The Real War Is About To Begin

Date: 5/02/2022
Author: Mr. X

Recently, Secretary of Defense Lloyd Austin said the quiet part out loud. “We want to see Russia weakened to the degree that it can’t do the kinds of things that it has done in invading Ukraine,” he said publicly. Washington Post columnist Jennifer Rubin accurately characterized this as a “Kinsley Gaffe” – when a politician accidentally tells the truth.

It’s the truth for Washington. Clearly, the United States is now waging a proxy war against the Russian Federation. Today, President Joe Biden will be visitingLockheed Martin Corporation (LMT) factory that is producing Javelin anti-tank missiles. The weapon has become the quasi-official icon of the Ukrainian resistance, slipping into slang, popular art, and even quasi-religious imagery.

The FGM-148 Javelin anti-tank weapon

NBC News is also reporting that American officials are being increasingly open about the intelligence sharing that is taking place with Ukrainian forces. Perhaps the most significant action came in the early stages of the invasion, when American intelligence reportedly allowed Ukraine to shoot down a Russian transport jet that was carrying hundreds of elite troops.

While Russia is claiming that the “special operation” is going according to plan, it’s hard to believe that surrounding Kyiv, infuriating the world, tanking the economy, retreating in disarray, losing the flagship of the Black Sea fleet, and possibly bringing more countries into NATO (including Sweden and the once Russian-controlled Grand Duchy of Finland) was Vladimir Putin’s strategy all along.

If “that was the plan,” according to Russian generals, one might respond as Tony Stark did. “Not a great plan.”

There are plenty of rumors about President Vladimir Putin’s mental and physical health. These include speculations about dementia, cancer, Parkinson’s, and other maladies that might be pushing the Russian autocrat to secure his immortality in Russian history by reclaiming territory that is central to the Russian national identity. There might be something to such speculations, but they miss the point. While President Putin may have delusions of grandeur, he almost certainly thought that this was going to a relatively bloodless triumph.

And he wasn’t crazy to think this. 

As I wrote on February 1, predicting that Russia would invade (contrary to what Ukraine was saying at the time):

President Putin may see opportunity in the West’s perceived divisions. President Joe Biden is unpopular, Canadian Prime Minister Justin Trudeau is on the run from truckers, British Prime Minister Boris Johnson is barely clinging to office, the French are facing a presidential election with strong far-right candidates, and the new German government must deal with the challenges of a post-Merkel coalition and high energy prices.

President Putin may also have a mistaken view of American weakness after the withdrawal from Afghanistan. In truth, while the execution was lacking, President Biden’s move was probably designed to reorient the United States towards competition with conventional military opponents such as Russia and China. Strategically, it made sense and was better than another decade of wasting money and lives. Still, the optics did not look good for the American military.

On the ground, Russia is clearly increasing its military options, especially by sending troops into Belarus. President Putin has vastly increased his leverage over Belarus and Kazakhstan by helping those governments brutally put down popular opposition movements. (It is no accident that both governments blamed those protests on foreigners.) Russia can also move more troops into the Donetsk People’s Republic, Luhansk People’s Republic, Crimea, and Transnistria, a breakaway region of Moldova. If Russia did want to attack, it could swarm Ukraine from multiple directions quickly.

That’s what he did. Besides, after successful military actions in Syria, Crimea, and Georgia, President Putin may have just been cocky.

That’s the best explanation why these attacks were scattered, poorly supported, and clearly built on the premise that resistance would collapse quickly (as the American-backed Afghani government did). President Putin also saw America as too divided to act quickly. To foreign eyes, the January 6, 2021 riot, President Joe Biden’s unpopularity, and former American president Donald Trump’s hold on the GOP could lead one to think DC would be paralyzed by indecision. After all, on the surface, Americans looked sick of war, disgusted with a president many people thought was illegitimate, and supposedly ready to welcome back ’45 and his message of nonintervention.

Yet none of that was really true. It’s a case of believing your own propaganda. While President Joe Biden is unpopular, practically no president facing these economic conditions would be thriving. Traditionally, every president gets thrashed in the initial midterm elections.

While many Americans didn’t want to stay in Afghanistan, that doesn’t mean they liked seeing the poorly organized withdrawal. This was arguably the moment when President Biden’s political honeymoon really ended. Furthermore, while the Trump Administration is often blamed for putting NATO in jeopardy, many Republican voters associated “America First” with showing strength abroad.

As president, Donald Trump’s main problem with European leaders was that they weren’t doing enough to fund their own militaries, leading him to complain that the USA was being taken advantage of. His case against NATO was that it wasn’t really an alliance at all, but America subsidizing Europe’s defense, seemingly for nothing in return.

