The Limits of China’s Military Reach

Chinese soldiers in camouflage fatigues

Despite China’s growing military, it remains constrained by geography and dependent upon U.S. secured trade routes.

Even if China manages to expand its Navy to the point where it can break through the First Island Chain, it still needs to find a way to replace the U.S.-maintained international system. And that’s no easy feat. The Chinese proved they could adapt and buy themselves some time during the Iran War, but it could not avoid the pitfalls associated with being the world’s largest oil importer.

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Transcript

Hey, everybody. Peter Zeihan here, coming to you from Yosemite National Park. This is Royal Arch Lake. This is the very first place I ever went camping when I came to Yosemite years ago. So it’s kind of cool to be back almost by accident. Anyway, taking a question from the Patreon page today specifically, why don’t I see the Chinese going all bonsai in their neighborhood? 

Why are they not being more militaristic? I would argue that until eight years ago, when chairman G. Jinping got rid of his last real advisors, he had a very accurate understanding of the world about how China was arguably the country in world history, most dependent upon international trade, and how China utterly lacked the military means in order to protect that trade, even within sight of its own shore. 

Trying to basically faces three layers of problems. Number one, their chief sources of demand, primarily the United States, but to a slightly lesser degree, the European Union are on the other side of continents from them, and they’re broadly hostile. That means unless they can find a consumption source to absorb their goods, their current economic model won’t work at all. 

And since their own demographics are so totally horrid, they know that that consumption boost can’t happen at home and the developing world, writ large, has less than half the consumption power of the United States, and much less the US and the EU put together. So there is no option for China except to maintain some version of the current system. 

And the United States is the one that has a global Navy. That’s problem one. Problem two even if the Chinese could float a navy that was equal to the United States, and right now we outgunned them roughly 15 to 1, they still need to get through the first island chain that is Japan, Taiwan, the Philippines, Indonesia, Malaysia and Singapore. 

It’s not so much that those countries are de facto US allies. In most cases, it’s that if the Chinese are going to project power to the wider world, they have to get past these islands regardless of who controls them. And it’s much, much, much, much, much easier to sink ships, especially commercial ships in a straight than it is to dominate an archipelago. 

You’re talking about a combined population in the zone. That is, Indonesia has 250 million people by itself, so well over half a billion. I don’t think I’ve ever done that math before. Taiwan has about 30. Philippines I think is 70 these days. Lots of people. Well, well, well beyond the capacity of the People’s Liberation Army Navy. That’s what they actually call their navy, as well as the People’s Liberation Army. 

The Chinese Army is not designed to project power and hold territory. It’s mostly for domestic control, which is something that does pretty well. Anyway, so that’s problem two. Problem three. Let’s assume that they can outrun the US Navy and dominate the first island chain. And those are some wishful thinking there that doesn’t solve their problem. 

They still have to get to North America to dominate that commercial base. So have to get to Europe to dominate the commercial base. They still have to get to the Middle East to have energy. The Chinese system, from a strategic point of view, has always been in a bind. And so I’ve always found it hilarious that the official stance of CCP is that the United States. 

Should patrol the world and secure the ceilings on behalf of China. Their official plan is that we can’t do it, so you should do it for us. So no no no no, not a lot has changed. We have had a little bit of color that has come in because of the Iran war, in that the United States bungled everything. 

And the Chinese, I don’t want to say that they bungled or that they had a a home run. It was somewhere in between. It exposed just how vulnerable they were to energy disruptions. And they did showcase through switching for petrochemical inputs and for using EVs, that they could reduce their demands by about 2 million barrels per day, maybe not even quite that much. 

But, you know, that’s a significant volume to reduce your crude by. That’s like, geez. United Kingdom uses about that much, but that’s it. So even after all the fuel switching, even after going over to electric vehicles, even after shutting down some of their refineries, they were still far and away the world’s largest oil importer from all the same places as before. 

Nothing really changed. If I was going to highlight one thing that may be pointed the other way, it’s not so much that the Chinese have more flexibility, it’s that we found out just how dependent other countries were on them. Now, we understand in the United States how much were dependent on the Chinese for manufactured goods. But over the course of this conflict, Korea, Taiwan, Vietnam, Australia, the Philippines all discovered how much they were dependent upon Chinese refined product. 

So, yes, the math really hasn’t changed for China in terms of any sort of major conflict. But we now know that if they do go down, they’re going to be taking the fuel systems of a half a dozen countries that the United States cares a fair amount as a side effect. And the only way to fix that is for these countries to secure their own energy and specifically to develop their own refining base, which for some of these countries is something they gave up on decades ago. 

So it’s not so much that we know that China is in a stronger place. They’re not. So they may have just tethered themselves to a few countries in the meantime.

Leaving the World Behind: Obama vs. Trump

Portraits of Trump and Obama

The Obama and Trump administrations have both made deals with Iran. There are some glaring differences between the two, so let’s see which deal came out on top.

Obama’s Joint Comprehensive Plan of Action (JCPOA) failed to address Iran’s missile program or its support for regional proxy groups, but limited Iran’s access to frozen assets, maintained broader sanctions, required inspections of nuclear facilities by the International Atomic Energy Agency, and sought to create a regional balance of power. Trump’s deal is substantially weaker, as it allows Iran to sell oil freely and access the U.S. financial system with limited oversight, lacks long-term safeguards on Iran’s nuclear program, and leaves Iran without a proper framework to engage with the region.

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Transcript

Hey everybody. Peter Zeihan here, coming to you from Colorado. Due to popular demand. I’m going to do today. Compare and contrast of an agreement called the JCPoA, which I don’t remember what it stands for now, but it was the Obama era deal with Iran versus what the Trump administration has just done. Let’s start with the review of JCPoA. 

It is held up as kind of the landmark example of how to not negotiate with a difficult country like Iran. There were insufficient safeguards. Most of the issues that really mattered to the United States were not addressed. It was considered kind of the first stage of a series of negotiations to try to normalize relations with the Iranians. And as such, it was ultimately abandoned. 

