Israel is preparing for a military operation in Rafah, Benjamin Netanyahu said no force in the world will stop them. Entering Rafah crosses red lines for many of Israel’s supporting nations. At the same time, truce negotiations are ongoing in Egypt, where Hamas rejected the Israeli proposal for a ceasefire.

Since the Oslo agreement, western nations have left it in the hands of Israelis and Palestinians to find a solution that would allow both people to co-exist peacefully on this land. But this approach has never succeeded, and instead led to a radicalisation on both sides. Palestinians won’t leave their land, even if they have to die there. And Israel won’t be able to 100% eradicate Hamas by killing civilians. It will just create new reasons for radicalism.

We believe that the west would need to put the two-state solution firmly on the map to take the wind out of radicalism. Once the Palestinians are assured that their place is for them to keep, the reasons for supporting Hamas is gone. This has been the west's strategic blindspot since the Oslo agreement.

Netanyahu seems to thrive politically on a vision for Israel to be isolated in this world, and it ticks the boxes for some of his most messianic ministers. But it has disastrous consequences for Israel and the region in the long run. 

Yesterday, Ireland promised that it will soon recognise Palestine, together with some like-minded EU countries. Micheál Martin, Ireland’s foreign minister, said he expects this to be a matter of weeks, not months. Under the Oslo process, international recognition of Palestine was to follow after Israel and Palestine reached a border agreement, which never happened. The idea is now to turn this process around and create facts. Spain, Belgium, Slovenia and Malta work along similar positions. When and how this recognition of Palestine is happening is not clear and depends on the international peace initiative. But it could split the EU further over Israel, while the EU seems more united on Ukraine.

Arms deliveries to Israel are another topic. Western nations are coming under increased pressure domestically and from abroad to cut their military aid to Israel. Conditioning military aid is gaining some traction in US Congress, while Germany had to defend itself in the International Court of Justice against Nicaragua’s case accusing Germany of facilitating genocide with its arms deliveries. In the UK, the government had to defend its position on export licences for arms deliveries after three former judges and 600 members of the legal profession called for a halt in arms sales to Israel, arguing that it could make the UK complicit in genocide.

How will this all end? Whether Netanyahu goes ahead in Rafah or not, Western democracies will come out of this Gaza war with their human rights reputation severely shattered. There will be geopolitical consequences in the region too. Al-Monitor’s extensive poll compares how the US, China and Russia are perceived in Egypt, Iraq, Tunisia and Turkey. They find that while the US is still perceived as a crucial player in the region, they prefer Vladimir Putin and Xi Jingping over Joe Biden. Biden’s support in the region plummeted from 59% in 2020 to just 17% due to the US support for Israel. Most still see the US as key to resolve the Israel-Hamas war. But they also see a rising role of China and Russia over the next ten years, and welcome closer ties with both countries.

Depending on how the US and other Western nations play their cards to solve the conflict and prevent further human suffering, Russia and China could emerge as the geopolitical winners in the region.

Could Francois Hollande run against Marine Le Pen in the 2027 presidential elections? As far-fetched as this seemed only a year ago, it is slowly taking form and shape. As is so often the case, political ambitions in France are expressed by publishing a book. Hollande is no exception to this rule. He is currently travelling throughout France to promote his latest book, where he is explaining Europe to a young audience. This book works well as a backing for Raphaël Glucksmann, the lead candidate for his own party, Place Publique, and the Socialists in the European elections. According to a poll for Challenges, the EU list led by Glucksmann is rising in the polls, from 9% last December to 13% in March.  So with Glucksmann in Brussels, and Hollande in Paris, could this be a winning ticket?

Hollande’s popularity is rising in the polls, and he is now the fourth most preferred personality in politics according to the recent Elabe poll, with 29% saying they have a positive image. Amongst those who voted for Macron in 2022, he even scored 42%, progressing 5pp in only one month. By contrast he lost 5 points amongst left voters still at 43%, while he still roams at 58% amongst left supporters. With 25%, he is also the second most popular figure amongst those who abstained in the elections.

