News / Economy

Crimea Secession Likely to Spark Economic Disorder

An elderly woman walks at the main railway station in Simferopol, Ukraine, Friday, March 14, 2014
An elderly woman walks at the main railway station in Simferopol, Ukraine, Friday, March 14, 2014
When Crimea’s two million people wake up Monday after likely having voted in Sunday’s snap referendum to break with Ukraine in favor of joining the Russian Federation they will quickly feel the impact in their pockets from the secession and will endure months of economic disorder, say analysts.

“It is going to be a long and painful process and the chaos is going to hit and cost ordinary people hard,” says Yevhen Panchenko, a professor at Crimea’s Economics Institute, a branch of the Kyiv headquartered National University.

A lack of planning for how the region will manage the split with Ukraine – how Ukrainian state property will be handled, whether Ukraine will be compensated on assets losses or when existing private-sector business contracts have to be re-written to comply with Russian law – will compound the turmoil, he says.

No plan for the future

Russian and Crimean officials have discussed none of the economic or legal repercussions of breaking with Ukraine apparently. On March 14 at a press conference in Simferopol, Crimea’s newly installed Russian separatist Prime Minister, Sergei Aksyonov, said that all the technical details will be examined by working groups meeting in Moscow following today’s vote on a break-up.

An overwhelming majority of Crimeans is likely to back secession in a referendum called after Russian forces invaded the diamond-shaped peninsula. The Ukrainian government and Western powers say the plebiscite is illegal and is being held in an atmosphere of intimidation with an invasion force present and bands of uniformed Russian separatists patrolling the streets.

Ukrainian television channels have been blocked in the run-up to the vote and replaced with Russian channels. And rights groups say so-called “self-defense units” and paramilitary forces in Crimea have been abducting and harassing activists and journalists. “Crimean authorities are allowing illegal and unidentified armed units to run the show in the peninsula, and to commit crimes that go uninvestigated and unpunished, as if there is a legal vacuum,” says Rachel Denber of Human Rights Watch.

Currency issues

The first thing Crimeans are likely to see happen economically after the referendum is an abrupt replacement of the Ukrainian hryvnia as their official currency with the Russian Ruble.

According to Aksyonov, the currency switch could be introduced within days. Again he has been short on the mechanics of the process and hasn’t indicated whether there will be an official rate of exchange or whether the hryvnia will remain a legal tender for a few months to ease the switch.

The lack of planning for Crimea’s split with Ukraine stands in marked contrast with the detailed arrangements put in place for the 1993 dissolution of Czechoslovakia, say analysts.

State property in limbo

The question of what will happen with Ukrainian state property is worrying the director of Crimea’s Economics Institute, Victor Reutov, who says he has no idea who will own his higher education establishment in the coming days – Ukraine or Russia. Many of the institute’s 3000 students came from other parts of Ukraine.

“There are two ways this could go,” he says. “We were, we are and will be part of Kyiv National University and nothing will happen to us and nobody will cut us apart from the National University or we will be told we now belong to Russia.”

He adds, though, ruefully: “But there is an old Russian proverb: the bear is still alive but his body has already been divided up.”

As far as Yuriy Meshkov is concerned all of the bear should be Russia’s. Meshkov, who was President of Crimea between 1994 and 1995 and has been a longtime advocate of Russia annexing Crimea, says, “Everything in Crimea belongs to Russia, all the buildings and everything that Ukraine claims will be nationalized.”

And that includes all of Ukraine’s 19 warships currently being blockaded by the Russian navy in their ports in the Black Sea and all Ukrainian military equipment housed in dozens of bases in the peninsula.

Ukraine controls Crimea power and water

Such a move could prompt Ukraine to unleash an economic war on Crimea – it has some leverage. Most of Crimea’s electricity, water and food are supplied from the Ukrainian mainland through a narrow corridor connecting Crimea to the rest of Ukraine. There is no land connection with Russia and the energy challenge was one of the main reasons then Soviet leader Nikita Khrushchev transferred ownership of Crimea to Ukraine in 1954.

