Israel Launches Attack on Iranian Nuclear Sites

Photo of attacks on Tehran by Israel in June 2025 targeting top military officials. Photo by Wikimedia Commons: https://upload.wikimedia.org/wikipedia/commons/9/9e/Destroyed_buildings_as_aftermath_of_2025_Israeli_attack_on_some_areas_in_Tehran_23_Tasnim.jpg

Israel has launched a significant military campaign against Iran, primarily targeting nuclear facilities. Let’s break down the targets, impacts, and what’s coming.

A handful of sites used in uranium enrichment, fabrication, and machining were hit, along with several Iranian scientists and military figures.

Iran’s air defenses have fallen short, and given the amount and style of attacks, it’s likely that Israeli agents have made their way into Iran. The response from Iran has been lackluster and that’s not likely to change; with limited response options (paramilitary proxies like Hezbollah and the Houthis are too weak), missile and drone launches are the extent of Tehran’s retaliatory options.

Prefer to read the transcript? Click here

Transcript

Hey, all. Peter Zeihan here coming to you from a slightly stormy Colorado within the last 12 hours. The Israeli government has started a broad scale military campaign against Iran, going after primarily their nuclear facilities. This is the big one already. They’ve done more damage in Iran than any other power has done since the rise of the Ayatollah back in 1979. 

And they’re telegraphing that this is going to continue for at least a couple of weeks. The damage inflicted is notable, but let’s do a quick breakdown of what’s going on and where it’s likely to go before we all jump to conclusions. So first of all, let’s start with the non nuclear targets. The Israelis have targeted nuclear scientists. They have targeted military leaders. 

They haven’t had a success and targeted at least some of them. But honestly this is not all that impressive from my point of view. Israel has been going after nuclear scientists for the better part of the last 20 years. It’s not a great industry to be in if you want to live. So taking out 2 or 3 here and there doesn’t really change much. 

And as for the military leadership, Iran’s military is an occupation force that Iran uses to keep its own population in check. It’s not really capable of projections across territory. So if they were all gutted and it’s only been a few, it really doesn’t change the math at all. Got Iran affects its region through paramilitary groups that are not Iranian citizens. 

So by supplying them with equipment like the Houthis in Yemen. So gutting these two ranks of people doesn’t really change my math for anything of more significance is going after the nuclear facilities. Primarily we’re looking at Natanz, which is the primary enrichment facility that the Iranians used to turn uranium ore into something that can be used, fissile isotopes that can be used in weapons. 

There are secondary facilities in a place called Isfahan, which also handles a lot of fabrication. And higher end machining. In theory, being designed to be put into weapons. Now, let’s be clear. The Iranians have never tested a nuclear device. They have never demonstrated that you have the ability to put a nuclear device onto a missile and miniaturize it and ruggedized it so it can actually be thrown. 

We’re just talking here about a country that at the moment is working on enrichment and maybe the next couple of steps. And then the Israelis have started targeting an area called for, though, which is just sort of calm. For though, is the one place in the country where the centrifuges that are used to enrich uranium are actually in a reinforced location under the mountain. It is unclear whether the Israelis have the military capability of shattering for though this is where they turn. 

Kind of like mid-enriched uranium into highly enriched uranium, the fissile stuff, you can make a bomb out of, and so they’re going after things like air defense, power grids, that sort of thing going after the access points. Early days. We’re really only in the second wave of attacks right now. But the damage is notable. 

What? The Israelis have not gone after to this point are known stockpiles of nuclear fuel or the operational civilian power plant at Bushehr. It appears that they don’t want to be accused of war crimes by basically doing an inadvertent or maybe advertised dirty bomb in civilian areas. So that has not happened to this point. 

All right. What’s next? 

What is perhaps most interesting about this attack so far is there has been no meaningful Iranian air defense at all in the last two rounds of strikes over the last year, which were much smaller by comparison. Israel went after the air defenses first and discovered that they weren’t nearly as robust as they thought they were. These are older systems, or Russian systems, that have been purchased in the last 30 years, and apparently against the Israelis, who have a much more sophisticated, air penetration capacity than, say, Ukraine. 

They’re just not working at all. So if you’re a country out there and you bought a lot of Russian air defenses, you may have wasted a lot of money. Anyway, the Israelis aren’t just attacking with impunity. They’re actually announcing what their future targets would be. And there is plenty of indications across Iran that the Israelis have infiltrated and put agents on the ground and are using things like drones to go after movement of things like trucks and personnel. 

