Russian Imperial Expansion or Economic Collapse?

2014/04/24 • Analysis & Opinion

OPED By Walter Derzko, Torontofuel

Putin is in a panic over NATO encroachment and encirclement of the Russian Federation. He also knows that the Russian Federation is quickly losing its geopolitical and energy influence. Putin admitted that Russia invaded /annexed Crimea out of shear necessity and outright survival. If it didn’t then NATO would eventually accept Ukraine, stationing troops in Sevastopil. In his annual TV phone in show last week, Putin conceded that Russia is no match for NATO.

Putin explains: “[ ] if NATO troops walk in, they will immediately deploy these forces there. Such a move would be geopolitically sensitive for us because, Russia would be practically ousted from the Black Sea area. We’d be left with just a small coastline of 450 or 600km, and that’s it!” Putin adds: “I’ll use this opportunity to say a few words about our talks on missile defense. This issue is no less, and probably even more important, than NATO’s eastward expansion. Incidentally, our decision on Crimea was partially prompted by this. If we don’t do anything, Ukraine will be drawn into NATO sometime in the future. We’ll be told: “This doesn’t concern you,” and NATO ships will dock in Sevastopol, the city of Russia’s naval glory.”

Putin justifies the Crimean invasion with the following admission: “Nations and countries have the right to choose a way of ensuring their security themselves. All right, this is true. But it is also true that when the infrastructure of a military bloc approaches our borders, we have grounds for certain apprehensions and questions. We must take certain steps, and this is also true; nobody can deny us this right. And this compels us to counteract.”

Putin then contradicts himself: “I have already mentioned that the final decision to return Crimea to the Russian Federation was only based on the results of the referendum…[…]…Russia did not annex Crimea by force. Russia created conditions – with the help of special armed groups and the Armed Forces, I will say it straight – but only for the free expression of the will of the people living in Crimea and it was the people themselves who made this decision.”

In reality however, only 32% of Crimeans voted in the sham referendum.

“Although some two-thirds of Russians currently support Putin, that number could drop precipitously if body bags arrive in Moscow and the stagnant Russian economy creaks under the burden of military adventurism.” concludes Rutgers professor Alexander Motyl.

The collapse of the Russian Federation has been regularly predicted by numerous Russian analysts and ministers since 2008. This also includes westerners such Zbigniew Brzezinski and Edward Lucas from the Economist magazine. Zbigniew Brzezinski had a pivotal role in anticipating and helping bring about the economic downfall of the USSR. In 2011, former Russian Finance Minister Aleksei Kudrin said: “Russia cannot afford to run budget deficits on the current level of oil prices, which is certain to nose-dive with the inevitable bursting of the bubble.”

Further energy sanctions and the release of surplus American, Iranian or Saudi oil could see energy prices collapsing to half of today’s levels, threatening Russia’s very survival as a state entity.
Added to economic woes, wars and occupations are fairly expensive undertakings, especially for nations with declining energy reserves and declining export-generated cash (with the EU diversifying its energy suppliers).

How much is all of this aggression/invasion costing Putin?

There appears to be some 15,000 Russian troops along Ukraine’s borders and over 22,000 in Crimea out of 750,000 in total. Strategist Oleh Soskin recently stated on Espreso TV that Putin has spent a minimum of $700 Billion US dollars (an unbelievable and staggering amount) to launch the war against Ukraine, although he didn’t mention his source (video in Ukrainian)

Compare this amount to Russia’s Sovereign Wealth Fund, which has dropped to under $500 Billion. No doubt, part of this war effort may have been financed by western banks, just like in World War II. This needs further journalistic exploration.
This leads to only 2 possible scenarios as I see it; either Putin succeeds and the Russian empire is enlarged (to include all or part of Ukraine, the Baltics and Eastern Europe as a buffer to NATO and resulting frozen conflict zones ) or the Russian Federation collapses from insolvency, into 21 independent nations and a “smaller, tiny, insugnificant” Russia.

What are the economic costs to Russia of Crimean annexation so far?
Apart from almost universal global isolation and a growing list of economic sanctions, the Russian economy is quickly stagnating. According to Oleh Soskin, Russia has burned through $30 billion in gold reserves to prop up the Ruble. In addition, in the last several months, the Russian stock market has lost over 20%, the Ruble has depreciated by over 15%; Russia is hemorrhaging $150 Billion in net capital outflow; foreign direct investment (FDI) has dropped to almost zero; Russian exports have collapsed resulting a budget deficit of 400 billion Rubles for 2104 and GDP growth will likely be zero if not negative in 2014. Added to Crimea, if Russia takes over South-Eastern Ukraine, the Russian budget deficit will increase by 45% if not more. Further credit agency rating downgrades will cost Russia billions in added borrowing costs.

So my takeaway from this is straightforward. If the Russian army is 10 time bigger then Ukraine’s armed forces, and it costs orders of magnitude more to run, supply and sustain the Russian army, the aggression, the bribes to locals and the provocateurs, then the only way to win is to force Russia to purposely burn money by delaying aggression, violence and needless deaths in a prolonged stalemate, since Russia is unlikely to back down now. So far, this aggression has been relatively restrained and violence-free compared to other conflicts such as Afghanistan or Bosnia. So consequently, if Ukraine keeps the conflict to a “low simmer” like it is doing now and spends a minimum amount of military effort on encounters with little green men, (ie choosing its strategic battles wisely), then each passing week, Russia is forced to waste billions of dollars propping up the aggression-a war of attrition. So theoretically, Putin’s megalomaniac military ambitions could soon collapse the Russian Federation ( just like the we saw with the USSR and a decade of artificially low oil prices). The West could speed up the collapse scenario by immediately announcing more severe economic sanctions (banking, energy, arms, insurance, and other targeted industry sanctions, credit agency downgrades, export /trade embargoes etc. ) against Russia for not de-escalating of the conflict in Eastern Ukraine as signed in the Geneva agreements.
In conclusion, Russia just can’t afford a war with Ukraine.

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  • chornajuravka

    Reblogged this on Voices of Ukraine.

  • Deutscher EU-Austritt

    Imperial expansion or econmoic collapse? For the EU and the US, it seems to be both. You dislike sham referendums? You have my full support. In 2005, there were two referendums, in Frnace and in the Netherlands, about an EU constitution.

    It was rejected.

    The EU rebranded that thing as “Treaty of Lisbon” and introduced it nonetheless. Ireland had a referendum about it. The Irish rejected it – an dthe EU had them vote for it again and again, until they voted yes.

    That’s the EU. When will you understand that Russia being bad does not equal the US or the EU being good? People who truly love freedom and democracy would never run around with an EU flag or be hell-bent on joing a failure like the EU with its milliosn of unemployed.

    • https://www.facebook.com/peter.ganza.7 Peter Ganza

      The whole world’s economy is in deep trouble and possibly very near to the collapse. The situation (figuratively speaking) in which all of the production is in China and all of consumption elsewhere is unsustainable. The problem with Russia is that it is failing EVEN if current world’s economy is transformed and survives.

      EU and imperial expansion? Well I would like to hear more about that! Even US – which does unauthorizedly intervene in different world’s conflicts – do not expand its borders or create rogue states like Russia does.

    • https://www.facebook.com/peter.ganza.7 Peter Ganza

      As for the sham referendums. There are no sham referendums in Russia. They are always proposed by Putin and approved by 90+%. You prefer such system? Maybe you should move there…