The End of Black Sea Shipping

Hey everybody. Peter Zeihan here, coming to you from Colorado. It is the 7th of October, and the news is that we’re very close to a collapse in shipping in the Black Sea. The Ukrainians and the Russians have been targeting each other’s shipping and ports since the beginning of this war. But in the last year, we’ve seen a huge amount of activity increase as the drones have gotten better telemetry. One side will do an innovation, the other side will copy it. So in this case, it’s the Russians that are doing the copying. Starting a few months ago, the Ukrainians started using open source satellite information to track Russian ships. Basically, you go from a port, say, Novorossiysk, and there’s only one way out of the Black Sea, which is the Turkish Straits as Istanbul. And so it’s more or less a straight line. And if you have a transponder, you’re obviously a legitimate ship. If you don’t have a transponder on, that means you’re part of the shadow fleet. And so basically, the Ukrainians have cross-referenced everything and just attacked anything that didn’t have a transponder on. The Russians are now basically doing the reverse, attacking things that do have transponders, but only if they’re in the economic zone of other countries, specifically Romania and Bulgaria. So we’ve had three hits in just the last, I think, 36 hours. 

In addition, the Ukrainians were the ones who basically invented naval drones, which is either a jet ski or a small motorboat packed with explosives. Now, the Russians are doing that as well, and the Black Sea is small enough, and Russian and Ukrainian technological skills are high enough that there is no safe part in the Black Sea that is out of range. So we’re getting attacks all over the place. And the newest one, it looks like the Ukrainians hit an oil tanker off the coast of Sochi, which is Vladimir Putin’s favorite vacation spot, and the whole thing is on fire. We’ll show you some footage here, and there’s really no way to put that out. Even if the Russians had the mitigation equipment, which they don’t in the Black Sea, this is simply too big of a fire. What this basically means is, unless ship captains are willing to risk life and limb every moment that they’re in the scene, unless insurance companies are willing to basically write off their insurance policies, it’s difficult to see any shipping persisting as long as these attacks are happening, and we should expect the Black Sea to be shut down in days at this point. This is one of Russia’s primary export routes, about a million and a half barrels per day. This is Russia’s primary oil and of course, grains export point. This is Ukraine’s primary wheat, steel, coal and sunflower and food oil export points. This is kind of a big deal. And this is really only step one, because the Ukrainians have already shown they can hit most Russian targets in the Baltic Sea as well. And if the Black Sea is now shut down, that is the next target. 

I’m a little surprised that it’s taken this long for the Black Sea to be shut down. But this is not just the beginning of the end of the Shadow Fleet. This is the end of the Ukrainian ability to earn hard currency as well. Everything else has to go out by rail. And because a lot of the things that Ukrainians export are also exported by the countries they border, like Poland and Romania and Hungary, those countries have basically said, you can send stuff through our system, but you can’t export it through our ports because that’s already claimed. So you have to take it another country further and get it to Germany and Belgium and in Greece, which of course just means you need more cars and more time and then ultimately less cargo. So this is a big hit economically to both sides. And we are just getting started.