To Hack Or Not To Hack

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.

This Is How the World Ends, Part II

by Peter Zeihan, Melissa Taylor, and Michael N. Nayebi-Oskoui

Part I is available here.

Event 2 – Europe Guts Itself (May 10)

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 Syrian War, 2.0

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.
  • Partly it’s an issue of distraction: these same powers are also fighting a war in Yemen.

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.

Happy Monday.

Bolton in a China Shop

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.

  1. China is a massive exporter to the American market, but the converse is not true. In any trade conflict the Chinese get hosed economically.
  2. 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).
  3. 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.
  4. 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.
  5. 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.
    1. You cannot just walk up to the U.S. Treasury building and demand your money back; it’s a fixed term note.
    2. Any interim sale of a T-bill to another party has to have a buyer. No buyer, no sale.
    3. 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.
    4. 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.

Eyes on an Obscure Russian Minority

In The Accidental Superpower I noted that while the Chechens will always be a thorn in Russia’s side, that a different Muslim ethnic group — the Tatars — are the ever-present dagger to Russia’s heart.

Unlike the Chechens who are a semi-cloistered mountain people nestled in the Caucasus and so rarely leave their homeland, the Tatars are modern and cosmopolitan. They sit at the merger of the Oga and Volga rivers — the pair of navigable waterways elevate Russia to something more than just a wide-ranging country endowed with resources. As Accidental readers know, navigable waterways are the bedrock of economic success. They enable a people to establish internal trade, build their own capital, and move up the value-added scale organically.

Both the Oga and Volga are Russian rivers, but their junction is at the Tatars’ homeland. The Tatars also happen to live atop most of the major infrastructure that connects Russia to Siberia. Should the Russians ever lose control of the Tatars, they cease being a regional power, much less a global one.

In the past couple of years, Tatarstan has been simmering. Economic breakdowns, Kremlin confiscations of the regional oil company (Tatneft), and more recently a banking crisis. It’s been on my list to write about, but last night my former employer, Stratfor, beat me to the punch. Strat and I differ on many things of course, but they’re a great one-stop-shop for international news, analysis and intelligence that is so obviously lacking in national global media these days.

I’m happy to say that Stratfor was lost without me when I left back in 2012, but I’m even happier to say that they seem to have found their way in the years since — and are once again churning out some great work. This article, IMO, is emblematic of that.

Russia’s Eyes Focus on Tatarstan by Stratfor

Part II: The End of Europe

EU’s institutions are rearranging the Titanic’s deck chairs during a Godzilla attack with a tsunami on the horizon.

President Donald Trump entertained his first foreign dignitary Friday, January 27: UK Prime Minister Theresa May. The primary outcome of their trip? The two pledged to work towards the formalization of a “quick trade deal.”

This takes us all kinds of interesting places.

First, from a strategic point of view anything that binds the United Kingdom closer to the United States is phenomenal for U.S. power. Britain maintains the world’s third-most powerful navy, and soon will float the only functional supercarriers in the world not in the U.S. fleets. London is the world’s second-largest financial hub, and the chief route out for capital fleeing Continental Europe. London has centuries of bred-in experience manipulating political and economic systems the world over. Add in a wealth of preexisting bilateral political, economic and cultural ties, and if there is one country that is a natural complement to American power projection, it is Britain.

Second, the EU is spotlighting the path to its own end with a bizarre sort of enthusiasm. Technically, the May-Trump summit is illegal; under EU law only the European Commission — the EU’s executive — can engage in trade talks on behalf of its members, and the UK’s exit negotiations haven’t yet begun. Just to be sure that the Europeans know that this isn’t an accidental oversight, May has also announced the commencement of trade talks with Canada, Australia, New Zealand, Turkey and India.

 

 

The Commission and EU Parliament are bubbling with fury about how this won’t be allowed to stand, will poison the UK’s pending Brexit talks with the EU, and that Britain will be punished for it. But considering May has indicated that she prefers simply walking away from the EU to any sort of divorce deal that doesn’t serve London’s interest, the EU is absolutely bereft of leverage.

If there was an issue that could prove that the EU had some flexibility, a flat-out Brexit negotiation was it. It will be a negotiation that is predominantly economic in which the EU has lots of leverage and for which the EU has lots of options to choose from. This should be easy.

Guess not.

