InvestMacro

By JustForex

After a smaller-than-expected interest rate hike by the RBA this week and the UN asking central banks to slow interest rate hikes, the fundamental narrative shifted toward a potential “turnaround” by the Fed toward a slower interest rate hike. This has helped support stock markets. On the other hand, the US Consumer Confidence and Service Sector Activity Index data were better than expected, suggesting that the US economy is holding up relatively well so far. Thus, the US Fed may not shy away from its hawkish bias, which will once again put pressure on stocks.

As the stock market closed yesterday, the Dow Jones Index (US30) decreased by 0.14%, and the S&P 500 Index (US500) lost 0.20%. NASDAQ technology index (US100) fell by 0.30%.

Mary Daley, President of the San Francisco Federal Reserve, said that the Fed’s goal is to keep tightening monetary policy until interest rates are at a restrictive level. The policymaker added that the US Federal Reserve does not expect interest rates to fall in 2023.

Credit Suisse’s credit risk continues to rise sharply. Yesterday, SocGen analysts wrote that Credit Suisse must actively deleverage its investment banking operations or risk default. But analysts at HSBC said Credit Suisse has no immediate concerns about liquidity and funding.

Equity markets in Europe were mostly down yesterday. German DAX (DE30) was 1.21% lower, French CAC 40 (FR40) fell by 0.90%, Spanish IBEX 35 (ES35) decreased by 1.52%, British FTSE 100 (UK100) was 0.48% lower.

With almost 90% of the storage capacity in the EU, Europe will survive the coming winter with only a few scratches, barring any political or technical surprises, but the real difficulties will start in February or March when the storage capacity needs to be filled again.

The German economy minister blamed the United States and other “friendly” gas-supplying countries for the astronomical prices of their supplies. According to the minister, some gas suppliers are profiting from the consequences of the war in Ukraine, which has led to a sharp rise in global energy prices. Russia’s invasion of Ukraine continues to undermine energy markets, global supply chains remain trapped in China’s COVID-19 strategy, and advanced economies are moving ever closer to stagflation.

Leaders from more than 40 countries, meeting Thursday in the Czech capital, are set to create a “European Political Community,” which aims to increase security and prosperity across the continent. But critics say the new forum is an attempt to stall the expansion of the European Union.

OPEC+ countries have agreed to cut oil production by 2 million BPD. OPEC+ oil production cuts will take effect in November. Oil producers do not want to allow oil prices to fall and will reduce production to maintain “profit.” In a statement issued after the OPEC+ decision, the White House said it was disappointed by the short-sighted decision to cut production quotas at a time when the world economy is facing the continued negative impact of Putin’s invasion of Ukraine. Biden also directed the Energy Secretary to explore additional actions to increase domestic fuel production. Goldman raised its oil forecast immediately by $10 to $110 by the end of the year.

OPEC+ will no longer meet monthly. Meetings will now be held every two months.

Bond yields have corrected downward in recent days amid speculation that the Fed may move to a less aggressive policy in the near future amid growing tensions in financial markets and fears of a global recession. This situation supported gold and silver prices, causing a sharp rally in recent days. But the outlook for gold and silver remains bearish in the medium and long term as the tightening cycle goes on.

Asian markets traded higher yesterday. Japan’s Nikkei 225 (JP225) increased by 0.48%, Hong Kong’s Hang Sengv(HK50) jumped by 5.90%, and Australia’s S&P/ASX 200 (AU200) ended the day up by 1.74%.

S&P 500 (F) (US500) 3,783.28 −7.65 (−0.20%)

Dow Jones (US30) 30,273.87 −42.45 (−0.14%)

DAX (DE40) 12,517.18 −153.30 (−1.21%)

FTSE 100 (UK100) 7,052.62 −33.84 (−0.48%)

USD Index 111.15 +1.09 (+0.99%)

• – Japan BOJ Gov Kuroda Speaks at 03:30 (Tentative);
• – UK Construction PMI (m/m) at 11:30 (GMT+3);
• – Eurozone ECB Monetary Policy Meeting Accounts at 14:30 (GMT+3);
• – US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
• – Canada Ivey PMI (m/m) at 17:00 (GMT+3);
• – US Natural Gas Storage (w/w) at 17:30 (GMT+3).

