Get Ready for Impact of Ukraine War
Get Ready for Impact of Ukraine War
I don’t know if Russia will in the end invade Ukraine or not. I do know that if it does, it will start a new cold war and it will affect the world economy in a big way. Here are three big consequences that are coming.
First, the Ukraine invasion will formally start a new cold war between Washington and its key allies on one side and Russia, and probably China, on the other side. The rhetoric and emotion in Washington already are hot, and if we see blood and destruction from the Russian invasion in the media, the emotion will get stronger. In this angry atmosphere, Washington is not going to accept countries balancing their relations between the United States and Russia (or China).
We already saw Washington push to limit Chinese influence in the United Arab Emirates. That pressure will expand and most sensitive will be military relationships with Russia and China. It is important to remember that there was heavy political pressure to apply an American sanctions law after Ankara bought an advanced Russian air defense system, and President Erdogan’s friend Donald Trump did impose sanctions on Turkey in 2020.
The Americans have threatened to use the same sanctions law against Egypt because of Egyptian purchases of Russian fighter jets. That pressure to apply sanctions will grow, and if the Iraqis buy an advanced Russian air defense system, Washington will seriously threaten them with sanctions too. The hardest decision for Washington will not be sanctions on Egypt or Iraq. Instead, Washington will consider carefully imposing sanctions on India for its purchase of the same Russian S-400 air defense system that Ankara acquired.
In December we saw media reports that Washington would ignore India’s purchase of the S-400 because Washington needs Indian support against China. After heavy human casualties in Ukraine there will be new heat in Washington about India’s military relations with Russia.
The second big impact will come from Russian reactions to Western punishment of Russia if it does invade Ukraine. The western sanctions will likely be unprecedented in scope; President Biden has an urgent political need to be tough on Russia if it invades, especially after the chaotic Afghanistan withdrawal and the worry in Washington that a weak response in Ukraine will encourage Chinese aggression in Asia. It is difficult to imagine that Russia will not react after Washington and its European and Asian allies impose sanctions.
Geo-politically, they will cooperate less with the Americans in eastern Syria and might even look for ways to provide intelligence or material assistance quietly to Tehran as its militia allies jab at the small American bases in eastern Syria. Similarly, Russia will find ways to make life harder for Turkey in Syria and Libya if Turkey causes Russia more problems in Ukraine.
On the bigger issue of the Iranian nuclear deal, Putin surely understands than an Iranian nuclear bomb is a bigger immediate problem for the Americans and their allies than it is to Russia. This will be even more true if American pressure limits expansion of Russian relations in the Arab Gulf. Similarly, if under American pressure Israel limits relations with Russia, Moscow will consider how it approaches the issue of Israeli strikes against the Iranian presence in Syria. In any event, the Western reaction to the invasion of Ukraine promises new opportunities for Iran.
Third, the economic impact of the Russian response to sanctions will also be painful. Ukraine is a major wheat exporter, especially from its eastern regions where there will be heavy fighting and production disruptions. Moreover, Russia has accumulated over $600 billion in foreign exchange reserves and may decide to halt its exports of grains too. Rising food prices will hit not only Middle East economies but also aggravate inflation in the United States and Europe. Even worse for western economies will be disruption of world energy markets if Russian oil and natural exports decrease substantially.
The timing of rising world energy prices will be particularly bad for President Biden and the Democratic Party who face difficult legislative elections in November. Rising energy prices will increase prices for nearly everything in the American economy and compel the American central bank to raise interest rates more quickly. I have started seeing economic analysts on Wall Street in New York warn about an economic recession. Over time, higher world energy prices will raise American oil production but not before the November elections.
Even if the Biden administration does not want any big new military commitments in the Middle East, it will need better relations with Arab energy exporters; the visit of the Qatari Amir is the first example. That is the only short-term good news I can see for Arab states in this Ukraine invasion.