The Podcast of the Lotus Eaters - PREVIEW LIVE： Brokenomics

00:00:00.000 Hello and welcome to Brokonomics. Now, this one I am doing live and there is a reason for that.

00:00:06.140 The reason is that I spent two weeks in Asia and I thought that I had more recorded episodes than

00:00:13.360 I actually did and I came in this morning and found out that I didn't. So that's fine. I get

00:00:18.540 to spend time with you lovely people and because it's a live, the chat is open should anyone wish

00:00:25.420 to post a comment although because i didn't tell anyone that i was doing a live episode i don't

00:00:30.060 think there is anyone in the chat i can i'm looking at the chat now and there's only one

00:00:33.940 message and it says hello fans from me um to complete silence so anyway um if you do happen

00:00:41.520 to watch these um the moment they come out then then you you can respond to it now the fact that

00:00:46.500 i was in asia for those two weeks um gives me a sort of interesting anecdote to sort of start

00:00:52.360 this one off you see because the flight that I was on um as it turned out and I did check this later

00:00:58.920 uh was almost exactly over Tehran at the moment that the strikes began um I I flew out um sort of

00:01:08.260 you know obviously several hours earlier on that and I know that I was over Tehran because

00:01:12.020 we can see it on the in-flight map and also I could look out the window and um yeah it it later

00:01:20.260 transpired when I did the maths that if I wasn't directly over Tehran at the time the missiles

00:01:26.420 were flying I would have missed it by no more than about 20 to 30 minutes and I mean that just

00:01:34.720 gives us a bit of pause for thought doesn't it because how differently we would have viewed the

00:01:40.980 war if in the first few minutes we had lost one of our best and brightest the impact that that

00:01:47.640 would have on us all I mean especially me um I'm just envisaging the plane getting clipped

00:01:53.080 by some sort of incoming hypersonic missile and breaking apart and I would then would have been

00:01:59.060 sort of flapping and flailing as it as it took about two and a half three minutes to tumble to

00:02:06.280 the ground to land on the outskirts of Tehran wondering in that time what I was going to do

00:02:10.620 with the rest of my life which would not be very long at all so that that's how close we came

00:02:16.940 ladies and gentlemen that's how close we came that's worth thinking about but no so um my

00:02:22.860 thoughts on the iran war now because i'm coming to this a couple of weeks late um i'm i'm not

00:02:30.080 going to give you the standard sort of spiel that you probably heard 50 times already about who's

00:02:35.060 gonna you know win the war and all that kind of stuff i i'm looking at this from a different

00:02:40.220 perspective i'm looking at this from the point of view of risk repricing and i don't just mean

00:02:46.540 insurance rates or anything like that what's really happening here you've got this sort of

00:02:50.940 global um multi-agent um risk re-evaluation going on or based on incomplete information

00:02:59.620 and that is everything from um the decisions that this state of iran is making the state of israel

00:03:05.840 the us the shipping agents the energy markets the financial markets the voters in the various

00:03:11.920 countries fascinatingly the the set of decisions that the gulf state has to make um the decisions

00:03:18.260 that you know the the rest of the BRICS countries that europe has to make so i mean there's there's

00:03:23.400 a considerable number of people that are going to be forced to re-evaluate on this um and and as

00:03:30.360 well as that and they've each got their own they they're each seeing different risks and they're

00:03:39.040 and they've all got different time horizons and they're all reacting at different speeds to this

00:03:44.580 so what you've got is a system that was was previously in balance which is now

00:03:49.580 completely out of sync with itself

00:03:52.140 and i don't think it's going to proceed linearly as as we go through this this is going to be

00:03:59.580 threshold driven and the the early thresholds came early on with the closing of the straits

00:04:05.560 of humus and i don't believe at this time we've lost a single tanker but if that were to happen

00:04:10.180 um you know if if one oil tanker were to go down or you know god forbid three or five or something

00:04:17.260 the knock-on effects for the decision making that the rest of the system has to make is is going to

00:04:23.920 be enormous and i'm kind of reminded um to bring this back to a sort of financial angle of the

00:04:30.240 George Soros idea of reflexivity now I know Soros is just the embodiment of evil these days and just

00:04:37.080 spends his time trying to destroy the western world as fast as he possibly can but when he was

00:04:42.320 in finance he was actually genuinely quite brilliant and the reflexivity model is something

00:04:46.200 I've been trying to think about this through and that is not just that you know reality informs

00:04:51.880 people's perception of events but your perception changes your behavior that then changes reality

00:04:58.960 that then changes your perception and so on and so on it's it's it's a recurring loop so you know

00:05:04.920 behavioral changes can come from the way of which the the risk of a set of events or the risk of

