With Russia and NATO pitched in a contest over the fate of Ukraine and Crimea, it was inevitable for the G8 to be reduced to a group of seven. The ongoing military manoeuvres – protective (and provocative) NATO flights over Poland and the Baltic countries, Russia’s military exertions on the eastern border of Ukraine, and submarine exercises in the Arctic by the U.S. – are simultaneously reflecting and ratcheting up the tensions.
However, the noisy threats have smothered news of a more serious development with long-term consequences – on March 21, the prime minister of the interim government of Ukraine, Arseniy Yatsenyuk, signed the Association Agreement with the European Union (EU). Disagreements in Ukraine over whether the country should sign the agreement were, in fact, the trigger for the crisis which led, in short order to the ouster of an elected president, followed by the secession of Crimea.
By going ahead and signing the Association Agreement, suspending Russia from the G8, and threatening stricter sanctions, including financial sanctions, the NATO powers have announced their intent to isolate Russia for a long time.
The EU’s acceptance of the Association Agreement with an interim government stuffed with people placed there by the EU and the U.S., many of them with dubious ideological backgrounds, divests the NATO powers of all claims to the moral high ground – claims that anyway never had much credibility.
Instead, they have legitimised a new practice in international relations: externally engineered regime change is fine, so long as the West does it, as in Iraq or Libya. But anyone else forcibly changing national boundaries is not acceptable. It is another matter that the same NATO countries carved out Kosovo from Serbia and enabled the breaking up of Sudan into two countries.
So who gains from the churning of the situation in Ukraine? At the recently-concluded EU summit in Brussels, American President Barack Obama exhorted each NATO member to “step up and carry its share of the burden” of defence preparedness. That must have cheered a despondent arms industry, located largely in NATO countries, primarily the U.S. The military industrial complex was anticipating less happy times with the disappearance of around $150 billion in orders in 2014 due to the sequestration agreement in the U.S. Congress and the consequent cuts to the Pentagon’s budget, along with the continually falling defence outlays in Europe, aggravated by the Euro crisis.
The defence industry in Russia, still mostly state-owned, will now be equally busy as it expands its outlays with the perfect excuse of threats from NATO. Ironically, some Russian orders placed with western suppliers, especially France, may have to be reluctantly deferred under pressure from other NATO partners.
A hot or cold war between Russia and NATO powers will now revive the industry’s fortunes, especially in the military aviation sector and with the expected resumption of missile deployments in East European countries like Poland.
If the current hostilities deteriorate further, another early casualty could be Russian gas supplies to Europe. This will negatively impact European consumers and economies, and the finances of supplier Russia as well as of Ukraine, through which the gas transits. In such a scenario, the Europeans will speed up the search for alternative suppliers, a process that had started after the failed Orange Revolution in 2004, but which lost steam when the country acquiesced to its role as a buffer between Russia and an eastward-expanding NATO and EU.
Into this vacuum, a waiting and preparing U.S. can easily step in – the U.S. is the major new global producer of gas. According to an American law, its shale gas can only be sold to countries with which the U.S. has trade agreements. Fortuitously, most of these are its NATO allies. But even if they were not, such as new friend Ukraine, man-made laws are amenable to quick change when strategy and profits beckon.
It may take a while for the U.S. to increase extraction and build the infrastructure to export the gas, especially as both processes are privately funded and executed. Besides, given the scale of the finances required, investors will ask for assured long-term purchase arrangements from NATO countries.
So far, the only grouping that has protested against these developments is BRICS. In a joint statement issued on March 24, the group said that its members will not support the sanctions imposed by the West. Not surprisingly, NATO powers are ignoring this low-key, non-confrontational protest, because Russia is a member of the grouping. However, with member countries that have large and expanding economies, such as China, India, and Brazil, BRICS is the only group that can collectively pose a credible challenge to a still mostly West-dominated world order.
Two years ago, in the context of suffocating sanctions by the U.S. on the payment systems for trade in Iranian oil, Gateway House had predicted that unless alternate financial structures which challenge the existing channels are created, even other large countries and economies could become the targets of sanctions. The focus, then and now, of unilateral western sanctions has been on oil producers like Iran and Russia; but tomorrow it can also be on big buyers like China and India.
Theoretically, strictures can be extended to areas other than fossil fuels, which will constrict the capacity of countries to undertake financial transactions through banking channels. For example, Indian agriculture depends on large-scale imports of phosphates and nitrogen-based fertilisers from Arab countries, which can be disrupted by unilateral western sanctions, just as our oil imports from Iran have been disrupted.
China, the largest trading economy in the world, depends on imports of every sort of energy and has an integral position in the global logistics chain. If excluded from international banking facilities controlled by the U.S. and some West European countries, its economy too could be crippled. But China is already creating insurance for itself by gradually making the yuan an alternate global currency through numerous swap deals with trading partners. It has also developed infrastructure for energy supplies from West Asia, Central Asia and Russia, to run overland and through neighbours like Myanmar.
What has India done? So far, nothing, even though we are much more vulnerable: India does not have a veto in the UN Security Council and is dependent on imports for more than 70% of the country’s energy supplies. We must therefore push harder for the creation and consolidation of alternatives to the present West-dominated international structures.
Neelam Deo is Co-founder and Director, Gateway House: Indian Council on Global Relations; She has been the Indian Ambassador to Denmark and Ivory Coast; and former Consul General in New York.
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