Geopolitical scenarios

2023-09-21 at 13:58 Timo Löyttyniemi


It is a time of change in geopolitics. Many things drive economies and economic systems apart. Globalisation, and in particular financial globalisation, is taking a step backwards. Similarly, technological development, production and technological systems may diverge. In the future, “Apple” may well be the operating system of the West while some other countries may have another operating system.

The Western system is based on development, peace and faith in the future. However, there are countries in the world that aim to disrupt this development and peace. Faith in the strategy of international integration and interdependence has been shaken. This also happened in the 1930s, with bad consequences. International integration does not necessarily guarantee peace now.


Scenarios
 

The geopolitical scenarios in the big picture relate to the United States and China. The big question of this decade is how to anticipate relations between the two countries. Other themes include the development paths chosen by Africa and the Islamic world, as well as the policy choices of individual countries such as India.

However, we live in Europe close to a real war, so the main geopolitical scenarios are driven by Russia's war of aggression and Ukraine's defence. Its future also points the way to bigger geopolitical steps. Russia's war of aggression has now been going on for more than a year and a half. War experts are able to assess exactly what is happening on the battlefield and how the fighting is expected to develop. However, the potential of war goes beyond the battlefield. Here are five possible scenarios for the future of the conflict:
 

Scenarios for the conflict

Transformation of Russia from within
 

Russia can always change the narrative because it is not, in its own words, at war. It may announce a retreat, once its objectives (destruction) have been achieved, or politics in Russia may change following a change of leadership.


Ukraine's advance


Ukraine can achieve victories on the battlefield and advance in line with its objectives. This would strengthen the possibility of ending the war but could also create new threats.


Peace treaty as a compromise
 

The conditions for a peace treaty are getting closer every day. It is completely unclear on whose terms it will be built. Compromise is no one’s ideal outcome, and there may well be scepticism as to whether the terms of the treaty will be honoured.


Long-term conflict

The war can turn into a frozen conflict. Both sides may succeed in holding the front lines and so the conflict may continue unresolved for a long time.


Expanding war
 

The war can also escalate, intentionally or unintentionally. This has been seen many times in the history of the world. In retrospect, events can be seen as a continuum with a logical explanation. Many do not want an escalating war, but many predict that it will happen.
 

The wish of Ukraine and the West is for Russia to transform from within or for Ukraine to advance. They would at least create an opportunity for better solutions and a route to a wise peace treaty of some kind. Discussions on a peace treaty are likely to start, even though both sides firmly believe in their respective victories on the front. Many of the above mentioned scenarios could realise at one or in continuum.


Investment markets
 

Recently, the conflict has had a limited impact on financial and investment markets. The energy war by Russia escalated in 2022, as well as higher inflation and interest rates, are already behind us and markets have adjusted. Spill-over effects are now reflected in the real estate market and in a lower level of desired debt. This happens from time to time, and the market is used to such changes.

The key drivers for investment markets in autumn 2023 will be inflation, interest rates and economic growth. It is possible that central banks can successfully rebalance to avoid a major recession. However, the crystal balls of central banks are fuzzy and decision-making may be constrained by relentless inflation. By all logic and hope, inflation rates are coming down and this would allow for a looser monetary policy that fits the economic picture, at least in Europe.

To sum up

Companies are adapting their operations to a changing geopolitical world. The route to a peace treaty would offer Europe an opportunity to start reconstructing Ukraine. This is definitely in the interest of European countries, despite their already heavy debt burden. Reconstruction would provide an opportunity for businesses to grow, but reconstruction requires a secure Ukrainian territory.


 

The writer is VER's CEO Timo Löyttyniemi.

TLö blogi 2020

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