BNE: Great Game II

(Business New Europe – bne.eu – Ben Aris in Moscow – May 2, 2014) The April 17 deal that brought Ukraine back from the brink of war may be coming apart at the seams, though its true significance is that it was agreed at all. Rather than an end in itself, the deal is a harbinger of how events will play out in the region for the foreseeable future.

The Geneva meeting brought together US Secretary of State John Kerry, Russian Foreign Minister Sergei Lavrov, his Ukrainian counterpart Andrii Deshchytsia, and the EU foreign policy chief Catherine Ashton. The deal agreed after seven hours of tense negotiations calls for the disarming of illegal groups in Ukraine, such as the pro-Russia militia that has taken over police stations and other buildings by force in eastern Ukraine.

All the state property captured by the various “separatist” groups is supposed to be returned to the state – though as of the end of April it still had not been – and a general amnesty was offered to all but those involved in a capital crime, in an effort to restore peace and reduce tensions. In political terms, the interim Ukrainian government agreed to start consultations about devolving more constitutional powers to the regions – a key Russian demand, which hopes to keep Ukraine out of Europe’s orbit by building closer ties with the Russophile east of the country.

The Organization for Security and Co-operation in Europe (OSCE) will be given the job not only of making sure the agreement will be put into practice, but also of helping to implement it.

Inevitably, the showdown in Ukraine this year has started talk of a new Cold War in Europe. But the real danger of a limited Russian military invasion makes this new period a lot hotter than the relatively stable standoff that preceded 1991. Mark Galeotti, professor of Global Affairs at the SCPS Center for Global Affairs at New York University, says what has been going on in Europe for the last six months is more like a “hot peace”, and better described as a new version of the 19th century Great Game than a new Cold War.

Subjugation by economics

Rudyard Kipling made the Great Game famous with his novel “Kim”, which is set against the backdrop of the struggle between Imperial Russia and Great Britain at the end of the 19th century for control of Central Asia and a route the Russian army could take to attack British India from the north.

A similar fight today has broken out between the EU and US on one side and Russia on the other, except this time the threat is not of military invasion but subjugation by economics – trade deals that will exclude one side and sew up the new markets for the benefit of whoever comes out on top.

The Cold War legacy is still relevant. Russian President Vladimir Putin complained in his speech of March 18 that the West is still following a policy of containment for Russia. But the big change is that the Cold War was also an existential struggle between ideologies – each side saw the other’s ideology as antithetical. Ironically, the closeness of “war” is what kept the peace: Mutually Assured Destruction (MAD) meant that neither side could actually attack the other. However, in today’s “Hot Peace” all the countries involved have the same basic ideology. The fall of the Soviet Union saw the death of the Communist experiment and all sides have accepted democracy and the free market as the basis of their systems – albeit with some pretty wide variations.

The US condemns Russia’s hybrid oligarch-statist version of capitalism, but is not intent on trying to change it. Likewise, Putin has no interest in exporting Russia’s model and imposing it on any other country. The salient characteristic of this dispute is the two sides have agreed to disagree.

The Cold War standoff was actually a pretty stable system, as an equilibrium between east and west was quickly reached. It was rules-based and channels for communication were set up to police the system so neither side could win a lasting advantage.

Today, there is little stability and new, powerful geopolitical forces are in play. In 1990, the world was roughly divided into 3bn capitalists and 3bn socialists. But following the fall of the Berlin Wall in 1989, the poorer socialists have joined the capitalists in a truly global economy. It was a tectonic shift of unprecedented proportions. After two decades of reform and recovery, all the newly minted capitalist countries of the east are finally finding their feet. The showdown between Russia and the EU in Ukraine is only the most obvious manifestation of this change.

Chinese whispers

It is not just Russia that is starting to flex its muscles. China too is rising and has been throwing its weight about in Southeast and Central Asia. US Defence Secretary Chuck Hagel was in Beijing in April to complain about China’s attempt to take over disputed islands in the East and South China Seas. He was met by “frank” comments from the vice chairman of the Chinese Military Commission, Fan Changlong, who was “dissatisfied” with Hagel’s criticism.

“The message to Hagel was intended to reflect China’s confidence in its abilities and to reiterate that the relative balance of military power in the region is changing,” US think-tank Stratfor said. “In other words, the United States should stop trying to prevent China’s emergence as a regional power and adjust its posture and policies to the changing reality of the region. There is indeed a change underway in the relative balance of power in East Asia.”

