Is Federal Regulation Coming to the Texas Power Grid?

Photo of powerlines and grid

That innate sense of independence that every Texan comes out of the womb with has also made its way into the energy sector. With an isolated grid managed by ERCOT, Texas has found itself in an energy pickle of its own.

Since the Texas grid stands alone and the capacity market disincentivizes peaker plants from being built, it’s more vulnerable to certain things like natural disasters that cause prolonged outages or fluctuating weather patterns and high temps which intensify energy demands.

The big concern is that energy demands in Texas are expanding…rapidly. To sustain the industrial expansion and population growth, the Texans might have to do something that goes against every fiber in their being: accepting federal regulation to help connect their grid to neighboring states’ grids.

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For those who would like to donate directly to MedShare or to learn more about their efforts, you can click this link.

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Transcript

Hey everybody. Peter Zeihan here. Coming to you from the Austin airport. Yesterday we talked about how California has found the new in a unique way to increase their energy insecurity, along with increasing prices. And today, it’s time to talk about the same topic in Texas. We’re going to go with an electricity story today. There are three kind of mega grids in the United States. 

One that kind of roughly, cuts down in front of the rocky line separating east from west. And then something called Ercot, which is Texas’s electricity reliability, group, which is basically just Texas. And Texas has its own grid because it has a different, philosophy when it comes to regulation from most others, which is a fancy way of saying they like as little as possible. 

But that doesn’t necessarily mean that they have no regulation, and that doesn’t necessarily mean their approach is working. One of the big things we’ve seen in Texas in recent months and years was there’s not a lot of depth or durability to the system, because unless there’s a very clear economic rationale for doing something on a day by day basis, it typically isn’t done because there aren’t going to be regulations about how long power can be off line for maintenance or redundancy in case of a storm. 

And Texas is a Gulf Coast country. And so when a hurricane comes through like one did earlier this year and hit Houston, power is out for 2 to 3 weeks over much of the city. They have a much bigger problem coming up just around the corner now. There’s something called a capacity market in Texas and regulations have been around for a while. 

Basically dissuade people from adding power to the grid unless that power is going to be used all the time. So there’s a little bit of an ideological slant here. The idea being that solar never works at night. So if you can’t pass on the cost to the end user because it can only be used half the time, can only pass on part of the cost, then maybe won’t. 

We won’t get as much solar. Solar is doing just fine in Texas, especially out west where it’s just a brilliant economic model. But this capacity market restriction has also restricted the Texans from building what are called peaker plants. Every day there’s a certain pattern where power is in higher or lower demand. And the smart people in the electricity market have figured out a way to ramp up production for those times. 

As a rule. And it’s going to vary location by location, season to season. Peak demand tends to be between 6 and 9 p.m. at night, when people are coming home and getting dinner and watching TV, and then it tends to drop off a cliff around 10:00 am and doesn’t pick back up until people are waking up around 6 a.m. the next day. 

Well, in Texas, because of this capacity market thing, they don’t get a lot of plants to generate power specifically for those windows. And I don’t know if you’ve been to Texas, but it’s a hot place. And so when you have peak demand from 6 to 9 p.m., everyone’s running their AC full bore and the peak is much stronger. 

You add in the erratic nature of weather in Texas, whether it’s the great Plains or the Gulf Coast or the interaction in between, and they have the most extreme variations between low and high. So if anyone needs a lot of speakers, it’s going to be Texas. But the capacity market actually dissuades people from building those. So we are now in a situation where Texas has had 35 years of incredible industrial and population growth, and considering what needs to be done over the next few years, the industrial growth really needs to continue. 

But there’s not enough electricity to power it, and the capacity market is now getting in the way. So we’re probably going to get a Texas two step of outcomes here. Number one, the Texans are going to have a series of rolling brown and blackouts as the power system fails. It’s just not stable. And then second, the Texans will probably be asking the federal government to dissolve the seam that separates Ercot from the rest of the country in order to import huge amounts of power from neighboring states. 

And in doing so, they’re going to have to subject themselves to at least some degree of regulation from the federal government. The alternative is rolling brown and blackouts and the failure of the Texas industrial expansion model. So basically, the Texans are going to do something they really don’t want to do. They’re going to have to ask for help from… Oklahoma.

Why Is Gas So Expensive in California?

Photo of gas pumps at a station

Picture this: you’re driving down the PCH in a sports car with the top down, hair is blowing in the wind, and then the gas light comes on. You pull into the first gas station you see and a gallon of gas costs $14.99. Okay, maybe I’m exaggerating a little, but California is heading towards a massive energy crisis.

California has been living in its own energy world for quite a while. As if its distinct gas formulation designed to reduce air pollution, high gas taxes, and dependency on foreign oil weren’t enough, the state now requires refiners to keep reserve supplies (raising costs further and creating more logistical issues).

Since California isn’t a beneficiary of the shale revolution, they still import crude from the Persian Gulf and use outdated methods of collection. This makes them vulnerable to global energy shocks and could lead to extreme gas prices throughout CA. So, if you were planning to head to the west coast, let your hair down, and take a cruise along CA State Route 1, you may want to grab a few extra gas cans before you cross the state line.

Prefer to read the transcript? Click here

Here at Zeihan on Geopolitics, our chosen charity partner is MedShare. They provide emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it, so we can be sure that every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence.

For those who would like to donate directly to MedShare or to learn more about their efforts, you can click this link.

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Transcript

Hey, everybody. Peter Zeihan here. Coming to you from Huntington Beach, California. Behind me is the old Huntington Beach refinery. This used to be a major oil producing zone. In fact, there’s still a handful of producing wells across the L.A. area, with one of the most prolific ones being inside of a mall in Wilshire Boulevard. Never say that the Californians aren’t capable of a bit of, double dealing. 

Anyway, the reason I wanted to talk about this, and this is what, you know, made me think of it, is we’ve got a bit of a crisis going on in California. I’m going to rotate around a little, not only is the view better, but you can even see some of the old, oil platforms out in the ocean. 

Hey. They’re okay. Anyway, short version is that California has a very high tax regime for, a lot of things, but none more so than gasoline, where it has the highest gasoline taxes in the country. And as a result, gasoline in California is ridiculously expensive, often goes over $5 a gallon. I think it’s where it is right now, actually. 

Anyway, there’s some other reasons for this, but, we’ll get to those in time. Bottom line is the Californians have become a nerd, but angered by very, very high gasoline prices and very, very volatile gasoline prices and more so than everyone else, you know, everyone else is, you know, used to the up and down of crude prices of how that affects things. 

There’s more going on in California for you that was worth exploring. The governor of California, Gavin Newsom, has recently signed into law a project that will force refiners to maintain storage of gasoline grades for the California market as a cost of doing business in the state. The intent is so that when maintenance happens, especially unscheduled maintenance, that there’s always a reserve that the state can fall back on to keep energy prices out of control. 

