Stand-off in Crimea: Cui Bono?

It seems there has been no Russia watcher left in the world who has not opined on Vladimir Putin’s swift and not so covert moves in the Crimea, pondering: “who’s to blame and what to do?”  In times like these it is also as customary for analysts of international affairs to wonder “to whose benefit?” Yet this question remains open even though some of the Western diplomats are already calling the current standoff the biggest crisis in Europe of the 21st century.

It is immaterial to Russia’s relations with its western neighbors whether Crimea becomes an independent state recognized by Moscow and a handful of others, as it is the case with S. Ossetia and Abkhazia, or whether the peninsular become the Russian Federation’s 84th subject.  Either way we should expect a significant cooling in Russia’s relations with European Union and United States.

Yet, the immediate economic fall-out from such a Cold War Redux, which some argue is already underway, would not be very significant for Russia.  After all, Western Europe traded with Soviet Russia even during the original Cold War and there is no way European companies would want to buy more expensive gas elsewhere, including liquid gas from U.S., unless their governments are willing to subsidize their imports. As for the United States, its trade with Russia is too minuscular to make a difference.

But while Western economies prefer to prevent their countries’ companies from suffering direct major losses , they will most likely revive many of the Cold War-era restrictions on transfer of know-how and hardware that post-Communist Russia needs to modernize its economy, which remains dependent on exports of oil and gas.

Machinery and equipment account for 45 percent of Russia’s imports from the European Union, according to the Russian government’s own statistics, and these imports cannot be easily substituted.  Nor would the U.S. government be exactly interested in encouraging transfer of technologies by its companies to Russia.

Given the cold shoulder in the West, Russia would have no choice but to increase imports of technologies and equipment from elsewhere. China, which is Russia’s single largest trading partner, seems to be one obvious candidate. Machinery and equipment already account for 50 percent of Russia’s imports from China, and the Middle Kingdom will be happy to sell more if Moscow’s Cold War with Brussels and Washington becomes a reality.

China has made impressive strides in many technological fields, building the world’s fastest supercomputer at one point and leading the world in manufacturing of solar cells and wind turbines. But, overall, the Middle Kingdom continues to lag behind the West technologically. Therefore it won’t be able to compensate Russia for setbacks that will be dealt to its modernization drive by ending Russian companies’ fledgling partnership with Western technological powerhouses. Also, while happy to increase its exports to Russia, China will probably continue to avoid taking sides on the Crimean crisis, as support for the peninsula’s secession could backfire for the Middle Kingdom, which continues to face Uighur separatists, while explicitly opposing Russia on the issue could damage Beijing’s ties with Moscow.

Also,  incorporation of Crimea cannot help compensate for any serious decline in high-tech trade with EU countries, which collectively account for half of Russia’s foreign trade. That trade exceeds $400 billion a year while Crimea’s entire regional domestic product is roughly $5 billion. Even if Russia were to incorporate entire south-eastern Ukraine, it would still add only 3.4 percent to Russian GDP or 2.8 percent to GDP of Eurasian Union, which Russia is trying to build with Kazakhstan and Belarus. (Leaders of these and other post-Soviet neighboring states are, of course, anxiously watching Russia’s moves in Ukraine as they contemplate their integration options.)

And, yet,  if the Western world decides to resume containing of Russia, Moscow might have no choice  but to seek closer partnership with Beijing if only to prop up the Russian economy and avoid international isolation.

But this won’t be a partnership of equals, I am afraid.

There are fewer people living in all 27 provinces that comprise Russia’s Urals, Siberian and Far East federal districts than in Heilongjiang, just one of the four Chinese provinces bordering Russia. Neither are the economic comparisons of these border lands in Russia’s favor.

The total regional domestic product of Russia’s three eastern federal districts is 30 percent less than that of the aforementioned four Chinese provinces. These disparities will continue:  China’s GDP will exceed that of Russia by more than 4.5 times in 2018, according to IMF’s January 2014 outlook.

So rather than continue with what Russia’s 2013 foreign policy concept defines as “the unique role our country has been playing over centuries as a counterbalance in international affairs,” a Russia isolated from the West will become a junior partner of the Middle Kingdom. And that would be the direct opposite of an independent pole in a multi-polar world that would be on par with China, US and EU, playing the “counter-balance. That said, a Cold War will also impose tangible costs on Western countries too, especially as they contemplate how to manage China’s rise.

I am not proposing a Western-Russian anti-China alliance, which I believe would be both impractical and counter-productive for Russia, but if both Moscow and the West were to lock themselves in a new Cold War, then guess cui bono? My immediate answer to this question, which I gave right after the Crimean crisis erupted, can be found here, but you probably already know it by now.