The War in Ukraine: One year later
As we move into the second year, let's take a look at the economic fallout here at home. Energy prices initially soared but have since plunged. Overall, crude has down about 17 percent since the invasion, while Nat gas has fallen nearly 50 percent. Defense and weapons spending up. The U.S. has sent Ukraine nearly $47 billion in military aid so far, a number that has recently sparked debate within both parties.
President Biden pledging another $2 billion in weapons and enacting new sanctions on Russia just today. As for the latest geopolitical developments, Biden made a surprise visit to the region, not only visiting Kiev but working to shore up alleys on NATO's eastern flank. Vladimir Putin backed out of a nuclear treaty with the U.S. on Wednesday. China's top diplomat also met with Putin this week ahead of the release of a document that urged diplomacy but fell short of calling for an immediate end to hostilities. Beijing also accused the U.
S. of wanting to prolong the conflict. Let's turn to our panel of experts. RBC's Halima Croft is here to talk energy. Jeffrey's analyst Sheila Kailu, sorry, Sheila covers defense. And Atlantic Council CEO Fred Kemp has the geopolitical bird's-eye view. And it's really, really great to have you guys all here.
Halima, let me start with you. And I mean, year two, Putin did not think, obviously, we were going to be here. What are you watching for further fallout on energy markets which have held up relatively well? They absolutely have held up well, particularly oil markets. I mean, there was concern when the war started that we'd see a major reduction in Russian oil exports, it would be sanctions in Russian oil exports. Russian oil production, though, has held up. It's basically slightly below pre-war levels. The question is, is it going to start to roll? The Russians have said they're going to cut production by 500,000 barrels next month in response to the G7 price cap plan.
Are we starting to see the impact of these European sanctions? Are we starting to see the impact of the technology sanctions? It's making it harder for Russia to maintain production at complex fields. They've already weaponized NatGas. They've cut off basically 90 percent of gas exports to Europe. Europe survived because of warmer weather. Question is, what happens next winter? And could they, I mean, we were talking about this with Brian Sullivan yesterday, but could they still use NatGas as really a way of saying, you know, we could pull back even further on the kind of more than trickling that's still making its way into Europe? I mean, that is a big question. Will they actually cut gas flows that go through Ukraine? But the question is, can Europe build inventory with no Russian molecules? And if you have a colder winter next year, what's the economic fallout going to be? So I don't think we're done with the energy concerns yet from this war. It feels like we don't stay at levels quite this low with this still raging.
Fred, as Halima alluded there, if Russia still has tons of money from their global energy markets, the revenue that they're raising, if the U.S. is still supplying Ukraine with all of these weapons, how much further could this crisis go on? Well, it really depends how much we push right now. So President Biden made his historic trip this week. But the magnitude of how historic it is will hang directly off whether we get weapons quickly enough to Ukraine and whether we get more modern weapons to Ukraine, air defense systems, long-range fires so that the Russians can't keep hitting civilian targets with impunity. To give the Ukrainians a chance to really make a big difference this year, a war of attrition is in Russia's interest. It's not in Ukraine's interest.
And so I think there's—I've been calling for a surge in support of Ukraine, knowing that a longer war isn't in anybody's interest. More people will die. You'll have fatigue in the West and also in Ukraine from the war. And this is really the time when Putin is relatively weak to push harder. How does Ukraine win, you know, in a compressed period of time? How much more are we talking about in terms of U.S. support, international support, that could really lead to a victorious outcome in a short window of time? Well, there are a couple of ways to win.
One of them is Putin seeing he can no longer get what he wants on the battlefield, and therefore he sues for peace and negotiates. That's going to take Ukraine retaking enough territory that he sees there's no place to go. The other is that people around Putin will say, look, this just isn't good for the future of the country. And one way or another, he gets removed from office. That's pretty hard to imagine. It's—it won't take to see how that happens. So I would put my money on giving Ukraine what it needs to push back so that Putin is—is made very clear to Putin this year through loss of territory and loss of lives, Russian lives, that this is not something he wants to continue.
Yeah, I just can't imagine his reaction, you know, even if it looks like that is becoming a possibility. And instead of going there, Sheila, let's turn to you and talk—talk about the defense stocks, talk about the spending. As you sit there and sort of try to game plan this all out, what does it mean for the companies you follow? Sure. So, Kelly, thanks. I think four things have happened in defense since Ukraine. First, defense funding is obviously up. We ended the Trump administration at about a defense budget of $716 billion.
In fiscal 2022, the budget was $800. For fiscal 2023, the budget was $858 billion, up 10 percent year over year. And we're expecting to see the fiscal 24 budget for Kimi watching it for March 9. That's when we're going to see what the budget looks like. Jefferies is calling for an up three to 4 percent budget, a factoring in 5 percent inflation. It's actually a real decline of 1 percent. So that's first thing.
Defense spending is up, but we are concerned about what the fiscal 24 budget looks like, because we don't think it's quite enough. Second, Europe has obviously increased defense spending. GDP has 1 percent of sales to 2 percent on defense. Third, the U.S. has made it clear that it's going to let Ukraine fight its wars. So the West is going to fight its wars while the U.
S. supplements it with goods. As you mentioned, we've dropped over $33 billion in supplies. $2 billion happened today. That's focused on UAVs and missiles. And then fourth, I think this pivots us to what happens in China and Taiwan and that conflict in the potential 2026, 2027 timeframe. And the shortage of goods, whether it's COVID, the supply chain has created.
Because although the budget is up 10 percent, the contractors I follow, they declined revenues 2 percent in 2022 because of the budget shortages, sorry, because of the supply chain shortages. So I think it means we have to enact more quickly to be prepared for the next war.
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