Russia (Almost) Gets Military Supplies From Egypt

Most countries put up their “no solicitors” signs when they see the Russians coming around to buy military supplies. However, a handful of countries will at least open the door to hear the pitch and Egypt just so happens to be one of those countries.

To sell military equipment to the Russians, you have to be able to check a couple of boxes. First, you can’t be worried about the political blowback from partnering with a genocidal, war-hungry country. Second, you either have a lot of extra supplies or are not worried about entering a war yourself.

Countries like China, India, Algeria, and Vietnam might entertain the conversation, but at the end of the day cannot check off both boxes. This leaves the Russians to deal with Egypt and North Korea.

Once the Americans caught wind that the Egyptians were considering making a deal with Russia, a quick cost-benefit analysis shut that deal down. That only leaves North Korea on the table. And if you want to pull out a sliver of good news from all this – that likely means North Korea won’t be entering any wars anytime soon.

This limited market is somewhat illuminating to the Russian predicament. While this remains Russia’s war to lose, if they can’t spin-up their military-industrial complex any quicker, this could be the war that ends Russia as an expansionary power.

Prefer to read the transcript of the video? Click here

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
 
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
 
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
 
And then there’s you.
 
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

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TRANSCIPT

Hey everybody. Peter Zeihan coming to you from Colorado. One of the things that’s been in the news for the last couple of days or a couple of weeks has been that the Russians have been going out around the world trying to find military equipment that they can purchase. And one of the countries that almost nearly sold them some was none other than Egypt, a country that at least nominally is a U.S. ally. And that’s kind of caught a few people off guard. But if you look at the sort of decision making that goes into providing a country that is in a genocidal war of aggression against someone else, you can see that it actually makes a certain degree of sense to go to the Egyptians.

There are certain boxes you have to check if you are willing to supply weapons to Russia in its current environment. First of all, you have to not overtly be concerned with the political blowback from the United States. And second, you have to not really need that equipment yourself. And there are precious few countries of size with, you know, military equipment worth talking about that can actually scratch the itch for that. The single most important one that falls into both categories is North Korea, because the North Koreans have, you know, a million man army, a quarter of the population can be drafted any moment. They have been doing nothing but building military equipment now for decades. And apparently the Russians have gotten a lot of artillery shells from the North Koreans. And honestly, that tells me everything I need to know about the military posture of North Korea, because if they were concerned at all about the United States or South Korea, Japan launching a conventional military attack on them, they wouldn’t even consider selling their armaments to the Russians. So honestly, that puts North Korea not in the peacenik bucket by any stretch of the imagination. But it tells me that all the nuclear blustering is really just that, blustering. If they were concerned about a war, they would not be disarming by selling their weapons to someone else.

Other countries that the Russians have turned to that have been turned, the Russians down flat, China, India, Algeria, Vietnam. Now these are all countries that to a degree are either strategically or ideologically favorable to the Russians, but they either don’t want to antagonize the United States. That is the situation for Vietnam. Who is looking to have a firmer relationship with Washington in order to fend off China. That is the case for China, who is desperate to avoid a direct confrontation. They like stirring the pot. They like making everybody think that something is about to happen. But they know that if there was a military conflict, that would be the end of China as a modern, industrialized economy in a matter of months. So they’re certainly not going to cross that Rubicon. Algeria, if they don’t deal with the United States, they have to deal with their former colonial master, the French. And that is something they’re desperate to avoid. So from them, strategically, it’s just completely off the table. But for India, it’s different. India is always concerned that it could have another war with Pakistan tomorrow, and so they are absolutely unwilling to provide any military assistance at scale, regardless of what it might do to relations with the United States, because they think they might need that equipment themselves.

And that brings us back to Egypt. Egypt, aside from North Korea, is the only country in the world who might be willing to kind of stick it to the United States, because the strategic situation in Egypt has been stable for so long. There hasn’t been a military conflict with the Israelis since the seventies, and we now have a peace treaty that’s 40 years old. The Egyptians know there is not going to be a conventional war between Israel and Egypt or Libya in Egypt or Sudan and Egypt. So they actually have the equipment to spare, but they still have a very large military and a lot of gear they could potentially give away.

So it obviously didn’t work out. The Americans heard about it and, you know, put a little bit of a cost benefit analysis in front of Cairo that the Egyptians, you know, made the same choice. But it does kind of underline just how alone the Russians are. They have North Korea and that’s it. And if they can’t get their military industrial complex spinning up at a faster rate than what we’ve seen so far, this is the sort of war that could get them stem to stern and really end Russia as an expansionary power. Now, we’re not there yet, but this is still Russia’s war to lose. But wow are they trying.

Alright. That’s it for me. See you guys next time.

The New Zealand Dairy Industry

Today’s shenanigans come to you from Lake Pukaki in Central Otago, New Zealand.

I think I’ve found my favorite trail snack – Kikorangi Triple Cream Blue from Kapiti – I swear it will turn a 15-mile trek into a brisk walk. It just goes to show that as the world’s top dairy exporter, New Zealand has its s*** figured out, and the Americans need to step up their game.

There are two traditional approaches to the dairy sector: French vs. American. The French way is centered around small towns, with lower throughput, and offering specific products to the local community (oh, and the safety standards are subpar). The American way is to supersize everything for more reliability and a more economical system. And you don’t have to worry about subsidies like the French (and yes, everything is safer).

The issue for the French is that you can’t scale their system. The issue for Americans is that not everyone wants American Cheese. However, the Kiwis found the perfect blend of both. They have low costs thanks to mellow weather, rain, and open land. Since they don’t have many people, they have plenty of leftover products to export….and they know how to create specialized goods that people actually want.

