The Russia-Ukraine Crisis Or: How I Learned About Economic Deterrence

Written By: Sumeet Dhatt

Happy Xmas (War is Over)

Christmas Day, 1991 – The United States watches as the golden hammer and sickle that once flew over much of the East, representing the antithesis of their ways of life, is lowered from the Kremlin for the last time—the Soviet Union has collapsed, Merry Christmas, the war is over. In its ashes rises the newly democratic and independent states of Ukraine and the Russian Federation (7).

Over the three decades since the collapse of the Soviet Union, NATO – the North Atlantic Treaty Organization created to promote democratic ideals through political and military means – has expanded their influence, and are closing in on the Kremlin. The Russian Federation, formerly the head of the Soviet Union, watches as their once large sphere of influence reduces to ash.

 

   

Although the Soviet Union collapsed on December 26th 1991, The Russian Federation left the Union on Christmas Day—and as such the Cold War ends (12) & (13). 

Timeline of relevant events (post-Soviet Russian and Ukraine relations)

November 24th, 2013 – President Viktor Yanukovych of Ukraine entices mass protests after rejecting plans for further integration with the European Union, plans which would distance the nation from the Russian Federation (5).

February 20, 2014 – the Russian Federation annexes the Crimean Peninsula formerly controlled by Ukraine after Ukrainian rebels toppled President Viktor Yanukovych’s government. The West responded with sanctions (5).   

February 12, 2022 – President Joseph Robinette Biden of the United States and President Vladimir Putin of the Russian Federation discuss the increasing tensions on the Ukrainian Border. Following their call, President Biden tells reporters “[he] continues to hope that [Vladimir Putin] will not choose the path of renewed aggression and he’ll choose the path of diplomacy and dialogue. But, if he doesn’t, we’re prepared.” (8)

Map of NATO’s expansion into Eastern Europe (14)

 

The Ukrainian Border Crisis

At the time of writing this article, over one hundred thousand Russian troops are said to be surrounding the Ukrainian border—the Kremlin has made their move, a response to NATO’s rapid expansion. Vladimir Putin and other Russian officials, liken this situation to the Cuban missile crisis, felt threatened by NATO’s expansion into Ukraine believing that the organization is attempting to stifle Russian development and possibly entice Ukraine to recapture the Crimean Peninsula. Their demands include that there be no more NATO expansion towards the East and the removal of all NATO military activity in Eastern Europe (6).

Although Russian officials adamantly state that they have no plans to invade Ukraine, the West is prepared for a conflict. Over the past few weeks, as tensions have skyrocketed, Western nations have sent financial and military aid to Ukraine; alongside many neighbouring allies and the United States strengthening their military presence in the region (6).

However, both Ukrainian and Russian officials have pled the West not to spread panic, as news coverage regarding the conflict has exploded—with Russian officials adding that Russia will reply with “appropriate retaliatory military-technical measures” should they feel Western aggression continues (6).

Visuals describing the current placement of troops by Russia and NATO (14). 

Sanctions – The Economic Deterrence

Although the West insists that they are prepared for a military response against Russian aggression, their goal remains to be avoiding any military conflict through the use of sanctions to dissuade a Russian invasion of Ukraine. Such policies were also enacted during the Russian annexation of Crimea in 2014, where Russia successfully captured the peninsula but faced harsh economic consequences (1;5).

Since the annexation of Crimea, Russia’s economy has seen an economic slowdown, partly due to the sanctions placed against them. These sanctions were a response to Russian aggression and had the goals of punishing aggressors (including companies supporting the occupation) and making the occupation of Crimea as costly as possible (1). At the time, these sanctions pushed the Russian economy towards a recession (5).

With many of these sanctions still in place alongside decreases in the price of oil, Russia’s economy has continued to suffer in the years since. In terms of economic growth, Russia’s average growth per year has resided at 0.3% since 2014, while the global average resides at 2.3% per year. Additionally, these sanctions also put a financial strain on Russian firms, as they limited foreign investment since Western firms avoided investing in Russian organizations. Many assumed that Russian firms would turn to China or the Persian Gulf, but the sanctions in place also dissuaded organizations from these regions in investing in Russia (1).

The Institution of International Finance, suggests that the sanctions against Russia compelled their government to enact policies that stifle their economic growth. They suggest that the effects of the sanctions could be categorized into three channels (1):

  • The fiscal channel which pushed the government into raising taxes or reducing their spending;
  • The balance-of-payments channel which pushed the government into reducing their imports or increasing their exports for a loss;
  • The balance-sheet channel which pushed the government and other institutions to deleverage assets.

 

Russia’s GDP since 2014 (11)

Depicted in the above images: Biden, Putin, and Zelensky (leaders of the US, Russia, and Ukraine respectively)

The Sanctions Continue – A fuel’s predicament

In response to Russia’s recent aggression towards Ukraine, Western nations are threatening to tighten sanctions against Russia. The most significant of which would be boycotting Russian gas, as fuel is a cornerstone of the Russian economy. These sanctions would arrive at an extremely unfortunate time for Russia, as they were currently in the process of expanding their Nord Stream Pipeline—a fuel pipeline that allows Russia to provide gas to Western European countries through the Baltic Sea, allowing them to avoid transfer fees from countries such as Ukraine, Bulgaria, and Poland. As such, the boycotting of gas, and particularly the Nord Stream Pipeline has been touted as a key piece of leverage for the West to use against Russia. (3)

However, the issue is more complicated than it seems. Many European countries have mixed feelings regarding the boycotting of Russian fuel, as it is a continent with limited resources and has been experiencing difficulties powering their countries. The boycotting of Russian fuel and demise of the Nord Stream pipeline would mean that Western European countries will have to face higher fuel prices or source their fuel from elsewhere. As such, some United States officials have suggested that the expansion of the Nord Stream pipeline is a political tool that would lead to Western Europe becoming more reliant on Russia (3).

