Episode Transcript
[00:00:00] Speaker A: Foreign.
I'm Afshin Rifatsi and welcome back to Going Underground, broadcasting all around the world from the UAE in a region where the shadow of the genocide in Gaza is darkening. But this week marks the anniversary of NATO's destruction of Africa's richest per capita country. Once Russia and China refused to use their vetoes to protect Libya. The Mediterranean country home to Africa's largest proven oil reserves and the continent's highest life expectancy was annihilated by bombing an Anglo American direction of so called rebels spurred on by Western Europe's totalitarian media system. Busher in chief Barack Obama said as the country collapsed, the future of Libya is in the hands of its people. But today's failed U. S. Israeli Epstein war in Iran did not produce another Libya, Iraq or Syria. Iran stands its missile arsenal intact and its population united in defense of its civilization. Aware of the existential threat openly discussed in Washington and Tel Aviv, Tehran now holds leverage over the Strait of Hormuz while America burns through its own Strategic Petroleum Reserve, now at its lowest level since 1983. At home, 49% of Americans say they are financially worse off than a year ago, according to the latest Quinnipac poll. And Donald Trump's approval continues its slide ahead in the midterms. Joining me again from Budapest is Philip Pilkington, macroeconomist and author of the Collapse of Global Liberalism and the Emergence of the Post Liberal World Order and host of the Multipolarity podcast. Philip, thanks so much for coming back on. Let's just start with this mystery. I mean, Iran, its IRGC's Brigadier General Reza Nakdi on PBS recently said that Trump, Witkoff and Kushner were manipulating the oil prices and using the war for market manipulation.
So let's just get down to how is it that Iran, which said, oh, it'll be $200 a barrel, why it hasn't come to pass Even though the US Strategic Petroleum Reserve is around 300 barrels. 300 million barrels, threshold of 252 million. I don't want to get into crack spreads, whatever they are. Just tell me about the Whale of Hormuz and why oil prices are not higher given there are vessels on fire not far from this studio.
[00:02:17] Speaker B: Well, if you're reading Western financial publications, you would not know that there are vessels on fire. That's a little bit of a change from maybe two weeks ago when they were at least reporting flaming oil tankers in the Persian Gulf. But basically this latest strategy is a new part of a more general strategy that's been going on since the start of the war. Well, at least since midway through maybe the 40 day war or so, which is to suppress the oil futures and probably the oil spot price as well. I think what viewers have to understand is these are paper markets. They're not unlike stock markets, equity markets or crypto markets for that matter. They're, you're trading a piece of paper, you're trading a contract, you're not actually trading a physical barrel of oil. Now in theory, there's a physical barrel of oil underneath the contract. But the difference between theory and practice is becoming wider by the day.
In my opinion. The United States have been wanting to be able to exercise leverage over oil futures prices for years. The price has never been natural, at least since the formation of opec, because obviously OPEC is an oligopolistic producer. So its goal was always to control the oil price.
And since the 73 war in the Middle East, I think the United States has probably wanted to exercise some control over that futures price. I think they basically started to succeed in doing this a few years into the, the Ukraine war. They started to figure out how to do it. And then by the time the Houthis were striking the ships in the Red Sea the first time around, this was after the war in Gaza, I think this new mechanism kicked into place and without going into too much, I think basically the drivers are. First of all, a lot of oil market trading is now done by algorithms, not done by people. So these are text recognition based algorithms, not unlike the AI program that you use to look up research or whatever.
And it's a garbage in, garbage out situation. If Trump posts enough keywords in his truth Social, if Bloomberg News is able to recycle these, the high trust, so called high trust media sources, the trading algorithm will respond to those keywords.
[00:04:27] Speaker A: When Trump posts on Truth Social that the straight of Hormuz is open, that is fed into the algorithm. So then that keeps the oil price lower, which allows him to continue the war on Iran and for people to suffer in this region.
