In mid-August, during the latest wave of violence in the long-running Ukraine crisis, Russian President Vladimir Putin and a coterie of other Kremlin officials trekked out to Crimea. The high-profile visit was intended as a public sign of the Kremlin’s enduring commitment to its newest territorial holding. But behind the headlines, the story is far less reassuring: Russia is realizing that its Crimean annexation has become an increasingly costly venture in both political and economic terms.
From the outset, it was clear that Russia’s spring 2014 annexation would need to be accompanied by major capital investments from Moscow. Early estimates of just how much it would cost Russia to maintain and modernize Crimea ran to $3 billion a year. Federal subsidies, added social benefits, improved infrastructure, and increased pensions to citizens would end up costing Moscow enough that other major projects—including a new port on the Black Sea and a bridge in Siberia—would have to be scrapped to make room in the country’s budget.
The real sum, however, has turned out to be considerably larger: $4.5 billion or more annually, according to official Kremlin projections. Compounding these costs are elaborate construction projects designed to link the peninsula ever more closely to the Russian Federation, chief among them a $4 billion bridge across the Kerch Strait that was approved by the Russian State Duma this July.
These figures would be daunting enough if Crimea were a well-functioning territory. But it is not. Economically, the region lags far behind the rest of Russia, to say nothing of the rest of the world. Crimea, which experienced comparative prosperity as one of Ukraine’s regions, has seen a near-total reversal of fortune under Russian rule. Today, it is conspicuously absent from reputable professional rankings of investment attractiveness among Russia’s various territories. And last year, inflation hit a whopping 42.5 percent, second only to crisis-stricken Venezuela on a global scale. International banks have left the region. So, too, have shipments of supplies from Ukraine.
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