America’s Leg Up on Petrochemicals

Petrochemical plant

The Iran War has caused a massive disruption in global petrochemical production. Since most of the world relies on oil-derived naptha, the ~12 million barrels/day shortage is taking a toll.

Many countries in Asia and Europe are beginning to feel the pressure, but the U.S. has a leg up on everyone else. Thanks to the shale revolution, America’s cheap and abundant natural gas is used to produce its petrochemicals. This has enabled the U.S. to avoid shortages and become a dominant global supplier of key petrochemical inputs.

Nearly every industry, from plastics to fertilizers, is impacted by these materials. So, the global industrial landscape is getting shaken up once again.

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Transcript

Hey, everybody. Peter Zeihan here, coming to you from Walla Walla, Washington. Today we’re talking about the Iran war and the impact that it is having on petrochemicals. 

The way most of the world decides to make petrochemicals is they start with crude oil and then refine it into an intermediate product called naphtha and then naphtha. 

Then it goes on and is processed into tens of thousands of things that we all use every day. That’s not how it operates in the United States. In the United States, because of the shale revolution, we have basically a bottomless supply of natural gas. Based on whose math you’re using, roughly one third of the natural gas that is produced in the United States, it’s produced is a waste product, or at least as an associated production of oil, which means that in the United States, natural gas is significantly cheaper compared to the cost of oil. 

So in the rest of the world pre-war, the ratio between oil and natural gas on a point of view was about 5 to 1. In the United States, it’s closer to 2 to 1. So we use natural gas to produce products that, everyone else would use naphtha for. Well, what has happened? Two things. Number one, all that natural gas means that the United States can produce most petrochemicals at a significant cost advantage versus everyone else. 

Second, with the Iran war going on now, there’s a global shortage of oil to the tune of about 10 to 12 million barrels a day. So everyone else is hardware is designed to turn oil into naphtha, into petrochemical products. But all of a sudden, the price of oil on the availability of oil means that basically everyone in the East Asian rim, and very soon, everyone in Europe, simply can’t access the product they need at all, and they don’t have access to enough natural gas in the first place to switch over. 

And even if they did, they’d have to change their hardware to be able to do it. So the United States is becoming, from an economic point of view, the only real functional, large scale supplier of the butadiene and methyl groups, which is where we already had, huge advantage. And that’s things like, particleboard and silicones and octane for gasoline and nitrogen fertilizers and melamine, plastics, a lot of things like that. 

Whereas everybody else is now discovering that they don’t have the price structure that’s necessary to maintain competitive production of really any of this. Third problem, because the United States, is able to have an advantage now in all of the product sets. We’re seeing a significant shift in production quantities as well as qualities. So let me show you this chart here. 

If you start at the bottom left, that gray bars oil, you turn into naphtha, which goes on to make all the water products go to the right side. At the bottom you start with natural gas. You crack it to get ethylene, and then you turn that into products. But this whole set can be made with natural gas. 

And so the United States has not just a price advantage now, but just a huge advantage in the quantity, the type of products that can be made in mass. You play this forward for six months, two years, which is easily going to happen because of the Iran war. And we’re looking at a shattering of the petrochemical supply chains on a global basis outside of North America, and that’s going to have massive impacts downstream on pretty much every industrial sector.

Bring On the Jet Fuel Shortages

Even if the Iran ceasefire holds, the world already has a months-long jet fuel shortage baked in. So, start saving for those summer vacation flights.

These shortages will hit harder in the Asia-Pacific regions, but everyone will feel the heat. The problem is that Middle Eastern crude from Kuwait, Iraq, and Saudi Arabia (now offline) is ideal for jet fuel…and there’s no real substitute for the product.

Flights well into the future are already being canceled in countries like China, Japan, India, and Australia.

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Transcript

Peter Zeihan, here. Coming to you from Savannah, Georgia, one of my favorite cities in the country. 

Anyway, today we’re talking about one of the after effects of the Iran war. Even if the ceasefire holds, which, we are looking at a months long shortage of jet fuel on a global basis, most heavily concentrated on the South Asian, Southeast Asian, Australasian and Northeast Asian zone. Problem is that jet fuel is very exacting, in terms of its production. Whereas diesel or gasoline have a broader band that you can produce them with in the distillation columns in a refinery. In addition, the type of crude which kind of a medium heavy sour, that is your preferred feedstock for most refineries that make jet fuel, is heavily concentrated. 

Its production in places like Kuwait and Iraq and Saudi Arabia and all that stuff is off line. That was all Gulf facing crude that couldn’t be redirected somewhere else. We’ve now had a half a billion barrels of oil not be produced and delivered. And the refiners have already taken the last delivery from pre-war shipments. 

We’re not going to see new shipments come out in the next 2 to 3 months, minimum. Probably considering that a lot of the stuff is Kuwaiti and Iraqi, for over a year. So that means that we’re already seeing airlines in China and Japan and Australia and New Zealand and the Philippines and Vietnam and India, all canceling flights, not just for like the next few weeks, but the next few months. 

There is no good substitute here, because if you say run low on gasoline, some vehicles can switch to diesel. Or more importantly, the cargo can switch to diesel. And if you run low in diesel, you can always put some of the cargo on trains or on ships. Jet fuel is for jets, and that’s it. So with a relative bottleneck on the feedstock and a relative bottleneck at the refineries and the lack of substitutions, we’re just out. 

And so we’re going to see this cling to the system for at least a year, assuming no new shooting. There will probably be more shooting.

The Blockade of Iran Begins

A US aircraft carrier floating in water with dark storms behind

The blockade of Iran has officially begun. The first day was a bit slow, but this remains a monumental move by the U.S.

