Iran War Winners and Losers: North American Energy

Satellite view of north american lights and energy

As Persian Gulf and Russian exports collapse, global prices will rise, which should benefit the U.S. and Canada. However, if exports are halted to keep gasoline prices down, then North America would become oversupplied. This would effectively cap oil prices near production costs, despite the rest of the globe facing shortages and rising prices.

This means the producers wouldn’t see much upside, with refiners becoming the only real winners (even though they still have to retool to use that domestic light crude).

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Transcript

Hey all, Peter Zeihan here, coming to you from Colorado. And today we’re doing another one of our Open-Ended series on winners and losers in the Iran war. And today we’re talking about energy markets, specifically in North America, where the two big players are the American shale patch and Canadian producers primarily, although not exclusively, in Alberta. All right, first things first. Let’s get an understanding from where we were the day before the war. 

U.S. shale output is at record levels, and by itself is the single largest producer of crude in the world. But most of that crude is light and sweet. The issue is that in shale formations, there’s not a big pool of crude for you to stick a straw into. It’s tiny, microscopic little packs, and so you drill into it, inject liquid which cracks the rock. You inject sand, which then goes into the cracks. You pull the water out and the sand keeps the cracks propped open. So the facility then generates its own pressure as this stuff drains up. And because of that, the oil never migrated through a rock formation. So it’s very pure. It’s, very light, very sweet, low viscosity. 

Canada’s oil sands are very different. It’s basically Bitterman, or oil sand where you’ve got a relatively porous rock and the petroleum is migrated through a lot to kind of almost make it a sludgy gel. So it’s very thick and very heavy, and some of the crazy stuff is actually solid at room temperature. So they have to often inject steam in order to make it liquid so they can pump it up. 

Sometimes they literally electrify it, sometimes they strip mine it. Anyway, it’s a lot more energy intensive than what happens with U.S. shale, but in both cases, the cost per barrel is pretty high. It’s rare that it’s, under 30. Sometimes it’s over 60. So in both shale patches and the, Albertan oil sands, if prices are too low for too long, a lot of the work just stops. 

Anyway, on the surface, with having the Persian Gulf go away right now, we’re at 10 to 12 million barrels a day off line. even if the war ends tomorrow, that will remain that way for at least three months, because these fields can’t just be flipped back on. Some of them will take at least two years, probably more. 

And that assumes no additional damage, which, considering the path we’re on right now, is a laughable, scenario. We’re probably looking at the bulk of the 22 million barrels per day that comes out of here never coming back, or at least not within a decade. In that scenario, oil prices have nowhere to go but up and starting strongly, strongly, strongly. 

So. So it would appear that US shale and the Canadian shale patch are big winners here mid term. Because, you know, if the price of oil doubles or more and you production costs don’t change and you have access to the world’s largest market and you’re nowhere near the the shooting, it seems like all positives, right? Wrong. Because when oil prices go up, there’s another piece in play here. 

First the Ukrainians are taking out basically the western half of the Russian oil complex. They’ve already destroyed the ability of the Russians to export through the Baltic. They’re going to be working on the block very soon. That’s at least 3 million barrels a day of Russian crude, maybe as much as five. That simply isn’t going to come back either. 

So we’re looking at Persian Gulf crude and Russian crude disappearing from the market at the same time, which will send prices even higher, which again, is great for Canada shale. Right? Wrong. Because I don’t know if you guys noticed this, but the American president, Donald Trump, is pretty populist. And if we start getting $10 gasoline in places that you know, aren’t California, there’s going to be a bit of a rebellion. 

And this is something that Trump doesn’t have to stretch the law to deal with. Back in 2015, when shale oil was new, there was a big debate in Congress over solar and wind versus oil exports, what was necessary to push the American energy complex forward. And the compromise that was reached was that we would allow oil exports that used to be illegal, and we would subsidize the development of solar and wind, and to make sure that we had a stopgap, the president was given the authority without having to go back to Congress, without having to even have a hearing to end U.S. oil exports if market conditions argued for problems. 

However, he defines that, which means that the 5 million roughly barrels a day of crude that the United States exports right now could go to zero with the stroke of a pen. And if we enter in a situation where the American internal oil market gets really expensive, to the point that it becomes a political problem for Trump and an economic problem for the country, you bet your ass he’s going to do that. 

So now we’re looking at a scenario where Persian Gulf crude and Russian crude and American crude all go offline at the same time, sending prices sky high. So this sounds like it would be great for the Canadians, right? Wrong. Because most of the crude that Alberta produces is shipped south to the United States, and it can really only be refined in refineries that the United States operates. 

They do have a one pipeline that isn’t doing very well, by the way, called Trans Mountain, that goes out west to British Columbia. That one pipeline will obviously be filled up to its capacity in this scenario, and anyone can get the crude out that way. We’ll be able to sell to the global market at a high price. But with that one exception, most of this is actually probably going to be seen energy prices in the United States and Canada going down. 

Because in a scenario where you can’t export, we’re in an environment of super saturation. And as long as you can produce crude in the United States and Canada for $60 a barrel, that’s pretty much as high as prices can go when you’re in such a huge surplus situation. So we get a situation in North America where prices are kind of capped at 60 to 70. 

We get a price situation in the rest of the world where 200 is a good day, and that’s where we are. That doesn’t mean that there are winners in the North American energy complex. It’s just not in production. It’s in processing. You see, the restriction on U.S. exports doesn’t apply to crude, refined products just to raw crude itself. 

So if you operate a refinery and you have export options, you can export your naphtha, your crude or your gasoline, your diesel, whatever it happens to be to the wider market at inflated prices was just one little glitch. U.S. refiners for the last 30 years have steadily retooled their entire complex to run on heavy, sour, imported crude, for example, from Canada. 

But with the United States locking itself off, most non-Canadian sources of heavy crude are simply not going to be available anymore, and they’re going to be forced to deal with the light sweet that comes out of American fields. Now, this can be done. The modifications are easy. They’re actually going to be dumbing down the refineries to run on higher quality crude. 

But in the process of doing that, they’re writing off a lot of capital investment. At the same time, they have to invest in a different kind of fractionated system. It’s not that that’s particularly expensive. It’s not. But that takes a long time. But it is definitely going to cut into the rate in which they can benefit from these situations. 

And in the meantime, they’re probably going to be having runs that are going at significantly lower efficiencies than they would prefer. In the long run. It’ll be great. In the long run, they’ll be making more money, but they have to get to the long run first. So for the first year or two, there’s going to be a lot of stress on their hardware before they can change over some of the infrastructure. 

So again, just as we’ve discussed with almost every other country, the conventional wisdom that a lot of people saw in the first couple of weeks of the conflict really doesn’t apply. As soon as something happens, there’s a reaction and oftentimes it’s the second, third, and even fourth order effects that are the ones that really stick. That’s definitely how it is with this topic.