So if you announce you’re going to hit X site, an X site pulls out of their bunkers and starts to run, then they get hit by drones. So this is something that the Israelis very clearly have been working on for months. And it’s been played out so far pretty effectively. Whether it will completely destroy the Iranian nuclear program is, of course, an open question, because there are so many sites, and the Iranians have been preparing for this for so long. 

But if there’s anything that we have learned about Iran over the last few years, is that a lot of their stuff is not nearly as robust as they thought it was. It’s a lot more brittle. And so the Iranians really don’t have any good way to respond. Iranian power is not about the conventional military. They’re stuck in their mountain fastness. 

Half their population is not Persian. It’s in their paramilitary groups that they support around the country. She is in Iraq, Houthis in Yemen, maybe the Palestinians, if they get lucky, Hezbollah in Lebanon. And most of those groups between the American war on terror and recent Israeli operations have basically been gutted at the organization on the leadership level. 

And so none of them can really strike back against Israel in a meaningful way. That just leaves missiles. And yes, we have reports now that several hundred of those have been flying over, I should say several dozen. We’ve got drones and missiles. A lot of things are in the air. It’s not clear yet that they can get through Israeli defense or not. 

We’re. Oh, rain. We’re nearing a position where if Iran still thinks it’s going to have strategic leverage in anything, it’s going to have to use it or lose it. The thing is, it may know well that if it uses it, it will be its last shot and it’s not going to achieve anything anyway. Anyway, no one can decide the political and strategic math on that, except for the Iranian government and they’re under assault.

Watch This Number for Recession Indicators

Photo of the word recession with storm clouds overhead

Everyone, get your calendars out and draw a big red circle around July. Why? Because a recession could be coming.

The tariff war caused a huge drop in imports from China, with transpacific shipments falling to historic lows. Trump has since backed off the gas, but the supply gap could strain US inventories. If those stockpiles run out, a recession will follow in short order. And we can say thanks to the erratic policy for this recession, as consumer demand and investments have remained steady.

But the real point of this video is to give you a tool to monitor early signs of economic trouble: first-time unemployment claims. What we’re seeing right now is a rise in claims, when all other economic signs say that unemployment should be falling. There are some specifics and nuance to this, but it’s a good starting point.

Link to the tracker: https://fred.stlouisfed.org/series/ICNSA

Prefer to read the transcript? Click here

Transcript

Hey all, Peter Zeihan here come to you from Colorado today. We’re going to give you a benchmark that you can evaluate for the status of the United States economic expansion slash recession. Quick reminder, I’m of the belief that July is going to be the critical month. And the reason is an 

interruption in shipments, of product from the rest of the world, most notably China, when Trump started the tariff war back in early April, we quickly got into a shouting match with the Chinese that saw bilateral tariffs go over 150% and cargoes just stopped moving. 

Functionally, it wasn’t a tariff was an embargo. And we have had more transpacific shipments canceled, since then than what happened during the entirety of Covid times five. So the last of the pre tariff ships arrived in New York at the end of May. And we’re now in this complete drought and probably in July, we’re looking at the consumption rate of the American economy overwhelming what was stored in terms of inventories from companies that kind of pre surged imports into the country. 

The question is the problem is the reason I can’t be any more specific than that is that Trump then gave in on the tariffs in order to restart talks with the Chinese. He did that about a month ago now. So we’ve had roughly a two month period with almost no sailings and then they’ve restarted. No, those new sailings haven’t reached the United States yet. 

They’ve only now started to leave Chinese ports. So we’ve got this gap where product is going to be insufficient. And the question is whether the inventories that have been built up are enough, and there’s no way to know. We don’t have a good enough data on the inventories to know. But July is when the rubber is going to hit the road. 

And we’re going to find out this is a really weird recession because everything else, whether it’s capital formation, retail sales and investment levels, has actually been pretty robust, has been for a couple of years. We’re dealing with a policy recession caused by really, really crazy easy decision making. And Washington has a very Venezuelan, Zimbabwe and Greek feel to it. 

And one of the weird things about that is it means you can schedule when the, recession is going to happen because everything else is kind of holding steady. So July is when we’ll find out. Now, the reason I’m bringing this up today is because we’ve got a measure that I want to make sure that everybody understand. 

It’s called first time unemployment claims. There’s a lot of pieces of data that economists look at for various reasons. But the problem with most of this data is it’s only as good as the data collection. And usually there’s a huge lag. So for example, retail sales, great measure, but they can’t finish collating all the data right away. 

It takes 6 to 7 weeks before the data comes out. So if we have low retail sales in July because of, insufficient inventory, we’re not going to know that until September. And by then it’s too late. Same thing goes for the Department of Labor’s estimate on job creation. It’s an estimate that is based on a series of estimates that are based on a series of more estimates and surveys. 

