The big news from the weekend is that Russia announced a plan to cut 500,000 b/d (barrels per day) of oil production. This accounts for about .5% of global supply and roughly 10% of Russian oil exports.
This alone isn’t a huge deal, but when you stack up all the factors working against the Russian oil industry, some concern over its stability is warranted. Struggling to break even, the potential of wells freezing and bursting due to crude flow disruptions, the Ukraine War…that’s a hefty list and it wouldn’t take much to throw everything into a tailspin.
I’m not sounding the alarm bells quite yet, but it’s a good reminder as to just how fragile this whole system really is.
Prefer to read the transcript of the video?Click here
This Friday, Feb. 17th, join me for the webinar – Global Outlook: One Year into the Ukraine War.
We’ll dive into the global impacts the war has had on supply chains, agriculture, and much more. After my presentation we’ll have a Q&A portion to answer all those burning questions.
Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
And then there’s you.
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.
Hey everyone. Peter Zeihan here coming to you from my home away from home, the Denver Airport. It is the 13th of February. And the news over the weekend is that the Russians have announced a near imminent plan to cut 500,000 barrels a day of oil production, which comes out to about one half of 1% of global production. And roughly 10% of Russian exports.
Now, for those of you who’ve been watching me for a while, you know that I’m really concerned about the stability of Russian production, not just because of the war, but because of their geology. Most oil production comes from the permafrost. And if there’s a situation where the crude can’t flow, whether because people are taking the crude away at their export points or because they shut it themselves, the crude in the wellhead freezes into gel and the water that comes up as a byproduct freezes into ice and it pops the wells from the inside and repairing that damage. The last time around took 30 years and last time most of the oil services firms were part of the process. This time they’re gone. So if we do lose Russian oil production for any reason, it’s not just gone. It’s gone for a very, very, very long time. And that is not priced into the market at all.
Now, the 500,000 is probably, probably, probably not a problem. The Russians have about a million barrels per day from the western fields that are not in the permafrost. And so they can shut those in and bring that back on and shut it in again and bring it back online. In fact, they did this in the early weeks of the war last time when people weren’t taking their crude. Well, now we have a couple more things in play. The European oil ban is in place. The European refined products period is in place. It’s not technically illegal to buy or ship these products, but you have to do it without European insurance or vessels if it’s under a certain price point. And that is reducing demand for Russian product around the world because they’re having a hard time getting the stuff out. Also, the break even price for a lot of Russian crude is between 40 and $60 a barrel. And now that the prices that the Russians can charge are under that threshold, the Russians don’t have an economic incentive to pump the stuff in many cases. So 500,000 has taken away half of the buffer. We’re not to the point where we’re going to see permanent shut ins, but we are not all that far away.
Unfortunately for the Chinese, their balloon didn’t make it in time for the Macy’s Thanksgiving Day Parade…however, it’s made a much bigger splash than the rest of this year’s balloons.
Now I’m no balloon expert, but it seems to me that a “spy balloon” is a little outdated for 2023; especially when an open-source satellite could have given them the same intel.
The effect of this balloon is two-fold. First, it’s shown the world that the disconnect within the Chinese government has reached an all-time high. Second, diplomatic relations between the US and China have grown colder than ever and will likely be strained even further.
Prefer to read the transcript of the video?Click here
This Friday, Feb. 17th, join me for the webinar – Global Outlook: One Year into the Ukraine War.
We’ll dive into the global impacts the war has had on supply chains, agriculture, and much more. After my presentation we’ll have a Q&A portion to answer all those burning questions.
Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
And then there’s you.
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.
Hey Everybody. Peter Zeihan coming to you from another exciting hotel room today. Today’s Balloon Day. Now, I realize it’s been quite a while since the balloon was first sighted and brought down. But, you know, part of being a generalist is knowing when to keep your mouth shut because you don’t want to just talk about things you don’t know much about. And balloons have never made my top, you know, thousand list of things I consider myself a semi expert in. So I had to go out and speak to a few people.
Let’s start with what the Chinese were technically trying to do. They were doing overflight of a lot of our military bases, specifically our ICBM launch facilities, because the Chinese are new to having a nuclear deterrent and the idea of having reinforced bunkers and silos. And so everything from the type of fuel – solid versus liquid to the type of reinforcements to the type of launch to capabilities to the staging of the rockets. They’re all relatively new to all of this, certainly to doing it at scale. Remember that as early as the 1970s, the United States had over 30,000 nuclear weapons, about one third of which would have been deployed by missile. Now, with arms control treaties and the post-Cold War environment, we have slimmed that down to just a few hundred. But the United States has a deep bench of experience in building and maintaining these things, and the Chinese simply don’t. Until very recently, their entire deterrent was just about 100 or so missiles. And they’re trying to beef it up. Part of the general effort to get into great power competition, and they have a very long way to go. So any little peek that they can get would be great from their point of view. Obviously, from the American point of view, we have a slightly different view of that.
Now, when it first came out, like, a lot of people didn’t really know what was going on. And so my first thought was like, you know, why would the Chinese, I mean, the balloons are big, they’re slow moving. You can’t maneuver them very well. They’re obvious. And so it’s like, you know, I haven’t thought very much of the leadership of Xi Jinping of late or making mistakes in energy and agriculture and finance and economic development and trade. I mean, manufacturing, you name it. We’re seeing catastrophic failures across the Chinese system in decision making because Xi has basically gotten rid of anyone who might tell him no or might tell him yes…but. He’s surrounded himself with yes men. And so we’re just seeing a general breakdown of the bureaucracy and the decision making apparatus. But even with that in mind, it was like, you know, Xi isn’t just stupid. Why would he throw a surveillance platform that would just gently float across the United States? Want to be obvious. It would be seen that obviously would torpedo relations. I just never occurred to me that they could be that dumb. Well, turns out the rampant stupidity that is taking over decision making and Chinese policy has now reached a bit of a break point.
We now know from the responses to the crisis that the Chinese have lost the ability to coordinate within their own system. So normally if you can do something that’s a little provocative, you’re going to coordinate with your diplomatic personnel and your executives in order that nothing else that you’re working on gets ruined. But the day that the balloon, like, floated into northern Idaho, Blinken was supposed to be on a plane going to China, and he had to cancel.
And then over the course of the next week, the Americans were reaching out to the Chinese, and the Chinese refused to take the call because they didn’t know what to say because they couldn’t get direction. And then once it was shot down over the waters of South Carolina, they refused to pick up the phone because they said, oh, no, you don’t understand.
