Are We Sleepwalking Into an Energy Disaster?

By Dee Smith

The Iran war, like many things in the world these days, is full of contradictions and cognitive dissonance. For example, multiple expert voices have, since early in the war, been predicting a dire energy supply crisis from the closing of the Strait of Hormuz, the narrow strip of ocean between Iran and Oman though which about 20 percent of the world’s supply of oil passes in “normal” times.

Such concerns have not abated. The chief economist of Rystad Energy told Fortune magazine on 6 May: “We’re still kind of sleepwalking into this approaching disaster. There is little doubt there is going to be a disaster.” Numerous other informed observers have made similar points.

But where is the disaster? Why have we not yet really started to feel it?

Some places have. South and Southeast Asia, for example, are already buckling under the price increases and shortages. And many companies—first and foremost airlines—are rapidly feeling such pressure that they are curtailing operations. Lufthansa has cancelled over 20,000 flights.  Spirit Airlines went out of business entirely, with a sudden loss of 17,000 jobs.

Nevertheless, the world as a whole and the West and China in particular are not yet visibly reeling. While prices are substantially up, oil markets have not shot to and stayed at the heights of over $140 per barrel that were predicted if the war continued this long. The prices of West Texas Intermediate and Brent crude hover at this writing between US$105 and $110 per barrel on the spot market (for immediate purchase of oil) and around US$80 to $85 on the futures market. The latter is a more reliable indicator of what traders are willing to bet money on. Notably, the divergence between the spot and future markets has been narrowing recently, reflecting what some are calling a “mini-glut” at present.

The reasons for this have been perplexing a number of observers. A few factors are invoked to account for it:

·      The reduction in imports by China (over 4 million barrels a day lower than a year ago), which is probably both price-driven demand destruction among consumers in China, and Chinese government policy since the start of the war allowing drawdowns of stocks and prohibiting exports.

·      The surprising increase in U.S. exports of petroleum and its products, which is nearly 4 million barrels per day above previous-year levels (much of this reflecting the drawdown of the U.S. Strategic Petroleum Reserve).

·      Rationing in the Global South, which has created demand destruction. The Philippines, for example, went to a 4-day work week shortly after the war started.

·      Oil stocks had been at or near a record high at the start of the war, with a similarly high level of oil in transit on the seas at that time.

But this reprieve is short-term, and it may end quite soon and quite abruptly. The U.S. administration, for example, may suddenly come to terms with how much of America’s stocks are being drawn down, what this is doing to gasoline and food prices, and do an about-face. An oil export ban is already being quietly discussed. China, similarly concerned about stock drawdowns, may start importing more oil. The war itself is at risk of turning into a “frozen” conflict, where each side essentially holds the other hostage. But even if hostilities ended today, it would take months to regularize the situation for reasons ranging from de-mining the Strait to physical destruction of various energy facilities in the Gulf, and simply the re-start-up time faced by closed facilities.

If—or perhaps when— a longer-term reconfiguration of energy markets happens, the consequences may indeed be dire. Prices could start to seriously rise again. Some informed estimates predict oil above $200 a barrel, perhaps significantly above.

But serious shortages loom even more threateningly than price increases.

The most alarming aspect of this for both social stability and for everyday life everywhere is the food-petroleum nexus. Food production is overwhelmingly dependent on fossil fuels. Diesel fuel is essential for transporting food from farm to processor to market, whether by truck or rail. But diesel is also essential to farming machinery. And shortages of urea and other fertilizer ingredients from the Persian Gulf will also affect farming.

Global supply chains are now so intrinsically intertwined that this could well evolve into an “everything crisis,” as CNN has put it. From plastic containers for food and water, to bags, solvents, industrial lubricants, medical equipment, cosmetics, footwear, microchips, and even condoms, so much is utterly dependent on petroleum byproducts or other resources of which a significant percentage comes from the Persian Gulf. It is a single point of failure.

When could this materialize? It is hard to say, due to the vagaries outlined above, but the best estimates are by mid-summer. Some sources are quietly saying we could start to see rising alarm again in the next 2 weeks.

Some areas, like Europe and California (which imports about 60 percent of its crude, 20 percent from the Persian Gulf), will be affected before others, but if the status quo continues, all will be affected, everywhere.

It is worth noting that this war—intended by some accounts to keep Iran from acquiring nuclear weapons—has provided Iran with another weapon even more actionable: the ability to close the Strait of Hormuz and essentially hold the whole world hostage. This is not lost on the Iranian regime.

We are suffering again from our recency bias—the conviction that the near future will be like the recent past—and the closely related problem of induction, which makes people discount the possibility of fast, radical change.

These potential events have huge social-stability, business, and geopolitical implications. It is worth restating the obvious point that when people have nothing to eat, they have nothing to lose.

Iran, the US, and Energy Dependence

The political and economic effects of the US-Israel attacks on Iran and Iran’s response seem to be much more about what is not done than what is. The extraordinary truth is that a “war” with grave immediate effects on the political-economy of the planet is taking place with nearly all the world’s states remaining on the sidelines. US allies and US enemies alike, poor and rich, global South and global North, are staying out of it.

This is not because of anti-Trumpism or anti-Americanism — two very different things. Nor is it because of international affection for Iran. At one level, it is because the US has a lengthening record of starting overseas conflicts it does not really win, from Somalia 1992 to Venezuela 2025. Until the current Trump administration, such conflicts had ideological, moral or strategic justifications that clearly meant something to the presidents who were executing them. That has not been at all clear since January 2025. There have been some justifications similar to those of the past, but they fall away when financial gain presents itself, whether in control of Venezuelan oil or a “very big present worth a tremendous amount of money” from Iran. Beyond good financial deals, whether realized or not, the White House’s main foreign-policy motivator has been the spectacle of using force and receiving displays of submission and deference from foreigners.

It’s not a strategy but it does reflect a cast of mind that has been consistent for over a year. The international scene has adjusted. People keep their opinions to themselves, waiting politely until the White House’s attention moves on. World leaders have learning curves too, and they studied the example of Ukraine President Volodymyr Zelensky in his notorious meeting with President Trump in February 2025. Global political behavior has traveled a long road from there to the extraordinary self-control of Japanese Prime Minister Sanae Takaichi as President Trump made jokes about surprise attacks and Pearl Harbor.

The result is that the world order is being remade passively, through non-participation. African states, European states, India, China and others have reacted in about the same way to the US-Israel-Iran conflict, which is to hope not to be asked the question. This is not only about the US (or Israel): Iran is seeing how little its African initiatives are producing in a crisis. Leaders including India’s Narendra Modi and China’s Xi Jinping preferred to focus on things other than the massive conflict threatening their energy supplies. (Iran became a full member of the China-founded Shanghai Cooperation Organization, its ninth, in 2023 after 15 years of hard diplomatic effort.) The BRICS group — Iran has been a member since 2024 — has been stymied. At the same time, the EU’s foreign policy head, Kaja Kallas, said simply, “This is not Europe’s war.” NATO chief Mark Rutte has made a variety of statements that noticeably contradict each other.

And so on. It is important to recognize the non-functioning of the BRICS and SCO alongside that of NATO, the EU and UN bodies. There is no world organization, sub-organization, leader or group of leaders able or willing to impose any kind of order. It is as much a crisis of the global South as of the global North or the West. The global South’s inability to speak up for one of its own is rooted in energy needs at least as much as in any hesitation to upset the White House. The industrialization and digitization of the poorer parts of the world have changed their international politics in so many ways. They have certainly changed the politics of energy.

The main result of the US-Israel-Iran conflict for investors is perhaps that any investment requiring stable electric power, which is of course most investments, has to include an assessment of energy sources and supply redundancies beyond what markets are able to price accurately. In particular, energy diversification away from petroleum — for national markets that lack their own petroleum supplies — is clearly necessary, without any reference at all to carbon-based climate change. The Trump administration made the burial of “green energy” a potent rallying call domestically, but US policies are having the opposite effect internationally. It isn’t simply about cars, trucks and planes. All AI and other Internet-related businesses, for example, require electrical power from some source, as does the manufacture of all their components.

Whatever the White House imagined at first to be the purpose of the Iran conflict, two striking effects have been the exposure of the weakness of all international groupings (Western or not) and the political-economic necessity for most markets of diversifying their energy sources.

The Fog of War

By Dee Smith

On October 12, 2000, when a group of Al Qaida suicide bombers pulled a small boat up to the USS Cole, a U.S. Navy destroyer refueling in the port of Aden in Yemen, I was still working with the Defense Intelligence Agency (DIA) as a contractor. I happened to be sitting in the office of its recently retired director, General Patrick Hughes, the day the first reports of the attack came in. There was a huge amount of confusion about what had actually happened and what the casualties were, and speculation about what would happen next. He had hardly got off the phone before 3 other calls came in.

