THAT’s how I characterized the US/NATO-led proxy war against Russia in Ukraine back in early March 2022. I argued that it was an avoidable war that would severely penalize Ukraine, Russia, the US and NATO, Europe, developing countries and the global economy (“The unwarranted war,” The World Financial Review, March 9, 2022).

At the time, the prediction was seen as contrarian. But it has prevailed, as I show in its just-released sequel (“The unwarranted Ukraine proxy war: A year later,” The European Financial Review, Jan. 27, 2023). In this 5,000-word research analysis, I explain why Russia’s economy has remained resilient; how international media has suppressed the dark realities of devastation and Ukraine’s bankrupt economy. It also shows how the war has undermined and will continue to undermine the West’s economic performance for years to come, while the US and international war funding is budgeted to support hostilities at least until late the 2020s. Finally, it documents the disastrous consequences particularly in emerging and developing economies.

In what follows, I will focus on only two issues: the costs of the proxy war in Ukraine and in major economies. These losses were unwarranted and amount to trillions of dollars. And the worse is still ahead.

Ukrainian nightmare

Officially, the invasion of Ukraine began as Russia’s “special military operation.” Unofficially, it soon morphed into a US/NATOled proxy war against Russia in Ukraine. The political objective of this war has been regime change in Russia, even at the cost of Ukraine’s economy and its people.

Through the year, even as international media has been touting the mirage of Ukraine’s military triumph, the country’s real GDP declined over 35 percent on an annual basis in the third quarter of 2022; that is, before Russia’s massive infrastructure attack.

Starting on October 10, Russia’s waves of missile and drone attacks opened a new phase of the war. The direct physical damage to infrastructure soared to $127 billion already in September; that’s over 60 percent of Ukraine’s pre-war GDP. The impact on the productive capacity of key sectors, due to damage or occupation, is substantial and long-lasting.

The population share with income below the national poverty line in Ukraine may more than triple, reaching nearly 60 percent in 2022. Poverty will increase from 5.5 percent in 2021 to 25 percent in 2022, with major downside risks if the war and energy security situations worsen. As casualties continue to mount, over a third of the population has been displaced and over half of all Ukrainian children have been forced to leave their homes. The nine months of war have caused massive population displacement. As of October 2022, the number of Ukrainian refugees recorded in Europe was over 7.8 million, and the number of internally displaced people was 6.5 million.

As former Pentagon adviser Col. (ret.) Douglas Macgregor has argued, “Washington’s refusal to acknowledge Russia’s legitimate security interests in Ukraine and negotiate an end to this war is the path to protracted conflict and human suffering.”

What’s ahead in 2023 will be worse. Reconstruction will require a lot more than $1 trillion, President Zelenskyy claimed in December.

The unwarranted war

Unsurprisingly, global growth is now expected to decelerate sharply to 1.7 percent in 2023. That’s the third weakest pace of growth in nearly three decades, except only for the global recessions caused by the pandemic and the global financial crisis.

If in 2022 the proxy war’s costs were disastrous in the West and Russia, 2023 will be worse. One way to quantify these adverse shocks is to compare consensus growth estimates before the Ukraine conflict and today after a year of devastation (see figure).

Here are some takeaways: The proxy war is costing the global economy trillions of dollars annually, which follows the West’s debt crises in the early 2010s, the rise of US protectionism and trade wars since 2017, the consequent failed global recovery, vaccine apartheid amid the global pandemic and the subsequent global depression.

In 2022-2023 alone, the war is contributing to a loss of 1-2 percentage points of US GDP growth per year. In the $25 trillion economy, that means up to $250 to $500 billion. In the Euro area, the losses are likely to be significantly higher. In the $16.6 trillion economy, that’ll turn a promising recovery into an ominous contraction. These aggregate results exclude the UK in which living standards will suffer longer.

In Japan, the world’s secondlargest economy, the pre-Ukraine potential for stabilization will give way to the kind of instability that triggered its secular stagnation in the 1990s, due to the country’s massive debt burden and record-high age structure.

In 2023, the ray of hope in this dire global landscape is China’s reopening. It could offset a decline in other emerging and developing economies. That, however, is predicated on continued easing in US-Sino relations, which is no longer assured.

Worse, with historical plunges of world trade, investment and migration, effective deglobalization has potential to transform cold wars to hot ones.

Warfare rather than welfare

In this dire status quo, the decision of the G7 countries to foster their military capabilities is precisely the wrong one. It will escalate their debt challenges. As they opt for warfare rather than welfare, their income polarization will worsen accordingly.

Russia is a $2.1 trillion economy and a global supplier of oil and natural gas, plus a major nuclear power. Yet, the war means 5 to 6 percentage points in lost GDP growth. While the math is distressing, Russians believe that NATO Ukraine would have pushed their country back to a ‘90s style nightmare. Moreover, data suggests that if Russia can prevail, its growth could be restored by the mid-2020s.

To undermine such scenarios, the US and NATO seem to be preparing for a multi-year proxy war, despite its self-destructive impact on the G7 economies, the continued energy and food crises, and the likely devastation in emerging and developing economies.

The US Big Defense is the big winner of 2022 and, thanks to the military aid arrangements, could reap war profits well into the late 2020s. By then, new big “weapons labs” will be needed elsewhere — North Korea, Taiwan, Iran, even China, where there’s a will, there’s a way — to ensure new wars that will generate adequate returns.

As long as Washington is willing to extend its war theater from Ukraine to other targets, global risks will climb accordingly, including potential nuclear confrontations and the ultimate climate risk: “nuclear winter.”

Undermined peace

As historian Geoffrey Roberts has argued, President “Putin went to war to prevent Ukraine from becoming an ever-stronger and threatening NATO bridgehead on Russia’s borders.” The war was not the Ukrainians’ first choice either. Ukrainians elected Zelenskyy as a “peace candidate.”

Even in April 2022, after a month of hostilities, Russia and Ukraine tentatively agreed to end the war. But that decision was undermined by former British prime minister Boris Johnson whose visit was designed to stop the talks, which were not acceptable to the Atlantic allies.

On January 25 the Ukraine proxy war entered a new, still more dangerous phase. The commitment of some 70 US, German, UK and Polish battle tanks herald lethal escalation, although hundreds more will be needed to defeat Russia. For the first time since World War 2, German tanks will be sent to the “Eastern front.” In Moscow, it will foster those voices who see the stakes of the war as existential.

Not only will economic and human costs climb even further, but strategic risks, including the potential of nuclear confrontation, will soar. With such escalation in high-tech arms sales to Ukraine, regional and military spillovers are no longer a matter of principle, but a matter of time.

With such escalation, the colossal economic and human costs of the past year could prove just a prelude to a far greater darkness looming ahead.

Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of the Difference Group. He has served at the India, China and America Institute (US), Shanghai Institutes for International Studies (China) and the EU Centre (Singapore). For more, see https://www.differencegroup.net/

The original research analysis was published by The European Financial Review, Jan. 27, 2023. See https://www.europeanfinancialreview.com/the-unwarrantedukraine-proxy-war-a-year-later/’