I feel like companies over certain size needs to have live support to pester.
I had my youtube premium (back when it was red) banned for violating community guidelines - impossible since account was only used for viewing videos. Appeals got auto rejected... can only repeal every few weeks... oh at time account ban = cannot access accounts page so they kept charging for months while I appealed. Had to cancel credit card.
For reference I also had wechat account blocked in PRC... and show how got to talk to a human being and sort it out within a few business days.
Eventually youtube account restored... 2 YEARS LATER, OUT OF NOWHERE. I think maybe I posted on youtube google groups and someone eventually got to it, but who the hell knows.
Think about all the "people" AI services can displace in due time. There's a fuckload of pencil pushers / knowledge workers with 100k student loans whose lifetime contribution can probably be measured in a few hundred dollars in tokens. And TBH normalizing AI crutch for kids is going to make large % of future cohorts even more replaceable. Skill atrophy among youth is declining hard, but AI is basically crippling future workforce quality to make their displacement even easier. There's even less reason to hire entry level in 4 years not just because models get better but human capita is going to be so much worse.
Hosting US assets actively being used in war vs Iran = being active co-belligerents. Host countries no longer neutral when they don't adhere to duty of abstention (Hague Convention V). This not even Iran using deniable proxies, this is Qatar allowing sovereign territory to facilitate attack on Iran, which unambiguously makes them legitimate target. Ditto with Diego Garcia.
In the same way railway in RU already legitimate target for UKR because in RU soil. If EU sending out sorties from NATO bases to hit RU then they too would be active belligerents. There's no compartmentalizing using territory to shoot someone else.
The norms of compartmentalization I have mentioned are orthogonal to The Hague conventions and frankly they do not matter in a world which has de facto moved away from being rules based.
Additonally, by that logic it is acceptable for Ukraine to conduct kinetic action against Chinese assets in Russia, which they have held back against despite Chinese support for the Russian MIC.
Also, I told you years ago to not chat with me on this platform. We do not align and I have found it tiresome discussing with you. I have ignored and steered away from commenting with you and I ask you to do the same for me.
It's acceptable, as I said, targets in RU soil legitimate. Of course the UKR has their own calculation on what PRC interests in RU they're able to hit that's not counterproductive - PRC support for RU MIC can be much more than what it is.
Even if we accept moving from "rule based" doesn't discount realist/rational based which rule based is derived from. It is not hard to understand allowing your house to be used to shoot at someone else = your house is now legitimate target. Expecting immunity under those conditions is strategic fantasy, especially when IR hitting GCC countries is arguably not counter-productive.
The real thought experiment is ~600m people in central/south American within ~6000km, i.e. IRBM range of US gulf coast, where ~50% of US oil refinery and LNG plant production are. Now that Iran has validated mid tier power can cobble together precision strike complex, it's only going to be matter of time before relatively wealthier countries realize only way out of M/Donroe is to build conventional strike against US strategic infra. This stuff going to get commoditized sooner than later with competing mega constellation ISR. It's pretty clear building up conventional airforce/navy etc will simply get overmatched vs US projection and only credible deterrence is PRC style rocket force. There's a fuckload of places to hide 8x8 missile launchers in the Americas.
E: 50% of PRODUCTION, not plants, as in a few plants responsible for 50% of US refinery / LNG production.
We're soon to have electric cars (and trucks) that cost less ICE ones, on top of the lower operating costs. Which in turn cost even less when more solar and wind are added to the grid because the "charge more when power is cheap and less when it's expensive" thing lowers their operating cost even further and reduces the amount of natural gas you need in the grid because periods of lower renewable generation can be offset by deferred charging instead of natural gas peaker plants.
Even without any purposeful efforts to do anything about climate change, the economics point to fossil fuels declining over time as a proportion of energy. Meanwhile the US administration flips parties every four to eight years and the next time they're Democrats they'll be trying to hasten that result rather than impede it. Which makes a long-term strategy of building the capacity to target petroleum infrastructure something that could plausibly be increasingly irrelevant by the time it would take to implement it.
Yes, refinery mismatch vulnerability something that can be built around, ~10-15 year horizon. US can also bring down oil as % of energy mix and distribute renewables. If US smart they would do this.
But at same time, extend IRBM range by 1000km, and replace refineries with hyperscalers, or whatever targets that worth deterrent value (energy at top of list). Refineries just most immediately very high value targets that happens to be closest to missile range.
But the assumption is less about US adaptability/smartness, as the way commodity conventional strikes is trending, CONUS _ will _ be vulnerable eventually. Fortress America is as much function of geography as technology. Just like how 20 years ago Iran couldn't hit Israel or many GCC companies even if it wanted to... now it can. The natural outcome of longer and longer range strikes is at some point US becomes in range of Monroe neighbours who doesnt want to be Monroed.
