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Britain, Economic, European Union, Financial Markets, Government, Politics, Russia, Society, Ukraine, United States

What will happen next following the crisis in Ukraine?

ECONOMIC REALITIES

Intro: Economic havoc and a global slump could materialise from the crisis in the Crimea

So far, financial markets in the West have remained remarkably undisturbed in the face of the crisis unfolding in Ukraine. Following Crimea’s referendum at the weekend, which effectively sealed Vladimir Putin’s grip of the Ukrainian peninsula, sanctions were always likely to follow. Whilst, then, we may anticipate just how long the sanguine calm will continue, Western leaders should also be careful of supplanting diplomacy with threats to Russia that they are unwilling or unable to back up. The decision by the European Union and United States to impose sanctions on several Russian officials is a limited response to the breach of international law that has taken place in Crimea. The measures include travel bans and the freezing of assets against individuals who were deemed to have played a major role in the referendum – a vote, officials say, in which 97 per cent of voters backed a breakaway from Ukraine and, instead, opted to join the Russian Federation.

In the years since the dissolution of the Soviet Union, Russia has steadily become more integrated into the global economy. We know that many rich Russians have shifted their gains (ill-gotten or otherwise) into more stable and secure environments, such as investing on the London Stock Exchange or by diversifying their stocks in the UK property market. In actual fact, more money has flowed into Russia than out. According to data from the Bank for International Settlements, foreign owned banks have lent the country at least $260 billion. That is nearly double the value of its estimated assets in the West. As a consequence, Russia’s bilateral trade has risen to more than $100 billion annually. Almost a third of Europe’s gas, coal and oil imports come from Russia, and there has been a huge upsurge in direct investment by foreign firms.

Rhetoric used by the international community implied that there would be consequences if the referendum went ahead while the peninsula was still occupied by Russian troops. No doubt, Mr Putin will have considered the penalty a price worth paying. The question now, though, is what will happen next. Washington insists the screw will be tightened if the situation were to escalate in Ukraine – a distinct possibility that could happen fairly swiftly since the aim of the Crimean separatists is to secede from Ukraine within a month. They also aspire to adopt the rouble and by joining the Russian time-zone.

Whilst a military response to Russian aggression has already been ruled out by Western leaders, meaningful sanctions are not really much of an option, either. A full-blown trade-war would inflict serious damage on both sides. However, capital flows between Russia and the West are already in a parlous state in anticipation of lesser action, including assets freezes and travel restrictions already imposed. In order to defend the rouble, Russians are withdrawing billions from Western banks and selling off US Treasury Bonds. Mr Putin also raised interest rates to 7 per cent; a move that will discourage capital outflights from Russia to the West, a rate of interest that will be far more attractive for Russians to invest at home. The West seems certain to reciprocate by dumping Russian assets.

Yet, this all comes at a particularly delicate time for the world economy. Emerging markets, including China, have rapidly slowed down; the Eurozone is expecting a period of deflation to start anytime soon; and, America’s economy has started to inflict severe withdrawal symptoms to many countries around the world following its tapering of quantitative easing. The global economy may be just one sharp shock away from lurching into another recession.

A standoff with Russia over Crimea’s breakaway is the last thing the world needs. Economic considerations cannot surpass the higher purpose of defending international law, and as such must be secondary to it. Nonetheless, the interplay between politics and economics is what is making this situation so dangerous and destabilising. All concerned should be aware of just how very much more disruptive this crisis could yet become.

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Britain, European Union, Foreign Affairs, Government, Military, NATO, Politics, Russia, Society, Ukraine, United Nations, United States

Russian troops amass on Ukraine’s border…

UKRAINE

Intro: As world leaders tell Vladimir Putin to back off, 80,000 Russian soldiers have amassed on Ukraine’s borders. The fear now is that there could be a full-scale invasion…

Ukraine has warned that 80,000 Russian troops have amassed on its borders and could invade. World leaders have told Vladimir Putin to back off.

A senior security chief in Kiev said Moscow could launch a full-scale invasion and Russian troops would be in the Ukrainian capital within ‘two or three hours’ of the order to advance.

Photographs of Russian tanks and armoured personnel carriers close to Ukraine’s borders are adding to the tensions.

British officials have been receiving reports about Russian troops massing on the border since Tuesday and are concerned by the show of force.

British intelligence is unsure whether the movements are intended to back up the annexation of Crimea, preparation for an invasion or simply defensive.

Moscow’s show of force started earlier this week as Ukraine’s prime minister, Arseniy Yatsenyuk, met Barack Obama in the Oval Office and NATO continued military exercises in Poland.

During a week of rising tensions, G7 leaders, including David Cameron and Mr Obama, warned Russia not to annex the Crimea after a referendum in the province, tomorrow, which has been taken over by pro-Putin troops.

Their statement warns the Russian president to ‘cease all efforts to change the status of Crimea contrary to Ukrainian law and in violation of international law’ and threatens ‘further action’ if Moscow seizes Crimea.

