One year after the start of the war, our global Ukraine Taskforce takes a look at the state of the war against Ukraine, outlining how the political positions of various countries will evolve and how the war continues to shape the developments in the energy sector and the global business environment.
1. The Geopolitical Environment on the Anniversary of Russia’s Invasion
As the first anniversary of Russia’s invasion of Ukraine approaches, no end to the war is in sight. A war of attrition extending deep into 2023 and perhaps even beyond remains the mostly likely scenario moving forward.
Despite the tremendous loss of life and the destruction of Ukraine’s economy, the will of the Ukrainian people to resist the Russian aggression remains unbroken. That will almost certainly not change, regardless of developments on the battlefield.
Russia is preparing for a long war, as evidenced by escalating rhetoric, dramatic increases in defense spending, and measures placing the economy on a genuine war footing. Assessing public sentiment in Russia remains difficult, but a majority most likely continues to support the war effort.
Russia is betting that its far larger economy – despite the isolation and harm caused by Western sanctions – will generate the capabilities its military needs to ultimately overwhelm the far smaller Ukrainian forces. It will continue its attacks on Ukraine’s infrastructure far behind the front lines, and it will speculate that Western support for Ukraine will weaken the longer the conflict lasts.
Western backing for Ukraine remains strong, however, with political majorities in Ukraine’s key partner countries prepared to continue delivering significant military and financial assistance. The ability of Western countries to produce and deliver, in a timely manner, the weaponry that Ukraine needs will play a major role in the development of the war this year.
Both Ukraine and Russia are reportedly preparing major offensives in the coming weeks or months. The trajectory of those confrontations could provide signals as to the likelihood for de-escalation, a ceasefire, or even peace negotiations this year.
China has announced that it will unveil a peace plan on the first anniversary of the war. Distrust of China’s role in the conflict remains high in the West, however, with some officials already expressing skepticism that Beijing will move away from what they believe is support for Russia’s position in the war.
Beyond the West, most countries, while acknowledging that the fallout of the war has harmed their interests, are not prepared to explicitly take sides, a fact that Western leaders now recognize. Because of their stance, however, some of these countries could in fact play the role of a neutral arbitrator in any talks aimed at de-escalating the conflict.
Outlooks & Perspectives in Key Capitals
What can be expected from key capitals this year? We have asked our experts in Washington, Beijing and Brussels to share their predictions.
The United States’ overall support for Ukraine remains strong, albeit complicated by shifts in its domestic political landscape. President Biden and members of his cabinet continue to express staunch support for President Zelenskyy and Ukraine, as evidenced by Biden's surprise visit to Kiev this week. Forthcoming deliveries of expanded weaponry and other military support are intended to meet the country’s evolving needs in the face of continued Russian mobilization.
Following Biden’s trip to Ukraine, House Foreign Affairs Committee Chairman Michael McCaul (R-Texas) is expected to lead an upcoming Congressional Delegation of lawmakers to Ukraine.
Coordination with NATO and European allies can be expected over the coming months as negotiations over future air support and other sophisticated transfers continue, as well as ongoing discussions over Ukraine's pending application to the transatlantic alliance.
No new funding for Ukraine is expected to come from Congress during the current fiscal year, which ends September 30. The Democratic majority in the last Congress approved $45 billion in emergency assistance in December out of concern that future funding would face an uphill challenge with the new Republican House majority. In the Senate, by contrast, the leadership of both parties have pledged continued support for Ukraine.
China will maintain its close relationship with Russia while attempting to improve relations with the West and claiming a neutral position in the war. China will seek diplomatic dialogue with Western officials, call for improvements in the humanitarian situation in Ukraine, and if necessary reiterate its condemnation of nuclear threats in an indirect deployment of its leverage.
In a speech to the Munich Security Conference on February 18, Wang Yi, China’s most senior diplomat, announced that Chinese leader Xi Jinping would unveil a peace plan for Ukraine on February 24th, the first anniversary of the Russian invasion. Western officials have already expressed skepticism, however, particularly because in Munich Wang Yi indirectly accused the United States of having an interest in prolonging the war.
As China engages in diplomacy, it will seek to deepen economic cooperation with Russia without violating Western sanctions, and it will continue to criticize the US for supplying weapons to Ukraine. The differing perspectives on Ukraine between China and the West will continue to fuel distrust throughout 2023.
The EU will continue to support Ukraine while its unity continues to be tested by differing perspectives on the level of support, displayed most strongly in recent disagreements over supplying tanks to Ukraine.
Despite these differences, support for Ukraine remains strong in Berlin and Paris. In Germany, differences in approach among the ruling coalition may cause headlines, even if there is a strong consensus on the overall need to strengthen Ukraine’s ability to fight.