Finding a balance of scale and specificity seems to be the sweet spot for the dairy industry…now we just have to convince Kapiti to start selling this stuff back in the States.

CHECK OUT KĀPITI

They’ve been doing it since 1984, so they know a thing or two about dairy. Although we might not be able to get this in the States, we can still admire from a distance…

LEARN MORE

CHECK OUT ÍSEY

Have you heard of creme brúlée skyr before? You need to try it…

LEARN MORE

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
 
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
 
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
 
And then there’s you.
 
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

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Crumbling Infrastructure in the Russian Taiga

Today’s video comes to you from the Rockburn Track in New Zealand.

Terrain as you see in this video, doesn’t exist in many places, as it takes the right mix of altitude and humidity to form. However, this is very similar to the dominant vegetation in Russia’s northern Taiga.

This terrain makes it extremely difficult to build any form of solid infrastructure. In Russia, they wait until the ground freezes solid, then dig down to the permafrost and fill the hole with sand, gravel, or whatever else they have. This forms dikes or berms on which they can build roads, lay pipes, or install any other key infrastructure.

In a post-Ukraine War Russia, will this infrastructure come back online quickly? All of this infrastructure is old and barely hanging on, and now that the West won’t be involved anymore, I wouldn’t count on any of this coming back online for a decade (+).

Prefer to read the transcript of the video? Click here

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
 
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
 
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
 
And then there’s you.
 
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

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TRANSCIPT

Hey everybody. Peter Zeihan here coming to you from the Rockburn in New Zealand. And I just saw some vegetation that reminded me of something of significant import.

So behind me, you just have a normal tree stump, but it is covered in several inches of moss. You can see how my hiking pole really sinks into it. Terrain like this doesn’t exist in many parts of the world. You need just the right altitude and the right humidity in order for the stuff to grow in the first place. You’ve got it here in New Zealand, in the temperate rainforest. You’ve got it on Vancouver Island in northwest Canada. It exists in Manitoba, in what they call the Muskeg that is approaching the Arctic Ocean. And then it is also the dominant vegetation and some of the Taiga in northern Russia.

Oh, yeah, unstable ground. So it doesn’t really matter what the reason for a spongy ground, whether it’s moss or permafrost, happens to be, it’s very difficult to build artificial infrastructure. But if you want to do anything with the land, that’s what you’ve got to do. In the case of the Russian space, you’ve got that mushy, marshy top over what is ultimately permafrost, somewhere between five and 30 feet under the surface. And until you get to the permafrost, the frozen layer, everything is just goo. And so any infrastructure that you were to build in the summer would just sink into the swamp. So what they have to do is they wait for everything to freeze solid in the depths of the Siberian winter, and then they go and excavate it and then bring in rock and sand and gravel and aggregate and tar and everything else to build giant berms that go from the permafrost all the way up until you get these dikes that run over the landscape. Environmentally devastating, of course, but that’s never been something the Russians have really cared about. And then you can run roads and pipes and the such, over those berms.

So one of the things that people discuss, you know, in in a post Ukraine worst scenario, will we be going back into Russia in order to tap those resources again and, you know, even in the best case scenario where the government and the politics line up, you really should still count all the Russian stuff out for several decades because that’s how long it took to bring this stuff online. Western techs have been essential to maintaining output in the Russian oil and natural gas fields and their petrochemical center and their general industry since 1992. Because most of this raw infrastructure was built in the 1960s and it’s barely holding on by its fingernails now. And with the Western techs, the Western skills sets, the western capital gone. We’re seeing industrial accidents that are, let’s just say Soviet in scale.

So a lot of this stuff is going to have to be rebuilt and then you’re going to have to have a positive security environment that goes all the way from the point of production through hundreds, if not thousands of miles of permafrost to get to populated Russia and then finally to get out to the wider world. And that is not something you’re going to fix in three months or six months or nine months or ninety months. That’s a decade plus project minimum. And that’s a decade plus in which relations with Moscow have to be positive. So we should all kind of pencil in that materials coming out of the former Soviet space, specifically the Russian space, just aren’t going to be there for the foreseeable future. Until next time.

The Economics of Green Energy

The economics of green energy are vastly different from traditional fossil fuels, and we must understand their differences if the transition to green energy will ever be successful.

When building a traditional power plant, most of the costs come from the fuel used to manufacture the plant, which can be paid over time by the fuel you sell. Most of the expenses for green energy plants come from the plant’s initial construction, which requires lots of capital on the front end.

There are two complications with the transition to green energy. First, the cost of capital is rising and will continue for the next 10+ years, making those upfront costs even heftier. Second, energy costs are traditionally inelastic. So as the system is converted to green energy, the cost of components will have to be factored in.

The bottom line is not that we shouldn’t go green; instead, we should only put these plants where the technology matches the geography. Putting solar where it’s sunny and wind where it’s windy. Once we can figure that out, we’ll just need some help from the tech space and Congress to help with the transmission side of things.

Prefer to read the transcript of the video? Click here

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
 
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
 
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
 
And then there’s you.
 
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

CLICK HERE TO SUPPORT MEDSHARE’S EFFORTS GLOBALLY

TRANSCIPT

Hey, everybody. Peter Zeihan here. Coming to you from the hike and bike trail in downtown Austin. Today I wanted to talk a little bit about energy economics, specifically green energy economics.

Now, the idea that once you’ve paid for the sunk cost of the solar or the wind system, that you’re in the clear. You know, to a degree that’s true. But you first have to get the thing built. There’s two complications here that we’re facing. The first is capital. So when you’re going to build like a normal thermal power plant, about three quarters, 60%, three quarters of the cost of that plant is actually in the fuel that you are going to burn over the lifespan of the project. You don’t have to finance that upfront. You pay for that as you go. And you typically use the income that you get from selling your electricity to your customers to pay for that. So the only part that you have to finance is that initial construction, which is typically a quarter to a third of the total.

