Musk Pulls the Carpet Out from Under DOGE

Musk swings the "Chainsaw for Bureaucracy" at CPAC 2025. From wikimedia commons: https://en.wikipedia.org/wiki/Department_of_Government_Efficiency#/media/File:Elon_Musk_(54349592271).jpg

The leader of DOGE (aka Elon Musk) has fallen from grace with President Trump and the rest of the agency is crumbling behind him. So, where does this leave the Department of Governmental Efficiency?

DOGE’s promise to cut $2 trillion from the federal budget has gone up in smoke. The estimated savings are likely closer to ~$30 billion. You know, hiring and firing and rehiring people can get a bit expensive. And Trump’s new bill codifies only $9.5 billion in cuts, which doesn’t even scratch the surface of what was originally promised by DOGE. To add insult to injury, the new budget working through Congress adds ~$2.5 trillion to the deficit over four years (and it could be higher than that).

To be fair, cutting the federal budget is extremely difficult, so this was kind of a suicide mission from the start. Unless we want to just take a massive chunk out of defense, Social Security, Medicare, and Medicaid…but I don’t see that happening.

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Transcript

Hey, all. Peter Zeihan here coming from Colorado. Now that Elon Musk is no longer part of the federal government, I think it’s worth doing a little postmortem on Doge. That’s the Department of Governmental Efficiency. Very short version is after the dramatic falling out between Musk and US President Donald Trump over the last several days, the Doge leadership has basically been gutted because most of these people were folks that were either already loyal to Musk or became a loyal to Musk, and he’s now taking them all out. 

So Dodge is in the process of a not so slow motion collapse. So the question then is what has been done to this point in terms of budget cutting? And the short answer is very, very little. According to the campaign pledges made by Mr. Musk last year, he would be able to cut $2 trillion out of the annual federal budget. 

By the time the election actually was over and we got an inauguration, he said that that number would actually be closer to 1 trillion. And if that number kept getting scaled down and down and down and down and down, and the official number, on the day that he lost was 180 billion, most people say it’s closer to 150 billion. 

And the original budget office says it’s closer to actually to 20 billion, because the Doge numbers neglected to include the things that the cabinet secretaries, in the Trump administration had to do. You see, a lot of the things that the federal government does, really almost everything that the federal government does is congressionally mandated unfunded. 

So when you fire the people who are responsible for programs or try to close up programs, you then come against this legislative wall that mandated that that money actually be spent on those things. And so to not go to prison, a lot of bureau heads and a lot of cabinet secretaries going right up into Donald Trump’s leadership court itself was forced to actually rehire people or part time contractors, in which some cases were the same people that had been fired. 

Bring him back in. Well, once you add that cost back in, that’s a total of $122 billion, which brings the entire savings to somewhere between 20 and $30 billion. Also, the Trump administration has finally submitted a bill to Congress to codify some of the cuts, and that slims it down to just 9.5 billion. So we have had a lot of drama and not much has changed. 

And if you just remember back a few days, the reason that at least Prox, the proximate reason that we had such a falling out between Trump and Musk was because of the mega bill that is working its way through Congress that will include the budget. If it passes in its current form, it will increase the federal deficit by roughly $2.5 trillion over the next four years. 

And that’s before you consider some changes that the Trump administration is considering making to things like Medicaid, Medicare and Social Security, which will increase spending. And so we’re looking in a conservative environment of additional deficit spending of around $800 billion a year at a starting point that assumes no new funds for things like border security, that assumes no changes to the military budget, that assumes nothing of all the various spending programs that Donald Trump says he wants to engage in conservatively. 

We’re really looking more realistically at $1 trillion deficit increase per year. Now, while that’s not great and obviously is a great example of the carpets not matching the drapes, I need to underline for everyone how hard it is to cut the federal budget, especially in the way that Doge and Trump have attempted. You see, if you were to fire every single non-defense employee of the federal government, you’d only actually reduce federal spending by about 5%. There is no version of deficit control in the United States that is not centered on four things defense, Social Security, Medicare, and Medicaid. That is well over three quarters of the total. 

And if you’re not willing to take a very, very deep gouge into those four programs, not one of them, all of them, we are not going to get anywhere near a balanced budget. So before you say X is stupid or Y is wrong, keep in mind the core math. If we don’t do this in a way that hurts a lot, it doesn’t mean anything anyway.

Trouble in MAGA Paradise

Photo of Trump and Musk inside the Oval Office taken from Wikimedia Commons: https://upload.wikimedia.org/wikipedia/commons/8/82/President_Trump_participates_in_a_press_conference_with_departing_DOGE_adviser_Elon_Musk_%28cropped%29.jpg

America’s “favorite” couple is breaking up…and doing so very publicly. I guess there just wasn’t enough room for two egotistical divas in the relationship.

The cat fight that has ensued makes for great TV. Musk has criticized the budget bill, threatened to start his own party, and is ready to fund Trump’s impeachment. Trump attacked Musk’s credibility and called for the contracts with his companies to be cancelled. And this might be the first domino to fall in Musk’s business empire.

Tesla is on the fritz, SpaceX might be nationalized, and my internet (aka Starlink) could get much slower. For Trump, his big beautiful bill is backfiring; his coalition is fracturing (this fight is just one example of this), he’s burning through political capital, and his legislative agenda is collapsing.

Perhaps this episode would fit better in US Weekly or People Magazine.

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Transcript

Peter Zeihan here coming to you from Colorado. Apparently yesterday when I was presenting to a client and, on a plane, Elon Musk of Tesla and Donald Trump, president of the US, had a bit of a tiff and a falling out. Now, for anyone who wasn’t headless, we all saw this coming. We’ve got two divas who are not great people, and we always knew that sooner or later, there was only going to be enough room on stage for one of them. 

But kind of like how we all knew that when the US left Afghanistan, the place was going to fall apart. We didn’t necessarily think it was going to happen this fast or this bloody. Just to sum up, yesterday, Musk says that the budget bill that is going through Congress is an abomination and should be cut up and used as bait, and that anyone who is supporting it is a fool. 

He’s going to try to form a new party to challenge the Republicans at every step. And he is now personally putting his fortune behind impeaching Donald Trump. For his part, Donald Trump says that Musk was always a blowhard. Really never did any good work. Was the worst adviser ever. And the United States needs to reevaluate all of its contracts that it has with Musks family of companies and probably cancel most of them. 

And by the way, Musk should just go back to Africa. So, I don’t have an ear on the inside. It sounds real. It was very public. We had press reports out of the white House. Musk, of course, was going all day on Twitter, which is now his personal safety. Rather than talk about how it’s going to denigrate or recombine between the two of them or the political implications of that, I want to focus more on what we know for sure. 

This is the end of Tesla. Let’s start with that. Tesla, of course, is America’s initial electric car company, and they haven’t issued much of a new model in almost four years. Now, they’re no longer the industry leader in terms of technology, simply in terms of the number of units are actually out on the roads. But since Musk basically revealed himself to be a bit of a white supremacist of a really nasty type, environmentalists have found him far less, loving. 

And we’ve seen sales on a global basis of Tesla tank. Now, that would be bad enough as it is, but we now have an administration who isn’t, bleary eyed when it comes to doing environmental math in the same way that the last administration does. And if you’re willing to put aside your political leanings and actually look at the numbers, Teslas are some of the most environmentally damaging vehicles on the road. 

Making the lithium requires a huge amount of energy. Turn it into a battery chassis requires more. But what is left out of most of the math is the frame, which is a alloy of silicon and aluminum, which requires something like 40 times the energy that it takes to smelt steel. So in most jurists in the United States, a Tesla vehicle is not going to break even on a carbon count within a decade. 

