Defense Alliance: Turkey, Saudi Arabia, Pakistan &... Iran?! | EYES ON GEOPOLITICS

The Team House

This episode of 'Eyes on Geopolitics' explores the evolving geopolitical dynamics in the Middle East, focusing on Iran's oil exports, U.S. sanctions targeting Chinese teapot

Key takeaways

• Satellite tracking data contradicts claims of massive Iranian oil shipments through the Strait of Hormuz, suggesting misinformation is being used as an info war tactic.
• The U.S. is implementing highly targeted sanctions on Chinese teapot refineries and shadow fleet infrastructure to disrupt Iran's oil trade, but effectiveness depends on China's compliance.

Main topics

• Iranian oil exports and Strait of Hormuz tanker movements
• U.S. sanctions on Chinese teapot refineries and shadow fleet

Notable quotes

We're still in the same kind of holding pattern.

If we're not going to do military escalation, then economic pressure is the only alternative.

Conclusion

The episode concludes with a call for deeper strategic understanding of adversaries,

Transcript preview

Speaker 2 (0:00) Hey everybody, welcome to a new episode of Eyes on Geopolitics. I'm joined today by Andy Milburn, Mick Mulroy, Jonathan Hackett, and I'm Dimitri Kontakos. Happy Sunday to everybody. A lot going on, as usual. It never ends. We never have, like, just some feel-good stories about, like, I don't know, I don't know, soldiers coming home to, like, happiness and not being stuck on an aircraft carrier for 270 days. Speaker 2 (0:25) Also, a little bit of a funny, we clipped when your story, Jonathan, about going to visit the aircraft carrier with the Crown Prince of Jordan and the Ambassador to Jordan. And a lot of Navy folks got very, very upset about it in our comments and stuff like that. And I just like to say, I don't give a shit. Like, it's the true story, right? John, so it is what it is. The Navy traditions seem to be extremely antiquated and could use a bit of a refresh. It's also Speaker 1 (0:57) interesting, who are the Navy people that complain? And it's the officers because they see what they could lose, what they stand to lose if things were equalized like the Marine Corps, where officers are suffering just like the enlisted, sometimes suffering a lot more than the enlisted. And in the Navy side, that is not how it's designed to work. Maybe it does work that way, but that's not how it's designed to work. I think we are a Marine Corps Speaker 2 (1:17) propaganda podcast. I Speaker 1 (1:19) think Speaker 2 (1:19) that's official. Forget the CIA propaganda and everything else. Or the Atlantic Council Speaker 3 (1:25) stuff. No, it's Marine Corps propaganda. Speaker 2 (1:27) All right, so a lot happening. Iran's cooking. The thing that popped to the surface for me specifically was yesterday Barack Ravid reported that 40 tankers rode through the Strait of Hormuz, 16 some odd million barrels of oil. And then that was quickly debunked by satellite data and other news organizations. And as far as I get, Barack Raviv, he's got to keep his sources and stuff like that. But I feel like he could be a little bit more of a reporter and a journalist rather than a stenographer. Speaker 2 (2:02) And it really does seem like, you know, it's an info war between both sides. And the U.S. media seems to be just as complicit in it as the Iranian media. And it's really tough to get, like, accurate information. You always have to question everything and things like that. That was the thing that really popped out to me. It's like that meme of the general, like, everything's fine and everything in the background is rubble. You know what I mean? Like, that's what it feels like, frankly, like, from the U.S. side. Speaker 2 (2:31) We're still in the same kind of holding pattern. So like, I want to ask you guys, like, what are you guys like tracking exactly? Um, Mick, hit us off, start us off. Speaker 5 (2:41) So, Speaker 2 (2:41) I Speaker 5 (2:42) mean, the way I understand Kepler, for example, attracts ships. Yeah, they probably are turning their transponders off during going through the straight, but they're going to turn back on. So it seems like, I mean, you don't have to be a maritime specialist to figure out, well, that ship was there, then it was way over here. So they can just count them. Yeah. So I don't understand how... That many, because 20 is the magic number, right? 