(L-R) Gennady Timchenko, Arkady and Boris Rotenberg / Getty
Vladimir Putins’s annexation of the Crimea appears to be a carefully planned strategic move to restore elements of the former Soviet Union, which broke up over twenty years ago in 1991. It is a move based, moreover, on a putatively strong enough, energy-based, Soviet economy he and his advisors believe can withstand any ensuing international outcry.
While it is also true, as Henry Kissinger himself pointed out a week ago, that Russia has deep roots in the Crimea, and also in the eastern part of the Ukraine, which go back many centuries so too did Serbia have deep roots in Kosovo – a historical process which also did not end well. The Balkans and parts east thereof represent a number of fault lines in world history, it seems, some of the consequences of which are still being felt today.
Putin may be right in the short term to think Russia can now simply ride this out, as reactions from the West have so far been fairly muted, given the enormous trading and financial links that have been established in both directions.
The French still want to deliver the new warships they are building for Russia; the British still want to leave their financial markets open to the dozens of oligarchs who have established a presence there; the Germans are apoplectic about losing their hard won new eastern markets in Russia, for all their manufactured exports. And Europe as a whole is today significantly dependent on Russian exports of natural gas, currently for as much as 25% of its gas requirements.
In the short term the Americans have chosen a mild response so far, as well, with the US Treasury Department putting out a list of names of 20 billionaires who are said to be particularly close to Vladimir Putin himself, and whom the US is now sanctioning personally, which might put a serious crimp in their ability to move their money around.
Even this is hardly an earthquake, and the oligarchs have already had plenty of time to take precautionary steps to limit the fallout. Gennady Timchenko, for example, who runs the Geneva based energy trading group Gunvor, which handles a lot of Russian oil exports, is already said to have sold his shares to his partner, Swedish trader Torbjorn Tornqvist, until the storm blows over.
Yung Arkady Rotenberg and Vadimir Putin
However, it is almost as if Russia would have reacted to, say, the American invasion of Grenada by sanctioning businessmen like Warren Buffet or George Soros, for example. The question then simply becomes what do you do next?
But the Treasury Department sanctions list does at least provide President Obama with some political cover for not doing more, so from his point of view it has a certain logic to it. Some critics, such as Russian opposition activist Alexey Navalny have also already called for the list to be extended to include obviously private parties with little interest in politics, such as Roman Abramovich. One would have to think this is unlikely, however, especially as the British government, for one, will likely be opposed to it because of its potential impacts on the City of London.
The Germans are keeping their heads down, too, as Angela Merkel seems to be caught between her own previous rhetoric over the revolution in the Ukraine and the pressures coming from German business interests. Indeed the European Union’s wider dream of a conflict free world, led by the example of a Europe where disagreements are always arbited by the requirements of an idealistic interpretation of international law, has always seemed a little naïve in a turbulent world.
This new dispute right in their own backyard, therefore only accentuates that the EU dream may actually be a nightmare instead. Sanctions are also a blunt instrument and unlikely to have much short term political effect, particularly as Putin has in recent years cowed all the oligarchs around him into complete obedience, over political matters, with his long incarceration of Mikhail Khodorkovsky who at one point had dared to oppose him.
Longer term, however, refraining from new forms of long term economic and technology cooperation could have much deeper impacts. Russia may certainly now risk seeing Europe, which is energy scarce, gradually withdraw from its Russian Gazprom embrace, and increasingly take liquid natural gas supplies from the United States, which is newly awash with energy, and drowning in gas in particular, from its recent shale gas discoveries and technology developments there.
The Russian economy is already weak, growing only by just over 1 percent in 2013. For 2014, forecasts of no growth at all are now expected. Investors took US$35 billion out of Russia in January and February – alrady half as much as in the whole of last year. These outflows could rise to as much as US$50 billion per quarter if sanctions get tougher, Putin’s own advisor Alexei Kudrin has warned.
Whereas, in recent years, Russia had made substantial progress with a policy of gradually wooing Western Europe away from its partnership with America, this trend will now likely go full speed into reverse again. All for the Crimea, which is an economic basket-case and likely in the future to be a heavy burden rather than a strategic asset, naval base excepted?
From the Western point of view this is very hard to fathom, and it only really makes sense from a point of view of old-fashioned Russian nationalism, which of course should not be discounted even if we don’t fully understand it from the outside. Nevertheless it will be a pity if this is where we end up again – back to the future and, at worst, the cold war all over again.