Abstract
The Russia–Ukraine war is not approaching stalemate but remains dynamic and unpredictable. The balance of resources favours the West: its economic superiority over Russia is much greater than during the Cold War. But the balance of resolve favours Russia: it is mobilising its capacity more effectively than the coalition of open democracies that supports Ukraine. The West needs a geo-economic strategy to harness its inherent strength to security goals. It should do three things: mobilise military–industrial production; move towards a general prohibition on trade with Russia with few exceptions; and confiscate the $300 billion in Russian central-bank assets frozen in Western financial systems. Given the stakes of the war, unfounded fears of adverse consequences should not deter Western countries from taking these steps.
The third year of Russia’s war in Ukraine has begun. What are the results of the first two years, and what lessons follow for the future?
2022 was a year of Russian aggression and failure. Not only was Russia unable to seize Kyiv and install its own regime in the first week of the war, but in the autumn it lost huge swathes of occupied territory around Kharkiv and Kherson. By the end of the year, it held just 17.5% of the country – equivalent to 0.6% of its own legally recognised territory.
2023 began with a new Russian offensive that petered out. Ukraine then spent months preparing for a counter-offensive. Despite a heavy burden of expectation, Ukrainian forces barely shifted the front line, though Kyiv’s ingenious Black Sea campaign continues to inflict losses on Russia’s navy.
It might thus be tempting to say that 2022 and 2023 showed the limits of Russian and Ukrainian power, respectively, and that 2024 should be a year of compromise and peacemaking supported by the West. This would be a grave error for three reasons.
Firstly, neither side is ready to compromise. Ukraine is not politically or morally prepared to accept an outcome that would sacrifice land and people to aggression and leave it permanently weaker. Some would say this is beside the point. However justified Ukraine’s moral and legal claims to the full restoration of its sovereignty, its policy and that of the supporting West should be governed by the realities of power. Compromise and equilibrium, not moral outrage and victory over evil, must define the end of this war. Wisdom lies in the recognition of necessity.
Some voices quietly press this view in larger Western capitals. It is now heard, less quietly, from the smallest. Pope Francis is the first head of state to call publicly for Ukraine to show the ‘courage of the white flag’ – that is, to surrender its aspirations and negotiate – rather than for Russia to end its invasion.Footnote1 It is surprising that the leader who asserts the grandest claim to spiritual authority should speak in such openly temporal terms. Josef Stalin famously asked: how many battalions has the Pope? The Pope now asks in turn: how many battalions has Ukraine? John Paul II might have answered differently.
Realism and reality
The realist argument, more subtly expressed, has a respectable, indeed venerable, pedigree. The domain of choice is defined by power, not right. Where these do not align – and this side of eternity, they almost never do – the familiar agony of compromise intrudes. To ignore this, to insist fiat iustitia et pereat mundus – ‘let justice be done though the world perish’ – is to risk perishing. There thus might conceivably be a case, however unpalatable, for pressing Ukraine to agree to an unjust peace if this would end the war, stem its human losses and secure the future of the remainder of the country. Grown-up diplomacy does morally hard but necessary things, not easy and virtuous ones.
This case for realism founders on misunderstood realities. An end to war requires that the aggressor, not the victim, wishes it or is compelled to accept it. Yet few proponents of a negotiated peace argue that Russia should be pressured. Fewer still understand Russia. As the stronger side, Russia does not feel it faces the necessity of compromise. There is no evidence that Russian President Vladimir Putin has abandoned his initial goal of subordinating Kyiv. Having failed to win a short war, he has formed a theory of victory for a long one: wear down Ukraine militarily and outlast the West politically. As he told senior officers last December, Russia’s military production is increasing while the Ukrainians ‘are running out … They don’t have their own foundation. When you have no foundation of your own … then there is no future. But we do have one.’Footnote2
Putin seeks victory, not negotiation, because he sees events moving in his favour. Domestic constraints have proved looser than he expected. More than 300,000 Russian troops have been killed or wounded in Moscow’s war of aggression without sparking major protest. Despite huge losses, Russia now has more forces in Ukraine than it did at the start of the war. The capture of Avdiivka, civil–military friction in Kyiv and a more anxious mood in Ukraine embolden Russia to push further. Europe’s under-delivery of weapons, the United States’ failure to pass a new Ukraine-aid bill and the prospect of Donald Trump’s return to the White House all cast doubt on the future of Western support. In these realities Putin sees vindication for his strategy of slow, relentless attrition. As he has put it, ‘a hen pecks grain by grain’.Footnote3
The second reason peacemaking does not lie ahead is that the war has not reached a stalemate, but remains dynamic and unpredictable. Several narratives have framed its course so far, each persuasive until confounded by events – not least when Ukraine broke the mid-2022 deadlock with dramatic advances. There is no guarantee that the present lack of mobility will endure. Putin’s growing confidence may not be misplaced. The war may turn against a weary Ukraine.
