Battlefield Situation

Ukraine’s February counteroffensive in the Zaporizhzhia-Dnipropetrovsk junction produced the most consequential operational result since Kherson: ISW assessed that Ukrainian forces liberated more territory in the final two weeks of February than Russia seized during the same period. Russia’s total February gains — 49 square miles — were the smallest monthly advance since July 2024, less than half of January’s pace. Zelensky and commander-in-chief Syrskii confirmed 300–400 square kilometers recaptured in the south since late January. [HIGH confidence — ISW data, DeepState corroboration]

The operational logic behind Ukraine’s gains is now clearer. The counterattack targeted the northern flank of Russia’s “Vostok” contingent, which had advanced far west of Huliaipole in a thin chain of strongpoints along the Vovcha River rather than a continuous defensive line. Ukrainian forces held bridgeheads on the Vovcha’s southern bank and, reinforced with fresh assault regiments and air assault brigades, advanced southward to cut off the overextended Russian salient. The Russian military command laterally redeployed elite VDV and naval infantry units from the Pokrovsk direction to the southern front in response. ISW assessed that Ukraine’s February counterattacks may have generated spoiling effects against Russia’s anticipated spring-summer offensive, which had been building toward the Huliaipole direction.

Russia has not stood down. The March 6–7 Russian strike series contained a notably higher proportion of ballistic missiles than Russia typically includes in regular strike packages. ISW assessed that Russia is likely trying to exploit Ukraine’s shortage of Patriot interceptors and take advantage of the ongoing conflict in the Middle East. On the ground, Russia has been increasingly disrupting Ukraine’s railway logistics through targeted strikes since July 2025, and Ukrainian reporting indicates that Russian forces are only intensifying this effort going into spring 2026. The Zaporizhzhia sector alone absorbed 21 airstrikes, 241 artillery strikes, and 358 micro-drone engagements in a single day on March 7.

Strike Operations: Both Directions

Russia’s escalation. On the night of March 6–7, Russia launched 29 missiles and 480 drones across Ukraine, targeting energy facilities in Kyiv and other central regions. Ukrainian air defenses downed 453 drones and 19 missiles, but nine missiles and 26 attack drones hit 22 sites. In Kharkiv, a Russian ballistic missile struck a five-story residential building, killing at least 10 people including two children. The attack brought down an entire entrance section from the first floor to the fifth. The Kharkiv Regional Prosecutor’s Office opened a war crimes investigation, with preliminary findings indicating Russia deployed the Izdeliye-30 cruise missile in the strike. Ukraine’s air defense neutralized 161 of 197 drones on the March 8 overnight follow-on attack.

The Kharkiv strikes carry a deliberate signal beyond tactical effect. Russia is systematically targeting Ukraine’s second-largest city at a moment when Patriot stockpiles across European NATO members are under pressure from the Middle East campaign. The intercept capability gap is real and widening.

Ukraine’s deep strike campaign. On the night of March 3–4, Ukrainian forces struck a Russian Admiral Grigorovich-class frigate in the port of Novorossiysk and a chemical plant in Kirovo-Chepetsk in Kirov Oblast, approximately 900 kilometers east of Moscow. On March 7, Ukrainian forces conducted an ATACMS/SCALP-EG missile strike against a Russian Shahed drone launch site near occupied Donetsk City. A Russian official said fragments recovered at the scene indicated that Ukrainian forces had used a previously unseen fixed-wing strike drone, believed to be known as the Hornet. Ukraine has not formally acknowledged the system.

The Votkinsk factory strike (Flamingo cruise missiles, February 21) — confirmed damage to workshops producing Iskander, Oreshnik, and Yars systems at 1,230 kilometers range — remains the strategic centerpiece of the period. Together with the January Kapustin Yar and March Kirovo-Chepetsk strikes, Ukraine has now executed a sequential campaign against Russia’s missile industrial base at ranges exceeding anything achieved in the war’s first three years.

Technology & Threat Evolution

Russia’s Geran-5: the drone threat expands. Russia deployed a new jet-powered drone, the Geran-5, against Ukraine for the first time in early 2026. The drone is approximately 6 meters long with a 5.5-meter wingspan, carries a 90-kilogram warhead, and has a claimed strike range of approximately 1,000 kilometers. Unlike earlier Geran variants derived from Iran’s Shahed airframe, the Geran-5 bears significant design similarities to Iran’s Karrar drone and is powered by a Chinese-made Telefly jet engine. Russian forces are exploring air-launching the Geran-5 from Su-25 attack aircraft to extend effective range, and are evaluating fitting the platform with R-73 air-to-air missiles — a configuration that would turn the drone into a platform capable of engaging air targets.

The R-73 integration concept is operationally significant. Ukraine has ramped up interceptor drone production specifically to counter Shahed swarms at range. A platform that can autonomously engage those interceptors mid-flight changes the counter-UAS calculus in contested airspace — and is a direct response to Ukraine’s most effective Shahed mitigation layer.

Russia-Iran tech transfer confirmed in new theater. Zelensky stated on March 7 that Russian components have been identified in Iranian-made drones used in attacks against the United States and countries in the Middle East. Separately, the Iranian drone that attacked a British airbase in Cyprus in early March contained a Russian-made navigation system. This is direct confirmation that the Russia-Iran technology transfer relationship has been bidirectional: Iran supplied drone airframes to Russia, Russia supplied navigation and guidance components back to Iran. Russian EW, navigation, and guidance technology is now being field-tested against US and British targets simultaneously in two theaters.

Ukraine-tested anti-drone systems go to Middle East. The Wall Street Journal reported on March 7 that the US is supplying Ukraine-battlefield-tested anti-drone systems to partners in the Middle East, highlighting growing international demand for Kyiv-proven technology capable of countering Iranian drone attacks. Ukraine also dispatched interceptor drones and a team of drone experts to protect US military bases in Jordan. This is the Ukraine corridor’s value proposition made explicit at the policy level: operational validation in Ukraine is generating direct procurement pull in a second active theater, in real time.

