This transcript has been automatically generated.
00:00:04:21 - 00:00:08:13
Kassandra
Hey, and welcome to the Dip. We cover money stories across borders.
00:00:08:13 - 00:00:25:18
Daniel
I'm Kassandra and I'm Daniel. And later on, we're going to be looking at something which people rarely think about. What is actually vital when it comes to the current rising cost of food prices. And that's a fertilizer. And the Iran war is driving up the price of all kinds of chemicals, which lead into all kinds of things in our daily lives.
00:00:25:20 - 00:00:26:16
Daniel
But first.
00:00:26:18 - 00:00:50:19
Kassandra
Trump says that the US is in negotiations with Iran, but Tehran says that Washington is negotiating with itself. Meanwhile, the bombs are still falling. Oil is trading above $100 a barrel, and a fifth of the world's oil supplies flow through a strait that Iran is now demanding sovereignty over. The war that began on February 28th has thrown the global economy into turmoil.
00:00:50:19 - 00:00:53:07
Kassandra
But what has it done to Iran's economy?
00:00:53:11 - 00:01:20:14
Daniel
Well, I spoke to Djavad Salehi-Isfahani, who is professor of economics at Virginia Tech, and he spoke of an economy that was already on its knees, its currency in freefall, food inflation at 70%. And why the sanctions that were supposed to bring the regime to its knees is doing the opposite. The problem is, an internet blackout is making it hard to measure just how difficult the economic pressure is becoming for ordinary Iranians.
00:01:20:16 - 00:01:56:08
Djavad Salehi-Isfahani
Well, the truth is, we don't know. In the middle of the war, there's no information coming. There's no data coming. But we can speculate based on how it was doing before the war. And there are some, policies in place, like cash transfers. That makes me think that the distribution of whatever quantities of essential commodities are available is being handled by the government being able to inject cash into people's accounts.
00:01:56:10 - 00:02:27:19
Djavad Salehi-Isfahani
Most of the times during wars, the distribution becomes a bigger issue, than the total supply, because the poor, may lose their jobs, they don't have access to income. So and prices are rising because of the war conditions. So they can't buy things and they may be suffering with hunger and so on. But that doesn't happen in the modern world where the government can deposit currency in people's ATM accounts instantaneously.
00:02:27:21 - 00:02:54:11
Djavad Salehi-Isfahani
And it's been doing that. It's been raising the amount that it puts in people's accounts. Frequently. So I assume that the distribution is being handled. We don't know, the total supply, because of the difficulty of movement of ships in the Persian Gulf, the authorities are assuring Iranians that vital supplies are, taken care of, for several months.
00:02:54:13 - 00:03:25:02
Djavad Salehi-Isfahani
But again, you don't know in what conditions. How true those claims are, I suspect, because they expected the war, that they did do quite a bit of stocking up for the commodities. So, maybe for 3 or 4 months, the country will continue, albeit in a war footing, with, prices rising. But people are still being able to access, the, essential commodities.
00:03:25:04 - 00:03:58:23
Djavad Salehi-Isfahani
The one thing about Iran, this, important, of course, everybody knows, is that Iran is energy rich. A lot of times in countries that go under the war, into war, access to energy like gasoline, heating and so on, disappears and people, are suffering. I bet if you're in Tehran right now, you have easier access to gasoline than people in the Philippines, for example, or a lot of other countries where there are big lines because prices have risen, energy prices are very, low in Iran.
00:03:58:23 - 00:04:18:22
Djavad Salehi-Isfahani
And so far there seems to be, reasonable, supplies. And as long as they don't hit the as, infrastructure dealing with energy supplies, I think that part of life, which is to be able to drive around and also, heat your home and so on will continue.
00:04:18:24 - 00:04:35:23
Daniel
Well, I will we'll get into the details on on energy in a moment, but I want to go back to the point that you were saying about comparing before the war started to now and even before the war started, Iran's economy was in deep trouble. So the the riyal had lost, I think roughly like 97% of its value since 2015.
00:04:36:00 - 00:04:56:02
Daniel
Food inflation was already at 70%. I mean, does that actually change how we read this war economically? Because I think from what you were saying, it sounds like Iran is coming from a position of weakness. Or has that essentially become irrelevant? Everything's just been thrown into the into the, up, into the air in a way that's completely unpredictable.
00:04:56:04 - 00:05:20:16
Djavad Salehi-Isfahani
Well, to some extent it's become irrelevant. But I think it's important to note that, the economy was not as bad as people thought. I think part of this rush to war was a lot of propaganda. The Iran economy was, collapsing, that, poverty rates were very high, that people didn't have access to a lot of essentials.
00:05:20:18 - 00:05:48:17
Djavad Salehi-Isfahani
And you see, now if you watch the, YouTube channels, that's all the news I get. You know, there seems to be, supplies available and so on. So I think, inflation is becoming less relevant, access to actual goods becoming very relevant. You recall that inflation, currency devaluation, those were the metrics of unhappiness in Iraq, and they were truly solved.
00:05:48:19 - 00:06:01:20
Djavad Salehi-Isfahani
But now, because some other, factor, which is damage to life and property is, and bombing has become the daily routine. Those have been pushed to the background.
00:06:01:22 - 00:06:15:20
Daniel
Okay. Now, we know, of course, that the Iranian economy, particularly depends, on oil revenues, certainly the budget of the government does. So how does this leap in the oil prices affect that?
00:06:15:22 - 00:06:51:22
Djavad Salehi-Isfahani
Well, ironically, leap in oil prices has helped Iran, in a war that itself has cost the price increases. So it's a bit self-serving, because Iran has control of the, Strait of Hormuz, which is its major, asset in this war, perhaps next to having, missiles. It is able to allow its own ships or ships with oil that is going to benefit it.
