If we could manage the pandemic emergency, we can manage to stop buying Russian gas
The case for weaponising Europe's purchases of Russian gas, oil and coal is not about reducing dependency. It is about winning the war in Ukraine as quickly as possible
In 2020, advanced economies found themselves in an extraordinary and unexpected emergency. Lockdowns in response to the novel coronavirus produced a sudden shutdown in many sorts of economic activity, which eventually manifested itself as drops in GDP of 5-10%. In the face of this emergency, governments acted, providing huge amounts of fiscal support both to households and to companies. This has left a legacy in terms of higher levels of public debt but as a welfare measure it worked: thanks to that fiscal support, no advanced economy saw social disorder or industrial collapses on any scale. It is too soon to assess the long-term health consequences of Covid-19, nor even the political ones, but the pandemic clearly demonstrated the social and financial resilience of the European Union, the UK, North America and Japan.
This very recent memory, from a pandemic that is not even truly over, makes it both remarkable and, shall we say, disappointing that the debate in Europe over whether or not to stop paying Russia $400 million a day for piped natural gas is being couched not as a war tactic but rather in terms of whether to do so will cause a new recession, especially in Germany and Italy which are the countries most dependent on Russian gas. That was the position taken by Olaf Scholz, Germany's Chancellor, when he told the Bundestag in March that “hundreds of thousands of jobs would be at risk, entire industries would be on the brink” and used that as his reason for rejecting it. He has even dismissed economists’ use of mathematical models in the debate about how severe the recession would be as “irresponsible”. But this is as ridiculous as it is outrageous. Regardless of what you think about economists and their models, it is Chancellor Scholz who is being irresponsible.
He is being irresponsible because he is ducking his own responsibility. If a recession were to be the consequence of cutting off purchases of Russian gas, it would be the responsibility of the German government, as of others, to respond to it, in exactly the way they responded so effectively to the lockdown recession of 2020. The responsible thing for Chancellor Scholz to do would therefore be to tell the German public what such support would cost. He, and they, know that the loss of hundreds of thousands of jobs and the collapse of entire industries would be avoidable, at least in the short term, for that is precisely what government fiscal support for households and companies avoided in 2020. Presented with such an estimate, reasonable people could then decide whether they were willing to bear that burden, to pay that price.
For the real issue surrounding Russian gas is not the one of whether or not cutting it off would cause a recession. That could be dealt with: Wir schaffen das, we can do it, as his predecessor Angela Merkel famously said in 2015 during the Syrian refugee crisis. The real issue is whether or not it would bring the war more speedily to an end, an end of the sort desired by the West, namely a Ukraine victorious in the sense of retaining its independence and sovereignty and a Russia defeated in the sense of having failed to conquer, terrorise and otherwise subdue its neighbour.
After all, let us remember that it is not normal during wars to continue to trade freely with your adversary. Partly that is for practical reasons but also both sides know that blockades, sieges and broad economic strength play a vital role in wars and how they are concluded. The West has recognised this through the impressive and continuing range of economic and financial sanctions it has imposed on Russia. These have not just been symbolic gestures, not just raps on Russia’s knuckles, but rather have been designed and intended to weaken that country, weaken Putin and make it likelier that the war will end soon and in something like the right way. The question is whether to go further. The question is how serious are we about forcing this war to an end.
Would cutting off purchases of Russian gas, along with other energy, have such an influence on the war? It is impossible to know for sure. There is no doubt that oil and gas revenues play a big role in financing Russian public expenditure of all kinds: this article by two Russian economists, cited by Bruegel, showed that in 2021 at much lower market prices, taxes on oil and gas accounted for 40% of the Russian budget. The proportion will be much higher now. Cutting off a major source of that funding would plainly have an impact on a country that is already suffering a severe economic squeeze. One piece of evidence for that is arguably the fact that Putin has not deployed the gas weapon himself: despite repeated threats of cutting off gas to any country that refuses to pay in rubles rather than the contracted currencies of euros or dollars, he has shrunk back from doing so.
