Does the Trump Administration Know What’s Going On?

Donald Trump speaking at a podium and looking intense | Photo by Wikimedia Commons: https://upload.wikimedia.org/wikipedia/commons/9/90/Donald_Trump_speaking_at_CPAC_2011_by_Mark_Taylor.jpg

On the whole, most presidential administrations have limited awareness of things like demographics, trade, geopolitics, and industrial policy. Naturally, government officials view things through a narrow lens corresponding to their background, such as business or academia. So, that’s the baseline here.

The Trump administration is different. They’ve removed thousands of senior federal officials, eliminated the institutional pipeline of experienced policy experts, and either failed to fill these seats or replaced them with lackluster candidates. Even when the occasional piece of useful information boils up, it falls on deaf ears. But this damage doesn’t just stop when Trump leaves office; the entire government structure has been weakened, and it will take years to rebuild.

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Transcript

Hello, everybody. Coming to you from Yosemite National Park. I am on the north shore of where am I? Red Devil Lake, one of my favorite spots. Lots of good camping around here. No, not too many bugs either this year. Yay! Okay. All right. Taking a question from the Patreon page specifically, I talk a lot about a lot of things that are going on in the world. Do I think there’s any chance that there are folks in the administration that are actually aware of what is going on and the issues that I address, whether it’s demographics, geopolitics, trade, the path we’re on, all that good stuff, I would say the chances are pretty low. Let’s start with how this is a normal administration and then move on to how it’s an abnormal administration. 

So first, when someone becomes president, you know, they don’t have a staff of 300,000 before. They inherit that from the government. They come in with people that they have known their adult lives, that have helped them with other issues, which is one of the reasons why I’ve always liked governors over senators or congresspeople to be president, because they’ve had to make something run and they can’t make it run by themselves. 

So when you get a George W Bush or Bill Clinton, they’re coming with a degree of institutional knowledge about how to work with people and how to work with the government, and they have people that come with them. They then tap the business community typically, or academia or the party that they’re part of, in order to bring in additional people to fill out high level slots. And so you’re always going to get this array of interests, but in service of the person in the big chair. So if you bring in, just to say a name, the CEO of Chevron, you know, they’re going to know a lot about oil policy, but they’re probably not going to know about demographics. So everything that they see, they’re going to see through that lens. So they might make, say, a good energy secretary or state secretary, but you probably wouldn’t put them in health and human resources. Everyone has their own tunnel vision. And when you’re all in service of the government, especially the person leading the government, that tunnel vision applies through your personal lenses. So a lot of the issues that I discuss, it’s not so much that Trump’s administration is unaware, although it is. It’s that so was Obama’s administration. So to a certain degree was Biden’s. So to a certain degree was George W Bush’s. Everyone’s focused on what they’re focused on. And that doesn’t change just because you like or dislike the guy in the big chair. So that’s kind of piece one. 

Piece to how the Trump administration is different. The Trump administration did not form itself the normal way because Trump was literally a real estate mogul, and only a moderately successful one at that, and a reality TV star and a very successful one at that. So you can imagine the sort of people who were in his orbit, who he then brought into government. In his first term, he did not expect to win. And so he had to rely very, very heavily on the Republican Party rather than his own connections, because he didn’t have any. And he found the process deeply aggravating, because he was bringing in all of these people who had studied policy their entire lives, and they knew so much about what was going on. And Trump always felt like the dumb person in the room. And so he usually fired them. And he went through three times as many cabinet secretaries in his first term as any three, two term presidents had until that point. In order to make sure that never happened again, in his four years out of power, he took over the institution of the Republican Party and, among other things, destroyed the public policy arm. So there is no longer a roadmap for people who are on the conservative side of the equation to learn about the world and then serve a political purpose that was ended. So the political party that is the Republicans now is only an election vehicle. So when Trump came in the second time, there was no Republican bench to tap. And in his time out of power, he didn’t run anything. So he didn’t make any new connections with people who knew how to do things. Most people in that sort of scenario would, like figure out what they got wrong. And no, no no no no no no. It was just a lot of umbrage. Anyway, so he comes in and the only people who he brings with him are two people who had been with him for or while Susan Wiles as chief of staff and Steve Miller as assistant chief of staff. And that was about it. A few people like, say, Chris Wright at Energy or John Burgum at Interior were elicited to come in because they were topics that Trump really didn’t really care about. But everyone else was an ideologue and probably an incompetent one at that. So we got people like Pete Hegseth at defense, who was to, let’s be blunt, a failed reservist, but culture war. 

Okay. So where does that leave us now? Under normal circumstances, you would still have the institutional machinery of government reporting to the political leadership, whoever it is. But Trump was so furious in his first term of having people who knew things show him up, that he went through the top 6000 positions in the federal government, basically fired them all, and has replaced very, very few of them with his own people, because there just aren’t a lot of people who can be slavishly loyal to someone like Trump and actually know something. And so out of those 6000 people, I think only 1200 spots have been filled. You may notice that with judges, we’re basically at a standstill. Trump is not appointing judges because he can’t find people who actually have law degrees who will do what he says on the bench. The fact that he’s constantly maligning, for example, the Supreme Court justices that he himself appointed in his first term tells any would be judge exactly where they fall in the equation. 

And so all of these positions are just being left empty. And so we’re paying for the entire federal government, but it lacks a leadership that would interface with the president by design. So if things that I talk about with demographics and industrial policy and trade policy and deglobalization, and the alliances and all that, even if it were being generated at the lower levels, there’s no layer between them and the white House to take the information, assimilate the information, distill the information, and then present the information. I mean, hell, we had Tulsi Gabbard as DNI for the first year and she’s either a Russian plant or really, really wanted to be. So even in those circumstances where somebody can punch through the fog and actually say the truth around Trump, if it doesn’t match his view, it doesn’t really matter. So, for example, early in the Iran war, Chris Wright, the energy secretary said, well, of course, if the Strait of Hormuz closes, and 20% of the world’s oil and liquefied natural gas goes offline, of course prices are going to go up. And Trump’s response was publicly, basically. RAWWRRRR. 