Unfortunately, it’s going to do the absolute opposite. And the cost of, complying with this new regulation combined with all the other regulations in California and at the energy sector, which are already, the stiffest in the country, means that a lot of refineries are evaluating whether they even want to stay. And, shortly after the new law was signed, Phillips 66, which maintains a refinery near here in Los Angeles, announced that, next year will be the final year that there are refineries operating and they plan to shut down and redirect their efforts to other places, most notably other states. 

A couple things here. Let’s talk about the technical of why what Newsom and the Democrats here are doing is just purple idea. First and foremost, California, in order to control air pollution, has a different formulation from the rest of the country. So any refinery that is producing, gasoline or unleaded or whatever else for the California market has to produce a very specific type of fuel that doesn’t have a demand anywhere else in the world. 

And so no refineries outside of the state produce for the state because there’s no margin added for them. So it’s just the locals. Second, not every urban center in California has the same regulations. And in the summer, a lot of them had different regulations. So not only do you have to produce a strain that is different for the state as a whole, but when you get to the summer months, you have to produce several different ones. 

And all of this drives up costs because it reduces scale. The idea of the regulation that you have to have storage makes sense. But gasoline, once it’s refined into a fuel, if it’s stored for any appreciable amount of time, you know, more than days to a few weeks starts to degrade. So the cost of keeping this up is really high, and the waste that comes out of it is not minor. 

And so from a carbon point of view, this isn’t a great idea anyway. There’s any number of reasons why this isn’t a great plan, but the Californians are doing it anyway. And that means that California is setting itself up for a bit of a problem down the road, more than just high prices. You see, California is the only one of the lower 48 that is not participating in the shale revolution in some way. 

They have a significant oil field here in the Monterey Shale that’s out in Kern County in in the valley. But the techniques that are used for fracking have specifically been banned. But oil production has not. So, the locals are using technologies that are older and arguably dirtier than shale tech in order to produce crude for this local market. 

This new regulation further separates California from the rest of the country. Also, keep in mind that the United States is now far and away the world’s largest exporter of refined oil products. By the end of this calendar year, we’re looking about 5 million barrels a day of exports of things like gasoline and jet fuel. Obviously, none of that’s coming from California. 

But for the rest of the country, we’re awash in an embarrassment of energy production and fuel production, whereas California is in huge deficit. And now California is the state that is most dependent, not just on energy imports, but energy imports from another hemisphere. Yes, all the refineries in Louisiana and Texas like to use imported crude. They mostly use, Venezuelan, Mexican and Canadian and to a lesser degree, crude grades from the Eastern Hemisphere. 

But everything, almost everything that California gets comes from the Eastern Hemisphere. And almost all of that comes from the Persian Gulf. So the next time we have an energy shock, for example, because I don’t know, Israel bombs Iranian oil production and export facilities and that Iran returns the favor by hitting Saudi Arabia. We get to know what are you prices? 

Most of the United States is like, whatever. But here in California, they have made themselves uniquely exposed to international shocks while also being uniquely exposed to their own. So one way or the other, we are looking at a significantly darker chapter in California economic history. Just around the corner. And that’s before you consider things going on in Silicon Valley or the capital market or the general aging of the millennials, all of which are already hitting California pretty hard. 

So stay tuned. When it gets bad, I’ll be back because it’ll be cheap. 

A New American Imperialism?

American imperialism is not the same as European imperialism. The Europeans wanted power, prestige and economic gain, while the US was in it for security. So, what will this look like for the Americans moving forward?

With current strategic holdings in places like Guam, the Northern Mariana Islands, and American Samoa, further expansion in Asia is more of a nice-to-have, than a need-to-do. Should the US want to make some moves, here are some of the places and considerations that would be involved.

Places like Sao Tomé and Principe, the Azores, and Canaries have some nice positioning for Africa, and Socotra could be valuable for Middle Eastern operations. Then there are some places that bring in another layer of risk, but offer some big incentives – Panama for the canal, Greenland for strategic positioning, or Iceland for importance in the North Atlantic. Cuba and Singapore are interesting, but more complicated. There’s some obvious history with Cuba that makes involvement spooky, but having a foothold would make national defense downright breezy. Tampering with the very solid security partnership with Singapore seems too risky, but having a firmer foot in Southeast Asia could be important in a deglobalizing world.

Yet to existing cooperative security arrangements, the US already enjoys the benefits of influence in almost all of these places without the need for boots on the ground, much less the grinding migraines that come from actual occupations. Expanding into new territories would require managing populations and infrastructure, which could weaken US strategic stability and risk turning allies hostile. What I’m getting at here is if it ain’t broke, don’t fix it.

Prefer to read the transcript? Click here

Here at Zeihan on Geopolitics, our chosen charity partner is MedShare. They provide emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it, so we can be sure that every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence.

For those who would like to donate directly to MedShare or to learn more about their efforts, you can click this link.

Learn about medshare here

Transcript

Hey everyone, Peter Zeihan coming to you from the Bay of Islands and everyone is talking about conquering countries all of a sudden. So I figured it’d be a good point to review American imperialism. And if there were to be a new chapter of the United States going at and grabbing territories, what sort of territories would we be interested in? 

Key thing to keep in mind. Imperialism. American style is not like imperialism. European style. The Europeans are relatively small countries compared to the United States, whereas the United States has a continental landmass that has some of the best lands in the world. So for the Brits and the French and the Germans and everybody else going out to grab a chunk of territory in order to Improve their own economic prospects. That makes a certain amount of logical sense. For the United States, it never really has. When we were going through reconstruction industrialization, we were still processing the best parts of one of the largest continents in the world. And now that we have a heavily driven services economy that is the most productive on the planet, it’s really hard to imagine the United States going out and occupying a piece of land in order to get X, resource or a trade route. 

Instead, when the United States thinks about imperialism, it’s about not about the money. It’s about security. So we’re not French. We’re not after just to get a big chunk of land that looks good on the globe map. And we are not British, where we’re looking to go out and grab economic nodes that we can then profit from. 

We’re looking for small chunks of very easily defendable land with low populations that don’t generate security heartburn, but instead provide strategic opportunities or limit the strategic opportunities of our foes. And that is a very short list of countries, especially when you consider places that the U.S. already controls. So, for example, if you’re in the Pacific, you look at places like the Northern Mariana Islands, which are not too far from Japan or Guam, which is not too far from the first island chain or American Samoa in the South Pacific. 

These are chunks of territory that the United States gained from the last round of expansion in World War Two, and before that, in the age of imperialism, the 1800s. And there’s really nothing else in that area that we need. We already have what we need. If you’re going to look at, further west, there are a few chunks of territory that I would find strategically interesting. 

The most complicated of them would be a place called Sao Tomé and Principe, which is a small African island nation in the Gulf of Guinea off the south. You know. Well, you know, you know, how Africa just kind of does that thing. It’s it’s in that part in the middle or that’s West or Southwest. I don’t know. 

Anyway, you’re talking about a country with a population of 200,000 or, you know, if you go for, just for principle, a country with just a population of about 10,000, that is something that kind of fits the bill, would allow you to project power in the entire belt of territory from South Africa to Nigeria, to Senegal, with having a very small defense platform. 

