A Canadian Pipe(line) Dream

Flag of Canada waving in the wind

The Canadians are fed up with being dependent on U.S. markets for their oil exports. So, they’re looking to diversify their export options.

The Canadian government has backed a pipeline project that would allow Alberta’s oil to reach overseas markets. With global demand rising, this project makes a lot of sense, but there are a few problems. No export terminal has been selected since all the potential sites face significant logistical challenges, and even on the most optimistic timelines, construction wouldn’t be completed until 2034.

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Transcript

Hey everybody. Peter Zeihan here, coming to you from Colorado. And today we’re going to talk about energy in Canada. Most of the energy production in Canada comes from the province of Alberta. And most of that is heavy, sour crude that has a limited market in the wider world. At the moment, most of it is transported by a combination of pipe and rail to the United States, specifically to refineries in the American mid-continent and down into Texas that were designed to run on heavy sludge. 

Most advanced refineries in the world, some of the worst crude in the world. However, Canada has always been frustrated. Alberta has always been frustrated with the price that they get because when you sell primarily via pipeline into a closed market, you’re kind of a price taker. And so there have been a number of times where while Burton Crude has sold it not just a discount, but sometimes like $25 a barrel. 

That’s before we have the diplomatic falling out between the Canadians and the Trump administration. And now Canadian-American relationships are at the worst since the arguably the War of 1812. So the Canadians are desperate to find any other outlet. The problem is, is that Alberta is landlocked, and not anybody else really wants Albertan crude, because they would have to retool the refineries. 

But there’s there’s a definitely beggars can’t be choosers situation going on in the world right now because with the Persian Gulf still majority offline and Russian crude and danger in Venezuelan crude questionable, any fresh crude source, no matter what it is or where it is, we’ll find a buyer if you can get the crude to them. So. Just last week, Prime Minister Kearney of Canada has dusted off a plan and says that there is now state backing for a 35 to $45 billion pipeline that will export crude from Alberta to the west coast of Canada in British Columbia, and then allow it to be sold wherever it happens to be. 

Now, there is already one of those pipelines in place, the Trans Mountain. It’s less than a million barrels a day. This new one is intended to be even bigger. But aspirations do not make policy, even though it has been announced by the Prime Minister. At the moment there is not a route. They have tried six different ports where this might technically be done. 

None of them worked out, so they just have a placeholder of a place called Delta, which is just to the south southeast of Vancouver. So if you were to export the Delta, you’d have to actually run the pipeline through the most densely populated part of British Columbia, including Vancouver proper, which is not exactly a conservative bastion. All that to get to a port that is not deep enough to handle a fully loaded supertanker. 

So at the moment they don’t have a port, they don’t have a destination. What they do have a state backing. And since you’ve got a prime minister who used to be a central bank chief who’s pretty good at the math, this is going to move a lot faster than previous projects, but they still have to worry about all the niggling details about how to get it to wherever they’re going to get it. 

This is still early stages. Best case scenario, they hope to begin construction in 2027. Best case scenario, they hope to finish construction by 2034. So if everything goes perfectly, this is an issue for the middle of next decade. Until then, Albertan crude stays mostly trapped within North America with all the negatives that come from that. And now I think you might be seeing why the Albertans keep talking about independence, because if they can get a different relationship with the United States, then all of a sudden a lot of that mechanical stuff just disappears. 

Anyway, that’s it for now. Take care.

The U.S. and Ukraine Make a Drone Deal

Image of a drone firing missiles

The U.S. has finally secured its first contract to manufacture Ukrainian-designed drones, but don’t go celebrating quite yet.

The F10 drone that will be produced is a small FPV quadcopter built entirely from non-Chinese components. This is a big step for the U.S., but it’s not nearly the crème de la crème of Ukrainian tech.

The facility where these drones will be made is yet to be built, so even this initial order of 2,000 drones will take several years to complete. Regardless, this is a step in the right direction that will hopefully lead to further cooperation down the road.

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Transcript

Hey all. Peter Zeihan here. Coming to you from Colorado. Today is the 1st of July and the news is good news. We have our first contract granted by the Department of Defense to have a US manufacturer produce Ukrainian drones under license. There’s not a lot of information out at this point. It’s all super secret, but I’ll share what I know and give you a couple of guesses based on what we know what that means. 

