Decisive battles are looming in Ukraine

A major geopolitical risk outfit were arguing this week that another wave of Russian escalation thru asymmetric channels (cyber, et al attacks on the West) could be looming and this could well have impact on global markets. 

I don’t dispute that Russia has the ability to disrupt global markets by using the asymmetric channel but I am just not sure as to the timing - I also think this route is on-going anyway, as part of Putin’s war with the West.

I don't really buy it, because: 

First, what's the trigger now and not a month or two months ago? Lots of red lines for Putin have come and gone and he has not done very much in terms of really pushing back against NATO. Thinking here sinking of Mosckva, Ukrainian wins in Lyman and Kherson, supply of ever more sophisticated Western kit - going thru the gears of Mig29s, T72s, HIMARS, and now Leopards. I think we have learned here that Putin is actually scared of NATO as he knows Russia would lose a conventional war with NATO very quickly. And his actions (or the lack of them - why has he not bombed NATO arms convoys?) have taught us that he does not have escalation dominance - I thought he did earlier in the conflict, but events have suggested he has hard limits to what he is actually willing to do.

Escalation dominance here means he cares more about Ukraine than the West and he is willing to do almost anything to take Ukraine - while the West is not. So what we have learned that while he might care more about Ukraine than the West does, he cares about his own preservation more and does not want to end his days staring down the wrong end of a HIMARS battery. Also, and obviously, the Ukrainians care more about Ukraine than Putin and more particularly the conscripts and canon fodder Putin is deploying to Ukraine. Ukrainians have no choice - they have nowhere to go.

Second, he knows that anything which he does which impacts global markets will quickly bring China and the global south in against him. They have been key allies and he will not want to annoy them.

Third, maybe/likely he has been doing all that (asymmetric stuff) anyway but it has been blocked/countered by the West. And the more he does the more the West will retaliate and they still have more capacity there to hurt Russia. Think of energy, are we now past the peak of what he can do? We are almost thru the winter. So he could halt gas supplies thru Ukraine (11 bcm) and Russian LNG to Europe (19 bcm) but this is still running combined less than one third normal flows. Will cutting these make that much difference? And if he does it likely will just hurt key friends in Central Europe - Hungary, Austria, Serbia. 

So I don't think we see this. 

More likely I think is we see military escalation in Ukraine. That NYT article this week suggests Russia now has 350k troops in Ukraine and 150k in the environs - that is close to double what they had in the initial invasion. The Ukrainians are also talking about Invasion 2, to mark the 1 year anniversary. I think a Russian offensive is quite likely but I still doubt Russia has the capacity to win this war - likely Putin will look to take some more momentum/leverage on the battlefield gained from a new offensive into new peace talks. At the moment he is negotiating from weakness. He wants to change that.

And there is also talk about a new Ukrainian offensive in the spring, but likely they will want to wait for the arrival of those 100+ Western tanks which could be critical in turning any Russian offensive to their advantage. 

My base case is Russia launches a new offensive this month, and Ukraine exploits that to its advantage - trying to split Russian forces, perhaps a thrust South thru Zaporizhiya to cut the land corridor to Crimea for Russia.

I do think we are reaching a decisive moment in this conflict though. I think the next couple of months will be critical in defining this war. This latter outcome could still have global market impact though as markets fret about a descent into a scenario where the West and NATO are increasingly brought into this conflict by Russia’s continuous aggression.