Losing Crimea would end Putin’s regime, so new escalation likely
Ukraine's drone-based logistical blockade of Crimea is proving effective, while still in its early stages of scaling, backed by tens of billions of dollars in EU funding. Unlike Kherson in 2022, when Washington restrained Ukraine from destroying the encircled Russian grouping, external limits on strikes are now largely absent — fuel shortages and mounting logistical pressure on occupying forces will make the peninsula increasingly costly to hold. The loss of Crimea would mean the collapse of Russian President Vladimir Putin's regime, so the Kremlin will treat this threat as existential, rather than as an incentive to negotiate. A swift "peace deal" is therefore unlikely; a new wave of escalation is more probable — mass mobilization in September–October (after the Duma elections), or a risky strike against the Baltic states or Poland, to offset failure on the Ukrainian front. Ukraine's tactical gains don’t eliminate the strategic risk of a wider, more prolonged war.
Ukraine's EU accession progress — marked by the June 15 opening of the "fundamentals" negotiation cluster — has been overshadowed by a diplomatic rupture with Poland. Polish President Karol Nawrocki stripped Ukrainian President Volodymyr Zelensky of Poland's highest state honor, after a Ukrainian special forces unit was renamed for the Ukrainian Insurgent Army (UPA). While framed around contested WWII-era history, the underlying drivers are far more practical. Ukraine's battlefield performance has made it an influential geopolitical player, a shift Poland finds difficult to accept. Moreover, Ukraine's EU membership prospects threaten Poland's position as a net beneficiary of structural funds, and exposes Polish farmers to more efficient Ukrainian agribusiness. Historical grievance thus functions as a politically defensible proxy for underlying economic and geopolitical anxieties. This suggests the tension is unlikely to be resolved through reconciliation gestures alone, and risks hardening into a durable Polish veto point on Ukrainian accession, regardless of Ukraine's technical compliance with membership criteria. Compounding the problem, anti-Ukrainian sentiment is proving politically lucrative within Polish society, giving Polish politicians a standing incentive to keep stoking it as a source of electoral gain — regardless of what Ukraine does.
The hryvnia weakened toward 45 per dollar despite fresh EU funding, with NBU FX interventions rising, pushing monetary policy toward a possible tightening bias. A better 2026 harvest outlook and strong agro-exports should help contain food price risks, but industry remains fragile, as Russian energy attacks keep utilities depressed, and make near-zero growth the best plausible outcome. Retail trade is the main bright spot, supported by revived social payments. Fiscal revenues are strong, but spending is set to accelerate sharply in H2, especially on defense. External accounts improved slightly in May, but the deficit remains large, and the 2026 CAD could reach $51.9 billion, or 22.9% of GDP.
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