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The Economic Costs of Annexing Crimea are Mounting for Russia

The World Bank warns that the economic impact o annexing Crimea could drive Russia into a sharp recession even if the West stops short of trade sanctions.  This gloomy assessment came when President Obama was meeting with the European Union and NATO leaders to discuss how to reduce European dependence on Russian Energy and to bolster NATO defenses of east European allies bordering Russia and Ukraine.  This discussion has led Polish Prime minister Donald Tusk to believe that there would be a firm Western response if Russia started “other acts of aggression and interference on the territory of Ukraine”.

Before this most recent confrontation, a World Bank report on the Russian economy predicts that Russia is set to pay a significant price in lost growth due to serious East-West confrontation like invading Georgia.  The potential risk created by this most recent crisis could contract Russia’s GDP by as mush as 1.8 percent if the crisis persists.  Assuming that the impact from this crisis is short-lived, GDP could grow by 1.1 percent, which is half of the World Bank’s forecast in December.

The Crimea crisis has also caused the European Union to look for other sources of energy.  Russia currently provides about one third of the EU’s oil and gas, and some countries “are almost 100-percent reliant on Russian gas”.  Due to this dependency, British Prime Minister David Cameron said energy dependence and the adoption of technologies like shale gas fracking should be the focus of Europe’s political agenda.  He believes that the reserves of shale gas in southeastern Europe, Poland, and England can be used instead of Russian oil.  If Europe starts shale gas fracking, Russia’s GDP could suffer even more.

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  1. christycui christycui

    It’s likely that it will hurt the western countries economically as well. The question here is who gets hurt more severely, and if the political leader believes that hurt is worth their political goal or not.

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