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Serge Mazodila

Serge Mazodila

Serge K Mazodila is a qualified Technical Analyst with an extensive Portfolio Management experience and currently Head of Risk Management & Trading at The Monarch…

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The Geopolitical Backdrop Of Russia’s Invasion Of Ukraine

  • Russia’s invasion of Ukraine, a humanitarian catastrophe and a criminal act by Putin, is an event that took place against a complex geopolitical backdrop.
  • Following the end of the Cold War and the collapse of the Soviet Union, Western powers expanded their influence to the east of Germany in a creep that Russia perceived as an existential threat.
  • Russia’s invasion of Ukraine is likely to result in two geopolitical shifts, Ukraine moving inevitably towards the Western sphere of influence and Russia becoming increasingly reliant on China.

After months of military build-up on the Ukrainian border, tensions between Russia and the West exploded in late February 2022 when Russia invaded Ukraine, a move that has resulted in a catastrophic war. This war has sent a message that will echo across the Western political apparatus and put NATO’s military forces on high alert for years to come and it is now more important than ever to understand how we got here.

Following the end of the Cold War, the remnants of the Soviet Union saw the Western Union of nations – embolden by the newly formed NATO military organization – begin to court former USSR nations to the East of Germany, geographically inching ever-closer to Moscow. With this, the EU accelerated its incorporation of these newly accepted EU nations into its military ranks through the installation of US military assets along NATO’s newly expanded border with its Cold War-era foe.

Back in 2007, Putin personally offered an alarming warning to NATO, cautioning the military organization from further expanding its presence east of Germany. While the Western powers seemed to dismiss such language as a throwback to the Cold War by a lunatic tyrant, Russia considered it as a diplomatic approach to dealing with what Moscow perceived as the EU’s growing threat to its security.

NATO
* Map of NATO expansion since 1949

Despite the fact that the NATO alliance's twin purpose—as a military group and a tool for democracy promotion—had become a major irritation in US-Russia ties, Putin's warning was effectively ignored due to the Western perception that an economically weak Kremlin could only bark, but not bite.

A crucial mistake made was forgetting that perception molds, shapes, and influences our experience of reality, making this a lens through which we interpret events, view people, and most importantly understand things around us.

In other words, what is believed by most is what we see to be true during the building of our understanding of the worlds around us.

These Cold War-era tensions escalated in 1999 and 2004 when the Trans-Atlantic military union (NATO) continued to expand its sphere of influence beyond the theoretical, “Redline” agreed with the former Communist bloc, further expanding the EU’s political ideology to the East of Germany as it began to include the Baltic States.

Just one year after Putin’s warning to its EU neighbors, NATO promised Ukraine and Georgia membership in 2008, effectively crossing another “Redline” drawn by Putin through the former Soviet republics' borders. According to US authorities, NATO viewed such incursions towards Moscow as the only credible and viable security approach to provide security to Europe and Eurasia, thus expanding beyond East Germany in defiance of Russian concerns of their perceived threat.

In early March 2008, Abkhazia and South Ossetia made official proposals for recognition to Russia's parliament, actions taken shortly after the West recognized Kosovo, a decision that Russia had been obstructing. At the time, Russia's NATO envoy, Dmitry Rogozin, warned that Georgia's ambition to join NATO might prompt Russia to support Abkhazia and South Ossetia's independence.

Around the same time, Georgia – which, according to an independent EU report, initiated the five-day war with Russia after attacking Tskhinvali (in South Ossetia) with heavy artillery on the night of the 7th to 8th of August 2008 – was receiving US military training and support as its leaning towards the EU, and joining NATO, also became even more evident – prompting a swift response from the Kremlin as it opted to roll-out tanks against what they perceived to be a growing US/Western influence in its backyard, and after Russian peacekeeping forces were attacked in South Ossetia.

Following these events, Putin militarily confronted Georgia, which kept the “Redline” around former Soviet territory, in order to pause NATO's eastward progress, marking a watershed moment in the history of European security whilst also straining NATO-Russia relationships. 

Further to this event, the annexation of Crimea, followed by Russia's unannounced attack on Ukraine in 2014, signaled the end of the post-Cold War norms that have kept the Continent stable for decades. This was replaced with the re-emergence of a new East vs West divide fueled by the EU’s inability to properly assess Russia’s military capabilities and willingness to act based on their perceived threat of NATO forces being present Russian borders i.e. something believed to be real by Putin, regardless of the EU’s plea that NATO is simply a defensive organization, and not an offensive force.

