The dispute between Russia and the West has been in the spotlight of many news channels due to the importance of its consequences. Recently Crimean has voted in a referendum to rejoin Russia and secede from Ukraine.
Before the referendum, Crimea was an autonomous republic within Ukraine with a population of over two million. The population is a mix of 58.5% ethnic Russian, 24.4% ethnic Ukraine, and 12.1% Crimean Tatars with 77% of the population speaking Russian. It has a very important geographic location; it is located at the Black Sea Peninsula. This strategic location makes it a very important asset to the Russian government.
The referendum took place Sunday March 16th and nearly 97% of Crimean voted in support of leaving the Ukraine and joining Russia. This referendum is looked at by the west as an illegitimate referendum that was conducted under the threat of Russian military intervention in Crimea. As a result, actions have been taken against Russia.
According to USA Today, The White House and Congress vowed to impose tough economic sanctions against Russia. The USA slapped sanction against 11 Russian and Ukraine officials accused with orchestrating the division of Crimea from Ukraine. Targeted officials include two of Putin’s aides and top officials in Russian parliament. In addition to the deposed Ukrainian president Viktor Yanukovych, Deputy Russian Prime Minister Dmitri O.Rogazin and close Putin adviser and the head of the Russian railways Vladimir Yakunin are listed on the American’s black list as the Russian media stream calls it.
The Canadian Foreign Affairs Minister John Baird has called Russian intervention “illegal annexation” and said that Canada will impose sanctions on seventeen Russian officials.
On the other hand, EU also announced sanction against twenty-one individuals and administrative officials. Those sanctions involve freezing assets, and travel bans. French president Francois Hollande has canceled the summit that was planned in June between the EU and Russia as a reaction to the Russian annexation of Crimea and he called it “unacceptable” according to BBC News Europe. The largest importer of Russian oil in Europe, Germany, has called out for economic sanction against Russian as well.
While the USA and EU have called for sanctions against Russia, the Chinese Foreign Ministry spokesman said “There are reasons for today’s situation in Ukraine”. Saying so China has been neutral and its comments about the situation have been leaning toward the Russian perspective.
This conflict with the west will affect Russia economically as well as politically. President Obama said: “…continued Russian military intervention in Ukraine will only deepen Russia’s diplomatic isolation and exact a greater toll on the Russian economy.” What Obama warned Russia about has started to occur.
Last week, the Russian stock index fell down 21 point and the value of its currency, the ruble, fell against the dollar as a result of these economic sanctions. Eventually, they will downgrade Russia credit score. According to Euro news channel, ratings agencies Fitch and Standard & Poor’s have both downgraded the outlook for Russia’s sovereign debt from “stable” to “negative”.
The impact of such a downgrade will hit Russian banks and financial institution hard, as it will increase the interest rate on loan and it will make it even harder for them to borrow money. The luck of funds will have a negative effect on the economy which will push the Russian government to find new ways of getting funds.
Now, that the USA took action to punish Russian intervention in Crimea, Russia will strike back financially and politically. Russia owns over $200 billion of US bonds which accounts for three percent of total foreign holdings of U.S. debt. Putin adviser, Serge Glazyev, said “We hold a decent amount of Treasury bonds—more than $200 billion—and if the United States dares to freeze accounts of Russian businesses and citizens, we can no longer view America as a reliable partner” according to The Daily Beast . If Russia decide to dump the US treasury bonds, that will have an effect on the strength of the US dollar against other currencies.
According to The Wall Street Journal, foreign holders of US treasury bonds have fallen $118 billion in two weeks. Russia might have already started to either sale the bonds or move them to different custodial accounts outside of the USA. Certainly, Russia hasn’t sold the bonds yet; if it had sold them, the Russian ruble wouldn’t have fallen against the dollar last week.
Russia can react politically using the Syrian and Iranian conflict to put pressure on the west to loosen up the sanctions. Russia is an important player in the Middle-East. Paired with the Chinese cooperation in major issue, Russia will use its influence and relationship in the Middle East to cause damages to the west.
According to Tablet Online Newspaper; in an article named While West Focuses on Crimea, Russia Continues To Make Trouble in the Middle East; Russia could possibly start reactivating the deal of supplying Iran with the S-300 missiles and start talks with Tehran to discuss building a second nuclear plant in Iran as a response to the western’s sanctions.
Crimean referendum to rejoin Russia caused political instability between Russia and the West. Its consequences are limitless and unpredictable as the world deepened Russian isolation. Too many questions need to be answered, but the most important one is will sanctions be enough to stop Russian intervention in the former Soviet Union territories?