Markets and Geopolitical Risks
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For a very long time, most of us actually thought that the cold war was over. After the collapse of the former Soviet Union, the western advisors flocked to Russia in an attempt to restructure its failed economy and bring it firmly within the western prism. By the early 2000s, only about 20 cents for every dollar of Russian oil exports actually ever made it to the state coffers. Most of the rest, if it was not lost to the corrupt few, actually went to western oil and gas companies. Russia under Yeltsin was weak and its military was in shambles. Russia by itself was in no position to ever threaten the West anymore, but that did not end the policy of containment.
Indeed NATO continued to expand throughout the 90s and early 2000s, inching ever closer to Russian borders. Under the banner of democracy, NATO expanded eastwards even though Russia was no longer a threat. The chess game did not end just there. The United States and its allies took the opportunity to isolate Iran and corner Iraq following the Gulf War in order to control the sources of oil coming from the Middle East and strategically checkmate China.
While the Chinese attempted to gain geopolitical traction by building a seaport in Pakistan’s Baluchistan, the continued radicalization of Pakistani society meant that this position was not a safe oil route anymore. Gradually, the US has been able to convince the Japanese to rearm themselves in order to create balance in East Asia. In order for a super power to prosper, it must not only have economic and military might and influence, but its borders must be safe.
Don’t miss out on the geopolitical chess games
The US is separated from the rest of the old world by thousands of miles of ocean on both sides, and its borders with Canada and Mexico are secure geopolitically. The US is a safe haven and as long as it is perceived to remain so, allies will naturally gravitate towards it. In contrast, the Chinese are surrounded by nervous neighbours who do not trust its intentions. China is surrounded by potentially hostile neighbours from Japan to emerging competitor India while the Vietnamese, Taiwanese and, to a certain degree, the South Koreans do not always see eye to eye with China.
China also faces a ticking time bomb, for its population is quickly ageing. Its manufacturing power has more often than not been export oriented and has always operated under razor thin margins. China faces significant challenges when it comes to reorienting its economy. The Communist party has in fact spent tremendous resources in internal security and internal propaganda in order to maintain cohesion. A healthy dose of nationalism has kept things calm.
Russia on its part still has an oil and natural gas dependent economy and, beyond arms exports, is not known to manufacture much else. Nationalism and the rise of xenophobia also prevent it from rejuvenating its ageing population. The most recent conflict in Ukraine has certainly turned its buffer state hostile to it, especially western Ukraine. While there is no doubt that the West had a role to play in fermenting trouble in Kiev, going as far as even supporting a Government which had Neo Nazi elements, Russia gambled heavily and the current stand off and civil war (with active Russian troops participating covertly) can be interpreted as a desperate attempt by Vladimir Putin to keep the cost of war high enough in order to eventually negotiate a more federal Ukraine with a weak Kiev. The latter would then be unable to move towards NATO while still being allowed to move closer to the European Union economically.
No wonder the US Dollar has become king again. When one looks at markets, one should not miss out on the geopolitical chess games. The Russians are already beginning to talk about alternative global currencies. The last countries which did this got bombed, but Russia is no Iraq or Libya. It seems like financial markets drugged up with central bank support these days have completely ignored geopolitical risks.
In the Middle East, the war in Iraq was a disaster for the United States. Despite more than a trillion dollars spent in the war and on reconstruction, Iraq has turned out to be a failed state. The US has learnt the hard way that when you play the democracy card in the Middle East and replace a dictator, you get something much worse in return. The West supported by Turkey wanted to isolate a resurgent Iran by destabilizing Syria. Millions were channelled and augmented of course by the Saudis and Qataris in propping up a rebel fighting force there, but this has ended up creating a monster in the form of ISIS.Today the US finds itself working alongside the Iranians in fighting the monster it created. The same story occurred in Libya, for the current plethora of rulers currently controlling the country can teach their former dictator a trick or two when it comes to being murderous and being extreme.
