The Big Idea

Wars Update

| January 15, 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.

Talks on a ceasefire deal between Israel and Hamas heated up this week.  In fact, by Tuesday, there were media reports that a deal was essentially done, and not long before I published this Update, newswires reported that a deal has been struck.  It sounds like the Trump team put the pressure on Israel and U.S. allies in the region who have sway with Hamas to get an agreement in place before the inauguration (January 20).  The outlines of a pact would include a trade of 34 Israeli hostages (likely, not all of whom are still alive) for 1,200 Palestinian prisoners in the first phase.  The first phase of the ceasefire would last about 6 weeks.  What seems to have changed is that Hamas had been insisting for over a year on a commitment that the initial ceasefire would lead to a permanent end to hostilities and the full withdrawal of Israeli troops from Gaza.  The details have not all been made available, but this deal seems to stipulate that Israel will stop attacking but not necessarily pull out of key spots in Gaza, like the Philadelphi Corridor at the border with Egypt, right away.  A path to a full withdrawal and further hostage-for-prisoner swaps would be negotiated during the initial ceasefire but would depend on additional negotiations and presumably more hostage/prisoner releases.  Even so, the hard right Israeli parties that are in Prime Minister Netanyahu’s coalition seem disapproving, so there is no guarantee that a handshake deal by negotiators will be ratified by Israel’s government.  Israel’s cabinet is scheduled to vote on the deal tomorrow.

A difficulty in these talks for Israel was illustrated in a Wall Street Journal profile Monday of the new Hamas leader in Gaza, Mohammed Sinwar, the younger brother of the previous leader, who was killed by the IDF last year.  Sinwar is intent on rebuilding Hamas, and that process will inevitably crank up as soon as Israel withdraws from Gaza, so Israel’s hopes of maintaining peace in Gaza may only last until Israel pulls out.  Sinwar is reportedly operating without taking any orders from the Hamas Leadership Council.

Instability in Syria continues.  The Turkish-aligned SNA and Kurdish SDF are still battling.  Pro-Assad fighters are conducting a small guerilla-style campaign against the HTS-led coalition currently running the country.  A new angle appeared this week, as Hezbollah fighters reportedly killed HTS-affiliated forces in Syria near the Lebanon border and wrote threatening messages on their bodies (there is some disagreement about what actually happened).  This skirmish took place close to the smuggling route that Hezbollah has used for years to get Iranian weapons into Lebanon, so it may be that Hezbollah is seeking to carve out enough space to keep that flow of weapons going.

During the prior Trump Administration, Iran shipped 25 million barrels of oil to China in case U.S. sanctions made it impossible for Iran to sell its oil.  Iran has asked several times to be able to sell some of that oil, but China only gave its approval recently.  That oil would bring in close to $2 billion at today’s prices, but Iran owes China about $1 billion in storage fees, so liquidating this stockpile would net each party about $1 billion.  Iran needs the money to try to help its proxies in the Middle East (e.g., Hamas and Hezbollah) recover from Israeli attacks.


As in the Middle East, the Trump team is beginning to forcefully exert its will in the Ukraine-Russia war.  Michael Waltz, the incoming National Security Adviser, argued that if Ukraine is asking for heavy Western support, then it needs to also be all in.  Thus, he signaled that the incoming Administration will ask Ukraine to lower its draft age minimum to 18.  President Zelenskyy has not wanted to do that.  He would prefer to give young people in Ukraine an opportunity to complete their education, but the U.S. argues that persistent manpower shortages for the Ukrainian armed forces dictate a  more aggressive approach.  Moreover, Zelenskyy noted that Ukraine does not have enough equipment to outfit the existing brigades it already has.

However, President-elect Trump’s oft-stated goal of arranging a peace deal in Ukraine looks increasingly unlikely.  Russian officials continue to insist on outlandish conditions for ending the war.  They “only” want Ukraine to cede territory that it currently controls, establish a pro-Russia government, disarm, and promise never to join NATO.  But wait, there’s more.  NATO would have to pull out of most of Eastern Europe, only putting forces in countries that were in NATO before the fall of the Soviet Union.  It would be an amazing bluff if it works, but the Trump team has slowly come to recognize that a quick deal is not going to happen and that the only way to end this war is to put Russia in such a difficult position that it is forced to negotiate more seriously.

Ukraine was finally able to officially confirm the worst kept secret in this war – that North Korean soldiers are fighting in Russia’s Kursk region.  South Korean intelligence confirmed that two prisoners captured by Ukrainian military in Kursk are in fact North Korean soldiers.  As with the Azeri jetliner downed by Russia during Thanksgiving, however, expect Russia (and North Korea) to admit nothing.  President Putin is using the North Korean forces “donated” by Supreme Leader Kim in a horrific way, as they are being asked to charge headlong into Ukrainian defenses with little or no cover fire, putting them one level below the Russians pulled out of prison and sent directly to the front line in Ukraine.  This has resulted in heavy North Korean casualties.  Even so, most observers suspect that Kim will send another tranche of troops soon.

The fighting in much of eastern Ukraine is going poorly for Ukraine.  Russian units are continuing to take heavy losses but are still moving forward little by little along several different areas of the front line.  In January, Kurakhove has finally fallen, Toretsk is mostly under Russian control, Russians have moved well to the west of Pokrovsk along a path south of the city and threaten to cut Ukrainian supply lines into the key logistics hub, and Russians are perilously close to Velyka Novosilka on three sides.  Russia seemingly has an endless supply of cannon fodder to throw at Ukrainian defenses, a flow that has certainly been augmented by the infusion of 12,000 North Korean troops into the conflict.

Ukraine is continuing to extract a terrible price for these gradual advances, as Russia is suffering 1,500 to 2,000 casualties most days and losing tanks, armored vehicles, and artillery systems at a pace far faster than it can hope to churn out replacements.  In addition, Ukraine continues to pepper Russian targets far from the frontlines, hitting a key fuel depot last week (an attack that reportedly burned hundreds of thousands of tons of fuel) and three different command posts of Russian units in occupied eastern Ukraine.  On Monday, Ukraine reportedly hit a military microelectronics plant in Bryansk with a HIMARS rocket.  A large round of attacks followed on Tuesday, hitting targets in several regions, including oil depots, defense manufacturing plants, and air defense systems.

A new round of sanctions imposed by the U.S. and the West at the end of last week are thought to finally be tough enough to bite.  The price of oil jumped by about 2% Monday on the news, and there is some speculation that the West is finally going to crack down on the Russian “shadow fleet” of tankers that is secretly delivering oil around the world, thwarting Western sanctions up to now.  We will see if this finally shifts Russia’s ability to sell its oil.  A Chinese Port group has directed it terminals to block sanctioned oil tankers from docking, so a handful of Russian tankers are in limbo off the coast of China (I suspect that some clever Chinese operators will figure out a way to get the oil off of those tankers, but probably at a price much lower than the Russians were hoping to get).  India has said that it will also block oil tankers sanctioned by the U.S.  In any case, oil traders are starting to get nervous that both Iranian and Russian oil supply could be limited if the incoming Administration cracks down further.

Stephen Stanley
stephen.stanley@santander.us
1 (203) 428-2556

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