Putin pulled the trigger…
Russia’s Putin launched an unprovoked military invasion into the Ukraine on February 24th 2022. Up to that point Putin had three strategic options to deal with the self-inflicted situation in the Ukraine: to de-escalate, to muddle-through or to attack.
I had assigned a low probability to a full scale military attack, as I thought Putin would be a calculated risk taker and act at least to some extent rational.
Below you will find my ten key takeaways on the current situation:
Putin and his Regime Turned into War Criminals
This is Putin’s war against an independent, peaceful and democratic neighboring country, the Ukraine, but also against all multilateral institutions and rules, free and democratic societies and humanistic values.
Putin has been a ruthless autocrat, now turning into a war criminal, as is his regime’s inner circle. Anyone who benefits, hides behind neutrality or shows any understanding of Putin’s motivations and actions is complicit.
History is not kind to dictators. History teaches us that in war there is no middle ground and this war is of geopolitical importance – it is a battle between autocracy and democracy.
Historic Reversal in Europe
The direct consequence of Putin’s war is a historic reversal, a ‘Zeitenwende’ in post WW ll and post Cold War Europe. There can be no doubt that democracies must prevail against autocracies.
Putin and his regime will pay a very heavy price for their scrupulous acts and for their strategic miscalculations. It is only a matter of time until Russia will find itself at the losing end of this conflict.
A Cornered Putin is ever more Irrational
Unfortunately, we now have to be prepared that Putin goes from a mental state detached from realities to utter desperation once he realizes that he is on the losing end – militarily, politically and economically.
We expect him to double down until stopped by his inner circle and/or a criminal court of war.
Paying the Price for Appeasement
Europe had to painfully realize, yet again, that it was wrong to appease dictators. In particular, neglecting to secure and maintain adequate military forces, as well as relying on Europe’s energy dependence from Russia have been costly geopolitical mistakes, especially for Germany.
Full Support for the Ukraine
The Ukraine deserves full international support, including humanitarian, economic, financial, political and military aid. Russia, on the other hand has to be isolated and sanctioned. In a second phase, Europe needs to significantly strengthen its military capabilities and capacities while securing energy independence from Russia.
Putin’s Military Miscalculations
Undoubtedly, Russia’s armed forces are superior in weaponry and in sheer numbers. However, Putin’s plan to occupy the Ukraine with a ‘Blitzkrieg’-type strategy – take out the government, claim victory and go home is naive and seriously unrealistic.
As an attacker, you first need to deploy the elements of surprise, speed and overwhelming force in troops, tanks, artillery and air support. Then you should encounter an inferior and defeatist opponent. However, patriotic and brave Ukrainians are putting up formidable resistance, strong leadership and fighting spirit.
The military reality is that Putin wasn’t able to invade with overwhelming force, yet miscalculated the sheer will and capabilities of Ukrainians to defend their country. The US, EU, UK and NATO closed ranks within a few days by deciding on crushing economic sanctions while supporting the Ukraine with military intelligence and weapons.
Clear and Present Danger of a Russian Escalation
We expect that Putin won’t be able to occupy the Ukraine leading him to escalate with more lethal weaponry up to the threat of tactical nuclear weapons.
Do not underestimate that any protracted war or fast mounting risks of civilian massacres will turn public opinion in Russia, Belarus and around the world against Putin.
Imposing Western Sanctions – Massive, Immediate, Crippling
Putin believed Western Nations are weak, divided and incapable of agreeing on effective sanctions. Yet Western Nations took unprecedented steps towards massive, immediate, coordinated and multilateral sanctions to punish and isolate the Russian system and economy to the fastest and maximum possible extent.
The target is Putin’s inner circle and regime, however, the Russian people will painfully feel the effects of declining living standards and severe shortages.
Germany’s Break with Putin
The Russian despot’s most fatal and costly miscalculation was to take Germany for granted. Putin played on Germany’s WW ll guilt, on gratitude for German reunification, on German energy dependence and, last but not least, on the fact that he got away with the illegal annexation of Crimea in 2014.
Germany publicly acknowledged that its appeasement policy of the past decade has backfired. Germany’s Chancellor Scholz, fully supported by all mainstream parties, condemned Putin and his regime in hard and clear language.
Today he fully committed to Western sanctions, maximum support for the Ukraine including sending weapons, significant financial resources to strengthen German armed forces and accelerate energy independence from Russia.
Capital Markets and Investment Opportunities
Russia is from a global economic and capital markets point of view already insignificant and it will be structurally crippled by Western sanctions. Global markets including Europe respond with some heightened volatility but any relevant weakness should be treated as a buying opportunity in key markets and quality investments.
Two sectors stand out as beneficiaries: in the short term, conventional energy sources will profit from temporary supply squeezes and in the medium to longer term, alternative energy will benefit from massive investment and growth acceleration due to the decision to diversify away from Russian energy.
The global aerospace and defense sectors will profit significantly, as this historic turning point in Europe will lead to further strengthening of NATO and to massive rehabilitation and upgrading of armed forces across Europe.
Sun 27.02.2022. Article by Beat Wittmann, Chief Investment Strategist at Key Family Partners SA
