The war in Ukraine has over the summer months so far continued with undimmed ferocity, as Russian forces continue to grind their way towards the key cities in Donetsk still under Ukrainian control, and Ukraine liberates several hundred square kilometres in the southern Zaporizhzhia province. Russia has hence “on net” not gained much new territory over the summer, and the frontline overall remain relatively static. The strategically important developments in the war hence continue to lie in the increasingly intense exchange of deep strikes against economic targets in both Russia and Ukraine.
Several important issues warrant particular attention here, but none will have a near-term dramatic economic or financial effect, and the strong base case hence remains that the war continues into and possibly through also 2027. Ending large and long wars of attrition is a very difficult task, and risks of the war spreading via Russian hybrid attacks are rising.
The strikes in the Black Sea region have in recent weeks reached new heights, as Ukraine has successfully targeted Russian logistics shipping to/from Crimea, grain shipping and oil transports in/out of Novorossiysk. Russia have retaliated against the Ukrainian harbours in Odessa and Chornomorka, severely denting Ukraine’s seasonal grain exports and other ship-based imports and exports business.
Ukrainian strikes on oil tankers transporting Kazakh oil from Novorossiysk, partly owned by U.S. oil majors caused U.S. Vice President Vance to officially request Ukraine stop such attacks. The Ukrainian government agreed to the U.S. request, clearly continuing to hope for a change in the Trump Administration position on important issues, such as a possible if unlikely Patriot production licensing agreement, or more U.S. deliveries of Patriot interceptors under the European funded PURL program. The U.S. State Department’s approval this week of a very large resale of U.S. ammunition (including 70 ATACMS missiles) from Turkey to Ukraine shows the benefits for Ukraine of maintaining cordial relations with the Trump Administration, also continuing to provide intelligence assistance for planning Ukraine’s long-range strikes against Russia.
Of broader significance is the impact of the mutual Black Sea strikes on both globally relevant grain shipments and marginally relevant in tighter global markets oil transports, as the war once again has the potential to cause upward inflationary pressures on important parts of the global consumption basket. The Black Sea in an increasingly dangerous international waterway.
Ukraine meanwhile continues to be under severe Russian ballistic missile attacks, as Moscow seeks to press its military advantage with Patriot interceptor missiles in very scarce supply among Ukrainian air defense forces. With U.S. stockpiles depleted, scaled up U.S. production unlikely in the near and even medium-term, and European countries increasingly concerned about their own air defense vulnerabilities in the face of rising risks of Russian provocations, there is no immediate relief available to Ukraine’s acute vulnerability.
Indeed, the best near-term solution for Kyiv looks to be the Ukrainian-led “Freya Interceptor Missile”, aiming to incorporate a number of key components from different European military producers into a potential “Made in Ukraine with Europe Patriot replacement”. Ukrainian producer Fire Point has given an optimistic timetable for “later in 2026” for a possible available Freya interceptor, although the number of available missiles remain uncertain.
Fire Point has earlier very rapidly developed and delivered Ukraine’s first effective long-range drones and cruise missiles, so its capabilities should not be dismissed, even interceptor missiles remain a more complicated missile and production would remain directly dependent on Ukraine’s European partners too. Should Fire Point prove successful in this ambitious endeavor, it could have an important effect on reducing Russia’s ability to target Ukraine’s cities and infrastructure already this coming winter. As such, it would further reduce Ukraine’s (and Europe’s) dependency on key U.S. weapons systems and would dent Russia’s chances of materially weakening the Ukrainian economy and public morale in the coming winter.
Fire Point is also engaged in the development of Ukraine’s first long-range ballistic missile, intended to be able to reach Moscow. This development, should it prove successful, would materially strengthen Ukraine’s long-range strike capability against many key Russian economic targets, as Russia’s main air defense systems are generally not considered to be effective against ballistic missiles.
As such, the development of a domestically produced Ukrainian ballistic missile would “level the missile playing field” in the war and likely leave both parties vulnerable to such strikes. This would represent a significant relative deterioration in Russia’s economic resilience in the war, as its size, depleted air defenses and distributed infrastructure would leave it more vulnerable over time to new Ukrainian ballistic missile strikes than what Kyiv’s economy has already proven to be.
