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Donald Henderson
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It's Crimea time again

04 March 2014, 12:38

These are worrying times for Europe as the political crisis in Ukraine becomes malignant and the sounds of Russian sabre rattling turn into the beating of the war drum engulfing Crimea. While no shots have yet been fired the Russian invasion with up to 16 000 troops has enforced a stranglehold on the peninsula. For the West this is their worst nightmare come to life on their doorstep.

President Vladimir Putin, an egotistical dictator at best with the predilection for appearing semi-naked with horses, appears to have taken personal offence at the ousting of his man in Ukraine who fled the popular uprising in the west of the country. Taking advantage of the weak leadership existing in the West he has made his military move into the Crimea, effectively taking control of the peninsula.

In response Western leaders have given verbal support to the new provincial government in Ukraine and threatened economic sanctions on the Russian bear.

At first glance it would appear that Russia is the aggressor and the West will retaliate in the hopes of Russia backing down. But the crisis is not as simple as that.

The present transitional government in Ukraine came to power recently on the back of a popular uprising following a decision by then President Viktor Yanukovych to align the country with Russia rather than the European Union. Having gained power the new leaders asked for Western aid, desperately-needed finance and politically, to retain their control in the face of resistance from eastern Ukraine's largely Russian-supporting population.

US Secretary of State John Kerry has reacted with the threat of economic sanctions which, on the face of it, would appear to be good response from the West. But is it?

Russia is the sixth largest world economy, well ahead of both France and Britain. As a result of the crisis the main Russian stock market has crashed by 12 percent losing $54billion in value, the rouble has tumbled and the central bank has raised interest rates to seven percent. Despite this, sanctions would be counter productive as Western countries have invested big time – car manufacturers and oil producers - in the resources-rich country in the past decade or so. They will not take kindly to the losses from such a move.

Russia is also the third largest world oil producer with huge gas reserves that keep Western Europe supplied with more than a third of its gas supplies. These gas pipelines also run through Ukraine and have been cut off in the past when payments fell behind supply.

The Russian economy has been booming, slower of late, making it possible for Putin to pay off most of its debts which is now a mere 10 percent of gross domestic product. Moscow now has reserves totalling $450 billion.

Ukraine, on the other hand, is deeply in debt - $40billion with upwards of $15billion awaiting urgent repayment – and needs immediate financial aid which the West would not be able to provide without stern repayment measures.

Sanctions, in such a scenario, would cause an extreme nervous reaction in world markets which, in turn, would most probably put paid to the West's cautious financial markets recovery.

Politically, Russia claims that it is protecting the interests of its citizens in Crimea, who are in the majority, and its major naval port in the Black Sea with easy access to the Mediterranean Sea. And if UK and France can interfere in Libya, with US support, they can protect their citizens in what has been an area of Russian influence for centuries.

Once again the US is pitted against Russia in a critical crisis where war threatens. Will Putin back down and return to the stables? Or will this be President Obama's Waterloo?

If local politics seem corrupt, international politics can prove more complicated and resemble an extremely dangerous game of poker. It all comes down to money and it appears that Russia holds the best hand in this game. Who will call the other's bluff this time?

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