• Russia and the EU exchange threats over Ukraine

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    Over the past few days, threats have flown back and forth across Eurasia as a result of the ongoing Ukraine crisis. Russia is committed to its long-term goal of ensuring a neutral Ukraine, which it considers part of its sphere of influence, as a buffer with the European Union. While Moscow is willing to accept Ukrainian neutrality, EU and NATO integration is a red line for the Kremlin. Russia has threatened to use powerful economic, political and military levers to pressure the fledgling government in Kiev and its European supporters. In the meantime, the Europeans have repeatedly warned of impending sanctions should Russia keep its troops in Crimea and refuse to negotiate with the interim government in Kiev.

    The Kremlin has warned of plans to award Russian citizenship to native Russian speakers across the former Soviet periphery, to cut off natural gas supplies to Ukraine, to annex Crimea and to discontinue US inspections of strategic nuclear missile facilities. Russia is using these threats to highlight its ability and willingness to disrupt Europe’s basic economic and defense structures.

    In response, the European Union has also been publicly building up its leverage vis-a-vis Russia. On Monday, Brussels put its decision regarding the OPAL pipeline and its negotiations with regards to South Stream on hold, reminding Russia of its financial reliance on European customers and distribution networks. Today (Tuesday March 12), the European Commission announced plans, subject to members’ approval, to cut tariffs on Ukrainian goods temporarily in an attempt to show its ability to provide Ukraine strong economic incentives for Western integration. European leaders have repeatedly said that sanctions and asset freezes for Russian officials are forthcoming if Russia doesn’t engage in negotiations more meaningfully.

    Both sides have refrained from acting on the most significant of their threats, each waiting to see what step the other will take over the coming days. The threats are meant to display each side’s respective leverage. Actually following through with them is another matter.

    For Russia, the costs of acting on its threats are enormous. Though Russia already has a strongly protectionist economy, new trade restrictions on Ukraine would still harm Russian industry, especially in regions bordering Ukraine, where Russia’s already-struggling regional economies are closely linked to Ukraine’s industrial east. Cutting natural gas exports to Ukraine would reduce Gazprom’s revenues, while pulling out of the New START treaty or the Intermediate-Range Nuclear Forces treaty could potentially draw Russia into an expensive arms race that would drain the country’s limited resources. Moreover, annexing Crimea sets a dangerous precedent for Russia itself. If Ukraine can be divided, than separatist regions within the Russian Federation, such as Chechnya and Tatarstan, which are primarily populated with non-ethnic Russians, may conclude that Russia itself is divisible. This is also a concern for countries such as Kazakhstan that are currently in Russia’s camp but are wary of a potential repeat of Crimean secessionism in their own territories. Ultimately, annexation could also lessen Russia’s influence over Ukraine’s political future, since the largely pro-Russian Crimeans would no longer be able to vote in Ukrainian national elections, at least in theory.

    While Russia does not want its economy, national security and international influence to suffer as a result of its Ukrainian intervention, it would be willing to carry out its threats if these remain the only means for guaranteeing Ukraine’s neutrality. Russia previously has shown its willingness to weather the fallout from similar threats involving energy cuts and military action in a neighboring country.

    For its part, the European Union would also face difficult repercussions if it chose to follow through on its threats of more significant sanctions and stalled energy negotiations. Europe’s dependence on Russian energy, coupled with close financial links between the business hubs of Western Europe and Moscow, translate into steep costs for any disturbance to Russia’s commercial ties with Europe. For now, EU willingness to follow through on its promises and threats regarding Ukraine depends on Russian maneuvers. European leaders, who are divided because of the diverse set of constraints facing each member country, are watching the Kremlin’s moves closely.

    Russia and the European Union have demonstrated that they each have sufficient leverage to cause the other side significant grief, but both sides have left themselves space to back down. As Crimea prepares for its March 16 referendum and the interim government in Kiev hopes to sign the political aspects of its association agreement with the European Union the following week, Moscow and Brussels are stalling on definitive actions. Neither side wants to bear the costs of all the threats it has made, but both are keeping their fingers on the trigger.

    Republishing of this analysis by The Manila Times is with the express permission of STRATFOR.

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