Voters in Crimea participated in a quickly convened referendum on whether the inhabitants of that peninsula – now under effective Russian occupation – wish to continue their inclusion in Ukraine or face an unpredictable future in some form of association with Russia. J. BROOKS SPECTOR takes a look at political and economic uncertainties, most especially the costs to Russia, from what seems now to be a romantic attachment to a greater Russia.
Earlier, this writer had examined the events leading up to this weekend’s referendum over Crimea’s future in: “Crimea and Punishment – is Putin betting a bad hand?”; and “Ukraine, Russia and the 21st century Crimean almost-war: It’s complicated”.
Below is a timeline of the recent crisis:
21 Nov 2013: President Viktor Yanukovych abandons an EU deal
Dec: Pro-EU protesters occupy Kyiv city hall and Independence Square
20 Feb 2014: At least 88 people killed in 48 hours of bloodshed in Kyiv
22 Feb: Yanukovych flees; parliament votes to remove him and calls election
27-28 Feb: Pro-Russian gunmen seize key buildings in Crimean capital Simferopol
6 Mar: Crimea’s parliament asks to join Russia and sets referendum for 16 March
15 Mar: Russia vetoes UN Security Council resolution condemning Crimea independence referendum
Now, with the Russian dispatch of troops into Crimea, the stationing of still more near the eastern Ukraine/Russian border a fait accompli, and the Sunday referendum on Crimea’s future now carried out, it is almost certain that voters will be substantially in favour of hiving Crimea off from Ukraine and sending it spinning Russia-ways.
Initial results appear to be that the voting has gone around 9 to 1 Russia’s way – although the Tatars and some ethnic Ukrainians seem to be boycotting the referendum. Moreover, many who are casting ballots appear to be voting on the basis of their passports or ID documents as their names do not appear on voter rolls, according to international news broadcasts. At the same time, it is almost certain that ethnic Ukrainian feelings towards Russia have suffered a major – even fatal – meltdown that will be extremely difficult to rebuild in future.
It is increasingly likely, too, that if Russia attempts to gain major influence over eastern Ukraine, it may well have bitten off rather more than it can easily digest, given the costs of maintaining the region. Further, it is increasingly likely the maturing relationship between Russia and the West generally will have taken a major step backwards. And finally, those forces inside Russia that were aiming for a progressive westernization and democratisation of that country will also have taken a hit that will be difficult to recover from in the future as a result of pervasive efforts inside Russia to portray the nation under an assault by the West over Ukraine.
In strict cost-benefit terms, it still seems hard to understand exactly how Vladimir Putin had reached this point with his policy – and where, precisely, he hopes to go forward with it, without upsetting the entire applecart of Russian relations with the West. Given the economic cost, analysts in the west are now starting to see this move as something that is rooted in neither strictly political nor economic terms, but, rather, as part of some deeper, mystic sense of Russia’s mission in the world.
If that is truly the case, what does it portend for other neighbouring states in Russia’s “near abroad” with significant ethnic Russian populations such as Kazakhstan, Estonia, Latvia and Lithuania? These are all important, and as yet, still unresolved, questions.
By the time readers are seeing this article, it is likely the results of the referendum in the Crimean Peninsula about dissolving its relationship with Ukraine and moving into the Russian sphere will be known. In this referendum, Crimean residents going to the polling stations were asked, “Are you in favour of the reunification of Crimea with Russia as part of the Russian Federation?” or “Are you in favour of restoring the 1992 Constitution and the status of Crimea as a part of Ukraine?”
The first choice is an obvious pro-independence statement, but even second choice would appear effectively to grant Crimea substantial autonomy, although without an immediate sundering from the government in Kyiv. Even so, it could effectively make such a break inevitable in the long run anyway. As a result, the Ukrainian government and western nations have rejected the vote as illegal – without legally binding force under international law, especially given the more than twenty-thousand Russian troops now on station in Crimea.
