Forget the drama: A solution for Crimea

By Anatole Kaletsky
March 28, 2014

President Vladimir Putin has disastrously miscalculated and Russia now faces deeper isolation, tougher sanctions and greater economic hardship than at any time since the Cold War. So declared President Obama after the NATO summit in Brussels.

European leaders have sounded even tougher than Obama, though less specific. Some whose countries lie far from Russia — for example, British Prime Minister David Cameron — have whipped themselves into a fury reminiscent of King Lear: “I will do such things — what they are, yet I know not, but they shall be the terrors of the earth.”

For more specificity we must turn to pundits. Geopolitical experts have predicted global anarchy because of the violation of postwar borders; economists have warned of crippling trade wars as European financial sanctions collide with Russian energy counter-measures, and eminent financial analysts have argued that investors and businesses are dangerously under-pricing enormous geopolitical risks.

Yet Putin seems unperturbed by these threats — and financial markets seem to agree with him. Since the Crimean referendum in mid-March, stock markets around the world have rebounded to almost their record highs, and the ruble and the Moscow stock exchange have been among the world’s strongest markets. Investors seem to have accepted the Russian annexation of Crimea as a fairly harmless fait accompli, with no major consequences for global prosperity or even for Europe.

Markets do not always get politics right. But in this case there are persuasive reasons for putting more faith in the calm financial judgment than in dramatic headlines and belligerent political rhetoric.

Putin and the markets are probably right because the Russian leader has already achieved all the main objectives he set himself after the overthrow of President Viktor Yanukovich in Kiev. His initial objective was to punish Ukrainian nationalists and their Western allies for ousting Yanukovich by inflicting on Ukraine a serious geopolitical loss and military humiliation. This he has done spectacularly.

More important, Putin has delivered to the Russian people their first territorial conquest since the 1940s. And not just any old territorial conquest — but one with historical and strategic importance, as well as sentimental and cultural resonance for every Russian who had dreamt of retiring in the Crimea, a region whose status in the old Soviet Union could be roughly equated to Florida or the Cote d’Azur. By annexing Crimea, with its spectacular scenery, beautiful resorts and balmy climate (at least by Russian standards), Putin has won enormous popularity with the Russian public.

Perhaps most important, Putin’s rapid reaction put a stop to any potential political contagion — where the populist overthrow of a corrupt and authoritarian oligarch in Kiev might have metastasized into a revolutionary movement that could sweep across Eastern Europe all the way to Moscow. Just as the Arab Spring had swept across North Africa to Cairo.

Not bad for a week’s work. Now, as he plans for the coming months and years, will Putin prefer to enjoy the fruits of his victory in Crimea? Or will he seek further confrontation with the West by trying to expand Russian territory even more or trying to reconstitute the old Soviet Union?

Though nobody can be sure of the answer, the past behavior, not only of Putin but of most Russian leaders, has been primarily defensive. This makes the first option more likely — as long as the West and Ukraine do not seriously challenge the annexation of Crimea, which Putin must now regard as his greatest historic achievement and his guarantee of popularity and power.

Since all Western leaders recognize that Crimea will not be recovered — and is not worth fighting for — there will soon be no point in seriously challenging Russia’s annexation, any more than the West challenges Israel’s annexation of Jerusalem. Once Western pressures subside on Crimea, Russian threats to intervene in the rest of Ukraine will likely disappear.

That, in turn, will mean no tightening of Western sanctions against Russia. For despite the belligerent tone of this week’s remarks from Obama and other Western leaders, their content was quite conciliatory. They all agreed that sanctions would be tightened only if Russia takes further action against Ukraine or other countries. If that doesn’t happen — and there is no reason to think it will — the current cosmetic sanctions could remain in place forever without causing any major inconvenience to either side.

Once this stalemate is acknowledged, as it presumably will be after a few months of posturing, all sides in the conflict will have strong incentives to agree on a mutually satisfactory resolution. Putin will want to restore relations with the West. Ukraine will desperately want to restore Russian trade and avoid resentment among the Russian-speaking population. And the West will want Russian cooperation in stabilizing Ukraine — since Russian hostility would permanently cripple the Ukrainian economy, making it far too expensive for the European Union to support.

