Russia and Europe are tilting toward confrontation. The European defense posture for the past 70+ years has been predicated on NATO–a fancy acronym for “the United States is our security guarantor.” What can Europe expect following the US presidential election in November?
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The past few weeks have been…eventful. I make my living anticipating and explaining and projecting change, with an unfortunate emphasis on destabilizing and disintegrative change. Pre-coronavirus the world was already hurtling through its most rapid breakdown in living memory; Coronavirus has accelerated…everything.
Times of extreme change are often painful, but for many they provide opportunity. Leaders often shine during times of extreme change. History tends to remember people who help their people and institutions navigate periods of disruption. Reagan’s speech at the Berlin Wall ended the Cold War. Yeltsin standing on a tank, defying the military put a bullet in the Soviet brain. Meir launching a worldwide assassination program made tiny Israel a global power. Churchill pledging to never surrender set the stage for the Nazi defeat. Ataturk defying Europe’s post-WWI carve-up plans ensured that, eventually, the Turks would return as a major power. In moments like these, a few countries pull away from the pack and reinvent themselves.
I haven’t seen any of that so far in the coronavirus crisis. Anywhere. Honestly, it is a little disappointing that no world leaders are rising to the challenge. While some leaders have dealt with the crisis competently, I haven’t seen any effort by any leader to harness the crisis to put their country on a more solid footing or to prepare for the post-COVID future. The lack of global leadership effort is simply mindboggling.
Let’s run through the list:
Emmanuel Macron has hitched his star to the idea that EU countries with solid budgets (that is, the countries less spendthrift than France) should shell out more money to help the poorer countries (that is, countries like France) get by. That certainly generates him some gravitas in Rome and Lisbon, but personifying the concept of asking for a hand-out isn’t what leadership looks like.
Germany’s Angela Merkel was supposed to be retired by now. Her chosen successor stepped back in early February, just before we all became obsessed with coronavirus. With her retirement plan in tatters, the Indispensable European is now once more unto the breach, dealing with intractable issues in her quiet, competent way. Unfortunately, she is constrained by her country’s savings-obsessed culture. No one in Germany wants to bail out Europe’s weaker members, particularly since Germany’s forward-looking, keep-your-powder-dry medical and financial approach has (so far) proven successful while Southern Europe’s spend-it-even-if-you-haven’t-got-it mindset has not. Honestly, Merkel looks like she’s just tired of it all. I feel exhausted just reading about her. (And frankly, she should be tired. She’s been shoveling Europe’s shit for over a decade.)
Even if everyone loved Brexit and how Prime Minister Boris Johnson has handled it, Johnson just now emerged from some quality time in a freaking COVID ward (just in time to bring his new baby home). The UK in general – and Johnson in particular – is in no shape to lead much of anything.
The orders to tamp down any discussion of coronavirus in Japan in order to maximize the chance of the 2020 Summer Olympics being derailed undoubtedly came from the top, making Prime Minister Shinzo Abe directly culpable in a spreading epidemic in the world’s oldest national demographic. Needless to say, few are looking to Tokyo for a how-to guide.
Canada’s Justin Trudeau has the look of a man who has been completely overtaken by events…because he has been. That’s less a judgment of his leadership or his team’s management skills, and more the crystallizing realization in Canada that there is no future for Canada unless it does everything of substance hand-in-glove with the United States. That includes trade policy and energy policy and China policy and…anti-COVID efforts. Trudeau has been (repeatedly) blindsided by whatever fresh spasms of oddity have erupted from the White House, and he simply has no option but to make the best of it. Pragmatic? Yes. Necessary? Certainly. But the liberal flame has most certainly gutted out.
Russia’s Vladimir Putin proudly proclaimed Russia had COVID “under control” just ten days before the Moscow mayor launched a lock down. There’s been broad spectrum public criticism by health care workers of the Russian government’s (mis)management of the epidemic, that has progressed to several doctors committing suicide by jumping out of buildings (a favorite technique of the Russian security services for disposing of troublesome personalities). This would be bad enough at any time, but Russia’s educational system collapse in the 1990s means Russia doesn’t have a particularly deep bench of health care staffers. COVID combined with the government’s response to the bad PR coming out of the health care sector is gutting what’s left of an already woefully inadequate health care infrastructure. Needless to say, while many countries want to manage the message, no one else is liquidating their precious health care workers to do so. (And incidentally, the Russian bot farms are hard at work spreading bat-shit crazy COVID-related conspiracy theories so please quit getting your COVID news from Facebook.)
Not to be left out, most of the world’s secondary powers have slightly wacky nationalist leaders who are proving…wackier with every passing day.
India’s Modi is working diligently to disenfranchise a large portion of his own population, and seems genuinely surprised when there is (violent) push back. Turkey’s Erdogan is gayly skipping his way down a neofascist path, setting the stage for (another) harsh, ethnic-based, wipe-out of a conflict with the Arabs to the south, the Europeans to the northwest, and the Russians to the northeast. Brazil’s Bolsonaro seems committed to ensuring the epidemic hits his country as hard as possible, in part by personally leading press-the-flesh rallies against COVID-containment and mitigation efforts. Mexico’s Andres Manuel Lopez Obrador is nearly as obtuse on the topic of the virus as Bolsonaro. Moreover, he has decided against providing much of any support to Mexican firms during the crisis, ensuring that Mexico’s recession will be longer and more difficult than it needed to be.
The number of leaders who have risen to the occasion is vanishingly small. Korea’s Moon Jae-in and Taiwan’s Tsai Ing-wen have done a phenomenal job of managing the COVID epidemic, but much of the credit must go to those countries’ intelligence and diplomatic corps who are arguably the most attuned to regional disruptions. After all, for them threat detection/assessment is a matter of day-to-day survival, and their hawklike watching of China is what provided their countries’ health services with the advance warning the situation necessitated.
