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When Does the West Pull the Plug on the Ukraine War?

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When Does the West Pull the Plug on the Ukraine War?

Author: Greg Valliere

June 17, 2022

THE SURGE OF INFLATION AND GROWING FEARS OF RECESSION has Western leaders on edge. They fear a bitter winter is coming, with food and fuel shortages that could be destabilizing politically. In private, they increasingly blame the Ukrainian war for this economic crisis.

WE BELIEVE EVERY WESTERN LEADER — from Joe Biden to Emmanuel Macron — wants to re-double diplomatic overtures this summer that might bring the war to an end.

BUT UKRAINIAN PRESIDENT VOLODYMYR ZELENSKY IS ADAMANT that any deal must restore pre-war borders, which is a non-starter for Russia. Zelensky thinks Ukraine can win the war, but as we have asserted since February, neither Ukraine nor Russia can win this war.

AFTER RUSSIAN ADVANCES IN THE ruined Donbas region this spring, gridlock is likely as Western arms pour into the battlefield and Russia desperately searches for new recruits for its depleted military.

WESTERN LEADERS WANT TO STAY IN ZELENSKY’S GOOD GRACES, so they have invited Ukraine into the European Union. The quid pro quo would be Zelensky’s eventual surrender of eastern Ukraine and the end of some sanctions on Moscow (which have not devastated Russia, as promised by proponents).

IN THE ABSENCE OF A CONCLUSIVE MILITARY VICTORY by either side, a negotiation is inevitable; the only question is when. That equation now has a new element — the economic crisis in the West and the politicians’ fear that inflation and recession could lead some weak governments to teeter.

NOWHERE IS THE POLITICAL UNREST more apparent than in the U.S., where surging gasoline prices, the battered stock market and higher interest rates on everything will combine to crush the Democrats in November. Macron and other European leaders also face growing unrest; they’re watching the polls closely for signs that voters are tired of the war.

SO WESTERN LEADERS WILL RATCHET UP THE PRESSURE on Zelensky to cut a deal. Vladimir Putin, meanwhile, will be content to wait out the West until signs of cracks become more obvious.

AN ONGOING STALEMATE will keep prices high for oil, natural gas, grain, fertilizer, etc. Perhaps these prices will level off because of shrinking demand, but tight supplies appear likely for months to come.

IF YOUR FLAT IN BERLIN IS COLD this winter, or if the cost of gasoline stays above $6 per gallon in California, the impulse to blame someone will increase. Zelensky surely knows that he needs a counter-offensive this summer — or a deal. Without either, sentiment in the West may begin to turn against him.

BOTTOM LINE: The ingredients of the global economic crisis largely originate in Ukraine, yet there’s little likelihood of a quick resolution of the war. At some point, many Western leaders will say enough is enough, but that could be months away. A cold and unstable winter will become more likely unless there’s a diplomatic solution soon.


The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.

The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.

AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is a registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.

About AGF Management Limited

Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.

For further information, please visit AGF.com.

©2023 AGF Management Limited. All rights reserved.

Written by

Greg Valliere

Greg Valliere

Chief U.S. Policy Strategist

AGF Investments

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