You’re using military force, take out a civilian aircraft. I mean, the just the abject refusal to deal with the situation is the only you only see that when the bureaucracy is seized up, she has so intimidated and purged the bureaucracy that there’s really only two types of people left, those who will do nothing unless they are explicitly instructed to do something, or those who are true believers, the zealots, and those are the folks who will go out on the runways and sterilize them for COVID, or apparently will try to get a balloon over the United States, not even thinking that it might have a problem for relations, which U.S. Chinese relations are the coldest they
have ever been. And with incidents like this, any effort to warm them is not working. So that’s kind of the diplomatic and the political side. This is this is really bad for China and really exposes just a big, hollow emptiness in their policymaking capacity, which I’m sure no one’s going to take advantage of at all. So let’s talk about what the Chinese might have gotten and what the United States might have lost or gotten, because there’s a clear winner here and it’s not probably who you think it is now, the missile silos that the Chinese are so interested in, you know, news flash, you don’t leave those open to the elements.
And so once it was obvious that a balloon was going over them, they just button up, they get their emissions under control. And all the doors are closed. So there was nothing that the balloons could gather that could not also be gathered by satellite. So they basically floated all over the United States and got nothing better than typical open source information.
The whole time U.S. Hardware was tracking that balloon, tracking its emissions, taking digital renderings of the entirety of the structure and. Oh, yeah, yeah. Just just so we’re clear, this was not a weather balloon. This thing was 300 feet wide. That’s a big ass balloon. That’s like an order of magnitude bigger than weather balloons. And I don’t know if you guys know what an embassy airplane is, though.
Those little Barbie dream jets that sometimes you’re on a connecting flight for, they only take about 70, 80 people. The equipment that was hanging from the bottom of the balloon, the payload was bigger than an embassy air and there were long range antennas and listening devices and computing capacity and solar panels on this thing, along with some propellers.
So, you know, the idea that this was a weather balloon was like only if it was planning on monitoring the weather on Venus because it had that sort of range. So the Chinese position, again, and the diplomatic system seized up because the truth was so obvious. But the Chinese diplomatic corps had no idea that this was going on.
It’s part of that whole disconnect anyway. They got very little, if any, information from this effort. But the whole time the Americans were trapped in what was a fairly sophisticated spy platform, and then we shot it down on it over South Carolina, we started fishing for the parts. Now, I like a lot of people, apparently like President Biden, my first instinct was to shoot it down the second across the border.
But as it was explained to me, if you shoot down something of that size, when it’s ten miles up, the debris field is going to cover a couple of square miles in a line. That’s something like six or seven miles long who nobody wants. £200 of Chinese spyware falling through the roof. You people probably would have died even over like the vast empties of Montana.
So they waited for it to be over water. Also, they did detect it when it was over Alaska. But if they had shot it down over Alaskan waters, some of those waters are three miles deep and they wanted to recover it. So the waters over or off the shelf of South Carolina are 30 to 60 feet deep, something you can just do as a commercial dove.
So pieces that are being recovered and we’re getting a better look at spy equipment out of China and their capabilities and their emissions and how they handle information and what they’re looking for as a result of this incident. Then normally you would have gotten after a one or two year probing effort with using more traditional methods. So it’s kind of like the Chinese flew a canary into our cage and we just quietly locked the door behind it.
And this is turning into the intelligence bonanza of the decade. So that’s what happened after a couple of weeks of me poking into this. It’s a really intriguing story. But the bottom line is just the sheer level of stupidity and dysfunction of the Chinese national security experts, if that’s the right word, really has reached a foreign, mentally new low.
And, you know, Congress is going to be stirred up like a band of hornets. And I have no problem with that because this is going to have consequences for the relationship. There’s no way there’s nothing out of this that the Chinese are walking out of smelling. Good. All right. That’s it for me. I’ll see you guys next time.
Before we dive into today’s newsletter, I wanted to remind everyone that we are only 1 WEEK AWAY from the Webinar – Global Outlook: 1 Year Into the Ukraine War. So if you haven’t already signed up, click the link below for more info.
Now back to the eggs…
It’s time we get to the bottom of the question on everyone’s mind…why are my eggs so damn expensive?
Inflation takes no prisoners, but we may have another source to thank for this…avian influenza, aka bird flu. This resulted in a massive loss of chickens and the culling of herds to prevent further infection. And can you guess how you get more chickens?
You have to hold back some of your eggs, and then you have to wait…and then raise the chickens (for 2-6 months) to the point where they can start producing eggs. Unfortunately for us, this is how almost everything works in agriculture. You can’t just build a facility and start producing wheat overnight, you have to account for an entire production cycle.
Now take this framework and apply it to the Ukraine War. What happens when the fifth-largest exporter of wheat, the fourth-largest exporter of corn and the largest exporter of seed oils goes offline? The world’s going to have bigger problems than egg prices…
Prefer to read the transcript of the video?Click here
Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
And then there’s you.
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.
Still in San Diego, just had breakfast. And it occurred to me that, well, we’ve all been struggling with inflation for the last several months. But if you’ve noticed, eggs are by far the highest priced thing out there right now, based on where you are in the country, a dozen is now between $5 and $9.
The reason is not because there’s been a failure of the supply chain. The reason is not because there’s a shortage of imports. The reason, quite simply, is flu. The problem with maintaining chicken populations is that chickens are birds, and birds can fly…not the chickens that we raise for eating or for raising eggs, but other birds. And since birds are mobile, they carry their bugs with them and they crap. And the crap falls out of the sky. And sometimes it hits a domesticated bird.
Anyway, we had an outbreak of avian flu about a year ago, and as it roared through the Midwest and took out a lot of chickens, a lot of chicken farmers had to go through and cull their herds to prevent it from infecting anymore.
Now, from the point that you decide you want more chickens, you have to do two things. Number one, you have to hold some of the eggs back. So you’re talking about a reduction in output between a quarter and a half. Based on how fast you’re trying to recalculate. And then you got to wait because you got to raise these things. And it takes about I mean, it really varies greatly on the species, but somewhere between two and six months to raise an adult chicken to the point that it can be laying its eggs itself.
So this process started about three or four months ago. I mean, we have another 2 to 3 months to go before we really get that first huge additional generation assisting, and then we can start dealing with the backlog. So we are still looking at high egg prices for another 3 to 4 months.
