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It’s not all doom and gloom
The word ‘geopolitics’ is now one of those sexy buzzwords. Made so, I guess, by an uncertain world where numerous wars now prevail. Yet, when we survey the current political landscape, it’s not all doom and gloom.
The sense is that geopolitical risk is more acute these days, but it’s hard to look back at the 20th century which experienced two World Wars, the Holocaust, the Korean and Vietnam wars, and the Cold War, including the Cuban missile crisis, and to describe that era as being geopolitically ‘quiet’.
There’s a temptation to think the world is just a crazily risky place, abound with geopolitical shoes dropping or about to drop – ‘we are doomed’ – and to sit paralysed as a result. It is important then to separate the wood from the trees.
The war in Ukraine has been brutal, with likely hundreds of thousands of casualties now on both sides, and hundreds of billions, if not trillions, of dollars in damage. However, from a Western interests’ perspective, we must be thankful that some of the dire worst-case outcomes have not actually transpired:
Russia hasn’t won yet
Putin’s initial plan to take and subjugate the whole of Ukraine has not succeeded. Imagine if these plans had succeeded. Russian tanks could well be back on the borders of Poland, and threatening further incursions into Europe, the Baltic states, and elsewhere. Western Europe would be vulnerable to further invasion by Russian forces and Western defence spending would have to rocket – to multiples of the current 2% of GDP target.
Painted into a corner
Not only has the full-scale invasion failed, but Russia has got itself bogged down in a long war of attrition in Ukraine and has seen a huge weight of its conventional military destroyed. Literally thousands of Russian tanks and APCs have been destroyed, and Russia’s Black Sea fleet has been rendered largely ineffective and harboured now to safe ports on the eastern shores of the Black Sea.
The irony of Trump calling for Western support for Ukraine to be curtailed is that this support, financing, and munitions have perhaps been the best bang-for-buck Western investment in its defence since the end of the Second World War.
For a fraction of NATO’s defence spending – literally less than 10% of the annual budget – Ukraine has degraded around half of Russia’s conventional military capability. And for no risk to NATO troops – no U.S. boots on the ground. Most of the current USD61 billion of Ukraine funding, currently stalled in the U.S. Congress, would be spent on U.S.-made military kit.
Blossoming relationships
New life has been breathed into NATO and the Western alliance. In the months leading up to Putin’s invasion, French President Macron now famously described NATO as ‘brain dead’, with no purpose. Well, Putin has given NATO purpose, focusing back on what it was first created to do, to defend Europe against the threat of invasion from Moscow. And NATO, the EU, G7, and the broader Western alliance have shown remarkable unity in response to the threat.
There is now a co-ordinated process for providing military support to Ukraine. Europe, in coordination with the U.S., has passed, and unanimously supported 12 sanctions packages against Russia, with a thirteenth to come. The Western alliance has now provided close to USD200 billion in financing to Ukraine, which is equivalent to Ukraine’s pre-war GDP1. NATO is now better working on co-ordinated arms and munitions production. And NATO has welcomed Finland as a new member, and likely soon Sweden. The latter two countries were ardently in the neutral camp before.
Winter came and went
There has not been a European energy crisis, as had appeared likely in the months running up to and immediately after the Russian invasion of Ukraine. Yes, energy prices pushed higher initially. However higher prices and markets have worked, cutting demand, and forcing energy efficiency and diversification. Energy prices are back to pre-war lows.
Europe almost immediately cut off much of the annual EUR50 billion in gas imports from Russia, finding alternative suppliers, and losing business for Russia permanently. This business is not coming back, and Russia cannot divert the 160bcm annual gas exports to Europe to China that easily.
China is unlikely to follow suit
We believe that because of Russia’s failing war in Ukraine, the chances of a Chinese invasion of Taiwan have reduced. Recent months have also appeared to show a warming in U.S.-China relations. China has been eager not to inflame relations with the U.S., by going out of its way to support Russia. And the U.S. has appreciated the fact that China has not done exactly that. I would go so far as to argue that because of the war in Ukraine, U.S.-China relations are better, and the chances of a Chinese invasion of Taiwan are lower, which implies geopolitical risks are also lower.
So, lots of noise in the geopolitics front…
But also, some room for cautious optimism on a few fronts, Trump willing. And Trump is now the biggest global geopolitical risk – so it has been interesting to hear U.S. policy types talking about Trump-proofing U.S. policy to ensure future stability. It’s remarkable to think that the biggest risk to global security is now a former/future U.S. POTUS.
1 Ukrainian Ministry of Finance
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