The carrot and the stick — geo-economics and Russian revisionism

Traditional geopolitical solutions (accommodation or military containment) are unlikely to work with Putin’s Russia. Instead the West should pursue a unified geo-economic strategy.

Worker balances on a gas pipeline connecting with the Nord Stream Pipeline between Russia and Western Europe
Worker balances on a gas pipeline connecting with the Nord Stream Pipeline between Russia and Western Europe. Klaus Oskar Bromberg / Alamy Stock Photo

This essay originally appeared under the title ‘Geopolitics, geo-economics and Russian revisionism’ in ‘The Return of Geopolitics’, Bokförlaget Stolpe, in collaboration with the Axel and Margaret Ax:son Johnson Foundation, 2019.

In the aftermath of the Cold War, the idea that economic liberalism, interdependence and integration would bring about peace, stability and prosperity greatly influenced the foreign policy of Western liberal states. Especially in Western Europe, the central belief was that, as the world grew more interdependent, states would come to abandon power politics in favour of cooperation and integration into a liberal world order and global marketplace, in which the success of each state was dependent on the success of others. A whole generation of politicians grew up believing that major inter-state war had become a thing of the past and that realpolitik was a poor guide to international relations. The past few years have laid bare the naivety of such idealism. The liberal world order appears to be under threat from actors such as Russia and China, which are not willing to play by the rules of the liberal game. Under President Trump, it became questionable to what extent the US remains committed to this rules-based order. Many observers foresee a return to geopolitics. The crisis in Ukraine and its fallout have even stoked fears over a new Cold War. Indeed, Russia seems bent on challenging the post-Cold War order and, in the debate over how to deal with this Russian revisionist challenge, old strategy dossiers from the Cold War are being taken from the shelf and dusted off.

In this debate, essentially two strategies are being advocated. First, a hawkish one, advocating the military containment of Russia, in order to counterbalance its military build-up and deter it from further aggression. Second, a more dovish strategic alternative, promulgating the accommodation of Russia’s grievances. Both are traditional geopolitical strategies that were already on the table during the Cold War and both are problematic, especially for Europe. The accommodation approach would entail granting Russia a sphere of influence in its neighbourhood and greater influence generally in the European security architecture. Essentially, it would amount to a ‘Yalta Two’ in which the major powers – Russia, the US, Germany and France – would cut a deal that carved Europe up into spheres of influence. That is the price Russia demands for de-escalating its current military posturing. Statements by Trump suggest it is the sort of deal he might be willing to accept, although it would mean rewarding Russia for its revisionism and military aggression. While portrayed as a peaceful strategic alternative, it is thus actually quite cynical in that it would sacrifice the freedom of the peoples of Eastern Europe to choose where they want to belong. It would also set a bad precedent by recognising that military aggression pays off, and that the West is not prepared to defend its liberal values and a rules-based order.

What about military containment, then? We note that Nato is bolstering its defences – military reinforcements have been brought to Eastern Europe; there has been talk of arming Ukraine and of Nato enlargement to include Finland and Sweden, bringing in more US troops and pre-positioning equipment, as well as shoring up the EU’s military capacities. The problem is that this feeds military escalation and, in such a scenario, Russia has the advantage. Russia has made it clear that it will do everything it takes to remain the preponderant military power in the region, and there seems little reason to doubt this. In the region, at least as things stand now at the beginning of 2017, Russia enjoys ‘escalation dominance’, i.e. it seems more ready to escalate militarily and be more reckless than its adversaries. Germany and France do not seem as prepared as Russia to engage in a conflict. The fact that everybody recognises this further strengthens Russia’s escalation dominance. With regard to the US, we can also assume that Russia would be prepared to escalate further, given that what it seeks (i.e. special regional influence) is of more intense importance to Russia than it is to the US. Early signals from the new US government would seem to strengthen this view. Trump does not seem prepared to put up a fight for Europe’s sake. So, how can the West, and particularly Europe, get around this geopolitical dilemma?

Both strategies – accommodation and military containment – take the West to the geopolitical gameboard, which is exactly where the Kremlin wants to be playing because it is where Russia is comparatively stronger. Moscow wants to draw the West back into a Cold War because that will bolster its position in the regional and international hierarchy. It is also a way for Putinism to survive domestically in the face of the major structural problems of Russia’s economy and the looming discontent arising from them. By confronting the outside world in a geopolitical mode, Putin seeks to substitute his famous bargain with the Russian people, ‘sausage in exchange for freedom’, on which he has found it increasingly hard to deliver, for one based on nationalism and national pride. In any case, what this suggests is that the West should avoid being drawn back onto the geopolitical game-board and into a new Cold War. Instead, the place that the West, especially Europe, should want to play is, first and foremost, on the geo-economic game-board, where it is comparatively stronger – especially if it can remain united. Besides, it is a game which is much less dangerous and in which the West has much less to lose.

