Six More Months (R)
Financing the War in Ukraine
I will start my post today with a summary of the blowback implications of the latest US aid package for US, as outlined very clearly in a recent article by Jack Rasmus (see Jack Rasmus), entitled Ukraine War Funding and Failed Russian Sanctions. Is the US Empire Shooting Itself in the Foot?
Rasmus concludes that most of the military hardware has already been funded, produced and shipped, and therefore perhaps as little as $10 billion is available for additional new weapons and equipment. $23.2 billion of the package pays US arms producers for weapons that have already been produced and delivered to Ukraine. Another $13.8 billion is earmarked to replace weapons from US military stocks. In total, therefore, weapons already delivered to Ukraine, awaiting shipment, or yet to be produced amount to approximately $37 billion. The remainder of the $61 billion includes $7.8 billion for financial assistance to Ukraine to pay for salaries of government employees through 2024. An additional $11.3 billion will finance current Pentagon operations in Ukraine. There is another $4.7 billion is for miscellaneous expenses.
Only $13.8 billion of the $61 billion is for weapons Ukraine doesn’t already have. That may be sufficient to carry Ukraine to the end of 2024. After that, where does the money come from? The Biden administration’s strategy for pushing Russia to “freeze” the conflict and negotiate will simply not work because Russia has correctly surmised that the collective West is irredeemably undependable and dishonest.
So, instead, the fallback position will be to keep the war going with help from a provision in the aid package that allows the US to seize Russian assets and which may eventually push the EU to do the same. This could provide up to $300 billion for Ukraine from USA and its G7 allies, especially NATO allies in Europe where reportedly $260 of the $300 billion resides in Eurozone banks. The provision in question is HR 8038, a 184 page bill, the “21st Century Peace Through Strength Act.”
The 21st Century Peace Through Strength Act calls for the US to transfer its $5 billion share of Russia’s $300 billion of seized assets in Western banks that were frozen in 2022 at the outset of the Ukraine war to Ukraine. Europe holds $260 of the $300 billion. The US seizure of $5 billion of Russian assets frozen in US banks will create a legal precedent will be made that Europe may use to follow and transfer its $260 billion. Biden is authorized by the bill to ‘negotiate’ with Europe and other G7 partners to persuade them to liquidate the assets into the cash for transfer to a US ‘Ukraine Defense Fund’.
But the consequences, argues Rasmus, will be counterproductive, harming the collective West and strengthening Russia. Russia has already indicated that it will retaliate by seizing at least an equal amount of European assets still in Russia. Russia has already transferred the assets of EU companies that departed Russia in response to G7/NATO sanctions. This has stimulated the Russian economy because the Russian government transferred the assets to the Russian entities that replaced the former European companies. Western seizure of the $300 billion of Russian assets will result in Russian government seizure of at least an equivalent of European companies’ assets still in Russia. That will provide funding for still further government subsidy spending benefiting Russian companies followed by more private investment.
This is on a par with the general failure of US/NATO sanctions, which have had very little negative impact on the Russian economy and a lot of positive impact. Russia’s GDP in the latest six months has risen to over 5%. PMI indicators for Russian manufacturing and services show expanding markets while in most major European economies they have contracted. Wage growth in Russia over the six months has averaged 8.5%, far better than in the USA or Germany. In addition:
“Russian government revenues rose from roughly 5 trillion rubles in the third quarter to 8.7 trillion in the 4th. Military expenditures are up from $69.5 billion (dollars) to $86.3 billion. Consumer spending is at record levels in the latest quarter. Russian household debt as a percent of GDP remains steady at around 22% (whereas in the USA it is 62.5%). Crude oil production and general exports continue to steadily rise. Gasoline remains at 60 cents a liter (whereas in US five-six times that and in Europe more than ten times). And the unemployment rate in Russia remains steady at 2.9% (whereas in the US and Europe it’s a quarter to a half higher). Interest rates and inflation are higher in Russia but that represents an economy firing on all economic cylinders and is not necessarily a negative” (Jack Rasmus).
Many in the US financial sector have warned the Biden administration that seizure of Russian assets will undermine faith in the US dollar, discouraging countries in the Global South from leaving assets in Western banks, particularly now that the US imposes secondary sanctions on those who disregard its primary sanctions on Russia. And these countries now have alternatives in the BRICS community which has 10 members already with another 34 countires petitioning to join, and which later this year is expected to announce the creation of an “alternative global financial framework.” A consequent decline in the use of the US dollar sets in motion a series of events that will undermine the US domestic economy: a fall in the dollar’s value; recycling of dollars back to the US, falling purchases of US Treasuries from the Federal Reserve, and rising long term interest rates to cover rising US budget deficits.
We can add to the Rasmus calculations the observation that informed sources indicate that by the end of 2025, assuming the realization by the collective West of its shell production plans, Russia will still outgun Ukraine by a ratio of 4 to 1, and that Ukraine will have run out of men by that time. A pro-Ukrainian military commentator in Britain’s Daily Telegraph (Colonel Kemp) assesses that Ukraine has only six months left (which should take us exactly to November - a record application of “just in time” neoliberal economics?) because of a robust Russian economy, Russian air supremacy, deficient Ukrainian air defenses and its exhausted army - not to mention Russia’s far greater weapons production capability.
