Trump Threatens Iran as Vance Heads to Pakistan for Peace Talks

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1:40Plus, global business, finance, and tech news as it happens. The Bloomberg Businessweek Daily podcast with Carol Masser and Tim Stenebeck on Bloomberg Radio. Vice President J.D. Vance is heading to Pakistan to lead the U.S. side of negotiations on a peace deal with Iran, with the Strait of Hormuz still largely blocked. Here's the vice president speaking to reporters at Joint Base Andrews before heading on the trip. We're looking forward to the negotiation. I think it's going to be positive. We'll foresee, as the president of the United States said, if the Iranians are willing to negotiate in good faith, we're certainly willing to extend the open hand.

2:17If they're going to try to play us, then they're going to find that the negotiating team is not that receptive. That's the vice president just at Joint Base Andrews before heading on that trip. For an update on where we stand heading into this crucial weekend of talks, we bring in Jeff Mason. He's Bloomberg White House and Washington correspondent. Jeff, what exactly is the White House trying to get out of this weekend's talks? Well, they're trying to lay the groundwork for and eventually achieve a longer-term peace deal in a nutshell. Right now, of course, there's a two-week ceasefire, which the president announced earlier this week.

2:53And what he would like is to have something longer term. So by sending Vice President Vance, he's sending the second highest official in his government to try and hammer that out. There are a bunch of hurdles, not least of which the fact that Iran is now saying that they would like to have their assets unfrozen and to have a ceasefire in Lebanon before even going to the talks. So that is certainly hanging over this, even as Vice President Vance is in the air. But if they proceed, then the overall goal is to get something that's longer term and to try to do so in the next two weeks. What would a successful weekend meeting look like?

3:31Like what precise objectives would we be reading about on Monday morning where you would deem it a success? You know, I think probably a success would be if they don't fail, if they don't say we're done and we're not going to continue and the ceasefire is over. I mean, that's a pretty low bar. And yet, given the fact that there's a question mark now as to whether they'll even proceed after Iran's latest demands, I think that that's probably that would probably be seen as a success. No doubt others would like to see more, but let's be clear. You can't get all of the points that both sides want hammered out in a weekend.

4:10But if they get started, if they establish a decent working relationship, that alone will be progress from the talks that were going on right before the war started, which were led by Steve Woodcoff and Jared Kushner. You know, it's this. So this this fragile truce was announced earlier this week, you know, more than two days ago at this point. And and then late yesterday, the president warned Iran against charging tolls. He said there are reports that Iran is charging fees to tankers going through the Hormuz Strait. They better not be. And if they are, they better stop now. He also told The New York Post on Friday that U.S.

4:45warships are being reloaded with, quote, the best ammunition to launch fresh attacks if the talks faltered. how is this i don't know if this is the art of the deal if this is part of the negotiation strategy but it doesn't seem like things are totally moving in the right direction well and the fact that the strait of hormuz is not entirely open yet either is not in line with what the president said he wanted in order for a c in order to agree to a ceasefire yeah he's leaving plenty of options uh out there for himself and that's one reason why he's he's leaving forces in the region. Again, this is a temporary truce.

5:23This is a temporary ceasefire. If they don't come up with a deal, then the president has said the shooting will start again. And that threat, of course, is hanging over these talks. I wanted to go there next. Just talk about how seriously is the threat of escalation? How serious is the escalation if the talks do fail? I mean, I think it's certainly serious. The president has said so. And the president has gone back and forth in terms of what he's really wanted, whether he wanted to escalate, whether he wanted things to end. The fact, again, that these talks are actually happening and that he agreed on a ceasefire on Tuesday before following through on his threat to bomb the Iranian civilization and get rid of bridges and civilian infrastructure and using very, very harsh rhetoric in that pledge is was seen as a huge sign of progress.

6:16But that doesn't take away all of the hurdles that remain. And it doesn't make a weekend negotiation any easier. Jeff, if we if we sort of boil this down to the reason we think that the U.S. went to war in the U.S. and Israel went to war with Iran in the first place, it was about nuclear weapons and the ability for Iran to actually get a get a nuclear weapon. How does that factor into what we've heard from Iran with what they want to be able to do versus the U.S. demand for that enrichment to stop? Where's the daylight there? Well, that certainly is one of the bigger objectives. I would add, though, Tim, that the objectives weren't entirely spelled out at the beginning of this war.

7:00But you're certainly right to pinpoint that one. And that is something that the president has said for a long time, that he doesn't want Iran to have the ability to build and have a nuclear weapon. So to your questions about the specifics, how do they figure that out? Iran still has uranium, and it's in the ground. And the president has suggested that the United States and Iran could work together to dig that up. I don't know if that's something that Iran would agree to. It is interesting to compare where we are now with where the world was with the JCPOA agreement, the Iranian nuclear deal that was forged during the Obama administration, which President Trump was very critical of and eventually took the United States out of.

