Iran War Winners and Losers: North American Energy

Satellite view of north american lights and energy

As Persian Gulf and Russian exports collapse, global prices will rise, which should benefit the U.S. and Canada. However, if exports are halted to keep gasoline prices down, then North America would become oversupplied. This would effectively cap oil prices near production costs, despite the rest of the globe facing shortages and rising prices.

This means the producers wouldn’t see much upside, with refiners becoming the only real winners (even though they still have to retool to use that domestic light crude).

Prefer to read the transcript? Click here

Transcript

Hey all, Peter Zeihan here, coming to you from Colorado. And today we’re doing another one of our Open-Ended series on winners and losers in the Iran war. And today we’re talking about energy markets, specifically in North America, where the two big players are the American shale patch and Canadian producers primarily, although not exclusively, in Alberta. All right, first things first. Let’s get an understanding from where we were the day before the war. 

U.S. shale output is at record levels, and by itself is the single largest producer of crude in the world. But most of that crude is light and sweet. The issue is that in shale formations, there’s not a big pool of crude for you to stick a straw into. It’s tiny, microscopic little packs, and so you drill into it, inject liquid which cracks the rock. You inject sand, which then goes into the cracks. You pull the water out and the sand keeps the cracks propped open. So the facility then generates its own pressure as this stuff drains up. And because of that, the oil never migrated through a rock formation. So it’s very pure. It’s, very light, very sweet, low viscosity. 

Canada’s oil sands are very different. It’s basically Bitterman, or oil sand where you’ve got a relatively porous rock and the petroleum is migrated through a lot to kind of almost make it a sludgy gel. So it’s very thick and very heavy, and some of the crazy stuff is actually solid at room temperature. So they have to often inject steam in order to make it liquid so they can pump it up. 

Sometimes they literally electrify it, sometimes they strip mine it. Anyway, it’s a lot more energy intensive than what happens with U.S. shale, but in both cases, the cost per barrel is pretty high. It’s rare that it’s, under 30. Sometimes it’s over 60. So in both shale patches and the, Albertan oil sands, if prices are too low for too long, a lot of the work just stops. 

Anyway, on the surface, with having the Persian Gulf go away right now, we’re at 10 to 12 million barrels a day off line. even if the war ends tomorrow, that will remain that way for at least three months, because these fields can’t just be flipped back on. Some of them will take at least two years, probably more. 

And that assumes no additional damage, which, considering the path we’re on right now, is a laughable, scenario. We’re probably looking at the bulk of the 22 million barrels per day that comes out of here never coming back, or at least not within a decade. In that scenario, oil prices have nowhere to go but up and starting strongly, strongly, strongly. 

So. So it would appear that US shale and the Canadian shale patch are big winners here mid term. Because, you know, if the price of oil doubles or more and you production costs don’t change and you have access to the world’s largest market and you’re nowhere near the the shooting, it seems like all positives, right? Wrong. Because when oil prices go up, there’s another piece in play here. 

First the Ukrainians are taking out basically the western half of the Russian oil complex. They’ve already destroyed the ability of the Russians to export through the Baltic. They’re going to be working on the block very soon. That’s at least 3 million barrels a day of Russian crude, maybe as much as five. That simply isn’t going to come back either. 

So we’re looking at Persian Gulf crude and Russian crude disappearing from the market at the same time, which will send prices even higher, which again, is great for Canada shale. Right? Wrong. Because I don’t know if you guys noticed this, but the American president, Donald Trump, is pretty populist. And if we start getting $10 gasoline in places that you know, aren’t California, there’s going to be a bit of a rebellion. 

And this is something that Trump doesn’t have to stretch the law to deal with. Back in 2015, when shale oil was new, there was a big debate in Congress over solar and wind versus oil exports, what was necessary to push the American energy complex forward. And the compromise that was reached was that we would allow oil exports that used to be illegal, and we would subsidize the development of solar and wind, and to make sure that we had a stopgap, the president was given the authority without having to go back to Congress, without having to even have a hearing to end U.S. oil exports if market conditions argued for problems. 

However, he defines that, which means that the 5 million roughly barrels a day of crude that the United States exports right now could go to zero with the stroke of a pen. And if we enter in a situation where the American internal oil market gets really expensive, to the point that it becomes a political problem for Trump and an economic problem for the country, you bet your ass he’s going to do that. 

