Europe and the Iran war

0:00Hello, and welcome to the Sound of Economics, the podcast from Google, the Brussels-based economic think-take. We are coming to you today on Monday, March the 2nd to talk about the U.S. and Israeli attack on Iran and the subsequent armed conflict that has followed. With me today are my Bougal colleagues, Simone Telliapietra, Ilina Rybakova, and Guntram Wolf. We are going to be talking particularly about what this means for energy markets, for Europe, for the war that was already going on between Russia and Ukraine, and the broader consequences for the world. Simone, you have a new piece out talking specifically about how this really challenges global energy markets and the balance that the EU had hoped to find with its energy suppliers after

1:01cutting ties mostly with Russia. Yes, so first of all, I think what we are seeing with the strikes on Iran is possibly one of the most consequential energy security issues in the global economy, and that is certainly the disruption of Middle East and oil and gas flows through what is the world's most important energy choke point, the strait of armus. I think it's worth recalling how 20 million barrels per day of oil and petroleum products transit through armus, which makes basically 20% of the global oil trade, as well as 110 billion cubic meters a year of liquefied natural gas, which amounts to 20% of global LNG trade. So we are talking about the most relevant oil transit and LNG transit point on Earth, and

2:05what is happening there is almost unprecedented disruption of this transit, which as we have seen this morning pushed prices to the roof. So we see oil today spiking some 8% the European gas prices spiking 20% and more to come according to the duration of this situation. Of course, time will be the key variable to understand the implication of all of these on the global energy markets and therefore also on the European landscape. It is important to say that Europe is not so much directly exposed to these Middle East and supplies as Asia is 80% of these oil and gas almost goes to Asia indeed. But the second round effects are immediate because both oil and LNG are global markets.

3:09So if these oil and gas doesn't get out of almost at that point, of course, Europe will need to compete with Asia when it comes, for example, to LNG cargos. And that is something we have seen during the energy crisis a few years ago. And that's what will likely make gas prices structurally higher in the coming days and weeks, as well as, of course, ripple effect on electricity prices, which is exactly what policymakers in Europe and European leaders wanted to bring down with all the recent push on competitiveness energy prices, which is something, by the way, the leaders are also due to discuss in the European Council of March. So the situation is, of course, extremely sensitive. The international energy agency is monitoring the security of all supply and stands ready. In case of an emergency to allow, of course, the member states, including all European

4:12countries, to release their strategic oil storage, oil stocks, in order to counterbalance eventual price spikes. When it comes to gas, the situation is more complex because we do not have much storage in Europe. Unfortunately, at the moment, we have been trying storage very fast at this winter. And that means that, in case of a prolonged shortage of these LNG to the global markets, we will need to take emergency measures, which we have seen during the energy crisis, including, for example, demand-side reduction, or at least certain measures to do some fuel switching whenever possible in order to decrease the consumption of gas into the system. So let's see. This is not for now, but certainly policymakers in Europe and beyond need to prepare contingency plans to the residential emergency should that be necessary. The shock comes so soon, really, after the need to completely divest from Russian energy.

5:15Alina, what does all of this mean for the standoff between the EU and Russia and, of course, the ongoing conflict in Ukraine? Well, I think it's very interesting to start from looking at what Russia's political and press and the bloggers messaging has been in the last few days. I think, first of all, it has been definitely more forward than regarding Venezuela, but it still has been very muted. Russia has replayed old clips by Putin that Putin has tried to mediate the conflict specifically with Iran over the last 20 years. I think they brought it back as early 2000s comments that Putin was giving to the president of the U.S. at the time and the Europeans. And Russia says, now, look, we cannot be peacemakers of the world. We're already fighting this evil, war-mongering forces in another place. We're alluding to Ukraine. And therefore, we can only do so much for Iran. They're also saying that formally, supposedly, Iran hasn't requested support, and that's where Russia is not giving any support.

