The Strait of Hormuz Remains Open…For Iran

Despite the ongoing conflict in the Persian Gulf, shipping in the Strait of Hormuz remains open…sort of. The Iranians have taken control, requiring ships to get clearance for safe passage.

Basically, Iran has set up a protection racket. They’re earning more from transit fees and oil exports than before the war, and all the Chinese ships carrying drone parts and components heading to Iran remain untouched. Even with the significant U.S. military presence in the region, nothing is being done to disrupt these flows.

Until that stops, Iran’s military operations and economy will continue to grow stronger.

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Transcript

Hey all, Peter Zeihan here. Still sick. Coming to you from Colorado. This is Loki. You may have heard him or seen him in videos in the past. Anyway, today I wanted to let you know about a little internal investigation that we’ve been running in the ER on war. 

Specifically, we’ve got questions here on our end, about why shipments are still getting through the Persian Gulf at all. 

Now, international insurance has basically been canceled for all ships in the area. Basically, once somebody starts shooting civilian shipping, all bets are off and the captains are on their own and if the ship takes a hit, oftentimes it’s the captain that is legally or financially vulnerable. If not the shipping company. And there’s no way to file a claim in that circumstance. 

So lots of ships are trapped inside the Gulf, and there’s a couple hundred waiting outside for things to clear, which isn’t going to happen anytime soon. And yet, there are still some ships coming and going, but all of them have gotten clearance from Iran. So under normal circumstances, there’s a six mile navigable channel that’s roughly in the middle of the Strait of Hormuz. 

Most of it is actually in Omani territory. Some of it does go into Iranian territory, and there’s a two mile channel for going one way, a two mile channel for going the other way, and then a two mile gap in the middle. That is not being used by anyone. That’s what’s completely shut down because of the attacks we’ve had so far. 

On the other side of the equation, you’ve got Iran basically processing ships, at the Imam Khomeini port, which is way up in Khuzestan, which is on the northern extreme of the Gulf, actually in the general vicinity of Kharg Island, if you know where that is. So for ships wanting to get passage approval from Iran, they have to sail all the way to the northern end of the port, basically under all the drone and missile attacks that are going back and forth. 

They have to dock at Imam Khomeini port. They have to basically get their papers, pay their bill, which comes out for a large ship to be like $2 million. And then they sail down the Iranian coast as close to the Iranian coast as they can. 

And instead of using that navigable pathway through the middle of the street, they hug the Iranian coast as closely as they can and sail through that way. 

And same for anyone who’s coming in. They have to sail all the way up to Khuzestan to basically get their papers stamped. So what has happened here is a clear example of the United States just being unable to process what’s going on on the front end. 

United States seemed woefully unprepared for anything happening in the Strait of Hormuz, during a war with Iran, which is just beyond ludicrous, because that has been the issue since 1979, and there was no meaningful preparation of all. Second, Iran has managed to set up a basically a protection racket, and cargo is still not just coming to and from Iranian ports, including Chinese, gear that basically is full of drone parts. 

They’re actually able to sail into the Strait of Hormuz all the way up and into the northern Gulf, not be molested at all. Docketed Iranian port, or take on cargo, pay their fees, and then sail all the way back down through the Persian Gulf, through the Strait of Hormuz, and out. And the United States is doing nothing. 

So the idea of that, the Iranian authorities, as they are at the moment, are under pressure is just mind bogglingly stupid because the economy of Iran is largely managed by the IRGC. And we have actually, in these circumstances, seen income for the IRGC go up because the not only are they getting these transit fees, but the core issues of economic smuggling still apply. 

And even though the US military is now more present in this region than it has been at any time in modern history, it is doing nothing to interrupt the commercial flows going to and from Iran, and Iran is able to increase the volumes of its exports to nearly 2 million barrels per day and garner the war surcharge. So they’re earning easily in terms of profits. 

Two and three times what they were earning before the war. And the U.S. military is doing nothing. Now, under normal circumstances, there are analysts at the military and especially at the Department of Energy who would point these things out to their chain of command, and it would go up to the department heads and eventually the president. But President Trump fired all those people last year. 

So it took people like me doing this little project on the side to figure out how everything is flowing. Someone please tell Trump because until this is interrupted in some way too big problems. Number one, the IRGC is giving them more money now than they did before, which reinforces all of the pillars of the Iranian structure that allows it to fight the war and encourages political cohesion. 

Second, they have no problem resourcing parts for missiles, and especially drones from the Chinese, and so they’re able to maintain their current pace of fighting more or less indefinitely. So yeah, someone please pass that along. Maybe it’ll make a difference.

U.S. Ground Troops Coming to Iran

Squad of Soldiers Running Forward and Atacking Enemy During Military Operation in the Desert | Licensed by Envato Elements: https://app.envato.com/search/photos/b369387a-4bc2-43d2-808a-0341aa11dbcc?itemType=photos&term=military+desert&sort=relevance

The U.S. is preparing for a potential ground operation in Iran. Marines from the USS Tripoli and Boxer, as well as elements from the 82nd Airborne, could be looped in. That’s roughly 8,000 troops, which is just a small-scale, fast-response force, but no matter the size, boots on the ground is a scary endeavour.

If Kharg Island is in fact the target, the retaliation from Iran would be massive. This is Iran’s main oil export hub, which means it’s the main revenue source as well; with that gone, Iran would unleash hell. And Kharg Island would be extremely difficult for U.S. forces to defend; they would be under constant threat of drone strikes, and quite exposed.

Another plan would be to use these troops for targeted raids along the Strait of Hormuz, disrupting Iran’s ability to attack shipping.

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Transcript

Hey all, Peter Zeihan here coming to you on March 25th from inside the house in Colorado because, false alarm. I’m not getting better and sicker. Anyway, I’m going to talk about, Iran today, specifically what’s going on? Ground troops, which looks like they’re absolutely going to be used. This is a bad idea from any number of matters, but let me give you an idea of what’s in play and what it might be used for, and we’ll go from there. 

So, as you may remember, the USS Tripoli, that’s one of America’s amphibious assault carriers, carries a clutch of F-35 fighter jets, as well as 2000 to 2500 Marines. Relocated from the Philippine Sea and the ceiling through the Indian Ocean. Now, it will probably arrive in the vicinity of the Persian Gulf in the next day or two. 

