Future Outlook and Economic Dividends

Unhedged listeners The inaugural FT weeekend festival in New York City is quickly approaching Join John Liscow Orna Garalnick, Jansis Robinson and Most importantly Myself, Rob Armstrong and my partner Katie Martin presenting a live version. of this podcast including taking your questions. All this and more on Saturday, june twentieth at Spring Studios or online as the FT weekend comes to life for one unforgettable day Register now and as a podcast listener, save ten percent usings our code. FT podcast. Don't miss out. The thing about that Donald Trump is the guy sure loves doing a deal He certainly loves talking about doing a deal Since his war against Iran started, he has stated that a deal to end it is just around the corner about forty times four zero Do we have a deal? We do not We supposedly have had a ceasefire for weeks and for what it's worth, markets have kind of moved on But the latest is that the two sides are still tearing strips out of each other to say nothing of the role of Israel. Today on the show Seriously now, what is actually going on? This is Unhedged, the Markets and Finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets economist at FT Towers back in London, where summer has officially been cancelled. And I'm joined. By professional triathletes, the sporting specimen that is mr. Robert Armstrong in New York, Rob say hello. Hello. I think you exagerate slightly. I have not recovered And I finished exactly in the middle of my age group In the Tathlum, were there any walruses? Be I think I've may have mentioned before that a walrus can run faster than a man and swim faster than a man. So you've really got to nail the cycling If had If there had been a walrus, it would have been way in front of me so I never would have seen it. Apart from the cycling bit. We digress. But also we have been trying to get him on the show for ages and he keeps saying no and claiming to be busy. But with me in the studio today in London, we have Andrew England the FT's Middle East editor and generally a good egg Andrew England, you have been a busy man, have you not? It's been a little bit busy, yes He's got a thousand yard stair going on. Yes Mr. And England, I put it to you that in March, you wrote that Trump says there was a deal On april twelfth, you wrote the two sides had failed to reach a deal Or maybe eighth, he wrote that Trump had said the ceasefire was holding On may twenty fourth, you said a deal to reopen Hormuz was largely negotiated. You get the idea. It just goes on and on and round and round I feel like I'm going nuts. You must be like losing your mind here It's been a bit crazy, but I never said it was a straight road. They're all. Mediation efforts going on and have been consistently going on led by Pakistan, Qatar is taking a bigger role now And about two weeks ago they actually did feel that they were on the brink. fought because basically you're talking about one page, a one page document. And this is not a final deal, and that's one thing to remember. This is essentially an extension of the ceasefire, which has been in place since april the eighth For Trump, the key thing is it would reopen the Straade of Hormuz, which has obviously pushed energy prices up, push prices at the US petrol pump up ahead of the midterms. So that's a key thing for him. And he's wanted that essentially reopened as part of the Original CSR on April eighth So he's increasingly frustrated. So it would do that, it would also lay the framework for nuclear negotiations There wouldn't be any significant commitment by Iran on the nuclear fm. So essentially it's a temporary deal to move to another phase, gettingetting a more durable ceasefire give Trump a win in terms of reopening the strait is the global energy crisis And Depending on how the next stays of the negotiations go, there will be some economic dividend for Iran So they had be moving closer to it, but then you're dealing with these two parties that have pathes of hostility and distrust over come. That's been exacerbated by the U. S and Israel striking Iran twice in the last year whilst it was holding nuclear talks. with the Trump administration. So there's just no trust. And don nott forget at the beginning of this war, they killed the Spreme leader and many of his top officials and the dead suupreme leader was the father of the current suupreme leader. So you can see that you've got two unpredictable hostile leaderships and you're trying to bring them together and get them to agree on a deal. And then there's just the the kind of the 's little courage for either side to sign off on something because they're both going to want to claim victory Both believe they have the upper hand. So even just getting this preliminary agreement over the line is a huge, huge talk. It's been such a marathon. and so the oil price has fallen back down, right? The Brent oil price benchmark is about eighty seven dollars a brel A couple of weeks ago we were talking about one twenty or something. so it's come right down. Even while like just before I came down here to record this, Trump was posting on Truth Social, he's going to in Capital letters, hit Iran very hard tonight and is talking about taking over Hag Island and oil infrastructure and and and and and What sort of this is a funny sort of negotiation where you're trying to forge a peace deal but simultaneously threatening a land invasion It is and this is President Trump of the United States. He's not your normal president. I think we've all come to terms with that now, and he's a man who likes to deliver his own type of bluster and rhetoric. You know, at the beginning of the week You said forty