The Competing Narratives in Ukraine — Which Will Win?

Of Narratives, Counter-Narratives and Narrative Fallacy

As of the end of last week, markets were in an emphatic “risk-on” phase. After the initial shock of Russia’s invasion of Ukraine, the S&P 500 had regained a stunning 6.6% in two days’ trading. I argued that the market was working on the assumption that Vladimir Putin would get what he wanted, and that the world could live with this. I also added the following:

What Could Possibly Go Wrong?

Following this logic, these are the risks to worry about:

  • Europe comes round to sanctions that really do hurt;
  • Russia’s armed forces get bogged down and this turns into a long drawn-out conflict;
  • Putin overplays his hand and invades a neighboring NATO member;
  • Internal opposition brings down Putin and Russia lapses into chaos.

The first two definitely appear to be happening. The third isn’t, for which we can be thankful, but Putin does at present seem to have overplayed his hand — and his invocation of the nuclear threat suggests a risk of his doing so even more. While it would still be wishful thinking to say that the fourth is going to happen, there is far more internal opposition than many had thought possible. So by the criteria I established last week, the gloomy but market-friendly narrative that held sway then now looks seriously flawed. This matters a lot.

Politics is very much the battle of narratives. A few days ago, a story built around NATO overreach in encircling Russia, a weak, non-democratic “State Department client state” Ukraine, and a need to understand the priorities of the strategic genius Putin appeared to have sway — arguably even in the U.S., where it had a few prominent adherents in the media. Putin would end up getting what he wanted with very little damage along the way; there was nothing anyone could do about it. Stability would return thereafter, and it was all the West’s fault. For an explanation of how that narrative was nurtured and took hold, read this post from Ben Hunt’s Epsilon Theory, which now seems prescient.