With negotations ongoing, there are hopes that the Trump administration can pressure Vladimir Putin into cooperating towards a ceasefire in Ukraine, either through business offers or tougher sanctions. However, Russian economist Dr. Vladislav Inozemtsev argues that the West has very limited economic leverage over Russia, and that Putin has little to gain from ending his war against Ukraine. 'The main reasons for this war are neither geopolitical nor economic.'
Vladimir Putin. Photo: Andreas Solaro / ANP / AFP
The talks between American, Ukrainian, and Russian representatives aimed at stopping the ongoing war in Eastern Europe attract a lot of attention around the globe, but have failed to produce any significant results so far. Why is Donald Trump’s most advertised undertaking not delivering, and are there hopes for peace to prevail? These are complex questions – and who wants to address them should take into consideration at least two highly important issues.
War of 'sacred' significance
First, it should be admitted that the main reasons for this war are neither geopolitical nor economic. It is not a coincidence that president Putin explains the course of Russian history to everyone who has enough time to listen to him. He believes that Ukraine is of ‘sacred’ significance to his country. I have argued for a long time that this approach is not accidental: Putin rules a country called Russia, and this very term appeared in mid-17th century as Muscovy’s rulers succeeded in reuniting under their authority all three major centers of ancient Rus’, i.e. Vladimir, Novgorod, and Kyiv.
For Putin, Ukraine cannot exist as a sovereign nation, the Ukrainian people does not exist and is just a part of the Russian people, and the Ukrainian language is a Russian dialect. As I put it recently, for Putin the ‘final solution of the Ukrainian question’ became the same obsession as the ‘final solution of the Jewish question’ once was for Adolf Hitler; and therefore he does not want Ukraine to exist. Strikingly, just days after I put forth this issue the Kremlin’s famous spin-doctor Vladislav Surkov said just the same in his interview with l’Express, confirming that the Kremlin had considered the full conquest of Ukraine for years, if not decades. This all indicates that one should not expect the peace talks to become an easy process.
It could be extremely complicated to regain the momentum for mobilization once the war stops and the country is back ‘to normal’
Second, it should be mentioned that the scope of the war is the result of an enormous effort that the Kremlin had been developing for a long time. Putin engineered the invasion for years, and since it started, he has been confronted with several challenges – both political and economic. In the last three years Russia has not been turned either into a ‘united military camp’ or into a fully militarized economy as, e.g., the Soviet Union once was. But it has definitely become highly mobilized and I would say most people in the country are not too happy with this. Therefore, Putin realizes that while Russia’s economy can sustain the war efforts for a rather long time, and while the Russian people have become accustomed to all restrictions and hardships caused by the conflict, it could be extremely complicated to regain such momentum once again if the war stops and the country is back ‘to normal’.
I would say that, unlike in 2014-2015, this time Russians believe the war efforts have peaked, and they are not prepared for a new campaign to be announced after the current one is terminated. This makes Putin extremely cautious when reflecting on any peace agreement, as he suspects that after demobilizing his armies he might never be able to call them back; the 2022 ‘partial mobilization’ caused such serious public discontent that it would be sufficient to not try and repeat that effort.
Russia's 'alternative globalization'
Both of my points suggest that the road to peace might be quite long – and the main problem is that while Ukraine remains critically dependent on the United States and European countries for military supplies and billions of dollars in financial aid, Russia is more or less self-sufficient in economic terms. All the forecasts that Russia will run out of shells, missiles, and other ammunition (these were extremely popular and numerous back in 2022) turned ou to be wrong. Western sanctions remain painful, but the economy still seems to be in much better condition than one might have expected three years ago. Almost any new kind of sanctions are circumvented in one way or another in three to six months.
So as president Trump feels quite confident pressuring his Ukrainian counterpart into accepting either the critical resources deal or renouncing the targeting of Russian critical infrastructure, his leverage over the Russian leadership remains quite limited. During the last three years, Russia had successfully ‘re-Oriented’ itself towards not so much the Global East, but the Global South, inventing sophisticated settlement schemes, opening new markets for its energy resources, and deploying hundreds of vessels of its ‘shadow fleet’ for delivering its produce to new customers. I have called this ‘an alternative globalization’: Russia, acting as a state, has reproduced the illicit tactics that were once used primarily by gangs and criminal networks – but much more successfully and with a truly global reach. For confronting Putin’s war efforts by economic means three options could be considered, although all are quite controversial and problematic.
Option #1 – Tougher sanctions and blockades
The first is the continuation – in a more aggressive manner – of all efforts that the Western nations have undertaken since the start of the war. In this case Ukraine’s allies should confiscate frozen Russian assets, discontinue all their trade with Russia (including, e.g., the increasing purchases of Russian LNG), block the Baltic and the Mediterranean seas for Russian vessels, announce and impose strict third-party sanctions against financial institutions facilitating or financing Russian trade deals, etc.
Could these measures finally ruin the Russian economy and force Putin to withdraw? I would say such an outcome is quite likely, since in that case the economic damage caused can hardly be repaired. But there are at least three obstacles on this path: first, almost all such measures are illegal under current international law, and the Western powers, respecting the principles of legitimacy, have avoided using these measures for a long time; second, there is some fear that Russia could respond, including by military means, to any of such initiatives, since some of them can be interpreted as aggressive according to the common UN definition; third, such harsh sanctions could lead to serious side effects, like skyrocketing oil prices, supply disruptions, a drop in dollar or euro reserves around the world because of lost trust in Western financial institutions, and so on.
