The Hope for A Peace Deal in Ukraine is Tested

Two Scenarios We Foresee in Ukraine

We foresee two major scenarios in Ukraine. First one is a Russia-friendly peace deal (70% probability) that Russia continues to annex areas in and around four Ukrainian oblasts that it occupied, no NATO membership for Ukraine, and no European foreign troops in Ukrainian territory. President Putin might give some concessions with Russia allowing limited flexibility on what occupied land in Ukraine are kept by Ukraine depending on the terms of the peace-deal. We feel a direct negotiation process between U.S. and Russia taking place, which will be followed and then agreed by Kyiv administration since we know that President Putin does not want to directly engage with President Zelenskyy signaling Zelenskyy could be forced to step down after the cease-fire will be in place.  However, the economic and military cost of the war has been very high for Russia and this means that Putin is eventually biased to a ceasefire and peace deal that lifts sanctions and allows time for Russia to rebuild.

Second scenario is based on the war continuing (30% probability) after ceasefire talks fail since Putin insists on his peace terms. If President Zelenskyy and President Trump do not find a common ground, Europe steps up and helps Ukraine financially and militarily, and the war will likely continue, which will be hard without U.S. support. The military support from the U.S. would be hard to replace. In the meantime, Ukraine will probably continue to lose more ground. A ceasefire in 12 months or so is likely under those circumstances, with Russia gaining more land and a weaker Ukraine. Europe could fill the U.S. financial gap for a number of years, but without U.S. military support a Ukraine win or stalemate will be almost impossible.

The recent developments demonstrate how complicated the current situation in Ukraine is. Despite President Trump previously expressed confidence the war could end within weeks, it seems it will not be that fast. For instance, the Kremlin did not directly accept a 30-days ceasefire proposal since President Putin thinks Zelenskyy’s government is illegitimate and Ukraine can recover militarily in these 30 days if a ceasefire, showing reaching even a ceasefire can take months. Putin also wants the outline of a peace deal agreed before a ceasefire.

On the other side of the coin, Ukraine remains insistent that Ukraine should be included in the negotiations process, and is asking for security guarantees though Ukraine is in a weak negotiating place. It currently looks like there will be no or weak security guarantees from Europe and the U.S.

Despite the U.S. side appears committed to sign an agreement handing the U.S. access to hundreds of billions of dollars’ worth of Ukrainian resources including rare earth minerals, which was actually proposed by President Zelenskyy last year, we feel this issue also remains tangled. President Trump claimed on March 30 that Zelenskyy is trying to back out of the rare earth deal and if he does that he’s got some big problems. President Zelenskyy signaled he has been open to a deal but cautious about the terms, while the Trump administration has been on-again, off-again about getting it signed, which complicates the situation.

Despite we feel Kremlin is ready to negotiate for a peace deal, we don’t think that Russia will stop before there’s a solid and durable result that suits Russia since Russia holds the cards. It seems President Putin is dragging his feet to get better peace deal terms before a ceasefire, which is the first real test on President Trump. President Trump has made threats about secondary tariffs on Russia oil buyers if a ceasefire is not agreed.  While this is a serious threat to Russia, Trump has already tempered the threat. The ball is now in Trump court to either introduce secondary sanctions in April/May; try to muddle through with negotiations or walk away from the Ukraine war in the summer.  Muddlethrough is the most likely option.