A major geopolitical risk outfit was arguing the case last week that another wave of Russian escalation through asymmetric channels (cyber and similar attacks on the West) could be looming, which could well have an impact on global markets.

I don’t dispute that Russia has the ability to disrupt global markets by using asymmetric channels, but I am just not sure as to the timing. I also think these efforts by Russia are on-going anyway, as part of Russian President Vladimir Putin’s on-going war with the West.

First, what's the trigger now and not a month or two months ago? Lots of red lines for Putin have come and gone and he has not done very much in terms of really pushing back against NATO. I’m thinking here of the sinking of the Moskva; Ukrainian wins in Lyman and Kherson; supplies of ever more sophisticated Western kit such as Mig29s, T72s, HIMARS, and now Leopard tanks.

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I think we have learned here that Putin is actually scared of NATO as he knows Russia would lose a conventional war with NATO very quickly. And his actions (or the lack of them – why has he not bombed NATO arms convoys?) have taught us that he does not have escalation dominance. I thought he did earlier in the conflict, but events have suggested he has hard limits to what he is actually willing to do. He also cares about his own preservation dearly and does not want to end his days staring down the wrong end of a HIMARS battery.

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Second, Putin knows that anything he does which impacts global markets will quickly turn China and other key parts of the south against him. They have been key allies and he will not want to annoy them.

Third, it’s likely he has been doing all that asymmetric stuff anyway, but it has been blocked/countered by the West. And the more he does, the more the West will retaliate and they still have additional capacity to hurt Russia.

Think of energy – are we now past the peak of what he can do? We are almost through the winter. So, he could halt gas supplies through Ukraine and halt Russian liquefied natural gas to Europe, but this is already running at less than one third of normal flows. Will cutting these make that much difference? If he does, it will likely just hurt key friends in Central Europe – Hungary, Austria and Serbia.

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So, I don't think that’s on the cards.

More likely, I think, is a military escalation in Ukraine. A recent New York Times article suggests that Russia now has 350,000 troops in Ukraine and 150,000 in the environs – close to double what they had at the start of the invasion. The Ukrainians are also talking about Invasion 2.0, to mark the one-year anniversary.

I think a new Russian offensive is quite likely, but I still doubt Russia has the capacity to win this war. It is likely that Putin will look to gain some more momentum/leverage on the battlefield (from a new offensive) and take this into future peace talks. At the moment, he is negotiating from a position of weakness, and he wants to change that.

And there is also talk about a new Ukrainian offensive in the spring, but they will probably want to wait for the arrival of those 100+ Western tanks which could be critical in turning any Russian offensive to their advantage.

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My base case is Russia launches a new offensive this month, and Ukraine exploits that to its advantage – trying to split Russian forces, and perhaps a thrust south through Zaporizhzhia to cut the land corridor to Crimea for Russia.

I do think we are reaching a decisive moment in this conflict though. I think the next couple of months will be critical in defining this war. This latter outcome could still have global market impact though as markets fret about a descent into a scenario where the West and NATO are increasingly brought into this conflict by Russia’s continuous aggression.

Reprinted from @tashecon blog.  See the original here.

The views expressed are the author’s not and not necessarily of Kyiv Post.

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