By JustForex

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

By XN Iraki, University of Nairobi 

President William Ruto has nominated Njuguna Ndung’u to head Kenya’s National Treasury. A Central Bank of Kenya governor for eight years between 2007 and 2015, Ndung’u is also an accomplished researcher and a University of Nairobi academic. He has extensive expertise in macroeconomics (inflation, economic growth, national income and unemployment) and poverty reduction.

If parliament approves his nomination, Ndung’u will lead the treasury in difficult circumstances. The country is just emerging from divisive electoral campaigns. It also faces economic challenges.

The government is spending more than it gets in revenue, inflation is rising and the value of the shilling is tumbling against major currencies.

Ndung’u has his work cut out for him. Ruto campaigned on the platform of mending a broken economy and redistributing growth dividends to low-income earners.

With a PhD in economics, Ndung’u has a deep understanding of both local and global economic trends. His latest stint was as executive director of the Africa Economic Research Consortium, a research and policy think-tank.

He has been an advisor to international organisations, such as the Brookings Institution and the International Development Research Centre (Africa’s regional office).

The job at hand

The Treasury Cabinet Secretary (finance minister) manages the revenues and expenditures of the country.

The government gets its revenue from taxes, grants, debts and dividends paid by state-owned enterprises. The treasury (ministry of finance) delegates powers to raise such revenues.

On the spending side, the ministry has to contend with the dictates of other institutions like parliament, the central bank and multilateral organisations like the World Bank and the International Monetary Fund. Decisions have to be made about how the revenue is shared and used – for recurrent expenditure like paying salaries and debt, and for development such as building roads or hospitals.

In Kenya, the decision is complicated by another factor. The money must be shared with 47 counties.

What he brings to the position

Ndung’u will have to make Ruto’s bottom-up economics model work. That means focusing on the people at the bottom of the pyramid who lack capital and opportunities to run businesses. The expectation is that empowering this segment of society would create more jobs and give more citizens a higher standard of living. This model is contrasted with trickle-down economics, which gives resources to a few at the “top” in the hope that it spreads down to the masses.

Ndung’u previously worked at the Kenya Institute of Public Policy Research and Analysis, which advises government departments, including the National Treasury, on policy issues. In 2001, he helped develop a macroeconomics model to analyse Kenya’s economy.

He is back in familiar waters, having been a central bank governor at the chaotic start of Mwai Kibaki’s second term in 2008, when post-election violence and the global financial crisis slowed down the Kenyan economy. He was a member of the National Economic and Social Council that Kibaki put together to lift the economy.

His most valuable experience for the task at hand is, perhaps, his mastery of monetary tools as a central banker. His new role focuses on fiscal policy (spending, tax and debt).

He is likely to work in tandem with the central bank, avoiding fiscal policies that upset monetary measures (like interest rates). Harmony between fiscal and monetary policies would be good for stability of the currency (as the UK is finding out).

Ndung’u is also known to have championed financial inclusion, mainly through mobile banking. This implies mass access to affordable payments, savings, credit and insurance.

He was bold in getting banks to accept mobile money, which was unpopular at the time. This may be a quality needed to drive bottom-up economics. There will have to be institutional changes to accommodate bottom-up economics and some resistance is to be expected. Kenyans are used to trickle-down economics.

Missing in his tool box

But Ndung’u lacks political experience in a cabinet dominated by politicians. He is a technocrat and, as Uhuru Kenyatta’s first term showed, some technocrats find it hard to fit into a new political dispensation. Political experience matters even in the most technical of jobs. In addition, Kenyatta lost his political clout partly because his cabinet, dominated by technocrats, lacked the political weight to sell government programmes to his core support base.

