Some 30 years after the civil war in the former Yugoslavia started, Russian President Vladimir Putin has unilaterally declared war on Ukraine. His lust for the rich agricultural farmlands, mineral resources, and established industrial base of Ukraine has forced him into a needless war that could ultimately lead to him being toppled from office by an internal coup as the economic hardship from sanctions starts to kick in.
In his February 21 television address, Putin made four key points.
Firstly, he accorded Russian diplomatic recognition to the secessionist Ukrainian regions of Donetsk and Luhansk. He alluded to the importance of the right of self-determination for the 4 million inhabitants of these areas, eventually leading to their merger with Mother Russia.
Secondly, he alleged that the command and control of Ukrainian forces are unquestionably under NATO. Ukrainian accession to NATO is a foregone conclusion and, therefore, Russia’s security is under threat.
Thirdly, Putin also alleged that Ukraine has Soviet nuclear technology and the necessary delivery systems. This is a euphemism for unassembled tactical nuclear weapons with Ukraine and its mini-arsenal of 90 mobile Tochka U tactical ballistic missiles with a range of 120 kms. Putin seems to be also pointing to the unaccounted depletion of Ukrainian stocks of enriched uranium, which have been depleted by 120,000 tonnes since 2015. Some of this was sold to foreign buyers, but the International Atomic Energy Agency (IAEA) is unsure of where the balance stocks went.
In his February 23 address, Putin stated that he intended to de-militarise Ukraine. This shows his intent to eliminate Ukraine’s tactical nuclear deterrent described above.
Fourthly, Putin spoke about the historical fact that it was the founder of the Soviet state, Vladimir Ilyich Lenin, who inexorably entwined Ukraine into the embrace of the Soviet Union. He added that it was known as Lenin’s Ukraine.
Let us take a look at why things have deteriorated to this extent. In 1994, the US, UK, Russia, and Ukraine signed the Budapest Memo, wherein Ukraine’s security was guaranteed by these three countries in return for the latter’s dismantling of its nuclear weapons and strategic delivery systems, which then constituted the world’s third-largest such force.
Putin’s annexation of Crimea in 2014 and his repudiation of the Budapest Memo just 20 years after it was signed forced Ukraine to seek formal membership of NATO. This move further enraged Putin.
Ukrainian President Volodymyr Zelensky’s TV address, also delivered on February 21, emphasised that Ukraine would not tolerate any further violation of its sovereignty. Was this a threat of tactical nuclear retaliation?
The Russian army believes in a non-contact war doctrine, which seeks to leverage drone spotters and electronic warfare to destroy enemy forces at stand-off distances. The manifestation of this is to engage in sustained artillery and rocket duels that are directed at degrading the enemy’s military and economic assets. The Ukrainians are familiar with this war doctrine and have the capability to defend themselves as well as inflict substantial damage to the enemy in the process. Further, if their capital city Kyiv is physically threatened, then they may resort to tactical nuclear weapons to destroy Russian formations. In such a scenario, escalation would be inevitable and the end result would be anybody’s guess.
There is also a significant backstory to this game of brinkmanship. Russia is the world’s third-largest producer of oil after the US and Saudi Arabia. It produces 10 million barrels of crude oil a day. On December 1, 2021, before the Ukrainian standoff started, the price of oil was at $65 per barrel. Since December 1, 2021 the price of crude oil started rising, and on February 24, it reached a high of $100 per barrel, a rise of 50 per cent in well under three months. At February 24 prices, Russia has been gaining a daily super profit of $320 million over the December 2021 price.
Further, Russian gold reserves are 2,300 tonnes and if gold rises 10 per cent, Russia adds another cool $10 billion. Gold prices between December 1, 2021, and February 22 have risen 8.73 per cent.
Finally, Russia is a big supplier of natural gas to Western Europe, and between December 1, 2021, and February 22, these prices have risen by 12 per cent.
And, one cannot ignore the fact that Putin’s closest circle of oligarchs, namely Arkady Rotenberg, Yury Kovalchuk, and Nikolai Shamalov would have made vast personal killings on the world’s bourses that trade in commodities.
All of the above are the economic gains to Russia and Putin’s inner circle as a result of the current brinkmanship.
The immediate loss to Russia has been Germany’s freeze on the Nord Stream 2 pipeline bringing gas from Russia to Germany. Add to this the growing list of sanctions not only on the Russian state but on Putin’s personal wealth as well.
The paradox in this story is China. Russia’s annexation of Crimea in 2014 changed everything. The severe deterioration in Russia’s relationship with the West made it view China in new ways—as an ally and an investor, rather than just a regional competitor and a buyer of military equipment with the consistent compulsion to reverse engineer Russian technology. After Crimea, Putin reviewed and reversed many of his policies on China. Putin’s opening up of the arms trade with China helped Russia maintain a foothold in an expanding market, notwithstanding the irritation of China copying some technology. The Kremlin concluded that a Chinese takeover of Russia’s Far East was either unrealistic or at least not imminent even though in the arc of territory from Blagoveshchensk to Vladivostok, bordering the Chinese border, Chinese companies have leased 3,500 sq kms of cultivable land and settled a few hundred thousand Chinese to work these giant corporate farms.
Again, because of the complementarities of the two countries’ economies, trade between them continued to grow, albeit more on China’s terms than the Kremlin would have liked. These days, energy and agriculture account for the bulk of this trade. China consumes Russia’s coal and oil; the newly built Power of Siberia pipeline carries Russian gas to Chinese companies. And, once complete, Power of Siberia 2 will provide gas to China from fields in western Siberia—the same ones that supply to Europe. The question arose about how this disadvantage in the terms of trade could be innocuously reversed in Russia’s favour.
The invasion being played out in Ukraine provides Russia with the opportunity to indirectly equalise the imbalances it had with China. This was a tertiary benefit out of the standoff. To China, the economic cost of the Ukrainian crisis has been severe as the 5 per cent increase in oil prices and the 12 per cent increase in gas prices and increases in all other commodity prices is going to raise costs and prices across the entire swathe of the Chinese economy and affect its competitiveness.
China has seen that the West will not militarily engage in war unless it is an existential issue. Therefore, a Chinese invasion of Taiwan might see the US staying away, provided it destroys the 13 factories of the Taiwan Semiconductor Manufacturing Company, which it actually fears China might paradoxically do so herself. Nevertheless, the US is going to introduce a very repressive and punitive technology denial regime that will seek to exclude all those nations who are aligned with Russia and China. In the circumstances, India has to make the right choices and not be caught on the wrong foot while exercising the nebulous concept of strategic autonomy. The lucrative commissions that the Indo-Russian arms trade deliver will need to be shunned by Indian decision-makers if they know that national interest now requires a rapid move away from Russian arms whose Chinese electronics have too many backdoors in them that compromise the efficacy of such armaments. Russian arms have served us well. However, the exigencies of realpolitik require an immediate and public shift away from them.
So where does Putin go from here?
My guess is that Putin will wage the war till such time he has milked the maximum economic gain from this episode and also aim to appear victorious to his domestic political constituency. He is gambling on US reluctance to directly enter the conflict. My guess is that hostilities will continue till mid-March, one way or the other.