Five days after the Russian invasion of Ukraine, Russia and Ukraine opened the first round of negotiations on the Border of Belarus. According to reports, Putin has raised demands that Ukraine recognize Russia's sovereignty over Crimea and Ukraine's military "neutralization." In the first round of negotiations, the two sides reached neither an armistice consensus nor closed the window of negotiation, and the Russian-Ukrainian conflict entered a stage of fighting and talking at the same time.
What is clear at present is that Russia's strategic demand is to promote war, force Ukraine to sign an alliance under the city, and force Ukraine to abandon its intention to join NATO, so as to obtain security guarantees. The gamers of the war are mainly Russia and NATO, because of the disparity in strength between Russia and Ukraine, although Ukraine is a warring party, but its influence on the outcome of the game is weak. The variables of the Russo-Ukrainian war lie in NATO, and the course and outcome of the war are highly dependent on the strength of NATO's support for Ukraine.
Based on the basic theory of game theory, this paper analyzes the game between Russia and NATO through the analysis tool of "yield matrix", and finally concludes that the result of the game is either Russia achieving its strategic goals or Russia losing a big loss, so in order to make the game in the Russo-Ukrainian war develop in its own favorable direction, Russia must show an attitude of not being afraid of fighting a big war. This result indicates that the possibility of a higher intensity of war in the short term cannot be ignored. This article is specially compiled and published by this platform for readers to think, and the article only represents the author's own views.
Game analysis of the Russo-Ukrainian War
The Russian-Ukrainian talks were held on the Belarusian border.
The Russian-Ukrainian war that broke out on February 24, 2022, shocked the world and severely impacted global financial markets. On February 26, European and American countries announced that they would ban the use of the International Settlement System of the Association for Financial Telecommunications of Global Interbanks (SWIFT) and restrict the use of their foreign exchange reserves by the Central Bank of Russia. The move has raised the intensity of sanctions against Russia by European and American countries to an unprecedented height, making the situation more complicated. Therefore, although the global market has recovered from the shock at the beginning of the Russo-Ukrainian War, it will still be affected in the future.
The Russo-Ukrainian war is the result of NATO's continuous eastward expansion and squeezing Russia's strategic space and living space. NATO's full name is the North Atlantic Treaty Organization (NATO). It was created in 1949 by the United States and Western European countries to confront the Warsaw Pact group led by the Soviet Union. Although NATO was a product of the Cold War between the United States and the Soviet Union, it did not disappear after the collapse of the Soviet Union and the dissolution of the Warsaw Pact bloc, but on the contrary, it expanded eastward step by step, constantly incorporating the former Warsaw Pact members and Soviet republics into it, and pushing its sphere of influence to the Russian border. If NATO includes Ukraine again, its military front will be directed at the russian hinterland. It can be said that NATO's eastward expansion into Ukraine has forced Russia into a corner and forced Russia to fight hard. (Figure 1)
In addition, Ukraine's diplomatic tactics in recent years were also one of the reasons for the outbreak of the Russo-Ukrainian War. Ukraine is a small country compared to Russia. Currently, Russia has a population of 147 million, while Ukraine has only 0.44 billion. In 2020, Russia's GDP was $1.45 trillion, compared to Ukraine's GDP of $0.16 trillion in the same period. Ukraine's standard of living is also significantly behind Russia's, with a per capita GDP of nearly $10,000, compared to less than $4,000. For Ukraine, a small country sandwiched between the two major forces of NATO and Russia, either force will inevitably be suppressed by the other, and finding a balance between the two major forces is the way to survive. However, in recent years, Ukraine has completely turned to the West, hoping to use NATO's strength to counter Russia, thus bringing Russia a high sense of insecurity, which has triggered Russia's armed action.
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Russian President Vladimir Putin has stated that Russia has no intention of occupying Ukraine. After all, Ukraine is a sovereign state with a population of more than 40 million and more than 30 years of independence, and its status is not the same as that of the Crimean Peninsula, which Russia annexed in 2014. In the Russo-Ukrainian War, Russia's strategic appeal was to use war to promote negotiations, force Ukraine to sign an alliance under the city, and force Ukraine to abandon its intention to join NATO, so as to obtain security guarantees. For Russia, the ideal scenario would be to support a pro-Russian government in Ukraine and form a Russian-Ukrainian alliance similar to the Russian-Belarusian Alliance (Russia and Belarus).
From a game perspective, there is still a high degree of uncertainty about the short-term direction of the Russo-Ukrainian war, but it should end with Russia achieving its strategic goals.
