In Geopolitics This Week
Political Instability Deepens in Pakistan, A Potential Future of Financial Multipolarity, Russia Loses Flagship of the Black Sea Fleet, and other stories.
Political Instability Deepens in Pakistan
Pakistan — a nuclear-capable state where over a dozen militant groups remain active — appears to be sliding toward political instability. The uncertain situation has been triggered by the removal of the former prime minister, Imran Khan, who has held large rallies across the country condemning those who ousted him from power in a vote of no confidence on the 10th of April. A day later, the National Assembly appointed Shehbaz Sharif as the country's new prime minister. The new government assumes power at a precarious time for Pakistan, with political and economic instability likely to lead to a surge in violence across the country.
At an overnight rally, Imran Khan blamed the United States for being directly involved in him being ousted from power, claiming that a conspiracy was hatched which saw money used to convince his own party’s lawmakers to join the opposition. Khan maintains that US officials held numerous meeting with leaders of the then opposition parties at the US embassy in Islamabad. He is quoted as saying to his supporters that his party will not accept an “imported” government, and he has urged his followers to hold widespread demonstrations against the new government. As such, Khan is likely to continue to mobilize his supporters against the new government moving forward, likely leading to increased political instability in Pakistan over the coming months.
In addition to a rise in political instability, Pakistan's new government will be faced with mounting economic challenges. Shehbaz Sharif, Pakistan's new prime minister, has inherited a fragile economy with high deficit spending and soaring inflation, in part caused by rising prices in sectors where the country has a dependence on foreign imports, namely oil, natural gas and other essential goods. Moreover, Sharif’s government has stepped in just as Pakistan is in the midst of negotiating with the International Monetary Fund (IMF) for the next tranche of a $6 billion bailout package, and his government is expected to work with the IMF to impose strict and unpopular economic reforms that are likely to exacerbate social unrest.
In negotiating a deal with the IMF, Sharif’s new government is also expected to work closely with the country’s military in the coming weeks and months. Pakistan’s military continues to play a dominant role in the formulation and execution of the country's defence and foreign policy, and remains a very influential player in domestic politics throughout the country to this day. This is especially likely given the pressure that Khan’s now-opposition party may be able to exert on the political process at a time of economic uncertainty. Unpopular economic reforms — such as those requested by the IMF — could give Khan's party a window of opportunity to mobilize their supporters and apply considerable pressure to the new government. A positive working relationship with Pakistan’s military will therefore be a necessity if the new government in Islamabad wishes to enact unpopular economic reforms.
A Potential Future of Financial Multipolarity
While the ongoing war in Ukraine is being fought with kinetic weapons and traditional power projection capabilities, the domain of money has come to play a significant role in the conflict as well. With Russian foreign currency reserves frozen by the United States, the European Union, and other US-aligned powers, it is evident that even today, money remains important in the global strategic competition between states. In this domain, currencies, monetary assets and financial vehicles are used as weapons, shields and targets by states embroiled in a geopolitical contest.
Although the coercive use of financial sectors does not directly provoke bloodshed, it can still inflict substantial damage, especially against vulnerable economies that are reliant on the export of natural resources. The freezing of Russian Central Bank assets by the US and its allies in response to Russia’s invasion of Ukraine is one such example where financial vectors are weaponized against a target as part of a strategy of economic warfare. The sanctions regime imposed on Russia attempts to bring down the ruble’s value, trigger hyperinflation, prompt the collapse of the Russian banking system, and undermine the Russian government’s ability implement monetary policy. This, it is expected, will lead to rising social unrest and mounting monetary pressures on the Russian state.
