Weekly Overview Cables - Ukraine War, Nord Stream 1 Sabotage, and Putin's nuclear threats & annexation combo game plan.

* note: many readers have emailed and asked for an analysis of the current uprising in Iran. We will take a closer look at this development in the next cable published on Thursday.

Ukraine war updates.

• Ukraine’s counteroffensive & outlook.

• Ukraine’s successful advance continues.

• Russia lost the city of Lyman (Donetsk oblast/district) only a day after Putin’s annexation announcement.

• Meanwhile, Russia is struggling to mobilize effective manpower.

• As expected, Russia’s voenkomats/admin recruitment centers are in disarray, and social media is full of news of foolish bureaucratic errors.

• So much so that even Putin admitted that there have been embarrassments - calling for these mistakes to be fixed.

• But no amount of bureaucratic improvement could produce a genuine patriotic morale, when the bulk of the population clearly does not buy into the legitimacy of this war: Russian men continue to escape Russia - 100s of thousands have now left the country, and ‘‘how to break my arm’’ (supposedly, in the hopes of evading the draft on medical grounds) is now one of the most popular internet searches in the country.

• And the low morale and distrust of the military leadership is certainly not only limited to ordinary population seeking to evade the war - intercepted frontline communications between Russian soldiers have revealed the true extent of Russia’s military incompetence: officers complain about basic tactical mistakes and express doubts about the wisdom and capability of the top brass : “Putin is a fool” - a sentiment that we can agree with.

The incentives & signaling around the Nord Stream 1 Sabotage.

• First things first - yes it most probably was a sabotage - those pipelines are designed to withstand normal ‘‘acts of god’’ type accidents - including the most devastating earthquakes.

• So the Danish PM is correct in asserting that the “leaks detected in the Nord Stream gas pipelines clearly were caused by deliberate actions and could not have been a result of accidents”.

• So then, who was behind it?

• Russia.

• Now, there are certain western analysts that buy into Putin’s accusation that the US was behind it.

• Apparently, a joint US/Ukraine operation could have been conducted to definitively cut the option of Russian gas re-entering Europe (and thus, prevent Putin’s ability to dangle the carrot of reintroducing Russian gas).

• But this does not make sense - if the US wanted to do this, surely it would have engaged in such measures before Russia itself turned off its gas?

• If indeed interested in pursuing this angle, Washington would have done it much sooner - around March or April: when the EU was still hesitant to face the reality of a cold winter, Putin dominated the battlefield theaters in Donbas, and calls for Ukraine to offer concessions were the strongest.

• Moreover, the Russian gas is now cut off, and barring some significant geopolitical changes, it is not entering Europe anytime soon.

• And what is Ukraine’s gain here? Why would they take part in this operation (again, one could see an incentive back in April)?

• The diplomatic costs and the potential soft power losses stemming from being caught in such an act of sabotage are enormous.

• Same applies to the US.

• And besides, it would not make sense for the CIA to alert Germans to the possibility of this sabotage over last summer, and then run the risk of vigilant Germans catching American special ops red-handed.

• But what about Russia?

• Why would they blow up their own pipeline and delay the possibility of reintroducing the gas flows (and self-restrict the ability to dangle this very carrot as a form of leverage)?

• Some strategists have speculated that this is Putin weakening the EU’s incentive to find a replacement for him in the Kremlin - since a move like this would limit the ability of his potential successor to resume gas flows into Europe.

• And that apparently, with this opportunity gone, the EU has fewer incentives to push for coup plots within the Kremlin.

• But this is a weak argument for three major reasons:

• 1) The EU and the West in general, have a much more powerful incentive to get rid of Putin: avoidance of a nuclear war.

• 2) Gas pipelines can be repaired within several months - this is not an irreversible long-term problem.

• 3) In the meantime, Putin’s successor could simply use Europe’s LNG facilities to resume the gas flows.

• So then, this is not a credible reason/incentive for Putin to blow up his own pipeline.

