Monthly Context Report - August 2023

08 Sep 2023

Summary 

Security & Access: The Ukrainian counteroffensive, which began in early June, is principally focused on the Donetsk and Zaporizhzhia oblasts in the country’s southeast. The likely aim is to seize control over strategic communication lines that connect Crimea with Russia proper along the Azov Sea coastline. Since launching the offensive, Ukraine has made only incremental territorial gains, reestablishing control over 12 settlements in the Donetsk and Zaporizhzhia oblasts. Extensive defensive systems implanted by both Russia and Ukraine have resulted in a near stalemate that has cost both sides heavily in terms of human casualties.

Political & Legal: A further corruption scandal in the Ministry of Defense may have been a decisive factor in the replacement of Defense Minister Oleksii Reznikov in early September. A series of reports addressing corruption in military mobilization centers nationwide resulted in President Zelenskyi dismissing the heads of every center and replacing them with war veterans.

Economic & Development: Ukraine’s annual inflation rate continued to decline, and the consumer market saw a decrease in prices for food and non-alcoholic beverages. Although businesses are showing signs of recovery, the reintroduction of a regular tax regime and state inspections, together with higher tariffs, threaten business growth. The collapse of the Black Sea Grain Initiative has created significant challenges for the agricultural sector and the situation is worsened by the fact that Ukraine’s Danube ports – the primary alternative export route – are under attack by Russian forces. The blockade imposed by Ukraine’s EU neighbors has made rail transport unprofitable.

Humanitarian & Environmental: Ukraine’s energy infrastructure, which was heavily damaged by Russian attacks last winter, has been partially repaired. Ongoing maintenance efforts, coupled with heightened energy consumption, resulted in an energy shortage in August. Although official and independent assessments of the country’s preparedness for the upcoming winter vary, there is general agreement that Russia will likely launch a new series of infrastructure attacks as early as October, creating a formidable challenge for Ukraine. Russia was formerly an important source of Ukraine’s hydrocarbon imports, and finding alternative sources has resulted in higher prices.

Poland: On August 1, two Belarusian helicopters violated Polish airspace. The incident could have been an attempt to test Polish and NATO air defense capabilities and readiness in the area. On August 28, Poland, Lithuania, Latvia and Estonia demanded that the Wagner Group pull out of Belarus and that all illegal migrants leave the border zones, threatening to close their border crossings if an incident occurs.

Moldova: The importance of Moldova as a regional player in Ukrainian grain exports has increased now that the Black Sea Grain Initiative has collapsed. At the same time, growing Ukrainian exports creates challenges for the agricultural sector of Moldova, Europe’s poorest country.

Trends to Watch

• Security & Access: It is highly likely that the front lines will freeze in the coming months with a possibility of Russia regaining momentum. Moscow is likely to continue its mobilization efforts and resume mass missile strikes at short intervals across the country as early as October. The volatile situation in Kupiansk (Kharkiv Oblast) could lead to significant civilian casualties.

• Political & Legal: Addressing corruption in the defense sector will help to secure military assistance from abroad and bolster the public’s trust in the central authorities, ahead of potential elections in 2024. Putting war veterans in charge of the recruitment centers may result in greater oversight and an intensification of the mobilization process. The aid community may also be affected by mobilization, as staff and local partners could be called to enlist.

• Economic & Development: A proposed reform to streamline inspections and improve the business environment signals a commitment to sustainable economic growth and development. Prospects of a renewed grain initiative seem low. Ongoing Russian attacks on Danube ports and a blockade of overland routes by EU countries will have a significant impact on Ukrainian exports and may increase global grain prices. Ukrainian attacks on Russian-flagged tankers and/or export infrastructure in the Black Sea may affect Russian agricultural exports, also forcing prices upwards. A stable export corridor from Odesa through the territorial waters of neighboring countries may help boost Ukraine’s exports. Farmers unable to get their grain to market will likely hold off selling their harvest, and thus lack resources to invest in the upcoming planting season.

• Humanitarian & Environment: Energy consumption during the coming heating season is expected to be far higher than the previous one, as Ukrainians displaced by the war have been returning in high numbers. Due to a significant increase in market prices and the needs of the state budget, discussions are underway within the government and the president’s office regarding tariff hikes. Vulnerable populations may be hard-pressed to cover increased energy and heating costs.

