A Dangerous Escalation In The Russia-Ukraine War

Submitted via Portfolio Armor: 

Maybe Viktor Orbán Was Right

In his recent interview with Tucker Carlson, Hungarian Prime Minister Viktor Orbán offered a stark warning: 

This is a very dangerous moment now," he concludes, adding that it should be obvious to everyone that "the third world war is knocking on our door.

Hot on the heels of Orbán's warning, a new kind of strike hit Russia. 

What was new about this strike wasn't just the scale of it--Russian blogger Anatoly Karlin suggested it might have been the most significant air strike in Russia since World War II...

But the location of it. Note where Pskov is relative to the Ukraine. 

Pskov is much closer to NATO members Estonia and Latvia (50 and 65 kilometers, respectively) than it is from the Ukraine (800 kilometers). What's more, Pskov is on the opposite side of Russian-allied Belarus from the Ukraine. Hence military analyst Sergei Witte's concerned post (tweet) below. 

What Happened Here

In a long post (tweet) on X (Twitter), Armchair Warlord sketched out some possibilities. 

Biggest development of the ongoing Ukrainian War today was a massive drone attack on Pskov Airfield that appears to have destroyed two Il-76 transport planes and started a fuel fire.

Here's the issue - Pskov is on the other side of Belarus from Ukraine.

So our options are: 

1. 20+ Ukrainian strike drones flew over 660km of hostile territory (including the entire breadth of Belarus) without anyone noticing. This is unlikely;
2. Ukrainian DRGs launched 20+ strike drones from inside Russia. This is well beyond any capability they've ever demonstrated and would represent a major waste of assets against a peripheral target; or
3. The drones were launched from Latvia or Estonia, or ships in the Baltic Sea and overflew them enroute. This explains why Pskov was targeted and the lack of prior warning given the city is only about 60km from the border. I find this theory most likely.

Why now? Well, the great Ukrainian counteroffensive is culminating about 10km from its line of departure and with it hopes of Ukrainian victory. The Baltic States have distinguished themselves in their belligerence during this war and likely see the postwar writing clearly on the wall for their own long-term fates sandwiched between an ascendant Russia and the Baltic Sea. I can see a sufficiently irresponsible leader authorizing such an attack in the hopes of Russian retaliation triggering a general war with NATO to snatch victory from the jaws of defeat.

Here's the thing though - NATO isn't remotely ready for that war right now, and anyone claiming they are is deluded. NATO does not have the troops and gear in Eastern Europe to fight Russia right now. It's furthermore made quite clear to members that alliance membership does not guarantee NATO sponsorship if you just decide to attack someone. All loud talk aside, the NATO heavy hitters are about as interested in war with Russia as the Russians are in war with them right now. With that said, face must be saved.

The Russian authorities have yet to release an official statement placing blame for the attack at Pskov. This is quite significant because they've already released statements for the usual drizzle of sporadic Ukrainian drone attacks last night. If my assessment is correct and this attack came out of the Baltic States, I expect a tightly controlled Russian response - and I expect NATO proper to stay on the sidelines for it. Discussions about what exactly this will look like are probably ongoing between the parties as we speak.

It would seem pretty reckless for NATO members to have facilitated this strike, but then again destroying the Nord Stream pipelines seemed pretty reckless too. Perhaps Russia's lack of retaliation for Nord Stream emboldened whoever was involved with the attack on Pskov.

Hopefully, cooler heads will prevail. 

Probably Not A Bad Time To Add Some Short Exposure

In our previous post (Was This White Supremacism?), we mentioned a short trade we placed against Hawaiian Electric Industries (HE), as it spiked ~45% on Monday. 

We're not suggesting shorting the market here, but if you don't have any hedges or short exposure now, the latest escalation in Russia is another reason to consider adding some. That way, if there is a market crash in the near future, you'll have something that's going up in value. That can give you some dry powder to take advantage of opportunities on the long side. 

Something to consider. If you'd like a heads up when we make our next short or long trade, as always, feel free to subscribe to our trading Substack/occasional email list below. 

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