Now, this sort of thing is pretty common in agriculture. People forget that, you know, when we have a shortage in something like a car because we can’t get a spark plug or a semiconductor, once you get the new facility on line, all of the other parts can be in place. And then you just go through the semi-finished cars. You plug in this last piece and you’re good to go. Well, that doesn’t work with food. If you have a food shortage, doesn’t matter what it is. You’ve got to wait for an entire production cycle to go through. And if you’re talking about plant based agriculture, sometimes that’s another year. Everything has to be in place. The pesticide at the right time, the seeds at the right time, the irrigation at the right time, the fertilizers at the right time, the harvest at the right time. And if you miss any one of those pieces, if you have a yield at all, it’s going to be paltry compared to what you’re used to. And you simply have to wait for the next growing season for things to begin.
One of the things that we’re seeing in Ukraine more right now is that the Ukrainians have been favoring corn and seed oils in this food evacuation program that they basically have with the United Nations. Ships can come in and dock at Ukrainian ports. The Russians have promised not to bomb them. And so the Ukrainians have to choose what goes in. And as a rule, corn and oilseeds generate more income for them, then wheat. So that’s what they’ve been favoring. Wheat output from Ukraine has basically stopped whereas corn is more or less where it was before the war, maybe a touch higher replacing it that requires some other producer someplace else. Crop switching to wheat in order to plug the gap or bringing new land on line. Regardless, it takes a year. And remember, we haven’t yet seen the real disruptions to the Ukraine war because the Russians haven’t specifically targeted the ports in mass enough to disrupt large scale exports or really in totality. But we’re probably going to see that really soon.
By the time we get to spring, it’s going to be a different kind of war. The Russians are going to be very clearly going for the throat instead of targeting civilian electrical infrastructure, they’re likely to go after food production and transport. And if they do achieve a breakthrough in the southern front, they’re absolutely coming for Odesa because that’s where most of the commerce in and out of Ukraine transits.
We’re about to lose the world’s fifth largest exporter of wheat, fourth largest exporter of corn and top oilseeds exporter. And there’s no one in the world who has the scale or the spare capacity to replace that. And even if they did, you’re talking a year out. This is going to get a lot worse before it gets better, even if the Ukrainians actually win the spring offensive to come.
Perhaps the scariest takeaway from the Ukraine War is that it’s just beginning. To fully understand what is at stake here, we must look at Russia’s motivators and the possible outcomes.
Russia is looking to reclaim enough land for them to reach the geographical strong points that were once part of the Soviet Union. Beyond that, Russia is essentially fighting for its existence. So the only viable option for them is…winning…at whatever cost. That is a terrifying reality.
If the Ukrainians hold Russia off, we’ll see a long, drawn-out war over disputed land until Russia makes enough progress to launch another large-scale assault. For Ukraine to prevail, they would have to destroy sufficient Russian industrial and logistical capacity WITHIN RUSSIA to render another assault impossible.
If the Russians get past Ukraine, they won’t stop there. Poland and Romania will be next, but the Russians know that facing off with NATO isn’t going to end well. And that’s when the nuclear question comes up.
Regardless of how this plays out, we know Russia doesn’t give in lightly. What we’ve seen so far is just a warm-up and the real war is only now starting.
Prefer to read the transcript of the video?Click here
Join me on Feb. 17th for the webinar – Global Outlook: One Year into the Ukraine War.
We’ll dive into the global impacts the war has had on supply chains, agriculture, and much more. After my presentation we’ll have a Q&A portion to answer all those burning questions.
Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
And then there’s you.
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.
Hey everybody. Hello from Colorado. I thought today would be a great day to underline for everyone what’s at stake with the Ukraine war and why the war to this point really is just the very beginning of what’s going to be a long, protracted conflict that is going to stretch well beyond Ukraine’s borders. Alright. With that in your back pocket, let’s launch in.
This is a map of the Russian space, and that green area is the Russian wheat belt. That is the part of Russia that is worth having where the weather is not so awful. It’s still awful…That you can’t grow crops can’t grow much. You get one crop of relatively low quality wheat because the growing season is very short. Summers are very hot and dry and windy and winters are very cold and dry and windy. If you move to the right, you’re in Tundra and Taiga. That’s the blue. If you go to the left, you’re in the desert. So north to tundra, south to desert.
But what really drives the Russians to drink is the beige territory. Territories that even by Russian standards are useless. But they’re flat and they’re open and you can totally run a mongol horde through those. So what the Russians have always done is reached out past the green, tried to expand, get buffer space, get past that beige, that area that’s useless, and reach a series of geographic barriers where you can’t run a Panzer division through it and then forward position. They’re relatively slow moving, relatively low tech forces in the access points between during the Soviet period, the Russians controlled all of those access points. It was the safest that the Russians have ever been, and then they lost it all. And what they’ve been trying to do under Putin and Yeltsin both has been to re-expand back to those footprints so that they can plug the gaps, plug the places where the invaders would come, get static footprints, lots of troops right on the border where you can’t avoid them, you can’t outmaneuver them.
And this has been what they’ve been trying to do. This is the Kazakh intervention in the Karabakh war and the Georgian war and the Donbas war and the Crimean War. This is what it’s all been about. Ukraine, unfortunately for the Ukrainians, is not one of these access points. It’s on the way to the two most important ones in Romania and Poland.
So this war was always going to happen and this was never going to be the end of it. The Russians have launched eight military expansions since 1992. This is the ninth and it wasn’t going to be the last one. Eventually they would come for Poland and they would come for Romania. But we now know that the Russians are militarily incompetent at fighting a conventional war. So we know if they succeed in Ukraine and they reach the Polish border, they know that there will be a 1000 to 1 casualty ratio if they face off against NATO forces. So we know that when they do eventually come, if they make it past Ukraine, they will use every tool that they have. And that includes nukes. The Russians feel that they are fighting for their existential existence and because of the demographic collapse they are. If they fail to capture Warsaw and northeastern Romania in the vaults, they will shrivel in an open zone wracked by internal disruptions and interfered with from outside powers. And over the next decade or three, they will cease to exist as a functional country. Winning here is their only option, and since its death or winning every possible tool that they have will come into play. And that includes the nuclear question when it becomes their only option. If the Russians win in Ukraine, we will have a nuclear exchange.
But if you’re Ukrainian, obviously you have a different view on how this should go. What we’re looking at here is an old industrial map of industrial assets in the former Soviet system box there indicates approximately the Ukrainian borders. And you’ll notice that there’s a whole cluster of these little industrial circles just beyond Ukrainian space. We know if the Russians win in Ukraine, where they come in.