Luckily, the main conditions of a mutually satisfactory deal are clear and have in fact been suggested by all sides at different times. It includes a new Ukrainian constitution with decentralized powers for the Russian-speaking regions, de facto, if not de jure; acquiescence in Russian control of Crimea, and agreement that Ukraine will not be economic ready or militarily eligible to join either the North Atlantic Treaty Organization or the European Union for at least a decade or two.

Why, then, is almost nobody predicting such a conciliatory, negotiated resolution to the Ukraine crisis? The main reason is one I have often noted in this column, when discussing far more mundane battles over monetary and fiscal policy in Washington. Politicians, the media and even financial analysts often have vested interests in dramatizing confrontation — the media because battles are more interesting than negotiations; politicians because confrontations makes them seem tough; analysts because high drama justifies high pay.

Over-dramatizing is achieved through a simple rhetorical device. Political speeches and media stories ignore the events that probably will happen — like those described above — because these are deemed too dull. Instead politicians and commentators focus on the exciting and dramatic events that could happen in some improbable scenario, such as an all-out war between Russia and Ukraine, while ignoring the low probability.

But if high drama is more important than high probability, why bother with Putin, Obama and Yanukovich? Why not watch a truly great drama like King Lear?

 

PHOTO (TOP): Russian President Vladimir Putin takes part in a state awards ceremony in Moscow’s Kremlin March 24, 2014. REUTERS/Alexei Nikolskiy/RIA Novosti/Kremlin

PHOTO (INSERT 1): Russian troops enter a military base in Perevalnoye, near the Crimean city of Simferopol, March 21, 2014. REUTERS/Shamil Zhumatov

PHOTO (INSERT 2): Ukrainian marines attend a welcoming ceremony after their return from a Ukrainian military base in the Crimean port city of Feodosia, in Kiev, March 27, 2014. REUTERS/Gleb Garanich

14 comments

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Perhaps if Russia had only invaded a neighboring country for the first time in recent memory, we could decide to drop the issue and settle things down. But it’s not the first time, as Russia did the same thing to Georgia in 2008. With two unjustified invasions (key word: unjustified), it’s starting to look like a pattern. If the West doesn’t act to stop Putin from further tearing up the map of Europe, well then why should Putin stop himself?

Posted by delta5297 | Report as abusive

There are a few important implications of Crimea annexation by Russia.
South Stream (SS) gas pipeline will be finally developed fast (Ukraine tried to halt the project as it would exclude Ukraine as gas transit country for Russian gas). Although at present politicians in Brussels speak about SS as a “dead project” and want to diversify out of Russian dependence etc., they will change their mind after May visit of President Putin in China. A large gas deal will be probably signed then. China will become 2nd largest natural gas consumer (after US) in 10 years with imports of over 200 bcm/year and consumption of over 400 bcm/year.
Idea of Nabucco pipeline officially is a history. With Syria land route secured by Russia earlier in 2013, Russia is the only prospective supplier of natural gas to Europe. LNG imported from Persian Gulf is expensive and Norwegian and Dutch North Sea natural gas reserves will last till about 2025-2030.
And Ukraine future ?
Ukraine will stay without majority of transit fees since about 2020 when South Stream will work at full capacity (at present 3 bln dollars a year). I think Putin is seriously considering annexation of Eastern Ukraine 3-5 oblasts. But now is not the best moment. Again (as was with Crimea) everything depends on how many errors Ukraine politicians will make. If populism and nationalism wins in Ukraine and no economic reforms are enacted Russia will annex Eastern Ukraine in 2-3 years with world public opinion on its side.
Russian gas hegemony in Europe will have important impact on EU politics. EU will have to acknowledge that Eastern Europe is Russian sphere of influence.
Proof or rising clout of Russia-China duo in Eurasia land mass ? Recent UN Crimea resolution.
Only South Korea, Thailand, Bhutan, Malaysia and several Gulf allies of US: Saudi Arabia, Kuwait, Qatar backed it.