And most independent observers looking back on it now, ten years on, would give it a degrade in terms of its overall quality. So why is that? There are a number of things in the bilateral relationship that matter. Obviously, there’s a lot of things we disagree about, but near the top of the list are sectarian groups that are on sponsors to foment chaos throughout the region and its missile program, which is designed to not simply threaten Israel but ultimately broader American interests. 

And in time, maybe even the United States and JCPoA addressed neither of those at all. But neither did the Trump administration. There’s not a single word about any of that in the very short napkin deal that Donald Trump put his name on so famously in Versailles. That’s piece one. Piece two is finance. The United States controls the global financial system, and almost all commodities are almost exclusively settled in US dollars. 

That means the United States has eyes on any transaction that uses any dollars. And honestly, on almost all trade period. Because if you’ve got two countries that don’t have a lot in common executing a trade deal like say, I don’t know, Oman selling crude oil to Korea, the Omanis don’t have anyone and they don’t want anyone, and the Koreans don’t have any Omani dinars and they don’t want any. 

And so what they do is they take their dinars. I think it’s called a really not sure offhand. Maybe I should have picked Mexico anyway. Exchange them for U.S. dollars on the international exchange, and then it goes back to one when it hits Korea. And in doing it that way, the United States actually gets two points of view on every individual transaction. 

Anyway, Iran had been under a degree of sanctions for decades. And so the Obama team offered up progressive relief from sanctions in exchange for cooperation on the other big deal nuclear issues. And so to that end, the first stage was unlocking some of the cash as an act of goodwill that Iran and had frozen all these years came out to something like, I don’t remember the name or number off the top of my head. 

No WiFi here about, let’s call it $20 billion. I think that’s about what it was anyway. 20 to 30. Anyway, that was loaded up into pallets and flown to Tehran, which is something that Obama’s critics screamed bloody murder. You’re flying cash pallets of cash. And the response, which was accurate, was that access to the financial system, which would have allowed Iran to sell its crude on the open market and get all the cash direct and use it for whatever it wants? 

That would have required loosening up the sanctions in a way that the Obama team didn’t want to grant right off. That was probably for phase two or phase three or phase four. So the only option was to fly some of Iran’s cash. That was Iran’s. Anyway. 

Anyway, it was an awkward deal that really had bad optics, but it was probably the best. Could it be done at the time? In contrast, the Trump deal just gives a very similar amount of cash in the 20 to $30 billion that is frozen directly to Iran in US dollars and grants them full access to the US financial system and allows Iran to sell whatever it wants to on the international market and earn US dollars that are not under US jurisdiction or monitoring or in any sort of temporary account, so we can watch where it’s spent. 

It’s basically gave her on everything that’s been demanding since 1979. Which brings us to the nuclear question. That was the big achievement of the Obama deal. Is it committed Iran to IAEA inspections? IAEA is the UN bureau that monitors everybody’s nuclear power plants and makes sure that you’re not taking some of the fuel and turn it into what would go into a bomb. 

The Trump deal does mention nukes, but it says it’s all subject to a 60 day deal, and there’s no restrictions on them at the moment. In addition, the Iranians felt that they wouldn’t be attacked because they had a nuclear program. Now they know they need to have a nuclear bomb to have a deterrent. So we’ve basically incentivized them to build a nuke. 

Well, whereas the Obama deal, while there were multiple rounds and we were only in the first round, was definitely weak and insufficient and a bad deal. It’s nothing compared to the strategic abdication that the Trump administration has just done on financial and nuclear issues. 

The core logic for the Obama deal, and you can you can argue with it, is that if you’re going to withdraw yourself from a broader region that you have been managing for decades. Unless you just want to let the chips fall where they may, you need to do one of two things. Number one, you have to appoint a deputy or a new regional hegemon to take your place, a country that you trust enough and that has enough capacity to hopefully do things more or less in the way that you would. 

And There was no one. There is no one in the region that checks those boxes for the United States. Israel isn’t trusted, and besides, its power projection is limited in a sustained way. Sure, it can bomb someone, but it can’t hold territory except in Lebanon, Saudi Arabia. The military is a joke. Turkey is on the wrong side of Iraq. 

There’s just no one. Which leaves us with option two. You have to set up a regional balance of power that self regulates so that the region’s problems stay the region’s problems. And that was the approach the Obama team seized upon. And that required a degree of normalization of Iran so it could act as a normal power. The Trump administration’s deal is basically a wash your hands and walk away and what happens, happens. 

And so things like the war in Lebanon, things like the human rights disasters that are Saudi Arabia are the sponsors of terror, that are the Guthrie, Qatari, whatever. And everything Iran does in his infamous for just like it’s left. 

So yeah, the Obama deal will go down as the quintessential example of a grade D statecraft, a horrible deal that didn’t take all that many American interests into account. But we’ve all been through school, and we all know there’s a grade below D, and that’s where we are now.

Why Bypassing Hormuz is a Pipe Dream

Satellite image of the Strait of Hormuz

So, you want to bypass the Strait of Hormuz, huh? Good luck finding a replacement route or pipeline that matches the 20 to 22 million barrels of oil that used to transit daily.

The UAE and Saudi Arabia have pipelines capable of transporting roughly 1.6 and 7 million barrels per day, respectively. Despite being the best alternatives, they come with long expansion timelines or vulnerability to strikes. There are a few other routes that pass through Syria and Turkey, but those are either too risky or too small.

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Transcript

Hey, everybody. Peter Zeihan here. Coming to you from Colorado. And today we’re going to talk about the bypass options for the Strait of Hormuz. Started. Hormuz, of course, is one of the world’s most important waterways. It is the gateway that tankers use to enter and exit the Persian Gulf. The Persian Gulf produces for export roughly 20 to 22 million barrels per day of oil and products, and under normal circumstances, almost all of that flows through the Strait of Hormuz aren’t really great options. 

