Sergei Guriev writes: Russia’s response to events in Ukraine has exceeded the worst expectations of those who were already questioning whether Putin is, as German Chancellor Angela Merkel put it, “in touch with reality.” The move to annex Crimea has reversed any soft-power benefit that Putin might have gained from the Sochi Olympics and the pardons he granted (as recently as December) to imprisoned opponents like Mikhail Khodorkovsky and the members of Pussy Riot.

The sacrifice of these gains suggests that the Crimea adventure was not part of long-considered plan. On the contrary, since the crisis began, Russia’s leaders have repeatedly contradicted their previous statements, backtracked, reversed decisions, and denied easily verifiable facts. All of this indicates that Russian political leaders have no strategy and do not foresee the consequences of their decisions. Even the Kremlin’s own supporters acknowledge that Putin “is improvising.”

It is also clear that the decisions to violate international law, despite the risk of economic isolation, were made in an ad hoc fashion by Putin’s innermost circle. For example, Valentina Matviyenko, the chairwoman of the Federation Council (the parliament’s upper house), announced that Russia would not send troops to Ukraine – just two days before she and the Council voted unanimously to authorize Putin to do precisely that. And Matviyenko is one of the 12 permanent members of Russia’s National Security Council, the supreme decision-making authority on such matters.

Regardless of whether the Kremlin is irrational or simply uninformed, its policy in Crimea sends an unmistakable signal to investors: Russia’s political leaders are impossible to predict. [Continue reading…]