page_title: Annexation of Crimea by the Russian Federation
section_title: Economic implications
hierarchical_section_title: Annexation of Crimea by the Russian Federation / Transition and aftermath / Economic implications
caption_attribution_description: Русский: Открытие Крымского моста
context_page_description: The Crimean Peninsula, north of the Black Sea in Europe, was annexed by the Russian Federation between February and March 2014 and since then has been administered as two Russian federal subjects—the Republic of Crimea and the federal city of Sevastopol. The annexation from Ukraine followed a Russian military intervention in Crimea that took place in the aftermath of the 2014 Ukrainian revolution and was part of wider unrest across southern and eastern Ukraine.
  On 22–23 February 2014, Russian President Vladimir Putin convened an all-night meeting with security service chiefs to discuss the extrication of the deposed Ukrainian president, Viktor Yanukovych. At the end of the meeting, Putin remarked that "we must start working on returning Crimea to Russia". On 23 February, pro-Russian demonstrations were held in the Crimean city of Sevastopol. On 27 February, masked Russian troops without insignia took over the Supreme Council of Crimea and captured strategic sites across Crimea, which led to the installation of the pro-Russian Aksyonov government in Crimea, the conducting of the Crimean status referendum and the declaration of Crimea's independence on 16 March 2014.
context_section_description: While initially (right after the annexation), salaries rose, especially those of government workers, this was soon offset by the increase in prices caused by the depreciation of the ruble. Subsequently, after Russian authority became established, wages were cut back again by 30% to 70%. Tourism, previously Crimea's main industry, suffered in particular; it was down by 50% from 2014 in 2015. Crimean agricultural yields were also significantly impacted by the annexation. Ukraine cut off supplies of water through the North Crimean Canal, causing the 2014 rice crop to fail, and greatly damaging the maize and soybean crops.
  The number of tourists visiting Crimea in the 2014 season was lower than in the previous years due to a combination of Western sanctions, ethical objections by Ukrainians, and the difficulty of getting there for Russians. The Russian government attempted to stimulate the flow of tourists by subsidizing holidays in the peninsula for children and state workers from all Russia which worked mostly for state-owned hotels. In 2015, overall 3 million tourists visited Crimea according to official data, while before annexation it was around 5.5 million on average. The shortage is attributed mostly to stopped flow of tourists from Ukraine. Hotels and restaurants are also experiencing problems with finding enough seasonal workers, who were most arriving from Ukraine in the preceding years. Tourists visiting state-owned hotels are complaining mostly about low standard of rooms and facilities, some of them unrepaired from Soviet times.
  According to the German newspaper Die Welt, the annexation of Crimea is economically disadvantageous for the Russian Federation. Russia will have to spend billions of euros a year to pay salaries and pensions. Moreover, Russia will have to undertake costly projects to connect Crimea to the Russian water supply and power system because Crimea has no land connection to Russia and at present (2014) gets water, gas and electricity from mainland Ukraine. This requires building a bridge and a pipeline across the Kerch Strait. Also, Novinite claims that a Ukrainian expert told Die Welt that Crimea "will not be able to attract tourists".
  The first Deputy to Minister of Finance of Russian Federation Tatyana Nesterenko said in her interview to Forbes Woman that the decision to annex Crimea was made by Russian President Vladimir Putin exclusively, without consulting Russia's Finance Ministry.
  The Russian business newspaper Kommersant expresses an opinion that Russia will not acquire anything economically from "accessing" Crimea, which is not very developed industrially, having just a few big factories, and whose yearly gross product is only $4 billion. The newspaper also says that everything from Russia will have to be delivered by sea, higher costs of transportation will result in higher prices for everything, and to avoid a decline in living standards Russia will have to subsidise Crimean people for a few months. In total, Kommersant estimates the costs of integrating Crimea into Russia in $30 billion over the next decade, i.e. $3 billion per year.
  On the other hand, western oil experts estimate that Russia's seizing of Crimea, and the associated control of an area of Black Sea more than three times its land area gives it access to oil and gas reserves potentially worth trillions of dollars. It also deprives Ukraine of its chances of energy independence. Most immediately however, analysts said, Moscow's acquisition may alter the route along which the South Stream pipeline would be built, saving Russia money, time and engineering challenges. It would also allow Russia to avoid building in Turkish territorial waters, which was necessary in the original route to avoid Ukrainian territory. This pipeline was later canceled in favour of TurkStream, however.
  Russian/Chechen businessman Ruslan Baisarov announced he is ready to invest 12 billion rubles into the construction of a modern sea resort in Crimea, which is expected to create about 1,300 jobs. Ramzan Kadyrov, the Head of Chechnya, said that other
caption: Vladimir Putin and his close confidant Arkady Rotenberg before the opening of the Crimean Bridge in May 2018
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