Guam and the Practical Impact of Climate Change

A bay in Guam

I normally do not attempt to link climate change to local events, but current storms in the central Pacific demand we take a fresh look.

Guam is a critical military base for projecting U.S. power across Asia. Guam’s strategic power comes from its location, but that leaves it subject to extreme weather. And climate change is causing the frequency and intensity of major storms to increase. This could eventually lead to Guam being periodically unusable or even permanently untenable.

Climate change isn’t just an environmental issue; it is a strategic consideration that everyone needs to have on their radar…including the U.S. military.

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Transcript

Hey, everybody. Peter Zeihan here. Coming to you from Washington state near Walla Walla. Today we’re going to talk about something that’s a little weird. Military preparedness and climate change. We all know that things are shifting. And the question is, of course, how that affects things at the zip code level. Saying that the planet is warming, saying that storms are getting stronger, saying that frost free days are getting longer. 

We can talk about these things in general terms, but it’s really difficult to apply that to what happens in your own backyard, because weather and climate are not the same thing. Weather is what’s happened to you right now or tomorrow. Climate are broad bands, so it’s very difficult except as to speak in the broadest possible terms. But we’ve got an event going on in the Central Pacific, in Guam and the Mariners that, allow these two to kind of interact in a way that is unfortunately very specific. 

The issue is we have a super typhoon that’s a class 4 to 5 hurricane that they just called typhoons in the Pacific. That is striking, the Mariana Islands, which includes the U.S. military facilities in Saipan and Guam, specifically, now, Guam is the premier American leaping off point for pretty much all of Asia. The advantage of having Guam and the American stack is that it’s American territory, so we don’t have to worry about negotiating with anyone. 

And it’s a couple thousand miles off from the mainland, so there’s really no good weapon systems that can reliably project power to it. The Chinese might, for example, be able to hit it with a missile, but that’s not the same as being able to do an easy amphibious landing. In fact, it’s questionable whether the Chinese ships that could do it landing can even reach that far in the first place. 

So if you can take care of the missile defense issue, it’s perfect to project power everywhere from northern Japan to the Strait of Malacca. Well, it’s getting hit by class 4/5, hurricane slash typhoon right now. 

And that means they’ve reduced themselves to what they call emergency services, which is U.S. Navy speak for. Oh my God, please don’t ask us to do anything right now because we can’t even go outside. 

Under normal circumstances. Guam gets hit by a typhoon. Not a super typhoon, just a typhoon. About every 7 to 9 years. And this is the second super typhoon that has hit it in seven years. And it was still recovering from the damage of the last one, which was in 2020 or 2019. Can’t really remember. Anyway, the flooding is already extreme, and it’s only going to get worse in the next 24 hours. Although by the time I’ve seen this video, we’ll know what it looks like anyway. It’s pretty nasty. Also, this is shaping up to be a super El Nino year on top of that. And while people like me who live in Colorado, it’s kind of a mixed bag. If you are in the Central Pacific, your chances of getting hit by a typhoon are roughly triple. 

So here we have a tiny little footprint of island in the South Pacific that is critical for American power projection throughout the entire Asian theater. It’s obviously sea level. So you’ve got that problem, but the weather is basically pummeling it over and over and over again. And with the direction things are evolving, that will probably happen more and more often. 

Now, going from flooding and damage to the inability to function there, those are two very different things. But if you look at a map of the region, you will notice that there is nothing else around. As a rule, the islands in this part of the world are low and coral base, so it doesn’t take much flooding to do immense damage. 

There is no alternative here. So it’s not just an issue of rebuilding after it may, in a few years, be about having to abandon the Guam facility and finding a different way to project power. At a minimum, that would require a different sort of hardware, or simply writing off entire military strategies for dealing with things like, say, Taiwan. 

So the danger is real. The danger is here. The damage is real, the damage is here. But there is no good substitution for what we use Guam for. It’s, there’s no really other place to plant a flag and project power from. And this is just going to be the nature of this part of the world for at least the rest of the century, or until we invent a new sort of naval warfare.

A New Era in Hungary: Orbán Gets the Boot

Viktor Orbán and President Trump at the White House | Courtesy of Wikimedia Commons: https://en.wikipedia.org/wiki/Viktor_Orb%C3%A1n#/media/File:Visit_of_Prime_Minister_Viktor_Orban_of_Hungary_at_the_White_House,_Friday,_November_7,_2025_-_29.jpg

A new era is beginning in Hungary. A blowout in the latest election has removed Viktor Orbán from power and ushered in a new government led by Péter Magyar. The Hungarians aren’t in the clear quite yet, after all, Orbán was in power for 16 years. So, it will take a bit to remove his cronies from…everywhere.

This election will likely lead to Hungary realigning with Europe and reducing Russian and Chinese influence. Sure, plenty of hurdles remain, but this is a step in the right direction for returning to broader EU unity.

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Transcript

Hey, all. Peter Zeihan here. Coming to you from Colorado. It is the 13th of April, and we’ve just had elections in Hungary that have generated an overwhelming result, overthrowing the government of Viktor Orban and ushering in a new era. Let’s talk about how we got to where we are and then talk about what it means. So, Orban is what he calls himself and a liberal Democrat. 

The idea that Hungary should have votes, but they should really only be for him. And in his 16 years of power, he steadily modified the system to ensure that he could rule as long as possible. He also struck an unofficial alliance with the Chinese government and the Russian government, working from the theory that Hungary doesn’t have any choice but to be a NATO and the European Union, and since it doesn’t have a choice, it might as well benefit from those memberships. But it needs to establish relations with hostile powers beyond the EU and NATO in order to counterbalance them. So, yes, Hungary’s in NATO. Yes, it’s arguably the most integrated European state into manufacturing across the union. But, he doesn’t like elections. 

He doesn’t like independent courts. He likes the idea of sharing a state intelligence with the Russian government so it can work on anti European projects. And he helps transform the embassies for Moscow and Beijing in Budapest into giant Intel hubs, complete with espionage teams and signals monitoring. Anyway, so as a rule, the European Union doesn’t much care for Orban and his colleagues. 

Had to see him gone. But let’s talk about how he stayed in power for so long so you can get an idea of what’s next. The Hungarian electoral system is nearly unique in how it runs. There’s aspects of it that reflect what we’ve seen elsewhere, but the way they were put together is really different. So step one, you vote for a party. 

So if the party gets 20% of the votes, they get 20% of a certain number of seats, just like the Netherlands, just like, say, France. Step two, you also vote for a candidate who’s representing your local district, kind of like the United States. 

Step three is if in the local elections, in the district elections, you lose, so you get 20% of the vote and the winner gets 40%. Those votes pour back into the proportional representation system. That first vote for parties. And in doing it this way, it really guarantees that the largest party gets a supermajority in the parliament. 

So in the last elections, not the ones that were, yesterday, the ones that were a few years ago. 

