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Once a Beacon of National Pride, Crimea is Now a Major Liability for Putin

On February 27 2014 Russian soldiers marched into Crimea, marking the first annexation of territory in continental Europe since World War 2. Now six years later, the region continues to experience a massive campaign, led by Putin himself, to integrate it into the  Russian Federation. However, what was once a beacon of national pride, is now turning into a major liability for Putin. 

At the time, the dramatic takeover was seen as the pinnacle of Putin’s muscular two-decade long reign. In 2020 though, things don’t seem so rosy. The economic collapse brought on by the coronavirus crisis has seen energy prices drop, severely crippling Russia’s economy. Then there is the pandemic itself, Russia currently has over 800,000 cases, making it the fourth worst affected country. With all this going on, Crimea is increasingly becoming a burden on the Russian state budget and could very soon become a liability that Putin would want to wash his hands of.

Why Crimea?

To this day, Putin is yet to give a detailed account of  the reasons why he annexed Crimea. So far, three possible reasons have been floated by commentators, all of which the Russian President has acknowledged in the past. The first reason is to defend Russia against the expansion of NATO along the western border. The second is to restore the territories held by the former Soviet Union and third is simply because Putin saw an opportunity after the fall of Ukrainian President Viktor Yanukovych.

The contested region of Crimea is situated in the Black Sea, between the Ukraine and Russia.

Whatever reason you choose to believe, one thing is clear,  Putin wanted Crimea and he got it. Although the United Nations and most Western nations have questioned the legitimacy of the referendum, Russia stands by the results, according to which  97% of Crimeans wanted to join the Russian Federation, and therefore the annexation was legal. 

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Integration, however, has not been so simple. One does not need to look at the USA’s annexation of territories or India’s unification post independence to understand the astronomical costs and efforts required. The fact that Putin made a reference to the reunification of Germany which was one of the most complex political integrations in Europe in his infamous March 18, 2014 Crimean annexation speech, tells you all you need to know about the complexities involved in the annexation of Crimea. -. 

Lessons from Germany

There are a few reasons to dismiss the comparison between the reunification of Germany with the annexation of Crimea. For one, there is a massive difference in size, ethnic make up and economic complexities between the two. Secondly, Germany’s reunification was not the result of a military intervention, but rather a diplomatic one. Nonetheless, there are some important lessons that can be learnt from Germany.

The biggest lesson is cost. As Germans have learnt over the last three decades, reunification comes at a massive cost. A 2009 study by Halle Institute for Economic Research found that Western Germany has spent  close to €1.3 trillion on  rebuilding East Germany. In 1991, the government introduced a “solidarity surcharge” of 5.5% to be paid on income, capital gains and corporate tax. To this day, that tax still exists as a way to pay for the development of East Germany. What was once a temporary solution to bring parity continues to burden every German to this day. Would Russians ever accept a tax to pay for Crimea’s development?

Even to this day, there is a huge disparity in the per-capita GDP of East and West Germany. Source: PEW Research Centre

Economic Impact of the Annexation

Russia has already poured a considerable amount of money into Crimea, and so far, Putin seems keen on continuing to do so. A 2019 report by World Finance found that Russia had so far invested just over $10bn in the development of Crimea and Sevastopol (an independent region in Crimea that Russia directly administers as it is home to the Russian Black Sea Fleet). Since the 2014 annexation, Russian subsidies to Crimea are worth between $1bn and $2.7bn per annum. 

All that money comes at a cost – to the rest of Russia. Since 2014, Russia’s economy has contracted by nearly 10%, mainly as a result of sanctions imposed by the west but also due to falling oil prices. According to the Moscow Times incomes across most of Russia have also stagnated barring Crimea, where they have been steadily rising to achieve parity with the rest of the nation. As a result of this, support for the Crimean annexation has fallen amongst the Russian public. A 2019 poll by Russia’s Public Opinion Foundation found that just just 39 percent of Russians think the takeover did Russia more good than harm, down from 67 percent at the end of 2014. 

The effects of the annexation  on Crimea’s economy have been devastating. Since the Russian takeover , Crimea’s tourism industry which had been its main revenue generator, has contracted  considerably. Visitor numbers  from Ukraine have plummeted, as have visitors from other former Soviet nations, who have instead turned to Turkey and Egypt. To make matters worse, now the coronavirus threatens what little tourism the region managed to hang on to. 

People enjoy the sun by the seaside on a beach near the Crimean capital Simferopol, on June 29, 2014. Source: AFP Photo/Max Vetrov

Other industries have taken a massive hit as well. Large Russian firms have swooped in and taken over many of Crimea’s indigenous small and medium sized businesses (SME’s) . The Ukraininan Weekly found that there were 15,553 private SMEs and 116,200 entrepreneurs in Crimea in 2014. By July 2018, these figures had plummeted to 1,382 and 55,328 respectively, forcing Crimea to become ever more  dependent on Russian handouts.

Crimea’s Water Crisis

On top of all this, there’s  a new threat to the region – a shortage of fresh water. The Dnipro river and the North Crimean Canal accounts for 85% of portable water in Crimea. However, since the annexation, Ukraine has turned off supply to the region. Without this supply, the peninsula has been forced to turn to its own reservoirs, which are now on the verge of drying up. This has had a knock-on effect on the region’s farmers , further worsening the economic condition of the region. This has compelled  Russia to  focus on stabilising the water supply for civilian consumption. Russia hopes to make Crimea self-sufficient by 2025 but that will mean even more investment for the  struggling region.

The Ukraine currently controls Crimea’s water supply as it has control over the Dnipro river and the North Crimean Canal. Source: Global Security

The crisis has had political implications too – while Russia is blaming Ukraine for water shortage, Ukraine has so far refused to supply water until de-occupation. Some politicians of President Volodymyr Zelenskyy’s Servant of the People party have shown willingness to sell Dnipro water to Crimea, but Zelenskyy has so far refused to consider the idea. Political tensions in Ukraine have since flared, indicating that there might indeed be an appetite to change perspective. 

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The clock is now ticking as Putin rushes to meet his self imposed 2025 deadline. Everything from desalination plants to wastewater treatment has been proposed but so far there’s been little action. Russia has since begun a media campaign blaming Ukraine for the crisis. There are also whispers of another military campaign, into Ukrainian territory to secure access to the Dnipro river. 

A Political Liability

As a result of all these factors, Crimea is increasingly looking not like a foreign policy masterstroke but a poorly thought out takeover. While the region is still the fastest growing in Russia (as of Q1 2019), that success is purely superficial. Underpinning that success is a vast amount of Russian money – at the expense of the rest of the country. 

In 2014 that may not have mattered, but 2020 is a very different time. The Russian economy was already sluggish and now the pandemic will only make things much worse. Add to this falling energy prices, the possibility of even more severe international sanctions  And with reduced government spending in the rest of Russia  it seems  inevitable that public opinion of Putin’s Crimean adventure will continue to grow. 

If Putin’s grip on power starts to slip, what was once his crowning glory could very well become his undoing. Whatever political capital he gained could drain as quickly as Crimea’s reservoirs, and that is a political liability he cannot afford. 

Sources: Atlantic Council, Geopolitical Mirror, Global Security, New Eastern Europe, The Jamestown Foundation, The Moscow Times, World Finance

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