Russia-Ukraine Conflict: Impact on Indian Economy

Part - I

Geopolitical forces around the world are always in flux, offering challenges to economic, political, and social issues. These crises are sparked by a community’s vested interest, an individual purpose, or national interest. On February 24, 2022, Russia launched a full-scale military invasion into Ukraine, causing chaos, insecurity, and geopolitical threats for both the conflicting regions and the rest of the world. Thousands of civilians have died as a result of Russian rockets and missiles striking Ukraine, and thousands of Ukrainians have been forced to flee to neighbouring nations.

Before going into detail about the current conflict between Russia and Ukraine, it’s worth taking a look at why and how the two countries’ disputes grew so intense over time. Two neighbours, Russia and Ukraine, who share the same genealogy, history, and practically identical languages, are frequently found to be at odds with one another — entrenched in centuries-old disagreements that endanger the region’s and world’s peace and security in a similar fashion.

The Conflict between Russia and Ukraine

Russians and Ukrainians share a millennia-old ancestry, but this does not mean that they have been on the same page of history all the time. In a nutshell, significant upheavals may be traced back, leading to the disintegration of the Soviet Union in 1991, which afflicted this relationship. There were numerous reasons associated with its disintegration – the rise of the feeling of nationalism amongst people; immense freedom received under Michael Gorbachev’s rule, subsequent demand to catch up with the western world; economic weakness causing dissatisfaction amongst people of USSR; and, destabilization of Communist control. Russia, as a superpower, maintained political authority and territorial interests. However, Russia and Ukraine kept on being at odds with one other, particularly concerning the Black Sea and the Crimean Peninsula, which were strategically important.

Orange Revolution

During 2004, a series of political events and protests occurred in the backdrop of the 2004 Ukrainian Presidential election, which is often referred to as the Orange Revolution. This election was reported to have been rigged or that it had been planned dishonestly in order to achieve a specific result. Massive corruption, electoral fraud, and voter intimidation were all present. Between the leading candidates for the election in Ukraine, Viktor Yushchenko (a Western ally) and Viktor Yanukovych (backed by the Kremlin/Pro-Russia), authorities rigged the election process in favour of the latter, despite strong opposition from the European Union and the United States, who deemed the election illegitimate, while Russia claimed it was free of any fraud. In the midst of the bitter cold, millions of people took to the streets of Kyiv. Following the turmoil, the results of the first run-off were declared unlawful, and the Ukrainian Supreme Court ordered a re-vote, which Yushchenko won by a large margin. This revolution was successful in reversing the vote, exposing the country’s deep-seated divisions in the process. The vote was split east-west, with Yushchenko receiving support from the Ukrainian-speaking West and Yanukovych receiving support from the Russian-speaking East. Another shift was that the Ukrainians, who had previously been accepting of Moscow, began to resent their big neighbour’s intervention. Previously suppressed civic liberties were resurrected during this time. Ukraine appeared to be removing itself from the authoritative political culture of the post-Soviet era by releasing the media from government control, holding free and fair elections, and distancing itself from the post-Soviet era’s authoritative political culture. The tree of Ukraine’s democracy was claimed to have been planted and maintained by Yushchenko.

Russia-Ukraine Gas Dispute

During Yushchenko’s presidency, another issue that surfaced was the gas dispute. Due to transit and pricing disagreements between Yushchenko’s government and Russian state-owned Gazprom, the gas supply was shut off. For several days, the disagreements raged, producing supply shortages in Europe. Approximately 80% of Russia’s gas is exported through Ukraine to European countries. According to reports, Russia’s decision to shut down the western pipelines was a calculated risk that would have long-term economic and political ramifications in the west. In addition, Russia hoped to be a capable energy-supplying nation, helping other countries in Western Europe and the United States to minimise their dependency on Middle Eastern countries for oil. The gas scarcity has damaged Yushchenko’s reputation and, as a result, his party’s chances in the approaching election. Not only that, but there were concerns that the solid Ukrainian economy would be harmed; as a result, potentially pushing the country into recession.

Euromaidan Revolution

Disagreements between the West and Russia over Ukraine had marred the previous revolution, and the Euromaidan Revolution was no exception. Ukraine applied for NATO Membership Action Plan (MAP) in 2008. When Yanukovych defeated Yushchenko to become Ukraine’s Prime Minister in 2010, Ukraine’s plans to join NATO were put on hold, and allyship was re-assigned to Russia. Russia and Ukraine have engaged in multiple trade conflicts. Nonetheless, Russia’s refusal to import Ukrainian goods in 2013 was a major setback for Ukraine’s economy. It was viewed as a clear indicator that Russia was aiming to prevent any Ukraine-EU agreement from being signed. In addition to the financial pressures that Ukraine has been subjected to, pro-Russian elements in Ukraine have waged an active propaganda campaign against the EU-Ukraine agreement. Yanukovych was loathed by the Ukrainian people for two reasons: first, he was accused of corruption, and second, he changed the Ukrainian constitution (article 111, which deals with the dismissal of the president) and reinstated a clause that had existed before to 2004. Some speculated that he was attempting to administer Ukraine in the same manner as the Russian Federation. Yanukovych’s approval rating had plummeted by the end of 2012, and he had to take actions to mitigate it – also known as Damage Control.