But it is one thing to become a dream candidate of the centre-left. It is quite another to win against Le Pen in a second round.

There is the first-round competition first. It is not inconceivable that neither Edouard Philippe nor all of Macron’s possible dauphins get enough support, and that they fall behind a candidate Hollande. Philippe has been the darling in the polls since he was prime minister under Macron’s first term, polling at over 50%. But this popularity has been slowly eroding since 2022, and is now down to 40%. Partly the problem is that Macron does not leave any meat on the bone for his successor. Some of Philippe’s strongest positions on pension reform have been integrated into Macron’s reform bill. Potential competitors like Gabriel Attal or Bruno Le Maire are closing in. It is thus not clear whether there is any candidate strong enough to get into the second round.

Then there is the disenchantment of the centre-left with Macron. The pension reform and the immigration bill were a reminder how far the president will go to the right to get things done. The war in Ukraine puts security policy up front and centre in the debate. The focus turns from those revolutionary times under Nupes to a more serene version for the Socialists. Hollande, meanwhile, remains circumspect when asked about his ambitions, only saying that he is playing his part in those efforts. If Hollande continues to play his little music until 2027, this may well end up becoming a variation of the tale about the race between a hare and a tortoise, where the tortoise is able to get the prize in the race with a trick over the hare that exhausted all its powers by running. But this is only the first part of the tale.

If Hollande were to run, tragedy could unfold if Hollande makes it into the second round, just to lose to Le Pen. This is the crux of the French system, a two-stage game where candidates needs to think well ahead to make a decision not only for themselves and their party, but for the best course for the country as a whole. Not running is all of a sudden an option with merits.

We have not seen Wolfgang Schäuble's book yet, but some journalists have, and it contains an interesting passage on a conflict with Angela Merkel during the sovereign debt crisis. We generally do not dwell on historic events, but the EU's failure to create an economic union during the years of 2008-2012 constitutes one of the pivotal moments in its history. It was one of those moments of bifurcation. The EU's subsequent history would have turned out very different.

Schäuble writes he proposed to Merkel the creation of an economic union in 2010 right at the start of the debt crisis. 

Here is the passage (translation is ours):

"I hoped to be able to develop the European Monetary Union into an economic union via a separate monetary fund - similar to the IMF. It was not possible with Merkel in 2010."

Schäuble writes that Merkel was still reeling from the fight about the Lisbon Treaty in the previous years. The reason why Merkel did not go for Schäuble's proposal was to avoid a foreseeable conflict inside her own party, and within the coalition. In 2010, the CDU/CSU led a coalition with the FDP, and we doubt that the FDP would have accepted an economic union. 

He writes that she had enough power back home and in the EU to have succeeded. But she did not want to risk a power struggle at the time. Schäuble then adds that his idea of political leadership differed from hers.

We should probably treat this notion of a pro-European Schäuble with some caution. It is far from clear why an IMF-like construction would have constituted an economic union. The ESM is in many respects similar to the IMF. That would still be so even if Italy had not vetoed the ESM treaty that would have brought the institution under a formal EU umbrella and given it a backstop role in the banking union. The IMF itself plays an important role, but few people would claim that it constitutes a global economic government. We suspect that Schäuble's idea of an economic and monetary union was one that did not involve any common debt instruments or a capital markets union, a project he did not prioritise during his eight years as finance minister. Schäuble's vision of an economic union would also probably not have found a majority in the European Council. 

Interesting also was the discussion the two had on the ECB. Merkel wanted an ECB bailout right from the start. For her, it was the least controversial way out. Merkel told him that she would not have to answer critical questions from her Bundestag group because they believed in the independence of the ECB. The cynicism that speaks from these lines is one of the reasons why the euro crisis escalated, and why it was ultimately resolved the way it was. Which is also why it is still not resolved, because a central bank will always act under constraints. 

