Streetwise Professor

When the US Treasury torpedoed Gunvor’s bid to buy Lukoil’s international assets, it was the occasion for “serious self-reflection” within the company. Today, a few weeks later, that “self-reflection” resulted in action: the exit of Torbjörn Törnqvist from the company, and the sale of his 86 percent stake to a “management-led” group of insiders. Tellingly, Törnqvist’s family was also shown the door–most notably his son Fredrik whom he viewed as a successor.

In my earlier post on the implosion of the Lukoil deal, I wrote that the Treasury’s plan was “to put the squeeze on Gunvor, because it views the company as Putin’s cats’s paw as long as Törnqvist is in charge.” Today’s developments are consistent with that, and with a continuing squeeze that led him to self-reflect himself into retirement. The suspected cat’s paw has been amputated.

I wonder what-and/or who-persuaded him.

The company named an American, Gary Pederson, as the new CEO. That is not a coincidence, comrades.

Financial terms have not been disclosed. It would be very interesting to learn the price and the financing. Would the US want Törnqvist even as a creditor of the company? And have no doubt: it is the US that has the whip hand in what is going on here.

From the outside it is impossible to assess the justice of the US’s actions, and the accuracy of its suspicions. But they are what they are, as are the consequences. Namely, that there is no doubt that Gunvor is out of Russia’s orbit, and firmly within that of the US.

I vacillate between calling Germans the world’s dumbest smart people or the world’s smartest dumb people. Whichever way you look at it, however, it is abundantly clear that a people that has produced amazing scientists, engineers, philosophers, and writers has a penchant for self-destructive stupidity, e.g., starting world wars that they have no hope of winning that result in national destruction.

Germany’s recent idiocies fortunately have been more contained in their effects, and have been especially concentrated in energy policy that has wreaked havoc in Germany itself. Energiewende. An obsession with renewables in a climate where the wind often stops blowing and sunshine is extremely limited for months at a time. Closing nuclear power plants. Carbon neutrality. Dependence on Russian gas.

The result of these combined acts of self-harm has been very high energy prices. These high prices have exacted a heavy toll on German manufacturing. Which is kind of a bad thing when manufacturing is your comparative advantage.

The resulting economic malaise has spurred the government into action. Prices to high? No problem! Impose price controls!

Because price controls always work, right? Right?

To illustrate just how dumb smart people can be, I give you this:

In this case, high prices are the result of insufficient supply (capacity). Indeed, high prices are a signal of scarce capacity, and provide the incentive to invest in capacity.

Capping prices distorts the signal, and eliminates the incentive to add capacity. Capping prices ensures that new capacity will never materialize, let alone materialize quickly. Meaning that the policy will inevitably have the exact opposite of its intended effect.

The caps might lead to increased industrial production, and thus increased consumption of electricity by manufacturers. But since prices are high because of inadequate capacity, where is the electricity output supposed to come from? It will have to be diverted from other consumers. Who will have to pay a higher price either directly in the form of higher prices, or in the form of reduced quality (e.g., lower reliability), or indirectly via taxes, and through lower consumption.

I’m sure they’ll be pleased. But that assumes that they realize the connection, because the government has every incentive to hide the higher cost. But a higher cost there will be.

Alas, the Germans are not unique in seizing on price controls to combat high prices. (Yeah, Mamdani–I’m looking at you). This despite the fact that at least since the time of Diocletian, the results have been the same–bad. Very bad.

In many cases–and I believe this to be so with Germany today–it is because the high prices complained of are the result of government policies, and rather than admit failure/error and undo the destructive policies, governments seize on a known nostrum that will inevitably fail. But in the meantime the government will have kicked the can down the road and claimed to have done something. The lag between doing something and the reckoning with what has been done gives it time to come up with new excuses, and new bad policies.

So enjoy, Germans. You are like the Delta guys in Animal House, intent on futile and stupid gestures. Except without the charm.

The FT has a long article about the aborted Gunvor purchase of Lukoil International. It adds a few interesting details.

For one, the orders to squelch the deal came from the upper levels of the Treasury, most likely Scott Bessent himself: “As Gunvor’s offer inched through a half-functioning bureaucracy [due to the shutdown], the decision to kill it came down from high up in the Treasury, according to two people familiar with what happened.”

No doubt because the structure of the deal made it look for all the world like Gunvor was merely a straw buyer, or a parking spot: “A banker briefed on the Lukoil proposal said Gunvor planned no upfront payment and did not need additional financing. Instead, profits would be placed in escrow until sanctions were lifted.”

Uh-huh. The company would remain intact, managed by another company without the expertise or experience to do so (even “Törnqvist admitted Gunvor might not be the natural owner for such a wide portfolio”), with the profits socked away until the day sanctions disappeared. Totally makes sense!

So what was in it for Gunvor?

