\u2014 What is the state of Russia\u2019s economy in one word?<\/p>\n
\u2014 Good.<\/p>\n
\u2014 And in two words?<\/p>\n
\u2014 Not good.<\/p>\n
This old joke, apocryphally attributed to Russia\u2019s former president Boris Yeltsin, neatly summed up the state of the country\u2019s economy in the 1990s. It also captures the impact on Russia of the war in Iran today. Whether the ceasefire holds or the US blockade<\/a> of the Strait of Hormuz escalates the war, Europeans can use Russia\u2019s mixed fortunes to increase their leverage over Moscow.<\/p>\n The good<\/p>\n In the short term, from Russia\u2019s point of view, this war is a gift that keeps on giving.<\/p>\n First comes the money: surging energy prices and the Trump administration\u2019s decision to lift sanctions on Russian oil add around $150m a day<\/a> to the Kremlin\u2019s straining coffers. Ukrainian estimates<\/a> suggest that is roughly how much Moscow spent on its war each day last year.<\/p>\n Next are the holes in Ukraine\u2019s and the rest of Europe\u2019s defences. America and its allies are burning through Patriot ballistic missile interceptors at quite a rate. Based on publicly available data, in just the first week of the war, they used<\/a> more than Ukraine has received in total since April 2023. The US produces<\/a> a maximum of 650 of the most advanced interceptors annually, with plans to increase this to 2,000 a year by 2033. Yet Russia makes<\/a> up to 1,000 of various types of ballistic missiles a year.<\/p>\n Supplies of interceptors thus fall well short of what Kyiv needs. Moscow will exploit this. It is also safe to assume the deficit will continue for years, even if the boost in US production happens as scheduled. But it is not only Ukrainian defences that will be affected: several other European countries placed orders months ago, only to see their deliveries diverted to Ukraine or delayed<\/a> due to production bottlenecks. Once the active phase of fighting in Iran really ends, the US is likely to prioritise replenishing its own military stocks. This will create an even bigger shortfall in Europe.<\/p>\n Finally there is the smokescreen. With so much political and media attention on the Middle East, Russia has escalated in Ukraine. In early April<\/a> it carried out its most intense aerial attack on the country since the invasion of February 2022, firing almost 1,000 drones and missiles in 24 hours. It has also targeted a maternity hospital, a school and a UNESCO heritage site in the west of the country in the last fortnight, in a show of its ability to reach almost any corner of Ukraine\u2019s territory.\u00a0<\/p>\n The not so good<\/p>\n And yet, US president Donald Trump\u2019s gift to Russia stops giving quite as much in the longer term.<\/p>\n First, money alone cannot fix a \u201cnot good\u201d economy. The oil-price windfall is inadequate<\/a> to plug the Kremlin\u2019s budget holes; it certainly cannot address the structural problems with the Russian economy, which are getting worse with each day of President Vladimir Putin\u2019s aggression against Ukraine. Moreover, analysis from Re:Russia suggests<\/a> intensifying Ukrainian attacks on Russia\u2019s oil-exporting ports have temporarily erased two-thirds of Russia\u2019s oil windfall from the Iran war. Even if Moscow fixes the damage, Kyiv is likely to continue with these strikes. Russia can of course also step in to replace the oil Iran supplied to China. But, as many in Moscow\u2019s expert circles already fear<\/a>, this will only deepen its economic dependence on Beijing.<\/p>\n Then, there may be a loss of the Russian footprint in Iran and diminished diversification options for Moscow. The chaos of war and its aftermath are not conducive to long-term energy and infrastructure projects. The war has already put on hold two of Russia\u2019s nuclear power plants<\/a> in Iran (one under construction and one planned); Russian companies\u2019 oil and gas exploration in the country has also stopped. Moscow\u2019s long-term ambition to diversify transit routes through the \u201cNorth-South\u201d corridor linking India to Russia via Iran is also up in the air. The project has questionable economic benefits. But the Kremlin prized its strategic value of reducing Russia\u2019s dependence on Western routes to access global markets.\u00a0<\/p>\n Third, the war\u2014whatever its trajectory\u2014may also affect Russia\u2019s web of relations on the other side of the Persian Gulf. The Kremlin has invested in Arab Gulf states to diversify its energy transit routes, security and defence contracts and create more options to circumvent Western sanctions. But Gulf monarchies\u2019 security concerns may lead them to move even closer to Washington due to future threats from Iran. This means their relationship with Moscow might get more hands-off.<\/p>\n So, the war in Iran will likely not help Russia\u2019s position and interests in the Gulf much in the years ahead. Indeed, it may end up looking more \u201cnot good\u201d than \u201cgood\u201d. Ukraine\u2019s leaders are trying to accelerate this trajectory through their strikes on Russia\u2019s energy infrastructure. But the wrong move from Ukraine\u2019s European partners could help the \u201cgood\u201d for Russia stay that way for longer.