Otherwise, Iran is all mountainous. You’re not going to go that way. Iraq is a sectarian disaster and it has no other waterway access. It would have to go north through Turkey, which is mountainous. Saudi Arabia is a desert kingdom which is huge, and so crossing its distances are problematic. The Kuwaitis and the Qatari have no options at all. 

And that just leaves the United Arab Emirates, which at least does border the other side of the Strait of Hormuz. But it has to go up and over some complicated geography. Anyway, there are four options that people are talking about, three of which exist in some way. So number one, you’ve got the pipeline that starts in the United Arab Emirates on the Persian Gulf and goes up and over some of that complex geography down to the port of Fujairah, carries about 1.6 million barrels per day. 

The Emirates have fast tracked expansions. They hope to have another 300,000 of capacity sometime later this year, and then maybe they even will double it over time by laying a parallel track. It’s expensive, especially building it fast, but that doesn’t mean it can’t happen. And the Emirati certainly realized that unless they get another option, they’re kind of hostage. 

Anything that happens between or among Israel, the United States and Iran. Number two, the big one, the Petro line. This is a line that starts in the eastern provinces of Saudi Arabia and their major oil producing region, and just shoots west, straight across the desert until it hits the Red sea at a place called Yanbu. they started construction on this during the Reagan administration. 

Everyone in this area has been worried about the Strait of Hormuz for a very long time, and it’s operational has been for a couple of decades. In fact, over the last ten years, the Saudis have incrementally increased its capacity from 4 million barrels a day to 7 And they had never really tested it. So until this conflict, we were still thinking it was at four. 

They have proven that with 30 to 45 days notice, they can ramp it up to seven, which from an engineering point of view is pretty impressive. There’s now talk of laying another parallel pipe and maybe increasing this by another two or even 3 million barrels per day over the next few years. There’s two problems with that. Number one, of course, is this is a big project over a large period of distance. 

And then second, just getting to Yanbu is only half the problem. The Saudis have built a number of refineries up and down the Red sea coast that are not connected by pipeline. And so the old strategy was to take tankers from the Persian Gulf, Salem, all the way around the Arabian Peninsula, going through Hormuz, through Bob Deb off the coast of Yemen, and then supplying these refineries by sea, which I always thought was remarkably stupid. 

Anyway, at the moment, the plans aren’t for these pipelines to support these other refineries, just to get it to the coast to open up some maritime options. Option three is for Iraq. Iraq has two different while producing zones. It’s got one in the which is the big one in the Shia Arab zone. And it’s got one in the north in the Kurdish Right now, all of the crew that comes out of the southern fields is exported by water through a couple of offshore loading platforms. They have. And all of that has basically been reduced to zero by the conflict. So the idea is you have a Western line that goes out to a city called Banias in Syria. 

This pipeline technically exists, but it was shut down in the 1950s and has never been turned back on. And so if this route is going to be explored, all of that equipment has to be 100% replaced. And you’re talking about a project conservatively is going to run $8 billion. 20 might be a better guess. And it’s not clear that the Iraqis have the financial wherewithal or the engineering skill to do this themselves. 

So you’re talking about bringing in companies from the outside and having to pay them, and that means it’s not going to happen this year or next year or this decade, and maybe not next decade. This would be a big project. In addition to the fact that about 40% of the route is going to be going through Syria, which until recently has been in a brutal, decade long civil war, and we’re just kind of counting the moments until the second phase of that civil war starts up. 

Not to mention that Banias on the coast is a different sectarian group than the majority of Syria. So it’s going to go through the Kurdish zone, and then it’s going to go through the Arab zone, and then it’s going to go through the Alawite zone. I wouldn’t invest in that if it were up to me personally. Final option also kind of exists. 

It’s the northern route that goes from Kirkuk, which is the oil capital. The Kurdish zone north into Turkey takes a dog leg going straight west to the Mediterranean port of Chian. And Chian is kind of in that elbow of the Mediterranean, where Turkey almost meets Syria. That pipeline has been operating for the last ten years at about half a million barrels per day. 

It was built to spec back in the 80s at 1.6 million barrels per day. But disputes between the Turks and the Kurds, much less the Turks and the Arabs in Baghdad, have meant that it’s always operating at a lower capacity. It’s not clear if it can handle that 1.6 anymore. Anyway, there’s problems with all of these pipelines. It takes a while to build them. 

They’re expensive. The Emiratis are showing that they can be fast tracked, but the Emirati one is probably the simplest over all. But the bigger problem is it doesn’t really solve the issue. I mean, yes, you can bypass Hormuz. And yes, that is important. But keep in mind the weapons systems we’ve seen deployed around the world in just the last six months. 

In the case of the Ukrainians, they’re now regularly striking industrial targets across Russia that are a thousand miles and more from Ukrainian territory. The Iranian weapon systems are not nearly as complicated, but they’re still striking things that are 500 miles away without a problem. And most of the infrastructure that we’re talking about here is within that 500 mile range. 

And so the Iranians can just program in what they want to strike, whether it’s a pumping station, part of the pipe itself, the loading facility, the tankers, a cluster of the loading facilities and go to town. Specifically, they’ve already hit Fujairah, the Emirati option, and Yanbu the Saudi option. And to think that they can’t hit any of these spots with today’s technology, much less the technology they will command when this construction is finished is just silly. 

Really. The only option for a bypass pipeline that might, might, might be resistant or immune to what the Iranians can do today, much less tomorrow, is the Turkish option, because the Iranians do not want to pick a fight with a superior local military power like Turkey. So that is really the only thing that works. But that one of the three that are operational is by far the smallest of the three. 

The petrol line is not a solution, the pipeline is not a solution. And honestly, anything that’s going to depend upon Syria instability is probably not an option. That just leaves the Chian pipe, which at the moment is maxed out theoretically at 1.6 million barrels per day. Operationally probably half that. And if the decision was made to double, triple or more of that, you’re talking about a project that’s in the tens of billions of dollars because eastern Turkey is not flat. 

