This chapter begins with the sombre matter of world destruction. Almost by definition, the fully artificial worlds described in this book are ontologically fragile. They can be pulled apart or undone as easily or more easily than they were put together. Whether they are replaced by a natural world of power politics involving different ethnic groups or whether no more than chaos and disorder can be expected in such a scenario is no doubt an important question, but it does not affect the real possibility of world destruction. This chapter argues for an alternative to hegemonic wars and the threat of nuclear annihilation, an alternative to be sought in the dynamics of world building. Today, competition between the superpowers is organised around the capacity to build new technological worlds; those unable to compete must eventually become an element in a world built by others. The emergence of these artificial worlds opens up possibilities for state actors to change the global power distribution without the risks arising from direct action against their rivals. In Ukraine, while Russia seems determined to bring the current world order tumbling down, it also has to face the full brunt of that world order’s power in a succession of system wars ranging from a new form of technological warfare to the uses and abuses of the global energy, financial and trade systems. Russia appears captured inside a video game where the program’s rules aim to dictate its eventual defeat. In this context, defeat must mean the inability to continue operating outside the system’s rules. However, the outcome remains fundamentally uncertain.

The Age of Geography

We saw in Chapter One how Alfred Mahan introduced a way of thinking about world politics that emphasised the constraints present in the natural or physical environment. His work was representative of a tendency common to all the human sciences of his time: the search for an objective foundation capable of raising them to the same status as the natural sciences. By studying the laws of political geography, statesmen could act in accordance with them and thus reach their desired goals, just like engineers cognisant of physical laws.

The German geographer and zoologist Friedrich Ratzel is often regarded as the father of geopolitics because this tendency becomes fully explicit in his writings, particularly his Politische Geographie, first published in 1897. ‘Linking these themes logically, or apparently logically, was the central notion of the state as an organism.’¹ Subject to natural laws of growth, development and decay, states were irrevocably destined to compete among themselves, but what could they compete for if not the very substance of their existence, geography or space? Throughout his political geography, the Darwinian Kampf ums Dasein takes the form between states of a Kampf um Raum. Ratzel went so far as to compare the geographic borders of a state to the skin of an organism. As one historian of science puts it, this Lebensraum concept ‘was the idea that, like a plant, a Volk had to grow and expand its Lebensraum or die’.²

The story I want to tell is the story of the prefix ‘geo’, a story pregnant with meaning and rich in unexpected twists and turns. In 1925, Karl Haushofer wrote: ‘This prefix means much and demands much. It relates politics to the soil. It rids politics of arid theories and senseless phrases which might trap our political leaders into hopeless Utopias. It puts them back on solid ground.’³ Sounding like the second coming of Machiavelli, Haushofer complained that the traditional sciences of the state such as constitutional law built castles in the air for political dreamers, not solid foundations for ‘empire builders’. He presented geopolitics as an ‘exact science’, a promise that remained undelivered. The prefix ‘geo’ may have been intended as a constraint on power, but restricted to its geographical meaning the result was rather the opposite: a vortex of state control in search of unlimited ‘living space’, which is how the Nazis read Haushofer.

For Haushofer, geopolitics should appear before statesmen with tangible facts and verifiable laws and be heard and taken into account by them. Later, the ambition grew. Maybe states and statesmen were not merely anchored in natural, physical reality but immersed in it. The simple fact that states are regarded as organisms points towards certain characteristics endowing them with permanence and continuity and keeping them distinct from each other. Ratzel defined a state as the combination of a piece of humanity and a piece of ground: like an animal, a state has both a physical shape and a will or instinct, but the latter would seem more important as no state feels constrained in its growth and expansion by its current shape. The natural culmination of geopolitical thought would seem to be the inclusion or subsumption of all organised collectives in the natural landscape under study. For the Russian school of geopolitics, the subjective quality of belonging to a nation or people has disappeared. For Lev Gumilev – historian and philosopher, son of the towering poets Nikolai Gumilev and Anna Akhmatova – it is possible to study scientifically how ‘certain armies in history won and others were defeated, why some countries grew stronger and others weaker’, or what explains the sudden strengthening of one people or another and their subsequent disappearance.⁴ Once upon a time, there were Macedonians and Etruscans and Chaldeans. Today, we talk about French people and Swedes and Spaniards, albeit perhaps not for much longer. Where and why do these peoples, these ethnoi – the latter word sounded more scientific to Gumilev – come from? Whoever is able to answer this question might be compared to Darwin, who finally revealed where species come from.

Since his death in 1992, Gumilev has gradually risen to the position of a leading intellectual influence in Russian politics, a grey eminence, often quoted in hushed tones of reverence. President Putin quotes him often. I remember listening to Putin’s speech in Sochi just four months before the invasion of Ukraine and realising that something sinister was being prepared. Part of the impression was created by Putin’s passionate appeal to the notion of ‘drive’ or ‘passionarity’ as conceived by Gumilev.

The ethnos is the form of collective life specific to human beings, and there are, according to Gumilev, some similarities between cultural traditions in human societies and innate reflexes among animals. In human societies, the stereotypes of behaviour include living habits, ways of thinking, relations between the sexes, and so on. To exemplify the concrete nature of a stereotype of behaviour, Gumilev liked to tell a story. Imagine a tram in Leningrad with a few passengers, he suggested: a Russian, a Tatar, a German and someone from the Caucasus. They all look more or less the same, and they sit quietly, reading the newspaper or looking out the window. Nothing is happening. Suddenly, a violent drunk enters the tram and begins to harass people, utters the worst profanities in the presence of the women in the tram, pushes someone, behaves like a boor. How will they react? I know, and everyone knows, Gumilev puts forward, that the Russian will tell him to leave before he gets in trouble, the German will press the emergency brake and ask a policeman to arrest the drunk and the man from the Caucasus will take the behaviour as an insult to him and to the ladies and so punch the drunk hard on the nose. The Tatar will look at the whole scene in disgust and leave. ‘Here are four different stereotypes of behaviour. But they all belong to the same race. All of them probably speak the same language: Russian. And yet they are different from each other.’⁵

Ethnoi appear and disappear independently of the notions of contemporaries, but the maintenance of an ethnos as a system or stereotype of behaviour cannot continue without a constant expenditure of energy to overcome the natural forces of the surrounding nature. When looking for the factor that generates and destroys ethnoi, Gumilev takes as his point of departure a stable ethnos in equilibrium with the environment. In other cases, an ethnos transitions into a dynamic state in which both its aggressiveness and its adaptive capacities grow to their utmost. The reason? Our planet receives more energy from outer space than is necessary for the maintenance of a steady state, which excess gives birth to phenomena such as the rise, growth and decay of human collectives. After his third arrest by the Soviet authorities in 1948, sitting in a cell in the infamous Lefortovo Prison in Moscow, Gumilev spent his time observing the sun’s rays on the cell floor, suddenly convinced that the forces responsible for the movement of growth and decay of human collectives had their source in a surplus of energy received from the universe. The critical factor is ‘passionarity’ or ‘drive’, which Gumilev defines as an increased craving for action, ‘a capacity for purposive supereffort’. As for the exact nature of this cosmic radiation, he displayed a certain ambivalence, sometimes describing it as solar radiation, while maintaining elsewhere that it comes not from the sun but rather from ‘scattered galaxies’. Exceptional individuals are able to absorb and convert much greater amounts of this cosmic energy, which means that their capacity for sustained labour is characterised by supereffort. Gumilev named Alexander the Great, Genghis Khan, Julius Caesar, the Prophet Muhammad, Joan of Arc, Alexander Nevski, Napoleon and many others as examples of such individuals.⁶

When a critical mass of men and women with the psychological drive to exceptional activity come to predominate in a community, the very fact of their existence becomes the main factor in the life of an ethnos. Their accumulated activities and goals place them in an advantageous position. Individuals who have these attributes perform deeds and actions that break the inertia of tradition and create a new ethnos. In other words, they develop new stereotypes of behaviour, forcefully impose them on everyone else and thus create a new ethnic system. ‘Imagine a ball that has been given a sudden push,’ says Gumilev. By subjugating other territorially close peoples, an expanding ethnos may give birth to a superethnos, an empire. And then the wheel turns. The deaths of individuals with drive and of their genes follow naturally upon growth and expansion, because soldiers with drive for the most part die young. Initiative and activity disappear without trace, and courage is replaced by timidity. Sluggish and selfish people dominate everywhere, guided by consumer psychology. ‘The squandered energy of drive’, writes Gumilev, ‘left behind it the ashes of the flash.’⁷

During his participation at the Valdai meeting in Sochi in October 2021, Putin was asked by an audience member which Russian thinkers, scholars, anthropologists and writers he regarded as his ‘closest soulmates, helping you to define for yourself the values that will later become those of all Russians’. After a quick reference to Ivan Ilyin and Nikolay Berdiayev, the Russian leader turned to Gumilev at much greater length. ‘The famous idea about the passionarity of nations is a very interesting idea,’ he mused. ‘According to the author of this idea, peoples, nations, ethnic groups are like a living organism: they are born, reach the peak of their development, and then quietly grow old. Many countries, including those on the American continent, say today’s Western Europe is ageing. This is the term they use. It is hard to say whether this is right or not. But, to my mind, the idea that a nation should have an inner driving mechanism for development, a will for development and self-assertion, has a leg to stand on.’

