Rachel Reeves probably cried because she can't cut benefits but still has a proxy war to fund

Surely it's time to end Russia sanctions and develop a new plan to bring peace and prosperity to Ukraine?

Sanctions will only ever embolden Russia to keep fighting rather than making peace. Russia can endure the economic pain of war for longer than Europe. A rational Europe would incentive peace through sanctions relief, although I see zero chance of that happening right now.

This terrible war in Ukraine must end sooner or later. It has claimed over one million people to death or injury, mostly since February 2022, but also, in fact, since the onset of the Ukraine crisis in February 2014.

Clearly, both Russia and Ukraine need to find incentives to end the fighting. One such incentive relates to sanctions. The whole basis of sanctions against Russia is that they will impose a cost on Russia for continuing to wage war in Ukraine.

When the 18^th sanctions package was proposed on 10 June, Kaja Kallas announced that ‘we do all this because sanctions work, every sanction weakens Russia's ability to fight.’ She also said, ‘Russia has lost tens of billions in oil revenues. Its economy is shrinking, and its GDP has dropped.’

And yet, these assertions do not appear to be true.

Russia’s economy grew by 3.6% in 2024. That compares to 0.9% growth for the Eurozone and 1.1% for the United Kingdom.

On exports, in the first four months of 2025, Russia exported $39.5 billion more goods than it imported and maintained a healthy overall current account surplus of $21.9 billion. Since its default in 1998, Russia has become an exporting powerhouse and there hasn’t been a single year since that time in which it has not recorded a surplus, including during the Global Financial Crisis and the COVID Pandemic. Trade boosts Russian tax revenues and provides the scope to increase spending without significant reliance on borrowing.

There is no evidence that sanctions have had any real effect on Russia’s ability to generate large surpluses of trade each year.

The overall value of Russian exports has fallen from the peak in 2012 when the oil price was consistently above $100 to the barrel. But the point is, Russia also now imports significantly less than it did then, largely out of a drive to import substitution which started in 2014, meaning that its overall balance is comparable.

It is for this reason that Russia’s international reserve position has improved by around $80 billion since the war started, to $680 billion today (which includes the currently frozen assets of around $300 billion).

No sanction imposed on Russia has shifted the fundamentals of Russia’s economic model and, I believe, no sanction ever will. And yet the Europeans have nonetheless been sanctioning Russia for eleven years already, with no obvious success.

Yes, Russia has undoubtedly endured economic pain from sanctions. Prior to the Ukraine crisis, the European Union accounted for over 40% of all Russian trade and most of that business has been progressively lost over the past eleven years. That triggered huge shifts in the structure of Russia’s economy, arguably making it more dependant on domestic investment and pivoting its trade decisively away from Europe and towards Asia.

Sanctioning individuals and companies prompted huge changes in the beneficial ownership and board membership of the largest Russian firms. This triggered a bizarre whack-a-mole policy in Europe as it tried to sanction ever changing figures on Russian company structures.

Yet, Russia’s continued strength in trade has enabled it to keep pumping billions into the war economy each year at a time when Ukraine constantly teeters on the brink of bankruptcy, propped up only by European donations, as I have written many times before.

Europe will never be able to tip to scales so far in favour of Ukraine that it has the economic reserves to outslug Russia, whether the war continued for one year or ten. Only a fantasist would believe that though, unfortunately, there appears no shortage of those in Brussels.

Sanctions have become an end and policy makers are so invested in sanctions, and so lacking in ideas, that they continue despite the obvious self-harm they are causing to the European project, not only economically, but also politically and culturally.

Politicians in Central Europe are growing increasingly concerned by this direction of policy, because of which a battle is brewing about whether the EU approves the eighteenth package of sanctions against Russia, first proposed on 10 June.

Slovakia and Hungary are blocking the package because it would threaten their energy security. At an EU Foreign Ministers’ meeting last week, Peter Szijjarto, Hungary’s Foreign Minister accused Brussels bureaucrats of hypocrisy, claiming that further energy sanctions would ‘cripple Hungary’s energy security’ and increase domestic energy prices by 2-3 fold. Hungary remains heavily reliant on Russian gas in particular for its domestic needs. And a complete ban would have huge consequences for consumers and Hungarian industries, at least in the short-medium term as the economy transitioned.

So, while EU Ministers extended all other EU sanctions against Russia for a year, the 18^th sanctions package remains in limbo. German officials appear confident that an agreement can be reached this week, one assumes, by making concessions to Slovakia and Hungary on energy imports. In typical muddling through fashion, a backroom deal may eventually be struck.

But the real question is shouldn’t the EU abandon sanctions altogether?

Sanctions can only succeed if the sanctioning party is willing to accept a level of economic pain comparable to that inflicted on the opponent, such that the opponent decides to back down or at least moderate the actions which prompted the sanctions.

That has never looked likely to happen with Russia. It’s not only that sanctions appear to have caused more pain to European economies than to Russia, most visibly through crippling energy prices. But that Russia has never looked like it would back down in the face of sanctions, and, as time goes on, pressure is slowly building within the EU to back down.

Not only has Europe had to endure the direct economic cost to its economies from sanctions, but also to absorb the additional cost of keeping Ukraine’s economy afloat during wartime. This pressure will only grow as the USA reduces its financial commitment to the war; on current levels, Ukraine needs at least $40 billion in European funding each year just to maintain the current tempo of a war that it is losing.

To be clear, Ukraine has put up a strong defence and is only losing slowly. But it is still losing small pockets of land most days and that doesn’t seem likely to change.

Prolonging sanctions will inevitably prolong the war at an enormous cost to Europe but no obvious benefit to Ukraine.

As we are currently witnessing in the UK with labour Members of Parliament rebelling against planned cuts to welfare benefits, this will have political consequences in Europe too, as anti-war parties gain more support. For the first time since the war started, protestors in Westminster carried placards that said ‘cut war not welfare’.

Keir Starmer has been stymied in his efforts to cut benefits yet is still committed to paying for a war in Ukraine. That, inevitably, will lead to higher taxes and borrowing. No wonder Rachel Reeves, the Chancellor of the Exchequer was in tears in Parliament today.

Russia has deeper pockets and more durable reserves of political will compared to Britain or other European states. Imposing more sanctions on Russia will only embolden President Putin to keep fighting. Rather than putting Ukraine is a position of greater strengthen, they are, in fact, putting Europe in a position of ongoing decay.

There may come a theoretical point in the future in which the massive fiscal investment Russia is making to sustain the war overheats its economy to such an extent that it starts to cause unbearable economic and political pressure. But that point does not appear to have been reached, nor does it appear close to being reached anytime soon.

And, amidst all the posturing, there is no real indication that Europe has Ukraine’s best interests really at heart. Ukraine is in most respects now a failed state. While Zelensky maintains the semblance of autocratic rule, he is in fact kept on life support by the continuance of the war. Ending the war would create a moment of both huge economic and democratic opportunity, for Ukraine, but also massive risk, as a disgruntled and defeated army demobilised to find the country bereft of quality jobs and good incomes.

If the Eurocrats in Brussels put all of their energies and resources into ending the war as soon as possible and helping Ukraine to emerge and rebuild in the best possible way, they might just about be able to stave of a much bigger catastrophe for that country. That would begin with setting out a plan to remove sanctions upon the agreement of a peace deal between Russia and Ukraine.

Right now, though, I see zero chance of that happening.