My guest in this edition of The Grant Williams Podcast is a man who finds both himself and his field of expertise at the very heart of recent events in Ukraine, geopolitical strategist and author, Peter Zeihan.
Peter’s books, The Absent Superpower, The Accidental Superpower and Disunited Nations have been incredibly helpful to me in understanding the strengths and weaknesses of not just the global geopolitical landscape as a whole, but also the individual countries involved in the escalating tensions.
His upcoming book The End Of The World Is Just The Beginning is set to be an absolutely invaluable addition to his excellent work.
In what is an intensely though-provoking and painfully realistic assessment of the war in Ukraine, Peter pulls no punches in laying out where we currently stand, why we are where we are, and the many painful roads the world may well travel from here in the weeks and months to come.
This conversation isn’t for the faint of heart, but Peter’s understanding of the range of outcomes available to us is incredibly valuable at what is shaping up to be a pivotal time for mankind in so many ways.
Grant Williams:
Before we get going, here’s the bit where I remind you that nothing we discuss should be considered as investment advice. This conversation is for informational and hopefully entertainment purposes only. So while we hope you find it both informative and entertaining, please do your own research or speak to a financial advisor before putting a dime of your money into these crazy markets. And now, on with the show.
Grant Williams:
My guest on this episode of The Grant Williams Podcast is one of the finest geopolitical minds of his time, my friend, Peter Zeihan. Now, Peter’s no stranger to listeners of this podcast and his books, The Absent Superpower, The Accidental Superpower, and Disunited Nations have all been incredibly helpful in shaping and fleshing out my understanding of many geopolitical aspects of the globalization era.
Grant Williams:
Now Peter’s done a wonderful job in mapping how we got here and the relative strengths and weaknesses of all the major geopolitical players on the world stage. Today, however, the word here carries a whole new connotation post Putin’s declaration of war in Ukraine. Now, Peter is about to publish his latest book, which appropriately is titled The End of the World Is Just the Beginning, a copy of which he very kindly said me a couple of months ago.
Grant Williams:
I’ve got to say it’s yet another stupendous piece of work, which given the way the world’s changed in just the last fortnight, it’s going to be an invaluable resource in the post Ukraine world. I’m so grateful to Peter for finding the time to talk to me about what has so quickly become a very complex world and to lay out his thoughts on how we got here, the options available to everybody involved and what comes next. So without further ado, please enjoy my conversation with Peter Zeihan.
Grant Williams:
Well, Peter. Welcome. You’ve been busy lately.
Peter Zeihan:
Yeah, just a little.
Grant Williams:
It’s about a year since you and I last spoke, a little shy of that and the world is a very, very different place. And you and I have been trying to line up a conversation for a while now, and that conversation was going to be around your new book, which the title of which could not have been more prescient. The book is called The End of the World is Just the Beginning. And I don’t think either of us knew when we were trying to sit down and find a time to talk about it, how many different connotations that title would take on.
Peter Zeihan:
Yeah, it’s been an intense couple of weeks. We’re day 13 of the Ukraine war right now. And I’m in the process of mapping out all of the after effects and it takes us to a lot of not very happy places.
Grant Williams:
Yeah. That’s my conclusion too, but we’ll get into that. But I think if we can, what I’d love to start with is there was a phrase in the book, which I have to say is another masterpiece. And hopefully everybody listening to this will go out and get themselves a copy of it once it’s available. But there was a phrase that you used in there that caught my eye about the end of the Bretton Woods system. And you said, “Without a foe, the Bretton Woods alliance lost its reason to be.”
Grant Williams:
And then you talked about America segueing into an amorphous middle area, where they would uphold the order, as long as the Europeans and Japanese gave them license over defense spending. And that’s almost where the story picks up for here. The background you lay out is incredibly useful and incredibly detailed and really walks the reader to the point where we are today, but so much is going on at the moment. I feel it’s important to concentrate on today.
Grant Williams:
Perhaps you could lay out your original post Bretton Woods map, particularly with where the ex-Soviet Union Russia fits into that. And then we’ll bring it more up to date and start kicking around some of the more troubling recent events.
Peter Zeihan:
Sure. The entire background of globalization was a security pact that the Americans made with their allies at the end of World War II. We told everyone that we would patrol the oceans for everyone so that anyone could participate in any economic linkage, access any market or any resource, make partners for any supply chain system. And in exchange, we got the right to write their security policies, and that’s what won and it’s what won the Cold War defeated the Soviet Union.
Peter Zeihan:
In the time since, America has not really considered foreign policy, be a major issue with the notable exception of the global war and terror. And so when it comes to alliance and defense issues, if it’s not a terrorism issue, it’s just drifted to the background. We forgot why we did it all in the first place. And I speak to a lot of military crowds and they really haven’t got meaningful updates for their strategic preparation orders from the white house since the time of George Herbert Walker Bush. We’ve just been coasting.
Peter Zeihan:
You want to talk about something that focuses the minds, it’s somebody like Vladimir Putin threatening nuclear assault on you should you do anything that makes him look sideways at you. All of a sudden Western culture, Western governments, Western militaries have almost slipped back to where they were in 1983 at the height of the Cold War, whether or not this is going to carry to a new deal. I have my doubts. I certainly don’t think it’s going to lead to the guns and butter deal that the Americans made with everybody back in 1945.
Peter Zeihan:
But I’m glad to see that at least we have some of the muscle memory intact.
Grant Williams:
Well that’s interesting, it was a much different time and I think even if America wanted to offer the world a guns and butter deal, it’s not something they’re physically in a position to do anymore.
Peter Zeihan:
I agree with you completely. And we’re getting ahead of ourselves here a little bit, but the things that are likely to boil up over the next two or three months are probably going to provide a significant challenge to the cohesiveness of the NATO alliance, who the Americans are about to go their own way on energy policy and a number of countries already in the European Union have already gone their own way on agricultural policy.
Peter Zeihan:
And every time someone splits off and does a boycott of imports or exports specifically for their own reasons, everything that holds the rest of the structure together weakens. So I’m concerned about what’s going to happen with the Western wall against the Russians, but for now, I’m enjoying the moment.
Grant Williams:
Yeah, right. It’s funny, isn’t it? That when you talk about enjoying the moment, this is obviously just such a crazy time for everybody, but for the guys in your profession, these are the times that you got into the business for. Not specifically to be in the middle of a war, obviously, but periods of geopolitical turmoil and periods of tectonic plate shifting are the things that bring you guys to life.
Peter Zeihan:
Absolutely. It’s one thing to warn people in presentation after presentation over 10 years, that de-globalization is coming, you need to prepare for what’s coming and knowing that the folks who bring you in who pay your bills are bringing you in because they see it as a thought experiment. Not that they really think it’s going to happen. They just think it’s useful for contingency planning, and then to get a panic call at three in the morning. “Oh my God, you were right. We need to have you back right now.” It is a little disconcerting. It’s a little ego pumping. There’s good and there’s this bad.
Grant Williams:
I’ve seen you speak on a number of occasions and every time I definitely got a sense of that people in the audience found it deeply fascinating what you were saying, but as a thought experiment, because you don’t pull any punches when you talk and you talk about things that are, or were potentially uncomfortable now are uncomfortable. But let’s go back to this fracturing, let’s start with the events here, because when I looked at the way things were building up on that border.
Grant Williams:
And I looked at the various hands that people were playing, it seemed to me that Putin had a pretty strong hand just by sitting on the border and threatening to go in and seeking concessions. And I have to admit, I absolutely misjudged the likelihood of him going in because I just didn’t see he needed to. Talk us through your thoughts as the buildup was taking place and then on the day when you heard that he’d actually decided to go into Ukraine.
