Trading with the enemy is sometimes necessary

EuroActiv Politico News

Jamie Dettmer is opinion editor at POLITICO Europe.

In 1674 the French commanders of Grave, then besieged during the Franco-Dutch War, became alarmed about a huge store of explosive material and ammunition they had amassed. They worried that if ignited — accidentally or otherwise — the blast would have catastrophic consequences for the town. So as a precaution they decided to sell half the gunpowder.

The only flaw with the scheme came with the identity of the purchaser — the Dutch. They offered (unsurprisingly) an excellent price, and then used the gunpowder to intensify their bombardment of the town.

Was it a case of betrayal and treachery of the kind Russian commanders and soldiers were guilty of when they sold weaponry to their foes in Chechnya in the 1990s?

No — just a matter of ill-judged policy.

The Ukrainians now believe Western powers are also pursuing a misguided policy by not halting absolutely all trade with Russia. Their focus currently is on the natural gas Europe buys from Russia: and they argue the sales are just helping to fund Vladimir Putin’s war machine and prolong a conflict they understandably want to end swiftly.

But there’s another way of looking at it.

Punitive economic sanctions on Russia appear to be having the reverse effect to what was intended. They seem inadvertently to be helping the Kremlin rather than hindering it, while in the meantime hurting Western economies, risking a political backlash from European voters and erosion of support for Ukraine.

One of the great dirty secrets of war is that enemies, while slaughtering each other, often continue to trade for political, economic and moral interests — and even military reasons. “Trade between adversaries include armaments and fuel, as well as food and luxury goods,” noted American academics Jack Levy and Katherine Barbieri in a 2004 paper “Trading with the Enemy in Wartime.”

During the Seven Years War of 1755 to 1763, the British continued to import French wine and decided not to halt shipments of Irish beef to the French West Indies. During the Napoleonic Wars there was brisk commerce between the diehard foes, with the British Admiralty buying brandy from the French to ensure naval ratings still could get their “daily tot” when rum was in short supply.

Sometimes trading with the enemy is official policy — as it was during the Crimean War, with the British Cabinet making careful calculations about what commerce with Russia was expedient and wouldn’t assist the Russian war effort. Sometimes governments turn a blind eye — or are collusive — to what smuggling networks and profiteers are doing.

Sometimes, because of tight commercial interdependence between adversaries, barring essential trade could undermine the sanctioning country’s ability to conduct war. And governments in the past have been mindful that sanctions and restrictive economic policies might alienate neutrals — or offer an opening for non-belligerent nations to seize abandoned trade opportunities, which they could then keep as their own after the war has concluded.

For strategic reasons, the Americans supplied beef to the Duke of Wellington’s army in Spain during the War of 1812, fearing that if they didn’t London might have to withdraw forces from the Iberian Peninsula. That would risk them being dispatched to North America to reinforce His Majesty’s forces battling the former colonists.

“If we could by starving the British armies oblige them to withdraw them from the Peninsula, it would be to send them here,” noted former U.S. President Thomas Jefferson. “I think we had better feed them there for pay, than to fight them here for nothing,” he added.

In Syria, more recently, tactical imperatives shaped clandestine trade between virtually all the actors.

Along with the government of Bashar al-Assad, Western-backed rebels and international relief organizations bought oil from the Islamic State terror group. They didn’t have much option, but in effect it meant Western governments were indirectly funding the terror group while at the same time bombing it.

Are there any lessons now from this long history of trading with the enemy? In March, EU High Representative Josep Borrell said: “Sanctions in themselves are not a policy, they are a way of obstructing a conduct.”

But so far Western sanctions have not obstructed Putin waging war on Ukraine.

Russia’s current account is in surplus; the ruble has rebounded to reach its strongest level against the dollar since May 2015, and is in such rude health that the country’s central bank has stepped in to try to weaken it, fearing otherwise it will reduce export competitiveness. Russia’s revenues from oil and gas continue to increase and are predicted to hit $285 billion this year, thanks partly to high volume sales to Asian markets, which make up for the deeply discounted prices Russia has being selling at. Indian dealers have been making large profits selling on the Russian crude oil to Western concerns, according to reports.

The head of Russia’s state-owned gas giant Gazprom, Alexei Miller, noted at the annual St. Petersburg International Economic Forum last month that the European Union may have reduced imports of gas “by several dozen percent,” but prices have risen “several times over.” At the same gathering Putin bragged that the Western idea “was clear: Crush the Russian economy violently,” adding with a smirk: “They did not succeed. Obviously, that didn’t happen.”

Meanwhile, soaring energy prices are compounding a serious cost-of-living squeeze for Western households, fueling inflation. Price growth in the eurozone hit a record high of 8.6 percent in the year to June, thanks partly to a sharp acceleration of energy and food prices because of sanctions and the supply disruptions caused by Russia’s invasion of Ukraine.

No one doubts there will be lasting harm to Russia’s economy from sanctions. Russia’s industrial production dropped by 1.7 percent year-on-year in May. Some sectors have been devastated. Car production has plunged 96.7 percent compared with 2021. Retail confidence has been shattered. And there will be severe lost economic opportunities from the estimated 300,000 Russians who’ve fled and chosen political exile, many of them IT workers.

But there are no bread riots. Russia’s food stores and supermarkets remain well-stocked. The country long ago became adept at import substitution, schooled by the waves of sanctions that have hit it since the Kremlin’s illegal 2014 annexation of Crimea.

And then there are always ways of finding goods via clandestine smuggling networks for those with the cash to get their hands on some prized Western product. But then most ordinary Russians have never had the wherewithal to splash out on Western luxury goods anyway and continue to live the gray, cramped existence they did before Putin’s overseas adventures.

Some Western officials argue sanctions will start impacting Putin’s ability to wage war soon — as parts for tanks and microchips for other advanced weaponry run out. But will that happen before European householders lose patience?

Fighting the war smartly doesn’t mean Europe turning itself into “that silly old man with a walking stick,” which was Adolf Hitler’s derisive description of the appeaser Neville Chamberlain, but sanctioning Russian energy may not have been such a clever move.