Chris Johns
I’ve resisted writing about Ukraine for, I think, obvious reasons. We are all ‘doom scrolling’ now, looking at the outpouring of news and analysis - often from new and unlikely sources. I am putting pen to (virtual) paper partly because I need to try and organise my own thoughts but mostly because so many people are paying me the compliment (at least that’s what I think it is) of asking me what I think.
Nobody knows how things will develop, let alone end. Honest commentators list potential scenarios. Painfully honest commentators stress their scenarios have low probability and probably don’t include what will actually happen. Expect the unexpected.
Some leading commentators helpfully give us lists of the people they are following to try to keep up with events and make some sense of all of this. Noah gives us his list of >50 Twitter accounts. I thought I read a lot.
Rather than an attempt to encompass all of the bewildering aspects of this crisis, I’ll take the lead from my interlocutors and focus on three main areas. First the issue of the no-fly zone. An issue which embraces most aspects of the war. Second, the global economic consequences of Putin.
Before I explore these two broad areas I’ll state one key conclusion up front.
Taking my lead from the FT’s Martin Sandbu, there are moral, economic and ‘sanctions effectiveness’ arguments for imposing a total ban on imports of Russian oil and gas. Sandbu’s brilliant pieces are behind a paywall so I will summarise them here, adding one or two thoughts of my own.
First, cutting off Russian revenues from oil and gas will have maximum impact if it is done now. Other sanctions have cut them off from their central bank reserves and they have had no time to rebuild their cash pile. The $1 billion (or more) they get every day from oil and gas pays for the war and allows them to replace their sanctioned reserves.
Second, a point about all war tactics: do things at a time of your choosing (including things like no-fly zones - don’t do these things when your enemy wants you to). Putin will probably cut off oil and gas exports once he has rebuilt his reserves. So get in ahead of him.
Third, Spring is around the corner which maximises our chances of finding alternative energy supplies during the time when we least need them. We can even build reserves ready for next winter. All of this will be difficult but doable (just about).
Fourth, hitting Putin as hard as we can maximises the chances of getting rid of him, even if that still takes a long time.
I would add that there are moral arguments to this, not unrelated to the calls for a no-fly zone. We should simply not be trading with Russia, whether or not sanctions ‘work’. If failing to implement a no-fly zone is ‘appeasement’ - as many argue - then financing the Russian war effort is surely the ultimate form of appeasement?
Cutting off Russian hydrocarbons will involve economic pain. That has general applicability: the time has come to make several sacrifices if our way of life is to be preserved.
The Military Options
I’ve been following lots of people on Twitter who claim expertise in something new to me: ‘Open Source Intelligence (OSINT)’: some truly incredible stuff, carefully selected, is available on Twitter. Whether I am reading and listening to stuff that has more than a nodding acquaintance the truth remains to be seen. That said, I’d be willing to bet that the intelligence services are following the same OSINT accounts as me.
There are so many strands to all of this, first and foremost being the human tragedy. The deaths, injuries, physical destruction and refugee crisis. Watching all of this prompts many people to ask, ‘what’s next?’ Nested within that question is another: ‘should Nato impose a no-fly zone to try and stop the carnage?’
I am not a military expert so have no answer to the no-fly question. But military types, often with impressive sounding credentials, seem to offer two diametrically opposed answers. Lots of people without obvious military expertise want NATO intervention:
Ukrainians want a no no-fly zone, as eloquently expressed by its President on numerous occasions. Some journalists drip with sarcasm when they criticise NATO’s opposition to a no-fly-zone. Many say that allowing Russia freedom to roam over Ukrainian airspace is appeasement.
Western leaders and NATO (in particular) respond in more or less the same way: direct military intervention in Ukraine will risk further escalation and perhaps even a nuclear confrontation. Putin has explicitly threatened that this will be his response.
Superficially (perhaps), it might be argued that a confrontation with Putin is inevitable. He will not stop at Ukraine. So, if military engagement is inevitable, best it were done quickly. I have had similar thoughts myself.
But some of those military deep thinkers say that this is exactly what Putin wants: an excuse for escalation, a confrontation with NATO in Ukraine is why, he might argue, he started the war in the first place and will ‘justify’ the invasion. Or something like that. The war’s outcome is already very different to the one Putin expected so he has to shift the narrative.
Putin’s desire for escalation is such that there are now several stories suggesting a chemical/biological attack is imminent, designed solely to provoke the West into action. Some intelligence sources say that a ‘false flag’ operation (Putin shoots down some of his own or Belorussian planes for example) will be the excuse for direct confrontation with the West.
This line of reasoning leads to one conclusion: whatever you do, don’t give Putin what he wants. That, I think, runs into a problem: do we know what he wants? Does he? We then get all that stuff about his mindset: is he mad or perfectly rational. I’ve seen eloquent and convincing arguments about both possibilities. Are we certain that he ‘won’t stop at Ukraine’? If he is serious about his revanchism in general and restoring the USSR (in one form or another) in particular, then we are back to another (awful) conclusion: war with Russia is inevitable.
