Ukraine crisis: The war that is changing relations, rules
S Gurumurthy, Chairman, VIF

Having pushed Ukraine into war, the US does not know how to save it. Having started it, Russia does not know where to end it. Having been pushed into the war, Ukraine does not know how to come out of it. It accuses its adversary Russia saying it is an invader and charges that its friends are betrayers. The UN Security Council keeps on meeting without any result. The global TV network for which the war is a reality show, a boon, keeps demonising Russia and valourising Ukraine. What the desperate Ukraine needs is a ceasefire. It is running from pillar to post — from India to Turkey to France, to Israel, to Japan — pleading with them to talk to Putin for a ceasefire. Everyone is talking to everyone else.

But Biden is not talking to Putin and Putin is not talking to Zelenskyy. This is the sad state of the efforts to stop the war. Poor Zelenskyy. What he is now saying to end the war — that we will not apply to join NATO, we will remain neutral — had he said that before, the war would not have started. Russia has staked everything – its goodwill, its economy and its last atom bomb – like a jihadi, making the West shudder to think of taking it head on. But the war is bound to end. When is the only question. When it does end, Russia would have got all that it wanted and Ukraine would have given all that it had denied. And the West would have realised and the world would have known how needless the war was. But, what kind of world will the pointless war leave behind?

A world of distrust

The worst outcome of the Ukraine war is that it has shown that anything and everything can be politicised and weaponised — from financial transaction systems like SWIFT, to banks, private companies like Google to civilian airspace. SWIFT is a high security neutral financial network created by an NGO and used by 11,000 financial institutions in 200 countries. By jamming this critical network, the Ukraine war has destroyed the most basic of mutual trust among nations. Take India. The share of Google in Indian email accounts is 62 per cent. Were India to fall foul of the West, the entire country can be brought to a halt by Google. Each nation or group of nations will now look for alternatives.

Another message is that even Switzerland, which remained neutral in the two world wars, can’t remain neutral in a West vs others scenario. A telling message of the Ukraine war is that no country can trust even the global commons. It leaves behind a world of distrust. It will increasingly force each nation to be on its own — atmanirbhar being the Indian idiom for it, the very antithesis of globalisation. An alternative to SWIFT is already underway with some 63 central banks collaborating on a new payments system.

US leadership dented

The Ukraine war seems to have dented the US global leadership in more than one sense. First, it has delivered the most telling message that the US can’t protect its own protégé. Next, that it had to solicit a virtual meeting between Biden and Xi Jinping (XJP) to get China to the US side or to end the war itself, exposed its weakness. Donald Trump would perhaps have handled Russia and Ukraine differently, not allowed China to be the proverbial monkey between two tigers, the US and Russia.

Anyway the two-hour talk Biden had with XJP did not go well for him. XJP reportedly snubbed Biden saying “those who tied the bell to the tiger must untie it,” clearly blaming NATO for the war. XJP used the talk to advance China’s claim to be equal to the US, saying they should jointly shoulder “international responsibilities” for world peace and tranquility. According to a Chinese report, XJP seems to have said that one hand cannot clap, suggesting that NATO should have a dialogue with Putin and address his security concerns, implying NATO expansion as the issue. XJP, of course, has also spoken in support of the principles of sovereignty and territorial integrity of all states. He seems to have insisted on bringing the China-US ties under turmoil over a host of issues, including Taiwan, Hong Kong, Xinjiang and Tibet, on “right track” — something completely beyond the agenda of Biden on that day.

The US media had reported that Biden threatened XJP. On the contrary, he seems to have got snubbed. Biden’s effort to wean China away from Russia has failed at the minimum. If this is what the US got from China, The Wall Street Journal reported that Saudi Arabia and the UAE declined calls from Biden to ease oil prices unless the US supported them in Yemen and elsewhere. Arab allies of the US have refused to toe its line. Israel did criticise the Russian attack but its stand was so nuanced as not to take the side of the West. Turkey’s position is identical to Israel’s.

Al-Jazeera even sees a strong alliance between Russia and UAE. Another collateral setback to the US is Syrian president Assad’s visit (after 11 years) to UAE about which the US could only lament that it was “disappointed and troubled”. Syria and Russia are close. On top of it all, Saudi Arabia, whose oil has been priced in US dollars for five decades, is considering pricing it in Yuan for sales to China. One more important development. The Chinese foreign minister was invited for the first time to the meeting of the Organisation of Islamic Cooperation. These are not ordinary developments. The Ukraine war has undoubtedly eroded US influence over even its allies.