With GreenTech, that’s not how it goes. With green tech, roughly 80% of the cost of the project over the life span is in construction. And even if you can get into a situation where you’re in a sufficiently sunny or windy place that the per cost for the kilowatt hour or the power you generate is or over the lifespan of the project, the same as it is for a fossil fuel system. You still have to finance that all upfront. And with the baby boomers moving into mass retirement and liquidating all over their holdings because they can’t take a shock of a currency crash or a market crash anymore, the cost of capital in the United States is going up, and it will remain high until such time as the Millennials are the capital rich group in our population. That won’t happen until most of them are in their fifties, and that won’t happen for another 10 to 12 years. So we’ve got this period of much higher capital costs, which means much higher development costs for electricity projects in the green space. There’s really no way around that.

The second problem has to do with the elasticity of energy costs. So let’s say you need a gallon of gasoline in order to drive to work. If you can only get 9/10 of a gallon, it’s not like you park your car and walk the rest of the way and just leave your car for all time and up. You will pay whatever you have to pay to get that last 10th. And that price then applies to the entire market. And if you have a shift in demand of only like 10 to 15%, you can easily see a change in price of 50 to 100%. And we know this is true for electricity, for coal, for natural gas, for oil, and even for nuclear fuel. Now, if we decide we are really going to go with the green transition in mass, then all of a sudden a lot of the components that go into electricity generation are going to become power fuels. That’s chromium, that’s copper, that’s aluminum, that’s fiberglass, that’s graphite, that’s lithium. We have not priced in that the system.

The bottom line of all this is not don’t go green. The bottom line of this is you only put these technologies in places where the geography matches the capacity for these things to work. So you put up solar where it’s sunny, you put up wind power where it’s windy and if you’re going to put it somewhere else. Not only do you have to think of the cost over the long term in an entirely different light, you’ve got to change the metrics because it’s going to cost more to build and is going to cost more to finance. And that means we ultimately need better technologies than what we have now, especially in transmission, so that we can bring the electricity from where it’s produced in a reasonable manner to where most people actually live. And that requires, among other things, multiple acts of Congress, both to appropriate the money for that research and to make it easier for power to pass through different states, jurisdictions, and especially between the three power grids that the United States shares.

Alright. That’s it for me. Talk to you guys later.

Demographics Part 10: Problems in The Middle East

Coming to you from Milford Sound in New Zealand.

The demographic situation in the Middle East can be explained by three factors: water, oil, and food. Water prevented the population from expanding. Oil generated the capital needed to industrialize and help the population grow. Food security will ruin all of this.

The Middle East doesn’t have a ton of moisture, so most populations remained relatively small and geographically concentrated. This kept demographics in the traditional pyramidal structure. Once oil was discovered, these populations had the money to industrialize. This enabled Middle Eastern populations to grow beyond the land’s carrying capacity.

As the population expands, you naturally have more mouths to feed. The only way to sustain a growing population is through imports and subsidies. While Middle Eastern countries have retained their pyramidal demographic structures, these populations have become increasingly unstable.

Since the Middle East is so dependent upon globalization, any disruptions to the global system could turn catastrophic. Combine a potential food crisis with wealth inequality and political instability, and the degree of civil breakdown in the Middle East could be devastating.

Prefer to read the transcript of the video? Click here

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
 
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
 
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
 
And then there’s you.
 
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

CLICK HERE TO SUPPORT MEDSHARE’S EFFORTS GLOBALLY

TRANSCIPT

Hey everybody. Peter Zeihan here. Coming to you from Milford Sound, one of my favorite places on the planet. Still in New Zealand. Today we’re going to do the most recent of the demographics series, specifically focusing on the Middle East. Now, the key thing to remember about the entire swath of territory between roughly Kuwait and Algeria. So that whole stretch – Northeast Africa, all the way into the Persian Gulf region – is that there’s not a lot going on from a moisture point of view. Most of these cultures are centered around oases or narrow river valleys. The Tigris and Euphrates in many places, the entire coastal plain is less than ten miles thick. And the coastal plain in places like Libya look very, very similar. Egypt doesn’t even have water on its coastal plain. It’s just the Nile. So you get these very, very dense population patterns on a very, very concentrated footprint. And the carrying capacity of the land is very, very low. And it wasn’t until the 1900s when you could introduce things like artificial fertilizer that you really got a very dense population even within that zone. So this is an area that was among the last parts of the world to enter the industrial era. And so you had kind of a classic pyramidal formation for the population density until relatively recently in their history.

Okay. Where was I? There are some exceptions. In northern Algeria, you’ve got a much wider coastal plain. So agriculture is more favorable there. Obviously the Nile Valley and Mesopotamia, places that are still desert, but they have irrigation figured the places between the Tigris and the Euphrates Rivers. Obviously going back to antiquity. These have had a lot of people. But the general point when it comes to industrial agriculture stands, you can have a certain concentration and then you just kind of stop to be in the desert, which means that these are some of the last areas in the world to experience industrialization, artificial fertilizers, mechanized agriculture, that sort of thing. And so they don’t, they just have never historically reached the level of population density that you’re able to achieve in, say, the Western world or the East Asian world. Now, what that means is that there’s been a hard population cap on all of these regions up until today, until one thing changed. Oil, whether it’s in Algeria or Libya or Egypt or Iraq or Iran or Saudi Arabia. Once oil became part of the equation, the income potential for these regions expanded by more than an order of magnitude in some cases, almost literally overnight, certainly within a decade. And what that has allowed is these populations to expand beyond the carrying capacity of the land. In the case of Egypt, Cotton contributed well. So these countries could all bring in food and sell the oil to pay for it and then generate a very, very different population matrix.

