LONDON — In the five weeks since Russia invaded Ukraine, the United States, the European Union and their allies began an economic counteroffensive that has cut off Russia’s access to hundreds of billions of dollars of its own money and halted a large chunk of its international commerce. More than 1,000 companies, organizations and individuals, including members of President Vladimir V. Putin’s inner circle, have been sanctioned and relegated to a financial limbo.
But Mr. Putin reminded the world this past week that he has economic weapons of his own that he could use to inflict some pain or fend off attacks.
Through a series of aggressive measures taken by the Russian government and its central bank, the ruble, which had lost nearly half of its value, clawed its way back to near where it was before the invasion.
And then there was the threat to stop the flow of gas from Russia to Europe — which was set off by Mr. Putin’s demand that 48 “unfriendly countries” violate their own sanctions and pay for natural gas in rubles. It sent leaders in the capitals of Germany, Italy and other allied nations scrambling and showcased in the most visible way since the war began how much they need Russian energy to power their economies.
It was that dependency that caused the United States and Europe to exempt fuel purchases from the stringent sanctions they imposed on Russia at the start of the war. The European Union gets 40 percent of its gas and a quarter of its oil from Russia. A cutoff from one day to the next, Chancellor Olaf Scholz of Germany warned this past week, would plunge “our country and the whole of Europe into a recession.”
For the time being, it appears that the prospect of an imminent stoppage of gas has been averted. But Mr. Putin’s sudden demand for rubles helped prompt Germany and Austria to prepare their citizens for what might come. They took the first official steps toward rationing, with Berlin starting the “early warning” phase of planning for a natural gas emergency.
Although President Biden has announced plans to release 180 million barrels of oil from the U.S. reserve supply over the next six months and diverted more liquefied natural gas to Europe, that still would not be enough to replace all of what Russia supplies. Russian oil exports normally represent more than one of every 10 barrels the world consumes.
Europe’s ongoing energy purchases send as much as $850 million each day into Russia’s coffers, according to Bruegel, an economics institute in Brussels. That money helps Russia to fund its war efforts and blunts the impact of sanctions. Because of soaring energy prices, gas export revenues from Gazprom, the Russian energy giant, injected $9.3 billion into the country’s economy in March alone, according to an estimate by Oxford Economics, a global advisory firm.
“The lesson for the West is that the effectiveness of financial sanctions can only go so far absent trade sanctions,” the firm said in a research briefing.
Mr. Putin’s feints and jabs — at one point this past week he promised to stop and continue gas deliveries in the same statement — have also kept European leaders off-balance as they try to divine his strategy and motivations.
The war has prompted democracies to move away from relying on Russian exports. They’ve proposed cutting natural gas deliveries by two-thirds before next winter and to end them altogether by 2027. Those goals may be overly ambitious, experts say.
In any case, the transition to other suppliers and eventually to more renewable energy sources will be expensive and painful. On the whole, Europeans may be poorer and colder at least for a few years because of spiraling prices and dampened economic activity caused by energy shortages.
And unlike in Russia, governments in these countries have to answer to voters.
“Putin has already demonstrated he’s willing to sacrifice civilians — his and Ukrainians — to score a win,” said Meg Jacobs, a historian at Princeton University. For European democracies, turning down thermostats, reducing speed limits and driving less is a choice, she said. “It only works with mass cooperation.”
But leverage, like gas, is a limited resource. And Mr. Putin’s willingness to use it now means that he will have less of it in the future. It will not be an easy transition for Russia either. Most analysts believe that Europe’s aggressive moves to reduce its reliance on Russian energy will have far-reaching consequences, however.
“They are done with Russian gas,” David L. Goldwyn, who served as a State Department special envoy on energy in the Obama administration, said of Europe. “I think even if this war would end, and even if you had a new government in Russia, I think there’s no going back.”
The European Commission president, Ursula von der Leyen, said as much when she announced the new energy plan last month: “We simply cannot rely on a supplier who explicitly threatens us.”
Security concerns aren’t the only development that has undermined Russia’s standing as a long-term energy supplier. What seemed surprising to economists, lawyers and policymakers about Mr. Putin’s demand to be paid in rubles was that it would have violated sacrosanct negotiated contracts and revealed Russia’s willingness to be an unreliable business partner.
As he has tried to wield his energy clout externally, Mr. Putin has taken steps to insulate Russia’s economy from the impact of sanctions and to prop up the ruble. Few things can undermine a country as systemically as an abruptly weakened currency.
The Russia-Ukraine War and the Global Economy
When the allies froze the assets of the Russian central bank and sent the ruble into a downward spiral, the bank increased the interest rate to 20 percent, while the government mandated that companies convert 80 percent of the dollars, euros and other foreign currencies they earn into rubles to increase demand and drive up the price.
That has revived the value of the ruble, but as several analysts have pointed out, the currency’s newfound stability has come not because the marketplace suddenly found faith in the Russian economy but because of the extraordinary government interventions.
Mr. Putin’s demand that gas purchases be paid in rubles looked like another one of those interventions. Still, the insistence was puzzling. Russia could just as easily take the ongoing influx of euros and dollars paid by foreign governments and convert them to rubles.
Mr. Putin, of course, may revel in putting European governments in an uncomfortable position or flexing his power, but his demands may also reflect difficulties at home.
For example, he may not be able to ensure compliance with his mandate that companies, including the natural gas producer Gazprom, repatriate 80 percent of the dollars and euros they earn and sell them to Russian banks.
The problem is that “the government cannot enforce this rule,” said Michael S. Bernstam, a research fellow at the Hoover Institution at Stanford University. The “companies are cheating.”
“The only people the Russian government can trust is Western companies buying Russian natural gas and other commodities,” he added.
Aside from currency woes, Russia is struggling economically in other ways.
The country is already facing a deep recession, and several analysts estimate that the economy could shrink by as much as 20 percent this year. An S&P Global survey of purchasing managers at Russian manufacturing companies showed severe declines in production, employment and new orders in March, as well as sharp price increases.
In a matter of weeks, Mr. Putin undercut business and trade ties between Russia and more wealthy economies that took decades to build after the demise of the Soviet Union. By one estimate, some 500 foreign companies have pulled up stakes in Russia, scaled back operations and investment, or pledged to do so.
“Russia does not have the capabilities to replicate domestically the technology that it would otherwise have gained from overseas,” according to an analysis by Capital Economics, a research group based in London. That is not a good sign for increasing productivity, which even before the war, was only 35 to 40 percent of the United States’.
The result is that however the war in Ukraine ends, Russia will be more economically isolated than it has been in decades, diminishing whatever leverage it now has over the global economy as well as its own economic prospects.