Recent Russian invasion of the Ukrainian territory will have a tremendous impact on Russian economy. Many experts claim today that Russia won’t be able to withstand a lasting conflict in the territory of Crimea, Ukraine (not to mention the possibility of deploying Russian troops in Eastern Ukraine).
As of now, there is a fall of stock exchange in Russia. Russian national currency Ruble and shares of Russian companies have lost their value due to the events in Crimea.
The use of force will only lead to escalation of violence in Crimea. It will be extremely hard to change the Crimean authorities due to a small number of people who support separation moods on the Crimean territory. This could be clearly seen in the recent survey that was conducted by the Democratic Initiatives Fund and the Kyiv International Institute of Sociology from 8th to 18th February, 2014. Through the interview method, 2032 people were interviewed in all Ukrainian oblasts. The results are the following:
More than 70 percent of Ukrainians are convinced that Ukraine and Russia should be independent and friendly states, with non-visa regime, absence of customs control etc. Only 12,5 percent of Ukrainians believe that Russia and Ukraine should become one country.
Moreover, in Eastern Ukraine, only 25.8 percent of people support the idea of Ukraine and Russia becoming one country, with only 19.5 percent in Southern Ukraine, 5,4 percent in Central Ukraine and 0.7% in Western Ukraine accordingly.
Softer way of annexation of Crimean territory could be conducted via the use of economic means of influence on the current complex situation and Crimean elites. Fortunately, Russia doesn’t have enough money to do so.
Crimea is not South Osetia, Abkhazia or Pridnistrov Republic. It is much bigger than all of the above-mentioned territories. Furthermore, Crimea is being heavily subsidized by the Ukrainian budget. It receives 90 percent of water, 80 percent of electricity, 60 percent of other primary goods and 70 percent of its money from Ukraine.
In addition, in case of further military escalation, tourism as a primary source of Crimean income will be adversely impacted. So where will Russia get money to heavily subsidize occupied Crimea and possibly Eastern Ukraine?
Let us not forget about the utter Russian dependence on the current situation on the Western markets. Introduction of comprehensive sanctions might scare off Western investors from Russian market. As a result, it could seriously destabilize already very fragile and unstable Russian economy heavily dependent on energy exports to the West.
What if the EU countries choose to increase the amount of imported LNG gas from North America and North Africa and subsequently reduce their dependence on the Russian gas imports? What if the embargo on selling of Iranian oil is lifted? What will Russia do in such case? What if Ukraine halts the transit of Russian gas to Europe?
Currently, many experts assume that Russia will soon be excluded from G8. G7 countries (France, Germany, Italy, UK, Canada, Japan, and USA) have already made a statement in support of Ukraine via condemning Russia for its clear violation of Ukrainian sovereignty and territorial integrity and withdrawing from preparations for June’s G8 summit in Sochi, Russian Federation.
By the way, EU authorities have already started their consultations on halting negotiations with Russia on cancelling EU visa regime for Russia nationals.
And more international sanctions will follow…