The Crimea Crisis -- Cui Bono?

It seems nobody is able to workout the real cost of Crimea, an obscure piece of land about the size of Sicily. The annexation of the Ukrainian peninsula in the Black Sea appears to have little to do with political or economic logic at all.

To understand it, we have to remember the acute Roman question: cui bono? These two short Latin words are rendered “to what purpose?” Their true meaning, nevertheless, is “for whose advantage?”

That's all Gas

On his arrival back from a trip to Ukraine, the Senator John McCain told "State of the Union" host Candy Crowley that Russia “is a gas station masquerading as a country.”

In that case it is the largest gas station in the world, covering more than one-eighth of the Earth’s inhabited land area. And it requires constant replenishment of oil and gas reserves. Where do they come from?

Before Ukraine’s government was overthrown, energy companies like Chevron, Exxon Mobil, Repsol, and Shell were on the verge of signing a deal with now-fugitive President Viktor Yanukovych to develop the offshore deposits of the Black Sea. Trans Euro Energy has even found enormous gas reserves under the Crimean mainland. These regions lie on the seabed within 200 nautical miles of the Crimean shoreline and are said to contain 45 trillion cubic meters of gas.

Until recently, that was part of the exclusive economic zone of Ukraine. But times have changed and these resources are no longer Ukrainian. The speaker of Crimea’s parliament, Vladimir Konstantinov, told the RIA news agency. “These are our oilfields and we will fight for them.” 

With a little help of the Russia’s gas giant Gazprom, his secret protector, Mr. Putin, would add. He won this bloodless little war. Despite that the total cost for his Crimean adventure could end up being more than hundreds of billions of dollars.

Does this mean that Ukraine lost? Not quite.

Removal of the Crimean Appendix

As poor as Iraq and as corrupt as Iran, Ukraine never seemed like the country where history is written. Until recently, all that the world knew of the country were a few vague and unrelated fragments of knowledge -- the deadly famine under Stalin, the monstrous massacre in Babi Yar under Hitler, the Chernobyl nuclear disaster under the last Communist government. The names of present Ukrainian leaders -- Yuschenko, Yanukovych, Yatsenyuk -- were simply jawbreakers no one from outside could pronounce without making a wry face.

Then, in the space of a few months, everything changed. All eyes are focused on Ukraine, which has paid a high price for its freedom from corruption and Kremlin control.

The U.S., Europe, and the U.K.claim they are glad to lend a hand to the victimized country. “We are here ready to help just as soon as there is someone at the end of the telephone,” Britain’s Chancellor of the Exchequer George Osborne said in an interview in Sydney. “We should be there with a checkbook to help the people of Ukraine rebuild their country.”

The International Monetary Fund recently announced an agreement to provide up to $18 billion in loans over two years to prevent the Ukraine’s default. Another package will unlock credits of up to $27 billion from the United States, European Union, Japan, and other countries over the coming years.

In the near future, we can expect recovery to the diseased economy of Ukraine. The Russian annexation of Crimea can be compared with surgery to remove an inflamed appendix.

Crimea was highly dependent on Ukraine for electricity and drinking water, about 85% of which is supplied across the narrow neck of land that connects the peninsula to the mainland.

Over 40 percent of Crimea’s $500 million annual budget was propped up by subsidies from Kiev. From now on it will be a headache for Moscow, along with other expensive problems caused by the recent acquisition of foreign land. 

Some 677,000 Crimean people -- about one third of the population -- are pensioners, so paying their pensions will cost $1.9 billion per year. Vladimir Putin has already instructed the Russian Labour and Social Protection minister to raise the pensions of Crimea’s residents to the Russian level.

The result is a considerable savings for Ukraine’s budget. But there are purely political benefits in addition to financial gain. Until now, Crimean voters, composed mostly of ethnic Russians, have provided decisive electoral support for pro-Kremlin parties and presidential candidates. Without Crimea, the presidential elections on 25 May will be a crucial step in leading Ukraine out of Moscow orbit and closer into the Western fold.

Prizes all Around

Putin has lost credibility in the international arena, but his approval rating in Russia sets a new record, holding an enormous 80%, with only 18% of citizens disapproving. On the other hand, Ukraine has lost Crimea, but has gained unconditional support of most of the world’s governments.

