The Duran Podcast - Jeffrey Sachs: Iran Miscalculation Could Trigger a Decade-Long Economic Crisis

Episode Date: May 7, 2026

Jeffrey Sachs: Iran Miscalculation Could Trigger a Decade-Long Economic Crisis

All right, Alexander, we are here with Professor Jeffrey Sachs. I have Professor Sachs' information in the description box down below as well as a pinned comment. So let's jump right into it and get to the news on Iran, Alexander, Professor Sachs. And indeed, and we're in an extraordinary situation because it seems to me that the United States began a war on the 28th of February without understanding its adversary on appalling pretexts. and with grandiose and I would say also appalling objectives. The objectives have not been achieved. The pretexts have fallen away.

And now they are not sure what to do and where to go. Because the resistance from Iran turned out to be far more effective than they could possibly have imagined. And what we're seeing is the administration changing for one policy to the next policy to the next policy as they try to find a way out. We are looking at possible negotiations. No one better to talk about these things of war and peace with

than Professor Sachs. He's with us for a limited amount of time. Let's make the best of this. Let's go straight in. Professor Sachs, first of all, do you agree with my characterisation and do negotiations objectively? the objective reality of negotiations, if conducted in good faith, can they take us to an outcome where we might achieve peace?

I agree completely with your characterization. That's not surprising. Of course, you've had it right from the very start. This was a regime change operation that was supposed to be a one-day operation. I think the model for this was Venezuela. And Venezuela is a very interesting case, but it was a case where the United States exfiltrated or kidnapped the Venezuelan president, made some kind of deal with the rest of the government, basically with the vice president who became acting president, and declared victory. And I think this is probably as we find more information, what Trump had in mind and what Netanyahu and the head of Mossad promised Trump, that this was going to be a very quick affair. The leadership would be taken out.

Trump said immediately after the initial killing of the Supreme Leader and the Iranian leadership, I'll pick the next leader. as he had done in a way in Venezuela. And I think that they probably had something more rigged than we have heard to date, or they thought they did, obviously. But in fact, the whole thing was a disaster and a failure. And that was clear within hours. In fact, immediately the Iranians were able to reconstitute their political leadership and their military chain of command.

The International Revolutionary Guard Corps essentially took over operations quite quickly and competently and displayed even in the early hours, I would say especially in the early. hours, the credible capacity to retaliate at great cost to the United States, to the Gulf countries, and to Israel. Again, we're going to learn more about the actual damage that was done in those early hours by the Iranian counterattacks. But as the information comes clearer and clearer in recent days, the damage assessments escalate. In other words, within a few hours, Iran's counterattack on February 28th and in the early days of March was quite devastating.

Since that time, Trump has been looking for some way out of this, and the choices are some kind of dramatic escalation, which I think was his desire, but where he found closed doors everywhere and no real military option. and the other to somehow get out, declare victory as is his want, and end the debacle. Of course, these were two leaders, Trump and Netanyahu that jointly went into this, and Netanyahu's motivations clearly are to keep the United States in this war. This is his dream over several decades that he'd finally. get a president as incompetent and as reckless as Trump to do his bidding. He tried with every other president, with Clinton, with Bush Jr., with Obama, even with Trump won, and then with Biden, none would take the bait. It took this utterly incompetent

president of ours, who was feeling fresh off of a great Venezuelan victory in his mind to take debate. But Netanyahu wants to keep the war going without question. He's done everything possible at every occasion to break agreements, to break provisional ceasefires. His cabinet is constantly declaring how important it is that the war continue until Iran is destroyed. But Trump is hearing from everybody, probably even from his sycophants inside, but also especially from the U.S. military, from the Saudis, from the Russians, very importantly, from President Putin directly, with his mind on an upcoming visit to Beijing within days, and with his plummeting approval ratings and midterm elections coming up in November,

