The War Is Only in the Third Inning

The ongoing military conflict between Russia and Ukraine is taking place on two fronts. On the one side, the Russian military incursion seems bogged down, though that might simply be the way the news is being reported in the West. On the other side, the West, and only the West has risen up to smite the Russian bear-- through economic sanctions. Some accounts have it that the Russian economy is about to collapse completely, along with the Russian military effort in Ukraine.

Dare I say that we ought to be skeptical about these ideas. The game is still in the third inning and we do not know the outcome. On the one side, if things are not going well for the Russian military that might lead to increased bombardment and more civilian casualties. On the other side, if Russia has become an economic pariah, this might also mean that it is being pushed into a deepening alliance with China-- and also with countries in the Middle East and South Asia. One notes that the crushing economic sanctions and the violent rhetoric directed against Russia is not coming from nations outside of the West.

Anyway, here are two takes on the war’s two fronts. Writing in the Atlantic David French suggests that Russia seems to have miscalculated the Ukrainian resistance. One might also say, French writes, that Russia seems to have wanted to limit the number of civilian casualties, and thus did not begin the invasion with a bombing campaign:

Russia seems to have believed that Ukraine would collapse. It didn’t begin its invasion with a truly intense aerial or artillery bombardment because it didn’t think that would be necessary. Why destroy a city you intend to almost immediately control? Why risk inflaming Ukrainian (and world) opinion when you’d be presenting the international community with a fait accompli—something like the Crimean takeover, except on a national scale?

While we all thrill to the apparent breakdown of the less-than-formidable Russian military machine, we should take special heed of French’s next point, namely that the initial failure will most likely be followed by a stepped up campaign of violence:

But for all of the stories of Russian failure, here is the very bad news: Russia will far more likely respond to battlefield setbacks the way it traditionally has—with overwhelming firepower—than by seeking peace.

The history of warfare (including the history of Russian warfare) is replete with examples of early failures and terrible command decisions. But armies tend to be learning organisms. If the fight doesn’t go as they expect, they adjust tactics.

While we are cheering on the Ukrainian resistance, we should understand that the more they hold out, the worse things are going to get:

Indeed, as much as Ukrainian resistance has inspired the West, it’s hard to believe that a few days of fighting have chastened Russia or deterred President Vladimir Putin. Much more likely is that he believes he has no choice but to press on to victory. To preserve his power, he has to win. Prediction is a dangerous business, but the likelihood now is that Putin will step on the gas and increase the violence and intensity of his attack. The possibility that he’ll halt his forces in place—to say nothing of retreating from Ukrainian territory—is far slimmer.

For the record, remember what happened in Tiananmen Square thirty or so years ago. The students had achieved a great moral victory by standing down the Chinese authorities. And then we saw the image of a lone citizen standing strong against a column of tanks. The image has become iconic; we all marvel at the man’s courage.

A humiliated leadership, however, is a dangerous leadership. Once the man was removed from the street the Chinese authorities turned off the lights and cameras and directed the tanks to run over the students who were still remaining in the square. Using snipers and tanks they massacred the student demonstrators. When you think of how wonderful it was to see a single man stopping a column of tanks, keep in mind that it was a moment in time, one that led to an appalling tragedy.

For his part French sees some rather bad outcomes:

Putin can still lose by winning. In other words, the cost of his likely battlefield victory could be so great that it ultimately diminishes Russian power or even destabilizes his regime, but even so, imagining a scenario where Ukraine wins outright is difficult. NATO-supplied weapons may bleed the Russian army, but they seem unlikely to turn the tide on the battlefield. One can hope that the combination of Ukrainian courage, NATO weapons, and low Russian morale can turn the tide, but the odds against Ukraine are long.

It can choose to go “full Grozny” and turn Ukrainian cities into the most destroyed cities on Earth.

Yes, that would further galvanize world opinion against Putin, but he’s already isolated. He’s already sanctioned, and the Russian economy is already “reeling.” Moreover, it’s still early in the conflict. If the Russians ultimately break through, seize Kyiv, and kill or capture Ukrainian leaders, hope will give way to despair, the people of Ukraine will pay a terrifying price, and true independence will once again be a distant dream.

French concludes:

The West has woken up. NATO is united. Russia has already been made to pay for its aggression. But its army is still in Ukraine, grabbing more territory every day. It may learn from its mistakes, growing more aggressive to both destroy the Ukrainian resistance and deter additional foreign interference in the fight. If Russia does ultimately break Ukraine, the first flush of hope is likely to be forgotten amid the ashes of defeat.

As for the impact of economic sanctions and wealth confiscation, we are hardly qualified to assess it. And yet, listening yesterday to a member of New York City’s City Council promoted the idea of confiscating the city condos owned by Russian oligarchs elicited this reflection.

We wonder how much of the New York and the Miami real estate markets are being kept solvent by foreign money. And how much of that money is being parked in American condos because America is a safe and secure place to leave your money. We already saw what happened in Canada when the hapless Justin Trudeau decided to freeze bank accounts and credit cards. And we know that he had to revoke the order, apparently because there was a run on banks. What would happen to American real estate if foreigners decided not to invest-- not to mention what would happen if they chose to start selling out.

Anyway, one Pepe Escobar has reflected on the cost of the economic sanctions being visited on Russia. We have already offered David Goldman’s view, namely that they will push Russia closer to China and will damage the viability of the dollar as a reserve currency.

