It is reasonable, when looking at President Putin’s actions, to ask what his strategic objectives are, the “end game”, the place he wants Russia to be in 10 or 20 years. The short answer is he doesn’t really seem to have one other than to reconstitute a virtual Soviet Union, a sphere of influence that will make Russia once again a superpower to be reckoned with. But that seems more an impulse than a plan, and his actions in Ukraine will make it harder, rather than easier to achieve.

In fact, there is something oddly retrograde in Putin’s behavior, not just the politics but also the swagger. There’s more than a hint of the former Cold War KGB spy in the way he seems to view everything as a zero sum game – your gain is my loss. It is a truism of contemporary politics in advanced countries, especially in Europe with its bloody history, that nations are better off when their neighbours prosper and are at peace with each other. But Putin, with his anachronistic idealization of the thrusting nation-state, clearly prefers a weak, semi-failing Ukraine on his doorstep rather than a successful country that can look both West and East.

Putin’s approach to Russia’s relations with NATO is a case in point. When the Soviet Union collapsed, Western policy makers saw NATO as a way to reach out to Russia and establish a new relationship with mutually beneficial cooperation political and security interests. From the beginning, this goal was complicated by NATO’s other policy objective of offering membership to former states of the Soviet empire in Central and Eastern Europe. When the two objectives came into direct conflict, it was usually the Russians that had to back down. President Yeltsin put up with it because he saw little alternative to greater cooperation and, besides, Russia was in a state of chaos. When Putin took over, he too was reasonably accommodating including allowing, in the aftermath of 9/11, American use of Central Asian air bases to pursue their war against the Taliban.

Then, with the second round of NATO expansion over Russian objections, Putin’s attitudes began to harden. There were efforts to improve dialogue, but much of that was wishful thinking. With his election victory in 2004, Putin felt more secure politically and Russia itself was emerging from its various economic catastrophes as a significant global economic force, especially in the energy sector. His disaffection with NATO and the “cooperation: agenda came to a head with Putin’s blistering attack at the Munich Security Conference of February, 2007 on US Foreign Policy, NATO, the OSCE and the unipolar mentality that did not treat Russia with sufficient regard.12 President Obama’s efforts to improve the political atmosphere by hitting the “reset” button with Russia brought some easing of tensions but, in all essential ways, Putin had decided on a new course for Russia; greater insecurity in Europe and elsewhere is an acceptable – perhaps a welcome – cost of pursuing great power status for Russia.

His one success so far in this crisis has been the annexation of Crimea. Despite the rattling of a few (very small) sabres, he has probably gotten away with it. Analysts point out that delivering on his promises to Crimea will turn out to be very expensive,13 but that carries little or no weight within Russia itself. A substantial number of Crimeans identify more with Russia than Ukraine. It is also true that Russia has critical strategic interests in maintaining control of its Black Sea fleet. No one accepts the manner in which it was done, but no one has had any plans for reversing the annexation. President Poroshenko, with his initial successes against the rebels, says he will retake Crimea, but it is hard to see how he can do that without inviting a full Russian military response. Score one for Putin and Russia.

From there, it starts to go downhill.

Politically, it is tough to be a great power at the table if you are not even at the table. Russia’s exclusion from the G-7 meetings this year may seem relatively trivial, but those things matter. Back in the days of the Soviet Empire and Cold War competition around the globe, Soviet leaders had their own sizeable international audience to play to, but those days are over.  Putin appears to have thought his annexation of Crimea would bring considerable acclaim as a brave move against Western imperialism, but it hasn’t; leaders around the world are not rushing to support countries that bite off a chunk of territory from their weaker neighbours. China’s abstention on the UN Security Council vote condemning the referendum in Crimea can, when seen against the background of China’s votes on some other Western-backed resolutions, be seen as diplomatic support for the resolution.14

The Eurasian Economic Union – first proposed by Kazakhstan’s President Nazarbayev 20 years ago – was supposed to be a pillar of the new, powerful Russia, a reconstitution of the former Soviet economic space (with a few missing pieces like the Baltic States) with enormous energy and other resources to exploit. Even before the Ukraine crisis, it was looking shaky on economic grounds alone; now, even though Russia, Belarus and Kazakhstan signed the treaty on May 29, 2014 bringing it into effect in January 2015, current and potential members worry it is more political than economic, a vehicle for Russian irredentism and not regional economic advancement.15 The biggest setback by far is the loss of Ukraine to the EU “sphere”; Putin has overplayed his hand and the Eurasian Union, his great hope for a counterweight to the economic might of Europe, the USA (and, unspoken, China) looks pretty anemic.