6:16So the way I would translate it is that Russia doesn't have capacity, neither the willingness to confront, obviously, the U.S. and Israel directly, and therefore it's sort of stepping back, giving the rhetoric, but, of course, not doing anything practical for Iran at this point. So this is, I think, the first pro-point. The second point, I think, they're watching very carefully regarding the discussion domestic and internationally about regime changes. The official sort of comment by the U.S., of course, and the pressure is for the change in regime and Iran, just like we have seen the debate around, or rhetoric around Venezuela, for Russia, it is very significant, they're watching very carefully. And the domestic political analysts are saying that, look, the first reaction after external pressure is to consolidate power around the leader. Fine, the leader has been, is as died, has been killed, but that means that the elites will be more careful and will not go for liberalization, instead, they will have to hardline

7:16to be able to protect their power. And I think they're talking as much about Russia as they're talking about Iran. And I think this is very significant, that's what Russia is trying to take away. In terms of the practical things, and this is the third one, and the last, is Russia's budget will benefit from higher oil prices. This is a direct, important support. Russia already, earlier this year, I was forced to start revising the budget, looking for changes, because they were falling behind targets, the oil revenue forecast, or for also about 59, was overly optimistic, and therefore they had to change it, out well, they were already beginning to discuss the changes. But of course, now it gives them an important boost, so the revenues will go up. At the same time, Rubel will also go up, that will help them on fighting inflation. It will, on the margin, mute the positive effect on the budget, but nonetheless, the effect on the budget is positive, the effect on the rubel and inflation in the short term is positive. Of course, Russia has been through many oil price cycles, and as Simone has explained,

8:20it might not last for the rest of the year, and therefore I think there will be cautious sort of, you know, not overspending these gains. Sobering assessment. Conterm, what does all this mean for Europe? As we are recording this, Friedrich Meritz is in Washington, the German Chancellor meeting with the U.S. administration. We've seen statements of muted support from Canada, the UK, and France and Germany. What do we make of it? Well, I mean, this is a broad issue, and let me start, perhaps, with three very direct economic channels before talking a bit more about the politics. I think the first channel that Simone already talked about is the energy price shock, and the question is, what does it do to the European economy, macroeconomic wise? And there, the good news is that at the moment, inflation rates are below the ECB target.

9:21So I don't think this will drive inflation up so much that the ECB will be forced to act. And in any case, the ECB and other central banks, they will always try to look through this first price shock coming from energy prices and only act at a much later stage when their second round effects in terms of higher wage negotiations. So I don't think interest rates will rise in Europe as a consequence, at least not in the next couple of months, if at all this starts like in half a year or something like this. So that's the, that's, I would say, the first positive response. Now economically, of course, negatively, it is in terms of trade shock. So it takes away purchasing power from European consumers for domestic products. And it means sending more money to those that still sell globally, oil and gas.

10:28And so that weighs on consumption, it weighs on the European recovery and it weighs in particular on sort of trying to reinvigorate a more domestic, let gross model in Europe. So I think there we have an ad negative. So so overall in terms of GDP, it's going to be negative in terms of inflation a little bit, but, but not that big at this point. Now in terms of the military markets, which I think is a very important dimension obviously because we are supporting Ukraine in defending itself against Russia. And we are, by the way, also regularly attacked with hybrid attacks by Russia. So what does it mean? Well, I think the key point here is that the U.S. as well as its allies in the Gulf are spending, expensing air defense and air and attack weapons at a very rapid rate.

