The New Old World
The modern world forgot it was built on aircraft carriers keeping global trade safe
Dubai waterfront, 1950s
Recently reread Disunited Nations by Peter Zeihan.
Not everyone will agree with his geopolitical conclusions, for example he thinks China is much less a rising power and more of a faltering one, so most bankers, investors, and businessmen who have grown wealthy in the last seven decades of globalism and have a vested interest in it not falling apart probably aren’t fans.
It isn’t often an analyst’s opinions line up well with my own first hand experience overseas, but Mr. Zeihan’s do.
His weekly writings on geopolitics is one of the few I read.
Mr. Zeihan’s central theme is the first global order, established by the United States in 1944 to confront the Soviets, is coming to a close, and the new world is going to look a lot like the old one before 1944 where countries competed with each other and had spheres of regional influence.
More than a few find this doubtful, and I get it.
If I had lived my entire life under seven decades of prosperity, never been to war, was wealthy, old, out of shape, and sitting in a heated seat at Davos, I wouldn’t be thrilled about the world order changing either.
But thinking it won’t change is denying 5,000 years of human history and goes counter to my own experience of anti-piracy operations in the Strait of Malacca, searching vessels in the Persian Gulf for contraband oil, building natural gas plants in Qatar, providing security for counting refugees in Sudan, and being schooled in the similarities of Alexander the Great’s geopolitical strategy to the US’s by village elders over tea in Afghanistan.
Almost everyone alive today doesn’t remember a world before 1944 where countries had their own spheres of trading influence.
Today, as the major economies of the world are the most leveraged they have ever been and need the global system of trade across oceans to continue to work perfectly more than ever before, the world’s only superpower is now energy independent and their deciding voting block will change from issues that matter to a 70 year old Baby Boomer to one of a 35 year old millennial in the next 4-8 years.
The world is changing, and most people don’t realize it.
Beginning With A Poetic End
Remember when the US smoked Soleimani with a hellfire in January 2020?
GenZ was making World War III TikTok vids using the Avengers like they were walking into a recruiting station for going to war with Iran, and what did oil do?
Nothing.
Instead of going higher with a significant chance of increased instability in the middle east, West Texas Intermediate started trading down.
Even after the US and Iran started shooting rockets at each other and the US steamed two carrier strike groups into the Persian Gulf for the first time in seven years, all oil did was continue to slide downwards, eventually hitting negative numbers where futures traders were actually paying people $37/barrel to take physical delivery in Cushing, OK because they were out of storage space for all the oil they were pumping and couldn’t use.
Smoking Soleimani stood out as a significant shift in not just foreign policy but also demonstrated that the United States was in fact energy independent and the oil market agreed.
World War III incoming? Oil didn’t even break $66/barrel initially, then slid negative once the pandemic hit.
This wasn’t the first time the US market didn’t care about the middle east anymore.
Lets go back to September 2019 when Houthi rebels successfully executed a drone attack on the world’s largest oil refinery in Saudi Arabia taking more oil processing capacity offline with flying robots in one night than the allies took offline during the entirety of World War II.
The US oil market’s reaction? Oil didn’t even reach $64/barrel.
In hindsight with the strike on Soleimani, most my buddies who all work overseas and I think it was less about sending a message to Iran as it was to other middle eastern countries.
The message?
The United States no longer cares what happens in the middle east, you are not needed for economic stability, so you better find new allies.
The US could have easily shot Soleimani’s plane down if taking him off the conflict chessboard was the only driving factor without publicly stoking tensions and let the Iranians save face internationally by saying their general’s plane had gone down to mechanical difficulty.
But the United States didn’t do that.
They very publicly turned Soleimani into a grease spot on Route Irish with a hellfire.
For a lot of us veterans, it was a poetic end.
More than a few US and Allied forces met their end from IEDs either built by his Quds force or by dudes they trained back in the day on that same road, so for the story of Soleimani to end there, was a good death.
On the foreign policy side, Iran’s response proved the truth of the situation.
Firing rockets at pre-warned bases so as not to escalate showed stability in the region was by far more important to Iran than it was to the United States.
Fast forward ten months and what is happening? Peace between Israel, Bahrain, and UAE, with Saudi Arabia not be far behind.
After all, 300-lb Arabs across the peninsula who don’t even get out of their land cruisers to walk into a KFC to get takeaway chicken and live their lives reclined on a gold gilded couch with air conditioners mounted on the wall blasting cold at 18C while it is 45C outside and domestic help that is one step above economic slavery does everything for them, all paid with oil proceeds, are truly only concerned with one thing: maintaining their current lifestyle.
