Center for Strategic & International Studies

Who's Paying for the Iran War? | The High Top

Duration: 14:03 2461 transcript words EN summary

Video summary

The transcript explores the shifting economic and geopolitical burdens of the conflict between the United States and Iran, highlighting that while the US initiated the war, the most severe costs are falling on emerging markets in Asia and impoverished populations globally. A key example of this disparity is found in energy pricing; although natural gas prices in Europe and East Asia have surged by over 40% due to reliance on liquefied natural gas, the US has avoided similar spikes because of its massive domestic production and export limitations. This creates a stark economic pain where buyers in regions like East Asia pay twenty times more per unit of energy than those in the United States, illustrating how the war's financial impact is unevenly distributed across the world. Geopolitically, the discussion marks a significant departure from the traditional US role as a constant stabilizer and protector of global security. The conversation notes that many nations, particularly in the Gulf, feel deep discomfort because they were not consulted regarding the conflict and now find themselves on the front lines paying the heaviest price. Consequently, countries are rethinking their strategies to hedge against volatility rather than relying solely on US military alliances. This shift is complicated by concerns over a potential lawless world where unilateral actions by one power might encourage others to follow suit, leading some observers to question whether China's approach of protecting markets through economic means without direct military intervention represents a more peaceful alternative in an increasingly unstable environment. China has emerged as a surprising balancer in global energy markets, successfully mitigating expected price spikes after the Strait of Hormuz was threatened by reducing its seaborne oil imports by several million barrels per day. This ability to maintain reduced import levels for an extended period helped stabilize the market, challenging the long-held assumption that only US military networks could ensure global energy security. However, the transcript warns that this stability is fragile; buffers have diminished, inventories are low, and there is a risk that if the conflict escalates or another part of the system fails, the manageable economic effects seen so far could turn into a severe crisis. The future relationship between the Gulf states and the rest of the world may require assigning long-term risk premiums to shipments, fundamentally altering regional dynamics and making it more expensive for governments to encourage trade in the coming years. Ultimately, the conflict has shattered the decades-old perception that the United States is the unwavering guardian of the Persian Gulf, a reality that will be difficult to restore regardless of future Iranian leadership. Iran perceives itself as having locked in permanent advantages through strategic patience, expecting income streams from transit fees while exploiting US political vulnerabilities ahead of midterm elections. Despite these tensions, the analysis suggests that both sides are rational actors seeking manageable outcomes rather than irrational aggression, yet the enduring tension between a dominant Persian Gulf identity and external interference remains. As the world navigates this new reality, nations are increasingly turning to endogenous energy sources and diversifying investments to secure their futures, signaling a profound redefinition of what security means in an era where the US is no longer seen as a guaranteed constant but rather as a variable in global strategy.

