Unusual American Protection pressure Support for Ukraine – What’s in the equipment and what affect will it maintain?

In Ukraine, battlefield conditions and dynamics have often been driven by supply availability. And for the Ukrainian military there is no other donor, not even the Russian military, that comes close to the United States. A rush of US and allied aid in 2022 helped the country resist the initial Russian invasion. But in late 2023 and early 2024 that vital artery of supply all but stopped. That left Ukrainian troops having to improvise and operate under severe supply shortages. While the Russian military has been able to slowly grind its way forward, in large part because of its mounting advantages in mass and firepower. Earlier this week however, the United States finally passed a new aid package for Ukraine.

At approximately $60 billion, it was worth about 0.2% of US GDP. Such as the raw size of the US economy though, that a fifth of a percent can still get you an amount equal to very roughly half of Russia's 2024 defence budget. And within days of the bill passing, significant new deliveries to Ukraine were already being announced. And so today I want to look at this new US aid bill, and what its passage might mean for Ukraine and for the United States. To do that I'll split the video up into two sections. In the first half I'll focus on the US and the package itself. Looking at the package including some of its stranger and less talked about elements,.

The process involved in passing it, and what this might mean for US strategy. Then in the second half we'll focus more on what this means for Ukraine. Asking essentially how much difference 60 billion dollars can make in a war like this one, especially when it comes to the supply of things like ammunition, critically needed and specialised equipment, and of course the financial support necessary to keep the Ukrainian economy running. The episode will run the full gamut from appropriations through secret projects, to battlefield dynamics, so how about we jump into it? Now when I last talked about aid in 2023 I said I'd hold off until the US aid package was passed,.

Expecting that that would probably be in November or December, not April 2024. So let's quickly fill in a few time blanks since that point. There's a lot that could be said about aid dynamics in the earlier stages of the Russian invasion. But in terms of volume and velocity, it was the United States that was playing the most critical early role. Over the course of 2022 the US passed a number of Ukraine aid packages. Those packages were meant to carry the US effort through to the end of the 2023 financial year, 30 September 2023. And on August 10th 2023, ahead of that deadline,.

The White House sent a request for additional Ukraine funding to Capitol Hill. That package and a number of proposals that followed it didn't go anywhere fast. There would be diplomatic efforts of course to try and smooth the path of further aid through the US Congress. But through most of late 2023 and early 2024 Ukrainian and European diplomatic efforts were generally meant with the diplomatic equivalent either of being left on red or an automated message basically saying, “Thank you for your call. Your existential military struggle for national survival is important to us. Please leave your name, number, enemy, and the details of any valuable resource deposits.

Within your national boundaries and we'll get back to you in 2 to 12 months.” And so having taken an early lead in aid provision to Ukraine, the US figures started to stagnate. Now I don't want to focus too much in this episode on the nature of the US political system, but when talking about why aid to Ukraine or the Asia-Pacific got held up in the US Congress, it is impossible not to talk about some of its dynamics. From a system design perspective, a lot about the way the US Congress and political system in general functions, by global standards tends to weight pretty far towards emphasising checks and balances over efficiencies. It's often relatively hard to do things quickly,.

And very easy for individuals or small groups to slow things down. The filibuster, for example, doesn't uniformly exist across all representative democracies the way it does in the United States. In theory that's the sort of system you might design if you want to emphasise bipartisanship, cooperation, and the practice of good faith negotiation and compromise, both within your legislature and between the branches of government. The problem comes when you take a system that was designed with compromise and bipartisanship in mind, and throw it into the context of a political culture that's only slightly less polarised than your average Croatia/Serbia soccer match.

It was always strongly suspected, and recently confirmed by the final votes, that Ukraine aid always had a strong majority in both houses of Congress. The ayes outnumbered the nays by about 3:1 in the House and 4:1 in the Senate. In a lot of political systems that fact alone would have been enough to push aid past the line fairly quickly. But the nature of the US political system was such that even when the Senate passed a comprehensive aid package relatively similar to what ultimately ended up passing just now, the House was able to essentially put the bill in a drawer, avoid voting on it, and wait for negotiations to play out – many of them within the bounds of the Republican Party itself,.

Before Johnson reached a decision on how and when to bring the various foreign aid proposals to votes. While the US political system was debating with itself internally, aid to Ukraine started to dry up, even though Russian attacks very much didn't. The issues that caused for Ukraine were potentially magnified by the fact that throughout this period many US and allied voices remained adamant that US aid was on the way. Meaning other countries may not have rushed to put in place the sort of contingencies they may have, if they'd known in late 2023 just how long the delay would end up being. We arguably didn't see the results of this immediately, but over time we started to see critical gaps emerge in key capability areas.

Perhaps most importantly, Ukraine was running short on artillery shells and similar munitions to help it hold the front. And air defence systems and missiles to hold off the Russian Air Force and constant missile attacks. In the absence of new American aid, we saw a determined effort by some Europe states to try and fill the gap, at least partially. Germany for example announced it would be providing a record 7 billion euros worth of military equipment in 2024. And at time of recording, the United Kingdom has just announced its largest military aid package to Ukraine since February 2022.

A broad observation though is that while a lot of European states tried to rise to the challenge, when it came to weapons supplies there were some things the US was just much better positioned to supply. Trying to address the critical artillery ammunition shortage for example, Germany had to dig pretty deep. In March, Berlin announced it would be handing over another 10,000 155mm shells from Bundeswehr stocks, and while that may only have been good for a couple of days worth of consumption in Ukraine, for the German military that was a pretty big ask. As Ukraine suffered supply and manpower constraints, Russia appears to have tried to keep up the pressure.

And whatever the intention, by maintaining that pressure Russia may have to an extent duplicated some of what Ukraine achieved in Kherson back in 2023, over-stretching the logistics and combat power of a defending force to the point where the only real choices were a local withdrawal or risking the line slowly cracking. And the important point to make here is the evidence suggests that the impact of materiel shortages wasn't always linear. This wasn't just a simple maths problem where Ukraine having 20% less ammo translated into 20% worse battlefield outcomes. In some cases shortages may have actually changed the way the Russian military was able to fight.

In a situation where Ukrainians lacked air defence missiles for example, Russia could do more aggressive things with its air power and drones. We saw some cases of Russian aircraft seemingly flying right up to Ukrainian positions. Glide bombers sometimes pushing forward closer to the front line. And valuable long range reconnaissance drones ranging far behind Ukrainian lines to hunt down valuable equipment. All of those things would likely be incredibly risky against a well-supplied opponent. But all of them likewise would logically allow the Russians to do more damage with the resources they had.

In a sense you could argue this was sort of the military equivalent of a game of red light, green light, where Russian forces could try and take risks and make advances when US aid wasn't looking. But whenever the Ukrainians could be watching through a Javelin's CLU or a Patriot operator station, a different, more conservative, set of tactics and approaches might be required. The same logic could also be applied to the Ukrainian side. Ukrainian units often complained for example that because they didn't have enough ammunition there were Russian targets they had to choose not to shell. And where you had Russian attacks that couldn't be fended off with artillery due to shell shortages, often an increased burden of fighting off those attacks.

