BY JOSEPH HABERMAN | MAY 14, 2020, 3:59 PM
There has been rising optimism that the COVID-19 pandemic and economic crisis that has hit both Russia and Ukraine have shifted strategic priorities in the Kremlin, presenting an opportunity to end the ongoing war in eastern Ukraine, where Russia has propped up separatist forces in the Donbass region since 2014. In a recent op-ed, three former U.S. ambassadors to Ukraine argue that the current crisis could lead to a resolution of the conflict on terms acceptable to both Kyiv and Washington. Whereas Russia has thus far been willing to bear the costs of U.S. and European retaliatory sanctions, the authors argue that the pandemic’s economic fallout could elevate this burden to the point where Russian President Vladimir Putin feels compelled to sue for peace. This is wishful thinking. Their argument both overestimates the economic pressures facing Russia and understates the political, noneconomic rationale driving Russian policy toward Ukraine. It also ignores the likelihood that Kyiv, not Moscow, may soon feel compelled to capitulate.
To be sure, the Kremlin will face new pressures to alleviate economic suffering. Russian COVID-19 cases have surged, and the country now finds itself in the inevitable recession brought about by the twin shocks of collapsing oil and commodity prices and the government-imposed shutdown of economic activity in response to the pandemic.
While the recent agreement on production cuts between Russia, Saudi Arabia, and other oil-producing countries seeks to stabilize prices, there is only so much that can be done on the supply side of global energy markets. As the virus continues to depress global economic activity, the demand for—and price of—oil will likely remain lower for longer, even with production cuts. Russia’s budget depends on oil revenues and is designed to balance with a price of $42 per barrel. (Urals crude, the standard Russian grade, hit a low of $16.55 in April and currently sells for around $30.) The resulting deficits have been exacerbated by a weekslong nationwide work holiday that has stifled economic activity and will result in massive losses in tax revenue while requiring new expenditures to keep civilians afloat.
However, Russia is in a position to withstand the brunt of the crisis, at least for now. Thanks to many years of conservative macroeconomic policy, the government has built up a massive $560 billion strategic reserve of gold and foreign currency. That amount is more than the entire external debt of both the government and Russian companies and serves as an insurance against the kind of balance-of-payments crisis that might strike other petrostates or emerging markets. Russia has also used surplus oil revenues in past years to amass a $150 billion National Wealth Fund, which is now helping to offset the budget deficit. Furthermore, the Russian ruble’s floating exchange rate provides an additional shock absorber: As the ruble weakens due to the economic troubles, the cost of producing oil and other commodities in Russia goes down relative to the revenues generated by selling these commodities, which are priced in dollars.Russia is in a position to withstand the brunt of the crisis, at least for now.
This doesn’t mean that Russia will remain unscathed. The International Monetary Fund (IMF) projects that Russia’s GDP will contract by 5.5 percent this year, and the Russian government has projected an unemployment rate of up to 10 percent, though some experts have warned that it could reach as high as 15 percent.
Relief from Western sanctions—the reward for ending the war—could lessen this decline, though there is disagreement about how much it would help. In their op-ed, the ambassadors link to a 2019 IMF report to argue that sanctions have contributed to a 1 percent annual reduction of Russian GDP growth since 2014. However, that same report acknowledges that falling oil prices have been the most significant factor in this decline. Sanctions, the IMF says, account for only a 0.2 percent reduction in Russia’s annual growth.
Nonetheless, any relief would be welcome, and Russia has already called for sanctions to be lifted on humanitarian grounds. But while Russia certainly seeks that reprieve, it is not desperate for it. Given the country’s macroeconomic fortitude and the relatively low impact of sanctions, it becomes very difficult to believe that the Kremlin would abandon key strategic priorities for such minor relief.