At one point, Pat turned to me and said, “Have I ever told you my ‘rule of 11’ for crises?” When I indicated he had not, he explained: “In any crisis, assume that the first 10 things you hear are completely inaccurate, and that the 11th may be partially true. And then that cycle generally repeats, not necessarily in sequence. If you go by that rule, you will find your understanding and your reactions and decisions are greatly improved.”

It was good advice. I have used it ever since, and not just to understand military/geopolitical issues.

This is closely related to the concept of the “fog of war.” The origin of the exact term is unclear, but the concept is believed to have been first described by Carl von Clausewitz in his classic study On War (not published in German until 1823, after his death, and only 50 years later in English). He described the concept as follows:

War is the realm of uncertainty; three quarters of the factors on which action in war is based are wrapped in a fog of greater or lesser uncertainty. A sensitive and discriminating judgment is called for; a skilled intelligence to scent out the truth.

There is no better demonstration of the fog of war than what is going on right now in Iran and its geopolitical neighborhood. No one, including the combatants, has a firm grasp on what is actually happening, and how it is likely to develop is utterly opaque.

However, as is widely acknowledged at this point, there either was no actual strategic plan, or whatever plan there was had been based on assumptions that quickly proved to be wildly inaccurate, particularly that:

1)        the initial strikes could decapitate the regime but leave a few people in positions of power who could be worked with, in the way that the vice-president of Venezuela was appointed to run the country,

2)        the regime would crack after its leadership was eliminated,

3)        the people of Iran would rise up against the regime, and

4)        whatever Iranian government was left would refrain from attacking its neighboring states or closing the Strait of Hormuz (despite the fact that Iran had long threatened to do both).

This has all proved to be extremely wishful thinking, to put it charitably. The regime has consolidated, with the Islamic Revolutionary Guard Corps (IRGC) — the primary military arm of the Iranian government, which is also heavily integrated into the Iranian economic and political structures — assuming more control. Iran’s leadership has become even more intransigent. Most of the candidates for people who (it was assumed) could be “worked with” were killed in the first days. And, particularly after the brutal repression of protestors just weeks ago, with tens of thousands of deaths, the general populace is so frightened that most are not even venturing out of their houses. With good reason: Iranian police and military forces have orders to shoot protestors on sight.

This is not to mention the intention and capability of Iran to spread the war to its entire neighborhood and beyond and to close the Strait of Hormuz, through which not only about 20 percent of the world’s oil supply passes, but also through which critical dry goods like fertilizer and ammonia also travel — and the 2nd-, 3rd- and 4th-order effects of these actions on global economics and food supply.

There are many lessons to be learned from this situation. They are the kind of lessons that  powerful countries often refuse to learn, as with Russia in Afghanistan, for example, or the U.S. in Vietnam, Afghanistan and Iraq. A brief list would have to range from the transformative asymmetric power of technology (which means that smaller, weaker powers can take on and even defeat much larger ones), to the difficulty of fighting a war that has the potential of long-term irregular or guerrilla-type action. Other lessons would include the realization that autocratic leaders very often actually tell you what they are going to do (so you need to take what they say seriously), and the key point that all leaders today must rid themselves of what is now called the “recency bias” — the erroneous belief that the recent past is a reliable predictor of the near future. That was never really the case, but in a time of relentless, massive, and accelerating change, it is a ludicrous point of view. The U.S. was very probably influenced by the success of its operation in January kidnapping the president of Venezuela.

Military forces look at 3 levels: tactical, operational and strategic. Tactical operations — at which the U.S. military is superb — do not necessarily lead anywhere good without a strategic direction. Lacking that, the fog of war might merely conceal the road to Hell, which is just as bad even when one heads down it with the best of intentions.

What Is “Human” Intelligence?

By Dee Smith

The most common, and probably most important, type of intelligence is known as OSINT (Open Source Intelligence). It involves collecting information in the public domain and in “gray” sources that can be exploited legally but might not have been intended, by the originators of the information, for public access: subscriber-only databases with address and legal-action histories, for example; alumni websites; social media accounts; PDFs on personal websites; websites like Glass Door or RateMyProfessor; conference schedules, or materials on the dark web.

OSINT has always been important. Probably the single most significant intelligence-collection activity in World War I was acquiring, reading, and analyzing newspapers in enemy and neutral countries. After World War II, the new CIA took over the Foreign Broadcast Information Service (FBIS, pronounced “fibbis”), offering invaluable digests of radio and eventually television broadcasts around the world. The Internet transformed the OSINT world: CIA folded FBIS into a new Open Source Center in 2005, recognizing that the channels for OSINT were proliferating. OSINT has become more crucial than ever for both private intelligence agencies like SIG and for government intelligence services. It requires skill and knowledge to find and filter the most important data — “Googling” is only a start — and then know how to put the pieces together to reveal hidden patterns and indicators, the things people do not expect you to know or want you to know.

There are many other types of intelligence collection: IMINT (Imagery Intelligence), which includes airborne and space-borne imagery; ELINT (Electronic Intelligence): SIGINT (Signals Intelligence), including interception of electronic signals during transmissions; and MASINT (Measurement and Signature Intelligence), which analyzes “signatures,” such as the thermal signatures of particular weapons, or the distinctive electronic signals sent by particular technologies. At SIG, we employ any of these techniques that are needed for a specific project that can be legally deployed. SIGINT, for example, is generally not legally permitted in the private sector.

There is one important collection method I have left out, which is HUMINT, or Human Intelligence. Essentially, this means collecting information from people. Sometimes it is also called active intelligence, because it often involves interacting with people, as opposed to passive methods like OSINT or IMINT. Broadly speaking, HUMINT is another way to discover the information environment around a subject and also what is sometimes called their “pattern of life”. It is most useful in combination with OSINT and other intelligence techniques.

HUMINT practices range from discussions, interviews, and interrogations (not necessarily what that word implies in the Hollywood sense, but structured questioning of subjects of investigation using specific methods and techniques), to clandestine elicitation and observation. The latter includes everything from “secret shoppers” to private-eye-type surveillance on the ground to what is sometimes called “cloaked elicitation” — such as discovering and calling “off-sheet” references for a potential employee (that is, finding people they have worked with whom they did not volunteer as references). Surveillance intersects with HUMINT, ELINT, and other means, and is sometimes considered a separate technique, although many people categorically include it under HUMINT, as do I.

HUMINT is the oldest intelligence practice. It is becoming more important, but also more difficult. The reason it is becoming more important is that electronic information is becoming more and more sequestered — for reasons of privacy, security, and state concern for “data sovereignty” — and less and less dependable, due to data pollution.

The reader may wonder why such invasive techniques as HUMINT are used in private business contexts. The primary reason is to avoid costly or otherwise damaging mistakes. A pension plan, for example — investing, say, $100 million of other pensioners’ money into an operating company or fund — wants to know if the principals of that prospective investment have histories of deceptive business dealings, bankruptcies, litigation, or other negative indicators, as well as to understand their general operating characteristics (how they do business). HUMINT is one tool that can provide intelligence on these questions that cannot be obtained in any other way.

There are debates in the industry about what is and is not permissible, even if it is legal. For example, opinion and practice regarding intelligence on competitors can be divided into two camps: “competitive intelligence” and “competitor intelligence”. The latter uses any legal techniques to obtain information. The former places ethical guidelines around certain practices. Imagine that you happen to be sitting on a plane next to someone who works for a direct competitor. If you ask probing questions about their work without disclosing that you are working for one of their competitors, that would not be allowed under the generally accepted rules of competitive intelligence. However, those rules would generally allow some such questions, if you had disclosed your association before asking the questions.

The most confusing challenge is that laws, regulations, and policies and best practices surrounding intelligence vary widely from place to place and are constantly changing. A well-run private intelligence agency has to have one or more employees dedicated primarily to keeping up with these changes as well as other security and best-practices-related matters. Government intelligence operations, as arms of a sovereign state, are typically not so constrained, although in democratic societies there is usually legislative oversight.

HUMINT also includes espionage techniques, for example cultivating contacts (“assets” or confidential informants). These are individuals who knowingly provide information of various kinds for various reasons, including payment, personal beliefs and allegiances, blackmail, and coercion. They have inspired numberless fanciful novels and movies, but  have played important roles throughout history.

Such clandestine operations are becoming much more difficult, however, because of electronic surveillance and tracking. Recruiting and protecting assets is increasingly difficult to do. They have very limited roles in private intelligence, primarily in fraud investigations and when doing fraud prevention through deep dives on the reputations and practices of individuals and companies.