All the math that Tesla puts out in its marketing is basically lies. They basically say that it’s produced with 100% Greentech energy, and it’s charged with 100% green tech energy. And if you believe that, then yes, a Tesla breaks even in carbon math in about a year. But it’s just utterly false. Anyway, that’s part one problem with Tesla. 

Part two is financing, because a lot of people, especially in Silicon Valley and Wall Street, saw Tesla as the brand of the future. People invested it in a huge way that was not reflective of what it would be for a manufacturing company or a manufacturing company. Its valuation is usually based on the amount of product that they have or that they sell, because there’s a production supply chain system that you have to cost in. 

Instead, Tesla was costed out as a software company where whatever your output is, you can then sell over and over and over and over and over and over. So the stock value is justified to be much higher. It’s valued as software company, but it produces and has income as a vehicle company. And the only way that you can justify that, disconnect is by saying that the federal government will basically subsidize everybody to buy electric cars. 

Well, that’s not going to happen now. The third problem is debt, because Musk basically ran this company with an enormously inflated stock valuation. He was able to borrow a lot of cash for all of his other projects. 

The next company that is doomed is SolarCity, which is a solar installer that he bought a few years ago. You guessed it, by issuing some Tesla stock and borrowing some money. Now, solar in the United States overall is kind of in a tight spot. And by a tight spot, I mean is probably going to take a decade off. 

And the problem is financing. When you have a conventional thermal plant, coal or natural gas, about three quarters of the cost of that plant over the lifecycle of the plant comes from purchasing the fuel. And only about 20% comes from the actual installation cost of building the facility in the first place. So you finance that 20%, and then the rest of it is kind of a subscription model. 

You sell power, you take money from your clients, use it to buy more fuel, you burn it, you make more power. You sell it to clients, you get some more money, and it’s cycles like that. That’s not how it works with green tech. Part of the attraction of green tech is there’s no fuel. That’s great, but there’s a much, much larger upfront cost, roughly two thirds of the cost of a full life cycle for a green tech plant is an installation, and that has to be financed. 

And because the baby boomers have basically exited the American economy and taken their savings and put them into relatively low velocity investments, we’ve seen the cost of capital go up by a factor of 4 or 5 in the last few years.  

It’s not because of policies from the Biden or the Trump administration’s. It’s not because of the fed. It’s not because of Covid. It’s not because the business cycle. It’s simply the boomers doing what you do when you retire. And since the largest generation we’ve ever had, that has generated a massive increase in capital costs. Well, most solar programs in the United States aren’t viable unless there’s some sort of concessionary financing. 

That’s how it was two years ago. Now, with finance being even more expensive now with the federal government under Trump getting out of that business, of subsidizing most of these projects don’t make sense at all. So if you’re in Southern California or Arizona or New Mexico or West Texas, you know there might still be a place for you because the numbers are really good in those zones for solar. 

And where I live, seeing Colorado in the Highlands, where there’s not a lot of moisture and we get a lot of sunny days, works here too. But the rest of the country, the rest of the world, not so much. So Solar City, which was already suffering from overcapacity, was already suffering from a lack of penetration options, was basically being subsidized by Tesla. 

That’s gone too, the third one that gets really interesting is, SpaceX. That’s, Elon Musk’s SpaceX launch facility, which has dropped the cost of space launches by roughly 90% per pound of cargo. And with some of the changes that they’re making with the new Starship that they are hoping to have flying for real and taking cargo soon, those numbers are going to drop even more. 

They’ve basically driven out of business all the other space, large industries, because they simply can’t compete. 

This is something where Musk actually did, in my opinion, something really good, a good solid for the U.S system. The old model of rockets was, you know, rocket science is hard. So let’s baby every individual piece of every individual rocket and run every conceivable test we can on it before and after each launch. 

So we have few losses. But the cost, the insurance cost for losing a rocket is huge. So we just don’t even want to pretend to take the risk. Musk had a very different approach. He’s like, is it ready to go? Oh, not really. Will launch it anyway. We’ll learn from the mistake and something would blow up. A lot of things blew up Tesla. 

I’m sorry SpaceX blew up a lot of rockets, but they learned so much more, so much faster because of it. And now have this cycle of launches that is so much more rapid than anything happened before. So at the moment, the Dragon capsule is the only way to get people to and from the space station. And so in the little tiff with Trump over the last couple of days, he basically says that they’re going to decommission that and the United States can just suck it. 

What this tells me is that Musk is deliberately making himself a national security threat for the United States. And so the, the nationalization of, SpaceX is probably not too far in the future. And since Donald Trump has already got NASA, in part in order to give a totally corrupt payback to Musk, there’s no longer an institution. 

It’s states that can really effectively run this thing. I mean, you could turn it over to Boeing, I guess. But Boeing hasn’t been able to keep up at all. Same with Lockheed. So we’re about to have state intervention in the space. Space? That is an unknown because there aren’t personalities involved that Trump will trust because they all work for Musk. 

Now, this hurts me personally because I live in a rural area on the top of a mountain, and I can’t get good Wi-Fi. So I have a Starlink system on my roof. But the only way Starlink works is if SpaceX keeps launching dozens of new satellites and repeaters every single month because they have a limited life span. 

Space is a tough environment. They’re falling out of the sky pretty constantly, and so you have to keep injecting more and more and more and more. That only works. That only works if SpaceX is flying. So. So that’s the, that’s the Elon side of things. Let’s talk about the U.S government side of things. One of the biggest mistakes that Donald Trump made is refusing to treat with Congress. 

So normally when the president wants something done, he looks to his allies in Congress or he looks to his own staff and he builds a bill either over there or in the white House or together sends it to Congress to go through the process and eventually become a law. But that requires having conversations with people who might not be as worshiping of Trump as he feels he deserves. 

And he doesn’t even have the staff in the white House to do so. He gutted the top ranks of the entire federal government, hasn’t replaced the staff. So there really is no one to write the laws, and there’s no one in the bureaus to advise them on how you might make this happen. So what he’s told his congressional allies is I want every thing that I want and done put into one bill so I can just sign at once and be done for the year. 

And that is just moronic. So the budget bill is in there. The reconciliation bill is in there, giving the president new legal powers so he can go head to head with the media or the universities that’s in there. Some of the legal troubles he’s got new indemnification are in there. Tariff authority that’s in there. Anyway, the point is, is this this massive thing. 

And even if it was just Musk’s concern about the budget deficit, which is also true, it’ll be like the third largest budget deficit that we’ve ever had. The point is, everyone in Congress has a reason to oppose this. And the only reason that, it hasn’t completely collapsed already is because the line is held within MAGA. Well, now the MAGA line has been broken wide open, and you only need a couple of votes to not go Trump’s way. 

Like a couple individual senators, and the whole thing falls apart. So from a legislative point of view, the Trump administration has found itself today in a position where Jimmy Carter was three years in, when he’s burned all of his political capital, he’s alienated almost all of his allies, and now he’s fighting a rearguard action just to appear like he’s in charge. 

And we’re not even six months in. If you go back to some of the pieces that I did back in January and February, I’ve never seen a political leader in any country burned through political power and political capital. At the rate that Donald Trump was into order to achieve very, very little. Everything that Trump has done to this point has been an executive action, which means that just like Biden and just like Trump won and just like Obama, it can be unwound in a matter of days by whoever happens to come in next. 

And there is no legislative path out of this any longer, because the coalition has already broken.

Should the US Military Invade Mexico?

A military scout on overwatch

With rising violence in Mexico, is it time that the US military steps in? To quote Michael Scott, “No God please no!”

