Ukraine War Update: What is Next in Ukraine under New Trump Administration?
Bottom Line: After Trump was elected for his second term, we foresee two major and one alternative scenario in Ukraine. Our first scenario is based on a negotiated settlement backed by the Trump administration, which could help Russia to gain assurance of no NATO/EU entry in the foreseeable future for less than current territories (i.e. 10%-15% of Ukraine territory). As a second scenario (25%), Trump significantly cuts military and financial support to Ukraine immediately, and forces Ukraine for a Russia-friendly peace deal based on current territories and Russia occupying around 20% of Ukraine’s territory. This would also include no NATO/EU entry in the foreseeable future. Our alternative scenario (20%) sees a prolonged war after ceasefire talks fail since Putin insists on his peace terms (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 risks posed by the sanctions. If an effective peace deal is signed, both Ukrainian and Russian economies will feel the relief. For global markets, oil and commodity prices will soften, and supply chain problems in the region will start to ease off helping global trade in the medium term – assuming some relaxation of sanctions on Russia.
Figure 1: Possible Scenarios
Ukraine War Under Trump Could See a Ceasefire and Potential Peace Deal
Despite the stalemate at the front lines, both Ukraine and Russia try to gain negotiating power before the start of ceasefire and then peace negotiations which are more likely during Trump’s second term. By the time Trump takes office, the situation in Ukraine including the territorial advantage held by Russian troops is likely to have changed. It appears nearly two months between now and Trump’s inauguration on January 20 will be critical particularly taking into account that Russia continues to intensify its counteroffensives. Ukraine’s army chief recently mentioned that Ukrainian forces are facing -one of the most powerful Russian offensives since the start of the war on the frontlines-, showing Russia’s militancy.
Trump consistently said his priority is to resolve the conflict in Ukraine -within 24 hours- of taking office in January and stem the drain on U.S. resources, but he didn’t specify how. Under current circumstances, this timeline is unrealistic and there is still uncertainty around the Trump administration’s withdrawal of support for Ukraine. Three scenarios are outlined in Figure 1.
Under the first scenario, we foresee a ceasefire which can turn into a negotiated peace deal (50%). Both Russia and Ukraine are exhausted and willing to consider a ceasefire and some form of peace discussions. However, the timing of Trump’s intervention remains unclear, as Trump will be most focused on his priorities of immigration, tariffs, and tax cuts. Under this scenario, U.S. would continue its weapons supply to Ukraine, and make the support conditional on Kyiv entering peace talks with Russia. We feel that the U.S. administration will not be soft on Russia for fear it could show Donald Trump as weak - China hawks will warn Donald Trump that this risks China trade negotiations. Finalizing peace deal talks can take longer than expected, maybe years, after a 2025 ceasefire. Russia will likely have to accept withdrawing from some parts of Ukraine and Ukraine will regain control of some lost territory, likely in Kherson and Zaporizhzhia. This would be in exchange for Russia securing that Ukraine does not join NATO and EU in a foreseeable future. This is the most likely option as it allows some face saving on all sides.
For our second major scenario, we attach a 25% chance to see a Russia-friendly peace deal based on current territories, and Russia gaining around 20% of Ukraine’s territory. Under this scenario, Trump cuts military and financial support to Ukraine immediately, and forces Ukraine towards a ceasefire and peace deal negotiations – that could last months or years.
After Trump splits Western support and the U.S. withdraws its new support from Ukraine, it appears the fate of Ukraine will depend on the EU. It remains questionable for now whether the EU would accept any possible peace deals or feels abandoned by the U.S. We envisage EU could step in to fill some of the U.S. gap, but large and enduring financial burden could likely cause problems over sustainability of EU support for Ukraine, pushing EU towards accepting a Russia-like peace deal. Taking into account that Ukraine can’t win the war without the U.S. support, we feel Ukraine will be obliged to end the war. Putin will attain his goal of weakening Ukraine and ensure that Ukraine not joining NATO and EU in a foreseeable future. A peace deal under this option is less likely as Ukraine/EU/UK would be reluctant, though it would likely prompt a ceasefire.
In our alternative scenario, we think there is a 20% possibility that ceasefire talks fail since Putin insists on his terms, putting Ukraine in a dilemma causing no peace deals signed, and war continues with pace. Ukraine could face stronger Russian offensives than before if Putin is not satisfied with talks, and war would prolong until Putin says it is over.
Western Long Range Missiles Authorization Created Tension but Nuclear Exchange Remains Unlikely
After the West authorized Ukraine to strike targets within Russia with long range misses and Ukraine fired U.S.-supplied ATACMS and UK-supplied Storm Shadow missiles to Russia, Russia has responded by relaxing protocols for use of battlefield nuclear weapons and have launched a new hypersonic ballistic missile, targeting critical infrastructure in the central Ukrainian city of Dnipro. While the west has restrained from discussing nuclear options to avoid major escalation, it seems the West is not willing to stop the use of long-range missiles. According to ISW, Putin explicitly threatened that Russia may attack Western countries that support Ukrainian deep strikes in Russia and rhetorically connected the November 21 ballistic missile strike to Russian nuclear capabilities – this is a marked intensification of an existing Russian information operation that aims to use explicit threats and nuclear saber-rattling to discourage continued Western military support for Ukraine while we feel Putin’s statements does not show Russia’s likeliness to use a nuclear weapon. This is all likely to be posturing before a ceasefire discussion, though accidental escalation cannot be ruled out.
Figure 2: The Military Situation in Ukraine, November 23
Source: Institute for the Study of War (ISW)