And so I don’t want to call it a made up number. It’s one of the best things we’ve got. But it’s not a real data point. But first time unemployment claims are because when people go to file for unemployment assistance, they do it right when they lose their job. And it’s a real number. Now, the data increase from today indicated that first time unemployment claims in the United States has risen to hit 248,000 people. Under normal circumstances, I would not even blink at this number. It’s actually a pretty good number because normally when you hit 300,000 or below, it means that not a lot of people are losing their jobs. The job market is strong. It’s when you hit 400,000 jobs or higher that you’re getting the danger territory, and 3 to 400 requires a little bit of loosey goosey analysis. 

So under 300 should be fine, but it shouldn’t be rising at all. Two things going on here. The first is industrial construction spending, another number that I figure has basically been flat ever since Trump came in. We’ve now had 140 tariff changes since the 20th of January. Trump has made it very clear that, especially for a major trading partners, in the next two weeks, there’s at least another 20 tariff policies coming in. 

They are still working on secondary sanctions for Venezuela. Congress is talking secondary sanctions for Russia. And we still have semiconductor and agricultural tariffs that are supposed to be just around the corner, although the US now has been just around the corner for two months. There’s more coming and as long as that is the case, no one knows what the rules of the game are and no one wants to break ground. 

So industrial construction spending hasn’t dropped. Everyone’s still finishing the projects they were on, but this should be a job creation story and it’s not so. First time unemployment claims should be going down and they’re going up. And even though they’re still well below the threshold, I normally worry about, I’m a little bit more worried. Second problem is the baby boomers are always the baby boomers. 

Over two thirds of them are retired, which means that the balance in the economy between number of workers and number of non workers is in the process of shifting by the greatest proportion since the baby boomers entered the markets back in the 60s, which means a lot of our benchmarks might need to be readjusted because that balance is shifted. 

And when you remove that many workers from the economy, workers who are retiring, not workers who are being fired, then maybe that 300 to 400,000 arc in first time unemployment claims should actually be revised down to maybe 250 to 350, because there’s fewer people to theoretically lose their jobs. We’ll have to find a new equilibrium on that as years go ahead, all of the baby boomers will be out of the market the next few years. 

But we live in the now. Anyway, so here’s a QR code for first time unemployment claims as garnered by the fed every single week. It is one of the measures I am watching most closely and now so can you.

Trump Calls in the Marines for California’s Protests

Photo of soldiers at the California 2025 ICE protests. Image by Wikimedia commons: https://upload.wikimedia.org/wikipedia/commons/f/f4/Los_Angeles_riots_-_June_2025_-_20250613.jpg

Anyone remember that 2011 movie called Battle Los Angeles? It’s beginning to look a lot like that again, just with a different kind of aliens this time.

Earlier this week, immigration enforcement began arresting suspected undocumented immigrants, which triggered protests. Trump deployed National Guard troops and Marines to LA, despite strong objections from the CA governor and LA’s mayor. Trump can legally enforce immigration laws and declare a state of emergency, so he stands on pretty firm legal ground.

The use of military forces like the Marines should be setting off alarm bells because this is not in their job description. Putting Marines that are trained for combat, into a situation where they will interact with civilians and act as law enforcement, is risky to say the least.

Perhaps the most interesting aspect of these protests is the scale. With CA’s size and political leaning, larger turnouts would be expected. Despite this, Trump clearly has no issues pushing California’s buttons, especially if it means political gain for him.

Prefer to read the transcript? Click here

Transcript

Hey, all. Peter Zeihan coming to you from a hotel room where I’m about to give a presentation. I figured that with everything going on in California, I’d better say hello and let you know my $0.02 on what’s going on. Short version is that we have protests and a little bit of rioting in the Los Angeles area specifically. 

What happened is, a few days ago, immigration enforcement went into communities and started rounding up people that they thought may or may not be illegal. There have been several hundred arrests, and that has triggered protests and action. That has prompted Donald Trump to send in about 4000 National Guard troops from local units, over the objection of the la mayor and the California governor. 

And as of a few hours ago, 700 Marines have, joined them as well. So few things here to unpack. Step one. Does Donald Trump have the legal right to do this? Of course he does. Enforcing immigration laws is why Ice exists. So of course, Donald Trump can send in, their forces in order to root out what they see is an illegal community. Were these folks doing anything particularly bad? Not really.  

