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.

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Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:

First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.

Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

And then there’s you.

Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

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Transcript

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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First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.

Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

And then there’s you.

Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

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Transcript

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.

What’s Going On with Iran and Oil Markets?

Over the last few weeks, we’ve seen Iranian oil hit markets at nearly decade-high volumes…but production has remained relatively flat. So what’s really happening here?

Many of the sanctions being placed on Russia were originally used on Iran. And as we’ve seen Russia sell oil at a massive discount, Iran is following suit to come under the sanctions regime (rather than just smuggling it out). Basically, Iran is just selling oil LEGALLY now. Let’s compare Iran’s situation with Russia’s.

Russia is facing an existential threat, so nothing is off the table for them. Iran’s situation isn’t as dire, so they can have some patience. Russia produces most of the stuff needed to survive, so pissing countries off or stepping on toes isn’t a concern for Putin. Iran can’t sour their relationships because they still import a lot of stuff.

This gives Iran a chance to do something the Russians wouldn’t even consider…talking. Meaning there are opportunities for everyone still on the table.

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

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Iranian Seizure of Oil Tanker Could Spell Disaster for China

The Iranians have seized the Advantage Sweet, a Turkish-owned oil tanker carrying roughly 800,000 barrels of Crude. The press release (or should I say ‘slap on the wrist’) issued by the US Navy should have the Chinese very concerned about their supply lines.

Since World War II, the US has patrolled the sea lanes and enabled the safe flow of international resources and products. However, this incident is just another indication that the US is slowly stepping away from its commitment to the maritime order of protecting the high seas.

While the US can just shut down its international energy trade and operate with its neighbors in North America, places like China have much more at stake. Since China falls at the end of a very long supply chain, any disruptions could spell disaster for the Chinese economy; that’s only one of many issues they face.

Prefer to read the transcript of the video? Click here

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

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

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TRANSCIPT

Hey everyone. Peter Zeihan coming to you from Colorado. It is the 27th of April. You’ll be seeing this the morning of the 28th. The news that just came out is that the Iranians have snagged another tanker, a vessel called the Advantage Sweet, which is a SuezMax oil tanker, which means it probably is carrying about 800,000 barrels of crude. It is owned by a Turkish company and is registered in the Marshall Islands.

The U.S. Navy has issued a press release basically saying bad Iran, very, very bad Iran. And that’s it. This is your periodic reminder that when it comes to international energy markets, the U.S. just doesn’t care anymore. And if somebody wants to deal with Iran seizing tankers, then they will have to do it without the United States. This is a big change, of course in most people’s perceptions, especially compared to the policy sets that we have seen in the United States for the last several decades. But remember why those policy sets have existed. It’s not that the United States imports a lot of oil from the Middle East. It doesn’t, it really never has, but its allies do. And the entire basis of the American post-World War II global environment was that we will fight wars to protect resource flows and product flows so that “you” will sublimate your military needs to us. Basically, we will fight your economic war. So you don’t have to. And that gives us a free hand in control of your militaries in case of a confrontation with the Soviet Union. The Russians may be coming back in a big way, but they are not the Soviets and they do not have a global position. And so the United States, bit by bit under Obama, under Biden, under Trump, have all basically steadily reduced the American commitment to the maritime order that allows global trade and global energy markets to work. And so this Advantage Sweet, this tanker that’s been gone, the U.S. really doesn’t care.

But if you’re China, this is a problem because the entire existence of the Chinese economy and its strategic position is based on the idea that the United States, no matter what else happens, no matter what the Chinese do, no matter how much military action China carries out, that the Americans will still uphold civilian freedom of the seas. And as we’ve seen today, again, the U.S. has no interest in that anymore. So next time we do get a meaningful interruption to international energy flows, the United States basically closes its borders to energy trade. It’s self-sufficient within North America. And the Chinese are at the very end of a very long supply line that they have no hope of protecting. And that means they’ll deindustrialize. And that means it’s the end of China’s unified nation state. And of course, if you’ve been following me for a while, you know that that’s only one of the many reasons why the Chinese are going to end this decade.

