What's up everybody? My name is Demetra Caffeines and you're listening to Hidden Forces, a podcast that inspires investors, entrepreneurs and everyday citizens to challenge consensus narratives and learn how to think critically about the systems of power shaping our world. My guest in this episode of Hidden Forces is Captain John Conrad, the founder of G-Captain, the world's most visited maritime and offshore news website and forum, and one of the most influential voices in commercial shipping, providing expert analysis at the intersection of naval strategy, commercial maritime trade, and global geopolitics. John and I spend the first hour of this conversation laying the groundwork for what he calls the Hormuz hypothesis, which provides a desperately needed framework for understanding how and why, whether by initial design or incremental adaptation. The Trump administration assembled the tools to exploit the disruption of commercial shipping through the straight-of-form moves as part of a much larger maritime strategy and political endgame that very few in the media are discussing. We discuss the decades-long decline in the U.S. merchant marine and shipbuilding industrial base. Why control of global maritime choke points is inseparable from national security and the dollar's role as the global reserve currency. Have a collapse of the war risk re-insurance market, following the outbreak of the conflict, created an acute insurance crisis for vessels seeking to transit the Persian Gulf, how the Trump administration responded by creating a government-backed re-insurance facility through the U.S. international development finance corporation, in coordination with the U.S. Treasury and U.S. Central Command. And why this is important for understanding how the global economy is being reorganized away from free trade and open capital markets to one increasingly shaped by national interests, clandestine statecraft, and great power competition, often operating below the threshold of open military conflict. The second hour is devoted to the strategic logic behind Captain Conrad's Hormuz hypothesis, specifically why he believes the Trump administration is in no rush to reopen the straight-of-form moves and how it intends to use control over that choke point as leverage to extract concessions from the Europeans, China, and other actors in the international system. We discuss what some of those concessions may be, some of the concrete outcomes that this administration is seeking through its maritime agenda, including basing agreements, shipbuilding reform, and pushback against Chinese and UN encroachment on the global maritime order. We also discuss the cumulative fragility of the global trading network, what a worst-case breakdown of the system could look like, and what winning might realistically mean for the United States in both a short and long term. If you want access to all of this conversation, go to hitinforces.io/subscribe and join our premium feed, which you can listen to on your mobile device, using your favorite podcast app, just like you're listening to this episode right now. If you want to join in on the conversation and become a member of the Hidden Forces Genius Community, which includes Q&A calls with guests, discounted access to third party research and analysis, and in-person events like our intimate dinners and weekend retreats. You can also do that on our subscriber page. And if you still have questions, feel free to send an email to
[email protected] and I or someone from our team will get right back to you. And with that, please enjoy this incredibly timely, informative, and deeply intriguing conversation with my guest, Captain John Conrad. Captain John Conrad, welcome to Hidden Forces. Thank you so much for having me today. I am so stoked to have you on the show today, John. We're recording this on Tuesday, March 31st. You're the founder of G-Captain, which is the world's most visited maritime and offshore news website in Forum and a top source for news analysis and career insights from mariners, executives, and investors. I've also been told by some very smart people that you are one of the most influential voices in commercial shipping. Is that true? And how did that happen? I hope it's true. And it's really our team. We have a lot of topic experts, you know, instead of just new journalists and journalists do great, but we have captains and chief engineers in naval architects and former presidents of the World Bank writing for us. So we try to get into that deeper level of shipping. It happened strangely. I wanted to go into the Navy. That was my, I grew up in the Bronx. I went to Fleet Week, got on the ship, and I was like, I can get on the ship and I can leave, you know, this war zone. It was a war zone in the 70s and 80s. And studied hard, got into the naval academy. And unfortunately my dad passed away from age and orange. I, uh, young brothers and sister. And so I went to the merchant marine college in New York, New York Maritime, and that's be close to home. I was still going to go on the Navy, but then I see these are the largest moving objects done by man. And I was enthralled by this and got out and super tankers and valdees gasoline product tankers and work my way up to offshore drilling rigs. Some of the most technologically advanced vessels ever built in some shipbuilding. But it really started with the Ambani brothers and the strambani's the wealthiest man in India at the time. They were wealthy, but they put all their money into drilling for oil. They had built a refinery in India and they wanted the oil to go into it. I was a big computer nerd in high school. Most people who are out on ships aren't really into computers. A lot of people get into shipping to kind of get away from technology. And so he brought me in to kind of run some of the computer systems on the ship. I got promoted up to chief officer of this project. They found the largest natural gas find in the world. Ever we won the Guinness Book of World Record. He became the wealthiest man in India, but at that time it was early 2000s. He was like, if I was an American, I'd move to Silicon Valley. That's the future. So I did. I brought my family up. We moved to California. We started a bunch of ski websites on official networks. And then G captain and went from there. So it's been 20 almost 20 years, 19 years of G captain building it. Not as easy as the ski websites were simple. We raised $6 million, which was a lot of money back in 2006. G captain has been a labor of love. The investors did not want to invest in quote unquote dirty industry like tankers and container ships. So we bootstrapped it. And that's how we got. It's the