A New Phase In The Ukraine War

Firefighters attempting to put out a fire at a power plant in Kharkov

The Ukraine Strikes Back

At the end of last week, the Ukrainian government had its most successful counteroffensive since the early days of the war, when it stymied Russia’s apparent attempted coup de main in Kiev. This appears to mark a new phase in the Ukraine War: the Ukrainians have exhibited new capabilities, and the Russian government exhibited a new tack in response on Sunday, by striking civilian infrastructure across the Ukraine, causing blackouts in much of the country.

Reactions To The Recent Events

Russian journalist Anatoly Karlin, who predicted the invasion in February,

assessed the Ukrainian counteroffensive in the thread below. Like most Russian accounts I’ve seen over the weekend, he acknowledges this was a defeat for Russia, and that Russia will need to change its recent approach in the Ukraine.

Karlin’s last point about Russia needing to change its approach was echoed by Ramzan Kadyrov, the head of the Chechnyan Republic within the Russian Federation. He’s roughly equivalent to the governor of a U.S. state, except with more autonomy and, presumably, a de facto lifetime appointment. Kadyrov also spent time leading his Chechnyan Russian National Guard troops in the Ukraine earlier in the war. Here’s a translation of his comments on the Ukrainian counter offensive, via Telegram (emphasis mine):

– I, Ramzan Kadyrov, officially declare to you that all these cities will be returned back.  Our guys are already there.  Another 10,000 fighters are ready to leave;

 – In the near future we will reach Odessa, you will see concrete results;

 – I’m not a strategist, as in the Ministry of Defense.  But mistakes were made.  I think they will draw conclusions.  When you tell the truth to your face, you may not like it.  But I love to tell the truth.  We talked with the commanders at the fronts;

 It’s a shame that nothing was said for several days.  It is clear that people were not prepared for this.  We always talk about our work;

 – If today or tomorrow changes are not made to the conduct of a special military operation, I will be forced to contact the country’s leadership in order to explain to them the situation on earth.  She is very interesting, “awesome” I would say;

 – The fact that several villages and cities were given to them, there are several pluses in this.  We did not advertise, but we have a special task.  Our guys stood up and started their work;

 – In the near future we will meet with the military commanders, we will explain to them what patriotism is.  Patriots should not be offended if someone did something wrong.  We must unite people around ourselves;

 – I know one thing.  Russia will win.  NATO weapons will be suppressed by the spirit of our fighters.  Our hands and feet are already trembling.

Changes Are Made

Whether or not Kadyrov contact the Russian federal government, one notable change occurred on Sunday: Russia started attacking Ukrainian civilian infrastructure, particularly power plants.

In the seventh month of the war, Russia finally resorted to something NATO did to Serbia, and the U.S. subsequently did to Iraq.

Consequences of the Counteroffensive

One consequence of the successful Ukrainian counteroffensive is that the military aid spigots will remain open for the Ukraine for now, after recent comments by Germany’s defense minister suggesting otherwise.

Another consequence is more human suffering. The longer the war goes on, more Ukrainian and Russian soldiers will get killed. But also, a number of Ukrainians who accepted Russian passports or otherwise “collaborated” with Russia will suffer, as journalist Julia Kanin details in the thread below.

And now Ukrainian civilians will suffer as Russia targets their infrastructure. They will likely experience blackouts as well as interruptions in running water, public transport, etc.

Market Implications

It’s worth remembering that Russian gas has continued to flow through pipelines in the Ukraine during Russia’s “special military operation”. But Russia’s targeting of civilian infrastructure Sunday suggests they’re upgrading this conflict to something more like an all-out war. In which case, would they keep pumping gas through these pipelines?

Another way Russia might escalate in response to NATO’s proxy war against it would be cutting back on its oil exports to drive the price to record highs. This would be particularly painful to German companies that have recently switched from using natural gas to diesel.

As I type this though, European markets are up in early trading Monday there, so they don’t seem to be worrying about this. Maybe they should be.

A Potential Investment Idea

A correspondent on Twitter suggested an investment idea in light of Russia’s strikes on the Ukrainian power grid on Sunday: portable generator maker Generac Holdings, Inc. (GNRC).

Generac was a top Portfolio Armor name at the end of 2020,

But isn’t currently. It may be again soon though. It’s worth keeping an eye on.

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