Nato should be ready for some “bad news”, Nato Secretary General Jens Stoltenberg said in a recent interview, suggesting that the war in Ukraine could be frozen or ended in 2024. Stoltenberg’s comments were followed a few weeks later by reports by The New York Times (NYT) that the Kremlin has approached the White House and suggested freezing the conflict in Ukraine, and an op-ed calling for peace talks and Ukraine to cede territory to Russia. The slew of reports is feeding speculation that the war in Ukraine may end soon.

"Wars develop in phases," Stoltenberg said in an interview on December 2 with German broadcaster ARD. "We have to support Ukraine in both good and bad times," he said, adding, “"We should also be prepared for bad news,” Stoltenberg added, without being more specific.

The Kremlin has denied the NYT’s claim that it approached the White House or that it is prepared to freeze the Ukrainian conflict, suggesting instead it is the US side that wants to end the war and claim victory, not Russia.

The articles and op-eds are adding weight to those observers that have argued the US has cynically used Ukraine in a proxy war to denigrate Russia’s military might and there was never any intention to provide enough support that would allow Ukraine to win its war against Russia.

As bne IntelliNews has reported, victory for Ukraine was never a Western war goal, but only to prevent Ukraine’s defeat. The Biden administration has said on repeated occasions its goal is actually to “put Ukraine in the strongest possible position when it comes to eventual ceasefire negotiations.” US Senator Linsey Graham has underscored the US position with comments including, “This is the cheapest war the US has ever fought,” and, “We will fight to the last Ukrainian.”

By contrast Ukrainian President Volodymyr Zelenskiy has made it very clear that complete victory is Ukraine’s war goal and that he will accept nothing less than the total expulsion of Russian forces from all of Ukraine, including the Crimea. The vast majority of regular Ukrainians support Zelenskiy's position, according to several recent polls.

Ukraine fatigue

And it seems that the Ukrainian war is moving into its end game. Following Ukraine’s failed summer counteroffensive this year, Ukraine fatigue has become palpable. Both a US effort to pass an additional $61bn aid package for Ukraine and an EU drive to approve a four-year €50bn support package in the last month of 2023 have failed but both packages will be represented for a fresh vote in the first two months of the New Year.

Ukraine’s 2024 budget calls for $37bn in foreign support to close a massive budget deficit needed to continue its resistance to Russia’s invasion, but without the international support Ukraine is running out of money again. Western arms deliveries could start to dry up as soon as January, according to a recent US military assessment, before the Armed Forces of Ukraine (AFU) finally runs out of crucial artillery shells in the summer that would effectively end the war.

The front line has not moved more than a dozen kilometres over the summer during the counteroffensive but Stoltenberg highlighted that the Ukrainians have successfully used cruise missiles to push Russia’s Black Sea fleet out of the Crimea and continue to hit damage deep in Russian territory

“These are big victories even though they haven’t been able to move the front line,” Stoltenberg said in the interview, maintaining an upbeat message, but tacitly admitting the war against Russia has reached a stalemate. Stoltenberg repeated calls for Nato’s members to ramp up ammunition production, but bemoaning the fragmented state of Europe’s defence industry and lack of investment into new arms production facilities, again tacitly admitting this part of the plan to support Ukraine was also off track.

The Wall Street Journal added to the downbeat set of reports on December 22 saying that Europe was so badly invested in arms production, Germany would run out of ammunition in less than two weeks if fighting broke out between Russia and Nato. And Germany is by far Europe’s biggest arms producer.

 

Kremlin to fight for five years

Putin has denied recent reports that the Kremlin had made backchannel approaches to the US suggesting that Russia was ready for a ceasefire in Ukraine.

Publicly, Putin’s message is one of confidence that Russia will prevail. During his annual meet the people press conference in December he boasted that Ukraine was so beleaguered that Russia’s invading troops were doing “what we want.”

“We won’t give up what’s ours,” he pledged, adding dismissively, “If they want to negotiate, let them negotiate.”

That gybes with the NYT report that claimed that in backchannel diplomacy, Putin has been sending a different message: “He is ready to make a deal,” the NYT reported.

“Putin has been signalling through intermediaries since at least September that he is open to a cease-fire that freezes the fighting along the current lines, far short of his ambitions to dominate Ukraine, two former senior Russian officials close to the Kremlin and American and international officials who have received the message from Mr. Putin’s envoys say,” the NYT reported.

Those reports clash dramatically with Putin’s public comments. He promised Chinese leader Xi Jinping that his invasion of Ukraine would last five years, the Japanese newspaper Nikkei reported on December 28, citing multiple anonymous sources familiar with Russian-Chinese diplomatic manoeuvring.

Nikkei interpreted Putin’s words that Russia “will fight for [at least] five years” as an assurance that Moscow would emerge victorious in the end and a possible warning for Xi not to reverse China’s pro-Russia policy.

