Warning: This is a rush transcript generated automatically and may contain errors.
Asbed: The war on Iran is not just about missiles, oil, or even the Middle East. According to our guest today, it is also about who controls energy, money, technology, and the rules of the next world order. And as the dollar weakens, supply chains shift, and new power blocks take shape. Where does that leave small states like Armenia?
And how is all of this tied to TRIPP, SMRs, and AI data centers in Armenia? Stay tuned. You’re going to find out a little bit more about this stuff. We are being joined by Professor Warwick Powell, who is of the University of Queensland in Australia, and also the Taihe Institute in Beijing.
His research straddles the intersection of digital innovation and technologies and international political economy.
Hovik: For real folks, this is going to be an interesting discussion, so stay tuned. But very quickly, if you are just watching us for the first time or are not yet subscribed, please consider subscribing. And as a small podcast, your financial contribution means a lot. Podcasts.groong.org/donate is the URL for helping us financially.
And last but not least, LIKE, COMMENT, and SHARE so that we can be seen by more people. And with that, on with the show.
Asbed: Dr. Warwick Powell, welcome back to the Groong Podcast.
Powell: It’s great to be back with both of you. It’s been a while, I think. Yes, it has. A year.
Wow. Now time flies.
Hovik: Welcome, Professor Powell. It’s really nice to have a chance to speak to you. You recently published a new book called Thermoeconomics in the Time of Monsters, Rethinking Theory of China and international geopolitical economy. Of course, we’ll include the links in the description and the show notes.
But I said to myself, what a very interesting topic and an opportune time for Armenia as well. So I’m really excited to and looking forward to this discussion. Now, your book represents essentially a radical rethinking of economics as a collection of fundamentally metabolic systems, as you phrase it, where energy transformation and not just money determines survival. So can you tell us more about your impetus to write a book, your research, and more details about your modeling of world economies and societies essentially as metabolic systems?
Powell: Look, in some ways, when friends of mine asked me how long did it take to write the book, I say to them, well, I started a little bit over a year ago to, in a sense, pull this particular book together. But it’s taken me 35 years to think about some of these things and perhaps to become more settled in some of the ideas that I guess I’ve developed over that period of time and I should say at the outset that many of these ideas are in some ways a work of bricolage. They build on obviously an extensive body of work.
There are a lot of smart people in the world and there have been a lot of smart people in the world and In some respects, I think of this body of work as a kind of a synthesis, but one which hopefully also contributes something new to that body of work as well that can take this kind of thinking forward. The basic idea, I guess, is that economic systems and social economic systems need to be treated holistically, and they must be understood fundamentally as the interactions between three broad domains or what I often call circuits of flow. The fundamental circuit is the metabolic energetic circuit.
And the reason that’s the case is because as far as we understand the physical world and as human beings, we are embedded in the physical world, the Laws of thermodynamics are laws that we actually can’t avoid. They are part and parcel of our very existence. And two of those laws in particular are relevant for the way that I think about economic systems. The first of those is that energy can neither be created nor destroyed, but simply changes form through time.
And the second law is that there is an intrinsic effect dynamic or tendency towards entropy, chaos, dissipation, fragmentation, that is part and parcel of our energetic and, of course, our material world. These two fundamental laws, in a sense, provide that substrate, that anchor, that underpins and creates the envelope of constraints, but also through the applications of human knowledge, the parameters of possibilities of human social and economic transformations.
What human societies seek to do in relation to this fundamental energetic and material substrate is mobilise energy and materials to harness that and create things of use value for human societies. So immediately I introduced the idea of use value within the way we can think about economic systems. And I do that by drawing on very traditional or classical economic thinkers and the way that they thought about economic systems. And I’m talking about Smith, Ricardo, Marx, and also, to some extent, the physiocrats from France, who deeply understood that, in fact, value came from nature.
So use values are things that human societies find useful. And by useful, I mean things that enable the system to reproduce itself and to be able to continue doing what it does in a metabolic sense tomorrow. Think of it as needing to have a certain amount of energy to be able to get up the next day and go about doing what you need to do. And then what you need to do enables you to harness enough energy for you to do it again the next day.
So very, very fundamental. And I think about this in two specific ways in terms of social systems. One is that all viable social systems, ones that can successfully reproduce themselves, are able to provide food for people and fuel for machines. So that anchors, in a sense, our social and economic system.
The challenge is twofold. The first one is that we are constantly fighting against the tide of entropy. Social systems, to be able to reproduce themselves, actually need to create stability and, in effect, implement strategies and approaches that can be described as negentropic. So we’re countering the tendencies to dissipation, fragmentation, and chaos.
The second thing that human societies actually do is that they also seek to not only reproduce themselves in a simplistic sense, but many societies ultimately are able to harness and secure and make available growing amounts of surplus energy in various forms for the purposes of building complex social systems. So if you think of everything around us that humans have created in our various civilisations and economic systems over time, everything involves a certain amount of embedded energy, whether it’s a bridge, a building, a table, clothes or what have you.
They ultimately involve the mobilisation of energy, the harnessing of energy and the deployment of energy for the creation of those things. So in many ways, what we wear today is the amalgamation of the energetic inputs into it. Viable and flourishing human societies are ones that are able to achieve high energy efficiencies, what we would call energy return on energy invested, and societies that struggle to renew their energetic foundations and keep their energy systems at a high level of efficiency over time experience all sorts of processes of decline.
Some of that decline can be seen in degradation of physical infrastructure where we no longer commit sufficient energetic surpluses to their maintenance and renewal. Things fall apart, right? That’s entropy. And so the aim in a sense of viable social systems is not only simple reproduction, but the creation of systems that can harness, store, and make available higher amounts of surplus energies, surplus meaning above and beyond what we need for simple reproduction.
