How does the war in Ukraine end? And who “wins”?


Those questions are discussed in an interesting article at the Carnegie Endowment for International Peace.

Wars sometimes start easily, but it is a tenet of strategy that they are always unpredictable and extremely hard to end. Putin’s war of choice in Ukraine is already escalating faster than most experts would have imagined just a week ago. He has now encircled major Ukrainian cities with his army and threatens to flatten them with thermobaric weapons, cluster munitions, and guided missiles. This will terrorize the civilian population and could demoralize the budding Ukrainian resistance. He could escalate the conflict to another region, such as the Balkans, where long-standing conflicts fester and Russia has an extensive network of intelligence and security services. He may turn the lights off in a major U.S. city with a cyber attack. Most frighteningly, he has raised the alert level of Russian nuclear forces and may be considering introducing martial law.

Meanwhile, NATO, the G7, and a host of other countries have turned the dial of economic punishment up to unprecedented levels. Several European nations that had previously hesitated to involve themselves militarily in the conflict have now done so, sending weapons and financing Ukraine’s resistance. A growing number of voices in Washington are clamoring for a more aggressive approach from the United States and NATO, pressuring the White House to support a Ukrainian insurgency with a broad menu of weaponry or even calling for NATO to impose a no-fly zone over Ukraine.

Amid this escalation, experts can spin out an infinite number of branching scenarios on how this might end. But scores of war games conducted for the U.S. and allied governments and my own experience as the U.S. national intelligence officer for Europe suggest that if we boil it down, there are really only two paths toward ending the war: one, continued escalation, potentially across the nuclear threshold; the other, a bitter peace imposed on a defeated Ukraine that will be extremely hard for the United States and many European allies to swallow.

There’s more at the link.

The author goes on to discuss the available options for both sides in more detail, including what might happen if Russia chooses a nuclear “demonstration” to try to frighten Ukraine into submission.  What might be NATO’s response?  Would the USA respond with a nuclear “demonstration” of its own?  How could escalation be avoided under such circumstances?  The answers are not comforting.

Tragically, given the way the war has developed, there are no longer any relatively simple, painless answers.  Given civilian casualties so far, Ukrainians will never forgive or forget Russia’s invasion.  Given Putin’s clampdown on dissent and blocking of foreign news sources, Russians probably believe that he was justified in his actions, and won’t tolerate any attempt to topple him from power.  Emotions on both sides are hardening into conviction and hatred, and once those have established themselves they’re notoriously hard to uproot.  “I’ve made up my mind – don’t confuse me with the facts!” becomes the dominant approach.

The ramifications are far from limited to Russia and Ukraine.  They extend around the world to every nation.  Rabobank opines that this may signal “the end of Western liberal global capitalism as we knew it“.

Despite know-nothing, buy-anything market expectations that peace talks would prompt a rapid end to this war –because markets– we are no nearer that happening … The Russian people are now the poorest in Europe per capita (lower in dollar terms than Moldova): yet Putin says Western sanctions were going to be imposed anyway, and they will adapt. And adapt they are … Understand this: Russian agri commodities are being used an economic weapon rather than a neutral exception to that war, as the West tried to achieve … Newsflash: Globalisation as we know it is dead. Great power politics will determine commerce, not the commodity traders.

. . .

That is perhaps the end of Western liberal global capitalism as we knew it: and the birth of a zero-sum geopolitical bareknuckle “markets go where we want them to” global state capitalism.

And, yes, dear readers, the West paved the way here with its own past actions. The folks who will look past this chaos to US household wealth rising $5,279bn in Q4 (tell that to the people who can’t fill up their car, buy food, or pay rent!) introduced globalization, QE, ‘Fed puts’, the ‘Too Big to Jail’ 2008 response, and even historical efforts to ‘corral’ key commodity prices geopolitically when needed.

But that was always sold as the exception. It now risks becoming the global rule – and with the West on the wrong side of it.

Again, more at the link.

One analyst sees this as presaging the end of “fiat currency” as we know it.

Tragic though the situation in Ukraine has become, the real war which started out as financial in character some time ago has now become both financial and about commodities. Putin made a huge mistake invading Ukraine but the West’s reaction by seeking to isolate Russia and its commodity exports from the global marketplace is an even greater one.

Furthermore, with Ukraine being Europe’s breadbasket and a major exporter of fertiliser, this summer will bring acute food shortages, worsened by China having already accumulated the bulk of the world’s grains for its own population. Inflation measured by consumer prices has only just commenced an accelerated rise.

Because they discount falling purchasing power for currencies, rising interest rates, and collapsing bond prices are now inevitable. Being loaded up with bonds and financial assets as collateral, the consequences for the global banking system are so significant that it is virtually impossible to see how it can survive. And if the banking system faces collapse, being unbacked by anything other than rapidly disappearing faith in them fiat currencies will fail as well.

More at the link.

It’s interesting to read the above article in the light of the report last week that China may have far larger gold reserves than had been previously suspected.  We know that Russia has built up its gold reserves to a very large extent over recent years.  Given such backing for their currency, that may give the renminbi and the ruble a significant boost against the dollar in terms of international trade.  Without such backing, companies and nations may resort to barter trade with each other (oil-for-wheat, fertilizer-for-components, etc.).  

Another widely-respected analyst concurs that fiat currencies are in deep, deep trouble.

What just happened in the last two weeks is enormously important and misunderstood by many investors.

The Russian invasion of Ukraine and the corresponding Western sanctions and seizure of Russian FX reserves are nothing short of a monetary earthquake. The last comparable event was Nixon’s abandonment of the gold standard in 1971. 

