Transcription
The war that the United States and Israel launched against Iran is having a massive impact on the global economy. Every country on earth is being affected because this US-Israeli war has caused the largest oil shock in history, larger than the oil shocks of 1973 and 1979.
The effects are especially pronounced in Asia, which gets the majority of its oil imports from the Persian Gulf. The Philippines has declared a national emergency and it is now rationing energy because it does not have enough oil due to this war. Japan also imports much of its oil from the Middle East or West Asia. And this is why Tokyo has carried out the largest ever national release of oil from its reserves.
Moreover, the 32 member countries of the International Energy Agency, the IEA, unanimously agreed to release 400 million barrels of oil from their emergency reserves. However, this is only a short-term band-aid measure. It's not a long-term solution. And this is why the global price of oil only went down a little bit in response to the news of countries releasing oil from their reserves. And since then, the global oil price has continued rising because as long as this US-Israeli war on Iran continues, there are going to be massive disruptions in the energy market.
And given that oil is the most important commodity on Earth and it's used in many other products and it's used in all aspects of society in order to transport food and other goods, world leaders are now warning this could cause a global recession. The head of the International Energy Agency said it very clearly. He warned that the US-Israeli war on Iran has been a major, major threat to the global economy. And this war is causing not just gasoline prices to go up, but also food prices to go up because so many fertilizers and chemicals used in fertilizers come from the Persian Gulf region. And it's also likely going to lead to higher interest rates, which will lead to increases in mortgage rates and other rates on loans that are taken by average people. So this is going to hurt the poorest people the most.
So to make sense of how this war is going to impact the global economy, today we will be speaking with the renowned economist Michael Hudson, who's the author of many books including *Superimperialism: The Economic Strategy of American Empire*. And Michael Hudson has been writing articles and doing interviews explaining how this war is going to reshape the world economically and geopolitically. In particular, Michael has argued that this war has meant that multi-polar oil markets are now a reality. And this is because Iran is directly challenging the global dominance of the US dollar and in particular the petro-dollar system. The fact that for decades the vast majority of oil in the global market was priced and sold in dollars. Iran is now challenging that in response to this US-Israeli war of aggression. Iran closed down the Strait of Hormuz, which is the single most important oil transit choke point on Earth. Every day about 20% of the globally traded oil passes through this narrow strait, or at least 20% of global oil did pass through before the US and Israel started this war. And now Iran is telling countries that if they want to pass through the Strait of Hormuz, they have to agree to sell oil not in US dollars, but rather in China's currency, the yuan. Which is why some media outlets are now saying that this Iran war could actually boost China's so-called pro-yuan, and weaken US dollar dominance. So given the massive geopolitical and economic consequences of this war, I thought Michael Hudson would be the perfect guest. So without further ado, we're going to play some highlights of what Michael said and then we'll go straight to the interview.
Iran has said, "What? This is a phase change. We are now forever going to control the Strait of Hormuz in the Persian Gulf, and uh, we are going to control the oil uh trade." And that means that instead of the United States' plans to use oil as a choke point on other countries to enforce their compliance with American foreign policy, it's now Iran that is in control of this choke point and it can impose sanctions on the US and its allies, sanctions on Israel, sanctions on uh the European or any other allies uh of the United States. So, it's turned the tables on the whole US attempt to use oil as a means of control. Now, what issue is Iran being able to achieve what the United States has based all of its foreign policy on: control of the uh international revenues from oil exports.
The American philosophy is: number one, you bomb civilians. You break uh all the rules of international law which are against that. You bomb civilians to demoralize them. And if you concentrate, as Trump did along with Israel uh a few weeks ago, you bomb the schools, you bomb the hospitals. That's American policy uh in foreign countries. It's uh most visible uh in the case of Israeli policy in Gaza and now the West Bank as well, and it's the same policy that the United States followed uh in Iran. Well, the idea was that this would demoralize the population and uh the Iranian population would say, "We want to get rid of the Ayatollahs," and say, "We don't want to be bombed anymore. We want to save the children. We want, let's make a deal and appoint a leader favorable to the United States so that it'll stop bombing it." Well, this was, this is nonsense from the beginning, but it was the guiding spirit of American foreign policy. Bomb a country and that will lead to a regime change and a collapse.
