Weekly Overview Cables - Ukraine war, targeting Moscow, and tightening the screws around existing export sanctions against Russia.
Ukraine war updates.
Ukraine’s counteroffensive & outlook.
After months of fighting, and at an immense cost, Russia is finally close to encircling Bakhmut.
Russia is yet to make a decisive move, but the city will most likely be lost however - though it is unclear how much Russia is to actually gain from this pyrrhic win.
Strategic importance of the city is limited to its role as a regional transport hub, and a launch pad for Russia’s further Kramatorsk and Sloviansk - although Ukraine’s defensive lines around the aforementioned cities look solid, and it is unclear how much of a benefit the takeover of Bakhmut will truly bring.
Taking Bakhmut was/is perhaps more significant for the reputation and standing (within the Kremlin’s informal hierarchy of useful goons), and thus the political power of Wagner PMC - whose leader Prighozhin is mired in conflict and controversy with the formal leadership of Russia’s military forces - whom he accused of treason and deliberate sabotage in refusing to supply Wagner with ammo.
But given that Putin wants results at all costs, it is unlikely that the commander of Ukrainian forces in Ukraine, General Gerassimov would deliberately cut off Wagner from ammunition and supplies (which were later resumed) - however much he would desire to do just that.
A more likely explanation therefore, is that Russia’s army is trying to reduce their inordinate rate of ammo consumption (firing as many as 20k shells a day) across all units, and such prudence is an anathema to Wagner - an organization known for its careless cannon fodder tactics branded as “human wave attacks”.
New military aid.
America’s new $400mln military aid package, did for the first time (and in addition to more ammo and HIMARS missiles) also include eight armored vehicles that can deploy bridges - allowing soldiers to cross rivers and other obstacles: a good hint on what type of a counter offensive we are about to see.
In the meantime, the German Chancellor, Olaf Scholz quietly (and without much of the usual accompanying media presence) visited DC on Friday.
The two discussed tougher sanctions on Russia - and surely, also exchanged thoughts on a potential response to China’s possible involvement as Russia’s supplier of arms.
And speaking of US - German relations, US National Security Adviser Jake Sullivan, ruffled some feathers by admitting that the US decision to provide M1 Abrams to Ukraine, was not an optimal, and was done in the main to appease German allies (who allegedly demanded joint transfer of tanks as a precondition for their involvement - although Germans do vigorously deny this).
It is not all too clear why Sullivan would admit this in public - what does this achieve, if not once again affirming the precedent that the US can be blackmailed into specific suboptimal policies solely to appease an ally making unreasonable demands?
Why cast a shadow on a monumental commitment to supply Ukraine with most modern tanks in history?
Furthermore, why provide talking points to the ‘‘blank check’’ crowd of isolationist GOP?
How can someone like Matt Gaetz or Marjorie Taylor Greene hear this and not raise an “alarm’’ that taxpayers’ money is wasted to appease unreliable ‘‘free-rider’’ allies?
(side note: our hope is that the aforementioned ‘‘politicians’’ are too busy focusing on far more petty affairs).
Unfortunately, this was not the only faux pas committed by a senior Biden admin official.
Secretary of State Anthony Blinken once again claimed that Crimea was a “red line’’ for Putin.
(side note: at least this was only shared with a smaller group in a private meeting. Although the Secretary of State should still know better).
Once again, we are back to Putin and his ‘‘red lines’’.
The job of a chief diplomat however, is to shape and alter Putin’s ‘‘red lines’’ - instead of accepting them as a given.
Back in early 2022, Putin’s red lines were NATO supplying Ukraine with advanced defensive weapons.
If we took Putin’s statements at face value, Ukraine would never receive any of the (now uneventful and expected) advanced military hardware that helped the country to survive a massive onslaught.
Were we to accept the premise that Putin’s ‘‘red lines’’ were concrete, and as immutable and unalterable as principles of gravity, then the overall aid to Ukraine would be stuck at Germany’s (much-ridiculed, and for good reasons) decision to supply the country with 5,000 helmets back in January 2022.
So then, instead of wasting further time on Putin’s “red lines”, the West should rally to provide Ukraine with everything that it needs to win this war - and be able to do so fast.
Kyiv targets Moscow: strategic and symbolic objectives & risks.