Gumilev’s appeal lies in the way his theories promise to deliver timeless truths about nations and their relations. Gone are the complicated systems of trade, finance, currency and technology according to which the global economy and global politics have been operating. For Putin, all these systems are fundamentally inauthentic. They turn us away from the harsh truths of geopolitics and in doing so force both Russia and its leaders to play a role in a kind of theatrical play written by others rather than acting as Russia and its leaders should act if they are to be authentic. In the natural world of geopolitics, Putin saw a European continent that has grown old and new ethnoi rising to the east, still full of drive or passionarity. He concluded: ‘We are observing that certain countries are on the rise even though they have a lot of unsolved problems. They resemble erupting volcanoes, like the one on the Spanish island, which is disgorging its lava. But there are also extinguished volcanoes, where fires are long dead and one can only hear birds singing.’ Piotr Dutkiewicz, a university professor, and the audience member who had formulated the question, asked for the floor again, telling Putin: ‘You have referred to Lev Gumilev, who presented me with a samizdat edition of his first book in St Petersburg in 1979. I will pass this samizdat on to you.’ The President thanked him.⁸

In an essay published in November 2021, Vladislav Surkov returned to Gumilev in what looked like an announcement of the coming war, referring to the diffusion of internal tension, which Gumilev called passionarity, through external expansion. ‘The Romans did it,’ the former chief ideologist and First Deputy Chief of the Russian Presidential Administration explained. ‘All empires do it. For centuries, the Russian state, with its harsh and sedentary political interior, has been preserved solely thanks to its tireless desire beyond its own borders.’ The consensus around the annexation of Crimea was a ‘vivid example of the consolidation of society through the chaotisation of a neighbouring country’. In line with the debate at the time, Surkov called for a grand bargain between Russia and the United States delimiting their respective spheres of influence. ‘If there is no treaty, the turbulent flows formed by supercountries begin to collide with each other, generating devastating geopolitical storms.’ There was no treaty, as we know. His conclusion: ‘Russia will expand not because it is good, and not because it is bad, but because it is physics.’⁹

In a speech delivered on 21 February 2022, just days before the invasion, Putin affirmed that he wanted to start ‘with the fact that modern Ukraine was entirely created by Russia’. Lenin made Ukraine: ‘He was its creator and architect.’ Putin thinks this was a matter of political expediency at a moment when the Bolsheviks strove to acquire and consolidate power. But it was also, in his view, a mistake, absolutely incomprehensible, and ‘even crazy’. At this point he seemed to suggest that the mistakes on the part of the Bolshevik leadership and then the Communist Party cannot change the underlying reality of ‘historical Russia’, the ethnos or superethnos uniting Russia and Ukraine. ‘At the same time, the Ukrainian authorities,’ he added, ‘began by building their statehood on the negation of everything that united us, trying to distort the mentality and historical memory of millions of people, of entire generations living in Ukraine.’¹⁰ The speech echoed the claims Putin had made the previous summer in a long essay entitled ‘On the Historical Unity of Russians and Ukrainians’.¹¹

The terrible war that began two or three days later is, in its most immediate sense, a conflict to decide the question of whether Ukraine is an artificial construction, as Putin believes, or a sovereign nation separate from Russia. And here we see the radical relativism of the geopolitical tradition. Haushofer might want to argue that geopolitics is rooted in objective facts and that states can be studied just like a natural organism would be studied. In reality, the test is not scientific but a matter of will. Gumilev would seem to be correct: only the drive to act and to fight can determine whether a collective will expand and subjugate its neighbours or be conquered and disappear. Geopolitical thinkers, if they want to be true to their calling, should step aside and allow the outcome of the battle to set their doctrine for them. Science can do very little here.

One can easily find authors in Russia ready to argue – in language borrowed from Gumilev – that Ukraine is part of the Russian superethnos,¹² but it would be just as easy to present ethnographers and historians, going back to Fedir Vovk and Mykola Kostomarov in the nineteenth century, who will describe those arguments as ‘fabrications of Russian imperial historians’ and prove ‘that Ukrainians are a separate and distinct kind among neighbouring Slavic peoples, an anthropological type that possesses entirely original ethnographic characteristics’.¹³ When, in March 2022, I asked the influential Russian geopolitical thinker Sergey Karaganov how Putin could claim that Ukraine was not a real country when so many Ukrainians were willing to die for it, his answer was that only small groups would be so willing.¹⁴ He could not have been more mistaken.

Here, in the profound failure of geopolitics as a strict science, in its embarrassed bow to the realities of power, we are to find the germ of the next stage in our story. Within each state, social life is organised around rules. Might by itself does not suffice, and perhaps it should not even decide. For thinkers such as Gumilev this is as one might expect: social life within each ethnos follows the rules peculiar to its stereotype of behaviour, but there are no rules outside the confines of the ethnos, in the area or zone that Tolstoy describes as separating armies on the battlefield. Traditional geopolitics offers a convenient foil for world building. With his insistence that ethnic phenomena and processes belong exclusively to the natural realm, Gumilev stressed that political history and world politics are the subjects of natural science and reflect a biological dimension located beyond consciousness, on the boundaries of the physiological or even the physical, as Surkov would put it. His theory is ultimately a theory of destruction or deconstruction targeting the distinctively political constructions through which human beings attempt to emerge from the natural realm. Gumilev calls these constructions ‘antisystems’, ‘commonly expressed either as a call to redesign the world or, more simply, to destroy it’. Many ways to accomplish this have been suggested, he argues, but the underlying principle is always the same: the rejection of the natural world as the source of evil and the rule of individuals ‘with a futuristic sense of time’ who reject heritage and tradition.¹⁵

And yet such reflections are not enough to dispose of the human aspiration to live in a world governed by rules, including in the relations between states. Instead of a world ruled by natural drives and the will to power, an artificial order of rules would extend to the world as a whole, enclosing it as a single community. Anything short of an artificial order would be subject to geopolitical reduction: world politics governed not by the rules of a game but by the natural equilibrium between the main poles of power and their respective spheres of influence.

There was a second fatal flaw with the traditional school of geopolitics: technology. On the one hand, technology was part and parcel of the geopolitical approach. It expressed the collective will to take control over the physical environment and allowed a state to grow in power, granting it access to new weapons through which it could hope to acquire mastery over its neighbours, and perhaps the world. In an essay from 1927 entitled ‘Kapital, Technik und Geopolitik’, Max Krahmann presented the domination of technologically inferior collectives as one of the goals of fully developed technology: machine guns against rebellious natives, for example.¹⁶

On the other hand, technology sapped the very foundations of geopolitics. What would happen to the objective lessons statesmen could draw from the physical environment if this environment was after all open to endless technological manipulation? ‘Neither Krahmann nor most other geopoliticians explored this in any detail, however, because it threatens to undermine the frail logical structure supporting geographical determinism. If technology and culture offset the determining power of geography, after all, the effort to fabricate a nomothetic science of geopolitics such as that sought by the geopoliticians is doomed.’¹⁷

When the term was coined at the beginning of the twentieth century, ‘geopolitics’ was meant to capture the struggle or competition between states for the effective control over territory. Later, other sources of state power started to be regarded as more central than having control over a large territory: population, industrial prowess, the economy, knowledge and culture. In recent decades, geopolitics was even replaced in academia by ‘international relations’, the study of how states are connected in something approaching an international society and where rules of one kind or another have an autonomous existence.¹⁸ In our time, the use of the term ‘geopolitics’ is often perplexing. It has retained the element of state action free from moral principles, but it no longer refers to geography or territory, making one wonder what the prefix ‘geo’ is doing there.

In his short essay, Krahmann suggested that technology might eventually do away with state conflict, perhaps after it had become sufficiently universal that states could devote themselves to developing their environment in depth rather than extension. Carl Schmitt explained in a famous essay published two years later that technology promised to deliver a neutral foundation for politics since purely technical problems have nothing controversial about them. ‘Here all peoples and nations, all classes and religions, all generations and races appear to be able to agree because all make use of and take for granted the advantages and amenities of technical comforts.’¹⁹ In the postwar period this promise was taken very seriously, and nowhere was it put to practice with greater conviction than in the European Union, a political community with a technocratic heart. Schmitt anticipates these developments when he remarks on the apparently ‘inexplicable link between pacifist and technical belief’. During this interlude, it seemed that technology had defeated geopolitics. In the end, however, as technological power increasingly threatened to replace our natural environment with new artificial worlds, the question of who would build and control these worlds became more acute. In a technological world, geopolitics is the struggle not to control territory but to create it. Geopolitics returned, but the ‘geo’ no longer refers to the world given to us by nature. It points to the virtual worlds we are capable of building.

Theories of War

The ancient Greek historian Thucydides was the first to write about the idea of great wars. There are many kinds of wars between states, fought for many reasons, and sometimes for no reason at all. The wars that shape history are those fought for the sake of the world order, such as the war between Athens and Sparta chronicled by Thucydides. There are wars, one could say, upon which the very fate of the world depends; what is at stake and what will be decided by the outcome is how world politics should be organised – according to which principles and values and, no less importantly, which hierarchy.

The pattern has been repeated many times throughout human history. A dominant state or empire, no matter how powerful, will be challenged by a new rising power, and, as the differential between them is reduced or disappears, the existing order becomes increasingly unstable. The process is dictated by a fundamental incompatibility between the structure of the system, the way the world is organised, including the international distribution of territory, and the distribution of power between the states composing it. ‘The resolution of the disequilibrium between the superstructure of the system and the underlying distribution of power is found in the outbreak and intensification of what becomes a hegemonic war.’²⁰ Hegemonic wars not only emerge from profound transformations in the economic and technological environment but also mark transitions from one historical epoch to the next. ‘These long and intense conflicts altered the fundamental contours of both domestic societies and international relations.’²¹ They determine which values will predominate and which rules will apply. Importantly, they are normally followed by the religious, political or social transformation of the defeated society. ‘The levelling of Carthage by Rome, the conversion of the Middle East to Islam by the Arabs, and the democratisation of contemporary Japan and West Germany by the United States are salient examples.’²²

In almost all cases in history when a dominant power was ultimately replaced in that role, the change was determined by a momentous war. The exception, to which many books have been devoted, was the transition from British to American hegemony, and it can plausibly be explained by the cultural and historical links between the two countries. In other cases, of course, the challenger was defeated and the existing order survived. Just as Pax Britannica was giving way to Pax Americana, Imperial Germany saw its pretensions defeated on the battlefield. The fact that Britain came out of the war with its energies exhausted may help explain what one scholar calls the ‘safe passage’ to American hegemony, but in the Introduction to this book we offered our own explanation of the distinctive nature of hegemonic transitions introduced by Pax Americana.²³

Every international system that the world has known has been a consequence of the profound realignments following such hegemonic struggles. And, obviously, one might become convinced that wars for the world order will continue to take place for as long as humanity disagrees on how to organise itself. As Robert Gilpin puts it, wars have been functional and integral parts of the evolution and dynamics of international systems. It is difficult to see how the international system could change without great wars, tragic as the fact may be. Wars provide a radical upheaval in the structure of prestige and authority and grant the victors a flawed but unambiguous mandate to reconstruct the world in their image. More directly, why would a hegemonic power peacefully give away its position at the apex of the system? Nor are there good examples of quickly rising powers that failed to press their advantage in a global conflict against rivals they saw as being in terminal decline.²⁴

The prospects for peaceful change at the level of the international system remain rather limited, but in the nuclear age change as such may also have to be ruled out. A war to define the very shape of global power would almost necessarily lead to the use of nuclear weapons, but a nuclear war would in turn lead to the destruction of the two contenders. To the extent that the model of hegemonic war needs to be revised today, the conclusion may be that change in the international system has become impossible.

The authorities in Beijing have certainly been pondering this conundrum. How can China rise to the top if it can only hope to do that by dislodging a powerful incumbent, the country that created the existing system and has disproportionate access to its levers of power? To be sure, China was able to grow and expand while operating under that system, but we should be under no illusion that it can continue to do so, even past the point where it would overtake the United States. As the last few years have already proved, Washington would never allow that to happen, and, in a world with nuclear weapons, the path towards open conflict is not available either.

