About the author: Christopher Smart is chief global strategist and head of the Barings Investment Institute.
As the battle for Ukrainian territory settles into a grinding conflict neither Kyiv nor Moscow can fully win, the world’s most intense diplomatic activity now shifts to preparations for the next G-20 Summit exactly six months away. This may sound a little breathless for an annual ritual that rarely delivers more than a distracting photo-op, but the United States, Europe, and their partners are taking names of countries that continue doing business with Russia. If you’re not with them, you will be against them.
Pity this year’s host, Indonesian President Joko Widodo, who has tried to be as inclusive as possible by inviting Ukrainian President Volodymyr Zelensky to a gathering that Russian President Vladimir Putin has already said he will attend. Meanwhile, U.S. President Joe Biden and other G-7 leaders have warned they will boycott the meeting that includes the Russian president.
Inflation data, central bank rhetoric, and lingering Covid outbreaks will do more to set direction of the S&P 500 this year, but the shape of the “post- post-Cold War” may well depend on the RSVPs that come in from the remaining world capitals.
If enough waverers tilt against Russia at least symbolically, the U.S. and Europe can claim victory for a world order of rules they can enforce on behalf of open markets and democratic values. A rump session that includes a triumphant Putin, a beleaguered Widodo and a few others will sound the death knell for any hope of global coordination on economic policy. It will also signal a world of expanding sanctions, escalating tariffs, and competing market standards.
Reasonable minds might be more understanding of countries that still abhor U.S. sanctions policy and can’t afford to make enemies of Russia. Even if they can’t all be expected to enforce identical measures, public outrage continues to push Western leaders to do more. Tolerance for neutrality is shrinking fast.
Australia has imposed essentially the same sanctions as the G-7, and South Korea, after an initial stumble, has now blocked exports of semiconductors to Russia and halted transactions with Russian banks.
That leaves 10 key leaders whose decisions will shape the next era of global politics.
- Mexico’s stout refusal to join sanctions against Russia seems in line with President Andres Manuel Lopez Obrador’s efforts to bolster any symbolic counterweight to U.S. power. Washington has so far avoided direct confrontation given the range of other bilateral issues the two countries manage, but a U.S. Congress that just approved a trade deal with Mexico won’t be so understanding for long.
- Argentina’s President Alberto Fernandez was in Europe last week to talk up his country’s role as “a secure and stable supplier of food and energy.” Like Mexico, its trading relationship with Russia is also minimal, but the more the country needs understanding from the International Monetary Fund and other international lenders, the harder it may be to avoid taking sides.
- Brazilian leaders have opposed both the war and sanctions. This may represent some lingering hope of protecting a cooperative future for that geopolitical acronym known as the BRICS (that also includes Russia, India, China and South Africa). More important, however, may be the country’s dependence on imports of Russian fertilizer, which may not be easy to replace.
- South Africa’s nostalgia for Russian support during the struggle against apartheid may explain President Cyril Ramaphosa’s claim of “neutrality” so his country could “talk to both sides.” In a call with Zelensky, he also worried about the impact of the conflict on Africa’s food costs. But the balancing will get harder if crucial G-7 trading partners start raising the pressure.
- Biden famously pledged to make Saudi Arabia a “pariah” following the 2018 assassination of journalist Jamal Khashoggi, but all things are relative in global affairs as Washington tries to persuade Riyadh to boost oil production. So far the Saudis have refused to condemn Russia, but that position may be harder to sustain the next time it needs Congress to approve advanced weapons sales.
- Of all the G-20 members, Turkey may be in the most delicate diplomatic position. Ankara-supplied drones were used in attacks last year on Russian Donbass separatists, but President Recep Tayyip Erdogan has argued his country cannot afford to join economic sanctions because of its dependence on Russian gas. He has also clung to a role as intermediary, hosting some of the initial talks between Kyiv and Moscow. But if Turkish banks and companies don’t at least curtail their business with Russian oligarchs trying to hide their assets, it won’t be long before pressures mount for secondary sanctions.
- India’s trade with Russia remains small and concentrated in oil and fertilizer that others could presumably replace. More difficult is that Russia has been its largest arms supplier. There are reports that both sides are considering a ruble-rupee trading system that would presumably avoid sanctions. The U.S. has warned of “consequences” if India evaded sanctions, but might have to be satisfied with a quiet commitment not to expand the Russian economic relationship for now.
- China, the largest and most important fence-sitter of all, is playing its own delicate game. While Beijing has condemned Western sanctions and bemoaned a world of opposing blocs, its firms so far have avoided direct engagement with sanctioned Russian entities. In the long term, China may not be able to avoid a deeper economic relationship with such a large and convenient energy supplier. For now, however, President Xi Jinping may happily skip the G-20 on the convenient excuse that it falls too close to the Communist Party Congress expected to give him a third term in office.
- Watch for the most pressure to be applied to Indonesia as the hapless party planner, whose year in the spotlight just happened to coincide with this crucial geopolitical moment. But to the extent that others on this list continue to equivocate, its most important contribution to the future world order may just be to disinvite Vladimir Putin.
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