Well-reasoned thesis on Putin's thinking

 ... here, in an essay from ISW.  Extract: 

Putin has likely not abandoned hopes of achieving his maximalist aims in Ukraine through conventional military means, which he is pursuing in parallel with efforts to break Ukraine’s will to fight and the West’s will to continue supporting Kyiv.  Putin is unlikely to escalate to the use of tactical nuclear weapons barring the sudden collapse of the Russian military permitting Ukrainian forces to make uncontrolled advances throughout the theater.  Such a situation is possible but unlikely.  Putin is extraordinarily unlikely to seek direct military conflict with NATO.  Putin is very likely to continue to hint at the possibility of Russian tactical nuclear use and attacks on NATO, however, as parts of his effort to break Western will to continue supporting Ukraine.  This forecast rests on two assessments. First, that Putin is setting conditions to continue throwing poorly prepared Russian troops directly into the fighting in Ukraine for the foreseeable future rather than pausing operations to reconstitute effective military forces. Second, that Putin’s theory of victory relies on using the harsh winter to break Europe’s will. These assessments offer a series of timelines that support the forecast ... over the course of several predictable time periods.

That, at last, offers a decent attempt at divining & articulating something that looks half like a coherent Putin strategy, & it's been a long time coming.  I say 'coherent', but there could be less dispassionate descriptions of a strategy that involves plugging gaps in the line with tens of thousands of human beings quite literally swept up off the streets, in pursuit of a failed war of aggression.  

PS, don't bother us again with "... but ISW are a bunch of neocons", thanks, trolls.   ISW are bloody good analysts.   

ND

Winter draws on ...

 ... and we are in better shape than might have been the case, all things being considered.  Don Cox noted BTL that the Rough gas storage facility has started up again** - a very curious, nay, fishy 'miracle', as we've noted before - albeit at 20% of its former capacity: but every little helps.  Several UK coal plants have been revived, to be on standby in case the gas runs out and the wind doesn't blow.  And the Germans have moved mountains to get floating LNG receiving import facilities online, again with the caveat that the volumes won't be as great as all that.  They nearly made their ambitious gas storage inventory targets before going into winter, too.  They, also, have been busily reviving coal, and indeed lignite plants for reserve duty.  And they've done what I and others thought was probably not possible, in squeezing a few extra months out of the nukes that were set for closure.  This wasn't possible with Hinkley Point B in this country, despite government pleading and financial blandishments: HPB was closing (and has indeed closed, as of August) due to age and infirmity, whereas the German nukes were closing by political fiat.  That doesn't mean Scholtz will get any more months out of them next year, because the supporting infrastructure has been shutting down, too.

Several other EU nations, notably the Spanish, have been preparing very well, too.

On the supply-side downside, the French are again falling hugely short.  Their nuke fleet was staggering back to its feet for winter in a partial way, after extensive safety-related closures, only to be hit by a wave of strikes.  Well, there you go, Macron: it's a continuation of massive imports and the highest (wholesale) electricity prices in Europe for you, then. 

This is also proving very costly for Germany, too - but I always said nobody should bet against their ability to put their shoulders to the wheel.  You have to laugh when Macron throws a strop when it's announced by Germany that they are budgeting EUR 200 bn for their energy measures.  Merde! That will distort the European energy market!  Well what did he think:  the richest nation in Europe would volunteer to freeze, out of fellow-feeling for the Frogs?

Talking of distorting the market, France is also desperately trying to get the EC to introduce a "cap on wholesale gas prices" - whatever that might conceivably mean in a truly global gas market.  I won't bore everyone with my endless refrain that most European politicians don't understand how markets work.  I used to finger the Germans most specifically for this, but it now looks as though most of the top players in Scholz's government have taken some rapid lessons on this topic since February, and know the score a little better.  Tough titty, Macron - but you had it coming.

I only hope the new government here looks him squarely in the eye and tells him he can forget any hopes for Sizewell C he might have nurtured on behalf of the French équipe nucléaire; not on the terms he had in mind, anyhow.  We've had enough of PMs bowing the knee to EDF in these matters.

Hold tight for the coming winter.

ND

______________

** Anon asked:  anything to do with the cost of gas futures at the mo? And the implications for Russia / Middle East LPG. 

