Oil rise: Trump gets the jitters

0:03Rosie Blau: The Economist.

0:10Rosie Blau: Hello and welcome to The Intelligence from The Economist. I'm your host, Rosie Blau. Every weekday, we provide a fresh perspective on the events shaping your world.

0:25Rosie Blau: The war in Iran continues to dominate the headlines. strange thing is one of the world's most important countries has said little about it. Our correspondent asks why China stays mute on the Middle East. And it started life as a humble hippie grocery store in LA. Now it's America's trendiest and priciest supermarket, frequented by celebrities and Instagrammers. Not a place to go for peace and quiet?

1:01Rosie Blau: But first...

1:09Rosie Blau: When America launched its joint operation on Iran, the White House said the conflict could last for four to six weeks. Yesterday, Donald Trump suggested the end may in fact come very soon.

1:21Simon Rabinovitch: We're achieving major strides toward completing our military objective. and some people could say they're pretty well complete.

1:31Rosie Blau: Shortly after that, though, he insisted America was going to go further, threatening Tehran with death, fire and fury if it continued to block oil supplies. Nevertheless, Trump's comments did calm stock markets and the price of a barrel of Brent crude, the global oil benchmark, which hit nearly$120 yesterday at its peak, fell to$90. So is there now clarity on the course of events or confusion?

2:02Avantika Chilkoti: Yesterday was a really remarkable day in the oil markets, Rosie, with Brent crude going up to almost double its pre-war price.

2:11Rosie Blau: Edward Carr is The Economist's deputy editor.

2:14Avantika Chilkoti: And that was beginning to infect markets more generally. I saw yesterday's remarks by Trump as a signal to reassure investors that he will not wreck the economy for the sake of this war.

2:29Rosie Blau: So it really is oil prices that are rattling Trump and not anything else.

2:33Avantika Chilkoti: I believe that's right. Yes. Except it was more complicated than that, as it always is with Donald Trump. Because in the same breath, he also said that they were winning the war. It was almost complete. We're going to see this thing through. We're going to do a fantastic job here. So I don't think he's completely collapsed the ambiguity about how far this war goes. What he's done is sent investors a signal that he will not wreck everything. And the relief goes beyond the oil markets. It's really noticeable how in Asia, where stock markets had had a terrible day on Monday, have recovered with careers up about, when I last looked, up about 5 % and Japan was up 2.6%.

3:14Avantika Chilkoti: and the S &P reacted in America very well to Trump's remarks. So the sense that this was spreading out of oil into the economy is sort of reflected in those improvements. It's quite interesting to compare how Trump was operated last night over the oil markets with his response to market pressure over tariffs. If you remember last April after Liberation Day, the markets reacted extraordinarily badly and Trump was quite quick to show that he was going to backtrack here and make deals there and back off, which gave rise to the nickname of Taco, Trump always chickens out. I think this is somewhat different.

3:52Avantika Chilkoti: He's constrained. One is because Iran has a say in this war too. And although I don't think Iran would want to fight on in any sense in a major way after America decided to stop, it could fire sporadic rockets, prolonging the damage in the oil markets. And the other is that there are real things going on here. You know, there are real oil fields that are beginning to be shut down. There is a real LNG facility in Qatar which has shut down and takes time to restart. And there are real shadows hanging over this infrastructure now that Iran has shown it's willing to attack it if it has to. Those things don't just sort of go up in a puff of rhetorical smoke when Trump tries to change direction.

4:34Rosie Blau: So on the narrow goal of oil prices, we have actually seen a fall since Trump's comments. Is that enough?

4:42Avantika Chilkoti: It's a dramatic fall. It's gone down to about$90 a barrel, just as I came in to talk to you early this morning in London. So it's now pretty much exactly halfway between the pre-war price and the peak price. And from that, I take that the price is incredibly sensitive to what happens next in the war. Trump has tried to talk down the price, but there are projections from Goldman and Sachs overnight, that if 15 million barrels of oil a day are kept out off the market of Gulf oil, that's about three quarters of what the Gulf exports. If that happens for 30 days, they see oil prices at the end of the year about 76.

5:23Avantika Chilkoti: If it's for 60 days, they see oil prices at 93. And if the war stops pretty quickly, they see oil prices in the mid-60s. The numbers don't matter as much as the variation of the numbers. And it tells you that the oil price is very, very sensitive to what's happening now. And this probably won't be Trump's last attempt to try and talk the price down.

5:44Rosie Blau: It's pretty clear from what you're saying, Ed, that you don't expect the war to end soon, then.

