Russia Invades Ukraine. What Comes Next?

If there was any subtlety to Russia’s increasingly intimidating behavior toward Ukraine in recent weeks, it gave way today as Putin launched a full-scale military invasion of its neighbor. How this plays out is unclear, except that whatever unfolds it’s obvious that a major geopolitical regime shift has been triggered. Exactly what this means for the global economy, markets, international relations and beyond is hazy at best this morning. Meanwhile, here are three key questions to ponder as a needless war begins just across Europe’s eastern border.

Will the US and its allies react with more than increasingly harsh economic sanctions? It seems likely that Russia’s overwhelming military force will eventually prevail and Ukraine’s government and independence will succumb. That will be a major event on Europe’s eastern border and undoubtedly unleash an array of repercussions. There are many paths the West can take, ranging from doing little beyond announcing sanctions and condemning Russia to more muscular changes in NATO’s posture. The stakes are certainly at the highest level since the Cold War and it arrives at a precarious time for the US and Europe. CNN’s Stephen Collinson accurately sums up the stakes at this pivotal moment:

Putin’s attack on Ukraine is another challenge to America’s global power and the concept of a free and democratic world that multiplies its influence. Liberal democracy now faces a fearsome challenge, not just from a revanchist Russia but from a rising, authoritarian super power in China. 

How much of a shock will Russia’s invasion unleash on the global economy? There’s never a good time for an energy shock, but it’s hard to imagine a period of higher risk in recent history. Inflation is already elevated and rising energy prices will likely exacerbate pricing pressure further. Given Russia’s crucial role as a major energy exporter, there are no easy solutions in the near term. Not surprisingly, Brent crude oil – the international benchmark – has already soared above $100 a barrel this morning – the first triple-digit reading since 2014. A supply-induced energy crunch is coming, and Europe is especially vulnerable, relying on Russia for about a third of its natural gas supply. Globally, Russia’s crude represents about 10% of supply. That leaves the question of whether the West will target Russia’s oil exports directly? If so, there will be a price to pay, all the more so because, as the FT reminds: “A lack of investment has limited oil and gas producers’ ability to boost output, leaving the world with few options to ease energy prices after the Russian incursion in Ukraine sent oil racing above $100 a barrel.”

How will China respond? Russia’s growing economic and geopolitical ties with China are crucial for Moscow’s efforts to blunt the West’s sanctions. On first glance, it’s easy to assume that Beijing will march in lockstep with Putin’s misleading rationalizations for war. That playbook seems to rolling forward. Notably, China today refused to call Russia’s moves on Ukraine an “invasion” and instead urged restraint on all sides. But China’s in a tricky spot, in part because Ukraine’s number one trading partner is China. The first question is how far Beijing goes in supporting Russia’s war? All the way? Or will China play a more constructive role in trying to calm the tensions? Unclear, but given China’s growing influence in global affairs, the answer may cast a long shadow on how events unfold in the days and weeks ahead.


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