A robust historical analysis of that period has yet to happen. We have yet to see an intelligent book written about this period that goes beyond journalistic or macroeconomic story telling. We have to see whether there are more details in Schäuble's book on the euro crisis, or whether this is all about his relationship with Merkel. But what already becomes clear from those few lines is that the EU had missed a unique moment.

In Slovakia, presidential elections often turn into camps that split on pro-Eastern and pro-Western lines. This time is no different. The electorate is split between a pro-West camp that feels threatened by Russia’s aggressions, and a camp that is more attuned to Moscow’s narratives.

The last polls ahead of tomorrow’s second-round election is a tight race between the two candidates: Peter Pellegrini, former parliamentary speaker and prime minister backed by Robert Fico’s coalition, and Ivan Korcok, a former foreign minister and career diplomat who surprisingly came out on top in the first round. The polls show no clear winner, at least not within the margin of error. The last two polls before the 48h moratorium suggest that Pellegrini wins with 51.1% and 51.7% of the vote respectively, while one poll indicates that Korkok could just about make it with 50.1%. But the polls got it wrong in the first round, so they may not have picked up what is going on this time either.

How far either candidate can outperform the other depends on whether they can attract the voters of candidates that dropped out of the first round. It also depends on the mobilising forces of smear campaigns that have been launched against Korcok. When it comes to addressing voters from first round candidates, for Korcok this means addressing the Alliance party with its ethnic Hungarians, and assuring them despite his Orbán-critical stance. For Pellegrini, this means getting votes from supporters of Stefan Harabin, the pro-Russian politician who came third with 11.7% of the votes. A recent poll suggests that 60% of his voters may turn up tomorrow, many of them in favour of Pellegrini. Then there is this smear campaign run by Pellegrini sponsors, portraying Korcok as a candidate who would not act in the interests of Slovakia. This may mobilise Pellegrini voters, but could also counter-mobilise Korcok voters too. This is what happened when Andrej Babis used the false dichotomy of “war vs peace” against Petr Pavel, notes Visegrad Insight.

Both men are not nearly as controversial as candidates in past elections have previously been. But the geopolitical situation today means that the choice between the two directions matter more.

In the end, voters need to decide whether they want a president that is a counterweight to Fico’s government, or a carte blanche. In Slovakia's parliamentary system, the president does not have much power. But the results will matter for whether the government under Fico can continue implement Victor Orban’s playbook. After Fico came back to power last year, he moved fast and cut weapons delivery to Ukraine, dissolved the Special Prosecutor’s Office, revised the penal code and plans to take more control in state media. Pellegrini as president is likely to give him a free hand, and cement Fico’s power to do so. With Korcok, the president would be a counterweight, who could frame and change debates in the country and take legal action as he sees fit to stop Fico’s power grab.

While largely ceremonial, the president has some powers, as demonstrated by the incumbent, Zuzana Caputová. She signed off Fico’s penal code reform despite her disapproval. But then she filed a complaint with the Constitutional Court, which suspended parts of the law to allow the judges to look into this.

The IDF’s military attack that killed World Central Kitchen aid workers led to a storm of condemnation worldwide, and prompted aid organisations to pause their work in Gaza at a time when they are needed most. Israel’s targeted strike on Iran’s consulate in Syria is a first open attack against Iran, and could escalate the war to the wider region. No one was expecting Israel to initiate an escalation in this shadow war with Iran where containment is key. It is a message from Israel to Iran to end Tehran’s self-declared immunity, a way of holding them accountable for financing its proxy militias: Hezbollah, Hamas, and the Houthis. It implicates the US more directly in the conflict as well.

Israel’s attack on an annex building of the Iranian consulate in Damascus allegedly killed Hassan Mahdavi, Al Quds Force Commander in Syria and Lebanon, and several of his colleagues. Since 7 October, Iran has officially stayed out of the military confrontation of its militia Hamas and Hezbollah with Israel, signalling at a diplomatic level that it had no interest in an escalation of war into the wider region.

