The Bipolar Economy: Trump, Oil & the End of Balance with Carole Nakhle

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1:53David McWilliams: the price of oil, what is happening in Iran, what is happening in Venezuela, what that means for the world economy, what it means for your pocket. That's all with the brilliant oil expert, Carol Natale. That's all coming up in a couple of minutes. Just before we start, this is week two of the new Monetary Economics course that is available to you for free if you are one of our valued Patreons. It's going to be about money as a social technology. We're going to push further into the idea that money is a social technology that allows strangers to collaborate at scale. We're going to look at money as a kind of a language, something we all believe in, and what happens when that belief breaks down.

2:35David McWilliams: And we're going to take you from ancient civilizations right up to cryptocurrency and explore why destroying money wrecks trust, psychology and society itself. That's all on this week's week two of the Monetary Economics course and you can get it for free on Patreon or if you'd like to join us it's patreon.com forward slash David McWilliams. Sign up and learn economics together. To understand the economy you have to understand human nature. This podcast is powered by Acast. How you doing there? It is podcast time and this podcast is going to be characterized by a discussion, John, about balance, imbalance, polarity, bipolarism, the world out of balance, a world out of sorts.

3:30David McWilliams: we're going to go to talk to Carol Nackley about the oil market, about Venezuela, but also about Iran and what the political instability in these countries means for oil, price of oil, the global economy. But we're also going to start, John, discussing is the world in balance before we go out of balance? Well, I think we can agree straight away that the world is out of balance. I mean, since January 1st, since New Year's Eve, New Year's Day, I have been on edge with... The anxiety. The anxiety. By the way, dear listener, you should see the head in the mirror. He is bipolar. He's got a man of extreme mood swings.

4:14David McWilliams: He's basically vacillated between euphoria and depression as I look at him. Well, I was desperately looking for a bit of good news in all of this craziness of Venezuela and Iran and Greenland. and so I was looking for just one bit of good news and I found it. Where did you find it, Charles? I found it in the ozone layer. Okay. Did you know... You're the only man I know who goes looking for the ozone layer. Did you know that the ozone layer... Remember the ozone layer was a big issue back in the 80s and 90s? Yeah, I do. That CFCs were eating up the ozone layer and, you know, the sun's... Any of that spray on deodorant.

4:53David McWilliams: Lynx. Lynx, yeah. Lynx was the actual killer of the environment. Yes, I remember that. All those teenagers. Yeah, yeah, yeah. But the ozone hole is the smallest it has been. Evie, you can get into it. Well, I don't know about that now. In something like 10 years, which means basically that it's on its way, it's on track to full recovery, which is brilliant. That's brilliant news. So is this the Gaia theory of the environment? that the world is this big sort of self-recovering entity. And I think it was Lovelock, wasn't it? Lovelock, yeah. Yeah, James Lovelock. James Lovelock, yeah. He died at about 100 years old last year.

5:35He was living here, I think, in Ireland, I think, for a while. Was he? I think so, yeah.

5:40David McWilliams: But one of his ideas is that this is this extraordinary regenerative organism. Yeah. So therefore... That balances itself. That balances itself out and compensates and then overcompensates. Yeah, yeah. That's right. So the ozone, well, that's... That's great. So that's the only thing I have for you. So if you're in the car or if you're going to work and if you're listening to this or if you're in the gym, you know, take heart. The ozone layer. John's hole is smaller than it used to be. That's pretty much it. That's pretty much it. Okay. Anyway, enough of that. Carry on. Well, actually, that is good news.

6:16David McWilliams: Yeah, it is. It is. That is good news. The rest is going to shit. Well, speaking of the ozone layer, I had a very typical Aussie quip the time I was in Australia a couple of months ago. I went out in Melbourne on a boat trip on the Yarra River. And it was incredibly overcast. And I decided to go on and I forgot. I think I told you to put on some sun. So there I have on this boat trip. Realizing, of course, every bit of sun is reflected off the water. You're sitting at the back thinking this is lovely. and I surfing on your Cosmos or whatever it is I had to do a speech that night in a and I looked like I had actually been radiated yes I looked like the top of Chernobyl when it was blasted off and then this Aussie just quick to guess yeah well you know we've now housing here mate I was like oh thanks anyway bipolarism John yes balance so extreme mood swings like you and the ozone layer, right?

