Imagine What a Ukraine Deal Might Include

If durable peace looks far-fetched, could Trump and Putin agree to a framework at their Alaska summit this week that upends global markets?

As Donald Trump and Vladimir Putin head for Alaska on Friday, expectations for a lasting peace in Ukraine are at rock bottom.  While leaks so far suggest Trump may be open to trading land for peace, it’s hard to imagine Europe, let alone Ukraine, signing on easily. 

But European defense stocks would fly on any lopsided deal that rewards Russia’s aggression, and oil prices would slump on even the whiff of looser sanctions on Russian oil. So, even if the odds are low, it’s worth exploring a hypothetical world in which Trump forces an agreement on Kyiv and the rest of Europe reluctantly concedes.

Barely a few weeks ago, I argued why this ghastly war looks set to drag on – indeed, escalate – in the coming months. That’s still my best bet. Putin’s decision to snub Trump’s recent overtures reflected his sense that Russia is slowly winning not just its land grab, but also making progress toward its ultimate goal for a settlement that keeps Ukraine weak and the West divided.

Trump’s tentative shift to back Ukraine in recent weeks reflected not just his frustration with Putin’s continuing assaults on Ukrainian cities, but his realization that he can’t walk away from the conflict altogether. Settling this war was a central campaign promise, and he would share at least some of the blame for ignoring the continuing human catastrophe.

But the American president has little patience for the Ukrainian talk of territorial sovereignty or European insistence on durable security arrangements. Whether it’s part of a campaign to secure the Nobel Peace Prize or a sincere desire to end the killing, Trump just wants a deal. 

So close your eyes for a moment and, as John Lennon might say, imagine. What might be possible after the two leaders shake hands and sit down to talk?

If Russian forces have made incremental gains through the summer, sanctions have hurt badly. As the wise economist Anders Aslund points out, the economy is showing signs of slowing growth and rising costs, with financial reserves dwindling rapidly.

With mounting discontent over massive battlefield losses, Putin could declare victory, claiming he has secured protection for Russians in the Donbass and blocked NATO expansion. Since no future U.S. leader will offer better terms than Trump, why not agree to a ceasefire now and use his remaining military and diplomatic leverage to keep Ukraine under his thumb and the rest of Europe off balance? 

But European defense stocks would fly on any lopsided deal that rewards Russia’s aggression, and oil prices would slump on even the whiff of looser sanctions on Russian oil.

Trump believes he is on a roll, claiming credit for ending conflicts between India and Pakistan, Israel and Iran, Rwanda and Congo, and Cambodia and Thailand.  On Friday, he hosted leaders from Armenia and Azerbaijan as they signed a peace deal.

Having already conceded to Russia that Ukraine will not join NATO and signaled that the U.S. might recognize Crimea’s annexation, Trump even backed away from setting as a precondition for this meeting that Ukrainian President Volodymyr Zelensky be included. If a promise to relax U.S. financial sanctions over time could secure a cease-fire announcement, the president wouldn’t hesitate.

But Trump can’t give too much away. Even if he can steamroll Republican hawks into backing whatever he agrees to, Europeans will not dial back their own sanctions on Russia for an agreement that merely gives Russia a pause to regroup and attack again. On Sunday, European leaders seemed to reject territorial swaps between Russia and Ukraine that Trump had suggested, insisting that “international borders must not be changed by force.” 

But they also said that current battle lines should be the “starting point of negotiations.”  What if Putin gives in to European demands for an immediate ceasefire without committing to withdraw Russian troops? What if Europeans promise never to station troops on Ukrainian territory?  What if Putin agrees to allow some limited European weapons sales to Kyiv, betting they will run out of money soon enough?

Zelensky will denounce this as a sellout that leaves Europe vulnerable and Russia unpunished for its crimes.  But he may not have much choice but to swallow hard if the Europeans cave to Trump.  Ukrainian leaders may even be able to draw some advantage from a disastrous military settlement if they insist that Europe accelerate Ukraine’s application to join the European Union.  Russians have said they won’t object, but they may also believe they can derail the application by playing up the fears of European farmers of tariff-free competition from the “world’s breadbasket." 

Any peace arrangement along these lines would need lots of loose language, lengthy transition periods, and probably even a UN peacekeeping mission.  European and Ukrainian leaders would face outrage and scorn from angry voters, and some might get bounced from office. The odds of such a framework lasting are even longer than Trump and Putin striking a deal.

But it’s not impossible to imagine, and good investing requires testing all the options.