Russian Invasion of Ukraine: Geopolitical and Economic Repercussions

 

As the Western countries predicted, the unthinkable has happened: Russia launched a full-scale military invasion into Ukraine on February 24, 2022.  Reports indicate that several Ukrainian cities, including its capital, came under attack. It has pushed many Ukrainians to flee to the neighboring countries. The UN report indicates that a million refugees have already left the country.

 This unjustifiable incursion will have major geopolitical and economic repercussions. It has already severely strained US-Russia relations. Tensions are also likely to mount up between Russia and the neighboring NATO member countries, which, owing to alliance security commitments, will obviously involve the US too. The US, Germany, and other countries have announced that they will supply weapons to Ukrainian forces.

The UN Security Council held an emergency meeting to stop the invasion. With the support of 141 of the 193 member states, the US and NATO countries passed a resolution in the UN that “deplores in the strongest terms the aggression by the Russian Federation against Ukraine” demanding to “immediately, completely and unconditionally withdraw its military forces” from Ukraine. Intriguingly, countries like India and China abstained from voting.  But this remained as a mere political statement at the UN, for it made no difference to the ground realities. 

The resulting desperation among the EU countries may alter the very security scenario in Europe/globe that is in place since the end of the Cold War. Indeed, it may strengthen the glue among the NATO allies and they may even resort to spending more on defense. The future of peace will be at stake as long as Russia thinks of war as a means to defend or expand its sphere of influence in Eastern Europe.   

That being the fact, the US, UK, EU, and Japan imposed severe sanctions against Russia such as effectively immobilizing Russian Central Bank assets held in these countries, excising its banking system from the international SWIFT transaction system, etc., to cripple its ability to sustain its assault on Ukraine for long.   

But analysts opine that even this may not have the impact that the Western allies are hoping for, at least in the short run. For, since the first wave of sanctions imposed for its annexation of Crimea in 2014, Russia has learned to sanctions-proof its economy.  

On the other hand, this impasse has spooked the markets all over the world. Stock markets have tumbled, oil prices have reached an eight-year high of around $120 a barrel. Owing to the heavy dependence of Europe on Russia—40% of its natural gas needs and 25% of its oil requirement are met from Russia—any disruption thereof is likely to result in another energy crisis in Europe. All this mayhem is likely to further worsen the global economy that is straining under a plethora of burdens such as surging inflation, tangled supply chains, stumbling stock prices, etc., even prior to the Russian attack on Ukraine.  

This invasion will only further complicate the potential solutions for the pandemic-effected global economy. And even the Russian economy is not immune to this crisis. The impact of sanctions is apparent in terms of the Russian ruble plunging to a record low and people standing in rows in front of ATMs to draw money from the embattled banking system.

India is no exception to this storm: immediately following the attack, its stock indices crashed nearly 5% and the rupee dipped close to 76 a dollar. The banking system is already facing the pinch of sanctions imposed on Russia:  payment settlements due from Russian importers have halted and are likely to be delayed further due to its expulsion from the SWIFT payment system.  

India is, of course, not that dependent for its petroleum products on Russia, but in the mela of traders from Europe frenetically trying to locate alternate sources, oil prices are all set for a rise. Even freight rates are likely to rise, which in turn are likely to make our exports less competitive. Even locating alternate sources for fertilizers and sunflower oil will pose a challenge for India. All this may drum up India’s import bill. This will not only worsen the trade and current account deficits but also fuel the inflation growth, disturbing the budget maths for growth and fiscal deficit. 

Despite all this, it is unlikely that the prospect of escalating violence and a heavy toll on human life and property in Ukraine be ruled out unless the US and its allies bring the issue of NATO’s expansion on the discussion table, which it has been all along categorically refusing to do. Thus, even diplomacy appears to have lost its steam, yet there is no other way for the Western powers except to strike a deal with Russia for halting the human tragedy in Ukraine.

This whole issue indeed raises a more fundamental question: time and again, the UNSC is failing to be effective in maintaining world order. It is not able to come to an agreement even on most fundamental things. Russia’s invasion of Ukraine is a violation of the UN Charter, yet it remained ineffectual. Is it not time for reforming it? It is perhaps time for India, to deeply engage itself in debating these issues and mobilize global voice against these failures and evolve a new system that works better.