Will the Drought in Iran Cause Political Change?

Cracked ground with a small green plant

The drought in Iran is worsening, but this isn’t going to spur radical and immediate political change. Let’s unpack it.

Tehran has over 10 million people that rely upon both surface water and aquifers, but a decade of drought has put strain on both water sources. The current draw rates are unsustainable, but that doesn’t mean it will reach a crisis point. Iran has already reduced water pressure across much of the capital to stretch supplies. Places like South Africa show that even if a tipping point approaches, rapid changes can help mitigate some of the fallout.

So, unless the taps run dry, I don’t expect this to cause political instability in Iran.

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Transcript

Hey all. Peter Zeihan here coming from Colorado. And today we’re talking about the drought in Iran. We had a question come in from our Patreon group about whether or not this could cause a degree of political change in Iran. The short answer is probably not. Well, quick back story. Iran, like most countries in the Middle East between 1940 and 1985, had a bit of a population boom. 

And so that population cohort is now in their 40s and have more money to spend. So things like water are something that they have a lot of stretch in their budgets to pay for should they need to. Second, after the Islamic Revolution, a lot of subsidies were thrown out by the new government, which is the current government, the Islamic government, and they tend to be concentrated in the capital. 

So you had a lot of people moved to the capital. So population growth, concentration in the capital is about 10 to 11 million people there now. Based on who’s numbers you’re using, somewhere between one third and one half of the water that Tehran uses comes from surface water, and the rest is pumped from aquifers. And they’ve been in a degree of drought now for ten years. 

So the surface water is going away, the aquifers are not being recharged, and the draw rate has reached a point that it’s definitely not sustainable. But keep in mind that we have some version of that problem in the United States, especially in the Mountain West, and have for decades. And we’re still not to the point that it’s really changed behavior because it hasn’t reached a critical point yet. 

If we are going to reach a critical point in Iran, there’s no reason to think it’s going to be imminent. The situation is bad, it’s getting worse. It’s a one way trip. But, saying that it’s going to happen next Tuesday or next month or whatever is not something we can do, and not just because Iranian data is, oh, let’s just call it substandard. 

And that’s before you consider things like corruption, you usually don’t see any sort of political shift in a system until the taps actually run dry. And at the moment, we have no reason to expect that to be imminent. In addition, South Africa is probably a really good comparison.  

A few years ago, I had the opportunity to be in Cape Town, just a few weeks before what they called Zero Day, when they expected the taps to run dry completely, and what the South Africans discovered is that when you have a system that is subsidized, when you have a system that is corrupt, and when you have a system that is drying out, you can change people’s behavior pretty quick. And so in the case of South Africa, you had some farming techniques that were abandoned in favor of things that were more water saving. And popular actions happened with people using the less water. We’ll probably see the same thing happening in Tehran as well. 

There’s no reason to think this is an immediate crunch. If it does turn into a bigger problem, however, the issue will be on conservation. They’re not going to do anything dramatic like move the capital, Tehran is where it is for a reason. If you move to the north, to the Caspian, you’re kind of like in the Iranian equivalent of eastern Kentucky. 

So let’s just say there’s a little bit of a cultural thing there. Go to the northwest. You’re in a near separatist area where the Azerbaijanis are the majority, and if you move south or west, you’re not either moving into Arab territory. Deeper mountains, drier mountains, flat out desert to close to the Persian Gulf. And so being in a place that could be invaded or some combination of all those Tehran is where it is for a reason. 

And it is easier and simpler to simply conserve water than to consider any sort of really dramatic shift. So at the moment, this is the sort of thing you look at every few weeks just to see if the taps are still running. And unless and until we get to the point that the taps stop. This is probably not something to worry about. 

And the Iranians are already taking preliminary measures to rein in demand. They’ve already cut pressure to most people in the capital, something like 80% of the total, cut the water pressure by over half. So they’re moving in the right direction in order to buy themselves more time. And the worst case scenario.

Smokey Bear’s Best Friend: fire.airnow.gov

Wildfires with smoke and a car in the background

We’re talking about every hiker’s worst nightmare. No, not the feeling of slipping into wet boots that didn’t dry out overnight. We’re talking about smoke!

There’s a growing wildfire smoke problem across North America and there are three main drivers. The Western Rockies had an unusually dry year, causing large fires that could smolder well into the winter. Canada’s muskeg region is vast and swampy, but long-lasting and hard-to-control fires break out as the region dries out, sending waves of smoke across the US. And of course, Pineapple Express (no, not that kind of smoke); the atmospheric rivers that leave the PNW parched and fire prone. Surprisingly, the West Coast has fared much better than most years thanks to heavier rains.

The smoke situation is a recurring and hard-to-predict, but using FIRE.AIRNOW.GOV can help you track air quality and plan ahead.

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Transcript

Hello, Peter Zeihan here coming from Colorado. And today we’re going to talk about smoke. This is a topic that is very near and dear to my heart as a backpacker. As you may have noticed, whether you’re living in Minneapolis or Chicago or Des Moines or Kansas City, we’ve had some crazy smoke outbreaks already this year. So I thought it’d be worth showing a tool to you, as well as talking through the three biggest things that shape the smoke forecast for the United States. 

First of all, the tool fire.airnow.gov tracks a several thousand air quality sensors scattered across the country and maps out the smoke plume. So you know what to anticipate. Also gives you an idea of the danger level based on the particulate matter in the air, so you can judge your day accordingly. A tool that I use every day, all summer long. Use it to plan my trips, because I don’t want to be in the middle of that smoke choke, when I’m backpacking. Anyway, that’s the tool. Let’s talk about the three big things. Number one, moisture conditions in the Rockies, specifically the Western Rockies. As you move up elevation, the land becomes more arid because the air density is lower, so it can hold less moisture. 

What that tends to mean is that as you move up, you get into a more and more arid environment where conditions can change very, very quickly from maybe adequate moisture to completely inadequate. And you introduce a spark weather through, some asshole with a cigarette or a lightning strike, and you can get a big forest fire very, very quickly. 

Now, this year, the Western Rockies did not get as much moisture as they normally do. So they started out the season pretty dry. And already in western Colorado, we have a series of fires that collectively are about 200,000 acres and going. And most of the air quality issues we’ve had in the Denver area so far this year are because of those fires. 

About the only good point I can say about these fires is because of the nature of the topography. Mountainous. Sometimes it’s difficult for the fires to jump from one valley to another, and they tend kind of, sort of to be somewhat self-contained. However, these are rugged areas. There’s low population density. It’s very difficult to fight fires in these areas. 

And so if a fire does start up, they tend to burn until winter. And sometimes they’re not completely out until after Christmas. So these are kind of a chronic issue that kind of needles air quality throughout the Rockies. That’s number one. Number two Canada. Okay. So Canada is a very weird place, topographically speaking, is a huge country with lots and lots of climate zones. 