Defense & Procurement Developments

The Ramstein aid architecture from February 12 ($38 billion committed for 2026) remains the structural foundation. The near-term execution risk — German warehouse depletion and 2028–2029 contracted delivery timelines — has not been resolved. Norway’s direct Ukrainian-production purchase model and the PURL mechanism remain the most execution-ready channels.

The UK announced it will develop a new ballistic missile for Ukraine’s defense — the first Allied commitment to purpose-build a missile system for Ukrainian defensive requirements rather than drawing down existing stockpiles. Timeline and specifications have not been released publicly.

The accelerating Allied shadow fleet enforcement campaign — two tankers seized in one week — is a meaningful tightening of Russia’s oil revenue channels, which fund the defense industrial base sustaining the current operational tempo.

Diplomatic Picture

Further talks in Geneva are scheduled for early March 2026. The structure remains trilateral US-Ukraine-Russia, with European observers present but excluded from the table. The core territorial impasse has not shifted: Russia demands Ukrainian withdrawal from the approximately 28% of Donetsk Oblast it does not yet control; Ukraine’s position is a freeze at current contact lines.

The US 28-point framework would require Ukraine to cede the portion of Donetsk Oblast Russia has not yet captured — approximately 2,500 square miles — in exchange for a small land swap near Kharkiv of approximately 700 square miles, a net Russian gain of roughly 1,800 square miles. Ukraine has not accepted these terms. The European counterproposal — freeze at the current line of contact — has not gained Russian traction.

Zelensky confirmed that Russia has not responded to the energy ceasefire proposal: “We have not received any response from the Russians. If anything, one could say the opposite — we received responses in the form of drones and missile attacks.”

The Iran conflict is consuming US diplomatic bandwidth. The Geneva March session, if it proceeds, takes place against a backdrop of active US-Israeli military operations, IRGC retaliation across 20-plus US bases, and succession uncertainty in Tehran. The June deadline set by the Trump administration is unchanged, but the attention economy has shifted away from Ukraine in ways that benefit Russian delay tactics.

FHG Assessment: Russia’s negotiating position has materially weakened since the fall — Votkinsk industrial damage, Kapustin Yar degradation, forced VDV redeployment, and its slowest territorial month in nearly two years. But the gap between a weakened Russian position and a Russian position willing to accept territorial compromise remains wide. Ukraine’s June timeline pressure is real. Watch whether the Iran crisis produces a bargaining moment — a US administration eager to close one conflict to focus on another — or simply delays Geneva further into a summer window.

Reconstruction & Economic

The March 7 Kyiv attack knocked out heating in 2,806 residential apartment buildings across four city districts. National grid operator Ukrenergo introduced emergency power cuts in seven regions following the strikes. Ukraine’s generating capacity remains at approximately 14 GW against pre-war capacity of 33.7 GW, with no structural recovery of thermal generation capacity in sight while Russian strikes continue.

In January 2026, Russia’s western border regions such as Belgorod Oblast saw weeks-long outages caused by Ukrainian counter-strikes, with heating at only 50% capacity and around 100,000 customers in Belgorod without running water as of early February. Ukraine’s counterstrike campaign on Russian energy and logistics infrastructure is beginning to impose symmetric cost pressure.

Forward Outlook

Pokrovsk axis — immediate watch. Near Pokrovsk, Ukrainian brigades were withdrawn to support the southern offensive. Russian troops have since stepped up pressure and are advancing toward the city of Dobropillia. This is the most active contested ground in the near term and the axis most likely to generate adverse territorial news in March.

Spring offensive window. ISW’s assessment of a Russian spring thrust toward Slovyansk–Kramatorsk and/or Orikhiv–Zaporizhzhia City retains analytical validity. Ukraine’s February disruption of Russian VDV positioning may have shifted the optimal Russian offensive window later or forced an axis reconsideration. The six-week procurement acceleration window for Ukrainian air defense, counter-armor, and long-range strike replenishment is now.

Geran-5 and countermeasures. If Russia operationally validates the air-launched Geran-5 with R-73 engagement capability, Ukrainian interceptor drones optimized against low-slow Shahed swarms will face a materially harder intercept problem. This is a near-term procurement signal for companies working on counter-drone sensing, autonomous intercept architecture, and hardened communications for DDIL environments.

Ukraine corridor → Middle East procurement pull. The transfer of Ukraine-validated anti-drone technology to Middle East partners is happening now, at speed, driven by US policy. Companies whose systems have been operationally validated in Ukraine have a direct pathway into a second active procurement market. This is the proof-point-to-procurement pipeline FHG has been documenting since 2022, now playing out at the policy level in real time.

UNITE–Brave NATO competition winners are expected at the spring NATO-Ukraine Defence Innovators Forum. Results will signal which technology categories NATO is prepared to accelerate from the innovation pipeline into procurement — a leading indicator of where Allied rapid acquisition spending concentrates in late 2026.

Strategic Assessment

Three developments define this dispatch window. Taiwan’s new legislative session opened February 24 with the NT$1.25 trillion (~USD $39.5B) special defense budget as the stated top priority — but KMT internal cap discussions ranging from NT$350B–$750B (~USD $11.1–23.7B) and a hard March 15 LOA expiration deadline on existing FMS cases mean the negotiation window is shorter and the stakes are higher than the headlines suggest. Concurrent with that fight, President Trump confirmed on February 18 that he is discussing Taiwan arms sales with Xi Jinping — a signal that new FMS notifications may be on hold and that the bilateral arms pipeline faces near-term political headwinds independent of Taipei’s domestic political stalemate. For defense technology companies, the procurement signals are hardening while the delivery infrastructure is softening.

