Ukraine Update And Outlook
Dubious Counter-Offensive, No Cease Fire, Partition Plans
As I said before, I want to avoid this publication turning into a chronicle of the Ukraine War.
But considering the importance of this conflict regarding the future of Eurasia, the US hegemony, and oil markets, we cannot ignore it either.
And I know this is also something some of my readers are curious to hear me discuss.
In December, I published Ukraine 3.0, let’s see what I got right and what I got wrong.
A lot has happened in the last few weeks.
And then I will explain what could happen in the coming year.
Military Situation
Looking Back At My Forecasts
Overall, not many surprises for the honest observer.
Ammunition hunger is a real and growing issue for Ukraine.
What is more surprising, is how little the Western armored vehicles did so far.
They might be kept in storage for the fabled Ukrainian counter-offensive that has been announced next month every single one of the last 3-4 months (more on that below). Or they might be in too limited numbers or be too vulnerable to air and drone attacks.
Meanwhile, other forecasts turned out pretty correct.
Belarus is all but merged into Russia, including regarding nuclear weapons.
Attrition WW1-style is still the predominant tactic, a bad option for Ukraine fighting with several folds fewer manpower reserves AND 5x-10x less artillery capacity
no time to train conscripts, AND being dominated in firepower is a guarantee that Ukraine is still taking massive losses compared to Russia. Especially in the Bakhmut “meat grinder”. No matter what the Western media was pretending.
Multiple sources, including from NATO and Ukraine are starting to admit that Ukraine loses anywhere from 3-7 men for each Russian casualty. The Wall Street Journal notably states that out of 16 conscripts, given virtually no training, 11 were quickly killed in Bakhmut in less than 36 hours.
Russia did not run out of missiles or shells. Actually, US military people themselves admit that Russia produces around 200k artillery shells per month when US+EU is making 24k at its maximum capacity… Might reach 80-90k in 3-5 years…
Russia is utterly uninterested in peace talks, and so is Ukraine.
China is firmly on Russia's side, while officially staying neutral.
The Battle Of Bakhmut
The city ruins/battlefield of Bakhmut has officially been announced as captured by Wagner/Russia after two-thirds of a year in battle. This will likely be remembered as the Ukrainian Verdun.
In official speeches, the city went from “a crucial logistical node that could not be lost” (according to Zelensky himself) to “symbolic importance” as it was getting conquered.
More importantly, it seems a distinct possibility that the Ukrainian military wasted its accumulated reserves and elite units in the city, to still ultimately lose it.
If you need help to see through the propaganda/fog of war, just consider the following:
The Ukrainian side is outgunned several folds, both in guns and ammo, hence being submitted to constant and destructive bombardment and barely able to fire back.
But we are told Ukraine inflicts 5x casualties for each they take.
Ukraine is on its 10th conscription round (at this point, mostly unwilling civilians), while Russia did only ONE (from army reservists).
But we are told it is Russia that is running out of men.
It is Ukraine sending untrained conscripts (as told by
Russian Propaganda outlet RTthe Wall Street Journal) and they are the ones retreating and losing the city.But we are told that Russia and especially Wagner use “human waves tactics” and have lost hundreds of thousands of men.
Gliding bombs of 500 kg to 1 ton were used to annihilate the entire reinforced bastions at once in Bakhmut.
But we are told Russia's air force is useless.
Other news
Meanwhile, bizarre news like bombing randomly conquered cities and the Ukrainian attack in Belgorod keeps happening.
As far as I can tell, they took some selfies at the border post and maybe killed some civilians or patrol guards, depending on who you ask. And for this “achievement,” they lost several US armored trucks and at least tens if not hundreds of men.
The fabled counter-offensive might still happen, but sober voices in the Pentagon and elsewhere are noticing it is very unlikely to be more than another pointless waste of lives.
Echoes of WW1 are really strong on these “PR-driven attacks”
Meanwhile, a leak in the US defense apparatus (apparently a 20-something US member of the National Guard got access to top-level secret documents, and published them in a Minecraft server … yeah, really) revealed a lot of problems for Ukraine, first of them the quickly depleting air defenses.