And we’re back. All right. So what this means is the countries have had it. All these places have a traditional pyramid going back to antiquity and then as we hit industrialization because of oil and the food just kept coming, they were able to maintain very high birth rates. They were no longer doing this with domestic food production, but instead with imported food. So the pyramid has stayed. It’s just gotten broader and broader, broader and broader because most of these countries have food subsidies in order to maintain political tranquility. But when the food is cheap, but you’re not producing it yourself, we get more and more people, but it eventually becomes more and more unstable from a demographic point of view. And now, whether you’re in Algeria or Egypt or Iraq, and especially in places like, say, Lebanon or Libya, you’ve seen the populations increase by a factor of four or five, even six or seven over the time since 1945, while food production has gone stagnate or in many cases like in Egypt, actually gone negative as we switched over to things like citrus and especially cotton. Which means these are the parts of the world that are now most vulnerable to anything that happens with globalization, because if anything impacts their ability to export their non staple food products and import wheat, you get a population crash. It’ll probably be worse in places like Libya, where food production has maybe doubled since 1945, but population has increased by a factor of seven or eight. And in Egypt, where a lot of the wheat has gone away and it’s been replaced with cotton and citrus since a population has boomed. And now, even if they switch all the food production back to wheat, you still would have a 50% shortage. And the ability of local food production in order to support the local population. So these places have seen some of the greatest expansions in population ever in human history and we’re not too far away from them experiencing some  population crashes in human history. What we’re about to see as the global population sinks in is a degree of famine that is absolutely unprecedented and is likely to be even far more extreme than what we’re about to see people in china.

And so remember when you got a pure pyramidal population structure with lots of people under age 40, in that sort of situation, you’re going to have high growth because of the consumption, high inflation because the consumption and not a lot of productive capacity, because you don’t have a lot of skilled workers that are age 40 to 65. You also don’t have a lot of capital. And so these societies had a hard time lifting themselves out of poverty, except when it comes to things like oil sales, which is then usually the province of the state that doesn’t generate the sort of velocity of capital that is necessary for good infrastructure, for good education, and for all the other things that we kind of celebrate as the norm in the first world. It also means that you have a lot of young people who don’t really have a stake in the system because they don’t control the wealth that’s controlled by the sheiks and the princes at the top. So you tend to get very politically unstable systems. And if you add in the coming food crisis, the degree of civil great down that is possible in this, these areas are few. And for those of you who consider yourself students of history, if you look back and the rise and collapsed rise of cloud and the rising collapse of city states and empires throughout this entire region, this is starting to sound a little bit familiar. This may be where humanity got its start, but it’s also capable of some of the most catastrophic civilizational collapses. And we’re going to see that next decade or two.

Oh, yeah. One more thing. On yeah we relocated to Te Anau. I know there is a unique demographic pattern for some countries in the Middle East that is largely based on their intense wealth, because once you get to a certain level of income, you start paying people to do other things. So, for example, if you’re in the United States in your top 1%, you probably have a housekeeper. Well, you carry that into the Middle East where you’ve got this oil and natural gas income and you’re surrounded by places with a pyramidal demographic structure, and you start hiring people to do everything. So it’s not just menial chores or raising the kids. It’s building roads. It’s building bridges, it’s doing your oil infrastructure. You bring in labor for absolutely everything. And so if you look at countries such as Saudi Arabia, Qatar or especially the United Arab Emirates, you will notice that they have a pyramidal demographic structure. But on the men’s side, between roughly age 15 and 40, there’s a huge bulge that goes out, which is in essence, foreign guest workers who for the most part, unless you’re on that top end, it’s like doing the air traffic control and stuff, basically slave labor.

And in some cases that is not just a significant percentage of the population. In the case of Qatar, that is like half the population for the UAE, almost three quarters. So when you’re looking at the geopolitics of the region, you’re like, Oh, you don’t like the Iranians or We don’t like the Iraqis. Just keep in mind that the countries that the Israelis and the Americans, to a certain degree have identified as potential allies of the future Saudi Arabia, Qatar, UAE.

You are dealing with slave autocracies. So have fun with that.

The Mega-Prison of El Salvador

Coming to you from just above Glendhu Bay at Lake Wanaka in Southern New Zealand.

Today we’re talking about El Salvador’s new ‘mega-prison’ that will be filled with gang leaders, drug traffickers and the worst of the worst. In theory, this sounds great…lock up the bad guys and throw away the key…but the reality is that they may have just opened a can of worms.

Here’s the problem. When you place a bunch of bad people in a high-stress environment, hierarchies and bonds will begin to form. And in a country of only a few million people, these shot-callers have the influence to form political parties and sway major decisions.

So what does all this mean? To this day, El Salvador has NOT been a Narco state….it will be now.

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
 
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
 
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
 
And then there’s you.
 
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

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Clean Energy in Chicago: Why Windy Suburbs Matter

What do Chicago, Denver, and DFW all have in common? Yes, they are all major metro areas in the US, but more importantly, they’re colocated with green energy sources. As the world adopts more and more clean energy, these regions with localized energy sources will have a huge leg up on places like New York, Berlin, and London.

Finding a metro (where people actually want to live) surrounded by wind and solar potential is rare…it just so happens that the US is home to most of these regions. For places not so geographically blessed, the main concern becomes transporting the power from the source to the city. This can often span hundreds, even thousands of miles, and that distance puts up a number of red flags.

There are the obvious concerns of transmission loss, equipment, and overall economic viability, but once you start transporting power across states and grids, you have to deal with regulatory issues as well. The federal system in the US means that national, state, and local governments all share power. So transporting energy is no simple task.

