It's the economy, stupid
–James Carville, 1992
What does lasting peace in Ukraine look like? During the American election campaign, US President-elect Donald Trump promised to end the war within 24 hours – while the Russian UN ambassador insisted that this was impossible.[1]
After Russian Foreign Minister Lavrov told Russian TASS shortly before New Year that he was dissatisfied with the alleged peace proposal from Trump[2], it seems that reality has begun to take root among Trump's team.
Perhaps it helps that the Kremlin has said there is no basis for peace negotiations with Ukraine – Kremlin spokesman Peskov stated that negotiations “are not relevant at the present time.”[3]
Despite this, Trump's special envoy for Ukraine, Keith Kellogg, has set a goal of resolving the war in one hundred days - although Trump has reportedly said that six months is more realistic.[4] According to two anonymous European officials, this would demonstrate that Trump lacks a concrete plan to end the war, and that American support for Ukraine will continue after January 20, when Trump is sworn in. According to one of the officials, Trump wants to avoid comparisons with Biden and the chaos that arose when the US left Afghanistan in 2021.
Italian Prime Minister Giorgia Meloni met with Trump in Florida in early January and stated shortly afterwards that the US would not abandon Ukraine. At the same time, she called security guarantees for Ukraine “fundamental” as part of a diplomatic solution to the war – “We all know that Russia has previously violated the agreements they have signed. Without security guarantees, we cannot be sure that it will not happen again.”[5]
Ukrainian President Volodymyr Zelensky has suggested that in order to end the war, Ukraine should be offered to join NATO – even if Russia does not immediately leave the occupied territories.[6]
There are, of course, risks to this strategy, and it is likely that the answer will be an immediate no from most NATO members. But at the same time, it is hard to disagree with Luke Coffey of the Hudson Institute, who argued in Politico that the alliance could allow Ukraine in by adding an amendment to Article Six, so that the Ukrainian territories under Russian occupation are not part of Article Five. This has been done before both in 1951 before Greece and Turkey joined, and after Algeria's independence in 1963.[7]
The objection that countries should not have any ongoing territorial disputes is a “common misconception,” Coffey claims, based on a misinterpretation of the alliance’s own study on NATO expansion published in 1995. If one actually reads the document, it becomes clear that territorial disputes are not something that necessarily excludes countries from joining the alliance – “states that have ethnic or external territorial disputes… must resolve the disputes by peaceful means in accordance with OSCE principles. The resolution of such disputes can be a factor in the decision to invite a country to join the alliance.”[8]
As Coffey points out, it is a factor, but not the decisive factor. Estonia currently does not have a legally agreed border with Russia, and Croatia has unresolved border disputes with Serbia.
Inviting Ukraine would thus be possible within the framework of how NATO has acted in the past. It would also prevent Russia from being allowed to acquire a de facto veto over new members by completely occupying parts of the country. It also seems likely to be the only long-term solution to ensure lasting peace in Europe.
It is important to point out that the Russian invasion of Ukraine began in 2014 and Russia has since broken several agreements with Ukraine, including the Minsk agreements. Trust in Russia must be considered non-existent.
One might ask what negotiations without binding security guarantees for Ukraine would be worth to Zelensky, given that Russia has repeatedly broken previous agreements it made with Ukraine. Zelensky, who once superficially declared that “we are not ready to give up our freedom to that fucking terrorist Putin”[9] has every right to distrust Russian intentions.
Beyond the seemingly locked positions, there is every reason to believe that Russia is not interested in negotiating. Putin currently lacks the incentive to make peace, as I have previously discussed.[10] The Russian ambition is to conquer Ukraine, and a Russian belief in reduced Western support for Ukraine strengthens Putin's belief in victory.
This is confirmed by the chairman of the NATO Military Committee, Admiral Rob Bauer, who declared on January 16 of this year that there are “no signs that the Kremlin is preparing for peace. President Putin has put the Russian economy on a war footing.”[11]
The fact that Putin put the Russian economy on a war footing is hardly news (I have discussed it in articles published in 2024, among other things). here and here, in 2023 here). But the implications of what Putin has done to the Russian economy and the impact of Western sanctions are only now beginning to have a greater impact. In addition, Russia has lost over 800 Russian soldiers on the battlefield.[12] Putin has created an impending economic and demographic disaster for Russia, which could take decades for the country to recover from.
