B (4:19)

Within those those two kind of clear goalposts, there's a lot of uncertainty and that's leading to these energy prices. You've also got as well. It's you know, I kind of want to come on in a minute to the impact on traders and some of these trends that we've seen leading up to over the last five years. Right. Of the of algos of scraping socials and acting on it and how that's sort of amplifying these moves. Just can you just give us obviously one consequential event has been the as. As the trader I mentioned in our previous podcast predicted is easing of sanctions on Russia. Some of that happened yesterday. Thursday you've had India buying Russian crude as a result a lot of these. You know, it would seem to me that obviously this is, I'm going to come on to the consequences of who this favors. SPR releases, easing sanctions. We're still talking only a few days worth of oil when put against a backdrop of global consumption. I mean these are, would strike me as pretty short term patches. Is there any sense of the, of of longevity that an SPR sell offs could keep prices down? Or is the market already assuming that's you know, factored in? I mean can you just give us some real sense of that on the impact on supply and demand?

A (5:36)

Yeah, look, look, the market was pricing this in as soon as, as, as early as Monday morning when that when the meetings were announced and there was certainly some bilateral or some, some indirect briefing of the markets to expect

B (5:53)

a.

A (5:53)

Whatever it takes Moment, if you'll, if you'll forgive me misquoting Maria Draghi and applying that to the, to the oil market. This was whatever it takes release in terms of the scale much bigger than 2022, which is commensurate with, with the supply shock. And it tells us a couple things. One, this is the raison d' etre of the IEA and of the strategic reserves. It's a thoroughly sensible usage of them at a time when supply is so challenged. I wouldn't necessarily say that keeping prices down is where things are likely to go from here, but had there not been an immensely large strategic reserve release announced, we'd see prices much higher than where they are today. Doesn't cover as much time in terms of lost production as you'd like and it's going to get bought back likely further down the curve where prices are cheaper. Based on what the Secretary of Energy said today, I think most barrel counters, ourselves included, I think there's somewhere between 8 and 10 million barrels per day of production shut ins right now. So you run the math on a 400 million barrel strategic reserve release and you're essentially time shifting that supply forward for call it a month and a half of, of, of the loss of production out of the Middle East. And that's still quite a short timeline to finish.

B (7:44)

I was going to say that's, that's a pretty, a pretty short timeline and especially as well when we're just talking crude here, there are refineries shut in. Right. I mean there's going to be a lot of economic pain on the products. We've seen that on, on jet fuel and so forth. But yeah, if you're saying roughly we've got six weeks worth of, you know, strategic petroleum reserves in the west, you know, China's built up their own. Yeah, yeah. Again, six weeks and already the, the administration is telegraphing this sort of six week number and we know six weeks can turn into six months quite quickly, especially with a retrenched Iranian opposition that doesn't have to do too much to keep those, the straits shut. I just want to talk about LNG briefly as well because LNG is the same story, but there's a consequential factor here in that you don't have the same story. You know, it's much harder to store and you don't have the same storage capacity. So with 20% of LNG shut in, you know, what is that in terms of global gas consumption? And, but it does present some thornier issues.

A (8:40)

Well, it's a Pretty scary number, Paul. It's only around 3% in aggregate of the global gas market given, given LNG's share of the total market, I. E. That the loss coming from Qatar. But it's, it's, it's a part of the market that a lot of countries, especially in East Asia have, have built their energy policy and energy security around, both in terms of Qatar's historic reliability as a supplier, meaning you don't need the kind of seasonal storage that is common in Europe. And in terms of gas as a, as a bridge fuel for countries that either don't have the geography or don't have the politics for a renewables based system or a nuclear based system. So you look at Taiwan, you look at Japan, you look at South Korea, and these are countries that have taken a bet on gas and in many ways taken a bet on Qatari gas. That looked like a very wise bet, especially given the contract structuring in 2022 and given the pivot some other gas consumers had to make today. That looks a lot more complex. And I want to throw out a historical parallel here that I think will scare people. If we look at the most recent major choke point getting blocked in a war between two major regional powers, that is the Black Sea in 2022, you'll recall the Black Sea grain deal and some of the difficulties there. Russia invaded Ukraine in late February 2022. The insurance market hadn't come up with a cohesive plan until late July. Hadn't come up with an operationalized a cohesive plan until late July, I should say. And really very few ships sailed. Given both Ukraine and Russia's mining of Black Sea ports from February to July 2022. You play out that kind of six month disruption to supply in the context of, well, pick your number. Global crude inventories. You play that out in terms of LNG in Asia, even storage refills in Europe, not to mention fertilizers. Now, we're not making the argument this will be a six month blockage, it'll likely be quite a bit shorter than that. But once the lesson here is about unintended consequences of military action in these vital choke points and these problems can't be solved in a day. Whether Iran does, minus straits or not, whether you have some kind of complex negotiated solution, this looks to be a war and supply disruption measured in months rather than in weeks.

