The conflict between national and transnational power: the Russian trap

Introduction

The invasion of Ukraine is seen by most as a geopolitical conflict between the West and Russia. Nationalist ideologies and power competition do play a significant role, but such competition takes place within the context of transnational relations that also define the nature of the struggle. Unlike the invasion of Czechoslovakia, which took place during limited economic and cultural ties between the West and Soviet Union, the current war is deeply affected by mutual economic relationships between transnational capitalists and links between transnational corporations. Exploring how the contradictions between national and transnational elements structure the character of the war is the purpose of this article.

Global capitalism has gone through tremendous change over the past forty years, building a system of transnational integration characterised by global financial flows and production. This has profoundly changed a world built around nation-centric power. The emergence of the transnational capitalist class (TCC) reshaped domestic economies and social relations by restructuring state institutions and rules to serve the new forms of global accumulation. Major trade arrangements were ratified, banks bailed out, corporate taxes cut, transnational corporations promoted and social contracts undermined. And yet the old forms of power, habits, identities and privileges still fight to maintain their existence. This mixture of national structures overturned by transnational forces creates a powerful vortex of tensions.

In Russia, this process took place first under Yeltsin and then Putin, turning the country into a neoliberal state. As the new ruling class sought a capitalist identity outside the Soviet experience, it linked to its imperial past. As a result, Russian national concepts of power rooted in Tsarist imperialist expansion reasserted their influence, even as the oligarchy made use of transnational accumulation. Neither did Great Power concepts fully fade in the West, as NATO’s eastward expansion shows. As globalisation entered a sustained period of economic, environmental and social turmoil, transnational hegemony was opened to greater challenge, particularly from authoritarian state capitalism, which finds inspiration in fascism and empire. As the globalist project of a fully integrated economic world floundered under the weight of its own excess, nationalist ideology and power projections re-emerged.

Mike Davis hits home when he describes the Putin government as one that hates Lenin and the Bolshevik position on self-determination, a government drenched in Great Russian chauvinism and supported by the reactionary religious hierarchy of the Eastern Orthodox Church. A government that invites the backing of pan-Slavic neo-fascists, that idealises the Tsarist empire, with Putin himself an iconic hero of far-right nationalists throughout Europe and the US. ¹

And yet it is a government that has structured its economy to serve and benefit from transnational capitalism. That contradiction, between nationalist ideology and its transnational model of accumulation, is the Russian trap. And it works both ways, for Russia and for its global partners.

Global capitalism and Russia

In Russia, the creation of a TCC took place primarily through the privatisation of state assets, in combination with private/state ownership arrangements in energy and finance. The state did not represent a national capitalist class, nor was its primary concern building a modern industrial base. Rather, the state played a central role in integrating the key sectors of the Russian economy into global capitalism. Russian oligarchs also rushed to integrate into elite cultural and financial networks. They sent billions into offshore havens, spent hundreds of millions on London and New York real estate, lived on their yachts, and sent their children to elite western schools.

But the full political integration of the Russian state was stymied by the western architecture of power. NATO’s expansion eastward clashed with Russia’s intent to re-establish its own sphere of influence. This was an uneven process, unfolding over a period of three decades. The G7 became the G8 as Russia was given a seat at the elite table. But tensions never fully resolved. Political, social and environmental problems continued to sharpen, giving rise to security concerns and a renewal of nationalist rhetoric to regain state legitimacy. In turn, rivalries became more aggressive, and the balance between globalism and nationalism began to shift.

To explore the above process, we begin with Russia’s internal transformation and the creation of its transnational capitalist class.

Scholar Oleg Komolov describes the Russian economy primarily as a supplier of resources, with the TCC deeply integrated into global capitalism. He points out how the ruling class that emerged from the privatisation of state assets

occupies primarily the role of an intermediate seller of Russian commodities on world markets and is not interested in improving the efficiency of the economy, developing competitive manufacturing industries and technological progress. [Moreover] the export economy was developed with large-scale participation of foreign capital in all sectors of the economy, the artificial devaluation of the ruble and net capital outflow to countries of the center. ²

Between 1997 and 2017, the outflow of capital exceeded inflows, with offshore havens the destination for 70 per cent of capital exports. The two most prominent outflow years were during the global crash of 2008 and the Russian seizure of Crimea in 2014, with a combined total of $285 billion. ³ Outside the flight to offshore havens, Russian energy TNCs had made foreign direct investments of $335.7 billion by 2017. ⁴

