Victoria's Secret Needs a Different Kind of Angel
(Bloomberg Opinion) -- Among the demands of Barington Capital Group, one of two activist investors seeking to shake up Victoria's Secret & Co., is that the company bring back the 'angels' — the glamorous supermodels once synonymous with America's biggest underwear retailer.
But what Victoria's Secret really needs is a different kind of angel: a buyer. Ideally, one that can offer a decent bid premium to long-suffering shareholders and enable the company to do the hard work needed to adapt to a new lingerie landscape, away from the glare of quarterly earnings. The agitators and the retailer should stop trading barbs, and instead work together to deliver value to all investors.
If Victoria's Secret puts itself up for sale, the activists could facilitate a take-private by joining forces with the bidder or backing its offer.
Both Barington Capital, which holds more than 1% of the retailer, and BBRC International Pte, which has acquired a 12.9% stake, are urging Victoria's Secret to make changes to its board and strategy to address the underperformance of its shares. They have a point. Since the company was spun out of L Brands Inc. four years ago, the stock has lost more than half of its value.
For years, Victoria's Secret led the underwear market. But amid the #MeToo era, the company looked increasingly male-dominated and out of touch. The scandal sparked by the association of former L Brands' Chairman and Chief Executive Officer Leslie Wexner with the disgraced late financier Jeffrey Epstein only hurt the brand further. As it prepared for life as a separately listed company, Victoria's Secret replaced the angels with a group of women recognized for their accomplishments and opinions. But the VS Collective, as it was known, failed to turbo-charge sales and was quietly disbanded.
Last fall, under new CEO Hillary Super, the company staged an updated version of its fashion show, an annual marketing extravaganza that was once a cultural force. It was a step in the right direction. But Victoria's Secret is still struggling to find its place in a market populated by nimbler rivals, such as Kim Kardashian's Skims and Rihanna's Savage X Fenty, which Super previously led.
Victoria's Secret needs to find a modern version of sexy, one that embraces different body sizes, but also changing underwear tastes. This includes the shift away from underwire bras to softer bralettes and sports bras, which have moved out of the gym into the everyday wardrobe.
There are some encouraging signs. For example, Victoria's Secret has been dressing pop superstar of the moment Sabrina Carpenter. Amid a return to offices and anxiety about the job market, more formal clothing that requires structured undergarments is making a comeback. And the retailer remains the biggest underwear retailer not just in the US but also globally, notes Mary Ross Gilbert, an analyst at Bloomberg Intelligence. The core brand — as well as sister line Pink — both have huge recognition, including with Gen-Z consumers, while other mall brands of yesteryear, such as Gap Inc., are proving it's possible to ride a wave of nostalgia to improved sales.
But making the most of this potential — the company should go further in updating its image and stores, and foster closer ties with Carpenter — requires significant investment. With President Donald Trump's tariffs, which will cost the company $50 million this year, and growing pressure on US consumers, committing to an overhaul spells short-term financial pain.
Victoria's Secret has introduced a so-called shareholder rights plan, a poison pill designed to stop an investor building a controlling stake without paying a premium. But it does not preclude the company considering an offer.
Nor is Victoria's Secret too big a morsel to tempt a buyer. The company's market value has shrunk to about $1.5 billion. The 30% premium that is the standard in takeover deals would value the company's equity at about $2 billion. But given how far the shares have sunk, a 50% premium looks more appropriate. Add in expected net debt excluding lease liabilities of $600 million at the end this fiscal year, and the enterprise value would still be under $3 billion — not out of reach for many private equity groups.
Assuming a successful repositioning lifts sales in the core underwear business, alongside progress with beauty, Pink, and relaunched swimwear and activewear units, the company could eventually be relisted at a higher valuation.
