The tables have turned, and Putin's country is now in dire trouble
The debt clock starts ticking from today, wiping the slate clean on the $US120 billion in total US aid since the war began, most of which was spent on production within the US or consisted of semi-obsolete inventory due to be scrapped.
Neither side will have a controlling vote over the investment fund. The US pledges to help Ukraine mobilise capital via the Development Finance Corporation, the geopolitical arm of the US treasury and commerce departments.
This opens the way for serious investment in the shale gas resources of the Yuzivska field. As I reported earlier this month, an internal study by Ukrainian experts concluded that the carbon ratio, porosity and thickness match the best US shale basins in the Marcellus and Permian.
'We could replace half the lost Russian gas exports to Europe,' said Andriy Kobolyev, ex-head of Ukraine's energy giant Naftogaz. If so, Russia can kiss goodbye to its European gas market forever. Ukrainian pipeline gas and US LNG will suffice.
US Treasury secretary Scott Bessent told Putin the deal committed Washington to 'a peace process centred on a free, sovereign, and prosperous Ukraine'.
One never knows quite whom to believe when the Trump administration speaks, but the Kremlin has clearly overplayed its hand, miscalculating how far it could push its maximalist demands and how long it could keep stringing along a prickly and impatient US president.
Republican senator and Trump golf partner Lindsey Graham is going for the jugular. He may soon have a veto-proof 67 votes in the Senate for legislation that imposes 500 per cent punitive tariffs on any country that buys Russian energy or strategic minerals, if the Kremlin 'refuses to negotiate a peace agreement, violates a peace agreement or invades Ukraine again in the future'.
Russia's 'hot Keynesian' war machine is now in the same state of exhaustion as the imperial German war machine in 1917. Germany had been able to preserve something close to a normal civilian economy over the early years of World War I but the Allied blockade, chronic shortages and a lack of manpower and money eventually forced the military to take over the whole productive apparatus. That too failed, and ultimately incubated Weimar hyperinflation.
Russia has depleted the liquid and usable reserves of its rainy-day fund. Military spending almost certainly exceeds 10 per cent of GDP in one way or another and it is being funded off-books by coercing the banks into lending some $US250 billion to defence contractors, storing up a crisis for the banking system.
Is that what Russian Finance Minister Anton Siluanov was referring to this week when he advised Russians to read Nikolai Gogol's Dead Souls and Anton Chekhov's Cherry Orchard, the first about fraudulent finance, the second about crippling debts? He has already introduced a string of new taxes this year. He is now drawing up fresh emergency measures.
The trade-off between guns and butter can be postponed no longer. Serious austerity is coming for the first time since Putin launched his fateful misadventure.
Russia is no longer the proverbial 'petrol station masquerading as a country' but it still relies on raw material exports to fund a quarter of the budget. Oil exports fund the war. Kirill Bakhtin, from BCS, says tighter US and British sanctions on Russia's shadow fleet – former US president Joe Biden's parting shot – have pushed the discount on Urals crude to around $US15.
That lowers the de facto market value of Russian crude exports to $US45. Another big drop from here, which may well happen as Saudi Arabia keeps adding barrels to an oversupplied market, would make it extremely hard for Russia to keep prosecuting the war beyond the summer.
The latest Russian offensive has largely petered out, at terrible human cost. Russia is not close to conquering the four oblasts it so presumptuously annexed. 'The movements on the map are tiny, and have nothing of strategic value. Ukraine is big enough to trade space for time,' said a Western military expert on the ground.
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'The Ukrainians can't take back lost territory, but they're not going to get rolled over either. This has come down to a war of economic attrition. It's what's happening in the Russian rear that decides this.'
Trump may change his mind again. The mineral deal does not give Ukraine a bankable security guarantee. Europe is fractious and weary.
But the balance of probability is that Vladimir Putin will now fail to turn Ukraine into a castrated vassal state along the lines of Belarus.
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