To make all of this happen, so that’s one layer, and that’s your foundational piece. The other two pieces is that to mobilize all of this, particularly in complex systems characterized by divisions of labor, where no single node of activity is self-sufficient, it is necessary for energetic forms, input materials, labour, et cetera, to circulate. We need to move particular kinds of resources from one activity to another, and that is usually undertaken through processes of exchange. And exchange is made possible through something that we call money.
Now, money, in the way that I think about it, really has two principal attributes. One draws very much from the endogenous money approach that is characteristic of many heterodox economic schools, namely that money is and the creation of money through credit is a response to demand for money. And that demand for money, that demand for some medium of circulation comes about by virtue of the need for this metabolic processes of physical production and transformation and circulation. The second thing is that not only is money endogenous, but it is also treated not as a thing in and of itself, but as a claim on future use values.
So money is a quintessential and generic form of exchange value. In and of itself, an exchange value is not useful in the processes of metabolic transformation and production. We can’t actually eat money. We can’t use money in production systems.
Money does not substitute for oil, for example. Now, what happens in the economic metabolic processes is that Money circulates in one direction, so to speak, so that goods and materials, energy, circulates in the other direction. And what connects these two things together is the third piece of the sort of aggregate systemic jigsaw puzzle, and that is information itself. Now, traditional theoretical approaches to information have viewed information largely in positive or negentropic terms, that information is the means by which humans and human societies are able to counter or push against the intrinsic and tropic tendencies of our world.
My suggestion, however, and perhaps this is modestly novel, is that we need to think about information as an energetic product itself, if you will, because the creation, collection, storage, validation and circulation of information also requires energy. And so if the information that is created, circulated, etc., etc., contributes positively to system-wide negentropy and that the energy consumed is less than the positive outcome of that information, then that information itself is what I would call viable information.
If, however, that information is just noise, whether it’s just surplus information unnecessary, costly but unnecessary, or is misleading information, erroneous information, then we run the risk that we commit a large amount of society’s energy to the creation of things that are actually deeply entropic accelerants in and of themselves. You put those three pieces together and we now have, I guess, a general theory of a thermodynamically grounded, financially driven, informationally coordinated economic and social metabolism.
And through that process, I can then begin to explain the dynamics through time, which is the ways in which human societies successfully or unsuccessfully grope with this challenge of entropy. And the core dialectic, if you will, in social economic evolution is the one between human societies striving for negentropic interventions, stability, reproduction, et cetera, et cetera, order versus the entropic dimensions and intrinsic tendencies within the material and energetic substrate itself.
Now, in doing all of this, last point is that we’re able then to understand the nature of economic crises because we begin to see how these three circuits also operate at different rhythms. The physical material circuit is constrained by the physical world and what we know about it and what we can do to engage with it. Information itself can be created relatively quickly and circulate relatively quickly, particularly today. And of course, money and other forms of exchange values can increasingly be created extremely quickly and circulate extremely quickly as well.
And when these circuits really come out of sync with each other, so to speak, That lays the foundations for economic crises.
Asbed: Professor, one of your key arguments in all of this sort of dialectic between money, energy, information, is that the U.S. is a thermodynamic empire, or maybe I should just call it a thermoeconomic empire, one that is kind of sliding into a systemic environment lack of efficiency, leading to attempts to seize control of higher efficiency resources in nations like Iran and Venezuela, which we’ve seen this year. So how do you explain the thesis, given that the U.S. is actually a major producer of oil and gas and energies? In fact, Trump has gloated that We don’t need the Strait of Hormuz. We don’t need any of their things.
People who need that energy should go and deal with Iran. So if we don’t need it, how is it that the United States can be explained here?
Powell: Well, the United States actually does need it. It’s a net importer of crude oil, and it’s the imports of crude oil that is the feedstock for many of its energetic export industries anyway. So… The first thing first is that the United States actually does need the particular kinds of oils, medium sour grades that come from the Middle East.
So we can deal with that. The United States isn’t quite as energy self-sufficient as oil. as many would seem to suggest. And partly it’s because energy in the abstract is in some ways not meaningful until it takes useful form. And the useful forms that energy takes also affects the kinds of machinery that are set up to deal with that and to transform it.
So many of the the refineries in the United States have actually been set up for the crude from the Middle East. And the reason that that’s the case is historical. That’s where the crude came from before the discovery and expansion of the American shale oil industry, which delivers a much sweeter, lighter crude oil. The second point to remember is that the availability of volume does not necessarily equal a high energy return on investment or a rising trajectory of energy return on energy invested.
So it’s important to distinguish between two different things. One is the potential available stock within a national territory, for example, versus the energy return that you get by accessing and making use of that stock. And what we find in the United States is that 100 or so years ago, the American system writ large was achieving incredibly high energy return on energy invested outcomes. Well over 100 units of energy would be gathered for each unit of energy expended to gather it.
These days, that is on the decline. And you actually see this materialize in things like the way that the shale oil industry has worked, because unsurprisingly, the easiest to access shale oil was accessed early, and that is relatively high energy return on energy invested. But as that stock depletes, the energy return costs. declines as you need to commit more energy and effort to extract the next unit of energy from the fields. And so whilst the United States actually does have vast fields of raw materials in theory available to it, accessing that and mobilising that is actually less energy efficient today than it was historically.
And secondly, it is on a downward trajectory in terms of efficiency. So there is a paradox here because things like wars, which cause shortages of certain things, increase the short term exchange value of this resource, which leads to intensified exploitation of it and also a channeling of money capital to mobilize other resources to do more exploration, more drilling, more fracking. But ultimately, that is an accelerant to a declining energy return on energy invested outcome within the system altogether.
Asbed: So I’m guessing fracking is much lower on the energy return scale.
