The Cost of Crimea

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If and when Russia absorbs Crimea, acquiring the peninsula isn’t going to come cheap. The real cost of Crimea might not be sanctions from the US and EU but the funding it’s going to take to support the region. Here’s how Leonid Bershidskii breaks down the numbers for subsidizing Crimea in Forbes Russia.

In the first half of 2013, according to figures from Kyiv Investgazet, Crimea (without Sevastopol) was fifth of 26 Ukrainian regions by the amount of net-assistance from the central budget. (In first place, despite the widespread myth of the “freeloading west” is Kyiv and second and third are Donetsk and Lugansk provinces). For these six months, Crimea received from Ukraine’s state budget 3.78 billion more than it paid in. If you consider 4 rubles to a hryvnia—at the rate until the end of last June—that is 15 billion rubles ($410 million). That’s 30 billion rubles a year.

According to Ministry of Finance figures on the distribution of aid to Russia’s regions in 2014 there are three regions with higher levels of subsidizing from the federal budget: Yakutia, Dagestan, and Kamchatka. For every Crimean, Ukraine currently allocates the region a subsidy of 15,200 rubles, and in 2014 Russia allocates to Chechnya 14,750 rubles a person.

There’s also infrastructure costs:

According to the Ukrainian edition of Insider, currently 65% of gas supplies in the Crimea are delivered by the 100% state Chernomorneftegaz which produces this gas in the Black and Azov Seas. You can, of course, change this proportion and deliver gas directly from Russia, but you have to build the pipeline.

Approximately 80% of the water comes to the Crimea through the North-Crimean channel from Ukraine. True, no one can cap the channel, but Ukraine is quite able to take more money for water.

Four-fifths of the electricity to the Crimea is supplied by Zaporizhia Kakhovskaya HPP, located outside the Crimean territory. Rates here could be raised as well.

Russia will have to either negotiate for the livelihood of Crimea with Ukraine or to build new infrastructure. The first would be difficult: outside of sending troops to Kiev if it drives a hard bargain, something will have to give. And second, it’s expensive.

Basically, Crimea is potentially a heavy economic burden.

As Forbes concludes, “imperialism is generally expensive. Imperialism during years of economic stagnation is ruinous.”