7:22David McWilliams: You go from depression to euphoria. It's called bipolarism. And it's incredibly difficult to live with. And it's incredibly difficult to live with if you have it. And it's incredibly difficult to live with if you are living with somebody bipolar. So I want to talk about a bipolar economy because one of the allegations that has been thrown at the American administration is that it kind of has this euphoric depression sort of way because either it's absolutely full-on, throw something or it's absolutely depressed about something so the idea is how do you live with that it depends i suppose on where you are in america as well yeah exactly but i mean the general or where you are in the world given given yes yeah but the the idea is that you know that it's much easier to live in an economy that is balanced with a president that is balanced with financial market that is balanced it's much easier to forecast things it's much easier easier to discount things.

8:19David McWilliams: And if you look... Is it as much fun though? Not half as much fun. Not half as much fun, John. Not half as much fun. But it's that idea that you were talking about the other day, people should seek out kind of contentment and serenity and not this aggressive need for achievement and our aggressive need for changing things. Yeah. But if you look at the... Before we go and talk about Iran and Venezuela, I want to talk to you about... the state of play of the American economy right now. And I'm going to borrow from a newsletter I read every week by a guy called John Maldon, which is the Maldon newsletter.

9:00David McWilliams: It's very, very good. And he always cites, he regularly cites a really good Canadian economist called David Rosenberg, known as Rosie to his mates, who has been one of the most acute observers of the American economy, the North American economy, over the last 20-odd years. He's based in Toronto. And what they're saying is that we have to look at the economy and see what is going on in the sense that when you hear GDP figures, right? Yeah. What it does is it masks a multitude of sins because it just gives you an aggregate figure. So you hear the growth rate or the rate of unemployment or the rate of inflation.

9:41David McWilliams: and in the last few years many economists have been starting to say well your rate of inflation isn't my rate of inflation so for example if you are young and you are paying rent then your rate of inflation is profoundly more than the rate of inflation that I am faced as somebody with a mortgage if you are going out and spending in restaurants and bars your rate of inflation is very very different to somebody who isn't going out if you are over dependent if you're old and you're over dependent for example on energy because you need to heat the house around yeah your rate of inflation is very very different to a young person so this idea that the aggregate data which economics politics and politicians base their worldview on actually hides an extraordinary disparate experience underneath the hood so that's always been the case that's always been understand why are people so angry about this why are people so angry about that you know the thing is because at the extremes people's day-to-day experience is very very different so if you look at the american economy what you see is you know you can see and the american financial markets people say oh the market is up the economy is doing well now when you look at the data what you see is certain bits are doing well yeah certain bits are not yeah so if you actually take a snapshot of the American economy, what you see is that regionally, geographically, demographically, certain things are going well.

11:16But for other people, things are going disastrously,

11:20David McWilliams: which may explain this sort of bipolar nature of the economy unbalanced. So just to give you an idea, right? In the stock market, for example, people say, oh, the stock market's going up, right? But the S &P 500 is called the S &P 500 because there are 500 companies in it. Okay, Let's remind us of that, right? The top 10 stocks, so excluding the other 490 stocks, top 10 stocks represent 40 % of the entire market cap. Yeah. So unless you're in those sectors, which are the tech sectors, in actual fact, the stock market isn't going so well. Yeah. Right? Whether you're in the company or whether you're investing or whether you're employed by those people or whether you're actually supplying the other 490 companies, things are not going well.

12:04David McWilliams: And of course, what you think is most people live in the world. You're supplying some company. You're giving them services. You're giving them goods, intermediary goods. You're buying stuff from them. You're working from them. So if you're in the 490 companies that constitute 60 % of the market and not the 10 companies that constitute 40%, first of all, your American experience is completely different, right? Take, for example, real wage growth. Real wage growth is 3.5 % in S &P companies. So wages across America. But earnings growth in those companies, profits in those companies, are 23%. Right.

12:45David McWilliams: So that means that if you're depending on wages for your income, your income is going up at 3.5%. If you're depending on profits or rents or dividends or capital appreciation for your income, that's rising 23%. So suddenly you can understand how inequality is rising dramatically, right? Yeah, yeah. Because most people are just, you know, P-A-Y-E workers. Workers paying income tax, right? So again, this is in America, real consumer spending is up 2.6%. So consumer spending is up, but real disposable income is up 1.5%. So the difference between what people are spending and what they're earning is borrowing.