[00:04:44] Speaker B: The old quote, that there's method to the madness, right? So Trump said that they have full control over the Strait of Hormuz. Now to me and you, that looks like a clannish thing to say. It looks ridiculous. You'd think, why would anyone say that that's a ridiculous thing to say? Because robots can't, don't have a sense of humor. They'll see that and they'll give that a weight in their, in their trading algorithm. The big one was the oil glut I don't know if you remember this about two or three weeks ago, three or four weeks ago maybe, when there was a partial reopening. There was never really a partial reopening, but the financial headlines all said that there was going to be an oil glut. Now anyone with a brain would realize that there would be no oil glut. It made absolutely no sense. The point wasn't even to convince people, the point was to convince algorithms. And if the algorithms see words like oil glass, we've gained full control over the strait, cease fire, peace, deal, these kind of things. The algorithm will put weights on these, on these keywords if they're from quote, unquote, trusted news sources, and then they'll trade accordingly.
So that's the first strategy and the second, just on that.
[00:05:48] Speaker A: And so all the international media, cnn, Al Jazeera, Bloomberg, the Financial Times owned by Nikkei in Japan, they are colluding in it. All of the journalists that work for those organizations that either naive or actively colluding in it and therefore prolonging the war.
[00:06:07] Speaker B: I find it hard to believe anything else, because the Financial Times, for example, did run some articles at the beginning of all this where they said something funny is going on in the oil market. They had one article in particular that was very good and it went around and it interviewed traders on oil desks and so on. And basically the takeaway from the article is there's something very strange going on in the oil markets. The Economist, you'll remember, another London based publication at the beginning said that there was going to be the crises to end all crises. And then they came out during the oil glove period and say we was wrong. I don't know if you remember those headlines. So that tends to signal to me that somebody's had a word with the editorial board in London. So it is quite hard to not think that that's going on. But this wouldn't be the first time media manipulation occurred for the purpose of a Middle Eastern war. Right.
[00:06:53] Speaker A: And eventually, of course, there really is going to be oil scarcity. So tell me how you have worked out one theory as regards why Donald Trump was in Beijing in mid May, as regards how long he could continue to aerially bombard Iran and create chaos in this region just to time that oil price manipulation for the midterms.
[00:07:21] Speaker B: So I think you're inferring all this, right? Financial markets people always have to infer.
I don't work in financial markets currently, but when I did, you never have access to this information. So you have to watch what people are doing and try and guess what's going on. But often you kind of can, I think. And I think what happened here was basically just before Trump went over to Beijing, the Chinese cut their oil imports in half from about 12 million barrels a day down to 6 million barrels a day. And that held while the MOU held. So MOU was supposed to be for 60 days. And then the moment Trump tore up the MOU, the Chinese started importing again. Now, what that tells me is that the Chinese and the Americans struck a deal.
I don't know what else was included in that deal. We could speculate.
We do remember the trip was the optics of that trip were almost shocking in how, you know, pro Chinese and so on. The Trump administration was. So they were clearly trying to get something. I think what they wanted to get and they got was a reprieve. And the Chinese probably said to them, 60 days, sign this MOU. It's going to. They probably already knew the content for the most part. It's going to be brutal. You guys are going to basically sign a surrender document. You remember the Versailles trip in Europe? I mean, those were the optics around that. And you sign that and we'll give you reprieve.
We'll cut our oil imports in half. That won't completely solve the crisis, but I think the Americans calculated that will probably get them up to the midterms. But then because the Trump administration's so chaotic, Trump got out of the wrong side of the bed one morning and decided to tear up the mou. The moment that MOU was torn up, tanker traffic started to show. The Chinese started ramping their imports up again. So I don't think the current situation is planned for.
That's my estimation. I reckon they came up with a coherent plan to get them through the midterms, and that involved the MoU, and it rode or die on the MoU, which is now dead and it's not coming back, and the Iranians aren't interested in negotiating anymore. So I think there's a fairly decent chance that the serious problems will hit before the midterms.
