Rickards: A Geopolitical Earthquake

Authored by James Rickards via the Daily Reckoning,

Our specialty is forecasting. We use multiple branches of science in our predictive analytic models including complexity theory, behavioral psychology, Bayes Theorem, neural networks (a form of artificial intelligence or AI), inference, subject matter expertise and good old-fashioned intuition to arrive at the market and geopolitical predictions we offer our readers.

Our track record speaks for itself. We predicted Brexit when polls gave it only a 25% chance. We predicted Trump’s 2016 victory when polls gave it only a 5% chance. We were the only publication in the world to predict the exact number of Trump’s electoral votes in the 2024 election (312 votes; no one else predicted he would win all seven swing states). There are many other examples. Our forecasts on gold and silver prices are followed all over the world.

But science and applied mathematics are not the only ways to do forecasting. There’s ample room for imagination and creative fiction. In fact, all forms of forecasting are fiction because the events predicted haven’t happened yet. They only become “true” when the forecast plays out.

In this genre, you can think of Jules Verne, who wrote about Captain Nemo and the Nautilus in Twenty Thousand Leagues Under the Sea (1869), decades before systems such as electric propulsion, long-duration submersion and life-support systems were used in submarines.

Another great science fiction writer is Arthur C. Clarke whose 2001: A Space Odyssey (1968) described adventures in space that still have not been achieved but are being actively pursued by Elon Musk and others. The pseudonymous author Big Serge is a current master of this genre as it applies to military affairs and geopolitics.

Unlikely Scenarios (For Now)

With this as background, let’s jump into the creative end of the pool and offer some scenarios that are definitely fictional (as of now) and not hard forecasts (that’s for another time), but rather scenarios that if not likely are at least possible and worth your consideration. In some ways, the more unlikely the scenario the greater the impact on your portfolio if it does come to pass.

Trump has backed away from his threat to take Greenland by force if a deal could not be worked out with Denmark, which controls the territory today. But Trump is famously volatile and could reverse his views in a minute if the newly proposed framework for transferring Greenland to the U.S. on some basis yet to be announced falls through.

What if NATO members such as the UK, Denmark, France and Germany send their armed forces to defend Greenland? None of those powers are particularly strong and it’s unlikely they could muster more than two brigades for this purpose (about 5,000 troops in total).

Under the direction of U.S. NorthCom, with a U.S. aircraft carrier battle group, cyber warfare, drones and elite airborne troops trained in Arctic warfare, the U.S. could put those NATO troops into full retreat with substantial casualties on their side in a day or two at the most.

The U.S. would gain Greenland, but the armed confrontation would be the end of NATO. That’s not necessarily a bad thing from the U.S. perspective. NATO members have not been paying anywhere near their share of the costs of military preparedness.

The War in Ukraine has shown that most NATO weapons, including Patriot anti-missile batteries, Abrams and Challenger tanks, HIMARS precision-guided artillery, Bradley fighting vehicles and cruise missiles are obsolete when up against Russian hypersonic missiles, drones, anti-missile defenses and GPS jamming techniques. NATO is probably falling apart anyway, but a debacle in Greenland would accelerate that ending.

The Great Powers Would Rule

Without NATO, the Baltic Republics could be rapidly invaded and annexed by Russia. They already have large Russian-speaking populations and were part of the former Soviet Union from 1945 to 1991. This annexation would be a tragedy for some but a homecoming for others.

The major NATO powers might form a new military alliance centered around France and its nuclear weapons. Yet, the U.S. would still have allies in Europe including Italy, Hungary, Romania, Slovenia, the Slovak Republic, Poland and Greece.

These countries form a kind of wall between Russia and Western Europe. Europe could find itself cut off from Russian natural gas because of Ukraine and also cut off from U.S. natural gas because of the battle for Greenland.

With the U.S. controlling its own oil and that of Venezuela and Guyana, and Arab countries siding with the U.S., Western Europe could find itself with almost no energy supplies apart from its pathetic patchwork of windmills and solar farms and French nuclear reactors. Western European manufacturing would quickly grind to a halt.

With the U.S. grabbing Venezuela and Greenland and Russia helping itself to the Baltic Republics, China could decide that the time was ripe to seize Taiwan. The U.S. might allow this to happen on a view that its sphere of influence is the Western Hemisphere through the Trump Corollary to the Monroe Doctrine.

Of course, the U.S. would destroy Taiwan’s semiconductor fabrication and research facilities on its way out the door. The U.S. would rapidly expand its indigenous semiconductor manufacturing while mining the Western states of the U.S. and Greenland for rare earths.

Have you heard of the Chagos Islands? They’re an archipelago of seven atolls including more than 60 islands lying 300 miles south of the Maldives in the Indian Ocean. The Chagos are controlled by the UK as the British Indian Ocean Territory.

Except for their natural beauty, they would be unremarkable but for the fact that the Chagos includes the island of Diego Garcia, which houses a U.S. Naval Support Facility. That facility has been used to launch B-52, B-1 and B-2 bomber attacks throughout the Middle East including the Gulf War, the Global War on Terror and the invasions of Iraq and Afghanistan.

Keir Starmer, Prime Minister of the UK has agreed to cede the Chagos to the island nation of Mauritius, also in the Indian Ocean closer to Madagascar. The UK would take back a lease to Diego Garcia, but Mauritius would be sovereign. Trump has called the Chagos deal “stupid”. Would Trump take over the Chagos Islands to prevent the transfer to Mauritius? Possibly yes. That would be one more nail in the NATO coffin.

Japan sensing that its alliance with the U.S. might be on shaky ground could decide to build its own nuclear weapons to deter Chinese threats. Japan has long had this technology and engineering capability. Now it would decide that all bets are off and it needs to move as quickly as possible to become a nuclear military power.

In these scenarios, the Great Powers of Russia, China, the U.S. and possibly Japan would strike out on their own and seize as much adjacent territory as they could. The small powers like Greenland, Venezuela, the Baltic Republics and the Chagos Islands would be gobbled up. And the middle powers like the UK, France and Germany would watch helplessly as their assumptions about the shape of the world melted like ice cubes on a hot day.

Big Serge writes, “Our history is full of great wars which began in seemingly small places: the Lexington Common, Fort Sumter, an Archduke’s touring car in the back alleys of Sarajevo.” Could Greenland or Guyana or even the Chagos Islands be the next Sarajevo?

That may seem unlikely. But a look back at the last seven years that brought us COVID, twenty-million illegal immigrants, the War in Ukraine, a senile Biden, the War in Gaza, B-2 bombers over Iran, the seizure of Venezuela, two impeachments and the reelection of Donald Trump should teach us that the least likely scenarios happen with much greater frequency than conventional forecasts expect.

We will stick to our rigorous forecasting techniques. But we will also find a place for fictional scenarios of the kind described above. Fiction has a funny way of becoming fact.