An Enormous Miscalculation Looms in Ukraine

by Greg Valliere, AGF Management Ltd.

Insights and Market Perspectives

DELUSIONAL THAT UKRAINIANS WANT to rejoin mother Russia, determined to stop an unlikely NATO surge eastward, Vladimir Putin could soon find himself bogged down in a bloody guerrilla war that will not end quickly.

WE HAD THOUGHT that a package of carrots and sticks would convince Putin to simply stay near the border and engage in cyberwarfare. That’s still an option, but it’s a dwindling option.

THE BEST OVERVIEW THIS MORNING comes, as usual, from veteran columnist David Ignatius, writing in the Washington Post. Russian troops could sweep to Kyiv in a matter of days, he writes, after a massive ground, air and sea assault, accompanied by cyberwarfare and targeted assassinations.

THEN PUTIN’S PROBLEMS WOULD BEGIN: “Russia’s economy would be squeezed tight by sanctions; its business and political leaders would become international pariahs; and much of the wealth Putin and his chums have accumulated would be frozen,” according to Ignatius, who has spent time in Ukraine this winter.

MORE IMPORTANTLY, “If just 10 percent of Ukraine’s 40 million people decided to actively resist occupation, they would mount a powerful insurgency,” Ignatius writes. The vast majority of Ukrainians despise Putin — and millions of patriots would resist, most analysts agree.

A PROTRACTED STRUGGLE would raise two fundamental issues that Putin eventually would have to confront: what’s the end game in an occupied country that hates him? And would his political support in Russia begin to fade as casualties mount and his economy staggers?

THERE’S STILL A GLIMMER OF HOPE in the wake of meetings Putin held with Emmanuel Marcon, who has planted some “seeds of reason,” Russian officials say, on security for all of Europe. And Joe Biden has been surprisingly aggressive, unifying not only NATO but Democrats and Republicans, most of whom support a harsh U.S. response.

THERE’S STILL AN “OFF RAMP” of modest concessions that could avoid huge casualties and global economic disruptions such as surging grain and energy prices, volatile stocks and bonds, etc. The economic impact of a war would be most apparent in Russia, as Moscow loses access to Western financial institutions and technology.

THE GREATEST IRONY is that Putin, who needlessly fears a stronger NATO and a threat from the West, will automatically get that outcome — and then some — if he miscalculates and invades Ukraine.

The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.

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This post was first published at the AGF Perspectives Blog.