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Ukrainian resistance holds Putin back

The fight back by Ukrainians is delaying and disrupting Vladimir Putin’s plans for a quick takeover of the country. Ukraine’s allied are also stepping up their response.

| 5 min read

The war in Ukraine dominates the news as we see horrific pictures of deaths and destruction. As we suggested, Ukrainian President Volodymyr Zelenskyy rallied his country to resist the unprovoked aggression of Russia.

The fight back is delaying and disrupting Vladimir Putin’s plans for a quick takeover of the country. The West has greatly strengthened its response, offering more military equipment to the defenders and increasing the toughness and range of its sanctions. Whilst there is talk about possible peace talks, it is likely Russia will intensify its attacks on the cities with more indiscriminate violence. Mr Putin has also put his nuclear weapons into a higher state of readiness, presumably to spread more alarm and to remind the world of the huge lethal power behind his ground forces. The West will give him no excuse to use them.

Germany increases action

Over the weekend came news of a major change in German foreign and defence policy. The Chancellor is proposing to a Parliament likely to welcome it a €100bn new defence fund and early attainment of the NATO 2% of GDP target for annual spending. After years of relying on the US led NATO umbrella for defence, Germany now wishes to make a larger contribution and have forces that can be more widely used. Germany will immediately despatch lethal weapons to Ukraine after weeks of declining to help.

The Ukrainian military supported by many civilians, is putting up tough resistance to the Russian invasion.

In the same spirit, the European Union (EU) announced it will, for the first time in its history, supply weapons outside its area to Ukraine, and neutral Sweden also promised military supplies. Mr Putin is collecting new and more-assertive neighbours as a result of his violent incursion into a peace-loving democratic state beyond Russia’s borders. After years of trying to work with Russia, the West is now firming up its response to a Russia that wants to proceed by force and illegal acts.

The Ukrainian military supported by many civilians, is putting up tough resistance to the Russian invasion, delaying the Russian forces who planned a quick drive to their objectives. The Russians who originally promised no civilian casualties are, as we feared, increasing their use of high explosives including killing residents in some homes. They seem keen to encircle Kiev, presumably with a view to toppling the government and are now beginning to attack fuel and other stores to lessen resistance in large urban areas. There are said to be many more tanks on the move.

More challenges for Putin

With so many parts of the country a battlefield, reports of the battles are patchy at best. The Ukrainian side claims substantial Russian losses of tanks, aircraft and personnel. The Russians refuse to release figures. At home, Mr Putin faces more protests against the war despite heavily censored media accounts underplaying what is going on. The protests are being dealt with by arresting many of the protesters.

The Russian Central Bank will have problems accessing dollars and other western reserve currencies.

The EU has now joined the US and other NATO allies in agreeing tough sanctions. Russian banks are being denied access to Swift and the Russian Central Bank will have problems accessing dollars and other western reserve currencies. Russia is going to need help from Chinese and other sympathetic banking, settlement and currency arrangements beyond the dollar system. The central bank will print roubles to deal with the run on banks as people in Russia seek cash, but will not have control over all of the foreign exchange it needs to support its currency and carry out international transactions.

Today there may be peace talks between Ukraine and Russia near the Belarus/Ukraine border. It is unlikely they will make early progress as the two sides have fundamentally different views of why there is a war at all and neither wishes to give in. Ukraine has no wish to cede territory to Russia or to distance itself from NATO, let alone change governments to one chosen by the invader.

This remains a tragic background for all involved and for markets. Defence shares will clearly be revalued as substantial rearmament is now likely especially for Germany. Oil and gas prices have been climbing again as further disruption of energy markets is possible. Companies with significant assets in Russia will be valued to take into account the big fall in the value of Russian businesses.

There are obvious difficulties in owning and running them against a background of stiff sanctions and restrictions on doing business with a pariah state. War destroys assets and requires the diversion of resources from peacetime uses. It also causes shortages and price spikes for items in demand where supply is disrupted or is insufficient for the military needs. There is a flight into dollars and central banks will have to weigh the negative effects of war on recovery against the further price pressures it is generating.

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Ukrainian resistance holds Putin back

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