russia: The new phase of conflict across continents is hot for Russia, cold for the West

The United States wants to weaken Russia, US Defense Secretary Austin said during his visit to kyiv in late April. It was a frank statement of the US war aim in Ukraine. Ukrainian forces are fighting, Russia is bleeding, the United States and other NATO forces are pursuing their cold war goal of dragging Russia into a hot war, while its own direct part remains comfortably cold. Collateral damage? Developing countries see prices soar, interest rates rise to contain inflation and growth, vanish.

Western powers continue to provide Ukrainians with an endless supply of weapons and fuel to boast about. Ukraine is the lion of Europe, Boris Johnson told Volodymyr Zelenskyy, and added, for good measure, “And you are his roar”. Lots of belligerent purrs and meows followed. Instead of trying to seek peace and end the war, Zelensky continues to fight.

meowing lion

When the Western powers supply arms to Ukraine, these pass either through the land border or through the port of Odessa. From the border, weapons must be transported by train. The Russians are keen to disrupt the arms supply to the war front in eastern Ukraine. So they bombard the port, the depots, the railways and the stations. Ukraine sees its infrastructure destroyed every day. But the lion continues to roar. The British have always been known for their intelligent breeding and training of dogs. Obviously, the world underestimates their skills with feline species.

Ukraine and Russia are the main wheat exporters. Their supplies have been cut off. Russia and its ally, Belarus, are major exporters of fertilizers and fertilizer inputs. The boycott of their products means there is a global shortage of fertilizer in places as far away as Brazil. Ukraine is a major producer of sunflower seeds. Sunflowers aren’t blooming anytime soon in Ukraine. Combined with a palm oil shortage in Southeast Asia, leading to an export ban in Indonesia, cooking oil is in short supply and prices have soared. Bread and biscuits are made from wheat flour and palm oil. The prices of bread and biscuits are rising.

The war pushed oil prices up to $130 a barrel. Prices have cooled since then. But the Russian energy boycott has driven up the prices of oil, gas and coal everywhere else. The International Monetary Fund (IMF) has carefully estimated how many percentage points of global growth will be slashed by higher oil prices.

As it stands, the pandemic has reduced employment levels and increased poverty across much of the developing world. Now, the economic fallout from the war, combined with the disruption of global supply chains that wind through one or more sites in China, have further accentuated these effects.

In the United States, many people have withdrawn from the workforce and there is a labor shortage in most industries. It drives up wages. Rising energy prices helped push the inflation rate to a 41-year high of 8.5% in March. The US Federal Reserve is determined to raise its key rates throughout this year and next.

Higher interest rates in the United States mean a relocation of capital from emerging markets to the country of origin. Many funds operate with a mandate to achieve a particular risk-adjusted rate of return. As the possibility of inflation and global economic disruption threaten emerging market growth and US Treasury yields climb, portfolio capital is rushing home.

Guns against climate change

Portfolio investors have staged a $20 billion net outflow from India since January. The Reserve Bank of India (RBI) tried to contain the fall of the rupee by spending some $32 billion of its reserves. And it has been forced to raise rates, stem further capital outflows (the higher the interest rate differential between the rupee and the dollar, the greater the incentive for capital to move) and curb the inflation. This will affect growth.

Misery in the world’s poorest regions never threw much cold water on Cold Warrior’s enthusiasm. The war in Ukraine sent the stock prices of Lockheed-Martin, BAE Systems, Raytheon and other arms manufacturers skyrocketing.

The United States is shipping its decades-old Stinger and Javelin missiles to Ukraine, freeing up physical and fiscal space to replenish those stockpiles with new-era weapons. Defense company CEOs would have big dry cleaning bills because they can’t stop salivating and dribbling over their suits as defense budgets continue to rise in country after country. Europe is not too sure of being able to outsource defense to the United States. Neither Japan nor South Korea. Each nation increases its defense budget.

As the Cold War returns with a vengeance and makes the developing world bear the cost of the new asymmetrical Cold War, it is time for a new bloc of non-aligned nations to speak up and tell the rich world to stand down. The world needs a greater proportion of the world’s rich GDP to be spent on sucking carbon dioxide from the atmosphere and averting climate catastrophe. Do not spend to weaken Russia.

The opinions expressed are those of the author