After the attack on one of its premises and killing such a high ranking commander, the regime in Tehran has now has to chose its military response. What are the options? Alon Pinkas puts forward four scenarios in his op-ed for Haaretz. The first is that Iran refrains from reacting immediately, and waits for the right time and target. The second would be that Iran has no choice but to act swiftly by targeting Israel’s ships, embassies or individuals, with the risk of reciprocal deterioration. The third would be escalating the war through Hezbollah, opening up a new front against Israel that is far more lethal than it was so far. The question here is how much leverage Iran has to get Hezbollah to wreak havoc over Lebanon. The fourth scenario would see an angered Iran reacting not only against Israeli targets but US ones too.

The assumption of the US administration has been from the beginning of the war in Gaza that a conflict in the wider region would draw the US in too. To avoid this, the US has been working at the diplomatic level to avoid another war between Israel and Lebanon. In response to the Damascus attack, the US administration immediately sent a message to Iran that it was not properly informed by Israel ahead of the attack, as reported by Axios. How could they not been informed?

While the US and Iran are sending their signals, Israel is raising its price, testing the red lines of both. It is a dangerous moment where escalation can easily happen, and take on a life of its own.

The defeat of Recep Tayyip Erdogan’s Justice and Development party (AKP) in local elections was quite a surprise. No one really expected such a loss after Erdogan won last year’s general elections. But the odds seem to have turned against the AKP this time, and they lost against the Republican People’s Party (CHP). AKP voters either did not show up at the ballot, or voted for an unexpected rival, the Islamist party New Welfare (YRP), according to Al Monitor.

For the first time since 2001 the AKP's overall vote share fell behind the main opposition’s party. In this instance, the CHP won with 37.76%, ahead of 35.5% for the AKP. The CHP also recorded landslide victories in large metropolitan cities such as Ankara and Istanbul, and won 16 provincial municipalities which were formally in AKP hands. The YRP, a party formally in the AKP-led alliance with its own candidates in several cities and municipalities, won two of them, and deprived AKP candidates of a victory in other municipalities, often only by a small margin. It is also perhaps worth noting that the AKP did win most of the districts and town mayorships, so the granular picture is less devastating than the higher echelons of power and headlines suggest. Turnout was around 76%, according to the state-run Anadolu Agency, compared to 87% last year.

The results do not mean much at the national level for now, but they could become a pivotal moment for change.

The first implication is momentum for the CHP party. The local elections confirm to the opposition alliance that it was not the party but their candidate, Kemal Kilicdaroglu, who lost the general elections last year. Two strong alternative candidates were confirmed in these local elections: Mansur Yavas, the mayor of Ankara, and Ekrem Imamoglu, the mayor of Istanbul. Both elections cemented their power. One or the other of them is now in the position to become the candidate to challenge Erdogan in the next presidential elections.

The second dynamic to watch out for is within the AKP-led alliance. This used to be a tight ship under Erdogan. But with the surprising emergence of the YRP, which came third with 6% of the vote, this dynamic is about to change. The YRP benefits from voters who no longer want to vote for the AKP, but are not quite ready yet to back the CHP. Fatih Erbakan, the youthful YRP leader, made Israel’s war in Gaza one of their main campaign themes, slamming the Turkish government for not cutting ties with Israel. Erbakan is the son of Necmettin Erbakan, the first Islamist prime minister, who served from 1997 to 1998.

Will Erdogan change course in response? He promised some courageous self-criticism, and a change in his speech accepting defeat. He insisted, however, that the government will stay on course with its economic programme, though we expect that the pressure on him to reassess this is only about to grow. After being re-elected last year, Erdogan completely reversed his economic course from lowering to hiking interest rates in order to get on top of high inflation. Interest rates rose to 50% and it became more difficult to get loans. Inflation still hit the 70% mark in February this year. For many of those who voted AKP last year in May, the economic situation has worsened. Erdogan promised a better economic outlook, in particular for inflation, in the second half of this year. What will Erdogan do if this does not materialise?

