pn902. Ukraine and its Consequences. (I thought this a very enlightening and balanced assessmentr. ACW)

 Speech to SGX Opening Ceremony of the Singapore International Ferrous Week, 17 May 2022

By Bilahari Kausika (** see end note)

 

 

Good morning everybody. Thank you for inviting me to speak to you. 

Until I received your invitation I had no idea that there was such a thing as a ‘Ferrous Week’. I was puzzled. Why would anyone want me to speak to a conference on iron? I admit it was sheer curiosity that led me to accept.

 

Fortunately, the organizers were kind enough to choose a topic for me -- the impact of geopolitics on the global economy -- that would allow me to speak to you without making a complete fool of myself. Still, to minimize that risk, I’ll be as brief as possible.

 

I am going to focus on the war in Ukraine. It is abundantly clear that President Putin made a monumental miscalculation that will have significant long-term consequences for international order and the global economy.

 

The war is now into its third month. It is difficult to envisage any settlement in the foreseeable future. It is even difficult to imagine a ceasefire that is more than just very temporary.

 

Baulked of a swift victory, politically Putin needs a decisive victory to justify the cost of the war. Putin’s legitimacy rests on the claim that he restored Russia’s strength and the world’s respect for Russia’s strength. Those claims were among the first casualties of the bungled invasion and the military incompetence that it exposed.

 

We don’t know the precise Russian losses of men and material. But by all accounts they are huge, too large to be indefinitely fudged or concealed by even the most effective propaganda machinery.

 

This is particularly so with the sinking of the Moskva – the flagship of the Black Sea Fleet -- which has tremendous political significance – and the recent disastrous attempted river-crossing in northeastern Ukraine which saw an entire armored battalion wiped out in a single botched operation.

 

Under these circumstances, what Putin will consider a politically adequatevictory only Putin knows. His speech on 9th May when Russia celebrated its WWII victory gave no hint that he is prepared to end the war. 

 

Putin has two broad options, neither good.

 

First, he could at some point declare victory and settle for what he already has: Crimea, Donbass and the land corridor linking the two. But Crimea was his since 2014 and Donbass was also largely under Russian control, or at least out of Kyiv’s control, since that time. It is hard to imagine how a costly war that ends up largely where Moscow started in February can be regarded as a political victory. 

 

Second, Putin could double down and intensify the offensive, perhaps after a pause to regroup. The West will supply Ukraine with weapons and give it political and diplomatic support. There will be additional sanctions on Russia. But it is simply too dangerous for NATO to intervene directly. That is the purpose of Putin’s nuclear saber-rattling. We don’t know what military reserves Russia has and given the sanctions, it is difficult for Russia to quickly replace its losses. But Putin may calculate that without external intervention, sheer mass will eventually overwhelm Ukrainian forces. But given the bitterness of a bloody and grinding war, Russia must then remain in occupation and deal with a low-intensity insurgency for the foreseeable future. 

 

Wars end when one side or another believes they cannot win or have already won. At this stage of theUkraine war, we are nowhere near that point. Ukrainians have some reason to believe that by not clearly winning, Putin has already lost politically.Ukrainian forces have gone on the counter-offensive. But is it likely that they can push Russia out of Crimea, Mariupol, and Donbass? I don’t think so. At the same time, politically, can President Zelensky formally cede territory after the immense sacrifices of his people? I also doubt it.

 

In other words, if any of you hope the war will end soon, forget it. At present, I do not see that either side has a strong incentive to end the war. The analogy that comes to my mind is the Iran-Iraq war that began in 1980 and lasted 8 years because neither side could score a decisive victory. 

 

I am not suggesting that the Ukraine war is going to last 8 years – I hope not. But as long as fighting continues and Russian forces occupy Ukrainian territory, sanctions will remain.Sanctions are, however, never costless,even to those imposing them. Therefore, so too will the disruptions to a world economy already rendered fragile by the pandemic, also continue.

 

You all know the economic consequences of the war on top of the pandemic better than I do: among other things, supply-chain dislocations, food shortages, high energy costs, slower growth, and soaring inflation. There is always a risk that the central banks of the developed economies, particularly the Fed in the US, will over-correct for inflation. If they do, the consequences will reverberate throughout the global economy with particularly harsh effects on less developed economies. 

 

Nobody gains economically from these disruptions and their risks. However, the geopolitical consequence of war in Ukraine has been in favour of the West. 

 

It has reinvigorated the idea of ‘The West’ which after the end of the Cold War, had been in some danger of decomposing entirely.

 

Neutral Switzerland joined sanctions against Russia. Finland and Sweden are set to abandon long traditions of neutrality and join NATO. Putin has succeeded in doing what all US presidents since Bill Clinton have failed to do: get Europe to take its own defense seriously. Overnight Germany doubled its defense budget.

 

I don’t want to exaggerate this. The idea of ‘The West’ was always a loose concept and the EU in particular has never been as cohesive as it liked to pretend. But the EU is today more cohesive than it was before the war.The shift in German attitudes is particularly significant.

 

There is a large gap between intention and capability that will take some time for the EU to bridge. I do not underestimate the difficulties – it will require, among other things a painful reduction of dependence on Russian energy and, more fundamentally, a long-term rethinking of the European social model which at present, is unsustainable as a matter of actuarial certainty, in order to free funds for defense spending over the long-term. There will be complex political debates and intra-European tensions. All this will add to the global uncertainties.

 

But as long as Russian forces remain in Ukraine, the EU – or at least its principal members, France and Germany, will remain cohesive enough. Outliers like Hungary are mere irritants. Where France and Germany go, other EU members must follow and Paris and Berlin are firm on Ukraine. 

