Impact of Russia’s War in Ukraine

The armed conflict between Russia and Ukraine is presently the focus of world attention with real time reporting from the conflict areas. According to media reports, Ukraine’s military has defied expectations and slowed the Russian invasion. The Western community has responded to the Russian onslaught with sanctions on Russian banking system and international trade, as well as military and political support for Ukraine. As the world watches the extreme devastation caused by the Russian attack, and over 10 million Ukrainians have been forced to become refuges in other European countries, the Nuclear Proliferation Treaty and the effort to end nuclear weapons has also come under stress as a consequence of the Russian invasion.

Russia’s invasion of Ukraine is the biggest threat to peace and security to Europe since the Cold War. It denotes Moscow’s ambition to dominate Ukraine politically, militarily and economically. Since the nineteenth century modern Ukraine has maintained a political and linguistic identity which is distinct from Russia. However, the Russian elite continue to doubt the legitimacy of the Ukrainian state. The story of Ukraine also tells one of a developing “Ukrainian identity” through its education, official memory, media and legislation. Voting patterns in Ukraine’s Presidential and Parliamentary elections suggest an increasing sense of independence, but a divide between eastern and western regions also exists.

With the collapse of the Soviet Union, Ukraine gained its independence and began to structure a new political system. The people of Ukraine overwhelmingly wanted a sovereign state. Soviet nuclear weapons were also deployed in Ukraine before the break up of Soviet Union. Its political outlook proposed a call for Ukrainian integration with the European Union (EU) and the North Atlantic Treaty Organization (NATO). In 2002, NATO allies met in Prague with an attempt to define its agenda. The meeting agreed on that task ahead for NATO was to combat terrorism and end proliferation of weapons of mass destruction. President Putin’s ambition to cut back on NATO was unsuccessful and Ukraine held military exercises with the alliance in order to receive a special status as the bloc’s closest ally.

Many political and economic experts argue that Russia’s aim to invade Ukraine is to dissuade Ukraine from securing membership of NATO. Moscow claims that NATO’s expansion eastward is a threat to its security and demanded that Ukraine should not enter the alliance. Another agenda for the Kremlin’s invasion of Ukraine was aimed at degradation of Ukraine’s military capabilities and force it to announce that it would not seek membership of NATO. To the surprise of Moscow, Ukrainian armed forces have put up an aggressive defence against the Russian invading forces. Russian forces have failed to occupy Kyiv and Kharkiv in the last three months. Despite heavy bombardment, missiles attacks and air strikes, the Russians to date are unable to take control of Mariupol as well.

As the crisis unfolded, Russia changed its objectives of war and pulled back from Kyiv and declared that its major goal was to seize Donbas, or the Ukrainian eastern region of Luhansk and Donetsk. Along with gaining control of the eastern region, Russia wants to create a land corridor from the south coast; from Crimea to the Russian border. Earlier in 2014, Russia had annexed Crimean territory and stabilized its position and secured the approach to the Black Sea.

Economic Outlook

A wide variety of Western sanctions were announced, hoping that it would seriously affect Russian economy. The Russian Central Bank has had its assets frozen and the United States has banned Russian imports of oil and gas. The United Kingdom aims to exclude Russian banks from UK’s financial systems and hopes to cut dependence on Russian oil by the end of 2022.  Despite Western restrictions on Russia, its oil exports were approximately 3.6 million barrels a day in April, compared to 3.3 million barrels before. Though countries like Germany soon after the invasion had announced a halt on Nord Stream pipeline from Russia but most Russia gas continues to flow into Europe.  Germany now argues that it could not afford to cut of Russian supplies as an embargo on goods such as gas would not end the Ukrainian war. On the contrary it would cause a crisis at home.

It seems that Russia has been able to avoid an economic collapse. The country has managed to avoid defaulting on its foreign debts, but revenues from sale of oil and gas alone may not help support its economy. Russia’s giant industries, such as steelmakers, chemical manufactures and car companies are feeling the brunt of sanctions. More than thousand international companies have suspended trading with Russia and the UK, US and the EU have banned export of dual-use goods – items with both a civilian and military use to Russia. Economists in Russia feel that sanctions have been more “aggressive than expected” and that Russia is being excluded from Western supply chains.