So no, I don’t think that this administration really has any real idea on what’s going on with military affairs, the economy or anything else, and that’s just how we’re going to be for the remainder of this term. And keep in mind that whoever the next president is, is going to inherit this lobotomized government structure. And assuming for the moment that it’s someone who wants to actually run the government as opposed to lobotomize the government, it’s going to take them a couple of years just to find the people that’s necessary to make it function again. So this is not just a Trump problem, it’s a Trump plus a year or two problem. Best case scenario.

Back to the Glory Days of the Spice Trade

Various spices in metal bowls

Global trade was once fragmented into many regional economies. Goods like spices traveled overland through countless intermediaries before reaching the gateway cities of Venice, Genoa, Pisa, and Amalfi. So, what can we learn from the glory days of the spice trade?

The era of deep-water navigation that Portugal pioneered is coming to an end. The global trading system is changing, and no single country will be able to secure the sea lanes. This makes a more regionalized and militarized trade system much more viable.

The complex and vast supply chains that have become the norm will soon begin to break down. Those more regional production networks will be the new standard, and the countries that realize this sooner will come out ahead.

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Transcript

Hey everybody. Peter Zeihan here. Coming to you from the promenade, Barstow, Adriatic Sea. So I thought I’d talked about the geopolitics of trade and how it’s evolved in this area. We used to be the terminus of the spice trade. So in the world before roughly 115 hundred, everything was basically transported by land or coastal ship. And as a result, the world was separated into dozens of little micro economies compared to the globalized system we have now.

And in the cases of things like spices or silks or porcelains, they all originated either in East Asia or Southeast Asia, and they pass through dozens, if not hundreds of middlemen on their way through to Western Europe. Most of those routes funneled through Central Asia and eventually ended in the Ottoman Empire, in the city that is today Istanbul.

And then the Turks of Istanbul shipped them by water coastal trade to the cities of the Italian coast, most notably Venice, but also places like Genoa and Amalfi, which is just to the south of here, Pisa as well. And then those of these became the gateway for those products into Western Europe, and they made mad money on it as a result, getting too windy, going to relocate.

Okay. That lasted for a few centuries. And the Italian city states involved just got madly wealthy. And since they were on the opposite side of the Alps from all of the powers of the Northern European plain, they basically could do whatever they wanted. And they did. And they partnered with Islamic Turkey in order to make themselves wealthy at the expense of Christian Europe.

Different cultural conversation for another time. Anyway, this lasted until the Portuguese, which at the time were one of the poorer countries in Europe, all the way out on the western end of the Iberian Peninsula, figured out how to sail out of sight of land, deepwater navigation and guys like digamma figured out how to go around Africa and hit India direct and eventually take over the spice trade, directly cutting out all those middlemen.

And so, over the course of a couple of centuries, Istanbul and the Italian city states went from being the wealthiest parts of the world to all of a sudden being completely cut off from what until then had been one of their primary sources of funds.

Why is this relevant today? Well, the technologies of globalization are failing, and the system that has allowed the whole world to go wherever it wants and access any particle are breaking down. And in the world we’re about to be in, we’re going to have to go back to kind of sequestered trade and the Adriatic model. The spice trade model is probably the best one. We have to understand what’s coming. You see, deepwater navigation isn’t going away, but everybody who has ships has access to the wider world. The question is whether they can protect their sea lanes.

And I would argue that there is not a single country on the planet that can do so on a global basis. We have a number of countries with the US being the most powerful, that can intervene in those trade routes on a global basis, but none can actually protect them, which means that most trade is going to become much more regionalized or even localized, and we’re going to have to militarize a lot of it.

That changes everything from the culture of what it means to be a shipping company, to the nature of what it means to be a military and a Navy. We’re probably going to be going into a world where the single biggest impact is going to be a collapse in what we considered manufactured goods trade, because right now, unlike the world of the Silk Road, where it was all one way, we have thousands, tens of thousands, hundreds of thousands of products that require multiple supply chain steps and sometimes in the thousands and the intermediate parts that go into the final product shoot back and forth and back and forth among countries.

Many, many, many, many, many times that entire model is going to collapse. And things that can’t be produced relatively locally or within a network like, say, the European Union, simply aren’t going to be produced at all. So if you’re looking at what the economy of five, ten, 15 years is going to look like, not bad place to start is going back to the 12th, 13th and 14th century when the spice trade was all that.

It’s a great baseline to start the conversation. All right. That’s it for me today.

Project Vault Doesn’t Solve the Mineral Problem

Photo of rare earth minerals: praseodymium, cerium, lanthanum, neodymium, samarium, and gadolinium. Photo by Wikimedia: https://en.wikipedia.org/wiki/Rare-earth_element#/media/File:Rareearthoxides.jpg

Project Vault, the Trump administration’s initiative to stockpile critical minerals, is just a small step in the right direction. Sure, buying mineral-rich waste helps the U.S. build reserves, but it’s a classic case of giving the man a fish vs. teaching him how to fish.

If the U.S. really wanted to reduce its reliance on China and prepare for a world where access to critical minerals is scarcer, building out its own refining capacity should be the first step. And after that, the U.S. should begin strengthening relations with other countries that could help with supply issues in the meantime.

