Russian victory would cost Europe twice as much as supporting Ukraine, study finds

A Corisk/NUPI study models two endgames for the Russia-Ukraine war and finds a Russian partial victory would cost Europe €1.2–€1.6 trillion over four years (including €524–€952 billion in refugee costs from 6–11 million displaced), while a Ukrainian victory enabled by a rapid influx of heavy equipment would cost €522–€838 billion and materially reduce long-term political and fiscal risks. The report quantifies Ukraine’s materiel needs (1,500–2,500 tanks, 2,000–3,000 artillery systems, up to 8 million drones of various types) and flags that confiscation of frozen Russian assets (and a proposed €140 billion reparations loan) could halve Europe’s net bill; researchers also warn US support may taper and Ukraine’s finances will run dry by mid‑2026. Managers should price in elevated defense spending, refugee-related fiscal burdens, potential asset confiscation policy risk, and reduced country risk premia in a favorable outcome.

Analysis

Market structure: A prolonged Russian advantage reallocates fiscal burdens to Europe, creating clear winners—European and US defense primes (RHM.DE, HO.PA, RTX, GD, LMT), heavy industrials (steel, copper) and large construction/infra contractors (DG.PA, BBY.L). Losers are euro-area sovereign credit (Bunds, peripherals), EU-focused consumer cyclicals and regional banks exposed to sovereign/migration shocks. Expect price-power for defense suppliers as orders (1,500–2,500 tanks; 2,000–3,000 artillery) push lead times, raising input-cost passthrough and commodity demand.

Risk assessment: Tail risks include a sudden Russian breakthrough with >6–11m refugees (€524–952bn fiscal shock), legal reversal on frozen-asset confiscation, or China/Russia tech transfers—each could widen Euro sovereign spreads +100–300bp. Immediate (days) risk-off will hit EU equities and the euro around EU Council decisions; 3–12 months sees procurement cycles and capex allocations; 12–36 months is when industrial delivery constraints and inflationary effects crystallize. Hidden dependencies: semiconductor/rare-earth bottlenecks for drones, and US policy drift reducing NATO burden-sharing.

Trade implications: Favor 3–4% tactical overweight in defense names: Rheinmetall (RHM.DE) 2%, Thales (HO.PA) 1%, RTX (RTX) 1% as 6–18 month plays; buy 9–12m call spreads (10–25% OTM) to lever positive procurement news. Hedge macro via short German Bund futures sized to offset 25–50bp portfolio duration exposure and buy EUR puts (3m) sized 1–2% NAV if EUR/USD breaches 1.03 or if EU spreads widen >50bp. Commodity tilt: 0.5–1% long copper futures for reconstruction demand.

Contrarian angles: Markets underprice multi-year European defense rearmament and industrial onshoring; defensive names are underowned—use quality names with visible order backlog. Beware overpaying for single large-cap defense winners: delivery bottlenecks and export approvals create execution risk—prefer diversified primes and buy options to limit cash outlay. Historical parallel: post‑2014 budget increases produced multi-year revenue ramps, not immediate earnings spikes—trade the multi-quarter delivery curve, not instant re-rating.

Key Decisions for Investors

• Establish a 2% long position in Rheinmetall (RHM.DE) and a 1% long in Thales (HO.PA), horizon 6–18 months; add if EU defense orders >€20bn over next 6 months or RHM backlog growth >15% QoQ.
• Initiate a 1–2% combined US defense basket (RTX, GD, LMT) using 9–12 month call spreads (10–25% OTM) to cap premium; target 30–60% upside on confirmed multi-year contracts from EU governments.
• Short 10y German bund futures (or buy puts) sized to reduce portfolio duration by 25–50bp; add if 10y Bund yield rises above -0.10% (or spread to UST widens >50bp).
• Open a 1% NAV long copper futures position (or COPX) as a 12–24 month reconstruction play; scale in if copper spot rallies >10% or industrial metals inventories fall below 30‑day cover.
• Pair trade: long RHM.DE (1%) / short Deutsche Bank (DB) (1%) to express defense outperformance vs. EU banks under sovereign stress; rebalance if EU sovereign spreads compress by >40bp or RHM misses order targets.