On October 1st, 2017, three videos of a flaming airframe falling out of the sky over Yemen appeared on YouTube. After crashing to the ground and exploding impressively, the wreckage appeared in widely shared images to closely match the profile of an American UAV. The next day, CENTCOM acknowledged that an MQ-9 Reaper, the USAF’s premier Medium Altitude Long Endurance (MALE) drone, had been lost to a surface-to-air missile fired by Ansar Allah. The news made major headlines, as the Reaper had enjoyed a sterling reputation since its introduction in 2007. Around two dozen airframes had been lost due to malfunctions and accidents, at least officially, but none had ever been acknowledged as lost to enemy fire in the platform’s 10-year operational span.

The MQ-9 emerged out of the UAV revolution kicked off by its predecessor, the MQ-1 Predator. The Predator began as the RQ-1, a roughly $3 million reconnaissance (the R stands for “reconnaissance” while M is “multi-mission”) UAV. The RQ-1 was heavily leveraged during NATO’s bombing campaigns against the former Yugoslavia, flying hundreds of sorties, and planners quickly identified that it could be much more useful if it were capable of immediately attacking the targets it identified rather than relying on manned platforms to handle the ordnance.

This wasn’t a new idea. The USAF and IAF had developed reusable ISR UAVs, UAVs with real-time video surveillance, and even UAVs capable of firing air-to-surface missiles as early as the seventies. What made the Predator platform unique was its incredible endurance (24 hours of loitering time, hence the “Long Endurance” in MALE ) and satellite link, allowing operators to continuously monitor battlefields from thousands of miles away.

The RQ-1 had issues in the Balkans. It didn’t fly well in poor weather, was prone to accidents, and Serbian tallies claim multiple shootdowns. But the utility of an upgraded platform capable of carrying munitions was clear, and the USAF began development of a variant with a laser designator and pylons for carrying the AGM-114 Hellfire anti-tank missile. This variant became the MQ-1, and it launched its first Hellfire in a test at Nellis Air Force Base seven months before 9/11, just in time for the Global War on Terror.

The serendipity is remarkable, as the battlefield conditions of the GWOT were the most ideal operating environment imaginable for the “hunter-killer” UAV. The US military faced few adversaries fielding surface-to-air missiles, and the targeted assassination program run by the CIA heavily leveraged the long loiter times of MALE drones. This led to a revolution in doctrine and the production of hundreds of MQ-1s.

The issue with the MQ-1 was that it hadn’t been designed for an attack role. Its small, lightweight airframe and weak 115-horsepower engine allowed it to carry a few Hellfires, and not much else. The development of a successor, dubbed “Predator B,” was already underway when the MQ-1 fired its first missile in testing. Its successor would be built from the ground up for the hunter-killer role, with an engine pushing eight times the horsepower and providing three times the cruising speed. Its airframe would support fifteen times the payload, and its flight ceiling would double. It would be larger, heavier, and capable of de-icing so it could fly in bad weather conditions. It would drop 500lb laser-guided bombs. And it would cost five times the price of the platform it was replacing.

Predator B became the MQ-9 Reaper. The MQ-9 grew into the US military’s hunter-killer workhorse, logging nearly a million flight hours between its introduction in 2007 and 2017. The platform, with its 27-hour ISR mission capability, was so crucial to operations over the Middle East that its pilots began to suffer mass attrition from burnout. Continuous surveillance became a core tenet of US military doctrine. The Pentagon ordered the USAF to ramp up its UAV production to allow 65 combat air patrols to fly continuously across the world. Drone assassinations exploded, as did deadly strikes outside declared American war zones in Pakistan and Yemen, where there were over 100 strikes in 2017 alone.

When Ansar Allah shot down an MQ-9 in October of 2017, it wasn’t a major surprise to astute observers. In 2013, USAF Air Combat Command chief General Mike Hostage said the following to a crowd of active duty and retired USAF personnel attending the Air Force Association’s annual conference:

“Today I couldn’t put [a Predator or Reaper] into the Strait of Hormuz without having to put airplanes there to protect it. We’re trying to convince [the Office of the Secretary of Defense] that the 65 challenge [65 CAPs worldwide] — while it made sense to the people who gave it to us when it was given, and we dutifully went after it — is not the force structure the nation needs or can afford in an anti-access, area-denial environment… They want it in a contested environment, and we can’t do it currently. We’re not talking deep over mainland China; we’re talking any contested airspace. Pick the smallest, weakest country with the most minimal air force — [it] can deal with a Predator. My argument would be, we can’t afford to keep all of this capability, so we’re going to have to bring some of it down.”

Hostage would prove remarkably prescient. Ansar Allah would down two more Reapers by the end of 2019, and on the surface at least, they appeared to fit the bill for Hostage’s imagined “small, weak” country with a minimal air force. Their SAM systems, dubbed Barq-1 and Barq-2, are likely related to Iran’s Taer family of systems, which are in turn based on Soviet systems like the 2K12 Kub and 9K37 Buk. While these systems are far from state of the art, UAVs like the Reaper are exceptionally vulnerable due to limited maneuverability, low relative speed, a large radar cross-section and thermal footprint, and predictable, loitering flying pattern. Two Reapers were lost in rapid succession in Libya in 2019 (possibly at the hands of Wagner Group), another over Syria in 2020, and one more over Libya in 2022.

2022 offered a unique opportunity to see MALE drones deployed in a peer or near-peer conflict for the first time. As we’ve covered extensively in a prior piece, the TB2 Bayraktar was the first MALE to face a major power with state of the art air defenses. While the TB2 was designed deliberately by Turkish defense firm Baykar to be cheap, perhaps 20% the cost of an MQ-9, it shared the same fundamental advantages and limitations of its pricier cousin.

Despite highly publicized successes in the first weeks of the war, the TB2 suffered devastating attrition in Ukraine, with Russian air defenses destroying around 100 of them in 2022 and 2023. By the end of 2023 it had disappeared from the battlefield, with the Ukrainians publicly stating they could find no viable use for it. If the Pentagon was watching, they made no official acknowledgment of it.

In 2023, the US entered into direct conflict with Ansar Allah for the first time since 2016. Previous Reaper missions over Yemen had been sold by the Pentagon as “indirect” ISR support for the Saudi war against Ansar Allah, along with a parallel offensive campaign against Houthi enemy Al-Qaeda in the Arabian Peninsula (AQAP). The first loss of a Reaper came within three weeks of the start of the Red Sea crisis, in November 2023. Another two were downed from February to April. US officials said they were scratching their heads at the capabilities demonstrated by the Yemenis, and admitted, “There’s a good bit right now we don’t know about the Houthis.”

In May 2024, the “Reaper Genocide” began in earnest. A platform that had once logged a million flight hours without a single combat loss suddenly began suffering attrition at a rate not seen by an American aircraft since the Vietnam War. Two Reapers went down in May (video above), one in August, as many as five in September, and one each in October, November, and December. At least seven more would be lost in 2025. The Houthi tally in the Red Sea crisis is somewhere in the realm of 20 MQ-9s shot down, potentially more, with three shootdowns preceding the crisis. There is no official Pentagon tally.

The rapid attrition of the Pentagon’s Reaper fleet became the subject of some concern in 2025. Given the platform’s track record, the existing fleet was not in danger if the Red Sea Crisis were to abate and normalcy be restored. In monetary terms, the losses were approaching the billion-dollar mark, but the more relevant issue was the size of the fleet and the fact that it was ending its production lifecycle.

While the MQ-9B, a newer variant designed for export, maritime ISR, and domestic security applications is still being manufactured, its order book is already filled, with delivery times already facing delays and stretching into the 2030s. General Atomics delivery schedule suggests it can manufacture 15-20 of them per year. The US military procured its last MQ-9A in 2020, and the production line was fully shuttered in 2025. There is no replacement available, with the “MQ-Next” being little more than a vague concept that may or may not result in a tangible system in the distant future.

The scale of the problem reached dizzying proportions after the start of the Iran War. True to General Hostage’s prediction, the Iranians have claimed dozens of Reapers, and while the exact total is unknown, CENTCOM has certainly lost more MQ-9s in five months of war with Iran than it had in the entirety of the platform’s operational life preceding it. The opening 40-day phase saw so many losses (over $1 billion worth) it sent the Pentagon scrambling to find a solution. Demands have been made to restart the MQ-9A production lines. Reapers sold to allies may be bought back. There are as few as ten unsold Reapers worldwide, and the USAF plans to buy all of them.

A Congressional hearing in May revealed the remaining fleet stood at 135 airframes, a precipitous decline from the 165 available in October 2025 and 231 in October 2024. Dozens of units may have been lost since then, if Iranian claims are to be believed.

The obvious question, then, is why the US military is accepting such heavy attrition of its “most valuable player.” Yes, a drone is a much more acceptable loss than a manned aircraft, but why is a system the top brass of the USAF understood to be fundamentally incompatible with a contested environment, unsuitable specifically for the Strait of Hormuz—according to General Hostage—being sent directly into that specific environment? And not just once or twice, but day after day, in the face of attrition so severe it threatens to fundamentally compromise a key component of US military doctrine? Here we’ll have to speculate.

A possible explanation is that the US force in the region has relied on the Reaper not as a supplement to airstrikes by manned aircraft overflying Iran, but as a substitute. While there is some credible footage of American aircraft flying in Iranian airspace, it’s been difficult to come by. The White House has made a point of selling a narrative of total air supremacy, but the evidence that such supremacy has been obtained for more than brief periods is thin. The USAF and USN have heavily leveraged long-range air-to-ground missiles like the JASSM-ER that can be safely fired from outside Iranian airspace to the point of risking the US military’s readiness for years to come. The US Army’s HIMARS systems in Kuwait and Bahrain have worked overtime to keep up attacks on the Iranian coastline, at great cost to their Bahraini and Kuwaiti hosts. If Iranian airspace is less permissive than US officials have let on, we could expect to see an overreliance on both long-range standoff munitions and drones, and indeed this is precisely what we’re seeing.

Interestingly, the Israeli Air Force suffered similarly severe attrition of its MALE drones in the 40-day opening phase of the war. Some analysts have questioned Israeli narratives on their air missions against Iran going back to 2024. The theory goes like this: the Israelis, being even more sensitive to the loss of air assets than the Americans, have flown few, if any, air missions deep into Iranian airspace. Instead, they have repeatedly attempted to pass off drone attacks, some of which were potentially launched from Azerbaijan or within Iran itself, as bombing runs by the Israeli Air Force. This produces a psychological effect on the Iranian population with minimal cost to the IAF, and maintains the reputation of expensive stealth aircraft like the F-35.

Another potential explanation is that the Americans and Israelis are having trouble finding targets to hit in Iran. CENTCOM has repeatedly shared footage of obvious hits on decoys. The campaign to collapse missile city entrances has clearly not worked out as American planners hoped. The Iranians have planned for this war for decades, and it may be the case that their key assets, like missile launchers and logistics vehicles, are simply too mobile and protected for a conventional manned aircraft to locate in Iran’s vast inner territories and strike. Because Iranian airspace is non-permissive, manned aircraft are unable to loiter over target zones. The only tool for the job, then, is the Reaper, which can stay aloft for 27 hours surveilling an area and strike a newly identified target in seconds.

For this reason, I expect the attrition of the Reaper fleet to continue. There is no viable alternative for its role in the war, a role it was never meant to play. The great irony of the MALE class is that while it may be obsolete, at least in a near-peer conflict, it is less obsolete than the available alternatives. To accomplish the job foisted upon it, against all doctrinal thinking, a $30 million platform has become disposable.

Over the past few days, the US/Israeli/GCC (“US Axis” from here on) war against Iran has reached a pace not seen since the opening hours of the conflict. Waves of Iranian missiles and drones have been striking targets across the region, with an apparent shift in target selection concentrating unprecedented amounts of Iranian firepower against Kuwait and Jordan.

The war between the US Axis and Iran can be arbitrarily divided into several theaters. There’s the war for control over the Strait of Hormuz, countervalue strikes against infrastructure, Iran’s campaign against Kurdish proxies staging for ground operations on its western flank, and so on. Today we’ll be focusing on a narrow slice of the conflict: the air war, with IRGC missile and drone forces (IRGCASF) on one side and the USAF, IAF, and GCC air forces on the other. As we’ll see, this theater of the war has profound implications that cut across all other areas of the conflict.

The broad picture of the Iranian air war in this phase has been a steady wave of concentrated missile and drone strikes sweeping its way across the region. In contrast to the previous hot phase of the war, in which Iran targeted bases across the entire theater simultaneously, this wave started with the targets close to Iranian shores, and has progressed steadily to the Israeli border. After destroying much of the radar network protecting regional US Axis bases in the previous hot phase of the war, Iranian planners have prioritized targeting fuel storage, drone hangers, refueling tankers, and barracks. The American response has been to pull assets back ever further from Iran, to bases in Israel and Jordan. We’ll call this process debasification. Iran’s debasification strategy takes advantage of the inherent asymmetry between the vastly different force structure and capabilities of Iranian rocket forces and US Axis air forces.

The first asymmetry we’ll cover is the American need for casualty avoidance. Political support for the war is low, and US narratives to shore it up hinge on overwhelming American superiority and a perception of the war presenting minimal risk. Casualties and the loss of major assets fly in the face of this narrative and erode support for the war. The Department of War clearly takes this seriously, as evidenced by their decision to evacuate the most vulnerable bases (moving personnel to hotels) before the war began. When the US force in the region has taken major risks by leaving valuable assets in the open at bases subject to Iranian targeting, the results have been disastrous, with the loss of near-irreplaceable assets like the E-3 Sentry destroyed on the tarmac at Prince Sultan Air Base in Saudi Arabia. Iranian military sources claimed to have damaged refueling tankers on the ground at Al Udeid in Qatar, Al Kharj in Saudi Arabia, and Muwaffaq Salti in Jordan in a single wave of attacks on Friday.

Multiple US personnel were killed and as many as dozens injured two days ago in an Iranian missile attack on Muwaffaq Salti Air Base in Jordan. Subsequent disclosures from the New York Times revealed that this was the fourth Iranian attack on Jordan to result in casualties and major losses of air assets in the previous week. A strike on King Faisal Air Base days prior wounded five, and another attack on a base—unidentified by the NYT but confirmed by mappers to be Prince Hassan Air Base—damaged multiple Black Hawk helicopters on the ground. Then, 20 personnel were wounded in an attack on Muwaffaq Salti on the 16th. The attack that killed at least two US personnel occurred the next day.

The Iranians have thus forced American planners into an uncomfortable choice. Jordan was the clear fallback point for assets that previously operated out of bases closer to Iran in Bahrain, Kuwait, Qatar, and the UAE. But Jordanian bases are not safe, with the US taking dozens of casualties and losing an unknown number of air assets in the span of just five days. Footage of Iranian MRBM strikes within Jordan reveals an appallingly low interception rate for US and Jordanian air defenses, even when interceptors are expended in 3:1 ratios and above against incoming projectiles. Official Jordanian attempts to cover this up by claiming 100% interception rates have been conclusively disproven by such a mountain of visual evidence and reporting they can be dismissed out of hand.

The next line of bases for US air forces to fall back to is within Israel itself. While falling back to Israel will bring US assets within the protective range of Israeli air defenses, it isn’t clear that the Israelis want any part in this phase of the war. There’s also little reason to think they’ve been able to replenish their own interceptor stocks in the brief pause in the fighting, and the IDF was facing a crisis in that area before the pause. Even when interceptors were more plentiful, the Israelis were unable to fully protect their own airbases.

The US force in the region losing access to both the first and second lines of airbases available to it at the start of the conflict is a development with profound strategic and operational consequences. Depending on how you slice it, the number of airbases from which the US would likely conduct operations against Iran prewar was around 20. Without access to bases in Kuwait, Bahrain, Qatar, the UAE, KSA, and Jordan, that number will be cut to around five. This will compress hundreds of airframes into just a handful of tarmacs and runways, making it impossible to get those assets into the air in the time between early warning radars detecting an Iranian MRBM launch and that missile impacting its target in Israel. With more assets on the tarmac, the Iranians are much more likely to score hits. As the Pentagon moves more assets into the region to stage for a potential ramp-up in attacks on Iran, this issue will compound.

Enter a second asymmetry: the US Axis depends on aerial refueling to generate combat power, and the distance that makes Israeli bases safer to conduct operations from undercuts refueling missions. Tankers that could have met attack aircraft for refueling missions directly over their takeoff point at Al Udeid in Qatar, for example, will now have to fly over a thousand miles to reach the southern border of Iran, and even farther if they want to avoid dangerous airspace over Iraq. This puts stress on airframes, sucks up fuel, and reduces the number of refueling missions that can be flown. These distances become extreme when considering that tankers may have to meet attack aircraft launched from carriers operating as much as 1,700 miles away from Israel in the Arabian Sea. The retreat to Israel effectively divides the US forces in the region in two, splitting USAF assets in Israel from USN assets off the coast of Oman.

The key to the American air campaign has always been to degrade Iranian air defenses to the point that cheap and plentiful glide or even gravity bombs can be used against targets in Iran. Dwindling stocks of long-range cruise missiles make this a necessity. To accomplish this, American air forces have to conduct Suppression/Destruction of Enemy Air Defenses (S/DEAD) operations, which require long loiter times with aircraft remaining in the air to respond to ISR and emissions from air defense radars. These missions are exceptionally dependent on tanker support, so any degradation of US tanker operations in turn degrades American S/DEAD capabilities.

By all available evidence, the Iranian debasification campaign appears to be working. The US force in the region is likely incapable of generating the same combat power in its air operations against Iran as it could when the war started, and things are trending ever further in a negative direction. Even worse, there’s no clear solution on the horizon. The most obvious lever for American planners to pull is to accept more casualties and losses of personnel and airframes, but this is an unprecedented step the modern incarnation of the US military has never faced.

Having faded largely into the constant background noise of the mainstream news cycle in recent months, and having been overshadowed by unprecedented geopolitical events in the Middle East, the war in Ukraine is back in the headlines. Casual consumers of world news have been presented with a series of startling narratives and images indicating that after years of apparent stagnation, the war may be reaching an inflection point favoring Ukraine.

A string of pieces in The Economist gives a sense of the shift: Is Russia Being Out-Droned? (May 5), Vladimir Putin is Losing His Grip on Russia (May 6), Russia is Stumbling on the Battlefield (May 10), Russia’s Crimean Conquest is Turning into a Deadly Mess (June 23). In Foreign Affairs: Ukraine Turns the Tide (June 1). CNN: Russia’s Winning Streak in Ukraine is Over (May 14). Anne Applebaum’s June 7th piece in The Atlantic was given the fascinating title Ukraine is Not Losing. Russia is Not Winning.

The broad narrative is as follows: after a clear Russian advantage on the battlefield during the past year, the Ukrainians have emerged from an organizational restructuring significantly stronger. The AFU’s desertion problem has been largely solved. Increased drone production is giving the AFU a numerical advantage in standoff strikes for the first time. Russian casualties have never been higher, with losses totaling as many as 30,000 personnel a month, and the Russians are unable to generate the recruitment rate to replace them. The average life expectancy of a Russian soldier sent to the front lines can be measured in minutes. Ukrainian attacks on fuel logistics both in Russian-held territory in eastern Ukraine and in Russia proper threaten the Russian army and Russia’s economy as a whole. The situation is so catastrophic in Crimea that for the first time since the failure of the 2023 summer offensive, Ukraine may stand a chance of retaking it. Incredibly, the Ukrainians are achieving these victories without American support.

All of these issues are pushing a ceasefire ever closer, and the Russians may have no choice but to give in. The domestic situation is highly unstable. Russian soldiers are rebelling, as is the Russian bureaucracy. Dissatisfaction with battlefield failures is sowing discontent among the Russian elite, and Vladimir Putin’s position is in more danger than ever. The imminent loss of Crimea threatens to trigger regime change in Russia. As I write this piece, some sources say a coup is currently underway in the Kremlin.

Shocking images from Russia itself bolster these narratives. Last week saw the largest Ukrainian drone attack on Moscow since the war began. Hundreds of Muscovites (who face no legal repercussions for doing so, unlike in Ukraine) readily shared videos of a major Moscow refinery burning. Long-range Ukrainian drones hit the cafeteria of a strategically vital semiconductor plant in Voronezh during lunch a week ago, wiping out dozens of irreplaceable skilled workers and shutting down a facility that manufactures components for Iskander missiles. Gasoline shortages are rippling through Russian cities as refineries and fuel storage are destroyed, with some stations running out completely.

With the tide turning, Belarusian president Alexandr Lukashenko quickly capitulated to Zelensky’s demands to shut down drone relays operating on Belarusian territory, lest he risk unspecified Ukrainian offensive action. Lukashenko was then summoned to Russia to face Putin before vanishing entirely. His fate is unknown, but he may be in Russian captivity.

And the Ukrainians are just getting started. Zelensky announced the beginning of a “40-day influence operation” two days ago. The explicit objective? To force the Russians to sue for peace. Russian military insiders and bloggers are understandably panicked.

Readers of this publication will be familiar by now with my preferred rhetorical structure for analysis of issues like this one. First describe the mainstream narrative in detail, then pick it apart in an attempt to glean the truth of it. And this piece will be no different.

First, the narrative should be viewed through the lens of the overriding pattern in Ukraine’s relationship with the western media. Long-term observers of the war will recognize this immediately from the experience of Ukraine’s 2022 counteroffensive, the 2023 summer offensive in Zaporozhye, the 2024 offensive into Russian territory around Sudzha, and previous waves of strikes on Russian oil infrastructure.

The pattern goes like this: official Ukrainian government statements and heightened, flashy military action coincide with a wave of think pieces in respected publications. The usual suspects are all here: Anne Applebaum, Ben Hodges, Ukrainian publications like the Kyiv Independent, The Economist, and so on. Algorithm tweaks on social media ensure the war comes front and center for a change. The same narratives are typically recycled: Russia is “running out” of something strategic (missiles, fuel, soldiers), the Russian government is on the verge of collapse (Putin has cancer, the elites are unhappy, a coup is in the works, the Russian economy is crumbling), the Ukrainians have obtained a game-changing weapon or strategy (western armor, HIMARS, long-range missiles, new drones), and the tide is turning on the battlefield.

The pattern has thus far always resulted in the same thing: the Ukrainian effort peters out, the war continues much as it did before—with a glacial Russian advance creeping its way across the Donbass, the Russian government more or less unchanged, and the Russian economy intact but never quite where Russian planners want it to be.

This doesn’t preclude that the strategic situation can change, but it tells us that skepticism towards Ukrainian triumphalism is warranted. Fool me once, and so on. In other words, the relationship between any given “Russia is collapsing” narrative and the truth of the matter should be considered unknown until clarity can be obtained by means that don’t take the propagators of said narrative as truthful.

So let’s try to do that. First: the structure of the AFU. The restructuring is indeed paying dividends, with the increased coordination of the corps-based structure helping to contain Russian breakthroughs in Dobropolye and Kupyansk.

The AFU’s desertion issue is a different matter. The tendency for Ukrainian soldiers to go AWOL is a natural consequence of forced mass mobilization, which is an absolute requirement to keep the AFU operating. As such, it’s a hard issue to solve. The Ukrainians have done so with a multipronged strategy.

First, in 2025 they classified desertion statistics, which were formerly widely published (even occasionally in the western press), as a state secret. This has reduced the reporting on the issue, though outlets like PBS have admitted desertions are “growing” well into 2026. Al Jazeera claimed 2025 was a record year for AWOL cases, which have “snowballed” with “half the country on the run” according to one AFU soldier. Second, the AFU has imposed draconian measures on its conscripts. The perimeters of training camps are mined, and beatings and torture have increased. Systematized murder of escapees is commonplace, with the deaths laundered as “pneumonia,” even in summer. Suicides within the ranks of the AFU have skyrocketed, and mobilization teams increasingly raid methadone clinics for recruits and target the mentally disabled.

With official statistics and objective reporting from Ukraine difficult to come by, we only have anecdotal reports from which to glean any strategic conclusions. But the broad image of an army with serious, but not catastrophic, manpower issues remains unchanged from last year.

Ukrainian claims of massive Russian casualties are still fraught with self-contradiction and improbability. Mediazona, the only western-sponsored outlet that seems interested in mounting a serious effort at counting Russian losses, continues to estimate declining Russian casualties since a December 2024 peak. Mediazona has been accused of both gross over and undercounting, but their consistent methodology provides a useful yardstick and measures losses as a minuscule fraction of official Ukrainian claims. While AFU officials count as many as 30,000 unrecoverable Russian losses a month, Mediazona is finding as few as six confirmable Russian military deaths a week. Even if only one in one hundred Russian military deaths are confirmable with an obituary, news/social media post, or memorial, the numbers don’t add up.

The aforementioned contradiction is the result of Ukrainian planners needing to simultaneously sell their own success and bolster the case for Russia presenting a serious threat. AFU commander-in-chief Alexander Syrsky claimed the Russian grouping deployed to former Ukrainian territory alone has increased by 10,000 personnel since February, and another 10,000 since late last year. How the Russian military force in Ukraine could be steadily growing while suffering 30,000 losses a month—in the absence of forced mobilization no less—is unexplained.

On the frontlines, the situation looks much the same as in prior years. The Russian advance continues apace (slowly), with one or two mid-sized strategic cities (Konstantinovka and Kupyansk) looking likely to be taken this year. After its first year of the conflict with no major counteroffensive action, the AFU launched a minor counterattack on the southern front near Gulyapole. The results of this operation were ambiguous, with the Ukrainians claiming they spoiled a major Russian offensive, but little territory changing hands in absolute terms.

To elucidate this, we’ll use two timelapses. Both are from DeepState, an official organ of the Ukrainian government, and one notorious for delaying and underselling Russian gains. Therefore, we can take these as the rosiest possible interpretations of the AFU’s success so far this year. First, the Konstantinovka/Kramatorsk/Slavyank axis since the beginning of the year (consider increasing the playback speed on both of these. The difference in runtime is caused by lag in DeepState’s UI, it’s the same timeframe):

Next, the southern front, with the Ukrainian counteroffensive:

DeepState’s maps have become increasingly detached from reality since the Russian capture of Pokrovsk, and the outlet is currently delaying recognition of a widely reported (on both sides) deterioration of the AFU’s position across much of the frontline. Sudden Russian gains in Kupyansk, Vovchansk, Lyman, and Konstantinovka signal a small but strategically relevant shift in the balance of power on the front further towards the Russian advantage. As it stands, there’s little reason to doubt the Russians will take Kramatorsk and Slavyansk eventually, and AFU servicemembers acknowledge this on social media.

The Ukrainian drone campaign against Russian logistics nodes echoes the HIMARS campaign of 2022. The game-changer this time is the American Hornet drone, made by Eric Schmidt’s Perennial Autonomy. The drone is cheap, quiet, semi-autonomous, and better constructed than many flawed European and American competitors that have failed in Ukraine.

The issue with reading into the new Ukrainian campaign as a strategic turning point in the war is that it’s accompanied by a parallel Russian strike campaign against Ukrainian logistics, and one that’s at least as effective, and has been ongoing for much longer. And while the Hornet seems by all metrics a good drone, it isn’t substantially different from the current state of the art used in existing platforms on both sides, and it remains to be seen if it can be produced in the staggering quantities needed to keep the campaign going for the long term.

The strategic Ukrainian strike campaign has generated captivating videos and gasoline shortages, but this was the case for prior campaigns with inconclusive results too. As I’ve written previously, Russia is vulnerable to gasoline shortages because it only produces enough for domestic consumption. Russia can solve this through imports, exactly as Ukraine has. Ukraine imports more than 85% of its light petroleum products (for Russia, the share is typically zero), which exposes the country to supply shocks and drives prices at the pump to nearly double what they are in Russia. With Ukraine’s refining infrastructure long destroyed, Russia has increasingly targeted individual gas stations in Ukraine with long-range drones, in addition to targeting logistics lines with shorter-range drones.

The broad picture here is that whatever Ukraine can achieve with its drone campaigns, the Russians can hit back just as hard or, in most cases, significantly harder. The Ukrainians have no real answer to Russia’s massive deployment of glide bombs or comparatively vast quantities of missiles, a seemingly insurmountable asymmetry. Russian strikes on strategic Ukrainian targets are so constant they no longer make headlines. Occasional deliveries of western missile interceptors put temporary dents in Russian strike packages, but then dwindle.

Triumphalist pieces in the western press must answer a simple question: if a Russian air campaign of a given pace has thus far been unable to knock Ukraine out of the war, why would a Ukrainian air campaign of a comparable or smaller size do so to Russia?

What’s typically offered here is the bizarre and confused science of Kremlinology. Anonymous “insiders,” western intelligence reports made for public consumption, and exiles ready to tell the press what they want to hear combine to form a chorus that has been proclaiming the imminent collapse of the Putin regime since the first weeks of the war. To be sure, the Russian power structure is not monolithic, and dissatisfaction with the conservative strategy it has used thus far in the war is real, but so poor is the track record of Western analysis on this subject that my position is to discard its claims entirely and treat the internal situation at the highest levels of the Russian government as fundamentally unknowable. Even more mystifying is the idea that a replacement would somehow be less hardline than the notoriously cautious Putin.

Instead of reading the tea leaves, let’s break things down in a deliberately simplified analysis of the strategic balance, which has remained unchanged for most of the war. This will not be exhaustive, but it will help elucidate my point.

Ukrainian advantage:

• Ukraine’s military and government are funded externally; it effectively receives military equipment free of charge. It has no need to operate a functioning state economy in the traditional sense.

• Forced mobilization guarantees an influx of personnel.

• Much of the AFU’s logistic chain is outside Ukraine, where Russia so far refuses to strike.

