by Chintaka Batawala and Mohamed Inthi Sameem

President Valdimir Putin’s adventure into Ukraine was supposed to be quick, lethal, and with clear objectives. Send Zelensky into oblivion, and install a pro-Moscow regime that won’t be clamoring for the moon such as a NATO alliance membership. In fact, President Putin was so confident about the competencies of his military machine and achieving his objectives in good time, that he even went on to highlight, perhaps out of tune with time, that it was the Soviet Red Army that overpowered the Germans during World War 2, and not the French or the British. (Reuters.com, May 2022)

But after 200 plus days of fighting, shelling, thousands of refugees, a new dimension in drone warfare, in conjunction with the largest military buildup witnessed in Europe since world war 2, there are more questions than answers as to where this is all headed. However, if there is fair bit of ambiguity as to military aspects of this conflict, then the geo – political facets are definitely clearer.

For starters, the traditional alliances that have been the norm for decades have been strengthened. Beijing and Tehran are backing Moscow without much ado. Moreover, the Iranian cooperation with Moscow in terms of the supply of Iranian drones to Russia and the reciprocal supply of advanced SU 35 jets to Iran have garnered much international press attention.

This conflict however, has put New Delhi in a precarious situation. On one side India has to play along as a member of the QUAD that is aligned with the USA, and Japan. On the flip side of this equation is the fact that India is also a member of BRICS, that is affiliated with China and Russia. Moreover, the historical alliance between India and the Soviet Union dating back to the cold war days is still a present tense. If the Indian Government’s official reaction was diplomatic at best, then the Indian media was certainly vociferous in highlighting that it was the USSR and not the Western block that came to India’s rescue when Pakistan launched an anti-India operation code named Genghis Khan in 1971, which resulted in the formation of a new independent state called Bangladesh. (WION wide angle, 2022)

For Washington as expected the time tested all weather western partners London, Paris, and Berlin have thrown in their support, albeit in a muted way. In normal times the most enthusiastic and high-volume support to Washington would have come from London. But because Great Britain is going through its own leadership fiasco the tone from London was hardly a whisper.

But as sure as politics makes strange bedfellows, the biggest surprises have been, the cold shouldering by UAE ‘s Mohamed bin Zayed (MBZ ) and Saudi Arabia ‘s Mohamed bin Salman (MBS) to President Biden request to increase oil output to make up for the Russian absence in the oil markets.

If this was not bad enough coming from traditionally strong Washington allies, the Gulf states tilting towards Putin has further frosted the traditional ionic type bonding between Riyadh and Washington; a bond that has been a done deal for decades. Presidents Biden’s Riyadh visit to request an increase in oil output elicited comparison to then Secretary of State Henry Kissinger’s visit to Saudi Arabia in November 1973, to request the then King Faisal bin Abdul Azeez (MBS ‘s uncle) to remove the oil embargo imposed after the Arab Israeli war of 1973. If Kissinger’s visit to the kingdom then was productive in some way as it set the tone for the Petro dollar, then Presidents Biden’s visit in 2022 to Riyadh with a fist bump greeting to the Saudi Crown Prince MBS, failed to live up to its expectations ( NBC news , July 2022)

Some experts do make a case that the West’s confrontation with Russia has brought the world within proximity to world War 3. ( Bill Ackman , CNBC May 2022 , Fiona Hill , Business Insider Sept 2022) . Whilst this statement may seem far-fetched at this time, it certainly has reasonable resonance. Rewind back to the reasons why World War 1 and World War 2 were so devastating was because, the major powers of the time got embroiled in a protracted military conflict, some by willful choice, like the Austro-Hungarian Empire and the others by Hobson’s choice like the Ottoman Islamic Empire. (World War I)

Granted we are not living in that sort of fragile coalition days, and there is some ease today due to the presence of a global authority in the United Nations to prevent the recurrence of a global conflict. However, with the prevalence of nuclear weapons among the major powers and who also happen to be the protagonists of this conflict, it seems petrifying to imagine the trajectory of such a global confrontation.

If the military aspect of this conflict is viewed as a localized war between Russia and Ukraine, the fact remains the West is collectively engaged in an Economic war with Russia, unprecedented in scale that would have been unimaginable just a few years ago. Moreover, the Economic consequences of this conflict are not going to fade away just like that. It is likely to create some structural fault lines in the global trade mechanism. If for the past 3 decades the key defining words for trade and commerce were Globalization and Economic liberalization, then certainly today the tide has turned towards economic nationalism and commercial decoupling.