7:45That included international monitoring of Iran's nuclear program and of that uranium. So perhaps monitoring would be back on the table. Not sure if that's something Iran would agree to or not. All of these, again, are questions and are points that they'll have to hammer out at the talks. Jeff, you've been following this for a while. We were talking with a prior guest about how global trade has been kind of, it's changed indefinitely. And I'm curious how your view has kind of evolved as the conflict has evolved. Does it seem like we're closer to the end, a resolution than maybe we were a few weeks ago?

8:26Or is the momentum heading in the other direction? Oh, we're certainly closer. I mean, the fact that they've got a ceasefire is closer. But that doesn't mean that the ceasefire is going to last. That is an unanswerable question at this point. It just depends entirely on how these talks go and what other developments happen in the meantime. The Lebanon peace has been hanging over the ceasefire and hanging over these talks ever since President Trump announced it. So that is something that we'll have to see if they hammer that out. and to see to what extent Israel plays ball on that as well. But, you know, broadly, and I think you saw this in the market reaction after the ceasefire was announced, people see this as progress.

9:12But there have been times throughout this war where people have seen progress or have had the impression that the president was leading towards an off-ramp only for him to pull back and go in the other way and use escalatory language. So all of that are things that people should consider when they're trying to decipher where things are going next. A little after lunchtime, Jeff, the president saying in a post on his social media network, the Iranians don't seem to realize they have no cards other than a short term extortion of the world by using international water rays. The only reason they are alive today is to negotiate.

9:44And he signed that president, Donald J. Trump. It does seem like that is a pretty big card, the Strait of Hormuz. Just 45 seconds here. Like that is the card. I couldn't say it any better, Tim. That's the card. And they're playing it. And they know that they have that card. And the president can say that he wants them to open it. And he can say that he wants to have control over it or he wants to have joint control over it. But the geography is such that that is their area of the world. And they know that. And they have seen the impact that having control over it has had over the last five to six weeks.

10:18and that's something they're going to hold on to until or unless they are given something in exchange. Stay with us. More from Bloomberg Businessweek Daily coming up after this. If your finance team spends more time finding data than using it, if there's one entity here and one here and one here and one here, if scaling your business feels like starting over, you need the Intuit ERP. Intuit Enterprise Suite is the AI-native ERP solution that's powerful, painless, and proven. Learn more at intuit.com slash ERP. Discover a spectacular island destination with crystal blue seas, endless sunshine, and the cool Bahamian breeze.

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12:31Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App. Or watch us live on YouTube. For more on energy, we're joined by Homa Yun Tai, McKinsey Global Energy and Materials Practice Senior Partner and Leader. He works with major energy companies, chemicals companies, utilities, natural resources firms, and more. He joins us here in the Bloomberg Businessweek studio. Homa Yun, good to have you on the program. Does that sound realistic? Can the straight get back to, I don't want to say normal, because it's hard to imagine anything looks normal, but sort of what it was doing pre-war in terms of the number of ships that were going through it in two months?

13:09Look, Tim, I think the world has changed with this crisis, just like Russia, Ukraine and COVID before it. I think ships can flow back in. We've got about 1 ,200, 1 ,300 ships that need to go back. But the long-term structural effects of energy supplies, I think, has reconfigured. What kind of changes do you see in the next few weeks? You talk about long-term, but what about in the imminent? What are you watching for when it comes to global trade? Well, so certainly looking at where insurance premiums are going to go, looking at just the number of ships, looking at commodity prices, the dissonance between what we see oil prices and physical contracts,$145 to$100, if we can see that dissipate, that means it's working.

13:51The confidence is working. I want to go back to this idea of you saying that the world has changed. Has the world changed in terms of the floor for the price of crude and West Texas Intermediate? No, the way I think about it, the world has changed. If you are a country in Asia, where, and let's face it, Asia's been more impacted than Europe. Oh, yeah. I mean, they're talking about fuel shortages, only certain people driving on certain days, people only going to work on certain days. It's a huge effect on the economy in some countries. Exactly. So Sri Lanka is going to go back. Their Wednesdays are off.

14:27They're going to go back, right? But if you're Korea or Japan and you've got these long-term contracts coming out of the Middle East, I think you're going to want to rethink how that supply comes in. So it's much less of a Texas issue. It's much more of an Asia issue how things get restructured. But from a pricing perspective, you have West Texas Intermediate and Brent Crude at almost the same price. So even though you can and a politician can talk about the U.S. being energy independent until the cows come home. But when their constituents go and fill up the tank and it's$4.30 a gallon, it doesn't really mean much.