• Sanctions punish the Russian economy at no cost to Ukraine.

Russian advantage:

• Russia’s manpower pool is around five times larger than Ukraine’s, though without conscription, much of this pool is untouched. This allows an all-volunteer army, reducing domestic tensions and the perceived costs of war.

• A massive advantage in glide bombs, non-drone standoff weapons, and air power.

• Russia’s huge territory makes some infrastructure very hard for Ukraine to hit, while Russia can easily hit any target in Ukraine.

• The Russian defense industry has punched well above its weight, even outproducing what NATO is able or willing to send Ukraine in key areas like artillery shells, air defense interceptors, and long-range missiles.

• Russian economic planning and workarounds have offset a surprising amount of damage from sanctions.

After the chaos and territorial reshuffling in the opening phase of the war, little has changed here, and the result is a grinding Russian advance that will eventually take all of the Donbass unless something dramatic shifts. Ukrainian hopes that Russia will sue for peace without such a shift lack justification. Any edge in drone technology will eventually be obtained by the other side. By way of example, the deployment of Russia’s Rassvet satellite constellation is underway, eroding the most important Ukrainian edge in the drone war: its exclusive use of Starlink since the beginning of this year.

Nullification of one or more of Russia’s strategic advantages will be necessary if the Ukrainians seek to truly “turn the tide” of the war.

PR War

For a keen and long-term observer of the war, the sudden ramp-up of triumphalist narratives in both the mainstream and social media is obvious. Influencers sound the alarm on coups in the Kremlin (attributed to sources that say no such thing), murdered generals (retired, known to be sick, in their 70s), a vanishing Lukashenko (he made public appearances hours afterwards), and so on. Even real Ukrainian drones hitting structures in Moscow appear to be overloaded with fuel to cause the most dramatic explosion possible (note: I was in Moscow during the largest drone attack in two years - I didn’t realize it had happened until I opened Telegram hours later. It’s a big city). All of this plays much the same as similar campaigns of the past, featuring starving Russian soldiers and an AFU poised to roll all the way to Crimea.

The question, then, is why now? If a large, international public relations apparatus has been spun up and is firing on all cylinders at this point in time, as opposed to three or six months ago, there must be a reason. While the Ukrainians claim they hope to force the Russians into agreeing to a ceasefire imminently, this seems fantastical. We’ll explore some of the other possibilities below.

Tactical Considerations

While the true purpose of the 2024 Kursk Incursion continues to be debated, the predominant explanation from the Ukrainian side was that it was designed to force the Russians to shift their forces away from the front line in the Donbass. If this was the true goal, it was nonsensical and a failure. But a similar goal to pressure the Russians to redeploy valuable air defense assets to protect the homeland could be advantageous. Despite all the obvious evidence from the Middle East pointing to it as an impossibility, the popular idea is that Russia should be capable of entirely protecting its strategic assets and population centers from Ukrainian drones. Even with relatively impressive air defense performances like a >96% interception rate (8 out of more than 200 drones made it through) for the drone raid on Moscow on the 18th of this month, all it takes is a few hits to generate viral videos that have an impact on the Russian population. Russians exposed to the Western media will be subject to the PR push, increasing the pressure.

Battlefield Failures

After the Ukrainian counteroffensive earlier this year fizzled out (with significant casualties), and with the Ukrainian position in the Slavyansk/Kramatorsk/Konstantinovka axis degrading, this campaign could be designed to distract from the AFU’s increasingly hopeless chances of holding on to what’s left of the Donbass.

Preparing for A New Offensive

It’s possible the AFU will launch an offensive of some kind to coincide with this media push. This was the pattern in 2023, and it wouldn’t be surprising to see it happen again. 2025 was the first year with no major Ukrainian offensive operation, and this can either be read as the AFU conserving its strength for a later offensive, or as a sign that its offensive ability is largely spent, and not likely to return. At the current moment, there’s no strong evidence for this explanation.

Angling for Aid

A key part of the narrative the western press is pushing is that Ukraine is achieving its recent successes without American help. This narrative is mostly false, as Ukraine continues to receive shipments of American weapons through the PURL program (paid for by European taxpayers), reduced levels of direct aid, significant American targeting and intelligence support, benefits from US sanctions on Russia, and enjoys exclusive use of Starlink on the battlefield. Nevertheless, if Ukraine is turning the tide without serious American aid, it bolsters the Ukrainian argument that it could achieve an outright victory with it. The Trump admin’s position towards Ukraine appears to be softening behind the scenes, so the Ukrainians may be playing to pull Trump back onside.

Ukrainian competition for military aid with Israel and other Middle Eastern states has never been more fierce. As many as 1,700 precious Patriot interceptors (and around half of US stocks) have been expended in the war with Iran so far. Replacements will be slow to arrive, and will have to be distributed across half a dozen US allies in the region. It’s essential for the Ukrainians to demonstrate that munitions sent there won’t be going to a losing cause, and it belongs at the front of the queue.

Another possibility is that the Trump admin is already onside, and this dual military/media operation is a signal of that. Events in the Middle East may have shifted American thinking, with planners preparing for renewed support of the Ukrainian war effort. In this universe, the media is dancing to a tune originating from the American government, rather than Ukraine itself or Europe. Ukraine’s mid-range drone campaign is relying on an American drone after all, and its long-range campaign may hinge on American ISR.

Preparing for a New Phase of War

If there’s any truth to the western claims of discord in the Kremlin over the pace of the war, it’s possible the Ukrainians are anticipating Russian escalation. This dovetails with rumors that have recently appeared in Russia itself that a new draft wave will occur after the Russian election in September of this year. A new draft could facilitate major Russian offensive operations next year, full Russian control over the Donbass, and the expansion of the buffer zone on the northern front.

As mentioned earlier, Russia’s much larger manpower pool has allowed it to maintain an all-volunteer army, minimizing the perceived costs of war on the home front. A new draft will increase domestic tensions, while for the first time leveraging one of Russia’s key advantages in the conflict: that it can heavily outnumber the AFU.

For Ukraine, these tensions can theoretically be escalated by portraying a draft as an act of desperation by a Russian government that knows it’s losing the war. Portraying Putin as a desperate madman clinging to a losing position has been a throughline of Ukrainian propaganda, featuring heavily in the recurring news cycle that the Russians are “considering” deploying nuclear weapons in Ukraine. An objective observer might see a major Russian mobilization as a potential war-ending development to Ukraine’s disadvantage. It’ll be important for the Ukrainians to get out in front of this.

Setting the Stage for an Exit

With full Russian control over the Donbass looming as a potential threat, the Ukrainians may be preparing the ground for an end to the conflict. This could take various forms. They may be looking to negotiate from a position of relative strength, using up as many drones as possible in a final push before trying to work out an agreement. The offer of another limited “energy” ceasefire heading into what will likely be Ukraine’s most difficult winter yet has more weight after a successful offensive drone campaign. They may be proposing a freeze along the borders of the annexed Russian territories, since they appear set to be pushed back to them anyway (Kherson oblast is a major question there). The drone/media campaign allows the Ukrainians to control the framing of what would have been unthinkable two years ago, when the official objective was “1991 borders.” The Russians wanted to take all of Ukraine, the narrative would go, but we forced them to capitulate here.

This explanation would make the most sense if the Ukrainians were indeed preparing to make major concessions, considering the Russian government appears more adamant than ever that the war will be fought to its military conclusion.

I’ll wrap it up here. Setting the PR push aside, the most important signal I’ll be watching in the coming weeks is the Ukrainian ability to sustain its mid and long-range drone campaign.

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Yesterday morning, I awoke to hear the following story: in the night, the US Joint Task Force Southern Spear launched a ground invasion of Venezuela. In a daring raid preceded by devastating air strikes on key locations, SFOD-D operators infiltrated Caracas by helicopter, taking enemy fire. Using blowtorches, they penetrated layers of President Nicholas Maduro’s “heavily fortified military fortress,” abducted both him and his wife, and successfully exfiltrated the city. To add insult to injury, Hugo Chavez’s mausoleum was destroyed by a US airstrike. Reuters reported that Vice President Delcy Rodriguez had fled to Russia. Rumors swirled that Maduro’s government had apparently collapsed. Videos of Venezuelans celebrating the downfall of the regime in the streets circulated widely. Opposition diaspora members eagerly anticipated the appointment of the US’s favored replacement for Maduro, recent Nobel Prize winner María Corina Machado.

In a press conference at noon eastern time, Trump revealed the details: the operation had been like nothing seen since World War 2, he said. The Venezuelans had been waiting for an American attack, “knew we were coming,” and were “in a ready position.” Amazingly, not a single American soldier or piece of military equipment had been lost.

He then described the big picture. The US will now “run” Venezuela, at least until elections can be held. American oil companies will spend billions to repair and rebuild the Venezuelan petroleum industry. Maduro will be tried in US courts for various criminal offenses mostly related to drug trafficking.

By the afternoon, this narrative had collapsed into a mire of confusion and contradiction. The Bolivarian Navy appeared to have suffered no attrition, and the Venezuelan Air Force seemed to be intact. Videos taken in Caracas during the raid showed no resistance at all, with US helicopters hovering in place within range of small arms fire, fully vulnerable to Venezuela’s thousands of Russian Igla MANPADS and short-range air defense systems.

Delcy Rodriguez wasn’t in Russia after all, as she appeared in a video address to the world in Caracas. Even more strangely, she pledged loyalty to Maduro and demanded his release. Considering Trump had singled her out over Machado as the likely interim president of Venezuela, it was difficult to make sense of this. A collection of Venezuelan regional governors released videos affirming their support for Maduro, as did the Venezuelan military. The footage of Venezuelans jubilating over the fall of Maduro was of diaspora members in Miami and Buenos Aires, and Venezuelans within Venezuela itself have begun protests supporting Maduro.

Sites supposedly destroyed by US air strikes, including military barracks and Hugo Chavez’s tomb, were still standing and apparently undamaged. Russian Buk air defense systems at La Carlota airbase had indeed been destroyed, but were parked at the same location for months and apparently unmanned.

By the evening, a clearer picture was beginning to emerge. The raid, which took place in what should have been highly contested airspace and was preceded by a minimal or borderline nonexistent SEAD campaign, would only have been possible if the Venezuelan military had received a stand-down order. Maduro, who has been in negotiations with the US for a controlled transition of power since 2024, was either betrayed by the entire Venezuelan power structure or gave himself up willingly, and doesn’t appear to have been in a “fortress” at all at the time of the raid.

Most bizarrely, the supposed regime change operation hasn’t seemed to change the Venezuelan regime at all. Maduro’s party, PSUV, remains in control of the country, and there is zero US military presence in Venezuela currently. How the US will “run” the country in this scenario is unclear, and Marco Rubio has already publicly walked back the idea. In his press conference, Trump said the oil embargo on Venezuela will remain in effect.

The enthusiasm seen in the American media has already begun to fracture as commentators try and fail to make sense of the situation. John Bolton rapidly penned an op-ed in the Telegraph lamenting Maduro’s removal as a “hollow victory.” Elliott Abrams said in an interview on Bari Weiss’s The Free Press that he hoped the failure to appoint Machado was “just a glitch.”

Although we have no information at present about what kind of deal the Venezuelans made with the US—and a deal was certainly made – it’s a certainty at this point that this operation was more symbolic than anything, and represents another entry in what we’ll call “virtual warfare.” While all warfare has significant elements of propaganda and myth, virtual warfare crosses into something substantially different. The perception of the conflict intended by its creators isn’t a distorted version of reality; it’s something entirely disconnected from it. Both nominal sides of the conflict may collaborate to generate this artifice, and the outcome may be decided in advance. As such, it represents a work of fiction, a wholly fabricated narrative, and the underlying events can scarcely be said to have occurred at all.

“It was an incredible thing to see,” Trump said on Saturday. “If you would have seen what happened, I mean, I watched it literally like I was watching a television show.” (BBC)

In this sense, virtual war goes beyond even Baudrillard’s conception of hyperreality. While the Gulf War “did not take place” in Baudrillard’s framework, Iraqi tanks were in reality destroyed while their occupants were still inside. In virtual warfare, military casualties aren’t strictly necessary. The minimum requirement is the usage of munitions, but if all that results is an explosion in an empty patch of desert, this is typically sufficient.

Virtual warfare has become increasingly commonplace. It helped bring the so-called 12-Day War to an end, as the Iranians and Americans cooperated to stage a show for a global audience. The US struck the Fordow nuclear facility, debatably to no effect, and the Iranians retaliated with an unprecedented direct ballistic missile strike on American assets at the Al Udeid Air Base. Both sides appear to have warned each other in advance, and there were either minimal or no casualties. Prior to the Fordow/Al Udeid exchange, Israel’s attacks on Iran had a highly virtual nature. Supposed air strikes were revealed to be drone strikes from teams within the country or in Azerbaijan. Destroyed Iranian TELs were in reality decoys. Assassinated IRGC personnel later appeared alive and well.

Similarly, Operation Prosperity Guardian degraded into virtual combat as US forces in the region repeatedly bombed sites that had already been destroyed by the Saudis in 2015, and attacked gatherings of random civilians they portrayed as collections of Houthi fighters. The operation also concluded in a manner distinctive of virtual warfare, with its stated objectives ambiguously unmet, and Ansar Allah continuing to attack targets in the Red Sea and Israel.

Preludes to contemporary virtual warfare exist. In 2003, the CIA bribed Iraqi generals en masse to stand down. The killing of Osama bin Laden after a years-long manhunt has also been portrayed as a virtual event, with an essentially no-risk operation against a defenseless bin Laden conducted in cooperation with Pakistan being elevated to a daring, high-risk raid in hostile territory through the media.

The effect of virtual warfare on target populations is bizarre. Various factions walk away with entirely contradictory impressions of the events, as opposed to mass belief in a unified propaganda narrative. Basic facts are rapidly forgotten or fail to penetrate mass consciousness. Despite obvious pre-planning, virtual war narratives are typically confused and ramshackle, perhaps by design. Public statements from the Trump administration in the wake of the Venezuelan operation are borderline incomprehensible, as various figures issue a flood of incompatible motivations for it.

Combining just the narratives expressed by Rubio and Trump over the past 24 hours results in a mire of impenetrable reasoning. Is the US “running” Venezuela now, or not? Was this operation for the benefit of the Venezuelan people? To support “democracy?” Was it about oil, drugs, or US control over its sphere of influence? Was it to stop Russia, China, Iran, or even Hezbollah from gaining a foothold in the Western Hemisphere? US allies in Europe have reacted with a kind of demoralized incoherence as they struggle to fit the operation within the moral framework they’ve been projecting towards the war in Ukraine for the past four years.

The descent of US military operations into the realm of the virtual can perhaps be explained by waning American power and political aversion to casualties. While the war in Ukraine takes on aspects of virtuality, with commentators recently posting months-old maps to ignore battlefield realities, the conflict itself is self-evidently non-virtual because of the willingness of both sides to make major sacrifices in the pursuit of victory. In comparison, American-led virtual warfare is characterized by the projection of an image of risk-taking and strength over a thoroughly non-committal and risk-averse reality.

The likely primary goal of the Venezuelan operation was to serve as a warning shot to potentially sovereign states in the Western Hemisphere. This is easily provable because of multiple public warnings from the Trump administration to leadership in Cuba and Colombia in the wake of Maduro’s “abduction.” If successful, the virtual operation will be highly economical, with minimal expense, no casualties, and close to zero risk from the beginning of the campaign against supposed narco traffickers to the moment American helicopters made their exit from Caracas.

The issue with virtual warfare is that it can only succeed as long as the intended target (which is never the actual co-combatant) mistakes the artificial facade for reality. Will Cuban leadership, for example, fail to see through what was an obviously pre-planned spectacle? Even the domestic American audience already seems confused. Operations like Fordow and Prosperity Guardian have seemed to fall out of public consciousness due to the difficulty of parsing them after subsequent events.

Those who attained political consciousness during the GWOT era are equally befuddled. Expecting a decades-long quagmire with mass casualties like Iraq, we’ve instead been confronted with an unintelligible two-hour sideshow in which perhaps 40 Venezuelans were killed in total. Victory has been declared despite the situation remaining fundamentally unchanged. This morning, Marco Rubio said the US won’t be running Venezuela at all, and will pressure “changes” through an oil blockade. This is precisely the status quo. And how can the US impose a blockade on the oil it just stole for itself?

There are still many unanswered questions about “Absolute Resolve,” the Pentagon’s name for the operation. What was the precise nature of the deal the Venezuelans made with Trump? Is there cooperation between Rodriguez and the US? Was there any reality to Trump’s promises of a US oil industry takeover and “billions” of dollars of investments in Venezuela? If this event is as virtual as it appears based on the information we currently have, these questions may never be answered explicitly. Instead, the event will simply fade, remaining in a perpetual state of impenetrability, unfathomable and impossible to parse, until largely forgotten.

On the 18th, the European Commission finally met for the climactic moment of the reparations loan saga. At stake were Ukraine’s war effort, the future of the European banking system, the sovereignty of EU member states, and €210 billion in frozen Russian cash. “No one will leave the EU summit until a solution on financing Ukraine is found,” said EC president Ursula von der Leyen that morning. Von der Leyen was serious, as European leaders spent a marathon session attempting to hash out a solution to the seemingly insurmountable obstacles that had thus far prevented the reparations loan scheme from becoming a reality. A last-minute attempt to satisfy the Belgians with an “uncapped” EU backstop for their potential liability was rejected as leaders realized they’d potentially face a bailout of the entire Belgian banking system. Late that night, diplomats involved in the negotiations reported that the scheme was finally dead. Ukraine will instead be provided with €90 billion raised through joint EU debt from capital markets. The British plan to use the frozen Russian assets stored in their banks failed simultaneously.

With the full collapse of the scheme, diplomats are speaking more freely, and we have confirmation of Belgian prime minister Bart de Wever’s hint that other EU states were “hiding” behind him, or in other words, quietly supporting him. The full coalition contains, of course, Belgium and Russia-neutral renegades Hungary, Slovakia, and the Czech Republic. Banking microstates Luxembourg and Malta were on Wever’s side, along with Ukraine-skeptical Italy and Bulgaria. The most significant revelation of the past few days is that Emmanuel Macron’s France played a significant role in torpedoing a last-minute attempt to make a deal whereby the EU would agree to bail the Belgians out for the entire amount of the Russian assets if things went south.

Readers of our reporting on this were likely unsurprised by the EC’s failure to find a path forward for the reparations loan. But the last-minute decision to take on new debt to fund Ukraine happened despite there having been just as many obstacles to doing so as there were to the reparations loan. Von der Leyen, Merz, and their allies had to make major compromises to overcome the roadblocks.

The first compromise is notable more as a moral defeat than a practical one. Hungary, the Czech Republic, and Slovakia were sure to veto the joint borrowing plan, which would have forced the EC to again activate controversial emergency powers for the second time in a month to force the scheme through with a simple majority. Doing so would have opened von der Leyen’s coalition up to legal challenges and the increasing perception that the EU’s democratic mechanisms, or what remains of them, are fully broken. To avoid this, the terms of the agreement exempt the trio of countries from any liability stemming from the new debt, meaning they won’t have to help make the EU whole if the Ukrainians fail to repay the loan. While this does damage to the image of EU unity, these three countries would have been responsible for perhaps 4% of any such liability, or a few billion euros. This risk will be spread to the remaining member states. For Orbán, Fico, and Babiš, it’s around a billion euros they can assure their taxpayers they won’t be on the hook for.

The second compromise is more consequential: the loan to Ukraine will provide only €90 billion over the next two years. €45 billion a year is just half of what the Ukrainians received in combined US/European aid each year from 2022 to 2024, and the war has gotten significantly more expensive since then. We can take the EU’s own projections as evidence of this, because they made detailed calculations when prospectively divvying up the €210 billion in Russian assets:

This chart, which was posted by Politico just two weeks ago based on EC numbers, assumes the war will end in 2026, only covers financing needs (what the Ukrainians can’t pay for themselves), and doesn’t include reconstruction costs, which the World Bank estimates will exceed €500 billion. If the Ukrainians have a €72 billion budgetary hole just for 2026, €45 billion certainly won’t cut it, even factoring in the few billion the IMF and Germany have pledged. As we’ve covered previously, even the €165 billion reparations loan wouldn’t have been enough to cover the Ukrainians for much longer than a year or two. Last month, the Economist calculated the Ukrainians would need a staggering $389 billion (€332B) in external financing over the next four years. The reality is that the Ukrainians need both massive loans from the EU and the Russian assets. Without the latter, they’ll have no choice but to make cuts. If we consider military costs, budgetary deficits, the cost of reconstruction, and Ukraine’s existing external debt, the country likely needs over a trillion euros of financial assistance over the next five to ten years.

Although this has been mostly overlooked amidst all the complexity of the reparations loan, the EU is apparently letting go of another major item with this compromise. With the Russian assets totaling €210 billion and the reparations loan plan only giving the Ukrainians €165 billion, what would have happened to the other €45 billion? The Europeans intended to use it to pay themselves back for a loan the G7 issued to the Ukrainians in 2024. The interest on this loan is currently being paid from the profits taken from the frozen Russian assets. Since this loan will now go unpaid, those profits can’t be used to pay the interest on the new one, and European taxpayers will be on the hook for €3 billion a year.

Adding these two loans to Ukraine’s other existing debt obligations, Ukrainian external debt has exploded to $298 billion. This will skyrocket the Ukrainians to fourth place worldwide in debt-to-GDP ratio (assuming Ukraine’s GDP can even meaningfully be calculated), at 155%. The Europeans will hold more than half of this debt while being significantly exposed to international lending institutions like the IMF that hold much of the remainder. If the Ukrainians are unable to pay, the EU has no plan in place to cover the over €130 billion liability other than the European taxpayer.

And the loan will have strings attached. The terms of the loan will require continued Ukrainian deference to Western-controlled anti-corruption organs like NABU. And as we’ve covered in the past, European aid to Ukraine won’t do the Europeans much good if their money is funneled to the US for weapons. Although the Ukrainians have repeatedly denounced the idea, the loan will require its money marked for military assistance to be spent on EU-produced weapons, unless the EU produces no viable option for a given need. The Ukrainians have been so resistant to this idea because it greatly limits the quantities and types of weapons they can purchase. With EU states like Italy dropping out of NATO’s PURL program to buy US weapons for Ukraine, procurement options for the AFU are rapidly dwindling.

To mitigate the perceived financial burden, the EU has declared that the immobilized Russian assets—which are now frozen indefinitely thanks to the activation of emergency EU powers—will not be released until the Russians pay Ukraine reparations. But this amounts to little more than a loose promise. Because the assets still reside in Euroclear accounts, their immobilization remains sensitive to legal challenges both from the Russians themselves and to the Article 122 invocation. And because the Europeans have no Russian pool of cash to backstop the loan, it’s an effective admission that the EU itself won’t be getting paid back anytime soon, or perhaps ever.

The Western commentariat has had a gloomy reaction to the failure of the reparations loan scheme. The Wall Street Journal’s editorial board called the loan “another half-measure.” A piece in Politico today went further, singling out the failure to pass the reparations loan scheme as an EU defeat that will lead directly to the end of the war in 2026 and an unfavorable peace for Ukraine. The piece cites falling European public support for Ukraine funding (45% of Germans want to cut aid) as a key danger in building support for the future loans Ukraine will need. The Financial Times linked the failure to a deepening rift between Macron and German chancellor Friedrich Merz, while also citing equally concerning divisions around a contentious trade deal that fractured along similar lines. Brookings Institution fanatic Robin Brooks was furious, calling it “a dark day for Europe” and a “disaster.”

As responsibility for the war falls solely on Europe’s shoulders, Ukraine’s future is an open question. If this is the best the EU can muster despite all the pressure and politicking, who will pay to rebuild Ukraine when the war is over? Can the EU reasonably expect to keep the war going with half the aid it’s been receiving? And most disturbingly (or it should be, for the EU), who will cough up the hundreds of billions more Ukraine will require over the ensuing years?

In an address to the European Commission this morning, Ursula von der Leyen revealed the “legal solution” to untying the complex knot the Europeans find themselves in with their reparations loan scheme. To unblock the loan, the EC must solve the following problems:

1. Convincing the Belgians to transfer the Russian assets they hold in Euroclear to the European Commission. The Belgians have demanded that:

   1. They be backstopped for the entire $215 billion of Russian assets they hold.

   2. Other EU countries (Germany, France) move their frozen assets too.

   3. The backstop be immediately transferable to the Belgians upon the end of the war or discontinuation of the sanctions regime.

2. Acquiring unanimous support for the scheme, because any one state can potentially veto it.

3. Acquiring unanimous support to extend the sanctions that keep the Russian assets frozen. Currently, they must be renewed by vote every six months. Any one EU state can veto the extension.

Von der Leyen’s solution is simple: invoke the emergency powers afforded to the EU in Article 122 of the EU treaties to prevent any EU state from transferring any Russian assets back to Russia. If you’re scratching your head, you’re not alone, because it isn’t obvious how this solves any of the issues listed above except issue #3.

Article 122 affords the European Commission the right to invoke temporary emergency measures without the consent of the European Parliament in the event of “severe difficulties” of an economic nature, like natural disasters. Only a qualified majority of EU member states within the EC is required to approve an Article 122 invocation, instead of a unanimous vote. It was widely used during the Covid-19 pandemic to fund unemployed programs and vaccine purchases.

So how can Article 122 be invoked to indefinitely extend the sanctions that trap Russian assets within the EU? The European Commission’s justification is that if the reparations loan is issued and a member state vetoes the extension of the sanctions regime, the ~$212 billion liability will pose an existential threat to the European economy because they’ll have to pay the Russians back.

If this doesn’t make sense, let’s put it a different way. The EU is saying it will invoke emergency powers to protect itself from something that can only happen if it invokes those same emergency powers. This circular justification, in which by intentionally creating a massive financial risk for itself, the EU can circumvent all normal democratic procedures and justify taking the risk, is bizarre and unprecedented. Article 122 is already deeply controversial and has been singled out as a major threat to democratic principles within the EU framework. The EC is currently embroiled in a lawsuit with the EU Parliament over an earlier invocation of emergency powers to fund a loan scheme for EU defense procurement. To propose using Article 122 in this way signals extreme desperation on the part of the European Commission.

Predictably, the reaction to this plan has been negative. A diplomat quoted in the Financial Times said the idea was “crazy” because there is “clearly not an economic emergency in the internal market.” The player holding all the cards here is, of course, Belgium, and it should be unsurprising that a ramshackle and openly undemocratic solution to the problem is unlikely to satisfy them. Before von der Leyen even made her speech, Belgian Foreign Minister Maxime Prévot said the proposals “do not address our concerns in a satisfactory manner.” Prime minister Bart De Wever specifically singled out prolonging sanctions through a majority (meaning through emergency powers) as dangerous: “These risks are unfortunately not academic but real… we’re not going to risk hundreds of billions on Belgium. Not today, not tomorrow, never.”

Pieter Cleppe, in a scathing critique posted in the Brussels Signal earlier today:

Today the European Commission decided to ignore Belgium’s concerns, presenting its plan anyway, not only proposing to use the Russian assets, but even claiming that this can be decided with a qualified majority of EU member states – 55 per cent of member states comprising 65 per cent of the EU’s population. In other words, the European Commission thinks it should be possible to outvote Belgium on a decision which according to the Belgian government risks the bankruptcy of the country. This is completely without any precedent and can serve as more evidence of how out of control the institution led by von der Leyen is.

The Belgian position is understandable, because freezing the Russian assets in the EU under emergency powers seems no safer than dealing with a potential veto, as it will almost certainly face legal challenges. If a legal challenge succeeds, the legislation created through the Article 122 invocation will be void, which is potentially just as damaging as a veto. Diplomats briefed on the EC’s legal arguments say that Article 122 may also be used to change the interval in which the sanctions regime is extended from every six months to every three years. EU states outside von der Leyen’s coalition have little reason to agree to any of this, because it fundamentally undermines their position. If the precedent is that the EC can intentionally generate a crisis whenever it wants and use that crisis to sideline parliament and effectively deny the right of veto to any individual EU state, much of the EU will be giving up substantial power.

Regardless, without approval from Belgium, von der Leyen’s proposal is dead on arrival. Perhaps sensing this would be the case, she offered a fallback plan: loaning the money to Ukraine straight out of the EU’s budget. But as we’ve covered previously, there’s even more internal resistance to this plan than to the reparations loan scheme. European governments have no interest in raising hundreds of billions of euros out of their own pockets and have publicly signaled their opposition to doing so.

At this point, it’s difficult to see what the purpose of this charade is. Short of tearing up the EU treaties or threatening Belgium itself with sanctions, the European Commission doesn’t appear to have any cards left to play. We’ll have to wait and see if the EC has an ace up its sleeve for the climactic meeting scheduled for the 18th.

Today, an update on the status of Ukraine’s funding debacle. To summarize our previous reporting on this subject:

• Ukraine is facing a $60B – $80B hole in its 2026 budget due to the end of US financial aid, the reluctance of international lenders to issue new loans, the EU’s own budgetary shortfalls, and the rising costs of waging the war.

• Without a large injection of cash, the Ukrainians will run out of money as early as February or as late as April.

• The only obvious solution is to issue the so-called “reparations loan,” a ~$150 billion loan to Ukraine backstopped by Russian assets held by the Belgian financial institution Euroclear.

• To maintain a remotely plausible argument that the EU is operating within international law, the loan is a convoluted scheme whereby Euroclear will transfer the Russian assets to the European Commission, which would then use those assets to backstop a new loan to Ukraine. When the war ends, the Russians would pay “reparations” to Ukraine, who would pay the EU, who would pay Belgium, who would pay back Russia.