The only thing more terrifying to Saudis than the US being energy independent and not being forced to defend them for economic stability is the thought of their next visit to the cardiologist.
House of Saud cannot even fight type 2 diabetes, much less a military threat. Iran would walk all over them. Turkey wouldn’t even notice them under their tank treads.
So the Saudi’s won’t be far behind in running to the Israelis for protection.
Sure they may not have liked Israel since 1947, but they have hated Iran since the 8th century, and they stole Mecca from the Turks in 1914, so if they want to keep their holy sites and oil, they’ll shake hands with Netanyahu, say mazel tov, and pretend like the Palestinians never existed.
No one does enemy of my enemy alliances like House of Saud.
But that is just the start of the changes happening around the world.
The upcoming US election brings into clarity how the US electorate is also changing and most seem unaware the drastic effect that will have for the world, which means there are risks most people aren’t accounting for since they don’t see them.
In another four years, eight at the most, the issues which will decide US elections skips a generation. No longer will Baby Boomers decide what is important, and it will never be Generation X, the role of the only superpower will be decided by a 40 year old Millennial that doesn’t even remember the Berlin Wall, doesn’t understand the vastness of the ocean their $1,000 iPhone has to cross to reach them, and is more concerned about not being able to pay off their student loans while feeling they lost the American generational lottery getting stuck with the Great Financial Crisis, the Wuhan Flu, and housing prices that are out of sight because oh yeah, the 40-year bull market in bonds is over because the Fed has interest rates pegged to zero to protect Baby Boomers.
Sorry.
While the US is turning further inward along generational issues, everywhere else in the world, along the geopolitical fault lines of the globe, regional powers are emerging from their 70 year slumber under US hegemony, forced to by the realization the US no longer needs to maintain global stability for its own economic might.
The US is not only energy independent, but will be the largest exporter of natural gas to the world in 2024 and its only military rival, the USSR, died thirty years ago.
Sorry, but modern Russia is not a threat to the US, no matter how much Baby Boomer politicians want to relive the bad old days of the 1980s.
Look at the picture of Dubai from 1954, then think of the skyscrapers that grew out of the desert during 70 years of American hegemony and think of what is at stake for regional powers in a world where the United States is energy independent and doesn’t need to defend anyone anymore.
By the way, highly recommend the afternoon tea at the Burj Al Arab next time you are in Dubai with the wife or girlfriend.
Wear at least a jacket, the ladies get to dress up, and enjoy the panoramic views, five course tea, and wonder what the poor people are doing.
This wealth didn’t just happen on its own in Dubai. It was built under the protection of a globe spanning military with 11 aircraft carrier strike groups patrolling the world’s oceans and the promise that at anytime, anywhere in the world, Americans would fight anyone who interfered with the free flow of oil, the black gold which global stability and wealth for an industrialized world is built on.
How goes the flow of oil so went the future of nations and city states which have industrialized since World War II.
The entire world industrialized, populations boomed, cities grew out of the desert, and wealth previously unimagined was built.
And the world forgot why it all happened.
Eleven aircraft carrier strike groups, providing global trade security overwatch every day, on every ocean of the world, all flying the stars and stripes.
There is literally no one else that can do what the US does for securing global shipping stability, few seem to realize it, and even fewer that the US doesn’t need to continue doing so anymore for their own economic security.
US Aircraft Carrier Strike Groups Are Not Ubers
Ask someone what a carrier strike group is, how many there are, what Fleets have geographic responsibility, how global logistics works to maintain constant force projection capability, where the straits are that naturally restrict shipping and percent of world oil supply that transits those straits and to whom, and most have no idea.
Just like most people don’t care how the Uber app was built.
They just want to be able to push a button on their phone and have an uber show up in five minutes.
The problem is everyone in the world of government, business, and markets treats the presence of a US carrier strike group, with more firepower than most countries navies like an uber to just be ordered when they have a problem.
Leaders around the world have been so spoiled they have forgotten who ensures the flow of oil and global trade on the oceans.
You can tell in how they talk about China being a rising superpower.
The underlying assumption being that freedom of navigation on the oceans is a universal right that just naturally happens amongst nations instead of being enforced by a US carrier strike group sailing through the Strait of Malacca.
But the world is changing.
The Bahrain and UAE peace deal with Israel was just the start.
Turkey, with one of the largest armies in NATO is starting to channel that Ottoman Empire energy by challenging everyone (Greece, Cyprus, Israel, Lebanon, France, and Egypt) for control of the eastern Mediterranean and the Aphrodite natural gas fields while also countering Russian efforts in Syria and north Africa.
