The invasion of Ukraine has reshaped European politics in a matter of days. The European Union has imposed unprecedented financial sanctions on Russia yet trade in oil and gas continues to flow. Is energy the next step and, if so, are nuclear and coal back on the table? With Russia advancing and the United States absent, are we set to see a real push for a European army? We discuss key questions for the EU with economist Shahin Vallée.
Green European Journal: The sanctions announced by the European Union and the United States are possibly the most significant ever imposed on a major economy like Russia. You have described them as potentially revolutionary. Yet they don’t apply to energy and Russia is still making hundreds of millions of dollars a day from oil and gas. In what sense are they revolutionary? What impact will they have on Russia’s ability to conduct the war?
Shahin Vallée: The sanctions came in three waves. The first targeted individuals and companies. These were very similar to sanctions that were imposed in 2014-2015 when Russia invaded Crimea. But very quickly, the political focus shifted to excluding Russian banks from Swift as the second level of sanctions. Swift is an electronic messaging system that facilitates transfers between banks. The objective is to isolate Russia from the international financial system. But the Swift sanctions excluded payments related to energy and certain other areas. While this may be politically symbolic, as long as Swift sanctions remain limited, they are useless. The only thing that would really matter for Russia would be the exclusion of its entire banking system from international payments. Excluding only a part of it, which is what both the US and Europe have done, is very ineffective.
The third wave of sanctions followed immediately those on Swift. These sanctions targeted the Central Bank of Russia, freezing its assets and preventing it from using a lot of its reserves held overseas. Foreign currency reserves are what allow Russia to resist economic pressure in the face of trade sanctions. They make sure that Russia can, for instance, meet its international payment obligations so it can continue to import goods and pay back foreign-denominated debt. Russia’s war chest before the invasion was about 630 billion US dollars, these sanctions reduced it to about a third of that.
This third wave of sanctions affects Russia’s ability to endure economic pressure over time, but next to the stock of reserves, there is also a flow. Europe continues to import more than 500 million euros worth of oil and gas from Russia every day. Even if Russia is cut off from its foreign currency reserves, it still receives nearly 30 billion euros per quarter in foreign currency from these sales and possibly more as prices go up. It provides substantial leverage to Russia to continue to finance its war effort and shore up its economy.
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What kind of political choices will Europe have to make if it is serious about denting Russia’s capacity to conduct the war?
The question of sanctioning oil and gas will become critical in Europe in the coming days and weeks. If Europe wants to stand united in combating this Russian aggression, it needs to reduce oil and gas imports. These sanctions would hurt us as much as they hurt Russia. For certain countries, it would mean cutting energy imports by as much as 50 per cent. This would be unheard of, which is why Europeans have still not gone down that route. But if we are serious about helping Ukraine in this battle, it is inevitable.
Sanctions on energy raise all sorts of fundamental philosophical and ecological questions. How do we substitute oil and gas for other sources of energy? Will Germany have to resume, at least temporarily, the operations of nuclear power plants that the current coalition was planning to close? Does it mean using coal as an alternative?
This crucial energy dilemma is why the Greens are ambivalent, particularly due to their commitment to exit nuclear power in Germany. But there is no way we can stop natural gas and oil imports from Russia if we don’t keep nuclear power plants open in Germany and burn more coal in Europe, which means slipping back on our emissions reduction commitments. The Greens have to come to terms with that.
So cutting the flow of energy is crucial. As well as breaking some taboos around nuclear energy, should we prepare for energy rationing?
It is unavoidable. If we want to be free of Russian oil and gas soon, there is no other way but rationing – both for corporations and individuals. It will mean lowering our heating and ventilation systems, taking cold showers, and reducing our production of energy-intensive goods and manufacturing. It is a radical shift, and not something that we can do very quickly, but it can be done. We tend to forget, but when Fukushima occurred, Japan immediately shut off its nuclear power plants, which make up 80 per cent of its electricity production, and switched to natural gas. Europe now needs to do the reverse.