A Ukraine armed with also ballistic missiles would likely be able to decimate the energy sector in Western Russia, with likely negative effects on Russia’s ability to export crude oil, refined products and natural gas to global markets. A key parameter to gauge the near-term trajectory of the war will therefore be the developments in Ukraine’s domestic missile programs, as these, if successful, could provide Ukraine with important strategic advantages.
As discussed in earlier notes, the 12-18month trends in the war, captured through frontline attrition ratios, effects of ongoing deep strikes against enemy economic targets, and allies’ financial and military support, have in 2026 generally moved against Russia. This implies that Vladimir Putin ought later this year “do something differently” to improve Russia’s long-term war situation. This is unlikely to see Russia pursue peace negotiations but is rather likely to lead to new Russian escalatory measures. These are likely to come in several forms.
First, increased manpower generation for the Russian army is probable after the Russian Duma elections on September 18-20th. Given resilient Russian volunteer (e.g. heavily financially incentivized) recruitment in recent months, this may not necessarily have to involve large-scale coercive mobilization measures. It could instead merely take the form of more pervasive “stealth mobilization” efforts across Russia, targeting financially and legally vulnerable groups (e.g. Russians with outstanding debts and/or petty criminal histories).
Combined, however, with a new expected inflow of North Korean support troops (likely manning longer-range artillery and rocket units behind the frontlines), additional Russian manpower looks likely to be deployed along the frontlines towards the end of 2026. This would represent a doubling down on Russia’s existing offensive strategy of essentially attempting to, via large infantry dominated attacks, to overwhelm Ukrainian defensive positions across parts of the frontline.
Secondly, while Russia’s military capacity to open a new war against other countries, including NATO members, looks implausible as long as the war rages in Ukraine (after the end of hostilities in Ukraine, the Russian government though faces a crucial dilemma of either sending its army in Ukraine home, or possibly deploy it elsewhere?), Putin has other options to expand the war. These most likely will in the coming months and through 2027 include more aggressive Russian hybrid attacks against Ukraine’s main financial and military supporters in the EU and the rest of Europe.
Such attacks might take the form of firing “refitted Ukrainian drones downed inside Russia by electronic warfare” against critical infrastructure targets in Russia’s European neighbors (this fear drives more acute concerns about NATO members’ own air defense capabilities and interceptor missile stocks going forward).
As highlighted recently in the failed drone attack in Leipzig airport in Eastern Germany against Ukrainian ammunition transportation planes, Russia’s willingness to take large risks with hybrid strikes inside European urban centers appear to be rising in 2H 2026. It is unlikely to be a coincident that such an attack was contemplated against a target linked to the Ukrainian military in a German region in which important regional elections will be held next month.
The aim was evidently to cause a major detonation and affect the coming democratic election. Recalling that 2027 will see national elections in four large EU members (France, Italy, Spain and Poland), this type of potentially destructive Russian hybrid attacks is likely to be repeated across a number of European economies in the coming quarters in 2026-2027.
This risk represents a significant law enforcement and political challenge for European authorities, as Russia intends to use such hybrid attacks to destroy military supplies for Ukraine and to highlight the risks of continuing military and financial support for Ukraine to European voters. Moscow’s intent will be to undermine the political cohesion inside especially the EU to renew financial support for Ukraine, once the current €90bn EU support package predictably runs out towards the end of 2027.
In addition to its potential to hurt support for Ukraine, Russia’s likely stepped-up hybrid attacks on the rest of Europe later in 2026 and 2027 further represent a negative economic shock risk to consumer confidence and consumption patterns across European economies, and in particular those holding national or other major elections.
While direct Russian military attacks on the rest of Europe remains highly unlikely, Russia nonetheless retains the capacity to expand its war against Ukraine into other European countries. The war itself will continue and likely intensify into or through 2027, but as Russia’s prospects for military victory look likely to dim, the risks of geographic expansion to the rest of Europe via more Russian destructive hybrid attacks will rise.
Jacob
