Washington says it will inflict much harsher punishment than in 2014. The Kremlin may already have calculated - accurately,in my view - that the impact will in fact be less. Post-Crimean sanctions coincided with a secular commodity bust,the main reason why Russian real disposable incomes were to slide by 12 per cent. This time they coincide with a boom.
Russia today has a semi-autarkic economy,andits chief trade partner is China. The copious document signed by Putin and Xi Jinping at the Beijing Winter Olympics establishes a de facto authoritarian alliance. Right now China has Russia’s back against the West,and this renders meaningful sanctions impossible.
The White House thinks Putin cannot diversify his economy over the next decade without Western technology,but China can plug many gaps.
The Kremlin knows that Europe has vetoed the expulsion of Russia from the Swift network of international payments. “The West has to do something to save face but we expect nothing more than sanctions on two or three large Russian banks. That would be disruptive but Russians are used to this. The only sanctions that would have any real impact is to try to kick Russia out of the global financial system altogether,” says Granville. “In a sense the damage has already happened since Crimea. Further measures would be more of the same.”
It is clear that there will be no blockade of Russia’s energy nexus. Germany’s gas dependence is so total that Scholz still cannot bring himself to state unequivocally that the Nord Stream 2 pipeline should be shelved after a full-blown invasion.
“Europe can’t do without Russian energy,and it has nowhere else to turn. This is not just about gas:there are oil pipelines,as well as 2.5 million barrels a day of refined products like aviation fuel and diesel,” says Weafer.
Deliveries of liquefied natural gas,mostly from the US,have slowed the depletion of Europe’s gas reserves,with the help of mild weather. But they are uncomfortably low - Austria (19 per cent),the Netherlands (24 per cent),France (28 per cent) - and global LNG capacity is stretched.
Europe is reliant on Russia for oil and gas.Credit:AP
The White House thinks Putin cannot diversify his economy over the next decade without Western technology,but China can plug many gaps. Putin has an unrepeatable chance to smash the post-Cold War settlement and reassert Russian dominance over its near abroad. Nothing on the current menu of sanctions will alter his calculus.
If he steps back from an invasion it will be for one of two reasons. The first is that the US,Britain and Turkey have shipped weapons to Ukraine that are sufficiently sophisticated to move the needle:anti-tank and anti-aircraft missiles,and drones. Nato’s Eastern European states have held firm. The US and the UK have mobilised their cyberwarfare capability.
Washington has made it clear it will support a guerrilla insurgency to raise the tariff of occupation. Putin has to weigh the risk that Ukraine’s reservists might put up stiffer resistance than expected and that a lightning strike on Kyiv might prove harder than it looks.
Almost nothing that core Europe is now doing has any bearing on this. The EU failed to heed the lesson of Russia’s seizure of Georgian territory in 2008. It continued disarming even as Russia armed further. It spent a decade obsessing over institutional architecture,and then trying to save monetary union from its own contradictions. During the European debt crisis states slashed spending on weaponry to meet arbitrary and pro-cyclical austerity targets. These were enormous errors of statecraft.
The other reason why Putin may desist is if Germany and France have promised behind closed doors to give him what he wants:Ukraine on a platter,stripped of sovereignty and locked into Moscow’s strategic orbit. To call it Finlandisation is a euphemism. It is closer to Russification.
Loading
We will find out soon enough but it was revealing to see the ashen face and involuntary wince of Ukraine’s Volodymyr Zelensky as the German Chancellor spoke in Kyiv. Scholz did indeed seem to be pulling the rug from underneath his feet,deflating Ukraine’s hope of genuine independence with the soft-spoken words and careful precision of an employment lawyer,his former job.
Markets are implicitly betting that a Western sellout on Putin’s terms is the likely outcome,and that Ukraine will be pressured into “voluntary” realignment - like the Czechs in 1938 - allowing business to continue as usual. Utter cynicism is usually the safest bet.
Telegraph,London
The Business Briefing newsletter delivers major stories,exclusive coverage and expert opinion.Sign up to get it every weekday morning.