Because Russia started this war, Russia will need to end it by leaving Ukraine. I don't think it likely that Ukraine, the US and the EU will countenance any other outcome, as it would deliver a message that powerful countries can invade and annex neighbouring countries with impunity, not an acceptable world order. Only then will it become relevant to consider the joint problems of sanctions and reparations, as relief from the former will likely be the leverage for exacting the latter, and that process can extend over decades.
Forcing a country to pay war reparations, at least historically, has long term consequences. With Germany, after WWI, through the Treaty of Versailles, Germany had to pay reparations. The Great Depression didn't help, but it is widely agreed that the obligation forcing Germany to pay war reparations is what led to WWII.
Partly - it depends on the size and context (surrounding actions). After WW2, Germany paid an enormous amount of reparations over a long period of time and they survived it very well because a whole lot of other changes happened inside the Western part of the country to rebuild its economy. There is no way Ukraine and the West will allow Russia to get off the hook on this matter, assuming Russia loses this war, which is not assured. Solutions would be negotiated. Trade levies and levies on international banking transactions could be amongst the mechanisms, and there are doubtless others, but we're getting way ahead of ourselves.
First of all, Germany did pay some reparations over the long term to some countries it aggressed. But those reparations never made up for what was lost. Taking Greece alone, which had one of the highest casualty rates in Europe, and one of the greatest losses of industrial capacity, German reparations to Greece as part of the EU are only now, 75 years later, starting to allow Greece to recover an industrial capacity comparable to what it had before WWII.
Russia may end up having to pay some reparations to the Ukraine, but I strongly doubt that it will pay reparations to the US.
I agree - reparations would be paid most likely for Ukraine reconstruction and human rights violations against Ukrainians only. But as I said, I think we're getting way ahead of the situation. Appreciate the discussion.
I strongly recommend the YouTube videos by ‘Joe Blogs’ on the effect on sanctions on the Russian economy. They appear to be kicking in significantly. The cap of $60 a barrel on Russian crude is being widely observed. Consumers – especially China and India- rather like cheap oil and know that Russia has nowhere else to go. My understanding is that they are negotiating prices below the cap. This price cap has only kicked in late 2022/early 2023. Furthermore China and India have no interest buying refined oil product because they have their own refineries and can make more money buying cheap Russian oil and refining it themselves. Income from gas and oil are down over 40% compared to last year and that’s going to hurt. Russia’s arms export industry is struggling to find electronic components and this war has hardly been a good advertisement for it. While the rouble recovered in mid-2022 it has been steadily declining in the last 3 months and dropping not only against the US currency but also the Chinese and Indian.
My feeling is the medium to long term outlook for Russia’s economy is somewhere between bad and grim. My feelings is that sanctions tend to be sticky and I can’t see Western governments are going to resist pressure of large businesses clamoring to go back to Russia. The Russian market is not remotely as attractive as the Chinese. As for the Western dilemma of what to do if the Russians go back to the Feb 2022 boundaries – I’ll believe that when it happens!
Yes, it's hard to imagine massive return of Western companies and investors. They already got burned, and the market is not that big and will likely get even smaller due to both economic and demographic problems (including mass flight of more affluent consumers like IT workers, seriously shrinking customer base for such companies as IKEA and Apple) and Chinese companies now grabbing a big market share. It just won't be worth the reputational damage and the risk of further losses if, say, Russia later decides to invade Kazakhstan. Much better to jump on the gigantic postwar reconstruction effort in Ukraine (where "We don't do business with Russia" will actually be a good marketing message).
A question related to the lifting of sanctions is to what extent will western businesses/countries re-engage with Russia in the absence of sanctions?
In some cases, for example oil and gas exports, the experience of this war has highlighted the dangers of relying on Russia as a supplier of energy, incentivizing shifts to other forms (nuclear and other green power sources) or suppliers of energy (e.g., natural gas imports from the US). Russia could withdraw from Ukraine tomorrow and we could drop all sanctions, but it’s far from clear that it would regain its former market share in Europe’s energy market.
In other cases, absent radical regime change, will Western companies return to Russia? Certainly, in the short run, it seems unlikely. Will the Pepsi’s or MacDonald’s of the world run the risk of upsetting western consumers and damaging their brand for the fairly marginal benefits of operating in Russia? Similarly, one might expect that the experience of the past year has caused CEO’s to permanently reprice the risk of operating in totalitarian countries like Russia (and others… cough, cough, China). Having had to shut down or sell their operations last year (or in some instances having them nationalized), do Western companies still see Russia as a market worth returning to? Not clear that the simple lifting of sanctions addresses any of those concerns.
Sanctions can come and go, but the war itself has probably caused long-term damage to Russia’s ability to do business with the West that can’t be readily fixed absent fairly radical changes in Russia.