The players of the Russo-Ukrainian War were mainly Russia and NATO. Ukraine, although a belligerent, has less influence on the outcome of the game. This is because of the huge disparity in strength between Russia and Ukraine, and if it is only a duel between the two, Russia will most likely win. The variables of the Russo-Ukrainian war lie in NATO, and the course and outcome of the war are highly dependent on the strength of NATO's support for Ukraine. Even if NATO does not directly send soldiers to the war (at least for now NATO has made it clear that it will not send troops to the war), its support for Ukraine will obviously affect Ukraine's fighting spirit.
We use the "yield matrix", a common analysis tool of game theory, to analyze the game between Russia and NATO. Because the war has begun, Russia currently has only two options: "fight" and "retreat". NATO, on the other hand, has two options: continuing its eastward expansion to Ukraine (referred to as "eastward expansion") and stopping expansion into Ukraine ("stop expansion"). In this way, the game has four possible outcomes :(eastward expansion, battle), (eastward expansion, concession), (suspension expansion, combat), and (stop expansion, concession). Which outcome will emerge depends on the benefits of both parties in the various outcomes, as well as the two-way strategy determined by the benefits.
Let's look at this situation (eastward expansion, fighting). This means that nato and Russia, two major nuclear-armed forces, are facing each other on the battlefield. In this case, the intensity of the war will rise sharply, and both NATO and Russia will face great damage. To indicate the severity of this situation, we set the gains in both cases to -10 and count them in the benefit matrix. Note that in each grid of the revenue matrix, the lower left corner is the NATO revenue and the upper right corner is the Russian revenue.
Let's look at the (stop expansion, battle) scenario. At this point, Russia has won a victory and achieved its strategic objectives. In this scenario, Russia does not necessarily need to completely defeat Ukraine, but as long as Ukraine and NATO recognize Russia's security demands under the pressure of war and abandon eastward expansion. In this scenario, Russia's earnings are set at 2. In this case, NATO is not for nothing (especially for the United States). NATO has strengthened its cohesion by establishing Russia, a near-sighted enemy, and the United States can strengthen its grip on European countries. So at this time, NATO's revenue can be recorded as 1.
Next, let's look at the scenario (stop expansion, concession). This scenario can be understood as Russia's active concession, which is most likely to occur when Russia cannot withstand internal and external pressure and voluntarily withdraws from Ukraine without achieving its strategic objectives. NATO is also no longer expanding eastward into Ukraine. In this case, NATO and Russia gain 2 and 1 respectively.
Finally, there is the scenario (eastward expansion, concessions). This is actually Russia's defeat in the military confrontation with NATO. At this time, nato's gain is 5, Russia's gain is -5. Although Russia lost a lot, it was better than the -10 obtained by burning jade in a large-scale war with NATO. (Figure 2.)
Let's analyze the equilibrium of this game, that is, the possible outcome of the game. Under such a revenue structure, the outcome of the frontal war between the two sides (eastward expansion, battle) will not be balanced. Because both NATO and Russia have an incentive to deviate from this result. If Russia firmly chooses to "fight", NATO will change from "eastward expansion" to "stop expansion", and the benefits will rise from -10 to 1. Conversely, if NATO firmly chooses "eastward expansion," Russia's shift from "fighting" to "concessions" can raise its gains from -10 to -5. In the words of game theory, this is not a Nash equilibrium. Nash equilibrium means that for each game participant, given the opponent's current choice, he or she has no motivation to deviate from the current choice. Similarly, (stop expansion, concession) is not a Nash equilibrium.
Under the current payoff matrix, (stop-expand, battle) is the Nash equilibrium of the game. That is to say, if NATO and Russia have chosen "stop expansion" and "combat" respectively, neither of them has the motivation to deviate from the state of (stop expansion, combat). Because unilateral deviations from either party can only reduce the income of the departing party. But in addition to this equilibrium, (eastward expansion, concessions) is also a Nash equilibrium. In other words, the outcome of the game is either Russia achieving its strategic goals or Russia losing a big loss. As for which outcome will eventually occur, it depends on the specific development of the war.
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A game pattern in favor of Russia
Obviously, the above two balanced game cannot satisfy Russia, because Russia has the possibility of losing big losses in it. The reason why there are two equilibriums in the above game is that in the return matrix, Russia's returns (-5) in the scenario of (eastward expansion, concession) are higher than Russia's gains (-10) in the (eastward expansion, battle). In other words, if Russia feels that it will be better to defeat than the jade burning, Russia has the possibility of defeat. It is precisely because Russia will be afraid of burning jade that NATO has the possibility of choosing "eastward expansion", thus creating two equilibriums in the game.
