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New trends in aggression against Ukraine, Western sanctions and Russian energy weapon


https://www.ipn.md/public/index.php/en/new-trends-in-aggression-against-ukraine-western-sanctions-and-russian-7978_1089499.html

 

 

In the West, the idea is beginning to prevail that intensifying sanctions, along with arming Ukraine, is practically the only effective way to stop the war. Negotiating a Russo-Ukrainian peace seems unfeasible as long as both parties do not want it to the same extent and on mutually acceptable terms...

 

Dionis Cenuşa, Senior Contributor
 

The Russian military aggression against Ukraine has entered its third month and, at the same time, a different phase of manifestation on the ground. The success of the Ukrainian resistance does not allow Russia to obtain a victory, nor to expect a peace agreement imposed on the Ukrainian side. In Moscow's view, an acceptable peace must result in undermining Ukraine's security and defense sovereignty, on the one hand, and in diluting Ukraine's identity by demanding a special status for the Russian language in Ukraine, on the other. Disagreeing with the proposed peace terms, but also deeply shocked by the atrocities committed by the Russian military against the civilian population, Kyiv finds itself in an extremely delicate position regarding the negotiation of a ceasefire truce. Both in Kyiv and in the West there is a growing desire to defeat Russia in the war and force it to withdraw its forces.

Although the sanctions applied so far have begun to weaken the Russian state and will become increasingly effective in the short and medium term (technological malfunctions, stagnation of exports, etc.), Vladimir Putin's regime shows a certain amount of resilience. There is a gradual reorientation of exports of energy resources, the state provides subsidies to replace Western imports with domestic production, and the financial system uses new tools to operate on a national and even regional level. Even if, due to sanctions, Russian companies find it difficult to pay themselves to foreign creditors, the risk of default is technical and politicized in nature. Or, the Russian companies have money to pay their debts, but they can't, because all legal financial channels are paralyzed by sanctions.

The current dynamics of the Ukrainian-Russian war continues, giving the possibility that the opening of other "fronts" could produce changes in the situation. Therefore, the destabilization of the Transnistrian region in Moldova (EESC, April 2022) caused a wave of agitation and pessimistic feelings about the possibility of the extension of the war in Ukraine on Moldova. In reality, the involvement of the Transnistrian region in Russia's military actions carries a multitude of risks for the breakaway region, but also for Russia's long-term strategic interests in Moldova. Attacking Ukraine from the Transnistria region is a scenario that cannot be definitively ruled out, but the Russian army should reach Transnistria by land first. Although Russia is having difficulty crossing the Mykolaiv region, it is targeting critical infrastructure in Odessa, such as Odessa airport runway damage. The opening of the "Transnistrian front" can be avoided if Ukraine is urgently supported with modern weapons. At the same time, although it is not the priority of Russia's military campaign against Ukraine, Moldova must seriously consider the possibility of escalation, which would require minimal preparation of the country's defense capabilities.

Three big new trends

While the Ukrainian side is gaining more confidence and military potential to defend itself and retaliate, Russia is adjusting its geopolitical appetite for minimum and maximum targets. Under such circumstances, an unfavorable peace deal aimed at ending the war is no longer acceptable to kyiv. Contrary to Ukraine's reluctance, Moscow wants a "peace" based on its preferences.

Compared to Russia's initial expectations of a rapid collapse of the Ukrainian resistance in late March, the war continues into May, marking at least three major new threats:

First, the Ukrainian side has regained control of the regions around the capital, shedding light on the atrocities committed by the Russian army, which they currently classify as war crimes. In other words, Ukraine can regain control, for the time being, in some regions of the country. This has led to the resumption of Western embassies, one after another in Kyiv. Thus, little by little, life was returning to a certain normality, in the territory controlled by the constitutional authorities. At the same time, the risk of Russian air strikes has become permanent and widespread. Russian missiles can hit any target, whether civil or military, at any time and in any corner of Ukraine. The high risk of insecurity throughout Ukraine has economic effects, in addition to the actual occupation of the southern regions of the country. Under such conditions, Ukraine's economy could shrink by at least 50% or almost 5 times more than Russia's under the pressure of sanctions.