Has change become impossible? The war in Ukraine has offered two remarkable alternatives to hegemonic war. First is the answer given by traditional geopolitics, which is the answer Russia has pursued: if hegemonic wars are impossible by virtue of the arrival of nuclear weapons, that does not mean that nuclear weapons cannot be used. They will be used not to win a war but to threaten an adversary with annihilation and thus bring about a compromise by which the global system may be fundamentally modified to reflect a balance of power that is in fact a balance of terror.²⁵ What the Kremlin concluded was that the United States, constrained by the risk of a nuclear confrontation, would not be able to wage a war to preserve the existing order more or less intact. Russia could thus push forward a number of changes to that order, significantly raising its status and perhaps opening the door to further changes in the future. One commentator argued in March 2023 that Russia had in fact already used – or rather ‘used’ – nuclear weapons, and very successfully, by deploying all kinds of threats as a way to deter the West from fully supporting Ukraine, which support might otherwise already have brought the war to an end.²⁶ When President Putin placed the Russian Nuclear Deterrent Forces on high alert soon after 24 February, he seemed to depart from the old Russian nuclear doctrine, centred on the defence of the country against a nuclear attack or a threat to the existence of the state, towards what authors call an ‘offensive deterrence approach’, where nuclear weapons work as a ‘shield’ for an offensive military operation.²⁷ And in March 2024 David Sanger of the New York Times reported that in October 2022, during a private fundraising event in New York, President Joe Biden had revealed to his audience that he had been briefed on intercepted conversations from within the Russian military about reaching into the nuclear arsenal. ‘The most alarming of the intercepts revealed that one of the most senior Russian military commanders was explicitly discussing the logistics of detonating a weapon on the battlefield.’ The Central Intelligence Agency was convinced that in a scenario of collapse of the Russian lines, the likelihood of nuclear use might rise to 50 per cent or higher.²⁸

The revolution in global politics introduced by the advent of nuclear weapons might turn out to be less radical than initially supposed. As Gilpin observed, ‘in this world of unprecedented armaments of all types, no state is behaving as if nuclear weapons had changed its overall set of national priorities’. He thought that nuclear weapons had merely introduced a new paramount goal to be added to and combined with more traditional national interests: the avoidance of nuclear destruction. ‘It is not inconceivable,’ he concluded, ‘that some state, perhaps an overpowered Israel, a frightened South Africa, or a declining superpower, might one day become so desperate that it resorts to nuclear blackmail in order to forestall its enemies.’²⁹

We have indeed witnessed the use of nuclear blackmail by an arguably desperate Russia before and after its invasion of Ukraine. Gilpin had further warned: ‘We are but a few decades into the nuclear age, and it is far too early to conclude that there will not be a Gaius Marius, Alexander, or Napoleon who will develop tactics and strategy to make nuclear weapons and the nuclear threat effective instruments of national policy.’³⁰ In recent years, the restraining effects of nuclear deterrence appear to be eroding. Nuclear India made history when it used military airpower against the undisputed territory of another nuclear power, Pakistan, for the first time in 2019. A year later we all witnessed a bloody battle in the Himalayas between Chinese and Indian troops, another clash between two nuclear powers.³¹

During the Cold War both the United States and the Soviet Union took extremely cautious measures to avoid clashes of conventional arms, since they could be the first step towards a nuclear exchange and a catastrophic general war. Daniel Deudney speaks in this context of a ‘shadow of paralysis’ from the nuclear to the conventional realm, but there remains a certain ambiguity in this shadow of paralysis: might it affect not the state making the first move but rather the state having to respond to such a move? Here we see how the Kremlin might have concluded that invading Ukraine would not be met with a significant response from Washington. Interestingly, Deudney also notes that if nuclear weapons paralyse the use of military force, then it may well be the case that economic power and soft power assets become more effective than in previous international systems.³²

Which takes us to the second alternative: the offset strategy, the new geopolitics, which is the answer America has pursued. If hegemonic wars have become impossible, that does not mean they cannot be won. But they must be won not by direct conflict with an opponent but by shaping the war environment in such a way that an opponent can be defeated before a direct clash becomes necessary. One could say that in this case an artificial environment or metaverse decides the outcome.

We have already witnessed a classical hegemonic conflict during the nuclear age: that between the United States and the Soviet Union. The very term ‘Cold War’ is essentially a way to refer to such a conflict: a war taking place under certain technological constraints introduced by the nuclear revolution. But the Cold War led neither to a nuclear conflagration nor to a standstill. How was that possible?

The answer is not disconnected from the nuclear revolution. Just as humanity learned to control the destructive energy of the atom, so did it acquire an awesome power to build, represented by key new technologies that were in time destined to operate at the atomic level. In 1945 William Shockley put forward the concept of a semiconductor amplifier. About two years later he developed a junction transistor. Competition between major powers would from now on be organised around the capacity to build new technological worlds, and those unable to compete must eventually become elements in a world built by others. Nuclear power has a reverse side, and it is this reverse side that must determine all future hegemonic transitions.

The paradox here is that the arrival of nuclear weapons signals only the negative face of technological power. Together with the destructive powers of the atom we find the demiurgic power of advanced technology. In Ukraine the United States has played less the role of combatant than the role of playwright or even programmer. There are, first, the economic weapons being used against Russia: sanctions, export restrictions, financial tools, energy bans and price caps. This economic arsenal would have its impact, no doubt, but on its own it would be insufficient. As we discussed earlier, the goal is to shape the war environment. And this Washington can do, primarily, by helping transform Ukraine into an entirely different opponent from what it was back in February 2022. Washington is not waging war against Russia. It has moved the game one level up. It is transforming the environment within which Russia must wage its war against Ukraine.

Take the case of Himars, or High-Mobility Artillery Rocket Systems. The United States sent the first such system units to Ukraine in June 2022. Just a few weeks later Ukrainian forces were already using the satellite-guided rockets to wreak havoc all across the Russian lines, greatly hampering its ability to resupply artillery and troops. Himars are part of a precision revolution going back to the last days of the Vietnam War, the tail end of what strategists call the Second Offset. Two or three decades ago, the same kind of battlefield lethality would have required a massive logistical trail of ships, tracked vehicles and aircraft. Moving artillery demands soldiers, trucks, fuel and time, plus additional soldiers and vehicles to protect those supply operations. In the past, disabling ammunition depots and command centres deep inside enemy lines would have required combat aircraft and bombers. With Himars, mission details arrive as geographic coordinates, with a target description and instructions fed into a computer. As one report puts it, ‘when the vehicle reaches the launch site, the targeter presses one button to angle the missiles skyward and another button to fire’.³³

Within the information and communication network at the core of modern warfare, Ukraine’s capacities can be multiplied by granting it some form of restricted root access: restricted because the Pentagon secretly modified the Himars systems it sent to Ukraine – modifications involving their hardware and software – to make the weapons unable to fire into Russia and escalate the war.³⁴ More ominously for Ukraine, the advantage granted by those systems eventually began to erode, and not only because the Russian forces learned how to move critical assets outside their range. In late 2023 Ukraine noticed that rockets fired with Himars began missing their targets. Moscow had quietly developed a knack for electromagnetic jamming. ‘Along almost the entirety of the front lines, an invisible wall of electromagnetic pulses now stretches like a shield.’³⁵ Electronic warfare systems are increasingly setting the stage for kinetic warfare on the ground. By jamming and diverting enemy drones, they can open the field for tanks and armoured vehicles. Without electronic shielding, they remain easy prey to detection and destruction. In November 2023, Valerii Zaluzhnyi, Ukraine’s commander-in-chief, argued in an essay for The Economist that the country’s armed forces needed key military capabilities and technologies to break out of the ‘positional’ warfare of ‘static and attritional fighting, as in the first world war’. Among these, he singled electronic warfare, such as jamming communication and navigation signals. Electronic warfare ‘is the key to victory in the drone war’. He added: ‘We have already built many of our own electronic protection systems, which can prevent jamming. But we also need more access to electronic intelligence from our allies, including data from assets that collect signals intelligence, and expanded production lines for our anti-drone systems within Ukraine and abroad. We need to get better at conducting electronic warfare from our drones, across a wider range of the radio spectrum, while avoiding accidental suppression of our own drones.’³⁶ Vladislav Surkov, the Kremlin ideologue we have cited before, noted later that month that Zaluzhnyi, in his essay, was appealing to some technological solution, some miracle weapon comparable to the ‘invention of gunpowder’. The reading was correct, except insofar as, for Surkov, Ukrainians were merely revealing their ancestral love for fairy tales, sorcerers and spells.³⁷ Miracle weapons do exist. In the modern world, they decide wars.

By that time, the war in Ukraine had already introduced some revolutionary possibilities, which stood in stark contrast to the gruesome artillery battles taking place in the Donbas. The use of low-orbit Starlink satellites by the Ukrainian forces means that communications have much lower latency – that is, the time needed for signals to get up to a satellite and back to Earth is much reduced. American armies fighting in Afghanistan and Iraq had access to vast flows of data, but they found it very hard to get that information to where it was needed in a timely manner. Ukraine has developed what some have called an ‘Uber for howitzers’. Ukrainian soldiers upload images of potential targets via a mobile network enabled by Starlink, and these are sent to an encrypted group chat where they can be seen by artillery commanders.³⁸ But, again, access may well be limited: in February 2023, SpaceX announced it would be restricting the use of Starlink for drone control.³⁹ It remains unclear if this decision came from the Biden administration or was a company policy. In 2024 the Ukrainian online newspaper Ukrainska Pravda reported – citing eyewitnesses – that Elon Musk had already blocked Starlink coverage during Ukraine’s first attack on the Russian Black Sea Fleet in occupied Crimea in September 2022. ‘We were 70 kilometres away from the Admiral Makarov frigate,’ one of the Ukrainian participants recalled. ‘Everyone was on edge, as we were going to attack it. And then, our communication was cut off. Elon Musk switched off Starlink, which we used to control the vessels.’⁴⁰

Given the central role that the low-orbit fleet has played in Ukraine, it is hardly surprising that China is planning to build a second mega-constellation to compete with Starlink. Project Guo Wang will see the deployment of as many as 13,000 satellites, with the first batch of 1,300 to be launched between the first half of 2024 and 2029. The scientists behind the project wrote in a paper published in the Chinese journal Command Control and Simulation in 2023 that new weapons, including lasers and high-power microwaves, would be developed and used to destroy Starlink satellites that pass over China or other sensitive regions.⁴¹ A second project, led by a space company partly owned by the Shanghai municipal government, has a plan to launch another 12,000 satellites. The company said it will launch more than 600 of them by the end of 2025.⁴² Meanwhile, Representative Michael Turner, the chair of the House Intelligence Committee, set off a frenzy in Washington in February 2024 when he issued a statement saying his panel ‘had information concerning a serious national security threat’. Media reports in the following days clarified that the threat referred to a nuclear space weapon capable of destroying satellites by creating a pulse of electromagnetic energy and a flood of highly charged particles that would tear through space when detonated.⁴³ In June 2024, in a speech at a leading think tank, Turner found a striking formulation to repeat his warning: ‘The space age began when Russia launched Sputnik in 1957. The space age will end when Russia launches its nuclear antisatellite weapon into orbit. Because from that day no one can count on space the next day.’

