Weekly Overview Cables - Ukraine War Updates, Putin talks openly about his calculations on Ukraine.

(* Hamas’s terrorist attack on Israel, implications, and Iran angle will be unpacked separately on Thursday’s cables)

Ukraine War Updates.

• 1) Ukraine makes progress -Russia targets civilians

• Ukraine made further progress in its counteroffensive in the Bakhmut and Zaporizhzhia axis.

• In the meantime, Russia targeted a small village (attending a wake for fallen soldiers) with cruise missiles - killing 51 civilians.

• There were no military targets in this village - this was a deliberate massacre of a defenseless population.

• 2) Abkhazia to get a Russian Navy base.

• The leader of Abkhazia, a breakaway region of Georgia, has announced an agreement with Putin to grant Russia permission to establish a naval base in the Black Sea - in the Ochamchire district.

• This decision comes in the wake of multiple Ukrainian assaults on Russia's fleet in Sevastopol.

• Indeed there are also reports that - as a consequence of successful Ukrainian missile strikes - the Kremlin has withdrawn the bulk of its Black Sea Fleet from its main base in occupied Crimea.

• Two things to note;

• a) A side-bonus of this move for the Kremlin, is a message to Georgians not to get their hope up in relation to a return of their own breakaway territories of Abkhazia and South Ossetia - a lot of Georgians were encouraged after Azerbaijan’s success in re-establishing control over its own territory in Karabakh.

• Russia’s naval base in Abkhazia is a reminder that the region is strategically valuable to Moscow, and is not going back to Georgia anytime soon.

• b) Abkhazia is not a real state recognized by the international community - for all intents & purposes, it is a Russian territory and thus a legitimate military target for Ukraine.

• Kyiv should not therefore shy away from striking any future naval bases in Abkhazia (although one hopes that the war in Ukraine will be over by then..).

• 3) Ukraine needs a one-off major support bill.

• With speaker McCarthy ousted by an initiative from a Putin fanboy Rep. Matt Gaetz, (who, along with other lunatics like Marjorie Taylor-Greene or Lauren Boebert, have little interest or expertise in actual policy, governance, or statesmanship) the house is in political chaos - the continuity and consistency of economic support for Ukraine is also therefore, in great peril.

• These cables have long called for Biden making a national security/American interest case for supplying Ukraine with funds and weapons to resist the Russian invasion.

• And it looks like this is finally going to be done.

• Some analysts have furthermore argued that Biden’s decision to allocate resources to build a wall at the southern border could help in reducing resistance to Ukraine aid.

• The logic is this: if the US allocates appropriate funds to deal with its own emergency, the funding for Ukraine will face lesser resistance.

• Maybe.. But not very likely - also, erecting proper barriers at a southern border should have happened no matter what else is going on in the world.

• But this frame of negotiating tit-for-tat with the far right faction of the GOP misses the underlying point that their opposition to Ukraine is not rooted in a genuine concern for ‘‘taxpayers’ money”.

• They don’t really care about numbers - most of them don’t even know the precise figures at play here.

• That the bulk of the cost is now being fronted by allies in Europe is also not very relevant to them.

• No, the fundamental truth is much uglier than that: they actually want Putin to win.

• This is certainly a big claim to make, but one that many of you know intuitively is true.

• The most ardent members of the Trump base, and their few (and yet, disproportionately influential) reps in Congress are absolutely in love with Putin.

• All of this is to say that Biden must focus on the segment of population that: 1) still sees Ukraine winning/resisting an invasion as a desirable outcome, and 2) nevertheless, is still concerned about: a) money well-spent, b) viability of success/avoiding the forever war, c) threat of escalation.

• It is this segment and not the hard-core Putin fanboys that need to be persuaded in favor of remaining in support of Ukraine.

• Consequently, the half-measures and painfully negotiated ‘‘compromise’’ funding bills will not do.