Russian government statements have argued that this referendum is effectively the same as Western involvement in Kosovo’s independence, ignoring the fact that Kosovo was already effectively in rebellion against Serbia.
Leonid Slutsky, a member of the Russian parliament, has argued that Crimea will be remembered as the place where Russia stood up to Washington and thus ended American dreams of creating a “unipolar world.”
On a Moscow radio station, Slutsky, who just happens to be head of the Russian parliamentary committee responsible for relations with neighbouring states, argued that the push on Crimea strengthens “Vladimir Putin’s authority in our country” and will be a powerful factor in the on-going “consolidation of our civil society.”
But patriotic expressions like Slutsky’s are countered by the judgement of analysts like Mark Galeotti, a New York University professor now resident in Moscow, who argues that Russia (and its leaders) has let its polices be governed by emotion rather than a more subtle analysis of costs and benefits.
Perhaps Russia’s leaders are even in the business of thinking like the leaders of Czarist times in seeing Russia as the Third Rome – the romantic idea that Russia is the natural heir to the earlier imperial grandeur or Rome and Byzantium.
“In strategic terms, this is a millstone around the neck,” adds Jonathan Eyal, international director of the Royal United Services Institute in London. Or it is an example of a miscalculation by virtue of “Putin’s grandiosity,” as Nina Khrushcheva said on CNN on Sunday evening. Khrushcheva is now a professor at the New School in New York City and she is Nikita Khrushchev’s granddaughter – the Soviet premier who originally handed Crimea over to Ukraine back in 1954. Then it was a cartographic technicality, now it is very different.
In carrying out this effort, the Russians will almost certainly gain some sort of hold over Crimea, but at the cost of the near-total enmity of the Ukrainian population on the peninsula – and that of the Tatars as well. The Tatars represent a little over 12% of the total population there while ethnic Ukrainians are about 28% of Crimea’s inhabitants.
In the process, they have now made the remaining portion of Ukraine that much more ethnically Ukrainian and that much less beholden to or appreciative of Russia, given what has happened in Crimea.
As recently as mid-2013, a Gallup public opinion survey had indicated that only around 17% of Ukrainians viewed the North Atlantic Treaty Organization as a source of protection, while 29% saw it as a threat, and 44% were neutral on the question.
Analysts now believe that public opinion in the country (especially the ethnically Ukrainian portion) has swung heavily toward alliance with the West. As a result, a sea change of Ukraine’s conflicted feelings about its neighbour may be another long-term cost that Russia will suffer from Putin’s tactics, argued Blair Ruble of the Woodrow Wilson International Centre for Scholars.
And there is even the possibility that Russia’s move may end up generating a strain of jihadi feelings (and perhaps even actions) within sectors of the Tatar population, given that group’s historic grievances towards Russia and Russians. The Tatars will certainly be able to draw upon precedents for any such behaviour from what has transpired only a few hundred miles to the east in the Caucasus Mountain regions.
But beyond geo-political questions, there are important economic issues as well. (One just has to wonder if these elements were included in the policy calculations that led up to this Crimean adventure). Yes, it is true that this move could lead to greater certainty over the security of the Russian navy’s Black Sea fleet that had, heretofore, been based in what was a foreign nation, and it will open up Russian claims over offshore fields of natural gas. And since Russia has begun construction of a very expensive undersea pipeline that was designed to bypass Ukraine and deliver gas directly to Europe via another route, Russia may now be able to trim costs of this effort by rerouting it across Crimea.
But consider what might have been the case if Ukraine as a whole had gradually drifted into a closer embrace with Russia – without the use of force. Putin’s Russia would have been able to expand its economic relationship, hold off the European Union’s engagement with Ukraine and it could have had a better ability to control the pipelines that send Russian natural gas on to customers in Western Europe.