The long stalemate in Ukraine may seem to suggest that the nature of warfare has changed little from a hundred years ago. In reality, the stalemate resulted from the creation of a newly transparent battlefield. Ubiquitous drones and even machine vision have turned the physical battlefield into a fully accessible virtual information field, while electromagnetic warfare is becoming decisive in reducing battlefield transparency for one side. ‘If the enemy can see everything on and behind the front lines, including units and even individual troops moving in the rear, the classic ground attack made up of massed armoured formations is dead.’⁴⁴ As Yaroslav Trofimov of the Wall Street Journal wrote in September 2023, ‘With thousands of Ukrainian and Russian drones in the air along the front line at a given time, from cheap quadrocopters to long-range winged aircraft that can fly hundreds of miles and stay on target for hours, the very nature of war has transformed.’ Total visibility means that a column of advancing tanks or troops could be discovered in three minutes and hit in another three. The move would have a very limited window of survivability. Imaging and location platforms can be deployed at the platoon or squad level, making targeting near instantaneous. By the summer of 2023 the roads around Bakhmut and other frontline towns had become eerily empty, and Ukraine was forced to try to advance in small infantry groups, moving one tree line at a time. When it tried to gather more than a few tanks and infantry fighting vehicles together, these columns were quickly spotted by the ubiquitous Russian drones and destroyed. The days of large armoured assaults making rapid breakthroughs seemed to be over.⁴⁵

Another example of the ‘new warfare’ is Palantir. The American technology company has provided Ukraine with its data integration platform capable of building an electronic or virtual battlefield where information from commercial satellite imagery, spy networks and even Ukrainian civilians on the ground is brought together. Using a digital model of the battlefield, Ukrainian commanders gain greater abilities to detect, perceive and control their war environment than any commander before. The platform can even assess what response to categorised threats is most likely to succeed, helping commanders on the frontlines select with which missile, artillery piece or armed drone to attack the Russian positions displayed on the screen. It bases this assessment on constantly updated learning outcomes. ‘With each kinetic strike, the battle damage assessments are fed back into the digital network to strengthen the predictive models.’⁴⁶

The target coordination cycle: find, track, target and prosecute. As we enter the algorithmic age, time becomes compressed. From the moment the algorithms set to work detecting their targets until these targets are prosecuted, no more than two or three minutes elapse. In the old world, this process might take six hours. The last step is, of course, the battle damage assessment, or estimation of the outcome, whose results are fed back into the algorithm.

As I looked at the screen during a visit to Palantir in 2023, it occurred to me that armies today are still operating in that old world, following rules that were tested and developed during an epoch when the cycle was measured in hours. If a particular outcome falls short, the whole process is automatically corrected and improved, from target identification to ‘effector pairing’, a term referring to the selection of the appropriate weapons system for a given target and battlefield. Simultaneously, feedback from deployed models may then be used to refine, recalibrate or develop new models to replace previously deployed ones. As one of the Palantir engineers explained during my visit, this is ‘not a relevant domain for a human to exist in’. He was talking primarily of the correlation between signals intelligence and satellite imagery. The former is very good at telling you what something is; the latter can tell you where it is. The goal is to correlate the two, but no human being would be able to compare thousands of images with thousands of hours of intercepted communications. The software does it more or less instantaneously.

The algorithms can become extraordinarily capable at identifying an enemy command and control centre. Presumably, there are hundreds or thousands of indicators for such a target, which can be graded according to relevance. Machine learning algorithms are particularly suited for this type of warfare because their very high number of variables – most being invisible to the human eye – make them very difficult to deceive or evade.

Next step: target. Palantir engineers told me that targeting workflows are implemented by military officers in accordance with their procedures and doctrines. The Palantir software is a tool, not an agent. But is it plausible to think this will always remain the case? During the Gaza conflict beginning at the end of 2023, an important media report revealed that one reason for the large number of targets and the extensive harm to civilian life in Gaza was the widespread use of a system called Habsora (‘The Gospel’), built on artificial intelligence and capable of generating targets almost automatically at a rate that far exceeds what was previously possible. The system was described by a former intelligence officer as a ‘mass assassination factory’.⁴⁷ Do you want to target houses where a Hamas member was spotted today, houses where a Hamas member was spotted any time in the past or houses where someone who has a connection to a Hamas member has been spotted? The parameters need to be fed into the system, but the process by which those parameters are applied and how targets are selected seems to have been entirely automated. A second report detailed how, in the early stages of the Gaza war, the Israeli army gave sweeping approval for officers to adopt kill lists produced by a second artificial intelligence system, with no requirement to thoroughly check why the machine had made those choices or to examine the raw intelligence data on which they were based. Whereas ‘The Gospel’ marks buildings and structures that the army claims militants operate from, ‘Lavender’ marks people and puts them on a kill list. The latter system learns to identify characteristics of known Hamas and Palestinian Islamic Jihad operatives, whose details are fed to the machine as training data, and then proceeds to locate these features – there may be hundreds or even thousands of them – among the general population. An individual found to have several different incriminating features will receive a high rating, measured from 1 to 100, and thus automatically become a potential target for assassination: Lavender ‘is fed data about existing Hamas operatives, it learns to notice their features, and then it rates other Palestinians based on how similar they are to the militants’.⁴⁸

How much could the Palantir software achieve in a place like Bakhmut, where street warfare has been dominant? In a way, the question may miss the point. If Ukraine were able to deploy the full force of algorithmic warfare, the situation in Bakhmut might never become necessary. Could Russia have moved its large weapons systems to Bakhmut if Ukraine had from the beginning been granted access to all the components of a software system like Palantir? For most of 2024 Ukraine still lacked some critical elements, such as ready access to the most classified intelligence, aviation or long-range missiles. Increasingly, the goal must be to assemble all the pieces of the target coordination cycle.

One idea I heard during my conversations at the Palantir office is that warfare may increasingly take place as a complex simulation within algorithmic systems. The process may have some deterrence power: two opponents might reach the same conclusion about the outcome, pre-empting any need to trigger a conflict in the physical world. Is this utopian? Probably. The most likely scenario is an algorithmic arms race happening at superhuman speed. Here China rather than Russia is the real opponent. Taiwan rather than Ukraine is where the algorithm takes over. Where the simulated element may capture an important truth is not in the disappearance of the need for conflict in the physical world, or even in the disappearance of the need for widespread physical and human destruction, but in how quickly such a conflict might be over: machine intelligence operates at superhuman speed.

Ukraine might be the last large war fought primarily in the physical world. We should be getting ready for the moment when the physical and virtual worlds swap places, where everything happening in the former may well feel tangible and real only from the perspective of those unable to climb to the higher virtual plane where every outcome is decided in advance and where our powers of control can grow exponentially. Geopolitics used to mean the struggle to control the physical world. In the future it will be about the struggle to build a virtual one.

God Mode

In his books, J. R. R. Tolkien was less interested in telling a story than in creating a world, and, more specifically, creating the fundamental rules of that world. In fact, he had already created an extensive imaginary world, with thousands of years of history, when he began writing the stories in The Hobbit and The Lord of the Rings. The distinction between these two levels can help us understand current events in Ukraine, where there are really two conflicts happening at the same time: the military conflict on the ground follows the rules of epic narrative, the story of one nation defending its freedom and sovereignty against the imperial designs of a larger country. Here there are battles, offensives, victories and defeats. One thinks of the Battle of Salamis and Themistocles. Above it, however, a second conflict unfolds to decide the rules and conditions under which the first must take place. This is the level of world building. Can states pursue plans of territorial conquest and expansion? What resources – technological and financial – can Russia deploy? What weapons does Ukraine have?

Russia, by contrast, sees its task as ‘constructive destruction’. As Karaganov puts it, Russia wants to erase the existing global system, primarily by refusing to take part in it and play by its rules.⁴⁹ Put simply, a fully artificial world is ontologically fragile and unstable. It can be pulled apart. It can be undone, as easily or rather more easily than it was put together. With liberalism having lost its ability to impress the truth of its principles upon a recalcitrant world, we have moved dangerously close to a new world of ‘might makes right’. Putin has made clear that he will no longer accept the rules under which the world operates. He seems to have concluded from the obvious artificiality of the existing global order that it can be pulled apart and demolished. In his speech on the annexation of the occupied provinces in Ukraine, he described a global system of rules imposed by the West and proclaimed that Russia ‘is a whole civilisation, and it is not going to live by such makeshift, false rules’. He proposed to eliminate them. ‘Where did that come from anyway? Who has ever seen these rules? Who agreed or approved them? Listen, this is just a lot of nonsense, utter deceit, double standards, or even triple standards!’⁵⁰

The Kremlin has a model of global politics it will try to bring into being. According to this model, great powers are allowed to expand according to their inner drive or will to power. The division of territory on the Earth is always the momentary result of a struggle and an evolution that is in no way finished but that naturally continues to progress. Spheres of influence between the great powers will keep global conflict in check while protecting each Grossraum from external influence. Control over territory should extend to critical commodities and raw materials. Not only will war become a permanent reality and possibility but the global economy will acquire many of the traits of a war economy, where economic production serves state interests. The Russian economy grew by 3.6 per cent in 2023 and is projected to expand by more than 3 per cent in 2024 as industrial output expands, direct military spending increases to levels not seen since the Cold War and economic activity is reorientated towards the war effort. In May 2024, at the beginning of a new presidential term, Putin appointed Andrei Belousov, an economist with no military experience, to replace the ultimate insider Sergei Shoigu as Defence Minister. The move signalled the final transition to a war economy in Russia, the fusion of military and economic goals.

