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한국어로 읽기Leer en españolIn Deutsch lesen Gap اقرأ بالعربيةLire en françaisЧитать на русском The concept of a multipolar (or polycentric) world order [1] was first coined by Academician Yevgeny Primakov in 1996 [Primakov 1996]. Like everything new, it was not immediately accepted, but ultimately became a significant contribution to both domestic and world theory of international relations, offering a compelling alternative to Western approaches, particularly the one proposed in Samuel Huntington’s The Clash of Civilizations [Huntington 1993]. It informed the idea of trilateral cooperation between Russia, China and India, implemented by Primakov and later embodied in the BRICS group. By now, the idea of multipolarity has been recognized in global political science, has entered the conceptual framework and the language of international diplomacy and is used in Russia’s doctrinal documents. In 2015, we proposed the scenario of a new bipolarity [2] as one of the possible trajectories for global development. Today, many scholars, both Chinese and American, [3] suggest that China-centric and U.S.-centric poles are emerging. This article discusses the “multipolarity — new bipolarity” dichotomy. Long Global Macro-Transformations World history shows that a new world order typically emerges after the end of a major war (see Table 1). Table 1. International system (world order)    Source: systematized by A.A. Dynkin, IMEMO RAS Europe was usually the “kitchen” where the world order was cooked. Take the last 200 years. After the end of the Napoleonic Wars, the Concert of Europe emerged and lasted for 100 years. The century-long stability of that system could be explained by the homogeneity of the political organization of its guarantor states. All members of the Concert of Europe were monarchies. World War I produced the Versailles system, which lasted only 20 years. One of the reasons for its short life was the exclusion of the Soviet Union, Germany and China. The Yalta-Potsdam system was formed by the victors in World War II. Its guarantors were the “Big Three” powers—the Soviet Union, the U.S. and the UK—along with France and China. The three defeated powers—Germany, Japan and Italy—were discriminated and disenfranchised. This system existed for 45 years and was initially thought to be polycentric, but quickly degenerated into a bipolar order, and the Cold War commenced. With the collapse of the Soviet Union and dissolution of the Warsaw Pact, the system became unipolar, dominated by the West, primarily the U.S. It disregarded Russia’s interests and, from 2018 onward, began discriminating against China as well. February 2022 can be considered the formal date of the unipolar world’s demise. However, today’s predictions suggest it will take at least 10 years before the new post-unipolar system becomes stable. The economic center of gravity is a spatial indicator of the economic strength of states, borrowed from physics. To put it simply, this is a geographical point of equilibrium for GDP, trade and investment flows of different countries. Figure 1 shows a map of how the world’s economic center of gravity shifted for over a thousand years. It appeared in Central Asia, on the territory of the Ghaznavid Empire (modern-day Afghanistan). The center then migrated northwest, while the devastation in post-war Europe forcefully pushed it (within just 10 years) to the West, toward Greenland. Then it turned east again. The sharpest shift, to the southeast, occurred in 2000–2010 and is associated with the rise of China. The economic center of gravity has almost returned to the same meridian but remained more than 2,000 km north of the starting point, which indicates a return to the millennial balance of economic power between the West and the East. Figure 1. “Journey” of the three-dimensional economic center of gravity    Source: Dobbs R., Remes J., Manyika J. et al. Urban world: Cities and the rise of the consuming class. McKinsey Global Institute, 2012. https://www.mckinsey.com/featured-insights/urbanization/urban-world-cities-and-the-rise-of-the-consuming-class. Statistic calculations by IMEMO RAS for 60 years of peace (1960–2021) indicate the stability of the center’s latitudinal (horizontal) position. This suggests a relatively consistent proportion of GDP production by the countries in the Global South and Global North, under the economic leadership of the Northern Hemisphere. The shift to the East has also been clearly confirmed. According to our projections up to 2050, the future position of the globe’s center of economic activity will lie on the border of India and China. This method of analysis reveals a high level of inertia in time and geographic monotonicity of changes in the balance of economic power of states. It also shows that wars can drastically disrupt the natural course of events. The center of gravity method can also be applied to the arsenals of strategic and tactical weapons (see Figure 2). For example, during the Cuban Missile Crisis, the U.S. had a huge advantage, but then there was a clear pivot to the northeast—the creation of superior nuclear capabilities in the Soviet Union. With the onset of arms control in 1993, a reversing loop emerged, heading southwest. This was followed by a curve to the east with an implied southward inclination, which reflects the growing nuclear stockpiles of India, Pakistan, North Korea, and the rapid buildup of strategic and tactical nuclear forces in China. The military center of gravity follows its economic peer with a lag of 20 years, reflecting the geopolitical ambitions of Asian powers. These interpretations also clearly demonstrate the end of unipolarity and point to the rise of multipolarity. Figure 2. Movement of the nuclear center of gravity Source: calculations by K.V. Bogdanov, Center for International Security at IMEMO RAS, based on the data from the Bulletin of the Atomic Scientists. https://thebulletin.org/nuclear-notebook/. Technology. Politicians tend to be techno-optimists. Barack Obama predicted that 3D printing would transform the entire world. [4] George W. Bush promised that decoding the human genome would revolutionize medicine. [5] All false starts. Economists traditionally measure the rate of technological progress (TP) using the total factor productivity (TFP) index. To put it simply, this is the part of economic growth driven not by an increase in inputs—labor and capital—but rather by improvements in the efficiency of their use. Technological progress means not only the generation of new scientific and technological ideas but also their mass replication. Without economic validation of the impact of wide dissemination of innovations, scientific or technological achievements remain in history as brilliant breakthroughs with only local economic effects, giving rise to journalistic generalizations at best, such as the “Fourth Industrial Revolution” or “the sixth techno-economic paradigm.” Statistical metrics rely on data of technologically advanced nations, while catching-up countries have room for growth by approaching the TP frontier, i.e. adopting and improving existing ideas and technologies. Technological leaders spend more resources pushing the TP frontier, while those catching up can accelerate at lower costs, effectively staying in the “wind shadow” of the leaders. The TFP index growth rate has been steadily declining in developed countries for many years, but this has been especially conspicuous since the mid-2000s. Today, the growth is below 1.5% and even 1% per year (see Figure 3). Figure 3. Average annual growth of total factor productivity, % Source: calculations by IMEMO RAS based on the data from the International Productivity Monitor. No. 38, Spring 2020. http://www.csls.ca/ipm/ipm38.asp#:~:text=Martin%20Neil%20Baily%2C%20Barry%20P.%20Bosworth%20and %20Siddhi%20Doshi%0ALessons%20from%20Productivity%20Comparisons%20 of%20Germany%2C%20Japan%2C%20and%20the%20United%20States%C2%A0; Innovative China: New Drivers of Growth. World Bank Group, and the Development Research Center of the State Council, P.R. China. 