But however challenging HUMINT collection is, increased state control of data, among other factors, is fragmenting and siloing the OSINT data array, leaving HUMINT to rise once again in importance.

Déjà vu All Over Again

By Dee Smith

With his entry into the Israel-Iran war, Donald Trump seems to have gone over to neoconservatism, even invoking the goal of regime change, an old neocon favorite. It remains to be seen at this writing what will happen to the cease-fire he has imposed, but the interesting thing from a policy standpoint is how much this is both in accordance with — and violates — legacy patterns of US foreign policy.

Many Iranians outside Iran are pleased at Trump’s decision, even as they are desperately concerned about their families who remain there. Anne Applebaum cites an article from an anonymous Iranian source published last weekend in Persuasion:

knowing that the men who’ve held us hostage for forty-six years, who’ve ransacked our country, raped and killed our daughters and executed our men for asking for their basic human rights, are finally getting what they deserve—that brings me peace.

That view of the recent American action comes very close a classic element of the liberal international order in its later form: the “Responsibility to Protect” or R2P. Under this doctrine, the international community has a responsibility to intervene inside states that do not protect their populations from atrocities such as war crimes or genocide.

All of this is to say — with apologies to Mark Twain — that reports of the death of neoconservatism and of the liberal international order have been greatly exaggerated. They are gone, but also not gone. They are there, but so radically mutating they are no longer themselves.

That is characteristic of our entire world today. We are living in a time in which ideologies are both more important than ever, and the varieties of thinking and expressing ideologies are more confused and at odds with one another than ever, and in which many people are not sure whether they actually believe what they claim to believe … or want to believe.

This multi-directional confusion is characteristic of most elements of global society and culture: Multiple ideas, trends, and styles from the past are reinvoked and mixed together, often haphazardly. This extends to culture, both popular and “elevated.” It has been said that there is no direction in fashion today: you can wear whatever you want. This is also true in the visual arts. And “serious” or classical music currently includes almost any style—you can compose like Bach, Schumann, Ravel, Prokofiev, Stockhausen, or Glass and be taken seriously, and you can even mix those up in the same piece and get away with it. Beyond that, the lines dividing classical and popular music are dissolving. And popular music has 1001 idioms, genres, and styles, not to mention the almost uncountable “mash-ups.” Really, anything goes.

That is also true in philosophy and even in science, as new and resuscitated interpretations of new and old discoveries create visions and theories that are directly at odds with one another — in areas ranging from particle physics to vaccination science to the study of the nature of consciousness (which is of vital interest to AI) — all claiming to be supported by evidence and each taken seriously by knowledgeable people. It is certainly true in politics, ethics, behavior, and mores. There is simply no overall direction, and certainly no center. That is always true to a degree, but it is much, much more pronounced now.

It is all of a piece only by virtue of being, as Elvis Presley said, “all shook up.”

Some see this as a form of decadence. But it also represents a flailing about to try to find something that works … anything … in the radically divergent situations we face. We seem only to know how to look inside the old boxes we have, and they no longer contain anything fit for purpose. We are all, fearfully, practicing the politics of nostalgia. But the past does not work today, our current systems and ideas do not work, and we don’t see where a future lies that might work. We find ourselves at sea with no life-raft we can grab onto.

Sometimes this is called a “horizon problem” — meaning that the solution is over a horizon beyond which we cannot see from our present vantage point. During the energy crisis of 1979, President Jimmy Carter exaggerated when said we were in a civilizational crisis of confidence. That is no exaggeration today.

In Hemingway’s novel The Sun Also Rises, Mike Campbell answers the question of how he went bankrupt: “Two ways: Gradually, then suddenly.” This is how major change often happens. We would be wise to recall how quickly the Soviet Union fell in December 1991. It had seemed robust, threatening, and indeed almost impervious less than 5 years earlier, and looked reasonably secure even a few months before. But the decay had in fact been eating away at the system for decades.

The old Chinese curse, now repeated with tiresome regularity because it is so apropos to our day, says “may you live in interesting times.” We are indeed there.

Where will our situation lead? And how do we navigate it? These are among the most urgent questions for all of us today, and they extend across all the domains of life. If you have little idea where the future is heading, and you can’t rely on the elements you could in the past, then how do you prepare for it? How, for example, do you ensure the well-being of your family? How does an investor manage, let along hedge, a portfolio in circumstances like this? Aside from intensive vigilance, the ability and willingness to move quickly, and hope, it is very hard to answer these questions.

Writing in another tumultuous time at the end of the 17th century, the English poet John Dryden closed his Secular Masque with:

All, all of a piece throughout;

Thy chase had a beast in view;

Thy wars brought nothing about;

Thy lovers were all untrue.

'Tis well an old age is out,

And time to begin a new.

The Rest Is Software

US President Donald Trump’s visit to the Persian Gulf brought the region back into the American camp on artificial intelligence. The White House’s cancellation of the Biden administration’s AI-diffusion regulation was well timed: the message of both the trip and the cancellation was that this administration will not draw distinctions, as its predecessor did, in advancing what Commerce Secretary Howard Lutnick called “Trump’s vision for US AI dominance.” The US is, in a sense, trying to de-regulate AI politically. Washington’s move to block AI regulation by US states is also part of this. In SIG’s view, whether such de-regulation will achieve the goal of AI dominance is a different question.

As with crypto, the current administration’s US’s bias with AI is to let the chips fall where they may, so to speak, while also aggressively using the power of the state — as investor, as enforcer, as customer — to secure American advantages. Trump’s experiences of being deplatformed by Big Tech must have shaped his views: bitterness over the suppression of conservative speech, alongside the supposed promotion of anti-conservative speech, has been a dominant note since his second inauguration. In this scenario, technology and tech innovation were shown not to be autonomous forces, proceeding according to their own logic, perhaps capable of being channeled but not of being controlled. Rather they were the effects of companies run by individuals who could be influenced. That was well within the comfort zone of a lifelong businessman. (See the tariff retaliation against Apple for relocating its China production in India rather than the US.) It is a pro-market perspective in a way, but with the market understood as a place for ruthless competition among a small number of unconstrained players rather than as a mechanism for maximizing the efficient distribution of capital and labor.

Similarly, the role of the state in this perspective is to personify the nation in unconstrained and ruthless competition among states for, in U.S. Commerce Secretary Lutnick’s term, “dominance.” President Trump’s appetite for military confrontation in his first term was low, and that seems to be carrying into his second term. His appetite for economic confrontation was relatively high in term one and has gone to a new level in term two. The tools of the state are the weapons he has for such confrontation. They are directed toward securing dominance. Trump is personifying the powerful idea of economic nationalism.

The difficulty, with regard to “US AI dominance,” is that the AI sector is not like other industrial or commercial sectors. The preferred means for dominating AI has been the control of hardware, as in export controls on leading-edge chips or chip-design lithography equipment. Biden’s AI-diffusion regulations, like his CHIPS Act and much else, were about the geopolitics of hardware distribution. President Trump has opened that floodgate. But once the hardware starts flowing and the data centers are built the rest is software, the diffusion of which is extremely hard to control. Software can be stolen or replicated; more important, it can be developed independently, as DeepSeek has shown. The supply of chips and what is necessary to manufacture them can be choked off, up to a point. The supply of engineers and software-engineering skills really cannot. It will be diffused regardless of what the US or China want.

Among other things, this means US AI dominance depends on the strength and autonomy of US universities, the freedom to innovate in the US tech sector independent of political agendas, the smooth functioning of open global markets, sensible market pricing of resource inputs, the reduction of obstacles to the cross-border movement of labor … all of which run contrary to current US policy.

The Gulf states are investing in US AI infrastructure on the way to building their own systems, which will have the capacity to become independent of US systems (see SIGnal, “The America Stack,” Feb. 5, 2025). The emiratis are not happily volunteering to be hostages to US AI dominance. They are seizing the opportunity to gain access to the best technology that will enable them to maximize their own sovereignty while positioning themselves to be a sort of port for the storage, manipulation, and distribution of data, just as Dubai’s port operates with coffee, tea, and so much else.

The pattern is similar elsewhere, although no one can direct capital with quite the speed, and in quite the volume, that the Gulf states bring to bear. Malaysia hesitated for a moment at new deals for Chinese technology when Washington threatened retaliation against states using Huawei’s latest AI chips, but in the end, the shape of AI is not going to be determined by hardware. The massive computing power required to participate in the search for the grail of Artificial General Intelligence (AGI) is indeed a hardware question, but for sub-AGI artificial intelligence, which might well prove to be most if not all of AI, hardware is only one factor. The rest is software. And US dominance of it is unlikely to be secured using the current means.

