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While The West Was Asleep...
I have been considering writing a piece like this for some time but the magnitude of material one could cover seemed overwhelming to me, and it still is. I first grew concerned about the future of the West after reading an excellent series from the New York Times in the fall of 2021. If you haven't read the series before, I hope you will take the time (including some links to a few articles within this post).
However, it was a tweet by billionaire financier and mining giant Robert Friedland this week that left me somewhat stunned and thinking that if I can't cover all of this important topic, I could at least start with a few crucial points - because it's not just investors that need to know, it's everyone.
The world as we know it will likely become a very different place over the next decade and that's not a conspiracy theory - it's just a fact.
Headlines regarding China seem to dominate, and concerns about the macro seem to revolve around a slowing Chinese economy. China moving from a manufacturing to a consumer based economy, as well as emerging market growth, are often ignored. It was Friedland's tweet of a Fareed Zakaria segment that opened my eyes to something of perhaps the greatest significance of all - that a much larger player has emerged from the Middle East, one most were oblivious to. Saudi Arabia has amassed enormous wealth, significant enough to become a global superpower; if you assumed having ~17% of the world's proven petroleum reserves was all they possessed, you would be incredibly mistaken.
Is it too late for the West? I certainly hope not, but it doesn't look promising. Many thanks to Kailish Concepts for sharing some thoughts on the Marshall Plan, because as I've quoted from Mark Twain before - 'history doesn't repeat itself, but it often rhymes'. The Marshall Plan, or the Economic Recovery Act of 1948, proposed that the US provide economic assistance to restore the economic infrastructure of postwar Europe. Considered a success, by 1950 participating countries had returned to, or exceeded, their prewar production levels. Western democracies have made no secret that they intend to reenact a modern version of the Marshall Plan following the war in Ukraine. We can only hope that means a secure supply chain, as well as democracy's survival across the globe.
WASHINGTON — Tom Perriello saw it coming but could do nothing to stop it. André Kapanga too. Despite urgent emails, phone calls and personal pleas, they watched helplessly as a company backed by the Chinese government took ownership from the Americans of one of the world’s largest cobalt mines.
It was 2016, and a deal had been struck by the Arizona-based mining giant Freeport-McMoRan to sell the site, located in the Democratic Republic of Congo, which now figures prominently in China’s grip on the global cobalt supply. The metal has been among several essential raw materials needed for the production of electric car batteries — and is now critical to retiring the combustion engine and weaning the world off climate-changing fossil fuels.
Mr. Perriello, a top U.S. diplomat in Africa at the time, sounded alarms in the State Department. Mr. Kapanga, then the mine’s Congolese general manager, all but begged the American ambassador in Congo to intercede.
“This is a mistake,” Mr. Kapanga recalled warning him, suggesting the Americans were squandering generations of relationship building in Congo, the source of more than two-thirds of the world’s cobalt.
President Biden announced several public and private investments on Tuesday aimed at expanding the domestic supply of minerals that are needed to make electric vehicles, computers, solar panels and other products but are currently sourced from overseas.
“We can’t build a future that’s made in America if we ourselves are dependent on China for the materials that power the products of today and tomorrow,” Mr. Biden said at a White House event.
The initiative is part of a White House push to make the United States less dependent on foreign products, given supply chain disruptions that have resulted in shortages of goods, helping to fuel inflation. The investments announced on Tuesday were aimed at boosting domestic supplies of minerals — including lithium, cobalt and rare earths, many of which typically come from China — that are used in a wide array of technologies.
As the world shifts to cleaner sources of energy, control over the materials needed to power that transition is still up for grabs.
China currently dominates global processing of the critical minerals that are now in high demand to make batteries for electric vehicles and renewable energy storage. In an attempt to gain more power over that supply chain, U.S. officials have begun negotiating a series of agreements with other countries to expand America’s access to important minerals like lithium, cobalt, nickel and graphite.
But it remains unclear which of these partnerships will succeed, or if they will be able to generate anything close to the supply of minerals the United States is projected to need for a wide array of products, including electric cars and batteries for storing solar power.
Leaders of Japan, Europe and other advanced nations, who are meeting in Hiroshima, agree that the world’s reliance on China for more than 80 percent of processing of minerals leaves their nations vulnerable to political pressure from Beijing, which has a history of weaponizing supply chains in times of conflict.
“Our ambition in Saudi Arabia is to be a global hub for green minerals and green minerals technology.” - Khalid Al-Mudaifar, Saudi Arabia’s Vice Minister for Mining Affairs
I have loosely transcribed some of Fareed Zakaria's CNN segment below:
The rise in the Gulf in particular Saudi Arabia is already re-shaping the Middle East. It will also have powerful consequences across the world. A quick quiz – what was the world’s fastest growing large economy last year? If you guessed India or China or any of the Asian Tigers, you’re wrong – the answer is Saudi Arabia (Kuwait and the UAE registered heady growth as well).
