Examining Russia’s Crimean Problem

 

As a major power Russia has always had a problem.  That problem is its coastline, or rather the lack thereof.  Compare it to America and its three coasts, all of which have numerous warm water port facilities, and the problem becomes stark.  Russia has a lot of coast, but much of it is either arctic, poorly suited to port facilities, or inconvenient to use because of location.

 

During the Soviet period, the USSR had access to the Baltic ports of Estonia, Lithuania and Latvia, as well as the Polish port of Gdansk.  Crimea was also in Soviet control.  That came to an end when the Warsaw Pact ended and the Baltic republics became independent.

 

At present, not counting Sevastopol, which was the goal of the Crimean annexation, Russia has major ports at Murmansk, Archangel, and St. Petersburg in the west, and Vladivostok in the East.  Of these, Murmansk and Archangel are arctic ports, north and east of Scandinavia and inconvenient because of the climate.  St. Petersburg, at the east end of the Baltic Sea is better located, and has less of a winter ice problem, but has the long and inconvenient transit of the Baltic out to the North Sea for all shipping traffic; military or commercial.

 

Vladivostok has historically been Russia’s primary eastern port.  It was captured from the Qing Chinese in 1860 and became the homeport of the Soviet Pacific Fleet.  Today it is a thriving port primarily handling commercial products.  It is better off then the other ports, climatically, but is at the distant east end of continent, making it geographically inconvenient, because, while it is ice free all year, it is extremely far from the population and industrial centers of Russia which are primarily in the western regions.   The Kamchatka region, north of Vladivostok, is colder, less inviting, and is generally to shallow for major port uses.

 

Sevastopol, which was Russian controlled up until the breakup of the Soviet Union, presents an alternative for west Russian commerce.  It is a warm water location and while it is virtually landlocked, on the Black Sea, and requiring a transit of the Mediterranean or Suez Canal to reach the major oceans, it is far closer to the western population and industrial centers.  It also has a history as a major commercial and naval port.

 

During the Soviet period Crimea was placed under the jurisdiction of Ukraine.  As a result, when the Soviet breakup occurred it stayed with Ukraine, which was not a major issue until current Russian strongman Vladimir Putin decided that he wanted it back.  During the interim the Ukrainian government had no problem with leasing port space to Russia for naval and commercial purposes.  Putin, a Russian patriot, who sees the Soviet breakup as a major disaster, wants to rebuild the empire, although not on the communist model.

 

But Crimea presents problems.  For starters, while the Russia is holding its own economically due to Caspian basin oil and gas production, the economy does not show good long-term prospects.  The major reason for this is lagging industrial output and poor population growth.  And so, while obtaining the Crimean ports would help with exports, it is not a long-term solution to Russia’s primary problem, which is production and business investment.  In large part this is a reflection of the continued authoritarian nature of the Russian government, which provides a less than ideal environment of for entrepreneurship.  To solve this problem would require a decrease in government authority and greater protection of private property rights.  This is unlikely to occur in the near future.  But Crimea, itself presents another problem.  This problem is financial.  Russia, in taking over the region has assumed responsibility for the long-term debts, including welfare services and pensions that were previously the obligation of Ukraine.  It is likely that if Russia takes on more territory in the region it will expose itself to greater financial responsibilities that will become more of a problem than a benefit.

 

Crimea is not a source of revenue at present.  It is not endowed with energy resources, and if it is to become a revenue source that will be as a result of commerce from the region.  Bear in mind that Russia was able to use the regional ports previously under lease.  Thus, they will have to become more productive through commercial activity, and the logical route is commerce with Europe.  This is another problem.  Europe is cash poor at present, and in difficult economic straits as a result of decades of welfare statism.  As a result, it is less attractive as a trading partner than would otherwise be the case.  Europe needs staples, such as energy, which is being provided by Russian pipelines through Ukrainian territory at less cost than shipping would entail.  Thus, the major source of European revenue is already in place.

 

Russia therefore has a problem, unless it can turn to other markets.  One of these may well be east Asia, including China, which appears to have decided to cast its lot with the Russian Bear at least for now.  China can well afford Russian raw materials and probably sees Russia as another market for finished goods.  China will have additional problems as the results of the “one child” policy begin to seriously appear in the near future.  It also is likely to have over reported its economic growth over the last decade, but that is another story.

 

The US and Europe could pressure Russia more effectively if we had stepped up production of petrochemicals, and particularly natural gas.  This could be shipped off to Europe, and cut the hold that Russian energy has on western and central European nations.  The fact that we did not do so over the past 5 years has been a case of foolhardy shortsightedness.  So, instead, we will have to wait and see if the minor inconveniences that current US policy can produce will have any effects that Putin cannot ignore.   And Russia will likely continue with its aggressive path, regardless of the financial implications.

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