The Economics of the Russian Invasion: An Interview With Maksimas Milta

Maksimas Milta is a master’s student in the European and Russian Studies Program in the Graduate School of Arts and Sciences. He originally hails from Lithuania. At Yale, he studies the role of higher education in combating despotism and protecting democracy. He is currently a fellow at the German Marshall Fund, where he is conducting research on higher education’s connection to the soft power of the European Union in Eastern Partnership Countries. He spoke to The Politic about the Russian invasion of Ukraine and the sanctions imposed on Russia by Ukraine’s Western allies.

This is the second interview in Understanding the Crisis in Ukraine, The Politic’s series of conversations focusing on the political, economic, and human impact of Russia’s invasion of Ukraine. Learn more by clicking the interviews tab on our website. 

What were you taught about Russia and Russian history growing up in Eastern Europe? How has that affected your view of Russia today?

I am originally from Vilnius, Lithuania, but I grew up in-between Minsk, Belarus, and Lithuania. I attended primary and secondary high school in Minsk, and I moved back to Vilnius right after completing high school. After that, I worked for eight years at European Humanities University, a liberal arts university that was shut down by Alexander Lukashenko.

By virtue of growing up in Europe in such close proximity to Russia, you cannot really ignore the elephant in the room. In Belarus, the president is a strongman named Alexander Lukashenko who came to power in 1994. Since then, it has been quite brutal there. It remains very indoctrinated. Russia is brainwashing the people’s mindset. Though Lithuania is small, it is a member of the EU and a member of NATO. It is in the Western world. So these are strikingly different realities, although the distance between them is like between New Haven and Boston. 

My area of focus was originally in democracy and education in Belarus. But then I started covering Russia as well and started working with several prominent civic education platforms in Moscow, St. Petersburg, and Russia’s Far East and South. At the same time, I spent a while working with independent liberal arts colleges in Russia. As someone who works at a University-in-exile, I was in charge of establishing institutional ties and reaching out to schools in Russia that were under threat of being shut down. We were trying to provide expertise to them on how to address the challenges from the regime.

I’m curious how Lithuania has been impacted by the war. 

We do not share a border with Ukraine, and we only share a small border with Russia. But in March and April, we still had 63,000 Ukrainians arriving in Lithuania. So, the Lithuanian population grew by something like 2% in just 2 months. That’s quite a lot. Of course, it’s nowhere close to what has been the challenge for Poland and Polish cities to manage and cope with. Nevertheless, that has still been a big change. I see that the sense of solidarity with Ukraine is extremely strong back home. 

Sanctions have been one of the main methods used by Ukraine’s allies to punish Russia. How have the US and the EU staked out different approaches in imposing economic sanctions on Russia?

The history of economic warfare between the U.S. and Russia dates back to 1918, during the Bolshevik Revolution. That was the first instance of the U.S. imposing sanctions against Russia. 

In general, World War I is when sanctions became used as a tool of economic warfare and a policy guidance. This is when sanctions become seen as a substitute for kinetic warfare, as something that can be used to coerce an adversary or impose a normative framework on an actor who is doing something wrong. During the Cold War, there were multiple instances of the U.S. imposing sanctions on Saudi Arabia or Russia. But the reality of the Cold War was that the interdependence between the economies of the Soviet Union and U.S. was not massive. The sanctions that were imposed had a very limited scope. 

The idea of secondary sanctions emerged later, after 9/11. This means you are sanctioning not only someone or some country, but also those who are interacting with them. This is a very powerful tool that we’ve seen the U.S. occasionally exercise. It’s important to stress that in the interconnected world, it is not enough when you are the only authority imposing sanctions. You also want to bring together a broader coalition to ensure the impact of the sanctions. If we compare the response to the annexation of Crimea in 2014 with the response to the invasion of Ukraine, we have definitely advanced in terms of introducing sanctions. We have been more rapid, more thorough. However, the economies of the U.S. and Russia are still not that interdependent as, for example, the economies of the European Union and Russia are.

In the European Union, you need to have an anonymous decision of all 27 member states. If you have just one country like Hungary or others that are favorable to Russia, you need to somehow find a way to bypass that. The U.S. role is also important because sometimes the U.S. has more influence over countries in Europe than Brussels does, so the role of the U.S. is not only as a coach of the team and trying to bring in intelligence, knowledge, and expertise, but also ensuring that partners on the other side of the pond are in agreement. 

What the main challenge still is, however, is cracking down on the room to circumvent the sanctions. We’ve seen Russia quite successfully circumvent sanctions in 2014, by establishing dodgy secondary firms that would allow them to bypass rules. Even some U.S. allies, like Turkey, haven’t introduced any. I think that we are learning from the past, we’re learning from our mistakes, and we are able to coordinate our efforts more thoroughly with our allies. But still, there is room for improvement. 