Is this a conflict in uh Iran to determine what will the shape of the international economy be? Uh, is it going to restore American control of the oil trade and give it the uh choke point over the international economy that uh it's looking for? Or are we going to be independent of the United States? That's what this, this war is all about.
>> Michael, it's always a real pleasure. Thanks for joining us today. Now, you've been talking about some of these issues that the world is now discussing due to the war in Iran, especially dollar dominance and the petro-dollar system. You've been writing about this for decades, going back to the 1970s. And in fact, the US government has also been planning a potential war on Iran for decades. This is not something new. Now, Donald Trump is the first president who's actually crazy enough to try it. But I remember going back to the George W. Bush administration, after the US invaded Iraq, there was a lot of discussion of a potential invasion of Iran. So, Michael, explain to us how you see this war. What is the bigger picture here? And how will this impact the world?
Well, you mentioned that it's uh for the last few uh years or decades, it's actually gone back half a century. Uh, I said uh already in the mid-1970s when I was working uh for the Hudson Institute on contracts with the Treasury and the White House and the Defense Department. Uh, I sat in on meetings and they were discussing all along how ultimately the United States was going to have to take control of all of the Middle Eastern oil, and that entailed conquering Iran. And in the mid-1970s, at one military meeting, for instance, Herman Kahn was explaining how probably Baluchistan was the main opportunity to begin carving up Iran into subject uh ethnic constituencies. And Baluchistan, in between Pakistan and um and Iran, was probably the best place to start a separatist movement. There were military plans.
My field uh in the mid-1970s was oil and the balance of payments. I was uh had that position at Chase Manhattan for many years, and I actually was the only, I was so low on the totem pole, being a technician in in my mid-20s, that I was the only person who was allowed to see all of the operating details and statistics of the uh US oil companies and the major companies, so that I could make a calculation as to the the role that oil played in the balance of payments supporting the dollar. Uh, and this was right after the United States uh was forced off gold uh in 1971 because of the Vietnam War. So, uh, the the United States all along has realized that this, uh, what you're seeing today was going to be the endgame of consolidating, they hoped, American control over the Middle Eastern oil. And they wanted that because the center point, the strongest lever that American foreign policy has had for the last century is control of the world's oil trade. Uh, because it's so immensely profitable for the uh American oil companies themselves. Uh, it's given the oil companies major control over US policy and also the US economy, potential control over other countries uh by the ability to turn off the supply of oil to other countries and thereby stopping their electricity production, stopping their chemical production, their fertilizer production with natural gas. Uh, the oil industry includes the gas industry uh because they're so closely interconnected. Uh, all of this was u has been thought out, and every year the military has been upgrading the uh the long-term plans for, well, if we really have to use force to entail our control over other over the Near East, Middle East, if uh for any reason the OPEC oil companies, countries uh want to become independent of the United States and begin investing their oil profits outside of the United States instead of sending all of their oil earnings to the United States to invest in Treasury bonds, corporate bonds, US bank deposits uh and stock holdings. Well, if uh any of them should uh want to exert their own sovereignty and go their own way, we're going to have to take over. And no matter what, we're going to have to take over Iran because that is the most powerful final desk uh locking uh point of US control. And uh you, as we've discussed before, in 2003, General Wesley Clark came right out and said, "Well, we're going to uh conquer uh five, seven countries in five years, culminating with Iran." So all of this has been completely open. This is not simply Donald Trump's war. It's a war which uh he decided at this time because America has uh steadily been losing its position of economic strength, military strength by being uh and arms and supply of missiles and aircraft and uh bombs uh as a result of the war first in Ukraine uh and then supplying Israel. So there will never be a less bad time to go to war than at the present. And of course, it is a bad time, but it's not as bad as it's going to be. And the military and the neocons behind the military and behind uh uh the Central Intelligence Agency uh are not going to give up. They say, "Well, what do we have to lose if we don't conquer the Middle Eastern oil now? Uh, then we're going to be losing our what has become the major lever of American foreign policy. And if we do conquer it, uh, and Donald Trump believed that he could conquer