15:02Yeah, I mean, you saw this morning CPI came out. We're at about average$4.15 a gallon. So we're going to see these types of primary effects come through. We're going to see secondary effects for the U.S. consumer through fertilizer costs, chemicals, other things, heavy intensive transport, energy intensive transport. So I think that will continue to fall through over the next few months. It's not just going to get stopped because there's a ceasefire. Talk about that a little bit more, the effects onto the U.S. consumers, particularly when a lot of our energy sources maybe are still coming domestically.

15:39Why should American consumers be concerned about rising food, rising retail prices because of the geopolitical tensions right now? Well, just remember, oil and gas are very different things, as you know. So oil is pegged globally, and that's why you're talking about the price differences you're talking about. why both indices go up. Gas is different. Gas is more domestic. So we're going to see $4 gas type of thing, whereas in Asia, it's going to be like$19,$20 gas, right? That's going to be... So industries that are really gas intensive, so if you think about power generation in the US, we're not going to see as much disruption there.

16:13Oil intensive industries on the transport side, I think we're going to see more disruption. So that's where it sort of bifurcates for the US. but overall all of these things are kind of sticky prices go up globally for oil it sort of filters through right it takes time to come down do you do you think in New York look again you work with energy companies chemicals companies utilities natural resources firms and more the the the shift in Washington over the last 18 months has has made it so that renewable energy is no longer a priority for the United States does a shock like this make the companies that you work with like the utilities, for example, think differently about renewables?

16:51I mean, nuclear is a topic, but that's years away. If you want a gas turbine for a power plant, you've got to get in line and wait years at this point. Are they thinking about renewables even without the support of Washington? There's still, I think, a lot of momentum on a renewable side. You do. Just in the U.S., because if you think about state policies, over 26 states have renewables policies. And they have targets for 2030 to 2035. And that's driving, at a state level, renewables development. So it's still happening. It's still happening. Gas is certainly happening, right? Gas. And we always said, as McKinsey, when we looked at the market even years ago, we said gas is going to be a big, has a big part to play because you can't just substitute all of that with renewables.

17:30So we're going to see both develop. Now, in Asia, it's quite interesting. Korea and Japan have relicensed their coal plants. So there's a ramp up of coal that is happening and renewables. So Asia is doing this bifurcated policy of renewables and coal. And that's not going to switch back even if we get a resolution in the next few weeks. We're speaking with Homaeun Tai, McKinsey Global Energy and Materials Practice Senior Partner and Leader. Homaeun, I want to continue the talk on global trade, but I am curious as well. You work with these energy companies, CEOs. How are they getting information about the conflict in Iran right now?

18:10What is actually going on at the Strait of Hormuz? I'm curious if C-suite executives have some other way of kind of like understanding what's happening in real time. Like, you know, supposedly Satrini sent the undercover analyst there. That's what I was thinking. I wasn't going to say that. I knew that's what you were thinking. It was, you know, it was a conversation topic this week. But to Emily's point, are they getting the same information that we're getting? I think, yes. I mean, generally, so 50 % of the clients we work with, CEOs I talk to, management teams over the last few weeks, probably until the last two weeks probably thought this is going to come and pass.

18:44The other 50 % are worried about this in two ways. One group is saying, look, let's actually really think about our scenario planning in a very different way. We need real-time information. So they're going to do a lot of different sources. The other 25 % basically are saying, look, our hedging and contracting strategies have changed because we're relying on that. So it is a really 50-50 split. I think it'll be very interesting over the next week as we see what happens with the ceasefire as to how many actually companies really get in the mix. But the data, the information that you're asking me about, I swear, it's like from all sorts of different angles.

19:19I don't think there's any particular angle that any company has an edge on. So let's talk a little bit about the second order effects of this. And so energy gets so much of the attention, but we got to talk chemicals, nitrogen, fertilizer, urea. I mean, these things that I think really go into the background of the way that we get our food and what we pay for our food. Right. Do we start to see those prices, or when do we start to see those prices go up as a result of the straight closure? I think the lag, so just to your point, 10 % of fertilizer costs are 10 % of food inputs for the US. It's about 15 % in Europe.

20:00As those pieces go up, we will see, and those contracts are going up, we are going to see prices translate. I think it takes a few months. This is where it's the stickiness. And remember, you've got six weeks of that supply sitting there in Hormuz. So whatever we have on land and whatever the Asian countries have on land for, for the first commodities, petrochem, et cetera, you're going to run out of that. Right. So now we're going to see the pricing effects start playing again. Wait, when you say we have six weeks sitting there. Six weeks of tankers sitting in Hormuz with nitrogen, with urea and other commodities.

