Saturday, 29 March 2014

Putin's Wager.

Since the invasion of Crimea, Putin’s popularity has soared. The results of the Crimean referendum were obviously welcomed in Russia. Putin gave a speech the next day, proclaiming that the languages of Russians, Ukrainians, and Crimean Tatars, would now be recognised. These events have been interpreted in the West as an illegitimate annexation. However, the Crimean peninsula has only been a part of Ukraine since 1954 when it was amalgamated into the state by Nikita Khrushchev as a gesture of goodwill. This didn’t really matter under Soviet rule, but the post-Soviet era has made Crimean independence a sore spot in the region.
Contrary to what the politicians in Washington and Westminster have said, the decision to seize Crimea must have been a well calculated move on the chessboard. It was not an order that Putin would have given at a whim. After all, the considerations to make are not insignificant by any measure.
Earlier this month, Paul Mason noted the potential of this crisis to sway the global economic order, which could have been Putin’s entire objective. As the US and EU have passed sanction after sanction against individuals in Russia and Crimea, we can certainly Mason’s point. He predicts that the Western response would amount to “the sudden end to toleration of the dodgy Russian money that has flooded into its finance, football and energy systems.”
We can’t have any illusions: oligarchic Russians and the nouveau riche have swarmed to European cities. It has long been the case that Western governments have been critical of Putin’s human rights record while their banks welcome the oligarchs that robbed Russia blind during the 1990’s. Putin knows this, the West knows this, and for him, it a source of continued bitterness.
Six years ago, there was a scandal in Britain after New Labour spin-master Peter Mandelson and then Conservative Shadow Chancellor George Osborne were caught on a yacht in Corfu. The vessel belonged to the oligarch Oleg Deripaska, an aluminium magnate, and one of the richest men in the world.
When the financial crisis put the squeeze on Russia in 2009, the country was subject to factory closures and much higher unemployment. One of the factory towns hit resorted to blocking off the nearest road in protest. The highway was vital to the Russian economy, and Putin had to personally go to the town to defuse the situation.
The factory was owned partly by Deripaska and in a televised meeting, Putin humiliated the oligarch, and scolded the board of directors, calling them all ‘cockroaches.’ This was before having them sign an agreement he had written up. That type of intervention is unimaginable in places like Britain. It made Putin very popular, and also put Western leaders on notice for their economic interactions with Russia, even if they can potentially make Putin rich as well.
Mason went on to claim that if Moscow was faced with economic sanctions, then there could very well be retaliation. So far, we have seen the EU pass sanctions against over thirty people: freezing their assets, imposing travel restrictions, and so on. The sanctions have been derided as ‘toothless,’ and it has been reported that Putin has made it clear to his inner circle that there will be no retaliation, though the Russian foreign ministry has said that they have the right to do so.
The situation is still dangerous, though. The possibility for an economic war has been opened up by the crisis in Ukraine. It may even be a more realistic prospect than outright military conflict.
Military action could trigger a wider recession. We saw some early indicators of this when the Russian stock market plummeted after Putin formally annexed the Crimean peninsula. We can rule out from the outset that the US and the EU would go that far. Former ambassador Christopher Meyer has stated that there was never any serious likelihood that that Western powers would take a military stand over the Russian seizure of Crimea.
The fact that the US and UK are both signatories of the 1994 Budapest Memorandum which guarantees the independence and sovereignty of Ukraine actually means very little. A partitioned Ukraine would still count as an independent country. As for NATO, it only has a duty to act if its member-states are threatened, which doesn’t include Ukraine.
Yet there are still signs of escalation. Although “smart sanctions” have been used until now, which target the private assets of individuals, the Obama Administration has listed metallurgy and energy sectors, as well as other industries, as possible targets for expanded sanctions. Britain and France seems more eager than Germany at the prospect of instituting such policy, but it could still occur. The interesting thing about financial warfare is that although tangible weaponry is less likely to be employed, its methods can be even more vicious.
If that happens, then Putin’s long-term reconciliation with China may play to his advantage. There is a reason we are seeing Sino-Russian unity on the UN Security Council. The Sino-Soviet split is now a thing of the past, and the Chinese Communist Party has found itself able to agree with Putin on many issues, such as opposition to US policy in Iraq and Syria.
Moreover, it is in the Chinese government’s interests to strategically disrupt Western policy. The CCP has resisted calls to open up its banks to US investment, while maintaining a trade advantage over the West. China may side with the Russian Federation if an economic war comes about from this, which Mason speculates could change globalization irrevocably if the US and EU are in one corner, and Russia and China are in the other.
All this occurs as part of a conflict in Ukraine that has been reduced to market competition. Whatever the grassroots beginnings of the protests, as political economist Aleksandr Buzgalin observes, the conflict in Ukraine is now essentially a struggle between competing sections of oligarchy.
The coalition of forces which seized power in Kiev in February have ultimately taken oligarchs on as cabinet ministers and anointed them to governorships. The revolt’s legitimacy was an attempt to overturn the oligarchic regime of Viktor Yanukovich, through the EU if necessary. Ultimately though, it’s not really about quality of life Ukrainians can enjoy: it is about who exactly gets to plunder the country, its labour, and its resources.
This financial warfare may go further still. Putin is an excellent politician, though. The moral offense we take at his cynicism is actually just further testament to his skill. He is ready to see this crisis through to the end.

Originally written for Souciant on March 26th 2014.

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