Weekly Overview Cables - Ukraine war updates, new G7 funding and the US-Ukraine security agreement.
Ukraine war updates.
1) We shall explore the Ukraine peace summit and Putin’s extremely unreasonable proposals for peace (which include formalizing Russia’s annexation of four occupied Ukrainian regions) in the next post.
2) More Patriots to Ukraine as their infrastructure crumbles under Russian missile strikes.
This comes as Kyiv lobbies for more defense systems ahead of winter - situation is very dire and President Zelenskyy revealed (at a Berlin conference) that Ukraine lost half its electricity generating capacity due to Russian attacks.
For example: the peak consumption last winter was 18GW, but Russian strikes have already destroyed 9GW.
3) Ukraine’s mobilization efforts improve and more on extreme Russian casualties.
In May, Ukraine mobilized as many servicemen as in the previous six months.
This data comes from Roman Kostenko, Secretary of the Verkhovna Rada Committee on National Security.
In the meantime, there has been a new study conducted by the BBC and Mediazona: verifying the deaths of 19,547 Wagner mercenaries in Bakhmut.
This data traces the battle's history and the transformation of recruited prisoners into "disposable material."
For context: Wagner's losses in Bakhmut surpass Soviet losses over a decade in Afghanistan.
With that said however, these losses make much lesser impact in Russian society, where many see them as prisoners or soldiers of fortune who chose to fight.
On the other hand, Putin may have revealed a staggering casualty rate for Russia.
On June 5, Putin absurdly claimed Ukrainian forces suffer 50,000 casualties per month.
He then stated half are wounded in action (WIA) and the other half killed in action (KIA).
Crucially, Putin then alleged a five-to-one "irretrievable loss" rate in favor of Russian forces.
This suggests Russians are suffering about 5,000 KIA per month.
Of course to believe Putin, we must also believe the rest of the math - a tall order.
However, even with this slip up and extreme exaggeration on his part (including the implausible part of the claim that Ukraine would have KIAs at 5x rate - if anything a defending nation would have far better ratios. And recent battles like those for Avdiivka prove this), it is likely that Russia is losing around 3k troops a month as KIAs - and this would align with a staggering verifiable Russian death toll of 50k uncovered by investigative journalists.
New US- Ukraine security agreement, G7’s $50bn funding and importance of long-term signaling.
There were two major strategically significant developments last week: 1) Biden announced a new US-Ukraine security agreement and 2) G7 announcement of a $50bn loan to help Ukraine.
Both are important steps - though (for reasons explained later below) the US-Ukraine partnership did also imply existence of a series of undesirable political facts on the ground and the $50bn loan to Ukraine will in the short to medium term become far more practically consequential.
But underlying both steps is the implicit signal of West’s state of mind about this war: we are here for the long term.
And here, we need to rebut one of the common arguments against long-term staying power signaling: a lot of western analysts have argued that displaying intent to provide long-term investment/support for Ukraine’s war needs is counterproductive - since this creates an escalatory cycle where Russia is then also forced to plan for the long-haul and the war is thus prolonged.
In other words: if Russia is forced to prepare for a long-term war, they will inadvertently create capacity for it - and so the long-term costs of the war will inevitably decrease and the incentive to settle now will therefore also lessen.
But this is a wrong-headed approach - one which completely misses the fundamental facts on the ground;
1) Russia is nowhere near to consider negotiating/ending the war in earnest (Putin’s latest outrageous and totally unrealistic ceasefire demands - which we shall discuss in the next post is the best evidence of this);
2) Putin still believes he can outlast the west - and all his preparation and investment into war economy is made to deliver on this promise;
3) The West finally stepping up to invest in the long-term Ukrainian capabilities is a response to Russia’s own similar plans: far from instigating Russian plans, it is an attempt to keep Ukraine on its feet - to ensure the survival of the Ukrainian state.