• But then, what could push him to do that?

• Well, context matters, this sabotage took place at the time of the opening of “The Baltic Pipe” - which connects Norway, Denmark and Poland (and the neighboring countries), transporting Norwegian gas into central Europe via the Baltic Sea pipelines.

• Russia’s sabotage could therefore be interpreted as a signal: we can do the same to your new pipeline.

• And Putin’s decision to blame the West is yet another cynical attempt to not only deflect accusations but also to muddy the waters: useful if Putin decides to blow up the new pipeline.

• For it is far better that no culprit is formally investigated and identified - this allows Russia to escalate without triggering a NATO response (since this would be a NATO territory controlled pipeline).

• In fact, even the current incident could be interpreted as an attack on German (a NATO member) infrastructure.

• Perhaps this is why the US Secretary of Defense Lloyd Austin was also hesitant to jump into formally accusing Russia of this incident: as it stands, not having the burden of a NATO-wide response suits all of the parties involved.

• But this does not mean that Russia must not be warned against similar moves in future - Moscow must be put on notice that a similar attack would carry a proportionate response from NATO.

Putin’s nuclear threat and annexation game plan reverses the burden of next moves.

• The ball is now in Ukraine’s (& the US/NATO’s) court.

• But first, and in order to view the annexation announcement in the proper context, let us first unpack Putin’s latest maneuver on nuclear threats:

• Russia’s Foreign Ministry declared openness to the possibility of reviving inspections under the New START treaty - and to holding in-person meetings of a joint commission of representatives from the United States and Russia to discuss the matter.

• Why?

• Why suddenly express willingness to revive a treaty that places limits on nuclear arms, in the midst of all these threats?

• Putin is sending the following message: my threats are against Ukraine only - stay out of this, and we can resume the prior doctrines and attitudes on nuclear arms when it comes to Russia and the US specifically.

• And there is a powerful logic to this move: since if there is a clear way out for the West, the various factions in the power centers of DC/Brussels that hitherto argued in favor of commensurate nuclear threats/escalation, and/or direct involvement of NATO to par Putin, will now have a much weaker hand.

• For if Putin is willing to limit the nuclear war to Ukraine only - leaving out the West - arguments in favor of advancing resolute threats on Ukraine’s behalf become weaker.

• (side note: naturally, this does not mean that Putin must not be threatened with proportional responses stemming from his nuclear gamesmanship - only to say that the appetite for this policy will now weaken - as opposed to the scenario where Putin himself (not his TV pundits) made direct threats to nuke the Western capitals)

• But does this not damage his threat credibility?

• Not at all, in fact it adds to it, and for the following three reasons:

• 1) More specific, circumscribed threats are more believable and thus a priori more credible.

• 2) It is far more believable that Putin would nuke Ukraine only - and would want to avoid a general nuclear confrontation with the US/NATO.

• 3) Putin is opting for the cold/rationalist model of a threat-maker.

• There are broadly two archetypes/models for someone making nuclear threats: a cold and calculating ruthless pragmatist/rationalist vs an out of control, highly impulsive madman.

• The madman route can in fact be more fear inducing - it is simply by its very nature, a harder to predict personality, and the threats are thus automatically more credible.

• But, going with the madman model was not going to suit Putin.

• There were other risks of second-order consequences.

• As an example, if Putin played the mad man card, he could inadvertently end up convincing a powerful player/faction within his inner circle to actually believe his gimmicks - that he is indeed a mad man.

• The risks of this eventuality are actually significant - especially now that Putin is probably keeping his cards close to his chest and not revealing his innermost thoughts to even his closest allies.

• This is because doing so is extremely risky - now that Putin got to witness the reach of America’s intel agencies - with the ability to predict & announce that Putin made a ‘‘final decision’’ to kickstart the war only mere days before the Feb 24 invasion.

• With his palace infiltrated to such an extent, revealing the true intent and motivation behind his plays (even with his closest confidants) becomes an unacceptable risk.

