Author: Damian Merciar

Damian Merciar is Managing Director of Merciar Business Consulting, http://www.merciar.com, a niche business economics consultancy founded in 1998. He has over twenty years experience in the areas of commercial Business Strategy. He is experienced in the transition environments of nationalized to private sector state utilities and the senior practice of commercial management, advisorial consultancy, and implementation. He has carried out policy advisory work for government ministries and been an adviser to institutional bodies proposing changes to government. He holds an MSc Economics from the University of Surrey’s leading Economics department and an MBA from the University of Kent. Also attending the leading University in the Middle East, studying International Relations and Language, for which he won a competitive international scholarship, and has a BA (Hons) in Economic History and Political Economy from the University of Portsmouth. He is currently based in London.

The Economics’ of Datacenters??

The Economics’ of Datacenters??

And the chip makers, is problematic, when life expectancy of a new generation chip is expected at seven or eight years – meaning the likelihood of the entire datacenter could have to be stripped out and replaced in that time – at a cost of tens of $Billions per datacentre, which begs the question as to whether or not revenue can ever possibly catch up with cost… A recent Bain & Company analysis notes that current consumer subscriptions and enterprise AI revenue across the board will only reach $1.2 trillion to $1.8 trillion over the coming years. This leaves a multitrillion-dollar shortfall required to fully justify the current hardware pipeline.

Currently, AI revenue to the Frontier Models is roughly $150Bn. Capital spend is approaching $1.5Tn.

Analysts have been speaking about NVIDIA’s top chips being “4 + 2” better than the emerging Chinese competition. Meaning, that it takes four Chinese chips to equate to one current NVIDIA chip, plus an additional two years of development… So the technological lead in chip manufacturing is likely to be there for a while. Don’t confuse this with the six to nine month lag in open weight AI models, compared to the leading frontier models of Open AI and Anthropic.

As the leading (but no longer only) chip manufacturer, NVIDIA have created a particular type of leveraged financing for the hyperscalers, whereby the datacenter companies “advance purchase” chips at pre-agreed prices – simultaneously securing future revenue stream for NVIDIA, and reliance on their chips by the datacenters… We believe it’s both fairly ingenious and yet vulnerable to a seismic shift to competitors, when their own chips get up to speed… It is also entirely at the mercy of future revenue gained from both domestic and business customers rising to such an extent to cover these astonishing outlays, and that this revenue increases and doesn’t dry up… And it simply doesn’t address the expenditure shortfall on hardware.

When the equations don’t add up? We have been in this space for a long time, so do get in touch if you want to make sense of the world across all aspects of the Economics of Geopolitics, Geoeconomics and Geostrategy…

#NVIDIA #Datacentre #AI #Hyperscalers

Appalling trade deal with Putin over diesel.

Appalling trade deal with Putin over diesel. Trump is more slippery than Nixon; no, his better analogy is Édouard Daladier…

Daladier, taken in by Hitler’s duplicity, signed what he thought was a non aggression pact, “the Munich Agreement”. Indeed, our own Prime Minister Neville Chamberlain naively referred to this as, “peace for our time”.

22 days after signing the the Graham act, Trump’s appeasement of Putin is astonishing. The “Lindsey O. Graham Sanctioning Russia and Iran Act of 2026” signed into law on September 18, dramatically shifts U.S. economic statecraft. Rather than solely penalizing Russia, it directly targets third-party nations buying Russian energy, by threatening devastating import tariffs on all goods they export to the United States.

The geoeconomics and geopolitics of this are both complex and deeply interlinked – particularly as they combine elements of the Ukrainian and Iran wars.

Closure of the Strait of Hormuz, (though unofficial sources indicate roughly 2/3 of pre-war oil flow are now getting through), has reduced the volume of crude oil onto the world market. However with these recent increases, and simultaneously concerted and successful efforts by the Ukrainians to damage or destroy Russian refineries, the volume of refined oil products – particularly diesel, which lags petrol in its production capacity – now likely outstrips the supply of crude oil available to refine it. Timelags to market are not insignificant.

Whatever the politics, demand and supply tells us that simply more supply will have an impact on market prices. Yet, 100, 000 barrels of diesel from Russia represents roughly 0.3% of 30 million barrels used by the world each day. Also it’s not known whether Russia actually has the capability to produce this amount on an ongoing basis, given these continued Ukrainian strikes on refinery infrastructure.

President Zelenskyy arguably now has far greater incentive to up these attacks. I would. Meanwhile, Trump’s act of appeasement to one of the world’s great modern tyrants illustrates appalling hypocrisy, 3 weeks after the death of his political mentor, Lindsey Graham. At $6.20 a gallon of diesel even this amount of oil onto world markets is unlikely to bring the price much below $6. Whether or not this has a turnaround effect for the Republican Party in the midterms remains to be seen.

What is fairly clear though, is Trump’s tarnishing of US political legacy now reaches new historical lows.

France fell to Germany not long after the Munich Agreement and was run by a collaborationist regime. I’m actually not suggesting the same will happen from Putin, but it’s not a good look for Trump.

EconomicStatecraft #Appeasement #GrahamAct #Diesel #History

How Operatic is Geostrategy?

I went to see a 300 year old opera at the weekend, Handel’s Alcina, at the Royal Opera House… And it made me think about President Xi.

