A sideways look at Ukrainian war news
Chris Johns
I write a (short) daily post for Powerscourt, a Strategic Communications company, based in London and Dublin. The idea is to summarise the news flow around the war in Ukraine - not so much the news that makes the front pages but more the stuff that we find interesting/relevant. News that may have not attracted the attention it deserves. Anyone interested in receiving the short email on a daily basis is welcome to contact Powerscourt here: insights@powerscourt-group.com.
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Monday 27th February
Many different commentaries and op-eds published over the past few days come to the same conclusion: one year on, the outlook for the war is more of the same. There are many potential outcomes, each assigned with relatively low probabilities, reflecting the simple fact that few people have any confidence in their ability to predict where the conflict goes next. If it is to be a military stalemate, we could be looking at a Korean War style outcome: hostilities effectively end in a permanently divided country but there is no formal end, or agreement to end, hostilities.
A survey of financial market participants conducted by Bloomberg revealed an ‘overwhelming’ majority of respondents think a prolonged stalemate is the most likely outcome. It is, perhaps, useful to remind ourselves that markets initially fell heavily when news of the war first broke, but quickly rallied once investors became convinced it would all be over in a matter of days. Wall Street’s Nasdaq index, for example, bounced 7% precisely because of a belief that the war would be short.
Ukrainian intelligence officers are happily supplying the media with stories about Kyiv’s offensive intentions. The attacks will come, apparently, in April or May, once the latest batch of Western weapons arrives. The focus will be be on the South with the intention of isolating Russian forces in Crimea. Treat these briefings as just another set of forecasts.
Other forecasts made over the course of the war’s first year have not weathered well. High energy prices last summer subsequently collapsed during the winter. European spot natural gas prices currently trade a touch below €50 per megawatt hour, having peaked at €350 last August. Also in news that nobody expected, economies on both sides of the Atlantic have shown signs of much stronger growth than expected in the early weeks of 2023.
Another small surprise was a weekend visit by a senior Saudi Arabian official to Ukraine, Prince Faisal Bin Farhan Al Saud, - the highest ranking Saudi to go to Kyiv in 30 years. $400 million in non-lethal aid was announced. Rough details have emerged about Saudi brokering Russia-Ukrainian prisoner exchanges.
Tuesday 28th February
Sergei Lavrov, Russia’s foreign minister, has said “Moldova looks like the next Ukraine”. The same narrative used to justify the invasion of Ukraine begins to build. Moldova has an eastern region, Transnistria, where Kremlin troops are stationed and some locals speak Russian. Allegations that Moldova wishes to join NATO are consistent with the need, perhaps soon, to further protect ethnic Russians from being forced to join a ‘Satanic’ organisation. Moldova, like Ukraine, used to be part of the USSR and the breakup of that empire was ‘one of the twentieth century’s greatest tragedy’. Ukraine and Moldova are not independent sovereign states but rather fake countries needing to rediscover their Russian identity.
As Andreas Kluth, a Bloomberg columnist, points out, one problem with this story is that Moldova’s own constitution bars it from joining any military alliance, including NATO. Kluth argues that one motivation for turning Ukraine and Moldova into failed flattened states is to prevent them from ever resembling Estonia, Latvia or Lithuania, three successful countries embracing European methods and structures. Successful ex-members of the USSR do not fit the narrative. If Ukraine hadn’t gone so badly, Moldova would have been attacked by now and, says Kluth, is still very much in Putin’s cross-hairs.
Hal Brands, a professor at Johns Hopkins School of International Studies, agrees that Putin wants to rebuild the USSR. The timing of his decision to invade was driven by a closing window of opportunity. America, post Afghanistan, looked weak; Europe appeared feeble and has no serious track record of intervening with conflicts on its borders. Zelensky was edging closer to the West and had begun to receive minor quantities of lethal weapons (a Donald Trump decision). A ‘now or never’ explanation for Putin’s war has plenty of historical resonance. Some historians think that’s what drove Germany to start World War 1. Brands believes it will potentially drive Xi Jingping to invade Taiwan some time soon.
Wednesday 1st March
Ukrainian officials are dropping hints that the long battle of Bakhmut is drawing to a close. Zelensky told us last night about how difficult things have become, with details filled in by intelligence briefings. ‘Better trained and more experienced’ Wagner mercenaries are close to encircling the small town. Bakhmut has been fought over for many months - the battle predates any Russian ‘spring offensive’. It’s not clear how strategically important any Russian victory will be, with most observers failing to spot much military significance to Bakhmut. It will, undoubtedly, be a big propaganda win for the Kremlin.