The dispute between China, Japan and others over who owns the islands is similar to Russia’s claims on Ukraine, except the US has significant economic exposure to China and so has been a lot more muted in its criticism of the Middle Kingdom’s aggression. At the end of Hagel’s visit, the two sides agreed that the way to deal with these disputes was through “more cooperation and engagement” – the opposite of the US approach to Russia, where the de facto policy appears to be direct confrontation.

China has also clashed with Russia in Central Asia, the home of the original Great Game. Despite outwardly friendly relations, Beijing is in competition with Moscow for influence amongst the ‘Stans – except instead of using British schoolboys pretending to be Indians and red-bearded horse traders from Lahore, the currency of today’s Great Game is investment deals, long-term credits and energy pipelines. Russia has accepted an increased presence of China in the region, partly because it receives ten- times more Chinese largesse than any of the Central Asian republics and it needs China more than ever as an alternative market to Europe.

Multipolar

The upshot is this new Great Game will be messy. And the April agreement struck in Geneva to lower the tensions in Ukraine is typical of the way it will be played.

Putin has made it clear that “taking” Ukraine away from Russia by striking exclusive trade deals with the EU was a step too far. The planned signing of the EU Association Agreement in November by former Ukrainian president Viktor Yanukovych (the failure of which to do ultimately led to his ouster) signalled the end of diplomatic options to Russia, so Putin turned to the only other alternative left to him – the military one.

The US has done the same in the many wars it has fought over the last 20 years. But the Kremlin’s goal is not to invade Ukraine and rebuild the Soviet Union, but to force the other side to the negotiating table and extract a compromise that is acceptable.

More generally, the fight over Ukraine is crucial for Putin, who has made the establishment of a new multipolar world to replace the unipolar world dominated by the US his key foreign policy aim. Putin is enough of a pragmatist to realize that Russia has forever lost its status as the “other superpower”, but nevertheless he wants to build up enough clout so it can, with the world’s other major powers (China chief amongst them), force Washington to tempter its actions on the global stage.

The new Great Game will be a process of probing enemy defences, politics, insurrection, corruption and liberally investing money in regions to bring them under your sway. These periods are inherently dangerous, as Germany found to its cost at the end of 19th century when it was the rising power in Europe following the unification of all the tiny principalities that created the modern German state.

In this new Great Game, the use of military force against the hegemony of the US remains absurd, says Galleotti. Neither China nor Russia could or would confront US military might directly. However, they are both making full use of the palette of alternative tools – military, political, economic, covert action, hard and soft power- to pursue what they see as in their national interest. “One of the particular characteristics of the original Great Game was that there was little real distinction between the instruments of conventional conflict and competition such as wars, diplomatic missions and treaties and those of the informal realm, from subsidized bandit chieftains to third-party intelligence freelancers,” Galleotti says. “Great Game II is one in which open state actions, deniable missions by state agents and the activities of mercenary agents (from computer hackers to local warlords) blend much more seamlessly.”

The “little green men” – military personnel in unmarked uniforms who there is growing evidence to suggest are in fact Russian special forces – in eastern Ukraine to the Cossack voluntary militia that patrolled the Sochi Olympics (and beat up the punk rock group Pussy Riot when they tried to perform a protest song) are going to become more commonplace. The “patriotic hackers” encouraged to bombard Estonian servers in 2007 were some of the first instances of this, as is the recent appointment of Dmitry Kiselev to run the revamped state-owned press agency RIA Novosti, who told his surviving staff in March: “Objectivity is dead.”

And as with any good game, you need two people to play. Kerry’s comment, “You just don’t in the 21st century behave in 19th century fashion by invading another country on completely trumped up pre-text,” was met with scorn even by the western press corps. To the Kremlin this message must have translated into: “We can do what we like, but you must do what we say.”

The mistake Washington has made – or better, the point Putin was trying to make with the annexation of Crimea – was Russia is no longer going to take these kind of orders lying down. “The West is equally guilty of playing the same game. Backing Libyan rebels against Gadhafi and then backing a range of rebel movements in Syria against Assad,” says Galleotti.

