Expert View: Great Power Politics and the New Global Order

Russia's invasion of Ukraine shattered the post-World War II rules-based international order which has underpinned global prosperity and energy markets for the last 70 years.

Although the UN remains an important institution, it is increasingly unable to prevent large-scale conflicts like the Russia-Ukraine war from escalating. Great power politics like the competition between the US and China for global leadership has replaced compromise at the heart of international affairs.

Energy markets too are being transformed by the new global order being forged in the battle for Ukraine. Sanctions on Russia have discombobulated oil and gas flows and challenged traditional alliances between the US and major OPEC producers led by Saudi Arabia. Instead of looking to the US for leadership, the Middle East's largest oil exporter is forging closer relationships with both the Kremlin and Beijing.

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This shift to a multi-polar world coincides with an intensifying competition for resources. On one side, western post-industrial consumer nations are racing to decarbonize and dampen fossil fuel consumption through the energy transition. On the other, fast growing economies in Asia and the global south are hoovering up cheap Russian energy and commodities to power growth.

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Battleground Ukraine

Ukraine holds the key to the future of the new energy and political world order. A major battlefield reversal this summer for Russia's army would damage Vladimir Putin's regime. Much depends on whether President Joe Biden and Senate Republicans can convince the US House of Representatives to continue economic and military aid when funds are getting tight amid fears of an economic recession.

Ukraine's strength has been in the commitment of its people to fight and assert their right to national self-determination. Despite Russia's bombing campaign, which at times left half the country without power and water, polls show that up to 90% of Ukrainians will not accept territorial concessions. Inadvertently, Putin has done more than anyone to define Ukraine's identity as a nation and as a people. This identity is now much stronger than at any time since the end of the Cold War.

The determination of Kyiv's fighters has won European and US support and underpinned a revival in Transatlantic unity. At the start of the war, providing sophisticated weapons to Ukraine was seen as risking a nuclear confrontation with Russia. The war's brutality and Putin's weaponization of energy, which triggered a wave of global inflation, have encouraged NATO partners to arm Ukraine with sophisticated weapons, tanks and training, and provide economic support.

US officials estimate the country has supplied Ukraine with $1.5 billion per month of economic support. In some cases, Republican leadership in the Senate has pushed the administration to go beyond its requests to Congress. Biden and European leaders have repeatedly committed to sustain support "as long as it takes".

The risk is that support in the US Congress could splinter. Florida Governor Ron DeSantis stated that "while the US has many vital national interests…becoming further entangled in a territorial dispute between Russia and Ukraine is not one of them." Former President Donald Trump takes a similar position. And any future supplemental assistance cannot pass without steering its way through the US House of Representatives where blocs of Republicans and Democrats, at different points, have questioned the value of American leadership stemming international aggression.

For Putin, US support for Ukraine fracturing would allow him to persist in a war that represents an existential battle for his and Russia's future. Putin's fate is now inseparably intertwined with the war.

By mid-summer, current US military assistance will dwindle, and Ukraine understands a stalemate will discourage support for further assistance. Even with sustained US backing, the war could drag on. Putin will likely throw everything Russia has into winning, short of deploying nuclear weapons.

The outcome of this summer's battles in the Donbass will bring the international order of politics and energy to an inflection point. Failure to stop Russia in Ukraine could encourage Putin's territorial ambitions in Moldova, Belarus, Georgia, and Central Asia -- and perhaps NATO member states. If the US relinquishes leadership in Ukraine, its credibility as the leader of an international order based on democracy and free markets could be irreparably damaged.

China rising

China's role in Ukraine and President Xi Jinping's relationship with Putin represent another blow for US hegemony. President Xi travelled to Moscow in March under the auspices of promoting peace, but his agenda seemed focused on advancing a Sino-Russian alternative to the US-led world order.

The relationship between China and the US -- which combined consume a third of the world's oil -- is increasingly defined by competition and tension. It will take the intervention of both Biden and Xi to prevent a deterioration. The window for action must be before the US presidential elections gear up. Even then, reaching any understanding with China to mitigate risks may be politically untenable in the US. Certainly, cooperation or friendship are off the table. There are four keys to navigating these dangers.

Firstly, it is important to understand how China defines itself. "Chinese-style modernization is…the only correct path to building a strong country and building a nation," said President Xi at the Chinese National Congress in February. This means centralized control. Xi stressed that China would "continue to strive for peaceful reunification with the greatest sincerity and the utmost effort, but we will never promise to renounce the use of force, and we reserve the option of taking all measures necessary."

For China, Taiwan, Hong Kong and the South China Sea are part of one country. At question, are the timing and degree of China's control. And that means US demands for greater liberty in Taiwan or Hong Kong, for human rights, for protection of intellectual property, or for transparency in fiscal or monetary policy present an existential clash with China.