Ruto, too, needs to be careful, in my view. The Treasury under his regime should give free markets a human face. For example, the removal of subsidies could be seen as heartless.

What may not change

I doubt debt taps will close during Ndung’u’s tenure. The debt ceiling may be raised again in the new administration. Given the country’s budget deficit, which is about 6.2% of annual production (GDP), borrowing is bound to continue.

If there is change, it might come in the mixture of debt between long term and short term, as well as bilateral and multilateral loans.

At the moment, Kenya borrows equally from local and foreign lenders. Ruto wants Kenyans to save more, reducing the need for external borrowing. This is unlikely in the short run because of the poverty levels. People save after taking care of the basics, like food and shelter.

Inflation is also likely to remain an issue. Will interest rate hikes slow down inflation? Will government raise wages and salaries to cushion workers? Could cutting taxes be a better option despite fears of stoking inflation? The UK is a good case study – its tax cuts have led to a weaker currency, which implies higher inflation.

Finally, reliance on fiscal and monetary tools may not bear fruit. Kenya is a very informal economy. Tools like interest rate cuts may not work effectively when people borrow mostly informally.

Foreign direct investment and increased trade would be more effective than borrowing, as long as the business environment is attractive to investors.

About the Author:

XN Iraki, Associate Professor, Faculty of Business and Management Sciences, University of Nairobi

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By Mathew Barlow, UMass Lowell and Suzana J. Camargo, Columbia University 

When Hurricane Ian hit Florida, it was one of the United States’ most powerful hurricanes on record, and it followed a two-week string of massive, devastating storms around the world.

A few days earlier in the Philippines, Typhoon Noru gave new meaning to rapid intensification when it blew up from a tropical storm with 50 mph winds to a Category 5 monster with 155 mph winds the next day. Hurricane Fiona flooded Puerto Rico, then became Canada’s most intense storm on record. Typhoon Merbok gained strength over a warm Pacific Ocean and tore up over 1,000 miles of the Alaska coast.

Major storms hit from the Philippines in the western Pacific to the Canary Islands in the eastern Atlantic, to Japan and Florida in the middle latitudes and western Alaska and the Canadian Maritimes in the high latitudes.

A lot of people are asking about the role rising global temperatures play in storms like these. It’s not always a simple answer.

It is clear that climate change increases the upper limit on hurricane strength and rain rate and that it also raises the average sea level and therefore storm surge. The influence on the total number of hurricanes is currently uncertain, as are other aspects. But, as hurricanes occur, we expect more of them to be major storms. Hurricane Ian and other recent storms, including the 2020 Atlantic season, provide a picture of what that can look like.

Our research has focused on hurricanes, climate change and the water cycle for years. Here’s what scientists know so far.

Rainfall: Temperature has a clear influence

The temperature of both the ocean and atmosphere are critical to hurricane development.

Hurricanes are powered by the release of heat when water that evaporates from the ocean’s surface condenses into the storm’s rain.

A warmer ocean produces more evaporation, which means more water is available to the atmosphere. A warmer atmosphere can hold more water, which allows more rain. More rain means more heat is released, and more heat released means stronger winds.

These are basic physical properties of the climate system, and this simplicity lends a great deal of confidence to scientists’ expectations for storm conditions as the planet warms. The potential for greater evaporation and higher rain rates is true in general for all types of storms, on land or sea.

That basic physical understanding, confirmed in computer simulations of these storms in current and future climates, as well as recent events, leads to high confidence that rainfall rates in hurricanes increase by at least 7% per degree of warming.

Storm strength and rapid intensification

Scientists also have high confidence that wind speeds will increase in a warming climate and that the proportion of storms that intensify into powerful Category 4 or 5 storms will increase. Similar to rainfall rates, increases in intensity are based on the physics of extreme rainfall events.

