The Arkin Group

May 26, 2022

Ukrainians remain optimistic in the fight against Russia, but as the war enters its fourth month Ukrainians, Russians, and many of the world’s citizens are feeling the human and economic toll. Over the past several weeks, Moscow has shifted its focus to eastern Ukraine and with 40 towns in the Donbas now under Russian fire, the region is facing extensive devastation. Outside of Kyiv and in the north where Russia has withdrawn, mass graves continue to be discovered and it’s increasingly clear the Russians see civilians as ready collateral. According to the Ukrainian Prosecutor General, there are more than 11,000 ongoing war crimes cases in Ukraine with 40 suspects already identified. This week, the first Russian soldier who was tried for war crimes in Ukraine was found guilty and sentenced to life in prison for killing an unarmed civilian. This sets a precedent for what’s to come and demonstrates Ukraine’s critical effort to document the violations and secure an accurate historic narrative for the world to see.

But Putin is trying hard to control the narrative and continuously blames the West for the disaster he’s created. As a global food crisis looms, Putin’s blaming sanctions for the shortage even while preventing Ukraine from exporting some 22 million tons of grain via the country’s Black Sea ports- many of which are reportedly heavily mined. US Secretary of State Blinken has repeatedly stated that food, fertilizer and seeds are exempt from sanctions, but this week Putin demanded that sanctions be lifted before he’ll make any changes. International pressure to get the ports open is increasing, but North Africa, the Middle East, and Africa, regions anticipated to suffer the worst from the shortage, are home to many of the same countries supporting Putin on the global stage. There’s a political misalignment happening, and if the situation isn’t resolved soon, the Ukrainian summer harvest will also be wasted, exasperating the global shortage and further plummeting Ukraine’s economy.

Further, China and Russia continue to show an overtly united front against their mutual adversaries. On Tuesday, the two nations held joint military exercises over the seas in northeast Asia while President Biden was visiting the region and meeting with Quad Security Dialogue members India, Australia, and Japan. Putin and Xi were likely trying to make a statement that they’re still strongly aligned, which is further corroborated by the consistent regurgitation of Russian propaganda throughout official Chinese state media channels. Regardless of these official efforts, the Russian narrative is a shaky one, and we’re starting to see dissent in some of the Russian military and diplomatic ranks. And while specific estimates vary, the significant number of Russian casualties since February could lead to a serious morale issue among troops, and cause increasing public dissatisfaction with the war back home.

May 19, 2022

Mariupol is a hard fought and pyrrhic victory for Russia because by all accounts the war is going poorly for Putin and further entrenching him with the consequences of his strategic blunder. While vigorously celebrating its control of Mariupol, Russia has publicly scaled back its ambitions once again and is now trying to secure only a portion of eastern and southern Ukraine rather than the whole of it. By reliable accounts, Russia has lost nearly a third of the forces that it originally committed to this “special operation”, which have been plagued by poor moral, equipment breakdowns and malfunction, inadequate training, and dysfunctional command and control. At a wider level, more and more companies are withdrawing permanently from Russia – including McDonalds, Siemens, and Renault. U.S. and European Central Banks seem poised to allow Russia to default on its debt for the first time since 1917 and as time passes the effects of massive sanction efforts are taking hold. Whether Hungary’s Orban keeps the EU bloc hostage from imposing a bloc-wide ban on Russian energy, nearly all E.U. countries have begun their transit away from Russian energy. And Finland and Sweden have now formally applied to join NATO, which despite Erdogen’s sturm und drang will move forward.

Ukraine is taking steps to rebuild even while the war rages on. This week the US Senate voted to deliver more than $40 billion in military and humanitarian aid to Ukraine, and the US Embassy reopened in Kyiv nearly three months after American diplomats were withdrawn. Ukrainians are making efforts to start rebuilding Kharkiv and Bucha, areas devastated by the Russian military in recent weeks. In addition, thousands of Ukrainians are reportedly returning to Kyiv after fleeing during the early days of the war. This enthusiasm to recover is not tempered by senior US officials’ caution that Moscow’s shift to the Donbas could be temporary.

Indeed, it looks like Russia may be doubling down on its information war to caste its own version of events to its citizens that remains untethered to reality. While the stalwart soldiers from the Azovstal Steel Plant are carted off for a show trial in Russia to advance Putin’s narrative that he is de-nazifying Ukraine, the facts on the ground reveal the reality. Even this effort will be hard to sustain as at the same time, Ukraine has begun its own war time war tribunal and Human Rights Watch reports that they have independently verified myriad reports that Russian soldiers have perpetrated a series of war crimes including summary executions, unlawful killings, enforced disappearances and torture. Also the head of the UN Food Program has said that Russia will be weaponizing food if Putin does not allow the reopening of Ukrainian ports where tons and tons of food are languishing and millions across the world could die. Nevertheless, Putin is likely to continue to persist in Ukraine to his own detriment.