4) Long-term plans in support of Ukraine are not signals of the West’s desire to not negotiate with Russia: on the contrary, it is a signal that only serious and realistic negotiations will be entertained, and that if Russia continue to stick to its (currently) unrealistic maximalist war aims, then it will face a more united West ready to back Ukraine for a very long time;
(side note: and besides, willingness to walk away is the strongest negotiating position. When the West signals willingness to walk away from the deal and support Ukraine for the long-term, it reminds Moscow that Russia’s leverage isn’t as strong as they may hope/expect it to be: incentivizing a more realistic negotiating stance)
5) The most crucial strategic move for the West to do is to affect Putin’s beliefs about the future trajectory of this war.
And investing into long-term capabilities, into capabilities that should help Ukraine (at the minimum) preserve its current positions and (at best) reclaim significantly more territory from Russia, is the quickest way to convince Putin that he has little chance of attaining a significantly better outcome by continuing this war for several more years.
Putin must believe that in 2-3 years, the outcomes achieved on the battlefield would either be: 1) significantly worse than today, or 2) at best, minimally beneficial in comparison to the cost of sustaining the war for a few more years.
Only this would affect his calculus and convince him that fighting this war for several more years is not in his interests: that potential payoff would simply not be worth it.
With that, let us now unpack the two relevant developments:
At the G7 summit in Italy, President Biden extended security assurances to Ukraine for the next 10 years.
This move aims to reassure Ukraine of long-term US support.
The US will help Ukraine strengthen its defense-industrial base and coordinate on future weapons needs.
This is obvious, but still worth reiterating in case some fake news pro-Russia propaganda attempts to convince Americans that they are on a collision course with Russia: this is not a security guarantee - nor is it even an ‘‘assurance’’ akin to the Budapest memorandum.
(side note: even at the Budapest summit in 1994 in return for Ukraine agreeing to give up its nukes, Kyiv only received an ‘‘assurance’’ of security from UK, US and Russia. A major strategic blunder in hindsight but also, not something Ukraine had much choice about in any case: they didn’t have funds and/or technical capacity to maintain 1,700 nuclear weapons. ICBMs (which would have delivered them to targets) were under Russian operational control (and were on track to be destroyed under the US-USSR SALT II strategic offensive arm reduction treaty) and many shorter-range missiles were nearing their shelf life - and Ukraine didn’t have enough money/technical capacity to spend on their upgrades. Holding onto these weapons could have meant years of sanctions and economic turmoil - a North Korea route that Ukraine wasn’t prepared to take.)
Instead, it is a security agreement similar to those signed by France and the UK earlier this year - and the US becomes 16th country to sign a bilateral security agreement with Ukraine (when it should have been the very first..).
There are of course two issues with the agreement: 1) It is an executive agreement signed by the US President, and 2) It is timed only 10 years.
This makes it far from ideal - a future US President could simply cancel the agreement.
But, the reason for existence of both issues is the same: anything more significant (and without a time-limit) would have required a Senate treaty ratification - which requires a 2/3 majority.
This was probably somewhere in the region of the best that Biden could do.
(side note: even the less polarized France and UK also had a 10 year provision in their respective agreements - also most likely to avoid legislative scrutiny/approval and a possible embarrassment of failing to pass it through: resulting in a worse strategic signaling than if they wouldn’t have done anything at all)
In addition, Trump canceling this treaty is not as easy as it seems.
Since even if legally it is indeed effortless, there will still be political cost: and it is easier not to offer something new instead of reversing an agreement - many GOP Senators and Congressmen would not like this and could punish him in the legislature (by making it harder to pass something that he desires).
It is also unclear what Trump would even gain from this move.
At the very least, we can be sure of one thing: Trump is proud of his reputation for being a tough negotiator (whether earned or made up), and he knows a few things about leverage: preemptively giving up something like this would amount to offering an unreciprocated gift to Putin - and thus, a weakening of Trump’s own hand/leverage.
Even if Trump shows willingness to push Ukraine to settle (also unclear), it would probably not be in his interest to force Kyiv into a deal so bad that it reflects badly on him: after all, he wants to negotiate a ‘‘deal’’ - not a capitulation.