The local election result may also stop Erdogan’s ambitions for a constitutional reform, which many observers expected to have strengthened his powers. Erdogan is known for his agility. He has managed to adapt before to stay in power. While this local election result looks like a proper defeat for the AKP, it may not be the end for Erdogan, who is still the most popular leader in the history of the country. Watch that space.

In our last briefing before the Easter break, we would like to alert our readers to a theme that has been preoccupying us for a while - the possibility of another financial crisis in Europe. We have generally been restrained in our warning of financial crises. The main exception was the global financial crisis and its cousin, the euro area's sovereign debt crisis. Fifteen or so years later, we see another financial crisis ahead here in Europe: a crisis of the European social and political model with deep consequences for fiscal and financial stability.

The canary in the coal0mine is the overshooting budget deficits in France and Italy, at over 7% and over 5% for 2024 respectively. These numbers are a symptom, not a cause. Behind them lies a lack of economic growth needed to sustain Europe's social model. Germany's fiscal policy could not be more different than that of France or Italy, and yet Germany is afflicted by the exact same problem. The collapse of Nicolae Ceaucescu's repressive but debt-free regime in Romania should serve as a lesson that it is not the volume of debt that determines sustainability. It is, in the broadest sense, about a state's ability to provide welfare and contentment whilst remaining solvent. Politics is the art of keeping those three balls in the air permanently. 

The European model was powered by oligopolistic industrial companies, which were heavily supported by the state through regulation that tilted the level-playing field in their favour. The German car industry is a classic example, but everybody did this. The services sector existed mostly to service industry: state-owned banks that give preferential loans to industrial companies; repair shops for industrial products, like car services. These industries enjoyed large profits margins because of the monopolistic or oligopolistic markets in which they operated, together with high barriers of entry. This system powered the entire social policy structure - in the form of fiscal transfers and labour market policies to make sure that the spoils of the model would trickle down in an even manner.

A remarkable feature of that system was its long-termism. The EU, governments, industry and universities organised research that fed this model. 

After the end of the Cold War two further factors sustained the model: a large decline in defence spending, in some case by several percentage points of GDP, and the rise in globalisation.

What is killing this model now is a shift in technology and geopolitical fragmentation. Of the two, we would argue the first is the more important. More and more functions in our lives that were previously the realm of purely mechanical processes are nowadays wholly or partially digitalised. Barriers of entry have collapsed. China went from zero to the world leader in electric cars.

European companies no longer generate sufficient profits to fuel the social model - and to fund long-term research. The heavy bias in Europe's research towards existing companies is taking its toll. It is not about the public versus the private sector. Government intervention played a huge role in the development of the digital industry. Picking winners is still possible, for as long as you pick the winners. In Germany, for example, if research is not done by the car or the big chemical companies, it is not happening. It is no surprise that Europe has only very few tech companies.

In short, Europe's oligopolistic old-tech model no longer works in a digital world. We have been reporting on the attempts by the EU to stem against technological developments through regulation. But this is a way of addressing symptoms, not causes.

After the multiple global shocks of this decade, the consequences of Europe's technological decline translate into lower potential growth rates. Italy came first. Its productivity growth has been near zero since it joined the euro. The UK's productivity growth slumped after the global financial crisis, and never recovered since. Germany's productivity growth is unlikely to recover, even if the economic cycle does. The German Council of Economic Experts see a potential growth of around 0.5% until the end of the decade. With productivity growth that low, Europe's model has become financially unsustainable. It is unsurprising that the political system is fragmenting everywhere. The argument for sustained deficits, in France for example, is that you need them to keep Marine Le Pen out of power. This means they will persist.

We have a fiscal crisis ahead, caused by a combination of falling productivity growth and political gridlock. Technology is the main cause of the decline. Geopolitics is what accelerated it. The solutions we have been advocating over the years - a joint fiscal capacity, a capital markets union, joint defence procurement to neutralise the rise in defence spending - are further away than ever. Unless one of these parameters change, a financial crisis is a very plausible scenario. 

