Things to watch in 2023: the war in Ukraine
1. The war will enter a transitional phase in 2023, from an active conflict to a protracted, lower-intensity stalemate with a contested frontline. Exhaustion and heavy losses will make carrying out large-scale offensives increasingly costly and difficult for both sides. Both Russia and Ukraine are preparing for a new push in the spring, but both sides will struggle to gain a conclusive advantage on the ground. Russia’s military problems will continue, including heavy damage to troops and equipment.
This will push Russia to double down on its strategy of inflicting major damage on Ukraine’s critical infrastructure as a means to choke the economy and demoralise the population—with limited success.
A second Russian mobilisation drive is also likely, but it will fail to attract large numbers of troops.
At the same time, Ukraine’s war efforts will continue to be constrained by equipment and personnel shortages.
2. Russia’s plans to mobilise anti-Ukrainian sentiment in Europe will fail and Western support for Ukraine will continue. This was indicated by generous military assistance pledges from the US in December 2022 and from some European countries in January 2023, including an agreement to send German Leopard 2 battle tanks. Pro-Ukrainian sentiment in the EU remains strong, with 74% in approval of the bloc’s position on the war, according to a Eurobarometer survey in January. Financial and humanitarian aid will continue uninterrupted and will prevent a total collapse of the Ukrainian economy. The biggest risk to support for Ukraine comes from donors’ declining arms and ammunition stockpiles. Still, Western support will ensure that Ukraine has the means to keep fighting in 2023 and to proceed with planned counter-offensives to challenge Russia’s positions.
3. Peace negotiations are unlikely to take place. Both Russia and Ukraine perceive the war to be existential, and we do not expect either side to agree to concessions in 2023. Ukraine has presented a ten-point peace plan, including the restoration of Ukraine’s territorial integrity (to the country’s 1991 borders), which Russia has dismissed. If any talks do occur, they will be limited in scope, along the lines of the talks that led to the grain deal signed in mid-2022. The lack of meaningful talks is in line with our forecast that this will be a protracted conflict without a clear-cut resolution.
5. The Russian economy will contract further. This will result from the G7-imposed price cap on Russian crude oil, as well as the EU’s embargo on oil and petroleum products. Russia’s economic downturn will damage the public finances (complicating the financing of the war), and the results of sanctions will become more evident on the ground, with shortages of goods worsening and domestic manufacturing output under stress. In this context, the Russian leadership will be increasingly concerned about social stability. In the long term Western restrictions on the import of high-tech goods (such as semiconductors) will weigh on the Russian economy and gradually erode the country’s status as a global energy superpower.
4. Western sanctions will remain in place in the long term, with a focus in 2023 on tightening implementation and closing loopholes. Additional restrictions on Russia’s energy sector are also possible (for instance through a tightening of the G7 oil price cap, which could be lowered below the current price of US$60/barrel). The EU and the US will pay close attention to Russia’s circumvention efforts and are likely to impose sanctions on countries that they believe are aiding Russia with sanctions evasion, such as Iran. In parallel, this sanctions push will also prompt greater efforts by the targeted countries to sanction-proof their economies, for example by setting up non-Western financing channels.
6. Europe’s decoupling from Russia will deepen. The EU market will remain closed for Russian hydrocarbons, which used to represent about a third of Europe’s total energy consumption. The bloc will continue to invest in a new model of energy security excluding Russia. Energy prices will remain high in the EU, compared with other advanced economies, and Europe will lose global market share for the exports of energy-intensive industrial sectors such as metals and chemicals. However, this will be followed by a new equilibrium in which Russia will be much more economically constrained and will have far less leverage over Europe.
7. Russia’s role as a security guarantor and regional hegemon in the post-Soviet space will continue to wane. This will open the way for other regional and global powers—notably China, Turkey and Western countries—to jostle for influence. The security vacuum left by a distracted Russia and shifting power dynamics could result in an uptick in regional conflicts in 2023. In the breakaway region of Nagorny Karabakh, Azerbaijan will continue to put pressure on Armenia (which relies on Russia as its security guarantor) for a permanent peace resolution. Georgia and Moldova could also be flashpoints this year. In Central Asia, the Fergana Valley—where the borders of the Kyrgyz Republic, Tajikistan and Uzbekistan meet—will continue to record clashes.
8. The war will continue to reshape global geopolitics. Russia will increasingly rely on China for economic and trade ties and will benefit from worsening US-China relations. However, China will be careful not to become overly dependent on Russian commodities or the Russian market. Russia will try to build new trade routes with emerging markets, which have mostly remained neutral in the conflict, and will aim to capitalise on growing resentment against former colonial powers and US hegemony, notably in Africa and Latin America. Russia will also use its existing economic leverage and disinformation narratives to stoke a further rift between the Global South and the developed economies of Europe and North America, with the goal of hurting US and EU interests from afar.
We expect Russia to have at least some success in this area (for instance by spreading disinformation about the alleged impact of Western sanctions on food security).9. Global commodity prices will moderate (compared with 2022 highs), but still remain significantly above 2019 levels. We expect Russia’s oil production to contract as a result of the EU oil embargo and the G7-imposed price cap on Russian crude oil. This, combined with OPEC+ production cuts and the reopening of China’s economy, will push the oil market into a deficit and keep prices high. In addition, global natural gas prices will remain high owing to gas shortages in Europe and Russia’s inability to fully re-direct gas flows elsewhere. The main pressure on global food markets will be felt through fertiliser shortages, as high global energy prices keep production costs high. Grain shipments from Russia and Ukraine will also remain subject to uncertainty.
10. The reorientation of global supply chains will continue. With no resolution of the war in sight, firms will push to reorient their supply chains as far from the conflict as possible, and to source critical resources from elsewhere (apart from energy, Russia is a major producer of gold, base and precious metals, fertilisers and food staples). In 2023 “friend-shoring”, prioritising trade and investment ties between friendly countries, will continue to gain traction. As US-China strategic competition deepens, this will add to the long-term trend towards the fragmentation of the global economic and security framework. Large neutral economies (such as India, Saudi Arabia, Turkey and Brazil) will play an increasingly important role in the global geopolitical scene.