Oil Archives - Zeihan on Geopolitics

Will Saudi Arabia Start an Oil Price War?

Image of the Nabawi Mosque, Madina, Saudi Arabia

My crystal ball is working overtime trying to figure out what the future of oil prices will look like. You’ve already heard one of the scenarios, but here’s another POTENTIAL way this could play out.

The Saudis could get frustrated with other oil producers not cutting production, and flood the market with oil. We’re talking 3 million barrels per day, which would drive prices down below $50 per barrel. This would have an outsized impact on higher cost producers like Angola, Venezuela, and Nigeria.

These countries could face economic instability because of this, but they’re not getting the worst of it. The Russian oil fields are hard and expensive to operate, should production drop during a price war, it may never recover. Oh, and the US will be fine thanks to low-cost shale production.

Okay, I’ll go get the popcorn and you grab the sodas.

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Hey everybody. Peter Zeihan here. Coming to you from Fort Worth, Texas. And, I spoke with you recently about what I consider to be the highest risk we’ve had in a long time to the Middle East for crude oil supplies. But remember that I pointed out the possibility of Iran striking at Saudi Arabia’s energy complex and Israel taking out Iran’s, for that matter.

I said 1 in 4 to 1 in 3 chance. It’s not that I think it’s a majority chance. In fact, you know, there’s obviously other scenarios. I’m going to share another one with you today, which takes us the absolute opposite direction and probably has about the same chance of happening just to confuse anyone who wants to play some money in the market.

So you know, you have fun with this. So the idea is that Saudi Arabia is getting a little cheesed off that it has been restricting its own production in an attempt to boost oil prices. Specific. While my hair is out of control here, in order to get prices up, above $100 a barrel. And with the exception of the United Arab Emirates, no one else in OPEC, much less this broader OPEC+ group, has been cutting production at all.

In fact, everyone else has been putting as many barrels in the market as they possibly can. And of course, the U.S. shale producers continue to produce. That’s something that by any other standards would be record levels. But by their standards, like, oh no, only went up a million barrels a day this year, which, you know, is bonkers that it is now and done that for eight of the last 15.

Anyway, the Saudis have very clearly gotten annoyed, and they’re indicating that they’re willing to put a lot more oil on the market, maybe as many as 3 million barrels a day, and that they’re going to try to drive prices down quite a bit in order to grab market share. And that the number of $50 a barrel or lower has been floated. Doing something like that is well within the Saudis’ capability, assuming that global politics are favorable, which is always a little touch and go anyway. Whenever the Saudis have done this, it causes a lot of ruckus around the world among all of the other oil producers, specifically those that

have higher breakeven costs. So places like Angola or Venezuela or Ecuador or Nigeria and especially in places that are really, really dependent on oil flows, like places like, say, Libya and Nigeria in that category, because if they’re getting a lot less income, you know, obviously they face social malcontent. And if their crude isn’t profitable at that point, then they have to shut those production levels in.

And sometimes it can take years, if not decades, for that to be rebuilt. One country I’m not worried about is the United States. We’re now in a situation where the vast, vast, vast—over 80%—majority of the oil that the U.S. produces comes out of a shale well, and pretty much everybody is profitable below 50.

In fact, you’d have to go down to below, probably 35, before you’d see a meaningful impact on existing production. Keep in mind that once you’ve drilled your shale well, its production costs for operating purposes drop below about $10-15 a barrel in most places. So you might not drill new wells, but you’re going to maintain what you’ve got.

In fact, it costs money to shut it in anyhow. The last three times that the Saudis have done something like this, we’ve seen a little blip, oftentimes, in American shale output. But then you see it surge back very quickly, because from the time that a shale operator starts working on a well to the time that it actually starts producing is usually only about two months or less. With some of the new technologies, that might be a little longer, but it’s still less than three months anyway.

So whenever you’ve got market share up for grabs, the Saudis, of course, try to take it, but the U.S. shale guys do as well. So the Saudis have to do all the work, and they don’t have to split the benefits with the U.S. shale players. Now, this time, there is one other thing in the mix that is going to make this particular potential price war a little bit more exciting.

And that is Russia. Russia’s fields are deep. They are thousands of miles from international markets. They require over a thousand miles of pipes. Even the ones that are close to international markets, most of them are in the permafrost. And the Russian educational system for generating petroleum engineers collapsed back in the 1980s. So the only people in Russia who are capable of doing the work are a small cadre of Russian citizens who, in the 2000s, were basically trained abroad.

There’s just a few dozen people, because of the Ukraine war, because of the sanctions regime. The people who would normally do this work, typically Americans, Brits, Dutch, and Germans, are all out, and the Chinese don’t have the capability to work in this sort of technically demanding environment. They just haven’t learned those skills yet. So if you have high-price producers like Russia who lose production, this time around, they’re actually out of the market for good.

A lot of the fields aren’t simply old and complicated and far away and deep; they’re also very, very mature. So it would take a huge amount of investment and technology the Russians simply don’t have in order to get it back up and running on the backside of any sort of trade war. And they can’t do that themselves.

So, how is that for two bookends for what can possibly happen? A conflict in the Persian Gulf that sends oil prices skyrocketing, or a price war that removes a major player from the market permanently? Both of these could happen. In fact, it’s entirely possible that we’re getting some mix of the two, where the Saudis start with the price war, and then the Iranians have an economic reason to take out Saudi energy prices.

And if this is just too wishy-washy for you, well, welcome to my world. This is what geopolitics often is.

Impacts of an Israeli Strike on Iran’s Oil Sector

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Following my video on Iran’s attacks from the other day, I feel it necessary to explore the possibility of an Israeli strike on Iran’s oil sector and the affect it would have on global markets.

Iran’s oil exports hover around 1 million barrels per day. Thanks to sanctions, mismanagement, and maturing fields, production has taken a hit over the years. Regardless, that’s a million barrels per day that could vanish from the markets, which means a $10-15 increase per barrel on top of the “war premium”. Not a global catastrophe, but it will still hurt.

The US is fairly insulated from shocks to the global oil markets (like this one), so I’m not worried about the US. Should this get really bad, the US president can authorize a suspension of crude exports which would create a glut of oil in North America…similar to what we’ve seen with natural gas prices.

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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 free and we 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.

Hey everybody, Peter Zeihan here, coming to you from the beautiful chaos that is Dallas Love Airport, headquarters of Southwest Airlines. In the aftermath of a video I recently did on the Israelis and their potential strike on Iran — specifically targeting the oil sector — I thought it would be worth noting how that could affect a few things, most notably here in the United States.

