Geopolitical calculations and military miscalculations 

The war currently unfolding in Ukraine has its roots in a number of factors and events, dating for some of them to Soviet – or even pre-Soviet times – and for other factors related to the 2013-2014 crisis that led to the first territorial cracks in this post-Soviet Republic. A thorough account of the crisis and its genesis is provided by the likes of John Mearsheimer (cf. this interview published in The New Yorker). Basically, it all comes down to a messy attempt to fix the “Security dilemma”, as emphasised, among others, by Dani Rodrik, a Professor of political economy at Harvard, in a column published in Project Syndicate. 

Russia’s invasion of Ukraine – or the ‘special military operation in Ukraine’ as it is still referred to in the Kremlin’s talking points – was supposed to be a Blitzkrieg, like Georgia ’08, bringing the adversary to the table of negotiation at a sweeping speed and securing major geopolitical gains at the strike of a pen, with a minimal cost in terms of reputation – the sovereign equivalent of corporate “goodwill” – and in terms of human and material casualties. Instead of that, the war of movement morphed into an excruciating war of position. 

Ironically, as reported by the Financial Times in an article published on March 1st, Putin – a former KGB intelligence officer himself – might have been misinformed by his intelligence service and the broader security apparatus, leading him to overestimate his chances of achieving a rapid victory, following an initial coordinated attack on critical military and civilian infrastructure nodes of a country larger than France, with a population as big as Spain’s. 

The humanitarian crisis and the reconstruction challenge 

The toll of human and material casualties has been mounting at a worrying speed. Between 24 February and 15 March, the Office of the High Commissioner for Human Rights (OHCHR) recorded 1,900 civilian casualties – with 726 people killed, including 52 children. Actual figures might well be several times higher, as the Ukrainian side and some Western-backed Media and NGOs report it, but it is difficult to have an objective and accurate assessment of the situation before a cease-fire is reached. The number of refugees, mostly women and children, is counting by the millions. The latest UNHCR Ukraine monitor puts it at 3.5 millions as of March 16, but it might well exceed 5 millions before the war stops. Most of these people will go back to Ukraine, only to face the daunting challenge of reconstruction. Beyond the management of the humanitarian crisis, it will be paramount for the international community to dedicate sufficient funds to rebuild the country, regardless of any compensation that could be expected from Russia, which is likely to take years to be recovered. 

The Sanctions paradox, the Camels and the Elephant in the Room

The sanctions waged against Russian organisations, individuals and assets by the United States and their allies (mostly Canada, the UK, the European Union and Japan) are arguably the most impressive ones any major economy had to face in the post-Cold War era. 

More than any sanctions on individual companies or oligarchs, the most penalising sanctions in the short term are those intended to cut Russia from the international financial system. This encompasses an effective ban on Russian companies and financial institutions ability to access Western banks and capital markets and, more radically, the freezing of Russia’s foreign assets held in the US, EU, UK and Japan. The latter is an unprecedented measure against an economy the size and importance of Russia’s. This was probably intended to prevent the Kremlin from bankrolling a long war of attrition that would follow the initial “Sturm und Drang“. But exceptions have been carefully carved-out to allow for the payment of gas shipments from Russia to Europe and …for the payment of coupons on Russia’s sovereign debt in US dollars. As it happens, averting a sovereign default – even in a watered down technical form – was a higher priority for the financial industry and its lobbyists in DC, than applying a blanket sanction regime. 

There is by now a large body of literature on economic sanctions, their intended objectives, their supposed efficiency and their lacklustre results. The Amazon reading list for Sanctions counts innumerable replicas and copycats on this topic. Some good, some bad and some pretty ugly. A few stand out in this crowded niche. Among them ‘War by other means‘, published in 2017 by Robert Blackwell and Jennifer Harris, two Senior Fellows at the DC-based (and backed) Council on Foreign Relations. The title of their book is explicit. It refers to Clausewitz’ famous aphorism that ‘War is politics by other means’. However, they fail to acknowledge the capacity of many nations to adapt to the sanctions. Much like Camels and other animals found in desert environments have adapted their physiology to the scarcity of water in the desert. 

Over time, as a result of this adaptation sanctions erode the actual underpinnings of the legal and operational systems through which they operate as the quest for alternatives triggers the development of new ‘sanction prone’ systems. North Korea, Iran and Venezuela are cases in point. Russia, however, is in a league of its own. As some financial institutions were deemed – and remain to this day, despite all the ‘Basel-to-Infinity rules’ – ‘too big to fail’, Russia might well be considered as ‘too big to fail’. This is perhaps the immediate lesson from J.P. Morgan’s processing of Russia’s bonds.

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