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HomeBlogThe Ukraine Crisis: Is Economic Warfare the Road to Ruin?

The Ukraine Crisis: Is Economic Warfare the Road to Ruin?

By David Carment and Dani Belo

In contemporary world politics there is no hierarchy between economic and military strategies. Both are treated equally as weapons of war. On the one hand, Western governments are operating from the belief that using economic instruments of war is inherently less costly. On the other hand, the relationship observed is that as economic interdependence increases between nations, the costs of upsetting the mutually beneficial environment through war also increase. In examining the Ukraine crisis, the costs of using economic instruments of war are visible in a number of important ways.

First, we see a wholly transformed transatlantic region united, ready, and able to impose even more severe costs on Russia. However, in the fog of war, it is easy to lose sight of the long-term security and economic consequences of this conflict for those countries directly impacted by the violence. For example, when examining the pattern of sanctions imposed on Russia by members of the transatlantic community, it becomes clear that individual national interests were not entirely crushed by the collective euphoria of punishing Russia.

In other words, the West may not be as united as it appears on the surface. It is incomprehensible that EU nations would ever embrace the collapse of not one but two very large countries on their borders: Russia and Ukraine. It stands to reason that while the US may see sanctions as a part of a long-term goal to induce Russia’s complete isolation if not failure, it is unlikely all European nations do.

In examining the actions of US allies since the war started there is indeed some variation if not hesitation among them. For example, in a token expression of solidarity, Ottawa banned the importation of Russian oil. In reality, Canada hasn’t imported Russian oil since 2019. In contrast, Germany continues to buy natural resources from Russia. German Chancellor Olaf Scholz remains opposed to sanctions on Russia’s oil and gas sector maintaining these are essential to both the German and the European economies.

At the same time, Hungary’s Viktor Orban went along with the sanctions due to enormous pressure from other members of the European Union. Poland’s government framed Hungary’s position as support for the sanctions, but in Orban’s statement, he did not provide explicit support for them. Rather, he reluctantly claimed that Hungary will not block the efforts of the EU to sanction Moscow. Later, he said that any sanctions against Moscow are a double-edged sword likely to hurt Europe.

Second, serious thought is needed about the consequences of politically and economically destabilizing a nuclear power. Vladimir Putin created an effective balance of power amongst his security services to ensure that no faction could unilaterally oust him, but this alone does not guarantee regime survival.

Nor do Russia’s efforts at sanction proofing, given its limited access to foreign reserves, guarantee economic stability. If the current government in Moscow collapses, how can the West guarantee the security of Russia’s nuclear arsenal and prevent it from becoming a weapon held by non-state groups or more radical factions within Russia’s leadership? The prospect of this scenario should make any supporter of regime change in Russia think twice.

Third, comprehensive sanctions are having a deleterious ripple effect on all parts of the post-Soviet region wherever diaspora sending nations benefit from a robust Russian economy. It is well known that sanctions impact many ordinary people in post-Soviet republics that rely on Russia’s economic wellbeing. With economic decline, Central Asian republics such as Uzbekistan, Kyrgyzstan, and Tajikistan, who depend on remittances from Russia, will experience a sharp deterioration in their gross domestic product.

For example, some 3 million guest workers entered Russia in 2021 from these Central Asian republics. Remittances, constitute some 30 percent of the gross domestic product of Tajikistan, 28 percent for the Kyrgyz Republic, and almost 12 percent for Uzbekistan. The fall of the Ruble against the dollar by 30 percent had an immediate effect on the value of remittances being sent by workers to their home nations. Extreme reductions in these flows will have a catastrophic impact on Central Asia, generating additional political instability in an already fragile part of the world. Without gainful employment, Russia’s guest workers will return to their homelands placing a further burden on their local economies.

Fourth, sanctions on Russia have inevitably raised the price of agricultural products and energy globally. Russia is the world’s 3rd-largest wheat producer and is among the top three oil producers in the world. Comprehensive sanctions have disrupted Moscow’s ability to export essential commodities such as wheat, oil, gas, and aluminum as well. This week, prices of wheat and corn rose to their highest levels in over a decade. Concurrently, the severing of energy deals between Western companies and Russian energy producers and the removal of major Russian institutions from the SWIFT payment system raised the prospects of fuel shortages in both the short- and long-run. Other commodity exporters not directly affected by the conflict, but eager to reap windfalls that will be generated by constrained supply are looking to renegotiate their contracts, withholding exports as a bargaining chip. Collectively, these decisions will place an even greater constraint on the world’s food and energy supply. Ultimately developing and politically fragile states will be the ones most affected.