B (11:35)

Yeah. And you know, I would also argue that unintended doesn't mean they're unforeseeable. Right. And I think there's a certain amount of kind of askance about some of the, some of these not being taken into account. And that is exacerbated by the changing both order that is prioritization, but also absolute in terms of various war goals. Right. We've shifted from regime change or alteration to now sinking the Navy. It's not for this podcast, but that certainly doesn't indicate that there is kind of clear objectives that can be set and then shorten the war by having those in place secondarily. I think it's very clear now that, you know, while we had the Trump administration started to signal that kind of our mission accomplished midweek, when oil kind of was ticking back down to 80 onwards, it would go to 70 actually. Now I think there's a recognization that, you know, well, people have recognized that, you know, even if, if they wanted to get out, there's no easy way out. Let's, let's talk of duration for a moment because it will impinge on, on the subsequent topics we wanted to bring up in this conversation. Closing of the Straits of Hormuz, it's effectively closed at the moment, apart from to Iranian shipping, as I mentioned in

A (12:52)

the opening,

B (12:54)

that there's, you know, there's mining, there's escorting, and there's also now, interestingly enough, the Europeans making noises about, hey, this is an hour. How about our ships go, go through? Fine. Can you just pass some of that noise out? And in terms of catastrophic catastrophes, if a, if a couple of wrecks block up that very, very narrow and rather shallow channel, we were in a very different world of blockages as well, right?

A (13:22)

Absolutely right, Paul. And that's been one of the low probability, high impact events that we've been watching for in the last few years in the context of the changes to the global commodity trade, especially as it relates to the Russian Shadow fleet. What happens if a ship with its transponders or its AIs off does run aground and say the Danish Straits and the insurance is actually not valid, it's both price cap and so on and so forth. You could see an event like that in Hormuz very, very easily given the way to get out today, if you're a tanker that, that's carrying anything but Iranian oil is to turn your transponder off and try and run it at night. That is a, that is a fearsomely difficult task based on, based on what we're hearing from the merchant marine and there's the environmental risk there. But it's also in terms of the share of the market the greatest disruption to oil supply in recorded history. It's worse than 1973, it's worse than 1979. If you look at peak to trough and supply as a share of the pre crisis level. And yes, the world might be more resilient. Yes energy intensity of GDP has gone down significantly. But the scale of what this would do to not just inflation wrecking the plans for further rate hikes, but also some of the unintended consequences.

B (15:10)

I mean it's a stated goal Muktaba Kaminai came out. Whether it was him, whether, you know, a big question out there is how injured he is and all the rest of it. But a stated goal which matches strategically to their objectives as well is to get oil to 200 bucks. I mean like, you know, like they, and, and, and in this asymmetric war they don't have to too much do too much to get it there. They could block it, they could mine it, they could just make it so dangerous people aren't going through. What do you make of the idea of escorting ships? Is that really even if that were to happen, can it happen at a rate that would stop some of those consequences? And can you see a world where the Europeans start getting free passage?

A (15:52)

No. It removes Iran's greatest point of diplomatic leverage. There's no argument from an Iranian perspective that letting that a sort of Swiss cheese policy of saying okay well if there's no demonstrated links to the US or Israel, you can run the straight just fine. Because then suddenly as we've seen a few times, every ship is changing their, changing their transponders and changing their name to Chinese crew, Chinese owner or what have you. So that's not going to happen. And it makes no sense for Iran. We've seen some limited European escorts in, in the Red Sea to protect shipping

B (16:41)

against I guess the Houthis.

A (16:43)

But that's, that's a very, very different matter.

B (16:46)

It's a much bigger sea south of it and much bigger sea.

A (16:50)

And a lot of that, a lot of that traffic just rerouted around, around the Cape.

B (16:54)

Yeah.

