By Matein Khalid
If Checkpoint Charlie in West Berlin was the epicentre of the Cold War between NATO and the Soviet Union’s Warsaw Pact satellite states, Ukraine is the crucible of the geopolitical confrontation between the West and Putin’s Russia.
Putin weaponized Gazprom’s gas exports to Ukraine as far back as 2006, fomented secessionist militias in Luhansk/Donetsk, annexed the Crimea and has now invaded Ukraine in order to prevent its tilt towards the EU. Yet Putin has made the miscalculation of his life by invading Ukraine, just as Saddam Hussein miscalculated with his invasion of Kuwait in August 1990. In a mere week, draconian financial/banking sanctions have devastated the Russian economy and Russia is now a pariah regime in world politics.
The invasion of Ukraine has boosted military ties between the US, Europe and Japan. It is now almost certain that Sweden and Finland will join NATO and Poland/the Baltic states could well become theatres of Russian subversion if the Putin regime is allowed to continue in power. At one stroke, the Ukraine invasion has forced German defence and energy policy to do a U-turn, to the strategic detriment of the Kremlin.
US natural gas and LNG exports will be the geopolitical pivot of a new global energy order as even now Russia cannot find buyers for its cargoes of Urals crude. Exxon, Shell, BP, Total, ENI etc. will blackball Russia from the technology transfer it so desperately needs.
If Putin thought his conquest of Ukraine would make him a kingmaker in global energy geopolitics, he has failed miserably. Russian gas is now leprosy in global markets and Russian banking dominoes will fail en masse as depositors panic. The Russian central bank, under international sanctions has no choice but to print roubles and risk hyperinflation.
Russia’s 145 million people are all going to pay a terrible price for the savage war this paranoid dictator has unleashed in Ukraine. Wheat futures are up 30% in the past week and Brent crude is at 115. This epic surge in food and oil prices is a disaster for the world’s poorest people as inflation is the ultimate regressive tax.
The Putin regime has plunged Europe into the most vicious war since Yugoslavia’s death rattle in the 1990’s and the Putin regime’s continued existence is a threat to world peace. That much, at least, is certain.
The heroic resistance of the Ukrainian people, revulsion of the civilised world against the unprovoked assault on Ukraine and the devastating backlash of financial sanctions on the Russian economy has persuaded Putin that his decision to invade a sovereign nation of 44 million in the heart of Europe was the biggest miscalculation of his sordid Presidential career.
It is essential that investors realize that the contagion risk of a Russian financial meltdown could well send shockwaves across Europe as Putin commands the world’s 11th largest economy.
The FOMC faces a dilemma when it next meets as the risk to global growth has risen with the war in Ukraine but so have the risk to inflation. Hence risk assets will continue to be volatile as Wall Street’s pendulum of greed and fear – the Volatility Index trades at 30. (IPA Service)
Matein Khalid is Strategic Advisor with Asas Capital, Dubai
By arrangement with the Arabian Post