So none of these really work. They’re going to generate a lot of talk. The Trump administration already has their fingerprints all over them. Like this is going to be a quick and easy fix. It is not you can take that to the bank.

The U.S. Can’t Break the (Arctic) Ice

Ice floating in the Arctic Circle

Despite the growing importance of the Arctic, the U.S. continues to move further away from a sustainable operating plan.

The USCGC Healy broke down during sea trials, and the Polar Star is undergoing its own refit, which leaves the U.S. with one operational icebreaker. Clearly there is a hole in U.S. Arctic strategy, and attempting to plug it with the goodwill of Canada and Finland (given strained relations) might leave the U.S without a long-term solution.

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Transcript

Hey, everybody. Good morning from Colorado. This is Peter Zeihan. Today we’re going to talk about how the American Arctic strategy collapsed over the weekend. The United States only has a small Icebreaker fleet. And the biggest of them, the Healy, was undergoing high speed trials after a repair cycle, and the engines crapped out. The crankshaft broke. 

There was a bit of a fire and it basically stalled out and had to be towed back to port. We don’t know how long it’s going to take to get it back into operation, but it will be at least the remainder of this year. And this is after a series of other mishaps that involved an engine room fire and a transformer fire. 

The ship has not been doing well since it came on line 20 years ago. Second, you got the Polar Star, which is over 50 years old, and its only job is to run supply runs to Antarctica to supply Fort McMurdo, McMurdo base, if you prefer. That’s it’s only job and it is now completed that most recent cycle and has begun its own refit. 

That just leaves a ship called The Stories. Now, Coast Guard vessels are in that gray area there. It’s a middle branch of the military, but the ships are kind of a civilian military hybrid, oftentimes not for the stores. The stores is a flat out civilian vessel in construction. It’s an oil tug that’s been converted. And it is now the only ship the United States has. It’s an icebreaker. Whether you’re looking at global warming and new routes, whether you’re looking at competition with the Russians or the Chinese, this is basically bad because the United States no longer even has a ship in the game. And the backup plan, while wise under normal circumstances, probably isn’t going to work out. You see, under the Biden and later Trump administration’s Trump to the United States basically signed a series of agreements with the Canadians of the Finns to build icebreakers for. 

You see, we don’t even have a shipyard that can build them anymore. And that would be great, especially now that Finland and NATO. But the two countries that the Trump administration has threatened most directly and most repeatedly are Canada. Canada is not going to help us build an icebreaker fleet that could then circumvent Canadian power in the Arctic. 

And then there’s Denmark. You know, the whole Greenland thing. Finland is a very tight ally of Denmark. And if the United States seizes Greenland, we can basically kiss the entire Scandinavian block a goodbye. So basically, we are looking at a period for at least the next 30 years. We, the United States, does not have a military presence on the waters in the Arctic. 

Whenever there’s ice, we can still sail up there. In the summer, we can still use air power, which is of limited use on the water. But other than that, we’re looking at the United States not even having a tool in the box. And at a time where the world is in churn, to not even be able to play is a real problem. 

And this is something that will resonate well, well throughout the remainder of this century. So, you know. UGG.

South Africa’s Immigration Problem

Flag of South Africa behind a jungle landscape

While the U.S. and South Africa similarly attract migrants from poorer neighboring countries because they are the strongest economies on their respective continents, that’s where the similarities stop.

South Africa’s post-apartheid arrangement means that illegal immigration affects groups very differently. Migrants taking low-skill jobs disproportionately impact black South Africans trying to escape the townships and move up the economic ladder, because they compete directly for these opportunities.

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Transcript

Hey everybody. Peter Zeihan here, coming to you from southern Yosemite. I am just to the north of Red Devil Lake. And below me is the Red Peak Fork of the Merced River. And in the background there you can see the start of Merced Canyon. That is the canyon that ultimately leads to Yosemite Valley, Half Dome and El Capitan. And over this way we have Red peak and the High Range. 

Anyway, today we’re taking a question from the Patreon page about South Africa. It seems like they’re having a little bit of illegal immigrant snafu that is reminiscent of politics in the United States. Let’s talk about where it’s similar and where it’s not. Let’s start with where it is similar. Proof. There are not a lot of South Africans that want to do certain jobs, and it is the bright spot economically on its continent. 

And there are a whole lot of countries in sub-Saharan Africa that are not doing very well and haven’t been doing very well for more than 50 years, so it’s natural that there is a pull pulling, especially unskilled labor to south into South Africa and all of the politics and the populism of the conservative or liberal trade unions versus people who don’t want outsiders in their neighborhoods. 

All of that stands to a degree. It’s all very similar, but where it’s not, we are now nearly 30 years, 1992. Yeah, we’re pushing 35 years since apartheid ended. When it did, the white leaders of South Africa had some sit down, serious conversations with the black leaders of South Africa and decided how post-apartheid South Africa was going to work. 

In the past, all the blacks and the coloured, as the term that they use, lived in something called townships, which were basically fenced off. They had a centralized water system, but no real sanitation system. So they’re kind of ringed by porta potties, and then they’re barbed wired off from the white communities that basically live in something that looks a lot like an American suburban environment. 

So when you have three quarters, 80% of the population that basically lives in isolation, what happens when you suddenly give them the right to, for example, vote? They’re going to want different things in whatever they’ve had. And all of the wealth in South Africa was controlled by the whites. So what happens there? We’ve had political evolution since, where populist groups among the blacks have risen. 

A group called the Economic Freedom Fighters basically wants to nationalize almost everything because from their point of view, the whites very small minority hold all the money. And if we give to the state and then redistribute it, that would be more fair. Anyway, regardless of what you think about that, the decision that was made back in the early 90s was very simple. 

