The economic commentary on Russia portrays Russia as an economic juggernaut whose petrochemical wealth an trade position inside of its former Soviet empire. This economic colossus is able to alter the course of history through the liberal application of its enormous economic power, thwarting superpowers and regional blocs, bringing the very world to heel.
People believe this because it is simple and easily digested and wrong. Russia relies on a complicated web of economic ties and structures without which its vaunted power would be nothing. It imports industrial capacity and raw materials, foodstuffs and technology, information and finished product. Its population is highly educated except where it is overwhelmingly unsophisticated. Its finance position ranges from secure to fragile.
Russia was able to bully Ukraine out of an Association Agreement with the European Union not because of its economic muscle, but because of European incompetence. Russia threatened to cut Ukraine off from trade with the Eurasian Customs Union, a threat that would have crippled Ukraine; yet it would have gut-punched Moscow, which relies on Ukrainian trade to make its petrochemical empire function and its arbitrage the secret source of its economic might. Moscow could have bludgeoned Kiev, at the cost of stabbing itself. All Brussels had to do was bring its much greater economic might to bear.
The European Union is one of the greatest achievements in human peace in the history of the world. It is spectacularly bad at conflict; so it blinked, and Russia won.
Having taken the measure of the West and decided that it is full of spineless idiots, Vladimir Putin is now moving on to the rest of the Eastern Partnership and beyond. Lithuania, a European Union member state, is currently suffering a de facto Russian trade embargo, its enormous trade into Russia and its status as a transit route for European goods into Russia under interdiction. Moscow has not been subtle about explaining that this is because Vilnius presided over the now-failed Eastern Partnership summit and has been a fairly consistent proponent of expanding the EU’s writ eastward.
Millions of Russians live off of the dairy products that Lithuania exports. Russian oligarchs with contracts that reach into the EU, the US, China, Africa, and Latin America have structured funding that depends on Lithuanian transit. While every oligarch understands that his entire fortune depends on Putin’s good graces, Putin knows well that his good graces mean nothing if his power wanes.
It is not too late for Europe to win this game; but at this rate, Moscow will lose soon.
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