We also have the USS boxer, which is another EU marine expeditionary unit. That’s basically what the Tripoli is, which has left San Diego. It will not be an area for probably close to three weeks, but the news from yesterday is that the 82nd airborne, which is kind of America’s rapid reaction force, troops that are run by the army, that are mated with permanent transport aircraft that can deploy to anywhere in the world in less than 48 hours. 

They were given the marching orders to move to the Middle East, last night. And we’ll probably. Well, they could be moving right now. You know, all hush hush classified. But when the, orders are given, it’s usually not too long until they’re on their way. Collectively, in three weeks. This means we have about 8000 troops in the region. 

And they’re really heavy hitters. Basically, unless you’re going to move into special operations, the Marines and the airborne are about as good as they get without having armor. And that’s something else that’s important to note. So this is not a traditional ground invasion where we’re driving tanks and using artillery. This would be a relatively light force that punches above its weight for what it is, but is not designed to take on another major force. 

Keep in mind that if the Iranians don’t have another major force, so that should be fine in that regard, they may have a million man army, but it’s apparently designed to shoot civilians rather than swarm over foreign countries. Now, the news is going on and on and on and on about something called Kharg Island. As someone has highlighted Kharg Island 15 years ago, part of me is like, yeah, you finally, but I really doubt that’s the target. 

Or more to the point, I really doubt that that should be the target. Kharg Island is a small facility off the western coast of southwestern Iran. It’s up in the northern Gulf. It doesn’t have a bridge to it. It was built by foreigners, and it has a subsea pipeline that basically carries all Persian Gulf crude to it, because the Persian Gulf Coast is really, really bad to accept tankers. 

It’s just very shallow and muddy. So they have this island out where they can accept tankers. And it is the point for plus of Iran’s oil exports. And what we’ve seen in the war so far is that the United States came in completely unprepared for the idea that something might happen to the Persian Gulf and really didn’t have the hardware or the positioning in place to protect ships in the Gulf, or make sure that the Iranians couldn’t attack ships in the Gulf. 

So everyone’s now focusing on Kharg. And the logic seems to be that Donald Trump wants to make another fucking deal. And the idea is that if the United States occupies Kharg Island, then Trump will have a negotiating card to play against Iran elsewhere. So we will give you Kharg Island back. If you stop attacking places in the Gulf, specifically if you allow the Strait of Hormuz to be open. 

I will tell you bluntly, in anyone who studies, the Middle East will tell you bluntly and, that that will not work, because that will remove Iran’s oil income and then the gloves will really come off. And as we’ve seen, when the Israelis attacked a natural gas processing facility last week, the Iranians had more than enough, weapons left to open up on infrastructure throughout the Gulf. And they did well over $100 billion of damage in a matter of hours. You would probably get something like that. In addition, Kharg Island, is not going to be easy to defend. 

one of the things the United States has been doing is its carriers haven’t even come in the Gulf. One has been off in the Arabian Sea, the other one has been off in the Red sea. 

They’ve been fighting Iran at a distance. If you’re going to put a few thousand troops in Kharg, you’re going to need close in support. And it is within 30 miles of the coast. And the Iranians will hit it with everything they have, because the ability hit several thousand American troops with limited defenses right up and close. Oh, man, they’ve been waiting for a situation like that the entire war. 

It would basically be putting them in the most vulnerable way you could imagine. And now, like I said, anyone who knows anything about this region or oil politics or how defenses work would have told president that this isn’t how things go. But the president isn’t being told anything. The people in the Department of Energy and the DoD who were responsible for studying things like chokepoints and, the Strait of Hormuz specifically, were all fired last year. 

And the same goes for basically any sort of strategic planning or think work. Pete Hegseth, the secretary of Defense, has been going on a crusade in his, Anything that does not actively support the warfighter is being cut out of the Department of the defense, and that removes all education that would allow people to make educated decisions about, say, what you do in war. 

So when I say that this is a Donald Trump plan, this is a Donald Trump plan. He’s no longer allowing information to reach him, with the possible exception of through Dean Cain, who is Joint Chiefs of Staff. And that’s about the only voice of caution he’s get. And so far, he has overruled Cain on really everything of substance. 

So if this is where we’re going, this is going to end in a bit of a debacle. The only other thing that I can think of were 8000 troops that are heavy on the insidious component might be of use, as in the Strait of Hormuz itself, if you put, Marines and airborne in that area, and enable them to do land strikes, rapid and then retreat land strikes up and down the Strait of Hormuz, you can probably limit the ability of Iran to launch attacks on civilian tankers. 

And since the United States doesn’t have the ships, doesn’t have the hardware to do a meaningful convoy system, this might be the next best plan. It’s not a great one, but I would find it much more viable than, say, going after Kharg. That’s my $0.02. Anyway, that’s where we are right now. The Tripoli will arrive within 48 hours, and the 82nd could be there at the same time. 

So if you only feel you need two thirds of these forces, you get going on it right away. If you decide you need the full 8000, you have to wait for the boxer to arrive. And that will not be until the second week of April. Anyway, pieces are moving so that these options are available. Whether they are used, of course, depends upon, what Trump feels, because that’s all that matters in this war.

The Death of the First-Time Home Buyer

A Caucasian couple staring and pointing at a home

Buying your first home is one of those major milestones that your parents and grandparents probably didn’t even think twice about. Now, that milestone is slipping further out of reach for the average American.

US housing prices have trapped those reaching home-buying age in the rent-cycle. Sure, demographic shifts could help, but that relief wouldn’t hit for quite a while. The quickest solution would be ramping up home building, but that hasn’t happened at scale. And demand hasn’t dropped since the boomers are aging in place. Oh, and lending costs are getting higher, too.

It’s the perfect storm to lock out first-time home buyers, and there’s no relief in sight…especially not within this decade.

Ukraine Strikes Hit Baltic Export Facilities

Drone firing a missile

The global energy trade has been taking hit after hit, and things might be getting worse. Ukraine launched a large drone attack on oil export facilities in the Baltic, proving they can disrupt Russian exports.

With the Persian Gulf effectively offline, losing Russian oil would be devastating to the global markets. Drone warfare continues to evolve and reshape the way these conflicts unfold, especially when targeting energy infrastructure.

I would expect Ukraine to continue these strikes, knocking out a large portion of Russian export capacity. Which means the global energy crisis could get much worse, very soon.

