Putin’s endgame

Yuriy Gorodnichenko, Gérard Roland

04 September 2014

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There is plenty of evidence that Russian troops are fighting the Ukrainian army on Ukrainian soil. This Russian invasion is a further escalation of the war between Ukraine and Russian-sponsored separatists and terrorists in the east of Ukraine. As soon as the Ukrainian forces were about to take over cities in eastern Ukraine, Mr Putin raised the stakes and sent Russian military to rescue the separatists from certain defeat. Both sides have experienced heavy losses, but the Russian government denies any involvement. The excuses sound increasingly surreal (e.g. Russian paratroopers got lost). Furthermore, dead Russian soldiers appear to be buried in secret and journalists trying to reveal these losses are harassed, intimidated, and severely beaten. Finally, Russia shows no sign of being willing to engage in genuine negotiations to establish peace—all previous attempts turned into farce when Russian calls for peace were followed with more Russian weapon deliveries and casualties.

After the cutting-off of gas supplies in 2006, the infamous annexation of Crimea earlier this year, the delivery of weapons (including tanks, artillery and BUKs that shot down Malaysian airline civil airliner MH17) to separatists, and now an invasion in eastern Ukraine, one may ask where Mr Putin is going to stop. We believe that he has been making calculated choices all along the way. His objective in Ukraine is to destabilise the new government that emerged from the Euromaidan movement that toppled Yanukovich. The ultimate motivation for this is to consolidate his own power at home and to prevent a similar democratic revolution in Russia. In each step of the Ukrainian conflict, he has weighed the benefits of each move – from the point of view of this strategic objective – against the costs. The current invasion is motivated by the need to prevent a military defeat of the separatists and to keep the conflict in eastern Ukraine alive.

The costs of this latest move have so far not been very large for Mr Putin. The reaction of the West has proved to be weak, exactly as he expected. Most sanctions are too narrow or are going to have tangible effects only in the medium or long run. Discussions to ban imports of Russian caviar and vodka are just laughable. To the extent that the stock market shows the health of the Russian economy, sanctions have had no real bite so far. True, there was some volatility—there was a dip after the annexation of Crimea in March—but this volatility is not unusual by Russian standards. Furthermore, the West refuses to sell weapons or to provide intelligence to the new Ukrainian government. At the same time, France is still going to sell assault Mistral-class ships to Russia. 

Figure 1. Russian stock market index (MOEX)

Source: Google Finance.

Three possible outcomes

To Putin’s surprise, the Ukrainian government and army have put up serious resistance to his earlier moves. The level of popular support for his people’s republics in the East has also been surprisingly low. At the same time, there is a truly popular movement to support the Ukrainian army, with people enrolling into the army by the thousands.

Given this situation, what are the possible outcomes?

  • Ukraine continues fighting without any material help from the West.

By now it is clear that Ukraine is not going to give up fighting. Even with a large numeric superiority in armed forces, Russia cannot win the war when people do not want to be occupied. On 1 September 2014, the Ukrainian army authorised the creation of guerrilla units to fight the Russian army in the east of Ukraine. While symbolic, this move signals that resistance is going to be fierce and some calculations suggest that Russia will need to station hundreds of thousands of troops to control the territory (Motyl 2014). Invariably, an invasion of this scale can turn Putin’s war in Ukraine into a new Afghanistan with many coffins going back to Russia. How many dead Russian soldiers will it take to change Putin’s course? Nobody knows. If the history of the Soviet Union is any guide, it will be many thousands (in Afghanistan, the Soviet Army had more than 14,000 dead and more than 50,000 wounded).

  • Ukraine continues fighting, the West radically tightens economic sanctions and gives more economic help to Ukraine.

The Russian economy is heavily dependent on exports of oil, gas, and weapons. It also depends on access to foreign capital markets to borrow funds and to clear transactions. If the West tightens the screw of sanctions, the economic consequences for Russia will be dire: inflation, deep recession, low income, high unemployment, a banking system in shatters. If the collapse of Lehman Brothers nearly brought down the US economy, one can only imagine how bad it can turn for Russia if the banking system stops functioning. With such a negative economic background, it will become increasingly difficult for Mr. Putin to suppress protests not only of the people but also of oligarchs. Any sanctions Russia can decide in retaliation are going to mostly hurt Russia first. Indeed, the imposed restrictions on imports of food from the West already raised food prices and led to food shortages.

At the same time, Ukraine’s economy is being hurt by the war. However, with economic aid from the West, Ukraine can carry through even these tough times. If Ukraine’s new democracy survives, it will be a major blow to Putin’s agenda and eventually genuine democracy will spread to Russia and other former Soviet Union republics.

  • Ukraine continues fighting, the West radically tightens economic sanctions, gives more economic help to Ukraine, and provides military help.

While Mr Putin has spent copious amounts of oil dollars to modernise the Russian army, it is no match for Western forces. Even if the West does not send troops to Ukraine and limits military support to supplies of weapons and intelligence, the Ukrainian forces will be able to have an upper hand in combat and it will be a matter of time before they retake the east of Ukraine. Since Putin’s Russia already provides weapons, intelligence, and so on to terrorists/separatists, it is not clear how they can effectively respond to military supplies from the West to Ukraine.

In short, these three scenarios suggest that Mr Putin’s chances of eventually winning the war are minimal. He has been repeatedly raising the stakes to stifle Ukraine’s aspirations to become a free, democratic European country, but he is running out of cards. The key question is at what cost will he let Ukraine go. He is going to step down when the cost of what he is doing becomes too high, but not before. There is no doubt that Ukraine will carry the main burden of fighting for its sovereignty and independence. It may take many thousands of lives on both sides before the war is over (scenario 1), or the war may end soon. The tally largely depends on the West’s policy response.

The response of the West

The West’s policy of appeasement has so far been utterly ineffective. Putin has downright contempt for what he sees as the weakness and cowardice of the West. Because he only expects a weak response from the West, he does not hesitate to escalate the conflict in Ukraine to further his goal of destabilising the fragile Ukrainian democracy. It is an illusion to think that trying to appease Putin will make him de-escalate. On the contrary, because there is no turning back for him after this aggression, his own political survival may lead him to continuing expansion elsewhere under whatever motive he will come up with: to protect Russians in other countries (Kazakhstan, Belarus, the Baltic countries), to protect spheres of influence, to counter the threat of NATO, and so on. Just as the Soviet Union could not survive in peaceful co-existence, Putin’s Russia will not be able to stay within its borders.

Force is unfortunately the only language Mr Putin currently understands. By helping the Ukrainian army control its borders and chase out Russian invaders, NATO and Western powers will significantly increase the costs of Russia’s recent escalation of the Ukrainian conflict and make Mr Putin think twice before further escalating the conflict. The West should not be intimidated by the prospect of a stand-off with Russia. If Russia raises the stakes, so should the West. Putin’s Russia is no match for the West. Ultimately, Putin’s regime will collapse like the communist regime collapsed as it was unable to keep up with the arms race in the 1980s. If the West does not muster the military strength it possesses to pose a credible and targeted response to the Russian aggression in Ukraine, then more Russian aggression is to be feared whenever it suits the domestic purposes of Mr Putin.

References

Motyl, A (2014), “Russo-Ukrainian war now a reality”, huffingtonpost.com, 29 August.

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Topics:  Europe's nations and regions

Tags:  Russia, Ukraine crisis

Associate Professor in the Department of Economics, University of California – Berkeley

E. Morris Cox Professor of Economics and Professor of Political Science, University of California, Berkeley; and CEPR Research Fellow

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