Update - Ukraine


Special Eurasia Group Update – Ukraine

By Ian Bremmer, Eurasia Group

russia is conducting direct military intervention in ukraine, following condemnation and threats of sanction/serious consequence from the united states and europe. we're witnessing the most seismic geopolitical events since 9/11.

a little background from the week. russian president vladimir putin provided safety to now ousted ukrainian president viktor yanukovych. the ukrainian government came together with broadly pro-european sentiment...and with few if any representatives of other viewpoints. the west welcomed the developments and prepared to send an imf mission, which would lift the immediate economic challenge. and then, predictably...the russians changed the conversation.

the west – the us and europe – supported the ukrainian opposition as soon as president yanukovych fled the country. that also effectively breached the accord that had been signed by the european foreign ministers, opposition and president yanukovych (a russian special envoy attended but did not add his name). the immediate american perspective was to take the changed developments on the ground as a win. but a "win" was never on offer in ukraine, where russian interests are dramatically, even exponentially, greater than those of the americans or europeans. for its part, the new ukrainian government lost no time in antagonizing the russians – dissolving the ukrainian special forces, declaring the former president a criminal, and removing russian as a second official language. the immediate russian response was military exercises and work to keep crimea. president vladimir putin kept mum on any details.

let's focus on crimea for a moment. it's majority ethnic russian, and ukrainians living there are overwhelmingly russian speaking (there's a significant minority population of muslim crimean tatars, formerly forcibly resettled under stalin – relevant from a humanitarian perspective, but they'll have no impact on the practical political outcome). crimea is a firmly russian oriented territory. crimea has a russian military base (with a long term lease agreement) and strong, well organized russian and cossack groups – which they've supplemented with significant numbers of additional troops, as well as military ships sent to the area. russia has said they will respect ukrainian territorial integrity...and i'm sure they'll have an interpretation of their action which does precisely that. 

moscow will argue that the ouster of president yanukovych was illegal, that he's calling for russian assistance, that the new government wasn&# 39;t legally formed, and that citizens of crimea – governed by an illegal government – are requesting russia's help and protection. all of which is technically true. to be sure, there are plenty of things the russians have already done that involve a breach, including clear and surely provable, given sufficient investigation, direct russian involvement in taking over the parliament and two airports in crimea. but that's not the issue. it's just that if you want to argue over the finer points, the west doesn't have much of a legal case here and couldn't enforce one if it did.

and the finer points aren't what we're going to be arguing about for some time. president obama's response was to strongly condemn reported russian moves, and to imply it was an invasion of sovereignty...promising unspecified consequences to russia should they breach ukrainian sovereignty. if that was meant to warn the russians, who have vastly greater stakes in ukraine (and particularly crimea) than the americans and the europeans, it was a serious miscalculation, as putin already controlled crimea, it was only a question of how quickly and clearly he wanted to formalize that fact. there's literally zero chance of american military response, with the pentagon quickly clarifying that it had no contingencies for dealing with moscow on the issue – that's surely not true, they have contingencies for everything. but secretary of defense chuck hagel just wanted to ensure nobody thought the president meant that all options were on the table. inste ad, we're seeing discussions of president obama not attending the g8 summit in sochi and targeted sanctions against russia.

putin has since acted swiftly, requesting a vote from the russian upper house to approve military intervention in ukraine. it was approved, unanimously, within hours. it's a near-certainty that the russians now persist in direct intervention. the remaining related question is whether russian intervention is limited to crimea – putin's request included defense of russia's military base in sevastopol (on the crimean peninsula) and to defend the rights of ethnic russians in ukraine...which extends far beyond crimea. putin's words may have been intended to deter the west, or he may intend to go into eastern ukraine, at least securing military assets there. given that pro-russian demonstrations were hastily organized earlier in the day in three major southeast ukrainian cities, it seems possible the russians are intending a broader incursion. if that happens, we're in an extremely escalatory environment. if it doesn't, it's still possible (though very difficult) that the west could come in financially and stabilize the kyiv government.
* * *
before we get into implications, it's worth taking a step back, as we've seen this before. in 2008, turmoil developed in georgia under nationalist president mikheil saakashvili, a charismatic figure, fluent english speaker, and husband to a european (from the netherlands). he made it very clear he wanted to join nato and the european union (the latter being a pretty fantastic claim). the russian government was doing its best to make georgia's president miserable – cutting off energy and economic ties and directly supporting restive russian-speaking republics within georgia. for his part, saakashvili delighted in directly antagonizing putin – showing up late for a kremlin meeting (while he was busy swimming), insulting him personally, etc.

saakashvili was a favorite of the west, the us congress particularly feted him. the messages from the united states were positive, making it sound like america had his back. internally, there was a strong debate – vice president dick cheney led the calls to free himself from russia's grip as fast and as loudly as possible, secretary of state condoleezza rice thought saakashvili unpredictable and dangerous, and wanted to urge him to back off (as did former secretary colin powell, who lent his view to the white house as well). the cheney view prevailed, georgian president already had a habit of hearing what he wanted to out of mixed messages, and he proceeded. on 8 august, the russian tanks rolled into georgia and then the united states was left with a conundrum –  what to do to defend america's "ally" georgia.

