Japanese Weapons Are Open for Export

Japan tanks and military parade

Japan has lifted its long-standing restriction on exporting weapons. This will bring some fresh dynamism to the global defense industry, specifically in naval manufacturing and drones.

While the impact will likely be gradual, Japan is already fleshing out plans to supply ships to Australia. The real impact will be seen when Japan’s decades of investment in automation are on display, which positions it to become a major drone producer. Collaborations with Ukraine are just the first glimpse of what could evolve from this.

As Japan leans into defense exports, it could very well reshape modern warfare and emerge as a leading global drone power.

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Transcript

Hey all. Peter Zeihan here. Coming to you from Nashville. Today we’re going to talk about something actually happened about a week ago. The Japanese changed their legal structures so they can now, for the first time since World War two, export weapons. So the question is, how big of an impact that this have? In what sectors over what sort of time? 

Japan has the world’s second largest navy, but they have always, by design, not had a particularly large military because of the whole World War II thing. And in all operational terms, the United States more or less operates their military on a tactical level whenever we decide what we want to. So that is, encourage the Japanese to not do a whole lot. 

And so in terms of percent of GDP, which is a threshold that most people use for defense spending, the Japanese have actually dipped down to as low as about 1% as of ten years ago. Now, as China has become more of a threat, that has risen and they’re now spending just under 2%. And, you know, if you double the size of your defense budget, you would think that your military industrial complex would expand. 

And it has, but not by as much as you might think. The Japanese are working from the theory that before we get all the hardware, we should make sure that we have the right people and the training regimen works hard to argue, and that means that the defense expansion hasn’t really kept up. So a sudden change and the ability to export weapons doesn’t immediately translate into those weapons being available. 

But this is still Japan, one of the most technologically advanced cultures with the fastest rate of change in technology, in manufacturing, in human history. And now that they can access the market, they’re going to. So kind of phase one is there are 20 countries that they consider allies, which can includes most of NATO where weapons are now legal to sell to. 

And the question is what are they going to do? The obvious one is ships, especially small ships. And they’ve already cut a number of deals, including with, say, Australia, to turn more ships out of their shipyards and get them out there. And since the Japanese Navy is one of the three most powerful on the planet at the moment the Brits, the Japanese and the Americans, I don’t doubt that they can do that in number in a relatively short period of time, but it’s the second phase that I’m really interested in. 

Japan is a partially robotic society. This is a country that has been aging very, very quickly and as the world’s oldest average population. And so 15 or 20 years ago, they established a national robot strategy to basically automate and robotics, whatever part of their economy that they could, because they knew they weren’t going to have the people and they knew that the people were going to need the obsessed. 

You mate that with what is going on in this second phase of the revolution in military affairs, and all of a sudden some really interesting things can come out of the drone world, because when it comes to actuators and things like that, the Japanese have been doing it for decades. So we now have a deal in place already between the Japanese and the Ukrainians to bring Japanese production capacity to Ukrainian drone tech. 

You put those two things together a fast adapting, automated workforce with a very quick turnaround on things like prototyping. And you’re talking about Japan becoming a massive drone power in probably less than two years. And now they have export capacity. So I don’t know what they’re going to look like, but we’re going to have Japanese built drones produced in mass and exported in mass in the not too distant future. 

And we’re only at the very beginning of understanding what drone warfare means in general. We are utterly unprepared for what it means when the Japanese take lead in that sector.

The Iran War Approaches a Tipping Point

Missiles with Iranian flags on them

The Iran war is approaching a painful tipping point this week. Global energy flows remain in a chokehold, and economic conditions are worsening worldwide.

This week’s shift will be caused by Iran’s oil storage reaching capacity. Once that happens, Iran will have to shut in wells, which will cause long-term damage to production capacity. The fallout from that will be sure to get the IRGC riled up.

Now that the real decision-makers will feel the pressure, there will be an opening for policy change. The outcome, however, remains uncertain.

