Wednesday, May 23, 2018

Peter Zeihan on Geopolitics

 
This Is How the World Ends, Part I


by Peter Zeihan, Melissa Taylor, and Michael N. Nayebi-Oskoui
 
I like to say that I sell context. It’s all about how seemingly disparate things like age structures and trade patterns and political evolutions and technological advances interact. In any such dynamic system there are winners and losers. My concern is that the global system itself now faces a moment of truth in which the countries of the world, first and foremost the United States, will fail to rise to the occasion. Which is a nice way of saying that what I’m really seeing – what I’m really selling – is the end of the world.

This world system was put into place 70 years ago. The core of the international system during the Cold War was the Americans’ support of the global trade and security order. The Americans agreed to provide global and regional security to their allies in exchange for deference on security matters. When issues of economic import rose to prominence, the Americans tended to give way. When issues of strategic import rose to prominence, the Americans tended to get their way because that was the deal.

This arrangement froze geopolitics as previously independent countries were pulled into a massive, interconnected system because of not only America’s overwhelming economic and military power, but also the power of the alliance structure it controlled. This was such a powerful force that it even pulled in America’s enemies one-by-one and allowed them to rise, fueled on exports. In the process, the US made the global economy dependent on the relatively free flow of goods, people, and money while also alleviating the need for the large militaries that defined the first half of the 20
th Century. In other words, the US and its alliance shifted every global system that mattered for literally every country in the world.

Everyone except the US, which managed throughout this to remain isolated economically. It maintains its own military, largely produces what it needs (though it imports a lot of what it wants) and remains the largest economy in the world. With the fall of the Soviet Union and the end of the Cold War, just as the world began to truly bet their economies on the American plan, the American’s need for this incredibly expensive system faded. It’s taken the US awhile, but it finally noticed.

There is no replacement for US power, economic or military. “Europe” as a concept, China, and Russia are all in existential struggles and each of them is likely to lose. There is no alternate reserve currency. There is no one who can react to any event anywhere in the world like the US can. The Americans are leaving a power vacuum and we know what happens in power vacuums.

I’ve been speaking and writing about this approaching “end” for the better part of the past decade. One of the fun things – and incidentally, one of the things that helps keep me sane – is that it is all very abstract. I can blithely note that wars will happen, that supply chains will break down, that the lights will go out, that famine is an inevitability, but so long as the timeframes are fuzzy and the locations are over the horizon it is easy to speak and write with a degree of detachment. This doesn’t affect me, and certainly not right now.

I think/fear that I’m about to lose that insulation. The end is pretty god-damn nigh. Exactly how this plays out is still very much up in the air. The blow by blow will matter immensely in the short and even medium term. So I’m going to lay out the most recent big events that seem to be giving shape to the Disorder over the course of several newsletters. Event 1: The United States withdraws from the Iran nuclear deal (May 8)

The Obama administration did not sign the U.S. up to the nuclear deal because it thought Iran would suddenly become an upstanding member of the international community. After decades of being the region’s arbiter, the American security apparatus in specific and the American public in general wanted to get out of the region. That meant the White House needed to make a choice. 
 
Option one was to appoint a “winner.” This “winner” would patrol the region, keep the local powers in line, and in general do what the Americans had done: keep the region as stable and static as possible.

The Obama team didn’t like the candidates. Iran was out as a matter of principle. Saudi Arabia didn’t field a meaningful army, much less a navy. Israel was potent, but small, and the religious angle meant it could never lead the region. Turkey may have been capable, but it had unrelated interests in Europe and the Caucasus and the Mediterranean, and so could never concentrate its efforts on such a gangly region like the Middle East.

Even then, there was no guarantee that any “winner” would look out for American interests unless a large American military presence remained… which would defeat the point of a sustained withdrawal. And the last thing Washington wanted was to cause the emergence of a new regional hegemon that was not consistently pro-American.

That left option two: establish a regional balance of power so the region would self-regulate. This balance, ultimately, is what the nuclear deal sought to achieve: partially rehabilitate Iran, partially reintroduce it into the international system so that Iran could counter – and be countered by – the other regional players. In doing so – or so the theory goes – the region’s wars will be many, but limited.

The key selling point of the balance-of-power option was that the Middle East has so many competing centers of power that no single country would ever be able to gain a significant, long-term advantage. That would keep any of the (many) expected battles bottled up within the region. It sounds a bit cruel, but the ongoing civil wars in Syria and Yemen are good examples of the balance-of-power strategy working because those conflicts keep the region’s powers at one another’s throats.

Trump’s withdrawal from the nuclear deal does two things. First, it wrecks the balance-of-power strategy by gutting the possibilities of the region’s most active player: Iran. The resurrection of global financial sanctions on Iran will – at a minimum – halve the country’s export earnings by year’s end. This means the Americans will need a new strategy for the region. At present, the Trump administration hasn’t offered anything as to what that might be. But that is an issue for another day.

From my point of view, the second outcome of the withdrawal is far more important. The old/new sanctions on Iran uncaps what has traditionally been the Americans’ most potent economic weapon: secondary sanctions.

Secondary sanctions are not something the Americans have ever used often or liberally. They present would-be sanctions busters with a choice: do business with the sanctioned country (in this case, Iran) or do business with the United States. Since the Iranian market is roughly 1% the size of the American market, there may be a bit of whining but for most firms that’s not all that difficult a decision. And that’s before you consider the long-term demographics of the world’s major economies.

What is truly different this time around is the presence of some institutional infrastructure the Obama administration set up a few years back to force the Iranians to negotiate the nuclear deal in the first place. Via an exhausting series of bilateral negotiations, the Obama team got a good hard grip on something called SWIFT, a system for managing financial transfers between various players in the international space. They used this newfound power to apply secondary sanctions to anything that touched the U.S. dollar. Since the U.S. dollar is the only global currency of exchange (the euro position has been shrinking for years, and even the Chinese yuan has been backpedaling of late) the end result was to cut any sanctions-busters out of pretty much all international trade, even if those sanctions-busters have no direct exposure to the American market.

I think the Trump administration fully understands just how powerful of a tool it just picked up, and that tool is perfect for the job of pretty much everything else on the administration’s international agenda.

 
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 Up next: Europe Guts Itself.
 

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