Alright. That’s it for me. Till next time.

Sooner or Later: Oklahoma’s Time to Shine

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

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

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

Prefer to read the transcript of the video? Click here

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

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

CLICK HERE TO SUPPORT MEDSHARE’S EFFORTS GLOBALLY

TRANSCIPT

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

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

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

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

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

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

Alright. That’s it for me. Take care.

How Stable Is the Russian Oil Industry?

The big news from the weekend is that Russia announced a plan to cut 500,000 b/d (barrels per day) of oil production. This accounts for about .5% of global supply and roughly 10% of Russian oil exports.

This alone isn’t a huge deal, but when you stack up all the factors working against the Russian oil industry, some concern over its stability is warranted. Struggling to break even, the potential of wells freezing and bursting due to crude flow disruptions, the Ukraine War…that’s a hefty list and it wouldn’t take much to throw everything into a tailspin.

I’m not sounding the alarm bells quite yet, but it’s a good reminder as to just how fragile this whole system really is.

Prefer to read the transcript of the video? Click here

This Friday, Feb. 17th, join me for the webinar – Global Outlook: One Year into the Ukraine War.

We’ll dive into the global impacts the war has had on supply chains, agriculture, and much more. After my presentation we’ll have a Q&A portion to answer all those burning questions.

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

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

CLICK HERE TO SUPPORT MEDSHARE’S EFFORTS GLOBALLY

TRANSCIPT

Hey everyone. Peter Zeihan here coming to you from my home away from home, the Denver Airport. It is the 13th of February. And the news over the weekend is that the Russians have announced a near imminent plan to cut 500,000 barrels a day of oil production, which comes out to about one half of 1% of global production. And roughly 10% of Russian exports.

Now, for those of you who’ve been watching me for a while, you know that I’m really concerned about the stability of Russian production, not just because of the war, but because of their geology. Most oil production comes from the permafrost. And if there’s a situation where the crude can’t flow, whether because people are taking the crude away at their export points or because they shut it themselves, the crude in the wellhead freezes into gel and the water that comes up as a byproduct freezes into ice and it pops the wells from the inside and repairing that damage. The last time around took 30 years and last time most of the oil services firms were part of the process. This time they’re gone. So if we do lose Russian oil production for any reason, it’s not just gone. It’s gone for a very, very, very long time. And that is not priced into the market at all.

Now, the 500,000 is probably, probably, probably not a problem. The Russians have about a million barrels per day from the western fields that are not in the permafrost. And so they can shut those in and bring that back on and shut it in again and bring it back online. In fact, they did this in the early weeks of the war last time when people weren’t taking their crude. Well, now we have a couple more things in play. The European oil ban is in place. The European refined products period is in place. It’s not technically illegal to buy or ship these products, but you have to do it without European insurance or vessels if it’s under a certain price point. And that is reducing demand for Russian product around the world because they’re having a hard time getting the stuff out. Also, the break even price for a lot of Russian crude is between 40 and $60 a barrel. And now that the prices that the Russians can charge are under that threshold, the Russians don’t have an economic incentive to pump the stuff in many cases. So 500,000 has taken away half of the buffer. We’re not to the point where we’re going to see permanent shut ins, but we are not all that far away.

Alright. That’s it for me. Until next time.

Why I’m Bullish on Houston

When you think about cities with bright futures, what are the factors you consider? Energy Production? Agriculture? Population? Manufacturing? There’s plenty more, but let’s focus on those.

Houston is a leader in all of that…and more. So once the global supply on each of these inputs and outputs dips into a deficit, Houston will be primed and ready to fill the need.

Established infrastructure + decreased supply = more money = more investment = Houston becoming one of the most dominant players in global production. Does me being bullish on Houston make a bit more sense now?

