The Iran “Deal” Isn’t What It Seems

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2:16Welcome to Prof G Markets. I'm Ed Elson. It is June 16th. Let's check in on yesterday's market vitals. The major indices rallied on news that the US and Iran have an agreement. More on that in a second. The Dow hit a fresh high. Brent crude fell below$80 on hopes that the straight will finally and truly reopen. Meanwhile, Treasury yields and the dollar fell. SpaceX shares soared 20 % in their first full day of trading, and Fox tumbled 15 % after announcing its acquisition of Roku for$22 billion. Okay, what else is happening? The US and Iran have reached a deal again. After 107 days of war, the two sides agree to a memorandum of understanding.

3:08It includes a 60-day ceasefire, the reopening of the Strait of Hormuz, and a halt to fighting in Lebanon. A formal signing is set to take place on Friday in Geneva, but the big negotiations, like Iran's nuclear program, sanctions relief, and frozen assets, are all deferred to the next two months. Meanwhile, Israel says it is not bound by the deal and its forces will stay in Lebanon indefinitely. Still, Brent Crude fell more than 5 % on the news of the pending peace deal. Here to help us unpack what this deal actually means, we're speaking with Kareem Sajipour, Senior Fellow at the Carnegie Endowment for International Peace.

3:49Kareem, thank you so much for joining us on the show today. This is really important news. I think the place I'd like to start is a place of skepticism. And that is we've had deals with Iran before. Trump said we had a ceasefire back in April. Then he said we had a framework of a ceasefire. He said that the deal was in its final stages in May. He said it was all largely negotiated. We've had plenty of false alarms. And so the question on this news is, is this also a false alarm or is this different? I'm not going to try to disabuse you of your skepticism, Ed, because I share it. I think there's a couple of big questions.

4:31Number one is whether indeed we do have a memorandum of understanding. At the moment, you could call it a memorandum of misunderstanding because the U.S. version of this MOU is very different than the Iranian version of this MOU in terms of What kinds of economic relief are going to be provided? What are Iran's nuclear commitments going to be? The future of the Straits of Hormuz? Virtually every single major issue appears at the moment unresolved. So that's one of the big questions. The second is, if indeed the two sides can agree on a common memorandum of understanding, what happens next? The most difficult questions have been deferred for future negotiations.

5:17The two sides have given themselves 60 days to resolve those issues of tension, like most notably the nuclear issue. But there's very little chance that those issues are going to be resolved over 60 days. So bottom line for me, this isn't a resolution of the U.S.-Iran conflict. We may have temporarily paused a hot war and gone back to a cold war. But unfortunately, these two sides are going to remain adversaries. We haven't resolved the U.S.-Iran conflict. And in fact, as President Trump alluded to today, there's even a possibility we could go back to conflict if he doesn't see any flexibility from Iran on the nuclear file.

6:01It's really fascinating that you say that. But the first thing I was going to mention was that disagreement over these reconstruction costs, because Iran says that the U.S. is going to pay$300 billion in reconstruction costs, that they were going to release$24 billion in frozen assets. And then J.D. Vance goes and denies those claims. So memorandum of misunderstanding sounds accurate to me. And I guess the question then becomes, what actually is this deal? like we we don't we don't know yet because they've said it's happened and and to be fair to trump iran has said they're going to sign it on friday but i guess my question is like what actually is it what are we even agreeing to well phase one of this deal is supposed to essentially be a lifting of the mutual blockade in the straits of hormones so over the last almost four months, Iran has been strangling the global economy, trying to spike the price of oil with their blockade of the Straits of Hormuz.

7:05Simultaneously, the U.S. has been strangling Iran's economy with the naval blockade. And Iran has suffered as a result of that. It's losing as much as$450 million daily. It can't get its oil exports out of the country. So even though you hear a lot of bluster and bravado from the Iranian side, it's an economy which is has been decimated, even more decimated than it was before the war. So what phase A of this deal is meant to be is to lift that blockade. And virtually the entire world wants to see the blockade of the Strait of Hormuz lifted, with one exception, perhaps, which is Vladimir Putin's Russia, who has really experienced the cash windfall over the last several months.