[00:09:21] Speaker A: And we've talked many times on this program about why Trump would want to carry out this war in the first place. I know we mentioned the propaganda media system earlier, but you contend that this was not a deep state war. This is a small coterie of elite power in Washington that isn't.
That is not informed, has not even told the CIA or other military industrial complex institutions in the United States to prepare.
[00:09:55] Speaker B: That's My sense, I, I think so. Just take the example of the Ukraine war, right? I mean, if, if anyone reads any of my work, they'll know that I'm very critical of the, not just the war, but also the sanctions packages that the United States put in place. If you study those sanction packages very carefully, there is a logic to them. The problem with them isn't that there is no plan. The problem with them is that the sanctions packages were drawn up for 1990s Russia and not for the Russia of 2000s. And they didn't take into account, for example, that China is the major producer anymore and can produce all these goods.
But you can say, okay, maybe the deep state had a bad plan, but they had a plan. And I think that carries through all the way through the Ukraine war. It's very easy for the Americans, for example, to exit the Ukraine war if they lose. For example, what you see in the Iran war is that there is no plan at all. You even see a complete lack of systematic propaganda from the American side, which during the Ukraine war was, I mean, it was hard to ignore. Right. So it seems to me that, you know, you imagine that a shelf in the State Department had a set of plans for the Ukraine conflict. I don't think there was a set of plans for the Iran conflict. And I think that's why basically kind of someone like Obama, who in my opinion is a very strong representative of the kind of American state rather than the government, he was the one that did the JCPOA because he knew that this just was a non starter going to war with Iran, you were never going to win, even back in the Obama administration. And since then the technology has got, you know, the weapons technology and so on has become even more far advanced, seeing the results of that now. So I think, yes, this was a, I mean the reports suggest that none of Trump's cabinet were in favor of this, including Rubio, who's quite volkish actually and very interested in other ventures. But no, I think this was a one man show and I think that's why what is happening is happening. But now with all these kind of, you know, the fact that the US media, the financial media aren't covering burning ships anymore suggests to me that now the state has figured, okay, well, we have to kind of get behind this now. You know, we're in it, we're in it, so we have to manage it or deal with it or whatever. But I don't think there was any coherent Iran plan though.
[00:12:10] Speaker A: And yet the manipulation aspect of all the figures process was, was installed what under Joe Biden when Ansar Allah was attacking in the Bab El Mandeb Straits. So it is some sort of elite power there that understand the hedge fund dimension to this war.
[00:12:30] Speaker B: I think the again you're inferring things from watching it from the outside, but if I were to guess the first time when they really tried to manipulate futures prices was after the Russian invasion of Ukraine. Dutch ttf, which are natural gas price futures in Europe went crazy. I mean they went up by 1,000% or something like that and no one knew it was going to happen.
It looked like energy price futures were rising elsewhere and somebody came in and stamped them down.
I think that was the first experiment. Second experiment was yes, the initial Houthis attacks in late 2023, I think it was.
And that was the second time I saw something similar going on. But they never went nuclear on it.
They never did as much manipulation as they're currently doing.
I think those two you could have gotten away with. Ultimately, the, the Russian situation was not actually lost energy to global markets. It was rerouting energy. So Russia would send to India. Europe will buy from America instead of Russia. Not perfect. Lots of, you know, moving parts can get more expensive, etc. The Houthis, I don't think the Red Sea was enough to seriously impact global supplies alone. I think you needed the Hormuz Strait and the Red Sea. The problem now is you're dealing with probably 20% of the world's oil supply. And so what you're seeing that you didn't see last time is what you mentioned in the introduction. Well, hang on. Inventories are crashing.
[00:13:55] Speaker A: Hang on there for the pilgrim did. I'll just have to stop you there. But more after the break. And more from the author of the Collapse of Global Liberalism and the Emergence of the Post Liberal World Order after this break.
