Finding Rare Earths in Japanese Mud

A close up photo of colbat rocks

Japan has identified a large rare earth deposit of its own, but it’s not going to change global supply dynamics. Here’s the situation.

Rare earths are typically a byproduct, so the bottleneck isn’t ore access; it’s processing capacity. And China has a monopoly on the processing. Japan may have found a massive deposit, but that’s just step one. The deposit is located near Minamitorishima Island, under 8km of water, and extraction just isn’t economically viable as of now.

This is just another example of Japan having to get creative with the hand it’s been dealt.

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Transcript

Hey all, Peter Zeihan here. Coming to you from Colorado, several people have written on the Patreon page asking about the new Rare Earth project that the Japanese are poking into offshore. It’s called the Minamitorishima, I think way too many syllables. Anyway, the idea is that it has significantly higher concentrations of rare earths and some of the production sites around the world today. 

And is this something that is going to change the math of rare earth production? Probably not. Let’s start with how we do it now. Rare earths are not something we use in large volumes. Like, your car probably has less than a 10th of a gram of the stuff in it. But that doesn’t mean it’s not critical. 

It changes the electrical properties of a lot of things. And so we’ve got, I think, 13 different rare earths that we use in different concentrations, in different things, just in microscopic amounts, typically. Well, what that means is there really, until recently, hasn’t been anything called a rare earth mine. What you do is you produce something else. Iron ore, copper, silver, for example. 

And then you take the tailings and you process the tailings that might have a higher concentration of, these things, which sends it through several hundred vats of acid over several months and from somewhere from a half a tonne to several tons. After that amount of time and that amount of acid, you get one ounce of the stuff. So it’s really available in very small volumes. Now, the, the mud that they have dredged up from meto Minamoto or Ashima, has a reasonably high concentration somewhere in the range of 6 to 8000 parts per million, which, compared to a lot of the mines out there, is pretty low. But if you compare it to the handful of mines that have popped up in recent years as part of this kind of geopolitical scramble, for the stuff, some in China, mountain passes the United States, for example. 

It doesn’t compare all that great, the richest rare earth mine, if you want to use that term, is in South Africa, and it’s about ten times the concentration of what the Japanese are dredging off the seafloor. Mountain pass is probably about 4 or 5 times the concentration. It is richer than some of the clays that the Chinese are mining. 

But you got to remember when you’re talking about South Africa, a mountain pass or, China, you can basically drive a truck to it and put a shovel on the ground and start doing it. The mean a meter or Cima deposit, while huge, absolutely huge, is at the bottom of the seafloor on the abyssal plain under eight kilometers of water. 

So you have to bring it up and then dry it and then start the processing. So you’re already talking about costs that are on average, in order of magnitude higher than anything, anywhere else. About the only thing about meter millimeter or Cima, that is really interesting is the concentration variation. There’s two different kind of buckets for rare earths, lights versus heavy. 

And most of the deposits in the world are for the light ones, and the heavy ones are the really rare ones. Whereas the Japanese on this abyssal plain have found one where it’s about a 5050 split. But in order for it to be economically viable, you’d have to see the price of these things not go up by a factor of 2 or 3 or 5 or 10, but probably 50 or 100, in order to justify economically the infrastructure. 

And at the moment, there’s no sign that that’s going to happen, because, again, rare earths are a byproduct of other mining. And the limiting factor is not not, not not the actual access to the or the limiting factor is the processing capacity, which the Chinese basically have a lock on at the moment. 

We are seeing that change in pollutants, places like Mountain Pass are building it out, and there are a number of countries out there, Australia, Malaysia come to mind, that have some of these facilities dormant. 

But for them to be economically viable, the price of the stuff has to go up. So the Chinese will continue to have the leverage until such time as countries decide to kind of marry national security to their economic decision making on these things. And if that happens, this will all kind of work itself out in a year or two. 

And even in that scenario, I really don’t see the Japanese stuff coming to the forefront. Just keep in mind that the Japanese, among the major powers are the least resource rich country in the world. And so they will be always trying out new technologies and new places to see what they can make work. And most of them will never pan out. 

But, they have to try. And every once in a while generates, big advances and things like efficiency, which is one of the reasons why Japan is the most energy efficient of the major countries in the world, because it’s been forced to by its geography, kind of think of what’s going on with railroads in that category.

Armenia’s Not Getting Off the Struggle Bus Just Yet

Flag of Armenia in front of an apartment complex

Armenia’s landlocked position between Turkey, Russia, Azerbaijan and Iran has left Yerevan with few good options in the post-Soviet world. Armenia is one of Eurasia’s least-economically vibrant states; the fact that they bisect regional arch-enemy Azerbaijan in half doesn’t help, neither does their history with Turkey.

For decades, Armenia believed that aligning itself with post-Soviet Russia would help solve its chronic energy and security issues. Recent history—especially following Moscow’s invasion of Ukraine—has shown the limits of Russian cooperation. While Iran has unusually good ties with Armenia, Tehran has precious little of anything to offer anyone at this time.

So where does this place Yerevan? Sandwiched between two enemies to the East and West, and facing decaying regional powers to the North and South, Armenias last, best and only hope is to either completely capitulation to the whims of an energy-rich Azerbaijan or… throw a Hail Mary pass to the Americans. It would still involving selling out completely to an outside power, but for the Armenians that will not be anything new.

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Transcript

Hey all, Peter Zeihan here, coming to you from Colorado. Today we’re going to talk about what is going on in relations between—or among—the United States, Russia, and Armenia.

Now, Armenia is a small country in the Caucasus Mountains, sandwiched between Russia and the former republic state of Georgia to the north. Down south you have Iran. To the east you have Azerbaijan, which is a close political, economic, and cultural ally of Turkey, which is to the west.

So, landlocked, not a lot going on. Its population has fallen in the post-Soviet period to now about four million people. It is one of the most economically destitute parts of the Eurasian world, and there has really been no meaningful prospect for the place to improve its situation.

The core issue is one of identity. The Armenians see themselves as besieged by Muslims and Turks in all directions, and so they have basically relied upon the Russians to provide a degree of security cover for them ever since they broke away from the Soviet Union when it collapsed in the early 1990s.

The problem is also military. Turkey could wipe Armenia off the face of the earth in a matter of a few weeks with a military campaign, should it come to that. And Azerbaijan, which used to be completely incompetent militarily, defeated Armenia in a war a few years ago using Turkish drones, which basically obliterated the entire Armenian military in a matter of a couple of weeks.