So, Iran’s oil production has been suffering for years. Part of it is due to sanctions, but mostly it’s because their regulatory regime is really punishing for would-be foreign investors. They basically require that the state take a leading role in everything, and the state company is not very good. Most of the oil fields in Khuzestan are mature and require a lot of technology that the Iranians don’t have and don’t understand in order to make them produce meaningfully.

Everything else worth having is offshore, but the Iranians have absolutely no ability to operate offshore by themselves. So while the numbers that officially hit the market ebb and flow because of the sanctions regime — and whether or not the Iranians are attempting to sneak around sanctions — the actual flow is about a million barrels per day of exports. Sometimes it’s as low as 400,000, sometimes it feels a little bit higher, but about a million. Now, if you remove a million barrels a day from the market, we’re going to feel it. But that’s only 1%, so you would expect, in a purely market-driven environment, for that to kick up prices by ten, maybe fifteen dollars a barrel. Of course, since it would be due to someone dropping a bomb on something, there would be a war premium on top of that.

The impact globally is going to be felt, it’s going to be real, but it’s not going to be huge. As for the United States, I’m really not concerned. The U.S. is no longer an energy importer. We’ve come a long way since 2007, when we were importing something like 14–15 million barrels a day, thanks to the shale revolution.

The United States is now arguably one of the lowest-cost producers in the world, and our production is well over 20 million barrels a day. Moreover, the U.S. has diversified its economic strength and is now absorbing far fewer barrels. Now, if you look at the headline numbers, you’re not going to see that, but that’s because the U.S. Energy Department calculates things differently from everyone else.

We look at the amount of crude we actually consume in total, including what goes into our refineries for products that are then exported. That’s not how most countries do it. The argument here is that nobody consumes raw crude; it has to be turned into something. So, it’s not a stupid way to look at the data, but it does make it seem like we are more dependent on international trade than we actually are.

In fact, if you consider all the types of crude that the U.S. produces — raw crude, natural gas liquids, condensates — we now have such a huge surplus that by the end of this year, the U.S. will be exporting 5 million barrels a day of roughly defined product. In the history of the petroleum era, there are only three countries that have ever produced more than 5 million barrels per day of raw crude, and we’re exporting that much in refined product.

So, the degree to which the United States is insulated from this is robust. Now, do keep in mind that oil is an internationally traded product, and so there is more or less a single global oil price point because it is an easily exchanged commodity. But if we ever get to the point that there is an oil shock — I don’t think that will happen with Iran — but if we do, and prices get to a point that the American president finds untenable, the U.S. president, courtesy of powers granted back in 2015, has the authority to summarily suspend all exports of raw crude. And we do a lot of that too. If that happens, the crude gets trapped within North America.

We get a supersaturated energy market, and then North American energy prices separate from global energy prices in a manner very similar to what has already happened with natural gas prices. U.S. natural gas prices, because of a similar glut in natural gas, are as a rule one-fourth to one-eighth what they are in Europe or Asia. So if we ever do get into a situation where crude prices get sketchy, you can count on the American president — whoever it happens to be — to enact that power.

Then, all of a sudden, we’ve got energy prices here that rarely go above $60, because every shale oil field we have is cost-competitive at that price, while everyone else screams past $100 on their way to $200 and more.

Okay, that’s it for me. Of course, the biggest downside of being here is that, because Southwest is a hub and it’s open seating, you have to check in 24 hours online in order to get a decent seat. And because I was launching this new thing called Patreon 24 hours ago, I forgot. So I am C-51. I will be the sad person up against the bathroom, trying to squeeze this lengthy, 6-foot-5 frame into a middle seat that does not recline. Pray for me.

The Future of Saudi Arabia

A photo of Saudi Arabian traffic against a desert skyline

The US has become largely self-sufficient when it comes to oil, and it was never really reliant upon Saudi oil in the first place. Back in the day, the US formed a relationship with Saudi Arabia not for itself, but instead to provide US allies with oil during globalization. Times are changing and so is this relationship, so what does the future of Saudi Arabia look like?

The US is largely pulling out of the Middle East and turning its focus back towards home and East Asia. That means American strategic interests in the Middle East have nowhere to go but down.

Without a real need to maintain an active relationship, US-Saudi relations will likely fade, exposing Saudi Arabia to a…colorful neighborhood. It doesn’t take much to imagine a strategic mishap in which the Saudis lose control of their oil fields.

The current external security guarantees aren’t working for the Saudis and they don’t have many great prospects. China’s navy lacks the range to help out Riyadh, Japan remains (mostly) pacifist, and European powers just don’t make a ton of sense. Turkey is the only real option, and not even a great one at that due to Turkey’s strength and “history” of ruling the region.

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.

Morning, everyone. Peter Zeihan here, coming to you from Waterfall Camp just above the Merced Canyon. That’s the one that stretches pretty much the entire length of the North Country and ends up down in Yellowstone Valley. Today, we’re going to take an entry from the Ask Peter forum about the Middle East—specifically, the Persian Gulf. What’s the future of relations between the United States and the countries in the region, specifically the Arab states, most notably Saudi Arabia?

Well, if you’re an Arab in the Persian Gulf, the news isn’t great. During globalization, the United States needed oil from the Persian Gulf—not for itself, but for its allies. Everyone from Japan to China, to Korea, to Taiwan, to France, Germany, Italy, and Britain. These were countries that did not have sufficient oil capacity for themselves. To induce them to join the global order and the Cold War against the Soviet Union, part of the deal was that the U.S. would keep them fueled. They wouldn’t need a navy to get the oil themselves—the U.S. would take care of that. So, the oil was for the U.S., but not directly. The United States has always gotten most of its oil from within North America, and to a lesser degree, from countries like Venezuela, with a little bit from Africa. We never got more than maybe 20% of our crude from the Middle East at all.

Well, as the shale revolution kicked in, the volumes of crude that the United States got from the Middle East basically dropped to zero. The Saudis got into the habit of parking supertankers off the coast of Louisiana, waiting for them to be needed. And after a while, when it turned out that they weren’t needed anymore, those stopped altogether. In addition, the stuff from Africa went away, Venezuela committed national suicide, and now the United States, plus Canada, is pretty much self-sufficient. There are some rounding errors and caveats in that statement, but that’s kind of the core position.

In the shift through Barack Obama and Donald Trump, the United States became far more disengaged from the world. We went from having a carrier, maybe two carriers at a time, in the Persian Gulf, to now really never having one there unless something is flaring up. This reflects the shift of strategic priorities. The U.S. is far more concerned with things at home, and then, to a lesser degree, what’s going on in East Asia.

For example, when the Kuwaitis discovered a big oil field offshore last month, the Americans were like, “Whatever.” Kuwait can’t develop that itself—Kuwait has no offshore capability. Maybe some of our firms will be involved, but with the security guarantees gone, it’s a different game.