16 is almost there. So if that was the case, we wouldn't have the energy crisis. I mean, we have somewhat of a depreciation, but we wouldn't have the crisis. So I wish it was the case. I'm sure some ships are getting through the southern route. That's why Iran was pushing Oman to get an agreement, because going through the southern route is not in Iran's interest. But if it was at anywhere near that level. then why would we still be in this? So I just think, I think the, I think the tracking systems that you already referenced, the, is the only thing you can really go on because they're, they're not biased. Speaker 1 (3:47) They're not trying to promote one side of this, the other that Speaker 5 (3:51) I can tell it's simply tracking ships. And again, once you get through the straight out in the Gulf of Vermont and beyond, why wouldn't you turn your. Speaker 5 (4:01) Turn your tracking system back on. And then you could see where, how many ships actually got through. So I don't know why media, I mean, it's kind of a simplistic concept. I don't know if media isn't just highlighting that. So, and then a broader picture, I would say, you know, and something I've been promoting for those that, you know, keep track of that is if we're not going to do the military escalation, which doesn't seem like it would be effective. And I think that's what the intelligence community is saying. Then the economic one is. kind of the only alternative, unless we're just going to throw up our hands and go away, and I don't think we should do that. So is it tomorrow at 2 a.m., 2 p.m. Eastern? Secretary Besset is going to announce all the new secondary sanctions. And from everything I'm hearing, it's going to include what they call the teapot refineries in China. That's going to be the primary ones. It's not the government, but it's close, and it probably will piss China off. And it's going to be all of the mechanism that goes into the shadow fleet. So the ports, the ships, the insurances of the ships, the captains, the crews, the financial institute that, you know, transfers money. And it's going to really push on other countries, including Pakistan, to do everything they can to not allow the companies in their country to facilitate the trade of the energy so they can raise money. So I think it will have an impact right now. Huge economic pressure on the regime. They've even admitted that they're not really exporting oil anymore. They get about 55 % of their revenue from that. I think inflation at large is around 66%. And food inflation is around 120, 130%. So they're going to get a really pissed off population. They don't have guns, so they can't do much. But it's also going to put a lot of economic pressure on the regime. So, if this is the way we're going, and it's already been announced, we'll have to see how effective it is. But to not just to be the person that sits back and pokes hole in every plan, this is a plan. And we'll see if it works. So, you know, Speaker 3 (6:12) I'm hoping it does. Reginald? Speaker 3 (6:15) Yeah, I was just actually I was hoping you'd pick on John because he always has so much more intelligence than I do about sanctions. But I Speaker 2 (6:23) just missed the sound of your voice. But but I was I Speaker 3 (6:27) was reading up actually yesterday because I had to to talk on TV here about about sanctions and how to do it better. And so I learned I learned not on it. but a good deal about teapot refineries and what they've been doing in Shandong province, right, with Iranian crude. And the U.S., just I think probably because I didn't know this in a wider audience, I mean, the U.S. started naming these refineries directly. First of all, these are very focused sanctions, right? So I think hopefully what we're seeing, I say hopefully from the perspective of U.S. effort here, We're seeing more focused sanctions and hopefully, too, we're seeing rolling sanctions, right? Rather than being released in tranches, Iran gets a chance to adapt. The U.S. releases another tranche. You know, hopefully at this time, OFAC and Treasury, as names pop up, they're targeting these names right away. Speaker 3 (7:43) But here's a question for John. You know, I mean, the announcement is that these are the harshest sanctions ever and that they're the most focused. But I'm wondering why China's commerce ministry hasn't even... Speaker 3 (8:05) I'm sorry. I'm wondering why China has issued a form of prohibition order against U.S. sanctions. I mean, that's unprecedented, right? By doing that, I mean, it's kind of a legal nullification of U.S. sanctions on Chinese soil. It's not just a diplomatic objection. Speaker 3 (8:28) And if it's backed by real leverage, which it is, I mean, China buys more than 80 % of Iran's total oil exports. So, you know, Beijing has far more ability to simply shrug off these individual refinery designations, right? I mean, I guess this is a ham-fisted way of saying, how can we make these sanctions bite if China just Speaker 1 (8:55) chooses to ignore them? Well, the thing is, sanctions alone can never solve a problem. So if that's all we're leaning on, we can just probably expect them not to be effective for the reasons we've already mentioned and for other reasons, too. For example, China is a major world power. China, in some ways, is probably expecting the U.S. to blink. They're saying we're going to not only internationally interfere with these sanctions processes by ignoring them. We're also going to direct our state-owned