Indeed, there is a precedent for how this could play out: Breitling AG. Like Victoria's Secret, the Swiss watchmaker had a lot of baggage, thanks to its sexist marketing. But since a majority stake was acquired by CVC Capital Partners in 2017, it has ditched the tasteless ads and introduced a suite of revamped products. It's paying off: Breitling's 2024 revenue is estimated at about 820 million Swiss francs ($1.02 billion), roughly double its 2016 sales. The company's valuation has soared from 800 million francs in 2017 to 4.2 billion in 2022, when CVC sold a majority stake in the watchmaker. Of course, the luxury market has slumped since then, but if the new owner of Victoria's Secret could stage a similar reinvention, it would be looking at healthy returns.
Putting yourself up for sale can be seen as a sign of weakness. But some private equity buyers won't come knocking without the encouragement of an open door. And a deal to go private, which pays shareholders some of the recovery value in a takeover premium, looks like the best outcome. Its time for Victoria's Secret to pivot from selling lingerie to selling a lingerie company.
Elsewhere in Bloomberg Opinion:
This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Andrea Felsted is a Bloomberg Opinion columnist covering consumer goods and the retail industry. Previously, she was a reporter for the Financial Times.
More stories like this are available on bloomberg.com/opinion
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Mint
18 hours ago
- Mint
How to Avoid Bank Safety's Death by Many Cuts
(Bloomberg Opinion) -- The Federal Reserve is aiming to lessen the costly fluctuations in bank capital demands created by its annual stress tests. But big lenders are pushing for more relief while the central bank is politically weakened and some board members seem keen to please the White House. The Fed must be careful not to give away too much bit by bit by tackling several different regulatory changes in a piecemeal way. A gathering of industry leaders and regulators next month to discuss an integrated review of large banks' capital requirements, which was announced by the Fed on Thursday, is the place to start. Financial safety is vulnerable right now. President Donald Trump favors looser regulation in the hopes of promoting growth and squashing what Republicans see as a political focus on climate risks and diversity efforts. At the same time, Trump is trying to undermine Fed independence by hounding Chair Jerome Powell to lower interest rates. Key board members have recently backed early cuts. Powell himself has also had to eat humble pie over perceived overreach by bank supervisors to influence industry lending decisions through the prism of reputational risk – he has now ordered that be removed from bank assessments. The central bank also stumbled badly in its attempt to update US capital rules and bring them into line with the international Basel standards, which led to a humiliating climbdown by American regulators last year. This year's stress test results are due out today and the Fed might also update markets on plans for the first change to how the outcomes apply to banks. Since 2020, the results of this test are used to calculate between a quarter and a half of big banks' minimum capital requirements, but because the tests are different each year the amounts involved have varied wildly. JPMorgan Chase & Co., Goldman Sachs Group Inc. and the rest have seen their capital needs fluctuate by billions of dollars. Rulemakers at the Fed, sympathetic to complaints about the costs and uncertainty, are planning to start using an average of two years' results to limit the variation. Normally, banks must meet their new requirement three months after it is set: by October after results are released each June. The industry wants a phase-in period to the end of the year. This sensible smoothing could aid banks' planning without undermining the safety of the system. However, lobby groups such as the Financial Services Forum, which represents the eight biggest lenders, and the Bank Policy Institute want more. First, they've asked that banks be allowed to take the full benefit of any cut in requirements, while using averaging to limit any increase. The argument is that the cost of adding capital is asymmetric and so there's a justification in making the averaging asymmetric too. Obviously, this is self-serving. It will tend to favor moves toward less capital over time. It's also only one side of the argument: There is asymmetry to releasing equity that the Fed should worry about, which poses an additional risk to the stability of the system. The less capital is required, the greater the chance that some bank is unable to cover all its losses and fails. Averaging should apply both ways if it is being used at all. The cost of extra demands is somewhat academic right now as well because all the biggest banks have significant excess equity over requirements, and this year's test was less onerous than last year's, so is widely expected to mean a cut in demands for most banks. The industry also has more substantial, longer-term changes on its wish list. First, is more transparency in how the stress tests feed into the Fed's calculations of capital needs. The process has grown more opaque and less predictable in recent years, which hurts the banks. But the argument against too much transparency is that lenders could game the outcome. Worse than that, though, is that banks want to use this to challenge the Fed's decisions. 