When Vladimir Putin flooded the airwaves with hysterical propaganda about the rise of Fascism in Ukraine and the distressing mistreatment of Russian compatriots abroad, Eastern Ukraine took notice. Across the Donetsk and Luhansk regions, a small circle of radicalized minorities rose up against their “fascist” oppressors, hoping for deliverance by the same little green men that had liberated Crimea.
But while the little green men came, deliverance did not. Now, beset with economic problems from plunging oil prices to rampant inflation and a depreciating currency, it is increasingly unlikely the irredentist dreams will ever come to fruition.
To put it bluntly, irrespective to the efforts put by the radicalized extremist groups in ‘Novorossiya’, the odds of Russia actually ‘absorbing’ Eastern Ukraine were and are somewhere between infinitesimally small to an absolute zero. The plain and simple reason for this is based on the fact that coupled with the current Russian economic outlook, the annexation of the Donbass would hold unbearable economic costs.
A mild way of describing the Russian economic situation is to state that it is very grim. Over the last 6 months oil prices have fallen by over 50 percent and as of early January 2015 the prices of WTI Crude oil stood at 47 USD/bbl. This is really bad news for the Russian economy for whom petroleum exports generate around 50 percent of its income and every dollar fall in oil price means around $2 billion dollars in lost revenue. The inflation in January 2015 has peaked at 11,4 percent and combined with the Russian embargo on Western products it is likely that the prices of goods and services will reach unseen heights, and the government might be forced to begin subsidizing certain products. Thus further adding strain on its economy. Also, while the Russian Central Bank has currently stabilized the decline of the ruble, it came with a hefty price tag of around $90 billion, which it has spent in 2014 trying to prevent a complete freefall of the currency. Alas, even if Russia still possesses around $388 billion in foreign exchange and gold reserves to stabilize the currency market – the doomsday clock is now officially ticking.
Taking into account the very weak fundamentals of the Russian economy that persisted over the last year, it must be noted that a Crimean-esque annexation of the Donbass region would provide a fatal blow to the struggling economy. It is roughly estimated that if Moscow decided to incorporate the 8 million strong Donbass into its own jurisdiction, it would have to spend around $85,6 billion a year in order to raise the living standards to the level seen in Russia. This sum does not even include the required funds for infrastructure and other pressing needs. Also, as per Paul Gregory of Forbes, ‘the annexation of the Donbass region of eastern Ukraine would eat up between 6 and 8 percent of the Russian budget each year‘.
Furthermore, in spite of the well-known fact that the Donbass region is the industrial heartland of Ukraine, which not only boasts of plenty of heavy-industrial complexes, but is also rich in natural resources, on a global scale its impact is minimal. Most of the heavy industries operate soviet-era equipment and require enormous investments in order to make them competitive against such global industrial powerhouses as Germany or China. Also, some of these industries are still in business because they are heavily subsidized (Kiev sells the gas for its consumers for half the price it buys from Russia) and due to the very low wages that the local workers receive. Therefore, from a purely economic point of view, the annexation of Donbass would in the end prove to be a pretty bad investment for Russia.
Hence, a brief cost assessment of a hypothetical annexation proves that contrary to the hopes of the extremists, Moscow neither did nor does have the capabilities of actually ‘absorbing’ the Donbass region. Ergo, the only reasonable answer why Putin decided to embark on military adventurism in Ukraine is based on the fact that he wanted to keep a hold on Ukraine at any cost. Even if it involved the deaths of thousands of innocent men, women and children.
Up until the point when the Kremlin began its propaganda campaign against his fellow compatriots in the East of Ukraine, the Ukrainian and Russian societies have peacefully co-existed for centuries.
However, this seemingly fairy tale cohabitation came to an abrupt end when tired of Russia’s interference in their affairs; Ukrainians decided to take destiny into their own hands and marched to the Independence Square in Kiev. The Euromaidan protest led to the downfall of Viktor Yanukovych and the Ukraine-EU Association Agreement, which firmly indicated that Ukraine was further distancing itself from Russia.
Fearful that Ukraine would forever leave its orbit, Moscow unfolded an expansive propaganda campaign designed to create a schism in Ukrainian society while radicalizing the Russian ethnic minorities in the East.
First of all – as noted by Agnia Grigas in a Forbes article – Russia claimed the Ukrainian government was populated by ‘fascists’ and that the Russian minorities are allegedly under threat. A second myth followed, which stressed that the Russian government and everyone who opposes the revolution occurring in Kiev were heroic ‘anti-fascists’.
While superficially simple, this strategy still holds sway to a great number of Russians. In turn, this has managed to establish a strikingly Manichean ‘good versus evil’ paradigm in the minds of at least several hundred Russian speaking extremists in the East of Ukraine. Fuelled by the propaganda and arguably inspired by the example of Crimea, with implicit, yet undeniable military support of Moscow, they would decide to wage war against Kiev and seek the unification with the Russian Federation.
Although more time has to pass for a definitive conclusion of the Ukrainian – Russian conflict to be reached, two preliminary outcomes are becoming apparent and both indicate that Putin has most likely already achieved one of his goals. The first and possibly the ideal scenario for Putin involves the federalization of Ukraine, which would mean that under the auspices of compatriot policies it could continue influencing Ukrainian domestic politics and interfere with its aspirations of successfully joining the EU and potentially even NATO. Otherwise, if the so called ‘Federal State of Novorossiya’, which includes both Luhansk and Donetsk aimed to achieve independence from Ukraine, Russia would then be able to create yet another ‘frozen conflict’ and indirectly control this quasi-state, which would also act as a buffer zone between Russia and the West.
However, as it is most often the case, at least in politics, is that where there are victors there are also losers. This time Putin has manipulated the extremists in the East of Ukraine into believing that if they stand up against Kiev, they would be able to win a better tomorrow as a part of Russia. However, the sheer costs of such a feat would have been unbearable to the struggling Russian economy and therefore Moscow could have never entertained the thought of actually accomplishing it. Rather, it was necessary for the Kremlin to play the agitated Eastern Ukrainian minorities into taking up arms so that it could keep a hold on Ukraine. Clearly, the Russian-speaking East Ukrainians currently still fighting against the Ukrainian government have ended up as expendable pawns in a much greater game of geopolitics.
In the words of John Forbes Nash - they were the suckers.
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