Putin’s comments were reinforced one day earlier after Russian Foreign Minister Sergei Lavrov lambasted the US reports in explicit terms.

“Russia is aware of Western plans to freeze the conflict in Ukraine by declaring itself the winner,” Lavrov said at a news conference following talks with his Indian counterpart Subrahmanyam Jaishankar on December 27

"As regards leaks about the West’s intention to freeze the conflict in Ukraine and present it as a winning country, we are aware of how the West, and primarily the United States, can proclaim `victories’, and we know how they `won’ in Vietnam, Afghanistan and Iraq," Lavrov said as cited by Tass.

"Look at the Middle East, at what is taking place in the Gaza Strip in the context of Washington blocking for years any efforts to establish a Palestinian state in line with United Nations Security Council decisions," Lavrov concluded.

War-war or jaw-jaw?

There are several interpretations of the NYT’s reports. In one Putin may be creating an “illusion” of seeking peace to use to his advantage in the 2024 presidential vote.

Another version is that the suggestion that Russia is ready to halt the war is designed to fuel the growing Ukraine fatigue with the war and to give grist to those in the West calling for a cessation of hostilities such as Hungarian Prime Minister Viktor Orban or some US republican senators.

A third version is that it is the White House pushing the rumours as a way to soften up western public opinion ahead of the US decision to wind down aid to Ukraine and freeze the conflict now its main war goal is achieved.

The NYT followed up its earlier reports of back-channel talks on a ceasefire with an option piece by its editorial board “Ukraine doesn’t need all its territory to defeat Putin,” calling for an end to the fighting and for Kyiv to cede territory.

The rhetoric surrounding support for Ukraine has also started to shift in the last month. US President Joe Biden noticeably softened the support Ukraine “as long as it takes” trope to  “as long as we can” as part of his efforts to persuade Congress to pass his $61bn support package in December.

Other commentators are also watering down the criteria for ending the war. Shashank Joshi, the defence editor at The Economist tweeted that the rhetorical troupe of “for as long as it takes” should not be understood as the West will support Ukraine until a final victory on the battlefield but only until some “undefined victory” is achieved.

““Whatever it takes” never meant “whatever it takes to liberate everything.” It meant “whatever it takes to allow an as-yet undefined victory on terms favourable to Ukraine.” The distinction is/was very important,” Joshi said in a tweet.

European Commission President Ursula von der Leyen for one has taken a very hard line on the war in Ukraine and made it clear that “for as long as it takes” means a complete military victory over Russia.

However, the White House has always taken a softer line of “support for Ukraine to put it in as strong a position as possible for the inevitable ceasefire negotiations,” which implies the US has always expected Ukraine to be forced to make some territorial concessions to end the war.

Indeed, Bankova (where Ukraine’s presidential administration is housed) agreed to significant territorial concessions as part of a peace deal agreed with Russia at the end of March 2022, where, among other things, the Donbas remains Ukrainian but becomes an autonomous region inside of Ukraine that de facto would be controlled by Russia. Zelenskiy also agreed to put off the issue of sovereignty over the Crimea and push negotiations into the future. However, the deal was scuppered by US pressure according to seven sources that were at the negotiations.

An eighth source confirming the details of the March 2022 peace deal emerged on December 28 from Ukraine’s former US Ambassador Valeriy Chalyi, who was also part of the delegation in Istanbul where the details of the deal were agreed. He said, “We concluded the Istanbul communique and we were very close… in April to finalising our war with some peaceful settlements.” He added that Putin had made a “personal decision to accept the text of this communique.”

Plan B

With more Western funding for Ukraine looking increasingly unlikely, the Ukrainian Ministry of Finance (MinFin) has come up with a Plan B that entails cutting spending to reduce the budget and, as a last resort, to simply printing money to cover spending as the National Bank of Ukraine (NBU) did in the first six months of the war.

MinFin announced in December that it has already shaved some $4bn off budget spending for 2024 reducing the shortfall from $41bn to $37.3bn, Minister of Finance Serhii Marchenko said during a meeting of the financial leaders from the G7 countries, EU leadership, the IMF, and the World Bank in December. That compares to 2023, when MinFin attracted $42.3bn in external financing.

The EU also has a plan B to fund Ukraine after Hungary decided to veto the €50bn package, which it is holding to ransom and demanding the EU release some €30bn in cohesion funds that were frozen by the European Commission (EC) executive in 2023 to force Hungary to toe the line in other Ukraine support legislation.

The EC is now proposing that participating member states would issue sovereign guarantees to the bloc's budget, allowing the EU's executive Commission to raise up to €20bn on capital markets for Kyiv in 2024. The original €50bn package was to come out of the EU budget that requires unanimous approval by all 27 members of the EU, however, sovereign guarantees are issued at the country level and are independent of the need of EU-wide approval.

