More than a month into the Russia-Ukraine conflict and it has become clear that Russia has failed to achieve its initial objectives. This has changed our outlook on how this may all play out.
We’ve updated our overview of possible outcomes in the form of an easy-to-read table (See below).
Regime change in Ukraine looking less likely
Source: abrdn, April 6, 2022. Notes: Red indicates a very low probability event (less than 10%); Orange indicates a probability of 10-20%; Yellow indicates a probability of 20-30%; Green indicates a probability of 30-40%. Colors refer to 12-18 month time horizon. Probabilities do not sum to 100%. Some scenarios could happen in parallel or sequentially.
At the outset it’s important to reiterate that no single scenario has a high likelihood, and that these scenarios are best used for establishing guide rails for navigating the crisis.
Here’s a quick overview of these possible outcomes. Our two leading scenarios are:
Leading scenario 1: De-facto partition
Russian forces withdraw east and settle for taking the expanded Donbas region, the city of Mariupol and parts of the south with access to the Black Sea. Ukraine would dispute Russia’s land grab but begrudgingly accept it. Western sanctions remain in place.
Leading scenario 2: Persistent conflict
Russia and Ukraine refuse to back down but neither side makes any meaningful progress — potentially lasting for months or years. This is similar to the stalemate scenario described by think tanks such as the Institute for the Study of War. Western sanctions remain in place.
Meanwhile, there are other scenarios that are still possible but, in our view, less likely:
Scenario: Negotiated settlement
Diplomacy bears fruit. Ukraine is willing to give up its North Atlantic Treaty Organization (NATO) ambitions and adopt neutrality. However, it’s unclear whether Russia is negotiating in good faith. There are many thorny issues to resolve. Some sanctions relief is possible, but not much if Russia’s President Vladimir Putin remains in power.
Scenario: Russian U-Turn
This would only happen in the unlikely event of regime change in Russia. Sanctions could be lifted in this scenario. However, Putin has brought senior military personnel closer into his inner circle over the past decade, and they have as much to lose as he does.
Scenario: Escalating conflict
Another unlikely scenario is one of severe military escalation that drags NATO member states more directly into the fighting. Sanctions would be even more severe.
Economic, monetary, geopolitical effects
We think that sanctions risks are finely balanced, although additional measures on Russian energy remain plausible.
The longer this conflict drags on, the West will be under greater political pressure to do more. This will keep energy and other commodity prices sensitive to developments in Ukraine. With broader inflation still strong, global monetary policy will continue to tighten.
A prolonged conflict may make it more difficult for China and India to stay neutral. We don’t think China wants an accelerated decoupling from the West given the extensive economic interdependencies. But fragmentation was happening even before the war.
In times of conflict, misunderstandings can sow the seeds of division. Thus, while the bar for secondary sanctions on China is high, they cannot be ruled out.
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