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.
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Let’s add the environmental cost. Each shell, each jet flight produces loads of CO2 as well as other direct pollutants, and for the next two decades children and farmers will be wounded by mines and unexploded ordnance. So we spend money on electric cars and solar panels only to waste the savings on widespread war!
totally agree, this is something I have been empathizing in all requests for donations to green projects. emissions from bombs are US seem to get a free pass.
All these are just the net results of the US Creative Chaos policy. It is creative indeed, but not the way its initiators were expecting.
Our patrimony from Great Britain.
Excellent commentary
It’s interesting to see the struggle to make sense of things as the roof collapses all around. On the one hand, articles such as this are put together with a good logic, and yet still reveal a distinct lack of understanding of the fundamentals underpinning the issues under discussion.
“Every author has a meaning that fits all the contrary passages, or he has no meaning at all.” Blaise Pascal –> Our task is to find this meaning.
Quotes from the article:
Modern warfare? War has always been like that.
What war is he watching? From what I have seen, it appears modern Western equipment is either matched or out-matched, often greatly out-matched, by Russian equipment (or even old Soviet equipment).
Let’s not fool ourselves, he’s talking about regular war here. When has war ever not been asymmetric?
…
In spite of this, the article begins to outline the issues with economic structure and the ability of an economy to wage war. One might add, the ability of an economy to do anything: provide housing, food, education, confront existential problems…
What is his meaning? There is still a difficulty here, with knowing facts and history, but do we see the beginning of an understanding that economics has a purpose other than making profits?
. . . do we see the beginning of an understanding that economics has a purpose other than making profits?
Scarcely! War incorporates short- , continuing-, and long-term profiteering. War materiél is quickly expended and needs replacing. There’s longterm postwar rebuilding. Then, of course, there are the bankers plying debt and other predators collecting rent. Not to mention the plucking of patriots fore and aft. Any other economic activity is more likely collateral than purposeful.
I was thinking that we have fallen back on old habits because we have failed to position ourselves to go forward into a new economy. And war, whether attritional or blitz, quickly displaces the ability to adjust economies to survive peacefully. Is it panic? Knee jerking? Revenge? Blatant greed and grab? Preserving an advantage – a la the Wolfowitz position? The entire 20th C. was driven by a war industry. And now that heavy industry is no longer sustainable, it has become self-defeating as well. But in a long-building apprehension that we will be deprived of the resources to run the world’s economies, we have fallen back on the one thing we maintained – military force. We definitely need to replace the world’s military economic engine with a peaceful, ecological economy. There is no reason we cannot do this. We can eliminate the need for monetary exchange which creates bottlenecks of debt, and it will rapidly facilitate fixing the planet and all our toxic messes. Because the current economy is a fiat construct and it has been so forever. We’ve just been bamboozled into thinking money is power and we need it to buy our way to prosperity and peace and environmental sustainability. All we need is cooperation. Overseen by honest political brokers.
“Western equipped Ukraine and Israel possess superior conventional firepower.”
Hmmmmm……is he making judgements based on price? Because we really don’t know what the results will be in a “conventional” war against a non-failed state with ample resources that is no longer calling the conflicts a “special military operation” (Russia) or running around the world still thinking that business diplomacy will save the day (China).
Yes, that was a truly bizarre statement for Ukraine. Russian equipment has proven to be much more effective under combat conditions than Western weapons. Whereas Israeli equipment are getting beaten down by guys in tracksuits using homemade mortar rounds.
It seems that “superior conventional firepower” is mostly good for killing unarmed civilians at a distance.
“superior conventional firepower” is mostly good for killing unarmed civilians…” Now we get to the point, (or meaning mentioned previous). Results provide intention, and intent meaning.
It works especially well for wedding parties, defense less women and children and for targeting cities.
‘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.’
The Ukraine will default on that money as they can never pay it back. Whole chunks of that country will be lost to them and as it turns out, about 80-90% of the country’s GDP is generated in those lost territories. Certainly the demographics is a disaster and will be for a generation or more to come. Are young people still having babies in the Ukraine right now? Probably not a lot. And those that fled the country will have very little incentive to return. It’s infrastructure has also been severely degraded by both the Russians and the Ukrainians themselves. In short, the Ukraine’s ability to generate a military force capable of threatening Russia will be nigh on impossible.
There will likely be many US officials looking for new jobs in the fall. I’m sure all that lost GDP can be made up by Tony Blinken open mic night in Kiev. Every Tuesday at 10:00 – $5 (run for) cover.
Do the Saudi leaders really think the USA has a concept of “we’ve got enough. you can have the rest?”