But think about what it means if the Ukrainians win, if they succeed in ejecting Russian forces from their entire territory, the Russians aren’t going to stop. Remember, this is for them an existential fight for their survival. They will continue doing cross-border raids until they feel they have an advantage. They can make another try of it. So the only way that Ukrainians can win and then live in peace afterwards is to disrupt the logistics that prevent industrial plant in those circles from contributing to a war effort on the Ukrainian border zone. And that means the Ukrainians have to cross the border into Russia proper. Whether they do this with planes and missiles or artillery and rockets or general army that will determined by the facts on the ground when this finally happens. But we’re talking about deep strikes in excess of 100 to 200 miles into the Russian space to deliberately destroy industrial plants and especially connecting infrastructure.
So we know now that if the Russians win, we’re going to have a nuclear crisis. And if the Ukrainians win, it’s the beginning of a long slog that will take years to resolve one way or the other until either Ukraine loses the capacity to function or Russia loses the capacity to function. Russia’s never backed down from a war without a series of mass casualty events that were so severe that they’ve lost the ability to maintain a military position at all. They fight until they can’t, especially now considering what is at stake.
This is going to get a lot more intense before it gets resolved. And 2022 was honestly just the warm up in the skirmishes. Fighting in 2023 is going to be a lot more severe because the Ukrainians are finally getting some real heavy equipment and tanks and the Russians are doing a second mobilization and they’re going to have three quarters of a million troops in Ukraine by the end of May.
Meet Michael Nayebi. He has been an integral part of the sausage-making process at Zeihan On Geopolitics for years and was core at my old world, Stratfor, before that. If my videos seem a little more scatterbrained than normal in recent days, it is because he has been physically unable to keep me out of trouble. Here is why…
On Tuesday, Jan. 31, arctic-like conditions swept across much of central Texas, including the Austin area. The ice storm left the roads impassable and caused trees and limbs to come crashing down, leaving residents across the city without power for days.
As you’ll see/hear in the video, Michael was stuck in the same predicament as countless others – a street riddled with trees, nowhere to go, no power and (the real gen-z deathblow) no internet.
When natural disasters like this occur, it’s essential to consider what/how supply chains and industries are impacted. So from our “boots on the ground,” here’s a look at the geopolitical fallout caused by this ice storm.
*Michael’s power was restored late on Friday, and his internet returned Monday morning. So the videos should be back to their normal levels of scatterbrainedness.
Prefer to read the transcript of the video?Click here
Join me on Feb. 17th for the webinar – Global Outlook: One Year into the Ukraine War.
We’ll dive into the global impacts the war has had on supply chains, agriculture, and much more. After my presentation we’ll have a Q&A portion to answer all those burning questions.
Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
And then there’s you.
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.
Howdy. For those of you who don’t know me, I’m Michael Nayebi-Oskoui and I am director of analysis here at Zeihan on Geopolitics. And unlike Peter, I am based out of Austin, Texas, where if you haven’t heard the news, we have been dealing with some cold weather. Not to be flip, but we’ve had one of the most significant ice storms in recent memory, at least since, you know, I’ve lived in Austin since the early 1980s. And with it, we’ve had a, if you can tell behind me, a pretty bad case of tree limbs falling down all around the city, which means that I’ve been without power since at least Wednesday morning, except for 5 minutes today, barely 5 minutes, at which point we heard the noise that no consumer or utility manager wants to hear, which was a cascade of transformers blowing up, which I thought was a good time as any, to discuss our national power grid and where these components come from.
Now, various elements of the grid, depending on where they are and how they’re used, come from various sources. But by and large, utility poles that are wooden are domestically grown. If you’re in the Pacific Northwest, they’re Douglas Fir here along the Atlantic Coast and parts of the southeast. It’s usually southern pine, cedar, rest of the country, but the cables, the coatings, the transformers, the other components are all part of a global supply chain and one that continues to face headwinds and one that potentially could see a shift back to domestic production within the U.S., or at least North America.
When it comes to the cables. Wire, copper and copper ore – predominantly produced out of Chile. But the wires that transfer power are made in a handful of countries. Very technical or high voltage wire typically comes out of the U.S. Germany or Japan, less so China and South Korea. But the coatings on the cables that we see are primarily products of the Gulf Coast refining sector.
So when we have very cold events in Texas, like we did in February of 2021, we see that the chemicals industry can face delays of months or up to a year when it comes to the more technical components of transmission. Let’s say the transformers that I heard blew up today. The steel, the insides again come from a complex, interconnected, global supply chain of advanced components and some that aren’t as high tech as you might expect. So a lot of insulating glass and ceramics.
The largest exporter globally is China, but the US makes a lot of these components domestically, as do the Japanese, the South Koreans, the Germans and to some extent Mexico, where they are interconnected with US manufacturing supply chains. But it’s not a wholly U.S. based supply chain. Up to 50% in transformers or components, at least in any given year, come from international sources, which means that supply chain managers domestically are facing the same challenges as suppliers in industries across the U.S. of finding reliable, affordable components, especially when it comes to transformers. Heading into the end of 2022, we saw that new development across the U.S., aging infrastructure, etc. sourcing managers were facing lead times of up to a year or, you know, triple, quadruple cost for industrial substation oriented transformers. And this is trickling down to the kinds of residential style, smaller capacity transformers like the ones that blew up outside of my neighborhood earlier this morning.
If you are an urban utility manager or a supplier looking for these components, you’re facing higher costs, longer lead times, greater delays. And it’s a combination of not just the COVID related supply chain issues that a lot of industries are still grappling with, you know, two or three years into the pandemic, but also some of the recent upheaval we’re seeing within EU and China.
The solution is not going to be a fast one. A lot of the specialized classic ceramics industries that are based in Germany are going to take expertise and capital to move elsewhere. The sheer capacity that’s represented by the Chinese industrial system is going to take time and cost to reshore elsewhere. But, you know, a lot of these components have analogs or related industries that are already operating in North America. So this is definitely the industry that I would like to see greater investment come online for within North America and manufacturing in coming years, as we look to eliminate risk and supply chain challenges that come from working with places that are increasingly as unreliable as China.
In the early hours of Monday, Feb. 6th, an earthquake with a magnitude of 7.8 hit the city of Gaziantep in southern Turkey. The quake was felt across Turkey and deep into Syria, leaving behind a path of deadly destruction.
At the time of recording, the death toll in Turkey and Syria was in the 2,000s. At the time of scheduling this newsletter, the death toll in Turkey and Syria is well above 3,500 and will continue to rise throughout the coming days.