Powell: It becomes rapidly less efficient. It starts off actually in the early days when the resource was relatively easy to access, you know, reasonably efficient. But we do see that within two and a half to three and a half years, four years or so of any particular new resource being tapped, that the costs, the energetic and financial costs of tapping that particular resource actually rises substantially. Basically, the easy to get stuff gets taken out very, very quickly.
And what’s left becomes harder and harder. And in fact, it becomes harder, quicker as well.
Asbed: Yeah. So having worked in IT, information technology, I’m kind of interested when you say, for example, that information is… is an energetic property that can be either negentropic I think you said, or entropic adding order versus adding chaos given the massive energy demands of the us ai industry is there a risk that the quest for AGI is currently… actually a net energy drain, an entropic force that is outcompeting vital other industrial sectors given the limited EROI.
Powell: Yeah, absolutely. And in fact, I devote, I think, a couple of chapters in the book to exploring these particular or these specific dynamics. Artificial intelligence, in a sense, really brings this energy information relationship, you know, right up to us very, very closely, because we know that to generate a certain amount of computational output, it requires a certain amount of energy. Whereas, you know, in times past, you know, when we were using calculators, for example, we didn’t quite have a sense of, you know, how much energy there was in a couple of AA or AAA batteries to be able to generate a particular computational outcome.
And certainly when we use pen and paper, we really didn’t think about the embedded energy that is contained in the pen, the ink, and the paper itself, right? Right.
Asbed: Today, it’s the heat that we generate with all these servers.
Powell: Well, the heat’s the dissipation of the waste. That’s right. And we need to have electricity to run these systems. So we actually have a very clear and direct accounting, if you will, of the amount of electricity needed to generate particular outcomes.
And the interesting feature, I guess, about the US’s approach to AI, and by way of contrast in my book, I use China as the counterweight, if you will, to in a sense tell contrasting stories, is that China’s efficiency at the microprocessor level, its performance levels, are actually not as high as those of the United States.
But when you introduce the overall stack, with software and being able to layer hardware on top of each other, together with relatively cheaper electricity in China’s case, the energy to computational output ratios actually begin to fall in favor of the Chinese ecosystem, even though it is using a relatively, though modestly inferior microprocessor. What’s happening in the United States is a couple of things. One is that there is significant efficiencies, obviously, with globally leading microprocessors. But these are offset by an electricity system that has very significant constraints.
And those constraints lead to a number of first round and second round outcomes, which potentially quite entropic in nature. In terms of data centers themselves, it obviously leads to increased costs for them as they compete with other users of electricity for available energy. Additional capital investment requirements will also drive up the cost of electricity in the short term for data centers as a result of the capital expenditure required to build and augment electricity generation distribution networks.
So much so that we have seen a number of data centers planned in the United States now being postponed because of the lack of availability of electricity itself. In addition to that, we have a second round effect, and that is the impact this dynamic has on other users of electricity, meaning other industries that are electricity dependent and households, of course. And across the United States, there is now clear data that the distribution, the location of where data centers are expanding rapidly, and above average increases in the price or cost of electricity is very, very tight.
In other words, wherever there is an expansion of AI data centers, we tend to see an increase in electricity costs impacting other industries and ultimately leading to above average increases in electricity bills for households themselves, adding to household economic pressures. So these are the dynamics. The third thing is,
Asbed: Professor, I want to add one more thing. It’s also leading to some violence because there have been some cases of violence against some of the CEOs in the United States of these AI companies. We can see a little bit of a stressing up of the population because of the, well, let’s say because of the utility bills going up for this very reason.
Powell: So social entropy, again, a very abstract idea. manifests itself in potentially very violent ways. So initially it’ll manifest itself in household budget stress. Households adjust, they do less in certain areas as they commit more of available budgets to things like essentials. Households we know in the United States are taking on greater amounts of household debt to cover living expenses, et cetera, et cetera.
And eventually, if things get bad enough, we see violence, we see intensified opioid dependencies, et cetera, et cetera. These stresses feed through into some very antisocial and therefore entropic dynamics within the social system writ large. We also see, of course, the effects of unemployment, the declining employment in in American manufacturing paradoxically during the last 10 months when the Liberation Day tariffs of 2nd of April 2025 were supposedly going to lead to a renaissance of American manufacturing.
So you can see how American economic structures, the energy substrate and the broader policy regime is actually leading to perverse outcomes. The third thing I was gonna touch on is this idea of noise, viable information versus unviable information. The jury remains out in the United States as to the extent to which the productivity dividend has materialized in industry and in society writ large. Perhaps it has, perhaps it will take some time to filter through.
What we do know, though, is that AI companies have been exploring what I think we would intuitively say are solutions, if you will, or computational outcomes that are likely to be entropic, or at least not particularly negentropic in nature, given the amount of energy committed. And these things include the development of age ring fenced AI models, which really would only support things like AI enabled only fan services, for example. AI enabled gambling, AI enabled high intensity stocks and financial markets trading, et cetera, et cetera.
Many of those sorts of applications, which obviously take advantage of computational speed and scale, are not necessarily negentropic in nature.
And I am concerned that we don’t have enough clarity around the extent to which these uses of electricity ultimately don’t support negentropic renewal within the American body politic at large that’s of course a particular American challenge um the Chinese have a very different approach as I was mentioning so you know these are things that I think we’ve just got to be much more mindful of today than than ever. yeah and we might touch on later on some things happening in China really that go to the very heart of the energetic substrate, if you will, of information itself. But I’ll leave it at that now.
Hovik: Since our podcast is also focused on the South Caucasus, I wanted to get your take on what small countries for instance let’s take armenia uh landlocked in the south caucasus waged between multiple larger neighbors and then also foreign powers such as the us which is currently seeking to actively increase its uh influence in the region the US through this, I would say, ill-conceived TRIPP project is… also, throwing in the US-manufactured small modular reactors, which are being counter-imposed against the traditional large nuclear reactor that Armenia has, as well as an AI data center.
