Ukraine Update: 16 March, 2023

China’s foreign minister conducted a phone conversation with his Ukrainian counterpart and expressed the Chinese government’s growing concern with the continuing war between Russia and China. Beijing is anxious over the prospect of the war escalating and is urging Kiev to discuss a political resolution with Moscow. Coming from the Chinese, a request for negotiations at this point appears self-serving. The discussion between foreign ministers comes amid reports that a Chinese-made drone was shot down last weekend. The United States has led the charge in accusing China of moving closer to supplying Russia with weapons. It would make sense for China to urge a negotiated settlement to try and divert attention away from the discovery of a Chinese-made drone on the battlefield. Pushing this tact is even more sensible considering that Xi Jinping is expected to visit Moscow in the near future and there is widespread speculation concerning what Xi’s arrival in Russia might bring about.

Unfortunately for the West, the warnings put forward about China potentially supplying Russia with weapons and war material is an instance of the pot calling the kettle black. Led by the United States, NATO has provided Ukraine with a continuous stream of weapons since the start of the war. Most recently, a limited number of main battle tanks have entered the pipeline. In the next few days four Polish MiG-29s will arrive in Ukraine. These will be the first combat aircraft provided by a NATO member-state, representing a sizeable escalation in military support. Other alliance members could follow suit, opening the prospect of combat aircraft being made available to Ukraine’s air arm.

This could produce two significant actions. First, Russia might commit a sizeable portion of its air force to the war. So far, the Russian Air Force has played a limited role with the majority of its available combat aircraft kept out of the fighting. Second, an increase in NATO military support could prompt China to begin providing copious amounts of war material to keep Russia afloat. Time will tell which of these two prospects takes shape.

Another Round of North Korean Missile Tests

North Korea fired a pair of short-range ballistic missiles early this morning. The missiles were launched from positions near the southwest coast town of Jangyon, flew across the width of North Korea before landing off the east coast. The North Korean government calls these tests a show of force. They were the second tests to occur this week and took place as US and ROK forces conduct exercises on the southern half of the Korean Peninsula. The joint exercises have caused dissatisfaction in Pyongyang. Kim Jong Un’s regime has openly labeled the exercises as ‘frantic war preparations’ and warned North Korea’s armed forces to be ready to repel an attack.

Same old pattern, more or less. The US and South Korea conduct exercises and the North responds with a series of missile tests thinly veiled as a ‘show of force.’ Statements are released by Washington, Seoul and Tokyo reaffirm the tenets of the US-ROK-Japanese strategic partnership. Tensions lessen for a brief period of time and Pyongyang quiets down. Then a few weeks later the cycle begins all over again. In fact, by now the cycle is growing dangerously routine in the eyes of many in the United States, Japan and South Korea.

The wildcard is North Korea’s mounting food crisis, which is producing pressure on the domestic front. Weapons tests and tensions with the US and its regional allies provide a safety valve for Pyongyang to keep the focus of its citizenry on events outside of the North’s borders.  As the government has found itself unable to solve the food crisis, it relies more and more on the external threat to keep North Koreans from worrying too much about the diminishing amount of food available. This cannot continue on indefinitely without running the risk of inadvertently sparking a regional war.

A Little Sawgrass Chat On This Sunday Evening

The Players Championship had drawn to a close. After spending a few days immersed in golf paradise it is time to start thinking about my impending return to the real world. As I sit here enjoying my final Sawgrass Splash and take a look at what has been going on while I have been pleasantly preoccupied here at TPC Sawgrass, I must admit it has been an active last four or five days around the world.

First up, China’s peace-brokering mission in the Persian Gulf. Normalizing relations between the two major powers in the region will provide China with some much-needed positive press. Today, China insisted its was pursuing no ulterior motives in bringing Iran and Saudi Arabia. In a statement released earlier this weekend by China’s Foreign Ministry stated,  “We respect the stature of Middle East countries as the masters of the region and oppose geopolitical competition in the Middle East.” Despite the contents of this press release, Beijing’s move is a clear signal of its intent to play a significant role in the Persian Gulf region for some time. China’s growing presence and influence in the region does not sit well with the United States and for good reason. For much of the past three decades, Washington has been the undeclared Godfather of the Middle East. Nothing moved forward the discreet approval of the White House. Regional leaders were not always satisfied with the arrangement but nevertheless played ball. Unfortunately, the Biden administration made a strategic error by relegating the Middle East to the back burner and focusing almost obsessively on Europe, the war in Ukraine and more recently the Western Pacific. US diplomats and the White House created a tremendous opportunity for China and Beijing wasted little time cashing in. Now there are two major outside players competing for friendships and influence in the region. The more savvy operators in the Gulf will use this new reality to their advantage. For the time being, US prestige has taken a hit. It will be up to Antony Blinken to right the ship, so to speak. I’m not convinced he can pull it off.