00:05:12.220 pricing something is is considered as you go through it then of course we've got the whole

00:05:16.380 dynamic of the asymmetric risk that the different actors are facing within all of this so iran has

00:05:23.640 the ability to make these fairly low cost disruptions low cost in terms of its attack the

00:05:30.840 the attacks of which it is receiving of course of significant cost to it the US can bear the cost

00:05:40.880 of making expensive attacks but the cost to the system is what I really want to get into

00:05:46.140 the destabilization the Gulf states are having to consider the fact that they have got very

00:05:53.320 high cost exposure in all of this i mean not least from being able to ship just their just

00:05:59.980 their oil which is existential for them because of course the it's it's not just a one-way oil

00:06:05.400 trade it's it's it's a two-way oil for food technology um electronics tourism everything

00:06:12.860 that keeps a desalination plants running it's it's as significant to them um as we talked about

00:06:18.940 china and india how they decide to in russia how they decide to eat to play this as well um and

00:06:25.240 then europe as well who at the moment are being largely passive and choosing not to involve but

00:06:32.260 they've got a such a degraded energy system which was already running at the point of

00:06:38.760 very close to insufficiency very much relying on you know last minute just-in-time deliveries

00:06:47.100 the the start of the ukraine war was uh i mean you faced a mini energy crisis at that point

00:06:56.280 so it just doesn't have any resilience at this point it's only been made up through

00:07:00.740 us-based um liquid natural gas uh and and if the straits of hormuz stay shut for any length of

00:07:08.080 time what will happen is is the us will simply start limiting energy exports and i don't see

00:07:16.340 the solution that europe has other than to go crawling on its hands and knees to russia which

00:07:21.040 completely undermines the geopolitical stance that they've adopted over the last well whatever

00:07:26.520 it is four years at this point so we're in a we're in a flux in the system which favors people who

00:07:35.320 can inject risk cheaply and that's iran um and perhaps to a lesser extent israel as well they

00:07:45.380 don't bear this this this this whole burden of costs other than the fact that israeli support

00:07:52.600 in the western world is declining significantly i looked at some numbers the other day

00:07:56.460 and it split down israel support in the u.s by age group and amongst young people support for

00:08:05.740 israel had literally halved now it wasn't that high to begin with i think it was something like

00:08:09.480 40 but that's that's halved to just below 20 and even the oldest generations even though they're

00:08:15.880 much more resilient because they've been raised on this their whole life even then it's turned

00:08:21.800 from um something like 60 support to under 50 which is again uh significant for a state which

00:08:29.740 requires strong western support um we have to consider the optionality as we go through this

00:08:41.520 so some actors have high optionality um the u.s if it is willing to bear the

00:08:52.440 reputational cost the cost of walking away have the ability to do that they can they can step

00:08:59.940 away although it would be humiliating and it would also play into the loss of empire which

00:09:05.320 they are likely to be faced with and we talk about that as we go through iran has lots of

00:09:12.580 optionality um and and they are using that optionality at the moment to endure significant

00:09:19.080 punishment in order to raise the costs of acting against them significantly um the options of

00:09:27.060 people like europe are constrained but the optionality facing china and russia are also

00:09:32.980 fascinating to what degree do they wish to lend assistance to what degree do they want to place

00:09:38.280 pressure um on the us or israel um particularly with the upcoming conference that that trump

00:09:45.900 will be doing to china and it's all starting to get quite reminiscent of the suiz crisis in 1956

00:09:53.880 so in the suiz crisis the uk and france um obviously got into a dispute with the

00:10:01.580 egyptian government at the time and tried intervention and what ultimately ended it

00:10:07.280 was not the fact that the uk and france were unable to militarily achieve its objectives

00:10:13.760 even though it proved difficult I mean ultimately what got them is that the rising global superpower

00:10:19.920 the US in that post-war period was unwilling to bear the second order costs that came as a result

00:10:28.020 of the Suez crisis and they placed pressure on the UK and France to basically withdraw and they did

00:10:34.220 are we going to be looking at a similar situation where the rising the new rising global superpower

00:10:41.040 China is going to exert influence on the US to say no we we are not willing to bear these costs

00:10:50.100 and if you continue to put us in this situation we will we will punish you for it one way or

00:10:56.360 another and again China has plenty of options there so you know some people are fully committed

00:11:02.060 while other people you know they have some exit paths but but all of them are constrained

00:11:08.920 risk is going to show up in a whole number of ways it's going to show up in pricing

00:11:16.620 I mean insurance obviously the physical flow of the energy itself the narrative is going to be

00:11:26.000 a huge effect especially on domestic populations in in Europe and US and and it's probably going

