5/4/26: Oil Spikes Amid Hormuz Chaos, US Bases Damaged By Iran, Spirit Airlines Goes Bankrupt

24:51But I think it actually goes beyond that. First of all, if we compare the depth of this disaster to that of the Iraq war, I think this one goes further. Because at least in the Iraq war, the United States won the war in three weeks. The US's military dominance was never in question. Moreover, the United States also achieved its political objective of getting rid of Saddam Hussein. That too has not been achieved in the Iran case. The Iranian regime is still there. In many ways, it seems to be much stronger than what it was before. And on top of that, the Iranians have at a minimum denied the U.S.

25:25a victory and at a maximum scored a strategic victory against the United States. So this goes much beyond the type of a debacle that Iraq was. But moreover, the global consequences are far beyond that as well. You never saw the Iraq war cause famine or fuel shortages or gas prices going up in an uncontrollable way in the manner that this war has now already caused on a global scale. And the US is, as we have discussed already now, incapable of even coming up with some ideas of how to be able to fix this using its coercive power. So the utility of American coercive power has really been denied here.

26:04It's a combination of the Iranians using new technology, drones, missiles, as well as geography, of course. But even if you don't have something as strategically viable as the Strait of Hormuz or vital as Strait of Hormuz, you can still use the terrain as a way of denying victory for a much stronger military power. That's what the Ukrainians have done. So I think going forward, this is going to really raise questions as to whether the United States can pursue global primacy any longer. because that was based on the idea that the United States can fight two major wars on two continents at the same time.

26:38We've not been able to fight this war on one continent successfully. And this is, I think, going to end up becoming an inflection point, one in which we are going to move much faster towards multipolarity than we were on. We were already on that trajectory. This sped it up even further. And one sign of it is something I think you all just mentioned earlier on in the show, which is the Chinese now coming out and saying they're no longer going to be respecting US sanctions. And that if the United States actually goes after any Chinese ships that have been carrying Iranian oil or any oil from the Persian Gulf, the Chinese are not going to accept that.

27:17Whereas reality is up until now, the Chinese more or less have. They have been abiding by US sanctions. And now 10 days or so before Trump is supposed to show up in Beijing, the Chinese change the rules of the game. It's a direct consequence of how badly this war has gone. And I think that's just the beginning of the global repercussions we're going to see. You're building your career, your routine, your future. But this summer, that's for you. This season, escape into stories that feel like golden hour, rooftop drinks, and the kind of love that sneaks up on you when you least suspect it. Sourcebook's Summer of Romance brings together the rom-coms everyone's talking about.

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30:11Let's turn now to the Gulf countries and also to the bases of hours which were hit. We have a CNN report here which details much of this A-10. Let's take a listen. To get a sense of just how vulnerable U.S. facilities have become, have a look at this. It's the war room at Qatar's El Ardeid Air Base, the theater command and control hub for U.S. air power across 21 nations. Struck not just once, but twice. And according to a U.S. source, causing significant damage. The base had been largely evacuated at this point, and no casualties were reported. Iran's visibility over its targets has never been clearer.

30:49In 2024, according to the Financial Times, Tehran secretly acquired a Chinese satellite known as the TEE-01B, a massive upgrade from its own satellites. That means that Tehran went from looking at images of this quality to this. This is the first time America has fought an adversary with satellites that capture high-res imagery almost as detailed as its own. As the scale of the damage comes into focus, many will wonder whether America's presence, once a protective shield in the Middle East, has turned into its Achilles heel. This really highlights your point, sir, which is not only about the diminishing of U.S.

31:29military might and the ability even to project power, but to have these rock star installations which have taken immense damage in only a 38-day period, as you said, would be equivalent of not defeating Saddam in the whatever 30 days that it took in the opening days of the Iraq war. It just seems, as this continues, to be even more of a grand strategic defeat for the United States. Certainly, and I think it raises another element here, which was hinted at in the CNN report, which is quite extraordinary. But it also tells us how much misinformation we have gotten from the U.S. government during the war in which all of these things were being denied, and massive exaggerations of how much the Iranians suffered military setbacks.

32:14It is the fact that now we're going to be in a scenario in which many of these countries who have benefited from the U.S. security umbrella, who have wanted the security umbrella, who have lobbied for it and who have lobbied against restrainers in Washington for more than a decade, restrainers who wanted to see a different approach to security, who wanted to see a withdrawal of many, enclosure of many of these different bases, or at least handling over the responsibility of security to these different states, that was always being pushed back against not only by the military industrial complex, but also by many of these allies who very much benefited from free riding on American security.

