Russia's War Anniversary, with Predictions

What markets foretell about the future of Russia's War

Russia’s war has now dragged on for a full year.

I first wrote about it because I was traveling in Russia when the war started, and I had talked with many ordinary Russians in the 3 months prior to the war, as well in the week immediately after. I had a couple takeaways from that. I wrote:

1) Don’t expect a “popular uprising” against the Russian government

I also noticed:

Life in Moscow is far more normal than you’d assume from the media coverage.

In a follow-up post one month into the war, I wrote that “media exaggerate the impact of sanctions.”

Indeed, life in Russia is still mostly going on as normal. The biggest exception is with conscription, which led to an exodus of hundreds of thousands of young men.

Now, one year into things, it’s worth doing a recap of where things stand.

When will the war end? Probably not soon

Recently I had the privilege of talking with a foreign policy / military advisor for a major western European country.

The person said: “I’m optimistic that things will be settled in Ukraine’s favor. In about 7 or 8 years.”

That seems unfortunately plausible. It’s also worth noting that smaller scale fighting was ongoing in the Donbass from 2014-2022 — which illustrates that conflicts can last a long time.

A “popular uprising” against the Russian government remains very unlikely

I hear from people in Russia that life continues, mostly as normal. There are headaches — Russians are now mostly unable to travel west due to western governments not issuing them visas, and many foreign brands can’t be found in Russia. But in general, all basics are available, and inflation is not off-the-charts the way it is in say, nearby Turkey (which self-inflicted an even more serious economic disaster on itself using nothing more than idiotic central bank policy.)

Backing up the idea that life is mostly normal in Russia, the people betting at Polymarket say Putin’s position is safe in the near term — that there’s a 95% chance that he’ll make it through the first half of the year:

The markets on Russia/Ukraine are thin (just $11,100 has been bet on the above) but I still think they’re the best and most objective single estimate we have. These markets are also so little-cited that they’re unlikely to be manipulated.

Internal divisions among Russia’s military are a risk for Russia

There has been increasing infighting between Yevgeny Prigozhin, the head of Russia’s comparatively-effective “Wagner” mercenary group, and the heads of Russia’s formal military.

The situation blew up in public this week, with Prigozhin blasting the regular military leaders for withholding ammo from his men on the front lines, even accusing them of:

… “treason, at a time when Wagner is … losing hundreds of its fighters every day.”

Prigozhin now says the ammunition has been released, which diffuses tensions momentarily. But such high-level divisions involving dangerous players adds a layer of risk for Putin and his war.

Above, we saw that bettors don’t think Putin faces much imminent danger to his regime. But what about longer term? Russia will hold Presidential elections in March 2024. While Russian election outcomes are controlled by its government, the election could still provide a natural point for Putin to bow out or be forced out by other powerful internal players in Russia. Bettors at Smarkets are not too sure that Putin will hang onto power through the election, giving him just a 59% chance:

Of course, even if Putin steps aside, or gets pushed aside, his replacement may still want to continue the war.

Bettors predict continued stalemate

I’m not a military strategist, so I’ll basically defer to the “wisdom of the crowd” that we can get from prediction markets. They mostly predict stalemate.

First, bettors at Insight Prediction say there will be no major Russian gains in the next couple of months, despite a much-hyped new “major offensive” by Russia:

It shows just a 6% chance that Russian will take a big city in the next three months.

Also, the bettors say it’s not very likely (25%) that Russia will make even the most incremental gain by taking the small town of Bakhmut in the next two months:

Russians have already been pounding away at Bakhmut for months, and have been working on encircling it — so the fact they still aren’t going to take it shortly, per the bettors, is a bad omen for their effectiveness.

But bettors also say there’s just a 15% chance that Ukraine will retake all the territory it lost in 2022 within the next half-year:

(specifically, an 85% chance that they won’t retake it all)

Retaking all that lost territory is a high bar, though; Ukraine could have big gains but still not do that. So overall, I think the betting odds we have leave a bit more room for major Ukrainian gains than Russian ones.

Then again, Russian (and US) bettors are excluded from the site. Traders might have a bit of a pro-Ukraine bias, which would matter in these thin markets.

Anyway, overall, the bettors don’t clearly predict anything beyond continued stalemate. Which makes sense given the pace of change for the last half-year.