The EU and its member states have gone to lengths to show that it is pro-active to respond to farmers protests. It decided to soften some of the red tape under the Common Agricultural Policy. And it shelved the Nature restoration law, the flagship bill of the green agenda, after it emerged that more and more member states turned against it.

The Nature restoration law has been in the making for the past two years as a way to make nature part of the solution to achieve climate change goals. The objective is to restore 20% of natural habitat and biodiversity on land and waterways, gradually starting 2030 until 2050 with goals for specific areas such as peat land, forests or coral reefs. The law, in an already watered down version from the original proposal by the European Commission, had been adopted by the European Parliament despite the opposition from the EPP, it was backed by the EU member states and the Commission. Under the Belgian EU presidency, this law was supposed to be rubber stamped by EU ambassadors last week as a mere formality, but it all turned into a political fiasco after eight member states decided to oppose the law and thus deprive the vote the qualified majority it needs to pass. Hungary was critical for passing that threshold. The final count had just 1% between those in favour and those who object or abstain. The vote had to be postponed.

Even if the Belgian EU presidency reassures that it would to work on a compromise it is unlikely to pass before the European elections. Any substantial change means that the legislation has to go back for a second reading to the European parliament, which holds its last session end of April.

The tragedy is that farmers protests are not fundamentally one against nature but to ensure their income. It is the classic dilemma for all common goods, whose benefits are shared but whose costs are carried by only a few. EU member states will have to go back to the drawing board and find a solution that can square the equation in a fairer way.

But there are political hurdles for that to happen. The next European Parliament is expected to shift to the right with a big push expected for eurosceptic groups. It will be even less inclined to talk about the environment than the current one. The past five years have been the high noon for a green agenda movement, every party endorsed its own version of environmental policies. That movement is on its way out. The Green party stands to loose significantly in the elections, while conservative and far-right parties hooked on to farmers as their new voter contingent. A solution is not impossible, but it needs to engage farmers with natural restoration, otherwise this will only be a contest between two sides where none of them has an interest to move.

A UN resolution calling for a cease fire in Gaza in return for Hamas’s hostage release finally passed without a US veto. Another act of political drama is unfolding as Benjamin Netanyahu cancelled his visit to the US, while his defence minister was received with open arms, with his list of arms requests in tow. Iran, meanwhile, celebrated the UN vote as a triumph for Hamas, while Israeli security forces warn that Iran plans to supply weapons to Gaza. The more Iran potentially gets implicated in this war, the more pressure there would be on the US to respond on the side of Israel. So far, neither Iran nor the US have signalled any interest in escalating the war.

Expect a lot of hot air ahead of the US elections, where Democrats are increasingly split and uncomfortable over Gaza. Netanyahu can capitalise from this split, and use his swipes against Joe Biden to mobilise Israelis behind him. Perhaps he is betting on Donald Trump to return to power after this November's elections. After all, it was Trump’s peace proposal that granted Israel the right to confiscate an additional 30% of the occupied West Bank, and folded Palestine into a vision of a Greater Israel.

For Biden, the aim had been to get Israel to commit to a two state solution as a long-term goal. With Trump as an opponent on the campaign trail, this question has also a domestic dimension. The US administration has been holding talks behind close doors with Israel and Arab leaders. The question is how hard the White House is prepared to push Israel to accept it, with only seven months left before the elections. Diplomats are keen to avoid the errors of the Oslo agreement, namely letting Israel get away without fully committing to a Palestinian state as a long term goal, and leaving it up to the Israelis and the Palestinians to sort out their differences. How far can a US president, who is in election campaign mode, go to get a recognition of Palestinian statehood? Biden has his reputation and legacy to hold up, but may not be able to do much before the elections. If re-elected, he would be able to put much more pressure on Netanyahu's government.

