Russia/Ukraine War Update - May 27th, 2022

*** MILITARY SITUATION ***

Russian forces have made steady, incremental gains in heavy fighting in eastern Ukraine in the past several days, though Ukrainian defenses remain effective overall. Deputy Ukrainian Defense Minister Hanna Malyar stated that the fighting is currently at its "maximum intensity” compared to previous Russian assaults and will likely continue to escalate. Spokesperson for the Ukrainian Defense Ministry Oleksandr Motuzyanyk characterized Russian gains as “temporary success” and stated that Ukrainian forces are using a maneuver defense to put pressure on Russian advances in key areas. Russian forces have now taken control of over 95% of Luhansk Oblast and will likely continue efforts to complete the capture of Severodonetsk in the coming days. Russian forces have made several gains in the past week, but their offensive operations remain slow. Russian forces are heavily degraded and will struggle to replace further losses.

Russian forces continued efforts to encircle Severodonetsk on May 26. Russian forces reportedly attempted to take control of Ustynivka, about 15 km southeast of Severodonetsk. Russian sources additionally reported that Russian troops are approaching Severodonetsk from Vojevodivka and Schedryshcheve (northeast of Severodonetsk) and that the northeast portion of the city is under Russian control. A Russian military reporter claimed that as many as 10,000 people may be trapped in the Severodonetsk-Lysychansk cauldron. Ukrainian troops have reportedly fortified their positions in the Zolote-Orikhiv area, where Russian troops have encircled them.

Russian forces continued persistent advances in Donetsk Oblast south and west of Popasna on May 26. Troops from the Donetsk and Luhansk People’s Republics (DNR and LNR) claimed to have taken full control of Svitlodarsk and Midna Ruda, settlements off the M03 highway and within 30 km southeast of Bakhmut. Russian troops are reportedly fighting around Komyshuvakha, Nirkove, Berestove, Belohorivka, Pokrovske, Klynove, Lypove, and Nahirne and using these areas to advance toward Bakhmut. Russian forces conducted unsuccessful operations around Donetsk City in the vicinity of Avdiivka and continued to shell north and northwest of Avdiivka.

-Russian forces unsuccessfully attempted to advance southeast of Izyum near the Kharkiv-Donetsk Oblast border.

-Russian forces continued steady advances around Severodonetsk and likely seek to completely encircle the Severodonetsk-Lysychansk area in the coming days.

-Russian forces continued to make persistent advances south and west of Popasna toward Bakhmut, but the Russian pace of advance will likely slow as they approach the town itself.

-Russian forces in occupied areas of the Southern Axis are reportedly preparing a “third line of defense” to consolidate long-term control over the region and in preparation to repel likely future Ukrainian counteroffensives.

-Officials in Ukraine have admitted that Russia has the “upper hand” in fighting in the country’s east. The governor of the Luhansk region, Serhiy Haidai, said just 5% of the area now remained in Ukrainian hands – down from about 10% little more than a week ago – and that Ukrainian forces were retreating in some areas.

-Kharkiv has been hit by fresh strikes amid fears the city is still on Russia’s agenda. At least nine civilians were killed, including a child, and 19 injured, authorities said. “Today, the occupiers shelled Kharkiv again. At the moment, the list of the dead includes nine people. 19 wounded. All civilians,” Zelenskiy said. Residents have been urged to go to, or remain in, shelters.

-There are about 8,000 Ukrainian prisoners of war held in the Russian-backed self-proclaimed Luhansk and Donetsk People’s Republics, the Luhansk official Rodion Miroshnik has said. “That’s a lot, and literally hundreds are being added every day,” Miroshnik was quoted by the Russian Tass news agency as saying.

*** ECONOMIC & POLITICAL ***

-The US is preparing to send advanced, long-range rocket systems to Ukraine after an urgent request from Ukrainian officials, multiple officials reportedly told CNN. Kuleba said Ukraine’s most urgent need is for multiple launch rocket systems (MLRS) to counter Russian superiority in heavy weaponry. Zelenskiy also referred to the weapons as “the systems that are really needed to stop this aggression” in his latest address. Senior Ukrainian officials, including President Volodymyr Zelenskiy and foreign minister Dmytro Kuleba, have pleaded in recent weeks for the US and its allies to provide the Multiple Launch Rocket System, or MLRS. The US-made weapon systems can fire a barrage of rockets hundreds of kilometres — much farther than any of the systems Ukraine already has — which the Ukrainians argue could be a game-changer in their war against Russia. Earlier this week, Kuleba said Ukraine’s most urgent need is for multiple launch rocket systems (MLRS) to counter Russian superiority in heavy weaponry. Another system Ukraine has asked for is the High Mobility Artillery Rocket System, known as HIMARS, a lighter wheeled system capable of firing many of the same types of ammunition as MLRS.

