Venezuela’s End: The Oil Question

Photo of black oil barells

Venezuela only has one realistic path forward: Oil. That doesn’t mean it’s a sure thing, though. So, let’s lay it all out.

Most production comes from the Orinoco Belt, but it’s complex and expensive crude. Without foreign investment and involvement, this is a no-go. The Lake Maracibo region offers lighter, easier-to-refine oil, with better export access and infrastructure. However, this is a bit of a lawless region, so it would necessitate lots of troops in addition to any investment.

Russia and China come out of this as clear losers, but some US refiners are going to take a hit, too. This isn’t the energy-security play that the US is looking for or needs. Venezuela has likely seen its last days as a major energy producer.

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Transcript

Hey, all Peter Zeihan here coming from Colorado. Today we’re going to talk about Venezuela. But from perhaps a positive scenario point of view. The core issue is oil. That’s where all the money comes from. And if you’re going to reconstruct the country in any form, that’s where it’s going to be able to pay for itself. I really don’t see the Trump administration dumping $100 billion and regenerating the infrastructure. 

So let’s talk about what’s necessary and why and how it might might happen. Venezuelan crude falls today into two general categories. The first chunk, the chunk that is responsible for about 80% of the production is a place called the Orinoco Belt, which is down in the Amazon. It is not crude in the technical term. It’s something called Bitterman, which requires incredible amounts of energy and steam injection to liquefy it enough that you can bring it to the surface, and then you run it through something called an upgrader, which is kind of like a refinery, just to make it liquid enough to be stable for shipment. 

And then you have to inject something called diluted into it. So again, it can flow, and then you pump it north to the coast, where it’s loaded for export. This makes it the most expensive crude in the world per barrel produced and requires incredible technical acumen to function. Historically speaking, most of the work on the Upgraders, has come from US multinationals a little bit from, say, total in France. 

Schlumberger, Baker Hughes, all of those, oil services firms were heavily involved in the development of the program. And eventually they trained at PDVSA, which are PDVSA, which is the state oil company, to do a lot of the work. But that kind of came to a crashing halt back in 2002, when we first had a political coup against Chavez, followed by kind of an economic resistance against the professionals within PDVSA. 

When that process was over and Chavez re consolidated control over the country, he purged PDVSA. And what we found out was basically everyone who had an engineering degree didn’t like the guy and joined in the coup, and so he got rid of all of them. And since then we’ve had a steady degradation of what PDVSA can do. It’s no longer one of the most capable oil companies in the world. 

It’s barely holding together. And if it wasn’t for the presence of U.S. super major Chevron in some of these projects, most of them probably would have shut down, in order to get the Orinoco back up to what it could be. So it’s producing one 2 million barrels a day. You’re talking about investment, at least in the tens of billions, probably closer to 200, because there’s several stages to this process. 

Think of it kind of like what the Canadians do with oil sands, but remove easy capital access, remove the skilled labor, remove the rule of law, remove the physical pipeline linking it to the world’s largest consumer market. They have to do this all in the Amazon, more or less by themselves, without cash, but still bringing in foreigners. 

Very, very expensive projects. And I think the most likely outcome is that this is going to eventually fall down to zero, because they’re simply not going to be able to maintain it. The second part of the Venezuelan oil complex is a little bit more interesting from a functional point of view, if not a chemistry point of view, and that is the Lake Maracaibo region. 

Now, Lake Maracaibo is a large bay in the western part of the country and Zulia State that is connected to the Caribbean that has a mix of onshore and offshore production. If you go back to the mid 1990s, it was producing somewhere between 1.5 and 2 million barrels a day, which was the majority of Venezuelan oil production. And it is kind of a medium light mix instead of the Biderman that exists over in, southern Venezuela. 

As a result, produce production is a lot more basic. The geography is a lot more friendly, and most of the physical infrastructure to process the crude actually exists locally. There’s a large complex that technically could process about a million barrels a day, whereas Venezuela barely processes anything of that of the stuff that comes out of the Orinoco. But most importantly, you know, the Orinoco is basically asphalt, and so getting asphalt out of the ground is a bit of a bitch. 

Whereas the stuff in Orinoco again, light, medium, sweet, much easier to process. And the export options because it is on the water are much easier as well if there’s a solution here. For Venezuela, it lies in the Maracaibo region. A couple reasons. Number one, there is a line of the Andes that cuts the Maracaibo region and Zulia from eastern and central Venezuela. 

And so there’s always been kind of a semi secessionist view of the world compared to Caracas. So Caracas is a Republican project that was formed after the collapse of the Spanish empire, very anti-colonial, very pro-independence. But Zulia and Maracaibo are more like a post-imperial remnant who never really fully bought into the Caracas project. And while they’re not secessionist in the traditional sense, they definitely feel that they’ve been robbed blind by Caracas government, not just under Maduro and Chavez, but all the governments have come before, all the way back to the Spanish breakup. 

So I can easily see a devolution of the state of Venezuela or Western. Venezuela under Maracaibo kind of goes one way and Caracas goes the other way. Caracas falls apart, Maracaibo is more stable. And that’s before you consider things like the United States getting involved, because if you are an American energy company, the Mark region is a far more friendly environment to operate in than the Orinoco. 

You don’t have to deal with the jungle. You don’t have to do the interior. You don’t have to deal with the capital. You don’t have to deal with, you know, to fight the geography. Everything’s just easier. But easier is not the same thing as easy. Because this is a region that has been denigrated by Caracas for decades. 

Centuries, almost. It’s not a great place, especially right now. Civil control and law enforcement has largely collapsed. You have organized crime, gangs running rampant through the area. The Trump administration said that the Caracas government was facilitating drug shipment to the United States. 

Maybe that was true, but there’s a lot more going through, more Acabo. Maracaibo also has literal pirates like Arg and Eyepatch, that basically raid the entire area. All the time. So if, if, if you’re going to have an economic renaissance in Venezuela or even just one in Maracaibo, in Zulia, first thing you have to do is secure the area and reestablish law. 