And the company could be sold right back to Lukoil when sanctions disappeared. Oh yeah, Törnqvist insisted “there was no path for Lukoil to buy back assets spanning the globe that it had spent decades acquiring.”

Sorry, but “no path, swearsies!” doesn’t cut it. If there was a path to sell it kit-and-kaboodle, and it remained intact kit-and-kaboodle in the Gunvor parking lot, there would be a path to buy it back kit-and-kaboodle.

The US’s action has also cast a taint on Gunvor that will hang over it for the foreseeable future. One bank (Santander) withdrew from participating in a financing facility for Gunvor. Others are sticking, but one told the FT that it would “review new financing in a way we wouldn’t have previously.” I bet they will. In fact, every bank will look at Gunvor with the understanding that Uncle Sanctions is looking over their shoulder.

And no doubt that is part of Treasury’s plan. To put the squeeze on Gunvor, presumably because it views the company as Putin’s cat’s paw as long as Törnqvist is in charge.

The FT says “At Gunvor, the shock of the past week has given way to ‘serious self-reflection’ according to one person with knowledge of the situation.” There’s a lot to reflect on.

Törnqvist had to know the risks he was running. That given the structure of the deal, with all the profits going into escrow, there was little in it for his company, and this would be evident. Yet he did it anyways. Which suggests that he was effectively compelled to do so.

The vibe I get comes from the Godfather, with in the role of the undertaker Bonasera and Putin playing Don Corleone:

Due to the US sanctions on Lukoil, that day came. But Gunvor could not provide that service, because an even more powerful Godfather stood in the way.

I’m baaaccckk. Posting pause due to travel (which I’ll write about in my next post) and a pressing expert report deadline.

The biggest news event of interest to me during the hiatus was the agreement for Gunvor to buy the non-Russian assets of the just sanctioned Lukoil, and the early term abortion thereof, with Treasury Secretary Scott Bessent administering the abortifacient. Sort of a reverse of the Anchor Man meme:

It was surprising, not to say shocking, to read of the announcement of the Gunvor-Lukoil deal. It raised many questions.

For one thing, this was a minnow trying to swallow a whale. With a book value of around $6.5 billion, Gunvor was trying to acquire assets worth between 3 and 4 times as much.

Which meant that Gunvor would have needed to raise substantial financing. When the deal was announced, no mention was made of this.

And seriously, what non-Russian bank would want to touch this? Or was it thought that some Middle Eastern SWF be willing to step up? Even that is a stretch. Nobody wants to attract the attention of a sanctions-happy US.

Strategically it would have created a beast somewhat unique in the energy trading world. Lukoil, with significant upstream and downstream assets as well as a largish trading operation, is more analogous to Shell, BP, Total, and the like than it is to a trading firm. Yes, trading firms (e.g., Vitol, Trafigura) have become asset heavier, but the contemplated acquisition would have turned Gunvor into a privately owned, very asset heavy company very different from its peers. There would have been a serious mismatch between ownership structure, capital structure, and asset structure.

There’s also a serious question about the ability of Gunvor to manage such an enlarged, and much more complicated, organization. Torbjörn Törnqvist has not demonstrated that expertise, and in any event, he is 72 and a management transition is on the horizon. He is trying to groom his son for the role, but he obviously has even less experience.

Given all the very serious questions about the deal, one is led to wonder why it was even attempted. The most benign interpretation is that it matched a desperate seller to an opportunistic buyer wanting to do something unprecedented.

A less benign, and probably more accurate, interpretation is that Törnqvist was acting as the Kremlin’s cat’s paw. That is, Putin wanted to retain control over the assets, and therefore wanted them to go into friendly hands that he could control, at least to some degree.

Gunvor’s Russian roots are well known. The sanctions against Gennady Timchenko, former co-owner of Gunvor, in 2014 created an existential crisis which Törnqvist successfully navigated. (Though the details of how he did so remain obscure). With the exception of the Ust Luga port asset Gunvor had shed its Russian assets. The company claims complete independence.

But there is a history of deep connections. And Törnqvist’s second (current) wife is Russian, and continues to operate an environmental NGO in Russia. Further, given the opacity of the commodity trading world generally, and the Russian commodity trading world specifically, it is always reasonable to suspect that subsurface connections still remain, and that Russia has leverage over Gunvor and Törnqvist.

The US Treasury Department certainly thinks so, and said so bluntly when it torpedoed the deal.

President Trump has been clear that the war must end immediately. As long as Putin continues the senseless killings, the Kremlin’s puppet, Gunvor, will never get a license to operate and profit.

— Treasury Department (@USTreasury) November 6, 2025

“Kremlin’s puppet.” Brutal. And “Never” seems pretty final.

I laughed when I read that. No bureaucratic doublespeak. Just a right cross to the jaw. (Which Bessent is apparently quite capable of throwing. As Elon).

Of course, the US has far more information about Gunvor and its doings than a mere blogger. You can bet its communications are surveilled, and it is likely that the US has human assets working in the company, and in Lukoil too. Meaning that allegations of puppetry are likely grounded in hard intelligence.