Armenia received a special permission to use NVIDIA chips in these data centers into the mix. I wanted to see if you have any thoughts about Armenia’s case specifically and what’s happening geopolitically, but also how should small countries in general navigate this age of essentially thermodynamic imperialism that you talked about?
Powell: The two core things I think that countries need to be increasingly mindful of, and in fact, this is probably the principal touchstone for public policymaking, is the extent to which they are able to achieve energetic sovereignty on the one hand. And secondly, how do they build systems that enable them to function with informational sovereignty or what I’ve broadly called a world defined by digital West failure. And that means ensuring that a country’s ability to mobilize its economic resources through having different forms of energy is not at the beck and call of what happens in other parts of the world.
And secondly, that the informational architecture is something that the nation state itself is able to ultimately determine and manage and control. Now, when I say that, I don’t mean controlling content. Different countries will think about those issues in their own ways. What I mean simply is that the information that is gathered within a social and economic system needs to be managed and controlled in a way that doesn’t leave a country and its citizens and its businesses exposed to coercion by others.
And that coercion, of course, can take place through the enforcement of informational standards. You must use our technology, otherwise, you know, we will do X, Y and Z to you. All the way through to the ability to intercede in information flows, some of which are related to finances that make it impossible for a country to exercise its right to autonomous and sovereign development. Now we’ve known that the US has used the US dollar system in particular, increasingly as an extension of American foreign and security policy.
It no longer functions as a public good, to the extent that it might have been 20 or 30 or 40 years ago. And of course, there are critics of the US dollar dominated system, even then through the institutions of the IMF and the World Bank, for example, and the way that that played out as far as third world or developing country debt, etc, etc. But if we think simply about the way in which the US has been able to and has used its control over the the financial ledgers that track the US dollar to control what other countries do, then it is quite clear that those risks need to be addressed at the front end.
And those risks really go to your ability to control your fundamental information architecture. So they’re the two main things that I would comment on, both in terms of the Armenian case, but also more broadly speaking for small countries in terms of data centers, I think this is a hugely important issue we’ve seen now as a result of the war against Iran that large data centers are actually risky and targets
Hovik: vulnerabilities yes
Powell: They are vulnerabilities and liabilities as much as they may be assets. That’s the first thing. The second thing, apropos the discussion about the United States experience in particular, is that these large data centers are incredible drains, if you will, on the electricity system. both in terms of computation itself, but also in terms of the cost of transmitting data to and from these data centers from those who use them.
So I think it is increasingly wise or prudent for countries to have second thoughts about becoming captured by proprietary systems and also being captured by a model where these large-scale data centers become the only show in town. Fortunately, there are emerging technologies that I think open up actually practical and cost effective paths to overcoming these risks. And they go to the ways in which the energy substrate is actually being tackled right at the edges of data collection and processing itself.
So we have in China now a number of technical, scientific and chemical developments that actually open pathway to radically transforming how information and energy work. They go to, for instance, the development of new 2D chip processing capabilities, which are achieving performance levels that actually, from an energetic point of view, that supersede the capabilities of silicon based technologies. Now, these have not scaled yet, but over the next five years or so, I think they will. The second thing is that we also have developments in conductor technologies, right?
The technologies that we need or the materials that we need to carry the electronic signals. Traditionally, copper has been central to the whole story, but the developments in graphene as a technology opens up a new vista of low entropy processes energy conductive capabilities, which also improves the efficiencies of transmitting data and processing data at the edge. The third piece of this jigsaw puzzle, which I think is quite an important one, is the rapid development of what are known as Triboelectric Nanogenerators, TENGS.
And these are technologies that enable the harnessing of what is in effect ambient energy in distributed environments through things like, you know, a little bit of wind, a little bit of movement, vibrations, et cetera, et cetera. And you combine these three technology advances that have been made really in the last, let’s say, three years. And you have the material foundations for high level AI computation at the edges.
So we’re looking at a future where AI in shipping containers becomes increasingly possible, where local townships, communities, businesses, industrial parks can actually run high powered AI in a distributed environment with less risk exposure to some of the larger centralized infrastructures that we’ve experienced in recent times.
The last piece, by the way, in this jigsaw puzzle goes to developments in storage technologies and And what this means is that as we see greater advances in not only lithium technologies, as we move into a new generation of lithium ion batteries, we also have sodium ion batteries, and we also have significant developments in solid state battery technologies. And all of these will enable a more efficient storage and less dissipation of energies that can be harvested again at the edges.
So if you start to imagine what AI in a container begins to look like, they begin to look like energy autonomous distributed AI infrastructure that can be rolled out and moved, relatively easily enabling supply chains, enterprises, industrial districts, villages, townships, communities, and others to literally operate their own infrastructure with much less risk exposure to some of those issues we’ve touched on before.
Asbed: Professor, While you’re talking about the high technology here, I was thinking about the low technology end of this. You know how we said that each of these data centers have become targets. If each data center at this point has to be fortified, has to be a military-grade installation protected like a White House, just imagine that the energy expenditure, the real money expenditure of any kind of computation that you need to do that involves AI. It would be insane.
Powell: That’s right. So again, you know, the embedded energy to deal with these security issues is manifest in more steel, more concrete, etc. etc., right? So again, just think about all of these things as really just functions of energetic transformations. You know, every ton of steel actually is embedded energy in one shape or another.
So at a level of abstraction, we’re committing a lot more of abstraction theoretically socially available energetic surpluses to that activity instead of
Asbed: building a school for sake of argument let’s talk just a moment about the war on Iran because that is obviously a seminal moment that that we’re living through right now, I’m not going to rehash through all of the history but after Islamabad we have a situation that is a very dynamic and in flux right now, Iran a couple of cargo ships that were intercepted over this past weekend by the United States. Hormuz closed and Iran saying that they no longer want to talk about it. Can you tell us your perspective on where the United States and Israel miscalculated how Iran would resist, how much resilience it would show?