The spike in violence can be attributed to the rise of fentanyl, an easy to produce synthetic drug. This has led to the fragmentation of cartels into smaller and more violent actors. On top of that, the Sinaloa cartel has splintered due to US-led efforts in dismantling its leadership, causing further instability in the region. And the relatively new kid on the block, Jalisco New Generation, likes to lead with an iron fist. So, Mexico’s security landscape is in shambles.

But does that mean the US military needs to step in? There are a few ways to answer that question, but the bottom line is that the US needs to stop doing drugs!

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Transcript

Hey, all. Peter Zeihan here coming to you from above Telephone Canyon and Zion National Park. Today we’re taking a question from the Patreon crowd, specifically considering that over the last year, Mexico has just gotten more and more violent, is now the time to consider some sort of U.S. military action across the border? The short version is. Oh, God….Please. No. But it it’s a real question. I don’t mean to dismiss it. We do need to break this down. First things first. We need to understand why the violence has gotten so much worse. And it has really nothing to do with policy in Mexico. It has to do with the nature of the drug war itself. 

For the longest time, the drug war was about cocaine. So that was a mechanic that we understood. There was a supply chain that we knew was an agricultural product. It was produced in the Andean region of South America, and then it was shuttled by plane or boat, north to Central America or southern Mexico, where it then got into the hands of what we now know was cartels and moved its way north to the US border, where it was then distributed by the gangs. 

Over time, this structure has evolved. Central America is a relatively new addition to the trafficking route because we got better at interdicting things at seas. And we went from having one giant cartel to regional cartels and then ultimately, ultimately local cartels. There are more coalitions now than hierarchical organizations. 

Anyway, that’s how it was in the last few years, fentanyl has exploded upon the scene, and fentanyl is not an agricultural product. It is a synthetic. It is made in the lab. And it takes very few people with very little experience to cook up hundreds of thousands of doses in a very short period of time. So all you have to do is basically get some synthetic, components, cook them together in your garage, literally, and then cut them into powder and mix them tablets. 

So if you do a gram of cocaine and don’t do cocaine, it represents somewhere between 4 and 8 man hours of effort from the point of view of the plantain to the bailey and to the processing, to the shuttling, to the smuggling, where is if you take a hit of fentanyl and don’t do fentanyl either. 

It represents just a few man seconds of work because it’s so much easier to produce. Well, what this has done is change the cartel landscape. 

So two things have changed. First of all, the organization that is today, the Sinaloa Cartel, a large cartel, largest drug trafficking organization on the planet, under the Obama administration, we captured, El Chapo and basically beheaded the organization. And it’s been basically experiencing a slow motion, disintegration from an organizational point of view, ever since its fracturing. 

And those factions are becoming, violent with one another. That was accelerate in the last couple of years when the United States and Mexico, working together, managed to get a few other, senior lieutenants. In the meantime, the replacement cartel called Wholesale New Generation, is an order of magnitude more violent. And not nearly, as corporate, in terms of its activities, and they see intimidation as a much more potent tool for shaping local behaviors than bribes. 

So that’s part of the violence. The other part is the fentanyl side, because any mom and pop can basically cook up $1 million of the stuff in their garage over a couple of weeks. 

We now, instead of having three broad cartel alliances, have literally hundreds of small organizations that can basically print cash with fentanyl in a short period of time, and they don’t see the reason why they need to be part of the cartel structures. 

And so most of them have basically gone into business for themselves. Think of it as the digital economy where everyone has a gig, except for the gig is fentanyl. You put all that together and you now have, instead of some large cartels that kind of hold together like Sinaloa used to. 

You know, how hundreds of small, crime organizations out for themselves? These two things together have basically made Mexico a bit of a shit show from a security point of view. Now we can start talking about what the United States can do. Basically, there’s five options. Only one of them doesn’t suck. The first option, use drones, monitor the border, maybe even do some targeted strikes. 

We’re kind of halfway into this already. The Mexicans tried to talk us out of doing border monitoring. But Trump administration didn’t care. We haven’t started using the drones in an armed capacity to strike on the other side of the border. And honestly, this doesn’t do a whole lot. I mean, yes, you can see the border and go deeper, but consider the volumes involved. 

If you have 20 pounds of cocaine in a backpack, that’s a quarter of $1 million. If you have 20 pounds of fentanyl, pure fentanyl, and you want to bring it across the border and cut into pills, that could be up to $10 million. So you’re not going to pick that up with a drone, that can be smuggled in your glove compartment. 

It just it’s not an effective tool against that type of activity. It’s not that it does nothing. It just doesn’t do much. So that’s one number two, we’re at the point we’re starting to discuss this. Start sending special forces across the border, and going after the cartels themselves. Now, this is something we’ve actually already started, kind of doing. 

There is a task force based out of El Paso, as it’s been explained to me, that is Mexican citizens, but they use American equipment, American Intel, they have American distribution. They use they use American intelligence. They’re paid for by the United States. They’re just Mexican citizens, but they go every day south of the border and basically bust heads in the cartels. 

But because they’re Mexican citizens, it’s not considered an invasion. Now, this has been going on for well over a decade. And while I don’t want to say that it hasn’t achieved anything, it really hasn’t moved the needle very much. So if all of a sudden you’re gonna start throw some Rangers and Seals into this, all that does is ramp up the angst probably doesn’t change much because as we have seen with El Chapo and his sons, the torpedoes and other leaders of the cartels, when you take out the guys at the top, the rest of the organization doesn’t fall apart in the traditional sense. 

It just goes at its own throat as there’s a fight for succession and it breaks into smaller and smaller and smaller pieces that are more and more and more violent. So it feels good to get the guys, sure, but it doesn’t actually change the math on the ground except make it more violent and have more independent producers and trans transporters of the drugs. 

Option number three, which I have not seen seriously considered but has been floated out there, cross the border with the army and encircle and administer, take over, invade, take over, conquer all the border cities, places like Juarez, and Tijuana. 

20 pounds of cocaine is a quarter of $1 million. 20 pounds of fentanyl is $10 million. Even if you move the border, there’s still a way through, especially if you’re going to have a commercial relationship with a country like Mexico that is our largest trading partner in every economic sector manufacturing, agriculture and, energy. So putting Americans in charge of security south of the border, you know, to be perfectly blunt, we tried this for 20 years in Afghanistan, in Iraq, countries where we did not care and were not exposed to the local economies. 

In Mexico, we are. So if you were to do something that breaks down those corporate relationships, then you’re talking about having a recession in the United States, it is at a minimum four times as bad as what we went through back in 2007 to 2009. I would recommend against that. The final one is, even more dramatic, but might not be quite as bad economically. 

Draw a line in Mexico that roughly goes from Monterrey to Durango, and just take everything north of that line. Basically have a second Mexican-American War, where you, the United States, basically annexes the northern states that are most tightly integrated with the United States, establish a security line south of that, where you basically build a new wall that as much shorter and perhaps more effective than the stupid one that we’ve got on the northern border right now, because all that one did was build a bunch of construction lines and roads across the desert and made it easy to cross. 

Dumbest thing we’ve seen in a long time basically increase the economics of illegal migration. But if you do it further south would be shorter and keep all of the industrial plant that is integrated into the United States north of that line and basically just swallow annex parts of Mexico and make them part of the United States. The economic case for that is more robust. 

The security case for that is more robust. You’re simply invading, conquering, 30 to 35 million people and trying to make them Americans. Now again, we tried a version of this in Iraq and Afghanistan, just because I think it’s a less horrific option than just grabbing the border cities, does not mean it gets the zillion stamp of approval. 