The global market for commodities freezes up and every country has to find direct ways to secure its own access to supplies. Budgets have to adapt to the growing militarisation of the border zones. The approval of widespread sanctions against Russia turned global trade into an area of conflict. And so on. We are in a way returned to the natural state of geopolitics, what authors a century ago called ‘total mobilisation’. For Russia it may feel like liberation from the matrix, but so far the system has held up and continues to respond. Predictably, it has been used to try to neutralise the threat posed by the Russian departure from the existing rules. If the military complex in Russia is booming, the rest of the economy is stuck: energy giant Gazprom suffered its biggest annual loss in twenty-five years in 2023, with revenues falling by around 30 per cent and a net loss of approximately 629 billion roubles.⁵¹ Before Russia invaded Ukraine, its airlines got spare parts from Boeing and Airbus. Now, they buy them from shadowy traders in Dubai with outstanding arrest warrants.⁵² To strategy planners in Washington and European capitals, the goal is to create something like an artificial environment, a video game of sorts, which Russia cannot escape and whose normal operation dictates its eventual defeat.

The new powers over the atom had a most significant correlate in the power to generate blueprints for new realities. Through a kind of fairy craft, technology weaves a spell, creating a world for human beings to live in. This world is like a large landscape, practically unbound but subject to the rules set by its creator.

When everyone inhabited the same world, the hierarchy was straightforward – a form of control over territory or resources. But now the hierarchy threatens to become ontological. In the geopolitics of hierarchically subordinate worlds, embedded within one another in the way nested dolls are, some actors cannot affect the world one level up, while being entirely subject to it.

Each technological transformation creates new powers over a previously immutable environment. The environment becomes a product of technical and economic processes. For example, with the energy and transportation revolutions of recent centuries the travel time between two cities becomes a variable dependent on levels of public and private investment. But this fact also helps explain why the creation of worlds can be seen as a form of radical power, against which resistance is almost always futile.

When Erich Honecker, leader of East Germany after 1971, decided he had to bet heavily on creating an electronics industry to rival the nascent industrial powerhouses in West Germany and Japan, he was not entirely wrong: dramatic developments in electronics and digital technology were transforming the playing field. If East Germany did not join the coming technological revolution, it would be starved of the valuable exports and hard currency with which to fund its social programmes and even to buy oil in the global markets.

And then there were the implications for military power. Already in 1963, both Texas Instruments and Fairchild were selling chips to be used in Minuteman missiles, intercontinental ballistic missiles soaring part-way around the planet before dropping onto predetermined rooftops. Their electronic guidance and control systems made this miracle possible.

Unfortunately for Honecker, joining the game meant following the rules devised by Western democracies and fighting on turf they firmly controlled. On one occasion, Honecker presented Gorbachev with an advanced microchip that he claimed had been produced in East Germany. In reality, the chip had been acquired abroad by his intelligence services.

It would soon become apparent that, by looking for sources of financing in the West, Honecker had fallen into a trap. First, East Asian economies such as Japan and Taiwan turned out to be much more efficient at producing the goods that the German Democratic Republic (GDR) wanted to export. ‘In order to win in global export markets, Eastern Bloc countries would have to compete with the developing countries of Latin America and East Asia to sell their goods in the developed West. This competition subjected Eastern Bloc goods to direct competition with capitalist goods and pitted socialist methods of production against the capitalist methods the bloc had long eschewed.’⁵³ Unable to increase exports, the Polish authorities felt forced to reduce imports: in 1976 they announced a plan to increase food prices by an average of 60 per cent. After strikes and street demonstrations broke out in industrial centres, the government rescinded the plan. A new attempt four years later culminated in the Gdansk Accords, which granted workers the rights to form independent trade unions, strike without reprisals and express themselves freely in the public sphere. As Fritz Bartel writes, ‘Poland had arrived at its moment of discontinuity, and the national search for ways out of previously unalterable facts of life promptly commenced.’⁵⁴

Second, the constant need to borrow more money from the West created a dependency that increasingly limited communist options. As the Soviet General Secretary Konstantin Chernenko told Honecker in 1984, West German loans to the GDR represented ‘additional financial dependence of the GDR on the FRG [Federal Republic of Germany]’, which strengthened Western leverage over East Berlin.⁵⁵ By 1989, GDR foreign debt had reached 46 billion Deutsche Marks, or $26.5 billion. The cost of servicing this debt was nearly 60 per cent of export earnings. Western banks had money to lend because of the same oil shock that was squeezing the East German and Polish economies: petrodollars from Saudi Arabia became the toxins feeding the ‘Polish disease’. As the political opposition grew, Stephen Kotkin observes, the nomenklatura in East Berlin or Warsaw worried that recourse to violence would affect their standing with Western creditors.⁵⁶ Ostpolitik, as Gordon Barrass notes, was far more Machiavellian than is often realised, and debt traps, as it turns out, are not a recent Chinese invention.⁵⁷

Secret Knowledge

In his report to Congress in 1981, Secretary of Defense Harold Brown coined a new term, one that would in time acquire a storied legacy. He explained: ‘Technology can be a force multiplier, a resource that can be used to help offset numerical advantages of an adversary.’⁵⁸ By that time, the large Soviet nuclear arsenal had blunted any American advantage in nuclear weapons, an advantage that had been deliberately pursued by the Eisenhower administration. President Eisenhower was convinced that matching the numbers and strength of Soviet conventional forces in Europe would cripple or even destroy the American economy. If the United States continued to expend its forces all over the world, committing ground forces wherever a Soviet threat was present or possible, then it would soon be exhausted to the point of bankruptcy. During the 1952 presidential campaign, Eisenhower declared that ‘the foundation of military strength is economic strength’, and that a ‘bankrupt America is more the Soviet goal than an America conquered on the field of battle’.⁵⁹ It was not wise to fight on terms set by the Soviet Union if those terms had a more or less predetermined victor. But by using their nascent advantage in nuclear weapons, American forces could maintain a smaller conventional presence in Europe. A future conflict would no longer be decided according to the old rules. ‘This strategy of investing in nuclear technology and cultivating the ability to respond massively and quickly to an invasion with nuclear weapons was the First Offset,’ although the term was only applied later, and retrospectively, once Brown was confronted with a very similar challenge.⁶⁰

Roughly three decades later, a new offset had become necessary. Even if the use of nuclear weapons could be countenanced, Nato military planners ‘did not believe the decision to use tactical nukes could be made in time to prevent Soviet armoured forces from racing across the west German plains’.⁶¹ But like nuclear weapons, and perhaps more effectively, new information technologies had the potential to displace the technological environment in which military conflict took place. This time the shift would move war to a decisively virtualised environment of guided weapons, stealth aircraft, wireless digital networks and satellite spying. By developing technologies that the Soviet Union had no access to and might not even be able to afford, it was possible to negate Soviet strengths such as radar systems built over several decades and at immeasurable cost. The term ‘information warfare’ appeared in 1976, coined by Thomas Rona, then an analyst at Boeing. He later defined it as the ‘destruction, the incapacitation and the corruption of the enemy information infrastructure’. The same year, Paul Dickson titled one of his works The Electronic Battlefield. Semiconductors and computers were transforming war.⁶² Distinct views of ground and air operations would eventually give way to discussions of a single battlefield. Space was dematerialised. ‘The objective of our precision guided weapon systems is to give us the following capabilities: to be able to see all high value targets on the battlefield at any time; to be able to make a direct hit on any target we can see, and to be able to destroy any target we can hit,’ testified William Perry, Undersecretary of Defense for Research and Engineering, in 1978.⁶³ The full impact of these weapons became evident not against their intended target but in the first Gulf War in 1991. Desert Storm was the first war in which a single plane could hit several targets in a single outing. The Soviet Union collapsed that year, and the Second Offset played a critical role. The new battle network was nothing less than a disaster for Soviet strategists, who now ‘believed that their American rivals were scientific magicians; what they said they could do, they could do’.⁶⁴ ‘Spy planes, drone aircraft, satellites with cameras that can see from three hundred miles what you can see from a hundred feet,’ the novelist Don DeLillo wrote in his masterpiece Libra. ‘They see and they hear. Like ancient monks, you know, who recorded knowledge, wrote it painstakingly down. These systems collect and process. All the secret knowledge of the world.’⁶⁵

We live in artificial landscapes where everything is continuously being recorded and controlled. In this world, one knows as a definitional matter that every act or plan conducted anywhere in the world has left some kind of mark. Nothing ever disappears, as it does in the physical world. The challenge is to detect such marks in as close as possible to real time. After the September 11 attacks, the goal was ‘total information awareness’. Admiral John Poindexter called it a ‘Manhattan Project for counterterrorism’. Instead of asking airlines to raise a red flag whenever a suspected terrorist purchased a ticket, the goal was to look at all passenger reservations for anomalies. There were patterns that might indicate terrorist activity. Planning an attack requires travel to the site, usually by two people. Look for the simultaneity of travel. Search airline databases for two people arriving in a known target city on two different airlines but who stay in the same hotel. They leave for a few days and then move on to another location, home to the next potential target. They stay there a day or two, and then they leave again. Using this template as a guide, the system ‘would scan airline, hotel, and rental car databases looking for the data points that matched up to the preselected picture’.⁶⁶

What is the difference between this surveillance system and that of a totalitarian state? Poindexter had some thoughts on this as well, and they related to the fact that the landscape being surveilled is not the real world but a simplified and abstract model of the world. American intelligence agencies were interested in the nodes and connections within a vast communications system. If analysts started with a list of phone numbers, they could find all the other numbers called from those phones and all the numbers called from the second layer of phones, and so on and so forth. They could layer it over with email information, financial reports and travel records in search of connections and patterns. On the one hand, this kind of contextual information is often much more revealing than the content of individual communications, which can be ambiguous and in large quantities effectively impossible to analyse. Metadata does not lie, as Edward Snowden once said. On the other hand, metadata targets the individual as a virtual avatar. Therefore, one could plausibly argue that the real person is left alone. No one is reading your emails, and even your identity is kept secret until a threat has been positively identified. At that point, the system will turn against the invader, the irreconcilable intruder who refuses to live in that world according to its rules.

It could be a battlefield in the desert, possibly Iraq or Syria. A blocky, collapsing mud construction stands in the middle of the screen, like a lost Tetris piece. Behind it, a landscape of rocky hills and a paved road, uneven and covered in dust. Then, with just a click, the screen dims, changing to an aerial map. All the available data on the mud house start scrolling on the right: whether it has ever been mentioned in intelligence reports, whether any phone calls have been traced to that location and what suspicious activity has been recorded there in thousands of satellite images taken in the past. If a truck has been spotted there, where else has it been seen? And who had the owner of the truck called, and where had they been in turn? Even a mud house has a life in cyberspace.

