Speaker 1 (00:03):
Biden has just been in Israel. Just give us the lay of the land. What do you think is the latest here? What are we looking at?
Speaker 2 (00:11):
I mean, I think what we should be looking at is the real risk of escalation. And my deep concern having worked in the region for almost 20 years is the fact that Arab leaders did not choose to meet with President Biden. The fact that Egypt, which is a massive recipient of US foreign assistance CC, did not meet with President Biden. And so I think that right now we should be looking at what the Israeli ground operation in Gaza looks like, which I think will be very difficult. Everyone knows Gaza is very densely populated for Israel. Yes, there has been a pretty steady stream of rockets that Hezbollah has fired into the north of Israel, but it's not yet Hezbollah in full force entering the conflict. So we're watching very closely to see if a real second front opens up for Israel. And that brings in the whole question of Iran because the White House was very quick to try to refute the Wall Street Journal story that came out on the Sunday night essentially saying that the IRGC, the Revolutionary Guard planned the Hamas attack.
(01:15):
There was a meeting they said in Beirut just a week before that they funded it. Were operationally very, very involved in it. The Biden administration has been adopting a sort of go soft on sanctions enforcement policy that has allowed Iran to return to pre 2018 levels of production in the last year alone. We've seen production climb by 700,000 barrels three weeks ago. If you're in the White House, they would take pride in that policy. Now you have this situation now where they have to pivot because a hundred members of Congress are saying, we want these sanctions enforced. You always run the risk now in this environment that any type of effort to punish Iran could spill over into something much more serious, especially because the mood in the region is now so volatile.
Speaker 1 (02:03):
A follow on question, I mean you paint sort of a very tense picture. What's the timeframe here? What are we, are we looking for days or weeks or month or what's the timeframe here where we can find out whether that
Speaker 2 (02:15):
Escalates? I think we should be looking for sometime next week for the coming days for the next phase of the Israeli operations in Gaza to commence. I think a lot is going to hinge on the way they conduct that campaign in terms of what are the visual images that people see in the Arab world from that campaign. Because again, it will very much, the public statements of leaders in the region will also follow from what their population is saying. It's a very, very detailed process. When they evaluate the intelligence, they have to have a clear threat assessment. It's not a decision that people want to make to do these drawdowns. So to me, the drawdown in Lebanon is very concerning because it reflects a view in the US intelligence community that the situation there is going to get worse.
Speaker 1 (03:13):
Any things that we need to worry about that we get a little bit of a repeat of what we had last year as a fallout from this situation.
Speaker 2 (03:19):
One of the things I did in November is they had a meeting with the Amir of Qatar and asked him for energy support to Europe and essentially said, Asia's having a warm winter, could you please wave destination clauses to free up supplies that are not needed in Asia and reroute them to Europe. The Biden administration is not going down that path because they see Qatar as very important for, again, energy security into Europe, but also in order to try to free the hostages having to work through Qatar to do mediation on that. And certainly Qatar did a very important role for the US because they also had relations with the Taliban.
Speaker 1 (04:05):
It looks to me as one of the countries that seems to be profiting from this entire situation is Russia because there seemed to be off the radar screen for the time being.
Speaker 2 (04:15):
I would say that we should be paying very close attention to the US elections when it comes to Russia because people keep asking me, tell how this war ends and we're two years, we're coming up in this two year anniversary of the Russia, Ukraine war and we're in this just very destructive stalemate. And the question I get is how do we break out of the stalemate? And right now we're in a situation where we continue to allow Russian energy on the market. We made the decision from the start of the war that we were not going to take the tactic we adopted against Iraq during the Gulf War or against Iran when we sanctioned Iran, which was to essentially try to remove their oil from the market to dry up the revenue. We made the decision to keep Russian oil on the market. We did exemptions every time we sanctioned a Russian bank or disconnected them from Swift.
(05:06):
We did CARF outs for energy. And so we made a decision. Even price caps, I would say there's been a lot of controversy around price caps. We actually did a lot of work with treasury on those price caps. Price caps were always designed to keep Russian oil on the market. I always talk about them as an inflation reduction measure, not a Russian revenue reduction measure. So we have really worked very hard to make sure there wasn't a Russian supplied disruption. That means that Russia continues to have their motion sort of revenue to wage the war on the other side. We keep giving Ukraine access to the most sophisticated weaponry. And some people say that's not a recipe for a short war. The question is what changes that dynamic? And I would say the US election is really important because if you do not have President Biden in the White House, if you do have the return of Trump or somebody like a Ron DeSantis, the funding for Ukraine will dry up. And now with this second war, the question is can the US finance both?
Speaker 1 (06:11):
Can they,
Speaker 2 (06:12):
I mean, look, president Biden I think is committed to doing it. The question is again, will he be in office in 20 24, 25? Who's going to be basically making those decisions?
Speaker 1 (06:23):
Yeah. So can you just give us a bit of a sense here and particularly also sort of, you talked about Iran earlier, you talked about Saudi Arabia, but just talked about Russia. So how does the barrel count work in this situation? Well,
Speaker 2 (06:35):
I think about the accounting that the Biden administration has adopted. And again, I would say that this is administration that has really worked to keep oil on the market and has used diplomacy as well as drawing down the SPR, which is now 50% of levels of 2020, but has relied heavily on foreign policy to keep the market well supplied. And so now, because I think it's untenable to allow Iran to have this much oil on the water as basically a strategy, they're going to have to tighten that up. So what's the offset? So the offset is now Venezuela. So we've made the decision even before Venezuela has announced when they're going to actually hold the elections, they're holding them next year. But the theory was that Venezuela would secure additional sanctions relief based on the conduct of the elections that's out. So the announcement that came out was essentially we're going to lift all sanctions and we're going to give general licenses to operate and we're going to front run the elections. If the elections don't go well, six months from now, we'll review the decision to waive sanctions. You can see, I would say that Venezuela is part of the offset strategy.
Speaker 1 (07:44):
OPEC as a whole, how they fitting into this picture and also what's the strategy? They typically have some kind of a number in their heads I guess when it comes to oil prices. Where are they standing?
Speaker 2 (07:55):
We are very active in managing the market. They're very concerned about macro moves. So they're very concerned about your world, Peter, they're very concerned about, you get concerns about rate hikes and everybody sells oil. So what they want to do is they want to signal that they kind of stand on the other side of Powell, don't get comfortable thinking you can short this market. So I don't think they necessarily have the like at 85 bucks we're good. I mean think they have, if you look at their vision, 2030 plans hugely expensive. And I can tell you that a big component of it is tourism and omm and everything you're doing on the Red Sea and Lula, what they're doing in sports. I mean look at their primarily activity. We actually put in our notes on Saturday. We're very much watching the transfer window.