So step one, the American company involved is called Ukrainian Defense Drones. Catchy name. And the Ukrainian company on the other side is called F drones. F drones is one of the big boys in Ukraine for producing ever more innovative policies and doctrines and designs and getting them to the front their F7 drone from last year, 2025, yeah, was basically voted the drone of the year for how good it was against emplacements and vehicles. 

The new drone that the United States is going to be producing is called the F10. We know it’s 100% non-Chinese parts, and aside from that, we just know that the ten means it’s ten inches across, which means it’s a quadcopter and it is a first person drone. So you’re going to have a dude with a controller relatively close to the front line that suggests from its size that it has some range limitations, probably only 25 to 40km, and it probably can only carry a warhead that’s 3 or 4 kilos. 

That’s probably not enough to take out a tank, but more than enough to wreck the day of, say, an artillery crew and go after personnel or trucks. That’s the good news. The bad news is there’s no sign at the moment that the F10 is one of the drones that has the terminal guidance that the Ukrainians have been starting to introduce across the front and across the entire drone fleet this past year. Those are the things that load a decision into the drone, so that when it gets over its target area, it can actually look around and pick a target for itself. And once it does that, it can’t be jammed. Now, this is just a contract. It’s part of the American program to try to get 200,000 drones in active service before the end of 2027, just next year. 

But this is going to be a late bloomer in that, because the facility that has been tagged to build these drones in Ohio hasn’t begun construction yet. We only got go ahead for the construction last week, and they’re not expecting to finish construction until December of 2029. So three and a half years from now, and then they’ll start building out the first packet of drones. 

And they’ve only ordered 2000 of them and at a rate of, say, 650 to $700. You know, these just aren’t particularly sophisticated drones, which is fine. The key thing is that for the first time, we have a direct contract from DoD for Ukrainian equipment, which is something we’ve been desperately to get in this country. I would argue, even though all of our Western allies and Middle Eastern allies are way ahead of us on this front, because they know they can’t rely on American hardware, there’s a lot of things can still go wrong. 

For example, the reason we don’t have a contract until now is that Donald Trump personally despises President Zelensky of Ukraine. And it’s entirely possible at this moment that Trump is unaware that this contract even exists. And as soon as he finds out, he may well squash it. But hopefully it is the first of several thousand contracts to come that it would allow the United States to take advantage of the war zone in Ukraine, to help test an entirely new set of weapon systems and take advantage of the Ukrainian skill sets, which were by far the most advanced in the world when it comes to the designing and the use and the development of doctrine for these new types of hardware. Early days. Once this facility is constructed, it’s supposed to be producing a wide variety of defense equipment, of which Ukrainian drones are just one tiny little piece. So it’s a step in the right direction regardless. And I just hope that’s a small step all around a very long path of tighter partnership. 

That’s probably just wishful thinking from me, but at least we have the first step.

Korean Exports Skyrocket Thanks to AI

Two Korean flags in front of a building

Korean exports are up roughly 70% year over year, surpassing $100 billion in a single month. So, what’s causing this extreme growth?

It’s all thanks to AI. Korea dominates the global market for advanced DRAM, accounting for ~90% of global high-end memory. As long as the globalized supply chain supporting the AI ecosystem holds, countries like Korea will continue to reap the benefits.

Between chip design, manufacturing, raw materials, packaging, and testing, there is a fragile international AI network that won’t last forever. And no single country can do all of this alone.

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Transcript

Hey everybody, Peter Zeihan here come to you from smoky, Colorado. We are at the 1st of July, and we just got good data out of the Koreans for their exports. And they set not just a record, but an insane record topped $100 billion for country with 150 million people in one month. And that is a 70% increase from just a year earlier. 

You heard that right, seven 0% increase. And really, almost all of the increase has to do with artificial intelligence, as everyone who’s not brain dead is aware, there is an AI boom going on around the world, most notably in the United States, China and Southeast Asia. And there are three big components that go into the hardware that makes AI work. 

The first, the most famous, the one that gets the most press time, is the graphics processing unit. These are high end chips that are typically etched with extreme ultraviolet technology comes out of a company called ASML that’s based out of the Netherlands. And most of these high end chips are fabricated in Taiwan. About 80% of global supply. 

I’d argue right now the balance is mostly the United States. This is where the happens. 

