Global HotSpots

Why Putin Plays a Losing Hand on Ukraine

Thinking straight about Ukraine – in six theses

Takeaways


  • The ultimate loser of his little #Crimea adventure will likely be Putin himself -- and his version of Russia.
  • Crimea could herald a mild version of another cold war. Just remember who lost the last cold war.
  • Europe (and Turkey) will likely strengthen their efforts to become less dependent on Russian energy.
  • Sochi was already expensive. Military adventures and strains with the West are much more expensive than that.
  • Expect Putin to face serious discontent at home after an initial domestic support for his chauvinistic policies.

1. Stay calm and carry on

Russia has de facto taken over part of a neighboring country. Such Russian behavior is not really new. It happened before in the Abkhazia and South Ossetia regions of Georgia (1993 and 2008) as well as in the Transnistria region of Moldova (1992).

But compared to the earlier mini-conflicts, the case of Crimea and Ukraine is much bigger. The conflict is much more part of a general confrontation between an increasingly authoritarian Russia and the West.

The best guess remains that the Crimean conflict is unlikely to turn into a protracted major war (fingers crossed). No local force could be a match for Russia, which has de facto taken control of most of Crimea.

2. Another Cold War? Remember who lost the last one?

Crimea could herald a mild version of a cold war between Russia and the West. If so, what is the long-term outlook? The answer becomes self-evident if you remember who lost the last cold war.

Because Russia and Ukraine are quite backward economically, Crimea is probably not a serious long-term economic event for Europe and the world. Exports to Russia amount to 1% of EU and 1.4% of German GDP, exports to Ukraine to 0.2% of EU and German GDP.

True, Ukraine is a major transit country for Russian energy to Europe. And potential supply disruptions could, of course, have some impact on European energy prices and hence real incomes for a while.

But given that Russia is heavily dependent on the revenue, Moscow will likely keep such disruptions to a minimum under almost all circumstances.

3. Small impact on financial markets and geopolitics

The Crimean conflict will likely trigger a near-term correction in markets and some jitters in sentiment indicators. But I do not expect it to be bad enough to change underlying fundamental trends in a serious way.

Of course, the Russian takeover of Crimea does heighten geopolitical risks. Russia’s blatant breach of international trust and treaties, of which Germany’s Chancellor Angela Merkel reminded her Russian counterpart in no uncertain terms, makes it more difficult for the West to work with Russia.

This will have effects on the Iranian and Syrian question. As a result, we see some extra emerging market risk for this year, but not a major lasting upset for Western markets beyond some initial noticeable jitters.

At the margin, the conflict close to its Eastern fringe could further enhance the cohesion of the Eurozone.

Get our new features, straight to your inbox three times a week. Sign up here.

4. Russia as the ultimate loser of the Ukraine power play

The biggest risk and clearest negative fallout, however, is ultimately to Russia itself.

  • An anti-Russian counterreaction will likely make it very difficult for Russia to regain any influence in Kyiv and anywhere west of there.
  • Europe (and Turkey) will likely strengthen their efforts to become less dependent on Russian energy. This will weaken Russia’s potential to blackmail its neighbors in the wider region in the future.
  • Limited targeted Western sanctions, or a mere reluctance to deal with Russia, can further hurt Russia’s business interests.

Russia has an inefficient economy dependent on rising prices for oil and gas. Sochi was already expensive. Military adventures and strained relations with the West can be much more expensive than that. Russia cannot afford that in the long run.

Expect Putin to face serious discontent at home after an initial period of domestic support for his chauvinistic policies.

5. What the EU should do

The conflict gives Europe and the United States a strong extra reason to stabilize Ukraine. If they manage to do so (a big if), a future contrast would emerge between Ukraine on the one hand and Russia and any Russian-occupied parts of Ukraine on the other hand.

Ukraine would gradually become part of the European mainstream. Russia and any Russian-occupied parts of Ukraine ruled by an increasingly autocratic Putin would likely turn into an ever-more isolated and backward region.

That contrast could eventually tilt the balance of public opinion on Crimea and other parts of South-Eastern Ukraine back towards Kyiv — and away from Moscow over time.

The EU is unlikely to offer Ukraine full membership yet. But far-reaching association agreements including free travel could be a major benefit for Ukrainians and their new government.

6. Conclusion

The ultimate losers will likely be Putin and his version of Russia.

Tags: , , ,

About Holger Schmieding

Holger Schmieding is chief economist at Berenberg Bank in London.

  • originalone

    Another banker giving his opinion, as long as it justifies his participation in loaning the Ukraine money that they will never be able to pay back. Considering the mess that these same bankers have inflicted upon the world economy today,

  • arbeee

    Mr. Schmieding might be better to stick to banking
    commentary. His rosy western view of the outcome of the Ukrainian crisis is way
    off the mark but that is just my opinion. Let’s be clear. It was not the Russians
    who interfered in the internal affairs of the Ukraine. It was the west that
    fomented the overthrow of the legitimate government. The west created a sink
    hole and fell in by supporting a bunch of rabid extreme rightist in their violent
    overthrow of the democratically elected president of Ukraine all of one year
    before there was to be a Presidential election.. Remember hawkish Senator
    McCain and others standing should to shoulder with the opposition leaders
    lending encouragement while the ugly protests were going on. Yanokovych was
    democratically elected President of Ukraine in 2010 national elections which EU
    and even the Israelis election observers said were legitimate although not
    perfect. I cannot imagine that any constitutional lawyers in their right mind
    would declare the new Kiev regime legitimate.
    More importantly they do not have the support of the majority of the Ukrainian people despite western declarations otherwise.

