The Ukrainian military's "May Offensive" has started with a small delay. The world is hoping for the Russian army to retreat and for Putin's regime to collapse in Moscow.
However, there is a significant possibility that it won't happen. Why is that? And if the situation moves towards a ceasefire, what will happen to the relationship between Japan and Russia? Let's consider that.

Military Stalemate and the US Presidential Election Create Momentum Towards a Ceasefire

Since the war began in February last year, the Russian army has recaptured some of the territories it took from Ukraine. However, the remaining occupied areas have already gone through domestic procedures in Russia for "annexation," so they need to be defended.
In other words, Russia's current strategy is to defend rather than attack.

The Russian army is digging trenches and laying minefields in the forward positions. Even if the Ukrainian army has the latest tanks from the West, it is difficult to break through this defense.

Currently, the only one narrow isthmus from mainland Ukraine to the Crimean Peninsula is heavily fortified by the Russian army. Furthermore, the area before that has been flooded by the detonation of the Kahovka Dam.

In the southern and eastern Ukraine, on the other hand, it is highly unlikely that Ukraine's current forces are sufficient to eliminate the Russian army. The quality and morale of Russian soldiers may have declined, but even so, it is estimated that there are still around 300,000 to 350,000 Russian troops present in Ukraine, which is equivalent to the entire Ukrainian military.

Generally, attacking requires two or three times the forces compared to defending. Even if Ukraine receives "state-of-the-art tanks" from the West, they need to import every single screw for repair, and there are various types of tanks, making it difficult to keep up with training and maintenance.

In other words, the Ukrainian army will likely struggle to successfully carry out the offensive. Currently, they are involving what is called "Russia's far-right forces" (mostly hooligans such as skinheads and neo-Nazis who couldn't stay in Russia) and having them attack Russian territory. Perhaps the plan is to draw the Russian army here, weaken their defense in eastern and southern Ukrainian regions, and if possible, gain control of parts of Russian territory to use as bargaining chips in future ceasefire negotiations.

However, in order to protect the border, Russian forces from within Russia will likely come to support, and if the attacks are not carried out with caution, it could seriously provoke the Russian population to rise up. Moreover, near the border in the Belgorod and Bryansk regions, there are storage facilities for nuclear weapons, and if there is a perceived threat to these areas, it is uncertain what Russia will do.

The "Russian far-right forces" consist of many individuals who are only hungry for violence and money, and it is unlikely that they will simply act according to the wishes of the Ukrainian army. Instead of tilting the war in Ukraine's favor, they may even collaborate with Ukraine's right-wing forces and resort to violence to resist a ceasefire, potentially becoming a disruptive factor in the future.

The Western side has reached its limits in supporting Ukraine. Although the West surpasses Russia in terms of general production capacity, it cannot compete with Russia in terms of replenishing weapons. This is because the arms industry was significantly downsized after the end of the Cold War.

What is more, the United States has just obtained congressional approval on June 2nd to raise the debt ceiling. It cannot allocate this to support Ukraine. Furthermore, next year is a presidential election year, and they would like to avoid having the Ukraine war become a contentious issue between the Republican and Democratic parties, twisting their responses. They would likely want to establish the prospect of a ceasefire by the end of the year.

In mid-April, the American magazine Foreign Affairs published an article calling for an early ceasefire, co-authored by Richard Haass, the President of the Council on Foreign Relations, and prominent Russia expert Charles Kupchan. The Council on Foreign Relations is an organization that consolidates the opinions of the policy-making layer in the United States. The fact that an article by the Chairman of the Council was published in Foreign Affairs, the council's flagship journal, carries significant weight.

Amidst this, the NATO Summit will be held in Vilnius, the capital of Lithuania, on July 11-12. As the conflict in Ukraine continues without resolution, European NATO member states cannot continue to provide unlimited support to Ukraine, which is not a member of the alliance. Germany, France, Italy, and others have been hesitant from the beginning.

Discussions on how to provide military support to Ukraine are taking place between Ukraine and NATO behind closed doors, and there have been no leaks yet. Most likely, the extent of further support will be limited to the United States supplying medium-range missiles. The underlying message from the West is likely, "If this doesn't work, then start negotiations with Russia for a ceasefire."

No wonder, therefore, the media focuses on what to do after the NATO Summit. "We cannot immediately make Ukraine a NATO member, but if a ceasefire is achieved, NATO will ensure Ukraine's security for several years" is one of the proposals being floated.

Gray Ceasefire

In other words, there is a shift in the tide regarding the Western attitude to the Ukrainian war. If things continue as they are, Russia may achieve a ceasefire, which effectively cements the 2014 Crimea occupation and the expansion of the occupied areas in eastern and southern Ukraine.
However, Ukraine will not sign a formal agreement of such content; things will probably get frozen until after the US presidential election.

In parallel, NATO along with Japan, South Korea, Australia, and others, will launch a massive post-war reconstruction aid package for Ukraine in an attempt to appease the Ukrainian leadership. Right-wing factions and opposition parties in Ukraine (currently restrained during wartime) will seize this opportunity to criticize the Zelensky administration. The challenge for the Ukrainian government will be how to integrate these criticisms into the ceasefire regime and the post-war reconstruction boom.

Eternal Occupation vs. Eternal Sanctions

Even if a ceasefire is reached, the West will not lift the basic sanctions as long as Russia continues to occupy Crimea and most of eastern and southern Ukraine (which Russia claims to have annexed). During negotiations with Russia, some of the Western sanctions may be gradually lifted.

However, this will likely be limited to less visible measures such as lifting travel bans on government officials and oligarchs (which Russia is eager to have lifted). Measures to reduce Russia's oil and gas income will continue (although loopholes for bypassing these measures through routes like India are being developed). It is also likely that Russia will remain excluded from the SWIFT system for trade settlements (although methods to circumvent this are already being developed worldwide).

However, the most important thing for Western companies is the disappearance of the momentum to endlessly expand sanctions. This is crucial for business because the perception that "companies doing business in Russia are bad" will fade away. Transactions in sectors and areas that are not subject to sanctions can be conducted with peace of mind.

If asked whether I would invest in Russia under these circumstances, what would I say? Personally, I have never invested in Russian stocks or currency, and I probably won't in the future, either. However, if I were a company, I would base my judgment on the prospects of the Russian economy after the ceasefire. The outlook for business is "moderate" at best.

Above all, the market size in Russia is unlikely to expand significantly. This is because oil and gas prices will probably remain low. As the demand for oil and gas retreats globally, Russia does not have alternative export items to replace them. Grain exports are likely to be limited to around $30 billion per year, and it will be difficult to recover the lost export volume of weapons due to the Ukrainian war.

Invest in Ukraine's Reconstruction

For the time being, the business boom will revolve around the reconstruction needs of Ukraine (excluding the Russian-occupied territories). However, based on previous experience, even if the Japanese government provides funding through JBIC (official bank which finances exports and investments abroad), the actual projects are often taken by Western companies, especially German ones. Western companies have deep connections with the Ukrainian government, and their products and services are cheaper than those of Japanese companies.

Furthermore, Japanese companies have almost no decision-making power on-site, so they are easily outperformed by agile Western companies.

Therefore, it would be reasonable for Japanese companies to collaborate with European and American companies and provide industrial goods, consumer goods, and services for the contracts they secure. Profit margins may decrease, but there is no other choice.

If that is undesirable, the only option is to establish closer ties between overseas outposts and headquarters and develop a system for quick decision-making, using, for example, online-conference system.