And the casualties that came with them, would fall on the Ukrainian infantry. The thing here though is that the relative balance of supply that enables those sorts of dynamics can change over time. The slowdown in US aid was one of the main factors that gave us the very difficult situation the Ukrainians now face on the front. The question now though is with the aid bill finally passing and the first deliveries already occurring, to what extent are we about to see that supply gap narrow in potentially dramatic fashion. OK, so let's actually have a look at what is in the US aid package.

Because while most of it is probably basically what you'd expect, there's some interesting twists in there too. The Ukraine bill that just passed did so alongside a number of other US measures. These addressed various areas of US strategic interest like the Middle East, Asia-Pacific, and of course the clearly overwhelming security threats posed by the Russian military, or TikTok. The Ukraine component of the overall consolidated aid bill had a total value of about 60 billion US dollars. That was split across a number of categories and I've listed some of the main ones on screen there, rounded very approximately to the nearest billion.

Some of these categories, like the Ukraine Security Assistance Initiative, were very much focused on getting new military equipment to Ukraine. But the largest category was nearly $27 billion worth of procurement for the US military, roughly $7 billion for US military operations and personnel, funding for US research, development and testing, and financial assistance and loans packages for Ukraine and Eurasia more generally. Note that you might see slightly different versions of these numbers reported elsewhere, and in some cases I suspect that will basically come down to how these various line items have been categorised.

What I'm now going to try and do is break down some of these major categories, beginning with the military-focused ones. Now to help pass this section, a quick 101 on how the US does military aid in general. As you might expect for a major power and the world's largest arms exporter, the US has a number of mechanisms it can use to supply weapons to other countries. And for the purpose of this episode, I am going to try and explain those various mechanisms in terms a modern deeply-indebted generation can understand. With the Ukraine Security Assistance Initiative functioning as a sort of US defence industrial-based gift card,.

Foreign Military Financing serving as a kind of store credit card, the Presidential Drawdown Authority enabling Ukraine to get access to US military hand-me-downs, and finally the Excess Defence Articles power, basically the US military equivalent to having a garage sale that only your friends are allowed to attend. All of these are potentially relevant in the Ukrainian context, but we'll start with the nearly $14 billion of the Ukraine Security Assistance Initiative. The USAI funding, despite the name, is not there to get ChatGPT's far more militant cousin weaponised and on the battlefield. Instead as I said it's kind of a gift card for the Ukrainian government.

More accurately, it allows the US government to contract for systems from US industry or partners, but given these systems are for Ukraine, what they're ordering is usually going to be what Ukraine is requesting. And while it may not be as quick to deliver as some of the other mechanisms we'll look at, it does have its place because it allows Ukraine to order what it needs from US defence manufacturers. Which means the menu, if you like, of what they can order is less constrained than other mechanisms, because they are not limited by what is currently available in stock. The US doesn't have to have old surplus of a system.

For this approach to work, it just has to be able to manufacture it. The disadvantage however, is that the equipment often does need to be manufactured. And it needs to be manufactured at a time when US defence firms are often facing a record order backlog. That might be fine if you're planning for a longer war, but it's not ideal if you're thinking about pushing back a Russian offensive next week or next month. Given the potential time lag, there might be an incentive to get orders in early. And as at time of recording, we have already had the announcement of a $6 billion package using USAI funding, which will be used to purchase a range of systems and munitions for Ukraine,.

Including air defence missiles like Patriot, 155 and 152mm artillery rounds, counter UAS systems, radars, and a fair amount more to boot. What hasn't been definitively announced however, is an explicit time frame for the delivery of any of the above. The bill also allocates $1.6 billion to the Foreign Military Financing program. That program bears some distant similarities to the USAI program, but it's hypothetically accessible not just by Ukraine but also in the case of this 1.6 billion, countries that are impacted by the situation in Ukraine. If USAI is a gift card that lets you buy from the US defence industrial base, FMF is a store credit card.

FMF loans tend to come with some very attractive terms, with the condition being you do have to buy American. And while the Ukrainian government would probably prefer just more outright aid funding, this does create a significant pool of money that they or others might be able to draw on if the circumstances require it. You can after all, buy a significant amount of boom for $1.6 billion. The common drawback however to both FMF and USAI is speed. If you want to get Ukraine aid more quickly, you probably don't want to be contracting new purchases so much as sending existing equipment.

And that's where the combination of two parts of this bill, Presidential Drawdown Authority and Procurement Funding come together. With Procurement Funding allowing the Pentagon to spend dollars to get a large supply of new weapons and munitions, and then the Drawdown Authority giving the President authorisation to send a certain value worth of older weapons and munitions to Ukraine. So to unpack that, let's start with the largest component of the bill overall, the Procurement Funding. It is split into service specific components, and one larger $13.4 billion pile. That big chunk there is basically a general Ukraine-related replacement fund.

It allows DOD to replace articles that it sent to the government of Ukraine either through new production or the reactivation of old stock, or replacing equipment and services that have been sent to third countries, who have sent their own equipment to Ukraine at the request of the United States. So if the US requested a country to send its Soviet-era kit to Ukraine, and provided it American equipment in turn, that could potentially come out of this bucket. Then there are a number of smaller (and I use that term loosely) individual procurement lines for the different services that are intended to buy specific things, but don't necessarily need to be directly in relation to weapons that have been sent to Ukraine.

They just need to, “Respond to the situation in Ukraine and for related expenses.” What these items might do however is give us a little bit of a clue as to what sort of equipment the US has been sending to Ukraine so far, and what it anticipates its future needs there might be. For example, the Army is getting $5.6 billion for ammunition procurement, 2.7 billion for missile procurement, and about 309 million for that most important of all categories, “other”. I'm sure there are a lot of businesses out there that wish they could write off more than $300 million worth of expenses as “other”,.

But I imagine as far as most national tax authorities are concerned, that's a superpower pretty much reserved for the military budget. It still however doesn't hold a candle to some of the best procurement paperwork I have ever seen, where some absolute legends in an organisation that shall not be named, registered a significant spending item to buy “stuff”. Compared to that, the US Army is positively spoiling us with this whole “other” category. Right off the bat, what I think we should read into those Army procurement figures is a major focus on munitions in this entire package. At $3,000 a shot, 5.6 billion is enough.

To buy you more than 1.8 million rounds of artillery ammo. And you can fit a lot of Gimlers or ATACMS rounds into 2.7 billion. That theme I think continues with the Navy, that's getting $707 million for weapons procurement. A significant part of which might be for example anti-aircraft missiles coming out of Navy inventory, think things like Sea Sparrow. Meanwhile the Air Force gets 366 million for missile procurement, so think things like HARM or AIM-9. And the US Marine Corps, which doesn't do any of this fancy-ass category shit, gets 212 million for just “procurement”. Perhaps the most interesting addenda among all these procurements though.

Is the fact that the US Air Force is getting nearly 3.3 billion US dollars not for one of its more regular categories like missiles or aircraft, but is instead positively smashing the US Army by having a multi-billion dollar allocation to “other”. There are a huge number of things it could be, but at 3.3 billion we are probably not just getting every base a new coffee machine. And if you indulge in everyone's favourite pastime of digging through appropriations documents, you can actually find another twist in this tale. Buried in the Ukraine aid package you'll find some R&D funding. And not like a little bit of R&D funding,.

