Russia’s War and the Global Economy

I have noted a number of times over the last 18 months that we are in the midst of a vast contest and drama which includes not only multiple events unfolding in the United States but abroad as well. I’m usually talking about a broad struggle between civic democracies and nationalist authoritarianism. There’s another dimension of this unfolding now in Ukraine, where there has been a series of rapid battlefield advances by the Ukrainian army, of which you’ve no doubt seen news.

I’m still trying to understand whether we’re likely to see new fronts stabilize after Ukraine reconquered land over the last week, or whether the Ukrainian army has built up such momentum that it can continue this run of battlefield victories, reclaiming large amounts of territory. Regardless, we’re now heading toward winter, which will not only change the nature of the conflict on the ground but bring the energy part of the equation to the fore.

Europe depends on Russian energy and that need is most acute during the winter, when it keeps Europe warm. Vladimir Putin has used this lever throughout the conflict but even before this string of defeats he was threatening to cut off supplies entirely. Europe can survive that but it would trigger a real economic crisis, spike inflation, likely lead to some levels of energy rationing. It would be a big deal. And that big deal would reach the United States, likely not in the form of energy shortages but in various economic dislocations and likely in new boosts in inflation.

Can Russia do this? Of course they don’t sell energy to be nice. They need the money. And it’s only high energy prices that have allowed Russia to weather western sanctions. The run of battlefield defeats for Russia at the moment are so severe that really anything is possible. People talk about a desperate Russia using a battlefield nuclear weapon. And I worry about that too. But an attempt to throw Europe into economic crisis seems much more likely, if ultimately no more effective.

In key ways the peak of high inflation and high gas prices which put the Democrats’ electoral chances into a tailspin in the first half of 2022 was driven by the Ukraine War. Yes, commentators said Biden and the White House were trying to pass pre-existing inflation off on Vladimir Putin. And that’s true to a degree. But the intensification of those price pressures were definitely driven in large part by the war in Ukraine. It’s possible we could see something like that again depending on how Russia reacts to these setbacks.

Small concluding point: Whenever one writes something like this, people respond, Oh, you have to remain firm. Russia has only been such a bad acting force on the global stage because they get away with it. It’s a bit more complicated than that. But let me be clear that in this case I agree. I’m not at all suggesting the U.S. should back off on Ukraine or try to negotiate or something. As this conflict has evolved the only good outcome has become one in which Russia suffers a clear defeat. Biden has put in a quite underrated performance backing Ukraine while keep a clear eye on broader U.S. interests. My point is simply to note that we’re entering a highly volatile period precisely because Russia is doing so badly.

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