Jeremy Warner. 29 April
Jeremy Warner, assistant editor of The Daily Telegraph, is one of Britain’s leading business and economics commentators. A serial winner of awards, he has also been honoured for an “outstanding contribution in defence of freedom of the media” by the Society of Editors for his refusal to reveal sources to Government inspectors. He is @jeremywarneruk on Twitter.
It’s usually a mistake to call a winner midway through a war; fortune can be a cruel taskmaster. Yet it is already clear that Vladimir Putin has made at least four catastrophic miscalculations in his murderous assault on Ukraine.
First, he hugely underestimated the resolve and strength of the Ukrainian resistance. Secondly, he was seemingly unaware of the incompetence and ill-disciplined thuggishness of his own military. Their war crimes have so offended Western sensitivities that even Russlandversteher Germany has now swung fully behind the democratic alliance. Thirdly, he thought the war would divide a declining and morally bankrupt West; instead it has united and breathed new life into it. And lastly he overestimated the leverage of his hold over oil and gas supplies.
In the event, Europe is adapting with previously unimaginable speed to the prospect of a world without Russian hydrocarbons. Berlin this week said it could end its dependence on Russian oil, if not yet gas, within “days”, threatening to ruinously deprive Russia of the mainstay of its economy.
Putin’s miscalculations might be put down to failures in Russian intelligence, but there is also a more pervasive explanation. Autocracies are very bad at understanding their own limitations. Regimes that punish dissent fast invariably fall victim to delusional self-belief and therefore error.
This is not to argue that, ultimately, they pose little threat to the liberal order. As we are now seeing, they can inflict enormous damage and suffering. Desperate autocracies armed with nukes, moreover, are particularly dangerous, for they might actually use them, as Russia’s foreign affairs minister Sergei Lavrov threatened this week.
Yet Russia’s nuclear sabre-rattling is more a sign of weakness than strength. The latest miscalculation is the decision to cut off gas supplies to Poland and Bulgaria. This is presumably meant as a warning shot to much larger buyers of Russian hydrocarbons such as Germany and Italy – as in, “you’ll be next”. But in threatening as much, Putin only further shoots himself in the foot.
As every business executive knows, if a supplier lets you down, particularly in circumstances that amount to a breach of contract, immediate steps need to be taken to end the relationship and find alternatives. That’s precisely the response that Putin has provoked. The immediate source of complaint is Russian insistence that Europe pays for gas in roubles, rather than euros or dollars, as stipulated in contracts. For Putin, this seemingly serves the purpose both of forcing European buyers to effectively breach sanctions, and of helping to prop up the rouble, decimated as it initially was by the West’s response to Russia’s aggression.
A somewhat curious and unforeseen consequence of pariah status, however, is that with Western companies boycotting Russian markets, and imports collapsing accordingly, the rouble has actually strengthened of late, so much so that Moscow has been able to lift some of the capital controls designed to protect the currency.
The only purpose of continuing to insist on rouble payment therefore becomes that of using it as a pretext for cutting off supplies. Some European buyers have found workarounds. Russian banks that have not been sanctioned are paid in euros or dollars, and then using back-to-back accounts in the payee’s name convert them into roubles. Apparently approved by the European Commission, this is just a ruse that breaches the spirit, if not the letter, of sanctions. Putin might therefore count it as some sort of victory.
Yet the Kremlin has also been completely wrong-footed by the speed at which even the Germans are moving to escape Russia’s embrace. In cutting off supplies, there is a sense in which Putin is using his main economic weapon while he still can; soon it will be obsolete.
As it happens, the big foreign exchange earner for Russia is not gas, but oil. This can easily be exported and will always find alternative takers, even after Europe and America stop buying it. But gas is a different matter; it can only be transported via pipeline or in liquid form, both of which require complex infrastructure. As it is, the pipelines needed to switch from Europe to China do not yet exist.
Putin gambled on Europe not being willing to take the economic pain of cutting itself off from his gas, but the blackmail isn’t working. Russia needs Europe’s markets far more than Europe needs its energy.
Putin hoped to capitalise on weakness, division and growing self-doubt in Western affairs, pitching his invasion as a battle between resurgent autocracy and degenerate liberal democracy. Yet far from further undermining the democratic order, he has succeeded only in highlighting its underlying strengths and attractions.
Heaven knows, our system of governance is hardly beyond criticism; it too is prone to catastrophic error (witness the mess in Iraq and Afghanistan). But at least the leaders responsible can be ousted, allowing the system to reboot. That’s not possible in Putin’s Russia, or Xi Jinping’s China. Whatever the drawbacks of liberal democracy, looking at the alternative now on all too visible and ugly display, it doesn’t seem so bad afterall.