The Hormuz Illusion: Why Hal Kempfer Predicts an 'Abundance of Oil'
Summary
Energy Outlook: Guest expects the Strait of Hormuz to reopen fully and forecasts an abundance of oil, with prices dropping as global production ramps.
Pipeline Implications: Anticipates a favorable environment for pipeline infrastructure, citing potential Saudi expansion of East–West capacity.
Renewable Energy: Projects a boost to wind and solar as countries prioritize self-reliance and reduce exposure to vulnerable import routes.
Energy Security: Emphasizes diversification of energy sources (oil, natural gas, renewables) as a core strategy given chokepoint risks and shifting geopolitics.
Nuclear Interest: Notes a renewed focus on nuclear power, expecting increased adoption alongside renewables to strengthen domestic energy resilience.
AI and Defense: Highlights rapid integration of AI in military systems, blurring lines between commercial and defense tech and posing export-control risks.
Supply Chains & Rare Earths: Discusses China’s rare earths processing leverage but expects it to diminish as the U.S. regionalizes supply across the Americas and other locales.
Transcript
Welcome back. I'm Jeremy Saffron. President Trump is in Beijing today meeting with China's Xi Jinping. Financial markets are focused on the business executives in the room and the potential for a trade deal. But there's another story playing out at the same time here. Uh that story about military capacity, about industrial capacity and the cost of war. Now, according to a new Bloomberg analysis, 81 companies in China's missile supply chain saw revenues jump 20% last year to just over 189 billion yuan. Now, that expansion comes as the US continues operations in the Middle East. And according to Pentagon testimony just yesterday, the estimated cost of that I arranged war uh is now closer to $29 billion. Meanwhile, commercial shipping through the straight of Hormuz remains restricted and the International Energy Agency says global oil inventories are falling by about 4 million barrels a day. And we got this BLS data out today, too. US producer prices uh rose 6% year-over-year in April. So, today we're going to be asking how these military and economic pressures intersect and obviously what that means for the market. Joining us now is Helm Hell Keaptainner. He's a retired marine intelligence officer, CEO of Global Risk Intelligence and Planning and also host of the Strat podcast. Uh, welcome back to KCO News. Good to see you. >> Thanks, Jeremy. >> Listen, we got a lot to get into today. I mean, it's an interesting kind of road map. Just prepping for this. I mean, before we get into Beijing and Iran and and and the numbers, let's just step back for us a moment. I mean, when you look at the map today, President Trump in China, Iran is obviously still unresolved. the hormuz is restricted. Russia under pressure in in Taiwan in the middle of this summit and and that new information about China expanding missile capacity. I mean what is the risk investors are least prepared for here? Well, there's a lot of risk out there and one of the things investors need to be looking at is the uh basically the strategic risk around the world. And uh you know one of the things for example uh my firm we just spent some time talking to a very broad business-based group uh looking at critical infrastructure supply chain issues globally and one of the things we really focused on was looking at these maritime choke points. Now one that jumps right out obviously is the straight of Hormuz and what's happening there. I don't think I need to say more. But of course, just behind that is the Babel Mandeb, you know, going into the Red Sea, which leads up to the Suez Canal. That's one that the Houthi rebels with their anti-ship attacks had basically clogged up some time back. And now the concern is they're going to clog it up again. But then if what you were just referring to uh talking about China and Taiwan the straight of Taiwan uh it's not you know does the world end if the if the China was to block that straight? No. But I would point out that almost 50% almost half of all container ship traffic in the world uh on ships goes through the Taiwan Strait. So, it gives you an idea that some of these things that we look at, you know, that we we'd say, "Well, that's a black swan or something like that." I often say a black swan is simply the swan you weren't looking for, weren't looking at. And I think that people need to kind of pull back a little bit and look at some of the geopolitical issues going on, particularly when they result in conflict that can interrupt supply chains, vital supply chains, and access to resources. >> Yeah. Yeah. Well said. I mean, it's been fascinating just to kind of watch how fast this is all moving. Uh, you know, I know this is hypothetical, but I mean, you know, Hal, if if you were briefing a corporate board this morning, I mean, what would be at the top of the threat board for you? Is it Hormuz? Is it Taiwan? Is it China's missile buildup? Is it Russia, Ukraine, or or US munition stockpiles? Well, actually, I would probably start with the straight hormuz because that's right in everybody's face. I mean, that's the one where you've clogged it off. Now, what I will say is uh what's being reported, and this gets into information, this gets into intelligence. uh what you see on for example Windward which all the news outlets show the Windward map and it shows no little blips of ships going through there or very few blips of ships going through there. That's very deceptive because one of the things with commercial shipping is when they are in an area of an enhanced risk, they actually tell those uh those masters of the ship, the captains, they say and the shipping companies, look, you need to make a call on whether you're going to uh turn on your AIS or turn it off. Because if you turn it on, that means bad guys out there, whether it's a nation state like Iran or pirates or whomever, may use your your your your track to actually target you. And so a lot of the shipping that's going through there is not being reported. From what I've seen, the shipping going through there is much higher. And I think the prices reflect that. I would expect the price of oil to be much higher than it is. Uh so my first thing I'd focus is a straight of uh uh you know, straight of horm. My next one simply because it is so uncertain is I talk about the Baba Medbe. I talk about the issues with Suis Canal. I'd definitely be talking about what would happen to global supply chains if both of those things are blocked at the same time completely. And then the third one I'd talk about is uh looking over to China. I'd definitely look at the missile thing, but I'd also be talking about the the other missile thing, which is all the missiles that the US is putting in there. All the missiles are being put in by other countries. what Japan is doing which is absolutely amazing uh in terms of of raising its defense posture across the board and I'd be pointing out you know what's the likelihood of that and what that would do to disrupt supply chains. >> Yeah, you know it's funny I'm looking at the markets and and they're not doing terribly bad today with all that's going on and not terribly well but I mean the markets counterargument is kind of simple here. Trump and she you know both need stability. Iran needs revenue. China needs oil. The US wants lower energy prices. Nobody benefits from uncontrolled escalation. But you know there's a lot of uncertainty. So why isn't that the base case? >> Well, you know, a lot of uncertainty and I think a lot of uncertainty is which way is China going to go on this? You know, the the original thinking on on China was that oh, China backs Iran. The US is in a war without Iran. So therefore, China will simply blindly back Iran across the board. And China gets a lot of oil. 90% of the oil that Iran exports goes to China. 70% of uh of the oil that China uses actually uh is imported. That's a huge amount of oil. It kind of almost reminds me of Japan at the you know back in the late30s in terms of its uh situation there. And then about half of that imported oil goes to Austral. So the thinking was, you know, Japan will back Iran, but China is also seeing what happens with this supply chain disruption across the board, what happens to its position with other countries uh around the world. And I think China's actually doing kind of a strategic relook at what's going on there and also recognizing what would happen if they were to do something militarily with Taiwan, what that could do to them economically. you know that uh I'm not the first person to say the the economic situation in China is is probably more precarious than most realize. >> Yeah, >> they are sitting on a tremendous amount of debt. They got a huge real estate problem. The uh that belt and road initiative is uh I you know some have referred to it as the trillion dollar debt bomb. They've got these uh massive loads of of debt with all these countries that probably will never be able to pay that back. And if they were to all default at once, the second third order effects that would have on the Chinese economy would be pretty catastrophic and to the CCP, to the regime itself. So there's there's a lot of reasons why China will really want to lean forward trying to come to some sort of agreement with the US and probably do something to address this issue out of the straight of Hormuz. >> Yeah. Yeah. You know what? Let's stay on that leverage in Beijing kind of topic. I mean because those meetings that are taking place. President Trump obviously brings the US dollar and and the tech sector and and a major you know it looks like many major CEO delegates at this point. I mean Xi Jinping brings rare earth dominance, deep industrial capacity and it seems like a growing military. I mean from an intelligence standpoint how do you assess the leverage each side brings to the table today? Well, certainly uh uh you know, Chinese uh China's developing a lot of military capabilities. They're building a lot of stuff. They're building carriers. Uh one of the few countries in the world that are actually very aggressive building carriers, but building a lot of stuff. They want to have a a big blue water navy. They're not quite there yet, but they want to have a blue water navy. Um and uh so they're doing a lot of things in that area. Uh the big issue though is rare earth, and that's something where the US is completely dependent. That's where all those high-tech CEOs are sitt there. That's where all the defense manufacturers are really looking at this problem. Now, the interesting thing with rare earths are first off, they're not actually as rare as the name would imply. They're actually everywhere. But the but the thing that China did very strategically starting back in the '90s was that they not only uh isolated, they very aggressively knocked out other places where rare earths are being mined and and certainly knocked out everywhere where they're being processed. So they have a tremendous capacity in processing rare earths in refining them. Um they have a lot of rare earths but they're not like some you know global repository for rare earth. They just have a temporary advantage in this area because they put so much focus on this. Some of it would say that some of the the practices that they did in this area were uh were really kind of underhanded in forcing other companies out of business around the world. But that shift that has all changed. That's going another direction. And and I think China recognizes that their leverage of rare earth is going to diminish over time. >> Yeah. You know, markets are obviously we talked about this kind of treating this like a like a trade summit, right? Boeing, agriculture, Nvidia, rare earth chips. Is is that the wrong lens here? Is this really about who controls the inputs of power? Oil, chips, missiles, rare earth shipping lanes. >> Jeremy, it's interesting you put it that way because that is that is so true. You know, every we've often focused at the finished product. You know, chips. Uh you know, what does Taiwan have? They produce a lot of chips. All right. Uh that's semiconductors. That's they're a powerhouse for that. All right. Uh obviously China's trying