times. He said we're two to three days away from signing this agreement. And then on Tuesday, he announced that the US military had informed him that Iran had shot down an Apache helicopter. Right. So clearly he wasn't happy about that. And again, he's got to speak to his base and the Hawks As soon as the helicopter shotd down, he says I have to respond. So he responds that the U.S military FS strikes Iran. Iran then has to respond because it doesn't want to be seen to be cving to U.S. pressure. So it attacks U. S. bases in the region in Jordan and Kuwait in Bahrain because The Iranians respond, then the Americans respond again. And so then the Iranians respond again. So the pattern was repeated overnight on Wednesday Thursday And so you're in this escalated cycle all the time, there are still negotiations going on. So Wednesday Aatari team in Tehran to try and finalize this deal that Trump said was close to being finalized They would only have gone if they had American assurances that One Tehraram wasn about to get bombed to the US was still serious about a deal. And so they were there. Now I I was told this morning that they came out. So this morning being Thursday, I was told that they came out and they made good progress. They had breakthroughs And then Trump issues his true social post saying we're going to bomb them again And we're going to take over Kaga Island, which is where ninety percent of Iran's oil is uploaded in the near future. So now I'm wondering, okay, so is there progress? Was there progress? I trust my contactxt and so there was progress Once Trump makes these threats, how does Iran respond? Because again, neither wants to be seen to be cving to the other. Exactly. And the last thing Iran will want to do is being seen to capitulate And this is the thing that Trump hasn't understood from the very beginning. If you remember before the war started, there were nuclear negotiations Steve Wikoff, his envoice said, The president surprised Iran hasn capitulated to all this military pressure And that just shows a fundamental lack of understanding of the enemy, of the party they're dealing with. They may as well be speaking like Martians. Ince is you know, since the Islamic Revolution in ' seventy nine ideological foundation is hostility to the US and the West. Yeah. afterfter they'd been bombed, they were bombed by The Americans and the Israelis in June last year The last thing that I want to do is be seen to be capitulating Military pressure. to the regime in Tehran graver threat to them than war. So let's turn to the token American on the podcast, Mr. Robert Armstrong tririathlete From where you're sitting out in New York, is there a similar thing for Trump, do you think in terms of not wanting to lose face? Like what is he actually trying to get out of this? I haven't the slightest idea at this point. and I want to kick that A. I want to kick that question to Andrew and I would frame it like this. You know, you've made very vivid Andrew, the challenges of getting even a short term agreement extending the ceasefire opening the straight and kicking off nuclear negotiations What I'm interested in is supposing we cross that hurdle Where are we? is a long term stable status quo that the two sides can agree on I asked this because it looks to me like For example The nuclear issue is a red line for both sides And those two red lines are in different places So if we get The short term agreement, have we actually achieved anything, Andrew? No. I mean, what makes this administration so different? I mean, you speak to people and you say, it doesn't matter who you speak to around the president It's only what the presresident's thinking that matters. you know, you don't have an institutional kind of system. So that makes everything much tricker. I mean I think everybody thinks he wants a deal. He wants to get out. So he got into this war. He said it would take four to five weeks, you know, on the back of the Maduru kidnapping in Venezuela, which was a clean success. Benjamin Netanyahu, the Israeli Prime Minister, presented him know a war scenario where there were going to be great outcomes, regime change, destroy the missile capacity et cetera, et cetera, et cceter. So he got sucked into this war Hwks letting know thought it would be easy and then quickly understood actually, they're not about to collapse. They've closed the strait of Hormuz. Oh dear, we didn't expect that. They're hitting energy facilities in the Gulf. Oh dear, we didn't expect that. They've triggered a global energy crisis. Our allies in the Arab world are getting battered. They're not stopping. So that's where we got to the eightp ceasefire. Now the question is how does he get out with' still claiming a win? still claiming a victory. And knowing Trump, he would paint anything as a victory, right? The short term deal in theory could allow him to do that in the way he spins it. So there will be a commitment by Iran to say we're never going to develop nuclear weapons Kind of the one constant in Trump's war goals and they were totally incoherent was I'm stopping Iran developing a nuclear weapon. Now Iran has always said that it's not developing a nuclear weapon. There was a fat with by the Supreme leader. But if they're actually doing that, they're fools, right If I was the Iranian leadership acquiring a nuclear weapon would be without question, the most important long term goal I could possibly have Certainly there are those in Iran who would say that after the June war last year. I think because you've got to remember that Iran wants to get something out of this as well, right? So Iran has taken a significant blows. It's economy is in deep crisis. You