Ukraine War Update: The Struggle for Western Support

Stalemate at the Front Line Due to Winter, Drone Attacks Dominate

The sharp winter conditions in Ukraine have decelerated the pace of the war, as the bad weather created problems for both of the sides. The offences at the front lines remain weak, and it appears the number of drone attacks have increased. To illustrate it, Kharkiv regional governor Syniehubov reported on February 10 that a Russian drone strike on a petrol station in Kharkiv killed seven people.  Russia announced the same day that it had repelled an attempted Ukrainian drone attack on Russian civilian transport ships in the southwestern part of the Black Sea.

Ukraine President Zelenskiy Appoints New Senior Military

President Zelenskiy recently requested commander of Ukraine’s armed forces Zaluzhnyi to step down, citing the need for the renewal in the army. Zaluzhnyi has been replaced by Col. Gen. of Land Forces Syrskyi who successfully defended Kyiv early in the Ukraine war. Zelenskiy has also appointed Pavliuk, former first deputy defence minister, as the new commander of Ukraine’s ground forces. Despite Zelenskiy announcing five senior military appointments, we do not foresee a major shift in Ukraine’s battle plans following new assignments.

Support to Ukraine from Western Block

EU leaders unanimously agreed on February 1 to extend EUR50 billion (USD54 billion) in aid for Ukraine’s recovery, reconstruction, and modernization for 2024-2027, overcoming resistance by Hungary. According to the EU Council’s formal announcement, the total budget of EUR50 billion for the Ukraine Facility will be split between EUR33 billion in loans and EUR17 billion in grants while the Facility is structured in three pillars: Pillar I requires the government of Ukraine will prepare a Ukraine Plan, setting out its intentions for the recovery, reconstruction and modernization of the country and the reforms it plans to undertake as part of its EU accession process. According to the Pillar II, the EU will provide support in the form of budgetary guarantees and a blend of grants and loans from public and private institutions under the Ukraine investment Framework. The Pillar III sets the framework for the Union accession assistance and other supporting measures helping Ukraine align with EU laws and carrying out structural reforms on its path to future EU membership (here).

Despite Ukrainian officials continue to underscore that the country is in need for funding and military support from the Western Block, it appears EU's EUR50 billion is not going be adequate to meet Ukraine’s needs, particularly the International Monetary Fund (IMF) estimates Ukraine's funding gap at more than USD40 billion in 2024 alone. In a similar vein, the World Bank predicts the country’s long-term needs for reconstruction will be around USD411 billion.

Another plan being considered by the Western Block to increase funding to Ukraine is to confiscate Russia assets worth over USD200 billion that were frozen mainly in the EU, taking into account this amount would come as a big relief to Ukraine’s long term needs and would not be through EU’s own budget. We think execution of this plan will not be straightforward since Germany, France and Italy continue to oppose this as they’re worried about the legal and financial consequences, including scaring Eurozone investors, and that it would prompt Putin to retaliate with cyber-attacks.

More importantly, it seems the support from the U.S. also remains questionable despite the U.S. Senate advancing a wartime aid package for Ukraine on Feb. 8. We foresee this will likely fail in the House so Ukraine is unlikely to get the fiscal support. (Note: According to our U.S. economist Dave Sloan, the House may never make a decision as the speaker Johnson would have to call a vote, and he seems reluctant to do so unless the majority of Republicans push for it. If a vote is called, we think it would pass with most Democrats and a significant minority of Republicans backing it. However Republican hard liners have threatened to push for Johnson’s removal if he does so).  

Putin’s Recent Interview with Carlson Reveals His Foresights

In his first interview with a Western reporter since the war in Ukraine began, Putin made statements to Tucker Carlson on February 9. First, Putin indicated that Russia has no interest in wider war (such as with Poland and Latvia), and he thinks Russia and Ukraine will come to terms sooner or later. Speaking about a possible peace deal, Putin mentioned that “ We are not against a peace deal. It would be funny if it were not so sad that. This endless mobilization in Ukraine, the hysteria, the domestic problems, sooner or later it will result in an agreement.” 

The message by Putin to the U.S. was worth mentioning: “If you really want to stop fighting, you need to stop supplying weapons. It will be over within a few weeks. That’s it,” Putin claimed, adding that it was up to the U.S. to tell Ukraine to come to the negotiating table. As expected, Putin also emphasized that he had enjoyed a personal relationship with the former U.S. president Trump, referring his good relations with former president.

2024 Elections will Set the Scene in Ukraine

We think the U.S. presidential elections would set the scene in Ukraine in the near future and we envisage the former U.S. President Trump would not be expected to provide firm backing for Ukraine, if elected. In case Trump is reelected as the new U.S. president, this could also severely split western support (e.g. recent threats by Trump to NATO) and may quickly lead to a Russia friendly peace deal with current land lines. Europe would step up military support if a president Trump curtails support, but it would likely be modest given disagreements within the EU.

One most recent development on the U.S. and NATO relations has been the suggestion by Trump on February 10 that the U.S. might not protect NATO allies who aren’t spending enough on defence from a potential Russian invasion. Following Trump’s statements, NATO Sec. Gen. Jens Stoltenberg said on Feb. 11 that these types of expressions undermine NATO’s security and puts U.S. and European soldiers at risk. Stoltenberg added that “Any attack on NATO will be met with a united and forceful response.”

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 as Putin hopes Trump is reelected U.S. president and splits western support and leading to a Russia friendly peace deal with current territories. If this scenario will not materialize, the war will likely remain a stalemate for a longer time without a peace deal if the support from the EU remains limited and U.S. financial support is questionable.