Economically, energy has been the trump card for Putin; the fact that a number of EU states are largely dependent on Russian gas has dampened European enthusiasm for strong economic sanctions. This will, however, be a short-term “victory”. As it did in 2005 and 2009, Russia has shown itself to be an unreliable supplier, willing to use commercial contracts as political weapons. EU nations now seem determined to develop measures to counter their reliance on Russia. The EU is “re-exporting” to Ukraine some of the gas it buys from Russia, despite the cries of anguish from Russia. The Baltic States and Poland are intensifying efforts to boost their capacity to import liquefied natural gas (LNG) from other countries. The relatively high price for LNG is forecast to decline over the next decade as new sources, including shale gas in the USA, expand. Ukraine is planning to invite foreign participation in its gas transmission and storage sector, which should make it more productive and efficient. The development of shale gas in some European countries is hotly debated, but Ukraine itself seems determined to develop its own shale reserves, estimated to be the third largest in Europe. Germany is putting in place extensive measures to improve energy efficiency and expand its use of renewable energy.16 If only some of what is being discussed moves forward – and that is always a big “if” – then the energy picture in Europe could look very different in 5-10 years’ time. And if Iran gets back into the world energy market in a big way, that could further upset Russian calculations that their energy supremacy gives them the upper hand in any conflicts with European countries.

The EU also has leverage over the proposed South Stream pipeline that would carry Russian gas from the Black Sea through Southern and Central Europe to Italy. The project is strongly supported by the countries that would benefit from the pipeline’s construction as well as the gas. The European Commission, however, has said the Gazprom monopoly violates EU competition policy in the energy sector. Bulgaria stopped construction June 6 on the project to meet EU demands that the project not go ahead until the legal and regulatory issues are settled, but it is not at all clear how long the EU can delay the project. The Russians are saying it can meet any objections and the project will go ahead; the Austrian deal between its largest energy company OMV and Gazprom signed on June 24 was seen as a blow against any purported EU solidarity, but the Austrians acknowledge that any future actions must be compliant with EU policies and so there is still considerable EU authority over the entire project. 17

The energy deal Gazprom signed with China was touted as an example of how Russia was immune to Western threats of energy diversification. The details are not public, but experts treat Russian claims that the terms are at least as good as those they have with EU countries with skepticism.18 

Finally, the crisis with Ukraine will not help Russia deal with its own economic woes.19 The first sets of sanctions may have looked mild, but their effects have been considerable; foreign investment is down, many plans are on hold and potential investors are leery of the direction the country is taking. External debt markets have been largely closed to Russian companies since Crimea. In the short term, growth will be even lower than the already poor forecast; the new, tougher sanctions aimed at specific sectors could throw the economy into a period of contraction. Higher interests rates have been necessary to defend a falling ruble and inflation is rising. Putin believes the state can make up for the shortfalls; state enterprises now account for over 50% of the economy by some estimates, up from 30% when Putin took office as Prime Minister in 1999. The popular support Putin receives at home could dissipate when the economic costs of fulfilling his promises to Crimea come due. The longer-term prospects are not bright either. The IMF says that Russia has not done enough to integrate itself into the global economy, at a cost to its productivity, competitiveness and prospects for growth.20 If relations with the West deteriorate further, even without the imposition of tougher sanctions, international confidence in Russia as a destination for investment and technology transfers will erode, with serious consequences for the health of the country.

A further blow was the July 28 ruling by the Permanent Court of Arbitration in The Hague  ordering Russia to pay $50 Billion to the former majority owners of Yukos Oil Co.21 The Court ruled that the Russian State had dismantled Yukos for illegitimate reasons rather than for the stated reason of tax evasion. Russia will appeal but, even if it loses, it is unlikely to pay the penalty. Nevertheless, the decision is bad for Russia’s economic health: it will only increase foreign investor fears about the lack of a fair and functioning system of justice in Russia; and Rosneft, the Russian oil company, and Gazprom both benefited from the forced sale of Yukos’ assets and they may be liable to actions in foreign jurisdictions to recover some of the money owed to Yukos’ owners.