Peter Zeihan:
Sure. My position is that this war has always been inevitable, that the Russian territories are wildly undefensable. And the only way that the Russians have ever found that they can secure their heartlands is by expanding out to a series of geographic barriers that they can hunker down behind like the Carpathian Mountains, for example. Russia’s been invaded 50 odd times in its history and all of the invasions, every single one has come through one of nine invasion corridors or gateway territories.
Peter Zeihan:
And so the Russian idea is to get to those gateways and plug them with troops so that an invasion is not possible. I’ve always felt that this was inevitable. The problem has always been timing. The Russians have put a hundred thousand troops on the borders of Ukraine six times before this most recent circumstance. And so, I was cautioning people that this has to happen, but that doesn’t mean it has to happen now.
Peter Zeihan:
And it wasn’t until two days before the tanks rolled, second to last day of the Olympics, when Putin gave that James Bond villain speech, and he talked about Ukraine not being a real place and how it was full of Nazis. And I was like, “Well, here we are.” There had been certainly signals in the month before when we went from one hundred thousand to two hundred thousand troops, that made me a little skittish. But that speech was when it became obvious that something was going to happen.
Peter Zeihan:
And I would just underline here that Ukraine is not the end of this because Ukraine does not directly control those gateways. It’s the path onto the way to the gateways. There is another six countries that the Russians are going to invade. Whether they’re done with Ukraine, if they feel they can pull it off.
Grant Williams:
Well, let’s talk about that because obviously again, I’ve read the books, I’ve heard you talk about this, and that was always, to me, reading the books, looking at the maps but within the context of the life I’ve lived in the world I’ve grown up in, it was, “Wow. I can totally understand why they need to take these countries.” But surely that’s not going to happen. And now here we are. So, again, for people that haven’t had the benefit of reading those books, just walk through those countries, those nine corridors and why they’re so important to secure.
Peter Zeihan:
What the Russians are after are the geographic barriers that prevent invasion. The Karakum Desert, the Baltic Sea, the Tian Shan Mountains, the Carpathians. The corridors in no particular order, there’s one that punches south from Uzbekistan into Central Asia. There’s one that goes east to the Chinese space. That’s where the Mongolians came through. There’s the coastal strips of the Caucasus, where the Persians and the Turks have come up on occasion. There’s the Bessarabian gap, which one of them that’s in play right now.
Peter Zeihan:
Part of it is Moldova part of it is Romania. And they’ve been invaded by the Turks and the Europeans on a number of vacations through that route. The Polish Plain of course, is the one that keeps the Russians up at night Most often, that’s where the Germans went in World War I and World War II. The Baltic Sea is where the Swedes came in. And then everyone who has ever had a Navy invaded the Russians via the North Sea, excuse me, the Bering Sea, like Murmansk, it’s all that area, even the Canadians invaded the Russians from that direction in the aftermath of World War I.
Peter Zeihan:
So when the Soviet system was in existence, the Russians had forces in all nine of these gaps. When the Soviet Union broke down and was just current Russia, they went from controlling nine to one, and everything that Putin has done since then has been about getting troops in these positions. The Kazakh uprising this year, partially plugged one of those gaps. The Nagorno-Karabakh settlement in the last summer partially plugged one, the Georgian invasion in 2004 plugged one, the invasion of Crimea eight years ago, plugged one.
Peter Zeihan:
And with Ukraine, he will be within a stepping stone distance of both the Polish gap and the Bessarabian gap, which I would argue are overall the two most important ones.
Grant Williams:
Look, you’ve analyzed this and you spoke about this for quite some time. It blows my mind that people in NATO high command, for example, haven’t figured all this out. Did they just get lazy or did they just not believe that he’d have the guts to do this? Did they think they could just shut him down with sanctions? How did this actually come to happen?
Peter Zeihan:
There has been a belief of, I don’t want to denigrate the folks of NATO. They haven’t had a lot of clear direction from their political leadership on either side of the Atlantic since 1990, really with the end of the Herbert Walker Bush presidency, American presidents have not been interested in foreign affairs in general and security and specific again with the sole exception of the war on terror. And there’s always been this belief that Russia was done, and there’s only so much they can do, and they certainly are not capable of a major war.
Peter Zeihan:
And so, when Westerners look at things like the Crimean invasion, or the separatists in the Donbas, or Nagorno-Karabakh or the invasion of Georgia, they see these as well, of course, Putin would do that. That’s low hanging fruit. These are either Russified areas or actually populated with Russians. He’s going against states that don’t have any security apparatus themselves to resist. And it wasn’t really until a week before the invasion that they started taking it seriously.
Peter Zeihan:
Of course, that’s by far too late, if your goal is to prevent an attack, but we’ve had 30 plus years of not necessarily the west and the Russians getting along all the time, but certainly not being mutually hostile to one another in a way that involves bullets and missiles. It was a good time from any number of points of view and we specifically told our militaries that this is not something that we think is a high concern and they retreated appropriately.
Grant Williams:
Let’s try and get inside Putin’s head then on that basis, because the motive was there as you’ve laid out, was this just a case of opportunity? Because obviously Putin’s been painted in Western media as having completely gone off the reservation. Now, I saw that Bond villain speech. I saw his address at Valdai. I saw his new year’s address. He didn’t seem to have gone off the reservation to me. He didn’t seem to be unhinged in any way. Is this purely an opportunity and a political calculus that the west is too weak or too divided or too decadent or too much under their stress to stop him? Or is there an element of “he’s lost the plot”?
Peter Zeihan:
Well, let’s break that into three pieces. First of all, the idea that he’s lost the plot or there’s something wrong with him. If you look at what he has, his public appearances in the last two weeks, just since the war, he does not look good. He looks bloated. And from the folks that I’ve talked in medicine, there are a number of steroids that you would take that would do that to you. So there is concern that he is physically ill. He’s not a spring chicken. There is a possibility that there is something going on between his ears that is a problem.
Peter Zeihan:
I can’t rule that out, but second piece we’ve always known this was coming, and I would even argue that we’ve known that it had to happen soon. The Russian demographic profile is in collapse. The Russians are literally dying out as a people. The birth rate halved in the post-Cold War system, the death rate doubled at the same time. They are losing the ability to field a mass army. And at this point, if the Russians did not go this year or next year, they simply would’ve lost the military capacity to try. So geography can explain the why and I think demography explains the why now.
Peter Zeihan:
And so, I believe Putin understands that I believe that’s what drove Putin to do this.
Grant Williams:
But anytime that demographics is a factor in a decision like this, these are decisions that get made 20 years prior. Japan is the perfect example for this. We all knew in the ‘90s what Japan’s demographic profile was going to be now, and here it is. And so again, I’m just bewildered that if he’s that close a couple of years away from not being able to physically put the men on the battlefield to do this, that this wouldn’t have been taken an awful lot more seriously.
Peter Zeihan:
Well, I would say that that would go to the third thing. That Putin has been very good at picking the low hanging fruit, and nobody has punished him for it. He’s interfered in the US elections, he interfered in the Brexit debate in the UK, he’s stirred up trouble within the German system, sponsoring both the post-communist left and the AfD on the hard right. He has stirred so many pots and caused so much damage and so much infighting and yet he’s never been called to the carpet.
Peter Zeihan:
And I think most military observers, most military staff when they looked at Ukraine, as recently as a month ago, saw the same thing that I did, a country that we didn’t think was going to fight for itself. We were all wrong.
