Political Risk Advisory Briefing: a growing geopolitical force?

Issues of unity and belonging dominate the political consciousness right now. These are expressed in the sense of Ukraine’s nationhood versus Russia’s desire to eradicate it, in the perhaps-to-be-expanded continental bodies of the EU and NATO, and the ‘global family’ that, still tackling the coronavirus pandemic together, could yet be plunged into a global conflict of an altogether different kind. While understandably there is much agitation over what Russia is doing, or could do, to both Ukraine and the wider world right now, the ‘long game’ can never be ignored and in an environment that can arguably never be post-Ukraine, understanding the strength of existing ties – and what new ones may be drawn – is more important than ever.
The received wisdom of the past thirty years is that, as its own counterweight to the military aura of NATO and the economic & trading might of the EU, Russia has sought to bolster its hard and soft power in its ‘backyard’ through the Eurasian Economic Union (additionally comprising Belarus, Kazakhstan, Kyrgyzstan and Armenia) in which it is predominant, and through which it can extend its regional political, economic and cultural goals in much the same manner as the USSR of old. This has certainly borne fruit, for instance in Belarus’ slavish adherence to the Russian line over the invasion of Ukraine (and the possibility that Minsk troops might yet get involved), or the Moscow military divisions that waded into Kazakhstan to ‘quell unrest’ earlier in 2022 which raised not so much as a flicker. But the EEU by itself will not be enough, either as a defensive measure to shore up the rapidly diminishing Russian support worldwide, or as a pro-active tool to seek out new opportunities.
The importance of being oil-rich
There are two fundamental facts that are key to understanding how and why Russia intends to reshape the world’s economy. Firstly, just how vital oil & gas are to her own. The immediate headline figure is that 45% of the federal budget revenue comes purely from these two sources, supplying 14% of the world’s total needs. The financial benefits to Russia are immense – not for nothing has Ukraine’s Zelensky stated that the total aid given to Ukraine thus far amounts to the same as given to Russia in just one day for oil & gas supplies. And while remarks by the German minister that Germans should lower their central heating by one degree to punish Putin might seem fatuous, it contains a kernel of truth in that any action to minimise or move away entirely from, reliance on Russian oil & gas will eventually hurt Putin.
And not only in the sense of equivocating a leader with his country and populace: the key energy firms (Rosneft, Lukoil, Gazprom etc) are all run by cronies who use and abuse their positions for vast amounts of laundering and corruption. Remove the cash cow of oil & gas and these opportunities become significantly fewer… and Putin of significantly less value to the elite. It was also after several countries announced their intent to divest from Russian resources completely, that Putin’s rhetoric moved up a notch to talk of nuclear weapons and ‘threatening the Russian motherland’. He is not actually wrong – losing the ability to marshal its oil & gas as a weapon (see Moldova, Estonia et al) is more of an existential threat than Russia would like to admit.
And secondly, it cannot be underestimated just how badly Putin has miscalculated in international terms with the invasion. Not only the blind belief that Ukraine would welcome the Russian troops as saviours and liberators, but in his wider foreign policy goals. He thought that the ‘oil weapon’ would be enough to deter sanctions-led responses; instead, we have seen the most collective global response since World War Two. He thought that simply demanding various agreements of neutrality and de-militarisation would be enough to get them; instead, there is now the very real possibility of Sweden and Finland joining NATO in a volte-face to decades of entrenched non-alignment. Arguably therefore, there is significant onus on Putin as an individual to prove that he can recover from this calamitous state of affairs (the war and its consequences were, after all, entirely his doing). And if the old certainties have been ripped up, he needs to make some new ones. The way to do this is to return to the group of BRICS nations (Brazil, Russia, India, China, South Africa) and attempt to create the same unity here that the rest of the world is currently going through – only this time with Russia on top.
The bear and the dragon
Brazil, Russia, India, and China were the original BRIC nations: first cited as such in 2001 by Goldman Sachs as countries with emerging economies of particular note and which would play increasingly important roles in world trade. South Africa was added as the fifth member in 2011. The combined GDP of the quintet is $23.52tn USD and what began as an informal labelling by an investment bank, has developed into a loose association of nations with similar ideals and ambitions which presents an opportunity not only for Russia to bring the BRICS in line with its own intentions, but for the bloc as a whole to remodel the world’s economic and power balances.
China has long been Russia’s greatest ally, with the two having formed a powerful veto-fuelled block to Western aspirations on the UN Security Council since 1945 and often being of the same mind on rhetoric and measures to check the supposed Western encroachment into everything from the economic issue of sanctions to the political issue of the South China Sea. ‘Peaceful co-existence’ is the freely expressed goal of the unofficial alliance, with both Xi and Putin promoting their relationship as being ‘without limits’. The two would initially appear to be of one mind on all the major issues of the day: whether this is trade, which now sits at just under $150bn USD and the raw material-final product exchanges that ignore the USA, or the paranoia that everything done by the West in geopolitics is designed to contain Russian and Chinese supremacy. China has obligingly not voted against Russia in any of the Ukraine votes so far, and it has been rumoured that Xi asked Putin to delay the invasion until after the Beijing Winter Olympics had concluded. So far, so friendly.
