Canopus Capital

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Transition from Global Order to Disorder:

Post WW2 global system of order
In 1944 the U.S. called 44 allied nations to a conference in Bretton Woods, New Hampshire and offered them global free trade, U.S. market access and full protection of all their maritime supply chains trade routes at zero cost.

There was one condition: The allied nations had to pick side and allow the U.S. to help protect them against the Soviet Union. That is NATO.

The Bretton Woods system lead to a 70-year period of peace and prosperity, where global GDP expanded by a factor of 10 and world population tripled. The system had one flaw: The US won and the Cold War ended.

Post Cold War global system of disorder
For the U.S., Bretton Woods was never about trade but about security. Post Cold War, the U.S. started a strategy of global disengagement. With the current Trump administration, this process got accelerated.

With the shale revolution driving the U.S. to energy independence and the end of the Cold War, the U.S. no longer sees the necessity of paying for security of other countries maritime supply chain trade routes.

The world has entered into a transition period from a global system of order to a "new normal" global system of disorder, which will build up the associated risks of international trade routes along with its value chain and will increase the risk of regional conflicts within the coming 5 - 10 years.

First potential Crisis: Russia

Russia
Since the break down of the Sowjet Union, the Russian birthrate collapsed by 60% and will as consequence cut the Russian army by half within the next 5 years. If Russia wants to change the shape of its western border, then it has to do so within the next 3 - 5 years - and that is what Russia is aiming for.

The western periphery of Russia is currently 4'000 km long, has wide open territories and is considered as highly insecure. Russia's ideal would foresee to plug five geographic areas from the Baltic, to the Carpathian, down to the Caucasus, which would reduce the western borderline to 1'000 km only. If the Russians think they can pull this off, then they could protect the new 1'000 km borderline with only half the current size of their army and that's Russia's goal.

Manipulating energy supply to the west of 6.5 mm bbls of oil and 15 bcf of natural gas per day, faces a potential supply risk and if only half of that supply is stuck, then that would add $ 100 per bbl of oil.

Second potential Crisis: Middle East

Middle East
The U.S. has always kept the Middle East open in order to secure the energy flowing, preventing a global recession triggered by a regional crisis. The U.S. entertained a carrier battle group in the region to keep the Saudis and the Iranians apart. The Saudis and the Iranians are enemies and are opposing each other economically, politically, militarily and strategically. The Saudis are pushing against the Iranians aggressively in 8 major military conflicts throughout the region.

2.5 mm ethnic Arabs live in Khuzestan, a Persian state, as a dispossessed trouble making minority in one of Iran's largest oil producing area, covering 80% of Irans production. Saudi Arabia has already defined these 2.5 mm Arabs in Khuzestan as their potential 5th column. On the Saudi Arabian side, there are 3 mm Saudi Shias living in the area of the Khawar oil field, Saudi Arabia's largest producing oil field and export facility. It is easy to imagine that Persia's secret service is working over-time to be in constant contact with that Shia group. An attack on the Khawar oil field and infrastructure would bring Saudi Arabia onto their knees.

These two field alone produce together 11 mm bbls of oil per day and if only a quarter of that comes off-line, we would estimate another $ 100 per bbl of oil to be added. That assumes that nobody gets caught in the crosshairs like Kuwait, Qatar or the Emirates.

Third potential Crisis: East Asia

East Asia
East Asia countries are all net-oil importers from the Persian Gulf and in order to make sure that their needs are filled, the tankers will have to get to the Middle East, pick side, fill the tankers and escort the crude on a 11'000 km maritime route back home.

It is well known that the Taiwanese, the Koreans, the Japanese and the Chinese do not have a century long tradition of brotherly and loving cooperation - quite the contrary is true. Should only one tanker on the way home come under attack, or be annexed by one of the four countries' navies, then that would put an end to the cheap and safe global supply chain system.

The global supply chain system of the last 70 years has been built on cheap and safe maritime transportation. An increase by half a percent in marginal cost of transportation would turn half of the global value chain system into being no longer viable - that alone is enough to shatter the Chinese system.

Canopus Capital

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