A Path Forward on Ukraine
by Dr. Stephen Blank, Senior Fellow, Foreign Policy Research Institute and Peter Huessy, Senior Fellow, The National Institute for Deterrence Studies
During his first administration, President Trump demanded to know what plan the United States military had for defeating ISIS. There was at the time no plan beyond muddling through. The President said that was unacceptable. He gave notice that the military had one year to destroy and thus defeat ISIS. The United Sates military developed a plan, carried it out and at the end of a year ISIS was destroyed. No more endless war.
The new administration under President Trump faces a similar dilemma in Ukraine. There is no apparent plan for victory and defeating Russia—armed as it is with 5000 nuclear weapons of varying ranges and yields—is a horse of a different color.
However, is the objective of restoring Ukraine’s sovereignty and with it the complete withdrawal of Russian forces from the Donbass and Crimea possible? And could such an objective be achieved relatively quickly, such as within a year and actually be caried out through the adoption of multiple lines of attack against Moscow, many of which would involve the adoption of policies on which President Trump campaigned?
The Russian economy is suffering huge losses. 750,000 young men have been killed or injured. Inflation is reaching the point of being galloping, commodities like butter are disappearing, the ruble’s value is plunging and, despite a state policy of militarizing the economy, there are numerous signs that in many areas the defense sector cannot meet state requirements. Hence the large-scale aid from North Korea, Yemen, and China without which continuation of the war would be doubtful. Meanwhile the new state budget calls for a 25% hike in an already militarized economy and represents the most closed budget in Russian Federation history.
Russia recently suffered 2000 casualties in one day in late November, and since Putin refuses to call a general mobilization, he has mobilized criminals, and sought soldiers abroad from such places as Yemen, Nepal, and North Korea. Finally, any observer of Russian television and newspapers can quickly find multiple signs of despair, apprehension, and even foreboding about this war and its likely consequences.
The Russian government depends more on energy sales for its revenue than ever before but Russian oil and gas markets in Europe, the main source of energy revenue, have largely dried up. In turn this trend has forced Moscow to devise means of skirting sanctions by selling crude oil and natural gas to China and India, using many so called “ghost ships” or “shadow” tankers carrying oil and gas abroad but selling at steep discount. Russia is also losing oil and gas revenue as it is exchanging oil and gas to North Korea in return for soldiers, a barter exchange that only a few governments are willing to carry out, but which loses Russian important oil and gas revenue.
Russia annual budget is officially pegged at $340 billion a year of which an estimated 40% is for defense and security. Despite official claims to the contrary, the annual national deficit is estimated at $28 billion or 9% of the budget. Over twenty percent of the Russian people or nearly 30 million people live in poverty and that number is increasing as the aforementioned pressure upon living standards grows.
These signs of Russian weakness along with the slow and not particularly competent Russian method of attritional fighting present the incoming administration with many opportunities to gain leverage on Moscow. President Trump wants to produce 3 million more barrels of oil per day to reach 16+ million barrels, an objective that, when achieved, could reduce the price of crude oil to $45 a barrel compared to the current world price of around $70. Russia in 2022 was earning $1.2 billion Euros per day selling crude oil but that has now dropped to $600 million Euros per day. (For our calculations we are assuming a Euro is roughly equal to $1 dollar although the current exchange rate is one Euro is worth $.95.)
Today Russia exports as much of 7 million barrels off crude a day to Asia and Europe as a number of European nations are exempt from the sanctions adopted following Moscow’s invasion of Ukraine in 2022. Oil revenue to the government is estimated to have grown by 41% in the first part of the year, or by $65 billion annually, with oi and gas revenue at roughly one third (even half earlier in the decade) of all national revenue. Since then, however, oil prices have slid below the sanctions cap of $60 but have now recovered to between $67-71 a barrel.
Nevertheless, of the 11 million barrels of oil produced daily in Russia, a decline of $25 for example in the price of a barrel of oil could deprive Moscow of some $275 billion sales income annually of which 50% goes to the government in the form of a tax on mineral production. The loss of export income could be $170 billion with a significant hit to government revenue and funds available to fight the war against Ukraine. The Russian government could lose upwards of a third of its budget revenue and an equal percent of its annual defense budget. Through simply having the US increase oil production by 3 million barrels a day and selling it abroad, although what OPEC does at the same time has to be taken into account.
On top of lowering the price of oil through expanding U.S. production, the new Energy Secretary nominee Mr. Chris Wright (currently CEO of Liberty Energy) and Interior Secretary nominee and Energy Czar Mr. Doug Burgun (currently Governor of North Dakota) have proposed in part that the US end the Biden administration policy of shutting down of further natural gas export terminals as well as the restrictions on natural gas production on Federal lands.
In this way the administration can over time supply Europe with all the natural gas currently being imported from Russia, further depriving Moscow of billions in government revenue, which we estimate at upwards of another 15-25% of the Russian military budget. As Warren E. Norquist explained in his “How the United States Won the Cold War,” the US and Saudi expansion of oil production dropped oil prices from $30 to $12 a barrel. Reagan’s economic war against Moscow increased the USSR annual costs of empire that when added to lost energy and weapons sales as well put Moscow in debt by $67 billion a year, compared to earning $32 billion in foreign exchange in 1980.
Since this proposed American administration program of action fits well with the US and European sanctions, this combination of increased American energy production and sales abroad, coupled with still more extensive sanctions on Russia’s energy customers in Asia and Europe, could inflict great harm upon the already reeling Russian economy, and be the diplomatic and political leverage the United States needs. Deploying the energy weapon in this way along with consistent military support for Ukraine to pressure Moscow to negotiate can further Trump’s stated agenda. But even more importantly it could help[ bring a cessation of hostilities to Ukraine, deprive Putin of a victory, constitute a warning to China, and promote Trump’s energy, defense, and foreign policy agenda. Since the war in Ukraine now has global repercussions, Trump can utilize American power strategically to secure what all wars should lead to, namely, a better peace.