13:26David McWilliams: So what you can see is that people are actually borrowing to maintain their standard of living. Again, this is the bipolar nature. What you're experiencing, the aggregate, and what you're actually experiencing are quite different. Sorry, and is most of that borrowing, is that credit card borrowing or is it kind of bigger? Credit card borrowing. You know, that's the paycheck to paycheck. You know, there's payment loans, all this. So give you a snapshot of what's happening in America before we talk about Venezuela and Iran and all those other things. Because they're really interesting for news junkies like ourselves.

13:58David McWilliams: Yeah. But your average person isn't waking up in the morning thinking about Maduro. They're not waking up in the morning thinking about the Ayatollah Khamenei, right? They're thinking about, okay, what's Friday going to look like? Yeah. What's Friday week? What's the end of the month going to look like? Will I have any money at the end of the month? Yeah. What was Martinelli doing the other day? Well, he had a go at Conor Bradley. Even I know this, John. Even I know this. Not only do I know it, but I have an opinion on Conor Bradley. Let's keep going. But I will keep it for the pub. I'll keep it for the pub, right?

14:32Okay, but look, again, so if you think AI-related spending in America

14:38David McWilliams: is up 11 % year on year. So if you're in anything to do with AI, The investment in your company and in used individual is going up dramatically, 11%. But the rest of capital spending in America is down by 4.4%. So all investment is going into AI. And if you're in any other sector, there's no investment happening. In fact, investment is falling. Right. So again, the aggregate figures masks what's going on. Take full employment, right? employment rates are up 0.6 % on a year-on-year basis. Right. Guessing jobs. But part-time employment is up 6%. So employment is hardly budged, but part-time employment is huge.

15:26David McWilliams: So what that tells you is Americans are taking on part-time jobs at a massive rate just to pay their rent. So these are like second jobs. Second jobs. Second jobs, part-time jobs, right? You know, which is kind of extraordinary. And then if you look deeper at unemployment rates, unemployment rate for those 25 years and older is now 3.7%, very, very low, right? But unemployment rate for the 20 to 24-year-olds is 8.5%, which is incredibly high. So what you're seeing again is young people, and this has gone up. So you're seeing young people who used to be, for example, getting those part-time jobs are not getting them.

16:07David McWilliams: Why are they not getting them? because older people are taking them. Why are they taking them? Because the difference between personal consumption and income is rising. So they have to actually keep running to stand still, you know? So there's a thing called the K-shaped recovery. I don't know if you've heard this. So the K-shaped... Explain this, yeah. So basically a K-shaped is if you look at the K, right? One line going up, one line going down. A K, right? And if you were to imagine that the K-shaped recovery is at 50 ,000, starts at$50 ,000 per annum. So people earning above$50 ,000, their incomes are going up.

16:43David McWilliams: People earning below$50 ,000, their incomes are going down. So the rate of increase in wages, people in higher jobs are going upwards, like the upward slope of a K. Right. And the rate of increase in wages, people in lower jobs are going down. So is this the difference between management and director level compared to... Yeah, exactly. Your average worker. Your average worker. So, for example, for those earning 100 ,000 and upwards in the United States, their income is going up at 3.2%. For those earning less than 50 grand, right? Yeah. So half of those, their income is going up at 2%. So the rate of increase at the lower levels is slower than the rate of increase at the higher levels.

17:29David McWilliams: Right. And that, of course, is driving inequality all the time. Okay. And that all feeds into the part-time jobs and all this sort of stuff, right? But this narrative that's been spun by the Trump administration is, apart from getting rid of the jobs person, the jobs info person, what was her name? The head of statistics, the Labor, Department of Labor. Yeah, so that information is now compromised. Well, A, it's compromised, but B, we're still getting good data from America. The interesting thing is that America still, I know it's going through this weird period, but it still has the best data in the world.

18:08David McWilliams: It still has the deepest data. I love all this stuff. Yeah, yeah, yeah. This is my world. Nerds. It's the stats. Like, if you don't have good stats, you don't go to anything. But I'll give you another thing, right? Consumer sentiment is at its seventh worst level on record. Yet, yet, the equity market sentiment is at a 12-month high. So what does that say? It says your average Joe is actually feeling the pinch. And his or her consumer sentiment, which is basically, how do you feel about the economy? How do you feel about your job? That is all at a 12-year low. But equity markets, i.e. people who invest in the stock market, that is at a 12-month high, right?

