Russian troops may be mobilised along its borders and Crimea occupied, but Ukraine has a long history of bouncing back from adversity
“Our enemies will perish, just like the dew in the sunshine,” run the words of the Ukrainian national anthem, sung at the country’s state functions, sporting events and street demonstrations. With more than 100,000 Russian troops breathing down on Ukraine’s northern and eastern borders, plus the southern frontier with occupied Crimea, the sentiments expressed in 1863 by the lyrics’ author, Pavlo Chubynsky, relate more to hope than expectation.
Located in the centre of a perpetually contested Eurasian ‘heartland’, the 1904 predictions of geographer Halford Mackinder of regular geopolitical conflict across the fast-industrialising steppeland, have proved eerily true. More than eight million Ukrainians died during World War II, adding to a mounting fatality list after Soviet dictator Joseph Stalin deliberately starved to death at least four million Ukrainian peasants.
Resilience
Yet Ukraine has somehow bounced back from each historical adversity. Since winning independence from Moscow in 1991, a succession of big personality presidents have dealt with a cast of feisty industrialist billionaires internally, while walking a diplomatic tightrope between east and west externally.
The first, Leonid Kravchuk, was such a wily political operator, he could “dance between the raindrops without getting wet”, according to Kyiv commentators. The latest incumbent, prime-time comedian turned politician Volodymyr Zelensky, learned fast lessons in global deal-making when US president Donald Trump tied military aid to pre-election political favours, including requests to dig up dirt on the Biden family. Now he faces an existential threat: defending three military fronts against Russian president Vladimir Putin, who describes Ukraine’s political system as a hostile “anti-Russia project” established by “Western authors”.
Mainstream financial institutions, long in denial about Russian plans, now ascribe a 50 per cent plus probability of Ukraine being invaded, when plotting scenarios. They see this as a more immediate geopolitical risk than China’s intentions in Taiwan, which banks perceive as a longer-term story.
“This is fundamentally about spheres of influence,” says Kiran Ganesh, head of investment communications at UBS Global Wealth Management. “If this escalates from the current stand-off, key things to watch are what happens to the energy market. It’s not in anybody’s interest to cut off Russia’s supply of energy to Europe, but if it were to happen, there would be a bigger impact on the global economy.”
Sadly, analysts offer little hope for Ukraine’s future sovereignty. “Europe and the US have been very clear that there will be no military response to what Vladimir Putin decides to implement,” says Guillaume Menuet, Emea head of investment strategy and economics at Citi Private Bank, adding that Russia is prepared for Western economic sanctions.
Citi’s main concern is about ‘cyber’ rather than traditional warfare. “We have seen in the past…the crippling of significant infrastructure by attacks on the financial system,” says Mr Menuet. “This is something that would be much more problematic for investors than a local or regionalised temporary armed conflict.”
Other forecasters believe Russian sabre-rattling has already achieved Moscow’s strategic objectives. “Putin has already won a lot, including recognition from Nato that there is a problem,” says Bobby Vedral, partner and portfolio manager at multi-asset firm Toscafund Asset Management. “His meetings on Ukraine are now directly with the US, no longer Europe.”
In private, some forecasters are more negative about the situation than in public pronouncements, where they are sensitive to the vastly wealthy Russian entrepreneurs their banks serve, many of them close to the Russian leadership.
“If you are Vladimir Putin today with 100,000 troops on the Ukrainian border and your negotiations give you nothing, do you go home? I don’t think you can,” says a senior economist at one leading Western bank, working with Russia’s elites.
It is these elites, believe Washington policy-makers, who can still have a significant influence on their leader.
“I don’t think we are talking yet of a revolutionary situation, but if large parts of the security elite believe that Putin is harming their economic and family interests, there will be resistance he will have to deal with,” says Paul Goble, a former special adviser to the US Secretary of State, speaking on a US-Ukraine Foundation video call.
Buffer zone
While not all are agreed on Russia’s endgame, the bleakest forecasts come from those who study Ukraine and Russia particularly closely. “Fundamentally, the Russian leadership wants to subdue Ukraine once and for all. Russia is seeking to transform Ukraine into part of a buffer zone with limited sovereignty,” believes Mathieu Boulegue, research fellow in the Russia and Eurasia Programme at Chatham House. He expects Moscow’s military options to include air strikes from Belarus, threatening the capital city of Kyiv into submission, combined with naval operations capturing the strategic Black Sea port of Odessa.
What could then follow, he speculates, is a partition of Ukraine into a ‘Union state’ which is part of an enlarged Russia and a diminished ‘rump’ Ukraine. The latter would be centred in the western city of Lviv, quickly joining the European Union, thriving from IT outsourcing and high-tech automobile industries.
But Ukrainian financial institutions, while making contingency plans to move staff to other areas of the country should Russian occupying forces move in, are careful not to sow panic with such drastic predictions. “Our base case scenario suggests no full-scale war in Ukraine. We believe Russia is using its troops around the borders to strengthen its negotiating positions at the table with the US and Europe,” says Makar Paseniuk, founding partner of ICU, a leading Ukrainian investment house. “The most likely scenario is an ongoing tug of war between the West and Russia on the diplomatic and informational front without any significant concessions made by Western countries on Russia’s demands, while Russia is unlikely to double back and will try and support the high degree of pressure.”
This route, believe Ukrainian voices, might lead to the ‘federalisation’ of Ukraine, with the currently-occupied Donbas territories re-integrated into Ukraine, vetoing any attempts by Kyiv to join the EU or Nato. The hope in the Ukrainian capital is that a mixture of Western arms, negotiations and diplomatic sanctions – with expulsion of Moscow from the global SWIFT payments system now back on the table – could deter Mr Putin from seizing more territory.
As the poet and ethnographer Mr Chubynsky wrote in the 19th century, before being deported by Russia’s imperial authorities to Archangelsk, “Ukraine is not dead yet.”
Yuri Bender is editor-in-chief of Professional Wealth Management. Follow him on Twitter @YuriBender
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