20:34But the problem is the tankers that would typically take the place of the tankers that are full and leaving those ports, we're not getting through either. So even when those tankers are able to get out, you have this bottleneck. Absolutely. And that's where, so when you talk about the urea prices, nitrogen prices that affect fertilizer, that's in the next few months we're going to see some level of repricing for that. Okay. So you talk about in your notes this six-week countdown to an inflection point. That's what you're referring to. but that would mean that this is coming, what, next week, two weeks from now?

21:07We're at six weeks now. So our concern was when you look at, and this is more when you think about supplies in Asia, Korea, Japan, how much LNG is in reserve, et cetera, it's about six weeks worth of supply. So the six-week mark, which is where we are right now, basically you're going to see repricing at spot for a bunch of contracts for manufacturing companies in Korea, et cetera. So that was our concern for the six weeks. Now, if the straight opens and these ships go out, they're going to take four to six weeks to deliver. So this is a 12-week protracted set of issues we're talking about. What happens if the straight opens, but with a toll?

21:47Look, if there is an actual toll and goes through, it's going to affect the delivery costs downstream. So that should translate, if that was true, that would translate into pricing. And not to mention the uncertainty that it comes with. Well, speaking of that uncertainty, I think one challenge will be if these insurance companies want to insure ships, at least in the beginning. And if there is, God forbid, some sort of issue that happens, what that means for insurance companies. That's a big part of the equation that I don't think gets enough attention. I agree. It's insurance. Look, it's port costs.

22:19It's a bunch of things. Because you're not going to take a ship through there if it's not insured. Right. So it just sits there then? Well, there's got to be different ways to think about how you get contracting done, right? I mean, so for those that if you're paying for the insurance premium, it's going to either and you're getting your supply, it's going to come through in cost. If you're recontracting, it's also going to come through cost in different ways. So you've got to look at the differential between the insurance premium and how you're recontracting. Are you seeing the US energy companies drilling now or has that paused given everything that's going on now?

22:56So investment in general, I think what I see from my clients and work that we're doing, people are very hesitant to invest. And it's not just on the oil and gas side. It's across. We have Asian clients who are thinking about building manufacturing facilities that are now hesitating. So we're starting to see that's the third order effect, I would say, is what's happening on the manufacturing. So even$100 oil prices doesn't get companies, you know, excited about drilling. To drill baby drill. In West Texas. I think there's so much uncertainty. This is where the scenario planning comes in. The question is, well, is it going to go back down to 75, 60 and below six months later if there's resolution right now?

23:36Or are there other factors that keep unknown? And that's a scenario work that is really important for companies to be thinking through. Do you think the price, just 20 seconds, are the prices that are reflected across the curve right now accurate? I think the prices could change, right? They're accurate for the dissonance between physical and financial markets. Accurate. And that is our point. That's my point is that this thing doesn't fix the physical. If we get a ceasefire, we don't fix the physical issues. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern.

24:10Listen on Apple CarPlay and Android Auto with the Bloomberg Business App. Or watch us live on YouTube. It is one of the most read stories on the Bloomberg Terminal. Everybody is following Bloomberg's reporting on this exclusive. Treasury Secretary Scott Bessent and Federal Reserve Chair Jerome Powell summoning Wall Street leaders to an urgent meeting on concerns that the latest AI model from Anthropic will usher in an era of greater cyber risk. Todd Gillespie has the scoop. He's Bloomberg News banking reporter. He joins us here in the Bloomberg Businessweek studio. So these almost every CEO of every big bank went.

24:48The only person missing, according to your story, was Jamie Dyn of JPMorgan Chase. And he couldn't make it for some reason. But why were five of the six big bank CEOs summoned by Fed Chair Jay Powell and Treasury Secretary Scott Besson? Well, we know, Tim, that in the past few days, in the past few weeks, even, concerns have been raised about the severity of the strength of this new model by Anthropic, this tool called Mythos. which basically Anthropic have said can essentially a user's will detect extreme vulnerabilities in things like web browsers, in security systems, and basically presents a whole new level of cyber risk for countries, for companies, for huge institutions.

25:30And Anthropic have admitted that they know the severity of this. They have acknowledged and are taking it very, very seriously. They've had a limited rollout for testing purposes among a select group of companies. We know JP Morgan is one of those that's public. There are about 40 other companies as well who are on the list. Not all of them are public who are getting early access to this and testing it out. Their information security teams have access to this. But essentially what this shows, and bear in mind, you know, some of the top executives were already in D.C. for lobbying meetings on Monday.