And what’s your perspective on what kind of trajectory it’s going to take from here on?
Powell: There’s no doubt, as you say, that the United States underestimated Iranian resolve and Iranian combat capability. When the attack was launched on the 28th of February, there was a clear expectation that a decapitation of the Iranian political leadership would lead to a regime collapse and a regime change. When that didn’t happen, the rhetoric changed, and so did the objective and the theory change behind the attacks where the ongoing pummeling of Iran was then rationalized as being necessary to spark public unrest against the government, leading again to regime overthrowing.
Now, we know that these two particular theoretical approaches to regime change or overthrowing governments have failed. In Iran, contrary to attempts to spin it otherwise, the change of personality, if you will, did not actually change the institutions of state themselves. And unless you’re changing the institutions of state and particular policy trajectory, you can’t really call that regime change, quote unquote.
What we do have, of course, is arguably a hardening of attitudes and perspectives amongst the current political leadership in Iran after the assassination of the Ayatollah Khomeini on day one, together with more recent assassinations of other leaders.
The second thing that was underestimated, not only in terms of Iranian society resolve and the fact that these attacks, rather than causing a social uprising against the government, would see a galvanization around the idea of the Islamic Republic, even from domestic critics, is that there was an underestimation, a chronic intelligence failure, perhaps, in relation to Iran’s military capabilities. And we see this in two very particular ways.
Firstly, Iran, as many people have known for a long time, was one of the originators of drones to a point where, of course, it supplied some of its drone capabilities to Russia in the early days of the Russia-Ukraine conflict. And the ability of Iran to manufacture and replenish its drones fleet and deliver them to regional targets has actually proven itself to be largely undented in terms of launches and the drones themselves and the ability to replenish the drones that have been destroyed. or destroyed as a result of being used or intercepted.
The second thing we know is that the missiles that Iran has also has greater depth than I think many in the West had expected, and also a greater quality. Their ability to target targets with great precision has been proven in ways that I think was underestimated. And A combination of these two aspects of Iranian air defense and air offense has meant that the United States has experienced some catastrophic losses, actually, and these are very important. The first set of catastrophic losses really was American bases across the region.
These bases ultimately were not able to be defended by American and allied systems, and they are now functionally unusable. Troops have had to be withdrawn from them, and this has very important practical short-term implications for ongoing conflict, as well as medium-term implications around the world. In terms of local, in terms of the immediate implications, it means that attacks on Iran can’t be launched from nearby bases. And that means that they have to be launched from further away.
As they’re launched from further away and you have to travel greater distances, the number of attack sorties diminishes. That’s the first thing. The second thing we’ve seen in the American approach, because it was heavily focused on aerial combat or aerial decimation, if you will, is that it has expended a very, very large amount of its pre-war inventory to a point where its manufacturing capability can’t keep up. It will take years for The ammunition expended already in the first 40 days or 30 days of this war to be replenished.
And this obviously has implications for American strategic posture around the rest of the world. It’s led to the United States then having to contemplate a couple of things. One is, is that it’s having to use different kinds of missiles and bombs, which has caused a need to fly closer to Iranian airspace. OK, so that has, of course, created greater risks.
And we’ve seen some aircraft down now as they fly over Iran. The second thing is that it has caused the United States to have to contemplate essentially boots on the ground. And I think that What was covered over as an attempted rescue mission of a fallen pilot was actually an attempted landing of significant numbers of troops around about 10 days or so ago. And so we now have a significant buildup, obviously.
We entered into this negotiation period, if you will, And there’s a few ways we can interpret that. One is that it was really just a time for both sides to recuperate and reorganize. Perhaps that’s actually true. Alternatively, it is actually a genuine consequence of the Americans reaching a point where they are seeking a way out, but nonetheless have to find a way out that doesn’t render them reputationally destroyed.
And we are witnessing a whole bunch of what people like Nasaf Faruqui described as “armed negotiations” or coercive negotiations. I tend to look at all of this through, I guess, a three layered lens, if you will. What I’ve just described is really a bunch of incidents around the event of the war itself and the short term dynamics of ceasefire negotiations. But I think it’s worth bearing in mind two other temporal layers.
One is what we could view as the sort of the more immediate temporal context, which is the 30 odd years of the post-Cold War era, where the United States obviously had preponderance and had unipolar superiority in many parts of the world. And at the same time, of course, planned a long term strategic approach to the Middle East and together with Israel that sought to cement American dominance in this part of the world and to arguably create the conditions by which greater Israel could then come into reality.
And that particular contextual approach was well documented as far back as 2009. in a paper from Brookings Institute, for instance, which talked about the game plan, if you will, to progressively destabilize and overthrow unfriendly governments in smaller countries, but ultimately to clear the way to dealing with Iran. And then, of course, there is the much longer historical backdrop, and that’s probably where a lot of my thermoeconomic work fits, which is the progressive diminution of American energetic efficiency, which has led to this kind of thermoeconomic imperialism.
Now, by the way, as nation states and systems begin to experience declining energy return on energy invested, That in and of itself doesn’t mean that they need to go to war. There are many other things that they could conceivably do, some of which, of course, is to tap available resources. The United States did that with the fracking revolution. They could also, of course, transform their systems.
China is working on transforming its system, changing from a system that was more oil dependent to one that is more electricity dependent. And of course, strange as this may sound, especially today, countries might actually just engage in trade and purchase a relatively low entropy, higher EOEI energy from somebody else. The United States, of course, has not done that in recent times.
It has explicitly now reached a point where for assorted reasons of the moment, instead of pursuing those three other options, It has now engaged in thermoeconomic imperialism in part to secure control for itself, but arguably also as part of its wider concerns about the reemergence of Russia on the one hand, and of course, the rise of China on the other.