The most critical component of the blockade is that it finally puts pressure on the group actually controlling things, the Islamic Revolutionary Guard Corps. And since the IRGC gets most of its funding from oil exports and smuggling, the pressure is on.

This is a good thing overall, but it could provoke attacks on nearby Gulf states. And sure, there are several ways to bypass the blockade, but those costly routes add time. A blockade like this can only be effective through sustained enforcement, so we’ll continue to watch the Strait closely.

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Transcript

Hey, all Peter Zeihan here coming to you from Colorado. We are on April 15th now. And so happy tax day. But it also means that we’re in the second full day of the American blockade of the Persian Gulf. Specifically, the United States has said that any ship that is planning to dock at any Iranian port or is coming from any Iranian port is not allowed. 

Passage and naval assets, at least in theory, are in position to, potentially board vessels that decide to run the blockade. In the first day, no one really tried. Really. Only one ship came through ignoring the blockade. The United States didn’t do anything, but it was the first day. So, you know, whatever. That could mean anything moving forward. 

What the Trump administration has done is really, for the first time in the conflict, actually put a price on the powers that be in Iran. You see, when the first waves of attacks went in and the bulk of the Iranian leadership was killed, yes, that killed the current decision makers. But when you’ve got a political class of mullahs, it’s 10,000 people. 

Power just went to the next wave. And when it comes to operating in a war scenario, the people who are making the decisions were the IRGC, the Islamic Revolutionary Guard. These guys operate differently because they don’t necessarily garner their power from control of the military or the economy or taxes. Most of their income comes from either oil sales directly or smuggling. 

So when you’re looking to punish these people, the attacks at the United States and Israel did for five weeks did very, very little to actually hurt them. It destroyed large portions of the aboveground Iranian economy. And in a normal state situation, that could have been crushing. But those weren’t the people that, were running the military strategy at the time or now by blockading the ports, however, the 2 million barrels a day that the IRGC was able to export has now gone to zero. 

And their ability to import product, to then control smuggling networks has gone to zero as well. So whether or not this is on purpose or not, the white House has stumbled across a strategy that actually puts pressure on the people who need to be pressured. There are still a thousand questions about how this will be done, whether it really will be done, or if it’s just a truth social post. 

But the fact that the assets are actually in place now is promising. That promising, however, doesn’t mean it’s going to work. Promising doesn’t mean that it’s going to be sustained long enough to make a difference. And that doesn’t mean that it comes with no side effects. Because if you really do start pressuring these people, they will strike. 

And these are the people who control the bulk of the Iranian missile fleets and all of the drones, and have demonstrated over and over and over and over again that they have more than enough capacity to strike any energy asset on the Arab side of the Persian Gulf. That’s above the west side. 

Anyway, the other reason that the blockade seems to me to be a necessary move is hardware. The Iranians don’t have a huge manufacturing base, and almost all of the parts and all of their missiles and all of their drones come from China. And we were in this weird situation throughout the war where the Chinese could ship whatever components in Iran could import whatever components they wanted. 

But the, the strait was shut down to Allied shipping. Now we’re in a situation where that seems to have finally flipped. There are still plenty of drones, thousands of drones, maybe tens of thousands of drones in Iran. So it’s hardly a short cutoff. But it does matter. 

Now there are two things to keep in mind and to watch for in the days ahead. First of all, maintaining a blockade on the Persian Gulf is pretty easy. You put a few ships across the mouth of the Strait of Hormuz. You can see everything without any sophisticated equipment. That’s the easy part. But Iran does have one port, Chabahar, that is out east in the Gulf of Oman, where it turns into the Arabian Sea just shy of the Pakistani border. 

Chabahar would require a separate naval blockade in order to prevent access. And that means American splitting its forces. Otherwise, you can ship in containers full of drones to and they can be trucked elsewhere in the country. 

Second, there’s nothing about the northern or eastern borders of Iran that can be blockaded because it’s land. 

So the Chinese could, rail or truck stuff through Pakistan or Central Asia into northern or eastern, Iran and get things in that way. Now, that takes longer. That is much more expensive. If they started that process today, the first new components aren’t going to arrive in Iran for about three weeks. And there’s a lot of things can go down in three weeks. 

And a situation where basically both sides have been negotiating in bad faith since the very beginning of this process. But those are the things to watch. The naval side of this for the United States is actually pretty straightforward, even if it does require an extra task force to cover Chabahar. But there we are. 

So, next steps. Watch those two places. Watch to see a second phase of negotiations. Watch to see if either side is willing to give in or not. I think we’re well past the point where Donald Trump can simply declare victory and go home, because if he does that, he basically hands Iran control of the Strait of Hormuz, allows them to continue their nuclear program, allows them to continue supporting militant groups throughout the United States. 

Basically, the United States would be in a worse position in that scenario. In the aftermath of the war than it was before. And so many people are now saying that among the Republican Party that I think it really has sunk in doesn’t mean that there’s a good strategy here. But if there is a path to pressuring Iran to do something different, you have to hit the interests of the IRGC. 

And so far, the blockade is the first thing the United States has done that has done that.

So You Want to Take Iran’s Oil…

Iranian Flag with oil barrels the color of the flag in it | Licensed by Envato elements: https://app.envato.com/search/photos/0866085e-7b36-418f-9531-40faadc100cf?itemType=photos&term=Iran+oil

Taking Iran’s Oil is far more complicated and dangerous than Trump has made it out to be. We’re talking about a humanitarian crisis and a full-blown ground invasion to actually control Iranian production.

Iran’s main energy resources are split between the South Pars gas field and Khuzestan. Seizing South Pars is the easier of the two, but the fallout would be horrendous. Controlling Khuzestan would require a ground invasion, fighting both local resistance and the broader Iranian military, forcing the U.S. to stay in the region…sound familiar?