Hence, the West needs to do more than merely dust off traditional geostrategic thinking. Both accommodation and military containment risk pushing the West into a geopolitical trap. Instead, what the West should seek to do is to harness its geo-economic edge in order to offset Russia’s geopolitical advantage. Traditional geopolitics is no longer the only game in town. Ours is no longer a bipolar world in which two camps stand isolated from each other, as was the case during the Cold War. Today, the world is more interdependent and interconnected than at any time in history. All major powers, including Russia, depend for their security and wealth on the global flows of resources, data, people and money that are criss-crossing the globe. This new geography of global flows penetrating sovereign state space is rendering traditional geopolitical solutions to security and wealth increasingly ineffective. In this situation of interdependence and interconnectedness, geo-economics – namely the ‘geostrategic use of economic power’ – is often a more effective means to pursue strategic goals. It provides more subtle means for pursuing relative gains, with less risk of major counter-reactions that could prove costly. The key to security and wealth is no longer the control of physical territory, but the ability to connect to global flows and to stay connected, so as to guarantee supply security of those essential flows of capital, data, goods and resources. Importantly, these global flows are still largely controlled by the Western powers. The West can therefore inflict real pain on Russia by isolating it from them. Taking physical control of poor, unconnected territories like Crimea and, especially, the eastern parts of Ukraine, only adds to the costs that Russia will need to bear. By commanding this geo-economic power, the West may counter Russian geopolitics by denying it access to the very resources needed to uphold any geostrategic power.

Geopolitics Geo-economics
Operational (agent) Means visibility logic Military overt
confrontation accommodation
Economic covert selective
Effects (target) Threat perception acion-reaction force behavioural tendency High centripetal
counter-balancing/ bandwagoning
Low /medium centrifugal under-balancing
Table 1. Contrasting traditional geopolitics with geo-economics.

Geopolitical power projection is conducted by military means and is, therefore, typically overt, meaning that it will be hard to conceal or negate. Its operational logic is to confront the target. In fact, the idea with geopolitical offensives is usually to appear intimidating, make credible threats and, through that, to pressurise the target into doing what the geopolitical agent wants (so creating a ‘bandwagon’ effect). President Putin, while initially denying involvement in the war in Ukraine, was not able to conceal Russia’s aggressive actions for long. Neither was it the purpose. Russia’s use of non-insignia-bearing commando units in Ukraine – often referred to as ‘little green men’ – was a tactic to stall the ability of the EU and Nato to form a rapid response. Subsequently, President Putin has also made little effort to conceal his geopolitical aims, not only confronting Ukraine but also openly threatening EU members with military action, even a nuclear strike, as in the case of Denmark. Such offensive deterrence forms an essential part of geopolitical power projection.

The drawback with such traditional geopolitics is that, precisely because it is an existential threat, it will alarm the target and heighten its threat perception. This is also why geopolitical offensives often help to produce centripetal – and thereby unifying – forces within the country or coalition affected by the threat. The overt military and confrontational nature of geopolitical power projection will heighten the common threat perception and, by extension, the willingness to cooperate and join forces against the geopolitical aggressor. Hence, geopolitical power projection commonly provokes counter-balancing behaviour – although this will ultimately depend on perceptions about the power balance. If the aspiring balancers perceive the geopolitical aggressor to be so strong that they see no chance of deterring it, or if it is perceived as being more reckless and having less to lose from a costly military conflict, they may opt to concede to its demands. So, perceptions are important, which is why the geopolitical aggressor tries to appear as threatening as possible, in order to induce a ‘bandwagoning’ response. The strategy is risky, because a misjudgement of how the target perceives the threat may provoke a ‘blowback’ rather than a concession. President Putin thus took a gamble with his move to bring traditional geopolitics into play following the Euromaidan, the wave of demonstrations and civil unrest which began in November 2013 with public protests in Maidan Nezalezhnosti (Independence Square) in Kiev.

Offensive geo-economics, by contrast, is conducted by economic means and can be covert, i.e. it will be easier to conceal than offensive geopolitics. Its operational logic is not to openly confront the target, but to weaken its resolve by dividing it. By applying the operational logic of ‘selective accommodation’, an offensive geo-economic operation offers economic sticks and carrots to members of an opposing bloc, or influential actors within a country. Some actors are given economic inducements, whereas others are dealt with more harshly; by manipulating economic rewards and punishments in this way, the geo-economic operator exerts divergent pressures on these actors. The idea is to cause disunity and friction among them and thus weaken their counterbalancing potential. Ideally, it wants to seduce ‘soft targets’ away from the adversary bloc, lure them into making a political bargain with the geo-economic operator, or uphold them inside the country or adversary alliance as middlemen or even fifth columns. Russia’s use of its energy resources, in particular, may be viewed from this perspective, as an attempt to drive political wedges within target countries as well as between them at the EU level. Germany, most prominently, has been a target for Russia’s carrot-oriented gas policies, with the result that Germany then becomes unwilling to pursue EU unity in external energy security issues, often acting as Russia’s interlocutor in the EU. A similar wedge strategy can be seen in the way the Kremlin has been funding anti-EU populist parties in Europe, thus seeking to strengthen the centrifugal forces at play in Europe.