• Poland: Although there is concern about a possible new attack on Ukraine from Belarusian territory, a more likely scenario is that security incidents will continue to occur along the borders of EU countries. As a result, Poland and NATO are continuing to expand their military presence along their borders with Belarus.

• Moldova: Assuaging the concerns of Moldovan farmers will be critical for President Sandu, both to facilitate movements of Ukrainian grain and to protect her own political interests in this heavily agrarian country. So that the country can address farmers’ concerns, Moldova’s foreign partners will likely be urged to provide sufficient support, whether through expanding export possibilities or offering compensation for lost opportunities.

Security & Access

The Ukrainian Counteroffensive

Ukraine’s overall gains along the counteroffensive

Source: Map by Nathan Ruser, based on data from DeepState

Since launching the counteroffensive, Ukraine has made only incremental territorial gains, reestablishing control over 12 settlements in the Donetsk and Zaporizhzhia oblasts. These settlements represent roughly 250 km2 – less than one percent of the 47,380 km2 that Ukraine de-occupied in 2022, but nearly equivalent to what Russia captured during all of 2023. Extensive defensive systems implanted by both Russia and Ukraine have resulted in a near stalemate that has cost both sides heavily in terms of human casualties. 

In Zaporizhzhia Oblast, Ukraine has focused its efforts on recapturing the town of Tokmak in a likely bid to gain control over Russia’s communication lines and, eventually, take the city of Melitopol, the hub of the region’s Russian-controlled areas. In Donetsk Oblast, Ukrainian forces initially concentrated on pushing toward Berdiansk and Mariupol, both key seaports in southeastern Ukraine. 

In the early weeks of the counteroffensive, Ukrainian forces retook several very small frontline villages in the Zaporizhzhia and Donetsk oblasts. The battle for the village of Robotyne (pre-invasion population: 480) proved to be the most protracted engagement in this theater of operations, lasting nearly three months. On August 28, Ukrainian forces finally captured the village, making headway toward Russia’s secondary line of defense in the direction of Tokmak. Up to now, the counteroffensive’s greatest successes have taken place in the southwestern part of Donetsk Oblast in the direction of Berdiansk and Mariupol. 

Similarly, Ukraine has gradually reclaimed territory around the city of Bakhmut in the northeast of Donetsk Oblast. The Battle for Bakhmut – whose pre-invasion population was approximately 75,000 – began in August 2022, and ten months later Russian troops finally captured the city. The probable aim of targeting Russian positions around Bakhmut is to encircle the town. This, in turn, would tie up substantial Russian troops and in the long run may force Russia to withdraw. 

In Kherson Oblast, Ukrainian forces have repeatedly crossed the Dnipro River to establish footholds for future maneuvers on the river’s left bank. Ukrainian river crossings and amphibious operations in the Russian-controlled areas of the oblast have been underway since the  
de-occupation of the city of Kherson in November 2022. These operations peaked with the Ukrainian counteroffensive. The strategy appears to be to compel the Russians to divert additional troops toward this front, rather than the launch of a full-scale amphibious operation in order to advance toward Crimea.  

Russia is likely deploying a similar strategy: during July and August it stepped up attacks along the Svatove–Kreminna line near Kupiansk in Kharkiv Oblast. According to Ukrainian officials, Russia has assembled over 100,000 troops and 900 tanks near Kupiansk, and the increased  
attacks have led to the mandatory evacuation of 37 settlements in the Kupiansk city district. 

Analysis & Forecasting

Since mid-June, Western authorities have cautioned that Ukraine is facing a difficult and prolonged
coun­teroffensive against Russian forces that have had time to establish well-fortified defensive lines. President Volodymyr Zelenskyi admitted on June 21 that the campaign was moving slower than expected but insisted that Ukraine would advance at its own pace, belying a stalemate. As of July 26, US officials observed that Ukraine had intensified its efforts, including the deployment of Western-trained reserves and an increase in artillery combat along the Zaporizhzhia front. A leaked American intelligence assessment predicted that Ukraine would likely fall short of capturing Melitopol, given its slow progress and Russia’s ability to maintain its positions. 