Then there is the Bakhmut meatgrinder in Ukraine. Neither side can effectively disengage at this point without suffering a significant blow to morale. Ukraine is almost fully invested in defending Bakhmut. Zelenskiy has not ordered a retreat yet and seems he is in no hurry to at this point. Despite the heavy number of casualties that pile up daily. Losing the city now will do tremendous harm to national morale. For better or worse, Ukraine is committed to the defense of Bakhmut, signaling its willingness to turn the city into a miniature Stalingrad. Russia is thinking along similar lines. Unfortunately for both sides, the war will not be won in Bakhmut. However, it could easily be lost if men and equipment continue to be added to the battle without a definitive strategy.

Silicon Valley Bank’s Collapse

Good evening from Ponte Vedra Beach, Florida. I’m down here this weekend for The Players Championship at TPC Sawgrass, so this will be a brief update. As will Sunday’s, but come Tuesday, everything will be back to normal. I wanted to take a moment to discuss a topic making the rounds on this early Friday evening: The collapse of Silicon Valley Bank.

 The closure of SVB has taken the financial industry by surprise and raised concerns about the health of the entire banking industry. In short, the bank failed owing to a significant downturn in the startup industry, in which SVB was a major lender. The downturn sparked high deposit outflows from the bank, which prompted SVB’s parent company, SVB Financial Group, to sell over $20 Billion of securities from its portfolio. This prompted anxiety among many prominent venture capitalists who advised  portfolio businesses to limit their exposure to the growing SVB crisis. These businesses began pulling their cash from the bank and this was the point-of-no-return for SVB. The bank’s stock dropped 60% on Thursday. Efforts by the bank’s CEO to allay investors growing worries did nothing. By today, with the share sale having failed and trading having been halted on its stock, SVB was in need of rescue. California banking regulators came in and closed the bank down. This is the largest bank failure since the 2008 Financial Crisis.

SVB’s downfall is unsettling bank investors. The primary concern for now is that SVB’s problems will spill over and affect other major banks around the world. The US banking system overall is quite solid and should be able to handle contagion risk and turmoil produced by SVB’s sudden collapse. But given the current conditions of economies and markets around the world, there is no guarantee SVB’s troubles will not produce at least a limited number of unforeseen circumstances in the near future. Time will tell.

Ukraine Update 8 March, 2023: The End Approaching In Bakhmut?

The end might be approaching for Ukrainian forces in Bakhmut. Maybe. It depends on whose statements and reports you choose to agree with. The Russians and their Wagner Group mercenaries claim to have made tremendous gains and are on the verge of encircling the city. Despite the encouraging tone and content of Russian statements, the fighting continues.

Meanwhile, the Ukrainian government’s position on Bakhmut is undergoing a revision. Volodymir Zelenskiy has promised Ukrainian troops will continue fighting on in Bakhmut. By continuing to hold the city, he explained in an interview yesterday, it denies Russia from being able to claim a symbolic victory, as well preventing Russian forces from capturing Bakhmut and using it as a jump-off point for future operations in the east. As for the city’s value to Ukraine and its military, at this time it is representational. Ukrainian forces have prepared hardened defensive lines to the west in anticipation of the future Russian axis of advance. The danger right now for Ukrainian forces in and around Bakhmut is time. The longer they remain in place, the greater the chances of their eventual encirclement becomes.  Nevertheless, Zelenskiy and his military commanders met earlier in the week and decided Bakhmut will continue to be defended.

NATO is preparing for the possible fall of Bakhmut as well. Secretary General Jens Stoltenberg admitted today that the city could be in Russian hands within a matter of days. However, Stoltenberg was also careful to point out that should Bakhmut fall it will not represent a turning point in the war or swing momentum back to the Russian side.