I'm talking more than $630 million worth of research, development, test and evaluation funding, specifically “To respond to the situation in Ukraine and for related expenses.” In terms of scale, you could very roughly fit the entire 2022 defence budget of Lithuania inside this research, development, test and evaluation spend. And the lion's share of it, more than $406 million, goes to the United States Air Force. So all we really know coming out of those figures, is that the United States Air Force is getting $406 million to develop “things”, and $3.6 billion to then buy “stuff”. Obviously I'd call that a tremendous win for budget transparency,.

While noting that generally when the US Air Force is given billions of dollars to do things that it doesn't want to talk about, there might occasionally be reasons for some of its competitors to get nervous. An important point though is there is a big difference between the Pentagon getting 24-25-26 billion dollars for new procurements, and claiming that Ukraine is going to receive 24-25-26 billion dollars' worth of new systems. Because what we don't know for sure is how much of that funding is earmarked to replace equipment that has already been sent to Ukraine, and how much is intended to replace equipment that is still to be sent.

As of the beginning of this year, the reporting was that the Pentagon considered itself about 10 billion US dollars in the hole on support to Ukraine so far. Part of the reason that might happen is because when the Pentagon sends older weapon systems or ammunition to Ukraine, it values those systems in a way that reflects the fact that, you know, they are old. So when the Pentagon gets permission to send a billion dollars' worth of old armoured vehicles to Ukraine for example, that might be a lot of armoured vehicles. But when the Pentagon goes to replace those units with modern upgraded systems, say AMPVs instead of M113s,.

It becomes an accounting reality pretty quickly that you can't replace a billion dollars' worth of Cold War shitboxes on a 1:1 basis with a billion dollars' worth of new vehicles. If those reported figures are roughly accurate, and the Pentagon decides it wants to make itself good as part of this Ukraine aid package, then that 24-26 billion dollars worth of procurement might really only mean half that much in terms of new systems for Ukraine. I think there might be a small relevant clue though in section 401 of the bill. What it does is bump up the Presidential Drawdown Authority for fiscal year 2024. PDA is famously both a staple of terrible high school dramas,.

And also the primary mechanism by which the President of the United States can send defence articles currently held by the United States Department of Defence to a foreign country or international organisation as a form of immediate military assistance. PDA is basically the mechanism by which the US can move weapons to Ukraine quickly by taking those from US military stockpiles and just shipping them, rather than waiting for them to be manufactured. As of the end of 2023 Ukraine had got around $24 billion worth of stuff through the Presidential Drawdown. The recent bill tops up what's left of that authority by an additional 7.8 billion. So while there is money in this bill to procure 24+ billion dollars' worth of new stuff and services,.

The authority to actually send old stuff only increases by about 8 billion. Although it will likely push a bit higher than that once you take account of some of the other provisions and whatever may be remaining on the authority at the moment. And there are other powers the US President might be able to use, like for example the Excess Defence Articles provision. This as I said earlier, is basically the defence equivalent of hawking off your shit at a garage sale or listing it on Facebook Marketplace for a dollar plus pick-up. Scrapping military equipment can sometimes be quite expensive, so generally a power like EDA makes a degree of financial sense.

By taking something you don't want and then shilling it off to an ally at a serious discount. That might mean some Littoral Combat Ships the Navy doesn't want, and so Greece can have at a bargain. A bunch of MRAPs left over from Iraq and Afghanistan that have been picked up by US police departments. And it could also potentially be used to say “Hey, we don't really need those anti-tank missiles over there but we're pretty sure those Russian tanks in Ukraine really, really do.” You won't find any direct mention of EDA in this bill, but if you're keeping track of mechanisms to get equipment to Ukraine directly or indirectly, this might be one of them. That I think rounds out the potential military equipment components,.

Let's move right in our chart and talk about financial assistance. The biggest line item here is approximately $8 billion worth of financial assistance to the Ukrainian government in the form of a forgiveable loan. We'll come back to this type of aid a little later on, but for now it's probably enough to say that this sort of support can still be very significant to the Ukrainian war effort. It helps keep the Ukrainian economy functioning, Ukrainian domestic defence production funded, and of course helps keep very important Ukrainian exports, like food stuffs, flowing out into the global markets.

As well as this block of economic assistance, you also find all sorts of small funding items in the bill. Money for the intelligence community, money to monitor aid going to Ukraine, money for refugee relief. And also little miscellaneous extras like $98 million for the US Department of Energy for “Acquisition, distribution and equipment for development and production of medical, stable, and radioactive isotopes.” But in terms of major remaining components the last big pile of money, if you will, is funding for US military operations. Funding for US operations in the region is an interesting one. And it goes to highlight just how expensive it is to run the US military.

What this operations funding might cover is things like training exercises for Ukrainian troops, surveillance flights, and just the general cost of having additional us troops in Europe and having those forces at a higher state of readiness just in case Russia ever gets ideas about just poking at the NATO border a bit. This funding should cover those expenses, at least for a while. It also arguably highlights a reason why the US alliance system is so important to the US from a defence economics perspective. There are obviously going to be times that you want to use US forces and US assets, that provides you an awful lot of capability.

But if you're just trying to make up numbers, or generate mass in a given region, it's often going to be much, much, much cheaper to have local allied forces, like the Polish, Finnish or Baltic militaries, provide some of that mass instead. Plus if you invite the Italians as well, you might not save that much from a budget perspective, but the average quality of the food issued in the battle groups is going to go way, way up. At least that is until some of the Americans present decide to try and share their so-called cheese pizza MRE with the Italian contingent, at which point we can all presumably leave it to the military lawyers to determine whether or not there is such a thing as justifiable friendly fire.

In any case, having gone through the aid bill I think there at least two important questions that we don't have firm answers to. The first is how long is this package intended to last, and will further supplementals be forthcoming? And the second is what percentage of funds in this bill should Ukraine expect to see? So to start with the first one, when the first discussions around this package started in the latter part of 2023 it was a one-and-done package for the financial year. Basically it would cover Ukraine from 1 October 2023 through to 30 September 2024. If that was still the case Ukraine would probably be expecting some very large aid packages in the near future, and pretty frequently thereafter,.

As 12 months of funding would have been compressed into basically 6. However, the bulk of the funding items in this aid package don't expire on 30 September 2024. A lot of it instead expires 30 September 2025, and some of it stretches out into 2026, specifically a lot of the appropriations funding. Now on one hand that might be there to allow things like multi-year procurements to be done, or to allow excess funds to roll over into the next financial year if they can't be spent within the limited time frame. A potential point of concern for Ukraine however, would be if those late 2025 expiry dates indicate that this aid package is meant to last until then.

The implied question here is whether or not we should be expecting another US aid package sometime in late 2024 or early 2025. Or if this is intended to be it. If the latter is the case then another way of thinking about this wouldn't be so much that the US has passed its 2024 aid package late, as it's passed its 2025 aid package very, very early. Another option, and perhaps I think the most likely one, is that American decision makers are aware there probably needs to be a 2025 package for Ukraine, but the political realities in Washington DC being what they are, the chance of passing that package before the November elections.

