133. ANALYSIS: Edward Price evaluates on-going risks, Ukraine’s financial strategy, and global economic implications of the war in Ukraine
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Welcome to the War in Ukraine update from Kyiv podcast. I'm Jessica Gnauer, a senior lecturer in international relations at Flinders University in Australia, and I'm talking today with Edward Price. Edward is a former British trade official and currently principal for geopolitical forecasting at Ergo Intelligence, as well as non-resident senior fellow at New York University's Centre for Global Affairs. Thanks for joining me on the podcast today, Ed. Thank you, Jessica. It's great to be here.

As I understand, you yourself were very recently in Kyiv in Ukraine and met with the Ukrainian finance minister, amongst others. So first of all, what was your general impression being in Kyiv these days? Thank you. It was surprisingly pleasant.

And when I took a night train in from Warsaw, and I expected to see the sights and sounds of war much more than I did. I mean, there are air raid shelters. I saw a soldier saying goodbye to his wife.

There are sandbags around official buildings. And certainly there were air raid sirens and such when I was there. But there's also something of a thriving economy. There's something of a European Union vibe. And so I was very pleasantly surprised by the fact that there's obviously positive GDP activity. People are going about their daily business. And, you know, if you stop the average Ukrainian in the streets and say, you know, what do you think about the war? That's not the only thing they want to talk about. They also want to talk about their business. They also want to talk about their family.

Yep. I guess in that regard, whilst life might be going on somewhat as usual on the streets of Kyiv, we are currently witnessing this full-scale state-to-state war on the European continent in a way that we haven't seen for many decades. So, you know, how do you assess the risks and the seriousness of the

current war? Well, I mean, this is the question of all questions, right? How do you assess the risks of this war? I think before I answer that, I would say that the two thoughts that occurred to me consistently whilst there, one was almost a theological thought that this war does seem evil. I met with people who had been at the front and I met with people who were involved in

very directly with the kinetic pointy end of things, right? And it sounds absolutely horrific. And so I left with no illusions as to the very high probability of genocide among other crimes being committed in Ukraine at the moment.

But the second thought that kept on occurring to me was history. And it does seem like this land, Ukraine, indeed Poland, and this part of the world is consistently plagued by war, consistently plagued by essentially invasions from the East. And so it does seem rather like a continuation of the First and Second World Wars in a way. And if you think about it like that, you might also imagine that

Not only is the settlement of 1991, which is Ukrainian independence, being contested, but the outcomes of the First and the Second World Wars are being contested in a way, which we thought was the end of tyranny in Europe. So back to your question, how do I think about the risks? I think about the risks as what's likely, and it does seem that what's likely is a continuation of this conflict for some time, but also about what's unlikely. And that would, of course, be some sort of Russian desperation, some sort of lashing out against NATO.

Why do you say that final point? Because that's something that, you know, political analysts have been wondering about and trying to evaluate the risk of an actual confrontation between Russia and NATO member countries. So why do you say that you think that scenario is unlikely? Well, I mean, in some ways, we're already in a confrontation with Russia. And I say we, I mean, NATO. What I mean by unlikely is that at the

The tail of risks is some sort of Russian use of a weapon of mass destruction, a so-called tactical nuke, a so-called dirty bomb. And these things are assessed as unlikely, particularly among the intelligence community, because they don't really have any benefit. If you look at the

apparent usage of a so-called tactical nuke, not that the British admit to the existence of tactical nukes, we say they're all strategic, but a small low yield weapon, it's really not much. And so that's considered unlikely. But again, I would suggest for your listeners that there is also a category of risk called asymmetric risk. And so even if something like that is low probability, it's worth thinking about in advance because of the sort of destructive power that it would have.

not only in the theater, but also in the world economy and more broadly in terms of wider global security. I would add very briefly, though, that there was quite a nice outcome the other evening in Kiev. I woke up to some text messages from friends out there saying that they'd experienced this 18 missile attack on the city. And of course, every single one of those missiles being shot down is fascinating, including these hypersonics. And I mean, alongside...

the human costs of this war, there have been massive financial and economic costs, you know, of course, to Ukraine itself and beyond. As I mentioned at the outset, you worked in an economics related role for the UK government in New York for many years. So through that lens,

How did you assess Ukraine's current financial and economic strategy? Right. It's a great question. Ultimately, the economic strategy is to join the European Union.