Grant Williams:
Well, okay. Let’s talk about Ukraine then, because that’s obviously the other side of this. Talk a little bit about Ukraine’s history with Russia, the Maidan Revolution, and how that happened and what that did to change the dynamic. And what’s happened within the borders of Ukraine to lead to this.
Peter Zeihan:
Sure. There were a lot of post-Soviet countries that didn’t think they could make a go of it. Several of the Central Asian leaders in fact, during the final Soviet days begged Yeltsin and Gorbachev to not dissolve the Soviet Union, because they didn’t think they had national identities to grab onto much less economies that could function in as countries. Ukraine was one of those. It was one foot in one foot out. Ukraine and Russia have had an intertwined history ever since the formation of the Slavic ethnicities over a millennia ago.
Peter Zeihan:
But when Ukraine got its independence, there were almost as many people in Ukraine who considered themselves ethnic Russians or Russian leaning as there were Ukrainians. The further north and west, you go, the more Ukrainian it tends to be the further south and east you go, the more Russian it tends to be, but it took 2007 and 2008 to really change things. Because at that point you had a guy by the name of Viktor Yanukovych as prime minister of Ukraine who was wildly corrupt and wildly pro-Russian. The Russians were very happy when he was elected.
Peter Zeihan:
They had put a lot of effort into helping that happen and his presence, his just completely unvarnished pro-Moscow approach to everything is what produced the Maidan protest in the first place. Because these were people who were primarily from Kyiv and parts west who considered Ukraine to be part of the European family. Even if the European family at the time, didn’t consider Ukraine to be a member. Those protests were successful at generating a broad scale, almost revolt, against Yanukovychya.
Peter Zeihan:
And it ended with him fleeing for his life and ultimately settling in Russia as a “political émigré”. From the Russian point of view, they went from the highest position they had been in Ukraine to being embarrassed, crushingly embarrassed. And so the immediate after effects of that were the day that Russia was done hosting the Olympics in Sochi, the day that the last of the athletes went home, he launched an invasion of the Crimea and started the separatist war in the Donbas.
Peter Zeihan:
And took the two parts of Ukraine that were most pro-Russian and formally or informally folded them into the Russian Federation itself. That was the moment when Ukraine woke up, because, as soon as the Russians made a power grab, a territorial grab, even Russian speakers in Ukraine got pissed off by that. And we saw for the first time the formation of the Ukrainian national identity in a form that Australians or Americans or French would actually recognize as nationalism. It was the first time it had ever happened in Ukraine.
Peter Zeihan:
And then with the Russians lobbying in artillery over the next eight years in Donetsk and Luhansk, it solidified. Now, we didn’t think it was enough to generate a military backbone for the country, but there was finally a political entity called Ukraine that meant something.
Grant Williams:
Now, what about all the stories about the Maidan being fermented by the US as a means to get this wildly pro Putin guy out?
Peter Zeihan:
Well, I’d say two things. Number one, I would’ve been shocked if US intelligence was not involved in the formation, but I would say two, I would be equally shocked if it made the top 10 list of things that actually mattered. US intelligence does certainly play in other people’s political systems, but it’s not nearly as competent or holistic as a lot of people seem to think it is. If it was the whole world would be pro-American by this point.
Grant Williams:
Right. Well, it’s something I’ve noticed since this took place and you talked about the Russians meddling in the US elections and German elections and UK elections and Brexit and all these kinds of things. And we’ve obviously been bombarded with that for, well, certainly the last eight years, maybe longer. And what really struck home to me since the Russians went into Ukraine is my social media feed have been lit up with 99.9% pro Ukrainian information. Information that shows that the Ukraine are winning the war and the Russians are getting battered every which way possible.
Grant Williams:
And I haven’t seen any pro-Russian stuff in my feeds at all. And I’m just curious because this would seem to be a point in time where these incredible amounts of bots that the Russians have that are interfering in every election in the world. This would seem to be rather fertile ground for them to paint a different picture than one that I’m certainly being shown.
Peter Zeihan:
I would say that two things have happened. Number one, the Russian ability to access the internet at all has collapsed. The complete walkout of the Western corporate world from Russia includes among other things, companies that deal with the internet and the digital infrastructure. And so Russia’s ability to use their bots and use the bot farm and use the propaganda has just vanished. I certainly know on my feed; I’d say probably one out of every three people who say something negative on my feed is a bot.
Peter Zeihan:
It’s obvious from the context, the syntax and the number of followers that they do not have. That’s vanished overnight on the second day of the war. One of the problems that we have in media, and this is not going to go away anytime soon is with the advent of better and better digital technologies for transferring information, our media systems have had less and less feet on the ground abroad. And in fact, most international news bureaus have been closed for almost all Western media feeds. Well, I shouldn’t just say Western, everybody.
Peter Zeihan:
And because of that, we’re now in a situation where algorithms write algorithms, and it’s very easy for a narrative to take hold and become the story. And it’s very easy for that narrative to be overtaken with next story and everything in between is just talking heads. Getting an accurate read on any foreign military or cultural picture has become very, very difficult. And for now, the story is that the brave Ukrainians are sticking it to the Russians and to a degree they are, but make no mistake, the Ukrainians are losing this war. They’re just exacting a high price.
Grant Williams:
Can you paint some kind of picture of what’s happening inside Ukraine from a Ukrainian point of view?
Peter Zeihan:
From a Ukrainian point of view, they’re getting cut up. There’s three main thrusts. The first comes north from Belarus down to Kyiv, and they’re just going to keep hammering Kyiv over and over. And again, harder and harder with more and more artillery until they flatten it like they did to Aleppo or to Grozny. They have to destroy the capital. Otherwise there is a capital and there is a Ukraine, so the day that Kyiv falls is probably the day that the regular resistance ends.
Peter Zeihan:
Second, there’s a push from Crimea to the east and from the separatist areas to the west meeting up in Mariupol. And once they completely eliminate Mariupol, which I think I’ve said three times, I expected to fall on 48 hours. It’s still there, good on them, but they can’t last forever. Once that is done, the Russians can then send as many troops as they want, along that southern coastal route to Crimea and beyond to Odesa. Odesa is the commercial capital. It’s the largest port, it’s the world’s largest wheat offloading facility.
Peter Zeihan:
And it’s less than 30 miles from the international border with Moldova. Once they capture Odesa, that is the end for good of Ukraine as an economic player until such time as the occupation ends. That I would say actually. Odesa is strategically more important or just as more important than any of the other cities that you’ve seen in the news of late. At present, the assault is within 15 miles of Odesa, but they’re not there yet.
Grant Williams:
Now, again, you talk about this as an invasion ending, is that Putin’s plan still, do you think at this point to go into basically bring Ukraine to heal, bring it into or Russia and then withdraw?
Peter Zeihan:
No, I don’t think he’s ever going to withdraw.
Grant Williams:
Okay.
Peter Zeihan:
If Russia were to go into Ukraine, set up a puppet government and leave, number one, the Ukrainians have made it very obvious that the puppet government won’t stand and the assault on Kharkiv in the Northeast, that’s a Russian city. The Russians have actually probably killed more ethnic Russians in this war so far than ethnic Ukrainians. And so, there’s no way that Russia’s going to be able to play the fifth column card again.
Peter Zeihan:
And so if they go in and they leave, not only would the government flip within seconds, but the Russians would’ve achieved nothing that they were after, but paid all of the prices for a war. That would be the worst of all circumstances. So for the Ukrainians, this is going to be a full country occupation. And then as soon as the Russians feel that they’ve sufficiently pacified Ukraine, they will move on to the other countries that they’re after.