18:52David McWilliams: So what you're seeing is people who, again, who are getting their income from stocks or rents or property or assets. are doing great. So let me just understand this. So this K-shape economy, that it's the ones on the upward sloping line are the ones who are... Who are already rich. Yeah, who are already rich. And they're the ones who are investing in the equity market. And they are having, exactly, they are having their wealth increases reinforced by the equity market rise. So they're feeling really wealthy. So then the guys on the lower slope or the downward sloping line, they're the ones who are feeling the pinch but they're the ones who are going to make all the difference next November in the midterms exactly so this is where the politics of this and then you take all of that unbalancing you're right and then you have the one big figure about unbalancing is balancing the books whether or not the American economy society is paying its own way and what you see is for the seventh straight year, seventh the US fiscal deficit budget deficits as a percentage of GDP is coming in 5 % or higher.

20:03David McWilliams: Now, this is extraordinary. It means that the Americans have been running a deficit, that GDP ratio, deficit to GDP. So every single year they are spending 5 % and borrowing more than they're earning, right? Sorry, hang on a sec, Mike. I always thought that that was measured in like 105%. Okay, so that's the difference. The balance being the 100 % between ins and outs. So that's the difference between what you're thinking is, when you hear about the debt GDP ratio of 100%, that is the overall debt of the economy expressed as a percentage of the overall income of the economy. Right, okay. This is the deficit, right?

20:45David McWilliams: So the deficit is the amount of money they are spending every year. So the overall debt is all your accumulated debt. So it's all your debts you've accumulated over 100 years, right? So the debt-to-GDP ratio in the United States is over 100%. So what you're thinking, okay, is there accumulated debts that they are over 100 % of all the income? Wow, that's not good. But they are adding to this at a rate of 5 % per year. Gotcha, gotcha. So very, very quickly, you will be in a position where your debt-GDP ratio will be 150%, 180%, etc. So what I'm saying is all these imbalances in the economy at the ground level are also reflective of this extraordinary imbalance at the very, very highest level.

21:37David McWilliams: Now, that is the economy of which the Trump administration has decided that it is the biggest guy in town. Yeah. That it can do whatever it wants, with whoever it wants, send its army into wherever they want. Yeah. All bolstered by this sense at Mar-a-Lago that they are invincible. But actually, what you see is these discrepancies, which are under the hood, as the Americans would say, suggest a society, a population, and a polity, to use that sort of rather wanky academic word, which is very unbalanced. And that, I think, is something that I want listeners to appreciate before we get into what is happening in Venezuela, what is happening in Iran, and how that's going to affect the oil market.

22:32David McWilliams: And why is the oil market important? Because energy is the font of economic growth. But we forget when we're talking about AI and we're talking about technology and whatever, that actually the nuts and bolts of capitalism run on the price of combustion engines, right? I know it sounds very, very Keynesian, but it's still true. Trump said that himself there quite recently, that, you know, it's the price of energy and from energy, the price of energy, everything else is priced. So that's why talking about the oil price, which we're going to do now in a sec, is crucial. But I want people to see that Trump is right in this regard.

23:15That when humans started burning fossil fuels in order to create the combustion energy to drive the industrial revolution, that is when the economy took off.

23:30David McWilliams: That is when the economy began to look, feel, smell like it does now. That is why where you see extraordinary growth in economics, you see, back to your ozone layer, environmental catastrophe. Because in effect, we haven't gone so far from burning shit. Yeah, yeah, yeah. And at the core of burning shit is oil and the energy market. And that is why, so I know that people are getting up their high horse on geo-economics and geo-strategy and the world changing. It's all important and it's interesting. But what I want to talk to our next guest, who is the wonderful Carol Nackley, is about actually what is going on in the energy market.

24:19David McWilliams: Why? Because the price of oil sets the price of everything. So let's now go to one of the world's finest oil analysts, Carol Nackley, who is the chief executive of Crystal Energy in London, but she's originally Lebanese and is plugged into not just the oil market, but the geoeconomics of the Middle East. So let's go and talk to Carol. Carol, how are you? Lovely to see you and Happy New Year. Happy New Year to you too, David. Thank you very much for this glowing introduction. You asked me how my year is getting. I think I didn't have a rest. I was hoping for a very calm start of the year. And then boom, that Venezuela thing happened.

25:07And it's been crazy. But so far, you know, I can't complain, though it leaves us all wondering what's going to happen next and who's going to be next.