So it is largely defenseless. It has nothing economically going on for it. And with the Russians now locked down, they didn’t come to Armenia’s aid when the Azerbaijanis attacked. We basically had a situation where the Armenians are completely out of luck, which means they’re in the wind.

Because what has been happening until this moment is that the Russians quietly encouraged the Armenians to invade Azerbaijani state territory on multiple fronts. That has all been rolled back in just the last couple of years now, and that is no longer an option.

And if Armenia is able to fold itself into any other economic and security paradigm, then the Russian position in the Caucasus basically goes to zero. So there are a lot of reasons for a lot of countries to be very, very interested in what’s going on here. And this is why U.S. Vice President J.D. Vance was there a couple weeks back in order to see what could be agreed to.

And the issue it basically comes down to is whether you can keep the electricity on. Because if you can’t, then nothing else really matters.

So, Vance signed some agreements with the Armenians on nuclear power. Why nukes? Well, back during the Soviet days, the Soviet Union installed a nuclear power reactor outside of the capital of Yerevan. And even today it provides most of the power for the country.

It is generally considered to be the least safe nuclear reactor on the planet, complete with gaps in the reactor shell and the outer casing of the buildings so that the climate can just come right in—complete with tree roots.

The Armenians, however, have no money to update it, no money to put in a new power plant, and the Russians have been providing them with nuclear fuel to keep the country functional. So the question now is whether or not this thing can be repaired or replaced.

There is no infrastructure in place to put in any other type of power plant unless you’re going to do it from scratch. And then you have to get the fuel to a landlocked country that considers itself in a state of near de facto war with Azerbaijan, which is really the only place the energy could come from.

So really, this can only go one of two ways.

Number one: Armenia throws itself at Azerbaijan’s mercy, agrees to everything that Azerbaijan is even thinking about without exception, and in doing so gets a natural gas pipeline into the country. They build a couple of natural-gas-burning power plants, and then they are forever dependent upon the country that they see as their single largest enemy.

Or option two: they get a new nuclear power plant and have a degree—a modicum—of independence, probably with fuel supplies from the United States.

The problem here is that Armenia has no money at all. And if they were able to replace their nuclear power plant, they would have paid the Russians to do it 10 years ago, 20 years ago, 30 years ago. So if this is going to happen, the United States is going to have to pay for almost all of the plant, and then the Armenians can probably pay for the fuel.

Will that happen? That remains to be seen. But the bottom line is Armenia is now officially for sale to the United States. And if the United States wants to spend two, three, four, six billion dollars to just buy a country and lock it into the American orbit, this would be the cheapest way to do it.

We’ll still have to do that in league with the Turks, because the Turks control the entire western periphery. Most meaningful access between Armenia and the rest of the world either has to go north through Georgia and out, or through Turkey.

If—if—if—if—an American administration, this American administration, decides to make that decision, then relations with the Turks become very, very important.

But the leader of Turkey these days, a guy by the name of Erdogan, who has been in charge since 2001, I think, has a very Trumpian approach to the world, especially when it comes to the Europeans. And so there is a stable basis, for the moment, to work within bilateral relations in a way that really doesn’t exist between the United States and any other country in the world.

So, I am cautiously optimistic. Just keep in mind that this would not be free. And it does involve the United States investing in nuclear technology in a country that is so poor that any aspect of this is going to be a proliferation risk.

So you are going to see a lot of different levers of American power come together if this is going to work, in addition to a not insignificant amount of cash.

Cuba Is Running Out of Time

Man walking in front of Cuban mural

Since the U.S. shut down Venezuelan oil exports, Cuba has been sliding towards a severe energy crisis.

Cuba is being cut off from its alternative energy suppliers too. Washington has pressured Mexico not to sell them any. China and Russia are too far or don’t have the capacity. So, Cuba has already run out of aviation fuel and a prolonged energy shortage is likely. With energy collapse in motion, it could be the end for the Cuban government (which would open up a whole new can of worms).

The U.S. is nudging Cuba toward systemic collapse, but the fallout might hit Florida and domestic politics harder than expected.

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Transcript

Hey all, Peter Zeihan here. Coming to you from Colorado. Today we’re going to talk about Cuba. Ever since the U.S. government ousted Nicolas Maduro, the former president of Venezuela, the talk has always been about what’s next. And I’ve always said that it’s probably going to be Cuba. Cuba is not only proximate to the United States. Not only has a government that has been hostile to the United States for decades now, not only is a Russian ally, but it’s also very vulnerable because it gets almost all of its energy products from Venezuela at reduced rates. So simply removing Venezuela from the board means that all of a sudden they’re in an energy crisis. And anything they do buy on the open market is going to cost them at least twice as much. On top of that, the United States has leaned on Mexico to not sell energy products to the Cubans. 

The only other non-American suppliers in the region are, the Dutch have a couple refineries in places like, the ABC Islands, and that’s it. Any other fuel shipments have to come from somewhere else out of region. Theoretically, you could get some from Brazil, but Brazil’s an energy importer. And now you’re talking about the Eastern Hemisphere. 

So even if the Cubans can come up with the cash that is necessary to buy open market fuel from another hemisphere, you’re now have to add on a month that it’s going to take for the stuff to get there in the first place. The reason I’m bringing this up right now is because over this past weekend, the Cubans told all airlines that they would not be able to refuel at all in Havana because they are already out of aviation fuel. 

And for a country that is not that very large, simply getting a tanker to bring aviation fuel across the Atlantic Ocean, isn’t really a viable option for them. So we’re looking at a protracted fuel crisis in a country where their electricity system was already running on duct tape and baling wire. 

So we’re looking at a prolonged energy crisis. And the best case scenario for the Cuban government. That is assuming the US doesn’t push on anything and does not lean on its allies in the Western Hemisphere or twist arms, to prevent fuel from coming. Really, there are only two countries that might have a strategic interest here. One is China, and they do export a lot of refined product, but they’re on the far side of the Pacific, and they would have to shuttle anything through the Panama Canal, which the United States is in the process of asserting more direct control over. 

So that’s not a very viable option. And the only other one is Russia and Russia, because it is involved in a war, really doesn’t have the capacity to ship refined product either. It’s having shortages at home because the Ukrainians have been going after the refining infrastructure. So this could very well be the beginning of the end for the Cuban government. 