short story at least. So you're a real maverick. Try to be try to push the envelope and do new things. Yes. So I think I mentioned this to you already before you started this recording today, but your name and an article you published several weeks into this war with Iran titled the Horbuz hypothesis was brought to my attention a few times last week and then came up again at our national security dinner in DC for our genius community this past Friday. When we were all debating what the Trump administration's endgame is in the golf and what the objectives and strategy were going into this war with Iran. Could you please take all the time you need John to lay out the hypothesis that you put forward in that piece. And then let's spend the rest of the interview digging into it and extrapolating what it means for the economy markets and where it all fits into American grand strategy. Yes. I wrote that we could have two weeks ago at that time when I had written it. No one was really sure what was going on in the straighter hormuz. I've very clearly made it a hypothesis, but the hypothesis holds up today and we have new evidence since then. So we were going out on a little bit of a limb. But what people have to understand is part of the reason I started you captain 20 years ago is because prior to that there were dock reporters. There were guys who were reporters and they just sit down and this is all they do ship sent shipping. And when Craigslist came out, they got rid of the mainstream media, got rid of all the specialties and all the fields and went and got young J-School grads who were really good, but they don't have the connections and they don't have the networks and they don't have the expertise of years. So the maritime media has been pretty bad and she kept and tried to fill that gap. But even when you get into more specialists like the Pentagon reporters, you have excellent organizations like US Nautical Institute is one. They are really just excellent in the naval news, but they don't do the commercial maritime and you have commercial maritime, some of our competitors like trade winds and Lloyd's lists are excellent, but they don't understand the naval angle. And so you have now even though some of those mainstream media organizations have brought in dock reporters Jonathan Saul at Reuters, Phenomenon, all there are a few people at Bloomberg. They still struggle with the military side. And we have concentrated on both and we were primarily commercial before and then we moved really to get more coverage in the Navy after a few of the US Navy destroyers had incidents in 2017. They pitched Gerald the machine. So this just laying the groundwork to say absolutely every hypothesis, every news article, every talking head was getting this wrong two weeks ago, including ourselves. When you say this, getting this wrong, just be very clear, what were they getting
wrong. When you say this, the war, the strategy? Well, the war, the strategy is one thing, but what, you know, the war is one thing. The strikes on Iran are one thing. I think the president has been fairly clear. They want to get rid of their manufacturing capability, get rid of their navy, get rid of their nuclear capability. But the real problem is this area, the Persian Gulf is the energy mecca of the world and not just energy fertilizer and petrochemicals and all these other things in those move on ships. And people think they can be diverted to pipelines. They think that the military can be sustained by airlift and air. And 90% of everything goes on ships. And you have this straight-ahour mousse here, which is a big U-turn that ships have to slow down and go around right by Iran. And it's going to be a huge problem for the world economy and who blow up to have consequences that even a lot of the experts, you have these energy experts who go on, these guys spend their whole lives in the energy sector. And they understand maybe that component of the massive amount of fuel that is going to not make it out of the Persian Gulf. But they don't understand that fertilizer component and we could lead to massive world hunger. Well, let me ask you the question differently. So you argue in the article that the administration has whether by design or adaptation assembled the tools to exploit this crisis and the disruption of shipping through the Gulf and potentially the Red Sea. First of all, do you think that this is a deliberate strategy that we're going to get into today and that the administration orchestrated this war in part to exercise overt control over commercial shipping lanes in order to gain leverage over other negotiations or is this largely happenstance or a happy byproduct of other more important strategic objectives. And then let's get into the specifics of the hypothesis, which I think are extraordinarily interesting. I don't know why we started this war. People in the kind of mega world, the Trump camp who were against the war and that continues to be case. I don't have an insight into why this started. I have another hypothesis. And one of the hypothesis is that it was deliberate. It was to get leverage over world politics, especially Europe and some of our NATO allies to expose how weak their Navy and their militaries are and achieve other objectives, which we could talk about later. The other hypothesis is there has always been a huge push in certain circles of DC to take out Iran. It's no secret. There are lobbies that have put a lot of money and influence into attacking Iran or preventing Iran from having a nuclear weapon. But there were also counterbalancing forces within DC that said, hey, let's hold back on this. You have the maritime component, the energy, big energy. The big oil companies did not want to have any problems in the Persian Gulf. There were other political angles. There was the media angle. Well, all of these have kind of either been pushed out of the room or for other reasons have left the room. So I think that it's not that the voices got stronger to attack Iran. I think the counterbalancing voices to prevent that strike don't have as much strength right now with the Navy. So John, let me interrupt you only because I'm conscious of the fact that many of the people listening to this podcast may lack some of the necessary context and backstory. And I want to make sure that we give them a clear threat to hold on to as we make our way through this conversation. Maybe rather than trying to get into the hypothesis right off the bat, it would be helpful to acknowledge what the problem is that this administration came into its second term seeking to address in the domain of maritime shipping about which you go into great detail in your