After Crimea: Options for the West

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Russia’s military intervention in Crimea, whatever its consequences for Ukraine itself, is first and foremost a gauntlet thrown down to the West. How the West responds will shape the future of Russia, Ukraine, and the European project for a generation.

Regardless of the wisdom of Western support for Ukraine’s Euromaidan protest movement, regardless of the unsavory makeup of Kiev’s interim government, and regardless of the mistakes made by all sides in recent months, the reality is this: for the second time in six years, Russian President Vladimir Putin is using force in the territory of another sovereign country to achieve what he could not accomplish through diplomacy.

In so doing, he is setting up a militarized border beyond which he will not allow the European integration project to progress. If the EU and the West more broadly accept that border, they will almost certainly be called upon to defend it in the future.

Recognizing Putin’s new frontier also means condemning the next generation of Ukrainians, Belarusians, Georgians, Armenians, Azerbaijanis, and, indeed, Russians to isolation. If, however, the EU and the West choose not to accept that border, they have a chance to demonstrate that there is still life in their liberal project, and that there are certain forces that even Putin cannot resist.

War is not an option. There was never anything that Washington, Brussels, London, Berlin, or anyone else could have done to prevent a determined Moscow from occupying Ukrainian territory. It is up to Kiev to decide whether Ukraine will fight a shooting war with Russia, but it will make that decision in the knowledge that no one in the West will enter into a military conflagration.

Yet Ukraine and those who seek to support it should make it clear that further Russian troop advancements—particularly beyond Crimea itself—will not be risk-free. So far, Russian popular support for this intervention rests on the assumption that it will be bloodless. But the farther Russia extends into Ukraine’s heartland, the likelier it is that lives will be lost.

What other options are available to Western governments? The easiest responses are symbolic: withdrawing ambassadors, canceling summits (including the G8 meeting scheduled for Sochi in June), and perhaps even threatening to boycott the 2018 FIFA World Cup, to be hosted by Russia.

If that is the full extent of the “costs” to which U.S. President Barack Obama was referring in his statement on the situation in Ukraine on February 28, that is a price that Putin is almost certainly willing to pay.

The real price, of course, will be higher, almost regardless of any action taken by Western leaders. Currency markets will further punish the ruble. Western investors, who dominate Russia’s financial markets, are likely to flee, as they did in August 2008, when Russia invaded another neighbor, Georgia. The result will be skyrocketing costs of capital for Russia’s business elite, who are Putin’s most important domestic constituency.

The open secret of the Russian economy is its dependence on international financial markets. What has for fifteen years looked like a one-to-one relationship between oil prices and Russian GDP masks the fact that money from the sale of hydrocarbons and other commodities rarely comes back to Russia directly: much of it is kept offshore, where it is leveraged through banks and capital markets. As a result, the Russian Central Bank estimates the country’s foreign-currency denominated corporate debt at about $630 billion, or about 31 percent of GDP.

In 2008–2009, Russia’s biggest international corporate debtors required a $200 billion bailout. That encouraged the government to look for ways to drive down borrowing costs, mostly by speeding up Russia’s economic integration with the West and improving perceptions.

Hence, Russia revived its moribund bid for accession to the World Trade Organization, joining in 2012. Moscow is now pursuing admission to the Organization for Economic Cooperation and Development (OECD) and the International Energy Agency (IEA).

If the West plunges headlong into open confrontation with Russia—something that may be unavoidable if events in Ukraine take a violent turn—that would push Moscow into self-isolation. At least for a time, Russia’s elites and masses alike would unite around a patriotic Putin. And rhetorical bluster, absent truly powerful action, will only embolden the Kremlin further. The West may be best served by speaking softly, provided it understands the full weight of the economic stick that it wields.

The most effective course of action for anyone looking to put pressure on the Kremlin may be to drive up the cost of capital still further. While Washington may feel empowered, even compelled, to impose broad economic sanctions, it is unlikely that an EU still dependent on Russian hydrocarbons will take such a concerted approach.

In any case, sanctions would be most damaging to ordinary Russians, who would see their cost of living increase. They are just as much hostages in the current crisis as are the Ukrainians.

This is not a conflict of the Russian people’s choosing. But the EU and the United States can make it clear that Russia’s elite will not enjoy the reduced transaction costs that come with being a member of the clubs that Moscow has been so eager to join.

In this regard, calling off Russia’s OECD and IEA accession, suspending strategic EU-Russia talks on visa facilitation and trade, and canceling business delegations would not be merely symbolic gestures. These are the sorts of things to which markets react, in both the short and the long term, and the markets speak a language that Moscow understands well.

Putin may become popular with nationalists if he can bring them Crimea, but he will quickly become unpopular with his elite if he cannot bring them continued wealth. It is the latter who keep him in power.


Samuel A. Greene is director of the King’s Russia Institute at King’s College London. He was formerly deputy director of the Carnegie Moscow Center.



Comments (4)

  • Maksym, Kyiv (Ukraine)
    UK and USA must immediately consult with RF under para. 6 of Budapest Memorandum dated 5 December 1994, because RF breached its commitment under this instrument to respect the Independence and Sovereignty and the existing borders of Ukraine when its armed forces entered Crimea.
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  • Olaf

    Thank you for great article.

    I share similar view,

    Towards your last paragraph, Perhaps Putin wants to change his electorate and patronage from controlling elites to emotionally controllable mobs?

    He already reinvented history and ethos and he doesn’t like unpatriotically rich liberal lifestyles.

    I have strange Deja Vu feeling that I had seen similar story unfolding 70/80 years ago. At least a plenty uncanny parallels and rhetoric.

    What are we to do now?
    Talk some more about how bold and ungentlemanly is his behaviour.
    (I would call it practical) and like a good chess man I would block him and/or lead him into a trap depending on his reaction.

    Ball is in our court, but everyone in "our world" tries to avoid it.

    IF Institutions of "West" Fail under any excuse Ukraine or at least the people who in their noble and somewhat naive or misguided and pure interpretation of liberty reached out for freedom of conscience, then the validity and charter of this institutions will be void and rendered obsolete, as it will then betray its core values
    Putler must be stopped, now, and we should be unafraid to stand and defend this cultural transition now and not tomorrow when it’s too late.

    Besides having a solid stick in one hand and be unashamed to use it always helps to reinforce arguments for positive change.
    For those who do not know how to reach and talk to Putin, just look and read the methods he is using and understanding when advancing his arguments. He will listen to the response delivered in “this” language.

    Once More Cheers for forum and article.
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  • Michael Howard, Dayton Alumni, daytonohiovolunteer
    Like it or not Russia will fight for Crimea. It Is lost! Barter and exchange is in order here. UN forces on the border with Ukraine in a buffer zone like the DMZ
    in Korea would be as good as it will get. No Western troops there at first but later. In exchange Russia should guarantee safe passage of the Ukraine military and All of it's property out of Crimea. All military material such as Naval ships should be allowed to leave under a truce from Crimea and sail for another port in Ukraine under UN supervision as well as all Ukraine troops from their bases in Crimea. Russia should grant the bases the time needed to remove equipment such as what was done in Syria. After the departure Russia should pay in cash the full market value for the land and materials taken under duress including mineral wealth of the land and any other consideration that needs addressing.
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  • elena cherniavska
    Dear MrTechau,
    Thank you for the succint and lucid analysis.
    It never ceases to amaze me, hoe EU member-states individually manage to thwart whaever reasonable policies and agendas developed by the EC and the Parliament.
    That refers to the western Balkans as much as the eastern partnership.
    Point taken about the transatlantic partnership.
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