Such obstinacy pretty much dooms the EU in its grappling with its far larger problems: the EU faces a demographic implosion, a sovereign debt crisis that only increases by the year, anemic-at-best economic growth, a rising banking crisis, an aggressive Russia, an increasingly belligerent Turkey, waves of refugees as Mideast countries crumble, and so on. Rather that start reimagining the Union or getting on with the very real work ahead, the EU’s institutions are doing the equivalent of rearranging the Titanic’s deck chairs during a Godzilla attack with a tsunami on the horizon. Britain is already moving on, yet it looks like Brexit will consume all the EU’s emotional bandwidth for months (years?). Such ossification makes it scarily easy to predict how this will all go: everything that happens in the EU is now an institutional crisis.

Third, after decades of Continental military downsizing, the UK and U.S. are Europe’s security policy. May still went through the motions of pledging her support for NATO, which literally earned no more than a curt nod from the new American president — a man that, since his election, has made no secret of his belief that the alliance is already over. So long as Europe cannot come to terms with Brexit, it is a mighty reach to assume that the UK will continue going to bat with Trump for the sake of the Continent. Expect American drawdowns of its warfighting capabilities in Europe to begin in the not-too-distant future. The only question now is whether this is done in league with evolutions in U.S.-Russian relations or not.

 

 

Where does this leave Europe? Trump probably put it best by calling the EU a “vehicle for Germany.” That may sound harsh. After all, the EU is nothing if not a constant multi-lateral tug of war among all the EU’s 28 members. But consider what’s happened in the past year: The Brits are leaving. NATO is all-but-gone. There’s political stall — if not outright breakdown — in Italy, Spain, Austria, Belgium and the Netherlands. Poland and Hungary are wallowing in their moves away from democracy. Like it or not, planned or not, Germany is the center that holds.

And a quick glance through history indicates that a German center to Europe never holds for long.

The Absent Superpower

It’s finally arrived!

I’m happy to announce that The Absent Superpower: The Shale Revolution and a World Without America is finally in print and in stock. Here is a link to the purchase page on Zeihan.com. We will have a digital version ready by February 1st. Additionally, book format issues limit me in terms of graphics capacity to only black & white images but many of the topics I write about are in screaming color, so here is the map room for The Absent Superpower.

Which brings me to my next announcement: the Zeihan on Geopolitics website has had a face lift for the New Year. We’ll be populating it with more material during the next few weeks, particularly as the Know Your World section expands. Feel free to explore.

And if all that wasn’t tease enough, in lieu of a New Year’s newsletter, we’ve instead opted to share the introduction for The Absent Superpower…

Absent-Super-Power-book

INTRODUCTION


The Journey to The Absent Superpower

EVERYTHING IS CHAOS!

At least, that’s what it seems like every time you turn on your TV, radio, computer, or smart phone.

The European Union is falling apart, Syria is in meltdown, cybercrime is an hourly occurrence, the Chinese economy is gyrating wildly, Russia is on the march, the election of Donald Trump has Americans of all political stripes wondering what comes next, and the Kardashians get more press time than Congress. It’s enough to give anyone a panic attack.

Well, not quite anyone. Unlike the average person, all this craziness puts me in my happy place. Where most see the world turning itself upside down and inside out, I see a long-overdue shift in the global order. New trends emerging. New possibilities unfolding. For me, change is good for business.

That’s because my job is a bit…different than the standard. You see, I’m a geopolitical strategist. That’s a fancy way of saying I help organizations understand what challenges and opportunities they will be grappling with across the world in the years to come. As such I’m sort of a professional apprentice, rarely a master of any particular craft but needing to be able to hold my own in conversations about manufacturing and transport and health care and finance and agriculture and metals and electricity and education and defense and such. Preferably without pissing off anyone whose living is based off of manufacturing or transport or health care or finance or agriculture or metals or electricity or education or defense.

In many ways those conversations make me who I am. From the Air Force to the Pickle Packers, every interaction gives me a good hard view of the world, yet each of these interactions originates from a radically different perspective. Combine all those angles and interactions and perspectives and the unique information that comes from them with my private intelligence experience, and I’m granted the privilege of seeing something approximating the full picture — how the world’s myriad pieces interlock — and catch some telling future glimpses to boot. More than anything else, what I sell is context.

That picture and those glimpses and that context formed the bones of my first book, The Accidental Superpower, which was published in November 2014. In Accidental I made the case that the world we knew was at a moment of change: The Americans who had created, nurtured, enabled, maintained and protected the post-WWII global order were losing interest. As they stepped back the world we know was about to fall to pieces.