While Russia was focusing on Bakhmut, Ukrainian forces decided to have another go at deep strikes within Russia (previously, successfully targeting two air bases hosting strategic bombers).
On this occasion, a drone identified as a Ukrainian-made Ukrjet UJ-22 Airborne drone -capable of carrying up to 20kg of explosives - crashed near a gas distribution station 70 miles southeast of Moscow.
Kyiv did not confirm ownership over this operation (their policy is to avoid direct comments on these - but silence tells us all we need to know here), and it is unclear what precise target they were going after.
But in all likelihood, a military/military production facility (in other words, a legitimate target) somewhere in Moscow (or immediate outskirts) was the objective of the attack.
(side note: there was also an allegation that Ukrainian saboteurs crossed the border to attack a local town, taking several people hostage. But Ukraine denied this, and a “Russian Volunteer Corps” claimed responsibility over this attack. It could be a Russian false-flag. Putin’s immediate escalatory rhetoric and promise to respond to ‘‘terrorists” was a major tell. Having said that, the actual facts remain murky and the picture is still unclear. So we will skip on further speculation.)
Unlike say, December’s attack focusing on Engels-2 airbase in Saratov, targeting Moscow is a major move - one that has not been conducted to date.
So then, a natural follow-up inquiry must focus on Ukraine’s potential gains - what is it exactly that Kyiv wanted to accomplish here?
There are a number of possibilities:
1) Firstly, and most obviously, this is a logical continuation of Ukraine’s long-standing campaign to normalize deep strikes within Russia - turning the debates around supplying Ukraine with longer range missiles (like the ATACMS) into a moot point.
Since, if Ukraine is going to engage in such attacks in any case, might as well arm them with the best weapons possible - increasing their effectiveness and probability of success.
There could (in theory) be a counterpoint that Ukraine engaging in these deep strikes would add to the worries of NATO states already skeptical around the provision of fighter jets.
But these are not applicable here - Ukraine is not going to waste away its pilots and jets by flying them into the well-protected Russian air space.
Rather, any fighter jets supplied to Ukraine will be used to contest the Ukrainian air space, and provide effective cover for future counter-offensives in Donbas and the southeast of Ukraine.
2) Demonstrate all-around confidence and continuous will to fight to the Ukrainian people, Western allies, and to China.
The timing of such a display is important: Ukraine has been stuck in a defensive posture for several months now, and there has not been any significant battlefield gains on its side.
Ukraine is likely to lose Bakhmut, and questions around China’s involvement could affect the domestic morale.
This is a message to all stakeholders - primarily to Ukrainian people and to the Western allies - that Ukraine is always quick to retake initiative and latest setbacks are not taking a toll on the confidence of its leadership.
It is also a signal to Beijing that China’s potential involvement on the side of Russia is not affecting the calculus in Kyiv - that as far as Ukraine is concerned, it is fighting to win and not to settle in the face of added pressure of the long-term strategic risks emanating from China’s possible support of Russia.
3) Response to Russia’s latest negotiation stance.
Which did not change much - with the Kremlin spokesperson Peskov reiterating that Ukraine would need to accept the ‘‘new territorial realities” - also known as: we annexed Luhansk, Donetsk, Zaporizhzhia and Kherson and you are not getting them back. Accept that and we can talk.
Now, although the stance itself is no different from the one advanced late last year, the context is different - Russia is on the verge of taking over Bakhmut (first city takeover (no matter how small) since the Spring of last year), and it could furthermore secure additional lethal military aid from China.
In other words, sending this message of resolve, and that Ukraine’s calculus will not change (so much so as to submit to territorial concessions) could be seen as an important tactical play.
All of these are legitimate strategic objectives to pursue.
But they do however, come along with substantial risks:
1) Making the argument for Russia’s internal mobilization propaganda.
Is Ukraine capable of a consistent deep strike drone/missile campaign?
Or will there now be a significant period of silence?
Silence which Russian propaganda would surely then spin as Kyiv being cowed into retreat as a result of a ‘‘decisive action taken by Russia’s military leadership”.
In other words, if Ukraine is unable to sustain these attacks, then the mere symbolic value of a one-off strike may be dwarfed by the major risk of making Putin’s domestic rhetorical case for him.
