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…
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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.
In light of recent moves by the US to lift some targeted energy sanctions on Venezuela to help bolster energy sanctions against Russia, we are sharing an earlier video on the difficulty the Biden administration would face in trying to rely on “partners” like Venezuela, Iran and Saudi Arabia to limit the pain of sanctioning a major global oil and gas supplier. The challenges facing the global energy market are also a central theme in my upcoming book, The End of the World is just the Beginning, out June 14. Pre-order info here.
In an effort to ease Europe’s transition from Russian energy, the Biden administration has given the green light to two European oil companies—Italy’s Eni and Spain’s Repsol—to ship Venezuelan oil to Europe (and nowhere else) to cover debts.
This resumes a practice that was halted in 2019 by US-imposed sanctions. While this move will not drastically improve Europe’s situation, or affect global oil prices at all, it will boost Venezuelan President Nicolás Maduro’s image in his country. For several years, the US has recognized Juan Guaidó as Venezuela’s “Interim President,” despite his inability to oust President Maduro, even with ample US support.
Now the US is in the awkward position of returning to the negotiation table with Mr. Maduro, officially not the president of Venezuela, and relying on his government to ease global energy shortages. Interestingly, the Biden administration also granted permission to Chevron to partially resume operations in Venezuela, meaning the US supermajor can perform basic upkeep of its wells that it operates jointly with state-run oil giant PDVSA. Perhaps this is a hint at more to come, but at the moment Venezuelan crude will not be making its way to the US–nor will the Russian supplies of heavy crude Washington had been buying to replace it.
Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
And then there’s you.
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.
My fourth book, The End of the World Is Just the Beginning: Mapping the Collapse of Globalization is scheduled for release on June 14. In coming weeks we will be sharing graphics and excerpts, along with info on how to preorder.
Former Soviet states supply over 14 percent of the world’s energy. In this graphic from my new book, The End of the World is Just the Beginning, I ask the question: how long can former Soviet Union countries’ oil production last without Western technological assistance? Russia has invaded Ukraine and, just like that, we are going to find out the answer. With both Western oil majors and service companies heading for the door, we are already seeing lowered oil production. At the time of writing, the International Energy Agency forecasts that from May, nearly 3 million barrels a day in Russian production will be turned off.
With Russia’s production dimming, the world will look to the Persian Gulf for more oil and gas. Turning to the Persian Gulf, however, is simply swapping one conflict zone for another. Four-fifths of the Persian Gulf’s supply transits the Strait of Hormuz to reach its destination. Piracy can always be an issue. High food and agricultural input costs increase the possibility of social unrest in the region. In short, Russia’s invasion of Ukraine further destabilized an already unstable market.
As you can see, NAFTA supplies more gas and oil than it consumes, which is the ideal scenario. On the other hand, Europe, excluding the former Soviet states, cannot domestically satisfy its energy needs and is forced to rely on increasingly unstable import sources. Northeast Asia is in the same, if not more dire, boat. The EU at least has navies large enough to go out and secure its own oil. In Northeast Asia, only Japan has this capability.
To learn more on this topic make sure to look out for my upcoming book, which will be released June 14. We encourage those who can to preorder by clicking on the link below.
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.
My fourth book, The End of the World Is Just the Beginning: Mapping the Collapse of Globalization is scheduled for release on June 14. In coming weeks we will be sharing graphics and excerpts, along with info on how to preorder.
Much of the angst in geopolitics since 1950 has been about oil. The Americans promised their allies a safe, globalized economy. That required not only sourcing the oil, but then ensuring it could be transported to where it was consumed. And so the Americans by default had to guarantee both freedom of the seas and a degree of stability in the Middle East.
Looking back, the geopolitics of oil have proven to be surprisingly…straightforward. Oil exists in commercially accessible and viable volumes in only a few locations. We might not like the challenges of such locations, and those challenges may have absorbed an outsized chunk of everyone’s attention in the late-industrial and globalization eras, but at least we are familiar with them. You think that “moving on from oil” will put this issue to bed?
Just wait.
In “moving on from oil” we would be walking away from a complex and often-violent and always critical supply and transport system, only to replace it with at least ten more. A world in which we “electrify everything” requires an order of magnitude more copper and lithium and nickel and cobalt and graphite and chromium and zinc and rare earths and silicon and more. Take a peek at the graphic below from the industrial materials chapter of my upcoming book, The End of the World is Just the Beginning.
We won’t “simply” be dealing with Russia and Saudi Arabia and Iran; we will all need to engage regularly with Chile and Bolivia and Brazil and Japan and Italy and Peru and Mexico and Germany and the Philippines and Mozambique and South Africa and Guinea and Gabon and Indonesia and Australia and Congo and China and, oh yeah, still Russia.
The future is darker, and less green, than you think.