Fidesz, which is Orban’s party got, like 50, 47% of the vote. We got almost 70% of the seats. He did this. Orban did this to guarantee that once he controlled the public relations side of things, once the state to control the media, which meant that he controlled the media when the, courts were consolidated with cronies that he had appointed, he would be able to basically make sure that even if you only got 40% of the vote, he’d still far and away dominate. 

Well, that worked until it didn’t. The problem is, is under Orban, not only is Hungary a bit of a pariah in European circles, actively working against how most Europeans define their security because of the Ukraine war. He also, because he could put cronies everywhere, turn Hungary into by far the most corrupt state in the European Union. 

And if you know anything about the Balkans, like Romania and Bulgaria, you know that that’s a strong statement. So basically, people had had enough and they showed up in droves. We almost had 80% turnout. And Fidesz did not turn out to be the largest party anymore. Now it’s this new group, and basically cleaned up. 

They won both of those rounds, and then the leftover votes combined to give them even more. So they ended up with enough seats in the new parliament to over turn really anything that has happened in the last 16 years, including the ability to, on a whim, amend the Constitution. So, step one, this is a big defeat for the Chinese and the Russians. 

Those embassies are going to be slimmed down very quickly. You don’t even need an Act of Parliament for that. You just need an decision from the Prime Minister. Step two or reintegration of Hungary into European norms, including things like, say, the, Ukraine war is going to be at the top of the list. 

The new prime minister guy by the name of, Peter Magyar, has made it very clear that this election was about rejoining the European family. 

That will be very easy. And then step three, and this will take a lot more time, is basically getting all of Orban’s cronies out of the system now with a two thirds majority won’t be hard, but there’s been 16 years of consolidation under an illiberal system, and it affects the Supreme Court and the Constitutional Court and all of the regulatory bodies. 

It’s just it’s just going to take some time. If they get this all done in a year, I’d be really surprised. And keep in mind that while this new guy is named Peter. So, you know, I have high hopes. He’s never had a job like this before. He basically came out of the European Parliament. And so we’ll see. He’s a bit of an unknown, but he’s got plenty of tools to work with. 

The next thing to consider is that we’re going to have a change in European politics here, because all of a sudden, the single biggest problem the Europeans have had in achieving internal consolidation is gone. With Brexit. The Brits were gone and the Brits were always moving slow in a lot of things. 

Now, with a pro-Russian voice gone, you can probably have a lot more consolidation on foreign policy and security policy. And at a time when the Europeans are doubling, tripling and more their defense budgets, that’s really important, especially with the Russians, developing more and more drone technologies every day. Now, that doesn’t mean it’s going to be smooth sailing. 

One of the things that people forget about Europe is it’s not one place. It’s not even five places. And there are elements of old Europe that long predate World War Two that still hold sway in the minds of many people. If you go back to the world before World War One, we had a number of major powers in Europe. 

We had Russia, we had Turkey, we had France, we had Germany, we had United Kingdom, and we had something called the Austro-Hungarian Empire. Italy is in there, too. Now, the Austro-Hungarian Empire did not survive World War One and has never been resurrected. But those territories are still there, and the people who identified as part of that region still think of themselves as something that’s not European and not French and not Turkish, not the rest, but their own thing. And the core of the Austro-Hungarian Empire was this little three state area involving Austria, Hungary and Slovakia. And if you look at their biggest cities, Vienna brought to Slava and Budapest, they’re in a really tight cluster. So this little zone has always had a bit of a chip on its shoulder and has always chosen to do things kind of their own way. 

So Austria is kind of a South Carolina of Europe, from an ethnic and racist point of view. If you want to kind of look at it that way, the Hungarians were always the junior partner. They thought they should get more. And then the Slovaks kind of got brought along for the ride. 

Now, at the moment, both the Austrians and the Hungarians have relatively new governments that are seeing things from a pan-European point of view. The problem at this moment now is Slovakia. A year ago, two years ago, three years, relatively recently, they, reelected a guy by the name of Robert Fico, who has kind of a similar outlook on all things European and NATO to Viktor Orban, complete with the de facto under the table alliance with Vladimir Putin of Russia. 

He is now a loan for a country that really can’t veto too much. And he doesn’t have the backing of a decade plus of consolidation in his system, but he is still a voice from a different perspective who doesn’t necessarily see things the European way. So this is a big step for a lot of reasons. But don’t expect it to start a fundamentally new chapter of what Europe is, because all of the institutions of Europe, which were designed around consensus, still require consensus. 

We just now have one more voice on the majority side. That’s not always enough.

Bring On the Jet Fuel Shortages

Even if the Iran ceasefire holds, the world already has a months-long jet fuel shortage baked in. So, start saving for those summer vacation flights.

These shortages will hit harder in the Asia-Pacific regions, but everyone will feel the heat. The problem is that Middle Eastern crude from Kuwait, Iraq, and Saudi Arabia (now offline) is ideal for jet fuel…and there’s no real substitute for the product.

Flights well into the future are already being canceled in countries like China, Japan, India, and Australia.

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Transcript

Peter Zeihan, here. Coming to you from Savannah, Georgia, one of my favorite cities in the country. 

Anyway, today we’re talking about one of the after effects of the Iran war. Even if the ceasefire holds, which, we are looking at a months long shortage of jet fuel on a global basis, most heavily concentrated on the South Asian, Southeast Asian, Australasian and Northeast Asian zone. Problem is that jet fuel is very exacting, in terms of its production. Whereas diesel or gasoline have a broader band that you can produce them with in the distillation columns in a refinery. In addition, the type of crude which kind of a medium heavy sour, that is your preferred feedstock for most refineries that make jet fuel, is heavily concentrated. 

Its production in places like Kuwait and Iraq and Saudi Arabia and all that stuff is off line. That was all Gulf facing crude that couldn’t be redirected somewhere else. We’ve now had a half a billion barrels of oil not be produced and delivered. And the refiners have already taken the last delivery from pre-war shipments. 

We’re not going to see new shipments come out in the next 2 to 3 months, minimum. Probably considering that a lot of the stuff is Kuwaiti and Iraqi, for over a year. So that means that we’re already seeing airlines in China and Japan and Australia and New Zealand and the Philippines and Vietnam and India, all canceling flights, not just for like the next few weeks, but the next few months. 

There is no good substitute here, because if you say run low on gasoline, some vehicles can switch to diesel. Or more importantly, the cargo can switch to diesel. And if you run low in diesel, you can always put some of the cargo on trains or on ships. Jet fuel is for jets, and that’s it. So with a relative bottleneck on the feedstock and a relative bottleneck at the refineries and the lack of substitutions, we’re just out. 

And so we’re going to see this cling to the system for at least a year, assuming no new shooting. There will probably be more shooting.