Even better would be territories like the Canaries or the Azores, which allow the United States to block potential foes from coming in from the eastern hemisphere of the Western Hemisphere and project power to Europe as well. Now, if those last to the Azores and the Canary sound familiar, it’s because we’ve already seized us at one point during World War Two, and we gave them back because the countries who control those are Portugal and Spain, who are NATO allies. 

One of the things that the United States, excels at is convincing someone that we’re an ally and we take care of all the naval power issues, so you don’t have to worry about it because it’s expensive. If in exchange, you give us security, supremacy and specific footprints of land, that is absolutely our deal with the British when it comes to Diego Garcia, which is our preferred platform in the western Indian Ocean. 

So American imperialism isn’t like classic imperialism in many ways. We don’t even change the nameplate on the chunk of territory, so long as we can have physical access to it. So these are all the things that the United States, for the most part, already has, whatever access it needs. And so there’s no need to go out and physically grab the territory. 

The exception would be Sao Tome and Principe. Only reason you would do that is if you decide you really want to be a major power in Africa on a day in, day out basis. No American administration has made that decision yet. So, you know, we haven’t really gone for it. Let’s say you wanted to step it up and loosen your definition of what’s a good idea, and go after territory that, still has good security parameters for projection, but it’s going to be a lot heavier. 

Carry, in terms of running it, because it either has a larger population or it has land borders. You’ll notice that everything that I’ve laid out so far is an island. And you’re really willing to put your back into a security based empire in a semi-classical sense. This is where Donald Trump has plucked Panama and Greenland. 

Panama has a country, has a population of over 4 million. And one of the biggest drug problems and human smuggling problems in the world. So if we were to go into Panama just for the canal, we would very rapidly get caught up administrating a place. It’s kind of a basket case. And you would only do that if you felt that the canal was that important. 

Keep in mind, the United States already has unrestricted access to canal, and while we do have to pay for transit because we are not paying for upkeep, that also means that whenever the US military wants to go through, everyone else gets shoved to the back of the line. I’d argue got a pretty good deal there already. 

 Second one, Greenland is, of course, all in the news these days. Trump is wanting to buy Greenland for quite some time. And yes, while you can project power from Greenland, no argument there. And we use it for space tracking. And yes, it has a population under 100,000 people. 

It’s a huge chunk of territory, and the people who live there are extremely poor. And if the United States were to take it over, we would then be responsible for the entire territory. One of the beautiful things we have about the make up right now is that Denmark is one of our fastest allies when it comes to doing things in Greenland, they have never once said no. And when it comes to doing things in the Baltic Sea, in the North Sea, which are an order of magnitude more important, they have never said no. 

So if we were to go in and snag Greenland, obviously we could do it if we wanted to. It might cost us, one of our strongest and most loyal allies in one of the most sensitive parts in the world. Moving forward. I would say that that’s not the best plan. Iceland kind of falls into the same category. 

Population of under million dominates the North Atlantic. It’s an independent country. But if you wanted to project power into the Russian sphere, it is a fantastic platform, especially in collaboration with the United Kingdom. But we already do that. And the Icelanders take care of their own business, and they have decided publicly to never field a military. 

They will just let the United States do it. But the cost for that is the United States is allowed to do whatever it wants, whenever it wants. So we get all the benefits of occupying the territory without actually having to pay for occupying the territory. 

The final two that might meet this criteria are a pair of countries Singapore and Cuba. Singapore dominates the Strait of Malacca, and any American military presence there would allow us to empower or destroy any country, depending on that route for trade. And that could be Russia. That could be Iran, that could be Saudi Arabia, that could be China. 

So, you know, that could be handy. And, Cuba, because it dominates the interest of the Gulf of Mexico, is a very, near and dear issue to American strategic thinkers because without it, it’s very difficult to do any sort of maritime shipping between the Gulf Coast and the East Coast. And as we found out during the Cuban Missile Crisis, if the Cubans were to host some, intermediate range weapons systems, that would be a real problem for us as well. 

But but in both of these cases, you know, these are big countries. Cuba has this many people. Where Singapore is about 5 million. Singapore is one of the most advanced countries on the planet. And Singapore has kind of made a deal with us, very similar to, say, Denmark. So the United States actually has a dedicated aircraft carrier berth in Singapore that the Singaporeans built. And whenever we’ve had a security issue going back to the time of the Vietnam War. The Singaporeans have always been extraordinarily helpful. 

So you get all the benefits of having the military footprint, but none of the costs of running or administering or occupying a country. Cuba. More problematic, of course, because of politics. If we were actually going to invade a country and occupy it with the intent of making it ours, I would say Cuba would be at the very top of that list. 

But we’ve tried that before in the 60s. It wasn’t a lot of fun. We controlled this territory through most of the time between the Spanish-American War and then, we’re basically ran it as a colony, generated gobs of bad will. And we discovered it’s just easier to base things out of the continental, the United States or Puerto Rico, rather than deal with a population that is pathologically hostile to you. 

So as long as in strategic issues, Cuba is neutered, we really don’t have a problem with it. And ever since, Castro died a few years ago, the Cuban government, while they’ve been prickly, has gone out of the way to make sure that we don’t think that they’re getting in bed with anyone we really don’t like in any ways we really don’t like. 

So they don’t provoke an invasion. So where do we go? You know, I would argue that the United States right now, from a security point of view, has all the benefits of a globe spanning empire, but without actually having to pay for it. If we actually go and start taking over territories, that changes. You have to occupy populations. 

You have to build infrastructure. The way we have it right now is most of these countries want to preserve their independence, and they feel that the best way to do that is to have a differential relationship with the United States security establishment going out there and taking the territory. Turns that on its head. You don’t just lose allies, the places that you are already projecting power from suddenly turn hostile on the inside. 

And that is how empires ultimately fall apart. 

Oh one more off Africa. And again, we would only do this if we felt that we really need to project power into Africa. There was an island called Socotra. It’s Yemenis. It’s off the Horn of Africa. A small little place. Easy enough to build the infrastructure if you wanted to project power into the Persian Gulf. As well as the Red sea in the entire east coast of the African continent.

Artificial Intelligence Isn’t Ready for Mass Application

Image of the open AI logo with a wireframe brain above it

Today’s AI technology, while promising, isn’t quite ready for widespread application. I’m not talking so much about AI’s capabilities, but rather the hardware limitations and supply chain challenges that are getting in the way.

For AI to manage vast amounts of data, it’s going to need specialized chips which are still in development. So, give R&D a couple years to figure that out, and then another decade+ for production and supply chains to get sorted out. Without these new chips, power demands are going to skyrocket (because the current, inefficient chips suck up power like nobody’s business). Until those new chips arrive, the US will have to decide which industries will be getting the limited chips that are available, like agriculture, defense, or finance.

While a delay might seem like a bad thing, especially for those who are ready to let AI do their job while they’re sipping Mai Tais on a beach somewhere…it gives us time to figure out how to address all the problems with AI and what its actual impact will look like.

