TK Arun

The war in Ukraine will herald changes in geopolitical structures, the energy transition, cross-border payments, and technology nationalism.

You never step into the same river twice, because the flowing water has changed the river in the meantime. It is conventional wisdom that change is the only constant. But some events trigger the change that is more than incremental, drastic change that transforms the world. Will Russia’s invasion of Ukraine prove one such event? Or, after raising tensions, roiling markets, jacking up energy and food prices, will things go back to as they were before February 24, when Russia’s ‘special military operation’ in Ukraine commenced?

The world is likely to see significant changes in geopolitical structures, cross-border payment systems, greater momentum for moving away from settling international payments in dollars, in the speed of transition to a low-carbon economy, and in the battle to control the media discourse. There is likely to be a rise in technology nationalism as well, alongside continuing global integration at other levels.

Muscle Memory

Russia is unlikely to be pressured by the economic sanctions the US and Europe have unleashed on it. Russia is a country that has experienced and remembers the horrors of war. The Soviet Union lost anywhere between 20 million and 40 million people to World War II, which the Russians call the Great Patriotic War. The bulk of the losses was Russian. Ukrainians’ share in that total is put at 5-7 million. The Russians remember their war dead, including civilians, with an intensity of feeling that would look strange to those who play politics with war memorials and use flames of the Amar Jawan Jyoti to throw a spotlight on their own claims to patriotism.

The siege of Leningrad went on for 872 days, the German forces and their Finnish allies having decided to starve the population of some three million to surrender. Nearly a million did die during the siege and subsequent evacuations but the city did not surrender. The Red Army broke the siege and the Germans withdrew.

The battle of Stalingrad is widely perceived as the turning point of World War II, when, for the first time, a German army unit was forced to surrender. The fighting lasted five months, one week, and three days. Two million Russians were killed in one of the bloodiest episodes of violence in human history.

In both Stalingrad and Leningrad, civilians fought, along with the soldiers, helping with food and other supplies, with their own fortitude and perseverance. Most civilians in India have had no lived experience of war, except for separation and loss. War, deprivation, and resistance are integral to the collective memory of Russians, kept alive by ritualized remembrance, pageant, and tributes to true heroism.

This applies to Ukrainians, too. Russia’s and Ukraine’s shared history and culture make it difficult for either population to give in to external pressure. Left to face overwhelming military odds, in the face of Nato’s refusal to get directly involved, after egging them on to invite the anti-Russia military alliance into their territory and on to the borders of Russia, Ukrainians remain defiant.

The result can only be a costly and drawn-out defeat of Ukraine in the face of superior Russian force. Western media would like to present the war as Putin’s empire-building, but Russians are more likely than not to share their government’s perception of Nato on the country’s borders as an existential threat. They will put up with abstinence from Coke and McDonald’s, Cartier and Starbucks without flinching.

Geopolitical Shifts

What impact will Russia’s assertion of its right to secure borders and readiness to use force to defend that right have on geopolitics? Europe will decide to have its own geopolitical presence outside Nato. American unilateralism in the decision to exit from Afghanistan and the manner in which it had been done, not to speak of the edging out of the French from Australia’s submarine deal, had already irked the Europeans and warned them that unilateralism was not a Trumpian quirk.

Germany has now decided to supply arms to Ukraine, and to raise its own defense outlay to 2% of GDP, a Nato target that only the US, and to a large extent, Britain, used to meet. France, under Macron, has been pressing for a European force, in any case. Those plans will crystallize and materialize.

Ukrainian developments have pushed Russia and China closer together, much to the West’s and India’s discomfiture. China will buy more Russian gas, more Russian oil, probably extend its dollar credit and help Russia with its financial technology, to replace the services of Visa and MasterCard.

Russia will, in return, give China cover for China’s excursions in Asia. All the more reason why it made sense for India to take a stance on Ukraine that obliges Russia to not support actions against India’s interests.

In Asia, an emboldened China that sees Russia getting away with the use of force against Ukraine would spur Japan, South Korea, and Southeast Asian countries to rethink their own options, regardless of whether China moves in on Taiwan or not. Can the US, drawn into European security in a major fashion, be relied upon to continue with its pivot to Asia?

Even if America pirouettes and not just pivot, to Asia, can it be trusted not to stumble, as it has in Ukraine and Afghanistan, and put enough American lives at risk to defend its allies in Asia?

National security cannot be left to hopes and prayers. South Korea, which is gradually emerging as a weapons producer and exporter, and Japan, whose pacifist recoil from the horrors of Hiroshima and Nagasaki has lasted beyond its rational lifespan, will decide to look after their own defense.

A Japan that changes its Constitution to recognize defense as a legitimate national aspiration will contain enough tough-talking nutters spouting haikus about their Samurai past to persuade South Koreans that they need more than taekwondo, K-Pop, and Squid Games to defend themselves. Its actions and reasoning will resonate across Southeast Asia.

Move over, Cathie Wood and your tech stocks. This is the time to invest in arms manufacturers.

Cryptocurrency to the Fore

Another gainer from the Ukraine war is cryptocurrency. Ukraine is collecting global war support in the form of cryptos. Tech-savvy Ukrainians fleeing war are taking their life’s savings with them in USB drives full of cryptos. Russian entities are trying to circumvent western sanctions using cryptos.

Society for Worldwide Interbank Financial Telecommunication (Swift), founded in 1978, is supposed to be a neutral cooperative society of some 11,000 banks for electronic financial messaging. It is the principal means of settling cross-border payments.

Western sanctions have kicked most Russian banks off its network, though not all — if all Russian banks are removed from Swift, the Europeans would not be able to pay for the gas they have to buy from Russia.