Natural disasters happen at random, but that doesn’t mean they can’t also be geopolitical events. The 2011 Togoku earthquake/tsunami that took the Fukushima-Daiichi nuclear reactor offline had grave consequences for global nuclear energy policy. In Turkey’s case, expect Sweden and Russia to offer humanitarian aid and try to get back into Ankara’s good graces.
Prefer to read the transcript of the video?Click here
Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
And then there’s you.
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.
Hey everyone. Peter Zeihan here coming to you from somewhere in Florida. On Monday, the 6th of February in the early hours, an earthquake hit the city of Gaziantep in south central Turkey, which is hard up on the Syrian border. And the destructive capacity of it was 7.8 on the Richter scale. It was felt as far away as Hatay, which is where the Turkish territory meets the Mediterranean as well as, well into Turkish Kurdistan. And of course throughout most of Syria.
Devastation is considerable. This is definitely the strongest earthquake that has hit the area in about 20 years. Early death estimates are already well over 2000. They’ll probably be over 20,000 within a week. When earthquakes hit this area, they can really be awful. We are in a very seismically active area here and a lot of the construction is not what you consider up to, say, a Japanese style standard. So the idea that you could actually reach 100,000 deaths is not out of the ballpark.
Earthquakes are often geopolitical events, not in that they wreck countries, although they do, but instead they provide opportunities for diplomatic breakthroughs. And as regards Turkey, at this moment, there’s really two countries that would be really, really looking to provide some aid in order to tilt politics and Turkey in their direction.
The first one would be Russia. Turkey is one of the very few outlets that the Russians have right now for getting their trade in and out. And the Turks have been acting as middlemen. So if the Russians were able to provide some sort of diplomatic and economic emergency assistance and bridge building relief crews, that sort of thing, then you could see some significant warming in relations. The problem, of course, is that all the Russians’ capacity is already spoken for in Ukraine, and it’s not clear that it’d be worth the Russians time to pull people off of the front lines in order to give supply to the Turks. The Russians have something called the Disasters Ministry, which is actually really good at doing stuff like this. Used to be run by Shoigu, who’s the current defense minister, but it’s really just a paramilitary arm of the government, and it’s just completely spoken for already.
The second group that would have an interest of maybe tilting things diplomatically with the Turks would be the Swedes. The Swedes have been trying to get into NATO’s for about a year now, and the Turks have been threatening to veto over membership because of the Swedes taking a certain position on Kurdish issues with the Turks think is FEMA to them being an alliance. But if Sweden, which does have some spare capacity and does have a good record of humanitarian effort, even with the Kurds, were to provide that with the Turks, it might just provide the sort of opening that the Swedes need to get over Turkish hesitance in terms of letting them join the alliance.
So those are two to watch for. You won’t have to wait very long. This is the kind of thing that either happens or it doesn’t within just a couple of days because after that it’s too late and the people buried under the rubble are already gone. So we’ll know soon.
For solar power to make sense, there’s one non-negotiable component…and yes, it’s that bright, shiny thing in the sky – the sun. But just because your planet has a sun doesn’t mean you should use solar power…
The best examples are places like Denver or SoCal, where the sun is out showing off most days of the year. Then you move on to places like New York, Toronto or Berlin – which have plenty of overcast days – and your case for using solar power goes out the window.
The point of all of this isn’t to say that solar power can’t be part of the energy solution, but there are still quite a few hoops we’ve got to jump through to get there.
Prefer to read the transcript of the video?Click here
Join me on Feb. 17th for the webinar – Global Outlook: One Year into the Ukraine War.
We’ll dive into the global impacts the war has had on supply chains, agriculture, and much more. After my presentation we’ll have a Q&A portion to answer all those burning questions.
Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
And then there’s you.
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.
Hey everybody. Hello from Colorado. Peter Zeihan here. Today I wanted to talk about solar. Since it’s a sunny day. I am green, but I’m a green who can do math. So I don’t get invited to really any of the green parties. Solar is great if you know, if you have one of those a sun, not just you have to have one for your planet. You have to be able to see it regularly. Solar intensity around the world varies by an order of magnitude based on where you are, and if your goal is to both generate a meaningful amount of electricity and reduce your carbon footprint. There are only a handful of places where today’s solar technology really work well.
Now I live in one of them. Denver is the sunniest city in the United States, and people like, Oh, shouldn’t that be Phenix or Dallas – no. Because there’s more things that go in there than temperature, humidity, air density, wind patterns, weather patterns. Denver sits on the Lees side of the Rocky Mountains. So it’s in the rain shadow of the largest mountain range on the continent. And it gets its weather in two phases. Either storms that blow in from the mountains or storms that blow off the Great Plains. In both cases, the storms tend to be cold fronts, so they whip through fast. They drop a lot of rain or snow and then they move on, leaving clear air behind.
If you’re in Phenix, you’re going to be dealing with a lot of particulate matter because of the dry desert nature of the place and a lot of smog. If you’re in Dallas Fort Worth, you’re dealing with humidity. There just aren’t very many places in the world that have a really good solar quotient. And in the United States, you’re pretty much talking about the California coastline into southern California and then into the desert southwest. And there’s this little hook up the east side of the front range, which is where I live. In fact, I’m one up on Denver because I’m at 7500 feet. So we regularly get snow in our valleys and fog in our valleys and Denver will get fogged in. But I am a half a vertical mile above Denver and so it is very rare for my neighborhood to be fully cloudy for a whole day. It only happens about 20 or 30 days a year as opposed to when you have an atmospheric haze, which in most populated parts of the world lasts pretty much, you know, entire seasons.
That means that my panels, if you were to put them in New York, only generate about a quarter of the power that they generate for me. Put that in Toronto you’re down to one fifth. You put in Berlin down to one sixth. As a rule, most of the human population, most notably in Southeast China or excuse me, and the East Chinese coast, Northern Europe and Northeast United States. If you put up solar panels, you are most likely generating more carbon from the creation of a panel and transmission system than you’ll ever pay down from the electricity that you generate. So you’re actually contributing to the problem rather than solving it.
Which brings us to a second problem. I live in a rural area, so I’ve got a big roof line and I have an 11.5 kilowatt solar system, which is about the maximum of the Colorado allows when you’re going to do a feed in tariff, which is a fancy way of saying that you pay into the grid with electricity, the same rate that they charge you going to get it out. It’s a great system we’ve got here in rural Colorado. Most cities don’t have that option. Number one, you’re going to have to have a more profit driven electrical system. I work with a co-op, which means they’re not going to give you as generous of feed in rates and second cities by their very definition, are densely populated. Solar, by its very nature, has to be distributed.