But unless you’re willing to consider something like that, there is no military option here that makes any sense. Which brings us to the fifth option. We could stop using fentanyl, cocaine.

The Demographic Crisis in Russia

Photo of St Basil Cathedral in Red Square, Russia

The Russian demographic crisis is worsening. So, let’s look at the long-term structural, social, and economic problems, as well as some of the more recent changes hurting the Russian population.

Forced urbanization under Stalin and Khrushchev meant fewer children. Major wars led to dramatic population holes. Substance abuse, both drugs and alcohol, has raised deaths and lowered birth rates. Economic instability discourages family growth. High abortion rates, well that one is self-explanatory.

And now the Ukraine War has accelerated this demographic decline, especially amongst men under 30. Rather than addressing the root causes, the Russian government would rather push its propaganda; like a new law that bans any media that doesn’t promote childbearing. And of course we can’t get reliable data out of Russia, so things are worse than advertised.

Prefer to read the transcript? Click here

Transcript

Good morning All, Peter Zeihan here coming to you from Zion National Park’s infamous West Rim Trail. Good morning. Today we’re going to look at something that’s happening in Russia with their demographic work. Before I give you the trigger, let’s give you the background. The demographic situation in Russia is bad and has been declining for the better part of a century. 

Basically, there are three interlocking trends. First is that whenever any country urbanize or industrialize is, the birth rate drops because people move on from farms where kids are free labor to cities where they’re an expense. And you fast forward a couple of generations and the numbers just get worse and worse. In the case of Russia specifically, however, Stalin and Kristoff are the people who are responsible for the industrialization and the urbanization. 

So people were forced into small apartments, that were efficiency or at most one room, which really, dissuaded having more kids. And you had collectivization, in the agricultural sector where people no longer could profit from the work that they did on the farm. And there just was no impetus for people to want to work. Therefore, there was no impetus for people to want to have children. 

On top of that, you have these giant gouges out of the demographic structure of Russia from major events like, say, the world wars, where, you know, several million people were killed, and, or were away from their spouses for a long period of time, making the formation of families at all very, very difficult. Now, the second big issue is drugs and, alcoholism. 

One of the first things that the Russians industrialize was the creation of vodka. And vodka still today, is, day to day plague. Beer is considered not an alcohol. You can actually get it in a lot of vending machines on your way to work if you want to, but hard drugs were the real problem. 

When the Soviets went into Afghanistan, one of the things they discovered was heroin. Because the largest poppy fields in the world at that time were in, Afghanistan. And because there were now transport links between Afghanistan and the former Soviet Union. We saw three of the four major heroin smuggling routes in the world. Trans north through Russian positions and into Russia and into the rest of the world. 

It’s a lot worse than it sounds, because even when the Soviets left Afghanistan, they left a buffer force behind in Tajikistan. Even after Austin got independence. And the soldiers there who were supposed to keep, keep the Taliban from interfacing with the rest of the former Soviet Union didn’t only fail. They then took a chunk out of the drug trade and actually facilitated its flows into Moscow. 

So we had at some point something like 10 million heroin addicts in post-Soviet Russia, a country with under 150 million people, very, very bad for demographics, kept the death rate high, kept the birth rate low. And then third and most, finally, you have significant economic degradation. The Soviet Union was a superpower, but it never really was an economic superpower. 

They never achieved the types of growth after about the 1960s that was necessary to advance a technological population. So we had long periods of stagnation under Brezhnev, and then we had the post-Soviet collapse and now the Ukraine economic contraction, all of which have convinced people that tomorrow is going to be worse economically for them today. And that is arguably the single worst thing for convincing people to have kids. 

If you don’t think there’s going to be a world for them to live in, you usually don’t want to have them. And so Russia traditionally has the world’s largest and highest abortion rate as well, with some statistics suggesting as many as 70% of all pregnancies are terminated. On top of that, most recently we have the Ukraine war. 

When the Russians started mobilizing, a million men aged 30 and under fled the country. And since the war began three years ago, a million men, mostly aged 30 and under, have either been killed or incapacitated to the point that they’re functionally non workers within the Russian system. So this is bad. It’s only going to get worse. And so the trigger what’s making me talk about this today is that there is a bill going through the Duma. 

That’s the national parliament in Russia that would criminalize, the publication or the broadcasting of any media that does anything other than glorify the production of children. So if there is a character in the show that, for whatever reason, has chosen not to have kids and say, you, like, have a career that is now going to be illegal in Russia, and before you say, that’s going to have no end, in fact, keep in mind, this is Russia, in fact, and fiction are oftentimes intertwined. 

Back during the 2000, there were several provinces in Russia that criminalized death. On Mondays, Wednesdays and Fridays. That’s how they were going to cut the death rate in half. And you know what? It worked because people just stopped reporting deaths. Which brings us to the final point here. Statistics in Russia, on a good day are kind of Potemkin. 

And on this topic in particular, the Russians have not been collecting, much less analyzing, much producing any reasonable statistics on birth or death rates now for over 15 years. So we really don’t know what the real picture is. We can only guess now. When the Russians did their first post-Soviet census back in the 2000, the best guess is that the population of Russia proper was about 140 million. 

The census found another 4 million people somewhere, and now they’ve said they’ve had 144, according to the official statistics. That has now been whittled down to 141. Ignoring the Ukraine war, ignoring the X migrations. In reality, we’re probably closer to 130, but there’s really no way to confirm that. All we know is that the clearest sign that the Russians are facing a real pressure in the demographics is going to be what happens with the Ukraine war, because if they simply run out of men who are under 30, who can fight that, it’s going to be very, very visible. 

But we’re not there yet. They started the war with their own statistics by 8 million people in that block between X migrations and deaths and casualties. We’re now down to about 6 million. So they can keep this pace up for several more years. Just the question at the end of the day is of the younger generation, people 20 under how many were there ever? 

And we have never had a good count of that number. But because of the war, we’re going to find out pretty soon.

Finally, Some Clarity on US-China Relations

Donald Trump and Xi Jinping at the G20 Summit

It’s a bird, it’s a plane, it’s…some long-awaited clarity on US-China relations. Here are the two major developments that we’re tracking and what they mean moving forward.

Defense Secretary Pete Hegseth just made the strongest official statement on US support for Taiwan in case of a Chinese invasion. Of course, he made this declaration without consulting any military leadership, but hey, at least something happened.

The other development is that Trump and Xi finally set up a phone call. There are clearly some big personalities (and egos) at play here, so it’s a big win to even get this on the calendar. With all the issues going on between China and the US, as well as a slew of internal problems for each country, a chat is long overdue. Especially when that little chat could impact one of the world’s largest trade relationships…

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Transcript

Hey, everybody. Foggy morning here in Colorado. Peter Zeihan here. Today we are going to talk about American Chinese relations because we’re finally about to get hopefully, hopefully, maybe, a little bit of clarity. Two big things are going on this week. Number one, and Defense Secretary Pete Hegseth has said that China is the threat if Taiwan is invaded, of course the United States will respond in kind. 

Military options are not just on the table. They would be our go to, It is the clearest repudiation of this concept of strategic ambiguity that we have been existing in East Asia for decades. That is the idea that Taiwan is not technically recognized. So the United States will not say, one way or another, whether or not we’re going to send them. 

The Biden administration, let me rephrase that. Joe Biden personally repeatedly repudiated that. But this is the clearest, most detailed, repudiation we’ve ever had from any American authority, ever. The question, of course, is whether or not that this is what the Defense Department is ready for. Hegseth apparently did not even discuss this issue with his own office, much less with the Joint Chiefs or the military chain of command at all. 

