What’s the News?

As I was preparing the next episodes on crude oil and what lies ahead, President Trump, as so often, interrupted the process with a rapid stream of high-intensity posts on the negotiations with Iran.

According to the latest headlines, the Strait is “fully open”, mines are being removed, and Iran has agreed never to close it again. Markets reacted immediately. Oil and product prices dropped sharply on the announcement.

And yet, scratch the surface and the picture becomes far less clear. The reopening is conditional, traffic is still routed and controlled, and a U.S. naval blockade on Iran remains in place.

In other words, we are not looking at clarity. We are looking at the fog of peace.

Let’s break it down

First, the reopening of the Strait of Hormuz is part of a two-week ceasefire agreed on 8 April 2026. It is contingent on the cessation of hostilities in Lebanon and subject to “technical limitations”, which in practice means a controlled and limited flow of vessels, as outlined in Episode 1. Link to agreement.

Second, even under generous assumptions, the exit rate remains constrained. If we assume up to 10 vessels per day, it would take roughly three months to clear the backlog of some 800–900 vessels of all sizes currently trapped in the Persian Gulf, ranging from crude tankers to LNG, LPG, product carriers, dry bulk and containers.

So far, I cannot observe a meaningful increase in transit activity that would challenge this assumption. The high-frequency data from Kpler, which captures vessel movements across all ship types, supports that view as of the time of writing.

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Crude Quality Matters

There is no such thing as “oil”.

Instead, the world produces hundreds of different crude grades, almost as many as there are oil fields, although some fields yield very similar qualities.

The chart above illustrates this. Think of it as a periodic table of crude. The one below is interactive and works well on a desktop (not so much on a mobile phone), so take a moment to hover over or tap the individual bubbles. Each represents a crude grade, positioned by API gravity on the x-axis and sulphur content on the y-axis. The size of the bubble reflects production volume.

What matters is not just how much oil exists, but what kind of oil it is.

The chart shows 152 crude grades. In reality, there are closer to 700 grades produced across roughly 6,400 extraction areas and more than 2 million active wells. These 152 alone account for roughly 56mbpd of the 85mbpd produced globally each day and are sufficient to make the point.

To begin, focus on the Medium-Sour quadrant, highlighted in orange. You will quickly notice that most of these barrels originate from the Middle East. This is not a coincidence. It is the backbone of the global refining system.

Take Arab Light as an example. It sits squarely in that cluster, with around 1.96% sulphur and an API gravity of 33.3. Production is roughly 4.6mbpd. It is one of the most important barrels in the world.

P.S. Please use the interactive chart on a desktop. It does not scale well on mobile.

So what does this mean? Roughly 75–85% of Middle Eastern crude exports are shipped to Asia in any given year, as shown in the table below. Refinery systems across Asia have been optimised over decades to run on that specific crude diet.

Refineries are not flexible machines. They can be adjusted at the margin, but they cannot be reconfigured quickly to process entirely different crude qualities while maintaining the same product yields.

And this is the key point the chart above illustrates in simple terms. The missing barrels are not just volumes. They are specific grades, predominantly medium-sour crude, produced at scale in the Middle East.

Those barrels cannot be replaced in the quantities required. Not by the United States, not by Latin America, not by anyone.

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Guidance & Thoughts Upfront

Over the coming episodes, I will try to explain, to the best of my ability, different aspects of this Hormuz crisis, share a significant amount of data, most of it hard to obtain and rather expensive, and assess the implications for the global economy. The aim is to stay grounded in probabilities and avoid bias, as markets do not care about our narratives.

As this will take time and there is a lot to cover, each episode will include updated oil balances, as introduced in the Executive Summary. This should allow you to observe the dynamics in real time and act accordingly.

I begin with the Strait of Hormuz itself. For global oil and gas balances, normalising transits through the Strait has no alternative. Without it, a recession arrives in 2026, not 2027. That is unavoidable, as outlined in the Executive Summary. Avoid commentators who describe the situation as “manageable” or “replaceable”.

It is not, at least not in the medium term. U.S. exports cannot solve the problem. They may increase slightly, for instance as SPR barrels are sold due to domestic crude quality mismatches. But fundamentally, U.S. exports do not create new supply. They merely redistribute existing barrels.

Likewise, U.S. shale, often described as a fast-cycle response to price, will remain marginal. The constraint is not time, but geology. The remaining Tier 1 inventory is limited, and the industry no longer has the locations to scale meaningfully where it matters. Think 1-2mbpd. That is highly unlikely. But at least higher prices will further delay the decay of U.S. output. At least I suspect so.

Nor can domestic re-routing solve the problem in the Middle East itself. Beyond the East-West pipeline in Saudi Arabia and limited flows via Fujairah in the UAE, alternatives are constrained, vulnerable and take years to be in place. That is not a near-term response.

And yet, unless the Strait is reopened quickly, closing it will prove a long-term strategic mistake for the regime, should it survive. Why? Because shutting it for more than a few weeks inevitably triggers behavioural change. The pain inflicted by this economic weapon of mass destruction is simply too severe.

That, in turn, accelerates long-term workarounds that marginalise Iran’s influence. New pipeline infrastructure will be developed, and upstream investment will be redirected, at scale.

The 1970s oil crisis offers a clear precedent. It triggered the development of the North Sea basin in the U.K. and Norway, where major discoveries in 1969–1970 led to production ramping from the mid-1970s onwards, ultimately adding millions of barrels per day to global supply.

Venezuela could become part of that adjustment. In 2026, it exports roughly 0.9–1.1mbpd, far below historical levels, and meaningful expansion requires years of investment and infrastructure repair. The world needs to replace up to 14mbpd. This is not the solution, but it is a start.

Venezuela’s relevance lies in crude quality. Its reserves are dominated by heavy and extra-heavy sour crude from the Orinoco Belt, the type of barrel currently missing from the Middle East, although extracting and upgrading it remains capital-intensive and time-consuming .

This Venezuela does not possess “spare capacity” in the IEA sense (higher production in 30 days for 90 days), but it is one of the few scalable sources of the right barrel with potential well above the 2mbpd it exported in 2014. Think 5mbpd and beyond.

And yes, of course, the local situation requires years of investment, some with quick yields, others much longer, depending on the field and infrastructure. None of this happens without rule of law. Without it, capital will not return. I discussed this in detail a few weeks ago. So this too requires this administration to finish the job.

Anyway, in the coming episodes, I will cover a range of topics, from crude quality and barrel counting to unintended consequences for Russian exports, the role of LPG in India, the importance of sulphuric acid and other chemicals, and the impact on LNG and even gold. It will be quite a journey.

Today, we begin with what I call the Persian Trap.

Negotiation Failed, Now What?

Almost a full day of negotiations ended with a terse press conference and no deal. Talks between the United States and Iran began on Saturday afternoon and continued through the night, almost 21 hours in total.

The sun had risen in Islamabad by the time Vice President J.D. Vance emerged to brief reporters: “We have not reached an agreement. We’ve made very clear what our red lines are and they have chosen not to accept our terms.” The press conference lasted less than three minutes.

If the Administration believed that, after 21 hours of negotiations, this regime would give up uranium enrichment, as Vance implied, it misread both the moment and the Iranian power structure, in particular the IRGC.

On a lighter note, they did not spend much time studying the past 80 years of conflict and the rather poor track record of reaching lasting agreements, let alone durable peace.

Below is an extract on the Korean War and how it ended, which I published on this Substack. Not many read it. Nor my other pieces on war and peace. Perhaps now is as good a time as any to prepare mentally for what lies ahead?

The Death of Peace Treaties and Why Wars Often End Without Justice

The armistice signed on July 27, 1953, between the United Nations Command and North Korea reaffirmed the 38th parallel as the border between North and South Korea and created the four-kilometer-wide “Demilitarized Zone” (DMZ). The Military Demarcation Line bisects the “Bridge of No Return,” used for prisoner exchanges until 1968, when the crew of the USS Pueblo crossed it into South Korea.

The Korean War lasted just over three years, from June 1950 to July 1953. While fought on a divided peninsula, it was in fact the first hot war of the Cold War—a violent proxy confrontation between the democratic-capitalist West, led by the U.S., and the communist East, led by the Soviet Union. South Korea was supported militarily by U.S. and UN forces; North Korea by China, which sent hundreds of thousands of troops, and by the USSR, which supplied matériel, strategy, and legitimacy.

Because the war was a proxy clash between two worldviews, there was never a foundation for trust, let alone a peace process. Yet negotiations began relatively early, just over a year into the conflict. Formal talks opened in Kaesong in July 1951 and later moved to Panmunjom. Despite stalemate on the battlefield, they dragged on for more than two years, paralysed by disputes over prisoners of war and the demarcation line.

It took more than 700 meetings and nearly two years to negotiate the agreement—almost as long as the war itself. The signing of the armistice took just 12 minutes, conducted in silence at two separate tables so the delegations did not face one another.

The armistice contained operational provisions, notably prisoner exchanges: Operation Little Switch and Operation Big Switch staged the return of sick, wounded, and eventually all remaining POWs. But beyond this, the agreement was strikingly shallow. After 700 days of talks, the sides had failed to address any core political questions: no peace treaty, no normalisation, no territorial settlement.

Many North Korean and Chinese prisoners refused repatriation, fearing persecution or worse at home. Their resistance became a major stumbling block and symbolised the deeper ideological divide. We see similar dynamics today in Ukraine, where defections and shifting loyalties complicate any prospect of peace.

The Korean settlement was a minimalist framework—closer to a UN resolution than a true bilateral accord. It reflected the smallest possible denominator: not a shared vision, but mutual exhaustion. Violence stopped, but the war never truly ended. To this day, there has been no Korean equivalent of the Tokyo Trials—no reckoning, no justice, no closure for victims. Remember this when you hear calls for a “just peace” in Ukraine.

Since 1953, the armistice has been violated more than 100,000 times. Even during global détente—such as the 1975 Helsinki Conference—tensions on the peninsula deepened. The frozen conflict became a “continuous nightmare”: artillery duels, assassinations, espionage, hijackings, and later, nuclear and missile tests. What was achieved in 1953 was not peace, but stalemate.

And that is why the Korean Armistice matters today: it offers a cautionary lesson to avoid false expectations as the world debates a “just peace” in Ukraine.

From the Iranian side, officials indicated that progress had been made on several points. Two or three outstanding issues, including the handling of the Strait of Hormuz, prevented a breakthrough, according to Foreign Ministry spokesperson Esmail Baqaei. After 40 days of war, mistrust remains deeply entrenched. “Naturally, no one could expect us to reach an agreement after a single meeting. We will continue working to bring Iranian and American positions closer together.”

Baqaei added that the talks took place amid “mistrust and suspicion”, while state media blamed American “excessive demands” for the lack of progress. Both delegations have now returned home without setting a date for further negotiations.

The talks ended in Islamabad on Sunday morning. The path forward remains unclear. Pakistan’s Foreign Minister, Ishaq Dar, urged both sides to adhere to the ceasefire. Iranian officials signalled no urgency to resume discussions. Until the United States presents what Tehran considers a “reasonable agreement”, there will be no change regarding the Strait of Hormuz.

A breakthrough was always unlikely

Reaching an agreement on such a complex and multi-layered dossier over a single weekend was never realistic. The more relevant question was whether a framework for continued negotiations could be established. That would have required both sides to recognise the altered realities after six weeks of war and move away from maximalist positions.

For Iran, this centres on uranium enrichment, a red line for Trump. During the last round of talks in Geneva, Iran was reportedly prepared to make meaningful concessions. Its enrichment facilities in Fordo, Natanz and Isfahan are believed to have suffered significant damage, although it remains unclear how quickly operations could be restored.

The last nuclear agreement between the United States and Iran took two years to negotiate. The more likely outcome now is an interim arrangement that addresses part of the dispute and buys time. Iran would need to relinquish control over the Strait of Hormuz and potentially limit its near-weapons-grade uranium. The United States would need to offer economic relief, for instance by unfreezing Iranian oil revenues held abroad under sanctions.

The dilemma is as much about sequencing as substance. Iran views uranium as leverage, to be traded for a comprehensive agreement, not a temporary one. The United States prefers to resolve the issue early, rather than allow it to remain in Iranian hands during a prolonged negotiation.

Each side expects the other to concede. The Iranians believe they hold the upper hand, having endured six weeks of bombing by far stronger opponents while inflicting significant damage on the global economy. Time, in their view, is an ally. To them, Trump appears increasingly eager to end the war before elevated energy prices weigh on the Republican Party ahead of the midterm elections.

The United States sees it differently. While the war has fallen short of several objectives, it has weakened Iran’s leadership, its armed forces and its economy. A further escalation would likely be more painful, particularly if the United States and Israel intensify attacks on infrastructure and economic targets.

My own view is that the U.S. focus on the nuclear file risks granting Iran excessive leverage. Based on my research, the regime lacks both the financial and industrial capacity, as well as the political time, to rebuild its nuclear programme meaningfully before internal pressures mount. This raises the question whether the nuclear issue is primarily a negotiating tactic: insist on it now, only to accept a more ambiguous compromise later in exchange for reopening the Strait.

Meanwhile, Iran expert Robert Malley highlighted what we outlined in the Executive Summary: time favours Iran, at least in its own perception. The closure of the Strait generates increasing marginal returns for Tehran, while additional strikes deliver diminishing marginal returns for the United States.

The Persian Trap

Another sticking point is the Strait of Hormuz, and what I call the Persian Trap, the Persian Gulf is easy to enter, but not necessarily to leave.

Iran has pledged to keep the waterway open during the ceasefire. In practice, only a handful of ships have been able to transit the Strait. According to U.S. officials, one reason is that Iran itself may no longer be able to locate all the mines it has deployed.

Iranian officials have indirectly acknowledged these constraints. Foreign Minister Abbas Araqchi noted that any reopening would take place “taking into account technical constraints”. That may reflect genuine operational limits, or simply a mechanism to control flows and extract rents.

Following the U.S. and Israeli strikes on 28 February, Iran asserted de facto control over the Strait. As part of the ceasefire, it signalled to mediators that crossings would be limited to roughly a dozen vessels per day, subject to tolls. President Trump, by contrast, has insisted on a full reopening.

In reality, shipowners from Greece, China, India and Pakistan are now negotiating individual crossings with the Islamic Revolutionary Guard Corps. Toll payments reportedly reach up to US$2m for VLCCs. Iranian vessels are exempt.

What we can observe is the routing. Approved vessels are directed north of the standard shipping lane, navigating a narrow corridor between Qeshm and Larak, hugging the Iranian coastline before exiting into the Gulf of Oman.

Pre-war, roughly 130 vessels transited the Strait daily. Since the conflict, flows have collapsed. Between 13 March and 9 April, only 122 crossings were recorded in total, across all cargo types. In other words, one month of traffic now equals a single pre-war day.

The majority of these movements are bulk carriers and tankers carrying petroleum products, primarily linked to Iranian exports into markets such as China and India.

Technically, the northern route is viable, but only just. The Strait’s depth ranges from 30–90 metres, while the northern corridor offers roughly 25–30 metres. That is sufficient for some fully laden VLCCs with drafts approaching 20–30 metres, but it leaves little margin for error. The route works, but it does not scale.

And scaling is the issue. The northern route cannot replicate the throughput of the standard channel. Even under a ceasefire, expect a structural bottleneck across all vessel classes. Crude tankers will not receive priority.

From a purely technical standpoint, I would expect 5–10 vessels per day to exit the Strait during a ceasefire, assuming it holds. The constraint is not only physical, but operational. For vessel operators, this is an execution nightmare.

The backlog already sits at 800–900 vessels. At 10 per day, clearing it would take 80–90 days, assuming no further disruptions. That is a heroic assumption. Entries are effectively zero, excluding Iran’s dark fleet. Without inbound flow, the system cannot normalise.

The core point is simple: until the trapped fleet exits safely, no rational operator will accept entry risk. You cannot price this level of schedule uncertainty. The opportunity cost alone is prohibitive.

The implication is that this crisis extends well into July and likely beyond, potentially bleeding into 2027, regardless of any temporary SPR releases. Tehran will not relinquish the Hormuz lever easily. It is an economic deterrent, cheaper and, in this context, more effective than a conventional weapon.

Example from a Financial Times article:

Jakob Larsen, chief safety and security officer at Bimco, advised members to “await further guidance from the relevant authorities”, warning that transit currently involves “heightened risk”.

The toll regime introduces an additional constraint. Payments may violate U.S. sanctions. As Lars Jensen of Vespucci Maritime noted, shipowners face a binary choice: keep vessels stranded in the Gulf or pay Iran and risk breaching sanctions.

Shipbrokers said insurance also remained a big challenge. “The situation remains clear as mud . . . the main stumbling block for most parties remains a lack of clarity around insurance,” one told the FT.

Anchan, the chief executive of Safesea, said underwriters were requiring shipping companies to provide proof of approval from the IRGC before providing insurance but “no one has a clue where to get this approval from”.

David Smith, head of marine at insurance broker McGill and Partners, said there had been “a huge volume of requests for quotes since the ceasefire”. But he noted that the strait was still “classified as a very high-risk area” by the insurance market’s Joint War Committee, whose designations influence the premiums set by underwriters.

Cargo insurance rates quoted for shipping through the strait have fallen from about 7.5 per cent of the insured value of goods last week to roughly 3.75 per cent on Wednesday, according to one large broker.

Signal Versus Noise

I still expect more vessel transits to be registered in the coming days, perhaps weeks, even in the absence of a deal. That, however, is not what matters. After all, exits from the Strait resemble the kind of escape one would expect after being trapped for six weeks.

For the purpose of re-establishing the regular supplies of oil flows, what exits the Persian Trap during this ceasefire is largely irrelevant for long-term oil and gas balances, or for products such as LPG and fertiliser. It is, in effect, one-off noise.

Yes, if the above calculations hold, and assuming the ceasefire is extended, roughly 80 million barrels of trapped crude and products could reach their intended destinations. But that remains a one-time release.

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Executive Summary

Freedom of Navigation At Stake

Iran did not need to sink a single tanker to shut down a fifth of the world’s oil and gas supply. A handful of missile and drone strikes was enough to deter the global commercial shipping industry from transiting the Strait of Hormuz.

Within two days, the vital energy chokepoint was functionally closed for exports. Only Iranian oil and gas continues to move through the Strait, with the odd exception that proves the rule and carries no relevance for the functioning of the world economy.

The most honest gauge of the current balance of power in this conflict is the chart below: monthly transits of oil and petroleum products through the Strait of Hormuz. Iran’s regime, not the United States, is in control of this war, as the only objective that matters now is regaining control of the Strait.

If that fails for a prolonged period, everybody outside Tehran loses. Everybody, including the United States and China. Every other 3D chess, game theory narrative, usually advanced by generalists with little understanding of oil, is not worth the paper it is written on.

Tehran’s strategy is one of economic attrition, built on the assumption that the United States cannot tolerate a prolonged war and elevated oil prices indefinitely and will eventually back down. If and when it does, Iran’s Revolutionary Guards will control Hormuz. Oil will flow again, but only on Tehran’s terms and at the right price.

This is a replicable playbook in an age of cheap but effective weapons proliferation. Interrupting freedom of maritime navigation is astonishingly simple. The reason is behavioural. The adversary is not a navy, it is a commercial vessel owner and an unarmed crew. Deterrence is as simple as stopping a car on the street with a gun in your hand. Often, an explicit threat is enough. Remember Captain Phillips? A true story.

Nor are such attempts rare in post-war history. There have been thousands of naval interventions by the United States, Britain and France, and increasingly by India and China, in response to disruptions, from the 1980s tanker wars in Hormuz to piracy off Somalia and in the Strait of Malacca. Maritime trade has always required policing.

If word spreads that this policing breaks down systematically, global commerce will suffer immeasurably, and with it the petrodollar system.

There are some 200 straits globally, with at least two dozen highly relevant for global commerce. Because they often overlap with territorial waters under the 12 nautical mile rule, they fall under the U.N. Convention on the Law of the Sea (UNCLOS) transit passage regime, which guarantees continuous, uninterrupted freedom of navigation for commercial and military ships and aircraft. The question is, who guarantees what?

Iran’s attempts to charge tolls, restrict passage, or impose conditions are violations of this framework. The Houthis applied a similar blackmail playbook, with fewer means, in the Bab el-Mandeb, which was functionally closed between 2019 and 2021. None of this required sea mines or heavy lifting. A credible threat, perhaps a drone strike, is sufficient.

Back then, a U.S.-Saudi coalition restored order. U.N. conventions are only as strong as the power that enforces them, which is why Pax Americana enabled freeriding, with significant net benefits accruing to the United States and its reserve currency, while Britain and France carried a large share of the burden without the exorbitant privilege of the global reserve currency.

Regardless, what if no one feels responsible in the current situation? Iran is a state actor behaving like a terrorist organisation, a different calibre altogether than the Houthi militias. It is all rather problematic in an age of “butter”, not “guns”, and misguided strongman leadership.

If that insight takes hold, why would Turkey not begin charging additional fees for “security services” at the Bosporus, beyond the limited service fees already in place, a point correctly highlighted by Andrey Sizov, a Black Sea agri-commodity expert? It is vastly more capable than Iran.

China is an order of magnitude more capable than Iran and Turkey combined, and could deploy a far more sophisticated version of the same economic leverage in the Taiwan Strait, with severe short-term consequences for global semiconductor supply chains and corresponding retaliation, perhaps in the Strait of Malacca, Gibraltar or the Panama Canal.

It serves no one’s long-term interest. Yet history has periods in which old lessons must be re-learned before reason prevails. As Henry Kissinger noted in one of his final interviews with the Financial Times on 20 July 2018:

“Trump may be one of those figures in history who appears from time to time to mark the end of an era and to force it to give up its old pretences. It doesn’t necessarily mean that he knows this, or that he is considering any great alternative. It could just be an accident.”

The Fog of War Collides with the Midterms

Meanwhile, Trump’s increasingly erratic and aggressive reactions suggest his administration was not prepared for this. He certainly did not prepare his voter base for a war of attrition to regain control of Hormuz, the true weapon of mass destruction in the wrong hands. That leaves this, in the eyes of his electorate, as a war of choice. But is it? Regaining control of Hormuz does not look optional.

The problem is perception. United States voters, and others, are not yet ready to see this clearly. A few weeks of higher oil prices and three cancelled flights in Timbuktu will not suffice. A prolonged recession would.

Iran’s regime has not acted irrationally in the past, but it does not follow standard cost-benefit logic. Its decisions are shaped by ideology and regime survival under stress. Historically, it has behaved risk-averse in gains and risk-seeking in losses, particularly during the Iran-Iraq war. Under pressure, concessions are framed as losses, not gains. That makes escalation more likely as stress increases. Trump’s approach, and his reliance on deadlines, is therefore counterproductive.

Trump appeared to be aiming for an evolutionary version of Operation Midnight Hammer in Iran and Absolute Resolve in Venezuela, a compressed playbook of surgical air strikes, special operations and real-time intelligence integration. A campaign to prevent a nuclear Iran, reassert control over Middle Eastern oil flows and engineer regime change, with a Nobel Peace Prize as the epilogue. Peace through strength. The fog of war denied him that sequence.

Earlier military success reinforced a false sense of control. Operation Absolute Resolve, months in planning and executed in hours, likely shaped expectations of repeatability. That misread carried into Iran.

The administration failed to explain the stakes of this war, and its necessity, to the electorate. On the contrary, Trump campaigned on avoiding Middle Eastern entanglements. For his base, and for a majority of Americans, this remains a war of choice.

How is the war going? If one were to ask the President whether he would start this war again with the knowledge he has today, the answer would undoubtedly be no, in a classified setting. In public, this war remains a roaring success. Despite undisputed battlefield success, including air dominance, the honest assessment is that the President lost control of this war weeks ago.

Trump is left with two bad choices. (A) He can walk away and leave unfinished business, with immeasurable risk to American soft power and the petrodollar system. Or (B) he can attempt to finish the job while fighting a political war at home, which makes a military resolution increasingly unattainable the longer the conflict drags on, as the fog of war collides with the midterms.

The regime in Iran understands this. In its own calculus, time has become an ally. And in this conflict, perception dictates reality.

Some argue this conflict has no military solution. I am less certain of that, but I am certain an air campaign alone will not suffice. As historian Stephen Kotkin notes, regimes can fail at almost everything as long as they retain a monopoly on violence against its own people.

This regime appears to have fine-tuned, and at the same time decentralised and automated, its response functions when faced with internal uprisings or external attacks, brutally so. But who is going to take the Kalashnikovs out of their hands? It is not the F-35 pilot from Israel or the United States.

At the same time, regimes have a habit of looking invincible the day before they collapse. These apparent contradictions often coexist, as seen in the fall of the Berlin Wall and the subsequent breakdown of the Soviet Union.

Overlay this with the current negotiation dynamic. Deadlines, threats and tactical escalation are now part of the playbook. By the time this is read, positions will have shifted again, whether through escalation, delay or partial retreat.

What matters is the pattern. TACO and short-term escalation are not mutually exclusive. They tend to occur together, as both sides seek to improve their bargaining position before stepping back. Iran understands this well.

Likewise, the President may still get lucky on the battlefield, but from where I sit the most likely outcome is that the United States and Israel win the battles, yet lose the war and the peace that follows, at least in the near term and until the regime eventually collapses. That leaves a highly uncertain set-up for the global economy in 2026 and likely into 2027.

Who Controls the Barrels?

My Base Case is TACO this month, followed by a series of bilateral “arrangements” between Iran and producing countries such as Iraq, Kuwait and Bahrain. India and other emerging Asian economies are likely to pursue similar deals. That will not be sufficient to avoid a global recession, and several of these dynamics will overlap.

I do not expect Saudi Arabia or the UAE to negotiate. They think in generations, not in midterms. Their barrels return fully, either through a clean reopening, via physical bypass pipelines or under coalition force. There is no middle ground.

Likewise, China, Japan, South Korea and Europe are unlikely to enter bilateral agreements with institutional weight, as doing so would set a dangerous legal precedent for global maritime commerce.

The tables below illustrate crude oil import flows by origin and help frame regional exposure. Japan sources roughly 90%+ of its refinery intake from the Middle East, South Korea and Taiwan are similarly exposed, while China sits closer to 50%. These are material dependencies, but they are only one part of the equation.

Inventories, strategic reserves, crude quality and refinery configurations matter just as much, if not more, in determining how this shock propagates. Take China. It holds the world’s largest crude oil and product inventories. That provides time, not immunity.

The CCP can afford to watch its geopolitical rival, the United States, absorb not just the economic strain, but also the geopolitical damage to its soft power and, ultimately, to the petrodollar system, for an extended period at current run rates before it needs to react. As Napoleon once put it, do not interrupt your enemy when he is making a mistake. And it will not.

An important caveat here. The stakes for the global economy are so high that a pronounced recession could alter this calculus and force “creative” solutions, such as a Two-Tier Transit System with an Oman and Iran lane in the Strait of Hormuz. But without the United States interrupting Iranian barrel flows as well, I see no reason why Tehran would concede to such an arrangement. Nor is it clear what that would imply for transit frequency. Let us call this the “Face Saving Case”.

The Upside Case assumes a negotiated settlement between the United States and Iran, restoring most transits within 3–24 months, the time required to repair war damage and bring shut-in fields back. The track record for such agreements is poor, particularly with regimes in the Middle East, Russia or North Korea.

The Downside Case extends the disruption to the Bab el-Mandeb, adding a second chokepoint and a further layer of escalation. More short-term pain may be required to avoid longer-term damage. Such an escalation would frontload the economic impact by several months, removing an additional 2–3mbpd from the market (some barrels will continue exiting at the Suez Canal).

Both TACO and the Downside Case may ultimately require a coalition of the willing, boots on the ground and naval escorts to restore flows to perhaps 75%. Alternatively, new pipeline infrastructure could restore capacity over a 3–5 year horizon. The most likely outcome is a combination of these paths, as no single solution satisfies all parties.

What matters is timing. Even if the regime proves more fragile than it appears, that does not resolve the current disruption. The sequencing runs the other way. First, the hot phase of the conflict ends. Only then do internal dynamics begin to matter.

No one takes to the streets to be hit by “friendly fire”. From there, several outcomes are possible, including a more democratic one. But for oil markets and global trade, that sits firmly in the second order.

Barrel Counting: Houston, We Have a Problem

Given my domain in commodities, and energy in particular, I have more confidence in what this means for barrel counting. And I have nothing but bad news. The damage to the physical oil market has already been done for prices to return to pre-war levels in 2026, while the risk of significant economic downside increases by the day.

The oil market, and with it the global economy, cannot function with 10–15% less energy supply, from oil to gas to fertiliser to helium. Physical commodities must balance. We cannot consume what we do not supply on any given day.

That sounds trivial, but the implication is not. Global supply chains, in energy and beyond, were never designed to absorb a shock of this magnitude. We do not hold strategic reserves for everything, everywhere, for 3–5 months while policymakers search for solutions. Meanwhile, so-called OPEC spare capacity of 4–6mbpd is trapped within the conflict zone too.

That leaves one mechanism to restore balance: demand destruction. Prices must rise until consumption falls by 10–15%. Every country will feel this, directly or indirectly, and the adjustment is already underway.

My table above shows the scale of the disruption in a 102mbpd global liquids market, pre-war. If the Base Case extends into July, the world effectively draws down crude inventories by 30%. For context, a 1–3% change in inventories is sufficient to move prices materially.

And inventories are the least of the problem. Over the same period, petroleum products begin to run short in unexpected places. Jet fuel, diesel and naphtha shortages in Asia become ground zero of the crisis.

Japan illustrates the constraint and as mentioned above. It imports 92% of its refinery intake from the Middle East. These heavy-sour barrels are not easily replaced, and substitution materially alters product yields. Replace Arab Medium with WTI Midland and diesel output falls sharply, potentially by 30%, given refinery configurations. Crude quality matters in this crisis. I will explain why in a future episode in detail.

The situation is not much easier for South Korea, Singapore, China or Australia. Australia, in particular, has shut domestic refining capacity and now imports 90% of its 1.1mbpd product demand from regional hubs. The vulnerability is obvious.

Pro-tip: avoid Asia as a travel destination while the Strait remains functionally closed.

But this is not just an Asian problem. Europe, Africa and the Americas will feel it, if only through higher prices at the pump. The disruption transmits through supply chains. Today’s naphtha shortage in Japan becomes tomorrow’s feedstock constraint in Germany.

So when European or Asian policymakers argue that this is not “their” war, the instinct is understandable. But I am afraid the supply chain won’t care who started it. It will only reflect who pays for it.

Covid-Type Demand Destruction

The required level of demand destruction to rebalance the oil market can be measured, and it implies a prolonged and difficult global recession. Think of it this way: to remove 10–15mbpd of demand, slightly less with temporary SPR releases, we require sustained periods of US$200+ oil.

When I say oil, I mean the entire barrel, gasoline, diesel, jet fuel, naphtha, marine fuels and more. In reality, we are already there for key products. Diesel and jet fuel prices are trading well above US$200 per barrel in many regions. The invisible hand is already at work.

Demand does not adjust in a straight line, nor evenly across regions or products. Product prices determine elasticity. Destruction takes time, not only because consumers react with a lag, but because price signals transmit from products back to crude with delay.

In the scenario below, Lakshmi Sreekumar at Capital One, one of the most rigorous oil analysts in the field, models demand response to sustained price levels over a 90-day period. Her work draws on five decades of demand elasticity studies.

Once the scale and timing of demand destruction are understood, the broader economic consequences follow. This is not a marginal adjustment. It is a global shock. If realised, it would rank among the most economically stressful periods in modern history, arguably more insidious than Covid.

During Covid, central banks operated in a deflationary environment. They could supply liquidity aggressively without immediate inflation constraints, even if they ultimately overdid it on the fiscal side. This time is different.

This scenario places us squarely in a stagflationary environment in the near term, followed by a sharp recession as demand destruction restores balance. Central banks are constrained. Cutting rates into inflation is not viable, and balance sheet expansion carries credibility risks. Markets will anticipate the downturn well in advance.

Lakshmi’s framework highlights key convexity thresholds at US$150, US$200 and US$250 per barrel. At each level, different parts of the global economy begin to shut down. The burden is not evenly distributed. While oil intensity has declined in developed economies, it remains high across emerging markets, where the adjustment will be more severe.

Think of it as Covid without policy mandates. Instead of governments forcing people to stay home, the market does. Daily life simply becomes unaffordable in pockets of the global economy.

Misalignment of Incentives

In summary, this situation is too complex, with too many actors, constraints and conflicting incentives, to resolve cleanly through negotiation alone. Meanwhile, the oil system still has to balance physically and cannot wait for diplomacy and reason to play out.

The core issue is misalignment at the top. The key actor, the United States, is under political pressure to end the war quickly. That leaves the door open for a partial outcome, TACO without a full reopening of the Strait. The two are not the same. A ceasefire does not guarantee restored transits. Disruptions can persist for months, possibly years, and until bypasses are fully established.

As I am writing this, the latest development underscores the point. President Trump has agreed to suspend bombing for two weeks, conditional on Iran agreeing to the “complete, immediate and safe opening” of the Strait. This is not resolution. It is negotiation through escalation.

Deadlines, threats and tactical retreats follow the same pattern. Escalate to gain leverage, step back to test the response, then reset expectations. TACO and short-term escalation are not contradictions. They are part of the same process.

Crucially, a temporary ceasefire does not equate to a reopening of the Strait. The suspension of force is conditional, fragile and reversible. Markets trade flows, not press releases.

Nor are bilateral solutions straightforward. As outlined earlier, Saudi Arabia and the UAE will not negotiate with Iran under coercion. On the demand side, OECD countries and China have no incentive to legitimise any restriction on freedom of navigation. At least I cannot see how the EU Commission will sign a toll service arrangement with this Iranian regime. But I keep an open mind, I promise.

Some countries, including Japan, South Korea and parts of Southern Europe, may be forced to muddle through via an Oman lane. But that solution is operationally uncertain and slow to establish. Parts of EM Asia may well cut “deals” with Iran, but that will not rebalance the global market and would set a dangerous precedent few can afford.

Even regime change, often cited as a release valve, does not solve the near-term problem. It is highly unlikely to occur on a timeline that restores flows within weeks, even if it happens in 2026.

A global recession is therefore the most likely mechanism through which a durable solution emerges, whether through restored flows in Hormuz or a broader geopolitical reset. Before that, alignment among participants remains unlikely.

Closing Thoughts

This Substack will lay out the case in detail across multiple episodes, with a data-driven approach that prioritises precision over narrative comfort.

The executive summary remains free. Subsequent coverage will return behind the paywall. The next instalments will go deeper, at times technical, covering critical aspects of the oil market such as crude quality and why it matters in this context.

As an independent investor based in Switzerland, I have the freedom to call it as I see it. Oil sits firmly within my circle of competence, and I feel obliged to prepare those willing to listen for what lies ahead. And warn people of foolish statements like the below.

There seems to be a persistent narrative that losing 5–6% of global oil supply is manageable. Firstly, it will be much more. Second, it isn’t for many people around the world. It is a category error to say otherwise.

Oil is not priced on total supply. It is priced at the margin.