In fact, just modify the income matrix a little, you can make (stop expansion, fight) the result that Russia most hopes to achieve into the only equilibrium. That is to change Russia's gains (eastward expansion, concessions) from the previous -5 to -20. In such a scenario, Russia would see the big loss as something more serious than the burning of the jade, and make NATO believe this unmistakably. If so, then for Russia, whether NATO chooses "eastward expansion" or "stop expansion", "fighting" is a more favorable choice than "concession" – in game theory terms, "fighting" is Russia's strict strategy of dominance, that is, the strategy it has to choose. And if Russia must choose "fighting", NATO's best choice must be "stop expanding", and the result of the game must be (stop expansion, combat). (Figure 3)
In reality, in order to set the game pattern in its favor, Russia must show an attitude of not being afraid of a big war and burning jade. At the moment when information technology is so developed, bluffing is useless, and you must really take action to make your attitude convinced by the other party. Therefore, Russia will certainly send a signal that it is not afraid of the escalation of war.
Therefore, the Russo-Ukrainian war still has high uncertainty in the short term, and the possibility of the intensity of the war cannot be ignored. An escalation in the intensity of the war could, in turn, lead to a faster end to the war and eventually lead the situation to what Russia had hoped for, namely that NATO would halt its eastward expansion into Ukraine and that Russia would be secured on the Ukrainian side.
At the end of the game analysis, we must say that the above analysis is highly simplified. The reality of war is far more complicated than that, and there are many influencing factors. Even some accidental factors can be amplified in complex situations and ultimately affect the outcome. And if Ukraine shows more fighting power than expected in the war, it will also escalate to become the main player in the game. None of this complexity can be reflected in the simple game theory model that preceded it. But with this model, it can at least help us sort out the current situation.
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The medium- and long-term effects of the Russo-Ukrainian War
In the medium term, the Russo-Ukrainian war will add fuel to the already high global inflation and accelerate the process of tightening monetary policy in Europe and the United States. In the wake of the COVID-19 outbreak, there has been an already global oversupply of demand due to strong policy stimulus, and inflation has remained high. War, on the other hand, is an act of stimulating demand and suppressing supply. The outbreak of the Russo-Ukrainian War will further exacerbate the problem of global oversupply and insufficient supply, thus further pushing up inflation.
The Russo-Ukrainian war will, of course, suppress the prices of financial assets. The plunge in global stock markets after the outbreak of the war has shown this. But the turmoil in financial markets triggered by the war has not changed the trend of monetary policy tightening due to high inflation. Because for monetary policy, maintaining inflation stability is its first priority. As long as there is no crisis in financial markets, falling asset prices will not have much impact on monetary policy.
With the increase of global inflationary pressures, the importance of mainland production capacity in the global economy will be further highlighted, and the dependence of the United States, Europe and Russia on mainland products will be further enhanced, which will be conducive to mainland exports. On the other hand, for Russia, which is highly dependent on energy exports, after being subjected to US-EU sanctions, its energy exports will be more diverted to the mainland, thereby improving the degree of energy security on the mainland.
The Russo-Ukrainian war is also believed to change Europe's position on abandoning nuclear power. After all, if nuclear power is rejected in the face of Russia's reduced gas supply, Europe's energy supply will be difficult to guarantee.
After the outbreak of the Russo-Ukrainian War, at least for a long time to come, it will be difficult for the United States and Russia to reconcile and jointly control China, which is the most unfavorable to the mainland. In the longer term, the Russo-Ukrainian war will bring China and Russia closer together. The combination of China's capital, technology, and markets with Russia's resources could give the mainland more room for maneuver in the Sino-US game.
By creating an immediate enemy (Russia) for NATO, the United States can strengthen its grip on NATO and the European Union. But this does not mean that Europe will completely fall to the United States in the Sino-US game. International politics is interest-oriented, and the Russo-Ukrainian war has in fact harmed the interests of the European Union. Before the Russo-Ukrainian war, the EU's relations with Russia had improved, and the completed Nord Stream II gas pipeline would bring more cheap natural gas to Western Europe. However, by promoting NATO's eastward expansion, the United States has triggered a conflict between Russia and Ukraine, which has greatly reversed the EU's relations with Russia. The price is borne by the people of Western Europe, who face high energy prices. There is no irreconcilable fundamental contradiction between Europe and China, and it is difficult for European countries to be willing to be a pawn of the United States to confront China.
Author: Xu Gao
Source: Xu Gao Economic Observation