Russia And Ukraine Are Still At War

Clashes with pro-Russian separatists in Donetsk

New fighting is underway in Eastern Ukraine, breaking a months-long ceasefire. Alexander Motyl assesses the scene:

The war in eastern Ukraine will go on, despite the best efforts of the West and Kyiv to reach a negotiated settlement. For one thing, Putin’s proxies in eastern Ukraine are out-of-control warlords for whom war has become their only raison d’être. For another, Putin will want no permanent peace, as that would only stabilize Ukraine. A large-scale military assault aimed at capturing all of Ukraine, or even establishing a corridor from Russia to the Crimea, is probably out of the question, as the Ukrainian armed forces are strong enough to deter it. But low-level fighting of the kind that has characterized the Donbas for the last few months seems a sure bet. Equally likely is a continuation of terrorist attacks within Ukraine, which Ukraine will survive while Putin’s reputation as an exporter of terrorism will only grow.

Ukraine will continue to insist that the Russian-occupied territories are occupied only “temporarily,” and Russia will continue to insist that its war against Ukraine is really only an internal Ukrainian squabble, but the end result of Russia’s continued occupation of both the Donbas enclave and the Crimea will be the continued, if uneven, consolidation of Russian rule. Faced with tough economic circumstances at home, Kyiv will continue to reduce its economic relations with, and financial subsidy of, the occupied territories. The burden of supporting the increasingly desperate inhabitants will fall on Russia, which will have to decide whether it prefers to make hay from a humanitarian catastrophe of its own making or actually to help save the victims of its imperialist policies. My guess is that Putin the great humanitarian will opt for catastrophe.

Leonid Bershidsky sees no end in sight:

Regardless of the international reaction, Russia will crush Ukraine’s military hopes every time they arise, simply because it has a stronger, better-trained army. It is wishful thinking to believe the balance of forces has changed since September, when Ukrainians crumbled in the face of what were, by all accounts, just a few thousand crack Russian troops. …

[If Poroshenko] is counting on Russia to succumb to Western pressure and low oil prices and give up, he has to intensify fighting in a war he cannot win. That is an extremely risky bet, since Russia can take an inordinate amount of pain as long as its people continue to believe Putin’s cause is just. Poroshenko’s success is also predicated on Western nations’ acquiescence in being dragged deeper into the conflict, because for Ukraine to hold out even a few months, it needs better weaponry. Yet, like Putin, the Ukrainian president can’t afford to give in: He would be swept away in a tide of protest, led by fighters returning from the front lines.

In the meantime, Ukraine is teetering on the economic edge:

Ukraine faces an acute economic crisis that represents no less a threat to its survival than Russia does. Kyiv has come to rely on assistance from the International Monetary Fund and Western donors to survive; yet the Western commitment to support Ukraine financially is limited. Indeed, Moody’s has recently warned that Ukrainian default is very likely, pointing out that the country’s current bailout package provided by the IMF, EU and other donors is not sufficient to cover $10bln external debt repayments that come due this year. The Economist suggests that Ukraine needs an additional bailout of $20bln, noting that despite chatter about a “donors conference,” no government seems willing to put up the money.

Larison isn’t surprised:

All of the obstacles to bailing out Ukraine remain. Western institutions won’t lend Ukraine the money it needs without imposing strict conditions, and the Ukrainian government cannot meet those conditions without wrecking itself politically. If the money were “found” to give to Ukraine in the absence of significant reforms, most of it would likely be lost to corruption or sent on to Russia to pay Ukraine’s debts. That would be a waste of funds, and even when there are strings attached there is not much interest in Western capitals to provide a lot of aid. Western governments decided over the last year that Ukraine wasn’t worth very much to them, and under the circumstances it’s hard to fault them for reaching that decision.

Regardless, the Bloomberg Editors insist that the West keep the sanctions going:

On at least two occasions, [the sanctions] have caused Putin to scale back aggression in Ukraine — in May, when a threat to broaden sanctions pressured Russia to drop opposition to Ukraine’s presidential election, and again last fall, when a Russian military buildup and rebel plans to take three Ukrainian cities evaporated.

Just as important is that exacting a price from Russia for its military aggression unites the EU behind the vital security interests of at least four members — Poland and the three Baltic states. The measures also serve as a financial disincentive for Putin to embark on military adventures beyond Ukraine, and they erode support for him among neighbors such as Belarus and Kazakhstan, now alarmed about what Putin may intend for them.

(Photo: Buildings are destroyed during the clashes between Ukrainian security forces and pro-Russian separatists on January 20, 2015 near the airport in Donetsk, eastern Ukraine. By Alexander Ermochenko/Anadolu Agency/Getty Images)

Putin Takes A Hostage

Yesterday, a Russian judge pulled a stunt straight out of Game of Thrones, handing prominent Kremlin critic Alexei Navalny a suspended sentence on politically motivated charges of fraud but sentencing his younger brother Oleg – a politically inactive postal worker – to three and a half years in a penal colony in Alexei’s stead:

Both men were found guilty of stealing 30m roubles (about £334,000 under the current exchange rate) from the French cosmetics company Yves Rocher. Asked by the judge, Yelena Korobchenko, if the rulings against them were clear, Alexei replied: “Nothing is clear. Why are you imprisoning my brother? By this you punish me even harder.” … “Of all the possible types of sentence, this is the meanest,” said Alexei Navalny outside court after his brother was taken away. “The government isn’t just trying to jail its political opponents – we’re used to it, we’re aware that they’re doing it – but this time they’re destroying and torturing the families of the people who oppose them,” he said.

Max Fisher explains what Putin’s playing at here:

Putin’s calculus in holding Oleg Navalny hostage is as transparent as it is ruthless. He wants to crush Alexei Navalny, whom he sees as representing one of the last substantial, internal political threats to his rule. And he wants to do it with cruel, brute force. But he does not want to make Alexei Navalny into a martyr by giving him jail time or worse.

