Strait Talk or Dire Straits: Episode 21

War, markets, and maritime choke points collide in this brisk tour of a Middle East crisis that could empty gas tanks worldwide. John Ellis and Richard Haass unpack whether the U.S. has really clipped Iran’s wings or merely annoyed a country that can still turn the Strait of Hormuz into the world’s most expensive parking lot. They debate mines, drones, insurance panic, election math, and a White House strategy that may be improvising in real time. Along the way, Haass unveils his stark “we break it, you own it” doctrine for allies now stuck holding the bill. It is geopolitics as supply chain thriller, with a golf detour for recovery of morale. 

Hosted by John Ellis and Richard Haass

News Items on Substack

Home and Away on Substack

Produced by Dale Eisinger 

Transcript

SPEAKER_00 0:00

Hello and welcome back to Alternate Shots. I'm John Ellis. I am the founder and editor of two Substack newsletters. One is called News Items, the other is called Political News Items. You can find them both at news-items.com.

SPEAKER_01 0:15

I'm Richard Haas. I always feel somewhat inadequate after John introduces himself because I'm the author of only one Substack newsletter, Home and Away. But hopefully it's quality, not quantity, that counts for most in this world.

SPEAKER_00 0:28

It's a terrific newsletter, by the way. It comes out on Fridays, first thing in the morning, but it's been coming out a lot more frequently because of developments in world affairs, we'll call them. And what I thought we would do today is look at two stories that are moving on the wire, so to speak, right now, that tell very different stories. The first one is at the Bloomberg website, and it reads like this The U.S. military said it has been able to degrade Iran's ability to target ships moving through the Strait of Hormuz as President Donald Trump floated the idea of winding down military efforts in the Persian Gulf. Said President Trump, we are getting very close to meeting our objectives as we consider winding down our great military efforts in the Middle East. A, Richard, uh, is it is it true that uh the U.S. has degraded uh Iranian capability to shut down the strait, or is that something of an overstatement?

SPEAKER_01 1:26

The United States has degraded Iran's ability to project power, particularly with missiles, naval forces. They can't put air airplanes in the sky, which is not to say though we've significantly reduced their ability to make the straits essentially too dangerous to use. It doesn't take a whole lot, John, basically discourage people from using something like the Strait of Hammuz. It's very narrow, and people often say 21 miles. It's actually more narrow than that in terms of the functional area large hull ships can use. So there's virtually no maneuverability. As you know, by definition, oil tankers carry oil, and ships carrying LNG, liquefied natural gas, are carrying just that. So a small weapon can do an awful lot of damage. So it could be drones, missiles. So yes, so yes, we've we've degraded Iran's capability, but again, it doesn't take a whole lot to essentially get people not just to think twice, but to basically say the risks are too great to go do this. Plus, Iran can generate new capabilities. The idea that they're they're essentially using up what they have. It's quite possible they have drone factories somewhere. I'd expect they do. As we've seen in Ukraine, a basement is a drone factory. And I would expect that uh the Iranians will, for the foreseeable future, have enough to make passing through the strait a a risky and expensive proposition. Trevor Burrus, Jr.

SPEAKER_00 2:46

And really it comes down to uh the thing that strikes me about the this part of the war is that it comes down to insurance underwriters in London, essentially, right? Saying, okay, we will, for a wildly exorbitant price, insure your tanker. Or they say, you know what, it's too dangerous. We're not willing to do it. But as long as that question is in the air, it makes it very difficult to get stuff back and forth, right?

SPEAKER_01 3:12

There's that. And there's also questions of the crew. I uh on Sixty Minutes the other night, our competition in this podcast, John. Right. They had uh this woman who represented, I think it was a tanker company, and she talked a lot about not just getting insurance for the tankers, but also the crews, the safety of the crews. And I think that's a consideration as well. And by the way, these same things argue strongly against all this talk about using naval ships to convoy or escort tankers. That is a singularly bad idea because it would put naval vessels at great risk, and the ratio of how many naval vessels it would take, even if it succeeded, to get a small, small number of uh tankers or cargo ships through just the math just doesn't make sense. This is a war where you have to look at the math, and the math doesn't make sense when it comes to escorting anybody through the Strait of Hormuz.