Posted by Wantunbiasednew | Report as abusive

@delta297
The western-friendly ex-president Saakaschwili is wanted by Georgian justice because of suspicion of hammerside of ex-cancelor Schwania. Now he lives and teaches under the protection of and in the US. The US have a strange idea of democracy.

Posted by seafloor | Report as abusive

Excellent, level-headed analysis Anatole. I believe you’re spot on.

Posted by sarkozyrocks | Report as abusive

Another sane, level-headed opinion (from the financial markets) that supports your viewpoint: http://jackworthington.wordpress.com/201 4/03/25/texas-crimea-catalan-and-whats-r eally-driving-the-new-cold-war-with-russ ia/

Posted by sarkozyrocks | Report as abusive

A very sunny view that oddly leaves out a few very important points. The continued record flood of capital flight from Russia despite Kaletsky’s assertion “the ruble and the Moscow stock exchange have been among the world’s strongest markets.” The key words here are “have been.” Current conditions do not warrant confidence, especially as Putin’s stated goal has been to repatriate Russian capital from abroad. Dream on.
Secondly, there will be years of economic malaise, graft, and corruption, and unanticipated costs for both Crimea and Russia in the switchover. Think of it as an even bigger sinkhole than the Sochi Olympics.
Thirdly, the issue of “political contagion” from Ukraine on Russia continues and has not been resolved by the Crimea move. Just as East Germany was always existentially threatened by the mere existence of West Germany, so Putin’s Russia is threatened by the mere fact of raucous politics next door in Ukraine. This does not bode well for future stability.

Posted by bluepanther | Report as abusive

March 28 – Former Russian finance minister Aleksey Kudrin has said and official Russian news agencies have reported that that Russia’s annexation of Crimea is going to have extremely deleterious effects on the Russian economy, including massive capital flight and any hope of real economic growth this year.

Kudrin said yesterday that Russia will pay for its “independent foreign policy” in Crimea with 150 to 160 billion US dollars in pure capital flight this year and that the country’s economy which had been emerging from a serious recession will stagnate or even decline slightly (interfax.ru/russia/367828).

Posted by bluepanther | Report as abusive

1
Sorry Mr. Kaletsky, but You are deadly wrong about Russian stock market. I don’t know how familiar are you with Technical Analysis of charts, but hope know at least basics of it. I’m looking at Russian RTS index now and see it’s absolutely bearish in longer term. In Monday after Crimean annexation day RTS have broken very important support in 1200-1230 zone, where we have 3 bottoms made in 2011-2013 years. All the move up, which so excites you, is nothing more than countertrend testing of polarity line (broken support becomes resistance for move up, as technicals say). It’s typical psychological reaction of the market after “fait accompli”, nothing more, well known from past.
Poster child of this kind of reaction is Dow Jones Industrial Average’s chart from 1940. You can find there one of the heaviest selloffs when Germans invaded France in May’40 and big jump of the oversold market, when France capitulated.
And the end of the 40’s bear market in US came 2 years later. Russian RTS (and other indices like for example Micex too) are in bearish mode and will be in the nearest future. This jump of Russian market is nothing special and I can say RTS will be much lower than the Crimean panics minimum at 1016 pts in not so distant future. Nothing to exciting.

2.
You probably don’t know or don’t remember what (or rather who should I say) stopped Ruble from falling down. It was Russian Central Bank who intervened in Monday after Crimea annexation day, buying RUB for at least 10 billions of USD from Russian currency reserves. It’s not the Mr. Market himself with his unvisible hand, but very visible fist of Russian State isn’t it? So why excite this?
Russians intervened successfully, as Ruble was totally oversold before Crimea anexion, that’s all the secret.
And once again I can assure You, Mr. Kaletsky one look at USD/RUB pair chart with basic knowledge in technical analysis will tell you, all that move since the moment is nothing more than short-lived countertrend move. The bigger trend is to weaken Ruble and in not so distant future very important 36.5 zone at USD/RUB chart, where Central Bank stopped Ruble move, will be broken.