Putin’s solution is to release Alexei from prison — he was also convicted today, but his sentence suspended, freeing him on house arrest after a year and a half in prison awaiting trial — but then punish Alexei by locking up his innocent brother. Think about that for a moment: Alexei Navalny’s only real crimes are organizing anti-Putin protests and running for Moscow mayor on an anti-Putin platform. Putin punished him with a year and a half in jail and now by locking up his innocent brother to intimidate him into silence. The punishment is also designed to send a signal to the Russian opposition more broadly: this is what happens. You are putting your closest family members at risk by speaking out, so shut up.

And as Katie Zavadski observes, the elder Navalny’s suspended sentence serves a political purpose as well:

While the suspended sentence may seem like Navalny was getting off with a slap on the wrist for standing up to Putin, in reality, the felony conviction means he’s barred from running for public office for a decade after he’s done serving his term — thus, essentially eliminating one of the main viable opposition candidates. He won 27 percent of the vote in Moscow’s 2013 mayoral election, coming in second.

So who is this Navalny and why is he such a big deal? Well, says Keating, he sort of defies description:

Navalny describes himself as a nationalist democrat, and his ideology can be a bit difficult to place, beyond being anti-Putin. Though he has earned comparisons in the international media to figures ranging from Julian Assange to Nelson Mandela, there’s a bit of Pat Buchanan mixed in there as well. Navalny has called for Russia’s liberal opposition to unite with far-left and far-right groups who share an antipathy to Putin but have very different ideas about who or what should replace him. He has unapologetically appeared at rallies with ultranationalist, xenophobic groups. He was expelled from Russia’s largest liberal party, Yabloko, over his nationalist ties in 2007. Fellow members of the opposition have also accused him of intolerance to criticism and compared his occasionally hectoring, macho tone to that of Putin himself.

But the fact that Navalny is difficult to pigeonhole is probably a large part of his appeal: He’s a street activist and a savvy political campaigner at the same time and is just as comfortable talking to Russian nationalists as with readers of the New York Times.

And Amanda Taub voxplains why his activism makes Putin nervous:

Navalny has smartly focused his activism on the mechanics of politics and governance, which are unifying issues, rather than the specifics of issue-based politics, which are potentially divisive. (Especially so in his case, as Navalny’s actual politics appear to be disturbingly ethno-nationalist and on the rightward end of the economic spectrum.)

Da!, his youth movement, organized active political debates at a time when genuine opposition was missing from state-controlled media. His anti-corruption campaign is a savvy platform from which to undermine the legitimacy of Putin’s government, because its core demand is that politicians and their cronies should follow existing law, rather than a demand that the law should be changed or updated. And his broader political message is that inclusion is a defense against tyranny because “they cannot arrest us all.”

Several thousand Muscovites turned out to protest the verdict, and Navalny briefly violated his house arrest to join them before being arrested and sent home under guard. Bershidsky doubts Putin will lose any sleep over the demonstration but wonders how long he can keep behaving this way without paying a price:

Despite Navalny’s bravery, today’s protest was not big enough to make the Kremlin truly worried. Police were in full control, detaining 117 people. Putin will probably crack a smile when he hears his aides’ report of the tiny rally. He will see his chosen tactic as successful, and he seems intent on keeping Navalny out of jail despite his escapade today. Why make him a martyr if a few thousand active supporters are all he can muster? And, once emotions cool off, won’t he have to think about his brother?

Inside his feudal kingdom, Putin’s is waging the same kind of hybrid war as in Ukraine: a combination of psychological pressure, old-fashioned brute force and information trickery. So far, his enemies are much weaker, but continuing economic problems may mean someday — although likely not soon — Putin will meet his match, and the opposition, remembering all his dirty tricks, will take no pity on him.

Previous Dish on the Navalny saga here.

Putin’s Pugnacious Presser

by Dish Staff

Dish alum Katie Zavadski graciously watched Putin’s annual three-hour press conference (yes, the above video is a trailer for a press conference) so the rest of us don’t have to:

Putin denied accusations that he is inciting a major international conflict in Ukraine, accusing the West — particularly the U.S. — of being in a pot-calling-the-kettle-black situation. “Our budget is $50 billion — the Pentagon budget is 10 times higher. Does anyone listen to us at all? Does anyone have a dialogue with us? No,” he said. “All we hear is ‘mind your own business.’ In the Ukrainian crisis I believe we are right and our Western partners are wrong.” …

But weighing most heavily on the minds of everyone in attendance was the ruble’s recent downward spiral. At the Wednesday low, one U.S. dollar was buying 79 rubles, though the free-fall appears to have stabilized. For some, Tuesday’s value drop called to mind a similar incident 20 years ago, now known as Black Tuesday. He attributed a significant portion of these ongoing economic woes to Western sanctions, introduced in part because of his annexation of Crimea. But the president also told Russians not to worry, assuring them that the economy would rebound. (Indeed, the ruble was up to 61 to a dollar during his address.) “Our economy will overcome the current situation. How much time will be needed for that? Under the most unfavorable circumstances I think it will take about two years,” he said.

Cassidy sizes up that forecast:

Insofar as Russia’s fate depends on what happens to the oil price, Putin’s guess that things will pick up by the end of 2016 is as legitimate as anybody else’s. While he was speaking, the Saudi oil minister, Ali al-Naimi, was also saying, in Riyadh, that the current collapse would prove to be temporary. But Putin’s claim that, by the end of 2016, Russia will have successfully diversified its economy beyond energy is hopeful, to say the least. Indeed, a bit later in his press conference, when a reporter from Pravda asked about the country’s “oil addiction,” he acknowledged as much. “We are trying to create more favorable conditions for the development of production, but it is moving forward with difficulty,” Putin said.

