As Russia’s direct incursion in Ukraine’s Southeast elevates the conflict to a new and more dangerous level, the clash in the Eastern Europe is nowhere near its conclusion. As a result, Washington and Brussels may impose further sanctions on Russia, with potentially dire effects.
After two months of the Ukrainian army’s offensive in the eastern part of the country, on August 27 Russia conducted the most daring attempt to keep what is left of the self-proclaimed Donetsk People’s Republic.
According to Western sources, around 1,000 Russian soldiers entered Ukraine with heavy weaponry and opened a new front around the Ukrainian Azov Sea port town of Novoazovsk. Russia is firmly denying these allegations.
According to a number of Western officials, the situation in Ukraine is slipping out of control; in fact, it is almost safe to say that the Ukrainian conflict has already reached the point of no return. At the moment, a realistic scenario for the country is protracted armed conflict with a potential for a direct conflict between Russian and Ukrainian troops, and a prospective for a Cold War-style proxy war between the West and Russia.
[Hear: Professor Alexander Motyl on Putin's Chess Game With the West and the Prospect of War]
The most likely Western response in the days and weeks to come will be another round of tougher sanctions against the Russian economy. However, considering Moscow’s moves over the past several months as well as President Putin’s defiant stance over Russia’s role in Ukraine, this is unlikely to prevent Moscow from further military incursions into Ukrainian territory.
The crisis became even more intensified with the Ukrainian Cabinet’s announcement that it would seek NATO membership. If the Ukrainian parliament actually approves the request, this will inevitably provoke a fierce reaction from the Kremlin, which for the last 20 years considered Ukraine as part of its sphere of influence and a buffer against the West.
Although Ukraine’s membership in NATO is currently unrealistic, the move will be perceived in Moscow as a step too far and it will strengthen Russia’s determination to continue with what is seen from Kremlin as the ultimate fight for Russia’s national preservation. President Putin’s recent statements seem to confirm this strong nationalist ethos, in particular the likening of Ukraine’s efforts to put the east of the country under its control with the German siege of Leningrad during the Second World War.
[Read: Ukraine Considers Restricting Russian Gas Deliveries to Europe]
The price will be high though, and not only for Russia. The sanctions imposed so far have already crippled Russia’s markets. According to reports, Russia’s economy will only grow 0.3% this year, leaving the country on the brink of recession. At the same time, the ruble weakened more than 10% against the US dollar this year, inflation accelerated, and around $75 billion worth of capital has left the country since the conflict in Ukraine began.
Moreover, many foreign investors have self-imposed sanctions and suspended new deals in Russia to reduce potential exposure to risk. Simultaneously, the yields on German and US government bonds hit new lows as investors look for safe havens amid growing geopolitical uncertainties in Europe and the rising cost of sanctions imposed on European companies that might distress the Continent’s fragile economic recovery.
Russia’s counter-sanctions food ban will have consequences for many European producers, in particular in the agricultural sector. But at the same time it will inflict additional pain to Russian consumers in the form of higher food prices and inflation.
The energy sector will be particularly hard hit, considering strong links between Western and Russian energy giants and the fact that sanctions are strongly focused on Russia’s energy sector. The one potential avenue likely to stay open and unharmed by the Western sanctions is Russia’s ability to supply Europe with natural gas.
However, Europe might still experience supply shortages as a result of Russia’s dispute with Ukraine over the price of natural gas. Although most Western European countries have enough stored gas to get them through the winter, many Eastern European countries that directly depend on Russian gas will be unable to avoid disruptions in their energy supply.
[Listen to: Russian Bear Rattles Markets, But PPT Rides to the Rescue]
In spite of severe economic and political consequences for East-West relations, the major victim of the conflict will be Ukraine itself. The country is not only caught in a tug of war– with an uncertain outcome–, but it is also on its knees economically following months of political upheaval and armed conflict.
GDP is expected to fall 6.5% this year and the national currency Hryvnia has fallen over 60% against the US dollar. Moreover, the authorities in Kiev effectively lost control not only over the Crimea, but also the Donbas region which accounts for 16% of national GDP and 27% of industrial production.
The central problem lies in the way the two conflicting sides portray and perceive Ukraine. For the West, Ukraine is a just another piece in the global geopolitical puzzle. For Russia and its current and previous leaders, Ukraine has remained a part of the national project to expand and strengthen the Russian state and civilization. For this reason, it is unlikely Russia will succumb to Western pressure and simply accept the reality of the Westernized Ukraine. This time, hopes that economic pressures alone can deter Russia from further interference will likely to prove futile.
