Professor Greg Kennedy, Defence Studies Department, King’s College London
Some time ago I wrote in this blog (https://defenceindepth.co/2022/03/22/world-war-three/) about some things that were fairly obvious in terms of how the economic warfare elements of this conflict would affect UK and global security. I want to take a moment to continue some of those thoughts and introduce some new ones as things get more complicated for strategic thinkers and strategic policy makers here in the UK and abroad.
Chasing the wheat
Before things get to a point of no return some greater thought needs to go into the idea of “rescuing” wheat from Ukraine to dump onto the world market. Besides the obvious dangers inherent in such naval operations in narrow waters and the chances of the conflict escalating and expanding due to “mistakes” and “error”, there are some other more practical issues that should be considered. Is there really a shortage of food, or is it wheat? The two are not the same. Changes to diet and consumption may be easier to implement than a secure sea route into a war zone where grave uncertainties would still exist. And is the question more one of who can afford the wheat, now inflated beyond recognition and so more a rich versus poor issue, rather than a have and have not issue?
Regulating, rationing or arranging fair and equitable allocation of such a global resource based on past consumption levels was a traditional means to combat this sort of limitation in strategic resources. However, that requires a significant re-structuring of how markets and commercial activities work: normal versus emergency. If there is an emergency then all emergency measure need to be considered. If there is not, then why escalate for no assured good outcome, and quite possibly add to the Russian treasury because that grain is certainly not going to be let out of the Black Sea for nothing, if there is no long-term deal? The time is coming for Western states to have to decide if they are going to admit they are at war, at least Economic War, with Russia, or continue to try and live in a limbo land of something war and something peace, which is not likely to be either successful or sustainable.
There are questions around the quality of the wheat at hand, is it still suitable for food use? Are the necessary loading facilities intact and secure from attack? As the war in Yemen has demonstrated, with the missile and drone strikes by Houthis on Saudi energy facilities or the Saudi led coalition’s attack on port facilities to disrupt vital aid in Hodeida, one need not attack the ships themselves but simply the handling facilities such as cranes and other infrastructure to prevent cargoes from being embarked or disembarked. So even if ships could be found, and that is also a big if in terms of how would such a realignment of tonnage affect other areas of the global economy that was counting on that tonnage to perform in that particular area of the shipping puzzle, would anything be able to be put on them? Trains, trucks and other landlines of communication are simply not enough to carry significant tonnage and as such are political gestures and not serious efforts to re-distribute the waiting grain.
The impending new wheat crop could be left without storage facilities, but that is less problematic as wheat can be stored for a short time in rather rough conditions with minimal protection in the summer/autumn months, and with better temporary tarping and protection into the winter. However, that new crop added to the existing tonnage will only exacerbate the transportation issue. And even longer term, such a glut of wheat (if it survives), a lack of capital due to no sales, and a market that cannot be accessed will all lead Ukrainian farmers to re-orient to something that will make them money. Perhaps poppies as the Afghans have done before them in rural economies “assisted” by the West.
Beware of the April Canadian planting forecasts
Analysts or advisors need to be sure to include as much up-to-date and relevant information into their Economic Warfare thinking as possible. For instance, predictions of this year’s wheat crop in Canada were for a 7% greater increase in wheat acres than previous years, along with other cereals and food grains, while canola and other oil crops were going to see less acreage devoted to them. However, Western Canada, particularly Saskatchewan but part of Alberta and Manitoba as well, have experienced wet and cool spring weather conditions. This leads to a simple calculation in a farmer’s business model predicated around the risks of frost and winter weather: germination conditions. Wheat requires a drier and warmer condition than canola, which can germinate at a much lower temperature and damper conditions, if farmers can get on the fields to plant it. If enough farmers are worried about what the weather has done to shape the choices for crop selection this year it could easily be the case that the higher than expected predictions of wheat tonnage will not be correct and instead farmers will look to make a profit and live to fight next year with a greater amount of other cereal grain acres being the reality in the end.
With lower input costs, greater yields per acre, record prices, and a faster germination/harvest cycle that gives the best chance of beating the Canadian frosts in September, it is more than likely that record amounts of barley and oats will be available. Now, while that isn’t wheat it is a cereal crop and will it be enough under these trying conditions to alleviate humanitarian and market concerns? It is important to read now what the state of seeding is in North America, Australia and South America so that as precise a picture of future supply (still subject to decrease through drought, rains, hale, insects, disease and other natural occurrences) is available now for planning for the autumn when the real economic/cost of living crisis will hit. But it will be August, when the North American future crop is more understandable against Asia, European and South American situations, that will be key for triggering the pace and scale of events moving forward.
The supply chain of agriculture
Farming is like any other supply chain, you can’t just turn it on and off. Acres dedicated to corn and other ethanol fuel staples are unlikely to change course given that higher fuel prices and environmental issues maintain a strong market for these products. Fuel, fertilizer, and machinery will all add costs to the farming activities and these will be added on through to the buyers. Add unseen competition for those crops that do make it to market against a global food security backdrop and the choice between heat or eat could soon be moot as it becomes clear that many cannot afford either. In some poor nations this is already becoming the new reality and the number in that danger zone grows daily. It is dramatic, I know, but the forces at play here and the options to move them in order to safeguard populations from greater disruption are few and take time to put into place.
