Russia's military and economic strategy is failing
But the risks of an escalating war remain real and terrifying
I don’t know what’s going to happen on the battlefield in Ukraine. And while I’ve read a bunch of interesting stuff about Europe’s prospects for weathering the coming winter without Russian natural gas, my main takeaway is that reasonably well-informed people seem to disagree.
But I wanted to step back and make a broader point that I think too often gets lost in the shuffle: everything Russia has been doing has been incredibly counterproductive from the standpoint of Russian interests.
Following the lead of most western analysts, I initially underrated Ukraine’s ability to stall Russia’s advance on Kyiv and buy enough time for western arms shipments to start making a difference. But despite getting that crucial question wrong, I said from the beginning that invading Ukraine was a terrible idea. That’s only become clearer as we’ve seen what actually transpired on the road to Kyiv and, more recently, Ukraine regaining some of its lost territory.
And the same is true of Russia using gas shutoffs as a tool of coercion.
I understand why Putin is doing this, but it’s a huge mistake. Russia had a good thing going exporting natural gas to Europe. Gas is very useful. If you have some, people will pay you good money for it. But transporting natural gas is kind of difficult and requires pipelines whose construction inevitably poses logistical and regulatory difficulties. That’s why Joe Manchin is so fired up about getting West Virginia’s gas reserves hooked up to the main distribution network for the southeastern United States. Russia already had some good pipelines going and another one near completion. The shutdown is going to temporarily cost them some money, but Putin has reason to believe that loss is not such a big deal.
The problem is that he is permanently squandering Russia’s opportunity to be a major natural gas supplier to Europe. For this to work out for Putin, Western European politics would need to spin in a pro-Russian direction with dizzying speed. And the current trends in Sweden and Italy show things pivoting in the opposite direction, with even opposition blocs committing to the western alliance and making it clear there is no exit for Putin.
Invading Ukraine dealt a blow to Russia’s gas business
Even though natural gas is basically a fungible commodity, the transportation logistics are challenging. If there’s a pipeline going from Point A to Point B, then you’re golden. But if there’s not, you need to transport the gas in liquid form by ship. That requires special facilities, and both the liquefaction and pipeline infrastructure are somewhat costly and time-consuming to build.
There was a long-running U.S.-European dispute about this because Europe was not only importing a lot of natural gas from Russia, but they were preparing to build a second pipeline — Nord Stream 2 — to facilitate even more Russian gas imports. The Obama administration argued that this was a bad idea that would worsen Europe’s already dangerous levels of dependence on Russian gas, but nobody really noticed. Then the Trump administration took the exact same position, which attracted more attention in the American media but mostly in the form of reporters joining German politicians in making fun of Trump. Then Biden took office, and the U.S. position that Nord Stream 2 would worsen Europe’s already dangerous levels of dependence on Russian gas remained the same.
The European (I should say German, because the people I’ve spoken to on this are all German) point of view was always that Americans were being shady and hysterical.
Shady in the sense that they were basically trying to get Europe to build LNG terminals to import American gas to promote American business. And hysterical in the sense that however much Europe depends on Russian gas, Russia depends even more on energy exports to maintain the value of its currency and its ability to import things. The Germans changed their minds after Russia invaded Ukraine, so Nord Stream 2 is now mothballed even though it’s almost finished — which on its own means that merely by invading Ukraine, Russia accomplished a longstanding bipartisan American foreign policy goal.
But that still left the fraught question of Russia’s large gas exports via the existing pipelines, an important source of revenue for Russia but also important to Europe’s economy.
The misunderstood sanctions regime
Sanctions are often understood as an effort to deny the sanctioned country export earnings by refusing to buy its products.
And since Russia is such a major energy exporter, there was a lot of skepticism that this was feasible or politically workable. Initial coverage of the sanctions regime often emphasized the fact that Russia had stockpiled large foreign exchange reserves to weather the loss of exports and the fact that the West wasn’t willing to block Russia’s energy exports. Pro-Russian western media often noted that even with sanctions in place Russia’s trade balance was positive, and the official exchange rate of the ruble recovered rapidly from an initial speculative crash.
This all misunderstood the intention of the policy, which was not to block Russian exports but to block Russian imports.
The idea was that the West could keep spending money to give equipment to Ukraine while preventing Russia from spending money on acquiring new equipment for itself, steadily shifting the correlation of forces in Ukraine’s favor. The growing Russian trade surplus was not a failure of the sanctions policy, but the condition of its success. The basic calculation is that the allies collectively have a lot more money than Russia. In terms of pre-war GDP calculated at market exchange rates, Italy had a larger GDP than Russia. So did Canada. And France. And Germany’s GDP is more than twice as big, and Belgium, the Netherlands, and Portugal combine to be about as big as Russia. So the allies could afford to send a bunch of money to Russia to sit around in a treasury somewhere while Russia loses irreplaceable military equipment.
