The issue of restoring the sovereignty of Ukraine and returning the territories of Crimea and Donbas temporarily occupied by Russia is as multi-vector as life itself. In addition to a need for the observance of international legal principles of territorial sovereignty and support for the world order, obvious to the majority, politics, diplomacy and economics collided here in a big way. On the one hand, Russia is an aggressor, condemned by numerous resolutions and economic sanctions; on the other hand, Russia is an economic partner and supplier of oil and gas. The economic weakening of the raw material colossus is perceived by many political leaders as undesirable due to the pro-Russian lobby in European political circles. Thus, the Crimean issue has political, diplomatic and economic aspects. Therefore, the international community, in particular the European institutions, must use both levers of influence on the Russian Federation.
The main task of Ukrainian diplomacy “here and now” is to convey the message that Russia’s presence in Crimea and Donbas is not only an internationally recognised fact of aggression against Ukraine but also a cause of destabilisation of the entire European region already with a wider geography of Russian influence. Since the arrival of the Russian military in Crimea in February 2014, international organisations have declared the occupation and annexation of Crimea illegal and condemned Russia’s actions largely due to Ukraine’s diplomatic efforts on the world stage. Western countries imposed economic sanctions, despite the resistance and lobbyist influence of Russia, which continues to deny the occupation of the peninsula and calls it nothing more than “the restoration of historical justice”.
However, the restoration of the only possible historical justice lies in the plane of international law, not in the legitimisation of the aggressor’s actions. Ukraine makes significant efforts on Crimea issues in the diplomatic field, in particular in international organisations, primarily the United Nations. In total, there were several resolutions of the UN General Assembly (UNGA) on Crimea, in particular, the resolution on Russia’s “militarisation of the Autonomous Republic of Crimea and the city of Sevastopol, Ukraine, as well as parts of the Black Sea and the Sea of Azov” and the resolution on the protection of human rights in Crimea, annexed by Russia. The latest resolution, approved on 7 December 2020 (“Problem of the militarisation of the Autonomous Republic of Crimea and the city of Sevastopol, Ukraine, as well as parts of the Black Sea and the Sea of Azov”) is marked as “strengthened.” The resolution was supported by 63 countries (62 countries abstained, 17 countries, including Russia, voted against it). Sixty-three nations unequivocally condemned Russia’s temporary occupation of Crimea and identified it as a threat to international, not just regional security. In addition, the resolution calls for the withdrawal of Russian troops from Crimea and the immediate return of control over the territories to Ukraine. In contrast to previous resolutions, the third document of the UN General Assembly referred to Russia’s illegal seizure of former nuclear weapons storage facilities in Crimea and the establishment of control over them, the relentless militarisation of the peninsula, as well as the continued conscription of Crimean residents into the Russian armed forces as violation of international humanitarian law or the inclusion of Crimean educational institutions in the Russian “military-patriotic” education system. The resolution calls on Russia to put an end to this practice. In addition, the resolution mentioned construction of warships, conduct of military exercises and other military activities, as well as the implementation of the Russian transport project Tavrida as a tool for further militarisation of Crimea.
The disappointing dynamics and forecasts for the build-up of Russian military power in Crimea are evidenced by cold hard facts which may further become bloodstained. Thus, according to the website of the Ministry of Foreign Affairs of Ukraine, the number of Russian military personnel increased from 12,500 in 2014 to 32,500 in 2020; the number of tanks,from 0 to 195; of fighter aircraft, from 22 to 100; and the number of artillery systems of various calibers from 24 to 283. And by 2025, the Russian military presence is expected to double at the very least.
The resolutions of the UN General Assembly of 2016-2019 on Russia’s human rights violations in the occupied Crimea were a separate instrument of political pressure on Russia. The latest UN General Assembly resolution contains information on the replacement of the population in Crimea, its militarisation, intimidation and political persecution of civilians, enforced disappearances and other illegal actions and human rights violations, especially against the Crimean Tatar population, of which Russia is accused. The resolution urges Russia to immediately stop gross human rights violations and to ensure unhindered access of the UN and OSCE international monitoring missions to Crimea.
