October 03
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The West's key achievements in the standoff with Russia is quickly rallying in solidarity with Ukraine, hitting Moscow with crushing sanctions, and supplying Kiev with billions worth of arms could be in jeopardy. While politicians affirm Western unity and experts welcome the impact of weapons sent to Ukraine, economic problems are poised to erode that solidarity where it matters most in the European Union, The National Interest writes.

Ironically, the rising costs of war seem less sustainable for rich EU democracies than for poor, isolated Russia. A payment deadline is approaching, and Europeans are shaken by the hardships they have to face to pay for it: soaring energy prices, rationing, cuts in aid to the poor, and a looming economic downturn. Disagreement over aid to Ukraine triggered the recent collapse of Italy's governing coalition, a bad omen for other centrist European governments. The transatlantic unity that diplomats have worked so hard to build may soon collapse.

Such pessimism surprises Americans, for whom the cost of the war is minimal and the media remain optimistic about Ukraine's prospects for victory. Most commentary focuses on Russia's weakness - economic crisis, military setbacks, political isolation - and those who advocate a negotiated end to the war often face ridicule. Nevertheless, the insistence on a decisive defeat for Russia is becoming increasingly unrealistic as the balance of economic and political fortitude shifts in Moscow's favor. As tactically effective as Javelin missiles and HIMARS artillery are, they have not changed the strategic landscape of Ukraine, a brutal war of attrition in which Russia's resource and resilience advantages allow it to advance steadily.

Haven't we been told that Russia cannot stand up to the economic might of the West, that its economy is smaller than Italy's? But Russia is not competing to match the Western economy, but rather to produce enough weapons and soldiers to match the Western-backed armed forces of Ukraine. Weren't we also told that sanctions would devastate Russia and collapse its currency? Nevertheless, the ruble is stronger now than before. And while Russia's economy will shrink by 6% or more in 2022, this pales in comparison to Ukraine's 45% collapse.

Moreover, Russia is able to withstand negative growth of 6 percent more than many democratic European governments are able to withstand negative growth of 3 percent. Such a downturn is foreseen in the latest gloomy forecasts: a punishing recession caused by gas shortages and soaring commodity prices, reminiscent of what the EU endured during the 2020-2021 pandemic or the 2008-2009 financial crisis. What matters is not some absolute measure of economic or military power, but the balance between Russia, Ukraine, and Europe regarding their ability to keep sacrificing for war. And Russia has demonstrated a resilience that few foresaw.

Underestimating Russia and overestimating our influence over it -- is nothing new. We take credit for igniting the 1980s arms race that led to the bankruptcy of the USSR and victory in the Cold War, and for rejecting Mikhail Gorbachev's perestroika reforms, which effectively ended the Cold War two years before the USSR collapsed.

In the 1990s, we welcomed the triumph of capitalism under Boris Yeltsin, although the hasty adoption of policies promoted by the West fueled a bacchanalia of oligarchic corruption that drove tens of millions of people into poverty. In the 2000s, Vladimir Putin's success in reviving Russia was blamed on luck - high world oil prices - ignoring key reforms that liberalized the economy and brought key sectors back under state control.

Underestimating Russia's resentment of US foreign policy unilateralism, few foresaw that the 2014 annexation of Crimea - Putin's response to his desire to bring Ukraine into the EU and NATO - would result in his popularity climbing above 80 percent despite the harsh economic sanctions it provoked. Instead, Western analysts predicted that these sanctions would undermine the Russian economy, especially the oil sector, vital to Moscow's budget revenues. Thus, most were surprised by what followed: Russia's rapid completion of major pipelines to China and Turkey, the construction of a new liquefied natural gas (LNG) terminal in Siberia, and the rapid construction of critical road and rail connections to Crimea.