Nemtsova sees right through Putin’s show of optimism:

A prominent political observer and professor of National Research University Higher School of Economics, Vladimir Ryzhkov, summarized Putin’s statements for The Daily Beast: no plans for new reforms, no radical changes of staff or re-appointments. Not a word mentioned about the crazy growth of prices and public poverty. Why did Putin not give Russians any comforting promises? “Because he is waiting for oil to become expensive again, and everything to go back to normal soon. He does not have a clear understanding of how deep the crisis is—that’s why he is afraid to make any abrupt moves,” Ryzhkov said. Meanwhile, Russia is sinking ever deeper into its economic morass.

Morrissey is also skeptical:

If OPEC continues to support the oil glut — and they’re probably going to keep up pressure on Iran, now that the West has backed away from sanctions — the ruble won’t recover for years, and in the meantime Russians will have to live with stagflation at best. Putin gets job-approval ratings in the 80s now because he’s seen as responding to Western aggression, and because the conditions haven’t dragged out for very long yet. Eventually, Russians will start asking themselves whether Crimea and eastern Ukraine are worth the dissipation of their life savings, and the answer will increasingly become no.

Putin wants two years for Russians to wait for a light at the end of the tunnel. That’s a very long time, even for an oligarchical autocrat, to keep the hoi polloi in line, let alone the oligarchs themselves.

Matt O’Brien, meanwhile, sees more signs that the Russian economy is in a bit of a death spiral:

The latest news is that Russia’s banks are about to get bailed out to the tune of $16.5 billion. That became inevitable once the interest rate they charge each other on short-term loans—which shows how much they believe in each other’s solvency—shot up to 28.3 percent on Thursday, higher than it was even during the 2008 crisis. And, to give you an idea how big the black hole in Russian bank balance sheets must be, this is all happening despite the fact that the central bank just said that banks could pretend that they don’t have losses. Okay, it didn’t exactly say that, but close enough. Specifically, Russian banks can stop marking their losses to market, and use the old exchange rate to calculate the “value” of the assets on their books. Potemkin balance sheets, though, aren’t enough to fool the bankers themselves. They know how broke their banks are, so they don’t trust any others. The Russian government hopes that injecting this $16.5 billion into the banks will be enough to end this credit crunch. We’ll see. That’s money that Russia is going to start running out of.

“The most interesting message in Putin’s hours-long bravado, however, may have been on Ukraine,” Marc Champion observes:

Beyond his usual accusations that Russia’s neighbor got into trouble because it invaded itself, he called for a quick political settlement that would restore Ukraine as “a single political space.” Later in the speech, Putin — prefacing his comments with “I’ll say an important thing. Look, I’d like everyone to hear this” — said that the rebels were part of the problem. He said that at the last peace deal in Minsk, they refused to sign crucial protocols the defining cease-fire lines. He also said he believed Ukrainian President Petro Poroshenko genuinely wants a deal. So Russia’s leader, not for the first time, is offering himself as peacemaker. (In his words, an intermediary.) The question for Ukraine, the U.S. and Europe is whether he means it.

Ruble Trouble, Ctd

The beleaguered currency bounced back a bit today from its epic freefall, as the Russian government took further steps to try and stabilize it:

The Finance Ministry said it was selling foreign exchange currency from its leftover stocks, of which it has around $7 billion, according to Reuters. The ministry did add in a statement that it considered the ruble “extremely undervalued,” however. … The announcement of the intervention immediately sent the ruble higher against the dollar, and after a volatile trading day was up 10 percent versus the greenback. Head of emerging markets research at Standard Bank, Timothy Ash, called the move “totally weird.

Cassidy doubts that any of Moscow’s recent hail-Mary passes will do the trick:

Once the markets lose confidence in a currency, interest rates are no longer an effective policy tool, and foreign-exchange reserves can be depleted at an alarming rate. The reason is found in simple arithmetic. Even if the Russian Central Bank were to raise rates to a hundred per cent, which is obviously out of the question, the weekly return on ruble-denominated assets would be less than two per cent.

In the midst of a panic like the one we are seeing now, a currency can plummet by five or ten per cent in a single day, thus erasing even ultra-high interest-rate yields and leaving holders of the currency with a big loss. Foreign-exchange traders know this all too well, and that’s why they still refuse to buy ruble-denominated assets.

Matt O’Brien calls Russia’s current situation a catch-22:

Russia has gone from not having an economy and 10.5 percent interest rates to not having an economy and 17 percent interest rates. That should be enough to turn its recession into a full-on depression — and make all of this self-defeating. Think about it this way: Russia’s central banks already says its economy will shrink 4.5 to 4.7 percent next year — about as much as the U.S. did in 2008 — if oil stays at $60-a-barrel. But now that interest rates are sky-high, nobody’s going to want to borrow, either. The economy, in other words, is going to crater as households hunker down and just try to survive the double-digit inflation that the crashing ruble will bring.

Anna Nemtsova solicits the opinion of a Russian expert, who predicts an awful year to come for consumers:

[O]n Tuesday afternoon, after the ruble had fallen again to a stunning 80 to the dollar, the head of the central bank, Elvira Nabiullina, made a statement: “We have to learn to live in a new zone and count more on our own sources of finance,” she said. What? Ordinary Russians should read Nabiullina’s statement as, “Get used to being at least twice as poor next year as you were before the annexation of Crimea,” says Vladimir Ryzhkov, a prominent Russian politician and professor at the National Research University Higher School of Economy. “Now Russia does not have enough dollars to pay back billions of corporate bank debts; the payment is due before the new year. In the coming year, prices will continue to grow: Most medicine, which is mostly imported, will grow twice as expensive, as well as all electronic equipment—fridges, iPhones, computers and so on,” Ryzhkov told The Daily Beast.