Russia, with the backing and support of China, just told the world that it is no longer going to sell its oil, gas and wheat for Western currencies which are programmed to debase. 

The West in its response just said to all countries around the world: “If you have foreign exchange reserves, held in our system, they are no longer safe if we disagree with your politics.” 

It is similar to what the Canadians did when they moved to seize the bank accounts of Canadians who had demonstrated support for the truckers without due process of law.

Both of these political moves are blatant advertisements for what I call “non state controlled money without counterparty risk”, like gold and bitcoin. If governments can weaponize their money when they do not like what you are doing, what is the natural defense?

. . .

Putin just shot “King Dollar” in the head.

We can see it in the financial markets, as the price of everything commodity related is going up relentlessly in dollar terms.

Russia is long commodities, long gold and doesn’t need fiat currency. His debt to GDP ratio is low and taxes are low. If the world financial markets collapse on a relative basis, the position of Russia will be improved significantly. This is what I believe he is playing for. If investors do not recognize this they will be caught wrong footed as I believe many are today.

The implications for investors are quite clear. None of us own enough gold, real assets or commodities. Fiat currencies are going to fail spectacularly, and soon, in my opinion.

. . .

We believe investors must begin to consider the “tail risk” that all confidence could be lost in our current monetary system.

More at the link.

Why am I talking so much about economic factors when we began by discussing military options?  It’s very simple.  When economies fail;  when currencies collapse;  when people can no longer get the food they need, and economies can no longer get the basic building blocks of what they need to produce goods and services . . . then military options take over as the logical, rational thing to do, because there are no longer any practical alternatives.

That’s what I fear may be the result if the Ukraine conflict is allowed to fester and escalate uncontrolled.  I’ve seen it elsewhere in the context of smaller, poorer, more primitive countries.  What happens if it occurs on a global scale?

The last time it did, about eighty million people died, and many nations took decades to recover.  We’re unlikely to get off that lightly today.


EDITED TO ADD:  As if on cue, a few hours after this article went live, I read the following headline:  “Food, Energy, Goods And Finance Are All Being Used As A Weapon“.  Sound familiar?


  1. Sorry, I had to laugh when I got to "Russia…doesn't need fiat currency.

    They'll just make Russian toast with Russian toasters, and drive Russian cars using Russian gasoline, and talk to each other on Russian cell phones.

    It's a good thing all those products they won't need fiat currency to buy are the envy of the rest of the wor….waitaminute, you mean they suddenly won't be able to buy nor make any of those things, because their products have sucked since…ever? And are, in fact, the world hallmark of cheap, shoddy, sub-standard crap?

    No wonder they're sucking up to China. China needs someone to buy their cheap crap, and Russia needs someone to make them cheap crap for worthless rubles.

    So, how'd that work out for both nations from 1947-1990?
    Did they crush capitalism?
    Or what??

    The ruble has been fiat currency forever, and especially since 1919.
    Hence its true worth perpetually falling somewhere between Weimar papiermarks and Zimbabwean dollars for centuries.

    And "gold-backed" Russian rubles are meaningless unless they'll freely trade in one for the other, which they won't ever do.
    The jig was up on that plan in 1971.

  2. Who wins?

    China wins. The weapons manufacturers win. The US elite that caused most of mess in the world win. The WEF and their Satanist pals win. The Georgia Guidestones win.

  3. As with so many wars, all the direct participants lose; there's some question as to who loses less.
    Though, as Chris just pointed out, various indirect participants stand to win big. Maybe. It's a huge gamble. (Unless you ascribe it to evil powers that exist outside our mundane world – the Devil, the Eddorians, the Great Old Ones, whatever. For them, it's pretty near a sure thing. A lot of what's been going on the past few years has an Eddorian feel to it.)

  4. The Duma just removed the 20% VAT on precious metal purchases in Russia. Russians were unable to buy USD to shelter from the war inflation spike, but are now buying gold and silver.

    Russia's fundamentals are still good, with plenty of resources and nearly no debt, and a large stack of central bank gold.

    And it looks like France and China are not obeying Biden's sanction order.

    Once Russia and OPEC start selling oil for Yuan, the petro-dollar is dead.

  5. "Emotions on both sides are hardening into conviction and hatred, and once those have established themselves they're notoriously hard to uproot."

    Except this hasn't happened on undisturbed virgin ground. Those emotions have been pre-set for decades based upon the past few centuries of history. They aren't anything new, and they are as hard as diamonds already.

  6. If China sides with Russia, the same sanctions Russia got destroy the yuan in about a week.

    China and Russia are going to support the OPEC countries?
    Prop them up?
    Let them be?


    The day the house of Saud has to depend on Ivan and Wang against Iran, WWIII is on.
    And Israel goes weapons-free from Morocco to Pakistan.
    Which eliminates most of OPEC as a thing by breakfast the day after that.

    Yeah, that'll work out well.

    So, who picked seven-way nuclear war for 2022?

  7. "worsened by China having already accumulated the bulk of the world’s grains for its own population."

    Yes, alert readers and pundits wondered all last year what China was doing vacuuming up all kinds of commodities. Seemed like they were prepping for war. Now we know. They got advance notice from Russia that an attack on Ukraine was planned for 2022, so China wisely has stockpiled all the things likely to be embargoed and sanctioned by the West if China supported Russia (or did their own preemptive strike on Taiwan).

  8. And here's a safe prediction: as soon as the Globalistas (US/EU/UK et al) lose their fiat and dollarization leverage, there will be a mad scramble to cozy up to China and Russia for the commodities and manufactured goods that the Globalistas largely disdained and outsourced.

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