Wednesday, May 18, 2022

Russia/Ukraine War Update - May 19th, 2022

*** MILITARY SITUATION ***

Considering Russia's problem with manpower availability and the question of mobilization. Its unclear how they can sustain the war without making difficult political choices (and even with). However, general mobilization is the wrong issue to focus on.

First, I'll briefly restate the Russian manpower problem. After taking significant losses in the first phase of the war, the Russian military has scrounged the active force for reinforcements, and is largely tapped out in terms of manpower availability. The reason for this is that the Russian military operates on tiered readiness, with units at 90-70% manning levels. Many towards that 70% mark. In the event of a large war the military assumed manning levels would be raised & conscripts could be deployed.

The force could produce on short notice 2x BTGs from brigades and regiments, the rest was a conscript mix, and units were not fully manned. The available standing force has already been deployed into this war with a number of BTGs out of action due to casualties. However, without declaring a state of war, or conducting partial mobilization the force is still operating at peacetime strength. Below is one estimate of how a hypothetical brigade with 3,500 personnel may have only a fraction actually available for deployment.

While its true that general mobilization won't solve Russia's woes in this conflict, and that in practice it may not even be feasible, the Russian military does not need general mobilization to sustain combat operations, and address its immediate manpower shortage.

The first issue is the status of Putin's 'special operation.' Russia has to either declare a state of war, or procedurally change the rules prohibiting deployment of conscripts, and the state's ability to mobilize additional personnel. As it stands, contract servicemen can try to break their contracts & refuse to deploy. Conscripts are being drafted and demobilized on schedule, and units technically can't deploy them even though some cheated early in the war and sent mixed conscript formations.

The fastest way for Putin to alter these constraints is also politically the most unpalatable: declare a state of war. It's clear that for a host of reasons this is something he doesn't want to do. However, the Russian military effort is also unsustainable as is. The current Russian approach appears to be halfway measures to muddle through. The Russian military has been trying to raise manning levels behind the scenes by offer short term contracts, a few months as opposed to years, and high payouts up to 200-220k RUB per month. Other steps include enticing reservists to accept contracts, and pressuring conscripts into changing their status, converting them to contract service so that they can be deployed. All of that will get harder as word of casualties and the state of things on the front spreads.

If we consider those who were recently demobilized or just got out of several years contract service, Russia could potentially have access to a significant amount of additional manpower. Right now about 130k+ conscripts with 1 year of service are being demobilized. I'm skeptical of arguments that these are untrained, or inherently poor quality. It depends. Skills are perishable, but the pool with recent mil experience & training is far from small.

If we consider just manpower requirements to replace losses and allow troop rotation to sustain the war then the Russian military does not need hundreds of thousands of troops. This assumes limited war aims, and a lower loss rate than the first month of the war. Generating additional battalions will take time and probably wont prove relevant to the offensive in the Donbas, but my point here is that there are things the Russian leadership could try in between ordering general mobilization and doing nothing.

There's a lot we don't know about the Russian capacity to train and take in additional personnel right now. How many units pulled in officers/contract servicemen need for training to fill out their BTGs and replace losses. Its probably a very uneven situation.

It is quite possible that eventually Moscow will be forced to conduct what constitutes a partial mobilization, whether declared or undeclared. Taken together with changes to laws/regulations, this could provide enough manpower over time to drag the war out.

As it stands, Russian options are shrinking. The more they drag their feet the further their ability to sustain the war deteriorates, and the worse their subsequent options.

On Feb 27, the fourth day of the war, the Russians sent at least two light detachments into the city of Kharkov, probably to gauge resistance. At least one of the groups got shot up, and retreated with the loss of its vehicles. After this, the Russians never again attempted to enter Kharkov either with screening forces or in force. They were content to sit on the city’s northern and eastern approaches and transferred units away from this sector. This is to say the Russians had never regarded Kharkov as a priority, not the least because they understood taking it would require and tie up enormous resources.