Prefer to read the transcript? Click here

Here at Zeihan on Geopolitics, our chosen charity partner is MedShare. They provide emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it, so we can be sure that every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence.

For those who would like to donate directly to MedShare or to learn more about their efforts, you can click this link.

Learn about medshare here

Transcript

Hey everybody. Peter Zeihan here. Coming to you from Revere Beach, just north of Boston. A lot of you have written in asking for my opinions on AI. So here we go. Pick it apart, however you will. It’s tantalizing. So GPT and the large language models are taking us forward. They’re nowhere near conscious thought. Oftentimes, they can’t even associate their own work from previously in a conversation, with itself. 

It’s basically targeted randomness, if you will. That said, it is still providing insights and the ability to search vast databases in a much more organized and coherent matter than anything we have seen from, search engines before. So promising tech. We had a taste. It’s definitely not ready for what I would consider mass application, but, the possibilities are there, especially when it comes to data management, which, when it comes to things like research and genetics, is very important. 

However, I think it’s important to understand what the physical limitations are of AI, and that is a manufacturing issue. So the high end chips that we’re using, the GPUs, graphics processing units, we’re not designed to run AI models. They were designed to run multiple things simultaneously for graphics, primarily for gaming consoles. And the gamers among us who have logged lots of time playing Doom and Fortnite and all the rest have been the primary economic engine for pushing these technologies forward until very recently. 

It’s only with things like autonomous driving and electric vehicles that we’ve had a larger market for high end chips. But the GPUs, specifically because they run multiple scenarios and computations simultaneously, that is what makes a large language model work. Wow. Got windy all of a sudden. Let me make sure this works. 

Okay. So, GPUs, they generate a lot of heat because they’re doing multiple things at the same time. And so normally you have a gaming console and you have a GPU at the heart of it, and multiple cooling systems typically fans blowing on them to keep laptop from catching on fire. 

So if you take these and put 10 or 20,000 of them in the same room in the server farm, you have a massive heat problem. And that’s why most forecasts indicate that, the amount of electricity we’re using for data centers is going to double in the next few years, to compensate. That’s why they’re so power intensive. 

Now, if you want to design a chip that is for large language models and AI systems as opposed to, that’s just being an incidental use. You can that those designs are being built now, and we’re hoping to have a functional prototype by the end of calendar year 2025. If that is successful, then you can have your first mass run of the chips enough to generate enough chips for a single server farm by the end of 2027. 

And then you can talk about mass manufacture getting into the system by 2029, 2030. So, you know, even in the best case scenario, we’re not going to have custom designed chips for this anytime soon. Remember that a GPU is about the size of a postage stamp because it’s designed to be put in a laptop. Or if you’re going to design a chip specifically, to run AI, you’re talking about something that is bigger than a dinner plate because it’s going to have a cooling system built in. 

Not to mention being able to run a lot more things in parallel. So even in the best case scenario, we’re looking at something that’s quite a ways out. So then you have to consider the supply chain just to make what we’re making. Now. The high end chip world, especially sub10 nanometer, and we’re talking here about things that are in the four nanometer and smaller range, closer to two, really, is the most sophisticated and complicated and, proprietary supply chain in human history. 

There are over 9000 companies that are involved in making the stuff that goes into the stuff that goes into the stuff that ultimately allows TSMC to make these chips in Taiwan. And then, of course, 99% of these very high end chips are all made in one town in Taiwan that faces the People’s Republic of China. So it doesn’t take a particularly egregious scenario to remove some of those 9000 pieces from, the supply chain system. 

And since roughly half of those supply chain steps are only made by small companies that produce one product for one end user and have no competition globally, you lose a handful of them, and you can’t do this at all until you rebuild the ecosystem based on what goes wrong. That rebuilding can take upwards of 10 to 15 years. 

So in the best case scenario, we need new hardware that we’re not going to have for a half a decade and are more likely scenario. We’re not going to have the supply chain system in order to build the hardware, for a decade or more. However, we’ve already gotten that taste of what I might be able to do. 

And since with the baby boomer retirement, we’re entering into a world of both labor and capital shortages. The idea of having AI or something like it to improve our efficiency is something we can’t ignore. The question is whether we’re going to have enough chips to do everything we want to do. And the answer is a hard no. So we’re going to have to choose do we want the AI chips running to say, crack the genome so that we can put out a new type of GMO in the world that’ll save a billion people from starving to death. 

In a world where agricultural supply chains fail. Do we use it to improve worker productivity in a world in which there just aren’t enough workers? And in the case of the United States, we need to double the, industrial plant in order to compensate for a failing China? Or do we use it to stretch the investment dollar further now that the baby boomer money’s no longer available and allow our financial system to be more efficient? 

Or do we use it for national defense and cryptography? You know, these these are top level issues, and we’re probably only going to have enough chips to do one of the four. So I would argue that the most consequential decision that the next American president is going to have to make is about where to focus, what few chips we can produce and where do you put them? 

There’s no right answer. There’s no wrong answer. There’s just less than satisfactory answers. And that leaves us with the power question. Assuming that we could make GPUs at a scale that will allow mass adoption of AI, which we probably can’t anyway. You’re talking about doubling the power requirements, of what is used in the data space. Here’s the thing, though. 

If we can’t make the GPUs and we’re not going to be able to make the more advanced chips anytime soon, we’re still going to want to get some of the benefits from AI. So we’re going to use older, dumber chips that generate a lot more heat per computation in order to compensate, which means we’re probably going to be seeing these estimates for power demand, not simply double, but triple or more. 

At the same time, we get less computations, fewer computations, and generate an AI system that’s actually less effective because we’re not going to be able to make the chips at scale. So is it coming? Yeah. But in the short term, it’s not going to be nearly as fast. It’s going to cost a lot more. It’s going to require a lot more electricity. 

And we’re probably going to have to wait until about 2040 before we can design and build in mass and apply the chips that we actually want to be able to do this for real. So, believe it or not, actually see this as a borderline good thing because it’s so rare in the United States that we discuss the outcome of a technological evolution before it’s completely overwhelmed us here. 

I’d argue we’ve got another 15 years to figure out the fine print.

New Orleans Terror Attack

Photo of Bourbon Street, New Orleans

There was a terror attack in New Orleans today. An American citizen, who has pledged allegiance to the Islamic State (despite its largely defunct state), drove a truck into a crowd; killing at least ten and injuring several others.

Prefer to read the transcript? Click here

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Transcript

Hey Peter Zeihan here coming to you from New Zealand. It’s New Year’s Day. Back in the States, there was just a terror attack in New Orleans where an American citizen driving a rented truck plowed into a crowd, killing at least ten, injuring a few dozen others. He pledge allegiance to Islamic State, which is, you know, largely defunct in Syria these days. 

 Just want to put this in context. You know what it is? What to expect. 15, almost 20 years ago, the folks that represented the Islamic State at the time called upon Muslims all over the world to rise up and butcher Christians, saying that, go get a gun, can’t get a gun, get a knife and you can’t get a knife, get a car and just do as much mayhem as you can. 

