PoP: The Middle East & The Emergence of a New System
A Deep Dive into the Importance of the Recent US/Middle East Deals & How They Signify the Emergence of a New System
TOPIC: The Middle East & The Emergence of a New System
The recent mutually beneficial deals between the Middle East and the US point to the early emergence of a New System – outlined in detail in our Tariffs piece. High level, the Middle East1 (notably, the UAE, Saudi Arabia, and Qatar) agreed to provide Money and Energy in exchange for Technology from the US – the Pillars of Power on full display. While the Western media have barely covered this development, these deals are Powerful and Clear signals of both a New System and a critical, once-neutral-region choosing the US (over China). Let’s delve into this in more detail via the Pillars...
TECHNOLOGY
Since the early 1970s, the US has provided Security (notably for shipping lanes) for Global Trade (notably oil) in exchange for the pricing of Oil (Energy) in US Dollars (Money) – the so-called Petrodollar System, which replaced the prior Gold-pegged System. The provision of Security by the US was enabled by Technology – Technology and Defense are inextricably intertwined – and the pricing of Energy in USD by the Middle East (the primary Oil Producer) massively expanded the USD Money Network: the interconnected Three Pillars. The Outcome of this System was a rapid expansion of Global Trade (Globalization; chart below) and USD Money Supply – an overall mutually beneficial arrangement until the System was exploited, pushing the pendulum too far. We’ll get into more details in our upcoming Capital piece (in the System Series), but the broader point in rehashing this History is that we are beginning another historic shift in the underlying System signified by the recent landmark deals.
These Middle East/US deals mark a meaningful update to the 50+ year old arrangement… And unsurprisingly, Technology sits at the center of it.
The US is the current Leader in AI – the Technological Revolution of our Time. And Semiconductors – notably Nvidia GPUs – lay at the Foundation of this Revolution. As we’ve highlighted, Technology is Defense. And access to leading-edge AI Systems is paramount to National Security – from Autonomous Drones to Automated Factories – hence the emergence of a new category: Sovereign AI. Access to leading-edge US Technology is the Defense/Security umbrella of the New System. And if you want access to it, you must be in the New System and abide by its rules…
The deals struck between the Middle East and the Trump Admin over the last ~month provide a template for what is to come as this New System takes shape. Simplistically, in exchange for access to leading-edge Technology – from Nvidia GPUs to OpenAI models to Starlink connectivity – the Middle East is providing Money for both domestic Data Center buildouts (for AI applications) and US-based Infrastructure (i.e., Reshoring), as well as Energy to Power it all.
Symbolically, this is huge – the Middle East is choosing the US/West over China. By selecting Nvidia (US) over Huawei (China), OpenAI (US) over DeepSeek (China), Starlink (US) over SpaceSail (China), Google et al. (US) over Alibaba (China), they are selecting the Foundation on which to build over the coming decades – once you make an architecture decision like this (think Railroads), there are high switching costs.
Practically, this is also huge – the compounding ripple effects dramatically accelerate, strengthen, and expand the Network of US-based AI – notably the Nvidia ecosystem. The purchase of US Semiconductors (i.e., Money to Nvidia) helps fund the expansion of capacity and R&D for next-gen chips. The deployment of US Semiconductors expands the Network, Compute capacity, and embedded ‘razor’ installed base. The use of US Semiconductors creates incremental Data and a platform for AI applications. The build out of these Data Centers and AI Infrastructure creates huge opportunities for US Hyperscalers (e.g., Amazon, Microsoft) and the AI supply chain (i.e., Compute, Memory, Networking). And the use of US Foundational LLMs expands the Data and reach of the underlying operating system. These deals help accelerate the spinning of the end-to-end US Technology virtuous cycle – strengthening the overall ecosystem (AI deep-dive piece to come). And the corollary also is important – these are chips that do not go to China, these are sales that do not go to Huawei, this is Data that stays within the West.