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Transcript

Hey all, Peter Zeihan here. Coming to you from Colorado. More news, not Iran related from Sunday, the Ukrainians launched a fleet of drones into Leningrad province. That’s where Saint Petersburg is targeting. Specifically the pro-Morsi and the use Luga oil loading facilities. Now, combined, those two facilities can handle about 1.7 million barrels of crude a day of exports and another 300,000 barrels per day of refined oil products, primarily diesel. There are multiple reports of fires throughout the loading and tanker areas on the port specifically, and at this point, about 24 hours after the attacks happened, that port remains offline. Now, this is significant for two very, very, very big reasons. Number one, the Persian Gulf is offline. It’s probably not coming back. That’s 20 million barrels per day that we’re probably just not going to see again. 

And the world has yet to accept that is where this is ultimately going to lead. Second, there are really only three major sources of crude for the global economy. One is the Persian Gulf. One is North America, specifically the American shale sector, primarily in Texas. New Mexico, Colorado, Oklahoma and North Dakota. That one’s fine. And the third one is the former Soviet Union. 

Most notably Russia. Now, Russia has three major ways to ship its crude out. One goes to the Black Sea. And those have been under persistent attacks by the Ukrainians for a couple of years now. One goes out to the Far East, near the city of Vladivostok. Those are well out of range of anything the Ukrainians can do. 

And the third one is this one here in the Baltic Sea with Paramores can use luga. The thing is, these have typically been just out of range for Ukrainian attacks as a rule. And there’s this is a rule made to be broken. Any infrastructure that is within about 600 miles of a hostile actor is now completely vulnerable to ongoing cheap drone attacks like the shitheads at the Iranians are using against the United States in the Gulf right now. 

Like the Russians have been using against Ukraine since the beginning of the war, and now the Ukrainians have joined the club and they’re threatening, the Leningrad region. But the Leningrad region is about 700 miles away. So not only have the Ukrainians developed a new battle platform with better range, they’ve been able to generate enough drones to throw a volley of 60 of them at these two ports. 

To the point that they are able to shut down one of the largest facilities that the Russians have. So we now need to pencil in, in the not too distant future that, not only are we going to use the Gulf, not only are we going to use the Black Sea, we are also going to lose the crude that’s coming out of the Saint Petersburg region as well. 

And from the Russian point of view, that adds up to about another 4 million barrels a day, probably. There’s a limited degree for the Russians to shift crude around, but really not all that much. The Ukrainians have now demonstrated that this is, if not easy for them, well within their capabilities. And we should see attack after attack after attack in the days and weeks to come. 

How to Break Iran

A ripped grungy back wall of the Iranian flag

If the U.S. wants to force a meaningful change in Iran’s government, there’s only one path forward. They have to destabilize the Islamic Revolutionary Guard Corps (IRGC).

The IRGC has become the center of power in Iran. While leadership is divided into three groups, the IRGC is the military-economic network that controls industry and enforces domestic control. Given Iran’s fragmentation and ethnic diversity, internal stability is essential. Should the IRGC’s revenue streams fall in the war, internal fractures would form.

If the younger members begin seeking power over the older elites who control the wealth, a civil conflict would erupt. Of course, it would be extremely destabilizing not only for Iran but also for the region.

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Transcript

Hey, all. Peter Zeihan here coming to you from Colorado. Sorry. Fever broke last night, so I’m better, but I’m still kind of weak. Where was I? Most of our coverage of the Iran war at this point is about what’s been blowing up the energy side of things. Strait of Hormuz, all that good stuff. Today, I wanted to go a different direction and talk about what might, might, might change in Iran that would end the war the way the United States would be really excited about, what I’m going to say isn’t necessarily how it’s going to go, but if we are going to break the Iranian government, it’ll look like this. 

So the Iranian government basically has three big chunks that matter. First, you’ve got your supreme leader and surrounding the supreme leader are all of the people who are in charge of the guns and the overall strategy. So the intelligence minister, the defense minister, the people who are in charge of the IRGC, that is the Islamic Revolutionary Guard Corps, which is a militia that controls most of the day to day operations and, the country and among these groups controls all of their overseas assets and their influences throughout the Middle East, whether that is militants in Syria, Hezbollah, Shia in Iraq or what have you. A lot of these people, at least at the top, have now been killed. The Supreme leader’s gone. The new Supreme leader was selected, but his parents is one of his kids, and his wife has been killed. 

The defense minister has been killed. And on and on and on. It’s not that this group is not functional, but it means that they’ve handed power down to the IRGC. More on them in a minute. The second group are the political and economic leadership that run the day to day operations of the country. The president, for example, the economics minister, the energy minister. 

For the most part, these people have not been targeted by the Americans and the Israelis because they’re not responsible for most of the policies that the Americans and the Israelis find problematic. So when you see Iran going up and mucking up the region, these aren’t the people responsible. These are the people, for the most part, stay at home. 

And they’ve been mostly left alone. But then you’ve got the IRGC, and that’s very different. A couple things to keep in mind. Number one, Iran is not a normal country. It’s all mountainous. And in each mountain valley you have a different ethnicity. And so how the Persians came to control this territory is they expanded out of their original mountain home in Persepolis and then went to the next valley over and conquered and intermingled with those people, and then to a third and a fourth and a fifth, and eventually did that a thousand times. 

So when people talk about the thousand nations of Persia, they’re not exaggerating. This is a multi-ethnic society that has been trying to slowly grind its minorities into amalgamation for several thousand years, and today they’re only about half completed. Only 51% of Iranians identify as Persians. Now all the others still identify as Iranian. I’m not suggesting that there’s like a really robust opportunity here for multiple fifth columns, but it does shape the decision making, and it’s pretty clear that it’s the Persians who are in control of all the major decisions, especially the IRGC, the IRGC, plus the military. 

Its primary job is to make sure that 49% of the population who are not Persian never get persnickety and rise up. So in many cases, the Iranian military force is primarily designed to occupy its own country. 

All right. That’s the background you need for us to get into the real stuff. Now let’s talk about what can happen. The clerical class that is part of those first two categories, the supreme leader chunk and the more technocratic chunk. 