With such a track record of underestimating Russia's resilience, it is not surprising that many have succumbed to arrogance in anticipation of a quick stranglehold on Russia following its invasion of Ukraine. To be fair, the measures taken were unprecedented in their severity. More than 1,000 people and their assets were sanctioned. Exports of many goods, from high-tech to luxury goods, to Russia have been halted, and hundreds of firms have ceased operations. Critically, Russian banks were excluded from the SWIFT international payments system, and Russian reserves of more than $600 billion were frozen. They were supposed to stifle Russian trade, but it turned out that Moscow was ready for it. An alternative export payment system and huge cash reserves allowed it to survive the sanctions much better than expected. After a brief collapse, the ruble recovered quickly thanks to the skillful use of interest rates and capital controls.

The ruble also benefited from a surge in oil prices and the fact that Moscow insisted on paying for its gas in rubles, which boosted demand for the currency. Some customers objected, but big importers such as Germany and Italy quickly complied. How could a weaker party, being punished, dictate terms of trade to its punishers? While Europe sought to hit Russia with the stick of Moscow's dependence on oil and gas revenues, it turned out that Putin held the other end of that stick.

Historians will look back on the Euro-Russian energy war as an example of how not to use political-economic leverage. When the EU imposed increasingly harsh sanctions against Moscow, plans were announced to stop importing Russian crude oil and natural gas. This had long been advocated by defense hawks, and centrist Europeans agreed, seeing it as a way to hurt Russia's economy and stifle its war effort by depriving it of lucrative export revenues. "Fine," the Russians responded, "we can speed up your energy transition by cutting the gas supplies we're sending you right now. To which the EU responded in panic: "Wait, we're not ready to cripple you by stopping gas imports until 2026! You're blackmailing us!" Never take a grenade and throw it at your enemy until you are ready to use it - it might just explode in your hand.

Again, the key lies in each side's relative vulnerability to a break in trade. A foolish politician who does not assess the collateral damage of sanctions to his country is just as bad a poker player who does not consider that his opponent may see his bet and raise it. The Europeans have been pushed into this bet by US leaders, who have long advocated replacing Russian pipeline gas with American LNG, even though neither side has an export (US) or import (EU) terminal and the necessary tanker capacity. And now Europe is like a boss who yells, Wait, you can't quit, I wanted to fire you first. As the EU struggles to find alternative sources of gas and prepares for rationing this winter, observers in China and India scoff at complaints that Moscow is practicing energy blackmail.

The views of China and India matter not only because they are among the majority of countries in the world that have not joined sanctions against Russia, but also because they are the two largest countries that buy more Russian oil and gas. This helps Moscow make up for lost sales in Europe, since some of the Russian oil purchased by India is actually resold in EU markets. Similarly, some countries that proudly announced that they had stopped importing Russian gas are still importing it - only indirectly, via Germany, Italy or France. Even stranger are the eulogies of the EU's new mandatory gas storage targets as a "historic" step toward weaning off Russian gas, when these goals can only be achieved by importing more Russian gas.

In the months since EU leaders announced policies to reduce dependence on Russian oil and gas to reduce revenues financing Russia's war, the EU has simply emphasized its dependence on Russian oil and gas, while rising prices have increased Moscow's revenues. The worst thing in the future could be the impact on Europe itself. In March, when these moves were announced, EU officials celebrated transatlantic cooperation and mocked Putin for unwittingly strengthening the euro. Five months later, Putin is mocking Europe's growing desperation.

In recent days, millions of European consumers have been notified of steep increases in heating and electricity rates, while the EU has agreed to cut its use of natural gas by 15 percent. But statements from EU leaders do not guarantee their compliance by member states, many of which are refusing such austerity measures, which analysts say are crucial to surviving the winter. Some are too depleted to keep their gas plants running in the event of further supply cuts, or too politically unstable to ask their citizens to sacrifice anything more. Some have worked hard to diversify their energy sources and resent being told to cut consumption to help those who have not. And some have already said they will not share supplies with their neighbors regardless of need. These disagreements run along familiar East-West and North-South lines, reviving resentments smoldering from past debt and refugee crises.

Several factors will combine in the coming weeks to ignite this discord. One source of heat is, quite literally, heat - record high temperatures causing wildfires and drying up agriculture - the bill for which by June had topped $30 billion.

