Vladimir Putin’s war is spinning its wheels. For now. Tough Ukrainian resistance is slowing his army’s advance on the capital. Ukraine’s president Volodymyr Zelensky is playing a blinder.
This will not last. Putin, as I argued here, is on a mission, part personal, part messianic to shore up his power base and restore a Greater Russia in Slavic lands. Failure to achieve his strategic goal of neutering Ukraine will cost him dear, possibly his job, perhaps his life.
We can expect him to double-down on his efforts inflicting more casualties with greater savagery, confident that neither Ukraine’s neighbours nor the West will challenge him by putting boots on the ground or imposing a no-fly zone.
His barely veiled threat to use nuclear weapons in the face of NATO “aggression” may, or may not be a bluff. But the West cannot take the risk. Putin’s recent appearances suggests that this is a man on a mental tightrope.
Putin will have priced in a tough but hesitant and incremental western response. The first few days of the invasion suggests he was right. We knew he was (probably) coming but not when or how. Once again neither our intelligence nor our response were up to scratch.
It is time to throw the book at him: namely full-blown economic warfare with measures that will bring the Russian economy and its financial system to its knees.
Ukraine faces an existential threat. But the West and everything it stands for is also being challenged. This is the resurrection of history in spades: a democratic world order rooted in freedom and autocracies – including China – that place staying in power above all else. The world is watching.
Europe’s indirect military response to the invasion has been impressive. The EU is considering gifting fighter jets to counter the Russian advance. A number of other countries including Britain are also sending weapons.
Germany’s decision to increase its defence spending by Euros 100bn and increase its annual defence spending above 2 per cent of GDP represents a sea-change in its post-WWII stance. Chancellor Olaf Scholz, who succeeded Angela Merkel, it turns out, is not as feeble as some thought.
NATO meanwhile is strengthening its presence in an arc from Poland to Turkey, not the outcome that Putin wanted.
Economic warfare now needs to go to the next level. This means, in simple terms, isolating, unmooring, the Russian economy from the West not incrementally or selectively but, as Martin Sandbu says in today’s Financial Times with shock and awe tactics.
We should do to Russia what we have done to Iran.
The UK’s initial pea-shooter approach (sanctioning 3 small banks and minor oligarchs) from one of the world most powerful economy’s sent Putin precisely the wrong signal.
Foreign Secretary Liz Truss’s announcement that it has compiled a hit list of oligarchs to be targeted over ‘coming weeks’ reinforces the hesitancy we’ve witnessed in government ministers as the invasion unfolded.
The Tory party’s relationship with Russian money is frankly toxic and, despite repeated assertions that it will tackle dirty money we have yet to see real action. The EU has been marginally slower off the mark but is now setting the pace.
Cutting Russia off from SWIFT, the banking messaging system, is an important but not insurmountable obstacle for the Kremlin. The rouble has crashed. We are seeing the start of what could turn out to be a run on the banks. Interest rates are skyrocketing.
But that’s not enough.
Russia’s substantial reserves – around $600bn – represent Putin’s war chest. Around half is believed to be held abroad in strong currency countries, notably the US dollar. These should be seized. No western democracy should take part in Russian Central Bank ‘repo’ auctions.
The international community should draw up a clear and enforceable pact to stop laundering dirty money. All assets – money, equities and property – belonging to every oligarch with links to Putin should be frozen. This week. No ifs, no buts, no exceptions.
Russia has shown itself to be an unreliable energy partner. With hindsight Angela Merkel’s decision to mothball its nuclear plants was a mistake. Its announcement to keep these going to reduce and eventually eliminate its reliance on Russian gas is welcome.
Russia has enormous natural resources especially in oil and gas by some estimates up to 30% of the world’s resources. Hitting it in the energy both in the short and the long-term would have a huge impact on its ability to project its geopolitical power.
Russia is now threatening to cut off its supplies in retaliation against sanctions. The effect of such a move - or a boycott of Russian oil and gas by the West - would be extremely damaging to both sides. Germany alone depends on Russian gas for 65% of its energy needs. Some countries, such as Hungary or Moldova, simply couldn’t afford to do it.
Blockbuster sanctions will be painful for ordinary Russians and not without pain to Europe which faces soaring energy prices and a cost-of-living crisis after a decade of austerity in the wake of the 2008 financial crisis and the crippling costs of the pandemic.
Are voters in Europe prepared for the pain? Perhaps if as is likely the war lasts into the warmer months this might be easier. But it’s a big gamble with huge risks.
Nevertheless what is stake is nothing less than the civilisation which we – and the Russians – fought to defend in WWII. Half-measures won’t do.