That’s 10,000 people. And so if you wanted to destroy the political system of a country, that’s a lot of folks that you have to drop bombs on. And undoubtedly we’ve managed to do so for, for at least a couple hundred that were at the top. But there are always going to be more people waiting in the wings to step up and get into the big chair, even during a war. 

So grinding through that entire class, which was basically would be a religious war, going after all the priests, is something that just really isn’t viable unless you’re going to put 1 million or 2 million troops on the ground in Iran to go through a country that’s twice the size of Texas with three times the population and root out each individual one, not really viable. 

And then there’s the IRGC links to the clerical class, but more generally not of the clerical class. These are people about a quarter of a million to a half a million strong, based on whose numbers you’re using, who are also responsible for domestic pacification. 

So whenever there is an uprising the IRGC comes in and starts shooting people. They also have very good relations with, say, the Syrians and especially the Russians. And so the Russians provide them with technology to track down people who are using cell phones or Starlink and basically get them in their homes and then remove them from the equation. Not nice people, but where there might might be a weakness in the IRGC model, it’s not in the guns. 

Then the money. IRGC is self-funding. They control broad swaths of the Iranian economy from energy projects that they have forced private sector players out to the electricity system, which they control half of, to any sort of smuggled good. And since Iran is one of the most sanctioned countries in history, pretty much anything that is imported is smuggled at some level. 

And that means that they have a vast array of income streams that add up to the tens of billions of dollars every year, and that money train is what entices people to join the IRGC. So today, we’re in a position where the senior political leadership around the supreme leader has been neutered or is at least in hiding. And the IRGC, in many ways, is the face of the regime now, because power devolve down to them, because they control a lot of military assets, including the missile program, the nuclear program, the shadow program. 

And so when they see their interests get hit, waves of shitheads come out. So if you remember last week, Israel bombed part of a facility called the South Pars natural gas field, which is where the country gets the 70% of their natural gas. That natural gas is used to make power that hit the IRGC directly. 

So they sent out 50 different attacks into various places across the entire region, and in doing so, made it very clear that they were perfectly willing to burn down all the energy infrastructure in the region if their economic interests are hurt. But if you really do want to change the government, you have to break the IRGC. Now, since there’s over a quarter of a million of them, there’s no way, even with a ground invasion, that you’re going to go in there and root them all out. 

So you have to change the economic math here. It’s a generational issue. Ever since the Shah fell back in 79, there has been a baby bust and a consolidation of power among the people who were alive before that. And so we’ve seen the leadership of Iran, as a rule, get over and over and over. 

That doesn’t mean that there aren’t young people there just fewer young people than there are old people. And how the demographic issue is playing out with the IRGC is you have a lot of people in their 20s and 30s and maybe even into their 40s that have never really tasted power, and they see their elders absorbing most of the profits from the smuggling and the energy in the electricity sector and construction and everything else. And they’re beginning to wonder with the war, when is my time? 

Well, if the IRGC economic aspects get crushed in the war, then you might be able to generate this sort of uprising from within the Corps itself with the younger folks, the Young Turks, if you will, going against the older folks at the moment. That is the only path forward that I see where the United States might actually be able to change the regime in the country, forcing basically a civil war in the IRGC itself. 

It would not be easy. And every time you go after the IRGC economic assets, you know, they’re going to hit the economic assets of the broader Gulf. But at this point, we have at least another 4 or 5 weeks of the war before the batch of Marines that are coming in from California arrive. And in that time, we’re probably going to lose most of that anyway. 

So we’re already talking about the Persian Gulf being removed from the mechanics of global economics permanently. The question is whether or not you want to also try as part of that process to remove the IRGC. It’s an ugly way to do it, but at the moment, it’s the only real weakness in the way that Iran is set up that I think might be able to be exploited.

Aluminum Shortages Coming Soon

A rock of aluminum

Aluminum production in the Persian Gulf is going bye-bye. As Iran ramps up strikes on gas fields, pipelines, and power plants, the countries that depend upon cheap natural gas will no longer be able to run their smelters.

The facilities in Saudi Arabia, Bahrain, Qatar, the UAE, and Oman account for roughly 9% of global primary aluminum. This is going to tighten supply for many key global industries like construction, vehicles, and aerospace.

The U.S. will catch a break on most of this pressure, since it relies on recycled aluminum for much of its supply. However, global supply shortages, coupled with Trump’s tariffs, will still drive up prices.

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Transcript

Hey everybody. Peter Zeihan here. Coming to you from Colorado, today we’re going to continue talking about the long term implications of what’s going on in the Persian Gulf. Economically, we now know that the strait is going to be closed for at least several months. And that’s a lot of opportunity for Iranian weapons systems to take out infrastructure on the west side of the Gulf. 

We now are in the position where we need to basically write off most of the 50 years of infrastructure that has built and built there. And so today we’re going to talk about metals, specifically aluminum. Aluminum doesn’t come out of the ground like copper. It comes out as an or called bauxite. 

it’s not like iron ore where one step of refining and then all of a sudden you have iron ore steel and. No, no, no, no, it requires multiple steps. First you take your bauxite and you basically put in a big batch of caustic soda, which is a strong base, sort of thing that’ll strip the flesh out of your bones, and that will remove a lot of the impurities and concentrated into a very, very white reflective powder called alumina. 

Now, alumina is produced in a number of places in the world, and the Persian Gulf is not a major producer. You do have some in there in the United Arab Emirates and in Saudi Arabia. But collectively you’re only talking about 3% of primary production, and alumina itself doesn’t have a huge number of, uses. I mean, you can use it for pigments for if you want, like a white, white, white paint kind of thing and a few other products. 

But most of it and over 90% of it is then basically put into a, a giant and that you stick a couple electrodes in it and you just electrify the shit out of it, and eventually it process itself into something called aluminum, the metal that we all know. Now, the aluminum market is a little odd, aluminum, more so than almost any material out there, is endlessly recyclable and is easy to recycle. 

All you have to do is melt it down, and all of a sudden you’ve got pure aluminum again. And so the global market, it’s about 70% primary production that goes through the base process to become aluminum electrification become aluminum. The other 30% is more traditionally recycled. 

There is a wind quality issue, some rerecording in the middle of this one. Okay, aluminum. We are talking about a system in the Persian Gulf where we have six major smelters working from north to south Saudi Arabia, Bahrain, Gutter, the United Arab Emirates, which has two, and then Oman. In all cases, the vulnerability is kind of the same. 

