Thursday, 13 March 2014

A way out of the crisis over Crimea: sell it

After having fought the Crimean War, Russia felt that its possessions in North America were vulnerable from attack by Britain from British North America (Canada) in the event of the outbreak of future hostilities.  Tsar Alexander II resolved that it was better to get something in exchange for what is now Alaska than to lose it and be left empty handed.

And so what is called in the United States the Alaska Purchase took place in 1867, turning sovereignty over Russian North America to the United States, in exchange for $7.2 million ($116 million in today's money).

Could a similar strategy offer a way out of the current crisis?

It is widely accepted that Crimea has occupied a special position within Ukraine, being an autonomous 'republic' sovereignty over which was only transferred to the Ukrainian Soviet Socialist Republic from the Russian Soviet Federative Socialist Republic 60 years ago by the Soviet leader Nikita Khrushchev.

It is also well known that Ukraine is deeply mired in debt, owing an estimated $30 billion to Russia, and it also failed to keep to the terms of previous IMF assistance packages twice in the past decade.

Russia's oligarchs and business, on the other hand, to whom much of this $30 billion is owed, are said to be bracing for crippling Iran-style sanctions against them and their interests.

But what if the new government in Kiev offered a deal to the Russians?  It would sell Crimea to Russia for, say, $40 billion and a long-term deal on discounted gas prices.  If Russia rejected the offer then the EU and USA should threaten crippling sanctions against Russian interests that would make $40 billion seem like a very attractive offer.

Following the deal, Ukraine should then be admitted into NATO.

Contrary to a lot of earlier expert speculation, at the moment it does actually appear that Putin is going to annex Crimea, rather than leave it within Ukraine and use it to undermine Kiev.  This accords with my initial reaction, that in the long term Putin feels he has lost Ukraine and is extracting Crimea as his price.  But this is going to cost Russian business and oligarchic interests, if (and it is a big 'if') London and Berlin are prepared to follow through in implementing touch sanctions.

If the oligarchs can be persuaded that they are, and there are indications that they are preparing for the worst-case scenario, a sale of Crimea to Russia as a means of defusing the crisis might seem cheap at twice the price.

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