And, you know, my meetings with the Ukrainian officials, ministers all came back to the EU card, right? They want to be a part of a free market economy, if you can describe the EU as a free market economy, but at least versus Russia. And they want to ensure that their energy, their labor market, their sort of digital savviness is moving in the same direction as Germany, France and others.

But of course, there's this intersection of the war. And so if you want to ask about what their economic strategy is, it's also quite precarious. The Ukrainians are essentially dependent on Western financing. Western financing taking two forms, grants, particularly from the United States,

and then zero interest rate loans, particularly from the EU. In the private sphere, it's very difficult. They simply won't be given that sort of terms. Internal borrowing is pushing 20% interest rate because inflation is pushing at 20% interest rate.

So they want to join the EU. They have to get through this war to do that. And that requires a constant stream of external financing, essentially gifts. And I'm curious, I mean, you did meet with the Ukrainian finance minister when you were in Kiev, and I'll put a link in the show notes to the piece that you wrote about that. What were your impressions?

of that meeting and of, you know, the position that he is currently in under current conditions? I mean, it was wild, really. I mean, I, you know, I sort of rocked up to his hometown, got in touch with him somewhat surreptitiously on Signal because Signal is how this war is being communicated and fought, right? Lo and behold, he agreed to meet me at a coffee shop. I got the impression that he

He is a very brave guy, very honest guy, very earnest guy. His family's with him. He's working out as much as he can physically to keep in shape. But there's obviously stress, you know. It was obvious to me that he was really of a mindset that every last little effort was worthwhile, right? So he's meeting some challenges.

some Westerner, it's worth it because he's doing everything in his power as are other Ukrainian ministers and other Ukrainians that I met to keep their chins up, to really go to bat. And so the lasting impression was an honest and brave guy, just the same as everybody else I met, but also someone with a lot of imagination

And an understanding that Ukraine is not just fighting off a Russian invasion. It is also trying to promote and sell itself to the West as a future member of said West.

And I mean, I guess if we look beyond, you know, Ukraine itself, this war is obviously going to have ramifications and ripple effects in terms of the whole structure of the international order going forward. How do you evaluate the impact of this current war on the broader global situation? Yes. I mean, so it's almost like a bifurcation of possibilities here.

It could be that this war demonstrates NATO's commitment, capacity, capabilities, determination, and so on, so that it's quite clear to what we're calling the autocracies nowadays that we're not to be messed with, and that Uncle Sam in particular acts quite a punch. I mean, as I've said before, I had no idea about the switchblade being such an effective weapon beforehand. And now, you know, it seems like we really do have the edge on

on battlefield technology, at least versus Russia. On the other hand, it's difficult because, of course, it might be the case that that knowledge, that stronger hand that NATO has, for example, speeds up thinking in Beijing about Taiwan, makes them think, well, actually, perhaps now is a better time than later, because if we allow them to fortify Taiwan in the way that they're now currently fortifying Ukraine, we won't, in fact, be able to move. Now, I should add for your listeners that a

Chinese invasion of Taiwan in anything like a couple of years is super unlikely. So I'm not actually expecting that. But we are in a position now where if you think about it, if we as consumers of news, if we're thinking, well, you know, things are a bit strange in the world.

then you can bet your bottom dollar that global leaders are also thinking that. And the implication, of course, is that that means that behaviors are a little harder to predict. So again, this war could mean that the so-called autocracies slow their appetites down, or it could mean that they're a lot hungrier.

And do you think, I mean, you know, the last sort of 80-ish years internationally have seen a steady increase in international trade, you know, economic integration between countries globally. But do you think that actually we might be seeing an inflection point now where we're going to revert to something more like a Cold War style scenario where there might be different types of economic problems?

blocks internationally that are somewhat closed in terms of trade interactions. Yes, a sort of competing autarky scenario, autarky being, you know, economies or blocks of economies that are self-sufficient from trade.