This is the processing that is the core of what makes a large language model. And AI models like Llms work. So number one. Number two, you’ve got something called Nand, Nand which is cold memory. And so when you’re not using your computer or your data center is not using whatever the memory is, things are stored in Nand even if the power is off, Nand will keep its memory. 

And you have a lot of that sitting on the board in the general vicinity of the GPU just to absorb things that are not an act of play. And then third, you’ve got something called Dram, Dram, dynamic random access memory. And this is the hot memory. And so as data is going back and forth and back and forth and back and forth from the GPUs to other things, it’s usually the Dram that holds it temporarily. 

And it can be in two forms. You have your independent Dram stacks off to the side, and you have something called high bandwidth memory, which is basically a stack of Dram right next to sometimes even attached to the GPU. Anyway, the Koreans don’t do much, if anything at all with the GPUs, and Nand is an old technology where they’ve discovered because it doesn’t generate heat, you can stack the chips on top of one another. 

And so it’s not particularly advanced. The Koreans do a lot of it, but that’s not the groundbreaking stuff. What the Koreans excel at is the Dram, the dynamic access memory, the the hot memory, and they produce about 90% of the world’s high end dram. So three things from this. Number one, if you want to dominate your own computer supply chain system GPUs, which is what the Biden administration of the Trump administration are obsessed about, or only one part of the process. 

Computing is a lot more complicated than rocket surgery, and there are thousands more pieces that go into it than in any other manufacturing sector. So I would say it’s a fool’s errand to try to concentrate it in your country. But if you’re going to, you have to throw a lot wider net that we have in so far. Number two, memory is every bit as important as GPUs and especially the architecture of the memory and integrating it with the GPUs. 

And this is something that Chinese can’t do and the Taiwanese can’t do and the Koreans can’t do. This is something the US already does. So I’d argue that from a value added point of view, the United States already dominates the part that’s most important designing the system. So the geometry of the chips actually does what we need it to do. 

Third, and most important, I think in the midterm is that the same technologies that I have identified over and over and over again, the silicon processing, the carpet processing, the EUV system itself, all of the logistics and the supply chains and the inputs and the testing and the packaging, all of these things that require 50 odd countries in order to get the GPUs also, for the most part, applies to the Dram. 

So we’re existing in this little window where the world is technologically advanced enough and integrated enough that we can get the designs out of the United States and the logistics managed by the United States, and the photographs managed by the Japanese, and the copper out of Chile, and the rare earths out of China and the silicon out of North Carolina, and the GPUs out of Taiwan and the Dram out of Korea. 

And all just works right now. But you lose even one of those pieces, and this all stops. So if you’re into AI or you like the Koreans, enjoy this moment. It’s a good moment. Build everything you can, because very soon that’s not going to work. And we’re going to have to take a decade or three off from AI and its sister technologies. 

And till such time as we can rebuild the bulk of the supply chain in a more geopolitically sustainable manner.

Status Update on the Persian Gulf

Aerial View of Persian Gulf with Digital Paths | Licensed by Envato Elements: https://app.envato.com/search/all/photos/07ea8bb2-6848-46ea-8372-ec4f58d701a6?term=persian+gulf+satellite+

All right, time for a status update on Persian Gulf shipping. Tanker traffic is slowly resuming, and Gulf producers are gradually restarting exports…but let’s not go counting chickens quite yet.

Global energy flows remain constrained, and exports won’t fully recover for some time. Most of the traffic is the previously stranded cargo flowing out, rather than new tankers entering. And Iran has emerged from this new arrangement with greater influence over the Strait.

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Transcript

Hey all, Peter Zeihan here. Coming to you from Colorado. It is the 29th of June, and let’s chat about the status of the Persian Gulf, because so much depends upon it. We’ve had on again, off again violations of the steel by both the Iranians and the United States. One of them hit something and the other one hit something or retaliation. At the moment, they’ve both agreed to disagree and not shoot at each other. 

So technically, the Strait of Hormuz is open if you’re the Americans and it is closed if you are the Iranians. As a result, cargo movements have been very, very slow to pick up. We’ve probably had about 20 tankers a day on average this past week leave, and that is starting to finally drain the stranded ships that are within the Persian Gulf. 