And so it seems that Putin has finally met an enemy he can’t bully or buy off, Daniel Gross observes:

Putin’s successful statecraft has alternately consisted of bullying and defiance (Western Europe, the U.S.), invading neighbors (Ukraine, Georgia), depriving others of energy resources (Ukraine again, Eastern Europe), winning prestigious events through the promise of large investments (the 2014 Winter Olympics, the 2018 World Cup), forging relationships by offering sweetheart resource deals (China), or currying favor by allowing oligarchs to funnel huge quantities of money into real estate and banks (England, Turkey, Greece.) The currency markets can’t be bought off though. They are faceless, merciless, and swift. Every day, they are in effect passing judgment on regimes around the world.

Still, Max Fisher expects him to try:

As the economy sinks, Putin will only become more reliant on these sorts of shenanigans he’s used previously to stay in power. He’s not just worried about his popularity, after all, but his very legitimacy as the head of state; the 2012 election showed him that Russians could turn against him. Putin has little choice, then, but to seek legitimacy by stirring up more crises abroad, positioning himself as a nationalist hero leading the brave Russian state in a hostile world. But the only way he can maintain that image at home is if his soft conflict with the West continues. Putin can’t deescalate tensions in Ukraine and more broadly in Europe because those tensions are just about all he has left.

More broadly, the obvious move here is for Putin is to blame his country’s falling economy on American and European imperialism. By playing up the role of outside hostility in Russia’s economic crisis, Putin would shift the blame and, just as important, promote the idea that Russians have to come together and endure the downturn as a matter of national mission against a foreign enemy.

Walter Russell Mead imagines some of the crazy foreign policy decisions Putin might try:

There is one other alternative that the Dark Genius of the Kremlin may be turning over in his mind: Is there some way Russian foreign policy could create a Middle East crisis that would drive oil prices back up into the stratosphere? The most obvious way would be to bring about some kind of situation involving the Iranian nuclear talks—perhaps by offering quiet support to Iranian hardliners, increasing the chances that the talks fail. Any kind of serious war scare in the Persian Gulf would be good for Russia’s financial situation; Russian foreign policy experts are presumably thinking through their options.

So how should the West respond? Well, Bershidsky recommends that we make hay while the sun shines and rob Putin of the talking point that Western economic warfare is to blame for the crisis:

[T]he best thing the West could do now would be to lift the sanctions unconditionally. A Western leader, perhaps German Chancellor Angela Merkel or even U.S. President Barack Obama, could go on TV to say, “We stand with the Russian people in its hour of need. We support Russia, we want it to be strong and prosperous, and we have no intention to push it around.” That would leave Putin naked, faced with a weakening economy that rejects his management methods and a population increasingly wondering why it needs Putin and what he stands for anymore.

That, however, is another fairy tale. Obama will soon sign legislation calling for tougher sanctions, giving Putin more ammunition in his intensifying fight for power, and also feeding more radical nationalist elements that consider even Putin too weak in defending Russian interests. Western leaders lack the imagination to deal with the Putin problem creatively, and they are loath to admit mistakes. They will keep adding stones to the soup.

Larison likewise scolds Obama for agreeing to sign the new sanctions legislation, which Congress passed last Friday:

Obama is making a mistake by signing this bill. In addition to creating a pretext for more aggressive moves by Russia, signing this legislation will exacerbate Russia’s growing economic problems, and that will adversely affect the economies of Europe even more to the detriment of the U.S. and our allies. This could hardly come at a worse time when it appears that there is a good chance of having a genuine cease-fire in the Ukraine conflict. Piling on additional punitive and hostile measures now risks jeopardizing that fragile truce. It certainly isn’t going to make Moscow more accommodating or inclined to compromise. On the contrary, this is sure to make Russia more combative.

“So,” the Bloomberg View editors suggest, “why not cut a deal on Ukraine?”

The sanctions that the U.S. and European Union imposed earlier this year to dissuade Putin from further aggression made it hard for Russian companies to borrow on international capital markets; triggered large-scale capital flight (an estimated $130 billion this year); and shriveled inflows of foreign investment. Since then, they have acted as a multiplier on falling oil prices. The mere promise of lifting sanctions would begin to change sentiment in the currency markets.

Once that happens, Russia’s central bank would be in a better position to intervene by buying up rubles — going with the tide instead of against it. Putin would, without question, come under attack from nationalists for betraying the rebel cause in Ukraine. Yet the authorities in Kiev are under even more economic duress. The U.S. and EU should use their leverage to get Ukraine to a deal that secures the country’s independence while meeting some of Russia’s demands.

Ruble Trouble, Ctd

by Dish Staff

Screen Shot 2014-12-16 at 11.56.43 AM

Matt O’Brien highlights the latest piece of bad news for the Russian currency:

Russia’s central bank raised interest rates from 10.5 to 17 percent at an emergency 1 a.m. meeting in an attempt to stop the ruble, which is down 50 percent on the year against the dollar, from falling any further. It’s a desperate move to save Russia’s currency that comes at the cost of sacrificing Russia’s economy.

But even that wasn’t enough. After a brief rally, the ruble resumed its cliff-diving ways on Tuesday, falling another 14 percent to a low of 80 rubles per dollar. It was 60 rubles per dollar just the day before. The problem is simple. Oil is still falling, and ordinary Russians don’t want to hold their money in rubles even if they get paid 17 percent interest to do so. In other words, there’s a well-justified panic. So now Russia is left with the double whammy of a collapsing currency and exorbitant interest rates. Checkmate.

Neil Irwin elaborates, pointing out that even the central bank’s attempt to stanch the bleeding is a big risk:

Perhaps the higher interest rates will make those moving money out of Russia think twice, and a resulting reversal in currency markets will lead speculators to conclude that betting against the ruble is no longer a sure thing. But the move shows how Russian policy makers are stuck with no good options. Already the central bank has reportedly been intervening to try to short-circuit the sell-off, buying rubles to try to arrest the declines.