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Transcript

Hey all, Peter Zeihan here, coming to you from Colorado. Today we’re taking a question from the Patreon crowd. Specifically, what do I think of Project Vault? Now, Project Vault is something that was set up by the Trump administration back in February with a couple billion dollars to purchase things like rare materials. Rare earths is the term that always gets tossed around, and it’s in there, but it’s just one of many getting the mining tailings that are rich in these materials and bringing back to the United States and building a stockpile $2 billion for that, which is a lot for basically what is mine waste. 

It’s an interesting step, and I’m not saying it’s not an unnecessary one. I’m actually kind of glad this happened, but it really doesn’t deal with the core problem. Key things to remember is that most of the materials that we need for the digital age, things like rare earths, for example, or gallium, are byproducts of other materials processing. So for example, you have a silver mine, you extract the silver. 

The waste is rich in things like rare earths, or you are doing aluminum smelting. And one of the byproducts is material that is rich in gallium. So getting those materials into the United States and concentration. Great idea. It’s only step one and not even the smart step. The smart step would just be to build the processing. The problem with the world faces right now is 70% on average of critical materials processing is done in China. 

And so basically what the US government is doing right now is buying waste product from Chinese processing and bringing it here, and it’s a step in the right direction. But, you know, honestly, just build the processing, because if we get into a position where the Chinese cut off supply or there’s other some sort of supply disruption, you then have to build the processing anyway, or ship those tailings back to China to be processed. 

I mean, even building a reserve of the finished product, the refined metals, does it really take us to far down the road because it’s still being done in China? Until you build that processing, the rest of it doesn’t really matter in terms of sourcing the raw materials. That’s really not that hard. And as we’ve seen with Project Fault, it is already filling up. 

But if you want to build a Chinese free system, there are three countries that you really need to focus on because they’ve got robust mining sectors. Number one Canada. So maybe stop calling it the 51st state. Number two Australia. And so maybe stop saying they’re not racist enough to be our friends. And number three is Brazil. And relations with Brazilians are probably at the worst since at least the 1970s. 

Right now, bottom line is, without a little bit of diplomacy to secure some of these things, the rest of it’s kind of a rounding error and just continues with the Chinese dependance that supposedly we want to break so badly. So yes, baby, step in the right direction. Maybe we take some bigger ones soon.

Why a Russian-Chinese Pipeline Won’t Happen

An oil pipeline closeup

If China and Russia are so buddy-buddy now, why don’t they build pipelines across Siberia to bypass the Persian Gulf?

There are more issues than I can cover in this video, but here are a couple. Their recent cooperation is less of a friendship and more of a “the-enemy-of-my-enemy-is-my-friend” situation. Geography is the bigger problem, though, with thousands of miles separating Russian energy sources and Chinese population centers.

Even if a pipeline plan was put in place, neither side would want to pay for it, and Russia wouldn’t have the technical expertise to develop it. So, unless maritime shipping goes completely offline, this pipeline isn’t happening.

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Transcript

Hey everybody, Peter Zeihan here, coming to you from Middle Chain Lake in southeastern Yosemite. This is one of my favorite places in the national park system. We’re just going to pan around from time to time as I’m doing this video. Have it all to myself. Anyway. 

Today we’re taking a question from the Patreon crowd. Specifically, if China and Russia love each other so much, why don’t they just build a pipeline or cluster of pipelines connecting them to one another and not have to worry about the Persian Gulf at all? 

Great question. Let’s start by saying that the Chinese and the Russians do not love each other very much. They are arguably two of the most racist cultures in the world, and the culture that they’re most racist against is one another. The Chinese see the Russians as backwards barbarians, and the Russians see the Chinese as peasants. So any sort of collaboration they have is in reaction to other things, not because they actually like one another. That’s part one. 

Part two. It’s simple geography. It’s a distance issue. The population of Russia, for the most part, is hard up on the European boundary, and the bulk of the Chinese population is within spitting distance of the Pacific coast, which leaves something like 7 to 8000 miles of great wide open empty in between. Now, if you want to have a pipe, you’re going to have pumping stations, and that’s already a very long way to go. So if you go in from European Russia to Asiatic China, you’re already talking about pumping costs that are well over $80 a gallon. Most likely, that’s on top of the tens of billions of dollars that it would take to actually build the pipeline. That’s number two. 

Number three, the oil and natural gas that the Russians have is, for the most part, in the wrong place. It’s almost all in northwestern Siberia, which is actually further from China than European Russia. So it’s easier to do, say, a rail line going to China than it is a pipeline. And so the eastern and Western networks for the Russian energy distribution system just don’t connect. There’s like one spot and it’s pretty small. So whenever the Russians go, oh, we’re just going to send our oil and gas somewhere else and not to Europe, it’s mostly bullshit because they just don’t have the capacity to do so in large volumes. 

That brings us to the final point, is that there are a few fields going out into Asiatic Siberia, places like Kovykta which is just to the northeast of Kazakhstan, and places like Sakhalin Island, which is just to the north of Japan. These are places where the conversation isn’t silly. The distance is only, you know, a thousand miles or so, as opposed to going all the way across the continent.   

The problem here is that the Russians don’t have the technical skill that’s necessary to tap these fields. And so in the case of Kovykta, that was a BP project. And when BP was basically shown the door a few years ago, it stalled. And in the case of Sakhalin, not only did the Japanese kind of call dibs on that output, but it takes super majors like Exxon or BP or Japanese firms, most of which are now gone because of the war, in order to keep the output going. So it just doesn’t justify anything. 

Whenever Putin and Xi get together, the conversation always is, hey, let’s do a pipeline. And they both always say, yeah, hey, that sounds great. And then they both point at the other one, say, and you pay for it. The Chinese see no reason to pay for infrastructure that is going to cost so much to operate. And the Russians see no point in paying for infrastructure that will benefit the Chinese. So we just get these stalled statements and no real motion. And this is how it’s been going for the better part of the last 30 years now.  