Over a decade later in North America, it’s happened three times. Twice in the United States, once in Edmonton, Canada. Two things to keep in mind here. Number one, training operatives to actually do mass casualty events like, say, 911 takes time, takes resources. And when the people doing the training are in a different hemisphere and don’t control a state, it’s kind of a heavy carry. 

And so it just hasn’t happened very often. And when it does happen, it happens closer to the zone in question, like in places like Paris. Second, and I know this is going to be really radical at their core. Most people are not murderous assholes. So if you have a group who claims to represent all Muslims, who says, everyone go out and do something and you know, there’s hundreds of millions of Muslims and it happens three times. 

Math people. So is it horrible? Yep. Is it the start of something new? Absolutely not. 

TSMC’s Semiconductor Production in the USA

I’ve done a handful of videos on semiconductors and there’s a very good reason for that. The production of semiconductors and the companies involved will be under the spotlight for the next few years as the entire industry gets shaken up.

TSMC has set up chip production in Arizona, despite initially resisting relocating to the US. This facility isn’t doing the cutting-edge stuff, but it’s still producing chips on the higher end of the spectrum. TSMC has also managed to achieve a high recovery rate on these chips in Phoenix, not quite a major breakthrough but at least it reduces production costs.

Most of the chip manufacturing is automated, so the higher labor costs in the US and skill gaps relative to Taiwan aren’t playing as big of a role as expected. However, to expand the reaches of these facilities and begin development of cutting-edge chips, some major investments will need to be made. Let’s look at what Intel is doing on this front next.

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Transcript

Hey, everybody. Peter Zeihan here, coming to you from the Boston Logan Airport. It is not quite five in the morning. Anyway, it’s still a decent backdrop. So we’re going to take an entry from the Ask Peter forum—specifically, could I give an update on the status of TSMC’s efforts to establish chipmaking here in the United States?

I’m happy to report that it’s actually going a little better than I thought it was going to. The very short version is that Donald Trump almost forced TSMC to relocate some of its production capacity to the United States and made it very clear that he wanted the very, very, very top end to be made here.

TSMC said, “Sure, of course, whatever,” and then proceeded to drag its feet in every possible way. Remember that the leading edge of chips these days is less than three nanometers, getting into two nanometers, and probably within the next couple of years, getting to 1.5 and maybe even one nanometer. The facilities that are under construction in Arizona have been dragged out, dragged out, dragged out, and dragged out, with, in many cases, TSMC not even providing proper architectural blueprints so far.

So there’s been construction, then they tear things down, and then they rebuild something and tear it down. They’re basically just buying time. But the first facility actually is operational. It’s just not the cutting edge—it’s like four nanometers, which is still pretty good, but it’s not the kind of stuff you’re going to probably put into an AI server farm or anything anyway.

Part of the big news that came out in late October was the idea that they’re getting a higher recovery rate from the new facilities in Phoenix than they’re getting anywhere else. While this is an important development, you shouldn’t get too excited.

The process for making the chips: you take a little bitty seed crystal, you put it into a pool of liquid silicon, and then you steadily pull it up over the course of several days to grow a crystal. That crystal ends up weighing more than a Volkswagen. It tends to be over a foot or two across and about nine feet long. I mean, it’s a little different at every facility. You get this giant ingot, and then you slice it laterally into thin discs.

You then use a combination of lithography, baking, and doping to etch those chips. You bake them to make sure that everything sticks, and then you do it again and again and again—something like 90 times. It takes a few months to make each individual sheet.

The waste is one of two things.

Number one, you have a section of the semiconductor sheet that just doesn’t work. So that would be waste. Or maybe it’s just the shape because, usually, your chips are squares or rectangles, and the disk is round. So you can have waste at the edges.

TSMC is famous for having the highest recovery rates in the industry. With its four-nanometer nodes, it’s something like 90% coherent and only 10% waste. The TSMC facility is now 94% coherent. So it is an important technological jump. It does drop the overall cost of the items you can produce, and since U.S. labor is more expensive than Taiwanese labor, you know, that’s great. But don’t get too excited about it.

Something else to keep in mind about these facilities is the labor that is necessary.

Very highly skilled? Yes. Is there a lot of labor? Not really. Most of this is automated because you’re using a lithography facility that is being produced by ASML, the Dutch company. You know, it’s automated. The whole point of extreme ultraviolet is it doesn’t require a lot of manual adjustments.

The old technology, deep ultraviolet? No, that did. When you are doing DUV, you’re constantly making changes to every individual machine for every individual run. You get much higher wastage because the chips aren’t all exactly the same. With EUV, it’s all automated. You have to do it once, and you can apply it across the entire system for every lithography machine in your facility. The chips come out much more regular. It’s kind of like an analog versus digital sort of thing.

One of the constraints we have faced with moving this stuff from Taiwan to the United States is that the labor costs more and isn’t quite trained right. But with EUV, that doesn’t matter as much as it would have with the older technologies.

Anyway, it’s moving ahead. Facilities two through five? God knows when those are going to be operational because those are supposed to be the higher-end ones. But this low-end, high-end chip of four nanometers seems to be moving along just fine. Just keep in mind that the real breakthroughs are going to be coming from TSMC this year.

If the United States is really going to get in the game of high-end semiconductors, it’s going to be using a new lithography technology called High Numerical Aperture, which is like the next generation of extreme ultraviolet.

TSMC isn’t bothering to work with that. That’s an Intel project. The Dutch company ASML has provided the technology to both companies, and only Intel has bit. That is the technology that is going to be used at the Columbus facility, which hopes to begin operations in 2026.

We’ll see.

Why I’m Worried About Fentanyl in the US

DEA photo of fentanyl on a pencil tip

When asked to list the things I worry about for the US, most of the typical geopolitical issues I discuss aren’t on that list. So, today we’re getting a bit more granular and talking about fentanyl.

Fentanyl is synthetic, cheap and easy to produce, and incredibly lethal…and that’s a scary list of descriptors. Since fentanyl is something that practically anyone can make, it’s shaking up the Mexican cartels that are used to the cocaine supply chains. As smaller factions emerge and drug manufacturing is “democratized”, the social fabric that has held Mexico together will be stretched. Should that fabric break, we could see fentanyl production move into the US.

As of now, the jump to US production hasn’t happened. And trends are showing that fatality rates are improving, thanks to medical protocols, reduced lethality of pills (because producers realized they probably shouldn’t kill their clientele), and younger users are opting for “safer” alternatives. Hopefully all of these trends continue…

In my eyes, the US doesn’t need to worry too much about the typical geopolitical issues, but the destabilizing effects of fentanyl on the US should be cause for concern.

Prefer to read the transcript? Click here

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For those who would like to donate directly to MedShare or to learn more about their efforts, you can click this link.

Learn about medshare here

Transcript

Hey, everyone. Peter Zeihan here. Coming to you from Austin, Texas. A lot of you have written in over and over and over, asked me what I really do worry about. And so that’s the topic of today’s video. Overall, I am not stressed out about the United States. There aren’t a lot of things that can hurt us. 

