1. The military conflict in Ukraine
Vladimir Putin launched yesterday’s war without today’s weaponry. He probably followed the playbook of another Russian aggression that happened when he was at the KGB. On August 20, 1968, the Soviet Union led Warsaw Pact troops in an invasion of Czechoslovakia to crack down on reformist trends in Prague. Although the Soviet Union’s action successfully halted the pace of reform in Czechoslovakia, it had unintended consequences for the unity of the communist bloc, writes the State department. It was swift but the leadership gradually managed to take over the country squarely in both NATO and the EU communities.
Putin misread the courageous resistance of the Ukrainian people, botched his own military forces and is now cruising for a protracted military conflict with millions of Russia’s “sisters and children on the road of exile.
The horror of the Russian attacks is increasing and the negotiations at high level in Antalya in Turkey has seen Ukraine’s proposal of a “neutral” status guaranteed by international protections was refused by Russia and did not lead to a cease-fire.
Whatever the outcome (if any) it will never be a victory, and increasingly looks like a defeat.
2. The global financial war
The first reaction of the world was on a terrain that will affect Putin and his cronies where it hurts the most: their wallet. Will those who benefited from him have the guts to turn against him? More importantly, the effect of this war is to put Russia on the verge of default. The Credit Default Swaps, who measure the cost of a guarantee of Russia’s risk, have increased tenfold, making it virtually bankrupt. The downgrading of the country’s rating to CCC- puts it one notch away from a D default rating, and the worst of Europe.
The foreign currency financing of the country is now blocked and it is unclear when (not if) Russia will default on this debt. The dollars , euros and yens of the Bank of Russia are frozen , the ruble is down by half, but trading volumes collapsed. The central bank had no alternative than to increase its interest rates to 20%. The Bank of Russia has been suspended from the clearing system of the Bank of International Settlements.
For all intended purpose, Russia has lost all forms of international credit, and is rapidly moving towards an imminent default on its debt. That war is already lost.
3. The energy war with Europe
As the United States decide to no longer import oil from Russia, Europe cannot take the same stance as it is in a more vulnerable position. Oil from Russia represents 25% of the European oil imports, representing $ 100 billion in 2020. In the short term, there is no viable alternative. European countries will continue to import oil from Russia and pay for it in hard currencies.
That war cannot be won in the short term, and the impact of the Ukraine war is already felt. Europe will continue to rely on nuclear energy for the foreseeable future: at least France managed to put gas and nuclear energies in the European Union taxonomy as “green”.
The gas problem is more complex. In 2021, the EU imported around 45% of its gas from the country, according to the International Energy Agency. Germany halted the Nord Stream 2 Baltic Sea gas pipeline project, designed to double the flow of Russian gas direct to Germany, after Russia formally recognized two breakaway regions in Eastern Ukraine.
47% of the coal also comes from Russia.
The train, however, has left the station: the unanimous and strong sanctions imposed by the European Union and its allies on Russia has solidified the 27-member block determination to diversify its energy sources. The European Union aims to cut its gas dependency on Russia by two-thirds this year, while committing to ending it entirely by 2030. Energy imports from Russia have come into sharp focus in the West in recent days. The European summit in Versailles on March 10 and 11 will center around the alternatives
Whether some restrictions will appear immediately is still discussed: the long-term prospect for Russia is now inevitable: the country lost its main client and, in the medium term, will suffer from a sharp decrease of its foreign currency revenues. It increasingly looks like a Pyrrhic victory like in Czechoslovakia since Russia is unable to occupy Ukraine.
4. The trade war is already impacting Russia
Considering full 2021, imports increased by 26.5 percent to $296.1 billion. The largest share of imports was in machinery and equipment (an increase of 30.8% from 2020). Mechanical equipment rose 25.9%, electrical equipment by 21.8%, and optical instruments and apparatus by 6.9%.
The access to technology has already been banned, and is essential to the entire industry. Travel will be disrupted.
The agricultural situation is more complex. Russia supplies 18 percent of exported wheat and 39 percent of rapeseed oil, but if Russia restricts exports or nations around the world refuse to transport or import its products, that too may exacerbate hunger worldwide.
5. Global communication and cyberspace
Minimum disruption has been taking place in the favorite Russian hacking war in cyberspace. Given that the U.S. and EU have banded together in support of Ukraine, the scope of a cyberwar could be broad. Large scale cyber skirmishes can become global due to a spillover effect.
The global cyberwar is only starting, but Russia might be surprised of the impact of attacks on its own territory.
As to social media and other communication, the fact that Russia blocked information is an admission of failure: President Zelensky and its allies have occupied the communication space only to be confronted with a lousy performance of a daily message from Vladimir Putin. All his attempts to try to convince the world that he is rescuing Ukraine from Nazification have failed. The United States rallied the world in a way that no one (including this writer) would have expected. The UN General Assembly voted 141–5 to condemn Russia’s invasion of Ukraine. The banning of Sputnik and RT were long overdue. Western social and other media are increasingly inaccessible in Russia.
Since a regime change can only happen through internal forces, the question of the reaction of the Russian population to the official narrative of Putin and Russian media is unclear.
The implications are global and local
Unless the Ukraine invasion stops rapidly -which seems unlikely unless Vladimir Putin is ousted by his own people- the rollout of the measures already taken and to come could have a destructive effect that will inevitably spill over the world.
The energy and food crisis brutally increases inflation. The ECB forecasts see the inflation rate peaking at 4.8% this quarter, staying above 3% until the third quarter and declining to 2.1% in the final quarter. The European Central Bank renewed its pledge to withdraw pandemic stimulus only gradually, even after a record inflation reading fed market expectations for a first interest-rate hike in more than a decade this year. The increases following the Ukraine crisis are rapid and brutal.
This is not a war against the Russian people. We should know by now that by taking measures aiming to the people of the countries we are in conflict with, not only are we acting like the dictators, but this American theory that people will change regimes has always proved inefficient and has stiffened the resistance. It makes no sense to deprive Russians who leave the country of the use of their credit cards and the access to their money. It makes no sense to close food and beverage operations. Europe in particular is a neighbor of Russia, and that will not change. We do not need to destroy all bridges and punish the Russian people. Let’s focus on the corrupt and criminal leadership of the country.
Putin is a pariah and destroys his people in so many ways that it is hard to see any improvement to its damaged reputation. Every child killed in Ukraine is a murder by Vladimir Putin. The divided opinion on this subject has been replaced by unanimous horror and condemnation. Every day that the Russians wait to push out Putin makes the reputational damage worse. More importantly, the turn of the war against civilians and recently a maternity and pediatric hospital make this war look increasingly cruel.
The immigration crisis is increasing by the day. Europe, already dealing with millions of migrants from the Middle East, is challenged and some countries need immediate support. One thing is certain though, the Ukrainians are not looking for settlement, they want to come back home as soon as it will be feasible. The extraordinary welcome of neighboring and other countries is exemplary. It also tells us that migrations are no longer crises: they are a permanent feature of the dangerous world we live in.
Vladimir Putin thought he was fighting a quick military operation is now fending off five wars of global nature against which he only has a surprisingly inefficient military force. He cannot win all wars. It is only a question of time before the already severe consequences of this war on Russia will plunge the country into a severe recession, if not bankruptcy.
NATO must prepare itself to fight against Russia.