Why Putin Is Likely to Lose His War over Crimea
by Anders Aslund | Peterson International Institute for Economics, March 5th, 2014 | 02:12 pmShare on twitterShare on linkedinShare on facebookShare on email|
The Russian attack on Crimea on Thursday, February 27 was a spectacular example of naked military aggression. The stand-off over Crimea continues. Russian troops control almost the whole peninsula, but Ukrainian military garrisons persist. No modern nation is likely to get away with such an outrageous violation of multiple international laws. Europe and the United States are assembling substantial aid packages for Ukraine to shore up its finances. But the ultimate aim of Western policy should be to get Russia to withdraw its troops from all Ukrainian territory. The firmer Western policy is, the faster this can be accomplished.
The Russian invasion started with Russian troops, not bearing any insignia, occupying the parliament without any declaration from Russia itself. Indeed, it was not obvious that these were Russian troops. But the next day similar troops occupied the two big airports in Crimea, also without any declaration. On March 1, Russia started flying in troops and military materiel.
After occupying the Crimean parliament, the Russian troops appointed a representative of a marginal pro-Russian party that got 4 percent of the vote in the last regional elections to the post of “prime minister.” This appointee, Sergei Aksyonov, is better known under his criminal nickname “Goblin,” which he earned as an alleged member of an organized crime group in the 1990s.
The Kremlin needed to turn to such an insignificant and dubious figure, because there was no substantial separatist movement in Crimea, no inter-ethnic violence and no discrimination against Russians or the Russian language in Ukraine. In no way can anybody justify the claim that Russian-speaking people have suffered. The Russian military occupation of Crimea has nothing to do with any separatist movement in Ukraine or objections to the change in government in Kiev. It is naked aggression by Russia against Ukraine’s national integrity and sovereignty.
Only on Saturday, March 1 did President Vladimir Putin ask his rubber-stamp Federation Council in Moscow to approve his invasion, adopting a law authorizing it. He claimed: “Russia retains the right to protect its interests and the Russian-speaking population of those areas.” But none of their rights had been violated. In fact, their rights have been violated by the Russian troops suppressing the freedom of citizens in Ukraine under hard authoritarian rule.
In its invasion of Crimea, the Russian Federation has violated numerous international agreements, including the United Nations Charter, the Helsinki Final Act and other treaties of the Organization for Security and Cooperation in Europe, the Budapest Memorandum on Security Assurances for Ukraine of December 1994, the Russian-Ukrainian Friendship Treaty of 1997, the Sevastopol Naval Base Agreement of 1997, and an additional Sevastopol agreement of 1998. The Kremlin has also refused to accept consultations with Ukraine as is required by the Budapest Memorandum. The only mitigating element is that no killing has started as yet. But the current standoff is not tenable, and major bloodshed is possible. This Kremlin adventure needs to stop before that happens.
Russia is now a pariah state, condemned by countries across the political spectrum around the world. That has many implications. President Putin, whose news conference in Moscow on March 4 was a masterpiece of falsehoods and evasions, has joined with Foreign Minister Sergei Lavrov in promoting so many lies about Russia’s actions that pursuing any conversation with them seems useless at this point. Rather, they need to be told what Ukrainian and Western policy is. In terms of sheer international criminality, Europe has not seen anything of the kind since the Warsaw Pact invasion of Czechoslovakia in 1968.
Many Americans, lacking an appetite for confrontation with Moscow, and fearing a revival of cold war era tensions, have stated: Let Russia have Crimea! But that position is not tenable. The principles of national integrity and the nonviolation of borders are vital for our world order, and they have to be restored. Moreover, Crimea accounts for one-tenth of Ukraine’s territory, and its waters contain plenty of oil and gas. Two million Ukrainian citizens would be transferred from Ukrainian freedom to Russian authoritarian rule. Despite the impression conveyed by pro-Russia demonstrators organized in Crimea, ethnic Russians in Ukraine overwhelmingly prefer Ukraine, which has accepted scores of political refugees from Putin’s Russia.
In any case, fears of a military confrontation are overblown. The West can force Russia to withdraw without firing a shot. The European Union might not be a military superpower, but it is an economic one, unlike Russia. The EU economy is more than ten times the size of Russia’s.
Three main reasons are behind Putin’s action, none of which he publicly acknowledges. First, he sees Ukraine’s democratic breakthrough as a direct threat to himself. Second, the Ukrainian democratization movement has targeted the country’s kleptocrats, threatening Putin and his cronies in Russia who have engaged in identical corruption and abuses. Third, the Ukrainian democrats have declared that they prefer European integration to Putin’s protectionist and neo-imperialist Eurasian Union, rendering the Eurasian Union stillborn. Presumably another consideration is that ordinary Russians regret having lost their old holiday paradise Crimea and would like to see it incorporated into Russia. A draft law on annexation of Crimea has already been registered in the Russian State Duma.
