POORLY EQUIPPED RUSSIAN TROOPS, their morale shot, are fleeing from the front lines in Ukraine, as speculation begins about a possible truce in the war. That’s probably premature, but as we’ve asserted since late February, there’s no way that Moscow can win this war.
REPORTS THIS WEEKEND HAVE BEEN ASTONISHING: Russians have been fleeing, some speeding away on stolen bicycles, others disguised as Ukrainians. They have left behind enormous weapons supplies, which will be put to good use by Ukrainian troops. The rout is so dramatic that Ukraine’s biggest worry is that its troops are far outrunning supply lines.
MOSCOW IS STUNNED: Pro-war bloggers have turned their rage on Vladimir Putin, the military and Russian intelligence officials, who were caught flat-footed by the Ukrainian blitzkrieg. What will Putin do? That’s the only issue that matters, and it seems that Russia has four options:
1. Double down: Putin is hearing from hawks who want to intensify the war, with more missile strikes and possibly the use of tactical nuclear weapons. This is a genuine threat, even though the beleaguered Russian generals oppose it.
2. Seek a truce: It there a face-saving exit ramp? Yes, the Russians could embrace a cease fire and retreat to pre-war borders, claiming their objectives have been satisfied. But Volodymyr Zelensky wants more, including Crimea, and he may have the upper hand in negotiations with the humiliated Russians.
3. Oust Putin: Over a dozen Russian generals have been killed in the war, and surely there must be someone in the military hierarchy who wants to take out Putin. He could be targeted, or there could be a mass uprising. This would electrify the West, but there’s always a threat that Putin might be replaced by someone even worse.
4. Freeze the West: A highly plausible scenario is that Putin hangs on and imposes a Russian embargo on shipments of natural gas and oil to Western Europe. Putin may believe this will erode Western resolve, but a major surprise in recent weeks has been the aggressive stockpiling of supplies in the West.
ALL OF THESE FOUR SCENARIOS, OR COMBINATIONS, ARE POSSIBLE: This is a very fluid situation, with new developments every hour, but the bottom line is that Russia is losing the war, a debacle that the entire world can see. Putin will have to sue for peace; the only issue is when — next month or next year?
INVESTMENT IMPLICATIONS: If the war ends with a de facto Russian defeat, what would that mean for the markets? First and foremost, prospects would diminish for a European recession and a U.S. slowdown. Energy prices would fall, along with inflation fears. Central bank tightening, especially in the U.S., might come to an end by early next year.
A GLOBAL PERCEPTION that Russia has lost the war would have enormous implications. Putin’s gross miscalculations would make China and India a little less likely to side with Moscow, and it would be an enormous victory for Joe Biden, who unified NATO countries in favor of huge arms shipments to Zelensky.
IT’S ALWAYS POSSIBLE that Russia could strike back viciously, but when soldiers flee on bicycles, leaving their weapons behind, there’s a message: just as in 1918, the poorly trained Russian troops want nothing to do with this disastrous war.