Grant Williams:
Well, that was something one of your early video updates and the video updates you’ve been doing have just been tremendous, but the almost casual way, you talked about Moldova as fait accompli even me, who’s read all your stuff and watched you speak. It really took me quite by surprise just how matter of fact you were about Moldova is next.
Peter Zeihan:
Moldova controls half of the Bessarabian gap. From the Russian point of view Ukraine is nothing more than a road bump on their way to Moldova and Romania. Ukraine’s not the real prize here from the Russian point of view.
Grant Williams:
Right. And I guess what surprised me was, it just felt like NATO aren’t going to do anything. Let’s switch the conversation to NATO now and talk about the position they find themselves in because obviously they are the defense against this exact situation.
Peter Zeihan:
This is what they were formed for.
Grant Williams:
Exactly right. And so, presumably there is a line in the sand somewhere. We know article five lays out pretty clearly what that line is. Talk to us a little bit about the position that NATO are in. The position they’re in amongst each other, any fractures that might be there. We’ve obviously seen some problems with the Poland MiG situation. Just give us an overall picture of where NATO stand right now, and then we can dig into their options.
Peter Zeihan:
Sure. Let me give this from the NATO point of view, from a strategic point of view, and then we can talk about how the Russians are going to try to break that.
Grant Williams:
Right.
Peter Zeihan:
The NATO alliance, I firmly believe that the NATO alliance is coming back to life. We’re already seeing more military assets being pushed to the eastern periphery than we did for the entirety of the last 25 years. We had a handshake deal with the Russians, going back to the ‘90s that the United States would not ever reinforce the central European countries from Bulgaria all the way north to Estonia in order to give the Russians a sense of security.
Peter Zeihan:
That is obviously completely off the table now. And we’re cramming as much weaponry as we can into those countries right now. I think the biggest concern of the Biden administration specifically is that the Russians are coming across as far weaker than we ever thought. When we see a military that we thought was powerful, like Russia, and we see a military that we thought was weak like Ukraine, and they’re fighting almost as peers.
Peter Zeihan:
That really spooks the Biden administration because it means that if American and Russian troops ever fought directly on the battlefield, we now know that the Russian forces would be obliterated. And what really drove that home for the Biden administration was this 40-mile-long convoy north of Kyiv. We were really worried as it was moving south, and then it stalled they couldn’t fuel it. And then it was abandoned because they couldn’t feed the soldiers. And that forced… That’s like desert storm one levels of logistical incompetence. We did not expect that out of the Russians.
Peter Zeihan:
And so if American forces and Russian forces ever did meet, the Russians would have two choices. Number one, a humiliating retreat from all points of contact or up the ante to involve nuclear weapons. And in order to prevent that from happening, prevent the Russians from being in that decision point, the only thing that NATO can do is make sure the occupation and the war for the Russians in Ukraine is as bloody and long lasting as it can possibly be.
Peter Zeihan:
So NATO forces are providing the Ukrainians with any weapon system that they can take that does not require a fixed point asset, because if there’s a fixed point asset, then the Russians are in a position where they can bomb it and then we have that direct American-Russian clash. Javelins, stingers, ammunition, volunteer forces, intelligence, anything that can be man portable, they get. And I would underline that they have not really received US stingers yet. The few stingers they had were, are handed over by the Baltic republics.
Peter Zeihan:
It’s only now that American shoulder launched anti-aircraft weaponry is making into Ukraine for the first time. So these airplane losses that the Russians have suffered in the last couple weeks, that’s nothing compared to what’s right around the corner.
Grant Williams:
Well, that’s one of the surprises, I think, the lack of an attempt to secure air superiority, which seemed to preempt every invasion that we’ve seen in the modern age that was remarkably absent this time around.
Peter Zeihan:
Agreed. There’s some people who are concerned that the Russians are laying a trap. And if so, I’m like, “Wow, it better be one hell of a show.”
Grant Williams:
It’s elaborate.
Peter Zeihan:
Yeah. Very elaborate. It just seems that the Russians forgot how to fight. In the wars that they’ve had in Syria, the opposing side had no air assets, in Georgia they had no air assets, in Crimea they did without a single shot being fired. They haven’t had to fight since the Chechen wars. And if you look at how they’re handling their columns of vehicles, it’s like they forgot all the lessons from the Chechen wars. Now, granted the last Chechen war ended more than 15 years ago, but still that’s an incredible amount of institutional memory loss.
Grant Williams:
Everywhere I’ve looked, there’s essentially been this growing conviction that the only two outcomes here are defeat for Putin. Ultimately, whether it’s through a long grinding war of attrition or a decapitation from within, or this potential that he leaves himself nowhere to go and pushes the button. Is there a way that Putin can win this war? Whatever a win means to him, it seems to be territory, but is there a way he can win?
Peter Zeihan:
I have no doubt that the Russians are capable of completely conquering Ukraine. Pacification is a different question, but conquering no problem. The real issue is what’s going to happen in a couple months here. Between shipping companies not granting insurance policies for vessels that are going to Russian ports, between ship captains refusing to pick up Russian cargo, between dock workers refusing to unload Russian cargo. You add all of that up. And Russia is getting wiped from global energy markets.
Peter Zeihan:
There are two pipelines that go from the Russian space to the European space that bypass ports and that bypass both Belarus and Ukraine so they’re immune to the war. They go directly to Turkey in directly to Germany. We’re going to have a situation here in the not too distant future when the Russians feel that they’re getting the upper hand of Ukraine and that will happen. Where they will go to Berlin and anchor and say, “Look, we can guarantee your energy supplies, but only if you cease cooperation with NATO on the Ukraine war.”
Peter Zeihan:
And if they can flip those two countries, the Americans can’t intervene effectively. And then all of a sudden, all those NATO countries that the Russians are ultimately after they come into play. That’s what the Russians are after here. That’s how they’re going to try to do it. And if you had asked me a month ago, if it was going to work, I would’ve said it would’ve absolutely worked for the Germans, but the Germans had become a completely different people overnight. They’ve doubled their defense spending.
Peter Zeihan:
They’re talking about restarting coal and nuclear power facilities, so they can cut the Russians out of their energy mix. They’re supplying the Ukrainians with lethal munitions. This is not the same country that it has been for the last 75 years.
Grant Williams:
Yeah, that’s something that struck me as well. Just how quickly Germany, and look, fair play to them again. The energy policy particularly has been flawed for a long time. I was interested to see how quickly they acknowledged that which must have meant they probably realized it for a while. Let’s hold off on the energy stuff for a second, because I think there’s plenty to be discussed there, but let’s talk about the sanctions. Let’s talk about the sanctions in general as they came in.
Grant Williams:
Now, when Putin went in, it felt to me like his calculus was, they wanted of the balls to cut me out of SWIFT and they wanted the balls to sanction energy because they’re too reliant upon it. And in fairness, day one, he was absolutely right. The first thing that came out was, “We’re not going to cut them out of SWIFT. We still need the energy.” And it seemed to me that the backlash was so strong against that, that they were forced to climb down and use SWIFT as a weapon. Talk a little bit about the sanctions that have been used, how they’ve been used and the effect they’re having.
Peter Zeihan:
They’re intense. The sanctions that are in place against the Russians right now are more intense than all of the sanctions levied by all countries against all other countries in the last 75 years combined. The degree to which this has become vacuum sealed is really impressive and it’s really only half the story. The Russian central bank cannot access its reserves. It is now illegal to deal with the Russian central bank in euros, in yen, in US dollars, in Korean won, in Australian dollars, in Taiwanese dollars, in kiwi… Wait, no. Kiwi are still allowed. Sorry.