-US officials are questioning Americans who travel to Ukraine to fight Russia, citing domestic security issues, reports Politico’s Besty Woodruff Swan and Christopher Miller: U.S. officials, worried about domestic security issues, have been questioning Americans at airports as they travel to Ukraine to fight Russia, according to an intelligence bulletin reviewed by POLITICO. The document shows that the U.S. government is gathering information about Americans traveling to Ukraine and is interested in their activity after they return. But critics say the focus on “violent extremist-white supremacists” echoes one of the Kremlin’s top propaganda points: that supporting Ukraine means also supporting neo-Nazis. It comes as Washington grapples with a messy challenge: dissuading Americans from fighting alongside soldiers who have received some of their training and many of their weapons from the U.S. itself. The Justice Department has not said whether it’s legal for Americans to join the Ukraine conflict. But no Americans are known to face criminal charges just for traveling to Ukraine to fight Russia, which invaded its neighbor on Feb. 24. This document shows that if law enforcement officials wanted to bring charges, they’ve had plenty of opportunities.

-Dmytro Kuleba, Ukraine’s Foreign Minister, said that “weapons, weapons and weapons again” are what the country needs.Russia still has a weapons advantage, and Ukraine needs “more heavy weapons. Without these, we won’t be able to push them back,”

-Israel has rejected as US request that it transfer advanced anti-tank missiles manufactured in Germany and based on Israeli technology to Ukraine's forces, according to defense officials quoted in Axios. The plan was to use Israel as a third party to "allow Berlin to supply Ukraine with anti-tank missiles produced in Germany with Israeli technology under an Israeli license," the report indicates.

-Russia has trained serving conscripts but won’t use them in Ukraine. This produces a severe manpower shortage which it is trying to dampen with a host of desperate halfway measures. Rounding up Donbass teachers, using the Rosgvardia police troops, disproportionally relying on Chechens, inviting South Ossetians… One of the desperation measures is courting ex-servicemembers (ex-pros and ex-conscripts alike) to return to the military for stints as short as 3 months, and be paid a staggering 300 thousand rubles per month. At the prewar exchange level that would be 3750 US dollars and is massive money for the Russian province. It is much higher than the normal salary of a contract soldier which is around $1000 (plus a combat bonus but I don’t know how large). Before Ukraine the shortest contract the Russian military would enter into was for 2 years of service.

-The Kremlin has rejected claims that Russia has blocked grain exports from Ukraine, blaming the west for creating such a situation by imposing sanctions on Russia.

-The deputy prime minister of the Russian-appointed Crimean government, Georgy Muradov, has said the Sea of Azov is “forever lost to Ukraine”. Russia’s Ria news agency also quoted a Russian-appointed official in the occupied Zaporizhzhia region as saying that the Zaporizhzhia and Kherson regions would never be returned to the control of the Kyiv.

-Antony Blinken, the US secretary of state, has said China’s cooperation with Vladimir Putin after his invasion of Ukraine “raises alarm bells”. Blinken criticised the Chinese president, Xi Jinping, for defending Putin’s “war to erase Ukraine’s sovereignty” and said it was “a charged moment for the world”.

-Russian troops occupying the south-eastern port city of Mariupol have cancelled school summer holidays to prepare pupils for switching to a Russian curriculum, according to officials. “The main goal is to eradicate everything Ukrainian and prepare for the new school year, which will be according to the Russian curriculum,” city official Petro Andryushchenko said.

-Alexander Lukashenko, the Belarusian president who is a close Putin ally, has ordered the creation of a new military command for the south of the country bordering Ukraine. The Belarusian armed forces previously said they would deploy special operations troops in three areas near its southern border with Ukraine. Lukashenko has also talked up the role of Russian-made missiles in boosting the country’s defences.