Sitting on the outskirts of Ukraine’s second-largest city and threatening it, however, was useful as it tied down Ukrainian forces. Including new forces being generated in the city itself. Especially since, due to the proximity of Russia, this was relatively easy to do, and did not require an overstretched or herculean Russian effort.

Thus as the Russians at the end of March retreated from the outskirts of Kiev, Chernigov, and Sumy, no such Russian retreat occurred at Kharkov. This largely static situation persisted until early May when offensive action returned — this time conducted by the Ukrainians. On May 4 Ukrainians attacked and in the next few days captured a number of settlements, including Stari Saltiv with its crossing over the Northern Donets river. This partially cut off the Russia-led forces at Kharkov from the main body of the Russian side to the east of the river.

After a brief lull of a few days, Ukrainian gains resumed. Russia gradually fell back to within just 10 kilometers of the Russian border all along the front, and in one place Ukraine actually reached the Russian state border.

During this second stage of the battle, the exposed Russians withdrew from some settlements voluntarily ahead of the Ukrainians, while many others were wrestled from them by force. Ukraine was actually advancing faster at Kharkov (albeit on a narrower front) than Russia was able to during the same time in Donbass. It is true that both sides understand that Kharkov is the side show to the main battle, so this was nonetheless no major Ukrainian victory.

However at the same time apparently the Russia forces seemingly failed to offer the same kind of dogged resistance offered by the Ukrainians entrenched in Donbass who are fighting for every meter and won’t abandon a settlement until it has been reduced to rubble many times over. Also we have little evidence that Russian was able to leverage the fact Ukrainians were attacking and on the move, to inflict grievous losses with its artillery or air force. (This is perhaps worrying from the Russian POV. The common wisdom has been that Russian firepower would exact a heavy price on the Ukrainians whenever they left prepared positions and had to mass for a counter-offensive.) With the Russians pushed back from Kharkov outskirts the Ukrainians might be able to divert more resources away from their second city. Most likely to spoiling attacks into the flank of the Russians attempting to break out from Izyum bridgehead. Also, should the Russians ever wish to blockade Kharkov they will have to bleed for the same settlements yet again.

Theoretically the new gains allow the Ukrainians to shell the Russian city of Belgorod, but this would require deploying heavy artillery to the very front line and is thus unlikely.

The reason the Ukrainians were able to conduct a successful offensive here is very simple. It is because around Kharkov the Russians are outnumbered.

The Russians stripped their flanks to the benefit of their Donbass effort, leaving them outnumbered against the constantly reinforcing Ukrainians.

The reason they had to do this is because of the severe shortage of manpower in general. They already lack the correlation of forces in Donbass for swift and dramatic success. Without having left their northern flank at Kharkov, and the southern one at Kherson outnumbered 2 to 1, their punching power in Donbass would be even less. Actually many of the troops on the Russian side were fighters from Lugansk, and not even Lugansk regulars, but their newly-mobilized conscripts. Moreover the Lugansk guys lacked anti-tank weapons. So not only were the Russian-led forces at Kharkov outnumbered, but also their quality left much to be desired. As said, this is a secondary theater, and so it can not be said that Russia suffered a major defeat. However, the state of its flanks and that Ukrainians were able to pull this off puts lie to a claim that Russia has enough troops committed for the task. When you’re having to patch up your lines with second-rate Lugansk reservists and leave them to face a twice stronger enemy then you simply can not claim to have  all the men you need. It is abundant proof of exactly the opposite.

It’s almost as if fighting a major war at 50% manning, including because you left serving conscripts at home, isn’t a good idea. It’s incredible that a 145 million Russia with a 1-million military should be outnumbered on any section of the front, its troops left to face 2 to 1 odds, but that’s where we are.