We basically have a hemisphere to ourselves. Certainly the best part of the continent. And, we’re energy independent. We’re a massive energy and food exporter, and you can have entire continents catch on fire. And it really doesn’t do anything to the United States. In addition, if you factor out things like food and energy exports, the United States is only integrated with the rest of the world to about the tune of 10% of GDP, which is somewhere between one third and one fifth. 

What more traditional world powers historically have been, whether you’re talking about the British Empire or the China of today? So if things would have to go really bad on a global basis for the United States to really even have a mild problem, that doesn’t mean there aren’t problems. It just means you have to look a little bit closer to home. 

I’m not talking about here politics. I’m talking about drugs. Now, the traditional story has been one of cocaine. And cocaine is, from my point of view, pretty easy to understand because it has straightforward concentrations and straightforward vulnerabilities that you would expect from an agricultural supply chain. So you grow the stuff in a specific type of climate in Bolivia and Ecuador. 

In Colombia, you harvest the leaves, you dry them, you process them oftentimes with gasoline, you make a crystal, you turn that into powder, and then you smuggle the powder, by water and by air into Central American countries. And then you get on land and you go up through the various mountain corridors of Central America and Mexico until you eventually reach the U.S. border, and then you distribute it from there. 

As a rule, looking at this from an economist point of view, it takes about six man hours per dose of cocaine. And the gross is going to vary by person, but it’s going to be less than half a gram unless you just want to like, cheat death or risk death or die. 

A lethal dose is about 1.2g. So, you know, definitely cocaine is bad, but don’t do more than a gram. Okay. That is something that we understand. And there are a number of places in the supply chain where you can not interrupt it. You can try to do crop eradication at the point of source. You can try to work with third governments like Colombia to try to interdict. 

You can work with the Mexicans in order to break up the cartel network that handles distribution. Or you can go against retail distribution in the United States, by going after the gangs. These are all options, and we’ve explored all of them in the past. But none of these really work very well for the new drug, which is called fentanyl. 

Fentanyl, unlike cocaine, is not organic. It’s not an agricultural product. It’s a synthetic, a chemical process. And the process for creating is much simpler than it is for cocaine. You use a number of base materials, and you don’t really need all that many of them. And a lot of the precursors are just flat out legal. 

So what happens is in China, they make the precursors and then American citizens, as a rule, order them and they’re shipped in containers about the size of this. This is about a half a liter. And you get about six equivalent of these, and you get them to the United States. You repackage them, you take them down to the Mexican border, and then you use the Mexican postal system to ship them to wherever they need to go. 

And for the most part, these steps are legal because the precursors can be used in other materials. Once the precursors get to somebody who has a garage set up for chemical work, you basically take the equivalent of people who barely passed high school chemistry. And if you’ve got three of them in a hotplate, you can basically make about a kilogram of finished fentanyl in about a week. 

That assumes that you have relatively incompetent lab techs. If they’re not, Cramer quality, if they actually made it through undergrad, you can probably make about three kilos. That stuff then can be pressed into pills and sent north much smaller volumes involved. So remember cocaine about 1.2g is a lethal dose. That same 12. two grams of fentanyl would be enough to kill over 500 people. 

You’re talking about just a couple grains of sand equivalent is enough to kill someone, and this is why it’s become such a problem in the United States. Because instead of six man hours per dose, it’s just a few man seconds per dose. And it’s a synthetic and there are fewer places that you can interrupt it. 

Now, fentanyl has another problem because it’s so easy to get into the business because with one week of work, you can make a few million dollars. That same fentanyl, doesn’t require the huge sorts of structures, social structures, cultural structures, economic structures that are needed for the cocaine economy. 

So with cocaine, because it’s all about controlling the transit systems, the production sites, you get cartels at the point of production in points of transit, and then you’ve got the gangs and the points of distribution 

in Mexico that has created the cartels, who’ve taken a big chunk out of the transit system and then worked up and down the transit systems to control more and more territory with fentanyl. 

 That doesn’t work so well because fentanyl just needs, you know, three dudes in a garage and, you know, a mailbox. And that means that we’re seeing dozens, if not hundreds of millionaires popping up in New Mexico, organized crime groups that are largely disassociated from the cartels. Or maybe they rely on the cartels for shipping, but they don’t necessarily need to. 

It also means that fentanyl tends to be a lot more lethal, not just because it requires so much less. It’s like the individual mom and pops don’t perceive. The quality control is one of their major concerns, so they just press the stuff in tablets and off it goes. And since it takes so little to kill someone, we’ve had 100,000 people die in 2022 and 2023 from fentanyl overdoses in the United States. 

Now, in recent times, we’ve seen kind of three things happen. Number one, the cartels are starting to fracture. They’re not as powerful as they used to be. And smaller factions are getting into, fentanyl manufacture, thumbing their nose at the central authorities of the cartel leadership, regardless of where in Mexico you are. So we’re actually seeing a lot more violence in Mexico rather than less, in part because now we’ve had a kind of democratization of the supply chain system for illegal drugs in Mexico. 

Second, in the United States, we have seen fatality rates drop. A couple reasons for that. Number one, those mom and pops are starting to realize that if you kill all of your customers, they don’t buy anymore. So four fentanyl pills that have been intercepted by law enforcement, only about half of them now have lethal doses only, as opposed to 70% from 2 or 3 years ago. 

So, you know, from a production point of view, I guess there’s some quality control going in there. A second, if you are a teenager and you look at people in your 20s who are basically killing themselves with fentanyl, you know, maybe that’s not the drug for me. And, other more traditional drugs like it’s methamphetamine and cocaine are making a little bit of a comeback. 

Whether this trend has legs is something that we just don’t know. There’s so much about drugs that are a fad issue, and it’s unclear whether or not today’s, Zoomers have moved on from fentanyl, or they’re just taking a break for a moment. I don’t know what to cheer for. There. Third, because the cartels are breaking down. We’re seeing a few problems with transit. 

If you have lots and lots and lots of cartel and cartel violence, oftentimes the shipment doesn’t make it on time. But probably the biggest reason we’ve seen deaths go down in the United States is it’s not new anymore. 

So hospitals and clinics have a little bit better idea of what to look out for. And they’ve developed some protocols and some medications to help people survive overdoses. It’s kind of like how during the Iraq War, we saw a lot more soldiers live, but with horrible wounds, because medical care had improved, to deal with things like IEDs. 

So if you’re looking for something to worry about, I don’t worry so much about Trump. I don’t worry so much about radical Democrats. I don’t worry so much about Iran or Russia. Unless nukes get involved. I worry about America’s drug habits and how we’ve seen a democratization of the violence in Mexico that is breaking down the social stability of our primary trading partner. 

And if you want something a little bit more at home to worry about, let’s assume for the moment that the Mexicans succeed in driving fentanyl out of their system completely. What only takes three Japanese in a garage to do it? And those Japanese don’t have to speak Spanish. So if Mexico stops being the primary processing place for fentanyl demand in the United States, Americans are perfectly capable of picking up that baton and processing the fentanyl in anyone who has a garage and a power.

