Europe is its own enemy in Ukraine

Simon Johnson May 04, 2022 06:00

Russian Foreign Minister Sergei Lavrov recently accused the West of fighting a proxy war in Ukraine. This is inaccurate and misleading. In fact, the West is supporting both sides of this conflict – and Russia is by far the main beneficiary. Since launching its invasion, Russia has received over €50 billion ($52.7 billion) from Europe, more than ten times what the West has provided in cash and equipment to Ukraine.

Europe is fighting a war against itself in Ukraine, and the only way to end it is to stop all oil imports from Russia immediately for at least 45 days, and perhaps longer, and to allow them to resume only under a properly structured system of sanctions that includes tight restrictions. International Energy Agency members have about 1.5 billion barrels of emergency fuel supplies – more than enough to manage the transition.

The core problem, of course, is that some European Union countries have become very heavily dependent on Russian hydrocarbons. Europe buys about 2.3 million barrels of oil per day on average from Russia. A few EU countries also buy much of their natural gas from Russia. Consequently, when Russia attacked Ukraine on February 24, some EU countries threw up their hands and said, in effect, there is nothing we can do about Russian energy exports. According to the Centre for Research on Energy and Clean Air, a Finnish research group, Russian revenue from its fossil-fuel exports may have doubled since the invasion.

Two months later, there is a growing realization across the EU that continuing to finance Russian President Vladimir Putin’s war machine is bad economics and even worse politics – and the only way forward is tough sanctions on oil and gas. This realization has dawned on Europeans in several stages.

Immediately after the invasion, some EU countries – particularly, to varying degrees, Finland, Sweden, and Denmark – decided to stop buying Russian oil and switch to alternative suppliers. At the same time, companies in those countries decided to disassociate themselves entirely from the Russian seaborne oil trade. The effect on economic activity in these countries was small, because they had never permitted themselves to become highly dependent on Russian energy supplies.

Then, after Russian forces were forced to withdraw from the area around Kyiv, it became clear that they had committed horrendous atrocities in the towns they had occupied. It should have been obvious from the onset that Europe was facing a great evil, but after Bucha, the targeted attack on families at the Kramatorsk railway station, and the continuing indiscriminate slaughter of civilians in Mariupol, Kharkiv, Chernihiv, and other cities, there is no escaping this reality.

Any suggestion that extreme evil can be stopped at zero cost is always and everywhere an illusion. Grasping this point has shifted attitudes in Germany and elsewhere in commendable fashion. An EU oil embargo now seems imminent. But Europe must not stop there.

Putin wants to return Europe to the brutal geopolitics that defined it until 1945, and he can finance his regressive project only by selling fossil fuels to the very countries his strategy is targeting. The EU can stop him, by refusing to buy oil immediately, eliminating gas purchases over time, and prohibiting European ships from carrying Russian oil, including by imposing sanctions on insurance and all relevant financial services (as suggested in recent days by Martin Sandbu and Gillian Tett of the Financial Times).

European firms have already suffered severe reputational damage from continued involvement with Russian oil, in part because all the tankers are monitored so closely. Shell and BP recently indicated that they will no longer buy any Russian oil, no matter how well it is disguised. Firms that trade oil, which have played an important role in supporting Russia, also say they are out.

Last week, Russia started to self-sanction, cutting off gas to Poland and Bulgaria, ostensibly because these “unfriendly” countries will not pay Russia in rubles. But the demand for ruble payment itself is an attempted breach of contract by Putin, who is desperate to shore up the ruble’s value.

The real issue now is what Europe will do next. Is the continent once again to be held hostage by a man prepared to kill thousands and perhaps millions? Or will it do whatever it takes to sustain the civilized restraint, economic prosperity, and commitment to the rule of law that have underpinned nearly eight decades of peace?

In the past few days, some European companies have indicated they may be willing to pay in rubles for Russian gas, although the European Commission says this is illegal. A major political showdown is looming, between the Commission and companies, and perhaps between countries, over how long it will take to quit Russian gas. But no European in their right mind should want to continue financing Putin’s war against Ukraine. For better or worse, Europe’s future is there.

Copyright: Project Syndicate
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Simon Johnson

Simon Johnson, a former chief economist of the IMF, is a professor at MIT Sloan, a senior fellow at the Peterson Institute for International Economics, and co-founder of a leading economics blog, The Baseline Scenario. He is the co-author, with Jonathan G