But the one to watch the most is an area called the muskeg, which is a zone in northern Saskatchewan, in Manitoba, going over into the Canadian Shield, into western Ontario. These are areas that are almost completely unpopulated. And in the wet months they’re basically swamps. But if you have several months of low rainfall, the swamps start to dry out. 

And as soon as that happens, all it takes is a spark and you can basically get some sort of surface peat fire almost that can burn, burn, burn and burn. At the time that I’m recording this in the middle of what is this August, there are over 200 fires burning in this section of Canada. In many ways, it’s more dangerous and more problematic than what we have in the Rockies, because these zones are not mountainous. 

And so if you have an area that has become parched, it can just burn and burn and burning, burning, burn. And if you remember back in July when we had really poor air quality as far south as Kansas City and as far east as New York, almost all of that was because of these Canadian fires and because it’s swamp part of the year, and because it’s basically frozen tundra part of the year. 

These are not things where any sort of mitigation can really help. In the Rockies, you can go through foot by foot, acre by acre, clear out the Deadwood cut down the dead trees, haul it all off, put it into piles or whatever. That’s something I’ve done on my property for sure, because I live in a fire zone. You can’t do that. 

And the great untouched barrens of northern Canada, you just have to suffer through the fires and it’s going to be a bad fire. You’re up there. So for those of you in the Upper Midwest and the northeast part of the United States, expect more and more waves of smoke. All right. What’s the third one? Pineapple express? There are things called atmospheric rivers where you basically get channels of high altitude winds that suck moisture out of the oceans, and they just push them across the planet. 

And when these channels hit a mountain range, they rise and they drop a lot of moisture. So what we see in California, Oregon, Washington and British Columbia is the atmospheric river whips around like a fire hose at the firemen has lost control of, and it will spray the area with massive amounts of rain in some years or in other years, it’ll miss you completely and you’ll just kind of get the suction effect. 

And as the wind goes down the other side of the mountains, you get a compression effect, which actually increases air density and temperatures and makes you more prone to fires. So you get these two extremes. You get sprayed down by the atmospheric river hose, or it avoids you completely and just sucks the moisture along in its wake. Drying you out this year is absolutely a hose year, and so we’ve seen almost no fires up and down the Pacific Northwest. 

But if you remember back to say, the year 2000, when it seemed the world was going to end, that time we actually saw the Amos River avoid this region completely desiccated. And we had some of the worst forest fires in recorded history. So for me personally, going to Yosemite and a couple of days, this is perfect because while there are fires in Canada, I’m not going that direction. 

There are fires in western Colorado. I’m leaving that area. I’m going to California, which has now experienced some of its best moisture conditions in several years. The chances of fire are minimal for the rest of you, fire air now.gov and keep ahead of it.

Ukraine Strikes Russia’s Druzhba Oil Pipeline

Surface of the Druzba oil pipeline from Wikimedia Commons: https://en.wikipedia.org/wiki/Druzhba_pipeline#/media/File:Wp_nefteprovod_druzhba.jpg

The Russians have been funding their war effort in Ukraine with oil exports, but some new Ukrainian tactics are disrupting that flow.

Ukraine has begun striking pumping stations along the Druzhba pipeline. Since the majority of Europe no longer relies on Russian crude, these attacks mainly pressure those few holdouts…like Hungary. This is Kyiv’s way of dipping its toes in the water; if Europe and Washington tolerate it, expect to see an escalation in strikes.

Should that happen, Russia’s ability to fund the war effort would quickly diminish and we could see the most dramatic economic shift in the war so far.

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Transcript

Hey all. Peter Zeihan here. Coming to you from Colorado. And today we’re going to talk about oil exports from Russia and a new wrinkle in the Ukraine war. As I’m sure most of you know, there are a number of sanctions against all things Russian at all levels. And energy is one of the most important ones. Oil has has long been Russia’s number one source of financing. 

And until the Ukraine war began, the vast majority of that crude flowed west through what’s called the Druse, but pipeline network to Western Europe and Central Europe. But bit by bit, the Europeans have weaned themselves off. And aside from a few exceptions for Hungary, Slovakia and Czech Republic, who are all landlocked countries, and so I’ve limited options, everyone else in Europe is stopped using Russian crude directly. 

You can make the argument that the crude is being exported somewhere, refined in the finished product and sent back to Europe, and that’s fair. But in terms of raw crude, it’s no longer going to the Europeans really much at all. The Drupal pipeline maintains a capacity of well over a couple million barrels per day and is now only taking shipments of about 400,000. 

So we’re looking at a significant reduction already. And some of those flow through is aren’t even Russian crude. They’re Kazakh crude, which is not affected by the sanctions anyway, the newest development is that over the course of the last 18 months, the Ukrainians have gotten better at better at striking economic targets within the Russian Federation, specifically going after the energy complex. 

Now, until now, most of those attacks have focused on things like refineries, where the value add it generates some more income for the Russians and generates the fuel that they need for the war machine. But what we’ve seen in the last couple of weeks is our first meaningful attacks against Russian oil transit, specifically pumping stations on the Druze. 

But network now, if you’re French or British or German or Italian, this doesn’t matter because you don’t use that crude. But if you’re Hungarian and you’ve been opposing European actions to assist the Ukrainians for a while now, all of a sudden you’re getting a little apple uptick. And so the Hungarian government has been very accusatory towards the Ukrainians. 

And you should expect more of this. What this basically is, is a test case to see what Europe’s collective response will be, to see what Trump’s response will be and if they are muted. You should expect the Ukrainians to go after those pumping stations in volume. Now that the Europeans have pretty much weaned themselves off completely, we’ve had a flip of the political considerations. 

Had this happened earlier in the war, the Europeans probably would have backed away from support in Ukraine for economic reasons. But now that they’ve moved on, the Ukrainians are seeing an opportunity belatedly to take out the entirety of the Russian oil export income. And if they can do that, then all of a sudden the Russians can’t pay the Iranians for imported drones, they can’t pay the Koreans, the North Koreans for imported artillery shells, and they can’t pay for all the drone parts that come in from China. 

If this works, it is potentially the most dramatic economic shift we’ll have seen in the war to this point. And the Russians are going to have to find a new way to fund everything. But this early days, this is just step one. The Ukrainians are now in wait and see mode to see how everyone reacts.

A Peace Deal for Azerbaijan and Armenia?

Since the collapse of the Soviet Union, Armenia and Azerbaijan have been in conflict. But the tides are shifting in favor of Azerbaijan, thanks to several things.

Azerbaijan was able to retake all Armenian-occupied territory, including Nagorno-Karabakh, through the help of Turkey, some energy wealth, and drones. And it didn’t help that the Armenians lost their key security guarantor, the Russians. The peace deal on the table shows that Armenia is backed into a corner, and they know it.

