Home News Russia’s isolation will change the world – Derek Thompson

Russia’s isolation will change the world – Derek Thompson

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Russia’s isolation will change the world – Derek Thompson

15 March 2022 15:37

Within days, the United States, Europe and other countries excommunicated Russia from the world stage, isolating the world‘s 11th largest economy financially, commercially and culturally. The United States and Europe froze foreign assets held by Russia’s central bank, affecting the country’s ability to stabilize its currency. Private companies, including Apple, Netflix, Adidas and BP, have cut off the Russian market and the United States has taken steps to ban Russian oil imports. Sports leagues, film festivals and other cultural institutions ousted Russian competitors. McDonald’s will close its branches in Russia.

Many of these measures are unprecedented for a country the size of Russia. Collectively, they represent a radical experiment in moral punishment on a global scale. If Vladimir Putin wished to expand the Russian empire by the use of force, the result he achieved is the opposite: the downsizing of Russia through an unprecedented demonstration of soft power.

A leap into the dark
The immediate consequences are already shocking. On both sides of this new iron curtain, commodity prices are skyrocketing and economic indicators are plummeting. Oil is at its all-time high and the Nasdaq is in a steep decline. Nickel prices soared and the ruble fell by 50 percent. Wholesale energy prices in Europe have broken all historical records and a European recession is now more than likely. Economist Mark Zandi said there is a “one in three chance” that the United States will go into recession this year.

And this is only the beginning. Like all new experiments, Russia’s collective punishment is a leap in the dark. We shouldn’t be too sure how long these measures will last, or the kind of unintended consequences they might have. After some reading and after speaking with the experts, however, I have focused on some significant and long-term effects. Here are three ways Russia’s economic blackout could change the world.

The clean energy revolution will go at the speed of light

Technological revolutions in the twenty-first century tend to be very fast. It took about ten years for the percentage of Americans with a smartphone to go from zero to 80 percent. However, energy revolutions are proceeding more slowly and the transition to clean energy has lengthened particularly in the United States and Europe, which may be surprising given the decline in solar energy prices. The West simply refused to create clean energy projects fast enough to decarbonise the electricity grid.

Russia’s war could accelerate the green revolution in two ways. First, it will increase political pressure on the governments of the United States and Europe to reduce dependence on Russian oil and gas (the United States has already stated that it wants to stop energy exports from Russia and Europe is considering a similar prohibition). In the short term, countries will rely more on oil and gas reserves to keep prices down. Over time, however, the Russian energy boycott could drive up the price of thermal energy enough to force countries to set up more wind and solar energy projects.

For years, clean energy projects have been hampered by anti-growth fears, anti-nuclear sentiments and a general sense of “not in my garden”. The urgency of an external threat could wipe out some. “We can’t talk about a revolution in renewables if it takes seven years to get permission to build a wind farm,” said European Energy Commissioner Kadri Simson. “It is time to treat these projects for what they are, ie priorities for the public interest.”

Market shift
Second, rising energy prices will change consumption preferences, prompting more consumers to move away from gasoline and diesel cars. Today, less than 5 percent of the US auto market is entirely electric. However, the industry is pushing a lot on electric vehicles. Nearly one in two automobile commercials that aired during the Super Bowl involved an electric vehicle. This market shift could be combined with a substantial increase in gasoline prices causing more Americans to buy electric vehicles, which in turn will encourage more auto companies to produce electric vehicles. The cost of these vehicles could consequently drop, pushing demand up.

The possible shift from energy suffering to energy progress has a historical precedent. In 1973, OPEC cut the United States and other countries out of access to its oil, resulting in higher prices. Although many Americans associate that period with economic stagnation, the crisis pushed American auto companies to become more energy efficient. The current fuel economy measured in miles per gallon in the United States was born in 1973. Fifty years later we are witnessing the same dynamic: the shock of energy suffering is driving decades of progress.

Due to the trade excommunication, Russia has become very dependent on China, which has alternated its positions from blaming the West for the conflict in Ukraine to distancing itself from Russia, from refusing to talk about invasion to condemning it. civilian victims to appeals for peace. Rhetorical chatter aside, China continues to trade with Russia and Beijing is seriously considering acquiring stakes in Russian energy giants abandoned by Western companies.
Michael Cembalest, director of market and investment strategies at JP Morgan asset management, notes that Russia and China were getting closer even before the Ukrainian crisis. Since the Russian invasion of Crimea in 2014, trade between the two countries has increased by 50 percent. “Russia is today the main recipient of the Chinese state financial sector”, writes Cembalest, recalling how China and Russia began to use their currencies to sign agreements as early as 2010, “opening a foreign exchange swap line in 2014 which rapidly reduced dependence ”on the US dollar.

Adding all these factors together, it seems that China could become the last resort for Russia, which in this way could become a kind of giant North Korea, the rogue state that since 2010 depends on China for about 90 percent of its population. commercial exchanges. A plausible scenario is therefore that Putin’s failed attempt to expand the Russian empire will grow the Chinese empire, as Russia will have to rely solely on China to avoid economic ruin.

A global fight for food

Ukraine and Russia feed the whole world. Together they cover about 30 percent of world exports of wheat, 20 percent of corn and 80 percent of sunflower oil. Several countries, including Egypt, Turkey, Bangladesh, Sudan, and Pakistan receive half or even more of their grain from Russia or Ukraine. According to broadcaster NPR, generally one in eight calories traded between different countries comes from Ukraine or Russia. And now the two countries are at war. Russia and Belarus are also important fertilizer exporters. Rising fertilizer prices could have a huge impact on yields as well as causing bread prices to soar.

As my colleague David Frum explained, a global fight for food would not be bad news for all of the world‘s poor. About two-thirds of Sub-Saharan Africans make a living from agriculture, and as food prices rise, they could earn more and experiment with new innovations to boost productivity. Many of the countries most dependent on imports from Russia and Ukraine have foreseen the possibility of trade disruptions and have accumulated sufficient stocks of wheat and corn to go on for several months.

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However, the long-term risks of political instability cannot be underestimated. Several analyzes of the popular uprisings of 2011 that overthrew the governments of Tunisia and Egypt during the so-called Arab Spring have traced its origins to an increase in the prices of foodstuffs, especially cereals. The war between two large granary countries will have an even more devastating impact on prices. If it is possible to draw some indications from what happened in 2011, more than an Arab spring we could expect a world spring, a wave of global political instability. The last few weeks have already demonstrated the strength of the social cascades: what began as a financial sanction against Russia has become a worldwide boycott of the country. Let’s imagine a social cascade fed not only by ethical correctness but also by hunger.

(Translation by Giusy Muzzopappa)

This article was published on the site of the US monthly The Atlantic.

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