So now we’re looking at a scenario where Persian Gulf crude and Russian crude and American crude all go offline at the same time, sending prices sky high. So this sounds like it would be great for the Canadians, right? Wrong. Because most of the crude that Alberta produces is shipped south to the United States, and it can really only be refined in refineries that the United States operates. 

They do have a one pipeline that isn’t doing very well, by the way, called Trans Mountain, that goes out west to British Columbia. That one pipeline will obviously be filled up to its capacity in this scenario, and anyone can get the crude out that way. We’ll be able to sell to the global market at a high price. But with that one exception, most of this is actually probably going to be seen energy prices in the United States and Canada going down. 

Because in a scenario where you can’t export, we’re in an environment of super saturation. And as long as you can produce crude in the United States and Canada for $60 a barrel, that’s pretty much as high as prices can go when you’re in such a huge surplus situation. So we get a situation in North America where prices are kind of capped at 60 to 70. 

We get a price situation in the rest of the world where 200 is a good day, and that’s where we are. That doesn’t mean that there are winners in the North American energy complex. It’s just not in production. It’s in processing. You see, the restriction on U.S. exports doesn’t apply to crude, refined products just to raw crude itself. 

So if you operate a refinery and you have export options, you can export your naphtha, your crude or your gasoline, your diesel, whatever it happens to be to the wider market at inflated prices was just one little glitch. U.S. refiners for the last 30 years have steadily retooled their entire complex to run on heavy, sour, imported crude, for example, from Canada. 

But with the United States locking itself off, most non-Canadian sources of heavy crude are simply not going to be available anymore, and they’re going to be forced to deal with the light sweet that comes out of American fields. Now, this can be done. The modifications are easy. They’re actually going to be dumbing down the refineries to run on higher quality crude. 

But in the process of doing that, they’re writing off a lot of capital investment. At the same time, they have to invest in a different kind of fractionated system. It’s not that that’s particularly expensive. It’s not. But that takes a long time. But it is definitely going to cut into the rate in which they can benefit from these situations. 

And in the meantime, they’re probably going to be having runs that are going at significantly lower efficiencies than they would prefer. In the long run. It’ll be great. In the long run, they’ll be making more money, but they have to get to the long run first. So for the first year or two, there’s going to be a lot of stress on their hardware before they can change over some of the infrastructure. 

So again, just as we’ve discussed with almost every other country, the conventional wisdom that a lot of people saw in the first couple of weeks of the conflict really doesn’t apply. As soon as something happens, there’s a reaction and oftentimes it’s the second, third, and even fourth order effects that are the ones that really stick. That’s definitely how it is with this topic.

Bring On the Jet Fuel Shortages

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

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

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

Prefer to read the transcript? Click here

Transcript

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

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

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

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

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

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

The Blockade of Iran Begins

A US aircraft carrier floating in water with dark storms behind

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

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

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

Prefer to read the transcript? Click here

Transcript

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The End of the WTO

Globe with the World Trade Organization logo

A cornerstone of modern globalization, the World Trade Organization (WTO), is collapsing. Following the Cold War, the post-WWII system needed a legal system to enforce trade rules, so the WTO was born.

But the WTO was slow, and its court-based dispute system couldn’t enforce meaningful penalties. And its requirement for unanimous agreement made new trade deals nearly impossible. So, trade liberalization has stalled for decades.

Without the WTO, the world will revert to regional trading blocs. The issue is that this leaves several regions without balanced economies (you need production and consumption, and only a handful of areas have that). As the WTO falls apart, expect decades of economic instability and conflict.

Prefer to read the transcript? Click here

Transcript

Hey, everybody. Peter Zeihan here, coming to you from Colorado. Today we’re gonna talk about the World Trade Organization or what used to be the World Trade Organization. 

The global rules of trade have evolved a lot over the last 70 years. But the key thing to remember that for the United States, this was never about the trade itself. It was about security. After World War two. The United States drew its allies together and said, look, we will defend you. We will use our Navy to allow your commerce to go to any part of the world. If in exchange, we can control your security policies. And that gave us the Cold War alliance that allowed us to defeat the Soviet Union. But it did come at an economic cost, because the United States basically agreed almost formally to serve as kind of a dumping ground for product. And in the aftermath of World War Two, when the United States economy was basically as large as everybody else has put together, that was a pretty easy, carry. 

