Back to the cold war?

The US and the European Union have come out with fresh economic curbs on Russia in a bid to bring it to heel over the Ukrainian crisis. Does the Washington-Moscow stand-off mark a return to cold-war politics?

From the standpoint of neo-liberalism, to which capitalist economies in the west are committed, economic sanctions do not make much sense. Measures such as these shrink the size of the global economic pie and prevent firms, particularly multinationals, from capitalising in full on the potential or real economic gains. The outcome is thus less than optimal.

Be that as it may, sanctions remain a powerful instrument of achieving foreign policy objectives. If they hurt businesses in the country imposing sanctions, they also impact the economy at the receiving end. In the end, their effectiveness depends on how strongly the economy placed under the curbs feels the pinch. At times, as in case of Iran’s nuclear programme, they may force a state to come to the negotiating table and shift, or at least revisit, its stance on the issue at hand.

At the moment, the discord between Moscow and Washington, and Brussels is on Ukraine, the largest country that is wholly situated in Europe. Russia has retained deep interest as well as considerable influence – cultural, political, and economic – in the other federating units of the deceased USSR, including Ukraine.

The same is manifested, in part, in the Commonwealth of Independent States (CIS). Comprising at present nine out of the 15 constituents of the former USSR, the CIS is a regional platform for economic and security-related cooperation. Ukraine was a founding member of the CIS but did not ratify its charter.

In addition, Russia, Belarus and Kazakhstan have set up the Eurasian Customs Union (members with common import tariffs), which has ambitions to be upgraded into a common market (with free movement of goods, labour and capital) on the fashion of the EU. Russia also wanted Ukraine to be part of the arrangement.

Instead, Ukraine struck an association agreement with the EU, which provides a framework for closer economic and security cooperation including a free trade agreement (FTA) initialled in 2012. Ukraine has enormous strategic importance for the EU, because more than 80 percent of the supplies of gas from Russia to Western Europe are made through that country.  Ukraine is a member of the Organisation for Security and Cooperation in Europe (OSCE) and has also been wanting to join Nato.

The association deal with the EU was struck down by the president of Ukraine allegedly at the behest of Moscow. This precipitated a series of protests culminating in the overthrow of president Viktor Yanukovych in February this year. Russia responded by annexing Crimea, where the majority of the population speaks Russian, “without a single shot” as President Putin put it.

The annexation of Crimea raised alarm in Washington and the EU capitals. Subsequently an accord was reached in Geneva on April 17 among Russia, Ukraine, the EU and the US. The pact called for a dialogue to sort out the situation in Ukraine but implicitly recognised the annexation of Crimea by Moscow.

Russia is the globe’s largest territorial power, has the largest stockpile of nuclear weapons, the largest reserves of natural gas and coal and is currently ranked by the IMF as the eighth largest economy. Therefore, its capacity for facing upon to international sanctions is substantial.

Multilateral sanctions cannot be applied on Moscow because, being a permanent member of the UN Security Council, it will veto any such proposal. This leaves the possibility of clamping only bilateral sanctions on Russia, as already done by the US and the EU. Such sanctions, however, can hit the Russian economy hard.

During the last two decades, Russia has undergone transition from a centrally planned to a market economy. The process has been rather painful – understandably so – but in the end fruitful. Both the economy and foreign trade registered substantial growth. Russia is now integrated into the multilateral economic and trading systems and since 2012 has been a member of the WTO.

Global integration is a double-edge sword that cuts either way. While it brings several advantages, at the same time it exacts some price. One of the obvious costs is that a country becomes vulnerable to the policies and actions of its trading partners. These partners, if they are as mighty as the US and the EU, can twist its arms to force it to knuckle under.

Washington, in particular, being the paterfamilias of capitalism as well as the world’s top trading nation has the tremendous capacity to influence, and at times dictate, the policies of other capitalist economies. It can, for instance, withhold the strategic or vital supplies, prevent the world’s leading banks and transnational enterprises from doing business with the entities of a ‘rogue’ state as well as get their foreign assets frozen.

Countries like Russia where crony capitalism is endemic and whose billionaires have large chunks of their wealth in the safe deposits of oversees banks are particularly susceptible to American pressure. In the end, the actual level of punitive measures will depend on how far Washington and its allies are willing to go.

The situation in Ukraine has been termed the worst ever east-west crisis since the end of the cold war. While that may be so, the stand-off by no means has the potential to revive cold-war politics. This is because the cold war had pitted not two nations or ordinary blocs against each other but two rival systems – collectivism (led by the USSR) and capitalism (spearheaded by the US) – based respectively on the mutually antagonistic philosophies of dialectical materialism (or Marxism) and liberalism. The lines had been drawn – and very clearly so. Marxism saw a relentless struggle between the two blocs until the capitalist democracies were overthrown, while it was the mission of capitalism to contain the march of socialism.

With the break-up of the USSR in 1991, the challenge of Marxism also withered away. Today liberalism is the dominant social philosophy and capitalism is the preeminent, if not the only, form of economic organisation. So the Moscow-Washington conflict is between two capitalist economies; it does not pit capitalism against a rival system.

The writer is a freelance contributor.Email: hussainhzaidi@gmail.com