By Richard Martin
We need to talk about the economic impacts of the Ukrainian invasion on Russia and, by extension, China. Key strategic takeaways:
1) Russia is heading toward an autarkic situation, with trade limited to China and other countries in the Axis of Lies. In essence, it is in the process of becoming a huge North Korea.
2) Russia needs Ukraine for its resources and productive capacity (Lebensraum).
3) China is crucial to Russia to provide markets, access to capital, and a conduit for advanced technology and outside innovation.
4) The United States must lead the West in cleaving China and Russia apart and play them off against each other, as was achieved with the Opening to China strategy of the 1970s.
5) The United States and Canada should stop tilting at windmills – literally and figuratively – and ramp up production and export of hydrocarbons, especially gas, to supply Europe, Japan, and other friendly and like-minded nations.
Most Western countries have imposed a raft of economic and financial sanctions on Russia since the invasion began on 24 February 2022. These are in addition to the sanctions that had been imposed since the annexation of Crimea in 2014.
Depending on the country, measures run the gamut from cutting Russia off from the Swift payment network, seizures of financial and real assets of regime members and oligarchs, embargoes on oil, gas, and petroleum products, trade interdicts, massive tariff increases, banning of Russian civil aviation, and other less prominent sanctions too numerous to mention.
So much for state-level sanctions. Transnational companies have also announced they are pulling out of Russia or will do so imminently. Many of these have decided to liquidate their investments in Russia, or simply abandon them and take massive write-downs on their assets. The most prominent of the latter are some of the biggest oil and gas companies in the world, such as Shell, BP, and Exxon.
On the other side of the equation, the Russian government has been banning foreign media outlets while threatening draconian prison sentences on anyone contesting the official Kremlin line on the invasion. This includes foreigners, and some of the most credible and courageous news organizations are being forced out or cowed into more insipid coverage.
To add to the informational chaos, Netflix, Facebook, TikTok, and other social media platforms have either ceased operating in Russia or have been banned. Putin and the Kremlin has threatened to completely cut off the country from the Internet. This will give the Kremlin full rein to poison the minds of Russians and indoctrinate younger generations even more than is already the case. Russia has adopted a strategy of information chaos with the goal of generating cynicism and nihilism internationally and complete obedience internally. When combined with autarky and complete top-down control of the economy and country, Russia is well on its way to realizing its brand of fascist nightmare.
While all this is happening, China, Russia’s non ally “strategic partner,” has continued to supply resources and maintained trade with Russia. In my estimation, this relationship will only get closer. I assess that Russia is headed for autarky, with China constituting Russia’s principal market for raw materials while providing access to technology, high tech manufacturing, and investment capital. Chinese companies have already started circling abandoned or divested Western enterprises like vultures. The pickings should be reasonably good for China.
This puts the invasion of Ukraine in a different light. In effect, Russia needs Ukraine as Lebensraum (living space). Yes, I use that term in the very specific sense of Nazi Germany. As many commentators have pointed out, Ukraine has tremendous resources, including agricultural, industrial, and other economic capacity, actual and potential. Whether Russia can fully exploit that potential will depend on the technical, financial, and industrial support the country receives from China in addition to what it can muster internally.
This assessment suggests a few inferences. First, to be successful, Russia’s invasion of Ukraine must end in its conquest and incorporation into the Russian economy and sphere of influence. I believe that is the ultimate war aim of Putin and the Kremlin and will lead to the near complete reconstitution of the Russian/Soviet Empire. This would explain Putin’s willingness to sacrifice so much military combat power and his readiness to destroy civil infrastructure and housing. We should be on the lookout for deliberate preservation of industrial and other productive assets by Russian forces with a view to restarting production as quickly as possible post-occupation or conquest.
Second, China has a crucial role to play in assisting Russia in its ultimate intent of reconstituting its territorial empire and in sustaining Russian autarky. China can give Russia access to markets and innovation. There is also considerable opportunity for China to act as an indirect channel for technology and sales of commodities and raw resources. Western powers, starting with the United States, should find a way to cultivate improved relations with China, like what was achieved in the 1970s with Nixon-Kissinger opening to China. As unpleasant as that may seem, the West has no choice but to cleave China from Russia to relieve the pressure on Eastern Europe and give some chance of success to Ukraine’s resistance.
Third, Western nations with significant hydrocarbon resources (i.e., oil and gas), must replace Russian supplies as quickly as possible. There are two aspects to this approach: A) The need to ramp up production in the US and Canada, especially of gas, and develop the supply chain to get the gas from the ground to LNG terminals quickly and effectively; and B) The imperative to develop alternate sources of oil and gas for the free world, such as the Iran, Venezuela, and other locations, as repugnant as that may be. During the Cold War, Persian Gulf oil was essential for the prosperity and security of Europe and the Far East. Now is no different.
© Richard Martin
Richard Martin was an infantry officer for over 20 years in the Canadian Army. He is currently an entrepreneur, strategic advisor, and information warrior focusing on extracting valuable information and signals from chaos and noise.
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