Then there’s Saudi Arabia, which is, of course, the big one. The Saudis are a little cocky because they control the holy sites and claim to control the religion of Islam, or at least speak for it. That is, of course, a hotly contested topic in the region. But the United States has bent over backwards for the last 75 years to keep the Saudis happy because that was the single biggest play in the region for crude. If you could get the Saudis on board, you could pretty much guarantee that the Kuwaitis, Emiratis, and Qataris would join as well. And then you’d have everything you needed.

That doesn’t necessarily play in a post-globalized world. In a world where the U.S. is self-sufficient in energy and has sufficient exports to supply a handful of choice allies, the U.S. actually enters into the role of a disruptor. Reliable energy supplies on a global scale are no longer perceived as a strategic necessity. Once that happens, the U.S. goes from being the greatest guarantor of security the world has ever known to something closer to the opposite. When that happens, the relationship with Saudi Arabia will absolutely tank.

The Saudis can barely operate some of their easier fields. They need a huge army of expats to keep everything going. Simply denying them the staff would be enough to cripple production. More likely, however, all of the oil is exported through just a few terminals, and the Saudis don’t have a navy worth mentioning. So, if you take the world’s greatest naval power against a desert power without much military…you do the math.

I’m not saying the U.S. is going to conquer Saudi Arabia—there’s no point in that. But embargo, destroy some offshore loading facilities, or grab tankers as they leave—these are all options for the future. At that point, if we don’t want the oil and we don’t want someone else to have the oil, Saudi Arabia becomes just a country living in the desert.

Have you seen Syriana? It kind of sums it up. How did Matt Damon put it? The view of the business community is that people in your country were living in tents in the desert a century ago, beheading one another, and you’re going to be doing that again this century? That’s pretty much where we are when it comes to American views of this region. Take away the oil, and all that’s left is a penchant for domestic violence that we don’t particularly like either. So, that relationship is going to break in time. But “in time” is the key word. We’re not there yet.

As the Biden administration has shown over the last two or three years, there’s still a need for an alliance structure to achieve certain things, most notably in the Ukraine war. Also, in terms of boxing China in and semiconductors. As long as the U.S. perceives value in its alliance structure, there’s value in keeping crude flowing unimpeded from the Persian Gulf. But we should be preparing for a middle ground between completely cutting them loose and tolerating them.

In the middle, we would force this region, by hook or crook, to be a little more selective in where they sell their crude. Should things with China ever escalate to the point of shooting, which I don’t anticipate but can’t rule out, one of the first things the U.S. would do is put a few ships in the Strait of Hormuz and make sure crude can’t get to China at all. That would shut down the entire place within three months. That’s a very different relationship from what we have now, but it’s something to think about.

One more thing. Oh, yeah—Lewis Canyon. We have to look at this from the Saudi point of view. The Saudi position has always been that, since they sit on the world’s largest exploitable deposit of oil, they should just be able to pay people to defend them and their beliefs. Right up until the Iraq War in 2003, the United States was basically a bunch of mercenaries. The Saudis thought, “We’ll buy a bunch of their equipment, shrink-wrap it, put it in air-conditioned warehouses, and when we want them to fight our wars, we’ll call up the American press and they’ll do it.”

They didn’t think the Iraq War was a good idea, but it happened anyway. They were violently disabused of their position in the world. As the U.S. steps back, the Saudis are going to need a different security guarantor, and there aren’t many candidates. It’s got to be someone with a blue-water navy who can deploy over long distances—or march to Saudi Arabia.

The problem is, there are really only four options. China doesn’t have the range. Japan does, but they haven’t moved far enough past their pacifist position to invest in an army. It looks like the U.S. and Japan are settling for cooperation over the Pacific, which includes energy security for Japan. So, that probably doesn’t work. Next up are the Brits and the French. The UAE has already gotten into bed with the French, and there’s already military cooperation from their base in the UAE. But the Saudis would really rather not go with Europeans.

The only other option is Turkey. Turkey wouldn’t need a naval force to sail around the Arabian Peninsula to get to the Persian Gulf—they’d just have to march through Iraq directly to Riyadh. But that would generate the one thing Saudi Arabia doesn’t want: a superior military power with easy access to everything Saudi. Because if you’re Turkey in that scenario, why in the world would you defend Saudi Arabia and not just take it over?

Hurricanes in the Gulf, Offshore Oil and the Energy Sector

The most recent hurricane that tore through the Gulf of Mexico has sent ripples through the insurance industry thanks to all the property damage, but what will its impact on the energy sector look like?

The US has become a net exporter of refined products, moving over 4 million barrels per day. The shale revolution made this achievement possible, and in the process, helped to move most energy production onshore. So, when Hurricane Francine ripped through the Gulf, its impact on the energy sector was minimal.

Offshore production in the Gulf of Mexico only accounts for about 5% of US production. To minimize the impact even further, shale producers can easily compensate for any temporary loss in offshore ouput. Shale is king, and offshore production just isn’t really needed…but at least future generations can tap into the Gulf reserves should they need it.

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.

Hey everybody. Peter Zeihan here. Coming to you from Cove Bay in Barbados. It occurred to me that, the Gulf of Mexico just got hit by a hurricane. And I wanted to tell you why it doesn’t really matter. Well, I mean, it does matter. You do property damage, especially in an era of rising sea levels and bigger hurricanes. Obviously, that has an insurance application that hits us all because insurance companies then have to make up for it either by higher premiums or by charging everybody else more for insurance.

So it does ripple through the system. But from an energy point of view, it doesn’t really matter. The United States is no longer simply energy independent. We are now a net exporter of over 4 million barrels per day, not of crude, of refined product. And that puts the United States into a category that no other country has ever been in terms of being an energy power.

Now, the Gulf of Mexico used to be one of our major energy things. And back when I was working at Stratfor in the Arts, part of my job was to basically chronicle how much stuff went off, like how long I would stay offline, and that gave us price increases that would last not for days or weeks, but months or even a couple of years.

Sometimes because it took a long time to repair the damage, to go out and untangle, what happened on the seabed with the pipelines? It was it was expensive, was laborious, and we would feel it for a long time. Not anymore. One of the many weird things about the shale revolution is that all of the production sites are onshore, and unless you get so much rain that everything floods in your field, you’re talking about a time to bring them back on that if it goes off it at all is measured in days and you can bring on a completely fresh well in the weeks.

So we have seen the price argument and the national security argument for energy production in the offshore Gulf of Mexico dwindle and dwindle and dwindle. And so even though the most recent hurricane just plowed through some of the best production real estate the Gulf of Mexico has, it only took off somewhere between 650 and 750,000 barrels per day, which not that is an insignificant amount, but United States, if you include things like, associate production from natural gas liquids and condensate, we now produce close to 20 million barrels a day.