Should the “Trump Corridor” happen, it’s going to be anything but peaceful. Iran and Russia will resist. The US would be taking on huge risks. And the Caucasus are going to face another bout of instability.

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Transcript

Hey all, Peter Zeihan here coming from Colorado. And today we’re going to talk about the new deal between Armenia and Azerbaijan in the Caucasus. Now these are two small states and a part of the world that the United States tends to ignore, unless it’s looking at the bigger picture. So we’re going to start at the small and work our way to the big, and then talk about where we are. 

So first of all, Armenia and Azerbaijan are two countries that have been in a de facto state of war, really since the post-Soviet break out. We had our first major war back, even before the Soviet Union collapsed in 1989 to 1991, where the Armenians invaded and sponsored a rebellion in an area called and broke that zone away from. 

As Bhajan captured about a fifth of Azerbaijani territory on top of that, and basically maintained it as a semi-independent freedom that got most of its orders from the Armenian capital of year of UN. Ever since, the reason that the Armenians were able to do this, even though they had a smaller economy and half the population, is that the Russians played a role, basically backing the Armenians against the Azerbaijan. 

The Russians saw Armenia as a strategic foothold in the region that would allow them to retain the possibility of reasserting control over the entire region just north of Armenia as a country called Georgia, which has been mostly in the pro-Western camp, or at least until recently, and the Russians have hated that as a region, has energy and was able to attract foreign investment, a way that the Russians never could. 

And the Russians hated that. So maintaining a military base in Armenia was seen as the best, cheapest way to maintain influence. And it worked for them for 30 years. What has evolved in more recent times is as Azerbaijan has increased its energy output. Azerbaijan’s defense budget is now more than total Armenian GDP, so it was only a matter of time before the balance of power flipped. 

And with the onset of drone technology, the Azerbaijanis were basically able to defeat the Armenians in a brief series of wars over the last few years and basically purged Armenian troops from the entirety of their occupied territory, including all of Nagorno-Karabakh. And now the region has control. All of it. Again, the nature of the dispute between the two basically runs the gamut. 

It’s ethnic, with the Armenians being a more Western oriented mountain people, whereas the Azerbaijanis are more Turkic. It’s religious. The Armenians are a distinct branch of Christianity, while the Azerbaijanis are Shia muslims and it is cultural going back centuries. The Armenians are a relatively old people who have been in and around the area for well over millennia, and the Azerbaijanis are derivation of Turks. 

So, you know, going back to a very long time. Okay, that’s the short version, the bigger version, the version that matters more to Americans is the broader power play in this region. The reason the Armenians are agreeing to a peace deal with Azerbaijan is because the Russians really aren’t present in the way that they used to be, just as the Russians used the Armenians, the Armenians were using the Russians. 

The Armenians knew that in a straight up fight, there is no way that they could win against Azerbaijan, and Azerbaijan has stronger allies in the region, most notably Turkey. If it came to a real war in the way we might think about that in a broader scale. 

Well, with the Ukraine war, the Russians are completely occupied further to the west, in the north. And that was before the Russians started pulling troops out of their military base in Armenia, because they needed everything they could get. So the Armenians realized that the Russian backing was going away. And when the Azerbaijanis launched the last couple of wars, the Ukraine war was already going on. And so the Russians could not intervene on the Armenians behalf. 

And if your security guarantor is no longer guaranteeing your security, it’s time to find another deal, even if that deal ultimately has to be with Turkey, which is the country that carried out the Armenian Genocide back in the early days of the 20th century. So the Armenians are kind of on the ropes about their only other strategic assistance would have been Iran, which serves as a smuggling location and energy supplier. 

But Iran, as you may have noticed over the last couple of years, has lost all of its leverage throughout the Middle East and Armenia. As a country, it has to subsidize. It doesn’t really get much. It’s just to kind of maintain a wedge in the area. So this allowed the Azerbaijanis and the Turks to lobby the Trump administration to get involved. 

And that’s where the peace agreement came from. So this last Friday, the Azerbaijanis in the Armenian signed it. Does that mean we’re going to have peace? Well, let’s not get ahead of ourselves here. These two countries have a very, very long history. These two ethnicities have a long history of trying to kill each other whenever they have the opportunity. 

And the only reason that Armenia is making these kind of gestures and making these statements is because they fear that they don’t have any other options. And that way may well be an accurate assessment of the situation. But I have some very real concerns, because of the way the geography works, see, Azerbaijan is on the far eastern side of the Caucasian isthmus to the north. 

It has Russia, to the south it has Iran. If you go to the west, you hit Armenia. There is no land corridor that links Azerbaijan on to Turkey and the rest of the West. So if Azerbaijan is going to be a viable state long term, it has to build that corridor. And in building that corridor, you’re basically amputating part of southern Armenia so that Armenia is locked off from any potential allies. 

Let me say this very clearly, a successfully integrated Azerbaijan means a dead Armenia, and the Armenians know that. So part of the terms of this new deal as we get something that is literally called the Trump corridor. Oh my God, that will be American sponsored and funded by who knows who that links a chunk of southern Azerbaijan through southern Armenia into Turkish territory. 

And this is a corridor where Trump Corridor, if you prefer, is supposed to be a wellspring of investment. It will not be, there will not be a new oil pipeline because there already is one going north through Georgia that has never really been full. Azerbaijan’s oil production isn’t large enough. The Iranians will have a vested interest in breaking this thing to maintain their wedge in the Caucasus. 

And the Russians are beyond pissed. So there be working against this, too. And then the bottom line here is that if this is successful, this corridor actually happens. Armenia is dead as a state. So they can’t let this happen anyway, never forget the first law of the caucuses. Never, ever, ever name anything after yourself because it’s not going to last. 

Even Stalin, who is from this region, did not make that mistake. Why is Trump doing this? Well, I got talked into it by the Turks. If it works, brilliant. But there’s not an economic case here. Armenia is a country of less than 4 million people. Azerbaijan already has the international links it needs for economic reasons. This is a strategic ploy by Azerbaijan and Turkey. 

And if, if, if it is going to succeed, the only way it happens is foreign troops are stationed on it to protect it. The Turks aren’t going to do that. The Azerbaijanis aren’t going to do that unless they get control of the territory. That just leaves the Americans. And the idea of putting ten, 20,000 American troops in a landlocked chunk of territory, surrounded by hostile powers with no supply lines. 

That’s how you lose 10 or 20,000 troops. So don’t do that.

American and Indian Relations Sour

Made in India. Cardboard boxes with text made in India and indian flag on the roller conveyor. Licensed by Envato Elements: https://elements.envato.com/made-in-india-cardboard-boxes-with-text-made-in-in-8X3N3JR

The global rise of right-wing populist governments has complicated the relationships between many of the dominant countries and leaders. The latest is America and India.