The current standoff between Russia and the Europe over Crimea impelled Beijing to speed up negotiations with Moscow over supplies of natural gas -- up to 60 billion cubic meters per year. China also imported a record amount of Russian crude oil in March -- over 2.5 million metric tons, or about ten supertankers full per month.

In the meantime, Gazprom has resisted China’s call for lower prices than Europe, but not for long. Rapidly cooling relations between Russia and the West encourages China to strengthen its pressure on Putin. The Chinese tiger comprehends that in its clutches is a prey completely at its mercy.

Meanwhile, a more worrying impact of the Ukraine crisis may be that Kremlin will be tempted to soften its compliance with international sanctions against Iran with its peaceful -- extremely peaceful -- nuclear program.

Nevertheless, it seems that the grand prize went to the United States. 

President Obama suggested that the U.S. as a source of energy that would weaken the EU’s dependence on Russia for gas and oil supplies. According to U.S. Energy Information Administration figures for 2012, the European countries most reliant on Russian natural gas are Germany (24 per cent of Russian exports), Turkey (19 per cent), Italy (11 per cent), France (6 per cent) and the Britain (6 per cent). This is a huge potential market which needs to be extended throughout the continent.

Thanks to the Crimean adventure, again.

North Atlantic Wind

One can only guess at the stunning effect the sudden Russian aggression had on the North Atlantic Treaty Organization.

As the Russian president made coldly clear in his announcement of the annexation of Crimea, the Kremlin is willing to use military force when it feels its interests are endangered. This declaration was deeply disturbing for central and eastern European countries with considerable numbers of ethnic Russians on whose behalf Putin claimed the right to intervene whenever he decides.

It has rekindled discussions in Sweden and Finland of whether to join NATO, which would protect the two little countries from potential Russian aggression.

It has also breathed new life into the Atlantic partnership.

Former Norwegian Premier Jens Stoltenberg -- who will become NATO’s next Secretary General starting in October -- called the crisis with Russia over Ukraine “a brutal reminder of how important NATO is.”

Thus, another Cold War has just started.

No one really knows who will lose or gain in the end. The question “cui bono” is in the air.

 

It seems nobody is able to workout the real cost of Crimea, an obscure piece of land about the size of Sicily. The annexation of the Ukrainian peninsula in the Black Sea appears to have little to do with political or economic logic at all.

To understand it, we have to remember the acute Roman question: cui bono? These two short Latin words are rendered “to what purpose?” Their true meaning, nevertheless, is “for whose advantage?”

That's all Gas

On his arrival back from a trip to Ukraine, the Senator John McCain told "State of the Union" host Candy Crowley that Russia “is a gas station masquerading as a country.”

In that case it is the largest gas station in the world, covering more than one-eighth of the Earth’s inhabited land area. And it requires constant replenishment of oil and gas reserves. Where do they come from?

Before Ukraine’s government was overthrown, energy companies like Chevron, Exxon Mobil, Repsol, and Shell were on the verge of signing a deal with now-fugitive President Viktor Yanukovych to develop the offshore deposits of the Black Sea. Trans Euro Energy has even found enormous gas reserves under the Crimean mainland. These regions lie on the seabed within 200 nautical miles of the Crimean shoreline and are said to contain 45 trillion cubic meters of gas.

Until recently, that was part of the exclusive economic zone of Ukraine. But times have changed and these resources are no longer Ukrainian. The speaker of Crimea’s parliament, Vladimir Konstantinov, told the RIA news agency. “These are our oilfields and we will fight for them.” 

With a little help of the Russia’s gas giant Gazprom, his secret protector, Mr. Putin, would add. He won this bloodless little war. Despite that the total cost for his Crimean adventure could end up being more than hundreds of billions of dollars.

Does this mean that Ukraine lost? Not quite.

Removal of the Crimean Appendix

As poor as Iraq and as corrupt as Iran, Ukraine never seemed like the country where history is written. Until recently, all that the world knew of the country were a few vague and unrelated fragments of knowledge -- the deadly famine under Stalin, the monstrous massacre in Babi Yar under Hitler, the Chernobyl nuclear disaster under the last Communist government. The names of present Ukrainian leaders -- Yuschenko, Yanukovych, Yatsenyuk -- were simply jawbreakers no one from outside could pronounce without making a wry face.