So you’re talking about less than a 5% reduction. And the shale guys are already spinning up their drills to bring more production on line to displace it. And it’ll be weeks to months before the offshore producers can even pretend to catch up. The price structure just has changed so dramatically. For natural gas, it’s actually even a little bit better.

We’re talking about 750,000,000 cubic feet per day. That is right around one 1.5% of U.S natural gas production. So we’ll barely feel that outside of the local markets at all. And same thing. The shale guys are going up to gas wells to supplant it. So think of it this way. If you’re in the Gulf, you are now the piggy bank.

Should anything go drastically wrong with U.S shale production, the reserves in the Gulf will be there for another generation, but it’s probably going to be another generation or two before that’s all relevant. All right, that’s it for me. Take care.

Photo credit: NASA Goddard Space Flight Center from Greenbelt, MD, USA, CC BY 2.0 via Wikimedia Commons

A New Player in Global Oil Markets: Guyana

*This video was recorded prior to Peter departing on his backpacking trip in July.

Guyana is a country we don’t hear about too often, but its rise as an oil producer has earned it some air time. In particular, we’ll be looking at the implications this carries for global oil markets.

Guyana discovered oil in the late 2010s and aims to produce 1.4 million barrels per day within the next five years. ExxonMobil is the big dog leading this operation. So, who will this bump in the oil markets impact the most?

Countries in the Eastern hemisphere will gain some added stability to the oil supply mix. As Russian oil loses its legs in Europe, any outside sources will be welcomed with open arms. For the Americans, the emergence of Guyana on the oil markets isn’t great news, as the medium sweet crude coming from Guyana works well with European refineries. So, mark this one down as a nice win for the Europeans and a small loss for the Americans.

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.

Hey, everybody. Peter Zeihan here, coming to you from Colorado. Today, we’re going to talk about something in the Western Hemisphere that isn’t related to the American political system. We’re focusing on Guyana, of all places. Guyana is a small statelet on the northern coast of South America, which historically hasn’t mattered much at all.

It’s located in the middle of the tropics and is bordered by the Amazon, so there hasn’t been much going on there until someone discovered oil in the late 2010s. Back in 2018, this place produced nothing, but today, it’s producing about 600,000 to 650,000 barrels of oil a day. ExxonMobil is the primary operator for nearly the entire operation. Just this week, they started their seventh expansion, with the goal of reaching 1.4 million barrels per day within five years.

From the perspective of big producers like Russia, the U.S., or Saudi Arabia, this isn’t a huge amount of oil. However, to give you some context, this production level is more than Iran is exporting right now and puts Guyana above countries like Qatar or Libya.

Let’s talk about the pros and cons. If you’re in the Eastern Hemisphere and concerned about oil security, which you should be, this is, of course, a great sign. One of the issues we’re seeing with the Ukraine war is that Western countries have gradually ratcheted down on tech transfers to Russia, particularly in oil extraction technology. The goal here was to strangle the Russian economy so that it couldn’t afford the war. Initially, efforts started with things like price caps, then targeting shipping insurance, and now focusing on the shadow fleet of tankers trying to circumvent the sanctions. And while all of this is working, they haven’t yet taken steps to actually destroy Russia’s ability to produce oil in the first place.

At the margins, the technology required for offshore production has been denied to the Russians, but offshore production wasn’t a significant part of their operations. The real driver of Russia’s oil production is labor and tech transfer. Over the last 25 years, Russia has transitioned from a Soviet-style system, which sloppily produced a lot of crude at relatively easy fields, to a more focused system that uses more technology to efficiently produce crude at more advanced sites. Today, I’d argue that probably two-thirds of Russia’s oil production comes from that latter system, which relies on foreign technology and expertise.

When the Ukraine war began, most major service companies, like Halliburton, cut their contracts and withdrew from Russia. However, they did two things: first, they sold their local subsidiaries to their employees, who were Russian nationals, thereby maintaining an under-the-table connection. Second, they pre-sold a couple of years’ worth of equipment to allow these new subsidiaries to continue operating. As a result, Russian oil output has remained steady throughout the conflict.

Now, a few things are happening. First, the Europeans have largely separated themselves from the Russian energy complex. Yes, crude is still flowing to third countries, where it is refined and sent back to Europe, but the exposure is much less than it was two years ago. Second, the last of the pipelines across Ukraine are starting to fluctuate due to legal and operational reasons. The Ukrainians have always stated that when the contracts with Russian oil and natural gas companies expire, they will turn off those pipelines. And yes, despite two years of war marked by sexual assault, genocide, and kidnapping, the Europeans have pressured Ukraine to keep oil and natural gas flowing across Ukraine into Europe. However, this arrangement will end by the end of this year. In fact, earlier this month, we saw cutoffs in the lines going to Slovakia, the Czech Republic, and Hungary.

A little side note here: the Czech Republic and Slovakia managed to get exemptions to the sanctions imposed two years ago, but they’ve been working hard to find alternative supplies and build replacement infrastructure. Hungary, on the other hand, has not, and now they find themselves without oil and natural gas. There’s a story within a story here for the Europeans, but that’s a topic for another day.

The bottom line is that, with the exception of Hungary, most European countries have pretty much weaned themselves off Russian energy. Now, the Europeans are discussing how to actually kill the Russian energy sector, and they’re focusing on stopping tech transfers. Currently, it’s legal for third parties, most notably China, to buy this equipment and send it to Russia. The Europeans are now discussing how to expand the sanctions regime to prevent this from happening. Considering that the Europeans are already in the early stages of a pretty intense trade war with China, this is a powerful lever they can use in various ways. Essentially, if the Europeans can force China to cut off support to Russia, China might maintain some market access to Europe, which is crucial for avoiding its own economic breakdown. So, this is real, and it’s probably going to happen in the next few months. When it does, we’ll likely see more problems in the Russian energy complex as they struggle to get their oil to market.

If you’re in the Eastern Hemisphere, and the 5 to 7 million barrels per day of crude and related products that Russia produces start to wobble, having an extra million to a million and a half barrels of medium-sweet crude coming out of Guyana suddenly becomes very attractive. And if you’re European, this is a great match because the crude from Russia is a medium-sour blend, while the crude from Guyana is a medium-sweet blend. It’s not too far off from what European refineries were designed to process. So, if you’re European, you now have a backup plan.

The downside is for American producers. The U.S. shale sector is significantly different by several metrics from global oil norms. Most of the world’s crude is relatively heavy and sour, meaning it’s thick, viscous, and contains a lot of contaminants, most notably sulfur. U.S. light-sweet shale is different because it didn’t migrate through rock formations, so it didn’t pick up contaminants. Also, because it was trapped in rock strata almost at the moment of formation, it never had a chance to mix with anything and get thick and gooey. So, it’s light, sweet, and basically the consistency of nail polish remover.