There is, it is true, a risk that cutting off oil and gas revenues would provoke Putin to escalate the war further, perhaps by using chemical or — God forbid — nuclear weapons. That fear could, if well founded, be a reasonable ground for arguing against weaponising gas purchases. Personally, I would disagree with it: he is already escalating through his terror tactics on civilians. Risks have to be taken to convince him to withdraw and agree to a ceasefire. Military strategists and their political overlords are the ones best qualified to take a view on this.
What I can say is that, however well-meant it might be, Europe’s pledge to wean itself off Russian gas more slowly, over the next 2-5 years depending on how much you believe the pledges, is actually a worse tactic. It tells Putin that his best chance of financing his war with gas revenues is now. It weakens a basic negotiating tool, by claiming that regardless of what happens in Ukraine Europe no longer plans to buy Russian gas. And it is not really credible that if peace were to break out and oil and gas prices were to fall that Germany and others would not wish to buy Russian gas any more. Putin surely knows that in many circumstances they would be back.
A much, much bigger risk is that Europe especially, and the West in general, will become divided the longer the war goes on. European and Western unity has been impressive. But you need look no further than the re-election of Putin’s closest EU friend, Viktor Orban in Hungary last weekend, or at the closeness in the polling for the final round of France’s presidential election on April 24th between Emmanuel Macron and the pro-Putin Marine Le Pen to see how fragile the West’s unity actually is. This makes it even more surprising that Putin has not tried harder to test that fragility by cutting off gas sales, but perhaps he believes divisions will happen anyway.
A proper, responsible debate in Europe would revolve around whether cutting off oil and gas purchases will bring the war to an end more swiftly, and it would revolve around the fiscal costs of dealing with the consequences, just as during the pandemic. My vote would be for cutting off oil and gas purchases. In my view, if we don’t do that we are showing we are not serious about winning this war. Admittedly, I might be inclined to wait until Macron is safely re-elected in two weeks’ time. How I wish that Olaf Scholz and others opposing the weaponisation of gas were doing so for that sort of tactical political reason rather than to pander to their business supporters and to save a euro or two. Irresponsible is too mild a word for that.
On the Germans stance: How many centuries of body bags does it take to learn to do right? Pardon my Shakespeare: Coriolanus Act III, Sc. i What should the people do with these bald tribunes? ...
Of general ignorance, it must omit
Real necessities, and give away the while To unstable slightness. Purpose so barr'd it follows, Nothing is done to purpose.... Your dishonour Mangles true judgment, and bereaves the state Of that integrity which should become 't : Not having the power to do the good it would For the ill which doth control't.
I question the premise "My vote would be for cutting off oil and gas purchases. In my view, if we don’t do that we are showing we are not serious about winning this war"
Even if all of Europe were to stop buying Russian oil and gas, its effects would take a long time to have meaningful effect. Meanwhile Putin would pursue a scorched earth policy and would leave Ukraine in shambles, resulting in countless civilians killed and millions of people displaced. He will also sell some of the oil and gas to China, India and others. The ruble has already recovered to its pre-war levels. Putin has been adjusting to sanctions since he invaded Crimea, for example, banning European food imports, amassing huge reserves of gold and tying the value of the ruble to gold to facilitate trade in gold or the ruble.
Putin exercises brute power and he only responds to brute power. Only a quick and decisive military defeat in Ukraine will convince Putin to withdraw completely. Whether we like it or not NATO needs to provide direct military forces and not just equipment. During WWII when Jews and others were systematically exterminated, some claimed they did not know what was happening. Today, we cannot live in a state of denial given live video coverage of cities in ruins and civilians lying in the streets and all of this unfolding on our 24 hour news channels.
Unfortunately, the west and America are seen as paper tigers by dictators, given how they withdrew from Afghanistan, how Obama drew red lines in Syria and did not act when Putin used chemical weapons or when Putin took over Crimea. Despite all the sanctions, North Korea has developed nuclear weapons. Even a partial military victory for Putin in Ukraine will only embolden him and encourage similar adventures in the future. In the meantime, sanctions of oil are speeding up shipments to China reinforcing that alliance, and the lesson of western passivity is making China more likely to subjugate Taiwan. Despite sanctions North Korea developed nuclear weapons.
Wars are not won by boycotts and sanctions but on the battle fields; they are meaningless to a brutal dictator like Putin.