History
Ukraine means ‘on the edge’ in Old East Slavic – the language from which both modern Russian and modern Ukrainian have evolved. Those languages are closely related: a Ukrainian will easily follow Russian TV (most speak Russian perfectly anyway), while a Russian might struggle to comprehend the news from Kyivi. Ukrainian verbs can vary widely from their Russian cognates. Ukrainian has more letters than Russian in its alphabet.
This is all very interesting for linguists – but so what? The question is: is Ukraine a part of Russia or a separate country with its own identity?
Russians learn at school that the first Russian state was Kievan Rus, founded on the River Dnieper in the late ninth century. It is sometimes glossed over that the founders of that state were not Slavs at all, but audacious Vikings who had made their way down the river network from the Baltic.
Ukraine, for Russian nationalists, is therefore an intrinsic part of Rus – the historic homeland of the Russians. In fact, Vladimir Putin spent his summer holiday writing a 14,000-word tract on The Historical Unity of Russians and Ukrainians (Boris Johnson must be envious of his literary energy.) In Tsarist times, Ukraine was referred to as “Little Russia” (see the works of Turgenev or Chekhov). It was provincial, but an integral province of the Motherland.
There are numerous Ukrainian citizens in the east of the country who see things from Putin’s historical perspective, and there are undoubtedly strong kinship ties that link families in Ukraine and Russia. But there are clearly many who do not share that perspective. The provinces that lie to the west of the Dnieper are overwhelmingly Ukrainian-speaking and their inhabitants mainly identify as Ukrainian. This is complicated by the fact that the Carpathian provinces were only annexed by the Soviet Union in 1945.
Lviv (Lvov to the Russians and the Poles) was previously Lemberg, a provincial city of the Austro-Hungarian Empire until 1919, when it was handed over to Poland. When I was there about 10 years ago, I felt I was in a dilapidated version of Vienna, where solo street-violinists in felt hats played mournfully, in defiance of the falling snow – though the pierogi with vodka was a giveaway that one was well to the east.
What is Ukraine on the edge of – Russia or Europe? If anything, the Ukrainian sense of national identify has deepened since 2013, when a popular uprising overthrew a pro-Russian government in a sequel to the Orange Revolution of 2005; and more so still since 2014 when Russia seized and annexed Crimea. Most able-bodied Ukrainians will fight if war comes – but will they prevail?
What does Putin really want?
First, not only does he want Little Russia to return to the close embrace of the Motherland, but he also wants to prevent Ukraine from becoming a prosperous liberal democracy in the European mould. That would inevitably entail Ukraine eventually joining the European Union and then probably NATO too.
Whatever the British view of the European Union, for Eastern Europeans it provides a model of development with institutional structures that work. Ukraine, a country of about 42 million people (and falling) could become dynamic, given good governance and well-aimed investment, just as its formerly communist neighbour Poland has. With the second-largest land mass in Europe (after Russia, of course), it is the “breadbasket of Europe” thanks to its rich, black alluvial soil; and it is the seventh-biggest producer of iron ore in the world.
In that case, a sister Slavic people would then become an adversary to Russia; and Russians, particularly the young, might look to their neighbour with envy. Ordinary Russians might clamour for a less authoritarian society; and the dream of the unity of historic Rus would be lost.
Second, Putin ultimately wants to force the Americans out of Europe for good – and to take all their airbases and missile arrays with them. The Americans have held up Europe’s security ‘umbrella’ since 1945, and the cost of this beneficence is yielding diminishing returns.
The American writer and speculator Doug Casey is not alone in thinking that NATO should have been abolished when the Cold War ended in 1991. The European movers and shakers – that’s France and Germany, in tandem with the Brussels ‘machine’ – have also suggested that it is time for Europe to reassert its strategic independence. The problem is that the Franco-German axis does not apply in the realm of security. With the US under weak and muddled leadership, increasingly polarised by social factions and distracted by the rise of China, now is as good a moment as any to challenge American ascendancy in Europe and beyond.