That trade deal everyone was optimistic about hasn’t quite played out so smoothly. India is facing steeper tariffs due to its ongoing or persistent trade relationship with Russia. Trump and Modi both expected special treatment for…being themselves; obviously, that didn’t play out for either of them.

Whether India decides to lean into its ties with Russia, form a stronger relationship with the US, or remain independent, its decision will carry huge implications for the global order. As these populist leaders continue to reject the old ways of doing things and seek to build new ones, small disagreements are more likely to intensify.

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Transcript

Hey, all. Peter Zeihan, I’m here coming to you from Colorado. And today we’re going to talk about relations between India, the United States, which have apparently just dropped into the crapper in the last couple of weeks. If you go back a few weeks, you know, maybe two months, there were very positive signals coming out of both Washington, DC and New Delhi that a meaningful trade deal was imminent. 

And it’s all falling apart. And not only is there no deal, India is now paying some of the highest tariffs of any country selling the United States. Right now it’s about 50%. And Trump has said it’s probably going to go up based on how relations with the Russians degrade. The Indians are saying this isn’t fair because lots of countries trade with the Russians. 

And so why should India be the only countries paying a penalty? And I’m not saying that there’s nothing to that point, but it kind of misses the point of how this works and where it’s leading, the United States and India right now, as well as a number of other countries that include China and Turkey and Russia, have rightist populist governments that focus on what makes their country special versus everyone else. 

These are not the sort of governments that normally get along. Normally, these are the type of countries that find themselves duking it out on the battlefield with one another. The reason that hasn’t happened is because we’ve been in this weird moment in the post Cold War environment where the old consensus has basically prevented it from happening. 

One of the things that, right wing governments, right wing populist governments hate is the idea of a transnational group of liberals who impose some sort of policy on things. And, you know, maybe there is something to that. But keep in mind what that means. If you have a multiple of countries that include, but are not limited to Japan, Korea, Taiwan, the United States, Canada, Britain, Germany, France, Italy, Spain, and on and on and on that broadly agree on the rules of the game and things like individual liberty and things like international cooperation and things like economic integration. 

Then there’s no reason for them to have an antagonist military approach to one another. There’s too many other things in the system that stabilize the relationship. But if you have countries that don’t see things that way, that focus on what makes countries different and unique, as opposed to on the same side, then you don’t have those are resting factors and you can get more conflict, not necessarily of the military form, but of any kind of form. 

And those are exactly the types of governments where you have rising in the world today. In the United States, we have Trump, in India, we have Modi in Turkey, we have a guy by the name of Erdogan who’s been dragging the country this direction for 25 years. In Japan, we are seeing a cracking of the post-World War Two consensus around centrist politics in, China. 

We’ve got chairman G who is now basically a tinpot dictator of a second world country. In Canada, we’ve had a bit of a hiccup where we looked like the government was going to go a different way in the last elections, in polls right now in Britain and in Italy and in France and in Germany, the hard right is the more popular than has ever been before. 

And of course, the Russians have been run by nationalists for quite some time. What this means is that consensus around liberal international values is breaking down in a way that we have not seen since the days before World War Two. And if you go back and look at your history, especially for the first half of the century and the period before World War one and World War two, we had a lot of governments that kind of fit the mold that we’re moving towards right now. 

Now, does that mean that we are doomed to have another major international conflagration on the scale, the World War? No, no different world? A couple big things to keep in mind. Number one, there are no countries, with the exception of the United States right now, that could fight in more than one theater. But if you don’t have things like trade and integration tying countries together, then it is really easy for small flaps to turn into big ones. 

What happened with India in particular is both Trump and Modi assumed that because the United States and India were so special that any deal would be done their way, and that’s just not how it works. Also, India has never really had a free trade agreement with anyone, so anyone who thought that a deal was imminent really hadn’t been paying attention to modern Indian economic structure or history. 

Where does this take us right now? Oh, India has to figure a few things out. During the Cold War, they were neutral, but broadly pro-Soviet. In fact, they were pro-Soviet. Even when the Soviets went away. And India now is a country that has agency in capacity. There are major refinery center. They are major stop on the path of all merchandise trade and energy trade between the Middle East and East Asia and between East Asia and Europe. 

They have a military that is capable for their needs. It can easily interrupt those flows, and they have an economy that is increasingly wealthier and increasingly diversified, increasingly technologically capable. What they don’t have is projection power, either economically or strategically. Their military is designed for the problems that they have. It’s designed for Pakistan, it’s designed for Sri Lanka and Bangladesh. 

It can’t project to the Middle East. It can’t project to East Asia. It is a unit to itself that defines how the Indians see themselves. They don’t see themselves as part of any coalition. They see themselves as their own thing. And if you put someone from a populist right in charge of that, if you accentuate that mindset, then the potential for arguments with everyone become very, very real. 

So India is one of those countries that matters, but it matters which side it doesn’t fall on because it empowers whoever is opposite. In the environment that we’re in today. We’re in this weird little situation where the country that the Indians are most dependent upon is China, which obviously makes Indian politics a little colorful these days. The Indians were thinking that their moment had arrived, that they had become strategically special and could have a leg in the American coalition without actually having to do anything that was never going to fly. 

But the Indians also, wherever they do put their foot, are going to matter. One way or another. So the debate right now is whether or not they should buddy up with the Russians again. If they do, they’re bearing almost all the risk. The Russians would get almost all of the reward. But this is what happens when you have a rightist government that sees themselves as special in a way that maybe doesn’t necessarily jive with strategic reality. 

Modi is learning that, Trump is learning that. And in time, pretty much all of governments like this will learn it. And when that happens, decision making becomes a lot more hostile because no longer are they rebelling against the existing order, they’re looking to build their own. And when that happens, we start getting new strategic relationships and hostilities. And that can boil up into something a lot more substantial.

Russian Evolutions in the Ukraine War

A Ukrainian soldier in the trenches

We’re beginning to see a notable shift in the Russians war strategy in Ukraine. Those large-scale meat assaults are being swapped for small infantry advances and widespread air strikes via drones and missiles to overwhelm Ukrainian air defenses.

This pivot in the Russian war efforts has been brought on by increased Western military aid, expanded European defense production, and Russia reverting to a WWII-esque military production style of moving things deep into Russian territory. The Russians have also spun-up more domestic drone assembly, giving them more independence and resilience in their supply chains.

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Transcript

Hey everybody. Peter Zeihan here coming to you from a humid Colorado afternoon, which almost never happens. Anyway, today we’re going to talk about the Ukraine war and where we are at the moment. We’ve had a significant shift in the approach to the conflict by the Russians. Too soon to say it’s going to be successful, but it’s different enough that it is worth exploring. 

Instead of doing what they call mass meet assaults where you basically have to throw wave after wave after wave of humans into a mix, not really caring how many people get injured or killed trying to grab specific positions incrementally. We now have a position where the Russians are doing small scale infantry, and sometimes as few as two people at a time, just moving forward a few yards at a time. 

