Only days ago it seemed that the 28 members of the European Union didn’t have it in them to jeopardize their relationship with Russia, for the sake of Crimea or Ukraine.
For the last several months, Angela Merkel spoke to Vladimir Putin on the telephone at least once a week. There’s an entry on the Russian government website for each conversation with a brief summary. Since April 30, Merkel and Putin talked about finding a solution to the crisis in Ukraine 17 times. Here’s an example: http://eng.kremlin.ru/...
François Hollande spoke to Putin about the situation in Ukraine 10 times since April 30. He also hosted Putin and Merkel at the D-Day commemoration in Normandy in June.
Petro Poroshenko spoke to Putin on the phone six times since he was elected President of Ukraine last May 25th.
Prime Minister Mark Rutte of the Netherlands spoke to Putin by phone six times since MH17 went down on July 17.
After all these conversations failed to improve the situation in Ukraine, the EU announced its decision to impose sanctions on Russia as a penalty for the actions it condemns:
"The package of new restrictive measures agreed today by the European Union constitutes a powerful signal to the leaders of the Russian Federation: destabilising Ukraine, or any other Eastern European neighbouring State, will bring heavy costs to its economy. Russia will find itself increasingly isolated by its own actions." |
Here's a link to the rest of the statement.
Russkiy Mir
(Russian World)
Russia has big plans and more ambition than it can financially afford. It stretches across 9 time zones but it still needed to possess a small area the size of Massachusetts that somehow ended up on Ukraine’s side of the border. Of course, it was Crimea’s location, not its size, that made it so irresistible. For centuries, Russia’s lack of inhibition about borders, its own sense of itself as borderless, led to a natural fondness for all of its neighbors’ irresistible land.
The people of that era who lived farther west where land ends did the same thing as Russia but they had to get on board sailing ships to do it. Russia expanded while staying on dry land. Maybe it hasn't let go of its empire because it's harder to do when it isn’t oceans away, like Spain's or Britain's, even if its disintegration is as inevitable as any empire’s.
Russia is an anachronism. In the modern era, empire's have disappeared and even the nation state is crumbling as money, power, and influence concentrates into the hands of a privileged few. Rather than contemplate its own irrelevance in the modern world, Russia turns to neo-traditionalism, to its past, and to its familiar self which doesn’t progress so much as expand. Ukraine is halfway between the reality of Russkiy Mir and the other reality of a modern, liberal Europe.
Too much is made of the natural gas Russia supplies to the EU. The greedy oligarchs who control Russia’s vast natural resources depend on willing buyers. They didn’t bother to build a diversified economy or a broad and prosperous middle class outside of the cities where they live. They have to sell natural gas, and when they do, it must be at the price that Russia needs to survive. The narrative about Europeans who depend on the mercy of Russia to keep the natural gas pipelines flowing is only half-true.
In reality, Russia depends on capital that flows from its suppliers in the West. The EU's sanction to restrict the flow of capital has the potential to hinder all of Russia’s ambitious plans. On July 23, Vladimir Putin met with Kirill Dmitriev, the CEO of the Russian Direct Investment Fund (RDIF). The Russian government's website provides a transcript of their interesting conversation. Here's a bit of it.
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Kirill Dmitriev: Thanks in part to our work, Russia was in third place last year, as you know, in attracting foreign investments.
Vladimir Putin: The US was in first place, China was in second (with what, 127?) and we have 97.
Kirill Dmitriev: Yes, and this is a jump from eighth place to third in just one year. What’s important is that investors are still interested – $3.6 trillion investments came to meet in St Petersburg [International Economic Forum] – and investors say that they strongly oppose sanctions, which they see as a very dangerous precedent for their own countries and their own economies.
Vladimir Putin: Indeed.
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It’s easy to picture what could happen to Russia’s economy if the flow of capital is shut off. Investors can diversify and reallocate elsewhere from their laptops. Similarly, Russia can diversify as a supplier of natural gas to other markets away from the EU, too, but it has no advantage because it needs more than a laptop. It needs infrastructure and technical expertise. The sanctions will be a hindrance to both.
Meanwhile, the US is gearing up to enter the field as a liquid natural gas exporter and Russia has no ability to compete because of the artificial price it needs to sustain itself. There isn’t a true global market for natural gas and Russia disguises its arbitrary pricing by linking it to the price of crude. When the US reaches the target capacity that meets demand in Japan, Korea, and the EU, it will supply liquid natural gas at a true market price lower than the level Russia needs for its own reasons.
Japan signaled this week that it likes this idea very much by jumping on the sanctions bandwagon, too.
Now there isn’t any reason for anyone in the world to gloat about Russia getting screwed seven ways 'till Sunday by the sanctions. The competition is between the West’s oligarchs and Russia’s oligarchs. The rest of us are bystanders.
Competition will probably matter much more than sanctions as Russia struggles to free itself of its internal limitations. It's not entirely clear how the sanctions would be applied in every instance. Is the CEO of Royal Dutch Shell going to look at joint projects like the one at Sakhalin differently now that MH17 went down? Or is he going to put the interest of the company's shareholders before all else?
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