It will take an act (or two or three) of Congress before the flow of green energy is freed up; that’s not going to be a quick process. The metros with green energy sources nearby will have a huge advantage in the years to come. So if you need a place to move, I hear DFW could use a few more green-friendly folks.

Prefer to read the transcript of the video? Click here

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
 
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
 
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
 
And then there’s you.
 
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

CLICK HERE TO SUPPORT MEDSHARE’S EFFORTS GLOBALLY

TRANSCIPT

Hey Everybody. Peter Zeihan here coming to you from very chilly northern Illinois. Behind me, of course, we have a wind turbine which is one of literally hundreds in the immediate area around me. We are at the edge of the Great Plains here. I mean, technically, yes, we’re in more of the Midwest, but we are in one of the world’s great wind zones, Great Plains, going into the northern Midwest is all pretty good wind space. And what is unique about this turbine in particular is it is supporting the metro region that is the Chicagoland zone, which is the fourth largest metro in the United States. In most places of the world, it doesn’t matter what continent you’re on, what country you’re in, it is very rare for there to be good wind or solar potential near a major metro. And so even if you are able to build out the system to generate the power, then you have to transmit hundreds, maybe even thousands of miles. Chicago is one of the handful of cities in the world that is an exception to that rule. Northern Illinois, especially northeastern Illinois, you’ve got decent wind right at the doorstep of the metro zone. And so you don’t need high voltage lines in order to transmit the power up to the urban section effectively. You can use more lower load bearing facilities and equipment, and that means that Chicago is able to reach out not just to northern Illinois, but also southern Wisconsin, eastern Iowa, something a little bit of western Iowa and into Ohio as well in order to generate electricity. Now, there are very, very, very, very few places in the world where this works, but most of them are in the United States. So my adopted hometown of Denver is at the edge of the Great Plains great wind zone. Phoenix is obviously at the heart of a great solar zone, as is Albuquerque and Dallas Fort Worth is probably the American metro that has the most green potential of all because it’s where the Great Plains meet the Southwest. And so Dallas Fort Worth is likely to be the first major American metro zone to go 100% green, despite the fact that there are only like four environmentalists in the entire metro zone.

Now, if you’re going to try to make a green impact, it’s very important to co-locate power with your urban centers, because it’s very rare anywhere in the world to locate power generation more than 500 miles, because at that point, the transmission loss becomes so high that it’s really not worth it from an economic point of view anyway. And in the United States, we’re one of the very few places that actually has the metro zones that meet those criteria. But you can’t do that in New York. You can’t do that in Toronto. You can’t do that in Paris. You can’t do that in Berlin or London or Moscow or Beijing. It’s really only in the United States where we have that co-location. If you don’t have that co-location, then you have to have high voltage lines that are designed for a long range transmission, and those are not cheap.

Now, in most countries, you have a unified power grid. The United States is not. In most countries, we do things a little bit differently. Most of our utilities are set at the state or even local level. And that means if you want to transmit power from, say, Utah to Los Angeles, you have to cross through different states, regulatory authorities and each of them have their own rules for transmission and for even just raising the capital to do it in the first place. And, God forbid, you want to cross between different grids because the United States has three. Roughly everything west of the Rockies is on one. Roughly everything east of the Rockies is on another. And then, of course, Texas has its own thing. If if if the goal is to decarbonize the power system, not only do we need a lot of solar and wind, we would also need several acts of Congress that would break down the regulatory burdens that exist across these different grid systems and across the different states and across industries, municipalities. The problem the Americans face is that the United States is a federal system where the national government, the state governments and the local governments all share power. They all have about the same amount. And Congress would need to break that down within the power sector in order to encourage a more unified grid space that allows green electrons to travel more freely.

That would trigger dozens of lawsuits from the state and localities, which would rightly challenge the power grab from the federal government, which means, at least in the near term, the next decade, maybe two, most of the stories for green power penetration into the American grid have to happen at the local level. And that gives cities like Chicago, Albuquerque, Phoenix, Denver and of course, Dallas, Fort Worth, a huge leg up over everyone else whose local electricity resources, when it comes to green tech, simply aren’t that great.

Okay, everybody. That’s it for me. See you next time.

Sooner or Later: Oklahoma’s Time to Shine

That pan-shaped state above Texas offers much more than just tornados and sports. The Sooner State has done most of the heavy lifting in establishing itself as an agricultural, precision manufacturing, and energy state. All that to say, Oklahoma is not only a leader in the US but globally as well.

Oklahoma is like Texas’ little brother…they do a lot of the same things, but trying to compete with the big dog is pointless. However, that doesn’t mean Oklahoma cannot progress along the value-added chain in preparation for the collapse of globalization.

Oklahoma already has a robust refining industry. It wouldn’t take much to start producing the plastics, housewares, and synthetic rubbers that could face supply chain issues in the coming years. They have all the raw goods; they just need to build out the last step…and some better rail lines wouldn’t hurt either.

Prefer to read the transcript of the video? Click here

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
 
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
 
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
 
And then there’s you.
 
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

CLICK HERE TO SUPPORT MEDSHARE’S EFFORTS GLOBALLY

TRANSCIPT

Hey, everybody. Peter Zeihan here coming to you from Oklahoma where the winds are strong and the gasoline is so cheap. Anywho, as I’ve been traveling around the country for work, I’ve been doing little bits like this on where I see these various parts of the country go in and what they need to do to do better and what their strengths and weaknesses are. In the case of Oklahoma, they already have most of the hard work done. This is an agricultural state. This is a precision manufacturing state. And this is an energy state. So a lot of the sectors in which the United States already excels, Oklahoma is a leader not just within the United States, but globally. But there are some opportunities they could take advantage of if they do a little bit more.