The whites could keep everything that they had, and in exchange the blacks would have free housing and electricity and water forever. What that has economically done is locked the most of the black population into the townships. There is more education, there are more opportunities. There are possibilities for the blacks to leave the townships and earn a normal living and then go on and move up the economic ladder. 

But when your basics are almost free, it is a huge disincentive and people stay where they are. So as a result, based on who’s numbers you’re using, South Africa today has an unemployment rate somewhere between 35% and 55%. And it’s been like that since the 90s. They also have some of the highest crime rates in the world, because people will steal to buy the basic necessities they need and then go back to their free housing, which is honestly not a whole lot more than a shack. 

Introduce illegal migration into this environment. There are a lot of jobs in South Africa that really do need to be done. The whites are too skilled for most of them and a lot of the blacks are. I don’t want to use the word complacent. That’s not quite right, but they feel stuck with where they are right now. So bringing in illegal migrants to do the work doesn’t bother either of those groups who it bothers the blacks who are trying to leave the township and make a career of themselves and get a house that has internal plumbing and move up the ladder, because those are the people who are being undermined by the illegal migrants. 

Now, how South Africa deals with this. We’ve basically had a series of majority governments by one of the most corrupt groups in modern history, the African National Congress, and more recently in coalition with the White Party, Who which is basically based out of Cape Town, which is a more white heavy city, as opposed to Johannesburg, which is more black heavy. 

None of this is a clean mix. None of it perfectly aligns to anyone else’s political milieu, because it is such a unique situation from so many different points of view. Anyway, it is a real issue. But before you layer that onto anyone else’s political agenda, just keep in mind it is very, very, very specific to South Africa. 

There is no other country on the planet has anything like this or has in the modern era. Okay, that was a lot to say at high elevation. That’s it for me today by.

Ukraine’s Military Reshuffling Highlights Resource Problems

A Ukrainian soldier in the trenches

Ukrainian President Zelensky has now dismissed two of the most senior military leaders, Defense Minister Fedorov and Commander-in-Chief Syrskyi. Beyond the speculation of internal power struggles, these dismissals highlight Ukraine’s glaring issues with resource allocation.

This is a multi-vectored war that is constantly evolving, which means the new drone tech is just as essential as the infantry and artillery, and vice versa. So, Ukraine can’t win without either capability. But with limited resources at its disposal, Ukraine has an allocation problem.

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Transcript

Peter Zeihan here, coming to you from Colorado.  Today is the 23rd of July, and I’m going to attempt to untangle what has been happening in Ukrainian political circles, specifically around the Defense Ministry and the Army. 

We’ve had a number of personnel changes over the last several culminating in the last several days of the dismissal of the defense minister, a guy by the name of Fedorov who is a techno guy. He’s in his 30s, big on drones. And Syrskyi who is the commander in chief of the army, a big infantry and artillery guy. This is being spun a lot of ways by a lot of people. Some are saying that it’s a debate between whether drones are the future of Ukrainian military versus the backbone that is currently artillery and infantry. Some are saying it’s personal and it’s really kind of all of the above. The very, very short version is that we’re going through a hot war and battlefield success versus failure generates a lot of changes in personnel, both from mortality and from political decisions that didn’t do enough or you did too much, or you are rising star versus you’re 

But really, the core issue is this doctrinal shift between drones and artillery. And what neither side admits is that they can’t fight the war without it. 

So in charge of the artillery has very successfully, I might add, held the line in a number of major battles where we expected the Russians just mow over the Ukrainians. But Fedorov with the drones, obviously has remade the face of warfare and given Ukraine not just a fighting chance, but the advantage in many battlefield situations. And to think that one of these will work without the other is very silly. 

The problem is, both sets work, both sets are necessary, and both sets require their own procurement chain and manufacturing capability. And it’s not clear that Ukraine has the full capacity to do both of those at the same time with the resources that have. And that’s before you consider the complexity of all of the weapons donations that have come in from the Europeans primarily, and the political complications that come from relationships with the Trump administration right now. So basically, we have our old system led more or less by Syrskyi that is infantry and artillery, and the new system that is led by Fedorov, that is drones and fiber optic cables and computer chips, and each of them requires a huge pipeline of resources, whether that is people or finance or manufacturing capacity. 

And the two don’t overlap very much. So when Fedorov became defense minister a few months ago, he’s tried to start switching all of the resources over to his preferred method of war fighting. And Syrskyi kind of had a coronary because there was no way that he could defend the 1000 mile long front without ongoing investments into artillery and artillery shells. 

Both of them are right. Both of them are wrong. And now both of them have been fired. So what’s going on now is Zelensky, the president of Ukraine, is attempting to juggle these two factions so that both of them can function because they both need to function. And the reason that the protests in Ukraine in favor of Fedorov are continuing is because they’ve looked at the personnel that Zelensky has put in place of Syrskyi and Fedorov and said that so far there’s been no change. 

And that’s true. There’s been no change because Zelensky is trying to balance the interests of two things he absolutely has to have, and the leaders of those two factions hate each other. And the only way they could work together if Zelensky was there personally hand-holding. And this is before you consider the problems with, say, corruption or consider the problems with Russian assassination, or consider competition with other branches of the Ukrainian services. 

It’s a really tough situation to be in for everybody. It’s a post-Soviet society. So the pillars of civil society that normally you would rely upon to kind of bulwark the sort of institutional discussion just don’t exist in the same way that they exist in, say, say, Germany or the United States. It’s an ugly situation. I have no idea how it’s going to go, and I am not even going to bother talking about the personalities that are replacing the two principals, because I bet they’re mostly going to be gone within a week or two. 

But at the moment we’re more or less in the same position now that we were six months ago. You’ve got these two parallel procurement and warfighting, doctrinally defined institutions, both of which are essential but really just can’t get along and don’t complement each other very well.

Spain’s Former Empire Might Just Save Them

Flag of Spain waving in the wind in front of a building

First Spain won the European Championship, then the World Cup, and now they’ve figured out how to address their demographic problem.