00:11:32.100 to reprice policy costs over the next few decades so you know the the the hidden constraints that

00:11:42.200 we have here is this is a coordination failure and you know most of the actors i'm going to be

00:11:49.220 talking about here what they prefer is stability and they prefer continued trade but we're starting

00:11:55.920 to realize that in this globalist system that cannot be offered and and this is this is a

00:12:02.260 significant blow coming after the covid era which demonstrated that actually no you you cannot rely

00:12:10.220 on a fully globalized system you cannot rely on a just-in-time delivery model you cannot run down

00:12:17.180 your domestic energy and um you know strategic reserves or strategic industries of whatever it is

00:12:24.180 and this is just going to be a you know a second nail in the coffin for that globalist system so

00:12:34.560 i think what we've i think what we've got to start doing is

00:12:44.040 not asking the straightforward questions which has been you know discussed endlessly on

00:12:52.440 um you know a whole bunch of channels that you would have seen analysis that you would have seen

00:12:56.540 on this stuff but we we got to ask a little bit more fundamentally what is the set of decisions

00:13:02.780 and risk pricing that everybody involved in this conflict is is going to have to calculate

00:13:07.500 but i mean let's start with um first of all what i think each side in this is trying to achieve

00:13:14.320 because even answering that question has been problematic for everybody so starting with the

00:13:20.360 U.S., I think they are trying to degrade Iran's ability to be a regional power, which is

00:13:32.500 increasingly emerging as, because it is not a U.S. client state, it has strategic depth,

00:13:39.620 it has a coherent and motivated population to take action. I mean, yes, I know that's

00:13:46.680 been under question yes i know there's been protests within iran but this is this is sort

00:13:51.260 of served as a galvanizing function for them so the us can degrade iran as a um as as a regional

00:14:01.600 power well by default it is the regional power um and therefore it can exercise its will more

00:14:08.600 clearly iran i think has different set of um choices ahead of it i think iran wants the long

00:14:20.300 term inviability of um iran so israel has the long-term inviability of iran and for them

00:14:29.360 the best outcome is probably going to be to instigate so much chaos that it effectively

00:14:35.560 becomes a failed state over the next 30 years i think something similar to iraq where after the

00:14:42.780 invasion of iraq they then spent the next 20 years um devolving into competing warlords

00:14:49.100 and no strong centralized government i suspect that is what they are looking for which is a much

00:14:59.860 broader and expansive goal than perhaps the u.s has um but of course if they can get the u.s to

00:15:05.500 fight their war um then then why wouldn't you take that and it would effectively leave them

00:15:10.760 as a much more dominant regional player than they are i think for iran what they're looking to do

00:15:19.080 is i think they're trying to raise the cost of being a u.s ally in the region i think they they

00:15:30.360 have they have decided that if they continue along the status quo they will get hit regularly

00:15:37.660 because for whatever reason the influence that israel has on the u.s and the set of decisions

00:15:45.320 that the US has to make

00:15:46.500 about how does it preserve

00:15:48.160 its regional hegemon.

00:15:52.300 They feel that

00:15:54.240 it is unacceptable

00:15:56.320 to be continually exposed

00:15:58.560 to a series of,

00:16:01.300 you know, 12-day wars

00:16:02.680 like we saw last year.

00:16:05.460 And that it is better

00:16:07.300 to receive an actual pounding

00:16:09.940 if it can raise the costs of the war to the global level which has certainly been achieved

00:16:18.380 at this point um i mean an additional factor for the u.s i should probably mention is they are no

00:16:25.360 doubt concerned about the creeping influence of china in this with iran being a chinese ally i

00:16:30.880 think i think that one is going to backfire spectacularly the gulf states they've got to

00:16:36.580 consider um the least risk patron at this point perhaps Saudi Arabia has the potential to be a

00:16:47.840 um the the dominant regional power but certainly none of the rest of them do

00:16:52.700 and for whatever reason um Saudi has not really demonstrated the sort of military coherence that

00:17:01.600 that might suggest that they're in that place so I think the Gulf states understand that they are

00:17:06.560 client state but is the u.s able to provide the protection i mean the u.s has effectively been

00:17:15.800 running for the last well since breton woods really it was since since since the mid 70s

00:17:21.720 certainly the u.s has been running a protection racket in the gulf states they've they've basically

00:17:27.980 well they started off and then this is the sort of formation of the petrodollars they went to

00:17:32.720 the house of Saud and said we will guarantee your security you've got a lot of nice oil

00:17:39.040 but you've got a population that would drag you into the streets and do unspeakable things to

00:17:45.880 you if they could and you've got hostile you know warring Arab states around you and of course the

00:17:54.000 Arabs do like to fight amongst themselves so we will provide security for you and in return you

