What Germany’s Green Light for Ukraine to Strike Inside Russia Means for the War

Germany has authorized Ukraine to use German-supplied long-range weapons to strike military targets inside Russia, aligning with the UK and France and marking a shift from previous restrictions under former Chancellor Scholz. Chancellor Merz stated there are no longer range restrictions, while the Kremlin condemned the move as undermining political settlement efforts. While the US has not confirmed lifting all restrictions, President Trump is reportedly considering doing so, despite recent Russian attacks and Trump's criticism of both Putin and Zelensky.

Analysis

Germany, under Chancellor Friedrich Merz, has announced that Ukraine can utilize German-supplied long-range weapons against military targets within Russia, a move aligning Berlin with the UK and France. While presented by Chancellor Merz as lifting longstanding restrictions and enabling Ukraine to attack military positions in Russia, a government official subsequently clarified this was not a change in policy for Merz's administration (in office since May 6), which had reportedly never imposed such limits, contrasting with former Chancellor Olaf Scholz's more cautious stance. This development, with Ukrainian President Volodymyr Zelensky expected in Berlin for discussions with Merz on May 28, aims to bolster Ukraine's defense capabilities. The Kremlin has strongly condemned this as a "rather dangerous decision" detrimental to political settlement efforts. Concurrently, the United States, with President Donald Trump reportedly "seriously considering" lifting remaining restrictions on long-range missile use by Ukraine (following a partial easing by former President Joe Biden in November 2024 after his electoral defeat), suggests potential for further hardening of Western military support. These geopolitical maneuvers, occurring amid recent high-level calls initiated by President Trump with Russian and Ukrainian leaders followed by a major Russian assault, contribute to a "moderately negative" sentiment and an "uncertain" outlook, underscored by a market impact score of 0.65, signaling potential for increased market volatility.

Key Decisions for Investors

• Investors should anticipate increased market volatility due to escalating geopolitical tensions stemming from Germany's policy adjustment and the potential for further retaliatory actions or heightened conflict rhetoric.
• Consider reviewing and potentially adjusting exposure to assets sensitive to geopolitical risk, such as energy commodities which could face supply disruptions, and defense-related equities which may experience increased investor interest.
• Closely monitor forthcoming policy decisions from the U.S. administration regarding its own weapons supply restrictions and diplomatic engagements, as these will be critical in shaping the conflict's trajectory and overall market sentiment.