For 100 days Ukrainians have been resisting a brutal Russian invasion; they fight alone but are financially backed by the West.
The US Senate just passed a $40bn aid package with bipartisan support, at least $15bn of which will go to the Ukrainian armed forces. Much of the remainder is earmarked for the other front in the conflict with Russia: the geo-economic war.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Despite these efforts, however, Russia’s economy remains on its feet – largely thanks to record-high hydrocarbon prices and continued European gas purchases – allowing the bloody conflict which already claimed thousands of civilian lives and destroyed most of Ukraine to continue at full force. The dire fact that, after all this suffering, Ukrainians still seem to face at least another 100 days,
if not more, of ruthless invasion, bloody offensives and unspeakable atrocities calls for a re-examination of the West’s strategy and tactics in its economic war against Russia.
Since the beginning, the West’s primary weapon on the economic front has been sanctions – severing key banking linkages, barring Russian businesses from dollar markets, and freezing a significant portion of Russia’s war chest. Russian exports, especially coal exports, have also been targeted. However, Europe is still having gruelling discussions over how to fully ban Russian fuel.
So far, the West appears to have opted to pursue what can be defined as a “supply-side strategy” to weaken the Russian economy but simultaneously failed to efficiently plan for the predictable costs such a strategy would inflict on itself.
There are growing calls for further restrictions and heated discussions over whether – and how – to put in place a full embargo on Russian hydrocarbons and banking. But all parties to the discussions are aware that the added cost from such moves would be high. And as Western attention slowly moves away from the war – a luxury that Ukrainians cannot afford – there is a risk that the resolve for passing more sanctions may soon weaken.
Putin has demonstrated clearly, however, that no matter which direction the West decides to take, he will continue to prioritise military spending, even if it means resorting to autarky and impoverishing his own people.
All this means, that if it really wants to end Ukraine’s devastation promptly and hold Russia to account for its lawless actions, the West not only needs to tighten its sanctions regime against the Kremlin but also learn to use this effective weapon of economic warfare in a much smarter way.
Failure to envisage and prepare for the costs of the war’s economic impact thus far has already undermined the efficacy of sanctions. And failure to plan for the ramifications of still-to-be-introduced measures would risk further weakening the West’s hand in this economic battle.
If Europe implements further sanctions without developing strategies to protect European nations from their costs, it may end up bolstering far-right arguments against economic resistance to Putin’s regime, such as concerns raised by France’s Marine Le Pen over how hydrocarbon sanctions may result in inflation and economic devastation.
Populist right-wing politicians like Hungary’s Viktor Orban or Italy’s Matteo Salvini are also chomping-at-the-bit for the opportunity to rush back into Putin’s arms, and would use any further costs acquired from new sanctions to try and turn public opinion against the Western efforts to economically punish and restrain Russia.
This is not to say in any way that the West should ease sanctions. On the contrary, while Ukrainians continue to fight for their country’s survival, not one inch should be conceded on the supply-side efforts. But to build the necessary political support for sustaining, and winning, the economic war against Russia, the West also needs to implement a demand-side strategy.
State investment, international supply-chain and production coordination, and the underwriting of risk by leading Western nations can help Ukraine fight and bankrupt Putin’s war machine.