So I will never tell you that the military is not preparing for every eventuality. That’s why it exists. But it seems to be a disconnect between the political message that Hegseth is trying to send and what the U.S. military has actually been doing since January 20th. So that’s kind of piece. One piece to Donald Trump and Chairman G of China are having their first phone call this week. 

This is something that has been pushed off again and again and again and again. It’s been a very weird power play carried out by four year olds. She wanted Trump to make the call. Trump wanted to make the call, thinking that whoever came to the mountain would be the weaker party. I you know, if it makes sense to them, it makes sense to me. 

Whatever. This will be the first time that the two leaders have really had a conversation since the last time was Trump. President. And there are, of course, a number of big issues on the table. The most important one is the trade war. Trump put tariffs on China, which were 145% hundred and 85%, 510%. It’s hard to keep track. 

And then after a few weeks of basically seeing trade between the two countries go to zero, something that we’re going to start feeling soon because there are some holes in the inventory now that are starting to leak out. Trump abrogated his own tariff level, dropped it back down to low levels and said, you know, we have a deal. 

And all the deal was that this was that they agreed to talk. Well, now we’re talking. The problem we have on both sides of the Pacific is to be perfectly blunt. The leadership, Chairman Ji, spent the last 13 years purging the Chinese government of anyone who will tell him anything. Not just bad news, just anything. And that is in turn, gutted the bureaucracy of the Chinese system. 

So that is now the world’s least informed leader of the world in general of his own country. He has no idea what’s going on aside from the ideology. Trump is trying to catch up to him. Trump has executed his own purge of the government, is having his cabinet secretaries destroy the capacity of the United States to collect data long term. 

He’s sending back intelligence reports that don’t support his ideological views, no matter how far from reality they might be. And of the top 1600 positions in the US federal bureaucracy, a lot of them are still unfilled. When Trump came in, he didn’t just clear out the people at the top. He went as far down as he could, legally could go. 

And then even a little bit further. But those positions have not been filled. And even when he has nominated people and sent them to the US Senate for confirmation, a lot of those haven’t happened because he’s trying to achieve basically 17 bills worth of stuff in one with this giant super mega happy bill. And, you know, it’s taking every little piece of attention that Congress has. 

And so the Senate hasn’t been able to pick up the confirmation roster. So he is arguably today the second least informed world leader. The two of them manage what used to be the world’s largest economic trading relationship. Now it’s the third largest we are Mexico and Canada are now more important to us than China, but it’s obviously a massive strategic relationship that has to be handled carefully. 

So we’ve got two old guys driven by ideology who don’t think the rules apply to them, who have blinded themselves to information, and now they’re going to have a talk about what’s going to happen for the rest of us. It’s going to be consequential one way or another.

What’s Up with the Middle East: Saudi Oil Slips

Photo of black oil barells

Oil has been the secret sauce for the Middle East for ages, but that’s beginning to change.

The Chinese are now the top importer and consumer of oil, driven by all that energy-intensive industrialization. US oil consumption is dropping, although exports of refined products have masked this a bit. The US shale boom has also made American energy independent and competitive, which isn’t great for Saudi manipulation and control of oil markets.

Which means Saudi Arabia is losing some of its influence; the US doesn’t need the crude, Saudi Arabia’s costs are rising, and more competitors continue to pump oil regardless of market signals. But the Saudis aren’t completely out of options…they could always just use a little terrorism to destabilize their rivals.

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Transcript

Hey, all, Peter Zeihan here coming to you from Zion National Park. This is Zion Canyon. That is the infamous Angel’s Landing, which I will not be doing a video from. But we continue our coverage in the Middle East today talking about what makes the whole region matter. And of course, that is oil. We’ve got a lot of crosscurrents going on, and international oil markets right now. 

We’ll start with demand. Then we’ll go to supply. Demand is weird. The United States has largely completed its transition to a services economy. And so we’re becoming more and more efficient for every dollar of GDP that we make. And so in terms of actual oil demand, we’ve actually seen demand drop in the United States. I’d argue for the last 15 years. 

Now, you’re not going to see that in the data, because the United States has massively increased its production and export of refined products. So technically, we’re still absorbing crude turned into things like jet film gasoline and then sending it out for a profit. But in terms of our normal consumption, it’s actually gone down by quite a bit. 

The second big factor, of course, is China, which is pricing sensitive and factor insensitive. They basically expand their money supply in order to give everybody a job. Most of those jobs end up being in the industrial space, which is relatively energy intensive. And so they need every drop of the stuff they can get from everywhere. So China has overtaken the United States as the world’s largest oil importer by far. 

And if you look at the numbers the way I do, they’re clearly the world’s largest oil consumer as well. But unlike, the Chinese, the United States has an ace in the hole, and that’s the shale revolution. So now we talk about supply. The United States has gone from producing less than 5 million barrels a day as recently as 20 years ago to, now, something closer to 15 million barrels a day. 

Most of that increase has been in the shale fields, where it’s relatively light, relatively sweet, fairly easy to refine, but not necessarily geared towards the American preferences when it comes to refinery infrastructure. So we end up exporting a lot of that stuff as well, and then bringing in some heavier, more sour stuff from Canada in particular. From the Saudi point of view. 

All of the math is out of whack. The Saudis are completely incapable of defending themselves in a real war. And their plan has always been to lean on the United States for security support. And they do that by making sure that the United States always has as much oil as it possibly wants. But now the U.S. really doesn’t care on a systemic basis about oil markets at all, because everything that we need to either get at home or within our continent, or worst case scenario, within our hemisphere, and the Saudis are kind of left dragging, they would love to have a new security guarantor, but it’s not clear who that 

could be. The Chinese don’t have the reach or the longevity. The French and the Brits don’t have the punch. And the Turks may be closer, but they are on the wrong side of Mesopotamia to make it work. It leaves Saudis in quite a lurch. And the Saudis, from an economic point of view, are struggling with new problems. 

It used to be 20 years ago that OPEC could dominate oil markets by increasing or decreasing. The Saudis always had problems getting countries to follow their quotas. But because Saudi Arabia and their relatively close ally, the United Arab Emirates, always basically agreed on oil policy. You had this huge chunk of spare capacity that could be turned on or off relatively quickly. 

They’re facing two challenges to that now. First, the spare capacity is largely gone. Everyone’s been pumping full out for quite some time. And then second, with shale, you can bring on a new shale. Well, in a matter of weeks, as opposed to having pre invested billions of dollars into spare capacity in Saudi Arabia, which still takes months to turn on. 

So any time that the Saudis would try to flood the market. The shale folks just proved to be a little bit more competitive than the Saudis would have liked. And whenever the Saudis tried to push up prices by gutting the market, the shale folks would just take the market share. And that happened over and over and over and over and over again. 

Second problem the Saudis are facing are is the former Soviet Union, because while Saudi from time to time can bully some of the other producers, into changing their oil policy to meet with the Saudis, one and two, they’ve never been able to do that with the Russians. A lot of the Russian production is in Siberia. It’s very high cost to get out of the ground. 

The Russians have no intention of ever turning it off. A big problem these days is Kazakhstan, where a couple major projects called Tengiz and Kasha gone have really come into their own and made Saudi Arabia more important to oil markets than Kuwait. And they’re never turning that stuff off either. And then Azerbaijan has finally hit its stride with its offshore production. 

So you got three significant players that are just dumping more and more crude on the market. And there’s really not a lot that Saudi can do, which means it’s time for a different sort of strategy. Some people in Saudi thought they could build a giant linear city that everyone would come invest in. Well, that was a stupid idea. 