The software creates a system of connections between vast realms of data. There are rules about what you can do and ask within this system, but also ample freedom to think, choose, even improvise. Every time you are fighting an enemy, improvisation comes in. Tactics come in. Strategy comes in. Gilman Louie, a technology venture capitalist who got his start as a video game designer and then ran the Central Intelligence Agency venture capital fund, looked at Palantir and said it could be a video game.⁶⁷ Commanders who are planning an attack against an enemy target may need information from a multitude of sources: they may need information about the battlefield terrain and weather conditions from one source; they may need information about enemy and ally locations from a second source; they may need information about relevant cellular communications in the area from a third source; they may need human intelligence from a fourth source. Artificial intelligence can help one act in a world that is suddenly organised and coherent, an overarching system for accessing, managing and analysing all available data. Both structured and unstructured data from multiple sources are constantly being produced. These data are then transformed into objects and generated into a model. With all data integrated into a single environment, users gain a unified, synchronised intelligence picture, and then they are offered analytical applications with which to perform a rather diverse set of moves. There are many stories about the adrenaline rush that the system gives its users and how addicted to it they become. The system working on its own, noiselessly and nonstop, the system of information, capital, trade, technology – that system will soon be everywhere. We are building a video game, and we will be the ones playing it.

It is no coincidence that we now speak of a Third Offset. Every offset tends irrevocably to its own dissolution. As other state actors learn to master the same technologies, world building loses power: the original creators of the offset now share the same level with other players, and, as a result, control over the game world is no longer possible. Once two or more actors acquire precision warfare capabilities, the battlefield is once again contested, and new technologies might no longer favour the offence. Forward bases or assets used to scout and strike enemy positions become themselves vulnerable to attack over long distances. Chinese strategists see military conflict as a contest between ‘operating systems’ whose goal, ultimately, is ‘systems destruction warfare’. In this context, the advantages of speed and persistence might only be accessible to fully autonomous systems, with artificial intelligence forming the core of the coming Third Offset. This view is encapsulated in Chinese references to ‘intelligentised’ (智能化) warfare, and it was given a popular turn with the shocking defeat of Go champion Lee Sedol by the AlphaGo system in 2016. As noted by two Chinese military analysts, ‘Go and warfare are quite similar: the board may be likened to the battlefield, the game may be likened to the art of warfare, the player may be likened to the commander planning strategies, and the player approaches the game like the commander approaches fighting a mighty army.’⁶⁸ We seem to be approaching the moment when keeping human commanders in the decision loop will become a liability and the decisive confrontation happens not between armies but between algorithms. What is less clear is whether the coming offset will be brought about by China or the United States.

The logic of the offset is to create a new battlefield where the confrontation happens on terms set by its creator. This new battlefield is synthetic or virtual in some obvious sense, but that does not mean it can be isolated from a larger economic and technological environment. Both Eisenhower and Brown stressed how warfare needed to be reconfigured in order to maximise American economic and technological primacy. In the dialectics of the offset, building a global technological system must precede its deployment on the battlefield. As the war in Ukraine demonstrates, the conditions under which the conflict takes place are not merely military but extend to critical financial, energy and technological networks. The way to win is to reprogram the system, to step outside the game world. Science fiction fans might call the strategy a Kobayashi Maru, in reference to a simulation exercise depicted in the Star Trek movie franchise, where victory is made possible by changing the conditions of the game.

System Wars

A new genre of warfare has emerged from the Ukraine conflict, with the intertwining of ‘political warfare, financial warfare, technological warfare, cyber warfare, and cognitive warfare’, Chinese General Wang Haijiang, commander of the Western Theatre Command, wrote in May 2023 in 学习时报 (Xuéxí Shíbào), a journal published by the Central Party School. ‘Only by transforming the national economy, scientific and technological strength and comprehensive national strength to advanced combat effectiveness and system confrontation, and comprehensively preparing for military struggle can we stand firmly in the fishing platform, the Diaoyutai, in the major trial of high wind and waves and even stormy waves.’⁶⁹

After the Ukraine invasion, the economic sanctions against Russia approved by the United States, the European Union, Great Britain and other major economies included export restrictions of semiconductors and other critical technologies and the exclusion of several Russian financial institutions from the Swift payments messaging system. A ban was imposed on the export and sale or transfer of all aircraft, aircraft parts and equipment to Russia and on all related repair, maintenance and financial services. Later, bans on the import of Russian oil and other commodities were implemented. The sanctioning coalition has also prohibited the provision of accounting, auditing, bookkeeping and tax consulting services, as well as legal advice and engineering services, to the Russian government or Russian companies. Only days after the invasion, the European Union announced that transactions related to the management of reserves as well as of assets of the Central Bank of the Russian Federation, including transactions with any legal person, entity or body acting on behalf of, or at the direction of, the Central Bank of the Russian Federation, were prohibited. Since February 2022, US persons are equally barred from engaging in transactions with the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation and the Ministry of Finance of the Russian Federation.

Some of the sanctions operated at the national level. Others were meant to turn the full power of the global system against Russian interests. Some financial restrictive measures had a limited impact, but the sanctions adopted against the Russian central bank were meant to be a coup de grâce. After all, central bank reserves were the tool that the Kremlin had planned to use in order to avoid the worst consequences of economic sanctions. To go after that tool was tantamount to accessing the ‘god mode’ of the global system and switching off the controls for Russia and Vladimir Putin.

By 2023, the debate had moved to whether the Russian reserves frozen at the beginning of the war should be confiscated and used to fund the reconstruction in Ukraine or even, potentially, the Ukrainian war effort.⁷⁰ ‘Moving from freezing the assets, to confiscating them, to disposing of them is something that needs to be looked at very carefully,’ European Central Bank President Christine Lagarde said in April 2024, warning it could entail ‘breaking the international order that you want to protect; that you would want Russia to respect’.⁷¹ A compromise solution was adopted in May 2024 when the European Union agreed to confiscate not the assets themselves but only the profits made from the €190 billion of Russian central bank assets held at the securities depository Euroclear in Belgium. Euroclear will hand over about €3 billion a year, and as much as 90 per cent of that will be used for buying arms and military equipment for Ukraine.⁷²

There is no greater power than to change the game world state. One moment, Russia had $300 billion in foreign exchange reserves; the next moment, they were gone. Note that as long as Russian central bank reserves are held at foreign central banks they are a form of ‘inside money’. They are liabilities accepted by a counterpart and registered as such in their computers. They can be unilaterally frozen, cancelled or transferred to some other holder. Incapable of defending the value of the rouble, Russia would lie exposed to devastating bank runs, inflation and capital flight. As they imposed historic sanctions on Russia, the Biden administration and European governments set new goals: ‘to devastate the Russian economy as punishment for the world to witness, and create domestic pressure on President Putin to halt his war in Ukraine’, wrote the New York Times two weeks after the invasion, quoting anonymous officials.⁷³ ‘The totality of our sanctions and export controls is crushing the Russian economy,’ Joe Biden pronounced in March 2022.

Events took a different turn. As a major energy producer, Russia continued to enjoy a large current account surplus, and the value of the rouble was so far from collapsing that it became the best performing currency of 2022. The difficulty of applying sanctions against a surplus country was once again demonstrated. The move also raised some troubling questions for the future. Will countries continue to accumulate dollar reserves if they can be frozen or even cancelled at the touch of a button? How the game would play out remained uncertain. Sanctioning central bank reserves on this scale was unprecedented. What Americans and Europeans hope is that the global system can be used against a large economy like that of Russia without being stretched to breaking point. For Moscow there may be the opposite attraction: now that Russia has stopped playing by the rules, its only hope is to put the system under greater and greater pressure, to the point at which it stops working or, conceivably, breaks down. The current crisis is showing with admirable clarity that the global financial system is best understood as a form of programming rather than a spontaneous order of exchanges.

For Russia to move away from the dollar, it would need an alternative. The weaponisation of the dollar will never lead to a breakdown on its own, and an alternative cannot emerge by fiat. If it emerges, as a result of changes in the structure of global trade and finance, it will be a Chinese rather than a Russian alternative.

After both Russian commercial banks and the Russian central bank were sanctioned by Western governments, holding dollars or euros became a distinctly risky business. Russian banks can hold dollar deposits, but if these funds get anywhere near Western banks, they can be frozen. In principle, in order to avoid sanctions, Russian banks could issue dollar or euro loans to friendly counterparts in third countries, but those banks would have to wait out the sanctions before recalling the loans and using their dollars and euros. Gazprombank escaped European sanctions and may have significant deposits in European banks, although the Kremlin seemed worried about these funds and at some point demanded that energy exports be paid in roubles rather than euros. International statistics show that Russian deposits in the euro area, excluding Euroclear in Belgium, increased by $14 billion in 2022.⁷⁴ We also know that the National Clearing Centre at the Moscow Exchange was allowed to keep correspondent bank accounts in New York, where the revenue from the energy trade has accumulated to the tune of dozens of billions of dollars. Many Russian banks have lost their correspondent accounts. But after rumours that the National Clearing Centre would be sanctioned, the bulk of the dollars were converted to yuan.⁷⁵ Increasingly, Russia has been forced to embrace the Chinese currency.

Energy exporters now often get paid in yuan, and the Russian sovereign wealth fund is allowed to hold up to 60 per cent of its assets in yuan and up to 40 per cent in gold. Accounts in British pounds, Japanese yen and dollars were set to zero. Accounts in euros were to follow later in 2023. As of 1 February 2023, the National Wealth Fund held 10.46 billion euros ($11.2 billion), 307.44 billion yuan ($45.2 billion), 551.27 tons of gold and 530.1 million roubles ($7.3 million) in its accounts, according to a report by the Russian Ministry of Finance. In January 2024, the Ministry announced that the National Wealth Fund had no more euros in its accounts. ‘The proceeds were credited to the federal budget in order to finance its deficit. As a result of these conversion operations, a zero balance was formed on the euro account in the Bank of Russia,’ it said. Currently, the Fund holds only roubles, gold and yuan.

The share of Russian exports paid for in yuan rose to 14 per cent by September 2022, according to data from the central bank. That was up from 0.4 per cent before the start of the war. Aluminium giant Rusal was the first company to issue yuan bonds inside Russia in August 2022, only a few months after the invasion, and other commodity exporters like oil firm Rosneft later followed.⁷⁶ One study published in 2023 found that by the end of 2022 invoices in yuan accounted for 20 per cent of Russia’s imports, up from 3 per cent a year earlier, while the share of the dollar and the euro decreased to 67 per cent. These results are consistent with the use of trade sanctions gradually weakening the exorbitant privilege enjoyed by the dollar and leading to the fragmentation of international payment systems, with the emergence of alternative global currencies.⁷⁷

As Alexandra Prokopenko puts it, ‘Russia is drifting toward a yuan currency zone, swapping its dollar dependence for reliance on the yuan.’⁷⁸ Interestingly, as Russia turns to the yuan, China needs to accumulate greater and greater reserves in dollars. While Russia can reduce its dollar claims, surplus countries jointly cannot. The Russian reduction must be offset by an increase in Chinese dollar claims. The global monetary system may develop into a hierarchical or tiered structure, with Russia entirely dependent on the yuan, without affecting the status of the dollar. The bigger borrowers – the deficit countries – do not typically borrow in yuan, excluding these vast pools of global money from the Chinese monetary orbit. China can try to price its large oil trade in yuan, but the question remains as to whether Saudi Arabia or Iran or even China itself can gain from the arrangement in a world where surpluses naturally flow to the dollar. Payments are not the main variable. The dollar is the global reserve currency because the American consumer is the consumer of last resort and because there is a strong tendency towards a unified global monetary system.

