Written by George Mathew
As the war rages on in Ukraine, it is hard to look away from the atrocities committed by the Russian Army against the Ukrainian people. From maternity wards in Mariupol (BBC, 2022) to Ukrainian people trying to escape in evacuation convoys (Reuters, 2022), the Russian attacks have killed hundreds and injured thousands of Ukrainian people along with millions displaced from their homes (Al Jazeera, 2022).
It is at this point that the West can be galvanized to escalate tensions, not just with sanctions but with boots-on-the-ground attacks. It is therefore important to ask how unprecedented sanctions that have been levied so far and further aggravation of economic warfare against Russia can quickly escalate into a full-fledged hot war.
Russian response to western sanctions
The sanctions on the Russian Central Bank (an unprecedented move on a G20 country) and banning certain Russian banks from SWIFT (The New York Times, 2022) along with a plethora of other sanctions including banning Russian oil by the United States, will not only shrink Russia’s economy as it is rightly intended but has the potential risk to escalate the war.
War is a multi-party affair, the West’s intentions may be to force Putin to back down from the war to prevent further economic hardship but how it is received by the Russian government and its people should also be analyzed.
According to Western Intelligence, Vladimir Putin has “expressed extreme anger” and “felt that the sanctions had escalated the situation faster than he expected and beyond what he considered to be appropriate.” (CNN, 2022)
Pravda, a Russian State Media outlet has put out an article expressing how “Mr. Putin is unlikely to surrender Russia again to liberal ideologies and Wall Street capitalists. Boxed into a corner, surrounded by Western armies and blockaded with sanctions, the little red buttons may seem the only viable alternative to a humiliating defeat and becoming another economically plundered satellite of the West, as happened to those countries who recently suffered the same fate in the Middle East.” (Pravda, 2022)
Though Pravda is a propagandistic mouthpiece of the Russian government it is important to understand not only how the inner members of the Russian government think but also to see what sort of “information” is being disseminated to the Russian people as their access to Western outlets and media are being restricted. (Financial Times, 2022)
The day after the Russian Central Bank and SWIFT sanctions, Vladimir Putin put his nuclear arsenal on a “special combat duty regime”, i.e. on high alert in response to the collective economic action by the West.
It is doubtful that Russia will back down from the war if greater economic penalties are made against them. It is more likely that they will double down on their effort by increasing the severity of their invasion and trying to win the war quicker with harsher attacks, resulting in increased civilian deaths.
They will pursue this mode of action likely because there is a rich history of sanctions being imposed and not being lifted for a long time on the international stage. (Lawfare, 2022)
After signing the armistice at the end of the First World War, the sanctions and blockade imposed by the Entente still remained not only in Weimar Germany but also against Soviet rule in Russia and Hungary in the aftermath of the Russian Revolution. This caused millions to starve and die along with throwing many people in those countries into abject poverty.
Even if some of the sanctions are removed, as in the case of Iran (which until a few weeks ago was the country with the most sanctions imposed on it), it takes a long time before investors or companies return to the country as they themselves fear the uncertainty of the future.
Vladimir Putin knowing this will likely ignore the economic sanctions and not see it as a reason to back out of the war but all the more reason to win it.
It is at this juncture we must look at similar historic events; after the end of the First World War, the economic sanctions and reparations made against Germany through the Treaty of Versailles led to great economic hardship in Germany with its people demoralized, humiliated, and financially suffering. This became a ripe breeding ground for the Nazi Party and Hitler to rise into power, promising to restore Germany’s place as a global hegemon. (Dissent, 2022)
In 1940 after the Japanese invasion of French Indo-China (now Vietnam, Laos, and Cambodia), the United States issued an oil embargo on Japan. At the time Japan imported 80% of its oil from the US and this constituted a huge economic blow to Japan’s military ambitions. The United States underestimated the effect this would have on Japan, President Roosevelt at the time was merely notified of this decision by the US State Department and did not ever seek out war against the Japanese Empire. Japan on the other hand saw this as an act of war and this was made a direct reason to bomb Pearl Harbor resulting in the United States entering World War 2. (Defense Media Network, 2011)
What all this shows is how quickly an economic war can escalate and lead to a hot war between two nations. It is thus essential to weigh the consequences of any sanctions made against Russia, whether they may be warranted or not, so as to prevent the beginning of another great war.