The forward market is in very strong contango at the moment (having been for months in backwardation, which some theorists say is impossible for a commodity like gas).  This betokens market sentiment that for right now (i.e. until really cold weather strikes) Europe is looking OK for gas supply - a function of all those efforts noted above - and that winter 2023-24 now looks to be the big problem, despite some some idiot political pundits saying the coming winter will be the last we need to worry about.  Fully-laden LNG tankers are stacked up off the Atlantic coasts of UK / France / Spain, effectively acting as floating storage.  So yes, Anon, Rough (and UK plc) is in a position to benefit from this current situation.  Rough, as you prob know, is 'seasonal' storage, i.e. designed only really for a single annual cycle of injection and withdrawal; and although there's plenty of volatility across the whole forward curve (which benefits such facilities) it pales into insignificance compared to the vol in the spot and short-dated markets, which benefits facilities with much shorter cycles (e.g. 1 or 2 months).  I hope (but rather doubt) that HMG allowed Centrica to get on with their 'Rough miracle' without public money; because Centrica has played a pretty shifty game on this. 

Whilst on the subject of storage economics: as you'd expect, owners of grid-scale batteries, limited though they are in capability, have been making a fortune for more than a year now: ditto owners of gas-fired peaking plants.  Vol is the main play in town, now that simply going long isn't a one-way bet any more.  For example, the current gas market contango will reverse in a matter of days if a Beast from the East hits (energy beast, that is - not Putin again).

Incidentally, the personal burnout in energy traders has to be seen to be believed.  Initially they were just making fortunes; but now liquidity and credit issues are bearing down on them, and they can drop $10m on a cargo of LNG as easily as make it, in the touch of a button.  Hairy times. 

Ready for Rishi?

So, being honest, I wanted him to win the first time around. Truss was clearly not a serious politician but the speed on unraveling was amazing. Makes you think how long Corbyn would have lasted really - the markets would have reacted even worse to that policy mess in 2017.

Having said this, the whole hair shirt, difficult decisions shtick is going to wear very quickly coming from a billionaire with a non-dom wife.

Labour have been preparing here, the first response to the Hunt budget was to say we should abandon the non-dom rules. A picking £3 billion a year - barley a day’s NHS now. Yet they know why this is the crucial attack line.

So it will be a much tougher ride for Rishi than the Tories imagine. Also with the whole idea of growth junked along with tax cuts, so now we will have a completion with Labour about what to spend and how much to rinse us all by. 

What a joy to look forward to! 

The end of Liberalism

Today is a poignant day. A Tory Chancellor shredding their own electoral prospects for a generation. Bowing to the markets due to the inept delivery of Kwarteng and Truss.

With this this, the concept of low taxes and a smaller state is dead. Really dead. As dead as the Truss career.

Now we will only have arguments over how much extra to spend on the NHS, how much to raise benefits by and so on.

The real failure of Truss is to destroy liberal economics for a generation. Thanks!

A Procedural Suggestion

 Two questions to start with:

1. Are the 1922 Committee's rules essentially plastic? - as seems to be the case
2. Is there anyone in the parliamentary Conservative Party who could form a government right now? (OK, you might say: someone already has.  Alright - anyone else?)

I take it that Tory MPs genuinely fear for their futures, and even (most of) the anarcho-Speccie tendency might rather not go down with the ship.  If the answer on 1. is basically 'yes', then it all comes down to 2: who else?

If there is such a person, there's a solution.  Make Truss accept that her role as 'elected leader of the Party' is essentially a glorified Party Chairman position.  She may continue to open garden parties and speak to an empty hall at Conference.  Then, have the parliamentary party lock themselves into a room, anoint whomever it is, and get word to the King that he should invite this person to form a government, having the support of an absolute majority in the House.  Oh dear, oh dear - back again, Ms Truss?  What's that you say?  Oh, very well.  

PS: if the answer to 2 is 'nope', then there's no hope.  Starmer it is.

ND

Political Meltdown

As a political package, Marxism is of course rubbish: but Marx does offer one or two insights that are useful in the abstract.  One of these is the idea that in certain circumstances (we needn't press Marx too hard on what he thought those were) people intuitively grasp that any political change whatsoever would be better than the way things are.

I'd say Liz 'Teenage Tantrum' Truss is entering that territory now.  

It's a tremendous irony that we Conservatives used to say of Corbyn: you can't be having a government like wot he'd have, because the markets would take it down within days.

They'd opened the books on 'next PM' even before KK got the boot.  Oh well, first things first: a new Chancellor.  The idea that Chris Philp should be on anyone's list [Guido] just shows we'd be wrong if we thought one of those Marx moments was already upon us.

