Are We Ready For the New World Order?

Russia’s invasion of Ukraine shocked many, including this writer, with its aggressive and broad nature. Many expected increased support for the Donbass and Luhansk separatists, but not a full scale invasion, heading straight for the capital. With this aggressive step, a new world order becomes clearer, a world order shifting away from US and broader western dominance. Whilst many have spoken on declining US power or de-dollarisation in recent years, this feels like a moment in history to bookmark a significant shift.  

We are potentially emerging from a long period of US hegemony into a multipolar world order. Russia has modernised its military to become a truly strong, great power, whilst any sniping jabs at the size of its economy (being comparable to Italy or Belgium’s), should be firmly rejected as fantasy. In terms of purchasing power parity, its economy is comparable to that of Germany, except Russia has far greater reserves of foreign currency and gold. The new multipolar world, therefore, is defined by no clear dominant force, as well as interchangeable alliances based on realist calculations.

It is clear that Putin recognises this new reality and has moved accordingly. Epitomising this is the careful balancing act of maintaining amicable relations with both India and China, with both nations abstaining instead of condemning Russia’s invasion of Ukraine in the UN. Perhaps even more symbolically, Azerbaijan has, in the past two days, signed a broad economic strategic alliance with Russia. Crucially, in point 25, Azerbaijan and Russia agree to “refrain from carrying out any economic activity that causes direct or indirect damage to the interests of the other Party.” With this agreement, Azerbaijan effectively departs from a longstanding pro-western, pro NATO foreign policy, a move which very much surprised their adversaries in Armenia. Nevertheless, Azerbaijan appears to have assessed the inevitable geopolitical split and picked a side.  The importance of this cannot be understated, as Russia now maintains close strategic relations with two other significant gas exporters; Azerbaijan and Kazakhstan. With Russia now excluded from SWIFT, making it almost certain that oil and gas sales to Europe will be stopping or significantly slowing; Europe will be desperate for increased supply. Yet, Putin may have ensured that two major gas exporting nations will not be doing so.  As such, as European leaders declare full economic war through SWIFT exclusion and seizure of Russian Central Bank assets, they may find it to be a war they cannot win. Russia may be temporarily without revenue, but Europe may well be without power, certainly without affordable power.

What we have failed to understand, is that Putin, Xi and others see the world differently to most in the West. As western leaders did too until relatively recently, they see the world through the lens of power. Assessing who has power and how they can gain more over the long term. Almost certainly, the outrageous blunder of our Afghanistan exit sent a strong signal to Putin, that western power is slipping, and he is able to capitalise. The EU, UK and US have, however, agreed to trigger the nuclear option in economic terms. Let’s not forget that in 2019, the oil market was flooded with Russian oil in a brutal attempt to crush the Saudis. Make no mistake that Putin sees the energy market through this lens of a power struggle.  EU leaders do not appear to have prepared for this eventuality and the resulting catastrophic supply shock.  With inflation already running hot and central banks addicted to easy money policy, a gas supply shock on this scale could send Europe into a stagflationary disaster.

What has changed in the past few days, is that money, the US controlled global financial system is now being used as a weapon. Putin has likely been preparing for this since it was first threatened in 2014, exploring alternative clearing systems with both India and China. The much-predicted end to dollar hegemony now seems inevitable, with a multipolar financial system likely emerging alongside a multipolar geopolitical order. I hope our western leaders have considered the old proverb that one should not start wars he cannot win, otherwise we may find ourselves rudely awakened to the vulnerability of our inflated, financialised service economy.