know, inflation is I don't know what is around sixty seven, eighty percent. They're going have to do a lot of reconstruction. Steel plants have being been hit petrochotheral chemical plants have been here. their oil exports have been stymied They can't trade through the UAE as they would. So they do need an economic dividend and their challenges will come when the war stops in terms of dealing with domestic pressure. So there's a reason for Iran to want this to stop as well. Just to go back to your original question This is the great uncertainty. So if you get to this short term ceasefire, does Trump just claim a victory The Iranians are notorious for dragging out negotiations, playing the long game. Trump always wants a quick deal. So will he claim a victory And then will his attention drift somewhere else And then you kind of have these protracted nuclear talks that don't really deliver and the region remains not at war, but it remains in a kind of a volatile festering, simmering state. because In this short term deal, it doesn't even talk about the missiles which they've used to attack. Israel and the Gulf States. you know, that's not even being addressed. or the regional proxies that Iran supports. So there's a lot of things that are being left until the last minute. It's a bit like The cars are deal So that was, you know, launched with much fanfare in October last year And it's never got out of phase one. Yeah. Andrew just sitting here in my comfortable chair in New York It seems to me that an avenue that ought to be open is some kind of slightly nonsense deal that gets us through to the end of the Trump administration In other words, a deal something like this Iran says we will forego all nuclear Development Both sides know they don't really mean that, but that's okay. They agree to open the Strait of Hormuz There is some economic dividend to Iran that is not talked about very much and the president gets to loudly claim victory and we have now kicked the ball at least until President Trump is wherever our ex presidents go Rightnress S can deal with it, yeah. Is that is it realistic that the kind of muddle through option I just described? The context here being The oil market continues to be quite comfortable with this whole situation as Katie mentioned before, and I don't think the oil market is made up of fools and Panglossian morons I think they have some story about why we can muddle through. Do you think that's a realistic expectation I just laid out Yeah, I think you've got a job going as a mediator. I I think there's a couple of things just to start. One, you know oil prices were still far higher than they were in the beginning of the war. And I think one of the scary things is that what we're seeing today is was being normalized So you've had, you know, for the last In forty eight hours, you've had strikes between Iran and America, the US No one's jumping up and down about it. That's kind of scary. And then before that, you had strikes between Israel and Iran, which again, hadn't happened direct strikes before twenty twenty four. So that's part of the issue. I don't think that's a positive thing. But even now you know still like energy people, I've got a note in front of me right here from Jeff Curry at Carlisle saying about the abundance illusion, right? We're just chewing through all of these energy reserves that all over the world. And those energy reserves are designed to be reserves. They're designed to provide a little bit of kind of security and emergencies. They're not designed to be drawn down for weeks and weeks and months and months at a time. So there remains this danger that we just get to the point where the reserves are too depleted and we still get that shoot higher in oil prices to one hundred forty, one hundred fifty dollars barrel. Absolutely. And there's also the question of just even if the war stops today, how long will it take to get everything back online? You know, if you've had whes in Iraq that have been mothbought, how much damage has been done? How long will it take to get back on But you have just described, Andrew the reasons why both sides would like a break of a couple of years Iran to lick its economic wounds, maybe replenish its missile supplies the U. S to take the political pressure off that is emanating from gasoline prices. There does seem to be some overlap in motivations here and they can put whatever rhetorical flourishes on it they like But they they get to that overlap And we at least get the straight open and stop the etic part of the war, and we go to a kind of cold. No. what you werere saying? I mean I was doing slightly fesigures, but you were exactly right. And this is what the medators are trying to do. Now what they've done by doing the deal they're trying to negotiate is they to get the straight open first which is the crucial thing for global energy for obvious reasons push the nuclear negotiations back to the second phase And then whilst the strait is being reopened, you have the nuclear negotiations. But the key first step is Reopen this rade of Hormz getet the oil and gas flowing, the helium, the urea, fertilizers, etcetera. and you lift the US blockade. Now in the second phase, what you would see is then where you get to the nuclear nitty gritty, which is they'vew what they've been discussing things that you've been talking about, a moratorium on uranium enrichment. Now Trump wants their stockpile diluted. know the Iranians probably agreed to that. They agreed to it with Obama in twenty fifteen, the JCPOA key question is what happens to the stockpile of highly enrichuranium? That's big Stumbling block because the Americans want it offshore. willill the