Peter Zeihan:
They have to change a law first. Anyway, and the Canadian dollars. Anything that a central bank would normally do as regards commerce is shut down. Among other things, that means that the Russians are going to default on all of their foreign held government bonds as a matter of course, almost certainly this month. On the off chance that it doesn’t happen this month, it’ll absolutely happen in April. We’ve got a complete lock on the ability of Russian entities to deal financially with the outside world.
Peter Zeihan:
And that is significant for a country that is Russia as a capital consumer, but it’s nothing compared to what has happened in the corporate space, not covered by sanctions. I think what really broke the dam and just let everyone rush in and make the decision that is time to rush out of Russia was BP.
Grant Williams:
Right, the Rosneft. Yup.
Peter Zeihan:
BP has been the single largest investor in Russia for nearly 20 years. They first went in with an energy partnership with a company called TNK that eventually evolved into their partial ownership of Rosneft which is the Russian oil monopoly. And no company had more to lose, no company had invested more and they were one of the first to just walk away knowing that they won’t get a cent back. And once that happened, Exxon and Chevron and Total Energies left in rapid fire after that.
Peter Zeihan:
And then all of a sudden, every other corporate entity that was still involved in Russia was like, “Wait a minute, wait a minute. We can’t be to the right of oil companies on issues of economic morality.” It’s been a nonstop river of companies going for the door. I started keeping track of them when I hit about 1200 I stopped because I just couldn’t. It just it’s like the International Cat Federation has banned Russia from participation. That’s how bad this is now.
Grant Williams:
Well, if Putin is a Bond villain, then that’s a real problem.
Peter Zeihan:
Yeah. It’s like all that’s left at this point of size are medical companies who are saying that not only do we not like dealing with politics, we’re here to save lives. We’re an essential service to which some of the companies that have already left, you think electricity is not an essential service? What about gasoline? What about financial access? What about the digital space? These are all elements of modern life and Russia has become the new apartheid South Africa and they are being melon scooped out of everything. In the short term, that’s great for a PR story.
Peter Zeihan:
And it helps the west build its case. In the longer term, it’s entirely possible that we didn’t think this all through because it’s not like if Putin were to slip in the shower and fall on some bullets tomorrow morning and the Russian war or the Ukraine war was to stop an hour later, it’s not like this all stops. Russia doesn’t have oil storage. And so, the pipelines are already backing up. And once they back up all the way to the wells, it has to be shut in. And you take into effect the climate of Russia, how harsh it is.
Peter Zeihan:
The fact that these wells are in Siberia, where it’s going to be freezing at night, well into June. This stuff doesn’t come back, you’ll have to re-drill the wells, you have to re-build the pipes. The last time that the Russians shut stuff down on this scale, it took them 32 years to come back to their old production levels. They only reached that in the fourth quarter of last year. So we’re talking about Russian crude being offline for decades. We’re not ready for that.
Grant Williams:
Yeah. I want to save energy because there’s so many moving parts to that. And you’ve just given us a taste of where that discussion will go. But let’s talk about the retaliation from the Russians. Obviously they’re very limited in what they can do. They’ve talked about paying back outstanding debt in rubles, which is nice.
Peter Zeihan:
Thats selective default, yeah.
Grant Williams:
Yeah. They’ve talked about just seizing the assets of all these companies that have walked out and nationalizing them.
Peter Zeihan:
Which every company that walked out has realized that’s where this leads. So that’s not a surprise.
Grant Williams:
Yeah, of course. None of that’s a surprise, but is there anything they can do? Obviously this is going to bring us back to energy again, but is there anything they can do because they’ve talked about not exporting any commodities, they’re obviously the biggest palladium producer in the world, the list of commodities that they are significant exporters of vital commodities is long and important. What tools do the Russians have to fight this, if any? Meaningful ones.
Peter Zeihan:
On the economics sphere, the only thing they can do is deny the world access to their materials. That’s it. That’s all they have. There’s nothing else. Relations have reached the point that everybody has already written off any investment that they’ve made. Again, with the exception of those medical facilities or companies, which I have no doubt that over the course of the next month, they’re going to be out too. We’re looking at a complete hard break economically, financially, culturally.
Peter Zeihan:
That means that the only things that the Russians can use for pressure would be the things that wouldn’t shut down anyway, and don’t necessarily have to be shipped by water. They could be shipped by rail. We’re going to be entering into this weird moment when the Europeans are still importing things by rail through Belarus. And I cannot imagine that public opinion will allow that to continue. But on the other hand, we do have this clash coming up as it really sinks in what it means to melon scoop rush out of the economic system and what that means for everybody.
Peter Zeihan:
We’re probably going to have some countries try to break ranks, but if you do not have a direct rail connection to the Russian space, it doesn’t matter because then they can’t get it to you anyway. So watch for the countries that are close on the border that have the capacity to at least theoretically import some things, but for everyone else where it had to come by boat, no it’s over and it’s not coming back.
Grant Williams:
Well, I guess, which loosely brings us to China and their place in this.
Peter Zeihan:
They’re so screwed.
Grant Williams:
Yeah. Well, and this is something I’ve always found so fascinating and you really opened my eyes to this when I read your report card on China in Disunited Nations and you laid out just how precarious China’s position is. And I think that would be useful to just lay out quickly if you can, for people that haven’t read it because it’s so against the common narrative of China being this power that’s inevitable that it’s rise is going to take it past the United States. Just talk a little bit about why China is in such a precarious position geographically.
Peter Zeihan:
Let’s start with the punchline. China won’t exist as a modern Asian state 10 years from now, and everything that’s going on in Ukraine is probably speeding up their goodbyes rather than giving them more time. Demographically because of the one child policy, China is the fastest aging society in the world and based on the dribs and drabs, we’ve gotten from the Chinese statistics bureau from their 10-year census, there will probably be fewer than half as many Chinese in the year, 2050 as there are now. They are rapidly running out of runway.
Peter Zeihan:
85% of the energy that they use is imported and 85% of that comes from the Persian Gulf. The Chinese do have a large number of vessels, twice as many as the US Navy, but only 10% of them can sail more than a thousand miles from the shore. And that assumes that no one is shooting at them and they’re going slow in a straight line to conserve fuel. So it’s a completely nonfunctional Navy for anything except for going after Taiwan. And if there’s any fight that involve the Chinese, anywhere in the world, someone will put a couple destroyers on the Indian Ocean and interrupt the energy flow.
Peter Zeihan:
Once that is done, three months later, trucks stop running, three months after that, the lights go out, and six months after that you have a half a billion dead Chinese from famine. China is arguably the most vulnerable country in the world in terms of energy and food security. And it certainly is the most vulnerable in terms of trade. The only reason that it has worked is because the United States has made the sea safe for everyone. Very, very easy to break it.
Peter Zeihan:
And what we’re seeing with the Russians in Ukraine right now, at first, the Chinese were ecstatic for 12 hours. And then it sunk in what was actually happening as soon as it became clear that the Ukrainians were not just going to roll over and die, every time you see the Russians hit a roadblock in Ukraine, the Taiwanese are like, “Yeah, we’ve been training for that for 70 years. The Ukrainians just made that up six hours ago.” So not only do the Chinese have to fight a war on the other side of a body of water, it’s somebody who has been preparing for just the assault for their entire existence as a people. And unlike Ukraine where it’s flat, Taiwan is rugged and forested.