Escobar asked Michael Hudson his view of the current state of the economic war against Russia, one that, if you read the papers, seems to be succeeding:

To get the hang of how these NATO sanctions will “ruin Russia,” I asked for the succinct analysis of one of the most competent economic minds on the planet, Michael Hudson, author, among others, of a revised edition of the must-read Super-Imperialism: The Economic Strategy of American Empire.

Hudson remarked how he is “simply numbed over the near-atomic escalation of the US.” On the confiscation of Russian foreign reserves and cut-off from SWIFT, the main point is “it will take some time for Russia to put in a new system, with China. The result will end dollarization for good, as countries threatened with ‘democracy’ or displaying diplomatic independence will be afraid to use US banks.”

If you think it will be bad for the condo market if we start confiscating homes owned by Russian oligarchs, what will happen if foreign countries stop using our banks. That does not just include Russia-- it includes many Middle Eastern countries and even Asian states. The threat of confiscation now looms over Western banks.

And then there is the issue of the West’s need for Russian raw materials. As you doubtless know, we in America are still buying a considerable quantity of Russian oil. Apparently, Joe Biden did not take responsibility for that in his speech yesterday.

But, it is not just oil:

This, Hudson says, leads us to “the great question: whether Europe and the Dollar Bloc can buy Russian raw materials – cobalt, palladium, etc, and whether China will join Russia in a minerals boycott.”

Hudson is adamant that “Russia’s Central Bank, of course, has foreign bank assets in order to intervene in exchange markets to defend its currency from fluctuations. The ruble has plunged. There will be new exchange rates. Yet it’s up to Russia to decide whether to sell its wheat to West Asia, that needs it; or to stop selling gas to Europe via Ukraine, now that the US can grab it.”

As David Goldman and others have noted Russia will now be obliged to replace SWIFT with the Chinese version:

About the possible introduction of a new Russia-China payment system bypassing SWIFT, and combining the Russian SPFS (System for Transfer of Financial Messages) with the Chinese CIPS (Cross-Border Interbank Payment System), Hudson has no doubts “the Russian-China system will be implemented. The Global South will seek to join and at the same time keep SWIFT – moving their reserves into the new system.”

De-dollarization is not a good thing for America. Escobar explains some of the potential consequences:

As the managing director of Bocom International Hong Hao told the Global Times, with energy trade between Europe and Russia de-dollarized, “that will be the beginning of the disintegration of dollar hegemony.”

Those with IQs over 50 in the European Union (EU) must have understood that Russia simply could not be totally excluded from SWIFT, but maybe only a few of its banks: after all, European traders depend on Russian energy.

From Moscow’s point of view, that’s a minor issue. A number of Russian banks are already connected to China’s CIPS system. For instance, if someone wants to buy Russian oil and gas with CIPS, payment must be in the Chinese yuan currency. CIPS is independent of SWIFT.

Additionally, Moscow already linked its SPFS payment system not only to China but also to India and member nations of the Eurasia Economic Union (EAEU). SPFS already links to approximately 400 banks.

With more Russian companies using SPFS and CIPS, even before they merge, and other maneuvers to bypass SWIFT, such as barter trade – largely used by sanctioned Iran – and agent banks, Russia could make up for at least 50 percent in trade losses.

The key fact is that the flight from the US-dominated western financial system is now irreversible across Eurasia – and that will proceed in tandem with the internationalization of the yuan.

Dare I say that this is not good news. Nor is our continuing dependence on Russian raw materials:

As for blocking Russian raw materials exports, “this threatens to cause breaks in supply chains for key materials, including cobalt, palladium, nickel, aluminum.”

And that leads us, once again, to the heart of the matter: “The long-term dream of the US new Cold Warriors is to break up Russia, or at least to restore its managerial kleptocracy seeking to cash in their privatizations in western stock markets.”

That’s not going to happen. Hudson clearly sees how “the most enormous unintended consequence of US foreign policy has been to drive Russia and China together, along with Iran, Central Asia and countries along the Belt and Road initiative.”

Then, Escobar makes another telling point, one that I have not seen elsewhere. If Russia is a pariah state, what would prevent it from its own confiscation-- of Western technology:

Arguably, the lethal weapon in Russia’s arsenal of responses has been identified by the head of the Center for Economic Research of the Institute of Globalization and Social Movements (IGSO), Vasily Koltashov: the key is to confiscate technology – as in Russia ceasing to recognize US rights to patents.

In what he qualifies as “liberating American intellectual property,” Koltashov calls for passing a Russian law on “friendly and unfriendly states. If a country turns out to be on the unfriendly list, then we can start copying its technologies in pharmaceuticals, industry, manufacturing, electronics, medicine. It can be anything – from simple details to chemical compositions.” This would require amendments to the Russian constitution.

Koltashov maintains that “one of the foundations of success of American industry was copying of foreign patents for inventions.” Now, Russia could use “China’s extensive know-how with its latest technological production processes for copying western products: the release of American intellectual property will cause damage to the United States to the amount of $10 trillion, only in the first stage. It will be a disaster for them.”

As it stands, the strategic stupidity of the EU beggars belief. China is ready to grab all Russian natural resources – with Europe left as a pitiful hostage of the oceans and of wild speculators. It looks like a total EU-Russia split is ahead – with little trade left and zero diplomacy.

Sorry for the length of this post, but the points made, by both French and Escobar, are well worth pondering. Or, as the old saying goes, don’t get cocky.