So, whither Lukoil? Well, it will be more like wither, Lukoil.

The trading operation has to be totally shtuped. Trading lives on credit and they won’t get it. And any buyer will feel Uncle Sanctions looking over their shoulder.

Bulgaria is planning to nationalize the Lukoil refinery there. Romania is likely to do something the same with the refinery in its country.

The biggest asset is Lukoil’s big stake in an Iraqi oil field. Likely the other partners will continue operations, and the US will probably acquiesce, not wanting to see a hit to world oil supplies. Revenues can be escrowed, and conceivably Iraq could nationalize it.

Moldova is trying to obtain the Lukoil storage assets located there.

Lukoil stations in Finland, the US, and elsewhere are already having problems getting supplied with fuel. Those could be pieces that other entities, including trading firms or NOCs (note that Kuwait Petroleum operates Q8 gas stations) could snap up.

Meaning that the likely outcome is that rather than being bought in one piece, as Gunvor had proposed, pieces of Lukoil will be seized, sold, or shut down.

One issue I haven’t seen addressed is that of Lukoil International’s creditors, and how that will be handled. A subject for another day.

For now, suffice it to say that the Gunvor Gambit–and arguably the Putin Gambit–was shot down in flames by the United States, and there appear to be no survivors.

The severity of the US action, and the in-your-face explanation thereof, have a clear geopolitical subtext. Trump has had it with Putin. He offered Putin all sorts of off ramps, face saving deals, and the like. But an alternately smirking and snarling Putin refused to budge an inch on Ukraine.

So Trump tightened the sanctions screw, not just on Lukoil but on Russian oil sales generally, and these are having an effect. And he wasn’t about to give Putin a workaround on Lukoil via a transaction with a potentially friendly or even controlled buyer.

The cancellation of a mooted meeting in Budapest between Putin and Trump further demonstrates that Putin has exhausted Trump’s patience. (This cancellation sparked a rejuvenation of Kremlinology. The meeting was cancelled after a phone call between Russian Foreign Minister Lavrov and US SecState Marco Rubio. Lavrov was missing from some subsequent Kremlin meetings, leading to speculation that the failure of the call has led to his being disgraced, and to suggestions he stay away from windows).

But maybe Vova doesn’t care. He appears more than willing to spend another million lives to seize shreds of blasted territory in Ukraine rather than make any concessions whatsoever. Sad. And sick.

In my recent post on Don Wilson and GPU trading, I expressed skepticism at the prospects for such trading based primarily on market structure issues. Specifically, a commodity futures market can thrive if the underlying product has a highly intermediated value chain, but that vertical integration or long-term contractual relationships between producers and ultimate buyers is inimical to their success. Further, I surmised that transactions costs considerations would lead to long-term contracts and/or vertical integration dominating the GPU sector.

And indeed, that outcome is becoming clearer by the day. OpenAI (it of ChatGPT) has agreed to a massive chip purchase from AMD and has also bought a 10 percent stake in the chipmaker. OpenAI has also entered into a five-year deal with Oracle to buy “computing power.”

There is also increasing verticality in power supply arrangements. (Apparently the new industry buzzword is “circularity” but we are really talking about vertical relationships here, so I’ll stick with traditional IO speak). Example: AI firms building gas-fired plants in Texas. Musk’s xAI building a gigawatt scale plant in Mississippi to power a data center outside Memphis.

Microsoft has entered a 20 year deal with Constellation Energy to restart–believe it or not–a unit at Three Mile Island. And on and on.

It’s somewhat amusing to me. Years ago Paul Joskow wrote a seminal article about coal mine mouth power plants in which he showed that this co-location led to long term contracts or vertical integration. We are now seeing data center mouth power plants.

The economics are basically the same. It makes sense to locate something that consumes as much (or more) power than a generator can produce to economize on transmission costs and enhance reliability. However, this creates bilateral monopoly driven transactions costs issues that lead to vertical integration and long term contracting.

Going back to GPUs, there is no reason for colocation, but economies of scale on both sides of the market–huge consumers operating data centers, and a small number of GPU producers–create similar bilateral monopoly opportunism risks, which in turn are leading to the implementation of traditional responses to these risks–tight vertical connections between producers and consumers.

This market structure is inimical to the development of a thriving derivatives market. So I wouldn’t be surprised to see the launching of GPU futures contracts, but I fully expect them to sink faster than a Nork destroyer after launch. But unlike the Nork ship, GPU futures would not be refloated.

News flash (irony intended): the news media are idiots with the memory of a mayfly.

The most recent example, the breathless coverage of the supposed gas deal between Russian and China announced with great fanfare during Putin’s visit to Xi.