Parking for an hour and then continuing doing this all across the frontline while up above we have a change in the air war where the Russians will not launch just a bunch of drones, but dozens, maybe even a couple hundred at the same time, along with some missiles to saturate the air defense of an area and then strike local urban centers, specifically going for power systems. 

But really, any sort of logistics support? It’s a very different approach. It is generating results. Oil, very, very, very incremental. I don’t want to overplay it. But what is driven the change are a couple of things. Number one, the Trump administration is now starting to, at least in increments, provide more military assistance. The European defense industries have been spinning up for the last three years. 

They’re getting more artillery shells in the Ukrainian hands, which is preventing the meat assault from having any impact. But third, and most importantly, we’re seeing the Russians dust off an industrial strategy that we have not seen out of the Russians since the 1940s. 

For those of you who remember your World War Two history, you will remember that one of the turning points in the Second World War was when the Russians developed enough industrial plant out of reach of the Luftwaffe, the German strategic bombers, so they could build up all the industrial infrastructure and military capacity that they needed without having to worry about it getting blown up from the sky. 

This was called the Urals strategy. Basically, the Russians under Stalin built a series of industrial cities out east of the Urals, well out of range of German aircraft, and built their military capacity there and then shipped it into the front. There were obviously other things come into play. Lend-Lease. The, the invasion of Normandy, the invasion of Sicily, and ultimately mainland Italy. 

All of these combined to defeat the Nazis. But on the Russian front, it was the Russians getting the ability to build their own equipment that really made the difference. We’re seeing some version of that now, in the war to this point. Most of the drones that the Russians have used have either come from Iran or for China, largely already assembled. 

Maybe the Russians have plugged in a warhead in the front, but really, that was about it. the Russians were relying on industrial capacity on the other side of an international border to keep the flow coming. And so they were using primarily their old Soviet stockpile of equipment, of jeeps, of tanks, of ABC’s of artillery and so on. 

Well, three years on, the Russians are running out of their old Soviet largesse. All of the stuff that was easily deployed, things that were built in, say, the late 70s and the 80s were long ago destroyed. They never built enough of the more advanced things that have been built since 1992 to make a strategic difference, and most of that’s been destroyed. 

And then they started going back into their older stocks, weapon systems from, say, the 1940s, 1950s, early 1960s that were just wildly out of date, didn’t even have things like optics, but that meant that putting optics in them was relatively straightforward. So all of a sudden, we saw these 1950s air tanks coming out with like 1990s optics. 

All of that has been destroyed. That has left them with equipment that was built in the 70s and early 80s that had optics. But it’s crappy Soviet optics, and it all has to be ripped out and then replaced. That takes more time per tank, and the end result is just a trickle of equipment that comes in, and they’re now burning through that to basically 70 years of Soviet stockpile is almost gone. 

And now they’re reliant on equipment that is either come in from elsewhere, like say, artillery shells from North Korea or this new stuff. The new stuff is very different. The Russian military is an artillery force, and now that they’ve lost a lot of their artillery, they’re having to reinvent on the fly. And what they’re doing is taking that old girl strategy of building industrial plant behind the Urals and marrying it to the drone tech. 

So we now have multiple facilities in Russia proper that are manufactured in Iranian Shaheed drones. Now, Shaheed drones are pretty dumb. They’re basically dumb, slow moving, low warhead cruise missiles. And the original ones and the ones that make up even today, the bulk of the Russian effort don’t even have GPUs, they’re incapable of making decisions in any meaningful way. 

You basically just plug in where you want them to go. Maybe you give them the route to get there, and then off they go. Which incidentally, means that anytime they strike a school, it’s automatically a war crime because they had to program that in anyway. We’re now starting to see a second generation starting produced also get produced in Russia. 

That has some GPUs, Jetson chips from Nvidia specifically that probably run 6 to $900 a pop. So these are larger drones with bigger warheads, but they also have some primitive decision making capability. These like eight nanometer chips, far from cutting edge but order of magnitude better than what they’ve been using at this point. But the bottom line is these things are not being built in Iran and shipped into Russia for use. 

They’re being built in Russia. And That adds a step of complication to anyone who wants to interrupt the supply chain because it’s no longer foreign. The same thing is happening with Chinese equipment. It used to be that the Chinese would ship in more or less fully assembled drones, and then the Russians might make a couple modifications before deploying them. 

Now the Chinese are shipping in lots of components still, but the Russians are doing most of the assembly in Russia proper, again, outside of the reach of any sort of Ukrainian strike capability. And that means that the Russians are not simply getting more autonomy in their military industrial complex. They’re also getting a bigger feed through because they’re still buying the finished stuff from both China and Iran. 

So instead of using a few drones a day or a few dozen drones a day, there have been a number of attacks where they’re using a few hundred drones a day. And one of the things that they’ve gotten really good at is not even putting a warhead in some of these things and not putting any advanced chips in some of them. 

So maybe, maybe as many as two thirds of the drones that the Russians are firing at targets are actually just decoys that are very, very, very cheap. And so if Ukraine is using their limited air defense to try to clear the skies and they have to deal with literally hundreds of spoofed signals and false targets, more and more of the real things will get through. 

And the Russians are now starting to coordinate the timing of these drone assaults with their missile attacks. And the result has been a lot more damage to infrastructure, in Ukraine, including civilian infrastructure and urban zones. You can buy in these with things like, say, glide bombs with the Russians have no shortage of. And you’re talking about the Russians being able to completely obliterate what we would traditionally think of as a front 

line and just make this mess of shifting no man’s lands where those incremental one and two guys at a time can move 50ft at a time, and from time to time find a soft spot and get enough numbers forward that they can actually make a more traditional assault. It is way too soon to say that this is going to work. And of course, the Ukrainians will have to adapt to it by making their own changes. But we have seen a significant shift in the way that the Russians are prosecuting the war. And with the Technol involved changing day by day, week by week, month by month, that is absolutely worth noting.

The Alaska Summit: Putin and Trump Talk War

Putin and Trump shaking hands on the red carpet. Photo by Wikimedia Commons: http://www.kremlin.ru/events/president/news/77790/photos/82627

Putin and Trump are planning to meet in Alaska in the coming days. Trump’s plan is to emphasize Russia’s losses in Ukraine (economically, strategically, and militarily), in hopes that Putin will pull back from the war in Ukraine.

Unfortunately, Putin doesn’t view the Ukraine War through the same lens as Trump. Putin knows Russia is facing terminal collapse, and Ukraine is just the first step in securing a future for the Russians. If Trump points out all the losses, along with stating that the US will be aligning closer with Western Europe, I wouldn’t be surprised if Putin responds with an even harsher war effort.