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Transcript

Hey, all. Peter Zeihan here coming to you from Nashville. You are going to see this video on Monday the 27th. And this week is going to be a big week in the Iran war. We’re in this painful economic state where both the Iranians and the United States are blockading traffic in and out of the Strait of Hormuz, which has caused any number of problems downstream, whether it’s jet fuel shortages or just general economic dislocation, it’s bad. 

It’s getting worse. It will continue to get worse for months. This is not something we’re going to fix this year or probably even next year. But for the first time, by the end of this week, the people in Iran who matter will finally feel some pain. One of the aspects of the American blockade is to make sure that the Iranians cannot get crude out. 

Now, normally, Iran only exports about a million barrels a day, but based on buffers in their storage system at a place called Kharg Island, they can surge out if they have stuff that’s already on site. What that does mean, however, is that once the blockade is in, that storage starts to fill up. Most people estimate that they have between 30 and 35 million barrels of storage and Kharg. 

And that’s really all the storage they have in the country for crude. And now that we’ve had the blockade in place for quite a bit, we’re probably going to see that storage hit full capacity this week, probably on Thursday or Friday, which means for the first time, it’s not an issue of short term income disruption. It’s a question of the Iranians then having to forcibly shut in their wells. 

You see, it’s one thing to cut off their day to day income for a few days, a few weeks, a few months, a few years, whatever happens to be if they know they can ultimately still get it out. But if you clog up the system and prevent exports completely, then they have to shut in wells, and those wells will never come back on in the same way. 

And they might have to do some redrawing, which means a long term degradation of their capacity to generate income at all over the years to come. Now, the people who are calling most of the shots right now are with the IRGC. That’s the paramilitary organization that enforces security, that controls the missile force that has been doing most of the drone attacks, and they make their money by a combination of smuggling and oil sales. 

So for the first time in this war, they actually have a reason to change policy. Is that something that is going to happen? You know, who knows. But this is the first time they will actually feel pain. And if there is going to be something that the Trump administration is going to do to take advantage of that, we get the beginnings of that strategy by the end of this week. 

Way too soon to suggest that there’s going to be success or failure in any particular direction. But this is the first thing that the United States has done for long enough that matters to the people who are actually making the decisions.

Underwater Drones and the Future of Naval Warfare

An unmanned Underwater vehicle drone about to be dropped into the ocean | Courtesy of Wikimedia Commons: https://en.wikipedia.org/wiki/Unmanned_underwater_vehicle#/media/File:Unmanned_Underwater_Vehicle_operations_130605-N-AZ907-046.jpg

Drones have been all the rage in the Ukraine War, and they will continue to be one of the primary topics of warfare in the near future, but do underwater drones have any place in this conversation?

Underwater drones just don’t have the same use case that airborne drones have. Torpedoes have been around since the 19th century, so these underwater drones aren’t doing anything groundbreaking. Surface maritime drones are a different story. These remote-controlled jet skis strapped with explosives have been wreaking havoc on Russian vessels.

So, forget the underwater drones and focus on the surface-drone tech, especially if you’re in places like the Taiwan Strait or the Japan Strait. As these innovations roll in, we’re looking at a full restructuring of the global maritime shipping sector.

Note: This video was recorded last year during one of Peter’s backpacking trips.

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Transcript

Hey, all. Peter Zeihan here. Coming to you from Lost canyon. Got a little interesting stuff. I’m gonna have to climb through tomorrow, but you know, that’s tomorrow’s problem. Today we are taking a question from the Patreon page, and it’s specifically about drones, specifically underwater drones. And the question is, as did globalization really kicks in, do I expect underwater drones to play a role in some of the major things that are coming, like the just incorporation of China or perhaps Korean unification? 

Probably not. Unlike airborne drones, underwater drones are missing a couple key factors and its range and detection radius. The technologies that have allowed airborne drones to do their thing better optics, better power management, lighter materials really don’t change the math for an underwater, weapons platform, but can’t see any further than they did before. 

The range is limited by the fuel type. It’s having a little bit bigger Battery isn’t going to do all that much of a difference. And being able to get things to where they need to go, probably not a very big play. The only way that underwater drones might make, might see bigger plays are, is if they were dropped off by submarines closer to their targets. 