The problem is that if you try to defend your currency and lose, you are essentially throwing your money at currency traders for nothing. As Russia has deployed its reserves to (so far unsuccessfully) stop the currency collapse, it has made traders betting against the ruble richer while leaving the Russian government poorer. Poorer by $80 billion, to be precise.

“Putin’s policy choices in this matter,” Yglesias adds, “have important implications for the distribution of wealth in Russia”:

The collapse in the value of the ruble is a disaster for Russians who have debts denominated in foreign currencies, but it’s not necessarily the worst thing in the world for those who don’t. Indeed, Russians working in tourism (which, admittedly, isn’t that many people since Russia is mostly cold and empty) or in the country’s handful of export industries that aren’t oil and gas actually benefit from a cheap currency. Conversely, much higher interest rates will be devastating to the fortunes of Russians who need to roll over ruble-denominated loans or who depend on rate-sensitive sectors like construction for their employment.

Bershidsky suggests that Moscow’s next step might be to impose capital controls like Malaysia did in 1997. But the really troubling question is what the political implications are. Noah Millman wonders whether a currency crash will be Putin’s downfall, and if so, what happens next:

If an economic meltdown leads to widespread popular discontent, the regime will have to respond in some way. The most appealing way – because the least risky for the regime – would be to stage-manage a change in leadership that promises change while changing very little. But who is Putin’s Putin? Once upon a time, the obvious answer would have been Dmitri Medvedev. But in the wake of his administration, and his agreement to hand the Presidency back to Putin after one term, I’d argue Medvedev is too closely-identified with Putin to be a plausible replacement for the regime in the event of any real discontent. …

If the regime cannot stage a satisfactory bit of theater, then the remaining options are uglier. Putin could deliberately try to provoke the West in the hopes of blaming Russia’s economic troubles on foreigners. Or he could turn force inward against internal “enemies” of Russia. Or the regime could hand Putin’s head to the mob without a clear plan for succession, leading to a period without clear leadership at the top until someone emerges from the internal struggle for power. Least likely of all would be a genuinely revolutionary situation such as obtained in 1991. None of Russia’s organs of power are willing to take that kind of risk again.

Keating fears that the crisis will inspire even more belligerent behavior from the Kremlin:

Putin can’t do much of anything about oil prices and any steps to cooperate with NATO to secure sanctions relief will make him look weak. There’s a fair chance, then, that he may actually escalate tensions to get back the rally-round-the-flag effect that has sustained his popularity through the Ukraine crisis. Russian jets continue to buzz the airspace of NATO countries, and the military recently carried out snap drills in Russia’s westernmost region, Kaliningrad. This doesn’t look like a leader on the verge of de-escalating.

Ruble Trouble, Ctd


With oil prices on the downslope, Russia’s currency has been losing value for weeks. But yesterday, it suffered its steepest one-day drop in value since the country’s 1998 financial crisis. In most countries, such a precipitous decline would set off alarm bells, but Jason Karaian doubts Putin will do anything about the falling ruble unless or until it starts to cut into his favorables:

Despite the steady economic deterioration—as reflected by the tumbling ruble—Putin’s popularity at home has soared. Granted, the president’s approval rating slipped from 88% in October to 85% last month, but that will hardly ring alarm bells around the Kremlin. Putin says he wants to stay in power for another 10 years, and the recent polls show the he will probably experience little resistance in doing so. A survey yesterday (link in Russian) suggested that he would win more than 80% of the vote if he faced re-election today.

Bershidsky argues that Putin is taking a bigger risk than he thinks:

Putin has explained the government’s strategy this way: The national budget is denominated in rubles, not dollars, and as Russia’s main export, oil, loses dollar value, the currency devaluation offsets the loss. This allows the government to keep its promises for social programs, in nominal terms. As imports drop, the theory goes, domestic producers will pick up the slack, and most Russians aren’t going to feel much of a pinch unless they travel outside the country or buy a lot of imported clothes, electronics and fancy foods. In any case, the people who do such things aren’t Putin’s biggest supporters. He relies on the poorer, older, more nostalgic and less educated electorate, which wouldn’t be hurt by the devaluation.

The problem with these expectations, of course, is that Russia imports a lot of the most basic products. … Even lower middle class Russians will notice when they can no longer afford shoes, cosmetics, medicine or cheap electronics.

Zachary Karabell, on the other hand, sees the falling ruble as giving Putin a chance to double down on his proto-fascist tendencies:

The not-so-veiled chortling in the United States and elsewhere that lower prices will force changes in Russia is, therefore, premature at best. If anything, lower prices could lead to more xenophobia and nationalism, and more Russian aggression over Ukraine and natural gas to Europe as Putin finds other ways to maintain power and prestige at home. It also is leading Russia to attempt to build stronger ties with China, as a way to inoculate itself from vulnerability to Western markets and finance. And Putin surely realizes that commodities are a risky foundation. No one country can control prices and being dependent on commodities means that you are never in control of your own destiny. This recent shock is one more spur for Russia to make more of what it needs itself, if it can.

Iced Out In Donetsk – And Brisbane


On Saturday, Ukrainian President Poroshenko ordered his government to withdraw all state services, including funding for hospitals and schools, from rebel-held provinces in the country’s east:

Poroshenko told his cabinet to take steps within a week “to terminate the activities of state enterprises, institutions and organisations in the various territories where anti-terrorist operations are being conducted,” a statement on his website said. “This is a decisive step, the games have stopped,” the security official added. “All the structures that the state finances will be withdrawn from there. Ukraine will no longer finance them.” The decree also proposed that Ukraine’s central bank take steps over the next month to withdraw all banking services for businesses and individuals in the regions.