But when you fast forward to the end of the Cold War 1992, everyone had grown and the math had changed. Also, the security environment had changed with the Soviet Union gone. The United States was starting to have conversations with itself about what’s next, and while we never carried any of those to fruition, there was a general agreement on both sides of the political aisle. that the old deal needed to be modified because people didn’t necessarily need protection anymore. So the United States was starting to want more economic, benefits from globalization in a way that it just wasn’t concerned with in the 50, 60, 70 or 80s. 

So this translated into the negotiations in the 1990s that birthed what we today know is the World Trade Organization. And the idea is you take all of the broad agreements that we had reached on trade liberalization over the last 40 years. You bundle them into a single pack. And that pact of WTO would have adjudication authority. So if there was a dispute among countries, you would take it to the WTO court, and the court would rule who was violating trade laws and what sort of punishment could be divvied out by the country that had been hurt? 

It’s a really interesting idea and governance. And the idea was that, you know, there were things that were allowed were things that were not allowed, and there had to be an impartial arbiter in order to determine how the disputes would be resolved. ultimately, we had two problems. So number one, it was a court based system. 

So it could take months, typically years to find out what was wrong. And by the time a country would win a court case, it would be able to actually retaliate the core situations that led to that circumstance generally, had changed. Probably the, the best example I can give you is the ongoing dispute between the European Union and the United States over aerospace, with Airbus getting huge amounts of EU subsidies and Boeing also being a defense contractor, which the European saw as subsidies. 

Now, maybe you as an American, I’m with the Americans on this one. But anyway, the point is that every year both sides would sue the other one. And we get these interlocking cases, which as a rule, the United States won. But the conditions, the penalties that were allowed for the United States to then punish the Europeans were typically so mild of the Europeans just sucked it up and moved on. 

So you had a court system that could rule, but it rarely was able to execute a ruling that was of sufficient severity to actually change the political math on the ground in the country where the violation happened. That was part one, part two. And this is what really killed it. The system works on unanimity. So if a single country opposes some extension of a pact, a renewal of a pact, a negotiation, a pact, the terms of a pact, the whole thing dies. 

So since 1998, when the WTO formally took effect, we functionally had no meaningful liberalization of trade ever since. And just this week, Jamison Greer, who’s the U.S. trade representative for the Trump administration, attended the most recent WTO ministerial. And at the end of the day, no one could agree on anything. And this will probably be the final WTO meeting, because at this point, it’s been 28 years. 

And that’s before you consider that the current American administration really just doesn’t care about international trade in the same way that groups before have. Now, will this have consequences? Duh. So step one if the world is completely unbound and unmoored, if the court can’t function at the WTO, if the WTO is no longer a place to negotiate how to prevent a trade war from getting worse, we’re going to have a lot more trade wars. 

That is unavoidable. And in a world where your typical manufactured product has hundreds of intermediate supply chain steps and, that’s going to be pretty rough. And that’s before you consider that, only about half the countries of the world have a young enough demographic to really serve as centers of consumption. So we’re looking at a break of the guns for butter deal that the United States cut under globalization, and then an end to the supply system and the manufacturing system, which has allowed the circulation that has made trade as we know it possible, that will be felt most dearly in manufacturing, because that is where most of the efforts to this point have been put in the negotiations. Second problem is a little bit broader is that if we’re going to move away from a system where trade is globalized, then by default we are going to be moving into a system where trade is regionalized. And if you’re talking about a regionalization of trade, you need to have a balance of industrial plant and consumption. 

And there’s really no part of the world that has that imbalance. In North America. We have the consumption, especially in places like the United States and Mexico. But the industrial plant needs to be roughly double, and you can do that, but you can’t do that in a short period of time. That’s a 30 year project. The Europeans are a little light on the industrial plant and very light on the consumption. 

So they’re in a situation where parts of Europe like, say, Germany, where the industrial plant is huge, have to export everything, but if they can’t export it to East Asia or North America, it has to be consumed locally. And that is going to have a horrific impact on the economies of states that don’t have the industrial plants. So we’re looking at a real problem here for short, medium and long term survival for the European Union on economic grounds. The third chunk is East Asia. North East Asia has more than enough industrial plant, probably twice, maybe even three times what they need in places like China. But these are the places where the demographic bomb is most advanced. This is the part of the world that most needs to export everything they do. 

And without the ability to do those exports, you’re looking at civilization ending events for some of these countries. Before you consider problems with agriculture or energy. The one part of the world where things are kind of in balance is Southeast Asia. The industrial plant is roughly right sized for their population, which is approaching and collectively about a billion people. 