-After being accused of using the food supply as blackmail and a bargaining chip, Russia said Wednesday its military will open up protected sea corridors for international shipping to pass through from seven Ukrainian ports that have thus far been blockaded. According to a defense ministry statement reported by Bloomberg late in the day, "Humanitarian maritime corridors from ports on the Black Sea and Azov Sea, including Odesa, will operate from 8 a.m. to 7 p.m. daily." The announcement comes two days after the head of the United Nations World Food Program David Beasley ripped Moscow for what he dubbed a "declaration of war" on global food security. He's been urging "political solution" to the crisis of blocked Black Sea ports, saying the war in 'the world's breadbasket' threatens to unleash "famine, the destabilization of nations as well as mass migration by necessity." Millions of people in 43 countries dependent on grain from the war-torn region are "knocking on famine’s door," he said.

Some one-third of global wheat supplies originate from Ukraine and Russia, with the bulk of it passing through the Black Sea. On Wednesday Russia said it remains ready and willing to work with the West to reach a solution, but that easing sanctions is a necessity: However, Russia has stressed that its military is engaged in extensive and complex demining operations due thousands of mines dotting Ukraine's coast placed by Ukrainian forces, making international shipping dangerous and impossible.

-Tight supplies of natural gas, crude, and coal have pushed up residential electricity rates this year. A nationwide weather outlook for this summer forecasts extreme heat -- all of this will force households to crank up their air conditions, resulting in oversized power demand that could stress national grids. Bloomberg cites new data from Barclays Plc that says monthly power bills could be 40% more than last year's. The US Energy Information Administration expects retail residential electricity rates to increase the most since 2008.

-Russia’s foreign ministry spokesperson, Maria Zakharova, said an Italian peace plan for Ukraine was a “fantasy”. Zakharova said at her weekly briefing: “You can’t supply Ukraine with weapons with one hand and come up with plans for a peaceful resolution of the situation with the other.”

-Russia’s deputy foreign minister, Andrei Rudenko, said Moscow is ready to provide a humanitarian corridor for vessels carrying food to leave Ukraine, in return for the lifting of some sanctions. Ukraine’s Black Sea ports have been blocked since Russia invaded, with more than 20 million tonnes of grain stuck in silos in the country. Ukrainian foreign minister, Dmytro Kuleba, poured scorn on Moscow’s claim and accused Russia of trying to “blackmail the world”.

-Russian forces have launched fresh assaults on towns in eastern Ukraine, with the city of Sievierodonetsk increasingly in danger of being totally encircled. The governor of Luhansk region, Serhiy Haidai, said the area was now without gas supplies and had limited water and electricity after the last gas supply station was hit.

-U.S. natural gas futures hit highs not seen since 2008 amid EU export demand, serious concerns of a sweltering summer, and the possibility stockpiles might not be refilled ahead of the heating season. Futures for June delivery were up over 2%, topping $9. One driver of soaring prices is supply tightness. Weather forecasters predict a summer of heatwaves that could force households and businesses to crank up their air conditioners. There's also the concern about power grid strains where hydroelectricity and coal supplies are limited, which will increase the use of natgas power generation. A surge in natgas demand this summer could result in the inability of U.S. stockpiles to replenish ahead of the heating season.

-Oil prices are higher overnight following API's report of a small crude build and large gasoline draw and the ongoing geo-economic push-pull. "The oil market remains caught between fears of recession and the consequences of the zero-Covid policy in China on the one hand, and tight supply, especially of oil products, coupled with the prospect of US gasoline demand picking up during the summer driving season on the other," Commerzbank analyst Carsten Fritsch said in a note. All eyes for now are on the official inventoryu data and any signs of demand destruction.

The official DOE data showed a significantly smaller gasoline draw than API and also showed a slightly bigger than expected crude draw. This was still the 8th straight week of gasoline draws (and 15th of last 16 weeks). Distillate inventories rose by the most since Jan 2022. Crude stocks at Cushing, Oklahoma, have resumed their slide, falling for a third straight week and dropping below 25 million barrels again. Many traders think critical levels at Cushing are likely around the 22 million-barrel level, so this will be closely watched heading into the summer months. Gasoline stocks remain dramatically below normal for this time of year.