Finally, the Biden administration’s latest dealings with Venezuela, a key Russian ally, raise questions regarding Washington’s promotion of an alliance of democracies against illiberal regimes. Early in his term, Biden called for a principled approach to foreign policy bringing together like-minded states to depose rogue regimes like Venezuela. On the one hand,  Washington demonstrated that these principles can be rapidly sacrificed for a greater geopolitical goal when necessary. In this case, the goal is to fracture Moscow’s global alliance network and destabilize Russia. Now, U.S. officials are courting Venezuela’s Maduro in hopes of turning an ally of Moscow into its adversary. Russia’s relationship with Venezuela runs deep, with Moscow being a key lifeline for the survival of the Maduro regime when it was sanctioned by Washington. On the other hand, the fluid nature of Washington’s principles facilitates distrust and is counterproductive to long-term alliance-building.

It remains to be seen if the US can convince Maduro to increase oil exports in return for reduced sanctions. What is clear is that the US is demonstrating dependence on a country whose values it does not share. Biden also reached out to Saudi Arabia and the United Arab Emirates, which also became the targets of Washington’s democracy-promotion agenda, to produce more oil and offset the volatility of supply from Russia. However, both nations have so far proved unwilling to follow Washington’s request.

Since the end of the Cold War, the conventional wisdom driving foreign policies was that strong economic relations and interdependence align strongly with peace. The West’s response to Russia’s invasion of Ukraine so far shows that, as the cost of engagement in conventional military operations increases, the economic domain becomes increasingly important for the exercise of power and overall interaction between states. The preference for economic warfare challenges prevailing beliefs about why states go to war and how they fight wars. But as we see in the current crisis economic actions, just short of formal war declarations, can have broad and debilitating global effects.

David Carment (@cdnfp) is a Senior Fellow at the Institute for Peace & Diplomacy, a Fellow with the Canadian Global Affairs Institute, Editor of the Canadian Foreign Policy Journal, and Palgrave’s Canada and International Affairs Book series.

Dani Belo is an Assistant Professor of International Relations at Webster University in St. Louis, USA and a Fellow at the Norman Paterson School of International Affairs in Ottawa, Canada.

Panel 4: Pathways to Manage Non-Proliferation in the Middle East (4:30 PM - 5:45 PM ET)

The Western powers have failed to effectively manage the increasing threat of proliferation in the Middle East. While the international community is concerned with Iran’s nuclear program, Saudi Arabia has moved forward with developing its own nuclear program, and independent studies show that Israel has longed possessed dozens of nuclear warheads. The former is a member of the treaty on the Non-Proliferation of Nuclear Weapons (NPT), while the latter has refused to sign the international agreement. 

On Middle East policy, the Biden campaign had staunchly criticized the Trump administration’s unilateral withdrawal from the Joint Comprehensive Plan of Action (JCPOA), more commonly known as the Iran Nuclear Deal and it has begun re-engaging Iran on the nuclear dossier since assuming office in January 2021. However, serious obstacles remain for responsible actors in expanding non-proliferation efforts toward a nuclear-free zone in the Middle East. 

This panel will discuss how Western powers and multilateral institutions, such as the IAEA, can play a more effective role in managing non-proliferation efforts in the Middle East.  

Panelists:

Peggy Mason: Canada’s former Ambassador to the UN for Disarmament

Mark Fitzpatrick: Associate Fellow & Former Executive Director, International Institute for Strategic Studies (IISS)

Ali Vaez: Iran Project Director, International Crisis Group

Negar Mortazavi: Journalist and Political Analyst, Host of Iran Podcast

David Albright: Founder and President of the Institute for Science and International Security

 

Closing (5:45 PM – 6:00 PM ET)

Panel 3: Trade and Business Diplomacy in the Middle East (3:00 PM - 4:15 PM ET)

What is the current economic landscape in the Middle East? While global foreign direct investment is expected to fall drastically in the post-COVID era, the World Bank reported a 5% contraction in the economic output of the Middle East and North African (MENA) countries in 2020 due to the pandemic. While oil prices are expected to rebound with normalization in demand, political instability, regional and geopolitical tensions, domestic corruption, and a volatile regulatory and legal environment all threaten economic recovery in the Middle East. What is the prospect for economic growth and development in the region post-pandemic, and how could MENA nations promote sustainable growth and regional trade moving forward?