00:06:51:24 - 00:07:28:03
Djavad Salehi-Isfahani
Meaning is reaching a destination where it can actually use the money. That has enabled Iran to, maybe, get a lot more of for its oil, for its oil, maybe also export more oil. Iran was exporting a little over 1 million barrels per day, before this. And I suspect that that is continuing, with with the recent decision by the United States, which is the height of irony, to allow Iran export oil.
00:07:28:05 - 00:08:05:11
Djavad Salehi-Isfahani
You know, they use sanctions on oil to prepare the conditions to attack Iran. Now that they've attacked, they rather, remove the sanctions. And so I think that's kind of has created a bit of a strange situation. Iran is probably exporting, again, more than, a million barrels per day. These sanctions, just to hasten to add the removal of sanctions, is about the oil that's already a lot, on ships, I think 140 million barrels, which is worth about 14, $15 billion on the market.
00:08:05:13 - 00:08:18:23
Djavad Salehi-Isfahani
So Iran's access to foreign currency, as low as it was, it hasn't deteriorated very much. On the under the war conditions.
00:08:19:00 - 00:08:43:21
Daniel
I mean, it definitely sounds like, an irony, like you were saying that, the backlash in the US has been quite high because of the rise in oil prices. Yet that's the very thing that's benefiting Iran. But the the US government will be hoping from their side that the disruption of this war will affect the government's ability to fund its military, in particular its nuclear program.
00:08:43:23 - 00:08:56:23
Daniel
Do you see that happening in the near-term? Is there any sort of economic goal from the US and Israel perspective achieved in that regard?
00:08:57:00 - 00:09:30:13
Djavad Salehi-Isfahani
Absolutely. It's impossible to fight a war without putting pressure on the local population. Maybe only in the US where the economy is protected from foreign attacks. You can fight a war and people don't notice it in the grocery store. But in Iran they will. Even before the war started, you could notice that the supply of the limited foreign currency to import consumer items had diminished.
00:09:30:15 - 00:09:58:16
Djavad Salehi-Isfahani
At the time, I wasn't sure why that was happening, why the dollar was rising very fast. But one possible explanation is that preparation for this war, importing military equipment took precedence over consumer goods at the time. Rightly so. And, raised the, foreign exchange rate. And, that led to more inflation that led to, the, the riots.
00:09:58:18 - 00:10:26:08
Djavad Salehi-Isfahani
At present, that equation is kind of, as I mentioned before, has been pushed to the background. But the, fact that, taking care of military equipment, getting taking care of, soldiers, incomes, takes precedence over the bureaucracy, the middle class and so on. A lot of jobs have been lost due to war.
00:10:26:08 - 00:10:51:09
Djavad Salehi-Isfahani
It's a bit like the Covid situation which we are with, which we are familiar. The war, severs several many employment ties, either the workplaces ruin or the product that was being supplied is no longer in demand. So people lose their job, lose their jobs, and lose their access to income. Again, go back to the cash transfer program.
00:10:51:09 - 00:11:25:20
Djavad Salehi-Isfahani
So the government, because it, owns the currency, it can't pump money, even when the goods, with which to buy, stuff is, is is lacking, but temporarily again for maybe 2 or 3 months, they can maintain this and the pressure, from the war doesn't, or the pressure from the military expenditure doesn't necessarily translate into loss of income for the rest of the economy.
00:11:25:22 - 00:11:40:02
Djavad Salehi-Isfahani
But over time, there's no question that the damage caused has to be repaired. Both in the military and civilian. Again, the military may take precedence. So there would be hard times ahead after this is over.
00:11:40:04 - 00:12:09:08
Daniel
There's this some theory that, the United States focused on sanctions against Iran for so long because it basically developed these, tools to try and isolate all kinds of countries that it was, that opposed U.S. policy in whatever way, and that, those essentially didn't work the way that certainly Donald Trump, or Benjamin Netanyahu wanted it to.
00:12:09:10 - 00:12:30:01
Daniel
And that is what brought them then to say if economic measures won't work, then we intervene in a conventional military way. What impact have sanctions actually had on the Iranian government until the war? Have they been an effective tool at all from the US? Policy side of things?
00:12:30:03 - 00:12:57:22
Djavad Salehi-Isfahani
Well, there are two kinds of effects that people talk about. One is the effect on incomes of the people or access to resources by the authorities. The other is the impact on their decision making. I mean, the purpose was not just to make people feel miserable. The purpose was to get them to, if they were civilians, to topple the government, and for the government to feel the pressure and change its policies.
00:12:57:24 - 00:13:36:01
Djavad Salehi-Isfahani
Those did not happen. In fact, the opposite happened. People didn't become more prone to protest. There were more protests, some very successful protests, like the life Freedom Women's women life freedom movement of three years ago, that led to the removal of forced hijab. So that turned into unsuccessful protests, protests that were harshly, clamped down like the protests a month ago, which had more of an economic character.
00:13:36:03 - 00:14:01:07
Djavad Salehi-Isfahani
So I don't see how one could, ultimately, assess the, sanctions regime as having been successful. It didn't create the success, to get the population to put more pressure on the government because the government had the guns and could clamp down, and it didn't cause the government to become more likely to accept U.S terms.
00:14:01:11 - 00:14:29:12
Djavad Salehi-Isfahani
In fact, in my view and view of many, the government has become less likely to, accept U.S. terms, and it is waging a very destructive war against its neighbors as a way of compelling the United States to, to be to be, to take fewer concessions than it might have. And we don't know how things are going to proceed.
