The underdog has the upper hand now – What’s next?

• Ukraine’s successful counter-offensive is another demonstration of its army’s resilience and strength against a much larger yet underperforming Russian army. Still, it is too early to say whether the conflict has reached a turning point.

• In this note, we keep our scenario of a frozen conflict in the short term but outline five alternative scenarios. We see little room for peace talks but we also consider escalation unlikely. Meanwhile, odds for Ukraine winning the war have increased.

• We do not expect sanctions relief but instead highlight that businesses should start to envision opportunities arising from the reconstruction and recovery in Ukraine.

Over the weekend, Ukraine launched a successful counter-offensive against Russia in the Kharkiv region. The northeastern offensive followed a tactical disinformation campaign by the Ukrainian army two weeks ago regarding an offensive in Kherson region, in country’s south. Turns out, the southern offensive was a trick and just as Russia was moving its troops to the south, Ukraine caught the Russians off guard in northeast where Russian troops subsequently panicked and fled. In less than five days, Ukraine managed to retake more territory than the Russian army could occupy in four months.

While we think it is too early to call the latest events a turning point, we see a number of alternative scenarios to our main scenario of a frozen conflict in near term. As a word of caution, the scenarios presented below constitute a simplification of a very complex situation. Furthermore, they are not necessarily mutually exclusive, but could overlap or follow each other, and something we have not been able to envision, could also play out. In addition, we stress that we are not military experts, but build our views on the vast amount of foreign policy and military analysis available in public sources.

Alternative scenarios: Ukraine win is far from guaranteed

1) Ukraine wins (medium likelihood): In this scenario, Ukraine forces the Russian troops back behind the pre-war frontline in Donbass and claims a victory. Whether a complete or a partial retreat (the latter implying a trench warfare along the 2014-22 lines), is less important for the global power balances, as losing the now-occupied territory in Eastern Ukraine would mark a substantial defeat for Russia. We see such a scenario plausible as long as no sanctions are lifted and Ukraine continues to receive support from the West, and considering the latest events, the odds have improved. Russia is clearly underperforming: its casualties exceed the number from its decade long-war in Afghanistan, troops’ morale is low and shortages acute. Same time, sanctions hamper Russia’s ability to replenish its weapons stock, while allies continue to equip Ukraine’s highly motivated army.

2) Escalation (very low likelihood): In this scenario, Russia’s decision to deploy ever more brutal force leads to an escalation. The number of war crime files against Russia already runs into tens of thousands and as a further sign of them not sparing any means, after Russian troops withdrew Kharkiv over the weekend, reports emerged of them bombarding civilian infrastructure in the region, marking another illegal action.

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