Putins already paying dearly for Ukraine and

looks willing to sacrifice much more

By William E. Pomeranz-
AUGUST 12, 2014
Russian President Vladimir Putin has adopted a go it
alone approach throughout the Ukraine crisis and regularly describes his country as
independent and nonaligned. ut !oscow is not as isolated as Putin makes out. "he
fact that he cannot see this reality # or chooses to ignore it # has produced a series
of decisions that has seriously undermined Russias global role.
$or the past two decades% !oscow has &iewed its foray into global institutions as a
ma'or success. (t has increasingly integrated into the global economy. "hose
achie&ements% howe&er% now present Putin with a ma'or dilemma.
(n the aftermath of the )o&iet Unions collapse% Russia signed multiple treaties and
'oined numerous international organi*ations% including the +ouncil of ,urope% the -.
/which became the -01 and the 2orld "rade 3rgani*ation.
2hether Russia understood
the underlying obligations that accompanied its memberships is unclear. "he ink was
not yet dry on Russias accession to the 2"3% for e4ample% whenPutin demanded that
member countries be allowed to introduce protectionist measures during times of
global insecurity.
5et the consensus in Russia was that membership bought Russia a &ital seat at the
table and increased its influence in world affairs. (n addition% the United )tates and the
,uropean Union generally belie&ed that it was better to ha&e Russia inside # as
opposed to outside # the international system of global go&ernance e&en if Russia did
not meet all the prere6uisites for full membership.
"he Ukrainian crisis has e4posed the flaws of this thinking # especially for the 2est.
$or Putin% howe&er% e&ents in Ukraine ha&e raised a larger 6uestion7 )hould Russia
remain a part of the global system8
Russias ambi&alent attitude toward global institutions reflects its history # a single
autocratic leader has dominated the countrys public institutions for centuries. (ndeed%
since returning to power in 9:;9% Putins agenda has focused on reining in all other
Russian political and ci&ic institutions # the legislature% the 'udiciary% the media% higher
education% nongo&ernmental organi*ations # and has faced little real opposition in the
process. )o it is not surprising that Putin entered the Ukrainian crisis with the firm
belief that international institutions would not get in his way.
Putins fundamental misunderstanding
of how the post<imperial% post<2orld 2ar "wo international system works has
already created serious economic conse6uences in Russia. Under the recent
,uropean Union and U.). economic sanctions% state<owned Russian banks and
Russian companies now ha&e limited access to the international banking system.
!oscow is also barred from recei&ing new loans from the ,uropean (n&estment ank
and the ,uropean ank for Reconstruction and =e&elopment% a loss of se&eral billions
of dollars annually.
!eanwhile% -a*prom% the state<controlled natural gas company% still awaits the &erdict
of the ,uropean +ommissions in&estigation of possible antimonopoly &iolations.
)ignificant fines usually accompany such in6uiries # as -oogle and !icrosoft can
attest. "he 5ukos e4propriation bill% which co&ers Putins 9::> confiscation of Russias
then largest pri&ately held oil company% also finally came due in ?uly. "he Permanent
+ourt of @rbitration at "he Aague and the ,uropean +ourt of Auman Rights ruled
against the Russian state to the tune of BC: billion and B9.D billion% respecti&ely.
!eanwhile% Russias new sanctions on agricultural imports and its consistent abuse of
inspections to block fruit% &egetable and meat imports from the ,uropean Union%
United )tates% !oldo&a and Ukraine seem to be ideal fodder for a claim to the 2"3
=ispute )ettlement ody. Poland has already announced its intention to file a 2"3
complaint% and other countries appear likely to follow.
Russias ultimate bill for its Ukrainian ad&enture should not only be measured in
money lost but also in terms of opportunities missed. Russias suspension from the -0
occurred on the e&e of its presidency # 'ust as Putin planned to lead the fight against
ta4 e&asion and offshore banking. Problems he battles against in !oscow.
Russia would ha&e found a recepti&e
audience among its fellow -0 members% whose nations also suffer from significant
capital flight. Eow Russia has to address the problem alone at a time when Russian
capital flight% for the first si4 months of 9:;> /B.C billion1 e4ceeded the entire amount
of 9:;F.
