U.S. Sanctions on Iran Take a New Approach

Flags of the United States and Iran blending. Licensed by Envato Elements

The U.S. has just announced that it will remove any company or country caught servicing Iranian-owned aircraft from the U.S. dollar system. But these sanctions don’t target the IRGC or regime; instead, they impact everyday Iranians in the hope of stirring up a rebellion against the regime.

While regime change is unlikely, the effectiveness of these sanctions will largely depend upon Chinese adoption. Without Chinese goods, Iran would be in quite the pickle. And we might even find out China’s stance in the coming days, as Trump and Xi Jinping meet in Washington.

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Transcript

Hey everybody. Peter Zeihan here, coming to you from Colorado. Today is the 22nd of September. You’ll be seeing this on the 23rd. The news today is the U.S. Treasury Secretary Bessent, has just announced new sanctions on not specifically Iranian aircraft and airlines, but anyone who might do business with them. Basically, if an Iranian owned aircraft lands anywhere in the world, anyone who provides assistance with ticketing, with boarding, with air traffic control, with fuel, with maintenance, anything is immediately purged from the US dollar system. 

The intent is basically to deny all access. Now, this is not a sanction that is designed to pressure the regime because the regime can always, you know, jump on somebody else’s aircraft Chinese, Russian, whatever. And most of them don’t leave the country anyway because….they’re not nice people. This is about targeting the population. We’ve seen a lot of measures like this over the last couple of months, as the Trump administration has come to the conclusion that pretty much everything that can be sanctioned on Iran has been sanctioned for the better part of the last 40 years. And they’re coming up dry with efforts to find other ways to put pressure on Iran overall. So the theory now is let’s try to make life as difficult for the Iranian population as possible so that they will rebel and overthrow the government. That’s a very tall order. Not only has it failed so far this year, with several attempts, complete with the Iranian government killing several tens of thousands of their own people as a result. But the stack is really high. The Iranian military combined with the IRGC, which is the paramilitary arm of the government, has well over a million people under arms, and it’s not designed to invade their neighbors. It is designed to occupy their own country to prevent the various groups of Iran from rising up. Keep in mind that even after thousands of years of ethnic consolidation, only about 50% of the Iranian population is actually Persian. The rest is Kurds and Balochis and other things. So internal security has always been first and foremost the concern of the Iranian government and Persia before it going back to antiquity. We’ve only had a half a dozen regime changes in human history in this part of the world. And to trigger another one is going to be really, really difficult. 

We’ve seen lots of other measures that the US government has done in the last couple of months. My favorite one is graduate standardized testing. You can’t take the GRE in Iran anymore, but it gives you an idea of how few levers there are if you actually want to change the government. 

Anyway, the real open question here is whether or not every country in the world is going to agree to do this. So far, most companies and most countries have already signed on, maybe grudgingly. But the real outside question is, of course, China, which is the primary source for most of the manufactured goods that flow into Iran. Up to and including the parts that they need for their drones. 

Now let’s see, I’m recording this on the 22nd. You’re going to see it on the 23rd. On the 24th. Chairman Xi Jinping of China is going to actually be in Washington for bilateral talks with Trump. And the technical term for what’s going to happen here is a shit show. On the American side, the Trump administration has systematically gutted all of the institutions that helped the president make decisions. So whether it’s the CIA or the State Department or the NSC, their staff was gutted last year. They were never rebuilt. And so all of the normal things that the American president would get on economics and culture and the political maneuvering within China, he’s not getting. Keep in mind that this is not just a China thing. Over half of the world’s country don’t have an American ambassador right now. China does. But the point is that Trump is coming into this as the least informed president for any summit in American history, and that will obviously color what comes out of it. But don’t get overly excited because Xi is not in much of a better position. Because Xi purged all of these systems a decade ago and has been operating in the dark in most international affairs, basically just working off of propaganda. So we’re going to get two of the most powerful people in human history who are also among the least informed leaders in human history, trying to hash out the details when they don’t have any of the details in Washington in 48 hours. It’s going to be a delightful negotiation, which means that the Americans are roughly unaware of what’s going on in China. The Chinese are roughly unaware of what’s going on in the United States. And if you happen to be someone in the middle like Iran, you might just manage to slip through unnoticed because it’s not up to the teams, because there aren’t teams. It’s just these two really arrogant and increasingly isolated men, pretending that they know what’s going on. 

Wow. There’s going to be a show.

Prize Courts Revived for Iran Seizures

A court gavel on marble stone

The U.S. military has been seizing Iranian shadow fleet vessels at the instruction of the Trump administration. But until now, they couldn’t do anything with that seized cargo. Fear not, the prize court system is here to save the day.

Prize courts have not really been used in over a century. So, setting them up takes some time to get the military, logistical, port, and legal infrastructure in line. Despite it being legally required for Congress to have declared war on Iran for prize law to apply, I wouldn’t expect anyone from Iran to show up to argue on behalf of the shadow fleet…

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Transcript

Hey everybody. Peter Zeihan here. Coming to you from above. Barney Lake in the Hoover National Wilderness. Today, I want to talk about something that I saw in the news while I was on the plane to this trip, and that’s that the Trump administration is in the process of setting up a prize court, which is kind of cool. Prize court basically makes legal rulings on products that are seized by the US military, sold on behalf of the US government, and the proceeds go to the Treasury. And basically, they are getting ready to go after every aspect of Iran’s shadow fleet. And I find this fascinating. 

