It is too soon to answer definitively the question as to whether the war in Ukraine will result in a mini upcycle, with incremental defense demand peaking in 2023-25 and then returning to a relatively staid budget outlook, or if it will mark the start of another longer cycle in which defense spending will grow annually as fast or faster than GDP for the balance of the 2020s.

Defense stocks have been signaling a significant change. Some in Europe and the U.S. were outperforming broader market indices before Russia invaded Ukraine on Feb. 24 and then soared after the conflict erupted. The moves are attributable to higher defense spending announced but not defined by some European countries and prospects for higher U.S. defense spending as well. The sector also has benefited from investors looking for safer places to put their money amid the turmoil and uncertainty caused by the war and sanctions.

Markets are asserting that 2023-25 financial expectations before the war for most U.S. and European defense contractors will be higher than consensus estimates currently show. According to data on consensus sell-side analysts’ sales and earnings-per-share estimates collected by Bloomberg, there have been no significant upward revisions—yet. Analysts can and should make their own projections, but the changes wrought by the war in Ukraine will not be reflected in the U.S. fiscal 2023 defense budget that will be sent to Congress soon, and European defense budget changes also may not be detailed for months. It could take weeks or months for consensus estimates to move higher.

But an open question is whether defense spending in the U.S. and Europe will be stepped up in 2022-24 and then flatten, or if it can grow annually as fast as or faster than GDP over the balance of this decade. That question is most likely going to be answered by what happens to Russia’s President Vladimir Putin and to Russia’s capacity to generate and sustain its military power.

If its broad goals are achieved in Ukraine and Russia can declare a “victory,” the sanctions and export controls unveiled since the Feb. 24 are very unlikely to be reversed, particularly if Putin remains in power. Nor will the unity shown by NATO and the U.S. and the preliminary plans for higher defense spending be rolled back.

However, Russia’s economy will face major adjustments in 2022 and beyond. It will have to replace equipment lost in Ukraine, incorporate lessons learned from the war and, if it occupies parts of Ukraine, likely fight a harsh and nasty insurgency there. Its defense enterprises will have to find new sources of machine tools and micro-electronics, and Russian defense exports to traditional clients such as Algeria, Egypt, India and Vietnam could be curtailed.

Presuming that Putin remains Russia’s leader or is succeeded by someone with similar views, key to post-war adjustments will be how the Russo-Chinese strategic relationship evolves. Effectively cut off from Europe and the U.S., Russia will likely become more economically integrated with China, and their strategic/military cooperation will deepen beyond occasional joint military exercises. China should have an interest in supporting Russia, in part to keep U.S. military power tied down in Europe and not arrayed against it in the western Pacific. Expanding these relations will take time, as will development of technologies that are good enough to be a threat to U.S. and allied forces. This scenario—Putin remaining in power and Russia’s strategic relationship with China growing stronger—could be the most bullish for defense in the 2020s.

There are possible downside scenarios for Russia and defense as well. Russia could fail in Ukraine, and Putin could be replaced by leadership that wants to return to financial and economic integration with democracies in the U.S., Europe and Asia. That shift could remove Russia as a significant military threat and open new opportunities for nuclear arms control.

Another scenario is that Putin falls after a failed effort in Ukraine, and an internal security struggle results in Russia. That scenario could still be broadly supportive of U.S. and allied security concerns. Russia would remain a nuclear power, but its ability to equip and field advanced conventional military forces could be significantly degraded. Its support for regimes in Central Asia and the Middle East would diminish, which could have knock-on effects on regional stability and threat assessments. That scenario also might compel China to look more toward Eurasia as a source of instability, which could weigh on its aspirations in the Pacific.