What explains the boom? The world continues to be heavily dependent on fossil fuels…as a result the world is reliant on a handful of countries in the Gulf as steady and reliable suppliers of oil and gas. These conditions will likely continue over the next decade, and if they do the Gulf will see one of the largest inflows of wealth in modern history.
For the foreseeable future, these will be the most significant pools of capital on the planet. The economic consequences of this wealth are all around us. Look around at prestigious sports teams, luxury hotels in Europe, and storied brands and you might see behind them Gulf-Arab owners. As one Gulf minister said to me, ‘we have built lots of infrastructure in our countries, what’s coming in now is cash to invest.’
In the YouTube video linked below, Friedland and a panel which includes Saudi Arabia's Minister of Mining, discuss the Kingdom's plans for the mining industry and its vast mineral resources.
The two main challenges in mining are discovery and production, especially for societies to allow the minerals to be produced.
Mining by its nature has a very long time frame, it’s complex and high risk. It is highly capital intensive and uses an enormous amount of resources, water, land, energy and people. Most processes high in carbon emissions. We need technologies to overcome this and in addition to this young men and women don’t consider mining as a career option.
Industry thinks in decades and not years, we need to become more agile and think about how to address these challenges.
In Saudi Arabia, we once believed we had been late in development of our minerals. Today we believe it is the right time, as we use the latest technology and know-how, to explore and develop our underexplored our $1.3T estimated endowments. We have launched the world’s largest and latest regional geological survey of over 700,000 km of Arabian Shield. We have issued or first version of a geo database with 80 years of info. We have fully revised our mining law that provides for transparent competitive, provides for security of tenure and embraces ESG principles.
Robert Friedland:
Saudi Arabia has had a history of mineral development going back over not even 1/100th of a thousandth of a percent has been examined and the potential is limitless. No one bothered to look at the mineral potential because our creator was so kind to the people of Saudi Arabia with crude oil. I’m quite sure the world will beat a path to the mining industry, and you will see explosive development of minerals here in line with his Royal Highness’ vision for 2030.
I think as the custodian of the holy places, the development of the Saudi mining industry could go throughout the entire Islamic world and using Islamic principles, develop a lot of wealth in Africa and other countries that really need assistance from the KSA. I think the greatest mineral potential are in countries where it would be difficult for the USA or even China to enter, and so I think the kingdom is blessed with a leading potential role in the entire energy transition to cleaner economies and to play a role in world peace. We are in a world now where war has begun…do you think the Americans would have really bombed Saddam H is there wasn’t a single drop of oil in Iraq? I think the KSA has unlimited ambition to play a leading role in the world economy.
Can Saudi Arabia Switch From The US Dollar To The Chinese Yuan?
Oil transactions between Saudi Arabia and China could be denominated in the Chinese yuan, a significant development in the evolving international economic and geopolitical landscape. If this move happens, it could have far-reaching implications for the US dollar’s status as the dominant global currency, as well as for US-Saudi relations and broader regional dynamics in the Middle East.
It remains to be seen how this will play out, and much will depend on a range of factors, including the intentions and actions of both Saudi Arabia and China, as well as the responses of other key regional actors, including the United States. As the global order shifts, monitoring these developments and their implications for international relations, economics, and security will be imperative.
Saudi and Chinese officials are considering pricing some oil sales in the Chinese yuan instead of the US dollar following the US-Russia confrontation in Ukraine. It is evident in the global conflict arena that Beijing is positioning itself to inherit Washington as a pivotal pole.
This controls worldwide politics, markets, and exchanges. Suffice it to say that the United States of America (itself) is indebted to the People’s Republic of China, so the US-China trade war erupted under former President Donald Trump, or the so-called “tariff battle” and the imposition of investment restrictions between the two countries. China’s dominance of global financial markets continues dangerously. Beijing’s investments include stakes in New York-based financial institutions.
In the Arab region, economic ties between Beijing and Riyadh have grown exponentially in recent decades. China is the Kingdom’s largest trading partner, mainly because it buys 25% of all Saudi Arabia’s oil exports. The Kingdom is a key pillar of China‘s Belt and Road Initiative and ranks first among the top three countries globally in Chinese construction projects.
A move to conduct oil transactions with China in the yuan would represent a profound shift in the oil market. Sales are conducted in dollars, and all financial transactions for Saudi Arabia are exclusively in dollars. If the “switch” is made, Riyadh will support Beijing’s efforts to convince more countries and international investors to deal in its currency. Saudi Aramco, the world’s largest oil producer, has entered an investment partnership to develop a facility that includes a major refinery and an integrated petrochemical complex in northeastern China.
The US dollar has dominated the global financial system as a medium of exchange since World War II. Besides allowing the US to print Treasury bills and sell its debt globally, the dollar’s superiority is the main reason the US can impose tough sanctions on countries like Russia today, which will exclude Moscow from international financial transactions as the dollar dominates the global market.