Eighty percent of Crimea’s water and 90 percent of its electricity comes from Ukraine. In an economic war Ukraine could cut off electricity and water. But to do so would no doubt trigger Russia to cut gas supplies to Ukraine. Russia has already raised the price of the gas it sells to Ukraine.

Speaking at the March 14 press conference Aksyonov hinted that some deals could be reached with Ukraine over Ukrainian state property. “It depends on how Ukraine behaves after the referendum,” he said. “Maybe we will pay some compensation, maybe we will pay some over time and maybe we won’t pay.”

Reparations could be costly for Moscow

Any compensation offered would add to the bill Russia will have to pay for Crimea. The peninsula is not economically self-sufficient and since 1991 has received more in subsidies from Kyiv than it pays in taxes. Its two main industries are tourism and agriculture but the former will likely be hit by the annexation with Russian visa requirements deterring Western tourists.

Russia has already committed a billion dollars for the next year for Crimea but some economists estimate annual costs for Moscow will be closer to $3 billion a year. Russian Prime Minister Dmitri Medvedev has already promised a 4.5 kilometer bridge will be built when Crimea is annexed to link the peninsula with Russia – that alone will cost half-a-billion dollars.

In the run-up to today’s referendum separatist leaders highlighted the fact that Russian state pensions are higher than Ukrainian ones – that was about the only economic detail offered in the days leading up to the vote.

* an earlier version of this report mistakenly referred to Nikita Khrushchev as president; VOA regrets the error.

You May Like

Video Anti-Muslim Sponsor of Texas Cartoon Contest Draws Ire

Pamela Geller's supporters say she speaks truth about sensitive topic, while critics say she preaches 'that Islam is inherently evil' More

East Meets West in Exhibition Showing Chinese Influence on Fashion

Metropolitan Museum of Art exhibition juxtaposes influence of art, imagery and culture, from Imperial China to the present day, on Western fashion and design More

South Africa Begins New Love Affair With Vinyl Records

Enthusiasts say the 'rebirth' of vinyl is resulting in a rebirth of music in South Africa More

This forum has been closed.
Comment Sorting
Comments page of 2
    Next 
by: Not Again from: Canada
March 17, 2014 8:35 PM
It will be a costly mistake for Russia, in our Western eyes, but Russia and its people are used to terrible conditions; the Czars in their expansionist wars, got millions killed, even before the World Wars; during WWI estimates of to 2+ million killed, and not counting the revolutionary wars communist/white forces killings that added at least another 3 o4 million, and then by various causes, like starvation, progroms, Siberian Gulags, to as many as 15 million; WWII over 35 million killed, etc. In each instance, Russia chose to sacrifice its people so as to expand its territories/ borders. Thus from a historical context, Putin is no different, than the many expansionist leaders of the Russian past, like Peter the great, Ivan the Terrible, Catherine, Stalin etc; after all, they did clear most of Siberia, most of central Eastern Europe, and they did defeat the greatest Western general of the new ages, Napoleon Bonapart. So the choice, Putin made, was very predictable. The Russian people will just go back to what they are used to = difficult, miserable, poverty striken life, in darkness; but the territory they will hold. It is an unfortunate choice, but not unexpected; and that is why they do have the largest country on the planet. Violence, supression, lack of human rights, propaganda, is their way of life, and they are not going to change, notwithstanding those that see a different way, like the Russian writters, philosophers, scientists, mathematicians, journalists, lawyers etc. History just repeats itself, because of ignorance in the West, they forgot what Russia was all about, and retrograde visions, expansionism, as historically usual in Russia.
In Response

by: Anonymous
March 20, 2014 5:34 PM
Bringing in all this history is besides the point. Ukraine couldn't manage Crimea and keep it happy, under Russia's wing they will. Look how quickly citizens were given Russian passports. It is Western propaganda. Write articles about the people who want Crimea to join Russia, and why!