And because Venezuela is not a naval power, you’ve got Maracaibo city on the far north side of Lake Maracaibo and the rest of the population of Zulia on the south side. You’re now basically talking about occupying, stabilizing two disconnected sections. So you’re talking about tens of thousands of troops. If you want to make this happen. But that is still the low hanging fruit in this question. 

So much easier than Orinoco, even with all those complications. So let’s talk winners and losers. Most likely this isn’t going to work. Most likely we’re seeing the beginning of the end of Venezuela as an energy producer at all. First loser is, of course, Russia. The Russians bring no technology whatsoever to this fight. Basically their presence was geopolitical. 

To stick it to the Americans, that goes down to zero. They’ll lose absolutely everything that they put in. Second biggest loser is China. China has spent the last 25 years expanding its refining complex to run crude, different kinds of crude from different parts of the world, including Venezuela. The idea being that eventually they’re going to have a fight with the United States. 

And the more diversity they have for options, the better. And so they have sunk tens of billions of dollars into Venezuela to basically prepay for crude. And right now they are owed about 15 to $20 billion in Venezuelan crude. That is now all complete right off. In addition, the refineries that they have built in Shandong and near Shanghai to specifically process Venezuelan crude, they have now lost their only source of crude. 

They will not get it back. So this has been a huge risk for the Chinese that now is being manifested as a complete loss. Other big losers. It really depends upon what happens with the oil sector. If I’m right and this all goes away, then the biggest loser is probably the refineries in the US Gulf Coast region. 

A lot of them were designed to run on this sort of crude, and it’s just going to stop. They can still use, Canadian crude, but the price differential is not going to be as favorable if Venezuelan crude falls off the market altogether. So even if they can replace all the barrels they need, the cost per barrel is going to rise, and that’s going to force them to take a more diverse type of crude. 

And that means less heavy and more sweet. Keep in mind that the U.S shale industry produces exclusively super sweet, super light. So we’ve been in this weird position in U.S. refining for the last several years, where the refiners on the Gulf prefer to take Venezuelan Canadian crude and the United States exports its light sweet to the rest of the world. 

All we need to do is switch that so that we process our own. But that’s easier said than done. If you’ve spent a few billion dollars upgrading your refinery to run the heavy stuff. Heavy crude is typically used for things like asphalt, industrial products and diesel, whereas light sweet crude is usually used for gasoline consumer products. anyone who’s in refining will tell you that is the short story and hides a lot of nuance. I agree, but this is not a video about that. Winners in that scenario, of course, are Canada, because one of the problems that Canada has been having is it sells most of its crude into the American market. 

The American market is the most super saturated energy market in the world. And anything coming out of the Caribbean, Venezuela goes to the US Gulf. So they’ve basically been selling at a massive discount, but sometimes it’s $25 a barrel that now closes and should allow the Canadians to get a better leg up. And that’s before you consider that they have a pipeline that’s kind of sort of working, shipping crude to their West coast now. 

All right. What am I leaving out here? This isn’t an energy security play for the United States. I know a lot of people said that the United States was doing it for oil. And Trump is all about oil. United States is the world’s largest producer of crude. We export 5 million barrels a day of refined product, which is significantly more in refined product than Venezuela ever, ever exported in terms of raw crude. 

So while there might be an economic play here for Exxon and Chevron in the rest, if if the country stabilizes the investment required to make it stabilized and you have to do that first is massive, then you have to go in and physically reconstruct infrastructure that has been dilapidated for decades. And in most cases, just needs to be ripped up and replaced wholesale. 

The one possible exception is Maracaibo, where in theory, in five years you could get output up from its current 200,000 barrels a day to maybe a million. And in theory, the refining complex there, while massively outdated, is still broadly functional and could be rehabilitated without a complete reconstruction. But you are still talking about investment on the front end in tens of thousands of troops, and on the back end in tens of billions of dollars. 

That is not something that I think the American population will support. That is not something I think the Trump administration is interested in. And that’s not something that I think the American super majors are going to get involved in it anyway, considering that there’s so much more crude and other places that are so much easier.

The US Economy Is (Kind of, Sort of) Growing

Zoomed in image of a 0 bill

Recent data out of Washington shows the US economy is growing faster than expected, but let’s lift the hood on these numbers.

This growth is fragile and uneven. Industrial construction spend is declining, with much of the spend allocated towards AI and data centers. This might boost short-term growth, but it signals that a bubble is forming. We also have to account for construction costs increasing, making growth appear stronger when we’re just spending more for the same stuff. Consumer growth is steady, but only because the top 10% of earners are keeping the ship afloat. The bottom two-thirds of Americans are cutting back as everything grows more expensive.

Growth hasn’t cracked yet, but it’s going to hit harder than necessary when it eventually does.

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Transcript

Hey all. Peter Zeihan here. Coming to you from a Colorado that’s rapidly melting. Today we’re talking about economic growth in the United States. Specifically, in the last couple of weeks, we’ve gotten new data about how fast the U.S. economy is growing. And it’s at a surprisingly robust clip, something that the white House has taken a bit of a victory lap on. 

How does this light up against all of the forecasts, including from myself, that the tariff policy and the industrial policy of the Trump administration is actually going to lead to slower growth of the long term? We’re at that moment where everyone can have their cake and eat it, too. There’s two big things going on, according to a dissection of the data. 

First, industrial construction spending was still the single most important metric that I follow these days, because it shows what we’re actually building, what we put money into the ground for, as opposed to plans, continues to steadily dip down. We need that number to at least go up by 50%. If we’re ever going to build out the industrial plant that we need to prepare for the end of the Chinese system. 

Instead, the tariff policies has generated so much chaos in the industrial space that that number is continuing down. But that does also generate a certain type of growth, specifically with AI and data centers. Somewhere between 30 and 40% of industrial construction spending is going into data centers right now. And that does generate some high octane growth from the jobs and the construction. 

