Simon Mohsin-
The US has gained economic benefits through its arms sales, a spike in dollar valuation, creating rifts across the geopolitical landscape in favor of US interests, and against its geopolitical and economic rivals, and also gained the geopolitical upper hand over Europe, mainly Western Europe, which was working determinately to distance itself from the US, and its dependency on US security resources. The Ukraine war has not only put Ukraine in jeopardy but also put Europe’s geopolitical identity and strategic autonomy under strain, even raising questions about its effectiveness. Overall, the US is winning, the EU with Ukraine is losing, and the rest are trying to secure, gain, or retain their interests within the global context of this war being fought between the Russians and the Ukrainians.
Last year, the US sold about USD 50 billion worth of weapons to its allies and partners. Among the top sellers are four US companies that sponsored an event hosted by the Ukrainian Embassy in the US on December 8, 2022 – Northrop Grumman, Raytheon, Pratt & Whitney, and Lockheed Martin – with their logos branding the invitation cards. These four companies produce some of the most high-profile missile defense systems and anti-tank missiles that the US has sent to Ukraine since Russia’s invasion. The explicit sponsorship is just one of many, but maybe the most brazen indication of how intimate major military contractors have become with Ukraine, and how much they stand to gain from the war.
According to a Global Times report in 2022, Russian gas exports to the EU were about 2 billion cubic meters in 2021, which was 81% of Russia’s global exports and entailed about 40% of Europe’s energy needs. Russian exports to the EU have declined, and the US was in dire need of buyers for its gas as its production capacity reached one trillion cubic meters in 2022. As the Ukraine crisis began, the US fossil fuel industry swung into action immediately. A letter was swiftly dispatched to the White House just one day after the Russian invasion, urging an immediate escalation in gas production and exports to Europe. The letter asked for a list of demands – more drilling on US public lands; the swift approval of proposed gas export terminals; and pressure on the Federal Energy Regulatory Commission to approve pending gas pipelines. In March 2022, the US and a few like-minded partners opted to increase exports of LNG to Europe by 15 billion cubic meters. Those exports would triple in the years afterward, a necessary move if the EU can back up its claim to be rid of Russian imports in five years. According to reports published in the Guardian, the US gas industry has achieved almost all of its initial objectives six months after the letter. Within weeks, the Biden administration adopted the gas industry’s major demands as policy paving the way for new pipelines and export facilities, establishing a new task force to boost gas exports to Europe, and approving $300m in funding to help build out gas infrastructure on the continent. The US fossil fuel industry has locked in 45 long-term contracts and contract expansions since the start of the war. That’s a major increase from the 14 such contracts signed in 2021.
To underscore the extent of US benefits from the Ukraine war, the blowing of the Nord Stream has allowed for the US overseas ventures to abolish the competition in the European market. To underscore this point – the Nigerian National Petroleum Company and Morocco’s National Office of Hydrocarbons and Mines, on Thursday, September 15, 2022, signed an MoU for a long-delayed gas pipeline proposal that will link the two countries, opening a possibility for a new energy supply path for West Africa and Europe. Chevron is a major oil producer and investor in Nigeria, operating under a joint-venture agreement with the Nigerian National Petroleum Corporation (NNPC) for the onshore and offshore assets in the Niger Delta region. Chevron also has interests in nine deepwater blocks offshore, three of which it operates. Chevron Nigeria Limited is a subsidiary of Chevron Corporation. The offshore pipelines’ installation work has conveniently expedited in the last year. Talk about timing!!
The Global Times report also mentioned that as security perception in and about Europe would change, the US Dollar would become a stronger currency. Last year September, the Euro sank to around $0.95, a 20-year-low. The dollar’s value against six major currencies reached a 20-year high in mid-May, 2022, says econofact.org. The dollar rose by 12% against the euro, 9% against the pound, and 16% against the yen, according to reports in 2022. During the first year of the pandemic, the dollar weakened concerning the euro, the pound, and the yen (represented by lower values of the indexes). But the trend reversed in 2021 and the appreciation of the dollar concerning these currencies gained steam after the Russian invasion of Ukraine on February 24, 2022, according to financial reports. One key reason for the rise of the dollar is the perception that the war will have relatively less adverse effects on the US economy. A relatively stronger economy in the US increases the demand for US assets since these will be less adversely affected than assets from other countries, leading to a stronger dollar.
The euro has been spurred back by a drop in energy prices that has eased recession fears as the European Central Bank (ECB) continues to hike interest rates. The reasons for ease in energy prices can be attributed to the aforementioned discussion, of course! The euro’s rebound is also aided by the weakening of the US dollar as the US Federal Reserve slows its pace of monetary tightening in response to cooling inflation. Irrespective of this weakening, the dollar has strengthened over the past year, with the most rapid rate of increase occurring since the Russian invasion of Ukraine. The global trend toward de-dollarization had been ongoing for over a decade before the Russian invasion, and it got a massive push forward as the Ukraine Crisis boiled over. As JP Morgan had stated, the signs of de-dollarization were apparent for a long, but the dollar’s hegemony ultimately remains unthreatened in the foreseeable future.
The dollar’s share in foreign exchange trading volume remains at about 88%, as the currency’s role in trade invoices remains stable. However, its portion in central bank reserves has declined to 58% but remains the lion’s share compared to other global currencies. The BRICS is motivated by geopolitics, mainly the Ukraine conflict, to make efforts to circumvent the dollar in trade; yet the dollar’s influence remained intact. Introducing a new global currency remains a distant idea mainly because trust, trade imbalance, and geopolitical rifts among countries wanting to bypass the dollar remain prevalent. As South Africa’s finance minister put it “no one had tabled the issue of a BRICS currency, not even in informal meetings,” as doing so would involve “losing independence on monetary politics.” This concern among the states has also spiked since the Ukraine war, how it has impacted the global economy, and how the US continues to relentlessly keep it in a stalemate. Also, there are few existing alternatives to the U.S. dollar. The drive to internationalize the Chinese yuan faces significant barriers like China’s capital controls, and the global perception of security concerns that the US continues to promote against China. Meanwhile, the euro’s share has dwindled, allowing the US to regain control over global finances, albeit, somewhat imposingly rather than the conventional means.
EU had begun trying to depend less on the US for its global and regional security since the Trump era. Because of rising doubts about the long-term credibility and robustness of the U.S. commitment, many prominent European policymakers and security analysts have concluded that Europe should rely less on the transatlantic partnership and bolster its capacity for autonomous action. As the President of the European Commission Jean-Claude Juncker stated in 2016, “If Europe does not take care of its security, nobody else will do it for us.” France had underscored these sentiments much strongly questioning the efficacy of NATO. However, the rise of Russia, and subsequent military campaigns in Crimea, and now Ukraine have forced the EU to reexamine their views on the issue. The EU seeks to acquire strategic autonomy but lacks the resources, and strategic depth to do so for the time being, a reality that the Ukraine war has underscored to the EU policymakers, allowing the US to “one over the EU” again. These observations strongly suggest that the biggest loser of this war, after Ukraine itself, will be Europe.
Simon Mohsin is a Political and International Affairs Analyst