The world does not price oil at 100mbpd supply versus 94mbpd. It prices the last barrel that clears the market. Remove that barrel, and you are not “6% short”. You are short the barrel that sets the price.

Think of it as musical chairs. One hundred people, one hundred chairs. Everything works. Remove five chairs. The price of the remaining chairs does not rise by 5%. It goes vertical, because five people get nothing.

That is how energy markets behave. They are tight systems with very limited buffers.

This is why comparisons to prior “surplus” narratives miss the point. Yes, the market may have been heading for a 1-3mbpd surplus in 2026. That surplus no longer exists. More importantly, what matters is not the average balance, but the available flexibility at the margin and crude quality feeds around the global refinery system, among many other things.

Spare capacity is limited, geographically constrained and, in this case, trapped within the conflict zone. What looks like a 5–6% disruption on paper can represent a far larger share of the system’s usable flexibility. That is when prices move non-linearly, as already evident in distillates, with a broad move above US$200 for diesel and jet fuel globally, not just in isolated pockets.

Demand does not adjust smoothly either. It is stepwise. Airlines do not fly 70% of a route. Consumers do not partially commute. Industrial plants do not run at arbitrary utilisation rates. They run, until they stop. Listen to the fisherman in France from two days ago.

This is why prices must rise sharply to force actual demand destruction. And why that adjustment is both abrupt and economically painful. Commodity markets are not set by averages. They are set by the barrel that does not exist.

Anyway, this will become an extensive coverage because this is an unusually complex crisis. It deserves more than headlines and hot takes. I hope you all agree. Stay safe out there.

Warm regards,
Alexander Stahel

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Europe’s Post-Gazprom Era: Cheaper Gas, Uneven Access

The European natural gas market is structurally in a bear market. That is unequivocally good news for European consumers. Yet it remains vulnerable on a country-by-country basis for reasons we will lay out in this Substack.

In other words, the Title Transfer Facility (TTF) should remain around current levels of roughly US$11/MMBtu, or about €33/MWh, and likely below that well into 2030. But that only holds if European utilities avoid the complacency we witnessed in Q3 2025, when time spreads were mistaken for certainty, and weather forecasts were treated as guarantees rather than probabilities.

That country-level vulnerability explains the abrupt shift in speculative positioning in January 2026. Within days, the market flipped from net-short 92TWh to net-long 124TWh, as illustrated below.

Colder-than-expected January weather suddenly made Europe’s otherwise manageable storage levels look precarious for March 2026.

At the end of October, in my Substack titled “The Calm Before the Thaw: Europe’s Natural Gas Market Finds Its Balance”, I argued that an 81% storage level across Europe was sufficient to keep TTF contained, given weak Chinese and Japanese LNG demand.

That call proved directionally correct. But today I want to refine it — from a country-by-country perspective and in light of the awkward distortions now visible in parts of the European gas market.

Before we dissect those vulnerabilities, we must first revisit our gas model and examine how fundamentals have shifted since our 31 October 2025 forecast.

Fundamentals First

Back in October, we forecast a European exit storage level of 20.9% by the end of March. Based on the latest weather data as of yesterday — with November, December and January now fully incorporated and limited moving parts left for February — our model now suggests an exit level of 16.8%.

For our purposes, Europe comprises 28 geographic nations: all 27 EU members excluding Malta and Cyprus, plus the UK, Switzerland and Norway. This is the relevant demand–supply perimeter for the formation of the Dutch Title Transfer Facility hub price, better known as TTF.

Bifurcated Storage Levels

An exit level of 16.8% would mark the lowest in a decade. Ordinarily, that would justify higher prices, not the softer tone we observe today.

More importantly, 16.8% would be by far the lowest exit level in what we call the Post-Gazprom era, as the second chart illustrates. Whether the final number prints at 17%, 18% or even 21%, it will still represent a new record low for this regime. That much is already clear.

And the situation is worse than the European average suggests.

Italy, Europe’s second-largest storage holder at 18.8bcm, sits in a comfortable position at 51.8%-filled (green line). Germany (yellow line) and the Netherlands (blue line), by contrast, are materially below the European average (orange line), at 24.8% and 17.0% respectively.

In other words, Italy’s healthy position flatters the continental average. North-West Europe looks stronger on paper than it is in practice.

Germany holds the largest storage capacity in Europe at 23.3bcm. The Netherlands ranks third with 13.4bcm. What happens in these two countries alone will largely determine Europe’s supply security next winter.

TTF Doesn’t Seem to Care

And yet, TTF barely moves.

It is down 21% from its brief January spike, when prices jumped from US$9/MMBtu to US$14 on a colder-than-normal forecast and heavily short speculative positioning. Once shorts covered, the spike followed.

With February now turning milder, TTF 1M forward futures hover again around US$11/MMBtu, only marginally above its Asian sibling, the Japan–Korea Marker (JKM).

Once April 2026 closes the books on winter, TTF will likely have traded within a US$9–11 band for most of the season, January aside. That is a far cry from the volatility seen post-summer 2023, let alone during the immediate Gazprom crisis of 2022.

Timespreads Matter Most

Daily price behaviour becomes far more instructive when looking at the futures curve and time spreads.

In theory, summer contracts should trade below winter contracts. That positive spread allows utilities to buy gas cheaply in summer, inject into storage, and sell higher in winter — covering storage fees, logistics and financing costs.

For summer 2026, however, the January 2027 minus July 2026 spread offers a mere US$0.53/MMBtu. That is better than the negative spreads seen during summer 2025, but far below the US$2/MMBtu that prevailed through much of winter 2023/24 and that the market likely requires to function normally.

Is US$0.53 enough to refill storage to the cavern top this summer? Not where regulators have failed to fix the structural distortion.

Let me explain.

Outdated EU Storage Regulation

In 2023, following the Gazprom crisis, the European Commission mandated minimum storage levels. That decision was understandable in the immediate aftermath of Russia’s deliberate decision not to refill its European storage sites in 2021 ahead of the invasion of Ukraine.

At the time, I pointed out rather clearly that Gazprom’s European storage levels were collapsing. Few listened. Gazprom claimed it was not in breach of contractual obligations. The rest, as they say, is history.

The new Gas Storage Rules (2023–2027) required storage to reach 90% by 1 November. In June 2025, that target was lowered to 80%.

Such intervention was arguably justified in crisis mode. But over time, rigid monthly targets distorted price signals to the point where storing gas became uneconomic.

The regime effectively created a forced bid for summer molecules: market participants must hit a calendar target, regardless of curve economics.

The June 2025 reform acknowledged the distortion and introduced flexibility: the target could be met any time between 1 October and 1 December, with up to 10% deviation allowed under “unfavourable market conditions,” meaning negative spreads.

It did not go far enough.

During winters 2022/23 and 2023/24, Europe was bailed out by mild weather. Many convinced themselves that structural risk had vanished. Winter 2024/25 and again 2025/26 proved otherwise. In summer 2025, European storage averaged 33% depleted. By October, levels recovered only to 82%, well below the previous 90% target.

The curve explained why. Buying high in summer and selling lower in winter locked in day-one losses of roughly US$1/MMBtu — at times equivalent to €3.5–7/MWh. That is not a functioning merchant signal.

Too Little Too Late?

The June 2025 reform improved flexibility, but not incentives.

The Netherlands entered winter 2025/26 at 73%-filled on 7 November — roughly 3bcm below capacity. Germany entered at 76%, around 6bcm below capacity. That is 10bcm missing from two countries alone before winter even began.

Austria was at 85%. Hungary at 73%. Meanwhile Italy entered at 94%, France at 93%, the Czech Republic at 93% and Poland at 100%.

Same EU regulation. Different outcomes. Why? Local incentives.

Italy did not rely on the futures curve to solve the problem. It’s regulator introduced a policy-backed premium mechanism, explicitly recognising that the spread was insufficient. Estimates discussed levies around €2.19/MWh to compensate injection economics — effectively a policy-implied minimum storage premium.

France operates under a more infrastructure-like regulatory framework. CRE has publicly stated that its storage regime functioned effectively in 2024 and early 2025, though without explicitly detailing the compensation mechanics.

Germany and the Netherlands, by contrast, operate predominantly merchant storage systems. Gasunie publicly acknowledged that summer–winter spreads were too thin, making it more attractive for market participants to resell molecules rather than store them. Similar comments emerged from Germany during summer 2025.

We estimate merchant storage requires €2–3/MWh spreads to clear. One year ago, the curve did not offer that. It did not offer it through most of summer either. October storage levels in Germany and the Netherlands confirmed the result.

Yes, today’s curve (orange line) has improved. But incentives likely remain insufficient for Germany and the Netherlands to refill above 80% — levels these countries arguably require in the Post-Gazprom regime to navigate winter safely.

Two Sundays ago, when February weather forecasts turned colder for North-West Europe, our model immediately exposed the gap. Under that scenario, at least one of Germany, the Netherlands, Belgium or Slovakia would have approached critical storage depletion by March, depending on LNG arrivals.

That is absurd. Europe requires 90%+ storage entering winter. Period.

Unless German and Dutch regulators introduce an Italian-style incentive mechanism soon, expect refill levels to disappoint again by October. Either regulators compensate the curve distortion they helped create — effectively paying an insurance premium for consumers — or they scrap rigid storage targets altogether and allow the curve to clear naturally.

One way or another, the distortion must go.

LNG Glut Reflected in the Curve

The futures curve now signals roughly €10/MWh lower prices by 2029 — equivalent to about US$3.16/MMBtu. Why?

As outlined in October, the single biggest comfort factor for future European gas balances is the sheer availability of LNG export capacity coming online. None of that existed in 2022 at the height of the crisis. The picture only improves into 2027 and 2028. For TTF purposes, LNG balances are already edging into glut territory.

Three forces drive this:
(a) LNG Surplus — a classic commodity capex boom–bust cycle triggered by the Gazprom shock;
(b) The Chinese Switch — structurally lower LNG imports as pipeline volumes and domestic production rise;
(c) Lower Japanese Demand — nuclear restarts reducing LNG burn.

Let me take them in reverse order.

Japan’s Nuclear Renaissance

Japan’s new prime minister, Sanae Takaichi, has signalled accelerated nuclear restarts to combat inflation and reduce costly fuel imports.

Will she deliver?

Well, last week her coalition achieved a landslide snap-election victory, securing around 310 seats, a two-thirds supermajority. That political capital should translate into faster nuclear reactivation.

Japan currently derives roughly 8% of electricity from nuclear power. It was 33% in 2000, before Fukushima struck in 2011. If nuclear generation rises even to 15%, with a longer-term policy target of 20% by 2040, that implies roughly 100TWh of additional nuclear output.

The latest proof came last Monday when Tokyo Electric Power Co restarted Reactor No. 6, the nation’s largest unit. With 1.35GW capacity and a 90% capacity factor, it delivers roughly 10TWh per annum.

That alone displaces about 1bcm per year of gas. In fact, each 100TWh of nuclear generation theoretically reduces LNG demand by roughly 9bcm per annum, against Japan’s 65bcm import market.

We will see how quickly restarts materialise and how utilities substitute fuels. But at US$11/MMBtu and with persistent volatility, LNG — not coal — is the obvious target for displacement.

Japan’s stated objective is clear: reduce imported fuel costs in a country carrying 200% debt-to-GDP and now facing inflation after decades of deflation. Japanese LNG imports peaked in 2021. The direction of travel is lower.

The irony? These policy shifts were triggered by Putin’s decision to weaponise gas supplies to Europe in 2021 and 2022 which caused also Asian prices to spike, the key reason for Japan to restart nuclear.

Meanwhile, the 150bcm removed from Europe did not disappear; some of it is now redirected at lower prices to China. That hurts Gazprom immensely and indirectly, as you will see in a moment, also puts pressure on global LNG prices, which hurts Novatek. So much for 3D chess. Russian roulette is closer to the mark.

The Big Chinese Switch

The larger story for LNG is China.

Energy security has been a strategic priority since Xi Jinping took office. In 2014–2015, Xi championed an “energy production revolution,” explicitly pushing domestic oil and gas output to reduce geopolitical dependency.

The results are measurable. According to official data we collect locally, Chinese domestic gas production reached 261bcm in 2025, up from 136bcm in 2016. Output has doubled in less than a decade. That is structural.

Pipeline imports are the next lever — and they are cheaper than LNG.

In 2025, China imported pipeline gas from Russia, Turkmenistan and Myanmar, with technical capacity around 120bcm and actual imports likely around 82.5bcm, pending December data.

That capacity will expand materially. Commercial agreements are now in place for up to 106bcm of imports from Gazprom alone.

The Central Asia–China pipeline, anchored by Turkmenistan, carries 55bcm per annum of technical capacity. The Power of Siberia (PoS) pipeline from Russia has 61bcm of technical capacity. Myanmar contributes another 5.2bcm.

Until 2024, however, China had commercial agreements in place for only 38bcm of the 61bcm technical capacity from Gazprom’s Power of Siberia. In other words, physical pipe capacity exceeded contracted volumes. The infrastructure was ahead of the commercial reality.

That changed in 2025. China signed additional commercial agreements for what is now referred to as the Far Eastern Corridor, effectively an extension of Power of Siberia tapping the Sakhalin fields, adding another 12bcm of contracted capacity. More importantly, Beijing and Moscow appear to have agreed the commercial contours for Power of Siberia 2 (PoS2), a new 55bcm pipeline targeting a 2030 start.

If PoS2 proceeds as planned, commercially agreed Russian pipeline volumes alone rise to 106bcm per annum.

Now step back and look at the physical picture.

Add the 55bcm Central Asia corridor, 61bcm Power of Siberia, 12bcm Far Eastern Corridor and 55bcm Power of Siberia 2, plus the 5.2bcm Myanmar line, and China’s total technical pipeline import capacity could reach roughly 183bcm per annum post-2030.

Put that against apparent demand of 426bcm in 2025, which was essentially flat year-over-year. Even without heroic demand growth, pipeline gas alone could theoretically cover close to half of China’s total gas consumption within a few years. And pipeline gas, as we know, sits structurally lower in the cost stack than LNG which should alter the structural shape of the Asian LNG balance.

Either way, it is not difficult to see where this is heading.

China, recessionary as it is — and I encourage you to revisit my China series if there is any doubt — is unlikely to generate the sort of explosive apparent demand growth that underpinned LNG optimism over the past decade. Demand may grow slowly in the coming years. It may not grow at all.

Meanwhile, domestic production continues to rise at a remarkable pace and pipeline imports are expanding structurally, in many cases at double-digit rates. Both sources sit lower in the cost stack than LNG and will therefore push the more expensive molecule out of the merit order whenever possible.

Over time, that mechanism leaves LNG as the balancing supply rather than the growth driver in the Chinese market.

LNG Surplus

Finally, to the decisive factor: the wave of new LNG export capacity that is about to hit global markets.

Capacity timelines always move. The latest example comes from Qatar, where state-owned QatarEnergy has pushed the start of part of its multibillion-dollar LNG expansion towards the end of the year. That is not unusual. Mega-projects shift. But the direction is unmistakable. Qatar plans to expand from roughly 83 million tonnes today to around 145 million tonnes by 2035. That is not incremental. That is structural.

The real acceleration, however, is coming from North America. Between 2024 and 2029 alone, the region is on track to add roughly 120–140bcm per annum of new LNG export capacity. Put differently, North America is set to more than double its LNG export footprint within five years.

For perspective, 140bcm is roughly what all of Europe, as defined by our perimeter, imported in 2022 and again in 2023. Imports fell to 114bcm in 2024 before rebounding to 146bcm in 2025. In other words, North America alone is adding the equivalent of an entire European LNG consumption market within half a decade.

Unlike Qatar, much of this US supply comes with destination flexibility. That matters. Cargoes can move to whoever pays the highest netback, irrespective of geography. Portfolio players can arbitrage between Europe and Asia without contractual constraints. Qatar, by contrast, requires its counterparty to lift the cargo, limiting re-routing flexibility. It is one reason Japanese utilities have been reluctant to extend long-term Qatari contracts post-2021.

Cheniere, by far America’s largest LNG exporter with an enterprise value around US$75bn, estimated during its Q3 2025 earnings call that global LNG export capacity will increase by roughly 180 million tonnes — around 252bcm — between now and 2030, with additions peaking in 2028. Consultant forecasts embedded in that presentation show spot LNG prices around US$6/MMBtu by 2028. At those levels, liquefaction margins will compress materially, even for the lowest-cost operators.

The IEA, not an agency I treat as gospel, nevertheless estimates roughly 325bcm of new LNG export capacity between 2025 and 2030. That implies a 50% increase on today’s global capacity base of around 620bcm.

Pause on that number.

A 50% expansion in capacity within five years is not a marginal adjustment. It is the largest build-out in LNG history, based on projects that have already reached FID and are under construction. This is what commodity boom-bust capex cycles look like when high prices attract capital at scale. Textbook right here, or rather MBA book.

Who absorbs that volume? At current demand trajectories in Japan and China, certainly not Asia at the same pace as before. Europe can take part of it, but not all of it, especially in a structurally softer demand environment.

Commodities price at the margin. A surplus of even 5% is enough to tilt the market decisively. LNG is no different.

Between 2021 and 2023, LNG generated extraordinary profits, particularly for portfolio players such as Shell and Trafigura. Capital followed those returns, as it always does. Now the supply arrives. And once it does, it tends to stay.

Yes, projects can slip. Construction delays happen. New FIDs may be postponed. Some approved projects may never proceed. But the direction of travel is clear. These are multi-year infrastructure commitments underwritten by majors and long-term LNG players. They are not easily reversed.

The curve reflects this reality already. TTF trades around US$11/MMBtu today and slopes toward roughly US$7/MMBtu by mid-2030.

That is the good news for Europe’s medium-term gas balance. Now let me turn to what complicates that otherwise beautiful story.

Structural Vulnerability

We are now firmly in what I call the Post-Gazprom regime of European natural gas.

That regime forced European customers and utilities to adapt to the loss of roughly 140bcm of Russian pipeline supply. On a pre-crisis market of 450–460bcm, that represents a 30% supply shock. Few energy systems absorb such a shock in peacetime without structural consequences.

Europe rebalanced those 140–145bcm losses within roughly two years. LNG imports increased by around 50bcm relative to 2019, while consumption fell by roughly 80bcm versus the same reference year. The market adjusted. The numbers prove it.

But the defining structural change since 2017 is neither lower demand nor higher LNG imports. It is the collapse in non-storage coverage.

Let me explain.

Before the Gazprom rupture, Europe entered winter with a system that largely balanced itself in real time. Pipeline imports and domestic production together covered a substantial share of winter consumption. Storage and LNG played important roles, but they acted primarily as smoothing mechanisms.

That world no longer exists. The chart below shows what I call the Non-Storage Coverage Ratio, defined simply as pipeline imports plus domestic production divided by consumption. In the pre-2019 period, this ratio oscillated between roughly 0.6 and 1.0 during winter months.

Winter 2016/17 illustrates this clearly (red square on the left).

In plain English, Europe could largely meet winter demand by adjusting between modest incremental LNG imports and storage withdrawals. Utilities had optionality. They could optimise based on price and availability.

Storage was used heavily — as designed — but it functioned as insurance rather than survival. Pipeline gas and domestic production provided ample daily flow during peak winter consumption and, crucially, excess capacity in summer to refill storage comfortably. In summer 2016, the Non-Storage Coverage Ratio peaked at 1.97 on 7 August. That was a system with headroom.

Post-Gazprom, the ratio has shifted structurally lower.

Winter coverage now frequently falls toward 0.35 and no longer approaches 1.0 between December and February, when Europe is coldest. In practical terms, that means half or more of winter consumption must now be met by a combination of storage withdrawals and LNG imports.

Both must function. If either fails, the system tightens abruptly by February or March. That is what I mean by a straightjacket.

Visually, compare the right-hand winter square during 2024/25 with the left-hand square from 2016/17. The difference is not marginal. Even during summer months, the ratio now struggles to exceed 1.5. That is the new operating regime.

This shift is mechanical, not cyclical. It reflects the loss of roughly 140bcm of Russian pipeline gas combined with steadily declining domestic production in the Netherlands and the UK. Nothing has replaced that continuous flow-through supply. Nor do many policymakers appear to appreciate how materially that matters for industrial security in Europe.

LNG Is Not (Yet) a Full Substitute for Pipeline Gas

This distinction is often glossed over.

Pipeline gas and LNG are not interchangeable inputs within the European system. Pipeline gas is continuous, predictable and largely insulated from short-term global price swings. Its infrastructure was purpose-built over decades to match Europe’s consumption patterns and industrial geography.

LNG, by contrast, is episodic, price-clearing and globally contested. Its infrastructure — particularly in North-West Europe, Poland and the Baltic States — remains largely improvised, built at crisis speed rather than as part of a long-term design. That difference matters.

It is precisely for that reason that I exclude LNG from the non-storage coverage metric.

The second chart makes the point clearly. Europe’s LNG sensitivity — defined as LNG imports divided by consumption — has surged since 2021. What was once a marginal balancing component has become a dominant swing factor, frequently exceeding 70% during summer months.

Europe now depends on LNG not merely as a supplement, but as the primary mechanism to refill its storage.

Pre-2019, winter reliance on LNG was minimal. During winter 2017, LNG sensitivity was as low as 4%. In other words, only 4% of winter consumption depended on LNG. That is negligible.

Moreover, much of that LNG flowed into Iberia due to geographic isolation and limited pipeline interconnection with the rest of Europe. Spanish and Portuguese households certainly require gas, but their winter heating needs are structurally lower than in North-West and Central Europe. A cold winter in Poland or Lithuania is not remotely comparable.

Europe now operates under a dual winter dependency:

• structurally higher reliance on storage withdrawals, and

• structurally higher exposure to global LNG availability and pricing.

Storage is no longer merely a buffer. It has become the load-bearing pillar of the system.

The Post-Gazprom Reality

This is the core vulnerability of Europe’s gas market in the post-Gazprom era.

Mild winters are manageable. Recent seasons have shown that. But the margin for error has narrowed significantly compared with a decade ago. Cold weather does not need to be extreme to matter. It merely needs to coincide with tighter LNG balances elsewhere.

Europe effectively traded pipeline security for LNG optionality and storage dependence after the Kremlin chose to weaponise gas flows. That trade works in a world of LNG oversupply and subdued Asian demand — the environment we are entering. It becomes fragile the moment either assumption is challenged.

Curtailed - Not Reduced - Consumption

Natural gas in Europe is primarily used for heating — both households and industrial sites — and for power generation. It is therefore highly seasonal.

During winter months, more than 60% of total consumption derives from households. In summer, that share collapses toward zero. More importantly, peak winter consumption can exceed real-time supply by up to 100%, which is precisely why storage exists. Europe must withdraw gas in winter to balance the system.

A smaller but still important share of gas is used as industrial feedstock, for example in ammonia fertiliser production via the Haber–Bosch process. That component can be measured with reasonable precision, although reporting across all 28 countries is not entirely consistent.

Have Households Reduced Consumption post Gazprom?

This brings us to the first behavioural question.

Have European households permanently reduced gas consumption following the loss of Russian supply, as frequently claimed by policymakers? Have green policies in North-West Europe structurally altered private heating behaviour?

The short answer is: not meaningfully.

Household gas consumption is overwhelmingly driven by temperature. When temperatures fall, consumption rises — and it rises non-linearly. That relationship remains robust across virtually all European countries, with the partial exception of Scandinavia, where electricity plays a larger role in heating.

Consumption appeared subdued between winters 2022/23 and 2024/25. But those were mild winters, as the below charts illustrate for the examples of Germany and Poland. This season, however, marked a return to normal winter conditions in North-West Europe and below-normal cold in parts of Eastern Europe (see Poland below). That makes it the appropriate moment to test whether structural behavioural change has occurred.

Running the analysis across all 28 countries, only Germany shows signs of a potential shift. German household consumption appears to plateau once temperatures fall below roughly 2.5°C. January 2026 provides the first meaningful data point supporting that observation. It is too early to call this permanent, but the pattern is noticeable.

For all other countries, however, no structural change is visible.

Below we illustrate the correlation between monthly temperature and gas consumption since January 2019 for a representative group: Germany, the United Kingdom, France, the Netherlands, Belgium, Italy, Spain, Poland, the Czech Republic, Hungary, Romania and Lithuania. January 2026 consumption is highlighted in red, representing the first genuinely cold winter month in the Post-Gazprom era.

These countries account for roughly 88% of European household gas consumption. There is no cherry-picking here.

The conclusion is straightforward. With the possible exception of Germany — and perhaps marginally the Netherlands — household consumption patterns remain temperature-driven. The loss of roughly 140bcm per annum of Gazprom pipeline gas has not materially altered heating behaviour.

Poland and Lithuania illustrate this most clearly. Colder temperatures translate into sharply higher gas consumption. The relationship remains intact.

A Note on Russian Gas Flows

Hungary and Slovakia continue to receive Russian pipeline gas via TurkStream. That must not be confused with Blue Stream or the Trans Adriatic Pipeline. In addition, Russian LNG cargoes still arrive in Spain and France. Russian gas imports remain unsanctioned in the EU, unlike oil and coal.

Serbia, though outside our perimeter and not part of TTF price formation, has recently sought to diversify away from Gazprom after failing to secure a new long-term contract last November. That development is politically notable, though not directly relevant for European hub pricing.

Back to natural gas.

Natural Gas Demand for Power Generation

Where we do observe meaningful change is in power generation.

Utilities have reduced natural gas burn for electricity, but primarily during summer months, when wind and solar displace gas-fired turbines in the merit order.

That is the key distinction. The displacement is seasonal.

As the chart below for the 22 largest European markets illustrates, during Dunkelflauten — periods of low wind and solar output — Europe consumes more natural gas for power generation, not less. Dispatchable power must come from somewhere. Gas turbines remain the marginal stabiliser of the grid.

This dynamic is particularly visible in Germany, where nuclear output has fallen to zero. But it also applies to the United Kingdom, the Netherlands, Italy, Spain — where solar capacity has expanded rapidly — Belgium and even France.

As I have argued repeatedly, Europe requires dispatchable power to keep the lights on. Gas provides that flexibility. Wind and solar do not.

Natural Gas Demand for Industrial Use

Industrial consumption tells a different story.

Gas use to heat factories and plants appears to have declined permanently, at least for now. Whether this reflects genuine efficiency gains, structural behavioural change or simply lower utilisation and outright closures is difficult to disentangle.

European industry — from chemicals to automotive manufacturing — was already struggling before the full impact of the Gazprom rupture in summer 2022. Since then, the sector has not meaningfully recovered.

The numbers reflect that reality.

Uneven Adjustment

In summary, the roughly 70bcm reduction in European gas consumption — from about 450bcm per annum in the Gazprom era to roughly 380bcm in the Post-Gazprom regime — has been highly uneven.

Household consumption for heating has barely changed, with the notable exception of Germany during extreme cold episodes. That may reflect structural adjustments in Germany’s long-term contracts, which include substantial retail and public-sector demand — schools, municipal buildings and mixed-use properties — potentially driving some peak suppression.

Several countries — notably the UK, Spain, Italy, the Netherlands and Belgium — have reduced gas burn in power generation during summer by expanding wind and solar capacity.

Germany, Poland and Ireland, however, have increased gas-fired generation. In Germany’s case, the reason is straightforward: the removal of nuclear capacity has reduced dispatchable supply. The remaining countries show little structural change in power-sector gas demand.

All countries have reduced industrial gas use. The open question is at what economic cost. I do not yet have a definitive answer. I am not entirely sure I will like it when I do.

Flows Required Eastward

The Post-Gazprom regime has not only reduced volumes. It has reversed direction.

Before 2022, gas molecules entered Europe from multiple directions, with a substantial share flowing east to west.

Russian gas via Nord Stream entered Germany, feeding local consumption and transiting onward into the Czech Republic and France. The Yamal pipeline via Belarus supplied Poland and Germany. The Brotherhood pipeline — yes, that was its name — transited Ukraine into Slovakia and Hungary, serving local markets and moving further west through Austria into Italy. Finally, TurkStream delivered Russian gas into Greece, Bulgaria and Serbia, as well as parts of the Balkans.

With the exception of TurkStream, these corridors have effectively ceased to function.

The system has had to reconfigure itself accordingly. Pipeline flows that once ran east to west now need to run west to east.

Norway, producing roughly 100bcm per annum and by far Europe’s largest remaining domestic supplier, now sends gas primarily into Germany, the Netherlands, Belgium and France. From there, molecules must transit further east — into Austria, the Czech Republic and Slovakia — to replace lost Russian volumes. Additional Norwegian gas now flows through Denmark via the Baltic Pipe into Poland.

This is not a minor adjustment in routing. It is a structural reversal of flow patterns that were built over decades.

Unsurprisingly, such reconfiguration has generated friction. ACER, the European regulator, measures this in congestion revenues. These peaked at more than €3.7bn in 2022 before declining to around €140m more recently. That reduction is encouraging.

But falling congestion revenues do not mean the system is fully adapted. Infrastructure built over 70 years does not reconfigure itself seamlessly within three.

Vulnerabilities remain.

One area where this is most visible is LNG import capacity in Germany, Poland and the Baltic states. The easiest way to illustrate this is to revisit the Coverage Ratio — this time applied to German balances.

Germany was the country most exposed to the Kremlin’s attempt to weaponise gas supplies. That vulnerability was amplified by policy choices stretching back years.

Angela Merkel’s doctrine of Wandel durch Handel — change through trade — sought to integrate Russia into the liberal economic order. In practice, it increased dependence on a single supplier. When the rupture came in 2022, the “Wandel” indeed arrived, though not in the intended sense.

I state this without irony. Germany’s resilience matters enormously for Europe. But shutting down roughly 150TWh of nuclear dispatchable capacity while deepening reliance on Russian gas was a profound strategic error. There is no softer way to phrase it.

Back to natural gas.

The German Causa

The German balance sheet illustrates the structural shift more clearly than any other country. We run these balances for all 28 countries, but Germany is the extreme case.

Germany is the central hub of the continental gas system. Without it, landlocked countries such as Austria, the Czech Republic, Slovakia and, to a degree, even Switzerland would struggle to secure sufficient supply.

In 2020, Germany received roughly 80bcm of Russian gas via Nord Stream and Yamal. Within two years, those flows vanished.

Germany responded by reducing baseline consumption from roughly 90bcm to 70bcm by 2025, a 22% contraction. That alone is extraordinary.

After that demand adjustment, around 60bcm still needed to be rebalanced.

By 2025, Norwegian inflows had increased from roughly 30bcm to 60bcm. Of that, about 40bcm arrived directly via pipelines landing at Emden and Dornum, which together have 54bcm technical capacity. A further 20bcm was effectively redirected via transit flows through the Netherlands and Belgium.

Around 10bcm came from newly built LNG terminals.

The remaining gap was closed by reducing export deliveries to France, Italy — transited via Switzerland — and the Czech Republic, including onward transit to Slovakia and Hungary.

But the system has not simply rebalanced internally. Germany now supplies more gas eastward to Austria and modest volumes to Poland, instead of receiving large east-to-west flows from Russia via Poland. It no longer supplies certain Belgian pockets either.

The question, then, is not whether Germany survived the rupture. It did. The question is at what cost — and with what structural fragility. A 22% forced reduction in consumption is rarely benign. Germany’s industrial slowdown did not occur in a vacuum.

The Coverage Problem

The deeper issue lies in Germany’s summer refill capacity.

Before 2022, Germany’s Coverage Ratio — pipeline imports plus domestic production divided by consumption — hovered around 1.0x in summer. In other words, baseline supply was broadly sufficient to cover demand and allow net injections into storage.

Today, that ratio is closer to 0.8x. Had consumption remained at 90bcm, it would be nearer 0.7x.

That difference matters.

Lower structural coverage means reduced net injection capacity during summer, even after adding roughly 10bcm of LNG imports.

In practical terms, Germany must now work harder to refill storage than it did pre-2022.

The State of German LNG

Germany likely requires at least 20bcm of LNG imports per annum to replenish deeply depleted storage. Thirty would provide far greater security, not only for Germany but also for its landlocked neighbours. Can it deliver?

Well, German LNG import capacity remains a moving target.

There are currently five terminals in various states of operation or development. Lubmin — located at the former Nord Stream landfall and therefore ideally positioned within the pipeline grid — was effectively abandoned after a short operational period and consolidated at Mukran under Deutsche Regas.

Mukran, the biggest terminal on paper, has a technically “approved” capacity of 13.5bcm per annum. However, it operated at only 17.6% utilisation in 2025. That is well below what was politically promised. Why?

The Mukran LNG import terminal originally planned two floating storage and regasification units (FSRUs) to achieve its approved annual capacity of about 13.5bcm as outlined above. But only one vessel (Neptune) with a capacity of 5bcm per annum is currently in operation, which operator Deutsche ReGas isn’t keen to explain explicitly on its Website.

A second FSRU, the Energos Power (174,000 m³), was previously deployed but its charter contract was terminated in early 2025. Deutsche ReGas ended the Energos Power FSRU agreement with the German Federal Ministry for Economic Affairs and Climate Protection, citing pricing distortions and competitive disadvantages introduced by state-backed LNG terminals, which were offering capacities at below cost-covering fees approved by the regulator.

Stade, the state-backed 6bcm FSRU project, remains delayed and is unlikely to enter operation before Q2 2026. Wilhelmshaven and Brunsbüttel are functioning but require materially higher utilisation to provide meaningful refill support.

Based on current trajectories, Germany may import no more than roughly 14.8bcm of LNG in 2026. That is for the full year. For the summer period between 1 April to 31 October, the number is likely 8.2bcm, according to our calculations. Is that sufficient to refill 23bcm of storage capacity by October?

Unlikely and as the table below illustrates. More concretely, we assume Germany can inject 15bcm into its storages during the summer months. Were it to exit the winter at our assumed 3.2bcm at the end of March, that brings it to 18.2bcm by the end of October - 78.5%-filled.

In the Post-Gazprom regime, Germany achieved strong net injections only in 2023, when storage stood at 70.5% as of 31 March. In both 2024 and 2025, net injection performance was weaker.

Our current forecast suggests German storage could fall to roughly 13.7% by 31 March. Refilling from that base to 90% is materially more demanding than in prior years. Those are simply the numbers.

Given those numbers, the German regulator would be wise to ensure that inadequate time spreads do not become the binding constraint on refill economics.

The Technical Question

To be clear, we are not arguing that Germany cannot technically refill storage to 23bcm by end-October.

We have stress-tested this question from a capacity and congestion perspective and conclude that Germany, in theory, should be able to inject enough gas between 1 April and 31 October to refill its storages.

However, technically possible does not equal commercially realised or practically feasible, and as illustrated for the Murkan regas terminal capacity of only 5bcm, not the approved 13.5bcm per annum.

What is required is sufficient upstream flows, adequate LNG utilisation, and functional west-to-east transit throughout the system, not “approved capacities”. When measured this way, we get to 15bcm of net-injection forecast between 1 April and 31 October 2026. And Germany does not have it where we sit.

Please note that the above table assumes 8.2bcm of LNG imports during April to October at German regasification terminals. For the same period in 2025, they imported 6.3bcm. We thus assume 30% year-over-year growth. That may prove to be too optimistic still.