Welcome back to Going Underground. I'm still here with the author of the Collapse of Global Liberalism and the Emerging of the Post Liberal World Order, Philip Pilkington. Philip, I rudely interrupted you at the end of Part one as you were talking about how the elites of Washington were contending with this war.
[00:14:29] Speaker B: Yeah, so as I was saying, the issue this time around is that the inventories are collapsing. So if you go and take a basic economics class, you'll have seen the supply and demand chart with a cross in the middle of it. And so the price adjusts to the relative supply of the products. It adjusted it to the demand.
If you suppress the price and the Supply is still lower than it was. What you'll have is you'll either have shortages, which probably will come eventually, or if you have inventories in place, if you have a reserve pool, the pool will start to get drained. And that's precisely what you're seeing. As you said in the intro, the Special Petroleum Reserve is now down to 1983 levels. The private inventories, which are even more important, no one even knows where they are because we're quickly coming to realize we don't even have good estimates of what those private inventories are. Now, this goes back to what I was saying earlier about the potential plan from the using the MoU to get through to the midterms. I think basically the SPR dumps were calculated in line with that. So they're calculated in line with Hormuz being closed, probably Red Sea being open, but maybe they factored in that potentially being closed and the Chinese halving their imports. Now that's no longer the case. And so my bet is that the SPR starts to creak under pressure before the midterms. In fact, I think it was the Energy Secretary came out and tried to reassess the bottom limit on the SPR recently, which is very dangerous, because if those, they're in a giant salt cavern underground, and if too much is drained from them, the salt will start to collapse in on the oil, and it could actually render the remaining barrels of oil useless.
Not to mention the fact that the SPR caverns will never be able to be used again.
[00:16:18] Speaker A: But as you say, if they change the threshold of the Strategic Petroleum Reserve, then the United States doesn't know how much oil it desperately needs.
[00:16:28] Speaker B: If they go in that direction and push the SPR beyond the physical limits. There are congressionally mandated limits which are about national security.
That's a legal thing. But if they go below the physical limits, I mean, they'll destroy their main piece of energy infrastructure and they could lose the remaining barrels that are in there. But, you know, this administration has become very chaotic, like, very chaotic. And I don't. I don't know. I didn't think we'd get to where we are right now. It's really, it's really crazy.
[00:16:57] Speaker A: So get onto your solution and the rumored Bretton Woods 2 paper that by you that may be being read right now in the Trump Depart Trump corridors of power. But at the same, simultaneously, the United States, without informing Europe, started to sell Euros and buy Japanese yen to prevent Japan from reducing purchases basically of US Treasuries.
Will it work? And how urgent is that? And does that signal NATO nation economic collapse?
[00:17:35] Speaker B: This could be the beginning of the end of the US dollar system, the global system. And that global system encompasses everyone from Japan to the United Kingdom to Saudi Arabia, Gulf monarchies and so on. The euro is sort of out of it because it's got its own currency, although it has large financial connections. Obviously everyone's interconnected truly, but the dollar system is really the non European Western countries if you think of it that way. Obviously we refer to Japan as Western in some sense, but it's, you know, I'm talking about the alliance structure. The two weakest links there are Japan and Britain. Japan and Britain are both the largest lenders to the United States. The United States is a huge borrower in the foreign markets. That's how it runs the big trade deficits. And it's able to consume without producing enough.
Well, the creditors in that equation are Japan and Britain. Japan is collapsing, its economy is collapsing, the yen is collapsing and Besant is desperately trying to prop it up for the reason that you just said, so that they don't stop buying US Treasuries or even more. They don't start dumping US Treasuries into the market.
Britain is borderline bankrupt. A bunch of economists a few weeks ago said that it would probably end up in an IMF bailout at some point if the IMF could even bail it out. It's probably too big a country to bail out. So you've got the two largest holders of US Treasuries, that is the two largest creditors to the United States and both of them are creaking under pressure. And when this oil crisis actually breaks out and we see the sort of inflation that we saw, probably more than we saw but similar to 2022, 2023, the pressure on, for example, Britain and Japan will be too much. And at that point the dollar global system could start to collapse. And I think what you referred to there, that Scott Besson came out a week before the Japanese bailout and started to talk about a new Bretton woods system, signals to me that they may be beginning to understand that the dollar system is finished and it would be much more productive for them to do something constructive rather than let it unwind chaotically. But I will say in history, when these things have happened, it's tend to be chaotic. Unwindings tended to be.