China’s Taiwan angle

China seems to have gained far more than it has invested in Ukraine. By subtly encouraging the US vs Russia scenario in Ukraine, China had ensured that the focus of the Biden regime was more on Russia and Ukraine and less on containing China. Being surreptitiously privy to and supporting Russia on Ukraine action, Beijing has gained an IOU from Russia if in future it has to move on Taiwan. XJP’s firm and equal dealing with Biden has dented the US capacity to confront China on Taiwan. If Biden had secretly conceded more to XJP on Taiwan as some reports say, China would have hit a jackpot.

Despite that, if the US had drawn a blank with XJP, it would have been a disaster for Biden. China’s Ukraine strategy seems intended to advance its efforts to grab Taiwan – its greatest ambition and top most priority of XJP. The Ukraine war has exposed the limitations of the US and the West to step in to save its non-formal ally. The Taiwan Relations Act only ensures defence supplies by the US to Taiwan and nothing further. In comparison to Ukraine, which the US recognises as an independent nation, Taiwan’s status is much inferior. If China makes a decisive move against Taiwan, the US could do very little given its show in Ukraine — to say nothing of the Afghanistan debacle.

India’s growing stature

Despite being part of Quad and with deep strategic partnership with the US, India’s neutrality, with an implicit pro-Russian tilt, was a calculated geopolitical risk India took at the very start of the Ukraine war. Subsequent developments not only won understanding but also acclaim for it. A displeased America had to concede India was an exception among its allies. Surprisingly, amid the raging Ukraine war New Delhi became the centre of hyper diplomatic activity. Scott Morrison, the Prime Minister of Australia, a Quad constituent, had a virtual meeting with the Indian Prime Minister, promised investments and said that the Quad nations understood India on Ukraine. Fumio Kishida, Prime Minister of Japan, another Quad member, paid his first official visit abroad to India. And keeping aside the differences between the two on Ukraine, he signed six strategic agreements and committed to investing $42 billion in the next five years. The Greek foreign minister was in Delhi on March 22 and 23 and the Oman foreign affairs minister was in Delhi for two full days, March 23 and 24.

China and India have had border clashes for the last two years. Surprisingly, its foreign minister Wang Yi is visiting Delhi on March 25 — a significant development. India’s independent position on Ukraine is itself a message to China that India would withstand US pressure. If it can lead to some trust and understanding between China and India on the borders, that can pave the way for an informal Russia-China-India axis for future. Naftali Bennett, the Prime Minister of Israel, a US ally, is making a four-day long visit to India in April first week at the invitation of “his friend” Indian Prime Minister Modi. India is boldly going ahead with the purchase of Russian oil amid US sanctions on Russia.

Though India has not voted for Russia, it has taken a firm position on the discovery of a bio-weapon facility in Ukraine funded by America. And America, despite loosely calling India shaky on the Ukraine war, has not applied the CAATSA law to stop the sale of Russia’s missile system to India. Undoubtedly, the Ukraine war diplomacy has shown India’s rising stature. The greatest tribute to India’s policies came from the most unlikely of quarters, Pakistan. Praising India’s foreign policy as free and independent, Prime Minister Imran Khan said, “India is allied with America and is part of the Quad alliance and yet it is neutral on Ukraine, imports oil from Russia despite US sanctions, because its policy is oriented to the betterment of its own people.”

Shift away from the dollar?

The war’s collateral impact may be on the US dollar and the global financial order itself. With the dollar-based globalisation already under stress, the role of the greenback in the global financial system may decline. The dollar power enabled dominance of the financial economy over the real economy, particularly the commodity economy. The US sanctions which are bound to affect the Russian oil sale, may also affect the US dollar.

The strength of the US dollar depended, said two Harvard economists in 2006, not on the laws of economics but on the laws of physics, which said a dark matter sustains the universe. The dark matter which sustains the dollar value, they said, is the insurance that the US system and geopolitical power provides to the dollar. That insurance is what is under stress since 2008. With the rise of Asia and China, the US dollar cannot be said to continue to have the same insurance value. The share of USD in the global forex reserves has touched a 25-year low of about 59 percent.

If important nations shift to their own fiat currency based trade like the Rupee-Ruble arrangement between India and Russia and if an alternative to SWIFT can be found, the move away from dollar can accelerate. For instance, if India and China begin paying for their trade in their fiat currencies rated to the US dollar and at the year-end pay the net in terms of the dollar, the overall demand for the dollar will contract rapidly. It is the demand for the dollar that sustains its value. These kinds of developments post the Ukraine war can have a far reaching impact.

To end, in just weeks the needless Ukraine eruption has disrupted the world as if forever. Thanks to it, the post-cold war world already stands on its head — disrupting old relations, making new ones, undermining existing power centres, creating new, multiple influence centres. Its impact will keep unfolding for a long time.

Published in The Indian Express on 25th March 2022

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