Ukraine crisis: Russia is in no position to fight a new cold war

Financial Times

Putin and his allies have talked tough while enjoying the comforts of globalisation.

When the Soviet Union invaded Czechoslovakia in 1968, the Moscow stock market did not crash. That is because there was no Moscow stock market. By contrast, the news that Russian troops have taken effective control of Crimea was greeted, on Monday, by a 10 per cent collapse in shares on the Russian market.

This contrast between 1968 and now underlines why talk of a new cold war is misleading. The economic and political context of Crimea in 2014 is entirely different from Czechoslovakia in 1968. Russia no longer has an empire extending all the way to Berlin. The pain of that territorial loss is part of the reason why President Vladimir Putin is fighting so hard to keep Ukraine in Moscow’s much-diminished sphere of influence.

Just as important, the world is no longer divided into two mutually exclusive, and hostile, political and economic systems – a capitalist west and a communist east. After the collapse of the Soviet system, Russia joined the global, capitalist order. The financial, business and social systems of Russia and the west are now deeply intertwined. A new east-west struggle is certainly under way today but it is being fought on entirely different terrain from the cold war – and under different rules.

The Kremlin may assume that the west’s business dealings with Russia work in its favour. President Putin, the former KGB agent, probably still believes the old Soviet maxim that western foreign policy is dictated by capitalists – who will not allow their financial interests in Russia to be endangered. The west’s supine reaction to the Russian military intervention in Georgia in 2008 may have strengthened this impression. Ben Judah, author of a recent book on Russia, argues that the eagerness of western business people and former politicians to do business with Russia has made Mr Putin “very confident that European elites are more concerned about making money than standing up to him”.

Yet Mr Putin, who is fond of judo, should know that a sudden shift of weight can turn a strength into a weakness. The interdependence of the Russian and western economies means that rogue actions by the Kremlin can inflict an immediate economic cost on Russia. The first part of that price became apparent with the crash on the Moscow stock market after the move on Crimea – with the shares of Gazprom and Sberbank – two big companies closely tied to the Kremlin – falling by about 10 per cent each.

The imposition of formal economic sanctions or visa bans on members of the Russian elite would heighten the pain. Rich Russians now take for granted the right to pop over to London or Paris for the weekend. Billions of dollars of Russian money are stashed away in western banks or invested in European property.

The Russian central bank itself has estimated that two-thirds of the $56bn that flowed out of Russia in 2012 might have been the proceeds of crime. Funds that are the fruits of corruption are vulnerable to legal action. The City of London and the Swiss authorities, in particular, have not been noted for their eagerness to question the origins of Russian money. But those questions could now be asked a little more urgently.

President Putin himself has long been rumoured to have billions salted away in the west. Presumably, not all of that money is the product of savings from his Kremlin salary. If western intelligence agencies have done their job, they will presumably know where this money is.

Visa bans on a widened circle of Russian leaders, implicated in the military intervention in Ukraine, are certainly feasible – which would stop them enjoying the properties and funds they have accumulated in Europe. America’s “Magnitsky list” – imposing visa bans on Russian officials implicated in the killing of the lawyer Sergei Magnitsky – has already established the precedent.

Of course, the economic damage inflicted would flow both ways. The most obvious western vulnerability is Europe’s reliance on Russian energy. The image of western householders shivering because the Russian gas tap has been turned off will worry European leaders. Yet even here, Europe’s vulnerability – and Russia’s willingness to use the energy weapon – can be overstated.

Russia needs to sell energy abroad. It gets some 70 per cent of its export revenues from oil and gas. The importance of such revenues to the Russian state ensured that energy sales to Europe were continued even during the height of the cold war.

Meanwhile, European demand for Russian gas has fallen during the past decade as renewable energy comes on to the market. American shale gas could also provide an alternative source.

With luck, the Russian government will, even now, think better of the course on which it has embarked. There is clearly scope for a diplomatic solution involving the pullback of Russian troops matched by guarantees for the cultural and political rights of Russian speakers.

For the moment, however, it seems more likely that Russia is determined to hang on to Crimea – and perhaps also to grab bits of eastern Ukraine.

President Barack Obama and the leaders of the EU have been swift to rule out a military response, and they are right to do so. But the west still has plenty of economic tools with which to make life difficult for Russia.

For the past decade, Mr Putin and his entourage have often used the rhetoric of the cold war while enjoying the fruits of globalisation. Now they may need to be faced with a choice. They can have a new cold war. Or they can have access to the riches of the west. They cannot have both. buy viagra online займы онлайн на карту срочно https://zp-pdl.com/get-a-next-business-day-payday-loan.php https://zp-pdl.com/online-payday-loans-cash-advances.php займы на карту