(Steven Kopits) Russian President Vladimir Putin is in a pickle. Having mobilized his forces, he has committed his prestige, and Russia’s, at the Ukrainian border. He can scarcely afford to pull back without a loss of face, certainly for himself, and possibly no less for Russia. Indeed, Russia’s self-conception may be on the line.
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by Steven Kopits, February 12th, 2022
On the other hand, invading Ukraine could become a disaster of epic proportions for Russia. There is much talk of the Russian army’s capability, but the underlying realities are sobering. Russia has a small economy, smaller than even that of Canada or South Korea. At $1.5 trillion, Russia’s GDP is one-fourteenth the size of the US economy, and its population is only half of America’s. Add in all of NATO and the disparity is even starker. NATO’s population is six times that of Russia, and its GDP is 25 times larger. The late senator John McCain was scarcely exaggerating when he called Russia a gas station masquerading as a country.
Successfully invading Ukraine, therefore, requires either speed to conclusion or passivity from NATO and, most importantly, the United States. Like it or not, Russia cannot move without US acquiescence, not unless Putin is willing to risk unmitigated disaster. Moreover, the US and NATO do not have to win for Russia to lose. NATO can bankrupt Russia out of petty cash merely by keeping the Russians in the field. In such an event, gas and oil sales will prove problematic and, of course, Russia will be unable to borrow from international capital markets.
Indeed, Russia will be entirely thrust upon the kindness of its neighbor, China’s President Xi Jinping. Such support could prove punishingly expensive. Xi can scarcely imagine his own equal, and he is certain that Putin is not that. Moreover, Xi has demonstrated a taste for real estate acquisitions, including the South China Sea and Taiwan.
But Taiwan is small potatoes compared to the vast Russian lands north of China. This includes a Russian coastline extending to the Arctic, one that would enable China’s effective domination of Japan. Russia is playing the Big Fish but is as likely to end up on Xi’s dinner plate. The harsh reality is that no country in Europe covets Russian land but, sooner or later, Xi’s attention will turn to Russia’s vast and empty east.
For Putin, this risks the worst of all worlds: A war in the west where Russia not only fails to secure Ukraine, but that also sees earlier gains in Crimea and Donbas reversed, along with the risk that NATO seizes Belarus, putting that country into the western camp. Russian weakness and dependence on Chinese support would make Moscow susceptible to China’s demands for compensation in the east. It is a nightmare scenario, but a not inconceivable outcome of a prolonged conflict in Ukraine.
Nevertheless, the status quo is also unsatisfactory. Russia has struggled to integrate occupied Crimea and the Donbas region into the Russian economy. Fighting continues sporadically in the Donbas area, and more importantly, Ukraine has cut off Crimea’s water supply. Much of Crimean agriculture had been irrigated by a canal from the Dnipro River, which Ukraine cut off after Russia invaded the peninsula in 2014.
Further, sanctions have depressed the Crimean tourist industry, a critical part of the economy there. Both Crimea and Donbas, therefore, appear to be continuing drains on the Russian treasury, although estimates differ. Some argue that the cost is negligible, but an annual burden of 2% of Russian GDP does not appear particularly implausible when subsidies, investments, and military costs are included.
Consequently, Russia and Putin are facing the prospect of a lose-lose situation. If they fight and lose, Russia will suffer a historic setback. On the other hand, if Russia backs down, then its hold on Crimea may become increasingly precarious over time, particularly if Ukraine cozies up to the west. At best, the country would be stuck with a problematic status quo. At worst, Ukraine could leverage NATO support to put the squeeze on Moscow.
As a result, Putin finds himself in a situation in which he can neither advance nor retreat without cost, time may not be on his side, and the risks are hard to judge. For the moment, the Germans are dead at the switch, but what of the Biden administration?
Washington has demonstrated weakness in foreign policy, notably by allowing the US to be ignominiously chased out of Afghanistan by a ragtag Taliban at a time when the US was neither taking casualties nor incurring extravagant costs. If the Biden administration exhibits such passivity in Ukraine and NATO sits on the sidelines, then Putin can take Ukraine and perhaps even Belarus and restore most of imperial Russia. But should Washington decide to intervene, the calculus is entirely different. Putin must weigh the risks.
Biden should have been clear upfront: The US would not abide re-writing Europe’s borders in this fashion and would meet the Russians in the field. That might have prevented Putin from investing so much of his and Russia’s prestige into this perilous venture. However, it would not have addressed Russian concerns and, if the US is to veto Russian action, as the global hegemon, America is obligated to find some reasonable accommodation.
It is important to emphasize that the US interest is not anti-Russian or pro-Ukrainian, or vice versa. America’s and NATO’s interest is in stability, normalcy, and peace. The intent is not only to integrate Ukraine into Europe but also to integrate Russia as well, such that its people should enjoy a status similar to that of, say, Hungarians or Poles. Gradual, steady progress towards prosperity in both Russia and Ukraine is the western interest, just as it is the interest of the Russian and Ukrainian people.
Still, Russia’s status can only be normalized pursuant to a settlement of the status of Ukraine’s currently occupied lands. Russia will not give these back. It is a matter of national pride. The occupied lands may yet be lost in war, but no Russian leader—not Putin nor his successor—would willing cede Donbas and Crimea.
What then should be done?
Fortunately, title to property may be settled by means other than force. It may be purchased. The status of the occupied territories could be resolved with appropriate payment. A reasonable price might be set at 1-2% of Russia’s GDP for a quarter-century; call it $0.5 – $1.0 trillion over twenty-five years. This would still be vastly cheaper than an unsuccessful—or even successful—war in Ukraine and present far less risk.
The move would pay for itself with lower costs associated with holding Crimea and through enhanced trade between Russia, Ukraine, and Europe. It would allow Putin to claim a victory for a show of force and see a path back to a normalization of Russia’s status in Europe.
Ukrainians may not be elated, but the reality is this: If Putin does not start a war, there appears no feasible path for Ukraine to reconquer the occupied territories. Neither the US nor NATO will underwrite such a venture. Meanwhile, Russia’s control over these territories will tend to create a fait accompli over decades, if not years. At some point, European leaders will tire of the whole matter and concede Russian hegemony over contested territories.
Therefore, unless one is wildly optimistic about prospects for the re-conquest of occupied territories, Ukraine’s interest is to put a dollar value on the land and take the money. Ukraine’s GDP totals $160 bn/year, a little more than 10% that of Russia. An annual payment of $25 billion from Russia would amount to 16% of Ukraine’s GDP, and resolving the conflict should boost GDP by as much again. Thus, ceding Crimea and other negotiated lands to Russia should boost Ukrainian GDP by perhaps one-third. This would not be a bad deal for Ukraine, all things considered.
Further, for the next quarter-century, ceding occupied lands to Russia through an agreement could be leveraged both to protect Ukrainian sovereignty and Finlandize Ukraine, subject to acceptable behavior from Moscow. That would provide plenty of time for the various parties to become accustomed to the new status quo.
For Russians, such a deal would mean tempering ambitions for reunifying Greater Russia, while Ukrainians would have to accept compensation for territorial losses. It would not be everything, but it is certainly far better than the potential disaster of a European war.
American and NATO interests dictate that the dispute between Ukraine and Russia be settled on reasonable, financial terms rather than through force. Our diplomacy should be geared to support that outcome.
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