Elina Valtonen calls for a lower oil-price cap and tougher measures against Russia’s shadow fleet.
RUSSIA IS FAR from an unstoppable force of nature. The autocrats who run it rely on a war economy that is unsustainable and shows serious cracks. Democracies should take advantage by increasing the economic pressure. It is we who have the momentum.
Contrary to Vladimir Putin’s narrative, and some people’s belief, sanctions do work. Even when they do not prevent certain goods and technologies from entering or—in the case of oil and gas—leaving Russia, they certainly make logistics more cumbersome. That increases costs.
Witness the rise in Russian consumer prices, which are up by more than a third since the end of 2021. This is due mostly to the rise in import costs and the country’s labour shortage translating into high nominal wage inflation.
Owing to a low birth rate, high mortality and an exodus of Russians who oppose Mr Putin or just want a better life elsewhere, Russia’s population is shrinking, ageing and losing its best talent. The senseless war in Ukraine, with hundreds of thousands of casualties, is not helping.
To combat inflation and capital flight, the central bank has raised its key interest rate to 21%.
Double-digit interest rates push up the interest expense of the public sector, incentivise businesses to place liquidity in deposits rather than in investments, and eat into profits. Yields on BBB-rated corporate bonds have climbed to levels that point to a surge in bankruptcies.
In 2024 Russia’s GDP grew by around 3.5%. This relatively strong performance came almost exclusively from sectors directly related to the war. Most forecasters expect barely any growth in 2025 as Russia runs out of labour and other resources. Despite all this, Russia can maintain the current level of military production, even if it means cutting back on everything else.
Military spending is eating up the budget and Russia has to fund its deficit through borrowing. With little to no access to international capital markets, Russia borrows domestically. New debt is absorbed by domestic banks, which place the government bonds at the central bank for cash.
Essentially, the central bank is printing money to finance the government’s spending on the war.
The rouble has weakened significantly and would be on the floor were it not for central-bank support through emergency buying and capital-control mechanisms. The central bank is unable to use most of its international reserves to prop up the currency, as roughly half of the reserves are frozen overseas and most of the remainder is physical gold, which, because it sits in Russia, is not as liquid in international transactions as it would be if it were in London or New York. In the past six months the rouble has fallen by more than 20% against the Chinese yuan, driving up import costs.
With the economic outlook so bleak, time is not on Russia’s side. So far Mr Putin has prioritised his war against Ukraine over the welfare of his own people. To achieve just and lasting peace in Ukraine, he must be made to understand that the cost of his illegal campaign is getting too high, even for his tolerance.
To this end, we need to increase the economic pressure on Russia and reduce the possibilities for dodging sanctions, including the use of a shadow fleet. Russia uses rusting, non-insured tankers to covertly carry Russian oil around the world, undermining the EU and G7 oil-price cap on Russian crude and petroleum products.
Following the latest damage to undersea cables in the Baltic sea, affecting several coastal states, Finland recently seized a Russia-linked oil tanker. The vessel appears to be part of Russia’s shadow fleet and is suspected of intentionally damaging undersea infrastructure.
Several measures for limiting the use of the hazardous fleet are in the works. In December, 12 European countries, including my own, announced that their maritime authorities will start requesting proof of insurance from suspected shadow vessels as they pass through the English Channel, the Danish Straits of the Great Belt, the Sound between Denmark and Sweden and the Gulf of Finland. Non-compliant vessels will be placed under sanctions, which, in the EU’s case, would ban them from the bloc’s ports and maritime services.
Across Europe, decoupling from Russian energy is well under way. Direct and indirect gas and oil imports need to be further constrained. The oil-price cap, currently at $60 per barrel, should be lowered further and enforcement of the cap strengthened in conjunction with international partners.
In parallel with increasing economic pressure on Russia, Europe, America and their partners must continue supporting Ukraine militarily and economically. As Donald Trump prepares to take office for a second time, Europeans must stand ready to shoulder greater responsibility for their own security, and make the required financial investments.
Under President Joe Biden, America has been a strong backer of Ukraine’s fight for independence and democracy—underlined by Mr Biden’s recent announcement of an additional $2.5bn in security assistance. Early indications from the incoming American administration are encouraging.
Although Mr Trump and his team have made it abundantly clear that they expect Europeans to do more for the continent’s security, I do not expect America to walk away from helping Ukraine, or from Europe as a whole. Such a move would diminish America’s global influence and undermine its ability to compete strategically with China and others.
The war is far from lost. With determined support from its partners, Ukraine will get through this winter in a position to enter peace talks on its own terms and timeline. Ukraine’s international partners need to keep up their joint measures until Russia starts to engage with the world in a peaceful manner, respecting the UN Charter and international law.■
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Elina Valtonen is Finland’s foreign minister.
Illustration: Dan Williams
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