Dear stockbrokers, dear stockbrokers,
the status of the war in Ukraine is best described as a contest between mainstream narrative and reality. The narrative is made up of what you hear from the mainstream media, the White House, the US Pentagon and official sources in the UK, France, Germany and EU and NATO headquarters in Brussels. Reality consists of what is actually happening in Ukraine.
Let’s look at the narrative first. According to the White House, the EU and NATO, Ukraine is doing relatively well. Ukrainian forces have advanced in eastern Ukraine along a line of attack that runs parallel to the Russian lines of fortifications between Donetsk and Luhansk. Among other things, the armed forces recaptured the regional capital of Kherson, which is strategically located on the Dnieper River and is Kiev’s most important gateway to the Black Sea and international trade.
On the basis of these advances, claims are made that Russia is in retreat, Russian troops are demoralized, Putin is in danger of being replaced, and complete victory for Ukraine is only a matter of time. This narrative is then used as the basis for increased financial aid and weapons supplies by NATO members. President Zelenskyy is touting these achievements through video presentations to the UN, G20 and other international groups.
The reality is as follows. Based on independent and neutral sources, the actual situation on the battlefield is almost entirely at odds with media portrayals. While Ukrainian forces have made advances into eastern Ukraine, they have been against lightly defended Russian positions on or near open ground.
The Russians organized an orderly retreat to fortified lines, leaving the open country to the Ukrainians. The Russians withdrew from Kherson, considering it a non-strategic outpost.
They retreated to the east bank of the Dnieper, leaving Ukrainian troops to reoccupy central Kherson.
Russia avoided a fight over a city of little strategic value while maintaining a stranglehold on river traffic from the east bank.
Meanwhile, Russia is preparing for a massive counteroffensive. Russia has completed the mobilization of 300,000 armed forces. More than 180,000 armed forces are now stationed in battle formations behind Russian lines. The remaining 120,000 soldiers will arrive shortly. This increases the Russian total strength to about 30 divisions.
They are supported by Iranian drones, which are an important reinforcement. The main targets of this counter-offensive are Kharkiv in the north-east, Odessa in the south-west and Zaporizhia in the center of the country on the Dnieper River.
After completing these missions, Russia will gain control of the entire coast from the Sea of Azov to the Black Sea. It also gives Russia control of the Dnieper River and the largest nuclear power plant in Europe.
Russia will incorporate this entire area into the Russian Federation, and will likely advance further into Moldova to unite with a pro-Russian corridor called Transnistria. This would achieve Russia’s strategic goals. Should this succeed, Ukraine would only be a rump state between Kiev and Lviv.
Ukrainian authorities are preparing for a brutal winter by evacuating civilians from cities likely to be the scene of renewed fighting against Russian forces. These Ukrainian expectations seem at odds with the popular narrative that victorious Ukrainians route demoralized Russian troops.
The economic impact of these developments is enormous. US President Biden has vowed that economic sanctions will not be lifted until Russian troops leave Ukraine. Since Russia is not going to give way any time soon, the sanctions will also remain in place indefinitely.
The sanctions have had little economic impact on Russia. However, the impact on Europe and the US has been devastating, leading to energy shortages, inflation and supply chain disruptions. As a result, the EU and the US will plunge into a severe recession in the first half of 2023.
Be prepared for increasing volatility.
Best regards
Jim Rickards