This was great at first, but once you start producing 8 million barrels a day of it, which has all hit the market in the last 15 to 20 years, you basically saturate the market for that kind of demand. The Guyana crude, while definitely heavier and more sour than U.S. light-sweet, isn’t so far removed that it competes in a fundamentally different product bracket.

So, if you’re an American shale producer, you’re basically selling into a super-saturated market in the U.S. right now and trying to export this crude to the wider world for a better price. But now, you have roughly a million to a million and a half barrels of competition coming from Guyana. Ironically, Exxon’s new project has made the economics of shale just a little bit worse.

I don’t think anyone is going to be broken over this, and it has made the security of Europe quite a bit better. Whether or not that’s a win for you depends on which side of the pond you happen to call home.

Libyan Oil Gets Shut Down Over Government Duel

An oil refinery positioned in the desert

As a result of the power struggle between the two governments in Libya, roughly 70% oil production in the country has been shut down. This could significantly impact global oil supplies and is a glimpse at the instability within Libya.

The Libyan National Oil Company halted production at the major fields, which takes ~700,000 barrels of oil offline every day. The western government in Tripoli and eastern government in Benghazi are both vying for control of the country’s oil revenues, but no one is getting much of anything right now.

This shutdown could carry implications for European countries like Italy, which refine much of Libya’s crude. It could also ramp up demand for US crude, which the Americans won’t be mad about. The fallout of all this shouldn’t be too large, but could spell trouble for the future of Libya and its energy sector.

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.

Hey, everybody. Peter Zeihan here, coming to you from a bright Colorado day. Today, we’re going to talk about a country that I haven’t brought up in over a year—Libya. Basically, the Libyan National Oil Company announced that it’s shutting down production at a couple of major fields. Collectively, Libya produces about a million barrels a day.

The announcements were going to affect over 70% of that. Whether or not there’s going to be more, we don’t know. This is a crazy story. If you remember back to the 2000s, in the early days after the Iraq war, a number of governments were led by tinpot dictators who were so arrogant that they were convinced that the Iraq war was actually about them. It was a warning for them, and so they rushed to cut deals with various powers to make sure that they weren’t the target of the already planned invasion. In the case of Turkmenistan, you had a guy basically rush into the Russians’ arms. In the case of Libya, you had Gaddafi appealing to the United States and voluntarily turning over his proto-WMD program to try to make sure that he wouldn’t be knocked off like Saddam was.

Well, that was the beginning of a series of processes that led to a little bit of a political opening in Libya, which ultimately culminated in a bit of a civil war with NATO special forces. After six months of just waiting for somebody to take off, Gaddafi basically led these militant forces to the presidential palace, and the government collapsed.

Since then, a new government has been put in place, internationally recognized and based in Tripoli. But they were supposed to have elections over ten years ago, and they never did, so they lack legitimacy. That’s in the western part of the country, where most of the people are. In the eastern part of the country, you’ve got another government based in Benghazi, which is a mix of Russian-backed groups, mercenaries, Islamists, and a guy named Haftar, who’s a real asshat.

What has been going on in the last 12 years is that all of the oil—most of which is produced by the eastern government—is processed through the central bank, which is the only institution in the country that has access to foreign currency and can do forex transactions. It is headquartered in the western part of the country, where the legitimate government is.

Both sides have been mucking with the equivalent of the Federal Reserve in this country in order to get a bigger cut of the money for themselves and to deny any money to the other side. The most recent development is that the Tripoli government in the West has kidnapped a couple of senior staffers and tried to push out the chairman of the central bank to get their way.

So the folks on the Benghazi side, where the oil is, have said, “You know, screw you guys. We control most of the oil, so we’re just not going to produce it. No money comes in anyway.” As a result, we have 700,000 barrels a day that are going offline. It might actually increase in the days and weeks to come.

It could be offline longer than just this political dispute because Libyan oil, especially the stuff in the eastern part of the country, is very waxy. If it’s not kept warm, it basically turns everything into a soft candle, including the pipelines, which will take a lot of maintenance to clear out. This has a lot of implications for a lot of people.

The Russians are going to be pissed off because they have managed to get themselves a cut of the energy revenues. The Italians are both on the pro and the con side of this—pro in that they are the ones that end up taking and refining most of the crude that comes out of Libya just because of proximity.

But they also have refining capacity that can handle over twice what the country actually uses. They are a refining hub for southern Europe. So you’d actually have more pain in places like Spain and France and throughout southeastern Europe in the Balkans because they’re going to make money regardless. Part of the problem here is that with Russian crude no longer part of the European diet, Libyan crude was one of the substitutes.

Another big winner is going to be the United States because while the Libyan crude is waxy, it’s also pretty light and sweet and has a fairly similar chemical makeup, minus the wax, to U.S. shale crude. The U.S. exports 3 to 4 million barrels of that a day, and having another half a million to a million barrels of demand out of southern Europe is something that would make American producers quite happy.

This is just what Libya is going to look like until one side or the other wins, or the two sides come together and form a unity government, which is definitely not going to happen. The only other reason that there might be any hope is that there might be someone in Europe—France or Italy most notably—who decides to go in, knock heads together, and basically just take over the fields and run the country themselves as a colony.

We’re not there yet. We don’t have energy shortages in Europe at the moment, and they’ve managed to find a lot of ways to adapt to Russian stuff going offline. Libya’s million barrels a day is not insignificant, but it’s not enough of a shock to cause a political or military reaction out of the European countries. But it is a little bit more pressure.

So if something were to happen to, say, the Persian Gulf—which, thank God, has been one of the most stable parts of the world these last couple of years—then we’re in a different world. So it’s another thing to keep an eye on. It’s more amusing than problematic at the moment, which I can’t believe I’m saying about the loss of nearly a million barrels of crude.

But this is the world we live in today. Watch the European PMs; they’re the ones that have the agency to do something about this if stuff gets real.

NGLs: Ohio’s Plastics Industry’s Juicy Secret

Since I’m here in Ohio, why not talk about what makes this region so unique. Today, we’ll be discussing how shale in Ohio has propelled economic growth in an unfamiliar way.

For most of America, the shale sector looks fairly similar – traditional oil production produces natural gas as a byproduct, which is flared off until infrastructure is put in place to harness it. However, the Marcellus and Utica fields in Ohio primarily produce natural gas that is used for fuel across the central and eastern US. This is a bigger deal than it seems. If the tri-state area of Ohio, West Virginia and Pennsylvania were a country, it would produce more natural gas than any countries save Russia and the United States itself.