<\/p>\n How to turn \u201cnot good\u201d into leverage<\/p>\n Of course, the impact of the war in Iran is not looking good for Europe either. Whether that extends into the long term as it may for Russia depends on how the continent\u2019s leaders respond today.<\/p>\n If European leaders fail to address the looming energy crisis, it will wreak economic havoc and alienate voters across the continent. This could deepen the cracks in the already fragile politics of countries like France<\/a> and Germany<\/a>, which both have elections on the way and far-right leaders and parties looking strong in the polls.<\/p>\n \u201cGoing back to Russian gas and oil, as some European politicians have advocated, is among the most short-sighted and damaging options. It would amount to Europeans renting a house from a known arsonist: it sure is cheap, but they cannot be certain the owner won\u2019t set it on fire (again) to weaken and blackmail them\u201d<\/p>\n There are no ideal options. But going back to Russian gas and oil, as some<\/a> European politicians have advocated, is undoubtedly among the most short-sighted and damaging. It would amount to Europeans renting a house from a known arsonist: it sure is cheap, but they cannot be certain the owner won\u2019t set it on fire (again) to weaken<\/a> and blackmail them. Going back to Russian energy imports would also fill Putin\u2019s pockets for the very war in Ukraine Europeans have been trying to stop. Helpfully, others have already set out fiscal and energy measures<\/a> Europeans can adopt now to avert an economic crisis without playing with fire.\u00a0<\/p>\n Still, European policymakers are increasingly looking at whether to restart a dialogue with Russia, against the backdrop of the energy crisis and the\u2014to date, ineffectual\u2014US efforts to stop the war in Ukraine. If they rushed into such an exchange now, Europeans would open the conversation from a position of weakness, effectively inviting Putin to keep his maximalist positions rather than seek compromises. The chances of any eventual conversations with Vladimir Putin going well for Europe dramatically increase if EU policymakers first ensure Moscow cannot push too many of their buttons.<\/p>\n Europeans should therefore prioritise measures that weaken Russia\u2019s leverage. The weaker Russia\u2019s cards are vis-a-vis Europe on energy, Ukraine, and defence, the better the deal for Europe. It is one thing to discuss Russian energy supplies if Moscow is starved of other export options or if 95% of Europe\u2019s needs are already covered from elsewhere, including home-grown green options. It is quite another\u2014if not delusional\u2014to expect the Kremlin not to use the state of global oil and gas markets to extract painful concessions from Europe.\u00a0<\/p>\n Europeans can also weaken Russia\u2019s hand in Ukraine. Absent the necessary supplies of Patriots, Europeans should help Kyiv at least boost other types of air defence, including those made in Europe like MBDA\u2019s Aster 30. (France\u2019s recent budgeting law imposes<\/a> a 30% production increase of these in the coming years.) Europeans must also invest in Ukraine\u2019s homegrown drone and missile interception programme, even with lingering uncertainties<\/a> around the country\u2019s interception capabilities. Continuing to boost Europe\u2019s defence spending, reinforcing NATO\u2019s eastern flank and addressing<\/a> Russia\u2019s ongoing sabotage, disinformation and corruption operations and other hybrid attacks will also close off options for Moscow to manipulate European politics and increase Europe\u2019s own deterrence and leverage against Russia.\u00a0<\/p>\n In other words, helping the \u201cnot good\u201d impact of the Iran war on Russia arrive more quickly should become a conscious strategy for Europe. Because the stronger Europe is\u2014and the weaker Russia becomes\u2014the less likely it is that the old continent will seal off yet another Faustian bargain with Moscow.\u00a0<\/p>\n \n\t\t\t\tThe European Council on Foreign Relations does not take collective positions. ECFR publications only represent the views of their individual authors.\n\t\t\t\t<\/p>\n","protected":false},"excerpt":{"rendered":"\u2014 What is the state of Russia\u2019s economy in one word? \u2014 Good. \u2014 And in two words?…\n","protected":false},"author":2,"featured_media":14240,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[8267,39,4,40],"class_list":{"0":"post-14239","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-eu","8":"tag-dare","9":"tag-eu","10":"tag-europe","11":"tag-european-union"},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/posts\/14239","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/comments?post=14239"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/posts\/14239\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/media\/14240"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/media?parent=14239"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/categories?post=14239"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/europe\/wp-json\/wp\/v2\/tags?post=14239"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}