Large-Scale Global Effects of the Ukraine War

Large-Scale Global Effects of the Ukraine War

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30 Mar 22

By the Editor – We have a predilection to considering all issues in binary terms – black and white, those on the good side and those on the bad.  Regrettably life is not that simple.  The actions of the West, certainly over the last three decades, cannot be considered entirely blameless (much as we like to think we are).  In a necessarily uncomfortable consideration, the author suggests how those previous actions might now have consequences, consequences catalysed by Putin’s war in Ukraine, that are leading to a new Cold War between the ‘West’, championing self-determination, and a new politically aligned bloc – the ‘East’ – championing state rights, where erstwhile advantages of Western dominance may come back to haunt the West. 

I write on day twenty-two of the Ukraine war. Peace talks are ongoing but many a slip might derail them. In Lenin’s words, most of the time years pass when nothing happens. Sometimes weeks pass when years happen. Even before a peace is struck it is worth thinking about the war’s ‘big picture’ implications for global strategy, some of which are already becoming clear.

First, the war has given NATO a massive injection of energy, unity and purpose. NATO was conceived to keep the Russians out, the Americans in, and the Germans down. 1989 and 1991 rendered the first and third tasks moot, and the second therefore unnecessary. For some years afterwards NATO’s momentum supported its continued existence, but as Russia descended into a maelstrom of corruption, chaos and collapse it became harder for NATO advocates to stand up a credible Russian threat to Europe.

In 1999 NATO found a new role, as a kind of European Security Force against the Federal Republic of Yugoslavia, and two years later received a welcome injection of purpose, in September 2001, when Washington invoked Article 5 to enlist NATO members in an invasion of Afghanistan.  The fate of that invasion led many of NATO’s taxpayers to conclude it was not just redundant but actively harmful. Defence budgets’ share of GDP shrank across Europe, the USA pivoted its attention to Asia, and President Trump publicly denigrated NATO as a European parasite on US power.

In the background Russian military force has undergone a startling renaissance, accompanied by an overtly expansive strategy which, in its extreme form, seemed to desire a return to Soviet Russia’s borders, and even beyond. NATO advocates who pointed this out and warned of a new threat tended to be dismissed as militarist dinosaurs, out of date, war hawks or advocates for the defence industry.

Russia’s invasion of Ukraine has violently changed that reality. Overnight NATO’s founding purpose – to keep Russia out of Europe – was re-born. So, Russia is a threat after all – willing to break any law and kill any number of babies to serve Mr Putin’s desires. And, the new narrative runs, he wants Ukraine, the Baltics, Moldova and Poland, and probably more than those. NATO’s rebirth is therefore the first tectonic shift caused by the Ukraine war. NATO is now back front and centre as a functioning military alliance, seen by all as central to European security (including that of the UK). Overnight Germany announced an increase in defence spending of €100 bn – on a base budget of €40 bn. France and the UK have yet to follow that example (being considerably poorer) but might. Whatever the budgetary changes, one would struggle to find anyone today in greater Europe or even the US who now thinks that NATO is redundant.

The second big change is that the status of International Law has been enhanced by Russia’s flagrant breach of it. When the USA and the UK invaded Iraq on grounds which looked blatantly ‘cooked’, to anyone outside the London/Washington power complex, the rest of the world allowed the breach to pass without comment. No-one brought a case ex-parte to the International Court of Justice, no prosecutions were sought in the International Criminal Court, and the deaths of countless (literally: no-one is sure of the number but estimates centre on 400,000) civilians passed unremarked.

Similarly, when the same partners spent five years attacking Syria without authorisation from the Security Council and occupying large parts of that country their flagrant breaches of International Law again brought no sanction, or even comment.

Contrast that with the fate of Russia. Within days of the invasion a case was filed at the ICJ (which pronounced yesterday, 16 March, that the war is completely illegal). Overnight Russia has been reduced in the West to the status of pariah, with its reserves confiscated, its leaders on the point of ICC indictment and its people effectively placed under national house arrest.