to catch up in that area and they've made some big strides in and in and the improvement of the quality of the chips that they produce. Um but with that said, at the end of the day, it really gets down to resources. You know, we're talking about oil, rare earth, and obviously different types of metals uh beyond rare earth. And it gets down to resources. And that's one where China has an advantage in certain things, a real disadvantage when it comes to oil. Uh, hence that uh rather uh distended uh I would say crazy claim that 99 line 9- line or 11- line claim where they basically claim the entire South China Sea as territorial water of China, which is absolutely ridiculous under all international law, unclaused uh maritime, whatever. It's it's just and and you really get into it's like why do you claim that? Well, they have a little thing they point to but but when you really get into the discussion a lot of times it's like well it's called the South China Sea and we're China so therefore and you go that is that is crazy talk and it and it doesn't work but it does show you a certain desperation that China has in terms of resources. And that's where it's a little unnerving because it reminds me a little bit of Japan situation >> back in the 30s and going into World War II. >> Yeah. Yeah. I mean, you you talked about it there briefly. I mean, if China is obviously China is Iran's biggest oil customer, but if if Trump presses she on Iranian oil, is this now a direct part of USChina competition? >> I I think it will be part of the competition, but I do think it's also an area where we could probably find agreement. >> Yeah. Uh what I kind of see with the Trump White House is they're looking beyond the current regime. And definitely if you talk to about Israel, they definitely have been trying to look beyond the current regime for some time. Trying to make that actually, you know, happen as soon as possible. And they're looking at at Iran in terms of resources. What does it bring? What can it what could potent what potentially it could do uh regionally and globally in that regard? And and in that regard, I think uh the US can turn to China and say, "Hey, look, we could work together to safeguard some of these vital resources, the supply chain of things like oil." And then you get into other things, not you know, indirectly and directly, uh fertilizer, liqufied natural gas, another huge thing that comes out of the Gulf, uh that they need. And then another thing which is doesn't get a lot of attention is helium. And that gets into semiconductor uh fabrication which is that has become over the years the gas of choice and in the fabs in these big fabrication units uh knocking out other types of gas but it's one of those things that they they produce it comes from uh LG production uh it's a it's kind of a byproduct of it if you will uh that they can capture and they and they got tremendous economies of scale in doing that but that's another thing that's been cut off and that's an indirect effect of the straight of Horus is It's really cut off the source of helium needed in China and needed in places like Taiwan. >> Yeah. Yeah. Interesting. I I want to keep looking at the kind of industrial data because there was this new report. Bloomberg reported that there's 81 companies in China's missile supply chain that really saw their revenues increase. They hit 189 billion Juan last year up about 20%. Now that manufacturing surge happened obviously while Xi Jinping was removing top generals in the People's Liberation Army rocket force. Um, as a former intelligence officer, how do you interpret a company purging senior military leadership while accelerating missile production? >> Well, it is kind of an it it does look a little strange. You know, of course, they were removed ostensively. They were removed because they said they were involved in in uh corruption, which implies that they were uh somehow rigging contracts and stuff. And that usually implies that you have a very uh inefficient supply chain for certain things like missiles and other types of things that the military uh procures. So, but the other thing I I think really the big thing is the surge in demand uh particularly you know Chinese government demand uh for these uh for missiles and I think that's really where you're seeing uh that that happening and and China is very much focused on the you know the entire region very much focused on what it has to do with Taiwan but also looking at what happens with the US which is pretty much assured that the US will weigh in to defend help defend in Taiwan. And it is going to be a war involving a tremendous amount of missiles and a tremendous amount of drones uh both airborne and on the sea. And they're preparing for that. I think that is part of the reason you're seeing that stock price go up because nobody is seeing certainly in the near term that there's going to be a decrease in demand for missiles and things associated with that type of warfare. You know, this is an interesting conversation because if China is stockpiling missiles while the US is expending munitions in the Middle East, I mean, does that factor into deterrence around Taiwan? I mean, is is the US still relying on higherend platforms while China's kind of focused on volume and stockpiles and the ability to outlast? Before February 28th, uh there was already a lot of discussion uh in Washington DC, rumors coming out of the Pentagon, un you know, unnamed officials in the Pentagon or whatever talking about the potential hit this was going to have on on the on our critical stockpiles. You know, things like Patriot missiles, Tomahawk missiles, and a variety of other ordinance that we've been expending at a rather prodigious rate in the war with Iran. And uh we're way down where we want to be. uh other other combatant commanders, the cocom commanders, you know, this is scentcom, US Central Command, and then you go out to Indoaccom, Indo-Pacific Command, uh in Hawaii, uh and they're looking at saying, "Look, we're really running down our stock piles." Now, look, they're they're they're military, they're they're in the chain of command. They can only say so much publicly, but privately they're very very concerned that we've run run down our stock piles tremendously. The counterweight on that is what I kind of alluded to earlier though is China's kind of looking at this sort of strategic reook. They're looking at what has happened in the Persian Gulf in the straight of Hormuz and realizing that this amphibious if they do some sort of amphibious operation against Taiwan, it won't be easy. And I would point out that Taiwan, just geographically speaking, is a very difficult amphibious operation. The US looked at doing that in World War II. We said, "Nope. One side of the island is just steep cliffs. You really, you know, it's it's just it's you're not going to get a force beach heads established. The other side of the island is is heavily populated. uh a lot of people there, a lot of defense forces there now with Taiwanese defense forces and uh and and I will say this as a marine amphibious operations are probably one of the most difficult or the most difficult uh operation to pull off >> and uh so they they they're starting to recognize the challenges that they would they probably recognizing of it more a little bit of that self-confidence may have been eroded as they're looking at what's happening in the Gulf and they're saying we need to look at our own plans a little bit closer. Yeah, that's an interesting one. I mean, the administration has indicated that Taiwan arm sales may be discussed directly with Shei in China. Critics call this dangerous. I mean, supporters call it a negotiation. What are the strategic risks of putting Taiwan's defense directly into the conversation in Beijing? >> I I don't I hope we don't do anything that would upset that. Uh, actually, the the for the US, the best thing in the world is for Taiwan to spend as much money as possible, obviously, buying weapons from the US. um and uh and and arming itself. Uh you know, whatever happens, the US is not like 911. We're not going to suddenly appear 10 minutes after they get hit. It takes a while for us to move forces into the area. It's going to take a while to to build up forces so that we can do stuff. That's why we're looking at that first chain, second chain, island chain um uh requirement there in terms of how we're doing that. We're looking at using, you know, basically using islands >> that are in the South China Sea almost like fixed aircraft carriers or or facilities to launch drones and missiles uh because of some of the challenges there logistically of moving stuff around. So, um that's one of those things I don't I think it would be a bad president if we negotiate uh arm sales to Taiwan with the PRC. And obviously the PRC's goal is yeah sell them less arms so that when we invade it's easier. Okay. U every country of the world is going to look at that and go do we want to buy anything from the US now you know are they going to go in and negotiate away our national defense with some adversary for some you know what they would see as trans you know transient gain or something like that. Uh I think it would be a very bad precedent if we did that. >> Yeah I mean you know every US president has had to manage Taiwan carefully. Is this actually a break from president or or just a more public version of bargaining that it's always kind of happened privately? >> I think it's always kind of happened privately. One thing though is Taiwan in the '9s, you know, after the end of the cold war, the Soviet Union fell and uh you know, China was opening up to business, you know, certainly starting in the 80s, but really opening up to business in the '9s and the O's. Taiwan kind of looked at this and they said, "Oh, this is great. Um it looks like uh you know China, the PRC is embracing capitalism. They're embracing all these principles that we believe in uh economically speaking. Sure, they still have the Communist Party, but they're not the threat that that they were before because they're not as ideologically entrenched as they were. And then things changed. All right. Really what changed was Xi came to power and consolidated power. And that's where things really really changed and became much more ideological. And unfortunately for for Taiwan, they had let their guard down. They had not been investing in their defenses like they should have. They had they had invested in a lot of, you know, very very high-end, you know, uh, high techch sort of things. uh where where actually the the the the grudging admission is that they need to probably spend less money on on F-16s and more money on things like you know missiles, tactical missiles that could be used to stop landing craft and armored vehicles and things that will stop infantry and all sorts of stuff like that and stop ships out at sea. And uh so they they invested poorly and they underinvested across the board and now they're catching up rapidly. Yeah, it's wild. And of course, you know, this all as we talked about in the intro, uh Iran still going on and Congress kind of questioned defense officials yesterday. In fact, I think Haggath was in front of Congress. Uh President Trump has said that Iran's military capabilities have been largely dismantled, but according to reported US intelligence, now we're seeing Iran may still retain about 70% of its missile and drone capacity. How do you explain the difference between those assessments? Well, the difference is this is the ability of uh outside of of drones and missiles and and what they have. Can they really export that in any significant way? In other words, can they can they do anything? Well, their military can't really do much because their military has no air support. Their air force is pretty much gone. All right. They're they're they're significant their main their navy the artistic side of the navy the uh the actual you know military not the revolutionary guard corps but that but the but the larger combatant ships that's all gone as well. >> So that that really has been shut down to a large degree. Now as far as that retention of drones and and missiles a lot of that missile stuff was in these vast what they sometimes called underground missile cities or