32:51Now they have seen that that security was a bit of an illusion. And many of them are going to be asked to pay for the rebuilding of these bases. And I'm not so sure that they will. I wouldn't be surprised if many of these bases, not all, will actually essentially be phased out. And that then means that the The push against this grand strategy of liberal hegemony and this total military dominance of the world is not just going to come from the American public, but also slowly from some of these very same allies who once benefited from it, who once lobbied for it. They're going to turn against it as well because it proved to be unreliable and ineffective.

33:26There also appears to be a growing split among some of these nations. We can put A12 up on the screen. This is from Axios, but I know you've been discussing this as well. The year that shook the Gulf, the UAE is leaving OPEC. Saudi Arabia is ending its splashiest foreign sports venture. The two U.S. allies are in the midst of a messy divorce, even as both face fire from Iran. So can you talk also about, you know, I think I run analysis that Saudi Arabia so far actually economically had benefited from the war because they're benefiting from the premium price that they're able to sell oil from UAE.

34:00on the other hand, has been very economically damaged by the war. And certainly their brand as a playground for a global elite has been very much damaged. So can you talk about those dynamics? I think the GCC as a political entity is, if not dead, about to essentially go towards its death. It is a security organization that was set up in the early 1980s in response to a specific geopolitical situation at the time, which was that these smaller six GCC states, although Saudi Arabia is not small, felt a greater threat from Iraq and from Iran at the time. So notably Iran and Iraq are not part of this organization.

34:42But that, again, was based on a common security imperative and a common security threat perception at the time. That is no longer the case. It's not that Iran is not seen as a threat, but the approach of how to deal with Iran is dramatically different. And UAE has turned into a complete Israeli ally. And many of these states in the GCC view Israel as a greater threat than Iran. And on top of that, also believe that the UAE's alliance with Israel has actually undermined the broader security of the Persian Gulf as a whole. So we're seeing these splits. And on top of that, there's egos, there's economic competition, There's competition in the Horn of Africa.

35:23There's a lot of different things that have been tearing these different countries in a different direction. And the Iran war has now really put that to the fore. We have seen that the Iranians struck at the UAE much, much harder than they did against any of the other countries. And they also actually spared Saudi Arabia tremendously in that war, which clearly was an indication of the Iranians wanting to keep the pathway open for some sort of a more positive relationship with Saudi Arabia after the war. So whereas when it comes to the UAE, they struck them much harder, largely as a punishment for the UAE being so close to Israel.

36:00And if Trump restarts the war, incidentally, I think one of the things we will see is not only that there will be again this horizontal escalation by the Iranians, but I suspect that there will be even more of a laser focus on the UAE because now the Iranians are going to try to drive an even deeper wedge between the UAE and some of the other GCC countries. It makes sense. It actually fits with the news this morning. The ADNAC carrier that was struck, the Abu Dhabi National Oil Corporation tanker, which was struck by the Iranians this morning, that's been confirmed by the government of the UAE.

36:33And the UAE has been the most belligerent in the United Nations and other places in calling for direct military escalation against Iran. Now, that's actually kind of my last question here, is when we see this fracture within the Middle East and these alliances in these countries between Oman, the UAE, and Saudi Arabia. What do you expect, you know, the ability for U.S. bases to even be present in the country, even to be after this conflict is settled? Let's say we don't voluntarily do it, but what if those countries themselves say, hey, we don't want these bases in our countries anymore? I think most of the countries will diversify their security basket.

37:10They will continue to buy a lot of American weapons. In fact, they may increase their purchases of American weapons. But I think they will start phasing out the bases. Not all of them. They may be keeping one or two. But this type of a system in which I think right now there's about 19 bases, permanent bases in the region, I think is going to be something that we're not going to see five to 10 years from now. And again, it's also going to come down to cost. The United States is not going to pay for the rebuilding of these bases. It's going to ask these states to do so. And many of them are going to say, well, we would rather use the money to buy weapons from the United States or weapons from other countries and diversify our basket.

37:47Now, the UAE may be the exception. The UAE may actually triple down, not just on the United States, but on Israel as well and become an even closer ally of the United States and Israel militarily. Dr. Parsi, thank you so much for joining us, sir. We deeply appreciate your time. Thank you so much for having me. Appreciate it. You're building your career, your routine, your future. But this summer, that's for you. This season, escape into stories that feel like golden hour, rooftop drinks, and the kind of love that sneaks up on you when you least suspect it. Sourcebook's Summer of Romance brings together the rom-coms everyone's talking about, from Laugh Out Loud favorites by Lucy Score and Megan Quinn, to binge-worthy reads you'll want to finish in one sitting.