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

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

CLICK HERE TO SUPPORT MEDSHARE’S EFFORTS GLOBALLY

Tanker Attacks and the Fall of Transport

In the early hours of November 16th, an oil tanker was struck by an armed drone off the coast of Oman. Strikes like this might not sink a ship with 1 or even 5 hits…but it is a sign of the changing times in maritime shipping.

As I mention in the transport section of my latest book – The End of the World is just the Beginning – “Inhibit [safe and cheap transport] and the rest of…everything simply falls apart.” What we saw yesterday was only the tip of the iceberg.

As the safety of the world’s shipping industry becomes more vulnerable, prices will increase and the long-range trade and maritime shipping the world has grown accustomed to will be changed forever.

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

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

CLICK HERE TO SUPPORT MEDSHARE’S EFFORTS GLOBALLY

OPEC Announces Production Cuts

The Organization of Petroleum Exporting Countries (OPEC) and Russia announced yesterday that they would be cutting back daily oil production to the tune of about two million barrels per day to help shore up oil prices. I would be more concerned if OPEC wasn’t already struggling to meet its own quotas. 

Chronic underinvestment and a host of technical and…other production issues have been causing significant production declines throughout OPEC member nations, particularly among African producers. Throughout much of 2022, that figure has hovered between 1 and 2 million barrels per day below OPEC production targets. Add in the rest of OPEC+ (the 13 OPEC member states and other significant oil exporters, like Russia) and that figure tips over 3 million. A reduction in target quotas might not have the long-term impact on oil prices they expect, though the market is historically notoriously speculative.

NB: at 1:57 I mention internal financing, but I should have said external. Margaritas…

We have never and will never charge for our newsletters or videos, but we do have an ask. If you enjoy our products, we ask you consider supporting MedShare by clicking one of the links below. MedShare is an established non-profit organization that helps respond to medical need globally, including to the ongoing crisis in Ukraine.

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

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When Insurance Gets Exciting: Global Shipping and Russian Oil

If you find scenarios like the one I discuss in the video below interesting, I discuss how changes in the global order impact several industries from insurance to manufacturing to finance to agriculture and energy and beyond in my new book, The End of the World is Just the Beginning, available everywhere–including your local bookstore.

At the onset of Russia’s invasion of Ukraine, Europe, NATO and much of the industrialized world moved quickly to isolate Moscow economically. As part of those moves, Russia saw its seaborne oil export volumes fall off precipitously–to the tune of 1 million barrels a day. Volumes that large threatened to shut in several of Russia’s oilfields. 

Even as a collection of private interests moved against Russian seaborne shipments–crews, ports, captains, ship owners–it has taken European governments longer to formalize a sanctions package that denied ships carrying Russian cargoes access to the global insurance market. 

While some of you might think that shipping insurance is decidedly unsexy, it forms a bedrock of modern seaborne transport. You need insurance to enter and exit ports, to transit the Suez and Panama canals, to go through high-risk areas like Malacca and Hormuz and the Bab al-Mandeb. Without it, you risk holding the bag if any problems occur. (Imagine if your tanker gets wedged sideways in the Suez Canal. Or you’re stuck on either side of said ship. Or you run aground accidentally. Etc.)

Europe and the United States account for roughly 95% of the private insurance market. Outside of that, the only realistic option is sovereign indemnification of ships–having independent states insure cargoes. India and China have gone this route, eager to gobble up Russian crude with a $30+/barrel discount. Through some inventive accounting, ship registries, ship-to-ship transfers and more, Russian crude has steadily crept back to more-or-less pre-invasion levels. 

Enter American and European sanctions. The ad hoc group of shippers, crews and port workers denying Russian goods access to European sea lanes has more or less been formalized, with a global impact. As the international sanctions regime intensifies, India and China might do well to revisit their stance on importing Russian crude and decide to voluntarily reduce imports–similar to their approach at the outset of Moscow’s invasion of Ukraine.

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

CLICK HERE TO SUPPORT MEDSHARE’S UKRAINE FUND

CLICK HERE TO SUPPORT MEDSHARE’S EFFORTS GLOBALLY