towns. these huge underground complexes where they stored all these missiles where they could not be attacked. Yeah, they couldn't be attacked. But what we did was we took out missile launchers and we we basically took out the the uh the uh entrances for these vast underground facilities. So yeah, they're down there. They just can't get to them and they can't get them out to deploy them. Now, given enough time, they can dig them out and they can, you know, some of the some of the launchers they believe are just simply buried. They're not actually destroyed. So they might be able to put that back in operation, but it takes time to do that. So whereas a lot of stuff, the the thought was, look, we can't really get in there and destroy those missiles underground. Same thing with the drones unless we put boots on the ground and they literally go underground and do what the Israelis have done before, which is actually blow stuff up the oldfashioned way. Um, we can't really do that, but we can quirk these things up in such a way that they can't use them very well. And that's what we did. And so they retain a lot, but it's a lot that they can't use right away. So that's kind of where that that that number is a little bit misleading. >> See, this is good because I was going to ask you, Hal, I mean, from a from a military standpoint, what matters more? Is it is it the the number of missiles Iran still has or whether Iran can still command and coordinate and and launch them effectively? >> Both matter a lot. All right. But if you can't put the missiles where they want them to where they want to put them, then that makes a big and that's, you know, then you have a lot of missiles that are useless. You can't really do much. All you can do is, you know, rain down missiles, all of World War II, you know, with V1s and V2s and it really doesn't have any effect. It's psychologically debilitating, but it doesn't really hit the target very well. And and that's one of the things when we went in aggressively and the Israelis obviously in a joint you know combined operation is debilitating their command control communications across the board. That's why you saw that slow response you know when when when we did that big thing that decapitation strike that took out the supreme leader and about 49 of his top officials uh you know military and civilian around him. uh among other things, there was a lot going on behind the scenes, but it really cut off command, control, and communications. That's why you saw that very slow response, >> right? >> Uh in fact, you you would expect a barrage of missiles and drones would have been flying across the Gulf and you didn't see it for a while and you go, somebody planned very well because uh the those units were standing out there going, "What are we supposed to do? We we're a we're very hierarchical, you know, we wait for commands and here we are having to make decisions on our own, which is not something they're very comfortable with. And u and so it took a while for them to uh to respond to that. They did eventually, but it took a while. >> And to your point, I mean, sporadically hitting uh other neighboring countries and and you know, that brings me Congress also pressed the Pentagon yesterday on on commercial shipping through the straight of Hormuz. Just to get to back to that in a second cuz I mean if the if the US is saying it controls the hormuse. Why is the shipping still restricted for the west? And I asked this because according to to breaking reports just this morning, a Chinese uh super tanker carrying about 2 million barrels of Iraqi crude just successfully crossed the street. So I mean if if China can still get to its oil while the rest of the world deals with the blockade, what does the US control of this checkpoint actually mean? There's actually a lot more shipping going in and out of the straight than than most realize. And actually, if you look at some of the stuff, uh it's not clear that the Iranians have have really uh mined the straight to any great extent. One of the things with the mines, for example, with the smaller boats, those gunboats, you know, going out and pulling out uh you know, to to set a significant mine where you drop it to the bottom and it's chained to an anchor on the bottom or whatever it is, you know, these these larger mines that takes a larger craft to do that. You can do it with a small gunboat, but you can't do a lot of it with small gunboats because they can't carry a lot. So, a lot of times they'll carry out these floating mines. Well, if you launch the floating mines, um that means they float anywhere, which means that they will go in there and they will go into lanes that the Iran the Iranians want to use uh as much. In fact, they will actually go more into the lanes I want use because if you look at the the way the currents work within the Persian Gulf, a lot of those floating mines would tend to drift over to the Iranian side of the Gulf and just kind of hang out there. So, that would cause them a lot of problems. So there's not as much mining and I think commercial shipping's picking up on that because everything I've seen, sure they're not doing they're not turning their AIS on, but the shipping is actually coming through and it it is far larger than most people think. It is probably uh one day I think they said there was uh two ships that made it through. Uh I think it was probably 25 times that many ships that made it through that day. So there's a lot more going on. And I think the price of gas and oil reflects that. If there was if it really was completely cked up, like everybody says, you would see 150 $175 a barrel for Brent crude, you just don't see that. And there's a reason why. >> Mhm. Yeah. I mean, even with the PPI coming out, CPI, all those different data points, you can kind of see it getting a little bit more expensive. But but I think it also comes down to to debt. I mean, according to the Pentagon testimony, the Iran war is now closer to about 29 billion. Now, lawmakers also question the administration's plan to fund 350 billion of a $1.5 trillion defense request through reconciliation. I mean, how does that domestic funding fight over drones and munitions and missile defense and readiness affect America's ability to project long-term deterrence in in the Pacific? Yeah, I think everybody's got a chance to see some of the stuff that happens in Washington DC all the time. I'll tell you when you start getting those numbers, it gets some of the discussions are really some of the assumptions in the discussions get a little bit out there. But I will say one thing I just want to say war is expensive. Period. All right? And and a lot of times uh political leaders, they go, "Oh, look at the military. They can do all this and everything else." And it's like, yes, but war is expensive. If we learn nothing from the wars in Afghanistan and Iraq, it is the cost of war. Uh and and so when they say 29 billion for a war that's gone on what, two months? >> Yeah. >> And it's a war with Iran, I I kind of nod my head. I said, "Well, that's actually not an unreasonable amount considering what what's been done and the cost of the weapons." You know, one thing that we're we're we're trying to catch up on. It's taking a while, you know, dealing with all these drones. If you're taking out a a $35,000 Shahed drone with a $2 million or $4 million missile, well, that is not a I'm going to get into ROI. That is not a good return on investment. That is where we need to really invest in some of these less costly drone defense systems, which we're we're doing. It's just the problem is we're so far behind. And that's what this budget's really about. >> It is a recognition. It's looking at Ukraine and things and saying we're just way behind where we need to be in the next for the next war. >> Yeah. And and I mean to your point, modern war is is very expensive and replacement capacity may be the real issue. What is the bigger constraint right now? You think it's is it money? Is it is it munitions? Is it ships? Is it interceptors? Industrial capacity? Or could it be political patience at this point? >> Yes. All the above. Absolutely. Yeah. Yeah. >> Uh, at the end of the day, it's all money. Uh, I I worked the war on drugs back in the 90s and we go to these very high level meetings and we talk about all these lofty goals of shutting down the cartels and doing all these other things and then and as soon as that was all done and get into uh the budget issues and we talk about it and then sure enough, everyone there would be always be somebody in the room that say, "Well, you know, it's not about the money." And then everybody would bite their lips and try to suppress a laugh because they realize this is about counterdrug money. And and it was at the time we used to say drug money corrupts and counterdrug money corrupts absolutely which is another way to say that that the amount of money that is being spent is absolutely you know the core issue here and uh so when you talk about weapons and everything else at the end of the day it's got to get paid for somehow and that gets into that gets into everything you just talked about that gets into >> can we produce it? Do we have you know do we have the economies of scale to produce it cost effectively? Do we have the capacity to do this stuff? you know, some ships. We're buying ships from other countries now. We can't produce them. That was a very short-sighted thing in the 90s where we shut down shipyards. So, that's a big problem that we have. And then, of course, political patience. >> Yeah. You know, obviously that you just mentioned it there. The US still has enormous financial and industrial capacity. Our concerns as we watch the markets, you know, they're a bit jittery, but not too bad here. But are are concerns about depleted stock piles overstated in in your or is the market kind of too complacent about how long it takes to rebuild them? >> Well, I don't think the market really understands what this means across the board. I don't think the market really understands what could happen. Uh and and certainly uh I would hope that the fragility of some of the global supply chains is is something that the market is trying to take, you know, basically assess or reassess more closely. uh when you look at how things are moving around the world. I mean we had this uh you know with globalization you know I'm I'm a I'm a Thunderbird grad all right uh way back when which is a you know international business school management school and we were you know we were always focused on globalization globalization globalization a big chunk of that deals with uh looking for where we produce it and stuff like that and a lot of that's all tied to commercial shipping now we're recognizing in a way that we haven't probably recognized since World War II some of these fragile shipping lanes around the world and what could happen when major players like China uh like other countries decide that they want to clog up those those shipping lanes and these shipping lanes are pretty small and it doesn't take much to cause some huge problems. >> Yeah. Interesting. Fascinating. Um, just quickly on China because we didn't talk about it and before coming to air, you and I were chatting a little bit about how interesting it was to see uh, Nvidia's Jensen Wang sitting on the tarmac in Alaska waiting to board Air Force One kind of alone and with his backpack. Obviously, he's part of Trump's delegation along with major CEOs from Tesla. He's got Apple, I think Boeing, Black Rockck, and others. Now, markets are clearly watching chip access, business deals, but AI chips are are are not just commercial technology anymore. them in the matter for logistics, surveillance, targeting, cyber, you know, you know, all the rest. So, weapons development. Where is the line between market access and and strengthening a rival military industrial base? >> Uh, it it is becoming very very blurred and AI has become an integral part of uh of weapons, all weapons solutions. Uh, we're starting to see more and more AI. It's just the capabilities that it brings. uh you know it's just it's it's uh you know the the the the capability and the capacity is growing exponentially and it and it it's I could say it's creeping into everything but it's