Spain has a similar story to most of the modern world: they urbanized quickly, and their birth rate collapsed. To offset that, they’ve become one of the world’s most pro-immigration countries. But Spain has a leg up on most other nations, they have a large pool of culturally compatible immigrants from its former empire in Latin America.

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Transcript

Hey all, Peter Zeihan here, coming to you from Colorado. Spain has just won the World Cup. So I thought I would take this as an opportunity to discuss the thing about Spain that sets it apart from really every other country in the modern world. It’s pro-immigration to a huge degree, even more so than Canada. If you can believe that the Canadians have actually clamped down immigration quite a bit in the last three years, but in Spain the doors are wide open and if anything, becoming wider. 

Spain is a country that was facing demographic collapse in the aftermath of the dictatorships of the 60s, 70s and 80s. Spain opened up to the world, became a democracy and started to industrializing and joined the European Union. And in doing so, we saw one of the fastest moves of people from rural areas to urban areas. And as is normal when you do that, your birth rate collapses. 

So it went from having something significantly higher than the global average to one of the lowest in the world and under a decade. And then it has stayed there ever since. Which means it’s not just a country that is aging. It’s aging very, very, very, very rapidly. And because when people moved into the cities, they moved into tight, constrained conditions, even though the wealth level of the average Spaniard has gone up quite a bit in the last 40 years, the amount of room that they have has not. 

And so people are not having kids. The only solution that Spain has found is immigration. And in doing so, Spain has seen its population increase by about 5 million to roughly 47 million today. And its average age has kind of stabilized in the mid 40s. It’s about a 44 right now. They have brought in in that population about 2.25 million people as new citizens. 

And they’ve had two rounds of amnesties to take illegal migrants and make them naturalized so that they’re legal. The first round a few years ago was a half a million people. They’re doing another round right now that will probably be at least as large, which makes Spain among the Western countries today by far the most pro-immigration and arguably the most pro-immigration by the numbers in the world now. 

Is this solving the problem? It’s dressing a lot of it. Labor costs have really calmed down, and as the population starts to age, they really need those people to help with things like health care and construction. But just because Spain has been able to do it doesn’t mean that everyone else can. The reason is really simple. Spain used to have an empire, and that empire is packed full of young people. 

So when you look at the Spanish speaking world, which is basically the entirety of the Western Hemisphere, minus the United States and Canada, you’ve got a huge pool of people who, from a cultural point of view, already speak the language, even if it’s a different accent and some different pronunciations, and that are willing to move across the world in order to move into what is now, honestly, a second or third world country. 

That is something that cannot be replicated for most countries in the world. I mean, look at Poland, for example, which came in from the cold and industrialized about a decade after Spain, Poland used to have an empire as well, but it dates back almost a thousand years, whereas Spain’s is much more recent. And the countries that it’s settled are actually settled with people who used to be Spaniards. 

So the cultural gulf that immigrants have to cross in order to move to Spain is not nearly as big, and it’s not nearly perceived as big by the Spaniards themselves either. Anyway, bottom line is, among all of the European Union countries, among all of the Western countries, Spain is the country that has become the poster child for how you can take integration and immigration and turn it into a national expansion and survival strategy. 

Whether or not anyone else can follow in their footsteps. Well, that’s a different question.

Houthis Declare Open Season on Saudi Arabia

Photo of Houthi rebels in Yemen

The Houthis are threatening Saudi oil infrastructure, but are they all bark or is there real bite behind the threats?

The Houthis largely depend upon Iranian weapons, but if Iran were able to replenish drone and missile stockpiles, they still have to get them into Yemen, evading Saudi border controls and U.S. naval monitoring. If the weapons did make their way into Houthis’ hands, the question then becomes about scale.

Potshots and isolated strikes won’t move the needle, but sustained strikes could overwhelm Saudi defenses. The largest concern is the Petroline, which has helped stave off the energy crisis throughout the Iran war. We’ll find out soon enough what the Houthis have up their sleeves.

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Transcript

Hey y’all. Peter Zeihan here. Coming to you from Colorado. Today is the 21st of July. We’re talking about something that went down yesterday on the 20th, on Monday. The Houthis, which are an ethnic group in western Yemen, basically declared open season on all things Saudi, including oil flows. Now, Yemen is in the southwest corner of the Arabian Peninsula, and most of the Saudi population lives on the west side of the peninsula. 

And so using weapons systems, mostly drones and missiles supplied by the Iranians. Everything that matters is within range of the Yemeni. Now, a few things to keep in mind at the point of this recording. There have been no attacks, just the threat. Number two, in the first phase of the Iran war that happened a couple of months back, the Yemeni did fire quite a few things, and then it appeared that they ran out, which means that the question is whether that they have been replenished by the Iranians in the time since. 

Yemen has arguably the worst industrial base on the planet and cannot make things like styrofoam or even plywood, which by volume make up the majority of, say, a had drone. They certainly can’t make semiconductors and electronics, so any equipment that they have isn’t simply guided by the IRGC. IRGC is the militant faction that now runs Iran. Since the Trump administration killed everyone who might qualify as moderate. 

But the GC also does the supply. So guidance and supply and targeting. So don’t think of this as a separate actor. This is just an arm of Iran for this purpose. Which brings us to the third problem. Iran had more than enough time in the way the Trump administration handled the cease fire to earn money, in fact, earn US dollars and for supplies to be rerouted from China. 

Most of the equipment that is used to make the Shahid drones and the missiles comes from China. It used to come by water, but there was a blockade. So now it comes often by rail and that is something the US can’t interdict. So in the two three months that we’ve had since the blockade started, that should have been more than enough time for Iran to completely replenish all of their stocks. 

And with the way the United States ended the blockade by allowing Iran access to the US dollar market, they probably have more than the currency to pay for all of it. But getting the equipment from Iran to Yemen is a different thing. The rail option or road option is not a good one, because you have to go through Iraq and Saudi Arabia and the Saudis have a de facto blockade at the Yemeni border. 