Third, even if he cannot dislodge the Americans from Europe completely (they are unlikely to relinquish all their bases anytime soon), Putin wants to demilitarise the eastern European states that were once part of the Soviet periphery. All foreign forces would have to exit the Baltics, Romania and Bulgaria (there is a British Army platoon in Estonia of 850 soldiers right now.) The working assumption is that the German ruling elite is essentially Atlanticist – but that may be put to the test. It is possible that Putin might want to offer the Germans a pact whereby Russia holds sway over European security while Germany remains the European economic powerhouse. That must be Emmanuel Macron’s worst nightmare.
The problem is that we know little about the inner sanctum of decision-making in the Russian government. Putin is not constrained by cabinet government since he has effectively become president for life and, apparently, spends much time alone at his various dachas. We don’t know whose advice he heeds, if anyone’s. We do know that he harbours a deep resentment over the dissolution of the Soviet Union, and that he wants to reverse that historical defeat, as he sees it. People like Bill Browder say that Putin is only motivated by money. I would not be surprised if he has amassed a cash pile (though one he will never be able to spend), via proxies. However, his true motivation is not money, but fierce love of country (nationalism, if you prefer) and, of course, revenge.
Putin believes that he and his Chinese partners are on the right side of history. He thinks that we are witnessing the “end of liberalism” and that the west has become “obsolete”. Macron thinks that NATO is “brain-dead” − so they will probably get on well when they meet shortly. And it is true that the number of ‘free’ countries is in decline (as measured by Freedom House).
But let’s not forget – as many mainstream media commentators do – that Putin has been elected four times by popular vote, unlike President Xi. Russia is a more open society than China, and Putin is broadly popular. He holds five-hour press conferences in which ordinary Russians can question him. His regime is authoritarian yet there are no more Soviet-style gulags. He has dragged Russia from its chaotic, post-Soviet quagmire to a place of stability without bloodshed. These things count.
Siege state
It is now clear that Russia has been preparing itself for a financial siege and looks much less vulnerable to sanctions than it was after the seizure of Crimea in 2014. Unlike then, we are now at the beginning of a new, energy ‘super cycle’ which can only benefit Russia as a huge exporter of hydrocarbons. This morning, Brent Crude oil is trading at over $91. The upward pressure on oil prices is partly a function of the dramatic slowdown in oil and gas exploration and prospective extraction. As a result, there are no new fields coming onstream to replace declining fields, and prices are set to edge higher in the medium term.
Any attempt to impose an embargo on Russian oil and gas would be self-defeating as it would plunge the west into almost instantaneous recession. No number of financial sanctions will impair China-Russia trade since that is conducted through the Cross Border Interbank Payment System. And China is the largest importer of Russian oil anyway.
Putin has been quietly constructing a fortress economy that could withstand a long siege. Russia’s state budget is in balance – unlike virtually all European ones. The national debt of about $476bn stands at an enviable 20 percent of GDP. Much of that debt is denominated in domestic currency. Its commercial banks are well capitalised and less reliant on western capital markets than at any time since the fall of the Soviet Union in 1991. Russia is now a net foreign creditor; its central bank holds substantial gold reserves; and since 2014 it has sought to eliminate its dependence on food imports. The country has a current account surplus of about seven percent of GDP.
The US and its allies could deny Russia access to software, digital services and downstream technical products such as lasers, robots and instrumentation. Another American initiative is to authorise emergency shipments of LNG (liquefied natural gas) to Europe. There are reports that liquefied American shale gas has already arrived at the Isle of Grain facility in Kent this week. It is paradoxical that the UK, which banned fracking, is now dependent on imported shale gas. Washington is asking friendly gas producers in the Middle East and Africa to boost production, though Qatar has demurred.
What to do with the oligarchs?
In recent weeks, the mainstream media in the UK has harrumphed that it is time to get tough with the Russian oligarchs who purr around Notting Hill and other salubrious parts of “Londongrad” in their Bentley SUVs. Liz Truss, the Foreign Secretary, decreed last weekend that there would be “nowhere to hide for Putin’s oligarchs”. Laws are being formulated that would permit sanctions against any person or entity “of economic or strategic significance to the Kremlin”. As usual, the Americans are twisting arms by claiming that London has been too inclined to allow Russian money to pour into the UK with no questions asked. This week the US Senate is negotiating a bipartisan bill that would impose extreme sanctions “to crush” Russia’s economy.
