February 22, 2016    5 minute read

Is the World on the Edge of a New Cold War?

   February 22, 2016    5 minute read

Is the World on the Edge of a New Cold War?

Last week, Russian Prime Minister Dmitry Medvedev said tension between Russia and the West have pushed the world “into a new Cold War.” Sanctions imposed on them by the West because of their excursions into Ukraine, have placed Russia on a collision course with the Western world. Not helped by Russia’s positioning in the Middle East, along with the rise in extremism, have led to many believing that the world hasn’t been this unstable since the height of the Cold War.

“On an almost daily basis, we are being described the worst threat – be it to NATO as a whole, or to Europe, America or other countries…Sometimes I wonder if this is 2016 or 1962”

Mr Medvedev

These quotes drew some assertive responses from  Western leaders. Speaking shortly after Mr Medvedev, Jens Stoltenberg, NATO secretary-general, accused Russia of “destabilising the European security order” and said the Kremlin was using its nuclear arsenal to bully neighbours.

Since Russian intervention in Syria, many question the motives behind supporting President Assad’s forces in the region. Before the crisis, Assad was considered as a vital ally to the Western leaders. Syria was seen as a country in which the West could do businesses with. Ironically, Syria was considered as a stable country in an unstable region, enabling the West – particularly NATO – to have a strategic position in a region plagued by fighting. However, Russia is now seen as taken the initiative. Prizing Assad away from the West is a major move by Putin, and helps Russia’s position as a major world power. Something which is highly motivating for President Putin given that the media speculates that Putin remains angered that President Obama referred to Russia as a ‘regional power’ in a now-infamous speech.

The rhetoric has been further increased by the fact that the US military has deployed tanks and artillery equipment to Cold War-era caves in Norway to equip better stations near the NATO-Russia frontier. The cave system was first used by the US as an arms depot in 1981 during the Cold War. The move comes as part of a wider influx in the defence of Europe, allowing NATO to have weaponry which is ‘ready to go’ should a crisis with Russia arise.

The recent deployment in Norway comes after the Pentagon announced comes after Washington announced a $3.4 billion budget for the ‘European Reassurance Initiative’. Another programme, which hasn’t been confirmed as of yet is the possibility of the US placing maritime patrol aircraft in Keflavik, Iceland. Additionally, there are further reports of US submarines being placed in Europe, meaning that the US is in direct missile range to Russia. These moves come at the back of what the US calls Russian aggression against NATO allies.

Nevertheless, there are also fractions within NATO. The United States is pressing NATO to play a bigger role in the campaign. Consequently, this puts Washington at odds with Germany and France, as they believe that this strategy would risk a confrontation with Russia. Further division lies between Turkey and NATO. There’s a reluctance for another ground war operation across many of NATO’s allies. However, as Turkey calls for an international joint ground operation, European diplomats have warned the Turkish government that it cannot count on the NATO support should the conflict with Russia escalate into an armed conflict, according to German media.

However, with Russia becoming more assured of its domestic economy, the $700 Billion modernisations of the Russian military acts as a warning to the Western world. Despite the Russian economy contracting by 3.7% in 2015 due to the collapse in oil prices, which have fallen by 70% in the past 15 months and recent sanctions placed on them after Russia annexed Ukraine’s Crimea region, Investors are now seeing ‘green shoots’ appear in the Russian economy, as the recession beings to thaw. Some even believed that the US and Saudi are playing a game with Russia by lowering the oil price so that Russia continues to struggle economically. However, as Russia continues to adapt to the new oil environment, they continue to invest in their military.

Barclay’s economist Daniel Hewitt believes that the Russian recession may be “bottoming out” following an improvement in a slew of data in January. At last weekend’s Munich Security Conference, the war of words continued. NATO says Russia wants its empire back. Russia wants to know what NATO’s new missile bases are aiming at. According to Barclays Capital’s estimates, the advanced economies of the world will grow by 1.8% in 2016. The rest of the world, led by China and India, will grow by 4.2%. But if sanctions and suspicions and fear take over as they did after World War II, the flow of capital into those economies will shrivel up.

However, if we do see another Cold War, then it won’t be a Cold War such as the one between the Soviets and America. The most obvious reason is that none of the original superpowers have the financial or political clout to re-install and control puppet governments across the emerging market countries. Moreover, those countries are a lot richer and their population is more educated.

Germany’s Angela Merkel reiterated this week that she is interested in lifting economic sanctions on Russia, which have been put in place since Russia annexed Crimea.

The coming year is a vital one for the global order. The US elections are seen as a pivotal event which could shift the balance of American foreign policy. However, despite this uncertainty, one certainty remains: if the Cold War does return in earnest, it is bad for the all-important emerging economies. Although such a scenario might work for Lockheed Martin, BAE and banks that have finance government debt and defence firms. But such a weak emerging market outlook, plagued by a Cold War would be bad for Apple and Alphabet.

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