ND 

Demand Destruction

 ... the no-nonsense name given to the situation where end-users of energy just stop using because the price is higher than they can justify paying.  There are shades of this phenomenon:  sometimes reduced demand for (e.g.) power or gas is actually fuel-switching; sometimes it's locational (switching production to another site).  It shouldn't include short-term temporal flexibility, though, which is more properly "demand-side response / management", and if based on intelligent price signals and value-sharing, is just optimisation.

True demand destruction is demand just gone, totally unsatisfied.  Like demand for haircuts: a haircut delayed is an absolute reduction in demand.

It's been happening at the industrial level ever since this energy crisis kicked off, i.e. in 1Q 2021 (sic) - ironic, since the initial cause was increased industrial demand arising from all nations' post-covid recovery efforts.  Across Europe, demand for natural gas has fallen noticeably (5-10%) this year, not all of which will have been switching.  But neither electricity demand, nor residential demand altogether, has really dropped off at all.  Winter is likely to change all that.

So: gas and electricity, generally thought of as highly inelastic in most sectors, may be about to be stretched quite considerably.  What will we find?  Some BTL commenters here have suggested it could prove unprecedentedly elastic.  That may be right: the price pressures are certainly unparalleled.  And BG / Octopus et al are coming up with incentive-based schemes (long overdue) that will hopefully contribute a bit of intelligent assistance to end-user decision-making.

While the market evolves its new dynamics, in the UK for some reason politicians want no part of it.  Truss won't hear the word 'rationing' mentioned, and Labour don't want to 'patronise' people by telling them to think about putting on the extra jumper.  Commendable laissez-faire?  

Well, Teenager Truss is certainly in the grip of some caricature drunken Speccie drinks-party doctrine: but I think it's rather that she doesn't want to be associated publicly with anything that smacks of failure or defeatism.  Absolutely pathetic: all that happens is that the National Grid, by default, imposes whatever rationing regime it sees fit.  And/or, a more considered form of rationing is indeed being hatched between Whitehall and the Grid, but nobody's to mention it in Her presence.  These are the ways of the Court in absolute monarchies with very weak rulers.  Even Thatcher made a proactive response to the AIDS crisis, and wanted to be told the facts (at least, until she went poll-tax potty after 1987).

And of course, end-users will form their own action plans, however blunt and sub-optimal they may be.  We can only wish them all well, when cold weather afflicts us in the coming 6 months.

ND

Putin's can-kicking: as far as the Crimea road

A couple of weeks ago, we noted that Putin's rather nuanced nuclear-tinged rhetoric at the time of his 'partial mobilisation' was a can-kicking exercise that would rebound on him just a short while down the road ("October, in fact"), when big new Ukrainian successes would put him under pressure to respond in some dramatic fashion.  The Russian pro-war camp believe they have heard the words "nuclear" and "not bluffing" in the same sentence, so they'd expect him to deliver. 

Later, we suggested that it's even worse for him than that, because having 'annexed' 4 new Ukrainian oblasts into the bosom of Mother Russia, essentially placing them in the same category as Crimea, what had heretofore been de facto a pass granted him by the rest of the world on the 2014 Crimean seizure, was in danger of being de facto revoked - by virtue of Crimea being now in just the same category as the other 4, i.e. under relentless counterattack from Ukraine, with no sign of Putin reacting to any of those attacks in a manner consistent with what the pro-war faction would consider 'appropriate'.

Blunder upon strategic blunder.  It's quite extraordinary that he still has any apologists outside of a Moscow TV studio whatsoever.

Since that post, incidentally, and in rather stark contrast, the Ukrainians have been conducting a multi-front campaign of striking operational excellence with superbly calibrated strategies, each one clearly devised for the specifics of the front in question (at least four can be clearly identified).   

And now.  With the Crimea bridge having been spectacularly attacked this morning ... what does he do next?  The foreseen moment of maximum danger is here.  FWIW (and I stand to have egg - or worse - on my face within hours), I still think the nuclear rhetoric was a bluff.  BUT we may be pretty sure there will be at very least a big retaliatory attack of a non-nuclear nature.  

Or - given the quite staggering ineptitude of Russia's ability to execute anything half-competently - an attempt at such.  Given the sheer difficulty this 'war machine' faces when essaying anything of a strictly military nature, I greatly fear this means it will be multiple attacks on soft Ukrainian targets.  We probably don't have long to be speculating.

