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ECONOMICS

Ukraine conflict heightens global economic split

  • 28 April 2015

The conflict in the Ukraine has attracted a great deal of attention for its geo-strategic implications. The face off between the world's two military superpowers, the United States and Russia, has revived memories of the Cold War, with all its unthinkable implications.

Less noticed have been the economic implications. The sanctions placed on Russia have forced Russia to become even closer to China, and the alliance between a military superpower and an economic superpower is beginning to split the global economy into two: broadly, East versus West.

It may well come to represent the biggest geo-economic and geo-political shift of the first half of this century, defining much of the future landscape.

Australia, whose interests lie in Asia but whose military allegiances are with America and the West, is at risk of being caught in the middle. The about face on the Asian Infrastructure Investment Bank — the Abbott Government initially bowed to American pressure and refused to be a founder member, only to hastily rush in at the last minute after the Europeans joined — is a sign of the tensions to come.

The military implications of the situation in the Ukraine are difficult to interpret. It is war, and, as ever, truth has become the first casualty — on all sides. Some facts are not in dispute. The ousted president Viktor Yanukovych was a legitimately elected leader, making his removal the equivalent of a coup. Even as pro-American a source as the intelligence group STRAFOR has described it as the 'most blatant military coup in history' (a questionable exaggeration). 

There is also little doubt that America was deeply involved in the creation of the replacement Ukrainian government, as the above phone recording demonstrates. Whether this was American opportunism or something more sinister is not clear.

On the other side, Russia took over the Crimea, formerly part of the Ukraine, no doubt because of its importance as a port and military base. No matter how 'democratic' the subsequent Crimean election was, this was the illegitimate acquisition of the sovereign territory of another nation. Neither side has clean hands.

The economic manoeuvres are easier to interpret. Russia has done large deals with China for its gas, which will more than replace its lost markets in Europe. It is set to provide a fifth of China's gas needs by the end of the decade.

The country abandoned its $40 billion South Stream project which would have passed under the Black

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