By Amit Dasgupta
By all accounts, the Russian economy is in imminent danger of collapse. After a period of relative economic stability under President Vladimir Putin, the rouble is now in free-fall. The central bank has announced an increase in interest rates from 10.5 percent to 17 percent. It failed to stabilize the rouble. This has reduced the purchasing power and seriously affected ordinary Russians, as the bulk of food and consumer goods are imported.
There are rumours that state-run energy company Gazprom would lay off 25 percent of its staff. Suspicion that the Ukraine intervention by Russia would inevitably attract a sharp response triggered capital flight of $70 billion by the first half of 2014. It is estimated to touch $160 billion by the end of the year. Russia seems to be staring at a possible recession.
Western sanctions have undoubtedly hurt. The sudden collapse in oil prices from $115 in June to below $60 per barrel choked off the revenue the economy relied on. But it is the price tag of the military operation in Ukraine, though difficult to precisely compute, which has possibly hurt even more.
A US Senate bill (Ukraine Freedom Support Act), which is yet to get the nod from the White House, could exacerbate matters as it would introduce fresh sanctions and also deliver US military hardware to Ukraine. This has delighted Kiev and prompted Moscow to threaten retaliatory sanctions, which the earlier time around didn’t, in fact, work in Moscow’s favour.
Putin is now in the bad books of Washington and its allies. At the recent G20 summit, he was severely criticized for his actions in Ukraine. Furthermore, the host of the summit, Australian Prime Minister Tony Abbott, threatened to confront him on the downing of a Malaysia Airlines aircraft by suspected Russian backed militia, killing all its 238 passengers, 38 of whom were Australians.
Russia denied any involvement. Bizarrely, just days before the summit, Russian warships entered international waters off the Australian coast and when quizzed, the Russian embassy nonchalantly said it was to test the fleet’s range and to protect Putin. Abbott was, understandably, outraged and said that Putin was trying to re-create the glories of the former Soviet Union.
British Prime Minister Cameron, equally furious, said Russian actions in Ukraine were similar to those of expansionist Nazi Germany. In the face of mounting criticism from his counterparts, Putin left the summit.
Putin’s Ukraine operation, which earned the opprobrium of Europe and the US, started off in February. Three months of widespread street demonstrations saw the ouster of the Kremlin-backed president, infuriating Moscow, which sent in troops, ostensibly “to protect Russians”, particularly in Crimea. In a Moscow-organized referendum, 96 percent the people in Crimea opted to join the Russian Federation. Putin signed a decree recognizing Crimea as “a sovereign independent state”.
The referendum and the “annexation” of Crimea have been rejected by the G7, the EU and the NATO member states. As an expression of their intense displeasure at Moscow’s actions, sanctions were initiated to isolate Moscow and pressure it economically.
Has the current impasse helped?
Strobe Talbott, who served as the deputy secretary of state in the Clinton administration and heads the Brookings Institution, believes that 2015 could see
Russia break up, just as the former Soviet Union did. Talbott needs to consider the implications of such a development especially for Europe, which is slowly trying to revive its economy. Nor, indeed, would the global economy remain immune.
Second, the West’s ostracism of a Putin-led Russia will push Moscow to ‘Look East’. Washington’s Asia Pivot policy would, most certainly, face a serious strategic challenge if there were a Beijing-Moscow alliance in the Asia Pacific region. China realizes that Moscow is currently vulnerable and will take advantage of the situation. For Beijing, this would be the ideal ‘axis of convenience’ to counter Washington. It would turn the Pacific into a new Cold War arena, setting the stage for long-term instability in the region.
In this context, the State Department’s annoyance at Putin’s 22-hour visit to New Delhi as part of annual summit level bilateral meetings is surprising. Surely,
Washington realizes that in diplomacy, making new friends does not mean that you abandon old relationships. Furthermore, recent developments of warming Moscow-Islamabad relations, particularly on the defence front, including joint naval exercises and counter-terrorism, are a cause of genuine anxiety for New Delhi. Distancing Moscow will seriously jeopardise India’s security and defence architecture.
Isolating Putin does not help. What the US and its allies need is a strategy based on risk analysis. All they now appear to be doing is reacting. This will have serious negative implications.