• In parallel to convincing the bulk of the US population that there are strong national security interests involved in Ukraine, the Biden admin must also push for a major one-off funding bill that would cover the cost of war until at least 2025.

• This will not only be the most pragmatic/prudent measure, but one that will also send the strongest signal to Putin that the US resolve is not fraying, and that the time is not on Russia’s side.

• 4) Putin makes wild claims on the Prigozhin assassination.

• When asked about the potential cause of Wagner leader Prigozhin’s plane crash, Putin appeared to imply the plane crashed due to the Wagner leadership getting drunk/high on cocaine and setting off hand grenades during the flight.

• (side note: in spite of the widely known fact that Prigozhin and his closest commander Dmitriy Utkin were known for their abstention from alcohol, and a strict policy that no alcohol was to be allowed on their planes - so that the focused time could be used for the business of planning some coup/war crime/blood diamond trade in some African state)

• Right.. that settles it then.. case closed!

• A lie so preposterous that it must be believed! (to paraphrase the infamous Nazi propagandist Joseph Goebbels).

• Or perhaps: a lie so obvious that Putin being able to utter it with no concern for repercussions is in itself a show of power.

• But, this is surely too much…

• Surprising that Putin did not claim that the plane crashed after pilot fell off a cockpit in mid-flight: an even more fantastical lie but one that (in spite of being physically impossible) would be in line with other incidents where Putin naysayers somehow always fall off balconies in mysterious circumstances…

Putin reveals his strategy for Ukraine.

• These cables have long argued that Vladimir Putin is pursuing a rather simple yet not at all irrational or - given latest signals from the West - improbable strategy in Ukraine: outlasting the West’s will to back Ukraine.

• Western leaders promise to back Ukraine for as long as it takes (it is even an official G7 statement from this summer).

• But Putin is unconvinced - he is calling our bluff, and recent events feed directly into his confirmation-bias seeking brain.

• Now, many in the West have started to call for an end to help for Ukraine without any alternative policy to take its place - they simply don’t care to even come up with an alternative strategy.

• Others are arguing that reducing or ending Western military support for Ukraine will somehow lead to ..Ceasefire? Armistice? Even peace?

• Of these two factions, the former is at least sincere in its stance: Putin fanboys simply don’t care.

• The latter faction attempts to look wise, and measured, and pragmatic, but yet, fails to establish a causal link between the end of Western military help and end of military conflict in Ukraine.

• (side note: that is, unless the causation is this: letting Ukraine fail and succumb to a Russian invasion)

• Why exactly would Putin not resume his invasion and take over the rest of Ukraine/attempt a regime change (as per his original plan) is left unexplained.

• There is this assumption that somehow, Putin will back down and end the war out of a desire to reciprocate goodwill?

• This is comical and absurd, and we have been highlighting the absurdity of it all for some time now.

• But to those that still doubted our analysis, they should listen to Putin himself.

• In an annual ‘‘intellectual discussion summit” at Valdai, (Russia’s wannabe alternative to Davos), Putin participated in yet another marathon live Q&A, during which (and in answer to a question on Ukraine war) Putin uttered the following key remark:

  “...if Western defense supplies are terminated tomorrow, Ukraine will have a week left to live as it runs out of ammunition. [emphasis added]"

• These are truly chilling remarks revealing Putin’s ultimate intent.

• Notice what he did not say.

• He did not say that the conflict would de-escalate and that Russia would have a reason to negotiate in earnest on how to resolve this conflict.

• Nope - of course not, and thank god that he did not: we would have his fanboys in Congress and on Twitter calling for an immediate end for supplies of arms.

• Elon Musk would be back at it again with his elementary understanding of the war in Ukraine - not shying away from uttering further nonsense.

• It is great that he did not pretend (and not through lack of political skill - he simply cannot reverse his rhetoric and course on Ukraine after 19 months of war. He needs more to show for all that effort), but that’s not all, Putin did not even show enough care to appear measured in his response.

