MAGGIE LAKE: Hello, welcome to the Real Vision Daily Briefing. It's Friday, March 4th, 2022. I'm Maggie Lake here with Peter Zeihan, political strategist, and founder of Zeihan on Politics. Peter is also the author of the new book, The End of the World is Just the Beginning, Mapping the Collapse of Globalization. Peter, welcome. Congrats on the new book and how timely, we were just commenting that it could be the caption for this week. That's how it feels.

PETER ZEIHAN: Yeah, and we're just getting started on this particular circus. There's a lot more coming just around the corner.

MAGGIE LAKE: Which is ominous. Very quickly, the market certainly sense that, I think, although very hard to game out what's happening and we see US equities, which just closed down across the board, although it does look like they're going to close off their worst levels of the day, we have the US Treasury around 1.73%, really caught between these Ukraine headlines and what was a really strong job report in an anticipation that might keep the Fed on track.

Gold's up 2%. Again, benefiting from that safe haven. Cryptocurrency is interestingly down between 5% and 6% today. Peter, this is actually the fourth, I believe, book in a series that you have written supporting your thesis that the current world order is changing, and that we're entering a maybe a new, more chaotic period. Before we jump into specifics, can you give us an overview of your thinking?

PETER ZEIHAN: Of course. Until World War II, geography was what determined economic success. You had to have access to certain points, you had to fortify your borders in certain ways, like behind mountains. In the case of Russia, specifically, they've got nine gateways to their territories, and they've been invaded through them 50 times. What Putin is trying to do right now is plug the gateways. Two of them, unfortunately, are on the other side of Ukraine.

Now, when World War II ended, the United States told everyone that geography no longer exists. going to protect everyone, we're going to allow for trade among everyone, and that is what gave us free trade in the world that we know. But we did that to buy up an alliance to fight the Cold War, the Cold War ended 30 years ago, we've been edging away ever since. And in the last eight presidential elections, we voted for the guy who wanted to move away from free trade and globalization.

The exception, of course, is this last one where there was not a pro free trader running. That's piece one. Piece two is demography. Everything that you do is determined by your age. When you're 20 years and your 30s, you're having kids. When you're in 50s, you're saving for retirement. Well, the whole world has aged as we urbanized and industrialized under globalization.

Well, 70 years on, we now have a number of countries Russia included that has more people in their 60s, in their 50s, in their 40s, min their 30s, in their teens. The return to geography explains the why of what Russia is doing. And its collapsing demography explains the why now. they don't do it now, they'll never be able to.

MAGGIE LAKE: Yeah, but closing off their borders, where was the threat of invasion? Who was invading?

PETER ZEIHAN: Today, there isn't one. But like I said, they've been invaded 50 times. And they know if they don't plug those gaps, now, they will lack the military to do it in the future. They're just preparing for the next major configuration, because they know next time, they won't be able to fight a general war.

MAGGIE LAKE: So, you reject the idea that this is some delusional idea of Putin's for loss grand jury, you think he's making a calculated decision that they're vulnerable?

PETER ZEIHAN: Calculated decision and all the rhetoric that he has used in the last week he has used before, it's just been a while. He had some rather colorful things to say about the Chechens when he first became president back in the early 2000s.

MAGGIE LAKE: The Russia thinking around this aside, you're already have the idea that globalization, the era of globalization was over, that this era of free trade globalization, maybe even this peace dividend, if you can call that, certainly it doesn't feel like that if you're sitting in a war zone, somewhere in there have been, but this world war embroiled idea of conflict. We haven't had that in a while, but you feel like that's ending. Does this episode change anything or accelerate anything for you?

PETER ZEIHAN: Actually, in my second book, The Absence of Superpower, there's a whole chapter called The Twilight War on Russia doing exactly this as well as the next five countries that he's going to invade, which I think we can look forward to later this year.

MAGGIE LAKE: So, you don't think this will stop at Ukraine?

PETER ZEIHAN: No, absolutely now. He's not going to stop until he plugs all nine of the gateways. And even if he secures Ukraine totally, he still needs to move further. Moldova, Romania, Poland, Estonia, Latvia, Lithuania, he'll need parts or all of them.

MAGGIE LAKE: Does that seem like an achievable goal, given the performance we've seen of his military and the fact that sanctions are now tightening around him?

PETER ZEIHAN: Well, let's start with the military. We're on day eight. Nobody expected Ukraine to fall within a month. They did what they call some thunder runs, thinking they might get lucky on Kyiv, that failed. They're now fighting this Russian style with heavy artillery until the city is leveled. They're going to do that over and over again. It's going to take them over a month, probably no more than six though, then there'll be an insurgency, the Russians know how to deal with that as well.

From the Russian point of view, sure, this hasn't been all sunshine and chocolate, but it's par for the course for how they fight wars. The sanctions did surprise him. The sanctions surprised me, I think the sanctions have surprised everyone. I don't think anyone thought the Europeans were going to get this stuff back so quickly. And he was certainly thinking that he was going to have more time and more flexibility. And I don't mean to suggest he's done.

