21 days after Russia invaded Ukraine, what is the likelihood of a peace deal in the near-future and what factors are driving the forecast?
In our first issue forecasting the Russo-Ukrainian War, we identified four key questions driving the future of the conflict; examined the relevant actors, and their preferences and constraints; and described the situation as it existed and the signals driving potential outcomes.
- Will an agreement be reached by all parties in the Russo-Ukrainian War before, or shortly after, the fall of Kyiv?
- Will the Russian government collapse before, or shortly after, Q1 is resolved?
- How long until Q1 resolves?
- Which parties will be involved in an agreement ending the Russo-Ukrainian War and what role will they occupy?
We then noted how both parties would prefer to end up in a world where Q1 resolves positively, but disagreed on how to get there. Navigating towards a middle ground would be shaped by progress in the military and political / economic fronts of the war.
The goal for Russia is to end up in row 1 or settle for row 2. While for Ukraine and the West it is to end up in row 3 or settle for rows 2 and 4 (the latter is likely preferable). Ideally, we could try to find a middle ground between rows 1 and 3 which are preferable to all sides by reducing the gains / losses for both sides.
Today, we'll explore the constraints on peace and the divide between the minimum terms parties would accept. In doing so, we can understand the likelihood of a peace-deal before the conflict evolves into Rows 2 and 4 and brings the associated costs and risks.
Note: Featured signals were originally shared on Twitter via @WarSignals.
Since our last update, Russian advances have been minimal but important. In the South, Russia has made meaningful headway, encircling and occupying key cities such as Kherson, Nova Kakhovka, and Melitopol. The same holds in the East, where Ukrainian forces east of the Dnieper are in danger of encirclement. At the same time, Russian forces currently appear to be regrouping before a new push.
The question is whether Russia can compound their victories as cities fall and new forces become available. These considerations—in tandem with the potential for additional military support from reserves in other countries like Syria and Libya (and even Belarus!)—indicate a precarious future for the Ukrainian military.
On the other hand, there are some reasons to doubt this story. For example, Russia's recent attempt to capture Voznesensk ended in failure. And according to our aggregated forecasts, Metaculus either sees the situation differently or are more bullish on the likelihood of a peace deal or cease-fire in the short-term (more on this shortly).
Regarding updates on casualties and significant changes in military capabilities from either side, the fog of war is still thick. Both Ukraine and Russia have made claims about the others’ losses on social media platforms and through official channels, but as objective information has become more difficult to find, we are left to make educated assumptions.
As we understand the situation, Russia’s military deaths currently stand at ~3500 with the chance that they are realistically as high as ~8,000 (Ukraine has claimed upwards of 11,000). As for Ukraine, their stated numbers are currently 1,300 with the possibility that they are as high as ~5,300 (2/3 of Russia).
On the economic front, much of the focus has been on Russia’s ability to weather the bombardment of Western sanctions and military costs.
While historically sanctions have been viewed as a political tool to demonstrate disagreement rather than an effective deterrent for bad actors, the Russo-Ukrainian conflict has bucked the trend.
Vladislav Inozemtsev, Director at the Center for Post-Industrial Studies in Moscow did some fantastic analysis of the current state of Russia’s sanction battle, as we don’t want to misconstrue key elements of these sanctions packaged, but needless to say, while Russia’s military advances seem nigh inevitable, its economic situation is grim. On the other hand, there are levers the Kremlin can pull to stabilize the situation in the short-term should they choose:
Russia can definitely afford to pay $ 2.5bn. The main question now is not whether the government will be able to pay back its creditors, but whether it will be willing to do so...
Therefore, I believe that we are going to see a repeat of the 1998 scenario with some variations, with a selective default on domestic debt and continued payments on foreign debt, even if this seems unrealistic at the moment.
Moreover, I would say that foreign debt servicing is almost the only area today where catastrophic changes on the frontier of the Russian economy can be used to the benefit of both the MoF and domestic investors. The average yield on foreign currency bonds maturing within two to six years in Russia is now about 40% per annum, while the highest-yielding 3−9-month deposits in foreign currency in Russian banks yield no more than 8% per annum. Given that, the most profitable solution would be for the largest Russian banks to buy out most of the foreign currency debt directly or through authorised credit institutions not hit by sanctions and sell it to Russian investors (one form of this could be to replace individuals’ foreign currency deposits with such securities). While Russian Eurobonds are issued in $ 200K denominations, nothing prevents banks from issuing derivatives of $ 500 or $ 1,000 and offering them to citizens as part of a currency deposit swap to bond yield. I have no doubt that most citizens (and the population held almost $ 80bn in foreign currency deposits at the end of 2021) would agree to such a conversion and would even compete for it.
