[“Putin’s Promises To Eastern Ukraine Could Bankrupt Russia” – Forbes - Paul Roderick Gregory – 5.1.14]
Forbes covers Russia’s lack of economic diversity and dependence upon fossil fuels for economic wealth. Commentator Paul Roderick Gregory predicts that Russia would not be able to bear up under the “costs of empire” aggravated by Russian hegemony in Ukraine.
As the moniker Petrostate implies, the Russian economy and state have an extreme dependence on energy: One half of budget revenues come from taxes and levies on oil and gas. … the energy sector accounts for 20 percent of GDP. Petrodollars enable Putin to avoid the economic reforms that could modernize and diversify the economy. … As the … fracking revolution advances and spreads and energy prices fall, Russia faces the double whammy of falling production (without Western investment) and shrinking prices. Elsewhere such oil curses have funded extravagant private spending or generous welfare benefits. Putin deploys his petrodollars to pay for the rampant corruption which holds his KGB state together, and, as of late, he has found a new use: petrodollars to finance foreign adventurism … foreign aggression could impose annual “costs of empire” on Russia that are untenable.
While part of Russia’s tactics are to promise greater wealth, Russia cannot really afford to keep the promises:
In his east Ukrainian campaign, Putin deploys both the stick of repression, political murder, and brutal black ops, while dangling the carrot of higher living standards. Putin’s siren song to east Ukrainians is: join Russia and you will be better off. … With a Russian budget of 38 percent of GDP, or slightly less than one trillion dollars … the annexation of just the Donbass region of eastern Ukraine would eat up between 6 and 8 percent of the Russian budget each year – as compared with 12 percent for the military … If Putin were to annex the whole of east Ukraine (about 15 million population), the cost would double to $120 to $160 billion – to an untenable share of the budget.