Honestly, the only leader who has truly outperformed is Prime Minister Jacinda Ardern of New Zealand. But while Ms Ardern continues to impress, her country’s geographic isolation grants the Kiwis virus containment/limitation options denied the rest of humanity. There are a few lessons there for others, but only a few. Yet even with these three bright spots, no one outside of their respective countries is looking to Moon or Tsai or Ardern for leadership.
That holds true pretty much everywhere. With the possible exception of Angela Merkel, not many people have looked to any of these leaders to be authorities on regional issues, much less global ones…ever. Part and parcel of true global leadership is that there can really only be one. Since the Americans for the past 70 years have provided the security architecture and economic capacity for a global system to exist, it has fallen to the man in the White House to design the response, set the course, provide the resources and, to be blunt, lead. That’s triply true in the case of the meaningful international institutions which provide the sinew of global cooperation.
Those days are over.
Since his election, Donald Trump has functionally ended NATO, eliminating the single greatest security alliance in human history. Last year the Trump administration functionally destroyed the World Trade Organization, the only institution capable of empowering the multilateral trading system. Last month the Trump administration ended American funding for the World Health Organization. A flawed institution? Sure. But to abandon it during a pandemic was, in a word, questionable. The American alliance with South Korea – long one of America’s three most loyal allies – is likely to end this year at Trump’s behest. TeamTrump is even drawing up plans to pull intelligence assets out of the United Kingdom, America’s oldest, closest, and most capable ally, in protest over the Kingdom’s Huawei-linked telecoms policy.
It doesn’t really matter whether you think Trump’s actions are warranted or otherwise. The point is that the United States de facto controlled these institutions and alliances. By leaving or killing them while simultaneously failing to establish domestically-run alternatives, Trump has vastly reduced the ability of the United States to manipulate the world. That isn’t leadership. That is abdication.
Nor is it purely an international question. Domestically, Trump is a standout in that the longer he is in the White House, the less competent he appears to be at using the tools of domestic power.
I’m not talking here about Trump’s politics, policies, or even personality, but about his gob-smacking lack of managerial skills. Nearly three and a half years into his term, there are still hundreds of positions throughout the federal bureaucracy which remain unfilled, a disturbing number of which deal with issues of health. Headless bureaucracies are broadly useless except to carry out the last orders that they were given. It is with more than a touch of irony that I must note that despite all sound and fury to the contrary, Trump’s pathological unwillingness to engage with the federal bureaucracies has actually entrenched Obama’s regulatory disfunction rather than excised it.
Nor has much of what Trump has done trimmed those bureaucracies down to size. After all, reducing staff and mandates and budgetary outlays takes active leadership, and Trump is one singularly disinterested and disengaged leader. Since Trump hasn’t disbanded the agencies or programs, America has been landed with all the expenses of a sprawling bureaucracy, but few of the benefits.
Add in daily COVID briefings in which Trump seems pathologically committed to showcasing his furiously deliberate lack of knowledge, and Trump’s levels of respect at home and abroad are at the lowest of his presidency – and trending very firmly down. Imagine how weak he will look in a few months (weeks?) when the United States experiences its second coronavirus wave.
Absent from this list of not-necessarily-failed-but-certainly-not-successful leaders is, of course, China’s Chairman Xi Jinping. Understanding just how disastrously Xi has mismanaged the coronavirus crisis and just how much permanent, irrevocable damage his “leadership” is causing China requires an entirely independent newsletter.
Stay tuned for Part II…
With the world under COVID-related lockdowns, I’m pretty much as home-bound as everyone else. That’s nudged me to launch video conferences for interested parties on topics ranging from food safety to energy markets to the nature of the epidemic in the developing world. While most of these events are for a set fee, my next video conference will be free of charge. Space, however, will be limited.
Join me May 19 for a once around the world of where we stand in the current crisis. Which countries are suffering most critically? Which are pulling ahead? What the shape of the pandemic will be in the weeks and months to come? What will the world look like once coronavirus is in our collective rear-view mirror? As with all the video conferences, attendees will have the opportunity to submit questions during the event.
Newsletters from Zeihan on Geopolitics have always been and always will be free of charge. However, if you enjoy them or find them useful, please consider showing your appreciation via a donation to Feeding America. One of the biggest problems the United States faces at present is food dislocation: pre-COVID, nearly 40% of all foods were not consumed at home. Instead they were destined for places like restaurants and college dorms. Shifting the supply chain to grocery stores takes time and money, but people need food now. Some 23 million students used to be on school lunches, for example. That servicing has evaporated. Feeding America helps bridge the gap between America’s food supply (which remains robust) and its demand (which coronavirus has shifted faster than the supply chains can keep up).
A little goes a very long way. For a single dollar, FA can feed one person for three days.
Oil demand is relatively inelastic. That’s a fancy-schmancy economic term that means people and firms’ energy demand doesn’t vary very much from day-to-day or even year-to-year. Driving to work is perhaps the most accessible example. You do it every work day. If you don’t, you don’t work. And so you drive. Your gasoline demand is stable. Inelastic. Doesn’t matter much if gasoline sells for $1 or $4.
On the price side, this means the “normal” rules of supply and demand barely apply. Even minor shifts in supply or demand have wildly outsized impacts on price. We’re used to seeing this as a shortage. China booms and oil prices go up. Iran and Iraq go to war and prices go up. Derivatives trading enters the world of oil and prices go up.
But such lopsided impacts also work the other way. In 1991 when it became apparent that the first Gulf War would be a cakewalk and threats to oil supplies were not going to manifest, prices collapsed. They did so again at the beginning of the 2007 subprime real estate crisis after being on a multi-year tear.
And now coronavirus is introducing the greatest shift in oil pricing in history. Based on who is making the guess (because no one really has good data yet), coronavirus-instigated quarantines have reduced global oil demand by somewhere between 15 million and 35 million barrels per day out of a pre-crisis level of 100 million. Global prices have plunged to as low as $20 a barrel thus far, and they have (a lot) further to go.
