Where does the war in Ukraine leave the Eurasian balance of power ?

While all eyes are on Russia and Ukraine, the row of dominos pushed over by Putin might end in Asia.

By Emil Møller

For the first time since the invasion on February 24th, the war in Ukraine turns in favor of the brave Ukrainians fighting for their homeland. While it is still too early to say anything about how the war will turn out, it is clear that as long as tensions between Russia and the West remain high, Russia will suffer economically and be at the mercy of its few remaining allies. In this post we will look at how the war in Ukraine accelerates the demise of Russia as a great power and where this leaves the balance of power across the Eurasian landmass.

A Frozen Europe

While Russia is struggling on the battlefield, the effect of their economic warfare on Europe is just beginning. A Europe ill prepared for a winter without Russian gas, is headed for a power and energy crisis, threatening both the European economy and, potentially the stability of the European Union. With energy costs in the stratosphere, the European economy is in the ropes. Worse still, so is the sustainability of its financial infrastructure: German growth is taking a hit as german consumers and german industry is tumbling, leaving little room to finance the struggling and heavily indebted economies of the Eurozone. Meanwhile, the bill in the south is exploding and the ECB has little maneuverroom left to help, as it is already battling with inflation. What Europe is facing is not an accident; it is failure by design. In fact, it is a design that the Kremlin has well-worked playbook to exploit: Stack foreign political elites with cronies to do your bidding whilst applying trade, and especially Energy dependence, as leverage to enforce your will on naive and/or weaker nations. It did it in the days of the USSR and even after its demise, Russia tamed its newly liberated post-soviet neighbors this way. This historic precedent serves to underline just how major a policy failure European energy planning has been. One they will pay for in years to come.

But there is likely more to Putin’s plan. The other pillar of this devastating policy is to block Ukrainian food exports from the black sea and create a food shortage in order to fuel political unrest in middle east and north Africa. Despite aligned with Putin’s view of “the decadent west”, weaponizing western humanitarianism is only a feature of this policy - The possibility of creating massive migration waves to Europe, is probably the main threat, especially with the migration crisis of 2015 still in recent memory.

But does Putin’s political pressures on Europe make up for what his army is lacking on the battlefield? Hardly. The current deadlock between the West and Russia is very likely to last years unless some sort of solution to the conflict is found. Thus far no acceptable compromise has been reached between Kyiv and Moscow, and despite the recent counteroffensive, there is no sign that Putin is willing to accept a defeat. While the sanctions are crippling Russia’s economy, Moscow is forced to reshape its balance of payments and replace its lost western market. It is not only compelled to commit to a redirection of trade with its massive energy resources, and with huge investments to follow (especially for gas), but to do it from an apparent point of weakness. Moscow’s current predicament may be a result of poor assessments and miscalculations, but since the “forever war” scenario includes different parties with conflicting interests – the most unforeseen consequences of the war, maybe its contagion to Asian geopolitics.

The Bear and the Dragon

It was reported in NYT that American intelligence had snatched up that Russia consulted with the Chinese before invading. Although it must have been clear to the Kremlin that the war in Ukraine would lead to political retaliations from the West, it seems like the extent of these have surprised Moscow, as no effort was made to secure foreign assets in western-based central banks before the incursion- an error the CCP is committed to avoid. For Russia, a key economic priority is to replace the export markets they lost, and China is the obvious candidate for replacing them: China is the biggest oil importer in the world, and Russia its largest exporter. The gas pipes from Siberia into China currently under construction are a testament to their mutual interests and expanding trade relations, one party being the world’s largest petrol station, the other its main factory hub. Furthermore, Russia needs access to key tech imports, and China has the economic power to facilitate sleeve trade around the ongoing sanction regime at bearable costs - at least for some of them - and besides China is producing plenty of gear themselves. As for China itself, it is starving for cheap energy to fuel its large population and heavy industry, despite its efforts to switch to nuclear and renewables.

With that in mind, trade between the two will likely expand significantly in years to come. Their respective interests are simply too complimentary to circumvent. There is a thorn in the rose, however. Regardless of their shared trade interests, the two have historically and culturally plenty of animosity between them. USSR was the global communist power and an umbrella to all the emerging communist regimes around the world whilst China played second flute. The grandiose self-perception of being a world superpower lives well in the Kremlin along with the USSR romanticism. Accepting the role of a Chinese vassal is a central fear among the leading foreign policy intelligentsia in Moscow, which partially explains Russia’s latest move to diversify its weapon imports with the produce of North Korea.

The Indian Elephant in the room

China is the closest to a hegemon that the Asian continent has to offer. Obviously (well for most non-Russian nationalists anyway) it is the biggest power, and with a nominal GDP 3-4 times larger than that of India and Russia combined, it is not really challenged economically by its neighbors. Nevertheless, power is not limited to economics: Besides an abundance of energy and raw materials, Russia has around 20 times more nuclear warheads than China - a valuable asset for anybody attempting to rival the military might of the United States. But locally it is in India, we find the primary concern for Beijing. China and India are currently engaged in a long-lasting border dispute which heated up again during covid. Troops in the tens of thousands are currently tied up on either side, but thus far casualties have remained minuscule. The tension has also transcended to the economic sphere, as India has sanctioned certain Chinese companies - although this step is probably more aligned with long-term policy goals of India, rather than an actual attempt to pressure Beijing into concessions. Afterall China’s economic power dwarves that of India, both in bilateral trade between the two and in the global economy.

