Friday, March 11, 2022

Ukraine conflict will further derail globalisation

Whatever the stories the Western media may put out about the heroic resistance put up by the people of Ukraine and the heavy weather the Russian army is making of the operation, the outcome of the conflict is not in doubt. Ukraine will be suitably subdue and de-militarised, it will not be allowed to become a NATO member.

Don't take seriously the talk of a several mile- long convoy of Russian vehicles being stalled on the route to Kyiv. Such a convoy should be a sitting duck for the Ukrainian air force. The very fact that it hasn't been hit bears out Russia's claim of having established supremacy over the Ukraine skies. 

President Putin has chosen to proceed cautiously in order to limit civilian casualties. He also thinks that it suffices to cut off the Ukraine army into isolated pockets in cities encircled by the Russian army and wait for supplies to the Ukraine forces to run out. No need, then, to storm cities and endanger Russian and Ukrainian lives.

NATO has been careful to stay away from getting involved. It's not clear how much truth is in claims of Western arms being reached to Ukraine. How will the supplies reach encircled forces? Will they not be taken out en route? 

Anyway, I do not wish to dwell on the military details of the campaign. In my BS article, I argue that the conflict between Russia and the West will not settle even after Ukraine is subdued. A new international order is struggling to be born and it won't happen overnight. '

The casualty in the conflict is greater economic interdependence or globalisation. It is not just Russia that is getting cut off from the world economy. All countries will think carefully about the costs of integrating with the world at large- such integration makes you more vulnerable to external pressures. The movement of goods, services and capital across borders will receive a serious setback consequent to the sanctions imposed by the West on Russia. That is the long-term impact. In the short-run, we must expect higher inflation and lower growth.

More in my BS article, A fresh blow to globalisation.

A fresh blow to globalisation

The conflict in  Ukraine will   deepen   concerns about globalisation and national security


The world has changed since Ukraine. It is too early to grasp the full dimensions of the change that is upon us. But two things are reasonably clear. The reordering of international relations that Russia’s military operation in Ukraine is intended to bring about is likely to be a protracted affair. Two, the trend towards globalisation, which had suffered reverses even before the Ukraine crisis, has received another severe jolt. 

To grasp these changes, we need to first discount the narrative on Ukraine put out by the West. The Western media would have us believe that the conflict in Ukraine has happened because President Vladimir Putin wants to recreate the Soviet empire. That the Russian military operation has gone horribly wrong and will spell a major reverse for Mr Putin. That Mr Putin has underestimated Western resolve to deal with Russian aggression. And that Western sanctions will bring Russia to its knees. A large section of the Indian media and the Indian intelligentsia has bought this narrative.  

There is an alternative narrative that needs to be taken seriously if only so that policymakers can plan realistically for the difficult months ahead. Mr Putin sees the inclusion of Ukraine in NATO as an existential threat and the intervention in Ukraine as necessary to prevent a nuclear conflagration in the near future. No cost for Russia is too high to be borne in order to prevent such a denouement.  

Mr Putin is not the only person to have warned the West about the eastward expansion of NATO. Several leading American thinkers, including George Kennan, Henry Kissinger and Stephen Cohen, had warned that conflict with Russia was inevitable if the expansion continued. Mr Putin may now see the Russian operation in Ukraine as a precursor to a roll-back of NATO presence in Russia’s periphery. The West, for its part, is determined to punish Mr Putin for his adventure. As a result, the conflict between Russia and the West will not end soon even while few doubt the outcome in Ukraine itself. The war in Ukraine is not likely to end the way the West wants it. Western analysts are crowing over Russia’s failure to achieve a quick victory. They see the Russian campaign ending up in a quagmire. This is   wishful thinking. As several independent analysts have pointed out, the Russian army has moved slowly because it is under orders not to impose large civilian casualties. The Russian army also reckons that its objectives can be met by encircling Ukrainian troops and cutting off supplies instead of seeking a head-on confrontation.   

The tactics seem to be working. Ukraine President Volodymyr  Zelensky said on March 9 that he is willing to give up his quest for NATO membership and also consider some of Moscow’s other demands. This is a clear indication that Ukraine does not believe it can hold out for much longer. 

  In a speech that Mr Putin made on February 24 before the commencement of the military operation, he used chilling words to warn the West against any interference with the military operation. He said, “To anyone who would consider interfering from the outside — if you do, you will face consequences greater than any you have faced in history."

The warning seems to have had the necessary effect. NATO countries have ruled out involvement of their troops in Ukraine. Talk of a “no fly” zone over Ukraine imposed by NATO was swiftly scotched. Poland’s offer to transfer Russian-made fighter planes to the US for onward transfer to Ukraine has been rejected as untenable by the Pentagon. NATO prefers economic war to military war against Russia. 

The West has imposed what are supposed to be the harshest sanctions ever faced by any country. The US has banned oil and gas imports from Russia. The UK is curtailing oil imports. Russia has been cut off from the SWIFT messaging system. Select Russian banks have been barred from the payments system. 

Russia has not retaliated with its own sanctions so far. But an announcement it has made on foreign currency payments owed by Russian entities to countries it has declared “hostile” gives an indication of its capacity to hurt the West. These payments can now be made only in roubles parked with designated Russian banks. 

Western banks and companies face huge losses in consequence. The ruble has depreciated steeply since the Ukranian conflict erupted, it is not clear how foreign entities can access ruble payments parked with Russian banks and repayment of dollar-denominated Russian bonds are now in doubt. Even without Russia curbing supplies, oil and gas prices have soared. The West and, indeed, the rest of the world will have to suffer the costs of higher inflation and lower growth. 

Rising protectionism and concerns about national security had slowed the momentum of world trade and investment flows even before the Ukraine crisis. The corona pandemic raised doubts about nations being overly dependent on supply chains scattered across the world. The Ukraine crisis will deliver another blow to globalisation. 

The problem is not just the trade and investment relationships between the West and Russia. It is also relationships between the West and others, such as China and India, who may choose to continue to deal with Russia. If the sanctions regime is applied to those who deal with Russia, the potential for disruption is mind-boggling.

Russia faces severe restrictions on its access to its central bank foreign currency reserves parked in the West. As many commentators have noted, this is a development that will get other countries, including India, thinking seriously about parking foreign exchange surpluses with central banks in the West. The broader lesson that will go home is that greater integration with the outside world makes an economy more vulnerable to external pressures and could compromise a nation’s sovereignty.

Against this background, Prime Minister Narendra Modi’s slogan of “Atmanirbhar Bharat” is likely to gain in appeal. It is a slogan that has been interpreted in different ways by different people. However, a basic theme is to promote self-reliance in identified sectors, including defence. 

The government’s stance is that we do not wish to sacrifice competitiveness, we will produce for the world but we will support domestic industry through tariffs and subsidies.  in order to make this possible. In the post-Ukraine world, self-reliance is not just about producing national champions, it is about ensuring national security by reducing vulnerability to external pressures. 



1 comment:

Unknown said...