top of page

Ukraine war: Asia is caught in rip tide of power polarisation and sanctions chaos

South China Morning Post (Hong Kong)
Syed Munir Khasru
February 28, 2022


Russia’s invasion of Ukraine has sparked diplomatic and economic chaos around the world. Amid intensified sanctions and concerns about Russia’s gas supply to Europe, the world seems to be scrambling to respond to a crisis quickly spiralling out of control.

Across the Asia-Pacific, stock markets fell with the news, with market benchmarks down 2 per cent in Tokyo and Seoul, and more than 3 per cent in Hong Kong and Sydney on Thursday alone.

Russia, stung by the 2014 sanctions after its annexation of Crimea, has spent the intervening years moving away from the US dollar – and strengthening its ties with China and the renminbi. As tensions with Ukraine started to build again last July, Russia’s US$186 billion sovereign wealth fund said it had dumped all of its dollars to hold 30.4 per cent of its value in yuan and 20.2 per cent in gold.

Three weeks before the invasion, Russia announced oil and gas deals worth US$117.5 billion with China, an old ally and economic partner. Bilateral trade, which had jumped from US$4.87 billion in 1995 to US$105 billion in 2019, is expected to reach US$200 billion by 2024. But trade with the rest of the world will be hurt.

Sanctions are set to hit Russia’s trade with the European Union, its biggest partner, worth about US$219 billion in 2020. The United States, Britain and the EU have frozen the assets of Russian financial institutions and oligarchs. Allies from Australia and Japan to South Korea and Taiwan are joining the sanctions – potentially costing Russia more than US$11 billion a year in export revenue – including banning Russian bonds.

Russia’s invasion also threatens to leave Ukraine’s trade in tatters, potentially affecting China. Ukraine is China’s largest corn supplier, selling more than a third of its harvest to China, which is Ukraine’s biggest overall export market at US$8 billion last year. In turn, China, which relies on Ukraine for 30 per cent of its corn needs, has invested heavily in Ukraine as part of its Belt and Road Initiative.

Interestingly, China’s first aircraft carrier, the Liaoning, was refurbished from an incomplete carrier bought from Ukraine in 1998.

And it is not just China. Russian’s invasion will also affect Ukraine’s free-trade deals with countries such as Singapore. Since 2014, Ukraine has gradually stepped back from participation in the Commonwealth of Independent States, which include Russia.

Meanwhile, news of the invasion has sent energy prices skywards, with oil prices rising to levels not seen since 2014. Natural gas prices in Europe, already four times the levels last year, have risen even further. Inflation on the continent, already uncomfortably high at 5.1 per cent last month, can expect to push higher.

Even more uncomfortably, as much as 40 per cent of the EU’s gas imports come from Russia. Germany has already halted the Nord Stream 2, Russia’s contentious gas pipeline project, after Russia moved to recognise separatist-held regions in eastern Ukraine last week, sending its troops in. The Ukraine invasion and Europe’s worsening relationship with Russia will only worsen the EU energy crisis.

At the gas summit held in Qatar last week with the 11-nation Gas Exporting Countries Forum (GECF), which includes Russia, members explored whether Asia could fill the gap in the European energy crisis. After careful analysis, the forum concluded that most of the gas-producing nations have very little spare capacity to meet the huge gap.

With oil prices boiling at around US$100 a barrel, countries in Asia highly dependent on oil imports are also starting to get very worried. They include South Korea, which imports as much as 92 per cent of its energy needs, and India, the world’s third-largest oil importer, which is only just recovering from the Covid-19 pandemic.

With an emerging new global power polarisation, with the West led by the US against an emerging China-Russia alliance, many countries in Asia may find themselves in the increasingly uncomfortable position of having to choose a side or be squeezed in the middle.

There may be more pressure from the US to join sanctions or scale back economic ties with Russia even as regional geopolitics makes it difficult to be seen as part of either an anti-Russia faction or a China-Russia axis – an axis that is increasingly becoming a reality as Russian President Vladimir Putin continues to court fellow Chinese strongman leader Xi Jinping.

India, for example, has strong economic ties with Russia, with an annual bilateral trade worth around US$10 billion that is expected to grow to US$30 billion by 2025. Yet India is also part of the US-led Quadrilateral Security Dialogue, which is seen by many as an alliance against China’s growing presence in Asia.

It is no wonder that Pakistani Prime Minister Imran Khan – India’s nemesis and China’s close ally – has rushed to Moscow to meet Putin to advance talks with Russia to build a 1,100km gas pipeline.

The ripple effects of the invasion will be felt far beyond the borders of Europe, with significant economic and geopolitical implications for Asia that will only become increasingly complex in nature.

As one could see in last Friday’s UN Security Council resolution denouncing Russia’s invasion of Ukraine, the two members who joined China in abstaining from the vote are India and the United Arab Emirates.

bottom of page