00:14:29:14 - 00:14:51:13
Djavad Salehi-Isfahani
But this kind of it saddens change, from war to diplomacy, albeit taken, amounts to late, shows the fact that, from the U.S. point of view, the negotiation terms have not improved. If anything, they may have deteriorated.
00:14:51:15 - 00:15:28:22
Daniel
And so there's no getting away from the fact that the US does have, a lot of options, a lot of levers to pull when it comes to Iran's access to, the dollar, except for the fact that Iran is a very important, oil producing nation. And so that has, put a lot of fear into the U.S, for, from, for example, sanctioning Iran Central Bank is though Iran's eastern allies, I'm thinking, for example, of China, a kind of pressure release valve when it comes to the impact of sanctions on Iran.
00:15:28:24 - 00:15:56:18
Djavad Salehi-Isfahani
Let me, make a note on something you just said about Iran's ability to have oil or to export oil as being a key reason why the US sanctions didn't have the impact it has, in fact, in fact, it is Iran's access to the Strait of Hormuz, not to oil. You can be an oil exporter like Venezuela, but if you can't affect, the US global markets, then you don't have many options.
00:15:56:20 - 00:16:14:19
Djavad Salehi-Isfahani
If Iran was not able to close the, Strait of Hormuz and raise prices, it would be in the same position as Venezuela. And they have had to, accede to US demands. Sorry. Can you repeat the second part of your questions? Because I was trying to answer the first question.
00:16:14:21 - 00:16:37:04
Daniel
Yes. So putting aside from the fact that, the US has found it difficult to to sanction Iran and get its goals completed anyway, has eastern partners, been particularly instrumental to Iran for having a kind of pressure release valve having alternatives, in order to avoid the the impacts of, US sanctions?
00:16:37:06 - 00:17:07:08
Djavad Salehi-Isfahani
Yes, very much so. Especially after the war started, US sanctions didn't US sanctions against Iran did did not impact China's fortunes that much. Because or is fungible Chinese could import from Saudi Arabia or other places. But once the war started, another element was created which is can the US control oil supplies from the Persian Gulf area?
00:17:07:10 - 00:17:31:15
Djavad Salehi-Isfahani
In which case it might, not. Be willing to sell to Chinese or sell it if the Chinese make concessions on other issues like Taiwan and so on. And, I don't know exactly how China is helping. It's probably a military secret as well. And there are rumors that they, supply Iran with information from satellites and so on.
00:17:31:17 - 00:18:14:20
Djavad Salehi-Isfahani
But the fact that the Chinese are trying to prevent us from controlling sources of oil for China, from Venezuela and from Persian Gulf is a very important incentive for the Chinese to remain involved. One way they will continue to remain involved is to accept Iranian oil in return for a yuan payments in Chinese currency or in-kind. So, if China weren't there, the US sanctions would be much more biting in the sense that Iran would sell the oil if the money goes to any bank account.
00:18:14:22 - 00:19:12:03
Djavad Salehi-Isfahani
As the U.S. Treasury Secretary, Scott Besson, has, correctly, I think, threatened us can block those accounts, meaning it prevent, the, transformation of the currencies, from dollar to currencies that Iran needs to buy stuff, say, from Malaysia and so on. But right now, that is not a constraint. So I, I my my feeling is that, China is very, very much interested in a kind of a, equilibrium, not for the war to cease very quickly and Iran be defeated, because then, the US, monopoly over Persian Gulf, energy becomes, becomes a fact, but also for Iran to, be able to
00:19:12:03 - 00:19:32:08
Djavad Salehi-Isfahani
remain, in the Chinese orbit, still needing China either for supply of military hardware or, for goods in exchange for oil. It's a kind of a barter the Chinese are able to make, because they have such a variety of commodities that people want.
00:19:32:10 - 00:19:54:19
Daniel
Now, just, a bit more on the oil aspect. The, Islamic Revolutionary Guard Corps, the IRGC is reported to control about half of Iran's oil export revenues. So when we talk about the Iranian economy, are we actually talking about two parallel economies, one for ordinary Iranians and one that funds the military machine?
00:19:54:21 - 00:20:24:24
Djavad Salehi-Isfahani
Yes. Well, you know, again, another irony. The war was supposed to weaken the IRGC. It has actually strengthened not just the war, but the sanctions did that to IRGC was much more able, but much better able to sell Iran's oil, chaperon it through the global waters, international waters, and find the destination, keep the money, bring the money back, and so on.
00:20:25:01 - 00:20:57:13
Djavad Salehi-Isfahani
So, that's how they gained, so much control of the oil supplies. The the time came that, the, IRGC would, accept shiploads of, crude as part of its, budgetary allocation, because they were in a position to sell it. Iran had the experience of having private sector sell. It is a famous case where it got one of these guys, was still around who sold this oil.
00:20:57:15 - 00:21:27:18
Djavad Salehi-Isfahani
Did not bring $3 billion worth of it back. So Iran turned to IRGC even more for handling the export of oil. IRGC, importance does not come from control of oil supplies. Really? Because, once you are the only military authority in any place, you have power. It could be, Pakistan or Egypt.
00:21:27:20 - 00:21:51:05
Djavad Salehi-Isfahani
You know, they have very strong militaries and with a lot of economic interests. In Iran, IRGC became important as a result of sanctions because it directly was handling exports as opposed to waiting for private sector to make the exports, and then lays claim powerfully through the budget process.