The Russian state and private oligarchy worked together in the outflow of capital, which reduces the amount of held dollars and keeps the value of the rouble low. In turn, this helps the export of fossil fuels and minerals. According to the World Bank, the rouble is one of the world’s most undervalued currencies. ⁵ Oil and gas make up 65 per cent of Russian exports, but minerals and wheat also play an important role. The state has supported this process by increasing its overseas holdings in US Treasury bonds from $8 billion to $164 billion between 2007 and 2013. ⁶

Keeping the value of the rouble low meant undercutting investments in the modernisation of manufacturing. The results being high import prices for machinery and agricultural inputs, as well as high consumer prices for foreign goods. In 2017, machinery and equipment made up 47 per cent of imports, and chemical products 18 per cent. ⁷ Thus, a low-valued rouble drove up the cost of tractors, combines, transport and machine tools, fertilisers and chemicals – a typical pattern among transnational petro-states. Privileging globalist accumulation over the national market marked the Russian ruling class with a transnational character and strategy.

Another aspect of Russia’s integration was creating an attractive market for foreign speculative capital. During the 2005–08 financial frenzy, capital flowed into Russia, benefiting from liberalisation of currency regulations. During these years, transnational capitalists sank $325 billion into Russian corporations, with large amounts going to state-owned entities like Sberbank and the energy giant Gazprom. Among the biggest investors were financial giants JPMorgan, BlackRock and Pimco. ⁸ Loans were also made, reaching $400 billion from some of the biggest global banks including Citigroup, HSBC, BNP Paribas and Deutsche Bank. The benefits for finance capital were double: debt from loans and earnings from investments meant profits for transnational investors the world over. The outflow of profits over a twenty-year period reached $1.2 trillion, and taking on foreign liabilities certainly didn’t support the rouble.

Energy, transnational capital and sanctions

Key to the Russian economy, and indeed the world economy, are energy resources. Russia’s fossil fuel industry has been largely exempt from the sanctions in 2022, as it was in 2014. In both cases, transfer payments for energy continued to flow through the SWIFT computers, and in 2022 these were worth about $350 million per day. Between 24 February and 24 March 2022, Russia sold $19 billion in fossil fuels. The links between western oil majors and Russian TNCs deeply influences the limits and impacts of sanctions, and so deserves attention.

First, we can review the degree of joint ventures between Russian and transnational energy majors. Rosneft emerged as Russia’s largest oil producer when Putin dismantled Yukos, and sold its $90 billion in assets for just $2 billion. Western banks rushed to loan Rosneft $22 billion as it became Russia’s dominant energy company. Financial backing came from ABN Amro, Barclays, BNP Paribas, Citigroup, Goldman Sachs, JPMorgan and Morgan Stanley. Rosneft then raised $10.7 billion in an IPO on the London Stock Exchange with BP taking a 20 per cent stake. Other strategic investors included Petronas (Malaysia) and CNPC (China). Russian oligarchs joined in, with Roman Abramovich, Vladimir Lisin and Oleg Deripaska each investing $1 billion. As Hans-Joerg Rudloff, chairman of Barclays and Rosneft board member, noted, Russia was ‘on the track of international economic integration’. ⁹ In 2006 Rosneft turned east, joining with China’s Sinopec in a $13.7 billion buyout of TNK-BP’s Udmurtneft Oil. In a key deal after the 2014 imposition of sanctions, Rosneft signed a thirty-year contract with the state-owned China National Petroleum Corporation worth about $400 billion. Furthermore, Exxon had a $3.2 billion Arctic offshore drilling deal with Rosneft in which the Russian TNC obtained minority stakes in the Gulf of Mexico and oil fields in Texas. Rex Tillerson, chief executive of Exxon Mobile and future Secretary of State, received the Order of Friendship award from Putin in gratitude for Exxon’s commitment. ¹⁰

Gazprom also has a significant level of transnational integration. In developing Shtokman, one of the world’s largest gas fields, Gazprom partnered with Total from France and StatoilHydro of Norway. Total has a close relationship with the Russians. The French oil major has investments in two other Russian oil fields, and a 16 per cent stake in Novatek, the country’s largest gas producer after Gazprom. The largest foreign investment project in Russia, the Sakhalin-2 oil field, involved the British and Japanese. Although Gazprom retains majority ownership, Shell held 27.5 per cent, Mitsui 15 per cent, and Mitsubishi 10 per cent. ¹¹