2019. Washington, DC: World Bank. https://doi.org/10.1596/978-1-4648-1335-1. License: Creative Commons Attribution CC BY 3.0. https://documents1.worldbank.org/curated/en/833871568732137448/pdf/Innovative-China-New-Drivers-of-Growth.pdf. A similar pattern of dramatic TFP deceleration was observed in China. The consensus interpretation of these figures is that the main effects of the Third Industrial (i.e., computer) Revolution have largely been exhausted, and no new general-purpose breakthrough technologies (such as electricity, internal combustion engines, or computers and mobile communications) have emerged. However, it seems that the intellectualization of technologies and approaches to project management, as well as informatization, simply do not fit into the traditional factor-based view of progress that was established many years ago. The scale of knowledge is growing, new professions are springing up, the role of emotional intelligence and cognitive functions is increasing. All this dramatically changes the structure of capital assets (see Figure 4). From the beginning of the 21st century and until the 2008 crisis (2000–2007), equipment accounted for over 50% of the increase in capital’s contribution (investment) to output growth, whereas in 2019–2021, almost 63% of this increase was attributable to intellectual property assets. This result of our research suggests a refocusing of technological progress from final products to intellectual technologies, enabling the production of a range of innovative goods and services tailored to highly segmented demand. Figure 4. Transformation of the capital structure in the U.S. private sector Source: Total Factor Productivity for Major Industries—2022. U.S. Bureau of Labor Statistics. https://www.bls.gov/news.release/archives/prod3_03232023.htm. There are now hopes that the pace of technological progress may accelerate due to the development of artificial intelligence (AI) technologies, which will spark a new industrial revolution. An indirect sign of its imminence is the sharp rise in the rate of business births and deaths in the U.S. economy in 2020–2022. [6] The spillover of labor from companies that are losing efficiency to corporations with increasing market shares has also accelerated. These are some sort of leading indicators that suggest the structural results of TP are approaching. Similar developments occurred 30 years ago, on the cusp of the computer revolution. The above-mentioned intellectualization of fi ed capital, where trusted AI will be applied, adds credibility to these hopes. In addition, AI is one of the critical areas of technological sovereignty. It is no coincidence that Vladimir Putin described AI as “crosscutting, universal and essentially revolutionary technology.” [7] The Russian President announced the preparation of a new edition of the National AI Development Strategy and a respective decree. I believe that this prioritization is justified. China’s experience in the semiconductor race is a good model to be emulated (see Figure 5). Its distinguishing feature is the focus on companies as drivers of development, with massive, cumulatively growing state support. Figure 5. Focusing on China’s priorities (nanometer chip race) Source: Systematized by I.V. Danilin, IMEMO RAS The U.S. strategy of curbing technological development of Russia (in all areas) and China (in semiconductors, artificial intelligence and quantum computing and electric cars) leads to stiff competition in high technology, which is fraught with fragmentation, diversification of technical standards, legal norms and rules. And this is another argument in favor of a new bipolarity. Demographic processes. According to UN projections, by the middle of the 21st century, Russia will drop from its current 9th place to 14th in terms of population, while remaining the most populous country in Europe. [8] A more significant problem for Russia is population aging. The proportion of elderly people, who are typically not part of the labor force, is increasing. Japan, Spain and Italy are leading this process today, but neither China nor India will be spared. Nigeria appears to be the only major country where population and the share of young people will continue to grow until the end of the 21st century. As of December 2023, one in 10 people worldwide was aged 65 or over, with health spending taking up 10% of global GDP. [9] In this context, the importance of medical technologies cannot be overstated, as they can extend not only people’s life expectancy but also the duration of their healthy and socially active life, thereby easing labor market pressures. Needs always steer technological progress toward overcoming economic growth constraints tied to the scarcest resource in any given historical period. A serious risk associated with the problem of aging is a slowdown in innovation, since it is people under 40—the age group that will shrink throughout the 21st century—who are the primary drivers and consumers of innovation. So far, this risk has been mitigated by the large youth cohorts in China and India. This is why these two nations are experiencing almost exponential growth in patenting, massive reengineering and, consequently, in middle-class numbers. Demographics give India an edge until around 2060, which is already evident in the growth rates of Indian economy. Combined with the influx of hi-tech investments and the contribution of the Indian diaspora, India has good prospects, making its position crucial to the future architecture of the world order, regardless of how it evolves. The U.S. understands this and has been figuratively “clinging” to this nation for the past 20 years. I believe that the Russian Academy of Sciences should significantly bolster scientific and educational ties with India and its dynamically developing neighbors in Southeast Asia—Vietnam, Malaysia and Indonesia. The anticipated tension in the global market of new generations of innovators aggravates inter-country competition for this scarcest resource. I think that the international reputation of the Russian Academy of Sciences is a powerful tool to attract and retain young people and foster their creative motivation. We should reassert this as we celebrate the 300th anniversary of the Academy of Sciences. Ideology. Dirigisme [10], or statism, is the main trend in both economic theory and economic policy of the West. A pivot to a more state-controlled economy began with the disappointing outcomes of the Washington Consensus, which aimed to guide post-socialist countries from planned to market economies. The 2008–2009 financial crisis cemented the trend toward statism, and the COVID-19 pandemic elevated it to unprecedented proportions. In the U.S., Democrats are among the most vocal proponents of greater government intervention in all spheres of life, but they are not alone. Republicans are also actively advocating industrial policy, repudiation of free trade, as well as strict control over Big Tech, among other measures. The popularity of the so-called cultural Marxism is on the rise. [11] Its origins go back to the critical theory of the Frankfurt School (H. Marcuse, E. Fromm and others). These ideas are moving from the realm of ideological and theoretical confrontations into political activism. For example, the leaders of the BLM movement publicly self-identify as “trained Marxist organizers.” The essence of the strategy inspired by “cultural Marxism” is the rejection of direct political struggle on the barricades, since the proletariat has been “bought off by the bourgeoisie and is no longer capable of anything,” and the ranks of the classic proletariat are rapidly thinning. The direction of social change is set, on the one hand, by intellectuals with personal power and, on the other hand, by marginalized groups seeking to assert their “right to identity.” The strategy of activists who form this paradoxical combination of intellectuals and marginalized individuals is the