• The EU has so far failed to clear a series of forbidding political and legal hurdles to make the loan a reality. The Belgians, who control the Russian assets, are refusing to accept sole liability for repaying the Russians, which would be necessary in several realistic scenarios.

The only clear path forward since the Belgians began to dig in their heels has been for the EU to provide “binding commitments” to backstop Euroclear. The Belgian proposal is that every member state would share in the liability in proportion to the size of its economy. In the event that a vote to renew the sanctions on Russia fails, or the war ends in Russia’s favor, the entire EU would repay the Belgians, who would then repay the Russians.

Belgian prime minister Bart De Wever outlined additional conditions for Belgian cooperation in a letter to the European Commission last week. First, the backstop guarantee must be for the entire amount of Russian assets held by Euroclear, which totals roughly $215 billion. Second, the guarantee must be “unconditional, irrevocable, and on-demand.” The “on-demand” aspect means the EU would transfer Euroclear’s entire liability instantly, and would ensure the Belgians would be operating within international law, which requires that “countermeasure” sanctions be “immediately reversible” if the sanctioned party ceases its illegal actions.

Third, De Wever demanded that other EU countries holding frozen assets be forced to put skin in the game by contributing to the loan, spreading the legal liability across the Union. While Belgium holds the vast majority of frozen Russian assets within the EU, Germany, France, and Luxembourg hold tens of billions of dollars of Russian funds between them. By forcing them to participate directly in the scheme, these states would be just as legally liable as the Belgians, decreasing the likelihood of a scenario in which the EU would hang Euroclear and Belgium out to dry on their own.

“When we talk about having skin in the game, we have to accept that it will be our skin in the game. Talk is cheap but helping Ukraine will unfortunately be expensive.” - De Wever

De Wever’s conditions read more as a rhetorical argument for the infeasibility of the loan itself rather than a realistic set of demands as a negotiating position. In the letter, he warned that illegally seizing the Russian assets is likely to sabotage any peace deal and referred to the entire scheme as “fundamentally wrong.” There is no politically acceptable mechanism through which the European Commission could conjure up $215 billion of taxpayer money to repay the Belgians overnight. And European politicians in Germany and France are highly unlikely to willingly step into Belgium’s position by contributing their own frozen Russian assets to the scheme. Much of their holdings are held in private banks, and seizing that money would present an unprecedented legal challenge.

In the letter, De Wever suggests an alternative: the EU simply issuing a new loan to Ukraine equalling the amount of its budget shortfall, without touching the Russian assets. But De Wever likely knows that this prospect is only slightly more palatable than the reparations loan. Joint EU borrowing falls under the Treaty on the Functioning of the European Union (TEFU), and raising the money for a new loan scheme would require unanimous support from all EU member states, just like the reparations loan scheme. While the amount of this EU-only loan would be only a third of the reparations loan, both Hungary and Slovakia are still likely to veto a joint borrowing plan. Neutral states like Ireland, Cyprus, and Austria have also limited prior joint borrowing approvals to non-lethal aid, complicating German, French, and Swedish demands that new aid be spent on military procurement deals with their defense industries. And multiple EU leaders have been explicitly rejecting the idea of new joint borrowing since at least October. With budgets already strained across the continent, the reparations loan plan is “the only way forward.”

Zooming out, it’s possible to see the shadow political battle being waged beneath the surface of these negotiations. The most reckless and hawkish members of the European Commission have been plowing forward with the reparations scheme, knowing full well the loan would never be repaid by either Russia or Ukraine. Unconcerned with asset flight or the health of the European banking system, they have consistently refused to expose themselves to liability and are content with leaving the Belgians on the hook. All signs point to an eventual military defeat of Ukraine and the increasing risk of a veto by Russia-neutral or friendly EU states on the extension of the sanctions regime that keeps the assets legally frozen. With the clock ticking, these states’ priority has been to funnel money to their own military-industrial complexes at the expense of the Belgians and the EU as a whole. From this perspective it’s understandable that the Belgians have chosen to take a stand despite the political consequences and why other EU states are quietly supporting Belgian resistance to the plan.

Complicating matters is the mystifying US peace plan unveiled last month, which would immediately unfreeze the Russian assets. $100 billion of the assets would be spent on Ukrainian reconstruction, with half the “profits” from reconstruction going to the US government itself. The EU would match this with $100 billion from its own pockets, while the remaining $200 billion of Russian assets would flow into a joint Russian-US investment vehicle to be used for whatever the two states agree on. While this proposal has since been walked back, it adds to the sense of uncertainty around the potential consequences of touching Russia’s money.

In the midst of this contention, European governments are unsurprisingly refusing to meet Belgium’s demands. Four EU diplomats spoke to Politico about their rebuke of De Wever, referring to his request for a backstop as a demand for a “blank check.” If this wasn’t bad enough for the reparations loan’s prospects, today the European Central Bank (ECB) rejected the European Commission’s alternative plan of using it as a backstop, declaring it would “violate its mandate” and EU law if it did so. To provide direct funding to reimburse member states for the liabilities to Russia, it would be engaging in “monetary financing,” a banned practice under EU treaty. It would also be unable to raise the money with the speed the Belgians demand, exposing them to violations of international law, and failing to meet one of their key conditions.

Meanwhile, the Ukrainians have been sounding the alarm as their financial prospects look increasingly dire. They’ve been negotiating with the IMF for a new 48-month loan agreement, called the Extended Fund Facility (EFF), for the past several months. The EFF agreement would provide the Ukrainians with $8.2 billion in total, paid in installments over the course of the next four years. The IMF has been candid about just how little this will do to address the problem. First, unsecured Ukrainian external financing needs over the length of the agreement will be a staggering $140 billion, which doesn’t include military expenditures or the cost of servicing existing debt. Second, the Ukrainians have a $162 billion funding gap for military expenditures just for 2026-2027. Adding these figures together with the presumption that Ukraine will survive for another four years of war without further military spending increases (military costs have ballooned from $140 million a day to $172 million within the past year), Ukraine has a $464 billion funding gap through 2029. This is three times the amount the reparations loan would provide.

With political turmoil within Ukraine reaching a fever pitch, the Verkhovna Rada can’t even agree on a 2026 budget it doesn’t currently have the money to pay for. The opposition is demanding the resignation of the entire Zelensky government, while Ukrainian government sources express concerns about alienating the IMF. The nightmare scenario for Ukraine is that further debt from the IMF and other international lending instruments is effectively contingent on the reparations loan. The IMF’s open concern about Ukraine’s massive funding gaps has been read as a coded message to the EU that it needs to get its act together or risk the international financial system divesting from Ukraine entirely. This is a plausible prospect, as no one wants to be the one left holding the bag if the Ukrainian project implodes completely, and lenders have already expressed concerns about Ukraine’s existing—and massive—debt burden.

The EU will meet on the 18th in an attempt to secure a deal on the reparations loan. European Commission president Ursula von der Leyen has projected a public sense of confidence, saying the EC will present a “legal proposal” to assuage Belgian concerns. There’s little reason to think any legal argument could secure Belgian cooperation, and it’s difficult to imagine how the outlook for Ukraine could be more grim.

On Wednesday, an Afghan national shot two members of the West Virginia National Guard in Washington, D.C., killing one. Preliminary reporting suggests this Afghan, who was living legally in the US after having his asylum request granted in April, was a member of a “Zero Unit,” a type of special forces unit trained and armed by US forces in Afghanistan to conduct irregular warfare. Zero Units worked closely with American special forces and intelligence agencies during the war and have been characterized as a type of death squad.

This event was wholly unsurprising to a certain type of historically aware observer. Whether characterized as “blowback” or something more sinister and deliberate, it represents just another entry in a lengthy legacy of former proxy forces committing acts of terrorism, assassinations, organized gang activity, and random violence on American and European soil after the conclusion of their proxy conflict.

The projection of this legacy into the future with reference to the war in Ukraine is referred to with the tongue-in-cheek moniker “Azov 9/11.” Without historical context, this concept is likely incomprehensible. But when placed within a broader analysis, a clear pattern emerges. In this piece, we’ll establish the case for the enormous danger posed by a postwar Ukrainian proxy force, both as a tool of nefarious state actors and as an organized political entity with its own agenda. First, we’ll establish the historical precedent by tracing the activities of former proxy forces in America and Europe before arguing that Ukraine War veterans are likely to present the most dangerous form of this phenomenon to date.

Cuban Exiles

Following the Cuban Revolution (1953-1959), hundreds of thousands of middle and upper-class Cubans fled the island for the US. From this influx of anti-Castro Cubans, the US military and intelligence apparatus created a network of overt and covert proxy units. Former members of the Batista government’s secret police, which had received funding and support from the CIA since the mid-50s, were a crucial source of operatives.

The most brutal of the secret police agencies was the Bureau for the Repression of Communist Activities (BRAC), which was led by WW2 Nazi hunter Mariano Faget Diaz. Members of BRAC entering the US were organized into a covert special operations unit called Operation 40, so-called because it had 40 initial members.

Operation 40 was overseen by both Richard Nixon and George H.W. Bush, and subordinated to the CIA. The unit was primarily directed to engage in assassinations and acts of terrorism against the Castro government from bases in Florida. With the failure of the Bay of Pigs invasion in 1961 – in which several Operation 40 members were arrested by the Cuban government – the unit transitioned into a small mercenary army operating on US soil. Strong evidence links its members to the JFK assassination. The majority of the “plumbers” who participated in the Watergate burglary operation were either direct Operation 40 members, Cuban exiles associated with them, or American CIA agents who led the group. The assassination by car bomb of Chilean diplomat Orlando Letelier and his aide, US citizen Ronni Moffit – one of the most prominent examples of the assassination of a foreign national on American soil in history – was conducted by Operation 40 members. Operation 40 formed the spearhead of an espionage operation on the Cuban population of Florida throughout the 60s. Church committee disclosures revealed the program violated US law.

Operation 40 eventually degraded into a likely state-sponsored drug trafficking organization, which is unsurprising considering their close association with notorious drug runner Barry Seal. In the late 60s, a CIA-chartered flight piloted by an Operation 40 member crashed in Southern California. First responders found kilograms of cocaine and heroin in the wreckage. Shortly afterward, another Operation 40 member trafficking drugs was killed in a shootout with the Miami police. The unwanted attention these incidents brought to the unit resulted in its disbandment, with its membership being transferred to other covert groups. In 1976, former members, including CIA asset Luis Posada Carriles, orchestrated the Cubana Flight 455 bombing, which killed 73 people. Carriles had been trained at the US Army Officer Candidate School in Fort Benning. After a lengthy series of arrests, escapes, prosecutions, and extraditions, Carriles was acquitted of all charges against him by a US court and freed amidst the Global War on Terror, despite being one of the most prolific terrorists in the world.

As Operation 40 members were dispersed, some found a home in the Cuban exile paramilitary force known as Alpha 66. The unit’s activities increased as Operation 40’s declined. While Operation 40 was a CIA initiative, Alpha 66 was primarily organized by US Army intelligence, with secondary support from the CIA. From bases in the Everglades, the group used US government supplies to conduct a bloody string of bombings and killings. From the mid-70s to mid-80s, Alpha 66 was involved in two bombings of the Cuban UN mission in New York, bombings of the Cuban Museum, FBI field office, Social Security office, and airport in Miami, several bombings targeting pro-dialogue Cubans in Miami, the assassination of moderate exile leader Euliano Negrin, and bombings targeting Cuban businesses and offices in Florida. The group assassinated a travel agent in Puerto Rico, and attempted to gun down Cuban diplomat Raul Roa Kouri in New York. To finance these operations, Alpha 66 trafficked drugs. Its members were caught with thousands of kilos of cocaine in arrests as late as the 90s.

Alpha 66 grew completely beyond the control of its US government handlers, or so those handlers would later claim. The CIA allegedly terminated its relationship with the group because of its inability to keep their operations in check. The ATF began conducting raids on the group’s bases in the Everglades in the late 70s, seizing automatic weapons and substantial quantities of explosives as late as 1994. Alpha 66 still exists today and maintains a presence in Miami.

Alpha 66 wasn’t the only Cuban exile group to allegedly go rogue. The small cell known as Omega 7 was exposed in 1984 when its leader, Eduardo Arocena, was indicted on 26 charges, including murder and a lengthy list of bombings. Arocena, a Bay of Pigs veteran, claimed he was trained by CIA personnel in bomb making and had attempted missions to Cuba to engage in biological warfare to start a war between the US and Cuba. Omega 7 was involved in several of Alpha 66’s operations and assassinated fellow exile Eualio Jose Negrin in New Jersey in 1979. Negrín had been negotiating with the Cuban government to secure the release of political prisoners.

In 1980, the group assassinated Felix Garcia, an attaché to the Cuban mission to the UN, in New York. Garcia was the first UN official to have been assassinated in New York since the founding of the organization. The group also bombed a sporting goods store near Madison Square Garden, the Avery Fisher Hall, JFK Airport, the Mexican Consulate in Manhattan, a cigar company in Miami, and more than 30 other locations. To finance their operations, Omega 7 served as security for various drug trafficking organizations and engaged in racketeering. Arocena served 37 years in prison and was released in 2021.

Other Cuban exile groups engaged in similar activities include CORU (an umbrella organization that coordinated operations between smaller groups), Accion Cubana (prolific bombers), FLNC (bombers and assassins), Comandos L (bombed an FBI office), CNM, Gobierno Cubano Secreto (planned to bomb oil refineries in New Jersey), Joven Cuba, Comandos F-4, RECE, Abdala, JURE, and PUND. This spiderweb of terrorist cells shared personnel and missions, and its complex structure ensured it was able to conduct operations on American soil with impunity. All of these groups received funding, training, and supplies from the US government at various times. Their acts of mass murder and terrorism led to domestic instability in the US and prevented US/Cuban détente.

Outside anti-Castro operations, they formed a useful yet dangerous manpower pool for illegal intelligence operations and funding of those operations through drug trafficking. It’s difficult to find a US intelligence scandal, terrorist attack, or black operation Cuban exiles were not involved in from the early 60s up to the late 90s. FBI documents show that Oklahoma City bomber Timothy McVeigh ran explosives to a Cuban exile group – likely PUND – in Florida in the 90s. Cuban exiles also participated in Iran/Contra. When the Department of Defense explored generating a casus belli for war with Cuba using a series of potential false flag operations – including the possible fake shootdown of a drone made to look like a civilian airliner – exile groups were to provide the operatives.

The groups participated in over 100 hijackings of flights between the US and Cuba from 1960 to the 2000s, with a hijacking occurring on average every 13 days from 1968 to 1972. Although this history is largely forgotten, Americans have US government-sponsored Cuban terrorists to thank for the permanent securitization of American airports up to 9/11.

It’s impossible to definitively say at what point these groups became more of a liability than an asset to the US deep government, and it’s likely the case that some of them were still working for covert arms of the government while being raided and prosecuted by overt arms like the FBI and ATF. Rather than acting purely as a tool in the hands of US intelligence, the exile groups became a political force unto themselves, blocking détente long after US public opinion shifted to support it.

By the 90s, divisions formed within the radical exile community, with significant minorities eventually breaking off from the anti-Castro core as they began to see the logic in detente. Still, these groups had long ceased to be purely political in nature and had become something closer to criminal enterprises. Their activities resulted in the deaths of thousands and ensured the steady flow of hundreds of millions of dollars of drugs into the US. They protected and supported other criminal organizations across Latin America, which engaged in mass fraud, gang violence, human trafficking, and gunrunning.

It’s crucial to understand the reason Cuban exiles were so widely used for covert operations. Barred from returning home, they were wholly dependent on the largesse of their sponsors in government and intelligence. Their ideological zeal and disconnection from the population of their host country made them ruthless. Desperation, anger at their loss in the Cuban Revolution, and unlimited funding and resources made them an indispensable asset of nefarious actors planning operations both abroad and at home.

ARVN

After the US defeat in Vietnam, a wave of refugees from the diverse collection of US proxy forces used during the war arrived in the US. Among these were a collection of US-trained ex-ARVN special forces and military officers who formed the National United Front for the Liberation of Vietnam (NUFLV, or “The Front”). The Front was an overt organization advocating for the overthrow of the Vietnamese government, but it maintained a covert wing called “K-9.”

K-9 became an assassination and terrorism unit that forcibly quelled dissent among the Vietnamese diaspora in the United States, and from 1981 to 1987 it targeted and successfully murdered five Vietnamese journalists on American soil. Meanwhile, Front members engaged in racketeering, extortion, arson, and illegal gun running while allegedly enriching themselves using diaspora money supposedly meant to fund a future invasion of Vietnam.

Organized Vietnamese gangs began to flourish across the country. In 1984, police in California uncovered a criminal gang composed of 75 former ARVN military personnel and special forces operators who had been trained by the US. Narcotics officers in the southwest alleged that a “Vietnamese mafia” led by former Republic of Vietnam Air Force general and once South Vietnamese prime minister Nguyen Cao Ky and a collection of ex-ARVN generals was overseeing criminal networks nationwide. Testimony before the President’s Commission on Organized Crime lent credence to the idea, but the accusations were never proven.

El Salvador

During the Salvadoran Civil War (1979-1992), the US provided billions of dollars in military and economic aid to junta forces combating left-wing FMLN guerrillas. Applying lessons learned from counterinsurgency operations during the Vietnam-era Phoenix Program, the US brought thousands of Salvadoran soldiers to bases like the Army School of the Americas in Fort Benning and Fort Bragg to be trained. From these US-funded, armed, and trained Salvadoran personnel, CIA advisors formed elite death squads in El Salvador. These death squads conducted a bloody campaign of terrorism and assassinations, killing over 75,000 civilians and displacing a million native Salvadorans. In 1980, a US-equipped death squad within the Salvadoran National Guard raped and executed four American nuns who were supporting a humanitarian aid mission.

Many of the displaced Salvadorans found a home in the US as refugees. Seeking to protect themselves from well-established ethnic Mexican and black gangs in the Los Angeles area, a group of these refugees formed a gang of their own, called MS-13. In 1990, former Salvadoran special forces operator and School of the Americas graduate Ernesto “Satan” Deras assumed control of the group, and transformed it into a paramilitary organization. Further influxes of US-trained Salvadoran civil war veterans allowed the gang to expand its operations and successfully compete with rival gangs in Southern California.

With the conclusion of the civil war in 1992, the US government began deporting thousands of Salvadoran gang members, including ones from MS-13, back to El Salvador. In a highly unstable postwar environment and with hundreds of millions of dollars of American weapons available, the gang was able to seize significant amounts of power. It professionalized and expanded into a transnational, highly organized criminal organization that controlled drug, arms, and human trafficking in El Salvador and beyond. This produced further destabilization, generating more refugees and creating a feedback loop that contributed significantly to both the Central American refugee crisis and MS-13’s status as one of the most powerful and dangerous criminal organizations in the Western Hemisphere.

By the 1990s, 25% of El Salvador’s population had fled the country. Included in these refugees were dozens of death squad commanders and personnel wanted for war crimes by the postwar government. A small wave of deportations beginning in 2013 returned many of the higher-ranking officers back to El Salvador to face prosecution after decades of living in the US.

Mujahideen

While the example of Osama bin Laden is so well known as to be unnecessary to explore here, there are multiple other cases of members of the Afghan mujahideen during the Soviet-Afghan War who fit our pattern well. The first of these is the Egyptian cleric Omar Abdel-Rahman, the “Blind Sheikh,” so-called because of the permanent blindness he developed at ten months old.

Abdel-Rahman grew out of Qutbist Islamist movements in Egypt during the 1970s. His fatwa is commonly blamed for the assassination of Egyptian president Anwar Sadat in 1981. Expelled from Egypt, he migrated to Afghanistan in the mid-80s, linking up with US-backed radical groups fighting the Soviets, including Osama bin Laden’s Maktab al-Khidamat (MAK), the supposed precursor of Al-Qaeda.

The cleric moved to the US in 1990, where he assumed control of MAK’s American operations under the auspices of the CIA. During the war, the organization had established branches in 33 US cities and an extensive fundraising network. He gained entry to the country under a tourist visa despite being on a State Department terrorist watchlist. A sequence of absurdities revealing the disconnection between covert and overt US government operations ensued. The State Department appropriately revoked his visa five months after he entered the country, but Abdel-Rahman subsequently obtained a green card from INS five months later. While attempting to re-enter the US after a trip four months later in August of 1991, the State Department again took steps to revoke Abdel-Rahman’s visa, but he was allowed to enter the country so he could appeal the decision. He took no steps to do so, and his green card was revoked. He then claimed political asylum. The CIA ensured that he was able to stay in the US unimpeded.

Throughout this period, Abdel-Rahman was actively preaching anti-US doctrine, promoting random acts of violence, and coordinating sabotage against the West. A core group of jihadists around Abdel-Rahman allegedly committed the 1993 World Trade Center bombing and planned dozens of terrorist attacks in Egypt. Egyptian authorities expressed their confusion about why Abdel-Rahman was allowed to operate freely within the United States.

The FBI eventually arrested Abdel-Rahman and prosecuted him for planning attacks on US civilian and military infrastructure and conspiracy to assassinate Egyptian president Hosni Mubarak. His arrest inspired the mass killing of 58 Western tourists in Egypt in 1997.

Many of Abdel-Rahman’s followers, who planned and executed terrorist attacks on US soil, had been trained, funded, and protected by the American government. El Sayyid Nosair, who assassinated Rabbi Meir Kahane in New York in 1990, attempted to use his US training as a defense in court when fighting conspiracy charges. 1993 WTC bomber Mahmud Abouhalima received combat training in Peshawar camps paid for by the CIA through the Pakistani ISI. Several of Abdel-Rahman’s followers who were convicted in 1995 for the New York City landmark bomb plot to blow up the UN building, Lincoln Tunnel, Holland Tunnel, George Washington Bridge, the FBI’s New York office, and other major landmarks had received US-funded training in Afghanistan.

An even more curious case is that of Ali Abdul Saoud Mohamed. Mohamed was an intelligence officer in the US-backed Egyptian special forces, obtaining the rank of major. His unit had close ties to radical Islamist elements within Egypt and abroad, and it carried out the aforementioned assassination of Egyptian president Sadat in 1981. At the time, Mohamed was participating in a four-month SOF training course at Ft. Bragg. During the course, he was approached by the CIA recruiters. Upon graduating, he received a green beret.

After returning to Egypt, Mohamed joined Egyptian Islamic Jihad, which was headed by future Al Qaeda founder Ayman al-Zawahiri. His open fundamentalism led to his discharge from the Egyptian military in 1984. He then obtained a job at EgyptAir as a counterterrorism security advisor, where he gathered crucial information that EIJ would later use to conduct hijackings.

Zawahiri then allegedly ordered Mohamed to infiltrate the US intelligence apparatus, though this idea is dubious considering he may have already been a CIA asset for several years. Mohamed then simply walked into the CIA’s Cairo station, announcing he was interested in becoming a spy. He was immediately sent to Hamburg, Germany, to infiltrate a Hezbollah-linked mosque.

Bizarrely, he revealed himself as a US spy upon entering the mosque, and another CIA asset already present there reported this immediately to his superiors. Mohamed was, supposedly, placed on a watchlist to bar his entry to the US and dropped by the CIA. He then immediately moved to the US, with the CIA ensuring the State Department wouldn’t bar his entry.

After a year of living in the US, during which he established contacts with local EIJ members, Mohamed enlisted in the US military. His excellent marksmanship, physical fitness, and prior military experience (including US training) ensured his quick promotion and assignment to the Special Operations Command at Ft. Bragg, with which he was well familiar. He made no effort to hide his Islamist views and became a trainer at the John F. Kennedy Special Warfare Center. He was then put in touch with the CIA and perhaps “recruited” for a third time.

Mohamed was then allowed to travel, while on leave, to Afghanistan to support the Mujahideen in their war against the Soviets. Suspicions from his superiors sent up the chain of command received no response. Upon returning, he began taking weekend trips from Ft. Bragg to EIJ groups in New York and New Jersey. Using his US Special Forces training and stolen intelligence and supplies from Ft. Bragg, Mohamed trained dozens of EIJ operatives who would go on to commit terrorist attacks. Mohamed supplied EIJ with classified material, including ship docking locations for American ships in the Middle East and US SOF deployment points. He wrote a lengthy training manual on asymmetric warfare and terrorism for Al-Qaeda, which was widely distributed to radical groups around the world. During this period he was extensively surveilled by the FBI.

Mohamed was honorably discharged from the army in 1989 and received multiple commendations, including for patriotism. He immediately devoted his life to supporting Al Qaeda and EIJ operations. From Santa Clara, California, he acted as a central hub for the transfer of communications, weapons, forged documents, and money between terrorist networks run by the likes of Abdel-Rahman and Osama bin Laden. He returned to Afghanistan repeatedly and, meanwhile, worked as an FBI informant. Despite stolen documents and intelligence plainly traceable back to Mohamed being repeatedly found after arrests of Islamic radicals, no effort was apparently made to shut down his activities.

Mohamed was instrumental in resolving a partisan divide within Al Qaeda on who the group should next target after the Soviet withdrawal from Afghanistan. On one side was MAK founder Abdullah Azzam, who believed the next logical battlefield for jihad was Palestine, while on the other were Osama bin Laden and Abdel-Rahman, who wanted to target Muslim countries and the United States. Azzam was assassinated in 1989, and his close associate Mustafa Shalabi, who represented his position in the US, was murdered after telling Mohamed he feared for his life. Three of Mohamed’s trainees were suspected of the killing.

Mohamed took control over Al-Qaeda training centers in Afghanistan, Pakistan, and Khartoum. He set up the cell that would perpetrate the US embassy bombing in Nairobi in 1998. He secured documents for Ayman al-Zawahiri to enter the US multiple times to conduct fundraising tours. His work for the FBI continued during this period, supposedly informing on Mexican human trafficking rings. In 1993, he told his superiors at the FBI about Al-Qaeda’s activities, but the report was never shared beyond the San Francisco field office and was later “destroyed in a reorganization of intelligence components within the Department of Defense.” Mohamed trained militia members involved in the shootdown of multiple Blackhawk helicopters in Mogadishu in 1993 and may have been directly involved.

Mohamed was “called in” by the FBI after the US government was subpoenaed about his activities by Abdel-Rahman’s defense attorneys in 1994. The attorneys were hoping to use official US government support of Abdel-Rahman as a defense strategy. The Justice Department arranged an interview with Mohamed, who flew back from Kenya and met with officials at the San Jose FBI field office. Whatever happened in this meeting, it didn’t result in Mohamed’s arrest, and he continued his domestic activities supporting Al-Qaeda. Mohamed again met with the FBI in 1997, where he openly admitted to all the activities detailed above, but he was once more allowed to stand up and walk out a free man.

Mohamed was finally arrested after the 1998 bombings of the US embassies in Kenya and Tanzania, for which he had provided training, funding, and intelligence. He pled guilty to five counts of conspiracy in 2000 and hasn’t been sentenced or seen publicly in the 25 years since. His current whereabouts are unknown.

The cases of Ali Mohamed and Omar Abdel-Rahman are just two examples of US-supported Islamist fighters among thousands. These Islamists derived their funding, expertise, training, and intelligence directly from the United States, first as a proxy force against the Soviets, then against Muslim states in the Middle East and Africa, and finally against the United States itself. The scale of their activities worldwide vastly exceeds that of the Cuban exiles. The results of arming these groups cost the US trillions of dollars and tens of thousands of lives. It was used as the justification for a decades-long global war, the curtailing of civil liberties, and unprecedented destabilization in the Middle East that caused the deaths of millions and displacement of tens of millions, spawning a refugee crisis of unprecedented scale.

However, it’s almost impossible to explain continued US intelligence backing of Islamic extremists as they planned and perpetrated terrorist attacks on US soil solely as institutional incompetence or a series of comical mistakes. The case of the Islamist proxies is unique in that the lag time between their status as proxy and transition to an enemy collapsed so completely that they were actively being protected even as they were directly attacking the US.

Blowback?

These four examples: Cuban exiles, the South Vietnamese, Salvadorans, and the Mujahideen should be sufficient to prove the first part of our case, and this already long piece would become unwieldy if we detailed any of them in their full scope or covered the numerous other examples US and European history have to offer. For the curious, however, we can recommend researching:

• The Contras (drug trafficking)

• ISIS

• Libyan rebel groups (2017 Manchester bombing)

• Operation Gladio (terrorism across Italy and Europe, 60s - 80s)

• Brabant killers, Belgium (unproven connection to SDRA VIII stay-behind network)

• Operation Valuable (Albanian mafia networks)

• Ustase, Croatia (hijackings and bombings in Europe and Australia)

• Release of Yakuza by US occupation authorities in Japan

• Hmong organized crime in the US

• US collaboration with the Italian mafia in WW2

• Kosovo Liberation Army (human/drug trafficking)

The pattern, in the broadest terms, is one of “blowback,” where the creation of a proxy force results in that proxy force becoming a liability to its backers after a proxy conflict ends. The popular narrative of blowback portrays the phenomenon as karmic retribution for short-term thinking. But this idea has justifiably been criticized as the gaps in a patchy history of covert operations are gradually filled by the evidence. In the most extreme cases, blowback is intentional. While proxies have been powerful tools in conflicts worldwide, factions within state power structures have frequently turned this weapon inwards and used the remnants of those forces against their own domestic enemies and their populations.

We’ll now turn towards the case of Ukraine.