Also keep in mind that when everything that you used to build something steel, wood, copper is more expensive and were high tariffs on all of those items. Just because it costs more doesn’t mean it doesn’t count as growth. So we should be able to use those inputs to build twice as many data centers as we are. 

But since you have to spend the money on that anyway, it generates the same amount of growth in terms of the consumption of those products. So it makes it look better than it really is. That’s number one. Oh. Yeah. And any time any specific subsector is that huge of a percentage of any major statistic, you know, it’s a bubble. 

Number two, just as important, maybe even more so consumption, consumption has held steady despite the tariffs and the chaos of no one knowing what everything is going to cost the next day. But you have to dig down into the numbers a little bit to, get the full picture. Consumption for the bottom. Roughly two thirds of the population is actually dropping as people cut back as grocery bills and cost of electronics continue to go up. 

The only segment that is increasing their consumption is the top 10% of the population in socioeconomic terms. But here’s the thing. The bottom two thirds of America’s population is only responsible for about one third of consumption, whereas the top 10% is responsible for roughly half of the total. So you can have a small sliver of the population at the top that has not adjusted their consumption, maybe is even spending more now because they don’t care about the tariff increases. 

They’ve got the money to burn. But most of the population is tightening their belts, which is generating lower consumption for them. But because the top 10% consumes so much relative to everyone else, it comes across overall as a steady number. So everyone is right and everyone is wrong, myself included. Growth at this point is still holding up, but it’s becoming much more lopsided, much more dependent on some very, very specific factors that are very clearly already in bubble territory. 

So it suggests that when this does crack, it’s probably going to hurt a little bit more than it needs to. When will that happen? I can’t tell you. If Donald Trump were to stop issuing new tariffs and stop changing the tariffs are in play, I might have a better forecast for you. But we’re now at something like 650 tariff policies for the year to date. 

And everything is just changing too much that there is no confidence that really anyone in the industrial space has an economy right now. And that is very clearly bleeding into the consumer space as well.

US Foreign Policy After Trump

Flags of multiple countries blowing in the wind

Trying to figure out what foreign policy will look like after Trump is a fool’s errand. With no strategic consensus or institutional planning capacity, the US is stuck in a car without brakes, a driver, or a steering wheel.

The US is undergoing a historic demographic transition, but the political realm hasn’t adjusted to this new reality. The bipartisan foreign policy framework that’s been in place since the 40s has collapsed. Trump has dismantled the Republican Party. Democrats lack coherent leadership. Key planning institutions have been gutted. Yikes.

The US is entering a volatile period where foreign policy is driven by instinct or ideology rather than strategy.

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Transcript

Hey all Peter Zeihan here coming from Colorado. Today we’re taking a question from the Patreon page. And it’s specifically, And I quote, foreign policy under the Trump administration is little, what’s going to happen after Trump? I would love to have a clear answer for you, but I don’t, A couple things to keep in mind. Number one, the United States economy is going through a transition as the baby boomers leave and the Zoomers come in. We’re losing our largest workforce ever, and it’s been replaced with our smallest workforce generation ever. 

That’s going to change the complexion of the economy. That’s going to change what we need to do in foreign policy. From an economic point of view, that is very much in flux. This has never happened in American history before. We are making it up as we go along. Tariffs are part of that. Trade deals are part of that. 

And we haven’t had time yet for politics to rearrange around this fact because we’re still in the opening years of the transition. So that’s problem one for why we really don’t know. Problem two is it the bipartisan nature of foreign policy is gone now, from 1945 until very recently, until probably the Obama administration, maybe even through Trump one and Biden. 

But certainly within the last 15 years, it’s broken. We’ve had bipartisan foreign policy because we had an agreement on what we needed to do. The Soviet Union were the bad guys. We needed the alliance in order to contain them. So the United States used its military to basically buy up an alliance. We would protect you. 

We would allow you to sell your products into our market if in exchange, we could control your security policies in order to box in the Soviet Union. Soviet Union’s been gone for 35 years. We never had a conversation on what should replace that policy. And eventually we knew it was going to fall apart. And under Trump, too, it has fallen apart good and hard. 

But we don’t have a replacement system. Trump might think he has a foreign policy for the ages, but he doesn’t have a successor. And the Republican Party has been shorn of its policy arm. Trump destroyed it and basically made the party a just a campaign function with no talent recruitment, no talent gestation, no policy development. And the Democrats are useless, for so many reasons. 

Anyway, bottom line is, when we go into the next presidential cycle, there’s no successor for Trump and the Democrats really don’t have any rising people. And even if you had a personality on both sides who Is liekly to take over things, there really isn’t an institution in either party that is capable of coming up with ideas for what should be next. 

Nor is there in government, the Trump administration has gutted a lot of branches of the US governing system that help with planning. Just to pick two, there’s an office that basically hunts down epidemics on a global level, but it’s based on science. So one of the first things that DHS chief, Robert Kennedy Jr did was gut it so it could never tell him that he was making shit up. 

And in the US military, we had something called the Office of Net Assessment, whose sole job was to look over the horizon and game out what the next conflicts were supposed to look like, but they made Pete Hegseth look like he wasn’t a very bright boy. And so that office was gutted as well. Things like this had happened in commerce and Treasury and all the rest. 

And so the things that the US government used to do to help the presidency prepare for whatever is next, they’re all gone. So we’re kind of flying blind when it comes to thinking about what the challenges and the opportunities of the future are going to be. And because the parties have not been able to step into that gap for various reasons, we have an inability as a country now to prepare. 

And so any policies that we are going to have for the next decade probably are going to be solely based on gut feelings like Donald Trump or blind ideology that is completely uninformed by modern affairs. That is going to get us involved in a lot more conflicts that are going to be a lot bloodier than they need to be, because we’re not doing anything to prepare for any of them. 