And so now the Saudis are probably going to rediscover some of their militant roots that they put down in the 1980s with al-Qaida. We have a lot of moving parts in the Middle East. Syria’s one. Iran is one. But what the Saudis really need is for some major oil producers to go off line. And the only tool the Saudis have that is even remotely reliable outside of Europe, opening the spigots is terror attacks. 

This is something the Saudis are very good at. Their own population is basically former horse raiders that decided to settle down and substitute mass rapes and killings for, domestic violence. And now they’re in a position where the only way in the midterm that they can drive oil prices up is to drive someone else out of the market. 

They haven’t decided what the target is yet. But we should expect significant policy change out of Saudi Arabia over the course of the next year, especially now that it’s become apparent to the Saudis that the American relationship really is over. 

When Donald Trump came to Riyadh, recently, he didn’t ask for crude. First time, an American president hasn’t had some conversation with the Saudi royal family about crude oil. He simply said, you need to invest money in the United States if you want us to be involved at all. $600 billion is my number. So I don’t have $600 billion. The idea of them being a cash cow for whatever project in the world is long gone. 

Their population is much larger, their subsidy system for their population is much larger, and their cost for just holding the line are much larger. So the U.S. will be lucky if it gets 150 billion. And the Saudis simply need to change the rules of the game if they’re going to continue with their system in its current form.

Ukraine Strikes Russian Strategic Bombers

Imagine of a drone firing missiles

Ukraine just did more to enhance American national security than any country since 1945. Here’s what went down…

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Transcript

Hey all. Peter Zeihan here come to you from Colorado where we’re about to get a storm. Anyway, it is the 1st of June. You’re going to be seeing this tomorrow, on Monday the second. And the big news is, a few hours ago, the Ukrainians launched what is the most significant strategic attack on Russian territory since at least World War two? 

What? It seems that they did is they took a bunch of trucks, some flatbeds loaded sheds on top of them and drove them deep into Russia, like, thousands of miles into Russia, and then parked them and remotely retracted the ruse and launched over 100 drones and sent them at two air bases where they took out strategic bombers by strategic mean long range bombers whose primary purpose is to nuke the United States and hit, naval convoys that are crossing the Atlantic to support the Europeans in case of a Russian invasion. 

The tradecraft of this, the defense craft, the audacity of this is immense. And the damage caused was immense. The simplest report I have seen, the lowest casualty report, suggests at least 40 of these long range aircraft were destroyed. There are some indications it was a lot more than that. It’s not just that. This is billions of dollars of equipment, that it would take the Russians literally over a decade to replace. 

It’s the nature of the weapons involved. 

What? The Ukrainians did not particularly sophisticated drone. The audacity was getting the drones into target and launching them from relatively close in the. The real importance is what was hit, these weapons can be used. They have been used in order to bomb Ukrainian cities and military sites. 

There’s no doubt there, but not from where they are currently based. The two locations in questions are acute, which is way out in Siberia, basically further from the Ukrainian border than Miami is from Seattle. And the other one was up in Murmansk. Basically at the Arctic Circle. These are not locations that the Russians would be using to do tactical in theater attacks on Ukraine. 

These are where you put your bombers when you’re getting ready to bomb the United States. And for those of you who are Russian apologists, the Russians have never stopped getting ready to bomb the United States. So fuck off. Anyway, this is the single biggest strategic achievement for American security since at least 1945. We have never had any ally deliver this sort of blow to someone who is targeting the American homeland and to take out so much military capacity that was designed around hurting the United States in this. 

So when I think of the political ramifications of this, I have to think of something that Donald Trump said when he had Zelensky in the white House. You don’t have any cards. You can’t hurt Russia. That is clearly now false. The question is whether there’s someone in the Trump administration who’s smart enough to realize what just happened and brave enough to make policy around it when it goes opposite of what’s been coming out of the white House for the last few months. 

Ukraine just proved in the day that they have what it takes to guarantee American security. And that’s probably going to take us some really interesting directions.

Coping Mechanisms 101: The “TACO” Trade

Newspaper photo of President Donald Trump

I won’t ramble on about Trump’s chaotic trade policy because you’re all aware of that. However, there are some interesting updates to share.

After most of America’s key trading partners have been subjected to the chaos, Wall Street has adopted a new strategy called the “TACO” trade – short for “Trump Always Chickens Out.” You know since most of his aggressive threats are walked back within weeks of announcing them.

We’ve also seen a court ruling state that Trump’s tariff actions may be unconstitutional. We’ll have to wait and see what the result is following the appeal, but convos regarding presidential trade authority have been sparked.

This all contributes to the stalling of industrial investment in the US, because if you don’t know the rules, how can you play? It would be nice to get some clarity here soon, but we may be in for four-year ride on this roller coaster.

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Transcript

Hey, all. Peter Zeihan here coming to you from Colorado. I am recording this over the weekend. You’re going to see it on Monday, June 2nd, which means we will undoubtedly have a few updates that are not being folded in. And because that’s just the nature of the beast these days. We’re talking about trade today, specifically, what is up with the Trump administration and the current status of the many trade wars the Trump administration has launched. 

If you remember, this is the most aggressive president we have ever had when it comes to issues of trade. We have already had a 132 documented trade policy changes by this administration, and things are getting a little out of control. Let’s start by talking about two of the United States is four biggest trading partners. So number one and two are Mexico and Canada. 

We’ve dealt with those bear for I’m sure we’re gonna deal with them again. But in the last few days we’ve had a lot of movement on Europe and China who are number three and number four. 

Let’s start with Europe. Trump decided that the Europeans are not serious with their trade talks. The primary reason is that there’s no one on the US side to answer the phone when the Europeans call. 

The Trump administration still hasn’t staffed up for really anything. Most notably for trade talks, normally takes several dozen, if not several hundred people to handle the negotiations. For one major trade deal. And the United States is attempting to do 200 deals at the same time. So everything is just kind of slogged. Anyway, Trump laid the blame on the Europeans and said that come July 1st, tariffs will increase by a factor of 5 to 50%. 

He then had a call with the commission president, Ursula von der Leyen, and said that, no, that’s going to actually happen on July 9th. By the way, these are not trade policy adjustments. So they don’t go to that 132 number. These are just, things that he said on Truth Social. And with the Chinese, we had a recent deal in Geneva where the Trump administration agreed to peel back the tariffs from 145% to 10% while talks continue. 

So it was just an agreement to talk. Trump has now said again on Truth Social that the Chinese had violated the deal to talk. And so tariffs are probably going to be coming back in soon. I have no idea what’s going on behind the scenes in the Trump administration. There are so few people that you can tap to find out. 

But it appears, at least from the Chinese and the European point of view, as well as the Canadian, the Mexican and the Japanese and the Korean and blah, blah, blah. Is that the Trump administration is basically making policy off of a whim, the normal flows of information that would inform the white House of what’s going on in the world don’t exist anymore. 

The Trump administration has fired the top 1400 positions in the federal government. Very few of those have been replaced with anyone. And those that have been replaced have generally been replaced with party loyalists, rather than anyone who knows anything about in this instance, trade. So we’re just getting things going back and forth and back and forth, not based on data, not based on reality, not based on trade flows, not based on national security concerns, based on whatever it is that Trump feels the issue of the moment happens to be. 

And the result is just this erratic nature of policy. As a result, now that we’re a few months in, Wall Street has had to deal with this, and they’ve developed something called the taco trade. Taco stands for Trump Always Chickens out. And the logic behind the trade is that Trump says these big things implement these big policies. 

And then he immediately backs down immediately within a few weeks. I’m not sure that’s entirely fair. Trump obviously finds it a lot less amusing than a lot of other people do, but it gives you an idea of just how everyone feels. We don’t know, day to day what the policy is going to be. We don’t know, day to day what the goal is. 

