Geopolitical Expert: Iran War May Drag On For Years

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**Ed Elson** (1:54)
Welcome to Prof G Markets, I'm Ed Elson. It is September 2nd, let's check in on yesterday's market vitals.
The major indices fell as the US launched another round of strikes on Iran. More on that in a second. Brent Crude rose. And finally, the yield on 10-year treasuries hit its highest level in more than a year and a half. On Caixi, odds of a rate hike this year have now climbed to 77%.
Okay, what else is happening? The bond market is having its worst stretch since 2006, and it is showing no signs of improving. The 30-year yield is now back near 5.3%, a level that hasn't held this consistently in nearly two decades. And on top of that, Brent Crude is now trading at roughly $95 a barrel, up almost 10% over the past week. These moves follow a fresh round of fighting with Iran. On Sunday, US forces struck near the Strait of Hormuz, and Iran hit back, the first major military escalation in a month. Then yesterday, the US military announced even more attacks. In a post on Truth Social, Trump warned that if Iran were to retaliate, there will be very little left of the Islamic Republic of Iran. Both bonds and oil are pricing in the same thing, a longer war and higher inflation. Here to break this down, we are speaking with Ian Bremmer, founder and president of Eurasia Group. Ian, thank you so much for joining us on the show. First off, what do we know about these attacks? How important are they? What do they tell us about the conflict at this point?

**Ian Bremmer** (3:28)
They tell you that essentially the Iranians and the Americans are still involved in geopolitical price discovery. They are both trying to assert that they have more leverage over the other than the other is willing to accept. And that is both true economically in terms of the amount of pain that can be meted out by the Americans onto the Iranian economy through the blockade and through sanctions, as well as the threat and the use of military force. From Iran, that is true in terms of their ability to continue to strangle some of the exports out of the strait and directly, as well as through proxies, and their willingness to engage in military strikes to ensure that they continue to have that leverage. The fact that there is no agreement on those things means that you continue to have an unwillingness to get to a more sustainable place in negotiations. The Iranians demanding a return to the Memorandum of Understanding, the Americans saying go scratch.
Look, these are still contained strikes. The Iranians upset that five to seven million barrels is getting through the strait, a lot less than was before the war, but more than a couple months ago, has led them to engage in putting more minds or attempting to put more minds into the strait and engage in direct strikes against ships that are going through. Once they do that, the Americans take shots directly against Iran. Both of these are still pretty constrained. In the old couple months ago, you'd be calling this skirmishing, right? You wouldn't call this a return to all-out war. It's certainly not an escalation that risks getting other Gulf states directly involved the way they were briefly, that kind of thing. But we're nowhere close to an agreement. And that means that you're still having significant amounts of oil that you do not expect to get through the strait, significant amounts that you do not expect to get out of Yanbu, Saudi Arabia and through the Red Sea or up to the Suez.