Vladimir Putin's apparent breakthrough on a pipeline deal with China may redefine Russia’s energy future and the global gas trade, writes @SStapczynski https://t.co/asJNGUTKaG

— Bloomberg (@business) September 2, 2025

A new Russia-China gas pact could reshape global energy markets https://t.co/kbIeiAy2b3 | opinion

— Financial Times (@FT) September 4, 2025

“Apparent breakthrough.” “Could reshape.”

Uhm, if you have paid attention, or if you do some actual research, you will know that there have been multiple announcements of the same effing thing over the last 20 effing years. I wrote about these contemporaneously, and always in a tone of hilarity. As I will do today.

Why hilarity, you ask? Because they would make these announcements, and then say: “we’ve agreed to everything but price.” Minor detail!

And of course, the price was never right for both, so the deals always faded away, only to be resurrected to serve some political purpose, like proclaiming Russia’s status as an energy powerhouse, its ability to spurn Europe if the Euros failed to meet Russia’s price terms, or to testify to the deepening relations between China and Russia.

And so here we are. Again. Like Groundhog day.

And like in Groundhog Day, the same thing is happening. It’s a “binding deal,” but

Depending on the details, most of them yet to be hammered out, today’s announcement could connect Russia and China for decades to come. It also sends a message to Washington about a counterweight to US political power — and to American gas. [Emphasis added].

So I guess “most” of the terms aren’t binding, because they haven’t even been negotiated.

Even better:

The Russian-Chinese memorandum formalises intent but defers substance. The real negotiation over the gas supply agreement will rest on four key parameters: price, take-or-pay obligations, financing and timing. [Emphasis added].

Yeah. Everything is set in stone. Except price, quantity, financing, and timing. Other than those trivialities, take it to the bank!

The only reason why this deal might–eventually–happen is that now Putin has no options. Once upon a time, his contract kabuki with the Chinese mainly served to generate negotiating leverage for Putin with the Europeans. Now Europe is dead to him. Gas export revenues are minimal. Russia’s financial situation is dire, so he has more motivation to make a deal.

But of course Xi knows that too, and therefore knows that he can demand an extremely low price, one that barely covers Russia’s costs.

In other words, due to his strategic genius, in this instance launching a war that resulted in the loss of his biggest gas export market, Putin put his balls in Xi’s hands. And Xi is holding a pair of pliers, a la the 1:11 minute mark of this:

(The media is doing a good Gene Wilder impression BTW).

Well, maybe Putin will be able to bioengineer some new goolies.

But back to the media. It’s not as any of this should be news. You have to know this history to be qualified to write about Russia, and Russian gas in particular. But obviously the MSM is not qualified. Note even remotely. Instead, they are Charlie Browns, who never learn and always end up making fools of themselves.

Video of those who believe in Russian and Chinese announcements about gas pipeline deals. pic.twitter.com/0N7dXpJovx

— streetwiseprof (@streetwiseprof) September 2, 2025

The Russo-Ukrainian War grinds on, with Russia making extremely marginal territorial gains at exorbitant human and materiel cost. But the Russians are inflicting heavy casualties on Ukraine as well. And for the first time in, well, forever, there appears to be at least a glimmer of a possibility of some sort of negotiated settlement. I’ll first discuss the military situation, then the political/diplomatic one, as the last is contingent on the first.

As I’ve written often before, the tactical aspects of the Russian campaign are beyond grotesque. The indiscriminate waste of lives for meager gains and the brutal treatment of Russian soldiers (who now include female criminals released from prisons) transcend even the worst historical precedents, at least in Europe. The senseless slaughters, the callousness of the officers, and the material deprivation the soldiers suffer go far, far beyond the conditions that caused the French army to mutiny in 1917. But no such thing appears in prospect in the Russian army. National mindset/character does matter.

This last week I saw two articles that present an interesting contrast. A WSJ article describes Ukraine’s (very belated) efforts to fortify. Appealing to Clauswitz and the experience of the American Civil War, Naval War College professor James Holmes argues that fixed defensive lines are futile, and hence the odds of victory favor Russia.

On balance, I think the pro-fortification side has the best of the argument. This is primarily because the technological considerations overwhelm the abstract advantage of the attacker identified by Clauswitz, and the inappositeness of the ACW analogy.

“The Offensive” is one of the Clauswitzian principles of war. Indeed, it is usually given pride of place. As Holmes emphasizes, the attacker can choose where to attack and can concentrate his forces, whereas the defender does not know where the attack will come, and must spread out his forces. This imbalance of concentration is most acute when the battlefront is large, as is the case in Ukraine. Hence, Holmes concludes, the advantage lies heavily with Russia.

However, technological conditions can decisively shift the advantage to the defender, even given his ignorance of where a blow will fall. Of course, the Western Front in WWI is the primary example of this.

