The Ukraine conflict marks the crossing of the Rubicon in terms the kind of actions which nations with power maybe willing to resort to, thus changing the geopolitical and geo-economic reality for the world.
We focus here on the actual actions of the various parties (as on 2-Mar-22) as opposed to an opinion on the reasoning behind the Russian invasion.
Western allied powers are not directly defending a non-NATO country from a military point of view. This despite having previously indicated / promised military support to the country in the event of an invasion.
For the first time in history, the assets of a Central bank have been blocked. Central banks typically park a large percentage of surplus FX reserves in liquid assets denominated in the reserve currency.
Excluding banks from the SWIFT network can set off a chain reaction of defaults in the supply chain as vendors don’t receive payments, won’t make new deliveries and maybe unable to pay their creditors
The conflicting nations are large exporters across the entire commodity complex - precious metals, industrial metals, agricultural commodities, fertilizers, oil & gas. Disruptions in supply will cause high prices & inflation and impact post-pandemic economic recoveries.
A working but plausible hypothesis on the true nature of this conflict - it maybe the first move in a much wider battle for supremacy between the two superpowers - the US & China.
China may have orchestrated the event, as evidenced by the visible show of the Russia - China bond prior to the invasion and likely providing a window for direct settlement of export payments in Yuan. Their motivations may be to test the US response and draw it into committing resources in an area away from China’s direct sphere of interest - the Indo-Pacific region.
The US on its part has avoided getting baited into a direct conflict with Russia and also “advised” the EU to fight its own battles - best reflected in Germany’s 100 bln Euro re-militarization plan. It may be wanting to conserve its resources for focusing on the Indo-Pacific region where the real battle for supremacy on the planet will likely get played out.
Curiously, Germany kept its nuclear energy facilities shut, despite clear signs of a Russian invasion & follow-on sanctions which would disrupt its energy supplies from Russia. It however had been wanting to re-materialize and end the post WW2 restrictions. Russian gas supply disruption may also mean an opportunity for American shale gas companies. A quid pro-quo?
The fallout - the players, the vassals and the collateral damage
Potentially both the superpowers may have achieved their primary objectives of testing the waters on what the other may do without committing any of their land, resources or people.
The same cannot however be said for other nations - whether the members of the EU who face the prospect of an aggressive Russia willing to change the status quo, or the countries surrounding China who are all unsure when they may face their own Ukraine-like situation.
The implications of economies would depend on the extent of their dependency on external energy, commodities and imports
The level of preparedness of their armed forces in being able to sustain a short hot war or a prolonged cold war maybe called into question
The security of their FX reserves and the repercussions of a cut-off in access to the global financial system maybe getting evaluated.
These actions will potentially alter the thinking of every nation around external dependencies - in defence, supply chains, materials and finance.
This has the potential of reversing the four decade long trend of globalization and replacing it with a world where each nation is forced to become self-sufficient or accept becoming an economic vassal state.
Being a vassal state maybe better than being left hung out to dry like Ukraine.