Filenews 22 August 2022
By Tilak Doshi
Wars of attrition are defined as those during which the opposing forces do not confront in direct battle with all their forces, but instead aim to exhaust each other in a certain period of time.
Classic free trade is largely voluntary and mutually beneficial to the parties. But unilaterally imposed economic policy sanctions that force certain desirable patterns of international trade and economic exchanges into certain desirable patterns can be seen as attempts to win a war of attrition.
The latest headlines on the "front of attrition from Germany, the epicentre of the continent's unstable energy geopolitics after the start of Western sanctions against Russia, seem incredible at first sight. It was only about a month ago when a Deutsche Bank report predicted that "wood will be used for heating purposes, wherever possible." Business Insider titled its column "Germans could turn to wood this winter to heat their homes as Russia withholds gas, Deutsche Bank says."
Last week, Bloomberg's Javier Blas tweeted the "graph of the day" showing that searches for firewood ("Brennholz") on Google have risen sharply over the past two months as Germans increasingly realize that firewood (yes, firewood!) may stand between them and in a frozen winter with a power ration "as the country prepares for gas shortages."
The citizens of Germany - who live in the tech-quintessential state with its flagships BMW and Audi in construction and the world's leading petrochemical sector characterised by the BEHEMOTH BASF and many others - face the prospects of survival in winter as their ancestors did two centuries ago, perching around a firewood outbreak. It doesn't matter that many of them, including their leaders, truly believe like Greta that the continued use of fossil fuels will lead to planetary condemnation (in 12 years or in the middle or at the end of the century along the spectrum of climate scaremongering).
Russia vs. "West"
A few days after the start of Russia's "special military operation" in eastern Ukraine on February 24, the US, uk and European Union along with their closest allies (Australia, Canada, Japan, South Korea and a few other countries) imposed the most extensive economic surprise war on a sovereign state since World War II. The sanctions unleashed against Russia were aimed at destroying the Russian economy and forcing President Vladimir Putin to call for peace on Ukraine's terms or even provoke a regime change.
Russia responded with a program of "roubles for gas" for "unfriendly" countries (that is, those that participated in the sanctions) as a model for all of Russia's major commodity exports to a hostile Western alliance. In the days after the sanctions, Russia's rouble fell to almost half of its levels before the invasion, its stock market was closed, and its central bank raised interest rates to limit the impact. Contrary to President Joe Biden's expectations and boast that the "rouble in ruins" collapsed, however, the coin soon recovered sharply. It strengthened to its highest levels in 7 years, while the country's current account surplus jumped to record levels by May.
This is only partly due to the actions of the Russian central bank that limited foreign exchange outflows and raised interest rates. It was mainly the result of the surge in global prices of fossil fuels and industrial products that are the most important exports of raw materials in the country. According to a Reuters report, the higher volume of oil exports, coupled with rising gas prices, will increase Russia's revenue from energy exports to $337.5 billion this year, a 38% increase over 2021, according to a finance ministry document seen by the agency.
The latest IMF Global Economic Outlook issued at the end of July reduced the growth forecasts of almost all countries, but upgraded Russia's economic forecasts. Russia is still expected to contract by 6% this year, although this is a significant improvement from the IMF's negative forecast of 8.5% in April.
While there was some decrease in energy exports to Western countries, China and India quickly increased energy imports from Russia at reduced prices. While China is in talks with Russia to buy oil to replenish its strategic reserves, according to Bloomberg, India is refining cheaper Russian crude to then export it as petroleum products to Europe and the US.
In an irony that will not go unnoticed by observers of European affairs, Robin Brooks, chief economist at the Institute of International Finance, says the West is "paying a high price" for denying Russian energy to itself, although the EU's "exemptions" from sanctions are multiplying. Meanwhile, the economic conditions of Russia are now almost as relaxed as before the war.