article. Describe for me and for our listeners here what that central problem is that you identify in the piece and that you believe this administration came into its second term intent on addressing. Well, without getting into too much historical detail, we the United States had dominance in the maritime naval commercial shipbuilding after World War II. And slowly that has died away. And the last time we have had a major maritime strategy in this country was under Nixon. And just think about at the Department of Transportation, they have roads, they have railways, they have air, they have ships, ships are the maritime administrator. We have a command on the merchant marine. We have a federal service academy, not just anapolis and West Point. We have King's Point, merchant marine academy in Long Island. This was a big part of the naval strategy prior to Nixon. And it's all died away. The FAA at the DOT are doing the airlines has over 40,000 employees. The maritime administration has under 300 working in DC. So everything in our maritime world from shipbuilding to US flag ships, the US merchant marine, Coast Guard underfunding, it has all gone away. It's all withered away. But why is that important? So like for a random person listening to this, they're like, I get all my stuff on ships. We have plenty of ships that come in and out of US ports. We're fully engaged in global trade. What does it matter whether the ship has a US flag on it or not? Well, it didn't matter. That's the problem. Prior to World War II, the seas were really dangerous places. You had local choke points, you had local warlords, you had pirates on the seas, you had these big navies, Germany, Japan, fighting against, you had commerce raiders. It was a very dangerous place, the oceans. And after World War II, the US Navy has secured those oceans. There are allies don't need navies protecting their flag. We need our own merchant marine, US ship companies. We could outsource that to the lowest bidder. And you had really in Congress in the Senate, you had Republicans who were really the party of commerce and big business and big business wanted the cheapest price. They wanted the cheapest shipbuilding. So it in Korea instead of the United States, the cheapest workforce. So the Philippines is the biggest source of ship captains down, not the United States. So they were pushing that and the Democrats senators. If you are the senator of Idaho, let's say you really care about farming, but if you are the senator of New York, do you really care about the Brooklyn Navy or yes, but all the social, the educational, the other problems take precedent and they can not protect those maritime forces. And the allies, you know, you have Merck and Denmark, CMA, CGM in France, Costco in China. They really don't need navies. They didn't need the protection and they were able to fund those ships and move world trade. But now look at all of the problems that we have, the Russia Ukraine war, the boss frist, the black sea, the Baltic Nord Stream pipeline getting attacked. If you don't have pipelines working, you need more ships. You have low water and they panicked in the last few years. You have this massive poor congestion with COVID. So the world is getting dangerous and ships are very vulnerable. They're slow, they're big targets, they're easy to hit. And it really came to a fruition with the hoothies in the Red Sea. All of those ships going from China to Europe, they all had to reroute around Africa. This puts a huge tax on everyone. So is the argument here, just like I'm clear, first of all, it sounds like a lot of the same structural economic forces and policy incentives that drove globalization or the industrialization in the United States led to the decline in the number of U.S. flag vessels in the maritime fleet. Is that generally track? Yes, but there are numerous forces that kind of align to accelerate that decline. Sure. And so just to make it more concrete for me here, how is the United States vulnerable? How is it a national security issue? Because what you've basically stated here is that after World War 2, the United States provided its navy in the form of a public good security on the seas. And so other countries could free right off of that security. And so we were indifferent about whose flag was what? As long as the U.S. Navy patrolled the seas, Britain, France, smaller countries, especially, didn't need to field the navies to protect their ships on these routes because the U.S. Navy did it. So what exactly is the national security risk to the United States that requires it to have more flag vessels? I think right now we have roughly 80 or less than 80 U.S. flag vessels in international waters. So I still don't understand exactly why it matters. If the U.S. Navy is out patrolling the seas, who cares whether it's our ships or someone else's? Okay. First of all, national security is tied to economic security. And everything that moves on ships, our flag, someone else's flag, it doesn't matter. It gets changed in U.S. dollars. So this is critical to our reserve currency. If you build the building, that billion dollar building is going to stay up for a long time. It's that when cargo gets loaded on a ship at U.S. dollars, when it gets offloaded, that gives liquidity to our entire system, which funds the Pentagon without that reserve currency status.
we cannot afford to build ships. That's one, number two is the Navy itself is reliant on the secondary shipyard. So we have HII, we have Baff Ironworks, making our destroyers, making our aircraft carriers, our current aircraft carrier, the John F. Kennedy, they started building it 17 years ago. There are many reasons why that's delayed, but one of it is if there's a mistake in the part, we don't have secondary manufacturers. We can't just spin up a new factory to make and have the welders and have the lifeboats and the engine systems. So if one of those critical components is delayed because we don't have that manufacturing base in other nations and historically, the strength of those shipyards and the secondary shipyard industrial base came from the commercial sector. If you're building a lot of commercial ships, you're gonna have in junior manufacturers, you're gonna have propeller manufacturers that can also do naval contracts. We don't have any of those right now. And so we're having trouble building the warships that we need because our shipyard, our maritime industrial base is in such declines. - That makes sense to me. And we're gonna get into that because I think that's important. But when it comes to commercial shipping, why can we just rely on European companies and their ships? Why can't we depend on Merck to ship US goods or inbound goods the United States and exported goods? Why is that a problem? Why do we need more US flag vessels? - We can and it has worked historically. And there are a couple of reasons. One is Chinese taking a huge part of the market. And China, their merchandise, their seafarers, the Danish higher Filipinos, they hire Indonesia. They're just sailors, but the Chinese trains their sailors in military tactics. They have put weapons systems on container ships to militarize their fleet. So they can greatly expand the number of warships that they have overnight. That's one. Number two is as we see in four moves, the US merchant marine, we are tied to the military. 