Ukraine War Update: War Continuing Probability is Now at 70%
Bottom Line: Our baseline scenario (70%) is based on the war continuing after talks fail since president Putin insists on his peace terms. President Trump is reluctant to threaten or implement of secondary tariffs on Russia oil buyers, that would really pressure president Putin. The U.S. financing of Ukraine will also likely decrease. Our second scenario is based on a Russia-friendly peace deal (30% probability) with Russia annexing areas in and around four Ukrainian oblasts that it occupied, securing no NATO membership for Ukraine and no foreign troops in Ukrainian territory. We continue to foresee two major scenarios in Ukraine, but decided to change the probabilities we assign for our scenarios, when compared with our last update.
Our first scenario is based on the war continuing after talks fail since president Putin insists on his peace terms. After Trump-Putin call early June, we decided to increase the probability of war continuing to 70% from 50%, considering peace negotiations continue to develop very slowly, and there are no significant moves expected by president Trump such as implementation of secondary tariffs on Russia oil buyers, which could have a real impact and push Russia for a deal. We feel the war will likely continue for a longer period than expected, due to president Putin’s stubbornness, and the U.S. being reluctant to commit new financing and military support to Ukraine as Ukraine remains in a weaker negotiating place.
We continue to envisage if no balance is struck, Europe could step up and help Ukraine financially and militarily. Europe could partly fill the U.S. financial gap for a number of years, but without U.S. military support a Ukraine win will be almost impossible. (Note: European countries will be more focused on increasing their own military spending until 2035 after the agreement during the NATO Summit on June 24-25). Under these circumstances, we think 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.
Our second scenario is based on a Russia-friendly peace deal (30% probability) with Russia annexing areas in and around four Ukrainian oblasts that it occupied, securing no NATO membership for Ukraine and no foreign troops in Ukrainian territory. It is now clear that Russia won’t make any form of territorial concessions in Ukraine, and Moscow wants to retain the territory it has captured so far, including Crimea.
Despite the negotiation process is continuing, the process is going slower-than-expected. 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 first six months during president Trump’s second era 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.
It is worth noting that president Trump said he will consider more military aid including providing more of the Patriot missiles and extra funds to Kyiv during the NATO summit on June 25, but we remain pessimistic about this since the U.S. will only be involved with intelligence-sharing and practical military support but no extra military aid and money which is against president Trump’s MAGA base.
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. Under current circumstances, 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.