Nevertheless, not only have these sanctions hurt Russia in the short term, alienating oligarchs and making foreign business operations close-to-impossible, these sanctions have also made it more difficult for Russia to subsidize itself, and for other countries to provide aid through foreign investment.
According to Kommersant, a Russian news outlet, “Russia's available foreign exchange reserves, including deposits in foreign currencies and securities registered in the US, EU and Japan” which has “weakened its external liquidity in a period of growing demand for foreign currency.”
On top of all this, Russia’s credit ratings from Fitch and Moody have both been lowered, making the country an even less desirable destination for investment. As we’ve shared in our forecasts, this is a war of attrition, with Russia hoping to outlast its economic pangs to take Kyiv and control Ukraine. Potential aid from China may change the calculus, but even if Russia takes Ukraine, the economic impacts of this conflict will be long-lasting.
The geopolitical climate surrounding this conflict has played a backseat to the on-the-ground situation in Ukraine, but there have been important developments. Most important perhaps, is China's growing involvement.
When Russia first invaded Ukraine, China’s stance on the military campaign and how it would respond were unclear. And to be honest, China still seems analytical about its approach. China’s interests in this conflict are clear, and they are all China.
The country only this week classified Putin's invasion as a war and has made deliberate steps to avoid U.S. and Western sanctions as a result of this ongoing conflict. Moreover, China's ambassadors to the US and Ukraine recently made neutral and positive statements on their position relative to Ukraine.
On the other hand, Beijing has long touted Chapter VII of the United Nations Charter which states that only the UN Security Council has the mandate to apply sanctions; a claim that throws shade on the multiple sanctions packages released by the West in recent weeks. And if this invasion were as short as Putin and Xi seemed to expect it would be, that stance could be sustainable.
As the military and economic situations on both sides of the conflict continue to move towards a reckoning, China will have to be more resolute about its stance on this war. Military and economic aid to Russia still seems on the table for China, but the country is clearly concerned with its standing with the West post-conflict. And that is for good reason. Everyone is watching whether China will undermine the work of a unified NATO and EU in providing a cushion to Russia’s military efforts.
For more on China, we enjoyed this recent piece by Adam Tooze:
What neither Beijing or anyone else truly reckoned with was Putin’s willingness to launch an all out invasion. Geopolitical tension over Ukraine was to be expected. China’s backing for Russia helped to foster it. But all out war with all its attendant risks is another matter altogether. From Beijing’s point of view, Putin’s extraordinary decision is no doubt a major shock.
Finally, we have to discuss the state of peace deal talks as they currently stand, and what factors we think are more central to achieving peace between Russia and Ukraine. There have been many claims of progress being made in negotiations between the two countries, but as we know from our forecasts on a return to the JCPOA in 2021, positive progress in talks can often be noise.
Now that is not to say that no progress is being made. On Tuesday, Ukrainian President Zelensky conceded that Ukraine will not become a member of NATO, a large step in closing the gap in negotiations between Russia and Ukraine. And on Wednesday another step became possible when learned details of a potential peace deal, but:
Unfortunately however, and as we will discuss below, there are many other considerations which will make an agreement difficult to strike. And there is a lot riding on these talks. If a deal is not able to be struck during this series of meetings, it could result in renewed violence and bloodshed with fewer off ramps than before.
Divide Between Parties
So now let’s look at how we’re forecasting the probability of a peace deal being struck either before or shortly after the potential fall of Kyiv. And to do this, we are utilizing one of our favorite forecasting frameworks: preferences and constraints.
Preferences for Minimum Peace Deal
- Retaining control of Kyiv and as much Russian-captured territory as possible
- Economic/security guarantees from the West (EU / NATO membership ideal)
Ideal: Complete sovereignty (no limitations on foreign or domestic policy, and return of Crimea and Donbas).
- Confirmation (likely codified) that Ukraine will not become an EU or NATO member
- Retaining control of Crimea as well as the Donbass
- Removal of harsh economic sanctions and reintegration into the global financial marketplace
Preferred: Territory captured on coasts of Sea of Azov and Black Sea, and immunity for actions in Russo-Ukrainian War.
Ideal: Return of Ukraine into Rus orbit (short- or long-term), no Western expansion into Moldova, Georgia, and other post-Soviet states.