And as a rule, among the countries that are not dirt poor, this is really the demographically youngest part of the country, with places like Vietnam and Indonesia in particular, having really young, energetic, upwardly mobile populations. So in a post WTO, a world, we’re going to see a lot of scrambling as economic models and the political models that are based on them just can’t function in this new system that we’re approaching. 

And really, Southeast Asia’s the only one that’s kind of in balance. That doesn’t mean it’s doom for everybody else, but they’re going to have to find radically different ways to operate in Europe. That means finding an economic model that’s not based on production or consumption. In Northeast Asia, it’s redefining the entire social model. But what it means to be a citizen, what it means to be a ruler. 

Historically speaking, when we had moments like this, we have a lot of conflicts among states within states, and it takes 30 to 40 years for everything to settle. 

I know everybody wants to talk about Iran these days, and there’s a lot going on there, but it’s actually the collapse of the WTO that is ushering in the real change. 

And the fact that most of you probably only heard about this here means that it’s not getting the attention that it really needs, because this is going to undermine the structure politically and economically of the vast majority of the world’s countries. And it’s going to do so real fast.

How to End American Power

Fist raised with an American flag in it | Licensed by Envato Elements: https://app.envato.com/search/photos/939fd782-14f6-41bc-a6c2-37f108609543?itemType=photos&term=american+power&sort=relevance

Trump’s latest statement telling countries to secure their own oil dismantles the very fabric of the global order. We’d be stepping away from the post-WWII system where the U.S. provided security for everyone, so economic growth could be the priority.

Forcing everyone to secure their own resources takes us back about a century, triggering conflicts and competition over resource control. This move weakens America’s global position, as power projection will be challenged and former allies turn into rivals.

This move jeopardizes America’s long-term strategic power and could lead to a collapse…comparable to the fall of the Soviet Union.

Prefer to read the transcript? Click here

Transcript

Hey, all Peter Zeihan here coming to you from Colorado. Today is the 31st of March, and we, we’re having some fun things. On Donald Trump’s truth social account. So the big news is that Trump has said, NATO is pretty much finished, and all of the countries that want crude from the Persian Gulf now need to come and get it themselves and just take it. 

If you read the line which will print here, basically what he’s asking for is a return to the colonial era when each individual country maintained its own independent military forces, especially naval forces, and in doing so, looked after its own, economic issues. 

The reason we do things today, the way we have been for the last 35 years, is we know that that model guarantees inter-state conflict. There’s two big layers to it. The first is that if you maintain colonies, you’re fighting to control those colonies. In the case of the Persian Gulf, this is actually probably one of the easier places to do it, because so much of the population is dependent upon physical infrastructure, like, say, desalination. 

And so maintaining a degree of control is relatively manpower light versus the economic assets you get. You’ll have to manage those populations. You might have to move some of those population. You may have to kill a lot of those populations. But, from a purely technical point of view, it’s not too bad. The second problem is that everyone will have their own preferences as to where the resources go, i.e. home. 

So you are guaranteeing a degree of inter-state conflict among the oil importers, because they will all now need to have their own naval forces in order to secure shipments from point of production in the Persian Gulf to points of consumption, primarily back in Europe or East Asia. 

One of the things that really worked about globalization is we basically told everybody, you don’t need a military anymore because we will take care of that. So if you do maintain a military, it doesn’t need to be big. And if there is a fight, we will defend you and we will take full control of what military forces you do have. 

And what that did is it cleared the board. And every major power in world history, with the exception of Russia, was now, for the first time, on the same side under the NATO flag or the American flag, based on where you were. And the United States basically made all the security decisions, with very little debate, I might add. 

Moving away from that system to a situation where each individual power has their own military and is looking out for their own economic interests, is going to take us back to what we had roughly in 1930 when we were industrialized. And so everyone realized they needed crude oil. 

But now, with a whole new layer of technologies and things like drones, it’s difficult to overstate how much of a tidal shift this is, because American military power for the last 75 years has been based on the concept or the sole decision making. We’re the sole arbiter, and what we say goes, what Trump is now doing is deliberately forcing all of the allies to establish an independent military posture with independent military forces to look after their independent economic needs, because he doesn’t want to do it himself, said so very, very explicitly. 