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Transcript

Hey all, Peter Zeihan here. Coming to you from Colorado. Donald Trump is going on about taking in other countries oil again, specifically Iran. And, there’s no good way to do it. Let’s just start with that. But it is important, I think, to understand where the stuff is and what that would mean for a potential military occupation. 

So there are basically two large concentrations of petroleum in Iran. The first is kind of in the middle part of the Persian Gulf, directly opposite the country of gutter. That’s one of a kind of like a thumb sticking up on the south side of the Gulf. This is what the Iran’s call the South Pars field and the surrounding fields. It’s majority offshore. It is operated by a lot of foreign companies because the Iranians don’t know how to do it themselves. But this is responsible for somewhere between 70 and 80% of the country’s natural gas production. Now, Iran doesn’t really export natural gas in the conventional sense, and almost everything that come from South Pars is fed into the local pipeline network in order to be burned to generate electricity. 

So if the United States wanted to take over this zone, it would basically be shutting off the natural gas production because there’s no export capacity. The nearest country would be Turkey. There is a little pipeline there, but you’d have to go through a lot of Iran to get to it. And second, there’s no liquefied natural gas facility like exists on the south side of the Gulf. 

So if you take this thing, you’re just shutting it down and triggering, war crimes level of humanitarian disaster as you turn off the power in a country with roughly 90 million people, that’d be bad. The other one is easier in simply because it’s, you know, possible again, not an endorsement here. It’s in the province of Khuzestan, which is in the country’s southwest, hard up against the Iraq border, directly opposite from Basra. 

If you remember your war in Iraq days, Khuzestan has 70 to 80% of the country’s oil production. Generates a little bit of waste natural gas here and there, but it’s mostly about the oil. And this is the stuff that basically powers the Iranian economy. Oil from Khuzestan is consumed locally. It’s consumed throughout the rest of the country. It is sent to refineries, the country over, and a lot of it is exported through Kharg Island. Kharg Island is an island off the coast of the northern Gulf. It’s Iranian. And people have been talking about that a lot recently. Donald Trump even knows where it is. And he seems to think that if you take a car, you control the oil industry, too. 

No, no, no, you take Kharg, you can shut off Iran’s ability to export, but that doesn’t give you control over production. So if your goal is to take the oil, you have to basically capture all of Khuzestan Province in a little chunks of territory that are adjacent to it. Now, Kazakhstan is interesting for a number of reasons besides the oil. 

If you remember back to your, political geography days, Iran is a series of mountain nations, different ethnicities that bit by bit were amalgamated into the whole that we now call Iran or Persia, if you want to use the older term, Khuzestan is an outlier. There because it’s flat, it’s not mountainous. 

and the vast bulk of the population are Arabs instead of mountain peoples, or is Aries or Persians. So they are an oppressed minority living in the country, and they live on top of the oil, and they get so little of the money that comes from the oil that this is one of the few parts of Iran that’s actually experiencing population decline, because basically the Iranian government, Tehran, siphons off all the oil leaves, nothing for the Arabs, and they’re just kind of like wallowing in their own poverty. 

Before you think, oh, this is a great fifth column to, launch a rebellion against Tehran, keep in mind that the United States has tried that trick specifically before, just on the other side of the river in southern Iraq, where you have a Shia majority that used to be ruled by a Sunni government in Baghdad. And after 20 years. But the only thing that the Shia of Iraq could agree on is that they hated the United States more than everybody else. So I can guarantee you, in the time that the United States has been resting and recouping in the aftermath of the war on terror, we have not gotten any better at nation building. And when we were trying to occupy southern Iraq, which supposedly hit a restive political group that hated the central government that we had overthrown, it didn’t go nearly as well as we had hoped. 

And this time, if you do that in Khuzestan, there’s a lot more Iranians with a lot more weaponry and equipment that can be brought to bear, because in the case of Iraq, we overthrew the entire government, were the authority. In the case of Iran, we’d have tens of thousands of American troops on the ground, occupying the local population and then resisting the general forces of the rest of the country. 

Anyway, bottom line of all of this. It’s not that I think we can or should take Iran’s oil. Just to give you an idea of what is in play, it’s pretty clear that Donald Trump is planning some sort of ground offensive. He has never deployed troops to an area and not used them. And in this case, we’ve got two loads Marines with, the Marine Expeditionary units on their way. One of them with the Tripoli, is practically local now. They were in Diego Garcia last week. And the other group, the boxer, is approaching Southeast Asia and is expected to be in the Persian Gulf in 2 to 3 weeks. 

And of course, the, the airborne forces can be wherever they need to be. So we’re definitely moving forces in the Trump administration is definitely planning on using them. It will definitely be a disaster. And if the Trump administration decides to go after this target specifically, we’re going to be an occupation in the Middle East, just like we were for the bulk of the last 25 years. And we all remember how that went.

Sweden Grabs Its First Shadow Fleet Vessel

Swedish flag on a boat

Sweden has seized its first shadow fleet vessel. They even went after a bulk carrier rather than a tanker. As more countries join in on the crackdown on Russia’s shadow fleet, the dominoes are beginning to fall.

There’s a good chance that the entire shadow fleet could be dismantled within the next weeks and months. However, there are over 1,000 ships, so there isn’t enough port space to bring them all in. Expect to see these aging vessels parked off the coast before they can be shipped off to India or Bangladesh to be scrapped.

Beyond the obvious impact on Russian, Iranian, and other oil supplies, global shipping could shift into a shortage as the vessels are retired.