SPEAKER_00 4:01

One thing I wanted to ask you, I I've been looking for the sea mine story because in the in the old days, you sort of World War II, you think of uh beach ball sort of floating at the top of the sea, and uh, you know, a ship runs into it and kaboom. But mining technology has moved uh to these things called sea mines, which actually float under they're anchored to the ocean floor and they're you can't see them and they work acoustically. Have you seen any reporting on how much mining the Iranians have done? I've been looking for it, I can't find out.

SPEAKER_01 4:36

I'm not saying anything quantitative. They've done some. The U.S. made a lot of noise that we had destroyed, I don't know, fifteen or so ships that were laying mines. But you don't have to be a massive dedicated ship to put mines in the water. Roboats can put mines in the uh in the water. So again, it's part of the largest story, John, of uh this war where low-tech or cheap systems can in many ways offset much more capable, much more costly systems. And in this case, that's a math that works very clearly in Iran's in Iran's direction to their advantage.

SPEAKER_00 5:11

The second story that's moving on the web is at uh Wall Street Journal, and the headline is Iran thinks it's winning the war. I'll read just a couple of paragraphs. Three weeks into the war, the Iranian regime is signaling that it believes it is winning and has the power to impose a settlement on Washington that entrenches Tehran's dominance of Middle East energy resources for decades to come. This attitude may prove to be a dangerous misreading of President Trump's determination or of Israel's capacity to inflict strategic blows on the Islamic Republic's surviving leadership and military capabilities. Trump and Israeli Prime Minister Benjamin Netanyahu have given mixed signals on how long the war would go on as they try to talk markets down and keep Tehran guessing. Netanyahu said Thursday that the war would end, quote, a lot faster than people think. Trump said this week the U.S. would wrap up the conflict in the quote near future, even as the Pentagon dispatched thousands of additional Marines to the Middle East. The problem is Iran also has a say on when the guns fall silent, and for now, it seems to think time works to its benefit. Does it?

SPEAKER_01 6:25

I'm reminded of the old Henry Kissinger line during the Vietnam War, John, about the Viet Cong and the Viet you know Henry's insight was that guerrillas in general, the Viet Cong, they win when they're not losing, whereas the great power that's operating halfway across the world loses when he doesn't win. And I worry there's a little bit of that dynamic here. And in the last couple of days, there's some signals that Iran is doing well. The decision by the United States, which I have been extraordinarily critical of, to allow Iran to sell all this oil at sea, which has really bailed out their economy, and I think will have a negligible impact on uh oil prices globally, will be interpreted for sure as a sign of weakness and all that. You know, ultimately wars are about two things, capability and will. So there's no doubt about who has the greater capability. The Israelis and the Americans obviously do, and they've done a serious amount of degrading. That alone is not decisive. And the question is whether Iran has enough capability to inflict damage and ultimately to erode our will. Israel's will is much greater because they've got nowhere to go. But the United States has global preoccupations, whether it's the global economy or the military balance in the Indo-Pacific or the situation in Europe or the Western Hemisphere. Iran has nowhere else to go. Iran is there. You know, another way of saying it, for us, this is one piece on the one square on the chessboard. For a country like Iran, this is the chessboard. And as a result, despite our advantages and capability, which are profound, in some ways Iran has figured out that it may have the advantage and will, which means time is on their side. And we're probably in a greater rush. Remember the old line about uh Afghanistan? You know, we have watches, but they have the time when it came to the uh Taliban. I worry there's a little bit of that here, that uh Iran has the ability to wait us out because we have reasons to be impatient, whether it's the midterm elections or uh the global economy, or again, our concerns about other theaters in the world.

SPEAKER_00 8:28

Yeah, I mean the global economy uh is uh can t tip over on on this if it goes on uh for months. Right now, Australia is, I think, 10 to 16 days from running out of uh gasoline. So it's not, you know, this is not something that's to worry about in October, something to worry about in the in the month of April, if not sooner.

