Sevastopol Port in Russian-Occupied Crimea Near Bankruptcy

An old Soviet joke had it that if Saudi Arabia ever became communist, Riyadh would be importing sand within five years. The situation around the once-prosperous Ukrainian port in Sevastopol suggests a similar dynamic: if the Russians occupy something, as they have in Crimea, it will rapidly slide toward bankruptcy. The port’s insolvency is a combined result of sanctions, mismanagement and the inevitable scramble for assets between various parts of the Russian government that want to extract what income they can from it before it dies and Russian firms, which appear more interested in value stripping than in making the port a success.

Following the Russian annexation of Crimea in 2014, the Ukrainian government invoked international law and closed Sevastopol and other Crimean ports to international shipping. Under the terms of this ban, any captain who docks his ship there would face massive fines and even imprisonment under international law. As a result, activity at Stavropol port collapsed from 4.8 million tons of cargo in 2013 to just 312,670 tons in 2015—a contraction of 97 percent that shifted the port into the red because it could no longer pay its workers, provide money to the local government or service its debts (Meridian.in.ua, February 5, 2016).

Despite Russian government efforts to find new traffic from Russian ports or, more recently, from its operations in Syria, the port has not recovered. Instead, it has assumed ever more debt in the hopes that no more of its 800 employees will have to be laid off and that it will eventually come back and be a profit center—or, in the calculations of some, go bankrupt, thus forcing a transfer of ownership from the city to Moscow or its sale to private interests at absurdly undervalued prices. One appraisal priced each dock and loading facility in Sevastopol at one Russian kopeck (less than two US cents). That meant, one Russian newspaper pointed out, that the entire port could be sold for 1,200 rubles ($18), allowing the purchaser to make a killing by reselling parts of it or disposing of much of it for scrap (Novaya Gazeta, January 29).

The demise of the Sevastopol port—which, to be sure, has never been as important in Moscow’s calculations as the Russian naval facility in that city—has led some Ukrainians and their supporters to declare that this represents a Ukrainian “mission accomplished” (Krymr.com, May 8). That could be true unless Kyiv lifts its sanctions against international shipping there. And such a prospect has become somewhat more likely recently, following Ukrainian President Volodymyr Zelenskyy’s acceptance of the “Steinmeier Formula” for Donbas and the apparent desire of many Western countries to wrap up what they describe as “the Ukrainian crisis” once and for all.

Still, regardless of whether that happens, what the Russian occupation authorities have done to the port since 2014 reflects the ways in which Russian government and business practices are so destructive. No one doubts that the sanctions against international use of the Sevastopol port are the most important reason for the current disastrous state of the port. However, the infighting between various parts of the Russian government, including both state corporations and the Federal Security Service (FSB), and efforts by both them and private firms to profit from the disaster are a clear lesson in why Sevastopol would face a difficult and perhaps even impossible road back—even if the sanctions were to be lifted (T.me/SIL0VIKI/, January 17; New-sebastopol.com, January 22; Meridian.in.ua, February 6; Sevastopol.su, February 28; Primechaniya.ru, May 7).

From the very beginning of the Russian occupation, the Port of Sevastopol has been in trouble because of the collapse of cargo traffic. But that has been made worse at every stage by competition among these various factions and the willingness of some state agencies to either go into debt to try to save the situation or else to make it so bad as to force a sell-off of assets and subsequent division of the profits. Further complicating matters is the constant shift in the players, both political and commercial, in the region. Each new group promises salvation, be it from a boost in traffic between Sevastopol and other ports in Crimea or the more recent idea that trade between Russia and Syria could save the day. None have been realized. In 2018, for example, Sevastopol handled just 16,000 tons of grain in the Syrian trade, less than 3 percent of the port’s capacity and an amount that hardly put a dent in the decline in trade since 2014 (Portnews.ru, January 15).

In the last few weeks, the situation appears to have worsened, with officials still insisting Ukrainian sanctions are entirely to blame. But investigative journalists conclude that, while the sanctions may be the major cause, the actions of Russian players in this drama are leading to additional decline (Ritmeurasia.org, October 5). On the one hand, Russian officials have been trying to delay more layoffs at the port lest they have an impact on the elections and public attitudes; and on the other hand, Russian officials and United Russia party leaders on the occupied peninsula keep insisting that federalization of the port and a new influx of trade with Syria will save the situation and make Sevastopol profitable again (Ridus.ru, September 3). Unless sanctions are lifted, however, the Port of Sevastopol will continue its slide toward bankruptcy, another victim of Vladimir Putin’s Ukrainian policies and clear evidence of the fundamental problems with Russian governance not only in occupied Crimea but more generally.