The second aspect in which the change was visible is the revision of Russia's priorities. Therefore, the capitulation of Kyiv through physical encirclement and advance on the ground fell as a primary and immediate objective. On the one hand, Ukrainian resistance, combined with increasing Western military assistance, and on the other, exaggerated Russian military ambitions, have led to Russia's tactical failure to overtake Kyiv. Consequently, the entire potential of Russian aggression was focused on the occupation of southeastern and southwestern Ukraine, as well as the strengthening of the Russian presence in the already occupied southern territories. It has gone from being a parallel objective, previously pursued with the capitulation of Kyiv, to a priority objective. Therefore, the Ukrainian authorities became suspicious of Moscow's attempt to hold illegal referendums, similar to the one used as a pretext for the annexation of Crimea in 2014. So far, no one has been able to send the perfect solution, which is not surprising. Russian control over the outlet to the Sea of ​​Azov, as well as the partial restriction of access to the Black Sea, were confirmed by the official decision of Kyiv to suspend the operation of the Ukrainian-administered ports in the occupied territories of Mariupol, Berdyansk, Skadovsk and Kherson, until the de-occupation from Russian control. At the same time, Russia began the process of introducing the ruble in Kherson, starting in May, with the elimination of the hryvnia at the end of the summer of 2022. The forced integration of Kherson into the "ruble zone" was preceded by technical facilitation of transmission of Russian TV stations (Pravda.com, March 2022). Both initiatives aim to deepen the occupation and reduce anti-Russian civil opposition among the local population.

The third trend is the initiation of legal procedures in the US that would allow the confiscation of financial resources of Russian citizens (kleptocrats, etc.), frozen as a result of sanctions, and their further transferring to the Ukrainian side to repair the damage, caused by Russian military aggression (White House, April 2022). In the United States alone, a billion dollars in assets (homes, helicopters, etc.) and hundreds of millions of dollars in blocked bank accounts have been seized. If the EU states adopt the US model, then the amount of financial resources that could be seized and forfeited would exceed $30 billion. However, the US initiative does not target the approximately $300 billion, which represents the external financial reserves of the Russian Central Bank. In any case, the Ukrainian side is determined to develop a legal mechanism that will allow Kyiv to gain control of the assets of the seized Russian side, whether they belong to Russian elites or to the government. By some estimates, nearly $7 billion a month would be needed to keep the Ukrainian state running during the war and at least $500 billion for post-war reconstruction (NYT, April 2022). Russian authorities have warned that countermeasures will be taken if Russian assets are seized and transferred to Ukraine. Specifically, Russian Duma Speaker Veaceslav Volodyn speculated that Russia should confiscate the assets of companies and citizens of "unfriendly states" (Kommersant, April 2022), established in March and numbering 48 countries. So far, the Russian authorities have blocked the financial resources of foreign investors from these countries, which would amount to about 500 billion dollars. It is certain that Russia will consider it legitimate to confiscate the assets of Western investors, which will damage its relations with the West in the short and medium term.

The "sixth package" of sanctions and Russia's energy revenge

The tightening of European sanctions against Russia is practically inevitable. There are several reasons why the sanctions regime is becoming more acute. Firstly, the previous five sanctions packages (IPN, March 2022) had some effect, but were insufficient to weaken Russia's war machine. The Russian economy is adjusting and the population is showing solidarity with the Putin regime. Secondly, the new sanctions will be more severe. They aim to gradually limit oil imports from Russia, followed by their definitive abandonment from 2023 (Bloomberg, April 2022). The EU is accused of contributing to the Russian budget by buying energy resources, to which it has contributed some 44 billion euros since the start of the war in Ukraine. Just for the sale of oil, Russia receives about 285 million dollars a day from the EU. The introduction of the embargo on Russian oil would affect Russia's budget revenue. At the same time, it would oblige EU states to take concrete steps to reduce energy dependency on Moscow, in line with European Commission President Ursula von der Leyen's aspirations to end the "age of Russian energy resources in Europe". The EU intends to impose a global embargo on Russia, along with the US and other G7 countries, which may be possible if reinforced with "secondary sanctions" (ways of penalizing third countries for acquiring energy resources Russians). Thirdly, the sanctions of the next wave, the sixth, foresee more restrictive community measures against banks of systemic importance for the Russian financial sector, such as Sberbank (37% of the sector), which will be disassociated from the international financial transfer system (SWIFT). The new package will include "smart sanctions" to reduce the negative impact on the European economy. However, they will not target the gas sector, where there is opposition from Germany, Austria and Hungary, whose households and businesses depend on imports of Russian gas at a more affordable price based on long-term contracts.

