Observers, aid, energy and elections

Much as I am entertained by explanations of Russian behavior based on Western decline and claims that Vladimir Putin is delusional, responding to the seizure of Crimea and threats against the rest of southern and eastern Ukraine requires a finer brush.  How can Russia be prevented from occupying other Russian-speaking areas and how might the occupation of Crimea be reversed?  Those are the objectives Kiev, Washington and Brussels should be setting.

Kiev is one key to preventing Russia from taking over other Russian-speaking areas of southern and eastern Ukraine.  It has already done well to block (with a veto by the speaker of parliament) a law that would have denied Russian the status of an official language in those areas.  It has also appointed new governors, including at least two wealthy oligarchs.  How well they manage to respond to pro-Russian protests, avoiding violence while reasserting a modicum of Kiev’s authority, will be the primary determinant of whether things get out of hand or continue to calm.  Putting in international observers to report on the situation and highlight any abuses is a good idea.  Putin already has his hands full in Crimea.  He doesn’t really need to take on additional burdens elsewhere in Ukraine, provided Russian speakers aren’t clamoring for intervention to protect them from the depredations of Kiev.

The effort to keep eastern and southern Ukraine calm will depend a great deal on whether Ukraine gets visible and quick assistance from the West.  Secretary of State Kerry promised $1 billion in loan guarantees on his visit to Kiev this week.  That’s small change.  The European Union is said to be readying a two-year $15 billion package.  That’s starts to be the kind of money Ukraine needs.  The International Monetary Fund is presumably preparing a multi-billion dollar “standby” arrangement as well, though Ukraine is already well over its normal quota.  The bill for Russian natural gas is a big part of Ukraine’s financial problems, as it subsidizes the price (and doesn’t do well collecting from consumers).  If the weather warms, Ukraine might get a financial break.

Energy is also key to the situation in Crimea.  Some have suggested Kiev could cut off electrical and even water supplies, which come from outside the peninsula.  That doesn’t sound wise to me.  It would hurt civilians more than the Russian army, which presumably carries emergency generators.  It wouldn’t be long before Russian speakers enjoyed supplies but Ukrainian speakers did not.  The objective should be to integrate Crimea back into Ukraine, not separate it.  Better would be to focus on Russia itself, where half of Putin’s revenues come from oil and gas.  The past three years of more or less $100/barrel oil have done a great deal to embolden him.

I would not suggest, as some have, drawing down the American Strategic Petroleum Reserve, which has the potential to lower oil prices quickly and dramatically.  We accumulated that reserve for use in a supply disruption, not as an economic weapon against Russia, which for the moment has done nothing to disrupt energy supplies.  It would be a mistake to disarm ourselves and limit our capability of responding to a cut-off of Hormuz, for example.  But we should signal to oil markets our intention of doing everything we can to enhance reliance on reliable oil supplies and to export our growing surplus of natural gas.  This means approving the Keystone pipeline, with all the environmental safeguards possible, sooner rather than later and lifting export restrictions on natural gas (and oil).

Putin is claiming he wants to see elections in Ukraine.  This provides an avenue for possible agreement on an exit from the current crisis, as Kiev, Washington and Brussels also want new elections.  He will want Crimea to vote in those elections, since without that Russian speakers will do poorly.  So he has an interest in keeping Ukraine whole, at least for the moment.  Nailing down the date and conditions for elections could help point the way towards a peaceful resolution of this crisis, though it is likely to be years before Russia gives up its stranglehold on Crimea.  Russia’s port lease reportedly runs out in 2017.  Crimea is unlikely to be liberated until that issue is settled.

This is all of course, in addition to whatever political (no G8) and financial sanctions Washington and Brussels can agree.