Photo by Wikimedia Creative Commons and DEA

Trump Tariffs Part 1 – China

An AI generated image of connex boxes with American and Chinese flags on them

The Trump administration is planning to impose some hefty tariffs on China. This isn’t just to reform trade practices and show China “who’s the boss”, but rather to shift industrial production away from China permanently.

Trump’s goal is to wean the US off that $500 billion worth of annual imports. This is going to be a challenging time for everyone involved; China is having their feet swept out from under them, and the US will have to find someone who can replace the Chinese (because we surely can’t do it on our own). And not to mention an unwanted bump in living costs for the Americans.

It’s not all bad news bears though. The US has enough cheap energy to help build all the processing and manufacturing it might need, but it will require significant investments, policy changes, and TIME. Trump has the right idea, but his approach is lacking a bit of the strategic depth that this will require.

Prefer to read the transcript? Click here

Here at Zeihan on Geopolitics, our chosen charity partner is MedShare. They provide emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it, so we can be sure that every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence.

For those who would like to donate directly to MedShare or to learn more about their efforts, you can click this link.

Learn about medshare here

Transcript

Hey, everybody. Peter Zeihan here, coming to you from Colorado. Today’s the 26th of November, and today we’re going to talk about the incoming Trump administration’s initial plans for trade policy.

Last night, Donald Trump texted out that he plans to levy very sharp tariffs on Mexico, Canada, and China—our three largest trading partners. For this discussion, we’ll focus on the Chinese component.

We’re talking about China first because Mexico and Canada are different issues with different factors at play. First, with China: we don’t like China, and China doesn’t like us very much. The Trump tariffs, if implemented on the Chinese merchandise exports that come to the United States—roughly half a trillion dollars a year—would increase the average cost of living for the average American, every man, woman, and child, by about a thousand U.S. dollars a year.

The stuff that comes from China, like I said, is mostly manufactured goods, almost exclusively. The bulk of it falls into the electronics category, which includes computers, cell phones, cellular technology, white goods, consumer goods, and parts that can go into pretty much anything.

The Chinese have a very predatory trade system, so overall support from the U.S. citizenry is likely to be pretty high, despite the cost of this. This is a more traditional tariff goal here. The Trump administration has long wanted to reroute global trade flows, specifically where China is involved.

That means punishing the Chinese until alternatives can be generated. But therein lies the rub. No American trade policy going back to World War II has ever been very good at building that alternative system. We punish countries we think are engaging in unfair trade practices, but those punishments are usually designed to get them to dismantle those trade policies so we can return to something more fair or normal.

That is not the goal this time around. The goal here is to permanently relocate industrial plants. Simply throwing on a tariff and funneling the money to a general fund doesn’t achieve that. You also need to build a complementary industrial policy that takes some of the income and uses it to build a long-term alternative.

Here’s where the challenge and the opportunity lie. First, the challenge: the things China does, it doesn’t do by itself. It has relatively low-cost wages, especially for its mode of production. However, it’s not a very profitable industrial power. It has only managed to get to where it is now and maintain its position through a massive amount of subsidies.

If those subsidies were to go away, you would see mass de-industrialization of China, which would probably lead to the collapse of its political system. The Chinese aren’t even going to consider that, which is ultimately what a normal trade policy would aim for. To overpower that, you’d not only need a fairly steep tariff rate—much higher than the 10-25% that Trump’s team is suggesting—you’d also have to build an alternative.

When it comes to things like electronics assembly and components creation, the United States is not a very competitive player in that market. Our labor, to be perfectly blunt, is too highly skilled. The same goes for Canada and Mexico. You’d need to develop a different model, and doing that quickly is very difficult and expensive.

However, there is some low-hanging fruit. The Chinese dominate not just electronics manufacturing and assembly but also materials processing—turning bauxite into aluminum, cobalt into cobalt metal, and lithium into battery chassis, for example. This is something the U.S. and the rest of the world have largely stepped back from for two reasons:

  1. It takes up space and is environmentally damaging, leading to regulatory challenges.
  2. If the Chinese are willing to pollute their environment, exploit their workers, and subsidize the industry, why compete with them when they can do it cheaper and hand you the end product?

There are problems with that argument. The Chinese have discovered that this gives them leverage in trade talks. However, rebuilding this capacity elsewhere isn’t difficult or even particularly expensive. For example, the U.S., thanks to the shale revolution, produces a huge amount of excess natural gas and has the cheapest natural gas in the world. From that, we’ve developed the cheapest electricity in the world.

Over the last 15 years, the chemicals industry has shifted to run on natural gas rather than oil whenever possible. As of 2024, the United States is by far the largest, highest-quality, and lowest-cost producer of intermediate chemical inputs for modern manufacturing.

But it took the free market 15 years to make that happen. If we want to speed up the process for everything else, it means implementing an industrial policy that uses revenue from Chinese tariffs to help build the supporting infrastructure. This is low-hanging fruit that we need to address anyway. The Chinese won’t be around much longer, and even if they were, we wouldn’t want them to maintain the leverage they currently have.

Building up industrial plants isn’t necessarily expensive. For example, creating capacity for something like aluminum might only cost a few billion dollars. It’s not costly or time-consuming, but “cheap and quick” isn’t the same as “free and immediate.” It requires a policy to make it happen. Otherwise, the market will handle it over the next 15-20 years, but I’d argue we need to start the transition much sooner.

Once that foundation is established, we can begin tackling more difficult pieces like electronics. So far, the Trump administration has not demonstrated an awareness of this level of nuance in tariff policy. The general belief seems to be, “A tariff is good. Do it, and we win.” It’s going to take a lot more effort than that.

That’s the situation with China. The situations with Mexico and Canada are very different, and we’ll tackle those tomorrow.

Remember When…

I’m sure this isn’t a shock, but a lot of folks have asked what I think of the incoming trump administrations cabinet nominations. Before I delve in Monday’s video into the simple and forgiving world of American domestic politics, I think it would be best to review where this all began. In this special weekend edition we reach into the way-back machine and go back to New Year’s 2021 when the world seemed so different, and so similar.

Here at Zeihan on Geopolitics, our chosen charity partner is MedShare. They provide emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it, so we can be sure that every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence.

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Learn about medshare here

The Future of Naval Tech & War on the Seas

Photo of a US aircraft carrier on the water

The nature of naval warfare is evolving – with advancing drone tech leading the charge – but not all of the world’s navies and regions will be impacted the same.

Drones are all the rage right now, and they come in all shapes, types, payloads, and ranges. But which countries will struggle with these drones the most? The isolated nature of Russia’s fleets leaves them open to attacks, while the US Navy tends to operate away from coastlines and can unite its fleets if needed. The Persian Gulf and parts of the Mediterranean might be hotter than others, but the US has enough regional allies to keep a strategic advantage. The Chinese navy will face geographical bottlenecks (like the first island chain) that will limit their naval reach and projection power.