Iran within uh two to four weeks, actually believed that. And his hope was, by the time he went to his scheduled trip to China, he could confront China with saying, "Well, we've just uh caused a regime change in Iran. We're pointing out we've appointed uh an Iranian client uh oligarch client uh dictator to take over and become sort of Iran's version of Boris Yeltsin uh administering Iranian oil in the interest of the United States. So, uh, we now have the power to impose sanctions on you, China. We can cut off your oil. But uh, you know, we don't want to do that. If you begin to export the raw materials, the gallium, the tungsten, and all the other things that we need for our military that you've put a an export uh control on, then we will give you the oil." He'd hoped to be able to present China with that victory. Well, obviously that's gone. The military uh miscalculated uh because they could not think of an alternative that would threaten this grand plan. Remember all of the American military attacks uh for the last uh ever since 50 years, ever since Vietnam, all of the US wars that it had from Vietnam, Iraq, Afghanistan, Syria, you could Venezuela, it's always been the United States and its allies, the coalition of the willing, against single countries. This is the first war that America has fought since World War II where other countries it's fighting against are allied with each other. It's not just fighting against Iran. Now it's fighting against Iran supported by Russia and China because they all realize that this is a fight to the end to decide: is the United States going to be able to reassert its control over the world economy using monopolies? Uh, the oil monopoly, the information technology monopoly uh that is trying to do the computer chip monopoly technology monopoly also. It's uh food uh ability to supply food uh to other countries, its export uh control of of grain. This is the last chance that it has. And the result is there's a feeling of desperation that's led the the US planners to uh to bet it all. And that, I I think that it's not going to work. All of the generals have told them that uh it's not going to work. The generals who've been uh pessimistic have pretty much been forced out of the military and the State Department because, if you're pessimistic, well, why aren't you on board? You know, why aren't you on the team? Or are you Putin's puppet? Or, you know, you just uh got to have faith. America believed that it could not lose any war because it, its policy of bombing other countries was uh always going to work.
The American philosophy is: number one, you bomb civilians. You break uh all the rules of international law which are against that. You bomb civilians to demoralize them. And if you concentrate, as Trump did along with Israel uh a few weeks ago, you bomb the schools, you bomb the hospitals. That's American policy uh in foreign countries. It's uh most visible uh in the case of Israeli policy in Gaza and now the West Bank as well, and it's the same policy that the United States followed uh in Iran. Well, the idea was that this would demoralize the population and uh the Iranian population would say, "We want to get rid of the Ayatollahs," and say, "We don't want to be bombed anymore. We want to save the children. We want, let's make a deal and appoint a uh leader favorable to the United States so that it'll stop bombing it." Well, this was, this is nonsense from the beginning, but it was the guiding spirit of American foreign policy. Bomb a country and that will lead to a regime change and a collapse. That was what America expected in Russia. But Iran essentially has the same spirit that Patrick Henry had in America's revolution against Britain in 1776. He said, "Give me liberty or give me death." And that's exactly what Iran is saying. And they're willing uh to, for them, this is existential because they know what the US plans are, since the United States has been so open in what its plans are. Yes, they want a regime change. They want to break up Iran into parts. They want to take control of Iranian oil and use the oil export revenues to support the US dollar and to uh to support uh basically the US economy and to give American foreign policy the option of turning off the oil to other countries to saying, "We can close down your industry, your chemical industry, your all your industries that that need electric power, oil, gas, we can do all that if you take an independent policy following uh your own sovereignty." And uh we in the United States reject the United Nations principle of every nation has its own sovereignty. This is, this is the basic principle of Western civilization for the last half century. The basic principle of the United Nations Charter. All of that is being rejected by the United States. And what it's done is galvanize other countries to recognize that, well, yes, this really is the final conflict. This is a life, this is a conflict in uh Iran to determine what will the shape of the international economy be. Uh, is it going to restore American control of the oil trade and give it the uh choke point over the international economy that uh it's looking for? Or are we going to be independent of the United States? That's what this, this war is all about.