The fall out risk of this conflict may not be nuclear, based on current dynamics but they are sky high especially for the global super power – the USA. The sanctions against Russia have been draconian as well as punitive such as the freezing of Central Bank assets and excluding Russian banks from the SWIFT network, a vital component in today’s financial architecture. The sanctions target the key vulnerabilities of the country’s economic engine; and in an era of globalised supply chains the sanctions effectively negate Russian access to technology and other related import inputs to the sectors in transportation, communication, and even port operations, all vital cogs for a country’s GDP growth. However, in an anti-climax of sorts Russia’s economic indices are holding better than expected. The GDP contraction for FY 2022 is expected to be 6 %, a better figure than the 15 % that was originally forecasted. (IMF, Economist Aug 2022)

Whilst the Western imposed sanctions had devastating effects on Iraq, and Libya, they have had only a limited impact on Russia. Perhaps this is due to Russia being a resource economy that is not fully integrated with the Global Economy. The Russian Economy is driven by commodity exports such as oil natural gas, nickel and aluminum which affords a certain cushion against western sanctions.

But perhaps the more important reason is , Russia is a permanent member of the UN security council and the veto power that accompanies it, allows Russia to challenge the western dominated security council resolutions on matters that goes against its interests.

Washington’s sanctions are well crafted with the required odds and evens, but there are glaring loopholes – the energy exception. If one of the primary goals was to reduce Russia’s oil revenue then the pragmatic strategy should have been to allow the free flow of oil into the markets and then simultaneously focus on a long-term solution to reduce the dependence on Russian oil. With plentiful supply the prices would stay within reason and thereby reduce energy driven inflationary pressures currently gripping Western Europe. But instead the sanctions strategists decided on an embargo which fell far short of the desired outcome.

The greatest challenge to the United States is that this Economic head on clash with Russia is being waged pretty much alone. This is because the European allies being fully aware of their Russia oil and gas dependency have been silent or reluctant partners at best to the path taken by Washington.

The USA is able to exert this sort of impact using the unique leverage status of the US Dollar. Because countries across the world have to use the US Dollar as the medium of international exchange even the threat to cut off them can cause Economic panic. More tangibly the US has the ability to impose sanctions on any country by leveraging on the long reach of the US Dollar even when the goods are not produced in the United States .To this effect just recently the US Dollar hit a two decade high prompting Barron’s to coin the caption, ‘The Green Back has gone ballistic’ ( Barron’s, Sept 2022)

However, that decades old phenomenon of the US Dollar as the de facto global currency may face its serious challenge yet. Fast growing and dynamic economies like Turkey, India, and the primary Petro dollar backer Saudi Arabia are seriously looking for alternatives to condense their dollar dependence.

The contrarian view of the Russia-Ukraine conflict is that it has highlighted something more than the ideological clash between the East and West, reminiscing upon the Roman and the Persian wars of antiquity from the annals of history. Putin has managed to carve out a softer and a romanticized persona for himself, despite the depiction in the western media as an unpredictable war monger. The old Boney M hit Ra Ra Rasputin from 1978, edited version of 2022 depicting Putin as the legendary monk during the days of the Russian Czar, has garnered over 200 thousand views on You Tube. But Putin’s touch of a genius moment was perhaps when he offered his personal jacket to the visiting leader of the UAE Mohamed Bin Zayed, who was feeling visibly uncomfortable in Moscow’s winter, portraying himself as a warm caring man. And it is this unpredictable persona of Putin is what prompts many to highlight the possibility of a World War 3 despite the remoteness’ of that likelihood, whilst eliciting comparisons to the chain of events that triggered World War I.

World war I started because of an accident of sorts triggered by a spark. That spark was the assassination of Arch Duke Francis Ferdinand, the heir to the Austro-Hungarian empire. But his assassin was successful only because of a single wrong turn taken by Ferdinand’s driver. On that eventful day in 1914 Ferdinand was on a motorcade in Sarajevo with little concern for Serb resentment to the Empires 1908 annexation of Bosnia- Herzegovina. The motorcade having run into incensed Serbian nationalists had decided to take an alternative route. But this crucial instruction to divert was not understood by Ferdinand’s Czech driver. As it panned out, Ferdinand’s car came into a grinding halt at a junction where the would-be Serbian assassin was hiding behind a tree. The rest is history. (First World war/ John, Keegan 1998, The Sleepwalkers -How Europe went to war in 1914, Christopher Clarke)

Whilst 2022 is certainly not 1914, accidental occurrences are always a probability. In the early stages of World War 1, the United States did not want to join the war, citing it as a conflict that is beyond the Atlantic Ocean. But the crucial trigger event was the sinking of the British Ocean liner the RMS Lusitania in mid Atlantic in May 1915 by a German U boat. The huge media outcry in the USA which followed, in turn forced US President Woodrow Wilson to declare war on the German centric Central powers. World War 1 which up until then had been a stalemate of sorts, tilted the balance in favour of Britain and France after the entry of the United States.

Whilst the Russian Ukraine conflict in 2022 may not have the requisite environment to trigger a global war as in 1914 , and President Putin is no arch duke Francis Ferdinand, it certainly has upset the delicate geo political balance that existed prior to this conflict. Furthermore, it has put globalization itself into a question mark which may result in further economic de coupling and eventual de globalization.

The most plausible result of the sanctions on Russia, is that Russia will be forced to join the China orbit. At present the 9th largest Economy in the world by nominal GDP (Wikipedia 2022), has been effectively removed from global economic matrices and supply chains. Joining the circle of the second largest Economy in nominal GDP makes business sense, the energy producer coming together with the energy consumer, creating this symbiotic relationship.