> But at same time, extend IRBM range by 1000km, and replace refineries with hyperscalers, or whatever targets that worth deterrent value (energy at top of list).
Hyperscalers are probably not a great example because a) they don't really benefit that much from being physically centralized (especially at the building level rather than the regional level) and b) data is one of the easiest things to keep redundant, and then even if you destroy a large facility, backups get restored to another facility or distributed set of facilities with no downtime at all if the target is well-prepared and only a short period of time if they've done even minimum diligence.
The critical ones can also do the "build it on the inside of a mountain" thing and then your capacity to take down grandpa's WordPress is mainly useful to the target for rallying opposition against you.
> whatever targets that worth deterrent value (energy at top of list).
If "energy" turns into solar panels on the roof of every house and widely distributed low density wind farms etc., that's pretty hard to target.
In general centralization is often done because it has economies of scale, but those same economies of scale have diminishing returns. One huge facility reduces certain fixed costs by a million to one (i.e. 99.9999%) over having a million small facilities, but a thousand medium facilities are much harder to target while still reducing them by 99.9% and the remaining 0.0999% is negligible because you're long since already dominated by unit costs. The target can also choose where to take the trade off based on how likely they expect to be targeted. And that's a broadly applicable principle rather than something that only applies to any specific industry.
Hyperscale/data just one example, f35 manufacturing, specialty feed stock production, transformers, gas compression etc, the list of currently centralized (as in have large target profiles) that will remain soft for decades is long with varying degree of disruption/dislocation, i.e. you don't restore hardware with multi year lead times.
Those are ridiculous / absurd economies of scale numbers, splitting piles up 20-50% per duplication inefficiency, especially in US context (expensive regulatory/physical buildout), splitting 1 hyper to 1000 medium is not marginal more cost, it's magnitudes / 1000%s more cost - costs private or public will not go for, and is prematurely self defeating because others can always build cheaper missiles than US can build infra (hence goldendome theatrics).
In principle, US can preempt CONUS physical vulnerabilities, where 100+ years of built up over assumption of CONUS not being vulnerable. In practice the chance of that happening approaches 0. Didn't even harden CENTCOM air shelters and planners have been noting vulnerability for years. Not just economies scale, but JIT and all other aggregate downstream optimizations US likes to make in name of efficiency. US simply not culturally PRC who does not mind (and is optimized for) some extra concrete for physical security. Not that PRC does not have huge vulnerabilities, just development has been made with mainland strikes in mind.
> splitting 1 hyper to 1000 medium is not marginal more cost, it's magnitudes / 1000%s more cost
It isn't. The primary costs of both the medium and enormous facility are the same: Server hardware and electricity, and server equipment and electricity don't have significantly lower unit costs when you're buying a million instead of a thousand. Also, you can still buy a million servers and then put them in a thousand different buildings.
It's only when you get down to very small facilities that things like staffing start to become significantly different, because amortizing tens of thousands of employees over millions of servers results in a similar unit cost as amortizing tens of employees over thousands of servers. It's only when you get to the point that you have only tens or hundreds of physical servers that you get scale problems, because it's hard to hire one tenth of one employee and on top of that you want to have more than one so the one person doesn't have to be on call 24/7/365. Although even there you could split the facilities up and then have multiple employees who spend different days in different locations.
> especially in US context (expensive regulatory/physical buildout)
This is another reason that "hyper economies of scale" don't actually do you any good. Which costs less, having dozens or hundreds of suppliers for the various parts of an aircraft, or one single Lockheed that should nominally capture all of these great economies of scale from being a single company?
It's the first one, because then it's a competitive market and the competitive pressure is dramatically more effective at keeping costs under control than a single hyper-scale monopolist that should be able to do it more efficiently on paper until the reality arrives that they then have no incentive to, because a monopoly is the only one who can actually bid on the contract and a duopoly or similarly concentrated market can too easily explicitly or implicitly coordinate to divide up the market. At which point they can be as inefficient as they like with no consequences.
This does mean you have to address the regulatory environment that tends to produce concentrated markets, but we need to fix that anyway because it's a huge problem even outside of this context.
> where 100+ years of built up over assumption of CONUS not being vulnerable
That's not true, there was a significant push during the Cold War to decentralize things to make them less vulnerable to nuclear strikes. The government pushed people into the suburbs on purpose:
There are obviously significant costs to that but Americans were willing pay them when there was a reason to and much of the landscape is still shaped by those decisions even now.
You also see this in the design of the internet, which came out of the same era and has a design that facilitates the elimination of single points of failure, and that sort of thing is as close as we've seen to an unmitigated good.
