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Cold war or cool calculation?

May 15,2014 - Last updated at May 15,2014

With escalating violence in southern and eastern Ukraine and no solution in sight, the Ukraine crisis has become the world’s most turbulent geopolitical conflict since that triggered by the terrorist attacks against the United States in 2001.

The US-led sanctions strategy will neither deescalate the tensions between the West and Russia nor bolster the imperiled pro-Western Ukrainian government. But, even with tightening sanctions against Russia and growing violence in Ukraine, there is little chance that Cold War II is about to start.

The US approach has been to ratchet up sanctions in response to Russian aggression, while ensuring that America’s allies remain united.

At a recent joint press conference, President Barack Obama and German Chancellor Angela Merkel announced a new, lower threshold for additional sanctions. 

Previously, that threshold was a direct Russian military invasion; now, as Merkel explained, if Russia disrupts Ukraine’s May 25 elections, “further sanctions will be unavoidable”.

But Merkel and Obama also lowered the bar for what those “further sanctions” would be.

Instead of launching sweeping sectoral measures that would target vast swathes of the Russian economy — a big step towards “Iran-like” sanctions against Russia — it now seems that the next round will be only incremental.

The elections threshold makes another round of sanctions virtually certain, but allows the tightening to be more modest and gradual.

Why slow down the sanctions response?

The Americans understand that if they go too far too fast, Europe will publicly break with the US approach, because the Europeans have a lot more at stake economically.

Whereas the US and Russia have a very limited trade relationship — worth around $40 billion last year, or roughly 1 per cent of America’s total trade — Europe’s financial exposure to Russia, as well as its reliance on Russian natural gas, make it far more hesitant to torpedo the economic relationship.

More important, dependence on Russia varies immensely across the European Union, impeding substantial coordination — and limiting the EU’s alignment with the US.

That is why when the latest sanctions were announced, the Europeans issued a modest expansion of their existing list — primarily focusing on military and political officials — while the US went further, adding several Russian institutions.

When the sanctions were announced, Russian markets rallied, a clear indication that the West’s response fell far short of expectations.

Indeed, though the sanctions are having a real economic impact on Russia (particularly in spurring capital flight), tightening the screws further will not materially change Russian President Vladimir Putin’s decision making.

Putin’s Russia has too much at stake in Ukraine, and his actions have been overwhelmingly popular at home.

But, even as tensions escalate, with no hope of Russia backing down, the world is not headed towards anything resembling a new Cold War.

For starters, America’s interests in Ukraine do not justify putting troops on the ground, while Europe has been dragging its feet in supporting America’s diplomatic position.

Moreover, Russia is in long-term decline. The economy and the government budget have become increasingly reliant on oil and gas; the wealthiest 110 Russians control more than one-third of the country’s wealth; and Russia is far less capable militarily than it was in the Soviet era, with a defence budget roughly one-eighth that of the US.

The demographic picture is bleak, with an ageing population and a low fertility rate.

In order to form a coherent bloc that could oppose the US-led global order, Russia would need powerful friends, which it sorely lacks.

When the United Nations General Assembly voted on the legitimacy of the Crimea annexation, only 10 countries — neighbours in Russia’s orbit (Armenia and Belarus), traditionally sympathetic Latin American countries (Bolivia, Nicaragua and Venezuela), and rogue states (Cuba, North Korea, Zimbabwe, Sudan and Syria) — sided with the Russians.

The one country that could tilt the balance and establish a Cold War dynamic is China. But the Chinese have proved completely unwilling to pick one camp or the other, as they stand to benefit from more purchases of Russian energy exports and new opportunities as Western firms become more squeamish about doing business in Russia.

China can reap those rewards without angering its largest trade partners, the EU and the US. And China is hesitant to support a Russian effort to create turmoil within Ukraine’s borders, given that its own restive provinces, such as Xinjiang and Tibet, could learn the wrong lesson from the Ukraine precedent.

So the good news is that we are not heading towards any kind of global war, cold or hot. But the consequences of a misguided Western policy are becoming more apparent. 

The US cannot successfully isolate Russia for not adhering to international law and seizing another state’s territory. 

While other major emerging countries may not be rallying behind Russia, they are not subscribing to the US approach. Pushing for tougher sanctions will lead to a rift with Europe, while pushing Russia further towards China economically.

Meanwhile, the Ukrainian government is at risk. It lacks the military capacity to halt the separatist forces in the south and east but will face mounting domestic pressure and illegitimacy if it does not act.

The best path forward for the US is to offer more carrots for Ukraine, rather than more sticks for Russia. Thus far, the US has put up $1 billion in loan guarantees, which is far too little. 

The fledgling pro-Western government is losing ground to Russia on a daily basis; the West should focus on supporting it.

Obama and Merkel’s press conference was symbolically useful in establishing a united front towards Russia, despite the two leaders’ evident disagreement about how — and how much — to punish the Kremlin.

But rallying around the Ukrainian government and putting their money where their mouths are — even when Ukraine fades from the headlines and new crises erupt — is more important for US and European interests, and represents a more viable path forward for both sides.

The writer is president of Eurasia Group and the author of “Every Nation for Itself: Winners and Losers in a G-Zero World”. ©Project Syndicate, 2014.

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