But we should not underestimate the danger, likelihood even, that the provision of F-16s and more long-range missile systems to Ukraine including the ATACMS (probably we will see a transition to the relatively more powerful “de-fanged” versions) and HIMARS, will be increasingly used to target cities and facilities on the Russian mainland. NATO pressure on some of its Mediterranean members, including Spain, Italy, Greece and Turkey, to give up their air defense systems such as Patriots and Hawks (outdated and long out of production) for the benefit of Ukraine, will not take kindly to being deprived of the weapons they point at one another (e.g. Greece and Turkey) or other adversaries.
Note, by the way, that in addition to the latest aid package from the US, some other NATO countries, notably Britain, are upgrading their provision of cash and weapons to Ukraine; in the case of Britain this is valued at around $600 million, and Britain is also talking of increasing the proportion of its GDP that it will spend on “defense” (i.e. aggressive war) up to 2.5% within the next few years.
The Battlefields
Reports from the Ukrainian 79th Brigade, which in the last couple of days abandoned its positions in Novomykhailivka in protest against Ukrainian leaders’ inability or unwillingness to maintain supplies to the brigade, show that without taking a pause, Russian forces have proceeded to attack the nearby settlements to the west, namely Paraskovsyka and Kostyantynivka, with upgraded materiel and tactics that include “motor marine” storm troopers whose speed makes it much easier for Russia to evade FPV drone attacks.
Ukraine has previously claimed - unlikely, as many commentators agree - that it cost Russia 300 tanks to succeed in taking Novomykhailivka. But now that it has succeeded, it is well positioned to move its forces in the south to cut the major supply route connecting Kostyantynivka to Vuhledar, and to move its forces in the north to join up with Pobieda, which Russia had already taken following its recent victory in Avdiivka and subsequent absorption of villages to the north, west and south of that town.
Russian forces have closed a swathe of territory that separates Pobieda (southwest of Marinka) from Heorhiivka (northwest of Marinka) and have entered the center of Heorhiivka. Further north still, Russian forces continue to make progress in the taking of Krasnohoriivka. And still further north - north of Avdiivka and Orlivka - Russian forces have taken the village of Semyonovka which is just south of Berdychi (the western end of which has, and may continue to be, a major area of combat).
Berdychi itself is somewhat south of Ocheretyne, which Russian forces have now acquired completely, following defeat of Ukraine’s 115th Brigade and 47th Brigade (which refused to enter the settlement, plus there was one other brigade ordered to replace the 47th but which refused to obey orders). Just southwest of Ocheretyne, Russian forces have just taken, without resistance, the village of Novobakhmutivka and are close to taking (or have already entered) Soloviove, while to the north of Ocheretyne, Russian forces have or are in the process of taking the village of Novokalynove and will likely soon take Keramik and cut the roads to Arkhanholske to the west and Oleksandropil (just north of Novobakhmutivka) to the east.
Northwest of Ocheretyne, Ukrainian forces have already begun to evacuate the settlement of Novoleksandrivka, inviting a rapid, and further westwards push by Russian forces that would signal a major collapse of the Ukrainian line of combat. All these developments reduce the distance between Russian forces in the Avdiivka area and those that are pushing Ukrainian forces back near Chasiv Yar further north, west of Bakhmut. To the southeast of Chasiv Yar there has been a Ukrainian counterattack between Ivanivske and Klishchiivka. Northeast of Chasiv Yar, Russian forces are struggling to capture the forest area north of Bohdanivka so that they can proceed westwards from Bohdanivka to Kalynivka and to attack Chasiv Yar from the north. North of Bakhmut area, Russia is pressing on the town of Rozdolivka on the route to Siversk.
In a sign that some commentators believe adds to other indications that Russia may be preparing for a major offensive from the northern border towards Kharkiv is that Russian area forces now under General Lapin are beginning to mark their tanks with the letter “N,” in place of the more usual “Z.” Lapin was responsible for withdrawing Russian forces back from Lyman at the time of Ukraine’s fall 2022 Kherson and Kharkiv offensive, something for which he has either been criticized (for leaving insufficient forces in the area to counter Ukraine) or praised (for saving Russian forces in good time from being encircled).
The string of recent incidents in which Ukrainian Brigades have surrendered or disobeyed orders may be indicative of a growing apprehension in Ukraine that Russia has achieved unstoppable momentum. Attesting further to this apprehension are relatively extreme measures to coerce Ukrainian men to join the war, as in the removal of consular services to Ukrainian migramts to other European countries. This makes it impossible for them to renew their passports. The results could be counter-productive as the men in question might request of their host countries the protection of refugee status. While these countries will have in mind their obligations to Ukraine they will also have to consider existing laws and their own long-term interests.
In the West there is an increasing sense that the latest aid package will not be sufficient to enable Ukraine to get anywhere close to winning, and that a more practical solution, for the West, would be to freeze the conflict, possibly along the Dnieper, or even west of the Dnieper. Previous possible overtures (e.g. by CIA’s Burns’Ankara meeting with his Russian intelligence counterpart Naryshkin in November 2022) to this effect have failed, but may be renewed at the Swiss-convened peace conference in June (to which Russia has either not been invited as an equal party, or has simply refused to have anything to do with it).
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