To understand how sanctions disrupted these transnational relations, we need to investigate sanctions from 2014 and 2022. In 2014, companies weren’t banned from conducting business with Russian state-owned energy giants, although banks were sanctioned from making loans. The policy allowed protection for transnational institutional investors. But the US did move to sanction Rosneft’s president, Igor Sechin. This prompted Jack Ma, founder of China’s Alibaba, and John J. Mack of Morgan Stanley to resign from the Rosneft board; while Donald Humphreys, former chief financial officer of Exxon Mobil, and BP chief executive Bob Dudley continued to serve. As western sanctions tightened, they did cause some difficult problems, forcing Eni, Exxon and Statoil to withdraw from a $20 billion Rosneft Arctic exploration project. But to replace the loss of advance drilling technology, Rosneft took a 30 per cent stake in North Atlantic Drilling, a subsidiary of Seadrill, the world’s largest offshore driller controlled by Norway’s richest man, John Fredriksen. Rosneft also faced problems when sanctions cut access to foreign capital markets. To counteract the sanctions, it arranged a series of prepayment deals with some of the largest western oil traders including Glencore, Trafigura and BP. Furthermore, Rosneft bought Morgan Stanley’s global oil trading business, obtaining an international network of oil tank storage contracts, supply agreements and freight shipping contracts, as well as a 49 per cent stake in Heidmar, a manager of oil tankers. So, while the 2014 sanctions caused a number of real problems, Rosneft’s transnational relationships provided important avenues to avoid major disruptions. ¹²

Overall, the 2014 sanctions did hurt Russia. FDI inflows fell from $69 billion in 2013 to $21 billion in 2014. But the Obama administration also faced stiff resistance not only across Europe, but in the US as well. Hostility to the sanctions came from the two most influential US business groups, the National Association of Manufacturers and the US Chamber of Commerce. Both lobbied and took out critical ads in national newspapers, insisting that sanctions should not hurt financial institutions that held significant Russian debt. Among the corporations who lobbied against the sanctions were Exxon Mobil, BP, American Petroleum Institute, Amway, Caterpillar, Chevron and GM. ¹³

In implementing sanctions, the US believed Russia would view its global business ties as too valuable to lose, and so economic pressure would force a retreat from eastern Ukraine. But from the other side of the mirror, Putin believed global business’s ties to Russia were too valuable and would undercut western sanctions. In important ways both were right, and the same dynamic is at play in 2022. In the recent crisis the US Chamber of Commerce has again lobbied Congress arguing sanctions should be ‘as targeted as possible in order to limit potential harm to the competitiveness of U.S. companies’. ¹⁴

The magnitude of the 2022 invasion has caused the current sanctions to be deeper and broader. What Russian Marxist Boris Kagarlitsky pointed out in 2014 is even more true today:

The situation confronting our elites . . . is more or less straightforward, they cannot enter actively into confrontation with the West without dealing crushing blows to their own interests, to their own capital holdings and to their own networks, methods of rule and way of life. ¹⁵

But this is a two-way street – the West can’t sanction Russia without hurting itself, so the question becomes who hurts the most. For example, the world’s largest asset manager BlackRock took a loss of $17 billion on its Russian exposure. ¹⁶

Because Russia is the main supplier of oil and gas to Europe, its energy industry is a major focus of new sanctions. ExxonMobil is beginning steps to exit the Sakhalin-1 project and cease operations it carries out on behalf of a consortium of Japanese, Indian and Russian companies. Shell also announced plans to leave Sakhalin and ‘withdraw all involvement in Russian hydrocarbons’. ¹⁷ BP has moved to offload its 20 per cent stake in Rosneft and may take a hit estimated at $25 billion. BP’s move comes after thirty years of joint venture. Additionally, the Singapore-based trading company Trafigura is threatening to opt out of its 10 per cent shareholding of Vostok Oil, a vast gas project led by Rosneft. And Norway’s Equinor will also begin to exit its joint ventures. But TotalEnergies, the large French transnational, while committing to no new investments, is holding on to its nearly 20 per cent of Novatek.

Yet none of these companies may end up leaving. Exxon, BP and Shell need to find someone to buy out their interests. That will not be easy in the present circumstances, and they may have to appeal to their Russian counterparts to take their shares. Furthermore, oil tankers continue to transport millions of barrels of oil from Russian ports, estimated to be worth $700 million per day. These include tankers from Greece, and those chartered by US oil giant Chevron. ¹⁸ And SWIFT payment transfers for energy continue at the above-mentioned $350 million per day. Consequently, for all the difficulties of the sanctions, global energy integration affords Russia significant amounts of capital, which helps to finance the war.