Trump wants a way out. Will there be a, quote, negotiated agreement? You don't really need it to get out. You just need to stop and declare victory, as Trump will do. There could be something patched up that's called an agreement. The idea of a comprehensive agreement, I think, is, is basically off the table, almost unimaginable in the current context. By comprehensive, I mean an agreement that would not only end the war,

but also address all of the rest of the issues on the table, the nuclear file, the sanctions against Iran, the frozen assets, the security arrangements in the Gulf and the broader security. arrangements in the Middle East. And remember, of course, that Israel is at this very moment bombing Beirut and attacking Iran's ally, the Hezbollah in Lebanon. The idea of some kind of comprehensive settlement on those issues, I think, is not feasible and not even really in discussion. The Iranians cleverly said, let's just end the war and we'll resolve that and then we'll turn to the other issues. Trump probably is moving in that direction. Of course, with this

completely deinstitutionalized U.S. government, which is in a state of advanced breakdown where there are no apparent processes, no apparent deliberations of any systematic sort. Everything is a bit unpredictable, but it looks to me like Trump is trying to end the fighting, get out, declare victory, and it will be perhaps declared as some kind of negotiation, but in fact it will just be an end of a disastrous unilateral unilateral episode by Israel and the United States. Can you speak to the situation with the Strait of Hormuz and specifically what the effect of this is on the global economy?

Because I don't think that this is something that either Trump or some of his advisors really ever imagine. could happen. And there is a view which is widely circulating and which appears also in much of the European media, that the United States actually is unaffected by what is happening on the Strait of Hormuz, that the Europeans might go down, that Asia might go down, but Trump doesn't care about that. But the United States, as an oil producer and exporter, is fine. Can you discuss all of that, tell us what you think this is going to happen, what effect this has, and is it something that is putting pressure on Trump to find some kind of, at least, if not a full settlement,

at least some kind of resolution to get the straight reopening? It's, of course, the key. I think we have to remember Mark Twain's adage that war is. God's way of teaching geography to Americans. And so once the war started, then Americans learned a little bit where Iran was and what the Strait of Hormuz is. And Americans heard repeatedly that 30% of the world's oil flows through the straits, And then they started to learn that downstream products, especially petrochemicals, urea and other fertilizers, helium, surprisingly, metals, aluminum production, and so forth.

Because of the energy intensity in the Gulf region, are also produced and exported and travel through the Strait of Hormuz to world. markets. So immediately upon the invasion or the attack, I should say, on February 28, oil prices and natural gas prices spiked, they rose initially about 50 percent from $65 to $70 a barrel to over $100 a barrel. And then they have fluctuated since depending on how, closed or opened the straight is and what the expectations are regarding a U.S. withdrawal of forces. Trump made everything astoundingly more complicated by responding to a ceasefire with a U.S. blockade on top of the Iranian control over. the straits. So we have two blockades in this critical waterway, both of somewhat ambiguous

nature. But the fact of the matter is the actual flow of oil, gas, and these other critical products to world markets has dropped dramatically until this moment. This has not been restored. And as we speak, Brent oil prices are a bit above $100 a barrel, which by any standard is very high. But they had reached $120 a barrel and higher just a few days ago. And it's because of this sense that the U.S. is probably backing down at this point that the prices have fallen sharply. Now, what is the effect of all of this? It is what economists call a supply shock. It means that unlike some economic downturns, which come from a financial panic or a downturn that comes because of what John Maynard Keynes called a fall of aggregate demand, this is an economic crisis that comes

from the basic hard fact that the physical supplies of energy and other inputs for production are suddenly cut. And that's a very dramatic kind of economic impact. It's so dramatic. I wrote my PhD dissertation 47 years ago, 46 years ago on this question of the oil shocks of the 1970s, which had twice thrown the world economy into an extraordinarily painful downturn combined with a surge of inflation, an outcome that was christened stagflation. And I wrote, I think, the first book on worldwide stagflation as a result or analysis of those two shocks.

Well, what's happening now, potentially, is much, much worse than what happened in the 1970s. And the reason is that in the 1970s, the flow of supply was twice cut off. First, in the aftermath of the 1973 war between Israel and its neighbors, and then in 1979, in the events of the Iranian revolution. But those were a cutoff of supplies because of turmoil and political decisions, whereas what is potentially happening here is a physical destruction of the oil and gas fields

and the infrastructure, the pipelines, the refineries, the ports that bring the, the oil and gas at the downstream products to world markets. And we've been hovering at the precipice, or we've been at the precipice, of the physical destruction of the Gulf energy system ever since February 28th. Trump repeatedly said, I'm going to destroy everything in Iran. The Iranians, it was clear from the first hours, have the capacity to do the same to their neighbors in the Gulf to the West, the Saudi Arabia, Emirates, Ukraine, Qatar, and the others. And so we've been hovering close to the physical destruction of a major part of the world energy system.

