Why Obama Should Not Fall for Ukrainian Folly by Putin
Comment of the Day

March 04 2014

Commentary by David Fuller

Why Obama Should Not Fall for Ukrainian Folly by Putin

My thanks to a relative for this interesting analysis of the Ukrainian situation by Anatol Lieven, a professor in the war studies department of King’s College London, published by Zocalo.  Here is the opening:

We’re now witnessing the consequences of how grossly both Russia and the West have overplayed their hands in Ukraine. It is urgently necessary that both should find ways of withdrawing from some of the positions that they have taken. Otherwise, the result could very easily be civil war, Russian invasion, the partition of Ukraine, and a conflict that will haunt Europe for generations to come.

The only country that could possibly benefit from such an outcome is China. As with the invasion of Iraq and the horrible mismanagement of the campaign in Afghanistan, the U.S. would be distracted for another decade from the question of how to deal with its only competitive peer in the world today. Yet given the potentially appalling consequences for the world economy of a war in Ukraine, it is probable that even Beijing would not welcome such an outcome.

If there is one absolutely undeniable fact about Ukraine, which screams from every election and every opinion poll since its independence two decades ago, it is that the country’s population is deeply divided between pro-Russian and pro-Western sentiments. Every election victory for one side or another has been by a narrow margin, and has subsequently been reversed by an electoral victory for an opposing coalition.

What has saved the country until recently has been the existence of a certain middle ground of Ukrainians sharing elements of both positions; that the division in consequence was not clear cut; and that the West and Russia generally refrained from forcing Ukrainians to make a clear choice between these positions.

David Fuller's view

Here is the full article.

Interestingly, Vladimir Putin’s moves over the last two days provide evidence that the rules, consequences and sources of power are changing.  Putin used a 19th/early-20th century tactic in pushing all those troops into Crimea, and I think he could easily have gone further, had he not been severely punished by the 21st century financial markets.  On Monday, international investment institutions and wealthy people, perhaps including a few Russian oligarchs, pulled over $50bn out of the country within a few hours. 

That could only have influenced Putin's just as rapid withdrawal of troops; although he also knew that no other country's military would be sent in to oppose him.  It also kept him a step ahead of US Secretary of State John Kerry who was speaking in Kiev today.  

Stock markets move so fast these days, with the help of high-frequency trading.  Yesterday’s sell off has been more than retraced today, not least by the USA.  Interestingly, Russia’s rebound looks subdued by comparison.  Clearly, neither all of the money that was removed on Monday has been reinvested in Russia on Tuesday, nor is it likely to be over the potentially lengthy medium term.  

Countries and markets are assessed by investors, acting as if they are judges at an international beauty contest.  When something ugly occurs in a country’s economy, from risky and repressive political opportunism, or increasing rather than declining corruption, many investors will withdraw their financial support and invest in a more attractive market.

Today’s global stock market rally reflects understandable relief that Putin has removed his troops from Crimea.  However, it would be premature to assume that Russian/Ukrainian confrontation is over.  Even periodic tensions, while unlikely to turn into an international military conflict, could have troubling economic consequences.  These could range from military skirmishes to disruptions of Russia’s oil and gas exports via pipelines in Ukraine, and also that country’s agricultural output this summer.     

My thanks to a subscriber for this brief additional report: Russia: Putin In the Driving Seat, But To Where? – published by Sea Change Partners.

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