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International (Deep End)

Shock-and-awe doesn’t exactly describe the West’s response to Russia’s re-possession of the Crimean peninsula. Even if there are no further incursions into Ukrainian territory, there will be a lingering sense of humiliating injustice – of Vladimir Putin getting away with yet another foreign adventure.

But those who insist that Russia must be made to pay a price should remember that Russia will pay – and dearly – for adding to its collection of puppet states. The point is well made by William Schreiber in an article for the Atlantic:

“Before the Crimean crisis, Russia was already footing the bill for three breakaway states: Abkhazia and South Ossetia in Georgia, and Transnistria in Moldova. As these states are unrecognized by the international community—Russia doesn’t even recognize Transnistria—they exist to a large extent outside the international economic system. While they may have bilateral agreements with certain countries that generate a modicum of trade, the economic benefits associated with globalization and foreign investment are negligible in these territories. This leaves them highly dependent on Moscow’s largesse, which often comes in the form of subsidized pensions, infrastructure projects, and cheap gas.”

As in most dependency cultures, the consequences for both donor and recipient are far from healthy:

“In April, the International Crisis Group (ICG) reported that Moscow had earmarked $350 million for infrastructure projects in Abkhazia between 2010 and 2012, with that number expected to triple to $1 billion between 2013 and 2015, but that only half of the $350 million had been spent because of mismanagement and corruption.”

It’s estimated that Abkhazia – “located just miles from Sochi, the site of this year’s Winter Olympics” – depends on Moscow for around 70 per cent of its budget. Furthermore, in dishing out Russian passports to locals (a tactic also used in Crimea), Moscow ends up paying for their pensions too.

In South Ossetia, the overall Russian subsidy is estimated at “$28,000 per resident” – though given the sheer scale of local embezzlement one has to wonder just how much of this money has got through to ordinary people.

Meanwhile, Transnistria is “roughly $3.7 billion in debt to Gazprom, Russia’s state-owned natural gas giant” – which is quite something for a territory with a GDP of around $1 billion.

In other words, Russia is paying through the nose for a handful of catastrophically-governed statelets that most people haven’t even heard of.

Crimea, though, would take the costs of Russian expansionism to a whole new level:

“If Crimea becomes another territory under de facto Russian control, Moscow would likely be forced to pick up the tab yet again. And keep in mind: The peninsula has 2 million inhabitants, which makes it 40 times the size of South Ossetia, eight times the size of Abkhazia, and four times the size of Transnistria. That adds up to a lot of pension payment for Crimea’s residents, 20 percent of whom are over the age of 60.”

Of course, Crimea, as a much more substantial territory than the likes of Transnistria, has a much greater economic potential. However, realising that potential will require investment – and by dragging Crimea into an international no-man’s land, Vladimir Putin has ensured that the list of possible foreign investors is a short one beginning with Russia.

Russia may be the biggest country in the world and getting bigger, but its leaders ought to realise that it’s not size that matters but what you do with it. In 1990, Ukraine – the second largest country in Europe after Russia – had roughly the same GDP per capita as Poland. Today, Poland’s GDP is about three times that of its eastern neighbour.

Without acquiring so much as a extra blade of grass from its neighbours, Poland has grown in the only way that matters in the modern world.

30 comments for: Forget sanctions – Russia will pay dearly for Crimea anyway

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