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40:38Let's turn now to Spirit Airlines in terms of the impact. So a lot of different claims going around are out there about why Spirit Airlines not only went bankrupt, but went literally ceasing operations overnight, leading to some passengers having to be rebooked, emotional, you know, goodbye announcements from pilots in the middle of the air. You almost never see this in the United States. Usually airlines are going to bankruptcy. That's not even all that uncommon, but to find a potential buyer, they were potentially going to get a bailout from the government. None of that ended up happening, and they just genuinely went bust overnight with, yes, some signs in the immediate future, but not really many people expected this.

41:14So the Trump administration obviously reacting to this over the weekend. Here was Secretary Scott Besson saying, actually, it's Biden's fault. Let's take a listen. The Treasury was supposed to be doing a deal to save this company. Can you tell us what happened? Sure, Maria. So this is just more of the mess we inherited from the Biden administration. In September 2022, Elizabeth Warren, who loves to write letters, sent a letter to the Justice Department, to the Transport Department, saying that they should oppose the merger with Spirit Airlines. JetBlue wanted to buy them for$3.8 billion. It would have given them much more resiliency.

41:58And she and the Transportation Secretary, Pete Buttigieg, who's probably the worst transportation secretary in history when he came to the office, they also were against the merger. And if JetBlue had merged with Spirit, we would have all these jobs that were lost yesterday. We had 30 regional airports who have lost service. And I can tell you what happened here. It wasn't Treasury. It was Commerce that was trying to put something together. But the reason we were here was because the merger, the Biden administration, opposed the merger. We shouldn't have been here in the first place. So a lot of this is going around in terms of the blame.

42:40And I'm actually going to go and jump to the last element, guys, here in the Block B7 from our friend Matt Stoller, who wrote this piece. who killed Spirit Airlines. He says it wasn't Biden's antitrust enforcers. There were many factors. Trump's Iran war, JetBlue, the big four airlines, and behind all of that deregulation. This story has happened hundreds of times. I actually think what he points out, and obviously this is mostly about the Iran war. I think that's it more than anything. But just to address this immediately. That's certainly the final trigger that killed them. Right. The Iran war is what actually put the bullet in their head.

43:11But obviously they were dying, bleeding out for many years. What happened? They had a proposed merger with JetBlue. And on paper, you're like, OK, well, that seems better. What I wasn't really aware, though, from that until I really dug into it was JetBlue's plan was to hike fares and to cancel like 40 percent or something of their route. So not really good for the consumer. Now, maybe it'd be better off if they had merged and, you know, it was still moderately there. But however, what I seem to have read now is that many of the airlines were actually lobbying the Biden or the Trump administration not to bail out Spirit Airlines.

43:46Why? Because Spirit, at the end of the day, listen, I hate Spirit Airlines and I wouldn't fly it, but I fly more than once a year. The vast majority of their customers are one to three times a year flyers who are looking for a cheap discount fare to go place from A to B, and they don't care if they're not going to get a soda from Washington to Denver for a four and a half hour flight, right? That's not really a priority. Or have to pay to pick your seat or whatever. Pay to pick your seat. They're like, I don't give a shit. Just get me from point A to point B so I can go see my cousin or can go on vacation.

44:15It's fine. I think that's a very valuable place in the market. So what they happened to do is that Spirit's competitive fares actually dragged down basic economy fares for all of the big three carriers. So the big three carriers were desperate, actually, for the government not to bail out Spirit so they could go bust. This is another reason why JetBlue really wanted to acquire Spirit and hike the rates was because they're competing against each other. So this is actually a good example of multifactorial policy. Number one is that we had a policy where we had a discount airline, which we potentially would have bailed out.

44:49I think we should have bailed them out. And look, I know many people are going to be upset about that, but I think cheaper airfare is a vital and important thing to a functioning first world nation. I just really do. That's why they have Ryanair and all those cheap options in Europe. And honestly, it's really nice for a lot of the people who live there. You can jet literally across the continent. Here, we've never had that. We're a huge country. I accept that. But a couple hundred dollars as opposed to$600,$700 is really, really important to especially middle class people or families trying to get somewhere.

45:20So you have this general policy where we potentially would have done a bailout. We ultimately didn't do it for a variety of reasons. I mostly think it's because the big three airlines said, hey, please don't do it. And then the Iran war doubled their jet fuel cost overnight and basically just put two bullets in their head. Yeah. And they just had to die. It's honestly a tragic story. Yeah. It's a direct consequence of Iran, but of a lot of other government policy over the years. Yeah. And to your point. So the the the big airlines really despise them and have been trying to do everything they can to destroy them.