But, you know, we would call those normally torpedoes. We already have that technology, so we’re not really, doing much here. We’re just kind of reinventing the wheel. Now, that’s under water. Drone. So does it mean that maritime drones aren’t moving forward and don’t have a role to play? But it’ll probably be surface drones. One of the things that the Ukrainians have shown us is they can take a jet ski or a small motorboat packed with an explosives, basically strap a control system to the steering column and off it goes with five, six, 700 pounds of Boom-boom. And when it hits a ship, that ship has a big problem. And using water, drones, maritime drones, surface drones, Ukrainians have done an immense amount of damage to the Russian Navy because pretty much all of the weapon systems that are on traditional naval vessels are designed to shoot up at things like planes. They’re not designed to shoot down at things that are in the water. 

And so we’ve seen the Russians basically have to defend their vessels with dudes on the deck with machine guns and RPGs, and it’s not a very effective thing. So if you take maritime drones and introduce them into constrained waters like, say, the Taiwan Strait or the Japan Strait, all of a sudden you do have a very different sort of system because these sorts of drones do have ranges of a few hundred miles, already. 

And that’s just by retrofitting, platforms like jet skis that already exist. As soon as you start taking, the technologies that the Ukrainians have built and use them on a completely new chassis, you can have a lot more range. And then we’re talking about a fundamentally different system. And if you’re talking about defending a civilian vessel in that sort of environment, that’s going to get a lot harder. 

At least naval vessels have the possibilities of having jamming and having things like a ready supply of RPGs. Now, this does bring us to another topic that we’re going to have to find out the hard way. And that’s the general militarization of cargo ships. Because it’s coming soon. There are not not not not enough military vessels on the planet, to be able to patrol the sea lanes to a degree that would be necessary for the type of security breakdown that we’re facing. 

So the only way we’re going to be able to maintain even a modicum of globalized trade is if cargo ships, whether they’re container ships or, bulk ERS or tankers themselves, are able to mount their own weapons systems, and that will also most likely be airborne drones, because that’s the only thing that can get the radius and maybe the strike capacity to take out something like a surface drone before it gets to you.

America’s Leg Up on Petrochemicals

Petrochemical plant

The Iran War has caused a massive disruption in global petrochemical production. Since most of the world relies on oil-derived naptha, the ~12 million barrels/day shortage is taking a toll.

Many countries in Asia and Europe are beginning to feel the pressure, but the U.S. has a leg up on everyone else. Thanks to the shale revolution, America’s cheap and abundant natural gas is used to produce its petrochemicals. This has enabled the U.S. to avoid shortages and become a dominant global supplier of key petrochemical inputs.

Nearly every industry, from plastics to fertilizers, is impacted by these materials. So, the global industrial landscape is getting shaken up once again.

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Transcript

Hey, everybody. Peter Zeihan here, coming to you from Walla Walla, Washington. Today we’re talking about the Iran war and the impact that it is having on petrochemicals. 

The way most of the world decides to make petrochemicals is they start with crude oil and then refine it into an intermediate product called naphtha and then naphtha. 

Then it goes on and is processed into tens of thousands of things that we all use every day. That’s not how it operates in the United States. In the United States, because of the shale revolution, we have basically a bottomless supply of natural gas. Based on whose math you’re using, roughly one third of the natural gas that is produced in the United States, it’s produced is a waste product, or at least as an associated production of oil, which means that in the United States, natural gas is significantly cheaper compared to the cost of oil. 

So in the rest of the world pre-war, the ratio between oil and natural gas on a point of view was about 5 to 1. In the United States, it’s closer to 2 to 1. So we use natural gas to produce products that, everyone else would use naphtha for. Well, what has happened? Two things. Number one, all that natural gas means that the United States can produce most petrochemicals at a significant cost advantage versus everyone else. 

Second, with the Iran war going on now, there’s a global shortage of oil to the tune of about 10 to 12 million barrels a day. So everyone else is hardware is designed to turn oil into naphtha, into petrochemical products. But all of a sudden, the price of oil on the availability of oil means that basically everyone in the East Asian rim, and very soon, everyone in Europe, simply can’t access the product they need at all, and they don’t have access to enough natural gas in the first place to switch over. 