The Defense Industry's New Math

Global military spending in 2024 hit a record that will be broken in 2025. Much of the growth comes from the US (which just announced a goal of a $1 trillion defense budget) and its adversaries, but an important part is from US allies that feel they can no longer rely on US security guarantees. For that reason, they seek to build their own defense industrial bases rather than simply buy more American military products. There are opportunities for investors in this global proliferation of military production financed by government budgets, although the peculiarities of military industries make it more important than usual to have the right expertise. Defense-sector exchange-traded funds (ETFs) have, not surprisingly, boomed: the VanEck Defense UCITS Took in $1 billion in March 2025 alone.

In 2024 global military spending hit $2,718 billion, a 9.4% increase over 2023 and the steepest year-on-year rise since the end of the Cold War. The main drivers were the conflicts in Ukraine and Gaza. Israel’s spending increased 65%, to $46.5 billion, which represented 8.78% of GDP, the second highest ratio after Ukraine — which spent nearly 35% of GDP on its military. Russia spent $149 billion, up 28% from 2023 and representing 7.1% of GDP and 19% of total government spending. German spending surged to $88.5 billion, the fourth largest total in the world after the US, China, and Russia, and just ahead of India at $86.1 billion.

All of these numbers are likely to grow in 2025 and into 2026, except perhaps in Ukraine, which might not be able to get above 35% of GDP. But the Ukraine example illustrates a different and more interesting dynamic. According to one report by a former Ukrainian official, Ukraine’s domestic defense sector has grown from $1 billion to $35 billion in just three years. It now produces about a third of Ukraine’s weapons and ammunition, and nearly all of its drones. That is not nearly enough to protect itself against the Russian army, but it is enough to ease some of the country’s dependence on the US

Similarly, Germany in particular, but also France and the European Union, have entered a new era in terms of domestic military production. Germany’s head of state, Friedrich Merz, won a parliamentary vote in March to not apply Germany’s “debt brake” policy to the defense sector. Merz also appealed to the EU to exempt defense production from its own spending rules. (EU member states have their own military budgets but the EU has rules on public debt.) Sixteen of the Union’s 27 members are seeking exemptions from the EU rules so they can increase their defense spending.

What is driving all this spending is principally the desire to, as Merz puts it, “achieve independence from the USA,” which under President Trump he sees as “largely indifferent to the fate of Europe.” EU Commission President Ursula von der Leyen, herself a former German defense minister, declared, “We are in an era of rearmament,” one that requires Europeans to construct their own defense as part of what France’s President Macron refers to as “strategic autonomy” from the US. The EU hopes that new bloc-wide procurement policies will strengthen European defense production at the cost of American materiel.

There is irony in the fact that European NATO members in recent years have spent more, not less, on weaponry produced in the US: from 52% of spending in 2015-19 to 64% in 2020-24. But that very dependence is why traditional US allies are so focused on independence from the US now that the US has abandoned its traditional approach to alliances. It is not just Europe. South Korea has been trying to replace US purchases with its own production for several years, including so that it might export weapons. Japan also seeks to increase domestic military industries. Israel is striving for self-sufficiency in bomb production. Even Australia has been trying to be more militarily independent, although in practice Australian defense production, current and projected, is commonly done jointly with US defense primes.

The proliferation of defense production in a globalized world can lead to curiosities, such as the battle between a Chinese state-controlled defense company and an Australian to buy a troubled Brazilian manufacturer. That in turn points to both the internationalization of military production and the question of what gets done with the products. US military industries and the US military itself have always advanced together. Foreign military sales were integrated into a much larger public-private strategy that was rooted in political alliances. The point was not to sell to enemies. The proliferation of military-industrial production in the past three years suggests a future in which weapons will be available from many sellers, including NATO members, with little or no reference to US policy guidance.

In short, the desire for autonomy from the US is driving a global surge in weapons production that will in turn lead to weapons proliferation on an unprecedented scale. Unless there is a significant increase in war, there will be an increase in excess production. Excess production will need to be off-loaded somewhere. This is the peculiarity of defense production. If you are not simply stockpiling — which is a dead weight on the economy — then you are proliferating. Weaponry ETFs in this scenario would have to be a short-term play. The longer-term returns will be in companies that aim not just at domestic production but at export.

Mutual Assured Malfunction

The past week has been a lively one for the eternal battle between digital networks and national, sovereign security. After a two-year standoff, Elon Musk’s Starlink was able to reach deals with India’s #1 and #2 telecommunications companies, Reliance Jio and Bharti Airtel, on providing satellite Internet to the subcontinent’s vast and underserved rural market. A few days earlier, Dan Hendrycks, Eric Schmidt, and Alexander Wang — respectively, director of the nonprofit Center for AI Safety, former chairman of Google, and the CEO of Scale AI — released a paper , “Superintelligence Strategy,” arguing that no one state will ever be able to win the AI race.

In the first instance, a technology company with, it is fair to say, its own distinctive geopolitical interests could potentially gain a hold over the telecommunications of the world’s second largest national market. In the second instance, tech industry leaders with, particularly in the case of Schmidt, a strong record of advocating US technology dominance in competition with China are asserting that such dominance can never be complete. Indian digital sovereignty and US digital sovereignty are rendered highly problematic if not impossible. If a state is on the networks, as all powerful states are and will be, then their sovereignty is inherently partial. Taking these two major developments together, the future of digital self-determination can be seen to be rather weak. In SIG’s view, this represents an overdue recognition of the interdependence of states even as they engage in fierce geopolitical competition.

Reliance Jio has, in the past five years, revolutionized India’s telecommunications, particularly mobile communications, bringing huge numbers of Indians online. Bharti Airtel has done a surprisingly good job at catching up, giving Reliance Jio much-needed competition. The Indian state has not been idly observing these developments. Its vigorous advocacy of an indigenous digital infrastructure, often now referred to as the “India Stack,” has become an example to others, including the European Union. (See the SIGnal post “The America Stack,” Feb. 5, 2025.) India is determined to become a major tech power. It has also, with the world’s fourth-largest defense budget after the US, China, and Russia, aggressively advanced its own space program and its own space-based navigational system to rival GPS (US), Glonass (Russia), and BeiDou (China). Balancing US and Chinese telecommunications majors over the past decade-plus, India has artfully and purposefully pursued its desire to achieve digital self-determination.

That made the Starlink deal a surprise. It appears to have been hammered out between Musk and Indian President Narendra Modi during the latter’s recent visit to Washington. The Indian government has an interest in nurturing Reliance Jio and Bharti Airtel, but it also has an interest in good relations with the US under President Donald Trump and in making sure that neither Reliance nor Airtel accumulates too much power domestically. Both the US and China have faced a similar problematic in simultaneously backing and controlling their own tech majors. The deal with SpaceX, Starlink’s parent company, provides one way for India to meet these several challenges. Indian reaction to the Starlink deal has been understandably wary and somewhat confused. After all, the Indian government, at various junctures, has humbled Facebook, Google, Amazon, Microsoft, Huawei, and ZTE, among other foreign firms eager to reach the Indian market. A recent Indian report characterized Starlink as “a technology of geopolitical control,” pointing meaningfully to Starlink’s role as the guarantor and master of Ukraine’s Internet access in that country’s struggle with Russia.

SIG’s view is that Starlink will not be able to repeat its Ukraine dominance in India, any more than its US and Chinese rivals have been able to subdue the subcontinent — not for want of trying. It is nonetheless striking that Modi, Reliance, and Airtel — the latter two have long opposed letting Starlink into the tent — now believe that the advantages of working with SpaceX outweigh the disadvantages. At the very least, Musk has dramatically proved that having the ear of the US president provides enormous business benefits.

While the “Superintelligence Strategy” has been in the works for some time, it is difficult not to read it in the context of the Trump administration’s declared determination to press the US’s AI dominance. One of Trump’s first moves was a $500 billion AI infrastructure project, and Vice President J.D. Vance later stressed in a landmark speech in Paris that the US “will ensure that American AI technology continues to be the gold standard worldwide and we are the partner of choice for others — foreign countries and certainly businesses — as they expand their own use of AI.” Vance held back from a simple declaration of hegemony but the administration’s message has clearly been that US AI should indefinitely be the parent in comparison to the efforts of other nations, especially China.

The “Superintelligence Strategy” has at its core the highly convincing argument that any large-scale AI system, even an American one, will always be vulnerable to infiltration and disruption by rivals. The strategy offers a very worldly solution, based on, but distinct from, earlier strategic arguments about nuclear weaponry. It is called Mutual Assured AI Malfunction (MAIM): the acceptance that there will be a balance of AI power, not a resolution or well-meaning regulation of it. Further, MAIM “already describes the strategic picture AI superpowers find themselves in.” A new Mutual Assured Destruction (MAD), AI version, is already with us. As in the earlier, nuclear version, there can be no victors.