industries and state-controlled or linked industries like the teapot refineries. We're going to instruct them not to follow these domestically too. And we're going to see how the US reacts to that. Can the US actually handle that? Because the US is getting most of their stuff from China. So if China says, well, what are you going to do about it? And the US says, well, I guess we'll kind of back off a little bit or we'll carve out this or we'll carve out that. China's winning there. And I think China is trying to see, are they at a point now economically where they can do that? And I think the answer might be yes, because especially if you look at, you mentioned 80 % of Iran's oil exports going to China. That does not correlate to China's imports of oil totally. China gets less than 50 % of their oil from Iran. And in the last three years, China has been dramatically increasing non-oil things, non-oil sources, for example, coal, solar. They have a huge Northwestern China coal refinery. operation going on where they're actually converting coal to crude oil. They're converting it to gasoline. They're converting it to other precursor products used for manufacturing. So they're finding a way to get domestic independence from foreign energy sources generally. Iran, of course, is a big component of that, but that's from... all foreign, including Russian energy sources. Not just energy too, but also manufacturing, because remember crude oil precursors are things that we use to manufacture plastics and other objects that people purchase. And a lot of those are sold in the United States through Amazon to consumers in America purchasing that stuff from China. So that whole supply chain or logistics system is changing dramatically in a way that I think most Americans don't understand. They just look at the Iran war as oil sales to China. And it's a lot more about Chinese energy independence. after the war with Iran, that it's going to be a much bigger problem to us as a nation than the Iran war is right now. And it's especially true because you look at these sanctions, how they're designed. If anyone listening, I encourage you to go to OFAC's website and look up a sanction. See how it's written. What does it look like? It names the name of a company. Let's say if it's about a company, it will say, you know, Iran Sunshine Lines, which is a ship, and it will have the name of the ship, it will have where it's ported at, it'll have what it's accused of carrying from where to where, who owns it by name. So Iran knows how to do this. They just look at that sanction. They say, okay, here, boys, here's a bucket of paint, go repaint the side of the vessel, call it the Sunshine 2. And we're going to port it in this other port right next to the one it was at. And we're going to take the boxes of oil that were on there, the crates that were around there that said rice, and we're going to change it to sorghum. And now we're transmitting sorghum illegally, which is oil. And we're going to use that and we're going to make new false bills of lading. And we're going to make new documents that are also false, just like the previous false ones. And the thing is, they'll get caught, but they'll get caught so slowly that it won't even matter because the whole process will continue. That is one issue. But I encourage people to read that and understand like, why are these sanctions so easily escaped? It's because the way our sanctions are designed, they're designed for good actors, basically, for good people to see and say, okay, I won't do that trade because that's not allowed. But it's like having guns illegal and saying, well, the criminals won't have guns now because it's illegal. It's like, no, they're still going to use the thing they want to use to get the thing accomplished they want to accomplish. They're going to find a way to do it. And they're going to do it in a way that's faster and smarter than the way that we're doing it. And that's why I go back to the original statement I made about sanctions alone. They're not effective alone. They have to have some other instrument of national power behind them. Diplomacy is a great add-on to the economics. If you can have an economic diplomatic combined effort, the chances of a positive outcome dramatically increase, not just in a correlative way, but they actually have like a synergistic improvement at the end because of how diplomacy and economics work together. And unfortunately, our diplomatic instrument. seems to be a bit weaker than it needs to be. Speaker 3 (13:10) So in both ways, right? I mean, if you look at it, we're trying to go after supply and demand. I mean, on the demand side, the refineries, they're the ones, you know, the Chinese buying the oil, buy these teapot refineries. But then it has to be pushed to them, and that's what the shadow fleet does. And sanctions have, you know, I don't see how sanctions now can suddenly be effective