Keep in mind, there were over 1000 that were stranded when the war began and had been there for three months, and that has meant that a fair amount of crude, maybe 35 million barrels, has gotten out. In addition, a number of the Gulf states are incrementally restarting oil exports. The most progress has been made in Saudi Arabia, where there are at least four tankers as of the weekend that were loading successfully. 

Gutter is more of a question mark, and in the case of the United Arab Emirates continuing to use their report, which is actually outside of the Strait of Hormuz on the Gulf of Oman, Kuwait influx, no real information and Iraq doesn’t look like its movement at all. Some people are saying that, okay, look, we’re getting back to normal, but but not really. 

You see, the the Saudis have a bypass pipeline that they cranked up well above design specifications, and it made up for over 90% of their previous exports. And so they were shipping things out through the Red sea. So shipping things now from Ross Tonnerre on the Persian Gulf is just taking some of the stress the off of that transit line. Is that not actually adding any new crude? 

The same more or less is going for the United Arab Emirates. We are getting this one shot deal from the stuff that was locked up that can get out, but very, very few tankers are coming in for what I’ve been able to sell over the weekend. You’re talking about less than 15 ships transited into the Persian Gulf, and only about half of those were tankers. 

Keep in mind that before the war, somewhere between 100 and 150 ships transited each way each day, which means, as a result of the peace deal, the only country that is currently sending ships back and forth through the Strait without restriction is Iran. And I can’t underline enough about how this deal so lopsided serves Iran’s purposes. The Iranians are talking openly now about the regimen, about how they’re going to charge fees or tolls or whatever you want to call it to what’s going on. 

And even Oman, which is, you know, technically not. Iran is talking about how they’re looking forward to coordinating with the Iranians to make that happen. So the most important waterway in the world for energy flows is right now only fully open for business. If you’re Iranian. And the Iranians and others now are working on how to charge everyone else for the pleasure of using it, with that deal supposedly being enforced by the US Navy. 

So this is an ongoing, catastrophic economic and strategic event for the world as a whole, for the United States specifically. 

And we still don’t have a good read on when the fields in the region are going to be getting back up to full production. Probably not this year. All right. That’s everything for me. See you tomorrow.

U.S. Oil Export Restrictions Coming Soon

An oil tanker in the ocean sailing

If global energy supplies remain constrained, the U.S. government will prioritize U.S. consumers over international markets. This would take the form of export restrictions.

These restrictions could take several forms. The first would be halting U.S. crude exports, which would keep more oil at home, but would also strain storage capacity and hurt shale producers and refiners in the process. The more likely option would be taxing exports of refined products, which would lower domestic prices and push the burden onto global markets.

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Transcript

Hey, everybody. Peter Zeihan here coming to you from above the valve at all in New Mexico. We’re coming up on golden hour, so I’m just going to sit here for a little bit. Anywho, today I am taking a question from the Patreon page. Specifically, do I think that the United States government is going to restrict energy exports in order to keep prices under control, as the international system basically loses energy?

And absolutely, absolutely, absolutely. The question is how there are a few options. None of them are great and all of them have side effects. But let’s start with the basics. As of the third week of June, we have somewhere between 1 and 1.3 billion barrels of crude that were never produced and delivered. That has drained global inventories to record lows.

And even if the strait were to open tomorrow, it’s going to be years before Persian Gulf producers can be producing again. So we’re going to have to have some demand destruction. That will probably involve a protracted, sharp price spike. And there is no way that a president is populist, as Donald Trump is going to let that pass without doing something.

So two options. The first one, the legal option is probably the least clean back under the Obama administration, Congress granted the president the right to end all oil exports just by saying so. That would trap the crude in the United States and probably send crude prices in the United States. Negative, because there’s just not enough storage. Well, Let me back up and take that back a little bit. Storage is running really low in the United States because of what’s going on in Iran. So step one would be to fill up all of that storage. And the question would be whether or not the shale wells, which fall off pretty quick, would fall off before the storage was filled.

You see a shale well, it can be brought online in just a few weeks, but half its lifetime production is produced in the first year. So if it takes, say, three months for the storage to fill up and nobody drills at all during that time, things might work out kind of kind of. I don’t want to. I don’t want to ever play that.

If not, prices are going to go negative because there’s just no where to put it. We had the negative price situation for a while in Covid, if you remember. That was all kinds of fun. If you were an oil producer. Anyway, what that does is it floods the system with crude. And if you are a US refiner, you now have basically a bottomless supply of light, sweet crude to shove through your refinery and make product.

