Putin is about to absorb part of yet another country’s land

Energy Shocks
Energy Shocks

While Moscow continues to be hammered by low oil prices and western-led sanctions, it is doubling down on hard-edged political and financial retribution: Russia is preparing to absorb a province of neighboring Georgia, and delivering an ultimatum to Europe that it could lose much of the Russian gas on which it relies.

Ten months after annexing Crimea and igniting his current standoff with the west, Russian president Vladimir Putin will as early as this week take control of South Ossetia, a breakaway region of Georgia, with which he has a long, sour relationship. He is to sign a little-publicized accord that will hand over foreign policy, border control, and security to Moscow.

“Effective annexation is the word,” Tom De Waal, an expert on the Caucasus at the Carnegie Endowment, wrote in a comment on Facebook. As with Russia’s Crimean adventure, its South Ossetia movements appear permanent. De Waal went on, “Is there any way back? Never say never—if the border with Georgia opens again, it makes much more sense for South Ossetia to [again] be part of the economic space of Georgia.”

By numerous measures, Russia is in trouble. Its economy is on track to contract by 5% this year. On Jan. 14, Fitch downgraded the bonds issued by the Russian gas giant Gazprom and 12 other major Russian companies a notch above junk status. As with the world’s other big petro states, Russia has been hurt by the 60% plunge in oil prices since June—the value of the ruble has plummeted by about 58% and it is having to spend down its cash reserves.

The sanctions, imposed because of Russia’s invasion of Ukraine, have exacerbated the economic crisis.

Yet Putin has trundled on. In eastern Ukraine, 11 people were killed on a bus on Jan. 13 as Moscow-backed separatists continue to try to push Kiev forces from Donetsk Airport.

Gazprom has lashed out at Ukraine, its favorite punching bag. The company is no longer accusing Ukraine of failing to pay for its gas supplies. Now, it’s upset that Ukraine isn’t buying enough gas. On Jan. 14, Gazprom said that last year, Ukraine bought less gas than it promised, a miscreancy that played a key role in a terrible export year for the gas company, which sold less supplies than it has in a decade. Russia relies on gas exports to support 5% to 10% of the state budget.

Europe is another target of Moscow’s ire. On Jan. 14, Moscow informed the European Union that within two years, Russia will stop exporting gas to Europe via Ukraine, through which more than 25% of the EU’s gas supplies pass. Instead, it will be delivered via Turkey to Greece. From there, Europe will have to build adequate infrastructure to get the gas where EU customers want it. In an ultimatum, Gazprom’s CEO said that if Europe fails to build lines to coincide with the new Russian route, Gazprom will sell the gas to other customers.

What’s going on? Rather than succumbing to outside persuasion—that of western-led governments in addition to the voice of oil prices—Putin has argued that the west is simply intent on ousting him and weakening Russia. Channeling Putin, Russian analysts say the US in particular is deliberately provoking Moscow with diabolical plots such as the “Reverse Brzezinski,” an alleged Washington strategy to to draw Russia into losing battles.

Faced with these perceived attempts to undercut him and his country, Putin suggests that he has no choice but to pull around the wagons and stick it out. This could go on a long time.

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