Cross-Strait Security Environment

PLA pressure through February has been measurable and documented. Taiwan’s MND tracked 71 aircraft sorties and 77 naval vessels through mid-February, with a notable spike on February 12–13 — 42 aircraft sorties and 11 naval vessels detected in a concentrated activity window that coincided with the ART signing. As of February 23: 5 PLAN vessels and 3 Chinese coast guard ships operating in proximity to Taiwan. MND continues to report daily coast guard incursions within the contiguous zone, with Chinese official ships establishing persistent presence in the 12-nautical-mile buffer as standard operating procedure rather than escalatory signaling [HIGH confidence — MND daily release data].

The Australian frigate HMAS Toowoomba transited the Taiwan Strait on February 20–21 under close PLA monitoring — a freedom of navigation operation worth noting as allied navies continue to normalize Taiwan Strait transits against rising PLA pressure.

The structural shift that defines the current environment: PLA and coast guard presence near Taiwan’s contiguous zone is no longer episodic. It is operationally persistent. That compression of warning time is the direct driver behind Taiwan’s procurement urgency for distributed detection, rapid classification, and C4ISR resilience — and it is the environment in which FHG clients should frame any capability pitched into the Taiwan defense corridor.

Xi Jinping’s anti-corruption and loyalty purges have reached senior PLA and defense industry leadership, consolidating personal CMC authority and reducing the collective decision-making checks that previously characterized PLA command. [MEDIUM confidence] Whether that consolidation increases or simply makes less predictable the risk of escalatory action remains analytically open.

Defense Modernization & Procurement

The budget fight hardened this week. The fifth session of the 11th Legislative Yuan opened February 24 with the special defense budget formally first on the agenda. Three competing positions define the negotiation:

The DPP/Cabinet holds at NT$1.25 trillion (~USD $39.5B, 2026–2033), with NT$950B (~USD $30.1B, roughly 75% of total) allocated to US-origin FMS and co-development programs. Full procurement slate includes 200,000+ UAVs, 1,000+ USVs, T-Dome layered air defense, C5ISR joint development, domestic industry partnerships, and a confirmed precision munitions portfolio.

The TPP counter-bill caps at NT$400B (~USD $12.7B) through 2033, covers only five of eight US-approved systems, requires annual rather than committed multi-year funding, and excludes T-Dome, the full UAV/USV programs, and domestic co-production lines.

The KMT has not tabled a formal bill but internal caucus discussions indicate a ceiling range of NT$350B–$750B (~USD $11.1–23.7B) — a span wide enough to accommodate either a minimalist blocking position or a genuine compromise with the DPP at a mid-range figure. The upper end of that range would preserve core unmanned programs while deferring integrated air defense and major co-production. The lower end is functionally equivalent to the TPP’s bill.

The March 15 hard deadline — LOA expiration on existing FMS cases — adds urgency that wasn’t visible in earlier reporting. Several previously approved US arms packages require movement by that date or Taiwan loses the purchase authorization. Whether that deadline accelerates legislative action or becomes a source of additional US pressure on the KMT is the immediate analytical question.

US pressure is sustained and bipartisan. 37 lawmakers wrote directly to Speaker Han warning of LOA expiration. Senate Foreign Relations chairs Risch and Shaheen called the stalled budget "deeply disappointing." Senate Armed Services Chair Wicker publicly criticized the opposition for cutting the bill "dramatically." The Trump administration has publicly welcomed Taiwan's 3.3% GDP regular defense target and the 5% aspiration, though the Trump-Xi arms discussion complicates the bilateral picture.

Technology & Industrial Base

The most concrete procurement action in February: Shield AI signed a contract with NCSIST on February 11 for AI-driven drone autonomy integration — a named vendor, confirmed deal, and the clearest signal yet that Taiwan’s drone industrial strategy is advancing at the prime contractor level regardless of the special budget’s legislative status.

The confirmed ALTIUS quantities now anchor what was previously estimate territory: 1,554 ALTIUS-700M loitering munitions and 478 ALTIUS-600 ISR drones are in the procurement plan, drawn from MND briefing materials. These are US-origin systems from the Shield AI / Area-I portfolio and represent confirmed addressable market for companies in the autonomous systems stack with NCSIST integration pathways.

The 155mm artillery co-production arrangement has commenced, per Armaments Bureau confirmation — past the planning phase and into production. Ukraine-derived consumption-rate assumptions are the planning baseline. This is an active manufacturing ramp, not a future program.

Formosat-8A is performing better than expected per TASA’s February 16 release — first high-resolution imagery of Hsinchu Science Park confirmed, with the satellite’s 0.7m-resolution capability validated in operational conditions. First of eight in the planned constellation. The LEO communications resilience program targeting DDIL-hardened architecture remains in planning, with timeline contingent on budget resolution.

Taiwan confirmed its 2026 regular defense budget at 3.3% of GDP (~USD $31B) — the first time that target has been formally confirmed rather than aspirationally cited. The special budget, if passed, supplements that baseline rather than replacing it.

Regional & Alliance Dynamics

The Trump-Xi arms discussion is the most consequential new development for defense technology companies. Trump confirmed on February 18 that he is in discussions with Xi Jinping about Taiwan arms sales. A WSJ report on February 20 characterized new FMS notifications as “in limbo” pending the outcome of those discussions. No new DSCA notifications were issued in February. The existing USD $11.1B arms package approved in late 2025 remains the active baseline, but companies planning market entry on the assumption of near-term additional FMS approvals should update that planning assumption to MEDIUM confidence until further notice.

The Agreement on Reciprocal Trade (signed Feb. 12) and companion investment MOU anchor the bilateral economic-security architecture regardless of the arms discussion. Legislature review of the ART begins March 12 — adding a third high-stakes legislative approval timeline running in parallel with the defense budget fight and giving the KMT and TPP another procedural pressure point. Core ART structure: unified 15% tariff framework on Taiwanese goods entering the US; up to USD $500B in Taiwanese investment commitments in US semiconductors, AI, and energy; explicit defense technology and advanced manufacturing cooperation provisions.