Asbed: You answered the question I was just going to ask. If it’s a matter of perspective, how a country proceeds from, if they see that the world is basically a zero-sum game, then they’re going to engage in thermodynamic imperialism instead of inventing something that enlarges the pie and they find new ways of finding win-win solutions.
Hovik: Professor, since you just mentioned China and Russia, actually, I think that that is a really interesting topic. So now they have already moved much of their trade, including their energy transactions from US-based dollar to ruble and yuan. Now, these are two major world economies that have already moved away. And interestingly, over the weekend, we heard also that the UAE warned that it’s running short on dollars and might switch to other currencies, including yuan, if this conflict continues.
So do you think that this de-dollarization is now a global trend? And what is the reason for it? Of course, we already discussed some of them. And do you think that this momentum will continue?
Or is this just a short-term thing?
Powell: Look, this process of what I call currency multipolarity has been ongoing now, really, for well over a decade. It hasn’t been fast. It’s been very much related to practicalities from different nations as they sought to build out their trading relationships with others. And most countries, insofar as the US dollar system is provided them with useful, reliable, low cost and fast transaction capabilities were not really in the business of rocking the boat too much.
These aren’t things that you worry too much about if they’re working. The problem is that over the course of actually the last 20 years is that the prevailing infrastructure coupled with the political economy around it and the institutions of American state interventions have led to the dollar being weaponized and the dollar system itself being weaponized, you know, with freezing of assets, prohibitions from interacting with the payment rails, censorships, et cetera, et cetera, through to confiscation, really. And so that’s on the one hand, the weaponization piece. But the system itself is also incredibly old.
So relatively speaking, it has become a more costly and slower settlement system. And the third thing is, is that there is actually just simply less need for the dollar because the dynamics of global trade to begin with have increasingly diversified. So if you look at a trade map 30 years ago, you will see that for most countries in the world, the United States was the central trading partner. If you look at the trade map today, you will see that for 150 odd countries in the world, China is the most important trading partner.
And that transformation at that fundamental material level ultimately creates the conditions by which China national currency transactions become increasingly possible, in part, not only because of dollar weaponization, you know, more expensive, et cetera, et cetera, but also because there are other risks that countries seek to mitigate, and that is foreign exchange risk. we have seen over the course of the last 20 odd years that there are not only risks in terms of fluctuations in foreign exchange, capital flight, but ultimately also liquidity problems.
So you touched on the issue of the UAE, and the UAE would not be the first country that would experience liquidity problems as a result of problems with excessive exposure to the US dollar and the use of US dollar as its means of payment.
So my own sense, is that there certainly has been an acceleration of currency multipolarity over the course of, say, the last five, six years, accelerated firstly by the sanctioning of Russia in Germany. you know in short obviously the sanctioning all these sanctions do this right it’s just that sanctions kind of work better when there were no alternatives but since about 2014 2015 we’ve got alternatives whether it’s a mere system in Russia whether it’s the CIPS system developed by China so there are literally alternatives now and because there are alternatives It is now increasingly possible for countries to literally engage in transactions with each other without needing to go through a third party intermediary. currency.
The last thing, of course, we’ve seen as a result of sanctions is countries simply just barter if they need to, particularly when you’re dealing with high volume commodities such as oil. So Iran has, as part of its counter sanctions maneuvers, actually bartered quite successfully with oil for other things. And so I don’t see anything that will reverse this trend. The real issue, I think, for the US is that it needs to get some clarity around what it actually wants to accomplish in the end.
President Trump has actually articulated contradictory objectives. On the one hand, he has made it very, very clear that he objects to the idea of a weakening of the US dollar, that he believes that the US dollar as the most significant global reserve currency is critical to the United States and that losing that status would be akin to losing a war. He said that on a number of occasions. On the flip side, he has policy objectives such as reducing America’s trade deficit that broadly speaking would presuppose a weakening of the dollar.
So we literally have contradictory objectives at the moment. In reality, the dollar has been weakening. So regardless of the ambitions around a strong dollar, the practical experience is actually that the dollar has been weakening relative to currencies like the RMB. And that in the end is going to have implications for the United States because the United States, as we know, has been going through really a half century of industrial hollowing out. even though it is still the world’s second largest manufacturing country, the things that it makes are typically very, very high value industrial and military application related things.
They’re not things that ordinary householders use and experience, which means that households have been able to sustain a certain level of standard of living despite flatlining real wages growth for the bottom half of American households by virtue of the fact that the US dollar has been a strong currency. It’s been able to enable households to buy relatively cheap things manufactured elsewhere in the world and increasingly by China. And more recently into Southeast Asia.
So American standards of living are likely to decline over the next 10 years as America actually becomes simply a more expensive place or a more expensive economic system, both in terms of a weakening currency, but also in terms of a declining energy return on energy invested outcomes.
Asbed: And you’re right. Households usually buy televisions. They don’t buy patriot missile systems. I want to expand your thought about the weaponization of the dollar, of the financial system, which a lot of these countries are fleeing because they have alternatives right now, such as China, to the sphere of information and technology.
And we come here to what you describe as the underground empire. Can you describe what your thought is in this area?
Powell: Well, I guess this is an extension, I guess, of my earlier comments about the importance of digital Westphalia as a policy principle, the idea of controlling your critical information infrastructure.
The idea of underground empire comes from a book written by two American scholars called Underground Empire, which documents the ways in which over the course of the last 30 years, the United States through a number of companies has come to build out and ultimately control The information architecture of the world, particularly the commercial world, but also increasingly the informational world and they speak of things like information routers servers data centers submarine cables satellite networks. data collection devices, software on computers, etc, etc.
