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Eddie Cross: Why the world will pay a heavy price for Putin’s adventurism

Who would have thought it possible that out of nowhere the world would be blindsided by the actions of a maniac in the Kremlin? But that is precisely where we are today.

Speaking to a friend who is involved in both the Ukraine and Russia, his view was that Mr Putin has made a major miscalculation and would not be able to complete his mission. He further stated that many overestimate the economic and military power of the Russian State.

Indeed, following the collapse of the Soviet Union, the Russian Republic is an economic minnow in modern Europe with a gross national product of less than $1.5 trillion and an income per capita of just $11,000.

But it has a large population and is one of the biggest countries in the world with considerable natural resources and energy reserves.

In post Second World War Europe, the preoccupation has been securing and maintaining peace and this has been the main driving force behind the formation of the European Union and the establishment of the multilateral agencies, such as NATO and the OECD.

Because these new alignments have been able to successfully maintain the peace in what was previously a war ridden continent, people have become used to the peace and to the higher standards of living which have been generated by lower defence budgets and the absence of conflict.

Under the umbrella of this infrastructure, Europe has been subsisting very largely on the back of resources provided by Russia. This takes many forms and includes natural gas, crude oil, Palladium, Nickel, and a wide variety of other metals, which, are not found in similar quantities elsewhere.

Coming soon after Glasgow, when the world came together and sang the hymn of limiting carbon emissions by restricting the use of carbon-based energy sources. The shock waves emanating from the conflict in Ukraine and the subsequent sanctions imposed on the Russian Republic, have suddenly distorted the balance which existed previously between supply and demand in global markets.

For 1000 years, Ukraine has been one of the main sources of basic foods in Europe. It was the centre of European civilization centuries before Tsarist Russia superseded its role in the world. On its own, the Ukraine is a key building block in the supply of critical commodities to world markets.

In Zimbabwe, for example, most of imported wheat has been supplied by producers in the Ukraine and shipped to us via the port of Odessa on the Black Sea. Suddenly this former reliable source of good quality hard wheat has vanished and, in its place, wheat prices have increased by nearly 50% across the world.

Much of the focus of the world has been on oil and gas prices and in my view this sector of global markets has always been very volatile. In the past 20 years crude oil prices have been as high as $245 a barrel and as low as $20 a barrel.

Today the price is back up to about $120 which is still below the 20-year average price of $145 a barrel. Even so, there’s little doubt that the very substantial increase in oil prices since the start of 2021, will further boost inflation across the globe and make life difficult for many.

What was not expected was the huge change in the price of natural gas which 20 years ago was often regarded as being of little commercial interest.

So much gas has been found in the past 20 years, that it was confidently predicted that this would remain the cheapest source of energy available to the world in a post coal environment. But even in this market, while the price of gas has doubled in the past two years, it is still well below its peak and shows little sign of increasing significantly.

The problem is that Europe, complacent about the very conditions which they had created in a post war world, has become dependent on natural gas, mainly from Russia, for heating and energy generation.

Suddenly the world is appreciating the fact that it will be very difficult to take the world economy off carbon-based energy for many years to come. This is good news for major coal producers like Australia, who are struggling to meet the surge in demand and are wallowing in the very much higher prices for coal which now prevail.

If we go back to the war in Ukraine, then we need to understand that the Russians have committed nearly 70% of their armed forces to this enterprise. Two weeks into the invasion they have occupied less than 10% of the total land surface of Ukraine and are facing fierce and sustained opposition.

Listening to the experts on all things military, it would seem to me that even if the Russians do succeed eventually in occupying Ukraine and imposing a pro-Russian government similar to that which now exists in several other former Soviet Union states, that they will face a long-term insurgency which would sap the financial and energy resources of Russia to the point where their own people will suffer very severely.

It seems to me to be unbelievable that a regime as sophisticated as that which operates in Russia could have made such a serious miscalculation. However, this seems to be the case and the way things are proceeding at this moment the moral pressure on the Western nations is becoming almost irresistible.

Any further escalation of the war by Russia in terms of bringing more sophisticated weapons to bear and using increasingly repressive actions on the ground, will simply increase the pressure on NATO to become involved. A significant minority of NATO countries are already sympathetic to engagement.

It would not take a great deal to make the invasion of Ukraine simply untenable. The decision yesterday by the British government to deploy more sophisticated weapons to Ukraine for use against both aircraft and ground forces, is an escalation.

Already there are signs of trained military personnel from several countries volunteering their services to the government in Kiev.

However the military conflict turns out, one of the elements that was seriously underestimated by the Putin regime was the determination of the Western nations to extract a heavy price from the Russians for their actions.

I live in a country that was under UN sanctions, mandated by the Security Council and enforced with military support by Britain for nearly 15 years before we gained Independence.

Since the implementation of the fast-track land reform programme in 2000, with its violations of legal and human rights, the United States government and other Western nations have imposed sanctions of various kinds on our present government.

Some of these are specifically targeted but the economic damage done to our economy by the restrictions imposed by the United States on our international financial relations has been a serious and growing problem.

We know from our own experience that sanctions are not only a blunt instrument but also that there are many ways of working around them. The Russians will quickly establish alternative markets for the product’s which are placed under restriction by the sanctions programme.

The Russians are already benefiting from the higher prices which the programme has caused in global markets.

But whatever the outcome of the economic and military struggle, the one thing we can say about both is that it will be the people of Russia and Ukraine and to some extent the rest of the world who will pay a heavy price for Putin’s adventurism.

Eddie Cross is a former opposition MDC MP for Bulawayo South and a respected economist. You can follow his blog African Herd

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