ND

Not for turning? Don't make me laugh.

At the very start of the lunatic Truss regime, I gave credit for one small thing: the sacking of Tom Scholar which, be it a good or a bad idea (I have no view) was at least done unceremoniously on Day 1.  That's the Machiavelli way to go.

What followed - the soi-disant 'fiscal event' - was so close to terminal disaster (via an instantaneous meltdown amongst pension funds), I don't think we've properly registered it yet.  This was also done swiftly and without reference to anyone: but that's not even remotely justified by the Machiavelli principle, and proves we are dealing with maniacs, willing to hazard the edifice of the UK pension system, and with it the economy, without a thought.

Fortunately - and this is where the door starts rapidly to turn on its hinge - the grown-ups stepped straight in and caught the witlessly, culpably dropped Ming vase before it hit the ground.

Let's step back a bit.  Why did the Tory faithful vote for Truss?  Because in those mad eyes, sub-Thatcherite apparent-certainty, and Johnsonian willingness to be jokily undiplomatic towards Macron and Sturgeon, they thought they'd found their girl - and that if someone was willing to mouth demented policies in public ("I will reform the ECHR"), it must be OK to want them and have them.  All that's needed is balls - and at last, we've got someone with balls!

Well, no.  Batshit is batshit, and cuts no ice in the real world.

Here's where it gets interesting.  The adults are quietly closing in on her from all directions, steering her gently but firmly by the elbow - and she's not wriggling and struggling and crying "shan't!".  First, the Bank.  Then Biden.  Then Macron.  Then someone in the Party who could see the damaging optics of the 45% thing.  Then whoever it is that calls the shots in the North Seas Energy Cooperation partnership.  Then the National Grid.  They've all evidently got her measure and, unlike with May - who likewise got frequently taken aside and told to change her ways - somehow it all sinks in real quick, and she goes along straight away, without obviously having been thoroughly humiliated.  A preliminary assessment, for sure: but I think we're talking hyperactive bright teenage attention-seeker, keen to make a noise but also keen for grown-up approbation.  I just want to be Head Girl, that's all.  Of course dear, just so long as you don't do anything silly.  (Anyway, there isn't anyone else who wants it as badly as you do.)

There's more of this to come - for certain - in the next few weeks along, so many potentially lethal holes did she dig in such a short space of time.  When she's finally run out of personal steam, and the Tory anarchist-ultras have started to lose heart (and lose access: the door-keepers will ensure that), I wonder who ends up being the puppet-master at No.10?  Every PM needs a Willy ...

ND

Thucydides: Thought for the Day (Tory Conference)

"Love of power, operating through greed and through personal ambition, was the cause of all these evils"

(Corcyran Civil War, in Peloponnesian War, 3:82)

So: busking it on economic policy isn't smart after all?

That's it, really.

And these people draw salaries, as my mother-in-law used to say.

ND

________

Afterthought:  you don't suppose the hedgies at that notorious 'champagne reception' told him he'd been courageous, do you?

If I was Starmer, I'd be thinking my biggest risk was catching something unpleasant over the next few months.

What a Tory story in Birmingham we will see next week

I submit, the only effective way to save the Country and the Tory party is for King Charles to have both Truss and Kwarteng sent to the Tower and executed. It would be a very popular move. We can reset again.

One thing I do sense is that the Tory MP’s won’t want to let the members choose a leader again anytime soon. Not that they are going to get near power until 2040 at least anyway. 

Putin's Pen: Friday Caption Compo

Here's L'il Volodya signing Something Important (the annexation document?); and note, by way of weighty and none-too-subtle symbolism - classic Russia - in the display case is a model of the sunken cruiser Moskva.  So this is obviously revenge, writ large.

Compo:   your speech bubbles for some of this motely crew.  I'll start you off.

No.13 - Couldn't we have found some carpet instead of this manky kitchen flooring?

No.15 - Shut your face and get your T-shirt in the wash!

ND

Lightening the tone: that WW2 pirate's ship returns!

This was to have been your weekend treat, but in light of the global gloom and local BTL burblings, here's a diversion for an autumn Thursday while we wait for CU to bring us more proper economic input ...

Remember this story of aerial derring-do, espionage, and not a little smoke & mirrors?

