Ukraine war could last for years, warns Nato chief

Monday, Jun 20, 2022

KYIV, Ukraine: Nato's chief warned that the war in Ukraine could last "for years" as President Volodymyr Zelensky vowed Sunday his forces would not give up the south of the country to Russia after he visited the frontline there.

Ukraine said it had also repulsed fresh attacks by Russian forces on the eastern front, rocked by weeks of fierce battles as Moscow tries to seize the industrial Donbas region.

While Ukraine remained defiant, Nato Secretary-General Jens Stoltenberg urged Western countries must be ready to offer long-term military, political and economic support to Kyiv during a grinding war. "We must be prepared for this to last for years," Stoltenberg told German daily newspaper Bild.

"We must not weaken in our support of Ukraine, even if the costs are high -- not only in terms of military support but also because of rising energy and food prices."

Ukraine has repeatedly urged Western countries to step up their deliveries of arms since the February 24 invasion, despite Russian warnings that it could trigger wider conflict. The Ukraine war is fuelling not only a global food crisis but an energy crisis too.

In Kyiv, thousands gathered to pay tribute to one young man -- Roman Ratushny, a leading figure in Ukraine's pro-European Maidan movement, who was killed fighting Russians in the country´s east earlier this month aged just 24.

In front of the coffin draped in a yellow and blue Ukrainian flag at the foot of a monument that overlooks the sprawling Independence Square in the capital, people of all ages saluted his memory. "I think it is important to be here because he is a hero of Ukraine and we must remember him," Dmytro Ostrovsky, a 17-year-old high school student, told AFP. The loss put a human face on the shared grief of Ukrainians, as the bloodshed continues.

The worst of the fighting continues to be in the eastern industrial Donbas region, with battles raging in villages outside the city of Severodonetsk, which Russia has been trying to seize for weeks.

Meanwhile, British Prime Minister Boris Johnson have warned Western allies to prepare for the long haul in Ukraine, as Russian forces intensified their assault on Ukrainian positions in the east of the country.

Johnson, writing in The Sunday Times newspaper, called for sustained support for Ukraine, saying the country’s foreign backers should hold their nerve to ensure it has “the strategic endurance to survive and eventually prevail”.

“Time is now the vital factor,” the British leader wrote in the 1,000-word article posted online on Saturday night. “Everything will depend on whether Ukraine can strengthen its ability to defend its soil faster than Russia can renew its capacity to attack. Our task is to enlist time on Ukraine’s side.”

To help, he outlined a four-point plan for “constant funding and technical help”, levels of which should be maintained for “years to come” and potentially be increased. And economic concerns – amid global food and energy crises made worse by the conflict – should not lead to a rushed settlement in Ukraine, said Johnson, who is battling inflation at 40-year highs at home and spiralling domestic fuel prices.

He added that allowing Russian President Vladimir Putin to keep territory in Ukraine would not lead to a more peaceful world. “Such a travesty would be the greatest victory for aggression in Europe since the Second World War,” he said.

Stoltenberg also appealed for continued support for Ukraine, telling Germany’s Bild am Sonntag newspaper that the supply of state-of-the-art weaponry to Ukrainian troops would increase the chance of liberating the eastern Donbas region from Russian control.

“We must prepare for the fact that it could take years. We must not let up in supporting Ukraine,” he said. “Even if the costs are high, not only for military support, also because of rising energy and food prices.”

Meanwhile, Germany announced emergency measures including increased use of coal to ensure it meets its energy needs after a drop in supply of Russian gas.

"To reduce gas consumption, less gas must be used to generate electricity. Coal-fired power plants will have to be used more instead," the economy ministry said in a statement. The move comes after Moscow turned up the pressure last week on Western allies, sharply reducing flows of natural gas in its pipelines to Western Europe, driving up energy prices.

Gazprom said the supply reductions via the Nord Stream pipeline are the result of repair work, but EU officials believe Moscow is punishing allies of Ukraine.

Berlin's temporary return to coal marks a turnaround for Chancellor Olaf Scholz's ruling coalition of Social Democrats, Greens and the liberal FDP, which has vowed to wind down its coal usage by 2030.

"It's bitter but indispensable for reducing gas consumption," economy and climate minister Robert Habeck said in a statement. A law outlining the new measures is due to be adopted in the coming weeks, he added.

They include an "auction" system for the sale of gas to manufacturers, which, according to the government, will help bring down consumption by the powerful sector. Funding will also be released to finance the filling up of tanks before winter.

Habeck stressed that the increased use of coal was only "provisional" in the face of the "worsening" situation in the gas market. Italian company Eni joined Qatar Energy's project to expand production from the world's biggest natural gas field, days after Russia slashed supplies to Italy. Eni will own a stake of just over three percent in the $28 billion North Field East project, Qatar Energy's CEO said at a signing ceremony in Doha.

Qatar announced France's TotalEnergies as its first, and largest, foreign partner on the development last week, with a 6.25 percent share. More companies are set to be named.

"Today I'm pleased... to announce the selection of Eni as a partner in this unique strategic project," said Energy Minister Saad Sherida al-Kaabi, who is also president and CEO of state-owned Qatar Energy.

The project's LNG -- the cooled form of gas that makes it easier to transport -- is expected to come on line in 2026. It will help Qatar increase its liquefied natural gas production by more than 60 percent by 2027, TotalEnergies chief executive Patrick Pouyanne told AFP last week.