 

Equally important, while it builds capabilities, European dependence on the US will be enhanced. And even with new capabilities, the EU cannot deal with Russia without the US. This is fundamentally what has reinvigorated the idea of ‘The West’.

 

American war aims have changed as the extent of Russia’s difficulties became clear. Secretary of Defense Lloyd Austin has – with refreshing frankness but perhaps somewhat incautiously – said that the West wants to use the war to weaken Russia so it could never invade another country. So the US too has no incentive to end the war quickly.

 

The US-ASEAN Special Summit held in Washington DC last week and President Biden’s forthcoming trips to South Korea and Japan as well as the Quad Summit that will be held in Tokyo during his visit, demonstrate that the Ukraine war has not distracted the US from its real priority which is China. 

 

War in Ukraine has not been to Beijing’s advantage. To describe the situation bluntly, Putin miscalculated, and Xi Jinping blindly followed him into a strategic dead-end with no easy exit. 

 

China is now in a very difficult situation. At a time when China is facing many complex internal problems and slower growth, it does not need the complications that Xi’s ‘no limits’ partnership with Russia has created for China: further sharpening the competition with the US and disrupting any hopes Beijing may have had of improving relations with Europe to balance relations with the US.

 

Over the long-term, Beijing will respond to these complications by accelerating plans under its ‘dual circulation’ approach to become more self-reliant in key technologies and to place more emphasis on domestic household consumption to drive growth. But these are themselves not straightforward and complicated objectives, much easier said than done, and will take a long time to bear fruit, if ever. 

 

China cannot become entirely self-reliant -- don’t forget ‘dual circulation’ is just that, ‘dual’ with a continuing external component and hence external vulnerability. China’s most important markets are in the advanced developed economies – the US, Europe and Japan. What we used to call the ‘Third World’ are primarily sources of resourses.

 

To the extent China succeeds in becoming more self-reliant, the cost of self-reliance is accepting some measure of economic sub-optimality. No closed economy has ever succeeded and it seems to me that there is a strong correlation between openness and prosperity.

 

Most immediately, Beijing fears being caught up in secondary sanctions.

So far China has offered Russia diplomatic support but not material support. But is this sustainable? I am not sure. As war in Ukraine drags on, the line China is cautiously navigating will become more and more precarious. As the extent of Russia’s losses becomes impossible to conceal, will the Chinese people begin to question their leaders wisdom in entering into a ‘no limits’ partnership with Russia? If they do, how will Chinese leaders react? Will they admit a mistake? That would be extremely uncharacteristic of President Xi whose instinct when confronted with an obstacle seems to be to double down.

 

China cannot and will not abandon Russia for the simple reason that it has no other partner anywhere in the world of Russia’s strategic weight that shares its discomfort with and suspicion of the current international order.

 

In other words, war in Ukraine is going to be a long-term drag on China. So if anyone assumes that China will again automatically play the role of economic locomotive to pull the world economy out of recession as it did in 2008, please think again. It is not to be taken for granted.

 

But I don’t want to give you the impression that it will be all milk, honey and roses for the West. The US, Europe, Japan, Australia – in fact all of us everywhere – are going to have our lives complicated by war in Ukraine.

 

I have already mentioned the complications sanctions have created for an already fragile world economy. War in Ukraine did not cause these complications, but it has certainly accentuated existing stresses on globalization. I don’t think globalization will be reversed. The politics of globalization has become more problematic, but the technologies that drive globalization cannot be unlearnt no matter how dysfunctional the politics becomes and large companies everywhere, whether Alibaba or Amazon, have no option but to be global. But globalization will certainly become more patchy and complicated. This is sub-optimal for everyone.

 

In conclusion, let me just briefly mention two more costs that all of us are going to face.

 

First the nuclear non-proliferation regime is effectively dead. Again Ukraine did not in itself kill the NPT regime, but it certainly has made it much more difficult to pretend that it is healthy, alive and well. It has accelerated a new trajectory for countries like Japan and South Korea, and some countries in the Middle East like Iran and Saudi Arabia. They are not going to become nuclear weapon states over-night and I cannot predict a time-frame, but the overall direction is clear enough. This adds to the long-term risks and uncertainties of the global economy.

 

Second, effective international and national action on climate change has been put on hold, at least for the immediate future. I don’t think war in Ukraine will fundamentally deflect the shift away from fossil fuels and in the long-run will probably accelerate the shift to alternative energies, but the immediate effect will not be positive as far as the reduction of carbon emissions by the big emitters is concerned. Their priorities will be on sustaining growth while dealing with inflation and not on climate change. Given the global economic uncertainties, no one can really predict how long this these priorities will distract attention from effective climate change action.

 

Ladies & Gentlemen, I think I have depressed you enough for one morning, so I’ll end here a final word of caution.The common economic costs of the Ukrainian war are not going to change western policy towards the war. Marx was wrong – it is not economics that determines politics, but the other way around. So whatever the common economic costs, as long as the US and Europe see a geopolitical threat from Russia, they will not change course. Neither will Putin or Xi change course because their domestic political costs of admitting mistakes are too high. 

 

I hope I am wrong, but it would be prudent for all of us to brace ourselves to deal with strong geopolitical and economic headwinds for quite some time to come. 

Thank you for listening to me.

** Bilahari Kim Hee Papanasam Setlur Kausikan PJG, PPA, PBS is a Singaporean academic, and retired diplomat and civil servant. He is known for having been Permanent Secretary at the Ministry of Foreign Affairs, and for serving as ambassador to the United Nations and Russia. Wikipedia