All of these reactions have served to enhance the status of International Law. But not inside the United States.

International Law has been given a boost but the authority of the United Nations has been undermined. Mass consciousness has taken note of Russia’s UNSC veto, and the UN’s consequent inability to constrain Russia’s actions. This is not new – the veto is baked into the United Nations Charter in a way that cannot be changed – but the popular realisation is new, as is popular contempt for the UN as an institution.

This is seen as very good news in Washington, which has been working quietly for a decade to usurp the UN Charter as the wellspring of International Law, and to replace it with rules written by and chosen by the US. In order to distract from this intention, Washington refers to this new paradigm as the ‘Rules-Based International Order’ (RUBIO), which is designed to look and feel like an embrace of International Law, but is in fact an attempt to destroy it.  RUBIO is designed to work outwith the Security Council. Examples of RUBIO in action are US unilateral sanctions (illegal under International Law) against Iran, Venezuela, Syria and now Russia. Other signs of RUBIO’s intent are (in no particular order) Washington’s refusal to sign up to UNCLOS or the International Criminal Court, the creation security arrangements outside the UN aimed at US opponents (the Quad and AUKUS for example), the unilateral and illegal use of armed force in the form of drone attacks, the existence of Guantanamo’s detention centre, and implicit support for Taiwan’s status as an independent state. I could cite many others if space allowed.

Washington’s aversion to International Law as a ‘thing’ is so visceral that US senior policy makers cannot even bring themselves to utter the words “International Law” in public. In an interview on 17 March, for example, Mr Antony Blinken (US Secretary of State) used the phrase “rules and principles” in its place, and Jen Psaki (US White House Press Secretary) usually uses the words “the basic principles of the UN Charter”. The only time a US spokesman will use the actual words is when justifying Freedom of Navigation Ops in the South China Sea.

RUBIO was called out by Mr Sergei Lavrov (Russia Minister of Foreign Affairs) in May 2021 at the UN Security Council: “…the concept of the rules-based order is advanced as a substitute for international law…international law already is a body of rules, but rules agreed at universal platforms and reflecting consensus or broad agreement. The West’s goal is to oppose the collective efforts of all members of the world community with other rules developed in closed, non-inclusive formats, and then imposed on everyone else. We only see harm in such actions that bypass the UN and seek to usurp the only decision-making process that can claim global relevance.”  Sadly that statement had moral force only until the day that Russia tore up International Law and invaded Ukraine, but it accurately describes what the US is doing with RUBIO.

As a result of the Ukraine war Washington has an open field in which to denigrate the United Nations and to work to replace it with rules fathered by RUBIO, created ad hoc and imposed by economic or military force. RUBIO will now be avidly supported by most European states, some of whom probably don’t even realise that it is antagonistic to the UN Charter because its name has been chosen with Orwellian care.

Before the invasion of Ukraine informed analysts around the world agreed that an invasion would trigger sanctions, but that Russia was sufficiently rich, autarchic and well-prepared to shrug them off as merely uncomfortable rather than dangerous.  One of the great surprises, and a tectonic shift in its own right, has been how far sanctions have actually gone. About two thirds of Russia’s hard currency reserves have been frozen, and may be expropriated. Russian shipping and aircraft have been shut out of Western ports and airspace. Oil remains unsanctioned but the effect of the shipping ban, combined with insurance challenges, have isolated Russian oil from western markets. Even the private assets of Russian oligarchs are being confiscated. Equally surprising is the level of self-harm that Europeans have been willing to suffer to enforce sanctions.