When I say hyper, I'm referring to hyper size vs distributed, not limited to data centers. It generalized reply to your insinuation of economies of scale is broadly applicable when it is absolutely not, i.e. 99.9999,99.9%,0.0999% which fantasy figures. The general economics of economies of scale is you split 1 facility in 2 you add 20-50% overhead due to duplication. The immediate cost of redundancy/resiliency is adding double digit overhead. The point is duplication doesn't happen when "only when you get down to very small facilities", it happens when you go from 1 to 2, incremental distribution increase cost disproportionately. Breaking economies of scale of 1 hyper facility int to 2,5,10,100 smaller facilities is possible on paper, but no one doing it in practice.
>don't actually do you any good.
Sure, economy of scale good for consolidator being net bad is valid, but this wasn't discussion on optimal macroeconomics, this discussion on what US politically able to do. There are things US should do, but systemically can't.
> Cold War to decentralize
Cold war dispersion for nuclear math and precise conventional strike math is different. Spreading 2 factories apart so they draw 2 nukes vs 2 factories get 2 conventional packages regardless of spatial separation.Circle back to feasibility, what is required for distributed / dispersed survivability. Is US going to dismantle gulf oil infra and move it inland. Most physical infra processes are not fragmentable or self healing like internet. How much are Americans willing to pay, coldwar was eating 15% of GDP. All this ultimately secondary to the point that doing all this costs US more (because everything in US costs more) vs adversaries simply getting more missiles, it's economically/strategically self defeating. Let's not forget Soviet answer to US disbursement was building more missiles while US still pays inefficiency tax on suburbs.
> It's the stated goal of one of the parties to keep or increase fossil fuel usage, isn't it?
The stated goal of the same party is to have "cheap energy" and the way voters judge is by things like how much they're paying for electricity. Which means their incentive is to make a lot of noise about how much they hate windmills and love coal while not actually preventing data center companies from building new solar farms to power them. One of their most significant benefactors is also the CEO of the largest domestic electric car company.
> Magic 8 Ball says "yeah, in the past, 2028 isn't looking good though"
Two years is forever in politics. We also have the leader of the Republican party doing all the pandering he can right now because he's trying to sustain a majority in the midterms, whereas in 2028 he can't run, and what's Trump going to do in the intervening two years during which he has no personal stake in the next election?
> Which will be blocked and/or immediately overturned by the current/next Republic Congress/Senate/SCOTUS/President.
That's not what happened last time. The electric car subsidies were introduced in 2008 and sustained until 2025.
We're also at the point where these things are going to get rapidly adopted during any period without active resistance to them.
How many years of the majority of new vehicles being electric or plug-in hybrids would it take before there are enough in the installed base to cause a long-term reduction in petroleum demand, and in turn a reduction in the economic and political power of the oil companies? Also notice that this still happens if Asia and Europe adopt electric vehicles regardless of whether or to what extent the US does, since it's a global commodity market.
The problem for a would be attacker is that the US still has enough military power to give almost any country on the planet a very bad day every day for as long as the US cares to. Historically, the way to win against the US is to survive long enough for the US to get bored and leave. The last time that happened, it took us 2 decades to get bored.
The problem is they are not would be attackers, they're countries building up domestic defense that US would have to preempt ala Cuban missile crisis, and sustain preemption over entire continent, with each preemption legitimizing rational for more build up.
Of course US can try to coerce INF for conventional in Americas, but commoditized conventional precision strike are conventional... and commoditized, it's the kind of product where specialized dual use components may need to be sourced... among millions of TEU traffic, but otherwise local industries can build, like Iran.
There's also no global pariah status for proliferating conventional missiles for self defense and hence accessible to many players, coercion / enforcement would require trying to mow grass to keep capabilities out of 600m people...in perpetuity... tall task even for even US. Especially considering form factor of missiles... i.e. sheltered / hidden, they are not major battlefield assets like ships and planes that needs to be out to have wheels turned.
Ultimately it's not about winning vs US, it's about deterring US from historic backyard shenanigans by making sure some future time when US is tempted, and US always tempted, it would risk half of CONUS running out of energy in 2 weeks.
Like the Iran logic is extremely clear now, no amount of defense survives offensive overmatch, the only thing left is to pursue some counter offensive ability that can have disproportionate deterrence value. The thing about US being richest country is US has a lot of valuable things.
I think you underestimate how much of that 50% is just exports. And how much other plants can be scaled up quickly. And how the US can temporarily nationalize things, and ensure all the output goes domestic. Just a backroom threat of emergency, temporary nationalization, would ensure CEOs give the US priority.
IE, they'd get to retain higher profits.
What I think would really happen, is the rest of the world would suffer and run out of energy. Not the US.
