Is Russia ready to annexe the Crimean Republic?

By Angad Vijaya Raghavan

Over two million Crimeans jubilantly rejoice in their new status as the Republic of Crimea (under the Federation of Russia), following the successful referendum on Sunday (16^th March) and the Russian Parliamentary vote on Thursday (20^th March).  At least, that’s what Kremlin’s media arm would have you believe.

Ages of political unrest and ever-growing seeds of segregation eventually tipped over last month with pro-Russian Ukrainian President Viktor Yanukovych fleeing to Russia after allegedly ordering forcible repression of anti-secession protestors in Ukraine. On their part, hundreds of thousands of Crimeans took to the streets en masse, demanding secession from the Ukrainian Government.  They identified themselves as “Russians”, they said, and if genealogy were to be trusted, you couldn’t fault them.

The Vladimir Putin-led Russian Government was hardly taken by surprise, as their military build-up near the border was there for all to see.  Putin’s aggressive takeover of Crimea, while heartily welcomed by the local populace, has drawn significant ire from the western superpower-backed interim Ukrainian Government, which has issued international arrest warrant against Yanukovych, who still claims he is a President-on-exile.

Crimea’s ultimate aim of becoming a part of the Russian Federation, however, may come with a significant cost.  Economic analysts across the board agree that neither the Autonomous Republic of Crimea nor Russia may be ready for a complete geo-political revamp. Initial gaiety shall soon be followed by months of austerity, slow-growth (if any) and could further cripple the economy of a region already facing a sharp monetary slowdown.

According to Prof. Yevhen Panchenko, Economics Institute of Crimea, “It is going to be a long and painful process and the chaos is going to hit and cost ordinary people hard.”  While both parties have dived head-first into enacting numerous secession and annexation laws, observers feel there is simply no concrete plan for the future. Questions related to Ukraine’s asset-loss compensation, relevance of existing business contracts, Crimeans’ government-aided benefits et al. remain largely unanswered.  The future is hazy, at best.

In a January budgetary session, the Crimean Parliament approved a budget of about € 400 Million, of which a significant portion – about € 222 Million – was expected to be covered by Ukraine.  Crimea now expects Russia to fill in and help bridge the difference.  A Russia, mind you, that is struggling with a poor investment cycle in this fiscal, and is heading towards an economic downturn.

Sergei Askyonov, the Kremlin-installed separatist Prime Minister of Crimea, announced on March 14^th that the economic minutiae shall be worked out in detail only after the Russian Parliamentary vote. Since that has come to a successful pass, we can only wait and see if the decision to secede is based on sound economic and legal advice. If things do turn out negatively, the people of Crimea shall have no right expect help from Kiev, which still asserts that the “plebiscite” is illegal.

Askyonov’s policies on currency exchange also remain vague.  His announcement that the conversion from the Ukrainian Hryvnia to the Russian Rouble shall be affected soon after the vote falls short of explaining how the mechanics shall be carried forward.  Will there be a long enough window, during which time the Hryvnia will still be a legal tender, until it is slowly phased out? Does Crimea have a sufficient reserve of Roubles to smoothly effect a currency exchange, or do they require a helping hand from Kremlin again?

Another issue that is caught in the quagmire concerns the government property of Ukraine that is presently housed in Crimea.  This includes the Economic Institute of Crimea (affiliated to Kiev National University), various industrial and military units, and a fleet of 19 warships belonging to the Ukrainian Navy, among other state machinery.  Ask Yuri Meshkov, President of Crimea (1994-95), and he categorically replies that everything based in Crimea belongs to Russia now. A strong proponent of a Russian Crimea since his days as a young politician, Meshkov believes that all state property must be “nationalized” as soon as possible.

There is also the possibility of a Ukrainian backlash, via power and water supplies.  Crimea currently draws as much as 90% of its power and 80% of its water from mainland Ukraine, which could easily stifle the newly formed Republic in an all-out economic battle.  In turn, Russia, which is Ukraine’s largest gas-supplier, will probably turn off the valve on its side of the border.  Precedent on this front has already been set with Russia grossly increasing the gas prices on its Ukrainian exports.

Gas, as always, is the major talking point in this power-play. Retaliatory proposals have been made in certain quarters, suggesting that the EU should enact an embargo on importing Russian gas. While the EU may not necessarily be able to replenish its reserves in totality, without doubt the larger sufferer would be the Russian economy.  Close to three per cent (around € 50 Billion) of Russia’s GDP is derived from staggered payment for gas exports to the EU and beyond.  While the long-term ramifications would be minor as re-establishing diplomatic ties is hardly tedious in this era of “you scratch my back, I scratch yours”, such a bold move would effectively neutralise any advantage Russia claims to have in a gas-centred economic war.

Angad Vijaya Raghavan is currently pursuing his undergraduate studies at BITS Pilani, Pilani Campus.  While he remains quite proud of the couple of degrees he’ll mostly receive in a year or so, his real interests lie in the murky world of financial markets and analysis.  His long-term plans include philanthropy and the like, but realises that any more procrastination might lead to him being the recipient – rather than the source – of society’s generosity chain.