The Hidden Costs of a Russian Statelet in Ukraine

Propping up another breakaway territory could drain Russia's sluggish economy even further.
A Russian serviceman outside the city of Kerch, near a map of the Crimea region (Thomas Peter/Reuters )

In dismissing the Ukrainian revolution as a “fascist” coup, officials in Moscow have conjured up memories of the turbulent period following the breakup of the Soviet Union, when Russian leaders used similar slurs to justify separatism in Eastern Europe. On March 2, 1992, 22 years ago this week, civil war broke out in Moldova between government and secessionist forces over a narrow strip of land along the Ukrainian border.

Alexander Lebed—the Russian general whose 14th Army unit intervened in the conflict, ensuring the future of the breakaway state known today as Transnistria—boasted of his role in stopping Moldova’s “fascists" leaders. Several years later, Lebed entered Russian politics, declaring, without much irony, that his country needed its own version of Chile’s right-wing dictator Augusto Pinochet.

A decade later, the Kremlin has the strongman Lebed pined for, Moldova’s conflict with its separatist region persists, and Russian troops still occupy Moldovan territory in violation of Russia’s international commitments. And now the Russian military has occupied Ukraine’s Crimean peninsula, another territory with a large ethnic Russian population and a pro-Moscow secessionist movement, in violation of international law. Moscow's intentions there remain unclear.

“Separation movements in Moldova and the Caucasus in the early 1990s had clear local roots that reflected local aspirations. In Crimea today, it’s clear that the aspirations are coming from outside in,” said William Hill, a professor at the National War College who worked for many years on Transnistrian conflict negotiations as head of the OSCE mission to Moldova. “Russia has the capabilities to create a de facto separation between Crimea and the [Ukrainian] government in Kiev. But it’s hard to see what they will gain from it.”

In fact, Russia may actually lose from it—and lose big. Putin’s primary objective appears to be preventing Ukraine’s new government from making good on its pledge to sign an association agreement with the European Union. And Russia has had some past success in supporting breakaway regions as a means of keeping former Soviet states like Georgia and Moldova from establishing closer relations with the West.

But supporting Crimean separatism is an expensive gamble for Putin—and not just because the West is weighing economic sanctions against Russia in response to its military incursion in Ukraine. On Monday, Russia’s MICEX stock index shed nearly $60 billion and the Russian ruble plummeted to a record low on fears over the crisis in Ukraine, forcing Russia’s panicked Central Bank to raise interest rates (the ruble and Russian stocks bounced back a bit on Tuesday as tensions in the region appeared to ease). What’s more, across the post-Soviet space, the Kremlin's attempts to destabilize its neighbors are destabilizing its own budget.

Before the Crimean crisis, Russia was already footing the bill for three breakaway states: Abkhazia and South Ossetia in Georgia, and Transnistria in Moldova. As these states are unrecognized by the international community—Russia doesn’t even recognize Transnistria—they exist to a large extent outside the international economic system. While they may have bilateral agreements with certain countries that generate a modicum of trade, the economic benefits associated with globalization and foreign investment are negligible in these territories. This leaves them highly dependent on Moscow’s largesse, which often comes in the form of subsidized pensions, infrastructure projects, and cheap gas.

Georgia's breakaway regions of Abkhazia and South Ossetia, which won de facto independence with the aid of Russian troops after a brief 2008 war, are black holes for Russian tax dollars. In April, the International Crisis Group (ICG) reported that Moscow had earmarked $350 million for infrastructure projects in Abkhazia between 2010 and 2012, with that number expected to triple to $1 billion between 2013 and 2015, but that only half of the $350 million had been spent because of mismanagement and corruption. The group noted that Abkhazia—which is located just miles from Sochi, the site of this year’s Winter Olympics—effectively depended on Moscow for a staggering 70 percent of its budget and also received roughly $70 million in pension payments for Abkhaz residents, many of whom have Russian passports. “Abkhazia’s economy is like a drug addict on Russian help,” the report quoted an opposition figure in the region as saying. “We want real help to support our economic development, not ‘facade’ assistance.”

Russian President Vladimir Putin shakes hands with South Ossetian leader Leonid Tibilov in Sochi, in May 2013. (Misha Japaridze/Reuters)

In South Ossetia, a territory with a population comparable to Altoona, Pennsylvania, Russia is spending nearly $1 billion, or roughly $28,000 per resident, according to a 2010 ICG study (South Ossetia’s population is difficult to verify, and estimates range from 20,000 to 70,000). In August, Radio Free Europe/Radio Liberty reported that South Ossetia “remains totally dependent on Russian subsidies to rebuild infrastructure and industrial capacity” after its 2008 war with Georgia, and that most of the 27 billion rubles Russia allocated for the province have “vanished without trace,” prompting the territory’s prosecutor-general to open more than 70 criminal investigations into the mysterious disappearance of the funds (Russia scaled back its funding for South Ossetia in response to this embezzlement).

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William Schreiber is a writer based in New Haven, Connecticut, specializing in Eastern Europe and Russia. He is a co-editor of Moldova: Arena of International Influence.

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