Former communist countries closer to the front lines, especially the Baltic states and Poland, will continue to push for more substantial and timely support to Ukraine, whereas Hungary is increasingly complicating the EU’s ability to introduce additional sanctions.
EU accession remains a strategic priority for Ukraine. While the EU recognizes the importance of outlining a clear accession path for Ukraine, it has sought to dampen hopes of a high-speed accession procedure. There are clear prerequisites for EU accession, and the majority of member states will emphasize that these need to be uphold – not least in order to avoid further alienating other candidate countries. Additionally, Ukraine joining the EU would entail a duty of assistance toward Ukraine which most member states want to avoid creating. Lengthy and complex accession negotiations lie ahead, which will certainly frustrate Ukraine and risk creating disillusionment with the West.
With its quick, joint action in response to the Russian invasion, the EU has won the short-term energy war against Putin. Energy markets, companies and consumers have all demonstrated remarkable flexibility and adaptability.
The road to longer-term energy security remains challenging, however. (European) Countries implemented a large number of measures to conserve energy in the short term, and a mild winter helped reduce demand. Governments also took measures to mitigate the economic and social impacts of soaring energy prices. Such measures are likely neither politically nor fiscally sustainable in the longer term, however.
Despite the renewed short-term reliance on fossil fuels, the energy war has accelerated the energy transition, especially across Europe. With the Inflation Reduction Act, the U.S. has already found a political lever to provide targeted tax incentives for mid-/long-term transition developments, like hydrogen.
It remains to be seen whether the EU’ Green Deal Industrial Plan will be able to promote investments in Europe to the same extent and thus manage the balancing act of consistently expanding renewable energies while at the same time guaranteeing consumers and companies secure supplies of energy.
3. Reconstruction & Future Support for Ukraine
Alongside the human toll, Russia’s invasion has caused and will continue to cause significant damage to Ukraine’s economy and infrastructure. Ukraine's estimated recovery and reconstruction costs range between 350 and 750 billion Euros, a remarkable sum given that the GDP of the country was about 200 billion Euros in 2021.
The bill will only increase the longer the war goes on, and all reconstruction, whether short- or longer-term, faces a quandary: how many resources should be used to build back what is at risk of being destroyed again by Russian missiles?
The EU, the U.S. and the UK in particular are providing short-term aid aimed at ensuring Ukraine’s survival. It is primarily used to rebuild critical infrastructure destroyed by Russian aggression and provide a financial lifeline to the Ukrainian government to continue operating.
Even though Ukraine’s long-term reconstruction needs remain a secondary conversation in Western capitals as long as a negotiable peace settlement is not in sight, governments’ have started positioning themselves on the issue. The EU, the U.S., and the G7 countries have already affirmed their intention to support the long-term reconstruction of Ukraine.
The EU and the G7 have unveiled a “Multi-agency Donor Coordination Platform for Ukraine”. With a secretariat in Brussels and Kyiv, the platform will coordinate long-term reconstruction efforts, including financial contributions from multilateral lending institutions such as the World Bank.
The long-term challenges extend well beyond physical reconstruction. The Ukrainian government aspires to build a new Ukraine that will be ready for EU accession. This entails an economic and societal modernization that breaks firmly with the country’s Soviet past. Ukraine aspires to fundamentally overhaul governance, rein in the country’s endemic corruption, and subjecting powerful vested interests, i.e. oligarchs, to the rule of law, so to ultimately pave the way towards deeper European integration.
Whatever shape the long-term reconstruction plan will take, the private sector is set to play a key role in it. Many private companies continue to operate in Ukraine and are already involved in its reconstruction. However, to further leverage their knowledge and investment potential, it will be crucial for Ukraine to enact institutional reforms and progress in the fight against corruption. Western governments will encourage companies to become active through investment guarantees and government support programs.
4. Corporate Decisions and the War
The swiftness with which many Western companies announced a withdrawal from Russia in 2022 demonstrated strong commitments to their values. Their actions, combined with media and public pressure, motived other companies to announce their exits as well.
These developments underlined that purpose- and morals-based expectations towards companies have changed – for good. Even though sustained public calls for companies to cease operations with and in Russia have largely subsided, the bar against which businesses’ global actions and operations are measured has continued to rise and will not go back to the level it was. The war in Ukraine has thus accelerated a trend: Companies need to be more prepared than ever to communicate how their business activities and supply chains relate to larger societal conflicts and conversations.
Russia will remain marginalized from Western markets for as long as the war continues. Western sanctions will not be lifted any time soon and will likely remain in place indefinitely in sectors even indirectly related to Russia’s military. Even in sectors not deemed of concern for security reasons, rebuilding trust with Russia will take many years.