There is therefore now a danger that decent, Anglophile Russians will become the victims of a witch hunt. We should consider two things.
First, just because a wealthy Russian chooses to reside in London or to buy a country estate in Surrey or Aberdeenshire doesn’t make them a fan of Putin. On the contrary, many Russians choose to reside in the UK precisely because it is freer than Russia. They are attracted by our cultural and social life in the UK – from West End shows to rural gymkhanas – and by the excellence of our private schools.
Second, many of the so-called oligarchs who reside here have become British citizens and pay their taxes here, such as Evgeny Lebedev, owner of the Evening Standard and other news titles, who is now a member of the House of Lords (I do admit his dad, Alexander, is a bit ‘rum’.) We can’t place sanctions on our own citizens. The idea that all Russian money is ill-gotten is just prejudice. Many of these oligarchs’ children will become influential in Russia in due course, and this country needs friends there.
It is true that the influence of TV channel Russia Today needs to be kept in check. It is now evident that the Russian media operation helped eco-activists to propagate the message that hydraulic fracturing, ie fracking should be outlawed. Of course, any widescale European gas production would have reduced Europe’s dependency on Russian gas – so it was all part of Russia’s cunning plan.
We should be less concerned by Russian millionaires dining at Claridge’s and more concerned about the cosy relations between German and Italian businessmen and the Kremlin. Just as the Italian government warned Russia against invading Ukraine last week, a delegation of Italian industrialists, including the chief executive of Pirelli, was meeting with Putin at the Kremlin. It is a similar story with Germany, which exported about $30bn of goods to Russia last year. In fact, after China, Russia’s biggest trading partner is Germany. And France’s Société Générale owns Russia’s Rosbank.
Disruption of the SWIFT payments system
It is not fanciful to say that disruption of the SWIFT payments system could precipitate a systemic banking crisis. That is why there is little enthusiasm in Europe for locking Russia out of the SWIFT international payment platform. Such a move would make it impossible for the Germans to pay for their gas. They would then presumably be cut off, thus depriving millions of Germans of heating during the coldest month of the year. Similarly, German exporters would go unpaid and European creditors would not be able to receive debt service payments. It is not going to happen.
In Germany, Putin has friends in high places. Gerhard Schröder, who was Chancellor 1998-2005, has been chairman of the Russian energy giant, Rosneft since 2017. He was then recruited by Gazprom to become chairman of its shareholder representation on the board of the Nord Stream 2 gas pipeline. This week, Schröder stated that “Russia’s leaders have no interest in invading Ukraine” – despite the presence of a Russian army encircling Ukraine’s borders, including at least 5,000 troops inside Belarus. This was too much even for many fellow SDP members in the current German government. A prominent CDU politician called the former Chancellor “embarrassing and unworthy”.
Meanwhile, François Fillon, a prime minister of France under President Sarkozy, joined the board of the Russian oil giant Zarubezhneft last year. And Karin Kneissl, the former Austrian foreign minister who danced with Putin at her wedding, also sits on the board of Rosneft.
While Macron, who holds the European presidency, tries to formulate a robust European position towards Russia, Germany and others have given the impression that they will do nothing if Russian tanks cross the Ukrainian border to install a ‘puppet government’ in Kiev, even if there is substantial bloodshed. Germany sells arms to Egypt but will send only helmets to Ukraine. Spokespeople for the European Commission have even briefed journalists that invasion talk is just ‘Anglo-Saxon pot-stirring’. But the reality is that the EU has no leverage over Russia whatsoever.
Joe Biden gave the game away when he hinted in that press conference just two weeks ago that maybe ‘Uncle Sam’ could be forgiving if Russia only made “a minor incursion” into Ukrainian territory. Under international law, driving uninvited tanks even 100 metres over a frontier is an act of war.