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Transcript

Hey everybody. Peter Zeihan here coming to you from Colorado. Today we have to take a break from what’s going on in Iran and look further north to Sweden, of all places. The Swedes over the weekend have brought in a Russian shadow fleet vessel into their ports and basically have arrested the crew. This is interesting for a number of reasons. 

For number one, we’ve had a couple of dozen shadow vessels be captured by various powers the United States, India, France, Belgium. This is the first for Sweden. And so we’re seeing a broadening net, of countries going after the shadow fleet, which is basically what the Russians have been depending upon in order to ferry things that are under sanctions around the world. 

Second, beyond this being Sweden’s first one, this is the first shadow vessel that wasn’t a tanker. It’s a bulkier. And it’s unclear whether it was carrying cargo from the Middle East to Russia or stolen Ukrainian grain from Ukraine to Russia to somewhere else. Really? Doesn’t matter specifically. The point is, is that the entire shadow fleet, not just the tankers, everything that the Russians have been relying upon to maintain their reach beyond their own territory is now under direct threat. 

We will probably see a complete dismemberment of the Shadow Fleet over the course of the next several weeks. And now that we have countries as minor as Belgium and countries as well placed as Sweden going after them, because Sweden basically controls the Baltic Sea if it wants to. This should wrap up pretty quick. We’re now in a weird little situation, though, where there’s going to be a logistical issue that’s really big. 

The shadow fleet is over a thousand ships, and there are not enough port facilities in the world to take them all. What will probably happen at the end of the day is they’ll all end up eventually in a place like Bangladesh or India. Well, they will be broken down for their steel. All of the Shadow fleet vessels are old. Most of themcould not qualify for a normal insurance policy under normal circumstances. And it’s only because they’re operating functionally illegal under the Russian banner, that they are still afloat. But as logistical problems go, that’s a really good problem to have. So in the meantime, they’ll probably dropping anchor off places until they can be unloaded, but that will absolutely take weeks to months. 

So we are at the beginning of the end of the process, and now we can start looking to the other side, where we go from having a surplus of vessels in the world to a shortage of vessels in the world, and where we have Russian crude and Iranian crude and Venezuelan crude, and perhaps Saudi and Emirati and Kuwaiti crude all falling off of the market at the same time. So what was for me really dramatic when this started to happen about a month ago now with the Iran war, who I don’t want to say it’s a rounding error, but this is definitely the lesser of the two big things going on, and it’s all happening at once. So buckle up.

The U.S. Helps India and Russia Helps Iran

An oil tanker in the ocean sailing

There have been two major developments involving India, Russia, and the Iran war being conflated. These are two separate issues altogether.

The first involves Trump granting India a temporary waiver to import Russian oil. This was done to prevent a severe energy or economic shock in India. This is a pragmatic move, rather than a pro-Russia policy shift. The second revolves around Russia helping Iran with targeting information. This is a longstanding Russian strategy of undermining the U.S. globally.

Although some U.S. policies toward India appear to be improving, a major shift is unlikely unless and until some of the Russian sympathizers in the current administration are removed.

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Transcript

Hey, everybody. Peter Zeihan here, coming from a snowy Colorado, finally got a big storm. Oh. Anyway, today we’re going to talk about something that a lot of people are conflating that deals with Iran and the oil trade and Russia and India and sanctions and terrorism, blah, blah, blah. A lot of people are tying this all together with a nice big bow. 

It’s not quite that neat. So the two big things, number one, the Trump administration has granted India, a series of waivers, right now, courtesy of the Trump administration. We have sanctions on a few Russian oil companies and, Donald Trump managed to cut a deal with the Indians, about how six weeks ago, I think it’s been now, where the Indians would stop, importing Russian crude. 

I definitely had my doubts about that at the beginning, but it seems like it’s actually sticking because, there’s now this waiver, the issue is that the Indians had been grabbing oil in excess of a million barrels a day. Really? Since the Ukraine war got going, and it was one of the big financial lifelines. 

And now that the Trump administration has put sanctions on Russian companies, they have slowed, not stopped, but slowed. But now, with the Persian Gulf being closed for I believe we are in day ten now, the Indians only other source of crude was from the Persian Gulf, and that has functionally gone to zero. So in order to keep the Indians on board, the Trump administration has granted this waiver, allowing the Indians to bring in, temporarily, at least for a month. 

Russian crude. That’s piece one. Piece two is we’ve had a number of leaks from the international community, especially from the American intelligence services and also from Congress, that the Russians are actively assisting the Iranian government with, targeting of American troops. Which is definitely true. The people that are deeply anti-Trump are, conflating the two saying that, Trump is basically Putin’s, sex toy. 

And so therefore, Trump has been looking for any opportunity to, cut the Russians a deal and absolutely anything. While there may be a little bit of truth behind the thrust of that, linking these two events is not correct. Let’s start with the Indians. If you’re going to split the Indians off from the Russians, if you’re going to have a better relationship between American India, causing an economic depression is not a good way to do that. 

So once the United States started the war in Iran and the Persian Gulf got shut off, your choices were either to try to somehow force India to have, an energy induced depression and then still be pro-American, which would have been a very, very tall order or issue these temporary waivers. So the temporary waivers make a lot of sense. 

I’m not a big fan of the Russians having any market, but if you took the Russians out of the equation at the same time you took the Persian Gulf out the equation, you’re talking like 25 million barrels a day of global oil production that has nowhere to go and can’t get anywhere. And that would have been disastrous if it was all focused on India. 

If you want to focus on China, it’s different conversation, different video. Okay. So that makes sense. The second one, the Russians have maintained links to basically any group that has ever targeted the United States, whether that is various derivatives, Al-Qaeda, Iran, or more specifically, the group in Iran that is calling most of the security shots, which is the IRGC. 