India’s case is yet another example of the complexity of transnational production. Obtaining about a 33 per cent discount from Russia, India’s oil imports have surged by 700 per cent. ¹⁹ Some of these imports go to Reliance Industries, which has the world’s largest refinery complex, and also to an affiliate of Rosneft, Nayara Energy. Using Russian crude, Indian refineries produce diesel and jet fuel, which is sold to Europe, whose imports from India have jumped. As Shell’s chief executive explained, oil substantially treated or changed loses it national origin. ‘We do not have systems in the world to trace back whether that particular molecule originated from a geological formation in Russia, [therefore] diesel going out of an Indian refinery that was fed with Russian crude is considered to be Indian diesel.’ ²⁰

One particularly ironic aspect of transnational relations is that Russian gas flows through pipelines running through Ukraine to Italy, Austria and eastern Europe. Russia pays transport fees to the government, thus supplying funds to Ukraine even as the war raged. And, of course, gas reaching the EU means more money for Russia. It wasn’t until May 2022 that Ukraine stopped the Sokhranovka pipeline that operates from the Russian-controlled Luhansk region. The value of the gas is about $1 billion each month. But Sudzha, Russia’s main pipeline, is, at the time of writing, still in Ukrainian-held territory, allowed to operate, and expected to take on some of the lost capacity.

Another example of the complexity of transnational production is how the invasion impacted Rusal, the world’s second-largest aluminum producer, owned by Oleg Deripaska and listed on the Hong Kong market. Rusal has a joint venture with Australian mining giant Rio Tinto. But because of sanctions, their joint refinery, Queensland Alumina, will not ship products to Russia. The result is that Rusal had to halt production at its Nikolaev refinery located in Ukraine, which accounts for 23 per cent of its annual production. Nikolaev is one of the most modern refineries in the world and employs about 1,500 people. To make up the shortfall Rusal may divert production from its Aughinish refinery in Ireland to feed its Russian smelters. ²¹ In turn, that will reduce supplies in Europe where materials are already short. The end result is higher unemployment in Ukraine, higher prices in Europe, and a lower stock price for Rusal.

Data compiled by the Yale School of Management reported 253 TNCs are making a clean break with Russia, essentially leaving no operations behind. Some of these include Uber, Shell, Salesforce, Reebok, McKinsey, Nasdaq, eBay, Delta, Deloitte, BP, BlackRock, American Airlines and Alcoa. Another 248 companies have suspended their operations without permanently exiting or divesting. Among these are Adidas, American Express, Burger King, Chanel, Coca-Cola, Dell, Disney, GM, Hewlett Packard, Honeywell, Hyundai, IBM, McDonalds, Mastercard, Nike, Oracle, Starbucks, UPS, Visa and Xerox. Some seventy-five companies have suspended a significant portion of their business. These include Caterpillar, John Deere, Dow, GE, Goldman Sachs, JPMorgan, Kellogg’s, Pepsico and Whirlpool. Pausing new investments are ninety-six companies. This is different from JPMorgan and Goldman Sachs who, while suspending some operations, continue to snatch up depressed Russian securities at very low prices. Among those pausing new investments are Cargill, Colgate-Palmolive, Credit Suisse, Danone, Johnson & Johnson, Siemens and Unilever. The total so far is 672 companies taking various forms of action. Yale reported 162 companies staying the course, including Acer, Alibaba, International Paper, Koch, and Lenovo. ²²

Some funds not appearing in the Yale report include the important financial centres in Singapore, which has halted any new economic activity with four major Russian banks. And Singapore’s large sovereign wealth funds, which have about $6 billion invested in Russia, have also suspended activity. ²³ Two of China’s largest state-owned banks are limiting loans for purchases of Russian commodities. ²⁴ The New Development Bank, established by Russia, China, Brazil and South Africa, put new transactions on hold. And the Asian Infrastructure Investment Bank, whose major shareholder is China, stopped its projects in Russia and Belarus. As of the middle of March 2022, there were more than 3,600 sanctions on Russian individuals and companies see Table 1.

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Table 1.

