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June 26, 2025 - Epoch Times

08:17

How Did the US Strike on Iran Impact US-Middle East Relations? Kyle Bass Explains.

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	It pays all of us to really take note of all of the inputs here.
	And we're not just talking about the fundamental radical Islamic and Shia inputs of the Iranian regime.
	I'm talking about the financial inputs of the Middle East, kind of writ large.
	But let's talk about Iran.
	You know, Iran's currency was pegged at $42,000 to the dollar for the longest time.
	And as of May, the Iranian central bank has moved that to $520,000 to the dollar.
	So $42,000 to $520,000.
	If you had any savings at all in the Iranian currency, it is gone.
	The black market rate's somewhere around $950,000 to the dollar.
	You have to go back to COVID, when the U.S. expanded the Fed's balance sheet from $4 trillion to $9 trillion in a very short period of time for the first time ever.
	Remember, the U.S. Fed's balance sheet never had been above $1 trillion in its history before 2009.
	So from 2009 to 2022, we took our balance sheet from sub one to $9 trillion.
	And there's a multiplier effect there in the Fed.
	I think we pushed roughly 50% dollar inflation to the world between 2020 and 2023 during the virus from Wuhan.
	And I think that in that timeframe, the rest of the world has what I call a negative convexity to us.
	So everything in the world is priced in dollars.
	So when you look at cross-border currency settlements and you think, well, there's the dollar, the Euro, the yen, the pound, and all these other currencies, there really isn't.
	There's just the dollar.
	And the other currencies are back solved for how they pay for things in their own country.
	That's really the way the world works.
	So when we push 50% inflation in dollar terms to the world, many of the countries that were kind of bouncing along the bottom or having trouble growing, they inflated more than we did.
	They had a negative convexity to our push.
	So when you look at Turkey, 90 million people.
	You look at Iran.
	You look at Pakistan.
	You look at Lebanon.
	Literally, the list goes on and on and on.
	Between 2020 and 2025, they hyperinflated.
	Their currencies are now worthless.
	So for anyone that begins one of these foreign policy arguments with, well, all else being equal, well, we should be able to get to a ceasefire.
	There's no ceasefire happening, Jan.
	There's nowhere to go back to.
	There is financial ruin everywhere because there is no stability anywhere in the world other than in the dollar.
	And we just experienced that 50% inflation in both US and Europe.
	So you and I both know things are much more expensive today than they were pre-COVID, right?
	So the whole world is destabilizing.
	Inflation is an insidious destabilizing force that I'm not sure people connect the dots between inflation and the stretching or tearing of the social fabric, either domestically or internationally.
	And so when you have a look at the Middle East kind of writ large, there is no going back to kind of 2.5% global growth.
	Everybody figures out how to get along and we're just going to go to a ceasefire.
	My view is the ground war in Europe, I don't believe there's an off-ramp there.
	Are we going to go sign another Munich deal where we, our Munich agreement, where, you know, we kind of give Russia their advances and hope Putin doesn't push further?
	Putin has told us he wants all of Ukraine.
	I mean, if Trump himself, the deal maker, can't get a deal done with Putin, then no one can get a deal done with Putin.
	That's the way I look at it.
	Like Trump's really good at making deals.
	He can't make a deal there.
	And so you have the ground war in Europe.
	You have the Iran and its illegitimate proxies against Israel and maybe the rest of the West.
	Who knows?
	And now you have China and Taiwan.
	And, you know, you saw what happened in Taiwan over the weekend.
	Like, again, things aren't going well.
	And when China moves on Taiwan, the world will further bifurcate.
	And I think we all need to be planning for that day.
	The rapidity with which Israel and the United States has have, well, look, let's just say Israel has been able to take Iran apart.
	And they've done it so brilliantly and so with such precision that I think it certainly not only got China's attention, I bet it unmoored China's views of warfare and especially what happened with the U.S. I mean, when you really understand what happened at Fordo and Natans, I mean, we had to drop those bombs down three ventilation shafts that had been covered up by the mountain.
	So they had built the shafts, then they had covered them with earth, and we had to drop them with precision down those three shafts from whatever altitude we dropped those giant bombs from.
	And we did it.
	We still have the best and most lethal military in the world, and we aren't afraid to use it.
	And I think leading through strength is a new deterrent for the relationship between the U.S. and Taiwan.
	You've seen the commander of the Indo-Pacific Command, Admiral Sam Paparro, say publicly, you know, if China thinks they're going to either blockade or attack Taiwan, we will create a hellscape in the Taiwan Strait.
	So I think you see unambiguous messages from our leadership, even from President Biden four separate times saying we would certainly defend Taiwan.
	I don't know what Xi Jinping's calculus is there.
	We're not dealing with someone that's rational.
	We're dealing with somewhat of a madman, just like we're dealing with the madman in Putin, and we're dealing with the madman in Ayatollah, and we're dealing with the madman in Kim Jong-un, and all the madmen are signing deals together and doing deals together.
	It's a pretty fraught time.
	But I think the lesson from the Israel-Iran slash U.S. situation in Iran is going to make the Chinese think twice about being more belligerent on the military side with Taiwan.
	There seems to be a scenario of increased stability, like kind of an expanded Abraham Accords being able to happen.
	But you're basically saying that the financial volatility and this inflation that's been pushed is actually going to negate that effect.
	Do I understand that?
	What I'm saying is the countries that are most ill-affected, like Iran, like Iraq, which is being run as a proxy by the Iranians, by the Shias, and the unstable regions of the Middle East will stay unstable.
	I think the stability of the relationship with Saudi, the UAE, and the U.S. is the best it's been since pre-Biden.
	I mean, as we all know, the Biden administration decided to turn their back on the Saudis, our longest-standing ally in the Middle East, and give the bear hug to the Iranian regime and release the capital to them.
	I mean, that was the most ill-fated, poor decision maybe that Biden made in his, well, I don't know who made it.
	Maybe he made it.
	Maybe someone else did.
	But that administration made a really, really poor decision from a foreign policy perspective with alienating or turning our back on Saudi and embracing the largest sponsor of terror in the world.
	And I think we have now righted that ship.
	So I do think when you look at the UAE growing north of 5%, when you look at Saudi and our newfound strong relationship again with Saudi, and you see very specifically the UAE in Q1 of 2024 said they were going to pivot away from China and that they were going to focus on the U.S. And you see the UAE embracing Europe and the U.S. You see Saudi embracing Europe and the U.S. And the Chinese had really taken our about face in the Middle East and leveraged it.
	And so let's hope the U.S. relationships with the Saudis and the Emiratis continue to prosper.
	But what I'm saying is the Shias in Iran, in Lebanon, and then the people of Pakistan and the governments that are being run by theocratic madmen are really going to have a tough time going forward on.
	There's almost no safe harbor here to reconstruction unless you embrace this concept of some concept of semblance of Western democracy and call it logical rule.

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