And even if they did, they’d have to change their hardware to be able to do it. So the United States is becoming, from an economic point of view, the only real functional, large scale supplier of the butadiene and methyl groups, which is where we already had, huge advantage. And that’s things like, particleboard and silicones and octane for gasoline and nitrogen fertilizers and melamine, plastics, a lot of things like that. 

Whereas everybody else is now discovering that they don’t have the price structure that’s necessary to maintain competitive production of really any of this. Third problem, because the United States, is able to have an advantage now in all of the product sets. We’re seeing a significant shift in production quantities as well as qualities. So let me show you this chart here. 

If you start at the bottom left, that gray bars oil, you turn into naphtha, which goes on to make all the water products go to the right side. At the bottom you start with natural gas. You crack it to get ethylene, and then you turn that into products. But this whole set can be made with natural gas. 

And so the United States has not just a price advantage now, but just a huge advantage in the quantity, the type of products that can be made in mass. You play this forward for six months, two years, which is easily going to happen because of the Iran war. And we’re looking at a shattering of the petrochemical supply chains on a global basis outside of North America, and that’s going to have massive impacts downstream on pretty much every industrial sector.

The Return of Kremlin Terrorism

During the Cold War, Soviet intelligence agencies actively sponsored or even created terror cells throughout Europe. A recent mass shooting event in Ukraine suggest a return to old habits could well be happening.

The most obvious fertile ground would be pro-Russian or Russian-speaking populations in Ukraine. Next on the list would be far-right political movements across Europe.

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Transcript

Hey, everybody. Peter Zeihan here. Coming to you from Colorado. Over this past weekend, we had some interesting developments in Ukraine. Not on the front, but back in Kiev. A Moscow born individual who had lived in Bakhmut in eastern Ukraine previously, took seven people hostage in a supermarket and, caused quite a bit of ruckus before police took him out. 

Russian intelligence is not what it was during the Soviet period, but in bits and pieces it’s been rebuilding its capacity. And among the many tricks that the Russians developed during the Cold War was some really good divide and conquer ideas. Despite the size of the Soviet Union, Russian leader, Soviet leaders always had a very good appreciation for just how technologically backwards and corrupt and untrained their forces were. 

And they knew if it came to a direct fight with NATO, they really only had two options. Number one was to absolutely swarm, NATO forces with superior numbers. And number two was to provide some sort of distraction back in the Western countries so that the Western attention would be divided. Now, they never really got chance to test that theory in combat. 

And God forbid they’re able to. Now, but they’re starting to rebuild some of those distraction policies. And I’m not now talking about those, Novichok poisonings we’ve seen or dragging and anchor on the seabed. Those are all really easy things to do. If we ever get into a real hot fight with the Russians, expect to see dozens of those every week. 

This is different. This is sponsoring the creation of terror cells. Across the West. We had a number of groups who were basically ideologically motivated to hate capitalism that, the Soviets would basically work to build out supply and sometimes even task. 

Now, I’m not suggesting that this specific case in Kiev was Russian instigated. I really have no idea. What I can tell you that even though Ukraine is at war and is awash with weapons, this is the first mass shooting event that we have seen in the country during the conflict, and it is going to make a few people in the Kremlin think wistfully of old tools from old days. So regardless of whether or not the Kremlin was involved, it has certainly occurred to them now that there is something to work with here. 

What they can work with kind of falls into two general categories. First, pre-war, roughly one fifth of the Ukrainian population was, ethnic Russians. And another fifth was Ukrainian ethnics. But Russian speakers, primarily, even though the Russians have caused the most damage to the pro-Russian parts of Ukraine, complete, with looting and rape camps. You’re still going to be able to find a small minority of pro-Russian groups in those areas. 