90% of everything the military moves is by ships. It's by the merchant marine. Everyone thinks we can airlift. They have this picture in their head because of the Berlin airlift that you can airlift all these heavy bombs and supplies. It can't be done. Berlin was very close to West Germany. It was a tiny flight and they were just getting one city, the materials they need and it barely worked. Now think of crossing the entire Pacific. You cannot do this on aircraft. All of the airlift fleet of the entire US Air Force, including civilian UPS FedEx, it has less cargo capacity than one Chinese built container ship. So you need these ships, but more importantly, we can arrest these ships, right? They come into port. We've seen them in Venezuela. We sent seal teams, we sent Coast Guard teams to take these ships. But unless you have American merchant mariners, who are part of a service, the merchant marine was a service, those foreigners aren't going to take the risk for our military. They're not going to get on a ship that's filled with Air Force bombs and fuel and make that run through. The US merchant marine will, but there are very few of us left. It's maybe laid up 17 logistics ships last year, not because it didn't have the shipyards of repair capacity or anything else. It's because they did not have the merchant mariners, American ship captains like me and officers to fill those slot on the Navy logistics ships. So you need those ships in order to have the workforce. So when you're in war, you have enough people who are willing to kind of go in the combat zone and supply our troops. Okay, so that makes sense. So basically it falls in the category of securing supply chains. And also commercial vessels are dual use. They can be used in trade, but they can also be easily common-deer during wartime where enlisted in service of the national interest in times of geopolitical stress. So I feel like I got some of the clarity I was looking for. Let's move the conversation now to the Gulf and Operation Epic Fury. What did the maritime shipping world look like on February 28th versus say a week into the conflict? And how does this tie into and inform your hypothesis, the one that you put forward in the article? Well, the Middle East is a global hub. So it's a train shipment hub for a lot of these containers. Most of them go from China straight to Europe, but I like to get pulled off and put back on 'cause it's in the middle of everything. It's an air hub as we see with Dubai Airport, but it's a energy kind of superstar. You have these very large crew tankers that are coming out of Iraq, Iran, Kuwait, and going out. It's an LNG hub. So Qatar as the largest LNG fields in the world, but also very importantly, it's 30% of the fertilizer. Why? Because since the hyperbosh process fertilizer is made from low cost energy, you have the lowest cost energy at the wellhead. There are well heads there. So 30% of the fertilizer world fertilizer is in the Middle East, and it's even 15% higher, 40% to 45%. If you include the LNG that goes to other places to make fertilizer remotely. So it's just huge amounts of natural resources that are there that are moving out on tankers, but they all got to go through Iran. And let me go to a historical note. This happened in the Iran Iraq war. Tankers got hit. This is why the allies, UK had warships in the Persian Gulf. You had a lot of the allied and NATO navies had minesweepers in the Persian Gulf because this happened in the 80s. Well, all of that has been removed. All of the allies had pulled their minesweepers because they don't have the budget. They pulled their warships out. And then right prior to the strike, all of the navy warships were pulled out. So it left these ships that are in the Persian Gulf, the polar world to attack. OK, so again, there are a number of very important threads in the article. And maybe the most important one has to do with protection and indemnity insurance. Now, most people listening to this podcast have never heard of P&I or a P&I club. Can you walk us through what this refers to? Why P&I clubs are important, the different types of insurance that commercial seagulling vessels need, which categories are especially relevant to our discussion and why? Sure. And there are two stories here. One is the insurance. And the second is the intelligence network. Why the insurance companies were not prepared to ensure these ships? Why they canceled the wartime insurance? So ships go in and they're multi-machital ships. The ship may be owned by one country. It operated by a company in another country. It's flagged by a flag of convenience, usually martial islands, Liberia, Panama. It's insured by one country. It's crude by another country. So a ship isn't what it used to be after World War II, where it was crude, belts, managed, insured all by one country and had their navy protection. On the insurance angle, there are numerous insurances that you need. The big one is haul a machinery. If something-- that's like your major collision insurance. If something happens to haul or the engine blows up, you need that insurance. But you also need this protection and indemnity. So if you have an oil spill, if one of your crew members gets injured on the ship, you need to-- your basic liability insurance for that. And then you need the cargo insurance. So there's the insurance of the-- you have a million barrel super tanker. It's $100. A barrel that's $100 million in cargo, usually whoever chargers that. So the Exxon mobile, the Saudi Aramco, they will buy that cargo insurance. So the protection and indemnity is one of the smaller insurances, but the easiest to balloon up because those liabilities-- if you have multiple crew members, if you have a massive oil spill, it can get to the billions, hundreds of billions dollars quickly as we seem to be like some of those. About this, yes. So what these companies did is the ship owners got together and Merck and CMA, and they worked together. And the big companies