Mundo: The geopolitical impact of Russia-Ukraine on Latin America
A cross post from The China Signal
G’day, and welcome back to Mundo. It’s been a while! Thanks for understanding my absence from your inbox lately. Mundo lives on, however with the limited time I’ve had, I’ve focused on growing my other newsletter, The China Signal.
In last week’s edition of The China Signal, I briefly diverged from its usual remit of parsing China’s geopolitical interests in Latin America to analyse the geopolitical impact of Russia’s invasion of Ukraine on Latin America. I’ve decided to send it out to my Mundo readers too, given the world’s attention remains transfixed on Putin’s abhorrent actions, and the rapidly developing humanitarian tragedy within Ukraine.
The geopolitical ramifications of the last two weeks are enormous, and while I specifically analyse the Latin American context below, its impact is being felt globally. Its second and third order effects will rock the operating environment of businesses, governments, and individuals globally, and is, troublingly, a precursor of continued geopolitical instability in the coming years. So please, read on, share, and reach out if you have any questions or comments.
The geopolitical impact of Russia-Ukraine on Latin America
Putin’s abhorrent acts incite a variety of political risks for Latin America, including:
Surging commodity prices
An elevated risk of cyber attacks and political influence operations
Opportunistic diplomatic manoeuvring
A potential uptick in laundered Kremlin cash flowing through the region to evade growing Western sanctions
The prospect of greater Russian military posturing - but not necessarily deeper involvement in the region
Overall, it’s important to remain analytically anchored to the material realities at hand. Putin’s Russia seeks to re-assert itself as a power in its near periphery, and as a global power. However it doesn’t have the material resources to maintain a new global order like the United States has, and that China aspires to. Instead it seeks to create and exploit disorder. Within Latin America, Putin doesn’t harbour grand aims to establish Russia as a leader for the region. Rather it will look to leverage opportunities to create discord, disorder, and distractions for the United States.
Surging commodity prices
Elevated oil, wheat and corn prices will increase pressure on social stability in what is already an inflationary environment. The region’s government’s are still reeling from the health and economic toll of the pandemic, and are generally ill equipped to counter further inflation without halting economic growth. In Brazil, Chile, Colombia, Mexico, and Peru, prices increased by 8.3% in 2021, the greatest leap in 15 years. This surge was partly driven by rising commodity prices and supply chain disruptions. The Russia-Ukraine conflict threatens to drive this even more.
Although purchasing Russian commodities such as oil and wheat isn’t banned (yet) [note, when this was originally published on March 4, an outright embargo on Russian oil hadn’t gained the political momentum that it now holds], high prices and international political and social pressure against Putin may provide an opening for Brazil, Colombia, and even Venezuela increase their oil production and increase their global market share. Argentina, which exports about 5.5% of global wheat exports could see their share increase as exports diminish from Russia and the Ukraine, who together supply approximately 25% of total global wheat exports.
An elevated risk of cyber attacks and influence operations, meddling in the region’s political process
Russia has a history of engaging in cyber attacks and influence operations in Latin America, with the intention to sow discord and anarchy along domestic political fault lines. Colombia’s presidential elections in May will be particularly appealing to Kremlin-backed cyber operatives, as they look to exploit the social and political divisions of a strong US partner in an effort to divert US attention from Europe.
It’s well worth re-reading this Global Americans report on “Measuring the Impact of Misinformation, Disinformation, and Propaganda in Latin America”, published last November, and highlighted in TCS November 19. One of their key observations was that:
While Chinese and Russian government disinformation operations are often similar, there are key differences. Russia lacks the means to properly court deeper commercial opportunities and its disinformation strategy is focused on disrupting social order and political stability at a national level, as seen in Colombia and Chile, two known U.S. allies. Russia also seeks to gain new friends that are preferably disinclined to the U.S. in the hope of expanding their political influence. In contrast, China is the world’s second largest economy, a major trading partner throughout the region, and an important foreign investor. While the Russian government generally attempts to disrupt, the Chinese government’s disinformation strategy tries to position China as the new benevolent hegemon and the dominant international power in the current international system.