(Map from Wikipedia)

Is the world slipping into a proxy war in Ukraine that reveals “World War 3” fault lines?

Top US officials say they have intel that China is seriously considering starting to sell weapons to Russia.

If that happens, it’d be very bad. Not only would it make Russian gains more likely, but it would give the war a more global aspect, pushing China and Russia closer together against the west.

One can certainly see why China might want Russia to win.

If Russia were to lose, and Putin were forced out, then a more modern and western-friendly government might eventually take power, and China could become surrounded by governments that are more friendly to the west than to it, from Russia to India to Japan. That wouldn’t bode well for China’s long-term plan to take Taiwan.

Additionally, if Chinese weapons did tip things in Russia’s favor, Russia would be indebted, and would have to be supportive with whatever China wants to do with Taiwan later.

Fortunately, it’s not clear that China will actually start selling arms to Russia. China just released a 12-point paper calling for peace negotiations that offers nothing concrete, but which generally tries to strike a middle-ground tone. It warns countries (really, Russia) to not use nukes, or threaten to use them. That’s nice to see.

But China also attacks western “unilateral sanctions” and more.

China is pushing back on the notion that they’d sell arms, the WSJ reports:

Chinese academics portrayed the paper as Beijing’s attempt to clarify its views on Ukraine and debunk Western smears about its intentions. “The U.S has frequently spread rumors about China, saying that China wants to get involved and help Russia. This is pure nonsense,” Jin Canrong, a professor at Renmin University of China in Beijing, wrote on social media.

But we shouldn’t put too much stock in just words. When the US stated that Russia was about to attack Ukraine, Russia declared that to be western propaganda. Many people believed that at the time, but we all know how that turned out.

There are no betting markets on whether China will start selling weapons to Russia, unfortunately. I suspect it’s less than a 50% chance, but it’s definitely something to keep an eye on.

What can the US do to end the war?

The war is obviously a disaster, and the sooner it can end, the better.

Perhaps it’s worth one more summer push by Ukraine, fully supplied by the west, to see if they can retake what they lost. The 15% chance given by the bettors isn’t nothing.

And perhaps it’s also worth seeing how Russia’s March 2024 election is shaping up around winter time.

But, if things are still stalemated by the time the election becomes clear, then from a humanitarian perspective, the US should consider pushing to end things with negotiations.

Negotiations would probably end up giving Russia the land they control at negotiation time, but a deal should really also prevent future invasion by, for example, letting the surviving part of Ukraine into NATO and putting NATO troops there.

That kind of compromise would make everyone angry.

Ukrainians would be furious that they’d be giving up territory that was rightfully theirs, and that Russia would be rewarded for a brutal invasion.

Russia would be unhappy to have NATO/US troops securing the rest of Ukraine, and unhappy about not getting nearly as much territory as they’d planned for.

American anti-war people would be unhappy about giving Ukraine a costly security guarantee. But it could be worth it to head off a second war like this one, and Russia is unlikely to be foolish enough to attack a NATO base.

Peace treaties are often horribly unpopular — but if we’re still in a stalemate in a year, I suggest that it’d be better than bleeding this out for 7 or 8 years. If you disagree and would prefer fighting to the bitter end, fair enough.

More predictions

Half a year ago, I wrote that the super-forecasters on Metaculus gave Ukraine a 30% chance for taking almost everything back by 2024, but that’s now down to 10%.

They also predict that Ukraine only has a 16% chance of retaking the major front-line city of Luhansk by 2024:

They give Russia a 29% chance of taking the major city of Zaporizhzhia for the first time (which seems too high, as it would require a really big successful offensive. I’d give it half of that):

They also predict that Russia will hold onto at least some of their recently-captured territories by 2024 (75% chance):

In general, these are closely in line with the betting market predictions. It’s nice to have both as a “sanity check” against each other.

Conclusion

Overall, there’s not much to celebrate in this annual update:

— The war plods forward, and there’s no clear end in sight. Betting markets predict further stalemate as the most likely outcome.

— China might start selling weapons, which would be very bad.

— One can imagine a compromise that’d prevent future attacks, but it doesn’t seem like something any side would agree to that, unless things change a lot.

— Let’s hope for a breakthrough. There’s a 15% chance of it!