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  April 26th, 2022 | Written by

How Will the Russia-Ukraine War Reshape the World? (Part 2)

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A double cold war

Peace talks between Russia and Ukraine have been deadlocked for several months, as the Ukrainians held out hope that new Western military supplies would tip the balance of the conflict in their favor. But with several Ukrainian cities turned into rubble, it becomes clear that no one can truly win the war.

France and Germany make new efforts to get both sides to consent to a peace deal in which Ukraine would become a neutral country akin to nonaligned Austria, agreeing to excise the goal of NATO membership from its constitution contingent on the total pullout of Russian troops from the country. The harder issues, such as a permanent status for Russian-annexed Crimea and the two breakaway regions of Donetsk and Luhansk, are tabled for the moment. After several unsuccessful attempts, Zelenskyy and Putin strike a ceasefire deal under pressure from not just Paris and Berlin but also Washington. The European Union (EU) offers increased humanitarian and development assistance to Ukraine and some reduction in sanctions against Russia so long as the Kremlin removes all its troops from Ukraine except those in contested areas of the country. The EU also helps with the resettlement of refugees in their homes in Ukraine.

With the ceasefire holding and Russia beginning to withdraw its forces, French President Emmanuel Macron and German Chancellor Olaf Scholz propose a broader peace conference that would jumpstart arms-control talks between NATO and Russia. Their intent is to avoid a new cold war in Europe. Washington, however, is opposed to the idea of the conference, with many US foreign-policy elites believing that Putin has not paid enough for his unjustified invasion of Ukraine. Leading members of Congress from both parties urge the president to not lift even some of the stiffest financial sanctions on Russia—a step Macron and Scholz believe is needed to strengthen the tenuous peace. The US position is bolstered by opposition to the Franco-German initiative among several of the EU’s eastern members.

While the US administration refuses to bow to congressional pressure to revoke the New START nuclear arms-reduction treaty with Moscow, it does not feel in this climate that it can back Franco-German efforts to launch NATO-Russian negotiations on placing restrictions on conventional weapons. Heeding growing calls by Eastern European allies for reinforced support against Russia, the United States and its Western European allies begin adding new forces along the new East-West divide at the borders of Poland and the Baltic states. Russia and Belarus mirror these moves.

Having followed through on his plans for fortifying Germany’s armed forces, Scholz urges stronger EU defense. Macron reiterates his proposal to extend France’s nuclear weapons as a European deterrent against any aggressors.

Oil prices come down but remain in the range of seventy-five to ninety-five dollars per barrel. Europe accelerates its efforts to bolster renewable-energy sources, including nuclear energy. EU economic growth, after a recession in 2022-23, amounts to less than 1 percent on an annual basis following the war, while the United States experiences higher growth at 2 percent and China drops below 5 percent. As global growth plunges below 4 percent, there is a growing realization that the world may be mired in an extended period of slow economic development. Price spikes and riots escalate in parts of Africa and the Middle East that were dependent on Ukrainian wheat exports.

Russia, meanwhile, becomes increasingly dependent on Chinese and other Asian markets for its sluggish economic recovery, and speeds up the export of its energy eastward. China expands its Cross-Border Interbank Payment System to allow the two neighboring powers to increasingly bypass the Belgium-based SWIFT international payment system. Russia and China settle more trade in digital yuan, reducing the need for dollars. China also launders Russian gold reserves, which are believed to be worth some one hundred billion dollars, by converting them into yuan that Russia can use to buy Chinese goods.

In light of China’s support for Russia, Washington widens the new cold war that’s emerging to Beijing in addition to Moscow. The United States sanctions some Chinese banks and calls on its allies to blacklist an expanding list of Chinese technology firms. European leaders, for their part, are reluctant to take on China but don’t feel they are well-positioned to resist US demands. The United States cuts off exports of semiconductor chips to China as well, causing distress to its own industry and accelerating China’s efforts to build technological self-reliance. The US government also ends its posture of “strategic ambiguity” on Taiwan, declaring that it would intervene militarily in response to any Chinese aggression against the island, while the Taiwanese debate declaring independence from China. Moscow and Beijing, in turn, deepen their political cooperation.

Xi sees advantages to the expanding cold war with the United States. He revs up his nationalistic rhetoric, rallying support for the regime’s fight with the West and suppressing growing unease with his rule among those in the Communist Party who want to introduce market reforms to boost the country’s shaky economy and find an accommodation with the United States.

In this environment, an informal bloc of nonaligned nations emerges that includes India, Saudi Arabia, the United Arab Emirates, Vietnam, Turkey, and Brazil. Most of these countries maintained good relations with Russia during the Ukraine war despite Western pressure to isolate Moscow. Dependent economically on their trade with China, they also want good relations with Beijing.

International cooperation on everything from climate change to common economic challenges, global tech standards, and development assistance for poorer countries becomes harder. The internet further splinters, as the increasing US-China rivalry leads each power to recruit as many countries as possible to its side on digital matters. Global economic growth continues its downward trend and de-globalization advances. International multilateral institutions, from the United Nations to the World Trade Organization and World Health Organization, go into decline.