But in the language of the financial planners, Crimea has been something of a loss leader, a cost centre, for years. And now it is Russia’s problem. Since Ukraine became independent in 1991, more subsidies have flowed into Crimea from the Ukrainian central government than it has paid in taxes. In future, these funds will need to come from Moscow instead of Kyiv. In fact, because Russian levels of social spending are now rather higher than the case in Ukraine, economists predict it could cost Moscow at least $3 billion per year just to keep the region afloat.
As it is, Russia is already committed to payments of at least $1 billion for the upcoming year, even before any form of annexation. Russia is thus going to have to pony up a great deal more in coming years for its romantic adventure.
In fact, it gets more complex still, and it could get a lot more costly as well. At present, Crimea receives nearly all of its electric power and even most of its drinking water from Ukraine. To cope with these needs, Russia will need to construct a whole new range of infrastructure investments — including a long-planned bridge from Kerch to Crimea —to link Crimea directly to the Russian mainland. But until that bridge and all the related infrastructure comes on stream, Russia will have to swallow hard and budget to pay Ukraine for these crucial utilities.
On the more pessimistic side, still, Russia’s Moskovsky Komsomolets newspaper has analysed the total support that will be needed and it believes Crimea might well end up costing Russia $20 billion over the next three years alone. The psychic benefits better be really good because Crimea is not going to be any kind of cash cow for the Russians. When presented with this estimate, Slutsky told the Washington Post, “Maybe it will be 30 billion dollars. Of course, it will all be quite expensive.” But standing up for Russians in Crimea is worth the cost, he argued. But those romantic visions have tangible price tags.
A Standard and Poor’s analysis, meanwhile, suggests that the shadow economy actually lays claim to a larger share of economic activity than the rest of Ukraine, an influence that can be expected to move beyond its home base on the peninsula. Moreover, tourism, an economic mainstay of the region for years, will almost surely be stunted by this current crisis for months – if not years – to come. Local Crimean leaders have been saying they want to encourage a new boom in tourism in the future – under Russian rule. The fly in that particular ointment, of course, is the massive investment (a reported $50 billion) the Russians have made in that other Black Sea resort – Sochi – for the recent Winter Olympics.
There are broader costs likely to be borne by Russia in the wake of their great patriotic adventure. Russia’s bid to join the 34-nation Organization for Economic Cooperation and Development has now been suspended by the OECD, a clear negative signal to investors, according to Yevsei Gurvich, head of the Moscow-based Economic Expert Group think tank.
Membership in the OECD would have signalled its acknowledgement Russia was prepared to do business according to standardized rules, but “Suspension implies more uncertainty about our willingness,” he said. Gurvich added that the overall sense of uncertainty in Russia on the part of investors would be even more important than the actual impact of sanctions. Still, other experts argue the harm from sanctions will be real enough.
The Washington Post reported, “Alexei Kudrin, a former Russian economics minister, told a gathering Thursday in St. Petersburg that he expects capital flight from Russia to reach $50 billion a quarter if sanctions are imposed. That would be triple the 2013 rate. He said Russian companies are already finding it more difficult to obtain credit from foreign lenders.”
Last year, Vladimir Putin had envisioned Ukraine’s participation in the Russian-led Eurasian Economic Union as a major event. Ukraine, with a population of 46 million, would have become a core element for the plan’s success. The fact then-Ukrainian President Viktor Yanukovych had declined to sign a partnership agreement with the EU at the end of 2013 had apparently been good news for Putin’s goals, but that, in turn, was the spark that set off the protests that led to Yanukovych’s ouster and thus set the current crisis in motion.
Now the likelihood of Ukraine – now that is almost certain to be stripped of Crimea – joining with Russia in this Eurasian Union is ever more unlikely. As the Washington Post reported, “By sending troops to Crimea, refusing to deal on any substantive level with the new government in Kiev and denouncing it as a nest of Nazi sympathizers who can’t control their own country, the Kremlin has all but ensured Ukraine’s turn to the West.”
Now Kyiv officials say they are hoping to sign the originally proffered EU agreement later this month.