Iranians allow that to happen thenen there's a question about what happens to the enrichment of facilities, whether they're dismantled or not as the Americans want So these are the kind of the technical details, if you feel like theyve got fresh out. those negotiations are always going to take longer and that's part of the reason you push them back, but you get the straight open. And Iran, everybody knows Iran will only do a nuclear deal if there is some kind of financial incentive. And like you say, it's how you dress it up Is it sanctions relief? Is it a waiver on oil exports? Is it unfreezing some of the frozen assets which they've got around the world You know, some people have estimated up to a hundred billion, which essentially they their oil money which they can't access in various central banks Yes, there are. and this is what the mediaias are hoping for. The mediaias are hoping that you get this initial extension done You get the straight reopen that s tensions. reduces the risk of hostilities in the Strait of Hormuz or around the Strait of Hormuz, where you've got two competing blockades, the Iranian and the U.S. one And that provides a better environment for nuclear talks. Now. they've been having nuclear talks with the Trump administration since Trump came back in. So a lot of this stuff they've already been discussing anyway But it sounds like really the best plan that we have to hope for at the moment is that there is no plan and that everyone can just pretend that there is a plan for long enough to get the straight open And then we just keep doing this dance and going round and round in circles. Yeah, But I mean, I think is that the best case scenario? No, I think no, not the best case. the best case scenario is the Get this preliminary deal, the straight opens and then they get some kind of nuclear agreement, which reduces tensions. It doesn't mean necessarily that Iran's going to give up its entire nuclear capacity They've got research and development know how, which you can never reverse, right as they did in the twenty fifteen deal. you know, they agreed to reduce the level of enrichment drastically to levels insignificant. They had caps on their stockpile, the rest was taken offshore, and in return, they got the sanctions relief. So they complied with that deal until Trump pulled out of it in twenty eighteen. and that pushed them. way back from being able to have the capacity to develop a nuclear weapon. So you could see kind of a deal like that Two point th. Now the question is how do you frame it? What kind of economic dividend does Iran get? It's much harder to give Iran's sanctions relieaf today than it was in twenty fifteen after everything that's gone on, both internally and externally. And how do we make it look like everybody's a winner This is the big kind of conundrum. listeners, if you think you know then Unedged f. com let us know. you might do Andrew a favor. We are going to have to leave can I just say one thing? You can. The gp of thing with Trump is he can spin anything. I mean, yesterday he was asked about inflation. He said I love inlation I mean, you know There's hope. There's hope. There's hope and there's spin. That's all we've gotta go on at the moment. We are gonna be back in just one second with Long short. Okeie doke, it is time for long, short that part of the show where we go long a thing we love. or Short, I thing we hate. Andrew England, Middle East editor. what are you saying Well, now you've said let' go along a thing you love. I'm gonna have to go for the English foring. A, beautiful scenes. It's coming home. Is it coming home? In. Nobody but you two thinks it's coming home. I've read a little bit of the sports writers on this topic it's coming home but we live in hope. I am long our listeners 's been away a little bit, but on the show the other day, Rob and Dara discussed what to call this thing, which may or may not be real, where people are selling Bitcoin to buy Basics I am calling this the BS trade. Make it happen people. But one listener I've got in touch to say we should call it. Are you ready for this Great rotation. That's pretty good Pretty good Aound of a well done well done We have a winner. you are hired. We had a a lot of other suggestions too It was great. We were rubbish, I'll be honest. Some of them were great though, I thought. I liked bait trade B AI trade is good anyway What I have? I am Very short sand whichich you might like, you might associate with the beach. aboutbout a third of the run in this triathlon. I did extremely slowly was on a beach And let me tell you, I will never run on a beach again. I may never walk on a beach again. I may never go to the beach again as a result of the experience of trying to go fast on sand at my age. So It's not seen in one of the rocky movies where they're running around in very short, shorts. Y on the sand. What I was doing did not look anything like that. Let me just tell you It's a mental image I'm nonetheless going to take with me. Mainly therapy. Andrew England, thank you so much for sharing your wisdom about what on earth is going on in the Middle East. I'm still not sure I'm any the wiser, but You've tried your best all myself. Listeners, we are going to be back in your ears on Tuesday, so listen up then Unhedged is produced by Jake Harper and edited by Brian Erstat. Our executive producer is Jacob Goldstein We had additional help from Topfa forehead. Special thanks to Laura Clark, Gretta Coh, and Natalie Sudler FT premium subscribers can get the unhedged newsletter for free and a thirty day free trial is available to everyone else. Just go to ft. com slash unhedged or I'm Katie Martin. thanks for listening