Investors along with everyone else are observing the lack of Western action in Ukraine. Anyone who has business interests in this area of the world will be recalculating and withdrawing their positions. It has now become obvious that Russian forces are on the move and that they will not be satisfied with Crimea alone. It has also become quite clear that the United States under the Obama Administration will not take the actions necessary to have the Russian leader Putin take pause.
As Russia sends weapons across the border into Ukraine to arm sympathizers and infiltrators the American President refuses to honor the legitimate requests of the Ukrainian government for defensive armaments. The reason given is that action would be too provocative. It is like the government of the United States is totally unaware of what is happening on the ground in Eastern Ukraine.
The capture of government buildings in the towns and cities in this part of Ukraine by pro-Russian protesters is a brilliant move by Putin. It gives credence to the Russian claim that civil war is imminent and they will need to protect the Russian minority living in Eastern and Southern Ukraine.
The Ukrainian government is in an impossible position because they will need to use force to retake government buildings. This will only escalate tensions further. If they don’t retake control they have effectively ceded these areas to pro-Russian sympathizers. The Ukrainians are in a no win situation. If they use force against their own citizens to reassert control it will be used as a pretext for a Russian invasion.
More troubling is that the actions of the “protesters” are being led by unidentified and well-equipped soldiers in many areas. A number of security personnel in the Ukrainian government have already switched sides. It looks like Crimea all over again. The difference here being the majority of the people are not Russian everywhere in this region. The claim that this is a “liberation” like Crimea is not at all accurate. It also means it is more likely there will be a clash between opposing forces.
Russia may not end up actually seizing and later annexing more Ukrainian territory. They may simply be content to tear down any effective control of the eastern and southern parts of the country from the government in Kiev. Right now there seems to be parallel governments being set up in the eastern portions of the country. The long term Russian goal of keeping Ukraine out of the Western orbit has seen no definite course of action as of yet.
It is obvious Putin wishes to sabotage the upcoming Ukrainian presidential election in May. This is his short term objective. The long term objective is to turn Ukraine into a decentralized weak buffer zone. The question is will he also want to seize additional territory for Russia as well? It will not be cheap. Pacification of this area so soon after Crimea will be a major drain on the Russian economy.
The result for Ukraine in addition to the possibility of more dismemberment, is political and economic weakness for years to come. No outside investment will be forthcoming for this area of Ukraine. It could become a drain on the central government for years to come.
For Europe and the United States continued threats that are backed up with little or no tangible actions have proved to be counter productive. Ongoing weakness by the West only emboldens Putin and his ilk. Even the most non confrontational political leaders can now see that standing firm against Russia is the only way to stability. It will be the only way to prevent even bigger confrontations with Putin.
If the West under the leadership of the United States accepts Russian domination of the Ukraine even in the eastern portions of the country it is allowing a dangerous precedent for the future. First it abandons the Ukrainians who have worked toward economic and political freedom from Russia. Second Putin has been permitted to proceed with an illegal referendum and annexation of territory not part of Russia. Third, Russia will violate past treaties when circumstances are advantageous to do so. Russia had guaranteed the borders of Ukraine in 1994 when the country traded its nuclear weapons for assurances of security and recognized borders. It also signals that any treaties or future agreements made with Russia are meaningless.
Another illustration of future danger is the Russian stance now claimed by Putin. He now reserves the right to intervene to protect Russian speakers wherever they are. This is chilling to the Baltic States of Lithuania, Latvia and Estonia. They are all members of the European Union. They are also members of NATO (the North Atlantic Treaty Organization). Article 5 of that treaty commits the United States and the rest of Europe to come to the defense of member nations under threat of invasion. The principle being an attack on one is an attack on all.
Once again will investors be interested in long term initiatives in the Baltic countries now? Will the emerging markets in Eastern Europe be seen as a good place for future investment? The result of what is being permitted in Ukraine will have an economic impact in Poland, Slovakia, the Czech Republic, Romania, Bulgaria, and Moldova. Germany will take an economic hit as well.
If it is the objective of Putin to undo the post Soviet world order he has plenty of areas for further mischief. Remember he is on record as stating the breakup of the Soviet Union was the greatest geopolitical disaster of the 20th century.
A breakaway area of Moldova known as the Transdniestria has had a contingent of Russian troops since the 1990’s. The area comprises a sizable population of Russians. This region is to the west of Ukraine.
Further military actions against Georgia for example, that had been suspended in 2008 could commence once again if Putin wishes it.
Areas of future action are not confined to Europe. Kazakhstan has a rather large Russian population in the northern part of its territory. Are any of the “Stans” of the former Soviet Union safe from future Russian interference and influence? Citizens of the countries of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan,and Uzbekistan along with foreign investors might ask what “interests” will Russia wish to defend in the future? With a combined population of over 65 million this area is rich in natural resources but is still in dire need of foreign investment.
Other world leaders who have territorial ambitions and aspirations of more power are also watching the drama in the Ukraine and Eastern Europe unfold. Iran, North Korea and China to name just a few are already becoming more assertive in international relations. These movements will all impact investments and trade throughout the world.
The West will clearly need to articulate a new policy of containment where Russia is concerned. This will involve short term and long term measures. It will involve various initiatives in banking, finance and trade. It will call for more Western cooperation and unity in military, political and economic spheres of interest. These actions in combination will all have a major long term consequence on business and investment everywhere. Cold War II has unfortunately arrived.