At any time in history such a shift would have had monumental consequences, but the American retrenchment is but one of three massive shifts in the global the order. The second is the rapid greying of the entire global population. Fewer people of working age translates directly into anemic, decaying economies — enervating global trade just as the Americans stop guaranteeing it. Third and finally, the American shale revolution has changed the mechanics — if not yet the mood — of how the Americans interact with the energy sector. Surging petroleum output within the Lower 48 is pushing North America toward outright oil independence; in the past decade the total continental shortfall has narrowed from roughly 10 million barrels of oil per day (mbpd) to about 2mbpd.

In the two years since Accidental published, I’ve had ample opportunity to re-examine every aspect of my work — some of my critics have been (over) eager to assist in such endeavors — and I fear that I may have been off the mark on a couple of points.

First, the American shale sector has matured far faster and more holistically than I could have ever expected.

Despite a price crash in oil markets, despite ongoing opposition to shale among a far from insignificant portion of the population, despite broad scale ignorance about what shale is and what shale is not, shale has already overhauled American energy.

In 2006 total American oil production had dropped to 8.3mbpd while demand was touching 20.7mpbd, forcing the United States to import 12.4mpbd, more than Japan and China and Germany combined. By 2016 U.S. oil output had breached 15mbpd. Factor in the Canadians and Mexicans, and total American imports of non-North American oil had plunged to about 2mbpd — and that in the teeth of an oil price war. And that’s just oil specifically. Take a more comprehensive view and include everything from bunker fuel to propane, and the continent is less than 0.8mbpd from being a net energy exporter.

The end of American dependence upon extra-continental energy sources does more than sever the largest of the remaining ties that bind America’s fate to the wider world, it sets into motion a veritable cavalcade of trends: the re-industrialization of the United States, the accelerated breakdown of the global order, and a series of wide-ranging military conflicts that will shape the next two decades.

This book’s opening section contains the long and the short of this Shale New World, the greatest evolution of the American industrial space since at least 1970. For the financiers and accountants and policy wonks out there, this was written with your geeky brains specifically in mind.

Second, the isolationist trickle I detected in American politics has deepened and expanded into a raging river. Of the two dozen men and women who entered the 2016 presidential race, only one — Ohio Governor John Kasich — advocated for a continuation of America’s role in maintaining the global security and trade order that the Americans installed and have maintained since 1945. The most anti-trade candidate on the right won his party’s nomination, while the most anti-trade candidate on the left finished a close second in the Democratic primaries to the Clinton political machine. Last night (now President) Donald Trump and Hillary Clinton met in New York to debate economic policy. What struck me as self-gratifying and horrifying in equal measure was that their core disagreement on trade issues wasn’t whether trade was good or bad for the United States, but how much to pare it back and which reasons for paring cut it the most with the electorate. (The pair of them obviously disagreed — colorfully, vehemently and often — on other issues.)

The world has had seven decades to become inured to a world in which the Americans do the heavy lifting to maintain a system that economically benefits all. The world has had three decades to become inured to a world in which the Americans do not expect anything of substance in return. As the Americans back away, very few players have any inkling of how to operate in a world where markets are not open, transport is not safe, and energy cannot be secured easily.

The stage is set for a global tailspin of epic proportions. Just as the global economy tips into deflation, just as global energy is becoming dangerous, just as global demographics catastrophically reduce global consumption, just as the world really needs the Americans to be engaged, the United States will be…absent. We stand on the very edge of the Disorder.

The Disorder’s defining characteristic is, well, its lack of order. Remove the comfortable, smothering American presence in the world and the rest of humanity has to look out for its own interests. As many of those interests clash, expect devolutions that are deeply-felt and disastrous in equal measure. Part II breaks down the breakdown. I’m equally proud and terrified to report that some of the darker shades in Accidental are happening sooner rather than later. For generals — armchair or otherwise — who prefer jumping directly into the fight, Part II is what you’re after.

In the final section we will circle back at take a good hard look at the United States. Energy independent, economically robust, physically secure, and — above all — strategically unfettered, the United States will be taking a break from the world writ large for the most part.

Yet “for the most part” is a far cry from a full divorce from all things international. The Yanks will still find bits of the world worth their time, effort, money and ammunition. Section III explores the American Play: where the Americans will still be found, why they will be there, how they’ll act, and what they’ll be up to.

It may be small comfort, but the acceleration of the shale revolution as well as the American political shift towards populism has illuminated a great deal, sharpening my view of the future. The various glimpses that made up Accidental have somewhat merged, lingering to the point that they now constitute a bit of a roadmap.