00:21:51:07 - 00:22:17:24
Daniel
And now, one of the points that you made was about the effect of, sanctions on, you know, encouraging the people to stand up against the regime, let's say. And the protests that began in December were the largest since the revolution. And in 1979, and that was triggered, by this economic pain, or at least that's one of the key pillars.
00:22:18:01 - 00:22:40:09
Daniel
The government responded by raising security spending, by nearly 150% while offering, wage increases well below the rate of inflation. It should be said. What does that tell us about the regime's priorities? And can the government survive by simply choosing guns over butter indefinitely?
00:22:40:11 - 00:23:22:14
Djavad Salehi-Isfahani
That's a very good question. I think, what we saw, before the war where money was going, to IRGC and the government was giving small concessions in terms of, again, cash transfers to the population more was more revealing of its confidence that it could control, the politics could control, the demonstrations by, small amounts of cash transfers and so on, then not caring about the public, Iran's government is still a revolutionary regime.
00:23:22:14 - 00:24:02:08
Djavad Salehi-Isfahani
And revolutionary regimes depend more on popular opinion than on, brute force. When they get established, this changes, the elements that, care about public's well-being is reflected many times in the history of the Islamic Republic, when big demonstrations are followed by concessions. In fact, the biggest demonstration in Iran, if I will, if you believe New York Times took place after the controversial election of Mahmoud Ahmadinejad in 2009.
00:24:02:10 - 00:24:24:17
Djavad Salehi-Isfahani
They reported 3.5 million people in the streets of Tehran. I happened to be there. There were a lot of people, and it was all went very peacefully, except when, it went on for several days and the government, started to clamp down. Nothing like the one that happened two months ago, maybe 600 people were killed, in 2009.
00:24:24:19 - 00:24:55:04
Djavad Salehi-Isfahani
But there was a big step back. What was that step back government recognizing that the sanctions were effective and, allowing, a new, president, then Rouhani to be elected to negotiate with the US, the hardliners who were very hard pressed to reject the terms that, Rouhani had negotiated with the US, that of his famous JCPoA that Trump, tore apart.
00:24:55:06 - 00:25:23:02
Djavad Salehi-Isfahani
But they took that. Why? Because they really cared about, living conditions. And but the popular opinion was then you come to, Mahsa Amini, the woman lives freedom protest again. There was a similar situation. They could have clamped down much harder like they did in January, but they didn't. Instead, they stepped back. They, stopped off at enforcement of a job in the streets.
00:25:23:02 - 00:26:12:09
Djavad Salehi-Isfahani
Basically, there's still, laws against their job, but it's not they're not being enforced. Anybody who travels to Iran can see women, much more, liberally, closed. So, I can't say that the clampdown and what it did in terms of his budgetary, allocations was telling us about they didn't care about the public. I think the most recent, protest took a very strange turn, with, according to reports that the protesters had weapons and, the very strange admissions coming from, Tel Aviv and from Washington that Mossad and CIA were involved and they were going to help.
00:26:12:09 - 00:27:05:03
Djavad Salehi-Isfahani
And so that really changed the situation completely. I don't know which government will, allow protesters in the streets if two, nuclear powered, external governments say that we are helping them and we're going to make sure they succeed, that's sort of, ABC of, running a state that you have to clamp that down. So I would say this most recent, protests were more the continuation of the June war, the 12 day war with Iran, rather than the continuation of previous protests, because they don't look anything like the previous protests, where there was a clear demand, like remove for the job, allow a new prime minister to negotiate with
00:27:05:03 - 00:27:32:03
Djavad Salehi-Isfahani
the US. Those are demands that the government could see itself, implementing. When you come and say the whole government must go, that is a very difficult thing for any government to accept. And, the protesters, if they were organized better, they would have known is going to lead to a bloody confrontation in which they could not possibly win because they were locked.
00:27:32:05 - 00:28:15:13
Djavad Salehi-Isfahani
So, I think the, sanctions and the war have made this choice between constant barter, which is something we teach in economics, one on one more to the front. And it remains to be seen which way the government will go. More guns or more butter? I don't think the answer to that is no. Given the history of the Islamic Republic, which, after major protest, has shown some flexibility, you know, Iran of today or Iran of, last December, is not comparable to Iran of for 40 years ago at the beginning of the revolution.
00:28:15:15 - 00:28:51:16
Djavad Salehi-Isfahani
There's a lot that happens now. There's newspapers, there's a very strong, although constrained, civil society. And, if the, current, destruction of infrastructure doesn't go very deep, I think that civil society will reassert itself and the government will face a choice of running the country like a military dictatorship, or allowing this kind of a very, subtle balance between what people want and what the government wants.
00:28:51:18 - 00:29:22:06
Djavad Salehi-Isfahani
They've never been quite the same. Those wishes have never been the same. The government wants a very, pious society, people, covered in and cover their dress, and men abide by, whatever rules, that the government imposes. And the middle class wants more personal freedoms, more political freedoms. Those are at odds. Every society has found a way to balance those without killing one side or the other.
00:29:22:08 - 00:29:55:23
Djavad Salehi-Isfahani
And unfortunately, the forces that have attacked Iran are very much interested in an end game, war inside Iran, a civil war that will leave Iran, more more. So I think this is the wish of, the Israeli government to leave Iran as a rubble. And I think, United States as it was. Empire is interested in having an Iran that it can work with, and Iran that can work with its neighbors so that the region is something worth controlling, even now.
00:29:55:23 - 00:30:17:07
Daniel
You've been very generous with your time. I just have one more question for you. You have, friends and family in Iran? What are they telling you about the situation at the moment? And what are you listening out for from them to understand the situation as it's going forward and what happens next?
