The West’s recent decision to send battle tanks to Ukraine to counteract a renewed Russian offensive increases the risk of a direct escalation with the West, while the likelihood of a protracted war remains somewhat higher. At the same time, most modern conflicts end in negotiations when both sides are sufficiently exhausted, and we consider the possibility of a ceasefire towards the end of 2023 and heading into 2024 is currently underappreciated.
- Notwithstanding how the conflict will play out, the geopolitical landscape has changed significantly since the start of the conflict. NATO has re-established itself at the forefront of Western defence, and defence spending has increased across the board. At the same time, countries that have refused to condemn Russia are enjoying newfound leverage on the geopolitical stage.
- The economic impact on Ukraine has been devastating, with over 5 million people displaced and a collapse in GDP. Estimates of reconstruction costs range from USD 350-750 billion and are still rising. So far, the Russian economy has fared better than many economists expected, mainly due to the windfall gains from last year’s spike in energy prices, but the adverse effects of sanctions will show over time.
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