That roadmap is the core of this book.

Peter Zeihan
September 27, 2016
Somewhere over Kentucky

>>BUY THE ABSENT SUPOWER POWER NOW<<

Gasoline on the Trade War Fire

Something happened yesterday with the Trump transition that worried me. By “worry” I mean it is great for me personally, but as I’m a bit of a purveyor of doom and gloom, everyone else should perhaps be a bit concerned.

It is probably not what most of you are thinking.

Many assert that Trump’s push for a deep bench of billionaires in his cabinet is generating the most serious conflicts of interest in modern history. (I find it adorable that some folks think self-interest is new to Washington.) Just look at it in context. Obama’s first cabinet had a combined 122 years in government experience and only five in the private sector. Un-shockingly, the Obama administration proved rather inept when it came to having conversations with people, while proving a champ at enacting regulations. Trump is simply the inverse. We’ve had a change in rulership, which will mean a change in policy and a change in approach. No biggie from my point of view.

No, I’m more concerned about something that was almost glossed over. President-elect Donald Trump announced Peter Navarro, a professor at the University of California (Irvine), would be in charge of trade policy. Specifically Navarro will run a new office called the National Trade Council.

Now I don’t have major concerns about Navarro in general. To put him in what I hope is not an unfair nutshell, Navarro is an anti-China agitator whose most notable book is “Death by China.” He advocates, among other things, a broad-scale economic, strategic, and political confrontation to sever exploitive economic exposure to China completely and, if need be, forcibly break the entire Chinese political and economic system. (Like I said, doom and gloom = good for Peter.)

My concern isn’t so much about his views as his likely style.

Shanghai, People’s Republic of China

Putting an academic in a policy position bears risks. Unlike bureaucrats, they don’t know how systems work. Unlike military officers, they think “chain of command” simply means everyone does what they say. Unlike business people, they have no practical experience in making decisions or compromises or making things happen with limited resources. What sounds great in the classroom sometimes shatters upon contact with hard realities, and it is far from unheard of for academics to then look for what’s wrong with the world rather than reevaluate their theories. As such academics’ record in government service is unsurprisingly patchy. A couple of examples:

Robert McNamara brought in a bunch of quantitative analysis professors to put numbers into the planning of the Vietnam war. The idea was to be able to have metrics for assessing how pacification was progressing, and how hearts and minds could be won. Unfortunately, the methods of the “whiz kids” couldn’t be reconciled with the facts in the jungle, and the profs were unwilling to admit that their formulas were unworkable. The war ended up being far more brutal and bloodier than it needed to be.

More recently, President Barack Obama put Stanford professor Michael McFaul in charge of Russia policy. McFaul’s views of Russian society and governance offended everyone in the Kremlin with breathtaking efficiency, effectively walling off the entire American diplomatic apparatus from Russia.  The result was the fastest, deepest slide in any two countries’ relations in recent history that did not end in war, contributing to Russia’s invasion of Ukraine and Russia’s participation in the Syria war. Geopolitics may all but dictate Russia’s efforts, but (bad) diplomacy certainly sets the course and timing. Reset indeed.

My goal here isn’t to crap on academics. Lord knows I know plenty of academics who are utterly essential to many in and out of government, myself included. I’m simply pointing out that the culture of academia often does not necessarily mesh well with the culture of governance … and we now have a vehemently anti-China academic overseeing America’s primary interface with the rest of the global system. Combine that with Trump’s statements on Taiwan and I think it is pretty clear that a broad-scale competition with the Chinese is now not just baked into the system, but that on the American side it will be incredibly visceral, aggressive and fueled by personal vitriol. And thats before one considers the President-elect’s personality. Things are about to get decidedly lively (again, good for Peter).

If I’m right on this, an uber tradewar with the Chinese is just around the corner. I’ve dealt with many of the likely futures for China in previous newsletters and in The Accidental Superpower so I’ll just hit the highlights here and spend most of my typing on follow-on effects:

  • China faces an internal political crisis. Southern China is far more economically viable than the rest of China, far more exposed to foreign trade, and far more culturally willing to work with foreigners. The portions of China that will suffer the most also are the most likely to not look to Beijing for leadership. Traditionally, secession threats are a very big deal in China. They are about to be once again.
  • Foreign investors in China — especially U.S. investors or investors in interior China — stand to lose everything. The rough translation of “joint venture” in Mandarin is “you pay for everything and we’ll steal all your tech.” Anyone who still has any trade secrets left is about to lose them all, and the Chinese will confiscate your entire physical plant in the name of national security. Time to work on those exit contingencies and shareholder explanations. Might want to start with plans for any key employees of Chinese ethnicity as Beijing doesn’t consider foreign citizenship a barrier to arrest on charges of sedition.
  • Northeast Asia faces massive upsets. Fully half of the world’s manufacturing supply chain steps are in the region, with most of those dependent upon Chinese links. Any meaningful Chinese-American trade conflict breaks many (if not most) of them. The country likely to get the worst of it is Taiwan, since the country’s companies are on the small side (most sell into a single supply chain) and the local market is but 23 million people.
  • The inverse is true for North America’s I35 corridor — in particular from Mexico City to Oklahoma City — which is the piece of the world most likely to pick up manufacturing capacity that will need to relocate. Easy regulation, the large Texas population, good infrastructure, cheap land, underpriced but high-skilled labor, and cheap and reliable energy all add up to short- and long-term manufacturing booms. (Navarro is not known to have particularly blistering opinions on Mexico.)
  • The biggest loser beyond the immediate region likely will be Australia. The Aussies have bet the farm on the Chinese industrialization process and their raw materials exports will flatly collapse. This is hardly the end of Australia, but their golden generation of economic growth is about to go into screeching reverse — and they have a lot of fat to cut.
  • The oil exporters of the Persian Gulf are also about to get hit hard. Anything that crimps Northeast Asian economic activity is going to prove crushing to them, since Northeast Asia takes more than half of the Persian Gulf’s collective oil exports.
  • It is unthinkable that the Americans will take the Chinese to task in a spat of statism, protectionism, and populism; and the far more statist, protectionist, and populist Europeans will not pile on. Expect France and Italy to lead the charge for broad-scale European trade sanctions on China.

Turkish Turning Point?

Today, Russia’s ambassador to Turkey, Andrei Karlov, was giving a speech at the opening ceremony of a photo exhibit when an assailant, who has since been identified as a standing police officer, opened fire, killing Karlov. Karlov had served in his ambassadorial role to Turkey since July 2013. He previously served as Russia’s ambassador to North Korea.

There are two relevant bits here. First, Russian politics.

I don’t mean to sound trite here, but politics in Russia are nothing like politics in the United States. In the United States there are dozens of routes to political power. The Clintons came out of local government. The Bushes out of business. Carter out of agriculture. Obama out of academia. Reagan out of Hollywood. An economically rich geography fosters a strong civil society which provides myriad paths to political power.

That’s not how things fly in Russia. The geography and political system are so hostile there is only one way to national leadership: first be a senior intelligence officer. These folks are the only ones who have a sufficiently accurate and complete view of the country that they can even attempt a national role. This makes Russia’s leadership much more intelligent and competent than the American leadership, but it also makes the Russian leadership thin and brittle. (Technically, Karlov was a career diplomat, but mere functionaries aren’t appointed ambassador to countries as politically prickly and strategically sensitive as North Korea.)

The American political class probably has around two million people. The Russian political class has but 200. With the death of Karlov they have one less. This would be bad enough under normal circumstances, but circumstances in Russia are far from normal.

Red Square in Moscow, Russia

Between the Soviet breakup and the subsequent collapse of the Russian healthcare system, the Russian population is one of the fastest aging and most diseased in the world. By 2050 the Russian population will have shrunk by one-quarter, with ethnic Russians no longer the majority. For a country where oppression of minorities is the cultural equivalent of baseball, this will prove a swampy problem.

Back to the issue of the moment, replacing skilled diplomats is hard enough. Skill sets like Karlov’s which include language competency in Russian, English, Korean and Turkish are hard to develop. Factor in Russia’s demographic hollowing out and Karlov is utterly irreplaceable.

The second issue regards Russia’s relationship with Turkey.

According to initial reports, Karlov’s assassin shouted condemnations of Russia’s policy in Syria in general and Aleppo in specific. It was just the sort of high-profile action that puts a spotlight on political policies and inspires militants of various stripes. (Imagine the fallout had a Mountie killed the American ambassador to Canada during the Iraq War.)

As regards the Turks, Turkey has been in a bit of a geopolitical deepfreeze since its catastrophic defeat in World War One. For most of the time since, the Turks farmed out control of their foreign policy to the United States in exchange for economic access and strategic cover. Of late the Turkish government has begun emerging from its self-imposed shell and started to form opinions as to what its independent strategic posture should be.

