Ukraine War: Western Support Weakens, Elections on the Horizon, Peace Negotiations Remains Unlikely
As Ukraine counter offensive operations continues without much success, the possibility of a stalemate and frozen conflict increase in the medium term taking into account Russia's continued failure to gain ground in late 2023. What will happen in 2024?
Bottom Line: We foresee a protracted conflict, coming with varying degrees of intensity into 2024. We see the stalemate at the front line is likely as the winter is coming while peace negotiations remain very unlikely, as both Ukraine and Russia perceive the war as existential. As the support to Ukraine from Western Block is now weakening, the U.S.' attention has turned to Israel-Hamas conflict and the U.S. elections in 2024 are expected to set the scene, we feel the conflict is coming to a deadlock. Under our baseline scenario the key difference is that military activity decreases and ceasefire talks may occur – though unlikely to be successful (Figure 1).
Market Implications: The war continues to create an increasing financial burden on Russia due to high military spending in addition to aggravation of staff shortages, elevated inflation, and trade income diminishing due to sanctions. Ukraine's economy continues to contract, inflation surges, and infrastructure severely damaged requiring extra funds. For global markets, 2024 easing prospects is the number one item while it appears the Ukraine-Russia war is now a secondary issue and only become important with a severe escalation or effective peace deal.
Figure 1: Possible Scenarios
Source: Continuum Economics. (1) Other scenarios would be a remaining 10% including a double cold war with China and Russia versus the west; Putin stepping down or dying or a successful Ukraine counter offensive that reclaims a fair portion of lost territory, and the parties reaching a ceasefire agreement.
Support to Ukraine from Western Block Weakens
Despite Ukrainian officials continue to underscore that the country is in need for funding and military support from the Western Block, it appears things have become complicated on the western side. First, due to EU bureaucratic obstacles and limited capacity to produce defense production, EU foreign affairs chief Borrell and Ukrainian Foreign Minister Kuleba recently confirmed that the EU will not be able to complete the planned delivery of 1 million artillery shells to Ukraine until March 2024. Separately, the attempt to carve out a new Ukraine assistance package worth €20 billion over four years from the EU's European Peace Facility (EPF) is locked in debate.
More importantly, the support from the U.S. also remains questionable, partly due to some Republicans opposing to provide more funding to Ukraine via putting the blocks on the proposed support package in the U.S. Congress including $60 billion proposed by the White House. The tardiness in the delivery of expected arrival of F-16 fighter jets from the U.S. also worries the Ukrainian side since Ukraine would have difficulties in overcoming minefields and intricate Russian defense without air supremacy.
Another current matter which affects the support issue is the recent outburst of Israel-Hamas conflict in Gaza as both the U.S. politics and media are busy discussing the ways to support Israel, the future of the Gaza conflict and the role of the U.S. in the Region. U.S. attention or resources could be diverted away from Ukraine as we foresee Gaza will continue to hit headlines, at least until the end of the year, which may cause financial support and donations to slow down to Ukraine.
Peace Negotiations Remain Very Unlikely
Peace negotiations seems very unlikely under the current circumstances as both of the countries are unwilling to start talks. Putin said in September that if Ukraine wants to start peace talks, it should start by repealing the law that bans any such dialogue, adding that any negotiations should be on Russian terms. Ukrainian president Zelenskyy dissented from possible negotiations with Russia by mentioning on November 4 that “there is no and there will be no such thing.” The path towards a credible peace deal remains slim, as both sides demand are too large.
Stalemate at the Front Line is Indispensable as the Winter is Coming, and Going Nowhere Soon
The sharp winter conditions in Ukraine are expected to decelerate the pace of the war, as the bad weather is already creating problems for both of the sides. The muddy land and heavy rains in autumn so far caused many roads to be impassable and hampered strong offences. Ukrainian forces are reported to face problems in advancing also due to a lack of ammunition. It seems both parties would need drier conditions to deploy the necessary equipment for attacks, and this has to wait spring 2024.
Despite the chance of stalemate remaining for a long time, Zelenskyy emphasized on November 16 that a stalemate would create a "volcano that is sleeping but will definitely wake up" and Ukraine cannot afford it. Zelenskyy mentioned that "If we want to end the war, we must end it. (…) If the war becomes a stalemate, future generations of Ukrainians will have to fight, because Russia will come again if it is not put in its place."