Okay, a couple things to keep in mind. Number one, a lot of people are going to say that. Why didn’t they do this earlier? Is this because the Trump administration is incompetent? Let’s put the incompetent thing to the side. On this issue, I’m going to side with the Trump administration. No one’s done this in a long time. Prize courts were set up. God. Maybe 1800s. The last time the US used them was in World War two against Japan and Germany. And really, the last time was really used was in the Spanish-American War, specifically the operations around in the Caribbean, around Cuba and Puerto Rico. So, there’s no one alive today who did any of the case law. So while the laws have been on the books for well over century, there’s no one with practical experience. 

So to make this work, you need three things. Number one, you need a military that has changed its training a little bit so it can land on ships in the open ocean, seize them, and then sail them somewhere else. That’s a lot harder than it sounds. Number two, you need a port that you can go to unload the cargo. And as we saw in the Indian Ocean, when the Trump administration grabbed a couple Iranian tankers, they kind of just sat there for two weeks because the order had been given from the top. But the military didn’t know what to do with these things. And the Indians were like, you know what? If you’re going to just start seizing things, you might seize hours so you can’t come here. Third, you need that court. You need a legal ruling to say that this is cargo that has been legally seized under U.S. law, so it can then be sold to someone else. And in the case of oil, that means you have to go to a port with a refinery. 

So this court, this prize court system is being set up in the Southern District, which includes Houston, because Houston is one of the world’s great petrochemical hubs. Now, there are a couple of things that you should probably be aware of. Number one, according to the law that was passed in the 1800s. You have to be at war. Not only has Congress not declared war on Iran, but the Trump administration, despite six months of hostilities, still hasn’t gone to Congress even for a temporary authorization. So a defendant could say you’re not at war. Therefore, prize court law doesn’t apply. Perfectly reasonable argument that they would probably carry the day. But number two, that argument will probably not be made because these are shadow vessels ultimately owned by the Iranians. And so the Iranians are not going to show up in a Houston court and submit to American jurisdiction because they be arrested on site. So basically, the US government will be arguing to an empty chair, and the judges will be like, well, you know, this is a little wobbly, but no one is standing up for the defense. So rule for the plaintiff. 

So this could mean that the rest of this year is going to get really interesting. And the only real loophole is Congress, for the reasons I’ve mentioned before. And the fact that it’s been six months still hasn’t gone to Congress. Anyway, that’s it for me. I’ll see you guys at the next lake, bye.

The Collapse of the World’s Strategic Straits – Part 2

Shipping containers being transported by a cargo hauler in a strait | Licensed by Envato Elements

Should Iran manage to turn the Strait of Hormuz into a toll-based waterway, what does the domino effect look like?

There are a handful of straits and chokepoints that will follow suit, including the Bab al-Mandab, Turkish Straits, and Danish Straits (the Strait of Malacca will likely remain open). Each of these has regional players with strong incentives to adopt their own version of the Iranian model. Just another line item pushing us toward a more regionalized world.

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Transcript

Hey, all. Peter Zeihan here, coming to you from Colorado’s Front Range, taking a break to talk about Hormuz and what’s next. We’re probably going to have some sort of format before the end of the year where Iran is able to gather charges, whether it’s a service fee or toll, whatever you want to call it, for ships passing through. 

Once that happens, there’s going to be a lot of dominoes falling as other states realize that they, too, can demand control of a waterway and gain financial assets from that. Until this point, international law has made it very clear that any naturally occurring waterway cannot be regulated in such a way. So we’re breaking with a century plus of tradition here. 

Artificial waterways like the Panama Canal or Suez are exempt because they are fully within sovereign territory. There’s infrastructure that has to be maintained. And so that’s not new. You can charge tolls there. But once Hormuz goes the other direction into something that is regulated, other places are going to follow. And the first one will be the Bab al-Mandab. 

So Hormuz is in the eastern corner of the Arabian Peninsula that connects the Persian Gulf to the Indian Ocean. The Bab al-Mandab is on the southern tip of the Arabian Peninsula, which separates the Red sea from the Indian Ocean. Now, the countries that are clustered around Bab al-Mandab are oddities. One is Djibouti, which in for nearly all intents and purposes, remains a partial French colony. One is one of the remnants of Somalia, which is not exactly what it screams state function. And the last one is Yemen, which is a country only in name. The central government in Sanaa is weak at best. It’s been in and out of civil war really, ever since it’s united back in the 90s, and now the single largest group in the country, the most powerful, and are the Houthi rebels, which are backed by Iran and have been using the Iranian connection to get weapons, most notably missiles and more recently, drones to attack ships in the Red sea. 

If we have Iran succeed in Hormuz, the Houthis are absolutely going to try to do the same thing in the Bab, and they won’t be alone as the important thing. Because remember, the Houthis are not a state power. They’re a rebel group. And if they start to have the ability to carve out a little bit, Sanaa, the capital, will certainly follow. And the idea that you’ve got a broken state of Somalia that doesn’t need income is silly. And it’s already the land of pirates, so they already have a way to enforce that, too. And then you’ve got Djibouti, which for all intents and purposes, is in France’s pocket. And if there is any first world power that senses an opportunity here from a changing in the international order, it would be France. 

So it very quickly turns into a multi-sided argument/conflict over how to regulate it. And probably what would happen is that all four of these entities would be able to extract value from the Bab, because basically what we’re talking about here with Iran and Hormuz is protection money. You pay us and we won’t attack you. And while the entities of the Bab aren’t as powerful as Iran, you know, the French can send a ship or two. Somalis can always dispatch pirates. And the Yemeni have already proven that missiles are more than enough to cause damage. So there you’ve got two of the places where international energy flows that are going to be facing much higher fees. There’s two others that I want to draw to your attention to. Well, actually, you know, first let’s eliminate one. 

