The Duran Podcast - OPEC Fractures and Stagflation is Here. Global Economy on the Edge w/ Raymond Zucaro

Episode Date: May 3, 2026

OPEC Fractures and Stagflation is Here. Global Economy on the Edge w/ Raymond Zucaro

All right, Alexander, we are here with Ray Zuccaro, joining us once again on the Duran. Ray, how are you doing, and where can people follow your work? Good morning, gentlemen. Thank you again for having me on. I post my thoughts monthly at Ray Zuccaro on TwitterX. I posted my April thoughts last night, and my firm's website is www.r.rvx-am.com. All right. I will have those links in the description box down below and as a pincom.

as well, so you can follow Ray and his excellent analysis. And we are going to talk about some of his analysis and what's going on in the world with OPEC, with oil, with the UAE, what's happening in the European markets, in the Asian markets, and of course, everything going on in the United States with the rising price of oil. So Alexander Ray, let's get into it. Let's indeed get into it. And can I just also advise people to go to and read up on Ray's analyses. I'm learning a huge amount from them. It's been very striking to track the things that Ray has been saying,

both on these programs and in what he writes. And, well, they're very level-headed, and they take us towards the truth. I mean, they tend to come true. In the world of economics, that's a very difficult, very difficult, very challenging things. to be able to achieve and Ray is achieving it. Now, Ray, if I can start this program with the situation with the Persian Gulf producers

and specifically with the UAE, the UAE has just quit OPEC, there have been many discussions about the reasons for this. Some of them have focused on this affection within OPEC between Saudi Arabia and UAE. And I'm not saying that hasn't played a role, but I went a bit out on a limb recently in which I said that to me, all of this looked to be probably the result of the UAE being under financial stress. And I stress, I use the word stress. Some people interpreted it as crisis. I never used the word crisis. I said it looked to me as the UAE was under financial stress.

And that probably, more than anything else, is the explanation why the UAE did what it did. Now, this morning I've been reading in the Spanish newspaper El Pasoise, a report which very interestingly says that other Persian gov producers are experiencing stress and are talking about this to the Americans. Ray, what you think is actually going on? Alexander, I fall very much in your camp. I do think there is underlying signs of financial stress, particularly in UAE. I look at what they're actually doing and then judge things by their actions. And I've seen them issue private placement with large asset managers outside the markets. I've seen them approach the U.S. regarding a swap line.

On taper, everything looks great for the UAE, very low debt, the GDP, very high reserves. But if you look at the three pillars of the UAE's economy, it's tourism, trade, and financial services, right? And I am concerned, again, I don't have a crystal ball and the government doesn't give me its financial numbers, but I'm concerned that you are seeing capital flight. Just anecdotically, I'm seeing Hong Kong rents. They've just revised rents. They're expecting 5% growth. Now they're expecting 10 to 15% growth, right?

You're seeing money flow into Hong Kong. You're seeing money flow in Singapore. So I think the action that they've requested a swap line with the government, kind of interesting in two cents. The currency of UAE is tied to the dollar, is pegged to the dollar. So as a central bank, they lose one of their fundamental mechanisms to protect against capital flight by raising interest rates. They're effectively tied to what the Fed does.

So they have one less instrument to do. So. Yeah. Go and go, go. And I think the other interesting point about it is it doesn't get a lot of, it didn't get a lot of financial press, but it was in the original Wall Street Journal story that the UAE basically threatened, like, Well, if you don't help us out, we're going to go to the Chinese. And again, it questions that whole petro dollar system. A lot of investors think that the petro dollar system is created by the U.S.

It is not. But as companies and countries borrow in dollars, the idea that the dollar is interchangeable, right? So the problem is if countries stop using the dollar, stop issuing the dollar, it gives the U.S. less flexibility to issue debt, right? So not that it's directly correlated, but the pool gets a little smaller. I just wanted to say, this is anecdotal. It's not statistical. But I heard reports from Hong Kong, and my brother-in-law, I should say, is based in Hong Kong,