We have been here before, in the world before the World wars in particular. Certainly before World War two, the United States didn’t have a dedicated foreign policy arm in the way that we thought about it during the Cold War. And so we basically had a complete overhaul of what our foreign policy used to be, almost every administration. 

We are now going back to that sort of situation. But in a world that is far more interconnected than anything we had in the 19th century. So, yeah, it’s going to be a really rough, really rocky ride until such time as our political system regenerates and we get some decent leadership who can actually think forward. I would love to think that’s going to happen for the next presidential election. 

I have absolutely no confidence it will, because Donald Trump has a vested interest in making sure the Republicans don’t turn the page. And the Democrats are so chaotic right now, it’s really difficult to see them coming together. We will probably have to wait for a third force, somebody either rising up within the parties or forming a new one to basically take the reins and start us over with a new structure. 

Historically speaking, we have done that many times. But it isn’t always an awkward process to live through, and it usually takes about a decade. So for now, the next few years, this is where we are.

Saving China: Three-Child Policy

Young Chinese children

If China was able to curb population growth with the One-Child Policy, can a Three-Child Policy help solve the current Chinese demographic crisis?

The short answer is no. Large families in urban settings don’t make sense. People in their mid-40s aren’t cranking out three kids. And if everyone moved out of the cities to have some space for larger families, China’s entire economic and political control model would collapse.

China would need to pull off a Star Wars-esque rapid cloning situation to have a shot at reversing the demographic decline they’re facing…

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Transcript

Hey all, Peter Zeihan here. Coming to you from Colorado. Today we’re taking a question from the Patreon page. Specifically, how about solutions to China’s demographic problems? What if they started to institute a mandatory three child policy? Short version is clever, but no. Number one, roughly half of the Chinese population now lives in high rise condos. There isn’t room for one kid, much less three. 

So you got a mechanical problem there. And if you wanted to force everyone to have three kids, you’d have to first change the residency style of the country and basically force people out of the major cities where the economic activity is and where the services are, and where the government has control of things and push them back to the outskirts or into, the areas beyond. 

So you might, might, might, might, might, might, might, if you’re really brutal about it, get the birth rate up. But it would come at the cost of the entirety of the Chinese economic model, complete with the way that the Chinese Communist Party controls the population. So, no, second, I don’t even think it’s physically possible anymore, to move the numbers to the degree that are necessary according to official Chinese statistics, which are definitely not correct. 

The average age in China is now 44, 45, and getting people over age 45 to kick out three kids. I’m sorry. That’s just not biologically possible any longer. And that assumes the Chinese data is right, which it of course, is not. The debate within Chinese statistical circles, that is a thing, is how much they have over counted their population by whether it’s just 100 million or something closer to 300 million. 

But there’s a broad agreement that most of the over count are in people under age 40. And if you look at what has happened with the official data, they’re now saying they have roughly 60% as many people age 6 to 0 as they have age 11 to 6. So we’ve got a sharp collapse coming down the pipe, even according to the official numbers. 

If that thins out in the teenagers, in the 20 somethings, then you’re actually looking at the average age in China being a lot higher than 44, probably closer to 54 or even higher. And in that sort of environment, having three kids for the small number of people that they have of childbearing age just isn’t going to move the needle at all. 

Right now, The only theory I’ve even heard that might work, that would allow the CCP to maintain their political and economic system is Star Wars style cloning. 

And for those of you who are not Star Wars nuts, that’s basically taking an embryo, maturing it into a 20 year old in under three years. And the 20 year old that you’ve created actually has the full skill set and become a fully functional adult. Obviously our technology is not there at this point. Certainly isn’t in China. 

But growing an entire new generation of 20 somethings is the only way to make this work. And if you want to do it the old fashioned way, that takes at least 20 years, and the Chinese no longer have enough people to even attempt, regardless of what the government tries to force upon its population.

Syria Turns Violent…Again

Photo of a bombed out Syrian city

Following the recent attacks on US troops in Syria, the question of the day is: Why does the US continue to maintain a presence there?

Without a clear long-term strategic rationale, the small US special forces presence is intended to keep ISIS in check. Remember, we’re talking about a place where chaos and violence have thrived since the dawn of man. After the fall of Assad’s government, Syria fractured and allowed groups like ISIS to reemerge in the desert interior.

Unless Syria reconsolidates or a major power steps in, suppressing ISIS isn’t realistic.

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Transcript

Hey all. Peter Zeihan here coming to you from a windy Colorado. Today we’re talking about what’s going down in Syria. So, over the course of the last few weeks, there’s been a lot more violence. And internal Syria, and it’s even resulted in a gunman shooting a couple of American soldiers who were on patrol. So two things. 

Number one, why is the U.S. still involved at all? And number two, I thought we had defeated the Islamic State. Why is it back? So, number one, why we’re still there? United States, even after the Biden administration completed the pullout from the region, left a few dozen to a few hundred. Depends on whose numbers you’re using. Special forces there to keep a clamp down on, the ISIS group. 

Remember that ISIS is a militant group that thinks Al-Qaeda pussies. And really, you just need to shoot everybody. The Trump administration has decided to actually reinforce that force, because the new president of Syria, who is a former militant himself, has said nice things about Trump. And that’s what it takes to get an American strategic commitment these days. 

So, they’re they’re kind of an an open ended assignment to generally help keep ISIS in check. And a lone gunman took shots at forces and killed a few. There’s no real strategic reason for the United States to still be involved. And whether the Trump administration is going to change his mind in the future, who knows? 

We do know, however, that this is one part of the U.S. defense community that has not been gutted by the Trump administration. So if you’re dealing with Europe or China or Russia or Venezuela, you’ve probably been put in a box or fired. But if you’re dealing with the Arab world, those institutions are still there. So there’s still advice flowing. 

Whether or not the white House you chooses to use that advice, of course, is a different topic. Anyway, that’s piece one. Piece two is I thought Islamic State was dead. It’ll never really be dead. So here’s the issue. 