However, the results of these diplomatically declarative levers of pressure on Russia are not very comforting and often illustrate the phrase “The dogs bark, but the caravan goes on.” And the caravan here, unfortunately, is Russia, with a firm conviction of its own truth and victory, which it demonstrates widely. The Russian authorities, as in previous years, criticised the document, calling it “anti-Russian.” And there were few mentions of the resolution in the Russian media outlets. In particular, First Deputy Permanent Representative of Russia to the UN Dmitry Polyanskiy tweeted statements reiterating Moscow’s claims about “Russian Crimea” and the current “Maidan regime of Ukraine,” “Maidan madness,” “Maidan fever” and “Maidan virus” in Kyiv.
As for the possibility of international monitoring missions’ access to the peninsula, Russia, through Spokesperson for the Ministry of Foreign Affairs Maria Zakharova, stated that they were “ready for dialogue with relevant international human rights organisations in Crimea, but within the mandate of the corresponding structures and related procedures that can be applied to visit Russia.” That is, on their own terms.
It is worth noting that whatever the UN General Assembly resolutions are, these are not binding documents. Indeed, it is an increase in legal pressure; indeed, it is a consolidation of international efforts; and indeed, it is a political and legal argument to promote the de-occupation of Crimea as assessed by Minister of Foreign Affairs of Ukraine Dmytro Kuleba. However, all these measures are a long-term prospect and Ukraine needs them “here and now.”
Perhaps, the international summit for the de-occupation of Crimea within the framework of the international Crimean Platform, scheduled for May 2021, will become more effective diplomacy in terms of efficiency rather than effect. Turkey, the United States, Poland and the Baltic states have expressed interest in participating in the summit. Kyiv plans to invite Russia to the negotiating table. But, so far, this project is under development, so we will keep our finger on the pulse.
Another aspect of the Crimean issue is economic, and this is the question of the effectiveness of sanctions pressure on the Russian Federation. For quite a long time, there was overconfidence in Ukrainian society and politics that “Western sanctions” are a universal and very effective instrument of pressure that will force the Russian leadership to make certain concessions on issues of Donbas and Crimea or to return these territories to Ukraine, reimbursing the material damage caused, in the ideal case. According to forecasts, if Russia had refused to do this, it should have been prepared for an inevitable economic collapse in the near future. However, this has not happened; the effectiveness of sanctions in their current form cannot be proved, since the territories are still occupied, and Russia has recovered from the economic downturn of the first years.
The international sanctions against Russia began to be applied in 2014 and were supported by 41 countries. A phased sanctions pressure was envisaged: the first stage – restrictions on cooperation; the second – restrictions on the supply of certain types of technologies; the third – sanctions against certain sectors of the Russian economy. The sanctions of the first and second stages, imposed on the Russian Federation, were valid for 12 months and were regularly prolonged every year. The current sectoral sanctions of the third stage are reviewed every six months, they were last extended in December and will remain in force until 31 July 2021. To briefly list the mechanisms of pressure on Russia, they relate to the following sanctions: ban on doing business with Crimea; ban on the supply of tools, technologies and products for the development of oil and gas fields to Russia (however, this paragraph applies primarily to tools for deep drilling and does not apply to those used in the old technological process of exploration and production in Russia); ban on the supply, purchase and sale of weapons and equipment; ban on cooperation with five Russian banks and nine enterprises of the Russian military-industrial complex; ban on the use of debt and financial instruments by three Russian oil and gas companies; and restrictions on trade, financial and other transactions with organisations registered in Crimea. The second package of sanctions, namely the sanctions “against actions that undermine the sovereignty and territorial integrity of Ukraine,” applies to 183 individuals, mostly citizens of the Russian Federation and Ukraine; and 47 legal entities, including 22 “organisations” (in particular, Battalion Vostok, Battalion Somalia, Army of Novorosiia, Donetsk People’s Republic, etc.). Despite the impressive number, there are few real companies on the list (no more than 25), including Technopromexport, Interavtomatyka, Almaz-Antey and other Russian defence enterprises.
However, according to Iliya Kusa, an analyst at the Ukrainian Institute for the Future (UIF), despite the large list of sanctions, there is no full-fledged pressure on the Russian Federation because the sanctions are not comprehensive and do not cover Russia’s entire economy, often leaving Russia room for economic maneuvers. The ineffectiveness of the sanctions is also evidenced by the Russian Federation’s GDP: the Russian economy grew by 0.3% in 2016, by 1.6% in 2017, and by 2.3% in 2018 compared to last year. The situation with the package [of sanctions] on Crimea is similar. It would work if it was about the peaceful development of Crimea’s economy by Russia. In fact, it creates a powerful group of troops there and conducts military rather than civil or economic modernisation. Therefore, sanctions are not critical to the implementation of these plans by Russia, as they more often relate to peaceful life, and not military restructuring. It is safe to say that the sanctions of the “Crimean package” affect the development of peaceful infrastructure of the Crimean peninsula and significantly increase the cost of maintaining the annexed peninsula for the Russian budget. However, given the general state of Russian finances, this is not a critical problem for the implementation of Russia’s policy of militarisation of the region.
For some time, the “Ukrainian issue” was among the top three on the international agenda and really united several leading countries in putting pressure on Russia. We were already rejoicing at the victory and forecasts for a drop in the level of incomes of Russians, a decrease in export volumes, a collapse of the national currency and other processes that should have pushed the Kremlin to change its political course and, perhaps, even to a “palace coup” that would be carried out by oligarchs from Vladimir Putin’s circle of close associates, who were dissatisfied with the sanctions affecting their business. But gradually the Ukrainian issue was put on the periphery of international politics from the top five on the agenda of the EU and the US, as it included Syria, Turkey, terrorist acts in Europe itself, the U.S. election and the pandemic. However, the Russian economy itself recovered after the first shock from the sanctions and began to adapt to the new conditions. In particular, a technocratic albeit Putin-led government is gradually shifting Russia’s economy to a new model. It lies in the fact that the Russian economy will henceforth be based on a predominantly domestic financial and monetary system and on its own monetary unit (rubles) both for lending to its own business and for accumulating wealth. When the transition to the new system is completed, the need for external “inflow” of capital will almost disappear, because Russia’s wealth will be formed solely by domestic resources and agents. And there are already some results. Thus, according to the Bank for International Settlements (Switzerland), internal and external liabilities of banks and non-banking businesses in Russia are successively declining.
Sanctions have always been an effective tool when applied correctly, but they change the balance of power in the next 10-15 years and are ineffective in terms of the here-and-now influence, except for the first 2-3 years of “sanctions shock.” Russia was fully shocked by the first peak of the sanctions impact – the country’s nominal GDP fell by 3%, and exports (in monetary terms) by more than 40%. However, there is no need to talk about the exceptional influence of sanctions, since the Russian economy is highly dependent on oil and commodity prices. In 2014-2015, there was a collapse in oil prices almost twice. That is, the decline of the Russian economy is primarily associated with the situation in foreign markets, and only then with the impact of sanctions. This is noticeable from the change in the structure of foreign trade of the Russian Federation – a decrease in the share of the oil and gas component and an increase in the share of agro-metallurgical industry. Thus, we can conclude that the Russian economy has experienced a shock since the first years of sanctions and has already adapted to new conditions. According to Dmytro Nekrasov’s report “Limits of Russia’s Strength,” published by the Ukrainian Institute for the Future in 2017, the decline in GDP stopped in the fourth quarter of 2016 and, according to various estimates, amounted to 0.3-0.5%. The ruble strengthened by 31% compared to the peak values of early 2016; stock indices grew by 35-40%. Net capital outflow by the private sector fell from USD 152 billion in 2014 to USD 19 billion in 2016. Inflation decreased from 12.9% in 2015 to 4.2% in early 2017. Russia’s Central Bank cut the key interest rate from 17% to 9.5%.
We cannot talk about the complete ineffectiveness of sanctions. Russian President Vladimir Putin said in 2015 that the total impact of falling oil prices and sanctions cost Russia USD 160 billion. Bloomberg claims that over the five years of sanctions and falling oil prices, even after overcoming the first shock, the Russian economy has lost about USD 150 billion.
China, Germany, and the Netherlands were Russia’s three major trading partners in 2018. More than a quarter of trade turnover falls on these countries. The sanctions did not affect the structure of trade with these countries in any way. It should be noted that large Russian companies such as Gazprom have not yet come under sanctions. That is quite understandable as they all do business in the EU and have support groups among the political elites of the European Union. The possibility of their falling under the sanctions is insignificant due to the fact that the imposition of sanctions requires the consent of all 28 members of the Council of the EU on each point of the decision for each company or for each person. In addition, EU sanctions primarily concern European companies and companies with a share of European capital. They do not extend restrictions to other Russian defence partners. On the whole, this suits Russia, since the market outlets for its weapons are located outside the EU, and the production process does not involve the use of a large number of European components.
A separate factor influencing the sanctions situation is the actions of another more flexible and independent player – the United States. The USA is not among Russia’s top five foreign trade partners. It is a source of technology and technological equipment. In 2013-2017, the volume of supplies of technological equipment to Russian companies fell significantly both in price and quantity. That is, the main sanctions mechanism of the US is a restriction on the transfer of technology and technological equipment to Russia, which will affect the development of the Russian economy in the next 10-15 years. However, in practice, there are ways to circumvent the sanctions, in particular, to sell technological equipment through companies in third countries (Belarus as an example). It is important to understand that technological sanctions are a long-term prospect. The sanctions that restrict Russia’s ability to import technology for scientific and technological development, primarily the oil and gas industry, may prove to be the most effective of all above-mentioned packages. The first signs of industrial crisis due to technological backwardness are already visible in Russia.
It is worth changing approaches to sanctions. The standard approach assumes that Russia’s economy is seriously affected by the lack of access to foreign capital, saying that it is an incentive for the Kremlin to normalise relations with the West and other countries and restore the “inflow” of capital by making concessions in the Crimean issue. However, statistics show otherwise. In addition to strengthening the domestic model of the economy, Russia does not rule out the possibility of enhancing the economy by actively attracting investment. All strategies approved in Russia for the development of certain industries (including energy, transport, technology, grain, etc.) are aimed at improving the business climate for investors (primarily from the US, Europe, Japan and China). In the Doing Business 2014 ranking (conditions were assessed from June 2012 to June 2013), Russia ranked 92nd, Ukraine, 112th. In the Doing Business 2019 ranking, Russiatook 31st place, and Ukraine took 71st. After 2025, the Russian government expects a sharp increase in foreign investment, the influx of technology and the intensification of scientific and technical cooperation. That is, we can conclude that by 2025 the Russian Federation expects to enter the regime of canceling or suspending the main sanctions packages that are currently hampering the development of the Russian economy, especially technological development.
And here, in the eyes of world politics, the main target should be the Nord Stream 2 project, which contains opportunities for economic and technological pressure on Russia. There is a direct dependence on whether Russia will cope with the construction of Nord Stream 2 solely on its own, without involving front companies. On 11 December, world news agencies announced the resumption of works on a 2.6 km section of up to 30 meters in depth between the Danish island of Bornholm and the Baltic coast of Poland. Formally, the construction is being carried out by private companies backed by Gazprom and with the involvement of exclusively Russian pipe-laying vessels. However, new U.S. President Joe Biden, with his tough stance toward Russia, intends to expand sanctions against construction contractors in January, expecting that Russia will not be able to complete the construction of another 160 km of gas pipeline without shell pipeline companies.
Opponents of the completion of Nord Stream 2 call for the need to develop alternative energy sources for Europe and warn against the danger of Russia playing on compromises with individual European countries, which may continue to cause controversy in the EU’s joint actions. In addition, the growth in gas consumption is contrary to the Paris Climate Agreement. According to the German Green Party, the further construction of the pipeline will continue to split Europe, and Russia’s intentions to ultimately abandon gas transit through Ukraine cannot be called an attempt to diversify supplies as they try to show. This is purely political pressure or revenge for getting out of the political influence of Russia itself. Thus, the here-and-now decision on Nord Stream 2 will have a significant political effect.
Given how Russia has managed to maneuver and recover from the sanctions shocks of the first years, it is worth putting pressure on its most tender place right now, without waiting for the effect of sanctions in 10-15 years. The Nord Stream 2 project is almost 97% complete. The United States has already responded to this and is about to amend legislation to allow broader consultations with EU partners before a possible extension of sanctions against the pipeline, so that they are not unilateral, but multilateral in terms of nature and influence. Rapid and joint pressure on Russia is required not to close completely but to suspend the Nord Stream 2 project until the moment when Russia demonstrates its flexibility and is ready to reach a compromise on the de-occupation of Crimea.