Estimated and potential losses of companies leaving Russia. ²⁵

Companies Leaving Russia	Estimated and Potential Loss (US$ million)
BlackRock	$17,000
Bank of America	$700
BNY Mellon	$200
Citigroup	$1,900
Ericsson	$95
Goldman Sachs	$300
JPMorgan	$1,000
Nokia	$109
Shell	$5,000
Société Générale	$3,300
Volvo	$423

The rush to boycott Russia reminds one of the corporate rush to endorse Black Lives Matter; essentially a marketing strategy to stay in front of popular politics. And while the costs are disruptive, transnational corporations are large enough to swallow such losses. For example, as the price for oil rose, Shell increased its early quarterly profits by 300 per cent to $9.1 billion – already enough to cover its projected $5 billion loss. Most of these sanctions will only harm the Russian people without having any real effect on the ruling class or the invasion. Russian citizens are already experiencing a dramatic decline in purchasing power and may soon face growing unemployment and a lack of consumer goods. The larger developing crisis is in world food supplies as Russia and Ukraine export a significant amount of the world’s wheat, corn, barley and sunflower oil. Shortages and price increases will hit the poor in the Global South the hardest.

Financial institutions and the TCC

Because of the integration of the global financial system, Russian capital was exposed to severe sanctions in 2022 that constituted a geo-economic break. There has been a general belief in the sanctity of foreign reserves. The US often talks about a ‘rules-based world order’. This includes open capital markets and accounts, deeply integrated financial markets, and benchmark assets in US dollars. Putin counted on all of this to keep the Russian economy functioning during the invasion. But seven of the largest Russian banks have been removed from the SWIFT interbank system. This severely limits the ability to pay for imports or receive payment for exports, as SWIFT is used to link funds for transnational deals. Russia’s central bank also kept about half its $630 billion dollars and euro reserves in foreign institutions residing in London, New York, Paris and Tokyo, and from $86 to $140 billion in Chinese bonds. Except for the Chinese holdings, these funds are now frozen, causing the rouble to lose about 40 per cent of its value, although with capital controls the rouble regained most of its value. Moreover, the collapse of Russian corporate stocks triggered the multi-week closure of the Russian stock market. And both Moody and Fitch downgraded Russian sovereign debt to ‘junk’. Russia is moving towards its first foreign currency debt default in one hundred years, but, as of May 2022, was still making payments using money from energy exports.

The severity of the economic sanctions is a radical step. Even during the second world war, relations between the Bank of England and the Reichsbank continued into the 1940s. And the Bank of International Settlements continued to allow the German central bank access to its clearing and settlement facilities throughout the war.

As Dominik Leusder points out:

More than any armed conflict, the current international monetary system has laid bare the folly of this romantic liberal portrait of globalisation. The sanctions against Russia are the clearest manifestation yet of a distinct undercurrent of financial globalisation . . . the West’s ability to coerce states has only increased as a function of their integration [so] as Russia became a central node [of] the global economy, it became more vulnerable. ²⁶

And yet western investors and companies are also in danger, as sanctions over the transfer of funds may mean Russia defaults on billions in loans. Facing such problems, US authorities gave the okay to JPMorgan to process interest payments due on dollar bonds from the Russian government. Citigroup is another payment agent for about fifty corporate bonds tied to Russian TNCs like Gazprom and MMC Norilsk Nickel. ²⁷ Furthermore, the important financial institution Gazprombank is spared from sanctions and continues to be a conduit for commodity transactions. For example, working with Citibank it helped Brazil purchase Russian fertiliser, which is not sanctioned. Thus, the flow of capital continues, at least in part, despite sanctions.

Again, Leusder provides insightful analysis:

As globalization underwrote Putin’s militarism and his increasingly hostile posture toward Russia’s neighbors, it simultaneously rendered the country’s economy fatally reliant: on the net demand from other countries such as Germany and China; on imports of crucial goods such as machinery, transportation equipment, pharmaceutical and electronics, mostly from Europe; on access to the global dollar system to finance and conduct trade . . . This is one way to construe the deceptively simple insight of Henry Farrell and Abraham L. Newman’s theory of weaponized interdependence: the logic of financial globalization that generated Russia’s trade surplus and gave Putin room to maneuver also provided the economic and financial weaponry that was turned against him. ²⁸

Thus, a nationalist strategy to reconstitute the Russian empire, using the profits and ties that come with globalisation, is undercut by the contradiction of those same ties and relationships.