As Russia is learning, interdependence cuts both ways. Putin brought greater discipline and predictability to the Russian economy (though they still have a way to go) but that has also meant greater integration into the global economy.22 While he may succeed in the short-to-medium term in increasing European dependence on Russian gas, that also increases Russia’s vulnerability to changes in the international energy market, including new sources, lower prices, and an economic downturn with reduced demand in their foreign markets.23 The Russian oil and gas sectors accounted for 70% of total exports and 52% of total Russian Government revenues;24 the overwhelming bet that Putin has made on rising demand for Russian energy at high prices could, in the absence of economic reforms elsewhere in the economy, prove disastrous at some point in the future.

The immediate challenge is to get out of the current situation with as little bloodshed as possible and with reasonable prospects that relations with Russia will become more manageable and predictable, if not good. There is a feeling that the Russian business community is “getting the message”.25 It is not clear what is going on in the inner sanctums of the Kremlin, but any easing of the current tensions by Russia will be due to economic realities finally beginning to sink in. Some Russia watchers believe Putin is “looking nervous” but that is no guarantee that he will be searching for a way out of this mess.

Two institutions are key players to watch —Gazprom and Russian television, both very close to Putin and both central to the way he has played his hand, both domestically and abroad. If their unrelenting hard lines continue, then it will be seen as signs that Putin will not back down. But, if the domestic propaganda throttles back a little and Gazprom becomes more reasonable in its demands on Ukraine, then it could signal that Putin too wants to find a way out of the current situation.

It may not, however, be an easy exit. While it is unquestionable that Russia has supported and sponsored the separatists in eastern Ukraine, this does not mean they can easily get that particular genie back in the bottle. There are plenty of examples around the world of countries sponsoring violent uprisings in neighbouring countries only to see their control over events slip away as the insurrections take on a life of their own. There is an interesting paradox: if Putin can call the separatists off, enforce a ceasefire and support effective negotiations towards a solution, it shows he has been without doubt the driving force behind the violence; if he cannot get them to stop, then he has lost much of his value as a force to be reckoned with on Ukraine.

The Malaysian Airlines tragedy brings this into sharper focus. The evidence so far points to the plane being shot down by a surface-to-air missile fired from rebel-held territory in Eastern Ukraine. OSCE-led efforts to secure the site, transport the victims home and investigate the event were frustrated by the rebels, deepening the sense of loss and shock. We may never know exactly what happened; the likeliest scenario at the moment is that a rebel anti-aircraft crew, using either captured missile systems or ones provided directly by Russia, made a mistake and thought they were firing at a Ukrainian military plane.26 The Russian propaganda machine’s efforts to explain the tragedy away as the result of Ukrainian Government actions may go down well at home but simply disgust the rest of the world.

The Independent newspaper reported that a deal was being worked on by Chancellor Merkel of Germany and Putin that would involve major concessions on both sides. It would go something like this: Russia stops all support for the rebels and Ukraine agrees not to apply for NATO membership; the international community would recognize Crimea’s independence and subsequent decision to join Russia and Russia would pay Ukraine $1 Billion in compensation for rent foregone for the Russian naval base in Crimea; Ukraine would be offered a long-term agreement with Gazprom for gas at a stable price; Russia would not interfere in Ukraine’s trade and economic relations with the EU. The report was denied by the German Government and a British Foreign Office spokesman is reported to have said that, were such a deal tabled, it would be unlikely that the USA and UK would recognize the annexation of Crimea. 27

Short of an outright defeat of Putin and the rebels, there will have to be a deal that allows Putin to back off while declaring a victory to his audience at home. The alleged plan with Merkel may be “on hold” or may not even exist in fact, but the elements of the “plan” are the kinds of trade-offs that may be needed to pull back from the crisis. And, despite the obvious misgivings raised by such trade-offs, on balance this kind of package would be a significant defeat for Putin.

On the other hand, Putin is raising the ante with greater support for the rebels, whether to strengthen his position in eventual negotiations with the West or because he is determined to see the crisis through to the end on his terms alone. If he decides to increase his military support further, he could initiate a series of provocative steps to “protect” ethnic Russians from Ukrainian forces such as the insertion of Russian “peacekeepers” between the rebels and the Ukrainian military or the establishment of Russian “humanitarian corridors” into the region. At that point, the downward spiral may be unstoppable.

Let’s assume, however, that somehow a way is found out of the current crisis. What then for the longer term?