25:17David McWilliams: Who's going to be next? So tell me, okay, Carol, let's just stand right back, okay? Now, we can talk about Trump, we can talk about the intervention, etc. But explain to me right now in the oil market, how much is the price of a barrel in general, in general terms? Is there a glut? Is there a dearth? Where are we starting from? And then we can project forward as to what happens. Absolutely. And that's a good place to start from. So if you look at the oil price today, we just began the year. So let's take last year as the closest benchmark. We saw oil prices compared to previous years very low compared, for example, to what we saw in 2022 or even subsequently 2023.

26:02So 2025 was not a good year for oil producers in general because they were trading around the$60 a barrel range or a bit 65. So in that relatively low range, now I say low with hesitation because for many people will say, oh, this is not low. Well, I say it is low given the geopolitical tensions that we saw, the developments in the Middle East, the sanctions on Russia, the sanctions on Venezuela, on Iran. So despite all this drama on the geopolitical front that affects key producers in the world, oil prices to be around$60 a barrel, that is pretty low. And we're starting the year with almost a similar picture.

26:45We saw slight movement in oil prices so far, but that is nothing significant to tell us that the market is changing. So far for this year, everybody seems to be, at least the majority seem to be expecting a surplus in the market, which means more supply than demand. And that by itself is going to keep a lid on prices for the foreseeable future this year.

27:09David McWilliams: Okay, so we're talking about an oil price which is relatively stable, but a little bit more supply than there is demand. I think demand is about 100 million barrels a day, so maybe the supply is a wee bit more than that. Now explain to me what the Venezuelan shock, but also just as you digested Venezuela, you have Iran in serious turmoil. These are two of the founding members of OPEC. Explain to me and to the listener the consequence, the significance of the Trump move in Venezuela. Let me start to dissect what you asked, because that is a big, big topic, and we can spend hours and days analyzing it.

27:51But let me take it step by step and try to capture at least the main issues that we are addressing to understand the implications of what's going on in Venezuela and Iran and their impact on OPEC and on global oil market and prices. So let me start with the short-term picture, the immediate picture in Venezuela. What has changed? The president was removed. Nothing else has changed, right? So there is a term oil, but in terms of supplies, in terms of production, in terms of exports, nothing has changed in Venezuela. The sanctions are still in place. There are plans for removing some of those sanctions, opening some sanctions relief, and then for American companies to come back to Venezuela or Chevrolet, which is the only American company there to expand its production.

28:37But none of that has happened. So in that respect, we see that the market did not react much to what's going on in Venezuela. I think the market seemed to be more nervous about what's happening in Iran at the moment because Iran is a much bigger producer than Venezuela, though it is still under sanction but still exporting relatively bigger volumes than Venezuela. And nobody knows how this situation will unfold. It will affect other supplies coming out of the region from the Straits of Hormuz, which is a very important trade rule for oil globally. And also there is still the ongoing war in Ukraine.

29:12But taking a longer term perspective, things can change drastically depending on the time frame. So if everything according to Mr. Trump's plan, everything is going to be great. The American companies will come back to Venezuela and they are going to invest billions of dollars in rehabilitating the industry. The sanctions are going to be lifted. Yes, we should expect more oil coming out of Venezuela, as we saw with Iraq. So Iraq, after the second Gulf War, which ended up in the removal of Saddam Hussein, opened its oil for international companies in 2009. They had their first licensing round. And many companies, big players, they signed deals with the government of Iraq.

29:57And then we saw how Iraq was able to increase its production quite significantly. But that did not happen in a year or two. It took several years for all those barrels to come to the market, and Iraq actually managed to exceed the peak that it hit probably in the 70s and the 80s. So the story of Iraq is one that is quite impressive. And the same could happen in Venezuela. Now, the problem in Venezuela is that it's not just about who is investing there. Even if companies come back today big time to Venezuela, you have to ask, what kind of contracts are they going to sign with the government? because are they going to sign the same contracts that were all and they were so adverse to investors?

30:41I doubt it. I don't think the problem is below ground. It's above ground. The political risk is very high. You're talking about a country that nationalized the assets of international companies twice. You're talking about a country with aging infrastructure, with a completely institutional framework that allows a healthy investment. And on top of that, you're talking about a global market dynamic where oil prices are not booming, as was the case with Iraq, for example, in 2009, 2010, 2011. So it's a completely different time. I'd see a few hundred thousand barrels coming out of Venezuela maybe rather rapidly.