Finally, what’s essential about these sanctions is that not only do we see economic warfare imposed by governments, but we also see private businesses from this country and from Europe retreating from Russia because they understand the cost to their reputation if they remain operational. And that is absolutely unprecedented and definitely another important factor. The question is how consistently will we be able to carry on these sanctions and forms of pressure, and that will determine the success of this economic warfare.

You mentioned the debate over whether or not Western countries should sanction Russia’s oil and gas reserves. Is there a scenario so dire that the U.S. and E.U. would deem it necessary to take that step? What is the conversation on this topic like in Lithuania? 

When it comes to putting a freeze on Russia’s assets and reserves, this is an unprecedented step. Imposing sanctions on Russia’s energy supplies, whether gas or oil, is not without difficulties.

I don’t know how likely it is for the European Union and ECB to implement that step, because again, the interdependence of the U.S. on Russia’s gas and oil supply is nothing compared to the interdependence of the European Union. 

And that interdependence did not emerge yesterday but in the early 1970s. Since then, trade has been considered a norm and a very reliable medium of interaction between the two. So even if there were political disagreements, the trade of and supply of energy wouldn’t be something questioned by any of the parties.

But suddenly we see that Russia started weaponizing energies, mainly against those countries that can be easily intimidated, meaning smaller countries in its immediate orbit. More specifically, Russia started weaponizing its gas and oil reserves against Baltic States, so countries like Poland and others. 

In some countries like Lithuania, for example, Russia’s actions have led to a realization that we could no longer rely on them for our energy supply. We had become overly dependent on Russia and they could weaponize this dependence. Eventually, what we decided was to build up a liquefied natural gas terminal. This started in the midst of an economic crisis in southern Lebanon, so we started building the terminal that eventually was opened around 2015 or 2016. It allowed us to diversify significantly from other sources of gas supply and decouple ourselves from Russia’s gas supply. 

The problem today, however, is that Russia’s manipulation of the gas market led to a tremendous increase in the global price of gas. That is problematic, even if you are not dependent on Russian gas. You are still vulnerable. 

For example, countries like Portugal and Spain are considered energetic islands. They have very well developed liquified natural gas (LNG) facilities to get gas from abroad into liquid form, but they cannot transport it further down the continent into France or Germany. In France, almost two-thirds of their nuclear power plants need some tweaking just to fix their operational capacity. So there are a number of bottlenecks that have happened, but these setbacks are not irreversible. It takes a long time to reach this decision and reduce dependency. But once you reach that decision, it won’t be reversed. Once we find that consensus in the European Union on decoupling from Russian gas and oil, then yes, this winter will be hard, but it will be okay. 

I’m curious about the impact of the sanctions on the Russian economy. Do you anticipate that the economic impact will grow devastating enough that Putin would amend his approach to the invasion, or be forced to amend it?

The question is, what are our expectations of sanctions and what do we want from them? Do we expect sanctions to be a silver bullet that can change everything, including ensuring regime change? Why do we see sanctions as necessary once international norms have been disrespected and violated? There are some limits to what you can expect from the toolkit that is at your disposal. I’m sure that the rationale for introducing sanctions is not to change the regime. What sanctions can do is demonstrate not only to Russia, but also to the world and the People’s Republic of China, that once international law is violated, the West has the ability to punish you. Russia is suffering from the sanctions. Inevitably, their ability to exercise small business initiatives or buying and selling different goods is no longer possible because of the limitations imposed. There has been a general decrease in income of average households. In the coming year, Russia’s economy is expected to decline by around 6 percent

Finally, do you have any thoughts about if Russian people genuinely believe in this war? Or is their alleged approval of the invasion an attitude forced onto them by the government?

It’s hard to tell because it’s extremely tough to run accurate sociological surveys in Russia. Also, the fear of the regime cannot be ignored and there is a lot of indoctrination of citizens.

I do not deny the fact that there is a substantial share of the Russian population that is against the war. The question is, how big is that share? Probably most of that share of people are concentrated around metropolises, college-educated, and more internationally-exposed people. However, in my opinion we should not just look at the behavior of Russian society after the Ukraine invasion. We should look at dissent in Russia since 2014, because the war did not just start in February 2022. Have we seen a lot of rallies against the war? Have we seen an overarching consensus among Russian society that they do not support it? Well, when Crimea was annexed, there was a rally in Moscow, and it was supplemented by rallies in some of the other cities. But there were under 100,000 participants in the rally in Moscow – which is a city of over 15 million. So it’s not really that much. And I don’t expect every Russian to be a hero and go out in the street to protest the war, and potentially face charges for that.