By Sebastian Mallaby
Russia has oil, gas, nickel and palladium. But its most strategic commodity is a capacity for suffering. Vladimir Putin invaded Ukraine because he thought the West was soft. He is betting that Russia can absorb more pain than decadent democracies will tolerate.
On the economic side of the war, Putin may yet be vindicated. The West has clobbered Russia with sanctions, causing its economy to shrink and its imports to plummet. The middle class has lost access to foreign currency and foreign goods, and hundreds of thousands of skilled workers have quit the country.
Russia is adapting, but it is paying a price. The new “sanction-proof” model of the Lada car lacks airbags, good brakes and a modern seat-belt system. Yet five months into the invasion, Putin’s grip on power appears rock solid.
Liberal dissent has been brutally crushed. Hopes that Russia’s oligarchs or military might turn on the regime have come to nothing. Polling data shows a sharp jump in Putin’s public approval since the conflict started.
Putin is squeezing the civilian economy to feed his war machine, and nobody is stopping him. In contrast, Putin’s countersanctions on the West are hitting their target. He blocked grain exports from Ukraine. He slashed gas exports to the EU and promises to cut them further.
Russian oil exports have slowed, although this, ironically, is the result of Western sanctions. The result is higher inflation plus lower growth in Europe and, to a lesser extent, in the US. The pain is modest relative to what Russia is having to endure. But the political effects are larger.
In the US, expensive energy and food have added to inflation. The Federal Reserve has belatedly raised interest rates: counting the threequarters-of-a-point hike expected on Wednesday, tightening so far this year amounts to 1.75 percentage points.
That’s nothing compared with Russia’s initial response to Western sanctions, which was to hike interest rates by more than 10 points. But the US economic gloom has contributed to the deep slump in President Joe Biden’s approval rating.
The mid-term elections might empower Trumpian Republicans, who have no stomach for standing up to Russia. Europe is experiencing a similar dynamic, most obviously in Italy. Last week, Italy’s government collapsed after one of the coalition parties withdrew its support, in part because it favoured a softer line on Putin.
Italy relied on Russia for 38% of its gas before Putin invaded Ukraine in February, and adapting to reduced supply may strain Italian systems to the breaking point.
The European Central Bank has raised its interest rate by a 0.5 percentage points, and there is talk that higher interest costs and lower growth will test Italy’s capacity to service its enormous government debt. A replay of the euro crisis seems possible.
The question for the West is whether it can muster the political will to face down Russia. It has by far the stronger hand. Militarily, it can supply Ukraine with more of the missiles that recently have changed the tide of the war.
Economically, it can resolve to endure some short-term pain to contain Putin’s expansionism. The hard thing is to choose to do so. And yet it shouldn’t be so difficult. If the West can project its thinking one year into the future, the case for resilience should be overwhelming.
One year from now, Europe will have had time to break its energy dependence on Russia by developing new sources. One year from now, Western central banks should have contained the worst of the inflation. Italy’s financial burden can be managed if sounder European economies put aside parochialism and come to its aid.
Meanwhile, as the West masters its challenges, Russia would weaken. By turning energy into a weapon, Putin has forfeited his credibility as a reliable gas supplier to Europe, rendering huge pipeline investments almost worthless.
By confirming himself as a pariah, Putin has cut off Russia’s access to hi-tech parts. The Lada won’t be the only machine that is rebuilt to Soviet standards. Before Russia’s invasion of Ukraine, the West emboldened Putin by appearing incapable of sacrifice.
Europe complacently allowed itself to become more dependent on Russian gas. The US abandoned its relatively low-cost engagement in Afghanistan.
Then, after the invasion, the inspiring courage of the Ukrainian people shook the West out of its torpor: the world’s democracies hit Russia with far-reaching sanctions; Germany promised to increase military spending; Sweden and Finland applied to join Nato.
Now, as it weathers inflation and probable recessions, the West must choose which version of itself to be. The one that has the courage to display its latent strength? Or the one that vindicates a dictator’s contemptuous suspicion?
* The article was first published in The Washington Post.
** Mallaby is the Paul A Volcker senior fellow for international economics at the Council on Foreign Relations. He is the author of “The Power Law: Venture Capital and the Making of the New Future”, published in February 2022.