But there are limits to Xi’s benevolence, and signs that Putin is starting to test his counterpart’s patience. Xi wants a nuclear war as little as anyone and remains a rational actor when set against Putin’s clear irrationality. Moreover, China could not countenance being cut out of the global economy in the same manner as Russia has been (particularly not when it has designs on running it) and the gulf between Russia and most of the rest of the world will be alarming not only as a cautionary tale for China, which has perhaps reconsidered any potential invasion of Taiwan after events of the past two months, but also because it sees its own role as a superpower as one at a level above and beyond nuclear threats or outright territorial control, and Russia’s increasing unilaterality and isolation makes bringing it in line with Chinese foreign and economic policy, that much more difficult.
The challenge then is for Russia to prove to China that it remains a global partner worth talking to, while adjusting to the new reality that it can no longer bring the global West as a market and the likelihood that the fault lines will only deepen. Putin is no fool and knows that the Chinese agenda, whatever it may be at the present moment, is always Beijing’s paramount concern and the more Russia can do to facilitate and support this, the better. We may, therefore, expect increased supplies of the fuel, precious metals and foodstuffs that China requires as the foundation of its economic and industrial activity, and further ‘pivoting’ Eastwards through the trade surplus, infrastructure such as the Power of Siberia pipeline, and greater facilitation made of routes such as the Northern Sea Route, that allow for both Russia and China to put distance between their affairs and those of Europe.
Bringing India closer into the fold
Russia is attempting to bring both the BRICS nations closer together and to increase its role within the group dynamic. Notably, negotiations with India for oil & gas supplies are currently proceeding on the basis of a rupee-rouble exchange, a genuine coup for Russia’s economy at a time when the currency is being roundly shunned by much of the world. While the hegemony of the US dollar & petrodollar is not going to be toppled by this, it is proof that Russia is not going to leave the international stage quietly and is still convinced that it can draw other powers away from the West’s orbit, at least in part. India is, like China, another country that is officially neutral but undoubtedly displays pro-Russian sympathies, whether out of genuine conviction or political and economic expediency. Not only are Russia and India key trading partners to each other but are aligned on future-facing energy and technology developments which could play a major role in deciding superiority in years to come, with consideration given to extending the rupee-rouble agreement to cover key tech and commodity trades (and also military). On this last point, India is one of the few non-Eurasian states unquestionably beholden to Russia for military and defence supplies, which for a country in an uneasy nuclear détente with its neighbour is always the first priority. Yet this plays into Russia’s hands. To have around 70% of your arsenal effectively dependent on a third party means that there are strict limits to how much criticism you can conceivably make.
The wider world might be content to barricade Russia behind a modern-day Iron Curtain but doing the same to India (and indeed China) would be unthinkable. And it is on this that Russia is counting as it works to unify the BRICS nations and entangle them ever-further with Moscow. Most prominently in facilitating discussions between Russia and China to create a new economic, triangular coalition that will extend far beyond Eurasia – Foreign Minister Lavrov himself is understood to have been present at fifteen of these tripartite meetings, highlighting their importance to Russia. The more the three nations can present a united front, the harder it will be to push Russia out of the international conversation.
Crossing continents
Brazil is the ‘third wheel’ in this. Bolsonaro is just as autocratic in his own way as Putin or Xi – not for nothing was he called ‘the Trump of the Tropics’ – although he does not have the international cachet of either and, of all the BRICS leaders, is the most likely to be toppled by his own party never mind his own people.
But Brazil has earnt its place in the BRICS formulation, with the twelfth largest economy in the world and, perhaps most pertinently, enormous reserves of oil. Given that the USA has taken relations with Venezuela out of the deep freeze, such is the quest to find alternative sources of oil to Russia, Brazil has arguably suddenly become a lot more important to the world at large. However, a more full-on engagement with the West remains unlikely. Bolsonaro has never forgiven other world leaders for dismissing his brand of populist, racist, anti-environmentalist rhetoric since winning election and has insisted that Brazil can forge its own path away from a world which he sees as unduly critical.
What this means in practice is that the Russia-Brazil axis, independent of their statuses as BRICS nations, is likely to prevail over and above any other relationship that Brazil might pursue. Brazil has already shown its hand as far as the war is concerned, offering general ‘condemnation’ of the violence while doing precisely nothing to join in the sanctions or practical measures launched against Russia. Moscow exports significant quantities of fertiliser and agricultural product to Brazil, on which the agrarian sector of the economy still depends, and it is in Bolsonaro’s interest not to rock the boat when Brazil is facing a raft of economic problems of its own. Plus of course, Bolsonaro is far more politically fundamentally aligned with Putin then he ever could be to leaders of the USA or EU. A deepening of the relationship would work for both parties. Russia gets the prestige of bringing a major developing economy further into its orbit (and as with Cuba back in the 1960s, one that was traditionally in America’s sphere of influence) while Brazil gets the satisfaction that one of the world’s superpowers outrightly needs it to bang the drum of support at IMF and World Bank levels.