I promised you'd hear it here first, if and when the legendary Lockheed G-AFTL returned to these shores.  Well, it has.  Registered to Fighter Aviation Engineering Ltd, one Graham Peacock, it is undergoing very careful (and somewhat secretive) restoration at Sywell Aerodrome, Northants.  Aerodrome - love that word.

At the same time as the restoration, some equally careful aviation detection work is going on, in the long-running attempt to get to the bottom of some of Cotton's pretty implausible claims and the myths that have grown up around them (which he would have loved).  The old airframe has many secrets to reveal.  Serious progress is being made and a tru-er story may be told some day soon.  I have photos from the inside but I'm not permitted to share them yet - sorry!

Read that story again and enjoy!

ND

Those Nord Stream leaks; "mobilisation"; nuclear threats etc UPDATE

Oh wow.   Both Nord Stream pipelines have apparently leaked their guts out in the last day or so.  Ol' Joe Biden always said he'd be making sure NS 2 never went into operation.  To be honest, I never really believed he'd resort to the Semtex Option, but who knows ...

Scope for a tremendous range of imaginative conspiracy theories here.  Cui bono?  Well probably not German industry.  Make of that what you will - and I'm sure some of you will.

Quiz:  who blew up NS1 and NS2?

• Ol' Joe Biden
• Li'l Volodya Putin
• The Poles
• The international commodities traders
• The Rand Corporation
• Defective Russian engineering
• That James Bond gadget
• George Soros
• "false flag"
• Greenpeace
• 'Buster Crabbe'
• German Green Party breakaway faction
• [.... your write-in answer here ....]

Incidentally, Putin's announcement of last week is really, errrr, stirring things up, isn't it?  Not sure that his "partial mobilisation, I stress, only partial" is entirely going to whatever plan he had in mind, unless you consider it was simply to give the Russian people to understand in a rather graphic way that they're all in it now, whether they thought of themselves as armchair spectators or not.  BTW, despite his and other Russian leaders' placatory TV language, the Executive Order he signed contained nothing that limits the mobilisation, and might almost amount to conscription - a very different concept indeed.

But putting guns into the hands of tens of thousands of morose, drunken and undisciplined Russians is something that ... well, let's just note it's something that Lenin went to great lengths to avoid, his first act on taking power being to dis-arm and disband the army and get them all out of Moscow. 

Finally, let's elaborate on the point I made last week, that his sinister (but technically nuanced) nuclear 'hint' leaves him awkwardly placed next month when he's annexed four new formerly-Ukrainian oblasts and they are all still under determined "NATO" attack.  OK, by the letter of his dictum, they'll be under conventional attack, so his nuclear threshold hasn't been crossed: but try telling that to the bellicose woman who fronts on Russian national TV.  She'll want retaliatory nukes - "this is not a bluff" - starting as soon as the next big town falls back into the hands of the Ukrainians.

And - and this is the Big One - if he really does annex the lot, it puts these new fully-under-seige territories in the same category as Crimea - or maybe the other way around.  Now he'd probably been enjoying a de facto pass from the world at large since 2014, on keeping Crimea in his poaching-pocket.  But maybe he's just jeopardised that: he's taking one helluva gamble as to how it falls.  

Or maybe he's just jeopardised the whole of Europe.  Did the man say Interesting Times?

ND

Truss channels Thatcher, gets timing wrong

Kwasi Kwarteng is an Eton scholar, went to Harvard and has a Phd in economic history from Cambridge. Surely, he is one of the most economically educated Chancellors we have ever had.

Liz Truss too is no slouch, having worked her way to Oxford from humble beginnings.

So here they are, as Mr Drew points out below, trying to do something about the UK economies performance in a big hurry. For a very long time now, the UK has been sinking back to its post-war status, with socialist policies driving down growth and leading to higher taxes in a cycle of despair. Not since the late 1990’s have pro-market policies been popular or implemented. Blair, Cameron and Boris all worshipped at the NHS cult and in massive state redistribution.

With the large tax cuts seen today, the current leaders are trying to change course. To redress the large tax burden to encourage investment. It is the right approach but the timing is so bad, that they have taken the biggest gamble since Cameron agreed to a Brexit referendum.

With the tax cuts, come no spending cuts. Indeed the energy support offered is enormous and comparable to the Covid state spending madness. Still the socialist grasp on the media and body politic insists that gross spending and help for all is the purpose of Government. This year, with interest rates rising, the pound falling and inflation out of control, we will borrow more than during covid and getting on for 2009/10 levels of borrowing.