Let’s eliminate the Strait of Malacca. Malacca is off the coast of Singapore. It’s between the Malay Peninsula and the Indonesian and Malaysian archipelagos. It’s the busiest waterway in the world. Most of the things that flow out of Hormuz eventually go to Malacca and on to Northeast Asia. And most of the things out of Northeast Asia that don’t cross the Pacific go around Malacca on their way to Europe. So busy, busy, busy busy, busy. But what about Malacca compared to, say, the Bab, is that the states around it are more capable and more importantly, they’re more regularized and they benefit from that trade. So the big three Malaysia, Indonesia, Singapore, these are trading countries. And not only do they benefit from the transoceanic trade that goes through the strait, they are part of a group called the Association of Southeast Asian Nations, Asean. That’s a regional trade grouping where most of that trade goes through the strait, too. So the countries that would suffer the most from some sort of toll regime would be the countries that would be responsible for implementing a toll regime. So, Malacca, I don’t expect to fall into this trap. There have been problems with pirates in the past, but Singapore, Malaysia and Indonesia working together have usually been able to keep a lid on that. I don’t see that changing in the near future. So not there, but the big one that would absolutely flip almost overnight would be Turkey, the Turkish Straits, the Bosporus and the Dardanelles connects the Black Sea to the Sea Marmara, to the Aegean Sea, and on to the Mediterranean and the wider world. The international laws that regulate international waterways were basically built with Turkey in mind at the end of World War One, and they basically say that the Turks cannot regulate this waterway, despite it being the narrowest of the natural ones, and despite the fact that it flows through the largest city in Turkey, which is Istanbul. 

The second it becomes apparent that the Iranians can enforce their will on the Persian Gulf. In this way, you can bet your ass at the Turks are going to be doing the same thing. And the Turks have a functional navy. They have a functional army. They can physically interdict every single ship that passes through these waterways without really breaking a sweat. And so you should just kind of file that in as a done deal as soon as something gets regularized in Iran. 

And then the fourth one to consider, fifth one consider excuse me, is the Danish Straits. The Baltic Sea empties into the North Sea and onto the Atlantic, and in doing so, it passes through a series of straits that are controlled almost exclusively by Denmark, plus Sweden. Now, these are two countries that haven’t really tried to regulate the strait in modern times. But if you go back to the times before World War one, this was one of the big hullabaloo things in northern Europe. With the Germans ultimately building the Kiel Canal that crosses that narrow little section of northern Germany in order to bypass anything that the Danes could do. As soon as that canal was built, everyone basically stopped paying the sound dues as they were called, and simply it was a free waterway. But once it becomes clear that the rules are changing, expect the Danes to get in on this, because pretty much all Russian commerce that flows out of northern Russia comes out of Saint Petersburg and Vyborg, and then onto a boat and then through the Danish straits. And the Danes have not been happy about that for the better part of a century, and certainly not since the Ukraine war started. And now that Sweden and Finland are no longer neutral countries, you can count on the Scandinavians working as a group. So Norway, Denmark, Finland and Sweden working as a group to enforce some sort of structure on this waterway because it is to their economic and especially national security interests versus the Russians. 

Now, if you step back and look at all of these in unison, you see two big patterns. The first is that anything that wants to flow out of the Middle East in terms of oil has to use either Hormuz, the Bab or the Suez Canal. And so all of a sudden, the countries that hold the leverage there have huge leverage when it comes to energy. And if I were them, part of the tolls in my mind would simply mean making sure that I never had to pay for oil again. Just something to think about. And since France has a thumb on that scale, that gets really interesting really fast. 

When you’re talking about the Turkish Straits and the Danish Straits, however, the THE issue is Russia, because almost all of their exports in the post Ukraine war environment flow through those two waterways. And all of a sudden you’ve got countries that are in NATO completely controlling their access. That doesn’t mean that deals can’t be cut, but it does mean that Russia’s access to the world as an exporting power becomes limited to just what it can get out through the Pacific. And that is a small fraction of what goes west simply because of the nature of the infrastructure in the distances involved. 

Most of the people, most of the refineries, most of the oil flows west, not east. So we get a rewiring of what’s left of global commerce in the scenario. And all of a sudden a lot of these products are trapped regionally rather than being able to go globally. And so the closer you are to these things, the easier it is for you to cut a deal with the powers that hold the knife over the roots. And the farther away you are all of a sudden, you’re talking about needing to find a way to source things that are not coming from these two zones. And for a lot of countries, there aren’t a lot of good options for that.

The Collapse of the World’s Strategic Straits

Shipping containers being transported by a cargo hauler in a strait | Licensed by Envato Elements

The Strait of Hormuz needs a new model for running things, but copy/pasting the voluntary system used in the Strait of Malacca isn’t going to work.

Iran isn’t just concerned about security; it wants international recognition of its right to control access to Hormuz and collect the associated access fees and tolls. With a clear ability and willingness to disrupt traffic through Hormuz, Iran has forced everyone to take these demands seriously.

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Transcript

Hey everybody. Peter Zeihan here. Coming to you from Colorado’s Front Range…found a gap in the wind. So we’re taking a question from the Patreon crowd. Specifically, there is a lot of talk from all corners true about what to do about the Strait of Hormuz. True. What about replicating what has happened in the Strait of Malacca these last 30 years? Is that a model? Because it’s one that’s being discussed. Great question. The short answer is no. 

Let’s talk about what the Iranians are after and then go into the Malacca model. So what the Iranians are trying to get is any sort of even tangential acceptance by the United States that they should be able to regulate the Strait of Hormuz as they see fit, and that includes charging tolls or service fees or whatever. The numbers vary wildly from the equivalent of $0.10 a barrel to $2 a barrel for the equivalent cargo. 

So like a supertanker that comes through with a million barrels, that could be anywhere from $100,000 to $2 million per passage. And the Iranians think they should be able to say, whenever a ship comes or goes, that they have the ability to say, you either can’t come, and here’s the toll you have to pay before you can proceed. 