Ukraine

Ukraine’s use as a proxy force against Russia dates back to the Grand Duchy of Lithuania’s deployment of Ruthenian levies against Muscovy in the 14th century. Leverage of a succession of ethnic and political entities within present-day Ukraine by the Polish-Lithuanian Commonwealth, Ottoman Empire, Sweden, Austria-Hungary, Poland, and Nazi Germany against various Russian political entities continued over the centuries. The CIA armed, trained, and inserted UPA remnants into Soviet Ukraine for intelligence gathering and partisan activity beginning in 1949 under Project Aerodynamic.

Political instability in post-Soviet Ukraine initially precluded deep and direct US intelligence ties within the Ukrainian state, with soft power mechanisms like the National Endowment of Democracy (NED) taking the lead in sabotaging Ukrainian ties with Russia. The NED and other intelligence-linked, state-sponsored funding sources flooded the country with Western cash starting in the early 2000s and quickly established firm control over parts of the Ukrainian media. In 2013 Carl Gershman, the head of the NED, described Ukraine as “the biggest prize” among post-Soviet states in countering Russia in an op-ed in the Wall Street Journal.

These efforts were successful in shifting Ukrainian public opinion and bolstering the position of Ukrainian nationalist paramilitaries, contributing to the successful overthrow of the government in the 2014 Maidan Revolution. With the Russian-neutral Yanukovych government ousted, Western intelligence had a free hand in the new Ukraine.

The CIA and MI6 immediately established direct ties with Ukraine’s internal security service, the SBU, and military intelligence directorate, the GUR. SBU head Valentyn Nalyvaichenko created a “three-way partnership” between Ukraine, the CIA, and MI6 whereby the foreign intelligence services would rebuild Ukraine’s intelligence apparatus from scratch. SBU and GUR personnel were flown to locations across Europe for training by CIA and MI6 instructors, and the CIA established over a dozen bases within Ukraine, an unusually high number for a country of Ukraine’s size.

The CIA created secret Ukrainian special forces units dedicated to collecting intelligence on the Russians. CIA-trained Ukrainian spies were inserted into Russia, Europe, and Cuba. Current Ukrainian defense intelligence head Kyrylo Budanov was a member of one of the CIA’s clients, Unit 2245. Budanov led an amphibious landing in Crimea to plant explosives at an airfield in 2016. The unit was ambushed immediately by Russian Spetsnaz operators and was forced to retreat. The incident caused significant controversy in the US/Ukrainian relationship, as there was supposedly a moratorium on the CIA orchestrating lethal operations against the Russians at the time. Budanov was wounded and was flown to the US for treatment at Walter Reed Medical Center.

In 2015, the CIA helped establish the “fifth directorate” of the SBU, a dedicated assassination and sabotage unit. In 2017, the UN Human Rights Monitoring Mission in Ukraine expressed “concern” that the newly rebuilt SBU was perpetrating human rights abuses through the systematic killing and torture of journalists within Ukraine.

Meanwhile, the US Special Operations Command established a dedicated military and intelligence training program in Ukraine in 2015. By 2022, Ukrainian special forces units had doubled in size and been trained in sabotage, underwater demolition, and irregular warfare. The British established a permanent training presence in the country in 2015 under Operation Orbital, training 17,500 Ukrainian personnel by 2019. The US intelligence relationship with Ukraine was expanded under Trump and then further under Biden.

Azov 9/11

Western-trained Ukrainian forces present a looming danger that has the potential to be larger in scale than any of the other cases we’ve covered here. First, the scope and scale of the training and direct military assistance dwarfs that of any proxy conflict since the beginning of the Cold War era.

Ukraine has been flooded with hundreds of billions of dollars of weapons, with oversight over those weapons being infamously lackadaisical. Western authorities have been sounding the alarm about this issue since the beginning of the conflict. The Global Initiative Against Transnational Organized Crime (GI-TOC) said in a report earlier this year that Ukrainian organized crime arms trafficking is already a much larger issue than it was in past conflicts like Afghanistan and the Balkans.

Spanish police have identified incidents in which drug trafficking organizations have been armed with NATO weapons donated to Ukraine. A Europol report released in April said that these criminal gangs are increasingly armed with “explosive weapons.” A 2024 DoD audit report admitted the agency had failed to track over a billion dollars in military equipment sent to Ukraine.

In 2024, GI-TOC detailed some examples of weapons for sale on the international black market that Ukrainian authorities had confiscated: a Zu-23-2 23mm anti-aircraft gun, US-made machine guns, automatic rifles, automatic grenade launchers, and explosives. Many of these items were being sold by active-duty AFU servicemen.

When the conflict in Ukraine ends, whenever and however that might be, the quantity of military-grade weapons in the country will dwarf that of past Western proxy conflicts. And while international arms trafficking presents a worrying threat, the more disturbing prospect is who will be holding those weapons when the music stops.

Hundreds of thousands of Ukrainians have obtained direct experience in one of the largest conflicts since the end of WW2. Under the AFU umbrella is a hodgepodge of semi-autonomous, ideologically motivated paramilitary units. Some of these units have been conducting sabotage and assassination campaigns for a decade. Their expertise in drone warfare is unparalleled outside the Russian armed forces, and the mainstream narrative is that they’ve already perpetrated the largest terrorist attack on industrial infrastructure in modern history.

The Ukrainians also possess a unique skill set. Even before the war, Ukraine was a hotbed of scam call center activity, with large organized criminal networks operating hundreds of call centers across the country. This expertise has been put to work by the Ukrainian intelligence services, who trained the scam callers to use blackmail and threats to coerce elderly Russians into committing terrorist attacks.

In 2024, American Ryan Routh attempted to assassinate Donald Trump. Routh, who had traveled extensively in Ukraine, was communicating with British-trained Afghan special forces units to recruit them to fight in the AFU. He was also in contact with a Ukrainian source in an attempt to obtain a rocket launcher. He cited support for Ukraine as a motive in the assassination attempt. In February of this year, 17-year-old would-be Trump assassin Nikita Casap killed his parents in preparation for a plot after communicating extensively with an unknown Ukrainian source. Casap was reportedly influenced by the Order of the Nine Angles and MKU groups, both of which have connections to Ukraine. He planned to flee there after killing the president.

The danger presented by postwar Ukrainian personnel is twofold. First, that they will provide a similar manpower pool for black operations as the Cuban exiles once did. In an increasingly fractured European order and amidst regular and mysterious “accidents” at important military and industrial sites across the continent, their spiderweb of relationships with various Western intelligence agencies makes it difficult to predict what or who they’d be used against. Ukrainian special forces and intelligence agents will already possess vast quantities of firearms, explosives, and drones, and they have the training to use them effectively. They also have the expertise to manipulate third parties into conducting attacks for them. Just as the Cuban exiles provided a mercenary army for assassinations, bombings, hijackings, and drug trafficking, Ukrainian exiles will give nefarious actors within deep factions of western governments the ability to execute operations with plausible deniability. The Ukrainians will be much better trained and equipped than the Cubans ever were, and they have millions of Ukrainian refugees in Europe and hundreds of thousands in the US to support them. Ukrainian organized crime will be capable of funding operations through arms and human trafficking.

The second danger is posed by Ukrainian exiles as a violent political force unto themselves. Over the past year, a Ukrainian stab-in-the-back narrative has been forming steadily and is at risk of becoming mainstream. An increasing number of Ukrainian military and political figures, including right-wing nationalists, have gone on the record to warn about an impending or already underway betrayal by their European or American sponsors.

“What has happened is a stab in the back, there is no other way to describe it.” - Genadi Kostov, AFU (ret.)

Ukrainian sentiment regarding its western partners is increasingly souring. Divisions within nationalist elements have formed, with some angrier at the Europeans for pushing for a continuance of a pointless war as others are at Trump for attempting to force Zelensky to end it. In a postwar environment, even small numbers of committed and ideologically motivated Ukrainian soldiers will be capable of attempting to pay the West back asymmetrically.

Last week, Ukrainian journalist Maksim Kukhar posted this on Facebook:

“1. The plan is as follows.

Officially condemn the United States for switching to the side of aggressive Russia in its war against Ukraine.

In connection with the betrayal by the United States, expel the entire staff of the U.S. Embassy and all American citizens from Ukraine within 48 hours.

Freeze the accounts and activities of American companies in Ukraine. Begin the process of their nationalization, as well as the nationalization of any U.S. assets in Ukraine.

Offer EU countries Ukrainian troops to blockade U.S. military bases in Europe. Since, with the United States now definitively siding with Moscow, these bases may also threaten the independence of EU states.

Prepare for military confrontation with U.S. forces in Europe. Develop pre-emptive strikes against their bases and concentrations of forces.

2. When Russia attacked us, we were told we wouldn’t last even a week. Today they will say that if we don’t listen to the U.S. and capitulate, we won’t last even two weeks. But that is a lie—just like the first time.

Russia has already broken its teeth on us. Now we must force the United States, which from the first days of the war has helped Moscow far more than it helped us, to understand that it has no right to dictate anything to our country.

3. On the military aspect. The United States has no political possibility to create a significant grouping of forces near our borders, nor is such a possibility expected.

Trump cannot say, “I will send troops to Ukraine so they can force Kyiv to submit to Moscow.”

Therefore, the U.S. is now simply gifting us the position of Europe’s military leader for decades to come.

The main thing now is not to be frightened by empty words and not to give up this position for nothing, for reasons no one understands. Only escalation with Washington and accusing it of betraying everything sacred and democratic—there is no other path.”

No matter how delusional his screed may appear, Maxim’s sentiment is one of many anti-Western narratives developing within Ukraine. The immense scale of Ukrainian losses, both in personnel and infrastructure, has the potential to motivate decades of anger and potential violence.

If the Ukrainians adhere to the pattern we’ve established in this piece, they will present an enormous risk to societies worldwide. Whether they’re used as a tool by unscrupulous state actors, take revenge for perceived betrayal, or are simply left to their own devices in a devastated Ukraine, the potential for blowback here exceeds most, if not all, prior historical examples. Perhaps most disturbingly, there’s little to be done to mitigate this threat. The weapons can’t be unsent, the Ukrainian soldiers can’t be untrained, and the hundreds of thousands of Ukrainian war dead can’t be brought back to life. While random acts of violence punctuate the end of the Global War on Terror, the seeds of future violence have already been sown.

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We’ve previously covered in extensive detail the relationship between the European defense industry and the war in Ukraine. I recommend reading the piece linked below first for a primer on this subject, if you haven’t.

In the midst of sudden and chaotic peace negotiations between the US, EU, Ukraine, and Russia, astute observers have been quick to dismiss the likelihood of a negotiated settlement happening any time soon. While this cynicism has a solid grounding in the lengthy legacy of failed negotiations in the war so far, European markets are reacting as if a conclusion to – or at the very least a shift in – the war is a real possibility.

The first rumors of potential US/Russia negotiations began to spread around November 14th. Subsequent reporting from Bloomberg revealed that a secret meeting took place between Steve Witkoff, Russian Special Presidential Envoy on Foreign Investment Kirill Dmitriev, and – interestingly – Jared Kushner in Miami in October. As the negotiations continued, US Secretary of State Marco Rubio was excluded, while JD Vance ally and US Army Secretary Dan Driscoll was brought in. A fundamental shift on Ukraine policy within the Trump administration seems to have occurred.

European markets reacted quickly to the rumors. The STOXX European Aerospace and Defense index (SXPARO), which tracks a basket of major defense stocks within the EU, began to slide on the 14th. The decline accelerated on the 19th with the appearance of rumors that the US proposal came with a “deadline” issued to Zelensky to sign a deal by the 28th. While the negotiations have now apparently devolved into a series of increasingly unrealistic European and Ukrainian counter-proposals, there’s been no reversal in this trend. The EUAD ETF, which closely tracks the index, has posted a 12% loss in the past month. This is a larger drop than the fund has experienced since the beginning of the war in Ukraine, and comes on the back of a 5% decline in the first half of October.

There’s reason to think that the markets are reacting to more than just the latest rounds of (possibly futile) peace negotiations.

Pump and Dump

Over the past few months, major European defense concerns have announced the signing of letters of intent with the Ukrainians for defense deals of unprecedented scale. The first of these came in late October, as Swedish Prime Minister Ulf Kristersson held a joint press conference with Zelensky to unveil a potential purchase deal through which Saab AB would provide the Ukrainians with up to 150 new Gripen E multirole fighter aircraft. This announcement raised eyebrows for several reasons.

First, if the deal were to come to fruition, it would be the largest defense procurement order in Sweden’s history. The value of just the aircraft, discounting maintenance contracts with Saab, would well exceed $20 billion. With Ukraine facing a $60 billion budget shortfall for 2026 alone, they do not have the means to pay for the aircraft, even in small installments. Swedish officials have made vague references to using the windfall from the deadlocked reparations loan to finance the deal, but as we’ve covered previously, the loan isn’t even enough to fund Ukraine’s current levels of expenditure, let alone a new $20 billion procurement contract.

The Swedes have tried to build support for EU funding for the deal by suggesting production could take place across the continent, but with EU budgets already stretched to their limits, it’s not clear where the money would come from.

Second, the rate of delivery for these aircraft seems wholly disconnected from the realities of the war itself. Swedish officials have suggested that the deliveries will only take place “after the war ends,” while “limited access” to older Gripen C/D airframes may be provided in the meantime. With current production rates of the aircraft being only in the low teens a year, delivering 150 of them would take as long as 15 years, according to the Swedes. Messaging from Zelensky seems disconnected from these statements – he says he hopes Ukraine will be operating the fighter “as soon as next year.”

Saab posted a sharp initial 7.8% gain as the letter of intent was announced, but that gain has now been erased, with a 15% loss month over month, as its share price declined precipitously with the announcement of renewed peace negotiations. This is unfortunate news for Saab, which has faced a long string of setbacks in Gripen sales. Without the Ukraine deal becoming a reality, the future financial success of the platform is uncertain. The Swedes are currently lobbying the Canadian Air Force to acquire the Gripen E.

Not to be outdone, the French announced on the 17th the signing of a letter of intent for a similar deal to provide Ukraine with up to 100 Rafale F4 fighters. If the prospect of one procurement deal for aircraft valued in the tens of billions seems implausible, the simultaneous procurement of two incompatible platforms defies belief. Just like Saab, Dassault estimates it will take at least a decade to deliver the quantity of airframes specified in the letter of intent, with the first deliveries being years away. And just like the Swedes, the French point to the reparations loan scheme as the way to finance the deal.

These two announcements, which involve no obligations for any parties involved, and only constitute vague commitments to explore future deals, paint a strange picture of the European defense industry. France and Sweden are now competing for the same potentially non-existent pool of funding. The Ukrainians are signaling their intent and ability to place $40 billion or more of procurement orders while being steadily cut off from debt financing and facing a $60 billion hole in their 2026 government budget. Prior transfers of western fighter jets have failed to gain them a noticeable operational or strategic advantage. And operating such a large fleet of hundreds of incompatible fighter aircraft would place enormous strain on their finances, even in peacetime.

Both Dassault and Saab face stiff competitive pressure from the F-35 program, as rising manufacturing costs in Europe reduce the low-cost edge platforms like the Gripen and Rafale once had. US political influence and economy of scale has left bleak prospects for both firms in competing with the F-35. Saab recently pitched to the Canadians that local production of the Gripen could create 10,000 new jobs in Canada – an absurd prospect considering localized production in Brazil has created only a few hundred.

Though it hasn’t been stated publicly, the Europeans and the Ukrainians fully understand that these deals are fantasies only remotely achievable through the reparations loan, and even then are unlikely. But they announced them all the same in the hopes of boosting the public perception of their domestic defense industries. It’s also possible they’re using these deals to pressure other EU member states into funding the reparations loan, banking on promises of joint-production across the Union.

“There’s no money in the budget, period. Not happening. If the whole Russian assets deal doesn’t go ahead, these deals don’t go ahead.” - Richard Aboulafia, managing director of AeroDynamic Advisory (Kyiv Independent)

For their part, the Ukrainians get an optimistic headline that grants some temporary confidence to their less observant supporters, who often fail to read the fine print. Both Saab and Dassault have also suggested establishing joint production facilities in Ukraine, which plays well in the Ukrainian media. But Ukrainian sources have been less than triumphant about these potential deals.

“From the political leadership’s point of view, this looks like an attempt to offset internal corruption scandals with big foreign-policy signings. These are not shells or equipment that can protect us today. Strategically, yes, it’s important. But does it protect us now? No.” - Mykola Davydiuk (Kyiv Independent)

Of all the European defense contractors to benefit from the war in Ukraine, Rheinmetall has benefitted the most. We’ve previously covered how 2,000% gains since the beginning of the war have catapulted the German firm into “insanely overvalued” territory. German plans for unprecedented deficit defense spending justified by the war in Ukraine undergird its success, and so it’s more susceptible to changing sentiment around the war than any of the other companies we could discuss here. Accordingly, it’s posted a 16% loss in the week since the US peace proposal was unveiled.

While the latest peace negotiations are clearly responsible for the sudden downturn in European defense markets, they’re likely not the sole causative factor, in and of themselves. As we’ve covered extensively over the past few months, the Ukrainians are facing an all-time peak in battlefield, financial, political, and infrastructural pressure. The markets may be taking the negotiations not as a likely conclusion to the war, but a sign that the writing is on the wall for Ukraine.

There’s little reason to think the Europeans will execute a total reversal in their plans for debt-driven defense spending. An ambiguous Russian threat can remain even if the war concludes, and pressure from the US to meet new NATO spending targets will ensure governments continue to dump cash into defense concerns.

However, the mind-boggling overvaluation of firms like Rheinmetall will likely not survive a conclusion to the war, as a negotiated settlement could force the EU to scale back some of its spending. Other defense firms like Saab (+935%), Leonardo (+833%), BAE Systems (+485%), and Thales (+324%) have all posted enormous gains since 2022, but each has also lost more than 10% of its value in the past week. Unless the Europeans can ensure the war continues for the long term, these defense companies will have a long way to fall.

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The last time I covered the Russo-Ukrainian energy war, the Russians had just targeted – and apparently destroyed – a key 750kV substation linking the nuclear power plants in the west of the country to the Kiev metro area, and beyond. In that piece, I said the following:

Over the next few days, the blackout schedule for Ukraine as a whole and especially Kiev will be a key signal to watch. If Ukrenergo is unable to restore full service to the city within a few days, the Kievska station was likely completely destroyed.

Today we’ll be evaluating this statement, and will make an attempt to get a clear picture of the Ukrainian grid as a whole. This is a daunting task if hard data is what you’re after, rather than anecdotal reports and typically vague media stories.

Luckily, we have some public information. DTEK, Ukraine’s largest private energy firm, publishes public, daily outage announcements for three service regions: Kiev, Odessa, and Dnipropetrovsk. Using these announcements, we can determine the relative state of the Ukrainian grid, compared to before the major Russian attack on the 7th.

The announcements for Kiev on the 17th of November look like this:

Each city in Ukraine is split into twelve “queues” (черги), or “turns.” Every service address belongs to a queue, and Ukrainians can find out when their lights will be shut off by referencing these images or using an online, address-based tool. Each queue has its own outage schedule, which can vary somewhat from queue to queue. In the first image above, we can see that queue 1.1 will have outages from midnight until 2:30am, and from 8:30am to 12:30pm.

Cities not serviced by DTEK have a smattering of other online tools or Telegram channels that provide outage announcements. One of these is Kharkov:

Here, queue 1.1 will have outages from midnight to 3am, 6:30am to 1:30pm, and 5pm to midnight. Some regions only allow outage lookups by individually selecting a queue or even an address, so they’re not conducive to easily scraping data.

The DTEK announcement images can be downloaded easily enough, but a relatively complex OCR and programatic solution is needed to extract, parse, and process the outage schedules. The Kharkov announcements can be parsed somewhat easily because they’re already in text, and follow a consistent format. Once we have the schedules, we can then total up the number of outage hours for a city within a day, and divide it by 12 (the number of groups) to receive an average number of outage hours that’ll apply city-wide.

After lots of trial and error and burning some free AWS credits on OCR, here’s the result:

First, a caveat: while queues are evenly distributed in terms of energy load, they are not necessarily evenly distributed in terms of customers. So we can’t take the outage hours as a proxy for what the average person in each city is experiencing, since a queue may contain commercial or industrial customers. However, my general assessment of the data is that individual queues are not being singled out for continuous service, and the distribution of outage hours is generally similar across groups when viewed across multiple days. Regardless, we can get a good sense of the relative state of Ukraine’s grid compared to the beginning of the month.

So what does this data show us? The Russian attack that destroyed the Kievska substation and brought the Centrenergo power plants offline is obvious here, with all four cities/regions increasing their outage hours by a factor of six from the 7th to the 9th. We can also see that Kiev has been receiving priority in terms of service, with its hours consistently lower than the others.

Apparent repair efforts appeared to be mitigating the pressure for Kiev and Odessa until a slight reversal on the 16th. A moderately-sized overnight attack on the 16th targeted energy infrastructure, including a 110kV substation, in Odessa oblast.

On the 19th, a major Russian attack using over 60 missiles struck dozens of targets across Ukraine. This attack damaged or destroyed substations and thermal power plants in central and western Ukraine, including in Lvov, Ladyzhyn, and Burshtyn. The effect of this attack is immediately apparent in the data, with Kiev surging to 15 hours of blackouts a day, a peak for the month.

It’s clear that the Ukrainian grid is severely degraded, and continued Russian attacks are doing more than enough to keep up with the rate of repairs. No city we have data for has dropped to less than three times the outage hours it was experiencing before the 7th. Dnipropetrovsk and Kharkov have shown no improvement, and efforts to keep a higher level of service in Kiev have had limited success.

To try to get a sense of how widespread the damage is, we can use SvitloBot, a webapp that tracks outages for connected devices across this country. This is nowhere close to a perfect tool, as large numbers of devices mysteriously go on “technical breaks” and much of the country’s status is unavailable while air alerts are active, which is now much of the average Ukrainian day.

The key takeaway from SvitloBot is that service in western Ukraine has dropped precipitously. Until recently, cities like Lvov were solid green for much more of the day than central and eastern parts of the country, likely because the western regions have been sustained through imported electricity from Poland and Hungary. Ukrainian electricity imports surged from 140 Mwh in September to 360 Mwh in October. But import infrastructure is vulnerable to destabilization through long-range Russian strikes like the one we saw on the 19th.

The available evidence suggests that Russian strikes are outpacing Ukraine’s ability to repair its grid. Two weeks after the strike on the 7th, a generous timeframe to complete major repairs considering how efficient Ukraine’s engineers have become, the situation has only continued to deteriorate. Major urban centers are now without power for the majority of the day. With the situation spiraling out of control, outage schedules have been temporarily discarded in some areas. Ukrenergo announced emergency outages this morning:

The damage to transmission infrastructure has been severe enough that Ukraine’s three nuclear power plants, which provide more than half of its energy, have been forced to further limit their output as their connections to the rest of the country are severed.

A perfect storm is hitting Ukraine, as political, battlefield, financial, and infrastructural pressure mount to unprecedented levels since the war began. Full grid collapse is now on the table. It’s just a question of if the Russians will choose to pull the plug.

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The European Commission and Belgian leadership met in Brussels on the 7th of this month in an attempt to resolve the impasse on issuing the controversial “reparations loan” backed by frozen Russian assets to Ukraine. After failing to reach a consensus in October, the EU committed to “exploring alternative proposals” through December, but the Belgians remain unconvinced by said exploration:

“For Belgium, it is essential that all options are explored. Every possible approach must be examined with rigour and transparency, to ensure the best solution. To be frank, we are still waiting for the other options that the European Commission was meant to present, as agreed at the European Council in October.” - EU source (Euronews)

This is all quite difficult to parse for the average observer, who likely doesn’t understand how the highly complex reparations loan scheme works in practice. The common perception of the situation is that the Russian cash can effectively be stolen and given to the Ukrainians, but this is not the case. Here’s the plan, step by step:

1. Belgian clearing house Euroclear transfers the roughly €175 billion in Russian assets it currently holds to the European Commission.

2. €35 billion will be used to cover already outstanding loans the Ukrainians owe to the G7.

3. The remaining €140 billion will sit in an EU controlled account.

4. The EU will issue a €140 billion loan to Ukraine that’ll be disbursed in tranches over an unspecified period of time. If German chancellor Friedrich Merz has his way, all of this money will be spent on weapons from the EU.

5. The Ukrainians will only be required to pay back this loan if the war ends and the Russians agree to pay them reparations.

6. The Ukrainians would then take this reparation money and use it to pay the EU.

7. The EU would repay Euroclear, and Euroclear would repay the Russians.

This complex series of moves is necessary because there is no legal mechanism through which the EU can outright seize the assets. Freezing them is legally possible – perhaps – under the UN’s Articles on the Responsibility of States for Internationally Wrongful Acts, or ARSIWA. These rules allow for a state to engage in otherwise illegal “countermeasures” intended to dissuade another state from engaging in its own illegal behavior. However, the form of countermeasures that can used for this purpose is limited to those that are “immediately reversible” once the state being punished ceases its illegal actions. The only other relevant provision is for countermeasures designed to provide “reparations” for an injury caused by illegal actions.

This makes the reparations scheme much more comprehensible. First, the EU won’t actually be confiscating the money, just issuing a loan theoretically backstopped by it. Second, the loan is, nominally at least, designed to provide reparations to Ukraine.

But the issues should be obvious. In order to maintain the “reversibility” of issuing a loan backstopped by the Russian assets, it must be theoretically possible that the Russians could recover the money the moment the war concludes (or, technically, the moment they cease their “illegal behavior”). If this were to happen, the Russians would have every right to demand the immediate transfer of the entire amount out of Euroclear, but it would have nothing but worthless IOUs from the EU on its balance sheet. In other words, the Belgians would be liable for somewhere around $150 billion of cash they would not have.

Another major issue is that the “reparations” the loan would theoretically provide wouldn’t come anywhere close to adhering to the definition of reparations as outlined in ARISWA. Those reparations are supposed to be for spending like repairing infrastructure. But German chancellor Friedrich Merz has publicly said that the entire amount of the reparations loan should be spent on weapons procurement contracts, ideally with EU firms.

Flagrantly violating the law could have severe ramifications that have been thoroughly outlined elsewhere, the biggest of which is triggering asset flight from EU banks in response to an apparent shift where EU (and UN) banking regulations could no longer be trusted. Scholars of international law are divided on these issues because there’s no precedent for anything like this. It’s debatable if the EU has any right to apply countermeasures at all, considering it’s not – on the surface at least – a party to the conflict.

To summarize the Belgian concerns:

• The transfer of Russian assets they have custody of is illegal. As the legal custodian of the assets, Euroclear will break international law if they do so.

• Once those assets are transferred, they’ll have to be treated as IOUs on Euroclear’s balance sheets.

• They could be left fighting costly legal challenges from the Russians, potentially for decades.

• If the legal challenges succeed, they’ll be the ones on the hook for repaying the Russians.

• A veto from a EU country blocking the extension of the sanctions regime immobilizing the Russian assets (even temporarily) will give the Russians the right to reclaim the cash from Euroclear. Without a mechanism for refusing them, the Belgians would have no choice but to pay. Currently the sanctions regime must be extended by vote every six months.

Any possible solution to each of these concerns has major tradeoffs, and the only proposal that would seem to satisfy the Belgians is an airtight guarantee that the entire EU will backstop Euroclear. But with EU budgets already strained by deficit spending, this is an impossible ask.

One idea floated by policymakers both in and outside of Norway is using its sovereign wealth fund – the world’s largest – to backstop the loan. At over $2 trillion in value, ~$150 billion would be a relatively small liability for the fund, or so the thinking goes. On the 12th, the Norwegians dashed these hopes, citing fiscal responsibility regulations that would prevent opening up such a large liability to the famously risk-averse fund’s structure. Former NATO head, now Norwegian finance minister, Jens Stoltenberg said using the fund as the loan’s sole guarantor was “not an option.”

Meanwhile, the Financial Times gained access to EU documents outlining the dire situation the EU will face if it needs to put up the money for Ukraine’s loan itself, rather than confiscating the Russian assets. The Union will need to pay as much as €5.6 billion a year just in interest “indefinitely” to loan more money to the Ukrainians:

It said that if such a plan remains off the table, the bloc’s 27 member states must either authorise joint borrowing that would load up already strained national budgets with billions in fresh liabilities or provide Ukraine with direct grants totalling €140bn.

It added that both options would “potentially require fiscal adjustments in some member states” and “would directly affect their deficit and debt”.

The cost of servicing a joint-borrowed loan would run to as much as €5.6bn a year once the entire €140bn is borrowed and lent to Ukraine, the commission paper estimated, with heavily indebted France paying almost €1bn of that.

It added that Italy would contribute €675mn, and Belgium itself — which is already struggling to pass a national budget for next year — would shoulder almost €200mn a year in interest payments.

The commission document also warned that borrowing the €140bn could entail “potential knock-on effects both for market absorption and, notably, the rate that the Union will generally pay on its borrowing”.

“It cannot be discounted that it may also have additional indirect costs” for other EU finance programmes, it added

Yesterday, Le Monde dropped a major bombshell. Friedrich Merz announced his latest major proposal on issuing the reparations loan without even informing Euroclear, and the clearing house’s director Valerie Urbain found out about it when reading the news on September 25th. Given this, and the concerns outlined above, it’s understandable that the proposal has ruffled so many feathers in Brussels.

In the same piece, Le Monde reveals that the Belgians are hardening their stance in response to the enormous EU pressure on them to release the funds. Euroclear hasn’t ruled out suing the European Commission if it attempts to confiscate the funds:

If the European Union ultimately adopts a solution that resembles confiscation, Urbain said she is ready to respond in court: “There are laws. Depending on the legal framework, we will decide what we can and want to do.”

