The one-year anniversary of Russia’s “special military operation” in Ukraine is certainly a shock to all participants, most especially Vladimir Putin.
1. A Korea-like frozen border: Both sides are clinging to an absolutist position: “I win, you lose.” There is no possible negotiated solution with this mindset. Long term, we expect a Korea-like frozen border to be a likely outcome. Russia keeps the Russian-leaning part of the Donbas, and the remaining part of Ukraine is allowed to join NATO and the EU.
The Ukrainians have probably suffered worse casualties because Russia has shelled soldiers with the same alacrity that we have seen them bombing civilians. Many Russians left their country to avoid the draft, as did many Ukrainians. That is one of the main reasons that Ukrainian President Volodymyr Zelensky probably arrested so many border agents — for a reported price of $10,000, a young man could leave.
Russia also cannot win the war under their original terms of regime change and ”denazification.” They have angered the Ukrainians to the point that they will not be able to control Kyiv, let alone western Ukraine, which has always been the hotbed of anti-Russian sentiment. 4. Oil & gas gets a bid: Europe managed to stay warm through this winter because Russia filled its natural gas storage last summer, while Europe and the Eastern U.S. experienced an abnormally warm winter. But thanks to the rupture of the Nord Stream 2 pipeline, it is not completely clear how to rebuild supplies this summer. We think markets will begin to appreciate this problem over the next few months. All things being equal, oil and gas should get a bid.
Anyone who spends time watching Russian television worries that Putin is the least bad of the current alternatives. No Russian George Washington is waiting in the wings. The Russian liberal democrats personified by Gorbachev and ubiquitous in the 1990s are all dead, in Siberian camps, or ensconced in Paris and London.