It is highly likely that the front lines will freeze in the coming months. Adverse weather conditions are expected to curtail any swift or significant advances, particularly in the field terrain of some parts of Donetsk Oblast and the entirety of Zaporizhzhia Oblast. If Russian defenses hamper the Ukrainian advance, considerable losses of Ukrainian troops and equipment may result in Russia regaining momentum. To bolster its frontline capabilities, Moscow is likely to continue its mobilization efforts and resume mass missile strikes at short intervals across the country. Stepped-up attacks – which may also include the use of false targets and the deployment of stockpiled rockets and missiles – could begin as early as October. Finally, the volatile situation in Kupiansk could lead to significant civilian casualties.

Political & Legal Updates

Changes in the Ukrainian Army

A further corruption scandal in the Ministry of Defense may have been a decisive factor in the replacement of Defense Minister Oleksii Reznikov in early September. On August 11, the Ukrainian newspaper ZN.ua published an investigation into the alleged procurement last year of over two hundred thousand summer military uniforms, rather than winter ones, at inflated prices.

The Ministry, which is headed by civilians, came under fire earlier this year when Ukrainian media revealed a corruption scheme involving army ra­tions. As a result, a deputy minister and the head of a procurement department were arrested. A series of reports addressing corruption in military mobilization cen­ters nationwide resulted in President Zelenskyi dismissing the heads of all recruitment centers on August 11. They will be replaced by war veterans.

Analysis & Forecasting

Oleksii Reznikov had served as defense minister since November 2021 and had helped to raise billions in foreign military assistance. Reznikov’s ability to secure new aid may have been a factor in allowing him to remain in the post in the wake of the first procurement scandal. However, widespread allegations of corruption have not gone unnoticed. Following Reznikov’s resignation, the president of Lithuania, a staunch ally of Ukraine, stated that corruption has a significant impact on Western countries’ decisions concerning weapon deliveries. Addressing corruption in the defense sector is therefore essen­tial if Kyiv is to continue to receive uninterrupted military assistance from abroad, since most of the country’s materiel reserves and production capacities have been used up or destroyed.

Military expenditures accounted for 34% of Ukraine’s GDP in 2022. This is a 640% increase, which, according to the Stockholm International Peace Research Institute (SIPRI), is a world record. One hundred percent of all domestic tax revenues are used to cover the needs of the country’s defense and security forces. Ukrainians support the Army not just with taxes, however, but also by donating millions to purchase equipment and supplies. Although the Ukrainian Armed Forces are the country’s most trusted institution, the public is becoming increasingly intolerant of corruption, including in the defense sector. According to a recent poll, 55% of Ukrainians believe that foreign military assistance should be provided only if the country takes steps to address this.

Sixteen months into the war, complete and unwavering support for the authorities now appears to be waning. In August, only 35.4% agreed that now is not the right time to criticize the government. In June 2023, a mere 20% had a positive view of the government’s effectiveness, compared with 53.7% in May 2022. Moreover, 77.6% believe that the President is directly responsible for corruption. Successfully deal­ing with corruption has thus become even more crucial given the possibility of presidential and parlia­mentary elections in 2024.

Although Zelenskyi’s support level remains the highest in the country – 67.2% as of July 2023 – a potential new wave of mobilization might affect this. Putting war veterans in charge of the recruitment centers may also result in much stricter oversight of the mobilization process. This, in turn, could create an opening for Zelenskyi's political rivals who are seeking opportunities to gain political ground. The aid community may also be affected by mobilization, as staff and local partners could be called to enlist.

Economy & Development Updates

Macroeconomic Outlook

In July 2023, Ukraine’s annual inflation rate con­tinued to decline, from 12.8% down to 11.3%, with monthly prices decreasing by 0.6%. In the same month, given the favorable macroeco­nomic outlook, the National Bank of Ukraine (NBU) cut its key policy rate from 25% to 22%, the first such decrease in 2023. The bank’s Mon­etary Policy Committee is in favor of further cuts.

Overall, prices in Ukraine increased by 13.3% year-on-year, and by 4% from the beginning of 2023. The NBU estimates that inflation will fall to 10.6% in 2023 and to 8.5% in 2024. However, this may be tempered by the recent reintroduction of the fuel tax, which has already resulted in a 15% rise in fuel prices at gas stations.

