Breakingviews - Sanctions relief is ineffectual carrot for Putin
On paper, Putin has plenty to gain from an easing of sanctions. The Russian economy has stalled after the U.S. and Europe moved to curb its access to western markets, and its fossil fuel export revenues. The impact of sanctions in 2022 sent the country sharply into recession, energy sales to Europe have collapsed, and some of its banks have been cut off from international payments systems. VTB (VTBR.MM), opens new tab, a key domestic lender, has seen its net interest income collapse, opens new tab.
Dismal as that sounds, Putin is hanging on. Output over the next three years is expected to be around 1%, per IMF forecasts. That's half the rate in the three years before the pandemic, but hardly a meltdown. One key factor has been Putin's ability to shift exports, especially oil and gas, to other countries. Even as European, opens new tab gas imports have fallen by roughly two-thirds between 2021 and 2024, Russian fossil fuel revenues have been more resilient. In July, daily revenue was 585 million euros, down less than half, opens new tab since the start of 2022. India and China have bought 47% and 38% of crude exports since sanctions started.
Moreover, Trump can only offer piecemeal relief. Europe is unlikely to suddenly snap up much more oil and gas, given it aims for zero Russian imports by 2027, opens new tab. And with European Union members like Poland fretting over Kremlin aggression, the bloc will be wary of assisting Putin's military buildup. The EU is less likely to agree to restore Russian banks' access to the SWIFT payments system, which would speed up investment and imports, or to unblock Moscow's frozen central bank assets.
Trump's best peace gambit, therefore, is to threaten harsher sanctions. That could mean clamping down on Russia's dark fleet of oil tankers, through which it can evade a price cap, and imposing more tariffs or sanctions on countries that buy Russian fossil fuels. Yet the U.S. president has shown little appetite for such a move. He has only threatened 25% tariffs on India, and his desire to secure a trade deal with China complicates pushback on Beijing's support for Russia. Imposing far-reaching sanctions on those two countries could send oil prices up to $90 per barrel, Oxford Economics reckons, clashing with Trump's desire to protect U.S. consumers.
Hence Putin may have little reason to cede much ground on Friday's summit, especially if he thinks the front line is shifting in his favour. If Trump plays a weak hand, the war may drag on even longer.
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