One year on from the start of Russian leader Vladmir Putin’s all-out war against Ukraine, we need to take a leaf from former US president Ronald Reagan’s book. With the struggle settling down to a drawn-out war of attrition, we need to abandon what has essentially been a crisis-management approach for something more strategic. This means enforcing sanctions more effectively; putting our economies on a war footing to avoid exhausting our arsenals; adopting wartime-style resource planning; giving Ukraine what it needs to win rather than the minimum it needs to keep fighting (and what won’t provoke the Russians); accepting that Ukraine is the forepost of the West’s collective security system and therefore an integral part of that system, to be treated as such; and recognising that what is happening in Ukraine is no sideshow, but will define the future of Europe – and possibly the world.
A few months after Russia’s invasion of Ukraine, when it became clear that sanctions were the central thrust of the West’s response, I wrote a somewhat contrarian piece on the subject. In it, I argued that sanctions would not deliver the desired result – namely, to limit casualties at the front by winning the war (and doing so quickly). The reason I gave was that sanctions were essentially the reactions of politicians interested in short-term crisis-management and public opinion. They were concerned with keeping the public on-side, showing “backbone”, and winning the ongoing Battle of the TV Screens. One thing sanctions were not, I said, was the thoughtful response of strategists who want to win a war.
In the same article, I went on to compare this “war crisis management” approach to the strategy that then US president Ronald Reagan had used to bring the Soviet Union (USSR) to its knees in the 1980s. This essentially consisted of three elements:
- A serious focus on making a deep dent in Soviet finances, saddling the USSR with debt it could not service;
- Escalation of geopolitical bets to a level that Moscow could not dream of matching (remember Star Wars?); and
- Tightening up on unintentional and illicit technology transfer – the various ways in which Western high tech leaked into the notably uninnovative Soviet economy.
It worked. Mr Reagan’s policies fostered change, helped the rise to power of reformist Mikhail Gorbachev, and, once Mr Gorbachev was installed as Communist party chief, the US hardball policy helped him keep consolidate his power, keep the hardliners at bay and provide credibility to his reformist policies, making the case for adopting a cooperative rather than confrontational mode in relations with the West.
Moreover, since this was a strategic policy carried out by real strategists in Washington, rather than by short-term crisis managers with one eye on the opinion polls, actual effects rather than gestures and appearances were uppermost in their calculations. And in fact they calculated rather well. Sanctions were not allowed to affect Western countries’ economies and their citizens’ welfare: if you remember, crude oil dropped to nine dollars a barrel ($9/bbl) at one stage. No, sanctions affected those they were meant to affect: for instance, the embargo on technology exports worked well and hurt the Soviets badly.
Now, in the 2020s, we need to learn from Mr Reagan. Now that there is consensus that the war in Ukraine is not susceptible to quick solutions, we must take remedial action to help the West move on from crisis management to strategic containment policy mode. First, however, we must fix the leaks in sanctions.
Now, the main points to note about sanctions are two-fold. First, that they seem to be biting deep – acceptably deep. And second, that this must be having a serious effect on Russia’s fiscal situation, even if we don’t know quite how bad the resultant situation is.
According to the Russian finance minister, cited by Bloomberg in early March, tax revenues to the budget from oil and gas in February were down 46% y/y to $6.91 billion, of which Bloomberg estimates $4.78 billion (down 48% y/y) was attributable to oil and petroleum products. Though world oil prices generally had fallen in the intervening period, a great deal of the latter drop must surely be put down to the Western (G7) price caps and export restrictions that came into force in early December (crude) and early February (refined petroleum products).
What were the results for the budget? Well, we don’t know exactly, because the Kremlin has simply stopped budget figures going public (“in response to sanctions”) – a departure from its normal practice of cooking the books and reporting the resultant figures. But three considerations suggest that the situation must be pretty dire. One: that silence probably means that there is more than usual to hide. Two: even in normal times, energy accounts for a high proportion of budget revenue, so the loss of 46% of it is a serious matter. Three: war expenditure must be sky-rocketing, given the growing number of men under arms since the partial mobilisation late last year. So an ominous rise in the budget deficit seems likely.
So oil sanctions are working to a significant extent. I would also argue that they are working in broadly acceptable ways, hurting those whom the West wants to hurt (i.e. the Russians) without too much collateral damage (and, in some cases, considerable benefits) for those it does not.