Secondly, it is crucial to understand how China and the US will draw diverging lessons from the war in Ukraine. China sees the old international order led by the US ganging up on Russia to deny it access to international capital, sensitive technologies and imposing price caps on its sales of oil and gas. China fears it could be subjected to the same economic isolation as Russia. Today, China remains dependent on Western markets. Decoupling its economy and building new internal supply chains will take time. And that provides an important signal on the timing of possible actions on Taiwan.

Ukraine has forced the US to relearn the importance of deterrence. This could be significant for the future of Taiwan. Consensus in Washington has grown around building Taiwan's defense capability, reinforcing the US military capacity to prevent China from taking Taiwan, and stripping ambiguity away from American policy with firm security guarantees.

The third key point is an American realization that it has been losing to China not just on trade, but on building the infrastructure for a Net Zero emissions world.

Biden came into office shocked to hear China invested up to three times more annually than the US in renewable energy, produced 80% of the world's solar panels and batteries. China also controls supply chains and processing for critical minerals and metals like lithium, cobalt, and copper.

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China was beating the US on transforming its infrastructure and securing closer alliances with key suppliers of hydrocarbons like Saudi Arabia and the UAE in the Middle East. Competing with China has become a core feature of Biden's economic policy, including the $1.7 trillion Bipartisan Infrastructure Law, the $280 billion CHIPS Law, and the $370 billion Inflation Reduction Act. For the US, catching up and overtaking China is core to America's ambition to defend its global leadership position. And even on issues like climate change, China and the US will compete more than cooperate on who dominates technologies and supply chains.

Finally, China's dependence on semiconductors is key to understanding tensions with Taiwan. China imports more semiconductors than any other country in the world. It spends more on importing semiconductors than oil -- $350 billion in 2020 versus $178.5 billion for crude. Most importantly, China needs high precision semiconductors for advanced military equipment, artificial intelligence and supercomputing power. Taiwan produces 90% of these semiconductors. So, in October 2022, when the US banned domestic and foreign companies from selling high precision semiconductor technology to China, it disrupted and delayed China's economic and security ambitions. As China seeks to build domestic capacity on semiconductors, it will inevitably be tempted to illicitly obtain intellectual property to keep from falling further behind.

The downward spiral in relations between these two great powers is now well documented. China fully intends reunification with Taiwan. The US seeks to deter it. When deterrence takes the form of a political act such as the visit of then House Speaker Nancy Pelosi last August, or a new military posture and assistance like The Taiwan Policy Act promulgated in September, China reciprocates with military exercises. The Chinese response triggers greater US sensitivity, including on technology and competitive issues -- like banning high precision semiconductor technology. That drives China to fill this technology gap by any means it can, raising tensions on cyber risk and commercial espionage.

Arguably, this cycle can be broken only at the top by Biden and Xi. No political figures below them have the stature or authority to change the narrative. But the window for Biden may be closing sometime before the presidential campaign starts in earnest later in 2023. At some point, all US political parties will converge on belligerence, at least in their rhetoric and policy actions, toward China. And the window for statesmanship to reduce tensions and advance core security issues will fade.

Restoring global order

Several issues are critical if the global order that has underpinned markets and growing prosperity for 70 years is to survive unchanged.

The window for action through September 2023 is important, potentially transformative, for both the war in Ukraine and for US-China relations. On Ukraine, a tipping point will come when the US Congress considers whether to provide new military assistance. On China, the timeline is more opaque -- if not acted upon before the electoral season, the opportunity could fade away.

The test on Ukraine before the US Congress is one of American global leadership. Supporting Ukraine will not guarantee a steady path to end the war. Failure to support Ukraine will undermine US credibility on defending the established global system based on the rule of law, with credible checks and balances on egregious contraventions.

Any relief on the escalating tensions and risks between the US and China must come at a presidential level. Biden and Xi must set the guidelines. And in doing so, the tone must be one of sober pragmatism aimed at reducing the risk of a global catastrophe. Neither leader can afford signs of weakness. Both would need to be clear that their competition continues, but that the world needs assurance that neither side will provoke a military conflict over Taiwan.

Against this backdrop of high stakes tension and instability, governments and businesses must plan. This is especially the case for energy producers and consumers. Commodity market participants in particular need to understand these uncertainties and weigh how to mitigate new risks. We will not see the emergence of a new global order soon. Sound choices on the war in Ukraine and US-China relations are critical. With wise judgement, they will open a path to better solutions on an international order that will instill confidence and stability.

Carlos Pascual is Senior Vice President, Head of Geopolitics and International Affairs at S&P Global Commodity Insights. As the energy envoy and coordinator for international energy affairs for the US, Pascual established and directed the new Energy Resources Bureau at the US Department of State and was senior advisor to the Secretary of State on energy issues. He was previously also a US ambassador to both Mexico and Ukraine.