At the same time, Middle Eastern diaspora communities have become financially successful and can help promote trade between North America and the region. In this respect, the diaspora can become vital intermediaries for advancing U.S. and Canada’s business interests abroad. Promoting business diplomacy can both benefit the MENA region and be an effective and positive way to advance engagement and achieve foreign policy goals of the North Atlantic.

This panel will investigate the trade and investment opportunities in the Middle East, discuss how facilitating economic engagement with the region can benefit Canadian and American national interests, and explore relevant policy prescriptions.

Panelists:

Hon. Sergio Marchi: Canada’s Former Minister of International Trade

Scott Jolliffe: Chairperson, Canada Arab Business Council

Esfandyar Batmanghelidj: Founder and Publisher of Bourse & Bazaar

Nizar Ghanem: Director of Research and Co-founder at Triangle

Nicki Siamaki: Researcher at Control Risks

Panel 2: Arms Race and Terrorism in the Middle East (12:00 PM - 1:15 PM ET)

The Middle East continues to grapple with violence and instability, particularly in Yemen, Syria and Iraq. Fueled by government incompetence and foreign interventions, terrorist insurgencies have imposed severe humanitarian and economic costs on the region. Meanwhile, regional actors have engaged in an unprecedented pursuit of arms accumulation. Saudi Arabia and the United Arab Emirates have imported billions of both Western and Russian-made weapons and funded militant groups across the region, intending to contain their regional adversaries, particularly Iran. Tehran has also provided sophisticated weaponry to various militia groups across the region to strengthen its geopolitical position against Saudi Arabia, UAE, and Israel. 

On the other hand, with international terrorist networks and intense regional rivalry in the Middle East, it is impractical to discuss peace and security without addressing terrorism and the arms race in the region. This panel will primarily discuss the implications of the ongoing arms race in the region and the role of Western powers and multilateral organizations in facilitating trust-building security arrangements among regional stakeholders to limit the proliferation of arms across the Middle East.

 

Panelists:

Luciano Zaccara: Assistant Professor, Qatar University

Dania Thafer: Executive Director, Gulf International Forum

Kayhan Barzegar: Professor and Chair of the Department of Political Science and International Relations at the Science and Research Branch of Azad University

Barbara Slavin: Director of Iran Initiative, Atlantic Council

Sanam Shantyaei: Senior Journalist at France24 & host of Middle East Matters

Panel 1: Future of Diplomacy and Engagement in the Middle East (10:30 AM-11:45 AM ET)

The emerging regional order in West Asia will have wide-ranging implications for global security. The Biden administration has begun re-engaging Iran on the nuclear dossier, an initiative staunchly opposed by Israel, while also taking a harder line on Saudi Arabia’s intervention in Yemen. Meanwhile, key regional actors, including Qatar, Iraq, and Oman, have engaged in backchannel efforts to bring Iran and Saudi Arabia to the negotiating table. From a broader geopolitical perspective, with the need to secure its energy imports, China is also expected to increase its footprint in the region and influence the mentioned challenges. 

In this evolving landscape, Western powers will be compelled to redefine their strategic priorities and adjust their policies with the new realities in the region. In this panel, we will discuss how the West, including the United States and its allies, can utilize multilateral diplomacy with its adversaries to prevent military escalation in the region. Most importantly, the panel will discuss if a multilateral security dialogue in the Persian Gulf region, proposed by some regional actors, can help reduce tensions among regional foes and produce sustainable peace and development for the region. 

Panelists:

Abdullah Baabood: Academic Researcher and Former Director of the Centre for Gulf Studies, Qatar University

Trita Parsi: Executive Vice-President, Quincy Institute for Responsible Statecraft

Ebtesam Al-Ketbi: President, Emirates Policy Centre​

Jon Allen: Canada’s Former Ambassador to Israel

Elizabeth Hagedorn: Washington correspondent for Al-Monitor

Panel 4: Humanitarian Diplomacy: An Underused Foreign Policy Tool in the Middle East (4:30 PM - 5:30 PM ET)

Military interventions, political and economic instabilities, and civil unrest in the Middle East have led to a global refugee crisis with an increasing wave of refugees and asylum seekers to Europe and Canada. Moreover, the COVID-19 pandemic has, in myriad ways, exacerbated and contributed to the ongoing security threats and destabilization of the region.

