Strategy Note /
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Russia's setbacks in Ukraine reopen all endgame scenarios

  • Confirmed reports of major territorial gains for Ukraine in counter-offensive around Kharkiv

  • War exacerbated fuel and food inflation, and US dollar strength, but united most of the G7, NATO, EU

  • Maybe a decisive pivot but all outcomes still possible: stalemate, escalation, withdrawal in Ukraine, and coup in Russia

Russia's setbacks in Ukraine reopen all endgame scenarios
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

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Tellimer Research
12 September 2022
Published byTellimer Research

Ukraine has made major territorial gains in recent days and hours, according to numerous third-party reports, and confirmed by a Russian Ministry of Defence briefing on 11 September, in its counter-offensive around its second largest city, Kharkiv, in the northeast of the country.

This battlefield success for Ukraine likely does not guarantee a quicker or more decisive end to the war. At most, it allows Ukraine, more than Russia, to influence where the front line of the war is located.

It also likely reinforces the political will and unity of Ukraine's external supporters to continue providing it with arms (and the ability of EU politicians to persuade their populations that the energy crisis they face will be temporary). At the same time, it likely strains relations between Russian President Putin and his military.

The success of this counter-offensive does, however, reopen all of the possibilities which were considered in the early days of the war:

  • Prolonged and bloody drift towards stalemate and a negotiated frozen conflict – stalemate rather than peace because there is so much disagreement over what either side would consider acceptable.

  • Escalation (or, at least, the threat of escalation) via non-conventional means as Russia seeks to save face, retain any remaining territory, and re-establish bargaining power in the run-up to any eventual negotiated settlement.

  • Humiliating withdrawal of Russian forces that leads to, or is coincident with, a change in command within Russia.

Russia's invasion initially led to a spike in fuel and food commodity prices and provided further impetus to the US dollar. Oil and food prices have recently subsided back to pre-war levels.

But the sticky inflationary effects are being felt globally, particularly in relatively poor, net commodity importers in emerging markets.

The US dollar has continued to appreciate, driven by expectations of higher rates for longer from the US Fed.

Recent Ukrainian gains may, for a while at least, reopen consideration of the range of scenarios mentioned above, without any clarity over which one is most likely.

To the degree that escalation becomes the main concern, the headwinds of more expensive fuel, food, and US dollar, for relatively poorer, net commodity importers in emerging markets could once again gather steam.

Oil and Wheat prices back to pre-Russia-Ukraine War levels