MAGA – Breaking Up Is Hard

President Tump with a MAGA face mask over his mouth

When Marjorie Taylor Greene, Tucker Carlson, and Alex Jones all turn on Trump on the same day…it’s worth looking into.

These figures have all suckled at the MAGA teat for years, but it seems the milk may have finally soured. But is this really all an organic change, or is there someone pulling at the strings behind the scenes? It makes an awful lot of sense for the Russians to cause fractures in MAGA to weaken the U.S. position.

They say breakups are hard, so we’ll see how MAGA and the broader U.S. political sphere handle this fragmentation.

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Transcript

Hey all, Peter Zeihan here. It’s the 11th of April. I’m coming to you from Colorado, and today we’re going to talk about what’s happened in the MAGA sphere over the last about seven days, we have had a number of personalities, ranging from Marjorie Taylor Greene to Tucker Carlson to Alex Jones, Nick Fuentes, to. Oh, who was that really crazy bitch, Candace Owens? 

Oh, my God. Anyway, some of the worst of the worst, people who have been spouting propaganda and, lies and incrimination and just making up all kinds of conspiracy theories for the last decade, all of them have turned on Trump all at once, and they’re now all saying things that, you know, honestly, would come out of the squad on the Democratic left really? 

Well, calling Trump a mad king, genocidal evil. My personal favorite. He’s probably the Antichrist. Let’s start by saying that none of these are nice people. All of them are horrible. And all of them have basically lied to all of their followers for a long time. So if you’re a follower and you’re seeing this, you have been had over and over and over and over and over again. 

But the fact that they all switched almost on the same day tells me that this is not a one off. This is an organized effort. Now, every single one of these people, if they’re not active Russian agents, the Russians have a pipe into their brains where they’ve been funneling propaganda that they may go on to vomit in front of their followers. 

Nothing’s new there. That’s not particularly controversial, even for them, but for them to all switch at the same time. That suggests that the Russians, since an opportunity, see, one of the things that people get wrong about Trump and the Russians is that Trump doesn’t owe Putin and Putin doesn’t control Trump. Trump is just really easy to manipulate, and Putin has been manipulating him. 

Now Putin has used all of these conspiracy theories to break up the Republican Party from the inside, basically break down the capacity of the business interests and the national security interests and the fiscal voters to basically control the rest of the party. And so it’s turned over into MAGA. And that means that MAGA is the single most coherent voting bloc that the United States has right now, arguably the largest and most consolidated voting bloc that the United States has ever seen in its history. 

And as the most powerful force in American politics, that puts it on Putin’s radar, because Putin’s goal has never been to get a friendly person in the American presidency. Putin’s goal Russia’s goal has always been to break the American political system so it can’t function. And if MAGA is now the most powerful part of the American political system, then it is now a target. 

And with the Iran war, the Russians have sensed an opportunity. So the goal isn’t for Putin to go after Trump per se, but to break the capacity of market a function. And if that drives the line between MAGA and the president, so much the better. So he’s using these people who have been borderline to outrageously, traitorous over the last few years to now turn all at the same time and basically set the Trump alliance on fire. 

It’s a good strategy. It’s a really good strategy because there really isn’t anything else coherent in the American political system right now. The question, of course, is whether Donald Trump realizes that this is how it’s been all along, because he’s always assumed that all of these people, including Putin, worship him. That’s never been true. And he’ll have to do an ego adjustment if he wants to come to grips with what’s happening now. 

But it’s unclear whether Trump has mentally degraded too far to even absorb that simple fact. And if he hasn’t, then we really are not just looking at the end of the Republican Party, which I would argue already happened. We are looking at the end of MAGA as a unified political force. Whether that is good or bad, of course, depends upon how you view the country, the world, American politics and how things are going to evolve or devolve in the next year.

China Tries to Build Sand Bases, Again

A desert full of sand

China is out building sand castles again in the South China Sea, and I bet you can guess how it’s going to end.

They’re trying to do something that has already failed. These new sand-based structures will suffer from the same structural problems as last time, so runways will crack and infrastructure will become unstable.

The Chinese are surely assertive and persistent, but larger sand islands just mean a larger failure. Chalk this one up as a costly mistake rather than a serious military threat.

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Transcript

Hey, all. Peter Zeihan here. Coming to you from Colorado. some of you have written into the Patreon page asking about China’s new base building thing in the South China Sea. For those of you who haven’t been following, South China Sea is a disputed waterway that is east of Vietnam, west of the Philippines, and south of China. 

Lots of different countries claim it. China has a particularly insane claim where they claim all of it, even though there’s no historical geographic basis for that. But, you know, bygones. Anyway, in bits and pieces over the last 30 odd years, the Chinese have been building artificial islands in this zone and stationing military equipment On them. 

This stopped several years ago. I think it’s been seven years since the last one. And now, as of this week, they’re starting on a newer, larger island in the paracels. So should we care? Short version is. Yes, but usually out of entertainment on this topic. So a few things to keep in mind. South China Sea is not particularly deep to sandy bottom. 

And so what the Chinese do is they bring dredge ships in and pump the sand, and the core will break it up and then pump it into a pile. And that pile becomes an artificial island, and they build infrastructure on it. And I don’t know if any of you ever played with sand as a kid, but this stuff isn’t all that stable. 

And so what happened within 48 months? Most cases within 12 is all of these structures that they built started to settle. And so after a couple of years, after five years, for sure, all the runways they built were useless. Planes couldn’t land on them. And the reinforced hangars they built just started to crack open. And so about seven years ago, they stopped. 

So what’s changed? Well, seven years ago is where Chairman Ji got rid of his last real advisors. And so the advisors who were willing to tell him that. Hey, boss, this is a really stupid plan that is wasting a lot of money. And anyone who knows anything about military tech is laughing at us and hoping we do more of it, so maybe we shouldn’t. 

And they stopped. But seven years ago, that last person who was willing to speak truth to Ji was let go. And in the last seven years, she has been imbibing nothing but his own rancid propaganda. Does this sound like anyone you know? Anyway, so we’re back at it again. And the Chinese seem to think that it. Well, if a small island made out of sand, it was going to sink and crack and be useless. 

I bet a big one will work. And yes, it will work differently. It’ll sink bigger, it’ll crack bigger. It’ll be even a bigger disaster. And I really hope that they make some mid-term military plans based on this, because it’ll be a delightful disaster when the rubber hits the road in any meaningful way. So, am I worried? No, but I have bought some more popcorn.

The Blockade of Iran Begins

A US aircraft carrier floating in water with dark storms behind

The blockade of Iran has officially begun. The first day was a bit slow, but this remains a monumental move by the U.S.

The most critical component of the blockade is that it finally puts pressure on the group actually controlling things, the Islamic Revolutionary Guard Corps. And since the IRGC gets most of its funding from oil exports and smuggling, the pressure is on.