Does she envision legal action against EU bodies if Euroclear’s board believes its “fiduciary duties” are being compromised? “It is not out of the question,” she warned, while acknowledging that her teams have not, for now, prepared a case. Nevertheless, Euroclear has already had to strengthen its legal team since 2022, growing from about 10 to nearly 200 employees.

Belgian prime minister Bart De Wever has adamantly backed Euroclear’s leadership:

The Euroclear director can count on a key ally: Bart De Wever, the Belgian prime minister. Based in Brussels, the institution, a private company, relies on the Belgian Finance Ministry for sanctions. On October 23, late at night after the latest European Council, De Wever seemed energized after a day spent standing up to the rest of the 27 member states. “When you are a politician and you see a pot of gold [the frozen Russian assets], it’s irresistible,” he joked.

As head of the Belgian government, whose key role in international finance is owed to Euroclear, he opposes the Merz plan. “Is it legal? It’s not clear. (...) There is no precedent,” he noted, pointing out that even during World War II, central bank assets were not confiscated. In the event of a court sentence, it is Belgium that could be required to pay. “I am not able, and I do not want, to fork out €140 billion,” De Wever warned. He demands that each of the 27 member states guarantee the amount, in proportion to the size of their economy. “I asked my colleagues: ‘Who is ready to sign?’ I did not face a tsunami of enthusiasm.”

Urbain highlights the very real concern that EU renegades like Slovakia or Hungary will band together to block an extension of the sanctions regime that keeps the Russian money frozen. She also points to the billions of dollars in Russian funds held in diverse locations like Japan, the UK, and Switzerland. None of these states seem to be facing the scrutiny Belgium is. Meanwhile, the Russians have taken retaliatory measures by freezing between €20 and €40 billion of Euroclear client assets held by the Russian central securities repository. De Weaver: “I get calls from people saying, if you seize Russian assets, they will seize my factory, they will seize my frozen funds [in Russia].”

And Belgium is not the only EU state with concerns. An EU diplomat told the Kyiv Independent on the 13th that other member states are “hiding” behind Belgium, while Slovakian PM Robert Fico openly signals that his country will do everything it can to block the reparations loan. European officials are sounding the alarm that the IMF may divest from Ukraine entirely if the reparations loan isn’t pushed through

As Ukraine’s budgetary crisis looms, a steady trickle of EU funds continues to flow into the country. Germany has stepped up its projected unilateral aid from $10 billion to $13.4 billion in 2026. This increase will be funded by new debt. A new European Investment Bank loan totaling €200 million was issued last week to help plug the holes in Ukraine’s decimated energy infrastructure amidst a renewed Russian energy war campaign.

Meanwhile, the largest corruption scandal of Zelensky’s presidency is causing existential instability in the Ukrainian-EU relationship. Close Zelensky associate Timur Mindich has been accused by the US/EU-backed National Anti-Corruption Bureau (NABU) of embezzling up to $100 million in Ukrainian government funds through a series of bribes and kickbacks from energy contractors. Mindich is closely connected to Fire Point, the controversial Ukrainian defense contractor we’ve covered extensively. After having his Ukrainian citizenship cancelled, he fled to Israel, where he holds citizenship.

I’ve said previously that I believe the reparations loan scheme will go ahead despite opposition to it within the EU. Taking stock of the situation as it currently stands, this assessment may prove incorrect. The momentum in this case is now working against the scheme, as the Belgians dig in their heels, and seem to be capable of resisting all the pressure put on them by their neighbors. There is no clear solution on the horizon, no ace in the hole for the European Commission to play. As the situation degrades, the best path forward may be pointing the finger at the Ukrainians, rather than Belgium. A new wave of Zelensky-critical pieces in the Western media lends credence to this idea. But Zelensky has survived every other scandal he’s dealt with.

The only thing that seems certain at the present moment is that all these issues will eventually come to a head – likely soon. A combination of major battlefield setbacks, scandal, budgetary crisis, and the severe consequences of the energy war are pushing the Ukrainian-European relationship to its limits.

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At the time of writing, most of central and eastern Ukraine is subject to power outages. Last night, the Russians delivered a strike package of around 450 drones and 50 ballistic and cruise missiles against Ukrainian energy infrastructure. This combined attack was significant because the vast majority of the missiles used were Iskander-M and Kinzhals, neither of which is likely to be intercepted. Preliminary reports suggest both electrical and gas infrastructure were the targets. Large fires were seen burning in Poltava, the home of Ukraine’s largest gas fields. Gas sites in Poltava were also struck in mid-October.

The situation on the ground in Ukraine is chaotic. Where there’s power, it’s highly unstable, causing streetlights to constantly flicker, indicating that the Ukrainians are having difficulty balancing the grid. This can be seen in this video taken in Poltava:

Both of state-owned energy company Centrenergo’s two thermal power plants are currently entirely offline (note: social media posts claim Centrenergo still operates a TPP in Donetsk. Russian forces captured the facility in 2022) . Its plants supply power to Kiev and Kharkov oblasts. Preliminary reports suggest they may not be brought back online anytime soon.

Perhaps most importantly, the Russians also struck, and apparently severely damaged, the Kievska 750kV substation near the village of Nalyvaikivka, to the west of Kiev, using three Kalibrs, two Kinzhals, and two Iskander-K cruise missiles. As I’ve detailed previously, ultra-high-voltage 750kV transformer stations form the backbone of Ukraine’s grid. They connect major power stations and urban centers to each other, and without them, it’s impossible to balance energy production with consumption.

Electric grids function as an overlapping series of linked networks. Ukraine’s power generation facilities, like its nuclear power plants, use 750kV power to transmit to distant locations. The 750kV line is then “stepped down” using transformers to lower voltages, like 330kV, which is stepped down further, and so on, until the power reaches the end user.

All 750kV substations are crucial for the Ukrainian grid to operate normally, but the Kievska substation is one of the most important in the entire system. It steps down UHV power from the Rivne and Khmelnytskyi nuclear power plants to Kiev. Without it, Kiev will be largely cut off from its primary power sources, and local thermal power plants and the 330kV grid will have to pick up the slack. With Russian attacks on local TPPs and 330kV substations becoming more frequent week by week, the situation is rapidly deteriorating, and Ukrenergo has implemented rationing and rolling blackouts throughout the country.

The total payload of the strike package that hit the Kievska site was likely in excess of 3,000kg, more than two FAB-3000 bombs. Ukrainian repair crews will have to work around the clock to repair the damage, and depending on how extensive it is, they may have to essentially rebuild it from scratch.

The Ukrainians have slowly built up a strategic stockpile of essential energy infrastructure components. The Ukraine Energy Support Fund (UESF) has raised over €1.2 billion – €271 million in the first half of 2025 alone – from 22 countries to assist the Ukrainians in repairing and strengthening their grid. The fund has delivered €510 million worth of spare parts and components, including at least 18 UHV 750kV transformers.

A 750kV station like Kievska contains four UHV transformers. These components cost between $2 and $10 million a piece and weigh up to 600 tons. The Ukrainians have 5 standalone UHV stations undergirding their grid, and another four UHV switchyards at the Rivne, Khmelnytskyi, South Ukraine, and Chernobyl (its switchyard is still active) NPPs. A reasonable estimate for the total number of 750kV transformers currently in use is 40.

The effects of the destruction of any one of the standalone stations vary dramatically depending on its location. More than half of Ukraine’s power generation comes from its three active nuclear power plants. Each NPP transmits 750kV and lower voltages for local customers. The three easternmost 750kV stations – Kievska, Vinnitska, and Dniprovska – are the most vulnerable, as destroying the three of them would threaten to cut nearly the entire central and eastern regions of Ukrainian-held territory off from the UHV grid and the three active Ukrainian NPPs.

After a limited series of strikes on 750kV stations in 2024, the Russians have refrained from targeting them. As I’ve said before, this is the opposite of what you’d do if your intention was to collapse the Ukrainian grid. That these strikes have resumed is a signal, but of what?

Over the past week, the Ukrainians have launched strikes against:

• Vladmirskaya 750kV substation

• Oryol TPP

• The Frolovskaya substation in Volgograd region

• A substation in Kursk

• Smolensk TPP

• Balashovskaya 500kV substation (Saratov)

• Arzamasskaya 500kV substation (Nizhny Novgorod)

Because of this, the Russian strike on Kievska may be retaliatory. The Ukrainian attacks have caused temporary blackouts but no visible long term effect as of yet.

As I’ve described previously, the Ukrainians are at a major disadvantage in an energy attrition war against the Russians. Key Russian energy sites like the 750kV substation in Vladimir are over 400 miles from Ukrainian drone launch sites, while Ukrainian 750kV substations like Kievska are half that distance from Russian launch lines near Kursk. The Russians have plentiful ballistic and cruise missiles at their disposal, some of which are nearly impossible to shoot down, and all of which have large explosive payloads. Meanwhile, the Ukrainians have to pass through layers of intact air defenses using large numbers of light drones with small payloads, or risk scarce missile platforms like the Neptune. It isn’t within Ukraine’s capability to deliver anything close to the explosive payload of the Russian strike on Kievska on strategic Russian infrastructure outside of border areas like Belgorod, which are within HIMARS range.

Another concern is the exchange ratio at play. A facility like Kievska will cost tens of millions of dollars to rebuild, but only a few million to destroy. While the Ukrainians may be playing with European money, UHV electrical transformers are extraordinarily hard to come by, with customers having to wait years to see an order fulfilled. Repair crews have to move massive pieces of equipment and work frantically to keep up with the rate of damage.

Over the next few days, the blackout schedule for Ukraine as a whole and especially Kiev will be a key signal to watch. If Ukrenergo is unable to restore full service to the city within a few days, the Kievska station was likely completely destroyed. Another key signal to look out for is – presuming the Ukrainians are able to repair it – the Russians striking Kievska a second time.

Here’s what I said in my piece on the energy war three weeks ago:

…The logical conclusion then is that the Russian strategy in the energy attrition war is to slowly escalate as a form of deterrence, taking care to avoid a true humanitarian crisis, which would redound to the benefit of the Ukrainians… Meanwhile the Ukrainian grid has been made more and more vulnerable over time, while the Ukrainians and their European sponsors have had to exert great expense and effort to keep it functioning.

The Russian strategy hasn’t worked, because the Ukrainians have begun to call their bluff in earnest. AFU planners are aware of Russian offensive potential, but have plowed forward with the energy war all the same. The state of the Ukrainian grid is now dire, with the Russians having the ability to impose blackouts in large cities like Kiev or Kharkov at will, or near-full blackouts of the entire country with exceptionally large attacks. Because the Ukrainians have shown no signs of being deterred, the only possible direction the situation can go is towards further escalation.

I stand by this assessment, because the energy war shows no sign of slowing down. Just two hours ago, the Ukrainians launched an attack on the Voronezh CHP, starting a fire at the plant. This fits the general pattern – when the Russians retaliate, the Ukrainians retaliate back within 24 hours. One has to wonder what the Ukrainian mindset is here, considering the level of escalation dominance the Russians have. It is well within Russia’s capability to destroy every Ukrainian 750kV substation in a single night.

Today’s post will serve as an update to my recent pieces on the European military-industrial complex, the Ukrainian budgetary crisis, and the energy attrition war. In an amazing coincidence, today’s issue of The Economist addresses all three of these subjects with a quartet of remarkable articles. These pieces broadly agree with facts of the situation as I’ve outlined over the past few weeks. Their conclusions, however, are entirely different. We’ll use these pieces to get a sense of what the Atlanticist elite is thinking.

Saving Ukraine

First, a pair of pieces that echo all the major points in my analysis of European defense spending.

In the first piece, Saving Ukraine, the author (Economist writers are always anonymous) doesn’t pull any punches when describing how desperate Ukraine’s funding gap is, calling it a “savage cash crunch.” While my piece on the Ukrainian budget deficit echoed other estimates that the Ukrainians will run out of funding as late as the end of the first quarter of 2026, The Economist paints a closer D-Day: the end of February.

Two out of three of Ukraine’s funding sources are “drying up,” according to the piece, with the American money faucet slowing to a trickle, while issuing additional Ukrainian debt is becoming untenable, as Ukraine has “now borrowed as much as anyone will lend it.” This leaves Europe holding the bag.

Echoing the language I used in my piece on Ukrainian funding, the article describes the prospect of using loans backed by frozen Russian assets as “exposing the divisions inside the EU.” Belgium is threatening to hold up the plan, while “Northern” EU countries are averse to issuing new bonds, as it could “undermine fiscal discipline.” The French fear that new debt raised for Ukraine will simply be sent to the US for weapon procurement, destroying the European return on investment. And lastly, “everyone” fears a new “blank cheque” given to the Ukrainians will just worsen its already severe corruption.

These concerns are irrelevant, the author insists:

These anxi­et­ies are reas­on­able, but they are dwarfed by two gains that lie within Europe’s grasp. The first is a fin­an­cial com­mit­ment that can expose and amp­lify the Krem­lin’s longterm weak­-ness. Rus­sia has lost the lives of 200,000-500,000 troops—double the fig­ure for Ukraine. It is also bear­ing a heavy fin­an­cial bur­den on its own. Declared defence spend­ing will hit $160bn in 2025, and state-run banks have also engaged in an immense off-budget lend­ing spree to sup­port the mil­it­ary-indus­trial com­plex. It is true that sanc­tions in 2022 failed to bring Rus­sia to its knees as some had hoped. But Mr Putin’s ini­tial war boom has now given way to stag­fla­tion, with growth at almost zero, labour short­ages, hid­den bad debts, infla­tion of 8% and interest rates of 16.5%. Another half-dec­ade of this would prob­ably trig­ger an eco­nomic and bank­ing crisis in Rus­sia. If Europe can demon­strate to Rus­sia that it will under­write the war for at least that long, Mr Putin will be cornered.

Forgive me for jumping straight to the end, but it contains a startling admission: another five years of brutal warfare in Europe would “probably” result in an economic crisis in Russia. It’s difficult to process this statement, or square it with headlines from The Economist itself – in March 2022, the Russian economy was “crumbling” and attempts to insulate it against sanctions were “in vain.” In April a Russian debt default was “almost inevitable.”

With Ukrainian sources universally reporting crippling manpower shortages, who precisely will be doing the frontline fighting for Ukraine in 2031? Is the unstated assumption here that teenagers and women will be next into the mobilization vans? How could nearly four years of economic isolation, proxy war, and nineteen sanction packages not even be half of what’s required to bring the Russian economy to its knees?

Even the casualty figures cited here are hard to make sense of. How can The Economist know that Ukrainian military deaths are half that of Russia’s if it can’t estimate Russian KIA to less than a 2.5-fold range? The publication sits at the apex of the Atlanticist elite media sphere, so if they don’t know, who does? And doesn’t the European population deserve to know exactly how many deaths Ukraine has suffered, considering they’re the ones being asked to foot the bill?

If we accept the description of Russia’s economic outlook given here, a cursory comparison to the European situation will raise serious questions. European defense spending is ballooning, and its banks have waived all normal lending standards to issue Ukraine billions in loans there’s no indication it’ll be able to pay back. European growth has stagnated, with German growth specifically being essentially zero. Russia’s debt-to-GDP ratio is lower than any EU country’s, and less than half the EU average. If a Russian crisis is on the (distant) horizon due to its military spending, why is military spending the solution for Europe? Consider too that the Russians, as is almost universally acknowledged now, seem to get twice the hardware or more in exchange for what they spend. It isn’t clear why the Europeans would win a military-industrial production spending race against the Russians. If anything, the reverse seems more likely.

As for the second reason the Europeans should be willing to dive head first into a debt-driven spending competition:

Europe’s second prize would be to become less depend­ent on Amer­ica mil­it­ar­ily, a neces­sity given Mr Trump’s wobbly com­mit­ment to NATO. Any long-term fin­an­cing solu­tion for Ukraine would help Europe build the fin­an­cial and indus­trial muscle it needs to defend itself.

While this is a reasonable goal, it’s a long ways off. Untangling the complex web of arms deals, joint ventures, and NATO procurement contracts between the US and Europe is almost impossible, but imports from the US continue to form a large percentage of European defense spending. As I covered in my most recent piece, unless that percentage declines rapidly, European spending on defense has little chance of being an efficient way to drive economic growth. And no European country except France is currently capable of domestically producing nuclear weapons without US help. How independent can the Europeans reasonably be expected to become? And how long will it take? Given that the justification for this independence is a fundamentally American military adventure that has resulted in the EU being cut off from its most affordable source of energy imports – imports it’ll need to become self-sufficient – it’s hard to make sense of this.

In the second piece, titled Ukraine’s War Bill, the author compares Europe’s defense situation with regard to Ukraine to the one NATO faced with the USSR:

“History teaches that wars begin when gov­ern­ments believe the price of aggres­sion is cheap,” argued Pres­id­ent Ron­ald Reagan in 1984. He over­saw a vast increase in Amer­ica’s defence budget that the Soviet Union could try to counter only by wreck­ing its eco­nomy. By the end of the dec­ade the “evil empire” was col­lapsing.

The idea that the USSR collapsed primarily due to excessive defense spending is an old trope, and one contested by some historians. Regardless, what’s absent here is an explanation of why Reagan’s axiom would be to the detriment of modern-day Russia, which is spending significantly less on its war effort while also producing more, dollar for dollar, than the Euro-Ukrainian axis, and while simultaneously generating significantly less debt. In other words, why is Europe any less likely to spend itself into collapse than Russia?

The author highlights how dire the situation really is. Without US cash, the Europeans will be left footing almost all of Ukraine’s skyrocketing bills, but this is essential to communicate to Putin that “he cannot win a long war.”

The task is daunt­ing. We cal­cu­late that Ukraine will need approx­im­ately $389bn in cash and arms over the four years from 2026 to 2029 (for con­sist­ency we are using dol­lars and con­stant prices throughout), mainly from Europe. That is almost double the roughly $206bn that Europe has sup­plied since just before the war star­ted in Feb­ru­ary 2022… Whether Europe rises to this chal­lenge will be a test of its aspir­a­tions to “stra­tegic autonomy”, by which it means it can act in its own for­eign-policy interests without depend­ing on Amer­ica (or China).

The unsupported presupposition here is that a kind of collective self-interest is at play with the European bloc’s decision to back Ukraine to the hilt, even in the absence of American financial support. An explicit explanation of precisely why it’s in Europe’s interests to prolong the war is surprisingly hard to come by, considering how fundamental to all of this it is. And what – or who – is “Europe,” precisely, with regard to this discussion? Is it the European people as a collective? The Atlanticist ideological bloc? The European markets? The EU’s bureaucratic elite?

Answering this is difficult, because it requires explaining how an American project can seamlessly transform into a European one, even with the Americans going their own way. US support for a nascent, independent Ukraine dates back 25 years, from media funding prior to the Orange Revolution, to Victoria Nuland’s infamous “fuck the EU” phone call during Euromaidan. The Ukrainian project could be described as Atlanticist, American, or even – considering the devastating consequences for European economies – outright anti-European. But the author of this piece suggests, without explanation, that prolonging the war is inherently in European self-interest.

Next, the piece hits us with a barrage of financial estimates. Ukraine’s defense spending is currently $65 billion, around half of its total budget, and with $90 billion in government revenues, the country is running a $50 billion annual deficit. Ukraine’s spending has been increasing at 20% a year, which is around two thirds of Russia’s spending (though they say Russians may be spending twice as much as they’re publicly stating). Then, the bombshell: The Economist suggests Europe will need to give the Ukrainians an eye-watering $389 billion in military, budgetary, and reconstruction aid over the next four years, with $328 billion coming from the EU and $61 billion from Britain.

The EU has thus far only committed to a paltry $15 billion in direct aid over the next two years, while the IMF has pledged $10 billion. The first two pieces both back the idea of issuing a “reparation loan” guaranteed by frozen Russian assets, but note that the $160 billion it would provide isn’t even half what the Ukrainians need. EU budgets are tapped out, and could only provide $30 billion a year, and not without significant financial pain. The solution for increasing this amount by a factor of 16 times is to take on debt, issuing new Eurobonds, distributing the liability across the entire continent. Bonds would “deepen Europe’s single capital market” and “boost the role of the euro as a reserve currency.” But even $389 billion won’t be enough, says the author of the second piece, because Ukraine will need to replenish its ammunition stocks and “maintain a standing army” for deterrence after the war ends in a Ukrainian victory.

The second piece also hints at growing fault lines within the European-Ukrainian fiscal relationship. German chancellor Friedrich Merz apparently is only willing to issue Ukraine the reparation loan if the entirety of that loan goes towards buying weapons, instead of plugging the sizable hole in the Ukrainian budget. The author suggests Merz may be angling to get more far-flung “partners” like Japan or Canada to step up and pay Ukraine’s bills. The Ukrainians themselves reject any European control over how they spend the money, opposing Merz, and demanding they be allowed to purchase weapons from wherever they want. This isn’t going over well in Europe, where EU leaders in France and Germany are understandably nervous about taking on hundreds of billions in liabilities just for the proceeds to be funneled away to the US and beyond.

As the scope of the plan to save Ukraine increases to encompass the financial future of the entire EU, so too does the risk that one or two renegades might implode the entire initiative. The second piece quotes a German official who is particularly nervous about a veto threat from leaders like Viktor Orban. This is a real concern, as the objections to taking on such massive liabilities are eminently reasonable, and as evidenced by clearly vocalized worries from Belgium, France, and even Germany, dissent may grow.

Industrial Concern

The third piece is titled Europe’s Rocketing Defense Industry. This article makes some frank admissions that align with the observations I’ve made. First, Rheinmetall is absurdly overvalued, being worth nearly as much as Lockheed Martin despite generating just a sixth of the revenue:

An “era of rearm­a­ment” is under way in Europe, declared Armin Pap­per­ger, the boss of Rhein­metall, earlier this year. Investors in Ger­many’s defence cham­pion cer­tainly seem to think so. Since the start of the year its mar­ket value has rock­eted from €27bn ($31bn) to €80bn, equi­val­ent to 90 times its annual net profit and within shoot­ing dis­tance of Lock­heed Mar­tin, an American defence colos­sus… Rhein­metall gen­er­ated rev­enue of just €10bn last year, a sixth as much as Lock­heed Mar­tin.

Second, the author concurs with our assessment that if any economic benefit is to be expected, the Europeans are underspending on defense research and development – European spending was €13bn in 2024 compared to American expenditures of $148 billion. The thrust of the piece is that the Europeans need to learn from the Americans, mirroring their military-industrial organization and spending. Air defense, long-range missiles, and rocket artillery production is “limited at best and absent at worst.” Increased cooperation on advanced systems, the author says, is a double edged sword – joint programs like the Future Combat Air System (a new drone swarm assisted European fighter jet) are plagued by “bickering,” though joint programs are necessary to stand a chance of matching the investment levels of American programs. Somehow, the Europeans need to find a way to be competitive.

Small, cutting-edge defense startups like the US’s Anduril are to be emulated, the piece says. Luckily, the Europeans have already demonstrated they can foster them – drone startups Helsing, Quantum Systems and Tekever are cited as examples. The author explains that private investors are helping get these off the ground, because banks are now “banging on the door” to break into the defense industry, which is now “almost glamorous” when it was once “a pariah.”

For those who have read my previous work, the objections to this assessment should be obvious. The US military-industrial complex, far from being a model to emulate, has proven itself wholly inadequate to the task of arming a military in a major peer war. The simplest munitions like unguided 155mm artillery shells are beyond its ability to produce in significant quantities, and it’s been unable to field an affordable analogue to the Shahed-136/Geran-2 platform. Its “advanced” systems like the Patriot are fundamentally marketing projects, and the current generation of strategic weapons like hypersonic ALBMs, hypersonic glide vehicles, modern ICBMs, and jamming resistant guided munitions remain mostly beyond its reach.

European counterparts to Anduril have the same laughable track record Anduril does, producing comically overpriced weapons with fudged performance specifications (we covered Helsing thoroughly in the last piece).

None of this is what Ukraine needs, which is something closer to the way the Russian military-industrial complex operates. Throughout the Game Changers series we’ve published, the refrain is always the same: Ukraine needs vast quantities of cheap, simple, reliable weapons. The US framework, which The Economist would like Europe to emulate, instead produces shockingly expensive, complex, and high-maintenance weapons in small numbers.

Reading between the lines, then, we can see that The Economist agrees with the thesis of my last piece. European defense spending has little to do with helping Ukraine achieve victory, but is rather optimized towards generating defense industry profits across the continent and in the US.

Ukraine’s Power War

This bleak piece is a succinct explanation of the results of Russia’s missile campaign against Ukrainian energy infrastructure. Most of the major points from my two pieces on the issue are reiterated here, though with less detail and context. The Economist confirms that at least half of Ukraine’s domestic gas production is still offline, while Russian strike packages have increased in size year over year by a factor of five or more.

“Critical nodes” of the Ukrainian grid, the piece says, were supposed to be protected by anti-drone defenses, but inexplicably were not. It claims Ukraine has around 90 “crucial” 750kV substations Russia is slowly destroying, a much larger number than the around one dozen I’ve seen cited in other sources going back to 2023. This point is fundamental to understanding the progressive nature of the Russian energy campaign. To fully collapse the Ukrainian grid, all that would be needed is to destroy these substations, as they form the vital links connecting major power plants to urban centers, and the regions of the country to each other. Without them, balancing the grid would be impossible, and the country’s infrastructure would become a disconnected collection of “energy islands” cut off from one another, mostly unable to meet their own electrical demand.

I’ll reinforce what I’ve said elsewhere – the Russians have deliberately refrained from destroying all of Ukraine’s 750kV substations. Whether this is out of concern for a humanitarian crisis, a method to slowly ratchet up pressure, or a cold, calculated plan to drain Ukrainian resources through favorable exchange ratios (even higher end Russian missiles cause more damage in monetary terms than they cost to produce), is unclear. As the campaign continues, keep an eye out for increased targeting of major substations. If they’re targeted more often, the Russians may be attempting to turn out the lights for the long term.

Next, we’ll briefly cover two headlines from the past week.

First, in a piece lacking in hard details, Zelensky has finally acceded to internal demands to lift export restrictions on Ukrainian defense products. This news made little sense to most observers. The idea that Ukraine could have a surplus of munitions sufficient to allow exports in the midst of constant demands for more munitions defies common sense. But this idea isn’t new. The Ukrainians have been “exporting” their “technologies” in shared production facilities in Europe since this summer. In May, an open letter written by a consortium of Ukrainian defense manufacturers pleaded with Zelensky to allow them to export their products abroad.

The rationale here is difficult to parse, especially with the vague public statements we’ve received on this so far. Ukrainian defense startup executive Kateryna Mykhalko said in May 2024 that “not all [Ukrainian produced drones] can be used in the army.” What she meant by this isn’t clear, as the Ukrainians have repeatedly demanded increased shipments of drones from the west, and signed large contracts with western defense manufacturers to buy more. Meanwhile, they’ve been expending hundreds of one-way attack drones in single strikes.

One way to understand this is perhaps that Ukraine doesn’t possess a real surplus of anything it makes domestically, but has relatively more of certain systems than it does of others. Exporting, then, would allow it to sell off its more plentiful systems for others it needs more. A reconnaissance drone could essentially be exchanged for a more direly needed interceptor drone, by this logic.

But it’s unclear how this would work in practice. Ukrainian defense companies said they need exports in order to avoid bankruptcy. With many of these startups operating essentially as private enterprises with a single customer (the AFU), how can their profits be exchanged for European equipment, while simultaneously being used to keep the enterprise afloat?

Regardless, it’s understandable that Ukrainian defense sector executives would call for this. They’ll be able to reduce their dependence on the Ukrainian government (and Zelensky), make a buck, and establish relationships abroad that will keep them in a job should the war end unfavorably. Allowing exports also opens the door for European joint ventures to produce equipment for their own militaries using dirt-cheap Ukrainian labor.

Finally, a piece in Politico that sheds led on the intensity of the conflict within the EU over issuing the “reparations loan” to Ukraine.

In stark contrast to The Economist’s portrayal of issuing bonds to fund Ukraine as a win/win, here the European Commission seems to be using them as a threat to keep EU member states, like Belgium, in line.

The European Commission is acutely aware that its plan B — joint EU borrowing known as eurobonds — is even more unpalatable for funding a €140 billion reparations loan for Kyiv than its idea of using frozen Russian state assets, which hit a roadblock last week. Governments historically hostile to big spending, especially Germany and the Netherlands, nicknamed the “frugals,” loathe the prospect of piling greater debt onto taxpayers. Spendthrift nations, France and Italy in particular, are too indebted to take on more.

But that’s the point. European officials are betting that Belgium, which houses nearly all the assets and has expressed concerns about the legitimacy of seizing them, along with other countries that have raised objections more quietly, will be won over to the plan by the prospect of the joint borrowing alternative, which they’ve long considered toxic.

Using the frozen Russian assets (keep in mind they’re not nearly enough) is “the only game in town” according to the head of the CEPS, because “the lack of fiscal discipline” in the EU is so high, and eurobonds will be unacceptable. “The idea that eurobonds could seriously be on the table is simply laughable,” a diplomat quoted in the piece says.

Additionally, EU bureaucrats are rushing to force the Belgians into cooperating, because a rapidly forming Hungarian-Czech-Slovak alliance may torpedo the possibility of issuing new bonds or the reparations loan.

This picture is almost unimaginably bleak compared to The Economist’s perspective. Bonds are an impossibility, and even as a last resort they’ll be a disaster. The Belgians are unwilling to play ball, and the clock is ticking both because of an incoming veto possibility, and the Ukrainian government being only four months away from running out of cash entirely. The situation is so desperate that we’re back to where we ended in my piece on Ukraine’s budget deficit: the reparations loan is the only solution. The European Commission will find some way, come hell or high water, to force the Belgians to agree. And the can will be kicked down the road for perhaps six months to a year. After that, it’s anyone’s guess.