Phillips P O'Brien, Professor of Strategic Studies at the University of St Andrews, has written on X (formerly Twitter) that "it can be argued that Putin has done more harm to Russia than anyone since Hitler."[13]
Could it be that it is actually the West, and Ukraine, that benefits from dragging out the war, thereby wearing down the Russian economy and its military power?
I would argue that this is the case – at the same time that support for Ukraine must continue, deepen, and the supply of military equipment must increase.
A report from the Stockholm School of Economics published in September 2024 states, among other things, that Gazprom “is suffering large losses… in the first quarter of 2024, Gazprom reported its first annual loss in two decades, almost $7 billion in 2023.”[14] The Russian state budget has become the “big loser” caused by Western sanctions on the Russian energy sector. Tax revenues from oil and gas accounted for 36,5 percent of the budget in 2021, 40,2 percent in 2022, and 30,9 percent in 2023. The report predicted that the total would drop to 29,8 percent in 2024.[15] Russian trade costs have skyrocketed since 2021 – export costs have more than doubled, and import costs have tripled.[16] In 2022 alone, sanctions may have cost Russia “6 to 11 percent of GDP.”[17]
The report describes how, while the short-term economic outlook for Russia may appear to be quite positive, the medium- and long-term forecast is “significantly darker” as oil prices are forecast to continue falling, and structural problems built into the Russian system “paint a bleak future for Russia’s economic well-being.[18]
A similar message can be attributed to Hugo Dixon, who wrote in early December that a collapse of the Russian war economy is “unlikely,” but that Putin may be forced to make several difficult choices if the war drags on for several years.[19]
Russia is now spending more money on its military than at any time since the Cold War – 6,3 percent of GDP, and 32 percent of 2025 budget spending, according to official figures.[20]
That's three times more than in 2021.[21]
It is therefore positive that the West continues to put pressure on the Russian economy, although more can be done. On January 200th of this year, the United States expanded its sanctions against the Russian energy sector. Over 180 entities and individuals, as well as over XNUMX ships, were placed on the sanctions list. These included, among others, companies and ships involved in liquefied natural gas (LNG), Russian oil production capacity, Russian insurance companies and the so-called “shadow fleet”.[22]
This, writes Alex Voronov in Ystads Allehanda, will lead to “significant difficulties for Russia.”[23] Moreover, Voronov writes, Biden has “Trump-safed” the sanctions, which requires Congress to effectively give its consent if they are to be lifted. These measures show, according to Voronov, that “the West still has many powerful economic weapons against Russia. The Russian state’s income depends on a few sectors that the West can clamp down on much more than it has so far if only the political will exists.”[24]
The same message was published in Foreign Affairs in mid-December. Theodore Bunzel and Elina Ribakova write that Russia, despite continuing incremental successes in Ukraine, has a critical vulnerability – its economy.[25]
Increasing sanctions would make Russia’s “colossal war effort less economically sustainable. And with the prospect of a sputtering war machine and domestic discontent over deteriorating economic conditions, Putin may feel pressured to accept terms more favorable to Ukraine.”[26]
In November 2024, the ruble fell to its lowest value in two years due to increased inflation and a tight inflow of hard currency – down from $34 billion in March 2022 to $2 billion in September 2024, something the authors attribute to the sanctions.
At the same time, Russia had planned to reduce funding for the military by 21 percent in 2025, but has instead increased it by 25 percent – an indication, according to the authors, that the Russian army is under greater pressure than expected.
Buzel and Ribakova cite oil and gas exports as two vulnerabilities that the West should exploit, among others. Another area is the dependence on Western technology for its modern weapons systems. According to one study, 95 percent of all foreign components in Russian weapons systems came from the West.[27]
Tighter export controls would force Russia to use more components from China, which are generally of lower quality. Tighter US export controls on dual-use technology would also benefit Trump's strategic thinking as it would reduce Western exports to Iran and China.
At the same time, Europe could take greater advantage of the fact that $300 billion has been frozen from the Russian Central Bank, for example to pay for American weapons to Ukraine.