A drone hit on an aluminum smelter. I don’t want to say it’s not a big deal, but nothing’s going to explode because aluminum or aluminum, neither of them are flammable.  The problem is with the production cycle that is required to get there. You see, in the Persian Gulf, it is obviously oil rich. That’s what it’s known for. But it’s also natural gas rich. And oftentimes the natural gas comes up as a byproduct of the oil production. Now oil is easy to move. It’s a liquid. So you can easily put it into a tanker. And tankers coming out of the Persian Gulf is what the area is known for. But natural gas being a gas doesn’t work nearly as well. 

You can chill it down to like -280 degrees and liquefy it and put it into a specialized tanker and then ship it that way. But most countries don’t do that because the upfront cost is very, very high in the Persian Gulf. Only the Qatari do that and they do it at scale. World’s largest facility. but for everything else, they generally try to use the natural gas in another way. 

Typically they burn it in power plants for electricity, which means this region also has some of the cheapest electricity in the world. And the primary input for turning aluminum into aluminum is electricity. So you’ve got these six facilities. The vulnerability is Iran knows that attacking the aluminum plants really isn’t the way to shut it down. You just shut down the whole power grid. 

So either you hit the field where the natural gas is produced, the pipeline that takes it to a processing facility where they take out impurities so it can be used, or the pipeline that takes it to a natural gas burning power plant, or you hit the power plant itself. All of those are in the Iranian target set, and all of them have been hit at some degree during this conflict. 

And as the region runs out of interceptors, more and more will be struck. As for which facilities are likely to go down first and why? Let again, let’s start from the north. The Saudi facility is probably the one that looks the best or second best, because in Saudi Arabia they actually produce some bauxite. So this facility turns, bauxite into alumina and then alumina into aluminum all in the same place. 

And then they truck the metal out west to the Red sea. So they’re not dependent on things coming and going. But when you go down a little bit further south of Bahrain and gutter, they use local natural gas for their power. They import alumina from out of region. 

And so with the strait close, they can’t get their inputs in. Their power system is already been under extreme attack. And so both of these facilities are already operating at, well, less than half capacity. And it’s probably likely that they’re all going to be shut down, within a few days. And certainly no more than a couple of weeks. 

Move a little bit further south. You’ve got the United Arab Emirates. There’s a smelter in both Abu Dhabi and, and Dubai Emirates. The problem here is they’re on the same power grid. And because of the geography of the region, where there’s a wide swath of the UAE that faces Iran, there’s they’ve simply run out of interceptors. 

And we’re now seeing multiple drone attacks hitting hard infrastructure without interruption. So we should expect both of those to go down because of power issues in the next week or two. The final one is Oman, and it is actually out on the Indian Ocean. So, you know, it’s not directly affected by the Strait of Hormuz closure. But the Iranians have shown that they’re capable of striking things on the Indian coast already. 

They’ve already shut down the Emirati port of Fujairah, and it’s only a matter of time before they start going after the power infrastructure. Throughout both the UAE and Oman, which would be more than enough to shut this one down as well. So all of them are vulnerable in different ways. All of them will probably be going offline over the course of the next month. If this war continues. 

As for volume, these six facilities together and three of them are like the three biggest ones in the world. Produce roughly 9% of the world’s aluminum finished primary metal. The reason I’m kind of, on that is that the Chinese keep lying about their numbers, so we’re not quite sure. So if you peel the Chinese out, they’re probably 15 to 20% of the global total. 

And in a world that desperately needs to expand its industrial plant, aluminum is one of the primary limiting factors there, and we’re about to lose a lot of it. 

What this means for the United States, it’s kind of a mixed bag. In the United States, we’re kind of a flip because of policies that were decided mid-last century. 

The United States is actually uses recycled aluminum for 70% of our demand, and we only use new aluminum for about one third, 30%. So the impact on the United States is not as big. But we’re also in an environment where the Trump administration has decided that aluminum is one of those things that has to be protected. 

And so there’s a 50% tariff on imported aluminum. So we’re in a situation where we’re looking at a primary price increase because of the shortage on the international markets, on top of the 50% increase that the Trump administration has already, thrown in. And that specific tariff was not one of the ones that the Supreme Court over ruled a few weeks ago. 

So there’s an option for some price relief here for the United States if that tariff goes away. But overall, on a global basis, the, rising shortages are going to be pretty horrific. Aluminum is used in aerospace and automotive and construction and electrification and all kinds of things. And the world’s single largest user and producer of finished aluminum is China. 

And, well, they’re never getting this stuff back ever.

As Fertilizer Falls, Famine Will Follow

A machine fertilizing crops

Now that the Strait of Hormuz is shut down due to the Iran war, the impact is beginning to hit global food systems. This is coming in the form of fertilizer production disruptions in the Persian Gulf.

Potash and phosphate-based fertilizers remain mostly unaffected, but nitrogen-based fertilizers that rely on natural gas are the problem. Global urea and ammonia supplies are already being hit hard.

Prices will begin to rise, and places like China and India will face chronic fertilizer shortages. This will reduce global food production, and I think you can guess what happens after that…

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Transcript

Hey everybody Peter Zeihan here. Coming to you from Colorado, where we are getting a significant, unexpected storm. Anyway, obviously we’re going to talk about the Persian Gulf today. Ever since the Straits closed, it’s been a question of how soon before things get really nasty. And now we’re there. 

We’ve got, missile and drone attacks that are regularly punching through the defensive envelope on the western side of the Persian Gulf with Kuwait and the United Arab Emirates, clearly, if not out, almost, very nearly out of interceptors. 

And things are getting through into those two countries regularly attacking strategic things like airports, and energy infrastructure. Today we’re going to talk about the impact this is going to have on global food supplies, which is pretty, pretty fucking damning. So there’s three types of fertilizer. There is something called potash, which is potassium based fertilizer that is primarily mined. 

Most of that comes from either the Canadian province of Saskatchewan. So, you know, don’t mess up NAFTA talks. Belarus in the former Soviet Union and a little bit more from Russia. 

Those three places are the vast majority of what is produced on the planet. That is, thank God, not affected. Number two is phosphate, which is basically fossilized bird poop. 