as it turned out, nothing. national security advisor steve hadley chaired a private meeting with president bush and all relevant advisors, most of whom said the united states had to take action. bush was sympathetic. hadley stopped the meeting and asked if anyone was personally prepared to commit military forces to what would be direct confrontation with russia. he went around the room individually and asked if there was a commitment – which would be publicly required of the group afterwards (and uniformly) if they were to recommend that the president take action. there was not – not a single one. and then the meeting quickly moved to how to position diplomacy, since there wasn't any action to take.

that's precisely where we are on ukraine – but with much higher stakes (and with a united states in a generally weaker diplomatic position), since ukraine is more important economically and geopolitically (and to europe specifically on both).
* * *
the good news is that russia doesn't matter as much as it used to on the global stage. indeed, a big part of the problem is that russia is a declining power, and the west's response on ukraine was to make the west's perception of that reality abundantly clear to putin. which, in putin's mind, required a decisive response. but this has the potential to undermine american relationships more broadly. to say the us-russia relationship is broken presently is an understatement – the upper house also voted to recall the russian ambassador to washington (america's ambassador to moscow had just this past week ended his term – the decision was unrelated to the crisis).

what will be much more interesting is 1) the significance of the west's direct response; 2) whether the russians will cause trouble on a broader array of fronts for the west; and 3) whether a strongly-intentioned russia can shift the geopolitical balance against the united states.
taking each of these in order.

1) the west's direct response. we won't see much, although there will certainly be some very significant finger-pointing. president obama will cancel his trip to sochi for the upcoming g-8 summit and it's possible that enough of the other leaders will join him that the meeting is cancelled. it's conceivable the g7 nations would vote to remove russia from the club. the us would also suspend talks to improve commercial ties with the united states. it's possible we see an emergency united nations security council session to denounce the intervention – which the russians veto (very interesting to see if the chinese join them, and who abstains...). hard to see significant european powers actually breaking relations with russia at this point, but an action-reaction cycle could spiral. also, nato will have to fashion some response, possibly by sending ships into the black sea. shots won't be fired, but markets will get fired up.

2) international complications from russia. this will significantly complicate all areas of us-russian ties.

russia doesn't want an iranian nuclear weapon, but they'll be somewhat less cooperative with the americans and europeans around iranian negotiations...possibly making them more likely to offer a "third way" down the road that undermines the american deal. on syria, an intransigent russia will become very intransigent, making it more difficult to implement the chemical weapons agreement and providing greater direct financial and military support for bashar assad's regime.

on energy issues, a russian invasion of eastern ukraine would put in play the integrity of major pipelines. moscow and kyiv would share strong incentives to keep gas and oil flowing, but in the worst case we could see disruptions. ukraine has gas reserves for a while, but then the situation could become dire. russia could divert some european-bound gas through the nord stream line, but volume to europe would drop. this is all in extremis, but out there.

3) geopolitical shift. russia will see its key opportunity as closing ranks more tightly with china. while we may see symbolic coordination from beijing, particularly if there's a security council vote (where the chinese are reasonably likely to vote with the russians), the chinese are trying hard to maintain a balanced relationship with the united states...and accordingly won't directly support russian actions that could undermine that relationship. leaving aside china, russia's ability to get other third party states on board with their ukrainian engagement is largely limited to the "near abroad" – armenia, belarus, tajikistan –  which is not a group the west is particularly concerned with.

but it is, more broadly, a significant hit to american foreign policy credibility. coming only days after secretary of state kerry took strong exception to "asinine", "isolationist" views in congress that acted as if the united states was a "poor country," a direct admonition by the united states and its key allies is willfully and immediately ignored by the russian president. that will send a message of weakness and bring concerns about american commitment to allies around the world. g-zero indeed.

Comments

bruno said…
Just went short the S&P at 1874.Feel pain stops at 1924.
bruno said…
Just took profits on long Usd/Chf for 60 pips.
bruno said…
Just took profits on Eur/Chf for 25 pics.

Have re enter long Usd/Swissie(Chf) at .8880.It is on the verge of a break up to the upside.This time could be very explosive.
bruno said…
So much for Usd/Chf breaking to the uoside.It tanked and we are down 80 pips.Stops at .8775,slightly below Friday's lows.Most probably tomorrow's NFP will either be very bad or very good.

Very bad is because the market know's something we do not know or very good as it is trying to chase out the weak longs.My two cents worth.Tomorrow after NFP is out we will have to eat humble pie and take our first loss of the year.How very much I hate losses,but having losses is just part of the game.
bruno said…
We were stopped out of the long Usd/Chf for a loss of 105 pips.