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Terms of Trade | Turbulent geopolitics calls for serious economics

Oct 04, 2024 05:46 PM IST

The war in Europe and West Asia has opposite hypocrisies on part of the western countries with a fundamental asymmetry between the rhetoric and tangible support

October 7 will mark a year since Hamas’s terrorist attack on Israel triggered one of the bloodiest and most prolonged wars in West Asia.

PREMIUM
Smoke billows amid the ongoing hostilities between Hezbollah and Israeli forces, as seen from Tyre, southern Lebanon October 4, 2024. REUTERS/Aziz Taher(REUTERS)

The ongoing conflict has claimed one of the highest civilian casualties in recent history. With Israel taking the war to Lebanon and, now, maybe even Iran, the conflict is unlikely to end soon. What’s remarkable about this conflict is that Israel has continued to expand the scope of the war despite calls for military restraint and respecting the political sanctity of the two-state-solution principle which recognises the coexistence of both Israel and Palestine from western powers including the US. So much so that it has actually declared the UN Secretary-General persona non grata. All of this has had no effect on military aid to Israel.

On the other hand, there is the ongoing war in Europe where the ideological justification for Ukraine’s case against Russia far exceeds tangible support for it. Both in the US and western Europe, the political leadership has not allowed Ukraine to cross a certain military escalation threshold. Election results, such as the one in Germany, and political rhetoric such as former US President Donald Trump’s, are increasingly suggesting that there is significant opposition to the idea of even supporting this limited war effort among NATO allies.

To be sure, European countries such as Germany have a stronger material ground to demand that relations with Russia be normalised, given the high costs of giving up cheap Russian fossil fuel supplies for their economy.

The operative part is the war in Europe and West Asia has opposite hypocrisies on the part of the western countries. In the first, the ideological carte blanche is not being matched by material and strategic investment. The second, on the other hand, has seen token condemnations on ideological grounds without doing much to alter its tangible form.

What explains the different responses to the two biggest theatres of conflict? It is tempting to adopt a cultural and historical explanation to it with the trauma of anti-Semitism in Europe making sure that the western world will do all it can to protect Israel rather than leave it to fight a much larger and hostile Islamic country and its proxies.

This column, without any prejudice to its merits or the lack of it, would argue for sidestepping from the cultural narrative to an economic one. Russia is a much stronger economic power than not just Palestine or Lebanon but even Iran. The escalation of conflict with the former will have far more serious global consequences.

The Ukraine war led to a surge in global inflation and wreaked havoc in European economies. Crude oil prices crossed the $100 threshold for the first time since the early 2010s and food grain prices spiked sharply. The Russian economy, thanks to its newfound energy export markets, has done much better than what the western pundits believed initially.

The war in West Asia, on the other hand, has had pretty much no impact on the global economy. The biggest reason for this, as was pointed out by my colleague Auhona Mukherjee in an analysis is a de-hyphenation of the Palestine question with oil prices, unlike the situation five decades ago when the 1973 Yom Kippur war triggered the first oil shock; the 1979 Iranian revolution led to the second. The West, especially the US, is much more energy self-sufficient and efficient today than it was in the 1970s.

What has all this got to do with a column, which mostly deals with India’s political economy? You need to ask only one counterfactual to answer this question. How would the US and other western powers react in the event of a Sino-Indian military conflict?

Asking this question is important because an Indo-US strategic alliance has been hailed by most political and strategic commentators in India as the most efficient bulwark against possible setbacks to India’s strategic and economic interests from China. If the western world caught an inflation cold because of a war with Russia, it will definitely face economic turmoil in case there is a military conflict involving China, the world’s second-largest economy and the largest exporter.

Sure, India’s nuclear capabilities make it a more capable defender of itself than Palestine, Lebanon or even Iran, but it would be delusional to expect that the western powers would be willing to raise stakes to settle India’s low-intensity differences with China. In fact, given India’s trade dependence on China, a military conflict between the two countries will have serious repercussions even for India. This is the biggest reason why India’s economic retaliation against China’s territorial belligerence has been limited so far.

What’s the larger point? It’s this: The only insurance a country can have in today’s world is protecting its economic interest and salience in both short and long terms. India’s political leadership, so far, has been wise to pursue this objective in a broad-based manner. Buying cheap Russian oil during the ongoing Ukraine war despite widespread criticism by the global anti-Moscow lobby is one such example. In fact, India’s stance on the Russia-Ukraine war is perhaps the only thing on which the BJP government and the opposition have been in agreement during Prime Minister Narendra Modi’s tenure.

This strategic clarity, much of which is a learning of India’s own historical lived experience, while welcome, is not going to be enough. There is a simple reason for this. Sticking to strategic diversification while maintaining friendly even strategic relations with the US will help India avoid disasters but it is not going to catapult its economy to a much higher growth trajectory.

In fact, it is a foregone conclusion that even a complete strategic concurrence with the US is not going to provide India with the kind of market access to the US, that Washington’s Cold War allies and, in a later phase, China enjoyed. Negotiations on things like climate finance will only make things more complicated and fractious than they were in the past notwithstanding the progressive rhetoric from multilateral institutions.

What does this mean for India’s economic policy going forward? The only question, that India needs to confront — from a medium to long-term perspective — is whether its push for atmanirbharta or self-reliance will need to shift from import substitution to export pessimism in planning a sustained period of growth rate that’s much higher than what India is being able to manage today.

The latter is absolutely essential for India's economic and social stability in the long term. As irony will have it, export pessimism is among the biggest sins, which Nehruvian economic policy is accused of.