However, US refineries don’t like light, sweet crude. They were designed for a different world where we imported a lot of cheap, heavy, sulfur laden crude. Ever since the shale revolution really got going back and say 2010. I mean, we got our first production back in

2007, 2008, and then it just exploded after that. US refineries have been changing their refineries.

Bit by bit by bit. But it’s been very slow. They’ve been fighting it at every step of the way. And in this circumstance, the ones that have basically been dragging their feet would be hosed, because you can damage your refinery if you run the wrong crude through it. And at a minimum, you’re going to have a really high refinery loss anyway.

That’ll go for a few weeks and then we’ll see basically an implosion in the shale fields, because nobody is going to want to produce if they can’t export. A lot of infrastructure is added, especially in Corpus Christi in the last decade to facilitate those exports. And if they go to zero, they go to zero. So probably you’re looking at at another one, maybe one and a half, maybe, if we’re really lucky, 2 million barrels per day of product, of which they will try to make more gasoline and diesel and jet fuel.

So that might, might be half of it, but that’s it. And everything else that’s in the surplus basically gets shut down because there’s nowhere to send it. So it would give a moderate boost to consumers over the mid and long term. Refiners would just be besides themselves with the damage to the refineries and producers would go out of business.

That’s option one. That’s the legal option. Option two is to do something to restrict fuel product exports. Right now, the United States exports about 5 million barrels per day of refined product, which is more than any other country on the planet has ever even exported of crude. And if you were to do something that it would strike that and trap that in the country, that would have an immediate effect on prices and an immediate effect on supplies to the global system, just like shutting off all exports would.

The problem here is that Congress has granted the presidency that power. And there’s a lot of questions as to how you would do it. Probably the most effective would be to just put a really fat export tax on it. I think that would play to Trump’s preferences. It would still result in higher prices in the United States, but nothing compared to everywhere else.

And we wouldn’t have a supply shortage anyway. Those are the two options. Probably find out within a couple of months which one the Trump administration is considering, because we’re getting really close.

Say Goodbye to Kazakhstan Oil

Flag of Kazakhstan

The Ukrainian strike on the Orenburg natural gas processing complex could impact more than just Russia. Unfortunately, Kazakhstan’s energy industry is highly dependent upon that facility.

Natural gas, propane, and oil from the Karachaganak field all flow through Orenburg. As these strikes continue, more and more of the energy projects that foreign companies have invested in throughout Kazakhstan will be threatened.

Russian infrastructure and transit networks remain critical to Kazakhstan’s energy industry. If these strikes continue, there are few viable alternative routes for Kazakh exports, which could end Kazakhstan’s ability to get energy products to global markets.

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Transcript

Peter Zeihan here, coming to you from Colorado today is 24th of June. In the news is the Ukrainians have just blown up part of the natural gas processing center at a place called Orenburg, which is in southern Russia, hard up on the Kazakh border. Now, Orenburg is not something that’s industrially central for the Russians, but it is for Kazakhstan. 

You see, when the Soviet system ended, there wasn’t a lot of oil or natural gas production in Kazakhstan proper. And as nobody wanted to go into Russia in the 1990s, Kazakhstan seemed a lot more stable. So ExxonMobil, ConocoPhillips, Chevron, all the big major companies and since then the Indians, the Chinese and others have all poured into Kazakhstan because they just find it easier to work with the Kazakhs than the Russians, because the Russians are always insisting on bribes and their infrastructure isn’t maintained, and the rule of law is weak. 

Not that Kazakhstan is, you know, Delaware or anything. It’s probably more like new Jersey, but it’s better anyway. Infrastructure was built out,bit by bit, while pipelines, wells, all that good stuff. But it can take decades to really build out a mature natural gas and oil industry, especially when some of the fields are more complicated. So across the border from Orenburg is a place called Karachaganak, which is one of my favorite words ever. 

It is a sour gas wet gas field that produces liquefied petroleum gas like propane as well as natural gas as well as. But all of it is really, really rich and sulfur. So you can’t just put it into a normal pipeline. So what they do is they put it into a cluster of short pipelines that go across the border to Orenburg in Russia, where the existing infrastructure from the Soviet period is already in place and it can pull the sulfur out of all the products. So once you do all the math, it comes out to about a quarter of a million barrels per day of crude and about 1,000,000,000 cubic feet of natural gas that get processed in Orenburg and then are shipped through the Russian network to the rest of the world. And now it’s on fire. 