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-Russian occupation authorities announced plans to destroy the Azovstal Steel Plant and turn Mariupol into a resort city, depriving Russia of some of the most important economic benefits it hoped to reap by taking the city in the first place. Head of the Donetsk People’s Republic (DNR) Denis Pushilin stated that DNR authorities are planning to level Azovstal after completing its capture. Azovstal was a major element of Mariupol’s economy before the war because of its unique function as a full-cycle metallurgical complex, the 10,000 jobs associated with production at the plant, the billions of dollars of foreign exchange earnings and taxes it generated, and its production output of 7,000 tons of steel, 6 million tons of iron, and 4.5 million tons of rolled metal, according to the Mariupol City Council. Pushilin stated that the DNR intends to rebuild Mariupol to be a “resort city,” while admitting that 60% of the structures in Mariupol have been destroyed to the point where they cannot be rebuilt. The announced plan to turn Mariupol into a center of tourism and leisure following the complete destruction of a major center of economic activity in Mariupol, is indicative of the damage that Russian troops have inflicted on themselves through the destruction of Mariupol. Russia does not need another resort town on the Black Sea. It does need the kind of hard currency that a plant like Azovstal had generated. This announcement epitomizes the kind of Pyrrhic victories Russian forces have won in Ukraine, to the extent that they have won victories at all.

The Kremlin may hope to offset the loss of revenues from Azovstal and other destroyed infrastructure in Ukraine by profiting from the Zaporizhia Nuclear Power Plant that is forces have seized. Russian Deputy Prime Minister Marat Khusnullin announced that he will allocate maximum integration assistance for Zaporizhia Oblast to work in a “friendly Russian family” during his visit to Melitopol on May 18. Khusnullin added that the Zaporihia Nuclear Power Plant will exclusively work for Russia and will sell electricity to Ukraine. This statement is a clear Russian recognition that there will be an independent Ukraine at the end of this war and that Russia seeks to restore its energy leverage over Ukraine and possibly the West more broadly that has been reduced by sanctions and efforts to reduce reliance on Russian energy. It also reinforces the urgency of helping Ukraine regain control of Enerhodar City and the rest of its occupied territory to forestall this renewed economic thralldom. ISW previously reported that Russian forces started digging trenches and blocking highways to Enerhodar City. The Zaporizhia Oblast Military Administration reported that Russian occupation authorities continued to prepare for a referendum in Enerhodar City on May 18.

-Ukrainian officials reported protests in Donetsk and Luhansk People’s Republics (DNR and LNR) over forced mobilizations on May 16-17. The Ukrainian Military Intelligence Directorate (GUR) reported that relatives of the forcefully mobilized LNR servicemen demanded an immediate return of their family members from combat in Luhansk City and Rovenky approximately 50 kilometers west of Russian border. The GUR noted that perceptions of war and resentment of mobilization in LNR worsened because of the high casualties Russian forces have suffered and the fact that Russian authorities are reportedly evading payments to the families of wounded and killed servicemen. Mariupol Mayor’s Advisor Petro Andryushenko had previously reported that a protest against mobilization had occurred in Donetsk City on May 16.

-A strike on a Ukrainian battery of 155 mm M777 howitzers made in the USA was recorded. The footage shows the village of Podgornoye, DPR. In just one day, rocket troops and artillery of the Russian Armed Forces hit 76 nationalist command posts, 421 enemy manpower and military equipment.


Caught by the Russians as they were setting up. Targeted by a Zala kamikaze drone, then a follow-on strike by rocket artillery as they seek shelter in a nearby forest.


*** ECONOMIC & POLITICAL ***

-In an incident which could suggest a significant shift in policy, the most recent Israeli attack on Syria, in Hama, saw Russian forces firing on them with S-300 anti-aircraft missiles. The planes were not in danger, but this is the first time Russia has taken such fire on them.