Russia may not think that it is bound by any alliances. ut it turns out that institutions
do matter # and Russia cannot easily retreat from the global economy. (ndeed%
&irtually e&ery retaliatory mo&e proposed by Putin has backfired on Russia and left it in
a far weaker financial position.
Putin% for e4ample% proposed crippling deposit restrictions on !aster+ard and Visa
before he had an alternati&e Russian payment system in place. Ae thereby threatened
the ability of Russians to accept # and make # credit card payments. Rumors also
ha&e circulated that Russia intends to ban ,uropean air carriers from flying o&er
)iberia on @sia routes. "hese reports immediately sent @eroflot shares tumbling since
it recei&es upward of BF:: million from the fees paid by foreign airlines.
"he toll for the recently announced food bans remains uncertain. ut there will likely
be serious costs as well because Russia will lose both high<end food products from
,urope and low<end agricultural products from Ukraine and !oldo&a. )ome Russian
commentators insist that alternati&e suppliers e4ist and that all logistical obstacles can
be easily o&ercome. "hey also claim that the sanctions will benefit Russias domestic
food producers and farm<e6uipment manufacturers. "hough for certain products #
particularly beef% fish% fruit and &egetables # Russian retailers need to 6uickly find
new foreign partners to fill the gap.
Putins decree implementing these sanctions conspicuously included a clause calling
on the Russian go&ernment to take appropriate measures to pre&ent a sudden
increase in food prices. )o Putin clearly anticipates some economic costs to these
sanctions.
y consistently dismissing the role of institutions # both domestic and international #
Putin has backed himself into a corner. Ais remaining options are either compromise
on eastern Ukraine # and suffer the domestic political conse6uences # or doubling
down and inter&ening directly in =onetsk and Guhansk. "he former will rely on
international bodies to smooth the process% while the latter will be in open defiance to
a large part of the world community.
Putin seems to be leaning toward the second option. 5et that also means that he
belie&es that Russian so&ereignty can best be protected by its growing isolation.
)o&iet dictator ?oseph )talin tried a similar approach in the
;HF:s% for he also pursued a policy that isolated the )o&iet Union from the world
economy. efore the Ukraine crisis% Putin at least seemed to acknowledge the role of
globali*ation. Ais recent actions suggest a lack of sophistication about global markets
and the e4tent to which Russia has been integrated into the post<2orld 2ar "wo
global architecture. "he price tag for this miscalculation will be considerable.
Putin is more popular according to Russian public opinion polls than he has e&er been
during his ;> years in office. Ae has achie&ed this success% howe&er% by undermining
the &ery institutions% both domestic and international% that facilitated his consolidation
of power. Ae is more powerful # yet more e4posed # than at any time during his
presidency.
PA3"3 /"3P17 Russias President Vladimir Putin chairs a go&ernment meeting at the
Eo&o<3garyo&o state residence outside !oscow% ?uly F:% 9:;>. R,U",R)I@le4ei
EikolskyiIR(@ Eo&ostiIJremlin
PA3"3 /(E),R" ;17 -0 countries leaders /from top +% clockwise1 ritish Prime
!inister =a&id +ameron% President arack 3bama% $rench President $rancois
Aollande% +anadas Prime !inister )tephen Aarper% (talian Prime !inister ,nrico
Getta% ,uropean +ouncil President Aerman Van Rompuy% ,uropean +ommission
President ?ose !anuel arroso% ?apans Prime !inister )hin*o @be% -erman
+hancellor @ngela !erkel and Russian President Vladimir Putin attend a working
session at the -0 summit in ,nniskillen% Eorthern (reland% ?une ;0% 9:;F.
R,U",R)I5&es Aerman
PA3"3 /(E),R" 17 @ shop assistant prepares cases containing "<shirts printed with
images of Russian President Vladimir Putin% for sale at -U! department store in
central !oscow% @ugust ;;% 9:;>. R,U",R)I!a4im Kmeye&
PA3"3 /(E),R" F17 ?oseph )talin at the "ehran +onference in ;H>F.
2(J(P,=(@I+ommons
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