Are about as likely as EA releasing a title without aggressive monetisation. Theoretically possible, but I wouldn't bet your last loot box on it. That being the case, it might be the authorisations in this bill have been extended into 2025 both to allow for stuff that's delivered late to be delivered late, and potentially provide some coverage through Q1 2025 if there are difficulties in getting the next package up. The other question I wanted to address before we get to impact is how much of this money is actually being expended directly for Ukraine? There, there are items where Ukraine will see a benefit.

Like financial assistance, USAI, or Presidential Drawdown. But it's worth noting there are billions of dollars in this package that are never likely to leave the US defence ecosystem. And a lot of the balance will probably ultimately come down to how that procurement funding is used and how heavily the White House chooses to exercise powers like the Presidential Drawdown or Excess Defence Articles. The final point to add here is just how different this aid package looks from those that we saw in 2022 and 2023. If you go back to the largest supplemental from 2022, the one dated 29 December,.

The difference in make-up, if not total value, is pretty significant. The financial and humanitarian aid components were much higher, the economic support fund then was about $13 billion, there was more than 1.5 billion for migration and refugee assistance. Meanwhile dedicated funding for procurement of ammunition was only about 700 million. By comparison, this 2024 package is much more kinetic. The built-in assumption seems to be that other donors like the European Union or Japan will step in to do most of the economic stuff, leaving more of the US aid budget to focus on things that those other countries can't easily do.

Any country it seems can do financial assistance, but America does weapons. So if those are the details of the aid bill, what about its potential impacts? And before we talk about some of the more obvious and foreseeable impacts, like more Russian tanks exploding, I want to quickly comment on some of the potential impacts on US relationships and alliance structures as a result of the delay in getting the Ukraine aid bill up. From an international perspective, I think it's reasonable to say that the delay in passing the aid bill has probably been detrimental to the USA's relationship with some of its allies.

Some Ukrainian commentators noted the tension between the delay and previous American promises to support them for as long as it took. And from the point of view of some American allies in Europe, it must have seemed as if debates over domestic US policy issues were increasingly paralysing actions on security issues that were of interest to the whole alliance. We recently saw the French President reportedly say for example that Europe could no longer rely on the US for its security, and the continent would need to step up its own independent capabilities. On one hand, calls for greater European strategic autonomy and defence capacity.

Are about as quintessentially French as the Louvre. So hearing those sort of statements isn't exactly surprising. But it was hard not to detect at least some change in tone, especially as European commitments to Ukraine started to sail past American ones. There were also concerns that the delay might have had an impact on deterrence and America's strategic credibility. There were voices in the Asia-Pacific for example saying that American aid to Ukraine was vital in order to maintain deterrence and stability in that region. After all, if the United States wasn't willing to put up a fifth of a percent of its GDP.

In order to halt the Russian military, would it really be credible for the US to assert that it would actively enter a shooting war in order to support its Asia-Pacific allies? The passage of these aid bills is unlikely to undo all of those impacts overnight. But that's unlikely to be a huge amount of comfort to Moscow, because one place where I think the evidence suggests the passage of these bills will have a serious impact in the near and medium term is Ukraine. And here I think there are a few basic reasons that demonstrate just why US aid is likely to be so significant. Firstly, there are some specialised capabilities and systems that the US.

Is just in a better position to provide, or may indeed be the only practical provider of. For example, if you are Ukraine and you want a TBM to fire from your M270s or HIMARS, that means ATACMS, and if you want a significant number of those ATACMS missiles from a country that can afford to hand them over, the USA is the only practical option. It's already been reported that the US has made the decision to supply Ukraine not just with the shorter-range cluster version of ATACMS, but some of the longer range versions as well. Logically, just the knowledge that some of those missiles are in Ukrainian hands is probably going to impact Russian decision making. All of a sudden any valuable target potentially within several hundred kilometres of the front.

Will have to be defended not just against the prospect of air launched cruise missile attack from Storm Shadow, but also ballistic missile attack using ATACMS. It's important not to think of small numbers of specialised systems like this one as “game changers” or wonder weapons that are likely to swing the war by themselves. But in terms of out-sized impact relative to their cost, there are some systems like ATACMS that have very strong records in Ukraine. The first missiles that arrived in 2023 for example did significant damage to or destroyed multiple Russian helicopters.

Another recent ATACMS strike is believed to have destroyed multiple S-400 launchers. So basically what we might see with Ukraine regaining access to US aid funding is a greater ability for the Ukrainians to reach into the US military's very broad and very deep tool kit to find the right specialised tools they need to address their pressing requirements and target Russian weaknesses. It also might be very important from the perspective of sustaining a lot of the equipment that the Ukrainians currently have, as well as providing some of the extra bits and enablers required to get the best out of systems they are getting from other countries.

European countries are planning to hand over their F-16s, but a lot of the best options in terms of missiles and munitions for those platforms (or potential upgrades) again come from the United States. So US military aid isn't important just in its standalone role, it's also important in making sure Ukraine can get the best possible value out of the aid it receives from other countries. But perhaps the most important distinguishing factor of the US as a supplier of military aid is just the scale at which it can do things. This is a war where quantity is often king, and across a range of equipment categories.

There is no NATO country that can do quantity the way the US can. In the $1 billion Presidential Drawdown package that was just announced this week for example, the US appears to have pledged a casual 1,000 Humvees and 500 MRAPs, presumably at least some of them straight from the sand pit. And in both cases, more vehicles of that category than have been visually confirmed lost by Ukraine over the last 2 years of fighting. And at a time where we've seen some Ukrainian units downgraded from being mobile brigades to infantry brigades due to a lack of vehicles, those sort of numbers might really matter.

But if we're going to use just one area to illustrate the sort of difference that US aid might make to Ukraine's fortunes in 2024, it has to be ammunition. And even that's probably too broad a category, considering that in the first billion dollar package since the US aid bill passed, the US handed over RIM-7, AIM-9 and Stinger missiles, small arms ammunition, Gimlers rounds for HIMARS, 155mm conventional and cluster shells for artillery systems, 105mm artillery rounds, 60mm mortar rounds, TOW missiles, Javelin missiles, AT4s, precision aerial munitions (which I presume refers to JDAM),.

Claymores, demolition munitions and more besides. So rather than going through a list of some of the Ukrainian military's favourite things, let's narrow the question and look specifically at what has always been one of the most decisive munitions of the war in Ukraine: artillery shells. We've talked a lot about the decisive impact of artillery in Ukraine before, so I won't revisit the basics. Suffice to say if you wanted to identify one critical input that correlated with battlefield outcomes for either side, you could probably do w orse than picking artillery shells. In Ukraine systems like drones and tanks are great, but both sides have an almost insatiable appetite for good old-fashioned artillery fires.

Directed by some very new-fashioned drones. And yet Ukraine's artillery ammo supply in Q4 2023 and Q1 2024 is probably about as bad as it has ever been. With US aid drying up, which had been Ukraine's main source of 155mm shells in particular, Ukraine's recent supply of main-calibre artillery shells mostly came down to a couple of key sources. A European effort to deliver new build or stockpiled artillery shells from European inventories, which was behind schedule, coupled with relatively small-scale manufacturing in Ukraine itself, and a number of small bilateral aid programs.