You might theoretically be able to go through Oman, but the Houthis are on the other side of the country, so it’s probably not gonna work either. So it has to go by water. And while the US Navy has had a hard time asserting control over the Strait of Hormuz just because of the mechanics of the new weapon systems, being able to monitor what goes in and out of Yemen is child’s play in comparison. 

So unless there’s been a gross collapse of strategic planning in the Trump administration, which I cannot rule out, the odds of unrestricted access for the IRGC to Yemen to replenish their military supplies is pretty low. So at the moment, the fact that 24 hours has gone by and there hasn’t been an attack, I am not exactly calling bullshit, but I am dubious of the Yemeni are going to be able to do anything. 

But let’s assume let’s assume that this is wrong and that supplies have made it to Yemen, and the IRGC is preparing attacks on Saudi infrastructure. A couple things to watch for. Number one is volume. If they cook off a drone or a missile a day, going after a ship or a highway or a refinery or whatever it happens to be, that’s not a big deal. 

Mostly because there’s just not a huge I mean, it’s a target rich environment, but the Saudis have been dealing with some form of attacks from Yemen for almost a decade now, and that sort of volume isn’t going to really move the needle very much. Second, if we do get more attacks a dozen a day or more, then we’re in a different field. 

And then we need to consider a couple of things, because first of all, while the Iranians have mid-range drones that are perfectly capable of hitting the western side of Saudi Arabia, flying over the Persian Gulf over the entirety of the Arabian Peninsula, hitting the far side of the country. They’ve done that. They’ve demonstrated they can do that with accuracy. 

Doing so requires the weapon system flying a bit of a gantlet, because you have to get over American naval forces in the Gulf. You have to get over the oil fields of Saudi Arabia and Gutter and Kuwait, all of which have air defense. And you have to get there over the entirety of this Arabian Peninsula. There’s plenty of chances for fighter jets, for example, to shoot down drones. 

And then, of course, there’s missile defense on the western side of the peninsula. Two or if you fire it from Yemen, you spend most of the time over the water. And under the earlier Trump administration, we had a 30 day war between the United States and the Yemeni. And the United States learned very, very quickly that it really couldn’t root out the launchers in a place that as is as mountainous and as rural as Yemenis. 

So if your weapons systems spend most of their flight time over the water, most of them are going to get through and they’re going to hit the Saudi coast, coming from the west instead of the south. And in doing so, the air defenses will be out of position. So you could do some very real damage very quickly. And then third most important thing. 

One of the reasons why the loss of crude out of the Persian Gulf has not led to a catastrophic energy induced depression to this point is that the Saudis have something called a Petro line that ships about 7 million barrels per day from their fields in the east, across the length of the peninsula. Going west, it hits Yanbu primarily, which is one of their primary ports on the western coast. 

And that one pipe has made up for about a third of the disruption that we would have felt, and has done wonders for keeping prices from going stratospheric. Well, it’s an easy range of anything from Yemen, so I’m not calling that the Yemeni can’t do this, although I have my doubts. But we will find out in the next few days, maybe a couple of weeks. 

Whether or not a the Iranians have actually moved hardware successfully to Yemen, and b whether the hardware that is moved has significantly accurate targeting in order to damage the facilities that are necessary to prevent that energy induced depression. A lot of moving pieces, a few if things in that statement, but we’re going to pretty soon whether the hardware and the equipment is there because we know the advisors are already 

and the Houthis really have no problem sticking it to the Saudis at every opportunity. So time will tell. And it won’t take that much time.

Ukraine Closes the Sea of Azov

NASA satellite image of the Sea of Azov | Photo by NASA and creative commons licsense

Ukrainian drone attacks have effectively shut down Russia’s use of the Sea of Azov, which is a critical export route for southern Russia.

The sea connects the Volga River canal system to the Black Sea, allowing agricultural goods, coal, iron, and more to reach global markets. And with Russia’s rail network already overburdened, losing this waterway is devastating.

If Ukraine expands these drone attacks into the eastern Black Sea, the shadow fleet will face even further disruptions. With no quick solutions on the table, the Russian economy and war effort will be on its back foot for quite some time.

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Transcript

Hey everybody. Peter Zeihan here, coming to you from just below Cupid Peak, above Loveland Pass. And over here we have Grays and Tories and Grizzly Mountain. Not going to be able to do those today because we got lightning moving in. Boo. But I’m still going to do a video for you guys. I just got back from Yosemite and still catching up on everything that happened. 

But one of the big things that happened in the Ukraine war is that the Sea of Azov is now offline. The Sea of Azov is a body of water to the east of the Crimean peninsula, that’s Russian occupied Crimean peninsula, and to the south of Russian occupied lands in southeastern Ukraine. It’s a waterway that freezes sometimes in the winter. 

But the real important thing is that is the outlet for a huge amount of cargo. The Russian system is not well set up for shipping cargo. A lot of stuff has to go by rail, but the Russians are literally running out of ball bearings, so they’re hitting the max of what they can do, and they can’t replace the cars and the speed that they need to. 

So they’re seeing reductions in throughput. That makes it much more important to ship things by water. The problem is, is that the Russian coast of the Black Sea doesn’t have any navigable river outlets. It’s somewhat rough and mountainous. And so what happens is you’ve got an inland waterway, the Volga, that goes near Moscow and snakes through Russia and empties into the Caspian Sea. 

The problem is the Caspian Sea is a landlocked body of water. So what the Soviets did is they engineered a series of canals and locks that go from the lower Volga near the Caspian over some low ridges, and get into the Don River system. And the Don empties into the Sea of Azov. So, in essence, if you’re shipping coal or iron or especially agricultural products, you get it onto the Volga. 

You go through a series of locks until you get to that connection. You take the canal over to the Don, to Rostov on Don, and then you get into the Sea of Azov, and from there you get into the Black Sea in the wider world. Well, while I was gone, the Ukrainians hit over 200 ships in like a week in their first big push and basically shut off the sea of his off completely. 