British Foreign Secretary William Hague said Russian MPs who voted to use force in Ukraine and Kremlin officials behind the invasion would be hit with asset freezes and a travel ban to the European Union – most likely to be issued at a Brussels summit on Monday.

But the main concern of Western leaders is to deter Russia from seizing the rest of Eastern Ukraine.

Andriy Parubly, secretary of Ukraine’s National Security and Defence Council, has said that even Kiev may not be safe from Putin’s troops, who were regrouping in ‘an offensive manner’.

Mr Parubly claimed that forces massing included ‘over 80,000 personnel, up to 270 tanks, 180 armoured vehicles, 380 artillery systems, 18 multiple-launch missile systems, 140 combat aircraft, 90 combat helicopters and 19 warships and cutters’. He added: ‘Critical is the situation not only in Crimea, but along the entire north-eastern frontier. In fact, Russian troop units are two or three hours of travel from Kiev.’

Former Putin adviser Andrey Illarionov has predicted that in addition to Crimea, Putin may move to annex other major cities in Ukraine – including Kharkov, Donetsk, Dnepropetrovsk, Lugansk, Zaporozhye, Kherson and Odessa.

Pictures of Russian armoured vehicles on the move in regions close to the Ukrainian border include motorised infantry vehicles and tanks. The military movements are also said to include Grad BM-21 multiple rocket launch vehicles. Tanks have also been pictured being carried by rail in Belgorod, and are reported to be parked in a village just 12 miles from the border.

The moves came as the Russian armed forces announced a huge military exercise by its airborne troops. The three-day exercise ordered by Putin involved a vast ‘landing operation’ by 4,000 paratroopers.

NATO has conducted its own show of force to reassure countries in Eastern Europe. The US and Poland began war games during the week that involved at least 12 American F-16 fighter jets. A joint naval exercise of US, Bulgarian and Romanian naval forces in the Black Sea also started.

Events have been building to a crunch point when tomorrow Crimea will vote on whether to join Russia. If Putin recognises the province as Russian, sanctions will follow.

US Secretary of State John Kerry and Russian foreign minister Sergei Lavrov met in London yesterday, but as expected those talks failed to make any progress on the crisis.

Infographic:

Geo-political infographic of Ukraine and of Crimea.

Geo-political infographic of Ukraine and of Crimea

 

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Britain, Economic, European Union, Government, Russia, Ukraine, United States

Drawing a line with Russia…

THE UKRAINIAN DICHOTOMY

Intro: The West should have concerns, and these should leave Mr Putin in no doubt that his forceful entries in Georgia in 2008 and now in Ukraine, cannot be allowed to extend to those former Soviet countries – such as in the Baltic States – that are now part of the European Union and NATO, but which also have Russian-speaking populations

A meeting of the NATO-Russia council earlier this week to discuss events unfolding in Ukraine was a welcome development in the efforts to defuse the crisis. Dialogue has been important because not only is ‘jaw-jaw’ better than ‘war-war’, but because of the need to minimise the risk of misunderstandings and misjudgements.

The West appears to have allowed the Russians to annex Crimea without the slightest of physical restraint, a position that has immediately led to the Kremlin redrawing the map of Russia that now contains and subsumes the southern region of Ukraine. The perception that the West was rather relaxed was reinforced when a document photographed in the hands of a British government security adviser appeared to rule out any direct response to Russian aggression in Crimea, whether military action or economic sanctions. There is also irony in the fact that Vladimir Putin says he did not aim in annexing the Crimea, a portrayal that will be impossible for some to untangle.

A political anomaly arose, too, when the US Secretary of State, John Kerry, said that Washington was reaffirming its guarantee of Ukraine’s territorial sovereignty and integrity as set out in the Budapest Declaration of 1994, which the UK is also a party and signatory to. How, though, this can possibly extend to keeping Crimea within Ukraine is not clear. Even if sanctions are off-limits – for the Government will be acutely aware that any British sanctions could soon backfire, such as energy supplies from Russia to Europe being curtailed or Russian capital outflights from the City of London – it is difficult to see Mr Putin being cowed by diplomatic isolation or the cancellation of the planned G8 summit in Sochi in June. No doubt, the Russian leader can probably have confidence in the quickly arranged referendum planned for March 30, which will aim to grant greater autonomy for Crimea, to do his annexation for him.

But the West should have concerns, and these should leave Mr Putin in no doubt that his forceful entries in Georgia in 2008 and now in Ukraine, cannot be allowed to extend to those former Soviet countries – such as in the Baltic States – that are now part of the European Union and NATO, but which also have Russian-speaking populations.

John Kerry said the United States did not seek a confrontation with Russia, but will stand-by Ukraine. How, when US sanctions on Russia has already led to Mr Putin selling billions of dollars’ worth of his country’s gold in propping up the Russian Rouble? Further volatility on the Russian currency could have a devastating effect on the livelihoods of almost all Russians.

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