And that would have meant not just a downturn, but an economic crisis with a shadow at the length of many years, if not a decade or more, would have been truly and would be truly catastrophic. We're not absolutely out of this yet. And Trump continually flirted with the idea of escalation, and every time he did so, the oil price surged because the markets and the speculators saw that there could potentially be a devastating destruction of the physical supply. Now, how does this affect economies? It affects every economy in the world because primary energy of oil and gases and input to all production processes, sometimes directly and sometimes downstream. It affects electricity prices. It affects, of course, the price of

petrol at the gas pump for motorists. It affects all transport and shipping costs. It affects food production. Nobody escapes that. whether you are self-sufficient in energy or an exporter or an importer, as long as your energy market is integrated with the world market. So the prices of oil and gas, and therefore the impact on the users of oil and gas and their downstream products hit the U.S. economy the same way as they hit any other economy. Our gasoline prices soared. This immediately caused Trump to lose several percentage points of approval ratings in the polls and caused every Republican political analysts to start screaming,

stop this before we have a devastating result in the November election. The U.S. is not closed to the world energy markets. In fact, Trump bragged. and his most important backer, probably the oil industry, certainly one of the top two or three lobbyists in the U.S., they're exporting gas and oil products to world markets. So we're completely interconnected, and that means every manufacturing business, every factory in the United States,

every motorist feels the same effect. What is different in different countries is what we call the income effect, not the supply effect. There's an income effect, which is negative if you are an oil importer. You're paying more for that oil. Not only is it more expensive for all the users, but you have a direct loss of income irrespective of the downstream effects on manufacturing or industrial production, simply that you have to put out more money to do whatever you were doing before. And if you are an oil exporter or neutral that your imports and your exports roughly balance, you don't have a loss of

income per se because your oil companies get a windfall that, offsets the losses of the income of the users of oil. That's not politically, by the way, a very acceptable point. Our oil companies at the United States, ExxonMobil, Chevron, and others are having a windfall. Tell that to a U.S. working class household that's paying vastly more for their gasoline and their other bills, they won't be very impressed by the so-called insulation of the U.S. from that negative income effect. They're experiencing a negative income effect. The oil companies are experiencing a windfall. That windfall, you know, partly goes to Trump's campaign funds. That's the whole political.

lobbying aspect of it, it doesn't go back into the pockets of the working class people who are paying more for their energy. So you could say at a national level that the income effect nets out, that the windfalls of Chevron and Exxon Mobil balance the losses of tens of millions of American households. But socially, politically, economically, that's not really balanced. out. It is netting out in the pluses and minuses, but it's not evening out in the account of the impact. If I summarize all of this, on the production side, industrial companies, users of electricity, users of petroleum and downstream products, it doesn't matter whether your country is a net exporter, net importer, your industrial production side will suffer from a worldwide decline of energy resources.

From an income effect, if you are a net exporter of oil and gas and related products, you can have a windfall, but that windfall may end up in the accounts of a few companies, whereas the negative effect of the households in the economy will be equally severe no matter where they live and whether they have U.S. or they have oil companies in their midst. And let me just add a little footnote, which is that Exxon and Chevron and other U.S. oil companies experiencing a windfall are U.S. domiciled companies, but a lot of the shares of those companies are foreign-owned, actually. So the windfall isn't even a U.S. windfall per se. Maybe 20 or 25 percent of the shares of those companies are owned internationally by

estimates that I've seen. And that means that it doesn't even net out in the simple balance sheet way of the U.S. just being a net balance of petroleum products, because a lot of the windfall side actually goes to foreign owners rather than to American shareholders of those companies. All of this is to say, nobody is immune from this shock. And I haven't even talked about the second round, third round, fourth round effects that these shock bring about, I've only talked about the most immediate effect of the supply side changes. Because once you have this massive disruption to production, you have many feed-on effects

in the financial markets. You have companies going bankrupt. You have governments that go into financial distress. Even the Gulf countries are at risk of financial distress, as you've been. rightly describing with a lot of care, the way that the Emirates and other Gulf countries have gone to the U.S. Federal Reserve or a backstop, a swap line to protect them against a potential financial crisis. All of this means that there are many adverse cascading effects. from what's already happened, this is already hurting badly, tourism, air travel, the price at the gas pump,