Thirdly, while last year saw little change on the battlefield, the wider geopolitics of the war were transformed. NATO is enlarging and reforming. Several European states have signed bilateral security agreements with Ukraine, with which the European Union has begun accession negotiations. Russia has few allies, but its dependence on drones and ballistic missiles from Iran and ammunition from North Korea has drawn it closer to both. Since Russia and Ukraine each depend on external support, the capacities and choices of the states that supply them will probably determine the outcome of the war.
In long wars involving vital interests, the richer side wins. The sinews of power are fed by plenty and wealth is turned into weapons.Footnote4 The West’s margin of superiority is vastly greater now. It is 12 times richer than Russia (when calculated by purchasing-power parity, the method of comparison most favourable to Russia).Footnote5 During the Cold War it was only around three times richer than the Soviet bloc. The balance of resources decisively favours the West.
The balance of resolve, however, favours Russia. Moscow now spends around 7.5% of its GDP on defence and security, while only 11 NATO members spent more than 2% last year.Footnote6 By devoting a larger slice of a smaller pie, Russia’s repressive regime may prevail against a prosperous coalition of democracies. It commands fewer resources but possesses a stronger will to use them. As a result, Ukraine is now heavily outgunned and faces growing pressure on the battlefield.
Winning Ukraine
The West urgently needs a geo-economic strategy for the war to harness its superiority in resources to its security imperatives. This should have three elements.
Firstly, the West should mobilise military-industrial production for Ukraine and for itself, thereby matching economic means to security ends. It can easily afford to spend the relatively modest sums this would require.Footnote7 The decision to do so should have been made in 2022. It should now be done without delay.
Implementation is not straightforward: while the Russian state can direct resources to military production at will, Western states must incentivise the private sector. Defence companies have been willing and waiting but have not received the political signal they need – and in at least one country have been actively discouraged from planning to raise production. Civil society as well as public policy can play a role. Having pressured companies to withdraw from Russia early in the war, they can now go further and call for investment ethics to align with security realities. Environment, social and governance criteria brand shares in defence companies as ‘sin stocks’, thereby depriving them of capital. This makes little sense when the products are used to resist a violently and unjustly aggressive invader.Footnote8 In these circumstances, the moral case for investing in defence production is impeccable.
Secondly, the West should move towards a general prohibition on trade with Russia. Successive rounds of sanctions have constrained Russia more effectively than many realise, precipitating a 40% fall in the value of global exports of high-priority military items to Russia.Footnote9 But these measures are reactive and incremental, and still permit plenty of trade.
Since every transaction makes Russia better off, the goal should be to eliminate as many transactions as possible. As with other sanctions regimes, exceptions may be carved out. In a few cases, the West may have an overriding interest in maintaining some economic relationship. But the presumption should be that no Western company should enrich a regime that poses the primary threat to Western security.
Thirdly, the West should use the $300 billion in Russian central-bank assets, immobilised in its financial systems since February 2022, to provide urgent support for Ukraine and ease the pressure on taxpayers. There is now a clear legal path to doing so.Footnote10 The underlying concerns are economic and financial. The biggest is that confiscation could undermine Western reserve currencies and fuel financial instability. There is no realistic danger of this. Freezing the assets was a far more decisive step than confiscating them and caused no market turbulence. If the countries that issue the major currencies – dollar, euro, sterling and yen – move together, there is nowhere else for large funds of money to be safely held. The rule of law, often a hindrance to rapid and effective action by democracies, in this case confers a decisive advantage.
An exaggerated fear of adverse consequences is the latest form of chronic self-deterrence in economic affairs. Before 2022, it prevented the United States from imposing significant sanctions on Russian sovereign debt, and Europe from weaning itself off Russian pipeline gas. Since the full-scale invasion of Ukraine, both measures have been taken without creating the problems that had been predicted. Economics is the West’s greatest area of natural strength, one against which Russia cannot effectively retaliate. The wisdom of restraint in military matters may be debated. There is little case for it in economic and financial ones.
