Hey everybody, Peter Zeihan here coming to you from Florida. We’ve had a big change in the way the Ukraine war, and the sanctions regimes from the Europeans are dealing with it, evolved today, which is May four.

The short version is that the Europeans have decided that they have installed enough extra replacement infrastructure and have cut enough deals with enough countries around the world that they can now purge Russian oil from their system. You’re talking four to five million barrels a day of Russian crude that now has to find a new home and, more importantly, part of this new sanctions regime targets shipping insurance.

So quick war story. Back in the Iran-Iraq war of the 1980s, there was a point in about 1983, where the Iranians and the Iraqis started throwing missiles at each other’s shipping in order to attempt an economic blockade. We’re now, at some point about 50 ships were hit, and that almost collapsed the global insurance industry because in a world under the order where the Americans protect shipping, no one had a loss provision for those ships.

So the only reason we didn’t have a complete meltdown in first the insurance space and then in the financial space was that the Reagan administration started re-flagging tankers and started shooting back at whoever was shooting at them, mostly notably the Iranians. Now that means today that if you are in a war zone, your shipping insurance is null and void immediately. So a lot of Black Sea shipments, especially to Russian ports like Novorossiysk, cannot get ships into the port because no one can be insured and that’s largely shut down Russian exports of crude from Novorossiysk, but other Russian ports, such as Primorsk on the Baltic Sea or Nakhodka on the Pacific are still operating, although at reduced rates, cuz a lot of people wanna make sure they never fall afoul of the sanctions, but shipping insurance is not a problem.

Well now it’s going to be because the Europeans control 95% of all insurance and by revoking that possibility ships can no longer go to the Baltic Sea or the Pacific coast of Russia and load up crude unless they get a sovereign indemnification. That is not gonna happen from the Chinese because Chinese state companies have already been avoiding Russian port because they are too big and their exposure to American sanctions would be too large. They don’t want to risk it. It’s really just smaller non-politically connected Chinese refiners that are taking Russian crude right now.

So that pretty much seals off all exports from the Pacific, which is the one part of the Russian system that a lot of people thought was gonna continue forever. The Baltic Sea’s even more damning because the Baltic Sea port of Primorsk is so shallow that you can’t get a super tanker in there. So you would have to do a sea-to -sea transfer anyway, and now you can’t get insurance for that either.

So the insurance aspect of things is likely to reduce Russian oil exports, by more in the next couple of months than this phased-in European sanctions on Russian oil. But it all ends to the same place. Very, very, very little of Russian crude can find a home now and unless a country comes in and does that sovereign indemnification. And it’s really difficult to see any country that wants to have reasonable relations with the Europeans being able to do that. The Chinese are out. The Turks are a maybe, and that’s about it. India’s too far away.

So the Europeans have found a way to have their cake and eat it too. The only question of course is how will the Russians now respond? I’m sure they’re not gonna be happy about this. And their next weapon is natural gas, but that is a topic for another day. Okay. That’s it for me? Have a good one. Stay safe. See you soon.