And in many ways, they’ve already set something like that up on their side of the Gulf that has been obeyed erratically, I might add. Sometimes they shoot at them even if they’ve paid the toll. But overall, their ability to strike across the entirety of the strait means that people have to take these threats seriously. And it’s very rare now that we have 10% of the cargo going through that used to go through back in January before the war started. So their threshold is pretty high, and they’re demonstrating that if they don’t get their way, they can impose a cost on anyone who defies them, including the US Navy. 

Let’s talk Malacca. Now, Malacca, obviously an international waterway, busiest waterway in the world, significantly more so than Hormuz, because most of the stuff that comes through Hormuz ultimately goes through Malacca. In addition to cargo going between the manufacturing countries of Northeast Asia and the consumer economies of Europe. Now, Malacca has a voluntary system that was set up roughly 30 years ago, where countries and governments and bureaus of those governments can voluntarily contribute some cash to maintain safety procedures in the waterway. Sometimes aids to navigation, things like buoys. Sometimes it’s satellite navigation assistance. Sometimes it’s search and rescue, and sometimes, if, and God forbid, there’s a collision, it’s port facilities to help with recovery and repair. The thing is two things. Number one, voluntary. And so a lot of countries, a lot of companies just don’t do anything. And number two, because it’s voluntary, what gets donated is chump change. In the 30 years that this structure has been in place, the grand total of all fees paid, voluntarily paid, is under $50 million. And from the Iranian point of view, that should be in the vicinity of the income they get every 1 to 3 days.  

So not a good model. Not saying there is a good model. The question really is a different one, I would argue. We are clearly in a position where the world’s the strongest naval power in human history, the United States, is unable to force a country that doesn’t even have a hull in the water, from making what needs to be a busy waterway nonfunctional. And in that sort of scenario, it’s honestly just a matter of time before the rest of the world, grudgingly, and maybe looking the other way, accepts that fact. 

And when that happens, we will have taken one of the world’s great international waterways, Hormuz, and turned it into some sort of toll system. And when that happens, we will have formally or informally broken with over a century of international maritime law that makes specific waterways open for all for free. Because once Hormuz falls, we have to revisit that issue with every other waterway that is like Hormuz. 

That’s a better question. We’re going to tackle that one tomorrow.

Why Bypassing Hormuz is a Pipe Dream

Satellite image of the Strait of Hormuz

So, you want to bypass the Strait of Hormuz, huh? Good luck finding a replacement route or pipeline that matches the 20 to 22 million barrels of oil that used to transit daily.

The UAE and Saudi Arabia have pipelines capable of transporting roughly 1.6 and 7 million barrels per day, respectively. Despite being the best alternatives, they come with long expansion timelines or vulnerability to strikes. There are a few other routes that pass through Syria and Turkey, but those are either too risky or too small.

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Transcript

Hey, everybody. Peter Zeihan here. Coming to you from Colorado. And today we’re going to talk about the bypass options for the Strait of Hormuz. Started. Hormuz, of course, is one of the world’s most important waterways. It is the gateway that tankers use to enter and exit the Persian Gulf. The Persian Gulf produces for export roughly 20 to 22 million barrels per day of oil and products, and under normal circumstances, almost all of that flows through the Strait of Hormuz aren’t really great options. 

Otherwise, Iran is all mountainous. You’re not going to go that way. Iraq is a sectarian disaster and it has no other waterway access. It would have to go north through Turkey, which is mountainous. Saudi Arabia is a desert kingdom which is huge, and so crossing its distances are problematic. The Kuwaitis and the Qatari have no options at all. 

And that just leaves the United Arab Emirates, which at least does border the other side of the Strait of Hormuz. But it has to go up and over some complicated geography. Anyway, there are four options that people are talking about, three of which exist in some way. So number one, you’ve got the pipeline that starts in the United Arab Emirates on the Persian Gulf and goes up and over some of that complex geography down to the port of Fujairah, carries about 1.6 million barrels per day. 

The Emirates have fast tracked expansions. They hope to have another 300,000 of capacity sometime later this year, and then maybe they even will double it over time by laying a parallel track. It’s expensive, especially building it fast, but that doesn’t mean it can’t happen. And the Emirati certainly realized that unless they get another option, they’re kind of hostage. 

Anything that happens between or among Israel, the United States and Iran. Number two, the big one, the Petro line. This is a line that starts in the eastern provinces of Saudi Arabia and their major oil producing region, and just shoots west, straight across the desert until it hits the Red sea at a place called Yanbu. they started construction on this during the Reagan administration. 

Everyone in this area has been worried about the Strait of Hormuz for a very long time, and it’s operational has been for a couple of decades. In fact, over the last ten years, the Saudis have incrementally increased its capacity from 4 million barrels a day to 7 And they had never really tested it. So until this conflict, we were still thinking it was at four. 

They have proven that with 30 to 45 days notice, they can ramp it up to seven, which from an engineering point of view is pretty impressive. There’s now talk of laying another parallel pipe and maybe increasing this by another two or even 3 million barrels per day over the next few years. There’s two problems with that. Number one, of course, is this is a big project over a large period of distance. 

And then second, just getting to Yanbu is only half the problem. The Saudis have built a number of refineries up and down the Red sea coast that are not connected by pipeline. And so the old strategy was to take tankers from the Persian Gulf, Salem, all the way around the Arabian Peninsula, going through Hormuz, through Bob Deb off the coast of Yemen, and then supplying these refineries by sea, which I always thought was remarkably stupid. 