Ukraine is certainly among those key strategic priorities. Not only does Russia consider Ukraine to fall within its historical sphere of influence, but it sees the territory as a critical buffer against what Moscow believes to be an encroaching Western threat. The Kremlin thus views Kyiv’s desire to distance itself from Russia and move toward Western institutions such as the European Union and possibly NATO as a threat to its national interests. By intervening in the Donbass, Russia has sought to prevent Ukraine from asserting its independence and withdrawing from Russia’s sphere of control. The emergence of a robust Ukraine is unacceptable to Putin, who has been willing to accept diplomatic isolation and sanctions to prevent it.
The Kremlin also knows that withdrawing from the Donbass could cause a severe backlash at home. Abandoning the conflict would be seen as a capitulation to the West and an abdication of Russian power abroad. For a regime that has staked its legitimacy on its unyielding strength—in a country where 88 percent of people believe maintaining Russia’s superpower status is important—such a blow to its domestic image and international prestige would do more damage than sanctions.The Kremlin also knows that withdrawing from the Donbass could cause a severe backlash at home.
In fact, the political pressures produced by the pandemic may harden the Kremlin’s resolve on Ukraine. The coronavirus has already forced Putin to postpone indefinitely a referendum on constitutional amendments that would extend his right to remain in power. More painfully, the pandemic forced the Kremlin to cancel the May 9 celebrations commemorating the 75th anniversary of the Soviet victory over Nazi Germany, the historical memory of which has become central to the regime’s legitimacy and its moral claim to great-power status. The loss of these two immediate opportunities to consolidate the regime’s standing will only make Putin more reluctant to accept any unnecessary shocks to the system, such as surrender on Ukraine.
Meanwhile, the crisis could compel Ukraine, and not Russia, to capitulate first.
[…] Ukraine, Not Russia, Will Sue for Peace as Pandemic Pressure RisesHopes that a pandemic-weakened Rus… […]
Good to see what the Russian talking points are. They tell us how wonderful Moskovia is doing under the misleading title but no reasons for capitulation by Ukraine. Little Putin has no support except his citizens he is lying to and stealing from. Ukraine is not a territory and has been around a lot longer than Moskovia and will be around much longer than Moskovia too. Put that in your Foreign Policy…
‘Suing for peace’ reminds me of Gary Oldman’s masterful performance as Winston Churchill in ‘Darkest Hour’. I recommend it to you redders!
Europe had fallen and 300,000 of our troops were trapped at Dunkirk; pretty much the entire professional contingent of the British army. Churchill eventually averted a disaster with Operation Dynamo, but at the time he was surrounded by gutless fucks imploring him to ‘negotiate terms’.
His reply: ‘you don’t reason with a tiger when your head is in its mouth’ is applicable today, as are so many of his quotes.
I am a fan of both those gentlemen and love history too. Suing for peace sounds like a Moskali translation to me. Putin just fundamentally does not understand Ukrainians though we’ve been at the center of his foreign policy. He thinks Ukrainians can be beat into compliance? Says the little man that fights from behind women and children?
I believe history will be kind to Poro in future. He took over a nation on the brink of defeat, with a worn out husk of an army with only 5000 combat troops and somehow built that into a formidable fighting force that was able to impose a cost on the fascist invader scum. I was told by that Ukrainian commenter gmab (whatever happened to him?) that Poro put a lot of his own money into helping the army; especially on the medical side.
What I admired about the guy was that unlike most politicians who have never produced a product or service that people want, he built up a world class fmcg company (the 17th largest confectionary company in the world) that employs thousands and provides professional careers in a country that lacks opportunities like this. That makes him a true patriot in my book.
What did the the electorate do? They replaced a Churchillian war leader with a fucking marshmallow!
If he had pursued the war on corruption with the same dedication he pursued the war with Russia he would still be President.
I wholeheartedly agree with you about Poroshenko. He froze with everyone else on Maidan too. As I understand it he has donated a lot under the radar (like Trump donating his salary to vets) and sent ambulances, medicine, built some hospitals, like you said, and I’m sure there’s other stuff too. A lot in the name of Roshen too. He didn’t want to take all the credit.
I think he proved you have to stand up to Bullies. Especially those presupposed with tumorous Napoleon syndrome types.