-Tensions between Beijing and Tokyo are about to ratchet further amid widespread reports that the United States and Japan have prepared a statement calling for both to "deter and respond to" China's aggressive military activities in the Indo-Pacific region. The statement is expected to be released as President Joe Biden visits Tokyo to meet with Japanese Prime Minister Fumio Kishida early next week. Biden will travel to South Korea and Japan from May 20 to May 24, the White House previously announced. Crucially, according to Nikkei, "The statement to be released after their Monday meeting in Tokyo will also clarify America's resolve to defend Japan if it is attacked, including with nuclear weapons." The meeting will mark Biden's first face-to-face meeting with the Japanese PM Kishida, coming at a crucial moment that the anti-China stance of both countries have steadily growing over recent years.

-President Biden invokes Defense Production Act to boost baby formula manufacturing to ease shortage. President Joe Biden is requiring suppliers to direct ingredients used in baby formula to key manufacturers to help boost domestic production. Biden has also ordered the federal health and agriculture departments to use Defense Department aircraft to pick up infant formula from overseas. Parents have been struggling to buy formula for their infants since the closure of a key manufacturing facility in Michigan due to bacterial contamination.

-Russia says a further 694 Ukrainian troops have surrendered at Mariupol’s besieged Azovstal steel plant in the past day, bringing the total number close to 1,000. The Russian defence ministry said 29 of the soldiers were wounded. The fate of the soldiers leaving the plant remains unclear, and it is also not clear how many remain inside.

-Sweden and Finland have formally submitted their applications to join the Nato military alliance. The Nato secretary general, Jens Stoltenberg, accepted the Nordic neighbours’ membership applications. The United States will work with Finland and Sweden in the event of the ‘threat of aggression’ while the two countries’ Nato membership is being considered, president Joe Biden said.

-Turkey’s president, Recep Tayyip Erdoğan, said Sweden should not expect to approve its Nato application without returning ‘terrorists’. Ankara has accused Sweden and Finland of harbouring people it says are linked to groups it considers terrorists. A spokesperson for Erdoğan later said progress on Finland and Sweden’s Nato membership bids will only be possible if concrete steps are taken to address Turkey’s national security concerns.

-The US secretary of state, Tony Blinken, announced an additional $215m in food assistance to Ukraine.

COVID CASES USA 7-DAY AVG
96,742 MAY 16 2022
33,037 MAY 16 2021

COVID CASES USA 7-DAY AVG
102,807 MAY 17 2022
31,987 MAY 17 2021

-While most blinkered investors ignored last week's record surge in revolving consumer credit (i.e. credit card spending), this week's Walmart and Target earnings brought it home to the rest of the country that the "American consumer is strong" or "consumer has best balance sheet ever" narrative imploded, crashing on the shores of a gigantically lopsided and divided national aggregate that hides the reality that most of America is unable to pay the 'cost of living' under Bidenomics 40-year-high inflation without resorting to the plastic. Additionally, we are hearing more investors coming around to the idea that Powell's comments were anything but 'less hawkish' - he unequivocally put 75bps back on the table with his 'if things do not go as planned, we will do more' comments... it just seems like nobody wanted to hear that yesterday!? TGT and WMT are a bloodbath this week (-29% and -17% respectively in the last two days - worst drops since 1987)...and to pile on the 'recession' trade, Disney's CFO warned that "growth in per capita parks spending will slow"..

-After ugly earnings from Walmart yesterday, terrible earnings and guidance from Target, both of which confirmed the US consumer is now tapped out, moments ago the company which has served as the backbone of the internet for the past 30 years and is the biggest maker of computer-networking equipment, the $200-billion CISCO, reported earnings which wiped out about 20%, or $40 billion, from its market cap in seconds.