Damage is exponentially related to wind speed, so more intense storms can have a bigger impact on lives and economies. The damage potential from a Category 4 storm with 150 mph winds, like Ian at landfall, is roughly 256 times that of a category 1 storm with 75 mph winds.

Hurricane Ian’s water vapor on Sept. 28, 2022, meant heavy rainfall for large parts of Florida.
NOAA

Whether warming causes storms to intensify more rapidly is an active area of research, with some models offering evidence that this will probably happen. One of the challenges is that the world has limited reliable historical data for detecting long-term trends. Atlantic hurricane observations go back to the 1800s, but they’re only considered reliable globally since the 1980s, with satellite coverage.

That said, there is already some evidence that an increase in rapid intensification is distinguishable in the Atlantic.

Within the last two weeks of September 2022, both Noru and Ian exhibited rapid intensification. In the case of Ian, successful forecasts of rapid intensification were issued several days in advance, when the storm was still a tropical depression. They exemplify the significant progress in intensity forecasts in the past few years, although improvements are not uniform.

There is some indication that, on average, the location where storms reach their maximum intensity is moving poleward. This would have important implications for the location of the storms’ main impacts. However, it is still not clear that this trend will continue in the future.

Storm surge: Two important influences

Storm surge – the rise in water at a coast caused by a storm – is related to a number of factors including storm speed, storm size, wind direction and coastal sea bottom topography. Climate change could have at least two important influences.

Stronger storms increase the potential for higher surge, and rising temperatures are causing sea level to rise, which increases the water height, so the storm surge is now higher than before in relation to the land. As a result, there is high confidence for an increase in the potential for higher storm surges.

Speed of movement and potential for stalling

The speed of the storm can be an important factor in total rainfall amounts at a given location: A slower-moving storm, like Hurricane Harvey in 2017, provides a longer period of time for rain to accumulate.

There are indications of a global slowdown in hurricane speed, but the quality of historical data limits understanding at this point, and the possible mechanisms are not yet understood.

Frequency of storms in the future is less clear

How the number of hurricanes that form each year may change is another major question that is not well understood.

There is no definitive theory explaining the number of storms in the current climate, or how it will change in the future.

Besides having the right environmental conditions to fuel a storm, the storm has to form from a disturbance in the atmosphere. There is currently a debate in the scientific community about the role of these pre-storm disturbances in determining the number of storms in the current and future climates.

Natural climate variations, such as El Niño and La Niña, also have a substantial impact on whether and where hurricanes develop. How they and other natural variations will change in the future and influence future hurricane activity is a topic of active research.

How much did climate change influence Ian?

Scientists conduct attribution studies on individual storms to gauge how much global warming likely affected them, and those studies are currently underway for Ian.

However, individual attribution studies are not needed to be certain that the storm occurred in an environment that human-caused climate change made more favorable for a stronger, rainier and higher-surge disaster. Human activities will continue to increase the odds for even worse storms, year over year, unless rapid and dramatic reductions in greenhouse gas emissions are undertaken.

About the Author:

Mathew Barlow, Professor of Climate Science, UMass Lowell and Suzana J. Camargo, Lamont Research Professor of Ocean and Climate Physics, Columbia University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By Shahid S. Hamid, Florida International University 

Hurricane Ian’s widespread damage is another disaster for Florida’s already shaky insurance industry. Even though home insurance rates in Florida are nearly triple the national average, insurers have been losing money. Six have failed since January 2022. Now, insured losses from Ian are estimated to exceed US$40 billion

Hurricane risk might seem like the obvious problem, but there is a more insidious driver in this financial train wreck.

Finance professor Shahid Hamid, who directs the Laboratory for Insurance at Florida International University, explained how Florida’s insurance market got this bad – and how the state’s insurer of last resort, Citizens Property Insurance, now carrying more than 1 million policies, can weather the storm.

What’s making it so hard for Florida insurers to survive?