Countries and investors will not hold yuan reserves if they cannot easily purchase and sell them in international markets and at prices determined in those markets. But to open the capital account and adopt a flexible exchange rate is what Chinese authorities have so far refused to do, lest they lose control over their economy. Moreover, an international reserve currency must boast deep and liquid financial markets, providing investors with access to a broad range of financial instruments, a large volume of trade and a high level of turnover. It is often overlooked that the dollar system is indeed a system in which all the pieces support each other: if you trade in dollars, then it makes sense to finance in dollars and therefore to invest in dollar securities and to hedge against currency risk in dollars. ‘And so as you know, one layer is supported by the layer beneath. The whole thing sort of, you know, hangs together.’⁷⁹ Finally, investors expect that a reserve currency will allow them to weather global economic and financial crises better than all available alternatives. Investors appear to prefer safe dollar assets, which tend to appreciate in bad times and therefore serve as a hedge amid an economic downturn or an increase in global financial market volatility.⁸⁰

The problem with these arguments is that, while they seem to rule against the yuan, they no longer describe the status of the dollar. As Nouriel Roubini puts it, while China may have capital controls, America ‘has its own version that may reduce the appeal of dollar assets among foes and relative friends. These include financial sanctions against its rivals, restrictions to inward investment in many sensitive sectors and firms, and even secondary sanctions against friends who violate the primary ones.’⁸¹ Countries such as Indonesia and Saudi Arabia – far from rogue states – have been lobbying Western capitals not to seize the Russian assets frozen in February 2022, fearing for the future of their own reserves held within the West. ‘They are very worried,’ said one European official, adding that their main concern is: ‘Is our money still safe there?’⁸²

In December 2023 the Biden administration granted the Treasury Department new powers to go after American and European banks who have relationships with foreign financial institutions doing business with firms linked to the Russian war machine. In other words, were foreign banks to transact with firms exporting certain critical components to Russia, they would be blocked from the dollar system. Everyone in the whole chain of financial transactions will typically opt to sever their connections with the sanctioned country.⁸³ What are the consequences of the increased use of financial sanctions? For the sanctioned country, a crippling isolation from the global financial system and, by extension, the global trade system: Russian trade volumes with key partners such as Turkey and China slumped in the first quarter of 2024. ‘The logical endpoint of this is turning Russia into Iran,’ said a senior Russian investor, referring to the strict financial sanctions against Tehran.⁸⁴ For the United States, ‘heightened perceptions of the political risk associated with relying on the dollar as an international currency’, and these may even extend to countries not at risk of facing primary sanctions ‘due to the political risk generated by secondary sanctions’. The more the United States uses its devastating power, the less devastating it becomes in time: ‘The policy actions of the issuing state may enhance the attractiveness of its currency for international use or harm it by influencing expectations about the future costs or benefits associated with the currency.’ After Washington targeted Russia with financial sanctions in 2014, in the wake of the first Ukraine war, the Kremlin implemented a series of measures aimed at reducing its dependence on the dollar. Russian central bank governor Elvira Nabiullina explained in a 2019 interview: ‘You see we try to diversify our international reserves composition. Because we estimate all the possible risk, economic and geopolitical risks.’⁸⁵ Three years later, the sense that Russia was now much less exposed to the dollar as a weapon of foreign policy may have convinced Putin that the time had arrived for a much bolder move.

Domestic political developments are also a factor. Authors such as Michael Pettis doubt whether the United States will be able to continue welcoming foreign capital when this ‘comes at a substantial economic cost to American producers, farmers, and businesses, and as the rest of the world grows relative to the United States, this cost can only increase’.⁸⁶ There is a reason the American share of global manufacturing has been declining. Finally, there is the question of how deep, liquid and safe dollar assets truly are in this new world. In March 2023 one trader commented: ‘The strangest bond day ever was Tuesday this week where if you took your eyes off the Treasury market screen for one minute. When you looked back at the screen the price could be a point different on 10 years, 30 years.’⁸⁷ Liquidity was so low that traders resorted to picking up the phone to make deals rather than trading electronically as they typically do.⁸⁸

The bulk of the global external surplus is now to be found in countries that, as Brad Setser observes, are not ‘exactly known for their commitment to liberal democracy’.⁸⁹ Russia posted a record current account surplus of $250 billion in 2022. Saudi Arabia approached a staggering $200 billion. The other monarchies in the Gulf had surpluses comparable to that of the Saudis. China topped $400 billion. What is different this time is that these countries are not placing their surpluses with traditional big borrowers such as the United States or Great Britain. In different ways Russia has helped fund the persistent current account deficit in Turkey, surely hoping those investments would be kept safe there. Between October 2021 and March 2022 Kuwait, Saudi Arabia and the United Arab Emirates lent Egypt $18 billion.⁹⁰ In April 2023 the United Arab Emirates announced a $1 billion loan to help Pakistan fund its balance of payments.⁹¹ In 2024 Egypt announced Abu Dhabi would buy and develop an area three times the size of Manhattan on the Egyptian coast, a project worth at least $35 billion. The announcement of the Ras El Hekma deal showed that Egypt was ‘too big to fail’, said Viktor Szabo, a portfolio manager.⁹² Geopolitical interests increasingly trump other considerations, with international capital movements being organised around growing fractures in the global system. In this world, many countries might even prefer to spend their trade surpluses at home, and in this case the changes would be more profound. Saudi Arabia is reportedly planning to spend more of its oil revenue on ‘gigaprojects’ such as Neom, a $500 billion futuristic linear city on the Red Sea, or the development of new industries, projects for which Chinese metals, machinery equipment and contractors will be necessary.⁹³ From a peak of 50 per cent of its gross domestic product (GDP), the Saudi current account surplus will narrow to just 0.5 per cent in 2024 according to the International Monetary Fund, before shifting into deficit as soon as 2025.⁹⁴ Saudis are no longer a source of petrodollars. Spending the trade surplus rather than saving it means a diminished role for the dollar. Saudis and Emiratis would prefer to recycle their marginal dollar surplus not into treasuries but into advanced chips or, if that is not allowed, into venture capital or private equity funds investing in advanced chips.

Setser writes that the geopolitics of global finance ‘has gotten interesting’, but there is nothing historically novel about this reality. When, in the late nineteenth century, central banks started to accumulate foreign exchange reserves in the form of deposits or securities, they often made their investment decisions on the basis of geopolitical considerations. Colonies normally, and compulsorily, held reserves in the metropole. When colonial relationships were not involved, geopolitical alliances were. Japan held sterling in London to solidify ties with Britain. ‘Russia held deposits in Berlin to mollify a potentially bellicose Germany and then, when this effort failed, in Paris to solidify its alliance with France.’⁹⁵

The fact that these movements are often ad hoc and dispersed should not be an argument against their importance. They reveal that the existing global monetary system is fragmenting and that the effort to replace it takes place not in grand, sweeping movements but piece by piece, very much like assembling a puzzle, or assembling a world. Many of the arguments for the continued primacy of the dollar presuppose the existence of an organised and hierarchical global system – that is, they presuppose the very thing they intend to establish, and they are valid only at a relatively shallow level of that system. In reality, powerful elements of disorder now engulf the traditional structures of dollar dominance, so much so that old arguments now feel less like an apt description of the facts than nostalgia for the recent past. Can the United States truly boast that it does not discriminate between assets held by residents and assets held by foreigners? Chinese companies would disagree, and many around the world now wonder if they might be next. It is not possible to both create the rules of the game and act like one of the players. Or, more epigrammatically: playing the game prevents one from winning the game.

The other main area of Western sanctions against Russia was the global energy market. Here the battle went to the very core of the global system. Energy is so central to the functioning of Western economies and Russia such a leading oil and gas producer that one might justifiably doubt whether the Kremlin could in fact lose a generalised energy war. Western democracies faced a set of interconnected challenges. They could impose an embargo on Russian energy, but such a move would produce the following predictable consequences within the global energy game: other buyers would step in to buy Russian oil and Europe would have to find supplies elsewhere. The reshuffling might have some transaction costs for everyone, but oil is fungible, much more so than natural gas, which relies on pipeline infrastructure to a greater extent. In order to remove Russian energy from the market, the embargo would have to be applied to the largest possible pool of buyers, perhaps using a form of secondary sanctions against those that refused to comply. In this case, however, the measure might be too blunt. The oil market would panic with a sudden supply shock, and prices might be expected to spiral out of control. In many of his speeches, Putin seemed almost to anticipate such an outcome. In an already inflationary environment, an energy shock could quickly bring about a deep economic crisis, only this would take place not in Russia but in the European democracies opposing Russia’s invasion. In the meantime, as deliberations proceeded in the summer of 2022, it looked like the best of both worlds for the Kremlin: as a result of the growing uncertainty, prices had escalated, but Russia could still sell its oil and gas everywhere.

As Zoltan Pozsar argued at the time, the global environment in 2022 and 2023 looked more complex than the crises of 1997, 2008 or 2020 because the sources of the problem were deeper and connected to control over the price level: one can print money, but not oil to heat or wheat to eat.⁹⁶ It is helpful to think of the prices of money like the application layer of the system. The application layer is created to grant users control over different types of money such as deposits and bonds and currency, interest rates of many different kinds and foreign exchange rates. This is the virtual world of modern finance in all its glory, a world where the size of the financial economy can be ten times the size of the real economy. A central bank like the US Federal Reserve, or ‘Fed’, has no difficulty policing this world because the prices of money are more or less directly set by the Fed. They can be changed at the stroke of a key. If the underlying price level is conveniently stable, a central bank has all the room in the world to manage the money supply and interest or foreign exchange rates.

The prices of commodities are more complicated. They correspond to the core of the operating system linking software and hardware. The difference between the two levels is not so much that one is virtual and the other real but that the basic layer is much more difficult to manipulate and requires a deeper form of access. While one can print more money at the stroke of a key, producing more oil involves fundamental changes in the global system of production. The nature of the system is decided by the core, the level where it acquires its distinctive traits: a dollar or yuan global economy, for example.

