Should the U.S. Military Invade Yemen?

A US military soldier in fatigues with weapon slung on his back

I’ve got a bit of a loaded question for everyone today: should the U.S. military get involved in Yemen?

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Transcript

Hey, everybody. Peter Zeihan here, coming to you from a warm Colorado autumn afternoon. Today we’re taking a question from the Patreon crowd. Specifically, is the United States about to get sucked into a fresh war in the Middle East in Yemen? And if so, is that something we want? 

Yemen is a mountainous country in the southwestern extremity of the Arabian Peninsula, and like all mountainous areas that get enough rain to have a population, that population tends to be a little ornery. So basically think of it as Chechnya or Scotland or West Virginia, just warmer. And it has rebelled against whatever the order has happened to be in the region, at least since the time of the late Egyptian pharaoh. So at least 3000 years ago. It’s been a problem for everyone who’s been the major power in that area. And so this is no surprise. That also gives you an idea of how durable the rebellion can be. 

Let’s talk about the strategic picture in Yemen. And then we’ll talk about what we’re up against now. So strategic picture is that these people live in the mountains. They’ve got wells, so they have enough water for what they need to do. And they have a cash crop and something called Qat, which is water intensive and is drying the country out. And it’s basically a mild narcotic. So everyone in Yemen is stoned a lot. But the people who are in charge, the ones that are problematic, the Houthis, have enough territory that even if you have a collapse of the water table, it’s really not a problem. What we’ve seen in recent weeks is they’ve taken over a lot of the coastal territory, which a lot of people are like, ooh and ahh, and this is bad because they can threaten the strait, but they were threatening the strait before. They’re using primarily missiles and drones that are wholly provided by the Iranians. Yemen has no indigenous manufacturing capacity itself, so it’s basically just assembling kits under Iranian direction. And that means you’re talking about weapons systems that have a range of over 100 miles. They don’t need the coast to fire. I mean, yes, they could have people that can go and see, but you don’t actually have to have physical control of the entire coast to do that. You just need one guy with a pair of binoculars and then, you know, maybe look at the satellite feed. So if you went in and kicked the Houthis out of the coast, it really doesn’t change the picture. You would actually have to go into the interior, into the mountains and fight. Which means that if your goal is to root out this specific problem, you have to invade a country with 30 million people, I believe it has, and occupy enough of it that it can’t be used as a base of operations for forces like this. That means you’re combining kind of the worst case scenarios of Afghanistan and Iraq into single fun fight. Now, raise your hand if you want to go back into those two countries. That’s basically what we’re looking at here. It’s just that Yemen, unlike Iraq, doesn’t even have decent infrastructure that U.S. forces could operate from. And it has all of the twisting, the turning supply chain problems because of mountain roads that Afghanistan had, so, you know, no fun at all. 

In addition, Yemen threatening gulf infrastructure, gulf shipments and Saudi Arabia, if you remove it from the equation completely, you haven’t solved any of the problem. Keep in mind that these weapons systems that the Iranians are sharing have a range of about 600 miles, and they’re pretty basic. You could see that expanded in the future, but 600 is plenty. And if you look at the attacks that have happened elsewhere in the region, as we know from the war with the United States in February and March, April and May, the Iranians can already hit everything in the region. And as was underlined just last month, the Iranians still have influence in southern Iraq. And so recently, there was a drone and missile attack on what’s called the East West pipeline, which takes Saudi Arabian crude from the Persian Gulf across Arabia and into the Red Sea. Anyway, an attack from Iraq is the one that damaged it and took it offline for a couple of weeks. So even if you take Yemen out of the equation, you would then if you really want to secure the area, have to go and do the same thing for Iraq again. And even that won’t fix things, because these weapons have more than enough range that can be operated from Iran direct. During the war, on multiple occasions, the Iranians hit sites on the Saudi coast of the Red Sea. So all of this is in range from multiple places. 

So you’re really talking about doing something that’s significantly more involved than what we did on the global war on terror and having to physically occupy Yemen and Iraq and Iran all at the same time. So, no, I can’t say that is something that I would recommend. The flip side, of course, is if the US doesn’t do something like this, then there is no military solution whatsoever to secure Persian Gulf energy. You basically have a really ugly choice to make. You make a political deal with Iran that allows the oil to flow, and that means giving Iran a whole lot of things that it wants that the United States has been fighting to not give it since the revolution back in 1979. Or you walk away and just realize that the Middle East, you can’t do anything with it, you can’t control it, you can barely influence it. And the crude isn’t going to flow unless the Iranians cut deals then with individual powers in the area. So it’s an ugly, ugly, ugly situation. And Yemen just underlines just how ugly.

Defending the Homefront from Cheap Drones

Camo clad man flying a drone outdoors | License by Envato Elements

It’s one thing for high-tech, expensive strike systems to break through defenses, but when cheap and simple drones can inflict widespread damage…that’s a whole other can of worms.

Having the ability to hit hard-to-defend civilian infrastructure with these low-tech drones means that countries like Saudi Arabia and Russia have to rethink everything. They’re not just changing how their military operates during wartime, but fundamentally shifting how their economy functions from the ground up.

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Transcript

Hey all, Peter Zeihan here, coming to you from Colorado. And today we’re going to talk about a new sort of targeting system that has been used in multiple theaters or new targeting criteria would probably be a better way to phrase that. Over the weekend in the late part of last week, we had the Houthis of Yemen starting to attack Saudi Arabia’s civilian airline system, specifically the Riyadh International Airport, where at a minimum, 12 people were killed, probably closer to 30 and several hundred people were injured. Looks like a plane was hit. One of the terminals with passengers was hit. And then in Russia, the Ukrainians have started targeting data centers. Data centers are very easy to disrupt. They’re very large targets. They’re hard to miss, and they require absolutely massive amounts of climate control or the chips melt down. So you put a hole in the roof, that kind of ruins the entire experience for everyone. In addition, the Russians cannot make any, any, any of the semiconductors that go into even a circa 1999 data center. So this is 100% imported hardware that they can’t replace without spending a great deal of money.

According to the Houthis, anything that’s in Saudi Arabia is a viable target because they’re in a general war with anyone who’s on the other side of the Palestinians or the Iranians. And they, over the last decade, have really been not particularly picky about what they attack in the first place. Ukraine is a lot more discerning from their point of view. Data centers are part of the infrastructure that allows Russia to be a modern state, and the data centers handle military logistics and weapon designs, which are true. So they see it as a viable military target in its own right, in addition to the fact that it’s an important civilian piece of infrastructure.