Florida’s insurance rates have almost doubled in the past five years, yet insurance companies are still losing money for three main reasons.

One is the rising hurricane risk. Hurricanes Matthew (2016), Irma (2017) and Michael (2018) were all destructive. But a lot of Florida’s hurricane damage is from water, which is covered by the National Flood Insurance Program, rather than by private property insurance.

Another reason is that reinsurance pricing is going up – that’s insurance for insurance companies to help when claims spike.

But the biggest single reason is the “assignment of benefits” problem, involving contractors after a storm. It’s partly fraud and partly taking advantage of loose regulation and court decisions that have affected insurance companies.

It generally looks like this: Contractors will knock on doors and say they can get the homeowner a new roof. The cost of a new roof is maybe $20,000-$30,000. So, the contractor inspects the roof. Often, there isn’t really that much damage. The contractor promises to take care of everything if the homeowner assigns over their insurance benefit. The contractors can then claim whatever they want from the insurance company without needing the homeowner’s consent.

If the insurance company determines the damage wasn’t actually covered, the contractor sues.

So insurance companies are stuck either fighting the lawsuit or settling. Either way, it’s costly.

Other lawsuits may involve homeowners who don’t have flood insurance. Only about 14% of Florida homeowners pay for flood insurance, which is mostly available through the federal National Flood Insurance Program. Some without flood insurance will file damage claims with their property insurance company, arguing that wind caused the problem.

How widespread of a problem are these lawsuits?

Overall, the numbers are pretty striking.

About 9% of homeowner property claims nationwide are filed in Florida, yet 79% of lawsuits related to property claims are filed there.

The legal cost in 2019 was over $3 billion for insurance companies just fighting these lawsuits, and that’s all going to be passed on to homeowners in higher costs.

Insurance companies had a more than $1 billion underwriting loss in 2020 and again in 2021. Even with premiums going up so much, they’re still losing money in Florida because of this. And that’s part of the reason so many companies are deciding to leave.

Assignment of benefits is likely more prevalent in Florida than most other states because there is more opportunity from all the roof damage from hurricanes. The state’s regulation is also relatively weak. This may eventually be fixed by the legislature, but that takes time and groups are lobbying against change. It took a long time to pass a law saying the attorney fee has to be capped.

How bad is the situation for insurers?

We’ve seen about a dozen companies be declared insolvent or leave since early 2020. At least six dropped out this year alone.

Thirty more are on the Florida Office of Insurance Regulation’s watch list. About 17 of those are likely to be or have been downgraded from A rating, meaning they’re no longer considered to be in good financial health.

The ratings downgrades have consequences for the real estate market. To get a loan from the federal mortgage lenders Freddie Mac and Fannie Mae, you have to have insurance. But if an insurance company is downgraded to below A, Freddie Mac and Fannie Mae won’t accept it. Florida established a $2 billion reinsurance fund in May 2022 that can help smaller insurance companies in situations like this. If they get downgraded, the reinsurance can act like co-signing the loan so the mortgage lenders will accept it.

But it’s a very fragile market.

Ian could be one of the costliest hurricanes in Florida history. I’ve seen estimates of $40 billion to $60 billion in losses. I wouldn’t be surprised if some of those companies on the watch list leave after this storm. That will put more pressure on Citizens Property Insurance, the state’s insurer of last resort.

Some headlines suggest that Florida’s insurer of last resort is also in trouble. Is it really at risk, and what would that mean for residents?

Citizens is not facing collapse, per se. The problem with Citizens is that its policy numbers typically swell after a crisis because as other insurers go out of business, their policies shift to Citizens. It sells off those policies to smaller companies, then another crisis comes along and its policy numbers rise again.

Three years ago, Citizens had half a million policies. Now, it has twice that. All these insurance companies that left in the last two years, their policies have been migrated to Citizens.

Ian will be costly, but Citizens is flush with cash right now because it had a lot of premium increases and built up its reserves.