Foreign Minister Lin Chia-lung proposed a Taiwan-Japan-Philippines integrated security framework in February — a notable diplomatic initiative at a moment when all three face direct PLA pressure. The 12th US-Philippines Bilateral Strategic Dialogue (Feb. 16) separately reaffirmed Taiwan Strait peace and stability as a core interest. The HMAS Toowoomba Taiwan Strait transit on February 20–21 represents Australia’s continued operational contribution to strait access normalization.

Forward Outlook

The next three weeks are the decisive window. The legislative session opened February 24. The March 15 LOA expiration on existing FMS cases creates a hard deadline that may force a compromise earlier than the opposition would prefer — or may simply result in lost purchase authorizations if the gridlock holds.

For planning: the Shield AI-NCSIST contract, confirmed ALTIUS quantities, and 155mm co-production commencement demonstrate that procurement activity at the contracted level is proceeding independent of the special budget's legislative fate. Companies in the autonomous systems stack, counter-UAS, DDIL-resilient architecture, and production-scaling should be building NCSIST and Armaments Bureau relationships in 2026. Once a political window opens, procurement timelines compress. Vendors without established relationships don't recover that lead time.

Forward Horizon Group deploys dual-use technologies in contested environments and delivers the proof points that unlock procurement and investment. Reach out to us directly at strategy@forwardhorizon.io

Glossary of Acronyms

ADIZ — Air Defense Identification Zone. Taiwan’s self-declared airspace buffer extending beyond its territorial airspace; PLA incursions into this zone are tracked and reported daily by Taiwan’s MND.

AIT — American Institute in Taiwan. The de facto US embassy in Taipei, operating under the Taiwan Relations Act in the absence of formal diplomatic relations.

ALTIUS — Tube-launched unmanned aerial system family developed by Area-I (now part of Shield AI). ALTIUS-700M is a loitering munition variant; ALTIUS-600 is an ISR platform.

ART — Agreement on Reciprocal Trade. The US-Taiwan bilateral trade agreement signed February 12, 2026, establishing a unified 15% tariff framework and investment commitments.

Armaments Bureau — Taiwan’s primary defense procurement and weapons development agency, subordinate to the Ministry of National Defense.

CCG — Chinese Coast Guard. Beijing’s maritime law enforcement force, increasingly used as a gray-zone coercion instrument in Taiwan’s contiguous zone.

C4ISR — Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance.

C5ISR — Command, Control, Communications, Computers, Cyber, Intelligence, Surveillance, and Reconnaissance. The expanded formulation used by Taiwan’s MND in special budget briefings.

CMC — Central Military Commission. China’s supreme military command authority, chaired by Xi Jinping.

CNA — Central News Agency. Taiwan’s state-run national news agency; primary wire service for government and legislative reporting.

DDIL — Denied, Disrupted, Intermittent, and Limited. Describes communications and operational environments under electronic warfare pressure — the baseline planning condition for Taiwan Strait contingencies.

DPP — Democratic Progressive Party. Taiwan’s ruling party, led by President Lai Ching-te.

DSCA — Defense Security Cooperation Agency. The US agency that administers Foreign Military Sales notifications and approvals.

EW — Electronic Warfare. The use of the electromagnetic spectrum to attack, deceive, or deny adversary systems — a defining feature of both the Ukraine conflict and Taiwan Strait contingency planning.

FMS — Foreign Military Sales. The US government-to-government arms transfer mechanism through which Taiwan acquires most US-origin defense systems.

FHG — Forward Horizon Group. The publisher of this dispatch.

ISR — Intelligence, Surveillance, and Reconnaissance.

KMT — Kuomintang (Chinese Nationalist Party). Taiwan’s main opposition party, currently holding a legislative majority in coalition with the TPP.

LEO — Low Earth Orbit. Satellite constellation altitude band (roughly 200–2,000km) used by commercial systems including Starlink; Taiwan is developing a domestic LEO communications constellation for DDIL resilience.

LOA — Letter of Offer and Acceptance. The formal US government document initiating an FMS case; LOAs have expiration deadlines by which Taiwan must act or lose the purchase authorization.

MND — Ministry of National Defense. Taiwan’s primary defense ministry, responsible for daily PLA activity reporting and oversight of the Armaments Bureau and NCSIST.

MOU — Memorandum of Understanding.

NCSIST — National Chung-Shan Institute of Science and Technology. Taiwan’s primary defense research and development organization, responsible for indigenous weapons programs including the T-Dome air defense system and domestic UAV development.

NT$ — New Taiwan Dollar. Exchange rate used in this dispatch: approximately NT$31.6 = USD $1.00, consistent with CNA/Focus Taiwan sourcing from February 2026.

PDA — Presidential Drawdown Authority. US authority to transfer defense articles directly from DoD stocks to Taiwan without a standard FMS process.

PLA — People’s Liberation Army. China’s armed forces.

PLAN — People’s Liberation Army Navy.

TASA — Taiwan Space Agency. Taiwan’s national space agency, managing the Formosat satellite constellation program.

T-Dome — Taiwan’s domestically developed multilayered air defense system, designed and produced by NCSIST. One of the highest-risk line items under a legislative compromise scenario.

TPP — Taiwan People’s Party. Smaller opposition party in Taiwan’s legislature; tabled a NT$400B (~USD $12.7B) counter-bill to the Cabinet’s special defense budget.

USTR — United States Trade Representative. US agency that negotiated the ART with Taiwan.

UAV / UAS — Unmanned Aerial Vehicle / Unmanned Aerial System. Used interchangeably in this dispatch; UAS is the more precise term encompassing the full system (vehicle, ground control, communications).

USV — Unmanned Surface Vessel. Autonomous or remotely operated maritime platform; Taiwan’s special budget targets 1,000+ USVs for coastal defense, distributed sensing, and autonomous maritime operations.

