Fortune‘s reporter in Kiev writes that, although losing Crimea to Russia would be a devastating political blow to Ukraine, it might, in fact, be a financial gain.
By Vivienne Walt ~ KIEV
Ukraine’s capital Kiev is more than 400 miles north of Crimea, the Black Sea peninsula where President Putin has dispatched thousands of Russian troops, sparking the deepest crisis in decades between Russia and Western leaders. Yet these days, the territory might as well be on the outskirts of the city, given the intensely bitter debates among Ukrainians over its future.
On Monday in Kiev, the fraught arguments over Crimea began early in the morning, as small groups of residents gathered in the angled sunlight amid piles of bouquets and photos of dead protesters in Independence Square, where mammoth demonstrations culminated in the deaths of 80 or so protesters by snipers on Feb. 20, collapsing President Viktor Yanukovych’s regime. “How can you talk about unity in Ukraine when there are divisions between us?” asked one man in a blue jacket. Squeezed amid the barricades of rubber tires, another man, dressed in combat fatigues, shot back, “So, you want to start a war in Crimea? People are trying to end this crisis through diplomacy.”
The next few days could well determine which will win out — war or diplomacy — as Crimea, heavily dominated by ethnic Russians, prepares to hold a popular referendum next Sunday, on whether to break away from Ukraine and join Russia. President Obama and European leaders have condemned the vote as illegal under international law. But so far, they have found little way to stop it from going ahead, and the Russian parliament last week voted in a new law allowing Moscow to potentially annex territory that is mostly populated by ethnic Russians.
In Crimea, many have seized on the current upheaval to reverse a quirk of history: The peninsula passed out of Russian hands in 1954, when then-Soviet leader Nikita Krushchev transferred it to Ukraine, which at the time was just another Soviet republic. Decades on, the Russian Navy’s Black Sea Fleet is stationed in Crimea’s port of Sevastopol, under a lease with Ukraine that lasts until 2042; in exchange, Russia has agreed to discount natural-gas exports to Ukraine.
With pro- and anti-Russian feelings at fever pitch in Crimea, the local speaker of parliament Vladimir Konstantinov told thousands of people at a rally in the regional capital Simferopol on Sunday, “We are going home to the Motherland!”
That might well be the case after Sunday. Yet even though Putin has invaded Crimea with thousands of troops, taking back control after 60 years will not prove easy.
Jutting into the Black Sea on the southern tip of Ukraine, Crimea, about the size of Maryland, is almost entirely dependent on the central government in Kiev for its basic services. Nearly all its electricity and water come from Ukraine’s mainland, as do almost all its revenues, since under Ukraine’s financial system, about 90% of revenues are disbursed from the central government in Kiev. There is not even a land connection with Russia: Moscow would presumably need to build a bridge to connect it to the peninsula, if it finds itself running Crimea after Sunday’s vote.
Largely arid, Crimea has little rainfall, and none of the lush forests or black soil that characterize the rest of Ukraine’s abundant agricultural land. With warm temperatures and a long coastline, Crimea’s biggest money-earner is tourism, with its resorts popular destinations for Ukrainians.
Although losing Crimea to Russia would be a devastating political blow to Ukraine, it might, in fact, be a financial gain, at a time when the country is on the verge of bankruptcy. “Ukraine in an economic sense will not lose” if Crimea votes to secede, Oleksandr Shlapak, Ukraine’s new Finance Minister, just two weeks into his job, told reporters at a briefing in Kiev on Monday. “Crimea has always been the region which was subsidized.”
The discussion about how Crimea’s economy will fare under Russian rule has so far been drowned out by fury over Putin’s military invasion, and the diplomatic frenzy to dial down the tensions and stop the conflict from spiraling into a full-blown war.
As the vote draws nearer, so the political battle over Crimea’s status has become a flashpoint for some of Putin’s fiercest foes. On Monday, the Russian oil billionaire Mikhail Khodorkovsky, whom Putin freed from prison after 10 years shortly before the Winter Olympics opened in Sochi, Russia, addressed thousands of students in Kiev, in a giant, packed Soviet-era auditorium, telling them that Putin’s invasion of Crimea was as much a problem for Russia’s troubled economy, as it was for Ukraine. “Crimea is not a place with oil, or anything,” he told the audience, to rounds of applause. “It is just a burden for Russia.”
If Crimea votes to switch countries next Sunday, figuring out how to survive financially without Ukraine is likely to become an urgent issue. Even if Crimea votes to stay within Ukraine, the firebrand Konstantinov has said he would like to switch its currency from Ukrainian hryvnias to Russian rubles, a situation that would lead to “chaos,” according to the Finance Minister Shlapak.
For now, however, the battle is political. Having sought to retaliate for Ukraine’s anti-Russian revolution, Putin has an overwhelming advantage, with a military several times the size of Ukraine’s. “We cannot accept the situation in Crimea. And yet, I don’t think we can fight it,” says Iegor Sobolev, an investigative journalist in Kiev, who has been appointed to probe officials of Yanukovych’s ousted regime.
Like many Ukrainians, Sobolev says he is still barely able to believe that Crimea is under Russian military occupation. “I was at an Aspen Institute conference in Crimea last November, and if someone had told me that then, I would never have believed it,” he said over coffee on Sunday. He said he believes that winning over Crimea again will take a strong economy and government in Ukraine — something that might take years, after last month’s revolution. “Crimea is lost,” Sobolev says. “We will have to wait some time to get it back.”
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