This ultimately gives the US more Control (and thus Power) over the broader (expanding) AI Ecosystem. But, this does open the door (surface area) to bad actors. The US will need to ensure these chips are deployed in the agreed-upon location, and not smuggled elsewhere (physical checks / telemetry). They’ll need to ensure a level of KYC and Cybersecurity are deployed to prevent malicious actors and protect software/algorithms. In the wrong hands, this Technological Power can be dangerous – thus it would not be surprising if there were embedded remote kill switches within the Nvidia GPUs to prevent bad actors. Overall, this New System approach is a better, non-zero sum solution that replaces the prior zero-sum diffusion rules.
And the arrangement (and related security) continues to expand. As noted above, Semiconductors are the Foundation of Technological Power in this AI Race – and the US is the Leader, providing a critical currency (carrot) within this New System. Following the deal signings, TSMC announced they are evaluating building an advanced chip plant in the UAE. Leading-edge fabrication facilities from TSMC are critical to build Nvidia chips, which are critical to powering AI. US Algorithms running on AI Data Centers operated by US Hyperscalers outfitted with Nvidia chips built by TSMC fabs powered by local Energy and funded by local Money – a secure end-to-end (‘Western’) Ecosystem that provides a blueprint for the Future. Signposts like this highlight the push toward balancing regional self-sufficiency and decentralization with Security – expect more of these arrangements to come to continue to reduce chokepoints and expand the New System Network.
Overall, the (expanding) relationship is non-zero-sum (win-win) – with each side providing its area of relative strength:
US needs cheap Money for Reshoring and AI Expansion/Acceleration
US needs cheap Energy for Reshoring and Powering AI
Middle East needs leading-edge Technology (AI) for Security and Productivity
The Outcome is stronger Pillars of Power for all of those involved, and the early Foundations of the New System we’ve alluded to. This ultimately provides a blueprint for Future deals, enables a host of follow-on activity, and builds Trust in an expanding relationship.
But to Power any of this Technology you need…
ENERGY
Cheap, abundant, and reliable Energy is critical for Industry. And even more critical for Power-hungry AI Infrastructure and Applications – where Power/Energy are ~50%+ of the Data Center expenses.
The beauty of this deal in many respects is its simplicity. Each side has a deficit where the other happens to have a surplus – the combination is Balanced, with each side better off. For the Middle East, they have plenty of Energy (surplus), along with Money (surplus) from the sale of that Energy – but they lack leading edge Technology (deficit). So the US Technology neatly plugs into a Middle Eastern region that can naturally support it with its Energy supply and infrastructure.
Similar to the TSMC announcement (Technology) that followed the deals, the OPEC+ announcement (Energy) to increase oil output is certainly related to the (expanding) arrangement – which ultimately should help facilitate lower Energy prices to help streamline the (Energy-intensive) Technology build-out in the Middle East and in the US.
While Middle Eastern Oil certainly still matters to the US, the calculus has certainly changed since the 1970s – when the US was a net oil importer (i.e., dependent upon outside sources; Energy deficit). Today, the US is Energy-independent – exporting more than they import and not dependent upon outside sources. Regardless, when you are Reshoring and Reindustrializing – the cheaper the Energy, the better. Hence the Energy Dominance Pillar at the Foundation of the Trump Agenda. In addition, a lower Global Oil price benefits Allies and the Global System as a whole – keeping Inflation in-check while the (bumpy) Old to New System transition occurs.
Further, these deals help accelerate the buildout of AI Infrastructure and Reshoring of Critical Product Production in the US – key components of the Trump Agenda and major steps in Re-Balancing the System. Specifically, the Middle East is providing…
MONEY
The Middle East – which is generally flush with Money from Energy sales – has to Dollar-match all Data Center Infrastructure spend in the Middle East, in the US: directly funding US Technology & Energy Infrastructure and Critical Product Production Reshoring.
This is important, as the US needs to accelerate AI Infrastructure and related Power Capacity expansion (graph below) to support the exponential growth in AI demand. Middle East Money helps facilitate that and Middle East Energy and Infrastructure helps plug the deficit to service the demand in the interim.