But before you celebrate that, too much, regardless of your logic or your politics, a couple things to keep in mind. First, if the Cuban government falls because of a de industrializing event that is triggered by an energy shortage, simply allowing the energy to come back in is not going to solve the problem. 

You are still going to have a significant degradation in the ability of whatever the next government is to hold together. One of the things that the United States maybe got wrong about Venezuela is by removing the guy at the top, but not in planting a broad based government that can actually run the place, just leaving the existing thugs in place. 

We’re at the beginning of a multi-year, maybe even multi-decade period where Venezuela is basically going to be running through chaos. It would probably be something very similar if you have an energy based collapse in Cuba as well. Which brings us to number two. Part of the reason that Cuba has been in the American mindset for politics for so long is over the years, waves of Cuban migrants have crossed the Straits of Florida to Miami, because they wanted to escape the economic or political conditions that were existed back home. 

If you turn off the lights and leave them off, you’re going to have more waves of that. So we already have a government in the United States that is just rabidly anti-immigration, to the point that it’s even willing to use its law enforcement to kill American citizens in order to make its point heard. Now, you’re probably looking at a mass, fleeing from Cuba, which will measure in the hundreds of thousands at a minimum, which is something even under the best conditions, would be a challenge for Florida if the federal government was in a cooperative mood. 

It is not clear that that is the case. So whether you’re in Cuba or Florida or in the United States with large, we are now at the beginning of a protracted rolling crisis caused by the United States nudging Cuba in the direction of economic collapse with everything that comes from that. So regardless of how this goes on for by the details, I can guarantee you that there’s going to be a show. 

And since they’ve already run out of jet fuel, it’s probably not going to be all that long from now.

I’ve Got This Bridge to Sell You…

The Gordie Howe Bridge under construction | Photo courtesy of Wikimedia Commons

The Canadians built and financed a new bridge connecting Detroit and Ontario, but now Trump wants his 50%.

The bridge in question is the Gordie Howe Bridge. It will strengthen the supply chains in North America’s core auto industry hub and act as an alternative to the Ambassador Bridge.

Canada’s geopolitical reality is that the U.S. will always hold more leverage, because the Canadian economy is so deeply integrated with the American economy. This relationship typical manifests as the U.S. securing more favorable terms in infrastructure projects with Canada, and this is no different. Just your standard case of biggest kid on the playground.

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Transcript

Hey, everybody. Peter Zeihan here. Coming to you from Colorado. Today we’re talking about trade with Canada specifically. There is a new bridge, the Gordie Howe, that is supposed to connect, Detroit to the Canadian province of Ontario. It’s been under construction for about the last decade, and it’s supposed to begin operations this year. But Donald Trump has said that he’s not going to allow that to happen unless at least half of the ownership is transferred to the US federal government. 

The Canadians paid for the whole thing. The idea is it’ll be a toll bridge. once its construction is paid off the income will be split 5050 between, Canadian investors and the state of Michigan. Trump of course, because of this is an international connection, has the ability to end it in a heartbeat. 

And that’s what he’s doing right now. The backdrop, Gordie Howe is a desperately needed transport connection right now. All of the road traffic and rail traffic that goes between Michigan, which is one of the big U.S. industrial states, and Ontario, which is Canada’s primary industrial state, goes through a single bridge called the Ambassador Bridge. And it is the single most cross bridge for commercial purposes in the world and is the backbone of the relationship for the US auto industry. 

Keep in mind that pretty much everything that happens in Ontario, from an industrial point of view, is integrated into the United States in some way. And this is the primary conduit. So adding another conduit would be a huge boost to, the American economy from a manufacturing point of view, not to mention good for Canada as well. 

The proximate issue is that the commerce secretary of the United States, guy by the name of Howard Lutnick, is buddies with a guy by the name of Matt Maroon. Literally. That’s how his name is pronounced, who owns the ambassadorial bridge and has been campaigning against anything that would build another link ever since the idea was first floated back in, I want to say 2012, because it would be competition for his project. 

Right now he has a monopoly, and I have never met anyone on Wall Street who has ever described Howard. Let me, because anything other than desperate to be corrupted. And so apparently he had a conversation with maroon and then had a conversation with Trump. And now Trump is campaigning against the bridge. Let me go, by the way, is the guy on the cabinet who showed up the most in the Epstein files, if you’re into that sort of scandalous details. 

Anyway, the bottom line here is not that this is a corruption thing or a trade thing. The bottom line is this is a geopolitical thing. Whenever you’re dealing with trans border transport links between the United States and Canada, the United States is always, always, always, always going to have the upper hand. Canada only has about 35 million people. 

They’re scattered across the entirety of the southern border of the country. And even where they are in dense concentrations like, say, Toronto and Quebec, they don’t like each other very much and try to limit their infrastructure. So every single Canadian province but one trades more with the United States than they do with one another. And any infrastructure on the border that is designed to facilitate links is always going to be done. 

The U.S way. So if you remember back to the 5060s, we had something called the Intracoastal Waterway system, which uses the Saint Lawrence River, which empties up through eastern Canada. But comes down and connects to the Great Lakes. Great lakes have things like Niagara Falls. There’s a lot of natural obstacles. And so there was an effort in Canada back in the early 50s to build out this massive infrastructure that would connect everything together. 

But that also meant connecting to the United States. And so the United States basically did some version of what they’re doing right now with Donald Trump said, you pay for pretty much all of it, in this case, about 75%, and we get full access. Some version of that will undoubtedly manifest with this new bridge, regardless of what is right versus wrong and what has been agreed to before. 

Donald Trump actually agreed enthusiastically to the creation of this bridge when he was president the first time around. But the first time around, his commerce secretary wasn’t nearly as desiring of being corrupted. So here we are, for Canada, this is just part of doing business with the United States. There is no other option. And so just like with the intercoastal, Canada gets to pay for it all. 

The United States gets the majority of the benefits. The alternative is to not build or use the bridge in which candidate remains fractured and loses access to the world’s largest investment and commercial market. And for Canada, that’s basically a choice between a first world country and being something less. Is it fair? Nope. Is it new? Also? Nope.

India Takes on the Shadow Fleet (Bonus Video)

An Indian War Ship off the coast of India with fishing boats on the shore

India’s navy has begun seizing shadow fleet tankers in its exclusive economic zone. If India continues down this path, other countries will likely join the bandwagon, marking the end of the shadow fleet.

