Despite rumors of a possible summit meeting between Presidents Biden and Putin, many signs point to the imminent start of what could end up a substantial war along the European border. In the narrowest of terms, the outcome is not in doubt – Russian military forces will easily overcome Ukrainian resistance, and Moscow will be able to achieve its military and political objectives in short order. The military objectives include the destruction of large portions of the Ukrainian military, the occupation of key territory likely in the east of the country, and either surrounding and/or occupying Ukraine’s capital, Kyiv. The political objective, overthrowing the current Ukrainian government and replacing it with one beholden to Russia, is highly likely to take place as well.
The United States and Europe have made it clear that such an invasion will result in massive economic sanctions against Russia. Many Ukrainians – civilians and military – will die in the fighting, Ukrainian infrastructure will be destroyed, or damaged, and large numbers of refugees will flee to European Union states. All of this could occur within the first week if not days of high-intensity warfare. The question is what comes next and how will it affect global markets and the security situation in Europe and beyond.
In part this is a question of whether and how the conflict escalates, even if only on the economic and non-kinetic military front. On the military front, it is possible that Ukraine keeps up resistance, if only in the form of an insurgency, for quite some time. If the United States and/or European states support that insurgency with arms and supplies, then there is a chance for greater escalation with Russia threatening and/or attacking European territory such as crossing points, ports and/or airfields.
Even without this possibility, Russia could choose to respond to western economic sanctions with its own economic tools – cutting off supply of commodities from Russia and/or Ukraine to the west. ESAI Energy believes this would not initially include crude oil or petroleum unless or until the situation for Russia became quite desperate. More likely retaliation would start with key minerals and agricultural products from Ukraine. While Russia would lose in the short run (as would the west when it sanctions Russia), Putin may calculate that Russia – with $630 billion in foreign reserves on hand – can outlast the west or enough of the west for some to start easing sanctions.
Moscow could also use its cyber and information warfare capabilities to target European economic and political infrastructure, leading to disruptions and, it hopes, internal dissention about continuing sanctions against Russia. If the west’s initial sanctions are as significant as has been threatened, it is not clear what it could do in response to Russian escalation other than reply in kind using cyber and information tools. It is not clear when or how such a back and forth ends or finds an equilibrium.
On the political-military front, such a war – and tit-for-tat application of sanctions – will mean a much more militarized Europe. The United States will significantly increase its defense budget (there are already hints that the Biden administration’s FY 23 budget request will increase defense spending by 10%), and most European NATO allies will follow suit. The United States will increase the size and frequency of both permanent and rotational ground, air, and naval forces in Europe.
This means less capacity, in the short-to-medium term – available for either Middle East contingencies and for competition against what Trump and Biden administrations have identified as the most significant challenge to U.S. and western interests – a rising and increasingly bold China. While all wars must and do end eventually, even a very rapid Russian victory over Ukrainian military forces does not mean that the broader political and economic conflict will end soon or at low cost.