5:49Avantika Chilkoti: Well, I think there's a trade-off, a trade-off that Trump tried to evade yesterday by saying he could have it all in standard Trumpian fashion. You could both have a fantastic economy and also get your war aims. But I think what those golden numbers tell you, There's a real trade-off between pursuing this war and keeping oil prices low. And the question to me is, what does the Trump administration want? How insistent is it that it gets a compliant Iranian regime in place? And how much does it want to be able to really set back the Iranian nuclear program? On the first of those, if you don't have a compliant Iranian regime, this war has broken and set a number of precedents and the most important of those is that Iran has attacked oil infrastructure of its neighbors.

6:39Avantika Chilkoti: Well with a hostile regime and with the threat of a nuclear program that premium that sense that that infrastructure which was thought to be safe is now a target and if there has to be another war to stop a hostile Iranian regime from pursuing a nuclear program yet again in the hope that becoming North Korea makes it safe, all that infrastructure becomes a potential target. So there is a change of state in the Gulf. So if Trump really wants to stop that, he has to have a compliant regime. But how long does the war have to go on in order that Moshtaba Khamenei, who has just been named the supreme leader and is very hostile to the United States and has seen his father assassinated by the United States and Israel, How do you ensure that?

7:23Avantika Chilkoti: And then on the nuclear side, remember, there's still something like over 400 kilograms of highly enriched uranium somewhere in Iran underground at nuclear sites where it was buried. Israel and the United States have eyes on that. But for as long as that material remains, someone sometime can dig it out. And it's a head start to 10 or 12 nuclear bombs.

7:46Rosie Blau: Leaving the war goals aside, if the US decided, right, it wants out, could it pull out?

7:53Avantika Chilkoti: Yes, I think it could. I think it could. It's done a lot of damage. It set back the regime. But the thing is, if it does stop very soon, then I think the chances that a very hostile regime remains in place with the possibility of laying its hands on highly enriched uranium in the future, that remains. So I do think that there is a tension between pursuing these war aims to their end as America sets them out and ensuring that oil prices don't get very high. And I think that's the tension that Trump was evading last night.

8:30Rosie Blau: And if the US was to stage a prompt exit, where would that leave Israel?

8:37Avantika Chilkoti: Well, I think Israel would have no choice but to go along with Trump's decision. Benjamin Netanyahu, the Israeli prime minister, has an election fairly soon and he would much rather to go into that having comprehensively defeated Iran. But I don't think he has an enormous choice. I don't think he can really defy Trump on this. So I think he would reluctantly have to go along with it.

8:59Rosie Blau: And where would an exit leave Iran?

9:02Avantika Chilkoti: Well, Iran has suffered quite extraordinary damage. Its economy was already in huge trouble and you shouldn't underestimate the extent of that. But the country is still functioning. Our correspondents have told us the streets are still being cleaned. There are still groceries on the shelves. Before Ali Khamenei was killed at the beginning of the war, he devolved command and control out to the regions so that commanders could continue. But there's still a certain amount of central control, however weakened that is. And for this regime, I think the mere fact of survival is a kind of victory in itself.

9:40Avantika Chilkoti: Ed, thank you very much. Always a pleasure, Rosie.

9:53Rosie Blau: The war in Iran should never have happened and benefits no one. That statement was made by Wang Yi, China's foreign minister, on Sunday. over a week after America and Israel launched their joint operation. Some years ago, China looked like it was wrangling to become a mediator in the Middle East, a new role for an emerging power. Yet its recent coverage of Iran reveals a broader truth. The Chinese Communist Party's cold calculus about how to present other autocratic regimes and a reflection of its own role in the region.

10:28Simon Rabinovitch: The big thing is that China has vast economic and especially energy interest in the Middle East. It gets nearly half of its oil, about a third of its gas from the Middle East. Much of that passes through the Strait of Hormuz, which obviously has been closed because of the current conflict.

10:46Rosie Blau: Simon Rabinovich is our Beijing Bureau Chief and Chaguan columnist.

10:51Simon Rabinovitch: Beyond that, though, there had been a time where people thought that China was beginning to be much more of a diplomatic power in the Middle East. It had helped to bring Iran and Saudi Arabia together three years ago to restore their official ties. I think what we've seen the last couple of years, but especially with the war in Iran, is that actually, although China is an economic power in the Middle East, it really is a political weakling. It's not that involved, and it does not want to get that involved.

11:20Rosie Blau: Simon, the Iran conflict is the biggest story in the world right now. How has China responded?

