Hello,
In this special edition of Week Signals:
IN REVIEW. A pre-midterms backscratch, a Molotov-Ribbentrop cocktail, or another miracle in the house of Putin?
The Week in Review: Reactions to an October surprise
The week began with reports of a deal between Jared Kushner and Moscow to rescue Lukoil’s stranded overseas assets. It ended with Donald Trump announcing the purchase of 3 million presumably metric tons of diesel from Vladimir Putin.
We planned to publish a researched and considered report on territorial wars for today’s edition of Week Signals, followed by our usual list of watchpoints for the week ahead. But the news of a US-Russia energy deal, immediately after the deaths of dozens of Ukrainian civilians, means that you’ll get a rushed and preliminary assessment of what this means instead. To ask for your forbearance with this late change to our usual format, I’ve removed the paywall.
The first thing is that 3 million tons (or tonnes) of diesel is only about a week of US consumption. That’s not insignificant in the context of lower prices ahead of the midterms, but per Trump’s statement, only 300,000 tons will be supplied this month, with 500,000 tons in November. Moreover, there’s still the question of how much diesel can physically get out. After issuing a scathing statement on the deal, Kyiv proceeded to attack several Russian refineries.
Yet the deal is potentially significant insofar as what it says about the actors in today’s two major wars, and what it suggests about their potential trajectories from here.
For Trump, it shows he’s desperate for inflation relief, and is prepared to repudiate Congressional attempts to increase the costs to Putin via the Lindsey Graham Sanctioning Russia and Iran Act, which provided a 30-day deadline – due on Sunday, 18 October – for 500% ad valorem duties on all goods imported from Russia and 100% secondary tariffs on goods imported by Russia’s top five energy customers, including China, India, and Turkey. So much for all that.
For Putin, it shows he’s got Trump’s measure. You don’t need to believe in the Agent Krasnov myth or suggestions that he holds Epstein-related kompromat. You don’t even need to believe that Trump’s son, whose wedding was paid for by a Putin-linked oligarch, or Susie Wiles’s daughter, who took time out from the midterms to join Chris LaCivita in campaigning for a Putin-linked stooge in Bosnia, had any influence. All you need to know is that Trump sees Putin as a man he can (or must) deal with.
For Zelensky, it shows he’s lost any claim to US loyalty, despite the position of almost all other NATO members. The US is not the only ally to have purchased Russian energy during the war. Europe remained addicted to Russian oil in the war’s early months, and is still buying record amounts of its LNG. Yet coupled with Trump’s unwillingness to authorise the use of Starlink terminals in locating Russian targets, and the drought in US-produced missile interceptors, it’s another signal that the US has gone from Ukraine’s reluctant ally to its semi-adversary.
For Europe, it’s another blow to transatlantic unity. Allies weren’t consulted. Accusations of hypocrisy – the earlier fire sale of Russian-linked refineries and so forth – will be made (as they have been in Delhi, facing other disagreements with Washington, including, weirdly, on Starlink terminals as well). But with sanctions now lifted until 7 April, many European buyers will also be willing to partake.
For Iran, it’s perhaps a sign Trump won’t, after all, pull the trigger on a pre-midterms escalation. And while it doesn’t solve anything structurally for the war in the Gulf, it does suggest Russia (which allegedly helped Iran to target US assets in the war’s earlier hot phase) could influence a mediated solution. In March, we posited that one outcome for the war could be a Suez-style outcome, where, like Dwight Eisenhower to an Anthony Eden bogged down in the Sinai, Xi Jinping could get Trump out of his mess in Hormuz by essentially taking over as the Middle East’s primus inter pares, and potentially implementing a Sino-centric order, perhaps with a Petroyuan market or RMB tolling system. Should Russia take this role instead, it would be an extraordinary comeback for a country that only recently lost its main regional proxy in Assad’s Syria. And to someone as historically minded as Putin, it would complete a 20th-century vision of Moscow taking back its regional sphere of influence; if not in Constantinople or Jerusalem, but Tehran and Hormuz.
For markets, none of these historical questions will matter in the short term, but another sign of US weakness will further strengthen the case, promoted by Ray Dalio and others, that US bonds are no longer the world’s reserve asset and that a multipolar financial order has truly arrived. From our perspective, this would need a few more nails in the coffin. Perhaps an AI bust, or a major insolvency in a US-regulated market. But with the military and petrodollar pillars of US hegemony now in global doubt, what next for the US dollar or US credit system itself?
It is interesting to note that oil markets barely budged on the news. Perhaps it’s because, as above, the total volumes of diesel expected to be sold are pretty small. Perhaps it’s because, as per our first dispatch yesterday, the TACO transmission channel of energy markets is well and truly broken (a boy can only cry “deal” so many times). Perhaps it was also because Iran continues to attack tankers, including beyond the strait, and Russia still ostensibly has a diesel export ban it can easily put back in place. Perhaps it was also because Russia is struggling to provide for its own market and would presumably need to sell rebadged Iranian diesel, shipped via the Caspian.
Yet other markets, including ever-optimistic equities, rallied. The deal would not only let the US consumer return to full consumption mode, but it could also buy time for a more sustainable solution for both Ukraine and Iran. But this is where things get dangerous.
By making a deal with Putin, even if economically insignificant, Trump gives a US adversary more leverage and influence not just in Iran (see above), but in Eastern Europe, which is why it’s not only Zelensky who is up in arms. This isn’t a Molotov-Ribbentrop pact, with Russian tanks expected to now advance to the Vistula, but it will make the appetite for defending what remains of Kyiv-held Donetsk potentially much weaker. And, in turn, it will put Ukraine and its backers in potential jeopardy should they attack an oil facility that Trump deems essential to his campaign.
History offers plenty of examples of a feckless power switching sides in a conflict. The Italians, who did it in both world wars, come to mind. But we return to a theme we explored in August last year where, after Trump’s summit with Putin in Anchorage, we asked whether this was a repeat of Tsar Peter III’s switch to support Prussia at the end of the Seven Years’ War, all on account of his man crush on Frederick the Great. Yet the switch outraged the Russians, and while it saved Frederick, Peter’s wife, Catherine, would overthrow him just months later. JD and Melania, take note.
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Best,
Michael Feller
Editor, Geopolitical Dispatch
Chief Strategist, Geopolitical Strategy