'It would enable firms to meaningfully seek reconsideration of their [capital] requirement,' the FSF wrote in a letter to policymakers on Monday. This would be a mess. There are problems with opacity, but regulators must have some power and discretion. Their job is to serve taxpayers and the financial system, not to be tied up in costly appeals and arguments every year. Another industry complaint is the double counting of some risks between the capital requirements set by the stress test and the base minimum that flows from the wider US capital rules. This is a fair complaint and was a big problem with the Fed's proposal launched in 2023 to update US rules in line with international standards. That proposal, nicknamed the 'Basel III Endgame' in the US, is being rewritten after it was pulled last year. The answer, however, is not to weaken the capital derived from stress testing – especially before America's 'Endgame' is complete. The best solution is to reexamine these elements together as a single piece of work and ensure an outcome that sets steady and safe capital levels in a way that is efficient and understandable (as far as possible) to all parties. My view is that the vast majority of banks' capital requirements should be set under the main capital rules (the Basel Endgame), more like other countries. Regulators should also have discretion to impose extra requirements if individual banks are squeezing much more risk out of their models than peers, or falling down on risk management or governance in ways that endanger their survival. Stress testing should be a warning system for extreme or unusual risks – a sense check on what the main capital rules tell us about the safety of banks. If this were the case, debates around averaging or transparency would be irrelevant. Michelle Bowman, the Fed board member now in charge of bank rules — and a recent convert to interest rate cuts — has promoted the idea of a holistic review of how capital rules work together, as have industry executives. That would be better than piecemeal bargaining that could cause the death of financial safety by a thousand cuts. More From Bloomberg Opinion: This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners. Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. Previously, he was a reporter for the Wall Street Journal and the Financial Times. More stories like this are available on ©2025 Bloomberg L.P.
Mint
3 days ago
- Mint
Victoria's Secret Needs a Different Kind of Angel
(Bloomberg Opinion) -- Among the demands of Barington Capital Group, one of two activist investors seeking to shake up Victoria's Secret & Co., is that the company bring back the 'angels' — the glamorous supermodels once synonymous with America's biggest underwear retailer. But what Victoria's Secret really needs is a different kind of angel: a buyer. Ideally, one that can offer a decent bid premium to long-suffering shareholders and enable the company to do the hard work needed to adapt to a new lingerie landscape, away from the glare of quarterly earnings. The agitators and the retailer should stop trading barbs, and instead work together to deliver value to all investors. If Victoria's Secret puts itself up for sale, the activists could facilitate a take-private by joining forces with the bidder or backing its offer. Both Barington Capital, which holds more than 1% of the retailer, and BBRC International Pte, which has acquired a 12.9% stake, are urging Victoria's Secret to make changes to its board and strategy to address the underperformance of its shares. They have a point. Since the company was spun out of L Brands Inc. four years ago, the stock has lost more than half of its value. For years, Victoria's Secret led the underwear market. But amid the #MeToo era, the company looked increasingly male-dominated and out of touch. The scandal sparked by the association of former L Brands' Chairman and Chief Executive Officer Leslie Wexner with the disgraced late financier Jeffrey Epstein only hurt the brand further. As it prepared for life as a separately listed company, Victoria's Secret replaced the angels with a group of women recognized for their accomplishments and opinions. But the VS Collective, as it was known, failed to turbo-charge sales and was quietly disbanded. Last fall, under new CEO Hillary Super, the company staged an updated version of its fashion show, an annual marketing extravaganza that was once a cultural