The markets are shocked, not believing that the UK won’t  continue to follow the EU orthodoxy of managed decline. However, with massive spending there are no guarantees of success and possible horrendous downside risks. 

Next year super energy bills will finish many businesses. No one is paying £35 for a cod and chips.  The war in Ukraine is likely to escalate not end. Interest rate rises will cause huge problems in the housing market and start to damage bank balance sheets.

This will likely lead to a Schumpterian crisis, one where massive destruction is wrought on our zombie economy with the hope that out of the ashes a leaner, better focused and more profitable one arises. 

The fact that the rest of the West will get this too more or less is not much of a consolation for us. Perhaps the real gamble is that with everything buggered anyway we need to set things up for a recovery on a more pro-growth economic base?

A better approach would have been to sign-post these changes. Agree some cuts to budgets no longer affordable to go with them and so limit the real fiscal easing until next year when inflation should drop (it will when high energy prices are baked in, big drops will occur, even if only back down to 5-6%).

Thatcher had to endure first and my take is that this is the Truss plan. It is her 1981. Risk it now, go for growth and hope something turns up. It is a big gamble, we are left to hope it works. 

Failure will be a hard burden. Massive debt, a pound heavily devalued trying to buy expensive energy valued in strong dollars. Double digit interest rates that will induce a recession worse that 2008 in the real economy with huge unemployment and negative equity a common experience for many of us. Plus a Labour government keen to say it is all the fault of Tory tax cuts, trying to tax our way back to growth. 

That Mini-budget: NOT in Full

 ... for which, we await CU who will hopefully be along later.

Being a total non-economist, all I can say is this: whether good, bad or empty, it's being done in the right way - crash bang wallop, within days of taking office.  Exactly the same as Kwarteng's dismissal of Tom Scholar - I've no idea whether it was a good or crazy thing to do: but I am sure it was right to do it on Day 1.

Oh: and I very much hope it's all, hmmm,  extremely well-considered and adroit policy-making.

So - while we wait ... have at it!

ND

More on the Putin Nuclear Pronouncement

Big boss: lots of phones ...

The debate over how to take Putin's nuclear sabre-rattling goes on - and why not, it's quite important - and I'm gratified to note my 'optimistic', albeit literal, interpretation of his exact words (see yesterday's post) is gaining traction - see these BTL exchanges on a US website, for example.  With Putin, as it happens, attention to his precise words is important, as far as it goes.  Russia is like that.  (Can't say the same for Biden, can we?)

It's also interesting to look at the body language, the delivery and the props etc.  

Firstly, though he's still clearly very nervous indeed, Putin didn't look as ill as he did earlier in the year - though our own dear Queen died only two days after looking quite perky with Boris and Truss, so that doesn't betoken much.

Secondly, the way he emphasised, very earnestly and very quickly, that his new mobilisation is only 'partial', is a huge sign of weakness; as of course is "this is not a bluff" - akin to when you hear a parent shouting "stop that - and I mean it!" to a kid.

Thirdly, I laughed out loud when I saw his bank of phones, carefully in camera-shot to prove how important he is.  That's truly Russian, too.  You realise he'll have a full-size office-grade photocopier by his desk, too?  See this old story of mine from my Moscow days ...

All very scary.  We try, but we still don't really understand these people.

ND

Putin's Latest

OK, so this development - not unforeseen - is way above the pay grade of a mere blogger.  But we can still have opinions.

It was pretty obvious, when Ukraine swept the Russian rag-bag out of Kharkiv earlier this month, that Putin would respond.  Taking his cue from Uncle Joe in 1941, he went hull-down and took his time.  On 2nd Sept, as the counter-offensive began I wrote: 

Worst case? This happens, say, in October, after the Russians have conducted the spurious "referendum" they have long been trying to carry out - now looks like a colossal mistake by Putin not to have done this already - and which presumably records 104.6% of the population of Kherson declaring itself to be now a province of Mother Russia. Then Putin can declare that Russia herself is in mortal peril, and ...

And so it transpires.

It was indeed a colossal, complacent mistake, one of his multiple errors.  Painted-into-the-corner Putin now has a massive problem, in painfully easy stages:

The rushed referenda will indeed deliver the 104.6% votes [1]

Putin's mobilisation will not quickly boost effective forces on the ground [2]

Ukraine will continue making territorial ground: for them, nothing changes [3]

The world will not recognize the newly-annexed 'Russian territories'

So if he's "not bluffing" [© V. V. Putin 2022], he'll potentially be faced with the need [4] to go nuclear in, oooh, a couple of weeks time.   October, in fact.