not creeping it's leaping >> into everything that we do uh particularly as we're looking at drones loitering munitions all sorts of things like that and we say well this could be done what with AI and and it's already being done there's a huge thing I just read an article this morning talking about uh what some of the loitering munition stuff that the Ukrainians are using and the Ukrainians are are basically by necessity incorporating this very very quickly and they're talking about whole units that basically launch these AI AI enabled loitering munitions to sit out there and look for bad guys but literally those munitions are virtually autonomous. I mean, we're kind of getting to that whole Terminator movie context where you suddenly have all these uh robotic systems that can go out there and identify targets and do stuff. And of course, the great fear is well, what what might they do? And uh but that's happening very quickly. And so when we talk about commercial AI, the military application is just such a small line to cross. I think we have to be very careful what we're doing with China in that regard. And it's not going to be an easy solution. I I'm not gonna I'm not going to say there's an easy idea out there. I don't have it. I think it's going to be something that's going to be very complicated, very nuanced, and very difficult discussion. >> This is interesting. I can kind of transition this naturally now over to our our Kiko metals kind of investors. I mean, looking at physical metals, obviously we know modern warfare depends on, you know, that advanced electronics or sensors or satellites, radar, drones, interceptors. That means silver and other critical metals are part of the defense supply chain. I mean, some estimates suggest individual missile systems can contain significant amounts, kilos and kilos of of silver. Uh, here's my question. I mean, given given the pace of of munitions use, I mean, how significant is the defense industry's absorption of physical silver and these critical metals or is the broader market kind of just pricing the demand correctly here? Well, I mean, the broader market always figures out a way to price a demand. Uh, I'm not worried about that. But, you know, a lot of things, for example, uh, silver, a lot of things that came out of Russia were cut off, uh, four years ago, uh, for the most part. So, that that was a huge hit, particularly nickel is my recollection, that was a big one. But other also some rare metals that were coming out there as well. One of the things that you're seeing with the US is um you know, we we see the stuff we're blowing up drug boats. All right. In the Eastern Pacific, in the Caribbean, we certainly saw that spectacular raid that we did in Venezuela. We see this uh rather sharp rhetoric with some not implied threats, very wellstated threats against Cuba. And then you see stuff where, you know, we're actually, you know, according to articles yesterday that the CIA is very active in Mexico working against the cartels. And and then we have this whole coalition we're working with with what 17 different South American, Central American countries, working on a lot of stuff that's all aimed at the narot terrorist cartels. All right. Now, pull back a layer. We're looking at precious metals throughout that entire area. If you look at what China's been doing down there, particularly I did a lot of consulting in the area of lithium, looking at the Altaplano region, certainly looking very closely at Bolivia and uh other places down there where we, you know, Chile, Argentina, where we get lithium, and then uh of course Bolivia is famous for being a silver source of silver going back centuries. Um, a lot of this is to regionalize our access to some of these precious metals in a more concerted way. And then you look in the US where we're opening up uh a lot of these preserved areas like national parklands and stuff like that and saying, "Hey, can we go in there and start mining that stuff near and dear to me as a young man, you know, as a as my my dad was a gold miner." >> Yeah. >> I spent one of my misspent youth was climbing around in gold mines in National Forest in Oregon that where we had claims. And so, uh, we're looking at all this to bring in that precious metal stuff, a western hemispheric thing, and then looking for closer sources in other places around the world. For example, Greenland. >> Yeah. No, I mean, this is interesting. This is interesting. And you brought up Venezuela there, and I I I have to bring it out. I have a note here because you brought up a point point a couple of months ago. You said, you know, that drawn out conflict could ripple into the Western Hemisphere. You specifically mentioned Cuba even today and and just yesterday, according to the Pentagon testimony, Russian spy ships and foreign intelligent activity makes Cuba a national security threat. I got to ask you, I mean, given given the ongoing operations globally, how does the US military balance this emerging risk close to home? >> Well, I I would say that, you know, we're a lot of there's a lot of hyperbole around Cuba, right? They have always been a national security risk down there. Um, and I I don't I mean, if I see a Russian spy ship down there, you're like, "Okay, it's Tuesday." It's not something that gets me that excited. But, uh, but yes, they've been doing a lot of stuff down there. Um, but the difference is this. When Venezuela uh fell into our sphere, so to speak, uh, when we took de facto control over where they can send oil and what they're doing, that put Cuba in a horrific economic situation. They had been on life support before and basically that life support was Venezuela sending them discount oil and keeping them going. Now that's no longer there and their economy is is basically disintegrating as we talk. Uh they're in they're they had no ability. They've been hit by by hurricane after hurricane, except each time the hurricanes come in, they wipe out the grid system, but the the ability of the government to rebuild it has been more and more delayed, disrupted in incapable across the board. So, I think we're kind of setting the seeds for what happens if, you know, Cuba fails completely as an economic model. you know what happens when and that'll be a shift because if that if that happens you know Venezuela and Cuba were the two if you will outposts for this you know this uh China Russia thing uh in the western hemisphere you know one could say well what about Nicaragua yeah okay Daniel Ortega and all that stuff over there not as much but certainly these two countries were the were the lynch pin for influence in this region and with them under the US sphere That does dramatically change things. I don't think we I I would hope we are not planning on putting boots on the ground in Cuba. That's that is a that's a nightmare scenario if we were to do that because it's so big and it would take so many troops uh to to do that. But but bringing to our war certainly turning into like a Venezuela, I I think that's actually very achievable. I think it could happen. >> Yeah. Know it's fascinating to watch. I mean, hal, just on a personal note, I mean, you spent decades looking at intelligent maritime risk and strategic infrastructure. Have you ever seen this many pressure points hit at the same time? Hormuz, the Red Sea, Taiwan, China's missile buildup. I mean, Russia, Cuba, debt. I find myself using that Chinese that ancient Chinese phrase, may you live in interesting times, which of course is a curse. Uh, that's a way of saying that a lot of stuff's going on. We live in very interesting times. >> Yeah. Yeah. >> And and I think part of this though uh you know we say oh this is so much is happening right now. You know it's been kind of happening and uh you know back in uh you know back in the early 90s the the thinking was oh the cold wars over you know there's no more superpower uh thing. There's going to be this global you know globalization business the economy is going to end. to a large extent that did happen in many places around the world um in fits and starts it wasn't all smooth but it did happen across the board but we go it's the end of big power you know confrontation and stuff and now what we're seeing is well you know and this really is I think what we're seeing is the end of that postWorld War II model >> that took years to put in place but we're seeing that model start to break down and it's and it's logical because you're seeing powers emerging like China, which is much more powerful economically in every other way today than it was at the end of World War II. Uh and and so we're seeing that. The other side, too, is Russia. Uh Russia is is collapsing. The Soviet Union collapsed. Russia's having a tough time. Their demographics are are horrific. And uh and so I I see Russia is probably going to continue to break up and collapse over time and become a much much more insignificant state. Even though they have a lot of nuclear weapons there, it's going to become a much more insignificant state over time. That's interesting. Uh well, of course, we're going to watch what happens with this high stakes little gamble happening with President Xi and Trump and and uh maybe tie this back to Russia. We'll have you on to talk about that. Our time's going too darn fast as it does. Hey, I mean you had a point there. Every era feels uniquely dangerous in the moment. Now with all that's been kind of happening, bring this back to the market for us. Hal, I mean to wrap it up, 6 months from now, I mean what is one data point investors will wish they had paid closer attention to today? >> Uh 6 months from now the straight of hormones will be open one way or the other. It's going to be open and the oil will be flowing. And one thing they need to anticipate is we're going to have an abundance of oil. Matter of fact, we may have uh there's there's a big talk about, you know, we had a bit of a glut of oil uh before this thing took place, but I think we're going to have a lot of oil out there. I'm anticipating oil prices going to drop dramatically. Uh everyone's ramping up production uh all around the world. Uh I think that's going to happen. If you're in the pipeline business, oh, it's going to be a good time because I have a feeling that the Saudis are going to build another East West pipeline when this is all done. So, there'll be some good business there. Um, but I I see that uh I do see a diversification. Uh they everyone's realized that, you know, having all your eggs in one basket, you know, counting on the straight horses to stay open forever, not a great idea. And I do see people diversifying stuff and I see a lot of opportunities coming from that. and really is it's it's assessing where are these opportunities and places you know to really look for uh diversification in terms of uh energy where they source it from in terms of oil natural gas but I also this may sound very strange. I also think other forms of of energy like wind and solar may get a boost out of this as people as different countries going you know we got to be less dependent on anything coming in from overseas. We need to be more reliant and we need to look at these renewable sources of energy. Interestingly, I think it was yesterday I saw that China just put out the largest floating uh um you know wind generation uh platform uh in the world and you go that's interesting China's doing that huh and that just tells you kind of these little things happening behind the scenes. uh and nuclear. I think nuclear is going to I think there's going to be a renewed interest. There already is but a surge of interest in uh in nuclear and I think uh Bill Gates project I think is going to do very well uh over time. >> Yeah. Fascinating. All right. H Keer, CEO of Global Risk Intelligence and Planning, thanks for time today. Also a fascinating podcast over there at Strat. Having fun, huh? >> All right. Thanks, Jeremy. All right. Looking forward to the next. Thanks. >> Thanks. Appreciate it. All right. And thank you for watching. Kicko News. Now, if you want to stay ahead of the markets and understand the forces driving your investments, hit the subscribe button, like this video, and leave your thoughts in the comments below. I'm Jeremy Saffron. We'll see you next time. Heat. Heat.