force. It was a step in the right direction. But Victoria's Secret is still struggling to find its place in a market populated by nimbler rivals, such as Kim Kardashian's Skims and Rihanna's Savage X Fenty, which Super previously led. Victoria's Secret needs to find a modern version of sexy, one that embraces different body sizes, but also changing underwear tastes. This includes the shift away from underwire bras to softer bralettes and sports bras, which have moved out of the gym into the everyday wardrobe. There are some encouraging signs. For example, Victoria's Secret has been dressing pop superstar of the moment Sabrina Carpenter. Amid a return to offices and anxiety about the job market, more formal clothing that requires structured undergarments is making a comeback. And the retailer remains the biggest underwear retailer not just in the US but also globally, notes Mary Ross Gilbert, an analyst at Bloomberg Intelligence. The core brand — as well as sister line Pink — both have huge recognition, including with Gen-Z consumers, while other mall brands of yesteryear, such as Gap Inc., are proving it's possible to ride a wave of nostalgia to improved sales. But making the most of this potential — the company should go further in updating its image and stores, and foster closer ties with Carpenter — requires significant investment. With President Donald Trump's tariffs, which will cost the company $50 million this year, and growing pressure on US consumers, committing to an overhaul spells short-term financial pain. Victoria's Secret has introduced a so-called shareholder rights plan, a poison pill designed to stop an investor building a controlling stake without paying a premium. But it does not preclude the company considering an offer. Nor is Victoria's Secret too big a morsel to tempt a buyer. The company's market value has shrunk to about $1.5 billion. The 30% premium that is the standard in takeover deals would value the company's equity at about $2 billion. But given how far the shares have sunk, a 50% premium looks more appropriate. Add in expected net debt excluding lease liabilities of $600 million at the end this fiscal year, and the enterprise value would still be under $3 billion — not out of reach for many private equity groups. Assuming a successful repositioning lifts sales in the core underwear business, alongside progress with beauty, Pink, and relaunched swimwear and activewear units, the company could eventually be relisted at a higher valuation. Indeed, there is a precedent for how this could play out: Breitling AG. Like Victoria's Secret, the Swiss watchmaker had a lot of baggage, thanks to its sexist marketing. But since a majority stake was acquired by CVC Capital Partners in 2017, it has ditched the tasteless ads and introduced a suite of revamped products. It's paying off: Breitling's 2024 revenue is estimated at about 820 million Swiss francs ($1.02 billion), roughly double its 2016 sales. The company's valuation has soared from 800 million francs in 2017 to 4.2 billion in 2022, when CVC sold a majority stake in the watchmaker. Of course, the luxury market has slumped since then, but if the new owner of Victoria's Secret could stage a similar reinvention, it would be looking at healthy returns. Putting yourself up for sale can be seen as a sign of weakness. But some private equity buyers won't come knocking without the encouragement of an open door. And a deal to go private, which pays shareholders some of the recovery value in a takeover premium, looks like the best outcome. Its time for Victoria's Secret to pivot from selling lingerie to selling a lingerie company. Elsewhere in Bloomberg Opinion: This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners. Andrea Felsted is a Bloomberg Opinion columnist covering consumer goods and the retail industry. Previously, she was a reporter for the Financial Times. More stories like this are available on
NDTV
4 days ago
- NDTV
What War In Middle East Means For Global Oil Markets And What It Doesn't
The conventional wisdom used to be that war in the Middle East would send oil prices soaring. Not anymore. On today's Big Take podcast, Bloomberg Opinion's Javier Blas and host Sarah Holder talk about the emergence of the US as the world's largest oil producer - and how that new power dynamic is playing out in the war in Iran. Here is a lightly edited transcript of the conversation: Sarah Holder: On Monday, Iran responded to the US's weekend strike on its nuclear facilities, by launching missiles at a US airbase in Qatar. Qatar said it intercepted the Iranian strike; no casualties were reported. And oil prices... dropped. Javier Blas: The biggest story of the reaction of the oil market to the conflict in the Middle East is one of what has not happened. Holder: Javier Blas is an opinion columnist for Bloomberg. He's covered oil markets for the last 25 years. And he says after past flare-ups of violence in the Middle East, oil prices have spiked. But not