Gulf coast PADD3 refineries = disproportionate production of diesel, aviation, bunker fuel for CONUS use. Something like 70% of all refined products used in US comes from PADD3, other refineries cannot replace PADD3 complexity/production levels (think specialty fuels for military aviation, missiles etc). US economic nervous system is EXTRA exposed to gulf coast refinery disruptions. PADD3 refineries (or hubs / pipelines serving east/west coast which more singular point failure) itself enough to cripple US with shortages even if all exports stopped. Gulf gas terminal is for export i.e. doesn't materially impact CONUS, it's deterrence conventional counter-value target. There's also offshore terminals. The broader point being gulf coast has host of targets along escalation/deterrence ladder.
Yes, I'm not disagreeing that there are lots of interesting things to hit on the Gulf coast. PADD3 is just another way to say "gulf" refineries, it's a location not a technical specification.
Other refineries can indeed take up the slack. Especially if the US stops exporting. Trains can deliver fuel, trucks. The US military would not be crippled, most certainly, and the domestic US would see primary production kept in-nation, not exported.
I'm not sure why you think that only Gulf refineries can make jet fuel.
NOTE: I'm not saying it wouldn't be a key attack vector, or non-disruptive. I'm just saying the US would do what it always has done, as any nation would do, it would ensure survival first, and so the rest of the world would suffer far more.
It's location, it's also recognizing refineries in PADD3 are, in fact, technically specific and different from other regional refineries which cannot pickup the slack. Light/sweet vs heavy/sour geographic refinery mismatch are not interchangeable, some products other refineries can produce with low yield, some can't be produced at all. Hence specific highlighting their complexity AND productive/yield levels. US has never tried to survive this level of disruption, which is not to say it couldn't, simply it will be at levels that will significantly degrade CONUS beyond any historic comparison, enough to potentially constrain/deter US adventurism in Americas.
Some specific products like SPECIFIC mixes of aviation fuel, only some PADD3 refineries are setup to produce or produce significant % i.e. IIRC something like 90%+ of military JP5/JP10 come from PADD3. That's why I said "specialty" aviation fuel, not just general aviation fuel. Or taking out out Colonial pipeline which ~2.5m barrels - US doesn't have 10,000k extra tankers or 5000 extra rail carts in reserve for that contingency. Turning off export has nothing to do with this, there isn't enough to keep in-nation due to refinery mismatch, or not enough hardware to move it in event of pipeline disruption.
Of course predicated on timeline/execution, i.e. US can potentially fix refinery mismatch and harden/redundant over next 10 years. We don't know if/when Monroe countries will start adopting their own rocket force. Just pointing out after Iran has demonstrated defense is useless for midtier powers and mediocre offense can penetrate the most advanced defense, the only rational strategic plan is go hard on offense for conventional counter-value deterrence. The logic like Iran, it matters less RoW suffers more, only specifically that US suffers as well, the harder the more deterrent value. And due to sheer economic disparity, could be trillions for US vs billions for others, even if trillions for US is relatively less.
The US was ensuring survival just fine when it was big on soft power. If you let go of soft power your remaining choices are diplomacy (which takes skill) and hard power (which takes a different kind of skill). If you go down the hard power road (which the US seems to be doing) you will end up with a very long list of eventually very capable enemies. It's a madman's trajectory and historically speaking it has never worked. I suspect it also will not work for the US.
The biggest effects would be economic, and would drive any sensible country away from a reliance on Gulf Oil.
The US is essentially a military/petro-oligarchy wrapped inside a republic pretending to be a democracy.
If the global oil economy is badly damaged, the US will be badly damaged with it.
This isn't about who can blow the most shit up. It's about global standing in the economic pecking order, which is defined in part by threat credibility, but also by control over key resources.
If some of those resources stop being key, that's a serious problem for any hegemon.
We're seeing a swing towards global decarbonisation, and this war is an ironically unintentional turning point in that process. The US has had decades of notice that this is inevitable, but has failed to understand this.
A petro-oligarchy? With all due respect, all this is so Internet-brained. Where do you all come up with this stuff. Many other posts are in heavy need of grass-touching as well but still. The US is not pretending to be a democracy. It’s a constitutional republic. So, if I understand this right, all this is about something called “decarbonisation” and the US has been unable to realize this apparent but, of course, I’m sure any EU citizen is totally aware of all this right? I definitely give points for originality and not making it all about the people from that other small country.
Downvoting a description of a technical solution for smaller nations based on actual evidence from existing conflicts is silly. You might not like the politics you perceive from someone using particular vocabulary, but the proof is there. The USA's supremacy has been challenged in a meaningful way (along with every other major military power). The strategies of the large powers will have to evolve.
> destroying much of Iran's military and leadership was done from US carriers
No. This is absurd claim that can't physically comport with sortie generation math.
CSIS report from first 3 weeks noted Israel did more than half of strikes on ~15,000 targets... all Israel's hits would be from land basing.