against the shadow fleet. To your point, I guess, I mean, obviously I'm agreeing with you. But, I mean, I was reading something like 2,500, 2,500, 3,000 vessels involved in the shadow fleet, right? And that's billions of barrels every year. I forget what percentage that is. I mean, it's a significant percentage. I mean, it's less than 10%. It's still a significant percentage of the global crude flows, right? I mean, it's a massive problem. Speaker 3 (14:19) the Russians, you know, we talked about the Chinese, right, with the teapot refineries, and the Russians are the ones most heavily involved, correct me if I'm wrong, in the shadow fleet. I mean, and Russian shadow fleet shipments actually rose. I mean, they've risen, obviously, because of the Ukraine war, but they haven't been curtailed at all, right? Because of sanctions and to Mick's point, basically, I mean, they find ways around them, they turn their transponders off. And until we're willing to actually, I mean, until we can identify and strike enough of these vessels to provide a disincentive, it's just going to continue. I mean, the sanctions are nothing, right? Speaker 5 (15:06) So, but I guess the other question on this is, according to the Iranians, they're not exporting oil. So obviously that's, I mean, I guess we can trust him, right? That seemed to be a pretty good source. So if that is the case, or very little, then it's the naval blockade? So there's something that's going on that's causing it. And then now they're talking about shifting from defense to offense and actually attacking us, which tells me something's going on economically there. You see what I mean? Like, they're feeling some strength. They're saying it. They're saying why. And now they're talking about, you know, attacking the infrastructure, our allies in the region, all that stuff. So something seems to be working. Maybe I'm being positive today. So if that's the case. Speaker 1 (15:58) Maybe we need to double down on what we're doing. If I can jump in there too, the inflationary problem domestically in Iran is huge. And it has been since 2018 when the US withdrew from JCPOA and we reinstated all the sanctions and then the SWIFT banking system was disconnected for Iran. That's kind of the phase line that we are in now. We crossed that phase line. We've been in that space since then, 2018. And for example, the Toman, which is kind of like a dollar in Iran, was $35,000 to a dollar in 2018. and now it's $190,000 to a dollar. That's five times increase. So imagine as an American, if you're going to get gas, it's $5 a gallon today. Tomorrow, it's $25 a gallon. That would be rough. What if all of your prices were 5X in five years or seven years, right? So that's an important kind of pressure point that the sanctions are contributing to inflation, but the reason the inflation is actually so dramatic. It's because of the monetary policy inside of Iran. The central bank of Iran is, I mean, it's the epitome of a non-independent central bank. And like, if you look at studies of how central banks work generally, like theoretically, this is the example of the most like deeply controlled central bank outcome where the government directly controls the printing press for dollars and it just hits print. That's the reaction to everything is print more, print more. And that is what's driving up the inflation. to the degree that it's up. There, of course, are inflationary pressures of sanctions. That's true. But it's this corrupt cronyism inside the central bank, which is directly in the pocket of the supreme leader and his cabal around him. These guys are just printing cash. And it's causing the everyday Iranians, which is around 90 million people, that don't want anything to do with the regime. They're the ones that have to go pay $25 a gallon tomorrow for gas. That was $5 a gallon today. And the regime isn't paying that because all their money is in sovereign wealth outside the country. It's in banks. It's in real estate. It's in London. It's in Paris. It's in Canada. And it's even in the United States. And of course, it's in South Korea. And the list goes on. It's in countries that they can get to, the elites can get to, that the regular Iranians cannot access. So that's another point about these sanctions that they do have an effect, but on whom? And if you look back to the prohibition, which I believe was the 18th Amendment, After the prohibition of alcohol in Speaker 5 (18:16) America. Trying to keep the Irish out of America, actually. Speaker 1 (18:19) Well, then, I mean, it dramatically increased organized crime. It created these shadow economies. It created these shadow pathways of moving goods that still were in demand. The demand did not get removed. And so the supply changed the way that it reached the demand. And it did it in an illegal way, right? And that's exactly what these sanctions are doing without some other tool, which came later in the 1930s or