Furthermore, we assume seamless imports from Norway, which is not a given either if any of the big fields like the Troll field has to undertake unplanned maintenance work. We also assume 2.6bcm pipeline imports from France, which has not been the case in 2025 and will require the latter to import more LNG on behave of Germany, the logic of which we cannot judge commercially.

Which brings us to the real question. Can Europe refill storage in every corner of the continent by October 2026 and enter winter 2026/27 prepared for a below-normal cold season? That is the only question that matters.

The European Natural Gas Puzzle

The proper way to analyse the European summer balance is to begin with what we know with reasonable certainty, then progressively fill in the gaps from the known to the uncertain at country level until the full picture emerges.

The highest “known known” is Norwegian supply. Between now and 31 October, we expect roughly 72bcm of Norwegian gas to enter the European system. We know the technical pipeline capacities and we broadly understand the distribution pattern among clients: Germany typically receives 35–39% per month, the UK 13–24%, Belgium 3–15%, France 12–15%, Poland via Denmark 6–9% and the Netherlands 4–10%. Monthly nominations fluctuate, but this provides a solid starting grid.

Our model forecasts country-level consumption for households, power and industry with reasonable precision. That determines which countries without storage must receive flows from countries with storage. Germany, for example, must supply roughly 1bcm to Switzerland between February and April under our base case. Similar balancing flows occur throughout the system.

We also know regasification capacities, North African pipeline inflows, Azeri volumes and domestic production profiles.

From there, the puzzle can be assembled.

Spain and Portugal are effectively self-contained systems. LNG is the balancing item, storage less so. Greece operates similarly. Italy is comparatively easy to ring-fence given stable North African and Azeri pipeline inflows combined with ample LNG capacity. Romania remains largely self-sufficient due to domestic production.

The UK is near self-sufficient thanks to domestic output, steady Norwegian inflows and significant LNG capacity of up to 3.1bcm per month. It uses minimal seasonal storage. The Nordics are small in gas terms. The Baltics are systemically minor.

Once these higher-certainty components are locked in, we can iterate country-by-country flows and derive the LNG volumes required to maximise storage levels by 31 October across the major hubs.

The result is sobering.

Under current assumptions, four of the seven biggest EU storage-capacity countries remain materially below the 80% October target: Germany, the Netherlands, Austria and the Czech Republic.

Yes, Belgium and the UK show similar profiles, but their storage volumes are too small to function as true seasonal buffers. They operate more like short-term balancing tanks, as we have them at regas terminals. Systemically, however, they are secondary for natural gas supply-security during winters.

Importantly, our projections assume elevated — though manageable — LNG imports throughout summer. France and Belgium, in particular, would need to operate near regas capacity for prolonged periods. That has not yet been tested in a sustained, routine fashion.

Beyond Germany’s vulnerability, allow me some more observations.

Take the Netherlands.

Why accept a structural gamble on weather and LNG terminal availability? Why shut down Groningen entirely rather than maintain limited production as strategic insurance? Why reduce nuclear output rather than reduce gas-fired generation if decarbonisation is the objective?

Dutch policy appears internally inconsistent. It is a bet on wind, a bet on LNG availability and a bet on mild winters — all in a highly industrialised economy that depends on energy reliability. Energy security is not a domain for optimism bias.

The UK illustrates a different version of fragility.

It is Europe’s third-largest gas consumer at roughly 55.4bcm in 2025, behind only Germany and Italy. Households rely heavily on gas for heating and cooking. The power grid relies heavily on gas when offshore wind output falls — which it does regularly.

Domestic production has fallen from 36.2bcm to 29bcm in 2025 and may drop below 26bcm in 2026. The Energy Profits Levy, introduced post-Gazprom, has materially dampened new upstream investment. Production decline was already structural. The levy accelerated it.

Meanwhile, the UK possesses just 0.9bcm of storage. For a 56bcm market, that is symbolic. A one-week unplanned outage at Norway’s Troll field during winter would be enough to create acute stress. The margin for error is thin, while the Continent does not seem capable anymore to help under any circumstances.

Under our forecast, the UK must import roughly 2.9bcm of LNG in February alone to remain balanced. That is dependency instead of redundancy.

France presents a different problem.

It entered winter at roughly 90%-filled storage, then drew down during a relatively mild November instead of maximising LNG imports and preserving storage optionality. That choice now forces elevated LNG requirements later in the season.

Our projections require roughly 1.8bcm of LNG in February and around 3.0bcm and 2.9bcm in March and April, respectively. The 2022 crisis peak monthly import was 3.6bcm. France must operate close to that level again, while avoiding unnecessary exports to Spain. This could have been mitigated with more conservative refill behaviour.

It also, in our assumption, must import about 0.4bcm more LNG monthly to export gas to Germany. A novum the commercial feasibility of which we cannot judge.

France looks as if it either requires greater LNG regas capacity, larger storage buffers, or a more disciplined injection strategy. The current configuration leaves limited room for error in a below-normal January or February.

System Fragility

The broader conclusion is uncomfortable.

The European system now operates with thinner margins than a decade ago. A combination of events — an unplanned outage at a major Norwegian field, temporary LNG terminal disruption in the UK, France, Belgium or the Netherlands, or a sustained below-normal cold spell — would place the system under acute strain by March.

Under such circumstances, curtailments would likely occur at industrial level first. For now, the February outlook suggests moderate conditions in North-West Europe. The weather remains cooperative.

But reliance on cooperative weather is not a strategy. The real question is whether Europe is comfortable running a structurally tighter system indefinitely — and whether the next winter will be equally forgiving.

Executive Summary

That, ladies and gentlemen, is the current state of the European natural gas market.

Europe will have access to ample and increasingly cheap LNG on the global spot market. The glut is real. But especially in North-West Europe — the Netherlands, Belgium and Germany — as well as in Poland and Greece, usable import capacity must increase materially if these countries are to benefit fully from it.

Approved capacity is not the same as operational capacity. Technical nameplate is not the same as actual throughput.

Insufficient Coverage Ratios — local production plus pipeline flows relative to consumption — combined with limited usable LNG capacity mean that not every country will automatically refill storage by October at attractive prices. Not until storage rules are rationalised and supply-side bottlenecks, both in gas and electricity, are addressed.

The overarching issue is not the absence of Russian pipeline gas. That source was always geopolitically unreliable. The real issue is poorly conceived top-down policy that reduced domestic production without delivering credible replacement capacity in the name of energy security or affordability.

European households still consume roughly as much gas as they did before the Gazprom rupture. Industrial demand, however, has fallen — partly by design, partly because parts of European industry were priced out of global competition. The de-industrialisation debate is no longer theoretical.

European policymakers would do well to acknowledge these realities and recalibrate. Lower utility bills require supply expansion across all energy forms, with the market determining the efficient mix. Artificial scarcity is not climate policy. It is cost inflation.

From where I sit, the unilateral pursuit of aggressive fossil fuel exit targets under the Green Deal is neither affordable nor strategically coherent in the current geopolitical environment — especially as Europe is simultaneously expected to increase defence spending and maintain extensive social commitments.

Europe cannot re-arm, decarbonise at maximum speed and preserve its existing welfare architecture without trade-offs. Something will give.

The global economy has shifted. What David Baverez calls the transition from a peace economy to a war economy is not rhetorical flourish. The former was built on demand growth, cost optimisation and global cooperation. The latter is shaped by supply constraints, geopolitical leverage and strategic autonomy.

Energy sits at the centre of that transition. For investors, this shift has consequences, not least for commodity producers and real asset exposure, which we analyse regularly on this Substack.

Bringing it back to gas.

In the Post-Gazprom regime, Europe must enter winter with storage levels comfortably above 90% to avoid renewed March stress. Frankly, 95% would provide a far healthier buffer given the structurally lower Coverage Ratio.

That objective would likely be achieved more efficiently by allowing timespreads to function properly rather than through rigid storage mandates.

Beyond that, Europe should consider establishing a true strategic gas reserve of roughly 37–40bcm — around 10% of annual consumption — analogous to the US Strategic Petroleum Reserve. Such a buffer could be drawn during system stress and replenished when conditions normalise.

That may be the most rational lesson from this winter.

Warm regards,
Alexander Stahel


PS: Press the heart if this analysis added value.
PPS: And tell me if you’ve seen a better deep dive on European natural gas. I’ll wait.

The Cannibal’s Dilemma

Let us approach mining using First Principles.

Mining is an extractive industry that consumes itself year-by-year. To wit: every tonne of ore mined is one less tonne in the ground. Every ounce poured shrinks the reserve base. Whether the commodity is gold, silver, copper, nickel, iron ore or oil, the principle is the same. Production is depletion and depletion is destiny, unless the company doing the extracting can continuously replace what it extracts.

In practice, however, most miners are chronically bad in the replacing game. Not just in absolute terms, but in the only terms that matter to shareholders: per share.

That is why I keep coming back to Reserves per Share (as first presented here), in the table below measured as ounces of reserves per 1,000 shares. It collapses all the usual excuses into a single number: geology, M&A discipline, capital allocation, and dilution.

Solving for Reserves per Share yields a brutal insight: as a group, senior gold miners went from 97.03oz per 1,000 shares in 2010 to 38.26oz per 1,000 shares in 2024. That’s a long-term, structural transfer of value away from existing owners.

Put differently, mining is an awkward place to hunt for moats.

Most industries are structured in such a way that an exceptional entrepreneur can build a business where time becomes an ally. They leverage their unique strengths to establish a strategic advantage, which can manifest in novel ways.

Consumer brands, like Coca-Cola or WD-40, embed habit and distribution. Buffett calls this “share of mind”. Luxury houses, like Hermès, embed scarcity and pricing power. Media and software platforms, like Alphabet, grow revenues while marginal costs remain stable, which is the Network Effect in action.

Great financial franchises, like Berkshire Hathaway or Svenska Handelsbanken, compound because they reinvest into systems, relationships, and underwriting cultures that scale. In Berkshire’s case, the growing insurance float became the cheap capital Buffett could redeploy at attractive returns.

Even in industrials, the best operators build moats through installed infrastructures, service revenues, technical know-how, and procurement scale. Think Siemens Energy and its gas turbine business.

Buffett has a clean way of putting it: the best businesses make time their friend. Bruce Greenwald explains the machinery behind this beautifully in Competition Demystified. The essential point is: When a moat exists, compounding becomes natural because the business gets stronger as it grows.

In mining, that kind of compounding is rare.

True, miners can enjoy a supply-side advantage; they own a specific resource. Yet, that advantage comes with a string of sunset clauses, e.g. reserves are finite, licences have durations. The tough truth is that even the best ore body is a wasting asset in a legal wrapper. This is why land optionality matters so much; it is the closest thing the mining sector has to extending the time horizon of a good asset. And it’s why many “high quality” miners still struggle to become true long-duration compounders.

Worse, resource companies are price takers, i.e. they do not set the price of gold, copper, or oil. (Pro tip: When someone in a Patagonia vest utters the comfortable (but false) macro line that ‘commodities protect you from inflation’, it’s best to ask which part of the chain has pricing power. The cleanest inflation hedge is a company with durable pricing power, not “real assets” in the abstract. Commodity producers often have the opposite. Input costs can rise while realised prices fall. Commodity cycles do not care about macro theses. Remember that please when you read the next stupid line like it.

Worse still is above-ground risk, that inchoate discomfort that masquerades as political interference, windfall taxes, permitting delays, social licence, or good old corruption. That’s when you build the perfect mine with one set of rules and then watch it all slip away as the rules change because of reasons. Investors learned that that hard way, in Panama, with First Quantum’s Cobre Mine in September 2023. They were reminded again across West Africa, including Burkina Faso’s more assertive stance in 2025.

And Western jurisdictions are not immune. The UK’s 2022 windfall tax episode in oil and gas was a blunt reminder that “rule of law” does not mean “rule stability”. In the United States, the slow-motion theatre of permitting and NIMBY politics (Not In My Back Yard) has become its own form of de facto expropriation. No wonder generalist investors keep their distance.

So, if lasting moats are scarce in mining, then where are they and when do they manifest?

Spoiler Alter: Usually not from geology alone, even when the geology is spectacular. Lundin Gold’s Fruta del Norte is as close to what consider a geological unicorn. K92 has extremely rare growth qualities. Island Gold is a very special asset with grades steadily increasing as the mine goes deeper. Yet, the depletion clock still ticks percussive effect on all of them, and above-ground risk still applies in each case, particularly in Ecuador and Papua New Guinea.

However, when a mining company builds something approaching a moat, it comes from the firm’s winning culture, operational excellence, disciplined capital allocation — all of which repeated over decades. You see it in all of the best operators, without exception. That’s why I have previously emphasised what culture does for names like Alamos Gold, Agnico Eagle, and historically for Endeavour Mining.

Which brings us to G Mining Ventures (GMV).

Read more

Let me give you a quick take on the events unfolding in Venezuela. Given oil is part of my circle of competence, as most of you know well, I will keep this short, sharp, and open (no paywall) for all to read. If you enjoy my take, please re-post it.

Dictator Nicolás Maduro, the bus-driver-turned-dictator, is responsible for the deaths of tens of thousands, the exile of 8 million, and the oppression of 34 million people. All of that was primarily enabled by oil riches, corruption, and the “warmth of collectivism”. Yes, the resource curse is real and alive.

Today, the U.S. administration announced his capture in a special military operation. Maduro and his wife were reportedly flown out of Caracas and are now in U.S. custody at an undisclosed location, with the stated intent to prosecute him in New York on narco-terrorism and drug-trafficking charges. AP News+1

So what is next? We do not know. But if Trump decides to reclaim expropriated U.S. oil assets in Venezuela, perhaps even to govern the country temporarily until institutions are re-established, I am all for it. You should be too, if you dare to think it through to the end.

Not only have Venezuelan elites proven incapable of overcoming the resource curse for decades, such a policy would be a blessing for humanity and for freedom. How so? Well, Venezuela is not just another marginal OPEC producer and as one may assume when studying my below OPEC output table over time.

Rather, Venezuela possesses the largest oil reserves globally, with the same conventional qualities as Saudi Arabia does. In other words, it has the potential to influence global oil prices much in the same way as Saudi Arabia does. And as a general rule of thumb, lower oil prices (which is what Trump wants) are a blessing for peace and prosperity.

Before drilling further into geology and barrels, let’s be honest about first principles. In my humble opinion, and I am Swiss, not an American voter, Trump is right when he says U.S. oil assets should be returned to their rightful American ownership. That is clearly his viewpoint. So yes, this intervention is also about oil, not just drugs, and that is exactly where I stand.

As a resource investor, I am sick and tired of watching Western assets get seized by dictators and regimes around the world without just compensation, while Western leaders either look away or hide behind process and polite statements. Let’s not reward corrupt leaders, not now and not ever. Let’s enforce the rule of law wherever Western companies are affected. And even if you disagree with me here (which is totally fine), consider it a blessing as a resource investor as Trump may just have lowered global above-ground risks in emerging markets for all commodities, at least for a while.

Anyway, Venezuela holds the largest oil reserves in the world, much of which once belonged to Western companies who discovered these reserves and developed some of them, thereby paying their just taxes to the country who hosted them.

The Orinoco Belt alone represents the largest oil accumulation on the planet, with an estimated mean of roughly 513 billion barrels of technically recoverable heavy oil. As for reserves, meaning the portion that is economically proven to be recoverable, Venezuela sits on roughly 20% of all known reserves globally, while its oil output on a total market of roughly 85 million barrels per day (not mix it with total liquids output of some 103 million barrels per day) is about 1%. That’s what socialism and corruption do, lades and gentlemen. Under Maduro, people literally died on the street from hunger, for years. Keep that in mind when the next person pitches us the “warmth of collectivism”.

Note: keep in mind that OPEC oil reserves have an incentive to be overstated as it dicates their production quote which is why, for example, every serious geologist will tell you that, as one example, Kuwait’s heavy oil reserves are overstated. But that is unlikely the case for Venezuela’s heavy oil resource, if you study the USGS report carefully. And even if medicore viscosity halves the ultimate recovery in the Orinoco belt, other resource will mostly likely be found elsewhere, including offshore Venezuela (think Guyana). So the pize is big one way or another and allows for substantial production growth over time.

If the American oil industry and the global oil services industry are allowed to lift that prize, Venezuela will outproduce Saudi Arabia in the next decade. Mark it. I told you now. These fields are so conventional, so prolific, that once the sophistication of today’s oil industry gets unleashed on these reserves, the upside cannot be overstated. American entrepreneurship managed to squeeze 9.8 million barrels per day out of tight hard rock called shale. This is like a swimming pool the size of Texas full of oil to be lifted, piped, and transported. The last frontier of oil riches.

Oil production growth would be a blessing for Venezuela across the board: huge tax income, highly paid jobs, and a surge of associated services, from oil services to construction, from leisure and hotels to restaurants, the whole ecosystem. Think Texas, but much bigger. The left will spin it as colonialism. But as Texas and Norway illustrate, it is called capitalism, and it works with institutions, but never with corrupt elites in emerging markets without functioning institutions. Fact. Quote me, anytime, anywhere.

Under the right conditions, Venezuela’s oil output can scale fast, and even “smaller” growth numbers matter in a commodity market where prices are set at the margin.

Start at roughly 900kbpd today. Fix property rights and the rules of the game, and 1.5mbpd within 18 months is a realistic first milestone. That would be led by the majors with the most knowledge, the deepest balance sheets, and the biggest unresolved claims, Chevron, ConocoPhillips, Exxon, and potentially Shell and ENI. All burned in the past. All sitting on substantial open invoices they will want to recover. ConocoPhillips alone reportedly has an incentive to collect more than US$10bn it is still owed. But let’s be clear, ex Chevron, it is highly unlikely the majors will lean in until there is political stability, clarity on who actually runs the country, and a rock-solid legal framework that cannot be reversed on a whim.

Clear the bottlenecks in pipelines, power, upgrading, and ports, and getting back to 3.5mbpd becomes achievable. Here is where big numbers can be deceptive. Assume it takes US$60bn to get pipes, power, and export infrastructure back into proper shape. That sounds huge until you remember that in 2010, the U.S. shale industry collectively spent more than that on wells alone. Capital exists. Capacity exists. What determines speed is the legal framework. Without it, nothing much changes.

And if the rules get rewritten after Trump, or if Venezuela simply morphs from one corrupt mess into the next, then output gets stuck in the 1.5–3.0mbpd range, at best. That is the downside case. But if the rule of law actually holds, an upside case of 10mbpd over the next decade is not fantasy. It is simply what happens when world-class resources are finally developed by a world-class industry.

And here is the key point: it does not need the upside case to structurally lower prices at the pump, globally. If Venezuela simply becomes a consistent 5mbpd producer, think Canada today, and can hold that level for decades, it would at the very least offset future losses from the U.S. shale industry as its fields mature and decline. In a market where the marginal barrel sets the price, that is enormous.

In fact, you do not even need to wait for 5mbpd. The mere trajectory, Venezuela moving from 0.9mbpd to 1.5mbpd next year, is enough to hurt Brent, because the market is already swimming in supply for 2026 and 2027. Yes, physical commodities price in the present and do not discount the future. But in oil, where paper barrels trade in multiples of the physical market, expectations move prices long before the barrels arrive. Trump’s explicit, determined language can set up paper shorts and push the curve lower well ahead of any meaningful Venezuelan supply hitting the water. Think Q4 2018, when he effectively helped drive Brent from US$90 to US$55 on next to nothing other than an Iran waiver and a change in tone.

Either way, lower-for-longer oil prices would be a blessing for humanity.

Again, and given many of you will find it hard to see how Venezuela could grow its oil output meaningfully and once property rights and the rule of law are re-established, let me offer another perspective.

America pulled off something that, at the time, looked equally absurd. U.S. shale oil output grew from 1.8mbpd in 2010 to 9.8mbpd by the end of 2025. In other words, American entrepreneurship built an entire Saudi Arabia’s worth of oil production out of rock. If you include Alaska and the Gulf of Mexico, the U.S. now produces roughly 13.8mbpd in total, which is a different universe from what most people thought was possible 15 years ago.

So what? Here is the point: shale is brutally hard compared with conventional onshore oil. It is not sitting in a friendly underground “tank” of limestone or sandstone where it naturally wants to flow. Shale is trapped in tight source rock, with miserably low porosity and permeability, meaning the oil basically does not want to move. You do not “drill a well” and let it produce. You assault the rock with horizontal drilling, multi-stage fracturing, enormous volumes of equipment, people, water, sand, steel, and capital, just to release small packets of oil at a time. Think hundreds of thousands of barrels per well, not the millions and tens of millions conventional reservoirs can deliver and for years, not a few months like shale and then you have to drill the next hole (which the industry calls the Drilling Frenzy).

That is why the shale revolution is one of the great industrial feats of our time. It was not just a story of geology. It was a story of incentives, property rights, technology, logistics, and capital markets all aligning at once.

Now compare that with Venezuela, and specifically the Orinoco. Whatever you think about heavy oil, and yes, it comes with upgrading and processing challenges, from a pure “can we get the molecules out of the ground” perspective, Orinoco heavies are light years easier to get out of the ground when compared to shale.

A quick look at the slide above gives you a numerical perspective. Shale permeability sits in the 0.001 to 0.1 millidarcy range. The heavy oil reservoirs in Venezuela’s Orinoco Belt typically range from 1,000 to north of 13,000 millidarcies. That is not a rounding error. That is several orders of magnitude. Same story with porosity. Permian shale, the best shale on the planet, typically runs 4–8%. Orinoco heavy oil sands are more like 20–38%. So ask yourself a simple question. Which resource would you rather drill and produce, if politics is kept out of the way? And which one do you think produces lower full-cycle breakevens?

Yes, the U.S. had three massive tailwinds that made shale scale fast. First, property rights. In places like Texas, the landowner typically owns the minerals under their land, which creates a direct incentive to develop it. Second, the oil services ecosystem. Texas has an enormous, decentralised oil services industry that can mobilise quickly and compete aggressively. Third, financing. The U.S. has the deepest debt and equity markets in the world, which allowed shale to be funded at scale, even when it looked crazy to outsiders. Add those together and you get speed.

But here is the punchline: even with all those tailwinds, shale was still a technical nightmare compared with conventional onshore resources in the Orinoco Belt. If American capitalism can manufacture a Saudi Arabia out of tight rock in 15 years, then once Venezuela has functioning property rights and basic rule of law, the global oil and gas industry will rush in and treat the Orinoco for what it is, the last great frontier of oil riches. Because it actually is.

Now, does Trump accept the political risk of nation-building in this case? The answer is yes. That is, in fact, his stated goal, and he says it as plainly as a President ever does. Listen to him yourself.

Trump’s administration will not leave quickly. They want the oil assets back, they want to rebuild the industry, and they want to get paid for past expropriation and losses. That is the strategy, in black and white.

My point? Be very bearish oil prices. Trump’s message is huge. In fact, it’s a game changer for the oil industry where I sit. And yes, nothing will change overnight. But it will change, every day a little more. You have been warned.

Besides, I do not see the risk for this administration in the way the usual critics will frame it. This is not fighting a war in Afghanistan against a hostile insurgency. It is not trying to transplant institutions into Iran or Afghanistan under an Islamic political order with built-in hostility towards Western values.

This is Venezuela. It is culturally Western, overwhelmingly Christian, and it used to be a beacon of success before the socialists around Hugo Chávez and Nicolás Maduro destroyed it systematically. This is fixable.

Now let’s zoom out. This is not just a Venezuela story. It is a global oil price story, and therefore a geopolitical story. Venezuela has the potential to deliver structurally lower oil prices, or at least prices as low as today, for a long time to come (ceteris paribus). If that happens, it will cut the financial oxygen feeding the war in Ukraine and squeeze the Kremlin’s mobsters, substantially weakening the CCP in the process.

And before all of that, the mullahs could be gone too, reinforcing the chain reaction, because they also sit on massive untouched oil reserves waiting to be lifted by the invisible hand of the rule of law.

All of this will break the cheque books of terrorist sponsors in Qatar and elsewhere. And that, ladies, is a blessing for peace and humanity.

You will not hear any of this from the progressive-left “do-gooder” Marxist cult in the coming weeks. But the fact is that lower oil prices are one of the biggest creators of peace and prosperity. Few ever get that.

Instead, the left will raise every objection, however absurd, until they inevitably find themselves siding with murderers and dictators. Such are the rules of the legacy media game today, sadly. They are strictly partisan.

Of course, the Venezuela episode is far from over, and the final outcome is not written in stone yet. But Trump may well deserve the Nobel Prize if luck, ongoing courage, and good decision-making remain on his side. For now, he is on track where I sit.

Therefore, let us give credit where credit is due. We shall praise and criticise each action on its merits, never by partisan colour. Well done, Donald Trump and team.

And please, do not dare criticise this surgical, highly successful military operation for even one second. Salute it. I do.

Warm regards
Alexander

PS: For good order sake, here is the full press conference of the operation yesterday night and for our archives.

High quality asset with a clear pathway to first gold

Eskay Creek is a sizeable, high grade open pit project, grading roughly 3.5g/t gold equivalent. The mine plan targets around 450kozpa gold equivalent production in years 1 to 5 and roughly 320kozpa over a 12 year mine life. With AISC below US$900 per ounce in the feasibility study, Eskay sits in the rare category of high margin projects in a tier one jurisdiction.

What makes this story particularly interesting is that it is not a typical greenfield discovery that still needs to invent its infrastructure. Eskay is a brownfield re start with significant legacy assets, including road access, camp infrastructure, and most importantly an existing permitted tailings facility. This materially reduces both capex intensity and permitting loop risk, and it helps explain why management believes first gold in H2 2027 is achievable.

At today’s price, Skeena trades at a material discount to NPV, roughly 0.55 times, despite the project now having a clear catalyst pathway. Over the next 12 months, we expect further de risking to drive a re rating through three primary levers. First, final permitting milestones, including formal consent under the Tahltan framework, which until recently was the dominant political risk but isn’t anymore. Second, continued de-risking of capex and execution, including engineering progress and early works. Third, the potential buyback of the Orion gold stream, which would increase unencumbered leverage to gold and silver prices and improve equity quality.

In short, the project has moved from being a permitting and governance question to becoming an execution and valuation question, and that is where the market typically begins to pay most attention, and not just institutional investors, also the competition.

Eskay Creek, A Mine the Gold Price Left Behind

One of the cheapest and least risky ways to find a new gold mine is not to explore for gold, but to revisit old gold mines that were placed into care and maintenance because the gold price at the time no longer justified continued production. The industry refers to this as brownfield exploration, as opposed to greenfield exploration.

The advantage of this approach is simple. Historical mines come with data. Technical reports, drill logs, production records, and cut off grades already exist. In theory, if one takes a systematic view across closed gold mines and revisits the cut off grades that defined resources decades ago, it becomes possible to identify ounces that were uneconomic then but profitable at today’s gold prices. There is no magic involved. It is mostly arithmetic, discipline, and patience.

This is precisely what Walter Coles did in 2018. His background as a credit analyst at UBS in New York, perhaps, allowed him to see the forest for the trees at a time when gold prices were still relatively uninspiring. Somebody had to do the work, take a view, raise capital, and act. Walter did. Today, he owns roughly 4% of Skeena Resources, which seems well earned.

Walter identified Eskay Creek as a target within the so called Golden Triangle of northwestern British Columbia. The Golden Triangle is one of Canada’s most prolific mineral belts, host to both historic and current world class deposits. Seabridge’s KSM sits within the region. Brucejack, now owned by Newmont, is located there as well, along with its famously challenging high grade geology, which I have mentioned more than once by now.

Eskay Creek’s history stretches back to 1932, when prospector Tom Mackay first recognised the area’s unusual geological potential. Lacking modern exploration tools, Mackay relied on surface sampling and was unable to locate the core of the ore body.

It took more than fifty years for Eskay Creek’s true potential to be revealed. In 1988, a new exploration syndicate returned to the site under the guidance of legendary Canadian geologist Ron Netolitzky. Consolidated Stikine Resources, together with Murray Pezim’s Calpine Resources, initiated an aggressive drilling campaign. After 108 drill holes, it was hole 109 that changed everything, intersecting 27.2g/t Au and 30.2g/t Ag over 208m.

Following permitting, Eskay Creek entered production as an underground mine in 1994. Over the following 14 years, Eskay Creek produced roughly 3.3Moz of gold and 160Moz of silver at average grades of 45g/t Au and 2,224g/t Ag. It became the highest grade gold mine in the world and, by volume, the fifth largest silver producer globally.

In 2008, in the midst of the Great Financial Crisis, Eskay Creek ceased production and was placed on care and maintenance. Gold prices at the time were roughly US$872/oz. In simple terms, an underground cut off grade of 15g/t Au was no longer sufficient for Barrick Gold to justify continued mining. Despite its exceptional grades, Eskay Creek operated as a diesel and propane powered underground mine, which made it a high cost operation by the standards of the time.

After sitting dormant for several years, Walter Coles, through Skeena, secured an option to acquire Eskay Creek from Barrick Gold in 2017. In 2020, Skeena exercised that option and became the sole owner of the asset. In 2019, Walter also acquired the nearby Snip mine from Barrick, located west of Eskay Creek, for zero consideration plus assumed environmental obligations of roughly US$3m. Snip is another brownfield asset, formerly a high grade underground gold mine, and comes with extensive historical drilling and production data.

Below is a short clip of Walter Coles explaining how he approached the Eskay Creek opportunity, in conversation with Rick Rule in June 2024.

Before turning to the specific permitting framework at Eskay Creek, it is helpful to step back and clarify the geological risk differences between open pit and underground mining. That distinction explains not only why Eskay Creek looks the way it does today, but also why I deliberately structured the order of company discussions in this Substack the way I did.

We now turn to geology.

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Mining veteran Sean Roosen’s message for the industry: “Shut up and drill”

Gentle Reminder

Before diving into Osisko Development, a brief note. The easiest way to extract value from this Substack is to revisit my earlier pieces on underground gold miners, namely Alamos Gold, Lundin Gold and K92 Mining.

They outline some technical foundations and investment principles that matter most in this sector. I won’t repeat those lessons here and in future posts. Instead, I build on them. A quick refresher will help frame the analysis that follows and make the nuances of this post far easier to absorb.

Mining Developers and the Lassonde Curve

Before assessing Osisko Development, it is worth revisiting a framework that has guided my thinking for years: the Lassonde Curve, named after Franco-Nevada co-founder Pierre Lassonde.

The Curve is not a law of nature, but it is one of the most useful mental models for understanding how value is created and destroyed during the mining life cycle. It maps the major inflection points in a project’s journey and helps investors distinguish between geological uncertainty, permitting and funding risk, construction risk, operating risk and above-ground jurisdictional risk. Over time, it has helped me identify where genuine alpha in this sector tends to emerge.

The Curve follows a simple narrative arc. It begins with the concept phase, when a company acquires ground, conducts early mapping and sampling, and tries to raise capital on a geological idea. If the rocks respond, the project enters the discovery phase, where drilling defines the scale and quality of the mineralisation. This is often the moment of maximum excitement and maximum volatility, because the market is forced to update its priors in real time.

If a discovery holds together, the project moves into the feasibility phase, where engineers, metallurgists and financiers replace the geologists. Here, PEAs, PFSs and FSs translate drillholes into mine designs, capital budgets, operating cost estimates and economic models. The romance of discovery gives way to spreadsheets, trade-offs and discipline. A strong feasibility study can re-rate a project; a weak one can collapse it.

From there, the Curve descends into the development phase, the part of the cycle that destroys the most value. This is where permitting, funding, inflation, labour shortages and cost overruns collide with reality. Only once construction is complete does a project reach the start-up phase, where the mine produces its first metal and the market finally learns whether the geology, engineering and cost assumptions were accurate. By then, the risks are fewer, but so are the potential returns.

The Lassonde Curve does not tell you whether a specific project will succeed. It is not a substitute for technical and common sense due diligence. But it does remind us that the market consistently misprices risk as a project moves from imagination to execution, and that the sharpest opportunities, and the most painful losses, tend to cluster around the transition points. Understanding where a company sits on that curve is often half the investment decision.

And here is how Sean Roosen positions the company on the Lassonde curve. He basically pitches a re-rating, i.e. construction start to producing gold miner (development stage), along the lines of G Mining Ventures and Artemis Gold, two of the best gold companies in the sector (I will discuss both these companies in December). Is this realistic?

Ticking All the Development Boxes?

At first glance, Osisko Development appears to tick every box required to catch the next upward leg on the Lassonde Curve.

The company controls roughly 4.5Moz of resources at Cariboo in British Columbia, with a risked NAV at spot of about C$3.4bn. On a fully diluted share count of 377 million, assuming the 19.1 million warrants do not meet their strike, this implies a value of C$10.25 per share, or roughly 108% upside from its close on 30 November 2025.

The headline story seems attractive. Cariboo, the company’s flagship, is now fully permitted at the provincial level and fully financed as of Q3 2025. Construction should begin in 2026, with first gold at the end of 2027 and a ramp-up to 4,900tpd some time in H2 2028. The entire effort is led by Sean Roosen, one of mining’s few modern-day legends. For a gold developer in a Tier-1 jurisdiction, this combination of scale, permits, financing and elite leadership is rare.

Viewed against the broader development universe, Cariboo stands out. Rupert’s Ikkari is high quality but remains years from first gold and still sits in the permitting maze. Skeena’s Eskay Creek is not yet permitted but already sports a US$2.2bn valuation. Perpetua, heading toward a federal Record of Decision, is valued at US$2.5bn. Probe Gold’s Novador has just been taken out by Fresnillo. Snowline faces a long and uncertain permitting risk and infrastructure cost road in the Yukon. Coffee, now owned by Fuerte Metals, has major execution questions ahead. Seabridge and Novagold each require US$8bn+ and remain too large for the usual financing channels for now (think dilution). West African names like Montage Gold or Robex–Predictive are interesting but carry jurisdictional baggage and share overhang risk, if you studied it closely.

Note: we will discuss all the relevant names above over the coming weeks.

On that landscape, Cariboo can look irresistible. A permitted, financed, construction-ready Canadian gold project with multi-million-ounce scale and a household-name operator at the helm. For many portfolios, it feels like the project you “have” to own.

And Sean Roosen sells this vision masterfully. In one interview he even jokes that you can order pizza and McDonald’s from the mine site, proximity that most developers could only dream of. He is an outstanding communicator and, more importantly, an outstanding miner. None of that is in doubt.

But now we must turn to what really matters and what will drive the success or failure of this project far more than permits, infrastructure or charisma. This is where the narrative stops being all blue sky. The central issue, again, is geology.

Before walking through it in detail, listen carefully to Roosen himself. At Minute 7:15–7:45 of the interview, he says:

“And we know it’s there, but we didn’t do enough detailed drilling to define it. And we’ve averaged about 1.2 million ounces of overall resource for every kilometre that we’ve drilled over the 4.4 kilometres. So the next plan is, so we’ve got the main 2.2 million ounces. 2 million ounces is there, the measure indicate and inferred. That’s in and around. That is the next plan. The ‘at depth target’ is just to keep extending these vein corridors. At depth it is this orogenic system. Very, very predictable, very knowable.”