Thus, sanctions have mostly closed the European market – Russia’s natural market and in normal times by far its largest market – to Russian oil, given the EU ban on imports. But provisions have been made that benefit consumers in European countries that really need it (and, indirectly, benefitting the Ukrainian army!). Imports via the Druzhba pipeline are still permitted for inland states in Central Europe dependent on it (Hungary, Slovakia) and seaborne imports for Bulgaria (in what is admittedly a rather abused derogation).
Outside Europe, Russian revenues are limited – and local consumers benefitted – by the $60/bbl price cap imposed by the G7 (and reasonably enforceable because most ship and cargo reinsurance is carried out by G7-based companies). The US, for instance, has not banned Russian oil imports, though it has never been a major importer and will hardly become one now.
But the main importers of Russian oil at present are India and China, and they seem to be buying it at well below $60/bbl, for reasons to do with the market rather than any administered sanctions.
Since it’s a buyer’s market – and since sanctioned Russian crude is competing with sanctioned Iranian crude at the moment – India can name its own price, to the extent of fixing official discounts to Brent for Russian Urals crude. And the price it has chosen to name (exclusive of insurance and freight) hovers around a staggeringly low $40/bbl. Which is not at all good news for the Russian treasury.
As to China, it’s probably doing less price-gouging than India at present, since most Russian oil trade is governed by long-term contracts, and it is not getting the Urals blend. But, at least at present, China has become a considerably less important customer than India, so it’s the hard bargain that India is driving that is the really important one.
In short, the amount of revenue generating for Russia – revenue that Mr Putin can use to kill Ukrainians – is being limited. And both India and China have good economic reasons for keeping it that way. All in all, sanctions are not working too badly.
Which is not to say they couldn’t work better. They can be, and they are being, circumvented to some extent. Even G7-based shippers and reinsurers are not immune to temptations of sharp practice – and not lacking in the ingenuity to make evasion possible. Moreover, the Kremlin has amassed an impressive “shadow fleet” of tankers, which allows it to get around restrictions, mainly by tanker-to-tanker transfers at sea, followed by changes in certificates of origin. But improved policing and surveillance are possible. For instance, tracking of ships at sea could be stepped up to counter tanker-to-tanker transfers, though the tendency of ships to turn off their transponders before and after transfers is an obvious complication.
Generally, the right response to this is not to impose new, more drastic sanctions, but rather to make circumvention more difficult and costly. Sanctions ain’t broke, but fixing them could certainly make them work better.
All this said, however, the way sanctions are currently operating offers no prospect of an immediate and dramatic loss of Russia’s capacity to wage war. If sanctions continue at their present level of effectiveness and Western aid to Ukraine remains constant, the Russian treasury will be able to stand at least another year and a half of war. We need a change of approach: ‘fix the leaks’ first, sanction mid-sea tanker-to-tanker transfer, and then understand that the EU and NATO need a long-term containment strategy for Russia at an early stage if they want to stop Mr Putin’s revanchism from spilling over into to the rest of the world.
After all, there are ominous signs. China, Iran and Russia have recently conducted joint naval exercises, China has been brokering remedial action in Iran-Saudi Arabian relations and Saudi Arabia is coordinating its oil policies with Russia. These things obvious global geopolitical implications. And it’s clear that piecemeal policies, addressing one threat at a time, won’t deliver.
The depth of Russia’s resilience
There is one thing worse than overrating Mr Putin, and that’s underrating him. Specifically, underestimating the depth of resources he can mobilise to confront the EU and NATO by fighting the Ukrainians in Ukraine. Or more precisely, the damage he can inflict by stirring trouble elsewhere in Europe, or in Africa, the Middle East or anywhere else in the world.
The financial basis of “Vladimir’s global war” is not rooted in any particular merits of his geopolitical genius or in his economic or monetary policies, but in the cumulative effects of EU and US policies towards Russia over the last two decades. The West created Mr Putin’s war chest by means of high energy prices, of acquiescence in his military adventures in Georgia, Syria and Ukraine, and of illusions about privileged and extensive trade relations and energy dependencies – relations and dependencies that were meant to contain the man in the Kremlin, but instead encouraged his deadly instincts.