really, firstly, are self-insurance. They'll ensure some of theirs or they'll write off some of the-- and then they get with the other ship owners and they create these P&I clubs. So there's a Tokyo P&I club. There's an America club. There's a Norwegian club. There's a UK club. And it's all the ship owners in that area. And they say, if anyone's ship gets this liability insurance, we'll all pitch in a little bit to help them. And that goes up to a certain level. But then all of the clubs come together. And they say, if one club gets hit more than the others, we will all pitch in to help that club. And then that master club, it gets reinsured at the reinsurance market. So we're talking multi-hundred billion dollar policies. -Insured by the private market. -Reinsured by the private market. And 40% is Lloyds and London. And most of the other companies, they index off the Lloyds and London. So if you want massive reinsurance, you get a quote from Lloyds and London and you can shop it around. But Lloyds is the massive reinsurance. And without that top layer protection, all of the other layers underneath fail. So one ship cannot get its insurance if that higher protection
you know, umbrella is pulled away. - What percentage of these insurance companies are located or controlled through London? - Well, in the maritime market, 40% of the market is in London. London is really the central hub. London has the ship owners association, the international chamber shipping, the BIMCO, which represents the owners. They have the international maritime organization is in London. That's the UN body that writes all of the regulations for shipping. This is what Trump attacked back in October to overturn the UN carbon tax. You have the insurers, you have a lot of the vessel owners are based John Fregx and the wealthiest ship owner in the world had the largest property in London until recently. So when the US took everything else, London really became that hub for shipping. And there are other regional hubs, Norway for finance. We got Tokyo still has massive shipbuilding, but the central location remains London to this day. - Okay, so which type of insurance presented a problem after February 28th and why? - We specifically loyed this re-insurance that said, hey, we don't know what the ultimate liability is. So if we have, say, 10 of these super tankers hit, that could exceed our ratings, right? It can balloon so fast. We need to do the math. All insurance is a math of predictions. It's what is the potential damage here and they can figure that out by the number of oil tankers and the cost of cleanup and the cost to pay crews, families who have died, but they also have to run what is the probability of risk? What is exactly happening? What are the chances? What is Iran's capabilities to head back? What kind of weapons do they have? So underneath this hidden market is what's called the Five Eyes Intelligence Network. That is the US, the UK, Canada, Australia and New Zealand. Those are all Commonwealth nations. So it's really the US and the UK have this special relationship but the Five Eyes component means that there are subsea data cables going from the NSA, going from CIA and Langley straight into MI6 in London. And this sounds ridiculous, but the fact that, it is kind of made ridiculous with movies like Austin Powers, is their best tool to kind of hide this from everyone. And there isn't a direct link from MI6 to Lloyd's but two doors down from the Intelligence headquarters where James Bond was, is the International Maritime Organization, the UN, Maritime Body that does all the laws and right down the river is Lloyd's, this re-insurance. - And your reason for bringing this up though is why because it doesn't seem to me that you need to have any kind of, you don't need access to a skiff to know that the war is dangerous and presents catastrophic risk for commercial vessels traversing the straight-of-war moves. So can you explain to me why you're bringing up the intelligence component and how it relates to commercial shipping? 'Cause I'm not drawing that connection. Well, you do need a skiff because if I ran does having nuclear weapon, it could hit 100 ships and that price could be much more than if the US Navy is able, all they have about it is a few Shahi drones. So you need to know the capabilities of the enemy before you can rate the risk. So we shut down that intelligence network at the start of the war. They can manage that in a risk and they can price the risk. We even saw war risk insurance being paid into Ukraine, right? During the Ukraine war, what was kind of unprecedented here is how quickly they shut down that risk and it's because they didn't get a Vance war notice. It wasn't they stem saying I'm not going to ensure these ships. It's normally that MI6 gets that little heads up and then they whisper in the air, the Lloyds and London and Lloyds gets a team together to start working out these financial spreadsheets. But because they didn't have any Vance notice because the intelligence networks went dark 'cause we didn't include any allies. There's no coalition building here. That when that war started, everyone in Lloyds goes, I don't know what the hell is happening here. We got to figure this out and they put the shutdown in. That's fascinating. So essentially the risk became unquantifiable. It didn't necessarily have to be unquantifiable, but it was. And so what appears to be a military or geostrategic or security challenge is primarily actually an insurance problem and no vessels can obtain the insurance needed to traverse the straight. Is that fair? So Trump's response of this was to deploy the International Development Finance Corporation as a maritime war risk re-insure, which is something that you talk about in the article. And again, one of the most interesting parts of it, what does this mean in practice that Trump did this? And what are the constraints and/or limitations of what can be insured in this way? And just very briefly, you can also just let us know what is the DFC and how was it such that it was repurposed for this use? - Right, so there is massive historical precedents here. So if you go back to World War II, the largest building in Manhattan and during World War II was the war risk insurance building. All of these, this problem, all of our allies, when Denmark was taken over, Merck sent all its ships to New York and they had to get insurance, they had to get reflite, they had to work with the Navy, and they couldn't get commercial insurance. No one would insure it. So the government stepped up and said, "Hey, we're gonna underwrite these bonds." So your insurance company pays a certain amount and then we are