The US can win conventional wars, but its leadership has realised the limits of its power. It cannot control the democratic process and get the results it wants. It is safer and better to play off against sovereign states such as Russia and China, for their responses are likely to be more predictable. Keep those within the US fold happy and integrated, let the rest fight out their thousand year old battles, but ensure that future threats are contained today.
The winning streak of the US hegemony does not mean that the world has become a less dangerous place, for in many ways, we are a few mistakes away from something which can potentially become quite dangerous. The United States leadership appears to be unable to evolve out of cold war thinking, for if this was not the case, NATO expansion towards Russia with the inevitable reaction of the latter would not have happened. The US leadership of various administrations views its actions throughout the world, as aggressive as they may appear to the rest of us as benign.
The US is shaping up a new world order, and destiny has given it the almost divine right to rule over this new order. The rest of the world should not fear US motives as they too can potentially benefit from this order. The Germans and the Japanese, former enemies of the United States are often given as examples of how the US treats those who accept to come into the fold. Are the Germans and the Japanese not well off today, they argue?
What is dangerous with the US today is perhaps the lack of debate on US foreign policy. The media appears to have become a propaganda conduit where the US is more often than not projected as being good and right while the other side is projected as being bad. The middle path, the path towards greater light and wisdom, is never followed.
During the late 70s and 80s, there was more debate within the leadership and the media on US foreign policy. There used to be the “detentists” who argued for better ties with the USSR, fighting it out with the predecessors to the neoconservatives who believed in confrontation, both formal and informal. The “ detentists” were in a minority, but at least there was a debate at that time.
Today once the US leadership gets into its good versus evil rhetoric, it finds it increasingly difficult to capitulate. The military industrial complex has become too powerful, and this often forces the US to overplay its hands on the global stage leading to unpredictable reactions. What has happened in the Middle East is one such example.
On the Russian side, the populace has become so nationalistic lately that even Vladimir Putin cannot find the space to back down. Despite the reassurances being thrown around by world leaders that the situation is under control, the setup of a rapid reaction force under NATO, when everyone knows that covert Russian troops are already present in Eastern Ukraine, can degenerate very quickly if Putin gambles that the west is too weak. A rapid reaction force, which could then enter Ukraine from the west to maintain NATO credibility, could quickly face a nuclear armed enemy.
A muscular US foreign policy in fact can be quite dangerous for the world. The US Republicans are already calling for more covert action in Ukraine, so the scenario of quick degeneration cannot be dismissed. At the same time, the Russians have doubled their efforts in improving ties with their South Eastern neighbours with the recent Sino- Russian gas pipeline deal symbolising Russia’s shift from west to east. The Chinese too know that if the Russians are checkmated, they will come under even greater pressure from the US pacific fleet and other Asian allies and be contained before they ever dream of challenging the hegemony.
The power dynamics of the African continent
The US is also ensuring that it contains Chinese advances in Sub Saharan Africa and wields considerable influence in the entire region, but has tolerated Chinese inroads into the continent as long as this does not change the power dynamics of the continent too much. Western Africa remains under the influence of the US and the Europeans, and the dynamics of East Africa still favour the US. While Africa has all the ingredients to make it in the 21st century, it also has all it takes to fail as well.
While regional blocks are likely to be reinforced in the coming years, we are unlikely to see further integration (beyond French speaking Western Africa) in terms of monetary and regulatory convergence. There are certainly plans to do so with a vision to even have one central bank one day, but anyone who understands Africa knows that the required politics to get the necessary fiscal convergence will be very tough. That being said, greater inter - continental trade is increasingly becoming a reality, and capital flows from both west and east towards the continent is likely to continue to grow in the coming decades.
By Sameer Sharma
The author is a chartered alternative investment analyst and a certified financial risk manager. This article reflects solely the personal views of the author.
Courtesy: Conjoncture Bilingual Journal of PluriConseil.