Greg Sargent: This is The Daily Blast from The New Republic, produced and presented by the DSR Network. I’m your host, Greg Sargent.
Paul Krugman has a great new piece on his Substack, arguing that Trump simply does not have the cards in the Iran situation, even though he may not know it. So we’re talking with Krugman about where all this is going. Paul, always nice to have you on.
Sargent: So Trump rejected that proposal from Iran to reopen the Strait of Hormuz, perhaps in part because it would not address Trump’s demand for total termination of Iran’s nuclear program. But the New York Times had an extraordinary detail about the Iranian offer: “A U.S. official also said that accepting it could appear to deny Mr. Trump a victory.” Paul, apparently that’s the single most important factor in all of this, right?
He’s been trying—he’s threatening to bomb them back into the Stone Ages, and he’s been threatening war crimes, and he’s been imposing counter-blockades against the blockade—all of which seems to be because he cannot seem to accept that actually he screwed up badly. There is no good outcome for the United States here. All we can do is accept something that actually leaves Iran stronger than it was, but he won’t do it.
Krugman: Yeah. Before this war, about 15 percent of the world’s oil flowed through that strait. And it’s other stuff too—natural gas, helium, fertilizer—but right now let’s focus on the oil.
But if this continues, he ain’t seen nothing yet. Because the really interesting thing—I cited some numbers from Goldman Sachs in the Substack—although the price of oil is way up, consumption of oil is only down a little bit. And mostly what’s happening is that they’re drawing down inventories of oil, that people who have oil in storage tanks, with oil that was already on tankers, is being used up, which is all happening out of the belief that the strait will reopen soon and prices will come down.
Basically, the price of oil has to go high enough to inflict enough economic damage—we have to somehow or other stop, reduce the consumption of oil by another 11 million barrels a day. Convenient thing is that right now, world oil consumption is about 100 million a day. So that’s also about 11 percent. And it takes a huge price increase to do that.
Sargent: Well, just to clarify what you’re saying here—in other words, in order to get the world to demand less oil in keeping with the fact that there’s less supply, the prices really have to go up a lot.
And the thing—a crucial point again—is oil is, to use the jargon, it’s inelastic. It’s very hard for people to switch away from oil. Give me five years and we can all be driving electric cars, but next month, we can’t. So the prices have to go really, really high to make that big of a dent in oil demand.
Krugman: Yeah, I mean, basically Iran clearly still has the ability to block that strait. They have drones, they have missiles. The United States bombed a lot of their sites, but not enough. And these things are really easy to hide. They have speedboats.
So Iran has the ability to block the strait. And they have every incentive to do that until they feel that they’re not facing an existential threat—the Iranian regime. So really, the strait does not get open until Trump accepts a deal that is sufficiently favorable to the Iranians for them to start letting tankers through again.
Another—well, another president would not have started this idiot war in the first place. But in any case, given the situation, would say, okay, we need to face reality. I need to face reality. I messed up and I’m not going to get something that looks like victory out of this. But Trump so far won’t.
Trump had this missive on Truth Social where he said, “Iran has just informed us that they are in a state of collapse. They want us to open the Hormuz Strait as soon as possible.”
Krugman: Yeah, it’s one of those things where—is this unadulterated bullshit? No, it’s adulterated bullshit. I mean, Iran is hurting. Their economy normally depends overwhelmingly on selling oil. And again, they actually import food. So there’s going to be a lot of unemployed, hungry Iranians, a lot of economic disruption—maybe even, if this goes on long enough, maybe even runaway inflation in Iran.
It’s very unlikely that the United States is prepared to deal with multiple months of this stuff. So, yeah, it’s not the case that [it’s all] Iran is hurting us and we aren’t hurting Iran. But if you ask who is going to have to cry uncle sooner, it’s almost certainly us.
Paul, I think the temptation is strong to read that as sort of typical Trumpian bluster, but it seems plausible to me that he doesn’t understand the situation at the most fundamental level, in the sense that he doesn’t understand that Iran has some leverage here precisely because he can’t accept that thought [that] he’d be the submissive one and they’d be the dominant one. And that doesn’t compute in Trump’s brain. Do you think that’s plausible, that he just doesn’t know that he is kind of on the losing end of the situation in some ways?