11:27Simon Rabinovitch: China has denounced America's actions and Israel's actions. They've called for restraint. They've called for a restoration of peace and stability, for countries not interfering in others' sovereign affairs. But most strikingly, beyond rhetoric, it has not done much of anything. It has stayed on the sidelines. For several years, people have been looking at the Chinese-Iranian relationship as potentially some kind of new access in global politics. But I think what we've seen in the last week is that it really is not that. It's similar in a way to what we saw in January when American troops snatched Nicolas Maduro from Venezuela.

12:06Simon Rabinovitch: People thought, well, Venezuela was a close partner of China's. Would China do anything? And it stayed on the sidelines there. Once again, here with Iran, it has stayed on the sidelines. This is despite the fact that both countries were deemed to be close Chinese partners, despite the fact that China relied on both of them for a substantial amount of its oil imports, and despite the fact that in both cases, I think China viewed them not as ideological allies, but as useful thorns in America's side with their proxies targeting America and American allies around the world and especially in the Middle East.

12:39Rosie Blau: Simon, as you say, China had been trying to market itself as something of a power broker in the Middle East. So why has it been so passive now?

12:49Simon Rabinovitch: Well, I think China uses this kind of partnership talk with a lot of countries, not just with Iran and Venezuela. And as a general rule, China does not view itself in the same way as America, as a country with lots of foreign entanglements. So it might describe countries as partners, but they're not American-style allies. And then I think if you get into the specifics of Iran, you actually come away with the conclusion that Iran matters a lot less to China than many people had presumed. There's a big asymmetry between China and Iran. Iran depends on China. China was buying more than 80 % of its crude exports.

13:26Simon Rabinovitch: But for China, Iran was supplying somewhere about a tenth of its crude. I think one of the things that we're going to see now is that as it gets more difficult to get crude out of Iran or from other parts of the Middle East, China will turn more heavily towards Russia. Over the years, China has sold Iran vital technology, including digital surveillance tools. But actually, despite promising a lot of investment into Iran over the years, it's delivered relatively little. And in fact, China has grown quite wary of Iran's violent outbursts, of its unpredictability. Over the years, China, in fact, has built up stronger relationships with countries that are Iranian rivals, with Saudi Arabia, with the UAE.

14:07Simon Rabinovitch: So I think for all those reasons, Iran, never mind not being a Chinese ally, it wasn't as close of a Chinese partner as many people thought that it was.

14:17Rosie Blau: And will this take some heat off the US-China relationship, do you think?

14:23Simon Rabinovitch: So I think this is another important element. historically, go back to the Iraq war in the early 2000s, that was seen by many people as an important strategic opportunity for China. America in the early 2000s had begun to pay a bit more attention to China, and then suddenly it was significantly distracted in the Middle East and in Afghanistan for a long period of time, which happened to coincide with a period that China really prospered and became more of a military force. Once again, you look at where things are right now. We've had a period of America becoming more hostile towards China's rise around the world and trying to rally other countries to come into the American camp.

15:04Simon Rabinovitch: And lo and behold, we potentially are on the precipice of America once again getting bogged down in the Middle East. So I don't think China wants to see this war continue. They do still rely on the Middle East extensively for their energy security. But if America does end up being dragged into the quagmire in Iran and beyond, that is not something that will hurt China's interests. It in fact would benefit to a certain extent from America once again having to look away from China to other problems that are presenting more clear and present dangers.

15:39Rosie Blau: And Simon, do you think there's anything that could drag China into this conflict? Or is it going to be able to continue its sort of more isolationist stance?

15:49Simon Rabinovitch: Well, I think the short answer is no. I think the pattern as well that we've seen is that China is very good at staying out of these conflicts when they're occurring. What they then do is that after peace is restored, they offer something which America doesn't, which is a really, really big interest and expertise in reconstruction. So we've seen that after America pulled out of Iraq It was Chinese contractors that came in more aggressively to help to rebuild the country, to help to secure oil contracts. And I would expect something similar in Iran. And China is basically ruthlessly pragmatic. They will work with whoever ends up being the government in Iran.

16:33Simon Rabinovitch: It's a profoundly unsentimental way to approach foreign affairs, but it's also, relative to the American approach is a much lower cost way of doing things. So I think we can basically expect that kind of playbook from China. The only question is, is this going to be a matter of waiting for a few days, a few weeks, or sometimes significantly longer than that?

16:56Rosie Blau: Simon, thank you very much.

16:58Simon Rabinovitch: Thank you, Rosie.

