At their current meeting in Borgo Egnazia, Italy, the leaders of the G7 have made two important decisions. They have decided to provide Ukraine with an additional $50 billion and to finance this allocation with income derived from the approximately $300 billion in Russian assets that have been frozen in the US, Japan, Canada and Europe. The resort to this legally dubious method for defraying the costs of the currently stumbling Ukrainian military had been proposed by the US some month ago but had been resisted by Germany, France, Italy and Japan. The US — not for the first time in recent history — was able to cajole its partners into compliance.
A deep irony concerning the economics of war underlies this undertaking.
When Russia first indicated in February of 2022 that it would use military force to defend the Russian-speaking areas of Ukraine from Kiev’s depredations, Western leaders confidently declared they would frustrate Russia’s plans through an internationally supported program of economic assault which would sap Russia’s war making capabilities, possibly leading to the disgraced departure of Vladimir Putin from Russia’s Presidency or even — as some fantasized — to the dismemberment of the Russian Federation. As Joe Biden savorously intoned, the “Ruble” would be “rubble.”
This bravado proved unfounded: the Russian economy did not collapse. Only last week the World Bank indicated that when one measures domestic product on a purchasing price parity basis, Russia has overtaken the Japan to to move into fourth place among the world’s economies, having overtaken Germany a couple of years ago. The egregious failure of Nato’s economic offensive is also visible on the battlefield: a frequently occurring detail in Ukrainian lamentations about their military difficulties is the vast disparity between the abundance of artillery shells with which Russian troops are provided and the meagre provision to which Nato-supplied Ukraine is confined. Early in the war, the distress of the Ukrainian side when they were attacked by Russian missiles was balanced by celebratory boasts that this brought Russia that much nearer to the inevitable and likely imminent depletion of their missile stock. The distress continues but boasting has ceased. Hardly anyone still believes that Nato-supported Ukraine will defeat Russia by paralyzing its economy. The recently announced contrivance of sustaining the Ukraine war effort through the use of illegally seized Russian assets moves this narrative to a new level of irony. While the Russian military is supported by the current robustness of the Russian economy, the present Western strategy is to use what had accrued in the pre-war Russian economy — namely the confiscated Russian assets — to sustain Russia’s antagonists. In the foreseeable future, both sides of the conflict will be sustained by Russian money.
It is easy to imagine that the West, having suppressed its scruples about employing the profits accruing to confiscated Russian assets to pursue the war, will eventually devote the assets themselves to the war’s continuance. In this case, Russian money may sustain both sides for a number of years. There is of course an obvious weakness to this approach. The seized assets are a finite resource. Russia’s involuntary support of the Nato war effort — involuntary because the assets were seized, not given — will not be followed by voluntary financing of the Nato side. Western stereotypes not withstanding, Russians are not so war-loving that they will pay the other side to sustain the conflict.
