The Foreign Policy Essay: The Price of “Novorossiya”
Editor’s Note: Pundits in the United States and Europe worry that Russia’s invasion of Ukraine heralds the rebirth of an aggressive and dangerous adversary. Yet while Russia’s so-far successful military campaign in Ukraine and annexation of Crimea appear to be major advances for Moscow, the regime of President Vladimir Putin is also paying a heavy price. Carol R.
Published by The Lawfare Institute
in Cooperation With
Editor’s Note: Pundits in the United States and Europe worry that Russia’s invasion of Ukraine heralds the rebirth of an aggressive and dangerous adversary. Yet while Russia’s so-far successful military campaign in Ukraine and annexation of Crimea appear to be major advances for Moscow, the regime of President Vladimir Putin is also paying a heavy price. Carol R. Saivetz, a research affiliate in the Security Studies Program at MIT, contends that Russia’s economy, control over its far-flung territory, and foreign policy goals are all likely to suffer because of Moscow’s recent spate of adventurism.
Leaving aside the cost of sanctions, Russia is hard pressed to finance the absorption of Crimea, annexed in March. Russia will have to invest heavily to modernize infrastructure, raise pensions to levels comparable to Russia, and subsidize farmers who have lost access to the Ukrainian market. Should Russia successfully detach Donetsk and Luhansk, costs will grow exponentially. Both were highly subsidized by Kyiv, and Moscow would not only have to replace those subsidies, but also undertake a massive reconstruction effort. The estimates of reconstruction run to the billions of dollars because the separatists have destroyed roads, bridges, and most particularly the mines.
Russia cannot afford this. In the short term, funds earmarked for infrastructure projects in Siberia and in the troubled North Caucasus are being diverted to cover the burgeoning costs of the Crimean annexation. Over time, both regions will suffer and links to Moscow will be further attenuated. A second source of revenue for Crimea and beyond is money from individual pension accounts. Variously estimated at approximately $7 billion, the pension funds are being used to plug holes in the state budget. It has always been presumed that the “social contract” between Putin and the people is based on promises of better living standards. For the moment, people appear willing to endure hardships to support Putin; yet it seems reasonable to assume that Putin’s popularity would be diminished if people found everyday living harder as the costs are passed on to the average Russian citizen.
In the political sphere, one has to question how popular an open war with Ukraine would be. For all practical purposes, the war has thus far been hidden from public view. Now, suddenly, there are reports of mysterious funerals and unmarked graves. In Stavropol alone, the Committee of Soldiers’ Mothers reported at least 400 dead or wounded. Russian forces may help separatists seize Donetsk and Luhansk, but military analysts believe that Moscow would need over 100,000 troops to hold the territory. Those soldiers would not be welcomed as they were in Crimea, thus risking the loss of many more men. One need only remember the Soviet experience in Afghanistan: support for the war waned as coffins came home to the larger cities. For the moment, Putin’s soaring popularity is clearly based on propaganda, the promotion of ethnic Russian nationalism, and the restoration of national pride. Yet only 5 percent of those polled favor sending troops to Ukraine. To be clear, none of this is meant to predict the demise of the Putin power structure, but it does portend a significant weakening of the regime.
The war in Ukraine has also undermined two of Putin’s major foreign policy goals. First, Putin’s pet project, the Eurasian Economic Union (EEU), is suffering from the downturn in the Russian economy. Vladimir Putin has promoted the EEU, comprised of Russia, Belarus, and Kazakhstan, to be Russia’s equivalent of the European Union. Many see it as Putin’s way of reassembling the post-Soviet states into a single entity. Worse still, Putin’s fellow leaders have voiced concern about Moscow’s adventurism. Belarus’s Aleksandr Lukashenko has criticized Putin’s proposals for the federalization of Ukraine and Kazakhstan’s Nursultan Nazarbaev has repeatedly stressed that the EEU is an economic, not political, organization. So disgruntled is Nazarbaev that he spoke publicly about withdrawing from the EEU if it threatened Kazakhstan’s independence.
Second, if Putin’s actions since Victor Yanukovich’s ouster/flight were designed to keep Ukraine in Russia’s orbit and to keep NATO at bay, then all the pressure has had the opposite effect. Not only has Kyiv signed the association agreement with the European Union, but President Petro Poroshenko has announced that Ukraine will seek NATO membership. For its part, NATO is planning to position forces in the east (the Baltic States and Poland) on a rotational basis and to bolster its rapid-reaction capabilities.
As of this writing, Russian-assisted separatists have staved off what seemed like imminent defeat and are making gains on the ground. Putin is likely to achieve at least a stalemate, if not quasi-independence, for the southeast. In the long term, however, the Russia that emerges from the Ukrainian conflict will be significantly weaker and more isolated.
The dilemma for the West is how to shift Putin’s thinking to a longer time horizon—without provoking an all-out war. The West should maintain the targeted sanctions: in addition to the costs noted above, there is evidence that at least some Russians are rethinking the negative consequences of the Crimean annexation. NATO should also move forward with its revitalization. On the one hand, the calibrated rotation of troops is clearly designed not to be a permanent provocation to Russia; on the other hand, the rapid-response force will signal NATO’s resolve to prevent further Russian aggression. Perhaps then Putin will recognize the price of his imperial ambitions, or in the words of now-exiled economist Serge Guriev, that the forces unleashed by the quest for “Novorossiya” lead down the “imperial road to economic ruin.”