that at one point in March, capital inflow to Hong Kong from the Gulf was running at $40 billion a week. So that correlates fairly closely with what you've just been saying. And I understand also that much of it was indeed coming from UAE, probably most of it. What, that's anecdotal. I can't confirm it. Now, what is the bigger implication of this? If the Gulf producers are under financial stress, if they're starting to take out swap lines with the Americans, what does that mean for the functioning of the global financial system? I had not seen yet the article in El Paiz, but it falls very much in line with my concern of the Middle East, right? You are countries that have a high earning rate. Suddenly, the revenues are effectively, in some countries go to zero and some, you know,

largely curtailed like Saudi Arabia and UAE is still able to export some, but they also have a very high spend rate, right? So you're questioning their ability to bring in revenues while the costs, in theory, stay very similar. So they're putting much more financial stress. You know, just from a portfolio allocation, we've been very much underweight the Middle least just for that concern because they've historically been the high margin high producers and with revenues curtailed and spending rates and interest burdens, frankly, going up, right?

You know, you think these private placements that these countries are doing are at below market rates. I'm sure there's market plus. So their interest costs are going up. So it's pressure on various fronts, right? Their underlying businesses are being questioned. Their revenue streams are question, their cost of capital is going up. There's a glowing sense of stress all around them. Let's move beyond that. And when we lasted our program, you spoke about the fact that cargoes of oil would stop coming to Europe from the Persian Gulf around the end of April. By the way, the economist a few days ago confirmed that you were absolutely right about that. They're now saying that we've now just in Europe received the large, last big deliveries of oil

from the Middle East, deliveries that were being sent before the 28th of February. Where are we? Where is this taking us? When we spoke before, you spoke about a major. stress points in Europe if energy price if you know this this were to continue it seems as if it is going to continue it's going to continue for many more months at least what do you think is going to happen in Europe over the next few over the next few months well you've already started to see that with you know airline cancellations KLM and Lufthansa canceling a lot of routes right I think

the the GDP the implications for from that, you know, less flights, less people of services, less pilots being paid. The roll down from that is just, it's going to question the global economy. And even if things do restart today, I think that roll off effect, I don't see how we don't go into recession. You know, nothing's 100 percent, but I think it's a very high probability. And again, Europe, I think is particularly impacted. But I think the roll down, and look, again, you know, again, everything's speculation, right?

I think best at the Treasury has done a very good job of not manipulating the markets, but, you know, softening blows, right? Particularly at quarter end, you saw some rallies yesterday. You saw a little rally into, you know, as month-end statements come around. I think the ability of the financial system to mask what's really going on in the underlying economy is very impressive. But you've seen demand destruction. I read a J.P. Morgan court just yesterday.

They said March, they saw demand destruction. of 2.8 million barrels for April 4.3 and they're expecting demand destruction of 5.5, right? So demand destruction means lower economic velocity, lower GDP numbers. And what is the situation in Asia? Because when we last spoke in places like India, Pakistan, some of the other Asian producers, things looked, or importers, things were already He's looked to be extremely bad and perhaps getting worse. I think that continues on, although I did read a, I saw a headline this morning that China is going to reopen a little bit of their refining, open up to provide a little bit more refined products locally.

Again, just look at the winds of change, right? I know you guys covered it with the opposition party of Taiwan going to China, right? So China is going to now open the spicket of refined products. in theory would bring countries that have been particularly impacted Thailand, Vietnam, back closer to their spheres of influence. Again, a term that you guys coined originally, I think you're seeing all those guideposts presenting themselves in the market. And I do think Asia, geography is destiny, right?

So with China, obviously, the rising global, you know, hegemon, economy, whatever, however you want to define it, China's influence over Asia. is only going to be increasing, right? You've seen the question of the Petrodollary, the questioning of the U.S. ability militarily to enforce, you know, free passage in the Straits of Hermou, all neighbors of China have to be looking at the situation and reassessing what they're going to do. And if China opens up the spicut to refine products and you address some of the shortages in Thailand and Vietnam, you think that would move closer to their spheres of influence. I'm sure that will happen, by the way.