SPEAKER_01 8:53

Um but anyway, what I was can we just follow up on that? Because Taiwan, Taiwan has some similar issues, and Iran has basically decided that one of the things it can do is by it can offer right now, Iran is only allowing four countries to get oil through the uh strait, and it's China, India, Turkey, and Pakistan. My sense is what they're gonna start doing, and I've seen stories about various countries, including Japan. I wouldn't be surprised, Australia, is they're gonna say, yeah, we'll make an exception for you too, but here's the toll. And I fear that will be the next phase, which, beginning with the money we gave them, and now you know what other countries may decide they have to do, it may give Iran much more staying power, and that again works against our interests.

SPEAKER_00 9:36

Yeah, the Japan story is moving right now that Iran has agreed to uh clear ships to go to to uh Japan. So I was on a call with a group of people, and a woman from Evercore said, investment bank called Evercorps said, the whole thing comes down to the strait. It's just everything hinges on that. And solving the strait problem has flummoxed many people, but the one good plan, the one serious plan that I've heard is yours, which you wrote up for home and away, I guess, two days ago. Can you walk us through the Hass plan for solving the uh the strait issue?

SPEAKER_01 10:15

Yeah. Um just to say I think it's one of the two big issues, the other being the nuclear issue, but the nuclear issue is not a global economic issue. That's what makes the strait such a singularly important issue because uh twenty percent of the world's oil and liquefied natural gas normally go through the uh strait. And as you just said, several countries simply don't have reserves. And also, by the way, this is crippling for the other oil and gas producing countries of the Persian Gulf. This is their cash crop. And right now, most of them have stopped producing their cash crop because they can't move it and they've run out of places to store it. So again, this is an unsustainable trajectory or situation for them. Yeah, look, I've looked at all the arguments or all the different proposals about the Strait of Hormuz. I've already said I don't think the one about escorting cargo ships and tankers makes any sense. There's a lot of talk about Karg Island, but I think that would be difficult to seize. Karg Island is the terminal from which Iran exports, loads a lot of its things for export, its oil and gas. It's very close to the Iranian mainland. It's well up in the Persian Gulf. So Iran would have all sorts of opportunities to attack it from its land mass. And I worry a lot about the optics of seizing this area, how that would uh how that would uh look. You know, we could include this in any negotiations that may take one take place one day, but that's you know, it'll take me a very time-consuming thing. And as you correctly said, we may not have a lot of time here. Yeah, what I've suggested is uh essentially a blockade outside the Strait of Hormuz and the Gulf of Oman. It's about 200 miles wide. We could do it there with a combination of ships and uh and aircraft. And what we basically say is the straits gonna has to be open for all, or it's gonna be closed for all, closed to all. And it can't be Iran's choice of deciding for whom it is open, you know, for certain recipients. And essentially by closing it, two things. One, we deny Iran's economic resources. Second of all, some of the countries that are friendly to Iran that right now are getting oil, they would have reasons to lean on Iran, to pressure them and say, hey, this is uh hurting this, you've really got to change your uh policy. Militarily, this is a uh much less demanding operation than Karg Island or escorting vessels. I will say, though, since I published it, the decision by the administration to allow Iran to sell the oil at sea has made my plan a little bit less attractive because they've reduced the economic pressure on Iran. I mean, there's been many things to criticize, but this is a singularly bad decision announced by the Secretary of the Treasury, because again, it will not have a meaningful impact on global uh energy prices, but it will have a meaningful impact on Iran's ability to hang tough. I always thought that the easing of sanctions would be something that would be made conditional. We would go to a negotiation and say, hey, we're prepared to ease these sanctions if you do this on supporting proxies or missiles or your nuclear program or maybe the strait. The idea that we would give it away for nothing, all that does is signal Iran that we are anxious to get out of Dodge, which makes them essentially dig in. So I I've I've got a what was a short list, and it's increasingly a long list of questionable decisions and judgments by the administration, and this this now uh is is high on the list.