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The German economy is in recession. Manufacturing has imploded, particularly in the crucial automotive sector, which has shed hundreds of thousands of jobs since 2022, and lost a staggering third of its production volume since 2018. August saw the biggest drop in industrial output in more than three years, over four times the decline analysts expected. The crucial machinery sector has dropped 22% since the pre-covid period, with a 5.6% drop expected this year alone. In recent months, massive declines have occurred in the pharmaceutical, electronic, energy, construction, and hospitality industries.

A brutal combination of energy price increases, increased regulation, tariffs, competition from China, and government policy have crushed Germany, which underpins the European economy. The supply chains for its manufacturing sector typically stretch across the entire EU, and the controlled demolition of its productive output is having ripple effects across the continent.

The German solution to this is debt – lots of debt. German borrowing has been extraordinarily reserved for a Western state ever since the “debt brake” amendment passed by the first Merkel cabinet came into effect in 2016, limiting deficit spending to 0.35% of GDP. In 2022, then Chancellor Olaf Scholz successfully led an amendment to the rule that allowed the creation of a €100 billion defense fund immune from the brake. In spring of this year, Scholz and incoming Chancellor Friedrich Merz agreed to another amendment to exempt defense spending over 1% of GDP. Over challenges from the AfD, FDP, and Die Linke, the amendment was passed in late March. In both cases, the war in Ukraine was the explicit rationale for subverting Germany’s debt limits.

With deficit defense spending now unrestrained by its constitution, the German government announced earlier this year that it plans to double its current levels of defense spending over the next five years. $761 billion will be spent by the end of 2029. More than half – $469 billion – of this total will be funded through new debt. Net German government borrowing already more than doubled this year, increasing from $38 billion in 2024 to at least $95 billion by the end of 2025. Included in the 5 year spending plan is at least $10 billion in direct aid to Ukraine.

While it may seem imprudent for the German government to attempt to revamp the Bundeswehr and simultaneously fund a proxy war in the midst of a historic economic decline, there is a certain logic at play. In this piece, we’ll explore how EU economies benefit from the continuance of the war in Ukraine, and how they use the war to offset the effects of deindustrialization.

EU defense spending since the war began has surged by over 50%, increasing by nearly $150 billion a year from 2021-2025. The only EU state which hasn’t seen double-digit growth in defense expenditures since 2021 is Greece, which modestly decreased its spending.

These figures do not include the $70 billion in military “aid” to Ukraine given during this period, some of which is considered an investment instead of an expenditure, because it often comes in the form of loans. Ukraine currently owes $117 billion in debt to external creditors, with $50 billion of this figure being to EU institutions, and the remainder being to international lenders through which the EU has significant exposure, like the IMF and World Bank. In total, the EU has provided just under $200 billion in assistance to Ukraine, and another $170 billion in assistance to Ukrainian refugees residing within the EU.

Taken in cumulative terms since the beginning of the war, and projected forward in line with planned spending and debt increases across the EU, the war in Ukraine is the justification for an enormous injection of borrowed cash into the European economy roughly at the same scale of the $700 billion emergency bank bailout during the 2008 US financial crisis. Unlike the 2008 bailout, however, this project has gone largely unremarked upon – being laundered through messaging around “peace through strength” or the “defense of democracy,” rather than being taken as an emergency measure to stave off economic decline.

While these numbers may sound astronomical, the EU is just getting started. In June, NATO collectively agreed to meet Trump’s requested target of 5% of GDP on defense spending. All NATO member states are on track to hit the initial 2% target by the end of this year, meaning spending will more than double by 2035. Spending specifically for Ukraine will count towards the target.

Out With the Old

Nowhere is the substitution of defense spending for typical economic activity more obvious than in Germany. As the share price of automakers like Porche (-41% since IPO), Mercedes (-21%) and Volkswagen (-51%) have been stagnant or declined dramatically since the war began, the German defense industry has surged. Rheinmetall, Germany’s second largest defense contractor, has seen its stock grow 2522% in value since 2020, and Airbus, Germany’s largest, has jumped 224%. The STOXX index, which tracks Europe’s total aerospace and defense market, has posted gains of 229% since February 2022.

This has resulted in an interesting phenomenon – German automotive factories being converted to defense sector production.

“So we think it’s very important for the German industry and for us to find new markets. And where are new markets? Well, government has committed a lot of new funding for defense. We are quite close to what defense industry needs, so it’s very obvious for us to look to this market.” Marin Buchs, JOPP group (NPR)

Automotive suppliers across Germany have avoided closure by switching to the production of military drones, engines for armored vehicles, and artillery barrels. Rheinmetall, which itself makes automotive components for the civilian market, has begun to convert two of its plants to defense products, and plans to purchase a VW plant that once employed 2,300 people but shut down in 2024. Rheinmetall’s automotive division has seen consistent declines in revenue while its defense divisions post triple digit operating profit increases. German/French defense group KNDS announced a similar plan to retool an east German plant which once made train locomotives to instead manufacture Puma and Leopard 2 armored vehicles. KNDS is planning an IPO, while Thyssenkrupp prepares to spin off its naval defense subsidiary TKMS.

The plans of European defense contractors universally hinge on guarantees for purchase minimums from their respective governments. Rheinmetall requested a contract for at least 1,000 armored vehicles in order to move ahead with their proposal to purchase the defunct VW factory. While building out the Bundeswehr will require vast quantities of new vehicles, there’s no better justification for large contracts than the war in Ukraine. The conflict has vacuumed up tens of thousands of infantry fighting vehicles, MRAPs, armored cars, and tanks, and because much of this material is destined to be destroyed, there will always be a need for more. Rheinmetall’s order backlog at the beginning of the year stood at $65 billion – six full years of sales at current levels.

The success of the defense industry amidst the decline of the automotive industry is the result of a simple asymmetry. While automakers compete in a relatively open market, defense contractors do not. Concerns like the costs of energy and labor create insurmountable obstacles to manufacturing within Europe, because consumers have the ability to select cheaper options from manufacturers in places like China. With real earnings for the German population still below pre-2022 levels, access to cheap overseas goods is essential to prevent a precipitous decline in quality of life.

The defense industry does not need to play by these rules. Arms deals don’t adhere to free trade principles, and are often negotiated through a combination of political pressure, bribery, and government subsidies. Input costs, like energy, are largely irrelevant, and purchase price is not a significant concern. Nowhere is this more true than in Ukraine, where any notion of free market competition is nonsensical. To understand this, we’ll analyze how procurement contracts between the AFU and the European defense sector work in practical terms.

Grants

There are three overlapping types of military aid to Ukraine: grants, loans, and the “Danish Model.” Germany issued a €5 billion aid package to Ukraine in the form of a grant in May of this year, drawing the money out of their defense budget. This package unlocked major contracts that had been in the works for months, including one with the German firm Helsing to supply thousands of HF-1 and HX-2 attack drones. Founded in 2021, Helsing is Europe’s most valuable defense tech startup, and is currently valued at over €12 billion. The company is well connected and funded – its co-founder and co-CEO Gundbert Scherf spent two years at the German defense ministry under EU commission president Ursula von der Leyen. It has competed directly against US defense contractor Anduril, winning a contract to work on an update of the Eurofighter Typhoon’s software package.

After delivering hundreds of drones from 2022 to 2024, Helsing had already started production of the HX-2 before the German government funds were made available, and signed a provisional contract with the Ukrainian Ministry of Defense to deliver up to 10,000 units. The earlier HF-1, which Helsing is in the process of delivering 4,000 units of, is manufactured as the deliberately cheap (its frame is plywood) AQ 100 Bayonet by a tiny Ukrainian defense contractor called Terminal Autonomy. The system is then transferred to Helsing, which modifies the drone with updated electronics and Helsing’s targeting software, called Altra.

The HF-1 has been the subject of enormous criticism from the Ukrainians. In March, AFU serviceman and drone expert Okeksandr Karpyuk posted a lengthy diatribe attacking the HF-1 for its “crap” explosive payload and “primitive” targeting system. NATO officials have agreed, saying Helsing’s drones have more problems than comparable models.

“We’re talking about a product that is made of cheap components and is being marketed as cutting-edge technology, I can assure you, because I disassembled it. Such a product is worth at most 100,000 hryvnia (€2,200). And it costs €16,700, which is exorbitant.” - Oleksandr Yarmak, Unmanned Systems Force, AFU (Bloomberg)

Helsing’s fundamental business model with the HF-1 is to take an exceptionally cheap, Ukrainian-made drone – once listed by Terminal Autonomy for €1,800 prior to Helsing’s upgrades, though this has now been removed from its website – upgrade its electronics and software, increase the price by a factor of up to 10x, and bill the German government for it.

The HX-2 fills a similar role to the Russian Lancet, but likely costs at least twice as much. The founder of a competing German drone startup called Quantum Systems, Florian Seibel, publicly accused Helsing of lying about the HX-2’s range and payload, and offered a €100,000 donation to Helsing’s charity of choice if they could publicly prove to meet them. A threat of legal action by Helsing forced him to sign an NDA a day later.

The negative feedback has yet to have a visible impact on Helsing’s ability to turn a profit or sell its products. Co-founder Torsten Reil suggested that 100,000 HX-2’s could form a “drone wall” to protect NATO’s eastern border with Russia, forever deterring a land invasion. EU leaders like von der Leyen and Lithuanian prime minister Andrius Kubilius have publicly echoed the concept, estimating covering Poland and the Baltics would cost approximately $1 billion (enough for tens of thousands of HX-2s). The contact to supply the AFU with the HX-2 is in progress.

The case of Helsing is a microcosm of how the European defense manufacturing industry can thrive, even while other forms of manufacturing become ever more unviable. For Helsing, market demand is not an issue, as Ukraine has unlimited need for munitions. Competition isn’t a problem, because deals are made as a matter of government policy rather than through consumer choice. Pricing is arbitrary, as the government subsidizes all purchases. High energy prices and labor costs may eat into an already sky high profit margin, but if you’re as clever as Helsing’s founders, you let the Ukrainians do the manufacturing. It’s doubtful that Helsing would be able to bring a product to market that could compete on price or capability without the peculiarities of the defense sector, or during peacetime.

Helsing has less than a thousand employees. The defense tech startup model and even the much larger scale shifts from automotive to defense manufacturing from firms like Rheinmetall have so far not be able to offset the employment decline in other manufacturing sectors. While each week seems to bring new announcements of mass layoffs of tens of thousands of German industrial workers, the defense industry has only made marginal hiring increases, adding around 15,000 jobs since 2022.

Helsing has used its profits to go on a buying spree, purchasing German aircraft manufacturer Grob in June, Australian underwater drone manufacturer Blue Ocean, and forming a strategic partnership with ARX robotics for make unmanned ground vehicles.

Loans

In March, the UK announced an exceptionally large $2.1 billion deal to supply Ukraine with 5,000 Thales lightweight-multirole missiles (LMM), also known as Martlets. The deal was a boon to Thales UK, a subsidiary of Thales Group, which is partially owned by the French government. The contract will eventually triple the output of the Thales facility in Belfast. A purchase order of this size is unusual, and the Ukrainians would never be able to afford it without help.

In July of 2024, the UK and Ukraine signed the Defense Export Support Treaty. Under the terms of the treaty, the Ukrainians would be able to draw $4.6 billion in financing for military equipment from the UK Export Finance (UKEF), an export credit agency under the UK government. The UKEF’s mandate is to support the British economy by helping firms win business, providing insurance, and most importantly issuing loans for domestically produced goods.

The ministerial department has faced criticism as a form of subsidized bribery, and historically up to 50% of its business has been in support of arms deals. The LMM deal alone will consume almost the entirety of the Defense Export Support Treaty, due to underwriting overheads, making the LMM deal one of the largest single bilateral loans for procuring a specific weapon system since the beginning of the war. It’s a new level for the UKEF, which typically doesn’t sign deals valued at even half as much. The British parliament determined that the UKEF’s typical risk standards – which require it to return a modest profit – could be bypassed when lending money to Ukraine. Under the terms of the financing agreement, the Ukrainian debt servicing responsibilities will be “at a standstill” until 2027, and the full repayment term won’t mature until 2037.

In practical terms, the deal works as follows: First, the Ukrainians secure the $4.6 billion loan from the UKEF, which is backstopped by the British taxpayer. Next, the UK MoD’s procurement arm, Defense Equipment & Support, places the order “on behalf” of the Ukrainians, and the money is transferred from UKEF to Thales. The Ukrainians pay interest on the loan, and receive the missiles. The contract is for a term of nineteen years, meaning Thales has no responsibility to deliver the final batch of the order until 2044.

The British government has proudly claimed that the deal will create up to 200 jobs in Northern Ireland, and preserve the jobs of the hundreds of workers already employed by the Thales factory in Belfast. At a liability of $23 million per job created, the return on investment here is questionable, especially as the UK manufacturing sector has shed 57,000 jobs since the war began. For Thales, with its $53 billion market cap, the benefit is more clear. In the months leading up to the deal its stock price increased by nearly 100%.

The UKEF’s counterparts in other EU states include Italy’s SACE, France’s Bpifrance, Denmark’s EIFO, Finland’s Finnvera, and Belgium’s Credendo. All have issued loans to Ukraine.

The Danish Model

Denmark, which has little defense production of its own, has pioneered a unique approach to funding Ukraine’s war effort. Rather than loaning Ukraine money to purchase European hardware, Denmark issues loans and grants directly to Ukrainian firms to produce equipment within Ukraine. Using this model, Denmark has become Ukraine’s largest sponsor by percentage of GDP, and for their part, the Ukrainians couldn’t be happier. In January, then Ukrainian Prime Minister Denys Shmyhal (currently Ukraine’s defense minister) told the Rada he hopes to see $1 billion raised by the Danish Model by the end of this year. The initiative has led to a massive expansion of Ukraine’s defense industrial capacity, which the Ukrainians are planning to reach $35 billion in 2025. If they hit their target, Ukraine will challenge the UK, France, Germany, and Italy as the top defense producer in Europe.

Denmark benefits from this arrangement in two major ways. First, as a net contributor to the EU, it has been allowed to organize collective EU expenditures under the Danish Model, but count them towards its own spending target for NATO’s 5% of GDP defense goal. In addition to allowing the Danes to avoid spending their own money, this allows them to sidestep large investments in domestic military manufacturing, eliminating the risk of building a military-industrial complex from scratch when that complex may become superfluous if the war ends.

Second, Danish firms have been incentivized to create joint Danish-Ukrainian ventures in Ukraine, with the government subsidizing up to 70% of startup costs. These joint ventures rely on Danish management, creating high paying corporate jobs, while the burden of construction and manual labor leverage low Ukrainian labor costs. Labor in Ukraine is as little as 1/10th the cost of Danish labor.

These joint ventures don’t just go one way, as certain Ukrainian companies have been allowed to accept partial Danish ownership in exchange for establishing offices and production lines within Denmark. This is both an extension and inversion of the Danish model, as Ukrainian firms take on the debt, which is issued by the EU, and in turn invest in infrastructure within Denmark, rather than placing a purchasing order. This minimizes Danish risk.

Under this alternative model, Ukrainian firms have spun up production lines for drones and repair facilitates for air defense radars. The largest deal of this kind so far comes from Fire Point, the Ukrainian drone manufacturer currently embroiled in a corruption scandal, which plans to make rocket fuel for missiles on Danish soil.

Denmark isn’t the only country to work under this framework. Rheinmetall has established repair facilities for their armored vehicles in Ukraine, and has attempted to open an artillery shell plant there, though this initiative has made little progress since being announced in 2024. Saab, KNDS, Colt CZ, and FFG have announced similar projects. Turkey’s Baykar has thus far been the only firm to establish a major defense production plant on Ukrainian territory, but the $100 million facility was largely destroyed by a Russian strike in August, before it could come online.

The wisdom of opening a large defense plant in a country under constant attack from a vast suite of Russian standoff munitions is questionable, which may explain why plans to do so face extensive delays. But it’s still useful to interrogate why European defense contractors are so enthusiastic about pouring money into Ukraine.

The conceptual basis for all of the Danish Model, according to the Danes, is turning Ukraine into the “arsenal of Europe.” After a Ukrainian victory or stalemate, European defense companies and joint EU-Ukraine defense ventures would relocate their production to Ukraine, taking advantage of rock-bottom labor costs and stringent regulations imposed on the Ukrainian government and economy by the IMF and World Bank as loan conditions. These conditions were designed to benefit the EU.

In this universe, Ukraine would become the center of European weapon production, and perhaps manufacturing in general. High labor costs and social benefits in the EU proper limit profit margins, even in the distorted world of defense. Ukraine, with its government and economy under the thumb of institutions like the IMF, could be made to import millions of migrant laborers from countries like India, keeping labor costs low while compensating for the demographic crisis caused by the war. Think tanks like EasyBusiness have already outlined the number of workers needed and the regulatory process for importing them. European conglomerates and majority European-owned joint ventures would reap the rewards.

Dirty Tricks

In the meantime, Ukraine is a military-industrial wild west. Firms like Fire Point, which only a few years ago was a casting agency for TV production, have secured billions in defense contracts. The bidding process for government contracts – typically backed by European cash – is opaque and rife with corruption. Production rates are shrouded in secrecy, and facilities are constructed in secret locations. Dozens of major Ukrainian defense contracts have been awarded to companies that place the highest bids, implying corruption. Payments are made for weapons that are never delivered. Huge overpayments are common. International arms dealers are awarded billion dollar contracts they have no ability to fill.

Several European defense companies have been caught up in corruption scandals related to supplying arms to Ukraine. Denmark has supplied hundreds of millions of dollars to Fire Point, which now stands accused of falsifying its production rates of drones and the beleaguered FP-1 “Flamingo” cruise missile. The firm received nearly 10% of Ukraine’s domestic defense procurement budget in 2024. Danish Defense Minister Troels Lund Poulsen has publicly defended the partnership.

Similar corruption scandals have mired Polish firm PHU Lechmar – the beneficiary of a highly suspect €553 million artillery shell contract from the Ukrainian Border Guard – and the Czech STV Group, which resold Turkish shells to Ukraine at massively inflated prices. In 2022, Ukrainian arms dealer Lviv Arsenal conspired with Ukrainian MoD officials to embezzle $40 million through a fraudulent deal for mortar shells. The Ukrainian government money, a 97% upfront payment – the standard ceiling for such deals is 50% – moved from Lviv Arsenal through a series of shell companies in Slovakia and Croatia before disappearing. The mortar shells, marked up nearly 100% over the market rate, were never delivered. In August, an $11 million scheme involving Ukrainian parliament members, regional government officials, the Ukrainian National Guard, and an unspecified domestic drone manufacturer was uncovered by the National Anti-Corruption Bureau.

This form of petty corruption is of little benefit to European defense conglomerates with market caps approaching $100 billion, but an environment in which such corruption is tolerated is one where more ambiguous forms of graft and bribery can thrive. Even in the tightly regulated EU, corruption is rampant. Millions of euros in bribes paid in exchange for billions worth of deals by distinguished European defense contractors like Airbus, BAE Systems, Dassault, ThyssenKrupp, and even Rheinmetall have been uncovered in recent years. In the global arms industry, corruption is the norm rather than an aberration.

Each of these defense contractors is directly involved in procurement deals with Ukraine. These companies have operated for decades in an era of relative peace in Europe, and the war presents in a once in a generation opportunity. By forming joint ventures with Ukrainian firms, they can hit the ground running with the requisite Ukrainian connections to secure favorable contracts from the Ukrainian government, which acts a central hub into which unprecedented sums of public money are flowing from Europe, then back out again. While corruption may be commonplace in the EU proper, it’s the core reality undergirding the entire Ukrainian project. Far from the watchful eyes of European regulators, the EU military-industrial complex is having a field day.

Dividends

Without the massive surge in defense spending, the German economy would have posted a net decline in GDP since 2022, instead of extremely modest 0.2% growth. For the EU as a whole, defense spending has accounted for as much as 20% of growth since 2022. While the contribution to GDP from the defense sector is still small, much of this is the result of the cruel bargain staked out between the US – which set the 5% GDP defense spending target – and other NATO member states. The EU is still importing the majority of its military products, heavily benefiting the US and non-EU states like Turkey.

But future EU plans aim to correct this. In economic policy, the effect of public spending is measured by its multiplier effect – a multiplier of one means that for every Euro spent, a Euro is added to GDP. A multiplier less than one implies that for every Euro spent, less than a Euro in total output is generated. Military spending typically has a lower multiplier (below 1) than other types of spending, like infrastructure projects. In order to achieve the highest multiplier possible, defense spending is ideally spent on high tech R&D, rather than on personnel. The Europeans currently spend much more on personnel than they do on research and procurement.

Ukraine represents an opportunity to change this. European-owned ventures providing weapons to Ukraine can effectively generate their own demand, by lobbying their own governments to issue new debt to fund procurement deals. Much of the spending in the beginning phases of the war went towards procuring existing systems, rather than researching new ones. But the Danish model envisions Ukraine as a vast laboratory for European defense contractors. As European-Ukrainian joint ventures convert vast sums of R&D money into weapons, they can be tested in the field immediately, and then sold around the world.

After several years of new industrial projects, up front construction costs can now be paid off through regular operations. And defense expenditures haven’t even reached half of the European target yet. The biggest negative impact on the European defense spending multiplier is the percentage of that spending that goes towards imports, because they add to the exporter’s GDP, rather than Europe’s. But the share of spending going towards imports is steadily beginning to fall.

There are several issues with the European plan. Public spending funded by tax increases tends to permanently lower the multiplier effect of that spending, while debt financing will increase a multiplier temporarily. But if a country’s debt-to-GDP ratio gets too high, or servicing the debt becomes a burden, the multiplier can become negative. Historically, defense spending has been financed with increasing public debt, and that’s the plan for Europe. This summer, the European Council activated a provision in the Stability and Growth Pact called the national escape clause that will allow 15 member states to exceed the normal EU limit for deficit spending. The war in Ukraine and the need for increased spending were cited as the rationale.

Taking on excessive debt to fund defense, and in turn stimulate the EU economy, is a form of kicking the can down the road. Italy, France, Belgium, and Spain have surpassed 100% debt-to-GDP ratios, while Portugal, Austria, Hungary, Poland, and Slovakia are being observed under the EU’s Excessive Deficit Procedure for their deficit spending. The UK’s ratio stands at 103%, and Germany’s ratio has increased by a massive 25% this year alone. With the German economy stagnant, and the multiplier effect of defense spending well below one, the Europeans are digging themselves into a long term hole.

Defense sector gains have been major. The sector’s weighting as a percentage of the overall European market has tripled since 2022, outperforming the market as a whole by a factor of six. But the average European hasn’t seen the benefits. Defense employs around half a million people within the EU, but employment gains have been modest, adding around 50,000 jobs. Meanwhile, traditional manufacturing has been plagued by losses of over a million manufacturing jobs over the last five years. Germany alone has lost 600,000 manufacturing jobs since 2022.

At best, the European defense spending strategy seems to offer a way to maintain stagnation, rather than achieve growth. But outside of economic concerns, it’s functioned as an ingenious political solution. Rather than dealing with the EU’s economic problems head-on, the Union’s governments have been able to launder a massive economic stimulus plan as a solution to a violent external threat. A courageous facade has been erected to cover clinical – and probably irresponsible – fiscal policy. Appealing to morality, ideology, and fear has been widely successful, and European populations have mostly accepted the messaging.

Because of this, it’s highly unlikely that the EU will tolerate an early conclusion to the war in Ukraine. They stand to lose the justification for their spending, lucrative contracts for their defense sectors, tens of billions on loans that Ukraine will be unable to pay, and the massive investments they’ve made into military-industrial infrastructure. Their dream of a generational extractive project in the form of a debt-ridden, prostrate Ukraine, a place outside the EU but with every trade and economic agreement written solely to benefit it, stands at risk of being destroyed by a steadily advancing Russian army.

Anything less than a permanent war footing could potentially spell disaster. If Ukraine or the NATO spending project collapses, expect major upheaval across the continent.

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European political and financial leaders spent much of this past week deliberating on the possibility of making the $137 billion (or $208 billion, no one seems to be able to say for sure) in Russian assets held by Euroclear Bank available to Ukraine, which is in desperate need of large infusion of cash. The Ukrainians’ hopes were dashed, however, when the “marathon session” concluded the same way every meeting on this subject has so far: a future meeting has been set, no commitment has been made, with the Europeans saying “options” must continue to be explored.

The Belgians are the primary roadblock, as they play host to Euroclear, and are understandably nervous about crossing what amounts to the Rubicon for the European financial system. There’s no precedent for confiscating such an enormous amount of sovereign money, and potential legal challenges from the Russians compound with the disturbing thought that the rest of the world might no longer feel comfortable storing its money in European banks if the plan were to be implemented.

The EU’s current idea for how to steal the Russian money is to issue a “reparation loan” to Ukraine. After a Ukrainian victory, the Russians would be forced by the international community to issue reparations, paying the Ukrainians, who would then repay the loan. In this sense, the money isn’t being stolen at all, but is rather being borrowed from a future Russian state which will be too humiliated to protest. The majority of the loan would likely return straight back to the EU in the form of weapons contracts.

It’s understandable that the Belgians are skeptical of this scheme, as there’s no contingency for who will be paying up if the Russians refuse to, or, god forbid, the Ukrainians don’t achieve victory. Belgian Prime Minister Bart De Wever has publicly stated he’ll only get on board if the EU agrees to collectively back the loan if something goes wrong:

“If you want to do this, we will have to do this all together. We want guarantees if the money has to be paid back that every member state will chip in. The consequences cannot only be for Belgium.”

But this is easier said than done. It will likely require unanimity within the EU to achieve, or it would risk widening the growing fault lines within the union.

It is, however, well within the realm of possibility that a deal of some kind will be worked out in the not so distant future, because the complex game of financial musical chairs the Europeans are playing in Ukraine is in danger of coming to an end. And to keep the music going, they’ll need to start taking major risks.

The Verkhovna Rada has passed two budget amendments this year, one in July increasing the Ukrainian government budget by $9.87 billion, and a second three days ago increasing it again by $7.7 billion. Both increases are entirely for defense spending, which will reach $70.9 billion by the end of this year, setting a new record. 63% of Ukrainian government spending is on defense, but this level of spending pales in comparison to the $120 billion both Zelensky and Defense Minister Denys Shmyhal say they’ll need in 2026.

This ambitious target likely hinges on unlocking confiscated Russian funds, as it will catapult Ukraine to a truly unprecedented level of spending for a state of its size. $120 billion would represent 61% of Ukraine’s GDP – the next biggest defense spender by this metric is Israel, at only 9%. It would become the fourth largest defense spender in the world, spending only 20% less in absolute terms than Russia ($149B in 2024) and 26% more than Germany, which is currently in fourth place.

In early September, the IMF – Ukraine’s third largest creditor – expressed concern that Ukraine has a looming shortfall in external financing of up to $20 billion. The current IMF package ($15 billion) has already been mostly spent, and Ukrainian estimates of needing another $37.5 billion in external financing over the next two years don’t seem to be enough. The lender has proposed various solutions, ranging from increasing taxes to reducing the salaries of AFU soldiers, but after a historic 2024 tax hike, the Ukrainians are running out of options. The IMF program assumed the war would end this year.

Ukraine’s next IMF loan is expected to be for a four-year term, and needs to be negotiated before the end of this year. The Ukrainians admitted the IMF projections are likely correct late last month, and the IMF shared the projections with the European Commission. With US support dwindling, the EU has taken over as Ukraine’s primary financial backer, but the Union’s ability to meet the IMF projections hinges on the frozen Russian funds sitting in Brussels.

If the EU can’t come to an agreement on utilizing the Russian funds, it isn’t clear how Ukraine will be able to fund itself past the first quarter of 2026. The Rada’s 2026 draft budget (which doesn’t account for the increased level of defense spending Zelensky aspires to) assumes a 58% deficit with a $50 billion shortfall. While new external loans will cover $31 billion of this, there’s a $19 billion gap for which no one seems to have a solution.

“We really would like to convince our allies that the EU reparation loan must be operational by the end of 2025 to avoid this financing gap and to ensure continuity of military and macro-financial support.” Iryna Mudra, Zelensky advisor

Kiev has tried to get creative, proposing that military aid to Ukraine could be counted towards NATO defense spending targets, despite Ukraine not being a NATO member state. They also suggested that the future profits on the confiscated Russian assets (the actual profits are already being sent to Ukraine) could be “anticipated” to backstop a new form of loan. Another idea is to reinvest the Russian funds into riskier asset classes in order to generate more profits. None of these proposals seem to have made much headway yet.

The Ukrainians have to get creative because issuing new bilateral loans is a tough ask. Ukraine’s gross external debt has ballooned over 100% since the war began, and now stands at $208 billion, over 100% of GDP. The vast majority of aid and financing given to Ukraine by its foreign partners and international financial instruments come in the form of loans, not grants.

“There’s growing concern about next year and many stakeholders that were banking on a ceasefire deal this year [to ease Ukraine’s fiscal strains] are having to recalculate their outlays and realising that there’s a [financing] hole whichever way they to try to slice it.” - EU official, FT

Ukraine is currently paying nearly four times more to service its existing debts, and on interest, than it is on social programs. Most of this is government-to-government debt, meaning it can’t be restructured like private debt.