The first thing to recognize is that, for us, the relationship with Russia is not a zero-sum game. True, there will always be people who see relations with Russia in Manichean terms, but that is not where the policy decisions are made. Russians do feel aggrieved at the fall in their global status and resent deeply the kind of triumphalism we have sometimes seen in the past regarding the disintegration of the Soviet Union. On a very human point, it is with noting that, when the Soviet Union broke up, 25 million Russians found themselves living “abroad”. NATO has, at times, been maladroit in its handling of relations with Russia and its Secretary General’s comments in the early days of the crisis made it sound like war was just around the corner. Greater sensitivity towards understandable Russian concerns will be important. At some point, we will once again have to consider ways in which to engage Russia constructively in European and global security architectures.

Second, as a corollary to the first point, we have no interest in driving Russia down. The Russian economy is in no danger of collapsing, but the events of the last six months – combined with their own economic mismanagement – could do major damage to Russia. If Russia does pull back in the coming days and weeks, it will be more because of the costs to their economy than to any desire to re-establish cooperative relations with the West. And those costs flow directly from the degree of Russian interdependence with the global economy that has developed over the last 20 years. We should press on with efforts to diversify the sources of energy in Europe while also encouraging Russia to modernize and broaden its economy. A prospering Russia tied into the global economy is in everyone’s interest. This will not be easy with Putin in charge, but the economic problems he faces will limit his options for further provocations and, besides, leaders do change.

Third, Ukraine has to shake off its recent past and get on with its reforms. It is considered unlikely that Putin wants to annex parts of eastern Ukraine but the troubles there will not simply melt away. The Ukrainian Government will have to develop realistic plans quickly for greater political autonomy in the east, something that President Poroshenko has said he wants to do. Without a satisfactory political settlement for the east, Ukraine will find it difficult to proceed with its reform plans for the country as a whole. Quite separate from the eastern crisis, there will also be entrenched interests that try to undermine any challenges to the status quo. There has always been a hope that a prosperous and democratic Ukraine could sit comfortably between Western Europe and Russia: as utopian as that may sound now, with a combination of good policies and good luck that idea might take root sometime in the future.

Fourth, the European Union faces a test of its capacity in making good on its agreements with Ukraine (and Moldova and Georgia). The risks of political confrontation with Russia will not go away any time soon; the “demonstration effects” of an EU failure would suit President Putin’s ambitions for his own Eurasian Economic Union. The EU has taken on a massive project in Ukraine and the risks of failure are considerable.  The political and economic agenda is ambitious and could easily overwhelm Ukrainian capabilities, even if there is strong support in the government and the population to move forward. Despite the risks and misgivings, however, the commitment of the EU is genuine and deserving of support.

And fifth, although we have not discussed specific USA policies, we see once again that American engagement in Europe remains critically important. American sanctions and continuing pressure on Russia have been important in moderating Russian behaviour, but they have also helped prod the EU into more concerted and robust positions. America’s influence in the world may be declining, but it remains the only essential country.

Gary Soroka, born in Montréal, was educated in Canada and the University of Edinburgh where he received his PhD in Political Philosophy. He joined the Department of External Affairs in 1976, and served at Headquarters in the Political and Strategic Analysis Division, the Cabinet Liaison Division, the Policy Planning Secretariat, the Personnel Bureau and the Consular Policy Division.

He became Director of Political and Security Policy in the Policy Planning Bureau in September 1993, and senior policy advisor in 1995.

Dr. Soroka has served abroad in Canadian Embassies and Consulates in Washington, New Delhi, London, San José Costa Rica and Berlin. In 1986-87, he was the Canadian Exchange Officer in the Australian Department of Foreign Affairs in Canberra, Australia.          

Dr. Soroka spent most of his career within the Department as a specialist in the area of foreign policy: he worked on four major foreign policy reviews during his career as well as on many specific policy issues. In 1990, he was brought back from India on special duty to develop the central concepts for a major review of Canadian security policy. In 1993, he was brought back from London on special duty to work on a task force looking at the role of, and appropriate structures for, a forward-looking, relevant and adaptable foreign ministry. In 1993, he was awarded the first ever Minister’s Award for Foreign Policy Excellence.

Dr. Soroka was one of the Department’s lead foreign policy speechwriters, and he has written many speeches for Canadian Prime Ministers, Foreign Ministers, Ambassadors and senior officials on diverse foreign policy subjects.

Dr. Soroka is married to Sabine Sparwasser, a member of the German Foreign Service, and they have two children. He currently divides his time between Berlin and Toronto.