• So then, in reality, the cold/pragmatist route was the only practical method of threat displays - and he is playing this card to its maximum effect: who now thinks that a cornered Putin at risk of losing Russian territory will definitely not use nuclear weapons?

• Although such an outcome is still unlikely (more on that later below) it is no longer beyond the realm of possibilities - and so, must be approached with adequate seriousness that it requires.

Putin’s annexation & nuclear threats combo game plan.

• As discussed in last week’s cables, it was expected that (barring last minute change of heat/decision to wait & see), Putin would announce the annexation plans on September 30 - and that, he unfortunately did.

• Setting the frame for an invasion, Putin delivered a fantastically delusional speech - talking about greater historic Russia.

• We will skip on all the usual bombastic, imperialist nonsense, and focus on two key signals:

• 1) Putin suggested to negotiate an end to the war within certain strict parameters:

• “I urge the Kyiv regime to stop all hostilities and stop the war they started years ago and sit down at the negotiation table.[emphasis added]"

• And adding that the people “who live in Donetsk and Luhansk and Kherson and Zaporizhzhia will be our citizens forever [emphasis added]”.

• Together with nuclear threat, the overall message and a negotiation stance amounts to the following:

• 1) I will not use my nukes against NATO if you don’t get involved.

• 2) I may use my nukes against Ukraine if they inflict significant defeats in the newly annexed territories - I am not giving them up.

• 3) I would like to end this war and declare a victory - this is what I am grabbing: an extra 15% of Ukraine which I am not prepared to give up, otherwise, we can talk.

• Naturally, this is an untenable and an impossible position for Kyiv to accept - and neither will they be expected to do so.

• But Putin is calculating that with the prospect of a very long war (signaled with his mobilization) that will cost increasingly more for Ukraine’s Western backers mired in the cost of living crisis, a cold winter, and a prospect of slow growth, Kyiv may at the end be pressured into at least negotiating a ceasefire - if not accepting Putin’s terms outright (this is especially the case if Ukraine’s battlefield progress stalls or worse - is reversed).

• This ceasefire would then freeze the current frontlines (Putin will surely aim to regain control over all 4 regions prior to conclusion to this ‘‘negotiation”), and solidify Putin’s gains and create a new status quo - and if this ceasefire is indeed imposed on Ukraine (for Kyiv would never agree to it voluntarily/without a blackmail that the Western support could be withdrawn), it would be almost impossible (politically) for Ukraine to restart military operations to liberate these regions and expect same level of Western military and financial support.

• 2) Putin crafted an excuse for the (temporary) military setbacks.

• The very same statement that introduces a red line on what Putin is not willing to give away, also serves to absolve him from the risk of an outright humiliation:

• “I want the Kyiv regime and their real owners in the West to hear me: people who live in Donetsk and Luhansk and Kherson and Zaporizhzhia will be our citizens forever [emphasis added]”.

• Note the emphasis on citizens and not territories - this is an important caveat and a way out of an outright humiliation.

• How?

• Well, if: 1)The Russian army suffers further defeats on the battlefield, and Putin starts to lose his remaining control over all of these territories, and 2) He is unwilling to use nukes, Putin could potentially evacuate/resettle these new ‘‘Russian citizens’’ into Russia - that is, until the Russian army recovers its control.

• (side note: and unless he is removed from Power, there is little reason to believe that Putin will stop throwing the kitchen sink of all manpower resources to regain these recently annexed territories)

• So this is a way out for Putin: in the worst case scenario of a total collapse of the Russian military presence in these territories, the focus on protection of citizens vs territories, secures him some time to recover the lost ground.

• We have previously discussed how this prolonged war will cripple Russia’s economy, demography, and its military-industrial complex in the medium to long-term.

• But let us now focus on Putin’s potential gains if this nuclear threat/annexation combo game plan works.

• What does Putin gain if everything goes according to plan?