Disruptions to the shadow fleet wouldn’t just impact Russia’s key export income, but also global energy markets. With 3-4 million barrels per day funneling through the shadow fleet, everyone would feel that. India has maintained close ties with Russia, so this move comes as a surprise to many and signals a major realignment.

As I’ve said in other videos covering the shadow fleet, once the first domino falls…the rest will quickly follow. We’ll just have to wait and see if India is willing to topple the first one.

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Transcript

Hey everybody. Peter Zeihan here coming to you from Colorado. I have kind of a weird one for you today. There was a report in the Wall Street Journal today confirming information that was originally released on the Indian Navy’s Twitter account. That was then subsequently deleted, that the Indian Navy has been carrying out raids and capturing shadow vessels in India’s exclusive economic zone. Starting almost two weeks ago on February 5th. Today is the 17th. 

Back story. The shadow Fleet is a group of roughly 1000 oil tankers that carries crude for sanctioned countries, most notably Venezuela, Iran and Russia. And apparently, these ships, the three ships that the Indians have so far grabbed, come from some combination of those three, with the Russians absolutely involved. 

The United States, after it captured the now former president of Venezuela, Nicolas Maduro, has gone after the parts of the shadow fleet that were actively carrying Venezuelan crude at the time, chasing them up on their way to Europe, chasing them into the Indian Ocean, I believe about eight have been captured so far. Eight out of a thousand is not a lot. 

But when the world’s naval superpower decides it wants to do something on the high seas, it’s really not hard for the United States to do it. And now it appears that the Indians are getting in on the act as well. This is really interesting from my point of view, for three reasons. Number one. Once another country joins the United States in targeting the shadow fleet, it’s probably only a matter of days. 

Two weeks before many, many other countries do it. There are a lot of countries that don’t like Venezuela or Iran or Russia. Especially the Europeans. And now that India of all countries is joining in, we should expect a couple of dozen other countries to do so as well, which would completely remove the shuttle fleet from functioning, in less than a few months, considering that there’s something like 4 to 5 million barrels a day transported in this matter that can have a really big impact. 

Economically or politically, based on who decides to take advantage of the situation. So that’s one. Number two, the fact that, the Indians are involved. India has been the second largest beneficiary of the shadow fleet since it really started getting going in the early days of the Ukraine war back in 2022. Basically what happens is someone affiliated with Russia or around or Venezuela goes out and buys a decommissioned oil tanker that probably doesn’t match current safety norms, gives it a fake insurance policy, puts a fake flag on it, and sends it to pick up the crude from one of those three countries. 

That crude then comes somewhere in the high seas, where it comes up against another shadow vessel, and they pump the crude from one to the other in a sea to sea transfer. Relatively dangerous. But these guys are busting sanctions anymore, so that’s not their primary concern. That then happens once, twice, three times more. Maybe they mix two crudes into another hold, or something. 

Anyway, eventually, another shadow vessel disgorged that cargo in a purchasing country, typically India and China and the Indians and the Chinese say, oh, we have no idea where it came from. You know, it’s just a convenient fiction. It’s just a question of who decides to enforce maritime law. Well, like I said, India is one of the big beneficiaries here and historically has been the second largest beneficiary of this process. 

And so for them to go out and grab ships in their own economic zone, who have been doing these CDC transfers for four years now to break that policy changes, the economics of the shadow fleet in the politics of India very, very deeply. A couple of things here. Number one, India has always, always, always been pro-Russian versus pro-American and has sided with the Russians. 

Because of the affiliation they had with them back during the Soviet period. So, you know, went away. Modern Russia has nothing to do with the Soviet Union. But the Indians kind of are still fighting the cold War ideologically from a certain point of view. So them flipping, matters. Second, because these are Russian vessels that have Russian flags. 

Having the Indians go against a Russian situation so boldly is really, really notable. It’s also been 11 days since this happened. And the idea that just happened once for three vessels is kind of curious. So I don’t understand why the Indian Navy posted this. I do understand why they tore it down right away. 

Because this is the sort of thing that will reverberate through the shuttle fleet very, very dramatically. Because if their ships are being confiscated and captains are losing their vessels, the entire capital investment is lost. And it won’t be long before the other captains basically throw in the towel or enough of them are grabbed that it changes the economics of shipping this stuff. 

So all of that combined is number two lot going on there. Number three. 

Russia. Russia. Russia. Russia. Russia. The Russians have been exporting somewhere between 3 and 4 million barrels a day this way for four years. And it is their primary source of income now. And if this is about to go away, then we’re going to see some very dramatic changes in a number of things in the eastern Hemisphere. Number one, the Ukraine war, if the Russians have lost their single largest source of income that will manifest on the battlefield, the Chinese may be supplying the Russians with all the gear that they can pay for. 

But the key thing there is pay for. And if the Russians can’t, then a drone war where the Russians can’t get enough drones is one where the Russians start losing territory. And we’ve seen just in the last 96 hours how when the Russians lose communication equipment, they start to lose coherence on the front line. 

And can no longer advance. This would be far more dramatic. Two. If the Americans and the Indians are seen eye to eye on things like the Russians, those are two big changes I’m going to talk about India, but about the United States. There are a number of people within the Trump administration who have been blatantly pro-Russian in this entire conflict, but now it appears that that might be changing. 

One of the fun things that happened about three weeks ago is we had a summit between US President Donald Trump and the Indian prime minister Narendra Modi and Trump said at the end of their meetings, the United States was going to drop its tariffs by more than half to allow Indian products back in the United States. 

And in exchange, the Indians were going to stop using Russian crude. The Indians said, thank you, Mr. Trump, for the tariff withdrawal, but not a single Indian government person statement post has ever said anything about not using Russian crude until now. And apparently now it looks like maybe less than two weeks after that summit, the Indians started going after Russian tankers. 

So maybe Trump really did get a deal. Just the Indians are doing that. A little bit on the down low. But now that they’re actually confiscating tankers, it’s not very down low anymore. And if you have the Indians stabbing the Russians in the back, and the Americans and the Indians now starting to get along in economic and strategic matters, 

That changes all the economics and the politics and the strategy of everything in South Asia, because the United States has reasonable relations with Pakistan. It’s been India that’s been clinging on to the Soviet era. If that’s no longer the case, if Russian influence has really been purged, then we’ve entered into a fundamentally new era. And if the Indians are stopping crude from Russia getting to India, you can bet your pretty ass that they’re going to stop it from getting into China, because now China is the only country that has been taking that is still taking Russian crude in volume. 