The post-cold war era map created back when Western leaders agreed to not expand NATO military forces towards Russia, during the German Reunification Treaty, has continuously been subverted by new decisions made by the EU-bloc, in light of its perceived decline of Russia as a global superpower over the years. 

Despite the agreement, the European map has seen itself continuously re-drawn by leading European forces; the UK, France, and Germany, thanks to the backing of Russia’s ideological opponent and world super-power that is the United States (US).

THE RETURN OF THE DREADED RED ARMY

Following many years of Russia relying on its soft power in an attempt to address its perceived threat from NATO, Moscow’s political drive to deter further EU military expansions towards Moscow’s Eastern flank became cemented following the political change of 2014 in Ukraine.

Become of this, it should come as no surprise that the red army's renewed purpose, to dig its heel-in, and raise a new “Iron Curtain” on its Eastern-front – between itself and NATO forces East of Germany – has become its key concern

After the Russian Federation, publically and explicitly, warned of the ‘severe’ consequences that would follow (should) the coalition of NATO forces, or any third-party actors, become involved in its localized military conflict with an ex-soviet state. The EU’s light retaliation, on behalf of the West, seems to be currently structured in a way that still favors Russia considering the limited impact this has had on Moscow thus far – mainly due to Russia’s crucial energy sector also needed for EU’s gas-supply security.

Ruble

Although the EU’s sanctions on Russian banks and other sectors of the Federation have led to a meltdown of the Russian Ruble and its stock market, the importance of Russia's oil, gas, and coal exports – to Europe – has remained a contentious issue due to the region’s reliance on Moscow for +30% of its energy requirement to fuel the Continent’s large economies which make up the world’s second-largest trading bloc.

This trading, economic, and energy entanglement with Moscow has hindered the West's capacity to effectively, and financially, punish Russian aggression since 2014’s annexation of the Crimea peninsula.

In simple terms, cutting Russia off from the global financial system stands as a drastic measure that would undoubtedly damage the Russian economy, causing significant misery for the Russian civilian population, whilst also driving European energy prices beyond the meteoric rise observed since late-Summer 2021. 

Considering the EU’s energy cost increase after gas contracts became highly valued (up +300%) due to the global supply-crunch that followed the world’s re-emergence from two years of restricted economic and business activities thanks to COVID-19, further economic pain in Europe is highly undesirable for most of its citizens, let alone the prospect of another European war that could morph and engulf the entire Continent in a similar way to World War I & II.

THE EU’S POLITICAL SPHERE OF INFLUENCE - HOW DID THE WEST GET ITSELF HERE?

According to the Economist, today, 13% of Ukrainians are ethnically Russians and nearly a third of the ex-soviet nation’s population speak Russian as a first language, whilst 75% of Ukrainians born since 1991 perceive their economic future to be aligned with the EU rather than with dear old mother Russia.

As a result, Ukraine’s strategic significance – both geographically and militarily – has worried Moscow as its next-door neighbor has continuously sought closer ties with the West, a view that Putin believes to be unacceptable and poses an existential threat to the entire Russian Federation, mainly due to the threat of NATO missiles at its doorsteps i.e. an ironic reverse of 1962’s Cuban missile crisis.

NATO

Ukraine’s new orientation towards Western ideology has consistently been perceived by Russia as an existential threat, as the Kremlin sees its neighbor’s EU-leaning governments as the work of a Western-led “Coup” at its borders. The regime change in Ukraine, which came after the “Orange revolution” that saw a series of protests overthrow a Russian-friendly President, brought in a more EU-favoring alternative into government, drastically changing the political landscape to immediately push Moscow’s actions towards a swift annexation of Crimea in 2014 i.e. an important military strategic outpost for the Russian Federation’s Black-Sea naval fleet.

The Minsk II negotiations, a ceasefire agreement signed on 12 February 2015 in an attempt to bring peace in the Donbas region, has been utilized by Russia as a means to continue to play an important role over the Ukrainian territories, leaving a small limited/space in the political arena for the West (EU & NATO) to further increase their Western influence on its borders. 

The cheap global oil prices at the time of the annexation (following the 2014 Crude oil market crash) further weakened the Russian economy and Putin’s ability to respond to the alleged EU manipulations at its frontier with the West, & NATO. However, Russia’s latest moves to recognize the independence of Donetsk and Luhansk in 2022, both on the Ukrainian side of its Eastern borders, came in advance of its invasion of Ukraine and despite inducing some limited sanctions from the Continent. With the EU sanctions targeting trading activities between the US, EU, and Russia, another key measure of the sanctions led to the prompt suspension of the controversial Nord Stream 2 pipeline feeding gas into Berlin – Russia’s largest gas client in Europe.

