Kyiv, March 15, 2014. Why is a world leader prepared to risk his personal reputation, his nation’s credibility, international isolation and possibly crippling financial sanctions over a piece of nondescript land no bigger than Jamaica?
If the President of the Russian Federation is to be believed his whole campaign in Crimea and potentially Ukraine is to protect ethnic Russians from neo-Nazi extremists that have infiltrated the new temporary government in Kyiv.
A potentially commendable intent until you look at the wider picture of how Russians are actually treated in Russia today. Russia has very serious social problems with drug and alcohol abuse and HIV Aids but the State does virtually nothing to help. Ethnic minorities are treated with disdain whilst the gay community has been forced underground. Those close to the Kremlin enjoy limitless wealth whilst real poverty now affects over 20% of the population. Clearly support for ethnic Russians in Russia is not a Presidential priority.
As for protecting ethnic Russians in Ukraine from neo Nazi’s there is a real conflict in that there are more neo-Nazi politicians in the Russian Duma than there are in Ukrainian Rada and they have been there since the LDPR was founded 20 years ago.
So it would be natural to ask why all sudden the interest in Crimea, South and East Ukraine. Crimea is a part desert, part mountainous, virtual island in the middle of nowhere important; it’s famous for its history, tourism, vegetables and sweet wines. The South of Ukraine is primarily farmland whilst the East is home to the former Soviet mining, coal and steel industries all of which are in need of massive investment and are a major competitor to similar industries in the Russian Ural regions.
To date President Putin has wasted the $54 billion that he spent on building the image of a new Russia at the Sochi Winter Olympics, his aggression has caused the Rouble to slump requiring the Central Bank to support to the tune of over $12 billion and the Russian stock market seems to be in a nose-dive.
The total cost to Russia of this Crimean adventure could be well over $70 billion and that is without the longer term damage of potential targeted sanctions.
The answer could well be simple… Oil and gas. Putin’s whole campaign against Ukraine could easily nothing more than a land grab to ensure that Gazprom, a company in which he has considerable personal interest, controls who, how and when exploration and extraction will begin.
According to Kremlin insiders the annexation of Crimea has been 6 years in the planning.
By annexing all the land adjoining the Black Sea, Russia would also annex the offshore rights and anything found there in. It doesn’t matter that as of today the discoveries have been relatively small. If serious quantities of oil and gas were to discovered it will be too late and that is a risk President Putin would not be prepared to take as it would seriously undermine his entire economic structure.
Frankly it doesn’t matter if it never produces a drop of oil as stopping production preserves the Kremlin’s domination of the supply of energy from Russia, however all the signs are that the onshore and offshore fields could well live up to expectation.
Exploration of the Black Sea off Crimea has gone into overdrive. ExxonMobil, Chevron, Shell, Repsol and even PetroChina have begun to show a real interest in working with Kyiv to develop the entire Ukrainian sector.
‘Offshore’ magazine reports that Exxon and Rosneft have already made encouraging finds in the Russian sector near Novorossiysk whilst in the Romanian sectors test drilling by ‘OMV’ have found interesting deposits such that the major oil companies are now bringing in serious deepwater drilling technology. Trans Euro Energy have already found commercially viable resources of natural gas on the Crimean mainland.
This would also explain why Putin wants to hold onto the port of Sevastopol as it is a perfectly located deep water port capable of servicing the oil fields and the massive drilling technology and it’s barely 100 kilometres (60 miles) from the exploration zones
But it’s not just the offshore energy resources that are of interest to Putin. Included within Southern and Eastern Ukraine are the major export terminals in the port of Odessa, the military ship building yards at Nikolayev, a major oil refinery, massive chemical plants and grain export silo’s, hydroelectric plants along the Moldavian border in the Russian controlled Transnistra region, one of the largest nuclear power stations in Europe, up to ten coal fired power stations, three huge solar power stations and a further part built nuclear power station in Crimea, the extensive coal-bed methane gas fields in the Donbass basin plus the largest resources of magnesium on the plant and huge stocks of coal and iron ore.
Add to this is the $20 billion saving he would make by running the new South-stream gas pipeline overland through Crimea and Southern Ukraine as opposed to under the Black Sea to Bulgaria and you can see that $70 billion is quite a cheap price to pay especially when the west has such a short and selective memory.
As soon as Putin has achieved his aims he will most likely invest in a charm offensive of equal proportion and if a few soldiers and protestors got killed in the process, well they were just collateral damage.
Martin Nunn & Martin Foley, Kyiv