And now all of a sudden, we’re talking about the entirety of the 3 to 4 million barrels of the shadow fleet being gouged out of the Chinese economy. Now, a lot of this is a couple steps removed from what we know right now. I don’t want to say that all of this is destined to happen, but you remove that much crude from the system all at once, and the whole system feels it. 

You remove it all from one country’s system all at once, and that country is fucked. So we’re looking at a broad, structured rearrangement of things in Russia and Ukraine and India and China, perhaps all at once. The question is whether or not the foreign policy team in Washington can actually hold that together, considering how much they’ve purged the decision making apparatus in the State Department and the National security apparatus and in the military. 

This is a lot to hold in your head all at once. But if we are moving in that direction, we are looking at the single biggest shift in international politics of at least the last four years. And that will keep me very busy for months to come.

The U.S. Navy Goes Down Under

A US Navy battleship

The U.S. is turning to the Aussies for some help with stationing four American submarines at Stirling in a hedge against potential future conflicts with China.

This is done in an effort to help the U.S. reduce reliance on Guam should the Chinese strike, giving the U.S. options other than Hawaii. This move has some pros and cons. Stirling is outside China’s striking range, but it’s incredibly isolated. So, the U.S. couldn’t project power directly against China from there, but China’s trade routes in the Indian Ocean and Strait of Malacca would be vulnerable. The forces based at Stirling would also be on their own if anything boils up, which isn’t ideal.

Beyond this plan being good or bad, its just outright unsettling. This move signals the U.S. is preparing for a world where our current global trading system will be irreparably broken.

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Transcript

Hey everybody. Peter Zeihan here coming to you from Colorado. And today we’re going to talk about the U.S. Navy deployment plans for the Pacific. Specifically, the U.S. Navy has announced that it’s going to be working with the Australians to expand their naval facility at the Stirling base, which is on an island just outside of Perth. For those of you who don’t read or know Australian geography, almost everybody in Australia lives in the southeastern kind of crescent, but all the way in the far west all by itself is Perth. 

So it’s kind of in the middle of nowhere, both the city and the base. And that’s from the Navy’s point of view, kind of the point. If, if, if there is a meaningful military conflict with the Chinese, the Navy’s concern is, is its current forward military base at Guam could come under missile attack. And if the Chinese get a few shots through the missile defense at the island, then the ability of using Guam in order to project power in the direction of the Asian mainland would be destroyed, and they would have to fall back to Pearl Harbor. 

So the idea is, if you permanently station four of America’s submarines out in the Indian Ocean near Perth, then that is well beyond any range possibility that the Chinese have. So this is both very smart and perhaps a little dumb. First, the smart anytime you can disperse your forces and maintain a reach would be really a robust idea. 

So the overall concept of having a second facility in that corner of the world makes perfect sense. The Australians are about the best allies and most loyal allies. We have hard to come up with a better spot if your goal is to have it beyond the range. Second, the dumb part. It’s really beyond the range. Perth is near nothing, and there is no way you could use naval forces in that area to project power to strike at China directly. 

What it could do is you could strike Chinese shipping in the Indian Ocean and up into Southeast Asia to the Strait of Malacca. And so one of the things that I’ve been saying for a very long time is that any war with the Chinese, I’m really not overly concerned because they’re dependent on international trade. We’re not we have a global navy. 

They don’t. You put those two together in any hot war. The easiest way to destroy China. Not not not the military of China, China, the country. Let’s just stop the shipping of the stuff that doesn’t go to the United States, which obviously would be shut down. About 80% of their energy flows come through the Indian Ocean basins from the Persian Gulf. 

About half of their food flows and about 80% of their manufacturing good flows goes through the same route. So if you put some naval assets in sterling in case of a hot war, we now have a Ford missile base. It could shut it all down in a matter of days and weeks. Just keep in mind that this is a different sort of conflict. 

If you’re going to put subs to do it, you are not taking over the oil tankers or the cargo ships. You’re just sinking them. That would be really, really colorful anyway. The other other problem is that, if Guam is taken out, then there really isn’t. A series of stepping stones to get to Perth. So whatever is operating there is going to be more or less on their own unless they decide to go quiet and cross the Pacific the long way. 

So any assets there will be exposed. It’s not that this is a bad plan. It’s just it’s laying the groundwork for a very specific sort of action that assumes the global system is broken beyond repair. I would argue we’re getting there anyway, but starting to put teeth in a place where it would force that to happen gets my attention in a way that I’m not entirely excited about.

Japan Sees the Writing on the Wall

Flag of Japan over mount fuji

Japan’s ruling Liberal Democratic Party just won a two-thirds majority in the lower house. This gives Prime Minister Takaichi a rare personal mandate and practically total control of the government for the next few years.

Now that the PM can act decisively, we could see changes in the U.S.-Japan relationship. Japan is still facing the same core problems: demographic decline, debt, and forever out of reach of its old economic weight. At the same time, the U.S. alliance is growing shakier by the day; we’re not in the danger zone yet, but Japan is beginning to see the writing on the wall.

So, Japan could begin the process of constitutional change to loosen military constraints, but that’s not going to come overnight. Japan isn’t breaking away, just getting ready for the alliance to weaken.

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Transcript

Hey all, Peter Zeihan here. Coming from Colorado, it is, February somehow 60 degrees. Anyway, today we’re talking about the recent elections over the weekend in Japan. The Liberal Democratic Party, which is the largest party by far in the country, got a two thirds majority in the lower house of the diet, meaning that Prime Minister Takahashi has basically everything she needs to run the government, however she wants for at least the next couple of years. 

Politics in Japan aren’t really policy or party based. The more personality based and the first hurdle that any new leader has to achieve is a personal mandate. And she has now done that in spades. This doesn’t happen very often in Japan. Usually we have seen a series of successive weak governments that are never able to get that mandate. 

The last leader of the LDP, the last prime minister who was able to secure that sort of personal mandate, was a guy by the name of Shinzo Abe who ruled for about a decade, and he was Takahashi’s, mentor. So, she’s learned from the best. The question, of course, is what she will do with it. Japan today. 

Japan ten years ago. Japan 20 years ago. Japan 30 years ago has always had the same two big problems. The first is demographics and the debt that comes from that. The country basically saw its birth rate collapsed before World War two and has been the oldest demographically speaking country in the world for several decades. They’ve managed to slow that decline. 