[00:19:45] Speaker A: I was thumbing through my book while you were speaking because I was trying to look at biggest U.S. treasury holders because some of those statistics are a bit strange because you'll see Luxembourg or third countries as, as it is because the Treasuries are bought through there. But there's no doubt that countries like China have been reducing their ownership of U.S. debt and U.S. treasuries. But here in West Asia, the shortfall is being kept up by buying more here because of course, the dollar peg. What would you advise any country that has a pegged currency pegged to the dollar right now, they're in a lot
[00:20:20] Speaker B: of trouble because the underlying currency that you're pegging to is no longer as trustworthy. Right? So if you there's two sides to a peg, right? On the one hand, can you maintain the peg? And that's the typical question. Can Hong Kong maintain the dollar peg, Can Abu Dhubi, can UAE maintain the dollar peg or whatever. And that's a question of, you know, your trade account, how much you're selling. Maybe you have to sell some reserves down to maintain the peg. I think the problem that we're going to enter into here is that the underlying asset may not be stable enough to peg to. That's the real fear. And then on the other side of that, you have a lot of pressure on the other side. So you just take for example, Saudi Arabia has a currency peg, right? Well, Saudi Arabia currently isn't exporting very much oil.
So Saudi Arabia, presumably, unless I don't understand the economy properly, will start running a large trade deficit soon because it imports lots of goods, it doesn't manufacture any of its own goods, et cetera, et cetera. It exports oil pretty much nothing else. So if it's not exporting that oil in sufficient volumes, it'll start to produce a trade deficit. And of course, if you run a trade deficit, there'll be pressure on the currency. And so what are your choices then? Your choices are you can sell down your dollar reserves. Well, Washington don't want that. Or you can break the peg. But that'll create all sorts of chaos as well.
[00:21:41] Speaker A: And of course it would have a knock on effect on the equities markets as well because these countries buy a lot of equities. Okay, well let's just talk about the parallel side to all of this. Tell me about the parallel energy market then. Because if WTI Brent prices are nothing to do with the real price of oil, similarly huge amounts of non dollar denominated trade exponentially have been increasing since, since Putin finally went in to save the Russians of Ukraine.
That was the trigger for BRICS plus reforms, arguably in, in a much more urgent fashion.
How is this parallel system working today, I should say, is the anniversary of Sukarno and the Indonesian independence, because it really does seem like some sort of
[00:22:31] Speaker B: independence is happening if the dollar system unwinds. And we're probably talking about unless something changes in the next year or two, I mean, we really are that close, maybe even sooner if that happens. The countries outside of the dollar system, and by the way, I sort of include Europe in that. The euro system is actually separate from the dollar system. We could go into the interlinkages. They certainly have more.
They're more enmeshed in US financial markets than probably China, for example. Okay, fine, but it is an independent system, so we shouldn't forget that Europe of its own. I'm not saying that Europe's going to come out on top here, but if the dollar system itself starts to unwind, these other systems are going to come to the fore. I mean, that's just very, very clear.
And I think the Chinese are going to be the biggest winners out of this Europe. It's a mixed bag. I think the euro will actually strengthen. Christine Lagarde knows that this is happening and I can tell that because for the past 18 months or a year, she's been talking about the global euro. Christine Lagarde, in my opinion, is the only competent technocrat left in Brussels. She's the only corrupt person left in the room.
[00:23:37] Speaker A: She's certainly a criminal. She invaded that jail sentence.