In that conflict, the extreme limitations on the pace of an advance, the vulnerability of the attackers to fires, and the distance that an attacker could advance dictated by the reliance on infantry (and later, the primitive armor) combined to make breakthroughs almost impossible to achieve. Firepower (artillery and machine guns) attrited an attacking infantry force heavily before it made contact. Even if it was able to take a line of trenches, or even two, exhaustion brought them to a halt. Primitive communications prevented coordination of adjacent units, and made it almost impossible to bring up reserves to the right place to continue an initially successful assault. So at best, an attacker could dent but never break an enemy’s lines.

Even operational surprises, like Verdun in 1916 or the Kaiserschlacht in Flanders and Artois in 1918 eventually petered out far short of their objectives. Only where troop and fortification density was much lower, as on the Eastern Front in say the Gorlice–Tarnów offensive in Poland in 1915, or the Brusilov Offensive in 1916, or Romania in 1916, was it possible for foot and horse-drawn forces to make sustained advances over long distances. And even the first two of those culminated short of achieving victory.

Conditions similar to the Western Front prevail in Ukraine, and indeed, many factors are even more disadvantageous to the attacker. First anti-tank missiles, and then drones and deep strike munitions, have made it impossible for armored and motorized forces to advance to contact without suffering near annihilation. Drones, and especially satellite and electronic intelligence, surveillance, and reconnaissance (ISR) assets provided by the US, make operational and tactical surprise almost impossible. Artillery is more precise and more deadly.

So foot soldiers must advance under continuous enemy observation and fire at a walking pace, and suffer catastrophically as a result.

The only thing that has allowed Russia to advance as much as it has, little though that be and at what cost, is the fact that Ukrainian lines are very thinly manned. Fortifications are the best way to compensate for that lack of manpower.

Since the outset of the war Ukraine as eschewed the construction of dense fortifications throughout the front–something I have criticized since the outset. Indeed, the Ukrainian resistance to fortification persisted even after its 2023 “offensive” failed because it could not penetrate the Surovkin Lines. One should learn from one’s enemy: Ukraine hasn’t.

This is just one item, albeit an important one, in the bill of particulars against Syrsky and Zelensky and their operational conduct of the war.

(As for the ACW analogy, Holmes overlooks the fact that the Union offensive stalled for 10 months at Richmond-Petersburg due to Confederate fortifications there. Also, the Federal’s multiple simultaneous attacks were conducted at the strategic level, a totally different situation from the operational level -situation in Ukraine. Thus, at the operational level–e.g., Petersburg-Richmond–the fortified defensive prevailed despite a huge numerical imbalance between the two sides. That’s a better analogy for eastern Ukraine today).

Is it too late for Ukraine to fortify as it should have years ago? Perhaps. And regardless, until it does, the Russians will continue to advance meter by meter in the bite and hold fashion they’ve employed for the past three campaign season, because Putin has clearly shown he is willing to pay the price that approach entails.

Which brings us to the political/diplomatic situation. Putin has agreed to meet Trump, who is attempting to broker some form of cessation of the conflict. Trump promises to meet Zelensky immediately afterwards.

Now of course, both sides have made irreconcilable demands. Putin demands complete control over Ukraine’s eastern provinces (which they have almost, but not completely, captured). Zelensky says not one bit of Ukrainian soil will pass to Russia.

But of course they are going to say that. The question is how willing–and able–they are to adhere to those positions. This depends crucially on their assessments of what will happen if the war drags on.

Putin has consistently expressed bravado and a certainty of victory. He has wagered that the disproportionate populations and economies of the two combatants give him a decisive advantage. He claims the Russian economy has withstood sanctions, and can withstand anything more the west throws at him.

The reality is somewhat different. The rate of losses is not sustainable. This will be especially true if, finally throwing up his hands at Putin’s obstinacy, Trump increases the flow of military equipment to Ukraine. As for the economy, it has become extremely unbalanced, with likely unsustainable expenditures on the war. Russia’s fiscal situation is extremely parlous. The civilian economy is suffering, and although the aforementioned national character may cause Russians to bear these privations more stoically than other nationalities would, war weariness will inevitably grow (as it did in Russia in 1917). Russian industry, particularly its oil refining industry–a vital prop to the war effort and the economy generally–has suffered considerable damage from Ukrainian drone strikes.

Russia and those who believe in the inevitability of Russian victory point to GDP figures. Even overlooking the dubious nature of official Russian statistics (not that US official statistics are that great these days), hyperactive military production combined with a suffocating civilian economy cannot go on forever. The example of War Socialism under Ludendorff and Hindenberg in WWI Germany comes to mind. It achieved prodigies, then collapsed in social chaos.

For his part, Zelensky has to consider the fraught military situation. Yes, Ukraine is holding on, but the personnel issues in particular are also not sustainable.

The war of attrition has continued because each side thinks it can hold out one more day and one soldier longer. As long as they continue to think that way, Trump will not succeed.

