Sunday, June 12, 2022

Russia/Ukraine War Update - June 12th, 2022

 *** MILITARY SITUATION ***


The euphoria that accompanied Ukraine’s unforeseen early victories against bumbling Russian troops is fading as Moscow adapts its tactics, recovers its stride and asserts its overwhelming firepower against heavily outgunned Ukrainian forces. Newly promised Western weapons systems are arriving, but too slowly and in insufficient quantities to prevent incremental but inexorable Russian gains in the eastern Donbas region of Ukraine, which is now the focus of the fight. The Ukrainians are still fighting back, but they are running out of ammunition and suffering casualties at a far higher rate than in the initial stages of the war. Around 200 Ukrainian soldiers are now being killed every day, up from 100 late last month, an aide to President Volodymyr Zelensky told the BBC on Friday — meaning that as many as 1,000 Ukrainians are being taken out of the fight every day, including those who are injured.

In a cafe in the front-line town of Slovyansk, two Ukrainian soldiers on a break from the trenches nearby recounted how they were forced to retreat from the town of Dovhenke, northwest of Slovyansk, under withering Russian artillery fire. Thirty-five of their 100-strong unit were killed in the assault, typical of the tactics Russia is using. “They destroy everything and walk in,” said one of the soldiers, Vitaliy Martsyv, 41. “There is nothing there,” Andriy Tihonenko, 52, said of Dovhenke. “It’s all burned down.” As troop fatalities mounted, the surviving soldiers felt “more motivated to hold our position,” Tihonenko said. To retreat after their comrades were killed defending the town, he said, would have felt like treating their deaths as insignificant. But eventually, the defensive line was no longer effective, the two men said. With more than one-third of their force killed, the remaining soldiers had no choice but to pull back.

“The Russians are using long-range artillery against us, often without any response, because we don’t have the means,” he said. “They can attack from dozens of kilometers away and we can’t fire back. We know all the coordinates for all their important targets, but we don’t have the means to attack.”

Ukraine has now almost completely run out of ammunition for the Soviet-era weapons systems that were the mainstay of its arsenal, and the Eastern European countries that maintained the same systems have run out of surplus supplies to donate, Danylyuk said. Ukraine urgently needs to shift to longer-range and more sophisticated Western systems, but those have only recently been committed, and in insufficient quantities to match Russia’s immense firepower, he said. Russia is firing as many as 50,000 artillery rounds a day into Ukrainian positions, and the Ukrainians can hit back with only around 5,000 to 6,000 rounds a day, he said. The United States has committed to deliver 220,000 rounds of ammunition — enough to match Russian firepower for around four days.

The majority of the American M777 howitzer artillery guns that U.S. officials said would enable Ukraine to match Russian firepower are now in use on the battlefield, according to the Pentagon. Yet the Russians continue to advance.

Four of the more sophisticated and longer-range HIMARS multiple-rocket launcher systems that the Ukrainians had long requested from the United States are on the way, along with three similar systems pledged by Britain. But the Ukrainians will first have to be trained how to use them, and they are still weeks away from reaching the battlefield, U.S. officials say. The Pentagon has hinted that more systems will be made available once the Ukrainians have demonstrated they can be used.

The Russians started the war with about 900 of their own similar systems, and although the Ukrainians claim they have destroyed hundreds, the Russians still have hundreds left, Danylyuk said. The Russians have meanwhile adapted their tactics in ways that have let them take full advantage of their firepower by remaining at a distance from Ukrainian positions, pounding them relentlessly, then taking territory once the Ukrainians have been forced to retreat.

The Russians are also doing a better job of combining their arms, using close air support and deploying dismounted infantry, said Rob Lee, a former U.S. Marine now with the Foreign Policy Research Institute. Russia has regenerated its forces to a greater extent than anticipated by many military analysts, bolstering its depleted army by as many as 40,000 to 50,000 men over the past two months, by increasing the age of the reserve force, deploying new forces and refurbishing units that had been decimated, Danylyuk said.

-Russian forces fired cruise missiles to destroy a large depot containing US and European weapons in western Ukraine’s Ternopil region, Interfax reported on Sunday, as street fighting raged in the eastern city of Sievierodonetsk.

-Ukraine is using 5,000 to 6,000 artillery rounds a day, according to Skibitsky. “We have almost used up all of our artillery ammunition and are now using 155-calibre Nato standard shells,” he said of the ammunition that is fired from artillery pieces. “Europe is also delivering lower-calibre shells [122mm] but as Europe runs out, the amount is getting smaller.”

-Ukraine says it is almost out of 152mm artillery shells. That sounds plausible, but that has been floated as true since April so who knows if it’s really the case. Ukraine also says it is consuming over 5000 shells a day. That contradicts its earlier claim in a joint report by Ukrainian and Western intelligence that Ukraine’s ammunition expenditure is 40 times smaller than Russia’s. If Ukraine is firing 5000 shells daily then Russia would have to be firing 200,000 shells daily — which is impossible. (A shell like that weighs 50 kg. Just 20 of them weigh a ton.) Both of these things can not be true at the same time.