While European nations such as Germany have become increasingly dependent on Russian shipped natural gas, Putin’s move into Crimea will likely be the goad that encourages new natural gas trade arrangements. This, in turn, will be to the detriment of Russia since some three-fourth’s of Russian export earnings come from the energy sector, primarily natural gas and petroleum.
Tying economics and international relations together, Andrei Movchan, head of the Third Rome investment management company in Moscow, has criticized Putin for a policy that is only gaining Russia a wave of international enmity while providing few if any tangible benefits. Movchan notes that Iran and China, for example, have remained astonishingly quiet about the Ukrainian crisis and even Belarus and Kazakhstan – already members of the Eurasian Union – have been opening up some daylight between their and Russia’s positions on the Ukrainian situation.
Parliamentarian Slutsky, however, insisted to reporters that the most pressing concern for Russia was to defend Crimea, a territory he argued had been facing the same fate as Iraq, Libya or Yugoslavia — attack and dismemberment at the hands of the West. As a result of its actions, Russia will be the recipient of the gratitude of future generations.
The real challenge, now, is that the end game for this particular crisis is nowhere in sight. Crimea’s referendum will result in real economic as well as international political costs to Russia. The rest of Ukraine is likely to draw more closely to the EU and the West generally – especially if EU financial support and American aid promises come through. Russia has parked additional troops near the Ukraine/Russia border, ostensibly for military exercises, but assuredly as a sign of possible further action as well. The “what next” moments remain unclear so far.
For the West, however, the political risks are important too. This crisis is going to force western nations to determine just how much of a united front on sanctions and other economic actions they are prepared to undertake, in light of EU’s substantial trade connections with Russia. But within the US, the pressure is on for more stiffness in response. Republican Senator John McCain, for example, has said that the US “has to have a fundamental reassessment of our relationship” with Russian President Vladimir Putin.
And finally, within the US’ own political system – with a midterm congressional election already on the horizon – this unanticipated crisis and the Obama administration’s so far restrained (or confused, depending on one’s perspective) response to it may force a more fundamental rethinking on the possibilities of a relationship with Russia, as well as added pressure to increase military spending, presumably to the detriment of domestic programs in an era of acute budgetary austerity. DM
Photo: A Russian army MI-35 military helicopter patrols the area as Ukrainian servicemen guard a checkpoint near the village of Strelkovo in Kherson region adjacent to Crimea, March 16, 2014. REUTERS/Valentyn Ogirenko
Russian President Vladimir Putin may pay heavy price for Crimea moves at the Los Angeles Times;
Under Watch of Russian Troops, Crimea Votes on Secession at the New York Times;
Ukraine crisis: Crimea holds secession referendum at the BBC;
U.S. Foreign Policy Toward Ukraine from the Department of State’s website (Testimony by Eric Rubin Deputy Assistant Secretary, Bureau of European and Eurasian Affairs to the House Foreign Affairs Committee);
McCain urges ‘fundamental’ shift with Russia, in Politico;
Ukraine crisis: Crimea holds secession referendum at the BBC;
Who loses most in Ukraine? At Reuters;
Crimea votes on whether to secede from Ukraine at the AP;
Crimea’s referendum – A predictable outcome – Crimeans are voting on whether to join Russia at the Economist;
Non-interference on the line – The crisis in Ukraine uncovers the hole at the heart of Chinese foreign policy at the Economist;
As Putin’s Popularity Soars, Voices of Opposition Are Being Drowned Out at the New York Times;
Ukraine Jews refute Russia’s ‘neo-Nazi’ claims, from the AFP via Digital Journal;
Crimea as consolation prize: Russia faces some big costs over Ukrainian region at the Washington Post;
Crimea, a Pyrrhic Victory? (A column by Vali Nasr of the Johns Hopkins School of Advanced International Studies) in the New York Times;
Why America doesn’t understand Putin (a column by Georgetown University Professor Angela Stent) at the Washington Post;
Crimea Through a Game-Theory Lens at the New York Times.