It ultimately comes down to what leverage Trump has. The very fact that Putin is willing to meet suggests that he has some with the Russian. The meeting has come to pass only after an exasperated Trump threatened to impose far more draconian sanctions on Russia, most notably efforts to throttle oil sales to India and China. That Trump is deadly serious about this is demonstrated by the fact that relations with India have been severely ruptured due to Modi’s refusal to accede to Trump’s demands.

If the conditions of the Russian economy and fisc are as shaky as I believe, Putin has to be seriously concerned that Trump getting serious about sanctions would collapse his ability to sustain the war.

Trump obviously has much more leverage over Zelensky. Ukraine survives at the sufferance of the US.

So I conclude that Trump has considerable leverage over both sides, and that this makes a deal possible, if not highly likely. Putin has to know that the US will bear little cost from imposing large costs on Russia, and again, the hardball with India (“oh, you don’t like 25 percent tariffs? Well, here’s 50 percent then, asshole”) demonstrates that Trump is deadly serious now, whereas I don’t think Putin thought he was prior to now. Unless Putin is living in Dictator Dreamland (which is not inconceivable) he knows that his current strategy and tactics are not sustainable for very long, especially if the US ramps up military support for Ukraine. And further, he has to know that every human and materiel casualty in Ukraine weakens him against whom he claims is his real enemy–Nato.

So although I don’t believe that Trump will achieve a miracle next week, or even in the following weeks, I think that next Friday could well represent the beginning of the end. And what will that end look like?

Well, with neither side getting what they are demanding now. Putin will have de facto control over most of eastern Ukraine, and perhaps de jure control over some of it, but he will not have de jure control over all of it as he is demanding. Which means that Ukraine will make territorial concessions. That is, as is the case in every conflict not ended by unconditional surrender, each side will find the outcome distateful.

And what follows? A hot peace/frozen conflict. Korea redux, perhaps.

Debate is swirling about the cause of the Great Spanish Grid Failure of 2025. One major driver of this debate is an almost crazed desire to shield renewables from any blame. Spanish PM (and Socialist knob) Pedro Sanchez (who barely managed to get elected, perhaps due to a lack of help from Napoleon Dynamite) is especially crazed, given that Spain had become Exhibit A in the greatness of renewables, and that he has been a huge supporter of them.

All sorts of theories have been bandied about. For his part, Pedro is going with Induced Atmospheric Vibration, in which extreme temperature variations caused frequency fluctuations. (Which the grid could not handle, ahem ahem.).

Every electrical grid is a complex, highly interconnected physical system with myriad feedback mechanisms, and is characterized by “tight coupling” (everything must work together in a specific sequence or the system collapses). Indeed, the electricity grid is arguably the most tightly coupled major system in the modern world.

This is the kind of system in which “normal accidents” occur. I’ve written about them several times (hence the “again” in the title).

Normal accidents mean that there are myriad combinations of events, each one of low probability, that can combine to cause a systemic collapse. Though any individual combination may have a low probability, the vast number of possible combinations means that the probability of collapse is non-trivial.

The ex post forensics of the Spanish collapse–if not fatally compromised by politics, which is a big if–will no doubt establish a one-damn-thing-led-to-another causal chain. It is quite possible that not all of the links in this chain will be related to renewables, which no doubt Pedro and others will seize upon to vindicate their baby.

But recall from my earlier discussion of normal accidents that these links are necessary conditions–absence of any one of them would have prevented the collapse. The more links in the chain that are renewables-related means that greater reliance on renewables implies a greater probability of systemic failure.

Perhaps Pedro is right and the original shock was an IAV, which is not itself directly attributable to renewables. But as it stands now, crucial elements in the causal chain definitely appear to include tripping off of two major solar facilities in Spain, and a very small share of power production from spinning resources (due to a high renewables share) that resulted in a deficiency in system inertia. Thus, two major elements of the causal chain likely strongly implicate renewables.

Many “normal accidents” involve causal chains that came as a complete surprise to those reviewing them ex post. This is definitely not the case with respect to the electricity grid and renewables. There have been many Jeremiahs warning of impending doom from over-reliance on them. Indeed, the Spanish grid operator itself sounded the alarm as recently as February.

Will this almost real time validation of the warning lead to a major rethink of the advisability of continuing to push renewables ahead of the complementary investments (batteries, greater transmission capacity, technical mitigants of the inertia issue) necessary to prevent a severe degradation of grid reliability? Will it lead to a sober evaluation of the costs of these complementary investments and/or the cost of degraded reliability, and a recalibration of renewables plans that takes these costs into account?

Given the huge political and ideological investments made in the renewables push, I highly doubt it. Not in Europe, anyways.

In another normal accident-related story, the New York Times did a major tick tock on the Reagan Airport helo-plane collision that resulted in the deaths of 67. Again no doubt due to its massive political and ideological investment, it all but buried a crucial necessary condition. Specifically, the failure of the pilot undergoing an evaluation flight to heed the specific directions of the Warrant Officer performing the evaluation to (a) reduce altitude, and (b) make a left turn. Instead she–and that’s the important detail–continued to fly straight, high, and level right into a descending passenger jet.