So one of the problems that Oklahoma faces is it’s right next door to those damn Texans. And anything that Oklahoma attempts to do, Texas can do at scale with a larger population and better transport modes to the rest of the world. So the best way for Oklahoma to compete is to not. They will never be able to outcompete Texas on the things that Texas does well, however they can feed the beast. So we’ll come back to that in just a second. The whole issue is to move up the value added supply chain. Second, a lot of the processing that happens in raw commodities around the world doesn’t happen in the United States. I mean, we’re the world’s largest refinery. So I probably phrased that wrong. But in terms of our exports, we export a lot of raw commodities, most notably foods and energy. But a lot of this stuff is then taken by other countries with China at the top of the list and then processed locally. And the world we’re moving into, a lot of that is going to break down any sort of security complications in, say, the Indian Ocean or the East China Seas. And you’re going to see the Chinese lose the ability to access that stuff in volume. And that’s going to generate a lot of volatility across the entire commodities space, which means that a lot of that capacity is going to become stranded. And if you’re in a place like Oklahoma that exports a lot of the raw product, you’re not going to have enough people in the outside world to process it anymore. So you might as well do it yourself.

Now, Oklahoma already has a very robust and advanced refining industry, but you can take things a step beyond that. You can not just produce the methanol, you can start producing the plastics. You can produce some of the housewares that come from this sector. You can produce synthetic rubbers. These are all things that exist in terms of the raw form in the Oklahoma system, but they need that next step in order to get value out and go into manufacturing proper.

Oklahoma is also a significant producer of wind power with some great resources, and every fistful of electrons that Oklahoma generates for its own domestic electricity system frees up a handful of molecules for export or use in other projects. Now, Oklahoma has always been a little obsessed with getting into manufacturing and never going to try to talk them out of that.

But they have a problem both in terms of the add on processing and the add on manufacturing when it comes to transport. This is a state that has a robust pipeline infrastructure, most of which goes into Texas, but it doesn’t have good other transport options. And a lot of these products that Oklahoma probably will be very good at in the not too distant future are large and bulky. And right now everything has to be shipped by truck. A better rail system, particularly with an intermodal somewhere in the Oklahoma City, Tulsa area, would be a really good idea because it would then provide the transportation backbone for companies to have confidence to expand into these areas at scale. The alternative is to just keep shipping raw commodities down to Texas and watch the Texans take up this entire product sector.

So from my point of view, all you have to do is build some rail lines. That’s a really easy carry. And Oklahoma’s future, even without that, looks pretty good…with that, it should be fantastic. 

Alright. That’s it for me. Take care.

Will AI Steal My Job?

The world of international trade is constantly evolving, and it’s important to keep up with the latest trends and developments. From emerging markets to geopolitical conflicts, there are many factors that can impact global trade, and we’ll be discussing some of them today. So, grab a cup of coffee, sit back, and let’s dive into this exciting and ever-changing topic.

Go ahead and watch today’s video before you read the rest of the newsletter…I promise you’ll understand why that first paragraph was so painfully awkward!

If you watched the video, you can probably see why I’m not worried about my job security. While AI is going to change the way we do a lot of things, it still needs some time before it’s cracking the kind of nuanced jokes I’m famous for.

However, there are quite a few spaces where AI is already disrupting the job market, and if you don’t want to be fighting the machines…it may be time to adapt or pick up a new trade.

Prefer to read the transcript of the video? Click here

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
 
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
 
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
 
And then there’s you.
 
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

CLICK HERE TO SUPPORT MEDSHARE’S EFFORTS GLOBALLY

TRANSCIPT

Hey Everybody. It’s Peter Zeihan. And today we’re going to talk about the future of global trade. Now the world of international trade is constantly evolving, and it’s important to keep up with the latest trends and developments. From emerging markets to geopolitical conflicts, there are many factors that can impact global trade, and we’ll be discussing some of those today. So grab a cup of coffee, sit back and let’s dove into this exciting and ever changing topic.

The world is changing fast and technology is a big reason why. Now you’ve probably heard about automation and A.I. and how they’re really shaking things up in the business world. I mean, who knew robots would be better the packing boxes than humans? Now we just need to make sure they don’t unionize. One thing we’re seeing is the emerging markets like China and India becoming major players in global trade. They’ve got big populations and are growing middle class, which means they’re buying more stuff. And that’s great news for businesses that want to sell to them. So if you’ve got a product, it’s hot in India, get ready to see those profits skyrocket. Just make sure you have a good recipe for curry because you might need to impress some clients. But there are some challenges to. The United States for example, it’s become more protective of its industries, which has led to trade tensions with other countries. And Brexit has made things a little bit more complicated between the UK and Europe. I mean, who doesn’t love a good geopolitical drama, right? And then there’s the going ons of the Ukraine conflict. Now I know what you’re thinking. Wow, this is getting heavy. But hey, on the bright side, it’s not all doom and gloom. You can still order your favorite Ukrainian vodka online. You have it delivered right to your doorstep. So let’s raise a glass to international trade, even in times of conflict. So what does all this mean for the future? Well, it’s hard to say for sure, but one thing’s for sure, we are in for a wild ride. And as a geopolitical strategist, I’ll be keeping a close eye on things and I’ll share my insights with you as we navigate this ever changing world. Thanks for tuning in. And remember, laughter is the best medicine, even when we’re talking about serious topics.

Okay, now, that was not my words. That is chat GPT. Who was asked to write a script? For me, it took about 60 keystrokes and it came up with that. Now, from a geopolitical analytical point of view of my own, it’s out of crap. It’s at best freshman, not even sophomoric. But remember that GPT is barely into beta testing right now.