The bottom line for both of these is that normally when you’ve got drones going against military targets, there’s a degree of electronic warfare in play that scrambles the signals. So if you’ve got a long range drone coming in, you can scramble the signal. Then the pilot loses control of the drone and either Peter pans or crashes or hovers and does basically no damage. Or you can kinetically intercept it with, say, bullets or missiles or whatever it happens to be. That is not in play with these two target sets. Until now, the Saudis and the Russians have not put up electronic warfare around these sort of assets. For one, if you put electronic warfare around your entire economy, you won’t have an economy anymore. It’s simply too big to protect. And specifically for the airport, if you have E-W that’s meaningful, you’re going to have a hard time landing planes. The bottom line is here is that these weren’t fancy drones. Over the last eight months, I’ve done quite a few videos talking about how the advances in drone warfare allowed them to bypass E-W. That didn’t apply here. These are relatively unguarded, mostly civilian targets, which means that what the Houthis and the Ukrainians have done is eminently replicable across the entirety of Saudi Arabia and the vast majority of Russia. Both of their systems now have more than enough range. So the Iranians are providing the Houthis with the weapons to do this. They can hit anywhere in Saudi Arabia. The Ukrainians are, for the most part, producing their own drones. They have already demonstrated that most of them have a range of at least 300km, some upwards of 1600km. So everything that’s basically within 100km of Moscow and significantly more is all within range, which means it is time for us to start noodling, fast hopefully, about what a post drone economy can even be. Because if everything within 600 miles of an enemy is civilian infrastructure that you either have to protect or write off, then the entire industrial age needs to find a new way to operate. We are not ready for this. No one is ready for this.

Perhaps the biggest problem that I see here is that the drones that were used were not sophisticated at all. They don’t have that advanced technology that’s being developed this year in it. These are just plain Jane weapons platforms that are very, very cheap. Nothing, nothing in the input stream for them is under any degree of sanctions. And if you wanted to sanction it, you’d have to sanction basically every single phone maker, computer maker. In most electronics makers, you’re talking about chips that are not just legacy, but all the hardware in them could have been assembled with parts from RadioShack 15 years ago, was RadioShack still around 15 years ago. You get the point. That’s before you consider the more advanced stuff that is coming up, like the memory drones out of Ukraine that can even get through jamming now.

So we’re now in a situation where all of the crude out of Saudi Arabia is being threatened not just by advanced drones, but by basic ones. And the entire supporting economic structure has now, basically the genie’s out of the bottle, the seals been cracked. In the case of Russia, it’s not just about the shadow fleet in the market, it’s about the wheat markets, about the sunflower market. It’s about the iron ore market. It’s about the aluminum market. It’s about the timber market. All of these are now easily targeted systems with where we are with drone manufacturing on just a regional basis.

It doesn’t take a huge amount of imagination to come up with a military conflict in somebody else’s backyard, where drones become part of the problem, and all of a sudden the entire industrial infrastructure is in play. I’m looking at you, Northeast Asia. Anyway, that’s it from now. See you guys next time.

What’s Next for Iraq?

Flag of Iraq, torn and tattered against a desert sun

U.S. troops have withdrawn from Iraq, putting an end to American military presence that began following 9/11. So, what’s next for Iraq?

It’s not all sunshine and rainbows. Iraq is a deeply divided country, made up of three primary groups: the Shia Arab in the south, the Kurds in the north, and the Sunni Arab in the middle. The U.S. presence helped maintain some sort of civility between the factions, but with that gone…I suspect we won’t be looking at a flourishing era of peace.

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Transcript

Hey, everybody. Peter Zeihan here, coming to you from the CN Tower in Toronto. Today is the 30th of September. You’ll probably see this tomorrow or the next day. Anyway, the United States just withdrew its final troops from Iraq. Finally, finally, finally, finally, officially ending the US war on terror that started in the aftermath of the September 11th attacks back in 2001. So 25 years ago. Last troops are finally gone. We’ve only had a few hundred there this year, mostly in the north. 

Now let’s dial back to yesteryear and remind us of what an Iraq is, and then we’ll talk about the future. So first things first. Iraq is one of those heavily artificial countries that emerged out of the detritus of colonialism in the aftermath of World War II really didn’t start to gel into the 50s. Anyway, you’ve got three regions down in the South in what is classically Mesopotamia, between the Tigris and Euphrates. You have the majority Shia population that happens to sit on top of some of the world’s largest and easiest to exploit oil fields, and those fields at peak can generate 4 to 5 million barrels per day. In the north, in the mountains, you’ve got an area called Kurdistan, Iraqi Kurdistan, which has generally been split among multiple rival families, usually two big ones and several small ones. And they sit on top of a much more difficult oil complex, but still not hard by global standards and at maximum capacity can maybe do 2, 2.5 million barrels per day. Neither of these regions have ever really performed to snuff, but at the start of the Iran war earlier this year, collectively they were doing somewhere between four and a half and five, which, after 25 years of war and before that 25 years of sanctions, is not bad. And then in the middle, you have the smallest group making up at most 20% of the population around Baghdad, and that is the religious Sunni. So Shia Arabs in the south majority, Kurds in the north a minority, but the second largest group, and then in the middle the Sunni Arabs. 

The complication they have always had is having these three different groups in three different geographies that really have very little in common is in the South. They think because they’re the most numerous group, they should be in charge, which kind of like the American Democratic Party means they split into multiple factions that are constantly at one another’s throats. The Kurds are always the persecuted group, but because they’re split by family lineages, the only way that they’ve been able to hold things together is when an external power is leveraging them, like the United States did for most of the last 25 years, and really the 25 years before that. And in the middle, you’ve got the smallest group with the least economic wherewithal, the Sunnis. And because they’re the smallest group and because they don’t have much economic wherewithal, they’ve always been the most united. Now under the Saddam Hussein regime, which ended with the Iraq war back in 2003, this region had been controlling everything. Saddam himself was a Sunni Arab, and the other two regions were either enslaved, prosecuted, genocided from time to time. It was really, really ugly set up. During the American occupation, we tended to partner with the Kurds and induce the Kurds to vote for whatever Shia prime minister we thought would do a decent job and do what we wanted. We have a new prime minister whose name I’m not even going to bother learning, because I doubt he’ll last the year. He’s 41. He has no backing from anyone except for the United States. And now the United States is gone. 