45:53And Matt has some reporting that's not totally confirmed, but that he had from an insider about the way they would do that. And so effectively, he said consumers of low fare airlines tend to book a few weeks before their trip. So a few weeks before a Spirit flight from, say, New York to Orlando, one or more of the big carriers would radically discount their price on just 20 seats on a similar route. So they would poach those last 20 customers from Spirit. Now, they could afford to effectively sell those seats at a loss. And what that means is for Spirit, it would take what would have otherwise been a profitable flight and put it in the red.

46:31And so there is a if you look at their their profitability over time, somewhere around 2016, it seems like the big carriers figure out this strategy to effectively try to come in and destroy them. And so then now you had them on weak financial footing, looking for a bailout, really being pushed over the cliff by the Iran war and the jet fuel prices. And then who's there to come in and do that final shove over the cliff? The major carriers who want them to be dead. You know, in terms of this jet merger, potential merger, because this is what all the talking points are about. Oh, Biden's antitrust and even narrative.

47:06And it's not just the Republicans, by the way, Neera Tanden and other corporate type Democrats coming in using the same argument to argue against future antitrust enforcement. Were you to have another Democratic administration? The other problem with it, number one, it was sort of on its face illegal. Even Spirit Airlines created a presentation for their shareholders where they're like, this is probably illegal and will probably be blocked. they were contemplating a separate deal where they would merge with another low-cost carrier frontier, which seemed to make more sense and would have preserved their business model and preserved the downward pressure that they had on prices and the positive impact they have for consumers on the routes that they fly.

47:45But the shareholders ignored that advice, went ahead with it, hoped for the best. Ultimately, predictably, it was struck down as illegal. There's one other aspect of it too, though, which is that JetBlue was really loaded up with debt at that time as well. And so they would have been taking on, obviously, an even more extraordinary amount of debt just to buy Spirit. So it's not even clear that JetBlue would have been able to manage then their debt service and they would have survived into the future. But it certainly would have meant that, you know, Spirit would have been killed earlier. It would have been killed at the time of that merger versus being killed now by the jet fuel price surge and by the four big carriers who wanted to see them going.

48:24Let's put B4 up here on the screen because it's one thing to say jet fuel. It's another here to see the numbers. So Patrick DeHaan over at GasBuddy compiled this list. Just check this out. This is from May 2nd. So only two days ago. Just imagine what airlines are contending with. Here is the cost to fill a Boeing 777 today. Chicago,$213 ,000. Dallas, $180 ,000. Minneapolis,$180 ,000. New York City,$180 ,000. Los Angeles,$217 ,000. Seattle, $225 ,000. So yeah, that's a lot of money. We're talking about$200 ,000 in some cases to fill up the whole plane. Now look, I get it. It's a big aircraft. He probably picked a bigger one just to show exactly what you're dealing with at a macro level.

49:14And I know it does take a full tank of gas to get somewhere going. But I mean, come on,$200 ,000 just to fill up an airplane? That's a lot of money. And that's double literally what it costs as of a month ago. So that's going to show up somewhere. There is no denying this. The Iran war is what killed spirit. Now they were, again, they were bleeding out already, but it was the jet fuel crisis. Let's go ahead and put B3 up there on the screen. They actually detail this in Al Jazeera. They've begun their wind down all over the jet fuel doubling in prices that will cost now thousands of jobs. But I think more importantly is that this airline, so for example, in the week between May 1st and May 15th, they had 809 ,000 seats, which would have flown on 4 ,119 domestic flights.

50:03So that is almost 800 ,000, or sorry, 400 ,000 seats because of the status of when they're going bankrupt, that will just not be here this week, 400 ,000 seats on an airplane. That is going to show up somewhere. And the likelihood is it will show up in now American and Delta and United. They can charge whatever they want and they've got the jet fuel stuff on top of that. So good luck to anybody who wants to fly right now. I don't think it's out of the question to see$800 ,000 fares even for intra-east coast, like in the middle of the summer. And in terms of international, good luck. Like I was looking at Dubai this morning, even in the couple of weeks since the ceasefire, air traffic out of Dubai or passenger traffic in Dubai International Airport is down 20%.