An interesting analysis Lawrence. It’s true that what to do with sanctions - albeit not a pressing issue - will have to be addressed sometime and requires a considered plan for that moment. That said, the Russian sanctions experience raises interesting questions as to their effectiveness (or not) as deterrents when thinking of potential increased friction with China. Food for thought.
Thanks Michael. Let’s hope it doesn’t come to blows, but to avoid that, I wouldn’t place my bets solely on Chinese leadership being more afraid of sanctions than Putin. I’d prefer a healthy mix of both hope and credible deterrence, which probably has a higher chance of avoiding a kinetic outcome (which would be bad for all the world).
Putin, for all his failures, has historically displayed a much greater appreciation of nuance than have his Chinese counterparts, especially when it comes to perceived slights. In international diplomacy, the Chinese have tended to lean towards transactional behaviour, i.e. “you did this bad thing so we're going to harm you in this way” whereas Putin has tended to absorb the punches, save them up for (sometimes years) later and then, when opportunity knocks and his risk assessment agrees, makes his move.
First, in reading the admittedly very limited accounts of Ukraine's offensive, it appears that they are running out of ammunition. I am doubtful that the Ukrainian army is sufficiently well armed to push back the current position of the Russians. And it is not just a matter of ammunition. Some of the things I have read in the press lead me to believe that the leadership of the Ukrainian army doesn't know how to lead a major offensive. (I admit that I am only discerning this from limited accounts in the press.)
Second, I read that Russia is finding ways to get around petroleum sanctions:
The challenge is that no one knows when Putin will die. He's 69. Not that old in the grand scheme of things. Biden is 80.
Just keeping Russia in its current position takes significant effort. Meanwhile, with little additional military effort, Russia could quite easily block grain exports from the Ukraine.
An alternative strategy to an offensive would be for the Ukraine to try to hold Russia in its current position until sanctions have sufficient impact to cause Russia to withdraw. Sanctions may or may not cause a withdrawal. A waiting it out approach would require a protracted war of indefinite length. It would require NATO allies, especially the US, to commit to backing Ukraine with weapons for this war of indefinite length.
Thus far, the US has made a huge commitment to funding the war in the Ukraine:
And just keeping Russia in its current position would take significant effort, yes. By Russia. A protracted war also means Russia would have to wait it out, and any way you look at it, it is much less capable of doing so than the West.
Also, while you could go by averages, you could also look at a person and Putin doesn't look like a healthy dude.
Are there going to be any more Q&A sessions? Something I’d be interested in seeing discussed is the extent to which the outcome of the war may be determined by the input of the US on the one side & China on the other.
Sanctions are a crude tool and leaky but what other than full scale war? That said, there will be no change in Russia with Putin still in power and the Russian people feeling next to nothing, or coping, more assured of their righteousness as time goes on. We don't know what comes after Putin, maybe worse, maybe a long wait, unaffordable. Thus we (the US,NATO, allies) find ourselves in the dilemma of not wanting to admit that it is we who are actually in this war with Russia, not merely aiding Ukraine. We are not merely helping Ukraine, nor is Ukraine totally a proxy. There is more at stake. At the same time this is unfortunately tying our (Biden's?) hands for fear or what Russia will do if we are not careful and give Ukraine what it needs to succeed.The Ukrainians are having to pay the very high price- a steep one. We get to beef up our war industries and related ones. We (the military industry and security) get to see how well new technology works goes for future wars. "Conventional" deterrence needs keep expanding. Bad actors keep coming. What kind of world do we want if we manage to save it from climate disaster?
I see Russia becoming more of a gangster state, a terrorist state and internally more totalitarian and/or more repressive. This also has consequence.
China wants to be a peacemaker but XI is not trustworthy. Brilliantly Zelensky wants China to push Putin to return the Ukrainian deportees, especially the children that Russians are now apparently reeducating and adopting.
The Ukrainians know that Russia internally has to feel this more but they too are being careful.
Because Russia started this war, Russia will need to end it by leaving Ukraine. I don't think it likely that Ukraine, the US and the EU will countenance any other outcome, as it would deliver a message that powerful countries can invade and annex neighbouring countries with impunity, not an acceptable world order. Only then will it become relevant to consider the joint problems of sanctions and reparations, as relief from the former will likely be the leverage for exacting the latter, and that process can extend over decades.
Good in priciple, but who's paying?
https://www.politico.com/news/2023/03/12/biden-united-states-ukraine-relationship-cracks-00086654
Loser who caused all the damage pays. Various ways of extracting it.