It increasingly sounds like everything Ukraine says is in the service of extracting more support from the West. The claim that the Russians now have 10 to 15 times more artillery pieces could be an interesting one. One that could tell us something about Ukrainian artillery losses so far. Sadly that estimate can not be trusted because the Ukrainians would be saying that whether they thought it was true or not. Just as they claim to be going through 5000 shells daily and the Russian 40X that.

-Ukraine is in control of Azot factory in Sievierodonetsk, the governor of the Luhansk region said after a Russia-backed separatist claimed that between 300 and 400 Ukrainian fighters were trapped there. About 800 people, including children, are hiding beneath a chemical factory in the key eastern Ukrainian city, now 80% held by Russian troops.

-Russian air defence forces have shot down three Ukrainian war planes, according to the country’s defence ministry. It said the military had shot down two MiG-29 planes in the Mikolayiv region and one Su-25 fighter jet in the Kharkiv region.

-Russian strikes knocked out power supplies in Donetsk’s two largest Ukrainian-controlled cities, Kramatorsk and Sloviansk, regional governor Pavlo Kyrylenko wrote on the Telegram app. Speaking later on national television, he said the move was part of a deliberate strategy to cut off electricity in towns in Donetsk that remain in Ukrainian hands, Reuters reports.

*** ECONOMIC & POLITICAL ***

-Gas prices hit a new record high on Sunday, climbing to a national average of $5.01 for a gallon of gas, according to AAA. The average spiked about 16 cents from last week as summer rolled in and Americans started driving more for vacations, trips and outings. Around this time last year, the national average for a gallon of gas was $3.07, according to AAA.

-Ukrainian President Volodymyr Zelensky and Ukrainian advisers have been arguing in recent days that they don’t want to cede any territory to Russia in the ongoing war in Ukraine. And though that view is widely held in Ukraine, they could be digging themselves into political quicksand. Zelensky’s position, which he and his advisers have repeated countless times, is well-supported throughout the country, to be sure. Ukrainians overwhelmingly don’t want to give up any land to Russia—82 percent of Ukrainians are against it, according to a Kyiv International Institute of Sociology poll conducted in May. Zelensky has said Ukrainian fighters are capable of pushing back Russian forces, and even suggested they want to push Russia back to not just pre-February, 2022 bounds, but wind the clock all the way back to before Russia’s incursion in 2014, as well. But if Zelensky and his advisers have to one day confront the realities of the war and actually approach a negotiation table once more and consider—or make—territorial concessions, that could leave Zelensky on the precipice of political turmoil, according to Steven Pifer, a former U.S. Ambassador to Ukraine. “Zelensky is going to have to make some really difficult decisions between what kind of concessions to make versus protecting positions of principle, and what kind of concessions he might want to make that could be acceptable to the Ukrainian public,” Pifer told The Daily Beast. “I think that's going to be a really, really hard decision if they get to a point in a negotiation.”

-The U.S. Navy on Saturday announced a "safety pause" for non-deployed aircraft after a pair of crashes in Southern California during the week. The Monday pause will give Naval Air Forces, including U.S. Marine Corps aircraft operations, an opportunity to review risk management and implement fresh safety training, U.S. Navy officials said in a statement. The week's lost aircraft include Wednesday's deadly crash of a U.S. Marine Corps Osprey near Glamis, an area in Imperial County about 150 miles east of San Diego.

-A military buildup by China is the "largest and most ambitious" since World War II and could lead to an arms race in the Indo-Pacific region, Australia's defense minister said on Saturday. Richard Marles, who is also deputy prime minister in the recently elected Labor government, warned that an arms race in the region could be caused by feelings of "insecurity" prompted by China's actions. "China's military buildup is now the largest and most ambitious we have seen by any country since the end of the second world war," Marles said.

-Warships from the U.S. Navy sailing off the coast of California in 2019 were swarmed by drones from a nearby Hong Kong cargo ship on multiple occasions, the Navy has revealed. The incidents were all reported between March 30, 2019 and July 30, 2019. Seven different vessels were involved. One of the warships reported in their official memo that the Hong Kong ship was observing them, noting: 'MV Bass Strait likely using UAVs (unidentified aerial vehicles) to conduct surveillance on US Naval Forces'. The drones have long been a source of intrigue, and last month, during an eagerly-anticipated Congressional hearing on 'unidentified aerial phenomena', or UFOs, officials said they had solved some of the mystery. On Friday, website The Drive published information, obtained through Freedom of Information requests, giving more detail about the encounters. They found that twice on July 15, 2019, warships reported drones overhead that they suspected were being flown from the Hong Kong-flagged bulk carrier, MV Bass Strait.

