On the home strait? A path to peace in Iran

0:00Gregg Carlstrom:A BetterHelp ad. Hold on. One second. I just need to...

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0:36Gregg Carlstrom:The Economist

0:43Gregg Carlstrom:Hello and welcome to The Intelligence from The Economist. I'm Jason Palmer.

0:47Rosie Blau:And I'm Rosie Bloor.

0:52Gregg Carlstrom:Today on the show, how to divide the coming AI windfall and our World Cup team profiles conclude with England.

1:07Gregg Carlstrom:First up, though.

1:16Gregg Carlstrom:At last, a framework deal is in place to put an end to the Iran war. That's almost as much as anyone knows. Even that was unlikely as of yesterday, the day President Donald Trump had promised an agreement would be signed, though Pakistani mediators weren't so definitive. Then, another cycle of strikes between Hezbollah and Israel that threatened to scupper the whole plan. Mr. Trump tenderly sought calm on social media by saying, don't blow it. And then, overnight, something of a deal to be signed in Geneva on Friday.

1:51Jason Palmer:We know only a couple of details of what is actually in this agreement. Greg Karlstrom is a Middle East correspondent for The Economist. It is meant to extend the ceasefire across the region, including in Lebanon, and it is meant to reopen the Strait of Hormuz within 30 days. Beyond that, the details are sketchy and there is a more comprehensive agreement that America and Iran will still need to negotiate.

2:18Gregg Carlstrom:You mentioned that Lebanon is included in the deal. That's where, over the weekend, the whole process nearly came unstuck.

2:24Jason Palmer:It was. We saw another exchange of fire between Hezbollah and Israel over the weekend. Hezbollah firing drones into northern Israel. And then Israel, which had threatened to retaliate for such attacks by bombing Beirut, the Lebanese capital, made good on those threats, did so later in the day on Sunday, killing at least three people. And then at that point, Iran threatened to carry out missile strikes against Israel, which is something it had vowed to do whenever Israel bombed Beirut. So it looked like we were stuck in the same sort of cycle that we were in the previous weekend. It looked as if the possibility of a deal might be slipping away, only to have this somewhat surprising late night announcement from both America and Iran that they had in fact reached a final agreement.

3:16Gregg Carlstrom:It does seem that this story has been much less Iran and America and more Israel and Lebanon along the way, and that Israel has almost defied America at various points. What do you read into that?

3:26Jason Palmer:We don't know if it's real or if it's a bit of diplomatic theater. Donald Trump has publicly criticized the Israelis for striking in Beirut. He said it shouldn't have happened, but we don't know if in private he actually gave Israel a green light to do that. And this public messaging was just meant to placate or avoid antagonizing the Iranians. But nonetheless, I think the strain here between the U.S. and Israel underscores the fact that they went into this war together, but with different aims. And ultimately, for the Trump administration, the focus of the war became the Strait of Hormuz, right?

4:04Jason Palmer:It became figuring out a way to reopen the Strait. They tried doing that by imposing a blockade on Iran. They tried doing it through military means. They weren't able to do it. And so now I think they feel as if they have no choice but to make an agreement that will reopen the Strait and get oil and gas moving again. Whereas for Israel, their priorities were different in this war. They wanted to do more damage to Iran's not just nuclear program, but its missile program, its regional proxies such as Hezbollah. And so we got to a point where their interests simply diverged. And the Israelis, I think, are quite unhappy with the sort of deal that has emerged between the US and Iran.

4:46Gregg Carlstrom:So about what's in the deal more broadly or eventually more concretely, is this, as you've said before, just a deal to do some deal making in the future? Or does this have some sharp edges.

4:56Jason Palmer:It's a deal to do more deal making. And I think we should also be clear that none of us have seen the deal yet, and we're not likely to see it until it is signed on Friday. And until then, we're going to hear a lot of competing claims from America and Iran. They will both want to present this deal in the most favorable light for themselves. But we should be skeptical of those claims because some of them are going to be nonsense. Having said that, I can tell you what I think is in the deal, having spoken this morning to some people who are involved in the talks. And it's more or less what we've been talking about over the past few weeks.

5:34Jason Palmer:The Stratiformes should reopen within 30 days. There will be 60 days of negotiations between the United States and Iran about Iran's nuclear program and about some other substantive issues. And then Iran will receive some limited upfront sanctions relief. I'm told both the temporary waiver on oil sales and the release of some of its assets that are frozen in banks overseas. That money will be dispersed in stages over these 60 days of talks. But that's it. What happens to Iran's stockpile of highly enriched uranium? What happens to the rest of its nuclear program? What sort of long-term sanctions relief will it receive from the United States?