What the Ukrainians are doing is basically systematically destroying any infrastructure that’s within about 700 miles of their borders, anything that gives the Russians any sort of economic wherewithal. And so what has been happening between Orenburg and Karachi is very simple. Crutch wouldn’t be viable without the Russians. And so the Russians take the lion’s share of the profits, because it has to go through their processes and facility and their infrastructure get to wider world. 

And honestly, almost all Kazakh and oil and natural gas output falls into that category. Foreigners do the investment, the Kazakhs own it technically, but most of the benefit goes to the Russians because they’re the interface with the wider world. Well, the Ukrainians have now decided that program no longer works. And so Orenburg is in flames, assuming for the moment that the Americans and the Europeans and others do not convince the Ukrainians to not do this, and so far everyone’s been silent, you should expect to see more and more attacks like this on Russian infrastructure that largely exists to serve Kazakh needs, and the single largest place where the Ukrainians can have an outsized impact is going to be something called the Caspian Pipeline Consortium, which takes crude oil from places like Tengiz and cash again on the Caspian Sea, ships it through Russian territory to export facilities on the Black Sea. And while as is only a quarter of a million barrels per day, Tengiz alone is over a million. And so we’re talking about secondary hits on Kazakh production that really has nowhere else to go. 

And that, more than anything that the Ukrainians have done to Russia direct, can just have a huge impact, because all they have to do is take out the pumping stations or section of the pipeline, or if they’re getting really chunky, some of the port facility in places like Novorossiysk, which they’ve already been hitting over and over and over. 

Bottom line, Kazakhstan’s oil and natural gas output was never going to last long term. It’s depended on too many pieces and too many countries and too many basins, because once the crude actually hits the Black Sea, it then has to go out of the Black Sea, through the Turkish Straits, through the Red sea, right by all the pirates in Somalia, across the entirety of the Indian Ocean basin to get Asia. So, you know, none of this was ever going to last. But the Ukrainians are proving that it can stop it almost right at the starting point. And we should see a lot more attacks like that in the days and weeks to come.

Russia Gets Knocked Off Its Horse

Iconic photo of shirtless Putin riding a horse in Russia | Creative Commons license from Flickr: https://www.flickr.com/photos/jedimentat/6230779369

Ukraine has struck a key semiconductor facility in Voronezh that could significantly weaken the Russians’ ability to produce advanced military equipment.

Russia is already struggling to replace military hardware lost in the war, and damage to this facility (and the other major chip plant near Moscow) would force it to depend heavily on Chinese components. These would be less compatible with Russian military systems and would reduce the quantity and quality of Russia’s weapons.

As Ukraine continues to expand its drone capabilities with foreign support, we’re entering a new phase of this war where Russian tech limitations play a bigger role on the battlefield.

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Transcript

Hey everybody. Peter Zeihan here. Coming to you from Colorado. It is the 22nd of June. And today we’re going to talk the military industrial complex of Russia, specifically as regards information technology, specifically as regards semiconductors. The reason we’re talking about that today is that the Ukrainians sent a large bevy of cruise missiles into a military facility in Vienna, which is a city in south central Russia, just north of the Caucasus. 

Verna is an industrial plant that dates back to 1959 that is primarily servicing military needs. So they make semiconductors there. They are cut from the wafers, they’re tested their package, and then they’re prepared for incorporation into various military technologies like fighter jets and tanks and especially missiles. Anyway, we don’t have good damage reports from it because it’s the Russians and they’re not going to tell us, but the whole thing appears to be on fire. 

And that’s usually really bad for semiconductors, which every stage of the process requires. Clean room conditions, aside from the Russians, only have one other place that makes semiconductors at all. It’s called Zilina Grad. It’s just to the northwest of Moscow. It’s three facilities that are quite a bit smaller and therefore easier to target for. ResNet has extensive anti-air defense because of the Ukrainian drones. 

Zilina grad not so much. And I would bet your ass that the Ukrainians are going to be targeting Zilina grad very, very soon. Now let’s talk about what’s at stake here for the Russians, the type of chips that are used in military equipment writ large are actually pretty basic because, for example, for missiles you only do one thing once. 

