Sebastian Mallaby

Now, facing the Ukraine invasion, the United States and its allies are up against a dictator who imposes sacrifice on his people in the name of an antiquated, territorial vision of greatness. The West preemptively ruled out the option of matching force with force, arguing that Ukraine is not a member of NATO — never mind the fact that the security of NATO members bordering Ukraine will be undermined if Russia’s invasion is successful. Instead, the West has bet on the idea that it can fight Russia with sanctions. But sanctions are not free. They, too, demand sacrifice.

Since the Ukraine crisis in 2014, Putin has shown a gritty understanding of this truth, while the West has done the opposite. As Matthew C. Klein observes in the Overshoot newsletter, Russia has used the past eight years to reduce its vulnerability to sanctions. The Russian people have accepted a drop in living standards, cutting their consumption of imports by more than a quarter. Russian businesses have paid off overseas creditors, reducing their foreign debt by one-third. The Russian state has tightened its belt, allowing it to build up its reserves of gold and foreign currency.

By embracing these sacrifices, Russia has fortified itself against the West’s economic weapons. The central bank has a $630 billion rainy-day fund. Even if sanctions blocked 100 percent of Russian exports for an entire year, the country could continue to import at its current pace and have foreign-exchange reserves left over. President Biden’s initial response to Putin’s incursions was to bar U.S. investors from buying Russian bonds. But Russia has no need to borrow from Americans.

Meanwhile, how did the West prepare for today’s crisis? Rather than reducing their exposure to Russian energy supplies, Europeans blithely increased it. In 2013, the European Union imported about 135 billion cubic meters of Russian natural gas; by 2019, the last year before the coronavirus pandemic distorted the numbers, it imported 166 billion cubic meters — a jump of almost a quarter. Russian coal exports to Europe have soared. Despite Europe’s vaunted investments in wind and solar power, Russia’s share of the E.U. energy market climbed from 16.5 percent to 18.5 percent in the years after the 2014 crisis.

This puts Europe’s recent actions into their proper perspective. Amid great fanfare, Germany has (finally) frozen the certification process for the completed but not yet operational Nord Stream 2 pipeline, which was intended to doublenatural gas deliveries from Russia. This is the action of an alcoholic who, having already deepened his dependency, pledges not to supplement the regular evening delivery of whiskey with an additional one at lunchtime. Given its current import needs, Russia can survive just fine without the Nord Stream 2 project.

The United States and its allies have followed up with other sanctions. They have targeted Russian parliamentarians and Putin friends, but the dictator will probably shrug at this. They have hobbled most of Russia’s banks, but Russian companies that want to do business in the West will find alternative financial partners. They have banned exports of certain tech products to Russia. This will hit home, but the effects will materialize slowly.

The sanction that would really count would be the suspension of Russia from the SWIFT system, through which banks exchange messages about payments. This would greatly complicate trade between the West and Russia, generating enough havoc to cause Putin genuine problems. Russia’s central bank might be bulging with reserves. But this money won’t be of much use if it cannot be used to buy imports.

For excellent and obvious reasons, the foreign minister of Ukraine and the three Baltic states have called upon the West to boot Russia from the SWIFT system. This weapon has been used before, against Iran in 2012 and again in 2018. But expelling Russia from SWIFT would cause an energy crisis in Europe, so Germany and its neighbors are opposed. For the moment, at least, they regard the sacrifice as unacceptable.

Of course, the West’s softness — its refusal to accept sacrifice — explains why Putin felt emboldened to invade Ukraine in the first place. Now, the West has to choose whether to ratify his calculation.

The Washington Post