Weaponised interdependence is a good description of the financial markets in metals. Alongside Russian fossil fuels are its exports of metals, including copper, alumina and nickel, which is used in making stainless steel and batteries for electric cars. Here are the complications of transnational capitalism. Tsingshan Holding Group in China is the world’s largest nickel producer, China’s second largest steel producer, and is involved in electric vehicle batteries. Tsingshan made an enormous $3 billion bet shorting the price of nickel, counting on its own increased production in creating an abundance of supplies. This bet was made on the London Metal Exchange (LME), which is a unit of Hong Kong Exchanges and Clearing Limited. With the Russian invasion, although nickel was not sanctioned, fear took hold of the market and prices jumped 250 per cent. The short bet based on lowering cost was a disaster. Trade chaos took hold, leaving Tsingshan with two choices. Either deliver tons of nickel or pay for margin calls, which means coming up with the cash or securities to cover potential losses. But Tsingshan only held 30,000 tons of its 150,000-ton bet. The remainder was held by JPMorgan, BNP Paribas, Standard Chartered and United Overseas Bank. On the cusp of a global financial disaster, LME suspended trading and retroactively cancelled $3.9 billion of trades, blaming banks for preventing efforts to create greater transparency that could have revealed the interconnected problem. ²⁹ Consequently, the Russian invasion set off a financial crisis that punished transnational capitalists that have no part in the war.

Facing sanctions, oligarchs can’t be happy with the war, and a number have stated their opposition. Nevertheless, the global financial system has been built to safely hide their money, as well as the wealth of others in the TCC. It’s estimated that oligarchs have hidden about half their wealth offshore, amounting to some $200 billion. Somewhere between 10,000 to 20,000 Russians hold more than $10 million each in offshore assets and havens. ³⁰ Still, that is significantly less than their American counterparts who have an estimated $1.2 trillion in offshore tax havens. Much of the Russian money is in US, UK and EU assets. Transparency International has estimated about $2 billion just in UK property. ³¹

But much of this wealth is difficult to discover because the TCC has structured international laws to hide wealth in complex trusts and shell corporations. ³² Global accounting firms PwC, KPMG, Deloitte and EY helped oligarchs move money to offshore shell companies for years before currently withdrawing services. Rosneft, VTB, Alfa Bank, Gazprom and Sberbank have been represented by leading US law firms, including White & Case, DLA Piper, Dechert, Latham & Watkins and Baker Botts. And Baker McKenzie, one of the world’s largest law firms, continues to represent some of Russia’s largest companies, including Gazprom and VTB. ³³ Concord Management specialised in serving ultra-wealthy Russians, helping them invest in hedge funds, private equity and real estate. Since 1999, Concord has channelled billions to BlackRock, Carlyle Group and others. Wall Street banks such as Credit Suisse, Goldman Sachs and Morgan Stanley often acted as intermediators, linking Concord to hedge funds. ³⁴ Such well-worn networks tie the Russian TCC to global capitalists and financial institutions in a mutually beneficial relationship, and create a shared culture that exalts the privileges of wealth and a common ideology about how the world economic system works.

Capitalists the world over make use of sophisticated accountants, bankers and lawyers to hide their assets. An agent will set up an offshore shell company in a country with little transparency. This company then creates more shells in other low-transparency jurisdictions – about forty-two exist across the world, including the US states of Delaware and South Dakota. This allows the ‘ultimate beneficial owner’, often unknown, to have multiple bank accounts and the ability to move money and invest without any scrutiny. Government investigators in both the US and the UK regularly ignore suspicious banking activity. In 2018, the EU passed regulations demanding access to information on the ownership of European companies nested in shell companies. Yet in 2022 no such registry exists. Congress passed a transparency law in 2021 with a $63 million budget, but never provided the money to the Treasury Department. Consequently, the effort to sanction oligarchs is undercut by the global financial system built to the demands of the TCC, of which Russian capitalists are members. While some pressure is being directed on the oligarchs, the system of hidden cross-border capital flows is too valuable to end, allowing the Russian TCC to escape greater harm.

A good example of how shell corporations function is the effort to sanction Arcady Rotenberg. Rotenberg is worth about $3 billion with an estimated $91 million invested in the US and a $35 million mansion outside London, bought through an entity in the British Virgin Islands. He has at least 200 companies located across dozens of countries. Even after coming under sanctions in 2014, Rotenberg became the owner of two additional companies located in Luxembourg, well known as a haven for billionaires. Although senate investigators found countless bank filings on suspicious Rotenberg activities, none of them have been investigated by the Treasury Department.

