top of page

1: Russia’s war in Ukraine to drag on, causing continued human suffering and global economic woes

The war in Ukraine will remain a major risk factor for international businesses in 2023. This is due to the low prospects for a speedy end to the conflict, as long as both Moscow and Kyiv believe that they can achieve more on the battlefield than in substantial negotiations requiring painful concessions. Instead, further escalation is still possible amid the many uncertainties surrounding the war.

The most likely scenario is a relative stabilization of the frontline with continuous heavy fighting but no rapid sizeable territorial gains by any side. Armed conflict will stay mainly within Ukraine’s borders, yet regular drone and missile attacks inside Russia proper as well as subversive activities are likely. Russia seems able and determined to continue to destroy critical, transport, and civilian infrastructure in Ukraine, even when its own economic and military situation deteriorates.

The second, less likely scenario would lead to a horizontal escalation of the conflict, i.e., the direct involvement of third countries. The missile incident in Poland in mid-November showed how the war could easily expand into NATO territory, even if the alliance stresses that it wants to stay away from it. Direct involvement of Russian-allied Belarus also remains a distinct possibility, though neither Minsk nor Moscow appear to have an interest in this at the moment. However, as long as Russia launches air and missile attacks on Ukraine from Belarusian territory, the country remains a potential target for the Ukrainian army.

The third scenario would see the conflict’s vertical escalation up to the use of weapons of mass destruction by Russia, including tactical nuclear weapons. While unlikely, this could play out if Ukraine continues its successful counteroffensive and comes close to retaking Crimea.

Developments throughout 2023 may include elements of all three scenarios, as escalation risks prove difficult to control by the belligerents. The longer the conflict lasts, the more likely its geographical expansion becomes, as neighboring countries like Belarus and Moldova or even Poland could become involved. Such horizontal escalation may then trigger a vertical one, possibly leading to the dilemma of accepting a negotiated ceasefire to avoid, or even shortly after, a Russian tactical nuclear strike.

Figure 1: Total bilateral aid commitments to Ukraine, top ten sources and type in €bn

Western support (as shown in figure 1) remains a key factor in Ukraine’s ability to resist. Consensus among elites and populations across NATO for military and financial support to Ukraine seems to be holding. The general perception, especially among G7 countries, is that relations with Russia have irrevocably deteriorated, which will likely affect the West’s long-term defense planning and funding. However, the war has had a negative socio-economic impact through rising energy and food prices and by depressing economic growth (see figure 2). This, in addition to the risk of horizontal escalation, is likely to soften the current consensus through 2023, especially in Europe. Instead, the number of voices in politics and society supporting a diplomatic solution are likely to grow.

Figure 2: Impact of the war in Ukraine on forecast GDP growth for 2022 in selected countries (as a difference between Dec 2021 and Jun 2022 forecasts, in %)

Russian society will also increasingly suffer from the war, the sanctions, and the country’s strategic reorientation away from the West. Nevertheless, living standards will not drop dramatically, while the political system becomes more repressive, allowing Putin’s government to retain majority approval for its domestic and foreign policies. International businesses working in Russia or with Russian companies should assess the risks of increased domestic repression and control of foreign cooperation by state security services.

All plausible war scenarios will continue to have a negative effect on stability in the region throughout 2023. Without a functioning security architecture, the region will experience an expanding arms race and further militarization, heightening the risks of the war’s horizontal escalation. The “cold war” atmosphere in Russian-Western relations is becoming a new normal in all areas, not just militarily. Economic and logistical decoupling will continue, and business ties across the new “iron curtain” will become even more difficult to maintain.


bottom of page