Oil Spikes as Middle East War All But Halts Hormuz Ship Strait

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2:21Alexis Christoforous:I want to talk more about the oil markets and the impact that the Iran attack might have on them with Ellen Wald, president of Transversal Consulting. So Ellen, I want to just start with OPEC Plus because they already responded pretty quickly by increasing quotas slightly. Not a major output hike, but is this really more symbolic than anything else?

2:43Dr Ariel Cohen:Yeah, I think that what we saw from the output hike and the swiftness with which they did this was really a signal to the market that should there be any kind of major disruptions, that OPEC is absolutely willing to hike production very swiftly to accommodate that. Now, obviously, the big question is, well, if the major oil producers here, Saudi Arabia, Iraq, Kuwait, the UAE, if they're experiencing any kind of disruptions to both either their oil infrastructure or just the ability to get that oil out of the Middle East, that may not be all that helpful. And we're really going to see reliance on places like Kazakhstan, for example, to increase output.

3:33Alexis Christoforous:How do producers like Saudi Arabia and the UAE factor into market stability in this scenario?

3:40Dr Ariel Cohen:I would say they're really key right now. What's interesting is that both the UAE and Saudi Arabia don't rely 100 percent on the Persian Gulf to get their oil out. Kuwait, most of Iraq, and they are entirely, almost entirely reliant really on the Strait of Hormuz. Saudi Arabia does have a way to get oil out through the Red Sea and the UAE has pipelines that go around the Strait of Hormuz. But still, a lot of their oil is still set up and oil products as well to go out through the Strait of Hormuz. And we've seen, as you mentioned, that tanker rates are sky high. So even if there is no direct threat from Iran, it's still too expensive to send a tanker through the street, either to pick up oil or to get it out.

4:31Dr Ariel Cohen:And so this is really causing a standstill that if it continues for a week or even two, could really start to cause major problems.

4:40Alexis Christoforous:Ellen, if there is a winner in all of this, you say that would be Russia, at least in the short term, right? Because I guess its oil would be able to flow unobstructed to its biggest oil consumer, which is China.

4:54Dr Ariel Cohen:Exactly. China is really, you know, in has the biggest problem with oil not being able to get out of the Persian Gulf because it consumes a huge amount from there. But it also consumes a large amount of Russian oil and it can get that oil without having to go through the Persian Gulf. So I would not be surprised if, you know, this continues to see China increasing its imports from Russia even more. And as oil prices go up, Putin can also charge more for his oil. So he is definitely looking at this as, you know, there's more money in his pocketbook now, and he's potentially got another more more space to sell his oil to the customers that will buy it.

5:37Dr Ariel Cohen:Another question is, will India, which recently committed to stop buying Russian oil, feel that it needs to go back to purchasing Russian oil to offset the losses that it's suffering because it can't get oil from the Persian Gulf.

5:51Alexis Christoforous:What are some key potential red flags that you'd be watching in the coming weeks in terms of oil markets?

5:58Dr Ariel Cohen:Yeah, I think the biggest issue I think we're looking for right now, I think, spikes in natural gas prices in Europe and also in Japan and in other Asian countries. Qatar has shut down its LNG plants, and they're a major supplier to Asia. And so we're going to be looking for big spikes there. And then as well, we're talking not just crude oil, but also products are major things that are going through the Strait of Hormuz. And so it will be very important to keep an eye on that, particularly Asia, China, Japan, And South Korea, these are all countries that get huge amounts of these vital products from the Middle East.

6:41Dr Ariel Cohen:And so I'd be keeping a very close eye on what China is doing. I know that they recently started talking to the Iranians. It will be interesting to see if they try to bring their economic leverage to push the Iranians to kind of bring this to a swifter resolution.

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9:32Alexis Christoforous:We did hear earlier, though, Nora, from from the defense secretary, from the chairman, Joint Chiefs of Staff about this operation, Operation Epic Fury. Pete Hegseth, the defense secretary, saying that Iran had a gun to our head as he defended this attack. Right. And there was also some discussion about the fact that Hegseth saying that he didn't want to say too much in terms of granularities as to not expose some of their plans to, quote, the enemy. So that's also been something that we are keeping an eye on. But to talk about this and more, we're joined by Dr. Ariel Cohen, senior fellow at the Atlantic Council.

10:07Alexis Christoforous:There's been a lot of developments happening, a lot of things that happened through the weekend, and we're really seeing a lot of it spilling into today on Monday. Talk to us about what you're watching and what your main takeaways are of all these geopolitical tensions.

10:21Norah Mulinda:The first takeaway is how radically the character of war has changed. If you think about World War I, World War II, even Vietnam, warring parties did not go to take out the leadership of the opposing country on the first day. We did, and we did it. Secondly, the two things I'm watching very carefully is whether or not the U.S. Navy and the Allies, including the Arab countries right in the Gulf, can secure the shipment of oil through the state of Hormuz. For now, for the first couple of days, the shipment dropped. The oil prices went to 80. Our economy can live with oil at 80. It lived with oil at much higher prices.