This is where the story becomes more complex—and where the technical realities matter much more than the marketing sheen.

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Winter is Coming

High time for an update on my beloved natural gas sector.

What should have caught your attention is the relatively muted price action in TTF and JKM as Europe enters the winter with storage levels around 82%. To be precise, Europe begins the heating season with 86.5 billion cubic meters (bcm) of natural gas held across 19 countries that provide storage for 28 European nations — our relevant perimeter for TTF price formation, including the UK, Switzerland and Norway, but excluding Ukraine and Turkey.

That is a low level in the post-Gazprom era. In fact, it’s the lowest since the post-Covid winter of 2021/22, when Gazprom, already preparing for its illegal invasion of Ukraine, stopped filling its European storages in Germany and Austria. That same winter, Europe entered with just 78.7bcm in storage. By 2022, Gazprom — at the Kremlin’s order — had shut off nearly all pipeline supplies to Europe (flows through TurkStream remain but are marginal). The aim was to fracture Europe’s political, military and financial support for Ukraine. The result was the most violent price spike in TTF history, which dragged Asian markets higher alongside it.

Since then, Europe has filled the 180bcm void left by Russia with higher LNG imports and lower consumption. What it has not done is replace those lost pipeline volumes — neither through Azerbaijan or North Africa nor through a revival in domestic output. In fact, production has kept falling since 2018, thanks largely to “green” policies in the Netherlands and the UK. Both now produce substantially less natural gas than they did seven years ago. Think of Groningen, once a top-ten global field, shut down because of tremors so minor they’d make every Japanese smile.

Europe, in short, now depends on LNG from across the world to keep its households warm through winter. Were Europe to import the same 68bcm of LNG between October and March as last season, and given today’s relatively mild weather forecasts, storages would fall below 10% — an emergency threshold. Pipeline systems must maintain a minimum pressure to function; below roughly 5%, the system risks mechanical failure.

And yet, speculative positioning in TTF — the benchmark European gas contract — has been steadily unwinding. From a February 2025 peak of 292TWh in speculative longs, the market fell to 202TWh around this time last year, when storages were completely full. Now, with storages at only 82%, net speculative longs have collapsed to 46TWh and could turn neutral by November. Who knows.

The Calm Before the Winter Storm?

So why is the market so calm?

Some may argue, intuitively, that Europe is sliding into a technical recession and that industrial demand for gas and power will be weak this winter. But the recession is likely already here nor is it particularly relevant. What drives European gas consumption are households, not industry or power generation. And some 237 million European households — including those in the UK, Switzerland and Norway — will inevitably turn up the heating as temperatures fall.

The correlation is stunningly clear, as we’ve shown time and again. From Edinburgh to Rome, from Amsterdam to Bucharest, consumption rises as temperatures drop below 20 °C, and it accelerates exponentially once we fall below 10 °C. Green transition rhetoric aside, the numbers speak for themselves, month after month since 2019. For those of us who care about data, it’s deeply satisfying.

Because of these correlations, we can now forecast European gas demand with remarkable precision. The method is straightforward: country-by-country consumption models built on four independent European weather forecasts, weighted by their certainty. To this, we add industrial demand (adjusted for economic indicators) and power-sector gas use (adjusted for spark spreads and other electricity metrics). The more we refine it, the more accurate and responsive the model becomes — perhaps even a step towards automated trading execution one day.

We’ll see.

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Why is K92 A Special Situation?

K92 is a scrappy operator’s masterclass.

Under John Lewins, a narrow-vein, undercapitalised asset that most misunderstood—Barrick included—has been turned into a high-margin growth engine through incremental geological intuition, focused exploration, careful engineering and disciplined reinvestment. Restarted in 2016 and declared commercial in 2018, it is no longer a promising teenager; it is a tier-one athlete hitting its stride.

What sets it apart is not a slide deck but a production profile and a cost base. K92 is moving into the 400,000 oz Au-equivalent class, with one of the lowest unit costs in our universe—thanks to a superior cost structure (grid power, access, paste backfill, mechanisation, geometry, labour costs, etc.) and copper and silver by-product credits that the market has barely priced.

This is also an execution story, not a promotion: grades and continuity in a “spaghetti soup” of veins—but really golden curtains, as I explain below—access opened and mechanised; and, crucially, the best near-mine resource endowment in our universe, much of it still to be declared as resource over the coming years by one of the largest exploration teams in gold mining. Huge.

All of that comes without financial leverage and with low operational gearing, courtesy of the superior cost structure. Just as important, the current growth leg carries minimal, if any development risk: the key expansion building blocks such as the new processing plant, paste plant and underground development access are already in place. Very special.

The kicker? John Lewins has executed this brownfield revival with the least equity dilution per ounce we know of. K92 may yet prove the most successful mining growth story—across commodities—with the lowest dilution per ounce produced from start to finish. A tier-one athlete on a value multiple, hiding in plain sight.

How Kainantu Found its Pulse Again

When K92 Mining bought the abandoned Kainantu mine from Barrick in 2014, the consideration was intentionally light up front and heavy on success: US$2m cash, a contingent US$60/oz on the first 1Moz produced, and a 2% NSR in Barrick’s favour. It was a classic “pay as you prove it” deal.

The original operation started construction in 2004 and came into production in 2006. Barrick acquired the mine in December 2007 from Highlands Pacific. Under Highlands, output was 27koz in 2006 and 32koz in 2007; under Barrick it managed a mere 10koz in 2008—69koz in total—before the mine was placed on care and maintenance in early 2009. Barrick’s rationale was straightforward: narrow-vein geometry and high operating costs made the mine uneconomic at prevailing gold prices.

Reading Barrick’s 2007 announcement with hindsight and the point is obvious: the acquisition was never really about the struggling mine; it was about the 2,900 km² land position.

By 2015, when John Lewins and team took over, Kainantu wasn’t a turnaround so much as a rescue—albeit one with roughly US$100m of sunk development to access Irumafimpa and Kora and a small processing plant. After seven years of care and maintenance, the tunnels were flooded, the plant was idle, and the highlands jungle had begun to reclaim the site. Not an easy brownfield set-up.

Before the details, look at the site yourself: three Google Earth history screenshots (September 2015, July 2022 and August 2025) tell the story of a mine being brought back to life.

What looked like failure to a major with a 30,000-foot portfolio view in 2009 was opportunity to a team that understood how to treat a small, high-grade system. A firmer gold backdrop helped: gold averaged US$1,160 in 2015, US$1,393 in 2019, then broke out to US$1,770 in 2020.

Crucially, the government renewed Mining Lease ML150 and no state equity was imposed. Kainantu carries no 10% free-carried interest at the mine or company level. Papua New Guinea participates via royalties and taxes, not share ownership: a 2% royalty (NSR/FOB basis), the 0.5% MRA levy on mine revenue, and 30% income tax, alongside landowner agreements.

Important Risk Assessment:

The statutory right for the State to take an equity stake can apply to new mining leases in Papua New Guinea, but K92’s current ML150 carries no such provision. Politically, alignment still comes from operating performance, stable relationships and benefits flowing to landowners—not from a carried interest. But a possible development of Blue Lake within the Exploration Licence 470 (EL 470) may change that conversation. Also, to our knowledge there is no Standstill Agreement in place to legally protect (in practice everything can change) the current status quo, similar to Fruta del Norte, for example.

Geological Comparison

Before drilling into Kainantu’s operation, it helps to anchor the deposit against the underground case studies we have already covered—Island Gold, Young-Davidson and Fruta del Norte—using the same simple comparison table to keep the contrasts sharp.

Kainantu is a high-grade, narrow-vein epithermal system with pronounced variability in thickness both between and within the principal lodes, yet with consistently very good continuity along strike and down dip. In round numbers, working widths sit in the narrow-to-moderate camp, with true thickness commonly in the 1–15 meters range and resource grades in the mid-to-high single digits for gold.

That geometry puts Kainantu near to the Island Gold deposit, not bulk-tonnage underground archetypes: not as high-grading as the best Island Gold panels, but generally thicker and with comparable continuity—exactly the sort of profile that matters for stope design, dilution control and mine scheduling.

Set against Young-Davidson, the differences are first principles. Young-Davidson lives on volume rather than grade: orebody thickness on the order of 80–120 meters enables bulk mining at low single-digit grades, a strategy that optimises unit costs through scale but depends on sheer tonnes moved.

Kainantu extracts value through selectivity. Mining widths are measured in metres, not tens of metres; production leans on long-hole stoping and cut-and-fill to preserve head grade and contain dilution; development is targeted to chase discrete, steeply dipping lodes rather than to sweep a broad, homogeneous panel. It is a different cost and risk equation.

Fruta del Norte, by contrast, is the unicorn that combines thickness with high grade and excellent continuity. A deposit capable of 100–150 meter mining widths while still carrying resource grades around 7g/t for gold is rare, and it compresses both operating and capital intensity per ounce. Kainantu cannot claim that blend of bulk width and high grade; what it does have is a disciplined narrow-vein architecture that delivers continuity over kilometres of strike, allowing value to compound by repeating well-understood stoping patterns at scale.

The Golden Curtains of Kainantu

When geologists speak of a narrow-vein system, most of us non-geologists instinctively picture our own human blood vessels — thin, branching, fragile. At least that’s what happens in what Daniel Kahneman calls System 1 in his brilliant book Thinking, Fast and Slow: when certain words are spoken, intuition takes over.

But in this case, intuition deceives us. That mental picture is a misleading one as it doesn’t do this geological system any justice. The “narrow veins” of the Kainantu Mine — the Kora and Judd systems — are not fine threads of gold, but rather steep, towering curtains of quartz, sulphides, and metal running deep through the mountain.

Technically, the term narrow-vein system is of course correct. But “narrow” refers only to thickness — typically one to fifteen metres wide. Imagine a bird, or avatar with laser vision, flying over the Kainantu mountainous region able to look through solid rock. From his vantage point high above, he would see two glowing lines buried in stone — perhaps like spaghetti laid out beneath the surface.

These “spaghetti” (lines in red above) would be astonishingly long — literally kilometres in what geologists call strike length (strike, by the way, has nothing to do with labour disputes or lightning bolts here, more with a poorly developed English vocabulary). Our laser-eyed avatar would see these narrow veins stretching for two to three kilometres, their thickness expanding and contracting from one to fifteen metres as they undulate through the rock. Huge dimentions.

But the real beauty of Kainantu would only reveal itself to our avatar if he could slice the mountain open into its cross section like a cake, right along the lines of those veins. Inside, he would find mineralized curtains of gold, copper, silver, and quartz hanging down for hundreds of metres — what geologists call their vertical extent (or down dip). Johan Wolfgang Goethe wouldn’t approve of such simple words, but it is what it is.

So don’t imagine tangled spaghetti in stone. Imagine instead long, folded golden curtains, descending vertically through the crust — continuous lodes where mineral-rich fluids once surged upward, cooled, and crystallized. In some places, these curtains swell — forming dilatant zones, where the rock cracked a little wider and trapped more quartz, sulphides, and gold. Those are the rich pockets — the geological knots of fortune, with a mix of gold and copper clitter.

Kora and Judd run side by side, like twin arteries of an ancient geological heart, shaped by the same tectonic rhythm and fed by the same molten pulse. Nor is it a two-vein curtain of Kora and Judd. The 2024 technical report sets out at least nine other golden curtain siblings: Judd (including Judd South), Kora (including Kora South), Karempe, Irumafimpa (Barrick’s original production target), Mesoan, Mati, Bona Creek, Maniape and Arakompa. That is the visible family; the geophysics hints at more.

This breadth flows from John Lewins’s pragmatic approach to exploration. When he and his team reopened the mine from Barrick in 2017, they did not declare reserves. They kept disclosure at resources, fully aware that spending scarce capital to engineer reserves in a narrow-vein system—before underground access and close-spaced drilling—would waste time and money to appease generalists who would not grasp the geometry anyway.

Instead, they restarted with limited but well-aligned capital and a clear aim: let production fund exploration. Cash flow has since underwritten the drill-out of multiple targets, with Arakompa the current standout—growing rapidly and not yet even a declared resource. The company will bring in two more surface diamond rigs to arrive in late Q4 2025, supporting a significant ramp-up in its exploration. That is land optionality at work: acquire a district, open the cash register and let geology compound. It is, within the rules, the clean way for you to front-run Wall Street too.

The menu is already a small but excellent meal—and it gets better. The technical report points to the likely price of this spaghetti soup, and it is large. A helicopter-borne electromagnetic survey, flown in November 2021 by Expert Geophysics Limited, mapped the property at depth and outlined it in a technical report. The programme delivered a far greater depth range than was technologically possible before. Think of it as geology’s analogue to improved seismic tech in oil and gas: higher fidelity, deeper penetration, better targeting. In short, a sharper, bigger image where a smaller, blurred one once stood.

Data were collected along east–west lines nominally spaced at 200 metres, with north–south tie lines at 2,000 metres. The conductivity maps light up the known lodes and, more importantly, illuminate many more noodles plus a few likely bolognese pots. The grey “interpreted structures” (below in grey) are new spaghetti strands yet to be drilled and potentially converted into resources, and there are loads of them. The yellow-circled zones mark porphyry targets—the sauce. We will return to those.

The 2024 report says it plainly. The airborne deep-penetrating geophysics over the entire property shows strong correlation between known deposits and conductive bodies. A swathe of high Apparent Conductivity extends from Kora and Judd into EL470 for several kilometres, and a longitudinal section shows the same highly conductive corridor north and south of the Kora mining centre.

The conclusion is unambiguous: there is extensive untested strike potential to the Kora–Kora South and Judd–Judd South vein systems beyond the A1 porphyry to the south-east for several kilometres. The programme also identifies new vein and porphyry targets on K92’s licences and highlights known mineralised porphyries, including A1, Blue Lake, Tankaunan and Timpa.

Now let that settle and glance at the reserve and resource table for Judd and Kora alone. Gold resources and reserves for those two veins total 6.38 Moz. Add silver and copper and the package equates to 8.8Moz AuEq, supporting a 27-year life at 240,000oz per annum, which the company is set to deliver from 2026. These veins are not bounded; both remain open at depth and are likely to lengthen as development advances and provides ever cheaper underground drill platforms. That is how narrow-vein systems behave when the lodes are continuous and the structure is coherent.

Now layer in the rest of the vein systems already mapped—and the additional structures now outlined by geophysics—and the size of the prize comes into view. The district potential is very large. A 20Moz gold endowment or more is within reasonable geological expectation.

Have I misplaced my marbles? Hardly. The number is defendable. A 20Moz district endowment sits well within reasonable geological expectation—strictly as an exploration target, not a resource—and the distinction matters. Here is the sanity check, built only from what we can see and measure today.

Time will decide what the drill bit delivers, but the investment point is balance. Geologists are paid to be conservative; their craft is humility before geology, because Mother Nature punishes hubris without appeal. At the other pole sit the Silicon Valley promoters—Elon, Cathie and friends—who can conjure trillion-dollar valuations from a sketch and a slide on “TAM expansion”. Hand them land optionality and they would price Kainantu at 100 Moz booked by tomorrow morning. Neither instinct serves capital well. Too conservative and you rack up silent opportunity cost; too promotional and you incinerate cash.

In my humble opinion, our job as resource investors is to sit between those extremes: recognise that land optionality has real, compounding value when the geology is predisposed; insist on disciplined capital allocation and let production pay for proof; refuse to badge exploration upside as reserves or resources until the drill core says so; but allocate capital where land optionality is waiting to happen. Then let time be your friend and invest for the long term. Find a few of those and take a holiday.

This series began with Alamos Gold for a reason, and K92’s spaghetti soup earns its place on the table precisely because it rewards patience without requiring faith. And no, three elephants in a row — those being Alamos, Lundin Gold and now K92 — does not mean they’re as common as mice — you won’t find them on every corner. What you do get in this Substack is the benefit of my pre-selection. If this work proves useful, I’d be grateful if you shared it with a few like-minded investors; it helps justify the time it takes to do it properly.

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“Early on I learned that it takes as much time and effort to do a small project as a large one.” Adolf Lundin

Girlfriend, Not a Marriage

I first met Ron Hochstein at a classic speed-dating session—Berenberg, Zurich, 2018—when they pitched me Lundin Gold. I knew the Lundin dynasty from the oil patch. Lundin Petroleum rode Johan Sverdrup and was the best value for money on the Norwegian Continental Shelf besides Aker BP, by a country mile. But I wasn’t into gold miners; gold trades off real rates and I wasn’t exactly bullish on the metal.

Still, it was a Lundin outfit, so I burned 45 minutes crossing town—almost as big a waste of time as broker speed-dating. My mindset: maybe a girlfriend, not a marriage. Once the dog-and-pony show ended, I asked two things: how do you work with Lukas Lundin (mining side; Ian Lundin ran the oil side), and if you had a silver bullet, which competitor would you take out?

Ron was mid-construction and looked appropriately stressed. His answers: “two to three times a day,” and “Pretium.” Yes, you read that right. Lukas Lundin—who ran many operations, including Lundin Mining, Bluestone Resources (a gold development that was left for dead later), Filo & Josemaria (both copper explorations in Argentina which took off big later; no, they didn’t own NGEX back then)—called Ron multiple times a day for construction updates.

Anyway, Ron delivered on time and on budget. Or rather, the Gignac family did—with their mine-construction firm, G Mining Services. Today I know they’re the best construction team on the planet—mining hall-of-fame material. Back then, I had no clue. Remember the name; we’ll come back to them in this series.

The Lundin Gold stock, meanwhile, gyrated in 2018 like a pole dancer on an oil-slicked stage. Not much of a Lassonde Curve to admire. Only in June 2019 did it finally move—from C$5.10 to C$8. Partly because it was nearing commercial production (declared in February 2020), but also because gold did a 20% shuffle from US$1,250 to US$1,500.

Miners were hated across the board—precious, base, anything metallic. Why go asset-heavy when you could own Google’s asset-light recipe? When my “girlfriend” finally perked up, I happily passed her to the next suitor at C$8. Early 2020, the stock overshot gold as commercial production was announced for a few weeks, then cratered back to C$5 during Covid when Q2 2020 production went dark.

From there Ron delivered—or overdelivered—quarter after quarter, and yet the stock merely tracked gold for roughly 10 straight quarters, just with more whiplash. So no, you’re not gonna win a market-neutral set-up as a hedgy in metals. By July 2022 it was back under C$8, broadly in line with the metal. So much for the “leveraged play” in a quality name; it traded more like a guaranteed put on a slippery earnings print. That 2018 meeting taught me more about gold mining than I realized—less romance, more cash flow; keep the relationship casual until the geology proves it wants a ring.

And for the record, I owned Pretium too. That was the real stomach acid. Why, you ask? Try my last post on Alamos. The answer’s there—assuming you can read. Hint: geology. No, Pretium’s problem wasn’t grade; it was nuggety, discontinuous geology—bonanza pockets stitched through blank rock, the textbook nugget effect. Wall Street hated it. Bottom line: nature and quarterly reporting are rarely a match made in heaven.

Fun fact:

Lundin Petroleum, born in 2001, discovered Johan Sverdrup. Yes, Statoil showed up later, but Lundin made the first strike in 2010 on Avaldsnes with well 16/2-6—later recognized as part of Johan Sverdrup.

Why does that matter? Because Johan Sverdrup is, by far, the largest conventional offshore field in the North Sea today (Ekofisk/Statfjord were bigger in their days): 2.7 billion barrels of recoverable reserves and a plateau capacity up to 755,000bpd—roughly a third of Norway’s current oil production. Let that sink in. And yes, just like the best deposits, Johan Sverdrup only got bigger as the drill bit did the talking.

After the merge with AkerBP in June 2022, their Working Interest in the field is 31.57%. Nemesia, the primary investment vehicle of the family, holds 14.38% of AkerBP as per Bloomberg at the time of this writing, worth US$2.2 billion.

Better Lucky AND Brilliant: The Fiscal Turn That Made Fruta del Norte

Lukas Lundin bought Fruta del Norte (FDN) from Kinross in December 2014 for US$240m—US$150m in cash and US$90m in Fortress common shares (today’s Lundin Gold).

At the time it was one of the largest, highest-grade undeveloped gold projects on the planet: 36 mining concessions over 64,300 hectares in southeast Ecuador, 80 km east of Loja. In Kinross’s book, FDN carried 7.2Moz M&I and 2.5Moz inferred. To prove up the system, Aurelian—the original discoverer—and later Kinross drilled at least 141,000 exploration metres from 2006 to 2012 in proper jungle conditions. In today’s drilling-cost terms, that’s roughly US$50m before technical work.

Kinross walked in 2013 after failing to agree key fiscal and legal terms with Ecuador, including a punitive windfall-profit construct of 70%. The government also wouldn’t grant the stability Kinross wanted. Mining is long term. Hence, good mine operators want a legally binding standstill agreement that is enforceable under international arbitration. Consequently, Kinross took a US$720m write-off (mostly non-cash), including US$20m in severance and closure, and treated FDN as discontinued. Despite sabre-rattling over the licence timeline, Kinross ultimately sold to the Lundin group.

For perspective, in 2014 Kinross produced 2.7Moz GEO (gold equivalent) and carried 34.4Moz reserves, 23Moz M&I and 4Moz inferred, with a US$3.2bn market cap. In other words, the market valued all of Kinross’s resource at US$52/oz with gold at US$1,266/oz. Kinross sold FDN for US$25/oz of resource. Today, markets value 15Moz of FDN resources at north of US$1,000/oz—forty times that. Not bad.

Did Kinross blow it? Not ex-ante. In 2013–2014, Ecuador’s regime under Rafael Correa (notably the 70% WPT) made FDN uneconomic for a major at US$1,300/oz. The mine was in the middle of nowhere and required power lines, roads and plenty of upfront capital. The US$240m exit was rational. One could even argue it was a good price, likely replacing most of Kinross’ cash cost. Who knows.

What we do know is that Latin America had the usual above-ground noise around that time. On 6 February 2016, The Economist was tallying social-licence conflicts across the region. Chile’s Supreme Court suspended Pascua-Lama; Colombia’s courts blocked Mandé Norte. Latin America has the metals endowment across the periodic table, but politics were (and are) a contact sport. And that is why Ecuador remained a mining minow. It had a mere 60 mines operating in 2015 and registered 7 conflicts in the piece. That is 12%—“Lodes of conflict,” as the title of the graph correctly reads.

Only after Lenín Moreno took office in 2017 did Ecuador finally grow up on mining policy—the 2018 reform killed the 70% Windfall-Profits Tax (WPT) for mining and made the regime investable. But when Lukas bought in December 2014, the “reforms” (Decree 475 and a grab bag of incentives) were lipstick on a pig; the 70% WPT still hung over the model. For a portfolio major, FDN screened poorly. And Quito wasn’t offering squatters’ rights: work it or risk the licence. You can’t have your cake and eat it too. Lukas was a risk taker in the Lundin family sense. Adolf is quoted to have said, “no risk no glory”. It lived on in his most capable sons.

By 2016, Lundin announced the adult thing—paper first, rocks second. Call it proper risk management. The Exploitation Agreement locked the project’s fiscal rules and clarified how the WPT would work: it would apply only when the metal price exceeded a stipulated contract “base price,” and only after FDN had recouped its cumulative investment (the Government even floated “payback + four years” during the legislative clean-up). In plain English: the 70% take hit just the price-above-base slice, not every dollar of profit, and not until the mine had paid itself back. The contract also included a US$65m advance royalty—unusual for most mining jurisdictions, but part of the bargain to get bankable certainty for a worldclass deposit.

The Investment Protection Agreement signed later in 2016 layered legal and tax stability on top: a fixed 22% income-tax rate for FDN, ISD remittance-tax relief on debt service, and most-favoured-investor style protections. But none of that repealed the WPT. It just made the playing field knowable while the politics caught up. The actual repeal of the mining WPT arrived in 2018 under Moreno’s Ley de Fomento Productivo. That’s when the windfall tax finally left the stack. That was the game changer. And that was lucky.

Today, Lundin Gold still pays plenty of taxes. If you own the stock, study the fiscal take as closely as grade and capex—it defines intrinsic value. Ecuador mandates a 15% profit share on pre-tax profits in mining: 3% to employees, 12% to the State. It shows up as 3% in operating costs and the 12% in the tax line.

On headcount, Lundin doesn’t list employees in the AR, but 2023 sustainability materials note 1,907 employees (local press pegs 2024 in the same ballpark). That’s a lot of paycheques tied to one mine—a real, tangible resilience mechanism in a country-risk discussion. Our calculation suggests FDN will pay out US$334,000 per employee, assuming a US$4,000 price deck, ceteris paribus.

FDN’s operator, Aurelian Ecuador, pays a fixed 22% corporate income-tax rate (CIT) for the life of the mine under the IPA, even though Ecuador’s headline rate rose to 25% in 2018. So that is good news. It shows some fiscal stability. It’s the little things that matter in judging country risk. Also, Profit Shares are deductable for the purpose of CIT. Sensible.

FDN obtained relief on debt service in the so-called Impuesto a la Salida de Divisas (ISD)—Ecuador’s tax on the exit of foreign currency. Dividends can qualify for ISD exemptions subject to the usual conditions, which we assume too. As social influencer and presidential candidate Gloria Álvarez in Guatemala explains: Latin America knows 50 shades of socialism. Finally, under the Canada–Ecuador treaty, dividends to Lundin Gold carry 5% withholding (treaty conditions apply); without treaty relief, Ecuador’s domestic rule is 10%.

In our intrinsic value work we thus model the stack as 15% profit share + 22% income tax + 5% dividend WHT, with profit share deductible before CIT and dividends paid after tax, the effective take lands below 42%. Not great, but certainly more competitive than many African regimes that layer equity carries up to 15% on top of royalty and income taxes.

In all, Lukas had timing and spine. Better lucky than brave, sure—but they were both. You couldn’t guarantee the political turn in 2017–2018; you could position for it. He sure did. But let’s be frank: the FS 2016—before the turn—suggested US$669m upfront capital to put the mine to work. The gold price in 2016 and 2017 averaged more or less US$1,250.

If we were to apply that price deck in our model with a 70% WPT, FDN would have had a hard time returning its invested capital—we mean ever. Even with the capital-recovery protection agreed in 2016, it still would have struggled to pay dividends later at a US$1,250 gold deck. Water under the bridge.

The IPA, combined with the 2018 repeal of the mining WPT under Moreno, made greenlighting FDN a no-brainer. Without both, Lukas might have walked—just as Jack Lundin (one of the two active superstar sons now running the mining side of the Lundin empire) did with Bluestone Resources in Guatemala in 2022. Adam is the other. Harry and William—also Lukas’s sons—are active on the energy side of the group. We’ll leave other family details aside; this story is about FDN.

The lesson: if you invest long-duration in LatAm resources, you study politics, social issues and taxes like an operator and do not rely on management slide shows. The amplitude of change dwarfs North America, Australia, and Europe—despite the fashionable takes that “our” above-ground risk is just as bad.

Among us girls: it isn’t—except, of course, in the UK, with its so-called Energy Profits Levy (EPL), the local windfall tax that’s been kneecapping the North Sea’s best operators since the post-Russia gas shock in 2022–2023.

Fruta del Norte — The Geological Unicorn

Those of you who’ve followed me on X know the drill: resource investing starts with the deposit (in metals) or the reservoir (in oil and gas). A gift of nature can offset a lot of above-ground pain and price volatility. It’s the insurance policy for corporate survival—especially when it takes real technical skill to lift and sits out of easy reach of bureaucrats and “rebels.” Think offshore Nigeria in oil terms. Same playbook.

So let’s look at what Fruta del Norte actually is. Before the jargon, apply common sense. The ideal underground gold deposit looks like this.

Continuity. The ore body sits at moderate depth and runs laterally—a panel, not a pinprick; a football, not a fishing line. You drive in, not down a thousand-meter shaft. Minimal waste development. A short, straight road to ore. The grade shell barely pinches over mineable distances. Lower risk, lower cost, fewer surprises when it’s time to hit the quarter for Wall Street.

Width and depth. You want a thick, consistent block—again, football not spaghetti. Not stringy lenses disappearing at depth, not broken shoots you can’t find when you need them. Call it 100–150 meters true thickness, at serious grade, near enough to surface that physics and diesel are on your side.

Rock competence. You want competent host rock that doesn’t fall apart, so you can run big stopes without diluting grade. In the plant, you want metallurgy that cooperates—gold that separates cleanly enough to deliver high recoveries, without throwing the periodic table at it. Doré over alchemy; if you must make concentrate, fine, but don’t make it the only route to pay dirt.

That’s the dream. Continuity, simple geometry, competent rock. Simple!

Now, let’s park the daydream and look at this ore body.

Fruta del Norte is an epithermal vein-breccia hosted in sediments. Now, I have no idea what that really means - geologically speaking. But in my resource table below you’ll notice three things that pop immediately if you’ve looked at enough mines. None of it takes a geology degree to comprehend, just commen sense and basic math.

First, grade: M&I averages in the 7g/t neighborhood with reserves around 7.8g/t—serious rock even in underground land. Second, scale: the ore zone is 100–150 meters thick, runs roughly 1,700 meters along strike, and sits around 700 meters below surface. Very special. Third, continuity: it’s a single, laterally continuous panel. That’s “rare earth” material.

The geometry makes the mining plan sing. A true thickness of 100–150 meters means big, mechanized stopes—exceptional at these grades. Access is by side portal and decline; you’re not hoisting from a kilometer down. It’s “drive to the face, mine, turn, drive home”—far simpler than the contortions at Island Gold or Young-Davidson.

Don’t get me wrong: Alamos turned both into industrial beauties. My point is that Fruta del Norte asks for less tech and fewer brain cells to deliver. It’s the kind of asset Buffett wants—a wide moat that even an idiot can run, because one day an idiot may will.

On the plant side, the company reports dilution around 8% and 88% gold recovery. That’s fine—room to optimize, but already very profitable rock. Metallurgy isn’t trivial here; FDN produces a mix of doré and concentrate, and the team keeps nudging recoveries upward. If they crack another couple of points consistently, so much the better—but let’s not get greedy now when geology is doing this much heavy lifting.

Fruta del Norte is the rarest thing in mining: size and obedience. Continuity, thickness, access, grade—four aces in one hand—translating straight into low costs and long duration. She’s a Latino beauty, but without the usual high-maintenance supermodel drama. Look at her. It’s screaming “buy.” Meanwhile 99% of Wall Street can’t read a long-section. A geological unicorn, hiding in plain sight.

If Escondida is the type example for open-pit copper, FDN is the underground gold analogue—an ore body that just gets the big things right. Per kilometer of strike, it’s one of the densest gold endowments per kilometer on the planet. A block of money lying flat at 700 meters, waiting to be mined for the next 20 years—methodically, predictably, without endless technical headaches. The proverbial gift of nature.

Which is why Lukas Lundin didn’t need a séance in December 2014. He’d looked at hundreds of deposits across metals. When a world-class geometry shows up at a price with a pathway to bankable contracts, you take the risk. Pros do.

And you don’t need to cosplay as a geologist to see it. Spend a few hours with technical reports, stare at the long-section, compare vein systems and thickness columns across peers, and let common sense do the work. Mining has so many comps it’s practically a stock picker’s playground. The edge isn’t in sounding smart; it’s in seeing the obvious—continuity, geometry, competence—and then waiting while the cash flow tells the story. Looking at geology and knowing who the real operators are is the legal version of front-running Wall Street.

Land Optionality: Let the Drilling Begin

Does the Latina supermodel have geological upside? I don’t know. Nor can we know. It’s a known unknown, in the words of former Secretary of Defense Donald Rumsfeld. But there are a couple of things we can say.

Let’s start with the country. Ecuador—LatAm drama like the rest of the EM pack—did its best to stay poor by shutting the mining cadastre in 2018 over “irregularities in the concession system,” whatever that meant. Code for corruption, in all likelihood. It reopened in June 2025, finally launching new concessions after seven years to attract projects and curb illegal operations. Dahh.

Between 2018 and 2025, Ecuador didn’t outlaw drill rigs at FDN, but it starved exploration with policy, permitting gridlock, and uncertainty. Closing the cadastre froze fresh ground and slowed anything beyond the mine’s immediate footprint. Add the 2020 COVID stoppage and, later, court fights over new environmental-consultation rules (Decree 754 was provisionally suspended in 2023), and you had a national case of hurry up and wait.

The rational choice for Lukas Lundin and Ron Hochstein was to build the mine first, chase ounces later, which is exactly why the resource history reads like a flatline with barely a pulse: tiny additions, depletion marching on, and not much movement until the drills came back in earnest in 2022/23, with real replacement finally in 2024. In fact, Lundin Gold didn’t even bother to report annual reserve reports for 5 years straight.

Once the mine was running and access improved, Lundin rolled out its largest district drill push since 2007—first near-mine, then regional. By 2021–2022 they were back on pads around the Suárez Basin, a 38km² pull-apart that hosts FDN and—crucially—looks big enough to host siblings. The run of news that followed (near-mine hits in 2022–2023, then a full district program) reads like a company taking the restrictor plate off. See for yourself.

Can the company deliver on this 2025 ambition? Absolutely. Lundin is running 16–17 rigs in 2025, which is massive. At that fleet size, you need only 16–18 meters per rig per day to hit 108,000 meters—well within normal productivity, especially with a mixed fleet (surface + underground). The implied 8 meters per crew per day (two crews per rig) is conservative for diamond coring, leaving buffer for weather, maintenance, or pad moves. Ron and team will deliver—unlike the many junior lifestyle outfits without funding. Hunt elephants, not mice. It pays over time.

It gets better. Listening to Lundin Gold’s Investor Day 2024, studying their approach, and thinking about the industrial probability I get good karma in a probabilistic ballgame. They have a team of 20 geoscientists underpinned by a successful operating model. And much of it is new. VP Exploration Andrey Oliveira joined in March 2022. Since then, he’s hired 18 new geologists (ten women from communities around FDN).

Under his leadership, the company is focusing on near-mine exploration within a system that is open south, west, east, and at depth, plus a regional program—what I’d call a real exploration culture run by people who’ve actually seen this epithermal style before. Best of all, Andrey seems to embrace AI and big-data tools. Tech should let exploration make quantum-leap gains when applied with discipline.

Do I know what that will ultimately yield? No. Known unknown. But here’s a known known: Andrey’s team will likely turn over every single rock on 63,000 hectares of highly prospective epithermal ground—meter by meter, systematically, with no budget constraint and a tech stack unprecedented in Ecuador’s exploration history. That’s real horsepower. Name me a junior that can match it and fund it without equity dilution. There isn’t one.

Here, you get real exploration by pros—in proven geology, with a unicorn already on site, an operating mine ready to absorb any discovery (speed matters), and a rock-solid social contract on top. Keep that in mind when you’re pitched junior stories with nothing but glossy slides, a Lassonde-curve cameo, and “100x” typos. That’s not investing; that’s roulette—most of it noise dressed up as geology.

Here, the drilling is already paying off. Bonza Sur, one kilometer south of the FDN portal, started as a humble soil anomaly and is now a new gold deposit. The mineral envelope starts at surface, runs more than 1.8km along strike, is about 100 metres wide, and extends to at least 500 metres depth in drilling. That’s not a scout blip; that’s scale with geometry.