At the time when Putin is preparing the Russian public for further sacrifices and mobilization, talking about ‘‘existential risk’’ that is faced by Russia, and claiming that NATO (and remember that Ukraine is doing their bidding according to the Kremlin) is a danger to the survival of Russian state, striking targets in Moscow (no matter how legitimate/non-civilian) could help the Kremlin to rally public support for the war.
If previously, war was largely experienced by relatively poor members of the public (even during the wave of mobilization, those in the regions and of lower socio-economic class constituted the bulk of those called up to arms) residing in remote locations, Ukraine is now bringing this war to the core of Russia.
Targeting Moscow is simply qualitatively different from any other deep strike engaged by Ukraine to date.
In other words, is it really worth helping Putin rally a far larger proportion of (hitherto apathetic/uninterested) population?
It may be - or it may not.. It is too soon to say, but a major risk of all this backfiring remains with high urgency.
2) Rhetorical ammo for Tucker Carlson & Co.
Targeting Moscow arms the GOP isolationists and their Media/infotainment pundit backers with venomous talking points.
It would not be too surprising to hear Tucker Carlson and Co asking their typical rhetorical questions aimed at undermining the cause of supporting Ukraine: Why are we subsidizing this? Why are we funding attacks on Moscow? Why should our taxpayers’ money be spent on supporting a country willing to strike Moscow and provoke further escalation against a nuclear superpower?
Again, they would of course be malicious and unjust in ‘‘asking’’ these questions - Ukraine is well within its right to strike whatever legitimate military target it wants.
But the reality is that this war is not going to be fought under strict legalistic interpretations.
Unfortunately for Kyiv (and as if trying to survive was not enough to have on their plate), they have to also win the informational/propaganda war.
For there is no guarantee that the political winds backing Ukraine would be here to stay in 2024 (and beyond).
It is not fair, but it is the reality.
Given all these risks therefore, it may thus be strategically and tactically prudent to limit these deep strikes to air bases, command posts, and logistics hubs in more remote regions of Russia vs striking major ‘‘heart of Russia’’ cities like Moscow or St Petersburg.
To be clear, Ukraine should continue striking military targets within Russia - and the West must end its public hesitation around such strikes.
But politics and the propaganda war demands that Kyiv must remain aware that the location of these strikes matters to ordinary Russians.
Ukraine should be convincing Russians that they are dying for nothing: that their sons, brothers, and father are sent to brutal frontlines as dispensable cannon fodder only to soothe Putin’s imperialistic ego.
And definitely not in defense of Moscow and St Petersburg - as Putin will now get to argue..
Cracking down on Russia Export Restriction Gaps
Since the outset of the Ukraine war, the West (meaning largely, the US, the EU and the G7) has imposed a number of devastating sanctions on Russia, and these primarily fall into three broad categories:
1) Price caps/bans on Russia’s sale of of hydrocarbons (oil, gas, and petroleum-based products);
2) Sanctions targeting its financial sector (primarily SWIFT restrictions/blocking sanctions on major Russian banks like Sberbank), and;
3) Export controls of specific goods/microchips that are necessary to both a) Russia’s industry, and b) more importantly, to its military - allowing it to produce weapons.
These cables have periodically analyzed the efficacy of price caps and financial restrictions - and we shall continue to do so.
But with a) Russia’s continuous ability to produce weapons, and b) reports coming out late last year that Russia’s neighbors had suddenly seen spikes in imports of Western electronic goods (that are then resold to Russia and taken apart for their microchips), it is time to revisit what further action may be taken to tighten the screws around these restrictions - preventing Moscow’s effective evasion from what were supposed to be crushing sanctions.
First off, let us unpack the precise mechanism of evasion.
Even though Western export restrictions are in place in relation to Russia, they are not applicable to Russia’s immediate neighbors.
Countries like Armenia, Kyrgyzstan and Kazakhstan can still freely import goods from the EU, and according to the European Bank for Reconstruction and Development, these very countries have seen: 1) a sharp increase in EU imports, followed by, 2) a similar level of increase of exports to Russia.
It is not too hard to see what is going on here..
Why should there be a 80% jump in sales to Armenia and Kazakhstan from both the EU and US, followed by a 2x increase in exports from these countries to Russia?
If both countries experienced massive GDP growth without major increase of exports to Russia, one could rationalize this sudden increase in imports as booming domestic industries in need of western goods to sustain high levels of economic growth.
But that is not happening - we are not seeing this massive increase in domestic production in the aforementioned states.
