Russia has already shown that Western ostracism is not necessarily fatal.

By Dominick SANSONE

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Vladimir Putin’s resounding victory in Russia’s presidential elections will act as a mandate to the Kremlin for fighting the Ukraine war to completion. At the same time, attacks on Russian territory have expectedly increased over the past several weeks as Kiev’s strategic position has steadily deteriorated. In addition to targeting civilian population centers with missile and drone strikes, forces of the pro-Ukrainian Russian Volunteer Corps (RDK) have also unsuccessfully attempted to invade and consolidate territory in the direction of Belgorod; such attacks were meant to coincide with the elections and intended to demoralize Russian citizens, thereby increasing pressure on the Putin regime by sending the message that the current administration does not have things under control.

All of this is and was predictable. What is less clear, however, is how the Western world will respond to the increasingly poor prospects for the Ukrainian war effort moving forward. In a March 15 meeting with the highest-ranking members of the Russian security and defense services, Putin specifically referred to the involvement of “foreign mercenaries” and Western-backed Ukrainian forces in the attacks on Belgorod and Kursk. In his initial remarks to the country upon winning reelection, the Russian president again referred to troops from NATO countries operating in Ukraine, and warned of the potential for escalation to “full-scale World War III.” These statements were made only several days after Putin declared in an interview that he would not rule out the possibility of using nuclear weapons, should certain “redlines” be crossed in Ukraine.

At the same time, the pressure campaign to punish Russia has failed to result in Moscow’s international ostracization, and instead served to accelerate the geopolitical reorientation of the non-transatlantic world. Russia may be just one (and by no means the strongest) of multiple centers of power in this emerging alternative to the “rules-based order”; it has nonetheless illustrated the conditions that must be established in order to successfully break with that previous order, as well as the characteristics of the developing new one.

For one, the Russian economy has largely been able to weather the massive sanctions regime launched against it. A large part of this has been due to its massive capacity for military production. Per the Wall Street Journal, the percent of federal expenditures devoted to defense related industries has jumped by 14 percent since 2020; tank production is 5.6 times greater than it was before the war, and ammunition and drone production are both 17 times greater. NATO intelligence likewise estimates that Russia is currently producing about 250,000 artillery shells per month, which is three times greater than U.S. and European production levels combined.

The broader economic effect of having the country on the war footing has been to stabilize GDP and soften the effect of the sanctions for the Russian population. Russia’s economy beat expectations by growing at 3.6 percent in 2023, higher than all other G7 countries. The IMF predicts growth levels of 2.6 percent this year, twice as much as its previous forecasts; this looks particularly favorable when compared to the 0.9 percent growth level predicted for Europe. And while inflation remains rather high, its effects have been somewhat mitigated by an all-time low unemployment rate of 2.9 percent.

The Russian rouble has likewise proved to be more resilient than expected. The percent of Russian export settlements being conducted in the U.S. dollar or the euro has plummeted from around 90 percent at the beginning of 2022 to less than 30 percent today; meanwhile, those in the rouble have increased from about 10 to more than 30 percent, with the share of transactions being conducted in other currencies—mostly the Chinese renminbi—higher than 40 percent. Despite Western boasting of its campaign to destroy the rouble, the currency has remained relatively stable despite temporary fluctuations, disproving the promises of its impending demise thanks in large part to capital controls (and perhaps an element of loyalty on the part of Russia’s exporting firms).

No single factor in keeping that revenue flowing and subsequently fortifying the Russian economy is more significant than that of its energy trade. At the same time, no single example stands as a better representation of Moscow’s defiance to the West’s punitive measures than the circumvention of Washington’s $60 price cap. Instituted around the beginning of 2023, the intention was to punish Russia by decreasing its revenue from the oil trade; the mechanism through which these caps are enforceable is that Russian ships transporting oil use Western maritime insurance and financial services.

Expectedly, enforcement was largely ineffective at the outset, although the United States has since attempted to crack down. For instance, Washington pledged to increase its enforcement of the oil caps at the end of 2023, with sanctions placed on two tankers due to their flouting of the regulations last October. Most recently, oil shipments headed to India were rerouted to China due to New Delhi’s apprehension of tougher enforcement.

Almost exactly one year since the sanctions really started to bite, and Russian seaborne crude shipments remain high. Even with its massive budget amid the significant defense spending mentioned earlier, Moscow’s current deficit remains manageable at somewhere between 1 and to 2 percent, and the massive windfall from oil revenues will certainly keep the state coffers buoyed for the foreseeable future. Despite temporarily falling below $60/barrel for its Ural crude blend at various points over the past year, the average price has stayed above the price cap; and after starting off 2024 at around $60, the price per barrel at present stands close to $80.

The politics around the oil trade further demonstrates Russia’s hardly isolated position in the international economy. Increased revenue based on such prices as those listed above can be expected for at least the next several months—if not beyond—as OPEC and its partners initiate coordinated oil cuts that will drive up prices. Cuts will take place over the next several months, with Russia choosing to focus on decreasing production rather than exports. One factor in the latter decision is that Ukraine and its Western backers recognize the independence and geopolitical maneuverability that the oil trade gives to Moscow, and have therefore specifically targeted refining facilities with drone and missile strikes as part of their attacks on Russian territory. The cuts to production could provide the needed space to implement repairs.

Of course, the U.S.-led West still exerts enormous influence on the world stage, as represented by India’s denial of the shipments of Russian crude in the face of mounting pressure. Yet Russia at present remains near the top of India’s oil imports, specifically due to the discounted prices since the start of the Ukraine war; New Delhi started off the year with a 41 percent year on year increase of shipments from Russia. It is hard to believe that India will permanently shun Moscow at the behest of Washington, rather than figure out a way to circumnavigate the sanctions regime.

India may look to the United States in helping to balance China, but Russia’s growing relationship with both of the two Asian heavyweights has provided leverage in its geopolitical maneuvering. (Xi and Modi were both among the first to call and congratulate Putin on his electoral victory, as was Mohamed bin Salman of Saudi Arabia.) The diverted Sokol oil shipments from India ending up in China is likewise no coincidence; Beijing subsequently set a record for the amount of Russian oil imports for a single month in March. A major meeting between Xi and Putin has also been scheduled for May; it is to be the Russian president’s first trip abroad since winning reelection. Putin reaffirmed that the two leaders share a similar outlook in international relations, ensuring that bilateral cooperation between the two nations will continue to expand in the coming years.

Meanwhile in Europe, Ukraine’s Energy Minister German Galushchenko announced this past Sunday that his country will refuse to prolong a five-year deal on the transport of Russian gas through pipelines in its territory. The agreement expires on December 31, and besides attempting to harm Moscow’s revenue flows further, the halt in gas transits is undoubtedly intended to leverage Ukraine’s position between Russia and energy-hungry NATO members.

Now, it is Russia that has the West on the horns of a dilemma: It can either watch the Kremlin achieve its strategic objectives, guaranteed in a one-sided negotiated settlement or through the continued attrition of Ukrainian forces, or it can escalate with force. Putin’s statement regarding nuclear weapons was not mere rhetoric—it was the Russian president defining the limits of the current conflict from a position of authority.

Anything short of total Ukrainian victory is therefore an implicit admission that the “rules-based” economic and political order has been irreversibly altered. Despite getting the premises right, Putin may have subsequently erred in his conclusion that Western leaders understand the Ukraine war as a mere matter of improving their tactical position. With the likelihood of official NATO deployments increasing by the day, the world stands on edge to see where things go next.

Original article: The American Conservative