Skip to main content

Why annexing Crimea may prove costly for Russia

By Isa Soares, CNN
March 17, 2014 -- Updated 1144 GMT (1944 HKT)
STORY HIGHLIGHTS
  • Crimea is entirely integrated into Ukraine's mainland economy and infrastructure
  • The peninsula only produces one-tenth of the energy it consumes
  • If the region becomes part of Russia, Moscow will have to invest heavily in the region

(CNN) -- Crimeans voted to break off from Ukraine and join Russia. Their vote represents the re-establishment of a historic cultural relationship.

But take away the emotional side of the Crimean referendum and reality hits home -- the economic challenges that are yet to knock on their door.

The peninsula only produces one-tenth of the energy it consumes. Ninety percent of its water, 80% of its electricity, and roughly 65% of its gas come from the rest of Ukraine.

Former Kremlin adviser talks Crimea
Voices on the Ukraine/Crimea referendum
Some leaving Crimea ahead of referendum
Expert: Crimea to affect global economy

And while Russia has enough energy to supply power to Crimea, it's lacking the infrastructure -- there are not even any underwater cables though the Strait of Kerch, which separates Russia and Crimea.

Crimean authorities set out their plan to nationalize the oil and gas company Chernomorneftegaz, but according to Lilit Gevorgyan, Senior Economist at IHS, that may not be enough to "solve fully their energy problems and ... become independent of Ukraine."

And the costs don't end there.

Crimea depends heavily on the Ukrainian mainland to balance its books. Around 70% of Crimea's $1.2 billion budget comes directly from Kiev.

Annexation of Crimea would be costly for Russia too because Crimea will need similar support, if not more, from Moscow. And while Russia's economy is stable, it is not growing.

Moscow recently announced it will invest between $5 billion and $6 billion in Crimea, according to Helena Yakovlev Golani at the University of Toronto. The costs begin to add up -- and that's not including the challenges of integrating the banking system and currency and validating land titles.

For the Crimeans, the most noticeable change could be the lack of tourists this season, with many expecting visitors to cancel tours because of the crisis.

This will be damaging for Crimea, according to Ukraine's Tourism Board, given that Crimea attracted 6 million tourists last year. Seventy percent of holiday makers in the region are domestic visitors from mainland Ukraine.

The crisis has been portrayed as a geopolitical struggle between Russia and the West, but it will also affect ordinary people; they still need to eat, pay bills and dress their children.

Some in Crimea have portrayed the situation as an economic crisis, but actions on the ground suggest this is less about the economy and more about Russia's desire to project power in a strategically important region.

Map: Why the EU and U.S. are out of step on Russia sanctions

Editors' Note: This article has been edited to remove plagiarized content after CNN discovered multiple instances of plagiarism by Marie-Louise Gumuchian, a former CNN news editor.

ADVERTISEMENT
Part of complete coverage on
October 3, 2014 -- Updated 0751 GMT (1551 HKT)
Reza Sayah looks into why thousands of Ukrainians have left their old lives to volunteer to fight.
October 14, 2014 -- Updated 2048 GMT (0448 HKT)
CNN's Ralitsa Vassileva speaks to The New Republic's Linda Kinstler about Putin's motives with Ukraine and China.
September 24, 2014 -- Updated 1436 GMT (2236 HKT)
President Barack Obama speaks at the 69th session of the United Nations General Assembly.
September 9, 2014 -- Updated 1258 GMT (2058 HKT)
Malaysia Airlines Flight 17 broke apart in the air after it was hit by a burst of "high-energy objects" from outside, a preliminary report by Dutch aviation investigators said Tuesday.
September 9, 2014 -- Updated 1134 GMT (1934 HKT)
"There were many scenes that defied logic," writes OSCE spokesman Michael Bociurkiw, who was one of the first international observers to arrive at the site.
September 3, 2014 -- Updated 1611 GMT (0011 HKT)
On a country road in eastern Ukraine, a scene of bucolic tranquility was suddenly interrupted by the aftermath of carnage.
September 2, 2014 -- Updated 2019 GMT (0419 HKT)
In the city of Donetsk, the devastation wrought by weeks of fighting between pro-Russia rebels and Ukrainian forces is all too apparent.
September 1, 2014 -- Updated 0000 GMT (0800 HKT)
CNN's Diana Magnay reports from the front lines in the Ukrainian conflict.
September 1, 2014 -- Updated 1126 GMT (1926 HKT)
A few miles south of the town of Starobeshevo in eastern Ukraine, a group of men in uniform is slumped under a tree.
August 23, 2014 -- Updated 1343 GMT (2143 HKT)
A shopkeeper's mutilated body, relatives' anguish, homes destroyed ... this is Donetsk.
August 19, 2014 -- Updated 1112 GMT (1912 HKT)
A 20-minute drive from Kiev takes you to a neighborhood that feels more like Beverly Hills than central Ukraine.
November 20, 2014 -- Updated 1412 GMT (2212 HKT)
Photos illustrate the ongoing crisis in Ukraine as fighting continues to flare in the region.
July 31, 2014 -- Updated 1631 GMT (0031 HKT)
Future imports, exports between the EU and Russia are now banned -- but existing contracts continue.
July 20, 2014 -- Updated 1540 GMT (2340 HKT)
Some contend that larger weapons have come into Ukraine from Russia.
Learn more about the victims, ongoing investigation and the Russia-Ukraine conflict.
July 23, 2014 -- Updated 0925 GMT (1725 HKT)
The downing Malaysia Airlines Flight 17 put the pro-Russia rebels operating in Ukraine's eastern region center stage.
ADVERTISEMENT