This is a good thing overall, but it could provoke attacks on nearby Gulf states. And sure, there are several ways to bypass the blockade, but those costly routes add time. A blockade like this can only be effective through sustained enforcement, so we’ll continue to watch the Strait closely.

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Transcript

Hey, all Peter Zeihan here coming to you from Colorado. We are on April 15th now. And so happy tax day. But it also means that we’re in the second full day of the American blockade of the Persian Gulf. Specifically, the United States has said that any ship that is planning to dock at any Iranian port or is coming from any Iranian port is not allowed. 

Passage and naval assets, at least in theory, are in position to, potentially board vessels that decide to run the blockade. In the first day, no one really tried. Really. Only one ship came through ignoring the blockade. The United States didn’t do anything, but it was the first day. So, you know, whatever. That could mean anything moving forward. 

What the Trump administration has done is really, for the first time in the conflict, actually put a price on the powers that be in Iran. You see, when the first waves of attacks went in and the bulk of the Iranian leadership was killed, yes, that killed the current decision makers. But when you’ve got a political class of mullahs, it’s 10,000 people. 

Power just went to the next wave. And when it comes to operating in a war scenario, the people who are making the decisions were the IRGC, the Islamic Revolutionary Guard. These guys operate differently because they don’t necessarily garner their power from control of the military or the economy or taxes. Most of their income comes from either oil sales directly or smuggling. 

So when you’re looking to punish these people, the attacks at the United States and Israel did for five weeks did very, very little to actually hurt them. It destroyed large portions of the aboveground Iranian economy. And in a normal state situation, that could have been crushing. But those weren’t the people that, were running the military strategy at the time or now by blockading the ports, however, the 2 million barrels a day that the IRGC was able to export has now gone to zero. 

And their ability to import product, to then control smuggling networks has gone to zero as well. So whether or not this is on purpose or not, the white House has stumbled across a strategy that actually puts pressure on the people who need to be pressured. There are still a thousand questions about how this will be done, whether it really will be done, or if it’s just a truth social post. 

But the fact that the assets are actually in place now is promising. That promising, however, doesn’t mean it’s going to work. Promising doesn’t mean that it’s going to be sustained long enough to make a difference. And that doesn’t mean that it comes with no side effects. Because if you really do start pressuring these people, they will strike. 

And these are the people who control the bulk of the Iranian missile fleets and all of the drones, and have demonstrated over and over and over and over again that they have more than enough capacity to strike any energy asset on the Arab side of the Persian Gulf. That’s above the west side. 

Anyway, the other reason that the blockade seems to me to be a necessary move is hardware. The Iranians don’t have a huge manufacturing base, and almost all of the parts and all of their missiles and all of their drones come from China. And we were in this weird situation throughout the war where the Chinese could ship whatever components in Iran could import whatever components they wanted. 

But the, the strait was shut down to Allied shipping. Now we’re in a situation where that seems to have finally flipped. There are still plenty of drones, thousands of drones, maybe tens of thousands of drones in Iran. So it’s hardly a short cutoff. But it does matter. 

Now there are two things to keep in mind and to watch for in the days ahead. First of all, maintaining a blockade on the Persian Gulf is pretty easy. You put a few ships across the mouth of the Strait of Hormuz. You can see everything without any sophisticated equipment. That’s the easy part. But Iran does have one port, Chabahar, that is out east in the Gulf of Oman, where it turns into the Arabian Sea just shy of the Pakistani border. 

Chabahar would require a separate naval blockade in order to prevent access. And that means American splitting its forces. Otherwise, you can ship in containers full of drones to and they can be trucked elsewhere in the country. 

Second, there’s nothing about the northern or eastern borders of Iran that can be blockaded because it’s land. 

So the Chinese could, rail or truck stuff through Pakistan or Central Asia into northern or eastern, Iran and get things in that way. Now, that takes longer. That is much more expensive. If they started that process today, the first new components aren’t going to arrive in Iran for about three weeks. And there’s a lot of things can go down in three weeks. 

And a situation where basically both sides have been negotiating in bad faith since the very beginning of this process. But those are the things to watch. The naval side of this for the United States is actually pretty straightforward, even if it does require an extra task force to cover Chabahar. But there we are. 

So, next steps. Watch those two places. Watch to see a second phase of negotiations. Watch to see if either side is willing to give in or not. I think we’re well past the point where Donald Trump can simply declare victory and go home, because if he does that, he basically hands Iran control of the Strait of Hormuz, allows them to continue their nuclear program, allows them to continue supporting militant groups throughout the United States. 

Basically, the United States would be in a worse position in that scenario. In the aftermath of the war than it was before. And so many people are now saying that among the Republican Party that I think it really has sunk in doesn’t mean that there’s a good strategy here. But if there is a path to pressuring Iran to do something different, you have to hit the interests of the IRGC. 

And so far, the blockade is the first thing the United States has done that has done that.

The Energy Crisis: Downstream Impacts

Globe shot of energy hubs

The global energy crisis has moved from theoretical to very real. As the last shipments sent before the war begin to arrive, we are now hitting a turning point in the energy crisis.

Rationing and black markets have already sprung up in Asia. Some countries have found ways around the shortage (for now), but that has created new issues for others. The Europeans will feel the heat in the coming weeks, as oil from both the Gulf and Russia disappears.

The U.S. has also lifted sanctions on Russian and Iranian oil that is already in transit, temporarily easing shortages, but undoing years of work to limit export income for these countries.

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Transcript

Hey all, Peter Zeihan here, coming to you from Colorado. Yesterday we talked about what was going on with energy markets, primarily in the upstream, dealing with disruptions out of Russia and Iran. Short version. It’s pretty bad. It’s getting worse. Now, I wanted to deal with things that are close to the consumer where it’s pretty bad and getting worse. 

It has now been five weeks, which means that there’s a half a billion barrels of crude oil that hasn’t made it to market 

The final tankers from pre-war shipments from the Persian Gulf arrived in all of Asia last week. The final tankers will arrive in Europe this week and starting next week, the disruptions to from what the Ukrainians are doing to Russian oil exports will start to affect Europe as well. 

A mix of things here. Let’s start with who’s feeling what. Because of the shortages in Asia, we already have widespread rationing and the development of black markets. It’s affecting different countries in different ways. So for example, India has gorged on the thin stream of Iranian crude that’s coming out, and the legalization by the Americans of Russian crude that is out and about. 

And that has allowed them to avoid any sort of direct energy crisis as regards to oil and oil derivatives. However, almost all of their cooking, I should say all. But for about half the population, their cooking is done with propane liquefied petroleum gas that is exclusively produced for them in the Persian Gulf. That has gone to zero. And so now they’re seeing an energy shortage in that regard. 

Places like New Zealand and Thailand and Taiwan and the Philippines and Vietnam are all experiencing degree of energy shortages and rationing. And already the country that is most panic and should be is Korea, because their options are very, very limited and they’re a major industrial player in Japan at the moment, is avoiding this largely because they have access to sources from the Western Hemisphere and a navy that can protect them if it comes to that. 