The Hormuz Illusion: Why Hal Kempfer Predicts an 'Abundance of Oil'
Summary
Transcript
Welcome back. I'm Jeremy Saffron. President Trump is in Beijing today meeting with China's Xi Jinping. Financial markets are focused on the business executives in the room and the potential for a trade deal. But there's another story playing out at the same time here. Uh that story about military capacity, about industrial capacity and the cost of war. Now, according to a new Bloomberg analysis, 81 companies in China's missile supply chain saw revenues jump 20% last year to just over 189 billion yuan. Now, that expansion comes as the US continues operations in the Middle East. And according to Pentagon testimony just yesterday, the estimated cost of that I arranged war uh is now closer to $29 billion. Meanwhile, commercial shipping through the straight of Hormuz remains restricted and the International Energy Agency says global oil inventories are falling by about 4 million barrels a day. And we got this BLS data out today, too. US producer prices uh rose 6% year-over-year in April. So, today we're going to be asking how these military and economic pressures intersect and obviously what that means for the market. Joining us now is Helm Hell Keaptainner. He's a retired marine intelligence officer, CEO of Global Risk Intelligence and Planning and also host of the Strat podcast. Uh, welcome back to KCO News. Good to see you. >> Thanks, Jeremy. >> Listen, we got a lot to get into today. I mean, it's an interesting kind of road map. Just prepping for this. I mean, before we get into Beijing and Iran and and and the numbers, let's just step back for us a moment. I mean, when you look at the map today, President Trump in China, Iran is obviously still unresolved. the hormuz is restricted. Russia under pressure in in Taiwan in the middle of this summit and and that new information about China expanding missile capacity. I mean what is the risk investors are least prepared for here? Well, there's a lot of risk out there and one of the things investors need to be looking at is the uh basically the strategic risk around the world. And uh you know one of the things for example uh my firm we just spent some time talking to a very broad business-based group uh looking at critical infrastructure supply chain issues globally and one of the things we really focused on was looking at these maritime choke points. Now one that jumps right out obviously is the straight of Hormuz and what's happening there. I don't think I need to say more. But of course, just behind that is the Babel Mandeb, you know, going into the Red Sea, which leads up to the Suez Canal. That's one that the Houthi rebels with their anti-ship attacks had basically clogged up some time back. And now the concern is they're going to clog it up again. But then if what you were just referring to uh talking about China and Taiwan the straight of Taiwan uh it's not you know does the world end if the if the China was to block that straight? No. But I would point out that almost 50% almost half of all container ship traffic in the world uh on ships goes through the Taiwan Strait. So, it gives you an idea that some of these things that we look at, you know, that we we'd say, "Well, that's a black swan or something like that." I often say a black swan is simply the swan you weren't looking for, weren't looking at. And I think that people need to kind of pull back a little bit and look at some of the geopolitical issues going on, particularly when they result in conflict that can interrupt supply chains, vital supply chains, and access to resources. >> Yeah. Yeah. Well said. I mean, it's been fascinating just to kind of watch how fast this is all moving. Uh, you know, I know this is hypothetical, but I mean, you know, Hal, if if you were briefing a corporate board this morning, I mean, what would be at the top of the threat board for you? Is it Hormuz? Is it Taiwan? Is it China's missile buildup? Is it Russia, Ukraine, or or US munition stockpiles? Well, actually, I would probably start with the straight hormuz because that's right in everybody's face. I mean, that's the one where you've clogged it off. Now, what I will say is uh what's being reported, and this gets into information, this gets into intelligence. uh what you see on for example Windward which all the news outlets show the Windward map and it shows no little blips of ships going through there or very few blips of ships going through there. That's very deceptive because one of the things with commercial shipping is when they are in an area of an enhanced risk, they actually tell those uh those masters of the ship, the captains, they say and the shipping companies, look, you need to make a call on whether you're going to uh turn on your AIS or turn it off. Because if you turn it on, that means bad guys out there, whether it's a nation state like Iran or pirates or whomever, may use your your your your track to actually target you. And so a lot of the shipping that's going through there is not being reported. From what I've seen, the shipping going through there is much higher. And I think the prices reflect that. I would expect the price of oil to be much higher than it is. Uh so my first thing I'd focus is a straight of uh uh you know, straight of horm. My next one simply because it is so uncertain is I talk about the Baba Medbe. I talk about the issues with Suis Canal. I'd definitely be talking about what would happen to global supply chains if both of those things are blocked at the same time completely. And then the third one I'd talk about is uh looking over to China. I'd definitely look at the missile thing, but I'd also be talking about the the other missile thing, which is all the missiles that the US is putting in there. All the missiles are being put in by other countries. what Japan is doing which is absolutely amazing uh in terms of of raising its defense posture across the board and I'd be pointing out you know what's the likelihood of that and what that would do to disrupt supply chains. >> Yeah, you know it's funny I'm looking at the markets and and they're not doing terribly bad today with all that's going on and not terribly well but I mean the markets counterargument is kind of simple here. Trump and she you know both need stability. Iran needs revenue. China needs oil. The US wants lower energy prices. Nobody benefits from uncontrolled escalation. But you know there's a lot of uncertainty. So why isn't that the base case? >> Well, you know, a lot of uncertainty and I think a lot of uncertainty is which way is China going to go on this? You know, the the original thinking on on China was that oh, China backs Iran. The US is in a war without Iran. So therefore, China will simply blindly back Iran across the board. And China gets a lot of oil. 90% of the oil that Iran exports goes to China. 70% of uh of the oil that China uses actually uh is imported. That's a huge amount of oil. It kind of almost reminds me of Japan at the you know back in the late30s in terms of its uh situation there. And then about half of that imported oil goes to Austral. So the thinking was, you know, Japan will back Iran, but China is also seeing what happens with this supply chain disruption across the board, what happens to its position with other countries uh around the world. And I think China's actually doing kind of a strategic relook at what's going on there and also recognizing what would happen if they were to do something militarily with Taiwan, what that could do to them economically. you know that uh I'm not the first person to say the the economic situation in China is is probably more precarious than most realize. >> Yeah, >> they are sitting on a tremendous amount of debt. They got a huge real estate problem. The uh that belt and road initiative is uh I you know some have referred to it as the trillion dollar debt bomb. They've got these uh massive loads of of debt with all these countries that probably will never be able to pay that back. And if they were to all default at once, the second third order effects that would have on the Chinese economy would be pretty catastrophic and to the CCP, to the regime itself. So there's there's a lot of reasons why China will really want to lean forward trying to come to some sort of agreement with the US and probably do something to address this issue out of the straight of Hormuz. >> Yeah. Yeah. You know what? Let's stay on that leverage in Beijing kind of topic. I mean because those meetings that are taking place. President Trump obviously brings the US dollar and and the tech sector and and a major you know it looks like many major CEO delegates at this point. I mean Xi Jinping brings rare earth dominance, deep industrial capacity and it seems like a growing military. I mean from an intelligence standpoint how do you assess the leverage each side brings to the table today? Well, certainly uh uh you know, Chinese uh China's developing a lot of military capabilities. They're building a lot of stuff. They're building carriers. Uh one of the few countries in the world that are actually very aggressive building carriers, but building a lot of stuff. They want to have a a big blue water navy. They're not quite there yet, but they want to have a blue water navy. Um and uh so they're doing a lot of things in that area. Uh the big issue though is rare earth, and that's something where the US is completely dependent. That's where all those high-tech CEOs are sitt there. That's where all the defense manufacturers are really looking at this problem. Now, the interesting thing with rare earths are first off, they're not actually as rare as the name would imply. They're actually everywhere. But the but the thing that China did very strategically starting back in the '90s was that they not only uh isolated, they very aggressively knocked out other places where rare earths are being mined and and certainly knocked out everywhere where they're being processed. So they have a tremendous capacity in processing rare earths in refining them. Um they have a lot of rare earths but they're not like some you know global repository for rare earth. They just have a temporary advantage in this area because they put so much focus on this. Some of it would say that some of the the practices that they did in this area were uh were really kind of underhanded in forcing other companies out of business around the world. But that shift that has all changed. That's going another direction. And and I think China recognizes that their leverage of rare earth is going to diminish over time. >> Yeah. You know, markets are obviously we talked about this kind of treating this like a like a trade summit, right? Boeing, agriculture, Nvidia, rare earth chips. Is is that the wrong lens here? Is this really about who controls the inputs of power? Oil, chips, missiles, rare earth shipping lanes. >> Jeremy, it's interesting you put it that way because that is that is so true. You know, every we've often focused at the finished product. You know, chips. Uh you know, what does Taiwan have? They produce a lot of chips. All right. Uh that's semiconductors. That's they're a powerhouse for that. All right. Uh obviously China's trying to catch up in that area and they've made some big strides in and in and the improvement of the quality of the chips that they produce. Um but with that said, at the end of the day, it really gets down to resources. You know, we're talking about oil, rare earth, and obviously different types of metals uh beyond rare earth. And it gets down to resources. And that's one where China has an advantage in certain things, a real disadvantage when it comes to oil. Uh, hence that uh rather uh distended uh I would say crazy claim that 99 line 9- line or 11- line claim where they basically claim the entire South China Sea as territorial water of China, which is absolutely ridiculous under all international law, unclaused uh maritime, whatever. It's it's just and and you really get into it's like why do you claim