Anyway, at the moment, the plans aren’t for these pipelines to support these other refineries, just to get it to the coast to open up some maritime options. Option three is for Iraq. Iraq has two different while producing zones. It’s got one in the which is the big one in the Shia Arab zone. And it’s got one in the north in the Kurdish Right now, all of the crew that comes out of the southern fields is exported by water through a couple of offshore loading platforms. They have. And all of that has basically been reduced to zero by the conflict. So the idea is you have a Western line that goes out to a city called Banias in Syria. 

This pipeline technically exists, but it was shut down in the 1950s and has never been turned back on. And so if this route is going to be explored, all of that equipment has to be 100% replaced. And you’re talking about a project conservatively is going to run $8 billion. 20 might be a better guess. And it’s not clear that the Iraqis have the financial wherewithal or the engineering skill to do this themselves. 

So you’re talking about bringing in companies from the outside and having to pay them, and that means it’s not going to happen this year or next year or this decade, and maybe not next decade. This would be a big project. In addition to the fact that about 40% of the route is going to be going through Syria, which until recently has been in a brutal, decade long civil war, and we’re just kind of counting the moments until the second phase of that civil war starts up. 

Not to mention that Banias on the coast is a different sectarian group than the majority of Syria. So it’s going to go through the Kurdish zone, and then it’s going to go through the Arab zone, and then it’s going to go through the Alawite zone. I wouldn’t invest in that if it were up to me personally. Final option also kind of exists. 

It’s the northern route that goes from Kirkuk, which is the oil capital. The Kurdish zone north into Turkey takes a dog leg going straight west to the Mediterranean port of Chian. And Chian is kind of in that elbow of the Mediterranean, where Turkey almost meets Syria. That pipeline has been operating for the last ten years at about half a million barrels per day. 

It was built to spec back in the 80s at 1.6 million barrels per day. But disputes between the Turks and the Kurds, much less the Turks and the Arabs in Baghdad, have meant that it’s always operating at a lower capacity. It’s not clear if it can handle that 1.6 anymore. Anyway, there’s problems with all of these pipelines. It takes a while to build them. 

They’re expensive. The Emiratis are showing that they can be fast tracked, but the Emirati one is probably the simplest over all. But the bigger problem is it doesn’t really solve the issue. I mean, yes, you can bypass Hormuz. And yes, that is important. But keep in mind the weapons systems we’ve seen deployed around the world in just the last six months. 

In the case of the Ukrainians, they’re now regularly striking industrial targets across Russia that are a thousand miles and more from Ukrainian territory. The Iranian weapon systems are not nearly as complicated, but they’re still striking things that are 500 miles away without a problem. And most of the infrastructure that we’re talking about here is within that 500 mile range. 

And so the Iranians can just program in what they want to strike, whether it’s a pumping station, part of the pipe itself, the loading facility, the tankers, a cluster of the loading facilities and go to town. Specifically, they’ve already hit Fujairah, the Emirati option, and Yanbu the Saudi option. And to think that they can’t hit any of these spots with today’s technology, much less the technology they will command when this construction is finished is just silly. 

Really. The only option for a bypass pipeline that might, might, might be resistant or immune to what the Iranians can do today, much less tomorrow, is the Turkish option, because the Iranians do not want to pick a fight with a superior local military power like Turkey. So that is really the only thing that works. But that one of the three that are operational is by far the smallest of the three. 

The petrol line is not a solution, the pipeline is not a solution. And honestly, anything that’s going to depend upon Syria instability is probably not an option. That just leaves the Chian pipe, which at the moment is maxed out theoretically at 1.6 million barrels per day. Operationally probably half that. And if the decision was made to double, triple or more of that, you’re talking about a project that’s in the tens of billions of dollars because eastern Turkey is not flat. 

So none of these really work. They’re going to generate a lot of talk. The Trump administration already has their fingerprints all over them. Like this is going to be a quick and easy fix. It is not you can take that to the bank.

Why Nobody Came to Help the U.S. in Iran

Toy Tank Atop Iranian Currency and Flag | Licensed by Envato Elements: https://app.envato.com/search/photos/3abc94ac-73db-4912-ae0d-3e507dd11191?itemType=photos&term=iran+war

Despite the large rolodex of U.S. allies, nobody has pulled up to the Persian Gulf to support the U.S. There are several reasons for this, though.

Part of the post-WWII deal was that the U.S. would provide global maritime protection, so nobody else had to; as a result, few powers could help out, even if they wanted to (like Japan, the UK, and France). It doesn’t help that the U.S. launched this operation without consulting anybody, but even if they had, most allies wouldn’t touch a Persian Gulf conflict with a ten-foot pole.

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Transcript

Hey everybody. Peter Zeihan here coming to you from Colorado. Today we’re taking a question from the Patreon crowd, specifically considering how dependent countries like to Pan and the countries of Europe are upon energy imports, specifically from the Persian Gulf. How come they haven’t been helping out with the conflict? Well, let’s look at it. First of all, not a lot of countries maintain naval forces that are capable of rapid projection. 

You basically have them on a degree of standby until something big happens and then everything has to be spun up. So, for example, unless you’re the United States very special case, everybody’s navies are pretty much limited to coastal patrol. So if you do have a long range ship, it’s probably just sitting in dock until it’s needed. And then it’s going to take a few weeks to a few months to get it ready to go. 

That’s one. Number two. The deal that we struck with everybody at the end of World War two was that we will patrol the global oceans and keep the ceilings open for everyone. If in exchange, you allow us to control your security policies. And part of us controlling your security policies is we don’t want you to have any long range power projection, because if you have a long range power projection, you’re going to use your long range power projection. 

You might use it in ways that we don’t want. So with the exception of Japan, which is an island nation and has the second largest navy in the world, and the United Kingdom, which has a bit of an imperial hangover, the only other country in the world that maintains really any long range capability that’s independent is France, and that specifically. 