Let's talk about the situation in the United States because it's very complicated. The Americans are oil exporters themselves. They say that they are so sufficient in energy. This is what the president seems to believe. What is the reality? Because I'm actually hearing more and more stories that, in fact, the pressures, the economic pressures in the U.S. are growing as well. Yeah. You know, in my monthly, I made an analogy between Don Trump and Don Quixote, right? Donald Trump almost is creating his own, what he sees

as the reality, right, chasing will mills or peace agreements and his statements about oil exporters. You know, the U.S. is very mixed. We export a lot of NNG, but we do import some crude products and actually some from the Middle East. So it's not as robust as Trump makes to say. So it's a much more mixed view. But economically, the U.S. is in a particular difficult situation. You have the Department of Justice dropped the case against Jerome Powell and the Fed about overspending on the new Treasury building, on the new Fed building. So it looks like Warsh will come into office.

However, in a speech that kind of reminded me of the Wolf of Wall Street, Jerome Powell said he's not resigning. He's not going anywhere, right? So if you guys remember that movie, it's a very powerful scene, but just the fact that he's staying on shows me that the Fed, he says it's to show independence. However, you look at how Jerome has been. he's been not very accommodated for Trump and lowering the rates.

Frankly, given the global situation, I think there's more arguments that you'll see rates going up as you see inflationary pressures rising, right? And Jerome's staying around, he's not going to vote for rate lowering. So I think the economic situation in the U.S. is very complicated, right? You're seeing oil, gasoline price spikes in the middle, the heartland of the America, right? The heartland being the farmland, right? You're seeing diesel prices spike up, gasoline prices spike up. Interestingly, my brother works in pharmaceuticals yesterday, and he went to a conference,

and they're having a problem with latex to make latex gloves for doctors and nurses, right? So you're seeing this supply chain, I don't want to say breakdown, but stress, right? You're seeing underlying stress in the markets that, you know, I think the Fed is really in a difficult spot. I see the trend. I think inflationary prices are rising. In Britain, there is now talking about 6% inflation by August, 6% annualized rates of inflation by August. What is it going to do to interest rates, not just in Britain, but perhaps more importantly, in the Eurozone, because they're also going to be seen. And the very last thing they want there, I would have thought, is higher interest rates.

they as a central banks they have a little bit easier test not that it's an easy test but they focus on inflation right and as inflation rises the central banks will adjust rates in theory higher to tamp out inflation the the fed the u.s. Fed has a dual mandate so it's a little bit more complicated you're seeing headline job numbers look okay right so you know what but you know one job comes in one job comes out. So it looks similar. But I look into the jobs number and you're seeing a lot of high tech, high earning jobs, companies like Oracle, Facebook. There's doing a lot of firing in industries, which had been historically high earning and they're picking up jobs much, much lower. So the headline job numbers look okay. But I think the underlying looks very troubling. So the Fed is in a much more

difficult situation because I do think you're going to see inflationary pressures, which would in theory cause them to raise rates, but you're seeing underlying turbulence in the job market. Is this stagflation? I think it's the classic definition of stagflation. For the record, I've also heard that in the luxury sector in Europe, purchases of already heavily down. People are buying for your watches, expensive brandies, cigars, all of those sort of things.

And this is apparently causing considerable stress and certain high-end product lines in Britain have actually been completely discontinued. I'm not going to say which ones, but anyway, I've heard about it. So this does suggest that people are indeed cutting back. If we start getting into a stagflation situation, let's say the Strait of Hormuz reopens. I mean, we go back to what it was like before the 28th of February.

How look quickly do we get out? Because last time we were in stagflations, as I remember, it was actually very difficult to get out. Yeah, I share your concern. I don't see the real, what's the catalyst or what's the stimulus to get us out of that situation. And even if the trade does open, you know, will there be a toll, will there be a cost of that? You know, would that put Middle Eastern producers at a disadvantage versus, say, you know, an oil company in Angola or Nigeria or in the Americas, right? So you're going to see a shift in global profitability. But how do you come out of the stagflation environment?

A lot of governments are at the GDP levels that are staggering, right, that are frankly fearful, you know, give me pause, right? You're seeing the double market debt to GDP numbers that look worse than you're seeing in the emerging world, right? So how do you stimulate? How do you get out of that that stagflationary environment? I think that it's a very difficult answer because I don't know. I don't see what's the easy fix. What is Donald Trump going to do? By the way, again, in our last program, you mentioned, that if prices in energy products in the United States, cost of gas of the pumping station goes up, he's absolutely the kind of person who might indeed impose export bans on oil especially.

