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In this episode, Dr. Yaron Friedman joins the show to discuss the economic war being waged in parallel with the military conflict with Iran. The conversation focuses on the consequences of a blockade of the Strait of Hormuz for the economies of Iran, the Gulf states, Iraq, and other regional actors, and examines who the main losers and winners are from the situation.
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The blockade of the Strait of Hormuz and partial solutions
According to Yaron Friedman, a blockade of the Strait of Hormuz is a move that would paralyze 20 percent of the global oil market as well as all gas exports from Qatar. Despite this, oil prices are not crossing the $100 per barrel mark. Friedman explains this by noting that two countries, Saudi Arabia and the United Arab Emirates, prepared in advance for such a possibility. Saudi Arabia laid a 1,200-kilometer oil pipeline, the Abqaiq-Yanbu line, which transports oil from the Persian Gulf to the Red Sea. From there, the oil is transported north to Egypt in another pipeline, and from there to the Mediterranean Sea. The United Arab Emirates built a shorter pipeline from Abu Dhabi to Fujairah, which bypasses the Strait of Hormuz overland. Friedman notes that the Saudi pipeline can transport about 80 percent of Saudi oil, and the Emirati one about 60 percent of Emirati oil. These solutions, although partial, alleviate the situation.
The biggest losers from the blockade
Friedman details which countries are most affected by the situation. The first loser is Iran itself. All of its oil exports are sea-based and pass through the Strait of Hormuz, mainly via Kharg Island. An attack on this island, as happened in the Iran-Iraq War, or an American takeover of it, could completely paralyze Iran’s economy. The second biggest loser is Iraq. Its economy relies on oil for 90 percent of its revenue, and 99 percent of its exports pass through Hormuz. Unlike the Gulf states, Iraq has no plans to diversify its economy, and it is almost completely paralyzed. A northern pipeline to Turkey and overland transport through Jordan solve only a few percent of the problem. In addition, the pro-Iranian militias in Iraq, which receive government funding, are also suffering from a cash shortage. Other countries that are severely affected are Kuwait and Qatar, which have no alternative export solutions. Friedman notes that the impact on Qatar also indirectly affects Hamas, which benefits from Qatari funding, especially as Iranian funding for Islamic Jihad has stopped.
The economic blow to Hezbollah
Hezbollah is suffering a severe economic blow from several directions. According to Friedman, Iran, which is under attack, cannot send it funds. The Syrian border is closed, Venezuela is no longer a source of funding, and airports are not a safe channel for transferring suitcases of dollars. In addition, enforcement campaigns against drug trafficking in Syria and Lebanon are hitting another source of the organization’s income. To all this is added internal pressure from the Shiite community, which demands the reconstruction of villages destroyed in the war, as well as pressure from the families of the “martyrs.” Recently, Friedman explains, buildings belonging to the Al-Qard al-Hasan bank, which is used for money laundering and financing Hezbollah, were also bombed. He quotes Naim Qassem, Nasrallah’s deputy, who complained in a speech about the bombing of the bank “that helps the poor and needy.”
Other effects on the region and the world
Friedman notes that China, which bought 90 percent of Iranian oil at rock-bottom prices, is severely affected by the situation, although it has alternatives like Russia. Other Asian countries that bought Iranian oil while bypassing sanctions are also in distress. Turkey fears a wave of refugees from Iran and has suffered attacks near the Ceyhan oil terminal, which also receives oil from Azerbaijan destined for Israel. In contrast, Europe and the United States are less affected. The United States has large oil reserves, and Europe has alternatives like oil and gas from Algeria and Norway. According to Friedman, Iran’s only way to end the war is to create economic and strategic pressure on the Gulf states, even at the cost of burning all ties with them.
The position of the Gulf states and the chance of a decisive outcome
In the Arab media, Friedman explains, there are dual messages. The Gulf states cannot express open support for Israel, but they are interested in the war continuing in order to weaken Iran. Even Qatar, which was a close ally of Iran, was attacked, proving that no one is immune. Friedman believes that economic warfare alone cannot decide a campaign or topple regimes. However, it can erode them from within and weaken them. If the war ends with Iran’s coffers empty, it will accelerate the loosening of the ayatollahs’ rule and the weakening of Hezbollah. He mentions the fall of the Soviet Union as an example of a superpower that collapsed partly due to economic pressure. Finally, he estimates that a military decision would require a ground operation that reaches Tehran, the center of Iranian power.
The original episode, in Hebrew: המלחמה הכלכלית של איראן