Is the special US-UK relationship over?

Key Market report for Frisday, 28 February 2025

The very bizarre saga of Ukraine's "rare earth minerals" deal is continuing with Volodymyr Zelensky's visit in Washington today. Yesterday, Keir Starmer paid a visit to President Trump for talks that were also related to the minerals deal. But what Starmer hoped to achieve was to get Trump to recommit to the free, sovereign and democratical Ukraine.

“American brawn for the British brains,” as Winston Churchill had put it

Starmer was the last of the attendees of the European emergency summit on Ukraine to visit Trump. The Summit was hosted by president Emmanuel Macron in Paris on 17 February in what was a panicked follow-up to the Munich Security Conference. In Munich, tears were shed because the deplorable Americans made it clear that their commitment to European security and to NATO is now under review.

To the last Ukrainian! We demand that the war continue.

The Paris summit, gathering only the most Russophobic, pro-war European governments (France, Germany, Poland, Italy, Germany, Holland, Denmark and Spain plus representatives of the EU and NATO) may have decided to try to charm and pressure Trump to their cause, so one by one, the presidents of France, Poland and Britain invited themselves to meet Trump and try to persuade him to stay committed to Project Ukraine. Ursula von der Leyen attempted many times to reach out to Trump by telephone.

The British can take care of themselves…

However, each in their own way received a subtly humiliating treatment with the exception of EU Commissioner for Foreign Affairs Kaja Kallas whose humiliation was not so subtle: she had already arrived in Washington for a meeting with the State Secretary Marco Rubio, but he cancelled the meeting at the last minute. Too busy for her, it seems, was the message. Starmer only did a little bit better than that.

For all the charm, chummy banter and even a hand-delivered letter from his majesty king Charles himself, Starmer did not get the most important thing he came for: continued US support for Project Ukraine. Trump did compliment Starmer on his "beautiful accent," but when pressed by journalists on whether the US would intervene if Russian forces attacked British troops, Trump said, "I've always cared about the British. They don't need much help... They can take care of themselves" and declined to offer any guarantees "beyond very much."

Without US support, European leaders' cunning plan of deploying peacekeepers in Ukraine won't achieve much. Without the boots on the ground, the Europeans won't be able to control Ukraine's political life. Without that, Britain's "One Hundred Year Partnership..." isn't worth the paper it's written on, and much rides on that partnership. Recall, the agreement apparently hands the control of all Ukrainian ports to the UK.

What’s the deal with the ports?

Beyond the commercial benefit, the strategic importance of this is that controlling the ports makes it easier to maintain the flow of troops, weaponry and whatever else may be needed to continue with the efforts to destabilize and destroy Russia. Russia's victory over Ukraine does not have to be the end of the West's proxy war: when the last Ukrainian has been sacrificed, West's next proxy could be terror groups and narco-traffickers.

Control of Black Sea ports can certainly facilitate what was one of the British Empire's most effective foreign policy tools: the opium wars. However, if the west loses Ukraine and the next government in Kiev aligns with Russia, the gates of Ukraine will be shut to any Western Trojan horse, ending all hopes of an ultimate victory over Russia.

For the collateral starved British financial system, this could prove catastrophic. The same is true for Europe: Emmanuel Macron's dream of using $260 billion in frozen Russian assets as collateral for reconstruction investments was also meant to underpin a large-scale credit impulse in Europe. The reconstruction was meant to be financed by European banks and the contracts awarded to European corporations.

Putin can be trusted

Unfortunately, none of that will be possible without strong backing by the United States. This is now unlikely. All the signals from the Trump administration are that they're done with Ukraine, and that the UK and EU are on their own. The fact the US declined to support the British-sponsored UN resolution on Ukraine which condemned Russia's invasion of Ukraine was a very important indication of US realignment: their vote opposed the UK and its European allies and aligned instead with Russia, Belarus, North Korea and Hungary. Only a few weeks ago this might have seemed unthinkable.

Furthermore, during yesterday's visit with Keir Starmer, Trump underscored that Vladimir Putin could be trusted not to breach agreements. In that, Trump is quite right: even Bill Clinton appreciated that Putin always kept his word in deals. This in itself could be a teachable moment for the duplicitous Westerners: cultivating a reputation for integrity and reliability could turn out to be very valuable.

Putin to Trump: have I got a deal for you!

By contrast, destroying one's own reputation for short-term gains could become a debilitating liability. Given that Russia is winning in Ukraine, that it can offer credible, advantageous deals to Trump, plus security, and that the duplicitous Brits and Europeans desperately need the USA to shoulder the burden of keeping Ukraine afloat and can only offer uncertain upside, it is very likely that Trump will side with Russia and throw the europeans overboard.

The fallout will be brutal

The fallout could prove to be quite disastrous given their heavy investment in Ukraine. I believe that the markets will make a better judgment of this than I can: if the European and British bonds and currencies start heading south, it could confirm that the "special relationship," and the transatlantic alliance are over: quite a radical turn in history, which will almost certainly offer the opportunity for substantial windfalls for investors navigating on the right side of the resulting price events. Again, this calls to mind the Weimar fallout:

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Trading signals for Key Markets, 28 Feb. 2025

With yesterday’s closing prices we have the following signals: