Home
+
Published : 19 Jan 2022, 07:14 PM
In June 1914, European stock and bond markets scarcely reacted to the assassination of Archduke Franz Ferdinand, heir to the throne of Austria. It was only in late July, with the great powers in their final days of mobilisation for World War One, that investors realised the danger and showed panic.
Tuesday's abrupt moves in the price of Ukrainian and Russian bonds were scarcely on the same scale but reflected a similar abrupt realisation of how close a major conflict in eastern Europe may have become. Though there was an uptick in Russian stocks on Wednesday, and the rouble regained some lost ground against the US dollar, Ukraine's sovereign debt is now priced among the world's worst performing international bonds, hitting its ability to borrow.
For Ukraine, this poses yet another problem in addition to the Russian troops, tanks and assorted weaponry massed near its borders, not to mention cyber attacks last week that defaced government websites and warned the population to be "afraid and expect the worst".
The scale of Russian military mobilisation near Ukraine's borders has caused Western concerns of an invasion since November. Russia's denials that it plans to invade have been coupled with thinly veiled threats, including that Moscow can no longer "tolerate" creeping NATO expansion eastwards, and more direct warnings to Ukraine.
According to the US think tank the Centre for Strategic and International Studies, if Russia goes into action with all of the forces at its disposal – up to 120,000 troops on the border, with more in reserve – it will be the largest combined arms military operation undertaken by Russia since the Battle of Berlin in 1945.
LAND GRAB IMMINENT?
That would also make it, by most measures, the largest military operation undertaken in Europe in that time – certainly larger than anything seen in the Balkan wars of the 1990s, or Russia's 2008 war with Georgia that involved some 80,000 troops at most. How Russia's military has retooled under President Vladimir Putin is a sign of frustration, and perhaps also of how he now feels he may wish to use it to try to restore Russia's geopolitical clout.
Until last week, the most likely scenario in the event of military action still looked like a relatively limited Russian invasion along separatist-controlled territories in eastern Ukraine that it seized in 2014 and the Crimean peninsula, which Russia annexed that year.
Such a limited land grab would allow Russia to seize a water canal supplying Crimea that was blocked by Ukraine in 2014, and also potentially enable Moscow to link up those territories with the Transnistria region, which is controlled by Russian troops, in Moldova.
But Russia has now started preparing for joint military in Belarus by moving troops onto Belarusian soil. Belarus is a Russian ally and having troops on its territory would enable Moscow to invade Ukraine from the north, potentially increasing its ability to threaten the capital Kyiv more quickly.
Some pro-Kremlin commentators say Moscow has learnt lessons from the two wars fought by the United States in Iraq, so would aim to avoid a costly occupation of the entire country by staging a more limited offensive, with air strikes intended to smash Ukraine's military and Russian forces seizing only the territory they could hold relatively easily.
Some Putin backers have long called for Russia to occupy what they call "Left Bank Ukraine" – the entire country west of the Dnieper River. That is a much bigger land grab than most analysts currently predict, one that would be likely to meet heavy Ukrainian resistance, possibly backed by the United States and its allies.
NO PUSHOVER
Whether or not war comes, the last month has seen Russia unambiguously use the threat of military action to rebalance European geopolitics in its own interests.
For the last decade, Russia has used large annual military exercises to signal more sophisticated capabilities, including to command and control massed forces. Any offensive in Ukraine would test those capabilities, from potential amphibious landings in the Black Sea to airborne assaults. Earlier Russian casualties suffered in Ukraine and Syria inflicted political damage on Putin, and this could provide him with a reason to choose to use overwhelming force now.
That still would not make it easy for Russia. The Russian and US military have not faced a mechanised military opponent with the sophistication of modern Ukraine since World War Two, although Russia's military has modernised substantially since being bloodied – though victorious – in the five-day war in Georgia in 2008. Ukraine might wish it had been better armed by its US and European allies – it has long sought US Patriot air defence missiles – but it will not be a pushover.
With Ukraine outside NATO and not benefiting from the alliance's Article 5 security guarantees, requiring countries in the alliance to defend a member that comes under attack, the United States and its European allies have made clear they are unlikely to directly intervene militarily if Russia strikes. Washington has already sent Javelin anti-tank missiles to bolster Ukraine's military. In another sign that the threat of attack is seen as imminent, Britain sent similar weaponry this week, and the first deliveries were flown within hours of the announcement.
This is about more than Ukraine. Russia's posturing is also widely seen as signalling its greater potential willingness to use military force elsewhere. That has already sent Estonia bidding for more NATO troops, while Sweden has garrisoned its Baltic island of Gotland after Russian amphibious vessels took to nearby waters.
What markets are just realising is how broad the implications might be. Russia's debt is also getting pricier – an invasion might see it largely cut out of the international financial system, but it might also cut off Russian gas supplies to mainland Europe, sending already rising inflation and cost of living spiking higher and sparking new political crises.
Conflicts as big as this one could be can change the world in unexpected ways, but events around Ukraine could be a sign of things to come. China is watching, and some observers think it might, perhaps some time this decade, move against Taiwan. The risks and potential consequences of such a move could be even greater than those now.