And say whatever you want about Trump’s rhetoric and penchant for praising dictators like Putin, it was under his watch that Ukraine received crucial lethal aid (like Javelin missiles), and it was his administration that declared Russia to be an adversary and imposed sanctions that the previous Obama admin was unwilling to impose.
(side note: and it was his Defense Minister Jim Mattis who gave the order for 100+ Russian Wagner mercenaries to be slaughtered in Syria.)
There is little to be excited about when it comes to Trump and Ukraine - but it is also important to not catastrophize and exaggerate in the very opposite direction.
2) G7 Support for Ukraine:
The G7 leaders agreed to use profits from frozen Russian sovereign assets ($280 billion in central bank assets - currently frozen and held mostly by Euroclear in Brussels) to provide approximately $50 billion in aid to Ukraine.
The funds, disbursed through various channels, will support Ukraine's military, budget, and reconstruction needs.
The deal includes the launch of ‘Extraordinary Revenue Acceleration (ERA) Loans for Ukraine,’ aimed at accelerating the availability of funds by year-end.
The financing will involve a loan syndicate to share risk among multiple lenders.
It is estimated that around $3.5bn-$5bn in annual interest generated from the frozen Russian funds would be used to repay the loans.
For now, precise contributions from G7 members are undetermined, but the US has authorized up to $50bn in loans - expecting others to contribute and reduce the US share.
This is a significant sum of money, and crucially, Ukraine can use it to fund all/any expenses related to governance/administration - not just to buy weapons and ammo.
And not enough attention has been paid to the shrewd structure of the loan:
1)Ukraine is not directly responsible for the loan.
The “risk’’ for the loan is assumed by the originators of the loan - members of the G7/EU.
And this is smart for at least two reasons:
1)If hypothetically, Putin was successful in removing Zelenskyy and installing a puppet, he could not simply default on the loan and ruin the Ukraine-West relationship.
Ukraine is not repaying the loan - interest proceeds from the frozen Russian assets are.
2) Because these loans are underwritten by Russian assets, imposing the burden of risk/repayment on Ukraine could have led to perverse outcomes.
Imagine for example that after a year or more of this war, assistance from the West has become negligible and Ukraine is unable to repay its loan.
Under this scenario, Ukraine could simply default on the loan - not caring for the outcome: since the assets lost would have been Russian frozen funds that it expected to receive as reparations in any case.
But this would also remove one of the levers that the West still had: the threat of seizing full $290bn of Russian assets.
Naturally, at the end of the war, all or most of it will probably be seized for full reparation due to Ukraine.
But if there is still some chance that Russia could recover at least some of it, or at least negotiate some form of delayed reparations, then Moscow has an incentive to not go all in in its campaign against Ukraine.
As it stands, there is still some hope in Moscow to recover at least some of these funds.
But if they are seized completely, then the cost of future warfare has also diminished.
This is because, if before the full seizure, the cost of further war was: operational costs + threat of more sanctions/loss of $290bn, then with seizure complete, the loss of $290bn would already be priced into future actions: Putin would simply have less to lose.
And this is one of the reasons why Russian assets have not been fully seized yet, and why Ukraine is not granted an ability to simply default and turn the tables on Russia like that.
(side note: there are also of course other legal issues around seizure, and the risk of creating undesirable precedents for former colonial powers like France, UK, and Italy - opening them up to reparation claims.)
Indeed, the carrot of potential (even if however minimal) recovery of Russian assets was left within the G7 loan agreement: “Russia’s sovereign assets in our jurisdictions will remain immobilized until Russia ends its aggression and pays for the damage it has caused to Ukraine.”
Smart.
When I think of all the stuff Putin has said about Ukraine being a fake country, and really part of Russia, cannot, in that rationale, the same be said about Byelorussia? I know there are subtle differences, but I wonder what Lukashenko really thinks.