So what’s next for Iraq? Well, it’s not going to be pretty. Iran has proven that it can destabilize any of these regions. And many of the militias that are operating in the south of the country, Shia, remember, Iran itself is Shia, have proven that they can overthrow the government from time to time and serve as a launch pad for attacks into other parts of the region or the country. So, for example, you may remember a few weeks ago we had drone attacks on Saudi Arabia’s West east pipeline, the largest oil transport pipeline in the world. Those originated in the Shia portions of Iraq and without US forces now, that’s pretty much going to be the future of southern Iraq, either a bastion of Iranian power or a launch pad for whatever they want to do in the region. Further north in Kurdistan, you’ve got basically the Americans that withdrawn and taking their gear with them. So things that the Kurds haven’t had to worry about in 25 years, almost 50 years, when it comes to being attacked by outside forces, is now back on. And as much as the Arabs of Iraq don’t like the Kurds, it’s nothing compared to how the Turks think of the Kurds. See, Turkey has its own Kurdish minority and has done some fairly nasty things and even invaded neighboring countries to take care of other Kurdish minorities before, even in Iraq. But the problem I would be most concerned about is now that the region is kind of game on from a geopolitical point of view, is the Sunnis again, because last time something like this went down, where the system became kind of unmoored and the foreigners left, you eventually had a three way fight that the Sunni Arabs emerged on top, with Saddam being the guy at the top of that heap. 

I’m not saying that the next guy is going to be genocidal like Saddam was, but to think that we are now at peace in our time, well, that that would be a stretch.

Will Putin Join the Miami G20 Summit?

Putin and Trump shaking hands on the red carpet. Photo by Wikimedia Commons: http://www.kremlin.ru/events/president/news/77790/photos/82627

The Trump administration has extended an invitation to Putin to attend the G20 summit in Miami. There are several things to watch for, so let’s break it down.

First, Putin has to decide if attending the summit will result in his arrest based on outstanding warrants. Should he attend, we should keep a close eye on how the G20 members and U.S. allies respond. Last, Putin could use this opportunity to create a foreign-policy crisis to test NATO and Trump. Should make for an exciting time down in Miami.

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Transcript

Hey all, Peter Zeihan here, coming to you from the home office because it’s crappy outside today. Anyway, today we’re talking about something that went down last week. On September 23rd, Secretary of State Rubio confirmed that Donald Trump had invited Vladimir Putin, the president of Russia, to Miami for the G-20 summit this fall. Oh my God. Right now, there are multiple international arrest warrants out for Vladimir Putin for his role in initiating and maintaining the war in Ukraine over these last several years. The Trump family has publicly disclosed that they own lots of property in Russia. And Trump’s son specifically have said one of the reasons why Donald Trump is so pro Russia when it comes to the Ukraine war, isn’t so much that he doesn’t like Zelensky, who is the president of Ukraine, although that is true, but because of that property. So this is a flat up, corruption play by the Trump administration 

Anyway, there’s three things to watch for here. Number one, Putin would have to accept the offer. There’s no guarantee he’s going to do that because he wants to make sure that he doesn’t get arrested. Putin has been agitating against the United States online, in person, using the tools of Russian power for the last 25 years. And that’s one of the reasons why he has never gotten along with, really, any of the presidents that we’ve had in the modern era until Trump and his personal interests get involved. And Putin has been working to try to ingratiate himself with Trump deeper and deeper. So, for example, one of Putin’s allies recently paid for one of Trump’s sons weddings because, you know, that’s apparently what you do when you’re corrupt to that level. And it’s worked. But that’s not the same as knowing that Trump, who has a reputation for being a little erratic and mercurial, isn’t going to flip the table on him based on something that happens in the moment. Now, arresting a foreign leader who is in country for a summit would be wild. We’ve never had anything like that happen, but we’ve had a lot of things that have never happened before this administration. So who knows. 

So number one, Putin has to be 100% convinced that he’s not going to be arrested at some point during a Florida trip. That’s piece one. Piece two is the effect that this would have on the Alliance. As I mentioned, there are multiple arrest warrants out for Putin. Those include, but are not limited to several of the countries who are going to be at the G20 summit, including the leaders of the United Kingdom and Germany and France and the EU structures as a whole. 

So if Putin comes, there’s the open question of whether or not these other leaders will come. Now, from a international structure point of view, I’m not really concerned about this as much. The G20 has its uses from time to time because it brings together the richest countries of the world and the largest countries in the world. So while you do have Canada and the U.K. and Japan and Germany, you also have Brazil and India and China. Anyway, point being is that these countries really don’t have a lot of common, and the last time they did anything that really mattered was during the 2007 to 2009 financial crisis. And since then, when they meet, it’s really just a talk shop. And the question is whether anything can happen beside meetings. Which brings us to the third person, one of those Senate meetings. 

If Putin does attend, it is going to be really interesting. Putin is really good at making really bold announcements quietly to a world leader, especially the American president, while Russian forces are doing something else elsewhere. So if you go back to, say, the 2004 Winter Olympics. George W Bush was in town. Putin hosted him in Sochi. And while the Olympics were going on during the opening ceremonies, Russian forces invaded the former Soviet Republic of Georgia. And there’s some wonderful footage of one of W Bush’s aides whispering the news to him. As W is sitting next to Putin in the box. If Putin does come to Florida, he would absolutely engineer a moment like that and wouldn’t be about Ukraine because Trump doesn’t care about Ukraine. It would probably be about Estonia or Latvia who are NATO members. 

There’s been plenty of evidence over the course of the last several months that the Russians are putting in some forces together that would have the option of crossing the border into these two places. And seizing control of territories that might be ethnically majority Russian but are still in the Western camp. Keep in mind that the Russian population in these two states don’t want anything to do with Russia. They haven’t for a long time. Anyway, announcing the invasion of a NATO country, while he’s sitting next to Trump and then forcing Trump to decide right then what to do about Russia, what about to do about NATO? What about to do about the allies. When Trump very clearly doesn’t have any meaningful advisors in any of those capacities? That would be a coup, but it would come with risk because you never know what Trump is going to decide anyway. 