So, yes, if you live in a traditional single family neighborhood with homes, with sizable roof lines and a lot of south facing frontage, you may, may, be able to have a decent solar quotient for your system, especially if you live in the American Southwest or California. But if you live in a mid-rise, much less a highrise, much less in a calculated city like Chicago or New York, there’s nowhere to put the panels in the first place. You’re going to put them outside of the city, and now you’re talking about transmission costs. And if you’re in New York, you’re not going to put it outside of city of New York because that’s equally cloudy. You’re going have to go down like central Virginia. And then there’s a half a dozen major cities between you and we’re going to be pulling your power from.
It’s not that solar can’t be part of the solution. It can. But it really only works in some very specific geographies like where I live, where it works really well. For us to fix this, three things need to change. Number one, we need panels that capture more of the sun and translate more of its energy into electricity. The rate of recovery for that has been incrementally going up for a while now. There is now panels on the drawing board, not on production, on the drawing board that can capture as much as half. That’s great. A huge step in the right direction. But you also then need transmission to get it from places that are sunny and you put up your solar panels where people actually live. And to do that at scale, we’re not just talking about high voltage lines that cross state lines, we’re talking about relatively room temperature semiconductors. And for those of you been following some of my other energy work, you know, the same thing is basically basically necessary for diffusion power as well. Single large facilities that you want nowhere near a city that can transport the power over hundreds of miles if necessary.
But the third thing that’s probably going to be the most problematic in the near term, and that’s capital. When you put up a solar farm or wind farm or any sort of green tech, you have to pay for it up front, which means you have to finance it. If you’re putting up a coal and natural gas plant, most of the cost of operating that plant over its lifespan is in fuel. So you pay for that as you go. The financing needs are not nearly as much. And with the baby boomers moving into mass retirement and liquidating all of their high velocity capital, all their stocks, all their bonds, everything is going into T-bills and cash. And the volume of capital that is available to finance green tech projects just isn’t going to be there at the scale we’ve become used to. And that’s not just for green tech. That’s for everything from car loans to borrowing to pay for super carriers, everything is going to get more expensive to finance. And since green tech must be financed upfront, it is going to be the economic subsector that’s probably going to suffer most dramatically over the next few years. Unless the technology changes, you change the technology on me. I reserve the right to change my mind.
Today we’re talking about the overlooked redheaded stepchild between mining raw materials and incorporating those into a product…processing. Essentially throwing tons of energy at the ore through several steps and facilities, converting them into usable materials like aluminum or steel.
For the vast majority of materials, this processing is carried out in 1 of 2 locations – China or Russia. This is a result of subsidies or cheap energy. However, all of that is changing thanks to the collapsing demographics of these two societies.
The reason for the redheaded stepchild analogy is that processing is about to become very annoying for the rest of the world. Not because it’s expensive or difficult to do but because the decrease in supply is culminating with an increase in demand thanks to the green movement.
Prefer to read the transcript of the video?Click here
Join me on Feb. 17th for the webinar – Global Outlook: One Year into the Ukraine War.
We’ll dive into the global impacts the war has had on supply chains, agriculture, and much more. After my presentation we’ll have a Q&A portion to answer all those burning questions.
Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
And then there’s you.
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.
Hello from sunny Colorado, Peter Zeihan here. Today we’re going to talk about processing. So a lot of people are familiar with some of the issues and opportunities that come from any number of industrial materials, whether that’s iron ore or aluminum or lithium or cobalt. But in between the mining and the actually incorporating the product into something that we actually use like lithium into a battery or steel into a car, there is an intermediate processing step that tends to just kind of get ignored and that’s about to become a very large concern for any number of sectors and countries. Once you get the raw material, the ore, the industrial material itself out of a mine, you then have to basically throw a lot of energy at it. Breaking down the orders to separate out the metals or the other materials that are within is an incredibly energy intensive process that usually takes place over several steps and within those several steps, not always can the same facility do all the same processing. So for example, you can smelt bauxite in order to get an intermediate product that looks a lot like cocaine called alumina. But then a different facility is needed to basically electrocute the crap out of it in order to transform it into aluminum. And you’ve got processes like this for everything, typically for steel, your first step is to throw it into a foundry with some coal into a blast furnace, and then you get something called pig iron. And then as a rule, another facility will turn it into type of iron and steel that we use every day. Now, the problem we’re facing is that most of the world’s materials processing is done in two specific locations. The first is in China. Now the Chinese have heavily subsidized their entire industrial base whenever they find a technology that they can master without needing input from another country. And since steel smelting was developed well over a century ago, this is something they have no problem doing. So they are by far the world’s largest producer of raw and finished steel. Though subsidies have taken the form in many cases of financial assistance. Basically, if you can get a bottomless supply of 0% loans and you can build whatever infrastructure you want, and that’s helped drive more profit driven industries out of business around the world. The second big player is Russia, and this is largely because they have very cheap electricity, because when the Soviet system collapsed in 89, the entire industrial base basically went kaput, except for the electricity generation system. So what the Russians did was they would import raw materials, use their cheap power and their cheap coal to do the processing, and then export a degree of value added materials. And they do this pretty heavily with aluminum. They do this with chromium, they do with this what, titanium materials that they don’t really mine themselves, but they will bring them in for processing. There are very few materials in the world where this is not true. And if you’ve been following me for some time, you know that these are the two major countries that are facing the biggest demographic economic, financial and security crises of the world we’re evolving into. So we need to prepare for a system where materials that come out of these two countries, intermediate and finished materials, maybe don’t go to zero, but certainly face a significant
collapse in the volume that they produce. There’s nothing about this that can’t be done anywhere else. It doesn’t even take a huge amount of time and it doesn’t even take a huge amount of money because a lot of this is technology that’s, you know, 50 or more years old. But that doesn’t mean it’s free. And that doesn’t mean we can do it overnight. And even if all siting and regulatory concerns vanish, you’re probably not going to put up a smelter for cobalt in the United States and anything less than a year. So not only with the way technology is evolving do we need a lot more critical materials and not only with the industrialization of the United States, do we need a lot more steel and aluminum? And not only with the green transition, we need a lot more graphite and chromium and nickel. We’re also looking at losing a lot of the world’s processing capacity for these things all at the same time. Something’s going to have to give and that is going to be one of the greatest economic arguments, fights and perhaps even wars of the next ten years. Stay tuned. We’ll talk about more of this sort of thing on and off for the next several months, because it’s getting to the point where it’s becoming not a hypothetical problem in the future, but a problem in the here and now. Oh, hey, all this talk of processing reminds me that we are having a webinar on February 17 that is going to be going into the economic implications of the Ukraine war one year on, and the implications for Russian minerals and minerals processing is a big, big part of all of that. So we’re going to include the sign up information for that webinar at the end of this email. Feel free to come. Anyone who signs up is going to get a PDF of the full presentation, complete with the data and the graphics, as well as a link to the video itself for future ruminations. Okay, that’s it for me. For real. Until next time
The globalized world has seemingly been great for everyone…security, access to foreign markets, the list goes on…so why would the US choose to continue down the path of deglobalization?
