On the energy issue, one should accommodate Putin

The war in Ukraine has been going on for five months now and there is no prospect of it ending any time soon. Russia is tightening its rhetoric, running its defense industry around the clock and recruiting new volunteers from its vast pool of convicted criminals. Ukraine has no choice but to fight and no option but to win – so they will do their best on the front lines and beyond. Already, here and there in the occupied territories, local patriots have started murdering people who sided with the invaders.

Europe and a broad Western coalition are supporting Ukraine with arms and money. They have imposed a plethora of sanctions on Russia, but are suffering from soaring commodity prices, fear a possible disruption to Russian oil and gas supplies, and are worried about the influx of refugees from Ukraine.

Russia can be defeated

Many foreign policy thinkers who stand in the tradition of “Realpolitik” get caught up in this weak point. They claim that Russia cannot be defeated, that Putin must not be humiliated and that the conflict in Ukraine should be ended as soon as possible, even at the cost of territorial concessions from Kiev. They think that Russia’s ability to withstand economic pressure from the West will be greater than the ability of Western governments to withstand the political pressure from their constituents, created by the ongoing war, high inflation and precarious energy supplies in view of the winter are unsure.

Now, it is certainly the case that the current position of the West should be reconsidered, but this should be done in light of some obvious assumptions, which, admittedly, are not seen by everyone.

Politically, there is nothing to negotiate with Putin, but there is a lot to discuss economically.

The first point concerns Russia and its wars. When Western “realists” of all stripes insist that “Russia cannot be defeated militarily,” they are flat out wrong. History proves that while Russia is unbeatable within its own territory, Poles found that out in the 17th century and Swedes in the 18th century. But outside of Russia, the Russians have lost more often than they have won – remember the Russo-Japanese War of 1904-05, the humiliating defeat by the Poles at Warsaw in 1920, the Finnish Resistance in 1940 and the Afghanistan campaign of 1979-89. This Argument is none and therefore does not apply.

The second point is that talks are always better than fights – but you should assess beforehand who you intend to negotiate with. Even at Munich in 1938, the French and British leaders could consider Hitler an honorable man, for although he demanded territorial concessions from Czechoslovakia over the Sudetenland, he did not simply attack the country. Incidentally, the borders between the German Reich and Czechoslovakia were not defined by the two countries, but by the victors of the First World War in Saint-Germain in 1919.

In contrast, Putin personally signed the 2003 Russian-Ukrainian state border treaty and ratified it in 2004 – only to blatantly break it twice later, in 2014 and 2022. How can Putin even be considered a serious negotiating partner? Do his word and signature have a non-zero value?

The fact is: Russia can be defeated. Ukraine can prevail. You can’t trust Putin. But what about the economy, the sanctions and the possible cold winter? I believe that economic issues should be clearly separated from military issues.

Comparable situation

The situation in the early 1980s was similar to that of today. President Reagan called the Soviet Union an “evil empire”. In the hands of mujahedin, American, British and French arms killed hundreds of Soviet soldiers every month in Afghanistan. The free world faced the communist world in Africa, Latin America and the Middle East. In the Third World, pro-Soviet and pro-Western guerrilla groups fought each other. The Soviets shot down a South Korean wide-body passenger plane in 1983.

The Coordinating Committee for Multilateral Export Controls Targeted at the System Enemy, the Soviet Union, a body that would fit in well with current sanctions policies, has been in operation since 1949. At the same time, Soviet oil exports to Western Europe increase tenfold between 1962 and 1984, and natural gas supplies even skyrocket between 1974 and 1984 stronger. With what result? The Soviet Union collapses within a few years – due to its encrusted imperial structures, the lack of freedom for the people and a dysfunctional economy. And this without an export embargo being imposed on it.

Wouldn’t it be better for Europeans to start thinking about the moderate energy sanctions imposed on Russia after February 24, which threaten Russian exports in the long term? It would be better not to impede Russian energy exports to Europe, because these sanctions hurt Europeans more than Russians. Moscow does not need dollars and euros to order new military equipment from defense contractors, hire fresh soldiers, or provide for their widows and children. For all of this, Putin needs rubles, which he can easily borrow on Russia’s domestic market or get from Russia’s central bank. It can be assumed that the Kremlin is able to finance the war in Ukraine for at least two years without significant economic consequences for the country.

It would be better for Europeans to stop almost all of their exports to Russia (which, because of their comparatively small size, has no appreciable impact on the EU economy), but continue to buy strategic resources from Russia. That way, they would ease concerns in the energy markets, drive down oil and gas prices, and, funnily enough, have more cash available to support Ukrainians. The future pessimism of its own citizens would disappear. For this reason, Europeans should not negotiate peace terms between Russia and Ukraine, but hold trade talks with Russia. In this way they can secure their energy supply for the coming years and become more flexible in terms of supporting Ukraine.

The Kremlin is keen to continue its oil and especially natural gas supplies to Europe. In 2019, around 77 percent of Russia’s natural gas exports went to the EU and EEA countries, and there are almost no alternative routes as progress in LNG development relies almost entirely on delivery from within the EU or the US manufactured equipment. The Russians are looking for compromises and concessions from the West – as the dispute illustrates quite well the story of the gas turbine built by Siemens and overhauled by the Canadians. They act and react sensitively to the question of gas supply, which is currently being controlled by mutually negative expectations on both sides. They have cut gas supplies mainly because of fears that the Europeans could go even further with their energy sanctions.

The Ukrainians can win

So the Europeans should allow the Russians to continue their deliveries. (And maybe even consider opening Nord Stream 2.) But at the same time, they should keep all existing export sanctions in place and weaken Russian industries that both create jobs and provide much-needed products to millions of people. After a few years of this sanctions regime, it will become clear how viable the Russian economy is – but that should not be the main concern of the West.

What the western powers should be very concerned about is Ukraine’s military success. It is not very important at which line the Russians will be stopped or if they will be driven out of Ukrainian territory altogether. The most important thing is that Putin feels compelled to start negotiations when the war becomes unbearable for his own people.

Ukraine is the only force that can crush the Russian horde with sufficient military and financial aid from the West, and the West should give brave Ukrainians the opportunity to do so. Putin’s authority in Russia is not based on his economic achievements as President, but on his actual or imagined geopolitical achievements, the reestablishment of the Greater Russian Empire. Defeating its army in Ukraine means more to Russia’s internal dynamics than forcing the Russian economy down to the ruinous levels of the 1990s. And what is also to be considered: The first goal is easier to achieve than the second.

Politically, there is nothing to negotiate with Putin, but there is a lot to talk about economically. The right way is to distinguish between military and economic questions. If it can separate the two, the West can repeat its victorious Cold War strategy. But if he continues to mix the two, it could land him the biggest geopolitical failure in decades.

Vladislav L. Inosemtsev is a well-known Russian economist. He is Special Advisor to the Memri Project on Russian Media Studies and Founder and Director of the Center for Post-Industrial Studies in Moscow. – Translated from the English by Andreas Breitenstein.