But what truly sets the region apart isn’t simply the abundance of natural gas, but of natural gas liquids such as ethane, propane and butane. The local prevalence of these materials has enabled Ohio to become a world leader in high-end plastics manufacturing. Thanks to this, Ohio has seen boosts in industrial activity and the establishment of chemical facilities throughout the state.

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.

Hey, everybody. Peter Zeihan here. Coming to you from just outside historic Harbor Village, just across the river from Marietta, Ohio. And that is the Ohio River behind me. Today, we’re going to be talking about something that is an exception from the exception. So the big exception is the American shale sector, because it has a different economic structure and uses different technologies for most oil production in the rest of the world and as a result has very low production costs and produces a lot of natural gas as a byproduct of oil production.

So when you’re in Texas, most notably, say, the Permian people are after the crude oil and then natural gas comes up as a byproduct and they have to flare that natural gas until the infrastructure can be built out to absorb it and bring it into, say, the chemical sector here in Ohio and moving into Pittsburgh, big area in Pennsylvania, you’ve got a different problem.

The natural gas field is the Marcellus and the Utica, and they are dry gas fields where people are after the natural gas rather than the liquids, because they’re using it for fuel in every place from Chicago to Boston to Washington, D.C. And so they need it for electricity. But there are still liquids here, especially in the western parts of the play, which move into, say, Ohio.

They’re you’re getting a fair percentage of something called natural gas liquids, which in layman’s terms means things like propane and butane. That means that in this part of the country, it’s not just that the natural gas is cheap because the production costs in the Marcellus are very low. But so many end girls come out of places like the Utica play that Ohio has become a world leader in things like high end plastics, because for them, it’s not the oil that’s the waste product, it’s the propane and such.

That is a primary feedstock into chemicals specifically for things like plastics. And so we’re seeing dozens of chemical facilities that do secondary processing popping up in the more populated parts of Ohio, taking advantage of what is basically below global cost inputs of things like ethylene, propane, butane and the rest. So here we are in the middle of the continent and we’re suddenly seeing an explosion in industrial activity for something that we normally associate with the Chinese coast, the Persian Gulf or the Texas coast.

Very different situation, very different geology, very different outcomes.

Will Venezuela Invade Guyana for Oil?

I’ve gotten a handful of questions regarding Venezuela invading the South American state of Guyana due to economic challenges and oil discoveries. The short answer is that I’m not worried about this, but here’s three reasons why.

This would be a difficult trek for the Venezuelans given the lack of infrastructure connecting the two countries. Venezuela also lacks a functional military that would be able to carry out this invasion. Lastly, the oil production in Guyana is predominantly offshore, so a land-based invasion is just impractical if the goal is to seize someone else’s oil projects. This one’s a nonstarter.

So, unless Venezuela magically fixes all of their military shortcomings, there’s no real concern of an invasion of Guyana. And that means the US can forget about this area and focus on the bigger fish for 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.

Hey everybody. Peter Zeihan here coming to you from Colorado, taking one from the Ask Peter List today. And is it do I worry about Venezuela invading the South American state of Guiana? For those of you unfamiliar with the backstory of Venezuela, until roughly 2000 was one of the world’s major oil producers kick it out somewhere between two and a half and four and a half million barrels a day based on the environment.

Since then, a guy by the name of Hugo Chavez, who is a populist who is completely incapable of doing math, took over and ran the place for about 15 years before he died. And his successor, who was a poor quality bus driver, took over. No joke. And they’ve run the place into the ground. So total production now is no more than a million barrels per day.

And even that’s a little touchy. And in fact, we’re probably going to see a new round of American sanctions go on it in a couple of weeks here, in which case even that low level is probably going to fall. And I can see a situation before the end of the decade where Venezuela actually becomes a net oil importer because of their inability to operate their own fields.

So that’s the back story. Guyana is a another former colony or recent colony just to the east of the country with has a population of like three, even 3 million, just three. Anyway, they found oil offshore a few years ago. And so the American company, Exxon has been operating there ever since. And I think they’re supposed to add a million barrels per day this year.

I’ll be back to you on that one. But it’s definitely over half a million barrels a day. It’s been the most promising new oil play in the world that is not in the U.S. shale patch. So the idea would be that Venezuela, to avoid a state collapse, which is a very real danger now, would pick up and move over to Guyana to take the oil and the income.

No is the short version. I don’t worry about this. Three reasons. Number one, there is no infrastructure linking the two countries. The corner of northeastern Venezuela that abuts Guyana is full on jungle and there’s not even a single road of note. So the Venezuelans would have to use their Navy or the Air Force, and they don’t have either of those things.

Which brings us to factor number two. They don’t really have an army either. When Chavez took over, the military was broadly opposed to him in the ongoing power struggle. And the way he solved that was by bribing the generals with the money that would have gone for equipment and training. Well, you asked for that over 20 years. You now have way too many generals in order to run the military and no functional military.

So if the Venezuelan army was able to go get into one place, they would just kind of walk as a mob into the jungle and die. And any that did manage to cross over into Guyana could easily be defeated by the Marines at the U.S. embassy, all six of them. There’s just there’s not a military question here. And then the third issue is that I don’t think it’s going to happen because all of the oil production is offshore and Venezuela is in its heyday, even when it was well run, didn’t operate a single offshore project.

So they would have to what, take over the country and rowboat out to the facilities, take them over, and then kindly ask Exxon to keep operating them, but to send all the income to Caracas. Yeah. No, not going to happen. So there’s no need for the U.S. to get involved here because there’s no danger whatsoever. Although I got to admit, it’d be hilarious to watch Venezuela try.

Russian Oil Thrives Despite European Sanctions

While sanctions on Russian natural gas have proven highly effective, those imposed upon Russian oil have somewhat backfired. Although oil exports have dropped by 10%, several factors have skyrocketed Russia’s earning potential.

Oil is much easier to transport than natural gas, so getting it to destinations is of less concern. There’s also a global shortage of heavy sour crude – the kind that comes from Russia’s Urals – which has driven up prices significantly. Europe’s sanction strategy targeted financing and insurance, but Russia has circumvented these restrictions via state-sponsored insurance programs and old tanker purchases.

Thanks to Europe’s phased implementation of sanctions, the Russians had ample time to find loopholes and undermine this system. The Europeans may have to come up with some more “direct” tactics to put the hurt on the Russians.

This situation remains unpredictable; we could see Ukrainian strikes on Russian ports or even some insurance claims will stir the pot. But If oil sanctions were as effective as the sanctions on natural gas, the dynamics of this war would be fundamentally changed.

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.