There is much here for China and others to digest. The old, US-led idea of a free and open Internet, so recently repudiated, can be seen as returning, but in a much darker form appropriate perhaps for darker times. How states and companies react is the crucial question for investors. The venerable commercial goal of scaling, ideally to a global level, is not going to be achievable. AI-fueled tech companies, which increasingly means most tech companies, will face geopolitical limits. Commercial cooperation within those limits — and successful digital competition is inherently commercial — seems to be the only way forward. Musk, Modi, and the authors of the “Superintelligence Strategy” are simply ahead of the curve, and showing the rest of us where it bends.

Feeling Better and Feeling Worse: Part 1

By Dee Smith

My attempts to analyze what is transpiring in as objective and unbiased way as possible apparently come across to some as a counsel of despair. That is certainly not what I intend.

But I get paid to face and analyze facts, as far as facts can be discerned. Before and after the U.S. elections, I appeared on several webinars, podcasts and in-person talks. These were to various groups with attendees ranging across the political spectrum. I observed that most Republicans clearly believed that “if only Trump is elected things will be much better” (and they now believe they will), and Democrats similarly believed “if only Harris is elected things will be much better.” The desire for relief was palpable.

Unfortunately, it is not that simple. Let me explain why.

The amount of agency any of us has is much less than we believe—even if you are president of the United States. I mean this is a very specific way: the ability to produce the outcomes you intend and expect.

Many of the problems we face are deep and structural, which is bad enough, but the real rub is that the hyper-complex social, political, geopolitical, economic and environmental situation in which the problems exist is unpredictable as a fundamental property of its nature.

First of all, it can be extraordinarily difficult to instigate actual change. Some time ago, I was doing a project directly for the CEO of a Fortune 100 company. In a meeting, he expressed his intense frustration that “getting this company to do anything — to change anything — is like turning the Queen Mary . . . and I’m the CEO!”

Large systems, whether companies or countries, become highly resistant to efforts to nudge them to change. For example, for all his attempts to do so, over a decade and multiple terms in office, Victor Orban has actually changed the trajectory of Hungary as a country very little.

People who take a disruptive approach can initiate change better than those working within the guardrails of a system. Trump is such a disruptor, so he will be able to instigate many changes. But the nature of the world we live in means that neither he nor anyone else can actually predict and control the effects of such change for long.

And sometimes intended changes are just impossible within a certain situation. For example, both Trump and Harris promised to revive the American industrial working class. But this is almost certainly doomed to failure. Within a decade or two, automation, robotics, 3D printing and other technologies will produce nearly all factory goods. Automation — not offshoring — already accounts for more than 80 percent of job losses in the past 2 decades. Promising a job-rich manufacturing renaissance is meaningless and unfulfillable.

Rigorous analysis of how complex systems behave is one of the triumphs of 20th century science. The study of complexity has explained why, when change occurs, it is often abrupt and unpredictable. Complex systems are full of hidden links. The 2008 financial crisis offered many examples. Even small changes can produce enormous effects downstream. Many actions have unintended consequences: unanticipated knock-on effects (2nd-order, 3rd-order, etc.). Complex systems are full of tipping points. If you add grains of sand to a sandpile, it builds up until the pile reaches criticality — and then experiences a small avalanche. Such systems also exhibit cascading phenomena and non-intuitive inverse relationships.

We have created the most complex human civilization ever. The insuperable interconnectedness and complexity of the world have raised such unintended consequences and related effects to an immense level.

The 18th-century European Enlightenment formalized a belief system proposing that the world was generally linear, logical and predictively manipulable — that certain inputs would reliably produce certain outputs. That is of course what modern science and technology are based on. If you isolate phenomena — a smooth ball rolling down a smooth incline, or a closed electrical circuit — that view is generally true. But in the real world, the balls are seldom smooth, nor are the inclines.  

A good example is in the practice of “pro-forma” financial analysis. The rise of spreadsheets like Excel has led people to believe that they represent the real world and can predict real-world outcomes. But they are abstractions and seldom forecast what actually transpires, because there are too many variables and exogenous elements. The use of such spreadsheets and the illusion of comprehensibility and predictability they engendered were deeply involved in causing the 2008 financial crisis.

There is a term that originated in the cyber security world called “security theater.”  It involves putting in place measures that look like they will increase security but actually offer little protection, if any. They are there simply to make people feel better and to offer legal protection to the entities that deploy them.

Much of politics is analogous. As a species, we seem to most want from our leaders promises that make us feel better. That the promises are impossible to keep seems to matter little or not at all. But, as those promises are broken, we become very angry, and, if we are living in a democracy, “kick the bums out” only to vote more in to make and break more promises. Over and over and over.

Where does all that leave us? How do we move forward?

Are We Already in World War III?

By Dee Smith

The question in the title has been asked in policy forums, and often dismissed. But there are recent developments that make it important to take the possibility more seriously.

First in importance is what is being called an “Axis of Disruption”: China, Russia, Iran, North Korea. These states are arguably more coordinated today than the old Axis powers were at the beginning of World War II. They have mutually reinforcing interests. Primary among these is an interest in weakening the United States, Western allies and the so-called rules-based international order.

It is not so much that Axis of Disruption goals are shared as it is that the interests of the players are self-reinforcing. China would welcome a situation in which the military and diplomatic attention of the US is drawn into simultaneous conflicts in the Middle East, centered on an Israel-Iran confrontation, and in the North China Sea, focused on sharpened tensions between North and South Korea. The focus of the US on these two theaters of action would draw its capabilities away from other areas, particularly Taiwan. Russia likewise would prefer to have the attention of the US pulled away from Ukraine. In this analysis, China would be the sub rosa moving force behind seemingly disparate actions — all of which satisfy the interests of it and its allies.

Simultaneous major military action by members of the Axis of Disruption in the Korean Peninsula, Taiwan/South China Sea, the Middle East and Ukraine could be considered to constitute world war.

Is this realistic?

It depends to a significant extent on whether China really wants to pursue a forceful reunification with Taiwan, and if so, when. China considers Taiwan a breakaway province, and in some ways sees it as the last pillar standing of the “century of humiliation” Chinese schoolchildren are taught: “100 years of national disgrace” of China at the hands of Western powers and Japan. Chinese leader Xi Jinping has clearly stated that he sees his legacy as the reunification of Taiwan with the mainland, by force or otherwise. For several reasons, including changing demographics (an older population and the results of the one-child policy in the 20th century), his own advancing age, and the changes resulting from ever closer ties between tech sectors and defense, Xi may see his window of opportunity closing.

On the other side, the outlines of a broad counter-alliance are emerging. NATO has significantly expanded its territory along the border of Russia. A number of cooperative groups of nations who share strategic interests in various ways — the European Union, the “Five Eyes” (Australia, Canada, New Zealand, the UK and the  US, with varying collaboration with France, Israel, Singapore, South Korea and Japan), AUKUS (Australia, UK, US), the Quad (Quadrilateral Security Dialogue: Australia, India, Japan, and the US), the Abraham Accords (Bahrain, Israel, the UAE and, indirectly, Morocco and the US) — seem also to be consolidating into something like an informal alliance.

The US has just entered into an expanded defense agreement with Japan. And Israeli Prime Minister Benjamin Netanyahu’s speech before the US Congress on 24 July could almost be read as a statement of intent to go to war with Iran.

The situation is unlike the Cold War, in which there were more clearly delineated sides. There are many countries sitting on the fence with regard to their alliances. The new non-aligned movement is expanding, with significant “middle powers” like Turkey exploring options outside its long-standing associations with the West. It is no longer outlandish to ask if Turkey might leave NATO. The BRICS (Brazil, Russia, India, China, South Africa) group of nations is expanding, with countries like Egypt joining, and is seeking to introduce its own currency.

India is both a member of the US-oriented Quad and of the BRICS group, and the UAE of BRICS and the Abraham Accords. Which way would they fall if the proverbial push comes to shove?

Adding further instability, the US dollar — the world’s reserve currency — is under mounting pressure due to continuing US government budget deficits and the US debt load of over $35 trillion. A number of nations, China among them, have been dumping dollars and buying gold (this includes Chinese households). The US may eventually find it difficult to finance its debt.

When a world war begins is often a matter of hindsight. It still seems unimaginable to many, and it is to be fervently hoped it never happens. “Recency bias” is the belief that the near future will be like the recent past. Most people cannot believe things outside their experience can happen. But they can . . . and do.