Peter Zeihan:
The battles would be horrific from the Chinese point of view, assuming they can get there. And then there’s the sanctions issue, as bad as the sanctions have been for Russia, can you imagine what’s going to happen? And it is going to happen when consumers and shareholders start pressuring companies on China, the way they have with Russia, because Russia prides itself on its ability to suffer through privation, China doesn’t have that kind of history.
Peter Zeihan:
So when you have the building blocks of the modern system break, that everything that the Chinese thought they were going to be able to have the day after a quick war, A, it’s not going to be a quick war, B, they’re not going to have any of those things. The trade system will be collapsed. The energy system will be collapsed. And unlike Russia, that is a world exporter of these things, China’s the world’s largest importer. So no country is suffering more right now from what is going on in Ukraine than China. Obviously with the exceptions of Ukraine and Russia themselves.
Peter Zeihan:
Everything that they’ve been planning for the last 50 years just went up in smoke in the first week of the war.
Grant Williams:
The alliance between Russia and China, which was, again, cemented at the winter Olympics. They made a very public proclamation about working closely together. Where does that fit into this? Because the timing was once again, very deliberate, I’m sure.
Peter Zeihan:
Something to remember about any country that causes the United States problems or the Western world in general. The only reason they’re able to function is because the United States has continued to uphold the tenets of globalization. If the US didn’t that do that, Iranian crude could not get out of the Persian Gulf. Russian materials exports could not make it to East Asia. The Chinese manufacturing system could not function. The United States is by far the single biggest factor, arguing for the success of all of these countries. And as soon as you flip that switch, they are nothing.
Peter Zeihan:
Russia right now is on its way to being nothing. I don’t think they’re going to be able to get everything that they want. And that means they will have launched a war and suffered all the pain and not actually achieved the security success that they want. In fact, if you look at just this next upcoming year, I think we’re going to see food and agricultural and energy and mineral exports to China drop because the Russians are incapable of maintaining production levels on their own systems without Western tech.
Peter Zeihan:
We’re at the peak of the Sino-Russian relationship right now. I have a feeling that as this really sinks in in Beijing, they’re going to throw the Russians under the bus at the first opportunity, because there’s no point in backing the Russians in this war if the Russians cannot provide the strategic and economic goods that are the basis of the relationship. It’s not like the two countries actually like one another.
Grant Williams:
Right. Let’s come back to energy then, because this is obviously the crux of this whole thing. Now, you said at the top of the conversation that you’d been thinking through where this goes and it didn’t take you to many good places.
Peter Zeihan:
To some shiny, happy places. Yes.
Grant Williams:
Why don’t I just let you take all the time you want to lay out that thought process and where it’s taken you?
Peter Zeihan:
All right. One of the things that people don’t understand about the Russian energy system is that you’ve got a series of fields that are very old and a series of fields that are very difficult. And the only way that the Russians can keep them producing is with technology from companies like Baker Hughes, Halliburton, and Schlumberger.
Peter Zeihan:
Now those three companies are not under the sanctions and they are still in Russia, but as pretty much everyone else and their godmother evacuates Russia, it’s not going to be very long before these companies either come under a second level of sanctions or they withdraw on their own or because the Russian system is collapsing, they don’t get paid and they won’t do the work. One way or another, they’re all leaving this year.
Peter Zeihan:
Second thing that most people don’t understand about Russian energy is it’s not a single interconnected system. You have a network in the Western half of the Russian Federation that feeds the pipelines that go to Europe. And then you have independent fields and independent pipe networks that go from the Eastern half of the country to either the Pacific or China proper. All of them are difficult fields. The Russians can’t keep any of them running without outside help.
Peter Zeihan:
Now, that has some implications because we’ve got this backup in the pipes, we know that the Western exports are going to be stopping before long. The Russians just can’t keep them going if they don’t have anyone to sell to, it doesn’t matter. Russian ports are shallow. Even if they could get ship captains to come in and load up, those ships do not have the range to make it to China. The pipes that go from Eastern Siberia to China, into the Pacific, they’re already running full out. There’s no room, even if they were linked to the other fields to increase flows, same with the rail system.
Peter Zeihan:
Everything that is going from Russia to China is at its peak right now. We’re looking later this year, it’s a little fuzzy to know for sure, but probably before May, we’re looking at four ish million barrels per day of Russian crude falling offline. Right now, the vast majority of that goes to, what’s going to fall offline, goes to Europe. And so, the Europeans have got to find a fundamentally new source of energy.
Peter Zeihan:
The United States will help a little bit, but the United States shale sector can probably expand their output by about a million, maybe a million and a half barrels a day without something really crazy happening. That’s nice. That helps, but that’s not enough. What I anticipate is that the Europeans are going to deal with their colonies in the African continent, especially in West Africa to redirect the flows that used to go east, north.
Peter Zeihan:
Whether it’s Angola or Nigeria, those flows will almost exclusively be going north to Europe before the end of the year, which means that it’s China that suffers the totality of the shortage because everyone who can, is going to redirect things to them and the Chinese can’t do a damn thing about it. Chinese don’t have the military reach to get to a place like Nigeria and convoy ships. So yes, there is a global energy crisis coming. Yes, it’s going to send prices above 200. It’s nothing compared to what’s going to hit the Chinese later this year.
Grant Williams:
So now, you-
Peter Zeihan:
And that’s just a first order effect.
Grant Williams:
Well, I was going to say… Yeah. Let’s take that a step further.
Peter Zeihan:
There are three types of fertilizer in the world. The one that is made from natural gas is called nitrate. We also have potash, which is sourced from Russia and Belarus primarily. And then the third one is phosphate, which primarily comes out of China, but also other places. The Chinese are looking at a collapse of their food web and so, they’ve blocked all exports of phosphate, anything that’s made from natural gas now in Europe costs seven times what it did three months ago. The price of it’s gone through the roof.
Peter Zeihan:
Russia is the overall world’s largest exporter of finished fertilizers of all types and the potash is no longer on the market. We now have a fertilizer shortage at every stage of the process that is global in scope. It is already too late. If we fixed everything with the Ukraine war and everybody agreed to just get along today, it is too late to make the fertilizer that we need for this year’s planting season in the Northern hemisphere, which means that by the time we get to the fourth quarter, we are going to be dealing with abject food shortages most heavily in terms of failed yields in Brazil, in Africa, in the Middle East and in South Asia.
Peter Zeihan:
The East Asian system is rice centric and the phosphate’s being locked up within China so that harvest will probably be okay, but that’s more than enough as it is to start a multi-continent famine. And because the system is not going to fix itself in the next 24 hours, you should count on that being the new normal. One of the things that we’re seeing here is one of the reasons why the world has been so nice and happy and growth has been so strong since 1990 is when the Soviet system collapsed, the industry disintegrated, but the extractive industries did not.
Peter Zeihan:
So all of the fertilizer, all of the oil, all of the natural gas, all of the bauxite, all of the nickel, all of the iron ore all of the copper, all of these things that the Russians used internally within the Soviet empire, they were dumped on international markets and they continued to dump them for 30 years. It’s one of the reasons why inflation has been so tame around the world for so long. We were coasting on the leftovers of the Soviet industrial giant. Well, now we get to do all that in reverse in a year. And we have to look at every single economic process, every sector in every country.
Peter Zeihan:
And you have to really look as, why have you been successful for the last 30 years? And if the answer was cheaper inputs, because of what happened in the Soviet collapse, you need to unwind that now. We’re not ready for that. There’s no way we could be ready for that, but not everyone is going to suffer equally. Because some places are more dependent upon those inputs than others. And they’ve had outside success. And they’re most of the economic success stories that we think of for the last 30 years. German and Chinese manufacturing- totally because of the Soviet collapse.