May 12, 2022

Putin’s Victory Day speech carefully avoided any indication of escalation, but also didn’t mention any end to the fighting. Putin’s much-anticipated Victory Day speech on Monday revealed nothing new to thousands of Russian servicemen in Red Square and the rest of the world watching for escalatory language. The speech, which focused heavily on Russian operations in Donbas, espoused the same propaganda and rhetoric that Putin’s been using for years, wrongfully asserting that the people of Donbas needed Russians to rescue them. What he didn’t say revealed that Putin has no clear plan on an exit strategy. Instead, this week Russian troops were still trying to claim Mariupol, diverting European gas for their own use, and retreating from the region of Kharkiv to redeploy elsewhere ‒ a tacit admission that Russia is finding it exceedingly difficult to occupy Ukrainian cities.

Moscow continues to blame the United States and NATO for Russia’s incurring losses, with the former president of Russia warning that NATO military assistance for Ukraine increases the likelihood of a “direct and open conflict between NATO and Russia.” But this threat hasn’t deterred those who stand against Russian brutality, and Moscow’s atrocities are further solidifying its opponents ‒ especially as Ukrainian prosecutors prepare to launch the first war crimes trials of the Russian conflict. Notably too, this week Finnish leaders announced they’d seek NATO membership for their nation right away, and Sweden could be next.

The United States and its European allies will continue to provide Ukraine with aid and certain intelligence regardless of Moscow’s disdain. EU nations have taken a hard stand against Russian oil, but Hungary is preventing an EU Russian oil ban. It’s also uncertain how China will continue to respond and there are reportedly rumblings among policy makers within China questioning the value of a weak Russian partner.

As the war drags on, further grinding down Ukraine and Russia, the trajectory of global energy costs, food shortages, and general economic instability will influence how countries respond to Moscow’s aggression and force them to reassess their own geostrategic positioning. This strategic ambiguity is prompting widespread and often indirect system effects, as evidenced by recent political conversations regarding a restructuring of international oil markets around a cartel of consumers, as well as the near collapse of the Egyptian, Sri Lankan, and Lebanese economies.

May 5, 2022

While the short-term outcome of the Russia-Ukraine war remains uncertain, the extent of atrocities committed by the Russian military, the strength of the Ukrainian resistance, and the war’s impact on the global geopolitical order have already been established. Russia continues to make some advances in Ukraine, including taking over the communication airwaves and switching the currency to the ruble in the Donbas, but Moscow is suffering heavy losses in personnel and equipment, and most likely morale. Russian military advances remain slow, and they’re regularly thwarted by Ukrainian air defenses and missile attacks where Russian missiles seem to be failing at alarming rates.

Moscow is now blaming its military failures on the United States and NATO, noting the impact of Western intelligence transmitted to the Ukrainians, and has “warned” NATO that transport carrying weapons to Ukraine are a target. But this doesn’t indicate a policy shift and only serves to demonstrate how inept Moscow’s been at hitting these targets thus far. Springtime conditions are also anticipated to be more difficult for the Russians, replete with muddier terrain and less energy dependence for heating Europe.

Indeed, the longer the war draws on, the harder it’s going to hit the Russian economy. This week, the European Commission proposed a ban on Russian oil and oil products by the year’s end, and Russian production could become seriously stifled as finding alternative markets is logistically lengthy and costly. Further, international sanctions against Russian businesses, leaders, and banks are continuing to multiply and their effects are starting to settle in.

As Russia’s Victory Day approaches on May 9, it’s uncertain if Putin will take the opportunity to try to declare a false victory in Mariupol or instead pronounce a full declaration of war that would allow him to mobilize Russian military reserves. While the reserves are estimated at about two million, the number of actively trained or prepared soldiers is likely only in the thousands, and a movement to mobilize reserves, or draft or extend conscription for those currently serving, could backfire and send the message to the Russian public that Putin’s operation isn’t going according to plan.

Either way, outside of the immediate region, the war has already reconstituted political alliances and will have a longstanding impact on geopolitics. On Thursday, South Korea’s spy agency became the first Asian group to join NATO’s Cyber Defense Group, seemingly disregarding any retribution from China on the collaboration. Israel might consider shifting from a neutral stance due to blatantly anti-Semitic rhetoric coming from the Kremlin, and Turkish arms sales in places like the Philippines are surging.

The evolving, knock-on effects of the war are also impacting international business operations and elevating the importance of risk-assessments. Notably, countries in the Asia Pacific are boosting defense expenditures at the same time investors are trying to understand how defense purchases fit into the Environmental, Social, Governance (ESG) framework. Given the unstable and unpredictable operating environment surfaced by Covid-19 and exasperated by the Russia-Ukraine war, resiliency is a key concern for both the private and public sectors.