The New Anti-Imperialism

Through Western eyes, anti-imperialism might appear to be an anachronism. Didn’t the empires pack up and go home half a century ago? If so, then what is anti-imperialism against? There is an increasingly stark divide between those who think the post-imperial era is well along and those who think it is just beginning. Whichever side of this divide one is on, the political salience of anti-imperialism in West Africa and the Sahel, from Senegal’s Atlantic coast to Niger’s eastern border with Chad, cannot be denied. Niger decided days ago to eject the United States, having done the same with France late last year. Senegal meanwhile elected on Monday a young former tax inspector whose populist party has built its politics around distancing the country from France, the former colonial power. Imperialism may be dead, but anti-imperialism is thriving.

This is a political reality, and in politics there is always ample room for cynicism. The military governments in Mali, Burkina Faso and Niger are not led by angels. (Chad and Sudan are under military government as well, as is Guinea.) Expectations for sound governance, fiscal prudence, gains in health care and education, or democratic accountability should be kept very low. Nonetheless, these governments are not unpopular. They are seen as an appropriately tough response to an extremely difficult security situation as killings and kidnappings, usually by Islamist groups, have continued. French and American counter-insurgency aid was initially welcomed by many but was not the solution hoped for. The price paid in sovereignty (and military autonomy and accountability) was too high. Western military assistance came to be seen as neo-imperial.

Sovereignty, and something quite intangible having to do with respect, are the keys. All three countries, after all, have at the same time ejected France and the U.S. while seeking to pool their sovereignty, as they choose, in a tripartite security alliance against insurgent groups and while welcoming military aid from Russia, in particular. It is very hard to think of Russia as respectful of sovereignty, at least when it comes to neighbors. So all three nations are demonstrably willing to compromise their sovereign room for maneuver if it is necessary to get them closer to their security goals. They just won’t compromise it for powers perceived as imperial or neo-imperial.

Russia, along with China and even Iran — Niger’s willingness to sell uranium to Iran was a major source of friction with the U.S. — is successfully building its soft-power brand as anti-imperialist. This would seem like madness to a Ukrainian, a Pole or a Taiwanese, or indeed to those in larger states who have been the object of Russian, Chinese and Iranian extra-territorial cyber-attacks and information operations. Yet it is a political reality. Russia backs up its talk with hard power, China with investment — and some hard power as well. They are increasingly the anti-West, and that clearly has appeal.

Happily, this week’s presidential election in Senegal was a victory for democracy against authoritarian moves by the now departing incumbent. Yet much of the new government’s appeal comes from its anti-imperial politics, including agitation against “economic enslavement” by resource-extractive multinationals. The new president’s party made a point of advocating the adoption of a national currency and exit from the CFA currency area, seen as a relic of French colonialism. The CFA franc is pegged to the euro and backed by the French treasury. Replacing it has long been an anti-imperialist touchstone in the region.

And yet: incoming president Bassirou Diomaye Faye has already downplayed the CFA pledge and is most likely to continue backing replacement of the CFA by a regional currency (the Eco) shared by the 15-member Economic Community of West African States (ECOWAS) and scheduled to be launched in 2027. Something similar will probably get in the way of a plan mooted by Niger’s ruling general last month to create a post-CFA currency for Niger, Mali and Burkina Faso as “a first step toward breaking free from the legacy of colonization.”

In short, anti-imperialist sovereignty may be absolute but real sovereignty is relative. As in the 1960s and ‘70s, pan-Africanism, in doses small or large, is seen as the means for successfully blending sovereignty, dignity and survival – even prosperity.

Proxy Votes in Baluchistan

When Iran fired missiles across its border into Pakistan’s Baluchistan province on 16 January, it announced that its targets were bases belonging to the anti-Iran insurgent group known as Jaish al-Adl (Army of Justice). The Associated Press reported  that “a military response from cash-strapped Pakistan” was unlikely, but within 48 hours Pakistan retaliated with missiles and sent fighter jets into Iranian airspace. Pakistan claimed that it was targeting anti-Pakistani insurgents operating from Iranian territory.

As anxiety about Iran asserting power beyond its borders has increased after Hamas attacked Israel on 7 October 2023, and after Iranian proxies in Yemen responded to Israeli counter-attacks in Gaza, any cross-border Iranian actions are going to cause alarm—especially if they are conducted against Pakistan, a nuclear power with a Sunni-dominant political culture.

It is true that an argument can be made to dial down worries about the Iran-Pakistan missile exchange. Iran, Pakistan, and Afghanistan all contain large areas of territory dominated by the Baluch people. Indeed, Baluchistan is Pakistan’s largest province in land area—but also its least populated and arguably least developed. Although military-heavy, authoritarian, and ruthless governments might be assumed to have the means to protect their own borders, Iran, Pakistan, and Afghanistan have never been able to assert their sovereign power convincingly in Baluchistan. Relations between the three states being fraught, Baluchistan has for years been a reliable source of irritation for its putative overlords and a place for them to contest with each other. Trouble in Baluchistan is hardly new.

But for just that reason the current level of Pakistan-Iran conflict seems disproportionate. Jaish al Adl had killed a dozen men at a police station in Iran, a depressingly common form of Baluchi skirmishing. Lobbing missiles over a border, in retaliation for such a familiar provocation, was new, as was Pakistan’s emphatic response.

The Iranian action may be easier to understand. Most analysts believe that it was a show of strength at a time when the Iranian regime feels threatened. The killing of 84 people gathered In Kerman at the grave of the Iranian major general Qassem Soleimani—who was assassinated on 3 January 2020 in an American drone strike—was yet another outrage by Islamic State and may have been encouraged by Pakistan. There is no doubt that Islamic State had a particular interest in Soleimani, who had been the mastermind behind Iranian force projection in Iraq and Syria against Sunni extremists. He had therefore become both a source and a symbol of Iran’s use of force beyond its own borders, which was why the US decided to assassinate him. The two Islamic State suicide bombers who attacked his grave on the anniversary of his death came from Khorasan, which is, like Baluchistan to its south, a large border region that no state has been able to control.

More broadly, Iran's theocratic Shia regime has often found itself at odds with Sunni Pakistan. Shia minorities in Pakistan have faced attacks from Sunni militants for decades, with thousands killed in the past 30 years. Iran has long tried to export its Shia ideology to border countries and elsewhere in the vicinity, which is hardly appreciated by most Pakistanis. The close relationships that Pakistan maintains with Persian Gulf monarchies, especially with Saudi Arabia, also fuel Iranian hostility. The nuclear competition in the region has been driven in part by Saudi investment in Pakistani nuclear-weapons projects and by Saudi hopes of obtaining a nuclear arsenal of its own.

On the Pakistani side, these existing patterns of conflict are worsened by Iranian ties with India. The Foreign Ministry of India issued a statement that supported the Iranian attacks. Meanwhile one of the few potential bright spots in the Pakistani economy, the Chinese-built megaport at Gwadar, is within Pakistani Baluchistan and acutely vulnerable.

Proxy warfare is a sometimes underestimated factor in economic stagnation. Inward investment to Pakistan has plummeted since its 2007 high. Iran’s inward FDI peaked earlier, in 2002. Both are now at 1970 levels. But Iran is significantly wealthier in per capita terms, due mainly to oil rents—about 20% of GDP in 2020, compared to only nominal amounts in Pakistan. This seems to have the effect of making Iranian strategists more willing to spend on foreign adventures. Investors need to take current and likely patterns of proxy warfare into account. This unfortunate reality became clear to the Chinese in Gwadar and has become clear to the world as Iran’s Houthi proxies harry shipping in the Red Sea.

A Fearful Asymmetry: The Rising Threat of Irregular Warfare

By Dee Smith

Beginning in November 2023, following the attack by Hamas against Israel, groups of Houthi “pirates” in the Red Sea began to step up operations against ships in this crucial waterway that leads to the Suez Canal. The Houthis are a Shia Islamist group based in northern Yemen. Such pirate attacks have been happening in the Red Sea, the Gulf of Aden and the Arabian Sea for many decades, but the agenda now is as much political as piratical. Commercial shipping has been avoiding the region, including the Suez Canal, by making the much longer and more expensive journey around Africa and the Cape of Good Hope. The US has deployed a destroyer and other vessels to counter the Houthi. but has had trouble convincing other powers to join Operation Prosperity Guardian.

Consumers and industry will pay the price for the disruption in supply chains. Last week, 13 nations signed a “final warning” to the Houthi, noting: “Nearly 15 percent of global seaborne trade passes through the Red Sea, including 8 percent of global grain trade, 12 percent of seaborne-traded oil and 8 percent of the world’s liquefied natural gas trade.” The Houthi nevertheless continued their attacks. Last week, for the first time, they used ocean-going drones to attack US Navy and commercial ships.

Thus a relatively small group of operatives —albeit with financial and logistical support from a large nation-state, namely Iran — has managed to disrupt global shipping, create enhanced media awareness for itself, and force the most powerful nation in the world to deploy forces against it at significant financial and military cost.