The US has been heading down this path for years, and they’re well past the point of no return. There are a few reasons we ended up here: the US never benefitted from this arrangement like everyone else, American politics are all about casting a wide net and making the most people happy (so when the globalization topic is hurting your party, you give it the cold shoulder), and most importantly, demographics.
Perhaps the only thing that could flip the script and make the US rethink this would be a security threat that impacts Americans more than anyone else.
Prefer to read the transcript of the video?Click here
Join me on Feb. 17th for the webinar – Global Outlook: One Year into the Ukraine War.
We’ll dive into the global impacts the war has had on supply chains, agriculture, and much more. After my presentation we’ll have a Q&A portion to answer all those burning questions.
Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
And then there’s you.
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.
Hey everyone. Peter Zeihan here, coming to you from Colorado today. I wanted to answer a couple of questions that folks had, namely why I’m so confident that globalization is past the point of return. The idea is that if the United States has benefited from globalization for so long, why, even if it was in danger, wouldn’t the U.S. just kind of double down?
Three things. First, you’ve got to look at why the United States did this in the first place. Globalization was never about the economics for the United States, or at least not about the economics in a traditional sense. The United States had the world’s largest economy long before World War Two, and with the war we found all of our potential rivals, cooperation nations, friends, allies, enemies everybody put together have an economy that was about the same size of the United States. And economic growth was hard to come by. Economic security was impossible. And a big part of what led to that was competition over resources, over lands, over security. Basically, all of the things that have colored human history since the beginning.
So the Americans came to the conclusion that when they were facing down Stalin in the middle of Europe, that there was no way that Americans would be able to economically, politically support the kind of conflict where the Soviets were right there and we were an ocean away, especially when we would be fighting on the territory of countries that have been absolutely devastated.
So the solution was to bribe everybody to use our Navy to patrol the global oceans so that any one of our allies could go anywhere at any time and interact with any other player, access any material, and especially access the American market, which was really the only one of soft to survive the war. The catch was you had to let the Americans write your security policies.
And so never forget that from the very beginning, the very concept of globalization for the United States was never about security. I’m sorry. It was never about economics or trade. It was about security. We pay you to be on our side. And that worked. And after 40, 45 years, the Cold War ended because the Soviet system could not compete, because the Americans not only held the security upper hand, but it created this alliance of economies that were massively larger. Because by the time we get to the 1980s, Korea, which had been the world’s fifth poorest country in per capita terms, actually surpassed that of the Soviet Union. So there was just no long term competition to be had. Now, that was 30, 35 years ago. And since then, the world has changed. We’ve entered into a hyper globalization era where any number of other players have come into the global system and participated under the rules the U.S. set up.
And this means it’s not just the West and it’s not just the Asian protectorates, but it’s Southeast Asia, it’s Brazil, it’s India, it’s Russia itself, and, of course, China. We’re no longer in a world where the U.S. economy is as large as everybody else put together.
Based on how you do the math, the rest of the world combined is three or four times the size of the United States. So doing indirect economic subsidization, as the U.S. had for 45 years, became less and less tenable over the next 30. And we’re now in an environment where some of these countries, China, for the most part, are so overextended and so dependent on globalization that the only way they can survive is as the United States increases support, not decreases. Their demographics mean they have no market. Their lack of military reach means they can’t get energy, and their dependance on the Russians means that the country that is most likely to use economics, especially raw material supply, in order to achieve geopolitical concessions, is now their single largest partner. Newsflash that’s not going to end well. Okay, so that’s kind of piece one. The idea of globalization is no longer benefiting the United States because we’ve never viewed it the same way as everyone else.
But there’s a couple other reasons to think of. First, American politics. During the Cold War, we had a pretty strong bipartisan foreign policy. Remember that American foreign policy is a reflection of its domestic policy. And every generation or two Americans go through and kind of fabricate what their parties mean. This is part of a side effect of having a first past the post single member district system, which is a fancy way of saying that you vote for a candidate who’s going to represent a specific geographic area and they have to get more votes than whoever comes in second. So the parties have a vested interest in throwing as wide of a net as possible so they can get that extra marginal vote. Well, every few decades, politics shifts because demographics change and economics change and security changes. And if you think about what we’ve been through in the last 35 years, the Cold War has ended. Hyper globalization has risen. Hyper globalization has fallen. The baby boomers were in their prime. The baby boomers are now retiring. We’ve had the information revolution. We’ve got social media. Of course, we’re going to handle our politics different. And when you do that, the factions that make up the parties move around. Remember, big net, big, big tent parties. That means they’ve got lots of factions that are always struggling for dominance and influence.
When politics shifts, those factional alliances don’t make sense anymore. And so they have to evolve. And the politics don’t just rise and fall within the big tent party. They fall out. They shift sides. And if you look at what has happened so far, none of it supports globalization. So, for example, unions have largely fallen out of the Democratic coalition. The Trump coalition was fairly successful at drawing them out. They are very anti-free trade. The Trump administration also kicked the business community and the national security conservatives out of the Republican coalition. Those were the two factions for economic and security reasons that were most in favor of globalization. And so now we’ve got the Biden administration and the Trump led Republican coalition that is basically having a tug of war for the unions.
So it’s just like we can’t have a conversation about immigration in the United States because the unions don’t want to have it. No one in Washington wants to talk about globalization in a positive light because the unions are at stake in terms of which political alignment they’re going to take. And the two groups that used to like globalization, national security and business conservatives, they’re not even part of the room anymore.