The deserts that are west of the Tigris and Euphrates and going into western Iraq and Syria have always been kind of a no man’s land. 

And, the problem is civilization in this area, even though it’s the fertile Crescent, is pretty thin once you get away from the waterways. And there are parts of the Euphrates that’s the more wobbly one, that one that goes up from Baghdad, and then goes west into, a little bit of Syria before going up into Turkey. 

The water plane there is very thin, sometimes just a few miles from Green to green, with the river in the middle, and then it’s hard desert on all sides. So there’s so little for states to work with that they can’t really project power into the barrens very well. So what has traditionally happened in this region is when you have strong states like, Iraq centered on Baghdad or Turkey Center on Ankara or someone in the Levant, either, whether it’s in Jerusalem or Damascus or Aleppo. 

When you have strong states, they can project power into these barrens and basically keep it under control. But there’s no benefit for doing so except for specifically keeping it under control because there’s no resources there. Hardly anyone lives there. And so if you have weak states, then, this area kind of misstep sizes into a zone that can generate a lot of problems and a lot of militancy. 

So the Islamic State, ISIS is really just the last generation of problems that have been in this little part of the world. It’s been going back since the dawn of civilization, 6000 years. This has always been an area where there’s where the wackos live. Well, if you think about what’s gone down, in the last time, ISIS was really strong. 

In the 2000, the United States had invaded and toppled, the Saddam regime in Iraq. And so Iraq was in chaos. Damascus was under the control of the old Syrian government of, Bashar Assad. And he basically was, I mean, they call him Mr.. 40% time sometimes because he just wanted 40% of everything. 

He really didn’t run the country. And so the place fell in the Civil War, and, the Assad government just wasn’t very powerful. And we had a lot of other factions that were competing. And so this area became ungoverned. And then that just left Turkey. And Turkey was far more concerned with keeping the Kurds under control than it was with the stability of its neighbor. 

So it was actually invading from time to time to displace the Kurds, whether in Iraq or Syria, which took the potential of having a strong power, off the board. 

In that environment, the Islamic State became very, very powerful, actually was able to capture several cities in both Syria and Iraq for a short period of time. Fast forward a few years, the United States has left Iraq and has consolidated kind of it’s not, you know, the best place, but it’s able to at least control itself. 

The Turks have consolidated their border region to their satisfaction. And while the civil war was continuing in Syria, You had U.S. forces in Syrian Kurdistan and Iraqi Kurdistan who would project power into the areas where ISIS was. And we basically had this artificial third power on the outside going after ISIS. 

And for the most part, that ultimately worked. But then the Assad government fell. And when the Assad government fell, Syria broke into a bunch of pieces. Nominally, it’s all on the same page now, but the Alawites have gone their own way. The Christians have gone their own way. The Kurds are kind of going their own way. And the ability of a now broken and getting ready for the second phase of the civil war, Syria, is incapable of patrolling these vast wide opens in the desert Barrens. 

And so ISIS is on its way back. And the only way that ISIS can be tamped down again is if Syria consolidates in some way. Syria lacks the ability to consolidate in some way unless an outside power gets very deeply involved. During the Civil War, the Russians played part of that role, and that helped quite a bit, because all of a sudden you get power, from Damascus that was actually playing a role and keeping some of these areas tamped down. 

That is not a recommendation. It was not the cleanest way to do this by far. The other option would be for the U.S. just getting more involved if we care about Syria and ISIS that much. But more likely, longer term, it’s got to be Turkey, because Turkey is the country with the troops and the interest and the power in the region. 

The problem, of course, with the Turks, if the Turks do it, they’re gonna do it for their own reasons and expect other things. And, the Turks aren’t sure they want to, because the Turks have interests in the Balkans and in Ukraine and in Greece and in the western Mediterranean. And they can’t do everything at once. And for them, what’s going on in the center of the Syrian desert is more of an irritant than a strategic threat. 

So the norm of this region is for this place to just be very chaotic and pretty blaming, because no one on the outside really cares all that much, and no one in the immediate vicinity really has the power to project, especially not from Damascus. So you should expect a lot more violence like this. You should expect some version of the Islamic State to become more and more powerful as time goes on. 

Unless someone like the United States decides to turn 30,000 40,000 troops into an area where we have really no strategic interest whatsoever.

World’s Largest Nuclear Plant Coming Back Online in Japan

Photo show three nuclear power plant reactors

Japan is restarting the world’s largest nuclear power plant, after a 15-year shutdown following the Fukushima disaster. Nuclear power used to account for over 30% of Japan’s national electricity, so seeing these reactors come back online restores a key pillar of Japan’s energy system.

Japan’s mountainous terrain forced each region to establish large, redundant energy systems; therefore, the return of nuclear power gives Japan surplus capacity and flexibility in an otherwise stagnant environment.

With the global energy trade growing more unreliable by the day, Japan is now better positioned than most to weather the storm.

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Transcript

Hey all, Peter Zeihan here. Coming to you from Colorado. Windy day. Today we’re and talk about the energy system in Japan because the Japanese just turned back on the world’s largest nuclear power plant. Now, if you remember roughly, what’s it been 15 years ago now? Almost. There was a really bad earthquake in the Sendai region of Japan, which generated a Sunni army which flooded a large power plant that happened to be on the coast. 

Note to self, don’t put up nuclear power plant on the coast on a fault line. Anyway, because of the partial meltdown, because of the damage, because of the radiation leak. Because it’s nuclear power. The Japanese shut down every single nuclear reactor they had until they could complete a series of safety tests. And a lot of those power plants didn’t do so well on the first round. 

Anyway, fast forward 15 years later, more and more of them are opening back up. And now this new large one is as well. Which means I think it’s a good time to talk about what the power system in Japan looks like, because it is giving the Japanese a lot of options that other countries don’t have. So Japan is an archipelago, lots of islands, some bigger than others. 