And the fact that it was able to analyze what I’ve written and said in the past and pick up on my cadence and insert the odd joke, even if they were just horrible jokes, is an indication of what’s coming down the pipe. And for folks that don’t require my depth of knowledge in order to tease out things like the caveats and the long term forecasts, you got to admit that just kind of splattering that on the wall like spaghetti for a first try was disturbingly good.

Now this isn’t going to disrupt every industry, but now that the context and the grammar and the sentence structure is something that AI can do, we’re going to be seeing this get more and more mature as it builds in more information now from my point of view, as somebody who’s authored a few books, copy editors are in trouble now because this thing was flawless from a grammatical and copy editor, point of view and again, it generated this thing in less than a second. But when it comes to drawing connections between different topics or, say, diving into demography, all it knew was to say the word demography. And all it did was to say the word trade and protectionism. It doesn’t have a deeper understanding of what those mean in a broader context. We’re in a human context. So at the pace we’re going, my job is still good for probably the rest of my professional career. But for folks who are dealing with low value added white collar work or even mid value, where the strength is not the cross context and the cross disciplinary experience, but simply running the numbers. And I’m thinking here about basic accountants. This is a pretty problematic innovation for you. So the trick will be for folks who are a little lower on the value added totem pole to figure out how to use this technology themselves to leverage themselves among their peers. Using this, I probably could put together too much of a framework, but most people are not in my field. And in terms of teaching someone English, oh my God, what a great tool. So is it the end of the world for all of us? No. Are the machines rising up? Know clearly the value add in this system is still relatively limited, but it does have the capacity to form complete sentences in paragraphs and thoughts now, and as it gets better, it’ll start hanging ornaments on those in a way that we’ve already start to challenge those low and mid-level white collar jobs.

Now, the way the economy is evolving globally anyway, we’re going into a system where there’s more breakup. And as capital costs get higher because of the retirement of the baby boomers, we are seeing different industries suffering benefit in different ways. So for the tech industry, for example, having really, really cheap capital, a lot of people in their twenties and thirties is the lifeblood, and that’s not the world we’re in. And so we’ve seen significant layoffs. If they can’t maintain their output without inputs that are of lower cost. But as the world of globalized manufacturing is moving around and countries like the United States that still want stuff are going to have to build it themselves. Well, higher capital costs aren’t great for that. But if you are building something real in an environment of shortage, it’s relatively easy to get capital in even workers. What we’re seeing now is kind of the revenge of the real, as you will, as intangible goods no longer have the demographic and economic and capital situations that they need to thrive. But if you want to build industrial plant to build a real physical product, all of a sudden in relative terms, it’s gotten a lot easier because the Googles and the Facebooks of the world are not sucking all the oxygen out of the room and all the capital out of the markets. It’s part of the transformation.

Where Chat GPT is going to push in the opposite direction of a lot of those trends, which means that all those white collar workers who have done really, really well in the last 20 years suddenly have some competition. At the same time, that base inputs, capital and labor for their industry are starting to dry up somewhat. It’s a real reorientation, and if you’re in the bottom half of the income scale, you’re more likely to be blue collar.

You have a really, really good decade ahead of you. Okay, that’s it for me. I’ll see you guys later.

The Water Crisis in the American Southwest

The American Southwest is primed to be one of the largest beneficiaries of the changes caused by deglobalization – mainly the reshoring of manufacturing. They owe this to years of in-migration bolstering their demographics. They also account for a significant portion of the nation’s foodstuffs. However, everything in the American Southwest depends upon one thing…WATER.

To put it lightly, the water situation in the Southwest is fickle; rivers can go from rushing to bone dry in a matter of a year. Up to this point, the Colorado River Compact has been the saving grace for the Southwest: a treaty outlining how much water from the Colorado River will be allocated to each state in the region.

The issue with the compact is that it operates on a priority system. So states that were urbanized when the treaty was signed have priority over states that developed later on. Fast forward to today, and we have an archaic system that benefits places like California over places like Arizona.

So what happens if the states upstream decide to walk away from the compact and start using the water as they see fit? It would be an ugly few years of political and legal chaos, but if the Southwest wants to be the beneficiary it’s poised to be…they better figure it out quickly.

Prefer to read the transcript of the video? Click here

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
 
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
 
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
 
And then there’s you.
 
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

CLICK HERE TO SUPPORT MEDSHARE’S EFFORTS GLOBALLY

TRANSCIPT

Hey everybody. Peter Zeihan here coming to you from Vegas. And today we are going to talk about water and drought and all the things that come from that. Specifically here in the American southwest, we have a water problem. Now, for those of you who know your paleontological history. That’s a mouthful. You will know that the Southwest has a history of mass extinction and civilizational breakdown events that have on time descended into cannibalism. The issue is the terrain. It’s an arid area with a lot of elevation, and that means that most of its water comes from orographic precipitation, which is a fancy term that says that when you get moisture moving across a landscape, if it hits an elevation center or a mountain, it will rise. And if the temperature at the higher elevations is cold enough, the water will condense into vapor form clouds and then rain. And most of the rainfall that hits the American southwest has that sort of origin. The problem with orographic precipitation, though, is it’s fickle. And oftentimes you will not get enough cold temperatures at elevation or not sufficiently humid air currents in order to generate the moisture in the first place. So rivers literally come and go and that is caused the collapse of civilisational systems as you get mega droughts from time to time to time. We are in one of those periods now. So that’s probably one.