Prefer to read the transcript? Click here

Transcript

Hey, all. Peter Zeihan here coming to you from Colorado. Yeah. Humid. Cloudy with. Anyway, today we are going to talk about the upcoming summit between the Russian President Vladimir Putin and the American president, Donald J. Trump. We’ve had a lot of evolution in the American White House through the Ukraine war. And now we see the Americans starting to come around to what I could best call to be the the Western European opinion of things. 

Everyone has their own view on how the war is going, why it’s going the where it the way it is. I’ve recently recorded a video. We’ll send some links out here for how this looks from the Russian point of view, and what people who are new to the topic should think about when they’re evaluating. Short version is the Russians see this war as part of an existential fight for survival. 

They know their borders over the long run are completely indefensible. They know their demographics are collapsing, and they know that if they don’t change the rules of their neighborhood now, they’re going to lose all hope of doing that in the future. So for them, it’s almost impossible to contemplate stopping the war, because that means paying all of the costs of a conflict without getting any of the benefits. 

And that is signing up Russia for midterm national dissolution. That’s something you try to avoid. What the Trump administration’s talking point seem to be, forming up or to try to convince the Russians to look at all of this from an economic and a structural point of view. So the the argument goes like this. Mr. Putin, here’s your problem. 

You’re not winning this war. You’re grabbing territory not by miles, but by inches. You’ve already lost at least a half a million men, some people say it’s closer to a million. And that’s before you consider the economic damage from sanctions or the economic transformation of going to a war economy. This has just been a huge cost. You’re not doing well. 

You’re not going to win. And from a strategic point of view, you’ve actually made your situation worse. If you look at the period from 1989 until 2022, when the war started, the Europeans were basically disarming, with a number of countries spending not just less than 2% of GDP on defense, but in many cases functionally less than 1%. 

You basically the entire continent was allowing itself to hollow itself, out strategically. Now, things have changed by launching this major war, by engaging in all of these atrocities, by bombing everything that you can. You have motivated the Europeans not simply to rearm, but to rearm to a level that could potentially exceed what they did in the Cold War. 

And Russia is many things, but it no matter what it is, it’s weaker than the Soviet Union was. In addition, while the Europeans may disrespect look down on loathe Donald Trump, they are now, from a strategic point of view, tighter to the United States than they’ve ever been. With bigger defense budgets. So you’re getting autonomous European decision making in defense, which is a nightmare for Russia. 

At the same time, the United States is threatening to re-up its military support for Ukraine directly. There’s no part of this where you appear to come out a winner. So let’s find a middle ground where you can back off and save some face and not just completely wreck your system. There’s nothing wrong with that line of approach. 

It is perfectly reasonable. It’s broadly accurate. But that’s not how the Russians see it. The Russians see this as an issue of demographics and borders. They know that they cannot defend the borders that they have with the men that they have. But they know if they expand by roughly 1,000,000mi², then instead of having wide open borders on the Ukrainian steppe, they actually reach things like the Carpathian. 

The Baltic Sea and their external lands shrink to something that they could manage. Right now they’ve got roughly 3 to 5000 miles, based on very where you draw the lines of open terrain. But if they expand to absorb Ukraine and a handful of other countries, all of a sudden they can concentrate their forces between geographic barriers and their external barriers shrink down to 500 miles. 

So the economic argument doesn’t make sense to the Russians because they’re looking at economics from a different point of view. In addition, the general idea that the West is starting to pull together more and even under the leadership of Trump, if anything confirms the Russians worst fears, dealing piecemeal with the Western countries, making sure that the Germans don’t support militarization, making sure the French are at Arms Lake, making sure that there’s a breach between the United States and the Europeans. 

These have all been the goals of the Kremlin. Going back to initial communist days in the 1920s and 1930s, and to have the American president say that this is basically what we’re looking at now. This confirms every concern that the Russians have ever had about the strategic nature of the western borders. And so if this is the Trump administration’s approach, basically the Western European approach, talking about numbers, this is something that isn’t simply going to fall on deaf ears. 

This is going to something that is going to ring every alarm bell that exists in the Russian system and do so very, very loudly and guarantee that the Russians are going to take a much harsher approach to the war in the future. 

A couple things from this. Number one, it’s interesting watching the Trump administration learn things that administrations in the United States have known for decades. 

The Trump administration basically fired anyone with any historical knowledge how negotiations with the Russians really work, and now they’re learning it bit by bit from the ground up, and seeing what is basically the French German position on the war now coming out of the white House is kind of colorful from my point of view. It’s better than it was, because if you go back just three months ago, the, the Trump administration’s position was basically the Russian position. 

So this is this is much improved. But that doesn’t mean that it’s any more realistic when it comes to evaluating what motivates the Russians. We’ll see what the next step will be. That brings us to number two, the next step. We know that Putin is going to flat out reject everything that Trump says if this is the approach. 

So the question is then what does Donald Trump do next? Because there are other views of what is actually going on here beyond France and Germany, for example, if you go with the Swedish view or the Polish view or the Romanian view, it’s an understanding that the Russians, this is who they are, this is how they see the world. 

And the only way you can stop that is forcefully, and proactively. And that means a much more American military involvement than we have seen under, say, the Biden administration. Is that the next step for Trump? I have no idea. He hasn’t figured that out yet, but he’s going to be presented with either a flat refusal or another bald faced lie from Putin at the Alaska summit. 

And then he will have to decide what his next step is. In the meantime, the military picture in Ukraine is evolving fairly substantially, but we’ll deal with that next time. 

Featured Photo by Wikimedia Commons

Trump Trade Talks: NAFTA Deals Stall

A USA-marked shipping container on a truck, illustrating American international trade from Envato Elements: https://elements.envato.com/a-usa-marked-shipping-container-on-a-truck-illustr-HMKHD83

To nobody’s surprise, trade talks with Mexico and Canada have stalled. Reminder that these are America’s top two trading partners and export markets, so securing a favorable deal isn’t just a nice-to-have, it’s a necessity.

With US manufacturing on the line (and severe economic damage), I suspect a deal isn’t far off. North American production is growing in importance as China declines. Mexico offers a nice growth opportunity and some potential for political wins as the fentanyl trade is disrupted. To the north, deal progress has been slowed by some unrelated speed bumps.

If there was ever a trade relationship that needed to get hammered out ASAP, it’s NAFTA. Since Trump has already stamped his name on NAFTA 2 during his first term, I’m hopeful we’ll see some progress here soon.

Prefer to read the transcript? Click here

Transcript

Hey all, Peter Zeihan here coming to you from Colorado. We’re going to continue with our open ended series on the nature of the trade relationship that the United States is building with the rest of the world under Donald Trump. And today we’re going to talk about trade deals that have not yet happened. And that’s Canada and Mexico. According to the Trump administration, both of these countries are going to require significant additional time to negotiate at least 90 days with Mexico and a kind of an indefinite hold on everything with Canada. 