There were a number of ammunition deliveries from Germany for example, and a deal between France and Australia to deliver a couple of thousand rounds per month. But overall Ukrainian supplies were at a low ebb, with some reports suggesting artillery fire rates of as low as 2,000 rounds per day for Ukrainian forces, and a local artillery expenditure advantage for Russian forces that ranged from 5:1 to as high as 12:1. And it was that Ukrainian disadvantage in artillery fires, coupled with the Russian use of systems like glide bombs, that helped gnaw away at Ukrainian forces and defensive positions and helped enable some of the advances we've recently seen Russian forces make.

I've illustrated that point with a very rough chart showing artillery ammunition supply in Q1 2024. I'm going to tentatively call this “ammo mountain”, because it shows how far the Ukrainian supply situation has to climb in order to reach a workable ratio with the Russian supply. What it shows is Ukraine being very conservatively able to produce a couple of thousand rounds per month domestically, the EU program delivering something like 45,000 rounds a month, and other bilateral sources accounting for another 10,000. The Russian estimates by contrast vary greatly between what I've called the low-end and high-end estimate.

Because frankly there's a pretty wide range of estimates about Russian production potential out there and this gives you a good idea of the spread. At the low end I've used the RUSI estimates for Russian main-calibre artillery ammunition production 2024, about 2.1 million rounds. Plus assuming that North Korea would continue delivering rounds at the rate of about a million per year after the initial rush, and that Iran would manage another 300,000 in 2024 after doing about that many in 2023. The high end estimate by contrast assumes 2 million North Korean rounds, 400,000 Iranian rounds, because clearly they have absolutely no security concerns.

Of their own that might motivate them to hold on to some of them. And then for Russian domestic production in that high-end scenario I've used the highest I have seen from any Western source, which is 4.5 million artillery rounds (all relevant calibres) from the Estonian MOD. Noting that that figure includes old ammunition that is restored, not just new production. Realistically, even with significant changes to mobilisation, it's hard to see how the Ukrainians might significantly change the battlefield dynamic with an artillery supply disparity that wide. Fortunately for the Ukrainian military however,.

I think there are signs the supply situation might be starting to shift due to a couple of concerted efforts by a number of major suppliers. And given the nature of this episode, probably best to start with the Americans. The drawdown we saw from the US this week was very heavy on munitions. And there are two indicators I think which suggest there might be more where that came from. The first is the announcement the US will continue to supply the old 155mm DPICM cluster rounds. The provision of that old ammunition was originally considered politically sensitive, and we didn't see any ship to Ukraine at all until the second half of 2023.

But as dangerous and sometimes controversial as those rounds can be, in Ukraine and elsewhere they have demonstrated that they can be very, very effective. To the point where a single cluster round is often expected to be more effective than multiple HE rounds. So there may be situations where the Ukrainians can do more with less, provided that the less they receive comes in the cluster variety. Providing DPICM also matters because the US is believed to have a significant stockpile of the stuff, and given it only started shipping in late 2023 towards the tail end of US funding availability, the stock pile may not have been as heavily raided as that of unitary HE shells.

The other indicator that the US might be preparing to shift some serious volume is that procurement funding we talked about earlier. I'm no clairvoyant, but if you give the US military a lot of money to go buy additional ammunition, it might be a clue they have every intention to send additional ammunition to Ukraine somewhere down the line. The European Union program is very much ongoing and well behind schedule. That's bad news, because it means Ukraine only got about 500,000 out of the million rounds that was promised by the March deadline. However, you could also argue that's sort of good news in a sense,.

Because it means there's nearly 600,000 rounds, according to Borrell, still in the pipeline due for delivery in 2024. Needing to deliver a bit more than 600,000 rounds over the course of 9 months to hit that target, lets us increase the EU contribution to ammo mountain to roughly 70,000 rounds a month. But that may actually end up being outstripped by the so-called “Czech Initiative”. This is the program, spearheaded by the Czech Republic, to find additional artillery ammunition for Ukraine through the complex industrial mechanism known as “going out to the global market and buying it”. In this scenario the Czechs aren't operating so much as producers.

Of ammunition as they are professional shoppers. In simplified terms they go out to the global market and yell, “Hey, has anyone got some ammo?” And then whenever someone puts their hand up to say, “Yeah, we got some shells,” the Czechs turn back to various countries in Europe and North America and say, “Hey guys, I found some shells, has anyone got some money?” In recent statements, the Czech Prime Minister was reportedly fairly confident this initiative might end up providing Ukraine with something like 1.5 million rounds by April 2025. It's also been reported that at least 500,000 rounds are already pretty much locked up and funded, and the first ones will be delivered in June.

So for the purpose of our all-important ammo chart, we'll assume the initiative doesn't quite reach its stated target, and make a few assumptions around delivery rate and timeline. That lets us add roughly an extra 100,000 rounds a month starting in June, primarily of 155mm and 122mm calibres. Finally, and I know I'm skipping over a range of bilateral initiatives here, there's also efforts being made by the Ukrainians themselves. The Ukrainians have indicated they are already producing moderate quantities of Soviet calibre ammunition for their artillery systems, but they aim to start producing NATO-standard 155mm in the second half of this year.

That said, given the procurement delays that sometimes surface when your industry is under constant missile attack, for the purpose of our charts I'm going to assume Ukraine continues producing at the relatively low rates we saw reported in 2023 with no noticeable increase in June 2024. Even with that relatively conservative assumption though, Q3 is looking very different to Q1 2024 in terms of potential ammo supply. Whereas the Q1 assumptions suggest Russia being able to sustain a rate of fire somewhere between three and six times that of Ukraine even without dipping into its limited remaining shell stockpile,.

By Q3, depending on what assumptions you want to make around Russian production, the fight looks almost fair. Ukraine would still be on an artillery shell diet of sorts, they wouldn't be receiving the roughly third of a million rounds per month that the former Defence Minister Reznikov once said that they realistically needed. But it's more of a skip breakfast and no dessert for you diet, as opposed to the borderline starvation rations the Ukrainian artillery has been living on in the first part of this year. On paper those numbers are unlikely to be enough to give an overall.

Quantitative advantage over even the lower-end estimates of Russian artillery ammo supply. To do that, realistically you'd probably need to find a way to repeat one of 2023's greatest hits by introducing just a little more K-pop onto the ammo supply chart. What you're seeing on screen here is what would happen if the Republic of Korea was convinced by the United States or its various allies to supply them with one round of artillery ammunition for every two rounds that were sent to Russia by North Korea. Something which might add an additional million rounds or so to the overall supply on an annual basis.

I wouldn't call this the most likely scenario, and I'm not sure anyone had “Russia/Ukraine becomes a proxy war for North and South Korea in 2024” on their bingo card. But hopefully it illustrates just how sensitive the overall supply picture is to a couple of key decisions made by a couple of key suppliers. The summary here is that the slowdown in US ammo provision to Ukraine over the last couple of months was probably one of the main factors in the immense difficulties the Ukrainians have been having at the front line. The flip side of that is that with deliveries now resuming, and also deliveries under new initiatives like the Czech ones starting as soon as June,.

