Whatâs
Wrong Today:
Today
and tomorrow we will look at the geopolitical and economic dynamics that will
play out in Crimea and Ukraine. Starting with Crimea, the NYT gives some insight
into the situation on the ground:
(Crimea), have been empty in recent days, with little white âtransaction
deniedâ slips piling up around them. Banks that do have cash have been imposing
severe restrictions on withdrawals
David
Herszenhorn continues: (emphasis by the Wrongologist)
flights, other than those to or from Moscow, remain canceled in what could
become the norm if the dispute over Crimeaâs political status drags on, a
chilling prospect just a month before
tourist season begins in a place beloved as a vacation playground since
czarist times
Herszenhorn
interviewed Russiaâs regional development minister, Igor N. Slyunayev, who
said:
Palestine
Yes,
he did say âourâ Crimea. Slyunayev went on to say:
it comes to the entire group of vitally important resources â first of all,
electricity and waterâŚAbout 80% of water comes to its territory through the
northern Crimean canal from the Dnieper River. Also, 80% of Crimea depends on
imports of electricity
Russia
is facing its own fiscal challenges. Revenue growth from oil and natural gas is
projected to slow precipitously, and the Kremlin confronts big bills from
salary increases for the police, the military and other public workers. Time
Magazine reports: (brackets and parenthesis
by the Wrongologist)
Ukrainian crisis began, Russia was headed toward a major [economic] decline. Despite oil
prices being more than $100 a barrel, its economy will be lucky to grow at a
rate of 1% this year, about one-third of the US rateâŚA decade ago, the BRIC
countries (Brazil, Russia, India & China) were supposed to be the worldâs
economic salvation. Since then, theyâve become complacent, and their growth has
been cut in half. Some, like China, are brewing up epic debt crises. Others,
like RussiaâŚare ruled by autocratic strongmen trying to grapple with tumbling
markets and foreign-capital flight on a massive scale
There
is no overland transportation link between Russia and Crimea, and building a
bridge across the shortest waterway, near the Crimean city of Kerch, could take
years and cost an estimated $3 billion to $5 billion. Keeping Crimea stocked by
air and sea can be done, but it will be costly and more difficult.
Turning to
the European Union, it is clear that most members are very dependent on Russia
for energy imports, which limits their actions against Russia. Some in the financial
media are willing to acknowledge that the EU canât afford to implement very strong
sanctions against Russia over Crimea, and Bloomberg quotes them as saying outright that thereâs not much more that the West
can do:
Goldman Sachs, Bank of America Corp. and Morgan Stanley have said Europe
probably wonât back sanctions that limit flows of Russiaâs oil and gas.
European members of the Paris-based International Energy Agency imported 32% of
their raw crude oil, fuels and gas-based chemical feedstock from Russia in
2012
Itâs a sad
day in America when you have to get your honest news from the pigs at Goldman
Sachs, B of A, and Morgan Stanley.
But Russia
has not been standing still geopolitically. It has finished the final stage of the
East Siberia-Pacific Ocean (ESPO) Pipeline in 2013. Hereâs Oil Price, describing what the new pipeline means:
has opened its second and final branch of the $25 billion, 4,700km East
Siberia-Pacific Ocean (ESPO) pipeline to double its capacity to 30 million tons
for total exports of 36 million tons in 2013
There is geopolitical
significance to the new pipeline in terms of any possible additional sanctions
in the West: The pipeline makes Russiaâs Far East a major Asian oil player,
positioning it to become a strategic transit point for oil to Japan, China, South
Korea, the Philippines, Singapore and Taiwan.
That means
Russia has built even more leverage over Europe.
Mr. Putinâs
decision to annex Crimea has pluses and minuses for Russia. It is a province
that likely would have remained Russian even after the breakup of the old
Soviet Union if Khrushchev hadnât given it to Ukraine. It is a province that is
unable to support itself, but one that is a long-term strategic asset,
militarily. It has some untapped oil and gas reserves to draw upon, but they can
hardly be developed in a short enough period of time to be of value to Crimea or to the
Russian economy as a whole. That will take a decade or two.
Its major economic
sector is tourism, and European and Baltic tourists are going to stay away for
awhile.
This is a
geopolitical situation that saber-rattling and stare-down contests canât
possibly win, but maybe, time will show it to be a bad decision for Mr. Putin.
The
West had only one bad option regarding Mr. Putin’s Crimea incursion, and that was a
military confrontation. The idea that financial sanctions and visa restrictions
would somehow stop Putin from doing whatever he wanted was fanciful to say the
least. Mr. Obama’s decision not to go to war with Russia or impose truly serious
sanctions over Crimea is a smart one, as is his decision to let our EU allies
bear the brunt of the saber-rattling. That allows Mr. Obama to play a long game, seeing if Putin
can manage the Russian economy past a difficult point, while also propping up
Crimea.
All
of that in the face of some sanctions and political isolation.
It he can
do both, Mr. Putin wins a limited victory. If he canât, the West can give him enough
rope to hang himself at home.
Tomorrow,
we focus on Ukraineâs domestic situation, and some of the implications for the
US.