Now to be fair, it is understandable that people were confused about this because there was a big mania in both the U.S. and Europe at the start of the war to ban imports of Russian oil.
This had very little effect on anything, but oil is a fungible global commodity. I think western officials initially didn’t want to do it because it’s a little bit pointless and a little bit contrary to the main thrust of their strategy. But there was a lot of political enthusiasm for it and, again, it doesn’t have particularly large actual effects, so why not go along with it? But all the attention the oil embargo got made it seem like the allies were trying to deny Russia export earnings, which then made the fact that they kept having high export earnings by selling oil to neutral countries and gas to Europe seem like a big failure.
But the oil saga was a virtue-signaling sideshow. The point of the sanctions was to make Russia’s money useless (which is why a tourist visa ban makes sense), not to prevent Russia from getting money. The hope was that Russian energy exports would keep powering the world economy.
Russia turns off the gas
What Putin eventually came around to was that the sanctions — though imperfect — were in fact pretty effective, and Russia was ending up with more money than it could spend.
That’s a credit to the western sanctions designers, but the problem is that it led Putin to the conclusion that there was no downside to cutting off Europe’s gas supplies. After all, what’s the point in securing the export revenue if it’s not possible to spend it on the things that Russia needs? Why not deny Europe what it needs?
Still, it’s worth asking how exactly shutting off Europe’s gas is supposed to win the war.
Going back as early as April, we could see that Russia was unable to replace its battlefield equipment losses because even though they have a large domestic armaments industry, it is dependent on imported intermediate products. In response, Russia is not only pushing antiquated equipment into use in the field (pretty normal for a country actually at war), but they are talking about trying to restart production of obsolete discontinued vehicles that don’t feature the chips and other things that they have lost access to. In other words, western sanctions on Russia have a direct negative impact on Russian military performance. The idea is that in conjunction with western deliveries of advanced military equipment to Ukraine, the sanctions will allow the Ukrainian military to win battles.
By contrast, losing access to Russian gas, though extremely painful to Europe economically, does not have any direct impact on the military situation. It makes life much worse for the vast majority of Europeans and somewhat worse for the non-European allies, but it doesn’t really alter anyone’s ability to aid Ukraine.
What the gas cutoff could do is help Russia politically through one of two means:
Incumbent governments might decide that the economic pain is too much and that they should strike a deal with Russia to end the war and alleviate their suffering.
Incumbent governments might simply become unpopular due to the bad economy, which could bring to power new parties that break with the predecessors’ anti-Russian policies.
I think it’s pretty clear that the former strategy works at least a little bit. The governments of both France and Germany are plainly eager to press the Ukrainians to settle for something less than full victory and put this war behind everyone. But the Russians are not at the table with any proposals that are remotely acceptable to anyone. So while there is a palpable difference between the Franco-German perspective and the Balto-Polish one, the difference doesn’t make a difference.
On the second front, the news for Putin is bad.
Everything is backfiring
Incumbent governments are, in fact, ailing. The Swedish center-left coalition just got knocked out in favor of a new right-wing coalition whose largest constituent member will be the far-right Sweden Democrats.
But while the SDs, like many far-right European parties, were pro-Russian in the very recent past, they flipped during Sweden’s accession to NATO membership. And in order to appease the smaller right-of-center parties, the new coalition will be led by the traditional center-right and strongly Atlanticist Moderate Party. The story in Italy is broadly similar. Mario Draghi’s grand coalition was strongly pro-Ukrainian, and it looks set to be replaced with a right-wing coalition that includes two parties that have historically been pro-Russian. But the new coalition is going to be led by Giorgia Meloni’s Brothers of Italy party, which despite a lot of frankly alarming fascist associations, has been trying very hard to position itself as clearly anti-Russian.
The Europeans I know are overwhelmingly center-left cosmopolitan types, and they hate the SDs and the Brothers and like to emphasize that these parties are bad and insincere.
I certainly accept that, but the gyrations of opportunists are significant. From Putin’s perspective, the gambit of backing right-populist anti-system parties seemed to be working pretty well. But the war in Ukraine has made him toxic, and while kneecapping the European economy is genuinely helpful to these parties, it is also making him more toxic than ever. He already missed his chance to replace Macron with Marine LePen in France. The U.K. opposition is positioned as clearly pro-Ukrainian, the main German opposition party voted for Olaf Scholz’s rise in defense spending but argued he didn’t go far enough.
This pattern of backfire has characterized the war from the beginning. People will argue until the end of time what role fear of NATO expansion played in Putin’s decision-making, but the result he got was that Sweden and Finland joined NATO. Putin clearly wanted to establish Russian primacy in the “near abroad,” but instead he’s created a situation where he’s unable to bail out his Armenian allies when Azerbaijan attacks them, so Armenia is now left to hope Nancy Pelosi can help them out.