Stronger diplomatic backing of the region’s autocracies, while others will continue to leverage Russia’s interest to gain US concessions in their national interests
In this acute stage of the Russia-Ukraine crisis, the United States, the European Union, and other allies are presenting a united front to implement sanctions and ratchet up diplomatic pressure against the Putin regime. Latin American countries will be subject to this pressure in multilateral fora such as the United Nations, while Russia will lean on the region’s autocratic regimes such as Cuba, Venezuela, and Nicaragua. This was signalled by the Kremlin with recent calls between Putin and these respective leaders. Bolivia, Cuba, El Salvador, and Nicaragua abstained from condemning Russia in a recent vote in the United Nation’s General Assembly on Wednesday. Venezuela cannot currently vote, due to unpaid dues to the U.N.
From the Miami Herald:
But even close allies like Cuba are cautiously assessing the risks and benefits of throwing their full support behind the Russian invasion. Since the beginning of the war in Ukraine, the Cuban government has been walking a fine line in its public statements, avoiding condemnation of Russia but also staying away from a full endorsement, wary of damaging its relationship with valuable European trading partners. Yet Cuban authorities have made clear they support Russia’s “right to defend” itself and have blamed the U.S. for the conflict.
Russia may also continue to make overtures to Brazil and Argentina following recent meetings between Presidents Bolsonaro and Fernandez with Putin in Moscow last month. Bolsonaro has so far refused to condemn Russia’s actions.
Mexico’s President Andres Manuel Lopez Obrador has ruled out imposing economic sanctions, despite diplomatic pressure from the United States. This follows Russia’s second largest oil producer Lukoil’s recent acquisition of a 50% interest in an offshore oil project in Mexican waters. Lukoil whose leadership has close ties to the Kremlin, became the first major Russian company to call for an end to the conflict on Thursday, as their stock price continued to plummet.
These leaders will opportunistically seek to leverage these tensions between Russia and the West for their own diplomatic advantage. However, the acute diplomatic fallout has been so intense, and the West’s financial sanctions so heavy, that Russia’s nominal allies in the region will be extremely wary of ensnaring themselves in Russia’s sanctions, at the risk of their own access to the global financial system being restricted.
The Americas Society is tracking the response of Latin American leaders, which you can view here.
A potential uptick in laundered Kremlin cash flowing through the continent to evade growing Western sanctions
As the United States and the European Union’s coordinated sanctions block Russia’s access to the global financial system, the Kremlin will pursue ways to move capital through existing opaque networks and Russian-backed front companies in the region. One interesting corner to watch is in cryptocurrencies, as James Bosworth of the Latin America Risk Report notes:
One particular country to watch will be El Salvador, which plans to issue a Bitcoin-linked bond in the coming months. The potential for Russian actors to move cryptocurrency and cash via the El Salvador bond is a very real threat. If El Salvador fails to implement some form of KYC to prevent Russian money from entering their bond market, it will put other bondholders at risk.
Secondly, the region’s autocratic regimes will feel financial pressure as their access to foreign capital via Russian financial intermediaries is stymied. Bosworth again:
Russia’s financial system has been an important player in the sanctions evasion efforts of Venezuela and Nicaragua in recent years. With Russian financial institutions now cut off, these countries may face additional financial challenges in the coming months. Maduro’s opponents, in particular, could use this moment to increase pressure on the regime if they could get themselves organized (they likely won’t).
More broadly speaking, more onerous KYC and anti-money laundering requirements will cost firms and consumers, slowing their ability to do business.
The prospect of greater Russian military posturing
We should also expect to see an increase in Russian military posturing in the region, particularly with Venezuela and Nicaragua. While this will attract headlines, it is unlikely to be a substantial shift in Russia’s military presence in the region, as the Kremlin faces greater military priorities - their invasion of Ukraine, and the growing financial burden of Western sanctions. One low probability, high-impact wild card to be aware of however, is any movement of nuclear capable weaponry to the region, triggering a Cuban Missile Crisis type scenario. As the current situation stands in Ukraine, we aren’t close to this scenario yet, but there are scenarios where this can play out.
Russia + China in Latin America
Much has been written about the deepening of the Russia-China strategic relationship on the eve of the Ukraine invasion. I’ll continue to consider the implications for Latin America in the coming weeks, however as I noted above, it’s clear that while both Russia and China oppose a U.S. led global order, they are ultimately pursuing different strategies to counter this - China being more constructive in creating an alternate order, Russia more destructive. This is evident in their dealings with Latin America, and more more broadly.