* * *
The realist argument for compromise is that constraints impose choices. The geo-economic rejoinder is that constraints are choices, too, and can be changed. The West can mobilise far more of its superior resources to hinder Russia and to sustain and arm Ukraine. Doing so would properly harness financial and industrial power to moral and security imperatives.
No one should doubt the stakes. A rapid defeat for Ukraine in the first days of the war would have been a disastrous failure of Western foresight and planning. A slow defeat – despite endless declarations of support and countless visits to Kyiv – would be a fundamental failure of credibility. If Russia succeeds despite the mantra that it must fail, the unambiguous lesson, amplifying that of Afghanistan, will be that a weaker but more determined adversary can always outlast the West. This would demoralise its allies and embolden its adversaries around the world.
Additional information
Notes on contributors
Nigel Gould-Davies
Nigel Gould-Davies is IISS Senior Fellow for Russia and Eurasia. This essay is adapted from a shorter version published by IISS Online Analysis in February 2024.
Notes
1 Kathryn Armstrong, ‘Ukraine War: Vatican Envoy Called In over Pope “White Flag” Remarks’, BBC, 12 March 2024, https://www.bbc.co.uk/news/world-europe-68538267.
2 ‘“Ukraine Has No Future, We Do”: Putin’, Al Arabiya English, 11 December 2023, available at https://www.youtube.com/watch?app=desktop&v=jpaAWmjcdxQ.
3 ‘Putin ob’’iasnaet taktiku Rossii na Ukraine: “kurochka po ziornyshky kliuet”’ [Putin explains Russia’s tactics in Ukraine: ‘A hen pecks grain by grain’], Tsargrad TV, 22 December 2022, https://tsargrad.tv/news/putin-objasnil-taktiku-rossii-na-ukraine-kurochka-po-zjornyshku-kljuet_690906.
4 As Paul Kennedy put it, the success or failure of a great power has historically been ‘the consequence of lengthy fighting by its armed forces; but it has also been the consequences of the more or less efficient utilization of the state’s productive economic resources in wartime’. Paul M. Kennedy, The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500 to 2000 (New York: Vintage, 1987), p. xv.
5 See World Bank, ‘GDP, PPP (Constant 2017 International $) – Russian Federation, European Union, United States, United Kingdom, Canada’, 2023, https://data.worldbank.org/indicator/NY.GDP.MKTP.PP.KD?locations=RU-EU-US-GB-CA.
6 IISS, ‘Dr Bastian Giegerich’s Launchevent Remarks’, 13 February 2024, https://www.iiss.org/publications/the-military-balance/2024/bastian-giegerich-launch-event-remarks/; and NATO, ‘Defence Expenditure of NATO Countries (2014–2023)’, Press Release, 7 July 2023, https://www.nato.int/nato_static_fl2014/assets/pdf/2023/7/pdf/230707-def-exp-2023-en.pdf.
7 One estimate suggests this could be as low as 0.25% of GDP per year specifically for military aid to Ukraine. See ‘Estonia’s 0.25 Percent GDP Aid to Ukraine Proposal Needs Support of Western States’, ERR.ee, 15 January 2024, https://news.err.ee/1609222386/estonia-s-0-25-percent-gdp-aid-to-ukraine-proposal-needs-support-of-western-states.
8 There is now growing recognition of the need for such a realignment. See, for example, James Cartlidge and Andrew Griffith, ‘Joint Opinion Piece on ESG’, Gov.uk, 12 September 2023, https://www.gov.uk/government/news/joint-opinion-piece-on-esg-july-2023; and Peggy Hollinger, ‘Ukraine War Prompts Investor Rethink of ESG and the Defence Sector’, Financial Times, 9 March 2022, https://www.ft.com/content/c4dafe6a-2c95-4352-ab88-c4e3cdb60bba.
9 Heli Simola, ‘Latest Developments in Russian Imports of Sanctioned Technology Products’, BOFIT Policy Brief no. 15, Bank of Finland Institute for Emerging Economies, 29 November 2023, https://publications.bof.fi/bitstream/handle/10024/53179/bpb1523.pdf.
10 See, for example, Viktoria Dendrinou and Alberto Nardelli, ‘Seizing Frozen Russian Assets over Ukraine War Wins Endorsement of Legal Experts’, Bloomberg, 21 February 2024, https://www.bloomberg.com/news/articles/2024-02-21/seizing-frozen-russian-assets-over-ukraine-war-wins-endorsement-of-legal-experts?sref=fCrVhgAM.