Not only is there direct Money flowing to US Corporates (e.g., Nvidia) for Products – which helps lower Financing costs, fund R&D, and accelerate Innovation – but there is also Money flowing directly into the US to Reshore Critical Product Production and to expand Technology and Energy Infrastructure – all Productive Uses + National Security enhancements. This arrangement also dramatically reshapes the flows of Money…
Whereas prior Middle Eastern Money flows (i.e., the USD received from selling Oil) primarily went into US Treasuries, and eventually US Real Estate, US Stocks, and Gold – generally inflating US Financial assets. With these deals, those Money flows are now directed toward US Technology and US Energy Infrastructure – Physical and Productive, over Digital (Financialized) and often Un-Productive. This ties directly to the Re-Balancing we’ve alluded to (and will delve into further in our Capital piece) – Money toward Production and Labor, away from Consumption and Capital.
Ultimately, the announcements add up to trillions of dollars of spend, ranging from AI Infrastructure, to new national AI companies (e.g., HUMAIN), to Critical Product orders for companies like Nvidia and Boeing. The first-order effects are obvious. The second and third order effects – from the expansion of US Technology dominance to the signaling of the alignments in the New System – are even more important.
CONFLUENCE
The Pillars of Power are the Pillars of this arrangement and of the New System.
These deals ultimately set a template for much of what is to come. Every Nation has its own strengths and weaknesses, surpluses and deficits, to address – and all revolve around the Pillars of Power. The base structure of the New System is taking shape, and it will be centered around Free Trade and Fair Burden-sharing – ultimately, Balanced and stronger Pillars of Power.
Rather than simply funneling Money (Surplus) from Energy sales into (often) Un-Productive US Financial assets, the Middle East is now flowing that excess Money into Physical areas – Critical Product Production and Technology Infrastructure in the US and at Home. This simultaneously boosts National Security and increases Productive Capacity – non-zero sum outcomes that are foundational to the New System. And it helps ‘solve’ the significant surplus/deficit imbalances built up over decades. The seemingly disparate components of the strategic agenda are beginning to come together, manifesting the broader Vision.
The significance of signing deals with once ‘neutral’ parties (i.e., toss up between US or China alignment) should not be understated. There is a reason the Trump Admin is focused on the Middle East and India in particular – Nations with vast, complementary critical Resources that are key to get on board in the New System. Allies should (theoretically) be easier and naturally fall in line. And the outcome will be significant negotiating leverage with China.
China and the East understand that a unified West is a Powerful Adversary. They are doing everything they can to sow Dis-Trust and Dis-Unity – from the Pakistan escalation during critical US/India Trade talks, to the Riots in California, to the seemingly Activist Judges attempting to thwart Policies. Always understand the incentives. The Old System serves the East, it serves the ‘blind’ Globalists, it undermines Western Security, and it drives the unsustainable imbalances we’ve clearly detailed.
The ideal situation is a peaceful Global Re-Balancing – the West toward Production, the East toward Consumption – where everyone is better off. In the meantime, the New System will continue to take shape and build up its Resilience and Adaptability.
Trump’s speech in the Middle East around these deals was unsurprisingly under-covered by centrally controlled Media, but the content was profound – it will be looked back upon as a critical moment in the evolution of the New System. Change is coming across the board. Spirituality is waking up. The System is realigning. The opportunity for collective Growth is here…
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Middle East used collectively throughout this piece for simplicity. But each country is obviously distinct, and each deal is/was different.
The emergence of 'Sovereign AI' - which we referenced above - is starting to both gather momentum and coverage.
Simplistically, Sovereigns need AI for both National Security and Productivity.
The US is the leader in AI (Technology). And the faster the US expands this Network and accelerates this Leadership, the further ahead they will be and the more Asymmetric their Technology Leadership will become (relative to rivals, e.g., Huawei).
Technology is a critical Pillar of Power 'leverage point' that the US has -- and it is using it to help Re-Build the New System.
Check out Nvidia's CFO discussing recent deals around Sovereign AI and what is likely to come ($1 Trillion+ opportunity)
https://www.investing.com/news/transcripts/nvidia-at-nasdaq-conference-ai-opportunities-and-challenges-93CH-4088199