In that world, we will have taken every major power in world history that still exists today and forced them to move away from the American umbrella and to set up their own independent system. And no matter what version the future holds, we are never going to see eye to eye with all of them in that sort of scenario. 

What part of what made globalization work part of it for the American alliance system work is we removed the military side of the equation from their thinking so they could focus entirely on the economic. And if you want to undo that deal, that’s, you know, there’s a conversation to be had there, but abrogated in this way and basically forcing everybody to take up arms for their own economic issues. 

It’s turning the clock back to the weakest American security has ever been. And that’s in the 1930s. So the situation we have now is we’re not simply guaranteeing more colonial conflicts. We’re not simply guaranteeing more inter-state conflicts. We’re guaranteeing the fastest reduction in American strategic power in our lifetimes and arguably in the history of the Republic. Because while the US military may be first and foremost in the world, especially when it comes to the Navy deliberately ending the basing agreements, deliberately fostering demanding competition is going to land us in a world of hurt. 

Ten, 20, 30, 40, 50 years from now. And we’re only now in the early second year of this administration. There is a lot of time to make this truth social post, which Trump deeply believes is the right thing. There’s a lot of time to make it stick. And if you look at what has happened in the last year with Donald Trump threatening invasion of NATO allies because he couldn’t get a chunk of ice, I’m concerned that we’re already well past the point of no return, and we’re now in a situation where the US military has to figure out how to close down its entire constellation of bases on a global basis and start building contingency plans for fights with all of the countries that have been on our side for the last 75 years, at a minimum, best case scenario, none of those fights happen, but it still means a massive reduction in America’s military global footprint and its ability to project power beyond the Western Hemisphere. So we are at the beginning of the greatest collapse in strategic power that I have seen in my life, the only similar situation that comes even remotely close would be the Soviet collapse, at the end of the Cold War. 

But if you look at the Soviet empire at that time, it was not nearly as global. What the United States has now. Most of their retreats were far closer to home, say the loss of Central Europe, for example, we’re looking here at the United States becoming unwelcome, not just in the Middle East, but in Europe and probably in East Asia. 

And we’re actively pushing to create strategic competitors for a generation or two from now. That is quite possibly the most fucking stupid thing that we could do. And yet here, here we are.

So You Want to Take Iran’s Oil…

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

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

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

Prefer to read the transcript? Click here

Transcript

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

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

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

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

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

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

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

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

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

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

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

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

Russia Draws American Blood in Iran

Photo of American flag with blood on it and Russian flag next to it

Iran was able to successfully strike Prince Sultan Air Base, which is a U.S. base in Saudi Arabia. And guess who supplied Iran with the targeting data necessary to carry out the strike? The Russians.

The strikes hit an E-3G Sentry, which is one of a limited number of AWACS the U.S. has in operation. These planes are used in drone and missile detection, so losing one of them is devastating. However, the more troubling aspect of this strike is Russia’s involvement.

While Russia has a long-standing tradition of aiding any adversary of America, directly assisting attacks on U.S. forces is a major escalation. Oh, and still no response from the Trump administration on any of this.

Prefer to read the transcript? Click here

Transcript

Hey everybody. Peter Zeihan here, coming to you from Colorado, not a particularly good update from what’s going on in the Iran war. Last Friday, you may remember that there was an attack on Prince Sultan Air Base in Saudi Arabia, which is a U.S. military facility. And in it, several ballistic missiles and drones were able to get through defenses. 

Bad for the obvious reasons, is that if there’s any place that should be defendable, from Iranian weapons systems, it should be a U.S. air base. And clearly, the United States is now running out of interceptors itself. Second, even worse is one of the targets that was hit was in, E3G, which is an Awacs through the large jets that have the big radar dome on the back of them. 

They basically patrol provide information real time information on enemy aircraft, whether it’s a drone or a jet or whatever else. And they can cover about 120,000mi² at a time. The Awacs have been critical for getting early warning on the drones, because you can’t really put a sonar phone out in the water like you can’t see at the edge of Ukraine and then track them for several hundred miles. 

So the Awacs are really the best way we have in order to see these things coming. The United States only has a fleet of 15 of them left, or 14 of them left now, and half of those are down for repairs at any given time. So we’re talking about a significant reduction in the ability of the United States to operate the anti-air operations in anti-missile and anti-drone operations, not just in theater, but on a global basis. 