And so we don’t know day to day how Trump is getting from A to B, assuming there is a B and what information I’ve been able to clean out of the white House is that there was never a goal in the first place. This is just how Trump likes to run the show, and this is what we can look forward to for four years. 

Which explains in vivid detail why industrial construction in the United States is basically seized up because nobody wants to invest in an industrial plant if they don’t know what the rules of the game are, especially if the person who’s making up the rules of the game keeps making up the rules of the game. On top of that, we have now had a court case by a trade court in the United States that says that the Trump administration does not have the legal authority to do most of these trade policies. 

Now, according to the Constitution, the Congress is the only body in the United States that has any trade authority on tariffs. But over the last several decades, most notably in the 70s, the Congress submitted some of that authority to the US executive for emergency circumstances. And almost every tariff that the Trump administration has put in place to this point has drawn upon that emergency authority. 

So Trump declares an emergency and then defines the tariff. The court disagrees with the logic of that, saying, not that Trump is interpreting the statute incorrectly, but that Congress cannot unilaterally cede, tariff authority to the president. Now, I’m not a legal scholar. I’m not going to parse out. I just found a case kind of interesting that they were going after Congress with the ruling rather than the presidency. 

It’s already been appealed, and there’s already been a stay on that tariff suspension. So those are two of the 132 tariff changes that we’ve had now. And the Trump administration, of course, is going to appeal this all the way up to the Supreme Court. And since we’re already at the upper federal district court level, it’s not going to probably take too long to get there to get some legal clarity. 

But the bottom line is clear. We’re in a bit of an institutional crisis over the ability of Trump to do what he is doing. And now Congress has been roped into that discussion as well. From my point of view, the fact that Congress actually is being called to the carpet on some of these issues is actually great, because it’s going to force a degree of clarification about what is possible, what is not without an act of Congress. 

But between now and then, you should expect nothing but more confusion as everyone is trying to figure out what’s going on while the floor keeps shifting under all of us.

What’s Up with the Middle East: Syrian Dysfunction

Photo of a plaza and monument in Syria

Next up in the Middle East series is Syria. They’re enjoying a calm period right now, but the new President, Ahmed al-Sharaa, is walking on eggshells to avoid the deep-rooted problems that have plagued Syria for ages.

Those problems run the gamut, from ethnic to religious to geographic divisions. Think of Syria as a patchwork of groups that love fighting with each other. And maintaining stability in a place like that is hard, especially now that backing from Russia and Iran no longer exists.

Unfortunately for the Syrians, nobody is all that interested in helping them out. Western powers aren’t willing to step in, regional powers benefit more from Syrian dysfunction, and the Gulf states can’t figure out how to proceed. All that to say, Syria should enjoy this period of calm, because the storm is undoubtedly coming back.

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Transcript

Hey, all. Peter Zeihan here coming to you from Zion National Park, going down the old Conservation Corps path that they blew out of the side of a mountain, because that’s how we did things in the 30s. Anyway, we’re continuing our Middle East week, and today we’re gonna talk about Syria. We have a new government that controls most of the territory and has incorporated most of the factions. 

But, don’t expect this to last. We’re at a kind of the calm before the storm. Basically the new leader whose name escapes me. Yeah, that looks right. Isn’t going to last. I mean, I wish him the best, but he basically has inherited all of Syria’s core problems without any of its advantages. Syria is made up of a half a dozen completely different regions, different sectarian groups, ethnic groups, different religions in different geographies, and they don’t pull together. 

So you have your Druze on the mountain down in the South. You’ve got the Arabs and what we would consider the Fertile Crescent, the three big cities of harm Ham, Aleppo, and then the fortress city of Damascus. You’ve got the Alawites and the Christians in the mountains and the coastal enclave in the northwest. And then you have the Kurds and the kind of step back territory along the Euphrates to the northeast. 

And then, of course, ISIS is running around like mad in the desert in the middle, in the war before now, all of these factions were at one another’s throats to some degree. There were limited alliances, at least within specific geographies, but there was really no way for the single government in Damascus to exercise the writ over the entire territory. 

That doesn’t change. What has changed is that two of the powers on the outside, the Russians and the Iranians, are no longer providing a and I say this tongue in cheek, a little bit a stabilizing influence. You see, the Iranians and the Russians were backing the, Damascus government of Bashar al-Assad. To the hilt with equipment, with men, whether it was, Russian fighter pilots or Hezbollah fighters from Lebanon that were controlled by Iran didn’t really matter. 

All of it, was funneling in to help the central government hold the line in the Civil War. Well, that’s obviously stopped because the central government fell. And this new guy is now in charge. But it’s not like anyone else is stepping up to help him. The big news recently is that the European Union and the United States have decided to drop sanctions on the Syrian government to kind of give them a chance, but they need a lot more than that if they’re going to go anywhere. 

Also, we’ve had so let’s just say, some weird political bedfellows in the last couple of weeks, Donald Trump actually met the new Syrian leaders and shook his hand. This is a guy who was executing civilians under Sharia law less than a year ago. So, you know, apparently we’re doing that now. But the United States and the European Union made it very clear that any aid, was far in the future and would be contingent on a large number of factors that are mostly out of side of the central government’s control. 

So the Civil War is kind of at a pause, but don’t expect that to last. Oh, that’s kind of steep. We might hug the side a little bit more. The other players that would matter. You got two local and then two further abroad. The two that are local are the Turks and the Israelis. And they’re okay having Syria as a more or less failed state right on the doorstep, because it means that they can go in there and do whatever they want, bomb whoever they want, go after whatever surgeons they don’t like. 

Which in the case of the Turks, in the case of the Turks, it’s the Kurds who are America’s best friends in the region. And in the case of the Israelis, it’s pretty much anyone but the Druze. So if Syria was to consolidate into a functional state, they’d be able to resist these sort of punches. And the Israelis and the Turks are just fine the way things are right now. 

So having a semi failed government and a semi anarchic system that spins up its own internal violence for its own reasons, this is fine. Further abroad, the two big players. Well, this is called a cluster of players. The Gulf states of the Persian Gulf. Since most notably, the three most heavily involved are Saudi Arabia, which tends to support the Sunnis, Qatar and the United Arab Emirates, who are a little bit more freeform with their assistance. 

The three powers do not see things the same way. They backed different factions at different times for different reasons. And now that everything’s kind of in flux, they’re kind of sitting on their hands. Funny thing, when Donald Trump was going on his, make up of terrorists, campaign in the Middle East, he stopped in Saudi Arabia and basically asked for cash to invest into the American economy because the American economy is slipping into a recession that Donald Trump’s tariff policies have cost. 

And the Saudis basically said, yeah, you know, you’ll make up whatever number you want in your PR campaign. We’re not going to give you even a third of that. And we’re not giving anything to, Syria that is not specifically backing our interests until such time that you come up with the security plan for the place. So everyone’s just kind of sitting on their hands and waiting for the other shoe to drop. 

And in Syria, you probably will not have to wait soon. Just keep in mind that should this new government actually start to consolidate the two countries that are closest with the most military forces available and the most to lose, Turkey and Israel are certain to take actions. So anarchy. So I formed anarchy is probably the best. We’re going to get. 

And if it lasts through the summer, I would be very, very, very surprised.

What’s Up with the Middle East: Turkish Dominance

Image of a line of Turkey Flags with kids riding on the back of a tram in Istanbul

We’re moving onto the region’s most dominant country – Turkey. Sitting at the crossroads of Europe, the Middle East, and the Caucasus, Turkey’s military, economy, and political identity have all been shaped by this unique identity.