gonna backstop those bonds. And more recently, Ukraine, they were given war risk insurance, but it was very expensive. So the Ukrainian government says, "We are gonna underwrite some of that risk so that if the insurance company loses a ton of money, they caps the amount of money that they can lost, so we can make sure we get our drain out." So there's massive precedents in this government backing, but because the oceans have been safe since World War II, we haven't had it. So there are all these laws in the books that have been on the books for centuries, sometimes back to our founding, that the government has to help commercial back the insurance and the Navy has to protect US flag ships. This is why in the tanker war of the 1980s, you saw all of these tankers reflag to US flag ships. They want to took the Panama and Liberian flags off the back, put US flag on the back of their ships because overnight, if you are a US flag ship, you can get this insurance very quickly. You can get the Navy protection very quickly, but what happens now, we don't have enough American ship captains. So if they pull that flag out and put an American flag in, those insurance backings require an American captain, there aren't enough of available. So that option to reflag is not here this time. So they can't get the reinsurance. So the DFC is a number of entities, foreign finance entities, some of them come from the closing of USAID, and they're supposed to help with the financing, the insurance of US interest abroad. So if someone builds a refinery near an American base in Okinawa that's gonna provide fuel for the military, they can provide some financing into it. So the Scott Becant and the White House, the term we're gonna use this DFC, and this DFC has very narrow ability to provide financial tools to foreign companies overseas that are not necessarily US property, like a ship is. The problem is they are really bending these rules and they're complicated. You put a US flag ship on the back, the US Maritime Administrator at DOT can go to the DOT bank within 12 hours and get you that insurance. But if you are a Liberian flag and you're insured in one country and your seafarers are another and it's managed out of another company, this gets very difficult, very fast. So the DFC, which is a small organization, they created this, but now we're four weeks into the campaign and they're still working out, they're still earning out this DFC because of the complexity of these multinational entities which are all tied to one ship. - Okay, so this is a good opportunity to dig into this part of the article because what are the arguments that you make in the piece is that this is strategic, this isn't Gwinsons. The United States is seeking to control directly and you actually use the term through an on/off switch, traffic in the straight-of-horror moves. - What does it mean that the DFC facility for maritime insurance is coordinated, not just with Treasury and Scott Best, as you just highlighted, but also in conjunction with US Central Command. How does this allow the United States to control the quote, "aught-off" switch as you call it for the straight-of-horror moves, not through naval power but through insurance? - Well, if ships are not getting through the straight-of-horror moves, the rest of the world economies are going to suffer. There is going to be starvation in a lot of third world countries because of the lack of fertilizer. There is going to be oil shortages. I mean, Australia's run out of oil.
out of diesel in areas. The Philippines is running out of jet fuel and gasoline. So all of these countries, a lot of Europe, needs all of these products. And if they don't have it, their economies are in deep trouble. - Are you saying though that it forces these companies from these other countries to leave Tokyo or London or Oslo and come to New York or Washington or wherever? 'Cause also like we didn't mention this, but this facility is, it's very reminiscent of some of the emergency bond buying facilities created by the Fed during COVID and administered by third party firms like BlackRock and PIMCO. In this case, the DFC selected CHUB, the private insurer as the lead insurance partner for this maritime re-insurance facility. So is this also a way of in some sense capturing the insurance market for US firms? Is that an argument that you're making in the article that I interpret that correctly? - All right, well there are two things. There's the maritime level where it's capture more of that market, capture their cooperation. The Europeans have been fighting everything. We talked about the maritime action plan. We talked about Trump's shipbuilding initiative. We've talked about the UN International Maritime headquarters in London. All of these entities have been fighting Trump since day one to prevent the US from reestablishing its maritime domain. Why? Because even if we underwrite it, it's going to be more expensive than having thorough world labor and lower cost regulations. So they've been fighting him from day one and it's undermining all of his maritime and naval effort. So I think he's mad. So this is gonna be leverage, but it's also leverage on the bigger things. Getting NATO to spend each of them to spend 5%. He's exposed how weak the British Navy is, how weak the German Navy is, how if you look at any military congressional hearing for the past 15 years, every time a congressman says, "Hey, the Navy's failing this," or the Air Force is failing that, every general for the last 15 years go, "Yes, we are, but we have the biggest alliances in the world and our alliance network can fill those gaps." And Trump is showing everyone that the alliance network can't fill their gaps, that these militaries are not what people think they are, that the economic, you know, the EU could do this underwriting. They could do a DFC, but they don't have the money too, but we have the financial might. We have the-- Is that the issue? So that's another question that I had when reading the article, because it wasn't clear to me what prevents the rest of the world from coming up with an alternative solution. Is it financing, or is it actually the fact that they can't secure the straight? And that the United States is now essentially centralizing the insurance market because it can provide security. If it, in fact, can reopen the straight, and that's an open question that we're gonna have to debate in the course of this conversation. But is that essentially the forcing function that's playing out here? I don't know how to say this without seeming a little bit obnoxious, a little bit, you know, high on my own supply, if we might say, because every time you look