industrial production, food production. It's already hurting badly. But if Trump were to escalate and the result was a mass destruction of the hydrocarbon physical infrastructure of the Gulf region, the consequences would be, I would say, in excess of anything we have seen since the Second World War. And I think Trump has probably heard that in the last few weeks to his great frustration. And I think he has been warned repeatedly, I hope so, that he has been warned repeatedly that escalation would not only most likely be militarily, fruitless, but would also most likely be economically devastating. Thank you for that very clear explanation. Now, that brings us back to negotiations, because in any rational world, what you need to do, if you're a government, is you need

to mitigate supply shock by stopping the fighting, making sure that all these facilities, these energy producing facilities are not destroyed. And getting the straight of Hormuz, if not fully reopened, at least back to a situation where oil is being exported again. The problem is that takes us back to what we were discussing at the start of the program, which is negotiations and negotiations conducted in good faith. I'm not sure we are seeing negotiations conducted in good faith. I am not sure that any part of the United States is capable of conducting negotiations. in good faith, especially with a country like Iran. The idea that the United States can be put in a position like this by a country like Iran, my sense is it's incredibly difficult for many

people in the political leadership of the United States to absorb or accept. conform with your own views. And if so, I mean, the real problem now, the greatest problem is, again, American inability to conduct negotiations and indeed diplomacy. Can you speak to that a little? I absolutely can. And I think you've nailed it. Of course, we don't have good faith in the United States. And this is not a rhetorical flourish or just a backhanded slap. It's a literal description of the behavior of the U.S. security state. For decades, the whole idea of the U.S. security apparatus is you don't need good faith. You just need dominance.

Good faith is what you do if you are in a repeated interaction with another party. And so you behave according to some principle or some standard so that you can hold the other side to account in future interaction as well. It's the give and take of diplomacy. We know it in our own lives. This is how we presumably work with our counterparts, members of our family, business relationships, and so forth. You don't just cheat because there are consequences. You ruin your relationship with the counterparty.

You ruin your reputation. For the United States, I would say uniquely in the world, the U.S. view has been different, which is that the only reputation the U.S. wants is that it can slam anyone that gets in the way. In other words, the reputation that it seeks is that of a bully rather than of a good-faith counterpart. I think many countries find this surprising because there are normal interactions with other sides, even with other sides that they regard as deceitful or with a tendency towards deceit, is that at least there will be the motions of good faith. And so with the United States, it's really quite different.

With the United States, you sit down with the negotiator, and then you literally kill the negotiator that you're negotiating with. And Israel, in its bravado, as a military Sparta backed by the United States, behaves even more ruthlessly in this way. The Israeli model is negotiate with nobody, but assassinate everyone you can get your hands on. And so the whole idea of good faith is not a concept in U.S. statecraft right now. The concept of U.S. statecraft is to scare the shit out of the other side. That has been the model for a long time. It's the model that famously is the model of the Athenian generals in Ducydides' account

of Athens' warning to the island of Milos. You're with us or we destroy you. And that actually is the behavior. I have spent 25 years telling governments abroad, you better be careful because this is how the actual behavior is. They will sit down with you. They will try to kill you. they will try to overthrow you.

They will deliberately weaken your economy. They will try to crush your currency. They will try to create bank runs and so forth. Actually, I have to say, I was pretty naive about this stuff for a long time until I watched it one after another because it's so abnormal to behave this way. Almost all of us, even, I think, instinctively know that what goes around comes around, you better be careful. You better behave because very few of us experience the rush of unipolarity that the United States security class and apparatus and CIA and all the rest experienced

especially after 1991. With the Iranians, it's been something because I know the Iranian negotiators. very polite. It's, of course, civilizational also. This is Persian culture. This is not only Iran. This is what you feel with the culture of 5,000 years. They're very polite. And they said repeatedly in the last couple of years, we'd like to negotiate, but we'd like good faith. And I cringed every time that they said that because, okay, you can negotiate, but don't expect good faith. Now, Donald Trump is the caricature or the cartoon of all of this because his personal mentality and style is this to the most exaggerated extent. This is a man who was cheated on every contract who drove multiple companies into bankruptcy through his false dealing.

