Almost two months have transpired since the Ukraine-Russia-NATO-USA spat began. As mentioned in these columns, this was a war that the US wanted and got. It has achieved most of its objectives. It has compelled Germany to scrap its Nord Stream 2 gas pipeline arrangement with Russia. It has given Russia a bloody nose. It has made many countries on the edge of Russia's borders think more favourably about joining NATO. However, the US has not been able to browbeat Russia. This is for several reasons.
First, Russia is not as small as many think. It may be 11th in terms of GDP rankings in the world. But when Price Purchase Parity (PPP) is considered, it is the sixth-largest in the world. The PPP route becomes more relevant in a world where the US $ is suddenly becoming a liability. Saudi Arabia, the largest oil exporter, has already decided to accept payment in other currencies, especially the CNY of China. So has the UAE, and India too. China has always favoured this arrangement. Many countries in Europe have already agreed to pay for the gas they need from Russia in roubles.
But there are other reasons as well. The US has ensured that services enjoy a higher valuation in the world – over agriculture and industry. That is understandable because the US is the largest player when it comes to services – see table.
Russia PPP ranking |
But if you water down the services valuations, the world may look a bit different. After all, finance and services were supposed to be ancillary activities supporting agriculture and industry. Even if one does not go down this route of devaluing services, Russia is the third-largest when it comes to agriculture, and the fifth largest (larger than Germany) when it comes to the industry. These could play a bigger role in the post-Ukraine-Russia-USA war.
To understand why this transition may take place consider how almost all of Europe depends on Russian gas. This is one reason why many European countries have refused to go along with US efforts to sanction oil and gas from Russia. They believe that their own national interests come first, and rightly so. The shrillest critics of Russia are the UK and the US -- both do not depend on Russian oil. Then, look at the minerals that come from Russia. These are minerals that the whole world will require, even the US.
It is not surprising, therefore, that the prices of minerals (including oil and gas) have started flaring up. The US has succeeded in exporting inflation to the entire world, at a time when the US dollar itself is becoming weaker. That will cause other currency values to fall as well – except maybe for the rouble and the renminbi – because both Russia and China have systematically reduced their holding of US treasury bills. Moreover, they have insulated themselves from much of the contamination that could be caused by the dollar.
But don’t forget the potential that the US has for mischief is tremendous. It remains the biggest spender on its military – larger than the rest of the world put together. Its ability to provoke conflict is immense. It can thus benefit from the sale of defence equipment on the one hand, and higher prices of oil on the other. Wars may weaken other countries, but could actually revitalise the US.
That could be one reason why Russia has constantly reminded the world that the nuclear option is not on the table. If the US is hell-bent on creating trouble, Russia may be left with no other option. Thank God for Russia and China, without which the world would have seen a more arrogant and belligerent USA.
So, what are the options for the world? Clearly, two things become clear. Climate change will now go on the back burner. Nobody wants to save a world for a western world that ignores the cries of the rest of the world today. Many countries will be concerned about getting through these inflationary times. Expect more countries to look to China, India, and Russia for help, and not the US or even the UK, who are being seen as the bully boys of the world.
But, most of all, be prepared for a more turbulent world that could erode wealth for most countries – including the US, in the coming decade. The turbulence has just begun.
(The author is consulting editor with FPJ)