SPEAKER_00 13:23

So in the Haas plan, a tanker destined for China gets through the Strait of Hormuz, and now it's in the Gulf of Oman, and what happens?

SPEAKER_01 13:34

Well, my hunch is it wouldn't happen because the Chinese and the Americans would have talked about it, and they're not gonna do something, you know, this is not gonna be the Cuban Missile Crisis Mach 2. So I think there would be understandings between the United States and China that they would accept it. And if China were, which has, by the way, a lot of reserves, they've been quite conscientious about building up energy reserves. We could even sell them, we could substitute for Iran. We have LNG, we could we could ship them or oil. So I'd be open to that conversation. So I th I think we could avoid it. We could also tell the Chinese, by the way, and remind them that you know it's one thing to lose a couple of tankers' worth of oil, but if this war continues, there's a decent chance that what happened the other night when the Israelis attacked the South Pars field, I thought in a misguided way, because it led to the Iranian retaliation against Qatar and others, really damaged a lot of, in that case, gas fields. At some point, it's quite possible that Iran's oil and gas would get basically would be hit and go offline. And that would be really bad for China because China gets a million, a million and a half barrels a day from Iran. So I think the Chinese have incentive here to stabilize the situation. So I don't think we'd get to the point where again we'd have the Cuban missile crisis and they'd have to decide whether to turn around a boat and we'd have to decide whether to shoot it.

SPEAKER_00 14:49

Can the Chinese say you blockade uh the Gulf of Oman, I guess, so we can blockade Taiwan?

SPEAKER_01 14:56

Well, I don't think they need our justification, or this justification rather, to do that. And that's you know one of the things that's potentially in their their kit bag. And by the way, John, the fact that we have so many assets in the Middle East rather than the Asia. I mean, for the last 10 or 15 years, the strategic argument is the United States should pivot to Asia. Well, what we've now done is pivoted from Asia. And we have you know fewer assets there than we uh than we need. So yeah, the Chinese could put pressure on uh Taiwan, but they're already doing it. Right. They don't need this crisis to gin that up as a as a policy. They've been increasing their naval exercise, and they've demonstrated now several times their ability to effectively quarantine or blockade uh Taiwan, which which has literally days of supplies. Uh, Taiwan does not have a a serious capacity to hold out.

SPEAKER_00 15:47

Yeah. Of course, she wouldn't know who to call because he's fired all of his top military people.

SPEAKER_01 15:53

Yes. He had uh, however you say doue and mandarin. Uh yes, he has done it on st on stilts.

SPEAKER_00 16:01

So if we look at the political, the U.S. political situation. Well, there are two really the markets number one, which the administration seems to follow like an EKG, right? Um the slightest tick-up or tick down provokes a response, including what you just pointed out, the famous unsanctioning of Iran oil. So there's the markets that are causing uh Mr. Trump some concern. But the second piece or the politics of this, the U.S. politics of it, my take on it is that uh the narrative of a great blue wave building may be true but isn't at the moment. What's your take?

SPEAKER_01 16:43

Well actually I want to hear it from you and that. Why do you say that? Why is the because that is the narrative. Is it because of the money the Republicans have got in their wallets and prepared to spend? Is it because of the uh what's going on at airports and citizens blame Democrats for that? Why do you think that the uh I think talk of a blue wave even before this war? Now gasoline prices, I just went and filled up the car. And what a week two weeks ago, three weeks ago cost me three dollars, cost me four dollars a gallon today. So why why isn't, if you will, the scale of the blue wave increasing?