A (16:55)

Whereas in the strait, the volume of ships, roughly 200 tankers a week passing through in either direction before the war. You then add in your bulk vessels and your other merchant traffic. It's a number that's probably too large for the, certainly for the US to do a loan likely for.

B (17:23)

Well I think the Europeans have about one, you know, the UK famously sending HMS Dragon to go and protect, you know, we've basically got one working type 45 destroyer. Right. And you know I mean, yeah, so I think that's a, I would say, you know, we don't know at this moment whether it's being mined. But again when you kind of line up strategic objectives here, the Iranians are clearer than the US and they don't have to do as much work to get there. So you can imagine that there's no incentive to stop this. The, the, all of this has had a dramatic impact on traders, the trading market worthwhile saying at the same time as leadership are trying to think about how they evacuate teams, you know, they've got operational crews at assets and on ships that are under fire. I mean, and, and the margin calls that we're hearing are meaning many of the trading houses are, are out there extending credit lines and so far the banks have been very willing to do so based on the profits they gain. But you know, we're talking billions of losses up and down or win, you know, profits, but having certainly a lot of losses on the, in the funds space P Ls with wild swings on a minute by minute basis. I mean this is having some extraordinary consequences. There's a couple of elements I just wanted to talk with you. The first would be you've got a series of different actors starting to trade as well. Right. We've got all of this, the algorithmic trading going on which is sort of amplifying sort of the volatility. There is even these rumors out there of say for example the US Treasury Department involved in trading. Is that just a part of kind of the speculation machine and just this massive uncertainty out there in this time of crisis or is that, what do we know of that?

A (19:14)

Well, I don't think we've heard anything conclusive on that fall. It would be, we've certainly seen the US expand the range of financial firepower it's willing to deploy most famously around the Argentine midterm elections last fall and the ESF's involvement in some of, in some of the Argentine markets. There's probably statutory authority to do that depending on how you define instruments of credit. But we don't have any conclusive evidence that that's happening yet and it would be phenomenally risky to do so. As you mentioned, some of the best commodities traders in the world are encountering serious difficulties. Others are having career making months. It's not a great time to enter the market on a financial basis. Obviously the Department of Energy is, is, is in the market on a, on a fiscal basis. I think we all understand that in terms of, of the spr. But, but I I, we would be surprised to see the treasury come in just given, just given frankly what it would also do from a market integrity perspective. Saw the, saw that head of the CME's comments on that matter either earlier today or yesterday and they were really quite forceful making the argument against treasury involvement in the price discovery industry. And that would just be, there's a degree of moral hazard there. I think it also, it also moves away from the way this administration is trying to certainly use the Fed balance sheet if you look at what Kevin Walsh has been saying for more than a decade. But probably also the way in which the administration wants to use its limited fiscal firepower and that fiscal firepower gets more limited if rates go up.

B (21:27)

Yeah. I mean again though, I think it's, let's say it's not the case. I think the, the noise around it amplified by social media and sort of market watchers and so forth on social media, points again to this. We are in somewhat of a new world. Maybe this is just me being sort of naive and having not lived through the Vietnam War kind of thing, you know, in terms of the trustworthiness of the information and the statements coming out of the various, you know, involved points of the administration as well. Right. There is a certain amount of agent of chaos going on and the agent of chaos in this case being the US and Israel and that itself is just making these markets so difficult to trade. Again, it's worthwhile just stating, you know, oil going up and down 40 bucks, the last time it happened was very briefly during COVID in the global pandemic. Right. And the challenge of trading these markets when you know, a clear eyed supply and demand view. And I'm not a trader, I'm a recruiter. I don't really know. But I would suggest that if you spent a lifetime looking at contracts and barrels and all the rest of it, you know, all of your bet around the duration of the war and the military consequences, etc. Can be completely upended in a very short period of time by a particular tweet or rumor and all the rest of it that some gets amplified by administration officials. I mean it just seems like it's really crazy. Which again comes back to actually the wins and the losses that are ongoing and those can flip on a dime dependent on time and therefore all of the credit required to operate in these markets, which we'll come on to shortly. But yeah, it just seems to me very complex.