Russia has solved that problem. Even Germany is now spending more on its military. Trump couldn’t have done that with three terms and a Twitter account. Most Republican politicians are not Donald Trump. They are far more hawkish than the Biden Administration, and, if anything, would be willing to go much farther.

However, now America needs to be cautious about believing its own propaganda. “The Ghost of Kyiv” wasn’t real and neither is a cheap victory over Russia. While Russian forces were driven back from Kyiv, they are advancing in eastern Ukraine. Russia has consolidated territorial gains in the unrecognized breakaway republics of Luhansk and Donetsk. The pretense that this is simply a “special operation” is being thrown out the window, with Russian media openly discussing extreme possibilities including nuclear war.

The very system that may have led Vladimir Putin to catastrophically underestimate the United States, NATO, and Ukraine may lead him to make extreme judgments on the situation now. President Putin cannot afford to look weak domestically or internationally. While a strongman may be able to make sweeping reforms initially, an autocratic system ultimately depends on loyal subordinates who, to some extent, must to tell the leader what he wants to hear or be replaced.

It’s actually encouraging if reports that President Putin is cleaning out his own intelligence services are true. Unfortunately, he still has the problem of appearing strong on the world stage.

Currently, the Russian military looks weak, which may be leading China to reconsider its partnership with Moscow. NATO appears strong, capable, and above all, relevantRussia could put pressure on Ukraine by simply recognizing the Luhansk and Donetsk People’s Republics and then accepting an invitation from these de-facto puppet states for “protection.” That would have forced Ukraine to use military force to regain territory whose “Ukrainian” identity is questionable. The White House’s confusing messaging about sanctions being limited if Russia made only a limited incursion would have also split the West.

Instead, the Russian leader went for the whole thing. He turned it into a morally unambiguous, black-and-white issue of a large country invading a smaller one. However, he can now claim, with some justice, he’s defending Russia from the West.

While many in the Russian elite are unhappy with President Putin and a coup can’t be ruled out, it’s just not true that there’s a mass movement against the war, at least not yet. The polling data we have show that most Russians believe their president’s rationalization for the invasion. Critically, one underlying reason is the feeling that Russia is standing up to the West. Open declarations by American officials that we are, in fact, waging a proxy war against Moscow makes Putin’s case for him.

More importantly, whether he is ill or not, President Putin’s regime will not survive a defeat or even just the “liberation” of the breakaway territories. He needs to show his people that the sacrifice was worth it. Furthermore, as more Western voices are calling for victory, Russia suddenly moves from attacker to defender. The war becomes one of national survival. It already is one to Vladimir Putin. The West may also be overplaying its hand by making open calls for regime change and taunting Russia’s “humiliating” battlefield performance.

Case in point an article from Forbes which begins: “As Russia scales up anti-West rhetoric, Russia has scaled down their May 9 Victory Day Parade by almost 35 percent. The cuts are so dramatic, and the planned parade so humiliating, that Russia’s President, Vladimir Putin, will likely do almost anything to keep the World from focusing overly much upon Russia’s dwindling military prospects.”

There’s a lot of truth to this, but I think the “almost anything” will entail something more dramatic than just fiery rhetoric. President Vladimir Putin will call for mass mobilization of Russia’s population, possibly even a declaration of war, at the Victory Day parade.

British Defense Secretary Ben Wallace broached the same possibility a few days ago, saying Putin is “probably going to declare on this May Day that we’re now at war with the world’s Nazis and we need to mass mobilize the Russian people.” (As he was referencing the Russian “parade day” specifically, it’s clear he meant Victory Day.)

Russian actions in Ukraine also show that Russia has no intention of ceding territory or withdrawing. In occupied Kherson, the ruble is replacing Ukrainian currency and a “Kherson People’s Republic” is reportedly being built. In Nova Kakhovka, a statue of Lenin was erected. In the breakaway republics, government officials and militia will never agree to Ukrainian sovereignty over them.

In contrast to Western confusion and hubris, Russia’s endgame also seems clear. The new focus on the south and east and mysterious provocations in the breakaway region of Moldova called Transnistria shows the plan. If Russia can link up with that occupied area and take Odesa, Ukraine will be cut off entirely from the Black Sea. Even if Russia stands triumphant over rubble (as it looks now in devastated Mariupol), it would be enough of a victory for the Kremlin. The flight of pro-Western dissidents, businessmen, and other Kremlin critics might even be seen as a bonus.

Move fast, keep winning

This may seem fantastical, given the extent to which Western nations are supplying Ukraine. Yet that will only strengthen the Kremlin’s ambitions. At this point, it sees itself in an existential struggle. The West doesn’t. Russia doesn’t have the forces to complete its objectives. Calling the nation to a war of national survival would provide those forces, and President Putin may have the domestic support to pull it off.