Exchange rate note: All NT$ to USD conversions in this dispatch use a rate of approximately NT$31.6 = USD $1.00, consistent with CNA and Focus Taiwan sourcing from February 2026. Figures labeled “~USD” are approximate.

What Quick Takes Deliver:

• Country defense ecosystem assessments in ~1,500 words

• Technology vertical snapshots with demand signals and market estimates

• Honest risk assessment with confidence ratings

• Operational notes from the Ukraine-Taiwan corridors when commercially relevant
  

What Full Engagements Add:

• Procurement entity mapping and decision-maker identification

• Industrial base analysis with JV and partnership opportunities

• TAM/SAM/SOM market sizing with triangulated methodology

• Offset structuring guidance and regulatory pathway detail

• Phased market entry approach with investment requirements

Actionable Intelligence: The Quick Take tells you whether a market deserves your attention. The full profile tells you how to enter it.

Coverage Focus: CEE (Poland, Baltics, Romania), Indo-Pacific (Taiwan, Japan, South Korea, Philippines, Thailand), Gulf States, and select emerging markets where procurement windows are opening for non-traditional defense vendors.

Publishing Cadence: Weekly.

Russian Territorial Advances Continue Despite Slowing Pace

According to the latest Russia-Ukraine War Report Card from April 16, 2025, Russian forces gained 142 square miles of Ukrainian territory in the past month, with the pace of advance picking up again this week to 50 square miles, nearly double the prior week's advance. The Institute for the Study of War's latest Russian Offensive Campaign Assessment from April 16 provides detailed analysis of ongoing Russian operations in the Siversk and Chasiv Yar directions, where Russian forces continue offensive operations but have made limited advances.

European Allies Step Up Military Support as US Shifts Focus

At a recent NATO meeting in Brussels, European allies vowed to increase weapons deliveries to Ukraine as US support changes under President Donald Trump's administration. British defense minister John Healey announced that "overall some 21 billion euros ($24 billion) more has been promised towards helping arm Ukraine," including a British surge support worth $450 million featuring thousands of drones. German defense minister Boris Pistorius emphasized, "We take on more responsibility as Europeans," as the US shifts its approach to negotiating a peace deal.

Ukraine Develops Domestic Drone Alternatives to Replace Chinese Equipment

Ukraine's government-backed defense innovation program Brave1 has conducted comprehensive tests of over a dozen domestically produced small first-person view (FPV) bombing drones designed to replace Chinese-made Mavic drones. According to Euromaidan Press, eight Ukrainian companies showcased potential replacements, with several models successfully completing tests that required flying 10 kilometers under electronic warfare interference, dropping munitions on target, and returning safely.

Economics // Trade

National Bank of Ukraine Maintains Key Rate at 15.5%, Revises Economic Forecasts

The National Bank of Ukraine (NBU) has decided to maintain its key policy rate at 15.5% as of April 18, stating this decision "will help maintain the stability of the foreign exchange market, maintain control over inflation expectations and gradually slow inflation to the 5% target." The NBU has also revised its inflation forecast for 2025 from 8.4% to 8.7% and downgraded GDP growth projections to 3.1% for 2025, down from the previous estimate of 3.6%.

IMF Continues Support with $0.4 Billion Disbursement Following Seventh Review

The International Monetary Fund and Ukrainian authorities reached a staff-level agreement on the Seventh Review of the 4-year, $15.5 billion Extended Fund Facility Arrangement in February. Upon IMF Executive Board approval, Ukraine is expected to receive approximately $0.4 billion, bringing total disbursements under the program to $10.1 billion. The IMF noted that "program performance remains strong" with all end-December quantitative performance criteria being met, though the economic outlook "remains exceptionally uncertain as the war continues".

Foreign Investment in Ukraine's Defense Industry Accelerates

International companies are increasingly investing in Ukraine's defense industry despite ongoing hostilities. According to a CEPA report, the Ukrainian government forecasts domestic defense production could reach $35 billion this year, up from $20 billion in 2024. European companies have been particularly active, with Denmark investing approximately $970 million in Ukraine's defense industry and encouraging others to follow the "Danish model" of purchasing weapons directly from Ukrainian companies. Major manufacturers including Rheinmetall, KNDS, and AeroVironment are opening production facilities and forming joint ventures with Ukrainian partners6.

Government // Policy

Paris Hosts High-Level Diplomatic Talks on Ukraine Peace Process

French President Emmanuel Macron recently hosted talks in Paris with top US officials and Ukrainian President Volodymyr Zelenskyy focused on ending the Russia-Ukraine war. During the meeting, Zelenskyy urged allies to "exert pressure on Russia to agree to a ceasefire," stating that "Russia exploits every moment to inflict harm. We must hold the aggressors accountable." The talks follow separate discussions between US officials and Russian Foreign Minister Sergey Lavrov, with the US State Department reporting they communicated "the framework for a sustainable and lasting peace".

Peace Negotiations Continue with Complex Dynamics Between US, Ukraine, and Russia

Recent developments in peace negotiations have been characterized by shifting relationships between key players. According to recent reports, renewed negotiations began in early 2025 after Donald Trump became US president, with a February 12 phone call between Trump and Putin, followed by US officials meeting with Zelenskyy. The relationship between Trump and Zelenskyy has reportedly deteriorated, with tensions emerging over Ukraine's approach to potential territorial concessions and security guarantees. Meanwhile, British Prime Minister Keir Starmer and French President Emmanuel Macron have proposed a plan for a ceasefire protected by a "coalition of the willing" with troops in Ukraine.

Government Incentives Attract Foreign Investment Despite War Risks

The Ukrainian government has implemented several initiatives to attract foreign investment despite the ongoing conflict. According to MP Halyna Yanchenko, Secretary of Ukraine's National Investment Council, the government is actively encouraging co-production initiatives through programs like the UK Export Finance (UKEF) initiative, which mitigates risks and finances investment projects. European companies have been particularly successful in entering the Ukrainian market thanks to public-private cooperation models under which governments take responsibility for potential losses. This approach has helped attract investment in critical sectors including defense, energy, and construction materials production.