-The US Navy amassed a show of force in the waters near China. Top Western officials worry that Beijing could launch a military takeover of Taiwan after learning lessons from Russia's invasion of Ukraine. The USS Ronald Reagan carrier and USS Abraham Lincoln carrier strike groups, the USS America expeditionary strike group, and the amphibious assault ship USS Tripoli operate around the Philippine Sea to Japan to Western Pacific, according to the latest fleet tracking report by USNI News. China's Tencent News reports the US Navy's increasing show of force "means that the US military will conduct more military operations in the waters surrounding our country in the next few weeks."  The arrival of warships in the region comes as the USS Port Royal, a Ticonderoga-class guided-missile cruiser, was followed by China's Eastern Theater Command while sailing through the Taiwan Strait on May 10.

-Belarusian President Alexander Lukashenko, a close ally of Russian President Vladimir Putin, has called on members of a Russian-led military alliance to unite, as he accused the West of prolonging the conflict in Ukraine to weaken Moscow. Speaking at a summit of the leaders of the Collective Security Treaty Organisation in Moscow, Lukashenko said “hellish sanctions” against his country and Russia could have been avoided if the group had spoken with one voice. “Without a united front, the collective West will build up pressure on the post-Soviet space,” Lukashenko said, addressing President Putin and the leaders of Armenia, Kazakhstan, Kyrgyzstan and Tajikistan.

-With diesel prices remaining elevated — forcing significant costs onto shippers and trucking companies — the impact of fuel costs on inflation could put a dent in consumer spending, according to experts. Economist Anirban Basu said the elevated price of diesel fuel damages the near-term U.S. economic outlook and “renders the chance of recession in 2023 much greater.” “These high diesel prices mean that despite the Federal Reserve’s early stage efforts to curb inflationary pressures, for now, inflationary pressures will run rampant through the economy,” Basu, CEO of Baltimore-based Sage Policy Group, told FreightWaves. Earlier this month, the Federal Reserve announced a half-percentage-point increase in interest rates, the largest hike in over two decades. The U.S. inflation rate is at 8.3%, near 40-year highs. Basu said consumer spending remains strong, even with elevated diesel prices, but that could change as shippers and trucking companies eventually must pass higher fuel costs on to the public.

-Turkey has issued its "list" of demands that must happen before it would accede to granting formal NATO membership to Scandinavian countries Finland and Sweden. This coming on the same day both countries handed in their formal applications. In a photo op with the Finnish and Swedish ambassadors, NATO Secretary-General Jens Stoltenberg hailed the "historic moment".

But given that for days Turkey has voiced vehement denunciation of the move, calling the countries 'terror safe-havens' over their alleged support for the outlawed Kurdish PKK (also as Sweden is home to one of the largest Kurdish communities in Europe), Brussels is in for a long-haul of gridlock as there must be consensus among the 30-member states for new entry. Within hours after an application submission ceremony, FT is reporting Turkey has already blocked the planned initial accession talks with Sweden and Finland essential to processing the requests:

Turkey has blocked Nato’s initial decision to process requests by Finland and Sweden to join the military alliance, throwing into doubt the hopes for a quick accession of the two Nordic countries. Nato ambassadors met on Wednesday with the aim of opening accession talks on the same day that Finland and Sweden submitted their applications but Ankara’s opposition stopped any vote, according to a person with direct knowledge of the matter.   

-An op-ed in CNN this week has called on NATO to expel Turkey if it doesn't agree to admit new applicants Finland and Sweden into the Western military alliance. Ankara has so far appeared to slam the door on the prospect, calling the Scandinavian nations "terror supporters" over the outlawed Kurdish PKK issue. The piece by David Andelman, a member of the influential Council on Foreign Relations (CFR), begins by lashing out at both Turkey's Recep Tayyip Erdoğan and Hungary's Viktor Orbán. "Russian President Vladimir Putin has just enough allies in just enough places to throw a wrench in the efforts of Western alliances to thwart his ambitions -- deepening the wedge between member states that suits his purposes to a tee," it begins. Andelman argues that both these countries - with Turkey being NATO's second largest military behind the United States - threaten the West's unified front in standing up to Putin.