by: Dr. Joseph Spack from: NJ
March 17, 2014 8:00 AM
Roman, from Belarus is correct but ultimately economics prevail and the land-based model of political analysis is an anachronism.

by: mike k. from: nyc, ny
March 17, 2014 3:30 AM
Dr. Spack ought to read more news sources than the propaganda he obviously adheres to.Absurd.
In Response

by: Dr. Joseph Spack from: NJ
March 17, 2014 7:53 AM
I have a PhD in political science and work in the field. Russia's Czars have always neglected the economy while emphasizing the anachronistic land-based power model. Russia is doomed to fail once again.

by: Dr. Joseph Spack from: NJ
March 16, 2014 10:19 PM
Russia, as I stated, will lose this "war" and America will once again win it. This is the wake up call for Europe as Pearl Harbor was for us. Europe will seek to shed its dependence from Russia for energy and we will in due time replace the Russians. Ultimately, Ukraine is not important to the West and it will be a phenomenal financial burden for Russia. Czar Putin is repeating the same economic mistakes his predecessors made and the results will be identical.

by: Davis K. Thanjan from: New York
March 16, 2014 6:40 PM
While Crimea is not self sufficient, Russia has to unload rubles to stabilize the economy. While Ukraine hold the trump card for the supply of electricity and water to Crimea, Russia hold the trump card for the supply of gas to Ukraine. The compensation for the seizure of Ukrainean buildings, military bases and 19 war ships will be an enormous sum of rubles. While the expense of maintaining Crimea is expected to be a heavy prize for Russia, the impact of the economic sanctions by the US and EU are expected to be a disaster to the economic and political standing of Russia. The Russian ruble is expected further down fall. In the end, common sense will prevail in Moscow after a long protracted agony. Remember Cuba. Finally, Russia will stop the economic support for Crimea, similar to what happened in Cuba.
In Response

by: Roman from: Belarus
March 17, 2014 3:15 AM
I agree with you. Crimea will cost a big price for Russia. And she will
soon regret about this idea. But this is not the point. Russia is scared about idea of extending NATO in the region next to it border. People, that has come to power in Ukraine, so hate Russia because they think that Russia(an USSR too) too long opressed their independence though they almost never had it(sometimes they was part of Lithuania, sometime Poland, but they don't express the same feeling to them like to Russia). These people will allowed to deploy NATO bases on it territory cause they only want to harm Russia. And getting Crimea back is just a way to save their navy base at the Black sea. And I think they have rights to do that cause Crimea was part of Russia for 1.8 century and was just transmited to Ukraine in 1954 by Ukrainian leader of the USSR, Chryshchev. And more than half of Crimian are russian.

by: meanbill from: USA
March 16, 2014 4:50 PM
THE WISE MAN said it; ... The 2 million plus Crimea citizens will enjoy the 100 million dollars the Russians paid Ukraine yearly for renting the Russian Black Sea base, instead of Ukraine getting it..
NOW? .. In the long-run, will Russia and the Crimea people gain more, or will Ukraine lose the 100 million dollars rent, plus what the Russian fleet personal and families spent in Ukraine? ....... REALLY

by: Dr. Joseph Spack from: NJ
March 16, 2014 3:48 PM
Good points. Russia will lose this war because of their failure to understand twenty first century economics and financial dynamics. The Russian Czar is still operating with a nineteenth century mentality.

by: Oleg from: Russia
March 16, 2014 3:36 PM
it will not "spark" anything... Crimea is an independent autonomous region...
It seems to us in Russia that America's interests are skewed... they betrayed Egypt, they pressure Israel to make suicidal concessions to a murderous Islamic sect, they allow Iran to acquire apocalyptic weapons, they drew "red lines" which Assad laughed at... they are in the process of destroying their own economy... they have elected a "president" who is... well, the less said about him the better.
In Response

by: Dr. Salman Khan from: USA
March 17, 2014 1:01 AM
hey Oleg, do you really think that the US will pressure Israel to make suicidal concessions to the Arabs..?? if you do, than you haven't understood the indelible ties that bind the US and Israel... its almost spiritual.

by: sgk from: canada
March 16, 2014 10:57 AM
>...There is no land connection with Russia and the energy challenge was one of the main reasons then Soviet President Nikita Khrushchev transferred ownership of Crimea to Ukraine in 1954.