at a problem, and you had the energy experts saying, "This is the problem in the hormones, and my thing's the problem." But I'm telling you, maritime is the backbone of the reserve currency status. This is the backbone of what we inherited from the British Empire. And before that, it was the Dutch Empire. And before that, it was the Spanish. And before that, it was Venice. It's the ship's 90% of everything is on ships. You control the ships and these choke points. So the ships can move around the oceans anywhere you want, but they have to converge at these locations, like Gibraltar, like the Panama Canal, the Suez Canal, the Strait of Armours, the Singapore Strait, they have to converge there. And if you own that narrow thing, you can charge a toll booth. You know, historically, you had to pay to get through these areas. The US has given their maritime control of these joint points for free. So the US is losing control of all these choke points. And this is the very first thing that Trump honed in on. Remember, right when he got in office, he sent Rubio and Heg set down to the Panama Canal. That's a choke point. He launched a major lawsuit against Spain, not allowing US flag merchant marine ships into Spain. He went on Greenland, UK, Iceland, and Gap. He had the largest bombing campaign in the history of a single aircraft carrier against the Houthis. He is leisure focused on maintaining either US control or at least freedom for everyone to use without having to pay a toll of these choke points. 'Cause if you lose these choke points, you lose the ability to move goods and you lose that reserve currency status. And this is something Scott Besson understands. Remember Scott Besson was the guy who organized the takedown of the Bank of London, because he understood that UK was losing this maritime domain. The reason that this gets so complicated and why we have to spend such a large amount of time with your audience and all the audience, explaining these very basic things is it's been white from the history books. No one has an understanding of any of this. So the people who control the world, these very wealthy Europeans, the power brokers, and the people in our government, the CIA's, that were a department, they understand that everything. All of our national security, all our economic security, everything is contingent on global trade and that's all contingent on ships. And the media has put this thing in our imagination that we can just fly goods from China on airplanes and it's not true they have to come on those ships and China's taking control of these ships. They're building the ships, they're controlling choke points. They're putting military-trained mariners on their ships with communist commissars like, they had a hunt for renactober standing behind them, they're militarizing these ships and that is an attack, not just on our security, but on that very reserved currency status. And if we don't have that, our debt is going to skyrocket. - Okay, so you just opened up some very big points of discussion. I want to dig in later to your comments about China controlling choke points because for my vantage point, it's the United States that's been in position to control those choke points. So I won't understand that better, but let's dig into something else here and I cannot, I really want to state this, I cannot overemphasize how much this article runs counter to the consensus. And one area where it runs counter is when you state that the US is in no rush to reopen the straight. And obviously the prevailing narrative in the media today is that it's quite the opposite. It's that when you look at the ongoing economic fallout for the global economy, stemming from the collapse of traffic through the straight, you would draw the opposite inclusion that this is putting more pressure on Trump than the other way around. Can you just, again, briefly elaborate on why you feel that the Trump administration is in no rush to reopen the straight? And what are the concessions that he is seeking to obtain from the leverage that he would gain by not reopening it? Operating, of course, with the assumption, this is key that he even has the power to reopen it and the political capital to do so. - All right, I want to make very clear at the start because there's a ballot about it. We absolutely have the power to reopen this. That is not a question. We have the military ability to send the Marines and take the Hormuz. There will be casualties. There are costs to take. - But how do we, and maybe there's a good place to maybe we should just dig into this right here? - Iran is a large country. It has considerable strategic depth and a population of nearly 100 million people. They don't have an infinite number of resources, but I've read that these drones that they've been using to attack regional infrastructure are relatively cheap and easy to manufacture. And the Islamic Republic, or what remains of it through its Mosaic Defense doctrine, may be able to remain operationally effective even in the face of widespread institutional and economic collapse. So how would the United States prevent the Iranians from continuing to pose even a small threat to commercial vessels and to infrastructure in the Gulf, which would be sufficient to push insurance premiums high enough that most vessels can't afford to take the risk to travel through the strait. And therefore, it remains effectively closed, which would be enough to really shut down traffic, wouldn't it? - Yes, I mean, that's a problem. And the president said, we've eliminated their mining capabilities, but if there's even a 1% chance of a mine, then ships aren't going to go through. This is historically different, too, because historically, the ship owners have always put the crews at risk to make money. We looked on the tanker wars. You know, the wealthiest ship owner in the world, John Fregixon, made a lot of money and he lost, I think, nine crew members along the way. But now you have social media. So every crew member, they can take video of their fellow buddy, Bleeding Out, 'cause he got hit by a drone. And that is going to ruin the reputation of ship owners. So you have all these dynamics that are brand new in this situation. The Navy can reopen the ships, but how can it force these commercials through? That's an excellent point. And the other factor is, this is really a numbers game. Everyone says the US Navy is weak. We've seen, saw the Navy do an incredible job against Iranian drones, Iranian anti-ship ballistic missiles in the Babelman Deb in the Red Sea. But the destroyer is the only platform that can do this. You can't do this from US Air Force. You can't do it's special forces seals.
