Yuuge: US and Russia on talking terms again!

Key Market report for Monday, 10 February 2025

Over the weekend, Donald Trump said that he recently spoke with his Russian counterpart Vladimir Putin. In an exclusive interview with the New York Post, Trump suggested that he had a plan to end the war in Ukraine and that his relationship with Putin was very good. Two very significant details about this news stand out: that the two leaders spoke and that Trump seemed very upbeat about it.

A new page in global geopolitics.

Since the breakdown of talks between the US and Russia in early 2022, there have been no diplomatic contacts between the Kremlin and the Biden administration. As one diplomat pointed out, the only reason you'd entirely shut down diplomatic contacts with an adversary is if your intention was to destroy them. In this sense, the fact that Trump reached out to Mr. Putin marks a sharp departure from the Biden administration's reckless policy towards Russia.

Let’s make money together!

On Friday, 7 February, President Trump suggested that he would probably meet with Volodymyr Zelensky this week to discuss the war. The same day, Zelensky floated the idea of supplying the US with Ukrainian rare earth minerals in return for continued US support for war: "If we're talking about a deal, then let's do a deal, we are only for it. Let's develop this together, make money, and [of course, of course], most importantly it's about the security of the Western world."

On the occasion, Zelensky was kind enough to offer Mr. Trump a free lesson in diplomacy, warning Trump that he must meet with him before meeting with Putin. Else, it would be bad optics: his meeting with Putin would "look like a dialogue about Ukraine without Ukraine." Hopefully, speaking with Mr. Putin by telephone won't earn Mr. Trump a bad grade from Sensei Zelensky.

You skipped elections, Mr. Zelensky!

However, Zelensky's idea of bribing Trump with Ukraine's rare earth minerals might not have the effect he's hoping for. There's a good chance that Trump will deliver a cold shower by demanding that Zelensky hold elections before any deal, including "make money" together can be discussed. Zelensky's mandate expired on 20th May last year, so his position as the president of Ukraine is invalid.

Shit!

Any agreement concluded with or signed by Zelensky could be legally null and void under Ukraine's constitution. Ukraine was supposed to hold presidential elections on 31 March 2024 but Zelensky cancelled them because he would have lost war, Russian aggression, etc. However, Article 5 of the Constitution of Ukraine expressly prohibits the president's clinging to power past his 5-year mandate regardless of the circumstances.

In May 2014, the Constitutional Court of Ukraine ruled that, "The president is elected for a term of five years, no matter whether the election is regular or early." Further, the court held that, "the president's constitutional status implies no norms setting any other office term than that of five years." In other words, Russian aggression or no Russian aggression, the president's mandate can't be extended even one minute longer than five years and the Constitution does not provide for the possibility of canceling or postponing the elections.

Zelensky might be qualified to lecture about diplomacy, but he no longer has the legitimacy to negotiate or sign any agreements on behalf of Ukraine. Thus, rather than discussing rare earths and make money together, Trump might oblige Zelensky to hold elections. That's a guess, but I believe this is likely.

End of sanctions?

Trump also didn't share any details about his peace plan with the New York Post, but according to some Kremlin insiders and based on hearsay, it seems that Trump will ask Vladimir Putin to freeze the conflict. Trump's offer might include the lifting of all sanctions against Russia, unfreezing of its assets held with Western banks, resumption of oil and gas exports to the EU and the repairing of Nord Stream pipelines (last week Denmark allowed Gazprom access to the pipelines in its territorial waters for the first time since they were blown up in September 2022). Trump is apparently prepared to encourage the Russians to take the carrot with a stick: should Russia decline his offer, he might unleash an all-out economic war against Russia in addition to continuing to support Ukraine.

What Russia wants

Again, these outlines reflect the chatter among certain (unnamed) individuals at the Kremlin, who also suggested that Russia would almost certainly reject such a deal. Mr Putin has made it clear repeatedly that merely freezing the conflict is not acceptable to Russia. What the Russians will insist on will include a demilitarized and denazified Ukraine, complete withdrawal of the Armed Forces of Ukraine from Donetsk, Lugansk, Kherson and Zaporozhie, Ukraine's recognition of these four regions as sovereign territory of the Russian Federation and a new security architecture in Europe based on the principle of indivisibility of security (which basically means that one side can't enhance its security by diminishing the other side's security).

It’s Christmas anyway…

Over the coming weeks and months, the talks between the US and Russia should help define the road forward. Whatever Trump's plan actually is, it's safe to assume that it's better than Zelensky's "victory plan," and whatever can be achieved through talks will be better than what has been achieved through nearly three years of bloodshed and destruction.

If Trump is even partly successful with his peace initiative, there will be much weeping and gnashing of teeth in places like London, Paris, Brussels and Warsaw, but they'll have little choice but to fall in line. Trump's efforts will also show just how pathogenic and destructive the four years of the Biden administration have been. The very fact that the two nuclear powers are on talking terms again is Christmas in geopolitical terms: a pivotal development and a real cause for optimism and hope that a nuclear war could be averted, and that's yuuge!

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Trading signals for Key Markets, 10 Feb. 2025

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