Analysis: The West’s clash with Russia

Relations between Russia and the West have changed fundamentally this week, and are now at their worst since the pre-Gorbachev era.

Kremlin.ru via Wikimedia Commons

Relations between Russia and the West have changed fundamentally this week, and are now at their worst since the pre-Gorbachev era.This is not a &#x;new Cold War.&#x; There is no deep ideological dispute, and the Russian economy is intertwined with the world in a way the Soviet Union&#x;s simply wasn&#x;t.But the events of the last week represented a historic shift. First, Russia annexed Crimea &#x;&#x;the first annexation in Europe since World War II. Second, the Russian President, Vladimir Putin, announced the move in a speech that was an hour-long anti-Western diatribe.The West&#x;s response to this is complex.Firstly, it has introduced targeted sanctions: freezing bank accounts and refusing visas for senior Russian and Crimean officials, as well as ousted Ukrainian President Viktor Yanukovych and his associates.Secondly, it has isolated Russia diplomatically. At the UN, China did not support a Russian veto on a US resolution condemning the Crimean referendum. A G8 meeting in Sochi has been cancelled, with Germany&#x;s Angela Merkel declaring "the G8 no longer exists".Thirdly, it has introduced the subject of economic sanctions. The US has indicated that it is ready to take tough measures. But Europe does around five times more business with Russia than the US, so its decisions are what matters here (another difference to the days of the Cold War).So far, an arms embargo has been announced by Britain and Germany. But a clear warning has been issued: economic sanctions will follow if Russia invades eastern Ukraine, where there are also large Russian-speaking populations.In his Kremlin speech, President Putin gave assurances that Russia would not do so. Hence there is a chance that a week or two from now, the temperature will have decreased from near boiling-point. Much depends on actions on the ground &#x; if Ukraine can evacuate its forces peacefully from Crimea, if mass violence can be avoided in Donetsk or Kharkiv.Meanwhile, it&#x;s business as usual. Even this week, big deals have been struck. RWE, the German energy giant, agreed a $7 billion contract to sell its oil and gas arm DEA to the Russian LetterOne Group, while Rosneft, Russia&#x;s top oil producer, acquired a stake in the Italian tyre maker Pirelli.It&#x;s been estimated that economic sanctions could cost Russia a huge 3 per cent of GDP growth &#x; but also 0.5 per cent of EU economic growth, which has made European leaders cautious.The EU imports around a quarter of its gas and a third of its oil from Russia. The UK government is reluctant to affect the handsome profits the City has made from Russian investment. German companies have around $22 billion invested in Russia. These are jittery times. &#x;So Western leaders are constantly phoning each other and meeting: the European Council this week, the G7 (reverting to its Cold War format) next week.The West is clear that Crimea is lost. There are two aims now: in the short term, to prevent Russia going further, and in the long term, to reduce Europe&#x;s energy dependence on Russia. But this is the very long term &#x; a UK plan circulating in Brussels this week envisages a 25-year timescale.In the Spring 2014 issue of Re:locate magazine (out late March), Ray Furlong investigates the impact of corruption on organisations doing business across Europe, and David Sapsted analyses the issues driving the results of elections to the EU Parliament, which take place in May.