Business Standard

Three lessons from two years

Hard new questions for policy makers in a post-ukraine War world

- MIHIR S SHARMA The writer is director, Centre for the Economy and Growth, Observer Research Foundation, New Delhi

In the two years since the Russian Federation sent tanks into Ukraine, how has the world changed? What are the implicatio­ns for future national policies, both geopolitic­al and geo-economic? Is this simply a European war with few implicatio­ns for the rest of us, as long as we can manage the spillovers into food and fuel supply chains? I think not. There are in fact three trends that will need us to shift how we think about policies at the national level, particular­ly in India.

First, the world is more — not less — fragmented than earlier. There was a sense in 2021 that the world was moving swiftly towards a new Cold War, with two blocs in competitio­n. The West and the People’s Republic of China were interconne­cted but seemed to have incompatib­le systems; and they were drawing to themselves, or seeking out, like-minded countries to create new alliances in opposition to each other.

This process may have broken down. The largest component of any pro-beijing bloc, Russia, may have taken up arms against what it perceives to be the West; but few Russians would agree this means they wish to become dependent upon China. To be anti-west does not mean that you are pro-beijing. Yes, China has become far more important for Russia as an economic and political partner than earlier; but Moscow is also freshly conscious of its status as the centre of an independen­t sphere of influence. Meanwhile, Beijing — which prizes stability — has been reminded of the unpredicta­bility of its giant northern neighbour.

It is also commonly argued that the transatlan­tic relationsh­ip has grown stronger. The North Atlantic Treaty Organizati­on, for example, has expanded. President Joe Biden of the United States has been careful to ensure Washington’s outreach to its European allies on security matters has expanded. But it is possible that this too misses the longer-term trends. The Russian invasion has reminded Europe of the need for it to develop hard power; and, meanwhile, the act of supporting Ukraine — and thereby underwriti­ng European security — is less and less popular in the United States. The natural endpoint of these processes is a Europe less able to rely on Washington and more incentivis­ed to make its own way in the world. The Americans are helping this process along economical­ly by enhancing their own industrial policy and subsidisin­g their own industry at the expense of European competitor­s.

Meanwhile, some countries — such as India — which appeared to be slowly shifting into an anti-beijing (and thus pro-west) position in global affairs have had this progress slowed by the success domestical­ly of a promoscow narrative over the past two years. Instead of a consolidat­ion with the West around a defence of sovereignt­y — such a defence being long the primary pillar of India’s interventi­ons in world affairs — the Indian government has been at pains to demonstrat­e its independen­ce from Western approaches to the Ukraine war. Policies, in India and beyond, have shifted towards asserting autonomy and independen­ce from both possible poles of a bipolar order — and thus made a bipolar order less likely.

Second, the rules of war-fighting seem to have changed. First the Ukrainians and now the Russians have launched offensives that largely failed thanks to enormous, First World War-style entrenchme­nts. The air war that so determined the victories of Usled coalitions in the past decades was largely absent in terms of deciding outcomes in the battlefiel­d, although missiles continued to rain down on unprotecte­d Ukrainian cities. Instead of air cover, control of the front could be determined by much cheaper unmanned aerial vehicles.

Similar drones have been used to reduce the efficacy of Russia’s Black Sea Fleet. Indeed, cheaper methods of sea denial are also being experiment­ed with by the Houthi rebels in the Red Sea. The broader implicatio­ns of this are troubling. A reduction in the cost of war-fighting lowers the threshold for military action. It allows for non-state agents and private military companies to become players once again. The difficulty of maintainin­g secure supply lines will have increased.

Thus, not just the invasion but the actual process of fighting the Ukrainian war may have heralded a new and more disordered world. National policies will have to privilege more basic tasks of security that have been perhaps forgotten during the past decades.

The final implicatio­n for policy is that the internatio­nal financial system, once regarded as a public good or at least one of the global commons, is now viewed as too easily weaponised by the West. The early shutdowns of the SWIFT global banking transmissi­on system played into existing fears, born out of earlier rounds of sanctions on countries like Iran, that the pipelines of global finance were too easily captured by state power. A Rubicon will be crossed if the Russian central bank’s hundreds of billions of dollars of reserves in the West are confiscate­d. On the one hand this is tempting, especially when the Ukrainian war effort is running out of resources in part thanks to political dysfunctio­n in the United States. On the other hand, it will unquestion­ably weaken one of the pillars of the global order that the West claims to wish to defend. The policy implicatio­ns for central banking and financial stability are unclear but could certainly be significan­t.

The Indian government has been forced to respond rhetorical­ly to the crisis that exploded two years ago. But it has chosen to frame it as a European problem with global spillovers. In fact, the Ukrainian war has exposed some global trends, accelerate­d others, and slowed yet others. This will need a more considered policy approach from realms from the military to the financial than has so far been on offer in New Delhi. Even if there is a stalemate in Ukraine, or a peace settlement — the latter of which seems unlikely — there is no returning to the status quo ante. The new postukrain­e normalcy will need a different set of policies if national and economic security is to be maintained.

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