The tables have turned, and Putin's Russia is now in dire trouble
Sir Keir Starmer and Emmanuel Macron have together pulled off a remarkable feat of high statecraft. They may have averted a strategic debacle of the first order in Ukraine, and with it irreparable damage to the credibility of the West.
The long-fraught US-Ukraine minerals deal signed in Washington – actually a shale gas deal – is a radically different document from Donald Trump's original demand for $350bn (£262bn) of war debt 'reparations' and the US colonial takeover of the country's infrastructure.
The full story behind Trump's Damascene conversion will emerge over time, but Ukrainian officials say the British and French leaders played a critical role in steering the US president away from his pro-Kremlin infatuation, as did Boris Johnson. It was this patient whispering that paved the way for the Trump-Zelensky tête-à-tête on the marble floors of St Peter's in Rome.
Jonathan Powell, Downing Street's unflappable national security adviser, will deserve his knighthood when the time comes, and something more than bachelor grade if this is indeed the turning point after weeks of diplomatic calamities.
The tables have turned: it is suddenly Vladimir Putin who is in trouble, trying to hold together an exhausted war economy as the price of Urals crude crashes to $56 a barrel – from $77 in mid-January – and as the global economic downturn tips the whole commodity complex into a cascading bear market. The spot price of liquefied natural gas (LNG) in Asia has fallen 30pc over two months.
It comes as China tries to charm Europe, urgently seeking to preempt any EU moves to raise its own barriers against a diversionary flood of Chinese exports shut out of America. Xi Jinping may have to dial down his 'no-limits friendship' with Putin – and reduce his covert help for Russia's war – if he wants a serious hearing.
The minerals accord remains a bitter pill for Kyiv to swallow, but at least it is plausibly compatible with the Ukrainian constitution and does not obstruct EU membership. Deputy prime minister Yulia Svyrydenko says Ukraine retains full ownership of 'all resources on our territory'.
Ukraine will be able to purchase US weapons on a quasi 'lend-lease' basis. The first $50m tranche of military support was approved last night.
The debt clock starts ticking from today, wiping the slate clean on the $120bn in total American 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 Andríy Kóbolyev, ex-head of Ukraine's energy giant Naftogaz. If so, Russia can kiss goodbye to its European gas market forever. Ukrainian pipeline gas and American LNG will suffice.
Scott Bessent, the US treasury secretary, warned Putin that 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 500pc 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 the First World War but the Allied blockade, chronic shortages, 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 10pc of GDP in one way or another and it is being funded off-books by coercing the banks into lending some $250bn to defence contractors, storing up a crisis for the banking system.
Is that what Anton Siluanov, Russia's finance minister, 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 UK sanctions on Russia's shadow fleet – Biden's parting shot – have pushed the discount on Urals crude to around $15.
That lowers the de facto market value of Russian crude exports to $45. 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 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.
'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.
He may keep the land he already holds and win legal recognition of Crimea, at least from Washington. But if the far-Right ultranationalist hawks in Russia compel him to hold out for total victory, he may not even keep that.
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