17:02Rosie Blau: And you can hear more on Iran this evening on The Insider, our new video offering, when Economist editors will be dissecting the recent events. Anatomy of an Oil Shock will be available later today. You'll need to be a subscriber.

17:30Edward Carr: So, I am in what I think is East Hollywood. There's a road sign that says Santa Monica and it all feels very LA. Recently, while I was in sunny Southern California, I made a pilgrimage to a supermarket.

17:44Rosie Blau: Avantika Chilcotti is our global business writer.

17:47Edward Carr: Even outside, it doesn't feel like a normal supermarket. There is loads of really nice outdoor seating and just crowds and crowds of people in designer sportswear just sort of hanging out, you know, just having a coffee, having lunch. It looks more like a restaurant so far than a supermarket, as far as I can tell. That's because this wasn't just any supermarket. This is what$650 gets you at Air One.

18:17Rosie Blau: Viral foods on the menu at Air One. $19 strawberry from Air One.

18:21Avantika Chilkoti: £40 breakfast from Air One.

18:22Rosie Blau: Air One Ha! Air One Mukbang. Air One. Air One.

18:26Edward Carr: Air One. Air One. Air One.

18:27Rosie Blau: Air One. Air One. Air One.

18:29Edward Carr: For those who haven't heard of it, Erewhon is basically a microchain of very, very posh supermarkets. It's become the grocer of choice for all of the famous, beautiful people who live in and around Los Angeles. Lots of celebrities have been spotted at Erewhon, including Hailey Bieber and the Kardashians. When I was there, I met a 27-year-old named Paul, who described it as somewhere he wants to be seen, because, I quote, it says, I have taste. And inside the store, you could see why that's the case. And this is so incredibly Instagram-friendly. There's a deli aisle, but it's not your regular supermarket deli aisle with, you know, some pizza and a couple of burgers.

19:11Edward Carr: There is apple and farro salad. There's a kale salad. I mean, it looks a bit like Octolenghi in London, you know, octopus ceviche. Farmer's market roasted vegetable salad.

19:26Edward Carr: Rewind to the beginning, and this is absolutely not how Erewhon began. The store was founded in the 1960s, actually on the East Coast in Boston, by a Japanese couple. They were very into the macrobiotic movement, and they started essentially a humble, hippie supermarket, where volunteers worked. Its name is actually an anagram for nowhere, and it comes from a utopian novel by Samuel Butler. Since then, Erewhon has been sold to a Californian couple, and the vibe has changed totally. These days, Erewhon is a supermarket in as much the same way that Scientology is a book club. Sure, there's reading involved, but that's not really why anyone's there.

20:09Edward Carr: It's decorated sort of like a private members club rather than a supermarket. There's this blonde wood shelving and, you know, big coffee table books. It's a status symbol. In fact, the store has a membership program. It gives you discounts and free smoothies for a fee of a whopping$200 a year. I can already see green juices. $12 for a clean greens juice. And lots and lots of these shots. A good gut shot for there is a life force. Golden eye. Mostly struggling to understand what a lot of this stuff is. But there is another trend amongst young people that Erewhon's jumped on, and that's wellness.

20:56Edward Carr: Youngsters seem to want to, or at least appear to want to, be healthy. At Erewhon, that means that the centre of the supermarket isn't necessarily where you pick up a snack or a coffee. It's actually the wellness aisle. OK, here we go. We've got kind of beauty and vitamins. We've got all kinds of things that I didn't even know about. is gas and bloat relief, loads and loads of gut support, which I do think is pretty trendy right now. Cod liberal. There's a whole section of just jars of what looks like jam, but it's bright blue and purple and yellow and green. And it says sea moss gel. I don't know what you use sea moss gel for, but it's full spectrum and mineral rich.

21:40Edward Carr: To me, as retail correspondent, Erewhon might be the world's first luxury grocer. And there's one defining feature of luxury, exclusivity. Though lots of people gawp at Erewhon products on social media, it's only those in and around LA that can visit one of its 10 stores. I spoke to a senior executive and he was pretty clear. There are only a few cities in America where it would make sense to open an Erewhon. The price point is likely part of the reasoning. $21 for a not even full to the top jar of trail mix Choco plant protein, that's$44.99 $1 per pound for these pumpkins $20 for a jar of tomato sauce here $56 for some flowers $25.50 for turkey bolognese Pizzas,$12.50 for a slice Bright blue sea moss gel for$32.99 Luxury is for the few, not for the many

22:55Rosie Blau: That's all for this episode of The Intelligence See you back here tomorrow

23:08Thank you.