7:50But then, as we talked about, the blockade is meant to facilitate a nuclear deal. And it actually could serve to do the opposite, because once Iran gets some economic relief as a result of this lifting of the blockade, it may actually feel less inclined to make nuclear compromises. And likewise, President Trump may feel, I can actually go back to war now that oil prices have dropped. This is exactly where my mind is going. despite that oil prices did fall 5%. So clearly, traders and investors are more optimistic about the notion that the strait will be unblocked. I guess my question to you, do you think it will be opened up?

8:35And if so, to what extent? For how long? I mean, how optimistic are you when it comes to the strait of Hormuz specifically, which is the thing that impacts Americans the most in the form of inflation? The Iranian regime has been saying consistently that the Straits of Hormuz will not go back to status quo ante to be what it was before the war, which was an international waterway. They want to figure out a way to establish a fixed revenue stream over the straits, whether that is tolling. Perhaps that's too ambitious for them to toll individual ships, but perhaps some type of an administrative fee over the strait.

9:21That's what they've been talking about. I haven't seen any statements from senior Iranian officials saying they're going to go back to status quo ante. The other way in which they want to use the strait is as a deterrent to essentially have this sort of Damocles hanging over it to send a signal to America, Israel, and others that if we're attacked again, we're going to take this strait hostage. And we've done it once. We can do it again, and we can wreck the global economy. So it's my view that it is a major U.S. priority, and it's obviously an enormous priority for our partners in the Persian Gulf to have this trade be an international waterway.

10:01But I don't take it for granted that Iran is going to accept that. Do you think it would be an overstatement to say that Iran is strengthened coming out of this? I mean, of course, their economy has been damaged. Many of their military leaders have been taken out. But it sounds as though they now have a point of leverage that they have realized in a very big way that they perhaps didn't know they had before. And it sounds like potentially this could mean higher oil prices forever, or at least a suppression on demand that lasts for the foreseeable future. Do you think that they are coming out of this feeling, I guess, strengthened or optimistic?

10:44I think psychologically, they certainly feel that they have been strengthened. It's been a major psychological boost for this regime that they were able to defy the greatest military power in the world, the greatest military power in the Middle East, Israel, and the United States, and survive. For them, the bar was set pretty low. They didn't need to thrive. They just needed to survive, and they achieved that. At the same time, it is a country. It's a deeply unpopular theocracy ruling over a society which very broadly dislikes it. They have a decimated economy, 70 % inflation, triple-digit food inflation.

11:28So if you're looking at this from the outside, Iran isn't a country you envy. Few countries would want to beat Iran. But by virtue of the fact that, A, they've survived and they've discovered this newfound form of leverage in closing the Strait of Hormuz, I do think that they feel they've emerged from this stronger. What we know from history and from wars is that it oftentimes takes years, if not decades, to really understand the true impact of them. But certainly in the immediate term, Iran looks stronger than it did going into the war. You mentioned that you thought that this was more of a temporary pause in the hot war, that we've gone back to sort of a Cold War state.

12:13But that implies that we might return to a hot war. And this is probably the most important question in the markets right now, arguably in the world. it is the multi-trillion dollar question, which is, will we go back to fighting? And if so, for how long? I know that we can't predict the future, but if you had to make an estimate, what would your estimate be on the probability that this is resolved permanently? In my view, the probability that this is resolved permanently, I'd put it at less than 20%. If we look at the probability of a return to conflict, there's a couple, there's a few triggers at least.

13:01One is that in negotiating phase two of this deal, which is to get Iran's highly enriched uranium out of the country and to get Iran to cease its enrichment of uranium, two big priorities for President Trump, that the regime shows no flexibility. In that case, he may feel, he being President Trump, may feel obliged to return to conflict. And remember, this is a president who on two occasions, in the middle of negotiations with Iran, launched military strikes on them. Last June's 12-day war and then this year's war. So I think the Iranian regime certainly feels that President Trump is capable of returning to war.

13:46Another potential trigger could come from the back-and-forth missile and rocket volleys between Israel and Lebanese Hezbollah. If Hezbollah continues its attack on Israel or Israel continues its retaliations, at some point Iran may get in and launch attacks again on Israel. Israel may respond inside Iranian territory, and that could again trigger another attack. I should say there's one additional trigger, but I don't think it's a near-term trigger. And that is if we have any intelligence that Iran is making a mad dash for a nuclear weapon, I think that would like to trigger military action. But I don't think that's an immediate-term possibility.