Yanukovych and his supporters opted to sign the Association Agreement with the European Union in the early months of 2013. In addition to supporting Yanukovych, the public demonstrated their entire support when this decision was taken. Most Ukrainians saw the deal as more than simply a chance for economic reform; they saw it as a cultural decision, a desire to move away from conventional Soviet culture and embrace something new, such as the EU. On the other hand, the administration broke its commitment by withdrawing from the European Union’s association agreement at the end of 2013. Thousands of people dissatisfied about the country’s political orientation Euromaidan Revolutionflocked to Independence Square, but unlike previous nonviolent and bloodless revolutions, the Maidan Revolution (revolution of dignity) was tragic. A few months after the protests, security forces attacked the demonstrators, and the number of casualties increased day by day. The Russians and Ukrainian authorities had not anticipated such unrest as a result of the EU agreements. Due to Yanukovych’s refusal to sign the deal, the Ukrainian government did not get much-needed financial help from the EU and IMF. Russia gave much of the political, financial, informational, and operational assistance to Ukraine, as well as a guiding hand to Yanukovych in maintaining his presidential grasp. Several agreements between the two countries were signed, assuring the Ukrainian government that the country’s financial situation would not worsen. In addition, Gazprom has promised to cut gas prices in Ukraine. When looking at the current political dilemma, it was clear that Russia was the primary veto actor. Yanukovych fled the nation as the crisis worsened, resulting in the formation of an interim administration in Ukraine. This hampered Moscow’s usual control over Ukraine, which it felt would be impossible to restore following the previous conflict.

Annexation Of Crimea

To begin with, Crimea is located in the south of Ukraine, with a tiny isthmus connecting it to Ukraine but not to Russia. The Crimea peninsula is located between the Sea of Azov in the north and the Black Sea in the south. Ukraine and Russia reached an agreement to share a military port in Crimea’s Sevastopol. Following his election in 2010, pro-Russian President Viktor Yanukovych extended the contract for Russia to utilise the port until 2042 in exchange for lower natural gas costs. This action was widely panned by the Ukrainian population. From Ukraine’s perspective, it was akin to handing over control of Crimea in exchange for cheap gas. The US was well aware of Yanukovych’s policies and did not support them. When Yanukovych fled Ukraine during the Euromaidan crisis, the conflict in Crimea erupted almost immediately. Protesters backed by Russia began taking government facilities in Crimea, including the parliament, and a new Prime Minister was chosen, who requested Russia’s assistance in maintaining peace and security in Crimea. According to reports, Crimea’s strong support for Russia stems from the majority of the inhabitants identifying as Russian speakers and having a strong affection for Russia. In 2014, Russian soldiers gained control of Crimea, and a month later, a referendum was held in which Crimea was decisively voted to join Russia. Because foreign observers were not present to verify election results in Crimea, the international community declared the annexation of the peninsula illegitimate. It was the first time since World War II that a European nation had acquired land, further isolating Russia. Russia, on the other hand, has extremely few warm-water ports despite its large size and coastline. The port of Sevastopol in Crimea provides Russia with a significant naval base, which it has relied on since the 18th century. During a brief war with Georgia in 2008, Sevastopol’s warships were employed to blockade the country. However, following the annexation of Crimea, where a significant amount of hydrocarbon resources was at stake, various concerns developed. Stepan Kubiv, Ukraine’s former energy minister, asserted that “Ukraine had lost almost 80% of oil and gas deposits in the Black Sea and significant part of its infrastructure due to annexation of Crimea”. Large natural gas deposits in the Black Sea are within Russia’s clean exclusive economic zone, and Russia said at the time that its previous pipeline delivering gas to western Europe had reached its capacity limits – where Nord Stream 2 adds two more lines, making Russia significantly less reliant on pipelines that cross Ukrainian territory, making Ukraine even more concerned because it needs gas. Crimea is vital to Russia for these reasons. Some argue that the annexation of Crimea was an attempt to restore the country to its former glory as part of the Soviet Union, while others argue that it was a violation of international law.

Following the takeover, the United States and the European Union imposed economic sanctions on Russia to penalise Moscow, although these penalties had little impact until Crimea was returned to Ukraine. Putin’s decision to annex Crimea was influenced by a number of factors. Seizing Crimea, in comparison to other options, might have been the finest decision, providing him with the best strategic return on investment. Because Russian troops were already on the ground in Crimea and the Crimean population favoured Russia, the operation was bloodless, quick, low-cost, and effective. By taking the area, Putin hoped to maintain complete control over Sevastopol and increase his ability to influence events in Ukraine.

