Russia’s ‘raid’ on Ukraine rattles world peace, finance

Russian President Vladimir Putin may not have Viking blood running through his veins, but his decision to invade Ukraine on the flimsiest of reasons, with some bordering on falsity, seems cut out of the mold of how the Norsemen who set foot on Russian soil in the Middle Ages went about their murderous raids.

In 840 CE the Scandinavian Vikings—who were known in Eastern Europe as “Varangians” or “Rus”—established Viking rule over Slavic tribes in what came to be called Kievan Rus. The first modern state in Russia was founded in 862 CE by a Viking, King Rurik of the Rus, who ruled Novgorod. Over the years, the Rus expanded to the city of Kiev, and the Kievan Rus kingdom became a powerful empire in Europe, reaching its peak under Vladimir the Great and Yaroslav I the Wise.

Being a Viking meant going out on a sea voyage “of pillage and piracy.” Vikings are raiders and pillagers who were most feared in those dark times. They showed no pity for people they conquered and are known in history as wantonly destructive and nihilistic races, according to war historian John Keegan. He narrates: “Their raiding and plundering ways were something that even the Mongol hordes and Tamerlane didn’t do.” Sounds familiar?

Putin says that they invaded Ukraine to protect his country. From what? I wonder.

Russia’s multi-pronged invasion of Ukraine has thrust the country into a conflict that many on the European continent thought to be one for the books that could cause an unimaginable humanitarian crisis. Nearly half a million people have fled to neighboring countries as fighting erupted on several Ukrainian cities on Thursday last week, while black smoke was seen rising from a military airport in Chuguyev near Kharkiv, Ukraine’s second-largest city.

All diplomatic channels have failed to avert the worst. Now Russian troops are waging protracted combat with Ukrainians, a culmination of years-long conflict between the two nations. It has now sparked an extreme security crisis in Europe not seen since the Cold War.

Putin’s rhetoric, which has also intensified to include direct reference to his nation’s vast nuclear stockpile, has placed Russia on its highest state of alert, forcing an appraisal of the equilibrium that is meant to keep nuclear-armed countries from destroying themselves and the world.

Maura Reynolds, senior editor of Politico Magazine, recently interviewed Fiona Hill,  former official at the United States National Security Council specializing in Russian and European affairs. Hill told Reynolds:  “Sadly, we are treading back through old historical patterns that we said that we would never permit to happen again.” She was referring, not only to Western business leaders who turn a blind eye on how they are helping build a tyrant’s war chest and are enamored with an autocrat’s “strength,” but also to the tendency of politicians to point fingers for personal gain, instead of working together for their nation’s security.

But the war which Russia projected to be short and sweet has had a tremendous downside. CNN reported that the country is now scrambling to prevent financial meltdown as its economy was slammed by a broadside of crushing Western sanctions imposed over the weekend in response to the invasion of Ukraine. Putin held crisis talks with his top economic advisers after the ruble crashed to a record low against the US dollar. The Russian central bank has more than doubled interest rates to 20 percent, and the Moscow stock exchange was shuttered for the day. It will stay closed Tuesday, the central bank announced.

Eric Jurado, a US-based hedge fund manager, sees a broader negative effect of the Russia-Ukraine conflict. In an interview with BusinessWise, Jurado says that Russia’s unprovoked incursion into Ukraine could result in what could be protracted foreign affairs and economic crises.

“Russia’s biggest influence over the global economy is in commodities—it’s the world’s second-largest natural gas producer and the third-largest oil producer. Any extended disruption to global order is expected to put severe stress on energy prices, which were already surging as waning pandemic restrictions have unlocked pent-up demand: On Thursday, international oil benchmark Brent crude jumped 9 percent to nearly $106 a barrel, the highest in nearly eight years. Futures for Europe’s wholesale gas price surged as much as 69 percent to €142 per megawatt-hour—it was only €16 one year ago.”

Jurado narrates that Russia and Ukraine account for 14 percent of the world’s wheat production and nearly a third of all wheat exports. “Wheat futures listed in Chicago rose 6 percent to $9.26 a bushel, the highest price in nearly a decade. The two countries also account for a fifth of global corn trade.”

The European Union, Japan, Australia, Canada, Germany, and the US all launched various sanctions against Russian banks and financial firms Thursday. Collectively, the country’s financial sector holds $1.4 trillion in assets. The UK proposed kicking Russia out of the SWIFT international payments system. Meanwhile, The Economist warned that an escalating battle of economic sanctions could lead Russia to withhold neon gas (which is used for manufacturing semiconductors, with 70 percent of the supply coming from Ukraine), ban Western airlines from flyover routes to Asia, or even consider cyberattacks against US or EU financial institutions.

“Geopolitical tension is raising oil prices, meaning the inflation that was deemed transitory a few months ago could last even longer,” Trevor Greetham, head of multi-asset at Royal London Asset Management, told the Financial Times. “A big inflation impact in the US and Europe means central banks could raise interest rates further than anticipated, which brings a risk of economic stagflation.” This could mean higher fuel prices in the Philippines. As war upsets the global supply chain,  disorder in the global supply chain produces shortages and encourages price speculation. High oil prices may continue for the long term. Aside from Russia’s Ukraine invasion, global oil supplies systemically fall below global demand. Any economic expansion anywhere in the world will push demand even more.

Jurado says that the Philippines is heavily dependent on imported oil and could not handle oil prices exceeding $100 a barrel, posing a hindrance to economic growth.

The automatic and most frequent “solution” to expensive oil is to suspend the collection of the product’s excise taxes. This might be marginally workable in the short term if high oil prices last for only a few weeks. If high oil prices last for months or years, the problem becomes magnified. High fuel prices mean that the government will be collecting more fuel taxes. That is not necessarily a bad thing because it helps narrow the deficit and minimizes the need to borrow. In consumers’ eyes, however, this is a negative consequence because it hits them in the pocket.

The country’s heavy borrowing to meet its pandemic response needs is most unfortunate, causing its debt-to-GDP ratio to bump against the limits of its sustainability. As Jurado explains, “If the country borrows more, it is inching closer to a debt crisis. If the collection of excise taxes is suspended on fuel products, that will bring only a small margin of comfort for consumers. But, it will cut a major source of revenue for the government, at precisely the same time that the people are demanding the government spend more for other needs. If the country cuts this source of revenue, the deficit will grow and the need to borrow will be more compelling. For a small margin of comfort that will be given to consumers, the country invites a debt crisis further down the road.”

Indeed, Putin’s “special military operation” in eastern Ukraine threatens the economic recovery of the whole world. The Russian assault on Ukraine deserves the swift condemnation it received from several nations, and the Ukrainian people need the world’s support.

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