Wars continue to hang heavy on markets

The Ukraine and Gaza wars continue cause much misery. There is talk of a ceasefire in Gaza, but the Ukraine war rumbles on.

| 8 min read

The Ukraine war has cast a long shadow, with too many deaths and injuries as the conflict enters its third year. It has also greatly disrupted energy markets, restricted trade through the Black Sea, reduced grain exports and placed a large financial burden on Ukraine’s allies to help finance the government and supply weapons. The more recent Gaza war commenced with brutal terrorist assaults on Israeli civilians and has now led to many civilian deaths in the crowded battlefield of Gaza’s urban areas. It has also damaged trade. Many ships now avoid the Red Sea and Suez Canal for fear of Houthi attacks – on civilian ships as well as on the naval vessels trying to protect their passage.

In recent days, there has been a new urgency from the US about a negotiated cessation of hostilities. This is needed to provide time to try to negotiate a lasting ceasefire in Gaza. Egypt and Qatar have been acting as intermediaries and Israel’s allies have been urging it to avoid further intensification of the war and to do more to avoid civilian casualties.

Unlocking a ceasefire requires finding a way through Israel’s wish to see the return of the hostages, an end to rocket attacks and some security guarantees for the future and the Palestinian wish to end the Israeli military action, to create a self-governing Palestine, embedding the two-state solution in law and international agreement. There are issues about the views of Hamas which are central to the war, as it is the group leading the fighting against Israel. They are the ones who would need to stop firing when agreement with Israel is reached.

World opinion wants there to be a ceasefire whilst understanding the big gap between the two sides, as well as understanding the range of views about the future within Israel and within the Palestinian people and their various leaders. A cessation of hostilities would be welcome news. There is a feeling that the war needs to be brought to an early end.

What could end the Ukraine war?

In Ukraine there have also been some changes. Delays in voting money and military support by the US, has coincided with the European Union’s (EU’s) inability to meet its promised levels of supply of ammunition and other weaponry. The EU’s latest vote of money after difficult negotiations amongst member states does not offer enough – and provides some of the aid as loans.

This is placing President Volodymyr Zelenskyy in a difficult position. His long-suffering troops are well dug in along heavily-defended positions on both sides, but they are now at a disadvantage. They have less ammunition to use to keep up daily war activity – and are occasionally losing small pieces of territory where Russia concentrates forces. Ukraine does not seem to be currently in a position to mount a strong offensive to wrestle more land back from Russian occupation.

Turkey is putting in new drone production and servicing capability into Ukraine and Germany has announced a new ammunition factory to help. Meanwhile, Ukraine lacks enough 155mm shells. These are the standard Nato 6-inch shells that cost several thousand dollars each in current wartime conditions. The US has provided two million rounds and the EU is unable, so far, to fulfil its promise of one million.

Many Americans sees Ukraine as a European problem.

Into this difficult background, the pope last week suggested Ukraine should “have the courage to raise the White flag and negotiate”. His remarks have subsequently been clarified by the Vatican to backtrack from any suggestion Ukraine is losing the war or needs to surrender. What matters more is the view of the US administration, where Secretary Janet Yellen’s remarks at the G20 Summit implied the US is moving towards wanting some form of negotiated peace, given the strains the war is placing on Ukrainian people and on the politics in Washington.

With Donald Trump saying he would negotiate a peace between Russia and Ukraine – and with more members of Congress reluctant to vote large sums of money to support Ukraine – there is more of a mood in favour of negotiation. It has yet to become official policy by the president.

EU foreign policy

Many Americans sees Ukraine as a European problem which the EU and European members of Nato should do more to resolve. The EU has had a Common Security and Defence Policy since 2003. It reported on nine military missions and twelve diplomatic and advisory missions underway, including military assistance to Ukraine in its 2022 report.

The EU has been pursuing a policy of expanding its membership and influence through the Balkans and now into Ukraine. In 2013, Croatia joined the EU. Albania, Bosnia, Montenegro, North Macedonia and Serbia are all candidates for membership. As candidates, they have Association Agreements, are seeking to align their laws, enter into freedom of movement policies with the EU – and bring their trade under EU rules. The EU has imposed 13 sanctions packages on Russia following the invasion and sanctions on Belarus.

Ukraine left the USSR in 1991 and entered a partnership agreement with the EU in 1994. In 2013, the elected President of Ukraine, Viktor Yanukovych, refused to sign the EU Association Agreement on offer, favouring continued links with Russia. This led to his overthrow, with a new pro-EU President signing the agreement in 2014. Russia retaliated against what it called a Western organised coup by taking Crimea. Russia held a referendum which western observers were not allowed to watch which gave a large majority in favour of Crimea returning to Russia.

The EU is working with five former USSR states over closer ties and possible membership, having dropped Belarus. Turkey has been negotiating on-and-off since 1987 for membership – and has had an Association Agreement since 1963. Others have made it to membership more quickly. The EU has issues with Ukraine over the appointment of judges, press freedom and alleged corruption. There will also be complications aligning a war-torn economy with EU rules.

The response of Russia

President Vladimir Putin claims Nato and the EU are hostile to Russia, so he sees the advance of EU membership through the Balkans and potentially into Ukraine as a threat. The West tries to explain to Russia that membership of the EU is voluntary – and the EU has no wish to expand by military means or undue influence over countries. Nato also explains that its members belong to a defensive alliance which would never seek to acquire more European territory by invasion.

It suits President Putin to portray the West as enemies as he seeks to gain control over lost parts of the old USSR and as he strives to increase Russian influence generally. At some point, he may wish to abate the pressures of a war-time economy, but this year he is likely to keep the pressure on the West. He will want to see how US politics evolve over the issue of how much support to offer Ukraine and if and when to ask them to negotiate an outcome. Negotiated truces or peace agreements would ease trade tensions and restore shipping routes.

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Wars continue to hang heavy on markets

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