Wars Update

admin | January 10, 2025

This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. This material does not constitute research.

Turmoil continues in Syria.  Pro-Assad groups have begun to organize a little and conducted their first attack on an HTS patrol on January 5.  Meanwhile, the SNA, the Turkish-backed militia, and the SDF, the American-supported Kurdish militia, have been fighting as well.  Turkey views the Kurds as terrorists and is determined to eliminate the SDF.  The U.S. and others are worried that the Islamic State will re-assert itself (the SDF had been the U.S.’s main partner in Syria fighting ISIS).  And there is far from unanimity within the HTS-led coalition.  Syria’s situation will be unsettled for months if not years, as Israel, Turkey, the U.S., and others seek to influence the eventual outcome.

The Wall Street Journal reported on Tuesday that Iran, which is clearly the biggest loser from Assad’s fall, has pulled virtually all of its extensive forces from Syria.  The new government is intent on keeping Iran out of Syria going forward, which is a huge blow to Iran’s efforts to project power across the region.  The negative fallout continues for Iran, as Iraqi Prime Minister Sudani reportedly traveled to Iran to convince the Iranian regime to rein in the Iranian-backed Iraqi militias that on paper report to the Iraqi government but, in reality, answer to Iran.  Iran’s Supreme Leader Khamenei apparently rejected the request, and now the Iraqi government is considering integrating some of these militias into the Iraqi armed forces, which would actually make it easier for Iran to control the Iraqi military.  So, it appears that while Iran has lost sway in Lebanon and Syria but, for now, remains the dominant influence in Iraq.

The Wall Street Journal also reported on Tuesday that there is an ongoing debate in Israel over where focus should be turned now that the threats from Hamas and Hezbollah have been mostly neutralized.  Some believe that the obvious choice would be to attack the Houthis, who have been lobbing missiles and drones at Israel regularly.  However, the threat level from the Houthis is more of a nuisance than the sort of existential threat that Hamas and Hezbollah represented.  Moreover, the reason that the Houthis are a limited issue for Israel, the distance between Yemen and Israel, also makes it difficult for Israel to easily strike decisive blows against the Houthis.  The alternative for Israel would be to go directly to the underwriter of most if not all of its adversaries in the region, Iran.  The case for going after Iran includes that the retaliatory strikes by Israel in the fall leave Iran uniquely vulnerable.  Even if Iran responds to Israeli attacks, that would provide cover for Israel to strike another severe blow against Iran, maybe including key parts of the nuclear program this time.

The Houthis lobbed two more drones toward Israel on Thursday, both of which were intercepted.  The IDF responded today with another round of air strikes in Yemen, hitting a power station near Sana and military infrastructure in the ports of Hodeida and Ras Issa.

Meanwhile, negotiations between Israel and Hamas are ongoing, but a deal does not seem imminent.  At this point, the main goal of a ceasefire for Israel would be to secure the release of hostages, as Hamas has been mostly defanged for now.  The Israelis and Hamas continue to battle over how many hostages would be included and what Hamas would gain in return for their release.  More broadly, Emirati officials presented a plan for the post-war governance of Gaza to U.S. and Israeli officials this week.

The IDF found the body of a hostage in a tunnel in Rafah on Tuesday.  The 53-year-old Bedouin Israeli was previously thought to possibly be alive.  His son remains missing, and Israeli officials have determined that he is likely dead as well.  Concerns must be growing on the Israeli side that there are few hostages left alive to be released.

The Israel-Hezbollah ceasefire is also in some jeopardy.  The terms of the deal involved Israel pulling back from Lebanon and allowing the Lebanese Armed Forces to occupy and dismantle Hezbollah infrastructure below the Litani River.  This was supposed to take place within 60 days.  That deadline hits on  January 26 and so is coming up fast.  However, Israel has not pulled back very far and is accused of conducting hundreds of attacks since the agreement was struck.  From Israel’s perspective, Hezbollah has not fully retreated beyond the river and the LAF is not showing either the inclination or the capability to fulfill its side of the deal.  Thus, there is growing talk that Israel will remain in Lebanon after January 26 and the ceasefire deal will collapse.  My sense, however, is that neither Israel nor Hezbollah has much of an incentive to resume heavy fighting, so I do not expect to see hostilities ramp up after the 26^th.

Meanwhile, Lebanon’s legislature managed to elect a president after two years of political gridlock, another implication of Hezbollah’s grip in the country loosening.  Joseph Aoun, who has led the Lebanese Armed Forces since 2017, was elected by a two-thirds majority of lawmakers.  Aoun had the support of the U.S. as well as Saudi Arabia.  There is hope in the country that the Saudis will back the reformist government (Lebanon will need a wealthy patron if it is to break its dependence on Iran).  Aoun immediately declared that only the state should bear arms, a clear indication that he will not support Hezbollah.

Arab countries are rushing aid to Syria in hopes of shaping the post-Assad regime.  As Iran has been essentially booted out of the country, the vacuum will be filled, and Saudi Arabia, Jordan, and Qatar are sending humanitarian aid and energy to curry favor with Syria.  All of these countries are going to be chasing Turkey, which is the leader in the clubhouse given its close ties and prior support for the HTS coalition.  I suspect that a similar dynamic may take place in Lebanon unless Hezbollah is able to quickly resuscitate itself and regain the dominance that it held in the country for most of the last decade.