The sanctions imply that Russia will have limited access to international financial markets, lower GDP growth and pay a high cost of borrowing. Moscow fears that over 200,000 jobs were at risk in the country and unemployment rate could increase.  There has been an exodus of tech workers, and shortages of food items in supermarkets. The Russian Federation might encounter shortage of food and fertilizers in future as a result of economic sanctions according to some analysts.

The objective of sanctions was to end aggression against Ukraine. Historically, sanctions have been used to exclude the country, against which they are imposed, from the global financial community. Since the invasion began, the Moscow Stock Exchange has not resumed global trading and Russian companies have been delisted from global indices. Sanctions are subject to the rules designed by the international system, and include the suspension of the ‘most favored nation’ (MFN) clause in the WTO. Due to the reason that trade as a share of Russian GDP is close to 50%, wide ranging trade sanction could have a significant effect on economic activity.

Nearly two months into its Ukrainian invasion, Russia’s oil exports to Europe and nations such as India and Turkey have risen, thereby avoiding a liquidity crisis. The Russian Central Bank has readjusted the liability structures and will provide liquidity to the banking system, thereby allowing the financial system to survive. Despite being hit hard, Russia is still able to sell oil and gas at high prices, in its own currency in international markets, mostly in Europe. The increase in the price of oil since the invasion started has benefited Russia. Many analysts argue that unilateral sanctions often do not achieve their goal since there are always alternative buyers and sellers. Energy experts say in the long run the same countries that are sanctioning Russia are undercutting their efforts by buying oil from it. They fear that a total ban on oil and gas imports from Russia might lead to a recession in European economies.

“This is classic negative supply shock,” asserts a report from University of Chicago and these shocks increase inflation globally and reduce output. It is this inflation that is leading to a hike in oil and gas prices in several emerging markets and the EU. Consequently because of higher prices there is lower growth.  Eliminating Russian oil could cause every bit of pain in EU countries, possibly by driving up prices from $110 to $185 a barrel.

Nuclear Deterrence under Threat

Another dimension of the Russian invasion is nuclear nonproliferation and disarmament. The most significant risk from strategic competition between the Western Allies and Russia is unintentional escalation. Probability of deployment of nuclear weapon is potentially a grave threat for non-proliferation effort. Putin’s catastrophic war has increased tensions between NATO and Russia, and undermined prospects for nuclear nonproliferation and disarmament. The Russian aggression against Ukraine violates the 1994 Budapest Memorandum in which Russia, the UK, and the US extended security assurance to Ukraine. In response, Ukraine had agreed to sign the nuclear Nonproliferation Treaty (NPT), and to dismantle its nuclear arsenal. The contract in the NPT comprises obligations: countries’ that possess nuclear weapons take steps to prohibit the transfer of nuclear weapons to non-nuclear states, and non-nuclear weapon states agree not to manufacture or acquire nuclear weapons. Ukraine agreed to sign NPT and to become a non-nuclear state and dismantle its nuclear arsenal. The Russian invasion undermines the NPT and reduces incentive for disarmament making it difficult to end nuclear proliferation. Russia’s threat to use nuclear weapons stirs a debate within Ukraine that it should not have de-nuclearized.

Russia’s action may influence Ukraine’s decision towards nuclear proliferation. This conflict may convince Ukraine to seek nuclear weapons and withdraw from the international nonproliferation regime. However if it did so, it will have dire consequences for Ukraine.

The Ukrainian conflict opens up a debate on benefits of disarmament. The world is asking how Russian actions could affect nuclear non-proliferation. The threat of inter-state conflict has repercussions for the international system and more countries could seek nuclear weapons in order to deter invasion from a major power.

It is difficult to measure the influence of nuclear weapons from a conventional war on maintenance of peace. Arms control experts argue that deterrence is “neither automatic nor static,” meaning that it discourages war between nuclear armed states without having to use nuclear weapons, so that the deterrence stability between the adversaries is maintained at all times.

President Putin told the UN Secretary General that he was considering negotiated talks as a way to end the war. Ukrainian President Zelensky however made it clear to him that there would be no talks until Russia withdrew from all Ukrainian territories such as Mariupol etc and Ukrainian peace demands would involve the withdrawal of Russian forces from advanced positions. It was noted that Ukraine could become a non-aligned and non-nuclear state and would not allow any foreign military bases on its territory. It is difficult to predict at this stage whether Russia’s war with Ukraine would get a negotiated settlement. It would depend on the demands presented by Kremlin.