These two matter more, I would argue, than all of the other deals put together. Mexico is our top trading partner. Canada is number two. Both of them, a few years ago surpassed China and are not looking back. Both are also our number one and our number two export markets. 

So unlike China or Europe where the trade imbalance is pretty significant here, while there is a trade imbalance, it’s not nearly as large because we send them lots of stuff. Basically these are integrated economic spaces. And if we sever our relations with either Mexico, Canada, it would be like severing our relationship with California or Texas. What that means in real terms is roughly 14 million jobs in the United States are directly, dependent upon trade with our immediate neighbors. 

That’s about 10% of the total labor force. So if we can’t get a deal that favors Canada, Mexico versus the rest of the world, we’re going to not just see a significant drop off in local economic exchange. We’re going to see a significant hit to U.S. employment in manufacturing in general, unlike products that come from Europe or East Asia, which are largely completed when they hit U.S stores, products that come from Canada and Mexico are part of an integrated manufacturing system, with different pieces of the end product being made in different parts. 

Of the three country union that is NAFTA. And if you cut that out, then the American manufacturing model fails from the inside. And all that’s left is to import things from further abroad. Now the smart money remains on a meaningful deal for a couple of reasons. Number one, the economic catastrophe that would hit the United States if there wasn’t a deal would be horrendous. 

And Trump will definitely go down in history as the worst negotiator we’ve ever had on trade. Number two, the Chinese are dying. And if we can’t build out manufacturing in North America, then we just won’t have product. So we really are on the clock here. And every day that passes that we don’t have clarity in the Mexican, Canadian and American tri relationship is a day that we fall a little bit further behind and basically set up China to succeed in the short run. 

But us to fail in the long run. The third issue, of course, is employment. We will build this very, very quickly. And the fourth is growth markets. Canada has a very similar economic and demographic to us where we’re steadily aging. And so consumption is probably approaching peak levels. Mexico is not in that category. It already has $1 trillion consumption market, and it has a population bulge for people aged roughly 5 to 35, which is exactly where you want it. 

If you want people buy in more and more and more and more. So of all of the consumption led economies in the world outside of the United States, Mexico is the one that has the strongest growth trajectory, not just for employment and stability, but for product consumption, which is something that in a world that is rapidly aging, is something you want to get Ahold of. 

Another big reason to think that this is probably going to go somewhere is when Trump made his 90 day delay on the Mexico announcement, he specifically mentioned that there’s a fentanyl tariff in place. Well, fentanyl imports into the United States have been dropping for the last couple of years. Thank God for a mix of reasons. It has very little to do with policy. 

But Trump has inadvertently adopted a tariff policy that’s actually going to speed that process along and give Trump the opportunity to call a win. And that has to do with something called the de minimis exception. So when you purchase something on line that is less than $800 and is sourced from another country, it comes into the country without basically customs declaration or taxes. 

That is now over under the Trump administration. We now have a really steep tax. So everything that used to get from China say, is basically over. And that is how most of the precursor materials that are used in fentanyl made it to North America. They’re shipped via de minimis to the United States, and they’re repackaged and trucks to Mexico be to be turned into fentanyl. 

Anything that interrupts that process, anything that puts friction in that process, is going to raise the relative cost of fentanyl. It’s still wildly profitable, but, you know, every little bit helps. There is one complication in all of this, and that is ironically, Gaza. Oh my God. So there are a number of countries that include France and Britain and Australia and Canada that are talking about imminent recognition of the Palestinian state. 

As a formal country. Now, there’s a number of reasons why I think this is silly. We have a video we did on that relatively recently in case you want to review. But Trump has singled out one of those countries as this being a problem for trade relations. And that’s Canada. So there’s supposedly a deal with the European Union. 

There’s supposedly a deal with the United Kingdom, a supposedly one with Australia is coming in. Trump doesn’t seem to care about any of those, but Trump really has a bee in his bonnet when it comes to Canada about pretty much everything. And so he’s chosen to make the Palestinian recognition issue a subject that falls now under trade talks. 

And that has basically put relations with Canada on hold again. It’s very arbitrary, which means it could be going away arbitrarily tomorrow. But for the moment, it’s another issue that Trump has picked up on that has stalled relations that in the past is something that U.S administrations wouldn’t even blink out because they really don’t matter anyway. 

That’s the bottom line here. The two relationships that we need most for now, for the future, for American growth, for North American stability to beat down the drug war, to ensure high levels of American employment, to prepare for a post China world, they are still in limbo. One other reason to think that it might work out NAFTA two was negotiated by the first Trump administration. 

So it really wouldn’t take much for Trump to say I’m putting my name on something because he already has.

Trump Wants a Second Opinion on Labor Statistics

Businessmen figurines standing and sitting on top of colorful plastic blocks forming a bar chart from Envato Elements: https://elements.envato.com/businessmen-figurines-standing-and-sitting-on-top--2YBGNE8

Imagine you go to a doctor and run some blood tests. A few days later you get the results and don’t like them. What do you next? Maybe you start eating more Cheerios to help with your cholesterol. Well, Trump would just dump that doctor and find a new one who would tell him he’s perfectly healthy…at least that’s what he did to the commissioner of the Bureau of Labor Statistics (BLS).

The US is known for having the world’s most respected, apolitical data systems. Trump’s undermining of this system could jeopardize US policymaking for decades and is eerily reminiscent of what Hugo Chávez did during his rule in Venezuela.

Getting rid of the BLS commissioner is scary enough on its own, but couple that with the echo chamber in the White House and you have a full-on horror movie brewing.

Rewatch the video on Economic Indicators here

Prefer to read the transcript? Click here

Transcript

Peter Zeihan here, coming to you from Colorado today. We’re talking about the U.S. economy from a numbers point of view. The issue is that a couple of weeks back, Donald Trump fired the commissioner of the Bureau of Labor Statistics, which is basically the institutional in the US government that generates a whole lot of the data that guides policymaking from a global point of view. 

U.S. government statistics are generally considered to be above world class. They’re by far the best on the planet because they’re differentiated, they’re apolitical, and the United States government collects touch points from local, state, and national policymakers in order to build a really good picture that businesses and government can use to help make decisions. Well, a number came out on new job creation that Trump hated, so he fired the head of the BLS within hours and says he’ll replace her with someone who can actually do the work, which is anyway, the idea are three things here. 

Number one, the idea that one person just decides what the day is going to be is beyond asinine. The only place that happens with any reliability is places like Russia, where they decide what the numbers are going to be before they publish them, and then just make them up. And they don’t even have a functional statistics section in the government anymore. 

The statistics are the end results of not just dozens of people, but thousands of people across the country. And the only way you can get a politicized justice stick is if you don’t just go after people at the head, but you go after the rank and file statisticians, which is something the Trump administration has already started, not just for jobs data, but GDP data. 