The advent of the blockchain had, as it is, exposed Swift’s rickety age. JPMorgan already uses its own internal blockchain-based stable coin to transfer funds across borders for its clients, such transfers being instantaneous —no time zone differences over day and night, not hold-ups over local holidays — and costing less than half of what conventional transfers via Swift cost. Granted, Swift is trying to upgrade itself. But its control by the West makes it look not just technologically obsolete but also unreliably partisan.

The Bank for International Settlements is itself piloting blockchain-based cross-border payments. Swift will live up to its name when approaching its demise. And the pre-eminence of the dollar in settling international payments in which the US is not a counterparty would be eroded.

The West is eager to choke off Russia’s hydrocarbon revenues. A minor inconvenience is that the world cannot dispense with Russian oil or Europe, with Russian gas, without doing themselves major harm. Even the limited sanctions that have kicked in — the US will not import Russian oil but does not see Russian Uranium being tainted by extra-territorial ambitions the way oil is — have pushed up global energy prices to hurt the recovery.

The only way to curb Russia’s energy earnings is to wean the world off oil and gas. This means accelerating the green energy transition. Expect to see concerted investments in clean energy technology — not just better solar and wind power and intermittency solutions such as batteries and green hydrogen but also innovative nuclear power: small modular rectors and, indeed, nuclear fusion.

Greener, Perforce

In the short run, however, the war would be followed by an oil glut. America’s disgust at Venezuela’s authoritarianism and Iran’s nuke-loving theocracy is going on a holiday, to let these countries’ bountiful supplies of oil make up for boycotted Russian hydrocarbons.

The US technology sanctions against Beijing have sent China into a drive to acquire self-reliance in key technologies. A similar chain reaction is being set off in Russia. Russians have been good at science from before Mendeleev’s periodic table, and the tradition fructified in Sputnik, the first manmade satellite, and Sputnik V, the Covid vaccine.

Russia’s weakness has been in manufacturing finesse. When the West converts push into shove, count on the Russians to make good that deficit, too. The Chinese and the Russians will try hard to be self-reliant in crucial technologies, whether in electronics or the oil industry and in manufacturing, whether Ikea-replacing furniture or passenger aircraft.

Boeing and Airbus have cut off supplies of spares and parts to Russian airlines. In a decade’s time, we should see Russian and Chinese companies breaking the passenger aircraft duopoly.

Control over the media remains the quintessential strength of the West. Since few people outside Russia can directly access Russian pronouncements and the elites of emerging markets such as India ingest information about the world through English-language publications, Western bias seeps into their discourse, already conditioned by James Bond and Fu Manchu stereotypes.

Ukraine’s desire to station Nato missiles on Russia’s borders is presented as national sovereignty, not aggression against Russia. Breaking past promises that Nato would not expand an inch to the east is dismissed as being immaterial, as the promise was made to the Soviet Union, which no longer exists.

But this glosses over the recognition of Russia as the successor state to the Soviet Union in all nuclear agreements. America’s exit from Strategic Arms Reduction Talks or, recently, from the Intermediate-range Nuclear Forces treaty are acknowledged, in passing, but their significance for Russian security angst left totally out of the reckoning.

This is a challenge not only for Russia, in the current context, but also for governments such as India. The Indian government’s position of refusing to condemn Russia along with the West is in India’s national interest, but at odds with the mainstream opinion of the Indian elite, conditioned as they are by the western media discourse.

Mixed Media

Ukraine will spawn a new race for control of the discourse, with new players that try to present a version of the truth free from Western varnish, one that reflects the concerns of countries like India, whether on geopolitical tensions or on what should be done about climate change and by whom.

Russia has reiterated its offer to end hostilities if Ukraine accepts neutrality, Russian sovereignty over Crimea, and the independence of Luhansk and Donetsk. Crimea and neutrality would be non-negotiable.

Lohansk and Donetsk might be subjected to internationally monitored referenda. A referendum could be carried out in Crimea, once again, to help the West save face while accepting Russian sovereignty over the peninsula that hosts the base of Russia’s warm water navy. The war could end on these terms.

Ukrainians are likely to feel betrayed by Nato, who had led them on to take an aggressive stance against Russia, and by their Russian brethren. Many of those who have fled the conflict and have been welcomed into western European nations with three-year visas are likely to stay on and integrate into better-paid workforces.

Traditionally, less-educated Ukrainians migrated to Poland to help with farm work there because Poles had migrated to better-paying jobs further west. Europe is likely to try and assuage Ukraine’s sense of hurt by fast-forwarding Ukraine’s membership of the European Union. Russia would not like it, but cannot oppose it, either.

Russia would emerge from the war with a battered economy but with new geopolitical relevance and respect. China would cede some of the space counterbalancing the West with Russia. India would avoid having to kowtow to the US in a bipolar world, where China’s territorial claims on India restrict India’s options. The war in Ukraine will reshape a lot many things in the world.

This article was first published in the Money control as The world after the Ukraine war on 14th March 2022

Read another piece on Financial Reporting by TK Arun titled Strengthen Financial Reporting with Data Consent in IMPRI Insights

Read another piece on Counterinsurgency by T K Arun titled Time to change tack on counterinsurgency in IMPRI Insights

Read another piece on COVID-19 Vaccines and Democracy by T K Arun titled Protests Against Covid Vaccines and Restrictions are Signs of Democratic Failure in IMPRI Insights

YouTube: Watch T K Arun at IMPRI #WebPolicyTalk- India: Growth Prospects after COVID

About the Author

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T K ArunSenior Journalist and Columnist