Now, if you change the circumstances, if you remove maritime transport altogether, then all of a sudden we’re having a different conversation. But that doesn’t make the project any cheaper. So you’re still talking about tens of billions of dollars to get the infrastructure in the ground, and then a transit costs that is about the same as prices are right now. So you’re talking about a very nasty change in circumstances if that’s how you want to go. All right. That’s it for me for today. Take care.

Ukraine Is Shooting Fish in a Barrel

Statue in Kiev, Ukraine against a misty forest

Ukraine has created a system to determine which ships belong to the shadow fleet and which belong to major companies. By sourcing ship identities, transponder data, routes, and ports from these companies, Ukraine can strike unidentified vessels with high confidence.

The result? Roughly 200 shadow fleet vessels have been attacked around the Black Sea and the Sea of Azov. Even if the Russians can replace the downed ships, storage capacity will be overwhelmed by damaged vessels and disrupted ports.

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Transcript

Peter Zeihan here, coming to you from Colorado. Today we’re taking a question from the Patreon page. Specifically, it has to do with how Ukraine is targeting Russian ships on the Black Sea, but ignoring others since a lot of countries are just not using the transponders anymore. Great question. The backdrop is we have had the Ukrainians attack about 200 shadow fleet vessels on the Black Sea and the Sea of Azov. During the past roughly two months, and we’re nearing the point where enough damage has been inflicted on the shadow fleet that it’s probably going to stop functioning later this year, which is going to end Russia’s presence as a significant oil exporter. A lot going on, but there are six countries Romania, Bulgaria, Russia, Ukraine, Georgia, Turkey, yeah, six countries on the Black Sea. And how do the Ukrainians know who to attack and whatnot? We will also note that the Russians, from time to time hit a ship that is not Ukrainian. So why are the Ukrainians able to target and the Russians aren’t considering that the Russians are the ones who are the superior military power by most measures? 

What happened is about a month ago, the United States government, the Trump administration, transmitted some information to the Ukrainians that they weren’t very happy about. The Ukrainians had been attacking a place called Novorossiysk, which is a significant naval port and commerce port on the Black Sea, on the Russian section. And at Novorossiysk is the terminus for a pipeline called CPC, the Caspian Pipeline Consortium, which transports crude from Kazakhstan, specifically the Tengiz field that is operated by Chevron and Exxon through Russia to that port and then to the wider world.  

And the Trump administration was angry that the Ukrainians were attacking what they see as American infrastructure. Russians obviously don’t see it that way anyway. And basically said, stop doing it. Well, what the Ukrainians have done is they’ve contacted every shipping company in the world and said, hey, if you’re operating in the Black Sea, A, tell us the name of the ship be give us their transponder so we can follow them. C, give us their course and D,the ports you expect them to be at and when and if we can confirm that information as part of our operations, we will not attack those ships. And so far, every shipping company in the world is complying except the Shadow Fleet. Shadow fleet runs dark. Shadow fleet doesn’t report, and that’s the whole point. 

So what the Ukrainians have basically done, they have mapped out the entire commercial world of shipping in the Black Sea and attacking the ships that don’t report. And so far, attacks on third parties have, I think, single digits while the shadow fleet is taking a complete pounding. Is it enough? Will it last. Well, I mean, really ultimately that depends upon how the Russians pay out their providing insurance for their own shadow fleets. And from what we’ve seen so far, it’s, they’re not paying out. But the Russians take ships that otherwise would be scrapped. So they’re not reducing the global supply of vessels. They’re reducing the global supply of vessels that were on the scrap heap. 

There’s going to be some churn as the Ukrainians burn through what the Russians have. But there is an end in sight here. Because if the Russians cannot load cargo, whether it’s grain or crude, eventually the ports just run out of storage facilities, and that cuts down production inland. Just as effective as stopping the shadow Fleet would. So one way or another, we’re getting there. We’re getting there this year. And it’s kind of a minor miracle that it’s all happening without interfering with other shipping in the Black Sea. The Persian Gulf, a completely different situation. Nothing nearly so friendly is happening over there.

The End of U.S. Strategic Petroleum Reserve

Photo of a pumping station at sunset

The U.S. Strategic Petroleum Reserve (SPR) was created in the 70s as a safeguard against major disruptions in oil imports. Well, those 700 million barrels were never used for its intended purpose.

As the U.S. became one of the world’s largest producers and exporters, the SPR was retasked. It’s been used a few dozen times by various presidents to influence oil prices and stabilize markets. But it was never made for that. The geologic makeup of the SPR caverns means that each time a drawdown occurs, the structures are weakened.

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Transcript

Hey all, Peter Zeihan here, coming to you from Colorado. Today I wanted to talk about the American Strategic Petroleum Reserve. There’s been a lot of reports in the news that it’s nearing the end of its life, and it’s starting to break down, and there is some concern there. But let me explain why it was created the way it was, and how that’s inappropriate for the way we’ve actually used it. 

So it started back in the 1970s in the aftermath of the first Arab oil embargo. Congress legislated the creation of the reserve to hold 700 million barrels of crude, which, you know, we use about 20 million barrels a day. So that’s a couple of months of import cover, even in the worst case scenario. The thing is, over the course of the 80s and the 90s, when we saw our demand going up and our ability to produce go down, it became even more important. 

So we eventually filled it up pretty close to the max. But then we got into the 2000, we had the shale oil revolution, and by the time we got into the 2010s, the United States was a significant net exporter, and today we’re the world’s largest exporter of refined product. So how does the SPR fit into that? Well, not great. And part of it is geologic of all things. 