And that’s something that’s going to make it much harder for the US government to target policies for decades to come. It will take us a generation to rebuild that expertise. That’s problem one. Number two, if you’re going to get cheesed off about a statistic, this isn’t even the one you should be angry about. The jobs report is an estimate based on a series of estimates based on a series of surveys, which are in themselves estimates. 

It’s not a very realistic picture of the economy from my point of view. And it goes through phases of, revisions over three months. And so the idea that the number that Trump didn’t like is what it’s going to be like three months from now. I think it’s kind of silly in the first place. Anyway, if you’re looking for a more accurate statistic, you want to look for first time unemployment claims. 

So the jobs report indicates jobs that have been created, but based on estimates and estimates and estimates, the first time unemployment claims is based on people who have lost their jobs because they file for coverage. And that is a hard number. That’s a real number. So here’s the QR code. If that is a statistic you’re interested in. 

The fact that Trump doesn’t know this is concerning, because anyone who is working in, say, the Commerce Department is going to know which statistics are better than others, and the Commerce secretary is a guy by the name of Howard. Let make it will basically tell Trump anything he wants to hear. And so we have just gotten a very good example of the echo chamber that is developed in the Trump White House, where it’s not just that no one is speaking truth to power, it’s just the truth. 

Can’t even make it in the room in paper form. Okay, third thing, the president that is most similar to Donald Trump and going after the statisticians, isn’t g of China. Those people are dead. It isn’t Putin of Russia. Those people were let go 20 years ago. It’s Hugo Chavez, the deceased leader of Venezuela. When he became president in 1998. 

He basically went through the entire institutions of Venezuela, which at the time was generally considered to be the best well run of the Latin American states. High standard of living, good educational system, good infrastructure, pretty good policy. They basically had an oil largesse and they used it on the people. You’re crazy idea. And he basically went after the entire set of institutions that supported that system, root and branch, until the only information he got was the information he wanted to hear. 

It’s very similar to what we’re seeing right now. And if you look at some of the things that Donald Trump is doing with, say, energy policy, wanting to produce more crude, say, from public lands and only sell it to countries that he has a handshake deal with. This is very Hugo Chavez. Hugo Chavez would sell the crude at a discounted rate, only to markets that he was ideologically aligned with wherever they happen to be. Cuba, of course, with the top of that list, 

Donald Trump personally is basically setting up, trying to set up something similar where the crude is only sold to specific markets, where he feels he’s beaten them into aggressive submission with European Union. Be at the top of the list. That means less income by a significant amount and de facto subsidization of those countries for personal and political reasons. 

So this is not simply an issue of a few numbers. This is something that allows the US government to function, and allows it to function in a way that benefits the president. But until some people in the white House grow some spines and speak truth to power, which means I’ll probably be fired the next day, we’re probably not going to get a lot of that. 

The Revolution in Military Affairs: Artificial Intelligence

ChatGPT logo with a synthetic brain hovering above

AI is working its way into just about every aspect of modern life. I mean, who didn’t fall for that video of the bunnies jumping on the trampoline. But artificial intelligence might not be the game-changer in warfare that you think it is…at least not in the short term.

AI promises faster processing, targeting, and decision-making, which all sounds great, until you throw in the wrench of deglobalization. As the globalized world collapses, the semiconductor supply chain will fall apart. The most advanced chips will not be able to be created anymore. Between the bottlenecks of EUV lithography and the countless single points of failure, we’ll be stuck with what we currently have (or yesterday’s tech).

When you factor this into military applications, it means older systems like cruise missiles and smart bombs will be mainstays. Fully AI-enabled systems will be severely constrained and reserved for the really important stuff.

Prefer to read the transcript? Click here

Transcript

Hey, all. Peter Zeihan here come to you from Cassidy arch. And where am I? Capitol reef National park. Sorry, it’s been a busy week. Today we are going to close out the series on the revolution in military technology. As advances in automation and digitization in materials science and energy transfer come together to remake how we fight. 

And we’re going to close out with something that you probably don’t need to worry about. And that’s artificial intelligence in war. The whole idea of AI is it can process faster than we can’t make decisions faster than we can, and potentially target with lethality faster than we can. 

I don’t think it’s going to happen. The problem is that the semiconductor supply chain for the high end chips that are capable of doing AI, and as a rule here, the cutting edge is going to be three nanometers and smaller, simply isn’t going to be able to survive the globalization age. So any chips that are not made in the next relatively short period of time, no more than a single digit of years, are really all we’re going to have for a good long time. 

And that means that the machines that are going out and doing the fighting have to rely on something that is older, that is not capable of processing and has to be linked back to something back home, either via wire or telemetry or some sort of radio communication. And that makes for a very different sort of beast. 

There are roughly 30,000 manufacturing supply chain steps that go into semiconductors. The high end stuff. And there’s about 9000 companies involved, and about half of those companies only make one product for one end user. There’s literally thousands of single point failures, and it only takes a few of them to go offline for you to not be able to make the high end chips at all. 

But the place that I think it’s going to be most concentrated, the place where we’re all going to feel like the place where is going to be obvious is going to be with the lithography. Specifically, we are currently using something called extreme ultraviolet, which is done by a company called ASML out of the Netherlands. And they are the world leaders in all of this. 

There are other companies that do the fabs other than TSMC and Taiwan, but the lithography can really only be done by the Dutch. And it’s not like this is one company. This is a constellation of hundreds of companies, and every time one of them either has a generational change or goes public, ASML basically sweeps them under the rug, absorbs them completely, puts the staff in different areas and puts it all under referential lockdown so there is no way to duplicate what they have. 

And so if you take this gangly supply chain that wraps the whole world and any part of that breaks, we can’t do EUV at all. And that means functionally, no chips that are worse than or better than six or 7 or 8 nanometers based on where you draw the line, we can still do something called deep ultraviolet, but extreme ultraviolet. 

It just becomes impossible. And that means that the best chips that we will have ten years from now are going to be very similar to the best chips we had ten years ago. And that limits what we can do with any sort of technological innovation. For the purposes of the military, it becomes very, very truncated. Old weapons like smart bombs and cruise missiles actually don’t use very sophisticated chips. 

20 year old chips are just fine. It’s the high end, the thinking, the processing, anything that’s more than guidance and requires a degree of decision making, that is what’s going to be off the table. So while I applaud all of us for having these conversations about the implications of AI, what it means for the workforce, what it means for culture, what it means for morality and legality. 

These are great conversations. It’s very rare that we get ahead of the technology in discussing what it can and can’t do, and start thinking about the implications for us as people, but I think we have some extra time because once this breaks, it’s going to take us 15 to 20 years to rebuild it. And that was back before everything accelerated with the Chinese fall and the Trump administration. 

Now it’s probably going to take longer. So have these discussions. I think that’s great. But it’s really probably going to be a problem for the 2050s.