US Election

The impact of the new Trump administration on the war in Ukraine remains to be seen, but it ranks as one of the top foreign policy issues facing the incoming administration. Trump historically favors isolationist and transactional stances on foreign policy issues, especially surrounding defense and trade.

• Trump's peace plan may include deploying troops to buffer zone in Ukraine, including British and European, but not American troops over the current front line in Eastern Ukraine, according to several Trump staffers. Additionally, the US would continue to provide deterrence capabilities to the Ukrainians, but Ukraine would be unable to join NATO for 20 years.

• The new administration’s foreign policy plan for Europe reflects the isolationist and transactional stance. “The administration’s agenda will mark a massive shift in U.S. post–Cold War policy toward Europe. Instead of seeking to preserve and maintain the United States’ preeminent role in Europe, a Trump administration is likely to pull back and largely leave Europe to Europeans.”

• A second order effect for an isolationist administration will be how countries bordering Russia respond to a pull back of money and forces. Baltic states have already been increasing their defense spending in response to Russian hybrid warfare and they may feel the need to increase this further depending on how U.S. foreign policy evolves.

Security

Russia’s territorial conquest has increased over the last few months, with Russia gaining more territory in October than any month since July 2022.

This [image from Futura Doctrina] demonstrates that the Russian eastern offensive which kicked off at the beginning of this year has actually accelerated in its seizure of Ukrainian territory as it progressed. While there will be a culminating point of this offensive at some point, this will occur later than many of us thought. It will continue through the U.S. presidential election period because this offensive is as much about the strategic story of the war, and the narrative of ‘inevitable Russian victory’ as it is about seizing ground and degrading Ukrainian ground forces and national will.

• This acceleration of territorial seizure precedes the deployment of North Korean troops. “The United States has received information that indicates that "right now" there are 8,000 North Korean troops in Russia's Kursk region”

• According to Bloomberg, Ukrainian forces have already engaged in combat with North Korean troops near the Russian border in early November.brewc

• The Ukrainian Army is being described as “overstretched” in their efforts to contain the Russian advances. “Ukraine’s new mobilization law — finally passed in April this year — lowered the draft age to 25, expanded data collection for all eligible men, but did not offer an end point for military service after a clause setting the term for demobilization at 36 months was removed at the last minute.”

• “Russian drone and missile strikes against Ukrainian energy infrastructure in Summer 2024 reportedly significantly impacted Ukrainian electrical generation capacity compared to March 2024, though it is unclear whether Russia had been able to inflict significant further damage on the Ukrainian energy grid since.”

• Ukraine faces toughest winter yet as energy shortages loom : Kyiv faces daily blackouts of eight to 20 hours amid an onslaught of Russian attacks.

• Russia’s use of unidentified gas surges on the front line, Ukraine lacks detectors

Economics & Trade

• As Ukrainian businesses shift westward under the umbrella of war, some argue that the geographical realignment may be permanent. Viktor Mykyta, regional governor in Zakarpattia which borders Poland, Slovakia, Hungary and Romania, described a rush of new businesses ranging from salt production to furniture and textiles. However, there remains a shortage of skilled labor that inhibits substantive economic growth.

• Ukraine's sovereign dollar bonds and GDP warrants extended a post-U.S. election rally on Thursday on optimism that Donald Trump's return to the White House could end the country's war with Russia.

  

Government

• European Commission for Foreign Affairs spokesperson, Peter Stano, pledged that, despite Donald Trump’s threat to stop aid to Ukraine, the EU will continue to support the country militarily and financially and will only consider a peace agreement with Russia that contains terms favorable for Ukraine. According to Stano, speculation that Europe will stand alone in supporting Kyiv is “premature.”

• “Poland has proposed that Ukraine buy weapons from it on credit and then pay the costs back after the war, foreign minister Radosław Sikorski has revealed. His remarks came shortly after Ukrainian President Volodymyr Zelensky appeared to criticise Poland for not providing Kyiv enough military support.”

• Moldova reelects pro-Western president despite alleged Russian interference. Pro-Western President Maia Sandu won a second term in office despite alleged “massive interference” from Russia. Sandu won 55% of the vote in a runoff with her opponent, who favored closer ties to Russia, and promised to govern for all Moldovans.

• Germany to provide $217 million in humanitarian winter aid for Ukraine. During a visit to Kyiv on Nov. 4, German Foreign Minister Annalena Baerbock announced that the country will provide 200 million euros ($217 million) in humanitarian winter aid, as Ukraine prepares for more Russian attacks against energy infrastructure. Baerbock said that the aid funding would be used to support those affected by severe energy disruptions so "Ukrainians can be provided with essentials such as blankets or warm winter coats to protect them from freezing temperatures."

Ukraine and Russia traded drone strikes this past week, and both claimed to have recaptured small villages along various parts of the front. The Institute for the Study of War’s recent key takeaways of the security situation:

• Russian Defense Minister Andrei Belousov arrived in the People's Republic of China (PRC) for an official visit on October 14, highlighting continued Russia-PRC defense cooperation against the backdrop of bilateral naval exercises in the Pacific Ocean.

• Russian forces struck civilian vessels docked at Ukrainian ports for the fourth time since October 5, part of an apparent Russian strike campaign targeting port areas to undermine Ukraine's grain corridor, spoil international support for Ukraine, and push Ukraine into premature negotiations.

• Russian sources claimed that Russian forces recaptured positions in Kursk Oblast.

• Ukrainian forces recently regained positions in central Toretsk.