creeping takeover of the main institutions of power and society by planting “correct” ideas in the mass consciousness. In the U.S., the fighters for political correctness have already hijaked the school system, university campuses, major media outlets and the entertainment industry (Hollywood). Civil servants are forced to take courses in critical race theory, which postulates not only the socially constructed nature of race and the recognition of systemic racism [Delgado, Stefancic 2017: 45] but also a sense of guilt in one part of society toward another. This, in turn, allegedly requires addressing moral and material injustices by organizing public life in line with such an ideology. Similar concepts are being pushed into public discourse as well. It is already dominated by the ideas of radical feminism, cancel culture, anti-systemic racism and postcolonialism, the fight against global warming and the green agenda, which claims to be universal and non-negotiable. As a result, the energy transition is motivated more by ideology than by the comparative market efficiency of energy supplies. Different environmental-political discourses—eco-nationalism, eco-imperialism and green growth—are competing in shaping the green agenda, eroding the attractiveness of the dominant sustainable development model. Another universal weapon in fighting any dissent is political correctness. Large corporations, government agencies and universities are developing and implementing strategies to promote DEI (Diversity, Equity, and Inclusion) principles, which are nothing but tools of ideological control over employees. Universities are required to fi reports on their compliance with such principles and efforts to promote them, which causes mounting criticism as they violate academic freedom and cultivate ideological conformity. [12] However, ideological censorship has already taken deep root in various spheres of public life, and questioning its compatibility with democracy is deemed politically incorrect. Revising cultural norms has become a cultural norm in and of itself, deepening divisions in modern polarized societies, primarily in the U.S., but also in Old Europe [Semenenko 2023: 27-35]. Another curious phenomenon is associated with the new agenda. In the 20th century, the left championed progress, advocating faster economic growth, rapid technological advancement and better social welfare. Now the ideas of zero or even negative growth and post-growth are popular among them. [Buchs, Koch 2017: 218]. Such ideological narratives exacerbate the question of how to treat the poor countries of the South, but also their own poor: the welfare state for all no longer fit into this agenda. On the contrary, it becomes a selective tool of backing the “right” minorities. This creates a breeding ground for stronger positions of populist forces. Such contradictory internal political processes distort public consciousness as well as domestic and foreign policy decision-making. The new elites are extremely ideologized. The U.S. political system is becoming less effective at regulating the economy. Two rating agencies, Standard & Poor’s and Fitch Ratings, have downgraded the U.S. credit rating to AA+ from the top mark of AAA. In November 2023, Moody’s lowered its outlook on the U.S. credit rating to “negative” from “stable.” All three agencies agree on the main reason for the downgrade: the growing dysfunctionality of the political system. In foreign policy, the U.S. has withdrawn from 16 major international treaties and agreements on arms control, global trade, climate and the Arctic since the beginning of the century [Dynkin 2020]. In other words, the unipolar world order with its unbridled appetite for expansion has brought the world into a zone of extra-high risks. And the paradigms that are dominant in the West have proven incompatible with either Russian or Chinese value-oriented political projects. Therefore, the ideological sphere will inevitably see increased confrontation, marking another step toward bipolarity. IMEMO RAS researchers have repeatedly warned about the West’s miscalculated strategic hopes: 1) that Russia would face an economic catastrophe because of an unprecedented sanctions war in modern history; 2) that the unipolar world order would remain unchallenged; 3) that a global blockade of Russia’s export-oriented economy would be feasible. And we were not the only ones who made these warnings. In response, we only heard propagandistic clichés like “a gas station masquerading as a country,” “a regional power” and “Russia is isolated with its economy in tatters”. This kind of “expertise” led the Washington establishment to believe that Russia is a “declining power” whose strategic interests could be safely neglected. This “strategic lunacy” is a consequence of a universalist mindset—a product of the West’s political experience and culture, which tends to elevate Anglo-Saxon and European historical tradition to absolutes—and of a failure to understand the shifts in the balance of power in the 21st century. Today, Russia is the world’s fourth-largest economy by purchasing power parity (PPP), while the top fi e global economic powers include three BRICS nations and none from the blooming “garden” of Josep Borrell, the EU foreign policy chief who has recently been fired. Now a new narrative has been launched into the propaganda orbit: “Russia is about to attack Eastern Europe.” The logical gap between the image of a declining power and that of an “aggressive bear” is conveniently ignored. This primitive, one-dimensional perception of complex non-linear processes can only lead to disappointment—just as it did when the West lulled itself into believing that Chinese reforms would eventually lead to political pluralism. As a result, the West has an inexhaustible stream of surprises. It appears that their experts are increasingly out of touch with Russian (and any other non-Western) realities. Figuratively speaking, they are staring into a distorting rearview mirror constructed by their own rhetoric and propaganda. But the main real surprise was the fantastic resilience of the Russian economy. I dare say that no other economy in the world, not even China’s, could withstand such aggressive pressure. The high resistance of the Russian economy to external shocks can be explained by three fundamental reasons. First, it is the result of difficult, sometimes agonizing institutional and structural reforms. These efforts have ultimately produced a self-sufficient, adaptive and highly diversified market economy. Second, the crisis of 2022 was the fifth (!) in the history of post-Soviet Russia. The government, federal regulators and the Bank of Russia have accumulated hard-earned professional experience in crisis management and counter-cyclical strategies. The same can be said about business. Our economic entities have demonstrated time and again that there are always more effective solutions than there are problems. Finally, the West miscalculated its ability to isolate our economy. The dual containment of Russia and China, in fact, only strengthens ties between the BRICS member states. Transformations of the 2020s. The first half of the 2020s has fi y buried what was once known as “European security.” It is impossible to glue this “broken cup” back together without Russia. The unwillingness of the Ukrainian side and the West to stop the armed conflict at its very beginning, the dangerous escalation, NATO’s constant violation of its own “red lines” and the accession of Sweden and Finland to the North Atlantic Alliance are all symptoms of the European security system transforming into a transatlantic one. Meanwhile, the Eurasian security system is taking shape. The outcomes of Russian President Vladimir Putin’s visit to China hint that the “political East” is starting to form, if not as an alternative to the long-standing “political West,” then at least as an equal partner. Without considering its interests, any debate about “rules-based” global security will be mere fantasy. Indian Prime