SANCTIONS AND DAMAGES – FROM RUSSIAN PAIN THRESHOLD TO POLITICAL RESILIENCE

Since the start of its invasion of Ukraine, stricter EU sanctions imposed on a number of Russian banks, barring them from the global SWIFT payment system, have restricted payment options with foreign entities. Furthermore, the sanctions have frozen Russian Central Bank assets around the world, and as of result, forcing Moscow to use its own counterpart payment method (SPFS) – developed by the Central Bank of China – for domestic bank usage and potentially as a way to circumvent Western sanctions by trading with its closest ally - China.

Dollars

It is estimated that since its exclusion from SWIFT for its nuclear program development in 2012, Iran has lost almost half of its revenue generated from oil exports and 30% of its trades due to the punishing actions to limit its economic potential by Western powers.

However, the Russian economy seems to be better prepared today than it was back in 2014 when the ruble collapsed. The Federation has increased its holding of foreign currencies in an attempt to support its national currency and protect the ruble – should even stricter economic sanctions be imposed by the Euro-Atlantic alliance. Additionally, Russia’s economic trade with China has surged from ~$13bln (in the early 2000s) to over $150bln in 2022, making this a significant economic hedge that will be further boosted by the latest 30-year agreement between Moscow and Beijing for natural gas supplies. 

Russia

In its latest agreement with China for gas exports – via its new pipeline, Russia has agreed to settle the new deal in Euros as an effort by the two countries to diversify away from globally dominant US dollars that have continued to fuel their main competition.

Considering the multi-level Russia-China co-operation deals to keep business activities flowing and energy exports to China steady, It is estimated that Russia’s foreign exchange reserves of around $635 billion will continue to grow thanks to the higher trading global oil markets, thus affording Moscow a much better economic environment (than in 2014) under which it can take bold military actions by maintaining a degree of high oil earnings ahead of future negotiations with the West (NATO).

FINAL REMARKS

Thus far, the current war in Ukraine is likely to further reinforce the general public sentiment that Kyiv’s future now lies with the West, however, this has yet to translate to NATO military support (boots on the ground) as the risk of a West Vs Russia war could lead to a full-blown nuclear war considering the vast weapon arsenal held between two of the world’s largest military powers.

Russia’s gas exports to China – via the Power of Siberia gas pipeline since 2014 – where Gazprom and China’s National Petroleum Corporation signed a 30-years agreement for gas deliveries to the tune of 38 billion cubic meters (bcm) per year, has the potential to further rise by 10bcm under newly signed long-term contracts by the two countries. As of now, gas from the Chayandinskoye field – the basis for the Yakutia gas production hub – will be delivered to domestic customers in Russia's Far-East regions and China through the Power of Siberia gas trunk line (eastern route).

In addition to this, the Power of Siberia will begin receiving gas from a new field, Kovyktinskoye, in late 2022, which will serve as the foundation for the Irkutsk gas production center that will form part of Russia’s Eastern supply capacity.

With its gas exports to Beijing set to increase, alongside the Power of the Siberia pipeline, in an effort for China to meet its zero carbon emission goals by 2060, Beijing’s energy consumption looks set to provide the Russian Federation with the much-needed finance needed to weather the global storm of sanctions as it digs-in-deep to fight the perceived threat, real or not, to its existence as a global power.

By Serge Mazodila & Panteleimon Trygonakis

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Leave a comment
  • Godfree Roberts on March 09 2022 said:
    Russia’s invasion of Ukraine, a humanitarian catastrophe and a criminal act by Putin, is neither an invasion (it's a police action, like Korea in '51), a humanitarian catastrophe (unlike, say, Vietnam, where we killed three million civilians), nor a criminal act (because UN Article 15 applies to Russia even more than it applied to the US when the US invoked it against Iran).

    Iran, for God's sake. Wake up.
  • Lee James on March 10 2022 said:
    Certainly, there are two sides to the Russia-Ukraine conflict. This article helps us understand Russia's perception. I agree that Russia did voice its concern to the West early on.

    But I fail to see anything threatening about the posture that NATO took toward Russia. NATO was essentially lolly-gagging along at about 2% of GDP annual expenditure. Recall how Trump took offense at that. NATO was not looking impressive. Meanwhile, Russia was forging ahead at about an 11% expenditure.

    Maybe Putin had other ideas for what all he wanted to do. The lies cascading out of the Putin government about Ukraine pretty much tell the tale that Putin actions were not grounded in reality. Putin has fabricated just about everything as justification for killing Ukrainian civilians.

    Ukraine did not warrant one life lost -- Ukrainian or Russian.

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