It was the same Great Game thinking that led the Kremlin to effectively close down all the foreign-funded NGOs last year and force them to rebrand themselves as “foreign agents” (the double meaning is the same in Russian as English). Obviously, most of these NGOs are legitimate, but some were not. That is not to say they were simply covers for spies, but some were openly promoting US-style democracy, which is (righty or wrongly) different to the Kremlin’s conception of it and in that sense the NGOs were another play in the game.

However, allowing the game to continue will have the pernicious effect of making the Kremlin more paranoid. Just like NGOs, everything and anything can potentially become an agent of conflict, any organization with foreign funding could be considered subversive; journalists, scholars, businessmen and tourists will all come under more scrutiny.

Big military

To be a member of a great power – and only great powers can play the Great Game – you need a big military. Like the Cold War, the threat of violence lies behind the machinations and without the threat of military action a player is not a credible force.

Russia learned this lesson the hard way during the Cuban Missile Crisis when it realised its navy was no match for that of the US and backed down. Afterwards Nikita Khrushchev invested heavily in the Soviet Navy, sparking a submarine arms race that is still visible today in the port in Crimea – one of the reasons Russia remains so touchy about losing Ukraine.

A clash with the West has been on the cards for a while now. bne wrote a cover story in April 2013 on a new brewing Cold War, pointing out Russia was ramping up its military spending to such a degree that the widely respected finance minister of the time, Alexei Kudrin, quit in protest.

Russia is now spending more than the US on its military as a proportion of its GDP (although this is still a fraction of US spending in absolute terms). At the same time Europe looks relatively weak, as almost none of the Nato members are meeting their treaty obligations to spend at least 2% of GDP on defence.

Another consequence of this Hot Peace is that it is breathing new life into Nato, which was set up to defend the West against a Soviet Union that no longer exists. Over the first decade of the 1990s, the organisation was slowly atrophying through the lack of use and budget cuts. But Russia’s first hostile troop movement in over 20 years when it took over Crimea has suddenly made the organisation look relevant again.

The downside of an expanded and real role for Nato will be to lock in the mentality of opposition and reinforce the Cold War perception of Russia as “the enemy” again. Both sides will slip easily back into their traditional roles of “Uncle Sam vs Red Ivan.”

Tug of war

Nothing highlights the parameters of the new Great Game more than the Ukrainian fracas. Europe has little economic interest in the country and the US has none. Russia has huge economic and strategic interests in the country. Ukraine’s importance to the West, as Central Asia’s importance to Russia last time round, is its location, at a nexus between two great powers.

And this political role is also clear in the terms of the deal that Kyiv is being offered. The Association Agreement precludes it from joining Russia’s Customs Union, but full

EU membership (and even Nato membership) is not on the table. Nor is there much in the way of EU funds. The Economist ran a chart in April showing how EU membership had transformed the standard of living for all the countries that have joined the EU since 2003, but what is missing from the chart is a measure of the hundreds of billions of dollars the EU has invested in each of these countries. Poland alone has received $150bn in aid: Ukraine is being offered $10bn a year for two years, all of the austerity of a new International Monetary Fund deal, but none of the structural funds granted to EU member states. “Poland is doing well because it has been subsidised by the EU,” argues Mark Adomanis, a contributor to Forbes magazine.

And Ukraine needs massive investment and reform. It is one of only two (along with Kyrgyzstan) countries in the region that has yet to surpass its Soviet-era GDP levels. In the last decade there are been next to no structural reforms at all; both the “Orange” and “Blue” governments have failed to get to grips with any of the country’s myriad problems. Berlin-based corruption watchdog Transparency International called it “the most corrupt country in eastern Europe” in its last ranking. And yet despite having all the problems

that Russia suffers from with knobs on, Ukraine has been deemed suitable for “partnership” with the EU. The truth is that Ukraine is important to the

EU in the same way that Afghanistan was important to the British Empire 100 years ago – because of where it is situated and nothing else.

Without Ukraine, Russia’s aspiration to set up a rival trade bloc – the Eurasian Economic Union that is due to come into being next year out of the current Customs Union of Russia, Belarus and Kazakhstan – will be thwarted. The Kremlin’s dream of creating a trading empire to rival the EU would be reduced to one bad-tempered natural resources producer surrounded by a necklace of poor bit players on the world stage.