• “The West must learn defense tech lessons on the Ukrainian battlefield”-According to US military experts, the window between the first deployment of an improved drone design and the appearance of countermeasures is usually just over a month. Responses can range from electronic interference to copying drone designs and combat tactics. It is a lethal game of whack-a-drone that has led to the testing of, among other technologies, autonomous target acquisition and increasingly autonomous drone operations.

• Ukrainian companies are leading the way in emerging technology as “Innovation and improvisation are fueling Ukraine’s emergence as a defense tech hub.”

  

• While innovation in the defense space has helped Ukraine keep a tactical and strategic edge, it has not been without “risks for democracy and human rights.”

• A lack of consistent support risks putting Ukraine in a poor bargaining position, should the time come—a position that would have negative ramifications for everyone in the West.

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Economics & Trade

• ‘We believe that in 5 years, Ukraine's defense sector will attract half a billion dollars;’ Q&A with foreign defense investors - Ukraine has the capacity to produce around $20 billion worth of weapons and equipment, according to government estimates, but the state budget can only fund around $6 billion. Western investors and technology firms are positioning themselves to integrate Ukraine’s nascent defense innovation and industrial base into Allied supply chains.

• This dynamic is further reinforced by a recent proclamation by the Ukrainian Army Head of Export Control that he aims for a more “friendly relationship with defense tech; a more simplified and transparent permit process; and a “balanced” system of export control.”

  “Modern warfare is not only a conflict of people but also a conflict of technologies. Today, Ukraine is truly setting the trend in the development of defense technologies. We are ready to share our expertise and experience with foreign partners while also requiring support in terms of technologies, resources, and knowledge. We know that technology will allow us to save the lives of our soldiers and protect democracy worldwide.”

  • Deputy Commander-in-Chief of the Armed Forces of Ukraine, Andriy Lebedenko, at the recent Brave1 Defense Tech Valley conference in Kyiv

• French companies are the biggest foreign employers in wartime Ukraine, with 180 firms employing around 25,000 people. The French presence is particularly notable in sectors such as retail, banking, and technology, with companies including UKRSIBBANK, Credit Agricole, Auchan, Ubisoft, and BlaBlaCar leading the way. Despite the full-scale invasion launched by Russia in 2022 and the current wartime conditions in Ukraine, no French company has left the country or ceased operations.

• American University Kyiv offers students unique US internship program experience

• Poland’s exports of goods and services reached $469 billion last year, surpassing the $466.6 billion [of exports] in sanctions-hit Russia.
  

Government

• “Poland will temporarily bar refugees from claiming asylum in the country after crossing the border from neighboring Belarus, amid warnings that Russia and its allies are using migrants to try to destabilize the EU.”

• U.S. House Speaker has “no appetite” for funding for Ukraine, hoping a call from former President Trump, if elected, would solve the problem.

• The United Kingdom announced new sanctions on Russia's "shadow fleet" of tankers which Moscow uses to export oil, bypassing a Western embargo imposed after its invasion of Ukraine. Experts say the so-called ghost fleet of tankers with opaque ownership or without proper insurance has allowed the Kremlin to keep exporting despite the embargo on exports and oil price cap on its global sales.

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Security

Ukrainian President Volodymyr Zelenskyy visited the United States this past week, meeting with multiple politicians on both sides of the aisle, including President Joe Biden and former President Donald Trump.

• Territorial control changed hands little over the last two weeks, with Russia’s counter-offensive still ongoing.

• Government sources assert that Iran is brokering secret talks between Russia and Yemen’s Houthi rebels to transfer anti-ship missiles to the militant group, which would enhance the Houthis ability to disrupt global trade in the Red Sea. This points to deepening collaboration between nations with an antipathy to the West.

• “U.S. President Joe Biden announced nearly $8 billion in additional military aid for Kyiv.” This package includes “long-range strike weapons, air defenses, and additional F-16 training for pilots.”

• A journalist looked inside Ukraine’s Drone Command Center with former U.S. General David Petraeus.

  The drone revolution is ever-expanding. The skies and seas are battlegrounds where Ukrainian innovation leads the charge.

  In less than half a year, what started as a grassroots effort has grown into an organized and effective drone brigade. They have proven that Ukraine isn’t just a battleground; it’s a testing ground for the future of unmanned warfare. As General Petraeus remarks: “What’s going on here is something that isn’t happening anywhere else in the world.”

Economics & Trade

• European Commission president Ursula von der Leyen “announced a €35bn EU loan for Ukraine as part of a G7 plan to raise $50bn on the back of future profits from frozen Russian state assets.”

• John Nagl and Dan Rice argue that “by expanding the mandate of the U.S. Development Finance Corporation (DFC) to include defense-related projects, the U.S. can incentivize private capital to flow into areas crucial for global security.”

• The Ministry of the Economy of Ukraine asserts that Ukrainian GDP rose by 3.5% YoY between August 2023 and August 2024, highlighting the resilience of the Ukrainian economy.

• Lisa Yasko argues that war risk insurance “bridges the gap” between the conflict and reconstruction by protecting assets and encouraging foreign direct investment.

  International agencies, such as the U.S. International Development Finance Corporation (DFC) and the Multilateral Investment Guarantee Agency (MIGA), have made significant strides. DFC, for example, recently announced $357 million in new political risk insurance to protect critical investments necessary for our recovery. MIGA offers coverage for foreign investors starting at $5 million, with terms lasting up to 20 years.

Government

• Ukraine restricts the use of Telegram by military and government agencies after Kyrylo Budanov, Chief of the Defence Intelligence of Ukraine, provided substantiated evidence that Russian special services have access to Telegram users' personal correspondence, even deleted messages, and their personal data.

  

• Ukrainian President Volodymyr Zelenskyy met Indian Prime Minister Narendra Modi to discuss “pathways to peace.” India seems to be coming into pole position as Kyiv’s favored interlocutor to help mediate Ukraine-Russia negotiations over the end of the conflict.