As in the case of oil and coal, EU states cannot automatically give up Russian gas without incurring significant economic and socio-political costs. Even if the dismantling of Russia's energy dependency is in full swing, it remains gradual. Meanwhile, Russia has introduced a new mechanism for the payment of Russian gas, which should be made in rubles. Poland and Bulgaria have given up doing so and were cut off from gas supplies at the end of April. The two states have received help, through interconnections, from other EU states, due to the principle of solidarity. The EU has asked Member States to fill 80% of natural gas storages by November 2022 and up to 90% of storage capacity by 2023 (EuroActiv, April 2022). Brussels also launched the Joint Platform for the Purchase of natural gas, LNG and hydrogen, which will be used to mobilize efforts, including with the help of the US-EU Task Force on Energy Security (launched in March 2022), to acquire gas for winter 2022-23.

Russia says that 10 companies on the list of unfriendly states have agreed to pay in rubles. However, it seems that the non-execution of the new formula for paying for gas in rubles is actually used as a pretext to penalize countries that impose sanctions against Russia. Problems with the supply of gas increase the price on the market, which makes it possible for Russia to earn even if it sells fewer quantities. At the same time, the Russian side is increasing gas exports to alternative markets, in a rush to diversify and reduce dependence on European consumers' income. Thus, in the first four months of 2022, Gazprom delivered to China by 60 percentage points more than in the same period of 2021. During Putin's visit to China in February 2022, the second long-term gas contract was signed, which will increase the volume of gas supplied to China by up to 48 billion m3 per year. However, in contrast to European market revenues, China's long-term price is several times lower than what EU countries currently pay. On the other hand, Russia is convinced that the energy decoupling planned by the EU will affect European economic interests. Moscow senses that the EU will have to face socio-political consequences, materialized in anti-government protests, and economic consequences, characterized by maintaining high quotas in energy prices, which, in the short and medium term, end up favoring the Russians. In the end, the elimination of dependency on Russia will become a geopolitical asset and an investment in the EU's strategic sovereignty. Nevertheless, achieving this goal will involve costs and multiple episodes of revenge by Moscow.

In lieu of conclusions…

In the West, the idea is beginning to prevail that the intensification of sanctions, together with the armament of Ukraine, are practically the only effective means to stop the war. Negotiating a Russo-Ukrainian peace seems unfeasible as long as both parties do not want it to the same extent and under mutually acceptable conditions. This situation increases the ambiguity of the timetable for the end of the war.

As the EU plans to introduce a new sanctions package to punish Russia for its aggression against Ukraine, the Russian side is preparing to use its only viable tool, the energy tool, for revenge and pressure. In this regard, Russia uses as a pretext the new gas payment mechanism in rubles.

Keeping natural gas at high prices and any socio-political grievances of the peoples of Europe, especially in the second half of the year, seems to be Russia's main bet. However, if the EU manages to buy gas at acceptable prices, it will be able to guarantee a less violent transition towards an energy sector free from the domination of the Russian geopolitical factor.


 
Dionis Cenuşa, Senior Contributor
Dionis Cenușa is a political scientist, researcher at the Institute of Political Sciences at Liebig-Justus University in Giessen, Germany, MA degree in Interdisciplinary European Studies from the College of Europe in Warsaw.
Areas of research: European Neighborhood Policy, EU-Moldova relationship, EU's foreign policy and Russia, migration and energy security.
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