- A Ukrainian economic reconstruction package
- A resulting world order that deters actors like Russia from carrying offensives behind the threat of catastrophic escalation (vague, but certainly a priority in any outcome)
Ideal: Resuscitation of the Liberal International Order to re-enforce desired norms and ultimately contain actors such as Russia and China.
Constraints on a Peace Deal
- Zelensky’s willingness to concede negotiation points and his desire to keep fighting irrespective of Kyiv’s status
- Western aid and support (which has continued)
- Ukrainian domestic sentiment (although citizens seem more than content at the moment): support for Zelensky, EU, Minsk II, and Territorial Concessions.
- Putin’s desire to capture Kyiv and his broader ambitions with his invasion of Ukraine
- Russian domestic sentiment (such as TV presenters quitting / protesting)
- Chinese willingness to supply either military or economic aid
- The impact of Western sanctions of Russia’s economy and financial future
- Russia’s battlefield situation and amount of territory under its control
- US domestic sentiment, especially with midterms coming up
- Ideology, and the continued harmony within both the EU and NATO
Bridging the Divide
Now, given this breakdown of preferences and constraints for the major players, it is clear that a deal between Russia and Ukraine will take a lot of work even though no party would prefer a long-lasting conflict.
First, the final number of actors needed to hammer out a deal between these two countries may be much higher than what we have above – if that is the case it is possible that negotiations get even more difficult.
Second, for almost every actor, the number of constraints we have delineated either equals or surpasses the number of preferences that actor has. And as we know from Marko Papic’s Geopolitical Alpha, constraints are more potent than preferences in geopolitical analysis, which paints an even more foreboding picture of this conflict.
Third, Zelensky has agreed to discuss the future of the Donbas and Crimea with Russia. A good starting point, but given this was the ex-ante demand by Russia prior to their newly captured territory, more progress will need to be made. We believe this will be the most likely area for progress, but for now no agreement has been reached.
Fourth, a concession on formal-NATO membership seems the most likely, however the question is to what degree will Ukraine agree to wider-demilitarization demands by Russia including the limitation of offensive Western weapon systems?
Fifth, the larger stumbling block with respect to blocs remains the EU. We find concessions here to be less likely by Ukraine. Perhaps a non-member status which allows some integration with the EU will be a sufficient compromise? There is a chance this issue can be avoided, since no demand was present in Putin's February 22 list nor during recent negotiations. Nevertheless, with the death of Minsk-II, a Russian request wrt the EU is likelier than not (albeit potentially reached in secret, ala the US in the Cuban Misile Crisis), and if not would otherwise signal a relative Russian defeat given the pre-invasion status-quo.
Several more positive signals will need to be released in order to feel more confident about a bonafide deal. The key question is whether the culmination of these demands generate a status quo that is worse than Ukraine's cost-adjusted utility function for continuing the war should Kyiv fall, either based in Lviv or in-exile.
Finally, we are also looking for signals that would indicate Western attitudes of de-escalation vis-à-vis Russia, including signals that the harshest sanctions would be removed should a peace agreement be reached and whether they will re-engage with Russia economically which have started to emerge, but:
These signals need to emerge faster than the cost for both parties, as that will increase the minimum gains each side needs in a peace settlement, or one side needs to collapse.
We forecast a 25% (+5) likelihood that an agreement will be reached by all parties in the Russo-Ukrainian War before, or shortly after, the fall of Kyiv. Range: [18% (+8), 34% (+1)].
- Peace deal before the fall of Kyiv: 15%
- Peace deal shortly after the fall of Kyiv: 5%
The current peace deal being worked out between Russia and Ukraine appears close to threading the thin-line between what both parties can minimally accept. While there are reasons for optimism, many constraints remain. We'll watch developments in the coming days, and positively update on further signals should they arrive.
Our forecast for a temporary cease-fire is likely much higher, but its significance on the end of conflict is non-determinative.
We forecast a 7% (+1) likelihood the Russian government collapses before, or shortly after, the above question is resolved. Range: [5% (+0), 9% (+1)].
- This question should perhaps be better understood as "Will the Russian government be at significant risk of collapse".
We predict it will take 2.5 months (-.5mo) for the first question forecasted will be resolved. Range: [3wk (-1wk), 4.5mo (-1.5mo)]
- Given the change in time, the reduction on the minimal bound is non-existent, while the reduction in median and maximal bound is material.
We predict the following countries will take part in the agreement mentioned in the first question forecasted: Russia, Ukraine, Belarus, United States, European Union, NATO, and China.