So, in contrast to an aggressive geopolitical operation, a geo-economic operation, when successful, will not cause broad alarm. Indeed, it is deliberately calibrated to mitigate threat perceptions, which will be dispersed as some domestic political actors or alliance members will start fretting about the vulnerabilities created by the geo-economic operation, e.g. energy dependence, while those that stand to benefit from the carrots provided by the operation will downplay and depoliticise the threat. By being covert, economic and selectively accommodating, a geo-economic campaign can thus be used to provoke divisions within a target population or alliance, generating a tendency for them to disintegrate in reaction to the geo-economic action. And by provoking political discord over the need to counterbalance, geo-economics can be an effective strategy for undermining balancing behaviour. Ultimately, the aim is to cause the target to ‘under-balance’ against the threat, failing to take necessary pre- cautions and defensive steps to fend off the operation.

For much of this century, up until the Ukraine crisis erupted in March 2014, Russia had excelled at using geo-economics to keep the EU weak and divided in its dealings with them. Gas exports, in particular, were used by Russia as a carrot on the one hand, handing out discounts to certain sympathetic states in Europe and, on the other hand, as a stick, offering less favourable contracts to less friendly governments. This use of diverging energy prices was deliberately calibrated, covertly to reinforce the centrifugal pressures in Europe. Indeed, it proved remarkably successful in discouraging EU member states from pursuing common policies. EU member states enjoying favourable bilateral energy contracts with Russia distanced themselves from the efforts of the EU Commission to pursue EU unity and collective action on matters of energy and Russian policies in general. By being covert and disguised as profit-oriented, positive-sum business relations, Russia’s geo-economics effectively mitigated suspicions of the Kremlin’s strategic intentions and how these may pose a threat to the EU. In fact, key member states have actively cooperated with Russia’s pipeline politics, in the interest of short-term economic benefits – Germany in the case of Nord Stream I and Italy, Austria, Hungary and others in the case of South Stream. Until the Ukraine crisis, Russia was thus well on its way to making Europe even more dependent on Russian gas.

The Ukraine crisis became a game-changer. At first, Putin managed to cajole the Ukrainian government into suspending talks on an association agreement with the EU in favour of strengthening the economic relationship with Russia. Ukraine was promised a discount on natural gas imports and Russian purchases of Ukrainian government bonds. The aim was to tie Ukraine to Putin’s ‘Eurasian’ project through the Russian-led customs union, later to become the Eurasian Economic Union. At that point, Putin was still applying geo-economics. However, as the people of Ukraine stood up at Maidan to protest against this turn towards Russia and eventually succeeded in bringing down the government of Viktor Yanukovych in favour of a more pro-European one, Putin changed his strategy to a more traditional geopolitical one. What he apparently did not consider was how this geopolitics would weaken his previously successful geo-economic strategy in Europe.

By turning to a military campaign in Ukraine, Putin alarmed the Europeans and their leaders. Russia became perceived as a real security threat and the counter-reaction was swift. First, in the energy field, the EU managed to harden its stance on Russia’s South Stream pipeline project, leading to its abrupt cancellation in December 2014. Similar centripetal tendencies, triggered by the perception of heightened threat, can be noted in the re-emerging discussion on the EU’s energy union. As a result, Russia’s ability to use the gas trade as a political tool decreased after its aggression in Ukraine. Secondly, the EU managed to unite behind a sanctions initiative against Russia – to the surprise of many experts and actors involved, and seemingly also to Putin himself. The sanctions have hurt Russia badly and further undermined its ability to uphold its geo-economic energy strategy. The access of Russia’s state- controlled banks and companies to Western international finance markets has been restricted by the sanctions. Credit costs have increased dramatically for both consumers and investors in Russia. Investment has contracted, weakening Russia’s medium-term growth prospects. Direct foreign investment has plunged, limiting the transfer of critical innovation and technology. The sanctions have already impeded Russia’s greenfield oil and gas projects, particularly in the Arctic. Thirdly, Germany’s policy toward Russia took a notable turn from Ostpolitik to Frostpolitik. Not only does Germany appear less willing to be Russia’s interlocutor in Europe, it has also stepped up to show increased responsibility in EU foreign and security policy. And despite all the historical baggage, the other EU member states have broadly accepted German leadership, as they perceive Russian geopolitics to be a direct threat to European security. So, faced with this more united EU, and a Germany more willing to back it up, Russia no longer finds it as easy as before to induce defections from the EU’s Russia policy. In short, it appears that by turning from geo-economics to traditional geopolitics in Ukraine, Putin made a strategic mistake in 2014.