If she had followed the WO’s directions, the tragedy would have almost certainly been avoided. Here, human error was a necessary condition. But since that human error was committed by someone of a protected class–a female military officer, one who had been a Biden aide no less, and noted in her obit as being an advocate for sexual harassment victims–the NYT (and myriad other media outlets) downplayed that detail.

The valence of this issue is particularly great in the current environment, where SecDef Peter Hegseth is challenging DEI in the military generally, and the role of women in the military specifically.

The lesson from these episodes? That in these abnormal times, honest assessments of normal accidents are nigh on impossible. Which means that their likelihood will be tragically higher than necessary.

Today the Iberian peninsula returned to a state like that experienced by previous occupants like the Carthaginians or Umayyads: electricity free. Around 1238h local time, the grid crashed in Spain and Portugal: parts of France are affected too.

In brief, frequency crashed suddenly, indicating that generation was insufficient to meet load. And here’s the deal with frequency crashes in renewables dominated systems: when the frequency falls, it can’t get up.

In conventional power systems that rely on thermal and nuclear generation spinning generators absorb most fluctuations through the inertia inherent in large numbers of massive spinning machines. Having other spinning machines on standby is also essential to absorbing shocks. Renewables dominated systems lack this inertia, and have inadequate backup, and are thus extremely brittle: they cannot absorb sharp fluctuations in generation or load, and such shocks can cause the system to collapse.

Today, “can” became “did.”

Perhaps the shock was weather-driven, due to a sudden drop in wind or solar production. Or perhaps it was a sudden increase in load due to a temperature shock: Portugal’s grid operator mentioned “extreme temperature variations” and a “rare atmospheric phenomenon.” That could be interpreted as either a weather driven load shock, or a weather-drive generation shock, or both. Or perhaps a transmission problem cut off power from an important source.

Whatever the initial shock, the ultimate culprit is either directly or indirectly an over-reliance on renewables. Directly in the case that generation volatility inherent in renewables caused the frequency drop. (I am currently working on a project to quantify renewables output in various US markets). Indirectly in the case of a shock to demand that a renewables-heavy system could not absorb due to its inherent lack of inertia.

The grim irony here is that Spain had just bragged that it obtained 100 pct of its power from renewables.

If that’s victory, what does defeat look like? (And that claim not completely honest, by the way: nukes and thermal generators were supplying spinning reserves and other ancillary services).

This was inevitable, just as it is inevitable that playing Russian roulette with an automatic will end badly. In other words, Iberia just found out the consequences of fucking around with renewables.

The question is whether lessons will be learned. Given that this isn’t the first time this has happened, and countries around the world have doubled down on their renewables death ride regardless I am skeptical: these people NEVER admit error. At least the Trump administration is pumping the brakes, though not hard enough for my comfort. But Germany, the UK, Australia, etc., appear to want to pursue the “energy transition” in the worst way. The worst way being a transition to no energy that occurs with probability one in finite time.

It is thus particularly hilarious to read this from Bloomberg. Great timing!

Today’s Green Daily newsletter looks at how the US has become further isolated from other rich nations that are continuing to push towards net zero https://t.co/zHdOhacsYj

— Bloomberg (@business) April 28, 2025

On noes! Not isolation from the lemmings plunging over the renewables cliff! Anything but that!

Yeah, we’ll be enjoying our isolation from you all shivering or sweltering in the dark.

And speaking of the dark, Spain has to black start its grid. You know, just like that modern economic powerhouse Cuba has had to do several times recently.

Good luck black starting in the black of night in a system loaded with solar. Hell, even when the sun is shining solar generation declines throughout the afternoon–just when Spain needs more generation to get things spinning again.

Perhaps you find my schadenfreude in poor taste. Well, after being lectured and hectored for years about how I and others of like mind are evil because of our Cassandra-like warnings about the idiocy and insanity of renewables, I really don’t care Margaret. Just like with COVID, the oh-so-superior bien pensants have declared their moral and intellectual superiority over and over to justify destructive policies regarding climate change and energy, and to beat dissenters into silence and submission. They should feel grateful that demonstration of their manifest inferiority results in only scorn, rather than lampposts. And as for the non-bien pensants who are suffering, well, they have voted for these politicians and enabled these policies. If they feel betrayed or deceived, hopefully bluntly pointing out whom is really to blame will rip the scales from their eyes, even if it doesn’t drive them to fitting ropes to said lampposts.

After all this time, you’d think that people would have figured out to take Trump seriously, but not literally. You’d be wrong.

Case in point, Javier Blas’ bloviation about Trump’s proposed mineral deal with Ukraine, which Trump has characterized as a deal for rare earths.

