Fuga Bluemarine crude oil tanker lies at anchor near the terminal Kozmino in Nakhodka Bay near the port city of Nakhodka, Russia, December 4, 2022. REUTERS/Tatiana MeelTATIANA MEEL/Reuters
John Rapley is a contributing columnist for The Globe and Mail. He is an author and academic whose books include Why Empires Fall and Twilight of the Money Gods.
When the Middle East war is finally done, experts will debate who really emerged the winner – whether the United States suffered a Vietnam-like setback or instead managed to clip the wings of an Iranian regime; whether Israel established itself as the pre-eminent power in the Middle East or isolated itself from both regional and international opinion; whether Iran solidified its control of the Persian Gulf or found itself shattered and friendless.
But what seems beyond doubt is that every day this war continues, one clear winner is Russia. Like all oil- and gas-exporting states, the surge in energy prices has brought the country’s tightening budget and weakening economy a much-needed windfall. Thanks to the suspension of some sanctions and the reduction in the discount paid for Russian oil – since importers are scrambling to get whatever they can – Russia is gaining an estimated US$8.5-billion of extra revenue per month, with about two-thirds of that going into the government’s budget. Add to that its increased fertilizer exports and the country is flush.
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That’s more money to fuel its war effort in Ukraine, which is further bolstered by the fact the attention of Ukraine’s allies – most notably the U.S – has been distracted by events in the Middle East. Ukraine is desperate for more interceptors to ward off Russian missiles, but the U.S. is reorienting its defences elsewhere.
Meanwhile, Russia’s geopolitical standing has received an apparent boost. Notwithstanding Donald Trump’s weak spot for Vladimir Putin, Russia regards the U.S. as a strategic enemy. This war gives it opportunities to quietly weaken its rival, from providing intelligence and equipment to Iran, which has given them greater success in hitting U.S. and Israeli targets, to defying the U.S. embargo and sending oil to Cuba (which Washington insiders regard as a deliberate attempt to test U.S. resolve). As the U.S. once more gets bogged down in the Middle East, Russia and its ally China get to have more free rein in the world.
Analysis: The war in the Middle East already has one big winner: Russia
Nevertheless, while Russia’s immediate position seems to have improved, the benefits may prove ephemeral. To begin with, while US$8.5-billion sounds like a lot of money, it amounts to less than 5 per cent of Russia’s GDP when annualized, and most of the government revenue will go to softening the pain of what was expected to be an increase in austerity (given the immense toll of the war). Even that boost would only happen if the Iran war continued endlessly, which it won’t. Russia’s windfall will probably evaporate quickly once the Strait of Hormuz reopens.
At the same time, its market standing will, if anything, get weaker. Russia isn’t finding new buyers for its oil but is growing more dependent on sales to China, to the point it’s beginning to resemble a client state. In fact, to speak of a Russia-China axis is probably misleading. In truth, China may be gaining strategic benefit from this war, but Russia if anything finds itself more isolated and dependent on its patron to the south. Despite the ambitions Mr. Putin once had of making Russia a tech hub, the country essentially exports resources in return for finished goods, largely from China, putting itself in a dependent relationship (not unlike Canada’s with the U.S.). Its economic future in an increasingly technology-driven world thus looks constrained.
Meanwhile, Ukraine has been chalking up wins of its own – not least on the battlefield, where it is still securing tactical victories that slow its enemy’s advance to a virtual halt, at enormous cost in Russian lives. Most importantly, its mastery of drone technology, a product of wartime improvisation, has suddenly raised demand for its services, not least by Gulf states with deep pockets who have both lost faith in the U.S. deterrent and are finding U.S. heavy technology ill-suited to the task they face.
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What this war has exposed is that the technological sophistication of the U.S. and Israeli militaries gives them absolute dominance, but at a relatively huge cost: not only are Iranian drones cheap to make, but they can be produced quickly, whereas the U.S.’s and Israel’s rapidly-depleting stock of interceptors will take years and tens of billions of dollars to replenish. Faced with this calculus, Gulf states are eagerly enlisting Ukraine’s help, since it now leads the world in the production of cheap, effective drones and defensive systems.
All told, beyond the short run, this war may not make that much of a difference to the balance in the Ukraine war. Yes, the U.S. will remain distracted by events elsewhere, but it already was - Mr. Trump has never been a fan of the Ukrainian struggle and U.S. support had already ended this year. But provided Canada and its European allies step in and take up the slack, maintaining or even expanding their support for Ukraine, they should be able to limit Russia’s victory.