KEY POINTS
- Trump and Putin are discussing major economic deals alongside efforts to end the Ukraine war.
- Trump wants Ukraine to sign a deal granting the US access to minerals.
- Washington’s European allies are uneasy with US-Russia talks to end the Ukraine war.
- Trump sees economic opportunities in renewed relations.
- Russia faces high inflation, soaring interest rates, and economic slowdown due to war spending.
- A peace deal could ease sanctions on Russia and encourage Western firms to return.
WASHINGTON: US President Donald Trump said on Monday that he and Russian leader Vladimir Putin are seriously discussing major economic deals between the US and Russia as part of diplomatic talks on ending the war in Ukraine.
“I am in serious discussions with President Vladimir Putin of Russia concerning the ending of the War, and also major Economic Development transactions which will take place between the United States and Russia. Talks are proceeding very well!” Trump posted on his Truth Social platform.
Russia’s economy is on the cusp of serious cooling, as huge fiscal stimulus, soaring interest rates, stubbornly high inflation and Western sanctions take their toll, but after three years of war, Washington may just have thrown Moscow a lifeline.
Trump issued the statement after being joined by French President Emmanuel Macron at the White House for a conference call with other G7 leaders.
Washington’s European allies are scrambling to react to the shift in US policy since Trump took office last month.
In his post, Trump said he had also highlighted to other G7 leaders his goal of getting Ukraine to sign an agreement giving the United States access to its natural resources in return for US support in any peace settlement.
“I emphasized the importance of the vital ‘Critical Minerals and Rare-Earths Deal’ between the United States and Ukraine, which we hope will be signed very soon!” Trump wrote.
“This deal, which is an ‘Economic Partnership,’ will ensure the American people recoup the Tens of Billions of Dollars and Military Equipment sent to Ukraine, while also helping Ukraine’s economy grow as this Brutal and Savage War comes to an end.”
Russia-US talks to end Ukraine war
Trump is pushing for a quick deal to end the war in Ukraine, alarming Washington’s European allies by leaving them and Ukraine out of initial talks with Russia and blaming Ukraine for the war started in February 2022, political gifts for Moscow that could also bring strong economic benefits.
During landmark bilateral talks in Saudi Arabia earlier this week, the Russian delegation included the Kremlin’s top investment manager, Kirill Dmitriev, who heads Russia’s sovereign wealth fund.
Dmitriev explained that US companies had lost more than $300 billion since 2022 due to withdrawing from the Russian market.
Meanwhile, Russian Foreign Minister Sergei Lavrov reported “great interest” among participants “in removing artificial barriers to the development of mutually beneficial economic cooperation.”
This approach seems tailored to appeal to Trump, who has since spoken favourably about the potential economic upside of a thaw with Russia.
Economic benefits for Russia
Since the Ukraine war began in February 2022, more than a thousand international companies have exited the Russian market. Others have had their assets seized.
Companies mulling renewed operations in Russia will have to weigh up the potential profits again a lack of property rights and other risks that could end up costing shareholders.
Washington’s push comes as Moscow faces two undesirable options, Oleg Vyugin, former deputy chairman of Russia’s central bank said as cited by Reuters news agency.
Russia can either stop inflating military spending as it presses to gain territory in Ukraine, he said, or maintain it and pay the price with years of slow growth, high inflation and falling living standards, all of which carry political risks.
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Though government spending usually stimulates growth, non-regenerative spending on missiles at the expense of civilian sectors has caused overheating to the extent that interest rates at 21% are slowing corporate investment and inflation cannot be tamed.
“For economic reasons, Russia is interested in negotiating a diplomatic end to the conflict,” Vyugin said. “(This) will avoid further increasing the redistribution of limited resources for unproductive purposes. It’s the only way to avoid stagflation.”
While Russia is unlikely to swiftly reduce defence spending, which accounts for about a third of all budget expenditure, the prospect of a deal should ease other economic pressures, could bring sanctions relief and eventually the return of Western firms.
“The Russians will be reluctant to stop spending on arms production overnight, afraid of causing a recession, and because they need to restore the army,” Alexander Kolyandr, researcher at the Centre for European Policy Analysis (CEPA) said as cited by Reuters.
Inflation pressure could also ease, Kolyandr added, as peace prospects may make Washington less likely to enforce secondary sanctions on companies from countries like China, making imports more straightforward and, therefore, cheaper.
Russian markets have already seen a boost. The rouble surged to a near six-month high against the dollar on Friday, buoyed by prospects for sanctions relief.
Russia’s economy has grown strongly since a small contraction in 2022, but authorities expect 2024’s 4.1% growth to slow to around 1-2% this year and the central bank is not yet seeing sustainable grounds to cut rates.