31:19But as you try to expand the production further, it will take longer time. Now, let me move on to the second part of your question on Iran. For me, Iran is a very big wild card. We have not focused too much on Iran because we have been distracted by what's going on in Venezuela. But what is happening in Iran today is quite substantial. Is it going to lead to some structural changes in the regime of the country, a regime that has been there since the 70s, quite repressive regime? I don't know. I'm watching the situation quite closely. But if anything, you know, if the situation escalates, if the Americans intervene, if the Iranians respond by disrupting supplies one way or another, even if it's short-lived, then we might see a more direct impact on oil markets where the geopolitical risk premium is already elevated.

32:08Now, in terms of OPEC, this is really where it gets interesting, because I barely heard people talking about what could happen between Venezuela and Iran and OPEC. But let me leave Iran on the side and go back to Venezuela. I can see two scenarios here if things go according to the American plans. Either a Venezuela that gets under the American pressure to leave OPEC, even though it's a founding member, and it has played a very important role in shaping the organization's policy for many decades until recently when it couldn't meet its obligations, and therefore it has been exempt from production quota.

32:46Or Venezuela can still continue to be an important member within OPEC. But again, like Iraq, it's going to turn a blind eye to production obligations. So we know that Iraq has been consistently cheating on its production promises, and that by itself has diminished the influence that OPEC has on global oil markets. So OPEC has managed with one important cheater, that is Iraq. Will it manage with another important player? Two cheaters. There are others, but in terms of substantial size of production, that is going to impact the policy of OPEC. So whatever the outlook is going to be, I don't think OPEC will be in a great position with those kind of wild cards happening at the moment in the market.

33:32David McWilliams: So, Carol, I'm going to come back to Venezuela. I'm going to come back to the big question of whether or not there is a future, which I believe that Trump seems to have invested in, that the United States, the Western Hemisphere, so you take United States, Canada, and the Latin American countries together as an oil producing block, that this could be a massive counterweight to Russia, to the Arab countries, etc. So I want to come back to that kind of big geopolitical thing at the end. But I want you to put on your oil hat, put your Arabic hat, your regional hat, your Middle East hat, okay? And explain to me, when you're in conversations now with Saudis in the last couple of days, with UAE, with those big, big producers, what is keeping them awake at night?

34:17David McWilliams: And what do they see in the future? So let me distinguish between the official nine and perhaps what they are considering in the longer term. The official line is simple. I mean, if you look at the first OPEC meeting of this year, OPEC did not change its strategy in terms of how much they would be producing between now and March. They want to keep the same levels. They are not going to put more barrels in the market. But somehow in the middle of that press release, they refer to a cautious approach without highlighting what was happening in Venezuela. And I think that took everyone by surprise.

34:53At the moment, they are waiting and watching how things will evolve, because I don't think the situation in Venezuela can now be described as stable. A lot can change drastically. They are also wondering, again, putting different scenarios of what does that mean for Venezuela's membership within OPEC, and also what does that mean for oil prices, how much supply can come to the market in the longer term. So these are the things that I'm pretty confident without being in Vienna talking to the oil ministers. I'm pretty confident these are the things that any member of OPEC and outside OPEC will be considering.

35:31But I'm sure that they also recognize the challenges that investing in Venezuela and Venezuelan oil any investor will face. And already ExxonMobil said that quite openly. They said that investing in Venezuela at the moment is uninvestable to quote what their CEO said. So they are watching closely because it means a lot for the organization in the longer term. In the short term, not quite much in terms of oil impact. But to go to the important point that you described about this Western hemisphere and what it means as an entire bloc, if you want, diminishing the force of OPEC plus, assuming that countries such as Venezuela and other members will leave OPEC, then yes, that will be a major blow for the organization.

36:18I don't think it's going to dilute entirely its influence. I mean, already the Americans, they have completely changed the rules of the game with the share revolution that started in 2008. But that was easy. That was quick. That was much easier than what's happening in Venezuela. Can they be like one block separate from the rest of the world? Again, anything can happen. But I think there are lots of ifs that will come into play. That said, when I think about oil markets, oil markets are global. Oil majors have operations everywhere. Energy trade is not used to protectionism. And when protectionism happened, it was short-lived because companies signed contracts with host governments all around the world.

37:02When you produce oil, it's not just about refining it and consume it domestically. Oil enters into every single aspect of our modern society. So where do you stop that protectionism? Are you going to produce 100 % of your goods domestically? And therefore, I know there are lots of it is possible, politically speaking, but from an economic perspective, also, it's possible. I don't think it's it's rational. And I think investors will suffer from it, including state owned companies.