Europe may also not be as united as it seems. Hungary’s Viktor Orban, while condemning the invasion, also said Hungary would veto any proposed EU ban on Russian energy. Prime Minister Orban is coming off a crushing election victory in which the Russian invasion, rather than weakening his position, seems to have strengthened him. It should be noted that on the night of his triumph, he assured residents of ethnically Hungarian Transcarpathia in western Ukraine to not be afraid because “the Motherland is with you.” If Ukraine disintegrates, it wouldn’t be beyond the realm of possibility that Hungary might seek to annex these lands to “protect” its people.

The developing world is also not uniformly lining up against Russia. Saudi Arabia is not fully cooperating with America. India is the subject of a diplomatic tug-of-war between the West and Russia, but it’s striking that the country so dramatically broke with American demands not to buy oil from Russia. China may not be loudly backing Russia, but it hasn’t broken with Moscow. It’s also quietly taking actions that would lessen any sanctions against Beijing – suggesting China may be planning future geopolitical moves of its own. Social media suggests that the Chinese generally favor Russia in this war, though there are reasons to doubt how sincerely these opinions are held. However, even if social media support for Russia is being astroturfed by the government, that in itself is a powerful signal about which side Beijing is on.

The dangers here cannot be overestimated.

A Russian mass mobilization would be an act of desperation, but the Kremlin is running out of options. President Vladimir Putin is not just willing to go farther than many Western leaders. He has to. Each Russian defeat means the regime has to go farther to ensure its own survival. Westerners also shouldn’t assume that Russians, who are getting a far different narrative about the war than Americans and Europeans are, want the war to stop short of victory. Indeed, many want Putin to go further. Atrocity can be forgiven, but defeat cannot. Perhaps Russians will rise against the regime later, but not in the immediate future.

Any coup attempt against President Putin would look like treason and collaboration with the West to Russian nationalists. A civil war could result. After all, a “pro-Western” Russian government would be expected to give back Crimea, something Russia will never do voluntarily. The next president would be like what Frenchmen said about King Louis XVIII, arriving in the “baggage train of the enemy.”

Stalin reportedly said, “No man, no problem.” It actually wouldn’t be so simple in this case if Putin was gone due to a health problem. The West would need to give Russia peace with honor – meaning no cession of territory, including Crimea. Obviously, Ukraine can’t agree to this as Crimea (not to mention whatever “breakaway republics” will be invented) is internationally recognized as Ukrainian sovereign territory. Westerners disgusted with the invasion can’t agree with such cynical realpolitik either.

Yet it’s impossible to imagine Russia ceding Crimea. Even Russian dissident Alexei Navalny, currently in prison, has said in the past that Crimea should hold another referendum to determine its future, something Ukraine would almost certainly refuse. Just because a Russian opposes Putin doesn’t mean he’ll share the same viewpoint as the American State Department.

We’re on the brink of an abyss. 

What does this mean for investors? Defense stocks are going to become increasingly important as we shift to arming allies for large-scale conventional warfare rather than guerilla wars in the Middle East and Central Asia. However, it may not be time to buy in yet. The Federal Reserve’s meeting this week is expected to produce a half-point rate hike. Anything more than that will likely lead to a major correction that won’t spare defense contractors. The sector has farther to fall, at least for now.

The energy shock that we’ve seen so far may also get much worse, as will food prices.

There’s also the true nightmare scenario that China will try to distract from its own domestic problems, including a COVID outbreak in Shanghai, by starting its own international incident to unify the nation around a foreign enemy. Such events would reshape the global economy in ways even more fundamental than the COVID-19 pandemic.

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The cold-hearted investment point of view is that Russia needs a way to step back without being disgraced. Only the West can provide it. Western rhetoric mocking Russia’s weakness or salivating about a future “victory” makes that impossible. I predict that the Russian government not only will but must mobilize its people on a mass scale or risk collapsing. Victory Day will be the day to do it. The result will be an economic and humanitarian catastrophe.

I obviously could be wrong. I was right that Russia would invade, but I thought President Putin would simply occupy the two breakaway republics and dare Ukraine to stop him. I didn’t think he would go for Kyiv but simply keep troops to tie down Ukrainian forces. Yet that mistake makes me even more confident in this prediction. After all, last time, I counted on President Vladimir Putin’s restraint. It’s not there. More to the point, even if he wanted to stop, I don’t think he can.

The war can’t be directed anymore by Vladimir Putin. It can’t be directed by the Russian government. It can no longer be directed by the West. It can simply be endured. And I think the real war hasn’t even started yet.

Mr. X is an investment analyst working in the Washington DC area who specializes in the intersection of business and public policy. After fifteen years working in politics, he writes on a classified basis for to bring you news on what those with power are debating, planning, and doing.

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