So it has an independent capacity. So really we’re talking here about three countries. No one else could have even helped if they had wanted to. Which brings us to number three a burden sharing intelligence, sharing whatever you want to call it on February 11th. Netanyahu, Benjamin Netanyahu, the prime minister of Israel, came to the white House, made a pitch to Trump for the United States and Israel to jointly attack Iran. 

He said the war would be over in four days. We can kill the leadership because you know where they are. There will be a revolution. They’ll probably rename the capital to Trump Obelisk, and you will go down as the bravest and most capable American president in history, and you will do something that all the cowards before you refused to do. 

And Trump looked around the room and everyone who knew something about foreign policy, for example, Secretary of State Rubio and the Joint Chiefs of Staff Dean Cain said, Mr. President, this is an horrible idea. We’ve been hearing some version of this for 30 years, specifically from Netanyahu, who has tried to convince multiple American presidents to fight his war. 

For him, the math never checks out. The Strait of Hormuz will be wrecked. But, Mr. President, it’s your call. And then the people who knew nothing about foreign policy, notably Pete Hegseth at defense, said, do it. 

The carrier sailed later that day. So normally when the United States goes to war, we compare intelligence with our allies. That never happened this time. And we now know, even from within the white House four months later, that there wasn’t any intelligence. This was just a pitch deck from Netanyahu, who has been chomping at the bit to get the United States to fight his war for a long time. 

So normally we’d like consult with NATO, especially with the Japanese and the Brits, and we’d arrange for a coalition to put at least a veneer of internationalism on top of whatever it was that we felt we needed to do. None of that happened. So the war began a couple of weeks later. Just just the amount of time that it took to sail to get there. 

And then about in week four of the war, when the Trump administration realized it wasn’t going well, which was difficult because DoD was only showing him like strike footage, because any time they tried to give him an accurate assessment of how this was not going well, he’d kick him out of the room. Well, by four weeks on, it was starting to come at him from all angles that it wasn’t going well. 

And that is when he started yelling at the allies to send forces. But as I’ve mentioned, no one else has forces to send, and the few that might certainly in a hot situation are not going to be sending things through Suez. So even if like, say, the French and the Brits had snapped to at that instant, unlikely they would have needed a month or two to get their forces ready to deploy, and it would have been over another month before they would have actually arrived. 

And in the meantime, you know, Iran went the way Iran did. And we’re now in a situation where we get final point is that nobody outside of Trump and Netanyahu wanted this war in the first place. We now know unequivocally that Iran’s drones are more than capable of taking out every piece of physical infrastructure throughout the Persian Gulf, which can trigger a global energy induced depression. 

We now know that their monitoring of the entirety of the Strait of Hormuz is strong enough that they can even take occasional shots at ships that are hugging Omani waters on the southern side of the strait. And really, even with the US Navy concentrated on the Strait of Hormuz in the Persian Gulf, there’s not a lot it can do, because if those ships stay still, then they become targets to. 

So we’re in this never ending negotiation where negotiations aren’t actually happening. Because this is just horrible. Normally when you’re having a real negotiation, you have your headliners who do the real talks and what are called technical folks do the technical talks so that when the headliners show up, there are only real things to discuss. 

Well, Trump has shut the Department of State to the side and refuses to deal with that at all. Even that’s where most of the policy experts are. 

He made Secretary of State Rubio be in charge of all that because he doesn’t like Rubio either. So all you Rubio fans who think that he might be the successor to MAGA, think again. He also doesn’t like the National Security Council. That does kind of have all the deep thinking as opposed to the diplomacy. 

Not so it could be more efficient in the way that Kissinger did it, but to shove it all to the side. So there were no negotiations with the allies on the front end, and there’s no technical talks happening with the Iranians on the back end. So the last time that Trump’s preferred negotiators, Jared Kushner and Steve Whitcomb, went to Doha this past week, they got to Doha and the Iranians like, yeah, not this week. 

We have technical talks to do. And so there’s still nothing happening. There have been no technical talks since this whole thing started in February. Anyway. If you’re an ally and you’re looking at this, you’re like, why would I develop a military capability that the United States has until now, said I should not have in order to use it to prosecute a war that hurts my economy. 

And then we are at the mercy of a diplomatic situation that doesn’t have diplomats. So, yeah, no, the allies haven’t done anything here that is untoward. We’re just in a bit of a trap caused by a man who refuses to surround himself with anyone but sycophants and is very, very easy to manipulate so long as you’re willing to lie to him, which is not what a good ally does. 

All right, that’s it for me. Until next time.

Status Update on the Persian Gulf

Aerial View of Persian Gulf with Digital Paths | Licensed by Envato Elements: https://app.envato.com/search/all/photos/07ea8bb2-6848-46ea-8372-ec4f58d701a6?term=persian+gulf+satellite+

All right, time for a status update on Persian Gulf shipping. Tanker traffic is slowly resuming, and Gulf producers are gradually restarting exports…but let’s not go counting chickens quite yet.

Global energy flows remain constrained, and exports won’t fully recover for some time. Most of the traffic is the previously stranded cargo flowing out, rather than new tankers entering. And Iran has emerged from this new arrangement with greater influence over the Strait.

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Transcript

Hey all, Peter Zeihan here. Coming to you from Colorado. It is the 29th of June, and let’s chat about the status of the Persian Gulf, because so much depends upon it. We’ve had on again, off again violations of the steel by both the Iranians and the United States. One of them hit something and the other one hit something or retaliation. At the moment, they’ve both agreed to disagree and not shoot at each other. 

So technically, the Strait of Hormuz is open if you’re the Americans and it is closed if you are the Iranians. As a result, cargo movements have been very, very slow to pick up. We’ve probably had about 20 tankers a day on average this past week leave, and that is starting to finally drain the stranded ships that are within the Persian Gulf. 

