REBUILD ALLIANCES

“He said, when you use DeepSeq, it has no sense of humor. Like the more advanced Google engines, ChachiBG, OpenAI, and so forth, you can actually joke with them. They're developing a sense of humor, and that his theory was that over time, humans will respond to more human AI. And China is constrained because they literally have people using algorithms for word searches, but policing what's said about Xinjiang or Tibet or democracy.”

“I mean, certainly Russia and the former Soviet Union, I would say, has thought about stirring up geopolitical tensions as a way of increasing the price of oil. This has been documented for people who are historians and have looked through the Politburo notes from the end of the Soviet Empire, that it was actively debated whether the Soviet Union should stir up problems in the Middle East simply to increase the price of oil. So I wouldn't go so far as to say that Russia had any particular hand in instigating this phase of this conflict. But I agree with you that for the moment, Russia is really benefiting from this.”

“We did a trade war game where we were trying to play out some of these dynamics with the US trying to make a deal with China as it's imposing tariffs on everyone else and trying to push a de-risking agenda, all these different factors. It was notable that in the course of the game, as soon as the United States started negotiating with China, all the other countries were like, well, we're not doing anything on China de-risking. We're not going to sanction China. We're not going to do more export controls. That's exactly what has played out in the real world.”

“We call it the Iran shock and the dangerous illusion of energy autarky, which is the idea that many countries are probably feeling, wow, exposure to this global market is dangerous, and we want to pull away from this global market. Now that could manifest itself in a number of ways. If you're China, it might mean you're going to stockpile energy. We actually saw Fatih Barul, the Executive Director of the International Energy Agency, just in the last day or so, warring countries, none by name, but warring countries generally don't stockpile. This is going to worsen the crisis.”

“The downside is, of course, this is going to make many more countries and economies, at least in the medium term, susceptible to political and economic pressure from China because China is the country that has a real dominance over clean energy supply chains. So again, the energy weapon is back, but it's not just the old weapon. It's not just oil and gas. It's also weaponization of clean energy supply chains.”

“When Iran shut the Strait of Hormuz, Trump said, who knew they'd do that? Well, his own Director of National Intelligence, Tulsi Gabbard, told a Senate hearing that that was exactly the assessment of the entire intelligence community. Trump said nobody expected Iran to attack the Gulf states if it were provoked. Wrong again. Multiple former policymakers have told me this is exactly what was expected in war games. Experts sometimes get it wrong. You still need them in the room.”

“Trump then followed up saying that the US was going to block these Straits of Hormuz, put a naval blockade in place, later clarified as a blockade on any vessels touching Iranian ports. And that's where we currently are. Global oil prices are now rising. Global economies are already feeling the shock because, in effect, what this means is that vessels that were not favoured by Iran, previously were very reluctant to go through the Straits, but vessels with an Iranian stamp could go through.”

“Now, the oil price has actually dipped just below $100 a barrel this morning, I think. But we're still talking about it going from $60 at the start of March to $70 fairly recently. So it's a 70% increase whichever way you look at it. Nurse Avondelayan, president of the European Commission, she's outlined that the European Union's bill for fossil fuel imports since the war began has risen by more than $22 billion.”

“Well, I was looking at a recent model. I mean, these are difficult things to predict, and it's maybe an exaggeration, but capital economics, which is a reputable think tank, predicts that Qatar's economy will contract by 13% this year, that UAE's may contract by 8%. To put that in context, under normal growth conditions, that would be seven years it would need to get back the growth.”

“His story, which I thought was very interesting, is that what could happen is Europe could transform its security architecture if it took in the UK, Norway, Ukraine, and Turkey. Effectively, what he's saying is if you actually want Europe to guarantee that it can defend itself against Russia, those are the countries you need to bolt on. It's not just a statement about values, not just a statement about European extension, it's a solution to America withdrawing.”

“Everything about China's industrial policy for the last decades has been about self-sufficiency getting off of US tech. It is, as you know, a little bit more complicated than that. You've got private sector Chinese firms who are just going to want the best technology available. But look at what the Chinese government's response to this loosening of export controls has been. It's thanks very much for this unilateral concession. We're now going to go tell everybody in China to not buy the Nvidia chips because it runs directly counter to the goals of self-sufficiency.”

“I don't know if this was intentional that you used a font metaphor, just after we learned that Secretary Rubio has condemned the use of Calibri in State Department of Correspondence. Yup, that came out. So apparently, we're going back to Times New Roman for official correspondence. What is wrong with Calibri? Is Calibri woke? It's too woke.”