China highlighted its currency, the yuan, in oil contracts in 2018, but its efforts failed to curb the dollar’s dominance on global markets. Beijing has also struggled to use the dollar because of sanctions imposed on Iran over its nuclear activities and Russia’s invasion of Ukraine. Efforts to replace the dollar with the yuan are expected to gain further momentum from countries that reject “Uncle Sam’s arrogance”, especially among the adversaries and enemies of the United States. As part of these efforts, Russia has been prevented from selling foreign currency in its reserve stock.
The Saudis, for their part, favour switching to the yuan because the Kingdom could use part of the proceeds from the new currency to pay Chinese contractors involved in large projects inside the country, reducing the risks associated with Beijing’s capital controls on its currency. The two countries have been discussing yuan-denominated oil contracts since 2016 but have recently advanced against the backdrop of growing Saudi concerns about Washington’s commitment to supporting the Kingdom in security and militarily.
Economic ties between Beijing and Riyadh have grown significantly in recent years. China is the Kingdom’s largest trading partner, while Saudi Arabia is a key player in the Belt and Road Initiative. Saudi Arabia’s desire to strengthen its relationship with China amid a geopolitical shift in the Middle East and China’s efforts to expand its influence in the region could also play a role in this decision.
It is unclear what the United States’ response would be if Saudi Arabia switched to the Chinese yuan from the US dollar for oil transactions. However, the United States might see this move as a threat to its economic and geopolitical interests, as the US dollar’s dominance as a global currency is a significant source of power and influence for the White House.
The US government may prevent or mitigate such a move by imposing economic sanctions on Saudi Arabia or adopting other diplomatic measures. However, it is also possible that the US may choose to pursue a more cooperative approach, recognising China’s growing importance in the global economy and seeking to maintain positive relations with both China and Saudi Arabia. Ultimately, Washington’s response would depend on a range of factors, including the specific circumstances of any potential move by the Saudi leadership to switch to the Chinese yuan.
My opening quote from Samuel P. Huntington refers to the "waves of democracy". Political scientists speak of major surges in democracy that have occurred in history.
Democratization waves have been linked to sudden shifts in the distribution of power among the great powers, which created openings and incentives to introduce sweeping domestic reforms.
Originally published in March 1948, A.A. Berle Jr's piece may well have been written in recent years:
The Marshall Plan 2.0
After Kailish Concepts mentioned Marshall Plans underway around the world today, I conducted some research and found this video from the "fiercely nonpartisan Wilson Center", well worth your time.
June 5, 2022 marked the 75-year anniversary of George Marshall’s famous speech at Harvard, which initiated the post-war European aid program now known as the “Marshall Plan”. In that speech, Marshall outlined the need for economic aid to help Europe and its citizens to recover from World War II. Up until now, the Marshall Plan is one of the boldest and biggest success stories of economic growth and democratization.
"Join us for a conversation about the lessons we can draw from the Marshall Plan for today—when Russia’s war in Europe again threatens security and economic stability."
Ambassador Mark Green
"Marshall's vision would see the coordination of reconstruction assistance dollars, spurring recovery, supporting economies, and yes – strengthening democracy. The US investment in both wartime allies and former enemies paid dividends in far beyond economic terms. It brought and continues to bring a trust dividend on both sides of the Atlantic. It was in so many ways the beginning of our transatlantic partnership.”
Dereck J. Hogan
"...our efforts to support Ukraine and address the impacts of Putin's war have changed the course of the conflict and strengthened our relationships with partners and allies.”
"Contrary to Putin’s goals, the conflict has galvanized European democracies."
"The goals of the Marshall Plan were the same as our shared goals for Europe today – that is ensuring mutual economic prosperity, providing for transatlantic security, promoting our shared values, and working together to confront global challenges.”
Wolfgang Petritsch
"Without the Marshall Plan, Europe and now the European Union would not be where we are today."
“For Europe, transatlantic cooperation, as we see this in our in our Marshall Plan Foundation, as well as at the Austrian Institute for International Affairs, is key.”
"The time between 1945 to 1947 the United States spent more funds that it then did between 1948 and 1952. When the Marshall Plan was implemented and executed, planning was of crucial importance."
"We have to commit ourselves. This is only going to be resolved in the long run, and we have to stick together.”
Jonathan D. Katz
"...when we're talking today about Ukraine, in talking about a Marshall Plan for Ukraine, I think about the extraordinary heroics of the Ukrainian people over the last hundred plus days, what they bring to the table when you think about a Marshall Plan for Ukraine."
"The EU project just like it was post-Marshall Plan was critical in all these institutions that really brought together even enemies together to build the most prosperous, wealthiest, most democratic space in the world. It’s exactly where Ukraine needs to be."
F. Joseph Dresen
"The Marshall Plan will be first and foremost on everyone's mind in relation to post war reconstruction of Ukraine."
What if the energy transition was as much about saving democracy as it was about saving the planet? Because I believe that may very well be the case, and I hope we succeed on both fronts.
YouTube
The Marshall Plan at 75: Lessons for Ukraine?
June 5 marks the 75-year anniversary of George Marshall’s famous speech at Harvard, which initiated the post-war European aid program now known as the “Marsh...
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