Those are the three things to watch, whether Putin actually comes, whether the allies then basically walk away. Because at that point, the United States has basically said that we really don’t care about your defense at all. And then, number three, whether or not the Putin government would use that as an opportunity to just completely shatter the alliance completely. That’s what I’m watching for. And we will know over the next couple of months.

Building Out the Power Grid: Large Power Transformers

An electrical station with transformers

There are three major obstacles to expanding the U.S. electrical grid: generation capacity, permitting, and large power transformers (LPTs). Let’s focus on LPTs today.

Reindustrialization will require a massive expansion of electricity generation (and that’s without further data-center growth). Large power transformers are essential for transmitting and distributing electricity, and most of the existing LPTs have already hit their expected lifespan. So, if the U.S. has any kind of shot at reindustrialization, it needs to replace all the aging equipment and add more LPTs, despite years of backlogs.

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Transcript

Hey, everybody. Coming to you from my tent in Yosemite. It’s raining outside. So I decided that discretion being the better part of valor, I’d take a nap. But first, I want to talk to you about the American grid. As you all know, we need to build out the grid as quickly as possible, as large as possible. And as I’m sure most of you have heard, a lot of people are unsure of how we’re going to do that. 

We’ve got three primary obstacles. The first is generation capacity. Assuming for the moment that the data center boom ends today. The United States needs to expand its grid by approximately 50%. And that’s obviously a lot. It took a half century for us to do the last 50% expansion. So to do that in a short period of time is going to be very, very difficult. 

With the data center expansion. You’re talking about a doubling or tripling or a quadrupling. And so anyone who tells you that data centers are the wave of the future clearly hasn’t done the math. There is no version of physics or the United States where that is possible. So this idea that this data center boom is not near its peak and is not a bubble. 

You know, regardless of what you think about the financing for data centers and the profit centers for data centers and the applicability of data centers, there just is nowhere near enough power, and there won’t be without a significant change in their design. Okay. All of that’s one. The number two problem permitting, it’s difficult to build large industrial infrastructure in a first world country because lots of people already have interests and they sue to protect them. 

But one of the real problems we have in the United States is permitting is that the local, state and federal level for power generation and any asset is typically managed at the local level within a specific electric district. Unless you’re in a place like say, oh, I don’t know, North Carolina, where I believe it’s Duke energy is really big. 

Most of these districts are like at the county level, maybe even smaller. And getting everything through, getting the capital lined up and getting all the permits, just taxes, staff that in many cases doesn’t exist in number. Keep in mind that U.S. electricity generation in the last couple of years had been stagnant since the late 80s. So a lot of the institutional knowledge has been lost, or very, very few people alive today that were proving data centers that last go around. 

But the third problem is probably the most significant, because if you decide that you really need something, you know, money can solve a lot of problems. And if you decide you need something, you can always speed the permitting by various means. But the third problem is something really can’t be rushed, and that is the presence of large Transformers large power Transformers LPTs, if you want to use the acronym. An LPT is basically something that is on the grid rather than in the power plant, and it steps up and steps down the electricity for transmission and distribution. 

They weigh 100 to 400 tons. And it’s a perfect example of one of those mid tech but high skill industries and products that the United States is basically outsourced. Very, very few of them are made in the United States at all. We import about 80% of what we use and get this. The average transformer, the average LPT in the United States right now that’s operational is about 40 years old. 

And these things typically last about 40 years. So not only do we need at least 50% more, probably more than that. We also have to overhaul and replace the entire grid supply of LPTs. The volume required here is immense. And the problem is that not a lot of places make these things at scale. 

And right now, there’s a backlog of 3 to 5 years based on which model you’re looking for. Even distribution transformers now have a backlog of over a year. So the real decision here to expand the grid should have been made five years ago. But, you know, here we are. Anyway. Most of the Transformers the United States imports comes from four places Mexico, Germany, Japan and China. 

And the Trump administration has picked trade fights with all of them. Although at the moment relations with the Mexicans are probably the best among the four. And that’s great. So if anyone is looking for a just brilliant lever to use against the United States and trade talks, LPTs are an excellent choice because we’re entering a stage where not just the United States is going to be unable to expand its grid unless it really gets some things moving. 

It’s not going to be able to maintain the grid it has. And that has horrible implications for absolutely everything. Remember, 50% increase is what we need. If we’re going to reindustrialize in a way that prepares us for deglobalization. So this is banded right together with all of those other issues that I follow that suggest that without some significant change in federal policy, we are simply not going to have the products we’re used to. 

The United States is a services economy. It’s a brain economy, and it relies on imports for a lot of its manufactured products. Now, you can argue whether that was smart or stupid to do in the first place. That’s where we are now. And now that deglobalization is here, we absolutely need to reindustrialize and you can’t do any of that work without power.

How To Ban Diesel Exports

Large Red Tanker Ship Docks at an Oil Terminal

A ban on American crude or diesel exports isn’t going to improve energy security; if anything, it will reduce domestic production. The problem lies in geography.

Most U.S. production and refining is concentrated in places like Texas and Louisiana, which are quite far from the demand centers in California and the Northeast. So for crude, export bans would oversaturate producing regions and discourage drilling. For diesel, the bans are futile without expanding infrastructure and changing the transport systems.

Export bans only make sense if paired with major changes to accompany them.

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Transcript

Hey everybody. Peter Zeihan here, coming to you from Colorado. And today I wanted to talk about something that has been in the news a lot of late, and that is bans on exports of energy products from the United States. There’s two topics here, one that’s old and one that’s new. The old one is about exporting crude in general, and the newer one is about diesel specifically. So let’s start with the older topic, then move to the newer. 

So here’s the problem. The United States is a physically large country, while places like Canada and China and Russia are larger, most of those countries are completely uninhabitable. Whereas the United States has a relatively broad population distribution across its entire territory. So a lot of internal American economic issues, especially when it comes to energy, are based on distribution. The mechanics of how we move things from A to B determines what our economic policy should be. And then whenever we deviate from that, we generate problems for ourselves. So start with oil. Obviously the bigger players are Texas, Louisiana, New Mexico, a little bit of Alabama, a bunch out of North Dakota, some out of Colorado, little bit out of California, and then places like Ohio and the Appalachians, Pennsylvania. And that’s great because we’ve got people in all of those places. But our densest population footprints in places like the American Northeast or Florida or the bulk of California, are not proximate to where the energy is produced. So you need to pipe it, the crude, from wherever it’s produced to a refinery. In places like the American Gulf Coast, you get these natural concentrations because Texas is all one political unit. So they can build pipelines without too much of a problem. They don’t have to go to federal authorities for permits or anything like that for the most part. And so you get these huge concentrations of crude in places that may have people, but aren’t necessarily enough people to consume the crude. So Texas, for example, produces more than enough crude for not just Texas, but the entire American West Coast, which doesn’t have a lot. 

