EEMEA | Europe | Politics & Geopolitics
Key Takeaways From Russia/Ukraine Webinar – 28 February 2022
- By Bilal Hafeez
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- 11 min read
Please find below the key takeaways from our conversation with Dr. Samuel Ramani, recorded 16:00 UKT on 28 February 2022 (link to video).
How Is the Invasion Going for Russia?
It appears Russia has successfully performed a multipronged attack on Ukraine. Mariupol is under siege but has not fallen (in 2014, it presented very difficult resistance to the pro-Russian separatists). Kharkiv has withstood so far but is receiving greater damage. Kyiv is encircled, even if Zelenskyy has denied it.
However, poorer performance at the tactical level has offset the strategic gains of the multipronged attack, with credible reports of defections, confusion and supply shortages among Russian troops.
UK-based estimates suggest 450 Russian military casualties on the first day.
What Is the Goal?
The goal, based on President Putin’s previous comments, seems to be a regime change. He stated ‘denazification’ and ‘de-militarisation’ as goals, which translate to enforced neutrality or more likely subordination below Russia.
Viktor Medvedchuk could be Russia’s choice for Volodymyr Zelenskyy’s replacement. Putin is his daughter’s godfather, and he recently escaped house arrest in Kyiv.
Zelenskyy’s Popularity
Zelenskyy is being viewed as a strong wartime president. He has so far struck a good balance between making strong overtures for peace, trying to keep the calm prior to the invasion, and being a strong figure thereafter.
There had been problems through the last few years around his failed anti-corruption campaign, and his agreements with Putin in 2019 around prisoner transfers. This was met with protests at the time. His polling had fallen below 20%. That is below even Petro Poroshenko’s popularity at the time of his loss in 2019.
Since the invasion, though, approval for him has shot up.
Western Response – Was It Unprecedented?
Several EU countries pre-emptively called for this large-scale response from the West just based on the Russian mobilisation and then again on the recognition of Donbass.
Previously, there had been concerns on the actual steps that would be taken by Germany on Nord Stream 2, the UK on ‘Londongrad’, and several nations on SWIFT. But there was an unprecedented degree of unity when it came to the response. Previously pro-Russian members have moved significantly: Hungary and Croatia have turned on Russia, and the Bulgarian Defence Minister was fired for his closeness to Russia. All of this is part of a move that was not expected just days ago.
Scholz’s speech (committing €100bn extra to the Bundeswehr and committing to the 2% NATO defence target) was a massive turnaround. The last time defence spending was over 2% GDP was 1991. It is especially surprising as Trump was so flatly rebuffed when he tried to get Germany to spend more. The two new LNG terminals (at Brunsbuttel and Wilhelmshaven) are also a big thing. Extending nuclear power will be important too. The Germans will need to get the Greens onside, but their notion of making do without Russian gas also suggests greater coal use.
In Italy, Luigi di Maio is talking with Algeria about replacing Russian gas. Germany will likely do similar kinds of deals.
China’s Position
China’s position has been interesting. China is not fully going along with Russia, but nor is it condemning it. Importantly, in the vote from the UN to condemn Russia, they did not veto but rather abstained. In the long run, it is likely that this situation will lead to closer Russian and Chinese relations. Their Foreign Ministry spokespeople are already criticising the US and EU – promoting the Russian narrative that NATO aggression and expansionism caused this. This is interesting to see as with Russia Today (RT) and Sputnik blocked in the West, it is clear the Chinese are picking up the mantle of the anti-West media war.
China will also be buying more gas and wheat. They will be watching secondary sanctions on Russia too (as they did with Iran). Russian media figures and very pro-Putin people are now getting more worried about the country’s dependence on China – i.e., the possible vassalisation of Russia by China. Potentially, these kinds of fears could affect Putin’s foreign policy going forwards.
India
India has not been quite so supportive of Russian comments or their story on how this came about. However, they did abstain from the UN vote, and they are clearly worried about the ability to get things like fertilisers.
UAE
Dubai is going to emerge as a much more important financial centre for Russian money and assets. Nikolai Patrushev (Russian Secretary of Security Council) has a close relationship with Sheik Mohammed bin Rashid al Maktoum. Foreign Minister Lavrov, too, has been talking with the UAE recently.
Qatar
Qatar meanwhile is clearly a little more pro-Ukraine. Zelenskyy spoke with their Emir shortly following the invasion to ensure gas supplies.
The Scale of Sanctions
Nothing new has been imposed that was not talked about quite a bit prior – the targeting of Putin and the oligarchs and removing SWIFT – it was all on the table. However, this is certainly a very maximalist approach.
Russia’s Nuclear Threats – Is This Because of the Sanctions?
Russia using its nuclear arms for sabre-rattling is nothing new. When they test missiles or new bombs they even put it on their billboards showing it striking Florida, etc.
Putin had previously warned anyone that the consequences of getting involved in this war – arms transfers, etc. – would produce very serious consequences, and it seems this is fitting into that narrative. Not so much the sanctions.
What Can the West Offer Putin to End It? How Will We Know When It Is Ending?
If we start to see major internal personnel changes, it will be a sign that things are not going well. So far, with regard to the peace talks, it does not seem like Putin is very serious about them.
For instance, he is bringing Vladimir Medinsky to the talks with him, one of the leading instigators of the Donbas genocide theory – basically an ideological extremist. That shows the kind of attitude he has. It also will not go down well with the Ukrainians.
Things that the West could offer Putin as a compromise would be control of Donbas and a period of neutrality.
Is Russia Holding Back?