See, unlike most countries’ oil reserves which are held on the surface in tanks, which is corrosive to the tanks and the equipment and the crude starts to separate unless you stir it. So there’s a high maintenance cost. We don’t do it that way in the United States, down on the Gulf Coast, we have a unique geological feature, nearly unique, called salt domes, where you just have these massive salt caverns down below and salt and oil don’t mix. So it’s a really great barrier for keeping oil contained. So what we do is we drill down into the salt dome and we inject water, and that water dissolves some of the salt and makes the cavern bigger. Then we put another pipe in there, and we pump in the crude. And oil is lighter than water. So it rises to the top of the salt dome. And all you have to do in order to regulate the level of the oil is to pump in water, which pushes some crude out or pump in more crude, which pushes the water out because your pipes are there at different levels, tapping different things. 

Anyway, it’s a really clever thing and the maintenance cost is next to zero, but it has been a half century. And equipment does wear down, and especially since we’re not using it the way it was designed. You see, we designed it for big drawdowns in cases of a global and especially a national emergency, when we knew we were going to need hundreds of millions of barrels because we assumed that the Middle East was going to go offline and we were the world’s largest oil importer. 

Well, we never really used the system in that way. And every time you do a drawdown, big or small, you basically are putting more water into the cavern, which is dissolving more salt, which is overall weakening the overall system. So these caverns were only designed to be used five times total for big drawdowns. We’ve never really had a giant drawdown of that scale. What we’ve had are three dozen little drawdowns, which keeps putting water in and out, in and out and dissolving more and more salt. And we’ve now reached the point where the salt gnomes are starting to show signs of damage. And if we did a rapid drawdown again today, we’d probably have several of them break. So we’re at the end of the lifespan of the SPR and without significant re-engineering, which I’m not even sure is possible since so many of the pieces are geologic rather than mechanical. 

We’re probably going to be seeing the end of the reserve in the not too distant future unless we find new salt domes, establish a new system, or do what everybody else does and does those expensive above ground tanks. So we really are losing that tool. Now, this is not a disaster. Again, the United States is the world’s largest exporter of refined product and now the second largest exporter of raw crude. It’s not like this is something that we’ve needed, but it gives you an idea of where the break is, because this was designed for a national emergency for a country that was a major importer. Instead, in those three dozen drawdowns. Presidents not just Trump, also Biden, also Obama, Also W, use them to regulate oil markets and to try to influence prices. And that’s why there’s been 37 discrete drawdowns rather than the big five that the system was designed for. So we’ve gotten to the same place repeated usage is functionally ending the salt domes useful life span. But now we have a situation where we have to get all that crude out of there and put it on the market or store it some other way, because we’re simply not going to be able to maintain it in its current form. 

So either we have a new multibillion dollar project authorized by Congress to establish an entirely new reserve, or the United States has to do something else in order to regulate markets. That’s not something the United States government, historically speaking, has been a very good at. I think if you look back on the history of these 37 disbursements, you can argue that they didn’t do a good job of it either. But this tool is just about done.

Global Shipping Comes Under Attack

Cargo ship with containers

While oil is still moving through the Strait of Hormuz, flows remain a fraction of pre-war levels.

Some tankers have made it through by using tactics similar to the shadow fleet, obscuring their movements to avoid detection. Once the tankers clear the Strait, they conduct sea-to-sea transfers under American protection. But this strategy is extremely expensive, and the U.S. cannot sustain it indefinitely.

More importantly, it demonstrates how difficult it is for even the world’s most powerful navy to protect critical maritime chokepoints from relatively small-scale disruptions.

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Transcript

Hey everybody, Peter Zeihan here. Coming to you from the Denver International Airport. Before I get on a plane, I just wanted to give people an idea of what was going on at the Strait of Hormuz, because there’s been a lot of confusion lately. Statements from the administration, from the Iranian government. It’s kind of a mess. Short version is that some crude is getting out. The Trump administration says it’s 9 million barrels a day. The Iranians say it’s something closer to zero. The truth is undoubtedly someplace in between. I don’t have a number for you. Independent Western consultants that track traffic say it’s probably in the 3 to 5 million barrels a day range, which is, you know, better than nothing. But this is down from 20 million barrels a day, 22 million barrels a day at the start of the war. And even if you include all the bypass pipes running at full capacity, we’re still somewhere between 4 and 10 million barrels per day short, based on whoever’s numbers you’re using. Still more than enough for an energy crisis. Anyway. A few things. 

Number one, what’s happening is that the United States is providing overwatch for tankers that are going through, if they originate in countries on the Arab side of the Persian Gulf. So that’s Kuwait, Saudi Arabia, Qatar, United Arab Emirates. Second, what’s going on is kind of an echo of what the Russians and the Iranians did with the shadow fleet. So the shadow fleet is a bunch of tankers, thousands at this point, that run with the transponders off. Their ownership is obscured through shell companies, and you never know where they’re going to be. And oftentimes they will do sea-to-sea transfers to mix their crude with somebody else’s crude, to obscure where it came from in order to evade sanctions. Well, what we’re seeing in the Persian Gulf is that local state companies, whether it’s Kuwait or Saudi or the others, are using their own tankers to load up their own crude and then sailing with the transponders off under American Watch through the southern approaches to the Strait of Hormuz, as far from Iran as they can get. And then when they get on to the Indian Ocean, the Gulf of Aden, they will then do a sea to sea transfer to a buyer, which is India, China, whoever else. So basically, the United States is encouraging, kind of an echo of the shadow fleet happening in the Persian Gulf. And so far that has succeeded in getting some crude out. Again, the specific numbers are in question by everyone. Third. This is not something the United States can sustain indefinitely. The cost to the United States is in probably the dozens of millions of dollars a day, because we’re basically having a carrier anchored task force basically just parked in an area. And as long as it is there, it can’t do anything else. And since it’s not involved in combat, at least at the moment, this is a really high cost, low utility approach for using American military power. The Trump administration says that, you know, only do this into Iran completely capitulates. But if Iran was going to completely capitulate, it probably would have done so in the four decades before now, at some point. So if you want Persian Gulf crude to get out, you basically need a force of this size all the time. Which brings us to the next point. 