this time. Blas: You have asked people what was the biggest political risk for the oil market? That was an open conflict between Israel, Iran, and also involving the United States. And what was gonna be the impact of the oil market? The answer was triple-digit oil: There was a debate about, it was a 100, a 150, 200, 250. And that has not happened. Holder: When the market opened, Brent oil futures were trading at around $80 a barrel.. And after Iran struck the US airbase Monday afternoon, oil prices started falling, at one point dipping below seventy dollars a barrel. Blas: It's lower than where we started the year. It is lower than where we were when the origins of the conflict in 2023 with the attack by Hamas into Israel happened and it's about the price of about 20 years ago. Holder: And while it tracks that oil prices would go down because markets interpreted the attack from Iran as a deescalation - which watchers say it was - Javier says... oil prices were already less vulnerable to this conflict than one would expect. Because there's a relatively new dominant player in the global oil market: the US. I'm Sarah Holder, and this is the Big Take from Bloomberg News. Today on the show: what war in the Middle East means for global oil markets... and what it doesn't. Bloomberg opinion columnist Javier Blas says the conventional wisdom has long been that conflict in the Middle East equals an increase in the price of oil. It was a given that with one would come the other. Blas: Because the Middle East is so important for global supply, and particularly the Strait of Hormuz is so important to global supply, the conventional wisdom - and actually the reality - has been that every time that we have been involved in conflict in the Middle East, the oil prices have increased. Just because the market was pricing the potential of a disruption and because of the centrality of the region into the global supply, a price increase will happen almost every time that a conflict has happened there. Holder: But that hasn't happened this time. Javier says there's two reasons why. First, oil markets have learned not to increase prices because of the fear of a future disruption in supply. Because often, those disruptions haven't materialized. Blas: The second reason is that this is really the first time that we see Middle East conflict in what I will call the 'post-US shale revolution era.' The US has gone from producing around 7.5 million barrels a day when you count all the barrels 20 years ago to producing almost 21 million barrels a day today. And its dependence on the flow of oil from the Strait of Hormuz has come down significantly. So again, from a psychological point when you are less reliant on that waterway, perhaps traders feel that they don't need to put as much price risk for a potential disruption. Holder: Well, the US shale revolution is so significant to the story as you're saying. The US pumps more than a fifth of the world's total oil right now. That's more than Russia. That's more than Saudi Arabia. Can you say more about what happened over those past 20 years? Blas: The shale revolution started about 20 years ago when some American oil engineers and business people tried to crack a new type of rock called shale. They discovered that they could drill vertical wells, then turn the drill bit 90 degrees and go horizontal to tap those very fine shale rock formations. And then, the problem is that the oil will not flow until one cracks the rock and to crack at what they discovered is what we call today fracking or hydraulic fracturing, which consists of injecting water, sand and chemicals underground at huge pressure until they create fractures on the rock that allow the oil to flow. That really unlocked a significant amount of new production in the United States, particularly in Texas and New Mexico. Holder: So one of the effects of the shale revolution is that the US is less reliant on Middle Eastern oil. What has the reaction been in the Middle East then to the dominance of US shale? Blas: The reaction has been several times to try to kill that revolution. Bring prices down. That's what OPEC led by Saudi Arabia did in 2014 to 2016 - trying to bring prices down to make shale uneconomic. And now, I think that what the Saudis have discovered is that shale continues to grow. And they're trying to increase production to recover market share that they have been losing against shale. And that is also very interesting right now because the crisis has come at a time where shale production was booming and Saudi production was also increasing in an effort to recover market share. Holder: How is that sort of impacting strategy and geopolitics when it comes to this conflict? Like why is this such a game changer for American presidents, for example, thinking about intervening and entering conflicts in the Middle East? Did the fact that the US is less reliant on oil from Iran play into President Trump's decision to strike Iran this weekend? Blas: Every time that the US has faced conflict in the Middle East, the White House knew that the consequence of that was gonna be an increase in oil prices, and that means more expensive gasoline in America. And I spoke to senior advisors on oil for former President George W. Bush and Barack Obama, and they told me that they knew that however they intervened, there was gonna be a price. And the price potentially was a recession in America because of high inflation, high interest rates, and that always acted as a brake. I think that for the first time, President Trump perhaps is the first American president that doesn't really need to worry as much. Yes, the oil price can be still painful, and I don't think that President Trump enjoys anything close to $75 a barrel, but he can intervene in the US without almost being certain that the country is gonna go into recession. Holder: Well, it's interesting. This morning, Donald Trump posted on Truth Social, "DRILL, BABY, DRILL!!!" telling the Department of Energy to to start drilling more, to keep oil prices down. What did you make of that? What did that mean? Blas: So, President Trump wants two things at the same time that cannot happen. Either you have $50 oil and not much drilling, or you have $75 oil and a significant amount of drilling, and I think $75 is about right. It is good enough for the shale industry in places like Texas, New Mexico, oil companies are gonna be doing well, they're gonna be drilling, but the price is not high enough to be a problem for the economy and certainly not high enough that this summer driving season people are gonna be complaining about high gasoline prices. Holder: So you think Trump should be happy with $75 a barrel? Blas: Let me put it this way. I think that many other presidents in the White House facing a Middle East crisis will have been happily take $75 a barrel. I mean, every other time the president will have been facing a $100 oil, which is really painful for the economy, $75 is just fine. Take the win, move on. One of the most amazing things that is happening right now in the market is that if you look at the price of regular gas in the United States today with all what has already happened in the Middle East it's lower than it was on the last period of heavy driving in America around the Easter holiday. $3 a gallon, $3-2, $3-3 a gallon, is a quite reasonable price if you consider the experience that we have in past years. When Russia invaded Ukraine, the price of gasoline in the United States went all the way to $5. I don't see that happening again during this crisis, and I will expect that prices stay around this level for the next few weeks. Holder: After the break: What leverage Iran still has over global oil markets - and why the Strait of Hormuz isn't the biggest concern. Holder: So far, the war between Israel and Iran hasn't dramatically increased the price of oil - even after the US bombed Iranian nuclear facilities this weekend. But as the conflict has escalated, so, too, have fears that Iran might try to up the ante by closing the Strait of Hormuz. So, I asked Bloomberg Opinion Columnist Javier Blas to tell us about this unique waterway that transports so much of the world's oil. Blas: The Strait of Hormuz is very important for the oil market. For one reason. It is the choke point, the waterway for which 20% of the world's oil flow into the international market. All the oil from Iran, most of the oil from Iraq, significant portion of the Saudi oil, Emirati oil, all of the oil from Kuwait, they need to go through the Strait of Hormuz to reach global oil refineries. If the Strait of Hormuz was to be closed completely, oil prices will rise significantly because we will lose a significant chunk of supply. And as I said, 20% of the world's oil goes through it. These are huge tankers, you cannot miss them. Holder: How could Iran shut down the Strait of Hormuz? Does it need UAE's buy-in? Blas: No, they can do it alone. If Iran wanted to shut it down the strait for a brief period, they can do it. They need to turn to violence. So it will involve probably, firing missiles against oil tankers. I. Uh, which will prompt every other oil tanker to turn around and avoid the strait. They can mine, use sea mines to mine, the waters of the straight. So there are a number of elements that they could deploy to try to close it, but obviously every other country in the region and significantly the United States and perhaps China will react to that and try to reopen the Strait right away. Holder: On Sunday, Iranian and state TV reported that Parliament has approved a measure to close the strait. That doesn't mean it's happening. They need more than just parliamentary approval, but can you game it out for us? What would shutting down the strait mean for global trade, even short term? Blas: Every day that we were to lose 20% of the global supply will increase the price of oil significantly. And if we were to be only a few days of the shutdown, there