With the Russian annexation of Crimea, the shoot-down of Malaysian plane MH17 on Ukrainian air space, attempt of the USA to put Russian President Putin at bay, caprice in oil economics and formulation of BRICS Bank, a new dynamics in world politics and economics has come to the fore. Many have argued that a nearly cold war situation is prevailing across the globe with everything in a diabolical order. How would the world leaders extricate themselves from this morass or what strategy would they adhere to to improve the situation? Is the world being polarised - both politically and economically? If yes, how would the divided world respond to each other on economic terms or on the political front?
The recent development in world politics has catapulted the world order into a series of uncertainties. Some brainstorming equations have surfaced to the world leaders and these need to be addressed in appropriate manner to scuttle any chaos theory in international political economy. Let's have a look at those pesky equations. Is the EU bloc ready to support President Obama's plan to put president Putin at bay? Will the EU be strong enough to stand against the Russian annexation of Crimea and subsequent aggression on the Ukrainian border in disguise against the backdrop of gas dependency on Russia? Will the Russian economy face down turn if the scale of sanction is increased by the USA and its allies? What role the BRICS alliance will play in this tensed world political environment? With the oil price hike, how then oil-rich and oil-reserved countries would be involved in international economic dynamics? Can the oil economics shape up the future political order where the USA might lose its decision-making supremacy? And how would the World Bank and IMF compete with BRICS Bank in the days to come? All equations point finger to chaos theory.
CHAOS THEORY: Chaos theory concerns deterministic systems whose behaviour can in principle be predicted. Chaotic systems are predictable for a while and then appear to become random. The amount of time for which the behaviour of a chaotic system can be effectively predicted depends on three things: How much uncertainty we are willing to tolerate in the forecast; how accurately we are able to measure its current state; and a time scale depending on the dynamics of the system, called the Lyapunov time. Sensitivity to initial conditions means that each point in a chaotic system is arbitrarily closely approximated by other points with significantly different future paths, or trajectories. Thus, an arbitrarily small change or perturbation, of the current trajectory may lead to significantly different future behaviour.
Think of the present world political matrix in the light of those problems by throwing them onto the chaos measurement scale. What do you come by? Don't the afore-mentioned questions have placed the chaos theory in action in world politics? If Yes is the answer, then we would be waiting to experience a diabolical disorder in political system that might lead up to a division in the world and economic structure. We should note that when a nonlinear deterministic system is attended by external fluctuations, its trajectories present serious and permanent distortions. Furthermore, the change is amplified due to the inherent nonlinearity and reveals totally new dynamical properties.
EU'S DEPENDENCE ON RUSSIAN GAS: Let us dissect the pestering issues mentioned above one by one. First, EU's dependence on Russian gas. Oil-and-gas exports make up 70 per cent of Russia's $515 billion annual exports, and 52 per cent of the federal budget, according to America's Energy Information Administration. Europe's role as Russia's largest gas market already gives it a certain strength. The influential Economist magazine says, "Reducing Europe's dependence on Russian gas is possible-but it will take time, money and sustained political will". But the reality is that if Gazprom shuts down the pipelines going through Ukraine completely, Europe's supplies will be hit.
Europe gets 24 per cent of its gas from Russia, and half of that -- 80bcm a year -- passes through Ukraine. If Russia were to shut down the pipelines across Ukraine with the principal aim of hurting Ukraine, it would probably continue exporting gas through other channels -- one of them being the newish Nord Stream pipeline on the Baltic seabed. It was designed to supply gas straight from Russia to Germany, and thus give Russia the option of cutting off its near neighbours while still serving its most important market. So, it is a vice-versa option both for Russia and the EU. In March, the EU's heads of government told the commission to produce a plan in June for reducing energy dependence, but this would not guarantee them to rest assured for their near future. On the other hand, despite the storage of gas by Estonia, Latvia and Lithuania with more gas distribution inter-connectivity between Poland and the Czech Republic, Slovakia and Hungary, Germany and Italy, it seems very difficult for EU to shrug off its reliance on Russia at least for next 5-10 years. So, EU's political choice on Russian political ambition may not be as critical despite itself as the USA wants to see! This must nettle the USA policymaking brains.
BRICS BANK: Now the BRICS bank! Consider what a Brazilian diplomat said on condition of anonymity after the formulation of the Bank. "We pulled it off 10 minutes before the end of the game. The Chinese got the headquarters. The Indians got the first presidency. The South Africans got a regional headquarters. We were happy to facilitate all this. And the Russians were happy that finally there is a bank that could challenge the IMF and World Bank." So the genuine interest of the group has been vociferously clear -- to diminish the power politics of the USA and the EU.
The creation of the bank is the first major achievement of the BRICS countries since they got together in 2009 to press for a bigger say in the global financial order run by the International Monetary Fund and the World Bank. "It will help contain the volatility faced by diverse economies as a result of the tapering of the United States' policy of monetary expansion," Brazilian President Rousseff said, after the signing of the document. "It is a sign of the times, which demand reform of the IMF," she added.