11:28And it's very cost-effective. So so basically the ratio is whatever Iran shoots at Israel or the Gulf or American bases to defend it off costs 10 times as much as what you what the Iranians sent. So so there is a lot of money being burned there, but really also a lot of products, air defense products for example, air defense missiles that of course will have to be replenished. And that means the global demand for these kind of products is going up. The U.S. and Israel will have to buy more of it. And that means given that supply is quite constrained that we will see shortages of this kind of stuff going to Ukraine, but also Taiwan has already seen that some of the already agreed deliveries might might be delayed and so on and so forth. So this has major implications also for European security and of course what it means for

12:31Europe is in my view that we have to strengthen our domestic production of both air defense as well as deep strike capabilities. The last point is the politically one that that you mentioned of course the big question is how should Europe position itself in this war? The I think for me it would be a mistake to fully endorse Trump's and Netanyahu's war. First of all because I don't think either of those two leaders have a plan, a long-term plan of what to do with Iran. I mean there's one thing to take out some missiles and even the headquarters of the Iran revolutionary guard. But that doesn't mean regime change and of course we know that regime changes don't happen from some bombs falling on a country. They don't happen automatically at all. If at all you will the U.S. would have to go into Iran which would be extremely difficult.

13:37And so I don't think that's really in our interest as Europeans. I think we don't like the Iranian regime that's true. But we are not in the business of trying to change regimes around the world. The U.S. has tried so it has failed so many many times before and so I think it's a mistake actually if we openly endorse the regime change rhetoric as Ursula von der Leyen has done it. The Commission President has done it and I think it would be an even bigger mistake if the big European countries such as the E3 declaration of Germany France and the UK seems to just if these countries were ready to actually go at war themselves with Iran. I think basically you should only enter into a war if you have clearly defined objectives and you know how to achieve them otherwise it's I think basically a lost case.

14:39Simone what's your assessment of the political implications of this? Well I think I will first subscribe what Goons have said and I think we have been there in the past. From Iraq to Afghanistan to also the consequences of the so-called Arab Spring in North Africa are illustrative of the fact that the idea of bringing about regime change with external action is something that simply does not deliver and I think Europe needs to possibly position itself in a very prudent manner here and consider what our interest at stake but also be aware of what are our tools because I'm not sure that Europe has actually a big leverage in this scenario of the Middle East today and I think that is true for the defense sector

15:44and all the military implications of course but also as mentioned before that is very true when it comes to the purely geconomic and energy dimension of this story so I think we need to be very much aware of our limits possibly also of the different perspectives that are there across Europe when it comes to what to do next and for this reason we might want to take a prudent approach here. So we are economists and as you've heard in the first round we collectively are seeing possible increases in energy prices help or good good effect strengthening effects for the Russian economy and real pressures on the European economy that's quite a whammy to have coming toward us country because there's something that we can do or that we should do. The best moment to prepare for something like this is of course five years ago or two years ago it's not at the moment when it strikes I mean when your gas tanks are relatively

16:51empty and when your weapon supplies are under constraint I mean to ramp all of that up very quickly is actually not so easy so I think short term for sure on the military side I would emphasize direct weapon purchases to the domestic industrial base European producers I mean it's ludicrous to think that now you can buy Patriot anti-aircraft missiles and get them delivered in any reasonable period of time you're just not going to get it go ask for the French and the Italian alternatives or the German alternatives for it right and build on those and the Ukrainian and so that's for sure I think we need to be aware that on in terms of our relation with Russia I think it's probably overall more of a net positive for Russia as

17:56absurdly as it as it might sound I mean of course Russia seems to be losing an ally and that ally but that ally hasn't delivered that many weapons in the last six months or so to Russia and so it's net positive to Russia because energy prices are higher and so this means Russia has more resources to fight its war in Ukraine so yeah and I think on the energy supplies I mean you're better placed to talk about this but but basically I would let prices play out and sort of see that demand is responding to higher prices and so we are trying trying to save in the short term long term it's all about the green transition but you might want to say something on that yes indeed I think in the in the short term there is a very little that can be done on prices right I think it is I think this this situation unfortunately illustrates that in a way Europe has quickly

