Commentary on Political Economy

Saturday 2 April 2022

How Far Is the West Prepared to Go for Ukraine?

If further escalation is a possibility, defense contractors and cold warriors in Washington won’t define it—the Ukrainians will.
A soldier holds a machine gun and stands on duty near the ruins of Kyivs Retroville shopping center which was destroyed...
A soldier stands in front of the ruins of Kyiv’s Retroville shopping center, which was destroyed in a Russian shelling attack. At least six people died during the incident.Photograph by Mykhaylo Palinchak / SOPA / Getty

Among the Ukrainians whose jobs have completely changed since the Russian invasion is Oleg Ustenko, the chief economic adviser to President Volodymyr Zelensky. In February, Ustenko was working out whether the annual growth estimate of 3.5 per cent should be revised down; now there is hardly anything left to count. When we spoke on Monday, he told me that statistics are hard to come by, but, by his best estimates, fifty per cent of Ukrainian businesses are unable to operate, the economy may contract by roughly thirty per cent, the country’s productive industrial base remains under bombardment, and the nation’s wheat farmers have to contend with unexploded ordnance in their fields. “Some cities are completely destroyed,” Ustenko said. “And, when you have Chernihiv, Kharkiv—which were really industrial cities for us—there is no doubt you are going to have a significant squeeze.”

The economic sphere is where Ukraine’s allies, in Washington and Brussels and Tokyo and London and Berlin, have most readily confronted the Kremlin—freezing assets, applying sanctions, working to insure that few are willing to sell what Moscow wants to buy. But, however likely these measures are to choke the Russian economy in the medium term, it’s been hard to see any real effect on the war machine. “When people are saying the sanctions are working, in our view it’s really ridiculous,” Ustenko said. “Even today—the capital, they bombed all night. So people were hidden in the bomb shelters from, I would say, 10 p.m. until 6 a.m. Then they were allowed to go out on the ground, and then again the bombs started. So they are sending missiles all the time.”

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The trouble, he went on, was that the sanctions had left an enormous loophole. Russia’s foreign-currency reserves had been frozen—a measure the Kremlin did not anticipate—and the U.S. has banned the importing of energy from Russia, but Europe, crucially, has not. Since the invasion began, hundreds of millions of dollars have flowed into Russia each day. Ustenko and his team have been tracking the tankers; among the largest European importers of Russian oil and gas are Germany, Italy, and the Netherlands. “Our logic is that whoever is financing Putin’s military machine is also financing the war crimes,” he said. “Twenty-four hours, seven days a week, we are searching for everybody who was in the Russian oil ports. We know exactly the volume of oil that was loaded, where it was lifted—we know the country, the flag, the port of destination, the name of the captain.”

What was under way seemed obvious to Ustenko: a cash-and-carry operation. With his country’s assets frozen, Vladimir Putin needed currency in order to pay for military equipment to keep the war going, both from domestic producers and overseas, where he had reportedly appealed to China for military assistance. Ustenko said, “Look, he’s searching desperately on the market to try to find weapons—he needs cash. If he doesn’t have cash on his hands, he will not be able to run his military.” Putin’s last recourse was energy. “The West will never stop buying energy from Russia—it was his working assumption from the very beginning, from the point when he started to build this kind of economy,” Ustenko said. “It’s not difficult to get to the conclusion that Putin is thinking that he is holding the global economy by the neck. And that nobody will be, not even willing, but able to switch off from him.”

Ustenko’s career has run in parallel with the post-Soviet market transition, which he has studied and advised. He did graduate work at Harvard and Brandeis; his 1995 thesis, from Kyiv National Economic University, was titled “Diversifying Production in the Context of a Developing Market Economy.” In the presentations that Ustenko has given to Western economic think tanks this month, he has looked like one of their own, with neat glasses and unkempt hair. On the phone, he had an understated manner. At one point, when the connection cut out, Ustenko said, “Look, the line is really very bad here due to current conditions.” Then he kept going.

His timelines have changed. Market liberalization takes place across decades; the current war is measured in hours. Ustenko spoke about the assistance that the West had given Ukraine—the access to new loans and grants, the choice that the Biden White House and the governments of Poland and Denmark had made to stop oil and gas imports. He sounded grateful for all of it. But, still, the loophole was open; energy was flowing to the West and cash to the East. I asked what his conversations were like with officials from European countries that haven’t yet sworn off Russian energy. “They are trying to move the horizon. They are trying to do it a bit later than is really necessary,” Ustenko said. “And for us it is completely unacceptable. Everybody in Europe, they do believe that they have to cut off. But the only question is: when?”

In the five weeks since Russia invaded Ukraine, the policy response from the West has grown increasingly expansive. A direct military confrontation with Russia, in the form of a nato-imposed no-fly zone, was ruled out from the start. Everything else now seems to be on the table. From Washington, cash is flowing: $13.6 billion in aid for Ukraine, including several billion dollars to purchase military equipment. Some four thousand and six hundred Javelin anti-aircraft missiles, more than half the total purchased by the Pentagon in the past decade, according to the Center for Strategic and International Studies, have been sent to Ukraine in the past month. Famously neutral Switzerland and Sweden have strayed from their usual positions; Germany halted the Nord Stream 2 pipeline, a controversial eleven-billion-dollar project. The Central Bank of Russia, whose activities were restricted by an alliance of Western countries last month, is the largest and most significant economic entity ever sanctioned. A status quo that had long tolerated Putin and his oligarchs is showing some signs of shifting. For many weeks, it was taken as an article of faith that no U.S. official would say anything to hint that Washington meant to foment a regime change in Moscow. Then, on March 26th, President Biden travelled to Warsaw and, addressing a crowd of thousands, said, “For God’s sake, this man cannot remain in power!”