But probably the biggest reason is the third one, and that’s demographics. When you urbanize and industrialize and for most of the world, they didn’t start that in earnest until 1945 or in the case of the developing world, until 1992. You move off the farm, you move into the town, and instead of working on a subsistence agricultural system, you now are getting a services, a manufacturing or an industrial job. And that means you are living in condos or single family homes or townhomes that are crammed together and in that sort of environment, kids going from being free labor to just being expensive headaches and you have fewer of them. Well, for the rich world, these transition has started 75 years ago. For the developing world, they started 40 years ago. You play that forward and the world is literally running out of people age 20 and under and has for 20 years now, which means now most of the world has run into people 40 and under. Well, the whole idea of trade, the whole idea of globalization is someone has to buy this stuff. Trade makes no sense if there’s nobody on the other end of the sale.
And we are now entering a world where the people who traditionally have done most of the consuming people, 45 and under the folks who are having kids and buying homes and cars, they just don’t exist in the necessary numbers to sustain the system. You’ve undoubtedly heard from me about how the Chinese and the Russians are the two fastest aging societies in human history. But the Germans aren’t far behind. And the Koreans behind that and the Indonesians, the Indians and the Brazilians are actually aging faster than what most of the developing world has done for the last 70 years. And you only have to fast forward to about 2040, 2045 before the average American is younger than the average Brazilian. And ten years after that, younger than the average Indian, Indonesian or Mexican.
So we no longer have the security parameters to make this work because the Americans aren’t interested. We no longer have the economic basis to make this work because we don’t have enough young people to consume? And the Americans are taking a political moment for themselves that’s going to last a few more years in order to digest whatever is going to happen with the unions and that is more than enough time to kill any remnants of the globalized system.
What would need to happen if the United States really wanted to get back in this game is some sort of security scare that scares us more than the rest of the world, where we feel we need to pay for a new alliance. The Ukraine war is not that. If you look at what the Biden administration has done, all the deals that are on the table or on security, there’s not a single guns for butter trade. In fact, every single trade war, every single tariff that the Trump administration put into place, the Biden administration has doubled and tripled down on, except for one. There has been a deal over aerospace with the Europeans, but that’s it. If anything, the Biden administration is far more anti-globalization than the Trump administration was, or at a minimum, it’s actually putting in the long term policy.
So even if the next president happens to be a strong globalist, they’re going to have to unwind eight years of anti-globalization sentiment that is now hardwired into American policy and another eight years under Obama of just complete strategic apathy. You’re not going to do that in four years. So we are talking, best case scenario if you want to be involved in a globalized system another six years before the Americans might belly up back to the table. By then, China will be gone. Until next time.
As the US attempts to reshore many previously outsourced industries, the Chinese are looking for any opportunity to retain their competitive edge…so let’s talk about solar panels.
China isn’t known for its grand technology or innovation, but through a mix of labor, security and scale, they have emerged as the dominant manufacturer of solar panels.
China’s not letting go of the reins anytime soon. So what will happen next…Industrial espionage? Technology theft? One way or another, the US is bringing solar home.
Prefer to read the transcript of the video?Click here
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Hey Everybody. Peter Zeihan here coming at you from fairly windy and noisy Miami. I hope the sound on this one’s okay. The news that you can use this week is that the Chinese government is considering putting export bans on certain types of solar panel manufacturing, specifically the ability to make the wafers and silicon ingots that go into certain types of solar panels.
Some people are saying that this is a retaliation to things that the United States has done recently with semiconductors. But I don’t think there’s a direct link here. A couple of things. First of all, when you think of technology and you think of China, those two words only go together in the word manufacturing. The Chinese do not have a history and really any industry or subsector of being the innovators. They’ve got the manufacturing plant because it used a mix of labor and security and scale in order to become the dominant player in a lot of sectors…solar panels are one of those. But they don’t do much innovation at all. In fact, we were kind of racking our brains over this in the offices when what items out there were the Chinese the pioneers at, that they hold the technological edge, and there’s still a demand for it outside in the rest of the world. There is really nothing.
What’s going on here is that the Chinese have discovered that the United States is starting to build on an industrial policy and lots of other countries in the world are going with it. And once you marry state power to the efficiencies that you get from the American workforce and capital markets and market size, well, the Chinese just aren’t nearly as important in that sort of world.
So in those rare places where they do have a technical edge, they would like to keep it. This brings us to the solar panels. The Chinese dominated this space years ago and drove out most of the competition completely and then were left as the only ones in the space. Something like 80% of the global total and the assembly of solar panels requires a lot of fingers and eyes, something the Chinese dominate because of the size of the labor force. And that means they have made certain technological advances. The one that they’re talking about at the moment, the most important one by far, is that the Chinese and only the Chinese can make the wafers for the PV panels larger and thinner than anyone else. It’s an edge they would like to keep. But with the United States now mandating that a certain percentage or rising percentage of solar panels have to be manufactured in the United States. This technology is going to move there, whether it’s the U.S. having to develop it or not. So the question comes down to what kind of time frame are we talking about?
If the Americans started from a naked start, this would probably be a 5 to 8 year process, which for the Biden administration is just not fast enough. And so that brings us to the question of espionage. Now, the Americans, as a rule, are not great at industrial espionage, and it’s because our economy is too large and the government tends to be too hands off. So let’s say, for example, that the CIA did have the capacity to steal the plans for the next transmission that the Germans were able to put together. Who do you give it to? Ford? Chevy? Doesn’t work that way here because we would have to choose sides on everything. Our economy is too big. There just aren’t a lot of sectors where we only have one significant firm. But that’s not the case in most other systems where you have national champions, in part because of technology theft.
The three countries that would be most likely to go after this are three countries that after China are the biggest thieves of technology in the world, and that would be France, South Korea and Israel. And of those three, the South Koreans are definitely the ones to watch because they now have a fairly robust history of building industrial plants within the United States in order to meet whatever requirements the US government demands. So I can absolutely see a future where either the Biden administration breaks with longstanding policy and actually gets intelligence professionals involved in technology transfer against the wishes of the home country.
Or more likely, the South Koreans have already stolen stuff and they’re already negotiating with the Biden administration on how to build stuff on our side of the border in order to get the Koreans concessions and other economic sectors, which is something they would dearly love anyway.
One way or another, this is going to happen. The Biden administration has already put out the money. The demand is there. Solar panels are getting more efficient every year. They’re making more sense and more parts of the country. But most of all, most importantly, the political will for the general population to play hardball with the Chinese is there.
So all the pieces are in place and Chinese leadership in this sector, its days are numbered. And even if that proves to be false, if the Chinese refuse to export the tech to the United States, then the United States will have no choice but to build the stuff itself. One way or another solar panels are coming home.