There are eight major transit chokepoints in the world, like the Strait of Hormuz, like the Bab-al-Mandab, like Malacca, like Panama. No country has the ability to defend all of them at the same time. The U.S. can probably manage 2 or 3, but that would consume all of its deployable assets, meaning that the world’s largest and history’s largest expeditionary power would be locked down to a couple of footprints, which would be strategically, incredibly stupid. So I wouldn’t count on that happening. In addition, the United States can’t do this very well. So, for example, Hormuz is a problem, but the United States is not making any effort to keep the Bab-al-Mandab open, even though the Yemenis are now launching attacks on shipping there. And we even have Somali pirates back in the action. What we discovered with the Somali pirates over the last 20 years is if the United States anchors an international force to patrol the area and everybody joins, including China, then the Somali pirates basically go away. But the amount of territory here is extreme. You’re talking about a territory roughly the size of Texas, and the US Navy just doesn’t have that kind of capability. And so even though it’s just at the next checkpoint over in Hormuz, we’re now starting to see piracy again. This is going to be our new normal. 

No country, including the United States, no coalition of countries can keep the seas safe any longer. So it’s just a question of when and how and where it breaks down first. I do want to hold one other little bit of information out there, however, before I sign off. And that’s that keep in mind, while protecting sea lanes, patrolling them, convoying ships is very, very hard and very, very expensive and very, very naval ship heavy. Interrupting those flows is very easy. And so, yes, the United States lacks the ability to patrol the world’s oceans and to keep the checkpoint safe, but it perfectly, perfectly, easily can disrupt all of them at the same time, should it so choose. It’s basically an echo of what we’re seeing with drone warfare. Defense is really hard, but if you just want to stick it to someone, you can do that in an afternoon.

China’s Real Estate System Is Failing

Image of Chinese home and real estate

You know what happens when you do exactly what the Chinese government tells you to do? You get sentenced to life in prison. That just happened to Evergrande’s former chairman, and it tells you everything you need to know about China’s failing real estate system.

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Transcript

Hey everybody. Peter Zeihan here, coming to you from Colorado. The news today is that the Chinese government just sentenced the former chairman of the real estate company Evergrande to life imprisonment. Because that’s what happens when you do exactly what the government tells you to do, when it doesn’t work out. Very, very short version of the history. There aren’t a lot of investment options for Chinese citizens. Foreign investment is sharply restricted because the Chinese know that their own system provides very, very, very poor returns. And if they opened their accounts to the world that the money would just flow out in the tens of trillions. And at home, everything is driven by throughput and employment rather than profitability. So if you invest in a specific company, your chances of actually getting a return are minimal because those companies are able to access subsidized loans from the government at negative real interest rates. And if you’re an investor, you get a negative real return. So local governments had for the last 20 years, basically encouraged property companies to come in and buy land from them, which is where they got over half of their income; the state governments, local governments got over half their income. And then take money from individual citizens to build condos. And the result, because we had widespread urbanization going in China at the same time, remember, this is the same time the Chinese are going through their industrialization pulse. The thought was that this would just go on forever. So prices would rise, you’d build more homes, there would be more demand, blah, blah, blah. And on and on and on and on. There are two problems with that theory.  

Number one, eventually you created more housing than China needed by a factor of 4 or 5 by some measures. And then second, nobody was being born. The Chinese demographic bust probably started, data’s a little sketchy, but probably started back in the early 90s. That’s when we now know, according to official Chinese statistics, that the Chinese birth rate dropped below the American birth rate 35 years ago. Anyway, nobody gets born for 35 years. All of a sudden, the demand for the housing goes down. And eventually this bubble popped in the early 20s, which is when Evergrande went bust with something like $300 billion of losses, which even by Chinese standards, that’s a pretty big number. Anyway, people who invested in Evergrande directly or indirectly by having Evergrande build them an apartment basically lost their shirts. And now we’ve had this complete collapse in the system. New construction in China is down by 75% in just the last five years since this went down. And that’s data as of the end of 2025, which is the most recent we have best estimates, is that there’s going to be another 20% collapse this year. And to put it from the point of view of the individuals, the people who are buying these homes, to give you an idea of how screwed they are. In inflation index terms, and keep in mind the Chinese doctor their data so their inflation does not look as bad as it is according to the official statistics. Homes today are worth less than they were at the start of the boom in 2005. So in the United States, when we had the adjustment with the great financial crisis in 2007 to 2009, and home prices dropped back to like 2005 levels, and we all kind of lost our mind. Can you imagine a 20 to 25 year loss in appreciation and the impact that has on the mindset of the average Chinese? Now, this hasn’t translated into a stock route because the Chinese regulate that on one hand. But more importantly, the Chinese citizens know that investing in the stock market in China is a fool’s errand. Again, Chinese companies have access to below market prices, below inflation prices, real negative prices for loans. So any investment there honestly is a fool’s errand. And if you happen to invest in Chinese equities, I also have a bridge that I would like to sell you that I think you’ll really, really like. 

Anyway, bottom line is that the Chinese government is now trying to get this money somewhere else. We have something like 22 trillion US equivalent in deposit accounts. It’s just Chinese citizens who don’t know what to do with their money, because they don’t want to put in the stock market. They now know that housing is a trap. So it’s just sitting in a deposit account in their local bank. And so the Chinese state has reduced deposit rates to below 1%. So this money isn’t really earning anything. And they’re trying to force the Chinese citizens to invest in the stock markets. But the Chinese citizens at the moment are smart enough to realize that that is a fool’s errand. The only other possible way for it to go would be out of the country and go somewhere else where it could be more productive and be, you know, safer. But the Chinese keep that locked down. So I always find it very amusing of the people who want to get their money into China to make money, when the people who are in China are desperate for any way to get the money out. Anyway, that’s it for now. See you next time.