2xCSG at surge for 3 weeks = ~6k sorties, ~20% for kinetic strike (80% of sorties supportive, cap, tanking, ew etc). Optimistically carriers hit ~2000 targets when not standoff during first 3 weeks. Likely strike compositions: Israel from land, 50%, US from regional land ~35% (we know lots of none carrier aviation was involved), carriers ~15%.
The real kicker is CSGs since been pushed to standoff - kinetic strike ratio to dwindle to single digit % sorties at those distances, making carrier cost:strike ratio even more unfavourable. This something most expect from peer/near peer adversaries, not Iran, i.e. carriers seem vulnerable to lower tier of adversaries than originally thought.
UKR = entire country of +40m is on the battlefront so they can do total war mobilized homefront distributed system... so can Iran. But it's very different for force projecting security guarantor US - can't convince paying protectorates to pivot total war defense posture in peacetime, that's what they bribe US not to do.
And ultimately whatever model of distributed lethality / survivability (which US planning foresaw) is less relevant that US global commitments requires high end hardware that has to be rotated / propositioned selectively, and sustainable only in limited numbers vs adversaries mobilized on total war.
But the fundamental problem is US adversaries are catching up on precision strike complex. Iran isn't asymmetric warfare, but restoration of symmetry. It's not so much US getting weaker as adversaries getting stronger, and without monopoly over mass precision strike (which naval / air superiority / supremacy is only delivery platform), US expeditionary mode simply on the losing side of many local attrition scenarios. Ultimately all US adversaries will gain commoditized local precision strike (even deadlier if bundled with high end ISR), at varying scales due to proliferation requiring persistence across global theatres US simply doesn't have numbers/logistics for.
TLDR: US expeditionary model is bunch of goons with rifles in trucks, driving around neighbourhood where everyone had knives that could not get in range. The second everyone else buys guns, then rifles, the expeditionary model breaks.
USD reserve = print USD for everything liquidity to sustain debt financed existence where Triffin hollows out industry, and financialize everything because having stupid amount of liquidity incentivizes certain behaviors.
Petro-yuan = PRC gives swap lines to trusted partners to buy oil denominated in yuan in exchange for things like resources. Hormuz ships ~1 trillion USD worth energy that needs "swapping" - incidentally PRC imports around ~2-3 trillion, more than enough to cover.
So think petro-yuan = PRC gives trusted countries with resources that PRC bonds credit lines to buy yuan denominated energy (possibly at discount), in return they guarantee PRC resources or other commercial/geopolitical arrangements. It will be narrow, not like USD brrrting reserves.
This benefits PRC because get to have leverage over "need" transactions (countries need energy to survive, it's no negotiate) while US keeps supporting "want" transactions by reserve debt servicing blackhole that US cannot extricate itself from until it debases / technical defaults. PRC best game plan is... assume privileged part of exorbitant privilege, while leaving US the exorbitant.
The problem with that plan is that no one wants to trade hard commodities for a currency that can’t be spent. One part of the dollars appeal is that it spends the world over. The sanctioned countries frequently have more liberal access to dollars than to unsanctioned yuan.
So no one is going to take up a lot of yuan trade unless that changes or they are forced to.
But that puts China in a bind. Liberalizing their currency is going to require very careful and slow actions, China threads this needle now in a very fraught way. If they openly start trading oil at any real size in yuan that will break their peg as you’ll be able to trade through the oil markets.
This is the main reason there isn’t more petro yuan already, it’s bad for China.
> The problem with that plan is that no one wants to trade hard commodities for a currency that can’t be spent. One part of the dollars appeal is that it spends the world over.
> So no one is going to take up a lot of yuan trade unless that changes or they are forced to.
Related on the “forced to”point, this is where Russia is stuck with its crude oil sales to India where the payments have been made to it in Indian Rupees. There’s almost nothing that Russia can do with the Indian Rupee. This is a huge and growing problem because India’s imports from Russia eclipse its exports to Russia by more than 10 times. [1]
Unlike China, a country whose exports to other countries dwarfs their exports. The yuan is much more valuable than the rupee (which is turning to trash with each passing month as a net effect of trade wars and oil crises).
You can buy from China though. And China is the largest import trading partner for the majority of countries in the world. They literally don't need to do anything to prop up a "petro-yuan".
You can’t largely. At least not with offshore yuan. To do that you have to go through the controlled settlement channels to get onshore yuan. That’s tightly controlled to protect the peg.
So no one is going to use a controlled currency for a hard liquid commodity. So if China wants petro yuan they have to liberalize that, which will break their peg.
China could have more international trade in the yuan before all of Americas recent misadventures. But that has cast consequences for their economy, and possibly the ruling elites power structures.