When did that start?
When the US stepped back from the middle east and said no thanks to Syria.
Sure there are some teams there, but nothing like the deployments to Iraq and Afghanistan, never will be, and for the most part the US electorate shrugged about it, put the Wall Street Journal back on the newspaper rack, picked up their triple shot latte when their name was called at Starbucks, and went about their day not caring.
Turkey saw that and have since been learning to project power again.
People who think the United States stepping back in the middle east provided Russia with an opening in Syria are getting it totally wrong.
Before Turkey, the Ottomans were a powerful Empire.
Russia has a problem, they really can’t control their own borders, the geography is horrible now after the Iron Curtain fell apart.
Russia is in Syria trying to make Turkey own it to limit Turkish expansion into other areas, like the Balkans.
Russia would honestly love nothing more than the United States to still be involved in the middle east, because then they wouldn’t be there and would have the reserve to counter Turkish expansion in other spheres, which they don’t, so they are trying to make Turkey own Syria, which so far hasn’t worked.
But the two are dancing, with the geopolitical game extending even to Libya because the other component of this is Turkey imports energy from Russia.
Why is Russia trying to thwart Turkish influence in the mediterranean and northern Africa?
It keeps Turkey dependent on Russian energy imports giving Moscow leverage over Ankara, so in order to prevent that leverage from going away, Russian forces are in tan fatigues in Libya trying to counter Turkish objectives.
No doubt Putin would love the US to come back out and play so he could walk for a minute and get his free leverage back.
Levels to this game.
Meanwhile China seems perfectly content to challenge every neighbor they have over border disputes all at the same time to keep the Indian Navy off balance so it doesn’t interfere with security for oil shipments.
China only exist as the country the world knows today and the CCP only exists as a political entity because the United States makes sure India and Japan doesn’t play a game of Battleship with their oil shipments in the Indian Ocean.
Separately these issues may not seem related but they most definitely are.
They are regional powers realizing the US is increasingly inward focused, and are now competing for geopolitical leverage and resources since they no longer can count on the US having any interest in maintaining the global order to make sure everyone plays nice and gets their slice of resources all industrialized nations need.
Last Stand of the Baby Boomers
Geopolitics has a way of moving at glacier speed then all at once.
This Presidential election will be one of the last the Baby Boomers decide, if not the last, and when that happens, things will shift suddenly and everyone will scream what happened, despite it just being math and obvious from a long ways off.
Within 4-8 years the issues important to the largest voting block of the world’s only superpower will swing from a 70 year old Baby Boomer with a paid off mortgage who remembers doing duck and cover drills in elementary school to a 34 year old Millennial who lives in an apartment because he can’t afford a $500k house, thinks spandex being woven into men’s jeans is brilliant (it is - no more squats in dressing rooms to test the fit), and gets $75 haircuts and beard trims next to the Pilates studio because it’s great for daygame with women.
This is not about left or right, this is about a massive generational gap in global events that shaped our reality and bank account balances.
Think of it this way, Generation X will soon be the last generation that remembers the Berlin Wall being in place, hearing a US President describe America and it’s allies as the Free World standing against the communist threat behind the Iron Curtain, and truly understood it.
They saw East Germans leave everything and flee to the west, freedom, and capitalism for a better life.
Generation X may not have been able to articulate exactly what the global order was, but at least they clearly knew it was better than the alternative of communism.
As a generation, they provide continuity between the Baby Boomers and the Millennials. The bridge between fighting the spread of communism and cellphones, but since there are so few of them, they will get skipped on issues as politicians go immediately to the largest block of voters and the issues they care about.
Millennials.
This isn’t talked about much right now in America, because the Baby Boomers are currently having their last hoorah in politics this election cycle.
Just look at the hot topic issues.
Supreme Court Justice nominee, Russian collusion, Countering Iran in Syria, fighting China as the 21st century superpower, and QE Infinity to protect the stock market.
All of those issues are Baby Boomer issues.
Supreme Court? None of my friends and I were even alive for Roe Vs. Wade, and couldn’t care less, doesn’t affect our daily lives, and we’re all tired of hearing the question, watching Boomers hate each other over it, and decide their politics for the entire world off of it, to the point even SkyNews in Australia is covering it.