Peter Zeihan:
Brazilian and South Asian agriculture- totally because of the Soviet collapse. The green transition and the digital revolution- totally because of the Russian collapse. We now have to figure out how to make all these things work in a completely different macroeconomic environment. And most of us aren’t going to figure it out.
Grant Williams:
Well, they’ll work, but as you say, they’ll be scarce and they’ll be much, much higher priced.
Peter Zeihan:
Hope that’s all that it is.
Peter Zeihan:
Because you’re assuming here that everyone agrees to share. We’ve already had a dozen countries ban exports of various products and these countries are already exporting, in Romania, Bulgaria, Turkey, Indonesia. They’ve already limited what you can export from their systems because they know they’re going to have less coming in from the Russian space. In the United States, we’re probably within a few weeks of the Biden administration blocking oil exports.
Peter Zeihan:
The world can look forward to losing Russian exports and American exports at the same time, as we draw lines to protect ourselves from what’s happening, that’s just less and less and less left for whatever is left of the global system.
Grant Williams:
That point about the US I wanted to come onto because I saw the video you put out on that one, I think maybe this morning or yesterday with your mask on which you’d make a great ventriloquist because I didn’t see your lips move once during that one. But you talked about exactly this and the Biden administration is maybe blocking exports of oil and what that would do to the pricing structure war. Talk a little bit about that, I don’t want to steal your thunder. I’ll let you talk about it.
Peter Zeihan:
Sure. We’re moving into something that’s a little unprecedented in the modern age, but we do have plenty of historical precedents from before World War II. Before World War II, just as everyone’s manufacturing supply chains were kept within their own Imperial or national network. The same was true for energy. You had your British super major, you had your American super major, your French super major and so on. They produce energy from one of the colonies. They ship it to their home territories, distribute it to their other colonies.
Peter Zeihan:
And they had very little connection among those systems. Each Imperial network had their own pricing structure for oil. There was no global price. It took the Americans changing the way the world worked in the aftermath of World War II with globalization, for us to get what we think of it as a “single global oil price.” And that’s where we have been for the last 75 years. This is what we think is normal. We’re now going back to a little more old school system because as Russian crude falls off the map, if we stop at $170 a barrel, I would be very pleased.
Peter Zeihan:
I don’t think that’s very likely, I think 200 plus is far more likely, especially since it hasn’t really sunk in that there’s no way for this stuff to get market. And so it’s not just that it’s sitting in a tank somewhere it’s that the whole thing is going to get shut down. Once that sinks in, the Biden administration will have a very simple choice. Do I expose American consumers to a global oil price that is egregious that is guaranteed to start a recession?
Peter Zeihan:
Or do I use the power that Congress granted to me in the 2015 omnibus bill to end oil exports and keep shale production locked up within the American market so that we have a ceiling on local oil supplies of about $70 a barrel? If there’s one thing Biden, Trump and Obama all have in common is that they’re populists and they will absolutely screw over markets in order to achieve short term political gain. And it’s hard for me to find fault with that decision. Once that happens, the roughly three million barrels of American crude that is shipped out, won’t be.
Peter Zeihan:
Will still participate in global markets via refined products and the US is already the world’s largest exporter of refined product, that will increase, but that’s not going to solve the overall price problem. So you’re looking at the broader world losing access to roughly seven million barrels a day in a relatively short period of time. Economically speaking, almost all at once. We are not that far away from that. And when that happens, you have a global price that on a good day drops down to 150.
Peter Zeihan:
And if you’re at the end of the supply lines, like China is 200, is probably the best you can ever hope for, ever again.
Grant Williams:
Meanwhile, in America, as you say, you have a $70 ceiling. How long can that continue?
Peter Zeihan:
There will have to be a lot of reorientation of refining assets because they would be refining different crude blends than the refineries were designed for. That’s not cheap. That’s not something you do overnight, but it’s something that can be done. And honestly, we’re dumbing down the American refineries because they’re the most advanced in the world. They’re used to taking crap crude and turning it into high end products. Making a refining system dumber is certainly easier and cheaper than making it smarter.
Peter Zeihan:
And so, the United States will have a dumber refining system that runs better oil. The rest of the world won’t have access to the high quality stuff. They’ll only have access to the low quality stuff. And the mismatch there will be much more difficult to fix because a lot of countries simply don’t have the technological capability of overhauling their refineries. If they had, they would’ve done it already. Huge product mismatches, huge price disparities between the United States and everything else.
Peter Zeihan:
And on the off chance global manufacturing hasn’t been knocked over by earlier stuff going on this war with shortages of things like nickel and blade and iron ore and copper, having an energy disconnect of that magnitude is certainly going to wreck the entire East Asian manufacturing model, where products jump on a container ship and go to another country six, seven, 800 times before ultimately becoming a final product for shipping. Just the cost increase alone of the fuel obviates that entire manufacturing model.
Grant Williams:
Let me ask you, just in closing before, I’m going to ask you to just talk about your book briefly before we close, but the last time you and I talked, I had some emails that I found actually quite hilarious, that were calling you “another US stooge” and “he’s just wildly pro US”. Obviously having not read your book and laid out everything you have done to explain the situation for all these other countries that other people instinctively think are very strong. How could this go wrong for the United States, do you think?
Peter Zeihan:
It would have to be internal. There are only two economic sectors the United States is really dependent on the rest of the world portrayed. The first one is agriculture because American farmers and ranchers are just so ridiculously productive. They have to export about one out of every three calories they produce. But in a world that is breaking down, food is going to be sold at a premium. And so, I think the farmers will do just fine. The second one is tech manufacturing.
Peter Zeihan:
Because being able to hop borders and tap different qualities of labor and cost of labor for the same end product, is what makes a complex manufacturing supply chain system work. And that’s one of the reasons why East Asia dominates electronics, computing, and telephoning. But if you introduce a price dynamic like with energy or a security dynamic that makes that impossible, then that entire model collapses because very few of the East Asian countries have the technology to build the facilities themselves.
Peter Zeihan:
So pretty much everything that is in China or Vietnam is built by third party probably either American or Japanese or Korean. You can’t relocate that quickly. And even if you could, we only have two price points in North America. Canada and the United States on one side, Mexico on the other. And while I fully expect the Mexicans and the Americans to collaborate wildly successfully on electronics, once you start talking about computers and phones, you’re in a different world. One of the myths of semiconductors is that they all come from China. That is not true.
Peter Zeihan:
The Chinese do produce the majority of the world semiconductors by number, but by value, the United States produces the majority. The United States produces the chips that go into the phones and the servers, the Chinese produce the chips that go into that smart whisk that sings to you while you use it. Some of these are more important than others, but if in this modern day internet of things, all of that has to be moved somewhere else and it’s not going to come to the United States because the United States is too high skilled for that labor.
Peter Zeihan:
And it’s not going to go to Mexico because the Mexicans don’t have the history of large scale precision education. I don’t know where it’s going to go. More likely that entire class of low end chips, it’s just going to varnish from the market for a good long time. There are holes in the system that will not be naturally plugged. And if you want to use subsidies or industrial policy to plug them, it’s expensive. It takes time and it will never be as good as something that the market routes. I’m particularly concerned with aerospace and automotive.