• He could, for example, say that “Ukraine would be unable to conduct any offensive military operations against settlements in Donbas” or even “Ukraine would be in no position to fight”.

• No, instead of all that, he said something even more sinister: that Ukraine “will have a week left to live”.

• Are there any more remaining questions around Putin’s intentions in Ukraine?

• Are there any more neophytes and wannabe geostrategists arguing in favor of ‘‘prudent’’ and ‘‘responsible’’ policies that ultimately call for the termination of Western military aid?

• Do these people realize now how Ukraine’s survival hangs in the balance?

• Is it clear now that Ukraine is fighting for survival?

• Is it not obvious that if the conflict was somehow frozen as of right now (with Russia gaining additional territories/17% of Ukraine), that Putin would simply wait, recoup, and re-launch his invasion at a more opportune time?

• (side note: sure, Ukraine would be getting help/arms in the meantime as well, but not at the pace of Russia regrouping for another invasion. Here is a simple heuristic to prove this reality: if the West is struggling to provide enough advanced weapons/armaments right now - at the most active phase of war - it is inconceivable that the preparatory aid will match that of Russia’s planning for another invasion)

• So that is what Putin thinks - he is betting on cracks in Western support for Ukraine.

• And to be clear, he is not wrong in his conclusion - perhaps there is a bit of hyperbole, and Ukraine would survive for several months (not weeks), but the overall trajectory is correct: without Western support, Ukraine as a state, will not survive Russia’s invasion - this much is clear.

• What is less obvious however (but not less important), is that the rate of Western aid vs Russian scrambling to throw the kitchen sink into Ukraine matters a lot as well.

• This drip drip slow process of approving important military gear for Ukraine has to end.

• Ukraine has now fought Russia for 19 months, but (mere 31) Abrams tanks are only now being shipped to Ukraine, ATACMS (probably, not in revolutionary numbers) are only now being delivered to Ukraine, and Kyiv is still fighting this war against a mobilized Russia with advanced air force (only to be matched/bettered by the US, China, and perhaps Turkey/France/UK) without a modern fighter jet - they are yet to receive F-16s.

• But, and this is crucial, if the West was to show actual will to back Ukraine with sufficient decisiveness and desire to let it win, then the time would most definitely not be on Russia’s side.

• Putin’s rosy bet vs reality of difficulties ahead for Russia.

• Putin is a master of appearances, and unlike the West (busy infighting over funding and refusing to send weapons over petty issues like grain imports from Ukraine), Russia is trying very hard to appear as if the time is really on its side.

• The frequent defense minister visits to and from Iran, and theatrical displays accompanying Putin’s meeting with Kim Jong-Un at Vostochny Cosmodrome space launch facility, aim to drill down the message that the Kremlin has successfully recruited outside powers to act as their own pipeline for crucial armaments - all serving to act as a further signal of the futility of resisting Russia’s campaign in Ukraine.

• But, is time really on Russia’s side?

• In answering this question, we need to consider two alternative scenarios:

• Scenario 1: The Western military aid either continues at its current pace, or even increases in both magnitude and intensity.

• Scenario 2: The Western military aid starts to dwindle by late 2024 and early 2025, and Ukraine faces more pressures ‘‘to negotiate” (meaning: accept defeat, give away land to Russia, and reward Moscow for its invasion).

• Things are simple under scenario 2: Putin’s bet will pay off, and time is definitely on Russia’s side.

• Under scenario 1 on the other hand, it is very hard to see how passage of further time could be in Moscow’s favor: simply put, if Russia could not muster enough strength to invade territories further west than Donbas (and even fail to defend and lose Kharkiv and Kherson) after the first 12 months of war (when Ukraine did not come into possession of most advanced weapons that it is about to get, and Russian troops were fresh, its most experienced units intact, and when it could supply its own artillery shells/missiles without having to rely on rogue states like Iran and North Korea), then it is hard to see how Russia would win at the current trajectory.

