Russia/Ukraine: One year in with no end in sight

Thomas Mucha, Geopolitical Strategist
2024-02-29
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It’s been a year since the start of the tragic Russia/Ukraine conflict, which has seen hundreds of thousands of military and civilian casualties. This geopolitical crisis remains a significant market and macro event with an uncertain end, and it presents the very real possibility of further escalation. 

On this somber anniversary, I believe we can begin to assess some of the most important longer-term geopolitical, macro, and market outcomes that investors should consider.

On the conflict itself

Almost none of my national security contacts in Washington, Brussels, or elsewhere across the EU believe we are close to seeing an end to the largest military crisis in Europe since World War II. On the contrary, we may see additional, increasingly intense fighting.

This is because both Kiev and Moscow are taking steps that will likely lengthen the hostilities. From Ukraine’s perspective, the Zelensky government continues to acquire not only the increasingly advanced and sophisticated weapons it needs to launch both defensive and offensive operations against Russian troops, but it’s also benefiting from increased training and intelligence sharing with NATO countries.

Meanwhile, Russian President Vladimir Putin is accelerating Russia’s troop-mobilization efforts, while attempting to bolster the country’s defense and industrial bases. We’ve also seen ongoing shifts in Russian military leadership structure, and in recent weeks, new momentum around Russian offensive operations. 

Accordingly, battlefield dynamics — the most important variable to monitor — are fluid. Thus, the list of potential outcomes is wide, ranging from a military collapse by either side to regime change.

As for worse-case scenarios, the crisis remains in an escalatory phase, including the slim (but not zero) possibility that military action spreads to NATO countries or, potentially, triggers the use of tactical nuclear weapons.

On the geopolitical impacts

This military clash remains a geopolitical crisis of the highest order and has already transformed the global security environment in important ways.

First, the conflict has strengthened the US/transatlantic alliance across economic, political, and especially military dimensions. We didn’t see this degree of political unity during the previous US administration, but it’s now likely to continue beyond the current situation in Ukraine, as is a deepening transatlantic policy focus on national security. As has been demonstrated countless times in history, hostility and tragedy at this scale is clarifying to policymakers.

Second, the onset of the conflict prompted NATO to extend an invitation to Finland and Sweden. This speaks to the fact that the fighting in Ukraine has produced a new security environment across Europe — an institutionalized response that will likely constrain Moscow’s military options in Europe in the long term.

The clash in Ukraine has also resulted in large boosts in defense spending across Europe. This comes at a time when militaries around the world are modernizing their forces and assessing new technologies in use on Ukraine’s battlefields. While political unity in the EU will likely be a persistent challenge given differing domestic priorities, I suspect these defense spending increases and doctrinal military shifts are structural and will outlive the conflict’s end.

Last, but not least, the situation in Ukraine could impact China’s complex relationships with the US and governments across Europe. 

I believe that prolonged fighting in Ukraine could lead to accelerated great-power competition among some of the world’s strongest countries, including (but not necessarily limited to) the US, China, and Russia. This could be particularly true if Moscow is seen as continuing to launch attacks against Ukrainian civilians and infrastructure, in addition to military targets.

It will also likely sharpen the political narrative in Washington that the world is splitting into “democracies and autocracies.” The resulting global geopolitical instability could add further fuel to deglobalization efforts rooted in strategic sectors on the front lines of great-power competition, including semiconductors, biotech, critical minerals, artificial intelligence, and quantum technologies, among other industries.

On the macro and market implications

Finally, the crisis in Ukraine is likely to produce several long-term macro and investment outcomes that will, in my view, outlive military action. 

The crisis in Ukraine is likely to produce several long-term macro and investment outcomes that will, in my view, outlive military action.

Thomas Mucha
Geopolitical Strategist

First, we’ve seen extraordinary coordination between the US and its European allies on the sanctions front. This is likely to continue well into 2023 as the conflict drags on and could be a precursor for allied sanctions aimed at future geopolitical crises around the world. 

The situation in Ukraine, of course, has also focused policymaker attention — and voters — on the critical role of energy not only in Europe, but globally. In particular, it has refocused efforts to wean European economies from Russian oil and natural gas. As such, it’s also placed greater attention on speeding up the EU’s decarbonization efforts.

Both of these developments will likely lead to profound shifts in how investors should think about energy long into the future, particularly as great-power competition — and the still uncertain outcome of the Russia/Ukraine conflict — continue to shape global policy and security backdrops.

Expert

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