If you look at the pipeline infrastructure, going from Russia to Europe, there are a couple of undersea pipelines that no one can disrupt that you don't have to get insurance from, you don't have to worry about a shipper or Ukrainian sapper, they're going to be the last ones to go. And the only way they'll go is if the Turks and the Germans directly sanction those projects. That's the only weak point they have.

We're going to be moving into an era here within a month, where the Russians can directly and accurately go to Berlin and go to Ankara and say, look, we can leave the lights on for you, but everyone else is screwed. There's a price of course. And that's making sure that NATO can't function.

MAGGIE LAKE: Yeah. By the way, we've got some fantastic questions coming in, and I am going to get to them. It's so hard to, I think, to make investment decisions in this situation. But there are people that are going to have to. Real Vision co-founder Raoul Pal was tweeting today, and I think he really summed up some of the seismic shifts that are rippling through markets that people are trying to assign some probability to. If we can pull the first one up, he had a Twitter thread, I'm sure many of our viewers saw it, but for those who didn't.

The first one he said is the massive rise in food and energy prices have caused enormous tightening of financial conditions along with the liquidity issues of deplatforming Russia. The 2/10 swap curve is at 15 basis points, and we'll hit zero soon showing how tight conditions really are. Raoul believes that a global recession is now likely, he goes on to say we're not going to put all the tweets up, we're just going to grab a couple. Peter, do you agree with that assessment based on--

PETER ZEIHAN: Global recession is in the bag at this point, we're going to lose 5 million barrels per day of Europe's crude within the next few weeks, and somewhere between five and 10 BCF of natural gas going to Europe. We're going to have a food crisis by the fourth quarter because the world's largest wheat exporter just invaded the fifth largest one, there isn't going to be any planting season in Ukraine this year. We have a phosphate fertilizer shortage because of what's going on in China because of natural gas prices.

We now have a global nitrogen fertilizer shortage. And Russia and Belarus combined are the world's largest potash producers. A lot of farmers the world over are not going to use fertilizer this year, so we'll have a collapse in yields. That is how a famine begins. Global wheat stores are less than five weeks of usage.

MAGGIE LAKE: Which is just haunting that we're talking about a famine which just two weeks ago, I think was unthinkable to people especially in this region. Commodities have been, they've seen the biggest move, it's the speed in which this is happening. They've seen one of the biggest moves on record. This conflict is happening on top of it, as many have pointed out on the Real Vision platform this week, on top of a very stressed macro environment, commodities that were already strained and surging and facing supply issues. Dee Smith and Jacob Shapiro were talking about that and like you, expressing particular concern about food supplies. Let's listen to the conversation they have, a clip from that.

JACOB SHAPIRO: If we're going on here for more than four to eight weeks of this conflict, I guess it really depends how the conflict goes. All of Ukraine's commercial ports are still closed. I believe it's been six or seven days now that they've been closed.

As far as I know also, Russia has not been letting commercial traffic in and out of the Black Sea. The Turks say they've closed the Bosphorus to military ships. I don't know if that means commercial ships as well, but I know from some of the clients and partners that I talked to that it's very, very difficult to get ships right now, and certainly in and out of the Black Sea. And that's so important, because to your point, 50% of Russia's exports go out through the Black Sea, 90% of their agricultural exports go out through the Black Sea.

And not to go to doom and gloom, but let's say we are at four weeks from now into this conflict, that's exactly when the planting season is supposed to begin for the next cycle of crops. If Ukrainian farmers are not able to sow their barley and their corn and their sunflower and their wheat here, at the end of March, early April, not only then are we dealing with logistical disruptions that could theoretically be solved if there was some arrangement or even if the war still going on, but they allow safe passage to just commercial vessels.

But if you get to April, and Ukrainian farmers can't get to their crops, now we're talking about when you come to July and August, you're actually talking about a shortage of supply in the market itself. And that'll hurt in western economies, obviously, like we'll pay higher prices at restaurants and at the grocery store. But for countries like Turkey, or Egypt, or Saudi Arabia or Nigeria, that depend on Russia and Ukraine for these wheat imports, that's the sort of stuff that sets off a political revolution, the Arab Spring was born in that high food price thing, and I haven't even talked about energy prices yet.

Because if let's say you don't get the Iran nuclear deal, the civil war in Libya kicks off, and then nobody wants to buy Russian oil, is there an upper limit on how high oil can get? We haven't been in a situation like that, at least in 1973. And maybe that wasn't even the perfect analogy. When you put it all together, if we're talking about multiple weeks here, not only we're looking at hyperinflation, I think we're probably looking at a pretty severe recession brought on by how high energy prices.

MAGGIE LAKE: And that full interview is on our website, out today on our website for Essential Plus and Pro tiers. Peter, I want to pick up on that. And that's why I wanted to play it because I think Jacob brings a really interesting point about not just higher prices, but this idea of shortages and shortages in places where it can't be absorbed, where it can turn to really serious social unrest, political issues. Marvin on The Exchange is asking what the potential for food riots as the first part of his question. He doesn't specify where, but can you pick up on that? How do you see this playing out?