In the past, OPEC has often attempted to micromanage oil markets by adding or subtracting bits of crude. But never before have such changes occurred on anything but a multi-month time-frame, and never before have such changes shifted the balance by more than a couple million barrels at a time. Coronavirus’ impact is already an order of magnitude more than OPEC’s greatest action, and it all happened in just three weeks.
This evisceration of demand, the sheer scale of imminent producer collapse is only the beginning. Deepening economic dislocation combined with the greater regionalization of a post-COVID world means oil demand – and global energy markets – will never recover. Join Peter Zeihan April 10 for an exploration of the path forward for the global energy sector, with a heavy emphasis on which producers might be able to stay the course, and which we may not hear from for years.
As a rule I try to stay out of discussions about energy prices. Energy trading is a hectic business with a lot of stress, plagued by fleets of hot-headed issues that have nothing to do with supply or demand or technology. But that’s not the problem today.
The British government announced March 27 that Prime Minister Boris Johnson tested positive for coronavirus, making him the first world leader to do so. As the United Kingdom is an advanced democracy, here at ZoG we are not overly concerned with Johnson’s isolation and perhaps incapacitation or even death. Part and parcel of democracies is that succession is part of life. The UK will get through this one way or another.
However, there are many countries that are not democracies and there are many world leaders far older than Johnson…
We just had the second-biggest oil price drop on record as Asian markets opened March 8.
For the past couple of weeks the Saudis have been attempting to cobble together an oil production cut of about 1.5 million barrels per day. As of last Friday, they had been sufficiently successful to get buy-in from the bulk of both OPEC and non-OPEC members, but there was one niggling hold out: Russia. On March 7 any pretense of a deal collapsed and the Saudis committed to flooding the market. First, they lowered their asking prices for crude being shipped to Europe and Asia. Second, they announced plans to quickly ramp up output from some of their spare capacity.
There was a hilarious day-long window where the Russian propaganda machine seized control of the narrative and fooled a host of financial reporters into proclaiming that Russia was going to war with the U.S. shale industry. It is difficult to delineate just how incredulous such a claim is since U.S. shale output has a lower production cost than Russian crude, but hey, people fall for propaganda allll the time.
The primary reason I laughed when I read those breathless headlines is that the Russians couldn’t launch a price war even if they wanted to do so. The problem is all about location. Much of Russian production happens on difficult land that can turn swampy in the summer and freeze solid during the winter. If those wells are shut-in, particularly during the winter, the risk of well damage (up to and including explosions!) is high. In the truly frozen sections of Russia, when the time comes to restart production, you can’t just turn them back on. You must re-drill them. In winter. Likely the following winter.
Russia has never cut production on purpose. Its “cuts” in 2019 were nothing more than some seasonal maintenance. The last time the Russians actually reduced output it was the Soviet collapse. It then took Russia nearly two decades to get back to where they had been.
Much of Russia’s power in the world, triply so in Europe, has to do with energy politics. The Continent counts Russia as one of its top three energy suppliers in any given year, and with the Brits now out of the EU that dependency will increase. Moscow (rightly) sees the American shale patch as a threat to that influence and so has sought to use propaganda to thwart the sector where possible, up to and including bankrolling some American environmental groups to lambast shale (ask Michael Moore and Jill Stein for details).
And at least to a degree, some of the Russian scuttlebutt on all things oil and shale are correct. The Russians supposedly have been ranting of late that the last round of Russian/OPEC oil output cuts in 2019 simply provided more market share for American shale to fill. That’s totally what happened.
Anywho, the Saudis made the reason for their moves crystal clear late March 8, saying they would compete for market share at every point they can reach where the Russians currently sell their oil, with the intent of underbidding any Russian offers. Saudi Arabia is nearly unique in that it can turn production on and off on a three-month time scale. Most other countries can’t, and certainly not the Russians. In fact, the only oil production zone in the world that can adjust faster than Saudi Arabia is…the American shale patch, where new wells can come online in under six weeks, and where depletion rates are measured in months rather than years.
We’re already scraping the $30 a barrel level. That’s the number where about two-thirds of U.S. shale operators find themselves crying themselves to sleep at night. Even worse (or better based on your point of view), oil prices are likely to remain lower for longer.
The first reason is the most obvious:
Courtesy of the spreading coronavirus epidemic, best guess is nearly half of the Chinese workforce is still off-line this week, and much of China’s industrial plant remains shut-down due to quarantine efforts – most notably in the industrial heartlands of the Yangtze Valley and the Pearl River Delta. China is undoubtedly going to suffer a real recession this year, which will absolutely impact manufacturing supply chains as well as the supply of consumer products globally in the second and third quarters. Chinese oil demand has probably dropped about 2 million barrels per day.
Avoiding additional widespread infections throughout the rest of China is probably statistically impossible at this point, and it is spreading globally like, well, a virus. Iran, Italy, Switzerland and South Korea have robust epidemics that have erupted in just the past two weeks. Follow-on epidemics are all but certain in France, Germany, the United States, Canada and, well, nearly everywhere else later this month and into April. The virus tends to hit less harshly than a cold in 6 out of 7 cases and is not particularly lethal if you are under age 70 and otherwise healthy, so CALM DOWN, but for everyone’s sake follow normal sanity about exposure and hygiene. Following sanity means less movement and travel and interaction and since oil is the fuel of transport, that means less oil gets used. Everywhere.
The second reason is more…colorful. Riyadh and Moscow have rarely gotten along, with their biggest big blow-up occurring at the instigation of none other than Ronald Reagan. In the mid-1980s the Saudis expanded oil output in order to wreck the overextended finances of the Soviet Union. It was part of a collage of factors which heralded the Soviet collapse. With the Russians increasingly active in Iran and Syria and Iraq and Afghanistan, the Saudis have plenty of reasons to dust off an old tool and whap the Russians on the face.
The third reason is more…personal. With the Americans stepping back from the world, the Saudis are finding themselves facing off against the Iranians without the American buffer between them. The Trump administration’s anti-Iranian sanctions are strangling the Iranian economy, an economy that survives on oil exports. Shrinking what little income Iran is still getting via a price war isn’t a dumb move.
