Russia's Dangerous Gamble

Russia threw down the gauntlet hard this week, replacing its earlier defensive stance with a resolute policy of pursuing national interests whatever the cost. President Vladimir Putin had made clear that he would not allow Ukraine to become a formal or informal Nato member and an anti-Russia state. Conflict was the consequence of that policy, with a direct challenge to Europe's security architecture. The economic backlash for Russia and the energy implications for Europe will be severe.

Riding Hard

There is a saying that Russians are slow to saddle up, but ride fast. Russia's foreign policy right now is certainly riding hard and fast. For the past 30 years, Moscow has watched Nato's steady expansion east, into Poland, Romania, the Baltic states and other former members of the Warsaw Pact, following German reunification, despite verbal assurances to Russia and regular warnings from the Kremlin. It has called for the implementation of the 2014-15 Minsk agreements, which envisaged special status for eastern Ukraine's Donbas regions of Donetsk and Luhansk, to stop conflict there. Putin argues that the West refused to listen and crossed Moscow's red lines by supplying arms and equipment, training special forces and creating military infrastructure in Ukraine. Now, taking advantage of Russia's comparative strength, he is pushing back aggressively against Nato's encirclement and seeking to reboot the region’s security arrangements. It's an ambitious objective that stretches far beyond Ukraine, and also makes compromise hard on both sides.

"The United States and Nato have started an impudent development of Ukrainian territory as a theatre of potential military operations," Putin said on Monday in a televised address to the nation explaining Moscow's decision to recognize Donetsk and Luhansk as independent republics. Speaking before launching the invasion, he also pointed to nationalist forces in Ukraine, which he claimed sooner or later would attack Crimea and Donbas, and to Kyiv's alleged nuclear ambitions, as additional threats to Russia.

Moscow was looking for legally binding written security guarantees from the US and Nato that it requested in December. These included a commitment that Nato would not expand farther east, including Ukraine and Georgia; rolling Nato's infrastructure back to the borders of 1997; and not deploying offensive weapons on Russia's borders. After two months of fruitless diplomacy, Moscow responded by recognizing the independence of Donbas. This was followed by a decree to launch a "special military operation" to protect the people of the region, demilitarize Ukraine, clear it of ultranationalists and punish those who "committed multiple bloody crimes against civilians." On Thursday, that became a lightning assault on Ukraine from several fronts.

Calculated Risks

Sanctions introduced earlier this week by the US, the EU and the UK against a number of "special" banks, Russian sovereign debt and individuals, in response to the recognition of Donbas, were painful but not critical. A bigger blow came with Berlin's decision to suspend certification of the Nord Stream 2 gas pipeline, which aims to double Russian gas flows to Germany under the Baltic Sea, with the US also sanctioning the pipeline's Russian operator.

Much more damaging, however, are the measures that the US, EU and UK started to roll out Thursday in response to Russia's invasion, which the White House said would bring "immediate and intense pressure" on its economy. President Joe Biden unveiled sanctions aimed at blocking five of Russia’s major banks, including VTB, which he said totaled $1 trillion in assets, and limiting Russia’s ability to transact in US, UK, EU or Japanese currencies. Sanctions against Russia’s biggest state-owned enterprises would also be expanded, and high-tech exports to Russia will be restricted, potentially limiting technology used in Russia’s refining sector. But Biden said the new sanctions were “specifically designed to allow energy payments to continue.” Amid calls from some quarters to boycott Russia's oil and gas, major buyers were reportedly already facing problems opening letters of credit with Western banks for Russian crude.

Russia is better positioned to withstand sanctions now than it was in 2014, having since amassed a $630 billion treasure chest of foreign reserves, partly to guard itself against any new restrictions. The country's central bank began using its reserves to shore up the value of the ruble on Thursday, when Russian stock markets fell by more than 30%.

But Russia's new foreign policy will carry a large price tag. Financial aid to Donbas alone is expected to cost 1.5 trillion rubles ($19 billion) over the next three years. More risky is the prospect that long-term political tensions devalue the ruble further, leading to a rise in the cost of living, reduced incomes and lower life expectancies. The majority of Russians may support Moscow's moves so far in Ukraine, but public opinion can easily turn. Moscow may also have to consolidate its elite to ensure tighter allegiance to Putin.

Cycle of Escalation

The full extent of Russia's military ambitions in Ukraine remained unclear on Thursday. Putin has said occupation is not in Russia's plans, but regime change in Ukraine seems a certain priority.

The big danger is that Russia and the West have become trapped in a cycle of escalation. The West’s response — such as shoring up its defenses in Eastern Europe by sending additional troops to Poland, Romania, and the Baltic states — only aggravates Moscow’s security concerns. The prospects of near-term negotiations between Russia and Nato on Europe's security arrangements now seem almost nonexistent, with both US Secretary of State Antony Blinken and French Foreign Minister Jean-Yves Le Drian canceling planned meetings with their Russian counterpart Sergei Lavrov.

Sending forces into Ukraine has set the stage for a protracted conflict with the West, even if Russia manages a swift military victory. Moscow believes there are existential issues at stake, and it appears to have calculated that sanctions are a price worth paying to arrest Nato's expansion and stop it being able to launch missiles within a four to five minute reach of Russian territory. But for Europe and the US, such a blatant violation of a European country's sovereignty is an attack on the rules-based international order that has existed since 1945. One thing is clear: There is no going back to the order that prevailed for the last three decades.