Vladimir Putin may have failed to take Ukraine in a swift military strike, but in one regard his war has already been a success. The global economy is splintering, and the West’s conflicting imperatives—as well as those of the developing world—are slowly revealing themselves.
Putin has a long record of trying to sow discord, using misinformation to power sock puppets in the Brexit referendum and political campaigns of Donald Trump, among other examples. And though his latest gambit has backfired spectacularly in terms of weakening NATO, from the standpoint of economic division, the war on Ukraine may prove his crowning achievement. The fault lines are emerging.
There are at least four groups of diverging interests. In Ukraine and the Baltic states, defeating Russia is literally existential. But in Germany, France and Italy, the calculation is very different.
When it comes to imposing energysanctions with teeth, Germany and Italy are dependent on Russia for roughly half of their natural gas imports and don’t have the infrastructure to implement a quick substitute. Berlin has even drawn up a three-phase plan if Russian gas is turned off, telling carmakers they may have to shut production lines to ensure families can heat their homes over winter. The Bundesbank has warned of recession if supplies are cut.
Italy has started rationing energy in public buildings. And France is equally leery, knowing from the Gilet Jaunes (yellow vests) protests the kind of social unrest that can result from high fuel prices. While Europe’s biggest powers say they plan to wean themselves off Russian imports, they need time. Hence renewed attempts to negotiate a ceasefire, even if it means asking Ukraine to cede even more territory to Russia.
Across the English Channel and beyond the Atlantic, the economic consequences of the war (inflation notwithstanding) are looking less critical. The US is unwavering in its support for Ukraine’s resistance—not only to push Russia back to its borders but to send a clear message to China about its territorial ambitions in Taiwan. But it helps that America’s economic considerations happen to align with its geopolitical goals. Supplying arms and munitions promises a bonanza for its powerful military industrial complex, while America’s relative self-sufficiency on energy and food insulates it from the worst repercussions of the war.
Moreover, there are longer-term financial benefits that may flow its way. As Republican Senator Pat Toomey of Pennsylvania said at the World Economic Forum in Davos last month, “don’t take this the wrong way, but there is a huge economic opportunity. Europe is not going to be independent of natural gas. Why not burn American gas rather than Russian gas?”
In the UK, with little direct exposure to Russian gas and similarly aligned with President Joe Biden’s hard stance on Kremlin aggression, some business leaders think British industry can substitute for closed German factory lines. Not to mention that the UK is home to some of the biggest defense contractors in Europe.
But while Europe wrings its hands and America and the UK see advantage, much of the rest of the world faces a grimmer prospect thanks to Putin’s war. Russia is threatening a global food crisis by blockading the Black Sea, raising the prospect of a humanitarian catastrophe in the developing world and exposing the fragility of supply chains yet again after the initial protectionism of the pandemic. Export restrictions on food staples have been imposed by 19 countries.
In all, Beata Javorcik, chief economist of the European Bank for Reconstruction and Development, estimates that 17% of the world’s traded calories are now landlocked.
At Davos, she warned of riots and social upheaval as rocketing food prices bankrupt governments in the developing world. Famines will indeed be blamed on Putin—but he is offering a simple way out: drop the sanctions. That’s arguably an impossible offer to an increasingly divided world.
Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.