Elections will Likely Shape the War in 2024
U.S. primary elections, which will begin in January are also expected to complicate Ukraine's politics. Former U.S. President Trump, the favorite for the republican's presidential nomination, would not be expected to provide firm backing for Ukraine, if elected. We think if Trump is reelected as the new U.S. president after Biden, this could also severely split western support (e.g. threats to withdraw the U.S. from NATO) and may quickly lead to a Russia friendly peace deal.
2024 will also be the election year for Russia as the country will choose its president in March 2024. Putin remains as the strongest candidate according to various polls and we think he would win the elections as he is seen as the most popular political figure in Russia. After Putin will be reelected, we foresee he will not accept restoring Ukraine's borders willingly, and await for the possibility of a Trump win in the U.S. elections (here).
The next presidential election in Ukraine was supposed to be in 2024, but president Zelenskyy will likely remain in power since the elections will probably be cancelled due to martial law.
No Effective Russian/Ukrainian Major Offensive, Ground War Remains Deadlocked
We continue to expect the winter months will mark a freeze in military activity, and stalemate will extend into 2024 as both of the parties continue to struggle to produce significant offensives.
When we look at latest developments from the battle ground as of November 18, Russian forces reportedly continued offensive operations along the Kupyansk-Svatove-Kreminna line, near Bakhmut, near Avdiivka, west and southwest of Donetsk City, in the Donetsk-Zaporizhia Oblast border area, and in western Zaporizhia Oblast and partly advanced near Avdiivka and Donetsk City (here). According to military sources, Ukrainian forces continued offensive operations in western Zaporizhia Oblast on November 18 but did not make any claimed or confirmed advances, nor did Russian forces in the same region.
Ukrainian forces also resumed operations in the east (left) bank of Kherson Oblast, in western Zaporizhia Oblast and launched assaults near Bakhmut on November 18. The Russian Ministry of Defense (MoD) claimed that Ukrainian forces conducted unsuccessful attacks along the Kupayansk-Svatove-Kreminna line near Synkivka, Dibrova. Ukrainian military sources recently asserted that Ukrainian troops are working to push back Russian forces positioned on the east bank of the Dnipro river, a day after Ukraine claimed to have secured multiple bridgeheads on that side of the river that divides the country's partially occupied Kherson region.
Most of Ukraine's counteroffensive push has been around the Zaporizhzhia region toward the town of Tokmak and around the destroyed city of Bakhmut in Donetsk, the offensive is expected to continue through the winter, though likely in a more limited way. Russian forces are continuing offensives against Ukraine as well, working to seize the rest of Luhansk in the northeast and the eastern Donetsk region.
As the war enters its 634th day, the advances by either sides have been measured by mere meters on daily basis and attacks do not offer significant gains for both sides. War fatigue, high military spending, sanctions, and Russia's deteriorating fiscal balances make further significant advances unlikely for Russia going forward. On the other side, the war continues to devastate Ukraine economically, with serious damage already occurred on the country's infrastructure such as road, rail and energy networks, which would necessitate plenty of time and extra funds to repair. The country has also been under martial law since the beginning of the war, and this continues to be the case.
For our baseline scenario, we see a prolonged pause on territorial advance by Russia or Ukraine, exhaustion on both sides and only moderate military and financial Western support for Ukraine. This could be a pause and a frozen conflict with or without a ceasefire deal for a very long time, which can take years.
In our alternative scenario, we foresee the case for a strong Ukrainian counter offensive if the Western alliance would provide stronger financial and military support, but we decreased the chance of this possibility in this analysis when compared to our review in August as the Western support has weakened, and the U.S. attention turned to recent Israel-Hamas conflict.
Figure 2: The Military Situation in Ukraine, November 17
Source: Institute for the Study of War
As mentioned, we expect the deadlock will hold during the winter months, and conflict will remain active through 2024 (and likely beyond) in this alternative scenario. We foresee Putin will be reelected in 2024, and he will not accept restoring Ukraine's borders willingly.Ceasefire talks in this alternative scenario are less attractive than hoping President Trump is reelected U.S. president and splits western support and leading to a Russia friendly peace deal.