Citizens also has a lot of backstops.

It has the Florida Hurricane Catastrophe Fund, established in the 1990s after Hurricane Andrew. It’s like reinsurance, but it’s tax-exempt so it can build reserves faster. Once a trigger is reached, Citizens can go to the catastrophe fund and get reimbursed.

More importantly, if Citizens runs out of money, it has the authority to impose a surcharge on everyone’s policies – not just its own policies, but insurance policies across Florida. It can also impose surcharges on some other types of insurance, such as life insurance and auto insurance. After Hurricane Wilma in 2005, Citizens imposed a 1% surcharge on all homeowner policies.

Those surcharges can bail Citizens out to some degree. But if payouts are in the tens of billions of dollars in losses, it will probably also get a bailout from the state.

So, I’m not as worried for Citizens. Homeowners will need help, though, especially if they’re uninsured. I expect Congress will approve some special funding, as it did in the past for hurricanes like Katrina and Sandy, to provide financial aid for residents and communities.

About the Author:

Shahid S. Hamid, Professor of Finance, Florida International University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By Nina Srinivasan Rathbun, USC Dornsife College of Letters, Arts and Sciences 

Tactical nuclear weapons have burst onto the international stage as Russian President Vladimir Putin, facing battlefield losses in eastern Ukraine, has threatened that Russia will “make use of all weapon systems available to us” if Russia’s territorial integrity is threatened. Putin has characterized the war in Ukraine as an existential battle against the West, which he said wants to weaken, divide and destroy Russia.

U.S. President Joe Biden criticized Putin’s overt nuclear threats against Europe. Meanwhile, NATO Secretary-General Jens Stoltenberg downplayed the threat, saying Putin “knows very well that a nuclear war should never be fought and cannot be won.” This is not the first time Putin has invoked nuclear weapons in an attempt to deter NATO.

I am an international security scholar who has worked on and researched nuclear restraint, nonproliferation and costly signaling theory applied to international relations for two decades. Russia’s large arsenal of tactical nuclear weapons, which are not governed by international treaties, and Putin’s doctrine of threatening their use have raised tensions, but tactical nuclear weapons are not simply another type of battlefield weapon.

Tactical by the numbers

Tactical nuclear weapons, sometimes called battlefield or nonstrategic nuclear weapons, were designed to be used on the battlefield – for example, to counter overwhelming conventional forces like large formations of infantry and armor. They are smaller than strategic nuclear weapons like the warheads carried on intercontinental ballistic missiles.

While experts disagree about precise definitions of tactical nuclear weapons, lower explosive yields, measured in kilotons, and shorter-range delivery vehicles are commonly identified characteristics. Tactical nuclear weapons vary in yields from fractions of 1 kiloton to about 50 kilotons, compared with strategic nuclear weapons, which have yields that range from about 100 kilotons to over a megaton, though much more powerful warheads were developed during the Cold War.

For reference, the atomic bomb dropped on Hiroshima was 15 kilotons, so some tactical nuclear weapons are capable of causing widespread destruction. The largest conventional bomb, the Mother of All Bombs or MOAB, that the U.S. has dropped has a 0.011-kiloton yield.

Delivery systems for tactical nuclear weapons also tend to have shorter ranges, typically under 310 miles (500 kilometers) compared with strategic nuclear weapons, which are typically designed to cross continents.

Because low-yield nuclear weapons’ explosive force is not much greater than that of increasingly powerful conventional weapons, the U.S. military has reduced its reliance on them. Most of its remaining stockpile, about 150 B61 gravity bombs, is deployed in Europe. The U.K. and France have completely eliminated their tactical stockpiles. Pakistan, China, India, Israel and North Korea all have several types of tactical nuclear weaponry.

Russia has retained more tactical nuclear weapons, estimated to be around 2,000, and relied more heavily on them in its nuclear strategy than the U.S. has, mostly due to Russia’s less advanced conventional weaponry and capabilities.

