Russian President Vladimir Putin in Beijing, China, earlier this month. Photo / Getty Images
Has Russia’s President Vladimir Putin finally overplayed his hand by challenging Nato?
It’s too soon to know, but some signs are emerging that the United States and Europe may be ready to apply the kind of sustained pressure needed to persuade him he has - and that his own interests would lie in ending the war in Ukraine.
The first indication is that US President Donald Trump, after a disturbing display of nonchalance last week when Russia fired drones into Poland, has set the terms under which he says he’d ramp up sanctions on Moscow.
The second is that the European Commission appears, at last, to have backed a plan to fully use Russia’s frozen central bank assets - worth about US$330 billion ($551b) - against it.
Trump named his conditions in a letter he wrote to North Atlantic Treaty Organisation members and posted on Truth Social on Monday, saying that all Nato states must first end their consumption of Russian oil and then join him in sanctioning China and India to deter their much larger purchases until the war is over.
It’s hard to know whether Trump is genuine, or by setting the bar so high is just looking for another way to avoid responsibility for his de facto abandonment of Ukraine.
The post read less like a threat to Moscow than a complaint against US allies.
He boasted in remarks to reporters that the US was no longer spending a cent on Ukraine’s defence, but also for the first time called Russia “the aggressor”.
Remarkably, this counts as progress.
Trump has now set clear terms for pressuring Moscow to the negotiating table and allies can try to meet them.
The European Union had already drastically reduced its reliance on Russian crude since the start of the war in 2022 but was forced to make carve outs for Hungary and Slovakia - both led by Trump allies who also bat for the Kremlin.
The two countries remain umbilically connected to supplies of Russian crude by the tragicomically named Druzhba, or Friendship, pipeline.
Trump is right that oil sanctions aren’t working and that they’re a Kremlin vulnerability that should be better exploited.
Even in peace time oil revenue paid for 30% to 50% of the state budget. Eliminate most or all of that income and it would become far more difficult for Putin to pursue his war, without imposing much more severe financial costs on his own population.
Russia’s economy has weathered the leaky Western sanctions remarkably well, but this would be an especially effective time for the US and Europe to double down.
As Putin has retooled the economy to serve the war effort, distortions have begun to pile up, making it more vulnerable to pressure.
Banks have become overloaded with bad debt, much of it undisclosed, to keep the weapons production going.
It’s a phenomenon that Craig Kennedy, a former US banker who focused on Russian energy, has been tracking for some time.
He estimates that 42% to 54% of Russian defence spending is off budget, and that corporate debt had surged by 71%, or US$446b, since the first three years of the full-scale war.
The amount of credit pumped into defence industries, combined with a shortage of labour as men either were recruited to the front or fled, has also driven up inflation, forcing Russia’s vigilant central bank to raise its key interest rate as high as 21%. That’s now damping growth even as the Government’s budget deficit expands.
At the same time, Ukraine’s growing long-range drone and missile campaign against storage tanks and refineries has taken a significant if variable bite out of Russian oil output.
Together with a determined US-European effort to slash Russian oil export revenue and a politically viable way for Europe to fund Ukraine’s defence for the next several years, this could go a long way towards changing Putin’s calculations.
All of this, however, remains hypothetical.
Trump has yet to follow through on any of his threats to get tough on Russia.
And for Europe to put 100% tariffs on exports from China and India is easier said than done, as Trump himself has found.
Equally, the EU remains conflicted over whether to seize Russian assets protected by sovereign immunity. That’s especially true of Belgium, which hosts most of the frozen funds.
Reports that the European Commission has finally settled on a mechanism to tap those are encouraging all the same.
The chosen proposal is one I promoted in July for its potential to circumnavigate some of the thorny legal questions that would surround any outright seizure of protected sovereign assets.
The plan would turn the money into loans, repayable to Russia just as soon as it pays the reparations that a United Nations-appointed commission will inevitably find due, in years to come.
The concern remains that none of this emerges as part of a coherent, committed strategy to stop Putin in Eastern Ukraine, but as something more ad hoc and therefore frail.
Because if Putin is to be persuaded there is no value in trying to press his war further, he has to believe that the European and US commitments to back Kyiv “for as long as it takes” are ironclad.
Trump doesn’t do ironclad.
Europe lacks critical resources and is subject to political constraints, as centrist leaders who grasp the reality of the Russian threat are replaced by populists from the far-right who don’t.
They fantasise instead about Putin as an ally in the only conflict they’re truly concerned about - their own culture war with liberalism.
These populists include not just Hungary’s Viktor Orban and Robert Fico of Slovakia, but also leaders of the National Assembly in France, the UK’s Reform party, and Alternative fur Deutschland in Germany.
Putin’s right that the clock is ticking on Ukraine.
It can tick for him, too, but only if Trump and Europe finally resolve to make that happen.
- Marc Champion is a Bloomberg Opinion columnist covering Europe, Russia and the Middle East. He was previously Istanbul bureau chief for the Wall Street Journal.
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