But what all of their cities have in common is they’re backed up against really, really rugged terrain, mostly mountains, and a pretty steep ones at that. This is shaped the political culture of Japan going back since the emergence of the Japanese, ethnicity well over a millennia ago. And it means that most Japanese, in a manner somewhat similar to Germans, having a local identity more than a national identity, from many points of view, because they’ve basically spent time immemorial competing with one another, but oftentimes having a hard time reaching one another. 

So you have a very, very strong local customs, traditions and identities. What that means for the power system is that you can’t link together two prefectures in Japan with power, infrastructure, because the terrain is too difficult. This is not linking Iowa and Minnesota together. You have to go up and over mountains to get from one little enclave on the coast to the next one. 

And what that means is each major city in Japan, you shouldn’t think of it as a city. You should think of it as its own thing, its own almost country from an infrastructure point of view. So if you have to do that, you can’t rely on piping in wiring and power from your neighbor. So you need excess supply. 

So you build power plants that you expect to never use. You do ones that burn coal or natural gas. You have your nuclear power plants. Maybe you do a little solar, wind or tidal if you’ve got the right environment for it, maybe even put up an oil burner, which is something that usually not even third world countries would do. 

But the point is, if one of them goes out, you have a backup plan. Now, since the Sendai earthquake, Japan has taken one of those pillars of its energy security nuclear and just taken it completely offline. It used to be 30 to 35% of national demand. That is now coming back in a very big way. At the same time, the Japanese economy over the course of the last 30 years has been fairly stagnant, so power demand hasn’t moved too much. 

So you have this large oversize energy system for each individual part of Japan, and they’re now getting one of their major sources back. So if you fast forward a few months, a few years into a world that is more disconnected, where things like energy trade are not nearly as reliable, all of a sudden the Japanese have a lot more options than other countries. 

Yes, they still have to import the vast majority of their energy, but they don’t really care where they get it from, and now they don’t really care what it is. So even in a world where energy supplies break down as long as there’s something that works, the Japanese are going to be okay. And that’s a lot better than what I can say about a lot of the countries out there.

The Beginning of the End of the Shadow Fleet

A photo of an oil tanker set against a red orange sunset

Global oil markets are nearing a massive shock as the shadow fleet edges towards collapse.

With mounting pressure from US seizures, Ukrainian drone attacks, and European interdictions, the roughly 1,000-tanker-strong shadow fleet is in the crosshairs of…everybody. As ships are confiscated, disabled, or destroyed, the numbers stop making sense for captains to run the risk.

This could trigger a severe tanker shortage, driving oil prices up, and making it harder for sanctioned countries to export. We’re not just looking at an immediate price spike; this will be a prolonged oil shock impacting everything from transport to production.

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Transcript

Hey all, Peter Zeihan here, coming to you from Colorado. Today we’re taking another look at the shadow fleet and the coming shock that’s coming to the oil markets. For those of you who saw the video last week, you know that we basically have a two track path here. The Shadow Fleet is a group of ships that have been transporting Russian crude most recently, and for over a longer period of time, Venezuelan, Iranian crude. 

The idea is that you hide the ownership behind a series of shell companies and flags of convenience. And evade sanctions. Now you have to sell your crude at a discount when you do this. And the captains and the shipping companies that operate the vessels get risk premiums. But in a world where daily demand for crude is 100 million barrels a day, you can’t really shut out all the major players, no matter what you want to do. 

So the Shadow fleet has formed and now has over 1000 vessels worldwide. Well, as of now, it has six less. So we’ve got three things going on at the same time. First, with the United States, the United States has enacted an embargo of Venezuela and has so far, confiscated three tankers, two of which were part of the shadow fleet and one of which was actually completely above board. 

But the Trump administration doesn’t really care right now. So it’s roughly a million barrels a day from Venezuela that is going to go offline. Number two, the Ukrainians have demonstrated that they’re perfectly capable of taking some of their drones, loading them in the back of pickups or into shipping containers, taking them to a different part of the world completely and launching them. 

So in recent weeks, they have upped their attacks on the shadow fleet, and most recently took out a pair of shadow fleet tankers that were in the Black Sea. But over the weekend, we saw attacks on patrol ships in the Caspian Sea, which is nowhere near Ukraine, and they even almost sank a vessel in Rostov on Don, which is a Russian port, just off the Black Sea, and then disabled a shuttle fleet vessel, off the coast of Libya in international waters. 

So the Ukrainians are showing very clearly that you don’t have to be a superpower to use drones against civilian tankers. 

This is going to cut into the profits of anyone who’s operating the shuttle fleet pretty quickly. Because it’s not clear if any of the insurance companies, which are all Russian state or Chinese state that have insured the companies, are going to pay out on any of the claims, because why would you. It’s functionally illegal. And so if you’re a ship captain, all of a sudden there’s a very real risk that you’re going to lose your vessel. that certainly dissuades people from sailing to certain places. That’s number two. Number three, another Shadow Fleet vessel broke down, just outside of Swedish international waters. And the Swedes went and took it over and discovered Russian military personnel on board. 

So now that the Russians have basically started to treat the shadow fleet like a strategic asset, it will start to be countered as a strategic asset. And we’re basically looking at a not so slow motion collapse of the functionality of the fleet and probably on a global basis. So what happens when you remove a thousand tankers from the fleet? 

Well, all of a sudden you go to a severe tanker shortage, which dries up the price of crude for everyone and countries that are under sanctions, Iran, Venezuela, Russia are going to see a significant reduction in their ability to ship. Couple things to keep in mind on that. One Venezuela. Most of the crude production is something that’s called Orinoco Heavy sour. 

It is very difficult to produce and process and ship. And if you have a slowdown in the flows, it will take them months, if not years, to get it back on line. That’s problem one. Number two. Russia. The, Ukrainians aren’t simply attacking the shadow fleet. They’re going after every part of the energy infrastructure, from pipelines to pumping stations to refineries. 

