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Chapter 1: What is the main topic discussed in this episode?
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Podcasts. Radio. News. We begin the week with the US and Iran having reached an interim deal to end hostilities and reopen the Strait of Hormuz.
The news sent oil prices lower and sparked a relief rally across Asian markets. Officials from both countries set to meet now in Switzerland on June the 19th, where the agreement will be formally signed.
Everyone has discovered from the past six years that these big one-off, supposedly one-off disruptions can happen with frequency.
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Chapter 2: What is the significance of the U.S.-Iran interim deal for Asia?
I'm Wan Ha. Today, I'm sitting down with my colleagues, Tracey Alloway and Joe Weisenthal, co-hosts of Bloomberg's Odd Lots podcast. We recorded this conversation just before news broke that Iran and the US may have struck a deal to reopen the Strait of Hormuz. And as you'll hear, this discussion is arguably just as relevant now as when we taped it.
While the reopening of the Strait would be a welcome relief, the structural shifts caused by the conflict have fundamentally changed businesses across Asia. And the resulting pressure on food and energy supplies and prices isn't going away anytime soon.
On today's show, we dive into why Asia is feeling more economic pain from this conflict than Western nations and what the new normal looks like for the region and the rest of the world. While the details of the proposed new deal between the U.S. and Iran remain unclear, one thing is certain.
War in Iran and the virtual closure of the Strait of Hormuz have effectively slapped a war tax on vital products, and it's impacted every corner of the global economy. You've probably felt the pinch in one way or another, but its effects haven't been distributed evenly. Wealthy countries like the U.S. and Japan have opted to drain their stockpiles of crude oil.
In other corners of the world, governments are turning to demand destruction by encouraging industries and consumers to use less. But that risks slowing economic growth and triggering recession. It's a glaring disparity, and Bloomberg's Tracey Alloway says it highlights a structural vulnerability.
they're often poorer countries. They don't have as big stockpiles of oil inventory. And the one thing we've seen developed countries do across the world is really start to dig into those stockpiles and release barrels in order to, I guess, cushion the higher prices. And so for a poorer country, I think that's one of the reasons in Asia you're seeing the government's
really focused on demand destruction rather than propping up prices. So you've had, I think India was encouraging people not to go on flights. People are being urged not to drive to work, things like that. China is doing pretty much all the heavy lifting in terms of demand destruction or like the bulk of it.
So I saw a JP Morgan estimate, I think, saying that demand for oil from China had fallen like 9%. I think that's 1.5 million barrels a day. It's huge. Yeah, it's a pretty big deal. And again, it stands in stark contrast to a lot of the developed nations like the U.S. that are really digging into their stockpiles.
You know, I don't know if you guys have noticed in your time here the prices at gas stations. Do you know how much gas in Hong Kong costs? No. About 33 Hong Kong dollars per liter, which is its equivalent of about $16 per gallon. Wow. Right? That's up about 15% since the Iran war began, and diesel prices have actually jumped like near 50%.
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Chapter 3: How has the closure of the Strait of Hormuz affected global supply chains?
One of the interesting things here is, to me, is how long the U.S. can actually offset the pain of higher prices. They've obviously been releasing a lot from the Strategic Petroleum Reserve. The question is, how long can you actually keep doing it? And apparently, the U.S. is now getting pretty close to its operational minimum. So I think the minimum is like 250 million barrels. And we're now at
349 million, yeah, and it's the lowest. We're back to the post-COVID lows. Yeah, that's right. So the issue in the U.S. is like crunch time could come, right?
They're going to lose that buffer pretty soon. And I think Asia does seem caught in this trap that really is not of its own making, right? You've got interest rates that are rising globally, of course, driven by the war shocks and the AI investment boom centered in the U.S. and the West. You've got the U.S. dollar really strong right now. What do you think is the impact of the U.S.
dollar strengthening on emerging Asian economies?
Not good. So there's the outlook for economic growth and there's the outlook for the fiscal side, let's say. And so if you're spending money to subsidize oil prices and you're running through your stockpiles in some instances, then it becomes more expensive the longer it goes on.