37:30David McWilliams: So finally, Carol, let's just focus on the Middle East. Right. for many, many people, we were aware there was some issue with, big issue with inflation, Iran, there was an issue with people, you know, feeling a bit fed up with the state, etc. But this seems to have galvanized and amplified in the last day or two. As a Lebanese citizen, as somebody who has been, who is Arabic, as somebody who's from the region, give me your sense of what you think might happened in Iran and what the implications could be. Let's say it's kind of a wild card for 2026, people hadn't got it really on their bingo card and here it is.

38:12When I was in Kilkenny two years ago, I said something that I believed in for many years, that the Iranian regime was there to resist. And it's true, it has resisted all sorts of pressure for decades. But then in the light of the developments that we saw in the last two years, including the weakening of Hezbollah, the weakening of Hamas, the removal, the swift removal of Bashar al-Assad in Syria, I felt that the rules of the game in the region have changed drastically, that actually if there is a chance for the regime in Iran to change, it is today, given what's happening in the region, given what's happening elsewhere.

38:57and the fact that people in Iran who watched what happened in Venezuela is simply, I have to say, I don't know what they are thinking, but if I were in Iran and I heard what happened in Venezuela, like somebody like Maduro, who for many looked invincible and irreplaceable, then was removed suddenly and in a very clean, quick operation. So you must feel empowered to not only express your frustration with a regime that has resulted in the economic hardship that the Iranian people, the average Iranian person, has been facing for years, and you fear that the rest of the world may be able to support you directly and indirectly today, then there are some serious cracks happening there.

39:42And we could see a significant change in Iran. What that entails, I'm not quite sure. But really, this is a time where I'm watching Iran with a completely different perspective than the one I had only a few years ago.

39:56David McWilliams: And just lastly, if Iran were to change, so Hezbollah is, as we know, an Iranian proxy in South Lebanon, which I know your people are from South Lebanon. In Syria, of course, they were very, very involved. In the Assad regime, in Iraq, they were very involved. What does the change in Iran, if it were to come, do for the entire region? What does it look like after that? Wow, that would be a seismic change. And I don't think it's going to happen smoothly. It might happen suddenly, but I don't think what happens next is going to happen in a nice, subtle way. And there are so many examples from the region and elsewhere where a sudden change in a regime that has lasted for so long, and it's deeply rooted in almost every single aspect of the economy and of the society, I think the change, we have to be realistic, it's going to take a long time.

40:55It might even turn nastier before it gets even better, and that might take a while. That said, I want to say I want to go back to something you referred to, Lebanon and Hezbollah, because for the first time in 60 years, I went to Lebanon over Christmas. And of course, when you are sitting abroad, you get a certain story, a certain image. But when you go and visit the country, you get a different fear. So when you're driving from the airport, which is predominantly quite a strong hold for Hezbollah, you don't feel that Hezbollah has been weakened. You don't feel that Hezbollah had a drastic loss in leadership.

41:31You get the impression it's still a defiant, powerful group with all the posters everywhere about the martyrs, about fighting, about muqawama, you know, the resistance. But actually, I tell you what has changed. Of course, they have been weakened. But what is more importantly, the people, the average person in the street, the Lebanese person feels more, that they used to be scared. They have become more vocal today. They kind of look at this kind of giant Hezbollah, the powerful Hezbollah, this image that was so enshrined in people's mind for many years, kind of deflated and changed. And that by itself, again, facilitate the next step in terms of a future possible without having Hezbollah as a major militia and military power in the country.

42:18It is from this lens that I can see things also changing in Iran, this kind of empowerment, this kind of a change in the perception from a giant, powerful organization or regime that cannot change to something that is actually quiet, that has some structural weakness, and it's a start to work on those weakness to change the situation.

42:39David McWilliams: Carol, Nakley, as always, thank you so much. Always a pleasure. And we'll see you in Kilkenny next November. Definitely. Inshallah, Dave. Thank you.

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45:00A lot of detail there from Carol. I mean, interesting stuff. Yeah, fascinating stuff.

45:06David McWilliams: Well, you're going from Hezbollah, you're going to Iran, you're going to the amount of oil that's produced in Venezuela, you're going to the politics of OPEC, you're also going... It's a mad industry, actually, isn't it? It's a mad industry. Well, I mean, you've got this extraordinary kind of battle between the oil, not producers, the countries where the oil sits. Yeah. Then you have what they call the seven sisters, which are the great big oil companies or were the great big oil companies. Then you have, of course, the price of oil. Then you've got tax on oil. Then, of course, you've got various iterations of energy itself.

