Episode summary
Brad Setser on the War in Iran and the Future of the US Dollar | Odd Lots
Odd Lots
· · Hosts: Joe Weisenthal, Tracy Alloway · Guests: Brad Setser
Summary
Brad Setser argued that the Iran war is a major oil shock, but not yet a 1970s-style one in price terms. He said the disruption is physically large — roughly 10 to 15% of global supply and 20 to 30% of traded oil — yet the market has only priced in a smaller move so far because crude is not perfectly fungible and futures traders are balancing very different possible outcomes. If the disruption persists and Iran effectively charges a toll at the Strait of Hormuz, he said oil could still move much higher; if supply normalizes, prices could drift back toward $60.
Setser also emphasized that the usual petrostate winners are missing this windfall. Gulf exporters are not capturing the same gains because they cannot move as much oil, while countries such as Russia, Kazakhstan, Nigeria, Angola and some South American exporters benefit. He said Saudi Arabia has flipped from exporter of petro dollars to a net borrower as domestic spending lifted its balance-of-payments break-even to about 95 oil.
On the dollar, Setser argued that de-dollarization is overstated. Reserve portfolios are managed for safety and liquidity, not returns, and the more important flow remains China’s persistent need to buy dollars to manage its currency. He said the real question is whether an already overweight dollar position can stay sustainable amid more reckless U.S. policy and growing geopolitical friction.
Key takeaways
- Setser said the Iran shock is physically huge but still not comparable to the 1970s oil spikes in price terms.
- He argued Gulf states are not the main beneficiaries this time because constrained exports limit their petro-dollar windfall.
- Saudi Arabia has become a net borrower, with Setser putting its balance-of-payments break-even near 95 oil.
- Setser said de-dollarization is overstated because reserves are for safety and liquidity, while China still creates major dollar demand through FX intervention.
- He sees the bigger question as whether global investors can remain heavily overweight U.S. assets despite more erratic U.S. policy.
Notable quotes
“It is still a massive massive massive shock”
“A typical global reserve portfolio is now at 57% dollars”
“in 2025, the world was longer dollars than it was in 2024, despite all the hot air spent talking about ddollarization”
“Saudi cumulative current account balance went back into basically being neutral or into a deficit by 95”
How the episode opens
Bloomberg Audio Studios podcasts, radio, news. — Hello and welcome to another episode of the Odd Thoughts podcast. I'm Tracy Aloway — And I'm Joe Weisenthal. — Joe, it is April 15th. — Yes. — Happy tax day to all who observe. I'm so annoyed. I just speaking of taxes, I'm pro taxes, but I just had an email with my accountant and anyway, I'm
Pro taxes. I resent the fact that we have to like actually file them in this massive bureaucratic exercise every year. But anyway, — This is nothing to do with what we're talking about. — Well, okay. Taxes, you know, financial flows of a sort.
Well, taxes create demand for currency. Core MMC principle right there. — There we go. Okay. Well, let's see. It is April 15th. The situation in Iran still highly uncertain, very fluid, but you know, we have seen higher oil prices in general. We've seen people getting oil from new sources, new parts of the world, and we've seen a lot of people reaching back to the 1970s oil shock as a sort of historic analogy for what we might be experiencing now.
Right. Absolutely. I mean, obviously, again, in the context of like today, April 15th versus like say a version of this conversation that we might have even had like two weeks ago, things are a little bit calmer right now, but we absolutely do not know that they're going to actually have a durable ceasefire and so forth.
Obviously, oil prices have come down. Nonetheless, it's a pretty big uh oil jump from when we were say in the middle of February. Even at that point, oil prices might have been pricing in some sort of around war premium.
So, it's even further jump from that.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- war in iran
- u.s. dollar reserve management
- energy market shocks
- reserve management and financial flows
- east asia energy import costs
Watch the episode
Watch “Brad Setser on the War in Iran and the Future of the US Dollar | Odd Lots” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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