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U.S. President Barack Obama administration appeared not to want to back the Putin administration into a corner, but in the event Moscow seems to have taken this as a sign of weakness, and moved instead to quickly seize on its advantage in Crimea by moving to annexation.

The question is what the West can/will do now.

There have been plenty of angry tweets from Western politicians, but not much substance in terms of effective actions/sanction on Moscow.

The United Kingdom foreign secretary indicated that military cooperation with Moscow, not covered by treaty obligations, would be halted, and military sales to Russia of equipment to be used in Ukraine would be halted – the surprise there is that there are sales and cooperation anyway.

The United States/European Union might enlarge the sanctions list, perhaps to a much greater number, and extending to 100 or more names – last week there were press reports that this could extend to those heading various blue chip state owned entities. 

Financial sanctions may also be rolled out for Russia.

The West’s response has been so glacial thus far that Moscow has had so much lead time to deploy countermeasures, hence alleviating any impact.

The market is taking Putin’s comments indicating that Russia has no interest in the further breakup of Ukraine at face value.

However, it would be naive to think that Moscow has no interest in further intervention in Ukraine, even having secured Crimea. 

Indeed, a core question still needs to be asked as to why Moscow felt the need to fully take control over Crimea when it significantly exercised de facto control of the peninsula anyway via the presence of the Black Sea Fleed, and the lease agreement therein to 2042. 

Herein in its recommendation for the creation of a “Support Group” to work to a resolution of the crisis in Ukraine, it underscored still its objectives in Ukraine as ensuring political and defence neutrality for Ukraine, the return to the principles of the Feb. 21 agreement (aka the return to office of President Vikotr Yanukovych, and presidential elections at the end of 2014) and a new federal structure for Ukraine, along with increased language rights. 

Political neutrality seems to suggest that Moscow still wants to stall Ukraine’s EU integration, which would be totally unacceptable at this stage for the West and the Arseniy Yatseniuk administration, as would a return to the principles of the Feb. 21 agreement. 

The above would suggest that Moscow will continue to work towards achieving its broader goals in Ukraine, which still puts it at odds with the West and the Yatseniuk administration and suggests room still for tensions ahead. 

The battle for Crimea may have been lost, but the war over Ukraine is far from over.

Given the West seems unwilling to wield the stick with Russia, it better have an enormous carrot to deploy in Ukraine if the Yatseniuk administration is to have any hope of fending off the threat of further intervention from Moscow. 

Therein let’s wait and see what the International Monetary Fund has to offer later this week. 

Note though that the West has now been trying to put together a big ticket package for Ukraine since pre-Vilnius, i.e. for close to six months and there has been little to show for it thus far.

Interestingly, EU officials are being rather coy as to the specifics of the political bits of the association agreement with Ukraine which may be signed at the EU summit meeting on March 21.

EU enlargement commissioner Stefan Fule has hinted this week that EU politicians might just be willing to go the extra mile for Ukraine and formally spell out that the association agreementn is a precursor to actual membership for Ukraine – previously the EU has always been somewhat evasive in committing to actual membership for Ukraine. 

Perhaps the latter reflects Ukraine’s huge size, its large agricultural sector, and the general enlargement fatigue in the EU. Still a firmer EU accession perspective would be a significant positive for Ukraine if actually delivered, and would be something of a snub to Russia given the latter’s noted drive to keep Ukraine “politically” neutral.

One further thought, post the Crimean annexation. 

Crimea has suggested that it may nationalise Ukrainian assets in the region.

Ukraine has threatened that it will push for compensation, and indeed Ukraine’s justice minister has hinted that Ukraine may seek to seize Russian assets in Ukraine in retaliation. 

An obvious focal point for the Ukrainian government now that Russia has intervened across its border, and actually seized land/assets is debts owed to Russia – remember the Odious debtor defence recently cited in a paper from the Petersen Institute and used with respect  to some former Iraqi debts. 

Ukraine could now presumably attempt to use this defence to try and cleanse some of its balance sheet of the $3 billion Russian “bail bonds” and perhaps also debts to other various Russian state-owned entities (likely around $30 billion) which are now likely to take over various Ukrainian assets in Crimea. No doubt the lawyers are sharpening their pencils as we speak.

One slightly out of the box suggestion which I have heard, and which cannot still be totally discounted, is Russia going for the state of Israel solution, i.e. to use the current crisis to more broadly redefine its borders over the longer term.

In Israel’s case this was through the Arab wars from the 1960s to 1970s, to create a buffer zone around its borders. In Russia’s case, hawks might argue that with Ukraine and the West weak, and with support for the Putin regime at home near record highs, this could be an opportune time to fundamentally recast Russia’s borders beyond even Crimea – the 1994 Budapest Memorandum has already been rolled over once, why not a second time, as the West’s response has been feeble?

Putin certainly did not hint of this in his speech today, but the situation in Ukraine is clearly very fluid, and opportunities could still present themselves.

Timothy Ash is an analyst with the Standard Bank in London.

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