The Ukrainians would call them collaborators that might be willing to do something along these lines. And remember, it doesn’t take a lot of people. You don’t even need 1% of the population. You just need a handful of people who are broken and zealots and who are willing to kill for someone, whatever that reason happens to be. And in a place like Ukraine, where there has been shooting for so long, and where the Russian intelligence network is so deep and where there are still millions of Ukrainians and Russian ethnics of Ukrainian nationality living under Russian control, the recruitment might not be as hard as you think. 

If you go further west, you fall into the second category. We have probably past peak far right in Europe. One of the things that we have seen over the course of this war is, as a rule, Europeans becoming more and more anti-Russian because the Russians have been doing sabotage throughout their countries, in addition to now threatening their direct, military and strategic existence with the Ukraine war. 

And what would happen after that means that hard right forces, whether either in Finland or in Hungary, are broadly in retreat. I mean, this is Europe. There’s 30 countries. I don’t want to make that two blanket of a statement, but they’ve really found it difficult, to get too much traction in the current environment. And that is before Donald Trump kind of lost his mind and started berating all of his allies, including the ones on the far right. 

So in just the last couple of weeks, we’ve seen links between elected officials in places like Italy fall apart, and in places like Hungary, where Trump actually personally campaigned for the former prime minister or caretaker prime minister. Now, we’ve seen that for soundly rooted when the political appeal of these groups fails and their chances of getting power, the, the traditional way through the ballot box starts to fade, you’re going to have zealots and hardcore groups among those, factions that are going to be willing to seek other options. 

I mean, we’ve certainly seen that here in the United States. And we probably will in the months and years to come as Donald Trump basically implodes conservativism in America. And until the Republican Party can reform with more traditional conservative forces like, say, business interests, you’re going to see elements of MAGA really get ugly. That is happening in Europe, right now. 

And if you take the Russians on one side with their Intel network and take a disintegrating kaleidoscope of rightist groups in Europe, on the other, the idea that you can form these ideological based violent groups, terror groups is really not much of a stretch. The biggest difference is that the last time around, because it was communism, Moscow generated support among the hard left, whether it was environmentalists or radicals or pro-worker groups or anarchists, where this time they’re going to be doing it among the right the nationalist groups, the neo-Nazis, the biker gangs. 

It’s a different feel. About the only good news I have out of this is that it’s it’s new. These groups don’t have a history of being violent in the pattern of militant groups in the 60s or 70s. And the Russians are out of practice for this specific sort of work. It’s one thing to send an agent to Salisbury and poison a guy’s tea. It’s quite another to actively plan militant attacks in countries that, ever since 2001, have really been upping their internal security, capabilities. So this will happen. A lot of these people will be caught, the Russians will be exposed. But the volume of people that you need to stir up to start this sort of process is so low. And there are broken people in every community. 

The Russians are just going to be taking advantage of them in a way that they haven’t until now.

Italy Gives Trump the Cold Shoulder

Photo of Italian Parliament

Trump’s chaotic and isolated approach to the Iran War has caused rifts between the U.S. and many of its closest European allies. Topping that list is the Italians.

Trump went into the Iran War without consulting allies and determining how they could support, and then turned around and criticized each of those allies for not helping. This put unnecessary strain on long-standing partnerships with the UK, Spain, France, and Italy. And Trump portraying himself as Jesus Christ and arguing with the pope, doesn’t even help with the non-religious crowd in Italy.

As leaders like Giorgia Meloni begin withholding logistical and military cooperation, the U.S. will face major challenges in projecting military power abroad.

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Transcript

Hey, all. Peter Zeihan here coming to you from Prosser, Washington, where I’m at the Davin Law Winery, one of my all time favorites. Today we are going to talk about the end of the American alliance with Europe, specifically the Italians. Now, there are a lot of things going on in alliance politics right now that are really, really bad at the top of the list, of course, was Donald Trump saying that all of the allies are, quote, useless and powerless. 

Short version. Is it normally when you carry out a military operation, the United States, you consult with the allies and get as many countries on board as possible so that even if they’re not providing troops, they can provide logistical support. This may be a surprise, but the United States is in the Western Hemisphere, and most of its military operations are in the Eastern Hemisphere. 