They will not work when it becomes clear they are needed; they need to be begun before there is an observable need. The overall world wheat production is most likely to actually be down from the previous year and that is not just because of the removal of the Ukrainian contributions but because of dry weather in the US, Europe and those parts of Canada not too wet at the moment. India and its drought problems are also a factor. Lastly, it isn’t all about the wheat. Poor weather conditions and increased input costs are also pushing fruit and vegetable prices well beyond the norm overall.
The “big takeaway” from the above two points – the Canadian planting forecast and the agricultural supply chain – is that export restrictions are already being imposed and are likely to be applied to an ever-widening number of commodities in order to keep domestic prices to a politically acceptable level. This activity not only drives up prices internationally but creates greater political friction and security volatility which will have an impact on things like a unified approach to Russia by Western/NATO allies, as well as possible trade wars and punitive actions at this point unforeseen which will create even greater fear and antagonism amongst nations, particularly have and have not states. Such a fractured condition of the international community will assure economic recoveries, as well as Western-favourable conditions for ending the war in Ukraine become less likely in the short to medium term.
“Peace in Ukraine?”
When does the conversation regarding making a “peace” for Ukraine move from a bi-polar ethical and moral absolutism to a Realpolitik of national self-interest and political survival, both in the UK and rest of the West? Well, one could see the recent visit of the French, German and Italian leaders to Kyiv as being symbolic of the European version of “realpolitik”, that even the Biden administration seems to be gradually moving towards. Admission to the EU would be compensation for the loss of territory in Eastern Ukraine, but peace would be created and Western economies could start to try and establish a new “normal”. This will not be easy to achieve, however, given the divisions already existing in the EU over not only the worth of Ukraine to their club but also the need to remain reliant on Russia oil and gas in that new “peace”. And as the economic crunch increases across Europe and the United States, calls for an end to the conflict will grow stronger and governments put under greater pressure to look after their own citizens’ needs rather than Ukraine’s: it is the way of national self-interest and war is a relentless pressure on that condition.
Western politicians still say that it is up to Ukraine as to when a peace will be made, but that is simply not true. The removal of supplies of arms, funding and political support would immediately end the war, but with a resultant “peace” that would be far too Russian in flavour. What is the reality is that Ukraine will continue to be supported with weapons and little outside pressure to negotiate a peace until sometime late August/September when, at the current pace of change increasing interest rates, energy prices, food prices, collapses in travel and holiday businesses due to operating cost increases and fragility in the consumer confidence, etc, etc, create undeniable domestic political crises that trump international relations theory or morality. Already the public slogans in Europe and America are shifting from chants of support for a free Ukraine to no €5 or $5 dollar petrol and will soon shift to no £5 loaf of bread. Now is the time for Western governments to do more to prepare for the near-term future “challenging” environment rather than simply saying “times ahead will be tough”.
What does this really mean? There will be national rationing; international rationing and managed economies; protectionism and wanting to implement greater working from home to save fuel and transportation costs instead of begrudging it to assuage powerful real estate lobbies that are political contributors. They will be a 4-day work week, not because of mental health and wellness or environmental reasons but because that is what wages that cannot be increased will be worth in terms of labour. And here will be changing immigration laws to allow greater freedom of movement so that labour shortages don’t create inflationary pressures. Furthermore, policy makers specifically in the UK that look to the behaviour of the general public during the pandemic and say, “well they responded well to that restriction, they will do so again” miss the point. It was in everyone’s self-interest, and clearly so, to comply with those new social and behavioural conditions; that will not be the case for the autumn crisis.
If open and honest debate about possible solutions and policies to address the possible future, which is a pretty certain future in the minds of many, are not had with the public now then it will be many, many, many times worse once attempts to implement the required policies take place. Now is the time to talk and build consensus, not hide the true reality of the problem out of fear of creating a confidence stampede, a toilet paper hoarding frenzy or pounds in mattresses’ situation. Those will be the reactions to a poorly prepared for “crisis” when it comes to strategic communications.
A managed crisis, an admission of the true scale and intensity of the situation is needed: an admission that by supporting Ukraine in its war with Russia the UK and like-minded nations are economically at war with Russia, and the expected changes and sacrifices that may be required in that situation – in other words a strategic plan – is absolutely mandatory now. This is needed if greater distrust and lack of faith in the UK government to manage the nation’s affairs is to arise at a critical moment in the nation’s history. Proper economists will have a raft of solutions at the ready if they are asked the right questions. And the context of the right questions for now is that we are at war, in an Economic War, and how do we win that fight? The truth of some of those answers, however, will not match political statements and desires towards the Ukrainian position in that “peace” nor will they fit in with the realities of how much power Russia will have to be allowed in that “peace”. Ukraine will lose territory, but is that all there is to winning or at least not losing the war? I don’t think so, but that is a very different conversation.
One thought on “Things I think about economic warfare and the Ukraine-Russia War and maybe others might want to think about too”
I read the article a couple of times. Yes we are facing huge challenges. Given that war has been defined as politics by another means the situation we face this economic war will require political leadership. ( Sitting in Washington DC the current UK leadership and economic position does not give much confidence in the ability of the UK to see its way through the current mess with much certainty. This short post cannot address all of the potential issues and scenarios. However if the ‘West’ is to come away in a strong and secure position strategic political leadership, with alliances and cooperation will be necessary. Getting the ‘people’ to understand where we are and avoiding political gamesmanship will be tough. And we must not lose sight of China and the need for military capability.
Certainly there is much to be thought about and national and international actions to be agreed and undertaken