But “if anyone thought this was an abdication and a letting go of the unruly region,” Jamie Dettmer underlines, “they need to think again”:

In the decree, he asked the country’s new parliament to revoke a law granting self-rule to the Donetsk and Luhansk regions—in effect rescinding September’s “special status” law granted under a ceasefire allowing the two mainly Russian speaking eastern region some autonomy.

The National Security Council recommended Poroshenko revoke the special status law following the November elections in the separatist Luhansk People’s Republic and Donetsk People’s Republic—polls that broke the conditions of the Sept. 5 Minsk ceasefire agreement. That ceasefire allowed for local elections in Donbas in December, but under Ukrainian supervision. The separatist polls amounted to a direct challenge to Kiev’s authority. But the decision now to sever economic ties with the eastern regions was a surprise—and a gamble.

Rebel leaders quickly decried the order as an act of “genocide”.  Poroshenko had already cut off the separatist regions from pensions and other state funds last week. Alexander J. Motyl supports putting economic pressure on the rebels and their backers in Moscow, but he acknowledges that there will be serious consequences:

The [Donbas] enclave is an economic mess, having experienced dramatic drops in GDP and employment and rises in business closures, food shortages, and inflation. And conditions will get much, much worse as subzero winter temperatures envelop the enclave. People will die not only from the fighting, but also from hunger and cold. Even Nikolai Levchenko, the young Regionnaire hotshot from Donetsk who distinguished himself a few years ago by insulting the Ukrainian language, brazenly flaunting his ill-gotten wealth in Jakob Preuss’s documentary film The Other Chelsea, and preposterously claiming to have read Leo Tolstoy’s War and Peace seven times, says he’s worried: “More than 3.5 million people who have remained in the zone of direct conflict will suffer from the cold and will be placed on the verge of survival under conditions of a wintry humanitarian collapse.”

This weekend was also an eventful one for Putin, who got such a chilly reception at the G20 summit in Australia that he ducked out early:

Western leaders piled huge pressure on the Russian president at the Group of 20 meeting in Brisbane, with host Tony Abbott calling on Putin to “atone” for the shooting down of Flight MH17 over rebel-held eastern Ukraine and Britain’s David Cameron branding him a “bully”. Analysts said Putin’s apparent anger at his treatment by his fellow leaders could worsen the crisis in Ukraine. “If he is leaving irritated, just wait for the fighting in Ukraine to intensify,” independent analyst Stanislav Belkovsky told AFP. Putin, who prides himself on his stamina, cited the “need to sleep” and a long flight home as his reasons for leaving the summit before the final communique was issued.

Leonid Bershidsky criticizes the G20 leaders who gave Putin the cold shoulder, arguing that such passive-aggressive behavior serves no purpose:

What were the Western leaders trying to achieve? Putin already knows they resent his meddling in Ukraine. Not inviting him at all would have sent a clearer signal that the West is prepared to isolate Russia from international decision-making, as it once did the Soviet Union. That message would have been misleading, however, because, despite Putin’s stubborn and increasingly ridiculous denials that Russia is taking action in Ukraine, the West still wants to talk with him: German Chancellor Angela Merkel, French President Francois Hollande, Italian Prime Minister Matteo Renzi and European Union President Jean-Claude Juncker, not to mention the leaders of BRICS countries, all held meetings with him in Brisbane. Taunts and angry looks only make such conversations more difficult.

But Doug Mataconis wonders whether “Putin showing up at the summit wasn’t some kind of stunt for domestic consumption to begin with”:

With reports of Russian troops and equipment pouring across the border with Ukraine that seem hard to deny, and the whole idea of showing up with a fleet of Russian destroyers in international waters off the Australian coast, much further from Russian waters than the Russian Navy tends to travel these days, certainly seems like more Putin-esque showmanship and provocation. It’s almost as if Putin went to Australia with the specific intention of creating a scene like this for propaganda purposes back home.

The Russian and Ukrainian leaders continued their war of words in interviews published yesterday and today. While both leaders claim to want a peaceful resolution to the conflict, Poroshenko now says Ukraine is “prepared for a scenario of total war” while Putin drops hints that he is fully prepared to continue propping up the rebels:

In response to a question about whether Russia was arming the rebels, as contended by both Kyiv and the West, Putin said merely that “anyone waging a fight that they believe fair will find weapons.” He stressed that without such arms the rebels would be quickly destroyed by the Ukrainian forces – something Russia “does not want, and will not allow.” While Putin stopped short of acknowledging Russia’s material role in the conflict, his comments went further in emphasizing Moscow’s willingness to support the separatists than ever before.

(Photo: People shop at the market in the Eastern Ukrainian city of Donetsk on November 17, 2014 as artillery fire continues to rock the eastern Ukraine’s pro-Russian rebel bastion. Fresh bloodshed between pro-Kremlin rebels and Kiev’s forces added to the tensions after Russian President Vladimir Putin left a G20 summit in Brisbane early amid criticism from fellow leaders. By Menahem/AFP/Getty Images)

Is Russia Invading Ukraine… Again? Ctd


Last week, Ukraine’s military claimed that Russian tanks, artillery, and soldiers were pouring across the border between the two countries yet again. Today, NATO and the OSCE confirmed that they had seen the same thing:

Speaking in Sofia on November 12, the alliance’s top commander, U.S. General Philip Breedlove, said the columns included Russian tanks, artillery, air-defense systems, and combat troops. “We do not have a good picture at this time of how many. We agree that there are multiple columns that we have seen,” Breedlove said. Breedlove made the comments after a report from the Organization for Security and Cooperation in Europe (OSCE) said its monitors had seen a convoy of unmarked military trucks — some towing howitzer artillery pieces and multilaunch rocket systems — travelling into the rebel stronghold of Donetsk on November 11.