A (23:16)

Yeah, it's certainly an extremely challenging moment and that doesn't seem likely to go away Whether you have a. Let's take the most optimistic scenario in terms of both inflation and from a humanitarian perspective, let's say you have negotiated solution tomorrow. The way in which the credit market is going to look at commodity traders when I presume a number of other pods have blown up and someone else is left with a multibillion dollar profit and someone else left the multibillion dollar losses is going to be different to the way in which they did before. The really difficult part I think Paul is the binary nature of where we are today because from a strategic perspective the military balance points to either doubling down from, from a U S Israel perspective and whether it's boots on the ground, whether it's intensifying the air campaign saying look we are going to have to finish this job such that ships sail again or by, by folding, there isn't really a middle path. And the more confident Iran gets, the less likely, the less likely that negotiated solution looks. But it leaves this very, very binary outcome in commodities markets with a huge degree of, with a huge spread between where the fair price is in those two scenarios for most major commodities. And from a credit perspective that has to be seriously difficult thing to underwrite and even harder things to trade.

B (25:10)

And it's not just oil and lng, Right. This is cascaded into soybeans. We've covered a number of times on the pods where there were no bids on Brazil soy this week. One period which is just extraordinary. Things like helium and the impact on chips has been spoken about as well. And while there might be sufficient storage at TSMC and others for a period of time, again blockage here and starts to cascade from Gulf War 3 into global financial crisis too. Right. And I think we can all start to see a pretty clear line there, especially if you have a shut. The only thing holding up markets globally is the promise of AI and then suddenly the chips are on a one year backlog will have an impact. That's a really fascinating comment. You've got this binary outcome at the moment. As you say the close for longer outcome seems more likely and in Iran's interest and you know, the, the, the negotiated settlement piece just, I mean seems very far off especially if you're including Israel within that as well. The, I guess I'm sort of trying to understand and kind of like, I guess it keeps coming back to the same question of duration which is just really hard to divine. Is there any, any sense out there from, you know, is there a material difference between six months and, and, or six weeks? Sorry, in six months or is by six months SPR's run out and we're in that. We're basically at the, the crisis point anyway. That's a very hard question to a poor question to ask and a hard question to answer.

A (26:52)

Look, if, if this, if, if the straight of four moves is closed for six months, we're not all freezing in the dark, but we're pretty close to it. Just in terms of where the global balances are. You would need a degree of demand destruction driven by higher prices. That is, and I dislike saying this as someone whose job is pretty much to use history to try and comment on current events, but there is no good historical parallel for the scale of the disruption that would go into energy markets. From six months of the straight of Hormuz closed, it's extremely difficult to find a way to balance oil and gas markets. You'd then have to, as you mentioned, look at the refineries that went offline. You'd have to look at the timeline to get the fields back online. And the world is just not set up to absorb a 10% supply shock in oil and a 20% supply shock in LNG. Not to, not to mention fertilizer, helium, aluminum. Pick your second order commodity of choice, copper.

B (28:10)

Again, all of the narratives that's propping up, I mean it seems to me, and this is the bit which starts to get quite scary, right, is that as we talk this week, both Blackstone and Morgan Stanley reportedly, allegedly all this kind of good stuff, you know, are restricting redemptions on their private credit funds. There's a lot of concern out there around these private, private credit, Private credit obviously notoriously freezes with uncertainty, you know, and we are certainly in an uncertain environment. It would just seem to me that there's, there's not too much of a string of speculations that get you to a serious financial crisis very quickly without some kind of resolution on the horizon. And you can, you can see that pathway through massive inflation in fuels. You know, we're already seeing that in airline prices, but particularly food. You know, that itself has immediate and massive knock on consequences for polities around the world and stability. You can see that through a cascading sort of financial contagion of these credit funds getting, you know, that may themselves be highly levered towards AI. And AI slows down because the copper is not getting made, the chips aren't getting made and all the rest of it, right. And the realization, as Jeff Curry would say, that actually it's assets and control of assets and assets are what matter or even a cascading, a lack of confidence in bitcoin and stuff like this. Right. I mean it would seem that that pathway to a global, a second global financial crisis is quite open. Is anyone really. Is that just me being a bit Cassandra ish or is that a live conversation out there? And is that the one, do you think that there's been factored at all by the Trump administration continuing this conflict?

A (29:53)

I always in times like this go back to Matt Levine's Money Stuff newsletter because Matt is one of the most thoughtful and also the funniest financial commentator out there and he pointed to a very good line on a, I believe it was a Goldman call, but where one of the, one of the bankers on the call said this war is obviously, and I'm paraphrasing, this war is obviously extremely problematic and we're worried about our team in the region. But it's nice for our clients to have something to talk about other than private credit. Which.

B (30:28)

Yeah.