Forcing a country to pay war reparations, at least historically, has long term consequences. With Germany, after WWI, through the Treaty of Versailles, Germany had to pay reparations. The Great Depression didn't help, but it is widely agreed that the obligation forcing Germany to pay war reparations is what led to WWII.
Partly - it depends on the size and context (surrounding actions). After WW2, Germany paid an enormous amount of reparations over a long period of time and they survived it very well because a whole lot of other changes happened inside the Western part of the country to rebuild its economy. There is no way Ukraine and the West will allow Russia to get off the hook on this matter, assuming Russia loses this war, which is not assured. Solutions would be negotiated. Trade levies and levies on international banking transactions could be amongst the mechanisms, and there are doubtless others, but we're getting way ahead of ourselves.
First of all, Germany did pay some reparations over the long term to some countries it aggressed. But those reparations never made up for what was lost. Taking Greece alone, which had one of the highest casualty rates in Europe, and one of the greatest losses of industrial capacity, German reparations to Greece as part of the EU are only now, 75 years later, starting to allow Greece to recover an industrial capacity comparable to what it had before WWII.
Russia may end up having to pay some reparations to the Ukraine, but I strongly doubt that it will pay reparations to the US.
I agree - reparations would be paid most likely for Ukraine reconstruction and human rights violations against Ukrainians only. But as I said, I think we're getting way ahead of the situation. Appreciate the discussion.
Right now, the US is paying (mostly). The UK a little bit. How exactly would claw backs of the cost of the war be accomplished?
We'll need Putin to die first.
I strongly recommend the YouTube videos by ‘Joe Blogs’ on the effect on sanctions on the Russian economy. They appear to be kicking in significantly. The cap of $60 a barrel on Russian crude is being widely observed. Consumers – especially China and India- rather like cheap oil and know that Russia has nowhere else to go. My understanding is that they are negotiating prices below the cap. This price cap has only kicked in late 2022/early 2023. Furthermore China and India have no interest buying refined oil product because they have their own refineries and can make more money buying cheap Russian oil and refining it themselves. Income from gas and oil are down over 40% compared to last year and that’s going to hurt. Russia’s arms export industry is struggling to find electronic components and this war has hardly been a good advertisement for it. While the rouble recovered in mid-2022 it has been steadily declining in the last 3 months and dropping not only against the US currency but also the Chinese and Indian.
My feeling is the medium to long term outlook for Russia’s economy is somewhere between bad and grim. My feelings is that sanctions tend to be sticky and I can’t see Western governments are going to resist pressure of large businesses clamoring to go back to Russia. The Russian market is not remotely as attractive as the Chinese. As for the Western dilemma of what to do if the Russians go back to the Feb 2022 boundaries – I’ll believe that when it happens!
Yes, it's hard to imagine massive return of Western companies and investors. They already got burned, and the market is not that big and will likely get even smaller due to both economic and demographic problems (including mass flight of more affluent consumers like IT workers, seriously shrinking customer base for such companies as IKEA and Apple) and Chinese companies now grabbing a big market share. It just won't be worth the reputational damage and the risk of further losses if, say, Russia later decides to invade Kazakhstan. Much better to jump on the gigantic postwar reconstruction effort in Ukraine (where "We don't do business with Russia" will actually be a good marketing message).
A question related to the lifting of sanctions is to what extent will western businesses/countries re-engage with Russia in the absence of sanctions?
In some cases, for example oil and gas exports, the experience of this war has highlighted the dangers of relying on Russia as a supplier of energy, incentivizing shifts to other forms (nuclear and other green power sources) or suppliers of energy (e.g., natural gas imports from the US). Russia could withdraw from Ukraine tomorrow and we could drop all sanctions, but it’s far from clear that it would regain its former market share in Europe’s energy market.
In other cases, absent radical regime change, will Western companies return to Russia? Certainly, in the short run, it seems unlikely. Will the Pepsi’s or MacDonald’s of the world run the risk of upsetting western consumers and damaging their brand for the fairly marginal benefits of operating in Russia? Similarly, one might expect that the experience of the past year has caused CEO’s to permanently reprice the risk of operating in totalitarian countries like Russia (and others… cough, cough, China). Having had to shut down or sell their operations last year (or in some instances having them nationalized), do Western companies still see Russia as a market worth returning to? Not clear that the simple lifting of sanctions addresses any of those concerns.
Sanctions can come and go, but the war itself has probably caused long-term damage to Russia’s ability to do business with the West that can’t be readily fixed absent fairly radical changes in Russia.
An interesting analysis Lawrence. It’s true that what to do with sanctions - albeit not a pressing issue - will have to be addressed sometime and requires a considered plan for that moment. That said, the Russian sanctions experience raises interesting questions as to their effectiveness (or not) as deterrents when thinking of potential increased friction with China. Food for thought.