• 1) Additional 15% of Ukrainian territory - in addition to “denazification” (defeating the Azov battalion/Mariupol siege) and “demilitarization” of Ukraine, Putin can now claim that in 8 months he annexed extra 15% of the territories that belonged to the biggest country in Europe.

• Never mind the exorbitant costs - but this is nothing to sneeze at.

• 2) Demonstration of power and resilience: that in spite of the pooled resources of the West, in spite of facing the US/NATO aiming at Russia’s defeat, Putin took what he wanted, and annexed 15% of a sovereign nations territory - and that he did this without suffering an outright economic catastrophe (at least not yet).

• 3) A buffer state, demographic gains, and a launchpad for a potential future invasion of Kharkiv and Odessa - for when the opportunity arises in future (perhaps a different/isolationist US admin, more divided Europe, better prepared Russian army that learned from its mistakes, and a relatively recovered economy).

• 4) Creating geopolitical divisions and a political conflict between Ukraine and the EU/US/NATO.

• As discussed above, Ukraine will not want to stop the military operations unless it is blackmailed into doing so, and forced to accept a ‘‘ceasefire’’.

• This would cause major political problems both within the West and vis-à-vis Ukraine - a lot of trust and goodwill will be lost.

Consequences of Putin’s potential success.

• Would be horrendous - the costs of Putin getting away with this play and successfully deterring the West from supporting further Ukrainian military operations are immense.

• If Putin somehow manages to pull this off, solidifies his control over the newly annexed territories and manages to secure a ceasefire/negotiation (crystallizing the status quo), some unpalatable implications would follow:

• 1) Incentives for future Russian aggression.

• If the precedent is set that the West will at the very end, be cowed into submission in the face of nuclear threats, why wouldn’t Putin attempt another invasion if a better opportunity arises sometime in the future?

• One might claim that after this fiasco and a string of battlefield humiliations, Putin will accept his limited gains and be done with it.

• But one must also remember that events are contingent, and but for the current statesmen in the Western capitals, but for their intel, military, and financial support to Ukraine, the invasion could have gone very differently from the earliest days of the campaign.

• Consider this hypothetical: in five years time, most major NATO states have an isolationist statesmen leading them.

• What if the US is led by a Bernie Sanders type isolationist - a man with good intentions but one that is not willing to escalate when needed (at least perceptually, from Putin’s perspective)?

• Or a right-wing isolationist taking his marching orders from the ONS and Tucker Carlson?

• What if the UK is being led by a Jeremy Corbyn type?

• Putin already knows that he is protected from the ultimate downside by resorting to nuclear threats, why wouldn’t he attempt another, perhaps more limited invasion? Targeting Odessa and Kharkiv?

• One hopes that the costs inflicted on Russia would prevent such appetites from ever arising again - but hope is not policy.

• Setting the precedent that at the very end, the West can be pushed back into appeasement via nuclear threats, would only incentivize future repeats of risky invasions.

• And not only that - if a repeat of Russian aggression does indeed take place, the voices calling for a rapid negotiated settlement (further annexation of Ukraine) will grow even louder and earlier in the war: after all, what is the point of all this sacrifice and human/economic costs if at the very end the West will be cowed into backing off? Why not appease Putin from the very outset and avoid the costs of resistance?

• As absurd as this line of argument appears, with this damaging precedent set, Western leaders will be hard-pressed to advocate for an alternative policy of deterrence and resistance.

• 2) A precedent that a revisionist power can intimidate its way out of a war gone bad by simply threatening the use of nuclear weapons.

• This would then in effect amount to a carte blanche given to other authoritarian nuclear capable states with imperial ambitions to rewrite (or attempt to do so, free of the worst potential outcomes) borders, terrorize the global community with nuclear threats, and cause major strife to innocent civilians.

• And such a carte blanche would lead to a perpetually unstable world order - a “might makes right” jungle that would (in the medium to long-term) increase the probability of a major nuclear war in any case.

• A world where international cooperation and civil resolution of disputes would give away to sphere of influence zones

• This would ensure a less prosperous and less safe world to all - including to Americans.