So about another dozen countries are now aging faster than them, but they are still aging, and they are still the oldest. And that means consumption in this country is really not possible in any meaningful way, because there just aren’t enough young people, to do it. That leaves them dependent on exports. But after the 80s and the 90s and a series of trade conflicts with the rest of the world, most notably with the United States, they’ve basically re domiciled their economy. 

So if you’re going to exports from something from Japan, you actually take your industrial plant to the country you want to export to build it there, operate it there, employ people there, sell to people there. And the connections between Japan proper and the rest of the world economically are actually just limited to energy. Pretty much these days. It actually, as a percent of GDP, trades less than the rest of the world, than the United States does. 

Even, that doesn’t mean that all is good. It means that you’ve got a Japan that really can’t grow. They can still advance, they can still update, and they still have influence. But there are never going to be the economic weight that they used to be. And that limits some of their options. The second problem, of course, is relations with United States. 

Japan, throughout the Cold War into the post-Cold War era, has maintained the second most powerful expeditionary navy in the world, second only to the United States. And it’s been the American Japanese alliance that has been the cornerstone of not just the American position in the Pacific, but of Japan’s existence as a major power. The question that the Japanese are starting to ask in the age of Trump two is whether that has legs under Shinzo Abe in Trump won a free trade deal with a security add on was negotiated, in which the Japanese basically gave in on every irritant in the bilateral relationship. 

And Trump two comes in and says that that deal was stupid. And he actually specifically said it was a Biden deal, which was hilarious. Anyway, the Japanese are thinking that, you know, if if we give the Americans everything that they want and they’re still not satisfied, should we give the Americans any thing that they want? We’re not to the point that the alliance is in formal danger, or we’re not to the point where that is part of the debate in Japan. 

But when the Japanese see what the Trump administration has done to even firmer allies, countries like Denmark, they have to be wondering how long this can last. It doesn’t mean a war is imminent, much less inevitable. But Japan is starting to lay the groundwork for going its own way, whatever that happens to mean. 

And without the American partnership with Tokyo, the American position in the Pacific, it goes from unassailable to something significantly less robust. The process for that happening would require probably a constitutional change, because the alliance with the Americans and not having an independent military structure that’s hardcoded into the Constitution that the Americans wrote for the Japanese. After the last time we had a tussle at the end of World War Two, now the new government can start that process. 

They now have a two thirds majority in the lower house of the diet, which is where constitutional amendments start. But then it has to pass through the upper house and the upper house is a little bit like the U.S. Senate. 

Half of it is reelected every three years. And unlike the lower house, where the Prime Minister can declare fresh elections whenever he or she wants, can’t do that for the upper house. 

It’s only on the schedule. And we just had elections in the upper house in 2025, so you have to wait till 2028. So barring a really significant change in the political environment and relations with the Americans, it’s difficult to imagine the upper house just amending the Constitution in the direction of Japan being a more independent power without something dramatic happening. 

And that is at the moment, not in the cards. Granted, two months ago, I would have said that the Americans willing to walk away from the entire Western alliance in order to grab a chunk of ice cap wasn’t in the cards either. So the Trump administration is perfectly reserves its right to throw all of this into the shitter at the first opportunity. 

How the Japanese respond to that, of course, is going to be the issue. And at least for the Prime Minister, she now faces no meaningful opposition in making day to day policy. So the Japanese response to whatever happens can actually be pretty quick.

Japan’s Debt Crisis Is Just the Beginning

Photo of Japanese Yen

Japan has a…special way of measuring deficits, leaving true borrowing understated by excluding major obligations like pensions and local government debt, and counting planned bond issuance as income. But Japan isn’t the only country facing debt issues.

Japan has run an annual deficit of 7-10% for decades, making it the most indebted country in modern history. The U.S. and Europe are on a similar trajectory, though. The U.S. has interest payments that rival defense spending, thanks to the demographic situation. Europe has the same people problem, a weaker tax base, and has to ramp up defense spending to deal with Russia.

While Japan might be first through the gate, this is a global issue. Budget cutting alone isn’t going to solve any problems, but existing economic models simply can’t square this circle.

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Transcript

Hey all, Peter Zeihan here. Coming to you from home in Colorado. Whether it’s craps on inside. Anyway, a lot of people have written in about what’s going on with financial markets specifically Japan. For those of you who don’t follow this sort of thing, there’s been a bit of a challenge in the bond market recently. We’ve got a number of countries ranging from the United States to Germany to Britain, that are issuing record amounts of debt. 

That’s something that’s only going to continue in the future. But, we had a scare when it came to Japan specifically recently. So I thought it was worth digging into that a little bit. Japan doesn’t run their numbers in a normal way. So normally it’s like here in the United States or really in any other advanced country, if you spend more than you take in in taxes, you issue bonds which are sold on the international market, and that generates debt that goes into your overall stock. 

And the figure that we normally go for is, deficit spending as a percent of GDP, which based on your country, can be anywhere from 1 to 10% based on the circumstances. As a rule, whenever that number is higher than your economic growth for the year, your debt load is going to increase and it will put pressure on your economy. 

Year after year after year, growing, growing, growing, growing. And in the United States and a lot of advanced countries, we now have debt levels that are over 100% of GDP, which has reached the point that it is a constant drag. So in the United States, interest payments on that debt is one of our biggest outlays. We spend as much as that we do on defense, and is absolutely making economic activity for everybody higher because it increases borrowing costs. 

So the difference between, say, a 4% and a 6% mortgage is a mortgage payment that’s about 50% bigger. So you can see how that could really hurt really, really fast. Japan. Japan does their numbers differently. According to the IMF, their deficit spending is roughly 2 to 3% of GDP on any given year. But the IMF follows the Japanese way of producing the statistics, and it doesn’t count inter government transfers as potential debt. 

And they also count things like Social Security payments or what we would call them here as income, as opposed to something that needs to be put into a box and really shouldn’t affect the math at all. The Japanese say that their deficit spending is in the vicinity, typically of 4 to 5% of GDP, which, considering they’ve averaged less than 1% growth for the last 35 years, is really, really bad. 

But that’s also not very honest, because when the Japanese do their budget, if they’re doing deficit spending, they don’t count that as deficit spending because it was planned. So if they’re issuing bonds, they actually count that as income. So their core deficit spending doesn’t count at all according to them. They only counted as deficit spending if it’s a supplemental budget that they have to do later in the year for, say, construction or stimulus or whatever it happens to be. 

