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February 18, 2015

The Economics of War or Peace in Ukraine

What Does Putin Want?

After having annexed Crimea, Putin discovered that it is and will continue to be costly to integrate Crimea into the Russian economy. What he needs is a corridor through eastern Ukraine to Crimea. He needs pipelines, wires, cables, and roads. Being a communist, he thought of one solution: take the corridor. So he enlisted dissatisfied ethnic Russian Ukranians to revolt, providing them with weapons, supplies, and probably promises of public employment once the revolt is successful.

What Would Be an Alternative to War

Alternatively, Putin could negotiate with Ukraine for a corridor, easements and rights-of-way. Why would Russia go along with this. They probably don’t care too much about lives lost, but this war is not free. Think of the imposition of sanctions, the fact that their energy economy is currently on a very shaky footing, and they are prioritizing the modernization of their military. Why would Ukraine go along with this. Well, the costs of this war to an already impoverished Ukraine in terms of lives and treasure are tremendous. They need a way out. Negotiation is that way out.

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