I missed the part where Russia and China declared themselves the “enemies” of the American people.
The American political class, who beginning in the 1990’s set out to destroy the middle class in favor of increasing the billionaire grift base from 40 individuals in 1993 to approximately 800 individuals today is the only “enemy” the American people face.
However, Das is wrong: the economic “costs” of endless war accrue only to the common folk. The grifting caste are doing just fine. Everything is going according to plan. This is how Inverted Totalitarianism works.
One can make a good argument that the wealthiest elites started the dismantling the middle class during the 1960s by beginning the multi decade process of shipping industry overseas.
Deunionization efforts never stopped. Paul Volcker’s inflation terrorism of the late 70s and early 80s Then there was the beginning of the steady decline of research by businesses by the 1980s.
People only really noticed when all the destruction reached into the middle class during 1990s, but it was a long process.
I don’t think that shipping industry overseas was a matter of policy until the 1990’s. The rise of Japan was incidental to the Vietnam War — and the coincidence that Yokohama was on the Oakland-Danang-Oakland current loop used by Sea-Land container ships coming back empty. That was more a happy accident, although it threw American manufacturing onto the skids.
Both Nixon and Reagan were heavily dependent on middle-class support. It was the 1992 Clinton plurality and the Tech Bubble that planted the Inverted Totalitarian idea in the minds of the Democrats of pandering to a Billionaire Overlord caste as perpetual donors as a matter of policy, with the resulting abandonment of what was left of the middle class by encouraging China to become NAFTA on steroids.
As Chalmers Johnson pointed out in Blowback, Commerce Department concerns during the Cold War about imports from Japan always took second place to the security priority of maintaining the political stability of our unsinkable East Asian aircraft carrier.
So you’re right, it was not a matter of economic policy — but it was a matter of military policy. One of Johnson’s most quotable observations about it was that US economic and military policies toward Japan were never considered together, because if they were, then they would be understood.
Um, economists talking about war is always dangerous. Some of this is true enough, but it’s all strung together with no consistent argument, except that war is expensive. But it always has been expensive, and rulers frequently bankrupted their countries in the past. Some bits I don’t understand: Shoigu was not a General, and civilian defence ministers are the norm anyway. And how anyone can imagine that Ukraine has “superior firepower” or ever did, is beyond me. But it does touch on a couple of points that risk becoming overnight clichés.
One is the imbalance between expensive and cheap systems. Yes, a frigate is much more expensive than the missiles that are needed to sink it, but a frigate can do many things, while a missile can only do one thing. You can keep ships out of an area with missiles, but you can’t project power. And at the moment there are no entry-level missiles with a capability against submarines. The reductio ad absurdum of this argument, I suggest, would be body armour and protection. Go to a high-threat environment like Iraq, or parts of Lebanon , or Afghanistan as it was, and you’ll travel in expensive (not to say heavy and uncomfortable) body armour, in a Land Cruiser with kevlar armour fitted. Yet it’s true that a sufficiently powerful bomb has been able to destroy a Land Cruiser on occasions, and that body armour doesn’t cover the whole body, and can often be defeated by calibers of 7,62 and above. Likewise, the kind of armoured glass fitted to these vehicles can only withstand a certain number of bullet impacts. Given that body armour is an order of magnitude more expensive than a 7,62 round, and that Land Cruisers are fabulously expensive compared to home-made bombs, you could argue … well, in practice I don’t think even an economist would prefer to travel by pushbike, wearing only a tee-shirt.
The other point is that, contrary to what some believe, we are not in a new era of industrial warfare. Firstly, it’s not new, and both World Wars were won as much by production and access to resources as on the battlefield. Secondly, outside the West, China and Russia, who has a substantial defence industry, a strong technology base and a large military? Well, South Korea, perhaps, but that’s a special case. In practice, most of the world’s wars will continue to be low-to-medium tech as they always have been.
I would say that everything depends on the western capacity to print money. As long as USA/EU can print money they can prolong the war. Ukrainians would invest their mortal bodies. Everybody pays with what he has to offer.
I am afraid we are moving to a kind of totalitarian future, a kind of middle ages. Or, -maybe the Anglo Saxon world never left the middle ages.
I’ve always wondered why economists aren’t the most fervent advocates for peace since the opportunity costs of war and the losses of scarce resources that war causes are so high. Indeed, is war not the most economically costly and wasteful endeavour of all?
This piece focuses too much on dollar amounts. Money is not the issue, obviously. The question is whether real resources are available to fight and supply the wars or have to be drawn from other activities. Given the enormous slack in global labour markets, it seems clear that more wars could be supplied with soldiers, weapons builders, etc. And given the continued availability of huge amounts of cheap and short-lived consumer goods, it seems that more commodities and production capacity could be devoted to wars as well.