The massive reductions in energy consumption that are necessary to support Ukraine would also be needed to achieve our emissions reduction targets. In a way, it is a test. If we can’t radically change our energy consumption in times of war, I highly doubt that we can do it to meet our climate objectives.
If we can’t radically change our energy consumption in times of war, I highly doubt that we can do it to meet our climate objectives.
Is this the moment when the European Green Deal plans for a more autonomous, partially re-industrialised and greener Europe come into their own? Could geopolitics be about to drive the green transition in Europe?
Every international geopolitical crisis, whether it be Donald Trump’s trade war against China that ended up affecting Europe, the Covid-19 crisis that exposed the relative weaknesses of our supply chains, or this conflict at the borders of Europe, underlines the fundamental interdependence of our economies and raises the question of whether that level of independence is sustainable. There is a tendency to re-nationalise or reconsider supply chains and the green energy transition adds further momentum.
In the midst of the fighting, Ukraine has called on the EU to accept its membership with immediate effect. Georgia and Moldova have followed suit. How do you read this appeal? Is there a risk of exacerbating the Russian campaign?
What I find encouraging in these requests is that they’re not requesting to join both NATO and the EU. I think a request to join NATO and a positive response to that request in the current circumstances would only aggravate the situation. A request to join the EU is more political, has less of a military undertone, and is therefore more understandable and acceptable.
The request poses fundamental questions for the European Union. Is it the right time to grant an accession path to Ukraine and others? What sort of Europe are we creating if it continues to expand without deepening? The potential enlargement of the EU to include the Western Balkans had already raised this issue. If we continue to expand the borders of Europe, continue to add member states with veto rights in a governing structure that is already suffering from an excessive amount of veto power, aren’t we crippling Europe’s ability to act in the world?
My view is that the European Union should respond favourably to Ukraine’s request, but that we should also have a serious conversation about how to welcome new members at the same time as deepening the current Union. It might mean accepting a European Union with several layers of political integration, and therefore rethinking the current European treaties quite profoundly and accepting the need for treaty change. If the accession of Ukraine and others helps to provoke an institutional debate about reforming European institutions and reforming European democracy, I’m all in favour. If it’s a decision taken in haste that ends up hijacking a conversation about European institutional reform, I would be concerned.
Is it the right time to grant an accession path to Ukraine and others? What sort of Europe are we creating if it continues to expand without deepening?
Since reunification and throughout the Merkel era, Germany’s military spending has been very low. In the days following the invasion, Chancellor Olaf Scholz announced a new policy of increased defence spending in Germany. Meanwhile, many EU countries are sending small arms and anti-aircraft missiles to Ukraine, and the EU institutions will also fund this effort. Does the invasion mark a permanent shift in European defence policy?
Yes, I think this is a structural shift. The move by Germany is very radical and important. Pressure has been rising on Germany to increase its defence spending for almost decades, both from the US, which was complaining that Germany was not meeting its NATO commitments, as well as from within Europe. The French, in particular under Emmanuel Macron’s leadership, were concerned that Germany had no interest in building a European defence capacity and were therefore creating a situation of European dependency.
This may well pave the way for European defence integration. Macron has been very dedicated to the topic of building Europe’s strategic autonomy or sovereignty over the last five years. Now there is finally a bit of buy-in from Germany for this project, after years of reluctance. What’s interesting is that it is taking place under a coalition that includes the Social Democrats and the Greens, the two parties that were presumed to be the most opposed to armaments and increased defence spending. It was probably only doable by such a coalition.
The real question that has yet to be answered, and which we probably won’t know the answer to immediately, is whether Germany’s commitment will be towards building a European defence or a national defence that reinforces the NATO framework. I tend to think that it will go more in the direction of Europe and less in the direction of NATO. But that would be another very radical shift.
Between the two directions, isn’t it more likely that the major European military powers such as France, Poland, Germany, and the United Kingdom will take on a greater role within the NATO alliance?