Hey everybody. Peter Zeihan here, coming to you from Colorado. Now, yesterday, we talked about how some of the European sanctions on the Russian energy industry were working much better than expected. So now let’s kind of flip that and talk about some that are not doing nearly as well. That has to do with oil, whereas with natural gas, Russian exports to Europe are down by 85% and Russian production is now the lowest in 40 years.

Oil has dropped off a little bit, about 10%, but the Russian ability to profit from it has skyrocketed senior earning significantly more now than it did before the war. And it’s worth explaining why in the sanctions are out of the reason why the Russians are doing so well in that field. So there’s three things to keep in mind when you’re talking about oil markets.

Number one is the physicality of things. Natural gas is a gas. It’s hard to move from place to place. And you pretty much have to have a dedicated piece of physical infrastructure, typically pipeline, to get it from A to B. You can’t chill it down in a liquefied form, roughly negative three degrees, and move it via specialized tankers that unload in specialized facilities.

But those things are so specialized, they’re not really they don’t allow for a really liquid market. Oil’s different. Oil is a liquid and it is a liquid at room temperature. So you can put it into pretty much any type of container shipping device that you want. And while the Europeans did, for the most part, stop taking oil from the Russians in perfect form, the Russians are able to export over half of their oil by water to be a tanker.

And they were even able to redirect some of the piped crude to their ports. Which brings us to the chemistry problem. Not all crude is the same. In the world of natural gas. Methane is methane is methane in the world of oil. There’s different varieties, light and sweet versus heavy and sour. Light and sweet has very few contaminants and it is very thin, almost clear where the heavy sour is thick and gooey might even be solid at room temperature and is black and viscous.

And different refineries around the world are designed to run on different grades of crude, sometimes even specific crude types from specific fields. And that makes it a little bit more of a mismatch problem that natural gas just doesn’t have to deal with. So, for example, in the markets right now, there is an oversupply of light sweet on a global scale, primarily because of the United States.

U.S. shale crude is different from most crude in that it’s trapped at the moment of geological formation. And so it never migrates through the rock strata. And it’s the migration that picks up the contaminants that makes crude heavier and more sour. Well, American refineries are designed to run on heavier and sour, so that light sweet is kind of stranded in North America.

So it has to be exported by tanker to the wider world. And so light sweet crude is trading at a significant discount to a lot of global crude grades, despite the fact that it’s considered high quality. On the flip side, we’re running out of heavy sour. Venezuela used to be a massive producer, and it’s found ever more creative ways to commit national suicide.

The Mexicans used to be a reasonably large supplier, and they’re keeping their crude at home because their economic development has demanded more energy. And the world’s single largest crude grade of all is none other than Russia’s Urals blend, which is a medium sour, medium heavy blend. And so taking even small amounts of that off the market has had an outsized impact on pricing.

And so even though there’s supposedly a price cap that the Europeans set at $60 a barrel, that anything above that the Russians shouldn’t be able to sell it. Right now, Russian Urals is going for 85. And there’s not much the market can do about it. Which brings us to the third point, which is the legalities and the niceties.

When the Europeans stop taking the piped oil and started to slim down, they’re taking of the tanker, shipped oil from Russia. They used their ability to influence global financing, global insurance, specifically saying that anyone who delivered or participated in the supply chain that took Russian crude and if it was sold above $60, they wouldn’t be able to qualify for any European based insurance or financing, trade, finance included.

And since that is the source of the vast, vast, vast majority of the world’s maritime shipping insurance, the thinking was that that is going to discourage anyone from doing it. Well, they also didn’t want to destroy their own economies when they were doing this. So they phased all this in over the course of the year. And it turns out that that was enough time for everybody who was interested to set up alternative systems.

So India, China and Russia now all offer state sponsored insurance programs for maritime shipping. And the Chinese and the Russians in particular, have gone out and purchased huge numbers of really, really old, decrepit tankers and are running them kind of under the radar, turning off the transponders so they can’t be tracked easily. And those two things together has allowed a huge amount of Russian crude to sail the world’s oceans without any even tangential connection to the European financiers that it was thought would be able to keep all of this stuff off the market altogether.

The very act of providing the market with time to adjust gave the market time to adjust for all players. And so the stuff is still coming out now. If the Europeans and to a wider degree, the West in general is going to take an ax to Russian crude, they’re going to have to get a lot more creative or they’re going to have to act a lot more directly.

Keep in mind that roughly 1 million and a half of barrels of crude every day Russian crude are flowing out of the port of Morse on the Baltic Sea and another million and a half on the port of overseas on the Black Sea. And as long as the Europeans are not willing to take direct action against that, and they definitely have the military capacity to do so, should they so choose this seems like it’s going to keep flowing.

About the only potential fly in the ointment there is on the Black Sea, and that the Ukrainians have now said that they are willing to attack targets in Russian ports. Now, since they made that threat about five weeks ago, now they haven’t acted on that threat, even though their supposed deadline now has expired three weeks in the past.

But it’s probably going to take some sort of military action by someone to remove this from the market or one other possibility, as we have some sort of mishap where those insurance claims get called upon and the Indians and the Chinese and the Russians who have never offered these insurance plans before now will probably find themselves in arbitration almost immediately when they try not to pay.

But that’s a series of if then statements that are impossible to predict at the current moment. Honestly, I’m a little surprised it hasn’t happened by now, considering everything that’s gone down in the Ukraine work. But that is where we are. So Europeans natural gas working better than expected will not working nearly as well as expected.

Processing: The Greatest Threat to US Economic Security

As we continue down the path of deglobalization, the US has checked most of the boxes needed to thrive in a disconnected world. Between shifting supply chains and moving manufacturing closer to home, there is still one box that the US hasn’t checked off – processing.

That unchecked processing box just so happens to be the most significant threat to economic security for the US. The US needs to flesh out its processing capabilities in three major areas of concern: industrial materials, agriculture, and oil.

The US must develop processing capabilities and partnerships for materials like lithium, copper and iron ore to support the industrial buildout. To improve food security and avoid famines down the road, finding ways to add value and expand food production close to home will be essential. The US is already a significant oil refiner and exporter, but there is a mismatch in the type of crude produced domestically and what US refineries can process; to reduce import dependency, the US will need to retool its refineries to process domestic crude.

Overcoming these processing challenges will prove crucial for the future of the US and its continued economic security. Regardless of political, ideological, or environmental stance, developing these processing capabilities will allow the US to prop up various industries and avoid catastrophe down the road.

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Hey everyone. Peter Zeihan here coming to you from the road in Colorado. Yesterday I gave you a quick talk about what I saw as the greatest national security threat to the United States for the next foreseeable future. I’d like to do the same thing now for economic security and in a word, processing. Before I explain what I mean by that, let’s go back a little bit.

