Opinion

Anatole Kaletsky

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

Comments
8 comments so far | RSS Comments RSS

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
 

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
 

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