>> Very well said, Michael. You raised so many important points there. It's hard to know where to start. I wanted to just make a brief comment about this idea that the US has been preparing for war on Iran for decades and as you said was waiting for the least worst moment. And I think this is absolutely right because there also were two major developments in the past two years that led to this war in Iran. One was the overthrow of the Syrian government, which goes back to 2011, the beginning of the regime change war that ultimately succeeded in the end of 2024, which was a major step toward war in Iran. And then also, Israel killed the leadership of the Lebanese resistance, which basically they thought at least would remove Lebanon from the equation. So by removing Lebanon and Syria, at least they thought they removed Lebanon, then the US and Israel could attack Iran by isolating Iran from its allies. Now we have seen that there has still been some resistance in Lebanon, although Israel has invaded Lebanon and is trying to colonize the south. But anyway, I want to talk more about this issue of the dollar system. I think this is so critical to understand this war. You talked about how the US wants to use control of the global oil market in order to undergird the dollar. You know, the petro-dollar system really goes back to 1974 when the Richard Nixon administration, after delinking the dollar from gold, made an agreement with Saudi Arabia, which at that time was the leading oil producer in the world, to make sure that oil was traded in the dollar, which ensures global demand for the dollar. It seems that Iran clearly understands the importance of this for US hegemony, the importance of the dollar system and the petro-dollar, because Iran has targeted directly. Iran closed down the Strait of Hormuz and is demanding that countries that pass through trade oil in yuan. Also, there have been reports that the Iranian military is targeting not only US military bases in the region, but also the offices of major US corporations, including US financial institutions and big tech companies, which have been building big AI data centers in places like the UAE. So, I think Iran understands how critical the economic element is to this war. Do you want to talk more about that?
Yes. Uh, the uh United States uh plans to militarily control uh the Middle East were based uh not on uh its own fighting because the United States had been exhausted by the Vietnam War. Remember in the mid-1970s, uh it it has had two client uh armies fighting in in the Middle East. Uh, first of all, Israel is a client army. Uh, already in the early 19 uh 1970s, uh a deal was made and Herman Kahn uh at the Hudson Institute played a big role in this. Uh, deal was made with Senator Scoop Jackson, one of the leading pro-military uh senators uh in uh in in America, that uh if he would agree to use Israel as America's proxy army. This was famously spelled out by Joe Biden when he was a senator. Biden gave a speech in which he said, "Israel is the best investment we make."
>> Were there not an Israel, the United States of America would have to invent an Israel to protect her interests in the region. The United States would have to go out and invent an Israel.
>> I uh I've often said, Mr. President, if there were if there were not an Israel, we'd have to invent one.