Read the full video transcript

The United States started the war with Iran, but where are the real energy costs for this war falling? >> The biggest costs we're seeing are accumulating in emerging markets in Asia and amongst poor people around the world. Diesel prices are really straining some buyers even here in the United States because that market has gotten very short globally. But natural gas is sort of a special case. Buyers in Europe and in East Asia rely on liquefied natural gas. Those prices have gone up 40% or more and the United States because we produce so much and we're export limited, we haven't seen the same price increases. You know, John, I look at buyers of gas in East Asia paying $20 a million BTU against the $3 in the United States and you can see economic pain. But what are you watching in reactions geopolitically and in the security world? >> You know, for a lot of countries the United States was the constant. We were the foundation of of a lot of countries global strategy. Sometimes they were trying to work against us, more often they were trying to work with us. The United States has become a variable. >> Right. >> And with any portfolio, if you suddenly have something that's very volatile, you try to diversify, you try to hedge. I think for a lot of these countries they said we didn't start the war, we weren't consulted about the start of the war. Now our real interest is how do we insulate ourselves rather than how do we take advantage of it? And most countries, to my mind, seem many more threats coming out of this than they see opportunities. >> Are those threats exclusively from the United States in that we are going to just be a volatile international presence now or does something about the US taking this unilateral action might encourage others to do it, too? >> I think there's a real concern about where Iran comes out of this war, how China will behave in this kind of world. Are we going to be in a more lawless world? And if we are in a more lawless world, is that a more volatile world? Or as China argues, the laws haven't protected you. Look, the United States has been talking about all these laws and look at all the disruption they're creating. >> Mhm. >> Actually, a world where everybody's following their interest is going to be much more peaceful. Look at how China's been behaving. And it seems to me that one of the places that's happened is precisely in the energy markets where to my shock, China's turned out to be the principal balancer of global energy markets. I mean, am I reading that right? >> Yeah, you are. So, when when the conflict started, right? You see 20 million barrels a day which normally transit out of the Strait of Hormuz in oil markets alone, oil and products. Um that gets cut off. Some of it can be diverted through these pipelines that go to the western uh coast of Saudi Arabia or down to the Arabian Sea. But this is enormous. I mean, this is like the energy analyst uh like day five question in your master's level course. What happens when the Strait of Hormuz is closed? And um analysts expected to see massive price spikes. You saw quotes of $100 excess of $100 a barrel, 120, 150, and that didn't happen. There's a few reasons why, but China is probably top of the list. China was able to reduce its oil imports, seaborne oil imports, um substantially, uh you know, 3 to 5 million barrels a day. And and in doing so, really helped balance the global market in a way that I think surprised a lot of analysts. And the fact that they were able to do that for such a long period. Now purchases are starting to creep up. Um so so the ability of China to maintain that reduced import level for a long time, we may be seeing a shift there. But the the sort of unified nature of the Chinese economy and the enormous reserves they had going into the conflict enabled them to play a really important balancing force for global market. >> And we're sort of used to this idea that the United States has to provide global energy security, and it's principally military. >> Mhm. >> And developed by this network of bases and alliances with the United States, and the US protects both the country and the market. And we seem to be moving to this very different kind of space. >> Are where the the the Communist Chinese >> Yeah. >> are the ones who are protecting markets, and you can protect markets without the military. >> So, you you can look at it another way. Um so, in in this context, the United States as an exporter has actually also played an important role in helping balance global markets. But, you can definitely look at the the role of the US sort of shifting, where commercially, we actually are playing a a balancing role, different from that in China, because we're exporting, but an important one. But, the but the US's foreign policy national security choices are are causing some volatility as well. Now, if you think about the role of the Gulf countries as they look at the shifting US security strategy, what are you hearing from the region? You're one of the best connected people I know. >> You know, it's I think first, there's there's a deep discomfort that they weren't really consulted. >> Mhm. >> There's a deep discomfort that they are on the front lines, they're paying the heaviest price. I think there's also a sense that the strategy that they thought was protecting them in the past isn't going to be adequate to protect them in the future. It's not just about the Trump administration, it's about if any future US administration, it's about the ability of a persistent Iranian government to to create damage. You know, part of this, I think, in the back of their minds is the sense that as we go through the energy transition, the United States is going to be a variable >> Mhm. >> as it thinks about economic economic and and energy security in the Gulf. But the Iranians will be a constant. The Iranians will be there whether it's the Islamic Republic >> Right. >> or some successor government they've been living alongside Persians as they think of them >> Yes. >> for millennia and that never goes away and I think there's there is this sense that they feel they need to to both hedge and diversify but part of the diversification is what you're seeing the Emirates and the Saudis doing >> Right. >> creating broader American economic investment in the country. So the American interest is not just in protecting energy but it's protecting AI and other kinds of of infrastructure to try to get the United States to care but again the adequacy >> Right. >> United States caring I think is never going to be perceived again the way it was. It feels like security is going through more broadly