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Bloomberg Audio Studios. Podcasts, radio, news. Nouriel Roubini of Hudson Bay Capital writes the following, "If the president walks away from the war with Iran now, the threat to shipping in the Strait of Hormuz will remain despite the obvious risk. He has every reason to try to finish the job." Nouriel, good morning.
Good morning. And good luck as well. You know, to explain the last few days, what is the status of things in your mind and where do you think this is heading? Well, there are two options. One is to de-escalate and walk away from this war and get to a ceasefire. But they're going to get a ceasefire without a deal with Iran and Iran's going to control the Strait of Hormuz.
It's going to threaten the Gulf and the supply of oil. You have a regime that's actually much more radical today than it was before because Mojtaba Khamenei's son is more radical than his father. They're going to rebuild uh ballistic missiles. They're going to build even more drones. They're going to even try to enrich the uranium they have to weaponize and have a bomb.
So it's a disaster. You know, Trump is already behind in the polls. This war has been a bit of a failure. But now going away from it implies he's going to for sure lose the midterms, not just the House but probably the Senate. [snorts] So I think that in spite of all the rhetoric about negotiations and getting a ceasefire, my more likely scenario, I give it a two-thirds probability, is one in which the US has to escalate and finish the job.
And escalate [snorts] means take over Kharg Island, try to take over even the Strait of Hormuz, try to reopen it, try to have regime collapse, and win this war, and finally have a more stable Middle East. It's a very risky one cuz if you take that chance, you might win, but there's also a chance that you lose and then they beat uh the block even more Hormuz, they destroy even more energy supplies of the Gulf is and then you end up in 1970s stagflation.
But in my view, escalating and winning is more likely than escalating and losing. And given the politics and the electoral you'll have to escalate. So if you escalate and you end up losing, you said it's 1970s stagflation all over again. Yeah. Uh if you win, what does that look like based on the risk premia that are likely to go on a lot of physical goods and a question about stockpiling in different regions as a result of multiple different supply chain shocks?
Well, if you escalate and win means that you take over Kharg Island, you cut off by 90% the revenues of the government. You continue the bombing campaign, you destroy the military assets. You take over even the nuclear kind of weapon-grade uranium. You try to destroy the leadership. You try to have regime collapse and you try to keep open as much as you can Strait of Hormuz while defending the oil energy facility of the Gulf is.
If all these things happen and you win, then actually you got rid of the regime and for a short term, maybe two, three months, you have oil prices above 120, but then you're going to go to a stable world. And by the way, Iran controlling the Strait of Hormuz is a threat to the Gulf is, is a threat to Israel, is a threat to Europe, is a threat to Asia, is a threat to the United States.
So as they uh Emirates have been saying clearly, this is not acceptable and this is the same view that people all over the Gulf have. It's not an acceptable solution. So given what has happened, you have to try to finish the job and finish the job means having de facto regime collapse. Either formally regime collapse or informally a situation in which this regime is not anymore a threat to the region and to the world.
Well, the regime has been weakened though. You You give that point to the president, but absolute collapse, there's been no evidence that we've seen defections and they're still in control. Well, de facto collapse in my view means that you take over Kharg Island, you try to reopen the Strait of Hormuz, you try to make sure that they cannot destroy more energy facilities in the Gulf.
You keep on bombing the hell out of them for weeks. They're already been eroded a lot every day. It's thousands of new targets within Israel and United States. You may even be able to kill some of the remaining leadership and de facto that effectively a regime collapse. It's not a regime collapse, a regime that doesn't have nuclear weapon, doesn't have weapon, cannot threaten the Strait of Hormuz and whether there's formal regime collapse or not, at that point doesn't matter.
But that means finishing the job. Nouriel, we've [snorts] got about 60 seconds left. Mhm. You lived in Tehran Yeah. as a child. Yeah. How personal is this for you? You know, I'm a Persian Persian Jew, so I was in Iran last when I was three years old. I lived in Israel, grew up in Italy and the US. So I don't take it personally, but I would say that while this is an appalling regime and the current one is worse than the previous one, the threat is not just to Israel, the threat is not just to the GCC country, the threat right now is not just to Europe.
Europe is threatened from a economic point of view, from a military point of view. The missiles long-range long-range ballistic missiles of Iran can reach anywhere of the European Union. It's a threat to the world. It's not acceptable. We can discuss whether it was the right thing or not to start this war.
Well, once you start it, if you don't finish it, it's going to be much worse than the situation previously. So given the risk, you have to try to finish the job and having effective regime collapse or the regime boxed in in a way that is not anymore a threat. Nouriel, we appreciate your time and your expertise, sir. Thanks for sharing it with us. Thank you.
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