While these challenges pose serious risks to Canadian security, Ottawa will also have the opportunity to limit such risks and prevent a spillover effect vis-à-vis effective humanitarian initiatives in the region. In this panel, we will primarily investigate Canada’s Middle East Strategy’s degree of success in providing humanitarian aid to the region. Secondly, the panel will discuss what programs and initiatives Canada can introduce to further build on the renewed strategy. and more specifically, how Canada can utilize its policy instruments to more effectively deal with the increasing influx of refugees from the Middle East. 

 

Panelists:

Erica Di Ruggiero: Director of Centre for Global Health, University of Toronto

Reyhana Patel: Head of Communications & Government Relations, Islamic Relief Canada

Amir Barmaki: Former Head of UN OCHA in Iran

Catherine Gribbin: Senior Legal Advisor for International and Humanitarian Law, Canadian Red Cross

Panel 3: A Review of Canada’s Middle East Engagement and Defense Strategy (3:00 PM - 4:15 PM ET)

In 2016, Canada launched an ambitious five-year “Middle East Engagement Strategy” (2016-2021), committing to investing CA$3.5 billion over five years to help establish the necessary conditions for security and stability, alleviate human suffering and enable stabilization programs in the region. In the latest development, during the meeting of the Global Coalition against ISIS, Minister of Foreign Affairs Marc Garneau announced more than $43.6 million in Peace and Stabilization Operations Program funding for 11 projects in Syria and Iraq.

With Canada’s Middle East Engagement Strategy expiring this year, it is time to examine and evaluate this massive investment in the Middle East region in the past five years. More importantly, the panel will discuss a principled and strategic roadmap for the future of Canada’s short-term and long-term engagement in the Middle East.

Panelists:

Ferry de Kerckhove: Canada’s Former Ambassador to Egypt

Dennis Horak: Canada’s Former Ambassador to Saudi Arabia

Chris Kilford: Former Canadian Defence Attaché in Turkey, member of the national board of the Canadian International Council (CIC)

David Dewitt: University Professor Emeritus, York University

Panel 2: The Great Power Competition in the Middle East (12:00 PM - 1:15 PM ET)

While the United States continues to pull back from certain regional conflicts, reflected by the Biden administration’s decision to halt American backing for Saudi Arabia’s intervention in Yemen and the expected withdrawal from Afghanistan, US troops continue to be stationed across the region. Meanwhile, Russia and China have significantly maintained and even expanded their regional activities. On one hand, the Kremlin has maintained its military presence in Syria, and on the other hand, China has signed an unprecedented 25-year strategic agreement with Iran.

As the global power structure continues to shift, it is essential to analyze the future of the US regional presence under the Biden administration, explore the emerging global rivalry with Russia and China, and at last, investigate the implications of such competition for peace and security in the Middle East.

Panelists:

Dmitri Trenin: Director of Carnegie Moscow Center

Joost R. Hiltermann: Director of MENA Programme, International Crisis Group

Roxane Farmanfarmaian: Affiliated Lecturer in International Relations of the Middle East and North Africa, University of Cambridge

Andrew A. Michta: Dean of the College of International and Security Studies at Marshall Center

Kelley Vlahos: Senior Advisor, Quincy Institute

Panel 1: A New Middle East Security Architecture in the Making (10:30 AM -11:45 AM ET)

The security architecture of the Middle East has undergone rapid transformations in an exceptionally short period. Notable developments include the United States gradual withdrawal from the region, rapprochement between Israel and some GCC states through the Abraham Accords and the rise of Chinese and Russian regional engagement.

With these new trends in the Middle East, it is timely to investigate the security implications of the Biden administration’s Middle East policy. In this respect, we will discuss the Biden team’s new approach vis-à-vis Iran, Yemen, Saudi Arabia, and Israel. The panel will also discuss the role of other major powers, including China and Russia in shaping this new security environment in the region, and how the Biden administration will respond to these powers’ increasing regional presence.

 

Panelists:

Sanam Vakil: Deputy Director of MENA Programme at Chatham House

Denise Natali: Acting Director, Institute for National Strategic Studies & Director of the Center for Strategic Research, National Defense University

Hassan Ahmadian: Professor of the Middle East and North Africa Studies, University of Tehran

Abdulaziz Sagar: Chairman, Gulf Research Center

Andrew Parasiliti: President, Al-Monitor