Moreover, if BRICS becomes BRICSS (as in BRICS +) with the inclusion of Saudi Arabia, it would give a tremendous boost to the BRICS economic forte as the major energy producer integrating with the energy consumers. If other possible contenders such as Turkey, Egypt and Iran who have all expressed their wish to join the BRICS, does materialize that may create a global economic conglomerate. BRICS represents 24 % of the global GDP, 41 % of the World population and 16 % of global trade. ( ,https:// brics2021.gov.in )

Unlike Western Europe and North America which share a common economic policy in free market enterprise and political ideology, the BRICS block is not at all a homogenous entity. In fact they are poles apart in political ideology and even monetary policy (example China and India) , but an expanded BRICS plus block with an economic objective will not only have the capacity but also the willingness to do something that has not been done before – be able to mount a monumental challenge to the hegemony of the US Dollar via a BRICS common currency .

In 1971 then US president Richard Nixon, took an unprecedented decision in removing the gold standard of the US Dollar which had been around since the Bretton Woods accord in 1944. This resulted in the US Dollar becoming a Fiat currency , decoupled from a physical store of value. But all that was to change in the aftermath of the Arab Israeli war of 1973 when Saudi Arabia’s ruler King Faisal bin Abdul Azeez imposed the Arab oil Embargo with the backing of other Arab oil producers. Then Secretary of State Henry Kissinger ‘s subsequent visit to Saudi Arabia resulted in the easing of the Arab oil embargo and the setting up of the structure and the functional aspects of the Petro dollar system. By 1974 this system was fully operational. ( The Rise of the Petro Dollar system – Dollars for Oil , Jerry Robinson 2012) . For the past 5 decades this equation held firm – the success of the Petro Dollar hinged upon the Saudi US relationship, energy for security principal.

But that delicate relationship between Washington and Riyadh is now under stress owing to the changes in the Global Economic system. In 1974 the Global Economic leaders were the USA & Western Europe, and China and India were not in that league. But today, China is a global powerhouse that is able to exert its influence on the others. The other not so prominent reason may be the BRICS driven reform agenda of the global financial system. The question remains as to whether the BRICS plus including Saudi Arabia will be able to de-dollarize the global financial system?

It is no secret that the BRICS members have wanted a greater autonomy to reflect their collective global economic position for a while now. The BRICS have collectively made a strong case for the inclusion of the China’s renminbi into the IMF’s SDR basket with the volume getting amplified year on year.

But the collective BRICS agenda for international financial system reform got a shot in the arm when Saudi Arabia’s Minister of Foreign Affairs Adel al Jubeir articulated that USA is one of its important partners along with China in the current global order. (CNBC International with Hadley Gamble, 2022) This statement was backed up by a memorandum of understanding between Arab oil company (formerly ARAMCO) and SINOPEC China, to address energy supply and demand details. In fairness to Saudi Arabia this statement should not be seen with a confrontational overtone but rather from a rationality point of view; it makes sense for Saudi Arabia to trade in the respective currencies of their major trading partners, China ‘s Yuan and Indian Rupee thereby circumventing the dollarization process in the trading process.

Whilst a military conflict between NATO and Russia is unlikely, it is always a remote possibility in similar fashion to how World war 1 started. President Vladimir Putin has certainly fired the salvo in driving a wedge between the traditional allies and upsetting the delicate geo political balances that existed prior to his invasion.

Whilst undoubtedly the USA is and will remain the global economic superpower and the leader of the free world for the foreseeable future, that take it for granted status quo that has been the norm for decades has now been dented. Putin knowingly or unknowingly has opened up the Pandora’s box to set in actions in motion to seriously challenge USA global hegemony and the long reach of the US Dollar. Decades ago, French President Charles De Gaul articulated about the exorbitant privileges of having the true global reserve currency. Well that state of affairs then, has been put into question as of 2022.

Whilst the Russia- Ukraine conflict may end in a military stalemate, the structural fault lines that it has created , the geo political issues that it has raised , the impact it has had on global trade mechanics and the questions it has raised about traditionally allied loyalties may serve as a litmus test for any future confrontations. This has to be looked at beneath this film of mundane reality, depth and seriousness.

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About the authors:

Mohamed Inthi Sameem (inthi_mohamed@yahoo.com) is a Financial markets specialist , counting over 15 years’ experience in the capacities of investment Strategist (Fund manager) , Head of Corporate Finance and investment Banking , Head of Research and delivery , Corporate & Management consultant (Zamil Group – Saudi Arabia )and Director Policy & surveillance (the Capital market authority – Securities and Exchange Commission – Sri Lanka ) , and Director Instrata capital , Bahrain (Kuwait investment Company)

He holds a BSc and MBA from the University of Houston Clear Lake – Houston Texas USA, and Certified Management Accountant (CMA) – high distinction (Australia )

Chintaka Batawala () is an international Relations Analyst based in Colombo, Sri Lanka .