The month of February is turning out to be an ominous period in the history of modern Ukraine. It was on February 27, 2014, when Russia annexed Crimea only to launch a full-scale war against its western neighbour on February 24, 2022, in the name of national security. The casus belli, according to the official narrative, was the expanding of the western military alliance, which, naturally, had to be deterred. Call it an own goal or miscalculation, the result was Finland having joined NATO and Sweden being on the verge of it.

The past two years, apart from the enlargement of NATO, held other surprises for the invader. What was planned to be a blitzkrieg has turned into trench warfare and the end is anything but nigh. The world, especially the western part of it, has adapted to the new reality extremely fast. The weaponization of Russia’s main geopolitical asset, fossil fuel, caused only a brief, albeit very painful, damage, which undeniably added to the global inflationary pressure. Re-alignment of flows, however, got under way very quickly and Europe, which used to be the main purchaser of Russian natural gas has weathered the second winter quite comfortably without Russian gas. The war’s long-term negative economic impact, nonetheless, was aptly summed up in last Friday’s note. European equity markets noticeably underperform their US peers.

Wars always result in destruction, and they tend to hurt the instigator just as much as the victim. Yet, Russia is seemingly ticking along. Despite unprecedented sanctions imposed by Ukraine’s allies its economy is forecast to grow 2.6% (IMF) this year. The stock market, although below the pre-invasion level, has recovered impressively from the initial shock of February 2022. Scratching the surface, however, reveals a worrisome picture for Russia. The solid economic performance is chiefly the result of “war spending”. The equity market seems resilient because of capital controls and expropriation of assets. The domestic currency is under protracted pressure. And despite claims that sanctions do not achieve the desired effect, Russia’s revenues from oil and other energy exports are declining. The Centre for Research on Energy and Clean Air finds that the daily intake from total fossil fuel exports plummeted from €1.25 billion in March 2022 to €700 million last month.

After two years of turbulence, ups and downs and unpredictable political and economic backdrop the two most salient questions are who is winning the war and what the end game could be. The answer to the first question is, alas, disconcerting. Currently, Russia is winning. The reason is troublingly simple. Its allies keep backing it, Iran, North Korea, Syria all maintain their steady supply of weapons and China remains a solid buyer of Russian oil. On the other hand, the ironclad determination of Ukraine’s allies to do whatever needs to be done to liberate the country has gone missing. Quite frankly, the way Ukraine is being betrayed and abandoned by Europe and especially by the US is bordering with the despicable. Ukraine is in acute need of financial and military help, which is not forthcoming and as such the recent capitulation of the strategic town of Avdiivka will not surprise the observer and neither will the alarming fact that Russia has now twice as much Ukrainian territory under its control than at the beginning of the war. Russia is winning but has not won the war.

So, with Russia currently having the upper hand, what are the medium to long-term prospects, how can this bloodshed end? For Ukraine to have any hope of withstanding Russian offensives it is imperative that western military and financial support keeps flowing – or better say the supply re-starts. Given the deplorable political horse trading in the US Congress the immediate prospects are ominous, and they could turn even grimmer if Donald Trump gets hold of the key to the White House come November. Having said that, the resumption of aid would go a long way to send Ukraine to the path of victory, possibly with the liberation of Crimea, which then could be followed up by an actionable strategy of a multilateral peace agreement.

Without prompt and steadfast help, a Russian victory could not be ruled out. Conquering all of Ukraine would put Russian troops right at the borders of NATO countries encouraging not only Russia to militarily provoke former Soviet states but incentivize China, Venezuela, Azerbaijan, and others to enforce uncorroborated territorial claims on their neighbours. It would also help Russia’s economy to recover as western sanctions would most plausibly become obsolete and Russia would have nearly 25% of the global wheat exports under its control.

As disturbing as it is, one must be aware of the most reprehensible outcome of the war, too. It is, quite literally, the nuclear option. Putin has made several threats of employing nuclear weapons and in September 2022, he went as far as to say that defensive nuclear retaliation is a considerable part of his arsenal and “this is not a bluff”. It would be somewhat re-assuring to believe that in case of contemplating the deployment of nuclear weapons China would turn its back to Russia, and therefore such a development is more than dubious. Yet, should this perception prove mislaid, given the forceful, proportionate, and immediate US response, the conflict would turn into the most severe global affair since WWII with potentially devastating consequences.

Globalization, as we know it, is over. National security is now the overriding priority of an increasing number of governments and political parties and not exclusively in the developing part of the globe – just think of Donald Trump’s transactional view of the world or Viktor Orban’s long-standing abhorrence of everything that is liberal, democratic, and global. However, the world will remain interdependent, much less so than before, but relying on each other will still be a necessity and not a choice. Seeking national autonomy must be balanced with the need of international co-operation. And wars are most certainly not the way to achieve this balance. The sooner the Ukrainian conflict ends in a mutually and globally acceptable manner the earlier other challenges, including increasing sovereign debt, the climate crisis, and other geopolitical tensions, can be tackled head on culminating in a sustainable prosperity worldwide. Or else, the global social, political and economic fabric would be vandalized beyond repair.

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tamas.varga@pvm.co.uk

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