By Agathe Demarais, a columnist at Foreign Policy and a senior policy fellow on geoeconomics and technology at the European Council on Foreign Relations.
After four years of war, the future of Ukraine hinges on the outcome of the Trump administration’s negotiations with the Kremlin—while Europeans wait outside the negotiating room. As we enter the fifth year of the war, we could face one of two very different scenarios. One is that a U.S.-Russia peace deal could end the war. Another is that a collapse in negotiations between Washington, Moscow, and Kyiv could extinguish any short-term hopes of a ceasefire or lasting peace.
From an economic perspective, the consequences of these scenarios for Europe would be very different. A U.S.-brokered peace deal would likely entail some form of U.S. sanctions relief, immediately raising the question of whether the European Union would join by relaxing its restrictions. Conversely, a breakdown in U.S.-Russia relations could revive transatlantic collaboration on Ukraine and pave the way for stronger sanctions on Russia.
After four years of war, the future of Ukraine hinges on the outcome of the Trump administration’s negotiations with the Kremlin—while Europeans wait outside the negotiating room. As we enter the fifth year of the war, we could face one of two very different scenarios. One is that a U.S.-Russia peace deal could end the war. Another is that a collapse in negotiations between Washington, Moscow, and Kyiv could extinguish any short-term hopes of a ceasefire or lasting peace.
From an economic perspective, the consequences of these scenarios for Europe would be very different. A U.S.-brokered peace deal would likely entail some form of U.S. sanctions relief, immediately raising the question of whether the European Union would join by relaxing its restrictions. Conversely, a breakdown in U.S.-Russia relations could revive transatlantic collaboration on Ukraine and pave the way for stronger sanctions on Russia.
First, consider the scenario of a U.S.-Russia agreement to end the war. From an economic perspective, this would have three immediate consequences for Europe.
For starters, Moscow would likely only agree to such a deal in return for sanctions relief from the United States, such as the removal of designations on its shadow fleet of oil tankers that supply China and India with Russian crude. This would quickly put Europe in a bind: The EU private sector would lobby to similarly relax EU measures, arguing that U.S. sanctions relief puts European firms at a disadvantage compared to their U.S. competitors. In this scenario, EU member states would have difficulty renewing Russia-related sanctions unanimously every six months. The next major renewal is due in July.
Second, any U.S.-Russia agreement would likely include deals for U.S. energy firms to develop Russian oil and gas deposits. Again, Europeans would find themselves in a difficult position: Existing pipelines and geographic proximity make them the main target for Russian oil exports, with U.S. firms providing financial or technological help. At a time when many European policymakers already fear that the bloc is becoming overly reliant on U.S. supplies of liquefied natural gas, the prospect of Russian energy reentering the EU market with U.S. help could ring alarms in many EU capitals. Third, a U.S.-Russia peace deal would shift the conversation about Ukraine toward reconstruction. Donald Trump has made it clear that he wants Europe to foot the bill for this. With fiscal resources drying up in many EU economies and the World Bank estimating in February 2025 that reconstruction will cost $524 billion over the next decade, such a scenario could fuel divisions among Europeans, reminiscent of recent bitter disputes over the fate of Russia’s frozen central bank reserves.
Now, consider the consequences if U.S.-Russia negotiations fail. Disillusionment with the Kremlin in Washington could lead to renewed U.S.-EU collaboration on tighter sanctions, such as joint designations of the Russian shadow fleet. This would be a nightmare scenario for Moscow, which is already reeling from the October 2025 round of U.S. sanctions against oil giants Lukoil and Rosneft. With Indian and Chinese refiners increasingly reluctant to defy U.S. sanctions, the discount on Russian Urals oil compared to the global Brent oil benchmark has widened to about $27 per barrel. At current prices, this means that Russia is selling its oil at a roughly 40 percent discount to competitors. Consequently, Russian energy revenues sank by half year over year in January; they now account for only 24 percent of the Kremlin’s fiscal receipts, down from around half before the war.
The Kremlin knows that time is running out on the economic front. 2026 could be the last year that Russia can sell LNG and pipeline gas to its remaining European customers. Sales totaled about €22 billion euros in 2025, financing a significant chunk of Russian military expenses. Things will get even trickier in 2027, when the EU’s total ban on Russian LNG and pipeline gas imports takes effect. The U.S. prohibition on Russian uranium imports will also take effect late that year, further depriving Russia of export revenues.
If European leaders want to credibly argue that they deserve a seat at the negotiating table, they need to prepare for the economic consequences of both a U.S.-Russia peace deal and ruptured negotiations. These two scenarios would force EU policymakers to make starkly different choices on sanctions, energy, and reconstruction finance. With Europe’s credibility and future at stake, improvisation would be the worst option.
Read the other seven thinkers on four years of war in Europe here.
Agathe Demarais is a columnist at Foreign Policy, a senior policy fellow on geoeconomics and technology at the European Council on Foreign Relations, a visiting professor at the College of Europe, a former global forecasting director at the Economist Intelligence Unit, and the author of Backfire: How Sanctions Reshape the World Against U.S. Interests. Bluesky: @agathedemarais.com
No comments yet. Be the first to comment!