And while the U.S does have a fully blue water navy, that doesn’t mean you can just sail a random ship into a random location and prosecute a conflict. There’s a logistical chain for fuel and people and medical and weapons that goes all the way back to the mainland. And if some of those steps can be carried by allies, then the operation is more effective, it’s more durable, it’s cheaper, it’s more likely to be successful. 

And so in every war, the United States has ever been going back to formation. Whenever we’ve operated beyond our shores, we’ve always done it hand-in-glove with some allies. Until this one. This is the first war in American history where the normal logistical chain was completely ignored. And so even countries like the United Kingdom, who have done everything with us hand in glove since World War two, weren’t even consulted. 

And so a month into the Iran war, when things started, look really sketchy from a security point of view, in a shipping point of view, Donald Trump started to make public appeals, not private, not through ambassadors, not democracies, not to their equivalent of our State Department, to their foreign ministries just publicly screaming at them for not doing more, even though not a single one of them was consulted on any aspect of the operation. 

And that’s brought us to the point where the Trump administration says it’s publicly considering removing itself from NATO because the allies have been useless. 

Problem number one. Problem number two, we’re not going to share the images because I’m not into that. But Donald Trump has posted a number of heretical, blasphemous things, basically claiming to be Jesus. We’re a friend of Jesus. 

How many, how many, how many affairs you have to have before that really doesn’t resonate with people anyway. Truly awful, awful graphics that he has shared with the world, about how he’s basically the, the Second coming, heretical, blasphemous. And in the United States, he has also become somewhat infamous for basically dumping on the Pope in quite egregious manners. 

Now, American Catholics and American evangelicals and AmericanChristians in general have to come to terms with that on their own, whether or not it affects their politics or their decisions about whether or not Donald Trump is a horrible, horrible human being or not, that’s their business. But abroad, in certain places, those statements, those images are really resonating. And nowhere more than in Italy, where Giorgia meloni, the prime minister, has been a fan of Trump, an ally of Trump in every way that matters. 

She’s on the right herself. But when you start shitting on the Pope and pretending Jesus, it changes things. And so Italy has gone from being in somewhat lockstep with Donald Trump’s foreign policies to, in just the last couple of weeks, has basically broken away from the United States, gone dead silent on things like Iran has stopped shipping weapons or providing logistical support to Israel. 

And for all intents and purposes, the alliance is now over. For the United States, this is going to be a big problem because we now have a number of European states. They weren’t consulted, they didn’t agree with. The war is hurting their economies. And the moral questions of what Donald Trump is are in such question that they are not allowing their equipment and their, their, their bases to participate in American logistics and military support. 

So we now have Italy and Spain and France and the United Kingdom that are giving the United States a cold shoulder in any number of ways. And that just leaves Germany. And if Germany goes, that is the entirety of the American ability to project power to the Middle East. So in the last two weeks, independent of the war, what Trump has done is shattered the moral fabric of the alliance. 

It is difficult to underline how bad this is, because while the United States does have a fully blue water navy, that doesn’t mean that each individual ship can operate from the homeland and operate in the Eastern hemisphere. Just the sailing time alone would be a problem. But when you talk about ships that are supporting, say, the super carriers, the super carriers are nuclear powered. 

They don’t have to stop to refuel, but they have to replenish. And all of their carrier rings are not necessarily nuclear powered, and they need fuel. So we’ve actually seen in just the last two weeks a collapse in the United States, its ability to function outside of home waters. And that is something that will resonate in American and global strategic thinking for decades to come.

Iran War Winners and Losers: North American Energy

Satellite view of north american lights and energy

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

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

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Transcript

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Guam and the Practical Impact of Climate Change

A bay in Guam

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

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

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

Prefer to read the transcript? Click here

Transcript

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

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

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

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

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

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

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

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

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

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

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

A New Era in Hungary: Orbán Gets the Boot

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

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

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

Prefer to read the transcript? Click here

Transcript

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Bring On the Jet Fuel Shortages

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

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

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

Prefer to read the transcript? Click here

Transcript

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

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

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

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

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

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