PETER ZEIHAN: Conservatively, between what's going on in Russia and Ukraine, and what's going on the fertilizer markets, the price of wheat between now and the end of year is going to quadruple. The reference that Jacob made about what happened in the Middle East was when in one region, it tripled. We're talking about global quadrupling, and the places that are more exposed to these producers will be significantly worse.

Yes, some degree of political unrest that is significantly worse than anything that we've seen with the Arab Spring is baked in now for the entirety of the Middle East. I'd also be a little bit worried about the India and Pakistan. I'm horrified about what's going to happen in China, because China is facing a complete food cycle collapse because of the combination of African swine flu and now what's happening with the Russians.

MAGGIE LAKE: Okay, say more about that, a complete food cycle crash, is that what you said?

PETER ZEIHAN: Three years ago, the Chinese were infected with African swine fever, and they ended up killing, culling more of their hogs than the world's commercial farms have. They're now trying to rebuild it. But almost all the people who came in to rebuild have no experience in farming, and they have never gotten rid of African swine fever. When you want to build up a herd of hogs that are in the tens of the millions, there isn't enough fodder.

What the Chinese have been doing is buying food from everywhere, even things that are wildly inappropriate, not just corn from Iowa, but broken rice from India, and even food grade wheat, like croissant grade wheat from France, anything they can find. That's what's drawn everything down. And it's all going to be wasted because they never got rid of the disease in the first place. The Chinese have decided that all that is left, the only thing they can guarantee is rice.

They've pulled all the phosphate off the market, phosphate that the rest of the world needs for other fertilizer. We're going on to a mono food system and the world's single largest population with an economy that is dependent upon globalization, globalization is going away. There's no way this ends well for the Chinese.

MAGGIE LAKE: Wow, that's a big statement. This is essentially a controlled economy. They have one would argue more levers to pull than other areas in the world because they control every aspect of the economy. Is there no way they can cushion this, and is this a political risk?

PETER ZEIHAN: It's absolutely a political risk and I'm not sure that they do have the tools anymore. They might have them on paper, they might actually have the policies in place. They may even have the infrastructure. But one of the things we've learned about Xi in the last year is he's become so paranoid and insular, and he's literally shot the messenger so many times that no one wants to bring him bad news. I think the best example of that manifesting as policy is the power outages that started last May.

Best guess, he didn't find out about them until September. We didn't get our first real policy to deal with them until two weeks ago. And if you've got a one-man shop, a cult of personality, and the bureaucrats are afraid to bring clashing policy priorities back to the boss, the whole thing breaks down. We're certainly seeing that with their COVID policy. And of course, it doesn't help that the vaccine doesn't really work.

MAGGIE LAKE: Talk about a destabilizing factor for the global economy. Can we imagine what the financial implications are from that?

PETER ZEIHAN: Finance is not my bailiwick, but I can hit it from the resource side, no problem.

MAGGIE LAKE: Yeah. Give me anything you got, Peter.

PETER ZEIHAN: Right now, what's going on in the Black Sea and in the Baltic Sea with Russian crude is we're not dealing with the sanctions situation. What we're dealing with is whenever a country shoots at civilian shipping, as Russia has done, every maritime indemnity insurance for every vessel is null and void. Today's vessels have to vacate. We have seen probably three, three and a half million barrels of Urals crude a day for the last three days just not to get picked up.

It's not a boycott. It's not sanctions. It's insurance companies and shippers and ship captains just refusing to go there at all. And as long as this is a hot war, this is where it's going to be. You should take any crude that was coming out of Primorsky, near Petersburg, or overseas on the Black Sea, and just write it off. The same thing is happening for the [?] project on the Caspian and Kazakhstan, not because the Kazaks have joined sites here, but all that crude goes to [?] as well, no one's picking it up so it's all backing up in the pipelines.

The Russians only have 80 million barrels of storage. At current rates, you're talking to less than two months before they have to start shutting in production. The last time they shut in production, it took them 30 years to bring it back online. We're not talking here about Urals going away for a week or a month, we're talking years. Taking the single largest crude grade in the world, and just removing it. A 5% drop, we haven't seen that in relative terms since World War II.

And if you are in Europe, and you were the primary user of Urals, you now have to get crude somewhere else. The next best bet for them is West Africa, because they're all former colonies, and there's a security and political and economic relationship. They can do that, they can pull that off. But that means none of it's going to China. China is a last man in the kick claim here for all the resources disruptions that are happening, all the energy disruptions, all the food disruptions. They gave Russia, from Russia's point of view, a blank cheque, and now they're having to cash it and it is not going to end well.

MAGGIE LAKE: I have so many questions, we're going to try to get to them, and many of them related. Think thank you for sending these in and keep them coming, I'll get through as many as I can. CC asking on our site, what are your thoughts about buying-- and I know you're not going to respond on a buy or a sell