Dissension in the Russian camp

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On June 24, suddenly a Russian invasion of Russia fared better than the Russian invasion of Ukraine. The Wagner army took the military hub of Rostov-on-Don and then steamed rapidly toward Moscow. Later that day, Yevgeny Prigozhin, the owner of the Wagner group, also quickly halted the advance again to avoid imminent bloodshed. Still, this brief stunt by the mercenaries was enough to be branded a traitor by Putin. As a result, things between Putin and Prigozhin will not come right again, even though Prigozhin was granted amnesty in Belarus thanks to Lukashenko’s intervention.

Prigozhin regularly criticized the Russian military leadership in the past, but never, until recently, Putin. At the battle of Bakhut, which was won thanks to the Wagner army, Prigozhin constantly complained that his army was given too little ammunition by the Russian army leadership. Recently, according to Prigozhin, the Wagner army was even shelled by the Russian army. Then Prigozhin also came out with a personal attack on Putin for the first time. According to Prigozhin, Russia was never threatened by Ukraine at all, nor were there any neo-Nazis or other criminal elements in Ukraine that needed to be cleared out. That, according to Prigozhin, was all a lie. That means that under Prighozhin, other solutions than fighting on in Ukraine are also possible.

Speaking of open mutiny and treason, Putin drew comparisons to the 1917 Russian Revolution, when insurgents forced the country out of World War I. By halting the advance, the greatest tension seems to be out of the air, but the events will have major long-term consequences. Too much has happened for that. This action that for a long time looked like a coup has clearly weakened Putin’s position. If Putin is not ousted by Prigozhin, there will soon be another. Not that Prigozhin is seen as an improvement over Putin in humanitarian terms, if Khodorkovsky’s show of support was noteworthy.

Depending on further developments, several scenarios are possible and in the most extreme scenarios Putin or Prigozhin still clears the field. The moment Putin succeeds in getting rid of Prigozhin with the help of the FSB, Putin will have to continue to do without the Wagner army in Ukraine, and that is quite a hefty drain. It is possible that this will bring closer the move to deploying nuclear weapons tactically. Putin will also understand that a peaceful retreat is no longer an option for him. Apparently, his security apparatus’s control of Russia is wholly inadequate in practice. The Americans had been aware of Prigozhin’s plans since mid-June. The only solution is for him to govern with an iron fist even more from now on, Probably, therefore, he will be quite paranoid for the time being.

Prighozhin has now shown the Russians that there is a possible alternative to Putin. In the event that Putin were to hand over the baton to Prigozhin, there is a good chance that Prigozhin will subsequently make peace with Ukraine, also given his previous statements on the subject. By pushing for peace, he creates a lot of goodwill among the Russian people and may even ease sanctions against Russia internationally, especially if he starts working with Khodorkovsky, who is well liked internationally.

The response to geopolitical turmoil by financial markets is often modest. In this case, the turmoil potentially makes for a stronger dollar and there were brief risks that oil production would be interrupted, which could cause oil prices to rise. This is especially true if this insurgency further escalates into civil war. Also, the fact that this development brings closer the use of a nuclear weapon is obviously not positive which may require a higher risk premium for equities. The moment there is peace, commodity prices may fall, although given the low speculative boom positions, this fall will be small. However, a peace in Ukraine will be a boost to the global economy and especially international air travel, resulting in higher demand for commodities.

Of course, much depends on further developments in the coming days. A long period of uncertainty is not good for the already poor morale of Russian troops. Putin suddenly looks remarkably vulnerable, and that could mean the beginning of the end for him. By first portraying Prigozhin as a traitor to the country and then granting him amnesty not long after, Putin’s credibility does not increase. Also, Putin really has no choice but to push Shoigu and Gerasimov – the two men of whom Prigozhin was so critical – aside. This development makes Ukraine the laughing third for the time being, and it is taking advantage of Russia’s divisions by intensifying its offensive.

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