-The data that got some heads, and markets, turning yesterday was US new home sales, which slumped 16.6% m-o-m and 26.9% y-o-y to a seasonally adjusted annual rate of 591,000 in April, the lowest level since April 2020. Economists had expected a figure of 748,000. Yes, this is always a very choppy series, but the drop was widespread: -5.9% in the Northeast, -15.1% in the Midwest, -19.8% in the South, and -13.8% in the West. That’s synchronicity which takes me back to a conversation I had with a Russian-American in mid-2006 when working at another bank, who explained why the US housing market was so vast that it was mathematically impossible for all homes to ever do anything --bad!-- at the same time, and so US mortgage-backed securities were the safest of investments. I kept up a rictus grin, as at that time I had been writing for years about a looming US housing crash, the Western replay of Asia’s 1997 crisis, which the traders around me were disinterested in hearing about: they had brought the guy in to explain how to profit from MBS sales. Relatedly, today has seen Michael Burry, of ‘The Big Short’ fame, tweet: ‘As I said about 2008, it is like watching a plane crash. It hurts, it is not fun, and I’m not smiling.’ Once again I agree with him.

Of course, there was no sign of a property slump in the April sales report – quite the opposite. Prices soared yet again, reaching a median of $450,600 vs. $435,000 in the prior month. That is 3.6% m-o-m, which is 43% y-o-y if you annualized(!) That is a trend that has been going on for some time: according to First American's chief economist, in April 2021, 25% of new-home sales were priced below $300,000, but in April 2022, only 10% of new home sales were. This is part of ‘the strong economy’ the Fed keeps talking about, which is very 1997/2008 redux – as is their inability to understand what is actually going on (again).

-A week ago, we made note of a May 11 New York Times news article, documenting that all was not going well for the U.S. in Ukraine, and a companion opinion piece hinting that a shift in direction might be in order. Now on May 19, “THE EDITORIAL BOARD,” the full Magisterium of the Times, has moved from hints to a clarion call for a change in direction in an editorial uninformatively titled, “The War Is Getting Complicated, and America Isn’t Ready.” From atop the Opinion page the Editorial Board has declared that “total victory” over Russia is not possible and that Ukraine will have to negotiate a peace in a way that reflects a “realistic assessment” and the “limits” of U.S. commitment. The Times serves as one the main shapers of public opinion for the Elite and so its pronouncements are not to be taken lightly.

-The US State Department has raised deep concerns about reports of a planned Turkish military offensive in northern Syria, saying they worry about the civilian population, and that more fighting would put the US troops there at risk. The area of northern Syria being targeted includes a lot of Kurdish territory. The Turkish government is constantly at odds with the local YPG, and the US statement acknowledged "Turkey’s legitimate security concerns." State Department spokesperson Ned Price said Tuesday, "We are deeply concerned about reports and discussions of potential increased military activity in northern Syria, and in particular, its impact on the civilian population there." "We recognize Turkey's legitimate security concerns on Turkey's southern border, but any new offensive would further undermine regional stability and put at risk US forces and the coalition’s campaign against ISIS," he said.

-Russian lawmakers have voted to approve a new law that would eliminate age limits for military contract soldiers. Military experts say Russia is facing unsustainable troop and equipment losses in Ukraine after a series of military setbacks that have forced Moscow to reduce its war aims.

-Ukraine’s foreign minister, Dmytro Kuleba, accused Nato of “doing literally nothing” in the face of Russia’s invasion of his country. Speaking at the World Economic Forum in Davos, Kuleba praised the EU for its “revolutionary” decisions to back Kyiv but said the Nato military alliance had been “completely sidelined”.

-Sweden is “obviously” not funding or arming terrorist organisations, its prime minister, Magdalena Andersson, said, in response to Turkish claims that it is a hotbed for terrorist groups. Her remarks came as Finnish and Swedish delegations began talks with Ankara today, which Andersson said would provide an opportunity to clear up what she said was “confusion” circulating about Swedish support for different groups

-Norway should share the “gigantic” profits it’s recently made as a result of higher oil and gas prices, especially with Ukraine, said Polish Prime Minister Mateusz Morawiecki. Morawiecki, answering a question about his government’s energy policy Sunday at a meeting of a youth group, said coal-reliant Poland plans to switch to renewables and nuclear energy, while shedding oil and gas deliveries from Russia and at some point from “Arab” countries as well. “But should we be paying Norway gigantic money for gas — four or five times more than we paid a year ago? This is sick,” he said. “They should share these excess profits. It’s not normal, it’s unjust. This is an indirect preying on the war started by Putin.” Poland will later this year complete a gas pipeline from Norway that’s set to help it replace the supply of the fuel from Russia — cut last month following Poland’s refusal to pay in rubles.

COVID CASES USA 7-DAY AVG
107,787 MAY 24 2022
24,769 MAY 24 2021