And at the moment, the Chinese are okay, not because they’re not experiencing energy shortage. They absolutely are. But China has an overbuild of refineries. And so part of their economic model was to build refineries, absorb crude from abroad, refined into fuel, and then export that fuel. And so the way the Chinese have avoided an energy crisis is by stop exporting fuel. 

So at the moment China is okay, but those fuel exports now have stopped arriving in various places and countries like Australia, New Zealand, which used to get their fuel from China, their refined fuel suddenly aren’t. So we have a different sort of rationing and energy crisis. In Europe it’s going to hit them from multiple angles, but they do have a little bit more time. 

Like I said, the last tankers from pre-war Persian Gulf exports arrived this week. So it’s only now that the crunch really begins. The problem will be in 2 or 3 weeks, because they have this weird little setup where Russian crude can’t be bought in Europe, but it’s exported somewhere else, refined a product and shipped back. So we’re now starting the fuze on that, and in three weeks the Russians, will basically be a non-factor in European energy. 

At the same time, the Persian Gulf becomes a non-factor in energy. And it’s going to be a mess all around. A couple other things. Number one, there are more ships leaving the Persian Gulf. We saw 20 to 30 on both Saturday and Sunday, which brings up us to about one fifth of pre-war levels. The difference is Oman, which is the country that controls the southern side of the strait. 

Last week we talked about how the Iranians had set up a tollbooth system and were charging about $2 million per vessel and then kind of sort of escorting, ships through the northern part of the Strait of Hormuz in their territory. Oman is now doing the same thing in the south, basically to tankers, ships, whatever they happen to be are either re flagging or changing the trans front doors to say, Omani owned. 

And Oman has always been kind of the neutral power in the Persian Gulf. The Iranians have always kind of considered it in a different basket compared to Kuwait, Bahrain, Gutter and Saudi Arabia. In the UAE, which are more of the American camp. So far, the Iranians have not targeted these Omani vessels. I’m not saying that they this is a safe path. 

It’s not. But it has allowed some ships to get out. I will underline, however, that almost all of the ships that are using this route are leaving. Very, very, very few are coming in. Those that are typically Iranian flagged using the northern route. So of the two 300 ships that were stuck in the Gulf before, some of them are getting out. 

Nobody’s going back in. And that means that the oil production, even if it continued, even if it wasn’t damaged, still has no place to go. Let’s see. Finally, the big achievement of the Trump administration in this war so far in energy markets has been ending. the sanction system on places like Russia and Iran. They have now lifted fully the sanctions on purchasing what’s already on the water. 

And that has allowed basically the last 4 or 5 years of attempts to isolate the Russians in the last 10 to 15 years of attempting to isolate the Iranians economically, to vanish into the ether. If there’s going to be an effort by the United States or any other country to limit the legal access to these crudes, they’re going to have to start completely over. 

So the last 5 to 15 years of efforts to kind of squeeze these economies is now broken. Now there’s plenty of other things, physical damage, for example, that are drastically affecting both of these markets, primarily the Russians. But it is interesting to say that it took a war launched by Donald Trump on Iran in order to make Iranian oil legal again.

Trump Goes on a Firing Spree

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

Just because Trump is finally purging some of his administration doesn’t mean that the problems are going away. The core issue still exists: Trump prioritizes loyalty and praise over competency and experience.

Trump even fires people for the wrong reasons. While these officials could be ineffective or downright damaging in their roles, they won’t feel the wrath of Trump until they do something that pisses him off personally or politically.

And the scariest part is that there is no longer a cadre of replacements to pull from, since Trump dismantled the Republican institution.

Prefer to read the transcript? Click here

Transcript

Hey, all. Peter Zeihan here coming to you from Colorado. A lot of people on the Patreon page have asked me what I think of the recent firings by Donald Trump of a couple of his cabinet members, at Department of Homeland Security. Kristi Noem is now gone and has been basically put into a pointless position, to oversee a summit that will probably never happen again. 

And Pam Bondi, the former attorney general now, is also gone. And so the question is this this is the start of a general bloodletting. You know, let me let me start with the simple stuff. Trump is erratic. So I don’t really know. But let me underline that. It really doesn’t matter. The president chooses co-leaders based on his own interests and his own style. 

And we have learned over the past five years that Trump does not want advice. He wants worship. So if you go back to Trump one, he really did not expect that he was going to win. So the Republican Party, specifically the former governor of Oklahoma, helped him staff out the government with people from throughout the Republican establishment. And so he came in with a lot of people that he personally knew her trusted. 

And he proceeded to almost fire all of them during the course of his first administration. He actually cycled through more cabinet secretaries than any other three American presidents in history. What we discovered was that whenever somebody was in the room who offered him good advice, that was usually because they had studied the topic and knew something about it, and that made him feel like he wasn’t the smartest person in the conversation. 

So when he was out of power, he took over the Republican institution, the party itself, and purged it of the research arm and the recruitment arm so that that could never happen again. So when he came in for his second term, there was no longer a pool of talent to draw from. In fact, the Republican Party no longer has a pool of talent to draw from. 

And so he installed people who would tell him what he wants to hear. Or, to be perfectly blunt, just praise him without any reason. And that is the bulk of the cabinet today. And if you look at the senior leadership throughout the government, we still have over a thousand positions that haven’t been filled. Things like, say, the ambassador to Russia or the, surgeon general. 

This is as much by design as anything else. So when you’re hoping that he’ll fire somebody in the cabinet who wasn’t any good at their job, keep in mind that they weren’t picked because they would be good at their job. They were picked because they couldn’t be good at their job. And any replacements going to fall into the same bucket. 

So let’s go through the candidates that are everyone’s talking about that are likely to get fired. I don’t know if they’re going to be, but, that, you know, they’re on the list. First up is at Commerce, Howard Lutton. Now, I have spoken to no one who is in the financial world in New York who has said anything other than he was the most corrupt person in New York. 

And so they all thought he would be a perfect fit for Trump Commerce. And it sounds like that’s exactly what’s gone down. The Trump policy when it comes to tariffs is incredibly erratic. We have now had over 7000 changes to tariff policy. So businesses within the United States just don’t know what the rules of the game are. 

And we’ve seen industrial construction spending steadily drop for the 14 months of the Trump presidency so far, to the point now that if you remove data center construction, we’re actually below where we were for new builds during Covid of all times. It’s getting very, very bad. But for let’s take this as an opportunity. What it seems to be happening is his family is selling access to lightning, specifically at Commerce. 

And lightning is selling his personal access in order to get people exemptions on the tariff list. So a remarkably corrupt setup. Trump knows this. Trump has no problem with this. Trump’s problem with Hutnik is that apparently the big family was very tight with the Epstein group, years ago. And so that has prevented the team issue from fading into the ether. 