The reason the Houthi are able to disrupt shipping affecting the entire globe is that they are applying asymmetric warfare techniques to a key strategic location.

What is asymmetric warfare? The classic definition is conflict between forces that are vastly different in terms of military power. It is almost always “irregular” warfare in that the combatants involved on the “enemy” side (the enemy from the perspective of states under attack) are not part of regular national armed forces of nations (although it can also occur among irregular groups, as between the Islamic State and al-Qaida). The goals of asymmetric players are often more to cause shock and confusion than to cause large-scale harm. Bronwen Maddox, head of the British think tank Chatham House, recently recounted a remark that Hamas deputy leader Saleh al-Arouri, who was killed by an Israeli strike last week in Beirut, made to her in 2007: “‘Our job is to keep the Palestinians radicalized’, he said. ‘Most of them would settle in a moment for peace, some deal that will let them get on with their lives. We need to keep them angry.’” Asymmetric attacks happen at unexpected times and in unexpected places, hence the less used term asynchronous warfare and thus asymmetric and asynchronous warfare, as US military and intelligence agencies have long called it.

Asymmetric warfare has been around for centuries and encompasses not just terrorist attacks like that on 9/11 but also  insurgencies, guerrilla warfare, rebellions and so forth. The campaigns against the British that led to the birth of the United States would fall into the category of asymmetric warfare.

Asymmetric warfare has lasted because it can be effective, but two key changes, both products of advanced technology, have made it more so.

First, asymmetric players have been empowered through the increased capacities that new technologies afford to small groups in attacking large states. For example, weaponized drones can be simply repurposed civilian drones, costing at most a few thousand dollars each — while the US Navy might shoot them down with $2 million missiles. The Navy could ramp up existing directed-laser systems, which would be much less costly than missiles over time, but has been reluctant to make the large investments needed. This is an example of how asymmetric players can sometimes prevail against large opponents whose systemic complexity precludes quick and efficient action.

Cyber threats offer a textbook case of the complexity of the asymmetric environment. They can be perpetrated by small groups physically distant from their targets, but they are also used promiscuously by nation states and even sub-contracted to terrorist or criminal groups. It is a very tangled web, difficult to unravel and even more difficult to counter.

It is also well within the capabilities of some asymmetric actors to produce “dirty bombs,” conventional explosives surrounded by or laced with radioactive materials—if they can obtain the radioactive materials, which are difficult but by no means impossible to acquire.

Perhaps the most alarming asymmetric threat is bio-terror: the production and use of biological weapons that could devastate the populations of entire regions. Nation states mostly claim that they are not developing such weapons, but today the field is open to much smaller groups. CRISPR-Cas9 gene editing techniques have become so much more effective and affordable that genetic engineering to produce novel and lethal bio-agents can now, at least in theory, be conducted in a garage on a relatively small budget.

The rise of AI opens up an entirely new arsenal for asymmetric warriors. As those who study the field have noted, however, it has proved impossible to predict how technologies will be misused until they are.

The second major change is that technology has made targets softer. The highly interconnected and tightly coupled world that we have created is far more vulnerable than were simpler and more isolated systems. In other words, technology has to some extent leveled the playing field in favor of weaker asymmetrical players, just as it has made regular armed forces relatively less effective in an increasing range of circumstances. For example, an attack on 16 April 2013 that involved nothing more than AK-47 assault rifles and wire cutters used to cut fiber-optic cables managed to knock out 17 large transformers in 19 minutes, threatening the power supply to Silicon Valley. A blackout was avoided by quickly rerouting power and pulling it from other plants, but the damage was significant and the outcome could have been far worse. The perpetrators have never been found.

Our technologies of communication, such as social media, are so ubiquitous that we often fail to realize how much they have changed the equation. Asymmetric groups learn of one another’s techniques quickly, and they share goals by interacting to further them. For example, the perpetrator of the Christchurch mass shootings on 15 March 2019 said that he decided on a shooting attack specifically because of the effect it would have in the US. Those who study such “lone-wolf” attackers have noticed that they tend to find one another and band together, organizing asymmetric-warfare groups with shared aims and ideologies and becoming much more effective as they do so.

If you are reading this in your office, take a moment to look in your desk. You may have an effective asymmetric weapon at your disposal: a laser pointer of the kind used for PowerPoint presentations. If directed at someone’s eyes, it can be highly disorienting and even cause permanent damage. This is why shining lasers at or into the cockpit of commercial airliners is such a serious crime: it can endanger everyone on the plane by incapacitating the pilot’s vision. And it is a perfect example of how advanced but fairly mundane technology has empowered asymmetric players.

The proliferation of destructive technologies and the vulnerability of large technical systems to disruption have combined to make asymmetric attacks more common and more lethal. What the Houthi example shows is how the range of threats to international trade and investment has grown accordingly.

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Niger’s Anti-Foreign Coup (I&W)

Niger’s Anti-Foreign Coup

The coup in Niger on 26 July was rightly condemned by the United Nations, the European Union, the United States, and France. It was also denounced by the Economic Community of West African States (ECOWAS), which has been the main regional security actor since its intervention in Liberia in 1990. The African Union took the further step of issuing an ultimatum to the new government threatening to use “all measures” against the coup-makers if they did not back down after 15 days.

These immediate and threatening responses were due in part to fear. Since 2020, there has been a wave of military coups across the Sahel, including in Chad, Guinea, Sudan, Burkina Faso and Mali, and these have overturned an earlier trend toward democratization and presumed stability. Along with fear, however, there has been a sense of disappointment and loss. Niger had been a democratic standout until the coup, receiving thereby a great deal of foreign aid: more than half a billion US dollars from the EU alone between 2021 and 2024. The international system has been badly shaken by the chronic instability in South Sudan since its creation in 2011 as a very expensive experiment in internationally backed state formation. The trend since then had been to devolve international power to the African Union and regional bodies such as ECOWAS, while also allowing a greater role to Western powers, especially France, in providing lift capacity and firepower for fighting the numerous local insurgencies, many of which are Islamist. During the same period after 2011, Niger held three democratic elections and enjoyed a peaceful transfer of power in 2021 from Mahamadou Issoufou, who came up against a term limit, to Mohamed Bazoum. Niger could be and was seen as a rare example of success—right up to 26 July.

Then it became a nightmare. Burkina Faso, Guinea, Mali, Mauritania, and Algeria all issued statements saying they would oppose any military attempt by ECOWAS to unseat the new government of General Abdourahamane Tiani, the head of Bazoum’s presidential guard who feared he might be next in a military cleanup campaign initiated by Bazoum and backed by the US and France. The Wagner Group’s Yevgheny Prigozhin, who has been active in the region as both a mercenary leader and an investor (see SIGnal, “How Putin Goes,” 5 July 2023), endorsed the coup and offered his help in securing it. But the deeper problem was that Africans in the region did not all respond to the coup as a setback. As of this writing, ECOWAS did not seem to be following through on its threat of decisive action if the coup makers did not stand down; the deadline Sunday came and went. Many in Africa expressed their solidarity with the coup makers in rejecting outside interference, especially by France.

This should not have been quite such a surprise. When Emmanuel Macron took office in 2017, he gave a celebrated speech in Ouagadougou aimed at burying neocolonialism and entering a new era of partnership. The security part of that partnership did not go well, however, and Macron made a four-day tour of central Africa earlier this year, announcing a shift towards a greater appreciation and respect for local authority. Meant as an assurance that the condescension of earlier decades would be discarded, it was evidently seen by some as a sign of irresolution and withdrawal. Military forces in the Sahel seem to be moving toward a view that France is their primary adversary, adamantly opposing any foreign intervention in their internal affairs. What is most striking in the Nigerien case is that ECOWAS and the AU, whose own security capacities have been strengthening for a decade as a result of French and international support, are now being seen as “foreign,” or at least as inimical to the independence of African states, despite their being African themselves.

Russia, meanwhile, has been gaining influence. By appearing to treat African states as equals and giving their leaders a grandiose reception at the Russia-Africa Summit, Russia has appealed to African leaders weary of their low status in the global arena. Russia’s actions—including the cancellation of a substantial African debt of USD 23 billion and the exploration of mutually beneficial partnerships—align with the aspirations of African states, as have somewhat similar Chinese initiatives. The refusal of many African states to condemn the Russian invasion of Ukraine is to some degree a reward for Russia’s Africa policy.

The overarching concern among the people of Niger is that the foreign military presence and bases, in cooperation with Bazoum’s elected government, have not effectively addressed the insurgent threats in the region. Consequently, there exists a growing belief that the Nigerien military, with support from Russia, might be better equipped to combat the insurgency and handle security challenges within the country.