00:17:59.100 will sell your oil in dollars and only dollars and thus the birth of the petro system petrodollar

00:18:06.720 system which was exactly what the u.s dollar needed after 1971 and it came off gold and the

00:18:13.740 the value of the petrodollar system and i mean i've talked about it before a number of times

00:18:17.200 on brokonomic but it can't be overstated um but that does rely on the protection rack and work

00:18:25.220 protection racket working if the u.s is not able to um upkeep its side of the bargain

00:18:33.480 which is the security in exchange for you will only sell in dollars

00:18:37.960 it is rational for the gulf states to start to consider what other patronage options they have

00:18:46.100 it doesn't have to be iran but it it could be some combination of the bricks as a whole

00:18:52.720 Russia and China I mean Russia and China is a powerful combination because with that you get

00:18:58.920 the military expertise of the Russians you get the the market of the Chinese in India

00:19:05.240 you get the technical support of the Chinese at what point does it become

00:19:11.280 viable for these Gulf states to seek their protection from BRICS as opposed to the US

00:19:20.120 now bear in mind the u.s has already had a rather humiliating retreat from afghanistan

00:19:27.480 and it has launched this this war without clear objectives presumably hoping for a short war

00:19:37.020 to remind the region who's boss and it doesn't appear to be working out that way

00:19:43.580 um the brick states um china russia perhaps to a lesser extent india and some of the rest of them

00:19:52.180 um of course it's in their interests if the u.s um ceases to be a global power they would probably

00:20:02.840 much prefer them to become a regional power and and that process is already underway you could

00:20:07.120 already see the trump administration reprioritizing from being a global power to being to shoring up

00:20:14.680 its own um theater of influence and thus increased actions in um south america um thus increasing

00:20:24.400 concern about the way that western europe is driving itself off a cliff nevertheless it has

00:20:30.860 its key clients in other parts of the world the middle east being a key one of those and you know

00:20:37.360 taiwan perhaps being another one but if you can if you can break um u.s global um dominance

00:20:46.880 which this war has the signs of being able to do then the world will move to a multi

00:20:55.900 polar world and some people say we're already in there i don't think we are necessarily because

00:21:03.240 china does not yet show any ability to project force it would probably be a more whole of bricks

00:21:11.560 effort if they were to come to that um but that would give them considerable further leverage

00:21:17.740 And then finally, Europe, they cannot maintain their energy situation without the Straits of Hormuz opening.

00:21:33.980 And that is not because the Strait of Hormuz is primarily supplying Europe.

00:21:39.540 Most of what goes through the Straits of Hormuz is going to be going towards Asia.

00:21:47.740 a lot of it goes to China but it's very important for India and Japan as well the problem that

00:21:56.260 Europe have got is that because it is a global energy market by raising the marginal cost of

00:22:02.820 energy they're already strained to the point where their system is insufficiently holding

00:22:12.780 on anyway domestic energy prices have been a huge issue in britain over the last uh well i mean

00:22:19.640 since covid uh certainly since the beginning of the ukraine war it has been a um constant issue

00:22:27.400 and what will happen if energy prices go up is it will simply cause the um rerouting of energy

00:22:35.460 supplies from lower bidders to higher bidders and europe being relatively rich at the moment

00:22:42.420 although for how much longer its paper money is is given that credence I don't know but think back

00:22:48.700 to and this was a few years ago what was what ultimately was the issue in Sri Lanka which if

00:22:57.580 you recall led to you know a changed government it led to the president's compound being broken

00:23:04.840 open and his collection of nice cars being pushed into river um you know it led to basically in a

00:23:12.820 sort of internal revolution and ultimately the cause for that is because Sri Lanka ran out of

00:23:17.840 dollars meaning that it couldn't buy oil now I don't think we're necessarily at the point of

00:23:23.800 dollars running out because the US can just print more whenever it damn well pleases

00:23:29.580 but if the oil just literally isn't there to be bought it is going to get redirected towards the

00:23:36.940 higher bidders now the people who are bidding more for that are going to bear the costs associated

00:23:40.300 with that and the demand destruction that comes which then leads to i mean demand destruction is

00:23:45.500 basically just being people deciding to use less because it's no longer in their economic sense in

00:23:51.920 order to spend the energy but then further afield um how many developing nations are going to be

00:24:02.240 effectively priced out which in turn then means their yield of agricultural goods or commodities

00:24:08.900 or whatever it is that they produce is also going to be constrained which then feeds back into the

00:24:15.180 western system as well so that's the broad overview of of what i'm going to be trying to look at

The Podcast of the Lotus Eaters - March 18, 2026

PREVIEW LIVE： Brokenomics ｜ The Iran War

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