The heart of the West’s strategy has been two-pronged: supplying Ukraine with arms, training and money, as well as imposing massive sanctions on Russia. This basic idea still makes sense, but the balance has to change. It is now clear that the economic war against Russia is not working as well as people thought. President Vladimir Putin cares less about what these sanctions do to the Russian people than what they do to the Russian state. And thanks to rising energy prices, Bloomberg News predicts that the Russian government will derive considerably more oil and gas revenue than before the war, about $285 billion this year compared to $236 billion in 2021.
Meanwhile, Europe faces its worst energy crisis in 50 years.
The fundamental problem with the economic war against Russia, as I have already said, is that it is impotent because it exempts energy. The Russian economy is fundamentally an energy economy. Oil and gas revenues alone make up nearly half of the Russian government’s budget. And unfortunately, the solution would not be for the West to completely stop buying Russian energy because, with less supply on world markets, it would only drive prices even higher. Having developed a dangerous dependence on Russian energy over the past two decades, Europe cannot change this quickly without plunging into a deep and prolonged recession.
Look at what is already happening on the continent, where natural gas prices are now 700% higher than they were at the start of last year. On July 11, Nord Stream 1, the gas pipeline through which Germany obtains most of its Russian gas, is due to close for maintenance. It is possible that Putin decides to punish the West and Germany by not letting it reopen. If so, Germany – Europe’s largest economy – will almost certainly fall into recession. Putin’s strategy appears to be to impose costs on the West and buy time, assuming that the cracks in the coalition against him will grow as the economic pain in those countries grows.
Western countries are still not treating this challenge as a top priority. The Netherlands has a huge gas field, but this is actually slowing down production. Germany will still not reconsider its progressive abandonment of nuclear energy, which goes against the desired goal. The Biden administration further complicates the financing of long-term investments in natural gas and oil. He also appears unable to find a way to restore the Iran nuclear deal – a move that would bring a huge influx of new oil supplies to the world market and almost certainly stabilize the price. I understand that there are valid objections and concerns about all of these policies – but the priority must be defeating Putin.
Meanwhile, Putin’s real vulnerability is on the military front. The Russian army has extended its control in the Donbass region of Ukraine, but at great expense. Thousands of Russian soldiers have died, its supplies are dwindling and, most importantly, it is very difficult to find recruits. The Economist reports that the government is struggling to fill ranks and is offering new recruits triple the median salary.
Russia is suffering heavy losses in weapons that will be difficult to replace, especially when they require sophisticated technology – which it imported almost entirely from the West and its allies. Recently, Commerce Secretary Gina Raimondo revealed that captured Russian equipment contains computer chips that have been removed from refrigerators and dishwashers.
Western leaders should recognize that economic sanctions simply won’t work in a timeframe that makes sense. They should increase the energy supply in the world as much as possible, but also cancel the sanctions which clearly cause more pain to the West than to Russia. Meanwhile, they should step up military support for Ukraine, err on the side of taking more risks. Lifting the blockade around Odessa would be a huge economic victory for Ukraine and a crushing symbolic defeat for Russia.
Winter is coming. Homes in Europe might not have enough heat. Ukrainian troops will have a harder time dislodging the Russians once snow covers the country. Time is not on our side.