No one in the Kremlin is taking Trump's babble seriously
Yes, president Trump has said that he is ‘strongly considering large scale banking sanctions, sanctions and tariffs on Russia until a ceasefire and final settlement agreement on peace is reached’, but he has never explained what he particularly has in mind. I would say no one in the Kremlin is taking this babble seriously enough. The Europeans these days seem to be focused on rearmament – which I think might never happen since those talks have emerged rhythmically since time immemorial – and not on new sanctions, so I would call this option more or less illusionary.
Option #2 – Economic reconciliation
The second option would be a strong turn towards economic reconciliation, combining some concessions to Russia in Ukraine – as Trump has already said, Kyiv must be prepared to cede some of Ukraine’s territories – with a significant softening of the sanctions regime and even offering the Kremlin some juicy economic deals (e.g., the resumption of natural gas shipments to Europe through the Nord Stream pipeline that could be rehabilitated under U.S. patronage and by means of U.S. technologies, or enhanced cooperation between Americans and Russians in the Arctic areas).
This option looks more promising – first of all because Russian economic indicators responded extremely positively to the news of a potential ceasefire: after Trump’s phone conversation with Putin on February 12, Russian stock market indices gained up to 23 percent and the national currency, the ruble, appreciated to the dollar by 14 percent. Everything points to the fact that the Russian economy anticipates peace, even while many economists still argue that because of the continuing elevated budget spending, any cuts in military allocations could derail the economy.
To my mind, the latter argument looks shaky as entrepreneurs are now looking for new investments, Western money is seemingly returning into Russian government bonds, and even businessmen who previously left Russia are looking for options to return. Russian banks these days are full of money, and there is close to 60 trillion rubles in personal accounts, which might provide a strong push for consumer spending if the preferred Western goods return to the Russian market that is currently dominated by Chinese produce. The ‘only’ deficiency of this path is that it would need to recognize a new Russian-Ukrainian border, which would mean both a strategic defeat for the West and the effective end of the post-WWII order that precludes border shifts by inter-state wars.
Option #3 – Co-opting China
The third and most tricky option is increasing economic pressure on Russia not directly by the Western powers, but via Moscow’s allies – first of all China, India, the UAE, Turkey and post-Soviet states. The main reason for such a move would be a recognition of the fact that Russia currently presents a much greater threat as an underminer of the global order than, e.g., China does. Even if one takes for granted that China wants to conquer Taiwan, no Western powers recognize Taiwan as a sovereign state – and so its potential annexation by Beijing would be a much less important breach of international law than Russian aggression against a country whose sovereignty has been recognized and respected by the entire international community.
Hopefully China will not launch a war against Taiwan, but in any case it currently appears to be a more decent state than Russia (while India, the Emirates, and Turkey behave even better). Under such circumstances the West has good reasons for offering massive economic concessions to the ‘Southern’ nations in exchange for tough sanctions against Russia, rather than seeking confrontation with them. The same approach could be applied to Eurasian Economic Union member states that enjoy some preferential cooperation regimes with the West while doing their best to help Russia bypass the Western sanctions).
Xi Jinping and Vladimir Putin at the BRICS summit in Kazan, Russia, in October 2024. Photo: Maxim Shemetov / ANP / EPA
In other words, the option mentioned above means getting China, India, and some other nations on the West’s side at any price. It would deprive Russia of both the remaining markets for its commodities without breaking international law – unlike the first option I described – and of its most important source of critical high-tech goods, which today are either supplied by or shipped through China and Hong Kong. Such a move would abandon the strange but long lasting strategy of pacifying Russia just to discourage it from leaning towards China, replacing it with a completely different approach that presupposes the coming of a bipolar world with the Atlantic Alliance and China being its poles ‘overseeing’ their vassal states. Here, I would say, economic levers may match political objectives, leading to a new and lasting geopolitical configuration.
Russia at a crossroads
Of course, one may hardly believe that the West will elaborate and implement a consistent strategy in dealing with Russia. Therefore the most probable scenario will include some propositions taken from each of the three described options. Without doubt, the U.S. leadership will start by trying to corrupt Russia and offer Putin some kind of cooperation – in trade, investment, and maybe even in sharing control over some regional markets. To my mind, that does not come close to what is needed to appease Putin and have Russia stay calm for a long time.
All these offers would have to be accompanied by the lifting of (almost) all sanctions imposed on Russia since 2014, as well as by significant concessions of Ukrainian territory to Russia. These two moves, I would predict, will face severe obstruction by both Europe and Ukraine, and in the end will be taken off the table. So, the White House will either try to impose additional sanctions – but by no means the most severe possible – or to communicate with Beijing and New Delhi in search for more effective means for countering the Kremlin. All these efforts may produce some results, but those will only confirm the willingness of peripheral nations to maintain good relations with both the U.S. and Russia, and therefore will not change much. The Western powers have limited economic levers that could stop the war – whether through increased pressure or via exiting opportunities.
For Putin, economic considerations are important, but by no means decisive
In conclusion, I would say that Russia is at a crossroads; its people favor peace and its economy is eager to restore business ties with the Western powers, but its leader seeks either the total destruction of Ukraine or its partition which eventually turns it into a dysfunctional or failed state. For Putin, economic considerations are important, but by no means decisive. He has already inflicted enormous economic damage on Russia by launching this war and continuing it for three years – so I find it hard to believe that he will stop it either because of additional economic hardships or business offers. Most probably, the war will continue, and no one knows when and how it will end.
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