We should note here that BRICS account for almost half the world's population ( 40 per cent to be precise) and about one-fifth of global economic output (20 per cent of world GDP) and 17 per cent of international trade. This clearly signifies the vision of BRICS and it must try to devalue the currency supremacy of Dollar in international trade in the days to come. More interestingly, India reigns supreme in south Asia, China lords over in the Asia-pacific region, Russia plays influential role in the EU, Brazil leads the very potential and emerging Latin American economic zone and South Africa heads the African economy.
OIL ISSUE: Global oil issues will pose significant challenges to the United States economy in the coming years. According to the Task Force on Strategic Unconventional Fuels, "America's increasing demand for oil imports in a world of more limited supply from increasingly unstable sources poses strategic risks that the nation can ill afford to ignore …. To address this situation, aggressive action must be taken by government and industry to abate growth in U.S. oil demand and to increase production of fuels from domestic sources". A projection shows that world oil demand will increase 30 per cent by 2035. U.S. oil demand will increase by 14 per cent. However, demand in China and India will increase by well over 100 per cent. According to a study commissioned by the Department of Energy and published by the Centre for Transportation Analysis in the Oak Ridge National Laboratory in 2005, the United States has lost up to $8 trillion dollars of wealth in the 30-years from 1970 to 2004 solely due to oil imports. This represents a massive transfer of wealth to oil producing countries. According to the November 2008 IEA World Energy Outlook, output decline in existing oil fields will be 8.6 per cent per year. To keep pace with expected demand, the world will need to bring on-line 64 million barrels/day of additional annual production. This is the equivalent of discovering a new Kuwait every year for the next 20 years!
Many believe the world has already reached "Peak Oil." "Peak Oil" means the point when world oil production reaches a peak and begins to decline. At this point, global supply and demand ratios will cause oil price increase to accelerate even faster as demand continues to rise, but supplies are stretched and reserves depleted. The forecast is that the world will reach "Peak Oil" by 2020 without major new conventional oil discoveries, deep-water production, and development of unconventional fuels, like oil shale. So, what does it mean for the USA? The major oil-producing countries are outside of the USA and EU boundary.
If any political shift takes place in the world due to heavy connectivity between BRICS and countries around the BRICS bloc, the oil economics would be the determining factor in the world politics and in that case, the USA and the EU will be on the losing ground, theoretically and pragmatically.
EMERGING ECONOMIES: Now we need to look at the emerging economies that would factor in the world political economics in the coming years. Euromonitor International has made a list on it. It is already a known factor that investors have been pouring money into emerging markets -- to the tune of $50 billion last year for mutual funds that invest in developing countries, according to EPFR Global. So, the emerging economies will be the guiding issues of international politics.
China, once the "sick man of Asia" and one of the world's poorest places, now boasts the world's second-largest economy and may someday soon even surpass the U.S. in wealth. Despite its much publicised slowdown, China is expected to be the fastest growing large emerging market in 2014, with real GDP growth projected at 7.4 per cent. Consumer expenditure should increase by 8.6 per cent in real terms, outpacing economic growth, indicating some success in the rebalancing of the economy.
Nigeria is, surprisingly, expected to be the second-fastest growing major emerging market this year. The economy is thought to expand by 6.6 per cent in real terms in 2014. One of Nigeria's chief advantages is its large current account surplus, which stood at US$11.8 billion or 4.0 per cent of GDP in 2013.
Real GDP growth in the Philippines is expected to reach 6.5 per cent in 2014 - and this rate is expected to be maintained in the medium term.
Real GDP growth in Bangladesh is forecast at 6.0 per cent in 2014 making it the 4th fastest-growing economy in the ranking of Euromonitor International. The economy has benefited from inflows of remittances, a strong performance in textile exports and government's structural reforms. These reforms are having positive flow-on effects on investment and consumption. Consumer expenditure is expected to increase by 6.0 per cent in 2014.
Following a stronger end to 2013, India has come in at 5th position in the ranking with the forecast of real GDP growth at 5.7 per cent this year. To put this into perspective, India was only the 13th fastest-growing of the 25 large emerging markets in 2013, and 15th fastest in 2012. One major achievement has been the reduction in the current account deficit.
But the interesting facet of this list is all of these countries are being swayed strategically by BRICS, not by the USA and the EU. That makes the big headline in the scenario. The continuous foray of the USA into the world politics and economics has started dwindling away. The emerging economies have risen and begun to turn the corner surprisingly. With Russia holding grip of the former soviet bloc gradually and effectively managing to keep the EU divided on whether to support or oppose the USA and Russia, it seems an interesting game on the boil. The political and economic parameters do not look bright for the USA and its allies either.
So, what is the conclusion? The guess is "the American Century has gone into oblivion to allow the Asian century to begin". And this will be the dominating feature of world politics and economy in the coming century. The world politics and economics are now on a transitional phase. Keep noticing!
The writer is secretary, BKMEA. [email protected]
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