Minister Narendra Modi’s first visit to Moscow after his recent reelection is in the same vein. Of course, geography cannot be changed, and Russia has been and will remain a European power. However, it is also the geographic center of Eurasia, providing the infrastructure backbone for the Eurasian partnership—from the Northern Sea Route and up to the Trans-Siberian Railway, Baikal–Amur Mainline, Trans-Asian Highway and cross-continental pipelines. The “post-Ukrainian” world seems to be moving toward a new, indivisible Eurasian security architecture, relying on existing institutions: the Union State, CSTO, EAEU, CIS, BRICS, SCO and ASEAN. Minsk has put forward an initiative to develop a Eurasian Charter for Diversity and Multipolarity—a strategic vision for a new system of international relations to replace the “rules-based” world order. An important event of 2024 in this context is the expansion of the BRICS club (see Figure 6). Its combined economic power could potentially reach $67 trillion, surpassing the total GDP of the G7 countries. Figure 6. Economic potential of BRICS countries Source: calculations by A.A. Dynkin, IMEMO RAS, based on the data from the IMF, Food and Agriculture Organization, World Steel Association, Energy Transition Institute, Statistical Review of World Energy 2023, International Energy Agency. And there are still 28 more countries on the “waiting list”. In several important markets such as metals, automotive industry, oil and mineral fertilizers, BRICS already matches or exceeds the potential of the G7 nations. Russia, which took over the BRICS rotating presidency in 2024, faces the task of energizing the harmonized economic and technological policies of the members. This approach is the institutional cornerstone of the future polycentric world. What will the coming world order look like? It is difficult to say which of the two trends—bipolarity or polycentrism—will prevail in the end. It is more likely that they will coexist: for example, rigid bipolarity in the Global North and polycentrism in the Global South. Signs of military, economic and technological bipolarity are already visible in the North. Interestingly, New Delhi tends to categorize China as a country of the North [Jaishankar 2020: 240]. This viewpoint has substance, as China is far ahead of other countries of the Global South in terms of GDP per capita ($12,541). For comparison, India’s GDP per capita is $2,612. [13] The decoupling of the U.S. and Chinese economies has not affected trade flows yet, but only technology and investment. In 2023, China saw a reversal of foreign direct investment inflows, with funds previously invested being withdrawn. Negative trends took hold, and the outflow approached negative $1.5 trillion (see Figure 7). Meanwhile, the Asia-Pacific macro-region is gaining greater internal dynamics, unlike Europe or North America. Figure 7. U.S.–China Economic Decoupling Source: UN Comtrade Database. https://comtradeplus.un.org/; State Administration of Foreign Exchange (SAFE) of the People’s Republic of China. https://www.safe.gov.cn/en/. Meanwhile, the trend toward political polycentricity persists. For example, New Delhi and Ankara were initially poles apart on the Palestinian–Israeli conflict. This is also the dawning of post-unipolarity, where the new centers of power are increasingly guided by their own interests in decision-making rather than by any “rules” or advice from Washington, Beijing or Moscow. It would be unrealistic to expect that the future world order will be free of conflict. The world will retain its diversity, with different potentials of countries and their competition. It is crucial that, despite their differences, the interests of larger and smaller nations are respected, and problems are solved through constructive dialogue. Russia was the first to challenge the notorious unipolar world order. Today we can state that most countries in the Global South have responded to this challenge and refused to subscribe to the Western interpretation of the conflict in Ukraine . The future world order is taking shape right before our eyes. I am sure that a multipolar world is preferable for Russia as a developed, self-sufficient and sovereign nation. But this world also requires a new system of global governance, development and strengthening of its institutions, such as BRICS, G20, SCO and EAEU. For instance, the EAEU member states (Russia, Belarus, Kazakhstan, Armenia, Kyrgyzstan) are faring much better than the five other post-Soviet countries. In 2022, GDP per capita in the countries of the Eurasian Economic Union was 3.5 times higher than the average for the fi e other CIS states that are not part of the EAEU (Azerbaijan, Moldova, Tajikistan, Turkmenistan, Uzbekistan) (see Figure 8). Our strategy in these organizations requires a solid approach and “stereoscopic” vision from socio-economic, scientific, technological and political perspectives. Here, the Russian Academy of Sciences should play a major role as a leader of scientific and expert community. Figure 8. Economic trends of EAEU and CIS countries Source: EEC. https://eec.eaeunion.org/?ysclid=lr7rtdg7np631919243; IMF. https://www.imf.org/; World Bank. https://www.worldbank.org/.  Conclusion In conclusion, there are compelling arguments both for multipolarity and for a new bipolarity. Leading U.S. experts are asking similar questions: “What order will replace the crumbling US-led system is far from certain. Will China push aside the United States as the global hegemon to lead a world according to rules written in Chinese characters? Will the world become bipolar, divided between two more or less rigidly defined blocs led by the United States and China? Will a genuinely multipolar world emerge based on several states or coalitions of more or less equal strength?” [Graham 2023: 272]. These questions are yet to be answered, and definitive conclusions in this case are premature. Given this high uncertainty, one should be prepared for any scenario. The essential prerequisite for such readiness is Russia’s strategic autonomy based on military-strategic parity with the U.S. The fundamental question to which the author has no answer today is: how likely is the emergence of a new world order without a major war? In 2024, presidential or parliamentary elections will take place (or have already taken place) in 50 countries, which account for more than 45% of the world’s GDP and population. Perhaps their results will clarify our vision of the near future. Dynkin A.A. (2024). World order transformation: economy, ideology, technology. Polis. Political Studies, 5, 8-23. https://doi.org/10.17976/jpps/2024.05.02 This article was prepared with the support of a grant from the Ministry of Science and Higher Education of the Russian Federation for major scientific projects in priority areas of scientific and technological development No. 075-15-2024-551 “Global and regional centers of power in the emerging world order”. The author expresses gratitude to his colleagues at IMEMO RAS R.I. Kapelyushnikov, V.D. Milovidov, I.S. Semenenko, I.V. Danilin, S.V. Zhukov, K.V. Bogdanov, A.P. Guchanova for consultations and assistance in preparing this article. References Büchs, M., & Koch, M. (2017). Critiques of growth. In M. Büchs, & M. Koch. Postgrowth and Wellbeing: Challenges to Sustainable Welfare (pp. 39-56). London: Palgrave Macmillan. https://doi.org/10.1007/978-3319-59903-8_4 Delgado, R.,& Stefancic, J. (2017). Critical race theory. Anintroduction. New York: New York University Press. Graham, T. (2023). Getting Russia right. 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The world order or international system is a stable set of institutions and norms of military-political and economic relations, which is institutionalized and legitimate in the international legal sense. The world order remains stable during the active life of at least one generation—a universal measure of social time. However, in the wake of geopolitical macro-crises, illegitimate systems emerge, forcibly imposed by the winner. This was the case with the unipolar world order. 