Keep in mind, there were over 1000 that were stranded when the war began and had been there for three months, and that has meant that a fair amount of crude, maybe 35 million barrels, has gotten out. In addition, a number of the Gulf states are incrementally restarting oil exports. The most progress has been made in Saudi Arabia, where there are at least four tankers as of the weekend that were loading successfully. 

Gutter is more of a question mark, and in the case of the United Arab Emirates continuing to use their report, which is actually outside of the Strait of Hormuz on the Gulf of Oman, Kuwait influx, no real information and Iraq doesn’t look like its movement at all. Some people are saying that, okay, look, we’re getting back to normal, but but not really. 

You see, the the Saudis have a bypass pipeline that they cranked up well above design specifications, and it made up for over 90% of their previous exports. And so they were shipping things out through the Red sea. So shipping things now from Ross Tonnerre on the Persian Gulf is just taking some of the stress the off of that transit line. Is that not actually adding any new crude? 

The same more or less is going for the United Arab Emirates. We are getting this one shot deal from the stuff that was locked up that can get out, but very, very few tankers are coming in for what I’ve been able to sell over the weekend. You’re talking about less than 15 ships transited into the Persian Gulf, and only about half of those were tankers. 

Keep in mind that before the war, somewhere between 100 and 150 ships transited each way each day, which means, as a result of the peace deal, the only country that is currently sending ships back and forth through the Strait without restriction is Iran. And I can’t underline enough about how this deal so lopsided serves Iran’s purposes. The Iranians are talking openly now about the regimen, about how they’re going to charge fees or tolls or whatever you want to call it to what’s going on. 

And even Oman, which is, you know, technically not. Iran is talking about how they’re looking forward to coordinating with the Iranians to make that happen. So the most important waterway in the world for energy flows is right now only fully open for business. If you’re Iranian. And the Iranians and others now are working on how to charge everyone else for the pleasure of using it, with that deal supposedly being enforced by the US Navy. 

So this is an ongoing, catastrophic economic and strategic event for the world as a whole, for the United States specifically. 

And we still don’t have a good read on when the fields in the region are going to be getting back up to full production. Probably not this year. All right. That’s everything for me. See you tomorrow.

We Have a Peace Deal! Sort of…

Flags of the United States and Iran blending. Licensed by Envato Elements

It looks like we finally have a peace deal between Iran and the U.S. (and maybe Israel). Neither side can agree on the terms, so it’s really more of a tentative agreement to stop shooting at each other…at least for now.

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Transcript

Hey everybody. Peter Zeihan here, coming to you from the San Luis Valley in southern Colorado. I’m on my way to New Mexico, and I just heard on the radio that we have a peace deal between the United States and Iran. So I went till I get a blip of data and. Yeah, no we don’t. Okay, let me outline the five big things that supposedly there’s agreement not agreement on. 

Number one, the Strait of Hormuz itself, the idea both sides say that it’s going to be open. The Americans say there’s going to be no charge whatsoever for anyone passing through. Iran is confirmed that there will not be tolls. There will be a service fee that is higher than the tolls they’ve been charging. So air. Number two, Israel’s included, according to the Iranians, and not included according to the United States. 

In fact, in the time it took me to get my blip, the Israelis have carried out several strikes throughout the country. 

number three, the nuclear program. The United States has said that the Iranians will close the entire thing down, and that all the enriched uranium in the country will be removed and spun down to what you would use for power, fuel. 

The Iranians have said no, not even remotely. It’s never leaving the country. We might spin it down to 30% enrichment. By the way, you need 95% for a bomb and only 3.5% for nuclear power. But that’s it, then. Sanctions. Iran says that they’re all lifted immediately in the United States. This says they’ll be lifted in stages, with the first phase being lifted maybe in 60 days, assuming the Iranians behave. 

And then, number five, restitution. The Iranians say that the Americans have agreed to $300 billion of investment to compensate for launching the war. The Americans made no mention of that. The Iranians also said that $25 billion of frozen assets will be freed immediately. And the United States has said, you know, in bits and pieces over the next decade, maybe. 

Why so far apart? I mean, actually, these positions are further apart than we were back in February, the day before the war started. The key thing to remember about all of this is number one. The Iranians are always bastards when it comes to negotiating. Everyone has been trying to hold talks with them in some form for over 40 years. 

And so the idea that this time it was going to be quick, please. Second, there’s not a single American involved in these talks. It’s not just that we have a Pakistani field marshal doing the negotiating. It’s being moderated by Qatar and Saudis. However, the United States does not have an ambassador in Pakistan or Saudi Arabia or gutter or Kuwait for that matter. 

So everything is happening like a game of telephone, three steps removed from any American. And then the State Department isn’t involved because there are no ambassadors. So it’s not a surprise to me that this isn’t going anywhere. What’s the surprise to me is that anyone else thinks it might be going somewhere. Markets, of course, have exploded and all is down, but there’s no reason to think that this is going to be any different. 

If you just need something to underline that, the documents will be signed in Switzerland on Friday remotely, the Americans and the Iranians can’t be bothered to show up. So no, this is not the end. All they’ve agreed is they would prefer to stop shooting at one another. We’ll see how long that lasts.

Can Iran Control Internet Cables in the Gulf?

AI generated undersea internet cables

We’ve previously discussed the vulnerabilities of global internet infrastructure, but today we’ll focus on subsea data cables in the Persian Gulf.

Global data traffic depends on undersea cables that carry massive amounts of information between continents. Iran has now decided it wants the ability to control and charge for data traffic moving through the region (mirroring its stance on shipping through the Strait). Many Gulf countries built separate subsea infrastructure, so all of them are exposed to disruption.