The fourth reason is simple economics. Saudi Arabia is annoyed not simply by Iran and Russia, but other oil producers which range from Venezuela to Ecuador to Libya to Nigeria to Angola to Norway to Azerbaijan to Kazakhstan to…American shale. Saudi Arabia has lower production costs than them all. Anything that takes the snuff out of the competition is something that’ll make the Saudis smile. Of all of these, U.S. shale will bounce back fastest, but there will be a lot of bankruptcies and consolidation between here and there. Other countries will face outcomes far more painful.
The final reason is less about economics and local strategy and more about resetting Saudi Arabia’s position in the world. The Syrian Civil War is in its final chapter. The Iranians and Russians are on the winning side…while the Saudis are on the losing side. If Russian-Saudi relations are already deteriorating, it doesn’t take much of a push for the Saudis to remind the Russians (and everyone else) that there is another field of competition – one in which the Saudis excel and the Russians (and everyone else) do not.
The New York Times dropped a fun piece last week asserting a coalition of like-minded national security and intelligence professionals are neck-deep in an offensive cyber operation against the Russian electricity system. The article suggests the hacking was meant to provide a cudgel to beat Russia with should it intervene in American elections again. The real kicker was the assertion made by a host of anonymous sources that not only was U.S. President Donald Trump unaware of the operation, but that the sources were afraid to tell him for fear the White House would shut the operation down.
There’s a bit of peeling required for this particular onion:
Computerization didn’t happen all at once. At first computers were multi-billion-dollar monuments of circuitry that only major governments could afford, to be used “simply” to compute complicated math (ergo the term computer). They certainly weren’t hooked into civilian infrastructure. Besides, there was nothing to “hook” into. Pre-1980s tech was analogue and manual, not digital and automatic.
Fast forward to the 1980s and this changed rapidly. The marriage of now-more-attainable computers to telephony brought us modems long before it brought us smartphones. That linkage enabled the first computer networks to snake through the worlds of finance, media, energy, academia and manufacturing. As computers became ubiquitous, the possibility of extreme damage being inflicted upon the average American citizen expanded exponentially.
A new policy was required for this new era.
The president at the time was Ronald Reagan. His executive guidance was threefold:
First, the U.S. government would provide no cyber protection to any part of the civilian system. Individual firms and citizens were wholly responsible for protecting their computer systems from outside threats.
Second, the U.S. government would maintain an absolutely massive hacker corps with standing orders to hack everything and put malware and backdoors into every imaginable foreign system.
Third, the U.S. would deign to identify precisely where its red lines were.
These three points explain why it is so simple for Nigerians to defraud your grandmother, why the Russians could interfere in the U.S. elections with ease, and why everyone is so afraid to go after the really important stuff: infrastructure in the United States. In essence, America’s cyber policy is a lot like the rest of its armed forces: you can poke and prod the exposed flanks of the behemoth and you might or might not get swiped at for your trouble, but if you ever do something that really draws its attention, well… you’d better have a great bunker.
In the event the U.S. ever did decide to cut loose, it would have a remarkably shitty quarter. The lack of cyberdefense would ensure that power grids would fail, vulnerable city bureaucracies would be left helpless, and all the businesses that forgot to update their Windows operating system from last decade’s would find they no longer have computers. In other words, it would hurt. But whoever the U.S. was going to war with would find themselves facing off against nearly four decades of surveillance, planning, and preparation by skilled, vengeful nerds. In the best-case scenario (for the targets), they would regress a century as everything from power to water to communications to shipping simply seized up, never coming on-line again until a complete computer-free overhaul was completed.
The Reagan administration’s guidance on cyber sat broadly unchanged for the next four presidents. Offensive cyber was used rarely and the U.S. refuses to discuss it. It is only under Donald Trump that some shifts have occurred. In Trump’s early months as executive the U.S. government leaked it had done something I find hilarious:
It didn’t simply identify the specific Russian agents who had interfered in the United States’ 2016 presidential elections, it sent cease-and-desist letters to those agents at their home addresses complete with enough personal touches to drive home to the Russian hackers that the U.S. government knew more about their personal lives than the Russian government itself.
What all this makes clear is that the U.S. realized it had undersold itself and underutilized its tools, which is quite literally the last thing you want to do with a deterrent. But times are changing and so, it appears, the pace of operations is picking up.
These operations involve extremely detailed pre-operational surveillance and planning so that when the time comes, the real break-in can happen easily. It creates options. The operation can go farther and, as the Times claims happened here, an implant ready to hurt critical infrastructure can be left at the ready. It’s a line that until recently the Americans claimed they did not cross except in exceptional cases.
The problem, of course, is that none of this, right up until the attack occurs, is public. Which makes deterrence more than a little bit of a problem.
So let’s look at that Times article again:
Is the U.S. hacking the Russian power grid? Certainly. The U.S. has been hacking the Russian power grid since before Gorbachev.
Is there a conspiracy within the U.S. government against Donald Trump? Certainly not. Anyone hacking the Russian power system is simply doing their job as demanded by Reagan and HW Bush and Clinton and W Bush and Obama… and Trump. It’s about planning and, if the Times is right, prepositioning assets. Not executing a broad-scale attack.
Is Trump aware that the Russian power grid is being hacked by American agents? Of course. Everything that matters in Russia is being hacked by American agents. Ditto for China. And Iran. And a follow-on list of countries so long I’m not going to go into because of the hate mail it would generate.
Does the national security establishment dislike Trump? Well duh. Trump is upending seven decades of tradition. That’s awkward even on a good day.
As to the issue with the Times article, however, I’m going to call bullshit. If an anonymous source is concerned the president will shut down his favorite top-secret anti-Russian program, blabbing about his favorite top-secret program to the Times — which makes its bones publishing everything in a public forum — would indicate that said agent isn’t all that bright.