that? Well, they have a little thing they point to but but when you really get into the discussion a lot of times it's like well it's called the South China Sea and we're China so therefore and you go that is that is crazy talk and it and it doesn't work but it does show you a certain desperation that China has in terms of resources. And that's where it's a little unnerving because it reminds me a little bit of Japan situation >> back in the 30s and going into World War II. >> Yeah. Yeah. I mean, you you talked about it there briefly. I mean, if China is obviously China is Iran's biggest oil customer, but if if Trump presses she on Iranian oil, is this now a direct part of USChina competition? >> I I think it will be part of the competition, but I do think it's also an area where we could probably find agreement. >> Yeah. Uh what I kind of see with the Trump White House is they're looking beyond the current regime. And definitely if you talk to about Israel, they definitely have been trying to look beyond the current regime for some time. Trying to make that actually, you know, happen as soon as possible. And they're looking at at Iran in terms of resources. What does it bring? What can it what could potent what potentially it could do uh regionally and globally in that regard? And and in that regard, I think uh the US can turn to China and say, "Hey, look, we could work together to safeguard some of these vital resources, the supply chain of things like oil." And then you get into other things, not you know, indirectly and directly, uh fertilizer, liqufied natural gas, another huge thing that comes out of the Gulf, uh that they need. And then another thing which is doesn't get a lot of attention is helium. And that gets into semiconductor uh fabrication which is that has become over the years the gas of choice and in the fabs in these big fabrication units uh knocking out other types of gas but it's one of those things that they they produce it comes from uh LG production uh it's a it's kind of a byproduct of it if you will uh that they can capture and they and they got tremendous economies of scale in doing that but that's another thing that's been cut off and that's an indirect effect of the straight of Horus is It's really cut off the source of helium needed in China and needed in places like Taiwan. >> Yeah. Yeah. Interesting. I I want to keep looking at the kind of industrial data because there was this new report. Bloomberg reported that there's 81 companies in China's missile supply chain that really saw their revenues increase. They hit 189 billion Juan last year up about 20%. Now that manufacturing surge happened obviously while Xi Jinping was removing top generals in the People's Liberation Army rocket force. Um, as a former intelligence officer, how do you interpret a company purging senior military leadership while accelerating missile production? >> Well, it is kind of an it it does look a little strange. You know, of course, they were removed ostensively. They were removed because they said they were involved in in uh corruption, which implies that they were uh somehow rigging contracts and stuff. And that usually implies that you have a very uh inefficient supply chain for certain things like missiles and other types of things that the military uh procures. So, but the other thing I I think really the big thing is the surge in demand uh particularly you know Chinese government demand uh for these uh for missiles and I think that's really where you're seeing uh that that happening and and China is very much focused on the you know the entire region very much focused on what it has to do with Taiwan but also looking at what happens with the US which is pretty much assured that the US will weigh in to defend help defend in Taiwan. And it is going to be a war involving a tremendous amount of missiles and a tremendous amount of drones uh both airborne and on the sea. And they're preparing for that. I think that is part of the reason you're seeing that stock price go up because nobody is seeing certainly in the near term that there's going to be a decrease in demand for missiles and things associated with that type of warfare. You know, this is an interesting conversation because if China is stockpiling missiles while the US is expending munitions in the Middle East, I mean, does that factor into deterrence around Taiwan? I mean, is is the US still relying on higherend platforms while China's kind of focused on volume and stockpiles and the ability to outlast? Before February 28th, uh there was already a lot of discussion uh in Washington DC, rumors coming out of the Pentagon, un you know, unnamed officials in the Pentagon or whatever talking about the potential hit this was going to have on on the on our critical stockpiles. You know, things like Patriot missiles, Tomahawk missiles, and a variety of other ordinance that we've been expending at a rather prodigious rate in the war with Iran. And uh we're way down where we want to be. uh other other combatant commanders, the cocom commanders, you know, this is scentcom, US Central Command, and then you go out to Indoaccom, Indo-Pacific Command, uh in Hawaii, uh and they're looking at saying, "Look, we're really running down our stock piles." Now, look, they're they're they're military, they're they're in the chain of command. They can only say so much publicly, but privately they're very very concerned that we've run run down our stock piles tremendously. The counterweight on that is what I kind of alluded to earlier though is China's kind of looking at this sort of strategic reook. They're looking at what has happened in the Persian Gulf in the straight of Hormuz and realizing that this amphibious if they do some sort of amphibious operation against Taiwan, it won't be easy. And I would point out that Taiwan, just geographically speaking, is a very difficult amphibious operation. The US looked at doing that in World War II. We said, "Nope. One side of the island is just steep cliffs. You really, you know, it's it's just it's you're not going to get a force beach heads established. The other side of the island is is heavily populated. uh a lot of people there, a lot of defense forces there now with Taiwanese defense forces and uh and and I will say this as a marine amphibious operations are probably one of the most difficult or the most difficult uh operation to pull off >> and uh so they they they're starting to recognize the challenges that they would they probably recognizing of it more a little bit of that self-confidence may have been eroded as they're looking at what's happening in the Gulf and they're saying we need to look at our own plans a little bit closer. Yeah, that's an interesting one. I mean, the administration has indicated that Taiwan arm sales may be discussed directly with Shei in China. Critics call this dangerous. I mean, supporters call it a negotiation. What are the strategic risks of putting Taiwan's defense directly into the conversation in Beijing? >> I I don't I hope we don't do anything that would upset that. Uh, actually, the the for the US, the best thing in the world is for Taiwan to spend as much money as possible, obviously, buying weapons from the US. um and uh and and arming itself. Uh you know, whatever happens, the US is not like 911. We're not going to suddenly appear 10 minutes after they get hit. It takes a while for us to move forces into the area. It's going to take a while to to build up forces so that we can do stuff. That's why we're looking at that first chain, second chain, island chain um uh requirement there in terms of how we're doing that. We're looking at using, you know, basically using islands >> that are in the South China Sea almost like fixed aircraft carriers or or facilities to launch drones and missiles uh because of some of the challenges there logistically of moving stuff around. So, um that's one of those things I don't I think it would be a bad president if we negotiate uh arm sales to Taiwan with the PRC. And obviously the PRC's goal is yeah sell them less arms so that when we invade it's easier. Okay. U every country of the world is going to look at that and go do we want to buy anything from the US now you know are they going to go in and negotiate away our national defense with some adversary for some you know what they would see as trans you know transient gain or something like that. Uh I think it would be a very bad precedent if we did that. >> Yeah I mean you know every US president has had to manage Taiwan carefully. Is this actually a break from president or or just a more public version of bargaining that it's always kind of happened privately? >> I think it's always kind of happened privately. One thing though is Taiwan in the '9s, you know, after the end of the cold war, the Soviet Union fell and uh you know, China was opening up to business, you know, certainly starting in the 80s, but really opening up to business in the '9s and the O's. Taiwan kind of looked at this and they said, "Oh, this is great. Um it looks like uh you know China, the PRC is embracing capitalism. They're embracing all these principles that we believe in uh economically speaking. Sure, they still have the Communist Party, but they're not the threat that that they were before because they're not as ideologically entrenched as they were. And then things changed. All right. Really what changed was Xi came to power and consolidated power. And that's where things really really changed and became much more ideological. And unfortunately for for Taiwan, they had let their guard down. They had not been investing in their defenses like they should have. They had they had invested in a lot of, you know, very very high-end, you know, uh, high techch sort of things. uh where where actually the the the the grudging admission is that they need to probably spend less money on on F-16s and more money on things like you know missiles, tactical missiles that could be used to stop landing craft and armored vehicles and things that will stop infantry and all sorts of stuff like that and stop ships out at sea. And uh so they they invested poorly and they underinvested across the board and now they're catching up rapidly. Yeah, it's wild. And of course, you know, this all as we talked about in the intro, uh Iran still going on and Congress kind of questioned defense officials yesterday. In fact, I think Haggath was in front of Congress. Uh President Trump has said that Iran's military capabilities have been largely dismantled, but according to reported US intelligence, now we're seeing Iran may still retain about 70% of its missile and drone capacity. How do you explain the difference between those assessments? Well, the difference is this is the ability of uh outside of of drones and missiles and and what they have. Can they really export that in any significant way? In other words, can they can they do anything? Well, their military can't really do much because their military has no air support. Their air force is pretty much gone. All right. They're they're they're significant their main their navy the artistic side of the navy the uh the actual you know military not the revolutionary guard corps but that but the but the larger combatant ships that's all gone as well. >> So that that really has been shut down to a large degree. Now as far as that retention of drones and and missiles a lot of that missile stuff was in these vast what they sometimes called underground missile cities or towns. these huge underground complexes where they stored all these missiles where they could not be attacked. Yeah, they couldn't be attacked. But what we did was we took out missile launchers and we we basically took out the the uh the uh entrances for these vast underground facilities. So yeah, they're down there. They just can't get to them and they can't get them out to deploy them. Now, given enough time, they can dig them out and they can, you know, some of the some of the launchers they believe are just simply buried. They're