ECOWAS and the African Union need to adopt a more proactive approach to curbing military power seizures, promoting instead the principles of democracy, good governance, and respect for constitutional order. Doing so might restore some confidence in the efficacy of these regional bodies and foster African stability.

However, a pattern of institutional weakness at the regional and continental levels, accompanied by the rejection of elected governments by Africans themselves in individual states, could also lead major players such as France, the US, the EU, and even the UN to back away from existing commitments and focus more narrowly on particular interests. In the case of the EU, this would mean taking an even harder line against African migrants, thousands of whom die every year as they attempt to reach Europe. France is likely to become less internationalist and more inward-looking, an ongoing trend alongside attempts by Macron to reconcile the traditional French pursuit of la gloire with the demands of internationalism. At the same time, the US and other powers are likely to become less reticent about fighting Russia and China on African soil for access to strategic minerals.

The result will be an increasing divide between African economies able to grow their own productive capacity and those that, like many today in the Sahel, will choose the appearance of independence and the likely reality of chronic under-development as authoritarian states such as Russia and China are allowed to set the prices. An entirely understandable revolt against foreign dominance could then introduce an era that will feature a version of neocolonialism different from its predecessor, but not nearly different enough.

How Putin Goes (I&W)

How Putin Goes

The speed with which, in handling Yevgeny Prigozhin’s Wagner Group insurrection, Vladimir Putin went from bluster to bargaining led many analysts to declare that his weakness had been exposed and his demise would arrive soon. But Putin's departure from power is not forthcoming in the near future. The convergence of the interests that fortify Putin's existing system is robust and compelling. Putin is currently consolidating his position in preparation for elections in 2024.

In March, a year after his invasion of Ukraine, Putin's popularity remained very high, with an approval rating surpassing 80%, as indicated by a survey conducted by Levada, an independent Russian research organization. In some ways, recent developments fortified Putin's position: disloyal individuals have been exposed and purged. Sources closely associated with the general staff and the security services confirmed that General Sergey Surovikin was interrogated, while three undisclosed U.S. officials reported that Surovikin possessed prior knowledge of Prigozhin's plot to incite rebellion against Russia's military leadership.

Undeniably, Russia’s internal security crisis has eroded Putin’s stature on the global stage. But this erosion is more likely to push him to further provocative actions than to lead him to withdraw from the scene. The confluence of this crisis with the annual NATO summit (11 July) in Vilnius raises the prospect of potential assertive responses from Putin.

At home, Putin is very practiced at adjusting his authoritarianism to circumstances. He has learned from observing his Syrian ally, Bashar Al Assad, and the way in which his neighbor Recep Tayyip Erdogan defended his power in 2016. Rather than destabilizing the prevailing authoritarian regime, the Wagner coup is poised to reinforce and perpetuate authoritarianism through the adoption of novel strategies and practices.

Prigozhin, however, is not going to go away quietly. His security-oriented mindset is firmly grounded in profit-seeking. It is inconceivable that someone of Prigozhin's disposition could accept that the Russian Ministry of Defense would assimilate his Wagner troops by formalizing their involvement through contractual agreements, transforming them into an official component of the Russian military. His army is his business, one he is most likely to keep vital in Africa. Enterprises such as Lobaye Invest in the Central African Republic and M-Invest, along with its subsidiary Meroe Gold in Sudan, have emerged as key players involved in resource exploitation, controlling significant mining concessions. Several have recently been granted long-term extensions, further solidifying their hold on valuable resources. Wagner has rights to the Ndassima mine in the Central African Republic through a comprehensive 25-year contract with potential for extension. Prigozhin is resolute in his reluctance to relinquish any aspect of this expansive enterprise.

Of course, Putin and Prigozhin are both mortal as well as rich in enemies. But violent deaths aside, they will find ways to survive in the brutal world they know so well.

What is Intelligence - Part #1: Looking for Trouble (@SIG)

WHAT IS INTELLIGENCE?

Part 1: Looking for Trouble

By Dee Smith
Chief Executive Officer and Founder

As head of a private intelligence agency—Strategic Insight Group (or SIG)—I am often asked what intelligence is and how it works. How is it different from other kinds of research? So here is a description that I hope will be helpful.

First of all, intelligence is very different from espionage. Traditionally, espionage is the practice of using spies to procure information. A modern variant is of course “cyber espionage”: a kind of cyberattack where the goal is to enter a computer system in an unauthorized and undetected way to access valuable intellectual property (IP) or sensitive or secret information. Espionage is often conducted by governments against other governments, as well as against opposing parties within their own countries. All governments conduct some form of it. It is also used in commercial settings—often called “industrial espionage”—but this is considered unethical and is illegal in most jurisdictions. Government intelligence against other governments is usually not considered illegal in the country in which it originates, or its legality is disregarded. This is because different rules—or a lack of rules—apply to sovereign states. There is a level of anarchy in inter-state relations, as there is no real overarching global legal authority, and what international law there is is weak and is often disregarded and unenforced.

Intelligence is not espionage, but it is also not the same as the general kind of research as undertaken by many people. Often, research on a topic gathers relatively easily obtained information and categorizes, synthesizes, and draws conclusions from it.

In contrast, intelligence is a very specific kind of research with a focus on revealing hidden information—to find things that others do not expect you to know or do not want you to know. The goal is to enable you to more completely understand the nature of a situation and to characterize the forces influencing it. Furthermore, intelligence often strives to provide continuing awareness of how something is developing, and early warning of emerging threats and opportunities.

The goal of any good intelligence operation is to produce “actionable” intelligence: something that a client who uses the intelligence) can act on. Intelligence works best when the question being asked by the client is very specific: “Are there negative indicators that should warn me against investing with this group?” or “Will an opponent in a lawsuit fight to the end or settle?”

Finding things that others do not want you to know might seem ethically questionable, but consider, for example, that many of our clients at SIG are large investors who manage money for ordinary people who have entrusted their retirement savings to pension plans or other investment funds. Imagine the following situation: a fund manager is proposing to make an investment in an entity, but that entity is itself acting unethically by hiding or misrepresenting issues. A good intelligence process could detect this, allowing the fund manager to make a better decision.  

When certain rules and procedures are followed, private intelligence can be conducted entirely legally, as SIG does on a daily basis.
 The intelligence that SIG conducts is essentially threat identification, risk mitigation, and fraud detection: we are “looking for trouble” . . . so we can keep clients—and the people whose money is entrusted to them—out of it.

How does intelligence work? It works by collecting a large array of data—many small pieces, from many different sources, not all of which are decisive or even terribly important. But when you collect the right pieces, and put them together using appropriate tools and techniques, the process can reveal hidden information about actors and their intentions—good or bad—and about their weaknesses and strengths. The whole is greater than the sum of its parts.

The Importance of Patterns

Sometimes a single piece of information can make all the difference. Far more often, however, it is the pattern of evidence that reveals the “lay of the land,” so to speak. You never know, until you begin collecting and analyzing it, what piece of data, from what source, will tell the tale . . .

Consider a subject who suddenly begins to receive speeding tickets or to borrow increasing sums of money. This may be a window into their personal life. Has something changed? If they head an investment fund, is it something so distracting that it might take their eyes off the proverbial ball? Or consider an individual who is found to have 3 bankruptcies, is a defendant in multiple lawsuits, and has tax liens every year for multiple years. What does this pattern across indicators tell you about their operating style?

There are two key elements: 1) multiple sources, because NO one source is dependable, no matter how legitimate it seems and 2) zero-based analysis, in which assumptions that everyone “knows” to be true (even if they are not) are discarded in favor of collecting data, analyzing it, and looking for patterns and anomalies that can reveal the nature of individuals, companies, and events. Then, the intelligence process creates hypotheses that might explain what has been observed, testing them to confirm or contradict them.
Intelligence that produces insight is iterative by nature. A conceptual device known as the “Intelligence Cycle” illustrates the process in a general way. It may circle around several times within a project, as new information is found and analyzed or tested.

Results of the Intelligence Process

Intelligence does not seek to predict the future, but to provide a better understanding of the present. From that, it can allow a user to take action on the basis of early indicators—before irreparable damage has occurred. It can also provide a basis for projecting forward more likely or less likely scenarios. By pinpointing key elements, it can also allow focused systems of monitoring (known as “Indications and Warnings” or I&W in intelligence jargon) to be established as a way of providing continuous “situational awareness.”

In the end, intelligence is only as good as the processes and protocols used in its collection and preparation. But properly conducted, it can produce astonishingly accurate insights to detect problems at an early stage and then to avoid or mitigate them.

Next in the series: The Difference Between Open Source Intelligence and Human Intelligence, and their Uses