00:30:17:09 - 00:30:52:12
Djavad Salehi-Isfahani
I'm sure you know that internet is down. Communications is one way they can call us. We can't call them. So. But I'm very curious. I do ask, who's, alive, who's dead? And I tried to keep track of, even the moods of the population, from a distance. One of the most interesting things is that a lot of Iranians, even when I was there, less than a year ago and talked to people, they were hopeful that military intervention could quickly topple the regime.
00:30:52:14 - 00:31:36:06
Djavad Salehi-Isfahani
Why? Because they watched the same, propaganda that everybody watches, abroad. They don't have their own way of knowing how secure the Iranian government is. So, TV station Iran International gave them the feeling that, an attack by the U.S. could quickly liberate them. So they were very hopeful. But once they saw the actual face of war, which most Iranians have never seen, there was a brief period when Iraqis were bombing some cities in Iran, but not all, they became, more aware of, how wrong that Western predict prediction was that military could quickly settle everything and Iran, Iranians would be liberated.
00:31:36:08 - 00:32:01:13
Djavad Salehi-Isfahani
They are, becoming at least ambivalent about the continuation of the war. And, but nobody's hiding how bad the conditions are. You know, when, the sound of bombs, the sound of airplanes at night come. I don't think many Iranians are able to sleep unless they take medication, for a sleep. It is so, forceful.
00:32:01:15 - 00:32:26:04
Djavad Salehi-Isfahani
Again, if you compare it to Saddam Hussein's war on Iraq in the 1980s, he didn't have at all this kind of power to threaten to generate fear, which is will kill you will destroy everything, and so on. And you listen to some U.S. policymakers like they, war secretary in the U.S. and its, ministers in, in Israel initiate an Iranian.
00:32:26:04 - 00:32:52:07
Djavad Salehi-Isfahani
You really think, your own house is going to get destroyed? You know, they see images of, Gaza where there is no house standing and they are terrified. That's why anything like the news came yesterday that President Trump said that we are talking to the Iranians suddenly creates a lot of joy if the war ends. That is going to be the key determining factor in Iran's future.
00:32:52:13 - 00:33:14:08
Djavad Salehi-Isfahani
Does it end for good or does it, is it just a sigh of relief for a temporary ceasefire? And the latter is not going to be very effective, because the government would continue to put money to military in order to be prepared for the next war. Nobody will even, repair a roof that's broken because they expect another bombing.
00:33:14:10 - 00:33:34:09
Djavad Salehi-Isfahani
But if they settle this in a way that the population believes this was it, nothing is going to happen for the next ten, 20 years. Then you will see this, what I've called the jack of Jack in the box phenomena, where Iranian society, with all the skills, videos, all optimism throughout history, will just spring up and repair things.
00:33:34:09 - 00:34:05:18
Djavad Salehi-Isfahani
Maybe it'll take ten years to get back, but Iran will immediately becomes a very, progressive, forward looking society. It all depends also how the government comes through in this, whether it does what it has done in the past, which is to recognize some mistakes it has made and try to win the population or just, carry on with saying we want you lost, meaning the population that will dampen the impact of any, peace that, follows.
00:34:05:20 - 00:34:12:20
Kassandra
You're a globally minded person. You like to think outside the box and see how other countries are tackling the biggest questions of the day, so.
00:34:12:20 - 00:34:22:03
Daniel
Why not check in with our sister podcast, Berlin Briefing, to get the inside track on how Europe's biggest economy is tackling geopolitics.
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00:35:03:00 - 00:35:11:22
Kassandra
Staying with the war in Iran, you already know that the war has driven up the price of oil. But that doesn't just mean increasing prices at the pump.
00:35:12:03 - 00:35:26:20
Daniel
That that's right. It means the price of vital chemicals rises too. And you might not think about chemicals all day. I mean, it's not what I, how I spend my time, but things like fertilizer are absolutely essential. And when it gets more expensive, your food bills rise.
00:35:26:22 - 00:35:35:21
Kassandra
That's right. In fact, chemicals that come from oil are upstream inputs to construction cars, medicine, clothing, tech and even packaging.
00:35:35:23 - 00:35:46:15
Daniel
Let's speak now to Joe Webster, who's a senior fellow at the Atlantic Council, and Janelle Doom a lot on who is our Washington correspondent. And she's been investigating the impact of price pressures on American farmers.
00:35:46:16 - 00:35:51:13
Kassandra
Joe, what does the Hormuz blockage mean for global food security?
00:35:51:15 - 00:36:17:01
Joseph Webster
Lee yes, it's a great question and an important one. So, this this conflict is going to be very, damaging effect on global food security, whether even United States, Europe or elsewhere. And so just look at the prices for different commodities. So the price of urea and ammonia, which are both very critical inputs in the agricultural supply chains, they're up 50 and 20%, respectively, since this war began, in, in early and started late February of last year.
00:36:17:01 - 00:36:38:09
Joseph Webster
And so the US, for instance, we rely on urea urea imports for about 50%, of domestic consumption. And so just with those rising prices, you're going to see a very significant increase in costs. There's also other costs for agriculture. Oil producers that are rising. Diesel, for instance, is a is a is a modest but significant, driver of agricultural costs.
00:36:38:09 - 00:36:47:05
Joseph Webster
And so you will see, global food prices rise. And potentially in a worst case scenario, global food become more scarce. So it's it's very concerning out there.
00:36:47:07 - 00:37:02:18
Kassandra
Right? Food is one part of this. But then there's also a lot of other products that can be affected. So can you walk us through simply how disruption in the Persian Gulf ends up affecting a plastic bottle or a synthetically, synthetic fabric jacket in Europe?