The only cost the average person outside the warring countries seems to be bearing because of the wars is a few points more inflation. Perhaps when there are no labourers left to work in the fields harvesting crops, when commodities are getting scarce enough that fuel and consumer goods prices spike or when the global sports, tourism and entertainment industries run out of ticket buyers, then we will know that we are approaching some economic limits.
Sadly, I think we remain far from those limits.
Perhaps one reason for economists to not be fervent advocates for peace is an accounting convention for GDP.
If the re-construction of destroyed property from war or natural disasters were subtracted from GDP rather than added, we would have a better idea of the economic harm done by both events.
I’d also like to see economists advocate for reparations by any country that inflicts military actions on foreign civilian populations.
A country paying reparations could subtract the reparation cost from its GDP.
If the USA had been post charged large amounts its destruction in Vietnam, Libya, Afghanistan, Iraq, Bosnia, it could emphasize to the USA population the economic destruction and human suffering the USA has inflicted via military actions to “spread democracy/freedom”.
All in all, this was a really good summary of all the issues at play. I really only have one critique, and not the single comment about Ukraine having superior firepower. I suspect that’s just a prose artifact from pairing Ukraine with Israel (which does have superior firepower to the Gazans).
I’ve noticed a lot of people, even that see what’s happening in Ukraine and Gaza very clearly, repeat much of the conventional US narrative about Saudia and Iran. For the “negotiations” on America’s weird Israel monomania, I suspect people are really misreading Saudia’s ask of a nuclear program and mutual-defense agreement. I’m not Khaleeji, but my experience of the culture is that they really try to be hospitable and friendly unless you’re actively an enemy. Similar to a Japanese “muzukashii”, my interpretation is the Saudi gov is throwing out wildly over-the-top conditions they know the US won’t agree to. America is essentially like a dude that can’t read social cues overstaying a party, and Saudia is trying to politely show him the door.
People also seem really locked into the American belief that Saudia and Iran are (or ever were) mortal enemies. Frenemies for sure, with occasional poking and loud (but leashed and not necessarily large) “attack dog” factions. But I’m always surprised at how persistently and uncritically people repeat the idea that the Saudi gov sees winning an existential conflict with Iran as its primary raison d’etat. And all because of that one “head of the snake” sound-bite from one (very US-aligned and now sidelined?) prince echoed endlessly by hopelessly obsessed American officials and media.
Speaking of Neom, this video by Patrick Boyle is hilarious and worth the watch. https://www.youtube.com/watch?v=Ak4on5uTaTg
I am left with the impression that the author is trying to shoehorn two radically different conflicts into one model.
In Ukraine we have a classic war of attrition harking back to WWI. In Israel/Palestine we have a nationalistic insurgency similar to Algeria or Afghanistan.
It’s a bit like trying to force the same management structures and operating principles on a local McDonald’s and Airbus.
I do find it worrying that the author also accepts the superiority of Western weapons versus that of Russia while, if anything, I have the impression Russian technology is as good f not better in many cases.
The cost of rebuilding is around $500 billion.
What is the author planning on rebuilding, where, and for whom?
My back-of-the envelope estimated six months ago was that that the territories under Kiev’s control had somewhere between 18–22 million people. I suspect it is lower now. Will the roughly 13–14 million refugees be returning?
Probably a lot of the ~5 million in Russia will to the “new” Russian oblasts but they will not be faced with repaying the Western bloodsuckers. It will cost Russia trillions of rubles to rebuild parts of Novorussia but it will be done to support Russian citizens. No crushing debt to foreign entities.
It is not so easy to see why other refugees would want to return to a rump Ukraine that has lost most of its industry and a good part of is natural resources, and with a shattered infrastructure, to assume some think of generational debt a bit like Haiti did with France.
Alastair Crooke, who is one of the most knowledgeable commentators on the Middle East, disagrees. He depicts the Resistance campaign against Israel as an deliberate, thought out attritional campaign, that the key actors recognize that the US and Israel are set up to wage only short, high intensity, airpower dominated conflicts. So they went underground where airpower is ineffective and are dialing up and down the intensity of a protracted low intensity war.
I would agree with him. My problem was poor wording: I was thinking of the means in terms of conventional “tanks & guns” warfare versus the “insurgency” armament and tactics that Hamas is using.
Both are attritional. I would suggest that any insurgeny-type of war from Algeria to Afghanistan is attritional in nature though many, likely, have not been as carefully thought out as the Gaza one.