45:45David McWilliams: It is very, very complicated. But the thing about it is, you know, just looking at the balance, as you were talking about before. What I'm trying to work out is Trump trying to upset the whole balance in the oil industry. As you're saying that, you know, they take over the Venezuelan oil. That's not just they're ready to go. That has to be drilled and the infrastructure has to be built. And it's a very heavy oil, I believe. And it's hard to get out of the ground and then to refine it. So there's going to be a huge lag of 10 years at least before any of the oil companies actually see a return. Well, I think you're absolutely right.

46:29David McWilliams: I think to get back to the idea of balance and stability, any sort of energy investment is incredibly heavily capital intensive, whether it's offshore wind, we spoke about a couple of weeks ago, or whether it's drilling oil out of either the ground or offshore oil. This requires enormous capital investment, right? Yeah. It also requires patience. So you should be very, very patient as to how much time it takes. So in order to commit to this, you need absolute legal certainty that you are going to own the stuff that you actually get out of the ground, number one. You need geopolitical certainty that it's not going to be taxed to high heaven once it comes out of the ground.

47:17David McWilliams: You also need engineering stability that, in fact, the technology you're using can be upgraded when and if you want at the right price. And lastly, you need to know whether or not there's going to be a glut or a surplus on the aggregate market because that actually fixes the oil price. Now, why this is essential is that oil is highly cyclical. So when the price of oil goes up, there's an expression in economics that the cure to high prices is high prices. Now, what that is, that means... What? What? So that means is that when the price of oil goes up, the very increase in the price of oil means that all sorts of very difficult oil rigs, which are difficult and expensive to drill, become profitable.

48:11David McWilliams: So at$100 a barrel, a whole host of redundant oil rigs become profitable. At$50 a barrel, you probably need Middle East oil, what they call light oil, which is not very deep in the ground. There, that's profitable. So the fascinating thing about Donald Trump is he wants oil at$50 a barrel. He said that. He said this is consistent with the energy price that the United States should pay in order to drive the economy. But shale oil, which is American, technologically quite expensive to drill oil, is only profitable at$70 a barrel. so by reducing the price of oil or by assuming that the price of oil will be 50 what you're actually doing is you are negating a whole potential supply now what that does to the price is very rapidly the 50 price of oil goes back up as the oil that was only profitable at 70 comes off the market.

49:22David McWilliams: So that's why you get a glut and a surplus, okay? So that's why the solution to high oil prices is high oil prices. Because... That doesn't suit Trump. That doesn't suit Trump. And this, of course, is basically, it's all to do with your worldview. Yeah. So the oil producers, Chevron, Exxon, all those big companies, they are saying to Donald Trump, look, Venezuela is uninvestable at the moment because we don't know what the future is going to look like. So we don't have that 20-year certainty, number one. They're going to say the same thing in Iran, too, because even if it's a change in regime in Iran, it's not certain what's going to come after that or how stable that's going to be.

50:02David McWilliams: It's going to take time. But more importantly, what they're saying is, look, at$50 a barrel, it might not necessarily be profitable to try and tap those Venezuelan oil reserves, which are 300 billion barrels of oil. Yeah. And also it will shaft the shale producers. And the Canadians. And the Canadians. Well, they don't care about them. But my point is that there's a whole host. But they will care about it. They will care about it. But they're the same companies, aren't they? Same companies. So the whole thing is complex. If you think about every day, 100 million barrels of oil is used in the world.

50:45the Venezuelans have 300 billion barrels of oil in reserve,

50:51David McWilliams: which is more than Saudi Arabia and Russia combined. But in order to extract that, you need certainty. You need to think, well, there's not going to be another Chavez coming in, or there's not going to be another Maduro coming in, or a Che Guevara, or there's not going to be some sort of revolution, right? Yeah. So all of that suggests that when you're sitting in Mar-a-Lago, And you say, oh, we'll take this and we'll take that and we'll take the other bit and the price of oil is going to be 50. That's what I would call static analysis. But what you need to bring to the oil market or economics in general, as we're talking at the top of the podcast, is dynamic analysis.

51:29David McWilliams: What happens if I do this? If I pull this lever, what happens, et cetera? And I think what Carol really underpinned there is that it's a very dynamic situation. and you can hardly see in front of your nose, let alone 20 years down the road. And that's why we are in this state, John, of profound unbalance. We leave it there and we talk to you Thursday.

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