Long-range Missiles into Russia have Implications for Ukraine

Escalation Before Negotiations in the Ukraine Russia War

Russia’s recent missile strike on Ukraine marks a significant escalation in the ongoing conflict, signaling tensions with NATO and the United States. Moscow reportedly used an experimental intermediate-range ballistic missile, potentially capable of carrying nuclear warheads, to send a message to the West rather than to achieve substantial military gains in Ukraine. President Putin’s comments indicate that he perceives this conflict as a broader regional issue provoked by Western powers.

Key Points

• Russia launched an intermediate-range ballistic missile, possibly the RS-26, targeting Ukraine.
• The missile has a range of 5,500 kilometers, capable of reaching various parts of Europe.
• Putin framed the strike as a response to Western military support for Ukraine, particularly U.S. and U.K. missiles.
• The strike signifies a message to NATO and European countries regarding their involvement in the conflict.
• Despite the escalation, both Russia and the U.S. show awareness of the precarious nature of their situation.

Implications for NATO and Regional Security

 The missile strike has raised alarms within NATO and among European nations about the potential for further escalation. The use of an experimental missile not only demonstrates Russia’s evolving military capabilities but also serves as a reminder of the delicate balance of power in the region. The fact that this missle could carry a nuclear warhead is part of psychological strategy Russia has used to frighten the West from increasing support for Ukraine.

 Ukrainian officials condemned the missile strike, emphasizing their commitment to defending their sovereignty. They have called for increased military support from Western allies, including advanced weaponry and additional sanctions against Russia. Ukraine’s military remains resilient, but there is growing concern about the potential for more sophisticated attacks as Russia seeks to assert its dominance.

This comes after the recent U.S. decision to allow Ukraine to use long-range Atacms missiles against targets inside Russia marks a significant shift in military support, following extensive requests from Kyiv. The implications of this decision are uncertain, as it aims to counter Russian forces while North Korea’s involvement raises concerns. Despite the potential tactical advantages, experts suggest that this incremental approach may not suffice for Ukraine’s pressing needs on the battlefield.

Specifically, the involvement of North Korean troops in support of Russia complicates the situation further. Their presence could provide Russia with additional manpower and resources, potentially offsetting any tactical advantages gained by Ukraine through U.S. military aid. The collaboration between Russia and North Korea highlights the need for a unified response from Western allies to counteract this growing alliance.

The Atacms and Storm Shadow missles were used to target the North Korean troops in the Kursk region, the part of Russia that Ukraine has pushing into. This is signficant since Putin has about 50,000 troops in the region to take back this territory. The purpose is to take away a strong negotiation card that the Ukrainians will use to trade Russian territory, Kursk region, for Ukrainian territory that Russia is holding.

The current involment of 10,000 North Korean troops is a major escalation but marginally significant. However, if the plan is to add 100,000 North Korean troops in the future it would be significant. This is because the current number of forces is matched on both sides with about 600,000 to 700,000 solders respectively. We can also view the threat of a potential larger contigent of North Korean troops as a negotiation ploy to gain advantages in negotiations.

Potential for Diplomatic Solutions and Market Implications

 While both sides seem entrenched in their positions, there are calls from various international leaders for renewed diplomatic efforts to de-escalate tensions. The complexities of the situation, including historical grievances and geopolitical interests, make finding a resolution challenging. However, some experts argue that continued dialogue could help mitigate the risks of a wider conflict. For the time being this escalation to achieve a better bargaining position ahead of negotiations sometime next year. The timing of this will become clear once Trump takes power in January 2025.

 Our view is the Trump factor will increase the possibility of a negotiated solution. Don’t buy the view that he will give Putin what he wants as this goes against logic. Trump has a big ego and is proud of his negotiation skills, thus we expect these to be tough negotiations even for Putin. In short, expect further escalation moves from both sides prior to the talks somtime in 2025.

 If there is a settlement, we would expect political risk to go down and this could bring further preassure to oil prices to fall. This will also be positive for stocks in Europe and provide a ‘feel-good’ factor for short-term gains in other markets such as the US.