Everyone Loses: The Ukraine Crisis and the Ruinous Contest for Post-Soviet Eurasia

The stated purpose of these salvos was, Obama said, ‘not to punish Russia; the goal is to give them an incentive to choose the better course, and that is to resolve these issues diplomatically’.[46] From the Kremlin, the sanctions looked more like economic warfare intended to inflict pain and even destabilise the country. It was true that some of the choices of targets were hard to square with Obama’s dictum. The very first US sanctions list included, in addition to Ukrainians and Russians involved in the crisis, the MP who authored a notorious 2012 law banning the adoption of Russian children by Americans but had nothing to do with Ukraine. The belligerent language some US officials used cemented the view in Moscow that Washington wanted to hurt Russia, not help Ukraine. In testimony before the US Senate about the sanctions, Assistant Secretary of State Victoria Nuland warned that ‘unless Putin changes course, at some point in the not-too-distant future, the current nationalistic fever will break in Russia’. ‘When it does’, she went on, ‘it will give way to a sweaty and harsh realization of the economic costs…. Russia’s citizens will ask: What have we really achieved? Instead of funding schools, hospitals, science, and prosperity at home in Russia, we have squandered our national wealth on adventurism, interventionism, and the ambitions of a leader who cares more about empire than his own citizens.’[47] Many in the Russian elite, as Sergei Karaganov of the Higher School of Economics in Moscow put it, considered this ‘a de facto declaration of political war’.[48]

As the conflict in eastern Ukraine intensified, the US imposed sanctions that were harsher and more sophisticated than previous measures. In July 2014, the Treasury Department prohibited the financing of debt with a maturity of more than 90 days for several large Russian banks. It was initially unclear whether Brussels would follow suit, as Europe’s extensive economic ties with Russia meant that the blowback from sanctions would be significantly greater for EU member states. Yet the downing of a Malaysia Airlines passenger jet over the Donbas on 17 July altered the political dynamic in Europe. As best we know, flight MH17 was shot down either by a Russian army unit or by rebels who thought they were targeting a Ukrainian military plane.

Putin’s lack of contrition and the various denials of culpability by the Russian government forced the EU governments’ hand. A week after the crash, Brussels imposed similar limits on Russian financial institutions’ access to European capital markets, banning the export of defence and dual-use technology to Russia and keeping the country from acquiring ‘sensitive technologies’ in the oil sector. Over the following weeks, the US and the EU added several financial institutions to the debt-maturity limits list and tightened the limits from 90 to 30 days. The US also issued a supplementary directive forbidding the export of goods, services and technology ‘in support of exploration or production for deepwater, Arctic offshore, or shale projects’ in Russia.[49] The EU soon matched this step. As a result, ExxonMobil announced in September that it would wind down its operations in the Kara Sea, where the company had been participating in a joint venture with Russian state-owned energy company Rosneft. Economic ties between Russia and the West built up meticulously over 25 years were rent asunder in a matter of months.

On 7 August 2014, Russia reacted with an import ban on agricultural goods and foodstuffs from the US, the EU and other countries that had imposed restrictive measures on it. These sanctions were enacted under the aegis of ‘import substitution’, an idea that became a rallying cry for Russian officialdom with the domestic audience. While the ban provided new opportunities for some Russian producers, its main effect in the short term was inflationary. It also hit the bottom line of the politically well-connected agricultural sector in Europe.

Much like the interaction in the region between Russia and the West before 2014, the diplomatic response to the Ukraine crisis was almost an afterthought. Following their meeting in March, Kerry and Lavrov did not reconvene until a month later when, with the EU’s Ashton and the acting Ukrainian foreign minister, they issued a joint statement in Geneva calling for an end to the carnage in the Donbas.[50] Regrettably, the statement had no impact on the fighting. With the exception of leader-level and minister-level phone calls, the only events during the next four months that resembled negotiations were side meetings during the 70th anniversary of D-Day in early June.