Ukraine is systemically important for the EU and its decarbonisation agenda

The Russian attack on Ukraine has come as a shock to many. The Baltics had been sounding an alarm for a while about President Putin’s ambitions and risk appetite, with little effect. If not addressed appropriately by Western leaders, the attack on Ukraine can be just the beginning of a much larger scale spread of uncertainty and global political and economic reordering.

Why does Ukraine matter so much for European security and sustainability?

Ukraine is a critically important country for Europe’s and the EU’s security due to its location, resources and political alignment.

• Critical resources located in Ukraine are important for European security. Ukraine has energy resources, as well as both metal and non-metal ores. While Ukraine accounts for only 0.4 per cent of the Earth’s land surface and 0.8 per cent of the world’s population, it has approximately 5 per cent of the world’s mineral resources. This is a very large amount of resources located close to the EU’s borders, with less disruption risk if Ukraine were to become a major supplier;
• Ukraine has the largest titanium reserves in Europe, most of which are in Donetsk, Kharkiv and Kiev. Titanium is a crucial metal for many industries, with many more uses in the future due to its lightness. Ukraine also has Europe’s largest uranium deposits;
• The second largest reserves in the world (20 per cent) of world’s graphite is in Ukraine. It is a resource that holds tremendous technological promise and might be critical in the future, especially as it might play a major role in the creation of improved batteries – crucial for energy and mobility decarbonisation;
• Ukraine also has mercury resources (2 per cent of the world’s reserves), potash salt, gold, building material, ornamental stones and hydropower resources;
• Ukraine also exports food, and its land use could be of critical importance to Europe;
• Having an ongoing conflict that creates human suffering and refugee flows next door to EU will be an ongoing point of contention and will end up making EU and NATO look weak, undermining its influence with other nations across the globe;
• Ukraine’s role in gas exports is important for many reasons, including the need to prevent environmental disasters resulting from the conflict and to help Ukraine to eventually decarbonise; something that is very unlikely to happen if Russia wins the war.

So, what’s at stake?

• A dangerous precedent: emboldened Russia that can try to test NATO and its resolve on Article 5, or attempt to try destabilising the Balkans or other countries of interest by using proxy conflict;
• Greater feelings of insecurity and thus hawkishness from a range of countries bordering Russia, which can be manipulated and taken advantage of by national populists;
• Increased animosity towards Russians across parts of Europe and an even greater disillusionment with Western governments and the EU across Central, Eastern and Southern Europe, which will feed into more Euroscepticism and thus political volatility;
• Greater risk of instability in Europe combined with more obstacles to efficient decision making and action on important matters;
• The start of a major re-ordering of the current global order, with bolder actions by different regimes that seek to project power and capture resources;
• EU’s reputation as an international actor: showing whether it is willing to act on its threats or warnings, and whether it can decisively change course for greater sustainability and to protect human rights on its doorstep;
• The exposure of how ineffective modern sanctions can be and the creation of a precedent that allows other authoritarian regimes and their supporters to learn how to evade the different measures.

Why sanctions will NOT have the intended effect

• Russia has made a record profit out of the global energy crisis and keeps benefitting from the spiking oil and gas prices during the conflict. Russia has also planned for the sanctions to ensure it can withstand them for long enough;
• The Russian regime knows that it will be subject to very little public pressure, as it has been successfully spreading disinformation, conspiracy theories and confusion locally and internationally for years. Western decision makers frequently misunderstand the Russian populations’ emotional support for mother Russia and their feelings of anxiety and anger about Western dominance in the global arena and their wish to prove the West wrong;
• Russian oligarchs have learnt how to minimise their exposure to the sanctions since the last time they were enacted. Murky and obscure international financial arrangements, including tax havens, Swiss banking system, other financial and legal intermediaries from London to Riga act as enablers to shield the influential individuals and their families. The financial spoils guaranteed by Putin’s regime outweigh some temporary or limited pain inflicted; it is the price one pays for doing business in Russia;
• There are multiple ways for Russia to minimise the impact of the sanctions, especially if oil and gas keeps flowing. There are always friendlier regimes happy to help out. There are also many different ways how to move, hide and obtain money in increasingly complex financial systems;
• The linkages between Russian economy and the EU, China and other economies will prevent governments from going for the toughest measures that could have the maximum impact;
• Oligarchs will not suffer as much as everyone hopes – it is important to also use smart pressure, exerting it on their business and social circles.

Strategic priorities for Europe

• Show a willingness to incur short to medium-term costs to defend longer-term security and sustainability interests, including the stability of Member State political systems;
• The EU will have to rethink its approach to its fiscal policy to enable it to meet its investment needs – this is not just spending, it is productive, future-oriented investment into future economic competitiveness, improved security and technological innovation. Bruegel has had an excellent suggestion for a new “Green Fiscal Pact”;
• Avoid sending a signal that business and money considerations can hold European ability to act hostage;
• Prioritise key long-term strategic priorities – ensuring that these are not compromised by short-term considerations about energy prices and Russian-related business. The penny has dropped – we need to speed up developing energy independence from hostile actors, but that also goes hand in hand with securing critical minerals and other resources needed for the transition;
• Urgently dismantle the roadblocks to greater creation of renewable energy sources: speeding up permitting and licensing, re-evaluation of national regulatory and policy frameworks, prioritising the modernisation and integration of energy grids, increasing the support for prosumers;
• Recognise that strong action towards Russia does not mean that Russia will partner up with other authoritarian regimes: it already does so whether more or less openly, and is likely to do so more going forward;
• Ensure policy coherence: align the sustainable finance agenda with industrial, energy, foreign, and all other policies to create a greater momentum and push for innovation, creation of sustainable projects and business models and to support future-proofing of industries;
• Recognise the importance of food and mineral resources necessary for turbo-charging the Green deal and the transition to net zero, ensuring that external and internal EU policies are aligned to ensure their secure supply;
• Use the crisis to foster stronger European unity and to improve own defence systems and capacities under NATO umbrella;
• Invest in research, R&D and innovation, while improving the support and financing for commercialisation and up-scaling of technologies and research breakthroughs;
• Speed up digitalisation and interconnectedness between European countries;
• Double down on investment and support for the development of more renewable power resources combined with necessary transition fuels and measures to minimise dependency on Russia. Work with key stakeholders who have expertise on creating a practical roadmap to this effect;
• Re-invigorate climate diplomacy and build alliances based on mutual respect, an improved understanding and closer cooperation across different economic spheres;
• Decide on key measures for faster decarbonisation of energy and other sectors, minimising exposure and dependency on Russia, recognising that economic interdependence does not work. Long period of peace and prosperity has created a false sense of security and a failure to understand that different regimes calculate priorities differently is a huge risk;
• Learn from best examples and build a positive, powerful communications effort to explain the benefits of and the need for decarbonisation and energy independence, building larger support amongst general populations for the different policies.

This is an updated version of the original article published on the ISFC’s website on 25 February.