Not true. There was no Ukraine in 1954. It was one country - USSR. There were mostly internal political reasons of Khruschev's "re-assigning" Crimea to Ukrainean SSR.
In Response

by: Roman from: Belarus
March 17, 2014 3:17 AM
Khruschev was ukrainian. That's the reason))

by: Wayne from: Atlanta
March 16, 2014 10:35 AM
No doubt that Crimea will be a financial burden to Russia. All this other "what if" stuff is speculation; how things are resolved "depends." Personally, Russia is doing Crimea and Ukraine a great favor.
Comments page of 2
    Next 

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Mass Grave Exposes Entrenched Trafficking in Thailandi
X
May 05, 2015 5:50 PM
Police in southern Thailand have found two more camps believed to have held human trafficking victims -- one containing a buried skeleton. This comes just days after officials announced arrests in connection with the grisly discovery of 26 bodies in a mass grave at another location. Officials suspect as many as 400 mostly ethnic Rohingya from Myanmar were being held for ransom at the remote camp near the Malaysian border. Steve Sandford reports on developments in the case.
Video

Video Mass Grave Exposes Entrenched Trafficking in Thailand

Police in southern Thailand have found two more camps believed to have held human trafficking victims -- one containing a buried skeleton. This comes just days after officials announced arrests in connection with the grisly discovery of 26 bodies in a mass grave at another location. Officials suspect as many as 400 mostly ethnic Rohingya from Myanmar were being held for ransom at the remote camp near the Malaysian border. Steve Sandford reports on developments in the case.
Video

Video Russia's 'Victory Day' Glory Over Nazis Overshadowed by Ukraine

ussia is preparing to commemorate the 70th anniversary of the end of World War II, known since the Soviet era as “The Great Patriotic War,” with a massive parade on May 9th of military hardware and millions of medals handed out to veterans or their relatives. But critics say the Soviet-style display of power and nationalism overshadows tragic scars during and after the war that still influence politics and foreign policy, especially in the current Ukraine crisis.
Video

Video WWII Anniversary Brings Old Friends and New Worries

The 70th anniversary of the end of World War II has special significance, with Russia becoming more assertive in Ukraine and sending its military planes to the edges of western countries’ airspace. Changes in the geostrategic balance and the transatlantic relationship are felt across the continent, not least in German towns that have hosted U.S. military bases since the defeat of Nazi Germany. VOA’s Al Pessin visited Schweinfurt, Germany, where a large base closed last year.
Video

Video Abraham Lincoln Funeral Re-created for 150th Civil War Anniversary

Over the last four years, commemorative events to mark the 150th anniversary of the U.S. Civil War have brought thousands of visitors to battlefields and historic landmarks across the country. As VOA's Kane Farabaugh reports from the Midwest state of Illinois, the final event in the Civil War's sesquicentennial honors the final journey home of the slain American President, Abraham Lincoln.
Video

Video Campaign Raises Money to 'Uncuff' Journalists

Beginning Sunday – World Press Freedom Day – the Committee to Protect Journalists, a private U.S. group, is launching a campaign to bring attention to their plight and encourage efforts to free them. Deborah Block reports.
Video

Video Volunteers Pull Together to Aid Baltimore Riot Victims

Calm has returned to Baltimore, Maryland, after authorities lifted an overnight curfew imposed almost a week ago to stem the rioting that followed the funeral of Freddie Gray - the 25-year-old black man who died of spinal injuries suffered while in police custody. Six police officers, three of them African-American, have been charged in connection with his death. Baltimore is now trying to get back to normal, in part with the help of volunteers who responded to calls to help those in the city'
Video