Russia’s plans for the NORD STREAM 2 pipeline (11)

Where do we go from here?

As it stands, tensions are extremely high and the stakes have never been higher. The Russian Federation has stationed more than one-hundred thousand troops around the Ukrainian border, while Ukraine prepares its defenses and calls for Western aid. Western nations have been providing Ukraine both monetary and military support, while Western news media has exploded with headlines regarding the conflict—often suggesting that an invasion is inevitable (9).

Although it seems that a war is right around the corner, many are still hopeful that it can be avoided. Nevertheless, whether or not a conflict does occur, this event will be one of the defining moments of the 21st century—as it is the most significant security crisis Europe has seen in decades, and depending on the outcome, it may lead to a domino effect of crises to come (6).

Conclusion

In spite of the fact that we live in a post-Soviet and post-Cold War world, the crisis we see today, is just one example of how cultural and geopolitical relations are complicated—even relations from decades ago can still significantly impact our world today. As it is commonly said, if you do not study history, you are doomed to repeat it—and although it seems that our leaders are well-read on their history, maybe the times haven’t changed.

John F. Kennedy meets Khrushchev at the Vienna Summit (15)

Works Cited

  1. Aslund, A. (2021, May 3). Report: The impact of western sanctions on Russia and how they can be made even more effective. Atlantic Council. Retrieved February 14, 2022, from https://www.atlanticcouncil.org/in-depth-research-reports/report/the-impact-of-western-sanctions-on-russia/
  2. (2022, February 12). Ukraine tensions: Russia invasion could begin any day, US warns. BBC News. Retrieved February 14, 2022, from https://www.bbc.com/news/world-europe-60355295
  3. (2022, January 27). Nord Stream 2: How does the pipeline fit into Ukraine-russia crisis? BBC News. Retrieved February 14, 2022, from https://www.bbc.com/news/world-europe-60131520
  4. Brian, P. (2022, January 17). How war in Ukraine could affect the global recovery. Barron’s. Retrieved February 14, 2022, from https://www.barrons.com/articles/how-war-in-ukraine-could-affect-the-global-recovery-51642412414
  5. Fisher, M. (2014, September 3). Everything you need to know about the Ukraine crisis. Vox. Retrieved February 14, 2022, from https://www.vox.com/2014/9/3/18088560/ukraine-everything-you-need-to-know
  6. Kirby, P. (2022, February 11). Is Russia preparing to invade Ukraine and what does Putin want? BBC News. Retrieved February 14, 2022, from https://www.bbc.com/news/world-europe-56720589
  7. S. Department of State. (n.d.). The Collapse of the Soviet Union. U.S. Department of State. Retrieved February 14, 2022, from https://history.state.gov/milestones/1989-1992/collapse-soviet-union
  8. (2022, February 12). Biden and Putin to speak on high-stakes phone call as Ukraine warnings mount. CNBC. Retrieved February 14, 2022, from https://www.cnbc.com/2022/02/12/biden-and-putin-to-speak-as-ukraine-warnings-mount.html
  9. Kirby, J., & Guyer, J. (2022, February 9). The Russia-Ukraine crisis, explained. Vox. Retrieved February 14, 2022, from https://www.vox.com/22917719/russia-ukraine-invasion-border-crisis-nato-explained

Image Citations

  1. Aslund, A. (2021, May 3). Report: The impact of western sanctions on Russia and how they can be made even more effective. Atlantic Council. Retrieved February 14, 2022, from https://www.atlanticcouncil.org/in-depth-research-reports/report/the-impact-of-western-sanctions-on-russia/
  2. (2022, January 27). Nord Stream 2: How does the pipeline fit into Ukraine-russia crisis? BBC News. Retrieved February 14, 2022, from https://www.bbc.com/news/world-europe-60131520
  3. Doctor Strange Love (n.d.). https://flxt.tmsimg.com/assets/p1816_p_v13_ab.jpg
  4. Eames, T. (2020, December 3). The story of… ‘happy xmas (war is over)’ by John Lennon. Smooth. Retrieved February 15, 2022, from https://www.smoothradio.com/features/the-story-of/john-lennon-happy-xmas-war-is-over-lyrics-meaning/
  5. Schmemann, S. (2021, December 31). The day the Soviet flag came down. The New York Times. Retrieved February 15, 2022, from https://www.nytimes.com/2021/12/31/opinion/ussr-memorial-shutdown-ukraine.html
  6. Vienna Summit (n.d.). https://en.wikipedia.org/wiki/Vienna_summit

4 Comments on "The Russia-Ukraine Crisis Or: How I Learned About Economic Deterrence"

  • Avatar

    Very well thought out and informative article. A good read overall.

  • Avatar

    hey! just wanted to say thank you for this very informative article. looking forward to hearing more from you in the future!

    • Sumeet

      Thanks, I appreciate the comment–I’m looking forward to writing my next article and I hope you’ll like it.

      If you’d like to learn more about this topic, I’d highly recommend checking out some of the articles I’ve cited–mainly the ones from the Atlantic Council, BBC, and Vox. Although they’ve got their inherit biases, they’re all very informative and expand on some of the points I mentioned in my article. While researching this topic, I noticed that some news platforms are almost glorifying the situation, in a way that makes it seem like want a conflict to occur, while others provide a more academic/informative view–I believe the articles I recommend fall into the latter.

      Feel free to reach out if you’ve got any questions or just want to discuss, and thanks for reading!

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