The consumer market saw a decrease in prices for food and non-alcoholic beverages, with the most significant drop (18.2%) seen in vegetable prices. In 2022 prices for vegetables had seen the sharpest increase – as much as 70-80% – which affected households’ food security. The current decrease can be attributed to an up­swing in supply due to the ongoing harvest season. Low export prices, large grain stocks and increased production contributed to a drop in cereal and flour prices. Conversely, meat prices rose due to reduced supply resulting from poor weather conditions as well as higher energy costs. Fruit prices also increased, primarily because of water­melon scarcity, as the Kherson Oblast – the country’s main watermelon producer – contin­ues to suffer from occupation, hostilities and the effects of the destruction of the Kakhovka Dam.

Ukraine’s rate of inflation (2019–2023)

Source: National Bank of Ukraine

Taxes and Inspections: The Effect on SMEs

After a period of deregulation and tax incentives to mitigate the war’s initial impact on businesses, Ukraine transitioned back to regular policies in August. This shift – driven by the IMF’s expecta­tions and the need to cover military costs – re­vived historical challenges, including erratic tax enforcement and state legal actions. 

Although the country’s tax regime for SMEs is one of the most liberal in Europe, a recent survey showed that the percentage of busi­nesses that believe taxes are too high rose from 23% in April to 28% in August. However, according to the State Tax Service, as of early May 2023, only 56,542 companies benefited from a preferential tax regime – a threefold year-on-year decrease – as many companies managed to boost their revenues. Almost 37% of businesses are expecting an increase in turnover in 2023 over 2022. This figure is lower, however, than in January–February 2023, when over 45% had similar expectations. (There are regional statisti­cal variations, with companies in the country’s eastern and southern oblasts expecting that turnover will significantly decrease.)

Also of concern to businesses are the return of inspections and tax audits, a key source of com­plaints. Several state bodies conduct inspec­tions, often contradicting each other and the government’s business development policy. The percentage of companies stating that obsta­cles from regulatory and/or fiscal authorities are preventing them from restoring and expanding their businesses increased from 19.4% in January to 30.1% in August 2023. The percent­age of those citing unpredictability of the state as a problem spiked to 47.7% in August (26% in January). According to the Business Ombudsman Council, the tax office often blocks VAT returns to new businesses. President Zelenskyi recently asked for proposals for a single inspection body in a bid to reduce corrup­tion and alleviate pressure on businesses.

Analysis & Forecasting

Ukraine's inflation rate is slated to decrease in the coming months, supported by the NBU’s interest rate cuts and favorable macroeconomic trends. The impact of security risks and war-related destruction on inflation, however, remains uncertain. Although businesses, especially in Ukraine’s western, northern and central oblasts are showing signs of recovery, reintroducing a normal tax regime, state inspections and higher tariffs threaten growth. A proposed reform to streamline inspections and improve the business environment signals a commitment to sustainable economic growth and development.

Main Alternative to the Black Sea Grain Initiative Under Threat

The collapse of the Black Sea Grain Initiative has created significant challenges for farmers, trad­ers and agricultural companies. These are further exacerbated by a global drop in grain prices and substantial logistical costs that erode profit margins. 

The situation is worsened by the fact that Ukraine’s Danube ports – the primary alterna­tive to the now-defunct grain deal – are under attack by Russian forces. In August, the ports of Reni and Izmail were targeted in at least three separate attacks, damaging the ports, their grain infrastructure and the stockpiles themselves.

This is particularly worrisome because Ukrain­ian companies have invested heavily in enhanc­ing port infrastructure and storage facilities, some of which are now damaged and repeatedly attacked. Russian forces are targeting the newly developed infrastructure of Ukraine’s largest agricultural players, Nibulon and Kernel. According to a leading agricultural company, Romanian sailors who operate the main barges are often hesitant to transport Ukrainian grain due to safety issues. Moreover, international market players have been cautioned against storing grain in portside facilities to prevent attack-related losses. As a result, truck drivers wait for extended periods to load. 