This mounting pressure makes it very likely that the reparations loan plan will be implemented. Without it, a crisis could unfold in Ukraine as early as next year. EU states will be injecting the Russian money more or less straight into their own economies in the form of purchase contracts for military equipment. This places strong incentives for countries like Germany – which is dealing with the collapse of its manufacturing sector – to apply pressure to their Belgian neighbors to stop dragging their feet.

The long-term risk to the European financial system is potentially enormous, but Ukraine’s ballooning debt represents an equally dangerous time bomb. The EU is set to meet again on the reparations loan issue in December. For the Ukrainians, this is cutting things much too close for comfort.

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General Dynamics Dual-Purpose Improved Conventional Munition (DPICM)

• First referred to as a game changer: July 2023

• Appearance in Ukraine: July 2023

• Country of origin: United States

• Unit Cost: $0 (cost more to destroy than to send as aid)

• Number sent: At least “hundreds of thousands,” as many as a few million

• Manufacturer market cap: $89B

As Ukraine’s 2023 Summer Offensive stalled, dragging into the autumn of that year, AFU commanders went back to the drawing board. Their armored thrusts – designed by NATO trainers and composed of NATO equipment – had thus far been largely repulsed by the so-called Surovikin Line. For the Ukrainians, who lacked the air superiority required to soften up the Russian defenses with airstrikes, the only options available to them were artillery and drones. The problem, however, was that the Russians outgunned them. Severe shortages of both artillery pieces and ammunition meant that whatever damage they could inflict on the Russian defenses would be repaid many times over by their opponent’s guns.

Desperate attempts by Ukraine’s Western partners to scrounge up 155mm shells had only provided temporary stopgaps. US military production of shells – long hampered by a string of industrial debacles and controversies – was nowhere near what the Ukrainians needed. There was, however, a potential solution, but the world wasn’t going to like it.

The Department of Defense was in possession of a vast stockpile of long-expired artillery shells called “dual-purpose improved conventional munitions”, or DPICM. The public would be more likely to recognize them as the general term for warheads of their type: cluster munitions.

The DPICM is a broad category of warhead type that can be delivered by various platforms, from artillery shells, to unguided rockets, to guided missiles like the ATACMS. The base of the projectile is forcibly blown outwards in flight, while centrifugal force sends up to 180 bomblets flying outwards over a wide area. Depending on the model of warhead used, a cluster munition can spread its bomblets over an area as large as 57 acres. The “dual” in “dual-purpose” indicates the evolution from the warhead’s predecessor, the ICM, which was filled with simple anti-personnel grenades. The DPICM features a shaped charge beneath the fragmentary casing to provide some (limited) capability against hard targets, like armored vehicles.

While cluster munitions were first developed during World War 2, their use exploded during the Vietnam War, where they accounted for the outright majority of munition types dropped by the USAF. 260 million bomblets were dispersed over Vietnam alone between 1964 and 1973, with a staggering failure rate of 30%, leaving 80 million grenade-size bombs hanging in trees, sitting on rooftops, and lying in wait under grass.

Duds are more or less inherent in the production of cheap cluster munitions; the small mass of the bomblets means a lower touchdown speed, so impact fuzes are less reliable. A typical cluster munition has anywhere from 40 to 200 fuzes total, greatly increasing the likelihood of failures. And self-destruct mechanisms and complex sensors are cost-prohibitive, especially in a conflict where hundreds of millions of bomblets are being produced, like Vietnam.

Tens of thousands of civilians in Vietnam, Laos, and Cambodia have been killed by Vietnam War era DPICM/ICM duds. Hundreds of millions of dollars have been spent (including by the US) to find and destroy the millions of them still littering the countryside, but munitions experts estimate it could take another century to declare the region clear.

Three years after the end of the Vietnam War, US President Jimmy Carter broke the legal agreement between the US and Israel limiting military aid to defensive purposes by sending DPICMs to Israel, which then used them to bomb Lebanon during the first Israeli invasion of its northern neighbor. The dud rate for these munitions was even worse than Vietnam, leaving over a million unexploded bomblets on the ground by the end of the Israeli-Hezbollah war. In the last three days of the 2006 war – after a ceasefire had already been agreed – the IDF fired four million bomblets into Lebanon as a parting gift.

The story has been the same across dozens of conflicts since the proliferation of the munition type, with widespread use in the NATO bombing of Yugoslavia, the Gulf and Iraq wars, the Western Sahara War (1975-1991), the Nogorno-Karabakh conflicts, and the Soviet-Afghan War. In each case, civilian casualties due to cluster munition use were high.

The dire situation in Lebanon and decades of advocacy by humanitarian groups built up enough pressure to force the governments of the world to take action, culminating in the Convention on Cluster Munitions being signed by 94 states in Dublin in 2008. The treaty’s restrictions were total – banning not just the use of cluster munitions, but the development, production, stockpiling, or transfer of them, in addition to rendering assistance to a third party in doing any of the above. Notable non-signatories included the US, Russia, Ukraine, Poland, Finland, Israel, and China. Two years before the CCM was signed, a bill in the US Senate limiting the use of cluster munitions was defeated by a strong majority, which included Hillary Clinton. In 2010, the Obama-era Pentagon argued that cluster munitions actually cause less harm to civilians than “some other types of weapons.” Which weapons they may have been referring to I’ll leave to the reader’s imagination.

Nevertheless, the Department of Defense greatly reduced its use of cluster munitions by the mid 2000s. New targets were set to eliminate the procurement of cluster munition types with dud rates in excess of 1%. Development of GMLRS cluster rockets ceased in 2008 because their failure rate exceeded this margin by at least five times. The deadline for a long-planned self-imposed ban supposed to take effect in 2018 was cancelled, as defense contractors were unable to create a cluster munition with failure rates under 1%.

This left the Pentagon in a difficult situation. Cluster munitions were of limited use to them, due to the controversy, but the Army had millions of them – over 5.5 million of them to be exact, containing 728.5 million submunitions. Human Rights Watch estimated a billion submunitions were closer to the true total, because the DoD hadn’t counted what it had in the War Reserve Stock for Allies. 80% of the Army’s available tube and rocket artillery ammunition were cluster munitions. Cost intensive efforts to retrofit old warheads with self-destruct fuzes hadn’t made it far, because only .00004% of the DoD’s inventory in 2004 had been retrofitted, but Pentagon reports admitted that the retrofitting didn’t bring the dud rate under 1% anyway. 90% of the total stockpile was DPICMs, with the bulk of these rapidly approaching the end of their service life. Destroying the stockpile would be extraordinarily expensive, with estimates of tens of thousands or even a million dollars per ton, and the US stockpile contained hundreds of thousands of tons.

Just like with the massive, useless surplus stockpiles of the MRAP, the war in Ukraine presented the Pentagon with a potential win/win situation. It had deep stockpiles of aging weapons it had no use for, couldn’t sell, and couldn’t afford to destroy. The Ukrainians had a desperate shortage of 155mm artillery ammunition, and the barrels of their artillery pieces were being overused to the point of self-destruction. Cluster warheads don’t require a well maintained, accurate barrel because their area of effect can be measured in acres. As these twin needs intersected, the media and a collection of think tanks stepped up to resolve the only roadblock: public relations.

In the period before the Ukrainian 2023 summer offensive, discussion of cluster munitions in the media was almost exclusively limited to a single form: condemnation of their use by Russia.

Sporadic Russian use of Soviet-era cluster bombs and rockets was universally criticized in the mainstream press, and included in lengthy lists of alleged war crimes. The Ukrainian Ministry of Foreign Affairs joined in with the chorus, saying that the Russians were using them intentionally to increase civilian casualties.

The MFA [of Ukraine] emphasized that Russian forces deliberately use cluster munitions to maximize civilian casualties. This is part of their campaign of terror. (RBC-Ukraine)

What went unsaid was that cluster munition use by both sides wasn’t new. The Ukrainians had a stock of aging Smerch and Uragan rockets with cluster warheads, and the Russian stocks were significantly larger, though they had newer models with lower dud rates as well. In 2014, Ukrainian government forces struck downtown Donetsk with cluster rockets repeatedly, killing a Red Cross worker and six others.

This history was largely ignored during the early stages of the 2022 invasion, as Russian cluster rockets killed civilians in several incidents. The Ukrainians fired back with cluster munitions of their own, hitting central Izyum while it was occupied by the Russian army in 2022, killing at least eight Ukrainian civilians:

The total number of civilians killed and wounded in the cluster munition attacks that Human Rights Watch examined is most likely greater. Russian forces took many injured civilians to Russia for medical care and many had not returned when Human Rights Watch visited. An ambulance driver said he and his colleagues had regularly transported and treated civilians, including children, with cluster munition injuries during the Russian occupation. He estimated that he took at least one such case to the hospital every day. (HRW)

While on the ground reports like the HRW one linked above occasionally cropped up, they made few headlines. The bulk of the media response singled out cluster munition use by the Russians. The EU and NATO Secretary General Jens Stoltenberg said the Russian cluster munition use was “a flagrant violation of international law.” Meanwhile, unbeknownst to the media, the Ukrainians were lobbying the Biden administration to urgently send DPICMs to Ukraine.

Ukrainian officials and lawmakers have in recent months urged the Biden administration and members of Congress to provide the Ukrainian military with cluster munition warheads, weapons that are banned by more than 100 countries but that Russia continues to use to devastating effect inside Ukraine.

The Ukrainian request for the cluster munitions, which was described to CNN by multiple US and Ukrainian officials, is one of the most controversial requests the Ukrainians have made to the US since the war began in February.

Senior Biden administration officials have been fielding this request for months and have not rejected it outright, CNN has learned, a detail that has not been previously reported. (CNN)

An explosive CNN report in December of 2022 brought the negotiations to light for the first time. In this report, the rationale for overriding an act of Congress, Pentagon policy, and the widely held Western moral framework was starting to take hold. A Ukrainian official was quoted saying, “So what, Russians use cluster munitions against us, the US worry is about collateral damage. We are going to use them against Russian troops, not against the Russian population.” (Note: the AFU would use cluster munitions – possibly DPICMs – in a strike on downtown Belgorod in December of 2023, killing 21, including three children, and wounding 110).

The Ukrainians argued that the Russians were using cluster munitions, and had killed civilians with them; therefore it was only right that surplus US cluster munitions should be given to the Ukrainians. This may seem like an exaggeration, but this was the logic:

Ukrainian officials, however, argue that the Russians are using cluster munitions extensively, and largely in civilian areas. For that reason, the Ukrainians have approached the State Department, Pentagon and Congress “many times” to lobby for the munitions, known as dual-purpose improved conventional munitions, multiple sources familiar with the lobbying effort told CNN.

Ukrainian lawmaker Oleksiy Goncharenko is among the officials who has been pushing the US to provide the munitions. “It is extremely important, first of all because it will really change the situation on the battlefield,” he told CNN. “With these, Ukraine will finish this war much faster, to the benefit of everybody. Russia is extensively using the old styles, the most barbaric styles, of cluster munitions against Ukraine,” Goncharenko added. “Personally, I was a victim of this. I was under this shelling. So we have all the right to use it against them.” (Emphasis mine)

The Biden administration said it wouldn’t transfer the shells and rockets unless “absolutely necessary” and that it didn’t believe the munitions were “imperative to Ukraine’s success on the battlefield.” Whatever the Ukrainians said their rationale was, they knew better – it was absolutely necessary, because they were running out of ammunition. The AFU would soon exhaust its supply of Soviet caliber 152mm shells sourced from ex-Warsaw Pact allies, and the available reserves of 155mm shells in NATO stocks were much too small to sustain the rate of fire they needed to keep up with the Russians. Efforts to ramp up 155mm shell production in the US, Germany, and elsewhere would still be too little, too late, and history would vindicate the Ukrainians for being skeptical of NATO’s ability to hit them.

All advocacy for the transfer beyond this simple point was fluff, and there was plenty of fluff in the months between the release of the CNN report and the Biden administration’s announcement that the Ukrainians would be receiving DPICMs.

“As we got in May 2022 155-millimeter artillery systems, it became a game changer. In July, we got different types of Multiple Launch Rocket Systems it became the next game changer … And I hope that cluster munitions become a next game changer as weaponry or ammunition for liberation of our temporarily occupied territories.” Oleksiy Rezinov, Ukrainian Defense Minister (Politico)

Ukrainian Defense Minister Oleksiy Reznikov said he hoped DPICMs would be a “game changer.” He promised the munitions would only be used against “non-urban areas.” Analysts cited Vietnam War era DoD reports that said cluster munitions achieved a much higher kill rate, bomb for bomb, than unitary warheads. President Zelensky said the request was “about justice” and he would limit the use of the weapons “purely to the temporarily occupied territories of Ukraine.” Why it mattered whose territory they’d be used on, and why it was a good thing to litter Ukrainian territory that would presumably be reclaimed with unexploded ordinance, went unsaid.

Democratic Party representatives who had just months earlier demanded action from the Pentagon to limit cluster munitions use began to “soften” their stance. A collection of Congressmen sent a public letter to the Biden administration in March demanding the President overrule the law banning the export of cluster munitions with a failure rate higher than 1%.

The DPICM’s greatest advocate was Dan Rice, a US Army veteran and advisor to the Armed Forces of Ukraine officially registered under FARA as a foreign agent. Rice went on a press tour promoting cluster munitions, comparing them to firing “a flame thrower at a bunch of ants,” and calling them “five to ten times more lethal” than unitary artillery shells.

“This is how you increase the base lethality and win the war. If we want to win it, we need to give them something like that,” he told CNN, calling cluster bombs a “game changer.”

Rice took his advocacy for the cluster munitions to extreme heights, publicly calling for NATO as a whole to abandon the Cluster Munitions Convention, saying Europe “must break from the shackles of munitions laws.” He said the Europeans had become “seduced by the conceit” of their “own virtue” and “sanctimonious” with their “misguided” and “naive” ban on cluster munitions. He identified himself as Ukraine’s “chief advocate” for cluster munitions and called on Europe to begin manufacturing them immediately. Rice and other supporters of the move said DPICMs would end the war sooner, so any civilian deaths from their use would be made up for by a shorter war.

Rice was up against an enormous amount of opposition. Spanish, British, and German officials publicly condemned the transfer. A litany of human rights groups and a minority of US legislators issued public statements pleading with the President to reject the Ukrainian request. But in July, as the anticipation for the Ukrainian summer offensive reached a fever pitch, the Biden administration announced they had approved the transfer. Ukraine would soon join the very short list of countries to use cluster munitions on what it claimed to be its own territory.

The reaction was split. RUSI, which frequently appears in this series, said objections to cluster munitions use were “irrelevant” and “morally questionable.” RUSI borrowed the “Russia is doing it, so Ukraine can too” argument, saying it was “illogical” to claim more unexploded bomblets would add to the already existing problem:

HRW argues that because some DPICM submunitions will fail to explode, they are inherently indiscriminate. The problem with this argument is that a significant proportion of other munitions also fail to explode. In fact, up to one in five of Russia’s munitions stocks are assessed by the Russian military to be unsafe due to their age and poor condition, and yet these are routinely fired at Ukraine. HRW’s unexploded ordnance argument is one that would apply equally to a wide range of explosive weapons already in use in the conflict, and it is therefore illogical as a reason to specifically reject the provision of DPICMs. (RUSI)

RAND agreed, saying the shells could make the difference in Ukraine’s stalled offensive. The Wall Street Journal supported the transfer, while the New York Times did not. Advocacy groups like the International Campaign to Ban Landmines were outraged. More than two dozen world leaders condemned the move.

The Pentagon maintains the cluster munitions could help Ukraine advance and stop the Russian bombings. But Eric Eikenberry, the government relations director at Win Without War, countered the argument as “speculative.”

“We’ve already seen this in conflict,” Eikenberry said, dismissing “the idea that these are going to be a huge boon, the counteroffensive is going to jet forward and we’re going to save lives in the aggregate because these are going to be the wonder weapons that flip the battlefield in our favor and takes Russian artillery out of commission.”

Despite public statements of opposition from German officials like Annalena Baerbock, the Germans allowed the transfer of cluster munitions through German territory, breaking international law and violating the Convention on Cluster Munitions they had just claimed to still uphold.

The Pentagon assured the public that it would be sending DPICMs with low dud rates, around 3%. The quantities and specific models that have been transferred are classified, but all available evidence suggests that the true dud rate is as much as ten times higher, and the Pentagon has been repeatedly caught fudging the numbers.

The hard reality of the situation is that the Ukrainians couldn’t afford to care about the dud rate anyway. They needed the entire US DPICM stockpile, and they needed it immediately. By 2023, the total number of 155mm cluster shells in the US inventory was likely under 3 million, after years and hundreds of millions of dollars had been spent reducing it by destroying shells. Three million shells would buy the Ukrainians a year of parity with the Russians, who were already producing that many annually – more than the US and Europe combined. By 2022, when the Ukrainians started requesting DPICMs, the DoD program to destroy its cluster munitions stockpile slowed to a crawl.

Despite US government assurances, the Ukrainians have likely received hundreds of thousands of ancient DPICM shells – shells which had a dud rate of 30% when new, and are now decades old. Accordingly, the number of Ukrainian civilians killed by cluster munitions has increased each year since the transfer.

On the battlefield, the huge influx of shells bought the Ukrainians valuable time, and allowed them to use artillery barrels far beyond their service life. But contrary to laudatory statements from the advocates of cluster munitions, the warhead type comes with tradeoffs. Due to the proliferation of drones, the front lines have become increasingly sparse. Isolated fireteams sit hundreds of yards apart, hidden in deep trenches to escape enemy ISR. Assaults are conducted with lightning speed on buggies and dirt bikes. In this environment, the promise of cluster warheads killing dozens of tightly packed troops is unrealistic. Cluster munitions are far less effective against deep fortifications, and even against infantry their tiny bomblets have to land in close proximity to a target to be lethal.

Even the tranche of United States-supplied cluster munitions, controversial because they harm civilians long after a war’s end, has lost some of its potency on the battlefield.

“Initially in September, we could hit large groups, but now they assault in much smaller units,” said the platoon commander, who was fighting outside Bakhmut. He added that the Russians have made their trenches even deeper and harder to hit. (NYT)

However many DPICMs the Pentagon sent, it wasn’t enough. Complaints of “shell hunger” continued after the transfer, with Ukrainian artillery teams saying they were lucky to fire two shells a day. And even if the new ammunition allowed barrels to be used longer, it didn’t solve the crippling barrel shortage the Ukrainians were suffering from – the sole US factory producing M777 barrels was unable to meet even a third of Ukrainian needs. A year after the Biden administration began transferring DPICM shells to Ukraine, a Reuters expose outlined the “dire” shell shortage Ukraine was suffering, but made no mention of the game-changing infusion of cluster shells. The hope that cluster munitions would break Russian trench lines in Zaporozhye in the summer of 2023 came to nothing, as the offensive failed to achieve a breakthrough. Czech initiatives to purchase and refurbish millions of old shells prevented disaster, but a worldwide TNT shortage put hard limits on how many new shells could be made, and the Pentagon failed to reach even half of its production goals in 2025. It’s currently procuring no more shells a month than it was a year ago. An explosion at a major Pentagon TNT supplier in October of this year likely pushed these goals back even further. Dan Rice was more optimistic – he claimed DPICMs alone had caused 425,000 Russian casualties in Ukraine, half of what he said Russia’s total casualties were, despite being a tiny minority of the warheads used in the war. Rice only succeeded in convincing one European state to withdraw from the CCM: Lithuania, which dropped out of the treaty in March 2025.

The DPICM didn’t change the game in Ukraine, even if it helped stave off defeat. Perhaps more important than the battlefield effects, though, is what it cost Ukraine’s allies, beyond dollars of aid and military equipment: their sense of moral superiority.

Eikenberry said the U.S. was losing its moral high ground by providing the weapons, which he said has been key to maintaining a cohesive international coalition backing Ukraine. “You’re starting to introduce chinks in the armor of the moral argument Ukrainians have in the situation.” (The Hill)

Game changer rating: 2/10

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The Russo-Ukrainian War has entered a new phase. After an intense but short-lived drone campaign against Russian oil refineries in 2024, the Ukrainians have doubled their efforts in 2025, surpassing their 2024 total by August or September, with much of the year left to go. In response, the Russians have unleashed a missile and drone campaign of unprecedented scale and tempo, targeting Ukrainian electricity transmission infrastructure, gas production facilities, power plants, and rail assets. The reaction from observers of the war has been predictably split, with some saying the Russian economy is on the verge of collapse, while others believe the Russians have finally had enough, and are now determined and able for the first time to shut the power off in Ukraine for good. Crucially, neither side seems to show any sign of letting up, as each overwhelming Russian attack thus far has been followed more or less immediately by a Ukrainian attack of some kind. In this piece, we’ll break down the effects of the energy attrition war, and where it’s likely to go from here.

Ukraine’s Drone Campaign

Going purely off what can be gleaned from headlines, Ukraine’s attacks on Russian oil refineries appear to have struck a major blow to the Russian economy. 40% of Russian oil refining capacity is said to be offline due to drone attacks, based on widely circulated calculations.

A close analysis of reporting on this claim will show inconsistencies. Sometimes the ~40% figure is stated as “refineries,” rather than “refining capacity.” Sometimes 40% of Russian refineries or refining capacity is “idle,” sometimes “damaged,” or sometimes even “destroyed.” These descriptions gloss over the inherent realities of resource extraction, processing, and maintenance.

A key datapoint puts a serious hole in the triumphant headlines: around 22% of Russian oil refining capacity is sitting idle at any given time, whether due to maintenance, production limits, surplus capacity, or bottlenecks. Perfectly balancing the inputs and outputs of a complex chain of production across one of the world’s largest petroleum exporting countries isn’t possible, and so erring on the side of surplus capacity is the norm.

If 22% of Russian refining capacity being idle is a baseline, the effect of Ukraine’s drone campaign could maximally be a 16% increase in idle capacity. Reuters, likely the originator of the "38% offline” (typically rounded up to 40%) calculation, itself cites “extensive planned maintenance” as accounting for some of the offline capacity, though they don’t specify to what degree this adds to the total. How “extensive” this planned maintenance is will proportionally reduce the effect that can be attributed to the drone campaign. Russian sources put the current idle capacity at around 18%, slightly lower than the same period in 2024 but higher than in 2022.

The complexity of estimating the true effect of the Ukrainian campaign is compounded by the method of attack – typically small barrages of long range drones with small payloads. Without massed saturation attacks, and with attrition from air defense, only small sections of industrial sites can be struck, and the operational effect of any given strike can vary widely depending on what was hit. A strike on fuel storage may bring a refinery offline and start a large fire, but the site could be brought back online relatively quickly and with minimal expense. As an example, the Volgograd refinery, one of the largest in Russia, was struck on August 13th and 14th, but fully restored operations by August 25th.

Russia’s petroleum production mixture further muddies the waters. Gasoline, and gasoline shortages, have been pointed to as a key signifier of the efficacy of Ukrainian attacks. But Russia’s gasoline production pales compared to its natural gas and crude oil production, both of which it produces at roughly ten times the rate. 95-octane gasoline is particularly vulnerable to shortages, because the the Russian petroleum industry produces roughly as much as is required for domestic consumption. In comparison, Russia produces more than double the amount of diesel and almost triple the crude oil required to meet its domestic needs. So even if gasoline shortages are as widespread and severe as is claimed (the evidence shows they’re not), it doesn’t signal an existential issue for the Russian petroleum industry or economy as a whole.

But are the effects of the drone campaign visible in Russian exports? In September, Russian crude oil exports hit a 16 month high. This may seem counterintuitive, but if the Ukrainians have disrupted refining capacity, Russian oil producers are incentivized to sell crude, which requires less processing. This shows that the Ukrainian attacks are having some effect.

But one other thing that can clearly be gleaned from this increase is that the Ukrainians have failed to significantly disrupt Russian pipeline infrastructure. The Ukrainians have targeted pumping stations and terminals with the same intensity as refineries, hitting sites transferring oil to the Black and Baltic Seas. But no decrease in Russian oil exports has occurred, suggesting quick repairs, redundancies, or spare capacity have made up for the difference.

Russian gas exports are similarly unaffected. Exports via Turkstream have increased 8% year over year, while gas revenues match general market trends. Europe remains Russia’s largest buyer of both LNG and pipeline gas. Revenues are down since the beginning of the year, but this is due to global oil prices and a strong ruble. Much has been made about Russia’s increasing budget deficit (1.7% of GDP), but even if it sees unprecedented overruns in 2026 it will remain lower than that of countries like the US (6%), China (6.5%), Brazil (8.5%), France (5.8%), India (4.8%), Turkey (4.9%), the UK (4.8%), or Ukraine (~20%). Similarly, Russia’s debt-to-GDP ratio is among the lowest in the world.

The bottom line is that the Ukrainians are simply not doing enough to achieve a strategic effect on the Russian economy. Some combination of low offensive capability, Russian air defenses, and the Russian oil industry’s quick response and excess capacity is preventing the drone campaign from severely disrupting oil production and export.

Too Little, Too Late

Low standoff weapon production is a likely culprit. Both the flagship FP-1 long range one-way attack drone and the much hyped FP-5 “Flamingo” cruise missile are manufactured by the Ukrainian firm Fire Point. FP is currently mired in a corruption scandal, as Ukrainian media outlets have fingered its enormous funding increases as an example of graft, and its weapon production figures as astronomical inflations. FP’s executive leadership has no experience in military industrial production, yet their government funded revenue has increased from $4 million annually to over $100 million in 2024, a staggering third of Ukraine’s budget for drones. Its leadership personnel are former entertainment industry veterans who are close to Andriy Yermak. Their funding is projected to reach $1 billion this year, primarily through EU grants.

AFU drone commander Yury Kasyanov has publicly identified previous Flamingo launches of being elaborate public relations stunts, with warheadless missiles being launched simultaneously with cheaper and more conventional one-way attack drones. Similarly, Fire Point’s claims that they’ve begun producing 50 FP-5 units a month and will reach a rate of 200 per month by the end of the year strain credulity, as the platform relies on complex jet engines (FP claimed to have “found” thousands of AI-25 engines in landfills across Ukraine). FP-1 production figures also defy belief. FP claims to be producing over 100 units daily, but this is the typical upper bound of how many drones Ukraine can fire into Russian territory in a day, and Ukraine’s drone arsenal includes dozens of other models.

Ukraine’s core problem in this regard has less to do with corruption than with the fundamental realities of its military-industrial complex. The vast majority of its weapons come from outside the country, being delivered from the surplus and obsolete stockpiles of its allies. Crucially, Ukraine’s allies do not possess vast quantities of one-way attack drones to donate, and Western military manufacturing is sclerotic and hampered by deindustrialization. Attempts to scale up domestic production have largely failed, with the key success story being the establishment of a cottage industry where Ukrainian civilians assemble commercial or 3D printed drones with surplus explosive warheads in their kitchens and basements, safe from Russian attacks.

Manufacturing large, complex drones and missiles of proprietary design in centralized workshops is another matter entirely. Just days after Ukrainian media posted photos of FP-1s under construction in an anonymous workshop somewhere in Ukraine, the same workshop was hit by a barrage of cruise missiles and destroyed, with unknown effects on Fire Point’s production rate. Even foreign manufacturers with deep pockets attempting to set up shop in Ukraine have found the prospect all but impossible – Baykar’s $100 million facility in Kiev was severely damaged by a Russian missile attack before it could come online, and Rheinmetall’s plans to construct armored vehicle and artillery shell factories in the country have never materialized despite years of headlines and planning.

Tit for Tat

After introducing the Geran platform in the form of transferred Iranian Shahed-136 models in late 2022, the Russian military industrial complex has made rapid progress in drone production rates. 3,000 attack variants and decoys were produced in total in 2023, but that rate has exploded to a peak of 4,000 units a month in 2025. Steady updates have been made to the platform: doubled payload, jet engines, lighter airframes, more complex and jamming resistant avionics, real-time data links, evasive maneuvering, reduced radar cross section, increased range, image recognition based targeting, and mission-specific warheads. Increased production is obvious – while a typical strike package might have contained a few dozen attack drones in early 2023, in 2025 as many as 800 drones and decoys are being launched in a single night of attacks. Static launchers are being greatly expanded at the Navlya Training Ground in Bryansk Oblast, signaling that even larger strike packages are planned, or larger drone models are soon to be introduced.

Russian missile production has ramped up similarly. Around 1,000 Iskander and Kinzhal missiles are being built annually, up to 40% higher than the Ukrainians estimated in 2024, and a 66% increase year over year. Kh-101 production has increased by 1,000% over the 56 units constructed in 2021. These numbers dwarf the rate of missile interceptor production of the entire combined Western military industrial complex, and only a small fraction of those interceptors are going to Ukraine. Even worse, air defense doctrine dictates firing at least two interceptors for every incoming target, and it’s an open question if Ukraine’s dwindling missile defense systems are capable of shooting down targets like the Iskander or Kinzhal with any consistency, or at all. The explosive payload of these missiles is typically five times or more that of a large one-way attack drone, and they’re significantly less likely to be shot down.

The Russian response to Ukraine’s drone campaign has become increasingly severe. We covered the attacks on Ukraine’s gas infrastructure last week, but this is only a small part of a comprehensive campaign targeting power plants, electrical transmission infrastructure, and rail logistics. Total blackouts have affected every corner of Ukraine over the past two weeks, as the Russian military fired a combined total of over 3,000 drones and a 100 missiles over the course of the single week ending October 12th, an all-time peak for the war so far.

