Thailand’s dilemma as world splits one year into Russia-Ukraine war

The warning came as the war following Russia’s invasion approached its one-year anniversary on February 24 with no sign of a peace agreement.

Somchai Pakapasvivat, an academic and analyst of international politics and economics, told The Nation that the war was shifting the world into a new era of "unstable multipolarism".

He explained that the unexpectedly prolonged conflict has escalated to a new level, involving more parties.

Earlier this week, US President Joe Biden met Ukraine leader Volodymyr Zelenskyy in Kyiv before travelling to Poland to demonstrate Washington’s commitment to Ukraine and Nato.

Meanwhile, China's top diplomat Wang Yi met with Russian President Vladimir Putin and promised to strengthen bilateral ties.

"It is no longer just a battle between these two countries [Russia and Ukraine]. I am concerned that the war has extended into a conflict between Russia and Nato members," Somchai said.

Nato, or the North Atlantic Treaty Organisation, is a 30-member intergovernmental military alliance founded in the aftermath of World War II, with 28 European members plus the US and Canada.

The Ukraine war became more complicated when Beijing, despite stating that China is politically neutral and opposed to war, said it would continue to deepen bilateral relations with Russia, ignoring Western sanctions, Somchai said.

China's position has aggravated the US and the European Union, he added. Both Washington and Nato’s chief have even stated there are signs that China may support Russia's war effort with arms.

China maintains it will not supply weapons to Russia, but claims the war was first precipitated by Nato provoking Russia.

Somchai noted that after Beijing launched a Russia-Ukraine peace initiative on the war’s anniversary, China may have a legitimate claim to be directly involved in the conflict.

However, the unstable multipolarism triggered by the war must be closely monitored and prepared for by all countries, including Thailand, he said.

The new global volatility would make trade and investment more difficult than previously, he explained. More regulations and sanctions are being put in place, which is threatening to fracture global trade into groups of allies.

US Treasury Secretary Janet Yellen said during this week’s G20 leaders' meeting in Bengaluru, India, that Washington wants tougher and more effectively enforced sanctions against Russia, as well as additional support for Ukraine.

Decoupling would become the new normal in the new era of the global economy, Somchai predicted.

If Thailand wants to remain neutral, it must consider foreign policies that allow the country to engage with all parties without taking sides, he added.

It should also promote its bond with Asean member countries to demonstrate that the region is willing to collaborate with all parties on the basis of mutual benefits while not interfering in others’ sovereignty.

However, Somchai said this strategy will be difficult to implement because superpowers such as the US have a policy of “friendshoring", or manufacturing and sourcing from countries with shared values. The policy enables countries to access global markets while mitigating geopolitical risk. But it means they also have to take sides.

Regarding specific economic impacts of the war, he said food prices are the most concerning as Ukraine is the world's largest grain grower and exporter.

Ukraine's Agriculture Ministry reports that its grain exports were down 32% to 16.2 million tonnes in 2022-23. They comprised 6.3 million tonnes of wheat, 8.6 million tonnes of corn, and 1.3 million tonnes of barley.

Ukraine’s estimated grain harvest fell from 86 tonnes to between 50 million and 52 million tonnes in 2022 due to loss of land to Russian forces and lower yields.

The UN warns that the conflict in Ukraine has shaken global agricultural systems, which are already dealing with the effects of extreme weather and the pandemic. The scenario means more pain for poor households and communities around the world, especially in the African region.

Somchai said the oil price, which rose to more than US$120 per barrel in the aftermath of Russia's invasion, has now stabilised after Opec demonstrated it can compensate for missing supplies from Russia.

Somprawin Manprasert, chief economist of Siam Commercial Bank's Economic Intelligence Centre (EIC), agrees that the oil price is no longer a major concern for the global economy this year because it has already peaked. However, he added that the transition to green energy may be hampered, threatening Thailand's future growth.

The second year of war in Ukraine will have less of an impact on the global economy than the first because countries around the world have learned how to manage the fallout, he added.

"Overall, we'll have to deal with uncertainty. Nobody expected the war to break out last year. Geopolitical uncertainty will be with us for a long time," Somprawin said.

Global economic outlook has brightened since China lifted Covid restrictions and reopened earlier this year. Thai tourism and exports will undoubtedly benefit from China's recovery. As such, the Thai economy will be fine in the short term, he said.

However, the long term may be very different.

Somprawin explained that there are concerns we may only be seeing the beginning of geopolitical tensions over the war, as the conflict draws in more parties.

"What we are concerned about is that strained relations will reduce bilateral talk and economic activity between countries. It's as if we still live in the same house and haven't had a real fight but aren’t talking to each other," he said.

He described the scenario as decoupling, in which countries would only trade and talk within their own groups. Hence, Thailand's attempt to communicate with two groups becomes more difficult. He emphasised that this was a long-term situation that should govern Thailand’s actions on the international stage.

He saw three possible solutions for Thailand to maintain its place in the international supply chain, trade, and manufacturing.

The first solution is to take a side, which is a quick and easy move. In business, being single-focused can be extremely effective, but Somprawin said it was not the right move in this context.

He explained that choosing the wrong side could destroy the entire system of trade and other relationships.

The second option is to provide products and services to both parties separately. This means that Thailand would separate its manufacturing, with some factories producing goods for Western countries and others producing goods for China.

The country would also have to diversify its markets and always have a backup plan.

However, he said that this option would be prohibitively expensive. Not every business would be able to afford it.

The third option is to strengthen the country's identity. He emphasised the importance of Thailand developing its own brand and unique products.

Thailand has previously attracted foreign direct investment through contract manufacturing, whereby raw materials are imported for manufacturing and then sold or exported overseas. However, if Thailand can establish a bigger identity through domestic products, it will be able to carve out its own niche in the global market, he said.

"I believe that self-reliance and having one's own identity in this world is a long-term issue that Thailand needs to address," he said.

He also emphasised the importance of international economic policy since Thailand is heavily reliant on the global economy.

"If we lack a policy that clearly demonstrates our international economic position, Thailand may find it difficult or impossible to collaborate with the two trade superpowers [China and the US]," he said.

Asked to estimate when the war would end, the two experts said they didn't know. Somchai, on the other hand, predicted three possible outcomes:

The first two – a win for Russia or victory for Ukraine and Nato – would heighten global tensions, he said. So the best-case scenario is a stalemate in which people in Western countries become tired of war and demand that their governments end it. He said this would finally put pressure on Russia and Ukraine to negotiate a peace treaty.