But the real shitty thing, that came out just yesterday is that we now know conclusively that the Russians are the ones who provided the targeting information. The Russians have a military recon satellite system, and we know that they’ve been providing aid to and Intel to anyone who’s been shooting at the United States for 30 years. But now we have the Russians caught providing real time information on the location of specific aircraft that can then be used by the Iranians to target specific pinpoint within American military facilities in the Middle East. 

It will be interesting to see how the Trump administration chooses to spin this and say, it’s no big deal, because the Russians are our friends or whatever the angle happens to be. But leaving aside for the moment, all of the other angles about this war, about the energy breakdown, not being at the forefront of drone technology anymore, we now have, America’s oldest adversary, deliberately sharing tactical information on American military hardware and personnel and facilities with the Iranians. To the degree that the Iranians are actually able to penetrate and hit things specifically, there there is any number of ways where that’s a very, very negative development. And we have yet to see it being treated seriously by this administration at all.

The Strait of Hormuz Remains Open…For Iran

Despite the ongoing conflict in the Persian Gulf, shipping in the Strait of Hormuz remains open…sort of. The Iranians have taken control, requiring ships to get clearance for safe passage.

Basically, Iran has set up a protection racket. They’re earning more from transit fees and oil exports than before the war, and all the Chinese ships carrying drone parts and components heading to Iran remain untouched. Even with the significant U.S. military presence in the region, nothing is being done to disrupt these flows.

Until that stops, Iran’s military operations and economy will continue to grow stronger.

Prefer to read the transcript? Click here

Transcript

Hey all, Peter Zeihan here. Still sick. Coming to you from Colorado. This is Loki. You may have heard him or seen him in videos in the past. Anyway, today I wanted to let you know about a little internal investigation that we’ve been running in the ER on war. 

Specifically, we’ve got questions here on our end, about why shipments are still getting through the Persian Gulf at all. 

Now, international insurance has basically been canceled for all ships in the area. Basically, once somebody starts shooting civilian shipping, all bets are off and the captains are on their own and if the ship takes a hit, oftentimes it’s the captain that is legally or financially vulnerable. If not the shipping company. And there’s no way to file a claim in that circumstance. 

So lots of ships are trapped inside the Gulf, and there’s a couple hundred waiting outside for things to clear, which isn’t going to happen anytime soon. And yet, there are still some ships coming and going, but all of them have gotten clearance from Iran. So under normal circumstances, there’s a six mile navigable channel that’s roughly in the middle of the Strait of Hormuz. 

Most of it is actually in Omani territory. Some of it does go into Iranian territory, and there’s a two mile channel for going one way, a two mile channel for going the other way, and then a two mile gap in the middle. That is not being used by anyone. That’s what’s completely shut down because of the attacks we’ve had so far. 

On the other side of the equation, you’ve got Iran basically processing ships, at the Imam Khomeini port, which is way up in Khuzestan, which is on the northern extreme of the Gulf, actually in the general vicinity of Kharg Island, if you know where that is. So for ships wanting to get passage approval from Iran, they have to sail all the way to the northern end of the port, basically under all the drone and missile attacks that are going back and forth. 

They have to dock at Imam Khomeini port. They have to basically get their papers, pay their bill, which comes out for a large ship to be like $2 million. And then they sail down the Iranian coast as close to the Iranian coast as they can. 

And instead of using that navigable pathway through the middle of the street, they hug the Iranian coast as closely as they can and sail through that way. 

And same for anyone who’s coming in. They have to sail all the way up to Khuzestan to basically get their papers stamped. So what has happened here is a clear example of the United States just being unable to process what’s going on on the front end. 

United States seemed woefully unprepared for anything happening in the Strait of Hormuz, during a war with Iran, which is just beyond ludicrous, because that has been the issue since 1979, and there was no meaningful preparation of all. Second, Iran has managed to set up a basically a protection racket, and cargo is still not just coming to and from Iranian ports, including Chinese, gear that basically is full of drone parts. 

They’re actually able to sail into the Strait of Hormuz all the way up and into the northern Gulf, not be molested at all. Docketed Iranian port, or take on cargo, pay their fees, and then sail all the way back down through the Persian Gulf, through the Strait of Hormuz, and out. And the United States is doing nothing. 

So the idea of that, the Iranian authorities, as they are at the moment, are under pressure is just mind bogglingly stupid because the economy of Iran is largely managed by the IRGC. And we have actually, in these circumstances, seen income for the IRGC go up because the not only are they getting these transit fees, but the core issues of economic smuggling still apply. 