2. Dynkin A., Burrows M. Here’s the Playbook for Getting U.S.–Russian Cooperation Back on Track. The National Interest. 07.12.2015. https://nationalinterest.org/feature/heres-the-playbook-getting-us-russian-cooperation-back-track-14527. 3. For example, see: [Yan Xuetong 2016; Kupchan 2021]. 4. Remarks by the President in the State of the Union Address. The White House. President Barack Obama. 12.02.2013. https://obamawhitehouse.archives.gov/the-press-office/2013/02/12/remarks-president-state-union-address. 5. President Bush Calls on Senate to Back Human Cloning Ban. Remarks by the President on Human Cloning Legislation. The East Room. The White House. President George W. Bush. 10.04.2002. https://georgewbush-whitehouse.archives.gov/news/releases/2002/04/20020410-4.html. 6. Private sector establishments birth and death, seasonally adjusted. U.S. Bureau of Labor Statistics. 25.10.2023. https://www.bls.gov/news.release/cewbd.t08.htm. 7. Artificial Intelligence Journey 2023 conference. President of Russia. Official website. 24.11.2023. http://www.en.kremlin.ru/events/president/transcripts/72811. 8. World Population Prospects 2024, Online Edition. United Nations, Department of Economic and Social Affairs, Population Division (2024). https://population.un.org/wpp/Download/Standard/MostUsed/. 9. Global Health Expenditure database. World Health Organization. https://apps.who.int/nha/database. 10. Dirigisme is a policy of active state intervention in the national economy, pursued by France and the UK in mid-1940s. 11. Mendenhall A. Cultural Marxism is Real. The James G. Martin Center for Academic Renewal. 04.01.2019. https://www.jamesgmartin.center/2019/01/cultural-marxism-is-real/. 12. AFA Calls for an End to Required Diversity Statements. Press Release. AFA. Princeton, NJ. 22.08.2022. https://academicfreedom.org/afa-calls-for-an-end-to-required-diversity-statements/. 13. World Economic Outlook Database (October 2023 Edition). International Monetary Fund. 10.10.2023. https://www.imf.org/en/Publications/WEO/weo-database/2023/October.

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском Abstract  This paper looks at the development of Chinese exports to Central Asian countries after Russia’s invasion of Ukraine in February 2022. The analysis, which relies on export data from China to Asian countries at a general product level, shows that China’s exports to Central Asia have significantly increased since the start of the war. In particular, exports to Kazakhstan, Uzbekistan, and Kyrgyzstan have increased significantly. The analysis focuses on exports in Harmonized System (HS) categories 84, 85, 87, and 90. Many of the products sanctioned by the West in trade with Russia belong to these categories, but the categories also include many non-sanctioned products. Although the value of China’s exports to Central Asia is still smaller than direct trade with Russia, China’s exports – especially to Kyrgyzstan – have seen dramatic increases in the HS 84, 85, 87, and 90 categories. Along with the export growth from China to Central Asia, exports in these categories from Central Asia to Russia have also increased significantly.  Keywords: China, Central Asia, Russia, exports 1. Introduction  This policy brief sheds light on the development of Chinese exports to Central Asia after Russia’s invasion of Ukraine in early 2022. The analysis, which focuses on China’s dollar-denominated exports to Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan between 2018 and 2023, is based on the monthly and yearly customs data on goods exports from CEIC, China Customs Administration, Kazakhstan Bureau of National Statistics, and UN Comtrade. The analysis considers exports from Central Asian countries to Russia in some key product categories in the same time frame. Data on Chinese exports to Russia and the rest of the world (excluding Russia and Central Asian countries) help broaden the analysis.  The European Union, the United States, as well as a number of other countries, imposed sanctions on Russia in response to its invasion of Ukraine in February 2022. The sanctions packages targeted trade, investment, and cooperation with Russia, including sanctions on exports and imports of goods and services. While China has yet to impose sanctions on Russia, Chinese companies increasingly face the threat of secondary sanctions.  There is evidence that trade sanctions imposed against Russia have been circumvented by redirecting trade through Russia's neighboring countries (e.g. Chupilkin et al., 2023) and that China exports to Russia dual-use goods exploited by the Russian military (Kluge, 2024). This analysis shows that Chinese exports to Central Asia increased significantly after the Russian invasion of Ukraine in 2022. The soaring trade with Kyrgyzstan, a relatively tiny economy, is particularly notable. Chinese exports to Kazakhstan and Uzbekistan also rose sharply. Exports from Central Asian countries to Russia in selected key export categories increased in 2022, with Kazakhstan’s exports growing significantly, making it the largest exporter to Russia among Central Asian countries.  The paper analyzes the export of China to Central Asia by examining Harmonized System (HS) categories 84 (Machinery), 85 (Electrical equipment), 87 (Vehicles), and 90 (Optical and medical instruments). Categories 88 (Aircraft) and 89 (Ships) were omitted from the analysis since their export volumes were irregular and the data are inconsistent. These categories are important since many of the sanctions goods belong to these broad categories and often involve sophisticated technologies essential to Russian military efforts. Additionally, China is a major technology producing country and Russia’s main supplier of sanctioned technology products (Simola, 2024). Not all products in these categories are subject to sanctions and instead the analysis here only provides a broad view of the development of categories with sanctioned products.  The three-part analysis in this brief begins with a discussion of the development of Chinese exports to Central Asian countries at a general level. We then consider Chinese exports to Central Asia in HS categories 84, 85, 87 and 90, and conclude with an overview of Central Asia country exports to Russia in the same HS categories.  2. Chinese trade relations with Central Asia  From a trade perspective, China dominates trade relations with Central Asian countries. Most Central Asian countries run trade deficits with China. While Central Asian countries are geographically proximate with China (Kazakhstan, Kyrgyzstan, and Tajikistan share borders with China), total exports to these countries have traditionally represented a small slice of China’s total exports. In 2018, for example, Kazakhstan accounted for around 0.5 % of China’s total exports, and the shares of China’s exports to Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan were between 0.01 % and 0.2 %. China’s exports to Russia in 2018 were around 2 % that year. In 2023, however, exports to Kazakhstan had grown to 0.7 % of China’s total exports, and exports to other Central Asian economies were between 0.03 % and 0.6 %. The share of exports to Kyrgyzstan grew from 0.2 % to 0.6 % in terms of China’s total exports. In comparison, Chinese exports to Russia in 2023 represented 3 % of China’s total exports. In terms of annual growth, Kyrgyzstan on-year increase between stands out, with Chinese exports (measured in dollars) growing by 150 % in 2021 and 110 % in 2022.  The countries in the region are not a homogeneous group. Their economies differ in size and trade patterns. Measured by GDP, Kazakhstan was the largest regional economy in 2023, with a GDP of $260 billion. The second largest was Uzbekistan ($90 billion), followed by Turkmenistan ($59 billion), Kyrgyzstan ($14 billion), and Tajikistan ($12 billion) (World Bank, 2024). China’s top export destination in 2023 was Kazakhstan ($25 billion) and Kyrgyzstan ($20 billion). Turkmenistan had the least exports ($1 billion).  