Russia - Cry havoc and let rip the dogs of war
It's been remarkable to see Russian and Ukrainian assets rally back somewhat on what to me has been wishful thinking about various peace talks. The rouble which had been close to 80 last month was sub 75 this week, Russian 5Y CDS had hit 260, went back to 180, albeit had been sub-100 earlier last year.
Bloomberg even ran an article talking about actual de-escalation driving the rally. And the FT also ran an article where optimists appeared to be talking up their books, talking about resolution.
Moscow has continued its troop build up towards to 100+ BTG units most people think they need to launch an all out attack on Ukraine. We are close to that total now. Amphibious assault craft have completed their long route from the Baltics to the Black Sea - unheard of.
In the last few days Russia has cut off the Sea of Azov and large parts of the Black Sea for "military drills". This has cut off Ukraine's main trading ports - critical for getting steel and grain exports out.
They have done this in the past seemingly eager to provoke a response from Kyiv - hoping they respond aggressively and give Moscow an excuse for escalation. The State Duma has also indicated that it will recognise DPR and LPR - the two separatist enclaves in Donbas backed by Moscow. Again it's clear Moscow wants a response from Kyiv as an excuse for escalation. I doubt Ukraine would fall into that trap - they know Putin's game. But we could well see these false flag operations used by Moscow as the excuse for escalation. We could see nationalist demonstrations in Ukraine - perhaps real or engineered by Moscow - designed to destabilise Ukraine and then for Russian troops to be further deployed to “protect” ethnic Russians.
Negotiations are at an end - not that Moscow has ever appeared serious, setting red lines which were never going to be acceptable.
Normandy format talks, which Macron had tried to breathe new life in, got nowhere yesterday. They are slated to restart in March albeit the Russian rep said there was stalemate. It might all be over by then.
Macron went to Moscow in a ridiculous exercise in my mind - almost as ridiculous as Liz Truss meeting Lavrov. That was a mismatch if ever I saw one, and was only going to end one way. Macron almost appeared as willing to talk up his book as investors in the FT piece this week when he said Putin had assured him of de-escalation - subsequently denied by the Kremlin. But the long table said it all - Moscow wanted to signal just how far apart the two sides are. All this affirmed when the President of Kazakhstan turned up in the Kremlin yesterday and met with Putin across a sad excuse for a table, but literally half a metre square. We are back in times Kremlinology, trying to look into the tea leaves, or nuance settings in the play put out by the Kremlin. This is all being stage managed by Putin.
Moscow has never been serious in negotiations, it's been clear from the start. Indeed, no substantive negotiations have taken place, at all. The two sides are just too far apart, and I personally have long felt Putin is set on a total reset, to blow the status quo out of the water. That status quo simply does not suit him, as the longer this lasts the further Ukraine drifts out of Moscow’s orbit, and this is what this is really all about. It’s not about a perceived but non existent real threat from NATO, or security settings in Europe, it is about Ukraine, and the fact that Putin demands it to be in Russian sphere of influence, by hook or crook. Why would he bother writing a long essay on Ukraine and it’s rightful place with Russia back last summer, and then send a copy to every member of the Russian armed forces? He was likely preparing them for what was to come.
Looks like the Yanks think this as well, with Biden ordering ALL US citizens to leave Ukraine and saying US troops will not be sent to get them out as he does not want to risk a Russia - NATO clash.
Markets appear blind to what is likely about to happen.