• (side note: and this is why one finds it so irritating when imbecilic media pundits, and airhead celebrities, keep questioning America’s involvement in this war. Even removing idealistic causes, there are enormous practical consequences for Americans if Washington does not play this right. )

• 3) A major challenge to America’s global standing.

• Russia’s (no matter how pyrrhic) success would deliver a major blow to America-led rules-based global order: Putin’s successful annexation of 15% of a sovereign European country territory, would be a definitive proof that the world is run on multipolar great power ambitions and aspirations.

• This would be a devastating blow to America’s prestige and global influence - a significant damage to its soft & hard power capacity.

• And a major gift to China - for Pacific allies will surely be worried about Washington’s staying power in major wars.

• Which leads us to..

• 4) An incentive for Beijing to copy Moscow’s tactics.

• If Russia can get away with this, why shouldn’t Beijing try the very same playbook as well?

• Why not attempt an invasion, and in case of things going south, threaten a nuclear war?

• After all, if America was intimidated once already, why would it not be yet again?

• Especially, when on that occasion, the threat would be even more direct against the US?

• This is precisely why it is crucial for Washington to not even hint at self-deterrence and fear of nuclear escalation.

• And why these cables have always berated President Biden for his public rhetoric that focused on avoidance of a nuclear war.

• All of the statements that Biden made early in this war - all those sentiments about America trying its best to avoid a nuclear war with Russia, have now incentivized Putin to double down on the threat that clearly works and pushes Biden’s buttons.

• This needs to stop once and for all.

• It is therefore heartening to see that Washington has amended its rhetoric (at least thus far) and has repeatedly warned Moscow of ‘‘catastrophic consequences’’ in private communications.

• In practice, this probably means a warning of America’s direct military involvement in this war - delivered in private: to avoid a signaling pressure on Putin to escalate his rhetoric.

• Having said all this, there are certainly risks of cornering Putin too much and creating a condition where he has nothing more to lose (perceptually/prestige-wise: an essential need for him to stay in power) and thus incentivize ultimate risk taking with nuclear weapons.

• As discussed in the previous cables, such an escalation is still unlikely, and if it does happen, it will probably start with a demonstrative strike over a sparsely populated area (like the Snake Island in the Black Sea) to make a point and establish threat credibility.

• However, the risk of a nuclear escalation can no longer be wholly discounted.

• As such, at some point, it might be necessary to concoct a political settlement where Ukraine does not concede any territorial concessions, but where Putin receives some symbolic assurances of safety for his “new citizens’’ - and these protections guaranteed by select states.

• In exchange, Russia would have to withdraw its troops.

• In practice, Russia will want to keep pretending that the territories still belong to it, but Putin may agree to ‘‘demilitarize’’ the zone and withdraw his troops if Ukraine does the same, and international peacekeepers from select countries enter the territories to guarantee the safety of “Russian citizens”.

• This is clearly not a palatable offer as of yet - and so, conditions must change in favor of Ukraine, and the cost of a nuclear escalation must appear higher than agreeing to this minimal face-saving deal

• Such a deal is still unlikely to appeal to Putin - as such, the previous prescriptions (advanced in the last week’s weekly overview cables) stand: Ukraine must receive even stronger military and financial aid to double down, make maximum use of the current opportunity, and push its advantage on the battlefield - before the arrival of the newly mobilized cannon fodder.

• (side note: extra $1.1bn and 18 HIMARS systems announced on Wednesday are welcome, but nevertheless, still not at the adequate scale needed to effectively scale-up the support for Kyiv)

• Once sufficient territory has been recovered, a political deal involving symbolic guarantees in exchange for Russian withdrawal may become attractive to Putin.

• We will certainly discuss the approximate parameters of this potential political deal in the future cables - when the changes on the battlefield begin to warrant this closer examination.

• Until then, the West must not waver in the face of the nuclear blackmail and push on with full force.