11:04Norah Mulinda:However, if it goes on for weeks and months, that's a different story because 20 plus percent of global oil and good amount of LNG, liquefied natural gas, ship through the Strait of Hormuz. It's a narrow strait. It's something like two miles or something like that. Now, luckily, there's a lot of product. There is oil that Saudi Arabia can ship to the Red Sea. Now, there's a problem with the Red Sea because of the Houthis, and Houthis are supported and equipped and trained by Iran. So you see the vicious circle here. So the strategic goal is to enact enough damage to the ruling regime in Iran so the transition to a non-Islamist regime, non-IRGC-dominated regime starts to happen.

11:55Norah Mulinda:And I think it's too early to tell whether or not this is going to happen. how fast and how messy it's going to be. Iran is messy historically and probably is going to be messy now. And finally, I'm watching the amounts of ammo the US and the Israelis are shooting, be it missile defense, be it rockets, offensive rockets, bombs, etc. Because all this equipment It's very expensive. This is why folks are investing in weapons companies. And we, the Pentagon, the U.S., needs a supply, a strategic supply of these weapon systems in Europe, in the Pacific, just in case. And this is a three theater circus, three circus show that we're watching because certain amount of these weapon systems need to be preserved for Europe and for the Pacific.

12:57Alexis Christoforous:And Dr. Cohen, when we look at what happens now, what happens next, right? Who will that what will the new regime in Iran look like? Even President Trump said that his picks for the next leader has been killed. So what can we expect from the new regime? And will it be any better and friendlier to global relations than the prior regime?

13:22Norah Mulinda:The main question is whether IRGC, the Iranian Revolutionary Guard Corps, are going to stay in power. This is a combination of the military, elite military and secret police. So imagine the SS and Waffen-SS in Nazi Germany or KGB and internal security troops in the Soviet Union. This is a characteristic of a totalitarian state where you have a merger of internal security and the military. The regular military, the Arteche, has not stepped in yet. And I believe that the US and Israel are talking to folks inside Iran, be it supporters of the Shah. We heard chants for Reza Shah, Petlevi, heir of the throne, the son of the last Shah, be it reformers.

14:23Norah Mulinda:So there are a lot of people, how these people can sit together and rule Iran. That's a big question. But the elites, the urban folks, the educator folks all repudiated the current theocratic dictatorship that killed 30 ,000 of their own people.

14:44Ellen Wald:Stay with us. More from Bloomberg Intelligence coming up after this. Support for the show comes from Public. Lately, it feels like there are two types of investing platforms. Some are traditional brokerages that haven't changed much in decades, and others feel less like investing and more like a game. Public is positioned differently. It's an investing platform for people who are serious about building their wealth. On Public, you can build a portfolio of stocks, options, bonds, crypto without all the bugs or the confetti. Retirement accounts? Yep. High-yield cash? Yes, again. They even have direct indexing.

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16:50Dr Ariel Cohen:You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube.

17:04Alexis Christoforous:But continuing on in this conversation, we'd like to talk with Wayne Sanders. He's Bloomberg Intelligence Senior Defense Weapons Analyst. I've been keeping an eye, Wayne, on some of the stocks moving, at least, in terms of some of the U.S. defense names. And we're seeing them rallying on the day. Not too much of a surprise. What's your takeaway from the developments here and as this relates to weaponry more broadly?

17:27Ellen Wald:Yeah, absolutely. Thank you so much for having me on. We put out some research over the weekend. One of the biggest things that we've noticed, right, U.S. defense primes like Lockheed, RTX, and Northrop, they're really at the center of the air missile defense and strike capabilities that are underscored by the U.S.-Israel campaign against Iran right now. And so it's being able to show that crewed systems, piloted systems, excuse me, piloted systems continue to be at the forefront of this, right? F-22s, F-16s, F-15 Strike Eagle, and the F-35, obviously, for air dominance. All of these have played a really critical role in here.

18:02Ellen Wald:It starts to show that the work into stealth technology continues to be one of the key pieces that's going to continue to be pressed. They're proving their nature. They're proving their importance to it. And then you're also seeing that from the naval power. It ends up continuing to be a very powerful button for the president to use to be able to bring up these these these strike the carrier strike groups, excuse me, to go out there. Aircraft carriers along with these guided missile destroyers to be able to provide not only a level of of air defense, but then also air superiority as well as long range strike capability.

18:37Alexis Christoforous:And, Wayne, this morning we got word from the U.S. that U.S. jets were shot down over Kuwait in a friendly fire incident. Thankfully, the crew that were in those jets were able to jettison out of them. And last we heard, they're in stable condition at a hospital. But can you tell us more about those jets and what was destroyed there?

19:02Ellen Wald:Yeah, when you look at some of the F-15 capabilities and all that, right? Air defenses normally, right, they come as different pieces. You have a radar system that's actually used specifically to identify the signal itself. Then you have to be able to put it together with an interceptor that's going to be able to shoot it down. And so what happened in some of these is I believe that the radars themselves, when you try to differentiate, identify friend versus foe, ends up being a key piece of this, right? There are specific signatures that different aircraft comes on. If you override that and you shoot at it anyway, it's something that can be on there.

19:37Ellen Wald:But all the pilots are safe, even though these aircraft were affected.

19:42Alexis Christoforous:So how would you characterize Iran's current missile and drone capabilities, especially the ones that are being used in this war?