by Greg Valliere, AGF Management Ltd.
Insights and Market Perspectives
PHOTOS OF VLADIMIR PUTIN with a blanket covering his legs, then limping at the World War II remembrance yesterday, have reinforced doubts about the Russian president’s health. His rambling speech seemed equally troubling; it resolved nothing.
MOST GEOPOLITICAL ANALYSTS BELIEVE Putin has no end-game in the bloody war with Ukraine; he doesn’t want a massive draft of conscripts; nor does he want to bargain seriously for a truce. His forces are close to bogging down in the Dombas, as his tanks and aircraft dwindle; his air force is in tatters.
SO — WHAT HAS CHANGED? We would argue a big change is in Washington. The Biden Administration, slow to react initially, is in overdrive — announcing new aid to Ukraine virtually daily. A $40 billion Ukrainian aid package — a huge plus for U.S. defense contractors — could be approved by Congress this week.
THIS RAISES A KEY ISSUE: Is the U.S. becoming more overtly involved in the war? Sources we’ve talked with in both parties believe there has been a fundamental shift: the U.S. is in this war to win, as is President Volodymyr Zelensky. Neither Biden nor Zelensky will settle for a face-saving truce.
BUT IT COULD TAKE MONTHS or longer for a resolution, which means acute shortages of food, fuel, fertilizer and raw materials will persist into the fall and beyond — still another source of inflation that will not subside any time soon.
A PROTRACTED WAR COULD BECOME EVEN MORE UNPREDICTABLE: Putin looked smaller than his generals yesterday; he appeared almost frail — and speculation about his health may increase. We think there are three options:
1. Putin declares victory and gradually withdraws, perhaps while hanging on to a sliver of eastern Ukraine.
2. Putin doubles down and uses even more potent weapons like the hypersonic missile that Russia apparently fired yesterday. Tactical nuclear weapons can’t be ruled out, but his generals don’t want them used near their troops.
3. Regime change, as Putin’s decimated and humiliated military removes him from power, perhaps citing health issues.
WE’RE BETTING ON THE LATTER but unfortunately that could be months away. Yet it’s probably coming; his own generals — and the Russian intelligence community — know that the little man under the blanket is ruining Russia for years to come.
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This post was first published at the AGF Perspectives Blog.