Russia Is Struggling to Defend Its Own Capital

Image of St. Basils Cathedral and the Kremlin in Moscow, Russia

A leaked Moscow memo stated that Russian air defenses are being concentrated around the Kremlin. This leaves the broader Moscow region, including refineries and key infrastructure, vulnerable to Ukrainian attacks. And if Moscow is this vulnerable, it gives you an idea of just how bad things are throughout the rest of Russia.

In addition, the Russians are looking to kick off a peripheral mobilization of ~300,000 people. However, all of the recruitment sources carry political risks for the Kremlin. If they depopulate the Far East, it weakens the border with China; if they take non-ethnic Russians and could fuel unrest; or you target immigrant workers and worsen the labor shortage.

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Transcript

Hey, everybody. Peter Zeihan here, coming to you from Colorado. Today we’re talking about the combination of things that have come out of Russia. We’ve got two things. The first one is that a memo that was being circulated among the Moscow mayor’s senior staff has leaked. And basically they are admitting that even with the government, the national government, the Kremlin, redirecting the bulk of the country’s air defense to the Moscow region, the defenses are so concentrated around the Kremlin itself that they’re not providing enough anti-air defense for the broader metro region, which is the economic and political and cultural hub of the country, which means that refineries which are on the outskirts can’t really be protected at all. And they are expecting the refining system to not simply continue to come under attack. But they’re expecting the city to run out of fuel before the end of the year, and perhaps a lot sooner than that. So they are spitballing ideas of what to do about that. And the leading candidate right now is to break up Russia’s refining complex instead of the 100 odd refineries it has right now, and build a thousand plus that are just much, much, much smaller. 

Now, it isn’t so much that this is a good idea because it’s not. You’d lose economies of scale. You’d still have to cluster the refineries around pipelines. So you have like five refineries, smaller refineries, where a bigger one used to be. That doesn’t really solve the problem, but more importantly, it would take years to build out and require lots and lots of equipment that the Russians can’t build and would have to import. So all of a sudden the sanctions come into place. So it’s really not feasible. But the point that the smartest people in the largest and most successful city in Russia are now desperate for options simply to keep the fuel flowing, tells you everything you need to know about the stability of the Russian economy right now. Because this is the capital, this isn’t some far flung province out on the edge. That’s piece one. 

Piece two came out of Kyiv with the Ukrainian President Zelensky sharing some intel that they’ve been garnering on the Russian military system. Apparently, according to Zelensky, the Russians are preparing a fresh what they call peripheral mobilization for this coming September immediately after elections. And when they say peripheral in Russia, what they mean is non-ethnic Russians. Ethnic Russians, according to Russian statistics, are probably about 75% of the population and of course make up the super majority in the major cities, most notably Moscow. But when you move out of the Moscow region, out of the Saint Petersburg region, you’re going to be hitting higher and higher ethnic minority concentrations. And there are several republics, several dozen republics across Russia where non-Russian are either the full majority or the near majority. So far in the war, the Russian government has done everything it can to not pull ethnic Russians into the fight, favoring the forced recruitment of non-Russian ethnics whenever they possibly can, because they’re feeling is if those people rebel, you can just kill them. But if Russians, ethnic Russians rebel and you put them down like the Russians like to, that might spawn more protests in other Russian regions. And if you don’t have the buy in of the Russian population, or at least it’s apathy, then that is how the Kremlin falls, because that’s happened before. Reasonable, reasonable political analysis. The problem, of course, is that this is not the first time the Russian government has done this. It’s done this in three rounds so far in the war to date. And with the Russian government losing somewhere between 25 and 45,000 people a month in this war, the question is, how long can this hold the line before things break? 

According to Zelensky’s Intel? And so far, when the Ukrainians have shared things like this on the development of the Russian military, they tend to be right, I’d say 90% of the time. But, you know, some of the details might be fuzzy. The Russians are talking about this peripheral mobilization, about 300,000 people, which would be enough to supply troops to maintain what the Russians have been doing at the last years burn rates for another 6 to 9 months. So it doesn’t really change the math in the long term. It simply allows the Russians to continue to plot on with what they’re doing as to where the people would come from. The greatest hits, where the greatest percentage of the local population would be drawn out, would probably be from the Far East. These are areas that are relatively lightly populated, relatively low urbanization, penetration. And basically the Russian state just goes through and rounds people up when they’re going about their daily business. The second big concentration would be recent passport holders. So there are a lot of people who have moved from Central Asia to Russia because as bad as the economy is in Russia, it’s worse in Central Asia. So especially in places like Tajikistan or Kyrgyzstan, you’ve got several million people over the last 20 years who have moved north. And because they’ve had to get passports, they are in the system. And so basically what the Russians are doing is saying, hey, you’re in the system, we know where you are. Come work in the war because you don’t have a choice anymore. Getting Russian citizenship, the price is dying in Ukraine. The biggest concentration, the biggest numbers are going to be from ethnic republics that are closer to Moscow, that are more densely populated. So you’re talking here about places like Chechnya, Tatarstan, and Bashkortostan, densely populated provinces with reasonably high birth rates, especially compared to the ethnic Russians, where you do have a presence of the Russian state that can basically force people in. 