If Russia does not withdraw its troops from Crimea soon, a military clash could erupt that could lead to a costly and unpredictable war. Ukraine is now carrying out a full mobilization. Its military forces are no pushover. They number 150,000 regular soldiers and 1 million reserves. Neither side wants to start shooting. The Russian troops on Crimea have surrounded the remaining Ukrainian garrisons on Crimea and ask for their surrender, clearly aware of the danger of starting a killing spree. The Ukrainian military wants to mobilize in the rest of the country before any such occurrence.
The West—the European Union and the United States—can and must rein in Russia as long as President Putin has some sense of reality and rationality, which is no longer evident. The G-7 has already suspended preparations for the G-8 summit planned for Sochi in June. They should go further and expel Russia from the G-8. The G-7 was established as an organization for the advanced industrial democracies, and Russia was invited in the 1990s in the hope that it would align with these values. But at present Russia is no democracy.
The West needs to raise Russia’s many political sanctions in the World Trade Organization, since they violate Russia’s commitments. A country with such poor legal standards has no place in the Organization for Economic Cooperation and Development (OECD), the larger club of advanced industrial democracies. Russia’s accession process must be stalled. The European Union can forget any free trade agreement with Russia until a new regime has arrived in Moscow. The United States has already taken the planned bilateral investment treaty off the table.
But the Kremlin’s fundamental mistake has been to ignore Russia’s economic weakness and dependence on Europe. On March 3, the Russian Trading System (RTS) stock market index plummeted by 12 percent. In particular, the prices of the stocks of large state-owned companies plunged. The Gazprom stocks fell by 15 percent and the state bank VTB by 20 percent. The ruble fell by 1.9 percent in relation to the US dollar, and the Central Bank of Russia was forced to raise its policy rate from 5.5 percent to 7.0 percent to impede the run on the ruble. Putin’s invasion of Ukraine started a financial panic in Moscow. The Russian economy was earlier set to stagnate, but now it is likely to contract.
The evidence is clear that Russia has undertaken preparations for an invasion of Southern and Eastern Ukraine. Russia-instigated attempts to take over the regional administration buildings in at least eight big eastern and southern cities were launched in a coordinated manner on March 1. Well-known Kremlin-backed Russian activists were spotted in these places, and they put up Russian flags on some administrative buildings. Meanwhile Russia had 150,000 soldiers on official alert on the Ukrainian border. In the evening of March 3, it looked as if Russia was about to invade Ukraine across the land border.
This highly charged situation reversed itself when Putin dialed back his intentions at a highly-controlled press conference on March 4, an obvious response to the economic pressure on Russia. The military alert was over. The Kremlin-led activists in Ukraine calmed down, and Kiev managed to keep control. The feared land invasion into Ukraine did not occur. Putin defined the issue as Crimea, not an intervention in the rest of the country. The RTS index rose by 6 percent on March 4, recovering almost half of its fall the preceding day, but the problem with Russia’s occupation of Crimea remains and must be resolved.
The West has mainly four means to do so. First, due diligence is an underestimated force. With its great economic power, Europe can have great impact just by applying existing rules more rigorously. By normal standards, many big Russian state companies would be considered organized crime syndicates—notably Gazprom, because its management and state top officials tap some $30 billion from that company each year. According to current legal standards, European financial institutions should not be allowed to deal with the big Russian state companies. To a large extent, the United States has already implemented such rules.
Second, both the United States and the European Union have rigorous rules against money laundering. Many Russian state officials have bank accounts in EU countries. That is against the rules, and rules should be followed.
Third, the European Union has already sanctioned Belarusian and Ukrainian authoritarian kleptocrats. Why not go for the worst kleptocrats in Moscow? The routines are in place, and this would hurt the Kremlin kleptocrats the most. Essentially such a step would be a matter of properly applying existing legislation on money laundering.
The fourth and truly nuclear option would be an EU gas boycott. One quarter of Russia’s exports consist of gas that is almost exclusively exported through pipelines to Europe at excessive prices and under dubious contracts. But the energy landscape has changed in recent years, notably because of new technologies that have opened up new sources of natural gas in North America and elsewhere around the world. As a result, Europe can turn the tables on Gazprom. After its prior gas supply cuts in 2006 and 2009, Europe has expanded its liquefied natural gas (LNG) imports from other sources. Europeans have also constructed gas converters and built up months of gas storage. The European Union can easily and cheaply replace Gazprom’s gas with LNG and gas from Norway, while Gazprom cannot export its gas anywhere because of its neglect of alternative infrastructure. If the European Union sanctions Russia’s gas supply to Europe, Russia would lose $100 billion or one-fifth of its export revenues, and the Russian economy would plunge into crisis.