So if Mick is going to be fired, it’s not because he’s doing a horrible job at Congress and crushing American economic activity and becoming rich in the process. It’ll be because of child molestation, apparently, or something like that. I really try not to follow Epstein. Okay. Next up, RFK Jr at, Health and Human Services. This guy is a full on nut bag. 

This is the guy who is making up studies in order to say that, vaccines shouldn’t be part of our system. This is the guy that says that the way to fix heart disease is to double your consumption of beef tallow. I mean, he is he is certifiable. And he’s undoubtedly causing massive damage to American health long term because decisions that are made by parents. 

Now, when your kids are young are going to affect their health their entire life. And this is grossly going in the wrong direction. Trump has no problem with that. What Trump has a problem with is that RFK is sucking up a lot of the oxygen in the room, and the Maha group, and they call themselves, Make America Healthy Again is now starting to split with the president because Trump just can’t stand sharing the stage. 

It’s a PR issue. I mentioned that the surgeon general, still hasn’t been filled. It’s been 14 months. It’s one of the most important jobs in the government and the only person who has been appointed. So far is a literal quack. Okay. Moving on. My personal favorite, Tulsi Gabbard. If she’s not a Russian agent, she clearly aspires to be one. 

She is had an anti-American position on every foreign policy question for the last 20 years, and now she’s in a position where she aggregates all of the intelligence that comes in from all of the bureaus and departments, and provides the president with a daily brief. And she, of course, aggressively edits that. So the president can’t possibly be informed. 

Most of the positions she’s taken so far in the administration have been purely pro-Russian, designed to denigrate American power. But that is not the problem that Donald Trump has with her. The problem that he has is that she doesn’t support the war in Iran. And so she actually testified to Congress, one of the few true things she’s ever said, that there is no evidence that Iran was, actively developing a bomb in a way that was any closer to who they had been over the last five, ten, 15, 20 years. 

True. Trump didn’t like hearing that. So now he’s talking about getting rid of her. Next up, Kash Patel at the FBI Patel. He’s one of the candidates for one of the stupidest people in the administration. He has no experience in law enforcement, just like Tulsi Gabbard. No experience in intelligence or management. 

And he’s a conspiracy theorist, and he came in basically knowing nothing about the job. And one of the first things that he did is remove people from counterterror investigations, kidnaping investigations, new color theft investigations, and sent them to Home Depots to arrest day laborers. He has wrecked the training system for the FBI. He’s done incalculable damage to American law enforcement long term at the federal level. 

Trump is aware of all these things. He has no problem with any of these things. His problem with Cash Patel is that he has proven so incompetent that he can’t prosecute Donald Trump’s political foes. Now, this is an impossible ask, because Trump accuses his foes of doing things that they just haven’t done. And I realize that there’s some people in MAGA that are going to scream at that, but tough. 

No facts whatsoever have ever been presented that Trump lost the last election, or that Trump doesn’t get along very well with the Russians. This is the same reason that Pam Bondi was ultimately dismissed because she realized that there was no relevance to these cases, and so she slow walked him and only prosecuted them in order to stay in Trump’s good graces. Kash Patel is basically in the same bucket. And if this is how Trump defines success, he will never be satisfied with anyone who is FBI director or attorney general. Competing with cash Patel for the dumbest person in the administration is Pete Hegseth at defense, the guy who, during his confirmation hearing, proudly proclaimed that he would be the least qualified defense secretary in American history. 

And while he was right, he still hasn’t appointed a chief of staff, so he’s still not even capable of scheduling a meeting among the Joint Chiefs without using their staff, much less the rest of the Defense Department. He’s gone through, and he’s wrecked some of the academy work. He’s certainly interfered with mid-career training. He’s interfered with the promotion process to make sure that no women or minorities are promoted. And as a result, he’s come into clashes with others of the senior staff within the, Defense Department. The big things has happened the last few weeks is that the Army chief of staff was fired because he objected to what Hegseth was doing with the promotions program. 

The chief chaplain was fired because the chaplain thinks that got. Oh, God, this is so awful. The chaplain believes that soldier should have a relationship with their spiritual side, whatever that happens to be. And Trump’s like, unless you’re going to be a crusader, fuck off. We’re now at the point that the Pope and the arch bishop of military services are now taking some pretty strong stances against Hegseth personally. 

And Hegseth is using Crusader language to justify the war in Iran, but having absolutely nothing to do with the manager of the conflict itself. Trump knows all of this, has no problems with any of it. But Trump realizes in his heart of hearts that the Iran war is not going nearly as well as he would like, and Pete Hegseth has now manifested himself as a potential scapegoat. 

So a couple of the firings that Hegseth did over the last week were potential competitors for his job. And so he fired them preemptively. Now, the point of all of this is that it’s not that these people should be fired. Of course they should all be fired. They should have never been selected in the first place. They certainly should have never been confirmed by the Senate. 

But they have been. And if Trump fires all of them, there is zero expectation that we’ll get anyone better. I make part of my living by being in a conference speaker. So I go around the country talking about geopolitics and economics, and where it takes the people in the room, and I try to stick around to see the other speakers. 

And typically you’re going to have a couple of economists and a couple of political speakers. And when you bring in a political speaker, they always try to get someone from both sides that has collapsed in the last year. What we’ve discovered is that there’s no one in the business community or academia or in security studies that believes in anything that Donald Trump is doing. 

There is no Cordray out there for MAGA that is rooted in anything real. It’s just ideology. So I have not been to an event in the last year where anyone has spoken on behalf of the MAGA movement, unless it’s been a direct representative from the administration itself. And most of those guys clearly don’t know what they’re talking about. 

What is evolved over the last 14 months is that the business community has kind of gotten fed up with what’s going on, and is starting to change its mind. The business community has been a core part of the Republican coalition, going back to the last reformation of the Republican Party during the depression, and now they realize it’s finally sinking in, that they’ve been kicked out of the coalition, and they’re only now starting to kind of tack. 

That’s kind of piece. One of all of this is that we’re seeing people who have always thought of themselves as Republican, realizing that they’re just not anymore. The second piece is if Trump decides to fire these people, he then is supposed to replace them. But there are no candidates that are more competent than the incompetent people that he would be letting go. 

And what has changed, in part because the business community is there a handful of Republican senators who have kind of woken up to the danger that Donald Trump is not just to the country, but to the party in? They’re for their own personal futures. It’s a little late to the game, but we haven’t seen any meaningful movement on Trump’s appointees confirmation for months now. 

And so if we get a new defense secretary, a new, attorney general, new FBI director, somebody new at HHS, I’ll say it’s a clean sweep. The candidates aren’t going to be any better. And the willingness of Congress to give him a second chance to run with people who were chosen because they were incompetent is pretty low. So we’re more likely to see more problems at the white House, more inconsistencies, more incompetence. 