>> I've long said, if Israel didn't exist, we'd have to invent it. Yes, this is very open at the time. Well, um, what has forced the hand uh of uh the military in Israel is Israel's attack on Gaza uh and the the fight back from Lebanon, the the civil, a civil war of resistance that has spread throughout the Middle East and the worldwide criticism that you've seen from the United Nations and the uh International Criminal Court. So all of this uh forced has forced the hands of uh well, are we going to have a takeover? Uh, Israel now is trying to take over Lebanon. Uh, I guess the Israelis are going to need somewhere to move after if uh Iran is successful in just sort of destroying the economic foundations uh of the Israeli state. Uh, all all this is, this is the military uh setting uh for for all of this, and it's the financial setting. Uh, yeah, I want to mention again uh the control of uh the the petro-dollars uh that you mentioned. It wasn't just pricing oil in dollars. Everybody was, all countries were pricing the exports of copper, everything in dollars because that was still the main currency, almost seamlessly instead of countries uh keeping their international reserves in the form of uh uh gold uh and US dollars that were as good as gold. Even when the dollar wasn't as good as gold anymore, they continued to, they continued to trade in the US dollar. Well, the the the issue was where were these dollars going to be invested? And uh under the rules of Kissinger? And all this was explained to me by the Treasury and the State Department in 1974, 1975. Uh, the uh Iranian, the uh US military told Saudi Arabia and uh other OPEC countries, you can charge whatever you want for oil, but you have to use the surplus, you have to invest in the United States. We're not going to let you buy control of any major American firms. You can't buy American companies. Only we can buy control of foreign economies. You'll buy bonds. You can finance American industry and uh American companies. You can buy stocks in the companies. You can make money by just depositing your money in banks. These were the petro-dollars. The petro-dollars were the savings of OPEC countries invested in banks. Well, this uh recycling of OPEC surpluses now is not as important as it was in the 1970s. In the 1970s, these petro-dollars came into US banks and what were they going to do with it? They lent it to Global South countries, way to finance their trade deficits, their balance of payments deficits. And this ended up in a collapse of the uh Latin American foreign dollar debts and other debts. And later it led to the Asian crisis of 1998, which I think is going to be a paradigm model for what's going to happen uh in uh the rest of this year. So, so but now the uh Saudi Arabia and the other countries have, you for the last 10 or 20 years, they've used their export earnings to build up their own sort of f their own economies in sort of crazy ways, building huge luxury uh real estate in the desert with huge desalination plants to supply the water for all of this uh this uh domestically, but they still have enormous savings that of bonds, stocks, uh, and financial savings in the United States. Uh, what now that the inter, the the OPEC countries are blocked from uh having export earnings, they've announced, well, we've actually debt-leveraged our own economy, rich as we are, we've uh our our real estate projects and our investments are uh financed by debt, and we have to begin selling off our holdings of uh US uh securities of gold in order to keep our uh our domestic budgets and the balance of payments in balance. So all of this now is leading to a sell-off uh of of dollars, and that uh this has reversed the what was the whole petro-dollar, the whole inflow of OPEC money into uh dollar currencies of oil into dollars. Now uh this is becoming a drain uh on on dollars. So that is threatening uh another threat. And the when Iran has said, "What? This is a phase change. We are now forever going to control the Strait of Hormuz in the Persian Gulf. That's why it's called the Persian Gulf because it's ours. And uh we are going to control the oil uh trade." And that means that instead of the United States plans to use oil as a choke point on other countries to enforce their compliance with American foreign policy, it's now Iran that is in control of this choke point and it can impose sanctions on the US and its allies, sanctions on Israel, sanctions on the European or any other allies of the United States. So, it's turned the tables on the whole US attempt to use oil as a means of control. Now what is at issue is Iran being able to achieve what the United States has based all of its foreign policy on: control of the uh international revenues from oil exports and the determination of who will be able to buy this oil and natural gas and helium. Uh, the uh the three things from these. And also by controlling the Strait of Hormuz, it controls the inward shipping of food and other materials to uh the OPEC countries. So it can uh it has a choke point over OPEC countries as well as over uh foreign uh oil users.
Yeah, Michael, I want to talk more about the energy element here. The International Energy Agency referred to the energy crisis we're seeing now as the largest oil supply shock in world history. It's larger than the oil crisis that was caused by the 1973 OPEC embargo, which is also related to an Israeli war of aggression. And then in 1979 with the Iranian revolution, there was another oil crisis. But today we're seeing the biggest oil crisis in history. The price of crude has skyrocketed, and this is going to fuel inflation all around the world because, of course, oil is a crucial input in many other products, and oil is needed to transport most goods, especially food. Moreover, a lot of fertilizers and chemicals that go into fertilizers come from the Persian Gulf. So this could likely create a food crisis, which is especially going to hurt the Global South. And of course, oil-exporting countries could potentially benefit from higher revenue. Although in the Gulf, a lot of the oil and gas infrastructure has been damaged by this war. So some of these Gulf regimes might not see some of the benefits from increased export revenue. But the majority of Global South countries import oil, energy, and other commodities. And as the price of those commodities increases, it's going to also be a significant drag on their economies. It's likely going to lead to current account deficits. And that means that in the Global South, a lot of their currencies are going to start falling against the dollar, which will likely lead to capital outflows. You know, the so-called hot money, as foreign investors, they just sell all of their holdings in, you know, emerging markets. And so, we could see currency crisis, economic crisis, energy crisis, food crisis. This is, this war of choice, this war of aggression that Trump and Netanyahu started could cause a massive economic crisis that will especially hurt the Global South. Do you see it the same way?