It is not about Ukraine any more, but about Europe and NATO. The stakes are much higher than those of a war on what some refer to as the ‘periphery’ of Europe. The problem is not even one of Mr Putin’s pathological geopolitics or his dire need to sell his countrymen the narrative that he is fighting the collective West, not Ukrainian president Volodymyr Zelensky (which, incidentally, explains the recent escalation represented by a Russian interceptor’s downing of a US MQ-9 Reaper drone in international airspace over the Black Sea).
Rather it’s about a long-term trend that, left unchecked, might entail critical long-term vulnerabilities for the EU and NATO, amplifying Russia’s future destructive capabilities in the post-Putin era. The threat is not one that will go away by itself. No Western politician in his right mind could argue even the feintest possibility of co-existence with a ‘Putinesque’ Russia, which would pose a permanent and existential threat to the EU and NATO countries – and to world order and security.
Neither is it a war ‘on the periphery of Europe’ that will determine what sort of Russia we will have in the years and decades to come. That will be determined, rather, by attitudes, vision, calculations and policies at Europe’s very core. Europe will get the Russia that Europe deserves. And what it deserves will be determined by Europeans themselves in the very near future.
And it’s a central – the central – problem. Take China. What we really need to be concerned about now is not how the West might deal with the challenges posed by this rising economic and military superpower. What we should worry about is how Beijing reads the context of Western resolve vis-a-vis Russia’s assertiveness in Ukraine. Whether Beijing will stick to trade or turn to armed force will depend on the outcome of the war in Ukraine. And Taiwan is not the only target the Chinese leadership may have on their geopolitical radar. Russia’s weakness may encourage the Chinese leadership to look north first for territorial and economic expansion.
Neither the war in Ukraine nor its consequences should be addressed as a tactical issue or side-show, meriting only periodic attention and a level of support for Ukraine near the minimum required to deny the Kremlin a victory.
The issue is not Ukraine any more. The issue is taming a nuclear-armed dictator with the long-term intent of destroying the post-1945 world order and inflicting maximum damage on the West wherever he can – be that Europe, Africa, Asia, the Middle East, or Latin America. Therefore, the West’s response has to be global, addressing Russia’s global behavioral challenge – and not confining reactions to providing the amount of support and military assistance that Ukraine needs.
Revisiting Reagan’s legacy: a must in a war of attrition
The logic of Ronald Reagan’s containment policy was to punish Moscow without punishing Westerners. That’s something we are not seeing today. And more pain is yet to come with the war of attrition that will confront us in the coming months, as Mr Putin’s Russia exploits the reluctance of Western politicians to recognize that this is their war, not just Ukraine’s or even Eastern Europe’s.
EU and US politicians pretend they can avoid direct confrontation with Mr Putin and seek solace in the supposed fact that his economy is falling apart, with budget revenues sinking uncontrollably. Their reasoning goes that the West can, therefore, win a war of attrition with Russia, given the huge disparity between their respective economies and levels of wealth.
While generally true, this observation misses one crucial point: Mr Putin has put Russia’s economy and society on a war footing, adding disproportionate resilience to his war machine, at least in the short term.
By contrast, the West has supplied Ukraine’s war effort by depleting its own stock of arms and ammunition without putting its arms industry onto a war footing. Suffice it to say that the supply of Javelin anti-tank missiles to Ukraine – where they have been used rather than stockpiled – has essentially exhausted US and NATO reserves, since the number supplied is the equivalent of ten years’ production at peacetime rates.
The war of attrition between Ukraine and Russia is no longer about Ukraine’s independence and right to exist as a sovereign state. Instead, the question is much more fundamental: that of how the EU and NATO will address the global security challenges fostered by the Ukraine war.
Let’s keep this simple. Whatever the war’s outcome, the challenges that NATO and the EU face will require a substantial increase in long-term defence spending, massive rearmament, a spike in arms and ammunition production – and a definitive farewell to debilitating pacifist somnolence in the style of Neville Chamberlain. In a nutshell – the new arms race is on.
The only thing that might spare us a worst-case scenario is a defeat, at the earliest possible date, for Mr Putin, followed by a regime change in Russia. And this would need to be enabled by a complete switch to war-time reasoning in the economy and in social life. So it is time for democracies to hit back. Just as the ICC has issued international arrest warrant on Putin as a war criminal in a classic gloves-off act of defiance.