And if you look back in the last several months, oh my God, the bar is already really high. But if you look at how Trump has been reacting in public since the Iran war started, you can see he’s very clearly losing his grip and getting frustrated. And the fact that his chief of staff, Susie Wiles, is probably the most competent person in the cabinet, is suffering, unfortunately, from breast cancer and so hasn’t been able to put in the time. 

She has always been kind of the Trump whisperer. And with her and a reduced role, there’s nothing left between Trump and the rest of the world. And that is starting to really show. I call it a failed presidency, but we were already there. We’re now looking at something worse. An old guy who is really frustrated, who has started a lot of problems he can’t solve, even with a good team who has no team at all. 

This is going to get a lot worse before it gets better.

Winners and Losers of the Iran War: Ukraine and Russia

Toy soldiers advance across a map with an Iranian flag in the foreground

The Iran war has slashed oil exports from the Persian Gulf, creating a global supply shortage that’s just starting to hit markets. As prices are driven up and broader economic impacts unfold, winners and losers will begin to emerge.

Russia was enjoying the boost in oil revenues until Ukraine took out a chunk of its energy infrastructure with drone strikes. And those strikes don’t look like they’ll stop anytime soon. Russia’s support for Iran is also garnering political backlash that will weaken Putin’s long-term position. Ukraine is emerging as a winner, as its low-cost drone tech has secured deals with Gulf states to scale production and secure Ukraine’s position as a leader in military tech.

The Iran war is reshaping global alliances in ways nobody could have predicted, so we’ll continue to explore the winners and losers of this conflict in this new series.

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Transcript

Hey, all Peter Zeihan here. Coming to you from Colorado. So today we’re going to dive into our open ended series on the impacts of the Iran war on everybody else. We’ve talked about the United States at length and the Persian Gulf countries, of course, but what about everyone else? The region used to export 22 million barrels of crude a day. It is now down to probably something between 10 and 12. So we’re already looking at a shortage of 400 to 450 million barrels that haven’t gotten out, and a lot of that shut in is going to remain shut in for assuming no additional damage. It’ll remain shut in for a minimum of another nine months after the guns stop firing. 

And in the case of some of the Iraqi production, probably well over two years. These aren’t shale wells where you can just turn them on and off. Anyway, that has a lot of, in fact, a lot of people. We are only in the preliminary days of seeing oil prices go up. It was only last week that the last of the oil tankers pre-war from the Persian Gulf made it to Northeast Asia. 

And it’ll be this week that the last make it to Western Europe. So what it was a failure in throughput is now becoming a failure in supply. And we’re going to see that impact all kinds of things. So let’s start with the former Soviet Union, specifically Russia and Ukraine. In the opening days of the war. The conventional wisdom was twofold. 

Number one, there’s no way that Ukraine comes out of this in a better position. The Western world, the whole world is going to be distracted by what’s going on in the Persian Gulf, which for most countries is more significant than what happens in the Russian near abroad. The United States is going to be diverting its weapons system, most notably its missile interceptors, to its own needs in theater, rather than sending them to Ukraine. 

And on the flip side, Russia is going to make mat bank. Oil prices had been moderate until the war started, and now they’re regularly over $100 a barrel. And if you consider that the break even cost for a lot of Russian fields are between 30 and $50 a barrel. And they went from selling hit 60 to 100. 

You know, you’ve seen the profit for Russian oil sales increased by a factor of five or more almost overnight. And that cash coming in is obviously going to remake what Russia can do with the war. Most of their equipment is comes from China, but the China insist on hard currency payments and that requires oil sales. That was the conventional wisdom, and there’s nothing wrong with that. 

But now that we’re five weeks in, we’re seeing a much more nuanced picture with a lot of unexpected upsides and downsides for both sides. Let’s start with the Russians. The Russians have been actively providing intelligence and techniques and hardware to the Iranian government to target the United States’s forces in region. While Donald Trump remains firmly in Putin’s pocket, that is drastically adjusting things in the Defense Department and on Capitol Hill, where we’re seeing significant unrest in the United States with Donald Trump’s policies, in a way that can’t help, the Russians long term. 

More importantly, the Russians and the Iranians are not the only ones with drones. And during the war, the Ukrainians have showcased a new set of hardware with a little bit longer range and have used it to completely destroy the export capacity of Russian oil exports from the Baltic Sea. 

It’s conservative, removing a million and a half barrels a day of exports, maybe up to 2 million, because the Russians can’t really redirect. They don’t have a backup pipeline system. And so what was originally this big windfall has turned into a structural loss for them in terms of oil exports. They’re still earning more money overall. 

But once the Ukrainians are done with the Saint Petersburg region, they’re just going to turn those drones onto the next oil producing and transiting system. And we may not have any meaningful Russian exports from either the Baltic or the Black Sea within three months, or that close second Ukraine itself. The year that the Ukrainians have had to basically operate without American assistance, they’ve used to great effect and innovating into the drone space, specifically encounter, drone technology. They’ve got something called the Brave One, which can fit into a duffel bag. It has limited range. Not a great success rate, maybe 50%, but it only cost 2 to $3000 to make, versus 30 to 50,000 for a Shahed versus 4 million for pack three. 

So Zelenskyy in the last couple of weeks has been all over the Persian Gulf, signing deals specifically with Kuwait and Qatar and United Arab Emirates and Saudi Arabia, each multibillion dollar deals to invest in drone production. The Ukrainian problem this last year hasn’t been innovation. It’s having the cash necessary to buy all the materials to make it. 

Probably half of the industrial plant that they’ve expanded in Ukraine in the last year is not being used because they don’t have the money. Well, say what you will about the gold farmers money is not the limiting factor. So we’re going to be seeing money pouring into these facilities in Ukraine, which is going to drastically increase the defense of Ukraine from the Russians. 

At the same time, they’ll be exporting drones to the Gulf states and the Gulf states will be building their own counter drone factories. So we’re talking about a whole number of countries that five years ago, no one really considered to be at the forefront of military tech. All of a sudden at the forefront of military tech in a way that the United States can’t participate in and isn’t benefiting from. 

So we’ve seen Ukraine and Russia get weird ups and downs in ways that were completely unexpected just a few weeks ago. But perhaps the biggest impact of this is because the Russians are so actively assisting Iranians, is that all of the Arabs of the Persian Gulf are noodling over what’s next for them, vis-a-vis the Russians and the United States. 

And if you remember back to roughly 1985, when Reagan really started pushing hard on the Soviet Union, that was the year that the Saudis decided to drastically open up oil production in order to flood the market and bankrupt what was then the Soviet Union. We now have the beginnings of a second generation of some sort of alliance like that. 

But instead of the United States, it’s the Europeans, instead of NATO, it’s Ukraine. And so we’ve got a number of pieces moving here, building new geopolitical alignments that really look very, very bad long term for Russia. None of this I probably would have guessed two months ago, but here we are.