Russian cargo ships have arrived off the shore of Syria to evacuate the Tartus port, but they have been in a holding pattern offshore for 5 days, presumably because Syria’s new government is not giving them permission to dock.

Ukrainian officials are probably breathing a sigh of relief, as Western support looks like it will continue at least for a while longer.  Another gathering at Ramstein Air Base in Germany this week brought a new round of commitments from the U.S. and European countries for military aid to Ukraine.  At the same time, President-elect Trump’s Special Envoy to Ukraine indicated that the incoming Administration hopes to strike a deal to end the war within Trump’s first 100 days in office, which is a notable stepback from the rhetoric that a ceasefire would happen on Trump’s first day back on the job.  There are also murmurings that the Trump Administration will continue to provide military packages to Ukraine for a while after January 20, in contrast to the speculation in some quarters that the new team would cut Ukraine off immediately.

The turn of the calendar to 2025 has mostly brought more of the same in Ukraine.  The Russians continue to inch forward near Pokrovsk, Kurakhove, and other locales but at the cost of catastrophic losses of personnel and equipment.  The Russians claim to have taken the entirety of Kurakhove and are close to capturing the bulk of Toretsk as well, since buildings in the town have been virtually leveled, which makes it difficult for Ukraine to hold viable defensive positions in the town (in essence, there is almost nothing left to defend).  In any case, if the Russians are able to secure all of Toretsk, they may be able to break out over mostly open fields to the west of Toretsk.  And Russian forces have advanced south of Pokrovsk, presumably in an effort to cut off Ukrainian supply lines to the town and avoid another months-long bout of urban warfare.

The impact of the Russian manpower losses has been covered up for the moment by the infusion of 12,000 North Korean troops, who have mainly been fighting in the Kursk region.  Their casualty rate suggests that the North Korean units will be largely exhausted in a matter of months, though there has been talk that Supreme Leader Kim will send more.  The losses of Russian equipment have forced frontline units to improvise.  The levels of degradation of equipment are reaching the ridiculous.  I have recently seen video of Russians attaching a bathtub as a sidecar on a motorcycle and of troops trying to advance through mines, drones, and artillery fire on electric scooters (like the one my son had when he was 8).  Russian social media are asking the Russian public to donate their civilian vehicles to the war effort.  As you can imagine, Russian infantry trying to advance in civilian cars, on motorcycles, on scooters, on foot, or in a bathtub are quite vulnerable to Ukraine’s defenses.  Yes, the Russians advance by way of their sheer numbers, but their personnel losses per square mile of ground taken are so high that they have no hope of “winning” the war in any meaningful sense.  One Russian source noted that every Russian attack results in 30% to 90% losses of the attacking unit and that it is a miracle for a Russian infantryman to last a month in Ukraine without being killed.

A Russian opposition media source reported that Russian elites and high-ranking security officials are growing frustrated with the way President Putin is conducting the war.  These sources believe that Russia needs more manpower and would like to see Putin conduct a large-scale mobilization (draft) and put the economy on a full war-time footing.  ISW made two points in response to this news.  First, ISW analysts believe that these sources misdiagnose Russia’s problem.  The issue is not insufficient manpower.  Instead, it is a lack of training for these troops, poor command decisions, and a dearth of heavy equipment.  It would seem that these elites think that Russia can “win” the war by storming the frontline with hordes of untrained troops, essentially replicating the “orc” strategy seen in the Lord of the Rings movies.  Second, ISW notes that these sources are, like Putin, entirely uninterested in any sort of negotiated settlement.  I continue to believe that the incoming Trump Administration’s hopes of ending the war soon are going to crash into an absolute lack of interest from Russia.

Even as the Ukrainians are giving ground along several parts of the frontline, they launched a significant counterattack in the Kursk region, retaking a number of villages that they had given up over the past several months.  In addition, this week, Ukraine hit two Russian command posts in the Kursk region, reportedly killing numerous senior officers in two different battalions operating in Kursk.  Putin’s mandate for Russia to push the Ukrainians out of Kursk by January 20 is looking increasingly remote.

Ukraine continues to do serious damage with long-range missile and drone strikes.  On Wednesday, they hit a command post in the occupied Donetsk region and a fuel depot in Engels, Russia that was used to supply the nearby Engels airfield (from which, Ukraine claims, jets have been dropping bombs on Ukraine).  Fires were still blazing there a day later.

The Russian economy continues to teeter on the edge of catastrophe.  Inflation is rampant, but the central bank refrained from hiking rates, which are already at punishing levels, in December.  The U.S. and Europeans continue to tighten sanctions, and the nonsense that the Russians are pulling by severing undersea cables all over Europe is only going to accelerate the tightening of the economic noose by the West.  The ruble has traded at over 100 to the dollar since mid-November and Russia may be exhausting reserves to keep it from collapsing.  Russia’s economic staying power has surprised many observers, and Putin can probably keep the war machine operating for a considerable time further, but the combination of economic and demographic destruction will likely set Russia back decades.