Ukraine: how can the west bring Russia to heel?

Monday 01 Sep 2014

With the Ukraine government alleging “hundreds” of Russian tanks have crossed into its territory, European leaders are, once again scrambling for a response.

But a response to what? Russian intentions are becoming hard to read.

Militarily it’s fairly clear that, after the loss of territory by the original Donetsk People’s Republic rebels, and massive loss of face after the shoot-down of MH-17, pro-Russian forces have opened a third area of operations, along the south coast of Ukraine, threatening to create a land corridor from Russia to occupied Crimea.

At the same time as Vladimir Putin has begun to talk about “Novorossiya” – code for Russian annexation of Dontetsk and Luhansk oblasts – his foreign minister, Lavrov, has called for a ceasefire.

I read this not as incoherence but a message: since you, the west, cannot bring yourselves to do anything to deter us, we the Russians will demonstrate our capability to make this situation endlessly chaotic. Endless chaos for Ukraine is the Kremlin’s plan B once it cannot control Ukraine; chaos in which the West can never guess whether Putin intends to drive tanks towards Odessa, or pull them back across the border.

More sanctions

In response the EU has ordered its civil servants to prepare a new round of economic sanctions. The UK is said to be pressing for the closure of the SWIFT bank-clearance service. (Glance at your own bank statement: in the top right corner there will be a SWIFT code for your branch: that’s how fundamental SWIFT is).

Closing off SWIFT would be a big move. Even if targeted it would severely limit some Russian firms’ ability to do business with the rest of the world. It would put the onus on major banking groups to police the embargo – and as they found out with Iran, the cost of sanctions busting can be billions.

But Angela Merkel said at the weekend she wanted any future sanctions to be mapped onto the old ones – that is, closing loopholes and tightening the noose on the small group of Russian businessmen and two or three giant banks and oil groups aligned to Putin, who’ve been prevented from travelling, and in some cases from issuing bonds on Western markets.

Slowly, the Nato leaders are having to re-learn the art of statecraft the hard way. Putin knows they will not use military force. He knows their preference is to go back to the old situation, and they want to leave as many doors open as possible. He also knows they cannot “read” him – since even his own close aides cannot read him.

The problem for the East is, between sanctions that make life difficult for a few people and the paralysis of the entire Russian finance system, there are very few gear changes in-between.

Military trading

So into the gap come weapons. Croatia has done a nifty deal to supply 14 Mi-8 transport helicopters to Ukraine, in return for the USA giving Croatia some second-rate US AH-1 attack helicopters.

Meanwhile Hungary has supplied 58 soviet-style T-72 tanks, usable by the Ukrainian military, to a private firm in the Czech Republic, which a Polish newspaper has said will end up, eventually, in Ukraine.

Poland’s national security chief has declared there is no constitutional obstacle for Polish weapons going to Ukraine, and insiders believe the ground is being laid for bilateral Polish-Ukrainian military aid.

Lithuania’s prime minister said yesterday: “Russia is practically at war against Europe.” She called on EU countries to supply Ukraine with weapons saying: “Ukraine is fighting a war on behalf of all Europe.”

Dependence on Russia

This is not just rhetoric.  Europe’s big powers will not go down the route of harsher economic moves:  Germany has its gas dependence on Russia, Italy has its financial dependence, and Britain has large part of the Russian elite interspersed into its own business elite. So those small countries with a life-or-death dependence on the Nato guarantee – Poland, Lithuania, Hungary – are preparing if not boots on the ground then tracks on the tank transporter.

In addition, Nato announced it has created four trust funds through which western governments will fund the Ukrainian military’s logistics, its command and control systems, cyber warfare and payroll. That’s quite a lot of proxy warfare for a country that is still formally non-aligned, though Ukraine’s PM said at the weekend he would propose to end the country’s non-aligned status and re-start moves towards Nato membership.

Make no mistake, serious sanctions by the West would collapse the Russian finance system, and very quickly. It’s often said the reason they are reluctant is the harm it would do our own economies directly.

As I’ve written before, there is a bigger impediment: overt use of economic and financial sanctions by western countries where the “plumbing” of the global system sits – in SWIFT’s case it is Belgium – would be interpreted across the world as a step back from globalization.

That’s why they are not making moves on the basis of one town, or one satellite image from Ukraine. But the less they do economically, the more we’re going to see Nato’s eastern members act bilaterally.

- See more at: http://blogs.channel4.com/paul-mason-blog/russia-ukraine-sanctions-swift/2165#sthash.q0VtRUrp.dpuf