And of course, they’re continuing to provide targeting information just like they did for the 20 years of the war on terror. Anything that keeps the Americans bottled down anywhere else in the world gives the Russians the free rein to do whatever they want in their neighborhood. That is a time honored Russian tradition, going back all the way to the czars. 

So of course, of course, of course they’re doing this, which puts, the Trump administration and Donald Trump personally and kind of an awkward spot. The information is coming from so many sources, international domestic, military intelligence, congressional that, there’s a lot of texture and detail to the accusation. Specific cases have been noted. So of course it’s true. 

And that puts Trump in that position because he is basically giving Putin the benefit of the doubt in everything regarding global affairs and the Ukraine war, and specifically. And now we have his most recent, crown jewel in his foreign policy, Iran, that has been actively undermined by the Kremlin and Putin personally. Does this mean that we’re about to see Donald Trump turn over a new leaf? 

That’s a lot more realistic when it comes to the Russians? Let’s not get ahead of ourselves. Remember, that surrounding him, you’ve got Wyckoff, who was maybe the dumbest person Western civilization, who was the prime interface between Putin and Trump. And all he does is regurgitate Putin’s propaganda in Trump’s presence. 

Number two, you’ve got the vice president, JD Vance, who is a not so closeted white supremacist who thinks that the Russians are the great hope for the white race. And third, you’ve got, the director of national security or national intelligence, Tulsi Gabbard, who basically has stood against the United States on any meaningful foreign policy position for the last 15 years and has been very, very pro-Russian from the very, very beginning. 

The key thing about Tulsi Gabbard is that she controls the daily presidential brief that the intelligence community puts together for the president. So I would be shocked if details about what the Russians are doing even made it into the document in the first place. So this basically has to grind on. We’ve already had a half a dozen Republican senators, and a number of Republican House members go public in the last 72 hours screaming at Trump to finally, finally, finally fix this and get rid of people like Tulsi Gabbard and Steve Woodcock and actually have a foreign policy that is worthy of the United States. 

But as we all know, Trump, really doesn’t care what anyone else thinks. And he’s really not even concerned about the midterm elections because, he’s already a lame duck. And even when he controlled both the Senate and the House, he’s really never bothered going to Congress for anything. So why would he care what Congress looks like? 

Anyway, things are slipping. Bit by bit in the right direction for more realistic foreign policy versus the Russians. And things are kudos to Donald Trump slipping in the right direction for more productive relations with the Indians, as well. I was very doubtful that the Indians would abide by any sort of ban of Russian products. But yet here we are, and the market is proving it. 

Russian Urals crude sold on the Indian market has actually now risen above the Brant benchmark. That is kind of the global standard. And the only way that would be happening is if we had a sudden surge in purchases because of the waiver. And that’s exactly what’s going down. So a lot of moving pieces here, and I’m not trying to convince anyone that we’re about to have a dramatic change in foreign policy. 

That would be more realistic. But we do finally have multiple vectors moving in the same direction at the same time. You will not see a meaningful change in policy, however, until Wyckoff and, Gabbard are gone. I don’t see that as imminent. But then again, Kristi Noem finally got let go after six months of horrible mismanagement at DHS. 

And again, the Republicans in Congress are not so quietly celebrating, in media. So, you know, there is hope here. Let’s just not get overexcited until we actually see the backsides of some of these people who functionally work for the Russians.

Iraq, Oil, and a Break for Chevron

Iraq Map With An Oil Sign licensed by Envato Elements: https://app.envato.com/search/photos/c777eb9c-aa98-4f24-b652-fc6ac6385c3c?itemType=photos&term=Iraq+oil

We’ve all heard the claim that the Iraq War was a war for oil, but American energy firms barely wanted to touch Iraq after Saddam fell. Things might be shifting now.

U.S. sanctions on Russian firms, such as Lukoil, forced Iraq to nationalize projects. This opened the door for Chevron. Should they come in, production in the West Qurna 2 oil field could double.

Once Iraq’s parliament gives the green light, Chevron would mark this as a much-needed win, as it would be the largest recent international asset and comes as the firm could be losing ground elsewhere, such as in Kazakhstan.

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Transcript

Hey, everybody. Good morning from Colorado today we’re and talking about oil in Iraq. If you guys remember back to Iraqi freedom and the Iraq war in the war on terror, you know, 20, 23 years ago now, there is a lot of argument back then from people who didn’t like the George W Bush administration that this was a war for oil. 

We were pre shale revolution at that point. So the US was the world’s largest importer of crude and natural gas. Now we’re the world’s almost largest exporter of both based on how you’re doing the numbers. But if you remember back to how the war concluded, American oil interests moving into Iraq were thin. There were a few people who moved into Kurdistan in the north, and that was about it. 

The reason was a combination of things. Number one, there was an active insurgency going on. And while oil companies generally have a high tolerance for damage, in this sort of environment, when the 100,000 American troops in the country were like, no, that’s just way too hot for us. Second, the Iraqi government, post-Saddam was wildly disorganized, and sharply sectarian and basically on off in a stage of civil war in parts of the country, parts of the country that had oil. 

So a a few companies did move in, but it didn’t really work out for any of them, and they ended up moving out. That may may be changing now. The Trump administration has sanctioned Russian oil companies, most notably Lukoil, in this conversation, and Lukoil was the manager for a really easy, shallow, huge field called West Qana two, which is in the southern part of the country near the secondary capital of Basra. 

And after 20 years of operating in the country, they were able to get oil production there up to about 450, maybe almost 500,000 barrels a day. But now they’ve been sanctioned and they can’t US dollar markets. And if you’re producing crude for export, it’s all denominated in US dollars. So they have basically had to shut themselves out. 