The whole idea of globalization is that any product can go anywhere, take advantage of whoever can produce that product, the lowest cost and the highest quality, or at least that’s the theory in practice. As soon as countries realize they can reach into any economic space. They take steps to benefit themselves. Maybe they put in trade restrictions or in the case of processing, maybe they subsidize.

So different countries around the world are throwing a lot of money at making sure that certain industries are headquartered, or at least heavily emphasized in their own places. So Taiwan, Korea, Japan, they do this heavily with semiconductors to the tune of hundreds of billions of dollars of subsidies. The Russians use a lot of the d’etre is from the Soviet system, which used to supply a an empire which now only supplies them.

And, you know, they’re pretty economically backward. So they use all the extra stuff to produce things for export or in the case of the Chinese, in order to ensure mass development and mass employment. They throw basically bottomless supplies of capital at industries, really anything that they think that technologically they can handle. They want to be able to produce and if they can, cornered the market.

What this means is that other countries, United States, are reliant on countries that have put their thumb on the scales in order to participate by anything else. And now the globalization is breaking down. The United States is facing a double threat. Number one, a lot of manufacturing that used to be done here or could be done here or, you know, from an economic efficiency point of view should be done here, is done other places.

And so a lot of that has to be reshore at or near shore to French. Second, none of this works unless you have the processing. If you have iron ore, but you don’t have the processing to turn it into steel, you can’t do construction. If you have silicon, you don’t have the ability to process it in the silicon dioxide.

You can’t play in the semiconductor space and on and on and on. So things kind of fall to three general categories. The first are industrial materials like lithium and copper and iron ore and the rest. The United States in most of these is a bit player in the production and nearly a non-player in the processing. And since the United States is now attempting a mass industrial buildout, it needs to get good at that again.

It needs to make partnerships with the countries that have the raw materials. Australia is at the top of that list. Brazil’s probably close second. And then it needs to work with those countries either to do the processing in them or at home. Now, one of the things that I do like about the Biden administration’s economic policies and there aren’t a lot, is that the Inflation Reduction Act prioritizes this and says that in order to qualify for certain subsidies for things like EVs, the materials that go into them must be processed within a NAFTA country or an ally that is identified by negotiations such as Australia.

So we are moving in the right direction there, but we need to think of a much broader net. So for example, aluminum not only to the Russians and the Chinese dominate about three quarters of aluminum production in the world. Aluminum as a byproduct, generates a lot of trace materials like, say, gallium, which are really useful for solar panels.

Same thing with silver. Silver processing or copper processing generate a lot of the stuff that you need for rare earth metals. All of this stuff needs to be recaptured in some way. Otherwise, the industrial rail building that the United States is attempting really isn’t going to go anywhere. Because if you don’t have the materials to do it in the first place, it’s going to be kind of a pointless endeavor simply to build up what you would need to make them every single day.

That’s number one. Number two is food. The United States is the world’s largest food exporter and is the number one exporter of any number of materials and food products. But we don’t do a lot of the value add as part of those exports. This is missing a lot of really low hanging fruit. And if you look at the world writ large, the same thing that applies to globalization and processing applies to agriculture.

Lots of countries for food security issues, national security issues, protection issues whose have made it very difficult for the United States to export, say, soybean meal. But they still allow the import of soy by expanding the footprint in American agro industry so that we do more of the processing here. Not only do we get a higher value added product, but as global fertilizer markets around the world get problematic, a lot of major food producers are simply going to vanish because most food production outside of certain areas that have been producing it for centuries can only do so with massive applications of fertilizer.

Again, in China is the case in point. The EU’s about five times as much nitrogen fertilizer as the global average. So not only with the United States earn a little bit more money and have more food security. If we did this, we’d also be able to step in and help other places that are suffering from famine more quickly because we’d actually have semi-finished or even finished food products rather than just the raw material.

And then the third one is one that the Biden administration is not going to like to hear about, and that is oil. Oil by itself is useless. It has to be refined into diesel and gasoline and naphtha and the rest. And the United States is the world’s largest oil refiner and the world’s largest exporter of refined product. However, there’s this huge mismatch within the American energy sector.

Back in the seventies, in the eighties, when we were all running out of oil, American refiners became convinced with good reason, that the future of global crudes were very heavy, very sour, very polluted crude streams. And so what they did was they refined the entire American refining complex to run on the crappiest crude you can imagine, stuff that’s just goo or even solid at room temperature.

But then we had the shale revolution. And the shale revolution is different in that the crude that is produced from it is super light and super sweet. So right now, American refiners prefer to import the heavy crap stuff from the white world, leaving the light sweet stuff. We produce ourself available for export. So the smart play here would be to retool or even better expand the American refining complex in order to process not just the crappy stuff in the world, but also the stuff that we produce ourselves.

So we are less dependent upon the inflows and outflows of exports and imports in order to keep our refining complex alive and keep fuel the tanks. And for those of you who are super ultra mega greens, who are convinced that the internal combustion engine is not the way of the future, that’s fine. Consider that the most aggressive, realistic plan.

And it’s not very realistic for getting the EVs on the road and and stopping the production of internal combustion engine vehicles is now before 2040, which means as late as 2050, the majority of the vehicles that are still on the road are still going to be internal combustion. So even in the most aggressive plan, we are still going to need tens of millions of barrels of gasoline and diesel and the rest for decades to come.

If we’re going to avoid an energy shock where the whole system just cuts down. All right. That everything. Yeah, I think that’s everything. So processing it. Lots of processing. Oh, yeah. And even if you don’t buy into the green transition or even climate change, we still need to do this because without the Chinese and the Germans and everyone else in global manufacturing, North America has to at least double the size of its entire industrial plant.

That’s a lot of steel, a lot of aluminum, a lot of copper and all the rest. So really, it doesn’t matter what your ideology is. We don’t have enough of the intermediate stage of process stuff that we need to even attempt to do everything else. So let’s focus on that first and then.

The End of the World is Just The Beginning

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The Absent Superpower

The accidental superpower

The End of the World is Just The Beginning

Disunited Nations

The Absent Superpower

The Absent Superpower

The End of the World is Just The Beginning

Disunited NAtions

The Absent Superpower

The accidental superpower

The End of the World is Just The Beginning

Disunited Nations

The Absent Superpower

The Absent Superpower

The End of the World is Just The Beginning

Disunited NAtions

The Absent Superpower

The accidental superpower

The End of the World is Just The Beginning

Disunited Nations

The Absent Superpower

The Absent Superpower

The End of the World is Just The Beginning

Disunited NAtions

The Absent Superpower

The accidental superpower

The End of the World is Just The Beginning

Disunited Nations

The Absent Superpower

The Absent Superpower

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