And by essentially becoming the global provider of the information infrastructure at both a hardware and a software level, and connecting these things up via data centers, much of which continue to reside in North America. I mean, they talk about somewhere in the order of about 70% of global internet data still flows through data centers located in Virginia, right? So the United States has, over the course of the last 30 odd years, become almost the monopoly provider of everything related to digital information. And it has increasingly exploited that for geopolitical purposes.
There is an argument and the authors of the book kind of suggest this, that in the early days, even though that potential was always there, this infrastructure was largely dealt with as a global public good. I’m sure that some people will have a slight difference with that view, but I’ll just put that aside for the moment.
Asbed: Maybe back in the 90s.
Powell: Yeah, what’s more important is that from about 2003 onwards, when the war on Iraq unfolded, the American intelligence agencies realized that transactions data actually came through The data centers located in Virginia and they successfully sought authority to gain access to view that data. So initially it was to view the data so they could at least see who was doing business with whom in and out of Iraq.
A few years later, they successfully prosecuted a case in courts that enabled them to not only view the data, but to intervene in that data flow, which led to the ability to sanction the flow of dollars by interventions at the data centre level itself. So once that happened, it’s been a slippery slope ever since.
And it gets worse, of course, because we now have not only the weaponization of that infrastructure by the apparatuses of state, increasingly that infrastructure is being complemented by a much larger and arguably more powerful architecture that is a non-state infrastructure being created by the artificial intelligence and the American big tech private sector world sitting in parallel to the state ecosystems, but obviously with arguably less oversight, etc. etc., And we are, I think, really, Not even on the cusp of entering this.
I think parts of the Western world, and the United States in particular, have already entered into this world of digitalized surveillance, where the surveillance is predominantly undertaken in the name of the state by private actors.
Hovik: Right. Well, this has been a very interesting discussion. I’m hoping if you have one or two more minutes just to give us a final, maybe your parting thoughts about what does all of this portend for BRICS, the Shanghai Cooperation Organization, and the Global South in general, and the role of these organizations?
Powell: Look, many people have in the last few months have commented about the sort of absence of BRICS in all of this. It’s important to remember that BRICS is largely an economic organization. Iran’s obviously a member of BRICS, but so are many other countries. And BRICS continues to do what it principally set out to do, which is to facilitate economic development, trade, investment flows, etc, etc.
Probably more important. And so BRICS really wasn’t a, let’s call it a geopolitical security institution per se. So BRICS is quiet, but largely because the intensity is, or the spotlight is elsewhere. And that’s where the SCO, I think, actually becomes far more important.
The SCO matters because it now has 20-odd members, and those members straddle most of the countries of, I guess, what we would call Eurasia writ large. And what’s important about that is that the SCO, which began 20-odd years ago as an organization with half a dozen or so members aimed at coordinating responses to terrorism, separatism, and extremism, has now morphed into an organization that one has a bigger footprint and which has extended its broad security remit to other dimensions of security cooperation.
Now, it is not a military alliance, but it has actually extended its security cooperation to significant projects in transport and energy. So the SCO meeting in Tianjin last October, from memory, actually arrived at a number of really important agreements concerning energy collaboration. Now, in light of the closure of the Strait of Hormuz, it is now abundantly clear that that a terrestrial based network of energy infrastructure is more important than ever for countries that continue to depend upon the energy coming from Central Asia, West Asia and Russia feeding the sort of eastern parts of the Eurasian continent itself.
So The SCO, even though, again, you know, it doesn’t make grand statements, is playing a vital role institutionally and in orchestrating the infrastructural substrates. The other interesting thing and one to be watching now, and this goes to the financial question, actually, is that the longstanding proposal for a SEO development bank, which China has been proposing for a while, has now been picked up and has been agreed to and is likely to come online later this year or sometime next year.
And that development bank, as opposed to the Eurasian Development Bank, but in complement to the Eurasian Development Bank, which already exists, will be focused on financing the initiatives agreed by the SCO countries through the SCO mechanisms. And the currency of choice for the SCO Development Bank is China’s Renminbi. So we are seeing multiple layers, if you will, of response, resilience and preparation and building out alternatives to the world that has dominated, I guess, the lives of all of us throughout our time and for these countries as well. So that’s BRICS and that’s the SCO.
Look, the Global South in many ways is confronted with some important questions and policy choices. They go to the same issues that we touched on in relation to Armenia and small countries in general, and that is to find pathways to achieve high levels of energy sovereignty, information sovereignty, and through those processes, augment their productive capabilities to achieve high levels of energy return on energy invested. So they are the challenges for the global south. Obviously, for some, it will be a little easier to do than others.
Those who have exposure to US dollar denominated debts, who have strong exposure to oil-based infrastructure and systems like that, will find it very, very difficult in the short term. Those with arguably a blank sheet of paper, if you will, where you’re looking to replace things like diesel generators with local microgrids, that will be a lot easier to do. So patchwork quilt consequences for the Global South. But this is in many ways the kind of, well, it’s another crossroad or another fork in the road for Global South nations as they seek to wrestle their way out of the neocolonialism of the post-war era.
Asbed: Professor, what an interesting conversation and what an interesting perspective on what’s going on in the world. We hope to have you on our show again sooner than one year from now. So that’s a commitment on our side. Thank you so much for joining us.
We really appreciate your insight.
Powell: It’s been a pleasure to be with you. And if you want me on the show, just let me know and we’ll work something out.
Asbed: Absolutely. Thank you so much.
Hovik: Thank you, Professor Powell.
Asbed: That’s our show. Today is April 22nd, 2026. What an interesting conversation. Hovik, did you have any thoughts about any of this?
Hovik: Oh, I have a lot of thoughts. And the first thought is we are going to try very hard to bring Ulrich Powell on our show at least once a few months. And I think it’s especially poignant from the perspective of this U.S. encroachment into Armenia, specifically with these data centers. Again, I’m an IT guy.