So the field was nationalized by the Iraqi government. It’s currently being managed by something called the Boss Route Oil Company, which is a state entity, and they have entered into negotiations with America’s Chevron to take over the project. Now, none of this is done. There is no ink to even be dry yet, but, Chevron is in the first position to enter negotiations. 

Take it over. And the current expectation we’ll see is that a year from now, they will be the sole operator, or maybe in league with the Iraqi government. This would be the single largest asset that Chevron has picked up internationally in quite some time. Almost a half a million barrels a day. And unlike Lukoil, which doesn’t have great technology or capital access, Chevron is one of the big five of the world. 

And we would probably see the West kind of two project expand to over a million barrels a day in a very short period of time, probably no more than five years. It’s a technically simple field. It’s large, it’s close enough to a population center to be able to tap labor, but not so close to be a security problem. 

And it already has an existing pipeline going to the coast, and it already has an offloading facility. So in terms of supporting infrastructure, everything that it would need is already there. About the only obstacle at this point is would have to be ratified by the Iraqi parliament, which can be a little snarly, and that will depend upon relations with the United States. 

But one of the things that prevented American companies from getting involved the last time around is that the only real stable part of the country was up north in Kurdistan. And so that’s the first place people went to sniff around. Well, Kurdistan is viewed by the rest of Iraq as secessionist. So if you cut a deal with the Kurds in the north, it was very difficult to get a deal on the south, on top of that, the technical challenges for the fields in the North were really, really sticky. 

And if you wanted to get the crude out, you either had to send it north through Turkey. And the Turks hate the Kurds and the Kurds hate the Turks. Or then you had to send it south through the Arab part of Iraq. And they didn’t like the Kurds anyway. So basically anyone who took the early deals with Kurdistan, lost out on the South, independent of the fact that the South was a difficult operating environment. 

But no longer applies today. And Chevron has no assets in Iraqi Kurdistan. So from a geopolitical point of view, this actually seems to be set up to be a meaningful deal for Chevron, which, considering they’re probably going to lose what they have in Kazakhstan because of the Ukraine war, from them is a fantastic development. They’ve always kind of been second fiddle to Exxon. 

This is one of those situations where they might actually have a significant leg up.

Belgium Seizes Shadow Fleet Vessel

Flag of Belgium

The Belgian government has seized a tanker of the shadow fleet. With the United States, India, and now the Europeans intervening, it is only a matter of time – months at most – before the entire fleet is shut down.

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Transcript

Hey everybody Peter Zeihan here. Coming from Colorado, it is the 1st of March. And today we’re going to talk about Belgium. Earlier today the Belgian government grabbed a Russian shadow tanker and escorted to port and opened a criminal investigation, all in one. I’ve been watching the Shadow fleet for, well, almost four years at this point. The primary way that countries like Venezuela, Iran and Russia have been earning oil income while under sanctions. 

They put out a bunch of really old ships. They fake their papers, they give them fake insurance policies, and then they sail kind of under the radar. Of late, the United States has gone after the Shadow Fleet. That was involved with Venezuela. 

And now we have had several instances where Russian shadow tankers have been grabbed, some by the United States, one by France, which was then summarily released because the French quote, didn’t know how to prosecute, which made them look really stupid. 

But the Belgians apparently have figured it out, and they’ve already opened prosecution. Now, I don’t say positive things about Belgium often, but weather is awful. The food isn’t that great. The beer is questionable. The Dutch part of Belgium is in the north. The French part is in the south. They don’t interact. They rarely have a government. Yet here they have all their ducks in a row. 

So, you know. Kudos, Belgium. What this means is if we can have a small state, Belgium is not a power player. Going after the shadow fleet, then there’s really no excuse for the bigger countries to go after it, as well as countries that are closer to Russia, like, say, the Baltics. Sweden. So, we are seeing a cracking in the shadow fleet, left, right and center number one, the United States broke the seal when it went after, about ten shadow vessels that were taking Venezuelan crude. 

Number two, we now have the Europeans gearing up to do the same. The Brits look like they’re on the verge, for example, of jumping into this. And because of the channel, that’s pretty much everything that matters. And you get the Belgians and the Danes and the Dutch and Swedes. 

Then all of a sudden the Baltic Sea is shut down. Third, the war going on in Iran. Iran feared that this was going to happen. And so they moved a lot of the crude that they had in storage onto floating cargo ships, basically tankers that don’t have a destination yet and something like 200 million barrels. That’s a big chunk of the shadow fleet and all of a sudden they can’t leave the Persian Gulf because of the war. 

They’re just floating there. And it’s only a matter of time before the U.S. Navy decides to go and confiscate all of them. And when that happens, the Shadow Fleet will well and truly be dead. And the way that something like 4 million barrels a day has been getting to market over the last couple of years simply withers and dies. 

So kudos, Belgium. The Europeans are probably going to line up behind them within a matter of days and weeks, and the US Navy will be going after the Shadow Fleet undoubtedly, within a couple of weeks. The US Navy only really has enough ordnance on station for two weeks of the current tempo. But here we are in day two, and they’ve already obliterated the Iranian Air force and Navy. So there’s really nothing that Iran can do to protect the shadow fleet. 

They’re just basically sitting in a bathtub of the Persian Gulf. So we’re looking at the entire shadow fleet being wrapped up here in a matter of weeks to a few months, which will generate an entirely new energy market on a global basis.

India Takes on the Shadow Fleet (Bonus Video)

An Indian War Ship off the coast of India with fishing boats on the shore

India’s navy has begun seizing shadow fleet tankers in its exclusive economic zone. If India continues down this path, other countries will likely join the bandwagon, marking the end of the shadow fleet.