And he reverts to that over and over again. I’m not a young kid and I remember Vietnam and body counts. And a lot of what Trump says is reminiscent of the body counts. We have destroyed—actually, it turns out that we were much less successful in destroying their missiles and drones than a lot of the claims. In any case, that is not what it’s about.
Sargent: Right. In his head, he’s always the winner. So he can’t be losing. Isn’t that the basic size of it?
Sargent: That seems like a plausible reading. So The Times has this other report laying out how Republicans are anxious about the midterms, and the factors they cite are the war, gas prices, and affordability more generally. They’re describing this with words like “bleak.”
Krugman: The moral, intellectual, emotional collapse of the Republican Party is in a way a bigger story than Trump. I mean, yeah, he’s a world-class, bizarre, dangerous person, but what makes him able to do this is the submissiveness of his party.
But his party will never admit that. They’re busy—just an item that crossed earlier, a couple of hours before we recorded this—the State Department is getting ready to put Trump’s picture on U.S. passports. This cult of personality around a guy who is objectively maybe the biggest loser in the history of U.S. presidents. It’s just amazing.
Krugman: Well, tell me what’s going to happen with the Strait of Hormuz, and that makes all the difference in the world. I don’t think the global economy was in dire straits. There were some wobbles, but it wasn’t that bad before the war. And if the price of oil stayed where it is right now, then we’re talking about a significant but not catastrophic hit to global growth.
So if the strait stays closed, one way or another we will have a global recession. I don’t know what oil price that will mean—$150 a barrel, $200 a barrel. I can do some economic algebra there and try to give you an estimate, but it’s really all over the place. High enough that we have a global recession, because that’s the only way to reduce oil consumption that much that fast.
Krugman: Time is very definitely on their side. We’re burning through whatever oil was in storage very fast. And as that happens, the situation gets grimmer. They’re suffering too, but time is on their side. It gives them every incentive to hang tough for something that looks like a victory to them.
And the problem for him is that this ends up being about brute physical facts. The oil is there or it’s not. And you can play confidence games for a while, but at a certain point, the reality of are those barrels actually on their way to markets or not is the story. And the Iranians are in control of how that story plays out.
Krugman: Anybody who tries to explain what the stock market in particular does—God knows. It’s not a good predictor of the future. My old teacher, Paul Samuelson, famously said that the market had predicted nine of the last five recessions.
The oil futures market is more tied to concrete events. I think the problem with that market is they keep on thinking that Trump is going to be rational. Every time he says something that sounds like he might be willing to acknowledge reality, the oil futures drop because people think, so he’s finally ready to recognize reality. And they’ve done that four times now. And I’m not sure it’s going to happen again.
Sargent: It seems like a terrible bet. Just to close this out—Trump may not be winning in Iran, but he’s demanding his ballroom. You made the case that he’s obsessing over the ballroom because it’s an easy area for him to assert dominance over Republicans and over donors who have to pay tribute to him.
Now that’s a dynamic that’s just deeply baffling, but almost sort of weirdly satisfying because their continued hagiography about Trump could screw them almost more than anyone else.
And for his party, the Republican Party functions as if it was a totalitarian police state, even though, we don’t actually live in a totalitarian police state—not yet. But I think if you’re a Republican politician, first, if you take on Trump, you think he still has the power to destroy you politically. And also, you’re probably a little afraid. Defy Trump and legal action will be taken against you. Who knows, maybe even a MAGA mob will show up. And I think that there’s a real element of intimidation, both political and to some extent even physical, going on here.
Sargent: So is there a scenario where Trump accepts something in between what he wants and what Iran wants—is there a scenario where Iran makes an offer like that and Trump accepts it and then just declares victory and goes home? Do you see that as a possibility?
But they might be willing to use evasive, clever language to provide something that Trump and his propaganda machine will, with great effort, spin as a victory. I’m not sure how they’ll do that, but I think the most likely scenario is that effectively Iran remains—it’s collecting tolls and does not give up its nuclear program. Basically it’s the Iranian plan, but that somehow the language of it makes it sufficiently obscure that Trump can go out and say, see we won a great victory.
Krugman: Yeah. He has never acknowledged defeat on anything. He never acknowledges having been wrong on anything. So he will do that. And the question is only whether they offer him enough cover to do that. Iran is in this for a lot of reasons, and many of them are horrible and crazy, but it’s not for ego. So they are probably willing to assuage Trump’s ego as long as they get the substance of a deal that is overwhelmingly in their favor.
Krugman: Thank you.
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