When composing strategy to deal with Russia’s revisionism, the West should be careful not to make the same mistake as President Putin by overplaying geopolitics. Containing Russia militarily risks fuelling a Russian blowback and military escalation. We have seen that geopolitical power projection often ends up strengthening the target’s resolve and triggers counterbalancing. From a European perspective, the further problem is that Russia enjoys escalation dominance on the geopolitical game-board. While Europe clearly needs to raise its military deterrence, so as to make any further Russian aggression more costly, it needs to make sure it is not perceived as substantially altering the military balance. The best way would be to create a ‘tripwire’, by placing a relatively small number of US soldiers along Nato’s eastern flank. Putin will be careful not to do anything that could drag him into a military conflict with the US. However, it remains uncertain whether President Trump is willing to commit to such a tactical measure. In any case, the EU’s main focus needs to be on geo-economic means. It is through geo-economics that Russia can be contained without triggering a new Cold War. The EU needs to craft a careful geo-economic strategy for containing Russia by including both defensive and offensive elements.

Defensively, the EU needs to strengthen its resilience against further Russian geo-economic manipulation. In particular, this means blocking Russian energy projects, such as Nord Stream II, and moving forwards with the creation of the EU’s energy union, so as to reduce dependence on Russian gas exports. Also, the EU needs to offset Russian attempts to lure soft targets away from it. Several countries in central, eastern and south-eastern Europe and the Caucasus are at risk of gliding into a Russian sphere of influence. The EU needs to apply careful economic statecraft to bind any such weak links to itself. In fact, when referring to the successful containment of the Soviet Union in discussions about how to deal with Putin’s revisionist Russia, what is often overlooked is how important economic statecraft, e.g. the Marshall Plan, was for binding possible weak links to the Western alliance – states that might otherwise have ended up on the other side of the Iron Curtain. Containment, even during the Cold War, was not only military.

Offensively, the EU – ideally with the help of the US, though this may have become fanciful in the Trump era – needs to calibrate its economic sanctions smartly against Russia. Despite the early scepticism of some scholars, sanctions have led to considerable mid-term costs for the Russian economy and, through that, have had a deterrent effect. They also deprive Russia of important technology needed to uphold Russia’s energy and military power. The sanctions regime has been portrayed as retribution for Russia’s transgression of international law by breaching the territorial integrity of Ukraine and, while they have not succeeded in persuading Russia to withdraw, they have set an important precedent in terms of the costs that such revisionism will incur. In any case, a key strategic intent of the sanctions has been to deter Russia from further military adventurism, such as conquering the city of Mariupol, or engaging in another war in the neighbourhood. In that, the sanctions have been effective. They have also been effective in slowing down Russia’s military build-up and modernisation. In fact, by mimicking Russia’s geo-economic wedge strategy, the West could recalibrate its sanctions so as to exert divergent pressures on Russia’s economic and political elite, with some members of the elite squeezed harder than others and, through that, serve to weaken the cohesion of the regime. Simply by signalling its willingness to use the economic stick, as well as the carrot, the West could regain the initiative, influence Putin’s calculations and add to its deterrence capabilities.

Russia and the West are involved in a geostrategic struggle for control of Eastern Europe. Both view each other’s actions as a quest to establish a dominant sphere of influence over the region – an empire, even. As the West engages in this struggle, it ought to note how empires may take different forms, some of which are more effective in establishing powers of domination and influence than others. This can be illustrated by the story told by David Harvey in his book, Cosmopolitanism and the Geographies of Freedom, which contrasts the ancient king who does not know where his kingdom begins and ends with the colonial ruler who insists upon defining his empire’s territorial borders. In the former case of the ancient kingdom, it functions well without any fixed territorial boundaries. It is relationally defined by the fealty of the subjects who can be located anywhere. Their loyalty depends on the reputation of the king. The number of his subjects increases with his reputation for benevolence, good works and charisma. When he acts in ways which earn his subjects’ disapproval, they shift their loyalty to someone else. The colonial ruler, by contrast, insists on delineating his sphere of influence by sealing the borders to his empire. His subjects are now defined by residence in a fixed territory, so he has little incentive to persuade his subjects by benevolent rule. Instead, he will concentrate on setting up systems of territorial control and surveillance within his territory.

In an age of interdependence and transparency, like ours, it is probably the ancient form of empire that will be more successful and more effective. And it rests very much on economic statecraft, i.e. geo-economics. The colonial empire, very much a territorial, geopolitical form of empire is not well suited for this world of global flows, interdependence and transparency. Even in the protectionist period of Donald Trump, this is something both Russians and Europeans ought to bear in mind.

Author

Mikael Wigell