The Air Defense Importance
Going back to this, here is what the NY Times admitted about the leaks:
The problem is that by number, the Soviet era-defense systems are the large majority of Ukraine's air defense.
To top it all, it is possible (likely?) that a full Patriot missile battery (or maybe two) got destroyed in Kyiv. At $1B a battery, this is a rather expensive loss.
It seems the new tactics unfold in successive steps:
Send a wave of cheap drones to scout the area and attack poorly defended targets.
Then send better cruise missiles to saturate any defense that blocked the drones.
Then send aircraft & hypersonic missiles to destroy Patriot/S-300 and other high-level air defenses that blocked the cruise missiles.
The problem is that air defense technology seems to not have much of a countermeasure to step 3.
It is not only a Russian advantage for that matter, just how air defense works so far. The previous failure of Patriot missiles in Saudi Arabia and air defenses in Armenia indicate this is a wider problem.
So the best option seems to mass produce a LOT of air defense cheaply, a LOT of cheap drones, and just a few advanced planes and advanced missiles.
Both sides lob all they have at each other.
The first one that runs out loses.
Not very sophisticated, nor friendly to expensive high-tech strategies.
Between underwhelming deliveries, and the West’s inability to mass produce ammunition, especially cheap ones, Ukraine is increasingly losing control of the skies.
This in turn allows Russia to score some occasional massive hits on ammo/fuel storages (follow the previous link for the videos, as well this link and this link). The blasts are big enough to look nuclear, even if there are just “normal” explosives:
These warehouses were most likely gathered for the offensive.
No fuel or ammo, no offensive.
It is also not unlikely that ammo for the UK Challenger tanks, using depleted uranium were in these warehouses. Hard-to-confirm rumors of a spike in radioactivity in West Ukraine and Poland would match that claim.
Conflict Resolution
If I walk through you this list of military data, it is because this seriously affects the possible outcome of the war.
And the resulting power balance in the world.
Last year, the only authorized discussion was “Russia must lose/is losing”.
Now, the increasingly dominant authorized discussion is that the conflict is going toward “a frozen conflict”, like the Korean War.
This is complete nonsense, as I already said in December 2022.
Any expectation of Russia accepting anything but unconditional surrender from Ukraine is wishful thinking.
This is for a variety of reasons:
Why accept a truce or a frozen conflict when you are winning, no matter how slowly?
Russia's economy is doing okay.
Not great. But nowhere to the point of needing a truce.
Taking over most or all of Ukraine will make Russia THE grain exporter. This will give it a LOT of leverage over Africa and the Middle East.
The Eurasian Tripod (Russia/China/Iran) and the BRICS are getting ready to counter-attack on the economic front.
It seems bigger fireworks are in preparation regarding currencies with the incoming August BRICS meeting. “China, Russia Urged to Speed Up Creation of 'Cutting Edge' Payment Infrastructure for BRICS and SCO Currencies“.
The BRICS could also start OPEC-style pressure on all commodities (instead of just oil), blackmailing the Western industries and military-industrial complex.
Europe is entering a deepening recession (done deal for Germany), with abysmal industrial output data and persistent inflation.
China is slowly getting its domestic chips industry and technology lag in order, closing a key weakness of the Eurasian Tripod.
Russia is aggressively building new gas pipelines to China, and a railroad to and into Iran, and toward the East at large. The more time passes, the more it can switch from its former EU clients.
those alternative supply roads need time. Russia needs the money, China needs the safety of land-based imports of energy and food.
“China and Russia agree to build second rail bridge over the River Amur“
“Economic Corridor “China — Mongolia — Russia”: Infrastructure in Focus“
“Russia to sell gas to Uzbekistan through reversed flow Soviet-era gas pipelines“
“Govt considers reviving Pakistan-Russia gas pipeline project“
“Russia Nears Pipeline Deal as Gas Exports to China Hit New Records“
The Korean conflict is exactly what Russia wants to avoid.
An amputated and vindicative Ukraine, North Korea style, does not make for a good neighbor.