18:59forgotten the lessons of the of the energy crisis over the last year there have been a lot of talks for example around the EU and natural gas refilling targets that certain countries Germany France others didn't want any longer so there was a sense you know that somehow we were back to business as usual with you know new suppliers of course the United States instead of Russia but we could somehow be a bit more relaxed that is of course not true Europe is a continent that is as a systemic vulnerability when it comes to its energy system to its energy supplies and we will not get rid of this vulnerability until we will be able to produce the energy we need predominantly domestically namely from renewable energy sources right so I think this structural solution here is certainly the energy transition and I think this situation comes at a moment

20:06when a few countries Italy others of the course of the last couple of weeks were calling for a suspension of the European carbon market for instance which would be a total dismantling of the European climate policy so I be claiming that the carbon market was the driver of the high electricity prices for example in Italy and elsewhere now I think this situation will show that the driver of high energy cost in Europe I electricity cost in Europe is not the carbon market is actually the reliance on volatile natural gas and that's what we need to target that's what we need to diminish as quickly as possible as we move forward and therefore out of this situation we might be learning once more than first of all coordination at the level matters when it comes to energy security and second we need to double down on the energy transition because that's for Europe really geopolitical project by now is not just a climate project any longer it's funny it wasn't that long

21:13ago that we were debating the lack of solar panel manufacturing in Europe as a sign of Europe's decline you wrote I thought very credibly and convincingly that Europe should buy all the cheap solar panels that can and electrify as much as possible how do we look at that now I mean you're certainly saying we need to speed up the green transition but also can we finally set to rest this idea that Europe needs to have a fully internal supply chain on this and instead can can work with what's out there well that's exactly you know one of the most relevant economic policy questions of the of these very months because the commission is about to present an industrial accelerator act that many hope will push this made in Europe provisions right while as you say we have been calling always for a much more open I would say smarter approach to industrial policy which doesn't want to you know foster protectionism and domestic reshoring in Europe but

22:18really try to work with partners out there in order to diversify our supply chains and try to achieve our resilience goals which are legitimate in a cost effective manner and the the very idea of trying to manufacture in Europe all the technologies we need for the transition simply silly is not going to happen we you know comparative advantages still matter out there and we need to identify where we are go that build on them and certainly gets martyred subsidized in European manufacture when they are innovative but then for those technologies where we do not have a comparative advantage the answer is not forced reshoring is building partnerships with other like minded countries around the world and try to work with them around that the risk in strategy away from China which is of course a predominant supplier in this in this space and we do need to do something about that but we need to get smarter that that approach control what does this mean for EU-China relations I do want to come back to the Russia thing but I'd like to stick with this for a

23:21second I think the first key point is that China is of course a major importer of oil and and is affected by the fact that the US increases its control of global oil supplies I mean it's having it's being the biggest one of the biggest oil producers in the US itself now they brought Venezuela under their umbrella if I can put it like this and now it's basically the Middle East being being under the U.S. stick so that has implications for China and so it will drive China more towards towards Russia because Russia is a big oil supplier and that makes Russian oil more attractive relative to the Iranian that certainly cannot be exported as a result I mean it pushes China further away from trying to have a better relation with Europe

24:29and so in that sense I think it's a net negative for the EU-China relation and I personally think that I mean as I said already I think the Europeans also given that we have very limited instruments I mean I personally don't think we should be so involved in this conflict I mean the more we stay out of it the more we also have a chance of having a relatively reasonable relation with China which I guess then that's a complicated matter right but I mean it has many dimensions but certainly I think the relation with just endorsing the war by Donald Trump and Benjamin Netanyahu and let's not forget that Donald Trump got to power

25:30claiming that he would never do a war in Iran etc etc so he is doing something that not even his own population is endorsing and so sort of for us to now endorse this I think it would be a mistake which doesn't mean that I like the Iranian regime but it just I think are politically wrong it does keep coming back to that how everyone positions themselves given that many of the world's western countries have supported Israel after the original Hamas attacks that began the war there then we had all of the things that followed the debate about the mass casualties in Gaza Europe has never come up with a united view on how to tackle that with Israel and now the Israelis have gone to war with the Trump administration so it's quite a mess and last question on China is Simone do you see a potential for more business back and forth