As Cihan Tuğal reminds us, Putin and his cronies

are a solid part of world capitalism, and their apparently insane actions are intended to produce a better place at the table. They want to be recognized as legitimate imperialists in the new, post-Wilson and post-Lenin world of the 21st century . . . [Putin] is not only serving his ego, but a capitalist class fostered by post-1991 reforms, which were selective appropriations of free market ideas. The gang of cronies is not Putin’s creation alone. It is an outcome of transnational dynamics. This class is hungry for markets, and it cannot help but look for ways to burst out of Russia. ³⁵

German/Russian economic relations

Moving from a picture of transnational markets, industries and finance, we can explore the specific relationship between Germany and Russia. Germany as the largest European economy is also the most integrated with Russia. For Russia, it’s their most important economic partner alongside China. In 2021, German exports to Russia were worth more than $28.4 billion, and it invested a further €25 billion in operations. ³⁶ Germany still depends on Russia for about 55 per cent of its natural gas, 35 per cent of its oil, and half its coal.

Before 2014, there were 7,000 German companies inside Russia representing some of the largest TNCs in the world, such as Adidas, BASF, Siemens, Volkswagen, Opel and Daimler. On the financial side, all major German commercial banks were active in Russia. In terms of oil and gas, Germany’s biggest energy group Eon was the largest foreign shareholder in Gazprom, which, alongside BASF, was building the $6.6 billion Baltic Sea pipeline. The Germans held 20 per cent of the Nord Stream joint venture, with former chancellor Gerhard Schröder as chairman and Matthias Warnig of Dresdner Bank its chief executive. Even after the seizure of Crimea, Siemens CEO Joe Kaeser confirmed its commitment to Russia to sell trains, energy infrastructure, medical technology and manufacturing automation technology. Cross-border deals also continued, with RWE selling its oil and gas subsidiary to Russia’s LetterOne for over $7.5 billion. But, with the 2014 sanctions, German trade with Russia dropped by 35 per cent, and German firms investing in Russia dropped to just under 4,000 by 2020. ³⁷

Now the invasion of Ukraine has shaken the German/Russian relationship in a very significant manner, particularly in the auto and energy industries. Wintershall Dea, an oil and gas TNC, will stop payments to Russia and write off its €1 billion investment in Nord Stream 2. Additionally, it will not receive revenues from its Russian operations, which accounted for about 20 per cent of its 2021 profits. The company issued a statement on the turmoil caused by the invasion lamenting,

What is happening now is shaking the very foundations of our cooperation. We have been working in Russia for over 30 years . . . We have built many personal relationships – including in our joint ventures with Gazprom. But the Russian war of aggression against Ukraine marks a turning point. ³⁸

Nord Stream 2 has been a contentious issue between the US and Germany for years. The pipeline running through the Baltic goes directly to Germany. The US has pressured Germany to end the project, but Angela Merkel refused to do so. The project, worth $11 billion, is registered as a Swiss firm whose parent company is Gazprom. Gazprom owns the pipeline and paid half the costs, the rest shared by Shell, Austria’s OMV, France’s Engie, and Germany’s Uniper and Wintershall DEA. ³⁹ The invasion has prompted Germany to halt the project. The suspension of Nord Stream 2 may not be permanent, but even a temporary suspension is a huge shift.

Russia exports fifty-six billion cubic metres of liquefied natural gas to Germany yearly. Inside Germany, Gazprom owns and operates thousands of miles of pipeline, key storage facilities, and the largest underground storage tank for natural gas in western Europe. Russia also supplies German refineries with a third of their oil, a number with long-term contracts that Russia is not willing to cancel. Particularly ironic are the weapons sent by the German government to Ukraine that use steel produced in German factories powered by coal coming from Russia. As Putin has stated:

Let German citizens open their purses, have a look inside and ask themselves whether they are ready to pay three to five times more for electricity, for gas and for heating . . . You can’t isolate a country like Russia in the long run, neither politically nor economically. German industry needs the raw materials that Russia has. It’s not just oil and gas, it’s also rare earths. And these are raw materials that cannot simply be substituted. ⁴⁰

Turmoil has also hit the auto industry. Volkswagen, Mercedes-Benz and BMW halted production in Russia, and also suspended all vehicle exports. But the invasion has had an even bigger impact because of the coordination of production between Ukraine and European auto companies. With its low labour costs and educated workforce, Ukraine became a manufacturing centre of systems which connect electronic components, like tail lights and car entertainment systems. The work, done by hand, requires a large number of skilled workers. The fighting brought production to a sudden halt, and within days the lack of parts shut down European factories. BMW shut several plants in Germany, Austria and Britain, while VW was brought to a standstill at multiple locations, including its main site in Wolfsburg. Electric vehicle production at Zwickau stopped, including its SUV exports to the US, and Porsche idled manufacturing the Cayenne sport utility vehicle in Leipzig. As Jack Ewing noted:

No car can operate without wiring systems, which are often tailor-made to specific vehicles. So-called wiring harnesses are among the first components to be installed in a new vehicle, and their absence brings assembly lines to a standstill. ⁴¹

Furthermore, Ukraine is also a major source of neon, a gas used for high-performance lasers required for production of scarce semiconductors, adding more woes to the industry.