At the same time, it would be an error to think of this layer as the real domain of commodities. We are still in the nominal domain. As the world learned after the 1973 oil shock, the critical question was not who had oil but what form oil revenues would take and how they would be spent or invested. A 1974 Treasury report argued that as the Middle Eastern oil producers accumulated financial assets in Western democracies, their stake in the continued economic growth and stability of these countries would increase and they would be significantly less likely to attempt to disrupt the economies where they held assets. Treasury made it a top objective to encourage oil producers to invest ‘in the United States, utilising dollars earned by oil exports; and develop a national program for attracting such investments to the United States’.⁹⁷ Simultaneously, the government started to borrow petrodollars directly from Arab central banks. To reduce any ‘temptation’ that Saudi Arabia might have to lend those oil revenues to the Europeans, the Nixon administration procured an agreement whereby Riyadh would buy treasuries outside the normal debt auctions, receiving new arms deals in return.⁹⁸ This way, the United States could fund some of its deficits and debt without crowding out private borrowers, an exorbitant privilege that would help propel the American economy into two or three decades of fast economic growth. Importantly, foreign capital often went into financing large military buildups, the ultimate source of global military supremacy: ‘Because the United States can import large volumes of capital from the rest of the world for extended periods, the persistent budget deficits that result from military buildups do not crowd out private investment.’⁹⁹

The global monetary system is never neutral. Being able to issue the global reserve currency is tantamount to a superpower, a way to act without being fully subject to the rules of the economic game: as budget deficits increase, stimulating the economy, interest rates go up, which attracts a larger share of capital from all over the world ready to fund those deficits. These inflows keep the dollar strong, moderating the inflationary pressures from strong economic growth and high deficits.

Again, geopolitical considerations were present from the very beginning. As his energy envoy William Simon noted in a memo to President Nixon, Kuwait and Saudi Arabia might decide to purchase a considerable amount of special Treasury securities issues ‘primarily for economic reasons, but probably also to some extent to demonstrate their desire to cooperate with us’. Petrodollar funding turned out to be better than cheap oil. It was a system, and a system is a more stable form of power.¹⁰⁰ Today, the shift to green technologies offers China an opportunity to reconfigure the links between the global energy and financial systems. The Ganzhou Rare Metal Exchange was established in 2019 in order to provide quote prices for spot trading of tungsten, rare earths and critical minerals like cobalt that are essential to the green energy transition.¹⁰¹

Western democracies are still in a position where they feel they control the general infrastructure or system organising the global oil market. They may choose to grant Russia access to that system, but in general they will do so on their own terms. Even Putin eventually realised energy resources did not constitute the critical domain. Addressing his oil sanctions task force on 17 May 2022, he warned: ‘It is no longer enough for us just to produce oil. We must build out an entire integrated supply chain right down to the end consumer.’ Currency, debt finance, shipping and insurance were paramount in his mind.¹⁰² When Europe and the United States decided to move against the Russian energy sector, they focused on the ‘flow of money’ rather than the ‘flow of atoms’. As it turned out, it was quite possible to separate commodity and price: to block Russian oil income and not Russian oil. Indeed, as we saw earlier, had one tried to block Russian oil, energy prices would have shot up, defeating the purpose of the sanctions and creating intractable economic problems for those imposing them.

There is an input with a certain numeric value that is used for certain processes, but the value of the oil variable is not given or fixed and depends on how the different pieces of the system are put together. It is always possible to redesign the operating system and change the values of these variables. No one cares about commodities understood as Dingen an sich. What matters are their virtual twins: prices and money flows.

The oil price cap was a remarkably creative solution, and one firmly anchored in an understanding of the global system as an artificially created construct that can be used to defeat an opponent without the need for a direct clash. Instead, one builds and changes the rules of the game in order to win. But the price cap was only possible because the Western allies have access to the chokepoints of the global energy system and can use them to determine under which conditions Russia will be admitted. In this case, Western finance, insurance and shipping, which constitute a dominant share of those services, could only be used to transport Russian oil if it were sold below $60 per barrel. Russian oil would continue to flow and markets would remain calm. In fact, Russian oil would not be sanctioned as such, and why should it be? Oil has no nationality. The sanctions would be directed not against Russian energy resources but against Russian energy income.

Even without the price cap, fundamental changes in demand from different buyers and infrastructure constraints would have created new price dynamics. Where European demand had fallen sharply after the oil embargo on 5 December 2022, prices weakened significantly. Russia started relying on shipping crude oil to India from Baltic Sea ports, accepting the longest possible shipping route and being forced to lower prices.¹⁰³ In February 2023 Russia’s estimated oil export revenues fell to $11.6 billion, a $2.7 billion decline from January when volumes were significantly higher, and nearly half prewar levels. Russian fiscal receipts from oil sales were up 22 per cent from January after export taxation rules were adjusted, but at $6.9 billion they were just 45 per cent of the level from a year earlier.¹⁰⁴ After the price cap came into force, Russia turned to older and poorly insured tankers, part of a growing fleet of tankers with shadowy ownership and vessels that turn off their transponders to obscure their movements. Since oil shipments priced higher than the cap can no longer be covered by the handful of major insurers with enough resources to pay for emergency efforts, an environmental catastrophe in the shallow waters of the Baltic became a distinct possibility. The month before the invasion started, 19 per cent of tankers leaving Russian ports were registered as being covered by ‘unknown’ insurers. By March 2023, that figure had risen to 45 per cent.¹⁰⁵

By August 2023 three-quarters of all seaborne Russian crude flows travelled without Western insurance, a figure indicating Russia was now able to evade the price cap much more effectively, and at a time when crude was on its way towards $100 per barrel. According to energy traders interviewed by Reuters in September, Russia was selling oil to India at nearly $80 per barrel, some $20 above the Western price cap. Calculated Free on Board estimates for Urals cargoes loading from Baltic ports in October were close to $80 per barrel for Indian customers. Indian Oil Corp., Bharat Petroleum Corp., Hindustan Petroleum Corp., Mangalore Refinery and Petrochemicals Ltd, HPCL Mittal Energy Ltd, Reliance Industries Ltd and Nayara Energy Ltd did not respond to emails seeking comments.¹⁰⁶ The Financial Times speculated that the decline in the share of Western insurance might be due to growing wariness among Western shipowners and insurers concerned about falling foul of sanctions for violating the price cap, even if they receive ‘attestations’ that the oil they are transporting has been sold for less than $60 per barrel. After all, the price cap only works if the Russian oil trade remains embedded within Western economic institutions, and the forces driving towards disintegration are stronger during war.¹⁰⁷ On 20 December 2023 Washington tightened compliance and enforcement of the price cap policy on Russian oil, implementing changes to strengthen the attestation and record-keeping processes for certain covered service providers. The updated guidance introduced changes requiring supply chain participants with access to itemised ancillary costs to share these upon request with entities further down the supply chain.¹⁰⁸ As the International Group – an association of Western insurers – pointed out in March 2024, increasing the responsibility and obligations of companies in the Western coalition will result in a further migration of trade activities and ancillary services outside the West. The association estimated that around 800 tankers had already left the International Group Clubs as a direct result of the introduction of the price cap, which in turn limited its enforcement and effectiveness.

It would always be possible to apply the price cap in a more forceful, albeit less elegant form. Just as with what eventually happened with export restrictions in December 2023, Western allies could simply threaten secondary sanctions on anyone who bought oil above the cap: global traders and refiners rather than only Western insurers and shipowners. And in fact legislation suggested by two US Senators in September 2022 would have done just that. One plausible explanation for why the idea was never adopted is that sanctioning buyers or threatening to sanction them could have encouraged large traders and refiners outside the West to break their financial and trade links with Western networks and interests. Those Indian customers buying Russian oil well above the price cap were after all close to the Indian political establishment that Washington was trying to woo as part of its efforts to contain China in Asia. Once again, we see a trade-off between maintaining the global system and using it to serve specific geopolitical interests while the networks centred in Washington become increasingly frayed and fragile.

Some see in the current moment a breakdown of the global system and a return to the expansionist autarchy of the interwar years a century ago. In this view, a state needs access to raw materials and commodities, and geopolitics is little more than the attempt to seize territories and resources through military power. Writing in 1915, Friedrich Naumann spoke of a world divided between what he called ‘world states’, which formulate their own economic laws and develop their own schemes of management. The problem for him was whether a united Central Europe or Mitteleuropa could join America, Russia and Great Britain as a member in this select club. He considered for a brief moment whether Germany could join Great Britain as a junior partner, only to conclude: ‘A great nation only does a thing like this when nothing else remains to it.’ There is no alternative between joining a central point or becoming a central point: ‘He who does not grow, declines.’¹⁰⁹ Naumann argued that a vital Mitteleuropa economic unit needed vast agrarian territories with easy and secure access, as well as an extension of its northern and south-eastern sea coasts – from the 1 million square kilometres comprising Germany, Austria and Hungary to close to 10 million following the incorporation of a number of neighbouring European states, all European and Asian Turkey, including Mesopotamia, and the former colonies of the German Empire …

When, in April 2022, the head of the largest ship manager in the world urged Nato to provide naval escorts for commercial vessels passing through the Black Sea, we seemed to have returned to the old geopolitics: ‘We should demand that our seafaring and marine traffic is being protected in international waters. I am sure Nato and others have a role to play in the protection of the commercial fleet,’ he argued. Nato, however, declined to intervene.¹¹⁰

As both resource nationalism and economic warfare take centre stage – and economic forces are increasingly dictated by economic warfare in all its forms – it is tempting to return to old ideas of resource nationalism. Pozsar has even suggested that we may be about to return to commodities as the ultimate form of money: the current dollar system – based on inside money, on promises to pay – might give way to a stronger yuan system backed by a ‘basket of commodities’.¹¹¹

In reality, the current moment is not that simple. What doomed the old gold standard would also doom any new monetary system backed by gold or other less noble commodities. In a modern economy, money must be programmable, but gold or commodities are not programmable. One aspect of this is that China cannot plausibly accumulate commodity reserves to back its currency: ‘Commodity acquisition as a reserve strategy would exacerbate economic volatility and leave China, like commodity exporters, with reserves that are most valuable when it least needs them and least valuable when it presumably most needs them.’¹¹² As for the desperate efforts by the authorities in Moscow, they are no more than attempts to escape an artificial system of exchange they deem too oppressive. What they want to escape to is much less clear, and the existing system will naturally survive in the absence of an alternative.

The present is best seen as a moment of synthesis between the economic integration of the ‘first age of globalisation’, or the ‘liberal order’ of the nineteenth century, and the era of expansionist autarchy that followed. In our time, geopolitical competition takes place within a worldwide system, not the physical world of geography and commodities, but that worldwide system is far from natural or neutral. Geopolitics is the attempt to build or design the rules everyone else is forced to adopt. From the Earth to the metaverse. From geopolitics back to geopolitics – but the prefix has changed its meaning.