6:20Jason Palmer:All of those questions are left to be negotiated in these talks, which I'm quite skeptical are going to succeed in just 60 days.

6:29Gregg Carlstrom:So a lot of details still wanting, but as you say, a lot of this has centered certainly for the rest of the world around the Strait of Hormuz. What are the terms there? Is it truly as wide open as has been promised? No blockades, no escorts, no tolls?

6:44Jason Palmer:You listen to Donald Trump. The answer to that is yes. He posted on Truth Social overnight, ships of the world, start your engines, let the oil flow. He said there won't be any tolls on the Strait. I was reminded that if you go back to April 8th, when Donald Trump announced the initial ceasefire with Iran, he said that ceasefire was subject to the complete and immediate reopening of the Strait of Hormuz. Here we are more than two months later and the Strait still isn't open. So again, I think a bit of skepticism is in order. If America and Iran do agree on Friday to reopen the strait, the Iranians will need to remove the mines that they have put there.

7:22Jason Palmer:It's not clear exactly how long that's going to take, but you will see the tankers that are stuck in the Gulf, I think, start to make their way for the exits pretty quickly. You have about 60 tankers that are laden with crude oil waiting to get out. They've been stranded for months. They will sail out and bring that oil to world markets. So we should see a bit of short-term relief for energy prices. And indeed, the price of oil is down about 5 % since the deal was announced. But what happens after that? Do tankers start to come back into the Gulf as well? Do they take the risk of doing that when this is only an interim deal and there's no guarantee that they will actually get to a final agreement?

8:01Jason Palmer:We don't know the answer to that yet. So after that initial glut of oil sails out of the Gulf, I think some companies might wait to gauge whether this agreement is actually going to hold.

8:12Gregg Carlstrom:Well, on that, do you think it will? If this is just essentially a framework deal and there's still lots to be worked out and it has been a hair-trigger affair from the start, are we going to be talking later this week, later this month, about how it all fell apart?

8:24Jason Palmer:Probably not later this week or later this month, but at some point it's possible. If you think about the two big events that brought us here, it was the failure of nuclear negotiations before the war between the U.S. and Iran. And it was the protests this past winter over Iran's dire economic situation that became Donald Trump's pretext for launching the war. Neither of those issues have been resolved. There's still no final nuclear deal agreed. And Iran has not received any long term sanctions relief from the United States. Now, they will spend the next 60 days trying to negotiate a deal that would resolve both of those issues.

9:02Jason Palmer:But if they fail to do that, and we get to the end of the summer. There's still no nuclear deal. Perhaps the Americans try to reimpose oil sanctions because they're frustrated. Iran could then threaten to close the Strait of Hormuz yet again. And so we could find ourselves right back where we were before this interim agreement because none of the underlying issues between the two countries have been resolved. Thanks very much for joining us, Greg. Thank you, Jason.

9:40Rosie Blau:you didn't just say how can i provide these investments you'd be how do i holistically provide everything how do i bring in the legal the accounting all this and do it at a price

9:48Jason Palmer:point no one else is doing it learn more about how we approach wealth management at creative planning.com integrated

10:02Rosie Blau:Some people have already got very rich from the artificial intelligence boom. Jensen Huang, one of the founders of chipmaker NVIDIA, owns less than 4 % of his company. But the value of that stake increased 50-fold in less than a decade. It's now worth$175 billion. dollars. Other firms are rocketing too. Anthropic is worth nearly a trillion dollars. That has more than doubled the estimated wealth of its boss Dario Amadei. But as AI booms and a few techies amass extreme riches, most Americans don't expect to get anything. Recent surveys have found that fewer than one in three Americans think that ordinary people will actually become wealthy as a result of the AI boom.

10:51Rosie Blau:Alex Domash is an economics correspondent. This has led politicians really across the spectrum, both the left and the right, to start to think about what is an answer. So Alex, what might an answer be? It started with Sam Altman of OpenAI, who actually proposed the idea that AI labs could voluntarily contribute equity to the U.S. government with that equity being put in some sort of public wealth fund where the proceeds will eventually be distributed to the American public. Reporters started to ask President Donald Trump what he thought of these ideas, and he did seem to endorse the plan that Sam Altman has proposed having to do with some form of voluntary equity contributions from some undefined AI companies with those funds eventually getting distributed to the American public.

