The Future of Ukraine and Russia in the Wake of Crimea

As the political turmoil in Ukraine deepens, Professor Graeme Herd analyses what the impact might be both within Russia and on a global scale

President Vladimir Putin’s bid for the Winter Olympics and Paralympics to come to Russia was, in his eyes, an opportunity to further enhance his image as a man of action. He also envisaged that, through worldwide media attention, Russia would be cast in a hugely positive light to both his people and the global corridors of power. However, in a political sense at least, they have been somewhat overshadowed, initially by the backlash against the country’s homosexuality laws, but latterly by the political uprising in the Ukraine and Russia’s attempts to protects its interests and supporters in the former Soviet state.

Central to President Putin’s foreign policy philosophy is the notion of Moscow as a resurgent Great Power, with Russia rescued under his leadership from the “dustbin of history”. Recent power shifts, and the rise of non-Western centres of global power, promote the emergence of a multi-polar world with Russia as one of the independent poles and a key actor in global decision-making.

Russian power is broadly based and rests on Russia’s economic strength, with it remaining one of the top ten global economies, and with the third largest sovereign wealth fund. With the waning of the West, market-democratic universalism loses its appeal and the political and economic model of a ‘sovereign democracy’ rises. This alternative and, in Russia’s view increasingly attractive model, is one in which human rights, democracy and humanitarian interventions are subordinated to the stability of government and societies. Ultimately, Russia’s resurgence is anchored by its hard power – the strategic autonomy a nuclear triad secures.

With that in mind, Russia frames Ukraine’s ‘February Revolution’ in terms of a contest between rival civilizational models that rest on different norms, values and beliefs. Russia understands itself as leading an ideological alliance of states that privilege conservative traditional family values above relativist ‘genderless’, amoral and hypocritical European liberal values. Russia presents a self-narrative of an embattled ‘sovereign democracy’, encircled by threats which only elite continuity can manage.

President Putin’s political strategy appears to follow the strategic logic of threats, credibility and conflict. He carefully calibrates Russian action that can demonstrate Russian military and national power in order to mobilize and consolidate civil society and so regime legitimacy. At worst he supposes that the West will alienated in the short term, at best that Russian action can divide and highlight splits between states that view Russia as strategic partner and adversary. Here the calculation would be based on historical practice and experience of a divided and half-hearted EU and NATO reaction to the Georgia crisis (the Tagliavini Report) in 2008. Solidarity and shared responsibility are less in evidence – Western states prefer to act according to their own immediate interests and priorities, privi-leging this above the longer term interests of the preservation of peace in the system. Economic interests and interdependence, whether it be Russian gas (Germany), arms sales (France) or investments (UK), also would moderate western responses. The U.S.’s need to use Moscow’s leverage in global strategic hotspots, to act with it in concert to contain the fallout in Syria, manage the Iran nuclear dossier or DPRK six-party talks, constrains the backlash. The ability of Russia’s public intellectual to articulate a compelling narrative of moral equivalence could also shape external perception. Though annexation by force on protection of minorities is an anathema to China, Russia could still maintain an equality of relations with China – indeed, a display of calibrated power would enhance Russia in the eyes of its strategic partner.

Those that run Russia tend to own Russia, and I think the reasons for their apparent lack of concern at international condemnation of their policies are four-fold.

First, Russian propaganda is too effective – if only in Russia. If the West (in the shape of EU and NATO member states) have been training mercenaries and snipers, and supporting neo-Nazi anti-Semitic and progromist far right fascists in Ukraine (which prominent Duma deputies and serious analysts amongst others are seriously – or at least publically – contending) why should Russia be concerned with appropriation from such quarters? Rather the opposite, criticism is an indicator of good practice.

Second, Russia has framed Ukraine’s crisis in terms of a contest between rival civilizational models that rest on different norms, values and beliefs – Russia invests itself as a bearer of alternative values it is prepared to defend, with force if necessary. Russia understands itself as leading an ideological alliance of states that privilege ultra-conservative traditional family values and respect for authority above relativist liberal values of a morally bankrupt West. As a result, to repudiate Crimea’s annexation would be to undermine Russia’s foundational narrative and special mission, its very identity.

Third, hard to quantify reputational losses over the longer term are more than compensated for by clear short term economic gain – Russia’s siloviki (people of power) in combination with pet oligarchs are now are poised to displace Ukrainian oligarchs in Crimea and eastern Ukraine – to the victor the spoils. In addition, $50bn Russian capital flight is now returning under threat of asset freeze, further binding and consolidating Russian oligarchs to the current regime.

Fourth, and most importantly, Russia could not allow the crisis in Kiev to end with the overthrow of a sitting though deeply unpopular and corrupt president or it would have itself precipitated an existential crisis: ‘first Kiev then Moscow’.

Is this sophisticated game theory at play or a reckless gamble? The external perception of Russia’s power and politics of grievance differs from that of the regime and that difference is growing. A dispassionate analysis of Russian economic realities undercuts the internal self-confident vision. Russia remains a resource-based export oriented economy with oil is the single most important wealth. While budget revenues are becoming increasingly dependent on oil and gas exports – future high oil revenues cannot be guaranteed nor can that of gas as we begin a shale-gas revolution. The level of Russian foreign policy ambition is a function of the price of oil – and Russia is unable to influence that price. As a result, one could conclude that Russia cannot afford either an anti-Western or anti-Chinese foreign policy.

