The war in Ukraine shows little sign of abating, with both Russia and Ukraine retaining the economic and military capacity to fight well into 2026, according to SEB’s latest conflict update. Chief Emerging Markets Strategist Erik Meyersson writes that the conflict has become a war of attrition, where “winning requires losing the war more slowly than the opponent”.
Drones now dominate the battlefield. Russian airstrikes with Shahed-type drones have accelerated in recent months, while Ukrainian defenses have restored interception rates to pre-2024 levels. Ukraine has also stepped up drone attacks deep inside Russia, notably targeting oil refineries. These strikes have pushed retail gasoline prices higher in Russia, though inflation in Ukraine remains far steeper.
Conflict fatalities remain high but are trending lower in 2025, according to data cited by SEB. Equipment losses reflect the changing nature of warfare: tanks and armored vehicles are being replaced by heavy losses in drones, artillery and support vehicles. Russia continues to make territorial gains but at significant cost, while Ukraine’s defenses impose heavy attrition on Russian advances.
SEB notes that external pressures are mounting. Demonstrations in Ukraine tied to anti-corruption reforms have receded, while protests in Russia remain muted under tighter authoritarian control. Both sides, however, show resilience to domestic political shocks.
Markets remain sensitive to ceasefire expectations. SEB highlights that Ukrainian asset prices have closely tracked shifts in predicted truce probabilities. Notably, betting market Polymarket has cut its estimated chance of a ceasefire in 2026 from 72 percent in early August to just 46 percent in September. SEB maintains its base case: the war will continue through 2026.
The conclusion is stark: drones and attrition economics are locking both countries into a protracted conflict, one that reshapes global energy markets, keeps risk premia elevated, and leaves investors with little prospect of near-term resolution.
Source: SEB, Conflict Update: The Russia-Ukraine Conflict – Droning Into 2026, 16 Sept 2025
