Putin “believes the West will become exhausted,” said one well-connected Russian billionaire, speaking on the condition of anonymity for fear of retribution. Putin had not expected the West’s initially strong and united response, “but now he is trying to reshape the situation and he believes that in the longer term he will win,” the billionaire said. Western leaders are vulnerable to election cycles, and “he believes public opinion can flip in one day.”
The embargo on Russia’s seaborne oil exports announced by the European Union this week — hailed by Charles Michel, president of the European Council, as putting maximum “pressure on Russia to end the war” — would “have little influence over the short term,” said one Russian official close to Moscow diplomatic circles, also speaking on the condition of anonymity for fear of retribution. “The Kremlin mood is that we can’t lose — no matter what the price.”
The Kremlin has pointed out that the E.U.’s move has only provoked a further surge in global energy prices and says it will seek to divert supplies to other markets in Asia, despite a ban on insuring Russian shipments that was also imposed by the E.U. and Britain.
The populations of E.U. countries “are feeling the impact of these sanctions more than we are,” Kremlin spokesman Dmitry Peskov said in an interview with The Washington Post. “The West has made mistake after mistake, which has led to growing crises, and to say that this is all because of what is going on in Ukraine and what Putin is doing is incorrect.”
This posture suggests that the Kremlin believes it can outlast the West in weathering the impact of economic sanctions. Putin has little choice but to continue the war in hopes the Ukraine grain blockade will “lead to instability in the Middle East and provoke a new flood of refugees,” said Sergei Guriev, former chief economist at the European Bank for Reconstruction and Development.
The Kremlin’s aggressive stance seems to reflect the thinking of Nikolai Patrushev, the hawkish head of Russia’s Security Council, who served with Putin in the Leningrad KGB and is increasingly seen as a hard-line ideologue driving Russia’s war in Ukraine. He is one of a handful of close security advisers believed by Moscow insiders to have access to Putin. In three vehemently anti-Western interviews given to Russian newspapers since the invasion, the previously publicity-shy Patrushev has declared Europe is on the brink of “a deep economic and political crisis” in which rising inflation and falling living standards were already impacting the mood of Europeans, while a fresh migrant crisis would create new security threats.
“The world is gradually falling into an unprecedented food crisis. Tens of millions of people in Africa or in the Middle East will turn out to be on the brink of starvation — because of the West. In order to survive, they will flee to Europe. I’m not sure Europe will survive the crisis,” Patrushev told Russian state newspaper Rossiiskaya Gazeta in one of the interviews.
In another interview last week to the popular Argumenty and Fakty tabloid, Patrushev said Russia is “not rushing to meet deadlines” in its military campaign in Ukraine.
The Russian military has been gradually making gains in Ukraine’s eastern Donbas region, and rather than seeking an immediate and decisive battle, Putin believes time is on his side, the Russian billionaire said. Putin “is a very patient guy. He can afford to wait six to nine months,” the billionaire said. “He can control Russian society much more tightly than the West can control its society.”
The weeks-long diplomatic haggling over the terms of the E.U. oil embargo was seen by the Kremlin as a sign of faltering western resolve, economists and the Russian official said. Phones calls over the weekend by French President Emmanuel Macron and German Chancellor Olaf Scholz’s to Putin about ways to lift the blockade on Ukraine’s ports will have further bolstered that view. When Western leaders call Putin and seek to do a deal, “it means he thinks he has leverage,” a former U.S. government official said.
The Kremlin has insisted the blockade on Ukrainian grain exports is because of Ukrainian mining of the Black Sea — a claim denied by Kyiv — while Peskov said Western sanctions were also preventing grain shipments from being dispatched.
Russia’s potential losses due to the E.U. ban on its seaborne oil exports could be minimal, said Sergei Aleksashenko, a former deputy chairman of the Russian central bank, who now lives in exile in the United States. If Russia is able to divert the entire seaborne volume to India and China, Russian losses as a result of the ban could total only $10 billion, he said.
Putin’s economic advisers will “tell him what the estimated loss is from the embargo, and he will laugh quietly,” Aleksashenko said. “He is not changing his course.”
The E.U. embargo should be seen as “only a first step” in efforts to cut off the Kremlin’s hard currency earnings, said Edward Fishman, adjunct professor of international and public affairs at Columbia University and a former official with the U.S. State Department.
Several current and former senior Western officials have been discussing proposals for the United States and E.U. to form a cartel and impose a price cap on Russian oil, possibly at $30 or $40 per barrel. This step could be more effective than the E.U. ban and help drive down global prices, Guriev and Fishman said. Under the proposal, the United States could impose secondary sanctions on anyone buying Russian oil at a price over the cap, they said.
Italian Prime Minister Mario Draghi first floated the idea of creating a cartel of oil consumers at a meeting with President Biden, while the European Commission is now examining Draghi’s proposal for a potential gas price cap.
Putin has declared that “the economic blitzkrieg” against Russia has failed, and on the surface, the economy has been cushioned against the initial shock of Western sanctions by the inflow of nearly $1 billion in revenue per day from oil and gas exports to Europe before the E.U. embargo on seaborne oil. Thanks to capital controls and orders that Russian exporters sell half their hard currency earnings to the state, the ruble has strengthened to prewar highs.
But Russia’s Central Bank chief, Elvira Nabiullina, has warned that the full impact of Western sanctions is yet to be felt. A ban on high-tech imports is only just beginning to bite, while shortages of some goods are only now beginning to be seen. Inflation is set to exceed 20 percent, and Russia is facing its deepest recession in 30 years. Putin’s attempt to protect the population against inflation, estimated at 18 percent, by ordering a 10 percent hike in pensions and the minimum wage falls far short.
With risks growing for all sides, “it is going to be a war of attrition from the economic, political and moral point of view,” the Russian official said. “Everyone is waiting for autumn,” when the impact of sanctions will hit the hardest, he said.
So far, however, with Ukrainian President Volodymyr Zelensky estimating Kyiv needs $7 billion in aid a month just to keep the country running, Putin appears to be betting on the West blinking first, the former U.S. government official said. Putin’s “goal of subjugating Ukraine and eventually placing a Russian flag in Kyiv has not changed.”