The big producers there are a little bit from Saudi Arabia, a bit of a problem. There’s a lot in Morocco that seems fine at the moment. Peru has some. Florida has some for the moment. The Saudi part was just single digit percentages of global supply. It’s probably going to be impacted, but not critically, because they can always truck it out or to the west. 

It’s not ideal, but it can be done. The third one is where the real problem is nitrogen based fertilizers, which are, as a rule, a derivative of an oil based naphtha product or natural gas. And here the big player is gutter, that little thumb in the middle of the west side of the Persian Gulf. Qatar, for those of you who like to pronounce it the anglicized way. In what  they call the South Pars natural gas field is one of the largest in the world, and they produce condensate there, which is kind of a hybrid oil natural gas product. But, as a byproduct, they get all the natural gas they could ever use. So it’s actually the lifting cost for that stuff is negative and it’s just offshore. 

So getting it to something to process is very, very easy. They use this to do liquefied natural gas, of which they provide 10% of the global total. That’s obviously gone. the facility that produces it has already been hit. So even if the war were to end tomorrow, I doubt it would be back online within six months. 

But today we’re going to talk about what they do with fertilizer, because They use that natural gas in order to make ammonia, and then they convert the ammonia to something called urea. And urea is natural gas based fertilizer made out of primarily nitrogen that you can spread in physical form, whether pellets or ground powder or whatever. 

And this one facility and gutter is responsible for about 11% of global urea production and that is the primary method that people apply nitrogen. There are other ways, those other ways are all ammonia based. And collectively, the Persian Gulf is responsible for between 30 and 35% of global ammonia production. And all of that has now gone to zero. 

Now, of the three nutrients, this is the one I am least concerned with in the short term, because it can be derived from either natural gas itself or oil, which can then be refined into something called naphtha, and that naphtha can go on to make nitrogen based, fertilizers. The problem, of course, is that 20% of global oil is off line because of the Persian Gulf. 

So while here in the United States, where we are a net oil exporter and just have scads of natural gas and produce pretty much all the nitrogen we need ourselves and can produce more if the market pushes us in that direction, which it absolutely will from now until the end of my life. At this point, most of the rest of the world cannot do that. 

So in the short term, because of the United States, we’re probably not going to have massive shortages of nitrogen based fertilizers. Prices will go up, but we won’t have actual shortages. But if you fast forward one, two, three, ten, 20, 30, 50 years, the rest of the world is going to be in chronic nitrogen deficit pretty much from now on. 

That’s before you consider shortages of the other materials that are likely to manifest in the years to come. So prepare for an environment where food production on a global basis stalls and then crashes. With some areas affected far more than others, the one that should be at the top of your list for not being able to maintain output is going to be China, because they import pretty much all of the inputs that they need to either make their own fertilizer, or they just import the fertilizer directly. South Asia, India also looks like it’s going to be significantly under pressure, unless they can find a way to manage access direct to the Persian Gulf themselves, which is a feasible option for them. But it requires them thinking significantly different about their security policy. But now they absolutely have the impetus to do so.

Marines, Uranium, and a Symbolic Win?

Claims that the U.S. will end the war by seizing Iranian assets make no strategic sense. Targeting Kharg Island or removing the uranium from Isfahan with ground operations is just too risky.

These narratives are likely just a reflection of the U.S. searching for a symbolic win, rather than a practical military plan. But this conflict could be pushing Iran closer to nuclear armament. Iran’s ability to quickly build a bomb wasn’t enough deterrence, so building a bomb appears to be the only option left.

As the war escalates and moderates are sidelined (or killed), the Iran war will grow less coherent and much more dangerous.

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Transcript

Hey, everybody. Peter Zeihan here coming to you from the San Antonio airport. Today it’s the 17th of March, and there’s a lot of stuff going on in the news related to the Iran war that I find a little concerning. So I wanted to lay out what a few things are and are not, and hopefully some clarity will come out of this. 

So there’s a lot of talk in US media, especially, being leaked out of the administration deliberately, like straight from the white House, that, in order to conclude the war, they need to remove the enriched uranium from the equation. And the idea is that this meu that’s a marine expeditionary unit with the USS Tripoli that is currently enroute from East Asia to the Persian Gulf, is doing so in order to participate with that. 

So the two dominant theories are that the United States wants to put boots on the ground in a place called Kharg Island, which serves as the destination point for about 90% of the crude that Iran produces. It’s the sole loading facility that they have for super tankers. 

It’s on the northern part of the Gulf, about 30km off the coast. The second theory is that they want to remove they being the United States government, wants to remove the enriched uranium that Iran has from contention. That stuff is in a place called Isfahan, which is about 40 miles inland. Neither of these really match the facts. In the case of Kharg Island, there’s a single pipeline. 

There’s no bridge. So actually, if you wanted to take this out of the equation, you dropped one bomb on one pumping station on shore, and you cut it down with minimal damage, and it would be easy repair later. So there’s no need to put boots on the ground and car gets off. All that would do would be to open you up to potential counterattacks from the shore. 

Now, the Iranians couldn’t, like, surge across the street then with ground troops, but they could continually attack any American forces there with drones, for example. And if you were going to have a ship supporting Marines on card, all of a sudden you’ve given them a big, fat, easy to shoot target. That was stupid, just monumentally stupid. But so would going after for harm because it’s behind one is one of the first places that we hit during the war. 

We also hit them in July or sorry, June of last year. Sorry. It’s angry that time. I guess it is. You have been, This farm is under hundreds of tons of rubble, and it’s 400 miles inland. So the 2500 Marines that are with the Tripoli, there’s no way that they could land moved to his farm, somehow, magically excavate hundreds of tons of debris and then move the canisters of enriched uranium back to the coast. 

That’s assuming that the canisters are over 90% purified already, which is highly unlikely. so the hardware that is now moving in, the conversations that are being deliberately had publicly just don’t match the facts on the ground. I wish I had a clearer idea of what was going on here, but it’s pretty obvious that the administration is looking for a way out and looking for a way to manufacture a success. 

Just keep in mind that the position of this administration, and by this I mean the Iranian administration going back 35 years, has always been that if we get a new goal, we will be attacked. So we want a nuclear program that can create a nuke in a short period of time. You know, six months, but we don’t actually want to get the bomb. 

So the idea is that the deterrent is the program, not an actual weapon, or at least that’s what they believed. Until June of last year and in June of last year, Israel, the United States attacked anyway. And so the conversation then was basically, do we now need to have the bomb? So we have an actual turn? 