So when you start talking about a crude export ban, what you’re saying is we’re going to create these massive pools of oversaturation in certain markets. And when you do that, without the infrastructure in place to ship the crude easily to where the people live, then all you’ve done is really disincentivize the crude producers from producing. So if you were to do a crude oil export ban tomorrow and have no mitigating policies, you would see crude production in places like North Dakota and Texas fall off a cliff very, very quickly because they produce far more crude than they can use locally. We also don’t have enough refining capacity in the country as a whole to process everything that we produce. So the only way to then square the market is to reduce supply. And that means the United States goes from exporting somewhere between 20 and 25 million barrels a day, to probably something closer to 10 to 15 million barrels a day over a couple of years. 

And it would happen that fast, because the vast majority of American oil production these days comes from the shale fields, and most shale wells generate somewhere around 70% of their total output over the 25 year lifespan in the first 12 months. So it would happen very, very quick, and the result would be less energy security rather than more. 

Something similar happens with refining and diesel fuel. Again, there are some dense concentrations of refineries where we turn crude oil into fuels that we use with, again, the Texas-Louisiana section being the densest. We’ve got secondary centers that are roughly matched to demand in places like the Midwest. But when you look at California and especially the American Northeast and certainly Florida, there’s just nothing. And the United States decided a century ago, more than a century ago, to favor truck transport over train and especially ship. Even though they’re much more efficient, especially for the American geography, which means we have a large built in demand for diesel fuel. Even though our geography argues that we should be doing other things. Anyway, this all combines. So if we were to have a diesel ban tomorrow, again, you would have a catastrophic change in prices in Texas and Louisiana, where diesel prices would go through the floor because of oversaturation. And the only way to fix that is to reduce diesel runs. And all of a sudden, the United States has less diesel than it had before. 

Now, of course, the Trump administration, being the Trump administration, is now openly discussing how to make this happen, the diesel ban, specifically. The energy secretary, Chris Wright, is against it because he knows energy economics. And the Interior secretary, Doug Burger, is against it because it used to be the governor of North Dakota, one of the states that would be oversaturated. So he understands what’s going on. But every time that those two have tried to inject a little bit of economic rationality and reasonable forecasting into the white House, they’ve been slapped down and they will be on this situation to. Now does that mean that an oil export ban or a diesel ban are just uniformly bad ideas? No, no, no, that’s not what I’m saying. I’m saying if you think you can do a once and done policy and then move on, that is stupid because that will guarantee that the problem gets worse. And we reduce not just global supplies, but American supplies of these things. 

What you have to do is pair a ban, if that’s what you want to call it, with other things. So, for example, on the crude oil front, most of the crude that is produced by the US shale fields is super light and super sweet. It’s not viscous at all. It has very few contaminants. And that is not what the American Refining complex is designed for, because going back to the 1970s, we became convinced that the world had run out of this sort of light, sweet, crude. And so we started retooling our refineries to work on ever dirtier, ever thicker crude. Shale revolution came along in the mid 2000s, changed the math for the United States. But the refineries have been slow to shift because they’re the most advanced refineries in the world. And they spent 100s of billions of dollars getting ready for the world that then ultimately for the United States didn’t happen. So what happens is the United States exports the light, sweet stuff and imports heavy, dirty stuff. So if you want an oil export ban to mean something without damaging American energy security, you have to force the refineries to change what they do to use local crude. And if you do that, then all of a sudden we have the flow through that we need for fuels, and then it’s a distribution problem. 

If you want to look at the diesel situation, it’s somewhat similar. If we get these dense concentrations of supersaturation, the only way to fix that is to improve distribution. And that means product pipelines. Right now, we really only have one, the Colonial Pipeline that takes refined fuels from the Gulf Coast up to the American Northeast. And that’s it. Everything else is shipped by rail or more likely, truck. So what you have to do is build a nationwide distribution system, or maybe even mandate the creation of refineries in places where there aren’t concentrations of them. Or here’s a crazy idea maybe ship it by water and amend the interstate commerce act or the Jones Act so it’s easier to move stuff around the continental United States. 

Bans by themselves sound good. Because it means that the stuff will be trapped here, but it’s trapped in the wrong places. It’s still a distribution problem, and a distribution problem means you have to address the distribution system. And unless and until you do that, the conversation is just in the wrong place.

U.S. Sanctions on Iran Take a New Approach

Flags of the United States and Iran blending. Licensed by Envato Elements

The U.S. has just announced that it will remove any company or country caught servicing Iranian-owned aircraft from the U.S. dollar system. But these sanctions don’t target the IRGC or regime; instead, they impact everyday Iranians in the hope of stirring up a rebellion against the regime.

While regime change is unlikely, the effectiveness of these sanctions will largely depend upon Chinese adoption. Without Chinese goods, Iran would be in quite the pickle. And we might even find out China’s stance in the coming days, as Trump and Xi Jinping meet in Washington.

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Transcript

Hey everybody. Peter Zeihan here, coming to you from Colorado. Today is the 22nd of September. You’ll be seeing this on the 23rd. The news today is the U.S. Treasury Secretary Bessent, has just announced new sanctions on not specifically Iranian aircraft and airlines, but anyone who might do business with them. Basically, if an Iranian owned aircraft lands anywhere in the world, anyone who provides assistance with ticketing, with boarding, with air traffic control, with fuel, with maintenance, anything is immediately purged from the US dollar system. 