Food for thought indeed, Adrian. But we can hope that the Chinese leadership is rather more afraid of economic harm than Putin.
Thanks Michael. Let’s hope it doesn’t come to blows, but to avoid that, I wouldn’t place my bets solely on Chinese leadership being more afraid of sanctions than Putin. I’d prefer a healthy mix of both hope and credible deterrence, which probably has a higher chance of avoiding a kinetic outcome (which would be bad for all the world).
Putin, for all his failures, has historically displayed a much greater appreciation of nuance than have his Chinese counterparts, especially when it comes to perceived slights. In international diplomacy, the Chinese have tended to lean towards transactional behaviour, i.e. “you did this bad thing so we're going to harm you in this way” whereas Putin has tended to absorb the punches, save them up for (sometimes years) later and then, when opportunity knocks and his risk assessment agrees, makes his move.
Enjoyed this multifaceted discussion.
Some concerns:
First, in reading the admittedly very limited accounts of Ukraine's offensive, it appears that they are running out of ammunition. I am doubtful that the Ukrainian army is sufficiently well armed to push back the current position of the Russians. And it is not just a matter of ammunition. Some of the things I have read in the press lead me to believe that the leadership of the Ukrainian army doesn't know how to lead a major offensive. (I admit that I am only discerning this from limited accounts in the press.)
Second, I read that Russia is finding ways to get around petroleum sanctions:
https://www.reuters.com/markets/commodities/global-refinery-margins-lose-steam-russian-oil-finds-new-outlets-2023-04-25/
If so, I suspect that Russia could be dug in for the longer term, regardless of what the war does to their overall economy.
Putin is not immortal and will die.
After that, I reckon the various potential contenders for the throne in Russia will have greater concerns than Ukraine.
The Ukraine War is shaping up to be akin to the Iraq-Iran or Korean wars, except Putin was older when he invaded than Saddam or Kim were.
The challenge is that no one knows when Putin will die. He's 69. Not that old in the grand scheme of things. Biden is 80.
Just keeping Russia in its current position takes significant effort. Meanwhile, with little additional military effort, Russia could quite easily block grain exports from the Ukraine.
An offensive by the Ukraine won't be a cake walk:
https://www.reuters.com/world/europe/russia-digs-ukraine-prepares-attack-2023-04-27/
An alternative strategy to an offensive would be for the Ukraine to try to hold Russia in its current position until sanctions have sufficient impact to cause Russia to withdraw. Sanctions may or may not cause a withdrawal. A waiting it out approach would require a protracted war of indefinite length. It would require NATO allies, especially the US, to commit to backing Ukraine with weapons for this war of indefinite length.
Thus far, the US has made a huge commitment to funding the war in the Ukraine:
https://www.bbc.com/news/world-us-canada-64656301
Meanwhile, the US is headed for yet another debt default. Sooner or later, Americans are going to get tired of Biden playing daddy big bucks.
Uh, the US hasn't ever defaulted on its debt.
And just keeping Russia in its current position would take significant effort, yes. By Russia. A protracted war also means Russia would have to wait it out, and any way you look at it, it is much less capable of doing so than the West.
Also, while you could go by averages, you could also look at a person and Putin doesn't look like a healthy dude.
Is Xi a subscriber?
Are there going to be any more Q&A sessions? Something I’d be interested in seeing discussed is the extent to which the outcome of the war may be determined by the input of the US on the one side & China on the other.
Sanctions are a crude tool and leaky but what other than full scale war? That said, there will be no change in Russia with Putin still in power and the Russian people feeling next to nothing, or coping, more assured of their righteousness as time goes on. We don't know what comes after Putin, maybe worse, maybe a long wait, unaffordable. Thus we (the US,NATO, allies) find ourselves in the dilemma of not wanting to admit that it is we who are actually in this war with Russia, not merely aiding Ukraine. We are not merely helping Ukraine, nor is Ukraine totally a proxy. There is more at stake. At the same time this is unfortunately tying our (Biden's?) hands for fear or what Russia will do if we are not careful and give Ukraine what it needs to succeed.The Ukrainians are having to pay the very high price- a steep one. We get to beef up our war industries and related ones. We (the military industry and security) get to see how well new technology works goes for future wars. "Conventional" deterrence needs keep expanding. Bad actors keep coming. What kind of world do we want if we manage to save it from climate disaster?
I see Russia becoming more of a gangster state, a terrorist state and internally more totalitarian and/or more repressive. This also has consequence.
China wants to be a peacemaker but XI is not trustworthy. Brilliantly Zelensky wants China to push Putin to return the Ukrainian deportees, especially the children that Russians are now apparently reeducating and adopting.
The Ukrainians know that Russia internally has to feel this more but they too are being careful.