will be panic buying, particularly for countries that depend on Middle Eastern oil for a lot of the supply-I'm thinking about China, India, Japan, South Korea, Taiwan. So those countries will go into the market that will buy oil from whatever other origin or whatever other price, and the price will go up a lot. Will the price stop at a hundred dollars? No, I don't think so. I think that will go significantly higher than a hundred dollars. Holder: We would get our triple digit oil prices. Blas: Yeah, we will have, absolutely, we will have triple digit oil prices, but how likely is that? Very, very unlikely. Holder: Just so I understand, what are Iran's incentives to close the Strait of Hormuz right now in the middle of this conflict and what's the main incentive not to close the Strait? Blas: The main incentive for Iran to close the Strait of Hormuz will be to weaponize oil, to turn oil into part of the conflict. Potentially to force the United States to talk to Israel, so Israel stops the bombing and the United States thinks twice in the future about bombing Iran. It is just using oil as a weapon and force, probably a diplomatic negotiation around the world. That is the biggest upside for Iran to close the Strait of Hormuz. Holder: So saying, 'you thought you were insulated from oil supply, but you're not - like, you really need us.' Blas: Yeah. And, and it just - generally the United States, even if the United States suffers, not a lot. The United States has an interest in healthy global economic growth, so other allies will suffer. Japan will suffer, Korea will suffer, the European countries will suffer, and typically that's not in the interest of the United States. The biggest downside for Iran is that, you close the Strait of Hormuz, no one can export oil, and that includes Iran. And for the Iranian regime, oil is really the cash cow. That's where the money is coming. So yes, Iran will close the Strait of Hormuz and it will create trouble for everyone else, but it will shoot themselves on the foot because they cannot sell their oil. It will also hurt some of the biggest allies of Iran like China and China will not really enjoy that, and I don't think that Iran can afford losing diplomatic support from China right now. My personal view is that Iran will not close the Strait of Hormuz. I don't think that they have - when you put everything on balance - a good incentive to do it. Can it happen? I suppose that one should not say never, but I don't see it. Holder: So maybe the closing the Strait of Hormuz isn't the biggest concern that we should be thinking about right now. Are there other major risks that war in the Middle East raises for the global oil trade or, or energy markets overall? Blas: I do think that there are other big risks and perhaps they don't get as much attention, but they're more important. The Saudi oil fields are within range of Iranian missiles and, a proxy of Iran, the Houthis of Yemen attack some Saudi oil fields in 2019, disrupting supply significantly, even for a brief period of time. Do I think that that's likely? Again, I don't think so, but that will be far more devastating that anything happening in the Strait of Hormuz and to me, that is perhaps the worst case scenario that few are talking about. Holder: So Javier, we've been talking about, some hypotheticals, what might come next, but right now we're still sort of processing what happened over the weekend. What do the events of this weekend and potential further involvement from the US in this conflict mean for American oil production going forward? Blas: What we know is that, um, American oil production was heading down because prices have dropped significantly. The US Oil benchmark a few weeks ago was changing hands used around $60 a barrel at that price point. American oil production goes down. Since then, because of all what has been happening in the Middle East, prices have recovered to around $75 a barrel, and that has a low shale companies to lock in future prices. And that means that probably American oil production is gonna be higher than we were expecting a few weeks ago, both in the second half of 2025 and also into 2026. Holder: But shale is not an infinite resource. Right? And Trump has been very resistant to invest in green energy sources. What happens if oil production doesn't keep going at the rate that's expected? What's the long-term plan here? Blas: Shale is a great resource and America is extremely lucky with its geological endowment, but it doesn't last forever, and you cannot increase production year after year and expect that that's gonna continue, uh, for a very long time. At some point, American Oil production will reach a zenith, and uh, it means that, uh, perhaps if the demand remains at the current high level, that will imply that the United States will need to start importing a lot of oil, as it did 20 years ago, perhaps not as much, but potentially could. It could go back to the old days of 20, 25 years ago.
