The cost of winning the peace will ultimately destroy Putin
Despite overwhelming odds against Ukraine, Ukrainian troops are fighting, and hard, imposing significant casualties on Russian troops.
Western intelligence sources were suggesting yesterday that Kyiv would soon be encircled and it was only a matter of hours before the government in Kyiv would be forced to capitulate. That now seems presumptive and wrong.
Indeed, Zelensky seems to be in no mood to surrender and is doing an enviable job in very difficult circumstances.
I guess we are still left with some question marks as to what Putin wants - he has said demilitarising Ukraine and cleaning it out of “Nazis”. We all know that is bollox. Ukraine is not run by Nazis but it is a flourishing democracy unlike Russia. But it does suggest Putin wants regime change. So the Russian game plan seems to be to use devastating force on the Ukrainian military and critical infrastructure, and surround Kyiv and major cities - threatening a Grozny style “raise to the
Ground” scenario to force Zelensky to concede. Putin would then aim to install a puppet regime in Kyiv to “ do his dirty work” in suppressing Ukrainian society to accept domination from Moscow.
At the moment the military operation is in the balance and the longer Ukrainian troops can last out then the more leverage Zelensky has. But he has proven already he is no quitter.
But assuming Putin wins the military war the trillion dollar question is how he wins the peace in Ukraine - similar here to Afghanistan 79’, 92’ and Iraq 03’. Ukrainians have had 30 years of freedom, which they relish, and how can Putin turn the clock back to 91’ without brutal suppression which would further make him, and his puppet regime in Kyiv, international pariahs. This is not 1945, 1956 or 1968 where Soviet troops/the NKVD did bludgeon civilians into submission, but 2022. Ukrainians will resist long and hard even if the formal military battles end. And news 24/7 and the internet will expose Putin’s brutality for all to see.
And this all leads me to the sanctions story.
I wrote earlier that’s it’s shame on Germany and Italy for blocking SWIFT sanctions - and maybe the significant sanctions wrapped around the Russian banking sector instead will have the same effect. But Russian markets are rallying back hard this morning suggesting that investors think that Putin avoided a Western sanctions bullet. We will see. But even the oligarch sanctions were limited. Other sanctions options which could be worked on are:
* Sanction ALL Russian oligarchs unless they come out publically against Putin;
* Freeze CBR and all Russian bank assets;
* Get JPM and ML to kick Russia out of investment indices;
* Impose a blanket ban on Western public sector pension funds holding Russian assets;
* Impose restrictions on rouble clearing.
But we are not at the end point in terms of sanctions. And much depends now on how Putin conducts the war and the political settlement to come and then the peace.
Likely we will, unfortunately, see civilian casualties, talk of war crimes, the death of democracy, questions as to how Putin will treat the Ukrainian political leadership (arrest or worse for Zelensky?) and then how he will impose peace. If this is a re-run of Belarus since elections several years ago then repression will be brutal. And I think this will be the trigger then for more and harsher sanctions still on Russia and it’s puppet regime in Kyiv.
And here is the longer term pain for Russia as paying for Putin’s military adventure in Ukraine will make them all much poorer. Sanctions, the cost of rebuilding Ukraine (without access to Western financing), and Western energy diversification away from Russia which will surely accelerate now, will impose a devastating cost on the Russian economy. Think here the period after the invasion of Afghanistan in 1979, until the recognition of economic disaster which brought Gorbachev to power in 1985. The rest is history.