The intent is basically to deny all access. Now, this is not a sanction that is designed to pressure the regime because the regime can always, you know, jump on somebody else’s aircraft Chinese, Russian, whatever. And most of them don’t leave the country anyway because….they’re not nice people. This is about targeting the population. We’ve seen a lot of measures like this over the last couple of months, as the Trump administration has come to the conclusion that pretty much everything that can be sanctioned on Iran has been sanctioned for the better part of the last 40 years. And they’re coming up dry with efforts to find other ways to put pressure on Iran overall. So the theory now is let’s try to make life as difficult for the Iranian population as possible so that they will rebel and overthrow the government. That’s a very tall order. Not only has it failed so far this year, with several attempts, complete with the Iranian government killing several tens of thousands of their own people as a result. But the stack is really high. The Iranian military combined with the IRGC, which is the paramilitary arm of the government, has well over a million people under arms, and it’s not designed to invade their neighbors. It is designed to occupy their own country to prevent the various groups of Iran from rising up. Keep in mind that even after thousands of years of ethnic consolidation, only about 50% of the Iranian population is actually Persian. The rest is Kurds and Balochis and other things. So internal security has always been first and foremost the concern of the Iranian government and Persia before it going back to antiquity. We’ve only had a half a dozen regime changes in human history in this part of the world. And to trigger another one is going to be really, really difficult. 

We’ve seen lots of other measures that the US government has done in the last couple of months. My favorite one is graduate standardized testing. You can’t take the GRE in Iran anymore, but it gives you an idea of how few levers there are if you actually want to change the government. 

Anyway, the real open question here is whether or not every country in the world is going to agree to do this. So far, most companies and most countries have already signed on, maybe grudgingly. But the real outside question is, of course, China, which is the primary source for most of the manufactured goods that flow into Iran. Up to and including the parts that they need for their drones. 

Now let’s see, I’m recording this on the 22nd. You’re going to see it on the 23rd. On the 24th. Chairman Xi Jinping of China is going to actually be in Washington for bilateral talks with Trump. And the technical term for what’s going to happen here is a shit show. On the American side, the Trump administration has systematically gutted all of the institutions that helped the president make decisions. So whether it’s the CIA or the State Department or the NSC, their staff was gutted last year. They were never rebuilt. And so all of the normal things that the American president would get on economics and culture and the political maneuvering within China, he’s not getting. Keep in mind that this is not just a China thing. Over half of the world’s country don’t have an American ambassador right now. China does. But the point is that Trump is coming into this as the least informed president for any summit in American history, and that will obviously color what comes out of it. But don’t get overly excited because Xi is not in much of a better position. Because Xi purged all of these systems a decade ago and has been operating in the dark in most international affairs, basically just working off of propaganda. So we’re going to get two of the most powerful people in human history who are also among the least informed leaders in human history, trying to hash out the details when they don’t have any of the details in Washington in 48 hours. It’s going to be a delightful negotiation, which means that the Americans are roughly unaware of what’s going on in China. The Chinese are roughly unaware of what’s going on in the United States. And if you happen to be someone in the middle like Iran, you might just manage to slip through unnoticed because it’s not up to the teams, because there aren’t teams. It’s just these two really arrogant and increasingly isolated men, pretending that they know what’s going on. 

Wow. There’s going to be a show.

The AI Race: U.S. vs. China

The letters "AI" on a blue cyber background

The AI race is in full swing. China is chasing digital sovereignty, but there’s a glaring hole in that plan…it doesn’t have the advanced manufacturing capabilities to achieve it. Here’s the real kicker: nobody does.

China might be a bit more flexible with its ethics and data manipulation, but that means nothing without the advanced chipmaking equipment. China can produce less efficient chips, but has incredibly low yields on leading-edge chips. To produce the highest-level chips, there are roughly 65 countries involved in a complex supply chain.

Which means that not even the U.S. could go out and do this on its own (unless it underwent a 20+ year tech ecosystem rebuild). America’s real advantage in the AI race comes from the broad coalition of allied countries all working together to produce high-end semiconductors.

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Transcript

Hey everybody. Peter Zeihan here, coming to you from the top of little Castella, taking advantage of a break in the wind to answer a question from the Patreon crowd. Oh, by the way, that’s an ash mountain over there. And all of that is the Turner Ranch. Ted Turner, I guess, is a state, is a single largest landowner in the country. 

And that’s where he used to party. Anyway, the question is, is how is China’s artificial intelligence program coming along? They clearly don’t have any of the ethical restrictions that the United States has. And is that given them an edge? Is this something we need to worry about? Number one, I would argue that if you’re comparing the tech bro culture of Silicon Valley to China and the idea that one of them is morally superior, you need to do a little research. 

Silicon Valley, and especially the folks that are involved in AI, really don’t give a rat’s ass about your personal privacy and are perfectly willing to pillage your data in any possible form. In fact. Hey, I got a little visitor here. Hey, buddy. Yep. Never mind. He’s gone. Anyway, point being that if you are on Facebook or what is it now? Meta, whatever, any sort of social media whatsoever, all of your data is being mined actively in a way that the Chinese honestly sometimes have trouble keeping up with. And while the Chinese certainly do it with a little bit more flair, the AI Kings in the United States, the data kings in the United States have no problem getting all of the information that they need from you already. 

So the info influx really is not much of an issue. There used to be a moment when things had to be manually entered in, and the Chinese had an advantage of that for the numbers, but now AI has reached the point that it can self process. So again, that’s gone away too. So the structural issues really are not relevant. 

It really comes down to hardware. Now the Chinese are under export restrictions, so they cannot import the hardware that is necessary to make high end semiconductors, specifically the extreme ultraviolet machines that come from the Dutch company ASML. And without those, there’s no way they can make anything that’s really under seven nanometers reliably. That means that the reliant on importing chips and their export restrictions on anything coming out of the United States or Taiwan or Japan or Ireland, or any of the countries that make high end semiconductors, that limits them to approximately a 4 to 5 nanometer ceiling. Now, it’s not that those are bad chips at six nanometers. 

I mean, they’re fine, but if you want to do AI, it’s all about the number of computations you can crunch per chip and the power that takes per computation. And right now, in the rest of the world, the high end chips are in the 2 to 4 nanometer range, and we are now starting to get ships that were designed with coolant topography in mind. let me spell that out. What that means for an operational if you have a one gigawatt hyperscale data center, you probably have about a half a million GPUs on top of that. Lots of CPUs, lots of Dram, lots of Nand, different sorts of processing capacity, lots and lots of hardware. 

But the 500 GPUs or the core of it because large models. And when we’re talking about AI today, that’s what most people are discussing. Use those chips almost exclusively. And the better they are, the more computations, the more energy efficient per computation. The Chinese don’t have access to those 2 to 4 nanometer chips. Sometimes they can import some five and especially six nanometer chips. 

