Subject: International Stories of Key Importance

Context

Economic measures to cut Russia off from the world’s financial arteries are the most powerful implements a West unwilling to meet a nuclear adversary on the battlefield has dared wield in response to the invasion of Ukraine.

Use of sanctions

• The use of sanction has boomed over the past few decades.
• Since 2000 the number of individuals and entities on America’s sanctions list has risen more than tenfold to 10,000.
• Ever more governments, keen to punish military aggression or human-rights abuses but reluctant to go to war over them, have embraced the tactic.

Sanctions against Russia

•  After debating whether to make it much harder for Russian banks to process international payments by shutting them out of SWIFT—some European countries feared it would hurt their own banks, too—Western allies agreed to try targeting seven of them, though it has steered clear of Sberbank, Russia’s largest by assets, which plays a big role in processing energy payments. 
• The most potent financial sanctions, though, have been aimed not at Russia’s commercial banks but at its central bank.
• In the eight years since annexing Crimea made Russia the target of a first wave of sanctions, Russia has built up reserves (they now total $630bn) and shifted their composition away from dollars to help insulate the economy from further punishment.
• But reserves become moot, whatever the currency in which they are held, if they cannot be used.
• America, acting with Europe, has banned a range of parties from transactions with Russia’s central bank.
• The West has also frozen most of the bank’s assets outside Russia.

How it will affect Russian economy

• Within hours of the sanctions taking effect, Russia’s central bank raised its main interest rate from 9.5% to 20% in an attempt to shore up the currency.
•  Export controls will limit the components Russia can buy for its military and high-tech sectors, denying it goodies ranging from cutting-edge machinery to microchips.
• The measures apply not just to goods made in America, but to those containing American technology that are made in and shipped from third countries, such as China.
• For now, consumer goods dear to ordinary Russians like smartphones and home appliances are exempted from such measures.
• But Apple is no longer selling iPhones or other kit in Russia. It is one of a fast-growing number of Western companies getting out.

Effectiveness of sanctions

• Measuring sanctions’ success is hard, not least because of the difficulty of disentangling their effects from other economic, and on occasion military, forces, but there have been few outright successes.
• A recent success was the squeeze on Libya by America and allies in the 1990s and early 2000s.
• A mix of sanctions and financial inducements persuaded Muammar Qaddafi to end his wmd programme and stop funding terrorism.
• The apparent failures of sanctions are many.
• Sometimes this is because they are fundamentally symbolic, or weakened by interest groups in the countries imposing them.
• Though the point of sanctions is to exploit asymmetries, doing much more harm to the adversary than to yourself, there are always burdens to be borne by some.
• There is also a loss to the economy as a whole.
• The cost of compliance with sanctions for banks and companies has rocketed over the past decade.
• Financial institutions alone spent over $50bn worldwide in 2020 on screening clients for sanctions risks, according to LexisNexis, a data firm.
• One thing which weakens sanctions is leakiness. Despite America’s maximum-pressure measures, Iran manages to export an estimated 1m barrels of oil per day as middlemen find ways to disguise the origin of shipments.

Risks associated with sanctions

• Collateral damage: The more powerful sanctions are, the greater the risk of collateral damage, particularly when targeted regimes are indifferent to the suffering of citizens.
• Work in favour of regime: Increasing the harm done can work at least in part in the government’s favour.
• In Venezuela, a significant number of those opposed to President Nicolás Maduro and his henchmen also oppose the American sanctions putatively aimed at dislodging them.
• Increase the closeness between countries: Sanctions can also push countries they target into each other’s arms.
• Russia and China—hit with American sanctions over its mistreatment of Uyghurs as well as its suspected tech-spying—are enjoying their friendliest relations for decades.
• Alternative infrastructure: It encourages those who fear them to develop alternative financial and technological infrastructures.
• China is pushing hard in that direction.
• As well as trying to boost its chip-making, it is creating its own version of swift, called cips, which simplifies cross-border payments in yuan, and developing a digital currency.
• It has a long way to go.
• Though usage of the yuan as a currency for international payments is at an all-time high, at just over 3% of the total it still pales beside the dollar, at 40%.
• As the world economy reels from financial crises, nationalism, trade wars and a global pandemic, sanctions are aggravating existing tensions within globalisation.

Conclusion

When used in earnest, sanctions can inflict heavy economic costs on both sides on top of the deprivation inflicted in targeted countries. Even then, they do not always work.

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Context

Russian President Vladimir Putin’s nuclear sabre-rattling in Ukraine, has triggered a far more consequential debate on the importance of atomic weapons in deterring Chinese expansionism.

Background

• Ukraine agreed in 1994 to give up the nuclear weapons that it inherited from the Soviet Union in return for guarantees on Kyiv’s sovereignty and territorial integrity.
• Clearly, those legal guarantees were no substitute for nuclear weapons.

Changing stand on nuclear weapons

• Debate in Japan: In an important statement last week, the former prime minister of Japan, Shinzo Abe, called for a national debate on hosting American nuclear weapons on Japanese soil.
• One element of the debate is the fact that nuclear weapons remain the greatest deterrent, especially against a vastly superior adversary.
• Korea strengthening nuclear deterrence: In South Korea, which is electing its president this week, front-runner Yoon Suk-yeol has talked of strengthening Seoul’s nuclear deterrence against both Pyongyang and Beijing.
• Taiwan and Australia developing nuclear submarine: Taiwan, is reportedly developing a nuclear-powered submarine that could offer some deterrence against a Chinese invading force.
• Australia, which is working with the UK and the US to build nuclear-powered submarines, is accelerating the project after the Ukraine invasion.

Threat of escalation to nuclear war

• The threat of escalation to the nuclear level was very much in the mind of NATO’s military planners when the alliance refused to be drawn into a firefight with Russia in Ukraine.
• Moscow is also conscious of the fact that there are two nuclear weapon powers in Europe — Britain and France.
• Nuclear sharing arrangement: Russia is also aware of the “nuclear sharing” arrangements between the US and some European allies — Belgium, Germany, Italy, and the Netherlands.
• Under this framework, European allies host US nuclear weapons on their soil and authorise their armed forces to deliver American nuclear weapons on Russia.
• Nuclear sharing also involves continuous consultations on nuclear doctrine and the planning of nuclear operations.
• The US and its allies are also pursuing a “hybrid war” that boosts Ukrainian resistance against Russian armed forces and raises military, economic, and political costs of Moscow’s aggression.

Threat of China invading Taiwan

• Taiwan is far more important for Asian (and global) security than Ukraine is for Europe.
• Taiwan sits at the heart of the Western Pacific and straddles the sea line of communication in the world’s most dynamic economic arena.
• It is the main source of silicon chips for the world.
• When China conquers Taiwan it will dramatically transform the geopolitics of Asia.
• As Putin becomes more dependent on China, Russia is bound to back Xi Jinping’s ambitions in Asia.
• This is the context in which China’s eastern neighbours are taking a fresh look at the nuclear option.
• Nuclear sharing arrangement: On the nuclear front, the debate in Japan and South Korea is about potential nuclear sharing arrangements with the US.
• In Taiwan and Australia, the emphasis is on developing nuclear-powered submarines.
• Deployment of strategic weapons: The US too is debating the deployment of new strategic weapon systems in Asia that might encourage China to pause before trying to emulate Russia’s Ukraine adventure.

Consider the question ” Russia’s invasion of Ukraine is going to transform the nuclear landscape of Asia. Comment.”

Conclusion

One way or another, Russia’s war in Ukraine is bound to transform the Asian nuclear landscape.