Saudi Arabia was literally negotiating with China for payments in yuan for petroleum way before the war started, in 2023. The Gulf countries' largest trading partner is China - such a transaction is effectively a barter enabling programme. Russia and now Iran already accept yuan.
The mainland vs offshore renminbi restrictions disappear in Hong Kong, Singapore, etc. where most mainland Chinese trading companies and otherwise have offices anyways. Trading offshore to onshore renminbi becomes their problem, one that they are fairly accustomed to.
The negotiations were literally about how to manage the currency risk to Riyadh. And none of the offshore trading houses are handling the currency transactions at the size necessary to handle large oil transactions.
This is as near an iron law as there is economics, you can’t keep a peg and have a large trade in a large liquid commodity market. China is trying to slowly thread this needle and they can get away with it with Iran and Russia because they are approaching vassal status because the petrodollars are closed to them. Everyone in the world can see this and wants to avoid it.
If you are an oil producer what you want is to diversify your currency risk. Right now China is _preventing_ this, because there is no way for them to become a major player in that market without huge impact on their economy and probably their political system.
One big thing that has prevented CNY from becoming a reserve currency is that China has explicitly said it wants to preserve its ability to heavily and suddenly restrict capital flows in and out of China. If all of a sudden you can't redeem CNY outside of China inside it that makes it a very poor storage of value.
Literally buy from PRC... most of worlds largest trade partner. That's why the system should work, it's closed loop. And we know world aktually fine with yuan denominated trade since PRC increased yuan settlement from 10 to >50% in a few years after US went sanction happy. PRC basically super costco, apart from chips and commercial aviation (both coming) they sell everything country needs for modernity, at discount.
They do not need to liberalize currency. They just need to have stuff people want, and leverage to force them to transact in PRC preferred currency. Previously this was hard, PRC had goods, and affordable prices = reduce friction/switching cost vs USD liquidity, but USD liquidity still made USD transaction preferred. PRC had no leverage for others to transact in yuan.
But in persistent high global energy environment, if PRC controls basically global supply of cheap renewables... and 30% of GCC oil vs Iran enforcing petro-yuan, they have stupid leverage to snow ball system. Again key is this for 30% of GCC oil exports if Iran locks down (big if), it's not global petro-yuan, it's Costco membership only access petro-yuan.
30% of global oil is inelastic existential survival leverage, if PRC wanted to charge in blowjobs countries would pay in blowjobs, currency liberalization doesn't matter when selling water in desert.
For that 30% control number to make any sense you have to believe that: the gulf states are going to allow Iran to control their existential oil trade long term, that they will do so in the face of a currency getting manipulated adversarially against them, that no manufacturing bases can be built up to be alternatives and that none of that is going to have major impacts on the economy or political elites in China.
All of that happening with the worlds biggest oil producer, its second biggest manufacturer, who is food independent and has the worlds most powerful military just lets it happen. And no shooting war breaking out between them.
I’m betting on slow currency liberalization and a transition to a multi currency petroleum industry and subsequent inefficiencies in global trade. But feel free to bet how you want.
I am not betting on one or other happening, I am simply stating, the downstream effect of Iran being able to hold onto Hormuz, i.e. by outlasting US political will create conditions for GCC petro-yuan. Which may not be out of question because we're not in nothing ever happens world anymore.
> make any sense
GCC petro-yuan scenario is predicated on BIG IF that Iran can control Hormuz oil. Rest is the downstream logic for ~10 years, i.e. before any alternative buildout/pivot by GCC states to some how insulate... which apart from Saudi, they might not (too small). This also why PRC hasn't exactly enthusiastically signed up despite IR offer, because it would burn GCC bridge when IR fate uncertain. But if alternative is IR can hold hormuz hostage, PRC would rather participate in petro-yuan than not, at which point having priority access to energy, possibly at discount is net win. Note in this case IR as SLOC guard dog actually has leverage over PRC, gating energy access also offer PRC cannot refuse.
> US
Hence big if, if US has appetite and capability to break Iran, and it matters US settlement/conditions, because if US reasserts control over Hormuz oil and tries to throttle PRC oil as victory, then PRC may go all in on Iran support. Situation is fluid, the wild card is in fact US or ISR deciding to simply break GCC oil. There is still plenty of room for escalation and shenanigans.
PRC coal to petchem is like 3mbd equivalent (growing at 500k mbd per year), profitable vs oil at $80, ergo about 3/5 of their industrial feedstock inputs just got massive 50% and growing discount vs everyone else. Plastics, synthetics, fertilizer... everything PRC now has structural 50% discount.