At first Ankara assumed that everyone in its neighborhood would do whatever it wanted because Turkey is so inherently awesome. This included expectations that the Israelis would pay for a fully independent Palestinian state, that revolutionary Egypt would model its government after Turkey’s ruling party, that Baghdad would subjugate its foreign and civil policy to Turkish norms, that the Syrian government would overthrow itself, and that U.S. troops would deploy to Syria to carry out Turkish desires. Needless to say, things didn’t exactly work out as the Turks predicted.

Istanbul, Turkey

Instead, Turkey found itself in a panicked argument with the Russians when a Turkish air defense battery shot down a Russian jet operating in Syria. After an initial bout of Turkish bombast, Ankara was faced with the harsh reality that they were diplomatically out of practice, utterly bereft of meaningful allies, and on the verge of a very real war with the Russians.

Enter Karlov, who has a record of successfully manipulating people as testy as North Korea’s Kim Il Sung. The result was Turkey’s ignoble Karlov-managed climbdown. Part of that climbdown was admitting (unofficially) that the Russians owned Syria and any meaningful Turkish policy there required Russian sign-off. After all, the Russians were willing to bomb anyone they thought needed bombing, and the Turks were not.

Karlov’s assassination drags Turkey’s capitulation, Turkey’s (non-)position in the Syrian war, and the broader Turkish-Russian relationship all back into the spotlight. All these things and more are now back at the top of the Turks’ internal to-debate list. It also creates a rare window. With Russia’s man in Turkey gone, the Turks have a moment to have these debates with less outside interference.

Which way will the Turks go? No idea. The Balkans hold more economic opportunity but expansion there would clash with Europe. The Caucasus hold more cultural opportunity but expansion there would clash with Russia. Syria holds more immediate military and political opportunity but expansion there means wading into a thankless civil war.

Turkey’s neighborhood is messy. For 70 years, Turkey’s quiescence has kept the region’s biggest and most capable power from participating. Don’t bet on that continuing.

Beginning of the End – Russia and Shale Oil

This is the first in a short series that discusses recent events as they relate to the analysis developed in The Accidental Superpower. Each of these developments — and dozens more — are symptoms of an underlying change the global order.

Part 1: Shale and the Breakdowns to Come

The Russian economy is a mess. The ruble keeps plumbing new lows, lending across the country has all but stopped, sanctions (and counter-sanctions) are raising the specter of Soviet-style goods shortages, and even the Russian government now predicts 2016 will bring with it the worst recession since at least 1998.

 

Many — rightly — see the economic carnage being wrought in Russia as an outcome of the Putin government’s adventures in Ukraine and subsequent economic sanctions against Moscow. But that is only part of the story.

 

In Russia the core issue isn’t so much Ukraine as it is shale. U.S. energy output has skyrocketed and North America has already achieved functional energy independence. The consequent shockwaves through global energy markets are hiving what used to be the largest importing market — the United States — off of the global market. One consequence among many is collapse in oil prices. Russia has never — in any age — managed to maintain a strong economic structure without robust commodity export income. The ruble crash is still only in the very early stages. Cascading defaults are now inevitable.

 

Nor will the carnage be short lived. U.S. shale is – somewhat unbelievably – still in its infancy. The merging of horizontal drilling and hydraulic fracturing technologies is really only a decade old and technological improvement is only now reaching critical mass. As of December 2015 full-cycle break-even costs in the three main U.S. shale oil basins — Bakken, Permian and Eagleford — are for the most part below $45 a barrel. Stunning new technologies are being developed, bundled into packages, and deployed as companies seek to find ways to produce more from fewer wells to save money.

 

And “full-cycle cost” is no longer a good measure of the total cost to drill a well as it includes everything from the drilling rights to the cleanup. As lower energy prices force consolidation, the remaining U.S. shale operators will acquire the single most expensive aspect of their operations — those drilling rights — at steep discounts. The dizzy year-on-year expansion in U.S. oil output is slowing, but it shows few signs of reversing.

US-Production-Crude-Oil

Base Week: September 30, 2005

More broadly, there is not a single oil producer anywhere in the world that has budgeted for an oil price below $50, with most — and most notably, Russia, Iran and Venezuela — requiring prices to be roughly double their current level. Many of these countries’ spending is so high because they have come to rely on petrodollars to fund social programs or military funding that stabilizes their political systems. While it may take some time, civil breakdowns and economic meltdowns are the new normal for a vast raft of commodity-based countries