Lundin Gold is guiding to a maiden resource in H2-2025 and had one rigs chewing on it in Q2 2025. 11 surface rigs were drilling, with four of them at Trancaloma (east to FDN), one at Sandia (north east to FDN), one below FDN depth, one at FDN East, one at Bonza Sur, and three testing new sectors. Whatever they find inside the above white-dotted perimeter converts, by design, to high-margin cash flow—no fresh permits, no new mine build, no strings attached. Call it 1:1 conversion when its slot comes up in the mine schedule. Sexy.

Meanwhile, the regional map remains gigantic. Lukas acquired 64,300 hectares—roughly half the size of the Canton of Zürich with its 1.6 million inhabitants. It’s huge. There’s hardly a soul on it, and the land package has never been systematically explored. So yes, you can be cautiously optimistic that where one supermodel hid, a few mini-models may be waiting their turn. A dream come true for dreamers.

When FDN’s VP Exploration Andrey Oliveira says “epithermal systems are never alone,” he isn’t speaking figuratively. The geological corridor already hosts other mines and projects—Mirador (copper), Warintza (copper), and several prospects. The best mental model might be this: the Carlin Trend began with one orebody in 1961; today it’s a 90-million-ounce hydrothermal city. Pierre Lassonde understood the power of that optionality when he scraped together US$2 million to buy the royalty—every dollar he had.

Epithermal systems come in clusters, and if the geology stays preserved—as it has under the sedimentary cap at FDN for 150 million years—each new vein corridor can extend mine life by decades. I don’t need to and couldn’t lecture you for one minute on the petrology; I just need the history: that’s what nature did. What we’re watching in southern Ecuador could be the early chapters of a modern Carlin-style evolution, written in epithermal script rather than carbonate. With budget, brains, and tech, Andrey’s team is likely to find more gold, copper, silver, and friends. But let’s not outrun the drill bit—or mother nature.

Have we valued any exploration upside yet? No. I’m not going to model fences and micro-structures off a handful of holes, and unless results cluster, regional targets won’t become economic. Our model, however, uses ALL 9.4Moz of resources and risks none—chance of success set to 100% for the in-resource case.

Sell-side analysts typically value reserves in full, then apply a risk factor to measured and indicated, and often assign zero to inferred. They have their reasons, but most are intellectually flimsy and mainly designed to avoid embarrassment when the market is watching. Intrinsic value in resources has to be situational. But resources come in countless configurations: sometimes the extra ounces aren’t worth the paper their block model is printed on; sometimes they’re worth every ounce on paper; most often it’s somewhere in between.

Unfortunately, many sell-siders are juniors fresh out of university—overwhelmed for the first couple of years—and they operate inside a culture that rewards herd behavior over independent thinking. Keep that in mind when you read their price targets (which I haven’t done in years). They struggle to think outside the box on gold and, in a rising tape, basically set targets to match the market. Groupthink at its finest. It’s a total waste of time.

Anyway, my value approach is not timid, as you will learn further down. Nor should it be—with a Latina supermodel. But it’s a shade more conservative than what I did at Alamos’s Island Gold, where we have a no-brainer growth track over five years and on-the-record guidance from John McCluskey. Here, we wait. The unicorn orebody makes the inferred feel borderline a no-brainer (hence the 9.4Moz in the model), but we’ll let the assays, not the adjectives, carry the rest of the day.

The range of outcomes is wide: Fruta del Norte could carry 9+ million ounces for years—if not decades—via steady year-by-year replacement; or the resources could peak in the next few years. What the drilling already suggests is that average grades aren’t improving the way they did at Island Gold—but tonnage (ore volume) may grow. Time will tell.

One last remark on exploration: you read our Alamos piece. You know what to look for on resource upside: continuity that scales, geometry that mines, competence that recovers, metre by metre.

That’s the essence of land optionality. FDN has the address. Now let the drill bit write the invitations. At the very least, near-mine results should keep replacing reserves for years to come, as 2024 already showed. Now let’s watch out when the first maiden resource for Bonza Sur is decleared.

Meanwhile, FDN isn’t just a geological unicorn, it’s an operational case study too.

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“It’s the optionality value of the land, the value of the operator spending money on our land, and the optionality to higher gold prices. And that is worth so much money… it’s what’s given us the Goldstrike billion-dollar royalty, the Detour billion-dollar royalty, the Tasiast royalty, and so on.”

Pierre Lassonde, Founder Franco Nevada

Guiding Principle

Last month I promised a series of gold-miner drill-downs. This is the first, and it will set the tone for the rest. My aim is simple and unfashionable: help you look under the roof of resource companies the way we have done for more than 10 years. This is not trading. It is fundamental work anchored in an industrial view of how mines actually make money, tied to a Discounted Cash Flow that treats the business as if you owned 100% of it. Gold will remain volatile, yet the metal sits in a structural bull I intend to lay out in detail this year. For now, we begin where it matters: the miners.

I’ll start with Alamos Gold because it lets us teach the discipline of underground mining through a live, compounding case: Island District, Young-Davidson, Mulatos pivoting underground, and Lynn Lake moving from permit to construction. You will learn how geology, method, power, people, and capital combine in the only way that counts—cash flow. You will also see why words like “resource,” “reserve,” “cutoff,” “AISC,” and “optionality” are not jargon; they are the grammar of value.

Thereafter and as a preview, this series will continue with Lundin Gold, then K92 Mining and Osisko Development. Each of these underground operations or soon-to-be operations sit at a different point in the life cycle, in a different jurisdiction, with different ore bodies and methods—long-hole stoping versus bulk tonnage, shaft versus ramp, grid power versus diesel.

Those choices explain costs, margins, replacement ratios, and the pace of discovery. They also let us talk plainly about capital structure: royalties, streams, prepay gold loans, and why taxes—royalties, VAT, withholding, windfalls—are not a footnote but a central driver of intrinsic value. Country risk will be treated the same way: not sentiment, but contracts, cash costs, power tariffs, permits, and social license.

Later in the series we’ll move to open-pit gold miners and heap-leach operators, because understanding how oxide flowsheets print cash at scale is as important as knowing how a shaft mine compounds.

If you stay with me through this arc, you won’t need to chase tickers or narratives. You’ll have the tools to read a technical report, translate it into cash, and decide whether time is your friend or your enemy.

That, in the end, is the point of this Substack. Let’s begin…

Alamos Gold and the Value of Land Optionality

Pierre Lassonde bought Franco-Nevada’s first royalty in 1986 on the Goldstrike mine in Nevada’s Carlin Trend for US$2m. At the time it was a small heap-leach run by Western States Mining.

Soon after, American Barrick (now Barrick) bought Goldstrike and drilled deep. The result was a 50Moz system that powered Barrick—and turned Franco-Nevada’s tiny cheque into a franchise.

That is land optionality: let a capable operator spend money on your ground, let geology and time do their work, and let higher gold prices widen the funnel.

John McCluskey at Alamos has done the same in his own way. Few outside the industry realize he’s a living legend—active, disciplined, and still compounding.

If you want a clean, liquid way to be long gold with operating leverage, Alamos Gold is, in my view, the best beta in the space that still trades easily.

Why is Alamos special? It starts—and ends—with people.

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Ration Cards in the “Petrostate”

Gasoline in Russia is being rationed from Kaliningrad to Vladivostok.

The state that styles itself an energy superpower can’t keep its own drivers on the road. In region after region, stations are limiting buyers to 10–20 liters per visit—if they have gasoline at all; elsewhere only diesel remains—which 98% of Russian passenger cars do not use. Russians move on gasoline.

Even pro-government outlets acknowledge ad-hoc curbs: Lukoil stations in Moscow banned fills into canisters and suspended certain fuel cards around Nizhny Novgorod to tamp down panic buying. This isn’t rumor; it’s on the record.

On some days, Russia’s refining capacity has fallen by nearly a fifth, with exports from key ports sharply curtailed. Crimea’s local newspaper reported that about half of Crimea’s gas stations have already run dry. But the situation seems also severe in the Far East and the Volga Federal District, where supply lines stretch thin and shortages bite hardest.

OMT Consult’s latest analysis measures the closing of petrol stations nationwide and suggests that only within the month of September 2.6% of all gas stations have closed down — a reduction by 360 petrol stations. They show that independent gas stations are overproportionally effected, with a uneven effect by region.

Prices tell a similar story, even though retail fuel is heavily managed and never a pure market signal. The exchange tape is. On the country’s main wholesale venue, the St. Petersburg International Mercantile Exchange (SPIMEX), AI-92 settled up 1.9% to 73,144 rubles per tonne—about US$0.66 per liter, US$2.50 per gallon, or US$105 per barrel at ₽82/US$. Those are hard prints—before retail taxes.

Volumes are the clincher. As Kremlin-friendly Kommersant noted in its 17 September 2025 market wrap, gasoline turnover fell to a two-year low: AI-92 sales dropped 21.7% d/d to 15,600 tonnes, AI-95 slipped 15.5% to 12,060 tonnes, and total gasoline sales slid 19.1% to 27,700 tonnes. Peak seasonal demand colliding with unplanned outages drains inventories fast—and the tape showed exactly that.

The capacity side is worse. In a 18 August 2025 Telegram post, Seala (Сиала) — a Russian energy-market analytics firm that compiles real-time stats on crude and product flows, refinery operations, and LNG — estimated that 226,000 tonnes/day of crude-refining capacity and 12,000 tonnes/day of condensate processing were offline nationwide at that time.

More recent reads are starker. Citing Seala’s plant-by-plant analytics, RBC Pro—the paywalled professional edition of the RBC business outlet—reported that by 28 September roughly 38% of Russia’s primary (CDU) refining capacity—about 338,000 t/day—was idle, while capacity suitable for producing gasoline and diesel fell 6% in August and a further 18% in September. On 1 October 2025, OilKapital repeated the same Seala-based figures: roughly 38% of primary units were down, i.e., this was not routine maintenance.

On 2 October, Seala (Сиала) clarified on Telegram that the “38%” figure reflected peak September downtime; by early October some units were returning from accident-related shutdowns. Their breakdown attributes 70% of September losses to drone strikes, with the balance to scheduled work. They also note that temporary restarts of older primary units skew yields toward fuel oil, leaving the gasoline balance much tighter than diesel.

Important caveat: the above October improvements are Seala’s forecast trajectory, not a statement that normal operations have broadly resumed.

My view? That trajectory is optimistic. Ukraine’s long-range drone campaign shows no sign of abating. On 4 October 2025, Ukraine’s General Staff listed fresh strikes, including Kirishinefteorgsintez near St. Petersburg. And Russian repair cycles are anything but straightforward under sanctions: parts, catalysts, control systems, and specialist contractors are all constrained. We unpack that later in this piece.

One more note on method. I pride myself on independent, data-heavy work and try to stay clear of propaganda—on both sides. Here, the exchange prints and Seala’s capacity math line up with what TV, Telegram, and even X are showing on the ground.

The fuel crunch in Russia is real—and it’s national, not local.

Minister Novak reacted as usual, with an extention of the diesel and gasoline export ban for producers — hardly surprising.

How Russians Move

If you want to grasp the drama of today’s shortages, start with a simple truth: Russian households run on gasoline.

The country counts roughly 55 million registered vehicles, of which ~46 million are passenger cars. Only a sliver of those cars are diesel. New-car data underline the point: diesel’s share of new passenger registrations has collapsed to about 1%; in the installed fleet it’s only a few percent. If you’re driving in Russia, you’re almost certainly burning gasoline.

My table below does the heavy lifting, but here’s the headline: 0.801 mbpd of gasoline fuels private mobility, while 0.608 mbpd of diesel is consumed mostly by commerce, bus fleets, agriculture, and the military. Gasoline moves people; diesel moves the economy. That single split explains almost everything that follows.

Now put that fleet into its geography. Outside Moscow and St Petersburg, public transport thins out fast. Intercity rail is engineered around freight first, passengers second; timetables are sparse, routings indirect.

Yes, there are seven metro systems, namely in Moscow, St Petersburg, Kazan, Nizhny Novgorod, Novosibirsk, Samara and Yekaterinburg. Yes, there are a handful of higher-speed corridors, notably Moscow–St Petersburg with branches toward Nizhny. But once you leave the big hubs, daily life is road-bound.

People often wave around “Russia has 85,000 km of railway” (and pundits love to confuse Moscow’s ornate metro stations with nationwide service) as if that settles the question. It doesn’t. Network density, frequency, and passenger capacity per person are what matter for everyday resilience—on those metrics, Russia lags far behind rail-first countries.

Measured as track per land area, Switzerland has about 129km per 1,000 km² (Germany 108; UK 131; France 43). The U.S. and Russia sit near the bottom—single digits per 1,000 km²— because their distances are continental and populations are spread out. Sparse track can still haul a lot of coal and containers. But it does not automatically move people.

A cleaner like-for-like is passenger-kilometres per capita and offered capacity:

• Switzerland (SBB) in 2024: 20.5bn passenger-km and 75.1bn seat-km offered. With 9 million people that’s 2,280 rail passenger-km per person and 8,340 seat-km of capacity per person. Rail is designed to be the default. The average Swiss takes 54 rail trips per year—and most ride the train twice a day for work.

• Russia (RZD) in 2023: 136.3bn passenger-km (103bn long-distance; 33bn suburban). With 146 million people that’s 930 passenger-km per person — about 40% of Swiss usage. RZD does not publish comparable national seat-km, but given longer trains serving lower density, offered capacity per capita is well below Swiss levels. And none of that speaks to what happens after you step off the train in a far-flung oblast without trams, frequent buses, or reliable taxis. Believe me. I have been in the pampa many times. Not pretty.

That’s the structural backdrop to the shortages. Western Europe, Japan, South Korea—even China now—are built to move people by rail: short headways, dense stops, seamless hand-offs to metros and trams, and very high seat-km per capita. When petrol hiccups happen, life mostly continues; you take the next train.

Russia isn’t built like that. Distances are vast, settlement patterns thin, and outside a few cores the practical default is the road—for work, shopping, medical visits, and seeing family across an oblast. If gasoline is scarce, there isn’t a dense, high-capacity rail fallback to absorb everyday trips. In that sense - but only in this one - it is similar to the United States.

That’s why the current crunch cuts so close to the bone. Russians do not use gasoline for home heat or power—that’s district heat and natural gas. They use gasoline for mobility: getting to work, stocking shops and pharmacies, moving children and the elderly, keeping ordinary life ticking over.

So when you see ration limits of 10–20 litres per visit, wholesale exchange volumes hitting two-year lows, and capacity analytics showing a large share of CDUs down, translate that into lived reality: in a road-locked country whose households overwhelmingly drive gasoline cars, fuel shortages matter - immensely. And winter is arriving too, don’t forget.

In Soviet and post-Soviet writing, public transport is rarely a refuge; it’s a trial. Venedikt Erofeev’s Moscow to the End of the Line unfolds entirely on a suburban elektrichka that lurches, stalls, and seethes with overpacked carriages, hawkers, and drunks—a rolling purgatory where time and timetables dissolve.

The through-line is clear: outside a few privileged corridors, rail and trolleybus were something you endured, not a flexible backup that can absorb a sudden shift from cars to carriages. That’s why gasoline shortages translate into queues, cancellations, and fewer trips—not a standstill, but a grinding drag on everyday life. Let me say it bluntly: everyone tries to avoid public transport, if they can.

Let us now move to the supply side and drill down on some inconveniences.

Supply: Big Picture First

At Burggraben we track global crude and liquids balances closely. Even with wartime opacity, Russia’s oil system is still measurable.

Russia produces roughly 10–11 mbpd of crude. About half leaves the country—moving either by sea or through Transneft’s pipeline grid (whose site is now geo-blocked for most Western IPs). The remainder, around 5.5 mbpd, is run through domestic refineries.

On destinations, the pattern is clear: India absorbs about 1.4–1.8 mbpd of Russian crude; China takes roughly 2.2–2.4 mbpd—about 1.7 mbpd seaborne, with the balance via pipelines feeding the ESPO/China network. Hold those anchors; they frame everything that follows and they’re harder (and more expensive) to find than you’d think.

The Great Consolidation of Russia’s Oil Empire

To our knowledge, Russia operates 24 active and relevant refineries.

Official counts sometimes reach 38, depending on how multi-site complexes are categorized. However, many smaller independents became irrelevant after Igor Sechin’s Rosneft consolidation crusade began in 2004—a campaign that transformed Russia’s oil sector from a patchwork of competing firms into a single, hierarchical system run by the security elite—the siloviki.

Catherine Belton chronicles this in Putin’s People: the siloviki turned oil and gas wealth into an instrument of political control. The destruction of Yukos, following Mikhail Khodorkovsky’s confrontation with Putin in February 2003, was the turning point: a fake auction of assets, legal theater for political expropriation.

The Bashneft raid in 2014 replicated the playbook: Sistema’s jewel seized, Vladimir Yevtushenkov confined, and in 2016 Bashneft formally folded into Rosneft. Markets noticed; trust never recovered.

By the late 2010s, consolidation was all but complete. Gazprom Neft retained limited operational autonomy. Novatek sits inside the President’s inner circle; its co-owner Gennady Timchenko is a regime pillar.

Lukoil remained the last bastion of genuine professionalism under Ravil Maganov: transparent, disciplined, commercially minded. In 2022, days after Lukoil’s board called for peace, Maganov fell from a hospital window and died. Officially, an accident. Unofficially, the end of corporate autonomy in the Russian oil and gas sector. As the great Garry Kasparov once wrote on X: “every country has its own mafia, but in Putin’s Russia, the mafia has its own country.”

By the time the siloviki finished re-wiring ownership, most of Russia’s refining sat inside state or state-aligned groups (with Rosneft roughly 40%). Retail prices were essentially administered—via excises, the ‘tax manoeuvre,’ the 2019 damper, and ad-hoc export curbs. The net effect wasn’t just higher prices over time; it was a system optimized for central control and export netbacks, not resilience. When a few big refineries go down, there are fewer independent suppliers, thinner inventories, and the shortage shows up at the pump fast.

The 24 That Matter

On that happy note, let’s focus on the 24 industrial-scale refineries that actually determine Russia’s gasoline and diesel supply.

Between 2016 and 2021—when corporates still reported with some rigor—the system produced roughly 900,000 barrels per day of gasoline and about 1.5 million barrels per day of diesel.

Those company tables are unusually useful because they split output into domestic sales and exports. That lets us check our demand math from the consumer side: around 800kbpd of gasoline burn at home, and roughly 750kbpd of diesel—leaving a diesel surplus on the order of 700–800kbpd for export.

The pattern is consistent year after year (excluding the COVID trough of 2020). Russia is roughly balanced on gasoline—able to cover passenger-car demand in normal times—but structurally long diesel. In practical terms, gasoline is the weak link; diesel carries the safety margin and will only become a bottleneck long after gasoline shortages break the system.

We can cross-check this with external flow trackers. Kpler’s seaborne data for 2021 show gasoline exports of 89kbpd versus 86kbpd in the company reports—almost a perfect match. On diesel, Kpler shows 695kbpd versus 773kbpd reported domestically; the gap is what you’d expect once you account for pipeline and rail movements to neighbors plus export timing differences.

Close enough to be statistically reassuring—and strong confirmation that the 24 refineries, not the long tail of “teapots,” are the ones that matter for national fuel balance. That’s the backdrop for everything that follows: a concentrated system, balanced on gasoline in good times, now being stress-tested by strikes on its conversion units.

And once again: Everything above is arithmetic, not attitude: company refinery ledgers cross-checked against independent flow telemetry and our internal balances—data that outlives the news cycle.

Structurally Short Gasoline

There is more.

The imbalance isn’t just about outages; it’s baked into how Russia refines crude. On average, Russian plants are less technologically complex than their Western peers. Their Nelson Complexity Index (NCI) sits mostly in the 5–9 range; the U.S. system averages 9–11.

That number isn’t a vanity score. It tells you how much conversion muscle a refinery has—how far it can push heavy molecules “up” the value chain. Lower NCI means fewer and smaller high-conversion and upgrading units—fluid catalytic crackers (FCCs), hydrocrackers, reformers, cokers—and therefore less flexibility to tilt the yield toward light, high-value fuels like gasoline when the market screams for it. Configuration and capital intensity lock in those limits; you can’t just turn a valve and make more octane.

The Lukoil table (likely the best in Russia) makes this visible plant by plant. A mid-complexity refinery with limited FCC or hydrocracker capacity simply doesn’t have the hardware to swing its slate. If a hydrotreater goes down, even temporarily, gasoline production isn’t just lower; the quality of the blendstock (sulfur, aromatics, octane) becomes a bottleneck. And every bit of this gets harder when catalysts, sensors, compressors, and DCS components live under sanctions.

Then comes the feedstock - I usually like to call it the refinery diet. Most of the domestic system runs on Urals, a medium-to-heavy, sour grade (about 31–32° API, 1.3–1.4% sulfur). U.S. refiners, by contrast, process a lighter, sweeter diet—WTI 39–40° API plus very light shale streams blended with heavier Canadian barrels.

The chemistry is merciless: heavier in, heavier out. Urals yields more middle and heavy fractions—diesel, fuel oil, vacuum gas oil—while lighter crudes naturally produce more naphtha (the raw material for gasoline) and kerosene.

That’s why the yield tables look so different. In the United States, a barrel of crude reliably throws off 47% gasoline thanks to lighter feed and a conversion-rich system designed to maximize the octane pool. In Russia, the gasoline yield is closer to the low 20s because both the molecules and the machines lean toward diesel and residuals.

For decades, none of that was a problem. The Soviet and post-Soviet economies were diesel-heavy—freight, agriculture, construction, the military. Middle distillates were the sweat spot. Now overlay war-time attrition and that slate becomes a liability.

When Ukrainian drones hit conversion or treating units—FCC risers, hydrocrackers, naphtha hydrotreaters, reformers—the problem isn’t only physical; it’s chemical. You can sometimes limp along by running older primary units (CDUs/VDUs) to keep crude moving, but that pushes yields toward fuel oil and vacuum gas oil, not motor gasoline.

There’s also a quieter bottleneck insiders keep flagging: clean gasoline depends on hydrotreating — and hydrotreating depends on hydrogen. Russia’s Euro-5 sulfur cap (10 ppm) makes those units non-negotiable. When a hydrotreating/reforming train is down, or when catalysts and sanctioned parts are slow to arrive, crude can still flow through the CDUs — but the gasoline pool tightens anyway.

Of course, public reports don’t spell out “hydrogen shortages,” yet the pattern fits: sanctioned parts crippling a key gasoline unit at NORSI; repeated strikes on Ust-Luga cutting light blending components; and Seala/RBC Pro tallies showing sharp losses in capacity suitable for making gasoline and diesel. In refinery math, that’s how you run out of gasoline long before you run out of crude.

And that difference matters—immensely—when a handful of key conversion units go dark.

A laundry-room way to think about clean gasoline

Think of a refinery like a giant laundry.

• The crude distillation unit (CDU) is the washer that sorts and spins out the big loads (light, middle, heavy “fabrics”).

• The conversion units (cat crackers, hydrocrackers, reformers) are like heavy-duty cycles and stain removers that break down the tough stuff into smaller, more useful items.

• The hydrotreaters are the detergent stage that actually gets things clean—they strip out sulfur and other impurities so the “shirts” (naphtha streams) are wearable as on-spec gasoline.

Now the quiet constraint: detergent = hydrogen. Hydrotreaters only work if there’s enough hydrogen flowing through the plant. If a hydrogen unit or a hydrotreating train is down (or starved of catalyst/spares), you can still run the washer (the CDU) and keep turning the drum—but what comes out isn’t clean enough to wear. In fuel terms: crude keeps arriving, but the gasoline pool tightens because you can’t desulfurize and finish enough blendstock to spec.

That’s why outages or sanction-snagged repairs in those “detergent” stages show up as gasoline shortages long before you “run out of oil.” The shirts are there; they’re just not clean enough to put on the rack.

Feedstock Geography: The Asian Lifeline

There’s a geographic logic to Russia’s refining problem that sits on top of the chemistry.

West of the Urals, the system runs on Urals blend—a medium, sulfurous crude that feeds most domestic refineries and the Baltic/Black Sea export grid. East of the Urals, the stream is ESPO (Eastern Siberia–Pacific Ocean), a lighter, cleaner barrel. ESPO’s specs (roughly 34–35° API, 0.5% S) make it naturally friendlier to gasoline/jet and light distillates than Urals (31–32° API, 1.3–1.4% S), which leans toward middle and heavy fractions. The molecules already predispose the product slate before a single valve turns.

But ESPO’s importance isn’t just chemical—it’s topology and politics. ESPO flows east through the dedicated ESPO pipeline to Kozmino (near Nakhodka), where it is loaded straight onto Pacific tankers. A smaller Pacific outlet, De-Kastri, ships light crude from Sakhalin projects (often blended and marketed separately), but for our purpose the point is the same: the Pacific system is plumbed to move light barrels out to Asia.

In 2023, those Pacific outlets together averaged on the order of 1.0 mbpd of crude exports, the overwhelming majority landing in China (with periodic parcels to Japan and South Korea when sanctions, insurance, and pricing aligned).

Set that against the western grid. Primorsk, Ust-Luga, St. Petersburg on the Baltic, Murmansk in the far north, and Novorossiysk on the Black Sea used to ship >2 mbpd of Urals into the EU and UK (note that mostly exports from Novorossiysk include exports from Kazakhstan too which are deducted below).

Post-sanctions, those flows collapsed and were re-routed mainly to India and Turkey—but only with longer voyages, higher freight, and a persistent discount to Brent to clear the barrels. The Russian west kept its heavy slate and its older refineries; the east kept its premium stream and direct Asian demand.

Two Russian Oil Economies

In effect, Russia now runs two oil economies—two crude diets with two distinct stacks of pipelines, refineries, and tanker routes.

West of the Urals sits the domestic-and-western system built around Urals: heavier, more sulfurous, and largely processed in older plants whose gasoline yields are highly vulnerable when conversion units go down—whether from strikes or maintenance.

To the east, the export system is built around ESPO, a lighter, cleaner blend that moves to Asia and typically clears at near-market prices.

Russian Oil Infrastructure

Pipeline physics make the split real.

Deliveries via the ESPO corridor to mainland China began in 2011. From the Russian grid, crude feeds a 942-kilometer China branch operated by CNPC and then into the northeastern pipeline network. Capacity started at 15 million tonnes per year (300kbpd), was later lifted to 20 million tonnes, and in 2018 China built a parallel line for another 15 million tonnes. Together, the two lines can move roughly 35 million tonnes per year—on the order of 700kbpd—directly into the Chinese system.

On the refining side, CNPC’s Daqing Petrochemical has been upgraded to process around 3.5 million tonnes per year of Russian crude. Daqing slots into an established northern fleet—Dalian, Liaoyang, Jilin, Jinzhou, Jinxi, Harbin, WEPEC—that runs ESPO blended with domestic grades. The ESPO share typically ranges from 15% to 50%. That isn’t trivia; it’s a reminder that a refinery’s “crude diet” is a capital choice: units, catalysts, and control schemes are tuned to a specific envelope of crudes, and the return on that tuning is earned back over years, not months.

That engineering reality sits on top of a commercial one. Moscow cannot simply redirect meaningful ESPO volumes to domestic refineries to chase higher gasoline output from lighter crude (higher API, lower density).

The barrels are plumbed east—to Kozmino on the Pacific and directly into China—under long-dated supply arrangements that took years to negotiate. Russia and mainland China signed a long-term supply contract in 2012 for roughly 15 million tonnes per year over twenty years, and similar commitments underpin the broader ESPO stream. Rerouting would fight both pipeline topology and the economics of plants already optimized for ESPO. Most of all, it would antagonize your most important buyer—the last partner the Kremlin can afford to alienate.

The practical implication is straightforward. If domestic gasoline shortages persist, the path of least resistance is not to starve the premium ESPO stream, but to import finished gasoline from China or other friendly refiners—if logistics permit.

Kremlin Math

There is more.

At $64 Brent as of this writing, ESPO has become the Kremlin’s financial lifeline for an illegal and self-destructing war. Nikolai Patrushev, the architect of that war, is unlikely to care about the arithmetic. But the arithmetic cares about him (and certainly about his son Dimitry), so let’s spell it out.

Sanctions and logistics frictions force Moscow to sell Urals at steep discounts to India and Turkey. In 2024, Bloomberg still quoted the Urals–Brent differential at roughly minus $12/b (see chart) — textbook monopsony: a few dominant buyers squeezing a captive supplier. The discount isn’t ideology; it’s just that Indian refiners like cheap.

Start with the Urals barrel. At Brent $64.5, less a $12 discount, you clear $52.5 FOB. Now walk down a realistic cost stack. Lifting runs $8–20/b depending on field and water cut; transport & marketing add $4–5/b; sustaining capex is at least $6/b but likely closer to $15 if you want tomorrow’s barrels to arrive; export duty contributes a couple of dollars on top of that. You’re quickly in the $25–35/b neighborhood before the Mineral Extraction Tax (MET).

Then the Kremlin raises the MET coefficients to keep the budget funded, and once you layer in export duties, war-risk freight, and insurance premia for the gray fleet, there isn’t much left to finance future barrels. As the Lukoil series showed up to 2023 (they stopped breaking it out in 2024), net profits on many Urals barrels collapse into the low-teens — and lower still on the tail of “hard-to-recover” barrels.

ESPO, by contrast, still clears near Brent in Asia — often at very narrow discounts or the occasional small premium. Call it $64.5 FOB at Kozmino against a broadly similar operating stack (with some east-side fiscal quirks). That leaves a pre-MET margin in the mid-30s per barrel. In other words: the premium eastern barrel pays for the war without immediately starving every upstream project that touches it as you can clearly see in my first table above.

The key takeaway is not that Gazprom Neft or Lukoil forgot how to run oilfields; it’s that the fiscal dial has been twisted to prioritize near-term budget cash over field economics.

The government could not afford to keep Urals-side MET gentle, so it didn’t. That props up the budget today, but it starves the upstream: less internal cash flow means lower reserve replacement, delayed maintenance, and a slower cadence of workovers and infill wells. It is the oil-patch version of eating your seed corn — the pipeline looks full now because you’re emptying the bins meant for next season.

None of this detonates tomorrow. It does, however, set the slope of the next few years. The more the state leans on MET and export levies to backfill the budget, the more Urals-weighted producers defer capex and cannibalize decline-mitigation work (e.g. reserve and production replacement). And Urals are the majority barrels Russia still produces. ESPO keeps the lights on; Urals determines whether the lights dim.

That’s the uncomfortable arithmetic behind the headlines: budget stability today bought with production instability tomorrow. Arithmetic masquerading as strategy — the kind that keeps pipelines full now by emptying fields later.

Which brings us to the status quo of the Russian oil fields.

The Slow Demise of Russian Oil Fields

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Freeport’s Grasberg Copper Gold Mine: More than “Force Majeure”…!

Freeport has declared force majeure at Grasberg — and with good reason.

This will shake both copper and gold balances. Let me explain why.

Grasberg: a Giant

Grasberg is one of the largest mines on earth, producing roughly 1.7 billion pounds of copper (≈2% of global supply) and 1.6 million ounces of gold annually (≈1.5% of global supply).

Think of it as a vast underground city: 28,000 employees, 250 kilometers of tunnels across dozens of levels. Each year, another 35–40 kilometers are added — about the length of Switzerland’s Gotthard Base Tunnel, the world’s longest rail tunnel.

At its heart lies the Grasberg Block Cave (GBC), accounting for about 70% of reserves and output. Other sections include Big Gossan and Deep MLZ.

Ore bodies in Grasberg Block Cave Mine. There are five existing blocks in the Grasberg Block Cave Mine, i.e., Grasberg Block Cave, Kucing Liar, Big Gossan, DOZ, DMLZ. Each block is accessed through a spur towards the Portal at Ridge Camp.

Disaster Struck

On September 8, disaster struck: roughly 800,000 tons of wet material suddenly rushed in, flooding multiple underground levels. The mud hit GBC directly — the very core of Grasberg’s production.

A catastrophic failure. How was this even possible?

Here is a clip. The stuff of nightmares

Block Caving: Rare and Risky

Block caving itself may become central to the story. Out of more than 12,000 active mines worldwide, only about 20–25 have ever used block caving. Today, fewer than ten are active. That’s <0.1% of all mines.

It is an exceptionally rare method, reserved for very large, low-grade underground ore bodies, which themselves are scarce. Most mines use open-pit, stoping, or cut-and-fill.

The economic appeal of block caving is obvious — very low cost per ton. But the geotechnical risks are immense. Once caving starts, the process is essentially an engineered collapse of the mountain. What could possibly go wrong?

The Climate Dimension

Grasberg doesn’t just face block caving risk — it faces it in one of the wettest places on earth.

The mine site and access road receive around 12 meters of rainfall per year, with rain on about 330 days annually. Papua often records monthly peaks above 2 meters. And remember: Grasberg is high in the mountains.

Compare this to El Teniente in Chile, the world’s largest underground copper mine, also a block cave. Its “normal” rainfall? About half a meter annually. Same method, completely different hydrological setting. And Chile is not tropical humid — infiltration and groundwater pressure risks are fundamentally lower.

Wet muck is a known risk even in Chile’s dry climate. In Papua’s rainfall regime, the risk should be an order of magnitude higher.

Wet Muck: The Nightmare Failure Mode

When water infiltrates a block cave, broken rock can turn into a dense slurry — wet muck — that suddenly rushes into tunnels. It is one of the most feared failure modes underground. And it appears to be what happened at Grasberg.

Yet what are analysts saying? Everyone parrots “force majeure” and “back by 2027.” Why is wet muck risk missing from the conversation?

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In natural resources, companies can only move in two directions: they either grow, or they decline as reserves are depleted. Standing still is not an option. Both paths can create wealth — or destroy it — for shareholders.

A disciplined management team can, in theory, extract the last ounce of a great gold, copper, nickel, or oil deposit efficiently and return capital to shareholders without needing to risk reinventing itself. The Lundins have done this successfully, over and over again.

Yet in practice, very few succeed like them. A resource company without a long-term vision is often like a sinking ship: it struggles to attract and retain talent, trades at a discount to NAV, and destroys capital as the asset is undermanaged, underfunded, or both. The slightest hiccup can push costs above breakeven and put the entire asset at risk.

Meanwhile, growth has an even worse track record. From ExxonMobil to Chesapeake in oil & gas, from Glencore to Rio Tinto in base metals, from Barrick to Newmont in gold — history shows a consistent pattern: resource companies are, on average, poor stewards of capital, mediocre operators of assets, and chronic under-estimators of geological and geopolitical risk. The result: declining earnings per share, dwindling reserves per share, and dismal returns on invested capital.

The key problem starts at the beginning of the replacement process: discoveries. Finding a meaningful gold discovery resembles finding the proverbial needle in a haystack. Not only are new discoveries scarce, but they are shrinking in scale. Industry databases show that the average “major” discovery of the past decade (>2 Moz) contains about 3.5 million ounces, down from 5.5 million ounces in the 2010s.