And even though the US military is now more present in this region than it has been at any time in modern history, it is doing nothing to interrupt the commercial flows going to and from Iran, and Iran is able to increase the volumes of its exports to nearly 2 million barrels per day and garner the war surcharge. So they’re earning easily in terms of profits. 

Two and three times what they were earning before the war. And the U.S. military is doing nothing. Now, under normal circumstances, there are analysts at the military and especially at the Department of Energy who would point these things out to their chain of command, and it would go up to the department heads and eventually the president. But President Trump fired all those people last year. 

So it took people like me doing this little project on the side to figure out how everything is flowing. Someone please tell Trump because until this is interrupted in some way too big problems. Number one, the IRGC is giving them more money now than they did before, which reinforces all of the pillars of the Iranian structure that allows it to fight the war and encourages political cohesion. 

Second, they have no problem resourcing parts for missiles, and especially drones from the Chinese, and so they’re able to maintain their current pace of fighting more or less indefinitely. So yeah, someone please pass that along. Maybe it’ll make a difference.

U.S. Ground Troops Coming to Iran

Squad of Soldiers Running Forward and Atacking Enemy During Military Operation in the Desert | Licensed by Envato Elements: https://app.envato.com/search/photos/b369387a-4bc2-43d2-808a-0341aa11dbcc?itemType=photos&term=military+desert&sort=relevance

The U.S. is preparing for a potential ground operation in Iran. Marines from the USS Tripoli and Boxer, as well as elements from the 82nd Airborne, could be looped in. That’s roughly 8,000 troops, which is just a small-scale, fast-response force, but no matter the size, boots on the ground is a scary endeavour.

If Kharg Island is in fact the target, the retaliation from Iran would be massive. This is Iran’s main oil export hub, which means it’s the main revenue source as well; with that gone, Iran would unleash hell. And Kharg Island would be extremely difficult for U.S. forces to defend; they would be under constant threat of drone strikes, and quite exposed.

Another plan would be to use these troops for targeted raids along the Strait of Hormuz, disrupting Iran’s ability to attack shipping.

Prefer to read the transcript? Click here

Transcript

Hey all, Peter Zeihan here coming to you on March 25th from inside the house in Colorado because, false alarm. I’m not getting better and sicker. Anyway, I’m going to talk about, Iran today, specifically what’s going on? Ground troops, which looks like they’re absolutely going to be used. This is a bad idea from any number of matters, but let me give you an idea of what’s in play and what it might be used for, and we’ll go from there. 

So, as you may remember, the USS Tripoli, that’s one of America’s amphibious assault carriers, carries a clutch of F-35 fighter jets, as well as 2000 to 2500 Marines. Relocated from the Philippine Sea and the ceiling through the Indian Ocean. Now, it will probably arrive in the vicinity of the Persian Gulf in the next day or two. 

We also have the USS boxer, which is another EU marine expeditionary unit. That’s basically what the Tripoli is, which has left San Diego. It will not be an area for probably close to three weeks, but the news from yesterday is that the 82nd airborne, which is kind of America’s rapid reaction force, troops that are run by the army, that are mated with permanent transport aircraft that can deploy to anywhere in the world in less than 48 hours. 

They were given the marching orders to move to the Middle East, last night. And we’ll probably. Well, they could be moving right now. You know, all hush hush classified. But when the, orders are given, it’s usually not too long until they’re on their way. Collectively, in three weeks. This means we have about 8000 troops in the region. 

And they’re really heavy hitters. Basically, unless you’re going to move into special operations, the Marines and the airborne are about as good as they get without having armor. And that’s something else that’s important to note. So this is not a traditional ground invasion where we’re driving tanks and using artillery. This would be a relatively light force that punches above its weight for what it is, but is not designed to take on another major force. 

Keep in mind that if the Iranians don’t have another major force, so that should be fine in that regard, they may have a million man army, but it’s apparently designed to shoot civilians rather than swarm over foreign countries. Now, the news is going on and on and on and on about something called Kharg Island. As someone has highlighted Kharg Island 15 years ago, part of me is like, yeah, you finally, but I really doubt that’s the target. 