Meanwhile, central banks have ramped up their battle against runaway inflation, a necessary remedy that could have the adverse side effect of tipping countries into recession, analysts say.

Just this past week, the US Federal Reserve announced its biggest interest rate hike in almost 30 years, followed by the fifth straight increase by the Bank of England and the first in 15 years in Switzerland.

"This week was a first. The craziest in my experience," said Frederick Ducrozet, chief economist at Pictet Wealth Management.

The moves rattled stock markets as investors fear that while the rate increases are needed, they could put the brakes on economic growth if the tightening of monetary policy becomes too aggressive. "Recessions are increasingly likely as central banks race to dramatically raise rates before inflation spirals out of control," said Craig Erlam, an analyst at online trading platform OANDA.

Capital Economics, a research group, said it does not anticipate a recession in the United States. "But the Fed is deliberately tempering demand in order to reduce price pressures. This is a difficult line to tread and there is clearly a risk that it goes too far and the economy tips into recession," it said in a note.

Emerging countries could be collateral victims from rate hikes. The dollar rises when the US Fed raises its rates.

"A strong dollar will complicate (debt repayments) of countries with deficits, which borrow often in that currency," Ducrozet said.

Central banks had insisted last year that inflation was only "transitory" as prices were driven up by bottlenecks in supply chains after governments emerged from lockdowns.

But energy and food prices have soared in the wake of Russia's invasion of Ukraine, pushing inflation higher and prompting economists to lower the world's growth prospects for this year. This has left central banks with no other choice but to move more aggressively than planned.

Australia's central bank raised rates more than expected earlier this month while Brazil last week lifted its benchmark rate for the 11th straight time. More hikes are looming in the United States and Europe.

But it is the Swiss National Bank that caused the biggest shock on Thursday when it announced a rate increase of 0.5 percentage points, the first since 2007. The SNB had focused on keeping the Swiss franc from being too strong until now.

"The actions of the SNB are notable in that they mark a significant shift in policy (away) from a very dovish position," said Michael Hewson, chief market analyst at CMC Markets UK. The European Central Bank has been slower to act than its peers. It is putting an end to its massive bond-buying scheme and will finally raise rates next month for the first time in a decade.

The eurozone faces another problem: The yields paid by its governments to borrow money have surged, with indebted countries such as Italy being charged a premium compared to Germany, a safer bet for investors.

This "spread" revived memories of the eurozone's debt crisis, prompting the ECB to hold an emergency meeting on Thursday after which it said it would design a tool to prevent further stress in the bond market.

The Bank of Japan bucked the global trend on Friday as it stood by its decision not to raise its rate, sending the yen close to the lowest level against the dollar since 1998. But even the Bank of Japan could adjust its policy, said Stephen Innes, managing partner at SPI Asset Management.

"BoJ members are considering public dissatisfaction with inflation and the rapid depreciation of the yen," Innes said. "While they plan to maintain the current easing policy, they may look to make some tweaks to support the currency," he said.

Consumers will have to be patient before they see the rate hikes have an effect on prices.

ECB chief Christine Lagarde said it bluntly when announcing plans for a rate increase next month: "Do we expect that July interest rate hikes will have an immediate effect on inflation? The answer to that is no."

Central banks do not have control over some of the problems that are lifting inflation, such as soaring energy and food prices, and the supply chain snarls. Capital Economics said energy and food prices accounted for 4.1 percentage points of the 7.9 percent rise in consumer prices in major advanced economies over the past year.

It expects oil, gas, and agricultural commodity prices to start falling later this year, which would bring inflation down sharply, but core inflation rates will remain elevated.

Earlier, outside his butchery in the south of Iran's capital, Ali cuts up a sheep carcass for customers who, like him, have seen inflation and subsidy reform devour their purchasing power. "My sales have fallen significantly -- almost by half," Ali, 50, told AFP. "What can I say? I am a butcher and you may not believe me, but sometimes I don't eat meat for a week," he added. "Everything has gone up in price."

Iran has been wrestling with rampant price growth for years, exceeding 30 percent annually every year since 2018, according to the International Monetary Fund.

That was the year US president Donald Trump yanked Washington out of a nuclear deal between Iran and world powers and began reimposing biting sanctions, sending the currency into a tailspin even before he unilaterally banned Iran's oil exports.

Hundreds of Iranians have taken to the streets of several cities to protest against the spiralling prices, on top of months-long demonstrations by professionals and pensioners demanding wages and pensions be adjusted for inflation.

Labour Minister Hojjatollah Abdolmaleki stepped down in the hope of "strengthening cooperation within the government and improving the provision of services to the people," according to government spokesman Ali Bahadori-Jahromi. But reformist newspaper Etemad linked his resignation to "heavy criticism" from the protesting pensioners.

In Tehran's marketplaces, attention is focused on the consequences and effects of inflation, rather than its causes.

President Raisi pledged from the outset that the painful subsidy reform would not affect bread, fuel and medicine prices. Demand for bread is therefore increasing. "The queues at the bakeries have become longer because the price of rice has risen, and people are resorting to bread," Shadi, a housewife wearing the Islamic chador told AFP near a traditional bakery in southern Tehran.

Inside, the baker Mujtaba agrees. "People... are no longer able to buy rice, cooking oil, spaghetti and tomato paste," said the 29-year-old, his face drenched in sweat as he took a break from preparing dough.