I love data centers. But… Just looking at how they are creating single points of failure. And, you know, if there is a conflict and God knows our region is going to be anything but conflict in the coming century, probably.
What Warwick Powell is saying, it makes a lot of sense to me. And less centralized processing of technology, more decentralized, decoupled from each other. You know, he talked about the resources that these data centers use in terms of electricity. I will add to that. water usage?
Asbed: I also don’t want to be, I mean, we’ve said this before, and I don’t want to be negative on this whole data center business. But when you were saying single points of failure, we’re not talking about IT single points of failure. It’s not that you have to do all rail stuff and things like that. But we’re talking about a single point of failure in the resources of Armenia, because we’ve talked about how much energy they’re going to.
You did some math and you kind of have an idea of the kind of energy this data center is going to require. If it’s going to have 50,000 to 110,000 NVIDIA chips, it’s going to be using, let’s say, a quarter of a nuclear power station, right? And when they are talking about acquiring small modular reactors, SMRs, those are essentially half-sized compared to Medzamor. or a quarter size, depending on the sizing. So essentially, in my mind, what they’re trying to do is basically stick a small modular reactor on Armenia’s bill and make them pay for this data center, very little of which is probably going to serve Armenia.
Armenia does not have 110,000 NVIDIA processors needed.
Hovik: Look, I’m a little bit lukewarm on the data center. I’m totally against the SMR. I think the prescription for success for Armenia, regardless of the government, is going to be build three or four large nuclear power plants. build many small decentralized data centers. I’m not saying reject this data center, but actually really investigate what it takes to have localized processing of AI on your computer or in smaller data centers rather than a single data center.
And DeepSeek and other technologies are coming online that will allow that. Now, if the U.S. wants to give us a data center as well and make profit from it, as long as there is no strings attached, I’m okay with that.
Asbed: I’m also on your side. I’m against an SMR. I want actually a big fucking reactor in Armenia.
Hovik: Yes, BFRs for the win.
Asbed: BFR, that’s right. That’s what I want. There was one point that we discussed a little bit earlier, and that has to be with the security of a data center. And I’m really afraid that as data centers become extremely critical, how were the data centers in the Gulf countries critical?
The United States and Israel were using, let’s say, AWS data centers for their military operations, because when you use a data center that is very close, you have minimal latency of those services to whoever is using them. So if Armenia is going to be used for that, obviously the enemy is going to be striking back on Armenia. So this is a huge concern for me.
Hovik: Yeah, I mean, when you’re talking about the war in Iran, but yes, but even as a strategic resource, like, you know, we’ve seen how not just because the data centers are used for power, but because data centers are critical for other parts of, let’s say, a nation’s economy and infrastructure, a potential enemy could attack it just like Trump is threatening to attack power stations in Iran.
Asbed: That’s right, power stations and bridges in Iran.
Hovik: So, yeah, I think it’s more general than that. And you won’t have the same nuclear fallout effect if you attack a nuclear reactor, in which case, for instance, our enemies, Turkey and Azerbaijan, would be affected by that as well. So they would not dare to do that, but they could take out a data center and cause huge damage both to the investors and to the country’s credit and so forth. So I think that it’s prudent to not put all our eggs in that basket.
Asbed: We have to seek the true thermodynamic cost of a data center.
Hovik: And if I may just add one more thing, you know, Another interesting aspect, I think Professor Powell used the term digital Westphalia, I think is really important, meaning that countries have to get sovereignty of their information space and information infrastructure, whether small or big. So what I see and one of the reasons why we are in this mess right now, Pashinyan came to power largely to the help of social media. Social media is used to actually control the sentiment, public sentiment in Armenia, and it enables it.
And in their own hands, and I think that right now that a lot of that is happening, public opinion is being shaped for civilizational suicide for Armenians, meaning that forget your traditional partners, you know, let’s go with the Turks, you know, follow the money. We’re going to eat the money. If there is no food, it’s okay. And those things very struck a chord with me.
So I think that as a security person, as an information security person, I’m really interested in how organizations like SEO can help define maybe standards. So if there can be some open standards in terms of being able to introspect hardware for any hidden backdoors or security vulnerabilities. I think that’s a second order concern because right now we just have to fucking figure out how to stop Facebook from making half of Armenia’s population or 30% of Armenia’s population love piroshki eating monsters.
Asbed: Half of the population and all of the government, by the way. Let’s not drill too far away from Professor Warwick. I completely agree with you. My posture
Hovik: Information domain is very much important, and I think it’s core to the thesis that Professor Warwick is talking about. So I don’t think I’m steering at all too far away, but hopefully we’ll have more shows on that topic. It’s my pet area of interest in terms of being able to have security of hardware, actually, and security of devices as part of the securing your own information space.
Asbed: Yeah. Get rid of all social media you don’t use all the time. It’s just spyware.
Hovik: Or have your own controlled one. I mean, as much as they’re being criticized in Russia and China, at least, and Iran, actually, those countries have been able to maintain sovereignty over their information space as bad as it is. And that’s what has contributed to their survival.
Asbed: Yeah. Thank you. So we’ve been talking with Professor Warwick Powell, who is an adjunct professor at Queensland University of Technology in Brisbane, Australia, and a senior fellow at Taihe Institute in Beijing. He is the author of China, Trust and Digital Supply Chains, Dynamics of a Zero Trust World.
His work focuses on digital innovation technologies and international political economy. Actually, we also mentioned his latest book, which is called Thermoeconomics in a Time of Monsters, Rethinking Theory, China, and International Geopolitical Economy. Thank you for joining us, folks. Thank you.
Hovik: Have a great day.
Asbed: I’m Asbed Bedrossian.
Hovik: And I’m Hovik Manucharyan Bye-bye.