Streetwise Professor

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.