So in reality, Japan’s budget deficit has been in the 7 to 10% range for almost 30 years now. And so their total national debt as a percent of GDP, everything accrued is about 230 to 240% of GDP, well over double what we have here in the United States. And that doesn’t count local government debt, and it doesn’t count pension arrears, and it doesn’t count the bankrupt nature of their social security network. 

You throw that all in your somewhere between 400 and 500% of GDP, making Japan by far the most indebted country in modern history. Which isn’t to say that the rest of us are not catching up. The four most prolific spenders for administrations in American history are Barack Obama. Trump won Biden and now Trump two. And each one has spent more than the last. 

So, for example, despite the personnel gutting of the federal government, early last year in the Trump administration’s second term, we’re actually now spending more on the government than we ever have before. And that’s before you consider increases to spending for things like homeland security, defense. So we’re absolutely moving in the wrong direction. We’ve been north of 5% of GDP spending for over a decade now. 

Not just Covid, but overall. And we’re showing no sign of going the other direction. Part of this, like with Japan, it’s a pension issue. We’ve had the baby boomers go from the biggest taxpayers we’ve ever had to the biggest tax takers we’ve ever had as they retire. That’s something that’s not going to improve for at least the next 10 or 15 years, until they pass on. 

And the new generation, my generation, Gen X, are the retired class because we’re a small number, elsewhere in the world, the situation is also getting worse. Specifically, in the case of Europe, they have the same demographic problem that we have here in the United States that we have in Japan. But unlike the United States, where we have a large cadre of millennials who are filling out the numbers and in time will repair the tax base. 

Most European countries don’t have a population bloc of size in that number. So you’re just looking at the numbers getting worse and worse and worse and worse every year. Unless you just decide to liquefy old people somehow, which would be just as complicated. In addition, after 70 years of slimming down the defense budgets, especially in the last 30 years in the post-Cold War era, we’re now in a situation where the Europeans are actually facing a hot war, at the same time that the Trump administration is threatening to withdraw American support. 

So we’re seeing these countries needing to build a more normal military force. And that does not mean expanding their military spending from 1% to 2% of GDP, or even 5% of GDP. Like the Trump administration has recently arm twisted them to do. They need to get closer to 10 to 30% of GDP, because they need to build up the institutions, in many cases from almost scratch in the next few years to prepare for a war with the Russians. 

That is very, very expensive. And the only way they can do it is by basically ignoring all of their budget and deficit laws that are entrenched in the eurozone formation. Bottom line is, there’s a huge amount of debt out there already, and all signs point to getting bigger and bigger, and bigger. even if there’s sufficient political will to cut the budgets in places where perhaps you can find some fat to trim the structural nature of the environment demographically and strategically, is arguing for far bigger deficits moving forward. 

Does this mean we’re going to have a debt crisis? I don’t know. We haven’t had a real country have a real debt crisis in a long time, and certainly not in the current era we’re in, where the United States is by far the largest economy, which means I also can’t tell you what will happen on the other side of this. 

All I know for certain is the combination of globalization and rapid aging means that the economic models that underline everything that we understand about finance, capitalism, socialism, fascism, whatever you want to call it, they’re all based on the population getting bigger, and that is no longer true. So we are going to have to find a new economic model. 

And in that sort of environment, I don’t know what is going to happen with debt. I can only point to an example that Japan has provided us in the past, something called Tokyo Side, where basically the emperor just walks out, waves his scepter around, declares that every debt is null and void, and everyone starts over. That would liquefy everyone’s savings account. 

It would liquefy everyone’s mortgage and would literally be a disruptive event. But at the moment, that is really the only model that makes any sense. That doesn’t mean that you should plan for that, however. So.

Trump Announces $12B Rare Earth Stockpile

Photo of rare earth minerals: praseodymium, cerium, lanthanum, neodymium, samarium, and gadolinium. Photo by Wikimedia: https://en.wikipedia.org/wiki/Rare-earth_element#/media/File:Rareearthoxides.jpg

The Trump administration has announced a plan to create a $12 billion stockpile of rare earths. The goal is to create a buffer against any supply disruptions, but this is just a band-aid.

Depending on the metal and use case, this stockpile might give the US a five-month supply. But the core problem still exists: the US doesn’t have any domestic refining or processing. It’s not all that hard or expensive to extract and process this stuff; the US just hasn’t invested in the infrastructure to do so.

If the goal was to establish real supply security, this stockpile isn’t the way to go about it. But hey, at least we’ve got an extra five months.

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Transcript

Hey all, Peter Zeihan here, coming to you from Colorado. And today we’re looking at a new initiative from the Trump administration to solve the critical materials issues. Short version. The United States doesn’t refine most of its materials these days. It relies on countries that have much lower pollution concerns, like, say, China or India, to do the processing. And then we buy the process material and do whatever with us. 

What that means is, well, while you save a lot of money and you certainly clean up your own local environment, you subcontract all of this out to countries that, in the case of China, might not be the most friendly and then might cut off supplies at a later time, as the Chinese have done to a number of countries from time to time, including the United States. 

Anyway, the idea is you establish a $12 billion stockpile. The U.S. government is going to be tapping the import export bank. And so the idea of using one government agency to finance the development of another, I personally find that delicious, but bygones. And the idea is you buy these processed metals, primarily rare earth metals, and then they are in the United States. 

So you have a buffer. I don’t want overstate this. It’s a good step. It’s in the right direction, but it’s going to get crazy. $12 billion of critical materials for a country that is a $25 trillion economy is not going to last a long time, probably somewhere between 1 and 5 months, based on the specific material, because there are over 30 different materials that they’re talking about here. 

It’s a step in the right direction. But if your goal is to really achieve a national security issue and economic self-sufficiency, you need to make these things yourself. Right now they’d just be buying them from China on the open market a little bit more than what we need, and put them into basically a safe. What you need to do is build up the processing. 

The problem here is that there is no such thing on the planet as a rare Earth element mine or rare Earth element production line. Rare earth metals exist as small, small impurities in other mineral extraction, primarily things like silver, but also copper and zinc and a lot of other things, uranium, for example. And so what happens is you have your mine that produces X mineral. 

