EMC Working Papers

Russia's intrusion into the Ukraine in February 2014 and the ensuing annexation of the Crimea have been prompted by energy and geopolitical factors. The energy factor  is that 50% of Russia's gas and oil supplies to the European Union (EU) are piped through the Ukraine. It is in Russia's energy interests to make sure that the gas and oil pipelines transiting the Ukraine are well defended not only against sabotage but also against the Ukraine making use of the gas without paying for it. Ensuring that there is a pro-Russian government in the Ukraine becomes a very important Russian national interest. There is, however, a geopolitical dimension. The Ukraine has become a chess pawn in a grand chess game being played by the United States and the EU with Russia. At the heart of the Ukraine-Russia crisis is the EU's attempts incited and abetted by the United States to draw the Ukraine away from Russia into the EU and eventually into NATO, thus bringing NATO to the borders of Russia. Having failed to achieve their aim, the EU supported by the US instigated internal strife in the Ukraine which ended with the ousting of the legally-elected president and eventually the annexation of the Crimea. If the conflict between the West and Russia continues to escalate, an oil and gas embargo could be one of the sanctions that is considered against Russia. Even before the current tension with the West over the Ukraine, Russia was in the process of reorienting its energy posture to Asia in view of the growth in energy demand in that continent and the likely stagnation or decline of demand in Europe over the next few decades. This paper will argue that opportunities for the West to hurt the Russian economy are limited especially when it comes to natural gas since it will be hard to find alternatives for Russian gas supplies to the EU. It will also argue that if the US tries to manipulate oil prices to hurt the Russian economy, the dollar will suffer. The paper will conclude that sanctions against Russia will most probably fail as they mostly did against Iran whose economy is 18% of Russia's economy in size.