And regardless of how that conversation worked out over the last several months, this month with the new attack that killed, among other people, the Supreme leader and the conversation has changed. And now it’s like, of course we need a nuke. And everyone that the United States has are so far coming. I as assistance most recently Larijani all of these people by Iranian standards were moderates who favored negotiation with the United States as opposed to nuke. 

So pieces in motion, not a lot of it makes a huge amount of sense strategically right now, but not a lot of how God makes a lot of strategic sense either.

Trump Gets Introduced to Section 301

US Supreme Court Building

The Supreme Court ruled Trump’s tariffs were illegal, forcing the administration to do things…the right way. Welcome to Section 301 investigations.

This is the slower and more legally structured process of issuing tariffs run by the Office of the United States Trade Representative. Reminder that the USTR has been gutted, so they lack the staff to juggle multiple investigations. Especially since NAFTA renegotiations are just kicking off.

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Transcript

Hey all. Peter Zeihan here, coming to you from Tulsa. It’s way too windy outside to record there, so we’re into it right here by the coffee machine, which is keeping me alive today. All right. Today we’re talking about the next step of Donald Trump’s trade policy. As I’m sure you guys all knew, the Supreme Court recently ruled, six three that Trump’s tariffs, which he labeled as an emergency situation, putting tariffs on literally every country in the world were a gross abuse of the law that he cited that it was illegal and unconstitutional for him to do so, that, tariffs are the province of the Congress, unless the Congress has expressly granted authority to the executive. Now, there are laws where that has happened, and that is what brings us to today. There’s something called 301 tariffs where the president can say, hey, this country is not being fair. It’s violating American trade laws and any agreements that we have. Therefore, we will investigate this violation. We will open up the situation to public comment. 

So any consumers or American businesses can testify, will put it on record. We will pull all the information together, we will make a finding, and then we will use that as ammo in negotiations with the country on the other side. And if those negotiations do not go the way that we like, we will then impose some sort of punitive system that might include tariffs. 

That’s just one of many options. It’s very adult, it’s very constitutional, follows the letter of the law. Now that he has been unable to convince the courts that what he was doing before was legal, it also takes time. There are two problems that Donald Trump is going to face with the 301 approach. The first one is that it can’t be arbitrary. 

So something that Trump did over and over and over again last year is whatever happened in the international system that annoyed him. He threw a tariff on it. You’re trading with the country. I don’t like tariff. I don’t like you personally. Tariff. You say something about the military. I don’t like tariff. You seem to really like steel tariff. 

It didn’t matter what it was. You throw a tariff on anything and that is now been proven shockingly so. To be unconstitutional. Not what Congress intended. 

The problem, however, with this new approach is that there is a process and you have to start it and there’s negotiations and there’s a comment period. And you actually have to build your case. 

Now, I have no doubt that at the end of the day, the Trump administration will just say, oh yeah, of course we’ve now proven our case and we tariff, but that takes months. Second problem, all of this, all of it, every little bit of it is handled up by the US Trade Representative Office. Now the USTR run by a guy by the name of Jamison Greer, who knows what he’s doing. 

He was trained by one of the best in the industry, Bob Lighthizer. 

The problem with USTR is it can only do so many things at a time. And under Joe Biden, who did not push a single free trade deal, it was kind of hollowed out of its staff. And then when Trump came in and Dogecoin, Elon Musk and all that, it lost some more of its stuff. 

And that was never been rebuilt. So Greer and the USTR office in general, simply doesn’t have the capacity to really do more than one of these 3 or 1 investigations at a time. And Trump has already initiated 301 investigations on Canada, Japan, Korea, the European Union, Mexico, and, of course, China. And I’m sure there’s going to be many, many, many, many more. 

And because this is a process and you have to document and get comments and make findings, you can’t just wave a pen and make it happen. The US simply doesn’t have the staffing. That’s necessary to do that. And then third, on top of all of that, USTR is responsible for negotiating or renegotiating every other trade deal. 

Remember that when this all started in April of last year, tariff day, Liberation day, based on your politics, we put tariffs on every country on the planet. And Trump feels that that is necessary for every country on the planet. And now we’re doing 300 ones for all the big ones and probably many of the small ones in the weeks and months to come. 

But that ignores what else is going on, because the U.S. does have trade deals separate from all this. 301 stuff. So, for example, over the weekend, the United States, Canada and Mexico formally started the process of negotiating for what NAFTA is supposed to look like a year to five years from now, that until this moment was the US primary job, because Mexico and Canada or the United States is top and second largest trading partners. 

And whatever the future of American manufacturing happens to look like, or American agriculture, American energy or American population workforce, it’s going to be bound up and with whatever happens with NAFTA. But now the USTR has to do at least a dozen, three, oh ones, probably several 301 negotiations and investigations at the same time. Bottom line, this is like the hard, frustrating way to do it. 

Yes, but it should have started this way a year ago. The only alternative would have been to go to Congress and say that I need some sort of trade negotiation authority. Now, this is something that presidents in the past used to do. You’d have to go back to George W Bush for the last time this was done. It was called trade Acceleration or Trade Promotion Authority, where Congress grants the president the ability to do negotiations outside of the normal back and forth. 

Of the legalities. If you want to do that, you have to get congressional approval. The thing is, Trump really hates going to Congress because then he actually has to say out loud what he wants to do and put it up for a vote. Yay or nay. That was hard enough last year when he had a meaningful majority in the House and the Senate. 

But since then, Donald Trump has had a hard time staffing his government with people from the private sector, because there aren’t a lot of them that believe what he believes. And so he’s had to reach into his ideological allies, people who owe their political careers to him in Congress and in doing so, has whittled down the majority he has in the House, in the Senate to work with. 

And there are enough remaining trade based, business based, Republicans in the party that it’s unclear that he would get the sort of support that he would need in order to make the changes he wants to make. So that kind of leaves us in this stall where Trump is kind of forced to let the system be the system, but he’s unwilling to challenge the system legally. 

And so far in this administration, where that has ended has been with a Supreme Court case that tells him the thing that he never wants to hear. No.

The U.S. and Mexico Kick Off NAFTA Talks

US, Mexico, and Canada flags with a hole in the Canadian flag

The U.S. has kicked off renegotiating NAFTA, but Canada was left out of the first round between Mexico and the U.S.