3
Realpolitik….Why not to go totally in Metternich spirit and tell to Mr Putin : “OK Mr President we absolutely accept Crimean anexation was Russia’s right move. Now give us a few dollar discount on Urals oil barrel price we buy from Russia as our reward” He would give you this, I’m absolutely sure. And You would hear many nice words from him about how he likes doing business with you. Disgusting? Why? And where is the border between disgusting and not in realpolitik?
“So what can we do? “ you could ask me. Now? Nothing, I know it. It’s too late. Western Europe has its hands fettered with Russian gas pipelines. All these BASF’s Bayer’s etc desperately need Russian gas to be competitive. Putin knows it too, and this is why he decided for the Crimea annexation. You could listen to us Central and East Europeans a few years ago, when we told you: “Be carefull trading with Russia! They use oil and gas as a kind of weapon!” But who cares about those stupid eastern nations knowledge? They speak those strange languages, overusing all those “sh” and “ch” sounds. We, Westerners are wise enough! Now Western Europe is too dependent from Russian gas to have other than “realpolitik” options, and this Mr Kaletsky’s text is next evidence of it. But once again, who cares about those East European opinions??

Let’s make new Yalta agreement with Putin about Ukraine’s future…. Selling Ukraine to Putin is cheap, and cost us, the West, nothing. It’s not our problem but those barbarian East nations, isn’t it Mr. Kaletsky?
And the 90′s so called Budapest Agreement, where Ukraine resigned of their atomic armory instead of US, French, British, Russian and Chinese waranties of Ukraine’s Independence is worth nothing, of course?
Believe it or not Mr Kaletsky, Ukrainians have read Metternich too. And hearing more and more “realpolitik” propositions like yours, from the West, they know Budapest Agreement was their big mistake, a few average Ukrainians told me so. Mr Arseny Yacenyuk, Ukraine’s PM said lately Ukraine don’t think about rebuilt of their atomic arsenal. Somehow I can’t believe him, as everybody sees now, having Western warranties is not bad, but having a few atomic bombs is much better.
Now You can send to the trash can all diplomacy efforts to stop atomic armaments. You will not find stupid enough country to believe in honesty of intensions and readiness of compliance of the signed agreements.
That’s the big, unexpected consequence of Western Crimean “realpolitik”, which could cost the World much more than a few dollars more on Russian oil barrel in the future….

4. Russia’s mostly defensive moves? Are you joking? You probably didn’t hear it, Mr Kaletsky, but just few days ago Putin signed initial agreement with Ms Kirchner, Argentina’s President, about having Russian Naval Base in Argentina. If this is not open and direct challenge to US Monroe’s doctrine for the first time since Soviet Empire’s collapse, than I don’t know what it is….

Posted by songmun | Report as abusive

“Since all Western leaders recognize that Crimea will not be recovered — and is not worth fighting for — there will soon be no point in seriously challenging Russia’s annexation,…
Ukraine will desperately want to restore Russian trade…
since Russian hostility would permanently cripple the Ukrainian economy… ”

This is Pro Russian propaganda not worthy of publication, this is exactly what the Russians want to hear.
Russia would be equally desperate to restore trade if sanctions escalated, no western country has accepted Crimea to be a part of Russia.

Posted by AndersA | Report as abusive

A Pattern of World Conquerors from the North

by Avraham Gileadi Ph.D.

The Assyrians and Babylonians who conquered the ancient world both came “from the North” in relation to Israel when God’s people turned to wickedness. Those events established a pattern that would repeat itself prior to Jehovah’s coming to institute the earth’s millennium of peace. This time, however, it would not be the ten-tribed kingdom of Israel or the people of Judah in ancient Judea who would suffer invasion and destruction by a world power but God’s people who turn to wickedness in the modern age. This time, too, it would be an End-Time world power “from the North” that would overrun the world, following the pattern of those former events.