To begin with, the Russians did not seem to be willing to hit population centres with full aggression (unlike what they did in Libya and Syria). Instead, they appear to be concentrating on terrain. But this is changing somewhat. There is now a much larger focus on taking Kyiv and Kharkiv. We are seeing the use of Su34s rather than Su25s, planes with much heavier firepower. With regard to his objectives, if they just want Novorossiya, they will need to take Kharkiv. If they are looking for regime change, they need to take Kyiv.
Note, follow Rob Lee (@RALee85), Michael Kofman (@KofmanMichael) for a more in-depth analysis of military aspects.
Would Ukraine Accept the Russians? What Would Ukraine Accept?
They are probably not going to accept a lot. They can see the ‘salami’ tactic by Russia (taking the country piece by piece). Ukraine knows this is all going on ‘under the gun’. Kremlin spokesman Dimitry Peshkov has stated there is no way the talks will take place under a ceasefire.
How Serious Is the EU’s Offer for Ukraine to Join?
Poland has suggested it could happen immediately by avoiding the usual channels. The Rest of the EU is keener on an EU association period with Ukraine. So, no real movement from the Polish request. Zelenskyy is pushing for it; he has publicly signed an agreement pushing to join the EU. They are more likely to become more involved in the Western blocs (EU/NATO).
Due to the UK Being so Outspoken in Sanctions – Could It Be Singled Out for a Direct Russian Retaliation?
The UK has certainly set itself out among others. They were the first to take a more hawkish approach. They have targeted oligarchs and even proposed war-crime accusations against Putin. Quite recently Russian press and Russian officials have stated that relations with the UK are below the US. Prime Minister Boris Johnson has been targeted by Russian trolls around ‘Partygate’ for some time. And Russia have performed provocative drills in British airspace and attempted them in the waters around the UK (as per the Irish fishing story). There may be an increased risk of cyber-attacks, or more provocative naval drills going forwards.
Has Valery Gerasimov (Russian General) Been Fired?
It does not appear so. Gerasimov was at the nuclear meeting (27 February), and there has been no verification it has happened. It would be a very strong sign if he was fired. Russian foreign policy right now is so intertwined with their ‘Gerasimov Doctrine’ that it would be a real about-face. He penned the responses to Maiden and Syria, so being removed would be a major sign of things going wrong in Ukraine. It would also be a worrying sign for the West. He and Shoygu (Minister of Defence) are both military men, but also both people who understand diplomacy and have spoken with their Western counterparts before.
If they were to be removed and replaced by much more ideological types, that would be dangerous. You would then have Putin surrounded by like-minded people. That means a greater risk of group-think, and fewer people to moderate him.
Signs of Bank Runs
There is a concern in this regard. Moves in the Russian ruble have been large, and huge crowds in Moscow are trying to withdraw cash. There are genuine worries that inflation will make food unaffordable for people. These are not scenes we have seen there since the 1992 crisis (post-Communist collapse).
The deprivation of electronics from US goods sanctions and Taiwanese semiconductor sanctions are getting a lot of press. People are genuinely worried that they will be unable to get their electronics.
Signs of Russian Citizen Protests
In 2014, with Crimea’s annexation, there was a definite rally around the flag. Putin’s popularity went from 59% to 92%, and on the back of Syria and other actions it stayed high thereafter.
In the current situation, there is a lot less support for the operation. 62% of Russians believe Russians and Ukraine are one people. Just 39% would support a military annexation. And even if it were to prevent Ukrainian membership in NATO, only half of Russians would support it.
The views of Russians on the US have also shifted. In 2012, 12% of Russians saw the US positively. Now it is around 45%. Furthermore, prior to the invasion, the belief was that the sanctions were not really affecting the ordinary people, and if anything, the effect was worse for the super-rich. This has clearly changed. Sanctions are hurting them, the ability to keep the operation clandestine is gone, and reports of casualties will only make it worse.
The crackdown on Twitter and Western Media is showing that they do not want the people to see what is likely happening – the scale of it, and the issues they are facing.
Navalny (who was open to Crimean annexation) is now saying that Putin is using this as a distraction from domestic issues. There are also more public displays of dissent from oligarchs, politicians, and diplomats (the Russian climate delegation for instance). That is widely a sign that the popularity of Putin is in decline.
Oligarchs
They were the puppet masters in Russia in the early 2000s. But after Putin, they were either suppressed (like Berezovsky) or else fell in line (like Abramovich). We are seeing them starting to try and steer Putin more moderate. Abramovich has been very clear not to condemn Putin’s action, but he has offered to help peace talks. That is a big change.
Would Russia Cut Off Oil and Gas?
When the removal of SWIFT was discussed, Russia said that this could prevent oil/gas from being shipped. This was likely as a signal and a threat that they could cut off supply themselves. They have been relieved; Rosneft and Gazprom were left off initial sanctions.
So far, the Western divestment of Russian assets has been piecemeal – the Norwegian Sovereign Wealth Fund has cut its spending on Russian gas, and BP is cutting its stake in Rosneft. However, if the rate of this divestment was to become greater, or there was a more serious and unified approach to divestment, we could expect Russia would use its gas as a much more direct threat to the EU.
What Is the Path for a Realistic Best-Case Scenario?
Russia is able to secure some territory in the east and then leaves.
What Is the Path for a Realistic Worst-Case Scenario?
This invasion lasts a long time and then Medvedchuk or one of his associates takes over. It would depend heavily on Russia, as the government would be very unpopular, and it would end up with Ukraine turning into another Belarus or Kazakhstan.
Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.