00:37:02:20 - 00:37:25:09
Joseph Webster
Absolutely. So, the Persian Gulf and Arab states are very important for global energy production. So about 20% of oil production and 20% of liquefied natural gas or LNG production, must traverse the Strait of Hormuz. And so if you take and these are very in demand for these products is very inelastic, meaning that if the price of gasoline rises, you're still going to want to drive places.
00:37:25:11 - 00:37:46:04
Joseph Webster
And so these outages for, for gas, for natural gas and for oil, are going to have major impacts on prices. But there's also going to impact petrochemicals. So as you noted, oil oils are used in a for use cases. So it's used for things like gas or gasoline, diesel or jet fuel, but also petrochemicals.
00:37:46:04 - 00:38:07:18
Joseph Webster
So petrochemicals are a little bit distinct from from your typical oil product. And they can be used for things like jeans. They can use for things like packaging for, packaging for, for food products, plastics, etc.. And so if, when there's outages in the Middle East, the Middle East is an important provider of those feedstocks for petrochemical plants.
00:38:07:20 - 00:38:33:12
Joseph Webster
It's also a very important provider of electricity, for ultimately electricity for many petrochemical plants, especially in East Asia. So the economies of Japan, Taiwan, South Korea, rely pretty significantly on LNG exports from, from the Persian Gulf, especially from guitar. And so Taiwan, for instance, about half of its electricity is from liquefied natural gas or LNG.
00:38:33:14 - 00:38:53:20
Joseph Webster
And so if Taiwan, for instance, is forced to curtail electricity, because, because of these LNG outages that will have ripple impacts on, on petrochemical production in these places. So, if petrochemical prices rise sharply or if you see fiscal shortages that will impact a wide array of products.
00:38:53:22 - 00:39:15:16
Daniel
Yeah. So, this oil, shock is feeding into all other kinds of petrochemicals as well as essentially what we're taking away from this. And Janelle, we heard from Joe already about urea and ammonia. We're talking about fertilizer. These it becomes massively important input into the agricultural supply chain, which affects what ends up in the supermarkets and at what prices.
00:39:15:18 - 00:39:25:21
Daniel
But, you know, America produces a lot of fertilizer, but it also imports a huge amount. So where in the US is the shock hitting hardest?
00:39:25:23 - 00:39:55:12
Janelle Dumalaon
Yeah. So as Joel pointed out, the U.S relies on imports for a significant bit of its fertilizer needs. And unlike, say, China that stockpiles fertilizer, the U.S. doesn't really do that. So basically the fertilizer is bought and used. And the most obvious region and pain here in the U.S. is the Midwest and the so-called Corn Belt. So you have to think of states like Iowa, Illinois, Indiana, Missouri, where the soil is really flat and they're just about to plant, and they would need to be applying that fertilizer now.
00:39:55:14 - 00:40:27:06
Janelle Dumalaon
So corn happens to be a very nitrogen intensive plant. So these are obviously challenging times for rural America. And it's becoming obvious that it's very hard to diversify in a hurry. So there was talk of bringing over fertilizer from Venezuela. But similar to its oil industry, there are problems there around kind of the maintenance of infrastructure. There are some neglect issues and suffice to say, the conditions for quickly ramping up fertilizer production in Venezuela aren't ideal weather politically and economically speaking.
00:40:27:06 - 00:40:32:02
Janelle Dumalaon
So farmers, to say the least, have a problem, especially in the Midwest.
00:40:32:04 - 00:40:51:10
Daniel
And Joe, a third of global urea, and a quarter of ammonia come from the Gulf. Some are calling this the fertilizer shock because fertilizer so vital for food. Should we be focusing more on fertilizer prices than just pure oil prices right now? Is it really that important?
00:40:51:12 - 00:41:17:14
Joseph Webster
I think you raise a very important point. So this will have major impacts across not only, not only oil and gas supply chains, but also across fertilizer markets as well. And so this crisis also could not come at a worse time because this is in the planting season. And so because because of that, because of the, the cyclicality of planting, if farmers don't have access to these agricultural inputs, their crop yields could be reduced, over time.
00:41:17:14 - 00:41:40:17
Joseph Webster
And so this could have a very significant impact on food prices downstream. So this is something to worry about. I think there's obviously there's major economic implications for this. So there are different studies suggesting that over 45 million people, will incur increasingly based food scarcity. That's a major concern. You know, angles all hold that, as, you know, as income rises and shares milk on food is reduced.
00:41:40:17 - 00:42:01:14
Joseph Webster
But that implies that, you know, people with less means have to spend more money, on agricultural goods. And so this is going to have a major impact on global poverty. But I would also say that this will have a major geopolitical impact, this this outage in the Middle East, you know, arithmetically, will just mechanically will increase the leverage of Russia, Belarus and China.
00:42:01:16 - 00:42:26:23
Joseph Webster
So China is not exporting, China is not exporting ammonia currently. They do have stockpiles of it. They're very concerned about domestic food security for now. But Russia is the world's largest exporter of fertilizer. Belarus, Russia's very close partner, is a major player in potash markets. And so if this crisis persists, you will see Russia, Belarus and potentially even China, having greater, leverage in the agricultural space.
00:42:26:23 - 00:42:31:04
Joseph Webster
I think that that could be a new and frankly worrisome development going forward.
00:42:31:06 - 00:42:47:07
Kassandra
Yeah. I want to return to Russia and China in just a moment. But, you know, you've been speaking with farmers in the US Midwest. How are they dealing with this price shock were you were many of them able to lock in orders before prices spiked?