As deglobalization sets in, Turkey (and more specifically, President Erdoğan) is keen on seizing an opportunity at climbing the regional ladder. Thanks to solid geography, good demographics, and a long history of outlasting regional upheaval, the Turks have the perfect foundation. All Erdoğan feels he must do is continue consolidating power, amend the constitution, and his seat at the table will be cemented for the remainder of his life. And then he can project his ‘image’ of society onto the wider region.

It’s not all butterflies and rainbows for Turkey though. They’ll need to continue growing the industrial base to be globally competitive. And some of those outdated economic views could harm Turkey’s long-term prospects, despite the deglobalized world we’re heading towards.

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Transcript

Hey all Peter Zeihan here we are continuing this week series on the Middle East. And we’re going to now talk about the most powerful country in the region by far. And that is Turkey. Turkey is an industrial base that produces every other country in the region combined. It has a GDP roughly the same size as every other country in the region combined.

It has a military that’s more powerful than every other country in the region combined. In fact, it’s the second most powerful army within the NATO structure. Second only to the United States. And the first thing to remember about Turkey is that Turkey is Turkey. It is not Middle Eastern in the traditional sense. It is not European in the traditional sense.

It’s part of the Caucasus. It’s part of the Eurasian sphere. It’s part of the Balkans, it’s part of the Levant, it’s part of Mesopotamia, it’s part of all of this. But it is of none of them. It is its own thing. And if you start your understanding of Turkey by thinking it falls neatly into one or the other, you’re thinking about it wrong, which is one of the many, many, oh, so many reasons why the Europeans never understand the Turks.

Anyway, what the Turks are thinking right now at the top of the government is thinking right now is that they are at an interesting moment in history. There are two massive trends going on to the north that are colliding with one another, and both of them have limited time. The first one, of course, is the Ukraine war, because never forget the Crimea specifically and broader parts of the Russian and Ukrainian spheres at various times in history, have been part of the control of what today’s Turkey considers to be its normal birthright.

There are plenty of ethnic Turks throughout the Caucasus, in the southwestern Eurasian region. Of course, in Crimea itself. And so there’s no version of any future of the Ukraine war matter. Who wins, who loses where? The Turks are not going to be indelibly involved. And whatever that looks like. The second piece, of course, is the European resurgence and semi military unification that is happening both because of the Ukraine war, because of withdrawal.

The United States under the Trump administration, the Europeans are having to fight against decades of low birth rates and an industry that is designed around global exports, which is no longer functioning. And they’re having to find a new way of doing it. And part of the way they’re doing it is by converting some of their civilian industrial capacity to military production.

And for those of, you know, your European and especially your German history, you know where that can lead. But both of these trends are temporary. The demographic situation for both the Russians, Ukrainians and the Europeans is terminal. There is no version of a globalized world where Europe is still a single entity. There is no version of a globalized world where the Russians have the income that’s necessary to hold their own structures together.

As the United States leaves, both of these systems are doomed. And even if the U.S. stuck around the demographics are so bad, they’d be doomed anyway. The question is time frame. Is this five years? Is it 15 years? Is a 25 years? We really don’t know. History’s never been at this sort of turning point before unless you’re in Turkey.

The Turks have seen this all before. They’ve seen demographic decay on their borders. Going back to Roman times. They’ve seen a situation where wars on the periphery have flared as two forces fight off against each other and then both flare out. They saw this with the Persians, what is today the Persians against the Arabs. They are used to seeing other powers in the periphery rise and fall, because their demographics have always been good, their geography has always been good, and there’s always been a degree of insulation.

Doesn’t mean that it’s always perfect. Turkey has had its share of imperial rises. This falls as well. But the essence of what makes Turkey Turkey has always been there. And that brings us down to the personalities that are hoping to shape whatever’s next, because we have this many historical and geopolitical forces coming together at once, anyone who’s left standing on the other side is going to be able to kind of write their own ticket.

So that guy is the president, who goes by the name of Erdogan. Now at Iran has been at the top of the Turkish political heap since he kind of returned from an internal semi exile in 2000. Basically, the old government of Turkey tried to get rid of him, didn’t stick to being prime minister and now president.

And he’s now in the process of trying to amend the Constitution so he can be president forever. He refers to his enemies as traitors of the state. He lambast the educational system and the media and the financial sector is all being against him and against the will the people sound familiar to anyone at all? Anyway, Erdogan is hoping that he will be the dominant personality in all of your age.

In the not too distant future. And that he, as leader of Turkey, the most stable of the countries throughout this broader region, is going to be able to leave the Turkish imprint, the other one imprint on human history, from now on. And it’s not narcissistic egoism. That’s right. Well, it’s not it’s not just narcissistic egoism, because he too has done this before.

If you go back to the foundation of modern Turkey in the aftermath of World War One, we had a guy named Ataturk, who is generally considered the father of the modern incarnation of the state, which is something history hasn’t gotten around to amending yet. I’ll get to that in a minute. Anyway, Ataturk tried to drag the Turks out of the Ottoman Empire, which was semi religious.

The caliphate was headquartered in Istanbul. The Europeans saw the Turks as technologically backwards and neo hominids who had invaded from the plains Eurasia, descendants of the Mongols. All that good barbarous stuff, about half of which is true. Anyway, they were definitely more technologically backwards and say the European states were, as the Europeans were industrializing.

The Turks relate to that game out of Turk dragged Turkey by the ear, kicking and screaming into the modern age, introduced things like democracy and industrialization, took away their hats, changed the culture, and in doing so, he put the military as a secular force in charge of the country for the next couple of generations, ebbed and flowed when Ataturk was dying, he gifted, if that’s the right term, democracy to the country.

And a lot of the people in Turkey thought that they shouldn’t have given up their religion or their culture. And so we got this back and forth and back and forth and back and forth. It lasted until about oh, 2002 when, at Iran came in and basically grabbed both sides of that political argument by the ear and forced them into a single mishmash time.

He, I mean, sort of singular system that he now rules. So the secular military that used to throw coups, that has been completely brought under civilian control, all of the religious figures that used to issue, directives against the government, all those have been brought to heel and are under everyone’s control. So we have now one turkey.

That is a combination of the best and the worst of both sides of that old political argument. So from veteran’s point of view, he’s already the guy who’s been remaking Turkish history for a couple of decades. And the next logical step is to remake the entire region. So from his point of view and he’s got a point that if there’s anyone who knows how to navigate these particular waters, it’s him, because he’s already done it.

All he has to do is continue to shove all of Turkish society into a box of his shape, design and size. So he’s trying to force his political allies in the Parliament to allow him to run for president again. I think it’ll be like his 14th term or something. I mean, it’s not like fourth term. And if that’s successful, he will basically be president for life.

He’s already, I believe, 71. He’s not rumored to be in ill health. Doesn’t mean he’s a great modern manager in many ways. He’s like like Donald Trump. His idea of what industry should be is what it was 50 years ago when he was a kid. So technology is not something he understands. Modern society is not something he understands.

People who are young, you know, under 50 are not people that he understands. Again, it’s unfamiliar. And so he’s introducing what may well be some of the very problems that are going to plague Turkey for the rest of the century. For example, the Turks have a very solid industrial base, but it’s kind of middle tier for quality.

Anyone in the Middle East who can afford it doesn’t want Turkish goods. They want German goods. And anyone in the Middle East who can’t afford Turkish goods wants Asian goods because they’re cheaper. So Turkey has yet to define what it’s going to be in this new era. All we know for sure is Erdogan is committed to being the big man when everything breaks.