These vulnerabilities will likely push more communications toward satellite systems like Starlink, but that opens a whole new set of challenges. Another reminder of the fragility of globalization.

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Transcript

Hey all, Peter Zeihan here, coming to you from the winery of Tenuta Oderisio in, where am I? Abruzzo in Italy. Today we’re going to talk about a little thing in the Persian Gulf called data cables. Now, for those of you who have ever sent an email, there’s got to be a way for you to access the internet, for the information packets to get from X to Y to Z, and eventually to where you need them to go. 

Now, there’s a number of ways you can do this. You can piggyback on the telephonic network. That’s a relatively new method using, say, 5G or 4G signals. Older school. For those of you who are Gen X or boomers, you remember, of course, modems where it went over the telephone lines that were physical at the time rather than wired. 

But if you want to go across the planet, there’s this little problem called the ocean, and there is no cell signal that is strong enough to get across. So you have to do one of two things. Number one, you bounce up to a satellite with something called Starlink, which is really the only model that does it right now, which has a cost and a hardware issue. 

Or you send it into the telephone network, and eventually it gets to a launching point on the coast and loads into a data cable that crosses the ocean to a spot on the other side. I think it’s loaded into their telephonic network, these data cables, there’s literally thousands of them, and the big trunk ones just carry a huge amount of data. 

Typically, one of them that crosses the ocean carries more data or has more capacity carry data than all of the telephonic systems just 25 years ago. Now, what is going on in the Persian Gulf is that the Iranians, who are trying to assert control and sovereignty over the Strait of Hormuz in order to get control of the oil trade, are not limiting their ambitions to that. 

They’re going after container ships, they’re going after Bulgars, they’re going after food carriers, and they’re going after the internet cables. And they’re now saying that they think they should be able to charge a transit feed for any data flowing in and out of the Persian Gulf. Now you look at a map of the Persian Gulf, and you’ve got a lot of Arab countries on the western side Kuwait, Bahrain, Saudi Arabia, gutter, the United Arab Emirates and Oman. 

But something that everybody forgets is all of these countries really don’t like one another, and some of them would just flat out hate one another. So they, whenever possible, try not to make their national infrastructure dependent upon what happens in the next country. Over. So the United Arab Emirates, for example, doesn’t have a data cable that crosses Saudi Arabia and goes up to Jordan and into Israel and then on to Europe. 

And no, no, no, their only access is out into the Persian Gulf through the Strait of Hormuz on a subsea cable. The same for Kuwait, the same for gutter, the same for Bahrain. Which means that if you take a country like the UAE, which is actually reasonably well run and not nearly as medieval and thudded like, say, Saudi Arabia, they’re completely vulnerable to this sort of blackmail. 

And if you play this forward into a world, you have to realize that data cables can’t be defended and they can’t dodge. So anyone who decides they want to go after them can really sever them in a day if they want to. So the transmission system that we have become used to, that we don’t think of as a globalized thing, is actually one of the most hyper globalized aspects of physical infrastructure that exists on the planet today. 

And in the Strait of Hormuz right now, we are getting a glimpse of what to come when data connections that are allowed upon physical connections simply aren’t going to be viable long term. And that only leaves satellites. And that starts a different conversation about sovereignty and space and the ability to defend that sort of network. Because Starlink is already in the thousands of satellites, that already makes it more populous and orbit in terms of number of satellites than everything else put together, that is also not sustainable, but we’ll deal with that on a different day.

Impacts on the U.S. Power Grid from the Iran War

Satellite view of north american lights and energy

The U.S. is relatively insulated from the conflict in Iran and the closure of the Strait of Hormuz, since it’s a net exporter of nearly every major energy source. Most other countries aren’t so lucky…

However, there are plenty of indirect risks for the U.S. Global energy shortages could spike commodity prices (like coal) and disrupt supply chains; this would affect key U.S. imports like aluminum, copper, and transformers.

So, the U.S. power grid is likely safe in the near-term, but secondary effects on infrastructure and manufacturing could complicate things down the line.

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Hey everybody. Peter Zeihan here, coming to you from Colorado. Today, we’re taking a question from the Patreon page. Specifically, it’s whether or not I think that there are any parts of the US power grid that are particularly vulnerable to what’s going on in Iran right now, because of the closure of the Strait of Hormuz, for example, 20% of global liquefied natural gas is locked in. 

And if you happen to be an importer of that, that’s a bit of a problem in any number of ways, because you can’t keep the lights on. Nothing else really matters. This is something where I’ve got some good Not only is the United States insulated because it’s in a different hemisphere, but the United States is a net exporter of every type of energy, whether that is raw electricity that’s already been generated, natural gas or jet fuel, naphtha, coal, all of it. 

Which means that unless there is a direct price link back to the United States through something that is used to make electricity, you’re kind of in the clear. The only fuel out there that really has that sort of link is liquefied natural gas. And the United States is the world’s largest exporter of that now. So there’s at the moment, no direct link. 

Now there’s plenty of indirect links. So for example, if you use coal in the United States and the United States is a coal exporter and the price of coal goes up on a global basis because of energy shortages related to other countries having power problems, and you might feel indirectly, or if you want to take a longer step in something, we’re all going to feel probably by the end of the year, the sort of rolling energy crisis that we’re starting to see in East Asia and to a lesser degree in is absolutely going to hit manufacturers markets. 

And the United States imports. A lot of the things that we use to stabilize our own power grid, whether that’s aluminum cabling for things like power lines, copper for anything that goes into electronics, and more advanced pieces of equipment like transformers, which take over a year to build. Because of the complexity, we will be feeling that in our power grid, but that is very indirect. 

That is not this month. That is a problem for probably the fourth quarter of this year. So for what it’s worth. I do have a little bit of good news from time to time.