Putin’s threat to use nuclear weapons if the West does something he doesn’t like means that failure to confront him at some point will allow him to do whatever he likes. That has led some to call for a rethink of the whole nature of deterrence. Once someone credibly commits to using nuclear weapons what should be our response to anything they do? If we fall back every time they threaten, all we will ever do is fall back. Lots of people think that we have been falling back for decades, particularly when Obama and Merkel led the West’s non-response to Putin’s many prior outrages in Eastern Ukraine, Crimea, Syria and Chechnya.
That the war has not gone the way Putin expected seems to be self-evident. But that has not led to any suggestions of compromise from the Kremlin. The failure of the ground invasion to make enough progress in the early days, the puzzling failure by Russia to eliminate Ukraine’s air defence capabilities and the response by Ukraine’s ground forces (including civilian resistance) has instead resulted in indiscriminate shelling of cities and towns. We have learned nothing about Putin’s ultimate objectives.
Not knowing what your enemy wants massively complicates the task of opposition. I do not envy those who have to make the necessary decisions. I think it’s a good that the US has Biden. Just imagine if Trump was in charge. Just imagine if this war is still going on in 2024 when Trump might well regain the Presidency.
When John F Kennedy was President, his advisers urged him to go to war over the stationing of Russian nuclear missiles in Cuba. He didn’t listen to their advice. But he did confront Khrushchev. Crucially, Kennedy recognised that he would have to talk to the Russians and negotiate, no matter how evil and wrong they were. Those talks would involve compromise (ultimately, removal of some US missiles from Turkey). Whether that’s appeasement or realpolitik depends on which armchair your historian is sitting in. If you want further catastrophe, box Putin in such that he doesn’t have any means for an exit strategy.
Max Hastings, an eminent military historian, has forcefully argued that we will need to negotiate with Putin, just as we negotiated with Khrushchev. Most other outcomes - other than a Kremlin coup - don’t bear thinking about.
The Economics
The economic consequences of the war merit much more space than allowed for here. I will write more about this soon. Here are some summary, slightly random, thoughts.
Anything we say about the economic outlook is always contingent. Today, anything we say could be out of date before we finish this sentence. On current prices, our household energy bills will triple over the next year. Other outcomes are equally likely. That’s how uncertain things are right now.
As usual, I will suggest that ‘it all depends’. Mostly on how long the war lasts and how far Putin wants or is allowed to escalate.
The energy price shock (and other commodity price increases) is the most visible economic consequence of the war so far. Agricultural and other exports from Ukraine and Russia will lead to food (and other) price hikes and perhaps actual shortages. Inflation will probably hit double digits in one or more countries.
It’s not the 1970’s, a global recession is possible but by no means certain. Our economies are not as dependent on oil as they were back then. A lot depends on the absence of policy mistakes - interest rate rises should be minimised and finance ministers need to learn, again, to be relaxed about budget deficits. But the chances of a policy error are high.
Higher energy prices are an income shock: we will all have less money to spend. Our standard of living will be less than it would of been. In a weird kind of way, higher energy prices will ultimately be disinflationary because they mean lower economic growth.
Food and energy price inflation will affect the poor disproportionately. Previous food and energy price spikes have led to political turmoil and will probably do so again. The ‘Arab Spring’ and ‘French Yellow Vest’ protest movements had their origins in high prices and low incomes.
Finding new energy sources should prompt the next boom in alternative energy production. We have to stop NIMBYism, particularly with regard to wind farms. But also in many other areas. But, in the short term, there is going to be more use of coal and other high carbon sources. We are not in Cop26 any more Toto.
Oil executives have expressed fears that the higher the price of energy, the more permanent demand destruction will be. Good.
In the short term I expect (very tentatively) stock markets to go lower. Perhaps a lot lower. I’m surprised they haven’t done so already. But that will present an opportunity for investors.
I say that because I have a hope (rather than firmly held belief) that Putin will, ultimately, not prevail. More importantly than that, enough people will realise that we have to make sure that Putin’s diagnosis is wrong. Here, I am referring to the Russian leader’s belief that the West is decadent and doomed to decline, to go the way of ancient Rome and Greece. A belief shared by the Chinese Communist Party.
If Enlightenment values prevail, liberal democracy can be rediscovered. It’s that political system which has delivered economic progress for so many and investment opportunities (for a few). Before we invented liberal democracy and capitalism there wasn’t any economic growth. Really. Just look at real incomes per head over the last 2000 years:
One of the many ways we can do things differently is for each country to establish sovereign wealth funds to buy up assets at cheap prices for all citizens to benefit in the future.
Things have to be done differently if liberal democracy is to survive. At the very least, we have to stop electing leaders like Donald Trump and Boris Johnson. We need to solve - yes, solve - housing, health, environment and inequality problems. And to recognise that solutions to these problems are hard but not impossible to find. And those solutions do not rest with incompetent, nasty political parties like Britain’s Tories. Or with nasty populists like Ireland’s Sinn Fein. Or kleptocratic nasty populists like Donald Trump’s Republican Party.
Try to imagine a world where decent, technocratic people are in charge. That this sounds so naive, so unlikely, is testament to the veracity of the Putin diagnosis. It really is time for radical change.
Because history is replete with positive change emerging from catastrophe I am quietly optimistic. But its going to be quite a journey.
Loving the “We are not in Cop26 any more Toto” line. Excellent article.
Excellent article Chris. It gives me some hope for a resolution.