So any of the cargo that used to use this waterborne export, which was one of Russia’s main ones, the primary one for southern Russia, suddenly has nowhere to go. They go onto the rails, but the rail system already overloaded and honestly starting to fall back. So a couple of things from this. Number one, we’ve got a lot of Russian cargo that is now just trapped. 

It has nowhere to go and there’s really no quick fix here. The Russians have withdrawn a lot of their air defenses from places even like Crimea, to put it around Moscow, because Ukrainians have shown that any target that’s within roughly a thousand miles of the front is something they can in force. And that’s forcing the Russians to the air defenses that they have in places where they will serve political purposes. 

Because of Moscow, came under heavy drone attack every single night for a month that might shatter the political coalition that holds the Russian system together. Right now. That’s one. Number two, Rostov on Don. This is one of the city’s one of the two cities in Belgorod that serves as nodes for transporting military gear to the front, and it has now lost all of its economic wherewithal. 

It’s now just a military outpost, in effect. This is something that’s going to have a huge impact on the Russian economy and ultimately crimp Russia’s ability to get stuff to the front, because if that river is no longer available, if the canal system is no longer available, if the receipt of is of is no longer available, then one of the more wealthy cities in Russia just lost everything that made it work except for being a military depot. 

And you should expect more tax there over and over and over again in the not too distant future. Third, now that the Sea of Azov is offline, next up is the Black Sea. It’s not that much further. The Ukrainians have loads of drones that are capable of taking the war now just across the Crimean Peninsula and into the ocean, and we’ve already seen dozens of attacks on things like tankers and Borchers, everything that’s in the shadow fleet. 

So look for the Ukrainians over the next couple of months to repeat what they did in the Sea of Azov in the eastern side of the Black Sea, because no ships go there, really, unless they’re part of the Shadow Fleet. No one else wants to dock directly. And it’s not like they haven’t been warned if they decide they want to try. 

The only real solution here that the Russians have, because air defense isn’t going to cut it, is to up their attacks on the Ukrainians to the point that it attracts the Ukrainians ability to do this. But since it’s from mobile launch sites with ever evolving drones and drones at the moment, the Russians haven’t figured out sorry about the wind drones. 

At the moment, the Russians haven’t figured out how to replicate. That’s something that undoubtedly can’t happen this summer. This is going to be a problem for a year from now, or a potential solution for a year from now. And now we’re getting to India and I’ve got to stop so by.

Chinese Marriage Data Confirms Demographic Crisis

A chinese woman in a bridal dress walking down the aisle with her father and onlookers taking photos

Most of the data coming out of China isn’t worth the paper it’s printed on, but there are a handful of metrics that aren’t based on estimates. Today, we’ll be looking at marriage registrations and what the 6% decline from last year means.

This echoes a decades-long decline in marriage registrations and reflects the broader demographic decline facing China. Since an overwhelming number of Chinese births occur within marriage, the population decline may be even worse than previously forecasted.

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Transcript

Hey all, Peter Zeihan here coming to you from…where am I? Termoli In Italy? And today we’re going to talk about some Chinese statistics that just popped out in the last couple of weeks that look really bad even by Chinese standards. So backdrop that you need to know this way is that Chinese data is awful. Part of that is just the nature of the beast. 

China really only started its industrialization process in 1978, and so the techniques that a lot of Western countries have been using for the better part of a century are new. And computerization really is only the last 20 years. And it’s a huge place. So getting the locals and the center to agree on what is normal statistics is a little hit and miss at times, and part of it is unfortunately by a degree of design, the central government sense quotas for everything and so lo and behold, the locals meet the quotas or maybe expand upon them. 

And then on top of that, you’ve got punishment issues. And where if a data point comes out, the Chairman Jinping doesn’t like the person who presents it to them, may have their job and or life forfeit. And so the people who do the data collection just stop collecting that data point, whatever it happens to be. So we have really poor data on Chinese demographics and financial issues and bonds and all these other things these days, especially health anyway. 

But there are some that are seen as not politicized. And so data for those is good. And the one we’re going to talk about today is marriage registrations. According to the new data that’s come out in the first half of the year. Those are down by roughly 6% in just the last 12 months. And that is on top of year and year declines that go back the better part of 30 years. 

This is data that has been collected since 1978. And it’s not an estimate like a lot of data. It’s actual registrations. People have actually gone to the equivalent of city hall and registered the marriages. So it’s something we relate to or it’s something that we can relatively rely upon. Now, the reason why this matters is if family formation is down, the birth rate is down, and if the birth rate is down, China’s hollowing out. 

Now, this is something we’ve been looking at at any number of angles for quite some time. What is interesting here, from my point of view, is that the marriage rate drop has been dropping much, much, much faster, two and three times faster than the. Suppose it had declined in the number of 20 and 30 somethings, where usually the people get married. 

So it gives us a little bit more accurate view of just how bad the demographic crisis is. And it was already really, really bad. Basically, we no longer have enough people under age 50 in China to even theoretically repopulate a country of 400 million people, much less supposedly the 1.2 billion that China says it has. And in internal conversations, the Shanghai Academy of Sciences is now debating how many hundred million people under age 40 they’ve over counted. 

They know it’s at least 100 million. And this year, the number 500 million popped up for the first time as a possibility. They just don’t know. And they don’t believe they have the capacity to go out and do get the information, because too many people are concerned with getting the wrong ancer anyway. It’s a tiny little window into the crisis that the Chinese are facing these days, and to be perfectly blunt, there’s no coming back from this without marriages. 

There are no children or very few. But more importantly, there are now no longer enough people to even theoretically get married in order to attempt repopulation. So it’s just a question of timing, whether it’s in single or double digits of years, of course, matters to all of us because we’re all living in the now. 

But it looks pretty rough and this isn’t going to last much longer. All right. That’s it for me for today. Till next time.