Russia-Ukraine: No immediate breakthrough in peace talks but market focus to shift elsewhere
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Despite the prevailing optimism, we think it will take weeks, probably months, before any peace deal between Russia and Ukraine can be achieved. The devil is in the details and many details remain open. The key questions relate to security guarantees proposed by Ukraine, its neutrality status and the destiny of Crimea and Russian-occupied territories in Eastern Ukraine.
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Any peace deal is likely to be placed under a referendum in Ukraine, and in the context of rising patriotism, we do not think the Ukrainian public is ready for any substantial concessions to end the war yet. Instead, they want to win the war.
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Hence, we think the war will drag on as the peace talks are protracted. However, in the absence of escalation outside Ukraine, market focus will increasingly focus on other topics: tighter financial conditions, high inflation and recession risks.
Optimism around the peace talks between Ukraine and Russia is gaining ground. The negotiating delegations met face-to-face on Tuesday 29 March for the first time in two weeks and are due to continue talks albeit that the exact date for the next round of talks has not been set yet. According to Russia, the talks have been constructive, and according to the Ukrainian aide, time could soon be ripe for the two presidents to meet. Despite the prevailing optimism, we do not expect any immediate breakthrough. Rather, it is likely to take at least weeks, probably months, before any agreement could be made.
Ukraine has said it could give up its aspirations to join NATO if it received security guarantees from third parties. While Ukraine dropping its ambitions to seek NATO membership would likely satisfy Russia, we are not convinced it is plausible for Ukraine to receive such guarantees. Ukraine could seek security guarantees from the US, the UK, China, Turkey, Israel or some of the larger European countries. Under the Ukrainian proposal, guarantor countries would have to consult each other within three days after the beginning of any military aggression or hybrid war. After consultations, the guarantor countries would have to provide Ukraine troops, weapons and protection over Ukraine’s airspace. As we have seen no evidence of third-party guarantees being prepared, and particularly as the US has not supplied troops or weapons to Ukraine and NATO has consistently rejected Ukraine’s request for a no-fly-zone, we are sceptical whether third countries would have motivations for providing such guarantees.
The current draft proposal also includes provisions for Crimea and Donbass region. Under Ukraine’s proposal, the question of Crimea would be frozen for 15 years, during which Ukraine would hold negotiations with Russia on the status of the region. The status of Russian-occupied Luhansk and Donetsk regions is proposed to be discussed in the meeting between the presidents. Media reports with regards to Ukraine’s willingness to make any territorial concessions have been mixed. In any case, we do not see how Russia could spin the results from its ‘special operation’ as a win domestically without gaining control over at least the regions in Eastern Ukraine. Hence, we see a deal without any territorial concessions unlikely or unsustainable at least.
Author
Danske Research Team
Danske Bank A/S
Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.