Geopolitical ramifications of economic warfare
Russian dependence on China
On a geopolitical level, the removal of Russian banks from SWIFT and companies like MasterCard and Visa no longer working with Russian banks led to Russia depending on its domestic alternative to SWIFT – “mir” – and also partly switching/linking to the Chinese Card System “Unionpay”, for processing financial transactions. (The Wall Street Journal, 2022)
These financial architectures that both countries built from the ground up, Russia in 2017 (post-annexation of Crimea in 2014) and China from the early 1990s, are systems that were constructed for the sole purpose of being a form of deterrence against potential sanctions levied by the West.
What this debacle will signal to other countries that have geopolitical interests, is the need to have such alternative systems put in place and not be completely dependent on Western financial architecture in the age of globalization. It will then be another step into a multi-polar world that can question American hegemony.
This dependence can also give China greater diplomatic leverage if they wish along with the West to end this war without any further escalations by brokering a peace deal.
Oil and natural gas
A shift in the manner in which oil is bought can be noted at this time, India (along with China) has become one of the few countries willing to purchase Russian oil. India has increased its dependence on Russian oil by willing to buy 5 million barrels of oil from Russia using a rupee–ruble exchange system bypassing the US dollar. (The Times of India, 2022)
On another front, Saudi Arabia is now in active talks with China in selling some of its oil in Yuan, “to dent the U.S. dollar’s dominance of the global petroleum market, marking another shift by the world’s top crude exporter toward Asia”. (The Wall Street Journal, 2022).
In the US, right after the ban on Russian oil, the price of oil increased to a national average of $4.252 per gallon. (CNN, 2022) Brent crude jumped to $139 (a 14 year high) in the second week of March while European gas soared almost 80 percent. (Financial Times, 2022)
Imminent food crisis
A large portion of the wheat, corn, and barley that the world relies on are produced in Russia and Ukraine. Belarus and Russia also have a greater portion of the world’s fertilizers. Since the war began the price of wheat has increased by 21%, the price of barley by 33%, and the price of some fertilizers by 40%.
“Ukraine has only compounded a catastrophe on top of a catastrophe,” said David M. Beasley, the executive director of the World Food Program, the United Nations agency that feeds 125 million people a day. “There is no precedent even close to this since World War II.” (The New York Times, 2022)
Iran nuclear deal
The Joint Comprehensive Plan of Action (JCPOA) or Iran Nuclear Deal is an agreement on the Iranian nuclear program, which came into effect on January 2016 between Iran and the five permanent members of the United Nations Security Council— China, France, United Kingdom, United States, and Russia), along with Germany and the European Union.
The purpose of the deal was to restrict Iran’s nuclear program to the point where it would take Tehran at least one year to develop nuclear weapons, giving the West ample time to respond. Provisions of the deal included, Iran agreeing not to produce highly enriched uranium or plutonium for the purposes of making nuclear weapons and among other things to ensure facilities like Fordow, Natanz, and Arak in Iran, were pursuing only civilian work. In 2018 the Trump Administration pulled the US out of the JCPOA, promising to negotiate a better deal. (Council on Foreign Relations, 2021)
Now with the Iran Nuclear Deal back on the table, Russia has asked for a written guarantee from the US that the sanctions imposed on them will not affect their economic trade with Iran. Holding the deal hostage, Russia hopes to create a loophole in the sanction regime by exempting their trade with Iran from sanctions, which the West is sure to reject. (The Guardian, 2022)
This will leave it up to Russia to veto the Iran Nuclear deal altogether.
The need for de-escalation is immense, any attack by Russia on a NATO country can trigger Article 5 of NATO, starting another world war. The consequences of such a war will not be the same as in the early 20th century, the risk of nuclear warfare is high and it brings with it a great loss of life and long-lasting effects that can stretch years into the future.
There is a dire need for an off-ramp to a peace deal between Russia and Ukraine, though sanctions are deemed the peaceful alternative by the ones imposing them, it is imperative to calculate how they would be perceived and the consequences on the receiving end before levying them.