A board displays currency exchange rates on a Moscow street, December 29, 2014

commentary

(The New York Times)

December 30, 2014

Rapprochement with Russia?

A board displays currency exchange rates on a Moscow street, December 29, 2014

Photo by Sergei Karpukhin/Reuters

by Hans Binnendijk, Olga Oliker, Christopher S. Chivvis

The ruble's dramatic decline threatens to plunge Russia into a full-scale economic crisis. President Vladimir Putin has attempted to minimize the difficulties and deflect blame toward the West, but the problem is serious and no one is to blame but Mr. Putin himself. His efforts to destabilize Ukraine have brought painful sanctions upon Russia, reinforced its dependence on oil, and isolated its economy.

Yet Russia's crisis holds both risk and opportunity. The risk is that an economic collapse might lead the Kremlin to lash out more severely against Ukraine and the West. But there is an opportunity to be seized if the ruble's fragility increases Russia's readiness to de-escalate the war in Ukraine in exchange for relief on sanctions and revitalized economic ties with the West.

The roots of the ruble crisis are twofold, brought on by the decline in global oil prices, which sharply cut Russian state revenues and made the national budget untenable, and by the impact of sanctions that the United States and the European Union have imposed in response to the Kremlin's efforts to undercut Ukrainian independence. While the sanctions have had some economic impact, more importantly, they have made it harder for Russian banks and companies to refinance maturing debt, and have led private citizens to send their funds abroad. All this makes an already risky business climate much worse.

The collapsing economy adds serious risk to an already tense standoff with Russia. Mr. Putin is well aware that his popularity rests on economic, social, and political stability. A severe downturn could erode his domestic support. To save himself, he may again resort to the dual levers of nationalism and foreign adventurism to shore up his popularity at home. While this strategy would not be sustainable in the long term, in the near term it would guarantee that the animosity between Russia and the West spirals to dangerous new lows. The most severe consequences would surely be felt by Ukraine, but the Baltic states could also be targeted.

Reducing these risks and seizing the opportunity the crisis presents calls for a comprehensive policy that offers phased sanctions relief but also includes enhanced deterrence and a renewed commitment to Ukraine's independence. The breakdown of peace talks in Minsk last week only makes the need for a truly comprehensive package more urgent. It would include these basic elements:

  • Russia would fully comply with the September Minsk agreement on Eastern Ukraine: After Russia's invasion in August, an accord was reached promising the disputed Donbass region more autonomy in exchange for a cease-fire and restoration of Ukrainian control of its borders. The cease-fire has been continuously violated, and the Kremlin bears the brunt of the blame. To get sanctions relief, Russia would first have to withdraw all remaining Russian forces from Ukrainian territory and fully support border monitoring by the Organization for Security and Cooperation in Europe. Europe and the United States would need to operate on a mutual understanding that if Russia reneged on its promise, sanctions would be immediately reimposed. For its part, Kiev would have to redouble its efforts to bring pro-Ukrainian militias operating in the east under control and prepare to implement the elections and aid efforts called for by the agreement.
  • NATO would continue to strengthen its deterrent posture in Eastern Europe to hedge against increased risk to its members. There has been reticence in some capitals to implement NATO's new Readiness Action Plan. That must change. Reinforcement of the alliance's eastern flank is essential insurance against another breakdown in its relationship with Russia. Washington should commit to a persistent presence of ground forces in the Baltic states and Poland. But for deterrence to work, forward deployments must be more multinational. Small numbers of European forces need to be deployed in Baltic states and Poland and hold regular exercises to reinforce deterrence.
  • As part of a broader deal, Ukraine would have to recognize publicly that it is not currently prepared for NATO membership. Russia has longstanding objections to the possibility that Ukraine might join NATO. While it is crucial that Kiev make its own decisions about membership, and NATO must maintain its longstanding open-door policy, the fact is that Ukraine today is still far from meeting the necessary membership requirements. Recognition by Kiev that it will not attain membership in the near term would simply be an acknowledgement of this reality. Nevertheless, Ukraine could still have an enhanced partnership with NATO.
  • Russia would have to accept a closer Ukrainian relationship with the European Union—as well as deepen its own. It was Ukraine's interest in moving closer to the union that sparked the initial crisis. Better and closer ties are in the interests of both countries. Russian concerns with being cut off from access to Ukrainian markets, however, should be taken into account. (Access to the Russian market for Ukraine's exports is important to the Ukrainians, too.)
  • The West would have to make a firmer commitment to supporting internal reforms in Ukraine. Though it has committed funding and advisory support to help strengthen Ukraine's political, economic, and military institutions, a larger, longer-term commitment is needed. Ukraine must do its share by tackling corruption, raising domestic energy prices, reforming its energy sector, and undertaking other structural reforms.

Even as the Minsk talks collapsed, Russia agreed to continue providing Ukraine with coal and electricity, a sign that Moscow may still be seeking a deal. We think this package would offer Russia a brighter economic future along with recognition of Russia's enduring importance to the West. It would also stabilize Ukraine. But it still may be a hard sell. Reviving the Group of 8, NATO-Russia Council, and other channels as part of a comprehensive deal would help. So would high level E.U.-Eurasian Union meetings.

Mr. Putin may still choose to escalate the confrontation in spite of the economic storm ahead. But American and European diplomats must use the crisis to offer him an alternative path.


Hans Binnendijk, a former senior director for defense policy on the National Security Council, is a senior fellow at the RAND Corporation. Christopher S. Chivvis is associate director of the RAND International Security and Defense Policy Center. Olga Oliker is director of the RAND Center for Russia and Eurasia.

This commentary originally appeared in The New York Times on December 30, 2014.