Summary and Explanation of the Ukraine Crisis
The Ukraine crisis is a power struggle between factions within Ukraine; one wants to align with the European Union and the other with Russia. Ukraine had been an important contributor to the Soviet Union's economy between 1920–1991, but in March of 2014, the current crisis erupted when Russian special forces occupied Ukraine's Crimean peninsula, claiming it was protecting its port access to the Black Sea. Ukraine had planned to develop Crimea's natural gas reserves in two years in a partnership with U.S. companies, and if they had accomplished this, Russia would have lost one of its largest customers.
Between 2014–2018, a military conflict between Ukrainian soldiers and Russian-backed separatists continued in eastern Ukraine, and more than 10,000 people were killed. On November 25, 2018, Russian ships attacked and boarded three Ukrainian vessels in the Crimean port of Azov near the Black Sea. It placed a freighter to block the port, stating that Ukraine had violated Russian waters, although the two sides signed an agreement in 2003 to guarantee free passage through the strait. Critics at the United Nations Security Council meeting said Russia's attack was a violation under international law. The North Atlantic Treaty Organization increased its military presence in the area.
Explaining the Conflict
Putin's attack responded to the February 23, 2014 overthrow of his ally Viktor Yanukovych, where the pro-West faction of Ukraine's Parliament took over the government. The crisis occurred because Yanukovych mismanaged the budget and forced Ukraine to ask for financial help. It appealed to the EU, then Russia, causing political unrest. Those who wanted to be closer to the EU objected when that solution was abandoned. Russia's military strike supported Yanukovych's return to Kiev and closer ties to Russia.
In April 2014, Russia supported local rebels who took over city halls and police stations throughout eastern Ukraine, an area home to ethnic Russians who don't want to be part of the EU. Those Russians were moved there 50 years ago by Joseph Stalin, who intended to strengthen the Soviet Republic's hold on the area.
Earlier that month, NATO revealed satellite photos showing Russia's invasion of Ukraine's eastern border. An EU emergency meeting added further sanctions on Russia's oil and banking sectors, which occurred shortly after Russia sent a convoy of trucks over the border. They were bearing aid to Ukraine's eastern cities, held by pro-Russian rebels. Several of those trucks entered without approval.
Ukraine had also destroyed a convoy of Russian military vehicles that were bringing arms to the rebels. It was the first time that Ukraine attacked Russian forces directly. A few days later, Ukraine reported that several military vehicles were near the Russian border at the Crimean port of Azov. It claimed that Russia was creating a second front for the rebels and wanted land access through southern Ukraine—a shorter route to Crimea.
In July 2014, Russia built up its military force on the border. There were 19,000–21,000 troops, 14 advanced surface-to-air missile units, and 30 artillery batteries. It was a battle-ready force that could launch an attack into eastern Ukraine at a moment's notice. Russia had already launched rockets across the border in support of Ukrainian rebels.
Why Ukraine Is so Important to Putin
Putin's standoff over Ukraine boosted his popularity rating in Russia to 80%. To maintain this popularity, he will continue to hold onto Ukraine despite the cost. For example, it would cost Russia more than $20 billion through 2020 to integrate Crimea. Putin knows that NATO won't protect Ukraine since it is not a member, and that encourages him to continue to attack.
Ukraine, which provided one-fourth of Soviet agricultural output, had been the second-most important contributor to the former Soviet Union's economy. It also supplied heavy industrial equipment and raw materials to industrial sites throughout the former USSR.
Sanctions Against Russia
On July 29, 2014, the United States and the EU extended economic sanctions against Russia. They wanted to convince Putin to stop supporting those in eastern Ukraine who want to break up the country. The United States had proof that Russia supplied separatists that shot down a Malaysia Airlines commercial jet over eastern Ukraine on July 17, killing 298 people.
The sanctions severely limit five out of the six major Russian banks' ability to obtain medium and long-term financing from Europe. The United States also restricted technology exports to Russia's deep-water Arctic offshore or shale oil production. Russia had already been ousted from the Group of Eight.
As a result of U.S. sanctions, British Petroleum was worried about its profits. Bank of America cut its exposure to Russia by 40%, and Boeing and United Technologies started hoarding titanium. In response, Russia banned imports of U.S. and European foods for one year. This included $300 million of U.S. poultry products.
After the sanctions, foreign direct investment in Russia dropped by $75 billion, which was roughly 4% of the country's gross domestic product. Its stock market plummeted 20%, and its currency, the ruble, fell 50%. To head off inflation, Russia's central bank raised interest rates.
The sanctions created a recession in Russia, and the International Monetary Fund cut its 2014 growth forecast for Russia from 3.8% to 0.2%. Russia is one of the emerging markets that suffered a currency meltdown in 2014. Forex traders abandoned these markets when the Federal Reserve began tapering its quantitative easing program, which reduced credit around the world. Even though Putin continues to be popular at home, these sanctions are hurting the country's economy.