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bne June 2022 Cover story I 29
Regionalisation
At the same time, the SWIFT sanctions on Russia at the start of the war have had far-reaching consequences. As other emerging markets became nervous of exposing themselves to the US’ ability
to weaponise the dollar. Russia’s MIR credit card payment system and the SPFS (System for Transfer of Financial Messages) messaging system that works in parallel to SWIFT have been adopted by dozens of countries and have become the basis of Russia’s international trade and settlement system.
These systems found willing partners
in the rest of the Emerging World as countries like China were keen to insulate themselves from potential US sanctions, accelerating the de-dollarisation of global trade. Russia and the other BRIC nations
on opening up the North-South corridor into Asia via Central Asia.
The Taliban was in Lahore again last September to meet Sergei Petrov, the new Russian Foreign Minister that Putin picked from obscurity following Sergei Lavrov’s death last year from lung cancer. A 30-year investment and gas transit deal is on the table that is supposed to be signed by the end of this year. That will be accompanied by a new railway and other infrastructure investments, says Petrov, as well as rare earth metal mineral extraction rights worth an estimated $50bn that will be jointly exploited with China.
The talks are expected to be difficult, but after three years of famine, as Afghanistan was especially hard hit by
companies remain nominally private as the Russian state is no longer capable of running a centrally planned economy of this sophistication, but the Kremlin retains tight control over what the companies can do through a system of licences.
At the same time, Russia has invested heavily in building the infrastructure
to support this new reality. New pipelines headed east not west are under construction. And Russia has built a fleet of nuclear-powered tankers that traverse the Northern Sea Route (NSR) connecting European Russia to Asia with only a few weeks’ travel time.
Fears that Russia would become a
raw materials appendage to China transpired to be overblown as China’s own problems with the US maintained the need for good relations with the US and Russia’s own expanding relations with Africa, Southeast Asia and the Middle East. China has become an important source of technology for Russia and is increasingly able to replace the machines and electronics that Russia used to buy from Germany and the US.
But cut off from the latest technology and unable to develop this itself, Russia’s growth potential has been severely reduced, and it is slipping further and further behind the global economy, while China continues to power ahead. While the buffer of Russia’s almost limitless energy and commodity riches means this is a slow process, it is still inevitable.
“Globalisation has given way to regionalisation, where groups of countries form regional security and trade alliances”
now do half of their trade in national currencies, with the yuan emerging as a new global reserve currency, up from nothing in 2008.
Globalisation has given way to regionalisation, where groups of countries form regional security and trade alliances, such as Turkey in the Caucasus and Central Asia, as well as the Balkan states and SE Asia that is dominated by China. As the general store to many of these groups, Russia has sought to capitalise on the regional associations that are also interested in insulating themselves against Western power in their geographies.
Turkey has been a big winner from
the war as one of the few countries
that has been able to play both sides
of the showdown. Turkish President Recep Tayyip Erdogan was already working hard to expand his influence in his region and the war has only strengthened his hand. Central Asia has also made real gains as Russia focuses
the global food insecurity crisis caused by the Ukraine war, the Taliban are in a mood to compromise, especially as the Kremlin has included guaranteed grain and arms supplies as part of the deal.
The new Afghan vector will open Central Asia, and by extension Russia, up to the massive Asian markets and give Russia new customers for its oil and gas exports over the medium term, say experts.
Foreign trade still accounts for over 44% of Russia’s GDP, while in the USSR of the mid-1980s it was less than 5%. For Russia trade in commodities and energy has grown even more important as a geopolitical tool, leading to the so-called commodity wars.
In the boom years of the noughties
most of Russia’s raw materials business was in private hands and the owners sought to maximise profits. Today Russia is happy to sell its wares at a deep discount in exchange for support in its ongoing showdown with the West. The
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