00:42:47:09 - 00:43:10:12
Janelle Dumalaon
You know, because I'm trying you know, some did and some didn't. So it basically happened was that there was a window of declining prices in the U.S. across fertilizer character. Categories, at the end of 2025. And then there were farmers who decided to take advantage of that and lock in their orders. And by then and then there were other farmers who wanted to wait and see if the prices would fall, even further.
00:43:10:12 - 00:43:38:05
Janelle Dumalaon
And then by so, obviously, in hindsight, that second group didn't end up being so lucky. They didn't have a war in Iran driving up diesel and fertilizer prices on their bingo cards. So that was unfortunate for them. But, it's also worth noting that not every farmer I spoke to, was suffering from this fertilizer crisis in Iowa, for example, I talked to one farmer who also raised pigs alongside planting corn and soybeans.
00:43:38:07 - 00:43:57:21
Janelle Dumalaon
And he said that the pigs in Europe basically covered all of his fertilizer needs. So that's specific to Iowa, because in Iowa, there is something like a 7 to 1 ratio when it comes to pigs to people. So interesting fact for you there. But just to go back to the point, if you are affected by the fertilizer crisis, then you are then you're really, really hit hard.
00:43:57:21 - 00:44:18:01
Janelle Dumalaon
So you're looking at 30% higher costs. Although of course that's a moving target. You might also have, you know, issues of supply there might not even be that much fertilizer to buy where you are. And again, the issue that we keep coming back to, I've also mentioned that as as Joe has, is the window, right? That spring planting season is upon us and they need that fertilizer now.
00:44:18:03 - 00:44:44:11
Daniel
Yeah. The pig ratio is an underrated economic indicator, I find. And, you know, the corn and soybean farmer, Scott Gardner told you that anhydrous ammonia prices jumped from $970 to $1020 within 20 minutes, and US farmers were already struggling with tariffs, for example, and low crop prices before this war even started. How much more can they take?
00:44:44:13 - 00:45:02:05
Janelle Dumalaon
Well, the answer really is that it depends from farm to farm. So you alluded to that conversation that I had with Scott Gardner, and he really brought home this point that, uncertainty is a very bad for them. Agriculture is a really it's a business that has a lot of variables anyway. So whatever you can plan, you do want to plan.
00:45:02:07 - 00:45:32:24
Janelle Dumalaon
And there were actually numbers that he cited in our interview. He said that he that he and other farmers, especially in the Iowa, Indiana and Ohio area, are looking at something like $130 loss per acre when it comes to soybeans and $230. No, it was $138 for soybeans and $230 per acre for corn. So, you know, translating that into European terms, that's like half a hectare, if I'm not mistaken.
00:45:33:01 - 00:46:01:11
Janelle Dumalaon
So. And that you have to consider that that was before the war. This was, this were pre-war conditions before the prices of diesel, diesel and fertilizer shot up. So how well farmers are able to weather this really depends on their specific set of circumstances. Does the farmer own or rent the land? Because obviously land rents are of a very big line item for some of these farmers, or how energy efficient is their equipment?
00:46:01:11 - 00:46:22:14
Janelle Dumalaon
Do they have other revenues coming in? They might have a spray operation or a seed business. But the point really is, is that it seems to be getting harder. One farmer I told one farmer that I spoke to told me that her banker told her that he might he would be able to wallpaper his office with the amount of farm sales that he's getting.
00:46:22:16 - 00:46:46:03
Janelle Dumalaon
And there's also, you know, the farmers that are giving up on the business. That are giving up on the business completely selling these farms. But then there are also farm bankruptcies. And those were already on the rise before this crisis in 2024. It was something like 46, in 2025, rather, it was something like a 46% increase on farm bankruptcies relative to the year before.
00:46:46:07 - 00:46:58:21
Janelle Dumalaon
So really, I guess your mileage may vary. You know how well some of them have decided they can absorb more hits than others, while others are saying they've reached the limit of the hits that they can absorb.
00:46:58:23 - 00:47:12:11
Kassandra
Joe, you've been listening long. Soaring diesel and fertilizer costs are hitting U.S. farmers during this peak planting season. How much does this timing matter, and how long before this starts to hit supermarket shelves?
00:47:12:13 - 00:47:37:16
Joseph Webster
Yes. So, just really quickly, there is a strategic pork reserve in China. And so maybe we need to look into this pay gap, with the, with China pork. So regarding diesel, you know, this is also just like petrochemicals. It's a major input into virtually every product. There was a report, announced by the OECD that says that the US will face will likely face about 4.2% inflation, which will be the highest in the G7.
00:47:37:22 - 00:48:00:15
Joseph Webster
And frankly, diesel is a huge driver of that. If you look at US diesel prices, you list prices in New York Harbor. They're up about 60% since the war began, I think even more so today. And so this is going to ripple across the entire economy. So when it comes to driving agricultural, input costs specifically, it's a diesel's are relatively limited direct, driver of this cost.
00:48:00:15 - 00:48:15:06
Joseph Webster
I think it's about 3%. But nevertheless, it is a it's a major it's a major cost driver for much of the US. You know, if you want to, if you want to ship goods to market, if you're if, you know, if you're if you're if you're taking things across the country, it's a major, it's a major driver.
00:48:15:06 - 00:48:20:11
Joseph Webster
And so as diesel prices rise, farmers and frankly, all consumers will be affected.
00:48:20:13 - 00:48:33:06
Daniel
Okay. And we've focused, very much on the US so far, Joe, but, we've seen that, Russia and China are also cutting, exports of fertilizer. So, globally, who's being hit hardest by this? The most.
