294 - Michael Hudson: Iran, Oil, and Global Depression

Michael Hudson (0:00)

If Donald Trump had made a decision in his own mind, if I can't go down as the president who created the American Empire, at least I can go down as a president who destroyed it.

Robinson Erhardt (0:22)

Michael, I woke up to a fresh new paper that you sent me, maybe they were just some thoughts of yours, but they were coherent enough, I guess, to be a paper. But you make an extraordinary prediction in this paper, which is that the Iran War is going to create a world depression by the end of this year. I'm wondering why that is?

Michael Hudson (0:48)

Well, it's because oil prices and gas prices are going to go up, and that means that fertilizer prices are going to go up, and all that's going to be coincident with a food crisis. Grain exports are blocked now, both from Ukraine and Russia as a result of the American-NATO war against Russia, where the United States is telling Ukraine just which ships to bomb by Russia and the Black Sea, and the Azov, and Russia is retaliated by blocking Ukrainian food exports. So what this is going to do is twofold. Just in terms of prices alone, it's going to push the balance of payments of oil deficit and food deficit countries way into further deficit. How can they afford it with already strained balance of payments deficits and already strained limited resources? Well, they're going to have to make a choice. They also have a lot of debt service coming too.

The big debt service that they have in foreign currency is the bonds and the bondholders and the bankers and the IMF whose claims on them are all set in US dollars. So countries are going to have to make a choice.

Are they going to put their own economy first by paying for the higher oil and gas that they need, paying for the higher food imports, and say we demand a moratorium? We cannot pay these debts. We're just going to have to put our own economy first. Or are they going to do what they've done in the past? And that is have their treasuries give priority to paying their foreign debts. Well, I think that to the extent that they're democratic and subject to domestic political pressure, they're going to pay the higher prices to import the oil and the gas and the food and provide subsidies to enable not only their wage earners and their populations to heat and their homes and light their homes, but for businesses to remain in operating.

Because if they don't do that, then they're going to look like Germany. Looked after February 9, 2022, when the United States have told them to stop importing Russian gas and they just went cold Turkey and had to depend on paying six times as high for US liquefied natural gas as they were getting from Russia. Well, Germany had enough money to pay this, and most of the companies had enough money to pay it, but Germany had to begin to provide subsidies to its population, and most of Europe had to begin paying subsidized to the population. This pushed Europe's own national and the EU fiscal policy into deficit, and this arbitrary European Union rule says that deficits cannot be more than 5 percent of GDP. Well, now comes the US demand on Germany and Europe. Well, you have to pay 5 percent of your GDP to go to war with Russia, to arm yourself for the imminent attack on Russia and the imaginative fantasy that somehow Russia is going to lose a third of its population by invading Europe. Well, obviously, this is ridiculous, and its populations have recognized this. As you see how unpopular Merz is in Germany, Macron is in France, and Britain's Labour Party is. So the US is insisting that its allies devote almost all of their GDP growth, much more than their GDP growth. All their growth is going to be to support the Trump wars against Russia, against Iran, and against any other designated enemy. Well, this is forcing other countries to use the following argument. Certainly, the global majority can say this. They can say, well, look, the money we owed is in US dollars, but the United States itself has created the war that has increased all of the cost of our energy and our food, and prevented us from being able to pay these debts that are the result of your war, and also keep our own businesses and population solvent. So we're putting our own population first. This is forcing a break from the United States order, and there's really not much choice. Well, this is leading to a political crisis throughout the world. It means that there must be an alternative to this US order that is threatening to drive us into a depression.