When God’s End-Time people reach the same level of wickedness that ancient Israel did, God will respond as did before: “Hail the Assyrian, the rod of my anger! He is a staff—my wrath in their hand. I will commission him against a godless nation, appoint him over the people [deserving] of my vengeance, to pillage for plunder, to spoliate for spoil, to tread underfoot like mud in the streets. Nevertheless, it shall not seem so to him; this shall not be what he has in mind. His purpose shall be to annihilate and to exterminate nations not a few” (Isaiah 10:5–7). “From the North shall come [pillars of] smoke, and no place he has designated shall evade it” (Isaiah 14:31).

6. 8. 2011
Isaiah’s Antichrist—The King of Assyria/Babylon

by Avraham Gileadi Ph.D.

Isaiah’s version of an End-Time Antichrist is the king of Assyria/Babylon, whom Isaiah portrays as a composite of types. That is, he combines several types or precedents of ancient tyrannical rulers to project a single End-Time one—a consummate archtyrant. Setting a precedent for world conquerors from the North were the kings of Assyria (Isaiah 10:5–14; 37:18, 21–27). To that type, Isaiah adds the king of Babylon, who is also a world conqueror from the North, but who styles himself as a demi-god and exemplifies Babylon’s idolatrous ideology (Isaiah 14:3–21; 47:1–8). In the end, however, because of the loyalty of God’s people, the archtyrant is put down.

Thus, Isaiah predicts: “But when my Lord has fully accomplished his work in Mount Zion and in Jerusalem, he will punish the king of Assyria for his notorious boasting and infamous conceit, because he said, ‘I have done it by my own ability and shrewdness, for I am ingenious. I have done away with the borders of nations, I have ravaged their reserves, I have vastly reduced the inhabitants. I have impounded the wealth of peoples like a nest, and I have gathered up the whole world as one gathers abandoned eggs; not one flapped its wings, or opened its mouth to utter a peep’” (Isaiah 10:12–14); “How the tyrant has met his end and tyranny ceased!” (Isaiah 14:4).

2. 8. 2012

Posted by DeweyLOlsen | Report as abusive

!

Posted by savttester | Report as abusive

As a Ukrainian-American with close family in both Russia and Ukraine, I can assure you that by annexing Crimea the Russian dictatorship made itself at least tens of millions of determined, angry and often armed opponents not just in Ukraine and other victim-nations-in-waiting, but in Russia itself. Ukrainians aren’t the only ones angry, lots of Britons and Americans are too. That can’t be good for business in Russia, and not seeing this is willful blindness – or a convenient way to share in some timely Gazprom largess.

Posted by tx-peasant | Report as abusive

I was there during the takeover and whilst I fully agree that the whole thing was a clever “fait accompli” with a lot of local support, what left a bad taste in the mouth was the extremely menacing nature in which it was done. Unmarked, faceless, silent “foreign” troops everywhere in balaclavas, who were quite obviously Russian; organised gangs of thugs who would arrive by minibus with the sole aim of beating up any dissent including free press, and a UN envoy. It felt very like East Berlin in the 70′s. Good for those who are in the circle. Not good for the rest. I do feel very sorry for the non pro-Russian people of Ukraine-Crimea and who have settled there after generations of Soviet bullying. Tartars to name just some. They go about their business in very poor conditions but are law abiding folk. What is to become of them and the interests that they have tried to work for? Seems they helped oust a highly corrupt puppet president of Putin which we now know led to their downfall. I agree with Anatole that the West should not get involved in this but why not assist Kiev-Ukraine to join the EU as it wishes and help it become a modern prospering state? I was impressed by my brief visit to Kiev. I found it modern, organised, friendly and seemed to conform to European standards. Would this not be a way forward?

Posted by Pip2014 | Report as abusive

Brilliant! And this could have been another solution… regrettably, too late! Pinkers Post entry 18 March 2014 (please scroll down): ‘Crimea for sale!’ http://pinkerspost.com/port.php

Posted by pinkerspost.com | Report as abusive