00:48:33:08 - 00:48:54:21
Joseph Webster
Yes. So, so Russia is the world's largest exporter. Fertilizer. So those are continuing. China has for now restricted exports of, of ammonia. And that could change. So China uses unlike most most production in the world of ammonia is with natural gas as a feedstock with China. However it's a little bit different. They use coal predominantly for for ammonia production.
00:48:54:21 - 00:49:18:18
Joseph Webster
And so they've they've restricted exports because China is deeply concerned about about domestic food security. I think it's an underappreciated element. Western analysis of China is just how much food security drives China. They've experienced famines, within within living memory. And so they do have a strategic port reserve. I know that's that's kind of a, a kind of a punch line for us right now, but that is that is a real concern for the Communist Party leadership.
00:49:18:18 - 00:49:58:02
Joseph Webster
And so they will not in the short, in the near immediate term, they will not lift this export ban, for certain agricultural products because they are too concerned about some sort of food crisis rippling across China and frankly, threatening the Communist Party's legitimacy. But as this crisis persists, and I think it likely will, you might see China's calculus shift, because if they believe that they are sufficiently protected, domestically, if they think that they have sufficient domestic food security, they will likely seek to reenter, global food markets, you know, whether it's with production of, of ammonia or other agricultural inputs or even agricultural final products.
00:49:58:04 - 00:50:36:09
Joseph Webster
And if that happens, you can see China. Well, especially Russia, China, to some extent, Belarus really occupy a major share of total agricultural trade, and they will have significant leverage over much of the rest of the world. And so if global food prices do rise and countries become increasingly desperate due to this major outage, you could see this autocracy block, start to form something like maybe not quite like a OPEC or food, but you could see these, these, these three authoritarian country, these, these three authoritarian governments form a cohesive bloc, which would have major impacts on global food security.
00:50:36:11 - 00:50:49:15
Kassandra
Yeah. Speaking of food security, Joe, the Gulf countries produce the fertilizer, but they also import most of their food through the same Strait of Hormuz. So how vulnerable are they right now?
00:50:49:17 - 00:51:12:10
Joseph Webster
Yes, it's a really important question. So just across the board, the the GCC countries are in a very difficult spot, because because of the initiation of this conflict. And so global food security is a major concern for them, but their exports are also reduced. Some countries that rely on tourism or real estate are having a, at least in the short term, a major, shock to their business model.
00:51:12:12 - 00:51:36:21
Joseph Webster
And that business model could sustain over the long term. And so there's, there's some, there's some discussion. You've seen news reports this this week of Gulf countries potentially pulling out tens of billions of dollars of investment from the US if this crisis continues. And and that's in part because of, because of the domestic challenges they face, when it comes to food stocks, my understanding is that most of these countries have sufficient inventory in place.
00:51:36:21 - 00:52:02:20
Joseph Webster
You know, the GCC countries especially are quite wealthy. And so I'm not as concerned about the, about hunger shortages in those countries. I don't think that's in the I don't think it's an immediate term problem. But for a place like Iraq, or even like a place like Iran, so Iran has, much of its, much of it's, for instance, if we look at food production in Iran, much of that stems from, they have to use water for their water.
00:52:03:00 - 00:52:28:06
Joseph Webster
Agriculture everywhere, is the predominant consumer of water. And in Iran, much of Iran's electricity or much of its water is groundwater driven. It's the requires electricity to function. And so if, if, frankly, if the US or, Israel targets the Iranian electricity grid, you could see a potential food crisis and a water crisis, because the Iranians would not be able to access groundwater, that could also be true in Iraq as well.
00:52:28:08 - 00:52:43:10
Joseph Webster
Iraq imports lots of natural gas from Iran and uses that for power. And so I am worried about a a food crisis across the Middle East. From a humanitarian perspective. But right now, I think, Iran and Iraq are the most vulnerable to such a crisis.
00:52:43:12 - 00:53:06:17
Daniel
It just goes to show how vital these supply chains are and how everything is so deeply interconnected. Janelle, we've talked about things like packaging, clothing, food, gasoline as well. I mean, all of these could be hit by a price rise increase. I mean, we're seeing prices rise, already in many areas. What happened to lowering the cost of living from the Trump administration?
00:53:06:17 - 00:53:13:13
Daniel
Because all of this has come about because of, Donald Trump's, plans in Iran.
00:53:13:15 - 00:53:37:02
Janelle Dumalaon
Well, I mean, the short answer there is that it hasn't happened, Danielle. I mean, as we can see, it's been very obvious. But you are right. He did sort of run on economic issues, on affordability issues. And the fact that prices are continuing to rise is definitely weighing on his populist popularity, his handling of the economy and the Iran war.
00:53:37:04 - 00:54:05:04
Janelle Dumalaon
So there was actually a poll from was it was it yesterday, March 25th, that found that 30, 36% of Americans, approve of, Trump's performance? And, you know, that really does represent a low in in the second term of his presidency. The thing is, you really can't hide gas prices from Americans. You know, every day they're on the road, you can see them on the side of the road.
00:54:05:04 - 00:54:23:05
Janelle Dumalaon
And this big prominent lettering, they are able to make the connection between current events and their daily spending. And it is fair to say that they are blaming the white House for these issues. And that's it for this edition of The Dip. If you want more, don't forget to subscribe.
00:54:23:08 - 00:54:33:10
Daniel
And if you have any questions or thoughts or comments or suggestions, then just comment on this wherever you're listening to it. But of course you can also send us an email. It's thedip@dw.com.
00:54:33:10 - 00:54:38:12
Kassandra
That's right. We'll be back same time, same place next week. Until then, thanks for listening to the Dip.
00:54:38:18 - 00:54:39:04
Daniel
See ya.