One of the things that, the Trump administration has discovered is that if you want to treat immigration as a law enforcement issue, the step one is to investigate and figure out if someone’s actually breaking a law aside from being in the country illegally. That’s what Trump campaigned on. But that takes time. And, per agent, if you can get an arrest every few days, that’s actually pretty good. 

And Trump wants to uproot people and hundreds of thousands moving into the millions. And so that just doesn’t get the numbers that Trump is after. So he’s going into places where illegal immigrants are known to congregate. In the case of this California case, they started at the Home Depot and went after the day laborers and then eventually went into the communities and places that were known to employ illegals. 

And that’s how this all got started. Can Donald Trump declare a state of emergency and mobilize the national Guard over the objections of local authorities? That’s a bit more mixed, but probably yes. The federal government political leaders have the right to declare states of emergency and bypass some of the laws that we consider to be normal, especially if you’re dealing with someone who isn’t an American citizen. 

So Governor Newsom and the LA mayor have both sued, and the initial court case will be heard, today when you’re seeing this on Thursday. But I really doubt it’s going to go their way. The courts generally give a very wide latitude to any administration when it comes to issues. Federal law enforcement, if there’s going to be a check on the president’s power in this specific instance, that’s probably going to have to come from Congress, because they’re the ones who determine when states of emergency can and cannot be declared. 

And at the moment, there doesn’t seem to be any appetite in Congress to challenge the president on this or any other issue. So this is probably going to work out just fine for Trump from a legal point of view. That, of course, leaves the practicalities. Honestly, if I were the one writing this headline, I’d be like only 17,000 people in California protest. 

I mean, the protest movement in California has this high on self-righteousness and huge. And to consider that we are now in, I reemerge April, May in the fifth month of the Trump administration, and we haven’t seen widespread protests. That’s kind of surprising to me, especially in California. So the numbers of people involved here, the level of skullduggery or violence, if that’s what you’re after, is really very, very low by normal California standards, much less by the standards of what the Trump administration say triggered the first time around. So, this is very clearly, from my point of view, Trump trying to instigate an issue, California is on the opposite side of the political aisle from this administration. It is the most powerful economy in the country, and arguably the sixth or seventh most powerful one in the world. And Trump would love to take it down a notch. Now, will that work? Well, that’s really up to the rest of the country and Congress. 

But I think it is worth pointing out that this has the potential to get really, really ugly. The military is designed to kill people. We discovered in the war on terror that we do not like it when our military is responsible for civilian control and law enforcement. They are not trained for it, and it’s only in the last 24 hours that the Marines have started to get trained on non-lethal munitions and things like riot shields. 

So they’re being deployed with minimal training, but a lot of testosterone into an environment that is becoming deliberately volatile. That is not the sort of mix I feel great about now. Legally, unless it’s things get really out of hand, the military can’t be used for law enforcement, so they’re technically there to protect, say, federal sites. The Marines are not a protection force. 

The Marines are go in there and kick some ass force. And so putting the military in this sort of position is really awkward for everybody. Now, the last time the California authorities requested government assistance for things like law enforcement was the Rodney King riots that dated back to, you know, the early 1990s. Anyone who participated in that has been long since left the federal bureaucracy. 

And another thing to consider is that Donald Trump’s gutting of the federal bureaucracy goes up, and to include the military itself. So most of the people who would tell him that this is a horrendously bad idea have already been fired, and we’re all going to have to learn the hard way.

The Revolution in Military Affairs: Series Intro

Photo of a solider throwing a drone into the air

Today, we’re launching into our new series on the future of military affairs. Before we get into what is coming, let’s first discuss what past revolutions in warfare have looked like.

The industrial era brought about the first major shift, with the rise of mass-produced weapons, railroads, and field hospitals. The second shift was seen in the late 20th century as digitization led to the introduction of precision-guided weapons and satellite systems. Now, we’re entering a third revolution.

With breakthroughs in digitization, energy transfer, and materials science, we’re seeing things like drones change the way wars are fought. Without adaptation and changes to traditional infantry and armor, these forces will soon be obsolete.

Some are better positioned for this coming revolution; take the US for example, they have money, industrial infrastructure, and they’re not in a major conflict. Other countries, like Ukraine, will be the guinea pigs for this coming technological shift. However, this new era of warfare will sneak up on everyone eventually…

Prefer to read the transcript? Click here

Transcript

Hey, all. Peter Zeihan here. Coming to you from Nashville, Tennessee, right outside the Country Music Hall of Fame. Today we’re launching a fresh series on the future of military technology and specifically how it’s going to change strategic efforts by various countries, and the policy that goes along with it. And before we can go forward, we need to take a big step back and understand the last couple of major revolutions in military affairs. 