The UK’s Ministry of Defence today describes the latest wave of Russian drone attacks on Ukraine. The pace of these attacks has dropped in recent weeks, indicating dwindling stocks of, mostly, Iranian made drones. Ukraine managed to shoot most of them down, but Russia appears to have added a ‘new axis of attack’, giving Kyiv less time to mount its defences.
Al Jazeera today reports a spate of drone attacks on Russian territory. Putin has responded with orders to tighten security along the border with Ukraine. Nobody has claimed responsibility for the drones, which don’t seem to have caused much damage. At least one of them seems to be of Ukrainian design. One drone is reported to have flown through an apartment’s window. A residence belonging to Putin has had a Pantsir defence system installed.
Al Jazeera also carries an interesting analysis of Europe’s response to Putin’s energy war. Efforts by governments to build things like new LNG import terminals have been well documented. Less well known are the steps taken by individuals to switch to wind and solar voltaic sources of electricity. Total power generated by these alternatives grew by 22% in the EU last year, with 2/3 of that coming from roof-top solar panels.
Thursday 2nd March
Ahead of America’s mid-term elections last November, the White House, fearing the potential success of isolationist Republicans, rushed through legislation for more aid to Ukraine, not all of which is spent. The Centre for Strategic and International Studies reckons that the allocated monies will be used up by July. If the US is to remain in support of Ukraine - ‘all in’ to quote Joe Biden - fresh Congressional approval will be needed. That throws into sharp relief the contract between Republicans like Mitch McConnell and the two leading candidates for the Presidential race. The New York Times notes that McConnell is pressing Biden to do even more for Ukraine, while Donald Trump promises to end the war ‘within 24 hours’ if re-elected. Ron DeSantis, the Florida Governor currently polling the closest to Trump, is quoted by the NYT saying ‘I don’t think it’s in our interest’ to be involved in Ukraine.
America has allocated $113 billion so far to Ukraine, with some people critical of the way the White House has handled aid announcements. An unnamed Democrat official said to the NYT ‘the way the aid has been doled out through a steady drumbeat of announcements of another $500 million or $1 billion every week or two exacerbates the sense that endless funds are heading out of the country.’ The usual suspects are clamouring to end America’s aid to Ukraine and, like everything else, is a partisan issue. Republicans, with honourable exceptions, want the flow of cash to stop, while the Democrats are broadly supportive of Biden. This debate is only going to get louder as the electoral clock ticks. Russia will be watching and hoping.
One (only one) good point the isolationists make about US cash is that Europe, yet again, is failing to match American aid and, yet again, is hiding under the US security umbrella. European aid is split between East and West. The closer you are to Ukraine, the more money (proportionately) you are spending. Western Europe, led by Germany, continues to dither. All that early rhetoric about a new era and €100 billion extra German defence spending looks to have been hot air.
Friday 3rd March
The global inflation pressures unleashed as a consequence of pandemic-era fiscal and monetary largess were originally thought likely to be transitory. But then the war came along and an energy shock added to price increases. It was hoped that by now those price pressures would be dissipating at a rapid clip. Interest rates have been hiked dramatically by many central banks, taking aim at inflation, at a pace that has surprised just about everybody. A lot of people warned that going from zero interest rates to today’s levels would risk a financial,accident. Something in the system would break. So far, nothing that unpleasant has happened.
Yet another economic surprise has been relatively robust economic data published so far this year. Alongside decent economic growth, inflation has proved to be sticky and is not falling as fast as hoped. Interest rate expectations, on both sides of the Atlantic, are rising again. Interest rate sensitive sectors of the economy, particularly property, look exposed to a potential nasty surprise through the rest of this year. But that conclusion risks becoming just another forecast that turns out to be dead wrong. All of this serves to remind us about how little we truly understand about inflation, interest rates and economic linkages of many kinds.
Hemingway famously described bankruptcy as something that happens gradually and then suddenly. Many economic processes are like that. Central banks will be surprised by how small, so far, have been the effects of interest rate rises. It may well turn out that the next turn of the monetary screw provokes a big reaction. The recession that has so far failed to turn up may be just around the corner. Many financial market types think the real estate market, both residential and commercial, is the likeliest potential financial accident black spot.
The source of much of the inflation problem, energy, is a source of cautious optimism. Spot European natural gas prices peaked at €350 per megawatt hour last August when fears were at their highest about Putin’s weaponisation of energy. This morning gas is trading at levels 87% below that 2022 peak.