But even this overstates reality, since only deposits above 2 Moz are counted. In practice, most new deposits being advanced today are in the 1–2 Moz range — far too small to replace the 5–10 Moz depletion profiles of the majors and often too small to be durable commercial successes. No discovery from the past 10 years has cracked the list of the world’s 30 largest, underscoring just how rare Tier-1 gold finds have become.

And size matters. A 5 Moz gold deposit can sustain 200–300 koz of annual production over 15+ years, making it bankable, scalable, and attractive to majors. By contrast, a 2 Moz deposit typically supports <100 koz/year over a short mine life. Fixed costs dominate, debt is harder to raise, and the economics are fragile to any hiccup in commodity prices. That is why smaller deposits often end up stranded.

It gets more brutal. One of the great truths in resources is that big deposits often get bigger, while small deposits usually disappoint. History shows that Tier-1 discoveries like Grasberg and Yanacocha grew multiples of their original size as brownfield drilling continued, whereas most 1–2 Moz deposits fail to reach production or underperform if they do.

Rubicon Minerals’ Phoenix project in Ontario is a cautionary tale: once promoted as a 3 Moz high-grade discovery, it consumed ~US$770m of capital, then collapsed when production fell short of forecasts. Industry studies confirm the pattern: fewer than 10% of small discoveries become lasting mines, and those that do rarely replace what majors need. As investors, we must be wary of “promising” small deposits — the odds are stacked against them.

So why bother with natural resources at all? Because cyclical industries, when understood properly, can be the most rewarding of all. A quality asset bought early — or a stake alongside a talented, disciplined steward — can easily return tenfold within a few years.

The evidence of stewardship and long-term value creation is clear: the Lundin family (multi-cycle builders across mining and energy), the Sawiris family office (patient capital behind Endeavour and G Mining), Pierre Lassonde (royalty pioneer at Franco-Nevada), Robert Friedland (copper visionary at Ivanhoe), Rob McEwen (who revolutionized exploration by crowdsourcing Goldcorp’s Red Lake data, unlocking world-class discoveries), Bill Beament (who led Northern Star to a decade of outperformance), Andrew Forrest (who turned Fortescue into an iron-ore giant), Kjell Inge Røkke (who shaped Aker BP into a disciplined oil & gas platform), and Amir Adnani (who built UEC into the leading U.S. uranium producer). Collectively, they prove a simple truth: in resources, leadership and stewardship often matter more than the rock itself.

But not every story ends like the Lundins or Lassonde. For every world-class steward, there are dozens of companies built on hype and hope. Spotting the difference is where investors must be rigorous.

Take Hurricane Energy. In 2017, it was one of the UK’s most hyped oil stories — a “fractured basement” discovery touted as holding 460 million barrels. Backed by reputable investors and praised widely, the narrative was irresistible. We commissioned RS Energy Group in Toronto to study the resource. Ross Runciman, a senior geologist there, returned a 100-page report. His conclusion, boiled down: the deposit was a fluke. That US$50,000 report protected our capital. Within two years, production collapsed and the company failed. The lesson: in resource investing, one must understand the resource itself — and oneself, independently — because reports and teams often don’t, or worse, mislead.

And while going the extra mile takes discipline and hard work, much of this is not rocket science and doesn’t require big capital outlays with independent specialists. It comes down to common-sense curiosity: asking the right questions, checking assumptions, and refusing to take glossy presentations at face value. Anyone willing to be patient and diligent can build the tools to succeed. My goal with this series is to share what we look for — and help you build your own independent framework to spot value and avoid costly mistakes.

In the coming months, I will lay out the DNA of great, mediocre, and poor resource companies: what defines them, why they create enduring value (or don’t), and how to spot them early. We will start with gold miners. Gold, I believe, is in a super-cycle. I prefer to begin where you can convert insight into results immediately, while I remain cautious on the cycle for copper and energy commodities.

But why bother at all if even mediocre miners could benefit from a gold upcycle? Because there is no rule that says they must. So far, poor quality has not benefited, while quality gold companies have performed extremely well over the past 12 months. By the end of this series, I hope you will see clearly why quality almost always outperforms — and feel equipped to separate signal (5%) from noise (95%) for decades to come.

One important rule we must establish upfront to avoid misunderstandings: I will not tell you what to own. Instead, I will explain what makes a mining company high-quality and how we value it. Prices move; strategies change; above- and below-ground risks strike. I cannot update my views monthly. Ultimately, you are the steward of your own capital. My aim is to provide a framework you can apply independently.

For annual subscribers, I’m happy to provide short feedback on gold names you’re considering — as input to, not a substitute for, your own due diligence.

Finally, a word on approach. At Burggraben, we are investors, not traders. That is not a dismissal of trading; it reflects my background in private equity and operations, and the long-run statistics: patient investing, with time as your ally, tends to outperform attempts to time markets. Our promise is to focus on structural insights — at the company and sector level — and to go the extra mile so you can make higher-conviction decisions.

So: in the months ahead, expect deep dives into individual gold miners (likely around ten, across seniors, intermediates, and juniors). In parallel, we’ll address copper, uranium, oil & gas, and the European gas market (TTF) as winter approaches. We’ll also update our work on China and offer context on geopolitical shifts such as the war in Ukraine — because what Russia does still matters for commodities.

Warm regards,
Alexander Stahel

PS: Which Senior gold miner would you like me to discuss first and why for the above excel list? Please send us a message.

Lesson 9: Peace is a Process

From Bolero to Dayton: Sarajevo’s Rise, Fall, and the Illusion of Peace

In February 1984, the world turned its eyes to Sarajevo—in admiration. Then part of socialist Yugoslavia, the city hosted the Winter Olympic Games under the stewardship of the late Spiljak Presidency. For two radiant weeks, Sarajevo became a rare symbol of openness during the Cold War. Even Western sponsors like Coca-Cola, Kodak, and Miller Brewing poured money into the biggest sporting event ever staged in a communist country outside the Eastern Bloc — a novum.

The Games modernized Sarajevo’s infrastructure, brought in more than $100 million in spending, and ignited a lasting love of sport. One unforgettable moment came when British ice dancers Jayne Torvill and Christopher Dean performed their legendary Bolero, earning twelve perfect sixes and captivating the world. Sarajevo—nestled among snowy mountains—had never seemed more radiant. For a moment, it was a city of coexistence: where Bosniaks, Croats, and Serbs, Muslims, Catholics, and Orthodox Christians lived side by side, and where East and West mingled with elegance and grace.

But sadly, Sarajevo did not survive the decade.

The Collapse of Yugoslavia, the Road to War and the Dayton Agreement

In the early 1990s, as communist regimes crumbled across Eastern Europe, the multiethnic Yugoslav federation began to unravel. Originally created after World War I from the remnants of the Austro-Hungarian Empire as the Kingdom of Serbs, Croats and Slovenes—and later rebranded Yugoslavia—the state had long struggled with internal divisions. Although the formation of Yugoslavia in 1918 was framed as a union of South Slavic peoples, there was no popular referendum in 1919 to approve this historic merger. Slovenians and Croats, emerging from the collapse of the Austro-Hungarian Empire, sought self-determination and initially supported the idea of unification—but under expectations of equality and federalism. Instead, they were absorbed into a centralized monarchy dominated by the Serbian royal house, without direct input from the people.

What followed was not a consensual union but a top-down political construct shaped by elite negotiation and geopolitical urgency. This lack of democratic legitimacy sowed disillusionment early. Some now argue there was never a genuine foundation for a unified “Slavic” state—only an uneasy balance, held together first by monarchical centralism, then by Tito’s charisma and Cold War geopolitics.

Marshal Josip Broz Tito, who led Yugoslavia after World War II, forged a communist federation from this fragile foundation. Through a mix of authoritarianism, decentralization, and strategic neutrality between East and West, Tito held the union together for over four decades. But with his death in 1980 and the collapse of communism a decade later, long-suppressed nationalist forces re-emerged with a vengeance.

When Bosnia and Herzegovina declared independence in 1992—following similar moves by Slovenia and Croatia—the Yugoslav People’s Army and Serb nationalist forces, backed by Belgrade, responded with force. Their goal: to carve out a “Greater Serbia” through territorial conquest and ethnic cleansing.

Bosnia descended into war. The capital, Sarajevo, was surrounded by Bosnian Serb forces in a siege that lasted nearly four years. What followed was one of Europe’s darkest chapters since 1945: ethnic cleansing campaigns, concentration camps, and the systematic destruction of towns and communities—often under the command of indicted war criminals like Radovan Karadžić and Ratko Mladić. More than 100,000 people were killed, the vast majority Bosniak Muslims. In July 1995, over 8,000 men and boys were executed at Srebrenica, the worst genocide in Europe since the Holocaust.

The war ended not with reconciliation but exhaustion—and foreign intervention. After weeks of NATO airstrikes against Serbia under U.S. leadership, the warring leaders were flown to Dayton, Ohio, where they were locked inside an American air base for three tense weeks. Out of this came the Dayton Peace Accords, signed in November 1995.

A Peace of Entities

Dayton stopped the killing (which was phantastic), but sadly it froze Bosnia into a constitutional straitjacket. The country was cleaved into two “entities”: the Federation of Bosnia and Herzegovina, where Bosniaks (around half the population) and Croats (about 15%) dominate, and Republika Srpska, home to most of the country’s Serbs (roughly 31%). Each entity was granted sweeping autonomy. There is no hard border, yet lives are lived apart. Schools teach different histories, children grow up in parallel worlds, and mixed marriages—once common in Sarajevo—have all but vanished.

The state structure is a monument to over-engineering. Bosnia’s 3.3 million people live under a labyrinth of governance: two entities, ten cantons, fifteen parliaments, six presidents, three governments with 160 ministers, 760 deputies, and a three-member state presidency that rotates every eight months. It is government designed to prevent domination—but also to prevent progress.

The Protectorate Within

To enforce this peace, the international community created the post of the High Representative, appointed by the UN Security Council and backed by the so-called “Bonn Powers”: the ability to impose and annul laws, to appoint and sack officials, even to rewrite constitutions. Since 1995, every High Representative has come from an EU country, with American deputies at their side. For three decades, they have ruled like viceroys, stepping in whenever Bosnia’s fragile system teetered.

On paper, this was meant to ensure stability. In practice, it entrenched dependency and corruption. The presence of an all-powerful international arbiter allowed local elites to avoid responsibility, to exploit veto powers, and to paralyze reform. Bosnia became less a democracy than a managed protectorate, where the final word rested not with citizens, but with foreign supervisors. The Dayton Accords promised peace with justice; what they delivered was peace without ownership.

The Strongman of Republika Srpska

Few have exploited this arrangement better than Milorad Dodik. Once praised by Madeleine Albright as a “breath of fresh air,” he is now Bosnia’s most notorious nationalist and likely the sprider of a corrupt empire web. “I am a Serb… Bosnia is only my place of employment,” he declared the day after his inauguration as head of state. Dodik has built his career by railing against the very system that sustains him—mocking Bosnia as illegitimate, flirting with secession, and courting Moscow.

He welcomes Kremlin-linked biker gangs to Banja Luka, endorses Russia’s annexation of Crimea, and promises that Republika Srpska (RS) is a “state-in-waiting.” When scandals or fiscal crises threaten him, he escalates secessionist rhetoric to rally his base. Sanctioned by Washington, tolerated by Brussels, he thrives on the dysfunction Dayton created. By institutionalizing ethnicity, the Accords rewarded politicians who divide rather than unite.

In many ways, Dodik’s story is a familiar one in Eastern Europe, that of a politician changing his stripes when the moment suits, and courting Russia as an ally (think Victor Orban or Robert Fico). But here in Bosnia, the stakes are higher, not just for the people who live here, but for the legacy of a significant American foreign-policy achievement, too. By taking aim at the Bosnian state, Dodik is, in effect, targeting the Dayton Accords, one of the signature peace deals of the 20th century.

Why does he do it? Simple. Deception. It’s always deception from corruption. As Michaela Ulbrichtová writes in her article titled “Milorad Dodik’s metamorphosis and the hijacking of the Dayton peace agreement”:

But what is the real logic behind Milorad Dodik’s current political strategy? Is he again seeking to divert attention from his corruption scandals and simultaneously gain additional political credit from media publicity, or has his political game gained more threatening contours in light of global geo-political changes and his close ties with the Russian Federation?

His political dominance is built on systemic looting: state institutions captured by loyalists, public contracts awarded to cronies, and media and civil society muzzled through legislative intimidation. Transparency International’s Corruption Perceptions Index paints a bleak picture: Bosnia scored 33/100, ranking 114th out of 180 countries—the worst in the Western Balkans and second-worst in Europe after only Ukraine and Russia. In an indictment of Dayton's design, these abnormalities have thrived under the cover of institutional paralysis and international cautiousness.

The latest? In April 2025, Bosnia’s State Court and Prosecutor’s Office sought international arrest warrants for Dodik and RS assembly speaker Nenad Stevandić, accusing them of subverting constitutional order. They had declared daytime police and judicial authorities null within RS—an egregious legal defiance. Interpol ultimately rejected the request, deeming it politically motivated.

By June–July 2025, Dodik was convicted in absentia and sentenced to one year in prison and a six-year ban from political office. His courtroom absence was emblematic; he rejected the verdict outright, labeling it politically engineered. He continues to defy the ruling with legislative maneuvers that bolster RS autonomy and deepen the constitutional crisis.

This conflict has triggered what analysts now call Bosnia’s gravest political crisis since Dayton, exposing the fragility of its institutional architecture—and the ease with which a single figure can weaponize it

Clearly, His Excellency Christian Schmidt lacks either the courage or the mandate to end Dodik’s corruption theatre. For all his sweeping powers under the Bonn framework, he acts more like a cautious administrator than a determined guardian of peace. Instead of decisive action, we get stern communiqués and vague warnings to Brussels—that Bosnia is once again “at risk of breaking up.”

The risk isn’t theoretical. It’s already unfolding. And Schmidt, despite his authority, seems to believe that appeasement is still a viable strategy. But appeasement never works with strongmen. It emboldens them.

In trying to avoid destabilization, the High Representative preserves the very dysfunction that makes collapse more likely. And in doing so, he confirms what many in Bosnia already feel: that the international community no longer has the will—or perhaps the interest—to confront the very forces unraveling the peace it once imposed.

Protest Without Change

Ordinary Bosnians see through the illusion and corruption. They have taken to the streets again and again, only to be met with inertia.

In 2014, as many as 40,000 people protested across 20 cities, torching government buildings in outrage over poverty and failed privatizations. Between 2018 and 2019, Banja Luka saw weekly rallies under the slogan “Justice for David,” after a young man’s suspicious death exposed state complicity. In 2023, more than 10,000 marched against gender-based violence after a femicide was broadcast live on social media. And in 2025, students in Sarajevo flooded the streets, blocking roads and demanding accountability for corruption and disaster mismanagement.

Each protest began with a spark but revealed a deeper truth: Bosnia’s peace is shallow. The war is over, but the system that replaced it works for corrupt elites, not citizens.

A Laboratory of Illusions

Anthropologist Larisa Kurtović calls Bosnia a “political laboratory”—a place where Western liberal powers tested peacebuilding models, declared victory, and moved on. For a brief moment after Dayton, Bosnia was the showcase of liberal internationalism. But as global attention shifted—first to Iraq, then to the financial crisis, then the Arab Spring—Bosnia slipped into the margins. What remained was a hollow peace: stable enough to endure, fragile enough to stagnate.

What makes Kurtović’s critique especially urgent is her challenge to the geopolitical imagination itself. She urges us to move beyond the illusion that peace can be engineered through ready-made models or universal norms. Lasting peace, she implies, cannot be imposed from above—it must emerge from context, memory, and lived experience. But the international community, eager to claim success, never invested in that kind of transformation. Instead, Bosnia became a testing ground for “new forms of technocratic reason”—tools that often deepened existing fractures rather than healed them.

Kurtović’s essay is not just about Bosnia—it is a warning. It asks what happens when peace becomes a product, exported from distant capitals and tested on societies shattered by war. In a world still addicted to quick geopolitical fixes, her words are clear: peace without justice is no peace at all. And forgetting the unfinished past only guarantees its return.

Three decades later, Bosnia remains frozen in the scaffolding of Dayton. It is held together not by trust or reconciliation, but by annexes, vetoes, and international oversight. Its people live parallel lives. Its leaders exploit division. A peace designed to prevent domination has bred paralysis. A system meant to encourage equality entrenches separation. And an international protector meant to guarantee justice now preserves dysfunction, afraid to dismantle the house it was sent to rebuild.

The Orphan of Dayton

Bosnia today is less a country than an orphan of the Dayton order—a post-war teenager never allowed to grow up. Held in a constitutional straitjacket for nearly three decades, the state remains unreformable and paralyzed—yet paradoxically, reform is its only hope if it’s ever to join the European Union.

The very structure meant to guarantee peace has instead become a perfect playground for nationalist strongmen and systemic corruption. Leaders like Milorad Dodik have no genuine interest in European integration—they thrive on division. Public life operates like a patronage racket: loyalty to the ruling parties is traded for jobs, permits, and favors. Citizens, not ideology, are the real losers in this market of influence.

Meanwhile, the High Representative hovers like a distant guardian angel—equipped with sweeping Bonn Powers, yet increasingly reluctant to use them. His role is to ensure stability, but not to challenge the roots of dysfunction. He preserves the scaffolding of Dayton, but never clears the space to build something new. In practice, Bosnia is trapped—not collapsing, but unable to grow. In chess terms, it is not in checkmate, but in pat—a stalemate in which no one wins and no one can move.

The paradox is partly bureaucratic: to shake the system would risk the very mandate the international community still clings to. Why dismantle the rules of the game, when the game justifies the referee’s existence? What this leaves behind is a suffocating climate—not one lacking talent or energy, but the conditions to use them. Entrepreneurship is choked by a political class that acts like a mafia: blocking permits, hijacking contracts, and strangling competition. Prosperity would empower people—and that, more than anything, would endanger the elite’s grip on power.

The Dayton Accords promised peace with justice. What they delivered is peace without ownership. And thirty years later, Bosnia lives in managed silence, waiting not just for stability, but for permission to grow up.

From the Stagnation of Dayton to the Promise of European Accession

Bosnia’s political paralysis today is no accident but the direct consequence of the Dayton Accords—a bureaucratic monster designed to freeze peace but inadvertently freezing progress, reform, and national cohesion as well. While Dayton may have prevented outright collapse, it created a system rigged to reward division and empower corrupt strongmen like Milorad Dodik. The very architecture intended to guarantee stability has calcified Bosnia’s political dysfunction, trapping its people in a state of managed silence and suffocating stagnation.

Yet amidst this bleak landscape, a new hope flickers on the horizon: European Union integration. Bosnia’s path towards EU accession offers not just a procedural process, but the potential to finally break free from the deadlock of Dayton’s failure and the entrenchment of corruption. The Stabilisation and Association Agreement (SAA) signed in 2008 and fully in effect by 2015 marked the first concrete step towards closer ties with Europe. The granting of candidate status in December 2022 and recent recommendations by the European Commission to open accession negotiations signal a cautious but growing momentum for reform and alignment with EU norms.

However, the road ahead remains fraught with political obstacles—most notably from Republika Srpska’s leadership, which continues to weaponize ethnic division and reject the very institutions meant to guide Bosnia towards the European future. The entity’s recent legislative moves to annul decisions linked to the High Representative and halt EU-related processes reflect a defiant resistance to integration, fueled by nationalist rhetoric and secessionist threats from Dodik. Why doesn’t his Excellency just take him out?

The EU’s response has been unequivocal: the sovereignty, unity, and constitutional order of Bosnia and Herzegovina must be respected, and political actors must recommit to the difficult reforms necessary to advance the country’s accession path. European integration offers a chance not only to modernize Bosnia’s institutions but to replace Dayton’s brittle peace with a more durable social contract—one built on rule of law, democratic accountability, and economic opportunity.

Whether Bosnia can seize this opportunity depends on overcoming the deeply entrenched political culture that Dayton helped create—a culture that rewards division, protects corruption, and fears the consequences of genuine change. The question remains: can Bosnia leverage the EU accession process to finally break its cycle of dysfunction and reclaim its future?

European Union — A Peace-Building Supranational Project

In the aftermath of World War II, Europe’s leaders embarked on an ambitious and visionary project: to build lasting peace by transcending centuries of conflict through cooperation and integration. The European Union (EU) was born from this ideal, evolving from economic cooperation into a political and security union designed to bind nations so closely that war would become unthinkable.

The project’s origins trace back to the landmark Schuman Declaration of 1950. French Foreign Minister Robert Schuman famously proposed pooling the coal and steel industries of France and Germany—historical sources of conflict—into a shared community that would make war “not merely unthinkable, but materially impossible.” This European Coal and Steel Community, established in 1951 by six founding countries, laid the foundations of the supranational institutions that would evolve into today’s EU.

Peace is enshrined as a core value in the EU’s legal and political framework. Article 21(2)(c) of the Treaty on European Union commits the bloc to “preserve peace, prevent conflicts and strengthen international security,” reflecting its deep-rooted identity as a peace project.

The Common Foreign and Security Policy (CFSP), formalized in 1993 with the Maastricht Treaty and reinforced by the 2009 Lisbon Treaty, enshrines the EU’s foundational commitment to peace. It advances democracy, human rights, the rule of law, and the peaceful resolution of conflicts as pillars of European cooperation.

A famous quote that describes the European Union as a peace project comes from Chancellor Helmut Kohl. On December 15, 1991, at the CDU party congress in Dresden, he said:

„Die deutsche Einheit, die europäische Einigung waren immer unsere Visionen. Jetzt realisieren wir die europäische Einigung, weil es dem Frieden, weil es der Freiheit, weil es der Zukunft dient.“

(“German unity, European unification have always been our visions. Now we are realizing European unification—because it serves peace, because it serves freedom, because it serves the future.”)

Without the EU’s gravitational pull and its conditionality mechanisms, it is difficult to imagine many Eastern European countries—certainly Romania and Bulgaria—achieving the political and institutional reforms needed for stability, prosperity, and democratic consolidation, however fragile those gains may still appear. The European project did not merely offer a vision of peace; it created the structure and incentives necessary to begin building it.

I have personally witnessed this in practice—having dealt with significant civil court proceedings in Romania, I can attest that, despite its imperfections, the system works. That would have been unthinkable without the reforms driven by EU accession. No, it does not extinguish corruption—but it does contain it, and it allows for steady economic and institutional progress. That alone — and for all its flaws — makes the EU model not just a peacekeeping force, but a mechanism for transformation.

The EU’s response to shifting global realities has also involved expanding its security ambitions. The Common Security and Defence Policy (CSDP) seeks to foster a European strategic culture and collective defence capacity. The Russian invasion of Ukraine in 2022 accelerated this trajectory, culminating in initiatives like the EU Strategic Compass, which aims to deepen cooperation and resilience by 2030.

Beyond military capacity, the EU actively engages in peacekeeping and conflict prevention globally. The European Peace Facility (EPF), launched in 2021, exemplifies this ambition by funding missions that stabilize fragile regions, help prevent conflict, and promote peace worldwide. Currently, thousands of EU personnel serve on peacekeeping missions across continents, projecting the Union’s commitment to security beyond its borders.

The EU, therefore, stands today not only as a unique economic union but as a peace project grounded in supranational governance, multilateral cooperation, and a shared commitment to stability. This legacy of turning conflict into cooperation is particularly relevant to Bosnia and Herzegovina, a country still shackled by Dayton’s fragile peace.

For Bosnia, EU integration offers more than economic gains—it is an invitation to join a system built to overcome ethnic divisions through the rule of law, democratic governance, and shared values. Designed to limit the power of strongmen, the European model provides a promising framework to tackle entrenched corruption, institutional paralysis, and nationalist politics that have long hindered Bosnia’s progress. I have seen it first hand. It works.

As EU leaders like former High Representative Christian Schmidt have argued, European integration offers Bosnia “the best—and perhaps the only—path towards sustainable peace and prosperity.” Yet this path demands more than symbolic gestures. It requires real reforms, political courage, and the willingness to break free from the constraints of Dayton’s outdated framework.

Remove the bad actor in Bosnia, Your Excellency. The time for appeasement is over. Let’s fix it and remove a future source of conflict now.

Cyprus: The Island That Froze

Cyprus is the Mediterranean’s unfinished proxy war—a divided island propped up by a permanent UN buffer zone and an uneasy peace that’s endured for over fifty years without resolving the root conflict. It stands, like Bosnia, as both a monument to international diplomacy and a warning about the paralysis of “frozen peace.”

Colonial Legacies and Political Fault Lines

Global attention first focused on Cyprus in 1955, when Greece-aligned Cypriots—roughly 80% of the population—launched an uprising against British colonial rule, demanding enosis (union with Greece). The minority Turkish Cypriot community supported taksim (partition between Greece and Turkey), stoking ethnic tensions.

To avoid civil war, Britain, Greece, and Turkey brokered a compromise: a newly independent Cyprus. But there was no referendum. On 19 February 1959, the inconvenient Zurich-London agreements were signed—by Makarios and Fazil Küçük—behind closed doors and without consulting the people — a huge mistake once more.

The constitution that followed established a precarious bi-communal republic: a Greek Cypriot president and Turkish Cypriot vice president, each armed with veto power; proportional representation; separatist municipalities. Yet, before long, fault lines cracked. Violence erupted in 1963, and the UN deployed its peacekeeping force (UNFICYP)—one of its oldest missions—to stem the bloodshed.

It looked like a mini-Dayton avant la lettre.

1974: Coup, Invasion, and Partition

Tensions escalated into rupture in July 1974. A Greek-backed coup in Nicosia aimed to subsume Cyprus into Greece. In response, Turkey invaded—claiming its right as a guarantor power under the 1960 treaties. Turkish troops swiftly occupied the northern third, displacing 160,000 Greek Cypriots and prompting a reverse exodus of 50,000 Turkish Cypriots.

Once bustling Famagusta became a ghost town. By August, the island was sharply divided. In 1983, the Turkish-occupied north declared itself the Turkish Republic of Northern Cyprus (TRNC)—a state recognized only by Ankara and condemned by the UN Security Council. To this day, no other country acknowledges it.

Unfortunately, little progress was made throughout the rest of the 1980s, or during the 1990s – largely due to the intransigence of the late Turkish Cypriot leader, Rauf Denktash.

A Peace That Stabilizes Without Healing

The Green Line, stretching 180 kilometers across Cyprus and through Nicosia—the last divided capital in Europe—came to symbolize the frozen conflict. UN peacekeepers patrol it to this day, enforcing a peace that prevents war but deepens separation.

Like Bosnia, Cyprus has been the subject of endless rounds of international mediation—each raising hopes, only to fall short.

The turning point came in the early 2000s, when the Republic of Cyprus was set to join the European Union. Ankara, recognizing that an EU-member Nicosia would gain the power to veto Turkey’s own accession, backed a renewed UN effort to resolve the division. The result was the Annan Plan—a comprehensive proposal for reunification.

But the gamble failed. Greek Cypriot leader Tassos Papadopoulos urged rejection, believing that imminent EU membership would strengthen their negotiating position and yield a better deal later. In the April 2004 referendum, two-thirds of Turkish Cypriots voted in favour, but three-quarters of Greek Cypriots voted against. One week later, on 1 May 2004, a divided Cyprus entered the European Union.

In the years that followed the failed Annan Plan, multiple attempts were made to revive negotiations between the two sides. Yet for a host of political, strategic, and psychological reasons, none gained traction. A renewed sense of hope emerged in 2013, when the Greek Cypriots elected Nicos Anastasiades—a leader who had openly campaigned in favour of the Annan Plan. Two years later, the Turkish Cypriots followed suit by electing Mustafa Akıncı, a moderate and vocal advocate of reunification.

With Anastasiades and Akıncı at the helm, the UN-facilitated talks finally began to show real momentum. Broad consensus was reached across key areas: governance, territory, and property rights. By December 2016, the process advanced to a new stage, with the UN announcing a high-level international conference to tackle the most intractable issue—security guarantees.

The first round convened in Geneva in January 2017, but collapsed on the opening day. A second attempt followed in Crans-Montana six months later, where negotiators endured ten days of intensive dialogue. Yet despite initial optimism, no breakthrough emerged. The UN Secretary-General formally closed the Conference on Cyprus, and once again, the island slipped back into deadlock.

In the aftermath, scholar Van Coufoudakis offered a sober reflection on the impasse:

Hiding behind the rhetoric that only a comprehensive settlement will resolve these issues will only encourage the continuation of Turkey’s illegal conduct. The Cyprus problem was and remains one of illegal invasion, continued occupation, and documented violations of human rights and not an inter-communal problem to be resolved by a new constitution based on the affirmation of the violations that took place in and since 1974 in Cyprus. The UN has conveniently forgotten the consequences of the League of Nations rationalizations over Ethiopia in 1935 and Chamberlain’s folly in Munich in 1938. Accommodating aggressors only wets their appetite.

The Present Paradox

Today, the Republic of Cyprus stands as a functioning EU member state—wealthy, stable, and internationally recognized—while the self-declared Turkish Republic of Northern Cyprus (TRNC) survives largely on Turkish subsidies and political patronage.

Meanwhile, the once-militarized buffer zone has become a tourist attraction: in Nicosia, cafés and shops now hug the edges of checkpoints; tourists wander across for the day, passports stamped on one side but unrecognized on the other. Yet beneath this surface normalcy, the political division remains absolute.

The deeper fracture is psychological. Two generations have now grown up in separation, with no living memory of coexistence. While efforts at reconciliation persist—bi-communal initiatives, civil society dialogues, and cross-line projects—they unfold within a structure that has long ossified.

Like Bosnia, Cyprus is caught in a peace that prevents war but also thwarts true resolution. A conflict paused, not solved.

Four Strategic Paths Forward

1. Continue the UN-Facilitated Federal Talks
Despite decades of negotiation, support for reunification via a bizonal, bicommunal federation is waning. Recent polling suggests that many Greek Cypriots are wary—fearing institutional paralysis, disproportionate power-sharing, and a return to political deadlock.

2. Turkish Cypriot Statehood Ambitions
Formal recognition of the TRNC remains improbable. Few states are willing to endorse unilateral secession, especially when it contradicts UN resolutions and EU law. Recognition would trigger diplomatic backlash and likely economic sanctions from the European Union—a dead end in the current geopolitical climate.

3. Annexation by Turkey
Absorbing Northern Cyprus into the Turkish state would be a dramatic escalation—and a geopolitical earthquake. Though such a move may appeal to some hardliners in Ankara, it would prompt universal condemnation, kill off any remaining prospect of EU accession, and erect a permanent, militarized boundary at the EU’s southeastern frontier. For both Turkish and Greek Cypriots, annexation would mark the end of autonomy—and the beginning of something far more volatile.

4. A Flexible, Incremental Approach
Amid stalemate, a growing number of voices advocate a pragmatic alternative: a slow, deliberate process of mutual gestures. Turkish Cypriots could return select territory or properties; in exchange, they might gain limited access to international platforms, participation in cultural and sporting events, or an agreement on energy revenue sharing. These steps need not imply recognition of the TRNC but could serve as confidence-building measures toward either eventual reunification—or at the very least, a dignified coexistence.

Peace as a Process: Cyprus in 2025

Cyprus remains divided, but the peace process has not stalled—it has shifted into quieter, incremental steps of trust and cooperation.

In early 2025, the UN appointed María Angela Holguín as its new envoy to rebuild confidence through symbolic, low-stakes measures. A high-level summit in Geneva is planned, alongside proposals like new Green Line crossings, joint infrastructure projects, demining, and cemetery restorations—small but meaningful steps toward reconciliation.

On the ground, an EU- and UN-backed initiative is restoring 30 abandoned cemeteries, turning sites of grief into shared remembrance. Trust is being rebuilt one grave at a time. Green Line trade reached €16 million in 2023, with 7.1 million crossings. EU-funded programs support civil society and infrastructure, slowly reshaping coexistence without forcing premature political solutions.

Politics, however, remain deadlocked. Turkish Cypriot leader Ersin Tatar pushes for a two-state solution, while Greek Cypriots reject partition and Turkish military presence. Property disputes and deep-seated grievances continue to fuel tension.

Cyprus today illustrates the essay’s core message: peace is not a fixed moment but an ongoing movement—sometimes slow, sometimes stalled, but never fully abandoned. The real question is whether the will to pursue it endures.

A Mirror to Bosnia

The parallels are unmistakable. Like Bosnia, Cyprus lives under a power-sharing architecture drafted abroad. Like Bosnia, it relies on international oversight: peacekeepers in Cyprus, a High Representative in Sarajevo. And like Bosnia, it shows how a frozen peace—designed to stop war—can also stop transformation.

Both cases reveal a deeper European dilemma: one half of Cyprus is a full EU member; the other, a legal and diplomatic vacuum. Bosnia is promised EU membership, but structurally paralyzed. The continent finds itself managing peace, not building it.

Cyprus teaches us something crucial: the longer a provisional settlement lasts, the more permanent it can become. What began as a "temporary" partition in 1974 has now persisted for fifty years. For Bosnia, the warning is clear—today’s stopgap risks becoming tomorrow’s status quo.

Northern Ireland: From Walls of Division to the Good Friday Agreement

I now turn to my third and final example—one that, remarkably, ends in hope.

The story of Northern Ireland is not merely one of religious or political strife. It is, more powerfully, the story of a peace that was not declared but constructed—patiently, painfully, piece by piece.

For three decades, from the late 1960s through the late 1990s, Northern Ireland endured what became known as the Troubles: an era of bombings and assassinations, of riots, hunger strikes, and funerals that blurred one into the next. At its worst, Belfast was a city physically and emotionally scarred—divided by concrete walls and barbed wire, with neighborhoods split along sectarian lines: Catholic versus Protestant, nationalist versus unionist.

And yet, by 1998, the unthinkable had occurred. A peace agreement—the Good Friday Agreement—was signed. Not a ceasefire in name only, but a genuine and lasting framework for coexistence. In a world littered with failed negotiations and broken truces, Northern Ireland became one of the rare places where a peace process not only held but slowly transformed a society once trapped in the cycle of retaliation.

The Sources of Division

The roots of Northern Ireland’s conflict run deep—centuries deep. They trace back to the 17th-century Plantation of Ulster, when Protestant settlers from England and Scotland were granted land seized from the native Catholic Irish. This colonization didn’t just redraw the map—it planted a lasting demographic and religious divide that would shape Ulster’s politics for generations.

When Ireland gained independence from Britain in 1921, that historic divide solidified into partition. Six counties in the north—where Protestants held a majority—remained part of the United Kingdom. The south became the Irish Free State, later the Republic of Ireland. For Northern Protestants, partition safeguarded their British identity. For Northern Catholics, it marked a betrayal: they were left isolated in a state that did not represent them, cut off from the Irish nation they felt was rightfully theirs.

Northern Ireland became a Protestant-dominated polity. For decades, unionist governments at Stormont—the Northern Irish parliament—presided over a system of institutional discrimination. Housing, employment, and voting districts were all tilted to maintain Protestant power. Catholics were systematically marginalized—treated as second-class citizens in their own land.

Battle of the Bogside and Bloody Sunday

Many historians mark the true beginning of the Troubles with the events of August 1969, when a loyalist parade in Derry triggered days of violence that spiraled far beyond the city itself.