In addition to Russia’s war of aggression, new trade routes and warm bilateral relations may have played a role in Chinese exports to Central Asia. New trade routes have opened under the Belt & Road Initiative, and Xi Jinping’s relations with the leaders of Central Asian countries have been generally friendly.  China has been particularly active in Kyrgyzstan, where it has helped to build several transport infrastructure projects to improve transport connections within the country and the region. Especially in mountainous areas, new transport routes and improved logistics connections could have a major impact on trade volumes. Kyrgyzstan also changed presidents in 2021 following snap elections to quell a wave of protest. Kyrgyzstan’s newly elected president, Sadyr Zhaparov, emphasizes China’s importance as Kyrgyzstan’s trading partner and investor, and has called for closer relations with China.  A new trade route from China to Kazakhstan was opened in the summer of 2023 during the China-Central Asia Summit. During Xi Jinping’s visit to Kazakhstan in 2022, the leaders announced to deepen bilateral relations.  Uzbekistan, Turkmenistan, and Tajikistan have established friendly relations with Xi and China. With regard to vehicle exports, it is worth noting that the re-export of cars through the Eurasian Economic Union to Russia previously received tax relief, a policy that ended this year. 3. An overview of  Chinese exports to Central Asia Between 2018 and 2023, China primarily exported textile and wood-related products, as well as machinery, electronics, and vehicles to Central Asia (Figure 1). Compared to China’s overall export structure to the world (Figure 2), the share of textile and wood products in China’s exports to Central Asia is significantly higher. In contrast, approximately 50 % of China’s global exports consist of machinery, electronics, and vehicles, whereas these categories account for about 30–40 % of China’s exports to Central Asia.   In dollar terms, Chinese exports to Central Asia grew by 170 % from 2018 to 2023. This growth parallels China's export growth to Russia, which increased by 130 % over the same period. For comparison, Chinese exports to the rest of the world grew by around 40 % in that period. The largest export growth was seen in Kazakhstan, Kyrgyzstan, and Uzbekistan (Figure 3), with exports to Kyrgyzstan experiencing an explosive increase at the beginning of 2021. While more moderate, export growth to Kazakhstan and Uzbekistan also took off in the first half of 2022. Chinese exports to Kazakhstan, which were valued at $11 billion in 2018, surged to $25 billion in 2023. Chinese exports to Uzbekistan tripled from $4 billion in 2018 to $12 billion in 2023. Chinese exports more than tripled to Kyrgyzstan during the period from $6 billion in 2018 to $20 billion in 2023. Chinese exports to Kyrgyzstan are significant given the country’s modest GDP. Growth in Chinese exports to Russia mirrors the growth in exports to Central Asia (Figure 3). In dollar terms, however, China's exports to Russia are about double to those of China’s total exports to Central Asia.   The largest export categories to Central Asia in China’s 2023 export structure were footwear, textiles, and clothes ($20 billion); machinery and vehicles ($11 billion); electronics ($3 billion); and iron and steel ($2 billion). Exports of iron and steel to Tajikistan, Kyrgyzstan, and Turkmenistan were minimal, but significant for Kazakhstan and Uzbekistan, with growth starting in early 2023.  Chinese exports of footwear, textiles and clothes to Kyrgyzstan (and exports generally) began took off in early of 2021 (Figure 4). Kazakhstan’s export growth in the same category started after Russia’s invasion of Ukraine in 2022. Exports of machinery and vehicles to Kazakhstan, Uzbekistan, and Kyrgyzstan (Figure 4) skyrocketed in 2023. Chinese exports of iron and steel to Kazakhstan and Uzbekistan also soared in 2023 (Figure 5). In the export of electronics, Uzbekistan stands out as exports from China more than doubled in 2023 from 2022 levels (Figure 5). Electronics exports to Kyrgyzstan started increase in early 2021 (Figure 5).     When examining annual changes in these export categories, the dollar-based annual growth of Chinese exports to Kyrgyzstan clearly stands out from other Central Asian countries across all export categories (see Figures 6 and 7). The annual growth to Kyrgyzstan began to increase in early 2021 and remains high throughout 2022. For instance, Chinese exports to Kyrgyzstan in electronics and in footwear, textiles and clothes peaked around 300 % in early 2022. Chinese exports to Turkmenistan and Tajikistan are significantly smaller in dollar terms than for other Central Asian countries, so they do not stand out in earlier figures. However, annual growth patterns show that China’s annual export growth to Turkmenistan and Tajikistan also rose in 2022.     This section examines Chinese exports to Central Asian countries in the HS categories 84 “Machinery,”1 85 “Electrical equipment,”2 87 “Vehicles”,3 and 90 “Optical and medical instruments.”4 HS categories 88 “Aircraft”5 and 89 “Ships”6 were omitted from the analysis since the export volumes were irregular and inconsistent. The data used in the analysis is the sum of HS8-level customs data for the respective category, so values may slightly differ from the actual HS2-level values.  China’s dollar-denominated exports in machinery (HS 84) increased in 2022 and 2023 from the pre-invasions period (Figure 8). Growth in exports is already apparent in 2022 for Kazakhstan, Kyrgyzstan, and Tajikistan, while the rise in Uzbekistan begins in 2023. Exports of machinery to Russia started to increase in 2021, with higher growth in 2022 and 2023 (Figure 9). China’s exports to the rest of the world in the same category rose through 2021, and decreased from 2022 to 2023 (Figure 9).   For electrical equipment (HS 85), China’s exports increased significantly compared to the period before the war, especially to Kyrgyzstan, where exports surged in 2022 and continued to grow in 2023 (Figure 10). China’s exports to Uzbekistan also surged in 2023. Exports to Kazakhstan decreased from 2021 to 2022, but grew in 2023, slightly surpassing the 2021 level. When examining Chinese exports to Russia, dollar-denominated changes follow a similar trend (Figure 11). During the same period, China’s exports to the rest of the world increased from 2021 to 2022 and decreased in 2023, a trend similar to that of machinery (Figure 11).   In the export of vehicles (HS 87), China’s exports to Central Asia followed a similar trend in exports to Kazakhstan, Kyrgyzstan, and Uzbekistan, i.e. initial growth in 2022 and strong growth in 2023 (Figure 12). Chinese exports to Russia also surged in 2023 (Figure 13). In the vehicle category, Chinese exports to the rest of the world grew steadily in 2021, 2022, and 2023 (Figure 13).   For optical and medical instruments (HS 90), China’s exports to Kazakhstan and Kyrgyzstan increased significantly in 2022, and grew further  in 2023, albeit at a more moderate pace (Figure 14). China’s exports to Uzbekistan increased post-invasion in 2022 and 2023, although export levels were similar to 2019 and 2020. Exports to Turkmenistan grew by 260 % in 2022 from the previous year, although this is less noticeable in the figures due to the smaller dollar value amounts related to other Central Asian countries. China’s exports of optical and medical instruments to Russia grew steadily, with a sharper increase beginning in 2022 (Figure 15). However, China’s exports to the rest of the world in this category decreased from 2021 to 2022 (Figure 15).   