In fact, the only people this article seems to be alerting are the Russians. But as the author pointed out, the government raised no national security concerns about the article. That suggests this is all about sending the Russians a message.
The context of that message is one I can only guess at, but I must underline repeatedly that the United States is not on the verge of shutting off the lights in Russia. There is an enormous difference between hacking something like the Russian power system to install malware and activating said malware. The former is rude… and a normal part of state policy. The latter would crash air traffic control and shut down mass transit and darken hospitals. It would kill a lot of people and be a flat-out act of war.
It also isn’t going to happen without a change in strategic relations far more radical than anything Donald Trump has brought to the table to date.
But the Americans now have drawn a line in the sand, publicly. The question is who is going to cross it.
The way the Trump administration withdrew the United States from the Iran nuclear deal has consequences, but for the most part I’m less concerned about the local fallout than I am about the ripple effects beyond the Middle East. Let’s start in Europe.
The response from the European governing institutions to the American withdrawal from the nuclear deal can be best summed up as righteous indignation.
In part this is economic: the Europeans were fast to pour investment into Iran after the deal was codified and are not looking forward to rolling those efforts back.
In part it is political: the Europeans are signatories to the deal, working long and hard to show Europe could contribute to a strategic normalization beyond their borders. No one likes it when another country simply informs you that your efforts don’t matter to them and they are imposing their own reality upon a situation.
In part it is personal: French President Emmanuel Macron was sure he had a strong relationship with Trump, and his personal charm offensive a few weeks back was intended to sway Trump to keep the Iranian deal. Such a public rebuke has to sting.
In part it is institutional: bureaucrats are supposed to ignore politics and strategy when making policy, and the folks within the European Commission (said bureaucrats) are the ones most cheesed-off by the Americans’ dictating of Europe’s economic and security policies. Commission officials have been talking of counter-sanctions against the United States, as well as offering legal and financial guarantees to firms who still want to do business in Iran.
But the politicians are singing different tunes, not just from the bureaucrats, but from one another. Macron has, as expected, been if anything even more strident than the Commission. On the other end of the spectrum, a few Central European countries sabotaged a French effort to condemn the Americans for moving their Israeli embassy to Jerusalem – in part to stick it to the French, in part because they plan to move their own embassies.
But as seems increasingly the case, the person who matters most is German Chancellor Angela Merkel. While lamenting the end of the Iranian deal, she sees bigger forces at work than “merely” the future of the Middle East. American policy evolutions/gyrations under the Trump administration have adversely affected many, but none more so than the Germans.
Brandenburg Gate, Berlin, Germany
Germany is individually powerful, but anything it does to enhance its national power tends to spark an alliance among its neighbors to tear it down – typically in a cataclysmic war. The only way the Germans – and by extension, the Europeans – have ever found around the problem is to bring in an external security guarantor who forces everyone to be on the same side. That’s the United States.
And so Merkel has watched in increasing horror as the Americans stop treating the Europeans as allies, or even partners, but instead as competitors. The prospect of American secondary sanctions must terrify the chancellor: Germany is the world’s third-largest exporter and nearly half of German goods are traded outside of the EU on markets that are managed by the SWIFT system the Americans plan to use to box Iran in. Even a minor application of American sanctions would be catastrophic to German economic and political stability.
To that end Merkel noted two days after the Americans withdrew from the Iran deal that “it’s no longer the case that the United States will simply just protect us. Let’s face it, Europe is still in its infancy with regard to the common foreign policy.”
But while her words were a call for Europe to deepen its integration, her actions indicated something very different. If the Americans cannot be trusted to put Europe first, then the Germans have no choice but to act to prevent a broad-scale coalition from containing German interests. That means courting new allies… from beyond Europe. And so after making the comments that Europe needed to pull together, Merkel didn’t travel to Brussels. Or Paris.
She went to Moscow.
Now don’t overreact. I’m not saying that Molotov-Ribbentrop v2.0 is just around the corner. What I’m saying is that even with seven decades of the most favorable strategic environment the European continent could have ever hoped for, that a meaningful strategic and political merging of the European countries still hasn’t happened. That forces the individual powers of Europe to chart their own – individual – destinies. For the United Kingdom that means Brexit. For the Italians that means a new populist government that will veto any effort to further federalize the EU. For the French that means some serious globetrotting to build up an independent strategic position.
And for Germany it means putting some irons in the fire that have nothing to do with Europe whatsoever. That means economic and energy connections to Russia. That means at least giving Russian demands a hearing. That means taking Russian strategic interests into account as concerns the countries between Germany and Russia.
OK, maybe that does sound a bit like a Molotov-Ribbentrop redux.
Never forget that the founding concept of the EU and NATO were to keep the Americans in, the Russians out, and the Germans down. All three of those pillars are gone.
History is moving on.
Next up:The Chinese discover they have no clothes.
The Israeli Air Force announced April 21 that it would scale back participation in the Red Flag exercises in Alaska. The joint Red Flag drills are regular events hosted by the United States, with the upcoming April 26-May 11 exercises allowing the Israelis to train in an environment they rarely experience (non-coincidentally, Alaskan terrain is somewhat similar to the Persian highlands). IDF spokespersons attributed the decision to keep Israeli F-15s at home due to the changing situation assessment of tensions along its northern border that have left everyone holding their breath.
We weren’t kept waiting long. In the early morning hours of April 30, the Israelis launched a series of significant strikes throughout western Syria, targeting infrastructure that supports weapons development and distribution. A rocket factory made for some particularly impressive fireballs.
The Israelis normally hold their cards much closer to their chest than this – particularly when it involves possible actions in their close-in neighborhood. But these are not normal times. The open secret is that the United States sees almost no role for itself in Syria going forward (at least, compared to what American engagement in the Middle East typically looks like). The Americans’ primary goal in Syria has been the eradication of ISIS. With the terror group’s holdings nearly obliterated, so too goes a compelling case for extending American involvement in Syria. This is compounded by the fact that a country as broken as Syria needs the kind of costly, involved, long-term occupation and rebuilding efforts the Americans pursued in Germany and Japan after World War II – a cost the Americans were unwilling to pay in either Iraq or Afghanistan.