The U.S. is likely prioritizing a relationship with Mexico because of its healthier demographics and growing consumer base; therefore, Mexico is a more strategic long-term economic partner. Canada, however, has been getting the cold shoulder from this administration.

Leaving Canada high and dry could backfire, as the U.S. benefits greatly from Canadian manufacturing. We’ll see how the strategy changes throughout these negotiations.

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Transcript

Hey, everybody. Peter Zeihan here. Coming to you from Colorado. You’re going to see this on the 16th of March. Meaning that formal trade talks on the relaunching of the North American Free Trade Agreement have begun. And the first round is specifically between the Americans and the Mexicans, and the Canadians have not been invited. Quite on purpose. 

We’ve got three things going on here. First of all, in the long term, the more important trading partner is Mexico. They’ve got a younger population. On a worker productivity basis, it’s actually a more productive and efficient workforce than what the Canadians have. And when the two countries come head to head in competition, the Mexicans typically win. 

But most importantly, it’s a larger population, over 100 million people. And they are at the stage of their life, under age 45, 20 to 45, where they’re buying a lot of things. So it’s a consumption base that has a lot of upside growth potential. So from a purely macroeconomic point of view, it does make sense for the United States to prioritize Mexico over Canada. 

That’s piece one. That makes some sense. Piece two makes less sense. Trump personally and the advisors around him and the MAGA movement in general have a real bone to pick with Canada for any number of reasons, which I’m not going to go into because a lot of them are made up. But the degree of almost hatred that this branch of the American political system feels towards our northern neighbor really is robust, and it is definitely affecting policy. 

To that end, not only is Canada being denigrated at any number of opportunities, but there’s actually a significant move within this move it to break up Canada as a country. Specifically. MAGA is doing a lot to reach out to separatists in the province of Alberta. Now, for those of you who have been following me for a while, you know that she’s 13 years ago now. 

Yeah, 13 years ago. I wrote a book called The Accidental Superpower. And in it, I listed five major international crises that Americans would be aware of and participate in. And one of them was called the Alberta Question. The idea is that Alberta has a fundamentally different culture, economy, infrastructure and approach to all things in the world that is very, very different from the rest of Canada. 

It’s younger, it’s more highly skilled. It’s an energy, an agricultural economy, and most importantly, all of their major economic links go south to the United States rather than laterally to the rest of Canada. So the idea, that Alberta will eventually seek something else makes a lot of sense to me. But a lot of things have changed in the last 13 years. 

For the most part, we’ve seen the Canadian system through immigration actually kind of get past some of their more urban demographics or at least mitigate them a little bit. So the risk that I had seen 13 years ago, basically Alberta paying for the entirety of the existence of Canada is no longer the case. 

They’re still the biggest contributor in per capita terms by far. It’s the richest province by a significant margin. But Ontario is no longer aging into obsolescence at the pace that it was because of the influx of immigrants that has generated its own set of problems. But that specific problem has been mitigated somewhat. 

The problem is, is that if Alberta were to achieve independence, it would very rapidly become a failed state. It would be a one trick pony with its energy economy. The currency would probably go through the roof because of it, and the place would become vastly unaffordable. The only real long term solution would then be for Alberta to join the United States. 

Now, no one in MAGA is talking about that. Very few people in Alberta are talking about that. But that’s really the only long term solution here from an economic inflation, a population of skills and an infrastructure point of view. There’s just that little cultural issue about whether you want to actually join the United States. So we have MAGA, basically stirring the pot to see the kind of problems they can generate in Alberta, specifically in Canada in general. 

But no one’s really thought about what’s the next step, should they actually win? That’s a problem anyway. Third piece impact on the United States for not having Canada in NAFTA. One of the beautiful things, from my point of view about NAFTA is we get access to the workers in the industrial plant of our neighbors, but we don’t have to pay for their education or their social welfare system, or their health care or the law enforcement. 

We just get all the benefits. So when I look at Canada, I basically see a country of 35, 38 million people, whatever the number is now, but it’s actually more tightly. Each of the provinces is more tightly integrated in the United States than ever with one another. And we get the benefit of that in our industrial base to serve our domestic needs, to serve our export markets, whatever it happens to be. 

And we don’t have to pay for any of it. So we know that the Trump administration is deeply hostile to, Canada’s presence in specifically aerospace and automotive, which are two big, big ticket items when it comes to manufacturing and trade. And it’s been very, very blunt and saying that Canada, you’re going to lose all of that. It’s all going to come back to the United States. 

But that would mean then that we need to train up a replacement workforce and build replacement infrastructure for stuff that already exists north of the border. And considering we’re just a few years from the Chinese breakdown and the breakdown in global trade in general, I would honestly say we don’t have the time to mess around with something like that. 

And even more importantly, we need to take the energy that we would have to build out that industrial plant to build up other industrial plant that we need even more. We’re already an environment of a labor market that is going to be shrinking for the next decade for demographic reasons, two decades, actually, and we just don’t have the labor or the capital, to be perfectly honest. 

That the green space in the industrial parks right now and do all of this at the same time. And so if the Canadians want to continue paying for their health care and their infrastructure and their training in order to help our industrial plant, I say let them, well, go that way. You know, we’ll see. 

NAFTA is the most complicated trade deal on the planet because it deals with all the technical details of 10,000 different product steps. The person who is handling the negotiations is the US TR who is Jamison Greer? He’s seen this before. This is not the first time that Donald Trump has pushed trade negotiations into a different direction. 

If you go back to Trump won the US, TR was a guy by the name of Robert Lighthizer famous for playing hardball. Very good negotiator. Jamison Greer is his protege. So Greer has seen the inside of this process already, even if his name wasn’t on it. And last time around, Lighthizer talked with the Mexicans quite a bit before forcing a deal on the Canadians. 

So whatever deal comes out of this is one that the Canadians, while very, very little leverage and independently of the fact that the current administration really doesn’t like Canada, that’s just the nature of the beast. It’s the nature of the people. It’s the nature of the future of Mexico. And while there are certainly things that we absolutely can do more easily with Canada as part of the process, that doesn’t necessarily mean that’s the way it’s going to go, because if there’s one thing you know about Americans in general and this administration specifically, we don’t always do the obvious thing.