A growing narrative in the rest of Euro-Atlantic space is that Crimea is ‘batting practice’ for classical post-colonial, revanchist, chauvinist, nationalist behaviour on the part of Putin determined to exercise an order producing and managerial role over a ring of peripheral dependencies, rather than representing pragmatic rational behaviour in pursuit of legitimate Russian state interest and the righting of an “historical injustice”.

Although Russian rhetoric promotes the notion of a resurgent power, in reality it is a status quo power unable to maintain the status quo – using force or the threat of force to mobilize civil society around an embattled patriotic Russian elite to compensate for failing performance legitimacy. A rational, pragmatic, rich, young and cynical elite have aligned Russian foreign and domestic policy around an underlying economic trend that they are unable to reverse and still maintain power. President Putin’s regime, theoretically in power until 2024, is in need of continuous external interventions to maintain its legitimacy as domestic economic performance stalls due to a falling industrial and economic base on the cusp of authoritarian stagnation.

So will the current situation in Ukraine have a catalytic effect? Can the creeping annexation of Ukraine counter a creeping aversion to risk and the use of military power in the West? Does it cause a fundamental rethink in the role and function of the NATO alliance? Does it bring to an end this inter-paradigm period and herald the beginning of a second cold war, or something worse – is this 1938?

Worse case scenarios would, I think, involve a massive ground and air attack into eastern Ukraine but, by all accounts, Russia has mobilised a critical mass to allow for such a manoeuvre. This is a Rubicon, and what Russia may actually be in the process of ensuring is that the West decisively shapes a post-Western world order.

President Putin’s oligarchic support base is being targeted by sanctions, export curbs and banking restrictions, the blocking of Russian membership from G8 (replaced by Turkey to rub salt into the diplomatic wound?) and suspending Russia’s bid to join the 34-member state OECD will result in less support to modernize and diversify the Russian economy. Far more important is the mood of sensitive amoral markets subject to swings in investor confidence in Russia’s economy (cronyism and state capitalism) which has poor corporate governance, lacks free information flows and high levels of trust and so is considered high geopolitical and economic risk.

‘Market deterrence’ rather than state action is the real unquantifiable risk Russia faces and in which Russia’s high pain threshold is immaterial: “Unlike governmental sanctions, market-led penalties limit the risk of direct political retaliation, making it harder for the Russian government to turn falling market prices into a story of victimization by outside powers.” On 3 March 2014 Russia’s stock exchange collapsed 11% (regaining half the losses) while Russia’s central bank increased interest rates from 5.5% to 7% to protect the rouble. Russian companies already experience difficulties in obtaining foreign credit from foreign lenders and Alexei Kudrin (former Russian economics minister) expects capital flight from Russia to reach $50 billion a quarter (triple the 2013 rate) if sanctions are imposed. Russia could lose its European gas export market. Even with this market Russia’s economy only grew 1.5 % in 2013, and represents an exhausted model.

The net effect of this would be to force Russia into a recession even as Russia increases defence spending in the face of ‘hostile encirclement’ it would have to cut spending on education, science, and infrastructure. This would accelerate economic de-modernization and see a fall in living standards, limit Russia’s ability to acquire technologies and long-term investments and integrate into global production chains. The ripple effects of sanctions on the economies of CIS states would bind them closer within a Russian economic subsystem or promote diversification? The latter is more likely given the massive expansion of China’s economic interests through Central Asia and the Caucasus and CIS pre-existing propensity for ‘multi-vectorism’ in foreign policy. Russia’s dependence on China as an energy market would increase, under disadvantageous terms. The trend towards the emergence of Russia as a ‘raw materials appendage’ to China would deepen and accelerate. China’s abstention vote in the UNSC was an ominous marker for Russia.

At present the US and EU enjoy 50% of global GDP and more than 33% of global market share, and figures for 2011, for example, show that US direct foreign investment (DFI) in the EU was twice that of any other region ($2 trillion) while EU DFI in the US was four times that of any other region ($1.6 trillion).

US Secretary of State John Kerry, German Chancellor Angela Merkel, British Prime Minister David Cameron, the US Congress and EU Parliament have all called for a Trans-Atlantic Trade and Investment Partnership in an effort to open markets, liberalize trade and shore up our global competitiveness for the next century. If this agreement succeeds, a free trade area taking in Europe and North America would allow, in the words of international commentator Daniel Drezner, gatekeeper “governments that regulate large markets to use their economic might to cajole and coerce both private and public actors into altering their policies”.

However, and as Sergey Aleksashenko, former Russian deputy finance minister and first deputy chairman of the Central Bank, astutely notes: “The growing gap between Russia and Europe is a strategic success for Putin, but it is a strategic defeat for the EU … because Putin’s system of authority cannot survive over the long term. No matter how it ultimately crumbles, that breakdown will reverberate throughout the entire European continent.”

Russia will continue to shape a post-Western world order first by helping to define the West in the 21st century through providing a failed “Other”, and then, through its failure, set the strategic agenda. Indeed, it might lead to either an early incorporation of Ukraine in the EU and NATO or the disappearance of the state from the map.

• Professor Graeme Herd is Director of the School of Government at Plymouth University, and formerly an international faculty member at the Geneva Centre of Security Policy.

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