Just a guess, but I think we'll find he is indeed bluffing.  Hope so, anyway.

ND

_________

[1]  But probably also some surprises, since this development has been so obvious for so long, and there are clearly some canny and creative strategists in Kyiv, just as there seem to be none in Moscow

[2]  Though in the long run, as we've always said, who's to stop him?

[3]  Quite the reverse: in the ad hoc graveyards of Izyum they are being reminded in spades - literally, I'm afraid - of why they are fighting

[4]  He did pick his words quite carefully; and later, he'll say he was only "not bluffing" if NATO had threatened to nuke Kherson.  Which of course it hasn't and never will.  But for the domestic nationalist audience he's managed to look really tough.  For now.  And that's his problem: they aren't thinking about the hair-splitting weasel in his words ...

PS: the sum of all this might well mean some really quite impressive new Ukrainian re-gains in the next couple of weeks.  Overstretch is a big risk: but they've a massive strategic incentive to achieve more, & quickly.

Truss' energy package: unintended consequences ahoy!

It's a bit difficult to be definitive on the new PM's 'energy price guarantee' package, because "details are awaited".   The Funeral is the pretext, but actually of course they're making it up as they go along.

So: politics first.  She has to do something extraordinary, or she'll be defenestrated by poll-tax style riots before Xmas.  As has always been the case, announcements like this shut Starmer up immediately - he never knows what to say.  All the commentary has essentially been technical, save for a little peep of "it's not progressive - the wicked rich benefit too": true, but since all eyes are on the Bier, that's not getting any traction.  

We might also note that Truss obviously considers it politically unacceptable to announce any form of rationing.  it's gonna happen anyway (and we know the Grid already has the power to do it unilaterally), so I think this mealy-mouthed cowardice is stupid.   The time to ready the populace for what's to befall is right now, as Macron is doing quite purposefully.

As regards the economics, not that I'm your man here and we look to CU for more; but quite obviously, in the short term the package does almost nothing to increase supply, and not much that I can see to curtail demand (no mention of rationing or compulsory reductions in usage).  So the fundamental issue - i.e. this is a genuine (if artificial, as regards Putin's actions) global supply crisis - is being glossed over:  it's been decided the state will underwrite whatever the energy is going to cost.  So the first big takeaway is: cost-push inflation will go roaring on.

What about spontaneous demand-side response?  Industry will certainly retreat in the face of even the newly capped level of price it's paying: some of this might be in the shape of a bit of efficiency, but mostly it will be outright demand destruction (or 'demand export' - to N.America, which won't be suffering so badly).  Likewise, even at the capped level, which is 'merely' twice last year's rather than three times, residential energy consumers will definitely use less.  I don't think anyone knows by how much domestic demand will fall - some of it has historically been totally inelastic, but we may find that changes.  Again, some of this will be efficiency (and putting on a jumper) but for sure, problems of illness and damp will arise over time.  The housing stock won't benefit at all, and nor will sickly people.   

All that said, my best guess is that rationing will still be required, certainly if anything like the Beast from the East (meteorological beast, that is) comes along, or even its small brother.  This is an outright, absolute energy commodity shortfall, with Europe being as badly affected as any region.

I'm disinclined to bang on about too many of the details just now, because we await so many more.  Likewise, the longer-term aspects (North Sea licensing, fracking, nukes) designed to improve supply are for another day, in every sense**.  I will say, however, that there is to be a 'commercial' strand of activity undertaken, as Truss favours buying out the generating sector windfalls with secure long term offtake contracts (on a voluntary, negotiated basis!) instead of windfall-taxing them.  This is really stupid, in my judgement.  Any ideological resistance to windfall-taxing has long since lost its virginity; and the idea that the civil service is up to this 'commercial' task flies in the face of all experience.

Jury is out: but on this and indeed the whole complex package, I'm not even slightly confident a Truss / Kwarteng government is up to the task either.  It's just so big.  As is the parallel EU effort, by the way (and over there, it's very fraught politically, too: and their grasp of how markets work is really awful).  In both cases, there will turn out to be equally big gaps; and overall, the unintended consequences will be legion.

ND  

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** ditto the global aspects of the crisis, of which there are many