• Indeed, Putin needs to have his fanboys in Congress and in various EU states to pull together a formidable opposition against arming Ukraine any further.

• Without this, and no matter how much Iran or North Korea helps out, the strain on Russia’s coffers will start to become unbearable - leading to all sorts of unforeseen negative implications.

• That which cannot go on forever, will at some point have to stop.

• And to see why the current trajectory is so unsustainable for the Kremlin, we need to look at the current prospects for Russia’s economy.

• The upcoming unsustainable strain on Russia’s finances.

• The Kremlin has unveiled ambitious defense spending plans for the upcoming year, with an allocated budget of Rbs10.8tn ($108bn) - amounting to a third of 2024’s Federal budget.

• This figure marks a threefold increase compared to the 2021 budget and a substantial 70% bump from the original 2022 plan.

• To fund this substantial sum, the government is increasingly reliant on unconventional revenue sources, including, one-time taxes and levies, such as the "voluntary donations" required from Western companies departing Russia, as well as new export duties linked to exchange rates, heightened tax rates, reduced subsidies for energy producers, and an uptick in utility tariffs.

• It is unclear at this point, how much of a dent this is likely to put into the ongoing deficit.

• But these creative measures are anything but new - they follow a series of revenue-generating actions taken this year, including a Rbs300bn ($3bn) windfall tax imposed on "excessive profits" within the commodities sector, with a particular focus on metals.

• Further tax hikes were implemented within the energy sector, contributing to Rbs114bn ($1.4bn) from Western companies, who are now required to increase their "voluntary donation" from 10% to 15% of the value of their Russian business sale.

• Moreover, excise taxes on alcohol and tobacco will triple in 2024.

• And with that, we are now entering a truly dangerous situation for the Putin regime: making it so much more costly for Russians to drown away their sorrow in cigarettes and alcohol may cause a significant public backlash.

• Russia’s military expenditure will amount to 6% of its GDP in 2024 - this is a major fiscal strain.

• But in the meantime, there is yet another upcoming issue for Putin to resolve: falling rouble.

• One USD now amounts to 100 roubles - and that is the official rate only.

• Most citizens will struggle to secure dollars at even this rate.

• This will have major implications for the Russian economy.

• Russia is in no position to benefit from exporting cheaper (and thus more competitive) goods.

• Its main export is energy, and it is usually sold in the USD.

• (side note: there is talk of forcing buyers to pay for oil in Russian rubles to boost artificial demand for the currency, but this will not do much - it will merely shift the timing of the currency conversion.)

• On the other hand, Russian imports will become costlier - and given that most desirable consumer goods are indeed imports, this will be a major hit for the Russian public.

• There are many arguments around why exactly the rouble is falling so fast, but ultimately, it all boils down to the political circumstances and decisions made by the Kremlin: possibility of a lengthy war, and Putin’s revenge-driven asset-seizures targeting Western companies have led to Russia becoming uninvestible for large companies and institutional investors.

• This then lowers the demand for Russian rubles.

• People forget, but 2024 is an election year in both US and Russia.

• Naturally, these will be rigged in Putin’s favor - but as always, the question is to what extent?

• How much of an involvement from the state will be needed to secure Putin’s grip on power.

• Consequently, Putin faces an unpalatable dilemma: do nothing to stabilize the rouble (and lower the inflation) and risk a major cost of living crisis.

• Or, let the central bank raise interest rates (and pull in the global capital - pushing up demand for the rouble) and risk causing a recession via higher borrowing costs that lead to a lesser investment and lower consumption.

• Not the kind of dilemma facing a leader that has the time on his side.

• Unfortunately for Ukraine, its western allies are really really good at squandering strategic openings, and wasting opportunities to hasten Russia’s defeat.

• The one thing that Putin has going for him, is the timidity and indecisiveness of the West: he is placing all his bets on this, and one hopes that he is proven wrong, but at this point, it is unfortunately no longer a given that he will be.