Skip to main content

Why annexing Crimea may prove costly for Russia

By Isa Soares, CNN
updated 7:44 AM EDT, Mon March 17, 2014
  • 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.

Part of complete coverage on
updated 9:17 AM EST, Thu November 20, 2014
Donetsk's neediest line up for food handouts. There are long queues at the bus station as people try to leave town. There are no banks left open.
updated 5:25 AM EST, Tue November 25, 2014
Barking overwhelms the thud of artillery fire. An animal shelter is crammed with 1,000 dogs, many orphans of the conflict with owners who have fled or been killed.
updated 3:51 AM EDT, Fri October 3, 2014
Reza Sayah looks into why thousands of Ukrainians have left their old lives to volunteer to fight.
updated 4:48 PM EDT, Tue October 14, 2014
CNN's Ralitsa Vassileva speaks to The New Republic's Linda Kinstler about Putin's motives with Ukraine and China.
updated 10:36 AM EDT, Wed September 24, 2014
President Barack Obama speaks at the 69th session of the United Nations General Assembly.
updated 5:58 PM EST, Thu November 13, 2014
The Commander of NATO forces in Europe says Russian tanks, Russian artillery, Russian air defense systems and Russian troops -- all heading into Ukraine.
updated 8:58 AM EDT, Tue September 9, 2014
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.
updated 12:11 PM EDT, Wed September 3, 2014
On a country road in eastern Ukraine, a scene of bucolic tranquility was suddenly interrupted by the aftermath of carnage.
updated 4:19 PM EDT, Tue September 2, 2014
In the city of Donetsk, the devastation wrought by weeks of fighting between pro-Russia rebels and Ukrainian forces is all too apparent.
updated 8:00 PM EDT, Sun August 31, 2014
CNN's Diana Magnay reports from the front lines in the Ukrainian conflict.
updated 7:26 AM EDT, Mon September 1, 2014
A few miles south of the town of Starobeshevo in eastern Ukraine, a group of men in uniform is slumped under a tree.
updated 9:43 AM EDT, Sat August 23, 2014
A shopkeeper's mutilated body, relatives' anguish, homes destroyed ... this is Donetsk.
updated 7:12 AM EDT, Tue August 19, 2014
A 20-minute drive from Kiev takes you to a neighborhood that feels more like Beverly Hills than central Ukraine.
updated 9:12 AM EST, Thu November 20, 2014
Photos illustrate the ongoing crisis in Ukraine as fighting continues to flare in the region.
updated 12:31 PM EDT, Thu July 31, 2014
Future imports, exports between the EU and Russia are now banned -- but existing contracts continue.
updated 11:40 AM EDT, Sun July 20, 2014
Some contend that larger weapons have come into Ukraine from Russia.
updated 5:25 AM EDT, Wed July 23, 2014
The downing Malaysia Airlines Flight 17 put the pro-Russia rebels operating in Ukraine's eastern region center stage.