LAWRIE WILLIAMS: Putin’s war of unintended consequences.
When President Putin pressed the ‘invade Ukraine’ button a month ago he surely made a huge miscalculation. There have been devastating effects on the Russian economy, although one suspects it can handle these. Progress of his armed forces has been much slower than anticipated, despite supposedly superior numbers and weaponry. Huge losses of personnel and equipment are reportedly being incurred and the strength of opposition from the Ukrainian people (even those of Russian ethnicity) has been far stronger than his forces had been led to believe
In his ideal scenario, Kyiv would have fallen within a couple of days, the Ukraine government deposed and the assumed welcome by a population which he believed would wish for Russian alignment and effective control would bring him rapid success. This would have been achieved without any response from what he saw as a weak NATO alliance bent on avoiding a direct military conflict with what his advisers and generals had told him was a virtually invincible military machine.
In the event virtually none of these objectives have been achieved apart from the reluctance of NATO forces to become directly involved in the military conflict. The Russian military’s potential invincibility has been shown up as dubious to say the least, few Ukrainian cities have so far totally succumbed to Russian occupation despite a callous bombardment of civilian areas with substantial loss of life; there has been no welcome from the Ukrainian citizenry and, arguably, NATO is now more united than it has ever been before.
Ukraine, and its charismatic actor-turned-President, Volodomyr Zelenskyy, has been winning the global propaganda war hands down – apart from within Russia itself where the domestic media is increasingly under total Kremlin control. Indeed Russia has probably found itself more politically isolated than at any time since the end of the Cold War.
President Putin has always felt that any increase in Western economic sanctions designed to cripple his country’s economy could be shrugged off and indeed has been following a de-dollarisation policy for many years in anticipation. Western reliance on Russian oil, gas and coal might have been seen as something of a trump card in this respect, but recent moves to remove this dependence may have an almost crippling long term effect on the Russian economy if there is no change in leadership, and even then Western nations, in continental Europe in particular, will probably never again hold themselves hostage to a single dominant supplier of key strategic supplies. The Putin war is changing global business relationships in ways he probably cannot have anticipated to the potential long term disadvantage of his nation’s economy.
True, sanctions may be eased if, and when, Russian forces withdraw, but there is little sign of this happening as yet, as Russia perhaps settles for a longer term war of attrition to try and break down Ukrainian resistance. President Putin does seem to be changing the focus of the attack to consolidation into Russia of the Donbas region of Ukraine and perhaps the maintenance of a land corridor between Donbas and Crimea, although it still seems doubtful if Ukraine will agree to this. But at least the two sides do seem to be talking which is a sign of hope for an end to the conflict.
As a result of this apparent marginal reduction in tensions, the gold price has come back a little this morning, but whether this trend will continue remains to be seen. If some compromises can be reached and the confrontation ended, and there does seem to be some small possibility of this occurring, gold could fall back to the $1,900 level or below, particularly if there is indeed some easing of Russian sanctions as a quid pro quo.
That would reduce some of the inflationary pressures resulting from the Russian sanctions but there will still be some ongoing impacts from European nations undoubtedly moving to reduce their dependence on Russian-produced commodities and other supplies. President Putin’s biggest error in initiating the Ukraine invasion may be a miscalculation of the likely long term effects on the Russian economy.
Global trade patterns will thus probably never be the same again. Reliance on strategic supplies from a potential rival nation will be eased out of global trade, This will undoubtedly add to global inflation trends as nations move to become more reliant on strategic supplies from domestic and openly more friendly sources, which will almost certainly lead to higher input costs and consumer prices.