SPEAKER_00 17:16

This new blue wave narrative is based on the historical truth that the higher the White House disapproval rating is, the more likely that they will lose more elections in congressional districts and the Senate. The way the Senate sets up, there are really only eight that are competitive. Uh and at the moment, uh if you had to say who was gonna hold if the Republicans were gonna hold the Senate or not, you would say the Republicans are gonna hold it uh just because of the states in question. So you might think that a blue wave is building in Texas, but the likelihood is that if uh Senator Cornyn is the nominee, the Republicans will hold that seat and you can go, you know, down the line. On the House side, it's I think it's certain that the Democrats will recapture the House. I don't see any way that not happening. But the 17 there are 17 congressional districts that are either toss-up or lean R. There are three more that are solid lean R, and there are 15 that are likely R. In other words, there are 35 seats that can plausibly change hands. And so if twenty go one way and fifteen go the other, then the Democrats have a you know a uh three or four seat margin, whatever it is. So the way it sets up, because the districts are now so partisanly aligned, I guess you would say, uh the ability for big swings in congressional representation uh has diminished considerably. That said, obviously, if inflation takes off gas prices, you know, the the war turns out to be a disaster, uh then then obviously a blue wave will develop. But saying it now seems to me premature.

SPEAKER_01 18:59

Got it. Two reactions to that. One is the conversation for another day, but the idea that less than 10% of the congressional seats are seriously in play is a stunning indictment of our politics because it destroys any incentive to try to win the middle. These districts are so drawn that you don't have to appeal to the center to to win. That's true of both parties, and it's one of the reasons I think we're in the fix we're in. The second is it just shows how wrong the administration was with a lot of their assumptions. This was going to be quick and easy, it was gonna be a cakewalk, one would capitulate, they'd never do anything like retaliate or close the strait. Yeah, so then when Jerome Powell and Jay Powell convened the Fed, and they they can't raise, they can't lower rates because inflation is picking up. We see it in food, we see it in uh fuel costs and so forth. Um it just shows the how this administration perks itself because there's no serious process. There's you don't have uh an interagency process where people say, hey, if you do this, here's five direct and indirect effects. Let's factor that into into our decision making. And I I just don't think that kind of a conversation ever happens, Sergio.

SPEAKER_00 20:10

It's an interesting question. Uh and one I you know obviously plowed through a lot of uh news reports and commentary and stuff. And what I have not read, you know, sort of definitively, if you will, is who were the core four or the core six or the core I mean, if you look back to when you worked uh uh for General Scowcroft under in the HW administration, you know, you could you could go down the list of the people you worked with. You could go over to the State Department with Jim Baker and you know, John Rogers and all those people. You could go over to the Defense Department, Dick Cheney, etc. I mean, there were there was a huge team that was thinking this through and that had long experience and so on and so forth. As best I can tell, there are six people who are are influential uh with the president, and even they sometimes say uh, you know, he does what he wants to do. Is that I mean, who are the people that are advising him and does it matter, I guess.

SPEAKER_01 21:09

Well, and you've got the president, you've got uh the vice president who's in some ways joined the witness protection program because he he wants to distance himself from the policy. You got the Secretary of State who's yeah, uh you got the Secretary of the Treasury, you got the Jared Kushner and Steve Whitkop. I don't know. You got the chairman of the Joint Chiefs, but he's it stays in his lane. He's not giving strategic advice. That's not his job. That's about it. And not one of them is a Middle East expert. Not one of them has significant government experience in the executive branch and so forth. So it doesn't surprise me. And then you have a president coming out of the Venezuela situation who feels that uh anything he does or anything he orders the military to do can't lose. And you begin in the combination of hubris and a lack of expertise and a lack of experience is a really toxic combination. And I would Argue, I would suggest that's uh that's what we have here.

SPEAKER_00 22:02

Aaron Powell You had a new take on the pottery barn rule, which uh I believe is quoted today in the New York Times. But for those who don't know the pottery barn rule, it goes like this you break it, you own it. And so the new Haas version of the pottery barn rule is what?