A (30:31)

Which I think tells you, tells you two things beyond being a good line in itself. Right.

B (30:36)

And how serious private credit issue is actually.

A (30:40)

One, one this is a serious problem. But two, I think which is kind of more interesting is that there was already an underlying concern in the market and we've seen that in, in, in the year to date performance of some of the private credit linked equities and of some of the measures of stress in the funding markets. At the risk of making myself look silly in the future, I'll come out and say it though. It's difficult to see private credit having a 2008, 2009 like effect on the economy and the way that mortgage backed securities caused such stress across the financial system and led to the great financial crisis. Because private credit doesn't have quite the same read through to households and thus to consumption. It's almost more like when our kiosk blew up or when. Or when Credit Suisse went down. The parts of the financial system with exposure to private credit are generally slightly more risk tolerant parts. People see it in their pension. There's a bit of a wealth effect but there isn't as much of a read through to consumption and that multiplier effect as there is when you have serious stress in housing markets, when you have things like large scale layoffs. And it's difficult to see. It's difficult to see that read through from private credit to the real economy quite as clearly.

B (32:19)

Yeah, there are a couple of factors there though. One I would say is that we don't quite know how far you know Household banks or traditional banks, which are now very concentrated into a handful, are exposed to it. Right. Because they have essentially used private credit as a tool to deploy risk in a manner that hasn't affected their various capital constraints. The second is we are very firmly in a case whatever case style economy where it's being propped up by the top 10% of the citizens in the west who are very wealthy and have benefited from all the asset increase in valuations over the last 15 years. If they start feeling the heat, you could start having quite a bit of pain out there. Right. I mean, wealth doesn't necessarily trickle down, but poverty definitely does. So I don't know. I'm not as sanguine about it as, as I would be without those two factors.

A (33:21)

Yeah. And that vicious cycle of the group with the greatest wealth effect driving a lot of the consumption and thus a lot of equity performance, you can draw that link quite well. But outside of that.

B (33:35)

Well, you could also say as well, I mean, a lot of this depends on duration. A lot of wealth has been invested in the Middle East. I mean, I just came back from Abu Dhabi, Dubai, Oman, I mean, Qatar, phenomenal. Right places. They've been huge engines for investment and returns over the last decade. That could have a compounding effect depending on what happens there. You know, certainly the duration is going to have an incredible impact on those economies. I mean, there's just so many. They might be unintended, but they're certainly foreseeable. They certainly seem to be magnified at this point. If you were like, there is a chance if in next week the oil goes to 200 or there's a chance it goes back down to, let's say, 80. Can you give us your. Advising your clients out there on the broader suite of risks? What event sends it to 200 and what event sends it to 70? And between those two, which do you think is more likely?

A (34:34)

Well, the event that produces a sharp, sharp rise in the price of oil would be conclusive evidence that Iran has mined the straits. And if a tanker goes, if a tanker goes up in smoke because of a mine rather than a missile, then everyone in the market needs to revise up with their duration estimate. Because of the difficulty and complexity and duration of any kind of mine removal operation would require multiple navies. It's not clear, clear that the assets in the region are quite what you need. It would take a long time and it's hard to see energy flows resuming until that happens. So that's.

B (35:20)

And what would that be ballpark like? Yeah, I mean, all I'm seeing is that minesweepers are heading back to get scrapped. I don't think the UK has any like, I mean, you know, if that, if it does get mined outside of there being some sort of autonomous drone system we don't quite know about, that's. We're talking suddenly weeks there of it being straight closed.

A (35:41)

Yeah. And then you would expect to see oil. I would expect it to be somewhere in the 120 to $150 range as markets digest that information.

B (35:53)

And the only reason it hasn't been mined is because of the technical, the mechanical feasibility of doing that. It's quite hard to get. You know, there's no sense that the Iranians don't want to mine it.

A (36:06)

Well, I think you can, you can certainly make the case that Iran doesn't has good reasons not to mine the strait. And I'll provide three here. One is the game theory around negotiating. If Iran mines the strait, it suddenly becomes priority number one in every capital in the world. Not just in Washington and in, in Jerusalem, but in Beijing and in Istanbul and in other nations that have historically been more friendly towards Iran. Except for the Russians wouldn't. The Russians wouldn't perhaps wouldn't mind me, so let me put them out on their own there. But it becomes priority number one to get rid of this regime because. It closes the world's most important waterway for an unknown duration of time. It also could potentially limit Iran's ability to export its own oil. The question of whether these are smart mines or dumb mines is a subject of some debate among military experts. And it would also potentially bring in other actors into the war. We've seen support for in the form of bases from the GCC countries, the United States and airspace access, either implicitly or explicitly. But we haven't seen the Gulf states actually join the war. We certainly haven't seen any of the other great powers come directly into the war. If the straight is mined, the incentives for, for other countries to join a, a regime change attempt in Tehran become very, very strong. There are also technical challenges, to be clear.

