As Britain comes to terms with the death of Queen Elizabeth II after 70 years on the throne, the BBC’s radio and TV channels have been packed with predictably reverential homages and something more unexpected – fulsome coverage of Charles III and assertions of his rightful ascendancy to the throne, with many ceremonies asserting Charles as king. It’s almost as if the nation might have doubted – challenged even – his claim to be the new monarch. But Britain doesn’t do revolutions, at least it hasn’t for centuries – Charles is the new king. Revolutions are for elsewhere, other sectors.
The Russia-Ukraine war started with gunfire but swiftly turned economic, as the US used the only weapon it felt able to deploy – its currency. This is bringing about a revolution in the global energy trade, albeit one that will happen across years rather than days or weeks. This war of tanks and missiles has spilled into heating and cooking, and will further spill over into what the world regards as and uses as a reserve currency. For now, the US Dollar is top dog, close to its highest in two decades against a basket of other currencies . As the Financial Times says, “the currency still has an outsized influence on the global economy given its dominant role in global trade and finance”.
We have a sovereign debt burden that is a catastrophe waiting to happen; emerging markets are burdened by huge Dollar-denominated debts which are just getting bigger as the US pushes interest rates higher to stifle inflation. The International Monetary Fund says that some 20 countries have debt that is trading at distressed levels. Heavily-indebted Sri Lanka has already gone bust amid considerable social mayhem; Pakistan is looking vulnerable.
Another developing chaos concerns Europe’s energy supply as it enters the northern hemisphere’s winter. From a dependency on Russia for 40% of its gas needs, Europe will need to revolutionise its energy sources if it is to achieve its declared aim of cutting gas imports from Russia by two-thirds within a year. How will it do that? By a combination of (it hopes) in the short-term finding new suppliers of liquefied natural gas (LNG), while over the longer term it will return to some fossil fuel use from its own resources (coal especially), more nuclear, and building more renewable sources (wind and solar). Meanwhile heads of European States are wrangling about imposing a price ‘cap’ on Russian gas exports, which would be difficult to police, and to which President Putin has said he would then halt all energy supplies to the European Union (EU). Despite sanctions, EU member states have spent more than €91 billion ($92 billion) on Russian fossil fuels since the war started on 24 February.
The smooth transition of the monarch in the UK implies constancy, but change is more familiar in today’s world.
Putin’s Pyrrhic Victory?
Despite excitable Western media reports of Ukraine’s retaking about 3,000 square kilometres of territory seized by Russia, the military odds remain stacked in Russia’s favour. At the start of the conflict Russia had four times Ukraine’s standing military personnel, more than six times the armoured vehicles and nine times the aircraft. The determination and willingness to fight seems to favour Ukraine, but we only see pro-Ukrainian sources; any Russian deserter or captive is readily displayed on Western media. We do not know what President Putin’s war aims are, but he has staked everything on being able to declare some kind of victory. Equally, Ukraine’s President Zelenskyy has vowed that only a full restitution of all territory taken by Russia (including Crimea, annexed in 2014) would be enough to gain a ceasefire. This war will drag on through 2023, with both sides gaining and losing territory in a messy slugging match.
But even if he succeeds on the battlefield, President Putin’s larger ambition – toppling US global economic hegemony – will remain unfulfilled. For him, Ukraine is not enough. President Putin is gambling – not only for domination of Ukraine, but that he can pivot his country’s most valuable resources away from the West and towards the East. Russia might secure a short-term victory but it could turn out to be pyrrhic – won at too great a cost to be worth it – over the long term. According to Elina Ribakova, deputy chief economist at the Institute for International Finance, “Russia’s authorities might be laughing now, but they will become excessively dependent on China and India for energy exports as Europe pivots away from Russian gas in the coming one to two years. This is why Russia is using its leverage now, as it knows soon it will no longer be as effective in the energy wars”.
Cuddling up to China
It’s conceivable that Ukraine is not the real target for President Putin. His ambition is much bigger – the true enemy is the Dollar. For that, tanks and missiles will not be enough. He needs allies, more diplomatic muscle.
Who better than someone who shares his ultimate ambition?
President Putin has spent much of what spare time he has in recent months forging closer relations with China, discussing the formation of an alternative international reserve currency with other members of the BRICS group, and proposing to launch Russia’s own version of the London Bullion Market Association’s ‘good delivery’ gold bar. Such challenges to the West have nothing to do with Ukraine but they are just as deliberate, just as strategically threatening as if Russia had attacked a NATO member.
So we should pay attention to what little news we get from Uzbekistan later this week. Chinese President Xi Jinping and Russian President Vladimir Putin are expected to meet in Samarkand, Uzbekistan, at the Shanghai Cooperation Organisation (SCO) summit taking place September 15-16. Undoubtedly Ukraine (and progress towards the Dollar’s demise) will be on the agenda.
Russia and China declared a “no limits” friendship before the start of this year’s Winter Olympics; what that means is being proved. Russia’s energy giant Gazprom has just signed an agreement with China to settle payments for its gas exports in Yuan and Roubles instead of US Dollars. This is a remarkable event; crude oil has been priced in Dollar terms since 1973, when the US agreed to offer armed protection to Saudi Arabia. India too is buying lots of heavily discounted Russian oil; its imports of Russian fossil fuels have risen by more than €64 million a day since March. Only the US, Australia and Canada currently have a complete embargo on Russian fossil fuels – but then, they have plentiful supplies of their own. Bloomberg’s Javier Blas has written that for “now, at least, energy sanctions aren’t working”. On several fronts Russia seems to be winning the battle for strategic partners, whether or not its troops are suffering a (probably only temporary) setback.
Keeping the lights on
On 3 August 1914, one day before Britain declared war on Germany, the British foreign minister, Sir Edward Grey, said the “lamps are going out all over Europe, we shall not see them lit again in our lifetime”. In Berlin, the lamps are already darkening; at least 200 monuments and public buildings are no longer illuminated at night. As the temperatures drop the fragile unity of the West’s opposition to Russia and its allies (more than a dozen of whom have joined this week’s Russia-led Vostok military exercises in the Far East) will be tested to the extreme. Europeans can live with dark streets; cold homes will be trickier.
Russia’ s war against Ukraine is offensive to Western liberal values of toleration, self-determination, negotiation rather than conflict. But there is no end in sight that might satisfy those values. Rather it is merely the precursor to a much bigger battle – with the US Dollar the central target.