Europe’s War Economy Imperative: Toward Strategic Sovereignty and Resilience

For over four years, the conflict on Europe’s eastern flank has dominated strategic discourse. Yet policymakers have long treated it as a distant threat, failing to acknowledge the ways it already undermines the continent’s political and economic foundations.

Russia’s war has exacted a heavy toll on Ukraine’s southern and eastern regions, where front lines have moved only incrementally. For Europe, the stakes extend far beyond the battlefield: sustaining Kyiv’s defense and constraining Moscow have strained the continent’s economic reserves and political cohesion. With Washington signaling potential retrenchment under the Trump administration, Europe must prepare to bear a disproportionate share of the burden alone.

Even if immediate crises subside, Europe can no longer rely on automatic security guarantees from the United States. The continent must cultivate the financial resources to sustain Ukraine’s defense, strengthen its own industrial base, and wield economic leverage against Moscow. Building a sustainable war economy is now essential for strategic autonomy.

The last four years have shown both the possibilities and perils of financing a prolonged security effort. The EU has led Ukraine’s funding, shifting from an 18.1-billion-euro share of the G7’s $50 billion Extraordinary Revenue Acceleration loans in 2024 to a 90-billion-euro facility finalized this April—entirely without US backing. Despite adopting the broadest sanctions package to date, the measures have done little to expand restricted activities or hasten the end of Russian energy imports, as pipeline gas exemptions last until autumn 2027. European leaders have also voiced alarm over Washington’s recent waivers of Russia-related sanctions, highlighting how foreign policy costs can undercut collective pressure.

The ongoing conflict between the US and Iran underscores how modest Europe’s leverage over Russian energy actually is. Before February, roughly 20 million barrels per day of crude and oil products, and about 110 billion cubic meters annually of LNG, flowed through the Strait of Hormuz—while Russia exported approximately 6.5 million bpd of oil products and 43 bcm of LNG last year, representing roughly a third and two-fifths of Hormuz’s respective volumes. As Washington seeks additional Russian supplies, Europe must pair its sanctions with substantial domestic security investment to avoid strategic dependency.

Establishing a permanent framework for joint EU borrowing should be the cornerstone of any war economy. Such mechanisms would not only sustain Ukraine’s defense but also rebuild the continent’s defense industrial base against future Russian threats. The pandemic proved that mutualized borrowing is possible— the 750-billion-euro NextGenerationEU fund emerged from a similar crisis mindset. The EU’s wartime loan facilities have followed this logic, but ad hoc measures are insufficient. A deeper fiscal and capital markets union, underpinned by a genuine fiscal-military state, would provide the structural foundation for deterrence and victory.

Deep capital markets in the United States have enabled long-term investors like SpaceX to fund transformative technologies—such as the Starlink network—that have fundamentally altered modern warfare. On Ukraine’s battlefields, reliable communications depend on a network beholden to a single CEO’s decisions. Europe must therefore secure the fiscal capacity to develop and procure its own critical technologies, reducing reliance on unilateral tech choices.

Concerns over existing sovereign indebtedness in states like France and the UK are understandable. Yet Russia’s frozen assets present a viable avenue for additional borrowing. Belgium, home to the bulk of Euroclear’s holdings, has resisted over fears of Russian retaliation and market damage—risks that the bloc can collectively mitigate. Moreover, not all fiscal support need take the form of joint debt; expanding the EU capital markets union and instituting tax-advantaged structures for defense innovators could deliver financing more efficiently.

Europe must also tighten control over economic ties with Russia, exemplified by the Raiffeisen Bank case. In 2025, a Russian court ordered the seizure of over 2.1 billion euros from Raiffeisen’s Russian subsidiary to compensate a firm linked to sanctioned oligarch Oleg Deripaska. A subsequent Vienna ruling now allows Raiffeisen to claim compensation from Rasperia’s frozen EU assets—mirroring the Euroclear $3 billion release earlier this year. Such legal reciprocity underscores a dangerous dynamic: if the Kremlin can expropriate European assets and trigger the release of Russian funds, every seizure becomes a negotiable bargaining chip.

The UK and EU have adopted circumvention measures resembling US secondary sanctions. Europe must now clearly communicate that any entity facilitating Russia’s sanctions evasion risks exclusion from European financial systems and markets. Even with potential US sanction waivers, American firms are likely to prioritize European partnerships over Kremlin alignment.

Europe must reduce its dependence on US foreign policy leverage. As Washington distances itself from its traditional security-for-oil arrangement in the Gulf, Europe can offer a complementary partnership. The UK and France are already contributing air defenses and logistics to support Saudi Arabia against Houthi threats, positioning Europe as a reliable buyer of Gulf energy in exchange for stronger sanctions compliance and a decisive break from the Kremlin’s OPEC+ role.

Europe possesses the financial capacity to fund its own security architecture. The remaining obstacle is political will—the determination to borrow and invest strategically for long-term resilience.

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