and so on. What is an amazing fact is that he became president on two occasions, despite all of this, partly because he signaled to some group of Americans, this is the bully we really need. This is the bully who was going to kick the shit out of the people I don't like, whether it's the immigrants or the foreigners or the Iranians or the Chinese or whoever it is. And so his bullying was his selling point. And there is no good faith with Trump. The concept doesn't even exist at the personal level, but it really doesn't exist at the institutional level. It's not always been like this. The U.S. actually had sophisticated diplomacy at many times. And it was always, to some extent, a bully against small countries, but it had rather sophisticated diplomacy for

decades. It basically lost that after 1991 when the so-called unipolar moment came because the class in power believed their own rhetoric that now they really are all-powerful. They can decide, they can choose. And as someone famously told a journalist in the Bush Jr. administration, we create our own reality. And that became the actual mode of statecraft. So there is no good fate. It doesn't mean you can't reach some agreements, but boy, you had better had those agreements essentially backed by Russia and China and others. And maybe in this context, Saudi Arabia and others who have a strong incentive that the agreement actually be fulfilled. Because otherwise, if it's purely on a bilateral basis, it's worthless. And, you know,

if we were, which we won't do right now because of time, but if we were to turn to Ukraine, the whole saga of ending up in war in Ukraine is one U.S. broken promise after another. Absolutely no good fate from the commitment in February 1990 that NATO won't expand to an agreement on the agreement on. February 21st, 2014 in Maidan, that Yanukovych will continue as president and there will be elections later in the year, followed immediately by a coup that the United States immediately adopted, followed by the bad faith of not enforcing the Minsk II agreement. And on and on and on. It's bad faith. And this is, you know, I think even, you know, for the Russian side, it was surprising

how consistently it was bad faith for more than 20 years. And it's surprising for anyone that normally engages in negotiations to see this kind of behavior. But it is born of this very particular situation of the United States as believing itself to be the only country that counts and therefore one that doesn't have to turn to, the normal tools of iterated cooperation and reputational matters, which is what good faith invoked, but rather the idea we do what we want and we do it however we want because nobody can stop us. I'm going to in the very last minutes of our program ask you to say a little bit about Iran because you spoke about how polite they are, that it's a civilizational state.

It's clear to me that the United States has greatly underestimated Iran. If you can just explain to people that it's not perhaps the poor, underdeveloped, chaotic country that I think a lot of people imagine it is. I appreciate you can only speak to this for a short time, but if you can just tell us something. Iran, first of all, is one of the longest lasting continuous civilizations in the world. China, Persia, Egypt. This is something unusual because Iran dates back thousands of years.

And great Iranian empires, the accamended empire of Cyrus, the great and so forth already date back 2,500 years. years. There is what we call civilizational depth. But in the current time, what is very surprising to people who say it's the mullahs and it's some medieval regime and so forth, this is a highly sophisticated society with a tremendous scientific and technological base. And this, I think, almost no American policymaker understands. There is a professional class, an engineering class, a scientific class, outstanding universities, and a long record of state-of-the-art scientific publications. So we're talking about something completely different from the stereotypes that have been the stereotypes favored by the U.S. since the 1979 revolution. And Iran, like Russia, also very sophisticated

society, world leading technologists and mathematicians, of course, for a very long time. China, the same way, world leader in technologies. What's happening is whether the U.S. U.S. and the Europeans like it or not, Eurasia is becoming highly technologically sophisticated, absolutely competitive or ahead of the United States and Europe in many, many areas. Iran is part of that technological sophistication. And if the U.S. and Europe shut their door to Russia, to Iran, to China, it's going to be seven, or 80% of the world anyway that's going to keep the door open and keep trade and economy flowing.

So all of the protectionism and Trump's absurd trade wars last year, another active self-harm and economic ignorance basically are cutting the United States off from a vast, technologically sophisticated world economy that is Iran to the east, if I could put it that way, that is the erasian economy. And the same is true and even more self-harm of Europe, which cuts itself off from everybody because Europe has basically no friends left the way they're going. They've cut themselves off from Russia, from Iran, from China. And then they look around in the United States isn't there, French. And so Europe is just digging itself more and more deeply into isolation, completely misunderstanding the basic direction of the world economy.

Professor Sachs, this has been a masterly program. Can I say thank you again for coming on our program. I look forward to having you again. Thank you. See you again soon. Thanks a lot.