The situation for Ukraine's gunners might be about to improve at least somewhat in the coming months. Whether that's enough to achieve serious material change at the front obviously remains to be seen. It is likely that Ukraine doesn't have to match Russia shell for shell in order to even up the fight. On average a lot of Ukrainian systems are going to have the advantage of firing a better or more lethal shell from a more accurate, longer-range gun in what is more likely to be a defensive context. Which means a greater likelihood of a target being vulnerable and in the open. But as recent months have shown, there's only so far that you can stretch that efficiency. The very rough estimates we've just looked at aren't a recipe.

For giving Ukraine an advantage in artillery ammunition over Russia. But if everything goes to plan it might be a blueprint for a much fairer fight. And if the experience of the war so far is any indication, whenever there is a fair fight the Ukrainians, I'd argue, have a more than decent combat record. But while these production and aid packages might help alleviate Ukraine's supply situation in the medium term, in the short term there are probably some very serious challenges. There are multiple points on the Ukrainian front line where hard-pressed Ukrainian forces have long been struggling to hold back the Russians, short on all sorts of materiel and ammunition.

Some of the units involved have already posted messages celebrating the announcement of the new aid package. But for many of them, my cautious assessment would be that things might be about to get worse before they get better. The nature of the problem here is just the basic essence of the supply pipeline. The flow of equipment into Ukrainian hands you see today is a result of decisions made months or years ago, not yesterday. Ukraine is short on ammo in April 2024 in part because of the decision to hold up further American aid in October 2023.

Meanwhile, Ukrainian manpower shortages in 2024 arguably have a lot to do with the decision to delay mobilisation reform in 2023. So even though recent decisions might go towards solving those issues, a lot of what they are doing is just putting the solution in the pipe so to speak, and it may be some time before you see the full result surface at the front line. Even with quick to deliver items there can still be some delays. Equipment must be physically shifted from the continental United States to Ukraine. Or newly mobilised manpower has to be trained, potentially on entirely new equipment. But a lot of the stuff in the US aid package has a much longer journey.

Ahead of it than just a cargo trip across the Atlantic. The USAI and FMF funding is mostly going to be there for entirely new-build equipment. That means selection, contracting, a potential wait for the equipment to be manufactured and then finally delivered. If you want an idea of just how long that can take at the high-end, more than a year ago Canada put up serious money to buy Ukraine an extra NASAMS system. But due to the sabotaging efforts of some of the greatest enemy forces any NATO military will ever be called upon to face, namely funding, contracting and alliance coordination issues,.

Ukraine still doesn't have its Canadian-funded air defence system, and probably won't for some time yet. That's not to say that all US aid will be that delayed, but it's not exactly all going to arrive next week either. But what will almost certainly be arriving tomorrow, the next day, next week and the week after are Russian attacks. Right now it's Moscow that holds the offensive initiative. By and large they are setting the pace for their offensive operations. And while details on things like exact troop numbers are always going to be debated, pro-Russian, pro-Ukrainian and third party sources all basically agree.

That Russia is pushing hard for Chasiv Yar and a number of other locations on the front. Since our last update Russia has made some incremental gains and taken some small towns. Chasiv Yar, with a pre-war population of around 12,000, is now under very heavy attack. And while that's the name that comes up most often, there's a lot of other places feeling the pressure too. It seems unlikely that the Russian decision to launch all of these attacks, to expand men and materiel to make incremental gains and to apply pressure on Ukrainian forces is monocausal. Part of it may just be in alignment with a broad Russian strategy of attrition, where they are happy to sacrifice their men and materiel to force Ukraine to do the same,.

Even if the rate of exchange they are getting in those attacks is well short of 1:1. It may be part of a desire to break down and degrade Ukrainian forces ahead of another attempt at some sort of operational breakthrough. Or indeed part of the motive might be political, we've seen claims from Ukrainian sources that Russian commanders have been told they should take Chasiv Yar by May 9th, the famous Victory Day parade, because clearly taking a town with a pre-war population of 12,000 just over 20 kilometres from your start line after 2 years of offensive action against a nation a fraction of your size is a feat of military triumph equivalent to the taking of Berlin. But whatever the current Russian imperatives are, I think there's two valuable observations to make.

Firstly, while they are committing a lot of men and materiel to these efforts, there is a lot more they could commit. Russia doesn't have an infinite supply of men and equipment, we are watching them burn through a lot of their storages at a tremendous rate, but saying Russia is burning away its reserves is very different from saying that Russia has exhausted them. And while observable Russian attrition is immense, they probably still have a significant amount left in the tank. Even if some of the tanks in question are, you know, this thing.

Whatever the imperatives currently are for Russia to remain on the attack, the approval of US aid arguably might add a few more. If you look at this from Moscow's perspective, what you might be seeing here is a sort of strategic window. You are arguably at a point where Ukrainian resources are at a low ebb, before aid starts to arrive and new mobilisation starts to tell. Ukrainian fixed fortifications are likely only to get stronger over time. And as we get closer to a number of key elections, including perhaps most importantly the US one in November, there is probably going to be a strong political and diplomatic incentive for Russia.

To show that they are making progress, and to make the Ukrainian cause look as hopeless as they can make it look, to dissuade further aid and sway the debate. So if the politics and balance of forces are both saying “push now” there's an incentive, but not a guarantee, that Russia might gather up a lot of what it can pull together and use that to force Ukraine to fight a bitterly difficult defensive campaign before Western materiel starts to arrive in quantity. If that happens, Ukraine might be about to go into arguably its hardest defensive campaign season since 2022. That would of course mean massively accelerating the already high burn rate.

For Russian manpower and materiel, but at the risk of making the understatement of the episode, so far at least, this war has shown that Russian high command is not exactly loss averse. Now there might be some factors which balance against the risk that a significant Russian offensive now or in the near future might pose. The Pentagon has likely prepositioned some munitions and materiel in places like Poland, so once approval does come it can be shipped quickly. We've already seen $1 billion worth of aid under Presidential Drawdown announced, and I suspect a lot of that will get to Ukraine very quickly. The Ukrainians themselves might also decide to take a risk,.

Expending some of their limited strategic reserve of things like artillery shells and shipping that to the front now, going closer to zero than they might like on the assumption that US replacements are coming. There are also some things that could be sent relatively quickly that might deliver an out-sized impact on Ukrainian combat readiness. We've seen plenty of evidence, including video and imagery, of the Ukrainians having to cannibalise some of the equipment they've received to get enough spare parts together to keep some of it in service. That means there might be a backlog of things like artillery pieces or armoured vehicles.

That are currently just waiting for spare parts in order to go back into action. If those part requirements have been communicated in advance and they've been prepositioned, then a few dozen shipping containers here and there might have more impact on Ukrainian combat readiness than entire train loads of new equipment. Because you're not talking about training up new personnel on NATO hardware, or establishing new logistics chains, you are just talking about giving units that already know how to operate this equipment what they need in order to get their readiness rates up. Of course, none of this is likely to completely compensate.