Disruptions to the shadow fleet wouldn’t just impact Russia’s key export income, but also global energy markets. With 3-4 million barrels per day funneling through the shadow fleet, everyone would feel that. India has maintained close ties with Russia, so this move comes as a surprise to many and signals a major realignment.

As I’ve said in other videos covering the shadow fleet, once the first domino falls…the rest will quickly follow. We’ll just have to wait and see if India is willing to topple the first one.

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Transcript

Hey everybody. Peter Zeihan here coming to you from Colorado. I have kind of a weird one for you today. There was a report in the Wall Street Journal today confirming information that was originally released on the Indian Navy’s Twitter account. That was then subsequently deleted, that the Indian Navy has been carrying out raids and capturing shadow vessels in India’s exclusive economic zone. Starting almost two weeks ago on February 5th. Today is the 17th. 

Back story. The shadow Fleet is a group of roughly 1000 oil tankers that carries crude for sanctioned countries, most notably Venezuela, Iran and Russia. And apparently, these ships, the three ships that the Indians have so far grabbed, come from some combination of those three, with the Russians absolutely involved. 

The United States, after it captured the now former president of Venezuela, Nicolas Maduro, has gone after the parts of the shadow fleet that were actively carrying Venezuelan crude at the time, chasing them up on their way to Europe, chasing them into the Indian Ocean, I believe about eight have been captured so far. Eight out of a thousand is not a lot. 

But when the world’s naval superpower decides it wants to do something on the high seas, it’s really not hard for the United States to do it. And now it appears that the Indians are getting in on the act as well. This is really interesting from my point of view, for three reasons. Number one. Once another country joins the United States in targeting the shadow fleet, it’s probably only a matter of days. 

Two weeks before many, many other countries do it. There are a lot of countries that don’t like Venezuela or Iran or Russia. Especially the Europeans. And now that India of all countries is joining in, we should expect a couple of dozen other countries to do so as well, which would completely remove the shuttle fleet from functioning, in less than a few months, considering that there’s something like 4 to 5 million barrels a day transported in this matter that can have a really big impact. 

Economically or politically, based on who decides to take advantage of the situation. So that’s one. Number two, the fact that, the Indians are involved. India has been the second largest beneficiary of the shadow fleet since it really started getting going in the early days of the Ukraine war back in 2022. Basically what happens is someone affiliated with Russia or around or Venezuela goes out and buys a decommissioned oil tanker that probably doesn’t match current safety norms, gives it a fake insurance policy, puts a fake flag on it, and sends it to pick up the crude from one of those three countries. 

That crude then comes somewhere in the high seas, where it comes up against another shadow vessel, and they pump the crude from one to the other in a sea to sea transfer. Relatively dangerous. But these guys are busting sanctions anymore, so that’s not their primary concern. That then happens once, twice, three times more. Maybe they mix two crudes into another hold, or something. 

Anyway, eventually, another shadow vessel disgorged that cargo in a purchasing country, typically India and China and the Indians and the Chinese say, oh, we have no idea where it came from. You know, it’s just a convenient fiction. It’s just a question of who decides to enforce maritime law. Well, like I said, India is one of the big beneficiaries here and historically has been the second largest beneficiary of this process. 

And so for them to go out and grab ships in their own economic zone, who have been doing these CDC transfers for four years now to break that policy changes, the economics of the shadow fleet in the politics of India very, very deeply. A couple of things here. Number one, India has always, always, always been pro-Russian versus pro-American and has sided with the Russians. 

Because of the affiliation they had with them back during the Soviet period. So, you know, went away. Modern Russia has nothing to do with the Soviet Union. But the Indians kind of are still fighting the cold War ideologically from a certain point of view. So them flipping, matters. Second, because these are Russian vessels that have Russian flags. 

Having the Indians go against a Russian situation so boldly is really, really notable. It’s also been 11 days since this happened. And the idea that just happened once for three vessels is kind of curious. So I don’t understand why the Indian Navy posted this. I do understand why they tore it down right away. 

Because this is the sort of thing that will reverberate through the shuttle fleet very, very dramatically. Because if their ships are being confiscated and captains are losing their vessels, the entire capital investment is lost. And it won’t be long before the other captains basically throw in the towel or enough of them are grabbed that it changes the economics of shipping this stuff. 

So all of that combined is number two lot going on there. Number three. 

Russia. Russia. Russia. Russia. Russia. The Russians have been exporting somewhere between 3 and 4 million barrels a day this way for four years. And it is their primary source of income now. And if this is about to go away, then we’re going to see some very dramatic changes in a number of things in the eastern Hemisphere. Number one, the Ukraine war, if the Russians have lost their single largest source of income that will manifest on the battlefield, the Chinese may be supplying the Russians with all the gear that they can pay for. 

But the key thing there is pay for. And if the Russians can’t, then a drone war where the Russians can’t get enough drones is one where the Russians start losing territory. And we’ve seen just in the last 96 hours how when the Russians lose communication equipment, they start to lose coherence on the front line. 

And can no longer advance. This would be far more dramatic. Two. If the Americans and the Indians are seen eye to eye on things like the Russians, those are two big changes I’m going to talk about India, but about the United States. There are a number of people within the Trump administration who have been blatantly pro-Russian in this entire conflict, but now it appears that that might be changing. 

One of the fun things that happened about three weeks ago is we had a summit between US President Donald Trump and the Indian prime minister Narendra Modi and Trump said at the end of their meetings, the United States was going to drop its tariffs by more than half to allow Indian products back in the United States. 