One of the theories I've seen for the falling gold price recently is that governments are selling or central banks are selling reserve assets in order to raise more foreign FX so that they can buy more oil at the higher prices. So it exacerbates foreign currency exposure for emerging markets.
probably weakens their fiscal position in the future and then in terms of economic growth so obviously if you can't get oil if you can't get feedstock for plastics that's pretty much in everything and so you'll see less economic activity but on the other hand
If we see some countries respond to higher oil prices by actually building out more clean energy capacity, selling more EVs, for instance, then like that could be a little bit of an economic boost. And I'm not saying that it's enough to fully offset the impact, but like it's something at least. So let's get back to the context of the question. It doesn't matter what the price of the dollar is.
People are going to spend a crazy amount of money on memory chips from Korea, period. The won could go up. The won could go down. It doesn't matter. We're going to be shipping a lot of dollars to Korea and Taiwan for key infrastructure for the AI buildout. And so I think, yes, absolutely, like the strength of the dollar is real.
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Chapter 4: What are the implications of rising food stress in Southeast Asia?
What do you think would be the broader impact of prolonged inflation across Asia And what does it mean for U.S. consumers?
So the inflationary impact is there, right? And it's not even necessarily oil. It's also those petrochemicals which go into everything.
And then the other thing in terms of inflation, governments and companies around the world are learning that it's important to build up stockpiles and it's important to build out your energy capacity or your petrochemical capacity or your chips capacity, things like that. If you have everyone all at once trying to do this, that consumes resources, right? That is de facto inflationary.
And I think that's probably the lesson we have collectively learned from the past few years is that you don't want to be left high and dry if there's a big disruption. It is really important to have extra stuff. And extra stuff, you know, means higher prices.
After the break, why we may not yet have seen the full extent of damage caused by the closure of the Strait of Hormuz and how the fallout from the war is reshaping Asia's relationship with the rest of the world.
The Big Take podcast from Bloomberg News keeps you on top of the biggest stories of the day.
My fellow Americans, this is Liberation Day.
Stories that move markets.
Chair Powell opened the door to this first interest rate cut.
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Chapter 5: How are Asian countries coping with energy price shocks?
Sanctions.
There was an interesting article in The Wall Street Journal that the North Korean economy is doing surprisingly well. They're actually building a lot of housing and they're sort of – Quite a little evidence of like improving standard of living and so forth. And of course, here is one of the most sanctioned countries on Earth for a very long time.
I just think like the degree to which sanctions are a powerful tool or that they can really be used to like crush any enemy. All of it's being called into question right now.
Now let's say the war ends next week. How do you think the world has fundamentally been changed because of this war and how it's played out?
So I think it goes back to, I guess, the idea of the choke point economy. Everyone has discovered from the past six years that these big one-off, supposedly one-off disruptions can happen with frequency, right? So each disruption is slightly different in what it actually is, but they're happening more often. I mean, I'm sure both of us, having been in Hong Kong during the pandemic,
I will always keep an extra supply of toilet paper from now until forever, basically. We all learn that. And so I think that impulse is going to stick around for a long time. The world is very globalized. I feel like, for me, coming here to Hong Kong, it's been a very helpful reminder how integrated the world still is.
But the wheels are all spinning in the opposite direction of where they were in the second half of the 20th century. Trade barriers are going up, and countries don't trust each other, and that is going to have consequences for both productivity and prices.
This is The Big Take Asia from Bloomberg News. I'm Wan Ha. To get more from The Big Take and unlimited access to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer. If you liked the episode, make sure to subscribe and review The Big Take Asia wherever you listen to podcasts. It really helps people find the show. Thanks for listening. See you next time.
The Big Take podcast from Bloomberg News keeps you on top of the biggest stories of the This is a really stunning development for the AI world. And how you think about your bottom line. Listen to The Big Take from Bloomberg News every weekday afternoon on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.
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