14:29Just before we wrap up here, what do you expect the messaging will be from Trump? I mean, part of me is trying to understand why he appears to be trying to pull out of this, or at least say that we have a deal. I assume that it's related to inflation and the fact that his approval ratings are just tanking right now. But do you think that this is enough for him to go out there and claim victory? Do you think that that will be the strategy going forward? It already is his strategy. I saw his statement today in a press conference with President Macron in which he's declared victory. And his benchmark, his public benchmark for success is to say that this was better than Obama's 2015 nuclear deal.

15:16And if you compare the two objectively, in the 2015 deal, there was no war that was launched. So already this conflict has cost American taxpayers perhaps more than$100 billion. Second, in Obama's nuclear deal in 2015, the United States handed over about$1.7 billion in economic relief to Iran, which is why President Trump called that the worst deal in history. But what is being talked about now is to provide Iran perhaps tens of billions of dollars in economic relief. And then finally, the actual terms of the agreement between President Trump's potential deal and Obama's deal in 2015 are not that dramatically different.

16:05So in essence, it's, you know, will President Trump's potential deal vindicate the cost of this war? And in my view, the answer to that is almost unequivocally no. The other concurrent approach he may take is to essentially transition accountability for this deal to Vice President Vance. I saw it was Vice President Vance this morning who was trying to sell the deal. And, you know, last thing I'll say before we part, Ed, is that what's interesting, if you look at the 47-year U.S.-Iran conflict, Iran has played a major role in essentially sabotaging American presidencies since 1979. They ended Jimmy Carter's presidency with a hostage crisis.

16:51They tainted Ronald Reagan's presidency with Iran-Contra. And then, you know, after that, you can count one by one George Bush's efforts to bring democracy to Iraq or sabotage by Iran. The Iran nuclear deal consumed the latter part of Obama's presidency. October 7th, the Hamas attacks, Hamas being an Iranian proxy, consumed Biden's presidency. So this is another example of Iran consuming an American presidency and perhaps sabotaging the presidential campaign of J.D. Vance. Blame it on Vance. That's the new strategy. Kareem Sajipour is senior fellow at the Carnegie Endowment for International Peace.

17:34Kareem, we really appreciate your time. Thank you. Thank you. My pleasure. After the break, the White House anthropic feud returns. And for even more markets insights, you can subscribe to my weekly newsletter, Simply Put, at simplyput.profgmedia.com.

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21:05We're back with Prof G Markets. The feud between Anthropic and the White House has escalated yet again. Last week, Anthropic released its powerful Mythos 5 model to a small group of cyber defenders. It also rolled out Fable 5, a more secure version of Mythos, to the general public. But on Friday, the Department of Commerce imposed export controls on both of those models, restricting access for foreign nationals. Because the ban also applies to foreign nationals inside the US, Anthropic decided to pull the models offline altogether. Anthropic disagreed publicly with the administration's decision, warning that restrictions like this could freeze AI development across the industry.

21:52Here to discuss the latest in this saga between Anthropic and the White House, We're speaking with Reid Albigotti, tech editor at Samo4. He's the one who broke news on this story. Reid, thank you for joining us on Prof G Markets. There's a lot of drama going on here between Anthropic and why there were these export controls and what was the actual reasoning and what was going on in the White House and the administration. Could you just give us sort of this simplified version of what actually happened here, the sequence of events leading to Anthropic pulling these models offline. The simplified version, I think, is that Anthropic did a great job of marketing this model, that Mythos model, back in April when they announced it.

22:37And they said, this thing is a danger to the world because it is so good at finding software vulnerabilities and bugs that hackers will be able to use this thing. I mean, I was in DC in April right after they announced it. I mean, people were genuinely scared. And I think when the White House started to get reports from companies like Amazon, which is a big investor in Anthropic, an important partner, saying people have been able to jailbreak Fable 5, I think it actually scared them. And then I think Anthropic saying, you know, we don't think these jailbreaks are that serious, not responding with enough urgency.