You process that to get X refined mineral and then the waste material you then go through a separate set of steps that involves several hundred vats of acid. Basically with every step you concentrate the mineral that you’re after, whatever it happens to be. And after six months to a year of such processing through acid, you eventually get some refined metal rare earth metal that you can use, but it takes several tons of raw material to generate one ounce of the finished metal over months of steps, and hundreds of vats us and until the United States builds that infrastructure, which isn’t technically difficult. It’s chemically very tricky. Until you do that, you are never going to have independence from international suppliers. Now, there’s nothing about this technology that is new. It was developed back in the 19 tens and 1920s. The U.S. obviously can do it. It’s not even particularly expensive even if it is environmentally dirty. 

But it does require space, and it does require capital and does require planning. It does require infrastructure. And at the moment, the Trump administration has not put a dime into that effort. If and when that changes, I will be there with bells on to sing and dance. That is not what is happening today. Today we are building the equivalent of a piggy bank that we still have to fill up.

The End of Nuclear Arms Control

nuclear bomb with a mushroom in the desert

The last remaining US-Russia nuclear arms control agreement has expired, which means for the first time in decades, we’re in a world with no active nuclear arms control.

To be fair, it’s not like the Russians were honoring those deals even when they were in place. And given Russia’s war in Ukraine, negotiations for a new deal were a moot point. So, that leaves the world’s largest nuclear powers without limitations on their nuclear arsenals. Which means any other nuclear-capable power will be looking to expand or acquire its very own nuclear arsenal ASAP.

There’s a long list of countries eager to bolster security through nuclear armament, so a long period of nuclear proliferation is right around the corner…

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Transcript

Hey everybody. Peter Zeihan here coming you from Colorado today is the 4th of February. You’re gonna be seeing this in the morning on the fifth. And it’s a big day because for the first time in several decades, for the bulk of my lifetime, there is no active nuclear disarmament or arms control deal. In effect, the last one to start deal with the revised start deal, expired today. 

And there is really no appetite within the administration of the United States or the Russian Federation to negotiate a new one. What this means is we’re now in a situation where both sides have between 1000 and 2000 warheads, and there are no longer any legal restrictions on them expanding those arsenals. Now, some people try to put the blame for this on the Donald Trump. 

And I will not say that the Trump administration is really a champion of arm control in any form, but this is really mostly a Russian thing. You see, the The Russians know that they’re the strategically inferior partner in these deals. And the only reason that they were originally negotiated back in 1979 and 1985 is that they faced just a crushing, overwhelming American superiority in technology, reach and alliance structure. And so they knew that if there was a conflict, the United States had a bomber fleet, they had a missile fleet, it had a sub fleet, and they really just only had the missiles. 

And they were not confident that they could survive a first strike in order to deliver a second strike. So arms control back then was largely designed as a way by the Soviets to deflate tensions and eventually set the stage for a lasting detente that eventually ended the Cold War. Things really picked up after 1986, when Mikhail Gorbachev, who was really the only economist to ever run the Soviet Union, and he realized that the system was breaking and there was a limited amount of time. 

And so talks accelerated. And then in the post-Soviet system, under Yeltsin, we were no longer enemies. So getting rid of the thousands of warheads made a lot of sense to everybody. But in the time since that, we’ve had 20 years of Vladimir Putin and the Russians, rightly or wrongly, feel that the West has betrayed them time and time and time again. 

And the only way that they’re treated seriously as is if they’re threatened, the destruction of the human race with nuclear weapons. To that end, we’ve had two big trends that have happened in the last decade. Number one, bit by bit, the Russians have abrogated or cheated on every single one of the treaties in order to prompt the Americans to be the ones to cancel them. 

And Trump one did cancel a couple and others have expired. And so, you know, you can blame Trump if you want to. But the real fact was, is that the Russians were testing and fielding new weapons that were explicitly barred by the treaties and did it anyway, saying that they were still abiding by the conditions. The second issue, of course, is more recent with the Ukraine war. 

They’re in a hot war. And the idea that the Russians are going to voluntarily abide by any sort of meaningful arms control when they’re actually in the process of shooting a lot of people, is a bit rich, just like back in the late 70s and into the 80s, the reasons that the Russians thought they needed to do this is because they didn’t think that they could win on a field of battle. 

And unless and until they feel that way again in Ukraine, the chances of them going into any negotiations with good faith are pretty, pretty weak. Also, again, keep in mind that the Russians have abrogated or cheated on every single arms control treaty, nuclear or conventional, that they have ever signed. So any meaningful deal has to involve invasive inspections by both parties onto the other side in order to confirm these weapons are actually being taken out of service, dismantled, and eventually spun down. 

So they can’t be used, for weapons again, that requires a degree of intervention in the American military complex that we’ve done before. It would require a degree of intervention in the Russian complex that they have done before. it also would require a degree of trust on both sides that at the moment just simply doesn’t exist. 

And again, again, again, they are in a hot war. The Russians are in a hot war right now. So the idea that you can have American military and civilian personnel poking around into the Russian nuclear complex, it’s not feasible. 

So next steps. As to arms control, there really aren’t any, because until there’s a substantial change in mindset in Moscow, the idea that they’re going to negotiate with anyone in good faith simply evaporates. That leaves the situation open for everybody else. Now, the Americans and the Russians combined have over 90% of the nuclear weapons that are available in the world today. 

But they’re not the only ones. Israel has some, France and Britain have some. And the Chinese, of course, have a significant arsenal. Although it’s not merely in the same class as either Russia or the United States, unless and until we have some sort of deal between the Russians and the Americans and what a ceiling might look like, other countries not only don’t have an incentive to limit their own production of weapons, they have a very strong incentive to build more and more and more, not just to get to bigger tables, but to secure their own existence. 

And that is as true for China as it is for Israel and Pakistan and India and unfortunately, now true for Korea and Japan and Poland and Germany and Sweden and Finland as well. So we are not simply at the end of the great era of arms control that literally took tens of thousands of weapons out of circulation. We are now at the dawn of a new era of massive proliferation, because we no longer have a structure to limit it. 

And the changes to the international strategic environment basically demanded. Because if you’re a country that has been on the sidelines for the last 50 years and relying on the bilateral system between the Russians and the Americans to kind of keep a lid on things, and all of a sudden that is gone. You no longer have the time that is necessary to build up conventional force. 

Building up a nuclear force is the fastest way to get to a degree of security, where you actually hold some cards. And we are now going to see that in country after country after country after country for at least the next 15 years.