“A quarrel in a faraway country, between people of whom we know nothing”
The parallels between Ukraine and Taiwan are what should keep us awake at night. If the argument from consanguinity is allowed to prevail, then the argument from sovereignty is no longer viable. Under the 1994 Budapest Memorandum, signed by Bill Clinton, Boris Yeltsin and John Major, Ukraine surrendered its nuclear arsenal in return for assurances that its independence and existing borders would be respected. Since 2014 and the seizure of Crimea, those assurances look hollow.
In the now-streaming film Munich – The Edge of War, in which Jeremy Irons plays Neville Chamberlain, it is recounted how the Allies (principally the UK) handed over the Sudetenland – an area of Bohemia populated overwhelmingly by ethnic Germans – to Nazi Germany, precisely because that was in accordance with the principle of self-determination on which the Versailles settlement had been grounded. And it is easy to imagine Biden referring to the current crisis in the same terms as Chamberlain referred to the Sudetenland: “A quarrel in a faraway country, between people of whom we know nothing”.
But after events in Munich, war came anyway. Diplomacy often runs out of road – especially when revisionist powers perceive their adversaries to be in decline. And after the bathos/tragedy of the wars in Afghanistan and Iraq, the iniquity of the 2008-09 financial crisis, the abandonment of the primacy of civil liberties due to extreme risk aversion during the pandemic and now aggressive and ubiquitous cancel culture, who can blame the Russians and the Chinese for believing the west is on the down?
There is diplomacy − and then there is blackmail. Putin got the Americans to the negotiating table by encircling Ukraine with a well-equipped army; he then changed the agenda to discuss pulling NATO forces out of Romania and the Baltics. To date, the Americans have ruled out barring Ukraine from ever joining NATO but have offered more transparency on its missile installations in Eastern Europe.
This week, Putin blamed the crisis on the US, and China’s ambassador to the UN accused the US of “warmongering”. Together, China and Russia tried to veto a meeting of the UN Security Council to discuss the Ukraine crisis. Today, Putin and Xi will meet at the opening ceremony of the 2022 Winter Olympics in Beijing, and they are expected to announce the go-ahead of the Power of Siberia 2 gas pipeline within the next few days.
The UK has apparently agreed a new tripartite security pact with Ukraine and Poland – but because Truss has been isolating with Covid no one seems to know the details. Boris Johnson announced £88m of new aid in Kiev on Tuesday. On Wednesday, Russian foreign-ministry spokesperson Maria Zakharaova accused British politicians of “stupidity and ignorance”. What is now clear is that neither the UK nor the US will send troops into Ukrainian territory under any circumstances – and it would be folly to do so.
Even if Putin does not send in the tanks (still the most likely outcome, in my view), he has already won in so far as he has got NATO to the table, offering conciliation. I suspect that he would like all this diplomatic activity to culminate in a new “peace conference” along the lines of the Helsinki Accords of 1975. The outcome of that would be to demilitarise huge swathes of eastern Europe. Many Americans and most Germans would go along with that.
The markets respond
Against the backdrop of explosive geopolitical risk, the NASDAQ has already entered correction territory. In January, it had its worst months since October 2008, when we were at the height of the financial crisis. Pandemic ‘darlings’ such as Netflix and Peloton are more than 30 percent below their highs. The short sellers apparently have the Ark Innovation ETF in their sights, which has been seen as a NASDAQ bellwether. Spotify is on the down; and as I have been predicting, Meta/Facebook’s share price is under severe stress. True, Alphabet/Google shares jumped this week in response to strong Q4 results.
European bourses also had a torrid January. Of course, other things are going on besides Ukraine: US fiscal policy has gone berserk; the genie of inflation is out of the bottle; interest rates are about to spike; and a full-square standard of living crisis is about to engulf the west – not just the UK, where the Johnson government looks (how can I put this nicely?) distracted. The prime minister was too busy to take a call from Putin on Monday. He was in the Commons debating “partygate”. On the other hand, the pound is surging as the rouble tumbles.
These geopolitical tensions will not evaporate overnight – and there will be further tremors beyond. I tend to think that imminent disaster will be averted – but that the horn sounding retreat will cast gloom across the equity markets for some time to come. We are entering a new landscape.
i The Ukrainian capital is known as Kyiv by Ukrainian speakers and Kiev by Russian speakers.