By Michael Every of Rabobank
No Retreat, No Surrender
To paraphrase Harold Wilson, a weekend is a long time in geopolitics. Indeed, the last few days have seen more major developments.
On Friday, Russia appeared to pivot on its war goals. Suddenly it was no longer talking about denazification or demilitarization, let alone the end of the Ukrainian state. Instead, it stressed that it had reached the end *of the first phase* of fighting, had significantly weakened Ukraine’s military, and from now on would concentrate its forces on liberating the eastern Donbas region it previously held parts of. President Putin, speaking Sunday, congratulated Russian forces fighting in Donbas – and only Donbas. Some are wondering if the upcoming May 9 Russian holiday celebrating their WW2 victory over Nazism will be the ideal date for Moscow to claim that they have repeated the ‘victory’ over Ukraine. One can expect markets to rally on the back of such “peace in our time” dreams.
However, there is reason for pessimism. Russia is fighting on too many fronts, and the possible encirclement of Ukrainian forces in the east was always a good target: but it is still bombing Ukraine’s west. Ukraine says Moscow aims to split the country like North and South Korea – as the breakaway ‘Luhansk republic’ expects to hold a “referendum on independence”. Russia does not want to give up territorial gains outside Donbas and give Ukraine a morale-boosting victory, and it will not give up its land bridge to Crimea. Ukraine will not drop its demands for a *full* Russian withdrawal; and so the West will not be able to drop sanctions - and Russia would still...