Fostering change in Russia
Although a regime change in Russia might come unexpectedly, no-one builds strategies around ‘black-swan’ probabilities. Russians need to get involved and take the fate of their country back into their own hands. For now, both the EU and NATO have given up on internal change. Yet various ominous signs suggest that internal pressure is building up: civil service salaries are being paid late; so are pensions; and record amounts of money are being printed.
As in Soviet times, if you want to detect and foster change, you must look at the regional level, not watch central TV stations and controlled media. If you want a sense of Mr Putin’s growing list of concerns, look at his visit this week to Ulan-Ude, capital of the Buryat Republic, a remote ethnic enclave whose sons are dying in disproportionate numbers in Ukraine. Or look at footage of Mr Putin’s meeting (also this week) with Ramzan Kadyrov, the hawkish, thuggish and assertive warlord-president of Chechnya. In both instances, Mr Putin was trying to test critical temperature levels and avert possible regional crises.
What happens with Russia will ultimately be defined by two things:
- first, how soon regime change takes place, potentially putting an end to the war and the large-scale shedding of Russian (and ethnic-minority) blood; and
- second, how deep that regime change really is, whether it amounts to a move away from Putinism or just installation of a similar figure presiding over a largely unchanged elite – ‘Putinism without Putin’, as it were.
Ultimately the strongest incentive for the Russian elite to engage in replacing Mr Putin is the survival of their country (within its pre-2014 borders, of course). Containing Mr Putin should therefore be a matter of shared interest both externally and internally. It will also help preempt the emergence of copycats, in other rogue states, of his destructive policies. Iran is a vivid example.
So the message is simple. Change is brewing in Russia as Mr Putin’s financial problems loom and he tries to present the war in Ukraine as a “war for Russia’s existence”. The patriotic sedative effect of that slogan may work for a time. But it will soon wear off as more and more body bags – or “cargoes 200”, in Russian military parlance – are brought home and as incomes plummet outside the pampered world of Moscow and St. Petersburg.
The bottom line is this: like it or not, there is no better tactic to foster change in Russia than to apply the old Soviet-era carrot-and-stick strategies and to recognise the facts that we are already at war and that this war has global repercussions. Before Russia blows up the Ukrainian war into a global war, in a step-by-step escalation – today downing a drone, tomorrow ordering the killing of a NATO defence minister – the EU and NATO need to act.
China: trader or aggressor?
The US has long seen China as its arch competitor, second-rating Russia as a global threat. However, the EU has never considered China a military threat and has preferred to trade with it (and with Russia), lowering its defensive shield in accordance with the classic “appeasement-through-economic-dependencies” policy paradigm.
Following the COVID pandemic and the reshuffling of the geopolitical deck, the new China of Xi Jinping, prone to challenges, is no longer considered a safe asset of peace and stability, as it had been in the days of Deng Xiaoping and his quite genuine covenants, which offered peace in return for trade and prosperity. And this is not necessarily because China has ceased to cherish the peace it so much needs for its role as global trader and manufacturer. Rather, it is because the historical background has changed, and the world is not at all sure that Beijing will not emulate Mr Putin by invading Taiwan, triggering a new global crisis. Mr Xi has ambitions for a place in the world and in history that are no less grandiose than those of Mr Putin. True, it is not a foregone conclusion that China will choose the path of war. It has a lot to lose from a major breakdown of relations with the West – and recent comments by newly appointed Chinese prime minister Li Qiang bear this out, pointing in the direction of reconciliation.
But what if Beijing does choose to use force against Taiwan? The conclusion to be drawn from the state of affairs in Ukraine is quite straightforward. If it is true that the Ukrainian war, which has yet to peak in military terms, is about to exhaust at least certain parts of the military arsenals of NATO and the EU, just think what the effects of opening a second battleground in Asia might be. Given that arms delivery on current contracts (specifically, F-16s) are already being delayed, just imagine what a “second front” would spell for the rearmament of NATO’s member states’ armies in Europe in the face of rising global military threats.
What if Beijing, instead of attacking Taiwan, chooses to assimilate parts of Russia – first economically, then politically – profiting from the Kremlin’s escalating weaknesses and dependence on China? Should the West stand by and watch or engage in protecting the status quo? One thing is certain: the West won’t be able to save Russia within its pre-2014 borders if there is no regime change and if Russian elites do nothing about curbing the imperial and aggressive nature of the country’s foreign policies.