Russia Collusion? What, are boomers still having flashbacks of doing nuclear fallout drills under their desk at school? Tuning in to hear what President Kennedy is doing with the Cuban Missile Crisis while they help their Dad build a fallout shelter in the backyard? Hey man it’s ok, the soviets have been gone for thirty years, you have the McDonald’s dividends in your brokerage account to prove it when they opened a new restaurant on every corner of eastern Europe starting in 1991.
Countering Iran? We just have to tune into the nightly news to get an update on the Hostage Crisis on day 378 and whatever they are doing, we need to do the opposite, because Hezbollah just bombed the Marines in Lebanon. Fellas, it is ok, you just very publicly assasinated a high ranking general and they unequivocally capitulated in their response showing they need stability more than you do, what else do you want? Do you even understand how psychotic the Israel and Saudi Arabia alliance is going to be to the Persians?
The House of Saud, through a cruel twist in cosmic fate controls the world’s largest oil supply and have a trillion dollar sovereign wealth fund which they use to train and equip terrorists groups that they turn lose against their enemies with no remorse or thoughts of consequences. That foreign policy is now paired with Israel, who’s foreign policy doctrine is “never again” so they strike first and hardest.
That isn’t an alliance geared for world peace, and when US politicians and the media stupidly talk about reinstating the Iranian deal, all they are doing is reaffirming the mutual psychosis Israel and Saudi Arabia have towards Iran.
China? Your Dad explain Nixon just got a new ally against Soviet Russia and now China has exploded as a world power over the last 50 years and you’re worried about their destroyers which can’t operated outside the bathtub of the South China Sea without help overtaking the USS Ronald Reagan strike group?
Hey, news flash, the only reason an industrialized China exists is because the United States allows it to exist. Cut their flow of oil for a week and the CCP would fold like a cheap lawn chair. You have them so scared of competing against the US Navy in deep water not only are they building manmade islands, they are building a new silk road so they never have to sail another oil tanker past India again and can stop depending on the US Navy to protect them in the ocean. All they feel is shame having to hold onto the US Navy’s pocket to sail past India and Japan safely while fund managers say they are the new superpower on CNBC.
Just whispering “Strait of Malacca” into the ears of CCP Politburo members at night is enough to wake them up screaming in terror as they desperately ask if it has been blockaded and how long they have before millions of Chinese storm their house to kill them.
QE Infinity? Boomers happened to catch the best 30 years of prosperity in the history of human civilization, won the lottery being born in the victorious superpower that won the three global conflicts in the 20th century, and are now wealthy with the last of good pensions. Just have to keep the market up until we cross the finish line into retirement with our treasure and make sure whoever is the next President (notice they are both Boomers past 70, reflecting the deciding demographic) knows his number one job is keeping the S&P flying. Market cannot crash before they all retire, so keep those interest rates low and printing press humming Chairman Powell.
All these issues are just echos of events that happened decades ago when Boomers were in their prime and they’re desperately trying to hold onto 1980 in 2020.
They honestly don’t understand why the world is moving away from the global order that has made life so good for them and cannot understand why millennials could care less about it falling apart.
Imagine the shock to the global system when the deciding voter in American elections aren’t concerned about issues like Iran (what are they going to do? Swim to America?) but instead are more concerned about paying off student loans, the interest rate curve being artificially suppressed by the Fed preventing them to save while at the same time they are seeing food prices go up at Trader Joe’s, or not being able to buy a house because there isn’t enough new housing being built and they are competing with Baby Boomers who are downsizing and outbidding them while trying to sell millennials their old house they bought for $39,000 in 1980 for $795,000 thanks to riding a 40 year bond market from 15.0% interest on the 10-yr treasury bond to 0.68% today.
Those are the issues by far affecting most other young people I know who are trying to get ahead, build a life, and start families.
And it doesn’t matter if they are a bearded, tattooed veteran of four war tours or a recently graduated nursing student who is downtown protesting.
That is how it isn’t left or right, it is generational.
It is really hard to care about things half a world away when you can’t even afford to move out of your apartment, much less pay off the $100k in student loan debt.
None of this is a surprise if you are a millennial or GenZ, but try explaining to your parents how after almost two decades of war, the worst economic jobs market since the Great Depression, seeing their parents generation give themselves bailouts that priced them out of the housing market, then be decimated again by a pandemic why you don’t have much trust in institutions or interest in things going on half a world away.
When you are not where you want to be financially, sure you feel bad for others with worse problems overseas, but that doesn’t mean you’re enlisting to go build tank traps on the beach with the Taiwanese Marines and hunkering down behind your 240 ready to repel the first wave of the People’s Army to come ashore and asking who has a can of long cut copenhagen they want to sell.