26:33despite all of this by Europe potential should Europe now go and buy a bunch of supplies while it can and could that foster some sort of a channel to perhaps keep diplomatic communication open well I mean when it comes to industrial selector act you mentioned industrial policy I think Europe should try to have an negotiation with the Chinese right I think when it comes to you know the trade measures we we put in place on electric vehicles and the possibility of an negotiation around them I think there is here space also given the current domestic vulnerabilities in China we know that the domestic market is not doing great and therefore there is a huge over capacity you know that by the way cannot be exported to the United States given the wall of tariffs that was built there and therefore Europe and China are in this in this situation where China also needs the European market for the export of its own

27:33companies including EVs producers now I think that is here the possibility to say okay let's attract more FDIs from China in Europe when it comes to EVs and battery manufacturing which by the way we are seeing already flourishing around Europe with certain conditionalities that we need to set as Europeans in order to reflect our societal goals right and I think there is certainly the scope to be a bit smarter when we it comes for example to the allocation of our subsidy so to make sure that whenever European taxpayer money is granted to a certain manufacturing plans or also for purchasing subsidies of electric vehicles etc this also contribute to certain resilience and sustainability criteria so I think the question here is not to target a specific candle like China but it's try to accommodate our sustainability and resilience needs in a smarter way

28:33when we design our industrial policy and industrial policy that to in order to work needs to rely in my view on a very clear sense of trajectory about for example our climate policy so not not watering down on our climate policy is the first element of a workable industrial policy in my view in this space second we need to retain our competition policy as our you know great asset when it comes to to having a well-functioning market delivers you know competitive prices for consumers and finally we need to have an open industrial policy again to to third countries out there that share similar needs and interest for example through the new instrument that the commission has been trying to develop called Clean Trade and Investment Partnership the first one was signed as an agreement with South Africa last year and many other are in the pipeline and by

29:35the way one of the countries with whom we want to we might want to start doing this in India so I think we need a bit of a broader strategy in this space which is a strategy that targets a smarter approach a more open approach to an industrial policy that cannot just be about made in Europe thank you for that before this war broke out before the attacks on Iran we had been talking there had been some serious talk that perhaps Russia would run out of money perhaps peace talks or some sort of land for peace exchange might at least be up for discussion Elina it seems like all of that is completely thrown into question and now Russia seems strengthened as we may have heard the chaos elsewhere indeed on one side Russia is strengthened by this financial inflows and the uncertainty on the oil market and also indeed as my colleagues pointed out Guntram and Simony Russia's role in providing cheaper energy to China China is the biggest beneficiary of recent

30:42action on sanctions by the US whether it was fully so premeditated or by chance but sanctions on Rosneft and loco oil did have an impact on terms of the spreads of course those spreads will come down because of the lacks in enforcement especially by the US it inevitably happens with any sanctions but this widening of spreads may just Russia sell cheaper oil more discounted oil to China because it doesn't have any alternatives to whom else to sell to sell this oil especially that India is much more careful in terms of not crossing the line with the US in terms of sanctions so of course now this strengthened Russia's revenues and also it makes Russia's role vis-a-vis China more important and one could even say that this was part of the bigger plan by the US again I'm not sure by premeditated or not of sort of squeezing out cheaper energy to China sort of to switching off the taps whether it's from Venezuela or Iran one could also discuss that now moving on to

31:43situation in Ukraine actually it's not absolutely positive for Russia because what Russia has been doing systematically since the change in the US administration is trying to get US to help it out in terms of the peace negotiation what Russia couldn't get in terms of the military action so Russia has been trying to conquer the territory more territory on Ukraine and it hasn't been very successful after the initial success of 2022 it moved a few percentage points of the territory so it's not it's it went I think I might make a mistake but people can check in you know in with ISW and many other places war on the rocks but I think it went from 17% to 19% of the territory right 19.1 maybe over the last three years but nonetheless in the so-called peace negotiations Russia has been insisting that it wants to have the full Danyazhlogans territories and this has been an important sticking point and this is where the US has come in and out saying that