The media in Britain is now running with this. They are now becoming increasingly concerned that that might indeed happen. Firstly, I mean, do you still think this is possible? And secondly, what is he going to do in broader terms? Is he actually going to finally decide that he needs a deal, as he would put it, with the Iranians, or is he going to stick to the current position of waiting them out? I do think export restrictions are a possibility, because what you've seen globally is a drawdown of inventory.

So a combination of drawing down inventories and demand destruction. That's why prices obviously are very elevated than there were before this conflict. But they're not as frankly as high as they could have spiked or as I would have expected. As those inventories are drawn down, I think there'll be more and more pressure. Again, diesel prices in the middle, in the heart of America are getting at nosebleed levels. So I think there's going to be increasing pressure on that. what what should trump do and what will trump do are very challenging right if the problem is if he does a a j p c c c c a new deal he'll look like obama right he tried to do a a military extraction of

materials against speculation that almost made him look like harder he's really in a in a very difficult situation what should he do is say look we won and let's just walk out and if you know If there's a toll charge, that's not my problem. That's the world's problem. That's what he should. However, I think that'll be such a humiliation for a man that, you know, his ego is, you know, large. It's hard for him to swallow.

Are we looking at a recession? Are we looking at a global recession? And we talked about stagnation. I mean, is this going to be a global recession? And if so, and what's kind of scary? I worry that it's a severe scale. Again, this kind of energy shock, this kind of slow down in economic activity, and frankly, rising interest rate costs, I don't see how it is in a recession, right? I worry that the severity, I don't want to use the D word, but, you know, I think it's for sure a recession, but a severe one.

So I don't want to go that extra step and be accused of anything. But I see the underlying metrics is very challenging here. Well, I think that you've provided us with a very bleak, but actually very accurate picture about the underlying situation. I'm going to ask one very final question, which is this. Here in Europe, there's a lot of talk about bond markets and bond vigilantes and what might happen in the government. bond markets. In Britain, we had a very, very bad moment a couple of years ago, so I'm sure you remember with Lestrass. And the government here, I mean, the thing that keeps them awake at night is the fear that we're going to have something like that again. Are we possibly

looking specifically in Europe at a crisis in the bond markets? Is that a possibility? I think it's something to be aware of. Again, I think you'll have at least the U.S. in theory being accommodative and providing liquidity when necessary. One of the things I also touched on in my monthly, which I know we didn't really talk about, but, you know, some of the interesting headlines that I've seen towards the end of the month regarding Argentina and the Falkland Islands and the Malvinas and the NATO punishments, you know, I worry that, again, Trump's news. security doctrine of creating fortress, you know, this hemisphere and, you know, punishing the English that if you see some type of, you know, move on the Malvina's or the Falklands, that it could, you know, cause a liquidity crunch, frankly, globally. So I'm not as super concerned about a Liz trust like Bond. But it's something to be cognizant of. And if, you know, if the Trump administration really, does want to punish those that were not supportive, right? I mean, there's a whole bunch of issues

about Diego Garcia. If he wants to punish them, maybe not providing the liquidity backstop when needed. Well, if I can just quickly say something as a British person about the Falklands, if the Argentinians were to make a move in the Falklands, or the Malvina's, if you prefer, as they did in 1982, Britain is not in a position to melt the kind of military response that happened in 1982. It would be lost very, very quickly. And the political effects of that in London would be devastating. So it's perhaps something else that the British need to be worrying and thinking about too.

And the political effects would be so devastating that it's difficult to imagine that they would not have effects also. on the overall economy and the stability of the economy in Britain as well. This is just something that I'm able to say as a British person. Ray, is there anything further that you want to add? Any last point that you want to add over and above what we've just been talking about? I think we did a nice global summary of the world and the financial sister race. Unfortunately, I try to be an optimist, but there's a lot of trends out there that are troubling on the horizon.

Thank you very much. Ray Zucano, thank you, as always, for an absolutely masterly overview of the current, very difficult situation. Thank you, gentlemen, for having one. Thank you, Ray. Before you go, one more time, where can people follow you? At Twitter X, Ray Zuccaro, and my firm's website is www. www.RvX-A-M.com.

All right, those links are down below, linked to down below. Thank you, Ray. Take care.