Across Northern Ireland, loyalist groups regularly staged parades to commemorate Protestant military victories dating back to the 17th century. In Derry, the local branch—the Apprentice Boys—planned one such parade for 12 August 1969, a patriotic display set to march directly past the Bogside, a predominantly Catholic and nationalist neighborhood.

For residents of the Bogside, the parade was not just provocative—it was incendiary. Fearing violence, they barricaded streets and stockpiled Molotov cocktails. As anticipated, tensions erupted. Clashes broke out between the Bogsiders, the Apprentice Boys, and the Royal Ulster Constabulary (RUC). The police response only inflamed the situation.

What followed became known as the Battle of the Bogside—three days of fierce rioting in Derry. But the worst devastation happened in Belfast, where loyalist mobs, assisted by the B-Specials (a reserve police force), attacked Catholic neighborhoods and burned more than 1,500 homes.

By 14 August, the Northern Ireland government had lost control. The overwhelmed prime minister appealed to the British government for help. British troops were deployed to restore order—marking the beginning of a military presence in Northern Ireland that would last nearly four decades.

Initially, Catholic nationalists welcomed the soldiers as potential protectors. But that changed quickly. The British Army soon introduced internment without trial, rounding up and imprisoning hundreds of suspected IRA members—many without sufficient evidence or due process. It radicalized entire communities overnight.

By the early 1970s, the violence had calcified into what many regarded as open war. The Irish Republican Army (IRA) relaunched its campaign to force British withdrawal and reunify Ireland. Loyalist paramilitaries like the Ulster Defence Association responded with their own terror campaigns, often targeting Catholic civilians. The British state, for its part, responded with force and surveillance, further fueling resentment.

Then came one of the darkest days of the conflict. On 30 January 1972, Catholic civil rights activists in Derry staged a peaceful march to protest internment. The British Army was deployed to contain the demonstration. What happened next shocked the world: troops opened fire, first with rubber bullets, then with live rounds. Thirteen unarmed protestors were killed on the spot. A fourteenth died later from his wounds. The massacre would come to be known as Bloody Sunday.

In the years that followed, Northern Ireland descended further into bloodshed. Car bombings, shootings, and sectarian attacks became tragically routine. Paramilitary groups on both sides—such as the Provisional IRA and the Ulster Volunteer Force—claimed hundreds of civilian lives, pushing communities even further apart.

Belfast and the Walls

Belfast became the crucible of Northern Ireland’s division. Entire neighborhoods were carved up along sectarian lines. As violence escalated, British authorities began constructing so-called peace walls—towering barriers of concrete, steel, barbed wire, and watchtowers—designed to physically separate Catholic and Protestant communities. By the 1980s, more than 100 such walls crisscrossed the city, turning Belfast into a patchwork of fortified enclaves.

An old friend of mine served as a British Army officer in Northern Ireland in the late 1980s and early 1990s. I remember him telling me how constrained the soldiers were by the rules of engagement: they could only return fire if they were shot at first. It sounds reasonable in theory, but in practice, it created a high-stakes, high-pressure environment. Every action—no matter how defensive—was subject to intense legal scrutiny. Even justified responses could result in formal investigations, or worse, prosecution. It was a kind of warfare unlike most others: fought not just on the streets, but in courts and inquiries long after the bullets had stopped flying.

Like the siege lines of Sarajevo or the buffer zone in Nicosia, Belfast’s walls became physical embodiments of political failure: visible, towering reminders that a society had split and could no longer find its way back together.

Thatcher and the Hard Years

The election of Margaret Thatcher in 1979 marked a sharp hardening of British policy toward Northern Ireland. To Thatcher, the IRA were not insurgents or political actors—they were simply criminals. “Crime is crime is crime; it is not political,” she declared.

In 1981, republican prisoners launched a hunger strike demanding recognition as political detainees. The strike electrified nationalist communities. Bobby Sands, a 27-year-old IRA member, was elected to the British Parliament while starving in prison. He and nine other strikers would die before the protest ended.

Thatcher’s unyielding stance deepened the conflict—but it also shifted its trajectory. For many republicans, the hunger strikes were proof that sacrifice could deliver political legitimacy. Sinn Féin, the IRA’s political wing, began seriously contesting elections, inaugurating what became known as the “ballot box and the Armalite” strategy: using both the vote and the gun to push for Irish unification.

It was a grim duality—violence and democracy running in parallel—but it signaled the start of a long, uneven transition from armed struggle to political negotiation.

Diplomacy and Shifting Ground

Even during the darkest years, seeds of diplomacy were quietly planted. In 1985, Margaret Thatcher and Irish Prime Minister Garret FitzGerald signed the Anglo-Irish Agreement. For the first time, the British government formally acknowledged the Republic of Ireland’s consultative role in Northern Ireland’s affairs.

Unionists were furious, viewing it as a betrayal by London. Nationalists, meanwhile, saw it as long-overdue recognition. Though modest in scope, the agreement opened vital channels of communication between Britain and Ireland—connections that would later prove essential.

In the 1990s, the diplomatic ground shifted more decisively. John Major, Thatcher’s successor, deepened cooperation with Irish Taoiseach Albert Reynolds. At the same time, across the Atlantic, newly elected U.S. President Bill Clinton broke with long-standing policy by granting Sinn Féin leader Gerry Adams a visa in 1994.

The move infuriated London but sent a clear message: the United States was now willing to engage all sides—including republicans—in the pursuit of peace. Adams, once denounced as the public face of terrorism, was suddenly recast as a potential political partner.

Toward Peace

By the mid-1990s, exhaustion hung in the air. The violence, once fueled by passion and ideology, had lost its momentum. The IRA declared a ceasefire in 1994—broken and renewed again by 1997. Loyalist paramilitaries followed suit. Sinn Féin began emphasizing its political role, while unionist leaders like David Trimble came to accept a hard truth: if the bloodshed was to end, a deal was inevitable.

U.S. Senator George Mitchell, appointed by President Clinton, became the mediator—a calm, trusted presence amid deep mistrust. The European Union, working more quietly, invested heavily in cross-community projects that laid the groundwork for reconciliation. The stage was set for a grand bargain.nto cross-community projects. The stage was set for a grand bargain.

The Good Friday Agreement

On April 10, 1998, after marathon negotiations in Belfast, the Good Friday Agreement was signed. It was a triumph of careful language and painstaking balance. Among its key provisions:

• A new Northern Ireland Assembly, based on power-sharing between unionists and nationalists. Neither community could govern without the other.

• Cross-border institutions to foster cooperation between Northern Ireland and the Republic of Ireland.

• The British and Irish governments became joint guarantors of the agreement.

• The “consent principle” was enshrined: Northern Ireland would remain part of the UK unless a majority chose otherwise.

• Paramilitary groups committed to disarmament, and British military presence was scaled back.

• Human rights and equality protections were formally embedded in law.

The deal was put to a vote. In referendums held north and south of the border, it was overwhelmingly endorsed: 71% in Northern Ireland, 94% in the Republic of Ireland. For once, peace had democratic legitimacy. It was not imposed—it was chosen.

After the Peace

The Good Friday Agreement transformed Northern Ireland. Belfast blossomed into a city of cafés, startups, and cultural revival. Tourists came to see the murals that once marked territories and enmities. The walls remained—but now more as monuments than front lines.

Still, peace has been fragile. The Northern Ireland Assembly has collapsed multiple times amid political deadlock. The legacy of trauma, mistrust, and sectarian division lingers. Brexit, too, threatened to unravel core compromises. But the Northern Ireland Protocol—a key part of the UK–EU withdrawal agreement—preserved the open border with the Republic. By keeping Northern Ireland in the EU single market for goods (unlike the rest of the UK), the Protocol upheld one of the central pillars of the peace process: the freedom to move seamlessly across the island.

It is this of creativity and adjustument that is certainly missing in Bosnia and Cyprus today.

The Lesson: Peace from Both the Top Down and the Ground Up

The Northern Ireland peace process stands as a powerful example of how deep transformation happens—not just through high-level agreements, but through sustained grassroots action.

Yes, political leadership was indispensable. Thatcher’s hardline stance inadvertently propelled Sinn Féin into politics; Gerry Adams, once sidelined, became a vital negotiator. David Trimble risked political ruin to push for compromise. Bill Clinton opened diplomatic doors, and George Mitchell’s steady mediation provided the scaffolding for agreement.

But just as crucial was what happened on the ground—in community halls, classrooms, and across neighborhood lines. From PEACE I to PEACE IV to PEACEPLUS, the EU backed over 15,000 reconciliation projects in just five years—spanning dialogue, school exchanges, and shared public spaces. Since the Good Friday Agreement, €2 billion has flowed into peacebuilding. Let me say it again: peacebuilding—not house building.

One Northern Irish civil servant, Quentin Crisp—author of The Naked Civil Servant—once quipped: “When I told the people there that I was an atheist, a woman in the audience stood up and said, ‘Yes, but is it the God of the Catholics or the God of the Protestants in whom you don’t believe?’” Let that sink in.

Let’s Get a Sense of Perspective

Peace in Northern Ireland wasn’t a single event; it was the invisible, relentless labor of thousands over decades. We can measure it.

Since the mid-1990s, EU-funded PEACE programmes supported over 22,500 local projects across Northern Ireland and the Irish border counties. One program alone—PEACE II—engaged nearly 870,000 participants. At the time, Northern Ireland’s population was only about 1.6 million. That’s more than half the country, touched by one initiative.

Let’s do the math. Assume conservatively that each of the 22,500 projects had just two core staff working two years each, at 1,000 hours per year (roughly 4 hours/day for 250 days). That’s 90 million hours of on-the-ground effort (22,500 × 2 × 1,000 × 2).

Add the civil service. With about 25,000 staff over the years, if just 10% of their workload touched peace delivery—grants, reports, coordination with Dublin, London, Brussels, Washington—that adds another 80 million hours (25,000 × 2,000 working hours × 10% × 16 years).

Now factor in civil society. Northern Ireland has one of the most active volunteer sectors in Europe. Surveys in the 2000s recorded tens of millions of hours volunteered annually. Even if just 5% was focused on reconciliation or community healing, over three decades that adds over 300 million hours of effort.

Altogether, that’s easily half a billion hours invested in peace—not counting the conversations, compromises, or quiet moments that never made it into reports.

And that’s the lesson: Peace in Northern Ireland wasn’t simply signed. It was worked into being—again and again—in town councils, church basements, classrooms, and government offices. That’s what “peace is a process” really means: Not a headline. A generational labor. Measured not in words, but in hours.

For Each Hour of Violence—Thousands of Peace Work

If you try to weigh the time it took to stop the killing against the time invested to keep it stopped, Northern Ireland’s balance sheet is lopsided in the best possible way.

Between 1969 and 1998, police recorded 36,923 shootings and 16,209 bombings—roughly 53,000 violent incidents in total. Even if we convert that crudely and conservatively into “hours of fighting” (treating each bomb or shooting as one hour of active violence, though most lasted only minutes), we’re looking at ~53,000 hours of conflict activity.

Now set that against the scale of peace: an estimated 500 million hours of peacebuilding, from civil servants, educators, volunteers, local activists, EU administrators, and community workers over the last three decades.

On that math, the exchange rate of history looks something like this:
For every single hour of recorded violence, Northern Ireland has invested between 1,700 and 3,400 hours of peace work.

And if you lean just slightly closer to reality—acknowledging that many violent incidents lasted less than an hour, or that most peace projects were longer and involved more people—the ratio climbs easily into the many-thousands-to-one.

The point isn’t false precision. It’s scale. The Troubles produced tens of thousands of violent spikes. But peace required millions of discrete actions: Writing grant bids. Booking rooms. Drafting legislation. Mediating neighborhood disputes. Running school exchanges. Auditing funds. Training facilitators. Revising curricula. Listening—again and again.

When translated into time, the truth is simple and sobering: Peace has taken thousands of hours for every single hour of violence—and it still does.

Secret Peacemakers

Peace needs more than top-down diplomacy and millions of hours of work. It needs bottom-up leadership—the kind that can’t be scripted or summoned by official decree.

In 1976, after three children were killed by a runaway car driven by an IRA member shot by British troops, two women stepped into the void. Betty Williams and Mairead Corrigan did something unthinkable at the height of the Troubles: they marched. Side by side with mothers, neighbors, and strangers—Catholic and Protestant alike—they walked into Belfast’s no man’s land, carrying a simple, defiant message: enough.

Barbed wire was pulled down. Silence gave way to conversation. Neighbors shook hands. Streets were reclaimed—not by force, but by will. Their movement, The Peace People, rallied tens of thousands. They didn’t care who held the gun—they wanted the killing to stop. For this, Williams and Corrigan received the Nobel Peace Prize in 1977. The movement would later lose momentum, but not its meaning: it proved that in the darkest hour, ordinary people can lead—and sometimes, they lead louder than governments or guns.

Another such figure was Father Alec Reid, a Redemptorist priest from Belfast who worked behind the scenes for more than 20 years to make the impossible thinkable. He quietly opened channels of dialogue between Sinn Féin’s Gerry Adams and SDLP leader John Hume—laying the human and political groundwork for what would later become the Good Friday Agreement. Reid’s principles—justice, consent, mutual respect—echoed years later in the terms of that peace. And the photo of him administering last rites to two murdered British soldiers in 1988 became one of the defining images of human dignity in the face of brutality.

Hume himself, though a political leader, embodied patience and moral clarity. For decades, he championed non-violence, European-style integration, and constitutional politics, even as he faced criticism for engaging with Sinn Féin. He shared the 1998 Nobel Peace Prize with David Trimble, the unionist leader who also risked everything to strike a deal.

But the deeper architecture of peace was built beyond politics. Thousands of teachers, clergy, youth workers, and community organizers laid the foundation for trust. Initiatives like the Corrymeela Community created safe spaces for dialogue. Women’s coalitions and cross-community groups sustained relationships long before political institutions could formalize them. These “ordinary giants” didn’t make headlines—but they made peace possible. They held the line when official talks stalled, and built the human infrastructure that held Northern Ireland together.

When Violence Becomes Profit

Peace may require half a billion hours of labor, but war—when entrenched in identity and conflict—demands almost no investment yet yields immense returns for a few.

Consider Hamas: multiple credible reports estimate that leaders like Ismail Haniyeh and Mousa Abu Marzouk are billionaires, each with fortunes ranging from $3 to $4 billion, amassed through misused aid, smuggling networks, and investments abroad. Meanwhile, ordinary Gazans—many displaced and impoverished—bear the brunt of conflict.

The situation is worsened when humanitarian institutions become compromised. According to IMPACT-se, over 10% of UNRWA principals and senior educators in Gaza are affiliated with Hamas or Islamic Jihad. These schools sometimes teach extremist narratives, glorifying martyrdom and erasing Israel from maps. The infiltration is not anecdotal—it is operational, using aid networks and educational platforms to perpetuate violence.

In this model, pain becomes capital, and war becomes a means of enrichment—through money, ideology, and power. In such settings, peace treaties can ring hollow unless they dismantle the systems profiting from conflict. Bosnia comes to mind too.

At the end of the day, it’s easy to play the victim, point fingers, or fall into simplistic blame. But it takes genuine courage, hard work, and a grounded moral framework to build a different path. Peace demands not just agreements, but the dismantling of structures that translate suffering into profit.

Conclusion: Peace Is a Process

Once treaties are signed, the real work of peace begins.

Peace isn’t declared; it’s cultivated. It must become a shared mentality—built brick by brick, person by person, community by community. Without broad civic engagement and visible symbols of trust—and without leaders brave enough to walk the political tightrope—peace remains fragile. Northern Ireland shows that lasting reconciliation requires both the wisdom of negotiators and the will of the people. It also demands a clean break from corruption and conflicted interests.

Peace is not a singular event, but a layered process—from negotiating tables to street corners, from foreign diplomacy to grassroots projects. Strong leadership can open the door to compromise, but it is citizens—through schools, youth programs, and quiet acts of cross-community courage—who lay the foundation for something that endures.

For Bosnia and Herzegovina, Cyprus, Kosovo, Moldova, and for Europe as a whole, peace will never be “done.” It must be tended—politically, socially, and psychologically. It must be renewed by each generation, not merely remembered by the last. Northern Ireland proves what’s possible. But it only happened through a peace mentality—powered by collective virtues, not just political signatures.

As Quentin Crisp once said: “If at first you don’t succeed, failure may be your style.” But peace, at its best, rewrites the script.

With warm regards,
Alexander Stahel

Appendix: Turkey — The Candidacy That Froze in Time

Turkey’s EU accession, once a beacon of hope, is now stalled indefinitely. Since applying in 1987 and gaining candidate status in 1999, the process promised to bridge East and West—but that bridge was never completed.

Key obstacles persist: Turkey’s refusal to recognize EU member Cyprus and its democratic backsliding under Erdoğan, marked by crackdowns on dissent and erosion of the rule of law. The EU has made clear these issues are non-negotiable.

No new negotiation chapters have opened since 2016. Accession talks are effectively dead, replaced by “recalibrated partnerships” focusing on limited cooperation. Erdoğan’s pivot eastward and threats to sever ties with the EU underscore the growing divide. Though opposition leaders pledge renewal, the structural gap remains wide.

Turkey’s stalled candidacy reminds us that EU membership demands shared values and reforms—not just strategic importance. Without these, the process grinds to a halt. Sometimes, one can’t help but miss the secular vision of Atatürk.

Following up on my article yesterday— on why high expectations so often lead to disillusionment, and what that means for nuclear peace and global security, or what I described as a potential “Versailles Moment” for nuclear proliferation — I thought I’d share this piece published today by Bloomberg. No further comment needed.

Article: By Frances Schwartzkopff, Natasha White and Claudia Cohen; 08/24/2025 23:00:23 [BN]

The deadliest weapons ever manufactured are becoming a regular feature of Europe’s nearly $9 trillion ESG fund industry, as a label long associated with ethical investing gets stretched to accommodate the geopolitical moment.

Since Russia’s full-scale invasion of Ukraine in February 2022, the number of ESG equity funds exposed to the nuclear arms industry has soared more than 50% to over 2,000. Though the holdings represent just a fraction of the wider defense sector, the shift means that roughly half the ESG-registered equity funds in Europe are now allocating at least some capital to companies that manufacture, supply or transport nuclear arms, according to data compiled by Bloomberg.

The development puts in the starkest possible terms the dramatic evolution of environmental, social and governance investing practices since the term was coined over two decades ago by a team backed by the United Nations. And as Europe’s tensions with Russia escalate, the idea of what ESG can represent has gone from wind farms to weapons of mass destruction with breathtaking ease.

Some characterize this moment as the ultimate perversion of ESG. A sustainable investment is supposed to be about doing “no harm,” says Sasja Beslik, chief investment strategy officer at SDG Impact Japan, an investment firm based in the first country to feel the full force of a nuclear attack 80 years ago. “And, you know, I think that the ultimate use of nuclear weapons will do a lot of harm.”

Others say that ESG money needs to be channeled toward defending economic and social stability. Matt Christensen, global head of sustainable and impact investing at Allianz Global Investors, says that’s why the $650 billion asset manager will this year start holding nuclear arms manufacturers in funds registered as “promoting” ESG. 

With war raging in their backyard, Europe’s leaders have made it clear they don’t want any ESG qualms to get in the way of steering private capital into a military deterrent strong enough to resist Russia. It’s a concept that’s been neatly captured by the chief executive officer of exchange operator Euronext NV.

“In the new ESG, we’re talking about contributing to society by strengthening Europe’s energy autonomy and defense: energy, security and geostrategy,” says Euronext CEO Stephane Boujnah. “We’ve seen a strong collective preference emerge in recent months” from civil society, investors and Euronext’s own employees, he said. “There is an appetite among citizens to serve their country in their own way.”

Euronext says it has no specific “doctrine” regarding nuclear weapons, beyond following European markets regulations.

Read more

Lesson 8: The Pitfall of High Expectations and Disillusionment

When Woodrow Wilson landed in the harbor of Brest on the French Atlantic coast on Friday, 13 December 1918, the city’s mayor welcomed him at the dock as an apostle of liberty—a liberator come to free the peoples of Europe from their suffering.

The very next morning, Wilson drove through the streets of Paris, cheered by massive crowds lining the boulevards. The French press, across all political affiliations, hailed him as “the incarnation of the hope of the future.” Similar scenes played out in England and Italy in the weeks that followed, where Wilson was greeted not as a mere diplomat, but as a world savior.

Along his motorcade route in Paris, giant letters lit up above the street in white lightbulbs: Vive Wilson — Long live Wilson. The atmosphere was euphoric, verging on the surreal. The British writer H. G. Wells later captured the essence of this moment, describing the intensity—and fragility—of Wilson’s apotheosis:

“For a brief interval, Wilson stood alone for mankind. And in that brief interval there was a very extraordinary and significant wave of response to him throughout the earth… He ceased to be a common statesman; he became a Messiah.”

Yet for all the soaring rhetoric and ecstatic adoration, Wilson’s triumph was tragically short-lived. Today, his reception in Europe is remembered less as a turning point than as an ironic footnote to the Great War. The immense hopes he inspired unraveled almost as quickly as they were raised. The reverence once shown toward the American president across Europe and beyond gave way to disappointment, then to resentment.

The Treaty of Versailles, signed on June 28, 1919, fell far short of the aspirations Wilson had stirred. It was condemned not only by former admirers around the world, but also by Wilson’s own country. The U.S. Senate refused to ratify it, and the American public, weary of foreign entanglements, retreated into the comforting embrace of what Warren Harding would soon call “normalcy.”

Where did the overstrain of 1919 lie? Several factors combined.

First, the sheer scale. Wilson’s vision of transparent, expert, law-based diplomacy drew two dozen official delegations — including Britain’s dominions — and countless unofficial groups from India, Egypt, and elsewhere. Over 10,000 delegates, advisors, and assistants filled Paris. Committees soared into the dozens, plenaries exceeded 1,000 participants, and the city swarmed with activists.

Second, the media glare. Hundreds of journalists carried hopes and outcomes across continents — and their home audiences’ reactions fed back into the conference in real time. It was the first truly global, media-infused peace process.

Third, the issues themselves. Unlike 1815, 1919 confronted problems that redrawn borders couldn’t solve: millions of refugees, prisoners of war, and newly stateless people. The war’s hopes had crystallized into two global watchwords — “the war to end all wars” and “self-determination.”

Wilson’s Fourteen Points gave self-determination its moral force. But the world wasn’t ready for it. On his November 1918 voyage to Europe, he privately confessed his fears to George Creel, America’s propaganda chief:

“Have you not unconsciously woven a net from which there is no escape for me? The whole world now looks to America with all its hopes and burdens. All these expectations contain a dreadful urgency… People endure their tyrants for years, but they tear their liberators to pieces if the millennium is not created at once.”

The Burden of High Expectations from “Self-Determination” for European Colonies

There is, of course, a vast historiography on the Paris Peace Conference of 1919 and the role played by the United States. Yet much of it remains narrowly focused on Europe — particularly on the policies, decisions, and personalities of the Great Powers: Britain, France, Italy, and the United States.

In fact, much of the literature closely mirrors the priorities of the “Big Four” at the negotiating table. The depth of analysis on specific issues and regions often correlates directly with the degree of attention those matters received from Allied leaders at the time. This is understandable. Many of the debates in Paris concerned matters of enormous consequence — both for the immediate shape of the postwar European order and for the longer trajectory of the twentieth century.

Territorially, the most dramatic revision was the disintegration of the Austro-Hungarian Empire. In its place emerged a patchwork of new or expanded states: Austria and Hungary became independent nations; Czechoslovakia was created; Romania and Serbia were enlarged, with the latter forming the nucleus of a new multinational kingdom — Yugoslavia — which now included Croatia, Bosnia, and Slovenia.

The most disastrous and, arguably, most avoidable revision at Versailles was the deliberate humiliation of the German Empire. Territorial losses — most notably the creation of an independent Poland carved partly from acient Prussian lands — were compounded by crippling reparations. The final demand, set at approximately US$33 billion in 1921 dollars (equivalent to $600–760 billion today), inflicted deep economic wounds.

National humiliation followed, feeding the narrative of betrayal at home and giving birth to the Dolchstoßlegende — the “stab-in-the-back” myth that claimed Germany had been defeated not on the battlefield, but by treachery on the home front. Hyperinflation, political instability, and resentment cascaded in the following years, laying the groundwork for Hitler’s rise and the eventual descent into another global war.

Beyond Central Europe and the colonial world, the collapse of the Russian and German empires redrew the map of northeastern Europe. Finland, which had been conquered by Tsar Alexander I in 1809 and turned into an autonomous Grand Duchy within the Russian Empire, declared independence in 1917 amid the chaos of the Bolshevik Revolution. Its sovereignty was secured through a brutal civil war and the repulsion of Soviet forces during the Finnish War of Independence and again during the Winter War in World War 2.

The Baltic states — Estonia, Latvia, and Lithuania — followed a similar path, asserting independence as imperial authority crumbled. These were not simply new nations born from Versailles, but heirs to much older histories. Lithuania, in particular, traced its identity to the long-standing Polish-Lithuanian Commonwealth, which had once stretched from the Baltic to the Black Sea. The resurrection of Poland itself after over a century of partitions was rightly celebrated — but it reopened border disputes with Lithuania and Ukraine, and rekindled old rivalries. In this northeastern corner of Europe, as elsewhere, Versailles ratified change it did not control — and left behind new fault lines.

This European core of the Versailles failure is well understood — and as I’ve discussed in earlier Substacks here and here, it has been picked apart and analyzed from nearly every angle.

What is far less often remembered, however, are the global repercussions of 1919.

Much like the Allied leaders at the time, international historians have tended to overlook the questions and demands that fell outside the immediate focus on Europe. In particular, the calls for self-determination from peoples across Asia, the Middle East, and Africa were largely ignored—whether by design or by indifference.

This neglect was no accident. The Great Powers had little interest in applying the principles of national sovereignty and self-rule to their own empires. Where the aspirations of colonized peoples—whether in China, Korea, Egypt, Tunisia, India, Indochina, or beyond—conflicted with the interests of the victors, those aspirations were simply excluded from the agenda.

Yet in the spring of 1919, resistance erupted across the non-European world. Anticolonial nationalism surged with a scope and intensity not seen before. A few international historians have acknowledged this in passing, recognizing 1919 as a critical moment in the emergence of global anticolonial consciousness. But the movements themselves—their demands, their disappointments, and their deep historical context—have rarely been given the attention they deserve in mainstream accounts of the Paris Peace Conference.

Versailles, then, was not merely a European settlement. It was a global rupture.

The peace collapsed under the weight of its own contradictions. Intended to end all wars, it instead produced a cascade of expectations—some idealistic, others cynical—so vast and so unevenly fulfilled that disappointment was not just likely, but inevitable.

Sykes-Picot Agreement and the Broken Promise of Self-Determination

The modern frontiers of the Arab world only vaguely resemble the blue and red grease-pencil lines secretly drawn on a map of the Levant on 16 May 1916, at the height of the first world war.

Sir Mark Sykes and François Georges-Picot were appointed by the British and French governments respectively to decide how to apportion the lands of the Ottoman empire, which had entered the war on the side of Germany and the central powers.

The Russian foreign minister, Sergei Sazonov, was also involved. The Allies agreed that Russia would get Istanbul, the sea passages from the Black Sea to the Mediterranean, and Armenia; the British would get Basra, Hafia and southern Mesopotamia; and the French a slice in the middle, including Lebanon, Syria and Cilicia (in modern-day Turkey). Palestine would be an international territory.

In between the French- and British-ruled blocs, large swathes of territory, mostly desert, would be allocated to the two powers’ respective spheres of influence. Italian claims were added in 1917. But after the defeat of the Ottomans in 1918 these lines changed markedly with the fortunes of war and diplomacy.

In 1919, a famous Arab delegation came to Paris, with Prince Faisal and T. E. Lawrence. Politically, however, the outcome was that the Arabs did not receive the pan-Arab state they hoped for, because the reality of the Middle East was shaped by Britain and France, who, as in Asia and Africa, divided territories between themselves. In 1916, through the infamous Sykes–Picot Agreement, they had literally drawn borders with thick markers on maps and allocated these areas to themselves.

A pan-Arab state did not exist in 1919, nor later. In the long run, countless actors in the Middle East referred back to this moment of 1919, arguing that the Arabs had been denied the right of self-determination. Sykes-Picot has become a byword for imperial treachery.

George Antonius, one of the first historians on Arab nationalism, called it a shocking document, the product of “greed allied to suspicion and so leading to stupidity.” It was, in fact, one of three separate and irreconcilable wartime commitments that Britain made to France, the Arabs and the Jews. And it collided squarely with Woodrow Wilson’s principle of self-determination.

The resulting contradictions have been causing grief ever since. Nasser in Egypt in the 1950s referred to it, later Saddam Hussein invoked it when invading Kuwait, Gaddafi referred to it as well, and even the so-called Islamic State (ISIS) in 2016 unfurled a large banner in the Syrian desert declaring: “Here ends Sykes-Picot.”

Independence for Indochina and Ho Chi Minh’s Broken Hopes

Another young man who appeared in Paris in 1919 was Nguyễn Ái Quốc — later known as Ho Chi Minh. He too wanted to invoke the principle of self-determination, demanding the independence of Indochina.

He wanted the approximately 250,000 Indochinese soldiers who had fought for France not to be treated worse than French recruits. Of course, he was brusquely and immediately dismissed by a mid-level French official — told that France’s colonies were not on the agenda.

Ho Chi Minh was humiliated, his hopes shattered. Seeking justice, he turned to socialist and communist circles, eventually joining the French Communist Party in 1920.

The irony is stark: the man who once appealed to Wilson’s American principle of self-determination would decades later lead Vietnam into wars first against France and then — against the United States itself.

Communist China and Today’s Trade War

In May 1919, huge demonstrations erupted in China. In Chinese political culture, this event, the “May Fourth Protest,” is still remembered as a decisive turning point. They linked to it the hope that the semi-colonial status of China, dating back to the Opium Wars — with treaty ports such as Hong Kong or Shanghai — would come to an end. In November 1918, demonstrators in Shanghai carried placards in Latin letters reading: “The world must be made safe for democracy.”

But in the summer of 1919, these hopes collapsed when the Treaty of Versailles stipulated that Germany’s former concessions in China would not return to China but would go instead to Japan as spoils of war.

Hundreds of thousands of Chinese protested against this “betrayal of the principles of national self-determination.” China ultimately did not sign the Treaty of Versailles. The Chinese delegation broke off its participation.

Mao Zedong himself took part in these demonstrations. He interpreted the experience of failed peace as proof that China must find its very own path — not a mere imitation of Western modernization, not liberal internationalism, but a specifically Chinese way.

In a way, today’s trade war is a direct consequence of the heightened expectations set at the Versailles Treaty which created Communist China — with all its woes such as its planning economy, resulting in systematic over-capacity as we explained in our China series extensively.

The Nuclear Arms Race: From Fission to MAD

The dawn of the nuclear age was not American, but German.

In December 1938, Otto Hahn and Fritz Strassmann succeeded in splitting the uranium atom in Berlin. Lise Meitner and her nephew Otto Frisch, both in exile from Nazi Germany, interpreted the results correctly: this was nuclear fission. The discovery was published in a scientific journal, and the implications were immediately obvious to physicists around the world. If the energy of the atom could be controlled, it could also be weaponized.

Alarm spread quickly. In America, a small group of émigré physicists — including Leó Szilárd and Edward Teller — feared that Hitler’s Germany might build the bomb first. They persuaded Albert Einstein, then the most famous scientist in the world, to lend his authority.

In August 1939, Einstein signed the now-famous letter to President Roosevelt, warning that Germany might develop “extremely powerful bombs of a new type.” Roosevelt took it seriously. Out of this fear was born the Manhattan Project.

Led by J. Robert Oppenheimer at Los Alamos, the project mobilized the best scientific minds, the vast industrial resources of the United States, and total wartime secrecy. Its motto was simple: build the bomb before Hitler does. By July 1945, the first atomic device was detonated in the desert of New Mexico. In August, Hiroshima and Nagasaki demonstrated to the world a new level of destructive power.

The United States briefly held the monopoly, but only briefly. The Soviet Union, aided by German engineers forcibly relocated to the USSR after the war, and by the espionage of Klaus Fuchs — a German-born physicist who had worked at Los Alamos and secretly passed critical knowledge to Moscow, as later uncovered by British intelligence — detonated its first atomic bomb in 1949. The monopoly was over. The nuclear arms race had begun.

Off To the Races

From then on, the arsenals expanded at a frenetic pace. By the early 1960s, both sides had enough warheads to destroy the planet many times over. And in October 1962, during the Cuban Missile Crisis, the world came terrifyingly close to seeing it happen. For thirteen days, the United States and the Soviet Union stood on the edge of annihilation.

American forces were raised to DEFCON 2, everything that could fly or float was armed, and a single misstep could have ended civilization. When Khrushchev blinked and withdrew his missiles, the lesson was burned into the minds of both sides: the arms race had produced only madness.

Yet out of this madness came a form of maturity. President Kennedy openly sought more peaceful solutions. For a brief moment, “détente” — a policy of relaxation of tensions — dominated American politics.

It directly addressed the threat of nuclear war through a series of arms control treaties such as SALT I and II. Key achievements included the Anti-Ballistic Missile Treaty and the Helsinki Accords in 1974.

The famous red telephone “hotline” was installed between Washington and Moscow to ensure that direct communication could take place and no misunderstanding spiraled out of control. Limited test-ban treaties followed. However cynically, both sides learned to manage risk.

But many risks persisted. Nuclear accidents — the so-called “broken arrows” — littered the Cold War record: bombs lost at sea, warheads jettisoned from planes, even live devices recovered by luck. Since 1950, there have been a total of 32 nuclear weapon accidents officially recorded — 32 too many.

Brezniev the Madman — Reagan the Actor

But détente proved fragile. The spirit Kennedy had shared with Khrushchev never returned under the leaders that followed. Under Leonid Brezhnev, from 1964 to 1982, the lesson Moscow drew from Cuba was not to cooperate but to never again fall behind the United States in military capability.

Under Brezhnev, and later Yuri Andropov, the Soviets invaded Afghanistan and massively expanded their arsenal. By 1987, the Soviet Union held over 61,000 nuclear warheads — enough firepower to end the world dozens of times over.

Ronald Reagan was the fiercest critic of détente. He ran for the presidency on this very point, branding the Soviet Union the “evil empire.” His Strategic Defense Initiative — “Star Wars” — was born, at least on paper. Reagan’s vast build-up of nuclear deterrence in the 1980s, combined with the ruinous war in Afghanistan and the tragic nuclear accident at Chernobyl, pushed the Soviet economy to exhaustion. But it also pushed the world back to the edge.

In 1983, Cold War tensions reached their highest point since Cuba. The United States announced the deployment of Pershing II missiles in Europe and staged FleetEx ’83, the largest naval exercise yet in the Pacific. Andropov, already ill and deeply suspicious of Reagan’s intentions, feared a pre-emptive U.S. strike.

