MOSCOW — With the annexation of Crimea, Russia faces an economic crisis on the peninsula. Almost all sectors of the Crimean economy are suffering to some degree from the annexation. In an already poor country, the food, banking and tourism industries have all felt the impact of Ukraine’s departure especially hard.
The water situation in Crimea is becoming more drastic. Previously, Ukraine supplied the peninsula with almost all of its water and electricity. Following the annexation, Ukraine has reduced the amount of water flowing into Crimea. Although many farmers have begun to drill wells and set up new irrigation systems, there is still not enough water to continue previous production levels. Some farmers have resorted to planting crops that require less water.
Border restrictions have caused food prices to rise. Russian custom agents have cited violations to some food deliveries, reducing the amount of food entering from Ukraine. A Kiev-based think tank has estimated that food prices will rise by 25 to 50 percent over the span of the next couple of months.
Although Crimea produces enough vegetables and grains to meet its needs even with the water issues, it imports most of its meat, sugar and dairy products.
Tourism, a huge component of Crimea’s economy, has also felt the effects of the conflict. Ukrainian vacationers functioned as 70 percent of Crimea’s tourism. Now, hotels that used to be completely booked are struggling to meet just 10 percent occupancy levels. With half of the population of Crimea receiving some sort of income from tourism, the economic consequences of the conflict are substantial.
The banking industry is in the midst of huge changes. As the currency changes from the Ukrainian hryvnia to the Russian ruble, all banks on the peninsula have shut down. Clients must apply to Russia’s deposit insurance agency to get their savings back. Russia has guaranteed up to $20,000 per account.
If Russia is to integrate Crimea into its economy it is estimated to cost approximately $7 billion. Russia hopes to begin talks with Ukraine to keep the borders open. However, such talks remain distant as tensions between the two countries continue to grow.
Russia has begun committing billions of dollars in aid and in tax breaks. However, with Crimea’s previous issues concerning corruption and organized crime, Russia’s next steps are uncertain. Russia is not faring well economically and uncertain investments in Crimea may stretch Russia’s financial assets too far.
While the crisis between Ukraine and Russia continues, the people of Crimea continue to feel the pressures of the dispute. The economically disadvantaged peninsula remains in a sort of limbo as long-needed infrastructure investments are still being sought after. Ultimately, the people of Crimea suffer more and more as the two countries remain unable to resolve the conflict.
Although the situation is not critical, if the economic drain continues, the people of Crimea may experience much worse than simply an economic downturn.