[00:23:40] Speaker B: I make no moral. I make no moral judgment. I'm just saying a lot of them are clowns, A lot of them are not serious people. And she's actually quite smart. And she's been talking about this global euro for a while. So if one system starts to unwind, the capital flows are going to go into the other systems. And I think the Chinese are quite well prepared for this. They've been. So, for example, I think it was about six or eight months ago, JP Morgan and Deutsche bank launched Panda bonds. Now that was very interesting. These are renminbi bonds that are issued fully in renminbi. And you borrow in renminbi and you get renminbi and then you use the renminbi. And this wasn't a state actor. That's controversial. Like Orban's Hungary, for example, this was the biggest investment bank in Europe, Deutsche bank and one of the biggest investment banks in the United States.
And what they were clearly doing was testing the water because at the moment, US interest rates are far higher than Chinese interest rates. And so logically, you just go and borrow in Chinese yuan or renminbi, whatever you want to call it. But the reason that they haven't switched completely is because of the political risk involved, obviously. I mean, if they switch most of their lending, the US Government will go crazy. But past certain point, if the interest rates are lower and that differential will start to grow, the interest rate in the US Will go up. If the dollar system unwantes, at a certain point, you have to make the argument as a company, for example, an American company or a European company, of course, you may not like me lending or borrowing in this currency, but the differential is now so high, if you don't let me borrow in this country currency, I won't be able to compete globally.
[00:25:15] Speaker A: Okay.
Tariff implications for that as well. But we're running out of time. Just very briefly, then. Russia, though, is not going to forgive those Western European powers for killing Russian children anytime soon. How do you expect, whatever dreams Lagarde has of being able to embrace the global economy and China? How can Russia use the current situation to make Europe more dependent on the United States in this current crisis, let alone the Arctic routes?
[00:25:45] Speaker B: I don't think there's.
No one's going to manage any of this. The Chinese strategy, and I mean Russia's involved in that Chinese strategy at this point is basically to just wait. Now, I don't think anyone was sure that the Iran war would happen. I mean, you got to think timelines here. If the Iran war hadn't happened, all of this stuff would have happened more gradually. I think maybe we would have got a gradual unwind over the next maybe 10 years or something like that. And maybe at a certain point, a more enlightened US Government would have realized, for example, doing a second Bretton woods system and a multilateral, truly multilateral, multipolar currency system would have been the way forward.
The Iran war has turned all that out. It's accelerated everything by a factor of five to 10.
And I think it's probably surprised some people in China, probably in Russia as well, and in the BRICs, but they're gradually becoming aware of what's actually happening. And I think the stance that they're taking, and it's the correct strategic stance, is just to step back a little bit and make sure you don't get too involved.
It's that old Sun Tzu thing that never interrupts your enemy when he's making a mistake. And I think that's basically what's happening here.
So the. And since 2022, arguably since 2014, since the Crimean incursion, the BRICS countries have been developing slowly Slowly, slowly.
An alternative architecture. I keep telling people in the west those things can be activated almost immediately. Financial markets are just money, okay? And there's an old quote from a famous economist called Hyman Minsky, and he said, anyone can create money. The problem is getting it accepted. I can pay you in an iou. Iou. Iou, Right. It's just if you trust me to come and mow your garden or something like that with the iou.
The point here is everyone can just switch to the other system pretty much immediately. They just have to trust it enough or they have to distrust the present system enough. That's how financial markets work. It's all trust and contracts. And so this thing could really reset quickly. Like, really quickly.
[00:27:53] Speaker A: Philip Bilkington, thank you.
[00:27:56] Speaker B: Thank you very much.
[00:27:57] Speaker A: That's it for the show. Our condolences to all those of you bereaved or affected by Washington's wars of aggression. We'll be back on Saturday with the fiery exchange on America's Forever wars with someone who has served on the boards of both the CIA and the Pentagon. Until then, keep in touch via all our social media if it's not censored in your country. And go to our channel, goingundergroundtv on rumble.com to watch new and old episodes of Going Underground. See you Saturday.