If Russia does decide to launch a major offensive. I think it does demonstrate that as soon as aid passes there are some ways to take an immediate edge off some of Ukraine's requirements. I do think we should probably expect at least some further Russian gains before the lines further stabilise, but just how far those gains go and at what cost they are made, only time and NATO logistics will tell. Now with all this focus on military assistance, ammunition requirements and battlefield dynamics in 2024, I think it's important not to walk past one of the other areas where the US aid package is likely to be very important for Kyiv.

And that's just keeping the Ukrainian budget and economy stable and capable of fighting this war. It was Cicero who originally said that the sinews of war are infinite money, and that reality hasn't changed much in the 21st century. Yes, Ukraine needs manpower and materiel to resist the Russian invasion, but there's also a massive need for just cold hard cash. That continues to be a requirement to keep the Ukrainian economy stable, its government functioning, and its wartime production facilities churning out product. In March the IMF released its latest assessment of the state of the Ukrainian economy after more than 2 years of full-scale war.

And at the risk of oversimplifying its core findings, it generally assessed the Ukrainian economy has held together pretty well, to quote directly, “The economy was more resilient than expected in 2023, with robust growth outturns, continued sharp disinflation, and the maintenance of adequate reserves.” The report noted that having shrunk by about 29% in 2022, the Ukrainian economy rebounded by about 5% in 2023. And is expected to grow by closer to 4% this year and 6.5% in 2025. Year-on-year inflation, which had been 26.6% in 2022, dropped to 5.1% by the end of 2023.

And there was stabilisation noted in a range of areas, from private sector bank lending through to agricultural exports (which the report showed were higher in the most recent reported months than during the grain deal). On one hand, to a casual observer the idea that the Ukrainian economy might be recovering from the initial shock of the invasion might be hard to understand. After all Russia's missile strikes have continued, entire towns have been flattened, and many millions of Ukrainians remain either a) under occupation, b) as internally displaced refugees, or c) as refugees in the European Union and beyond. And yet while life is often very, very difficult for regular Ukrainians,.

Especially those on low fixed incomes like pensions, economic output still looks to be recovering. And in part, just as with the Russian economy which continues to grow despite the fact that it's under immense sanctions pressure, part of this might just be what you'd expect when a country switches over to a wartime economy. Where government spending and the massive demand for wartime materiel and labour provide a basis for low unemployment and output recovery. For allies interested in making sure that the Ukrainian military has the supplies it needs to fight on however, there's likely a strategic imperative there.

To make sure that Kyiv can afford to ramp up domestic weapons production. While it was arguably slow to get started, and reportedly faced a range of bureaucratic and organisational barriers, as we go into 2024 Ukraine's domestic defence sector is looking to be increasingly important to the country's ability to sustain its war effort. As an example, Ukraine recently said it was aiming to produce 10 of its Bohdana 155mm self-propelled guns every month. By most accounts it's a good mobile system firing NATO-standard ammunition that's reasonably well adapted to Ukrainian conditions.

It can fire most of the ammunition that Ukraine will be receiving from its allies, and it's a heck of a lot better than a lot of the Soviet systems Ukraine started the war with. 10 systems per month might not sound like much, but it puts Ukraine roughly on par with France in terms of SPG output. The French have their equivalent system, the CAESAR, that was being produced at a rate of 2 per month pre-invasion, was increased to a rate of roughly 6 per month, and now has a goal of 12 per month. Put those production figures up against Ukraine's visually confirmed losses and you see they're not exactly nothing.

Since February 2022 Ukraine has suffered 325 visually confirmed self-propelled gun losses. Of those 70 were only damaged, the rest destroyed or captured. More than 2/3rds of the total, 228 guns altogether, were Soviet-era systems, all of which, with the possible specialised exception of the 2S7 Pion, were much older, less capable systems than either of the 155s we are discussing here. Now obviously there will have been losses we didn't see, there will be constructive losses due to burned out barrels or worn out equipment that will impact readiness rates and things of that nature. But just using those visually confirmed loss figures for a moment,.

If Ukraine had been producing 10 of these guns per month in February 2022 it would have produced enough of these systems to replace not just every Soviet-era SPG that has been visually confirmed lost so far, but every self-propelled gun destroyed or lost by Ukraine since that first day of the invasion. That probably wouldn't have played out in reality, given I suspect actual losses are higher and obviously Ukraine is only reaching these production levels now from a near standing start in 2022. But it illustrates the potential importance of Ukrainian domestic industry delivering vitally needed artillery systems, ammunition, drones,.

And other munitions and systems that Ukrainian industry is in a position to provide domestically. Overall in 2024 Ukraine is saying they expect to commit at least 6 billion US dollars to domestic arms production. Given the lower cost base of Ukrainian manufacturing, and the fact I suspect Ukraine will mostly be focusing on older and simpler systems, in terms of sheer quantity I'd expect that 6 billion to have a much greater impact than for example, Germany's 7 billion. But just how much of an impact it makes comes down to a number of kickers, and I want to name at least three.

How well Ukraine is able to defend its production sites against Russian strategic bombardment. How effectively Ukraine is able to do things like cut red tape and improve contracting processes. And thirdly, and simple as it sounds, whether or not Ukraine is able to pay for it all. Because while the Ukrainian government has talked about committing 6 billion US dollars to domestic production, Ukraine's Strategic Industries Minister said of that sum that, “This is the sum that we have in contracts for our manufacturers, primarily Ukrainian ones. And it is very little, as our production capacity is three times greater.” In other words, he seems to be suggesting that if Ukraine had a spare $12 billion lying around it could turn that into military procurement.

And while I might unpick that idea a little bit more in the future, for now it serves to highlight Ukraine's very real need for the funding it needs for contracts like this one. For now that money has to come mostly from the Ukrainian state budget. The current Ukrainian budget is very much a wartime budget. You thought American defence spending was high? In Ukraine about half of all budget expenditure goes to the military. The IMF notes that Ukraine has generally been very constrained when it comes to non-defence spending. And on a number of occasions in Ukraine we've actually seen protests when parts of the public perceived that too much money in their view is being directed to non-essential areas.

Back in 2023 for example there was a small protest in Kyiv in the dead of winter where, for what must have been the first time in human history, a group of local rate payers got together to tell their council to stop fixing roads and railway stations. Some of the protest signs and slogans (likely to never be repeated) included “I don't want a park,” and “Why do I need paving stones?” But even with relatively constrained spending in non-military areas, the Ukrainian budget is still running a significant deficit. In 2023 Ukraine was assessed as needing somewhere between 3 and 4 billion US dollars per month to keep the budget working.

In the end, they hit that mark, receiving on the order of 42.5 billion. For 2024, unless something significant changes, it looks like the figure is going to be broadly similar. Ukrainian government figures estimate the requirement is about 3 billion US dollars per month, while the IMF is closer to 4 billion. And until now, planners at the National Bank of Ukraine might have been a little bit nervous that not all of those funds which they relied on last year were going to be forthcoming this year. With the passage of the US aid bill though, there are signs that's changing. The US package offers Ukraine about $8 billion worth of assistance in the form of a forgivable loan. Using the figures we talked about, that's enough to cover Ukraine.

