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Are Markets Right About Ukraine Inaction?

The big news today on the Russian seizure of the Crimea from the Ukraine was that Europeans are feeling a lot calmer about the prospect of conflict. To the extent that the uptick in the markets this reflected relief that Russian President Vladimir Putin had not further escalated the conflict with new military actions aimed at seizing more territory that is a sentiment that is universally shared. But as the days pass since Russian troops took control of the Crimea, those jumping to the conclusion that the West will soon be going back to business as usual with Russia may have a firmer grip on reality than those who assume that all of the exemplary rhetoric coming from both the United States and its European allies about their concern may not be followed up by the sort of economic sanctions that would, as President Obama said, make Putin pay a price for his aggression.

Gauging the intensity level of this crisis is a difficult job in large measure because the assumption that Putin will perform some new outrage in the coming days may be misplaced. While Russia’s planned ballistic missile test and the actions of Russian troops (that Putin is still pretending are not Russian) are scary, the action phase of this crisis may have already passed as far as Moscow is concerned. Having taken control of the Crimea, the big unanswered question for Russia revolves around whether Putin will annex the region (something the Russian Parliament is already considering) or allow his puppets to create a new buffer state there. The only other variable is how robust the Western response to this crime will be. While Ukrainians can certainly take comfort from Secretary of State John Kerry’s much needed visit to Kiev today and the laudable vows of help coming from Washington and European capitals, they may be forgiven for wondering whether Western investors who are betting today against serious sanctions or a disruption of Russia’s oil and gas sales are right.

Sanctions levied against Russia and against individual members of the Putin regime are necessary and can’t be put into effect too soon. But the problem with this effort is that everyone knows that there is nothing the West can do now to reverse what has happened and Putin knows it. Since a Western military response against a nuclear power is unthinkable, Russia knows it will never be forced to give back the Crimea even if it has been torn from Ukraine in a blatantly illegal act of aggression.

Moreover, for all of the righteous rhetoric flowing from Western leaders this week, Putin also knows that Europe is unlikely to want to have to kick its Russian oil and gas habit cold turkey. That’s why he dared to invade a sovereign nation secure in the knowledge that he could get away with it.

It goes without saying that the only way to have prevented this from happening was an American foreign policy that was more concerned with restraining Putin than in making nice with him. It cannot be stressed enough former Secretary of State Hillary Clinton and Kerry bear the lion’s share of blame for this disaster for their comical Russian policy “reset.” President Obama and his media cheering section that openly mocked first Sarah Palin and then Mitt Romney for their focus on the threat from Russia also need to apologize.

But though anger at Putin is running high today, he is counting on it all fading away rather quickly. The Obama administration’s strong suit is “engagement” and diplomacy for its own sake, not principled confrontation. Moreover, if European countries can’t be trusted to stick to sanctions against the Islamist regime in Iran, how can we possibly expect them to hang tough against Russia when the economic stakes involved in any punishment for aggression against Ukraine are so much higher?

Ukraine and all the other independent states — including NATO members in the Baltic and Poland—that stand between Putin and his cherished dream of reassembling the old Tsarist/Soviet empire are looking to Washington, London, Paris and Berlin for stiff economic action against Russia this week. But it’s hard to argue with those who are betting their bankrolls on the proposition that neither Obama nor the Western Europeans intend to disrupt the Russian gravy train for the sake of Ukraine.


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