Biden’s administration has already put forward various proposals to Israel, include recognising a nascent Palestinian state, a Palestinian state with some conditions to be met, or merely affirming an incontestable Palestinian right to a state, according to the Atlantic. What matters at this point is that Israel commits to the principle before they get to the details. So far, Netanyahu’s government won’t have any of this. On the contrary they continue to commission more confiscations of land in the West Bank.

The Europeans are not really players in these negotiations, but they add their tones to the music. The UK, France and Spain have signalled that they are considering unilateral recognition of a Palestinian state.

The two-state solution is key for Israel’s own security. Hamas’s 7 October terrorist attack shook Israel’s sense of security to its core. Israel’s disproportionate response caused the death of more that 32,000 Palestinian civilians dead and famine in Gaza, likely to rise once they enter Rafah. What is necessary is the prospect of a long-term solution that ensures Israelis and Palestinians both have their place, which would take out the fuel for extremism. Political courage is essential to embrace this path.

One of Biden’s objectives in the region before Hamas's attacks was to get Israel and Saudi Arabia to normalise their relations with agreements on nuclear and defence matters. Since the war in Gaza, Riyadh has increased its price, demanding Palestinian statehood as a condition for normalisation. Its government concluded that their security is also not guaranteed unless there is a solution for Palestine. That is probably true for other Arab nations as well.

Israel’s war not only devastated Gaza. It also strengthened Iran’s role in the region. This is why Iran’s regime cautions its militias not to drag the region into a conflict, which the Houthis seem not to have listened to. Iran and Saudi Arabia are the big players amongst Muslim and Arab nations. It is for the West to choose where and how much of their efforts go towards convincing Israel that the two-state solution is in their best interest too.

One of the many lessons from Clausewitz’s On War that remain relevant to modern times is that warfare is, as much as anything else, a contest of wills. The capabilities anyone can muster matter little if they either do not want to fight, or are not mentally prepared for the consequences of doing so. Pain thresholds are easy to ignore, because they are difficult to quantify. But they matter hugely.

This is something we risk learning, to our detriment, in our own economic struggle against Russia after its invasion of Ukraine. Our sanctions against Russia, both on finance and energy, have been designed to maximise the impact on the Kremlin, but only insofar as the negative short-term consequences do not rebound on us. This is, we think, an approach that has run out of road, especially as Ukraine fatigue on weapons deliveries sets in.

Another example of how this has a real-life impact comes to us from the Dallas Fed. It recently published an interesting working paper on the different effects the two main oil sanctions the west used against Russia had on Russian oil prices. One of these was the embargo which western countries, namely European ones, enforced against Russian oil. The other is the now better-known G7 oil price cap.

What the paper found is that the embargo did have a material effect on oil prices. But inasmuch as the price cap itself had an effect, this was limited to the opportunity cost Russia bore when it has to assemble its so-called shadow fleet of tankers to circumvent the cap. The most obvious example of the cap’s failure is how benchmark prices for Russian oil have frequently exceeded the $60-per-barrel cap limit since the summer of 2023.

Instead, the fluctuations in Russian oil discounts seem to have more to do with global oil prices. When there was a glut, and oil prices were relatively weak in early 2023, it was worse for Russia. As oil prices rose again, Russia’s situation improved.

This is relevant to the wider issue of how far we are prepared to go for Ukraine because of the purpose the oil price cap was supposed to serve. The idea was that, instead of a total ban on tankers carrying Russian oil using western-provided maritime services, like insurance, you’d have the cap. Russia’s oil revenues would be limited, but without disruption to Russian oil supplies, and therefore the global market.

There is always an argument to be made for trying to design a policy optimally, to raise the benefits and limit the costs. But this is just a foreign policy equivalent of having your cake and eating it. It is a sign of what is becoming more evident now. Vladimir Putin’s big advantage over us is how much he is prepared to put his own country, and the world, through for the sake of victory in Ukraine compared to us.