By July 2015 it was clear that Russia is paying a steep economic price for its war in Ukraine. Poverty, inflation, unemployment are all rising, the economy is shrinking, and foreign investment is drying up. Moscow had to cut spending on the 2018 FIFA World CUP, pensions, and infrastructure, not to mention health care, education, science and technology, and infrastructure, i.e. human and social capital.
But the geopolitical costs are also mounting and they go far beyond the long-term alienation of Ukraine and shattered ties with Washington and Europe, most notably Germany. Those are severe costs but they are by no means the only ones. Neither are Moscow's geopolitical losses confined to Europe.
In East Asia China is using this opportunity to squeeze everything it can out of Russia. Although work has started on the Power of Siberia gas pipeline to China; nobody will disclose the price, suggesting that Russia's profit, if there is any, is minuscule. Despite increased Chinese investment it cannot replace European investment and the terms under which these deals are being negotiated are clearly onerous. Indeed, China's effort to obtain land in the Far East and its insistence upon settling its workers there triggered a storm in the Russian press.
Thus the big deals with China that Moscow always talks about are more shadow than substance and bear a heavy and potentially unacceptable price tag, namely the ever more visible subordination of Russian policy to Chinese dictates. Russia has had to settle for a junior or subordinate role in China's Asian investment Infrastructure Bank, and Silk Road, projects that will undo any hope of Russian hegemony in Central Asia.
Moscow is also losing out to Washington in the competition for India's affections as India buys ever more American defense systems and comes into its own right as a major Asian power. Indeed, to the extent that Rusia must not criticize China, e.g. in regard to its aggressive behavior in the South China Sea, it not only risks alienating Southeast Asian states but also India.
Likewise the effort to normalize relations with Japan appears to be lost even though Japan and Russia are still trying to arrange for a Russo-Japanese summit and a visit by Putin to Japan. Russia's newly proclaimed military buildup on the Kurile Islands and its continuing unreformed economy not only alienate Japanese political and business elites, they signify that powerful forces in Moscow resist making any overtures to Japan even though growing dependence on China must be galling to Moscow.
Indeed, China has recently publicly spurned Russian defense ministry calls for a collective security alliance with China against terrorism and allegedly US-backed color revolutions. Thus Russia is estranged from Japan, losing standing in India, and increasingly dependent on China who does not need Russia nearly as much as Rusisa needs it.
Likewise in the Muslim world key Russian officials now desperately seek Western cooperation against ISIS whom they call the greatest threat to Russian security. Moscow also admits it has no idea how to stop Russians from joining ISIS while over a thousand have already done so and the flow continues. Moscow's Syrian client, Bashear Assad, is increasingly beleaguered and while Moscow proclaims it will send aid, its resources are clearly limited.
Closer to home the food sanctions imposed by Moscow on Europe in retaliation for European sanctions on Russia is already undermining the Eurasian Economic Union, the centerpiece of Moscow's CIS policy. Meanwhile the sanctions and low energy prices have all but destroyed any hope of activating energy exploration in the Arctic, Moscow's national project.
Putin may continue stoking hatred against Ukraine and the West but can Russia bear these geopolitical burdens as well as the economic ones of sustaining Crimea, mounting defense spending and a steadily constricting economy?
Ultimately it becomes clear that while Putin may count on destroying Ukraine's economy and government, he is also destroying Russia's economy, geopolitical influence and standing, the cause for which he started this war in the first place. As one historian said about Nicholas I's rule. the verdict of history may yet be thatPutin's rule was a mistake.