Amerikanets

On Russian Strikes Targeting Ukrainian Gas Infrastructure

Over the past week, Russian forces have massively increased their missile campaign against Ukrainian energy infrastructure. A strike on October 3rd targeted gas production facilities in Poltava and Kharkov with 35 missiles and at least 60 long-range drones. Bloomberg…

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10 months ago · 30 likes · 3 comments · Amerikanets

Russia’s campaign against Ukrainian energy infrastructure has been ongoing since the early phases of the war, but has followed a clear progression of escalation. Smaller electrical transformers were targeted first, followed by larger ones. Power plants have mostly escaped direct targeting until now, with 13 plants being struck on October 9th alone. The systematic destruction of regional railroad infrastructure has progressed rapidly, with locomotives, depots, and electrical substations along rail lines receiving priority.

Balance of Power

A surface level reading of publicly available data suggests that the Russians are able to outpace Ukraine in standoff munition launches at strategic objects at a rate of around 3:1. All standoff munitions are not created equal, however. Russian missiles have vastly greater payloads than the average Ukrainian long range attack drone, and are more difficult to intercept. An enormous and growing asymmetry exists between the air defenses of the two combatants, meaning the Ukrainians must fire significantly more drones to achieve the same effect as a typical Russian strike package, due to losses. Ukraine operates a complex assortment of various drone platforms, but none of them are as technologically advanced as the Geran – especially not the latest variants – meaning they’re easier to jam and shoot down.

Just as importantly, all of Ukraine is within range of Russia’s triad of standoff platforms: cruise missiles, ballistic missiles, and drones. The distances Ukrainian drones have to cover to reach targets deep within Russia require design constraints and passage through layers of fully intact air defenses. Large swathes of Russian territory are inaccessible to drones launched from within Ukraine’s borders, forcing the Ukrainians to conduct risky and complex operations on Russian soil, or launch from the territory of Russia’s neighbors.

Precisely establishing the difference between Russian and Ukrainian standoff offensive potential in a long-term attrition war on strategic objects isn’t possible. The mixture of decoys and attack drones used by each side isn’t known, nor can the interception rates reported by the combatants be taken at face value. But respective military production rates and the geographic and technological realities at play suggest that it is within Russia’s ability to permanently collapse the Ukrainian energy grid, perhaps soon, while the Ukrainians do not have the ability to attrit the Russian grid outside of border areas like Belgorod, or deal a truly major blow to the Russian economy.

To close the gap, the Ukrainians will have to increase both the sophistication of their standoff arsenal and the rate of production by a factor of several times. They’ll need to procure large quantities of long range cruise and ballistic missiles with small radar signatures, maneuvering ability, and heavy payloads, and the platforms needed to fire them. There is no clear solution to this on the horizon. The Tomahawk platform is not a realistic option. Long range air-launched missiles like the AGM-158 JASSM-ER are not available in the quantities Ukraine needs, nor do Ukraine’s allies seem interested in providing them. And even if they were, Ukraine has a shortage of airframes, pilots, and uncontested airspace in which to launch them. Domestic design, implementation, and mass production of a cruise or ballistic missile platform typically takes over a decade, even for a much larger power in peacetime. The best the Ukrainians can hope for is scaling up production of a platform comparable to the Geran, but even if they manage to do so, the Russians have a years-long head start, and will likely have scaled their production even further in the meantime.

Strategic Considerations

Due to the overmatch at play, it may be surprising that the Ukrainians have chosen to escalate the energy attrition war. A deep analysis of Ukrainian strategy and victory conditions in this conflict will shed light on this subject. Given the progression of the front lines, Russian military production, inconsistent Western support, and demographic realities, the AFU is likely to suffer a full military defeat if the status quo is maintained. Given this, the best chance the Ukrainians have – and this has been true for most of the war – is to escalate the conflict to the point that additional military powers become involved.

The right balance of humanitarian concern, contrived provocations, public relations, and political maneuvering could potentially suck NATO or individual European states into the war. The likelihood of a stalemate or frozen conflict through this route is significantly higher than the AFU somehow regenerating its combat power, or the Ukrainian military industrial complex being able to procure from abroad or produce domestically some form of wonder weapon to turn the tide permanently in Ukraine’s favor.

With this assessment, any and all escalation becomes good escalation. Every indication shows the Ukrainians have no intention of slowing down their strikes on Russian energy infrastructure in response to the unprecedented Russian counterstrikes on theirs. Each new record-setting Russian attack has been followed more or less immediately by a renewed Ukrainian one. If the Russians do shut off the lights or heat in Ukraine, the resulting humanitarian crisis would be enormous, and it isn’t hard to picture the outcry that will be made to deploy “peacekeepers” or humanitarian workers from allied countries in response. Yes, a destroyed energy grid will affect AFU operations, but the greatest share of the suffering will fall on the Ukrainian civilian population.

Another key factor motivating the Ukrainian campaign is a simple asymmetry: Ukraine does not have the burden of maintaining a functional national economy. Ukrainian exports are a fraction of its neighbors in monetary terms, and near-unlimited access to loans, grants, and aid allows more than half of the Ukrainian government budget to be paid for by other countries. This is not the case with Russia, which must pay for repairs to its infrastructure itself, and maintain competitive prices for its exports.

Russian hesitancy to fully destroy the Ukrainian grid has caused confusion among observers. A common refrain is that they should have done this “on day one,” but Ukraine’s Soviet energy infrastructure is notoriously robust, and composed significantly of rock-solid hydroelectric plants and politically unassailable nuclear power plants. The vulnerable points of the system are scarce, expensive, and hard to transport electrical transformers, which the Russians have been attacking for years, while always holding back from dealing a killing blow.

As mentioned previously, the Russians attacked the least expensive and important transmission infrastructure first, which is the opposite of what one would do if the intention were to collapse the grid. The logical conclusion then is that the Russian strategy in the energy attrition war is to slowly escalate as a form of deterrence, taking care to avoid a true humanitarian crisis, which would redound to the benefit of the Ukrainians. Instead, the slow ratcheting up of pressure has given the Ukrainian population ample time to exit the country and prepare, reducing the impact of a crisis if one were to occur. Meanwhile the Ukrainian grid has been made more and more vulnerable over time, while the Ukrainians and their European sponsors have had to exert great expense and effort to keep it functioning.

The Russian strategy hasn’t worked, because the Ukrainians have begun to call their bluff in earnest. AFU planners are aware of Russian offensive potential, but have plowed forward with the energy war all the same. The state of the Ukrainian grid is now dire, with the Russians having the ability to impose blackouts in large cities like Kiev or Kharkov at will, or near-full blackouts of the entire country with exceptionally large attacks. Because the Ukrainians have shown no signs of being deterred, the only possible direction the situation can go is towards further escalation.

The key questions for Russian planners are: can the risk of plunging Ukraine into darkness during the winter be taken? Will the resulting catastrophe cause the conflict to spill over into something larger? Or should the Russian economy take the refinery strikes on the chin and keep marching forward as before towards a likely victory that could be a year or more away?

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Over the past week, Russian forces have massively increased their missile campaign against Ukrainian energy infrastructure. A strike on October 3rd targeted gas production facilities in Poltava and Kharkov with 35 missiles and at least 60 long-range drones. Bloomberg reported that the damage to these two sites has brought around 60% of the country’s gas production offline. The Ukrainians are planning to increase their gas imports over the winter by 30% to compensate, importing at least 4.4 billion cubic meters over the season, equivalent to $2.2 billion, or 20% of the country’s typical annual consumption. This figure is likely to rise.

So where does this leave Ukraine, especially if Russian strikes continue? Ukraine relies on gas principally for heating. The share of gas used for residential homes, larger district-level heating stations, and industrial/commercial use is roughly equal. 78% of Ukrainian households depend on gas as their primary heat source. Industrial concerns use between 1 bcm (billion cubic meters) and 6 bcm of gas a quarter depending on the season, and 11% of Ukraine’s electricity generation comes from gas power plants. Ukraine’s total gas consumption is around 20 bcm annually.

The Ukrainian government projects that it will import 5.8 bcm of pipeline gas this year, more than twice what it imported pre-war, despite massive reductions in population and falling consumption. Around half of this gas transits through Hungary, with another quarter of the total through Poland, an additional quarter through Slovakia, and insignificant amounts through Romania and Moldova. These pipelines once carried Russian gas through Ukraine to Europe, generating billions in transit fees for the Ukrainians, but this agreement fully terminated at the beginning of this year. Since then, these pipelines operate in “reverse flow," sending gas backwards through mostly Soviet-era infrastructure to Ukraine.

While the transit agreement was in effect, the Ukrainians were able to take advantage of a complex scheme whereby they imported Russian gas from Gazprom while simultaneously “buying” it from EU sellers without it ever physically moving gas through the seller’s infrastructure. This allowed them to save significantly on transportation fees. With the transit agreement now terminated, Ukraine is no longer strategically placed between Russia and its former customers in the EU, making Ukraine’s gas storage facilities (the largest in Europe) inconvenient to access. The only way to fill these facilities for EU countries is now an expensive round trip from central Europe to Ukraine and back again, with corresponding transit fees, making Ukraine an economically infeasible option for EU gas storage. With a restoration of Russian relations with the EU looking increasingly unlikely, and the Ukrainians refusing to allow the transit of Russian gas through their territory, the Ukrainian gas network has gone from a central node in a vast Eurasian web to a distant peripheral spur. Its infrastructure serves little purpose now besides meeting its own modest, domestic needs.

Ukrainian gas storage facilities have a total capacity of 30 bcm, but only a third of this capacity is currently being utilized after European companies began to pull their stocks out of the country amidst increasing Russian attacks. The Ukrainians have approximately 11 bcm available, but 4.7 bcm of this gas is in strategic reserves which are more difficult and expensive to access. Altogether, this amount is 20% less than the government’s target for the winter, which the Ukrainian gas industry also failed to meet in 2024, despite imports and domestic production. This resulted in the country being brought to the brink of a “gas blackout,” with stocks just barely allowing the Ukrainians to scrape by.

The latest Russian strikes have brought this issue to a head, because those estimates assume typical domestic production. Unless the Ukrainians can bring the damaged infrastructure back online quickly – and this may not be possible – they may not be able to provide reliable heating through the season. The European Bank for Reconstruction and Development will be instrumental in providing funding for both imported gas and the equipment and materials needed to repair the damage. The EBRD has “invested” billions into Ukrainian energy infrastructure since the war began, handing money over to Ukrainian state enterprises like Naftogaz in the form of loans guaranteed by the EU under the Ukraine Investment Framework.

Yesterday the EBRD announced an emergency financing deal in response to the October 3rd attack, but this program will need to be put into place with unprecedented speed. It comes on the heels of another €500 million loan for gas purchases in August, also classified as an “emergency.” Attempting to fill Ukraine’s reserves now, as extraction season begins, will cost Ukraine (or, realistically, the EU) almost twice what it would in the summer. Repairing the damage caused by Russian strikes this year is an additional hurdle. At least $180 million in funding is required to repair the damage that has already been done earlier this year. Total needed repairs to the Ukrainian grid are estimated to cost at least $878 million. Gas infrastructure components are highly specialized and not mass produced.

Ukrainian gas reserves at the end of “withdrawal season,” which runs from November to April, have been declining since the war began, and fell to a third of their 2021 high last season. In January, reserves dropped dangerously to 3.4 bcm (less than 20 days of winter consumption). The 5.4 bcm remaining in April of 2025 cut things far too close for comfort, as an interruption of gas transit to strategic storage sites could leave parts of the country cut off, without enough local supply to keep the heat on. This amount represents significantly less than a single quarter of winter gas consumption, and there are hard limits on how much gas Ukraine can produce domestically and import from the EU during injection season. Presuming a maximum throughput of 60 mcm of gas a day and an infinite supply of money from EU loans, Ukraine can import less than 1 bcm a month for storage after accounting for consumption needs. This means the pipelines would need to be running at maximum capacity around the clock to refill the reserves enough to be ready for the withdrawal season next year, assuming domestic production were cut off.

The good news for Ukraine is that its domestic production has yet to be entirely destroyed. But with the termination of the transit deal, and increasing Ukrainian strikes on Russian oil infrastructure, the Russians have shifted their strategic focus, apparently feeling they no longer have any reason to hold back on striking Ukrainian gas infrastructure. In August, they destroyed a key pumping station servicing the Transbalkan route through Odessa, planned to provide Ukraine with US and Azerbaijani LNG.

The vast majority of Ukraine’s gas storage capacity is secured in underground gas storage (UGS) systems within depleted gas wells or underground aquifers that lie hundreds to thousands of meters underground. The gas in these reservoirs is as inherently safe from attack as any strategic resource could conceivably be. More than half of Ukraine’s gas storage capacity lies under the Bilche-Volytsko-Uherske site in Lvov oblast. While the gas deep beneath this site may be safe, the infrastructure on the surface needed to extract it is not. The Russians have struck BVU twice: once in 2024 – likely to dissuade EU providers from storing gas in Ukraine – and once in January this year, two weeks after the termination of the transit deal.

Massively increased Russian long range drone production rates mean that keeping sites like BVU offline permanently is now a possibility. And if the Ukrainians have to rely even more heavily on imported gas, a shortage of storage capacity will result in service interruptions as storage is still necessary to provide a buffer for demand volatility over the course of the day, or during cold snaps.

Potentially just as damaging would be strikes on the pipeline infrastructure Ukraine depends on to import gas from the EU. Russia has entirely refrained from targeting these pipelines, but in August, the Ukrainians broke the taboo on attacking EU connected pipelines (not counting Nord Stream) by striking pumping stations of the Druzhba oil pipeline in Bryansk, halting flows to Hungary and Slovakia. There is likely a complex game being played with the tenuous relationship between Hungary, Russia, and Ukraine. Ukraine depends on Hungary for half its gas, but Hungary has refused to divest itself of its dependence on Russian energy imports. If the situation continues to escalate, Ukraine can threaten to cut Hungary off from Russian oil transiting through Ukraine, but Hungary can in turn threaten to cut Ukraine off from its own gas exports. Similarly, Russia could target Ukrainian gas pipeline turbine stations, cutting Ukraine off from Hungary and devastating Ukrainian import ability, but only at the cost of cutting into the revenues of a “friendly country.”

If, however, the situation remains stable and Russian strikes on Ukrainian gas infrastructure cease, the Ukrainians are likely to make it through the winter, albeit with some rationing. The apparent key factor is Russian strategic thinking. Their missile campaign has reached unprecedented intensity over the last two weeks, but it’s not clear if this is a tit-for-tat response to Ukrainian attacks on Russian petroleum resources, or a permanent decision to destroy the Ukrainian energy system. If it’s the latter, there are several options on the table to impose a crisis on the Ukrainians.

Thanks to burrrson and Kinez on X for contributing to this piece

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Just as we’ve seen with the Russo-Ukrainian War, popular analysis of the state of the conflict between Israel and Iran has rapidly degraded into claims that one side or the other is “winning,” or “losing.” Rarely is this ever done, so let's zoom out and ask what it means to "be winning" or "be losing" in a conflict. The first step is to ask ourselves what the strategic goals of the parties involved are. Again, this is rarely done. Trying to use missile strikes, destroyed TELs, interceptions, or civilians killed as a proxy for "how well" a combatant is doing is fraught with issues, because it takes a series of increasingly speculative leaps to connect those metrics to the core question of whether that combatant is getting closer or further away from achieving its strategic goals, and we'll always be working with incomplete information.

Israel is claiming that its strategic goal is to eliminate Iranian nuclear capability. Everyone seems to accept that they haven't done this. They bombed some nuclear enrichment sites and assassinated a few scientists, but this will not stop the Iranians from developing a bomb if they so choose. No one seems to discuss Iran's strategic goal, or really care. It's very hard to talk in terms of winning or losing without determining this. Is it to develop nuclear weapons? No. The fatwa remains in place and they could easily have done it 100x over by now if they haven't already. They were signaling their openness to make a deal on this issue until Israel engaged in an unprovoked attack on them. Israel's only hope of achieving this goal at this point is to drag the US into the conflict.

Iran's strategic goal, at least in the short term, is to re-establish deterrence. If they can survive the US/Israeli onslaught and cause enough military, economic, or political attrition in Israel to force it to end its offensive against them, they will achieve their goal. Their main path to achieving this is depleting Israeli interceptor stocks, which I believe they can accomplish in a matter of one to two weeks. Israel does not have the same advantages Ukraine has, because the country is much smaller, and the Iranians have been building up their missile stockpiles for decades in preparation for this exact moment. Their stockpiles of BMs are likely nowhere close to exhaustion, and they haven't seriously dipped into their supply of drones yet. If they can deplete Israeli air defenses, they can begin deploying overwhelming swarms of attack drones that will quickly create an unsustainable situation for the Israelis.

But back to the Israelis, I don't believe that this conflict has anything to do with Iranian nuclear research, which is being used as a fig leaf to cover the actual strategic Israeli goal, which is destabilizing Iran by forcing it to fight a protracted air war with the United States. They'd like to solve the Iranian problem permanently, and with opposition to Israel rising, and American military power waning, there's no time like the present. The window is closing on this opportunity, and all the while their position is being eroded by regular drone, missile, and rocket attacks on Israel by Ansar Allah, Iranian backed forces in Iraq, Hezbollah, and Hamas. Although they've successfully put a subset of the forces arrayed against them on their collective back foot, they've failed to eliminate any of them as a threat.

All the signals we're receiving are that US involvement is becoming increasingly likely. This means that Israel is indeed "doing well," but not in the sense of military victories. Their air defenses are by all appearances slowly being degraded, and many of their claims about the number of TELs or Iranian AD systems they've destroyed seem dubious. We're working with imperfect information, so it isn't easy to draw conclusions here.

The issue with the Israeli strategic goal is that it's a serious gamble. They've clearly determined that they can weather whatever storm arises from future escalations, including the destruction of the region's oil infrastructure, but US intervention could be more limited than they need it to be, or the Iranian response to that intervention could be so devastating, that it causes a political crisis in Israel. Time will tell.

After posting the Pleiades images yesterday, multiple people reached out to me to send me evidence that some of the damage in those images predated the Oreshnik strike. I immediately placed an additional order for an earlier pass (October 22nd) that SkyWatch had available.

In the interest of dispelling the invalid analysis I put out yesterday, I will summarize the results of the second, earlier satellite pass I ordered before covering it in-depth in the rest of this article.

All of the damage seen in the November 22nd pass happened prior to the Oreshnik strike on the 21st, and was the result of attacks using conventional Russian standoff weapons. The November 22nd pass shows no new damage from Oreshnik.

The reasons for my faulty analysis, for which I take total responsibility, are as follows:

• I uncritically accepted the anaylsis of others, who said that the Sentinel-2 pass from November 24th showed new damage. It did not – this damage was the result of a strike in July.

• I failed to adequately search for resources in Russian (something I am capable of), which had thoroughly tracked previous strikes on the plant.

• I didn’t want to spend an additional $125 to order an earlier pass from Pleiades. Had I done this right off the bat, this could have been avoided.

• I instead relied on free and publicly available imagery from Google Maps, provided by Maxar. Someone at Maxar has engaged in a painstaking, but sloppy, coverup of the damage caused by previous strikes, patching a 2024 pass with multiple other ones, despite maintaining the 2024 date in the citation of the images. For this reason, I was much more inclined to accept the damage as new, and as having been caused by Oreshnik.

• I failed to consider that the Ukrainians might have not repaired any damage from the previous strikes.

I apologize to everyone who based their own analysis off of mine.

In the remainder of this article, I will elaborate on why I got it wrong, and dig in to the pass from October, which is a superior image to the one from November. From there, I will:

• Cover damage to Yuzhmash which was not visible in the November pass, due to the inferior angle and clarity.

• Conclusively prove that Maxar is editing their imagery by hand to conceal damage at Yuzhmash.

Finally, I’ll speculate on what I think might be going on here. There are three possible explanations:

1. Oreshnik completely missed Yuzhmash

2. Oreshnik hit the plant, but did no damage which is visible in the satellite imagery I ordered

3. Just like Maxar, Airbus is participating in a coverup of damage to Ukrainian military objects

Note: Images in this article will have an Airbus watermark, which I manually added, and as is required by the provider (SkyWatch) I purchased these images from. I’m still not sure if I’m violating their terms of service by sharing these images like this, but I plan on going back and watermarking the images in the previous article as well to ensure that I’m complaint.

October Pass

First, the full pass from October:

All damage seen in November can be seen here. The angle of this pass is much higher than the one from November, and the image was taken a full hour later, a month earlier in the year, reducing shadows. Here’s a legend to get your bearings as I cover each cluster of damage:

A, B, C, and D are all clearly visible in the November pass. E was not easy to make out because of distortion, but it’s much more clear here, and major damage to an additional (very large) building is visible for the first time because of the new angle. F and G were not possible to make out in the November pass.

First, close-ups of A, B, C, and D:

Because there’s less distortion on the right side of this pass, it’s possible to more clearly see how the smokestack in D appears to have fallen onto the roof of the building its base is attached to when it was destroyed (the smokestack is clearly visible in the Apple Maps images I used in the previous article).

Next, damage that was previously hard to make out, or not visible. In E we can clearly see that there was a total collapse of the roofs of some of the structures:

To the west of E, we can see severe damage to a building that was previously not visible because of the angle, along with a rubbish heap of debris:

This is a big building. Here’s what it looks like in Google Streetview in July of 2015:

Next, F:

And G:

At first I thought the buildings in G had simply been abandoned, and fallen into disrepair, but here’s what they look like on Maxar through Google Maps (copyright indicates 2024):

Establishing a Timeline

So if Oreshnik didn’t cause all this damage, what did? Sources I failed to locate before publishing the last article have documented multiple strikes on Yuzhmash. In some cases, we can use Sentinel-2 to identify which strikes damaged what. In other cases, that damage is simply invisible on Sentinel, but we can rely on local videos. I’m confident we can account for the damage in Clusters A, B, and D.

July 15th, 2022

There are at least two videos of this strike, but they’re from quite far out and don’t allow for the identification of which buildings in the plant were hit. The early period of the war was extremely chaotic, and it’s very difficult to find any reliable sources beyod reports saying targets “in Dnipro” were hit.

Using Sentinel-2, we can see that this is almost certainly the strike which did the damage seen in Cluster A.

LostArmour confirmed that this is the strike which did the damage seen in Clusters A and C with high resolution imagery of an unknown source:

November 17th, 2022

Given the proximity of this strike to a road, and using Google Streeview as a reference, this is the strike which did some of the damage seen in Cluster D. Video:

Streetview and location in Google Maps (the aerial is oriented east). Note the diagonal parking on the left side in both the video and in street view, and keep in mind that the streetview is a decade old at this point.

A later found a video of the aftermath which confirms the target was the large building in the north of Cluster D, or the other buildings in Cluster D.

LostArmour’s analysis (authors: Simo, magnetro1, Hazarescu, and Artem) from the next summer found that this damage occurred in the next strike, however:

August 15th, 2023

A cruise missile (reported to be 4x Kh-101s) strike hit the plant. It isn’t easy to tell what damage may have been caused by this strike. Good candidates are C, E, F, and G, because damage from A and possibly D may be visible.

A video of this strike:

Ukrainian and Western media completely failed to cover this strike, from what I can tell. Russian sources, however, did.[1][2]

July 8th, 2024

A combined cruise missile and drone strike on the territory of the plant. This is when the damage seen in section B occurred. Sentinel-2 may be a tiny fraction of the Pleiades, but it’s useful enough once you already know where the damage is.

These two impact craters, the same ones I used as proof of Oreshnik’s accuracy, were widely shared in the aftermath of the November strike as evidence of Oreshnik’s damage. To disprove this, all I would have had to do was go back to Sentinel Hub, which I had already spent hours in without noticing that this damage was present back in July. Instead, I accepted this analysis as true. No excuse there.

A video of the strike (Twitter source):

I can’t rule out that I’ve missed a strike here, but these are the events I can identify with confidence, using multiple sources for confirmation. Please let me know if you’re aware of one I missed.

A logical question is whether we can assume that the remaining clusters that are unaccounted for were caused by Oreshnik. The October pass rules this out. Multiple structures may have been hit in these strikes, and because Sentinel-2 is so low resolution, there’s no way to confirm the damage that is harder to see in all satellite imagery.

Coverup

LostArmour had already commented (in 2023) on the strange “patches” which are visible in the Maxar imagery that Google Maps uses. I had assumed that these were simply normal boundaries between satellite images. After cross-referencing the October and November passes with this imagery, I can now say conclusively that a manual cover-up has been performed. Every “patch” corresponds to damage we now have high resolution imagery of.

These patches are old archival images which have been superimposed over imagery from 2024 to conceal the damage caused since the beginning of the war. They’re easily identifiable by how a section of the imagery will bleed or blend into another with different coloration (different time of day or year) or a different angle.

Cluster C

Note that the perfectly parallel roof sections are no longer parallel in the Maxar image, along with being a different color, and the presence of “bleed.” This is a huge patch, running the length of the plant in Google Maps and well beyond its perimiter. But as we’ll see, it’s just one layer of many. It seems absurd to think that the boundary of this patch would precisely start a few meters from the edge of the damage in Cluster B by pure coincidence. Imagery on the left side of this patch must date from before the strike in July of 2022, because the damage from Cluster A isn’t visible, and doesn’t appear to have been individually patched.

Cluster D

This patch, or patches, are much more sloppy. Again, we see that the patch begins precisely where the northernmost damage from Cluster D occurs, hiding the large hole in the roof and the destruction of the smokestack attached to Main Assembly Shop 97. This appears to actually be one patch laid atop the boundaries of two larger images, as both a left and a right boundary are visible on the roof of the Main Assembly Shop. This may have been needed to cover up the damage to the smokestack and the hole in the roof, which might have been caused on different days.

Cluster E

The double patching over Cluster D might have something to do with ensuring the damage in Cluster E was also hidden. We can see bleeding to the right of the Maxar image, which extends all the way up to Cluster D. There’s also some weirdness on the northern edge of the line of buildings in the center. The edge here seems perfectly placed to make sure that no damage to the building on the right can be seen.

Cluster F/G

This patch is the same as the one which runs through Cluster C.

Zooming out, we can see what’s been done:

Each color represents a different layer (edit: it’s possible that two of the colors which are not next to each other represent a single layer with a different layer in between them), taken at a different time. Combined, and overlaid on top of each other, they’ve allowed Maxar to hide any of the damage from the strikes since the beginning of the war. Each boundary between a layer runs precisely through the edge of damage from one of the strikes. As of the time of writing, this is plainly visible on Google Maps, and I invite you to check it out for yourself.

So What About Oreshnik?

As I said in the beginning of this article, there are three possible explanations:

1. Oreshnik completely missed Yuzhmash

2. Oreshnik hit the plant, but did no damage which is visible in the satellite imagery I ordered

3. Just like Maxar, Airbus is participating in a coverup of damage to Ukrainian military objects

Explanations 1 and 2 are possible, but somewhat hard to imagine. It would be very hard to cover up the damage if 36 projectiles traveling at Mach 11 (according to Ukrainian sources!) slammed into random buildings in Dnipro. Similarly, it doesn’t seem to make sense that those projectiles could have hit the plant and done so little damage as for it to be invisible. They were simply moving too fast, and if they were somehow “blanks” with little to no mass, they would have broken up in the atmosphere, as other commentators have pointed out.

I consider explanation 3 the most likely. Some have said that I may simply have been given older images, and offered up the greenery visible in the November pass as proof. I don’t buy this, because Sentinel-2 images from prior years look identical in late November. The November pass isn’t even particularly “green” when you zoom in closely, much of the foliage is clearly brown.

One mysterious detail is that there are not one but three passes from November 21st available from Pleiades. Someone tasked the satellite to make these passes as soon as possible after the strike. There have been none since then, and none in the weeks prior. Is it possible that Pleiades would have done a silent pass before the Oreshnik strike in order to get images of it that could be offered up at a later time as being taken after the strike? This would have required foreknowledge of the strike, which various government officials have confirmed they only had 30 minutes of, and those 30 minutes were in the middle of the night. The imagery can’t be from the previous year, because it includes damage which occurred in the Summer of 2024.

It’s hard to know what to make of all of this. Outside of carefully constructing a photoshopped version of the strike, it’s difficult to imagine how it could have been faked. If that was what happened, ordering the other two passes from that day would be a way to validate it, as it would be nearly impossible to edit three separate passes at different angles and have it all come out consistently.

However, given what we see with Maxar, it is indisputable that western satellite imagery providers are deliberately censoring their products in order to conceal the damage caused by Russian strikes. Someone ordered those patches made. If Maxar is doing it, Airbus is doing it too. The only question is whether they did it in this particular case.

What Now?

I’m done buying satellite imagery. The first post in this series triggered a firestorm, and I feel genuinely awful about being so off the mark. That being said, the opportunity to continue this process is available for anyone equally insane enough to spend their hard-earned money gambling on this.

An obvious next step would be to seek out sources from neutral countries, like China. There are Chinese satellite imagery brokers, but someone who speaks Chinese and can pay in Chinese currency will need to do this. I’ve also mentioned buying the other passes from the 22nd to cross-reference them with each other. This will cost $250 on SkyWatch. Another option is for someone to blow a truly huge amount of money by drawing a much larger boundary (even extending the peremiter of the order a few hundred meters beyond the boundary I drew brings the price to over $1000). This would make it possible to say whether Oreshnik missed the plant, or hit a section of it which wasn’t visible in my passes. Strikes have occurred in the southern section of the plant in the past.

The kitchen sink option would be to wait until there’s a clear day (or days) and task the satellite yourself. It would be hard to imagine Airbus somehow editing the image on the fly before they return it to you. If they reject the request, that’s interesting on its own.

But I’ve wasted enough money on this, and I’m calling it a day. Maybe a motivated person can start up a crowdfunding drive for this, but after performing this analysis, I simply don’t trust satellite providers enough to roll the dice.