For actual Hormuz, PRC gets 6/12mbd. They really only need ~8m for domestic use, other 4m is discretionary, i.e. reselling refined petro/petchem or heating, stuff which can be forgone without degrading domestic operations or rapidly electrified. So really PRC only dealing with 2mbd import shortfall if Hormuz fully closed, their SPR will stretch for couple years at current runway if they just forgo discretionary oil use, and by the time it empties, if PRC goes ham on domestic EV / freight at current adoption, with active coal to X in pipeline, they can displace another that 2m barrels. Only way for PRC SPR to run dry end of year is if US starts blockading Malacca tomorrow and glass pipelines. Otherwise PRC on trend to survive with massive advantage vs everyone else.
Energy geopolitics to consider is unless Hormuz shuts down completely by Iran (or US), PRC gets first dibs on energy products by default, all existing contracts are going to be force majeured, and only way any GCC producer is going to make money is by selling to PRC first if Iran serious and can enforce petro-yuan. Also with 20% energy mix from oil vs 40% from US, and electric freight options for logistics, PRC simply better setup to weather high energy prices and disruptions. Their coal petchem stack = they are now permanently cheaper than all other (oil/naphtha based) industrial competitors who bluntly can't even pull the overproduction card vs PRC because their production will crater from lack of of inputs creating condition to reinforce PRC as primary global producer. No one can outproduce PRC in high oil scenario because no one has PRC price stable coal to liquid/chemical stack that serves as energy fortress that decouples most of PRC economy/industry from oil prices. TLDR, PRC is relatively derisked from Hormuz already, if US wants to actually snowball oil disruption into advantage vs PRC, they need to start war with PRC right now. Otherwise sustained high oil price going to be net positive for PRC vs basically everyone else.
> which can be forgone without degrading domestic operations or rapidly electrified
I've heard this line from geopolitical analysts, mostly outside China. And then I hear from economists and traders in China, or look at its stock market [1], and see them preparing for a shock. A shock that's been softened by Beijing's policies. But not eliminated.
> unless Hormuz shuts down completely by Iran (or US), PRC gets first dibs on energy products by default
This is far from certain. Right now, Iran has a veto on Hormuz traffic and is throttling it, including for China-bound traffic. Long term, I think we realise every Hormuz neighbour has an off switch. Why a waning customer would get "first dibs...by default" will require more explanation from you.
> sustained high oil price going to be net positive for PRC vs basically everyone else
I'm not seeing it. Inputs going up in price is still worse than not. Russia is winning. Non-Gulf oil exporters are winning. And China is relatively winning within Asia. But globally, it's still weaning a risk that's been known for decades.
Shutting down on subsectors of petchem with i.e. forgoing $30-80 margin per barrel of refined crude, around 1-2mbd, which is... not nothing but fraction vs US cost to sustain war to deny those barrels - think ~50b per year isolated to discretionary SOE petchem vs 200b war supplemental. The important point is they don't have to actually sacrifice barrels for broader industry with petchem inputs. A few energy SOEs twiddling thumbs is completely different level of exposure vs others who may have to shut down production lines due to lack of oil/petchem where each barrel translates to significantly higher margins on intermediary/finished goods. Those are not discretionary.
>But not eliminated
Of course not eliminated, there will be adjustment pains/friction to unprecedented changes, but PRC stock market has always been dud performer/casino (despite gov attempts to reform) and not indicative of actual industrial performance.
>Why a waning customer
Because PRC is not going to be waning customer. PRC wants no oil dependance for itself =/= PRC stop buying oil. Reminder PRC is the worlds largest oil refiner by capacity, bigger than US. As PRC electrifies and oil demand diminishes, they are not going to let those expensive assets deprecate when they could be value producing. PRC will continue to buy massive amounts of oil to sell refined oil products to others, i.e. pocket that 50b+ per year which could be 250b per year if domestic oil is displaced and refineries only need to export.
What PRC wants post domestic oil, is to continue importing massive amounts of crude so world will import massive amount of surplus petro products from PRC... That's partly why PRC SPR is so big, that 1.4b in peacetime was used to influence global oil prices by manipulating supply... but if Iran is handing PRC petro-yuan on platter then that is even better control. GCC petro states are not going to shut off their exports that literally funds everything, they need export proceeds to survive, and if PRC via Iran has chokehold on what oil goes out, then they going to prioritize selling to PRC. This not even considering they need PRC goods/intermediate goods to survive.
>Inputs going up in price is still worse than not.