In parallel Russia’s voice in the international media sphere has been completely silenced. Not since the invasions of Iraq has one side been so loud and the other so quiet. Soft media power has reduced Russia and Russians in the mass mind to the status of barbarian baby-murderers. The last time we saw such a complete national character assassination was in the autumn of 1914, when the mass consciousness of France and Britain tried and convicted Germany of barbarity. At least in 1914 the charges were largely true – German troops did indeed carry out cold-blooded mass murders of unarmed civilians during the invasion of Belgium.

But the raw power of soft power has come as something of a surprise in part because US soft power had proved so ineffective against lesser targets. Iran, Syria and Venezuela have been targeted for a decade but have stubbornly refused to collapse, and popular domestic support for their unpleasant and unwise regimes remains strong (all three regimes have been re-elected multiple times). Cuba has been targeted for seven decades, with a similar lack of success. It is also interesting that soft power has found expression via traditional media, not via the media of Facebook, Tik Toc or Twitter.

The unasked question is whether a future similar soft power attack on China would have a similar result. I will return to that question in a moment. For now, Ukraine has shown that the West possesses considerably more latent soft power than even its most enthusiastic proponents believed.  Soft power is not free. Moscow assumed that the West would leave its Dollar, Euro and Pound Sterling central bank deposits alone to protect the credit of the western banking system. Other major users of those currencies have woken to a very unpleasant realisation, that the West is prepared to use its currencies as soft weapons.

This has precipitated the next big geopolitical shift. Saudi Arabia and China are negotiating oil purchases denominated in Yuan. China and Russia already were. India and Russia are settling oil trade in Rupees and Roubles. Confiscation of Russia’s currency balances will, I believe, trigger a stampede away from Dollar settlement and dollar holdings worldwide.

De-Dollarisation of the global economy is not new – it has been creeping along for several years – but the Ukraine war will turbocharge it.  The Dollarisation of global trade is not just a matter of vanity. Every Dollar, Euro or Pound that is printed and (permanently) exported is a source of free income to its originator. If those currency units don’t find their way back into the circulating money supply of their source economy, they create no inflation while allowing source governments to run state budget and trade deficits year after year. These deficits allow Western states to buy hard power assets while also keeping taxes low and social benefits high.

Currency used as circulating capital for international trade or to buy state debt issued by the relevant economy is inert – it doesn’t return to its parent economy seeking goods and services and inflating prices.

The horror that awaits originators of reserve currencies, and whose arrival the Ukraine war has accelerated, comes when trading cycles are de-Dollarised (or de-Euro’d, or de-Sterling’d). The currencies locked up in trading cycles and in state debt, thousands of billions of dollars of cash, return to their parent economies to be spent either on tangible assets in the source economy (which equals massive inflation) or to be converted into other more reliable currencies (which equals massive devaluation).

Beyond that horror lurks a larger nightmare. The earners of the world’s large trade surpluses (China, Russia, Saudi Arabia, the UAE, Qatar, Kuwait) park much of their profits in the state debt of currency originators. Each year roughly 5% of this falls due and is repaid with cash raised by the issue of new state debt to the same holders.  When the day comes that foreign holders of state debt decide not to reinvest but rather to withdraw cash at maturity, and to convert it into non-western currencies, the originator’s economy has a life-threatening problem – of how to keep funding its budget and trade deficits. De-Dollarisation have been happening, quietly, already, but expect the seizure of Moscow’s reserves to accelerate it.

Seizing Moscow’s cash looks like a great idea now, but may be the detonator which explodes the illusion of Western wealth and with it the reality of Western hard power.

The past generation saw the US assume the role of global hegemon for a brief shining moment, followed by two decades of a semi-multilateral world in which the US, accompanied by the UK (a little like Tintin and Snowy) has fought to make itself the axis upon which world power, trade and profit turn.