This disruption also extends to railway transpor­tation: in April 2023, Ukraine’s EU neighbors imposed bans on grain imports, leading to addi­tional permits and lengthy waiting times. Although the ban is set to end on September 15, Poland, Bulgaria, Hungary, Romania and Slovakia are pushing for its extension until the year's end. If this bid is unsuccessful, they are determined to introduce their own restrictions. Prior to the ban, land connections accounted for one-fourth of Ukrainian agricultural exports. Even with transit being permitted, this share has now decreased two- or threefold, according to the Ukrainian Agrarian Council. This renders rail transport unprofitable, given the already low wheat and corn prices. Ukrainian farmers are holding off selling their harvest, and thus may lack resources to invest in the upcoming planting season.

Analysis & Forecasting

Prospects of a renewed grain deal do not seem high: there is little indication that Russia will be granted additional concessions, and it seems unlikely that political pressure will cause it to change course. 

Since the collapse of the Grain Initiative, both Ukraine and Russia appear to be pursuing unilateral and mutually exclusive efforts toward sustaining exports through the Black Sea, risking an escalation that may worsen in the coming months. 

A new export route from the Odesa ports was tested in August. It skirts the shores of the Black Sea, remaining in Ukrainian, Romanian, Bulgarian and Turkish waters. Chinese- and Liberian-flagged ships that had been stuck in Odesa for over a year successfully completed the route in August, while two additional ships, sailing under Liberian and Marshall Islands colors, reportedly departed on September 1. It is unclear whether this will prove to be a viable alternative, and the Turkish government has reportedly characterized the route as dangerous.

In a potential bid to shore up international support and further sideline Ukraine as a key agricultural exporter, a new grain deal is reportedly being discussed between Russia, Turkey and Qatar. This suggests that Russia intends to leverage emerging and historical relations with countries in Africa and capitalize on the wheat surplus.

Meanwhile, global wheat prices generally dropped in August. Chicago wheat futures fell by over 8% since the beginning of the month, while corn remained relatively stable. The most damaging factor for global food prices, however, was El Nino and other climatic conditions, as well as the Indian rice export ban. 

Agricultural trade, a key pillar of Ukraine's economy, faces ongoing hurdles due to security risks and geo­political tensions. The success of advocacy efforts and the resolution of security issues will shape the sector’s trajectory. One pressing issue is the EU blockade, as it contravenes market rules and the EU-Ukraine Association Agreement. Ukraine seeks solutions but emphasizes that grain must not be hostage to the domestic political agendas of the countries involved.

Humanitarian & Environmental Trends

Since October 2022, Russian attacks on Ukrain­ian energy infrastructures have damaged or destroyed about half of the country’s energy facil­i­ties at an estimated cost of some $11 billion. In 2023, Ukraine's international part­ners provided roughly one billion dollars to cover repair costs. 

At the height of the destruction, more than 80% of users did not have access to the power grid. Humanitarian organizations supplied genera­tors and set up displacement centers to help some 2.2 million vulnerable individuals. 

On July 31, Prime Minister Denys Shmyhal stated that over 60% of the country's power plants had been restored, in preparation for the upcoming heating season, which usually starts in October. The Ministry of Energy declared that the lights will remain on in Ukraine this winter, but only if Russia does not resume its attacks – a development that both military observers and Ukrainian authorities are expecting. 

Ukraine ranks among the largest energy con­sumers in Europe. In 2020, its primary energy demand stood at 86.4 million tons of oil equiva­lent (Mtoe), almost equal (90%) to Poland's con­sumption. Russia was formerly an important source of Ukraine’s hydrocarbon imports, and finding alternative sources has resulted in higher prices.

Coal

Since 2014, approximately 80% of Ukraine’s coal deposits lie in areas under Russian con­trol. In addition, imports from Russia and Bela­rus – which prior to 2022 supplied roughly two-thirds of Ukraine’s coal needs for its thermal power stations – have come to acomplete halt. Between January and April 2023, Ukraine slashed coal imports 24-fold in comparison to the same period a year earlier. As of summer 2023, Australia accounted for some 50% of Ukraine's coal imports, the United States in­creased its share to approximately 30% and neighboring Poland was responsible for 16%. With 1.5 million tons of coal in storage (out of a planned 1.8 million) before the beginning of the heating season, Ukrainian authorities are grad­ually meeting their objectives. 

