AS the Russia-Ukraine conflict enters its 503rd day even today the intensity and weaponization are on the rise. Canada joined a chorus of US allies opposing Washington’s decision to provide Ukraine with cluster munitions for its counteroffensive against occupying Russian forces. Germany, Spain and the UK have also voiced opposition to the transfer of the widely-banned bombs. Oleksii Reznikov pledged that Ukraine would use the munition only for the de-occupation of its territory and would not fire them at Russia’s proper territory. Zakharova said the decision showed the aggressive anti-Russian course taken by the US which is aimed at prolonging the conflict in Ukraine as much as possible. But does the crisis create opportunities for Russia, the US, China and India and which countries are paying the cost of war?
The Atlantic Council database includes more than 12,900 designations against Russia. 75 percent of them target individuals and around 24 percent of them target entities. Out of the 1,973 Russian entities in the Atlantic Council database, 1009 are sanctioned only by the United States. The United States has imposed more than 3,126 sanctions against Russia, the highest number so far. It is also the only jurisdiction sanctioning 158 Russian vessels and 22 planes. These sanctions aim to destroy the Russian economy, bring Russian currency into freefall but it looks like the mission failed where Russian currency got stronger than ever and stands at 91 plus in comparison to USD. In the process, the Russian currency got stronger, sanctions backfired and instead of getting isolated – Russia is emerging as a stronger country.
With this conflict, Russia has improved its financial mechanism by utilizing alternate means to the existing financial system SWIFT such as ‘The System for Transfer of Financial Messages’ SPFS. Since the world’s powerful countries use sanctions and freezing of assets as a new tool of war, now other states realize that it is important to securitize their assets and not to depend solely on dollars. Many states are withdrawing their assets from the US. China withdrew $173 billion leaving behind $867 billion. Japan withdrew a sizable chunk of its foreign reserves. This will have a serious impact on the US financial system. Russia is benefiting from the de-dollarization process – thanks to the US policies that escalated the de-dollarization process with the Ukraine crisis. Russian dependence on exporting energy to the European market reduced and now Russia is opening new but durable energy markets. Hence with this energy sales/export diverted from Europe to other parts of the world. New payment systems are shaping up in the form of introducing local currency usage and strengthening other key organizations like BRICS and SCO.
But what are the US interests in this conflict? Once the US withdrew its forces from Afghanistan and left behind more than $80 billion worth of military hardware they had to find an alternate market where they could sell their arms and ammunition. So Ukraine became the hotspot for the US Military Industrial Complex to get active. We have to understand that the US financial and military power dynamics revolve around arms, weapons, guns & bullets – hence they need wars to sell weapons, improve on their technology and get a testing ground for such emerging technologies. That is not possible without active war so it is in the best interest of the US to have wars around. In the process, the US is solely responsible for de-dollarisation and changes of allies such as powerful countries like the Kingdom of Saudi Arabia is getting closer to the Chinese bloc than its old ally the US. Looks like the US foreign policies are responsible for its declining power in the world.
China is not behind other states in getting benefits. Russia has been a crucial energy source for China for years, including the construction of massive oil and gas pipelines in Siberia that have kept China’s industrial heartland humming and Russia’s energy-export diversification strategy alive. Russia has long championed a second hulking pipeline project that would stretch south through the Altai passes of western Siberia, shipping some 50 billion cubic meters (bcm) of natural gas a year to China by the back door. If developed, the new pipeline, called the Power of Siberia 2, would cement the two countries’ energy ties—and pave the way for an increasingly intertwined economic future. With Russia severed from Western markets, experts warn that Moscow has been digging itself into a hole of dependence on China—one that gives Beijing greater leverage in dictating prices and conditions. In November 2022, Chinese buyers were able to gobble up Russian crude oil at a nearly 40 percent discount. Russia’s Gazprom supplies gas to China through a 3,000 km (1,865 miles) pipeline called Power of Siberia under a 30-year, $400 billion deal launched at the end of 2019. In 2022 exports amounted to about 15.5 billion cubic meters (bcm). They are planned to increase to 22 bcm in 2023 and reach a full capacity of 38 bcm by 2027. China also agreed to buy up to 10 bcm of gas annually by around 2026 via a pipeline from Russia’s far east island of Sakhalin.
India is not behind others in benefits race. India is buying Russian oil at cheaper prices. The USD 11-19 per barrel shipping costs from the Russian ports to India – some of it on the 100+ tankers reportedly acquired by Russian actors for a shadow fleet – are higher than rates for comparable distances, such as a voyage from the Persian Gulf to Rotterdam. India is getting benefits from both Russia and the US by staying in both boats. India is emerging as a regional power by spoiling SCO and the probability of spoiling the upcoming BRICS summit.
Looks like it’s Ukraine, in particular, and Europe, in general, paying the cost of war. Ukraine’s infrastructure is destroyed, its economy is in a shambles and approximately 8 million have left the country. The total war damage in Ukraine was estimated at $135 billion as of February 2023. Europe’s economy is dependent on cheap Russian gas and that option is no more available. Now the European economy is under tremendous pressure and its largest economy Germany is facing serious economic crises where the cost of food and energy have skyrocketed affecting the living standards of the people. So it is the people of Ukraine and Germany who are paying the price of the prolongation of the war in Ukraine. But how long will they sustain in this situation and for what? Does Ukraine and Europe deserve it?
—The writer is Assistant Professor, Department of Government and Public Policy, National University of Sciences and Technology.
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