11:52Donald Trump is not the only one to have talked about this. Bernie Sanders actually proposed a different version where the government would actually do a one-off 50 % tax on AI companies' stock, with Americans then having a direct ownership stake in these AI companies.

12:09Rosie Blau:Isn't the possibility of getting super rich almost the definition of American capitalism? Is there really any chance of a change here? Right now, wealth in the US is extremely highly concentrated. And so the top 1 % do own nearly one third of wealth in America. The bottom half holds just 2.5 % of it. And there's a lot of fear with AI that this could just widen the divide further. There's a lot of talk about when artificial general intelligence eventually comes here, whether it's going to displace a lot of workers, whether the returns in the labor force are going to increasingly go to capital and the owners of AI rather than to workers.

12:52There is a strong desire to think about how to redistribute this wealth. It's true that the American government already has a mechanism for this. The most obvious mechanism is to tax corporate profits. So the idea is if all of these AI companies end up doing fantastically well, we can tax their profits and the government revenues will be redistributed to the American public in the form of public services. And that is a quite efficient way to do it because then you do not have to guess which companies are going to do well. You don't need to be on the hook for possible losses by AI companies.

13:31Rosie Blau:So inequality is very tangible. What are the ways then that are being proposed now? It sounds quite an abstract idea to somehow redistribute. One way to do this is, as Sam Altman proposed, through voluntary donations of equity. The voluntary donations could come from company equity or from owner equity. What this means, though, is for companies like OpenAI that are still privately listed. There are already existing investors such as Microsoft and SoftBank, which if you are going to issue new shares to the U.S. government, it would dilute the shares that these investors currently have, which would probably be quite contentious.

14:12Another way to do this is for governments to buy stakes directly. They could wait for OpenAI or Anthropic to go public and they could buy ownership through the stock market. Of course, this incorporates quite a bit of risk and it is not clear whether the U.S. taxpayer should be on the line for the U.S. government buying shares. And then the third is the Bernie Sanders approach, where it's not that we are going to wait for benevolent leaders to donate their equity. We are not going to buy it. We are simply going to take it. And this is akin to just expropriation and there's risks of legal battles.

14:50It also has the negative side effect of really chilling investment.

14:53Rosie Blau:All of those approaches still seem to rely on government activity and the government essentially redistributing wealth and redistributing the profits from AI. How will that actually help? So it's a form of taxation, but it depends what you do with the proceeds. The way that it could look different is instead of just going into general government revenues and then be redistributed in the form of government services, you could take the proceeds and basically put them in some sort of public wealth fund. There are examples of this. So a lot of people point to Alaska's permanent fund. Alaska does this with oil revenues.

15:31The fund invests across different equities. It has a pretty healthy return and then pays dividends to the citizens of Alaska.

15:41Rosie Blau:So how much could schemes like this actually raise? Some of the numbers that have been thrown around is that a possible voluntary equity contribution would be roughly in the range of 1 to 5 percent. Assume OpenAI and Anthropic voluntarily give 3 percent of their equity to the U.S. government. Given their current private valuations, that would lead to a fund of roughly 55 billion dollars. If you assume like healthy normal returns of 10 percent and you say we're going to wait 10 to 15 years and then pay out a dividend to each American, that dividend is going to be very small. It's going to be like somewhere in the neighborhood of$10 to$20 annually per American.

16:23Now, that is under a normal scenario. When these schemes are being talked about, usually we're not thinking about a normal 10 % return. We're thinking about a scenario where these companies' valuations soar basically to the moon. You can think of scenarios where the valuations actually increase by 20-fold or something of that nature. Even in those scenarios, over 10 years or so, the annual dividend that would be paid to every American would still be a couple of hundred dollars. So still really not enough money to protect against the worst case scenarios of some massive jobs apocalypse.

17:00Rosie Blau:And wouldn't it put governments on the line if something goes wrong with a company, but also raise the barriers to entry of another company getting involved in AI? The most obvious risk is regulatory capture. The government is both the regulator and if they also owned equity, they would be a shareholder. This obviously creates a conflict of interest. You're not going to want to impose some sort of safety regulation on a company that you are the owner of if it might threaten the profits of this company. Another risk is that it does act as a sort of implicit subsidy, especially in the scenario of where you are picking a couple of AI companies to invest in, you are picking winners and you are hoping that these companies do very well.