The US is stuffing another ace up their sleeve with its Replicator Initiative, which would allow US ships to be converted into drone manufacturing platforms. So again, drones are changing the way in which naval battles are fought, but there will be some obvious winners and losers.

Prefer to read the transcript? Click here

Here at Zeihan on Geopolitics, our chosen charity partner is MedShare. They provide emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it, so we can be sure that every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence.

For those who would like to donate directly to MedShare or to learn more about their efforts, you can click this link.

Learn about medshare here

Transcript

Hey everyone. Good morning from Colorful Colorado. Today, we’re going to take an entry from the Ask Peter forum. Specifically, do I worry about the primacy of the U.S. Navy in a situation where the drone technology being developed for the Ukraine war becomes more widespread? Well, let’s start by saying they’re going to become widespread. We’re only seeing something that’s barely out of the prototype stage right now.

And it is proven that in close quarters, relatively speaking, it is already more than capable of defeating an old-style surface navy. Now, I don’t want to overplay this because the Russian Navy is not great under normal circumstances, and that’s if they could all sail together into a single mailed fist. And they can’t—look at the Black Sea, the Baltic Sea, the Arctic Sea, and the Pacific Fleet—all of them independent, all of them having to operate under constrained circumstances.

Now, something to keep in mind about the drones. You’ve got two types: air and naval. Your air-launched drones, at the moment, can’t really carry warheads that are more than 100 pounds. And while that can certainly ruin your day or take out a tank or a building, against a ship, it’s going to be more limited in its ability to be successful.

Keep in mind that ships can move, and if you don’t have over-the-horizon visual capability, just getting the drones to where they need to go is going to be a bit of a problem. So most of the assaults that Ukraine has been launching against Russia’s Black Sea Fleet have been naval. Naval drones don’t have as much range, typically, but they can carry a lot bigger payload.

And since they’re in the water, once they get closer, there’s not a lot that the ships can do about it because they’re used to shooting up at air assets, not down at sea-level assets that are well below the angle that they can fire. So the Russians have to basically counter with small arms. And that would be true for any naval asset.

But keep in mind, there’s this geography issue. Not only are Russia’s navies sequestered from one another, but they’re also in relatively limited bodies of water that are highly contested. So, the Black Sea is obviously the issue of the moment, where the Ukrainians obviously have an outlet on the ocean that is adjacent to where the Russians would like their ships to operate.

But you also have NATO members—Turkey, Bulgaria, and Romania—which have significantly more frontage on that body of water than the Russians. So if you marry these new technologies to the assets of NATO and the industrial plants of a country like, say, Turkey, then the Russians simply can’t have anything floating on that body of water at all.

The same holds true to an even greater degree for the Baltic Sea Fleet, where you’ve got NATO members Estonia, Latvia, Lithuania, Germany, Denmark, Sweden, and Finland, basically countering potential naval power. So if we ever get into a situation where there is a fight on the Baltic Sea, every ship that the Russians have will be sunk, probably within the first 72 hours.

It’s a little bit better on the Arctic, but then you’ve got the ice pack. So for a submarine, if you get below the ice pack, you’re probably okay. But Norway’s right there, and anything that’s going to stay on the North Atlantic has to go right by it, and it’s going to get sunk. And then, probably almost as bad as the Baltic, is the Pacific Fleet, which is completely bracketed by Japan.

Anything that’s going to leave from the Vladivostok area—that just leaves one base at a place called Petropavlovsk—but still, in here, which is a sub base where the subs can kind of go off and drop into a trench and hopefully evade detection. That base, which has no road and no rail connection to it whatsoever, could still operate, but that’s just one spot.

And everything basically has to be flown in to support it. So maybe, like, Russia’s—it’s just absolutely hosed. Compare that to the extreme on the other side with the U.S. Navy. We’ve got an Atlantic and Pacific Fleet that can sail through either the canal or around the Americas to unite into a single force if they want to. It tends to also be long-range-based: supercarriers, missile frigates, that sort of thing.

And so they very, very rarely engage a foe that they can see. You’re talking over-the-horizon hundreds of miles away. Well, that pretty much obviates any capability of the air- or sea-based drones in our current imagination of hitting them. Also, they tend to operate in the deep sea. They never go within sight of the coast if they don’t have to.

So there might be some bodies of water that are constrained, where operating there would be heavily restricted, where there are potential foes who could field a drone force. Places that are probably going to be a bit of a problem include, of course, the Persian Gulf. The days of having a carrier there without, you know, having to worry about it are probably gone now.

The Mediterranean could be a little constrained. But keep in mind, the entire northern coast of the Mediterranean are NATO countries, and the entire southern coast are countries that, for the most part, are favorable to the United States: Egypt, Algeria, Morocco, Tunisia. The one holdout is Libya, and it’s not that Libya’s hostile; it’s that Libya has basically fallen into civil war and is falling apart as a government. Everywhere else that I can already see as a possibility.

Not necessarily because there’s a lot of governments there that are hostile, but it’s becoming a stateless zone in its own way. And the Houthis are probably the best example of that. Just keep in mind that the Houthis of Yemen don’t have an industrial plant. So any weapons they fire are something they’ve brought in from somewhere else. Closer to home, the only thing to really worry about would be the Gulf of Mexico and the Caribbean.

And because there are hostile countries there, most notably Venezuela and Cuba. But if, if, if, if, if we ever get to the situation where that is a problem, a couple of things to keep in mind: Number one, most U.S. naval assets aren’t in the Gulf of Mexico, so you don’t have to worry about a base getting closed in.

And second, in the very, very unlikely situation where we have a military conflict in that area, there will be a land invasion of Cuba in a very short period of time. This is not me recommending—let me make this very clear—I think there are much easier ways to get Cuba on our side, if that’s the goal.

But a country with the population and the industrial plant of Cuba could not survive in the face of an American onslaught should it come to it. And really, that’s the only other spot where there’s a constraint. Between geography and allies, the U.S. looks pretty good. That just begs the question of what is the situation for maybe some other countries that have navies.

In the case of the United Kingdom, yes, it’s close to other land borders—the North Sea, the English Channel—they’re not that big of a barrier. But again, Norway, Denmark, France—you know, these are friendly countries, not hostile ones. And in the case of East Asia, things get really dicey. Japan’s okay because all of its ports are on the east side of the island, so they sail out and then come back to wherever they want to.

So they’re pretty much immune to this. But China—China’s got the first island chain, and any vessel that leaves China has to get by Japan or Taiwan or the Philippines or Indonesia or Singapore. Assuming the United States isn’t playing at all, that’s going to be really hard. And one of the things that the U.S. Navy is working on right now is something called the Replicator Initiative, which will turn its ships into not just combat platforms, but manufacturing platforms to produce exactly the sorts of drones that would be needed to sink everything that the Chinese have in a short period of time.

In the case of a war. Hopefully it’ll never come to that, but Replicator is supposed to be operational by the end of calendar year 2027. That’s not that far away.