    It’s hard to imagine that more than a fringe would support the coup regime when one of their first acts upon seizing power was to outlaw the Russian language which is spoken by more than half the country. It was quickly vetoed but not lost upon the Ukrainian people. They also talked of reinstalling nuclear weapons. Understandably The largely Russian speaking eastern and southern sections including Crimea are
    visibly showing their opposition by flying Russian flags. Even in the west it hard for me to imagine any kind of sizeable majority would support this insanity which has turned their fledgling democracy upside down.
    Putin has not invaded Ukraine but they are playing hardball not giving recognition to the new self imposed regime and declaring a readiness to act if necessary.
    Western threats like expelling Russia from the G8 ring hollow with Europe dependent
    on Russian gas and oil. Besides, in today’s world, the G20 is of much greater
    importance. The west, in supporting the coup is backing a loser which requires up to $35 billions to avoid default. The Russians have withdrawn the $15 billion aid package arranged with Yanokovych. They are not bailing out an illegal regime that they do not recognize. Now it is, the largely broke, EU and US left holding the bag. It is questionable if the even the IMF has the money necessary for the bailout the regime and the Ukrainians will not like the conditions imposed on other recipient countries by the IMF.

  • http://www.DNotice.org/ Dean Jackson

    “Why Putin Plays a Losing Hand on Ukraine”

    Firstly, Putin is a figurehead of the Russian Communist Party, and secondly, the Kremlin has no choice but to play a losing hand.

    Russia had to sacrifice 23-years of good PR, being the one accusing the United States of invading nations, violating international law. So why did Russia violate the sovereignty of the Ukraine, destroying its image abroad, and placing itself on the same rogue level with the United States, you ask? Because of the following…

    The Kiev protests, which were initially controlled by the government, went viral throughout the nation, where dozens of statues of Lenin were toppled, statues that were supposed to have been toppled back in late 1991, after the fake collapse of the USSR.

    The spontaneous protests that broke out all over the Ukraine were so large that those Communist security forces in Kiev posing as demonstrators had to be quickly pressed back into security service to guard the government buildings!

    Google: ‘kiev demonstrators assist security forces guard government buildings pictures’

    The reason Russia had to intervene in the Ukraine is two-fold, (1) to assist in policing the eastern Ukraine; thereby (2) allowing the stretched-thin Ukrainian Communist security forces to secure the rest of the nation.

    For those unfamiliar with this subject, the “collapse” of the USSR in 1991 was a strategic ruse under the “Long-Range Policy” (LRP). What is the LRP, you ask? The LRP is the “new” strategy all Communist nations signed onto in 1960 to defeat the West with. The last major disinformation operation under the LRP was the “collapse” of the USSR in 1991.

    The next major disinformation operation under the LRP will be the fraudulent collapse of the Chinese Communist government. When that occurs, Taiwan will be stymied from not joining the mainland. This is why China is buying up gold all over the word. It is believed that China currently has 3,000 [metric] tonnes of gold. When China has 6,000 [metric] tonnes it will have the minimum gold reserves necessary for its currency, the yuan, to replace the United States’ dollar as the world’s reserve currency, that is after the fraudulent collapse of the Chinese Communist government (the United States gold reserves is approximately 8,133.5 [metric] tonnes).

    Take a look at the main paper of the Russian Ministry of Defense…

    Google: ‘Krasnaya Zvezda’

    “Krasnaya Zvezda” is Russian for “Red Star”, the official newspaper of Soviet and later Russian Ministry of Defense. The paper’s official designation is, “Central Organ of the Russian Ministry of Defense.” Note the four Soviet emblems next to the still existing Soviet era masthead, one of which pictures Lenin’s head, the man who removed the independent Russian nation from the map, supplanting it within the new nation called the USSR (the USSR being the nation that was to one day include all the nations of the Earth, incorporation taking place either by violent revolution or deception)! Those Soviet emblems and Lenin’s head can’t still be next to the masthead of the Russian Ministry of Defense’s newspaper due to their association with the Soviet Union and its ideals of world revolution.

    The fraudulent “collapse” of the USSR (and East Bloc) couldn’t have been pulled off until both political parties in the United States (and political parties elsewhere in the West) were co-opted by Moscow & Allies, which explains why verification of the “collapse” was never undertaken by the West, such verification being (1) a natural administrative procedure (since the USSR wasn’t occupied by Western military forces); and (2) necessary for the survival of the West. Recall President Reagan’s favorite phrase, “Trust, but verify”. Notice that not one political party in the West demanded verification, and the media failed to alert your attention to this fact, including the “alternative” media. When determining whether the “former” USSR is complying with arms control treaties, what does the United States do to confirm compliance? Right, the United States sends into the “former” USSR investigative teams to VERIFY compliance, yet when it’s the fate of the West that’s at stake should the collapse of the USSR be a ruse, what does the United States do to confirm the collapse? Nothing!

    For more on the “Long-Range Policy”, read KGB defector Major Anatoliy Golitsyn’s books, “New Lies for Old” and “The Perestroika Deception” , the only Soviet era defector to still be under protective custody in the West:

    Google:’new lies for old internet archive’

    Google:‘the perestroika deception pdf’

    The following is an excellent brief three-page introduction to Golitsyn and his significance in understanding Communist long-range strategy:

    Google: ‘Through the Looking Glass by Edward Jay Epstein’

    PS

    Yes, the above means that Russian troops outside their bases in the eastern Ukraine will return to their bases when the anti-Communist demonstrations are squashed, unless the Russian population too stages non-government approved demonstrations, leading to the eventual and true collapse of the USSR!