Together, the United States and the European Union have many economic and legal levers at their disposal. They need to act jointly and fast. For the sake of world peace and the international order, they should be applied until Russia withdraws its troops from Crimea. President Putin needs to realize that he can not win in Crimea, and if he does not withdraw his troops from Ukraine, the decline of the Russian economy will pose a greater threat to his power in Russia than Ukraine’s democratization.
The Russian invasion started with Russian troops, not bearing any insignia, occupying the parliament without any declaration from Russia itself. Indeed, it was not obvious that these were Russian troops. But the next day similar troops occupied the two big airports in Crimea, also without any declaration. On March 1, Russia started flying in troops and military materiel.
After occupying the Crimean parliament, the Russian troops appointed a representative of a marginal pro-Russian party that got 4 percent of the vote in the last regional elections to the post of “prime minister.” This appointee, Sergei Aksyonov, is better known under his criminal nickname “Goblin,” which he earned as an alleged member of an organized crime group in the 1990s.
The Kremlin needed to turn to such an insignificant and dubious figure, because there was no substantial separatist movement in Crimea, no inter-ethnic violence and no discrimination against Russians or the Russian language in Ukraine. In no way can anybody justify the claim that Russian-speaking people have suffered. The Russian military occupation of Crimea has nothing to do with any separatist movement in Ukraine or objections to the change in government in Kiev. It is naked aggression by Russia against Ukraine’s national integrity and sovereignty.
Only on Saturday, March 1 did President Vladimir Putin ask his rubber-stamp Federation Council in Moscow to approve his invasion, adopting a law authorizing it. He claimed: “Russia retains the right to protect its interests and the Russian-speaking population of those areas.” But none of their rights had been violated. In fact, their rights have been violated by the Russian troops suppressing the freedom of citizens in Ukraine under hard authoritarian rule.
In its invasion of Crimea, the Russian Federation has violated numerous international agreements, including the United Nations Charter, the Helsinki Final Act and other treaties of the Organization for Security and Cooperation in Europe, the Budapest Memorandum on Security Assurances for Ukraine of December 1994, the Russian-Ukrainian Friendship Treaty of 1997, the Sevastopol Naval Base Agreement of 1997, and an additional Sevastopol agreement of 1998. The Kremlin has also refused to accept consultations with Ukraine as is required by the Budapest Memorandum. The only mitigating element is that no killing has started as yet. But the current standoff is not tenable, and major bloodshed is possible. This Kremlin adventure needs to stop before that happens.
Russia is now a pariah state, condemned by countries across the political spectrum around the world. That has many implications. President Putin, whose news conference in Moscow on March 4 was a masterpiece of falsehoods and evasions, has joined with Foreign Minister Sergei Lavrov in promoting so many lies about Russia’s actions that pursuing any conversation with them seems useless at this point. Rather, they need to be told what Ukrainian and Western policy is. In terms of sheer international criminality, Europe has not seen anything of the kind since the Warsaw Pact invasion of Czechoslovakia in 1968.
Many Americans, lacking an appetite for confrontation with Moscow, and fearing a revival of cold war era tensions, have stated: Let Russia have Crimea! But that position is not tenable. The principles of national integrity and the nonviolation of borders are vital for our world order, and they have to be restored. Moreover, Crimea accounts for one-tenth of Ukraine’s territory, and its waters contain plenty of oil and gas. Two million Ukrainian citizens would be transferred from Ukrainian freedom to Russian authoritarian rule. Despite the impression conveyed by pro-Russia demonstrators organized in Crimea, ethnic Russians in Ukraine overwhelmingly prefer Ukraine, which has accepted scores of political refugees from Putin’s Russia.
In any case, fears of a military confrontation are overblown. The West can force Russia to withdraw without firing a shot. The European Union might not be a military superpower, but it is an economic one, unlike Russia. The EU economy is more than ten times the size of Russia’s.
Three main reasons are behind Putin’s action, none of which he publicly acknowledges. First, he sees Ukraine’s democratic breakthrough as a direct threat to himself. Second, the Ukrainian democratization movement has targeted the country’s kleptocrats, threatening Putin and his cronies in Russia who have engaged in identical corruption and abuses. Third, the Ukrainian democrats have declared that they prefer European integration to Putin’s protectionist and neo-imperialist Eurasian Union, rendering the Eurasian Union stillborn. Presumably another consideration is that ordinary Russians regret having lost their old holiday paradise Crimea and would like to see it incorporated into Russia. A draft law on annexation of Crimea has already been registered in the Russian State Duma.
If Russia does not withdraw its troops from Crimea soon, a military clash could erupt that could lead to a costly and unpredictable war. Ukraine is now carrying out a full mobilization. Its military forces are no pushover. They number 150,000 regular soldiers and 1 million reserves. Neither side wants to start shooting. The Russian troops on Crimea have surrounded the remaining Ukrainian garrisons on Crimea and ask for their surrender, clearly aware of the danger of starting a killing spree. The Ukrainian military wants to mobilize in the rest of the country before any such occurrence.