The pending American withdrawal evolves the Syrian War in a much fiercer direction. Initially, the primary players in the fight were domestic: the Assad government, ISIS, the Syrian Kurds, and the various collections of anti-regime elements who seemed to occupy every spot on the spectrum from wonky democrats to those who felt ISIS would have been more successful if it had just been a bit more brutal. Foreign powers used these factions as proxies to meet their tactical and strategic needs in the country without committing significant troops. It also created plausible deniability in a very volatile situation with many major actors. In exchange, these factions received intelligence, money, weapons and on-site support far superior to anything they could hope for otherwise, not to mention promises for their role in the future in Syria that may or may not be fulfilled. While those foreign players could certainly make their presence felt, using proxies inherently means the foreigners were rarely present in sufficient strength to dictate events on the ground. (The sole exception might be Iran’s proxy militant group in Lebanon, Hezbollah, which has apparently redirected nearly all its fighters into the Syrian theater to assist the Assad government. More on that exception in a moment.)
The presence of U.S. forces in Syria has limited what all the outside players could do, as well as the sorts of risks they were willing to take. The Americans may have never had more than a couple thousand troops in-country, but their vast array of naval firepower combined with the base at Incirlik, Turkey meant they could at a moment’s notice squeeze off missile and bomb barrages at any target they desired. There was no point in baiting the eagle (as Moscow discovered Feb 7 when the Americans obliterated a Russian probe attempt).
But take the Americans out of the equation, and the lid comes off the pot. And since everyone has different goals, Syria is about to get consistently lively:
Russia was an early participant in the Syrian conflict for a mix of reasons:
Syria is one of the few of Russia’s Cold War-era proxies that is still of some use, so propping up Assad holds some slight strategic value all its own.
Politically, being involved where the Americans were not helped burnish Russia’s credentials as a player, guaranteed it a seat at any table that discussed Syrian issues, and was an easy propaganda win back home.
Being in Syria annoyed the crap out of the Turks, forcing Ankara to rivet its gaze to its south rather than to the north where more core Russian interests were in play.
Being able to twist the Syrian fighting this or that way enabled the Russians to generate scads of refugees on demand. A mix of geographic, climatic and infrastructure patterns meant that most of those refugees could only go north to Turkey and Europe, enabling Moscow to scramble European politics with nothing more than a few dozen bombs.
More recently, the Russians have turned Syria into a vast testing and training range for its forces. Russia’s military may be huge, but it hasn’t seen 1% of the sort of expeditionary combat American forces have seen since 1992. Syria let’s the Russians play catch up.
What do all these reasons have in common? Russia has a vested interest in seeing the Syrian War never end.
Moscow, Russia
Iran is the closest to a strategic ally that the Assad regime has, and Syria has quite surprisingly – to Iran – become the lynchpin in Iran’s entire regional strategy. The most important tool Iran has is the militant group Hezbollah, which Iran uses not simply as a foothold in the Levant, but to threaten Israel and pressure the United States. When Saddam ran Iraq, the Iranians were able to shuttle support to Hezbollah via Iraq and Syria into Lebanon. Well, the Americans overthrew Saddam and now civil war threatens Syria. The Iranians didn’t just have no choice but to go all-in in Syria, but they are now the power seeking to maintain governments in the region rather than seeking overthrow them. That requires a degree of political, strategic, military and economic commitment that is downright… American.
Assad may have won the civil war, but now Iran has to hold the place together, and as the Americans learned in Vietnam, Afghanistan and Iraq, the second phase is far more difficult. But unlike the Americans, the Iranians can’t just go home. An ongoing Assad victory is absolutely critical to maintaining Iran’s current sphere of influence from Mesopotamia to the eastern Mediterranean. In short, the Iranians can never go home.
Directly opposite the Iranians are a series of powers that seem to be somewhat confused about what’s going on in their neighborhood: the Gulf Arab states – Saudi Arabia, the United Arab Emirates, and Qatar. Their efforts in Syria are, in a word, messy.
Part of this is due to geography: large swathes of desert terrain separate the Gulf Arabs and Syria.
Partly it’s a lack of experience: the Gulfies are among the most dependent countries on earth when it comes to relying on the American security blanket.
Partly it’s ineptitude: Saudi and Emirati and Qatari-backed groups spend as much time fighting each other in Syria as they do Assad or anyone else.
It all adds up to a lot of ammunition backed by a lot of money that’s causing a lot of deaths. And that just might be the point. For decades the Americans’ took on the mantle of preserving countries in their current form; If your job is to maintain the global system, then you want stability. But with the Americans leaving, the only power that really wants a stable Syria is… Iran. And if there is one thing the Saudis do not want, it is an Iranian-dominated anything. Better to burn the whole place down than allow the dust to settle in an arrangement that doesn’t suit Saudi preferences.
Which puts Israel and Saudi Arabia more or less on the same side, with Israel in the perfect strategic and political position. The regional powers with which the Israelis have passably good relations – Turkey, Saudi Arabia, the UAE, Qatar and Egypt – are fighting against Assad and Iranian influence, which means Israel is free to strike targets according to its own national security prerogatives with little risk of even angry tweets from regional stakeholders.
The Syrian War has quietly ushered in a new era of Israeli security relations with its neighbors: rather than relying on the Americans, Israel is aggressively, proactively and decisively pursuing its national security interests and intervening in Muslim conflicts… and no one except Syria and Iran has anything to say about it. The Israeli Air Force has attacked over 100 targets within Syrian territory since 2012, from suspected missile and arms deliveries en route to southern Lebanon to high value Hezbollah and Iranian targets. With the Iranians now the force for order in the country, the Israelis will gleefully expand their target list to anything that will cost the Iranians lives, equipment or money.
It’ll be a long list.