You can't do it for aircraft carriers, submarines, or useless up protecting ships. These destroyers escorted us flag ships through the Boba mountain dead. They're shooting down everything, but they're shooting $20 million missiles at $20,000 drones. So it's a massive cost difference. But even more important than that, these destroyers have 96 missiles. One-third of them are Tomahawk anti-land, one-third are anti-sub. So they only really have 30 anti-air missiles on, and then they got to go reload, which can take weeks. Right. So how can we feel confident that they would be able to reopen and hold the straight and allow commercial traffic to reliably transit it? Or does this require actually the help of other parties in the system? Well, there are no parties that can help with this. Well, I don't mean from a military point of view, but certainly the Iranians, I mean, the Iranians are increasingly isolated. The more they attack infrastructure in the Gulf, the more isolated they get. And while you could certainly make the argument that the Chinese are no interest to help us at this current time, no one benefits in the aggregate from a breakdown in global trade. So at some point, we're going to have to reopen these straights. Otherwise, economic growth takes an enormous hit. So how does this actually resolve itself? This is what I still don't understand. I have not been given a compelling argument for how the United States can accomplish this. Well, it's going to take massive resources. We have 75 of these destroyers. Problem is one third are in dry dock getting refurbished and one third are between deployments. So we only really have 25 of these ships. We're on Mark Montgomery came out and says we need 12. Well, we got 25 available right now, but half of them are with our carrier force. So you really only have like 12 to 14 and they're doing everything around the world. So how do we fix this? We get these destroyers that are enduring work up and we surge them. We pull them out and we push them into the Persian Gulf. We get the Marines on the islands in the Hormuz protecting traffic. We bring in our minesweepers. Trump did not push the minesweepers close into Fajira. He pulled them back. Last we knew they were in Singapore. But there's absolutely no rush to do any surges of our capability. We have a lot left in our back pocket to the 82nd airborne and they Navy SEALs. None of this is being used. The dive teams that can do mines. If we really wanted to open this straight ourselves, we would be surging all of these assets and we're just not. So this is a great point that you brought up. A couple more questions before we go to the 2nd hour. Why is that not evidence that the president is not fully committed and that he might pull out? Do you believe that this administration? Because again, there are conflicting reports out there and one of the persistent reports that's out this week is that the president is getting ready to leave. He's getting ready to just drop a bomb. Go home. Do you find those reports credible? Well, look at the political leverage. So he's already got the Europeans agreeing that they're going to send ships. We had in the very beginning, the UK said we can't use the agugarsia, which is a critical choke point and they were actually going to sell this critical island off. They've put that on hold. They're a real progress towards getting Europe to step up with NATO because of this. But locally you have this problem. You have Al Jazeera. You have a lot of the press in the Middle East that was angry at the Trump administration and undermining a lot of US policies. And Trump said we may pull out every single Arab country says don't leave. We want you here. We want you to surge these forces. This is the forcing function that you write about in your article. This is it. This is Trump using this choke point as leverage to gain concessions from the rest of the world, whether it's the Gulf States, Europe, China, whoever. Is that essentially the argument? Yeah. Because without us, if we pull out tomorrow, what's going to happen? The Israel is going to go down and it's going to bomb more infrastructure, which they have wanted to do. And Iran is going to retaliate. It's hard to hit a ship. It's easy to hit the desalination plants and put a lot of people. You can live without food for 40 days. You can only live with water for three days. I mean, a massive humanitarian crisis and these people are without that US protection, which has been there for more work too. And I think he's making that point is the US Navy's critical, our shipbuilding is critical. Our merchant managers are critical. Because watch what happens the second we move out. This whole area is going to go into massive, massive chaos and millions eventually die. Yeah. I mean, what I really loved about the article among other things, and we're going to move it to the second hour, John, is that it may be rethink many of my priors because your operating assumption is actually that we can open the straight and that people underestimate the power of the US military and the US Navy to do so. And that what the mainstream press and a lot of the President's detractors perceive as rightist sense is in fact strategy and that he's taking his sweet time in order to build up the leverage that he needs. So in the second hour, I want to understand what exactly those concessions are that he might seek to obtain from the Europeans, from the Chinese and whoever else. What is the mechanism through which those concessions might be formalized, whether that be formal or informal? I'd love to discuss how this is impacting the oil market, how it's causing fragmentation. The Trump administration recently announced a 60 day Jones Act waiver. The Treasury, I believe, licensed the issue to license for PDVSA, the state owned oil and gas company in Venezuela. So I want to understand if that's an example of that kind of fragmentation, what that means for the oil market, what that means for security in the United States. You have an interesting hypothesis about the political fallout of this because conventional wisdom on how oil prices lead to electoral defeats is I think something that most of us are operating with as an embedded assumption. You don't necessarily view that to be the case in this example. I'd love to ask you why. Then I'd love to get into a conversation about just a broad in the aperture and get into a conversation about how this fits into US grand strategy, the US national security objectives, the end of the liberal international maritime order, what that means, what the world is going to look like. I also think Nixon and the Nixon administration has come up not just in your article, but it comes up more and more in a lot of my conversations. It feels very much like a lot of the lessons and the examples for what the world is going to look like for those of us trying to understand what the future is going to look like, who haven't been alive for 50 years or 60 years or 70 years to experience what it looked like before the Reagan administration before the end of the Cold War can draw a lot of lessons from that era from the 1970s. So we're going to cover all of that in the second hour, John. For anyone who is new to the program, hidden forces is listener supported. We don't accept advertisers or commercial sponsors. The entire show is funded from top to bottom by listeners like you. If you want access the second hour of today's conversation with John, head over to hiddenforces.io/subscribe and sign up to one of our three content tiers. All subscribers get access to our premium feed, which you can use to listen to the rest of today's conversation on your mobile device using your favorite podcast app, just like you're listening to this episode right now. John, stick around. We're going to move the second hour of our conversation onto the premium feed. If you want to listen in on the rest of today's conversation, head over to hiddenforces.io/subscribe and join our premium feed. If you want to join in on the conversation and become a member of the Hidden Forces Genius Community, you can also do that through our subscriber page. Today's episode was produced by me and edited by Stylianos Nicolau. For more episodes, you can check out our website at hiddenforces.io. You can follow me on Twitter @cofinas and you can email me at
[email protected]. As always, thanks for listening. We'll see you next time.
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