SPEAKER_01 22:22

We break it, but you own it. And this is something that Colin Powell used to quote all the time, and basically warning people about regime change, and then you have to deal with the aftermath. Well, in this case, you know, we went to war, and what the president's essentially telling us is the uh the countries of the Persian Gulf that are neighbors of Iran, well, now they've got to deal with it. And they can't, as I said, we talked about a few minutes ago, they're suddenly they can't export their oil, and he's telling them they're the ones now who have to be responsible for establishing some type of uh order in the uh Strait of Hormuz. He keeps talking about how easy it is, and it's up to them to do it. And I've had lots of conversations with uh figures from the Middle East the last few days, John, and uh I would simply say it is hard to exaggerate how unhappy they are. They're gonna be they're big, they're careful. This administration still has three years to run. But they are seeing their futures essentially imperiled. These are countries where the biggest conversation in this part of the world a month ago was how do they basically begin the process of transitioning from an energy-based economy to something larger and more that includes, if you will, more than that? And these countries were inviting all these data centers and so forth. And suddenly all of that, every aspect of that is totally at risk. Think about it, who's gonna make enormous investments in this part of the world? You'd have to say to yourself, it's a 10- just imagine it's a 10-year investment before you get an adequate return. Who is gonna be confident that you're gonna have a situation where war is not gonna restart and where the you know uh energy facilities or data centers or what have you won't be targets? Not a lot of people, unless the you know something that we don't yet see in the works materializes. So I find it hard to exaggerate the sense of uh unhappiness and concern, frustration, choose your word, in this part of the world. So when I said the other day, uh we break it, you know, you own it. That's uh, and it does one other thing. It really makes these countries wonder about the value of dependence and reliance on the United States. And my my prediction is one of the things that will come out of this crisis is a lot of these countries are either going to make deals with Iran or they're gonna make become more reliant on China. Some of them may take matters into their own hand and basically say, do we have to think about nuclear weapons ourselves? But my my sense is we're looking at a very different, less stable, less benign Middle East going forward.

SPEAKER_00 24:49

Uh we're running up against our our uh time limit, which is 30 minutes uh for our commuter friends. So uh we're gonna switch to sports. Thankfully, we're not gonna talk about the New York Giants. Instead, we're gonna talk about Cam Young uh winning the players' championship. Were you as thrilled as I was that it uh that he won?

SPEAKER_01 25:10

I was because both of us have played quite a lot of golf at the course where Cam Young essentially literally grew up. His dad, Dave, was uh the teaching pro there for years. But you knew Cam uh better much better than I did. So uh why don't you uh why don't you share?

SPEAKER_00 25:25

Well, I didn't I didn't know Cam. I mean I played golf with him a couple of times when he was a kid because uh David needed to give a lesson and you know didn't he wanted adult supervision such as it was. So we went out a couple of times and played with Cam. But there's a there's a story uh that I've that I've been told and I think is true, which is that Cam was hammering his dad about he wanted to play on the tour, he wanted to play on the tour. I think he was like 20 years old at the time or whatever. And at Sleepy Hollow, there's the upper course, it's the main course, and the lower course is a short, also called the short course, and their third hole is called the church hole, and it's a 90-yard uh par three moon-shaped green. And on that particular day, the uh pin was on the top of the moon, so to speak. And David said to Cam, look, if you want to play on the tour, you have to be able to sink uh a sandwich from 90 yards. So they dropped balls, you know, I had a bag of golf balls, I dropped it down. Cam hit one after the other after the other, didn't get it in, and on the last try, he aced it. Uh so maybe that was uh the beginning of uh, you know, uh his professional career, so to speak.

SPEAKER_01 26:33

Uh I think if we had been given that challenge, John, we would probably therefore be doing what we're now doing.

SPEAKER_00 26:38

I'm sure we would have gotten close. But it's not horseshoes. I've only I've only played that hole like 9,000 times, and I don't think I've ever come close to to holding it out. Anyway, uh we'll we'll leave it there. Thank you all for listening. Thank you, Richard, for taking time out on Saturday. Uh Dale Eisinger, our great producer, we'll hopefully turn this around for you and have it out on Sunday morning.

SPEAKER_01 27:05

Thank you, John. And uh let me just encourage people. You said some nice things about home and away. Let me again uh put in a plug for news items. It's uh best way to start your day news items and a cup of coffee. Life doesn't get much better than that. There you go.

SPEAKER_00 27:18

Thanks a lot.