23:15you know it just led to I think this kind of cascading series of events that led to the the export control and it didn't help that they have just had one conflict after another with the White House for the past year which I've I've been covering I've been writing about this a lot it's really interesting that as you mentioned Amazon goes to the White House and says there's a problem over at Anthropic they say that this model has a security issue it can be jail broken into is the term that is used, which looks a lot like Amazon is, I don't know, trying to screw over Anthropik in some way, saying, hey, you guys, you need to go figure this out.

23:56But as you point out, they're also a major investor in Anthropik. So maybe it's coming from a genuine place. What do you think? Was that a sabotage move or something else? No, I don't think this is a sabotage move. But there were lots of companies. It wasn't just to Amazon. And actually, I think there was, from what I hear, it was kind of outgoing, like the White House, they were going out to people. Obviously, Amazon is an important vendor for the US government. So whatever is happening on AWS is going to be important for the government. So I think this is, again, if you remember, Amazon was a little bit like in the middle of the Pentagon anthropic clash as well.

24:39They just find themselves in the middle of this thing. And And it's what's so strange about this whole situation. It just creates a very convoluted network of friends and foes and frenemies. And I mean, it's fascinating and confusing. On the one hand, I kind of understand the White House's argument, which is Anthropic is saying how dangerous their model is. People tell the White House, hey, there might be an issue in the security here. The White House then says, you need to go fix it. to which Anthropic says, it's not a big deal. And then the White House goes, well, three months ago, you told us this all was a big deal and that we should be figuring this out.

25:19And now you're saying, it's fine, don't worry about it. At the same time, though, I was suddenly made skeptical of the administration, the White House's motives, when I saw a tweet that was posted by Pete Hegseth, Secretary of War. He said, quote, three months ago, the Department of War kicked Anthropic out of our building forever. every passing day proves why that was the right move. So I read that and now I'm thinking maybe they're targeting Anthropic because they've decided we don't like them, we're gonna go after them. Do you have a view on who might be in the right or the wrong? I wouldn't read too much into the Hague South tweet.

25:57I mean, look, it doesn't help for sure. It doesn't help that Anthropic has been on the other side of the White House when it comes to state preemption of AI regulation laws, Because, you know, certainly the Pentagon fight, I think there's a lot of distrust that is built up between these two groups of people. And that needs to be fixed, especially if you're anthropic and you're trying to go public soon. I mean, they need the government for lots of different reasons. But I don't think this is like, oh, we're going to get back an anthropic. I mean, this can't be a policy, right? Because what it says is like any AI company that builds something, there's now like a benchmark.

26:39If it's more powerful than Mythos, then, you know, we need to shut this down. If there are jailbreaks, et cetera, there are always going to be jailbreaks. Like that is just the nature of these things. So you're basically shutting down progress on advanced, you know, frontier AI models, which cannot be the policy of this White House. So, no, I mean, I don't think they're sitting there going, like, let's wait for an opportunity to, like, snipe Anthropic. This is, you know, this is clearly like a one-off situation. And it has to get worked out, too. What do you make of the fact that Anthropic said, we don't think that there is a security risk here?

27:17Because on the one hand, you might say, well, figure it out and explain to us exactly why. But on the other hand, you might say Anthropic knows best. They know their technology. They probably understand cybersecurity better than the White House does, would be my guess when it comes to AI and their model specifically. I mean, why didn't that cut it for this administration? I think Anthropic is actually correct. Like, I don't think that it doesn't sound based on everything that I've heard and read. It doesn't sound like these jailbreaks were going to be some massive security threat on their own.

27:58I think, though, they, you know, this thing has been sort of overblown from the beginning. I don't think, you know, these new models are going to come out and the world is going to have to adjust to them. Like, we're going to have to figure out how to deal with cybersecurity in the age of AI writ large. But I don't think one new model coming out shifts the threat landscape so dramatically that we need to take these rash steps. But if you go back to what Anthropics said, I also can understand why people who are not in technology, who are not cybersecurity experts would go, wait a minute, like, I'm thinking of the worst case scenario here where all of a sudden cyber threats just bring our economy to its knees.