In summary, China’s dollar-denominated exports to Central Asia increased significantly over the past couple of years, particularly those to Kazakhstan, Kyrgyzstan, and Uzbekistan. Reflecting the general trend of China’s exports to Central Asian countries, the highest dollar amounts for Chinese exports involved products to Kazakhstan across all analyzed harmonized system categories. The most significant dollar-denominated export growth was observed for Kyrgyzstan: the annual growth rate of China’s exports in electrical equipment in 2022 approaches 400 %, and for vehicles nearly 500 % in 2022 and about 300 % in 2023. Additionally, in optical and medical instruments, China’s 2022 exports grew by nearly 300 % to Kyrgyzstan and Turkmenistan from the previous year. When comparing China’s exports to Central Asia with its exports to Russia, it is evident that the dollar value of China’s exports to Russia is higher than to Central Asian countries, and the dollar value changes in exports are also more significant. For instance, in 2023, China’s exports of machinery to Russia amounted to $24 billion, while exports to the entire Central Asia region were approximately $7 billion. In the electrical equipment category, China’s exports to Russia were $13 billion compared to $5 billion to Central Asia. In the vehicles category, exports to Russia were $18 billion, while exports to Central Asia were $8 billion. On the other hand, the annual growth rates of individual Central Asian countries are higher in percentage terms compared to Russia. For example, as illustrated in Figure 12, China’s exports to Kyrgyzstan grew from $41 million in 2021 to $1.5 billion in 2022, while China’s exports to Russia increased from $1.2 billion dollars to $1.8 billion in the same period. The annual growth rates for Russia do not exhibit similar spikes, nor do they significantly exceed the growth rates for any Central Asian country in any category. 5. Central Asian exports to Russia in HS categories 84, 85, 87 and 90 In the HS categories 84 (Machinery), 85 (Electrical equipment), 87 (Vehicles), and 90 (Optical and medical instruments), exports from Central Asian countries to Russia exhibited significant growth in 2022 (Figures 16 and 17), with continued expansion in 2023 (with the exception of Kazakhstan in vehicles and parts). In total, exports from Central Asia (Kazakhstan, Kyrgyzstan, Turkmenistan, and Uzbekistan) in these categories grew in 2022 by 600 % from the previous year. Notably, Kazakhstan was the biggest export in dollar terms. Its exports to Russia surged across all categories in 2022, with on-year growth rates for machinery, electrical equipment and sound devices, and optical and medical instruments ranging between 400 % and 600 %. In addition to Kazakhstan, Uzbekistan and Kyrgyzstan recorded substantial increases in exports in 2022, particularly in the machinery and electrical equipment categories. Kyrgyzstan’s exports machinery increased from $2 million in 2021 to $49 million in 2022, a jump of about 2,500 %. However, when comparing the Chinese exports to Kyrgyzstan in electrical equipment, the dollar value in exports to Russia seems considerably smaller. Thus, no direct conclusion should be drawn from the fact that higher quantities of electronics pass through Kyrgyzstan to Russia. Although not depicted in the graph, it is important to highlight Turkmenistan’s growth in the export of electrical equipment in 2023 when it grew from $2,075 (2022) to $3 million in 2023, onyear growth of approximately 200,000 %. Similarly, Uzbekistan’s annual growth in exports of optical and medical instruments was around 40,000 % in 2022. As to vehicles and parts, Kyrgyzstan’s export growth commenced already in 2021. In the optical and medical instruments category, both Kyrgyzstan and Uzbekistan experienced notable export growth, particularly in 2023. At the HS category levels of 84, 85, 87 and 90, data for Tajikistan’s exports to Russia were unavailable.     6. Conclusion Chinese exports to Central Asia have significantly increased since Russia’s 2022 invasion of Ukraine, with concurrent growth China’s exports to Russia. Notably, there was a substantial surge in Chinese exports to Kyrgyzstan prior to invasion. Chinese exports to Kyrgyzstan, which has a modest GDP, saw the largest dollar-value increase from 2021 to 2023 in the categories of footwear, textiles, and clothes, as well as machinery and vehicles starting in 2022. The annual growth rates in Chinese exports to Kyrgyzstan show clear increases in the major export categories in 2022.  In dollar terms, Chinese exports to Kazakhstan and Uzbekistan also rose significantly from 2018 to 2023. For Uzbekistan, the largest growth in China's exports began in 2021 in electronics. Exports to Kazakhstan grew the most in 2022–2023 in the categories of footwear, textiles, and clothes, and machinery and vehicles.  The trade categories with notable growth in Chinese exports to Central Asian countries were machinery (HS 84), electrical equipment (HS 85), vehicles (HS 87), and optical and medical instruments (HS 90). Generally, the steepest rise in Chinese exports to Central Asia occurred in the vehicles category, with significant increases in exports to Kazakhstan, Kyrgyzstan, and Uzbekistan in 2022 continuing to a sharp rise in 2023. The trend for Chinese vehicle exports to Russia is similar. It is worth noting that Chinese vehicle exports to the rest of the world also accelerated after 2020. Additionally, there was substantial growth in Chinese exports to Kyrgyzstan in the electrical equipment category in 2022 and 2023. In these categories, Chinese exports to Russia are significantly higher in dollar terms that exports to Central Asia. However, the annual growth rates in between 2018 and 2023 of Chinses exports to individual Central Asian countries have generally seen larger increases in percentage terms than those for Russia.  Exports from Central Asian countries to Russia in the selected key export categories increased significantly across all examined categories in 2022. Among Central Asian countries, Kazakhstan was the largest exporter to Russia in dollar terms from 2018 to 2023, with sharp growth in 2022 in all four categories examined in this paper. Additionally, the exports of Uzbekistan and Kyrgyzstan to Russia grew significantly in 2022, particularly in the categories of machinery, and electrical equipment. The most notable annual growth in exports was posted by Turkmenistan – an increase from $2,075 in 2022 to $3 million in 2023, a 200,000 % increase in electrical equipment exports from the previous year. References Chupilkin, Maxim and Javorcik, Beata and Plekhanov, Alexander. (2023). The Eurasian Roundabout: Trade Flows Into Russia Through the Caucasus and Central Asia. EBRD Working Paper No. 276, Available at SSRN: http://dx.doi.org/10.2139/ssrn.4368618 or https://ssrn.com/abstract=4368618 Kluge, Janis. (2024). Russia-China economic relations: Moscow’s road to economic dependence, SWP Research Paper, No. 6/2024, Stiftung Wissenschaft und Politik (SWP), Berlin, https://doi.org/10.18449/2024RP06 Simola, H. (2024). Recent trends in Russia’s import substitution of technology products. BOFIT Policy Brief 5/2024, June 2024.  World Bank, 2024, read 14.8.2024, https://www.worldbank.org/en/region/eca/brief/central-asia 1 Harmonized System code 84: Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof.  2 Harmonized System code 85: Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles.  3 Harmonized System code 87: Vehicles other than railway or tramway rolling stock, and parts and accessories thereof.  4 Harmonized System code 90: Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus; parts and accessories thereof. 5 Harmonized System code 88: Aircraft, spacecraft, and parts thereof.  6 Harmonized System code 89: Ships, boats, and floating structures.

