What Ukraine needs now

Tax Russian oil and gas now. Tax it, and pay the money to Ukraine to offset the costs of war, to support social services, and to begin reconstruction. At first, the tax will fall mainly on European buyers. But new supply is coming to Europe: from the United States as liquefied natural gas, from Algeria via the Trans-Mediterranean Pipeline, from Norway through increased production, and from farther afield: Qatar and Azerbaijan. As the new supplies become available, Russia will be pushed to absorb more of the burden of the tax itself, or else lose market share to untaxed competitors. Green substitution can also help. New, renewable sources of energy for Europe won’t come online this spring. But if Russia digs in for a long war of attrition in eastern Ukraine, those sources will change the supply-demand outlook, and redirect Russian energy revenues to the Ukrainian treasury.

An excise tax on Russian energy exports could be left in place even after the war ends. Alternatively, as part of a peace settlement, the tax could be lifted—and other sanctions ended—in return for Russia transferring an equity stake in its gas fields to Ukrainian ownership. With BP and other Western players exiting the Russian market, the Russian state and its supporters will gain a windfall, acquiring at discount prices the assets jettisoned by foreign investors. That windfall could be redistributed to Ukraine to compensate for the damage done by Russia’s aggression, by assigning a Ukrainian sovereign wealth fund a certain percentage share in Russian energy producers or Russian oil and gas fields.

Ukraine could also be compensated out of Russia’s blocked assets at Western central banks. Hundreds of billions of Russian dollar and euro holdings have been frozen by the Federal Reserve and the European Central Bank. Outright confiscation would raise legal difficulties. But a payment by Russia to Ukraine could be negotiated as part of the settlement to unfreeze the remainder of the assets when the war ends. Ukrainian families that lost loved ones to Russian aggression and atrocity could also receive payment from the frozen Russian funds.