It would likely just allow Ukraine to enter NATO, officially or not, making it impossible to attack.
It would allow Ukraine to recuperate and rebuild its army.
especially its air defense and air forces (F-16 delivery + training and air base rebuilding)
It would give time to NATO to solve its industrial production failures.
It would weaken Putin's domestic position.
especially as some of the territory officially annexed into Russia is still under Ukrainian control.
The more time passes, the more weapons are sent, and the more the rest of the world sees it as a war of NATO vs Russia.
This in turn weakens the position of the US in Asia:
no one wants to become “the Asian Ukraine”. Especially not Taiwan which was not too happy with talks of the US considering bombing TSMC’s factories if it felt like it.
The idea of an Asian NATO does not seem so great for the countries exposed to battle on their soil (just look at what’s left of Bakhmut).
Taking over at least part of Western Ukraine gives Russia direct land access to its only 2 allies/friends in Europe: Hungary and Serbia.
It would allow Russia to provide cheap gas/oil/fertilizer/food to the 2 countries. The EU would be stuck between bad choices:
exclude Hungary, but completely cut off Romania + Bulgaria + Greece + Moldova from land connection with the EU.
keep Hungary, but see it benefit from cheap energy and siphon industries from its neighbors and Germany.
Anything North of L’viv is the less important part of Western Ukraine
Conquest Or Partition?
To predict Russia's behavior, we need to understand these goals.
Of course, Russia's war goals might not be achievable.
Especially depending on NATO's direct intervention happening or not. Let’s hope not, as this would very likely lead to a CHINESE direct intervention, and all hell breaks lose from that point onward.
Looking back at the map above, there are a few possible territorial goals for Russia.
I will draw (poorly) the potential war goals of Russia, by order of ambition:
Red line: Keeping the “Russian” territory now officially part of Russia, according to Russia. This is the “frozen conflict” newly found goal of the West.
Orange line: Conquer the Eastern half of Ukraine + Kyiv, using the Dniepr River as a natural border.
Blue line: Conquer most of the country but leave out the most Western part. This is the region that is by far the most nationalist, and the one that might be difficult to control without decades of low-intensity guerrilla.
Purple line: not full annexation, leaving the nationalist Western part isolated or as a Polish protectorate, while still controlling the segment of the Carpathian mountains.
Areas of Ukraine populated by Hungarian and Romanian people could be ceded to these countries in exchange for recognizing the new borders.
Considering the regular outrage of Hungary on how the Hungarian minority is treated in Ukraine, and lingering dreams of a “Greater Hungary”, this could work at least with that country. Less so with Romania.
I think the orange scenario is the minimum acceptable for the Kremlin.
Most Ukrainian natural resources are east of the Dniepr. And Kyiv is an integral part of the Russian national historical narrative, it is the Kievan Rus’ that Russians became Christians.
An intermediary goal between orange and blue could be the annexation of the Odesa region, making the remnants of Ukraine a landlocked country.
By far, purple is what Russia wants, as it ultimately cuts the EU in two, and might, in the long run, give it a lot more influence over the whole Balkans.
Conclusion
Essentially, Ukraine is losing the war and is losing so many people that it might be done as a country even if it “wins”, considering how poor its demographics were BEFORE the war.
Only a direct NATO intervention seems able to reverse this trend, and it carries its own dramatic escalations risks.
Russia is emboldened and likely to aim for maximalist goals, like an almost full occupation. The orange demarcation is a likely scenario, maybe with Odesa added.
Considering these regions are the ones that used to vote for “pro-Russian” politicians, it could also be something China ultimately pushes as a “reasonable” end to the conflict.
Blue or purple lines are equally possible. Blue demarcation lines could signify the end of the EU as we know it.
In all cases, we should brace for a worsening and long conflict.
Investing Takeaway
Increasing sanctions are also likely, including potentially a full blockade of Russian seaborne LNG and oil. As well as a Russian blockade on Ukrainian grain export.
So volatile commodity markets, which are getting complacent again, are very much in the cards.
Long energy, grain and farmland, and defense stocks.