Yes. Uh, and all of this was anticipated. First of, if you want to see a a paradigm, a model of what'll happen, look at what happened to German industry after the United States imposed sanctions and Europe imposed sanctions on uh buying Russian gas and oil. The German industry collapsed, and Europe and Germany are now suffering a depression. We're in for a great depression. And what happened in Germany and destroyed its economy, led its chemical industry to close, is oil is not only for energy. Oil is for chemistry, as he pointed out. Uh, its glass-making industry and fertilizer. Well, fertilizer especially right now is important because it's made out of natural gas. And when Iran uh bombed Qatar, Qatar was the major exporter of liquefied natural gas. And uh this is natural gas is what was providing fertilizer to uh other countries, especially to America's allies, Japan, Korea, uh Philippines. They're all uh in a crisis. And helium was along with the natural gas. Uh, the fact that helium now is not available to, let's say, the Taiwan and its semiconductor industry, and electricity, the oil is not available to Taiwan. How is Taiwan going to make the semiconductors that are supposed to be the key to America's information technology control, to all of the computer chip uh monopolies that it had hoped to have? So, uh, this is far-reaching. Also, we're about to begin uh in the Northern Hemisphere entering the planting season, and the planting season requires fertilizer. Well, already the uh price of fertilizer uh of uh made out of uh gas largely is rising uh in the United States. That's putting a squeeze on farms, and the farmers in America uh are claiming, what I'm sure farmers all over uh Europe and the Global South countries are experiencing. "We cannot make a profit selling our crops at today's prices if we have to pay so much for fertilizer and farm equipment that uh Trump has imposed tariffs on, that we lose money by going by producing uh crops." So what are they going to do? This is causing an agricultural crisis, and obviously the countries that are going to be left out most of all are the countries that can least afford to pay the higher prices for fertilizer, gas, and oil. And these are the Global South countries, uh in because in addition to having to pay for uh oil and gas uh and its products, they have to pay their foreign dollar debts are falling due. Something has to give. There's going to be financial defaults. Uh, uh other countries are going to say, "What are we going to do? Are we going to do what Europe has done and saying, well, there's a debt, our our budget crisis, our prices are going up for oil. We've, we've got to subsidize the homeowners so they can heat their apartments with gas or uh with oil. We've, we've got our labor is already living on the brink, running up increasing debts. Our, we will lose the elections in Europe just like in America if uh consumers have to spend so much more money on uh on oil, gas, heating their apartments, electric, their electric rates, that uh they default. So, we're going to have to cut back all other social spending while we increase our military spending." So this is going to lead to a political crisis of pro-war, anti-war, pro-US, anti-US feelings all the way from Europe to the Global South countries and and the Asian countries that are America's allies. How can Korea uh and Japan pay uh the $350 billion that the Korean Parliament has said, "Well, just passed. We're going to uh pay Donald Trump $350 billion for him to use at his discretion so that we will not lose the US export markets for our products." And uh Japan has promised $650 billion. How can they possibly do this if they don't have the uh the gas and oil that they need to make the exports to the United States? I, they, somebody there must be thinking, well, we don't, if we don't have oil and gas, we're not going to have exports to the United States, so we don't have to give the United States the $350 billion from Korea and $650 billion from uh Japan. All these deals that Trump has made will be unwinding.
Well, Michael, I think that's a perfect note to end on. Thank you for joining me. Unfortunately, looks like this war is going to continue, but I'm sure I'll bring you back soon to talk more about the global implications of this conflict. Thanks a lot.
I look forward to it. Thanks for having me.