Moreover, Brazil might be able to wrangle the West v Russia conflict to its own advantage. As the country’s Economic Minister, Paulo Guedes, has pointed out, Brazil is still seeking accession to the OECD just as the EU is looking for the Mercosur (South America’s trading bloc) deal agreed back in 2019 to be signed and implemented. It could easily use the possibility of further alignment with the unfriendly regimes in Russia and China as a bargaining chip to secure its preferred outcome in these situations. However, if a clear choice has to be made, Brazil is considered likely to throw in its lot with the burgeoning Russia-China axis to which the leadership is far more politically and economically inclined.
The politics of the economy, or the economy of politics?
South Africa is the most recent BRICS accessor, joining the collective in 2010 by virtue of its growth rate and its pre-eminent position on the African continent in local leadership and opportunity creation. Although the South African economy itself is nowhere near as strong as those of its compatriots, it has perhaps the most potential: the true scope of this being ‘Africa’s century’ is yet to be determined and, with all the other nations known quantities for better or worse, South Africa may yet be the key emerging partner for the future particularly, as the East-West divide is made flesh once again. However, this comes at a cost. While the BRICS nations are among the most tantalising economically, politically they are all highly questionable. Russia and China are virtual dictatorships, and Brazil and India arguably pay only lip service to democratic norms.
This is the company that South Africa keeps, and while Cape Town’s own democracy has flaws, it is by far the most encouraging of the five. What was begun as a loose economic collaboration – of economic development – is now morphing into a political alliance. South Africa was arguably made aware of this as far back as 2014, just three years into the BRICS club membership, when South Africa abstained on the UN resolution condemning Russia’s annexation of Crimea for fear of upsetting a key member of their new economic bloc. This same abstention was repeated eight years later. If one accepts that South Africa sees alliances such as BRICS as entirely legitimate ways to increase its power politically as much as economically, then not creating sufficient distance between itself and Russia is a dangerous tactic. Although the potential is there, at present it remains intangible and Western nations will find it far easier to not miss what they never had, compared to the entanglements of Russian and Chinese withdrawals.
The question is whether South Africa, like Brazil and India, will have a choice. If the country makes a political choice to go with the West, it faces significant economic pressures – with Russia theoretically looking to invest millions into major South African oil, gas and mineral projects Cape Town sees as vital, money which would disappear if it aligned itself against Russia, while China has a lengthy history of South African FDI and development/infrastructural assistance which could, likewise, be called into question if the BRICS group ‘closes ranks’.
Whereas if it chooses the comparatively more immediately rewarding economic path that leans towards Russia, China et al, it might find itself closed out of the broader geopolitical support that the West could offer in everything from UN Security Council membership to African Union alignment and, in the current climate of ‘us vs them’, be forced to hoist its flag to the BRICS ship to the long term, with possibly serious consequences for internal democracy within South Africa and external influence exerted upon it.
What Russia is looking for, and what BRICS represents, is the chance to reshape the world order in a manner which does not require nuclear weapons or massed troop movements. Rather, it offers political and economic inducements/opportunities/threats (delete as necessary) in a continuation of strategy that has always been present since the advent of the Cold War, but which now takes on an extra degree of urgency: to facilitate Russian pre-dominance as much as possible. In a post-Soviet world, with Russia no longer able to act as unilaterally as it had before, new alliances needed to be made and the Eurasian Economic Union was never going to suffice. BRICS offers the opportunity to consolidate its position through markets that are either currently crucial, or fast-developing, and in sectors such as technology and resources that are similarly vital. The EEU will not be the mechanism by which Russia exerts its power as this is localised, largely powerless and irrelevant in international political & economic terms, and in thrall to a country that much of the world has rejected. Even leaving aside oil & gas, the growing prevalence of the union creates a new trading landscape. The BRICS nations – impossible to ignore – are the future.
This would be true even had the invasion of Ukraine never happened, and the four original members (less South Africa) were already natural political and economic bedfellows minded, creating a counterweight bloc to the various bodies of the West. Now though, BRICS risks being seen as a body where politics is inextricable from the economy, and where Western firms may need to reflect that dealing with a BRICS nation cannot be on purely financial terms any more. China and India may be unavoidable partners for trade, with Brazil and South Africa significant parts of any global conversation, but such deals must be seen through the prism of the changed dynamic now prevalent in geopolitics and the chance that future trading relationships will be forever altered as well. While the BRICS nations may not form a formal union, they do not need to – their economic weight speaks for itself.
So far, from the ‘multipolar’ world envisioned by both China and India in recent statements on their recommitment to Russia, what we may see instead is the reconstitution of bipolarity, only on economic terms as well as political ones. Neutrality is an ever-receding luxury these days.
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