a schooner or something. We're just gonna call it what it is, a very large, crude carrier.

A (55:26)

That is very funny, actually. Look, there was a lot there. The other thing, and I think it was the last point, is this idea that. And it's Sort of ominous, which is everyone sort of assumed that the Navy would have had a straight informed moves plan, given the amount of time and energy that's been thrown thought about contingencies and what a disaster this would be. And yet and then it closes and then it's like, oh, what, what are we doing? We're going to have a plan. You know, it's very. Everything felt so far is we are planning to have a plan and so forth. And so the idea that you'd start this war with at least the possibility of the strait being closed and then it's closed and you basically do nothing and nothing passes at all. Pretty worrisome on, I suppose, both a sort of immediate and long term level about what the state of planning and then the state of military capacity for what should have been at least a possibility. Understood from the very beginning.

C (56:23)

Yes. And also there's just an asymmetry at play here, which is like every day that goes on that sees some significant energy asset, whether it's in Iran or in Qatar or elsewhere in the Gulf region that echoes for months. Right. Like the daily time frame for those assets getting destroyed is very short. So just in two or three weeks we've seen a lot of stuff get damaged, but the timeframe for the actual impacts of all of that to come to fruition and ripple throughout the economy are very, very long.

A (56:58)

Yes.

C (56:59)

And so I just think like with every day this goes on, with every additional bit of infrastructure damage, it just gets worse and worse.

A (57:08)

It gets worse and worse. And as you said, these are one missile. Right?

C (57:11)

Right.

A (57:12)

In some of these instances. And you're talking about years of damage to infrastructure, which is pretty ominous for any sort of expectation that again, Trump could taco. Right. He could declare war and still talk about years of repercussions from this. So, yes, pretty serious consequences to all of this.

C (57:30)

All right, on that note, shall we leave it there?

A (57:31)

Let's leave it there.

C (57:33)

This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

A (57:38)

And I'm Joe Weisenthal. You can follow me at the Stalwart. Follow our guest, Gregory Brew at G Brew 24. Follow our producers, Carmen Rodriguez at Carmen Armand Dash Obenit, Dashbot and Kale Brooks. And Kale Brooks. And for more Odd Lots content, go to bloomberg.comodd lots. We have a daily newsletter and all of our episodes and you can chat about all these topics 24. Seven in our Discord, Discord, GG Oddlots.

C (58:02)

And if you enjoy odd lots. If you like it when we continue to roll out these emergency episodes, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg Channel on Apple Podcasts and follow the instructions there. Thanks for listening. SA.

B (58:53)

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