The Soviets launched Operation RYAN, a vast intelligence program designed to detect signs of an imminent American attack. That November, during NATO’s Able Archer exercise, Soviet radars mistook routine drills for the beginning of a nuclear strike. For days, Moscow’s leadership considered a pre-emptive response.

The crisis culminated in tragedy. On September 1, 1983, Soviet air defenses shot down Korean Air Lines Flight 007, a civilian 747 that had strayed into Soviet airspace. All 269 passengers and crew were killed, including U.S. Congressman Larry McDonald.

Then as now, the Politburo claimed it was a spy mission, a deliberate provocation by the United States. The U.S. accused the Soviets of obstructing rescue and suppressing evidence. The flight recorders were hidden until 1992. In response, President Reagan issued a directive that the U.S. Global Positioning System (GPS), then a military tool, would eventually be made freely available for civilian use worldwide — one of history’s most consequential peacetime legacies of a nuclear standoff.

And yet, paradoxically, from this insanity came stability. Mutually Assured Destruction — MAD — created an equilibrium of terror. By the mid-1980s, under Mikhail Gorbachev, both sides could openly admit what had long been obvious: any first strike would be suicide. It was peace by fear, stability through the certainty of annihilation. And with Gorbachev’s arrival in March 1985, nuclear de-armament truly began.

Would You Trade New York for Paris?

It was in this environment that the Nuclear Non-Proliferation Treaty (NPT) was born.

In a world where the U.S. and USSR already possessed enough firepower to destroy the world many times over, it was at least reasonable to prevent more players from joining the club. The NPT was not a moral gesture but a pragmatic one: it tried to freeze the nuclear hierarchy in place, stabilizing a fragile balance.

No one expressed the fragility of this arrangement more vividly than Charles de Gaulle. When President John F. Kennedy visited Paris in the early 1960s and urged him to rely on NATO and the American deterrent, de Gaulle cut him off with a devastating question: “Would you trade New York for Paris?”

With that one line, he exposed the central weakness of extended deterrence: no American president could ever be fully trusted to sacrifice an American city to save a European one and his question was as relevant then as it is now. For President de Gaulle, this was not rhetoric but survival. France would therefore build its own arsenal — and by 1960, it had tested its first nuclear device.

Other powers followed in short order. Britain had already joined the nuclear club in 1952. China tested in 1964. India followed in 1974, Pakistan in 1998, and North Korea in 2006. Israel, meanwhile, pursued a policy of deliberate “opacity”: it never admitted possession, never signed the NPT, but by the late 1960s had built an undeclared arsenal centered on the Dimona reactor. Its silence was itself a signal — everyone understood, and no one said so out loud.

For every nation that built, others could have and chose not to. Germany and Japan, both bound by their post-1945 settlements, lived under Washington’s umbrella. Sweden, which had a working program by the 1960s, dismantled it in 1972. Switzerland, too, quietly abandoned its designs. And Japan remains the world’s most striking case of “nuclear latency” — with vast plutonium stockpiles, advanced reactors, and sophisticated missile technology, it could build a bomb in months, yet has refrained for decades, trusting in American protection.

And then came the rarest case of them all: South Africa. In the 1980s, Pretoria secretly built six nuclear warheads, motivated by its isolation under apartheid and its fear of regional conflict. But by 1989, under President F. W. de Klerk, South Africa made the unprecedented decision to dismantle them all. By 1991 it had joined the NPT, and by 1993 it had invited the International Atomic Energy Agency to verify that every weapon and every document had been destroyed. It remains the only nation in history to build nuclear weapons and then voluntarily give them up.

This is the architecture of non-proliferation: one side promised protection, the other trusted that promise.

Since it was adopted more than 50 years ago, the NPT has been described as the cornerstone of international efforts to limit the danger of nuclear war, its preservation a key, shared policy objective of the P5 - the five permanent members of the United Nations Security Council - namely the United States, Britain, France, Russia and China.

The NPT was conceived as a grand bargain between nations who did not have nuclear weapons and promised not to develop them and the P5, who did have them in 1968 and promised, in Article VI of the treaty, to undertake good faith negotiations to eliminate their nuclear arsenals.

But in the five decades since, these five nuclear-armed states have continued to insist that other signatories to the treaty honor their commitment not to build nuclear weapons, but they have never seriously considered meeting their obligations to disarm.

Tension over this blatant failure to uphold their end of the bargain has been growing for years and helped fuel the 2017 adoption by 121 non-nuclear-armed states of the Treaty on the Prohibition of Nuclear Weapons, a new treaty consistent with Article VI and intended to pressure the countries that have nuclear weapons to meet their obligations to get rid of them.

The gap between the promises of the P5 and their behavior has grown into a chasm since the Russian invasion of Ukraine. Russia has made repeated threats to use nuclear weapons and NATO — representing France, the United Kingdom and the United States — has replied with nuclear threats of its own.

What is clear today is this: not only have the P5 failed to begin serious negotiations to eliminate their nuclear arsenals, as they promised decades ago — they will not even commit to refraining from starting World War III.

The NPT bargain, once hailed as a cornerstone of global stability, is now fraying at every seam. Russia openly threatens nuclear war. China expands its arsenal at an accelerating pace. In the United States, voters — weary of Iraq, Afghanistan, and mounting deficits (as we detailed in Lesson 7) — demand that allies shoulder a greater share of the defense burden. Allies, in turn, accuse Washington of unreliability; Washington counters with charges of free-riding. Mutual trust erodes.

And yet, as we’ve tried to show throughout, the truth is more complicated. These bargains were always mutual — built on expectations that were never entirely realistic, and shaped by political promises no side was ever fully prepared to keep. The disillusionment now coursing through both camps was embedded in the agreement from the beginning.

In many ways, we are no longer in the post–Cold War nuclear order. That chapter is over. What has emerged is something more unstable, more fragmented — and far less reassuring.

But I’m getting ahead of myself.

Project Sapphire

Careless nuclear testing across the Soviet Union during the Cold War left a profound mark on the people of Kazakhstan — so much so that they coined the term “nuclear neuralgia.” Between 1949 and 1989, nearly 500 tests, many atmospheric, were conducted at the Semipalatinsk test site, bathing local populations in radioactive fallout. Doctors who dared investigate the resulting health effects — hemorrhaging, blood disorders, congenital deformities — were silenced or ignored.

Their research was buried in classified military archives until Gorbachev’s glasnost reforms finally allowed the truth to emerge. This public health crisis triggered mass activism, crystallized in 1989 by the Nevada–Semipalatinsk movement, founded by poet Olzhas Suleimenov, which gathered millions of signatures demanding the test site’s closure.

Following the USSR’s dissolution, three newly independent states — Belarus, Ukraine and Kazakhstan — inherited vast Soviet-era nuclear infrastructure: warheads, missile launchers, bombers, and personnel — with little capacity to secure or maintain them.

Among these, Kazakhstan stood out in affirming, early on, its commitment to non-proliferation. President Nazarbayev declared the nation non-nuclear in principle, and in May 1992, Kazakhstan formally joined the NPT, reflecting both strategic outreach and pragmatic positioning toward Western integration.

Diplomatic reinforcement came from meetings with U.S. President George H. W. Bush and senators Sam Nunn and Richard Lugar. Western investment, especially in oil infrastructure, demanded clarity on non-proliferation. That environment paved the way for what remains one of America’s most successful non-proliferation initiatives:

With this background, Andy Weber, a US Foreign Service Officer (State Department) based in Kazakhstan, received a cryptic note from his car mechanic in 1994 reading — “600 kg, 90%” — referring to enough highly enriched uranium (90% U-235) for twenty bombs, stored insecurely at the Ulba Metallurgical Plant.

In a covert operation, U.S. and Kazakh teams carefully packed the uranium into 400 containers, loaded it onto C-5 transport planes, and airlifted it to Oak Ridge, Tennessee — all without incident, and without publicity. In return, Kazakhstan received $30 million in aid. Remarkably, the repurposed fuel went on to supply roughly 10% of U.S. civilian nuclear energy for an entire decade. Not a bad deal.

For the full story (and I highly recommend it), watch Turning Point: The Bomb and the Cold War on Netflix — Episode 7, starting around minute 40.

Discreet, efficient, and unglamorous, this was — I would argue — one of America’s quietest triumphs in nuclear security. And Andy Weber, who helped lead the mission, remains one of my personal heroes. The fact that almost no one knows his name, or this story, is a shame.

The Budapest Memorandum

Sadly, the very same year brought a tragic counterpoint.

At the Budapest OSCE summit in 1994, Ukraine agreed to surrender the world’s third-largest nuclear arsenal — 1,800 warheads — in exchange for “assurances,” not “guarantees.” The difference seems slight but the distinction was fatal in military terms. As one American later put it in the wonderful Netflix documentary “Turning Point: The Bomb and the Cold War”: a guarantee means the 82nd Airborne is coming; an assurance means sympathy.

Ukraine likely understood the risk but wanted recognition and a seat at the diplomatic table. But when Russia annexed Crimea in 2014, and again invaded in 2022, the platform proved hollow. Western military aid came, but it was slow, fragmented, and hedged by prohibitions on striking deep inside Russian territory — all in the name of “not provoking” a nuclear power.

The faint echo of appeasement from 1938 was unmistakable. Avoiding escalation made sense on paper, but in practice it rewarded aggression. Nuclear coercion works if promises are hollow.

Zelensky captured the irony (video here): “Either Ukraine will have nuclear weapons, which will serve as protection, or it must belong to some kind of alliance. Apart from NATO, today we do not know any effective alliance.”

This was precisely the outcome Clinton had hoped to avoid. And yet by tying security to fragile language, the U.S. sowed the seeds of today’s disillusionment. In fact, were Clinton to have insisted on guarantees, the Kremlin most likely would have never dared to attack in the first place — water under the bridge now.

Operation Midnight Hammer

On 21 June 2025, in a dramatic and calculated escalation, the United States launched Operation Midnight Hammer—a precision strike on Iran’s most fortified nuclear facilities.

The mission marked the first wartime use of the 30,000-pound GBU-57 Massive Ordnance Penetrator (MOP), dropped from B-2 bombers on the Fordow and Natanz enrichment sites. Backed by over 125 aircraft and a wave of Tomahawk cruise missiles, the objective was not simply to degrade Iran’s nuclear capabilities—but to eliminate them.

Iran does not currently possess a nuclear weapon. But according to the International Atomic Energy Agency (IAEA), it had amassed enough enriched uranium—much of it at 60% purity—to construct multiple warheads if pushed to weapons-grade.

Weaponization is more than just stockpiles; it requires infrastructure, secrecy, and intent—not only to build a warhead, but to pair it with a delivery system like a missile or submarine, which Iran currently lacks. In theory, however, a crude device could still be deployed by truck or other ground-based means. Still, with Tehran repeatedly threatening to “wipe Israel off the map,” both the U.S. and Israel viewed inaction as intolerable.

The targets—Fordow, Natanz, and Isfahan—represent the heart of Iran’s nuclear program. Natanz and Fordow are Iran’s only known enrichment sites. Natanz had already been struck by Israeli airstrikes on June 13, reportedly disabling key centrifuge halls and support infrastructure—critically, clearing a path for U.S. air operations.

Isfahan, a sprawling complex for uranium conversion and centrifuge production, was also targeted—first by Israel, then by U.S. Tomahawks. But it was Fordow, buried deep beneath a mountain near Qom, that posed the greatest challenge. Constructed to survive aerial assault, it housed thousands of IR-1 and IR-6 centrifuges operating in open defiance of the 2015 nuclear deal. Since the U.S. exited that agreement in 2018, Fordow had become both a symbol of resistance and the front line of Iran’s sprint toward weapons-grade enrichment.

As so often, this so-called “overnight success” was 15 years in the making. General Dan Caine and his team at the Defense Threat Reduction Agency had been studying Fordow since 2009, when classified satellite imagery first revealed the massive subterranean complex. Realizing early on that no existing weapon could reach its depths, they began an extraordinary engineering journey—collaborating with industry, running hundreds of tests, and ultimately developing the GBU-57 Massive Ordnance Penetrator. American excellence at its finest.

But the GBU-57 is not just any bomb—it weighs 30,000 pounds and can only be delivered by the U.S. Air Force’s B-2 Spirit stealth bombers. No aircraft in Israel’s arsenal is capable of carrying or deploying it. That’s why, despite Israel’s extensive preliminary strikes and deep intelligence work, it was the United States alone that could finish the job. This technical reality underpinned a deeper strategic model that unfolded in Operation Midnight Hammer: a new form of allied coordination.

Over the course of a week, the Israel Defense Forces carried out extensive strikes against radar, air defense systems, and nuclear infrastructure, likely with intelligence boots on the ground. Then, with Iranian skies blinded and defenses disoriented, America delivered the high-tech knockout blow—without incurring the political cost or the battlefield risk of putting U.S. soldiers in harm’s way. It was a division of labor that played to each nation’s strengths. And it may serve as a model for future joint operations against rogue actors who threaten regional or global security.

On June 21, fourteen of these 30,000-pound bombs were dropped by B-2 Spirit bombers, flown non-stop by both active-duty and Missouri National Guard pilots out of Whiteman Air Force Base. The strikes hit with such force that pilots reported the explosions turned night into day. Behind the scenes, thousands of scientists, airmen, and technicians had spent over a decade preparing for this moment. In General Caine’s words, this was a uniquely American feat: “We think, we develop, we train, we rehearse, we test, we evaluate—every single day. And when the call comes, we deliver.”

Despite the operation’s scale and technical sophistication, early assessments were cautious. President Trump called the attack a “spectacular success,” but U.S. and Israeli officials acknowledged that Fordow was damaged, not destroyed. Some intelligence suggests Iran may have moved uranium out in advance, though satellite imagery shows mainly defensive measures—sealed tunnel entrances, dump trucks positioned outside.

However, one troubling question remains: where is the 400 kilograms of 60% enriched uranium that the IAEA previously confirmed was stored at Isfahan? Its current location is unknown. While this amount of material represents a serious step toward a bomb, there’s an important caveat: 60% enriched uranium cannot sustain a nuclear chain reaction. At worst, it could be used in a dirty bomb—a psychological weapon causing panic and radiation exposure, but not a nuclear explosion. Moreover, with its economy under heavy sanctions, Iran lacks the resources to quickly or covertly rebuild its enrichment infrastructure.

"One last story about people,” General Dan Caine said at the the Press Conference of Operation Midnight Hammer, the closes spectacle yet to General Schwarzkopf’s nightly episodes in 1992: “When the crews went to work on Friday, they kissed their loved ones goodbye, not knowing when or if they'd be home. Late on Saturday night, their families became aware of what was happening. And on Sunday, when those jets returned from Whiteman (Air Force Base), their families were there, flags flying and tears flowing. I have chills literally talking about this.” And Caine offered a warning to America’s foes as he wrapped up his comments. “Our adversaries around the world should know that there are other DTRA team members out there studying targets for the same amount of time,” he said.

President Trump has been clear that Iran must never acquire nuclear weapons—and that these were limited, targeted strikes. “Iran must now make peace,” he declared. General Caine echoed that clarity in his Pentagon briefing. In our view, this operation was a rare example of how escalation, when grounded in purpose and executed with precision, can create the conditions for de-escalation and global stability.

Our goal here isn't to speculate on what Iran’s Supreme Leader (a title that almost invites irony) might do next. We believe he is consumed with regime survival. The real takeaway is this: Trump’s decision—executed in close coordination with Israel, which had spent the previous week softening Iran’s defenses—was a direct message to any rogue state contemplating the pursuit of nuclear weapons. In that sense, Trump didn’t just destroy two nuclear facilities—he set a precedent.

And in nuclear history, precedents matter, as I have hopefully explained by now extensively. Does this mean the world is out of the woods when it comes to nuclear proliferation? Sadly not. Let me explain…

The Versailles Moment of the post Cold War Nuclear Order?

If the U.S.–Soviet Cold War nuclear race produced anything constructive, it was communication.

However insane the arms race, both sides recognized — especially after the Cuban Missile Crisis — that silence could be fatal. The red hotline, summit diplomacy, verification regimes, and arms control treaties became ritualized acts of survival. Even when the Soviets lied or cheated, they engaged, because they understood the stakes.

China today is different. Beijing is expanding its arsenal at unprecedented speed — the Pentagon projects over 1,000 warheads by 2030 — but remains entirely unwilling to discuss arms control, share doctrine, or even pick up the phone. There is no red phone. There are no agreed protocols. China prefers opacity, ambiguity, and strategic silence.

And that makes miscalculation more likely, not less. Unlike the Cold War, the flashpoints today are not Berlin or Cuba, but Taiwan and the South China Sea — where decisions unfold in minutes, not months.

In Russia, the problem is not silence but spectacle. Nuclear threats aren’t buried in footnotes of policy documents — they are made on state TV, with cinematic flair. Dmitry Kiselyov, often described as Putin’s chief propagandist, once proudly declared: “Russia is the only country in the world that is truly capable of turning the USA into radioactive dust.” His Sunday night show has, for years, featured video simulations of nuclear strikes on Western capitals.

Vladimir Solovyov, another television heavyweight, goes further. Panels on his program joke about reducing New York or London to ashes. Margarita Simonyan, head of RT and a frequent guest, once remarked on air: “We’re all going to die someday,” to which Solovyov added, “But we’ll go to heaven; they’ll just croak.” These conversations are carried to millions of Russian households as entertainment, normalizing nuclear annihilation.

This normalization of apocalypse is not strategy — it’s recklessness. But by numbing the public, it lowers thresholds in the Kremlin itself. When nuclear destruction becomes casual entertainment, its real-world use becomes easier to imagine.

Together, China’s silence and Russia’s spectacle dismantle the very communication structures that kept the Cold War cold. The risks are immense, and we are sleepwalking into them.

In many ways, the nuclear era is entering a Versailles moment — where high expectations collide with bitter self-interest. The post-Cold War ideal was simple: the P5 would slowly disarm, others would abstain, and the U.S. would protect its allies under a reliable nuclear umbrella.

That illusion is cracking.

Allies now openly question whether the U.S. would truly trade New York for Taipei, or Vilnius. And rightly so.

Trump’s nuclear contradictions only amplify the anxiety: calling for arms control with Russia and China while simultaneously undermining confidence among allies. That’s precisely how you get what the Non-Proliferation Treaty (NPT) was designed to prevent — a chain reaction of new nuclear states.

In Europe, serious voices now speak the once unthinkable. Germany’s Die Welt recently asked, Brauchen wir die Bombe? — Do we need the bomb? Poland wants U.S. nukes on its soil. In Asia, South Korea and even Japan debate whether it’s time to break nuclear taboos. In the Middle East, Turkey and Saudi Arabia openly vow to match Iran, warhead for warhead.

So far, these conversations haven’t resulted in action. But that doesn’t mean they won’t. And we certainly don’t know everything. (Think Israel.)

Once again, expectations meet reality: the expectation that the U.S. umbrella would last forever. The reality that Moscow and Beijing have rendered nuclear disarmament — the supposed long-term goal of the NPT — not just implausible, but absurd. This disillusionment is now pushing both allies and opportunists toward their own nuclear options.

You may argue — rightly — that acquiring nuclear weapons is difficult. And yes, it is. Designing a working bomb is a multi-year, resource-intensive effort. It requires acquiring fissile material, mastering enrichment, ensuring weapon miniaturization, and marrying the warhead to a reliable delivery system.

But difficult doesn’t mean impossible. North Korea managed it — with a GDP smaller than West Virginia. The Islamic Republic of Iran has come dangerously close, despite years of sabotage and sanctions. Pakistan — a nation riddled with corruption and internal conflict — built and exported its own nuclear program. The precedent exists.

And here’s the uncomfortable truth: a determined nation does not need a perfect ICBM or a nuclear submarine. In a world where deterrence is often psychological, even a crude device matters. A small state — say, one of the Baltics — could, under existential threat, pursue a basic nuclear deterrent or even a dirty bomb. It wouldn’t need to vaporize a city — just to make the cost of occupation unacceptably high.

What other choices would they have in a world where great powers act in pure self-interest?

This is the real Versailles moment — where shattered illusions give rise to dangerous improvisation. The system that once promised stability now invites improvisation, uncertainty, and risk. And history tells us: when rules collapse, the race begins.

From MAD to Multipolar Uncertainty

During the Cold War, nuclear deterrence paradoxically created a form of stability. Washington and Moscow built arsenals so vast that no first strike could be survived. Mutually Assured Destruction—MAD—became the grim equilibrium. It was terrifying, but it was also clear. The certainty of annihilation at the strategic level reduced the probability of nuclear war.

Yet this very stability produced what theorists called the Stability–Instability Paradox: because both sides feared escalation to Armageddon, they tolerated risks further down the ladder.

Proxy wars flourished—in Korea, Vietnam, Afghanistan, Africa, and Latin America. Strategic stability at the top bred tactical instability below. Still, the red lines at the highest level held. After the Cuban Missile Crisis in 1962, Washington and Moscow built hotlines, signed arms control treaties, and honed the art of nuclear crisis management. It was a kind of maturity born from terror.

Today, however, we face a different and, perhaps, far more precarious reality.

The old guardrails have crumbled. Russia under Putin has shredded the arms control frameworks of the Soviet era, suspended New START, and normalized nuclear threats as televised spectacle. Meanwhile, China rejects arms control outright, expanding its nuclear arsenal rapidly—Pentagon projections estimate over 1,000 warheads by 2030—while refusing transparency or even a hotline with Washington. Where Moscow and Washington once engaged in uneasy communication, Beijing prefers silence.

At the same time, technological advances have shortened the fuse. Hypersonic delivery systems, cyberattacks targeting command-and-control infrastructure, and AI-assisted targeting compress decision cycles from minutes to seconds. In the Cold War, Kennedy had days to deliberate during the Cuban Missile Crisis; today, a flashpoint in Taiwan or the Baltics could escalate into nuclear catastrophe before leaders even pick up the phone.

The paradox has shifted. Where once the world was dangerous but structured—nuclear war unlikely but proxy conflicts abundant—today fewer proxy wars rage, yet the risk of direct nuclear miscalculation is greater than ever. The old assumption that deterrence alone guarantees peace has proven fragile. And that disillusionment is spreading—among allies, adversaries, and the global public alike.

The Illusion Cycle: Democracies, Defense, and the Price of Complacency

If Woodrow Wilson set expectations too high in 1919 by promising freedom and self-determination far beyond Europe, then the post-1945 security order repeated the pattern in reverse. NATO and America’s nuclear umbrella created expectations of perpetual peace—expectations that soared even higher after 1991 with the collapse of the Soviet Union.

In both cases, the coin was the same: too much was promised, and too little could ever be delivered. In 1919, the disappointment fueled revolutions, nationalist movements, and the rise of communism. After 1991, it fostered illusions of a peace dividend, underinvestment in defense, and the brittle sense that history itself had ended. Both illusions collapsed when reality returned.

Democracies in particular swing like a pendulum. During the Cold War, the West and the Warsaw Pact stood armed to the teeth, with vast standing armies and massive nuclear arsenals. By the mid-1980s, the Warsaw Pact fielded more than six million troops; NATO responded with roughly 4.5 million. Add to this the neutral states—Sweden with 180,000 soldiers, Finland with 30,000 active and hundreds of thousands in reserves, Norway with nearly 40,000, and Switzerland with close to 625,000 in uniform (you read that correctly) and alternating service on a population of 6.5 million, nota bene (Armee 61)—and Europe was anything but a free rider.

In this historical context, accusing Europe of free-riding is neither helpful nor accurate. At best, it reveals ignorance; at worst, bad faith. Europe was armed and mobilized, standing guard across the Iron Curtain. If anything, European armies were the first line of defense for the United States—a cynical observer might say they were America’s “gun fodder.”

Then came 1991 and the Soviet Union’s dissolution. Instead of recalibrating prudently, Western democracies—and Europe especially—indulged in what I call the “age of butter”: the belief in a never-ending peace dividend that never truly existed. Defense budgets were slashed, social spending ballooned, even as early warning signs mounted. By 2014, when Russia seized Crimea, the illusion of perpetual peace was bankrupt. Yet politicians ignored the warning, unwilling to deliver inconvenient truths or shift the Overton window. This remains a critical political failure. But as the saying goes, the people get the politicians they deserve—so we are all guilty as charged.

Today, the “age of butter” persists across G7 nations—Canada, France, Germany, Italy, Japan, the UK, and the US—as military spending shrinks to historic lows while social spending on health, labor, welfare, education, and social affairs steadily grows. This pattern holds whether measured as a share of government budgets or as a percentage of GDP — and it’s a disgrace.

Meanwhile, the authoritarian world moves in the opposite direction. Xi Jinping’s China has embraced a nationalist right, centralizing power and tightening ideology. Putin’s Russia is a toxic blend of authoritarianism, plunder, and institutional decay, producing a predatory and unstable neighbor. From Beijing to Moscow, the illusion of “responsible stakeholders” has dissolved into a looming security threat.

America’s role is complicated. The Bush Jr. administration’s ill-fated wars in Iraq and Afghanistan bred disillusionment and “foreign policy fatigue” among American voters. Both Democrats and Republicans, rather than confronting the tough realities of sustained global leadership, opted for fiscal sugar highs—running deficits of five to seven percent of GDP annually to buy time and votes. The only recent exception was Bill Clinton, who briefly balanced the budgets around 2000.

Under Trump 2.0, the deficit is forecast to reach $1.7 trillion in 2025 and $2.6 trillion by 2035, as fiscal challenges remain unaddressed—especially entitlement programs like Medicare and Social Security. Meanwhile, the costly wars in Iraq and Afghanistan wasted trillions.

The pitfall of high expectations is universal.

Too much was expected of America’s nuclear umbrella, too much of Russia’s willingness to be a stable neighbor, too much of China’s commitment to global rules, and too much of fiscal sleight of hand to preserve domestic comfort without sacrifice. When these expectations are betrayed, the pendulum swings hard—from hope to bitterness, from trust to disillusionment, from peace to renewed conflict.

The Imperative of Shared Responsibility

The lesson of 1919 stands stark and unforgiving: overloaded peace breeds disillusionment. From the rise of communism to the tangled legacy of Sykes–Picot, from the wars in Indochina and the Middle East to the nuclear bargains of the Cold War—right up to today’s collapse of communication with China and Russia, the nightly nuclear theater on Moscow’s state TV, and the tragedy unfolding in Ukraine—these are variations on the same tragic error. High expectations, fragile bargains, and the inevitable disillusionment when harsh reality intrudes.

Unwelcome nuclear proliferation now looms as the latest consequence of these unbalanced policies. America’s efforts to stem it have often been prudent, but the path has been uneven and fraught with contradictions. As U.S. power faces new limits amid financial restraint and political fatigue, the risk of a nuclear cascade grows ever more real.

Yet Western deterrence cannot—and must not—rest on fragile expectations or temporary assurances. Countries need security architectures grounded in trust, mutual responsibility, and credible deterrence that transcend short political cycles. Democracies, in particular, must craft durable security models designed to outlast fleeting electoral mandates. Charles de Gaulle grasped this early, forging France’s independent nuclear deterrent as a sovereign safeguard beyond partisan politics.

High hopes without deep, systemic foundations are a naïve recipe for disappointment. As Einstein famously warned: “I know not with what weapons World War III will be fought, but World War IV will be fought with sticks and stones.”

If peace fails us now, the conflicts of tomorrow may be unimaginable—and unthinkable.

Warm regards,
Alexander Stahel

Lesson 7: The Paradox of Winning and Losing War and Peace

History reveals a paradox: you can win the war but lose the peace, lose the war but win the peace—or lose and win both at once. I illustrate this paradox in my above matrix for a few selected examples on the basis of 259 distinct state-based armed conflicts (link) since 1946 and will discuss three examples in detail below.

Example 1: Operation Desert Storm — When Strategy, Stability, and Serendipity Aligned

In the summer of 1990, military planners at Fort Irwin, California, were running Exercise Internal Look ’90, a war game simulating an Iraqi invasion of Kuwait. When Saddam Hussein actually launched his invasion—at 2 a.m. on August 2—the line between rehearsal and reality vanished overnight.

This was no mere border spat. Saddam Hussein’s move was an oil war, born of desperation and ambition. After an eight-year war with Iran, Iraq’s finances were devastated—its coffers empty, infrastructure battered, and foreign debt climbing to around $80 billion. Saddam demanded debt forgiveness from Gulf allies; they refused. He accused Kuwait of “slant drilling” into Iraq’s Rumaila oil field and used that as justification for aggression.

In truth, it was blackmail: seize Kuwait’s reserves, threaten oil stability, and control nearly 40% of OPEC’s production. Domestically, Saddam ruled through terror, corruption, and a cult of personality—no internal governance or restraint.

Markets panicked. West Texas Intermediate (WTI) crude jumped from $17 in June to nearly $40 by late September, shimmering with fear. Kuwait’s fall—an export titan and key Western supplier—was catastrophic.

Fun fact:
Did you know that Saddam Hussein, in full defiance of international norms, ordered retreating Iraqi forces in February 1991 to set Kuwait’s oil fields literally on fire. Over 600 wells were torched in a calculated act of scorched-earth sabotage, unleashing one of the worst environmental disasters in modern history. Thick black smoke blanketed the skies for months, damaging ecosystems, choking nearby cities, and stoking fears of prolonged global supply disruption.

Fund fact 2:
Did you know that a brilliant company freshly born out of the ashes of communist Hungary—MB Drilling, a division of Oman’s MB Group—sent a Soviet-era tank retrofitted with twin MiG-21 jet engines, dubbed “Big Wind,” into the Kuwaiti oil fields? In just 43 days, that clever contraption quelled nine raging oil well fires using nothing more than jet-powered blast cooling and water—the kind of industrial theater that still boggles the imagination. Here a link.

Saudi Arabia’s role as the swing producer crystallized. With vast reserves but only ~2 mb/d of spare capacity, it was the world’s only meaningful supply buffer. Meanwhile, the Soviet Union—already ailing—saw oil production fall 6% in 1990, foreshadowing a staggering 56% decline over the decade. China’s demand was beginning to rise too. The result: oil’s global spare capacity near zero (remember my recent oil thread here?) and peak global energy anxiety.

But beyond energy and arms lay strategic fortune—what one might call strategic luck. Mikhail Gorbachev faced a planned-economy ruin, military overstretch provoked by Reagan’s Strategic Defense bluff, and internal reform creating more unrest than renewal. Glasnost (openness) unleashed criticism; Perestroika (economic restructuring) disrupted the economy. Eastern Europe collapsed. The Two‑Plus‑Four Treaty (September 12, 1990) cemented German reunification and further occupied Moscow. Unbeknownst to many, Bush’s greatest adversary was disintegrating from within.

At home, however, Bush faced the haunting shadow of Vietnam. Many Americans bristled at another Middle East entanglement. But Bush reframed the crisis—not as an oil war but as a just war for global stability, sovereignty, and international law. Saddam’s aggression, he argued, was not America’s problem—but the world’s. The narrative stuck.

Bush took the fight to Capitol Hill—and won authorization by the skin of his teeth: 250–183 in the House, 52–47 in the Senate. It was a narrow, politically delicate mandate—but it was real. At the same time, he secured crucial international legitimacy through UN Security Council Resolution 678, passed on November 29, 1990, which gave Iraq a firm deadline to withdraw from Kuwait and authorized member states to use “all necessary means” if it failed to comply. The resolution passed with a strong majority—12 in favor, only 2 against (Cuba and Yemen), and 1 abstention (China)—further strengthening Bush’s hand at home and abroad. In other words, Bush Sr. secured legitimacy like a pro. Did you know or remember all that?

Then came the money. Bush did something often missed in today’s “America First” lens and age of X-bullshit narratives: he made key allies pay—and not just token amounts. The coalition’s war chest wasn’t funded solely by U.S. taxpayers. In fact, only a minority portion was. Nations like Saudi Arabia, Kuwait, Japan, and Germany stepped up, not out of charity, but because they had skin in the game. All had a strategic and economic interest in resolving the crisis quickly and preserving oil flows. Both Japan and Germany, in fact, imported a greater percentage of their oil than the U.S. did at the time. One administration report estimated that allies covered roughly 80% of U.S. costs for the Desert Shield operations. Now that IS a great deal.

This wasn’t just fiscal pragmatism—it was political savvy. Unlike the later flood of narratives accusing allies of freeloading, Bush’s administration actually demonstrated what coalition burden-sharing looks like in practice. Truman—of course—did something similar after WWII with the Marshall Plan. Bush didn’t invent the playbook, but he dusted it off, used it well, and reminded the world how diplomacy and leadership can align. Post World War 2 America was always "America First"—but perhaps with a bit more class and foresight?

Inside the Situation Room, Bush wrestled with military options. General Norman Schwarzkopf (one of my personal leadership heros as I happened to have been in Swiss Officer School during his Operations and watched him carefully) used a sand table and toy tanks to demonstrate the now-iconic “left hook” maneuver—a sweeping ground assault through desert that would outflank Iraqi defenses. Its clarity reassured both Bush and Cheney. This wasn’t quagmire—it was executable strategy.

Operation Desert Storm kicked off on January 17, 1991. In 42 days, the U.S.-led coalition dismantled Saddam’s forces. The ground war lasted just four days and culminated in Kuwait’s liberation. General Schwarzkopf’s nightly briefings—calm, clear, authoritative—became a new wartime cadence, projecting command credibility to the world. And boy he had it. Schwarzkopf was what I like to call a natural leader. People would follow him to hell and back.

Without any doubt, General Norman Schwarzkopf’s leadership—alongside meticulously coordinated planning cells—was instrumental in engineering the swift and overwhelming military campaign that, in conjunction with the diplomatic finesse of President George H. W. Bush and his team, successfully expelled Saddam Hussein’s forces from Kuwait.

And while some later criticized the decision not to march all the way to Baghdad — let that sink in, especially in light of today’s geopolitical hindsight — Schwarzkopf delivered a prophetic warning that those leading the 2003 invasion would have done well to heed:

“Had we taken all of Iraq, we would have been like a dinosaur in the tar pit — we would still be there, and we, not the United Nations, would be bearing the costs of that occupation.”

Senior Bush not only won the war, he won the peace. He restored American prestige, shattered the “Vietnam Syndrome,” renewed public confidence, and re-legalized force as a tool conditioned by coalition and moral purpose. Crucially, oil markets stabilized: prices slid back to ~$20 per barrel by mid-1991. Saudi Arabia ramped production from 5.4 to ~8.5 mb/d, and Kuwait — though devastated — ramped back up to ~1.6 mb/d by late 1992, approaching full capacity soon after.

Desert Storm became a post-WWII rarity: a war whose ending reinforced peace. Military victory, strategic restraint, market stabilization, alliance cohesion, morale regained, and energy security secured—all achieved. Bush Sr., through diplomacy, burden-sharing, precision, and a dose of strategic fortune, delivered what so few leaders ever do: a war that healed more than it harmed.

With the benefit of 55 years of hindsight, I might add: December 1991 may have marked the peak of Western civilization—for now.

Yet irony endured. The architect of one of modern America’s most successful military-diplomatic campaigns lost the 1992 election to Arkansas governor Bill Clinton. For voters, the home front mattered most. As the campaign mantra had it: “It’s the economy, stupid.” My god, democracies are indeed a total utter mess.

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