-Dozens of local, state, and federal agencies have begun conducting "a major radiological incident exercise" in Austin, Texas. The Cobalt Magnet 22 exercise is led by the U.S. Department of Energy's National Nuclear Security Administration in partnership with the Austin Homeland Security and Emergency Management Office, bringing 30 agencies together in a field training exercise to combat threats of radiological attacks

-According to OPEC, the oil markets are so askew at the moment that adding capacity would fail to materially stave off high prices. Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, has said there are “physical impediments that no producer can solve” at work right now in the oil market, according to the Financial Post/Bloomberg. The move shows OPEC posturing up at a time when U.S. lawmakers have been rushing to try and solve the problem of exploding gas prices. Bin Salman's comments come at a time when exports out of Russia, a major player on the global oil and gas stage, have been disrupted.

-With expectations of strong driving demand — the US summer driving season starts on Memorial Day, which lands this year on May 30, and lasts until Labor Day in early September — JPMorgan's commodity strategist Natasha Kaneva warns that US retail prices could surge another 37% by August to a $6.20/gal national average. How is this possible? Well, as peak US summer driving season begins, record diesel pieces are about to take a back seat to gasoline. Toward the end of April, as the May NYMEX diesel contract climbed into expiry, US diesel prices peaked at a $1.63/gal premium to US gasoline, the highest diesel premium ever. Over the following two weeks, US gasoline prices climbed to close that gap and today gasoline is trading at a 15 cents per gallon premium to diesel

-At the start of this week NATO pledged open-ended military support for Ukraine as member states continue to say they are prepared to back Kyiv in its war against Russia for the long term. At a meeting of NATO foreign ministers in Berlin, German Foreign Minister Annalena Baerbock said the alliance would give Ukraine military assistance "for as long as Ukraine needs this support for the self-defense of its country." While there have been reports of Ukrainian counterattacks, Russia has been making significant territorial gains in the east, but NATO leaders still insist Ukraine can win. "Ukraine can win this war. Ukrainians are bravely defending their homeland," NATO Secretary-General Jens Stoltenberg said.

-Bloomberg is reporting that the US government is preparing to block Russia from being able to pay off debt held by US bondholders, a move that would lead Russia closer to default on its debt.

-Eight people have died and 12 wounded after Russia launched a missile strike on the village of Desna in the northern Ukrainian region of Chernihiv, according to Ukraine’s state emergency service.

-Seven buses carrying Ukrainian soldiers have left the Azovstal steel works in the port city of Mariupol and arrived at a former penal colony in the Russian-controlled town of Olenivka near Donetsk, Reuters reports. The Ukrainian fighters, many of them members of the Azov Battalion, will be questioned by the Russian investigative committee, according to Russia’s state-owned news agency Tass. The questioning will be done as part of the Russian investigation into what Moscow calls “criminal cases concerning Ukrainian regime crimes”, Tass added.


-In a rare diversion from the Kremlin’s official line, Russian TV aired an interview with Mikhail Khodarenok, a military analyst and retired colonel, during which he said that Russia’s situation “will clearly get worse” as Ukraine receives military assistance from the West. “Ultimate victory on the battlefield is determined by the high morale of troops who are spilling blood for the ideas they are ready to fight for,” he said, according to the BBC. “The biggest problem with [Russia’s] military and political situation...is that we are in total political isolation and the whole world is against us, even if we don’t want to admit it. We need to resolve this situation.”

-Russia has expelled a total of 85 diplomatic staff from France, Spain and Italy in response to similar moves by those countries, its foreign ministry said. It said it was ordering out 34 embassy staff from France, 27 from Spain and 24 from Italy.

-The US embassy in Kyiv has resumed operations, the US secretary of state, Antony Blinken, said after nearly three months of closure. A small number of diplomats will return initially to staff the embassy, according to a spokesperson.

-In his nightly address, Zelenskiy said Russia’s alleged use of laser weapons systems “indicates the complete failure of the invasion”. Russia has claimed it is using a new generation laser weapons to burn up drones.

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