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Pushing Back Against Putin

No U.S. leadership, no NATO.

Sep 15, 2014, Vol. 20, No. 01 • By JOHN R. BOLTON
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Vladimir Putin’s efforts to establish hegemony over Ukraine may now have reached a decisive point both for the balance of power in Central and Eastern Europe and for the NATO alliance. Ukrainian president Petro Poroshenko warned on August 30 that Russia’s invasion of his country and extensive aid to pro-Moscow separatists could soon “reach the point of no return,” becoming a generalized conflict. German foreign minister Frank-Walter Steinmeier said that “the situation is increasingly getting out of control.”

Pro-Russian separatists parade prisoners  from the Ukrainian army in Donetsk, Uk

Pro-Russian separatists parade prisoners from the Ukrainian army in Donetsk, Ukraine, August 24.

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Nonetheless, from the outset, the West and its nominal leader, Barack Obama, have failed to prevent Kiev from being re-subordinated to Moscow. Ukraine is in jeopardy, as is the very viability of NATO, an outcome even Putin most likely did not initially foresee. Under Obama, however, especially because of his flaccid response to Russia’s slow-motion invasion of Ukraine, NATO has begun to disappear like a sugar cube dissolving in hot tea.

The European Union met over Labor Day weekend to consider new economic sanctions against Russia, measures which to date the Kremlin has brushed aside. The unspoken truth is that Western leaders all know that sanctions, whatever their arguable economic effect, have not achieved their intended result. Alexander Stubb, Finland’s prime minister, for example, would say only that the “jury is still out” on sanctions, and reflected Europe’s general malaise by adding that “we need to find a cease-fire, a peace plan.”

No wonder Putin is undeterred. However much fear and loathing Western consumer societies suffer when they contemplate a somewhat-diminished living standard, the hard men leading hard regimes in Moscow, Tehran, and elsewhere in the real world could not care less. Despite NATO members’ bluster in March (as Russia annexed Crimea) that impending travel sanctions would mercilessly pressure Russia’s oligarchs by barring their wives from shopping abroad, Putin marches on.

The continuing resort to marginal increases in sanctions will inevitably produce the same results, especially “targeted” sanctions (naming specific individuals or companies), the most easily evaded. When sanctions were first imposed, Russian stock markets and currency-exchange values dropped sharply. These declines, however, did not signal sanctions’ effectiveness, but rather the broad (and correct) international perception that the political risks of the crisis had risen. When the risks seemed to abate, Russia’s exchanges and currency rose, although not yet back to late-2013 levels.

In the latest round of fighting, Russia’s currency has dropped only from 33 rubles per dollar pre-Crimea to slightly over 37 rubles per dollar today. This is hardly catastrophic, particularly since oil and gas sales, Russia’s chief foreign-exchange earner, are transacted in dollars, unaffected by the ruble-dollar exchange rate. Moreover, at August’s end, Russia’s MICEX composite index registered just over 1,400. This was slightly above the midpoint of its 52-week range, between October 2013’s high of approximately 1,540 and the March 2014 low of approximately 1,250 at the height of the Crimea crisis. Putin believes these and similar costs to Russia are acceptable, and will tend to diminish over time.

More important, whatever the damage to Russia’s ruble, the financial press describes the hyrvnia, Ukraine’s currency, as being “in free fall.” In late August, the hyrvnia reached its all-time low against the dollar. One might well ask how many more “successful” anti-Moscow sanctions Kiev can withstand. It is hardly surprising that Western sanctions adversely affect Ukraine’s economy, which remains closely linked to Russia despite the USSR’s collapse, especially given Moscow’s control of critical oil and gas supplies for Ukraine’s industries.

In short, sanctions have been haphazard and ineffective, failing to materially damage Russia’s economy. Moscow has had ample time to mitigate or evade their effects, such as inefficiencies and higher transaction costs. And in any case, as noted above, the Kremlin’s sensitivities do not quite match those of the Georgetown haute bourgeoisie or the refined salons of Europe’s great capitals.

Accordingly, the West urgently needs a major rethinking of its strategy. On August 30, Ukrainian prime minister Arseniy Yatsenyuk opened the door, telling his cabinet that Kiev should apply for NATO membership, reviving an idea widely discussed a decade ago. Former prime minister Yulia Tymoshenko said her party will press for legislation authorizing a nationwide referendum, perhaps in October, on joining NATO.

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