The West—the European Union and the United States—can and must rein in Russia as long as President Putin has some sense of reality and rationality, which is no longer evident. The G-7 has already suspended preparations for the G-8 summit planned for Sochi in June. They should go further and expel Russia from the G-8. The G-7 was established as an organization for the advanced industrial democracies, and Russia was invited in the 1990s in the hope that it would align with these values. But at present Russia is no democracy.
The West needs to raise Russia’s many political sanctions in the World Trade Organization, since they violate Russia’s commitments. A country with such poor legal standards has no place in the Organization for Economic Cooperation and Development (OECD), the larger club of advanced industrial democracies. Russia’s accession process must be stalled. The European Union can forget any free trade agreement with Russia until a new regime has arrived in Moscow. The United States has already taken the planned bilateral investment treaty off the table.
But the Kremlin’s fundamental mistake has been to ignore Russia’s economic weakness and dependence on Europe. On March 3, the Russian Trading System (RTS) stock market index plummeted by 12 percent. In particular, the prices of the stocks of large state-owned companies plunged. The Gazprom stocks fell by 15 percent and the state bank VTB by 20 percent. The ruble fell by 1.9 percent in relation to the US dollar, and the Central Bank of Russia was forced to raise its policy rate from 5.5 percent to 7.0 percent to impede the run on the ruble. Putin’s invasion of Ukraine started a financial panic in Moscow. The Russian economy was earlier set to stagnate, but now it is likely to contract.
The evidence is clear that Russia has undertaken preparations for an invasion of Southern and Eastern Ukraine. Russia-instigated attempts to take over the regional administration buildings in at least eight big eastern and southern cities were launched in a coordinated manner on March 1. Well-known Kremlin-backed Russian activists were spotted in these places, and they put up Russian flags on some administrative buildings. Meanwhile Russia had 150,000 soldiers on official alert on the Ukrainian border. In the evening of March 3, it looked as if Russia was about to invade Ukraine across the land border.
This highly charged situation reversed itself when Putin dialed back his intentions at a highly-controlled press conference on March 4, an obvious response to the economic pressure on Russia. The military alert was over. The Kremlin-led activists in Ukraine calmed down, and Kiev managed to keep control. The feared land invasion into Ukraine did not occur. Putin defined the issue as Crimea, not an intervention in the rest of the country. The RTS index rose by 6 percent on March 4, recovering almost half of its fall the preceding day, but the problem with Russia’s occupation of Crimea remains and must be resolved.
The West has mainly four means to do so. First, due diligence is an underestimated force. With its great economic power, Europe can have great impact just by applying existing rules more rigorously. By normal standards, many big Russian state companies would be considered organized crime syndicates—notably Gazprom, because its management and state top officials tap some $30 billion from that company each year. According to current legal standards, European financial institutions should not be allowed to deal with the big Russian state companies. To a large extent, the United States has already implemented such rules.
Second, both the United States and the European Union have rigorous rules against money laundering. Many Russian state officials have bank accounts in EU countries. That is against the rules, and rules should be followed.
Third, the European Union has already sanctioned Belarusian and Ukrainian authoritarian kleptocrats. Why not go for the worst kleptocrats in Moscow? The routines are in place, and this would hurt the Kremlin kleptocrats the most. Essentially such a step would be a matter of properly applying existing legislation on money laundering.
The fourth and truly nuclear option would be an EU gas boycott. One quarter of Russia’s exports consist of gas that is almost exclusively exported through pipelines to Europe at excessive prices and under dubious contracts. But the energy landscape has changed in recent years, notably because of new technologies that have opened up new sources of natural gas in North America and elsewhere around the world. As a result, Europe can turn the tables on Gazprom. After its prior gas supply cuts in 2006 and 2009, Europe has expanded its liquefied natural gas (LNG) imports from other sources. Europeans have also constructed gas converters and built up months of gas storage. The European Union can easily and cheaply replace Gazprom’s gas with LNG and gas from Norway, while Gazprom cannot export its gas anywhere because of its neglect of alternative infrastructure. If the European Union sanctions Russia’s gas supply to Europe, Russia would lose $100 billion or one-fifth of its export revenues, and the Russian economy would plunge into crisis.
Together, the United States and the European Union have many economic and legal levers at their disposal. They need to act jointly and fast. For the sake of world peace and the international order, they should be applied until Russia withdraws its troops from Crimea. President Putin needs to realize that he can not win in Crimea, and if he does not withdraw his troops from Ukraine, the decline of the Russian economy will pose a greater threat to his power in Russia than Ukraine’s democratization.