Peter Zeihan:
Those chips don’t come from the United States; they don’t come from China. They come from Thailand and Malaysia. And so here are a couple of countries that are pro ish American, but also pro ish China. They’re a foot in both camps, but if the United States wants to continue having chips for those sectors, we have to find a way to make it work. Even when the Chinese are blowing up. I have not seen the policy creativity out of the last five American presidents that would suggest that we can pull that off.
Peter Zeihan:
But when I look at the Ukraine war over the last two weeks… I’m getting surprised all the time. The world is far stranger than you think.
Grant Williams:
Well, one of those surprises is here we are, you and I are both children of a similar vintage and we grew up in the nuclear age where we were at the tail end of that Cold War, but the bomb was still a thing for us growing up.
Peter Zeihan:
Yeah. I remember the duck and cover drills.
Grant Williams:
Duck and cover, there you go. But is there a realistic chance that this could actually end up in some kind of nuclear miscalculation?
Peter Zeihan:
The Ukraine war I’m not overly concerned about? I can’t say it’s a zero chance. It’s certainly the greatest chance we’ve had of a nuclear exchange since 1983, but if the Russians feel they have to resort to nukes, they know they’ve lost. And one of the great things about Putin’s generation is the KGB in the 1980s were really the only segment of Soviet society that really knew the whole picture. They were the only ones who knew what was going on.
Peter Zeihan:
And when it was apparent that the Soviet system was going to collapse, they had a discussion among themselves about whether or not they should seed the world with nukes so that the United States would have to deal with the forest of snakes. And they came to the decision that, yes, our light may be passing from this world, but we are not so driven by spite that we want to salt the fields on our way out. And Putin was part of that. Now, 25, well, 30 years later, most of these guys are dead.
Peter Zeihan:
Putin’s one of the last. The demographic crisis that has forced Russia into this position of acting now has also destroyed their leadership, there’s probably only 150 members of the Russian elite left alive at all. And so the capacity of having that conversation within Russia is gone. And it’s entirely possible that Putin being a single person who’s having conversations with himself, might go that direction. I don’t think that’s the big threat.
Peter Zeihan:
I think what the big threat is… is that if Putin can make a really good go of this war and really scare the west, I think the risk for nuclear proliferation is in places like Sweden and Finland and Germany and Poland and Romania. Countries that already have the technical capacity, who already have access to the raw materials that they need to make a nuke. Feeling that they need to do it for their own reasons in order to secure themselves. It’s hiding a part of the Cold War structures, not just in terms of globalization but also in terms of security.
Peter Zeihan:
There are a lot of countries that for a lot of reasons don’t think very highly of the United States, but one of the bigger American achievements in my opinion, is the Nuclear Nonproliferation Treaty because it convinced countries that had a vested interest in developing their own nuclear deterrent to not do it. The Swedens, the Koreas, the Taiwans. And if the line doesn’t hold in Europe, everyone who has a nuclear power reactor will probably have a nuclear weapon within five years. That’s my concern.
Peter Zeihan:
It’s bad enough when you’ve got five permanent members of the UN security council that have nukes and another seven undeclared nuclear powers or whatever the number is these days. There’s a lot more places that have the technical capacity to go down that road should they feel it’s necessary.
Grant Williams:
Well, it’s a sobering thought on which to end. I really appreciate this time. Before you go, Peter, look, there’s a couple of things I’d love you to talk to people about, one is the new book. If you could flesh that out for people. And secondly, I know that last I saw Disunited Nations was out of stock on Amazon and I know you are going to send all the royalties for sales of that book to provide medical assistance in Ukraine. So perhaps you could give both of those a plug, because I’m sure everyone listening to this that hasn’t read them already is going to be dying to pick up both your old stuff and your new stuff.
Peter Zeihan:
The fourth book is just about to come out, but the first three, The Accidental Superpower, The Absent Superpower and Disunited Nations, those are all about the rise and fall of great nations. That’s the genre. What does the world look like from a national point of view as it breaks apart and as globalization fails and the sales from all three of those books for all of March, all of April and all of May, every cent of it is going to the Afya Foundation That’s A-F-Y-A and they are providing medical assistance to Ukrainian refugees. We already have more than two million people who have fled Ukraine.
Peter Zeihan:
Half of them are in Poland, almost over 10% of them are in Moldova. Two countries that are doing everything they possibly can to assist, but they’re being stretched to the limit, so any assistance is great. The new book, The End of the World is Just the Beginning works from the same starting point as the original three, but instead of focusing on military effects and wars and nations, it instead focuses on the economics and the trade side. What does energy look like in a post-globalized system? What does manufacturing look like in the days after the fall of China?
Peter Zeihan:
What does agriculture look like after we lose those global supply chains? How does all of this remake itself in the new era? Because we’re still going to want to turn on the lights. We’re still going to want to eat. People will find a way, so it’s about how we do that.
Grant Williams:
And it is a tremendous read. I’ve been fortunate enough. You sent me a copy to read it is fantastic. And again, I can’t recommend all your work highly enough, but given what’s gone on in the last couple of weeks that I think the place that you’ve just laid out for The End of the World is Just the Beginning is right where this podcast ends. And so it’s a perfect opportunity for people to pick that up and find out why happens next. Peter, I’ll let people know how they can get hold of you on social media and website stuff. I’ll do all that for you to save you because I realize you’ve given me an awful lot of your time and I can’t tell you how much I appreciate it. Thank you.
Peter Zeihan:
It’s not a problem. And I’m sure we’re going to be doing this before long. There’s a lot of shit breaking loose right now.
Grant Williams:
I suspect we will. And I look forward to that conversation as much I did this one. Thank you so much.
Peter Zeihan:
Great. You take care.
Grant Williams:
Cheers, Peter.
Grant Williams:
Boy oh boy oh boy. So much to think about in that conversation. There’s so many dark places in the forest in which the world now finds itself and there just aren’t many shots of light, I’m afraid, but that’s the reality. And while it’s human nature to seek out the bright spots, sometimes we just have to acknowledge that a lot has to happen for the good outcome to prevail. And right now that seems unlikely. So it’s great to have Peter’s perspective and understand the pressure points and understand some of the things that can go wrong from here.
Grant Williams:
Once again, Peter’s previous books, The Absent Superpower, The Accidental Superpower and Disunited Nations are all available on Amazon. I’ve read them all. I’ve enjoyed them all. And I have found them to be just tremendous resources to which I’ve returned often. If you haven’t read them, I can’t recommend them highly enough. And with all the royalties going to the Afya Foundation for the next several months, this is the perfect time to buy copies for yourselves and your friends. They will thank you for it. And you’ll enjoy reading them.
Grant Williams:
The End of the World Is Just the Beginning will be released in early June. And again, you’re going to want to read that when that day arrives, the way to stay up to date with Peter’s thinking is to follow him on Twitter. You’ll find him @peterzeihan, Z-E-I-H-A-N or Z(ed)-E-I-H-A-N if you’re a Brit like me. You’ll find his website, zeihan.com another tremendous resource. And on that website, you can sign up for Peter’s weekly thoughts right there. It’s again, just incredibly useful information.
Grant Williams:
Since the start of the Ukraine war, Peter’s also been posting regular video updates on YouTube, which have for me, once again, become a required watching and you can find those in his channel, which is Zeihan on Geopolitics. That’s all from me, after another deeply thought provoking conversation. I’ll be back again soon with another great guest, but in the meantime, thank you so much for listening.
Grant Williams:
Nothing we discussed should be considered as investment advice. This conversation is for informational and hopefully entertainment purposes only. So while we hope you find it both informative and entertaining, please do your own research or speak to a financial advisor before putting a dime of your money into these crazy markets.