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском The world economy is underperforming as a result of tight monetary policies, weaker global trade, a slowing Chinese economy and uncertainty around the US election. An escalation of conflict in the Middle East could increase uncertainties, harming inflation reduction efforts and hurting growth. It has been over a year since the Hamas-led attack on Israel. Israel’s response in Gaza has resulted in widespread destruction and significant loss of life. The conflict has since expanded beyond Gaza, involving the Houthis in Yemen, Hezbollah in Lebanon and Iranian strikes targeting Israel. In addition to the awful humanitarian cost of the conflicts, the war and the possibility of its further expansion pose significant repercussions for the global economy. This article discusses three potential ways in which the current conflict and a wider conflict in the Middle East could affect the global economy. Increased geopolitical uncertainties First and foremost, an escalation of the Middle East conflict could lead to greater geopolitical uncertainties. Figure 1 shows the evolution of the geopolitical risk (GPR) and geopolitical acts (GPRA) indices (Caldara and Iacoviello, 2022) – these are text-based measures of heightened uncertainties due to adverse geopolitical events such as wars, terrorism and international tensions. (See this article for more discussion about these measures.) Following the Hamas-led attack on 7 October 2023, both the overall GPR index and its ‘war and terror acts’ component spiked strongly, to a level higher than that seen during the ISIS attack in Paris in November 2015. Both indices eased significantly in the months following October 2023 despite the continuation of the conflict. But they jumped again following Israel’s attack on southern Lebanon in September 2024. As of mid-October 2024, the GPR and GPRA remain, respectively, 21% and 35% higher than their historical averages.   What might be the consequences of such elevated levels of risk? Research tells us that higher geopolitical risk raises oil prices (Mignon and Saadaoui, 2024). It also reduces global investment and increases inflation (Caldara et al, 2022). Greater geopolitical risk has a significantly negative impact on business and consumer confidence in several advanced economies (de Wet, 2023). This is because consumers typically cut non-essential spending and businesses postpone investment decisions during turbulent times. This reduces firm-level investment, particularly for businesses with higher initial investment costs and greater market power (Wang et al, 2023). Higher geopolitical risks also reduce global trade and financial flows, causing greater volatility in capital flows in emerging markets (Kaya and Erden, 2023). Oil production cuts and higher energy prices The second way in which the Middle East conflict could affect the global economy is its impact on energy prices, both directly through production cuts and indirectly through greater uncertainties. In response to Israel’s actions against its neighbours, the Organization of the Petroleum Exporting Countries (OPEC) could reduce oil production to penalise countries supporting Israel. A similar action in the 1970s led to a significant jump in oil prices, which contributed to years of stagflation, with higher global inflation and recessions in major economies. Before Israel's attack on Lebanon at the end of September, oil prices had been declining due to falling demand, particularly from China. On the supply side, oil production had increased in Canada and the United States, countering the production cuts by OPEC, and Saudi Arabia was expected to increase oil production from December. But the situation quickly reversed following Israel’s attack on Lebanon. Oil prices jumped by nearly $10 per barrel within a week, before easing by around $5 per barrel. While the immediate oil price impact of Israel’s attack has mostly faded, the potential for higher oil (and other energy) prices still poses a risk to global inflation and economic activity (Liadze et al, 2022). To provide further context for the potential scale of this impact, we can show what would happen if oil and gas prices were to remain $10 higher for two years than the baseline levels projected in the Summer Global Economic Outlook from the National Institute of Economic and Social Research (NIESR), using NIESR’s Global Macroeconometric Model (NiGEM). The results demonstrate that the $10 rise in oil and gas prices increases inflation by around 0.7 percentage points in major economies in the first year (see Figure 2). The impact is higher in China, where the economy relies relatively more on oil imports for its strong manufacturing industries. The inflationary pressures persist for two years despite central banks’ efforts to curb inflation by increasing interest rates.   The effect of higher oil and gas prices on real GDP is shown in Figure 3. In the scenario described above, GDP would fall by 0.1-0.2% in major economies immediately. Partly due to higher interest rates, real GDP would continue to weaken for three years following the shock. After this, economic activity would start to return to base levels as oil and gas prices revert to their levels in the baseline forecast.   Increased shipping costs and supply chain disruptions A wider conflict in the Middle East could also affect the economy through higher shipping costs and supply chain disruptions. Houthi attacks on commercial ships in the Red Sea in late 2023 showed that such disruptions can have a huge impact on global trade through shipping, which comprises 80% of world trade volume. Following the rocket attacks by the Houthi rebels, some commercial shipping re-routed from the Red Sea to the Cape of Good Hope, leading to significant delays in travel times and increased freight costs. As a result, the Shanghai Containerized Freight Index – a measure of sea freight rates – rose by around 260% in the second quarter of 2024 with additional disruptions to supply chains. Our analysis shows that an increase of 10 percentage points in shipping cost inflation can lead to import prices rising by up to around 1% and consumer inflation increasing by around 0.5% in OECD countries. As Figure 4 shows, the impact of shipping costs on inflation shows its full effects over six quarters. This means that inflationary concerns could be with us for the next year and a half as a result of higher shipping costs that may emerge from any possible escalation of the Middle East conflict.   Wider economic implications and policy responses While rising geopolitical risk and increased oil and shipping costs can each individually exert upward pressure on inflation and may slow down economic activity in the global economy, the combined impacts are likely to be greater. Countries with stronger trade and financial ties to the Middle East and those that rely heavily on oil imports as an input for domestic production would be most affected. On the monetary policy front, central banks may have to take a more hawkish stance in response to rising inflationary pressures from the Middle East conflict. This could lead to higher interest rates, which would further dampen economic activity, particularly in an environment where there are already recessionary concerns in some major economies. Beyond its immediate economic implications, an escalation of the Middle East conflict could trigger large-scale displacement of people, which would increase economic and social pressures on neighbouring countries. Many countries may also have to increase their military spending in response to growing regional tensions. Given that public debt levels are already elevated in many countries due to successive shocks to the global economy over the past decade, any additional defence spending could come at the expense of public infrastructure investments that would otherwise boost productivity growth. Overall, the global economy is already underperforming as a result of the lagged effects of tight monetary policies, weaker global trade, a slowing Chinese economy and uncertainties surrounding the upcoming US election and possible changes to US trade policy. A potential escalation of conflict in the Middle East could exacerbate the situation by increasing uncertainties, harming efforts to bring down inflation and reducing global GDP growth. Over the medium and long term, it could further damage the global economy, with the possibility of refugee crises as well as increased defence spending, making the effects more complex and longer lasting. This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.