Mike Scott, Contributor
I write about business, the environment, sustainability and investment
INVESTING
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3/04/2014 @ 9:57AM |872 views
Putin's Strongman Act Is A Sign Of Weakness
The unfolding crisis in Ukraine is a disaster – for the people of Ukraine, for Europe and the US and for a huge number of businesses with interests in Ukraine and Russia.
The one clear winner from this, certainly in his eyes, is Vladimir Putin. He appears to have calculated that because the West has made it clear that it will not retaliate militarily, he has a free hand. In his winner-takes-all view of the world, if the West is at a disadvantage, then he must be winning.
Yet in behaving like a school bully who befriends you and then refuses to let you have any other friends, Putin could be the biggest loser of all. His concerted effort in November last year to prise Ukraine away from a deal that would bring closer co-operation with the European Union, which was the trigger for the protests that eventually drove Viktor Yanukovich from office, always looked misguided.
In his quest to revive a Soviet-era sphere of influence, rather than allow Ukraine to become a stronger economic partner by signing up to a deal with the EU that would have brought reform, finance, stronger governance and access to the world’s biggest market, he effectively paid $15 billion for a dysfunctional economy run by a crook that has just provided a textbook example of how people power can force an autocratic leader from power.
With a government accused of abusing the rule of law, an economy dominated by oligarchs and a populace fed up with rampant corruption, Ukraine holds up an uncomfortable mirror to Russia. However much Russian media spins the story, in the social media age they no longer have a monopoly on the news and the lessons of the Maidan are unlikely to be lost on opponents of Putin in Russia.
And indeed, the knock-on effects have already started. The rouble has fallen to an all-time low, share prices have plummeted and the central bank has had to raise interest rates. There are reports that Russians desperate to buy dollars and euros are struggling to find any – hardly a vote of confidence in Putin’s strategy.
Meanwhile, keeping Ukraine economically weak and disrupting its efforts to foster closer ties with Europe will also backfire because that weakness will have knock-on effects with the country Ukraine’s economy is most integrated with – Russia.
It might look as if Russia holds all the cards in its relations with Europe because of the huge amount of gas that it exports to the region – almost a third of Russian gas flows west. Yet it needs European demand as much as, if not more than, Europe needs Russian supplies. The Russian economy needs urgently to diversify and become less reliant on its energy supplies. But investors have become increasingly wary of investing in Russia in recent years because of the capricious nature of the Putin regime. The events in Crimea have swept away the last vestiges of trust – and yet Russia is not a self-sufficient monolith like the Soviet Union was. It is part of the global economy now and the market’s reaction has consequences.
And this gives a clue as to how the West can respond to Russia’s provocation. So far, Ukraine’s government has acted with admirable restraint and the West has ruled out military action. It doesn’t need to take military action. Time is on the side of Europe and the US, particularly if they stand firm in stating that Russia’s actions are unacceptable, take steps to isolate Russia diplomatically through measures such as abandoning the G8 and start to target the assets and movement of prominent Russians associated with Putin. For a man who is looking for some respect, this stuff matters – and events in Kiev have shown that losing the support of the oligarchs leaves a leader looking very vulnerable.
As it ratchets up the pressure, another short-term measure the US could take is to allow its booming shale gas industry to start exporting gas to Europe, providing an alternative to Russian gas.
In the longer term, the obvious lesson for the EU is that it should step up its campaign to increase its energy efficiency and renewable energy capacity, further reducing its dependence on Russian assets. It can also look forward to other sources of gas such as Australia coming on stream over the next few years and may even see Iran return to the world market if nuclear talks progress well. In addition, it has its own shale gas resources that it could develop more enthusiastically than it currently is.
Russia continues, at the moment, to insist that Yanukovich was overthrown in an illegitimate coup, but the growing evidence of his massive corruption – the man had his own private zoo, for heaven’s sake – makes his return untenable and Russia’s continued support for him highly questionable. The key point, though, is that the decision is the Ukrainian people’s to make, not Putin’s.
The Russian leader’s zero-sum view of the Ukraine situation is wrong. Just as escalating the situation will mean that everyone loses, including him, allowing the people of Ukraine to decide their own future and making the country more economically sound, less corrupt and more integrated with its neighbours to both the East and the West would be a good thing for everyone – Ukraine, Russia and the West. Putin’s provocative actions are meant to be a show of strength – but this strongman act is really a sign of weakness.
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