Roshan Kishore, HT's Data and Political Economy Editor, writes a weekly column on the state of the country's economy and its political fall out, and vice-versa

October 7 will mark a year since Hamas’s terrorist attack on Israel triggered one of the bloodiest and most prolonged wars in West Asia.

PREMIUM
Smoke billows amid the ongoing hostilities between Hezbollah and Israeli forces, as seen from Tyre, southern Lebanon October 4, 2024. REUTERS/Aziz Taher(REUTERS)

The ongoing conflict has claimed one of the highest civilian casualties in recent history. With Israel taking the war to Lebanon and, now, maybe even Iran, the conflict is unlikely to end soon. What’s remarkable about this conflict is that Israel has continued to expand the scope of the war despite calls for military restraint and respecting the political sanctity of the two-state-solution principle which recognises the coexistence of both Israel and Palestine from western powers including the US. So much so that it has actually declared the UN Secretary-General persona non grata. All of this has had no effect on military aid to Israel.

On the other hand, there is the ongoing war in Europe where the ideological justification for Ukraine’s case against Russia far exceeds tangible support for it. Both in the US and western Europe, the political leadership has not allowed Ukraine to cross a certain military escalation threshold. Election results, such as the one in Germany, and political rhetoric such as former US President Donald Trump’s, are increasingly suggesting that there is significant opposition to the idea of even supporting this limited war effort among NATO allies.

To be sure, European countries such as Germany have a stronger material ground to demand that relations with Russia be normalised, given the high costs of giving up cheap Russian fossil fuel supplies for their economy.

The operative part is the war in Europe and West Asia has opposite hypocrisies on the part of the western countries. In the first, the ideological carte blanche is not being matched by material and strategic investment. The second, on the other hand, has seen token condemnations on ideological grounds without doing much to alter its tangible form.

What explains the different responses to the two biggest theatres of conflict? It is tempting to adopt a cultural and historical explanation to it with the trauma of anti-Semitism in Europe making sure that the western world will do all it can to protect Israel rather than leave it to fight a much larger and hostile Islamic country and its proxies.

This column, without any prejudice to its merits or the lack of it, would argue for sidestepping from the cultural narrative to an economic one. Russia is a much stronger economic power than not just Palestine or Lebanon but even Iran. The escalation of conflict with the former will have far more serious global consequences.

The Ukraine war led to a surge in global inflation and wreaked havoc in European economies. Crude oil prices crossed the $100 threshold for the first time since the early 2010s and food grain prices spiked sharply. The Russian economy, thanks to its newfound energy export markets, has done much better than what the western pundits believed initially.

The war in West Asia, on the other hand, has had pretty much no impact on the global economy. The biggest reason for this, as was pointed out by my colleague Auhona Mukherjee in an analysis is a de-hyphenation of the Palestine question with oil prices, unlike the situation five decades ago when the 1973 Yom Kippur war triggered the first oil shock; the 1979 Iranian revolution led to the second. The West, especially the US, is much more energy self-sufficient and efficient today than it was in the 1970s.

What has all this got to do with a column, which mostly deals with India’s political economy? You need to ask only one counterfactual to answer this question. How would the US and other western powers react in the event of a Sino-Indian military conflict?

Asking this question is important because an Indo-US strategic alliance has been hailed by most political and strategic commentators in India as the most efficient bulwark against possible setbacks to India’s strategic and economic interests from China. If the western world caught an inflation cold because of a war with Russia, it will definitely face economic turmoil in case there is a military conflict involving China, the world’s second-largest economy and the largest exporter.

Sure, India’s nuclear capabilities make it a more capable defender of itself than Palestine, Lebanon or even Iran, but it would be delusional to expect that the western powers would be willing to raise stakes to settle India’s low-intensity differences with China. In fact, given India’s trade dependence on China, a military conflict between the two countries will have serious repercussions even for India. This is the biggest reason why India’s economic retaliation against China’s territorial belligerence has been limited so far.

What’s the larger point? It’s this: The only insurance a country can have in today’s world is protecting its economic interest and salience in both short and long terms. India’s political leadership, so far, has been wise to pursue this objective in a broad-based manner. Buying cheap Russian oil during the ongoing Ukraine war despite widespread criticism by the global anti-Moscow lobby is one such example. In fact, India’s stance on the Russia-Ukraine war is perhaps the only thing on which the BJP government and the opposition have been in agreement during Prime Minister Narendra Modi’s tenure.

This strategic clarity, much of which is a learning of India’s own historical lived experience, while welcome, is not going to be enough. There is a simple reason for this. Sticking to strategic diversification while maintaining friendly even strategic relations with the US will help India avoid disasters but it is not going to catapult its economy to a much higher growth trajectory.

In fact, it is a foregone conclusion that even a complete strategic concurrence with the US is not going to provide India with the kind of market access to the US, that Washington’s Cold War allies and, in a later phase, China enjoyed. Negotiations on things like climate finance will only make things more complicated and fractious than they were in the past notwithstanding the progressive rhetoric from multilateral institutions.

What does this mean for India’s economic policy going forward? The only question, that India needs to confront — from a medium to long-term perspective — is whether its push for atmanirbharta or self-reliance will need to shift from import substitution to export pessimism in planning a sustained period of growth rate that’s much higher than what India is being able to manage today.

The latter is absolutely essential for India's economic and social stability in the long term. As irony will have it, export pessimism is among the biggest sins, which Nehruvian economic policy is accused of.

Roshan Kishore, HT's Data and Political Economy Editor, writes a weekly column on the state of the country's economy and its political fall out, and vice-versa

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