Russia/Ukraine:
The “special operation” in Ukraine as Putin likes to call it, has entered into a decisive face. Russia has decided to conduct a public referendum in the areas it has captured so far in Ukraine viz Donetsk, Luhansk, Kherson Oblast and Zaporizhzhia Oblast. This will get over in next few days and result may be overwhelmingly in favour of amalgamation of these areas with Russia.
Once this happens, any attack on these parts by Ukrainian forces can be treated as an attack on Russia itself and Putin may convert this special operation into a war. This will enable him to use whatever force necessary to protect Russia’s sovereignty. He has already spoken about use of nuclear weapons. Even indirect help from NATO countries can also be construed as attack on Russia and they may become part of conflict. West and especially USA, finally, seems to have taken serious note of this. There are reports of US administration giving warnings to the Putin administration on use of nuclear weapons. We need to see how this develops.
Russia has taken good losses in this operation and Ukraine has surprisingly held up well against the aggression, albeit with active and significant help from NATO. This is not a small achievement. Putin probably also wants a respectable exit.
European Gas Supply Shortages
The more serious problem is on the economic front though. The stoppage of gas supply from Russia to Europe and mainly to Germany has created a sort of catastrophe. The energy prices have shot up across Europe and countries are now scrambling to announce measures to lessen the impact on its citizens. Winter is about to start, and it is estimated that Germany and other countries will have to ration the gas they have in-store to see through the winter. If the supply from Russia does not restart, we will see destruction of the German manufacturing industry. France is a little better placed as they have not shut their nuclear power plants completely. Germany would be the worst sufferer. This will have a serious impact on the Euro. We are already seeing this as the Euro has reached parity with the US dollar and may go down even further. Germany’s current account deficit is also widening.
One interesting point to be mentioned here is that Europe and especially Germany, became obsessed with green energy technology that they closed down all their coal-fired power plants. They even closed their nuclear-powered plants after the incidents in Japan etc. They never bothered to create alternatives for this and assumed that Russia will keep supplying them. It is estimated that USD4-5 trillion worth of the German economy is now facing an existential threat because of nearly USD30-40 billion worth gas supply! This is a huge strategic error on the part of German government. This may even lead to the break-up of the EU. Such mistakes are unpardonable.
Rumblings in China and Cautiously Stable India
China’s politics and economy are facing serious challenges. The economic indicators have turned negative due to huge losses in the real estate markets. This has now led to severe pressure on the banks. On the political side, there is uncertainty due to the proposed CCP meeting in November, where Xi Jinping may be declared as president for life. There are reports of a big clamp down on the opposition to these plans within CCP. Interestingly, since the start of Covid, two years ago, Xi Jinping made his first and very short overseas visit last week to Kazakhstan to attend SCO meet. His continuous presence within the country and China’s very intriguing Zero Covid policy are now slowly becoming clearer. China may suffer from power struggle and economic protests. The Zero Covid policy may be used to clamp down on these disruptions. The coming weeks and months will make this clearer.
As for India, this has been a period of relatively steady developments. While trying to become an alternative to China on production base, the Indian economy has done well to control inflation. The free ration schemes to all its citizens which was introduced during covid has continued and this has protected poorer sections from high food inflation which has become a global problem. The Indian currency has also been stable so far. We have yet to see how long this can continue as Indian forex reserves are on continuous decline since last one year. Modi government has been judicious in using all the economic tools to protect economy and people from ever changing impacts of geopolitics.
Conclusion
The long steady period of world peace is over; we are in now conflict times. This period may continue for a considerably long while, perhaps a few years or even a decade or two. If we understand what these conflicts are aimed at, then endurance could become less painful. Russia is now aiming to amalgamate 15-20% of the Ukrainian areas which it now controls. These areas are rich with minerals and have high agricultural production. China is aiming at Taiwan to control the conversion of its rare earth resource into chip production which is key for Artificial Intelligence. These conflicts are for resources and conversion capacities. We can safely say that most of future conflicts or wars will be over the control of resources. Western economic model of mindless consumption by printing money out of thin air is getting over. There will be now significant costs attached to Capital. Rising interest rates are first and foremost indicators of this change. The capital now will flow where there are tangible resources and assets and conversion facilities. The West too will need to build its own capacities rather than relying completely on the East to keep on supplying it with cheap goods. For that they will need to control resources and build conversion capacities. One can easily see which world regions are now likely to be future potential battlefields.
-Sandip Parekh