Now, what the US might do is turn a blind eye if the Japanese want to hoist that rising sun, channel some of that 500 year history of raiding China at will, and get some of that slow moving oil that is just out there for free coming out the west side of the Malacca Strait and turning north.
Give Beijing something closer at home like a deficit in energy imports to worry about instead of planning an amphibious assault on the democracy providing refuge to Hong Kongers who weren’t down for being good communists.
US might not see that happen, the ocean is a big place.
Just like Germany ignores the Saudi led blockade of Yemen and the worst cholera outbreak in human history because they depend on Saudi oil getting to China so they can keep those German exports flowing to China.
Everyone talks about the amount of trade between US and China.
In dollar terms, trade between China and US is the largest, but as percentage of GDP, Germany is overall higher, and when looking at exports to China, which the German economy is an export based economy, their exports to China is +350% higher than the US.
Europe may get most their energy from Russia, but when it comes to exports, Germany does whatever is needed to ensure nothing happens to China’s oil shipments so their own export economy is stable.
So when the pendulum swings in the coming years as the issues which are deciding factors suddenly fast forward from 1980 to 2024 or 2028, and regional powers suddenly become unfrozen from 1944, most in the world will not be ready for what it means for them or their economies.
Not only will the USS Uber battle group all of a sudden not provide service to their area, but new ways to apply pressure will be available for an energy independent America to apply on countries that previously depended on the US maintaining order.
The Game of Global Risk
With the world’s economies deeper in debt as a percentage of their economic output than the United States (with the exception of UK), anything that happens in the future which leads to affecting global shipping stability will likely impact other economies before the United States.
Sure being leveraged up like the US is isn’t healthy, but Japan, European Union, and China have a lot more to lose while also being the ones who really can’t afford any economic disruption in global trade, especially all being net importers of oil.
So what happens when/if there is another shock to the global economy and oil is interrupted, businesses cannot make things, then their companies cannot pay their record high debt payments?
Companies lay off workers, ask the government for another bailout to save them from their delinquent debt payments, while the laid off workers also want government assistance or they will vote their elected officials out of office.
So now in addition to all of the above with changing demographics, we now get to add in fiscal policy, meaning governments are going to spend even more massive amounts of money to maintain social stability.
They have no other choice.
I have worked places where people wake up to 100% inflation overnight on Saturday morning, social unrest turns to widespread systemic unrest as army units defect, milita units are called in and start shooting people in the face who are just angry they’ve been sleeping in their cars for four days waiting for gasoline to arrive at the gas station, warring factions in the streets, and then all of a sudden the President is pulled out of his palace by hundreds of thousands of people and the army.
People who don’t think social unrest can spread to systemic risk in the west don’t have experience with real violence.
They think it is edgy and cool to call for violence on twitter and never think it could actually come to their home.
Anyone who has seen instability and conflict is under no illusions.
Neither are politicians.
History is resplendent with examples of how quickly people give up freedom for food and safety.
Politicians will print as much money as they can to give populations what they want so they stay relatively happy.
Will there continue to be social unrest? Of course.
But the goal of elected officials is to keep populations at the point where the mental math still says it is better to be miserable under the current system than risk complete systemic unrest.
That is the math politicians and central bankers do.
Not whether printing massive amounts of money are going to drive people into poverty.
They don’t care about that, and being angry about it does zero good, you are missing the bigger picture.
The only math that matters is keeping the system together more or less to avoid systemic risk.
If they have to run the country into debt, shutdown oil exports, have the inflation rate go to 10%, give everyone individual accounts at the Federal Reserve with a gold debit card, none of that matters.
The only math that matters for politicians and bankers is avoiding social unrest turning to systemic risk that leads to them, their power, and wealth being unsafe.
Now, if you are in America, that math isn’t awful. Sure it isn’t ideal, but like the cowboys say, you have to dance with the girl you brought.
You have the largest military in the world, are energy independent, still have the rule of law, and can buy physical gold, crypto, property, or any other investment you want and not have to worry about it being seized.
That’s a lot to be thankful for.
There are billions of people who would trade places with you.
If you are anywhere else in the world but America, leaders in government and business will have to make decisions on what to do in a world where the changing American demographic doesn’t care about re-enlisting to go defend Saudi Arabia, but instead would like to buy a house and get married.
Is this years away? Yeah probably, but we’re already seeing signs of the changes and the best time to be thinking about things is when most others aren’t.
However this game of global risk plays out, no way most people are understanding the changes that are taking place around them as the new world becomes old again.
See you out there, Radigan