Building resilience has become a mantra in recent years, especially during the Covid-19 pandemic. Actions to enhance economic security and advance diversification have been slow. However, this might be about to change following Russia’s invasion of Ukraine.

In the decades following World War II, economic actors around the world placed considerable and growing confidence in a broad international commitment to a relatively open global economy. Unlike in the more distant past, when states often waged wars to secure their economic interests, policymakers worried little about the arbitrary or politically motivated denial of access to critical resources or markets. They could limit their concerns to issues like exposing the economy to changes in supply and demand conditions and, sometimes, dramatic price swings.

But tensions, frictions, and blockages in global supply chains during the pandemic began to erode this belief. Price and market are not the main determinants of vaccine distribution. Additionally, China, the United States, and other countries imposed high market entry barriers on foreign technology companies, especially their competitors, for national security reasons.

More broadly, economic and financial sanctions have become the weapon of choice in foreign policy, especially in the United States. It is no surprise, then, that sanctions are a significant part of the Western response to the crisis in Ukraine, particularly since Russia may view any direct NATO military intervention in Ukraine as a declaration of war.

Today, Russia supplies almost 40% of Europe’s natural gas. The fear of losing this supply has greatly limited the West’s economic response to the invasion of Ukraine. For example, major EU countries initially opposed excluding Russia from SWIFT, and when the decision was made, only “selected” banks were affected.

Meanwhile, Russia depends on the European Union to continue buying its natural gas. Therefore, perhaps the most powerful economic weapon in the Western arsenal is one that the EU cannot use without causing significant harm to itself. The result is similar to the “mutual assured destruction” that the world has long used to prevent a nuclear attack.

As Italian Prime Minister Mario Draghi admitted last week: “The events of these days show that it would be imprudent not to further diversify our energy sources and suppliers over the past decades.”

Indeed, the impression is that Europe has fallen into an energy deadlock, although non-energy sanctions are undoubtedly severe and can still be strengthened. In any case, the cost of any sanctions – including isolating Russia from global markets and its lack of access to products and technology – largely depends on the extent to which China decides to support Russia.

For now, European leaders will have to deal with whatever happens. However, to increase long-term security in an increasingly volatile world, countries must also incorporate economic resilience gained through diversification into their foreign policy strategies.

When it comes to energy, Europe can follow Japan, which also relies entirely on imported fossil fuels. Japan sources oil from various Middle Eastern countries and liquefied natural gas (LNG) from Australia, Malaysia, Qatar, Russia, the United States, and others, with Australia having the largest market share (27%). If Europe’s energy supply were more like Japan’s, the return structure for the current Russia-West game would be very different, with Europe having the right to impose asymmetric costs on Russia through energy-related sanctions.

The value of diversification grows with the size of the relatively unrelated risks you face. Some will note that this diversification is expensive, as it reduces efficiency. But while it may not be worth the price in a stable, low-risk environment, we do not live in such an environment.

In today’s world, the costs of diversification are outweighed by the potential – and likely – costs of disruptions. In the presence of significantly uncorrelated risks, diversification is the best strategy.

This is not true only in the case of imports. Since market access can be cut off – China learned this exclusively during the US presidency of Donald Trump – countries must also strive to diversify their export markets. While it is difficult to diversify the supply of economies as large as the US or China, countries can move in this direction.

Of course, the most urgent imperative is to diversify to avoid unpredictable trading partners. Partners with whom the rules of the game are clearly agreed upon and are likely to remain stable pose much less risk, reducing the benefits of diversification. However, countries must avoid over-reliance on any partner, no matter how stable, especially given the increasing risks of climate change-related issues.

Importantly, the necessary level of diversification – that is, a level that improves economic security and a country’s bargaining position in a crisis – is unlikely to emerge purely as a market outcome, as the economic and strategic benefits are not fully captured by market players. While market players recognize the risks and should not refuse to diversify all markets and supply sources, they are unlikely to go far enough.

Thus, public policies and international coordination must play a significant role in advancing this process. Fortunately, for now, policymakers have a strong incentive to take the necessary steps. However, whether their sense of urgency will persist or fade as perceived threat levels decrease remains to be seen.