Before the Ukraine war Russia and China were already cooperating to oppose that uni-polar ambition, and are now even closer to each other. In the West the Ukraine war has driven the US and Europe together. This is, I believe, the start of a gigantic cleaving of the political world into a new ‘East’ and a new ‘West’, with the ‘East’ containing China, Russia, Iran, Pakistan, Iraq, Syria and Myanmar, while ‘West’ contains the US, the UK, Canada, the EU, Finland, Sweden, Cyprus, Australia, New Zealand, Israel and possibly Japan. The brand names of these new groupings will probably be NATO and SCO (Shanghai Cooperation Council).

Each group will shortly have its own financial system, its own trading currencies, its own military cooperation pacts, and probably its own version of International Law. The East has already announced its own version of the old ECU – a virtual currency unit valued by reference to a basket of actual currencies and commodities.

Between these new groupings will lie a few powerful states and many smaller ones. India and Brazil will need to decide whether to balance between the two blocs, or to join one. Turkey is formally already in West, but at best semi-attached. It also lies on the physical frontier of the two blocs, between Europe, Russia and Iran. It has reasons to come down on both sides, which may mean it swithers permanently in the middle.

The territories of Africa and South America are presently uncommitted. East has a toehold Venezuela, which will probably be the locus of its first Latin American military base(s). The US is unpopular in South America (after six generations of regime change and destabilisation), rendering its states ripe for alliance with East. The West is also largely absent from Africa. The East has an existing naval base at Djibouti and is close to signing up another in Equatorial Guinea. East has Iran and Iraq in hand, a naval base at Tartus and an air base at Khmeimim.

In short, we have arrived at a new Cold War. The ideological battle will not be economic (individualism versus collectivism) but political – over a whether a state has the right to interfere with the internal political settlement of another state. The West’s leading members have spent a generation proselytising liberal democracy and individual rights, while the East is comfortable allowing every state to liberalise or oppress its population as it sees fit. Both approaches have much to fight over in Africa and Latin America.

If I’m right then I’m right for at least one generation, and possibly two. Cold Wars are like glaciers – they move slowly. It is we in the West who are the ‘poor’ competitors – starting with state debts of 100-200% of GDP, annual budget deficits, annual trade deficits and glacial trend GDP growth. We also start with a geographic disadvantage, as we are located in two land masses divided by one large stretch of water, and a third land mass divided from the core by an even larger stretch of water. In comparison the East enjoys overland transit of energy, goods and armies almost throughout its territory.

The West’s mass consciousness starts the new Cold War imbued with a belief in its own inevitable victory, but belief only goes so far in a contest with the cold reality of GDP, defence expenditure, budget and trade deficits, inflation, and currency decline. It may be the West which eventually follows the Soviet example to collapse and fragment 30 years from now.

Cold Wars have their hotter episodes. In this Cold War the most likely locus of a hot episode will be the seas around Taiwan. The two competing philosophies (self-determination versus state rights) are perfectly embodied in Taiwan: the West believes that Taiwan has the right to independence if it wants it, while China believes that Taiwan is its sovereign territory, occupied pro tem by a renegade regime, and that no other state has any right to interfere in an internal matter.

One way or another, the West and the East are guaranteed to collide over Taiwan one day. When, is the question.

And that brings us back to soft power. Beijing will have taken careful note of how West reacted to the invasion of Ukraine, and to what extent it is now permissible to fight a hot war among civilians. My thesis has long been that an armed invasion of Taiwan would be so difficult, and so harmful to civilian lives and infrastructure, that Beijing will prefer to topple Taiwan’s autonomy with a peaceful maritime blockade. But Beijing cannot blockade Taiwan before it has fully secured its own oil and methane import supplies. This used to mean not until the PLAN could deploy at least three, and preferably four, Carrier Strike Groups to escort tankers to and from the Persian Gulf. However, the new Cold War has placed all of Russia’s production of oil and gas at China’s service. That may bring the blockade of Taiwan forward by a few years.

Once more Frank Fukuyama’s unfortunate thesis, laid out in The End of History, is proved wrong. The best that can be said about a Cold War is that it’s infinitely preferable to a Hot one. Even if we are on the losing side.