By: Clay Moore
Annexation is expensive. The spring 2014 annexation of Crimea by the Russian Federation leeched over $7 billion from the Kremlin’s coffers in FY2014 alone. Following Kiev’s loss of Crimea to the “little green men”, who turned out to be Russian spetsnaz operators, the peninsula was cut off from Ukrainian-provided services. The land bridge had provided Crimea with 90 percent of its water, 90 percent of its electricity, and over 2/3 of its natural gas. Even today, the border is largely closed, with ethnic Crimean Tatars being regularly harassed.
Despite previously being a fairly popular vacation spot for many Russians and Eastern Europeans, Crimea saw a harsh decline in the amount of tourists visiting the historic peninsula. (I personally was looking forward to Kazantip, but there is always next year.) This translates to decreased economic activity and concern amongst the residents, many of whom rely upon tourist dollars to make ends meet. Russia also took on the responsibility of paying pensions to Crimeans, which are estimated by Russian officials to amount to roughly $1 billion a year. Additionally, Crimea has historically been a recipient of subsidies from Kiev. Moscow expects to subsidize Crimea to the tune of $1.5 billion a year for starters.
A Medvedev-approved bridge from the Russian mainland to Kerch on the east side of the peninsula will cost around $2.8 billion. The road and railway bridge is likely to be a necessity for Moscow, unless Donbass separatists capture Maripole and proceed to carve out a land bridge for Russia. (Which seems to be in the works.)
In spite of these costs, the Kremlin has gained public approval, hard assets and geostrategic assurances. President Putin’s approval rating is hovering above 80 percent, despite a near-recessionary Russian economy. For much of the post-Soviet period, Moscow was paying Kiev rent to base the Russian Black Sea Fleet at Sevastopol. (Roughly $4 billion a year) Vladimir Putin can now rest assured that he will not lose his port to a pro-western Ukrainian government. Additionally, the Russian Ministry of Natural Resources and Environment estimates that over 2.3 trillion cubic meters of gas lie in unexplored offshore fields in the Sea of Azov and the Black Sea proper, which Russia now technically has access to under Law of the Sea jurisdiction.
Time will tell whether or not the benefits of annexing Crimea will outweigh the costs for Moscow. Incorporating new land and souls into a country typically has high initial costs; it remains to be seen if Crimea can be developed enough to see a return on investment.
Clay Moore is a Master’s Candidate at the Patterson School of Diplomacy and International Commerce. He focuses on Russian and Eastern European economics and security. Questions? Comments? Opportunities? Feel free to email him at email@example.com