Nouriel Roubini Talks Trump and the Strait of Hormuz
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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 Muftajah, Khamenei's son, is more radical than his father. They're going to rebuild... ballistic missiles. They're going to build even more drones. They're going to even try to enrich the uranium they have to upgrade 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 it's going to for sure lose the midterms, not just the House, but probably the Senate.
So I think that in spite of all the rhetoric about negotiations and getting a ceasefire, my more likely scenario, I give you the two-thirds probability, is one in which the U.S. has to escalate and finish the job. And escalate means take over Karg Island, try to take over even the state 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, because if you take that chance, you might win, But there's also a chance that you lose, and then they beat the bloc even more, they destroy even more energy supplies of the Gulfies, 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 dynamics, you'll have to escalate.
So if you escalate and you end up losing, you said it's 1970s, stagflation all over again. 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, it means that you take over Karg Island. You cut off by 90% the revenues of the government.
What are the implications of reopening the Strait of Hormuz?
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. 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 gonna go to a stable world. And by the way, Iran controlling the state of Hormuz is a threat to the Gulf, it's a threat to Israel, it's a threat to Europe, it's a threat to Asia, it's a threat to the United States. So as the Emiratis 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. Given what has happened, you have to try to finish the job, and finishing the job means having de facto regime collapse, either formally regime collapse or informally a situation which this regime is not anymore a threat to the region and to the world.
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