Video From Aleppo To Berlin: Band of Brothers Escapes Civil War

Hundreds of thousands of Syrians have fled the civil war in their country and journeyed to Europe by boat across the Mediterranean. It is a terrifying ordeal with dangers at every turn. A group of Syrian brothers and their friends describe their ordeal as they try to reach Germany. VOA's Henry Ridgwell reports. ...
Video

Video Rural Nepal Suffers Brunt of Quake’s Devastation

Nepal is still coming to grips with the full extent of the devastation and misery caused by last Saturday’s magnitude 7.8 earthquake. Some of the hardest-hit communities have been cut off by landslides making it difficult to assess the precise toll. A VOA News crew has been among the first to reach a few of the smaller, remote communities. Correspondent Steve Herman reports from the Sindhupolchak district, east of Kathmandu, which suffered greatly in Nepal’s worst quake in more than 80 years.
Video

Video Obama Praises Work of 3 Immigrant Journalists

President Barack Obama met with three immigrant journalists at the White House Friday to praise them for their work ahead of World Press Freedom Day, May 3. In attendance: Dieu Cay (his pen name) a blogger from Vietnam recently released from prison; Lily Mengesha from Ethiopia who was harassed and detained for exposing the marrying off of young girls as child brides, and Fatima Tlisova, an ethnic Circassian from the North Caucasus region of Russia, who works for VOA's Russian Service.
Video

Video Middle East Atheist Channel Defies Taboo

In Egypt, a deeply religious country in a deeply religious region, atheism is not only taboo, it is dangerous. It is sometimes even criminal to publicly declare nonbelief. Despite the danger, one group of activists is pushing back with a new online channel that defends the right not to believe. VOA’s Heather Murdock reports.
Video

Video Nepal Quake Survivors Tell Their Stories

Against all hope, rescuers have found a few more survivors of the devastating earthquake that hit Nepal last Saturday. Mountain climbers and hikers trapped in remote places also have been airlifted to safety, and aid is finally reaching people in the areas closest to the quake's epicenter. Survivors and rescuers are now recounting their experience. Zlatica Hoke has this story.
Video

Video Lessons for Germany, Europe Remain on Anniversary of WWII's End

The 70th anniversary of the end of World War II will be marked May 8-9 in all European countries except Germany, which lost the war. How is the war viewed there, and what impact is it still having? From Berlin, VOA’s Al Pessin reports.
Video

Video Nepal Town Destroyed By Quake Counts Itself Lucky

Foreign search teams on Wednesday began reaching some of the communities outside Kathmandu that suffered worse damage than Nepal’s capital from last Saturday’s massive earthquake. VOA Correspondent Steve Herman is in Sankhu - a town of about 10,000 people - where there is relief the death toll is not higher despite widespread destruction.
Video

Video Somali Hotel Chain Owner Strives to Make a Difference

Many in the Somali diaspora are returning home to make a new life despite the continuing risks. Since 2011 when a military campaign against Al-Shabab militants began making progress, members of the diaspora community have come back to open hospitals, schools, hotels, restaurants and other businesses. Abdulaziz Billow in Mogadishu profiles the owner of a chain of hotels and restaurants who is helping to bring change to the once-deadly Somali capital.
Video

Video Child Migrants Cross Mediterranean Alone, Face Unknown Future

Among the thousands of migrants making the deadly journey by boat to Europe, there are unaccompanied girls and boys. Some have been sent by relatives to earn money; others are orphaned or fleeing war. From a shelter for young migrants in the Sicilian town of Caltagirone, VOA's Henry Ridgwell reports.

Poll: Baltimore Police Charged

Poll archive

VOA Blogs

World Currencies

EUR
USD
0.8967
JPY
USD
120.22
GBP
USD
0.6616
CAD
USD
1.2116
INR
USD
63.662

Rates may not be current.