While the scheme will raise significant funds for Ukraine, it still falls short of the entire €50bn sum and is also facing resistance from countries like France and Germany. The burden of the debt falls on national balance sheets, not on the EU as a whole at a time when the economies of most of Europe are falling into recession. Debt has been rising from already uncomfortably high levels in Europe, due to the costs of the war and support measures to fight the ongoing polycrisis , soaring energy costs and more specifically the negative impact of the boomerang effect from the Russian sanctions on European economies.

Frozen money

Another sign that the West is preparing to abandon Ukraine is the increased discussion surrounding the possibility of seizing the Central Bank of Russia (CBR)’s frozen $300bn in reserves to pay for both the war and the subsequent rebuilding of Ukraine.

Currently, those reserves are only frozen, but technically still belong to Russia, as international law only allows for seizing assets – taking ownership of the assets – if there is a criminal conviction, in the case of individuals, or the West declares war on Russia, in the case of states. Stoltenberg has made it clear since day one of the conflict that Nato will never declare war on Russia.

That makes it next to impossible for the West to seize the CBR’s money and it would be unprecedented if it did. In previous sanctions cases the West has always returned frozen central bank funds after the conflict is over.

However, in yet another NYT report in December, the US put forward new plans to seize Russia’s money and appears to be getting ready to sweep aside the legal objections.

The Biden administration is quietly signalling new support for seizing the $300bn in Russian central bank assets of which over $200bn is in Europe. The NYT reported. The White House has begun “urgent discussions” with allies about using the funds to aid Ukraine’s war effort at a moment when financial support is waning, the NYT said.

This is a dramatic U-turn on the previous policy. Even von der Leyen, the leading Russia hawk, has hesitated in calling for the West to seize the Russian money because of the damage it would do to the Western financial system and the reputation of the euro. Until recently, US Treasury Secretary Janet Yellen also argued that without action by Congress, seizing the funds was “not something that is legally permissible in the United States.”

The Kremlin has threatened Europe and the US with “serious consequences”, including tit-for-tat financial seizures or even a break in diplomatic relations, if Russia’s frozen assets are given to aid the Ukrainian budget and war effort. Presidential spokesman Dmitry Peskov told reporters after the NYT story was published that if the Biden administration and European leaders seized Russian central bank assets, they should “realise that Russia will never leave those who do it alone”, The Guardian reported.

When asked if there was a list of foreign assets in Russia that Russia could seize if the CBR reserves are seized, Peskov replied, "There is," without elaborating.

Muddling through 2024

Seizing Russia’s $300bn would effectively shift the responsibility for continuing the war from the West to Kyiv, by making it self-sufficient and able to pay for its own defence and reconstruction.

In a similar vein, over the last several months there has been a lot of talk about beefing up Ukraine’s own arms production and making Ukraine a “military production hub”. Germany’s biggest arms-maker Rheinmetall has already signed off on building a new factory in Ukraine as has Turkey’s leading drone manufacturer. But this is more of the same: shifting the burden of supplying arms from the US to Ukraine and will take time to implement.

Analysts agree that 2024 will be a very difficult year for Ukraine as even if Nato wants to continue to support the AFU with arms, Nato stockpiles of weapons and munitions are almost depleted. However, the West has finally started to invest into expanded arms production after doing little for the first year and half of the war.

The tide could start to turn against Russia in 2025 if Ukraine can hold out that long. Despite the slow pace up until now, sizable increases in munitions production are planned or already in motion in many Western countries, which would make supporting Kyiv considerably easier over the longer term. In 2025, the United States alone is projected to produce 100,000 of the key 155mm artillery shells a month, up from 28,000 this September, according to founder of R.Politik Tatiana Stanovaya in a recent note.

The US provided Ukraine with one million 155mm shells at the start of the war but only produced around 100,000 a year at the time. Recently supplies of these shells have fallen to catastrophically low levels. Russia has boosted its production of the same shells to 2mn a year and recently took delivery of another one million of the same shells from North Korea. The AFU has been forced to ration the number of shells it uses, selecting only the highest value targets while Russia fires five of the shells at the AFU for everyone one they can fire back, as bne IntelliNews reported from the frontline in March.

That should change in 2025 when the expanded Western production comes online. The EU promised Ukraine one million shells by March this year but will miss that deadline having delivered on 300,000 so far. However, by 2025 Europe’s production of shells could also rise to one million a year, significantly levelling the battlefield between Russia and Ukraine.

“If Ukraine instead turns out to be a well-defended fortress with resilient defensive infrastructure, Russia's strategy of attrition will lose its effectiveness, potentially necessitating bolder and riskier military strategies. That makes 2024 a crucial year during which the West cannot seriously increase its support, stockpiles of weapons are running low and new production is yet to come online, while key Western governments are distracted by other crises and domestic politics,” Stanovaya said in a recent note.