And in exchange, the Indians were going to stop using Russian crude. The Indians said, thank you, Mr. Trump, for the tariff withdrawal, but not a single Indian government person statement post has ever said anything about not using Russian crude until now. And apparently now it looks like maybe less than two weeks after that summit, the Indians started going after Russian tankers. 

So maybe Trump really did get a deal. Just the Indians are doing that. A little bit on the down low. But now that they’re actually confiscating tankers, it’s not very down low anymore. And if you have the Indians stabbing the Russians in the back, and the Americans and the Indians now starting to get along in economic and strategic matters, 

That changes all the economics and the politics and the strategy of everything in South Asia, because the United States has reasonable relations with Pakistan. It’s been India that’s been clinging on to the Soviet era. If that’s no longer the case, if Russian influence has really been purged, then we’ve entered into a fundamentally new era. And if the Indians are stopping crude from Russia getting to India, you can bet your pretty ass that they’re going to stop it from getting into China, because now China is the only country that has been taking that is still taking Russian crude in volume. 

And now all of a sudden, we’re talking about the entirety of the 3 to 4 million barrels of the shadow fleet being gouged out of the Chinese economy. Now, a lot of this is a couple steps removed from what we know right now. I don’t want to say that all of this is destined to happen, but you remove that much crude from the system all at once, and the whole system feels it. 

You remove it all from one country’s system all at once, and that country is fucked. So we’re looking at a broad, structured rearrangement of things in Russia and Ukraine and India and China, perhaps all at once. The question is whether or not the foreign policy team in Washington can actually hold that together, considering how much they’ve purged the decision making apparatus in the State Department and the National security apparatus and in the military. 

This is a lot to hold in your head all at once. But if we are moving in that direction, we are looking at the single biggest shift in international politics of at least the last four years. And that will keep me very busy for months to come.

The End of the Shadow Fleet? – French Edition

French military vessel | Licensed by Envato elements: https://app.envato.com/search/photos/d93044ee-6076-4af6-a69b-29bbfe8f6cd3?itemType=photos&term=french+navy&sort=relevance

France has seized a shadow fleet tanker suspected of carrying sanctioned oil under a false flag and has taken it to Marseille. Should this ship be formally impounded, the entirety of the shadow fleet would fall.

If a precedent is set here, everyone could begin detaining similar vessels. And it wouldn’t be hard to rapidly clear the waters of these vessels via major maritime choke points. A maritime services firm has kindly offered to legally take possession of seized shadow fleet ships and dismantle them (most of these floating rust-buckets should have been scrapped years ago, but instead were used to evade sanctions).

So, the shadow fleet could fall within months, but that creates a new series of problems. That’s 5 million barrels per day of crude going offline very quickly, making global energy markets quite volatile.

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Transcript

Hey everybody. Peter Zeihan here. Coming to you from Colorado. Today we’re looking at the Russian shadow fleet, specifically non-U.S. countries going after the fleet. What was really interesting from my point of view is, on the 22nd of January. So last Thursday, the French grabbed a ship called The Grinch, for suspicion of flying an inaccurate flag and carrying sanctioned oil which would define every ship that the Russians, the Iranians, and until recently, the Venezuelans have been using to transport their oil. 

The reason why this really matters is, with the exception of the Venezuelan enforcement actions that the U.S. is engaged in, right now, no country has pulled over any shadow fleet vessel for those reasons. Maybe they think that there’s a drone launch system on board and they see it as a security issue. Maybe the ship is having engine trouble. 

They need to tow it to port. Those things have happened, but never one has ever tried to use military force to enforce the sanctions on Russia, or to try to break the shadow fleet. This would be the very first instance of that. And the French have grabbed the shift and towed it to Marseilles for investigation. And obviously it’s false flags and obviously it doesn’t have an insurance policy. 

And obviously it’s part of the shuttle fleet. So we are watching this very closely because if this actually results in the ship being impounded and its cargo seized and distributed, however the French decide to handle it. We will then see every NATO country and probably quite a few non-NATO countries basically going through and gobbling up the entire shadow fleet in a matter of weeks, because it is very easy to do so now. 

The French are a competent naval power. They grab the ship in the Mediterranean, but, you know, most of them is not going to be that complicated because you’ve got places like the English Channel or the Sky around, or the Turkish Straits, where the ships have to pass through a narrow choke point in an area where local labor powers are more than capable of grabbing civilian traffic that isn’t supposed to be there. 

The second piece is that a company called GM’s Global Maritime Services has applied for permission to o. Fact, that’s the Office of Foreign Assets, or works with Treasury in the U.S. departments to basically manage foreign assets. Has basically said, hey, we are here. We are ready to take possession of these shuttle fleets, will bid on it, will pay for them, and then we’ll break them down and remove them from service completely. 

None of these ships are new. Most of them are just floating rusted buckets. They’re accidents waiting to happen. And if it hadn’t been for the existence of, the Russians needing to create the shadow fleet, the Iranians needed to create the Shadow Fleet. All of these ships would have been decommissioned years ago. So let us do our job and help you do your job. 

And we can easily take more than 100 of these things in the next six months. There’s probably about a thousand shadow vessels out there anyway. GM’s is the largest company that has expressed an interest in playing a role in this. They’ve applied directly to the U.S. government. And so we’re seeing the institutions now starting to move to grab the shuttle fleet, remove it from contention, and then permanently dismantle it so that it can never be rebuilt. 

If this goes the direction it seems to be going, this next six months is going to be wild in energy markets, because these tankers are collectively carrying something like 5 million barrels of crude a day. Removing all of that in a short period of time is going to cause a lot of pain in a lot of places, but nowhere more than the countries that will no longer be able to sell their crude. 

Most notably Iran and the Russian Federation. So you’re is off to a rolling start and here we go.