-Russian gas producer Gazprom said its supply of gas to Europe through Ukraine via the Sudzha entry point was seen at 41.9 million cubic metres (mcm) on Sunday, unchanged from Saturday, Reuters reports.

-Ukraine has established two routes through Poland and Romania to export grain and avert a global food crisis although bottlenecks have slowed the supply chain, Kyiv’s deputy foreign minister said on Sunday. Dmytro Senik said global food security was at risk because Russia’s invasion of Ukraine had halted Kyiv’s Black Sea grain exports, causing widespread shortages and soaring prices, Reuters reported. Ukraine is the world’s fourth-largest grain exporter and it says there are some 30 million tonnes of grain stored in Ukrainian-held territory which it is trying to export via road, river and rail. Ukraine was in talks with Baltic states to add a third corridor for food exports, Senik said.

-The armed forces of Ukraine have received new Starlink satellite communication systems from SpaceX founder and CEO Elon Musk. The Ukrainian defense ministry said that the Starlinks will be used for its intelligence forces’ “special missions.”

-President Joe Biden on Friday told a donors conference in Los Angeles, California on the sidelines of the Summit of the Americas that Ukrainian President Volodymyr Zelensky brushed aside US warnings saying a Russian invasion of Ukraine was imminent. He described the situation ahead of the Feb.24 invasion and his communications with Zelensky, according to The Associated Press: "Nothing like this has happened since World War II. I know a lot of people thought I was maybe exaggerating," Biden said, according to the outlet. He added the US had data that showed Russian President Vladimir Putin was going to invade. "There was no doubt," Biden continued. "And Zelenskyy didn't want to hear it."

In his latest remarks, Biden admitted that the possibility of Putin launching a full-scale invasion may have seemed far-fetched at the time, acknowledging, "I understand why they didn’t want to hear it." Top Ukrainian officials in the days and weeks prior to the invasion had pushed back against Washington, blaming the repeat warnings from US intelligence agencies for sowing "panic".  At that time, Zelensky had even personally told Biden to "calm down the messaging" on the invasion fears. Rarely does US intelligence take its classified assessments public in order to preemptively warn of action it predicts will occur. This highly unusual public stance also fueled widespread skepticism of the constant invasion warnings from the administration even among longtime Russia experts and observers. It has since been revealed in recent testimony by US Director of National Intelligence Avril Haines that Biden had taken the rare step of declassifying intelligence related to the prepared invasion in order to convince skeptical allies that it was likely going to happen.

-The German chancellor, Olaf Scholz, is planning a visit to Kyiv alongside the French president, Emmanuel Macron, and the Italian prime minister, Mario Draghi. The leaders want to meet the Ukrainian president, Volodymyr Zelenskiy, prior to the G7 summit.

-Today's US inflation print continued the trend of upside surprises, coming in at 8.6% YoY. In fact, in the past two years, there have been just two occasions when inflation came in below expectations, and judging by the market's reaction, many more upside surprises lie in stock. Perhaps more importantly, DB's Jim Reid today notes that inflation is not meeting the Fed's test of MoM deceleration that would force a slower path of rate hikes, with headline CPI at 1.0% MoM versus expectations of 0.7% and 0.3% in April.

-Apartment owners have been earning big profits off of raised rents, according to a new report by Accountable.US released this week. The report notes that the top 10 public apartment companies saw net income collectively rise 57% to about $5 billion as a result. These numbers far exceed losses that the companies incurred at the beginning of the pandemic, the report showed. Accountable.US President Kyle Herrig commented: "It’s obvious the punishing rental prices on our most vulnerable populations are driven by corporate greed. Big apartment companies have joined the long list of industries using inflation as cover to charge working families far beyond any new cost of doing business." The study found that rent was up more than 17% last year and occupancies grew 2.5% above the historical average of 95%.

-On Friday, the Central Bank of Russia cut its repo rate by 150bp to 9.50%, more than consensus expectations (10%). Today's cut now fully reverts the emergency rate hike of 1050bp on 28 February in response to financial market turmoil and capital flight following Russia's invasion of Ukraine. In other words, Russian monetary policy is now back to pre-Ukraine war levels.

-A Ukrainian MP has said she was “surprised, a lot” and “extremely upset” by the lack of “strategy or a plan” from the collective west. Speaking in a video posted on Twitter, Kira Rudik, the leader of the opposition liberal Golos party, said that while the World Economic Forum — which took place in May — was pro-Ukrainian, Rudik said timing of the war’s end will be determined by international support they are getting.

-The German company Rolls Royce has provided two superpower generators to Ukraine, the country’s ministry of health announced on Saturday. In a statement, the ministry of health said, “One such generator is capable of providing the work of not only one building, but all the buildings, if it is a large regional hospital.”

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