Yves here. This is a fine, compact piece on the nexus among the Ukraine and Israel conflicts and their costs, both on the countries themselves and their backers.
An additional point comes from Alex Vershinin in a recent RUSI article, The Attritional Art of War: Lessons from the Russian War on Ukraine. The US (and Israel) are set up to conduct high intensity, airpower heavy conflicts. Russia has long preferred attrition and that is the battle plan adopted by the Middle East Resistance forces. Attritional wars require simple to operate weaponry since the odds favor that both sides will have their experienced and well-trained forces badly thinned, forcing them to rely more and more on not-well-trained recent inductees. And of course being able to produce armaments in huge volumes is also important. The Western dismissiveness towards this strategy, seeing it as primitive, is setting it up for a fall.
By Satyajit Das, a former banker and author of numerous works on derivatives and several general titles: Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives (2006 and 2010), Extreme Money: The Masters of the Universe and the Cult of Risk (2011), A Banquet of Consequences RELOADED (2021) and Fortune’s Fool: Australia’s Choices (2022). His latest book is on ecotourism and man’s relationship with wild animals – Wild Quests (out 1 May 2024). An earlier version of this piece was first published on 18 May 2024 in the New Indian Express
Modern warfare, with its complicated interplay of industry, economics and geopolitics, is dangerous to leave to generals. The replacement of Sergei Shoigu as Russia’s defence minister by Andrei Belousov, an economist and technocrat, highlights the importance of aligning a nation’s resources, industrial complex, supply chains and economic combat with military strategies.
War requires massive amounts of equipment, munitions and manpower. Allied success in the two twentieth century world wars was founded on superior industrial capabilities. Western powers are currently struggling to match Russia and China in producing armaments for its client states. The US and its allies have downgraded heavy manufacturing essential for weaponry in favour of consumer goods and services. In contrast, their opponents have prioritised military manufacturing and maintaining inventories for armed conflict. Western industrial ecosystems, frequently now privatised, now lack the necessary capacity and surge capability.
Economics determines the ability to sustain conflict.
Western equipped Ukraine and Israel possess superior conventional firepower. But asymmetric warfare and low-tech improvisation using cheap drones and missiles can alter the balance, especially by carefully calibrating escalation of hostilities.
Israel expended an estimated $1.4 billion in munitions and fuel (around 6 percent of its annual defence budget) to repulse Iran’s choregraphed attack which cost perhaps $30 million. The Houthis in Yemen have disrupted transport routes using cheap drones. Costs over time can add up. Al-Queda’s 911 operation costing less than $500,000 resulted in trillions in losses when the cost of ongoing higher defence and security spending is considered.
A ‘boys-with-toys’ syndrome drives a touching faith in expensive high tech weapons. Difficult to maintain and operate F35 jets cost around $150 million. Patriot Air Defence Systems costs over $1 billion with each interceptor missile costing a further $6-10 million. Heavy battle tanks are $6-10 million each. Individual artillery rounds cost $3-5,000. Western weapons are frequently double the cost of Russian and Chinese equivalents. Many have proved ineffective under actual battle conditions as the enemy adjusts its tactics.
Large quantities of low cost, dumb weapons can force better equipped forces to expend substantial resources for limited military gains. The objective is to economically weaken the enemy and stretch out conflict against opponents with limited appetite for long wars. As Stalin understood quantity has a quality of its own.
Degrading your adversary’s ability to finance military action is essential. Russia’s targeting of industrial and agricultural infrastructure combined with the displacement of manpower has reduced Ukrainian output by 30-35 percent. The cost of rebuilding is around $500 billion. Ukraine will need to restructure the country’s $20 billion international debt to avoid default.
Obliteration of impoverished, aid-reliant Gaza is economically pointless except to drive residents out paving the way ultimately for Jewish settlement. In contrast, Israel’s economy has shrunk, by perhaps 20 percent. Loss of cheap Palestinian labour has crippled construction and agriculture. Callup of reservists for military service and flight of talent has disrupted its industries. Northern border skirmishes have necessitated evacuation of around 60,000 Israelis resulting in economic dislocation and relocation costs. The $50 billion plus cost to date (10 percent of GDP) of the conflict has substantially increased Israel’s debt and its credit rating has been downgraded.
Ukraine and Israel are reliant on Western backers. The US, NATO and allies have provided Ukraine with over $175 billion in military, financial and humanitarian aid, primarily financed by government borrowings. Many European countries are in breach of EU mandated deficit and debt limits. Since its founding, Israel, despite its high income, has been the largest cumulative recipient of US foreign aid – $300 billion (adjusted for inflation) in total economic and military assistance as well as loan guarantees. Lip-service to freedom and holocaust guilt notwithstanding, donors cannot afford this flow of aid. Support is also at risk from domestic laws prohibiting military assistance to nations who violate human rights.
Weaponisation of economics is commonplace. But sanctions on Russia have been ineffective because many countries have helped circumvent them due to strong financial and ideological incentives. Decades of isolation and wariness of the West mean that Russia and China are substantially self-sufficient autarkies with limited dependence on external supply chains especially for essential raw materials. Globally integrated economies, such as Israel, are more vulnerable to reduced foreign investment and trade sanctions as apartheid South Africa discovered.
Attempts to weaken an enemy economically can backfire. US weapons production is now constrained by supplies of titanium and rare earths from their enemies. Having sought to restrict Russian energy output, the West finds itself trying to suppress prices.
As the Gaza war shows, economics and geopolitics can intersect with unpredictable long-term consequences for non-combatants both near and far.
Regional instability has reduced tourism and traffic through the Suez Canal. Saudi Arabia has experienced difficulty in attracting foreign investment in the Crown Prince’s cherished NEOM mega-project. An exodus of Palestinians into Egypt and Jordan would destabilise their economies.
Affected countries want an urgent solution. The US has pushed for Saudi Arabia to normalise relations with Israel reducing the threat to Israel from an united Arab front. Saudi Arabia might get a defence pact with the US and support for its nuclear ambitions. It would improve Saudi access to overseas investment and Israeli technology as well as offsetting Iran’s regional influence.
The real unstated imperative is protection of unelected Arab monarchies and their wealth parked in the West. Given that over 90 percent of their population support the Palestinian cause, a perceived betrayal risks a new ‘Arab Spring’. With rising domestic tensions requiring increasing repressive state counter-measures in the Gulf, Egypt and Jordan, civil conflict and the fall of these unpopular hereditary regimes is not inconceivable.
Such instability poses serious risks to the global economy. The Gulf states hold 30 percent and 21 percent of global oil and natural gas reserves respectively. Energy prices would be affected especially if weaponised as in the 1970s. It would affect the Suez Canal trade route. Since the start of Gaza war, the cost of transporting a container from China to Europe has quadrupled from $1,000 to $4,000 and added up to two weeks in travel time.
But if the Arab states unite against Israel, then an escalation in the conflict is also possible with similar outcomes. Terrorist actions by non-state actors against Western targets is an ever present risk.
As Sun-Tzu outlined in the Art of War, those wishing to fight must first understand the cost.