Coal mining in Ukraine, January–May 2019 (in thousands of tons)

Source: Kosatka.Media, with data from the Ukrainian Ministry of Energy and Coal Mining

Gas

As of the end of July 2023, Ukraine had stored 11.7 billion cubic meters of gas, enough to meet 80% of total demand, and the government plans to increase this to 14.7 billion m3 by the start of the heating season. If shortages arise, Naftogaz, Ukraine's largest national oil and gas company, intends to address the issue through a gas procurement mechanism known as Aggregate EU. Ukraine now gets most of its gas from its neighbors, including Slovakia, Hungary, Mol­dova and Poland, as well as from the Baltic region, which continues to purchase Russian gas.

Thermal and Nuclear Power Plants

Thermal power stations and combined heat and power plants account for half of Ukraine's total power generation capacity, while the other half is nuclear in origin. This positions Ukraine as the country with the world's second-highest pro­portion of nuclear electricity in its power mix. Recognizing the enduring significance of nuclear energy for Ukraine's energy stability, Britain has pledged to provide a $245 million export finance arrangement for Ukraine to purchase nuclear fuel from secure sources, includ­ing the UK. 

Critical repairs to all types of plants, including certain nuclear units, are underway. Ongoing maintenance efforts, coupled with heightened energy consumption, resulted in an energy shortage in August. To date, 56 trans­former sub­stations destroyed by Russian shelling have reportedly been restored in Ukraine, with 7 more scheduled for restoration before the start of the heating season.

Ukraine’s energy mix in 2022

Source: Statista

Analysis & Forecasting

Ukrainian authorities anticipate a resurgence of Russian attacks on the country’s energy infrastructure this fall and are preparing for worst-case scenarios. Even though Ukraine’s air defenses have been strengthened, sustained attacks will likely lead to power outages. 

Some local authorities are far from optimistic in their assessment of the nation’s overall preparedness. In late August, the mayor of Lviv cautioned residents that the city could face up to two months without electricity. These concerns are echoed by energy experts, who emphasize that additional time is needed to manufacture missing spare parts and replace destroyed equipment. 

Since much of Ukraine's energy facilities are from the Soviet era, this is particularly challenging: some equipment is either obsolete or produced only in Russia. DTEK, Ukraine’s largest commercial energy operator, is currently in discussions with international companies, including GE, for the production of the required equipment. Nevertheless, replacements can take time – manufacturing and installing a new transformer, for example, can take anywhere from six to nine months. 

Other experts cast doubt on whether complete restoration is possible. They estimate that Ukraine's high-voltage network can only be restored to 30-40% of its pre-full-scale-invasion capacity. As of early August, according to the National Commission for State Regulation of Energy and Public Utilities (NCSREPU), only 1.6% of heating facilities that were severely damaged during last winter's attacks have been repaired, and a mere 7% of the electrical grid has been restored.

Since Ukrainians displaced by war have been returning in high numbers since spring 2023, energy con­sumption during the coming heating season is expected to be far higher than in the previous one. Many are even returning to Donetsk Oblast, despite the fact that the national authorities have never rescinded the mandatory evacuation order issued last summer. The evacuation was deemed necessary at the time, particularly in anticipation of winter, as the oblast’s natural gas supplies had suffered extensive damage. In response to this year's anticipated shortages, authorities in Donetsk Oblast have taken precautionary measures by stockpiling over 760 generators to ensure an uninterrupted supply of water and fuel.

Naftogaz has confirmed that the cost of gas for households, currently set at UAH 7.96 per m³, will remain unchanged until April 30, 2024. Electricity prices, however, have risen since June 2023. Due to significantly higher market prices and the needs of the state budget, discussions are underway within the government and the president's office regarding tariff hikes. The price cap also complicates Ukraine’s alignment with the EU, as it runs counter to EU regulations. Vulnerable populations, such as internally displaced persons (IDPs), as well as the families hosting them, may be hard-pressed to cover increased energy and heating costs.

Neighboring Countries

Poland

On August 1, two Belarusian helicopters violated Polish airspace. According to witnesses, they flew three kilometers into Polish territory at low altitude through a sparsely pop­ulated, forested area. According to many ana­lysts, the incident could have been an attempt to test Polish and NATO air defense capabilities and readiness in the area.

