Impact of the Ukraine Conflict on China & Asia – Readers Comments and Regional Updates

Last week, we published a highly regarded report about Russia’s Pivot to Asia which contained valuable intelligence concerning the impact on Asian markets in China, Iran, Turkey, Saudi Arabia, the UAE, Central Asia, the Eurasian Economic Union, India, Pakistan, ASEAN, Japan, and South Korea and illustrate how Ukraine is a component part of a far wider geopolitical struggle between the East and West. We also examined what is in store for global markets and economies, the impact on the US dollar, and China / Asian supply chains after the 21st century’s first major conflict. That report can be downloaded here on a pay-what-you-want basis, with proceeds going to Ukrainian children’s charities.

Interest from readers has been intense, with several new geopolitical and trade points coming out from comments made about the report. To bring readers up to date with the latest implications, we reproduce some of these as follows. Thank you to our readers for contributing to the subject.

Impact on Asia

“India is key. With deteriorating relations with the United States, which has now threatened New Delhi with sanctions for maintaining trade with Russia, will it continue to be part of the Quad, or will it shift to a Russia-Pakistan-China-Iran-NK axis?

How far can Saudi Arabia be prised away from US ties? We could be witnessing the complete establishment of a new regional security bloc based around the Shanghai Cooperation Organisation.”

“Turkey and Germany – Turkey needs Russian energy. Will Russia eventually be able to split Turkey and possibly Germany away from continued NATO and EU involvement? Germany certainly appears reluctant to enforce additional sanctions and is facing intense political pressure at home with a new Chancellor, and rising food and fuel prices. Corporate Germany may resist.”

“About the Armenia-Azerbaijan rapprochement. Is Russia pulling troops from their places of theater, including the Caucasus, to help with the Ukraine situation? If so, will that lead to more flareups in the Caucasus down the road?”
“I think the key point in your report is the paragraph:

“It should be noted however that there may be a limit to China’s patience concerning the Ukraine conflict, which is disabling part of its own supply chains and interfering with the preferred Chinese modus operandi of ‘sustainable development.’ To illustrate growing discontent, Sinopec canceled this week (March 25) a proposed US$500 million investment with Russia’s Sibur, its largest petrochemical producer for a 40% stake in a facility in East Siberia. Putin will have noticed.” 

This means that Putin is aware of Chinese discontent over the war. But that doesn’t necessarily mean that China is discontented with Russia’s position with the United States, meaning that the Ukraine issue and the geopolitical struggle are two different things. How China tilts determines Russia’s future. Everything else is secondary.”

Impact on Europe

“It seems this generation of EU politicians have been wound up so much by the smaller countries such as Lithuania they have totally forgotten how to deal with Russia. If Putin had wanted to recreate the Soviet Union, he wouldn’t have retreated from Georgia in 2008. Instead, they wound him up so much with talk of NATO expansion and EU memberships – and quite possibly nuclear-capable weapons in Ukraine, that he entered this war to protect Mother Russia. Putin wants to ensure everyone understands you don’t mess with Moscow. They pushed him too hard. It is a big mistake.

The other big mistake is that the West thinks it is punishing Putin with all their sanctions. It is not. It is Putin who is punishing the West and the EU will reap the brunt of that. Now there are more US weapons, more US troops in the EU, and now US gas supplies to the EU and all that has to be paid for. Europe in cutting itself off from Russia has tied itself to the United States instead, which is why China’s Xi Jinping at the China-EU conference last week said that Brussels needs to formulate its own foreign policy instead. Being an EU politician now is a poisoned chalice with higher energy costs, rising food costs, inflation, and now a massive debt to the US. Today they are all thinking how great they are in protecting Ukraine but the reality will soon be massive voter discontent and a real danger of European conflict elsewhere such as Bosnia. The EU can only look to the US as allies now and cutting itself off from Russia will in time look like a massively expensive strategic mistake which they could have avoided by staying out of Belarus and Ukrainian politics and attempting to influence them away from Moscow.”

Impact on Russia

“Russia is ruled more competently than in Soviet times, at least on the economic and banking front. Reports of Putin’s health and mental health seem to downplay the extent of how Putin has put a lot of ducks in a row in anticipating what would happen. If his military had been up to standard this would have been a far more rapid outcome, and it is far from over yet.”

“There could be a possible Russian brain drain – though perhaps overblown, already thousands of the so-called intellectual class have left Russia. I have reports in Central Asia of tons of Russians coming over.”

“Too many sanctions can lead other countries to improve internally, have more trade with each other, and trade in different currencies. There is a fine line to when you push them to that point.”

“Russia may have prepared for this current happening, but still this means the Russian economy will fall back to levels like Iran, for whatever reason. There is nothing good for Russia as I can see.”

Asian Supply Chains

“Russian manufacturing will now be sold in Central and South Asia, as well as other non-western countries. The extent of Russia’s global trade reach appears rather more expansive than the West seems to think.”

“You discuss the Eurasian Rail Initiative, INSTC, and China-Kyrgyzstan-Uzbekistan connectivity and supply chains. This are much more of a necessity now, and especially for Europe as the only remaining routes east. This will lead to boosts for the Iranian rail network and a new period of positive geopolitical EU involvement in Iran. That will boost the Caucasus and Central Asian regions if that happens.

The sticking point though is the United States. If they don’t react to these new developments and start to lift sanctions on Iran, the southern access route between the EU and Asia can become very fragile. In which case the EU will become purely a market for North American goods and Asia will be reduced to a bit-part player. That means a new Cold Trade War.”

“As your excellent report says, the impact on Russia of a European cutoff is likely to be minimal. This will be interesting to follow. Russia has plenty of global energy clients but the EU hasn’t any long term energy policy. 2022 is more likely to be a year of shortages and rising prices and this will create political tensions. We already just saw that Hungary’s pro-Russian Prime Minister Viktor Orban just got re-elected with an even bigger majority. Clearly not everyone in the EU is onboard with the anti-Russian ideas.”

“Chinese exports to Europe are now endangered.”

“Chinese energy prices are rising, not all the pipelines are fully operational – Power of Siberia 2 isn’t onstream yet. The Russian energy apparatus is mainly set up for export to the west and to Europe. This can be changed, and your great report examines that point, but this takes both time and money. How fast can Asia get fully connected to Russian gas?”

“Overall, forgetting about rare earths and other metals and resources, much of the world is dependent on Russian and Ukrainian grain and fertilizers and energy. Prices are rising for food, fuel, and other commodities rapidly. There will be famines, wars, and more fights over resources if this isn’t solved soon.”

Source: China Briefing