It has now gone so far that Martin Sandbu in the Financial Times has described the Russian economy as increasingly resembling a house of cards. Russian corporate debt has increased by 71 percent since 2022, something created by the Russian state to artificially keep companies afloat. This, Sandbu writes, creates a situation where Russia risks a credit crisis when loans cannot be repaid. The state may be able to save the banks, if they do not collapse first. Putin is thus sitting on a self-created “ticking financial time bomb” and the war economy he has created risks the country’s sudden collapse.[28]
The West thus has great opportunities to influence the direction that Russia takes. In many ways, it is we, not Russia, who will be able to determine how the war ends through our political decisions.
It is therefore positive that a number of proposals and measures are underway.
Among other things, the US has strengthened sanctions and secondary sanctions to target companies and entities that try to circumvent the restrictions that currently exist. Most companies in Russia and China are immediately affected by this.[29]
Sweden, together with Denmark, Finland and the Baltic states, among others, have asked the EU Commission to lower the price ceiling on Russian oil from the maximum ceiling of sixty dollars.[30]
Meanwhile, the EU is considering a gradual ban on Russian liquefied natural gas (LNG) and aluminum as part of its 16-point sanctions package against the country. The EU's main importers of Russian LNG – Spain, Belgium and France – are not expected to block the package, according to Bloomberg.[31]
In mid-January, Britain and Ukraine signed a 100-year security agreement, and Prime Minister Keir Starmer has promised that Ukraine will be in “the strongest possible position” and that Britain will work with allies to ensure that the agreement that ends the war is strong enough to “guarantee Ukrainian security” while also “deterring future aggression.”[32]
On the battlefield, Russia's situation does not look bright either, quite the opposite. 2024 was by far the bloodiest year for the Russian military, which suffered over 420 casualties during the year. That is more than the losses in 000 and 2022 combined. At the same time, December was probably the bloodiest month for Russia since the full-scale invasion, when Ukrainian sources reported over 2023 Russian casualties. On average, Ukrainian sources reported an average of 48 Russian casualties per day during the month of December.[33]
According to Kyiv Post, Russia occupied an additional 2,800 square kilometers in 2024, which at first glance may seem staggering. But it represents no more than 0,46 percent of Ukraine's total area.[34] According to the Institute for the Study of War (ISW), Russia managed to occupy over 4168 square kilometers in 2024 – but this represents less than one percent of Ukraine.[35]
Despite all this, there is no sign that Russia has given up on its initial plans regarding Ukraine. ISW was able to state on January 14 of this year that “the Kremlin remains firmly convinced of achieving the initial plans of the full-scale invasion of Ukraine in a future negotiation – namely the destruction of the Ukrainian state, the dissolution of the current Ukrainian government, the demilitarization of Ukraine, and a permanent ban on Ukrainian NATO membership. Petrushev [former secretary of the Russian Security Council] has said that Russia’s goals in Ukraine are unchanged and that Russia remains confident of achieving all the goals that Russian President Vladimir Putin has used to justify the full-scale invasion. Russian officials [including Foreign Minister Sergei Lavrov] continue to deny the existence of a Ukrainian identity and a state separate from Russia…”[36]
We know the brutality that awaits under Russian occupation. We have all seen the pictures from Bucha and Irpin. The Economist, a newspaper not known for exaggeration, has described the Kremlin-occupied parts of Ukraine as a “totalitarian hell.” At least 20,000 Ukrainian children have been kidnapped and taken to Russia.[37]
Support for Ukraine must be firm and expanded – quickly. Europe must take responsibility. We cannot lean on the US to solve what is fundamentally a European problem. The European and liberal security order and millions of Ukrainian lives are at stake.
Alina Polyakova has suggested in Foreign Affairs that what is needed for the incoming Trump administration to achieve lasting peace between Ukraine and Russia is a “maximum pressure” campaign similar to the one Trump waged against Iran during his first four years as president.
The plan would force Russia to the negotiating table, and would correct the Biden administration’s approach, which was “overly cautious, lacked a clear strategy, and delivered too little too late to Ukraine. By exploiting Russia’s economic, political, and military vulnerabilities, the United States could impose costs on American adversaries like China and Iran, which serve many of the needs of the Russian war machine.”[38]
Here, Europe has an opportunity to work with the Trump administration to create lasting peace in Europe, secure the European security order, and force Russia to leave the occupied territories. But this requires Europe to act resolutely. Immediately.