What long-term policy goals? Well, copying China’s economic growth model is easier without hostile interventions from the apparatus of China’s state capitalism. Despite its smaller economy, India has a certain fundamental in common with China, the very same that CCP’s economic success is built on: a massive labor force. Coupled with significantly lower wage levels, it poses a long-term risk for Chinese industry, and thus its growth model, especially whilst western supply chains are undergoing de-risking away from hostile nations. Beijing is aware of the threat posed by India’s economic potential, it has been there itself: In the early 1990s, China’s GDP per capita (PPP) was a little below that of India, today it is almost 2.5x higher. In nominal terms, only $40 billion (in current $) separated the GDP of the two in 1990. Today that figure is a whopping $14 trillion. Whether India ever performs a growth miracle like that of China is highly doubtful, but even so its economic potential is a threat to China’s economy and its political power.

To undermine India’s ascension on the geoplitical stage, Beijing has sought to support India’s archrival, Pakistan. Some have speculated that Pakistan and India both would be better off breaking bread instead of engaging in a cold and unpredictable conflict. Perhaps a view of merit from a hard rationalist, but hardly a perspective with much realism, given that the two have been at each other’s throat for decades and that differences seem to favor each leader’s populist agenda domestically. What is rational for a country might not be rational for a leader and as long as that is the case a Pakistani-Indian alliance is not a likely prospect.

In terms of diplomatic relations India is balancing on eggshells: on the one hand, it is lobbying for western money, especially from its largest trade partner the USA (a position the US has recently overtaken from China), and on the other, it has moved considerately closer to Russia. For years the Indians have imported Russian arms and bullets whilst Pakistan has been supported by Beijing. Even its expansion in nuclear energy is assisted by Russian know-how. In addition to its nuclear reliance, this year’s temptations of heavily discounted Russian oil have been too big to pass on amidst the ongoing energy crisis. As a result, the Indian import of Russian oil has gone from nothing to almost matching that of China in a year. Meanwhile, Prime minister Modi is touring the residences of western leaders to charm commercial interests and attract foreign investment. He understands that western interests in India are not negligible, giving the cold front against Russia and China- a fact he is cleverly exploiting. Modi has some room to do so, as the White House is very aware of India’s deteriorating relationship with China, and that India’s attempt to copycat the export growth model of China favors American interests at the expense of those of Beijing.

Rearranging the Asian order

Although it is hard to predict – especially about the future - the shift in the dynamics seems clear if the tension between Russia and the west remains. It is a concern that all three major Asian powers: Russia, China, and India- are currently expanding their nuclear arsenals despite engaging in joint military exercises in the east. The exercises merely work as posing a united Triad along with expanding armaments budgets- a dress which is unlikely to hide the mutually exclusive interests between them from Western military strategists. The expansion in nuclear warheads, however, is a risk factor that only enhances the importance of the ongoing diplomatic fractioning.

The war in Ukraine will inevitably result in an economically drained Russia. Its new position in the Asian landscape will expose and intensify the conflicting interests of China and India. Bismarck’s rule of not letting oneself be exposed to hostile alliances is one Putin has broken. China and India have both criticized the war publicly, while at the same time not joining the sanctions against Russia nor otherwise actively harming Russian interests. Neither of them wants to make an enemy out of the Kremlin, but both can accept a future with a significantly weaker Russia. Putin was left with his hat in hand failing to acquire the favor of either of his powerful neighbors during the recent summit in Uzbekistan. This is the new Russian reality in Asian power politics. Russia has no real leverage on either side of the Himalayas, but is itself heavily dependent on the energy demand of the two, to make ends meet in its export based petro-economic model. Putin has been reduced to a pawn between the two most populous countries in the world- largely a result of his own folly. While both India and China have been treating with Putin, he is not the primary concern for either party, both of them being more concerned with their internal rivalry. Instead, it looks like the increasingly isolated Putin can expect to be pushed around and exploited by India and China in years to come. But Putin’s gamble has not solely accelerated this development- it has changed the trajectory of Asian power dynamics and taken it beyond an irreversible threshold, which leaves the Kremlin with few opportunities but to succumb to Beijing’s will. Beforehand Russia could play out the energy card between the net importing heavyweights in China and India. Now Russia is crippled by sanctions, turning Moscow into a price-taker all the while its weak military capabilities have been left exposed for all to see.

The new power equilibria in Asia begs the question: Who has benefited from Russia’s misstep? While the war itself has no end in sight, in relative terms China may have won an edge on an already inferior ally at little expense. The war is showing Europe that foreign policy is more fraught with danger than it had realized, leading not only to the militarization of the continent, but also binding it closer to its American Ally.

It seems that an inevitable consequence of Putin’s bid to recapture Russias fading power status by anexing chunks of its old empire, is to strengthen either side of the world rivalry between America and China. Their holds on their respective spheres of influence have only grown as result- and in Asia with India taking the role of the Kingmaker. One Putin could have gone for himself.

Emil Møller is a regular writer for Unreasonable Doubt where he writes about everything from markets and geopolitics, to history and philosophy. Emil works in independent finance and has a background in economics.