And most of all, the gas weapon is backfiring.
A gun you can only shoot once
The reason I think the Swedish and Italian elections are so important is that even though these are not the most geopolitically significant countries (sorry guys!), the gas weapon is one that has to operate within a short time frame.
Russian gas is crucially important to the European economy because Europe has the infrastructure to get Russian gas and doesn’t have the infrastructure in place to substitute away from it. But when forced to substitute, you start substituting. Europe is standing up new floating LNG terminals as fast as they can. Unfortunately, “as fast as they can” is not fast enough to rescue the situation this coming winter. But there will be more in 2023 and even more in 2024. Germany has decided to keep their nuclear plants running and is reopening coal-fired power plants, along with Austria, Italy, and the Netherlands. The fact that losing access to natural gas is causing EU emissions to go up rather than down is something I wish American environmentalists would take more seriously, but the point is that one way or another, Europe is going to be much less reliant on Russian gas 12 months from now than they are today.
This is the big problem with the gas weapon. It’s a good threat, and I think it’s entirely possible that if the European publics had fully understood what they were signing up for last February, the wave of pro-Ukrainian sentiment wouldn’t have happened. But once you actually fire it, you’re out of ammo. With winter looming, the worst is yet to come for the people of Europe. But making Dutch people uncomfortably cold this winter won’t win the war for Russia, and in political terms, Putin hasn’t broken the western alliance. Europe is going to keep building renewables, keep building LNG terminals, and is even contemplating some domestic fracking.
From the American perspective, meanwhile, the invasion of Ukraine has been a huge win.
Neither Obama nor Trump nor Biden could convince Europeans that Nord Stream 2 was a bad idea (after Bush tried and failed to convince them that Nord Stream 1 was a bad idea), but now they are convinced. Europeans are still kinda free-riding on American military spending, but their expenditures are trending up, which is what America has been asking for across four administrations. And Russia’s conventional military capabilities worsen every day that they lose equipment and veterans on the battlefield.
Worst of all for Russia, selling natural gas to Europe was just a good deal economically. Russia has a lot of gas. Europe is a prosperous and densely populated place that is adjacent to Russia. Europeans kept telling Americans that we should be less paranoid and just let everyone make money buying and selling gas. It was a nice idea, profitable for people on both sides of the exchange. But once it turned out that America’s “paranoid” warnings were in fact correct, there was no turning back. New infrastructure will be built to move Russian gas to Asia, but short of a drastic regime change, nobody is ever going to go as all-in on Russian gas as the Germans did in the Nord Stream era since the Russians have just proven themselves to be the world’s least-dependable supplier.
Where are we now?
The scary thing about the present situation is that the Obama administration’s old concerns about escalation dominance still seem valid to me.
His thinking was that at the end of the day, Russia cares more about Ukraine than Europe does, and whatever the west does to back Ukraine, eventually Russia will do more. So the conflict could deadlock at a low level of intensity (which is where Obama tried to park the Donbas fighting) or it could deadlock at a high level of intensity (which is where we seemed to be a month ago), but all you’re really doing is making it more destructive. The most recent Ukrainian advance somewhat calls that into question and raises the hopes that the Russians can actually be beaten on the battlefield. But can’t Putin escalate? We’re now at a point where the Biden administration is offering Russia stern warnings not to use tactical nuclear weapons in Ukraine, and we have various distinguished military experts saying we shouldn’t worry too much about that because tactical nuclear weapons aren’t actually that useful.
Whether that’s true is above my pay grade, but even if it is, there’s no doubt that Russia has the means to turn Ukraine into a pile of radioactive rubble if that’s where they want to take things.
I suppose my bet is that probably won’t happen, but I do think the sheer dangerousness of the return to great power conflict is underrated.
Which is one reason I think it’s important to keep emphasizing to Russia that the problem with this war is not battlefield setbacks, it’s the underlying concept. The United States eventually left Vietnam and the USSR eventually left Afghanistan because in both cases, they reached the correct conclusion that it’s just not worth it. Russia is a country with a lot of valuable natural resources and a reasonably well-organized resource extraction sector.
In the western liberal/democratic/capitalist political and economic alliance system, countries like that — including core members like Canada and Norway and more peripheral ones like the UAE — are treated pretty well. Canada does not need a nuclear arsenal to prevent the stronger United States from storming in to take the oil sands and the hydroelectric dams. Russia is not going to get a better deal than that by becoming the junior partner in a Chinese-dominated alliance system. And they’re not going to obtain anything useful by destroying Ukraine or seizing its provinces. Whatever legitimate security interests Russia may have been trying to advance have only been undermined by this war. And the only real way out of the nightmare is for Russians to come to see that and act accordingly. In the meantime, we can tighten the noose on sanctions, keep supplying Ukraine, and continue to improve western energy policy. But there’s a nightmare lurking that only the Russians can avert.