How to solve a problem like Crimea? A Eurasian conspiracy story

Why has the diplomatic community’s response to Russia’s annexing of Crimea, riding roughshod over international law, been so feeble? Why are financial markets in central and eastern Europe rallying, despite the fact that the threat of war still hangs over the region? Why is nobody panicking? The answer is, or at least could be, simple and scary: it’s all part of the plan.

The international response to Crimea has been decided, barring anything unexpected. All that remains is a few brief months of playfighting, to give Crimeans the impression that they’re being fought for by the West, and Ukrainians the same feeling about Russia.

russia-took-crimea--what-happens-next-is-critical

The uprisings in the Ukraine threw out a truly zero sum contest that could well destroy 50 years of middling-will between Russia and the West. Only one of those conglomerate superpowers would be able to have Ukraine – and the other was going to be very unhappy.

But when Crimea made noises about seceding from Ukraine, and when Russia proposed a referendum on the autonomous republic re-joining with the federation, a neat solution might have appeared in the heads of politicians. Weakly opposing that vote, which would likely give Russia the result it wanted, and splitting Crimea and Ukraine averted war – and finally solves what looked to be an unsolvable problem.

But the international community, on both sides, must preserve the appearance of outrage. Justice must be seen to be done – but it doesn’t actually need to be done. So a run of wimpy responses followed. Lavrov and Kerry took a walk around a lush London garden. The US imposed sanctions on the Russians; and the Russians sanctioned them right back.

John Kerry, Sergey Lavrov

Many commentators responded to the list of sanctioned people and firms on Thursday with bemusement. The only bank on the list, for example — Bank Rossiya — is an important but mostly anonymous firm. It’s supposedly because of the bank’s proximity to Putin that the US chose it; but there’s little closer to Russia’s pocket than its entire financial system, which the US had the option of bringing to a grinding halt. There are two huge state owned banks in Russia — Sberbank and VTB — but despite the sanctions US firms are still allowed to go on dealing with them. Apologists claim that those banks are being kept for later, more serious, sanctions lists; but that’s probably mostly wishful thinking.

The huge impact those sanctions would have probably precisely why they’ve been overlooked. Sanctions on those firms would hit Russia exactly where it hurts, a little too exactly. One could think that it has all been worked out to avoid any real pain to the Russian people, a superficial sanction. (Or, indeed, a sanction in its real sense: an instruction to carry on as normal.)

Meaningful sanctions like those of VTB and Sberbank would hit other countries, too. Pretty much all of the western economy has its fortunes wrapped up with those two large Russian banks, through all sorts of debt relationships. Debt and equity holdings in both those banks are spread across the world, in hundreds of neutral or pro-Western instititutions. The sovereign wealth funds of Norway, Azerbaijan and Qatar have huge holdings in VTB after it sold a bunch of equity last year, so things would get very messy very quickly.

One can never know anything in international affairs; the only real surprise is not being surprised. But for all the fussing and flailing, Russia and the West have likely come to a solution on Crimea, which just remains to play out. Despite the falseness of that process, the citizens of those regions should be happy: it is probably the neatest solution to a very messy problem, and diplomacy is all about keeping up appearances.

A different version of this story appears at GlobalCapital.

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