And even if we did - the goods to be imported would primarily be tools for furtherance of production - not a random spike in consumption of modern consumer electronic goods.
Why should Kazakhstan see a random 4x increase in the consumption of washing machines last year as compared to 2021?
Because these very washing machines can thereafter be exported to Russia, where they can be conveniently taken apart for their microchips - the very same chips are then curiously found in captured Russian weapons on the battlefields of Ukraine.
And to be clear, this import/export machination is not limited to Central Asia - companies all over the Middle East and Asia are importing EU goods only to then resell them to Russian customers.
Hong Kong and the UAE are particularly egregious examples.
In addition to exporting 15 times more microchips to Russia in 2022 in comparison to 2021, exports of electronic parts from the UAE to Russia have risen by 7x to $283mn last year.
It is rather obvious that in the middle of a war, sanctions, and a contracting economy, Russians did not want to suddenly consume 7x more electronic goods.
Clearly, the Russian army is the end consumer of these orders - taking them apart for their useful (on the battlefield) microchips.
It was therefore unsurprising yet still commendable that the officials from the US, EU, and UK recently visited the UAE to express worries and urge a crackdown against the practice of “re-exporting”.
All well and good, but the urgency of closing off this loophole, and shutting down Russia’s indirect access to these microchips necessitates a far more decisive action.
Although no single policy is likely to singlehandedly eradicate these various access routes, the following strategies (a combination of carrots and sticks) could lead to major, noticeable improvements in reducing the flow of these chips to Russia:
1) Secondary sanctions.
Just like with Iran pre-2015 JCPOA (nuclear deal), the US and the EU should jointly introduce and impose secondary sanctions against any private company that re-exports prohibited/controlled items to Russia.
Meaning that these companies are free to resell the products to Russia - but with an understanding that they would lose access to the US and EU and all other allied markets.
Naturally, certain companies are incorporated specifically for the purposes of ‘‘re-exporting’’ to Russia (as opposed to being driven by the profit motive/genuine business interests in maximizing their earnings and the market share).
Secondary sanctions on these are not going to be as effective (more on that later below), but they would need to get their imports from some other legitimate reseller/supplier with connections to the US/EU and allied markets.
Consequently, Washington and Brussels must create a register of these major suppliers and add extra layers of compliance rules: demanding continuous monitoring of their supply / buyer chains and reporting ‘‘suspicious orders’’ (this would be similar to banks flagging suspicious transactions to money laundering regulations).
These will not be cost-free - adding friction to ‘‘doing business’’ - but given the upside, the costs are well justified.
2) Blocking measures / financial restrictions.
Whenever caught, these ‘‘re-export’’ companies must face the full might of the West’s control of financial plumbing.
They must immediately lose access to Western banks, insurers, and professional services firms.
But not only - any other bank (say, in the Middle East / Asia) providing financial/professional services to these banks must face similar restrictions and lose access to the Western capital/professional services markets.
3) Incentives to self-regulate.
Where possible/appropriate, certain countries must be offered incentives to crackdown and self-regulate these practices in return for lucrative incentives: for example, concessionary access to the US/EU markets.
For example: an authoritarian country like Kazakhstan can surely catch and deal with these local ‘‘re-exporting’’ players if only they had sufficient incentives to do just that…
And these carrots could definitely be accompanied with sticks - the West could threaten to impose (albeit lesser and more measured) export restrictions on the aforementioned countries unless they play ball and crack down on Russia enablers as needed.
(side note: and if such measures are too politically combative for the liking of the US/EU leaders, there is an alternative of restricting exports to trend levels of growth in demand. So for example, if the general trend of demand growth indicated a year-on-year increase of say 5% in demand for washing machines in Kazakhstan, their imports from the EU should be limited to that number. Instead of agreeing to supply the country with a 4x increase figure. Although this is far from an ideal solution, it would nevertheless still ensure that there is not a massive surplus of consumer electronics idly laying around only to be resold to Russia).
If the West is to win this war, Russia’s access to weapons, and therefore to microchips must be restricted without further delay.
It is unacceptable that a year into this war, Russia still manages to evade sanctions meant to inflict significant, and ideally, decisive injury on its military-industrial complex.
The West must rally and demonstrate both a tactical creativity and executive ruthlessness in closing off these loopholes.