Despite the talk about its huge potential, Ukraine isn’t known to hold any reserves of the main rare earths elements sought after by Trump pic.twitter.com/8Z6pdkKrhp

— Bloomberg Opinion (@opinion) February 19, 2025

Yes, rare earths are what Trump has touted, but that’s not what he’s really after:

Donald Trump’s demand for a $500bn (£400bn) “payback” from Ukraine goes far beyond US control over the country’s critical minerals. It covers everything from ports and infrastructure to oil and gas, and the larger resource base of the country.

The breathtaking expansiveness of Trump’s demands (apparently trimmed back subsequent to that article) is the real story here. Writing that Trump is an idiot because there aren’t ackshually any rare earths in Ukraine totally misses it.

Why does Trump emphasize rare earths? Who knows for sure, but I have some ideas.

One is typical Trump kayfabe, “presenting staged performances as genuine or authentic” (in professional wrestling mainly, but a staple of the Trump method). Rare earths are in the news, primarily because of Chinese dominance thereof. (Not, by the way, because China is uniquely endowed with them, but because the US and the West have outsourced the intensely polluting refining process to China, which has a far higher tolerance for industrial pollution). Although a lot of people know that rare earths aren’t rare, and may know that Ukraine doesn’t have any, that’s not common knowledge. By broadcasting that he’s going to get America’s hands on something commonly perceived to be extremely valuable, Trump can sell his base on continued support for Ukraine despite his early promises to cut it loose.

Another possibility is that this is a head fake. By focusing on a single resource, he obscures his more breathtaking ask (or demand) which stirs concerns among those of his supporters are aware of it. Instead of “Look–squirrel!” he’s saying “Look–rare earths!”

Either way, by taking Trump literally Blas et al are failing to note what they should be taking seriously. Which probably doesn’t bother Trump one bit–and wouldn’t if either of my conjectures that rare earths are a blind or a feint are correct.

For his part, Zelensky reacted with outrage. Never! Colonialism!

At least in public. Marco Rubio–seconded by J.D. Vance–called out Zelensky publicly for duplicity.

What Secretary Rubio is saying here is exactly right. https://t.co/nh2pHzramp

— JD Vance (@JDVance) February 21, 2025

This surprises me not in the least, but it makes me question yet again Zelensky’s intelligence (in the sense of IQ, not information). Arguing with Trump and exchanging insults with him in public on this and other issues (notably the negotiations with Russia) is an incredibly stupid strategy for someone whose fate largely rests in Trump’s hands.

Indeed, the more you think that Trump is an asshole who hates Zelensky, and is looking to sell Ukraine down the river, the more you have to agree that Zelensky should keep his mouth shut, and definitely should not wave a red cape at a raging bull president. Being two-faced with Trump is a recipe for getting both of them ripped off. Or if you are going to be two faced, display the nice one in public and the mean one in private, rather than the reverse as Zelensky is doing.

It would be particularly stupid of Zelensky to pick a fight over non-existent rare earths. Sure Donald, the rare earths are yours! He’d be giving up nothing and potentially gaining something. Picking a fight over nothing is beyond stupid. (That fact alone should have the ackshually crowd questioning whether it’s rare earths that Trump is ackshually after).

It’s really mystifying what Zelensky think he’s accomplishing here. Playing up to the Europeans? Since they are utterly impotent and can’t protect him (not to mention that many including Scholz and Poland have expressed publicly an unwillingness to do so) that would be incredibly foolish. Playing to the anti-Trump element in the US? Equally foolish because at present they are even more impotent than the Europeans.

Maybe it’s just exhaustion or a psychological breakdown, either of which would be understandable given the strain he’s been under for the last three plus years. Or maybe he wants out of a hopeless situation and is creating a pretext for his ouster. Or maybe he’s just an arrogant idiot.

As for the substance of a US-Ukraine deal over Ukrainian resources (other than rare earths), Rubio brings up a point I made several weeks ago on X. Namely, giving the US a major stake in Ukraine would serve as a far more credible bond to secure continued American protection than pie crust promises. Major skin in the Ukrainian game vis a vis Russia aligns American and Ukrainian interests far better than any alternative.

That is not complicated. An American stake produces time consistency. “Commitments”–promises to do things in the future on Ukraine’s behalf–are not time consistent because there would be little cost of reneging on those commitments in the future. You know, sort of like the Budapest Memorandum. You’d think Zelensky would have learned from that experience. Apparently not.

I assert that a major economic stake in Ukraine’s economy would be a far better guarantor of Ukraine’s security than membership in Nato. There is no reason to believe that Nato would not fade Article 5 commitments in the event of a future Russian incursion or subversion.

This is especially true when dealing with a relentlessly transactional man like Trump.

Besides, 50 percent of something is a lot better than 100 percent of nothing. Which is what Ukraine will have if the US walks.

There is considerable room for skepticism about Trump’s approach to Ukraine. But that skepticism should be grounded in something other than snickering about Trump’s supposed rare earth delusions. And for Zelensky turn his comedic talents to insult comedy is suicidal.