The Hope for A Peace Deal in Ukraine Seems No Close

Two Scenarios in Ukraine

We foresee two major scenarios in Ukraine. First one is a Russia-friendly peace deal (50% 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. It is now clear that Russia won’t make any form of territorial concessions in Ukraine and Moscow will retain the territory it has captured so far, including Crimea. (Note: President Trump recently said he thinks Ukraine is ready to give up Crimea, demonstrating U.S. would also agree Ukraine losing part of its territory to Russia as a part of peace deal).

Despite the direct negotiation process between U.S. and Russia continuing, the process is going slower-than-expected due Russia side stubbornness. We envisage, at some point, the economic and military cost of the war will push President Putin to accept a form of ceasefire followed by a peace deal that lifts sanctions and allows time for Russia to rebuild despite the last three months showing that Moscow will resist until Russia gets what it really wants as it holds the cards. We know 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. (Note: The Kremlin recently emphasized there are no concrete plans in place yet for direct talks between Kyiv and Moscow). It is now apparent that Russia wants the outline of a detailed peace deal agreed before a ceasefire.

Second scenario is based on the war continuing (50% probability) after talks fail since Putin insists on his peace terms. Taking into account that President Trump is not willing to support Ukraine as Biden did, Europe could step up and help Ukraine financially and militarily, but this won’t fill the gap of the U.S. – especially military intelligence.  Additionally, European countries ae more focused on increasing their own military spending to defend the European soil as U.S. support declines. In the meantime, we foresee Ukraine will probably continue to lose more ground to Russia since it lacks military equipment and manpower, with Russia gaining more land and a weaker Ukraine. Europe could try to 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. (Note: Freezing front lines as discussed last week can also happen for some time, but it remains unclear what other demands Putin may present while military experts consider any concessions could be a tactic to draw President Trump into accepting broader Russian terms).

The recent developments demonstrate how complicated the current situation in Ukraine is. Despite President Trump previously expressed confidence the war could end during the first 100 days of his term, it is now impossible. Ukraine continues to highlight it needs security guarantees to end the war though it is now obvious that Ukraine is in a weak negotiating place, and Russia will hardly allow any security guarantees from the West.

Despite the Kremlin being 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 will be dragging his feet to get better peace deal terms before a ceasefire, causing a prolonged process taking months (maybe years) for sealing a full scale peace deal. Taking into account that President Trump has recently made threats about secondary tariffs on Russia oil buyers if a ceasefire is not agreed; we think this could have a real impact and push Russia for a deal. The ball is now in Trump court to either introduce secondary sanctions in May/June; try to muddle through with negotiations or walk away from the Ukraine war in the summer. Muddle through is the most likely option, but the U.S. is unlikely to deliver any extra financial and military aid and Ukraine loses hope with each passing day.