Or more to the point, I really doubt that that should be the target. Kharg Island is a small facility off the western coast of southwestern Iran. It’s up in the northern Gulf. It doesn’t have a bridge to it. It was built by foreigners, and it has a subsea pipeline that basically carries all Persian Gulf crude to it, because the Persian Gulf Coast is really, really bad to accept tankers. 

It’s just very shallow and muddy. So they have this island out where they can accept tankers. And it is the point for plus of Iran’s oil exports. And what we’ve seen in the war so far is that the United States came in completely unprepared for the idea that something might happen to the Persian Gulf and really didn’t have the hardware or the positioning in place to protect ships in the Gulf, or make sure that the Iranians couldn’t attack ships in the Gulf. 

So everyone’s now focusing on Kharg. And the logic seems to be that Donald Trump wants to make another fucking deal. And the idea is that if the United States occupies Kharg Island, then Trump will have a negotiating card to play against Iran elsewhere. So we will give you Kharg Island back. If you stop attacking places in the Gulf, specifically if you allow the Strait of Hormuz to be open. 

I will tell you bluntly, in anyone who studies, the Middle East will tell you bluntly and, that that will not work, because that will remove Iran’s oil income and then the gloves will really come off. And as we’ve seen, when the Israelis attacked a natural gas processing facility last week, the Iranians had more than enough, weapons left to open up on infrastructure throughout the Gulf. And they did well over $100 billion of damage in a matter of hours. You would probably get something like that. In addition, Kharg Island, is not going to be easy to defend. 

one of the things the United States has been doing is its carriers haven’t even come in the Gulf. One has been off in the Arabian Sea, the other one has been off in the Red sea. 

They’ve been fighting Iran at a distance. If you’re going to put a few thousand troops in Kharg, you’re going to need close in support. And it is within 30 miles of the coast. And the Iranians will hit it with everything they have, because the ability hit several thousand American troops with limited defenses right up and close. Oh, man, they’ve been waiting for a situation like that the entire war. 

It would basically be putting them in the most vulnerable way you could imagine. And now, like I said, anyone who knows anything about this region or oil politics or how defenses work would have told president that this isn’t how things go. But the president isn’t being told anything. The people in the Department of Energy and the DoD who were responsible for studying things like chokepoints and, the Strait of Hormuz specifically, were all fired last year. 

And the same goes for basically any sort of strategic planning or think work. Pete Hegseth, the secretary of Defense, has been going on a crusade in his, Anything that does not actively support the warfighter is being cut out of the Department of the defense, and that removes all education that would allow people to make educated decisions about, say, what you do in war. 

So when I say that this is a Donald Trump plan, this is a Donald Trump plan. He’s no longer allowing information to reach him, with the possible exception of through Dean Cain, who is Joint Chiefs of Staff. And that’s about the only voice of caution he’s get. And so far, he has overruled Cain on really everything of substance. 

So if this is where we’re going, this is going to end in a bit of a debacle. The only other thing that I can think of were 8000 troops that are heavy on the insidious component might be of use, as in the Strait of Hormuz itself, if you put, Marines and airborne in that area, and enable them to do land strikes, rapid and then retreat land strikes up and down the Strait of Hormuz, you can probably limit the ability of Iran to launch attacks on civilian tankers. 

And since the United States doesn’t have the ships, doesn’t have the hardware to do a meaningful convoy system, this might be the next best plan. It’s not a great one, but I would find it much more viable than, say, going after Kharg. That’s my $0.02. Anyway, that’s where we are right now. The Tripoli will arrive within 48 hours, and the 82nd could be there at the same time. 

So if you only feel you need two thirds of these forces, you get going on it right away. If you decide you need the full 8000, you have to wait for the boxer to arrive. And that will not be until the second week of April. Anyway, pieces are moving so that these options are available. Whether they are used, of course, depends upon, what Trump feels, because that’s all that matters in this war.

The Death of the First-Time Home Buyer

A Caucasian couple staring and pointing at a home

Buying your first home is one of those major milestones that your parents and grandparents probably didn’t even think twice about. Now, that milestone is slipping further out of reach for the average American.

US housing prices have trapped those reaching home-buying age in the rent-cycle. Sure, demographic shifts could help, but that relief wouldn’t hit for quite a while. The quickest solution would be ramping up home building, but that hasn’t happened at scale. And demand hasn’t dropped since the boomers are aging in place. Oh, and lending costs are getting higher, too.

It’s the perfect storm to lock out first-time home buyers, and there’s no relief in sight…especially not within this decade.