Tehran, Iran
The role of Turkey in Syria has been… unmoored for a reinforcing pair of reasons.
First, Turkey’s World War One defeat was so total and humiliating that Turkey in essence took a vacation from the world that lasted a century. The Turks are out of practice using the political, diplomatic, economic and military tools that are standard for pretty much everyone else. The learning curve is fairly steep, but it is still there and the Turks are starting from almost zero.
Second is that the political situation within Turkey is flattening that learning curve. President Recep Tayyip Erdogan has largely completed the process of purging the country of, well, everyone who opposes him. That has left this very Trumpian personality with zero competent allies, which means he is running Turkey’s $900 billion economy, 80-million citizens, and 900,000-strong military all by himself. Such concentration of power makes for erratic decision-making, with Erdogan highly vulnerable to bad intelligence, fake news, Russian manipulations, personal mental blocks, and a host of other issues that would routinely be filtered out in a more decentralized system.
At the end of the day the Turks’ primary concern in Syria is the military capacity and de facto independence of the Syrian Kurds. Ankara/Erdogan fear – with significant reason – that a Syrian Kurdish statelet will provide a template that could be reproduced within Turkey’s own Kurdish regions. To that end and despite Erdogan’s best efforts, the Turkish military/intelligence apparatus is steadily constructing effective networks of military groups throughout northern Syria. When the Turks do decide to move in force, they’ll be able to.
And let’s not kid ourselves. Unlike the United States, Russia, Iran or Israel, Turkey can put troops on the ground in Syria in the hundreds of thousands if it wants to and the Turks have the motivation and staying power to see their strategy through in what will be a complex and bloody new stage in the war. It is ultimately Turkey that will decide what Syria will look like, and years from now we’ll all be looking back at the 2018 American withdrawal as the event that unleashed Turkish power in the region.
I’d like to end with one particularly dark thought. The primary reason the Americans were in Syria at all was because a militant group called ISIS was stupid enough to post the beheadings of a few American co-eds on social media. Expunging ISIS is pretty much done and so the Americans are now leaving. But look at what enabled ISIS to exist in the first place: local sectarian divisions, multiple competing power centers, an arid geography that complicates regional consolidation, meddling outside powers, and a metric butt-ton of easily attainable military-grade weapons. None of these factors have gone or are going to go away. Every power playing in the Syrian sandbox is creating, sponsoring and supporting their own constellations of mutually-antagonistic militias. It isn’t so much a petri dish from which will emerge the next ISIS as it is an ISIS factory.
Thursday, March 22 was a big day, but before I get into the meat, there’s a couple of items I need to do a quick update/refresh on.
On March 1st the Trump administration announced tariffs on imported aluminum and steel. In the three weeks since the Americans have granted temporary waivers for a majority of the countries that send America the two metals, most notably Canada, Mexico, and the European Union. In the case of Canada and Mexico, it was so that the tariffs could be used as a cudgel in ongoing NAFTA renegotiation talks – something that has annoyed the Canadians and Mexicans more than a bit.
The European case is a touch more involved. Within hours of Trump announcing the initial tariffs, the European Commission – that’s the EU’s administrative/executive arm – announced a wide-ranging series of counter tariffs targeting firms headquartered in the districts of the entire Congressional leadership. I got a good laugh out of this. Not only did the Commission clearly have that list drawn up well in advance, it also highlighted just how ignorant they were of U.S. politics. Foreigners punishing Nancy Pelosi’s or Mitch McConnel’s districts for something that Trump did isn’t going to earn those foreigners any favors. If anything it might have encouraged the Americans to close ranks a bit.
(What Brussels was likely aiming for here was to copy the tried-and-true American strategy of selectively targeting countries in Europe that are causing problems in trade negotiations, for example putting tariffs on French cheese when France is causing issues in agricultural trade talks. That works well. But going after folks in unrelated industries who are not responsible for trade policy just tends to piss people off.)
All in all it was a traditional bureaucratic kneejerk reaction that can only come from a keyhole view of the situation, and Trump very quickly shattered the myth of European options by tweeting out that should those counter-tariffs come into play, he would simply bar the import of European automobiles into the American market. This would hit the Europeans on two fronts. First, the Americans are at least nominally still Europe’s security guarantor and any real trade war between the two would erase any pretense of alliance at a time when Turkey has become unhinged from NATO and the Russians are on the march (security issues are not a remit of the European Commission so such never entered into their calculus). Second, fully half the German economy is trade-dependent, and some 80% of the vehicles Germany manufactures are sent abroad. Any meaningful trade war would quickly wreck Europe’s core.
One can imagine the Prussian fury that surely flowed across Europe’s phone circuits when German Chancellor Angela Merkel called up the eurocrats to tell them what they were going to do. Those eurocrats have since cooled their jets and sought talks with the Americans on how to get a waiver for the aluminum and steel sanctions. Those talks were completed last week, and the Europeans made a very interesting concession. The EU only received its (temporary) waiver on the condition that they enter into talks with the Americans on presenting a joint position on aluminum and steel versus the Chinese.
China’s steel industry is the most overbuilt and oversubsidized sector in a country that is massively overbuilt and oversubsidized. It alone is now the source of the majority of the world’s excess steel capacity and global steel exports. A TransAtlantic gang-up makes a lot of sense.
Now back to March 22.
On that day President Trump announced tariffs on a mix of $50 billion to $60 billion of Chinese exports to the United States in retaliation for a product dumping, lack of reciprocity on market access, and intellectual property theft. The whiff of a trade war between the world’s two largest economies is in the air, and the American media is apoplectic… as it tends to be whenever it discovers the president did not die in his sleep. This time more serious commentators (i.e. the stock markets) also registered their concerns with most indexes selling off sharply.
The issue is this isn’t about “merely” $60 billion in goods. The Chinese development model is based on overbuilding, subsidization, product dumping, lack of reciprocity and intellectual property theft. Any serious effort by the Americans to pare any of that back cuts to the core of Chinese economic growth, employment, Communist Party dominance and the very political stability of the entire Chinese system.