It's hard to say. I'm not a super fan of the Cold War analogy. The Cold War was a confrontation, to your point, Jessica, between two economies that were essentially separate. I mean, the United States and the Soviet Union did some trading. I mean, wheat and agricultural products and very limited communications equipment was traded, but not really much. And of course, the obvious point is that the Chinese and American economies are

wedded at the hip where one begins, the other is also going, right? So it's very hard to disentangle them. So Cold War, I'm not sure. I would suggest it's more like the first superpower civil war, the first superpower economic civil war. It's the first time that we're seeing such integrated, separate, sovereign nations confront one another to the point that you do have to wonder how they're going to continue because their economies are essentially one national economy.

There is ultimately an equilibrium between US capital and Chinese labor. Now, I would add that that's not to say that you can necessarily infer or predict the nature of the confrontation because it's not a Cold War. It will have some Cold War aspects. And ultimately, we don't know how world wars begin because before the First World War, the world was globalized. Before the Second World War, it wasn't. So there's a lot of uncertainty. But I think the Cold War analogy is not quite there.

I mean, you mentioned China and of course the position that China takes vis-a-vis Russia's full-scale invasion of Ukraine and how it chooses to proceed is going to have a big impact on the influence that we see from this war on the international order. How do you evaluate this?

China's potential behavior going forward and then also that factor that you mentioned of how this might make China think strategically about that sort of quote unquote reintegration of Taiwan into the Chinese mainland that President Xi Jinping has talked quite openly about. Right I mean that is probably his flagship policy ambition if not personal ambition and

And he has at least another five years to achieve that, if not more. How do I think about China and Ukraine? Well, I think for a start, we really want to describe the so-called no limits partnership, no limits friendship between China and Russia as laughable.

It's obvious that that's not true. It's obvious this is not an original thought that Russia is the junior partner. Why? Well, Russia has a lot of energy that China needs. China needs that energy so that if Uncle Sam closes the Malacca Strait, which is where it gets its energy through the South China Sea later on, it can survive.

But I think the really critical moment would be if China is busted sending lethal aid to Russia, which I suspect it's doing on some small diplomatic level. But if China is busted sending enough lethal aid to Russia to really tip the balance, i.e. a level and type of lethal aid that's sufficient to counter NATO's lethal aid.

Then I think it's game on. And by game on, I mean, all bets are off. You know, we are in some sort of global confrontation, if not war. I think the other point is that their peace plan, it wasn't neutral in the sense that if you enacted it, Russia would keep a lot of territory. But it wasn't entirely outside of what Kiev wants. There were aspects in there, you know, humanitarian points that you'd look at and say, OK, that's also designed for President Zelenskyy.

The first point about respecting state sovereignty seemed to almost be saying that really Ukraine has the right to have control over its sovereign territory. Some later points seem to contradict that. So I guess finally, I mean, you know, it's May 2023. We're over a year into Russia's full-scale invasion.

What are your reflections on what might happen in the war this year? Well, I make no bones of being biased in favour of the Ukrainians, and I hope that their upcoming counter-offensive is successful in the sense that it boots the Russians out.

I'm not sure that that is possible in the sense that the combined arms effort required to do that is a pretty tall order. It's something that the Ukrainians are only just getting to grips with. Let's remember that the Ukrainian army has its ultimate origins in the Soviet Union, just the same as the Russian army does, right? This is within living memory. And so many senior officers, say my age and older, will have been raised with a very different mindset.

What do I expect rather than what do I hope? I expect that the killing will continue. Alas, I think that this is very difficult to see coming to the negotiation table. Neither side can truly defeat the other in the field. Russia certainly can't defeat the Ukrainians.

that doesn't mean that Russia will leave those areas that it's occupied. And so I would suggest for your listeners, if they're thinking about, you know, what's an indicator as to the ultimate course of this war, I would say it's not whether or not the Ukrainians recapture Crimea, it's whether or not the Ukrainians cut Crimea off from the Russians.

And that's much easier to do. And I think at that point, the Kremlin, Putin, those around him, the Wagner Group and so on, they would realize that the war is almost lost. And at that point, we're back in a scenario where, as I said, extreme asymmetric risks, nuclear threats, they start to look a little less like bluster and a little more like a potential grim reality. Thanks, Ed. I really appreciate you being on the podcast today and sharing your perspective with us.

Thank you, Jessica. Thanks for listening and thanks to Gonk Overall for our theme music.