For somewhere between 2 and 3 months. Funding for roughly another month is expected to come from Japan, Canada and the United Kingdom. While roughly 18 billion, enough for approximately 6 months, is expected to come from other countries or alliances, primarily the European Union. That will come through the 2024 component of their 50 billion euro multi-year package. Those of you following along with the calculator at home, or cheating by looking at the table on the right there, will know that leaves just over 10 billion US dollars in residual gap. The IMF in its report is predicting that gets roughly evenly split between funding from the IMF itself on one hand.

And debt relief or restructuring (like deferred interest payments for example) on the other. For those of you whose eyes might have glazed over there for a moment, what that all basically means is that if everything goes as predicted (which famously happens all the time during major interstate wars) with the passage of that US aid bill and it's $8 billion loan, on paper, if there are no additional massive purchases, the Ukrainian government should now have enough money to make it to 2025. Indeed we are starting to get to the point where, according to the IMF, Ukraine might not be comfortable, but it also isn't facing a dire funding gap out through the end of 2026.

In large part, that's because some major donors have started to make multi-year commitments. US funding might be year to year for example, but the EU package runs out through 2026. But while the IMF projections are, it must be said, very positive for a country which is being invaded by a nuclear power, I want to insert a little bit of personal opinion here in the form of a giant asterisk. The endurance of Ukraine's war economy and the sustainability of its budget is built on a range of assumptions, and most of those assumptions are driven by decisions that are not made in Kyiv.

For example, it's pretty hard to run a modern war economy with medieval technology. So keeping the power on is an economic imperative all the time and a humanitarian imperative, especially during winter. The power plants that enable those factories to run and people to heat their homes when General Winter comes calling continue to be priority targets for Russian missile and drone attack. So by extension the health of the Ukrainian economy and how much economic aid the country ultimately needs is in part a product of how much air defence assistance it receives.

And how effectively it can defend its infrastructure. It's a situation that punishes any attempt to over-economise. Saving money on military aid might just create demand for more economic aid. But in closing, let's zoom out again and do some analysis around the real big picture question. In the end, what might this new American aid bill mean for the war in Ukraine? As I said, there are reasons to think that in the short term things might get worse for Ukraine before they get better. The Russians for the moment seem to have an imperative to keep pushing, and they might have a window to do so.

But with that rapid introduction of US supplies and munitions that we are already starting to see through the Presidential Drawdown Authority, the chance that any upcoming Russian offensive is able to make deep strategic gains rather than incremental or tactical ones has probably reduced somewhat. Just because in Ukraine it is so difficult to attack when your opponent has a sufficient supply of artillery ammo. Even in those places on the front where Ukraine is still dealing with serious manpower shortages, having additional firepower on tap might reduce friendly casualties, and enable those smaller forces to more successfully hold ground.

Make no mistake, this US aid package is going to have a material impact. And for the Russian forces that are going to get a chance to experience what billions of dollars' worth of US munitions look like, it's probably going to hurt. But assuming Ukraine is able to see off any short or medium-term Russian challenge and stabilise the front, I think what happens next, even as a result of the aid package that just passed, probably has a lot to do with decisions that are made in allied capitals about what the plan for 2025 is. Because for the moment the aid packages we are seeing seem configured to keep Ukraine in the fight and balance off Russian advantages,.

Not to flip the balance around and give Ukraine a major advantage of its own. In raw financial terms, if you take the Ukrainian defence budget of about 40 billion US dollars equivalent. And then you go about starting to add all of these other supports, the 14 billion USAI funding, the Presidential Drawdown, the 7 billion euros anticipated from Germany, the billions of pounds from the United Kingdom, funding from countries like The Netherlands and Denmark. And then stretch that all the way to an assumption that in terms of military aid, not financial or humanitarian aid – military aid, Europe will be able to roughly match the American combination of USAI, PDA and Foreign Military Financing, you still end up very roughly in a situation.

Where the combination of Ukrainian defence and security spending plus foreign military assistance and Russian defence spending are roughly in the same ballpark. With Russia maintaining an on paper spending advantage. At that point you have to start applying balancing factors to either side. Russia and Ukraine both have purchasing power parity advantages over many of their allies, both have areas of hidden additional defence expenditure, but there are also various counterbalances too. Russia might be getting more equipment than the sheer expenditure figures suggest, because in a lot of cases it's not building new equipment, it's just reactivating stuff that it has stored.

Its military isn't so much spending money in those cases as it is burning down its capital reserve. On the other hand, the Russian way of war has just inherently been much more materially intensive. Across a number of categories they continue to expend more resources than the Ukrainians do. Plus a portion of the Russian defence budget will always go to elements that are not actively contributing in Ukraine, like the nuclear arsenal or the Pacific Fleet. But the point is the two sides aren't completely divorced from a resource perspective. All of which is a very imperfect back of the envelope way of demonstrating that with the passage of the recent US aid bill Ukraine might have the sort of resources it needs to even up the fight with Russia,.

But not to obtain a decisive advantage. Despite dwarfing Russia in raw economic terms, so far Ukraine's allies have only really committed enough resources to keep Ukraine in the fight rather than really dial up the pressure. And in part because a lot of escalation and aid decisions have only been made slowly and over time, a lot of allied aid just continues to be consumed by basic month-to-month costs. Whether that be maintaining Ukrainian economic stability, or providing for Ukrainian refugees. What the allied powers generally haven't done is flex their financial muscle just that little bit more in order to enable Ukraine to build up its military capabilities in a way that Russia can't readily handle.

While a lot of attention is often paid to production difficulties in NATO countries, I think the evidence suggests that were more money available, there would be ways to convert that into combat power. A US aid package equal to 0.3% of GDP rather than 0.2% for example, would have left enough room to for example, double the funding for domestic Ukrainian arms production, double the amount of USAI funding, dial up the Presidential Drawdown, and indirectly dunk on the Russian defence budget in the process. The core question however, is what is the US and allied strategy behind their aid packages?.

And what should Ukraine (and to an extent Russia) expect from them going forward? If I were to make an overarching observation, it would be that the current aid situation in the US and Europe probably gives both Russia and Ukraine reason to be nervous. Ukraine because they have seen proof that the United States might walk away, and with it a critical source of the supplies it needs to carry on this fight. For Russia meanwhile, the anxiety might be that the United States hasn't walked away yet, and also that US resources remain so significant that if at any point the US chooses to do so, it could decide to surge up the sort of resources that would be needed to make the Russian military position in Ukraine very, very painful.

For now though, US aid policy appears to be sailing between those two extremes. And how it evolves going forward, only time will tell. Which leaves, me with a brief channel update to close out. Firstly just a quick observation that there is no video I've ever produced which has been in the pipeline quite as long as this one. As I said, I started preparing this one back in the latter part of 2023, and have been continuously revising and holding off on it until US aid was finally passed. I hope it gave you a useful insight into what was in the US aid bill and what its likely implications are. And unless there's some major unexpected development.

I'll be returning to my regular topic list next week. For the Perun Gaming people, thank you for your patience, you had to allow me the time to focus on this one this week. But I have started making recordings again, and you should expect to see the first release either on Monday or Tuesday. Thank you very much to all of you for your ongoing engagement and support, and I hope to see you all again next week.

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