not actually destroyed. So they might be able to put that back in operation, but it takes time to do that. So whereas a lot of stuff, the the thought was, look, we can't really get in there and destroy those missiles underground. Same thing with the drones unless we put boots on the ground and they literally go underground and do what the Israelis have done before, which is actually blow stuff up the oldfashioned way. Um, we can't really do that, but we can quirk these things up in such a way that they can't use them very well. And that's what we did. And so they retain a lot, but it's a lot that they can't use right away. So that's kind of where that that that number is a little bit misleading. >> See, this is good because I was going to ask you, Hal, I mean, from a from a military standpoint, what matters more? Is it is it the the number of missiles Iran still has or whether Iran can still command and coordinate and and launch them effectively? >> Both matter a lot. All right. But if you can't put the missiles where they want them to where they want to put them, then that makes a big and that's, you know, then you have a lot of missiles that are useless. You can't really do much. All you can do is, you know, rain down missiles, all of World War II, you know, with V1s and V2s and it really doesn't have any effect. It's psychologically debilitating, but it doesn't really hit the target very well. And and that's one of the things when we went in aggressively and the Israelis obviously in a joint you know combined operation is debilitating their command control communications across the board. That's why you saw that slow response you know when when when we did that big thing that decapitation strike that took out the supreme leader and about 49 of his top officials uh you know military and civilian around him. uh among other things, there was a lot going on behind the scenes, but it really cut off command, control, and communications. That's why you saw that very slow response, >> right? >> Uh in fact, you you would expect a barrage of missiles and drones would have been flying across the Gulf and you didn't see it for a while and you go, somebody planned very well because uh the those units were standing out there going, "What are we supposed to do? We we're a we're very hierarchical, you know, we wait for commands and here we are having to make decisions on our own, which is not something they're very comfortable with. And u and so it took a while for them to uh to respond to that. They did eventually, but it took a while. >> And to your point, I mean, sporadically hitting uh other neighboring countries and and you know, that brings me Congress also pressed the Pentagon yesterday on on commercial shipping through the straight of Hormuz. Just to get to back to that in a second cuz I mean if the if the US is saying it controls the hormuse. Why is the shipping still restricted for the west? And I asked this because according to to breaking reports just this morning, a Chinese uh super tanker carrying about 2 million barrels of Iraqi crude just successfully crossed the street. So I mean if if China can still get to its oil while the rest of the world deals with the blockade, what does the US control of this checkpoint actually mean? There's actually a lot more shipping going in and out of the straight than than most realize. And actually, if you look at some of the stuff, uh it's not clear that the Iranians have have really uh mined the straight to any great extent. One of the things with the mines, for example, with the smaller boats, those gunboats, you know, going out and pulling out uh you know, to to set a significant mine where you drop it to the bottom and it's chained to an anchor on the bottom or whatever it is, you know, these these larger mines that takes a larger craft to do that. You can do it with a small gunboat, but you can't do a lot of it with small gunboats because they can't carry a lot. So, a lot of times they'll carry out these floating mines. Well, if you launch the floating mines, um that means they float anywhere, which means that they will go in there and they will go into lanes that the Iran the Iranians want to use uh as much. In fact, they will actually go more into the lanes I want use because if you look at the the way the currents work within the Persian Gulf, a lot of those floating mines would tend to drift over to the Iranian side of the Gulf and just kind of hang out there. So, that would cause them a lot of problems. So there's not as much mining and I think commercial shipping's picking up on that because everything I've seen, sure they're not doing they're not turning their AIS on, but the shipping is actually coming through and it it is far larger than most people think. It is probably uh one day I think they said there was uh two ships that made it through. Uh I think it was probably 25 times that many ships that made it through that day. So there's a lot more going on. And I think the price of gas and oil reflects that. If there was if it really was completely cked up, like everybody says, you would see 150 $175 a barrel for Brent crude, you just don't see that. And there's a reason why. >> Mhm. Yeah. I mean, even with the PPI coming out, CPI, all those different data points, you can kind of see it getting a little bit more expensive. But but I think it also comes down to to debt. I mean, according to the Pentagon testimony, the Iran war is now closer to about 29 billion. Now, lawmakers also question the administration's plan to fund 350 billion of a $1.5 trillion defense request through reconciliation. I mean, how does that domestic funding fight over drones and munitions and missile defense and readiness affect America's ability to project long-term deterrence in in the Pacific? Yeah, I think everybody's got a chance to see some of the stuff that happens in Washington DC all the time. I'll tell you when you start getting those numbers, it gets some of the discussions are really some of the assumptions in the discussions get a little bit out there. But I will say one thing I just want to say war is expensive. Period. All right? And and a lot of times uh political leaders, they go, "Oh, look at the military. They can do all this and everything else." And it's like, yes, but war is expensive. If we learn nothing from the wars in Afghanistan and Iraq, it is the cost of war. Uh and and so when they say 29 billion for a war that's gone on what, two months? >> Yeah. >> And it's a war with Iran, I I kind of nod my head. I said, "Well, that's actually not an unreasonable amount considering what what's been done and the cost of the weapons." You know, one thing that we're we're we're trying to catch up on. It's taking a while, you know, dealing with all these drones. If you're taking out a a $35,000 Shahed drone with a $2 million or $4 million missile, well, that is not a I'm going to get into ROI. That is not a good return on investment. That is where we need to really invest in some of these less costly drone defense systems, which we're we're doing. It's just the problem is we're so far behind. And that's what this budget's really about. >> It is a recognition. It's looking at Ukraine and things and saying we're just way behind where we need to be in the next for the next war. >> Yeah. And and I mean to your point, modern war is is very expensive and replacement capacity may be the real issue. What is the bigger constraint right now? You think it's is it money? Is it is it munitions? Is it ships? Is it interceptors? Industrial capacity? Or could it be political patience at this point? >> Yes. All the above. Absolutely. Yeah. Yeah. >> Uh, at the end of the day, it's all money. Uh, I I worked the war on drugs back in the 90s and we go to these very high level meetings and we talk about all these lofty goals of shutting down the cartels and doing all these other things and then and as soon as that was all done and get into uh the budget issues and we talk about it and then sure enough, everyone there would be always be somebody in the room that say, "Well, you know, it's not about the money." And then everybody would bite their lips and try to suppress a laugh because they realize this is about counterdrug money. And and it was at the time we used to say drug money corrupts and counterdrug money corrupts absolutely which is another way to say that that the amount of money that is being spent is absolutely you know the core issue here and uh so when you talk about weapons and everything else at the end of the day it's got to get paid for somehow and that gets into that gets into everything you just talked about that gets into >> can we produce it? Do we have you know do we have the economies of scale to produce it cost effectively? Do we have the capacity to do this stuff? you know, some ships. We're buying ships from other countries now. We can't produce them. That was a very short-sighted thing in the 90s where we shut down shipyards. So, that's a big problem that we have. And then, of course, political patience. >> Yeah. You know, obviously that you just mentioned it there. The US still has enormous financial and industrial capacity. Our concerns as we watch the markets, you know, they're a bit jittery, but not too bad here. But are are concerns about depleted stock piles overstated in in your or is the market kind of too complacent about how long it takes to rebuild them? >> Well, I don't think the market really understands what this means across the board. I don't think the market really understands what could happen. Uh and and certainly uh I would hope that the fragility of some of the global supply chains is is something that the market is trying to take, you know, basically assess or reassess more closely. uh when you look at how things are moving around the world. I mean we had this uh you know with globalization you know I'm I'm a I'm a Thunderbird grad all right uh way back when which is a you know international business school management school and we were you know we were always focused on globalization globalization globalization a big chunk of that deals with uh looking for where we produce it and stuff like that and a lot of that's all tied to commercial shipping now we're recognizing in a way that we haven't probably recognized since World War II some of these fragile shipping lanes around the world and what could happen when major players like China uh like other countries decide that they want to clog up those those shipping lanes and these shipping lanes are pretty small and it doesn't take much to cause some huge problems. >> Yeah. Interesting. Fascinating. Um, just quickly on China because we didn't talk about it and before coming to air, you and I were chatting a little bit about how interesting it was to see uh, Nvidia's Jensen Wang sitting on the tarmac in Alaska waiting to board Air Force One kind of alone and with his backpack. Obviously, he's part of Trump's delegation along with major CEOs from Tesla. He's got Apple, I think Boeing, Black Rockck, and others. Now, markets are clearly watching chip access, business deals, but AI chips are are are not just commercial technology anymore. them in the matter for logistics, surveillance, targeting, cyber, you know, you know, all the rest. So, weapons development. Where is the line between market access and and strengthening a rival military industrial base? >> Uh, it it is becoming very very blurred and AI has become an integral part of uh of weapons, all weapons solutions. Uh, we're starting to see more and more AI. It's just the capabilities that it brings. uh you know it's just it's it's uh you know the the the the capability and the capacity is growing exponentially and it and it it's I could say it's creeping into everything but it's not creeping it's leaping >> into everything that we do uh particularly as we're looking at drones loitering munitions all sorts of things like that and we say well this could be done what with AI and and it's already being done there's a huge thing I just read an