Then, in the space of a few months, everything changed. All eyes are focused on Ukraine, which has paid a high price for its freedom from corruption and Kremlin control.

The U.S., Europe, and the U.K.claim they are glad to lend a hand to the victimized country. “We are here ready to help just as soon as there is someone at the end of the telephone,” Britain’s Chancellor of the Exchequer George Osborne said in an interview in Sydney. “We should be there with a checkbook to help the people of Ukraine rebuild their country.”

The International Monetary Fund recently announced an agreement to provide up to $18 billion in loans over two years to prevent the Ukraine’s default. Another package will unlock credits of up to $27 billion from the United States, European Union, Japan, and other countries over the coming years.

In the near future, we can expect recovery to the diseased economy of Ukraine. The Russian annexation of Crimea can be compared with surgery to remove an inflamed appendix.

Crimea was highly dependent on Ukraine for electricity and drinking water, about 85% of which is supplied across the narrow neck of land that connects the peninsula to the mainland.

Over 40 percent of Crimea’s $500 million annual budget was propped up by subsidies from Kiev. From now on it will be a headache for Moscow, along with other expensive problems caused by the recent acquisition of foreign land. 

Some 677,000 Crimean people -- about one third of the population -- are pensioners, so paying their pensions will cost $1.9 billion per year. Vladimir Putin has already instructed the Russian Labour and Social Protection minister to raise the pensions of Crimea’s residents to the Russian level.

The result is a considerable savings for Ukraine’s budget. But there are purely political benefits in addition to financial gain. Until now, Crimean voters, composed mostly of ethnic Russians, have provided decisive electoral support for pro-Kremlin parties and presidential candidates. Without Crimea, the presidential elections on 25 May will be a crucial step in leading Ukraine out of Moscow orbit and closer into the Western fold.

Prizes all Around

Putin has lost credibility in the international arena, but his approval rating in Russia sets a new record, holding an enormous 80%, with only 18% of citizens disapproving. On the other hand, Ukraine has lost Crimea, but has gained unconditional support of most of the world’s governments.

The current standoff between Russia and the Europe over Crimea impelled Beijing to speed up negotiations with Moscow over supplies of natural gas -- up to 60 billion cubic meters per year. China also imported a record amount of Russian crude oil in March -- over 2.5 million metric tons, or about ten supertankers full per month.

In the meantime, Gazprom has resisted China’s call for lower prices than Europe, but not for long. Rapidly cooling relations between Russia and the West encourages China to strengthen its pressure on Putin. The Chinese tiger comprehends that in its clutches is a prey completely at its mercy.

Meanwhile, a more worrying impact of the Ukraine crisis may be that Kremlin will be tempted to soften its compliance with international sanctions against Iran with its peaceful -- extremely peaceful -- nuclear program.

Nevertheless, it seems that the grand prize went to the United States. 

President Obama suggested that the U.S. as a source of energy that would weaken the EU’s dependence on Russia for gas and oil supplies. According to U.S. Energy Information Administration figures for 2012, the European countries most reliant on Russian natural gas are Germany (24 per cent of Russian exports), Turkey (19 per cent), Italy (11 per cent), France (6 per cent) and the Britain (6 per cent). This is a huge potential market which needs to be extended throughout the continent.

Thanks to the Crimean adventure, again.

North Atlantic Wind

One can only guess at the stunning effect the sudden Russian aggression had on the North Atlantic Treaty Organization.

As the Russian president made coldly clear in his announcement of the annexation of Crimea, the Kremlin is willing to use military force when it feels its interests are endangered. This declaration was deeply disturbing for central and eastern European countries with considerable numbers of ethnic Russians on whose behalf Putin claimed the right to intervene whenever he decides.

It has rekindled discussions in Sweden and Finland of whether to join NATO, which would protect the two little countries from potential Russian aggression.

It has also breathed new life into the Atlantic partnership.

Former Norwegian Premier Jens Stoltenberg -- who will become NATO’s next Secretary General starting in October -- called the crisis with Russia over Ukraine “a brutal reminder of how important NATO is.”

Thus, another Cold War has just started.

No one really knows who will lose or gain in the end. The question “cui bono” is in the air.

 

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