a rethinking a redefinition. US regional interests are going through >> Mhm. >> a redefinition. Regional countries sense of where the United States is in this new world >> Yeah. >> combined with you know and this is a totally separate topic combined with what AI does to economies and labor markets and how all this fits together I think we could be looking at a profoundly different understanding of what security means in 20 years than we're looking at now where the energy transition is a part of it. >> Oh I absolutely agree. >> But not the only one at all. >> I I absolutely agree. Now at the 6-month mark we've seen governments really start to take seriously the idea that insecurity may be setting in. And so we've seen now a lot more efforts around the world to focus on how do we both better secure oil and energy supplies in the future. And then how do we invest in alternatives that are going to reduce these vulnerabilities over time? Even in countries that you you don't think about as being particularly enthusiastic about the energy transition, they're starting to look at endogenous energy sources, homegrown energy as a path to security. And it >> And of course we've used more coal this year than ever before. >> Yes, well and that that has a mixed story on the energy transition. So if you're coal rich, you can provide a lot of energy security relying more heavily on coal. But if you want to be able to move people around, the the inexpensive Chinese EV is suddenly looking like a fairly compelling option. >> You know, and and this comes at a time when the Iranians feel essentially they've been at war for 50 years. And it's the United States that feels oh we haven't really been at war. What you know, when is this war? And and you have this this >> Yeah. >> differentiation. >> Do you think Iran sees itself emerging as potentially stronger, more influential from this conflict? >> I think the Iranians as they look now, they see themselves A their bets have paid off and they think patience will pay off even more. They see the president's threats not as a sign of his dominance, but as a sign of his insecurity. And that prompts them to dig in more. They see themselves likely to get some sort of income stream from passage through the strait because they think that the the neighbors are going to want to do that. And the United States without very good military tools to really close the door on this, will acquiesce in that. Where that actually leaves them when this is all done, I think it's still a broken economy. It's a broken political system. Their their their internal governance functions aren't good. There's still the possibility that that regime collapses in the longer term. But I think they see themselves as they'll be able to lock in permanent advantage, they will get a durable income stream, and they will get rewarded for having taken the risks they've taken by exercising strategic patience, and they see the president not having the luxury of strategic patience because of the midterms and because of the economic issues. >> What do you make of the the the reporting that came from the Wall Street Journal recently that Iran might take a more sort of aggressive stance, try to expand the conflict regionally? Is there any merit to that idea, or is that gamesmanship? >> I think the Iranians have a lot of arrows in their quiver they haven't used yet. >> Mhm. >> They haven't used terrorism. They haven't used uh all of their proxy forces as much as they might. They haven't used cyber as much as they might. Uh a whole bunch of soft targets all over the place that that the Iranians could could expand to. Um I think that the Iranians are willing to do this. As I say, in having lost the top 40 people in the government, I think they said, "We didn't look for this war. This war was thrust upon us, and we're at war." >> Energy people are still sort of looking at the situation as when it's resolved and things go back to normal. And one of the biggest questions I think we face is we might not go back to normal. Like free transit through the Gulf might not be possible. We might have to assign long-term risk premia to shipments out of the Gulf. And how's that going to reorient the the Gulf's relationship with the rest of the world? >> My guess is it will be more expensive for Gulf governments to encourage people to do in 20 27 what they were able to get people to do in 2025 >> Mhm. >> because people will want a higher risk premium. But ultimately, I think the Gulf has a lot going for it. I think the Iranians will find interests in having things be more manageable, probably. And we'll get to a different place. But but the sense that developed over 40 years, that the United States really is the guardian of the Gulf. >> Yep. >> And we'll keep everything under wraps and safe and keep the Iranians on their side and all that. That's been shattered. I don't know how it comes back even with the new Iranian government because there is this sense and when you talk to people from Iran of any political stripe. >> Right. >> This issue of it's the Persian Gulf, not the Arabian Gulf. >> Oh, yeah. >> There there's this sense of we should be the dominant power. >> Right. >> Rightfully so. I think that's going to create an enduring tension even in a post-Islamic Republic government if we get there. Is it manageable? I think all of this is manageable and I think one of the problems we've had with the Islamic Republic is we've assumed that people who are hostile must be irrational. >> Right. >> And I think the Islamic Republic in many ways is a hostile and rational government. >> And that's why the energy markets we're going to we're going to watch things very closely because all the buffers we had in February have have been strongly diminished. Inventories and storage are apparently down. There's a lot less oil floating around on the ocean. And so, even though to date the the this energy crisis has been pretty manageable in terms of its economic effects globally speaking, um that that that won't necessarily be true if things escalate or another part of the system gets disrupted. >> And I think part of the Iranian calculus is that the American midterm elections are going to mean the president won't press forward and they're pressing forward with a sense that they can lock in gains now that they can then benefit from in the years to come. I'm not sure that's wrong. I think that the president was hoping for an early and decisive win. But it could leave us with with people always wondering when the other shoe's going to drop and that's a different environment in the Middle East than than people in the Gulf had had been counting on for decades.