B (38:06)

Yeah, yeah. But there's also the, and as sort of alluding to the earlier part of the conversation, which is why we're hearing sort of this, you know, every five minutes on, on X, whatever it's called, you know, like you'll see sort of the it's been mined comment because there's obviously a lot of incentive of, you know, of actors on, on in Israel and the US to say that it has been Right. Because it achieves those, those ends in some sense. You know, it's. Yeah, it's kind of fascinating. A lot of disinformation out there and that itself is a source of volatility.

A (38:35)

Someone is, someone who's got the other side of the trade to the sector of energy. He's tweeting, we've got Astros. Other people are tweeting, we've got mines.

B (38:42)

Yeah, yeah. God, what a world. And then, okay, and then, I mean 70 bucks even, 80 bucks let's say. Right? Because I don't, I just don't see this reefs premium going away as you say, especially if the, we're talking armistice, not settlement. You know, there's going to be long, long ramifications of, of this. I mean out that, that really is kind of foreseeable. Well what would you, how would we get there? Would that be Kamoni stands down, the US folds. What, what gets us there?

A (39:14)

Well, let's start by saying we have no idea what condition Kamina is in. Right. I mean his, his physical condition. And we, we have a good read on, on his strategic direction from the comments yesterday. But to play out one possible scenario that he's severely wounded but recovers. The fate of a lot of his family members remain unknown except for that of his father, which is known. And you still have the same regime through some kind of negotiated ceasefire in which the US patience runs out and a false victory is declared. That doesn't sound to me a lot like a stable equilibrium. I'd also be pricing in some risk around Middle Eastern supply. You'd have to price in a fairly significant risk premium on a go forward basis. It's very difficult to see how prices go back to where they were at the start of this year.

B (40:24)

I find it fascinating. We hit $70 this week. You know, the, again it comes back to that amplification point and perhaps a little bit of sort of nonchalance about sort of the, the deeper ramifications of all of this. Right. The fact that oil did get sold down to such a low point on the idea that we'd be doing some SPR releases and escorting tankers seems to me some level of kind of naivete on behalf of kind of the well on, on, on sort of global expectations, but probably points more to the velocity at which sort of directional funds can push this thing. And even if you were right about the long term consequences, you probably couldn't wear that trade on the journey down because of the margin calls and all the rest of it. And it's worth Saying as well that even if one thing we do know is because succession went to Hamani's son very firmly, the clerics and the IRGC are in power. There didn't seem to be much of a. You know, there's been some comments made by the sort of the political side of that regime, but it seems to be firmly. Even if Khamenei's son Mujtaba was significantly injured, any succession would stay within the same line.

A (41:41)

That seems logical. I would extend that out to the same, the same line of thinking perhaps, rather than the kind of dynastic.

B (41:49)

Dynastic, yes, sorry, I don't mean bloodline. I mean, I mean hardliners. Hardliners rather than hardliners. That's the line. That's the line I was looking for. Which is a pun on the pun on a pun, I believe.

A (42:01)

Exactly. And I. Yeah, that's. That's clearly right. And one thing we, one thing we have learned is that as we discussed 10 days ago, despite the clear, the clear feelings of a majority of the Iranian people that they would like a new start, a new regime, there's really little way to action that domestically under the current military circumstances. And I think given what the US has accomplished in Venezuela, given what the US Looks like it may well accomplish in Cuba in the very near future, this is a very, very different matter and one that's going to be with us as a strategic challenge for some time to come.

B (42:55)

And obviously the other headline of sort of that trio that could come out next week, which definitely would send oil prices rocketing again, would be boots on the ground. Right. And there is increasing noises around the only way to accomplish, certainly the war objective of. No, no fissile material is boots on the ground because a lot of it's buried under a mountain or a few mountains.