Shane Harris passes along an assessment from another analyst, who believes “there are as many as 7,000 Russian troops inside Ukraine now, and between 40,000 and 50,000 amassing on the country’s eastern border”:

Phillip Karber, a former Pentagon strategy adviser who has worked closely with the Ukrainian government, said in an interview that he had just returned from Ukraine, where he spoke with commanders at the front. Karber said that in addition to the thousands of ground troops, as many as 100 tanks are inside Ukraine now, more than 400 armored vehicles, and more than 150 self-propelled artillery and multiple rocket launchers. Another 350 to 400 tanks are poised along the border, along with more than 1,000 armored vehicles and 800 self-propelled artillery, Karber said. …

“Clearly something is up. The question is what,” Karber said. He speculated that Russia could be envisioning a number of scenarios, including pushing further into Eastern Ukraine; attempting to create a land bridge to the Crimea peninsula in order to resupply force there; or making a large land grab further into the country.

Anna Nemtsova suspects that the Russians are there to back up eastern Ukrainian separatists in a push to regain territory from which Kiev had driven them out. Accordingly, she fears that Ukraine is on the verge of all-out war again,

“I admit that without Russian multi-layered support, Donbass [the eastern Ukraine region] would have never handled aggression by the Ukrainian army,” says Sergei Markov at a pro-Kremlin think tank close to Russian President Vladimir Putin. Markov tells The Daily Beast he expects the situation in eastern Ukraine to explode in the coming two days. He blames Ukrainian officials for violating the ceasefire agreement and shelling the outskirts of Donetsk city.

“Novorossia soldiers would not initiate the battle,” says Markov, “but I believe their plan is to gradually take control over Piski, Avdiivka, and Schastye, a town with a central heating station.” Markov also added that rebels might make an attempt to take back control of their former strongholds in Sloviansk and Kramotorsk, “symbolically and strategically important towns for them.”

If this is indeed a Russian invasion – and it sure looks like one – James B. Barnes isn’t surprised at the timing. After all, winter is coming:

Winter has long been Russia’s ally, the siege of Leningrad for just one example, but using the modern economics of Winter as an offensive strategy strikes me as both new and absolutely old school. … Doing this now is also very calculated and smart on the part of Russia. Since Europe depends on Russian gas there’s literally nothing the Europeans can do to dissuade the Russian leadership from driving every tank they want straight into Donetsk for later deployment and the U.S. knows that action on their part could lead to action by Russia against Europe. It’s Machiavellian, and while I don’t approve of it (free nations should be free) I’m absolutely impressed by it.

News of these machinations in eastern Ukraine comes at the same time as Russian planes have been making threatening maneuvers in Northern Europe and the Arctic, including simulated attack runs on American and European targets. Now, Russia plans to step up patrol missions by its long-range strategic bombers:

Russian nuclear-capable strategic bombers were making regular patrols across the Atlantic and the Pacific Oceans during Cold War times, but the post-Soviet money crunch forced the military to cut back. The bomber patrol flights have resumed under President Vladimir Putin’s rule and have become increasingly frequent in recent years. Earlier this year, Shoigu said Russia plans to expand its worldwide military presence by seeking permission for navy ships to use ports in Latin America, Asia and elsewhere for replenishing supplies and doing maintenance. He said the military was conducting talks with Algeria, Cyprus, Nicaragua, Venezuela, Cuba, Seychelles, Vietnam and Singapore.

Developments such as these, coupled with increasingly bellicose rhetoric from the Kremlin, have led to chatter about a new Cold War. Brian Whitmore downplays that comparison, but adds a huge, frightening caveat:

No, this isn’t a Cold War. But guess what? It’s even scarier and more dangerous. During the Cold War the Kremlin had a stake in — and was interested in maintaining — the existing international system. Despite its ideology and rhetoric, the Soviet Union after Stalin wasn’t revolutionary at all. It was a classic status-quo power. But in the past 25 years, a new international order has taken shape to replace the bipolar superpower rivalry — and Moscow doesn’t like it. It wants the old 20th-century bipolar world back, or a 19th-century concert of great powers, each free to act in their own spheres of influence. And if it doesn’t get it, it is going to do its best to disrupt the existing order.

Bershidsky psychoanalyzes Putin and wonders if the Russian president might actually be sincere when he says he wants things to get back to normal:

Amid all the anti-American, anti-Western rhetoric, Putin always leaves the door open to a resumption of dialogue. … It’s even possible that Putin’s behavior is a mixture of intimidating swagger and a craving for the restoration of normal, pre-Crimea relations with his Western “friends and partners,” as he likes to call them. It’s only prudent to react to Putin’s threats by shoring up defenses, but it might be smart for the West to exploit his apparent desire to be given a place at the table again. He is only a human being, but Russia and its neighbors are disproportionately dependent on his psychological condition. Perhaps Western leaders ought to consult with psychologists and try to figure out how to handle him rather than continuing to demonstrate their angry rejection, as Obama does.

Regardless of these provocations, new sanctions on Russia don’t seem to be in the offing, at least not from the EU, which could really make them sting:

Speaking in Berlin, German Chancellor Angela Merkel ruled out imposing new economic sanctions,  the European Union’s main source of leverage over Moscow now that gas supplies are in place for the winter. On Thursday, Russia signed a deal with Ukraine and Europe to resume gas shipments to Ukraine, which — if fully implemented — would remove the possibility that Moscow could cut off gas supplies mid-winter.

However, Merkel floated the possibility of issuing travel restrictions on pro-Russian politicians recently elected in the Crimean peninsula, which Russia has annexed. The West has refused to recognize the polls, and Merkel said that the EU could prevent Crimean politicians from attending a meeting of foreign ministers in Brussels next week.