Problem Two, when the American Southwest realized that they had limited amounts of water. The states back in the 1920s, 1922, I think, set up a legal structure called the Colorado River Compact, in which they agreed to share the water. The problem was that the year that they used to evaluate how much water they had to share was one of the wettest years on record. So we’ve known for decades that in time the volumes that were written out in the treaty just weren’t going to be there. In addition, this is all heavily litigated and legalized, all written down in law. And at the federal level, it’s an issue of senior water rights. So the urban centers that existed at the time of the treaty in 1922 have priority. And anyone who has built infrastructure since then to tap into the waterway network is at a lower priority. So if you were an urban center in 1922, you have senior water rights and everyone else who has added is lower and lower and lower and lower. And so if you were at the very bottom in, say, the seventies when your system was built, you’re at the very, very bottom. The first state mentioned in the compact is the one that had the highest population then and now, and that’s California. But Los Angeles has 15 million people. The entire Southwest only had that many people in 1922. So you can see as part of the problem, the last state to build out its infrastructure to tap the waterway network was Arizona. It only finished the the Central Arizona project in the late sixties and into the seventies. So they’re at the very bottom. And when there was a dispute over water a few years ago, Arizona and California ended up in court. And the Supreme Court ruled very, very clearly that California has severe water rights and Arizona is at the bottom of the stack of junior water rights, which means that Arizona water demand can go to zero before California has to cut at all. And with that ruling in California’s back pocket, California has simply refused to engage in negotiations with the other states of the Colorado River basin. So we even had a deal last year where all of the other states got together and agreed to slash their demand. If, in exchange, California were to make a moderate decline. And California refused. The California position officially is you all go to zero and die and we will just keep having our golf courses.

So the debate now among the other states, especially the upstream states, is about just walking away from the compact completely. Now, this would lead to California suing them in a court case that they would probably lose, but that would take years because it would get tied up in court. And in the meantime, California would go completely dry. And Southern California gets roughly a third of their water from the Colorado River. So massive economic dislocation. Now, aside from the whole human tragedy of this, why does this matter? Well, let me give you three reasons. Number one, the world is deglobalizing and the United States is discovering if it still wants stuff, it needs to build out its own industrial plant. So there is a competition among the states right now about where that stuff will go. Texas is probably going to be the single biggest winner of the American South. Looks really good. But there’s parts of the Southwest that are very, very high value added. And getting semiconductor fabrication facilities in places like Phoenix are a great idea. But it requires water. In addition, we need to reshore especially the electronic supply chain system. And the Southwest is probably the best part of the country for that for labor reasons. In order to do manufacturing of electronics, you need a differentiated workforce with a lot of different price points. That means the person who does the lens for the camera is not the person who does the memory board, is not the person who does the plastic molding, is not the person who does assembly. These are all different skill sets. They all have different price points for the labor. And so you need multiple skill sets, multiple price points, multiple labor forces in relatively close proximity. This is one of the reasons that East Asia has done so well in this space for decades, because you have your technocracy in Korea and Japan and Taiwan, you have your mass assembly in places like Vietnam and China, and then you have your mid-range in places like Malaysia and Thailand. The only place in North America we have that sort of variation is in the US-Mexico border. And for the Southwest that’s a really good selling point if you can keep the water flowing. And another big reason is agriculture. Now, one of the big problems, one of the reasons why the Southwest is in this problem is that they are growing a lot of food in the desert. And, you know, if you look at that on its surface, you’ve got to wonder if that was a very good idea in the first place. And the answer is no, it was not a very good idea in the first place, but it is now part of our food security system. And so places like Yuma, Arizona, which are about as far south in the country as you can get, get all of their water from these water courses that are governed by the compact and of Colorado just walks away. Then in the winter, we’re talking about losing a quarter to a third of most of her fresh vegetables because it’s got the perfect climate for it if you got the water. Now, unlike, say, interior Washington, where you’ve got the Columbia River, which is the continent’s biggest water flow by volume, and you take water from that for, say, the Yakima and the Walla Walla, the Benson systems. You know, it’s not a big deal, but you can’t do that at scale over time in a watershed like we have in the Southwest. And so we’re talking about losing a significant amount of food production that is important, not just locally and regionally, but across the national system.

Now, California don’t get too smug. The Central Valley is facing this exact same problem, and you can’t blame that one on any one upstate. That is your homegrown ecological and agricultural crisis. That’s a problem for another day. And then third, taxes. One of the things that we’ve seen in the last few years is Americans are moving in a way that they haven’t in quite some time. The baby boomers want to move someplace where it’s warmer. The millennials want to move to someplace that has more elbow room where it’s cheaper to expand the cities and therefore they can afford yards. And not a lot of people want to be dependent on mass transport because they’re afraid of diseases. Well, the American Southwest scratches all of those itches. And it has been the fastest growing part of the country from in-migration in the country now for roughly 50 years. And all else being equal, there’s not a lot of reason to expect that to change unless there’s a persistent water crisis.

Now, the good news is there are a lot of things that America can do in order to get by a lot better. You remove a lot of the water intensive agriculture from the region. You make things like golf courses go away. You don’t have fountains in Phoenix, for example, and you just manage your water resources with the best technologies of the 13th century, we can probably have a population increase of 50% without a problem.

But above all, the Colorado Compact has to be renegotiated for a more realistic environment. And since California will not choose to do that willingly, they are going to have to be forced, which means either we do have a crisis first triggered by the upstream states or Congress steps in and abrogates the pact and imposes a replacement. This is going to be an ugly, ugly political issue for the next few years. That is absolutely unavoidable, but is absolutely critical if the United States in general, this region in specific, is going to take advantage of the demographic and geopolitical shifts that are wracking our world right now. This region should be one of the biggest beneficiaries of the changes going on, but they have to be able to get the water situation right.

Alright. That’s it for me. See you guys next time.