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Unfortunately not. Our base case calls for a continuation of a live war, with too much activity for markets to ignore over the next two to three years, not just the next six months.

Ukrainian success was based on a small window of opportunity to act and make big gains, which was important from a public relations standpoint. But it can’t be linearly extrapolated, and even if you did, Ukraine wouldn’t be able to take back all of its lost territory, much less Donbas or Crimea.

Over the course of this war, people have gone back and forth between overestimating each side. There was a real fear that Russia was making too much progress, too fast early on, but that was an exaggeration. Now, that shoe is on the other foot.

Markets won’t be able to ignore the ongoing war because whether it’s oil, gas, or grains, the external implications are not abating.

Putin is likely comfortable agreeing to a ceasefire based on control of the Donbas and maintaining a slim land bridge to the Crimea, in order to try to put blame for any continuation of the fighting onto Ukraine. The problem is that Ukrainians were never going to agree to this, especially after their recent successes. So the risks are skewed to the downside, with Putin lashing out.

Russia could use precision-guided missiles to strike at civilian water or electricity supply – this would be a sign of desperation, but if Putin does start targeting and hitting these on a more frequent basis, that will have a real impact. So far, Russia hasn’t really tried to strike at NATO convoys, weaponry, or Ukrainian military or government command centers, or Zelensky himself. Putin doesn’t have enough precision guided weapons, but he does have some.

While many Ukrainian civilians have lost their lives in Russia’s invasion, Putin hasn’t had an outright strategy of inflicting civilian casualties. Russia did do this in Chechnya. Zelensky said that Ukraine would never relinquish territory unless there were so many civilian deaths that this course of action became the only moral thing to do (and then retracted that statement).

We believe that the risk of a nuclear weapon being used is about 2% — nothing too alarming. But if Crimea were to become vulnerable to a counteroffensive, those odds would go up to 30%. The Black Sea fleet is there, and Russia deems this to be “Russian territory” so that would be a new frontier in the fighting.

Putin has the ability to make markets fear the risk of a nuclear weapon being used even if he has no intention to use it, by taking steps like upping the nuclear alert level to much more elevated levels, and putting forces on high alert.

Our view since the beginning of the war was that Putin’s odds of being ousted have never been greater – and are going to keep rising – but are still low, only 10-15%. The main reason is that the Russian population is apathetic about the war, though that may change in the event of broad conscription/mobilization. Polling and commentary suggest that 75% of the population is either supportive of the war or doesn’t care about it.

Putin has always faced nationalist criticism from hawks who think he’s too soft, so that’s not a new development. A lot of the people criticizing him also don’t have constituencies, so it’s unlikely there would be an uprising if they were to be detained.

In the security establishment, Putin has done a good job of “divide and conquer.” There are logistical and structural causes for a deep-seated lack of trust among other people in power which prevents them from banding together against Putin.

I’m not sure about the endgame, but think Putin is definitely in a bind, and I think it plays out slowly.

Our view was that Putin would cut off gas flows to Europe in the second half. The idea that Putin has shot his last bullet, so to speak, and that this is backfiring and he’s lost all leverage is slightly misguided. By 2024, efforts to diversify European supply and contracts with Russia ending naturally would mean that Putin would lose that leverage no matter what – so this is one last hurrah.

For Europe, Russian gas won’t be coming back online after winter, so making preparations for Q4 2023 will also be difficult. Europe needs gas in storage now, and later. Either the tanks are at zero in March and Europe has natural gas prices that are higher for longer, or governments put in place more measures to manage supply and force demand destruction to have a more sustainable gas price outlook – but with a bad winter, economically.

It’s clear that there’s not enough supply – everyone’s aligned that Europe won’t find enough supply – so demand destruction is required from here, and efforts have been very uneven across countries. It’s a lot easier to bring the thermostat down from 72 degrees Fahrenheit to 68 than from 68 to 60. Consumers are reluctant to change behaviors. That means that industry is having to bear the brunt of demand destruction, which is bad economically.

Whether Europe “runs out” of gas is not a binary issue. There could easily be local or temporary blackouts, some of which would have nothing to do with supply but more the stability of supply. We’re not thinking of this as a COVID-19 shock, but more of a “lower for longer” type situation in terms of the impacts on growth. Europe will get through the winter, but stress will continue into the spring.

We’re pretty optimistic that this won’t happen. The approach China has taken to date is to benefit from having a weak Russia and discounted energy, without crossing any of the US’ red lines. We think this is exactly what they’ll keep doing, to have the best of both worlds.