But they have made the decision that for sovereign control reasons, they don’t want to depend upon anyone’s imported chips. If they can make anything that’s even partially functional themselves really cool in. But there’s a middle ground. There’s a gray area because while the Chinese can’t import those high end chips in that high end equipment, they can still import a lot of equipment and a lot of gear. And they do that. They imported deep ultraviolet, DUV machines that are still pretty good and that are the basis for a lot more mature nodes. 

And they have used these to successfully make nodes as small as seven nanometers. Now I have to emphasize this. These chips kind of suck. They you generate about one third the computations per chip compared to what comes out of Asme and Taiwan. They generate about twice as much power, probably closer to three times as much power. Once you consider that the rest of the engineering of Chinese data centers, is that just that much worse? 

So you’re looking at overall one ninth efficiency compared to the leading edge stuff. On top of that, the yields for these seven nanometer chips is awful. It’s typically less than 30%. And as a rule, anywhere else in the world, any yield rate below 95% is something that wouldn’t be considered because it’s just such a massive waste of resources. 

China does the math differently, and they’re concerned with digital sovereignty and keeping them with the United States. But what it means is they need to build nine data centers for everyone in the United States in order to get an equal number of compute, and that is assuming the hardware can run the software that is required to do things like large language models. 

Bottom line, the Chinese are doing everything they can. They are sparing no horses, and they’re not even remotely close. They have tried over and over and over and over again for the last four years, to try to push past that seven nanometer limit, and they have succeeded in making a few emphasis on the word few chips, the meter level using technology. But it’s highly inefficient. And you’re talking about yields that are below 5%, nowhere near enough to supply a single data center, much less a raft of them. But before I laugh in their face, I have to say that the technology of AI is changing day by day, week by week, one by month, and the hardware is always two years behind. 

So I don’t want to rule it out there. Certainly motivated, if that’s the right phrase. But when it comes to the domestic manufacturing of the hardware that is required to do this, no, they’re just not even in the same game. Now, before anyone goes and toots America’s horn, the United States can’t make these chips either. Neither can Japan or Korea or Taiwan takes a team effort with 65 countries and 100,000 manufacturing supply chain steps and almost 10,000 companies. 

It really does take everyone. And if anyone is actually trying for real digital sovereignty, they’re going to fail unless they rebuild the entire tech ecosystem. And that is not something you do in less than 20 years. So are the Chinese going to fail at this by the rules of the game, as I understand them? Yeah. Are the Americans going to fail at this by my understanding of the rules of the game? 

Yeah, but the United States is part of a coalition of like minded countries that implement these technologies together. That’s how we do AI. And if the US decides to go it alone, it’ll be at best in China’s position.

The Diesel Shortage Hits America

Hand shown pumping diesel fuel with a Shell logo on nozzle

With Ukrainian attacks limiting Russian refining capacity and the Persian Gulf conflict restricting exports through Hormuz and the Red Sea, a diesel shortage is imminent.

While the U.S. should be able to weather this storm without issue, the poorly connected domestic distribution system will be a major source of problems. Unless the U.S. can move away from its heavy reliance on diesel trucks for shipping, the next 18 months will be full of shortages and rising transportation costs.

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Transcript

Hey everybody. Peter Zeihan here, coming to you from a drizzly Colorado today. We’re going to talk about diesel and what is almost certainly going to be diesel shortages in the United States, which is going to reverberate through the entire American economy for months. 

Okay. So on the front end, the approximate causes are two fold. Number one, we’ve got the Ukrainians basically taking out Russian refining capacity. Russia used to be the world’s largest exporter of diesel. And now it is a net importer pulling from the United States, India, South Korea, lots of places. That is not going to change anytime soon. Even if the Ukrainians were to stop attacking, the Russians no longer have the capacity to repair all of this infrastructure in a short period of time. And so they will probably be net importers at least through the remainder of the year, probably through the remainder of next year. And that assumes that Ukrainians stop attacking, which is highly unlikely. Number two, of course, is the Persian Gulf conflict. We now have the Saudis basically largely removed from oil markets. We’re probably near the very end of their ability to use pre-positioned crude on the Red sea to export that direction, because the pipeline has been taken offline. It’s a bypass pipeline that used to bring crude from the eastern part of the country, where the oil fields are to the western part of the country. That is not dependent on Hormuz, but it’s been bombed. So who knows how long that’s going to be offline, and it can always be bombed again. In addition, the Strait of Hormuz remains mostly closed. At the best, in the last three months, we’ve seen maybe 20 ships go through a day, down from what used to be about 150. And as of Wednesday, only three ships came through. So the ability of the Iranians to shut that on and off is pretty, pretty strict. And that means we’re looking at roughly 20 million barrels of crude that can’t get out. And that’s going to hit energy at every level, including diesel. 

Anyway in the United States, we’ve got a couple of things going on. First of all, it’s bringing this to my attention. So there have been a lot of social media posts in places like California and Texas of gas stations saying that they’re just out of diesel. I wouldn’t worry too much about that at the moment. Having weekly outages here and there. Throughout the country is a normal thing. And the number of outages is not of a number that suggests that it breaks from the norm. The problem is price, because now we’ve got this pressure in the international system, and every time somebody exports a cargo of diesel from anywhere in the world, everybody is trying to buy it. So that is putting upward pressure, even on domestic prices here in the United States, even though we are diesel exporters. But there’s also a regional breakdown issue. The Californians, for example, have closed most of the refineries. So the only way that they have to get diesel in is by ship. And that’s typically a Jones Act certified shipped from Texas. So in the United States, we’ve got this incredibly stupid law on the books that dates back to the 1920s, called the Jones Act, or the Interstate Commerce Act, which says that any cargo that is going to be transported between any two American ports has to be on a boat that is built in America, owned by an American, captained by an American, and crewed by Americans. And as a result, the cost of maritime transport in the United States is increased by a factor of five compared to the world average. Which is just idiotic. Anyway. So we’ve got that restriction. There’s only a limited number of Jones Act vessels, and they have to take the stuff all the way from the Gulf Coast, through Panama, on up to California. So the entire West Coast, California specific is facing what is about to be just astronomically high diesel prices. It’s not much better on the East Coast. They do have something called the Colonial Pipeline that goes from the Gulf Coast, Texas/Louisiana area and sends fuel directly into the American northeast. But the volume isn’t sufficient for the needs. So they also use Jones Act. Go further down the Atlantic coast into places like South Carolina, Georgia and Florida. You’re talking purely Jones Act or truck. Trucks use diesel, so you’re using the thing you’re running out of in order to ship the thing that you’re running out of to places that can’t make it themselves. In the middle, you’ve got the Rocky Mountains, the Mountain West and the Midwest, who for the most part produce most of the diesel that they need. And we’re not seeing any shortages there. And then, of course, the place with the surplus is the Gulf Coast, Texas, Louisiana. And that’s where most U.S. exports come from as well. The problem is these various regions are not linked together very well. There aren’t a lot of pieces of infrastructure like colonial, and so most of the stuff has to be shipped by truck or by train, both of which use diesel. 