The intense heat is also increasing the demand for gas, both to power the many air conditioners and to replace hydropower lost to the drought. Europe's drying rivers are also interrupting nuclear power production (due to lack of cooling water) and leaving cargo and cruise ships without livelihoods (costing the transportation industry billions of dollars).

Another economic blow was the blockages due to the coronavirus in China, which disrupted supply chains. Meanwhile, illegal immigration to Europe is on the rise again, some 80 percent more than last year. Many migrants from Iraq, Syria, Egypt and other North African countries are driven by food shortages, exacerbated by grain shortages caused by the war. Friction between migrant-friendly Northern European states and Islamophobic Eastern European states is likely to resume, with the latter already overflowing with Ukrainian refugees.

Most American coverage of the burden of war ignores the energy and conflict-related costs plaguing Europe and focuses more on military aid to Ukraine, where the United States outnumbers the EU by a two-to-one ratio. But when all kinds of economic aid to Ukraine, including indirect costs such as supporting more than five million war refugees, are taken into account, Europe's contribution is much larger. The Europeans also recently learned that their bill for Ukraine's eventual reconstruction would be at least $1 trillion. Overall, Ukraine's burden on Europe could approach 10 percent of the EU's entire annual GDP. This would cause serious economic and political turmoil, even if there were no serious energy crisis.

European public opinion has shifted toward an "anti-war" majority even before Russia began cutting gas supplies. A region-wide poll conducted in May showed that while a majority blames Moscow for the conflict, it also believes that negotiating a settlement is more important than continuing efforts to defeat Russia. Although no equally authoritative pan-European polls have been published since then, data from individual countries - Greece, Spain, Italy and even Germany - indicate that more and more people disagree with their governments' policy of arming Ukraine rather than pushing Kiev for a cease-fire.

To date, EU and NATO officials have largely ignored these disagreements and called for patience in trying to defeat Russia. What is rarely taken into account is that these policies have never been tested in elections. Many grumble that they have been imposed by well-paid "Brussels bureaucrats," unaccountable to any popular voter, creating a "false solidarity" that is likely to collapse under increased economic pressure. The test will come when Italy votes for a new parliament in September, an election triggered by the collapse of the previous government because of the split in Ukrainian financing. Polls predict a victory for a right-wing coalition whose leaders have a long history of "Putinophilia."

It is easy to deride Silvio Berlusconi or Matteo Salvini as "Putin's puppets," but this detracts from the economic hardship that brings them to power. It is vital to examine the impact of sanctions on Russia, but it is insufficient as a basis for calling for "more pressure on Putin" in the absence of a similar examination of the spillover effects of sanctions on Europe. It is true that Russia's efforts to replace European buyers of its oil with Asian buyers are hampered by a lack of pipelines and port facilities, but this is also misleading as a reason for optimism without a similar recognition of Europe's lack of tankers and terminals needed to replace Russian gas with other sources. Who can build the infrastructure faster - the democratic West and its profit-driven private companies, or the authoritarian Russia and China through state projects?

Perhaps Russia's resilience is illusory - Putin's power is less reliable and his army is weaker than it appears - so if Europe can simply survive a harsh winter, it will be rewarded with a Ukrainian triumph. But it is just as likely that even if the battlefield fails, Russia will retain much of the Ukrainian territory, while forcing Europe out through months of high inflation with acute shortages of energy and goods. Angry workers have already gone on strike from Britain and Norway to Germany and Spain, and the growing difficulties could lead to a wave of social unrest greater than even that caused by the Covid-19 work stoppage. Tensions exacerbated by immigrants, a surge of nationalism, and struggles over burden sharing could undermine some European governments and spoil relations between them, weakening transatlantic ties and weakening support for Ukraine.

This may be the worst-case scenario, but it is not as unlikely as it seemed just a few weeks ago. While we focus on Russia's weaknesses, it is vital to assess the West's own vulnerabilities and threats to both the political and economic health of the EU. As awareness grows that the war will only end through negotiation, active politics can maximize the West's influence before months of turmoil undermine it. More and more weapons could lead to a Ukrainian victory or cause more destruction, which places a devastating burden not only on Ukraine but also on the fragile European Union.

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