50:51Now, look, some of that demand will be destroyed. Let's say 10%. But those other 10, if they're still going to fly somewhere, they might have to go through Europe. So if you're trying to connect, if you're going to Asia and you're connecting through Europe or through a diff or a direct flight, you know, one of those very competitive flights from here in the US, I think it will be like thousands of dollars. Like I think the idea of an economy ticket being one to 2000, which I still think was, you know, high compared to where things were before. I think you could potentially start to see, you know, real economy seats, not premium economy seats, be like three to 3 ,500,$4 ,000 in the middle of peak summer.

51:27If stuff like this continues and you have airlines adding on additional jet fuel surcharges, like Japan Airlines,$350 per ticket for any one-way flight, North America and Europe. And then so round trip, that's another$700. Heathrow, I'm sure by the end of the next few months, they already have a very, very high landing tax. I think it could go up even more, several hundred bucks. So this is just going to be unsustainable. You're just not going to be able to fly anymore at a certain point. And looking internationally, Air India, they cut all of their international flights through July, all of them.

52:00Oh my God. Yeah, they cut all of their - This is a very specific niche thing, but there are a lot of families living in the Bay Area and people like me who grew up as first-generation immigrants who all would go to India over the summer and book on shitty—no offense. Actually, no offense. On shitty airlines like Air India. Air India is the worst airline I've ever flown in. Okay, fine. Let's just say it. It's dog shit. All right? It's dog shit. We're literally cockroaches on the plane. Yeah, it is. I'm not kidding. The worst airline in the world. Sorry. Don't sue me. All right. I had a bad experience.

52:29It's my own personal experience. Multiple bad experiences. But anyway, it's not good. They're cutting all of their international. So apparently they're flying domestically still within India, but all of their international flights through July are completely cut. But, you know, going back to what you're talking about in terms of the impact here domestically from spirits closure, there was literally something called the spirit effect. When they would begin flying a certain route, every other carrier knew they had to reduce their price. And so with them gone, now their hand is freed. And Stoller makes a bigger point and really should read his whole analysis because it's typically, as usual, it's very excellent and in-depth and very thoughtful, which is that ever since the airline industry was deregulated, you've had all of this combination of consolidations and mergers and then just so many bankruptcies.

53:23because it really is the type of service, and he compares it to the mail service where it's like you pay the same amount for a stamp and for some places that is you're sort of paying above cost and you're subsidizing service to rural areas. It's a similar dynamic with air travel where if you want there to be reliable, affordable access throughout the country, you're going to have to manage that from the federal level and make sure that those routes, even the ones that are not the most profitable, that those continue to be serviced. And so, you know, undergirding this whole story, you know, going back now decades when the decision was made to deregulate airlines, that's when you get to this scenario of having, you know, a handful of choices and the big airlines with their hubs and the way they're able to operate and the way they're able to go after new entrants like Spirit that were trying to undercut them on price.

54:19that's how you end up in this situation where, you know, it's air travel is miserable, where you don't have access in certain parts of the country, where low cost carriers and others who are trying to innovate are quickly pushed out. Last thing here, we can put B5 up on the screen. It just shows you that this fuel price crunch is not just going to affect airlines here. We already talked about Air India. Sagar was talking about Ryanair. Actually, the UK is now loosening some of their rules and saying basically like, OK, if you have a flight that's going somewhere that's half empty and you have another one later in the day, you're allowed to push those passengers to that other flight, which is something they weren't allowed to do before.

54:59But in any case, you know, this is the early days. This is the early days of the impact from the war. This is just like COVID, where, you know, you drop a giant boulder in the water and then the ripples just spread and spread and spread. And this is one of the first very noticeable ripples. And, you know, is it the end of the world? No. If you were hoping to go to a wedding or a funeral or visit your relatives or, God forbid, go on vacation, certainly not a happy thing, but it's not necessarily life-threatening. But this is just the first of many, many impacts that we are already seeing ripple throughout our economy and the global economy.

55:36Yeah, exactly. Look, what made COVID inflation miserable is nobody died because food prices went up by 20 % or, okay. Very few people probably did. Very few people died because food prices went up by 20%. It still sucked. I mean, that's the, that's the whole part. What has been happening in this country since 2020 every year, it gets worse. Housing, food, things been more expensive. It's just like, everything has more friction. Has it really gotten better? I just, I don't know more crime. It's just like, everything is shitty. And, you know, there's – what is the theory? It's like – and shittification.

56:12I'm sure you've heard that before with corporate – you know, dealing with a corporation, health insurance, right? It's just nothing is simple. And yes, maybe that is romanticizing a different time, but I don't know. I just feel like things are getting much worse and worse and worse. And I don't see anything particularly getting better.

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