32:48Ukraine has to give up the territories without being very clear what exact territories but potentially according to the full demand of Russia so here Russia has a problem US is distracted elsewhere and so while Zelensky President Zelensky commented that it's likely the negotiations the next round of negotiations will go ahead in Abu Dhabi Russian authorities were saying yes that it's not clear we can go for the negotiations will they happen US is distracted US is actually wedging a war on a partner of ours so in you know Russians were showing some discontent basically ideally they would like to promise 12 trillion gazillion dollars of investments to the US that's the Demetriv has been promising although Russia's GDP is two and a half trillion so it's highly unlikely that you know this kind of investments could come in right but ideally they would like to promise something a spectacular to the US and in return have US steer the negotiations closer towards the Russian position now US is distracted and at the same time everybody most

33:54analysts expect this world price spike to be short term which means again Russia doesn't become an investing investing case our investment case that is a medium term so it's not that we're expecting high commodity prices for a long time which indeed would make Russia attractive for investment we're expecting a short term blip that was supposedly settles down at lower prices again so for Russia it's it's two sides you know on one side which temporarily higher revenues on the other side you have US distracted and the final one is what we need to watch to what extent Europeans will be able to buy weapons procure weapons for Ukraine where the sum of this weapons that US is using now in the in the Middle East will make it less available for Ukrainians to defend themselves what about Ukraine and Lena the EU has not yet been able to move forward with the 90 billion package that it approved in December in principle because of bureaucratic delays

34:54meanwhile Ukraine is stuck for money facing its own internal political challenges and still hoping to make the reforms necessary to move toward EU accession how can it balance this given the sudden distractions for all of its allies you absolutely right it's a big deal you know the 90 billion that has been promised which is broken down between fiscal support and the military support is important I won't necessarily call it bureaucratic delays I think it's a very successful campaign by Russia and nobody said it's going to be easy to win the war was Russia for Ukraine even with the support of the allies I think it's a continuous pressure negotiations was Hungary that Russia has been doing because let's remember Hungary actually said it will not object it will not take the burden of financing this this borrowing but it will also not object and then a few weeks months later it came out and said actually we're objecting so down negotiations are going on maybe also Hungary would like to get some sweetener out of these negotiations which they

35:55have done in the past as well I personally hope and think that this loan will be worked out one way or the other by European Union I think that everybody is working very hard but I would also remind two issues one is that Ukraine has already been called to advice in terms of the protection from drones and from the missiles it's sort of showing that how good Ukraine can actually be helpful right it's not just NATO helping Ukraine it's also Ukraine helping other countries and I also wanted to remind that we did have the training exercised by NATO in I think it's an Estonia that happened where Ukrainian drone commanders destroyed pretty much the few battalions in the matter of hours and days as Wall Street Journal I think quoted one of the generals that were absolutely F bomb word in a few days so it just shows you also that Ukraine is no longer just the receiver it also has leadership in technology procedures processes the new kind of warfare

36:58unfortunately and Guntram has also written a lot about that just to echo this I think what we are seeing is Iran copying some of Russian techniques and doing this much more effectively apparently now than back in June of last year when the the first attack happened I mean now they are really successful in launching drones in launching missiles that saturate air defense systems and as I said at a at a very positive cost ratio so so it is really calling on western militaries to update update our doctrines defense doctrines for for these kind of kind of systems the question is how long will this last I mean to me this is this is the key question I mean will the Iranians have enough capabilities and be able to preserve enough capabilities for more than a couple of weeks if they do then I think this war will last longer and and the cost for the west in terms