And if the Russians cannot get crude out of the country, they will have no choice. If they want to save their pipelines, but to shut down production in Siberia. And they have maybe a one, maybe a 1.5 million barrels a day buffer where they can shut down their southern fields where it doesn’t get too cold. But after that, they have to start shutting down the northern fields. 

And if they shut down fields in northern Siberia in the winter, they will freeze shut and they will need to be drilled. That will take years. The last time that functionally happened, it was the end of the Soviet period, and it took the better part of 20 years for the Russians to get all of their wells back on line. 

So we’re not just looking at a shock in the oil markets coming next year. We’re looking at a multi-phase shock that hits transport and production in at least two countries. Runs almost a footnote in this. 

Oh, one more thing. The Russians treating the shadow fleet as a strategic asset. That also means a military asset. Now, the Germans and the Danes are directly accusing the Russian government of using the shadow fleet as it’s transiting through the Baltic Sea to launch drones to overfly critical infrastructure like airports. So, if you may remember, before Thanksgiving, there were a number of reports of drones in Europe that were shutting down airspace, that that was all Russian. 

That was all coming from the shadow fleet. So we now have the Europeans in a position that for military purposes, for economic purposes, they feel they have to shut the fleet down. And since the Ukrainians and the Americans are either confiscating or blowing up the fleet, I’m sure the Europeans will come up with something that is much more appropriate to their toolset. 

So expect a lot of interdiction in European waters in the not too distant future. So really exciting times. And as more stuff blows up, I’ll let you know.

Help Wanted – The US Needs More Workers

Sign reading "Help Wanted" in a window

US labor data shows a slowdown in job growth, but given the recent changes to the Department of Labor, who knows if we can trust it. Regardless, labor patterns are definitely looking off…

Demographics are reshaping the labor market. Swaths of Boomers are leaving the workforce, and Gen Z doesn’t have enough people to keep up. Fewer workers means higher inflation. AI might help offset some of the labor shortages, but that will be expensive and time-consuming. Throw in an anti-immigration administration, and you’ve got years of inflationary pressure baked into the US economy.

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Transcript

Hey everybody. Peter Zeihan here coming from Colorado. And today we’re talking about the U.S. economy specifically looking at the situation of the American labor market. Now, we’ve recently had new data coming out of the Department of Labor. And normally we generate the United States generates about 300,000 new jobs, per month. According to the last chunks of data, in October, we actually lost 100,000. 

And in November, we only generated about 60, 65,000, reasons why we should take that data with a grain of salt. First of all, we had to shut down during this period, and so a lot of the surveys that were done, weren’t done or the ones that were done were done in an incomplete manner. So I don’t know if we can trust that data. 

Second. The Trump administration has gutted the Department of Labor, so it’s incapable of doing its job in the way that used to, because it said that the, data was being fudged to make Trump look bad. Well, with the new staff in place, the Trump administration looks bad. So you take that for what it is. 

Third, we’ve got I think, going on here where employers are trying to see if they can use early stage AI to replace workers. And while that is very much up for debate, and it’s very much in its early years, something I found really interesting is that the surge hiring that normally happens in October, in November to prepare for the holidays hasn’t happened this year. And normally when you think of AI, in the way that large language models do it, you’re talking about things that substitute for white collar labor. And usually the people who are being hired for Christmas are doing inventory in his blue collar labor. So we’re having some weird, weird crosscurrents that we just don’t know about yet. So that’s number three. 

Number four. More importantly, we might have to adjust our expectations, for demographic reasons. So the baby boomers, the largest generation we’ve ever had, at one point, there were over 75 million of them. And now three quarters of them have already retired. So the largest chunk of the labor force has left. And then the new generation coming in. The Zoomers are the smallest generation we’ve ever had. Well, if you exit the largest group and enter the smallest group, you’re going to have a quantitatively smaller labor force. In fact, we’re probably losing about a half a million to three quarters of a million of a people out of the labor force this year. And that number will keep going up in the next ten years as the Zoomers continue to enter the workforce, because they just get smaller and smaller. 

So that 300,000 kind of stake in the ground that we’ve become used to these last 60 years is probably not correct anymore. And it all adds up to an economy where we just have less labor to work with overall. And so if AI is able to increase productivity, this is actually great, because we’re certainly not going to have enough bodies to put in those positions. 

This is probably going to be a strongly inflationary environment for the next several years, regardless of what happens with policy. And at the moment, what is happening in policy is also strongly inflationary because of the anti-immigration sentiment that we have in the United States and most strongly in the white House itself. So if we have a shrinking labor pool and the Trump administration is also shrinking the labor pool further because of immigration, then our only option is to increase productivity. 

And the only way you can increase productivity is by adding new technology. But that takes capital, which is also in short supply because of what’s going on with the baby boomers taking their savings and moving into retirement. Bottom line inflation, inflation, inflation that’s cooked into the system regardless of whatever else goes right or goes wrong. First, and most notably in the labor market. 

Sub-Sea Drone Strike on Russian Sub

A submarine rising out of the water

Ukraine claims to have damaged or destroyed a Russian Kilo-class submarine while in the port of Novorossiysk using a subsea drone.

If confirmed, Russia’s last major naval base would be vulnerable to air, surface, and now subsea attacks…not a great look. Russia’s Black Sea naval operations would likely collapse within a year.

But let’s not overstate the power of the subsea drones. While they may be effective for anti-port applications like this one, they won’t be replacing traditional naval warfare tools like torpedoes anytime soon.

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Transcript

Hey, everybody. Peter Zeihan here. Coming to you from Colorado. Quick one today. The news is that in the last couple of weeks, the Ukrainian government has announced that they have used a new type of drone, a subsea drone, to attack and destroy a Russian submarine, a kilo class in the Russian port of Novorossiysk. the reason I’ve waited so long to comment on this is because the details were vague. 