Inputs going up for EVERYONE ELSE disproportionately is better than not, because this is massive net relative advantage for PRC. CTO barrels subsidizing 2/3 of industrial (~5mbd) with 50% inputs than everyone else is insane competitive advantage. Sure, none GCC producers are winning the resource export game. High oils prices which PRC industry is insulated from = PRC is going to STOMP other industrial producers and win in manufacturing export game (even harder). If PRC plays along with Iran petro-yuan / tollbooth game, who knows they can even scale up discounted crude to refined export complex, i.e. they will also parasitically win the resource export game being reseller. PRC scraping extra margins off below benchmark price which others will have to pay (assuming they're even allowed) is MUCH stronger position than PRC original plan to have legacy refinery operate off benchmark price. This part key, arbitrating Iranian petro-yuan / gating export access = higher oil prices for everyone else = PRC coal to petchem AND crude to petchem are BOTH going to profit disproportionately. This doesn't mean PRC doesn't also pay high prices, but others simply paying highER creates market clearing conditions that will liquidate competitors who are structurally uncompetitive paying benchmark.
> few energy SOEs twiddling thumbs is completely different level of exposure vs others who may have to shut down production lines
Sure. Again, I'm not saying China isn't better off than anyone else in Asia. But "few energy SOEs twiddling thumbs" is economic damage. Enough to have spooked traders and policymakers in China.
> Reminder PRC is the worlds largest oil refiner by capacity
Good point. Conceded.
> Inputs going up for EVERYONE ELSE disproportionately is better than not, because this is massive net relative advantage for PRC
Again, in Asia. Yes. Globally, they're still facing a slowdown in growth. Emerging stronger after a recession doesn't make a recession fun (or risk free).
Like, take away direct war costs and it's genuinely ambiguous how an oil shock hits the U.S. market right now. We have enough production, and enough refining with enough of a global crack spread, that the hits to consumption almost even out. Almost. Still hurts. But not as much as before. (And, granted, not as much as China has been able to mitigate downside.)
Relative/strategic win like emptying SPR might be win for US, but US being stuck in middle east quagmire spilling disproportionate treasure is bigger net win for PRC. PRC suffering 50B in refined re-export is not same as 200B floor war and high oil prices for 40% of CONUS energy mix, i.e. cut off nose to spite territory.
> doesn't make a recession fun (or risk free).
This true, but being structurally advantaged as producer in global recession does position PRC and set them up to weather or even avoid/win. Delta of PRC energy/industrial input price potentially dropped below USD tariff levels to other countries designed to divert away trade from PRC. What if global recession = disproportional trade directs back to PRC at expense of other producers and accelerates PRC gains in strategic export sectors, again at expense of everyone, especially, G7 producers, not just Asian.
PRC pivoting high quality growth = murdering real estate with 3RL shaved 2-3% of dirty growth while redirecting trillions in real industry. PRC can strategically self inflict worst growth for gamble of moving up value chain to high end, that was pain and risk. Chronic high oil = most likely pain of less global demand, but chance of increased PRC specific demand especially in sectors PRC took pain and risked to develop. It can emerge stronger DURING global recession especially with PRC also have leverage over renewables / cheap energy stack.
> hits the U.S. market
This I won't pretend to know, but on paper US has/or can coerce unlimited supply, so really matter of controlling prices which does mean arm twisting US oil majors... that seems unlikely under current admin, but it is on paper possible. Like it's mildly amusing that VZ adventure could massively stabilize US energy prices if oil remained under VZ/PDVSA control which politically enables US to coerced cheap barrels. But handing it over to Chevron = US no pays benchmark price to US companies with lobbies instead of discount price. But on paper, USD can weather crisis better than most, via political instruments / levers that Trump has power to pull but also levers Trump specifically doesn't seem likely to pull.
If the water merchant in the desert wants to charge in blowjobs, people going to starting giving blowjobs. 30% Hormuz oil is not short/medium term substitutable, if Iran can enforce (big if) Petro yuan then we get Petro yuan. USD already demonstrated proven instafuck instruments, the limitation of Petro yuan id access since most have trade surplus with PRC who isn't going to print because they don't want reserve/triffin drama. They'll likely do something like panda bonds, i.e. vip trusted loans because petro yuan =/= reserve where everyone qualifies, much better system is only buyers PRC trusts gets access.
if yuan goes oil denominated and appreciates in value, China's manufacturing advantage from low labor prices evaporates and china knows this. things are already bad in china due to low demand (workers burning factories since they are not getting paid -- look up "brother 800")
Currency appreciates due to printing / supply. Hence I specifically highlighted petro-yuan =/= reserve currency. PRC not going to be brrrrting yuan to replace USD liquidity. PRC simply going to extend yuan swap lines to trusted petro-yuan users, it's not going to fuck with reserve triffin dilemma.
Thing are fine in PRC, exports higher than ever, some sectors getting shafted vs others, but strategic ones, i.e. not low end textile like brother 800 but intermediary goods doing better than ever. BTW side effect of high oil prices is PRC coal to petchem stack for industry just give 2/3 of PRC industry 50% input discount vs everyone else. Now global demand going to fall if high energy price persist, but PRC poised to capture more share simply being even more competitive producer, if not only producer with regular/prioirty access to hormuz energy.
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