38:05of military equipment or the west let's say the US and Israel in particular in terms of military equipment but then in terms of the world economy in terms of further blockages of the the state of almost and the the supply of oil I think will be much more significant than what we are seeing now so I find it actually very difficult at this point to say when the US president has come out there saying it's for four weeks okay I mean we've had statements by more trustworthy US presidents about how quick campaigns would go and then it ended up in years long long wars right and and so so just to make this point very clear again I think this notion that with the bombing of of Iran the Iranian people as the president put it can now just go and take the government that's their own is is completely sort of wishful thinking the Iran revolutionary

39:11guard still has machine guns even if all the missiles are bombed away you cannot just take over a government if the other side has has machine guns right I mean so so I personally really don't think there there is a plan here on the US side and that makes it actually terrifying because we could be in here for continued shootings continued missiles continued drones coming from Iran over the strait of almost towards Israel towards Gulf towards Gulf countries and then this energy shock will be much bigger the economic shock will be bigger and and so the the whole situation will look much less manageable then I think many people think it looks now there's so much long term uncertainty but Simone if Alina is right and energy prices come back down after an initial blip does that mean we could see some complacency for Europe in terms of making the long-term adjustments that right now seem very urgently needed again I think we need to be very clear I mean

40:16we might be in for just you know a turbulence of a few days if everything develops in a certain way or we might be in for the mother of all energy crisis if the situation goes in another direction and you know it takes a long time to to get out of it so I think the level of uncertainty is now extremely high what is certain is that it is not when you are into a situation of energy turbulence of into an energy crisis that you can put in place the measures to you know to protect yourself I mean at that point you just need to adapt and the how to adapt I think you know if you have very little to do on the supply side as Europe as you need to play with the demand side so you need to reduce consumption that's what we did during the energy crisis prices by themselves

41:20we deliver the demand reduction of course and then there might be regulatory measures to further achieve reductions if needed protecting certain customers with the others etc and then we will need to think about preparing for the next winter you know because now we are approaching the spring and therefore the gas consumption with its seasonality will go down in any case in Europe and that's also why prices were pretty calm over the last weeks and months because of a warm winter but you know spring summer is when you lay the foundations of the security of supply of the next winter so that's to say that we might be in for another period of potentially of another long period of uncertainty and probably you know if certain events go in this way high energy prices in Europe for times to come so to be seen where we go now and Lena before this

42:25episode got started we were already hearing fears from the Baltic countries and from Poland that Russia could step up its aggression toward Europe and not just in Ukraine will those countries be on heightened alert now and what might be useful to think about there well I think first is we've been doing it in Brugel already we need to think about economics and military and security studies together this are not parallel tracks economics is the war and use you correctly point out high commodity prices benefit Russia benefit directly Russia's war machine and a similar just pointed out if we're going into this binary sort of scenario of prolonged and highly uncertain and high oil prices that gives much more ammunition to Russia $10 move on the Russian on the oil price per year gives around 1% of GDP increase in Russian revenue this is a very simplified role of some but it's roughly there it can be a little bit less and can be a bit more but that is very meaningful this is the money they can spend to

43:30invest into war and to project their power so absolutely for I think for the Baltic states for all the countries for Poland bordering Russia but not only you know we've seen the Russia hybrid warfare we call it hybrid but it's potentially very kinetic if it should down your airplane over Brussels airport right so I think we need to think most important that economics is the war it is part of the war machine in Russia and this higher prices just mean that Russia has more resources to invest in into the war that's why I think this having the war games that happened in Estonia in the Baltics I think that's one of the ways that the Baltic states are trying to draw attention to the fact that we need to rethink how we rewrite our procedures for for defense you know the old fashioned way of doing defense is no longer working was this very sort of drone warfare and this sort of overwhelming tactics by missiles and drones that Russia and now Iran are employing. You've been listening

44:30to the sound of economics from Brugel the Iran war is an ongoing situation and you can check our website Brugel.org for all of our latest thoughts and research I'd like to thank my colleagues Ilina Rybakova, Gontr and Simone Telya Piotra for joining me today. Thank you for listening. See you