The Russians have denied that the Russians deny everything and the Ukrainians haven’t provided a lot of evidence. We do have satellite photos now that indicate there was damage on the inside of the port. Whether or not a submarine was hit or sunk is unclear. I would note that if you put a reasonably sized bomb on the outside of a submarine, that submarine is not going to go underwater. 

Or if it does go under water, it will never come back up again. So it doesn’t take much damage to take one of these out for the long term. And the Russians no longer have the capacity to refit them, because that equipment is in Crimea, and Crimea is under regular air drone assault. So if this kilo class sub was even mildly damaged, it’s it’s out. 

A couple things to keep in mind, however. Number one, on the Ukrainian side. The fact that a sea attack happened in November is extraordinarily bad for the Russians. It was one thing when they lost the ability to base their navy out of the Crimea. So they moved back to overseas because it was out of range of air attacks. Then air attacks started, happened regularly earlier this year. Now we not just have a sea attack, but a sub sea attack. 

There are any number of ways that that might have happened. Maybe there was a mothership involved. Maybe it was smuggled into Russia proper, and then the thing was dropped in the water and sent on. But the bottom line is, is that the targeting suite of these drones is very limited. And if it goes underwater, it’s not receiving signals from anyone else unless it’s on a tether. 

And if it’s on a fiber optic tether, you’d have to have another ship nearby, which it’s really stretches the imagination to think that the Russians would be that unaware of things going on in their own immediate waters. Which means that if this is true, what happened was that the sub was at dock when it happened. We do see damage to the dock. 

We do see damage to the booms. And if this is a fundamentally new weapon from the Ukrainians, they’re calling it a sub sea baby. The sea baby is there. Surface drones, then overseas has become completely untenable for any sort of Russian naval or maritime activity. Remember that this is the Russians largest port in the area. It’s their primary oil export point. 

It’s already been hit a couple of times, and it is now the headquarters for the Black Sea Fleet, which means they’ll have to move down the coast to a place called Tusa, which doesn’t have nearly the, cap capability. So we really are talking about the functional end of the entire Russian Sea Fleet within the next 12 months, if this is true. 

Second, other side of the equation, I wouldn’t get too excited about subsea drones, because we don’t have meaningful guidance or decision trees on naval drones at this point. This is much less useful than a modern day torpedo. It would have to be dropped off relatively close to where it’s going. It can’t track an active signature. It can only go to a preprogramed fixed point. 

That doesn’t mean it’s a nothing burger, because anything that can get around detection is something that Ukrainians or really anyone who’s involved in a naval conflict is going to want. But it is not an at sea weapon. It is an anti port weapon. So that is of significance. But in modern naval warfare, it is certainly not a game changer in its current form.

The Beginning of Venezuela’s End

A person walking draped in a Venezuelan flag against a desaturated background

The first domino of regime change in Venezuela has been toppled, as the Trump administration has imposed a naval blockade on the main oil export ports.

No oil exports mean Venezuela’s income vanishes. That means food imports stop. Food shortages will give way to unrest, which will give way to regime collapse. So, what kind of situation will we be looking at once the final domino falls and Maduro relinquishes power?

It’s not going to be pretty. We’re talking about a grim humanitarian outlook, a scary security picture, and an ugly transition of power.

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Transcript

Hey, all. Peter Zeihan here coming to you from Colorado. It is the 17th of December. You’ll see this on the 18th in the morning. And we are. Go for regime change in Venezuela. The Trump administration has started a formal blockade of the ports, specifically to prevent the state of Venezuela from generating any foreign currency, which is used to not to support the regime but hold the country together. 

There are three ports. There’s one just off of Caracas, which is the really minor one. There’s two larger ones, to the west, and east of the country. There’s no interconnection of the oil pipelines among the three. So you basically have fields in the markova region that generate somewhere between one fifth and one third of the country’s crude, very easy to block. 

There’s a very narrow network. Basically, you can do that with one ship and you’ve got to Port Jose out on the east side, which is where about two thirds to three quarters of the exports flow. That’s a little bit more difficult. But again, for the US Navy, this is very, very, very minor. Not hard to do at all. 

And so Venezuela is now going to go from a country that exports about a million barrels a day of crude to one that exports none. And this is something like 90% of the hard currency earnings of the country. And that money is what is used to maintain the regime and to purchase the roughly 80% of the country’s food that is imported. 

So within a matter of days, we’re going to be having food riots because they really don’t have much stored up. And then without the currency, you we’re probably going to see the regime start to crack. A couple things to keep in mind. First, locally in Venezuela and then the broader world. Number one, this is a country that is armed to the teeth. 

That doesn’t mean that I think that it helps the government. But back under Chavez, over a million ak47s were handed up to the population. And so any force that goes in or any force that’s local that tries to assert authority, regardless of their political backdrop, is going to have a horrific time. And we’re not so much looking at a civil war or a civil breakdown, in a country with over million people. 

So the outcomes for Venezuela are beyond dire, and we should expect a general breakdown of civilization here over the course of the next several months, unless the Trump administration changes its mind really aggressively. You’re not going to have a foreign force that can put this right. You’re not going to have a local force that can maintain authority. 

There just too many weapons in too many hands for that to be one of the reasonable options. Which brings us to the second thing, that the oil that comes out of Venezuela is going to go away for at least several years. Right now that’s only a million barrels a day. But something the Trump administration has shown is that we can now have a sovereign state going specifically after oil tankers of the shadow fleets. 

And a lot of these tankers don’t just service Venezuela, they also service Iran and Russia as well. And we have now broken the Seal and other countries, or maybe the United States as well, is probably going to start going after those other shadow tankers as well. A 1 million barrels per day disruption out of Venezuela for a market that is at the moment probably oversupplied is not a big deal. 

But then you add another million from Iran and perhaps as many as 4 or 5 million from Russia. And you’re talking about a very different world. So we are at the start of a very significant international shock in energy. And calendar year 2026 is going to be a wild ride.