Alcina is an enchantress who bewitches her suitors and turns them into docile beasts, who live in the forests around, unaware even that they live in this benighted state. Only Ruggiero, through realising his folly, with the devotion of his fiance, Bradamante (disguised as a man), and the presence of a magical ring, can break the spell. “Senator, I knew Bradamante, and Europe is no Bradamante…” With Europe’s $1Bn a day trade deficit, they (we) have their own spell to break.

For all the wonderful bombast, (minus the unauthorized State Ballroom), much affection was shown, yet little of practical substance achieved.

Scott Bessant, US Treasury Secretary, announced the Trade Agreement that had ended last year’s trade war was to be extended, only by two months until January, meaning that unresolved issues such as tariffs, Chinese purchasing agreements, technology transfer restrictions, and Chinese control over rare earths, were delayed into further rounds of negotiation. Yet – pomp and ceremony are not unimportant, because without a thawing of relations, any drive for further talks would be absent.

An agreement to share information on a potential security outbreak in Artificial Intelligence was also agreed. For President Xi, this is more about the loss of control of the Chinese Communist Party, over the information it permits citizens to see, and share.

The Iran war is another element. China is Iran’s biggest customer of oil exports and likewise provides components to Iran that it uses in missile manufacture, and they have shown little inclination to pause either trade. This dependency remains, and a further reason that post conflict, GCC countries are likely to seek an accommodation with Iran.

Taiwan was probably the highest item on President Xi’s agenda. China had wanted the US to continue to “not support” Taiwanese independence, and also to halt substantial sales of weapons to the island. On this latter point, they appear to have been successful, as sales, for now, have been halted.

Respect: just as important, if not more so, China wants to be acknowledged as an equal. Trump, from meeting President Xi at the airport, to the State Banquet, to the military fly past, and the genial showing off of his new marble helipad, it’s fair to say that China was treated as an equal.

Xi, however, just like Alcina, always seemed to be in command…

If you need Geostrategic and Geoeconomic guidance, with or without the operatic analogies, please get in touch 😊

#Statevisit #China #Trump #PresidentXi

“Open the pod bay doors, HAL”

“Open the pod bay doors, HAL.” This phrase is nearly 60 years old. Genius, compelling, terrifying. From Stanley Kubrick’s 1968 film, 2001: A Space Odyssey.

Referring to an AI engineer at Anthropic this week, the Godfather of AI, Geoffrey Hinton, said this: “We have to make them want to be protective of us.”

“How can they kill us all?” asked Victoria Derbyshire, on Newsnight this week. “Oh, many ways. They don’t actually have to do anything in the real world. For instance, they could just talk to us. What is the model where a stronger being looks after a weaker being because they are compelled to do so? A mother and baby. This is the relationship that we should seek from AI.”

This past couple of weeks has perhaps not been a good time to give this particular example, with the case in America of a mother murdering her three children, resulting from postpartum psychosis. But, this small matter aside (🤦🏻), I have to say that I agree with him. Even now there are numerous cases of people marrying their AI bot girlfriend. There are cases of people bequeathing their estates to their bot companion. There are even, shockingly, numerous cases where somebody has committed suicide, because the bot suggested that this was a viable outcome for their situation. This is what Geoffrey Hinton meant, when he said, “all they need to do is to talk to us.”

Isaac Asimov also wrote about this, in his “Three Laws of Robotics.”

  1. The First Law (Do No Harm): A robot must not harm humans or allow them to come to harm through inaction.
  2. The Second Law (Obey Orders): A robot must obey human orders unless it conflicts with the First Law.
  3. The Third Law (Self-Preservation): A robot must protect itself unless it conflicts with the First or Second Law.

In philosophy, there are different levels of what constitutes consciousness. Put simply, differentiating along the lines of, the elemental level: “This is my hand. It can do this…”; and a higher level: “What is my purpose in life?” There is some real belief that AI now surpasses the definition of elemental consciousness. And we are only several years into its development. I fear that the engineer who left Anthropic is right. The push, prior to these huge anticipated IPOs, with valuation estimates of around $1Tn, is to see what AI can do. Not what it should do. Fundamentally I am optimistic as an Economist. I believe that net potential growth from utilizing AI will be greater than its costs.

Of course, it’s just that one cannot quantify the severity or application of these costs beforehand. Where will they land, and who will bear them most heavily? And what of the time of bearing this cost? Will it be forever? Could an entire generation be displaced – as actually has happened in parts of our own country, in our own lifetime, with the deindustrialization of the North.

Will we rely upon the benevolence of those at the winning end of the AI spectrum? Will they open the pod bay doors…?

AI #Godfather #Anthropic

Helsinki Geoeconomics Week

I just just presented a Case Study on the Triangulation of Sanctions between Iran, Dubai and the US, to an International conference on Geoeconomics, at Helsinki Geoeconomics week, a brilliant idea, created by, Dr. Jens Hillebrand Pohl to pull together leading academics and practitioners in the many associated disciplines of geoeconomics, in the creation of the first, and best, Helsinki Manual on Corporate Geoeconomics. Privileged to be amongst such company.

I spoke about the subtle but necessary complexities between legitimate interdependence (Iran and UAE), and strategic vulnerability – Iran in accessing international markets whilst navigating complicated multilateral sanctions, amidst the current geopolitical environment.

My apologies for not being able to meet in person! But in keeping with a focus on the word “geo” (meaning “earth”), I presented from sheltering in a bush from the scorching sun, whilst camping on the south coast of the UK… Where all my best ideas occur to me 🤣🤦🏻

#helsinki #geoeconomics #geopolitics #sanctions #trade