Part I: Impact on Russia
That’s how I characterized the US/NATO-led proxy war against Russia in Ukraine back in early March 2022. I argued that it was an “avoidable war that will penalize severely Ukraine, Russia, the US and the NATO, Europe, developing countries and the global economy.”
At the time, the prediction was seen as contrarian. But it has prevailed. However, on January 25 the Ukraine proxy war entered a new, still more dangerous phase. The commitment of some 70 US, German, UK and Polish battle tanks herald lethal escalation, although hundreds more are needed to defeat Russia. For the first time since World War II, German tanks will be sent to the “Eastern front.” In Moscow, it will foster those voices who see the stakes of the war as existential.
Not only will economic and human costs climb even further, but strategic risks, including the potential of nuclear confrontation, will soar. With such escalation in high-tech arms sales to Ukraine, regional and military spillovers are no longer a matter of principle, but a matter of time.
Russia’s economic resilience
In early 2022, Western observers, with rare exceptions predicted that Russian economy would default within months, as a net effect of sanctions against Russia. “Putin’s war” was doomed, they said. Obviously, the sanctions, which have been fueled by might and economic coercion, have not been inconsequential. But nor were they new.
Already in February 2014, following the Russian annexation of Crimea, international sanctions were imposed against Russia and Crimea by the US, Canada, the EU, and the international organizations they dominate. While the West’s sanctions contributed to the fall of the Russian ruble, they also caused significant economic damage to the EU economy, with total losses at €100 billion in 2015. By mid-2016, Russia had lost an estimated $170 billion due to financial sanctions and another $400 billion in revenues from oil and gas.
According to the IMF’s country report in April 2022, the Russian economy was projected to see a -8.5 percent decrease in its real GDP in 2022, with inflation of 21.3 percent in that same year. Other Western multilateral banks and financial institutions echoed the disastrous forecasts. Nonetheless, despite the gloom and doom projections in the West, Russia has prevailed. “As for the economy, despite the collapse, disarray and catastrophe predicted for us in the economic sphere, nothing of the kind has happened,” President Putin stated before Christmas 2022.
In fact, Russian economy plunged 3.5 percent in 2022, whereas inflation amounted to 5.4 percent. In other words, Western institutions dramatically overestimated the GDP impact. Discrepancies of such magnitude is hard to explain away as simple prediction errors (Figure 1).
Russia’s economy contracted significantly less than initially expected in 2022, due to the strong fiscal response and the surge in energy prices which increased fiscal revenues. Nevertheless, it experienced a sharp drop in imports, a fall in real incomes and the recession will continue in 2023.
Proxy war united Russia
Officially, the invasion of Ukraine began as Russia’s “special military operation.” Unofficially, it soon morphed into a US/NATO-led proxy war against Russia in Ukraine. The true political objective of this war has been regime change. Hence, the goal “to weaken Russia,” as Secretary of Defence Lloyd Austin acknowledged later. Hence, too, the international media predictions that Russian economy would “inevitably” default and Putin be overthrown.
By contrast, I projected that the reverse might occur. The economy would suffer, but prove resilient. President Putin’s ratings would climb. A perceived existential threat would unite the Russians. The credibility of Washington and Brussels would tank. Though contrarian almost year ago, the predictions proved valid.
Today, in view of ordinary Russians, Russia’s invasion of Ukraine is a defensive response to NATO’s offensive eastward enlargement. They see their country fighting for survival. That’s why the war caused Putin’s ratings to soar to low 80s. That’s also why over 60 to 70 percent of Russians support their government and believe the country is in the right track, despite extraordinary hardships. If the war has achieved anything, it has caused negative sentiments climb against the US and the EU; from less than 50 percent up to 70, even 80 percent (Figure 2).
Amid this collapse of trust in the US and the EU, it certainly did not help that the Minsk peace process proved to be another Western ruse. Last December, German ex-Chancellor Angela Merkel disclosed in the Zeit newspaper that “the 2014 Minsk agreement was an attempt to give time to Ukraine.” That is, to make Ukraine stronger and for NATO to increase its support to the country in the face of Russia.
From the standpoint of Moscow, such past ‘betrayals” cloud any new potential Ukraine deal in the future: “Nobody planned to live up to these Minsk agreements,” Putin commented. “[The participants] lied to us, and the only reason for these processes was to pump Ukraine up with weapons and get it ready for military action… Maybe this [war] should have been started earlier.”
In the view of ordinary Russians, there is now a long continuum of betrayals from the pledge that NATO would never expand eastward in the early 1990s to Minsk today. In their view, the West’s recent arms escalation only confirms their worst suspicions.
Dr Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of the Difference Group. He has served at the India, China and America Institute (US), Shanghai Institutes for International Studies (China) and the EU Centre (Singapore). For more, see https://www.differencegroup.net/
This is a part of Dr Steinbock’s “THE UNWARRANTED UKRAINE PROXY WAR: A YEAR LATER, a 5,000-word analysis published by The World Financial Review on January 27, 2023: https://worldfinancialreview.com/the-unwarranted-ukraine-proxy-war-a-year-later/ The February-March print edition will follow in mid-February.
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