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Ukrainian military success has been one reason for these changes. “Before the war, the Biden Administration was trying to deter it by threatening sanctions,” Daniel Fried, who was Assistant Secretary of State for European and Eurasian Affairs under Presidents George W. Bush and Barack Obama and is now at the Atlantic Council, told me. “They assumed the Russians would be militarily victorious. That assumption is now questionable. It is now an open question as to who wins. Let that sink in for a minute. Russia attacks Ukraine, it’s an open question as to who succeeds. That’s a kind of ‘Oh, shit, really?’ moment.”

Ukraine’s appeals to solidarity have also activated something in Western politicians—in Biden perhaps most of all. Fried had been the Polish desk officer at the State Department in 1989, during the Solidarity movement. He said that, in Biden’s Warsaw speech, he heard clear echoes of Ronald Reagan’s “evil empire” address in Berlin. To him, this underscored the differences between Biden and Obama. “All Biden’s points of reference are different,” Fried said. “He was an adult before Vietnam.” But, if this is a hawkish phase, in which escalation is again a possibility, then it isn’t defense contractors or cold warriors in Washington who have defined it. It is the Ukrainians. Every few days, Zelensky has appeared via video link to a standing ovation of Western legislators (in Congress, the U.K. Parliament, the Bundestag) to ask for more material help: more severe sanctions, more financial assistance, more military equipment, a no-fly zone. In these appearances, he is posing a version of the question Ustenko posed to me: Having defined this as a conflict between a democracy and a war criminal, how far are Western politicians prepared to go to help the democracy?

For some hawks in Washington, the Ukrainian success so far has meant that the United States may not need to go as far as they had initially imagined. “A no-fly zone is unpalatable at the moment, but it may not be necessary,” Alexander Vindman, the former National Security Council director for European Affairs who was fired after testifying at President Donald Trump’s first impeachment trial, told me. Vindman, who was born in Ukraine, had called for a new Marshall Plan and a lend-lease program in which significant weaponry would be provided to Kyiv at little to no cost. When I spoke with him this week, he emphasized that what was really needed was military equipment that we and other Western partners had at hand: long-range missiles that could target Russian air bases outside Ukraine, more shoulder-fired anti-tank and anti-aircraft weapons, and drones that can target tanks and armored personnel carriers. “We’re entering a more dangerous phase, potentially,” Vindman said. “Russia has less capability, but it’s going to be more focussed.”

But the moral case Vindman made for intervention sounded like it hadn’t changed much at all. “It’s not simply in the Ukrainian interests—it’s in our interests to win,” he said. “Right now, it looks like China is sitting this out, but that’s because Russia is losing. If it looks like Russia is going to win, then they’re going to go to their natural state of wanting to support Russia, and then it’s a major win for the authoritarian regimes crushing democracy. Frankly, I don’t think that’s a battle we can afford to lose.”

The Ukrainians’ success has eased some of the doves’ most vivid worries as well. “After some sleepless nights during the first weeks of the invasion, I’m glad to say I’m sleeping now,” Stephen Wertheim, a senior fellow at the Carnegie Endowment for International Peace, told me. Even so, he went on, the Western response did not seem to suggest a steady strategy but instead a pattern of drift—of vigorous indirect action, broad talk, and somewhat ill-defined aims that hinted at escalation without committing to it: “You have to think, why is the U.S. taking all these risks?” The Administration, he said, had been very clear that U.S.’s vital interests were not at stake in Ukraine. There was an obvious moral argument, he said, but it was entangled with a second. “Part of it has to do with seeing an opportunity to cripple Russia, and in so doing to unite the West under American leadership,” he said. The quick change in posture made it difficult to see which motive was the real one. Wertheim said, “I don’t think Vladimir Putin can tolerate losing power—which is why talk of regime change is so dangerous.”

The news from Ukraine this week has carried some flickers of hope: a counteroffensive that pushed Russian troops back from the outskirts of Kyiv, a stalled advance in the south, peace talks substantial enough that plans were reportedly being made for Putin and Zelensky to meet face to face. In our conversation, Ustenko, the Ukrainian economic adviser, had mentioned to me how many children had been killed. He told me how many women Russian soldiers had raped, according to a Ukrainian prosecutor, and how young and old the women were alleged to have been. But his argument wasn’t just humanitarian. Ustenko wanted something, which was for European countries to stop importing Russian energy, and he was insistent that this would have the effect of stopping all these horrors. “I think it’s going to be almost an immediate effect on his economy,” Ustenko said. To my ear, it sounded like Ustenko was trying to emphasize how much still hangs in the balance. Devastation was still possible. So was victory. 

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