The first one really begins with the dawn of the industrial era, and how the advancement of things like gunpowder and steel and electricity started to interface with the way we ran the military and the conflicts in question, or the Crimean War of the 1850s and the American Civil War of the 1860s. 

Both of these conflicts, we saw technologies that had been percolating for decades suddenly come into their own very real way, where they could be mass produced as opposed to individually crafted. 

And it changed the nature of war ever since. These include things like rifling muskets to give them better range and faster reloads and lower breech chance. This includes the, early efforts with the telegraph for mass communication and sending information to and for very quickly, the railroads for the rapid distribution of troops, field hospitals to prevent casualties from turning into fatalities. 

And of course, things like the ironclad, which gave rise to modern navies and all of these cases, if you were using a pre-industrial military force, if you came up against these forces, you were pretty much wiped out. The ratios were absolutely horrific and the more militarized of the countries did better. So this is not just having a little technological edge. 

This is operating in a fundamentally different technological era, Stone age versus Bronze Age versus Iron Age versus sedentary agriculture versus industrialization. It was one of those kind of seminal jumps that redefined what was possible. The Crimean War, I think, is particularly instructive because you saw the early industrial powers, most notably the Brits and the French, going against a completely, industrialized power, primarily Russia. 

And they laid a few miles of rail track and set up a couple of field hospitals. And that alone was enough to absolutely gut the Russians. The Russians simply could not maneuver fast enough to keep up with what the Brits could do. Via rail on the Crimean peninsula. That’s phase one. The phase two of the revolution. And military affairs happened much more recently, in the 1980s and then into the early 1990s, which digitization, basically taking the computer and applying it to military technology, started out in the Gulf War in a very big way with things that we call Jams now, joint direct attack munitions, where you take a relatively dumb bomb, put a fin kit on it, and a GPS locator can hit within about ten meters of its target. We’ve obviously gotten better since then. That against the Iraqi army. The Iraqis had no chance. And then you throw in things like not just satellite reconnaissance, but satellite communications, and you get cruise missiles and all the fun things that come from that direction. 

And that is now kind of the leading edge of what is possible with the US military today. And again, when we hit this point at the end of the Cold War, there was no competitor. And so every country that the United States came across was two, maybe even three generations of weapons behind. And there really hasn’t been a fair fight since. 

Unless the United States is in a situation where its advantages are denied it, like, say, in a long term occupation in a place like Iraq or Afghanistan, we are now at the verge of something new. In the last five years, we’ve had ever mounting breakthroughs in a number of sectors that are not related to military technology, most notably digitization, energy transfer and materials science. 

And those three building revolutions are combining to generate an entirely new form of warfare, of which drones are only the very leading edge. We don’t know where this is going to go. We don’t know what the military technologies are going to look like in ten, 20, 40 years. But we do know from previous periods that when the old technology comes up against the new technology, things get really exciting really quickly because either the new stuff crashes and burns because it’s inappropriate, not ready, or the old stuff is destroyed and everyone has to rip up the playbook. 

It appears at this moment that it’s going to be some version of the latter in the Ukraine war. To this point, about two thirds of the fatalities that the Russians have suffered have been because of first person drones, which is not even a particularly sophisticated technology that combines digitization, material science and energy transfer. It hasn’t gone into the second generation of technology yet. 

We’re still and basically mass producing cheap things with a small explosives on. Once the kinks get worked out, it is difficult to see any military, most notably infantry and armor, surviving in the new environment unless they can develop their own countermeasures, which will mean an additional technological revolution. So we’re nearing the point now where we need to start having the conversation as a country, as a culture, as a military, as to what it is that we want, what we’re willing to pay to get it, and how big of a technological jump we’re willing to take to try. 

Now, in this, the United States has a couple of advantages. Number one, cache. Number two, a existing military industrial complex that can always be retooled. But third, and most importantly, at the moment, we are not in a hot conflict. And the countries that we are most likely to be facing down Russia, China, Iran are already in this technological shift. 

So we get to watch what they do and learn a few things in this. The Ukraine war is going to be most instructive, because the Ukrainians have been at the vanguard of this entire transition process and are coming up against a much larger conventional military being supplied by the Chinese who are providing the bulk. And yet they’re still there. 

And that should tell us a lot of what we need to know about the technological changes that are going to be sticking with us for the years to come. 

Bottom line. The human race is about to experience a higher form of war. That means, of course, new weapons. But from that comes new everything else.

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.

Prefer to read the transcript? Click here

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.

Prefer to read the transcript? Click here

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.

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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.