Even if America lifts sanctions, the old continent has its own weapons
VLADIMIR PUTIN is getting ready for an early Christmas. In the hope of a swift normalisation of relations with America, the Kremlin has been asking Russian firms which sanctions they would like Uncle Sam to lift first. America seems keen: last week Steve Witkoff, a White House envoy, said relief could come after a ceasefire is agreed in Ukraine. On March 25th Russia agreed to ensure safe passage in the Black Sea—if the West lifts sanctions on firms supposedly serving its agricultural industry (including a bank that has also helped finance Russian oil exports).
There are more Western sanctions on Russia than the next six targets combined (see chart 1). America alone has imposed nearly 6,500 penalties since February 2022, when Russia’s full-scale invasion of Ukraine began. Europe has even more (see chart 2). Many punish people close to Mr Putin by freezing their assets in the West. Others target Russian industries such as energy, weapons and finance, blocking access to technology, Western markets and dollar payments. These are the ones the Kremlin wants undone.
Although America may be keen to loosen up, in Europe such talk remains taboo. If America lifts sanctions it is possible Europe will decide to keep its own in place. Some geopolitical pundits assume that would not matter much. Access to America’s tech, currency and payment networks, they say, is what Russia really wants. But our analysis suggests this is wrong. Without Europe on side, Russia’s trade, access to payment systems and foreign investment would all remain severely limited.
Take trade first. Ending American sanctions could revive the goods trade between the two countries, which shrank by 90% from 2021 to 2024. Even before the invasion, however, such trade was worth a relatively meagre $35bn. Any rebound would be equally modest. By contrast, Russia’s pre-war trade with the EU was worth €258bn ($305bn). If Europe stayed the course, that would not come back.
Russia may hope for more from the end of American sanctions on its energy exports, which are the Kremlin’s chief money-maker. America supports a G7 price cap that bans insurers, shipping firms and banks in the group of advanced economies from facilitating the sale of Russian crude, unless it goes for less than $60 a barrel. Before stepping down, Joe Biden also blacklisted 155 tankers that have carried oil for Russia. But the Kremlin has found new ships, as well as new ports to dock at, and the price cap has had less impact than hoped. After dipping in January, oil exports have rebounded to 3.5m barrels a day, higher than in 2021. Lifting sanctions would not provide much of an extra boost.
There is also limited room for improvement with natural gas. Lifting sanctions on Arctic LNG 2, Russia’s flagship gas-liquefaction project, may help redirect some exports, but probably not before 2026, when a gas glut is expected worldwide. And it was Mr Putin who shut Russia’s biggest pipeline to Europe, in 2022. Although Russia might like to sell again, it would be Europe’s decision on whether to buy.
What about the lifting of American export bans? Since 2022 Russia has dodged restrictions by getting knock-offs from China or by rerouting goods through Central Asia. Many of the valuable items it has been unable to find—high-tech machinery, for example—used to come from Europe. There are some “dual-use” goods, those with both military and civilian uses, which mostly come from America. But export bans on weapon components might remain even if other restrictions are lifted.
A second area where Russia hopes to see progress is international payments. The exclusion of its banks from Mastercard and Visa, the big credit-card networks; SWIFT, a messaging system; and the “correspondent” network that clears dollar transactions in America has caused friction in its dealings abroad. Such measures have, for instance, prevented Russian firms from repatriating hard currency from China and India, the main buyers of its oil, weakening the rouble. They also block Russia’s access to €274bn of assets owned by its central bank and stored in the West.
If American sanctions ended, such problems would ease but not vanish. Most of the Russian central bank’s assets are in Europe, and would presumably stay frozen. Most Russian banks would still be cut off from SWIFT, which is based in Belgium. They may also struggle to get dollars if American banks are hesitant to clear payments owing to European sanctions. Three years of war have turned Russia into a financial black box. Its membership of the Financial Action Task Force, the world’s dirty-money watchdog, has been suspended. It would also be subject to divergent regulatory regimes across the West, which may be enough to dissuade banks from taking on Russian clients.
That leaves international investment, which has shrunk by 43% since the end of 2021. Foreign ownership of Russian government debt has virtually disappeared (see chart 3). Hopes for a reversal have helped boost the rouble by a fifth since Mr Trump’s inauguration. Renewed inflows would strengthen the currency further and give a reprieve to Russia’s banks, which are currently the state’s main creditors. Russia’s real economy also has plenty of room for investment. Its aviation and electrical industries need a revamp. Car and logistics firms lack machines and money. Vostok Oil, in Russia’s north, is one of the world’s largest planned oil developments. It requires 15 new towns, three airports, 3,500km of power lines and more besides, at a projected cost of $110bn.
Asset-light firms may be tempted to return: one commodity trader says that oilfield-services firms are salivating. But most would probably remain wary of investing in Russia even if American sanctions go. Sanctions could return—if Russia breaks its promises, or when a new president arrives in the White House. Many investors in Russia lost their assets after the invasion, and Russia could expropriate them again. There could be reputational damage. Shareholders might revolt. All this for access to an economy smaller than Texas’s. In any case, prospective investors might struggle to find a blue-chip bank willing to move their funds in and out of Russia.
Going it alone
Relief from American sanctions looks unlikely to transform Russia’s economy. Europe might even try to sabotage the detente, though that would risk Mr Trump’s wrath. Its regulators could tell foreign banks that, should any of their Russia-linked transfers be found to touch their European operations, they will held criminally liable. Many non-European transactions move through Dublin, Frankfurt or London at some point in their execution.
Europe could decide to scrap the oil-price cap, instead barring its shipping firms and financiers from being involved with Russian sales. The continent’s policymakers could prohibit tankers found to have carried Russian oil from docking at its ports. A nuclear option would be to suggest that third-country buyers of Russian oil, and those which bank them, could lose access to its financial services and common market. Doing so would carry big costs and risk heavy blowback, not least from Mr Trump, who might see European hard-headedness as undermining his deal. For Europe to consider such “secondary” sanctions, the peace deal proposed by America would have to be awful.
Mr Trump’s officials have yet to talk to the EU about their sanctions plans. “That’s absolutely idiotic,” fumes one confidante to European leaders. To Russia, Europe has always mattered more than America. In Mr Trump’s parlance, that means Europe has decent cards. Ignored and threatened, it may be tempted to use them.
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