The Business of War and Peace
War always leads to business negotiations, where the
aggressor often dictates terms while the victim is forced into compromise.
Three years ago, Vladimir Putin launched an invasion of Ukraine under multiple
pretexts, including NATO expansion, the "neo-Nazi" nature of the
Zelensky government, and the supposed illegitimacy of Ukraine as a state. His
objectives were to support the Russian-backed breakaway republics of Donetsk
and Luhansk and to "demilitarize and denazify" Ukraine.
In response, the United States and its NATO allies funneled
billions in military aid to Ukraine, ostensibly to counter Russian imperialism
and defend democracy. However, as the saying goes—it's the economy, stupid.
Political Shifts and Changing Alliances
The year 2024 proved to be a turning point for Ukraine. With
Putin securing a fourth term and Donald Trump returning to the White House,
US-Russia relations entered a new phase. In this geopolitical shift, Ukrainian
President Volodymyr Zelensky found himself increasingly sidelined.
Economic Consequences of War: Russia and the US
The Russian Economy Under Strain
Ukraine has become a battlefield of attrition, with neither
side able to sustain the war indefinitely. Western sanctions targeted Russia’s
financial, military, and energy sectors, while billions in Russian sovereign
assets were frozen in Europe. However, Moscow adapted by shifting to a wartime
economy, ramping up military production, and securing crude oil exports to
China and India.
Despite an initial economic contraction (-1.2% growth in
2022), Russia's economy rebounded, growing by 3.6% in 2023 and 4% in 2024.
However, economic challenges persist: GDP growth is projected to slow to 1-2%
in 2025, inflation soared to 9.5% in 2024, and the ruble has depreciated by
21%. Russia has already spent over $200 billion on the war, diverting
significant funds from social and infrastructure programs.
The US Economic Burden
The US has spent $65.9 billion on military aid to Ukraine
since 2022, an expense that Trump has long opposed. Rising inflation, supply
chain disruptions, and the war’s impact on commodity prices have hurt American
businesses. Semiconductor production, dependent on Ukrainian neon and Russian
palladium, has suffered, while over 1,000 Western companies have withdrawn from
Russia, resulting in significant financial losses. According to estimates, US
companies have lost $324 billion due to their exit from the Russian market.
Business First, Peace Second
Saudi Arabia Negotiations: A Business-Centric Dialogue
The recent US-Russia dialogue in Saudi Arabia focused
primarily on economic interests rather than political resolutions. Notably, the
discussions were led by business figures rather than diplomats. The US
delegation included Secretary of State Marco Rubio, National Security Adviser
Mike Waltz, and Trump’s Middle East envoy Steve Witkoff, while Russia was
represented by Foreign Minister Sergei Lavrov, Kremlin adviser Yuri Ushakov,
and RDIF chief Kirill Dmitriev.
The absence of Keith Kellogg, Trump’s special envoy for
Russia and Ukraine, underscored the business-centric nature of the talks.
Instead of leading negotiations, Kellogg was sent to Ukraine to reassure
Zelensky. Meanwhile, official statements emphasized "historic economic and
investment opportunities" rather than security or territorial disputes.
Oil Diplomacy: Russia’s Key Bargaining Chip
Dmitriev played a crucial role in the discussions, promoting
the prospect of US oil companies re-entering the Russian market. With Russia
being the world's third-largest crude oil producer, its energy sector remains a
major economic pillar. Despite Western sanctions reducing fossil fuel export
revenues, Moscow has continued to thrive, largely due to Chinese and Indian
purchases. However, the latest US sanctions targeting Russia’s "shadow
fleet" of oil tankers have disrupted this trade.
US energy companies, particularly Chevron and ExxonMobil,
face financial losses due to their partial withdrawal from Russia. Chevron
retains a 15% stake in the Caspian Pipeline Consortium, while Exxon exited the
Sakhalin-1 project, incurring a $4 billion loss. During the Saudi negotiations,
Russia proposed joint ventures in the Arctic, an area rich in untapped oil and
gas reserves, signaling a potential thaw in US-Russia energy relations.
Ukraine’s Mineral Wealth: The Ultimate Bargaining Chip
With limited options, Zelensky has agreed to a minerals and
reconstruction deal with Trump in exchange for US support. Under this
arrangement, Ukraine would allocate 50% of future revenues from minerals, oil,
and gas to a joint US-Ukraine fund for reconstruction.
Meanwhile, Putin has extended an olive branch to US
businesses, offering access to rare earth minerals in Russia and occupied
Ukrainian territories. Ukraine possesses approximately 5% of the world’s rare
earth mineral reserves, with the majority located in regions now under Russian
control. These critical resources, essential for defense, aerospace, and
technology industries, are valued at $14.8 trillion. Russia now controls an
estimated $12.4 trillion worth of Ukraine’s energy, metal, and mineral deposits.
Conclusion: The Economics of War and Peace
The war in Ukraine, initially framed as a battle for
democracy and sovereignty, has ultimately boiled down to economic interests.
While geopolitical considerations remain important, both the US and Russia are
prioritizing business opportunities over ideological conflicts. With Zelensky
increasingly marginalized, economic deals, not military strategies, are shaping
the future of Ukraine.