All of that combined means regional shortages are pretty much guaranteed. And that’s before you get to the real problem. Because of the Jones Act, the United States a century ago made the unconscious decision to move away from water transport and even rail transport to truck transport. Now, trucks have certain advantages. They can go to places where you couldn’t run a rail line because it’s too steep, important in the mountain west, but they cost a lot more and trucks use diesel. So by ton mile, the majority of U.S. cargo is shipped by truck. You see the problem here? 

Nearly unique in the world, the United States has the best maritime transport system possible, but has instead opted for the most expensive transport system possible. Shipping things by water costs less than one tenth of shipping them by truck. And so we should be using our water network to the fullest extent, which would also minimize our diesel demand. Instead, we’ve done the opposite. And now with shortages on a global basis, guaranteed even in the United States, which is a net exporter, even in the United States, which is the largest net exporter of refined product, we’re going to be facing problems in our transport system, which will affect every single thing that has to be moved throughout the entire country for at least the next 18 months.

The Venezuela Oil Deal Is Just the Start

A chevron Gas sign against a dark night

The recent series of U.S.-Venezuela oil deals is not quite as significant as it was made out to be.

The main highlights are Chevron’s investment and the U.S. putting its stamp of approval on NABEP. While NABEP lacks much of what it takes to expand production, U.S. backing gives the company credibility to attract outside investment.

This is just the beginning of a long road to recovery, but it’s better than nothing.

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Transcript

Hey everybody. Peter Zeihan here, coming to you from Colorado. Today we’re going to look at something that happened while I was away at Yosemite. The oil deals between the United States and Venezuela. There’s been a lot of hyperbolic conversation about them. The reality is much more muted. 

We’ve got three things. First of all, Chevron, which is an American company that never left Venezuela, has announced a series of investments with the aim of increasing output by 300,000 barrels over the next five years. This is probably the upper level of what Chevron can do. Not that Chevron’s not capable, but that the crude in Venezuela, as a rule, is very difficult to work with. You basically have three regions, one in the East that has some more conventional crude, one in the west around Maracaibo that’s heavy crude. And then down in the south in a place called the Orinoco Belt, where it’s super heavy, crude and is actually a physical solid at room temperature, and it has to be heated up and mixed with other liquids in order to be able to put into a pipeline. Anyway, Chevron has operations throughout the area. They’re basically taking the fields that they already have, putting in some more money and trying to increase recovery rates. So really not doing anything new. So 300,000, that’s about all you’re going to get. 

The second one is Americas Hunt Oil, which is taking over two small fields in the east of the country…that are small. And if they do really well, you know, maybe they’ll get 100,000 barrels out of that over ten years. Again, not very interesting. Remember, this is a country that at the height was producing 4 million barrels a day back in the 1980s and 1990s. And then Chavez and Maduro, it just…..until it fell into under a million barrels a day, where it is now. 

The third one. The third deal is the one that’s getting really interesting with a company called NABEP and NABEP is the successor that has been renamed a few times, for a firm that started operating back in the 20 tens that at the time was called Petrozamora, run by a guy by the name of Alejandro Betancourt López. This guy is somebody who is tightly affiliated with the Russian government. And when the United States put sanctions on the Chavez-Maduro regime, the Russians basically came in to do what they could. But Russian technology sucks in the type of fields that Venezuela has. So Betancourt was able to basically bring in a few people from outside the Russian sphere and actually operate a few fields. But then when you get to 2020, if you remember back to 2020, you know, Covid year, it was kind of rough in Venezuela as well because they had elections and it looked for a hot minute like this guy from the outside was going to take over. He never did. But Betancourt sided with him, and it came to light that he had also been embezzling a lot of money from the Venezuelan state oil company, and so he got kicked out of the country. And Petrozamora (fell apart) until it was only producing like 100,000, maybe even 50,000 barrels a day. Well, fast forward to calendar year 2023. And a woman by the name of Rodriguez, who is now the acting president of Venezuela, brought him back in because the oil sector in Venezuela had just tanked in the intervening three years and started bringing the company back. I think it produces about 200,000 barrels a day right now. Anyway, this new deal with the United States is with the successor to Petrozamora, with Betancourt personally. They’ve renamed the company NABEP, and they’re basically taking all of the Russian concessions and all of the Chinese concessions and giving them to this new company. Now, this new company does not have the staffing, much less the expertise and the volume and the drilling rigs that are necessary to operate all these fields. You probably need about 90 rigs to really make it all work. They’ve got two. In addition, the United States has taken a theoretical not not actual theoretical share in NABEP and has theoretically the ability to assign people to their board. And theoretically, if the U.S. Defense Department specifically wants to take the crude that NABEP produces, it gets rights of first refusal, the first 20% they get at a huge discount, basically production cost and the other 80% they can get at market costs. But all of this is in theory. Unless and until someone else comes in and provides the funding and the staffing and the equipment, NABEP really isn’t going to go anywhere. The point of this deal, however, is for the U.S. government to put a stamp of approval on this one firm so that others who are willing to take more risk can come in, invest in the firm, and then maybe turn it into something that can turn Venezuela’s oil fortunes around. It’s a necessary first step. I don’t begrudge the U.S. administration or the acting Venezuelan government for that. But there’s no money here. There’s no skill transfer here. There’s no equipment coming in at yet. The Chevron deal really is at the moment, the only one that matters at all. And that’s 300,000 barrels over five years. Not a big deal. 

But if if if if if if all of those things happen, then you are talking about the very, very beginning of a renaissance in Venezuela. You still have to change the laws, because right now foreign ownership is an issue. You still have to change the reparations route, because right now it’s not clear how the money gets to the investors. But at the very minimum, we now have at least one entity operating in Venezuela that actually has the right to develop fields, that isn’t the state. That is a step in the right direction. But let’s not get too crazy. Let’s not get ahead of ourselves.