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Even as fighting in eastern Ukraine continues between forces loyal to Kyiv and pro-Russian separatists aided by Russian regular forces, we still don’t know President Vladimir Putin’s real goal. Does Putin simply want to destabilize the southeast to weaken Kyiv? Is he more ambitious and trying to create a quasi-independent statelet there? Or is his ultimate goal to control a swath of land from the Russian-Ukrainian border through Odessa to TransDniestr—so-called “Novorossiya”? (“Novorossiya” is a term coined by Catherine the Great for lands wrested from the Ottoman Empire.) Regardless of what Putin really wants, or whether he has even made up his own mind, Russia is already paying a high price—both economic and political—for Putin’s Ukrainian adventurism. Western sanctions have damaged Russia’s already slowing economy, reducing the growth rate to “zero, with a minus sign,” while precipitating capital flight through August 2014 in amounts surpassing all of 2013. Additionally, the reverse sanctions imposed by Moscow have already led to significant increases in the price of food, ranging from 6 percent in the western parts of Russia to 26 percent in the Far East. For the rest of 2014, the overall inflation rate will be between 7-7.5 percent. Russian companies, now cut off from Western financial markets, are facing difficulties refinancing their debts. For example, Sibur, partially owned by Gennady Timchenko (who is on the sanctions list), borrowed $780 million from Sberbank and Rosneft asked for $42 billion from the state.
Leaving aside the cost of sanctions, Russia is hard pressed to finance the absorption of Crimea, annexed in March. Russia will have to invest heavily to modernize infrastructure, raise pensions to levels comparable to Russia, and subsidize farmers who have lost access to the Ukrainian market. Should Russia successfully detach Donetsk and Luhansk, costs will grow exponentially. Both were highly subsidized by Kyiv, and Moscow would not only have to replace those subsidies, but also undertake a massive reconstruction effort. The estimates of reconstruction run to the billions of dollars because the separatists have destroyed roads, bridges, and most particularly the mines.
Russia cannot afford this. In the short term, funds earmarked for infrastructure projects in Siberia and in the troubled North Caucasus are being diverted to cover the burgeoning costs of the Crimean annexation. Over time, both regions will suffer and links to Moscow will be further attenuated. A second source of revenue for Crimea and beyond is money from individual pension accounts. Variously estimated at approximately $7 billion, the pension funds are being used to plug holes in the state budget. It has always been presumed that the “social contract” between Putin and the people is based on promises of better living standards. For the moment, people appear willing to endure hardships to support Putin; yet it seems reasonable to assume that Putin’s popularity would be diminished if people found everyday living harder as the costs are passed on to the average Russian citizen.
In the political sphere, one has to question how popular an open war with Ukraine would be. For all practical purposes, the war has thus far been hidden from public view. Now, suddenly, there are reports of mysterious funerals and unmarked graves. In Stavropol alone, the Committee of Soldiers’ Mothers reported at least 400 dead or wounded. Russian forces may help separatists seize Donetsk and Luhansk, but military analysts believe that Moscow would need over 100,000 troops to hold the territory. Those soldiers would not be welcomed as they were in Crimea, thus risking the loss of many more men. One need only remember the Soviet experience in Afghanistan: support for the war waned as coffins came home to the larger cities. For the moment, Putin’s soaring popularity is clearly based on propaganda, the promotion of ethnic Russian nationalism, and the restoration of national pride. Yet only 5 percent of those polled favor sending troops to Ukraine. To be clear, none of this is meant to predict the demise of the Putin power structure, but it does portend a significant weakening of the regime.
The war in Ukraine has also undermined two of Putin’s major foreign policy goals. First, Putin’s pet project, the Eurasian Economic Union (EEU), is suffering from the downturn in the Russian economy. Vladimir Putin has promoted the EEU, comprised of Russia, Belarus, and Kazakhstan, to be Russia’s equivalent of the European Union. Many see it as Putin’s way of reassembling the post-Soviet states into a single entity. Worse still, Putin’s fellow leaders have voiced concern about Moscow’s adventurism. Belarus’s Aleksandr Lukashenko has criticized Putin’s proposals for the federalization of Ukraine and Kazakhstan’s Nursultan Nazarbaev has repeatedly stressed that the EEU is an economic, not political, organization. So disgruntled is Nazarbaev that he spoke publicly about withdrawing from the EEU if it threatened Kazakhstan’s independence.
Second, if Putin’s actions since Victor Yanukovich’s ouster/flight were designed to keep Ukraine in Russia’s orbit and to keep NATO at bay, then all the pressure has had the opposite effect. Not only has Kyiv signed the association agreement with the European Union, but President Petro Poroshenko has announced that Ukraine will seek NATO membership. For its part, NATO is planning to position forces in the east (the Baltic States and Poland) on a rotational basis and to bolster its rapid-reaction capabilities.
As of this writing, Russian-assisted separatists have staved off what seemed like imminent defeat and are making gains on the ground. Putin is likely to achieve at least a stalemate, if not quasi-independence, for the southeast. In the long term, however, the Russia that emerges from the Ukrainian conflict will be significantly weaker and more isolated.
The dilemma for the West is how to shift Putin’s thinking to a longer time horizon—without provoking an all-out war. The West should maintain the targeted sanctions: in addition to the costs noted above, there is evidence that at least some Russians are rethinking the negative consequences of the Crimean annexation. NATO should also move forward with its revitalization. On the one hand, the calibrated rotation of troops is clearly designed not to be a permanent provocation to Russia; on the other hand, the rapid-response force will signal NATO’s resolve to prevent further Russian aggression. Perhaps then Putin will recognize the price of his imperial ambitions, or in the words of now-exiled economist Serge Guriev, that the forces unleashed by the quest for “Novorossiya” lead down the “imperial road to economic ruin.”
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Carol R. Saivetz is a research affiliate in the Security Studies Program at MIT.
Carol R. Saivetz is Senior Advisor in the Security Studies Program at MIT.