During this time, Russia’s natural gas prices to Ukraine jumped by about 80%, putting direct economic pressure on Ukraine’s interim government. Following the annexation, Russia’s then-president, Vladimir Putin, took a political Annexation of Crimeamove, issuing a declaration aimed at defending the rights of the Russian-speaking people in South-Eastern Ukraine. The public felt connected immediately after hearing this message, resulting in an ethnic division (Luhansk and Donetsk). Pro-Russian gunmen, highly armed and wearing a uniform with no symbol, stormed government facilities in eastern Ukraine and set up roadblocks shortly after NATO reported over 40,000 Russian soldiers within Ukrainian borders in its press conference. Eastern Ukraine, which borders Russia, has a large Russian-speaking population. Following the installation of the interim government in Ukraine, it was announced that it was right-wing and opposed the use of the Russian language, ethnicity, or any Russian influence in Ukraine. As a result, it was one of the motivating factors behind the pro-Russian protests in Ukraine. Until August 2014, a war erupted between the Ukrainian government military and Russian militias. In September, then-Ukraine President Petro Poroshenko, Russia, and the Eastern Republics (Luhansk and Donetsk) signed a ceasefire deal. In Minsk I and Minsk II, they are also known as Ukraine’s Donbas area (February 15). The fundamental goal of this deal was to put an end to the conflict in Donbas. Both the accords, however, collapsed, resulting in ceasefire violations.

The failure of Ukraine was that it demanded a ceasefire, complete sovereignty of the Donbas region and the removal of Russian weaponry. The fighting zone, in Russia’s opinion, should have complete autonomy, which means it should be allowed to govern and regulate its own affairs. Because Russia was confident that the inhabitants spoke Russian and were pro-Russian, it would be simple for Russia to exercise military and political control in the region. At the same time, Ukraine was well aware of the situation and opposed the region’s autonomy. The Donbas region and Info 3Crimea were rich industrial regions prior to the conflict, with substantial inputs to Ukraine’s industrial production units. Now that Crimea is under Russian control and the Donbas region is in the hands of pro-Russian rebels, Ukraine is at a loss. As a result, the Minsk deal failed twice. Another reason Ukraine opposes Donbas autonomy is that this region has a lengthy frontline that divides one of Ukraine’s prosperous industrial regions. Russia, on the other hand, sought the region’s strategic importance and was well aware that once Ukraine was stable, it might seek re-accession to the EU. Despite Russia’s denials at the time of the incursions in eastern Ukraine, proof of Russian tanks, personnel, and self-propelled artillery crossing the border was found. There have also been reports that the Russians helped the rebels in the Donbas region with strong military hardware (Surface-to-Air Missiles system) and proper training. In terms of the Ukrainian economy, the first winter after President Petro Poroshenko went by without the purchase of Russian gas, instead opting for European gas at a 30% increased charge. Severing connections with Russia, which was formally Ukraine’s main partner and chief investor, resulted in serious economic challenges in Ukraine. Inflation had risen by 43%, living standards had plummeted by half, and the Ukrainian currency had fallen by more than two-thirds. The defence and aviation industries in Ukraine have lost 80% of their revenue. Overall, the economy had been decimated.

Putin’s Russia 

Under President Vladimir Putin, the Russian economy may be divided into two periods: the first half (1999-2008), when the economy grew at an annual rate of 7%, and the second half, since 2009, when the economy has stagnated due to the global financial crisis of 2008. The stock market plummeted, oil prices plummeted, the Russian Ruble weakened, people lost their jobs, and consumer expenses continued to rise day by day. Hence, the economic crisis arrived in three main ways – the drop in export prices (the price of oil declined), drop-in export volumes (minerals export volumes declined as construction activities in Europe slowed. also, its decision to suspend deliveries temporarily due to Russia’s conflict with Ukraine, decreased prices further) and diminishing capital flows. Although, certain macroeconomic policies had helped the economy stabilise little. Certain war events connecting Russia had levied sanctions upon them, which depressed the already stagnated Russian economy. Since 2014, real disposable income has decreased, resulting in lower consumer spending and lower business sales and profitability. As a result of the western sanctions, Russian investments and consumption were restricted, disrupting the country’s economic progress. Economic changes and growth that could enhance growth were prioritised over macroeconomic stability.

This article discusses prior Ukraine-Russia disagreements, which have become even more severe in the current situation. The second part of this article will go into greater detail regarding the current issue, its implications for other countries, particularly India, and the necessary improvements and methods to address it.

Reference

  1. Magazine Aanchal, (February 24, 2022), India’s inflation concerns over Russia-Ukraine war. Indian Express
  2. Patel Mira, (March 05, 2022), What Russia means to Ukraine: A long complicated history. Indian Express
  3. Kirby Paul, Why has Russia invaded Ukraine and what does Putin want? BBC News
  4. Verma Mimansa, (March 15, 2022), How will the Russia-Ukraine war impact the Indian economy? Quartz
  5. Bhalla Abhishek, (March 07, 2022), Will Russia-Ukraine war impact India’s defence imports? Delivery of orders worth $9 billion still pending. India Today
  6. Srinivas Srikanth, (April 03, 2022), Russia-Ukraine War: What Impact Can It Have on India’s Economy? In

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