Ukraine, Crimea, and Risk Rules

From Agate’s Zach Rudin: While most days at Agate are spent with noses pressed close to grindstones, we occasionally feel the need to look up and see what’s going on in the world.

Luckily, Sam Wilkin, co-author of our B2 title Risk Rules and head of business research at Oxford Economics, has lent his expertise to the ongoing conversation about the Crimean peninsula. He and the book’s lead author, Marvin Zonis, have written several insightful pieces on the situation’s global impact

Below, we’re sharing one piece by Mr. Wilkin. Much is often made of who is “winning” in foreign policy, and we think this post provided a unique take worth considering.

Intervention in Ukraine reflects Russia’s weakness, not strength
Following Russia’s de facto ‘invasion’ of Crimea there has been a great deal of navel-gazing commentary regarding the “weakness” of the West. Some say the EU is impotent; others say the US lost Ukraine; others that the Obama administration is weak.

These comments reflect an astonishing lack of even short-term memory.

The most obvious point first: it is not the US or EU that has lost Ukraine, it is Russia. Until protesters toppled Ukraine’s government, the contest for Ukraine was in the main a soft-power contest. The EU offered Ukraine a trade agreement (a Deep and Comprehensive Free Trade Area, DCFTA, in the jargon); Russia offered a Customs Union as an alternative. (Admittedly, Russia’s approach was not 100% soft, as the Customs Union offer was coupled with threats of goods embargoes and energy price hikes.)

Until recently, it appeared that Russia had won. The Customs Union was indeed an attractive package. Signing it would probably have been economically beneficial for Ukraine (although, over the long term, the EU deal would have been much better). Yet Ukrainian premier Yanukovych, after a good deal of wavering, announced that he would sign the Russian deal. Perhaps his oligarch backers (reportedly including men such as Rinat Akhmetov, Dmitry Firtash, and Andriy Klyuyev) feared the legal and governance reforms that would accompany the EU deal. Perhaps Russia’s economic threats and bailout offer were persuasive given Ukraine’s precarious economic position.

That moment, in early 2014, when Yanukovych sided with Russia, was the high point of Putin’s success. But then Ukraine’s (relatively small) middle-class rose up in the “Euromaidan” people power protest movement that toppled the government.

And thus in a few short months Russia’s success turned into failure. This was by no means a foregone conclusion. But the final calculation is inescapable. Without offering bailouts, without making economic threats, and without military power in play, the EU had trumped Russia’s offer. This is a stunning verdict on the limits of Russian power in its own backyard, as well as a striking illustration of how effective soft power can be.

Russia’s military intervention in Crimea is not some brilliant counterstroke–it is a desperate gambit that makes this failure permanent. Putin might have hoped, in months to come, to win back Ukraine via subterfuge or further economic incentives. A new government is due to be elected, and pro-Russian candidates (such as Yanukovych) have won free and fair national elections in Ukraine before.

This is now off the table. Any soft power Russia had in Ukraine has been thoroughly destroyed. Ukraine’s oligarchs, including Rinat Akhmetov, the country’s richest man, have lined up to denounce Russia, and some are taking positions in the country’s transitional administration (including in relatively pro-Russian Donetsk). The only way Russia might regain Ukraine now is via outright military conquest of the country as a whole, which is profoundly unlikely as it would be bloody.

Indeed, just how humiliating a loss this is for Russia is worth contemplating. The games in Sochi were intended to demonstrate Russia’s burgeoning resource wealth and its resurgent state power. And yet, with only days elapsed, Russia has sacrificed all of this, and any international goodwill, in a desperate bid to hold Ukraine.

So why did Putin decide to take this option?

The best-case scenario for Russia at this point is to retain influence in Crimea (presumably by having the region elect to break off from Ukraine, and perhaps join Russia’s Customs Union). But this is by no means a foregone conclusion. While the majority-ethnic-Russian population of Crimea seems, on balance, to back Russia’s action, or at least to have acquiesced, unrest is possible and would be difficult to manage. The international community is rallying against Russia, and Western Ukraine will do all it can to foil this initiative.
It is, in sum, a high-risk gamble. That Putin has taken this tactic certainly suggests how deeply and personally humiliating it is for him to have lost Ukraine, and sacrificed any goodwill from Sochi, so soon after the Olympics. His best hope is, by engineering an independent Crimea, to turn the loss of Ukraine into a partial win.

It is, in short, the kind of gamble that reflects Russia’s weakness, not its strength.

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