Therefore, without further ado, both NATO and the EU must put their economies on a war footing to cover essential military needs and threats. And they must not only supply Ukraine and Taiwan with the necessary defence capabilities, but also replenish their own arms and ammunition stocks to wartime levels. The EU is taking steps in the right direction with its scheme of joint arms procurement programmes to enable investments and planning. But these are, so far, more a matter of policy intentions than of real actions. At least so far.
Defeating Putinism is not just a matter of a quick and final win on the battlefield, but also of a strategic and relatively long-term process of shifting the balance of economic and military power and slowly but irreversibly eroding Russia’s economic and military base, fostering a regime change. In this sense, ensuring the right outcome for the war is not just a question of “doing the maths” and overwhelming Mr Putin with resources on the frontline. It’s also a matter of outmanoeuvring him at the strategic planning level.
That means having a clear plan and a clear timetable for rebuilding a self-reliant, well-armed and prosperous Ukraine and thus making it a successful alternative to Putin’s bankrupt Russia, much as South Korea represents an attractive alternative to the North Korean model. And this would not only require an optimal deployment of resources over time, based on constantly updated cost-benefit-impact analyses concerning the enhancement of Ukraine’s war capabilities, including Ukrainian arms production. It would also require, above all, a shift in Russia’s economic and financial base away from capabilities relevant to the ability to engage in military adventures.
The EU and NATO must approach the issue of military and economic support for Ukraine in the light of one simple truth: Ukraine is their key forward line of defence against Russia. The Ukrainian army is Europe’s best hope for containing Mr Putin and forestalling further Russian aggressive acts. Battle-hardened, innovative, its morale high from successes against incredible odds, it is also an immediately available asset. Just imagine the cost, the time and the uncertainty associated with NATO and EU member states attaining similar levels of deterrence and top-level combat-ready capability.
So far, what has governed military aid to Ukraine has been a sort of “residual principle”: the West has sent what it can afford and what it judges will not irritate the Kremlin or escalate the war. That must change. The relevant principle must, as soon as possible, become that of sufficiency to win.
- New weapons should be supplied – even the newest ones, for there is at present no better testing-ground for the reliability of new technologies than Ukraine.
- What was previously “unthinkable” should now be provided as a matter of routine. That means long-range weapons, tanks and aircraft, as well as anti-aircraft and anti-missile systems – and should include intelligent weapons systems.
- Sufficiency in volume and financial terms should be ensured. NATO and EU countries should adopt target levels of support for Ukraine, expressed as a percentage of their budgets. Or else, joint EU military training and arms production programmes should be accelerated to address Ukraine’s needs. Or, quite possibly, both.
All European countries should see military aid to Ukraine as the most effective investment in their own national and collective defense and as an indispensable step in sharing the effort of containing Russia as a percentage of their national defense spending. Such aid should be an element in a triad of key policies, the other two elements being:
- First, the growth of defence spending within the EU budget (and the budgets of its member states, and of non-EU European states as well); and
- Second, efforts to build an independent European pillar of NATO’s collective security system, roughly equivalent in size and importance to the rest of that system.
Moreover, there’s a lot of room for rationalisation and pooling of resources – yielding savings that can be used to help Ukraine. It makes rather limited sense nowadays for NATO and EU countries far from Russia’s borders (and from the front line in Ukraine) to maintain a self-sufficient military resource “just in case”. The threat to countries like Germany, Italy, the Netherlands, and Belgium from their neighbours is in practice negligible, after eighty years of peace and almost as many of EU and NATO membership. But it makes sense to share the cost of a collective security system in Ukraine along the borders with Russia.
This argument is particularly valid for the countries in the first echelon of the collective security system (such as the Baltic states and Finland), and those in the second echelon (Poland, Slovakia, Romania and Bulgaria). These are the countries that must build an integrated defence system – integrated not only among themselves, but also with Ukraine. Not only are there synergies and inherent strategic value involved in integrating military capabilities and finding the optimal combination of costs and benefits when it comes to defence potential and military capacity. There are also political and moral benefits.
Supporting and rebuilding Ukraine and helping it become the alter ego of Putin’s grim and squalid RusskyMir (Russian World) – a shining example of what’s possible and a reminder that there is an alternative – might change the geopolitical landscape and secure peace in Europe for decades to come. So let’s do it!
(Source: Analyses and Alternatives)