Valdai Club

The economic consequences of the events taking place after February 24, in our opinion, can be reduced to one simple formula: is sustainable globalisation possible without Russia? The question really is only whether Russia is such a large country, and its export resources so significant on a global scale, that excluding Russia will have irreversible consequences for the dynamics of globalisation as a whole.

Either this is the case or it is just another country that has been “cancelled” from globalisation with the help of sanctions, as has already happened with Iran, North Korea, Venezuela, Zimbabwe, and others without any special consequences for the world economic system. Actually, it was on this issue, from our point of view, that special emphasis was placed in Russia’s argument for its actions prior to February 24, 2022. Their essence was that Russia is “too significant” for the European and world economy to be painlessly (for the West itself) taken out of the framework of the global system.

Nevertheless, the EU countries and the United States took just such a step; their reaction to Russia's actions was expressed in harsh large-scale sanctions, as well as the withdrawal of many Western companies from the Russian market, which curtailed their presence in Russia. The recently agreed-upon sixth package of EU sanctions against Russia applies the restrictions to oil supplies, although not without difficulty and only partially. The next package of EU sanctions, which would feature an embargo on gas supplies, is already part of Brussels’ practical agenda. In fact, these gas deliveries to a number of European countries are already being stopped due to Russia's insistence that buyers pay for them in rubles.
Thus, a harsh sanctions response, perhaps contrary to Russian expectations, has become a reality. In the future, its real consequences will become clear: whether Russia itself will actually be able to withstand the pressure of sanctions, and whether the West and the global economic system will retain the ability to grow and develop a sustainable economy without Russia. As a result, it will become clear to what extent the political expediency of these steps was in line with the requirements of the economy.

It is also clear that it is presently too early to make any long-term assessments. However, the reaction of the markets is very indicative in this regard. In late May 2022, the World Economic Forum in Davos held a kind of survey. Participants in one of its sessions were asked how much they agreed with the forecast that the world economy is facing a global recession. The majority of those present believed such a scenario was likely. IMF CEO Kristalina Georgieva also spoke about the increased risk of recession for some countries in an interview with Bloomberg. The only question is whether the expected recession becomes global. Given the identity and status of the participants of the Davos Forum, such expectations should not be discounted.

Incidentally, this year, for obvious reasons, the Davos Forum was held for the first time since the early 1990s without a delegation from Russia. Thus, it can symbolically be considered the first international event that attempted to define the parameters of this new reality: globalisation without Russia.

If we continue to explore the symbolic nature of the last Davos forum, then it can be seen in the speeches given there by two patriarchs of world politics and economics: Henry Kissinger and George Soros. Kissinger in his speech emphasised that the world is now at a turning point in its development. Both the military and political outcomes of the current Ukrainian conflict will serve as a key driver of all future events. For Kissinger, the crucial bifurcation point "after the war" is the question of whether former combatant countries will be reintegrated into the world economic and political system. Here, Henry Kissinger actually raises the topic of the danger of globalisation without Russia, both in the economic sense and in the military-political sense, since Russia, if excluded from globalisation, will pose a constant threat to peace in the future, after the end of the current conflict.

Kissinger's overall conclusion in this regard is that stopping hostilities along the current line of contact and working to reintegrate Russia into the globalised world system is not a concession to Putin, but serves the interests of the sustainability of globalisation in the future. This approach, which is in sharp dissonance with the point of view now prevailing in Western political circles, has already provoked sharp controversy.

George Soros in his Davos speech used the concept of an open society, which he had previously developed in his works. In his opinion, the root cause of the Ukrainian conflict is the struggle between an open society and a closed society. From his standpoint, one can draw a logical conclusion that even earlier, before February 24, the globalisation of economic systems existed in isolation from geopolitics and was not accompanied by socio-political globalisation. This, he argued, makes economic globalisation potentially unsustainable in the future. Even in the wake of Russia's withdrawal from the framework of globalisation, there are large countries throughout the world that do not fall under the category of an open society, as George Soros sees it. Therefore, economic globalisation can once again become a hostage to the geopolitical and value struggle.

Soros also acknowledged that the current military conflict is a threat to the future of globalisation and the global fight against climate change. In the military-political part of his speech, Soros concluded that in this regard, the key task for saving Western civilisation is to “defeat Putin as soon as possible”.

This difference in the approach of the two patriarchs of world politics is very revealing: immediate peace at any cost and work for the reintegration of Russia, on the one hand, and defeating Putin at any cost and the final exclusion of Putin's Russia from globalisation, on the other.

If we talk about the specific challenges of globalisation stemming from the current conflict, then in the short and medium term they are obvious, and they are being talked about a lot now. These are the global food crisis, the lack of energy resources, the resulting rise in prices, inflation and living standards, as well as in in a number of cases, the disruption of global supply chains. All this can lead to serious social discontent in various countries of the global West and South. In the longer term, the undermining of confidence in the dollar and the inviolability of the private property of foreigners in Western countries may become a no-less-significant issue. The Russian example has shown that keeping the lion's share of assets in the US and EU and their currencies can make any non-Western country with political ambitions easily vulnerable to retaliatory sanctions pressure. Therefore, the strengthening of the independence of the economies of large non-Western countries (their industrial, infrastructure and financial systems) can become one of the main long-term consequences of the current conflict.

There have already been many examples in history of Russia setting up large-scale socio-economic experiments domestically. Now we are all witnessing how another such experiment is developing - globalisation without Russia. Where it will lead, only time will tell.