He also notes that the German current account surplus "has returned to levels that were last seen in the early 2000s, when Germany was europe's 'patient', adding that Germany is "sick again now" with a growth model that was "largely based on cheap Russian energy." The Nordstream 1 gas pipeline - Germany's main gas supply artery - which operates at a level of 20% of normal supply and the ensuing shock of eurozone energy prices, is Putin's headlock across Europe's neck, threatening "catastrophic industrial lockouts" and mass layoffs.
The citizens of Russia, although poorer, do not seem to be going so badly in relation to their German neighbours. Retail spending in cafes, bars and restaurants is going well. Affluent Muscovites may lose their I-phones and Gucci bags under sanctions and voluntary departures of Western companies. But ordinary citizens are definitely not looking for firewood this winter or not worried about whether they will be able to take hot baths.
G-7, BRICS and others
The war of attrition between the G7 and Russia continues, as US Secretary of State Antony Blinken recently launched "a charm offensive in Africa to regain U.S. popularity, which was ostensibly lost during the Trump administration, and to counter Russia's efforts to get more African countries on its side."
In sharp statements to the press with Mr Blinken sitting at her side, South African Foreign Minister Nalendi Pandor said she opposed the "condescending intimidation" coming from the West: "Because when we believe in freedom - as I say, it is freedom for all - you cannot say that because Africa does this, then you will be punished by the United States.... One thing I definitely don't like is being told 'either you choose this or else'."
Making the same point more diplomatically, India's Foreign Minister S. Jaishankar told a conference in June when he was questioned by the audience: "I am a fifth of the world's population. I am what today is the 5th or 6th largest economy in the world... I feel entitled to have my own side. I am entitled to weigh up my own interests and make my own choices. My choices will not be cynical and transactional. It will be a balance of my values and my interests. There is no country in the world that is indifferent to its interests."
In a speech he delivered a few days ago in Bangkok during his participation in a meeting of the India-Thailand Joint Committee, the minister defended India's crude oil imports from Russia. He referred to the surge in energy prices around the world due to the Russia-Ukraine war and said: "We were very open and honest about our interest. I have a country with a per capita income of 2000 dollars, these are not people who can afford higher energy prices. It is my moral duty to secure the best possible deal."
In a caustic article last week titled "Washington has only itself to blame for the growing trend of de-dollarization," the Chinese newspaper Global Times reported: "The thought that the U.S. may move to grab the assets of anyone who refuses to obey Washington's dictates is truly irritating, which is now pushing more countries to diversify their reserve assets away from U.S. dollars."
Russia, China and India have engaged in efforts to facilitate trade through the use of their national currencies and a potential BRICS fund as the basis of trade between countries outside the Western alliance.
Potential future members of the BRICS bloc, such as Saudi Arabia, the United Arab Emirates, Iran, Indonesia, Nigeria and Thailand, have made it clear - either overtly or with their neutrality in trade and diplomatic relations with Russia and the West - that they will not "choose a side", as Jaisankar of India put it. There is no reason to believe that the EU or the US can pressure developing countries to join the sanctions against Russia.
The rupture
Economic and trade sanctions against Russia by Western protagonists have led to an economic war of attrition, the results of which remain uncertain and far-reaching. It seems increasingly likely that Russia will achieve at least its immediate goals on the battlefield in the eastern and southern parts of Ukraine, albeit at great cost in men and materiel. However, the cost of Western economic sanctions against Russia, which have backfired, is much more important for the lives and livelihoods of people around the world.
The Western alliance, led by the US under the Biden administration, offers no prospect of a negotiated solution to the Russia-Ukraine conflict, as Henry Kissinger called for at the Davos conference in May. Indeed, the mainstream media and Western political leaders continued to escalate the narrative of a Russian military defeat with a seemingly endless supply of funds and weapons by the Biden administration to Ukraine.
Pensioners and the poorest sections of society across Western Europe and the UK, who cannot afford the surge in heating and electricity bills, will be the closest victims most affected.
But even worse, people's lives and livelihoods will be affected in the vast populations of developing countries living in poverty or on the verge of poverty. Soaring food, fertiliser and fuel prices as a result of sanctions will further penalise the remote innocent poor.
Source: Forbes