Russia’s tactical nuclear weapons can be deployed by ships, planes and ground forces. Most are deployed on air-to-surface missiles, short-range ballistic missiles, gravity bombs and depth charges delivered by medium-range and tactical bombers, or naval anti-ship and anti-submarine torpedoes. These missiles are mostly held in reserve in central depots in Russia.

Russia has updated its delivery systems to be able to carry either nuclear or conventional bombs. There is heightened concern over these dual capability delivery systems because Russia has used many of these short-range missile systems, particularly the Iskander-M, to bombard Ukraine.

Tactical nuclear weapons are substantially more destructive than their conventional counterparts even at the same explosive energy. Nuclear explosions are more powerful by factors of 10 million to 100 million than chemical explosions, and leave deadly radiation fallout that would contaminate air, soil, water and food supplies, similar to the disastrous Chernobyl nuclear reactor meltdown in 1986. The interactive simulation site NUKEMAP by Alex Wellerstein depicts the multiple effects of nuclear explosions at various yields.

Can any nuke be tactical?

Unlike strategic nuclear weapons, tactical weapons are not focused on mutually assured destruction through overwhelming retaliation or nuclear umbrella deterrence to protect allies. While tactical nuclear weapons have not been included in arms control agreements, medium-range weapons were included in the now-defunct Intermediate-range Nuclear Forces treaty (1987-2018), which reduced nuclear weapons in Europe.

Both the U.S. and Russia reduced their total nuclear arsenals from about 19,000 and 35,000 respectively at the end of the Cold War to about 3,700 and 4,480 as of January 2022. Russia’s reluctance to negotiate over its nonstrategic nuclear weapons has stymied further nuclear arms control efforts.

The fundamental question is whether tactical nuclear weapons are more “useable” and therefore could potentially trigger a full-scale nuclear war. Their development was part of an effort to overcome concerns that because large-scale nuclear attacks were widely seen as unthinkable, strategic nuclear weapons were losing their value as a deterrent to war between the superpowers. The nuclear powers would be more likely to use tactical nuclear weapons, in theory, and so the weapons would bolster a nation’s nuclear deterrence.

Yet, any use of tactical nuclear weapons would invoke defensive nuclear strategies. In fact, then-Secretary of Defense James Mattis notably stated in 2018: “I do not think there is any such thing as a tactical nuclear weapon. Any nuclear weapon use any time is a strategic game changer.”

The U.S. has criticized Russia’s nuclear strategy of escalate to de-escalate, in which tactical nuclear weapons could be used to deter a widening of the war to include NATO.

While there is disagreement among experts, Russian and U.S. nuclear strategies focus on deterrence, and so involve large-scale retaliatory nuclear attacks in the face of any first-nuclear weapon use. This means that Russia’s threat to use nuclear weapons as a deterrent to conventional war is threatening an action that would, under nuclear warfare doctrine, invite a retaliatory nuclear strike if aimed at the U.S. or NATO.

Nukes and Ukraine

I believe Russian use of tactical nuclear weapons in Ukraine would not achieve any military goal. It would contaminate the territory that Russia claims as part of its historic empire and possibly drift into Russia itself. It would increase the likelihood of direct NATO intervention and destroy Russia’s image in the world.

Putin aims to deter Ukraine’s continued successes in regaining territory by preemptively annexing regions in the east of the country after holding staged referendums. He could then declare that Russia would use nuclear weapons to defend the new territory as though the existence of the Russian state were threatened. But I believe this claim stretches Russia’s nuclear strategy beyond belief.

Putin has explicitly claimed that his threat to use tactical nuclear weapons is not a bluff precisely because, from a strategic standpoint, using them is not credible.

About the Author:

Nina Srinivasan Rathbun, Professor of International Relations, USC Dornsife College of Letters, Arts and Sciences

This article is republished from The Conversation under a Creative Commons license. Read the original article.