  While New Delhi has consistently refrained from condemning Russia’s invasion of Ukraine, it has spoken in support of respecting sovereignty and territorial integrity, and ending the war. Six weeks after his Moscow trip raised Ukrainian hackles, Modi traveled to Kyiv to meet with Zelenskyy. He vowed to be “a friend” to Kyiv and help bring about a peace deal.

• Vladimir Putin signed a decree authorizing the conscription of roughly 130,000 young Russian men into the military throughout the fall season.

The FHG team has been immersed in the daily economic, military, and geopolitical ramifications of the conflict, and keeping up to date on the conflict has become second nature. With our unique combination of experience in international affairs, security, business, and law, combined with our experience and network on the ground in Ukraine, we are uniquely positioned to identify key trends in the war. Our viewpoint also allows us to plan for Ukraine’s post-war reconstruction and development. 

We designed this newsletter to distill our on-the-ground information and analysis, combining it with our expertise to provide a simplified, in-depth, bi-weekly reader on key issues in the Ukraine-Russia conflict and eventual post-war reconstruction.

Security

Following a week of deadly drone attacks deep into Ukraine, Russia began a counter-offensive in the Kursk region on September 12th. Both sides confirmed the counter-offensive, but details on its success are murky. Russian military bloggers and officials have claimed Russian troops recaptured territory, but these appear to be areas “that Ukrainian forces were not yet fully controlling nor attempting to control.”

Additional Updates from the Institute for the Study of War

• Russian forces struck a civilian cargo ship transiting through the Ukrainian grain corridor in the western Black Sea on September 11, likely as part of a renewed Russian effort to undermine international confidence in the safety of the corridor.

• Russia continued its efforts to enhance relations with non-Western countries at the meeting of BRICS high-ranking security officials and advisors in St. Petersburg.

• North Korean missiles produced in 2024 used in Ukraine. The confirmation of North Korean missiles being used by Russia in Ukraine “illustrates North Korea’s robust acquisition network for its ballistic missiles programme, capable of evading multilateral sanctions regimes,” as well as North Korea’s rapid production capabilities.

• White House finalizing plans to expand where Ukraine can hit inside Russia. This plan, being made in parallel with the United Kingdom, prompted Russian President Putin to again state that equate any expansion of the limits on Ukrainian strikes to be equivalent to active engagement by NATO. 

• Russia launched production of new drone with Chinese parts in 2023. “Russia began producing a new long-range attack drone, the Garpiya-A1, using a Chinese engine and other parts in 2023…China has positioned itself as neutral in the ongoing war but has deepened economic ties with Russia and become Moscow's leading source of dual-use goods during the full-scale invasion of Ukraine, feeding the Russian defense industry.”
  

Economics & Trade

In the first year of the full-scale war, Ukraine’s GDP shrank by almost a third, inflation jumped 20%, and the government deficit ran at more than 15%. The US, EU, and other allies have helped Ukraine absorb the impact on their economy and budget through loans for institutions such as the International Monetary Fund, which extended $15.6B to Ukraine over a four year period in a deal struck in 2023. Countries that accept loans from the IMF are required to make policy changes that the IMF determines will make the country receiving the loan more likely to be able to pay back the loan. This process is known as conditionality. The loans are then periodically assessed on whether they meet conditionality standards which are evaluated through Quantitative Performance Criteria or QPC’s. To date, Ukraine has met 94% of its QPCs.

• NBU Eases FX Restrictions for Businesses and Tightens Some Regulations to Prevent Unproductive Capital Outflows. The National Bank of Ukraine (NBU) is introducing changes to its foreign exchange (FX) rules. The new measures will make it easier for state-owned companies to buy foreign currency for carbon emission quotas and allow e-commerce businesses to pay VAT in the European Union. Additionally, companies will be able to receive reimbursements for certain bond coupon payments. However, to protect Ukraine's international reserves and maintain stability in the foreign exchange market, the NBU is also tightening restrictions on using foreign currency for purchasing luxury goods and real estate abroad.

• Despite hype around Ukrainian weapons tech, foreign investors remain gun-shy. Ukraine’s weapons startups’ fight against the Russian military machine has drawn the eyes of the world, but key financing barriers are blocking them from going worldwide.

• Weekly digest of news on investment and business development in Ukraine and the world from UkraineInvest. Ukrainian company Velta has secured more than EUR 7 million in grants from the European Union for innovative titanium mining. 

• Група "Лемтранс" відкрила новий контейнерний термінал у Вінниці. A new $15M rail logistics hub and container storage terminal has opened up in Vinnytsia, roughly 300km for the Moldova border and 800km from the Romania border.

• September Macroeconomic and Monetary Monthly Review - National Bank of Ukraine. Inflationary pressures eased and the stabilization of the energy system improved business expectations and consumer sentiment in Ukraine.

Government

President Erdogan of Turkey, said that Crimea should be returned to Ukraine under international law at the Crimean Platforms Leaders Summit last week. Turkey has emerged as a potential key mediator in the ongoing conflict between Russia and Ukraine, given its credibility and recent success in brokering the Black Sea agriculture export deal in 2022, although the deal later fell through. Turkey has maintained relationships with both Ukraine and Russia, supplying the Ukrainian military with Bayraktar drones, even as the number of Russian-owned businesses in Turkey has skyrocketed. As one of the few countries capable of facilitating peace negotiations, Turkey joins the United Arab Emirates, which has already negotiated a prisoner exchange deal between the warring nations, on the short list of prospective intermediaries.

• Ukraine government approves 2025 draft budget, PM says. Ukraine's government has approved the 2025 draft budget, which has a strong focus on defense spending, Prime Minister Denys Shmyhal said. The draft includes roughly $53.5B for defense. 

• Russia expels six UK diplomats as tensions rise over Ukraine missiles. Britain described the accusations as "completely baseless", saying it was a tit-for-tat action after the UK expelled the Russian defense attache and removed diplomatic status from several Russian properties in May.