(Photo:A column of tanks drive from a rebel-territory to Donetsk near the town of Shakhtarsk, eastern Ukraine on November 10, 2014. By Dimitar Dilkoff/AFP/Getty Images)

Ruble Trouble

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The Russian economy looks like it’s on the verge of a full-fledged meltdown. The central bank projects zero growth next year and barely more than that in 2016, while the ruble’s value has plummeted. Amanda Taub voxplains what the heck is going on:

The fall in the ruble appears to be mainly the result of two factors: a sharp decline in global oil prices and sanctions that Western countries put on Russia in retaliation for invading Ukraine. Those two things might not appear connected, but in a sense one led to the other. Many Russia-watchers believe that, when Russia’s economy began weakening, and, thus, so did Putin’s approval ratings, Putin responded in part by trying to increase his popular support by stirring up nationalism. That is likely one of the reasons why he invaded Ukraine, which also distracted from the poor economy. If that’s right, then that would mean that the sanctions meant to weaken Russia’s economy are also a result of Russia’s weak economy. And that, in turn, should prompt questions about what Putin might do to shore up his support in the face of this new bad economic news.

The Bank of Russia’s usual response to such a slump is to dig into its massive reserves to shore up the currency, but yesterday, the bank announced that it would allow the ruble to float freely:

The bank had been burning through its $400 billion in reserves to cushion the drop of the ruble, spending a reported $30 billion in October alone to support the national currency. The bank statement said the decision to allow the ruble to float freely “did not amount to a total renunciation of any interventions in the currency market, which would be possible in case a threat to financial stability appears.” The ruble had dropped to 48 to the dollar on November 7, but the Russian central bank’s November 10 announcement lifted the ruble to 45 to the dollar. Earlier in day, President Vladimir Putin expressed confidence that the plummeting ruble will stabilize, saying its volatility is not tied to the country’s economy.

Bershidsky analyzes the move:

Putin’s government isn’t interested in a strong ruble now: As low oil prices make it difficult to balance the budget and as exporters, many of them state-controlled, complain about the lack of access to Western capital markets, a devaluation is the first order of business. What Putin doesn’t need is panic among ordinary Russians, which could damage his high approval ratings. As long as the central bank does its job of reducing volatility and deterring speculators, bank insiders will be free to use information about the timing of interventions to make a bit of money on the side. And Russia has a lot of hard currency to burn — $454.2 billion in international reserves at the beginning of November.

That logic, however, only holds if one believes — as Putin does, according to Kremlin insiders — that both the Western sanctions against Russia and, more importantly, the oil price drop are only temporary. If they last longer than a year or two, Russia will be in real, long-term financial trouble and it will be harder for Putin to hold on to unlimited power.

The way Ioffe sees it, the ruble’s decline “is merely a symptom of something much deeper and more worrying”:

This is Putin digging in; this is Putin reinforcing his foxhole and preparing for the long fight ahead. He will not let go of eastern Ukraine, and he is trying to keep the reserves full so that he can survive the long fight ahead. The problem, though, is that the pressure inside the system is rising. Food prices are jumping and, though so far, Russians mostly blame the West for their country’s economic malaise, it’s not clear how long that will last. …The ruble crashing won’t change anything today or tomorrow, but this is just the system starting to eat itself, this is just the system starting to crack. As I’ve written before, historically, economic crisis triggers political crisis in Russia. No one knows when one of those cracks brings the whole thing down, but there’s a growing sense in Moscow that it will happen sooner than we all think. Putin seems intent on it.

(Chart via

Is Russia Invading Ukraine… Again?

Ukraine’s military claims that a column of “32 tanks, 16 howitzer artillery systems and trucks carrying ammunition and fighters” crossed into the country from Russia yesterday:

“The deployment continues of military equipment and Russian mercenaries to the frontlines,” spokesman Andriy Lysenko said in a televised briefing referring to Thursday’s cross-border incursion.

Nato said it has seen an increase in Russian troops and equipment along the Ukraine border was looking into the reports. “We are aware of the reports of Russian troops and tanks crossing the border between Ukraine and Russia,” a Nato military officer told Reuters. “If this crossing into Ukraine is confirmed it would be further evidence of Russia’s aggression and direct involvement in destabilising Ukraine.” The report of a new Russian movement of armour across the border follows a charge on Thursday by pro-Russian rebels in eastern Ukraine that Kiev government forces had launched a new offensive – which Kiev immediately denied.

Morrissey calls this a move “directly out of the Crimea playbook”:

In that seizure, Russian troops infiltrated the peninsula in uniforms without insignia, seized control of the region, and then held a plebescite on annexation to the country that had occupied their land. Immediately afterward, Russia invaded Crimea militarily, this time openly, and secured its new possession. This is exactly what has unfolded in Donetsk and Luhansk, just over a longer period of time. …

It’s the classic fait accompli challenge: what is the world to do when an aggressor nation simply takes what it wants in defiance of the international community, especially on the arguable basis of self-determination with the phony plebescite? It’s always a bit dangerous to reference analogous actions from the 1930s, but this was also the way Adolf Hitler expanded German reach, with the Austrian Anschluss and the seizure of Czechoslovakia despite Western security assurances to both nations.

The situation on the Ukrainian border was already tense; Ukraine also claims to have killed around 200 rebel fighters with artillery shelling near the Donetsk airport yesterday. And that’s to say nothing of relations between Russia and the West in general. Even before the latest escalation, Dimitri Trenin sounded the alarm that these relations were in a state of permanent crisis:

In contrast to the Cold War with which the present Russian-Western confrontation is often compared, the current situation lacks agreed, if unwritten, rules, is characterized by gross asymmetry in power, and is utterly devoid of mutual respect. There is also a near-universal lack of strategic thinking. It is thus more prone than the US-Soviet conflict to lead to a collision in the style of 1914. The Cold War, after all, stayed largely cold. There is no such certainty about the present situation. Crisis management must ensure, at minimum, that there is no resumption of hostilities in eastern Ukraine. Should Kiev, with Washington’s blessing or its acquiescence, attempt to retake Donetsk and Lugansk, the Kremlin may not confine itself to restoring the status quo. It may be that the Russian military will then receive an order to go for Kiev.