Expect the market to take Ukraine’s year of transition in stride

Of course, the war between Ukraine and Russia was routinely mentioned in many lists. geopolitical market risk Most military experts see 2024 as a transition year of sorts for Ukraine, where the country will refresh and strengthen its military influence in order to have a chance to force Russia on the defensive in 2025. There is.

But without continued large-scale military and financial support from its allies, Ukraine has no chance of winning. The Russian economy is many times bigger The Russian military is smaller than the Ukrainian military than the Ukrainian economy. numbers and weapon systemand the population of Russia is 3 times About Ukraine.

The United States is providing new aid to Kiev. struggle Now on track, Europe is enthusiastic about supporting Ukraine weakened In some places. The aid program is unlikely to be discontinued, as most policymakers in the United States and Europe are well aware of the Western risks in a scenario where Ukraine is forced to capitulate to Russia. However, maintaining and increasing the flow of funds and weapons will require some effort.

For example, additional aid is currently being provided by the United States. stuck in parliamentand Europe is Creating a shortcut This will allow aid to be collected in Kiev outside of the normal routes established by Brussels. There are concerns that populists will be influenced by the European elections in June. more wind Many of these populist politicians have always been critical of aid to Ukraine. In addition to this, there is a good chance that Mr. Trump will become US president again, and he has proven in the past that he will have little difficulty with Mr. Putin.

The most important question for markets and businesses regarding the Ukraine war is whether it is likely to happen again. confusion Changes in supply lines and energy markets like two years ago. The back-and-forth attacks have increased in intensity in recent months. ukraine attack Deeper on the Russian front and within Russian territory, there are no signs that the situation will escalate to the point where cargo and energy supplies will again be significantly affected in the coming quarters.

Moreover, in recent years, countries and companies have shown that, after the initial shock, they can also function successfully around Ukraine. Along with this, the dependence of other countries of the world on Ukraine has significantly decreased. For example, Europe still buys Russian gas, but only in small quantities. part of What it used to be, and it continues to decline.and liquefied natural gasthe United States has shown itself to be a good alternative source.

In short, I don’t expect the war to escalate to the point where it directly and significantly impacts financial markets. The market has adopted a similar stance and is therefore expected to have little reaction if this scenario plays out. However, escalation is not ruled out.

Russia is now most likely to step up its attacks. Perhaps in part, in the run-up to war or afterward. russian elections March. In addition, Kiev’s allies are struggling with military aid. Supplies in America and Europe are running low. Not much left or has already been done depleted, many Western policymakers – understandably – want to prioritize their own militaries, and the defense industry is reluctant to expand capacity without long-term contract commitments. It is true. Because of all this, President Putin may think now is the right time to move forward.

Even if the war escalates, this does not necessarily mean that freight rates and oil prices will immediately go through the roof, but this scenario has not been factored in, so while price increases will certainly occur, investment There is a possibility that this will fuel distrust towards Europe at home. , thereby contributing to the euro’s depreciation against the dollar. As mentioned earlier, this scenario cannot be ruled out.

as Philip Zelikow wrote Regarding Western adversaries in foreign affairs:

“The default assumption of most Western policymakers is that these rivals are led by fundamentally rational regimes that do not risk seeking violent change. That was the default assumption a year ago. It was the default assumption the day before Hamas invaded Israel.”

Andy Langenkamp is a senior political analyst in the United States. ECR research and ICC consultant.