Both options are possible at this point. The option of European defence is very much on the table. The EU is mobilising its European Peace Facility to supply 500 million euros in weapons to Ukraine. It could be a strong step in the direction of a European defence architecture, but this is not a given. On the other hand, historical relationships between Germany and the US or the reluctance of Central and Eastern European countries to invest in these EU constructs are reasons to expect a stronger NATO framework to emerge.
That said, there is one clear point in favour of European defence: the United States has been remarkably absent throughout this Ukrainian crisis. Nobody in Europe, especially in Eastern Europe, is fooled any longer by the notion that the US’s commitment is what it used to be. Joe Biden barely mentioned Ukraine during his State of the Union address. Whereas 10 to 15 years ago, this war would have been front and centre of American policy, and the US would have been at the heart of the current negotiations. The retreat of the US from the international stage has been unfolding since Barack Obama entered the White House, and it is very perceptible in Europe for those who want to see it. Even NATO enthusiasts are starting to realise that.
Nobody in Europe, especially in Eastern Europe, is fooled any longer by the notion that the US’s commitment is what it used to be.
The German Greens are in a government that is raising defence spending. The French Green presidential candidate Yannick Jadot supports sending weapons to Ukraine. This marks a significant shift, as a more traditional Green position would be to argue that arms do not create peace and that security policy should be based on peacebuilding, diplomacy, and the long-term drivers of conflict. Should we be concerned about the EU’s sudden militarisation or is it an inevitable consequence in the face of overt Russian aggression?
I am a pacifist at heart, but what we woke up to with this aggression is that even when you’re a pacifist, you need to be able to meet force with force when necessary. However, we have to avoid the militarisation of every foreign policy. Because the systematic militarisation of foreign policy has often failed. France’s involvement in Mali and the Sahel is a good example. But there are other moments when military action is necessary, and Europe must be capable and ready for such circumstances.
What I hope is that European defence with proper governance would limit the use of force to a very limited number of cases. Because it would require the agreement of a majority of member states, rather than just the decision of one leader as is the case in presidential systems such as France. European defence could allow for the right checks and balances around the use of force. While the arbitrary use of force is rightly concerning, the legitimate and democratic use of force should be something the Greens can live with.
Coming back to the tragedy that is unfolding in Ukraine, a Ukrainian military victory or the collapse of the Putin regime could take years. Can you see any diplomatic avenues for a near-future ceasefire and the beginnings of a peace process?
Yes. A lot of people made fun of Macron’s diplomatic attempts; he visited Moscow and continues to talk to Vladimir Putin. But, despite the aggression, despite the war that is likely to last, we must continue to look for and hopefully find a diplomatic solution. Like all diplomatic solutions, it will probably be very unsatisfactory but I see three elements that could help frame such a solution.
First, the borders of NATO. It is hard to imagine a scenario in which Ukraine joins NATO that leads to a stable relationship with Russia. I was quite stunned by the fact that President Zelensky said he was open to discussing the question of Ukraine’s neutrality. Now, neutrality can mean anything and everything, but that this point is potentially on the table is reassuring. He has openly said he does not view NATO as sacrosanct anymore.
The second item of negotiation is Ukraine’s federalisation to recognise the existence of regional identities and guarantee respect and protection for minorities. In reality, the Ukrainian state has provided guarantees to these minorities for many years. But if Russia feels that Russian minorities are not protected under the current Ukrainian state system, then giving assurances through a federal system could be a way forward. The Ukrainian side has rejected that firmly because they view federalisation as a way for Russia to exert veto rights through the regions that it controls. I see how that would be an unacceptable concession. But no German Lander has a veto right on any decision as part of Germany’s federalism. So I don’t see why, in the context of Ukraine, Donbas or another region should have a veto right. They should just have a place at the table.
The third element is the Ukrainian border. Crimea has been annexed de facto since 2014. This annexation has not been recognised by the EU, the UN, nor anyone else. For the Russians, Crimea is now theirs. For the European Union, it is difficult to concede and create a precedent of redrawing borders. But a future diplomatic solution needs to deal with the borders of Ukraine. We cannot live indefinitely with this ambiguity whereby we don’t recognise the annexation of Crimea but at the same time, we let it happen.