The full-scale Russian invasion of Ukraine has accelerated Poland’s militarization. Defense spending officially increased to 3.9% of GDP in 2023 – double the 2% NATO target – up from 2.4% a year ago.

Belarus has been a source of increasing tension for Polish, Lithuanian and Latvian authorities since July 2021, when large groups of migrants, primarily from Iraq, attempted to enter the three countries illegally via Belarus. The EU accused Belarusian authorities of orchestrating this to destabilize its eastern border. The crisis led to the construction of a fence on the Polish border – a 5.5-meter-high steel barrier topped with barbed wire that was completed in June 2022.

Additional NATO forces have been sent to vul­nerable areas near Belarus and the Russian ex­clave of Kaliningrad on the Polish-Lithuanian border – between 3,000 and 5,000 troops have been deployed in each Baltic country as well as Poland. Poland has also increased its own mili­tary presence. A total of 40,000 NATO high-alert troops – the NATO Re­sponse Force – were mobilized on February 25, 2022. At the July 2023 NATO Vilnius Sum­mit, NATO leaders agreed to transition to a new multinational and multi-domain “Allied Reaction Force” later this year.

Analysis & Forecasting

Although there is concern about a potential new attack on Ukraine from Belarusian territory, a more likely scenario is that security incidents will continue to occur along the borders of EU countries.

According to the Polish Institute of International Affairs (PISM), an influential state-funded think tank, the goal of Belarus and Russia is to intimidate Polish society into urging the government to take a less confrontational stance toward the two countries and to stop supporting Ukraine.

Before the death of the Wagner Group leadership in the August 23 plane crash, Polish and Ukrainian experts and authorities stressed that the group’s mercenaries could be instrumentalized for border provocations, including the possible use of firearms, physical attempts to destroy the Polish border barrier or infiltration to identify key infrastructure facilities. With the lack of certainty surrounding the Wagner Group’s future, it is difficult to speculate about its potential role in putting pressure on Poland, Ukraine and the Baltic countries. On August 28, Poland, Lithuania, Latvia and Estonia demanded­ that the Wagner Group pull out of Belarus and that all illegal migrants leave the border zones, threatening to close their border crossings if an incident occurs.

Moldova

Despite ongoing attacks on ports along the Danube River in August, finding alternative routes for exporting Ukrainian grain via these ports has become a priority. This trend has heightened the importance of Moldova as a regional player in Ukrainian grain exports. The country will no doubt continue to play an expanded role as the Danube export routes will likely receive increased support and investment in the coming months. On August 30, Reuters quoted a senior US State Department official stating, “We are looking to support alternative routes: that is most prominently the Danube route. That route […] stays within NATO territorial waters [… and] keeps it into a more secure corridor.”

This could create opportunities for Moldova regarding possible investment in the country’s rail infrastructure and its own Danube port of Giurgiulești. However, this is not without challenges, given the frustrations voiced by Moldovan farmers over the congestion of export infrastructures created by the influx of Ukrainian grain and the negative impact of additional cheap Ukrainian grain entering the Moldovan market. Moldova’s president, Maia Sandu, acknowledged: “We are trying to find a solution. Discussions are taking place with Ukraine, Romania and the European Commission to see how we can align the interests of Moldovan farmers while also facilitating this grain transit from Ukraine.” In recent months, the Farmers’ Power trade union and local producers have engaged in periodic protests demanding limits on Ukrainian imports and compensation for losses incurred due to the storage and transport of Ukrainian grain.

Analysis & Forecasting

Assuaging the concerns of Moldovan farmers will be critical for President Sandu, both to facilitate the movement of Ukrainian grain and to protect her own political interests in this heavily agrarian country. Maintaining social cohesion is already challenging, given Moldova’s linguistic divisions and separatism. Heightened economic grievances on the part of farmers would create further challenges. Social cohesion and stability in Moldova will be critical for maintaining and increasing the country’s role in the transit of Ukrainian grain, especially considering the bans on Ukrainian agricultural imports imposed by the rest of Ukraine’s EU neighbors. Moldova’s foreign partners will likely be urged to provide sufficient support to address farmers’ concerns, whether by expanding export possibilities or offering compensation for lost opportunities.