Such an approach is possible because the international dominance of the US dollar allows Washington to monitor international transactions, implement sanctions, block transactions, freeze foreign assets, manipulate the prices of strategic commodities, and accumulate high levels of debt with no meaningful consequences. The sanctions applied by Washington and its allies in Europe and elsewhere have demonstrated the lasting financial power of the US and its allies, and serve as a reminder to other states that the dollar-denominated structure of international finance continues to serve as a formidable pillar of US national strength. Moving forward, the intensity of the sanctions regime will work to prevent Russia from participating in the global financial system, and thereby work as a major barrier to Russia establishing economic relations with other states.
Since financial instruments were first weaponized against Russia on a massive scale in 2014, Moscow has sought to protect its assets by turning away from the dollar and the euro by investing in gold — a hard asset with value that is beyond the control of US-aligned powers. In a broad sense, Russia’s strategy to mitigate the effects of sanctions has been to increase national gold holdings, avoid direct exposure to international financial markets, and bypass transactions involving systems connected to the dollar. In pursuit of these goals, Russia has sought to take advantage of declining gold prices to increase its physical holdings of the precious metal since 2014. Yet even while undertaking efforts aimed at financial decoupling, Russia’s export-dependent economy has not been able to fully bypass structures of international trade and finance dominated by the dollar and the euro since 2014.
Although the move by Moscow to invest in gold is mostly defensive, the decision may work to undermine the dollar’s hegemonic position and unravel Washington’s control of international financial networks should other states follow suit. In the future, other states may seek to diversify away from the US dollar or the euro after witnessing the potential counterparty risk posed to their own foreign exchange reserves by a Washington willing to weaponize instruments of international finance. If more states ditch the US dollar or the euro as their reserve currencies, or if, despite the strict sanctions, Moscow continues to be able to facilitate financial and trade relations with countries within this international system, it would serve as a powerful catalyst for structural change, potentially leading to a drastic fragmentation of international finance.
Russia Loses Flagship of the Black Sea Fleet
The Russian Navy has lost the flagship of its Black Sea Fleet: the guided missile cruiser Moskva. Roughly a hundred kilometres off the southwest Ukrainian coast, the Russian Navy suffered a significant naval loss when the 12,000-ton Moskva — the flagship of its Black Sea fleet — was reportedly hit by two Ukrainian Neptune anti-ship missiles. Russia’s Ministry of Defence later admitted that the Moskva sank while being towed back to a port on the Crimean Peninsula.
On Wednesday, Maksym Marchenko, the head of Ukraine’s Odessa Regional Military Administration, admitted that the Moskva was struck by two Neptune anti-ship missiles. However, Russia disputed these statements, with the Russian Ministry of Defence stating that a major fire had led to an ammunitions explosions aboard the Moskva. The Russian account suggested the cruiser remained afloat, that its main missile armament was not damaged, and that certain measures were being taken to tow the vessel to the port. Yet later that same day, the Russian Ministry of Defence admitted in a public statement that the Moskva had sunk during these towing operations.
The Moskva was one of the largest Soviet-build cruisers. The vessel served as one of the more capable naval assets Russia deployed in the Black Sea region, and, in theory, the vessel should have been more than capable of detecting and intercepting the kind of missiles reports suggest were used in the attack. One potential explanation for a failure to detect and intercept the missiles could be that the Ukrainian forces may have used electronic warfare systems as a way to disable the ship’s reconnaissance and radar systems, thereby blinding the crew of the Moskva long enough to successfully strike the target with the Neptune missiles.
The sinking of the Moskva has both symbolic and operational significance. Beyond its symbolic role, it is one of the only vessels in the Black Sea Fleet equipped with wide-area air defences. The Moskva likely provided air cover to other vessels during Russian operations, which have included reconnaissance missions, coastal bombardments and amphibious assaults. In the absence of the Moskva, the Russian fleet in the Black Sea lacks other vessels with a comparable air defence suite, so Russian naval forces will thus find it more risky to conduct similar operations in the weeks ahead. As such, Russia may be forced to rethink its naval posture near the Ukrainian coast in the coming days, especially if other elements which make up a comprehensive air-defence network for their military assets are now more vulnerable.