All of these come at certain risks. When you start taking out people from the Far East, you’re depopulating them to the point that there’s an open question about relations vis a vis the Chinese, who have 100 million people just on the other side of the border. When you start going after the people who are recent passport holders, you disincentivize people to come into Russia where there’s a demographic bomb going off in real time even before the war, and you’re losing the workforce, you need to keep the system going. And when you go after groups like Chechnya, Tatarstan, and Bashkortostan, you’re talking about big population centers that if they ever did rebel, it’s not clear whether the Russian state could resist them. A new Chechen war would be as bad for the Russians as what’s going on in Ukraine right now. And if the Tartars or the Bashkirs rebel in any meaningful way, the Russians lose all the infrastructure connections they have to Siberia and Siberia, at the moment, is the only part of the oil complex that is likely to still be exporting a year or two from now. So none of these are good decisions, but it’s not like there’s a better one on offer, and we’re now seeing the entire system start to seize. 

Russia, though, is capable of maintaining an incredibly high tolerance for pain, basically suffering as the Russian equivalent of baseball. And none of these by themselves are enough to break the system. But we’re seeing the weight increase at the same time as we’re seeing the Russians start to not just stall on the front, but be turned back. And every major Russian revolution in the past 300 years has been because the Kremlin has lost a military conflict. So you take the social pressures that this mobilization are likely to generate, play that against the battlefield situation. And yeah, this is looking pretty bad for the Kremlin.

Trade War Revival: Trump, Canada, and Tariffs

US and Canada Flags overlaid and flat | Licensed by Envato Elements

Crippling one of the world’s most deeply integrated manufacturing systems probably isn’t a great idea, but here we are again.

Trump has ensured that the trade war between Canada and the U.S. is alive and well, following the announcement of another series of tariffs. The U.S. isn’t just shooting itself in the foot; it’s shooting all of its closest friends’ feet in the process…

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Transcript

Hey, all. Peter Zeihan here, coming to you from Colorado. And the news is that between the 21st and the 22nd, at midnight, the United States kicked in 50% tariffs on a suite of Canadian goods, basically ensuring that the trade war between the Trump administration and Canada is alive and well. What this is what this isn’t first. What this isn’t. 

These weren’t NAFTA talks. Bilateral talks with Canadians on NAFTA, much less tri-level talks with the Mexicans have yet to begin. So the world’s deepest economic integration, the most successful supply chains humanity has ever put together are still in limbo. And now with the United States throwing a 50% tariff on top of that and saying flat out there are no plans for future negotiations. This really is getting into a no man’s land when it comes to the future of North American manufacturing. Keep in mind that the United States needs to at least double the size of its industrial plant simply to have access to the products it’s going to lose as the global really kicks in, especially in China. And doing that without our North American partners means we actually have to increase our industrial plant by the volume of theirs as well. 

At the same time, the Trump administration keeps changing policies. We’ve now had over 8500 tariff changes. This new batch adds a couple more hundred to that. And so no one who wants to invest in North American, and especially U.S. manufacturing, is going to do so because the rules of the game keep changing and they don’t even know who they can approach for partners. 

So one of the things that we’ve seen during the Trump administration is that industrial construction spending has dropped every single month of this administration, but one where there was a slight uptick, I think earlier in this year. This is certainly going to exacerbate that plan, because we’re now at the point where the business communities trust in the Trump administration has basically evaporated completely, and they will not start investing in new plant until such time as they know what the real rules of the game are. That will be on the other side of negotiations with Canada, on the other side of negotiations on whatever the next NAFTA is. And at this point, none of that has even started yet. So, if you were looking for the realization of the United States under the Trump administration, we now have 18 months of data indicating that we’ve gone screaming in the opposite direction. And we’re actually farther away from clarity now than we were in January of 2025. This is unambiguously horrible news for the U.S. economy long term, because it’s raising the very real possibility that not only will we not have the replacement product supply chains in place when the globalization really hits hard in the next couple of years, but we won’t even be able to be functional with where we were two years ago. And the industries that are hit hardest by that by far are agriculture, because their primary customers are Canada and Mexico, and automotive manufacturing because the average part that is in an American crafted vehicle crosses the border 5 or 6 times overall in in its manufacture going to Mexico and Canada. And anything going to Canada is now facing potentially compounding tariffs. And if you happen to be headquartered in Detroit and producing cars in Michigan or the northern tier of the Midwest, you’re talking about parts crossing maybe seven times. This is this is bad. Anyway. You look at it. 

One more thing. I’m going backpacking in Yosemite for the next few weeks and the next phase of this. I will not be here to talk with you about. In September, the Canadians have already promised that they’re going to announce reciprocal tariffs designed to pressure the Trump administration specifically. It is unclear what those tariffs will be on. In the past, when countries try to target political decision making, they go after things that are politically sensitive, specifically in areas that really matter to the political policymaker. I don’t know what that’s going to look like at present, but I have a real big doubt that it’s going to work. Trump has made it very clear over the last year that it doesn’t matter who he thinks his constituents are. He’s willing to do whatever he thinks his version of math supports. So, for example, the beef industry has been absolutely screaming for the last few weeks as Trump has been opening up their market to foreign imports and or an attempt to lower prices. So actually suppressing long term supply in the United States in order to give him a short term boost in preparation for the midterms. And none other than, say, the National Cattlemen’s Association has just been screaming bloody murder about how damaging that is for them in the country midterm. You’re seeing this across almost every economic sector. So the idea that that strategy is going to work is very unlikely. Second thing is the Canadians, if they do decide to target things like the manufacturing sector, that would really reverberate in places like Michigan and swing states. Two things to keep in mind. Number one. Trump’s a lame duck already. He doesn’t care about presidential elections, so that’s unlikely to work. And then second, three quarters of Canada’s exports come to the United States. Anything that they do that is real, that will cause structural damage in the United States is actually going to hurt them more.