Fletcher Reads the Newspaper: The Russia-Ukraine War and the Global Economy

By Alex Avaneszadeh, MALD 2023 Candidate, The Fletcher School

On April 4, 2022, The Fletcher School’s Institute of Business in the Global Context (IBGC) hosted its 19th installment of ‘Fletcher Reads the Newspaper’, an event that brings together faculty and audience members to collectively discuss the latest news-hitting headlines and its international political and economic implications. This year’s topic focused on the Russia-Ukraine war and its impact on the global economy, business, and finance. The panel discussion was chaired by Bhaskar Chakravorti, Dean of Global Business, and included the following speakers: Monica Duffy Toft, Professor of International Politics and Director of the Fletcher Center for Strategic Studies; Joel Trachtman, Professor of International Law; and Amy Myers Jaffe, Professor of Climate and Energy Policy and Managing Director of the Climate Policy Lab.

Professor Chakravorti kicked off the conversation by asking Professor Toft, “Where are we in this conflict? What might we expect in the coming weeks and months?.”

Toft began by disaggregating her answer into three levels of analyses, describing the driving factors of the current war at the individual level, the domestic political level, and the global system level. At the individual level, she describes Russian President Vladimir Putin as a “man that is comfortable with violence to get what he wants,” pointing to the examples of Russia’s occupation of Georgia, Crimea, Ukraine’s Donbas region, and the poisoning of a Russian opposition figure, Alexei Navalny.

At the domestic level, Toft highlighted Putin’s alternation as Prime Minister and President since his appointment as PM by Yeltsin in 1999, having consolidated power by appointing regional governors and running Russia “with an iron fist” and curtailing free press and assembly since the start of the Russia-Ukraine war in February.

Lastly, at the international level, Toft underscored that “the West didn’t do itself any favors with strategic ambiguity and pushing NATO east, and EU enlargement east as well.” Russian memory politics also play a role, which includes the time when Americans invaded Russia during the 1918 Russian revolution – a history that still resonates within Russia.

In terms of the global economy, she stated that the “sanctions regime [against Russia] is the hardest regime historically ever implemented,” though “they hurt other countries and populations as well.” However, the sanctions regime alone may not solve the situation when there is a conflict over territory. As Toft said, “we’re not close to an end” in this war, and that we may “need to help Putin save face” to do so.

Shifting to Professor Trachtman, Professor Chakravorti asks, “Do you share Professor Toft’s pessimism about sanctions being an effective tool to get us to an end game?”

In his opening remarks, Trachtman pointed out that undermining globalization is costly to all participants, having mentioned that it is “interesting that Russia’s globalization did not prevent Putin from going to war.” Having echoed Professor Toft’s point, Trachtman concurred that the sanctions regime against Russia also hurts other countries, having added that “the West is willing to make sacrifices to our welfare to undermine yours [Russia’s] and convince you to desist.” This implied that both the West and Russia are experiencing self-inflicted economic setbacks – though in different ways – seeing whose threshold for loss is higher.

Toward the end of his remarks, Trachtman outlined various legal issues around the West’s punitive strategy against Russia, which included legal methods of global export controls, the removal of Russia from the World Trade Organization, due process for individuals such as Putin and other oligarchs, the ability of businesses to comply with the sanctions regimes, and U.S. domestic law and the power to take away Russia’s most favored nation status. What it comes down to is the impact of the sanctions, though despite the level of impact, “they will have an incremental effect,” said Trachtman.

Lastly, Professor Chakravorti turned to Professor Jaffe to discuss the war’s implications for global energy, asking “Is this a change in the global order in terms of the energy industry? What is likely to happen to the transition plan from fossil fuels to grain?”

Many oil companies have come under international pressure to pull out of Russia, with “a lot of energy fuel sources [having] been interrupted with large impacts,” stated Jaffe. This included British Petroleum’s (BP) pullout, which had a substantial joint venture with Rosneft. Exxon also made the same decision in Russia’s far east.

The European Union also understands that it was unacceptable to have one’s energy system be tightly linked with Russia.

“We will see more announcements to accelerate moves toward renewables to decrease reliance on Russia,” said Jaffe. As a result, there will be a complete re-ordering of geopolitics due to the war’s global implications for energy.

In 2014, President Obama coordinated with Kuwait, the United Arab Emirates, Saudi Arabia, and Qatar to withhold 70 – 100 million barrels of oil to discourage Russia from going past Crimea, threatening the release of that oil which would lower the price per barrel globally.

However, “Russians took advantage of America’s concerns about human rights and the dispute between the U.S. and Saudi Arabia to try to break up the coalition between the U.S. and those four energy superpowers,” stated Jaffe; “that is where we are today.” This makes it hard for President Biden to come up with an oil solution for the global market.

The discussion concluded with Professor Bhaskar summing up the speakers’ viewpoints, highlighting the mixed messages coming from each. Professor Toft emphasized the importance of allowing Putin an opportunity to save face to end the war. Professor Trachtman viewed the importance of sanctions against Russia, but that they are not as effective as other military options such as a no-fly zone over Ukraine. Finally, Professor Jaffe saw that energy shocks like this do trigger change of behavior and transformational effects on the industry, though in the near term, dependence on Russia for hydrocarbons will likely remain, yet full sanctions on Russian energy are still possible.