A (43:17)

Yeah, that's. That's an interesting question, Paul. I'm not convinced that boots on the ground doesn't shorten the modal duration of the Hormuz closure. If, if from an American perspective your. You want to get the job done as quickly as possible so that your SPR release is enough and you don't have to work down another 172 million barrels, then perhaps boots on the ground is the next card to play. If that were the case, I'm not sure the markets would see that negatively because I think the market's pricing in a very low chance for negotiate a solution today and thus military action that may shorten the shelf life of the regime and the shelf life of the attacks. In the Strait probably bearish crude and a good thing for inflation.

B (44:17)

Well, this is your comment last night when we were chatting was actually if there is a permanent solution, actually you could see a much lower energy regime cost across the board going forwards because suddenly no one is pricing in the risks of the Strait of Hormuz being closed. Right. Which is sort of the, you know, the, the longer term view that could actually, you could end up with a world with much cheaper energy.

A (44:43)

Yeah, exactly. And we can all go back to January 1st when we were arguing about shale break evens rather than.

B (44:49)

Yeah.

A (44:49)

Rather than different kinds of missiles and, and whether frigates or destroyers are better used for naval convoys. Be a very different energy sector.

B (44:57)

Well, I tell you what, one thing that's not seemed to be skipping a beat is the US stock market. So you know, whether that again is presaging a steep fall when sort of, you know, dominoes start to drop as the canaries in the coal mine, which are the credit funds, you know, are piping up again. Getting quite florid here. But you know, I do find it surprising that the equity markets aren't pricing in the same level of risk right now that the energy markets are.

A (45:25)

Yeah, and that's so interesting because if you went from where we started the year in terms of rate cut expectations and where we are today, and you asked for a kind of historically informed best guess of how the equity markets would have done it would have been a little more painful than where we are now. But equally, if you look at some of the underlying macro numbers and those are coming through in earnings, the underlying state of at least the US economy really does look quite solid. And it may be a K shaped economic expansion, but it does look like a continuing economic expansion as it comes onto the question of the stock market and the macro conditions. A former colleague of mine, Tyler Goodspeed, who's now chief economist of, of ExxonMobil, has written a fantastic book on the subject of recessions. And Tyler's one is coming out later this month. And Tyler's one liner is that economic expansions don't die of old age, they are murdered. Making the argument that generally you need a catalyst for a broad based expansion to end in these diversified industrialized economy. Paul, I think you spent the last 20 minutes pointing at a few potential catalysts from here, be it private credit, be it an energy shock. But the equity market, as you say, does seem relatively relaxed.

B (47:00)

Well, I tell you what, hopefully when this comes out in the next couple of hours, it's all over. And as you say we can go back to looking at rig counts and people bemoaning the lack of volatility in the space. But I mean there is, there's certainly one thing to be said which is if we all thought that commodity volatility was going away and the fun was over, it's, it's definitely back and boy are some people right in the maelstrom right now. And, and obviously we wish everyone well from, from crews out on the, on in, in the straits to storage. You know, I mean it's, it's, there is a incredible human toll on all sides that know we need to acknowledge and you know, I for one certainly don't support the gamification of war that we're seeing on social media. I think it's terrible but you know, that's where we are. Well, just before I do let you go, I assume the phone is also ringing off the hook because from like you know, trading houses and hedge funds that kind of trying to weave in a, you know, a macro, a historical point of view as well as a broader geopolitical point of view point. I mean, what kind of, I don't know you can say. But what kind of calls are you getting and what kind of work are you doing?

A (48:15)

Well, we're doing a lot of work, Paul. I, I perhaps should talk about our side of the call rather than the questions that are being asked of us. But it's certainly an extremely busy time and one at which I think blending together the, the kind of applied history work we do, the deep political knowledge of the relevant geographies and then also some quite deep industry expertise on the military and military analysis side is pretty helpful. And if you just look at the crude price over the last two weeks, it tracks very well with the prediction market implied days until the end of the war. If you have a clear, well, clear, well articulated view on, on when the war is going to end and why, it gives you a fairly, fairly clear trading outlook. And I think that's something that has certainly been appreciated in some quarters over the last week.

B (49:17)

And of course I want to, I want to dig into what deep local knowledge means, but know that I shouldn't and mustn't. But anyway, always, always a pleasure having you on, Nick. I look, I, I really look forward to having you on next week. I hope we don't have to do it because it means everything's been solved. And anyway, thanks again for your time.

A (49:35)

That would be lovely, Paul, but I'll mark my calendars this time next week. Thanks.

B (49:47)

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