article this morning talking about uh what some of the loitering munition stuff that the Ukrainians are using and the Ukrainians are are basically by necessity incorporating this very very quickly and they're talking about whole units that basically launch these AI AI enabled loitering munitions to sit out there and look for bad guys but literally those munitions are virtually autonomous. I mean, we're kind of getting to that whole Terminator movie context where you suddenly have all these uh robotic systems that can go out there and identify targets and do stuff. And of course, the great fear is well, what what might they do? And uh but that's happening very quickly. And so when we talk about commercial AI, the military application is just such a small line to cross. I think we have to be very careful what we're doing with China in that regard. And it's not going to be an easy solution. I I'm not gonna I'm not going to say there's an easy idea out there. I don't have it. I think it's going to be something that's going to be very complicated, very nuanced, and very difficult discussion. >> This is interesting. I can kind of transition this naturally now over to our our Kiko metals kind of investors. I mean, looking at physical metals, obviously we know modern warfare depends on, you know, that advanced electronics or sensors or satellites, radar, drones, interceptors. That means silver and other critical metals are part of the defense supply chain. I mean, some estimates suggest individual missile systems can contain significant amounts, kilos and kilos of of silver. Uh, here's my question. I mean, given given the pace of of munitions use, I mean, how significant is the defense industry's absorption of physical silver and these critical metals or is the broader market kind of just pricing the demand correctly here? Well, I mean, the broader market always figures out a way to price a demand. Uh, I'm not worried about that. But, you know, a lot of things, for example, uh, silver, a lot of things that came out of Russia were cut off, uh, four years ago, uh, for the most part. So, that that was a huge hit, particularly nickel is my recollection, that was a big one. But other also some rare metals that were coming out there as well. One of the things that you're seeing with the US is um you know, we we see the stuff we're blowing up drug boats. All right. In the Eastern Pacific, in the Caribbean, we certainly saw that spectacular raid that we did in Venezuela. We see this uh rather sharp rhetoric with some not implied threats, very wellstated threats against Cuba. And then you see stuff where, you know, we're actually, you know, according to articles yesterday that the CIA is very active in Mexico working against the cartels. And and then we have this whole coalition we're working with with what 17 different South American, Central American countries, working on a lot of stuff that's all aimed at the narot terrorist cartels. All right. Now, pull back a layer. We're looking at precious metals throughout that entire area. If you look at what China's been doing down there, particularly I did a lot of consulting in the area of lithium, looking at the Altaplano region, certainly looking very closely at Bolivia and uh other places down there where we, you know, Chile, Argentina, where we get lithium, and then uh of course Bolivia is famous for being a silver source of silver going back centuries. Um, a lot of this is to regionalize our access to some of these precious metals in a more concerted way. And then you look in the US where we're opening up uh a lot of these preserved areas like national parklands and stuff like that and saying, "Hey, can we go in there and start mining that stuff near and dear to me as a young man, you know, as a as my my dad was a gold miner." >> Yeah. >> I spent one of my misspent youth was climbing around in gold mines in National Forest in Oregon that where we had claims. And so, uh, we're looking at all this to bring in that precious metal stuff, a western hemispheric thing, and then looking for closer sources in other places around the world. For example, Greenland. >> Yeah. No, I mean, this is interesting. This is interesting. And you brought up Venezuela there, and I I I have to bring it out. I have a note here because you brought up a point point a couple of months ago. You said, you know, that drawn out conflict could ripple into the Western Hemisphere. You specifically mentioned Cuba even today and and just yesterday, according to the Pentagon testimony, Russian spy ships and foreign intelligent activity makes Cuba a national security threat. I got to ask you, I mean, given given the ongoing operations globally, how does the US military balance this emerging risk close to home? >> Well, I I would say that, you know, we're a lot of there's a lot of hyperbole around Cuba, right? They have always been a national security risk down there. Um, and I I don't I mean, if I see a Russian spy ship down there, you're like, "Okay, it's Tuesday." It's not something that gets me that excited. But, uh, but yes, they've been doing a lot of stuff down there. Um, but the difference is this. When Venezuela uh fell into our sphere, so to speak, uh, when we took de facto control over where they can send oil and what they're doing, that put Cuba in a horrific economic situation. They had been on life support before and basically that life support was Venezuela sending them discount oil and keeping them going. Now that's no longer there and their economy is is basically disintegrating as we talk. Uh they're in they're they had no ability. They've been hit by by hurricane after hurricane, except each time the hurricanes come in, they wipe out the grid system, but the the ability of the government to rebuild it has been more and more delayed, disrupted in incapable across the board. So, I think we're kind of setting the seeds for what happens if, you know, Cuba fails completely as an economic model. you know what happens when and that'll be a shift because if that if that happens you know Venezuela and Cuba were the two if you will outposts for this you know this uh China Russia thing uh in the western hemisphere you know one could say well what about Nicaragua yeah okay Daniel Ortega and all that stuff over there not as much but certainly these two countries were the were the lynch pin for influence in this region and with them under the US sphere That does dramatically change things. I don't think we I I would hope we are not planning on putting boots on the ground in Cuba. That's that is a that's a nightmare scenario if we were to do that because it's so big and it would take so many troops uh to to do that. But but bringing to our war certainly turning into like a Venezuela, I I think that's actually very achievable. I think it could happen. >> Yeah. Know it's fascinating to watch. I mean, hal, just on a personal note, I mean, you spent decades looking at intelligent maritime risk and strategic infrastructure. Have you ever seen this many pressure points hit at the same time? Hormuz, the Red Sea, Taiwan, China's missile buildup. I mean, Russia, Cuba, debt. I find myself using that Chinese that ancient Chinese phrase, may you live in interesting times, which of course is a curse. Uh, that's a way of saying that a lot of stuff's going on. We live in very interesting times. >> Yeah. Yeah. >> And and I think part of this though uh you know we say oh this is so much is happening right now. You know it's been kind of happening and uh you know back in uh you know back in the early 90s the the thinking was oh the cold wars over you know there's no more superpower uh thing. There's going to be this global you know globalization business the economy is going to end. to a large extent that did happen in many places around the world um in fits and starts it wasn't all smooth but it did happen across the board but we go it's the end of big power you know confrontation and stuff and now what we're seeing is well you know and this really is I think what we're seeing is the end of that postWorld War II model >> that took years to put in place but we're seeing that model start to break down and it's and it's logical because you're seeing powers emerging like China, which is much more powerful economically in every other way today than it was at the end of World War II. Uh and and so we're seeing that. The other side, too, is Russia. Uh Russia is is collapsing. The Soviet Union collapsed. Russia's having a tough time. Their demographics are are horrific. And uh and so I I see Russia is probably going to continue to break up and collapse over time and become a much much more insignificant state. Even though they have a lot of nuclear weapons there, it's going to become a much more insignificant state over time. That's interesting. Uh well, of course, we're going to watch what happens with this high stakes little gamble happening with President Xi and Trump and and uh maybe tie this back to Russia. We'll have you on to talk about that. Our time's going too darn fast as it does. Hey, I mean you had a point there. Every era feels uniquely dangerous in the moment. Now with all that's been kind of happening, bring this back to the market for us. Hal, I mean to wrap it up, 6 months from now, I mean what is one data point investors will wish they had paid closer attention to today? >> Uh 6 months from now the straight of hormones will be open one way or the other. It's going to be open and the oil will be flowing. And one thing they need to anticipate is we're going to have an abundance of oil. Matter of fact, we may have uh there's there's a big talk about, you know, we had a bit of a glut of oil uh before this thing took place, but I think we're going to have a lot of oil out there. I'm anticipating oil prices going to drop dramatically. Uh everyone's ramping up production uh all around the world. Uh I think that's going to happen. If you're in the pipeline business, oh, it's going to be a good time because I have a feeling that the Saudis are going to build another East West pipeline when this is all done. So, there'll be some good business there. Um, but I I see that uh I do see a diversification. Uh they everyone's realized that, you know, having all your eggs in one basket, you know, counting on the straight horses to stay open forever, not a great idea. And I do see people diversifying stuff and I see a lot of opportunities coming from that. and really is it's it's assessing where are these opportunities and places you know to really look for uh diversification in terms of uh energy where they source it from in terms of oil natural gas but I also this may sound very strange. I also think other forms of of energy like wind and solar may get a boost out of this as people as different countries going you know we got to be less dependent on anything coming in from overseas. We need to be more reliant and we need to look at these renewable sources of energy. Interestingly, I think it was yesterday I saw that China just put out the largest floating uh um you know wind generation uh platform uh in the world and you go that's interesting China's doing that huh and that just tells you kind of these little things happening behind the scenes. uh and nuclear. I think nuclear is going to I think there's going to be a renewed interest. There already is but a surge of interest in uh in nuclear and I think uh Bill Gates project I think is going to do very well uh over time. >> Yeah. Fascinating. All right. H Keer, CEO of Global Risk Intelligence and Planning, thanks for time today. Also a fascinating podcast over there at Strat. Having fun, huh? >> All right. Thanks, Jeremy. All right. Looking forward to the next. Thanks. >> Thanks. Appreciate it. All right. And thank you for watching. Kicko News. Now, if you want to stay ahead of the markets and understand the forces driving your investments, hit the subscribe button, like this video, and leave your thoughts in the comments below. I'm Jeremy Saffron. We'll see you next time. Heat. Heat.