But the Chinese have little leverage here. Let’s go down the list.
China is a massive exporter to the American market, but the converse is not true. In any trade conflict the Chinese get hosed economically.
The Americans maintaining of the global trade order is what enables the Chinese to export to everyone else. Just as the Germans fully realize that a fight with the US on trade is one in which they have no hope, so too do the Chinese (at least at the top, at least in private).
Even without the trade order, the U.S. Navy controls the oceans to an overwhelming degree. Even with recent expansions the Chinese navy is no more than 3% as powerful as the American Navy on a global basis. If a bilateral trade war were to evolve into something more shooty, the Chinese would lose nearly allexports and all imports – including some three-quarters of their oil needs.
North Korea is no longer a card the Chinese can play. Pyongyang’s recklessness with its nuclear and missile program has now attracted the full attention of President Trump – a man not known for his subtlety. There are only three ways forward for North Korea at this point. The United States nukes it which eliminates China’s only “ally”. The United States rings it with missile defenses which negates China’s own strategic deterrent. Or the United States cuts a deal that both Washington and Pyongyang can live with. Option 3 is by far China’s preferred option and Beijing is (quietly) facilitating a pending summit between Trump and North Korean leader Kim Jong Un.
The T-bill bomb that many have suggested is China’s supposed ace is utter rubbish. The logic is that in a real spat the Chinese, the second-largest foreign holder of U.S. government debt, could just dump some of the U.S. T-bills it holds on the market and crash the U.S. economy. That’s not how things work.
You cannot just walk up to the U.S. Treasury building and demand your money back; it’s a fixed term note.
Any interim sale of a T-bill to another party has to have a buyer. No buyer, no sale.
China could theoretically try and sell its T-bills whenever the U.S. Treasury was trying to sell new debt and that would raise the cost of U.S. financing. But not only is the U.S. T-bill market the largest in the world so it would have to be a big sale, but what would “massive” success bring? It would push down the value of the U.S. dollar. Considering the Chinese regularly intervene in their markets to push the U.S. dollar up so that they can sell more goods into the U.S. market, it would work at cross purposes to the set of Chinese policies that make the Chinese economy possible.
And of course, the U.S. Federal Reserve can simply mop up the T-bill market if it chooses by printing currency. It’s a perk of running the global currency.
It isn’t that the Chinese cannot hurt the Americans on trade, just that they can’t without also causing themselves catastrophic damage. It is an America-sneezes-China-gets-Ebola sorta thing.
Which brings us to the other news of the week. Enter John Bolton.
On March 22 U.S. President Donald Trump fired his national security advisor, General HR McMaster, a man whom many in the national security establishment have profound respect for, and replaced him with John Bolton, a man whom very few hold any respect for.
Many people might rightfully despise Bolton and all that he stands for. Critics say he has never met a country he didn’t want to bomb, a government he hasn’t wanted to overthrow, and an ally he didn’t want to intimidate. And when you look at his public statements on Iran, Iraq, Saudi Arabia, Turkey, France, Germany, the United Kingdom, Russia, China, Japan and the Koreas it is pretty easy to come to the conclusion that the dude holds some fairly strong and mean-spirited opinions. I tend to lean toward the majority view on Mr. Bolton when it comes to his policy preferences. That, and he’s a prick.
But no matter how unlikable he may be, what you can not say about Bolton is that he’s incompetent or inexperienced. If you can put politics and personality aside for a moment, Bolton is one of the most skilled diplomats the United States has ever had. He was a protégé of James Baker, arguably the best Secretary of State in modern times. He knows the ins and outs of how diplomacy – both hard scrabble and polite – works and just where to dot i’s or twist arms, send flowers or send ammunition. His most infamous innovation is that he fully embraces military options as part of the “diplomatic” toolkit, something that many diplomats are too meek or polite to say publicly, but he also excels at building ad hoc international coalitions on the fly to change international law as he did to rein in North Korean missile proliferation in the 2000s. He certainly breaks the mold that claims that diplomats have to be diplomatic.
The worldview of Donald Trump is far closer to Bolton’s heart than any other president, and it is obvious to everyone with a pulse that what Trump has been missing is someone who can translate TrumpTantrums (TM) into actual policy. For those (like me) who are frustrated with the lack of consistency in Trump’s actions, this could be a positive sign. For those terrified (like me) of all the implications of some of Trump’s positions, this could be horrible.
I don’t want to overplay this. The position of the National Security Advisor has exactly as much power as the president chooses to delegate. Some – like Condoleezza Rice and Henry Kissinger – had massive reach, while others – Susan Rice comes to mind – were barely in charge of their own stationery. But whether Bolton is large and in charge or simply tickles the part of Trump’s psyche that loves disorder while holding the door open so the bull can ravage the China shop, John Bolton may be just what Trump needs to translate his foreign policy goals into hard reality.
And the Chinese know it.
Consider the timing of events last Thursday. First, Trump announces his tariffs on China. Second, Chinese media explodes with vitriol and threats of retaliation. Third, the Europeans cut their deal with Trump to avoid the aluminum and steel tariffs should they join Trump’s efforts against China. Fourth, it is confirmed that Bolton will replace McMaster as Trump’s new National Security Advisor. Fifth, the Chinese government forces Chinese financial houses to massively intervene in Chinese stock markets to prevent a rout of epic proportions.
Beijing knows exactly what’s going on here.
If this is real, if Trump means to break the Chinese position (and maybe even the Chinese system’s back), then Bolton is a solid choice and tariffs are a good knife and Bolton will repeatedly use that knife in ways too effective and cruel for me to opine about at present.
Finally, a parting thought:
Trump is not a freshman president anymore. Might he be finding his feet? He seems to be linking issues and personnel and approaches together into a kind-sorta unified theme. If I didn’t know better, I’d say that Trump just might be in the process of getting a handle on this foreign policy thing.