None of these economic disruptions are welcomed by the TCC. But the German government has taken a major step away from its previous positions. At first opposed to banning Russia from SWIFT, and refusing to send arms to Ukraine, it has now reversed on both those issues. And the sizeable increase in its military budget surprised everyone. Although transnational links are deep, for now geopolitical tensions are riding roughshod over economic concerns. But such concerns have not gone away. The New York Times observes that ‘multiple cracks’ have already occurred over ‘lost trade, higher energy prices, slimmer profits and lower economic growth’, as well as lower employment. ⁴² As Martin Brudermüller, the chief executive of the chemical giant BASF stated, ‘Cheap Russian energy has been the basis of our industry’s competitiveness’. ⁴³ And again, ‘Do we want to blindly destroy our entire national economy? What we have built up over decades?’ ⁴⁴ What is true for BASF is true for the German economy, whose success is built upon cheap gas from Russia and exports to China.

Conclusion

There are a number of questions not explored in this article. NATO’s eastward expansion, Great Russia chauvinism, fascist forces in both Russia and Ukraine, the meaning of independence and self-determination, US hypocrisy on foreign interventions, China’s role, and growing debates within the Left over the war. All these topics already have a growing and substantial body of literature. Also, events continue to rapidly develop and so the article has some time limitations. But the deeper issues on the intersections between national geopolitics and transnational economics, and how the resulting contradictions affect the war, will continue. What is clearly evident is that global capitalism has plunged the world into yet another crisis. A crisis that ignores a pandemic that threatens the health of every human on the planet, and an environmental crisis that threatens every species. The failure is staggering in its ignorance.

What the new global configuration will look like is difficult to tell. Much depends on how the conflict ends. A long-term occupation will freeze Russia’s transnational links, a rapid conclusion may mean the easing of sanctions. The invasion is a further deconstruction of the global capitalist system built over the past forty years of neoliberal hegemony. But there are still many trillions of dollars in cross-border accumulation, and global assembly lines continue to churn out commodities in a coordinated system of production and trade. The current problems in logistics and supplies are not because of too little demand, but because of too much, with the infrastructure of ports, shipping and transportation actually too limited. Such problems might call for an expansion of globalisation, which is at the heart of China’s Belt and Road strategy. But economic, political and social disruptions cause states to look to their own national security. As a result, the contradictions between national and transnational forces continue to be the nexus for world events, changing the balance of forces into new configurations of struggle.

This complex relationship between nationalism and globalism needs to be understood through historical materialism, which defines the world as a continual process of movement. Marx saw everything in motion – production, distribution, environmental metabolic relationships, the class struggle, and all human interactions. Change was driven by the balance between opposing forces, and the results were defined by the power between the aspects. How much of the old that remained, and how much of the new that was asserted, continually set the conditions for the movement to continue. This process of motion and change results in contradictions unfolding in many different forms. There is no historic queue in which socialism waits its turn to appear at the front of the line.

In the current capitalist world, neither nation-centric nor transnational relationships exist in isolation from the other. They exist in the same institutions and continually define and determine each other within a changing balance of forces. This unity of opposites in tension and conflict is what produces the historic transformation towards a new synthesis. No outcome is predetermined, but produced by the dynamic itself. Consequently, what aspects of nation-centric relationships survive or re-emerge depend on the agency of political struggle. Under pressure of globalist economic and environmental crisis, nationalist antagonisms have rematerialised, but within the context of transnational relationships. Globalisation didn’t create the ‘end of history’ because the past continues to exist in the present. ⁴⁵

We can see this contradiction in the balance between national and transnational forces in the Russian invasion. A balance in which nationalism and inter-state conflict has grown stronger as the forty-year hegemony of neoliberal globalisation has faced a series of economic, environmental and social crises. As the balance of power shifts, aspects of the old system reassert themselves, but deeply affected and redefined by the changes globalisation engendered. Old ideas and conflicts may re-emerge, yet they are never the same, but contextualised through the new forces that have asserted themselves. So, in analysing the Russia/Ukraine/NATO conflict, we must be careful not to place it in the world of the 1960s, but a world deeply restructured by transnational capitalism.