Economic Statecraft
The Russian Predicament

The USA, looking after its own self-interest, protects its economy from global inflationary trends, whereas, on the other, Russia turns to China, India and even Turkey to substitute for its relative loss of the European energy markets. No doubt, the big loser of the Ukraine conflict is the EU.

After prolonged elite discussions (and disagreements) within Western executives, the EU, the G-7 and Australia decided to cap the purchases of Russian seaborne oil to $60 per barrel. The ostensible aim is to curtail Russia’s ability to finance its conflict in Ukraine inasmuch as more than 45% of Russia’s state revenue comes from the sale of hydrocarbons. Sceptics, however, pointed out that this reduction is not good enough, especially since the current Brent price of crude is at just over $76 per barrel. Ukraine itself – not to mention Poland – argues that the West should stop purchasing hydrocarbons from Russia altogether, further privileging the sale of expensive American LNG to Europe. This is a false debate and a wrong policy.

The debate is false for multiple reasons, three of which stand out. First, American LNG is not enough to fuel Europe’s economic and social infrastructure. Second, LNG imports require construction of special tankers and terminals, which Europe has just start building. Third, Russia has already begun diversifying its crude oil and gas exports to Asian markets, especially China and India, making new agreements and building new pipelines. But there is also another aspect which concerns particularly the contractual situation between Russian export consortia and Western states, namely that more than 77% of total Russian gas exports are tied to contracts that stipulate that importers would continue to pay up to 85% of the contracted price of the gas even if they don’t receive any gas. These are long-term contracts that work in favour of Russia and European importers can do nothing about them. 

Economic Statecraft
Oil Price Threshold: Action and Reaction
Ivan Timofeev
By building up pressure on the Russian oil sector, the US and other initiators of sanctions will use their rich experience of restrictions against Iran. Iran continues to survive under the sanctions, although it has suffered losses. There is no doubt that Russia will also retain efficient ways to supply its oil to foreign markets. However, as in the case of Iran, the sanctions will increase the cost of Russian oil exports, writes Valdai Club Programme Director Ivan Timofeev.

These reasons also point to the fact that Europe’s policy is wrong. For political-military reasons related to their dependency on the USA, the European elites, reluctantly, opted for an expensive energy policy, which no doubt contributes to the inflationary spiral of their economies. At the same time, the US Congress passed the $430 bn Inflation Reduction Act (IRA), aiming at subsidising production of advanced green technologies, while cutting greenhouse gas emissions amid the climate crisis. No accident that France attacked this protectionist US policy, arguing that it threatens to exclude European products out of the US market, while fracturing the NATO alliance in a critical juncture. Germany, too, had to swallow a very bitter pill by accepting the closure of Nord Stream pipelines on the altar of US policy cutting off any geo-strategic dependency link of Germany upon Russia.

This is not the first time the USA intervenes to reverse strategic cooperation between Russia and Germany.

In the 1970s, the USA blocked West Germany’s Ostpolitik by placing Pershing and Cruise missiles on West German soil, thus reminding the Germans “who the real enemy is”. 

What do we observe here? On the one hand, the USA, looking after its own self-interest, protects its economy from global inflationary trends, whereas, on the other, Russia turns to China, India and even Turkey to substitute for its relative loss of the European energy markets. No doubt, the big loser of the Ukraine conflict is the EU. This brings us to the central theme of this brief commentary. 

The EU did not embark on anti-Russian policy with a united voice, whether this regards sanctions or the capping of oil prices. The EU has never been a state with a political and fiscal unity enabling it to be an independent actor in global politics alongside a single policy voice. European business elites are not united at the European level but at the level of their respective nation-states. The element that unites European business and political elites is the coercive presence of US military and nuclear might on European soil since WWII, a fact that reflects the close economic integration between North America and Western Europe. American tutelage over the EU cements the Euro-Atlantic bloc and provides the necessary cohesion needed in order to confront Asian adversaries, such as Russia, China and Iran.

The eastward expansion of NATO, which always precedes the EU enlargement, is a way to amalgamate US supremacy over East-Central Europe the same way it was cemented over Western Europe during the Cold War: this is a “hub and spoke” imperial method, whereby Washington DC (the hub) expands its dependent spokes methodically and by way of invoking a permanent adversary – be it Soviet Union, Russia or the “war on terror”.

In this context, some questions loom large. Is it worth for Russia exploring avenues for cooperation with disenchanted European elites and, above all, European societies (trade unions, NGOs, etc.) given their economic plight which the prolongation of the conflict in Ukraine guarantees nothing but their continuing misery? What kind of peace Russia wants in Ukraine? A peace solution that bears the signature of the EU, China, India and Russia, or a solution dictated by the US via its NATO European allies?

Today, militarily, Russia seems to be on the backfoot in Ukraine, yet hardly close to be defeated. A prolonged war of attrition would spell havoc on Ukrainian, Russian and European societies and the resulting humanitarian disaster may not be containable. Negotiations for peace, therefore, must start immediately. Russia has declared readiness for this, making clear that it intends not to extend its new territories as approved by the Duma. Ukraine, no doubt under the instigation of the USA and other hawkish Western states, does not accept this and the stalemate continues. Given that the world is undergoing a long transition period stamped out by the protracted economic decline of the Euro-Atlantic core and the rise of China, India and other emerging economies, Russia, with assistance from China and India, must capitalise on the fissures caused within the EU and advance a conciliatory policy aiming at disentangling key Western elite and societal sections from NATO’s grip. Failing this, further polarisation between the Euro-Atlantic/Australasian core, on the one hand, and Russia and China, on the other, would be the most likely outcome accompanied by humanitarian disasters.

Economic Statecraft
Is It Possible to Lift Sanctions Against Russia? - No
Ivan Timofeev
Every conflict sooner or later ends in peace. Such is the conventional wisdom that can often be heard from those who, amid the current situation of the sanctions tsunami and confrontation with the West, are trying to find hope for a return to "normality". The logic of such wisdom is simple. At some point, the parties will cease fire and sit down at the negotiating table. The end of hostilities will lead to a gradual reduction in sanctions pressure on Russia, and our businesses will be able to return to work with Western partners.
Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.