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.   

Illustration: Binay Sinha

The tactics seem to be working. Ukraine President Volodymyr Zelenskyy 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 Ukrainian 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. 

ttrammohan28@gmail.com