“This is classic Trump. I've got a ceasefire, I'm going to send JD Vance, and it's all going to be done. And they give up because Iran didn't fold on day one. And meanwhile, just to underline how utterly unserious they are, Trump and Rubio, who seems to me these days just to be kind of glorified bad carrier, they're at a UFC fight.”

“That is all different now, and I think fundamentally, there is a question about whether this administration believes that we are in fact in a strategic competition with China or not. If you look at, for example, the National Security Strategy that came out earlier this week, it clearly emphasizes that there are some concerns with China. We have concerns particularly, and this is where the lens most seems to be, is through the economic lens. So much less emphasis on the security threat that China presents, much less emphasis on the US need to kind of keep China, I hate to say the word contained, but contained, you know, from a regional security perspective, and much more just on, let's figure out how we can make a deal with China.”

“I think another big one to watch, particularly as we get closer to the midterms, is push back on the tariff and trade agenda. We're starting to see price issues in the United States. That's the kind of thing that really hits home for, you know, most Americans, who knows about the national security strategy, but they're going to go to the grocery store. And if it got really expensive to buy stuff, or if Christmas shopping is really expensive this year, that's the sort of thing that's going to change political sentiment.”

“So just to give a couple of examples, right, you've got this long list of bad things that China does economically that we're going to fix. How are we going to fix them? There is no guidance on how we are going to fix them. I mean, you can intuit from other parts of the strategy or just the actions that the Trump administration has taken to date, that a coercive, tariff-led approach would be the way to go, except we've already tried that, and it doesn't seem to be inducing China to change any of its behaviors.”

“And the reasons for this goes back to the time that I spent in Iraq. I spent about two years in Iraq immediately after Saddam fled, and then throughout the years that followed off and on. And America's 2003 war in Iraq was about primarily weapons of mass destruction. It was not about getting control over Iraqi oil. But to this day, most Iraqis, when they try to make sense of the American intervention, they come back to oil, that it must have been about Iraqi oil. So, in a world where President Trump said over the weekend, he wishes he could just take the oil. That's what he'd like to do if the American people would allow him to. I think this is going to be rhetoric that we're going to hear throughout Iranian politics for a long time to come and not to America's benefit.”

“The obvious energy shock that we compare it to are the shocks of the 1970s. 1973, the oil embargo where Arab members of OPEC declined to export their oil to the United States and other supporters of Israel in the 1973 war. But they also started to take oil off the market, the absolute amount of oil that was on the market. So, percentage wise and the physical number of barrels that were taken off the market in 1973 is considerably less than is happening today. As you and your listeners will have heard over and over again, this is the biggest supply disruption that we've ever seen.”

“A very similar thing played out more recently when the US released its export controls expanding how it applied the entity list, designations, it applied what's 50% rule, what kind of captures all subsidiaries that have a 50% ownership stake with the listed entity. Inadvertently perhaps, they didn't realize they're going to capture 20,000 to 30,000 additional Chinese companies. China reacted. That's where we saw the rarest export controls. So it's been this period of overreach and then backing down.”

“Well, I would say it never went away. It just kind of receded to the background. And part of it allows me to pick up where I left off with this, the 1970s and the reaction of the world to becoming more integrated, to building up the global market in a way that oil became the most easily traded commodity in the world. So this is a very flexible global market that you can buy and sell pretty much in any part of the market, and the market will help that barrel of oil find its way to the most efficient destination. So this evolved over time, and it made the prospect of using energy as a weapon less attractive because the market could defuse the shock of cutting off a single supplier.”

“But in Venezuela, President Trump very explicitly said, this is about taking control of the oil. And to me, it was harkening back again to a very old frame of thinking, but it also didn't really make sense to me. In a world where the price of oil was bumping along at $65 and American producers were struggling to make ends meet with such a low oil price, to claim that we should use American military prowess to try to bring more Venezuelan oil onto the global market. I didn't see how that made sense for America commercially, except in the one narrow sense, which is not insignificant, but keeping China and Russia from really having the ability to develop Venezuela's oil.”

“What's beginning to happen here is an America which doesn't even pay lip service to global norms. In fact, celebrates outrageously chaotically defying them. In fact, what I would say is that the United States is increasingly behaving like Israel, but Israel's reason for doing it was always that it was a small country facing existential threat. That was the justification Israel came for rejecting the UN, declaring the Secretary General of the UN persona non grata, rejecting international legal arguments.”