You might need chips for guidance systems, you might need chips for things like IR goggles, whatever. But those are not cutting edge nodes of seven nanometers or below, or even cutting edge direct all nodes of like 28 nanometers to seven nanometers. These are really dumb chips. And the Russian military complex reflects that. So with a few specific exceptions, that they can make it very, very, very, very low run rates. 

The most advanced semiconductors that both of these facilities, the Leningrad and can make is about 90 nanometers. And then scaling back to 150. And even that uses extensive imported foreign equipment. The only chips that the Russians can make without any help is about 350 nanometer, which I could probably bash together in my kitchen if I was willing to watch a lot of YouTube tutorials, which I am not. 

Anyway, where does this leave the Russians? Well, with virescens offline for an indeterminate period, probably permanently, Ukrainians will hit it again. And with the Leningrad not long for this world, the Russians now have to find another way to make their gear. And they were already having a significant problem. They were only manufacturing new gear writ large at one fifth to 1/20. 

The weight that they were burning through it in the war. Part of that is the Russian industrial complex. Part of that is just the nature of this conflict, where the Russians just throw scads and scads and scads of things against everyone to see what it sticks. But the biggest part of the strategy that the Russians depend upon is using fighter jets to drop glide bombs from, say, 20 miles from the front line so they never even get in risk range. 

And then using long range weapons in order to target things like the Ukrainian power grid. All of that requires these chips. And yes, you can pull a chip out of something like a massager unit or a smart margarita machine or a washing machine and plug it into your military gear. But military hardware is hardened. It needs to be able to handle things like vibration and heat and maneuvers. 

And washing machines are not designed to the same specs, which means you’re going to have much, much, much slower performance and much, much higher failure rates. And when you’re talking about like a hypersonic missile, you might as well not even try. The Chinese can or export to the Russians chips of the appropriate technological level. But just as with the washing machine chip, the chip wasn’t designed for the hardware. 

The hardware wasn’t designed for the chip. So the failure rates are going to go through the roof, which means that probably in just a few days, the only hardware that the Russians are going to have that is advanced is stuff that’s in the warehouses, is currently being assembled, or is on its way to the front already. They will not be able to replace them with additional hardware at the same rate or with the same quality levels. 

And the Russians were never really known for high quality levels. So for conventional weaponry, helicopters, jets, tanks, missiles the Russians now are probably facing down a qualitative collapse in what they can do. At the same time, they’re looking at a quantitative limit at what they can produce, even with extensive Chinese help. Ukrainians, on the other hand, when it comes to drones, are already the numerical and technological leaders in this conflict, producing more drones and better drones than the Russians have for several weeks now. 

That’s still spinning up, especially with the infusions that have come in from the Europeans. Now that the Trump administration has dropped, kicked them, and they’re desperate to develop new technologies. And from the Arabs of the Persian Gulf who are furious with the Trump administration for the Iran war, all of them are basically underwriting the Ukrainian defense industrial base now. 

And the only people who are underwriting the Russians are the Chinese, and they insist on getting paid. Anyway, you fast forward just a few weeks and this is going to start to impact the front line, because without this higher end equipment, all of a sudden the Ukrainians are punching at the same weight that the Russians are. That doesn’t mean the war is over by any stretch of the imagination. God, no. Russia is still the largest country on earth. They still have a significant holdover equipment list from the Soviet times. They still outnumber the Ukrainians 4 to 1 in any battle that matters. Outnumbering the Ukrainians 3 to 1. They still have a lot going for them. But if they can’t replenish their weapons, if they can’t replenish their tech, then it all becomes whether or not the Chinese make a political decision or not. 

So what we’re probably going to see over the summer is significant change in how this war is fought. We’ve gotten a glimpse of that in the last couple of months with the new Ukrainian drones targeting things like logistics, but now the Russians are going to either have to a figure out a way to counter that without microchips, unlikely, they’re going to have to be dust off weapon systems that to this point they’ve been unwilling to use, like, say, nukes, which have, let’s just say complications or three. 

The Chinese are going to have to put their shoulder into the conflict in a way they just haven’t yet. Either way, this long, slow grind of the last three years is over, and this is about to become a lot more dynamic very, very soon.