Ukrainian Crisis

By | 03/26/2014

What is the background?

Ukraine has been culturally divided since the collapse of the USSR in 1991, when a referendum for the independence was successful by a 90% in favor and Kravchuk became the first elected President, succeeded by Kuchma. The South and East of the country has a Russian culture (Russian is widely spoken and pro-Russian political groups receive more electoral support) whilst the North and West (closer to Europe) identify with Central Europe, being Ukranian the main language. But the current crisis must not be interpreted as a Yugoslav-style ethno-cultural fight, but a political struggle.

    Ukraine map region language, Source 2001 Ukraine Census               

In 2004, when the pro-Russian candidate, Yanukovych (Party of Regions), nominally won the elections and reports of widespread vote-rigging appeared, Yushchenko (Our Ukraine–People’s Self-Defense Bloc), the opposition candidate, lead mass protests in the streets; the Orange Revolution had started, and the Supreme Court finally annulled the result of the poll. The re-run is won by Yushchenko, and Yanukovych resigned as PM.

     

Some years later, in 2010, Yanukovych won the presidential election and his opponent, Tymoshenko (Batkivshchyna) was arrested for abuse of powers, and went to prison over a ten-year gas deal signed with Russia in 2009, being banned from political office for three years. This was seen as a politically motivated move by the EU, and criticized by Russia.

Russia favors the Ukranian inclusion in the Customs Union of Belarus, Kazakhstan, and Russia, to pursue economic integration with former Soviet states. US foreign policy is currently opposed to the Customs Union, as it is seen as an attempt to reestablish a Russian-dominated USSR-type union amongst the Post-Soviet states.

Economic ties are both with the EU and Russia important. Reaching a trade agreement with the EU was seen as a threat by Moscow as it might mean a step towards an eventual application to become EU member state. Plus, in December 2013 Russia bought $15bn of Ukranian debt and slashed about a third the price of gas supplies.

How did everything start?

Back in November 2013, Yanukovych’s cabinet announced that it was not favoring the Association Agreement that would lead Ukraine to strengthen trade ties with the EU, and then it pushed closer co-operation with Russia. It also rejected a bill to allow Tymoshenko to leave the country, which was a condition of the EU for the deal to proceed. The opponents to that political movement called for the President’s resignation and early elections.

Demonstrations started in the pro-EU capital Kiev, where Tymoshenko attained 50-69% of votes in 2010 elections, namely in the Maidan (Independence Square), establishing a mostly peaceful protest camp, which soon turned into violent clashes with the police.

In early December, Kiev’s city hall is occupied, and the Parliament was then forced to act, and the President was overthrown and fled over the border into Russia. Afterwards, PM Azarov resigned and Parliament annulled the anti-protest law, less than two weeks after the measures were introduced. As the amnesty is granted for the detained demonstrators, those abandon occupied Kiev city hall along with other public buildings in other regions.

In February 2014, the total balance of about 90 deaths in two days is serious enough for three European foreign ministers to fly in to try to broker a deal, while Russia announces it is sending an envoy. Yanukovych signed then a compromise deal with opposition leaders and a national unity government was to be formed, with constitutional changes handing powers back to Parliament, and early elections, held by December 2014. But opposition leaders called for elections on 25th May, which Yanukovych branded as “coup d’etat”.

Nowadays, Parliament speaker, Turchynov (1999 deputy leader of Yulia Tymoshenko’s Fatherland party), is Ukrain’s interim President, following Yanukovych’s dismissal. He suggested Ukraine would re-open talks with the EU about closer links. Meanwhile, opposition leader Tymoshenko, who has been already freed from jail, has ruled out becoming PM again.

What about the gas?

Russia is the most important provider of gas to the EU (providing about 40%). About half of that supply flows through pipelines in Ukraine. Gas pipelines pass through Ukraine, from Russia and Belarus, and leaves for Europe, into Poland, Slovakia, Hungary, Romania, etc.

There are currently 10 major pipelines in Russia, dominated by Gazprom, eight of which are export pipelines. The Yamal-Europe I, Northern Lights, Soyuz, Bratstvo, and Nord Stream pipelines all carry Russian gas to Eastern and Western European markets via Ukraine, Belarus, and across the Baltic Sea

Russia sends about 76% of its natural gas exports to customers in Western Europe, with Germany, Turkey, Italy, France, and the UK receiving the bulk of these volumes. Smaller volumes of natural gas are also shipped via the Gazprom pipeline network to Austria, Finland, and Greece.

   

Russia has cut off that flow in past disputes with Ukraine; another disruption could push up energy prices for businesses and households. But Russia would not be thrilled about playing this card. For the Russians, the trade in oil, and to a lesser extent natural gas, earns the country 70% of its $515 billion in annual export revenue and accounts for 52% of the federal budget (according to the U.S. Energy information Administration).

So the disruption to energy trade would be in neither side’s interest, and therefore any Western sanctions will probably only target individuals, or political and cultural links, rather than trade.

What’s going on in Crimea?

Crimea became part of Soviet Ukraine in 1954 and remained Ukrainian after the Soviet collapse in 1991. Some weeks ago, the Russian Parliament said Crimea could become Russian territory, if that was what the region’s people –the majority of them identify as Russian, ethnically and as speakers-  decided they wanted, in a referendum set for 16th March, which was finally celebrated and resulted in a 96,77% favoring the annexation to Russia, not recognized by Ukraine nor the West.

Days after the end of the Sochi Winter Olympics, Putin began a covert military operation in Crimea, a vital base for the Russian Navy.

It has a significant strategic importance to both, Russia and Ukraine. There are some issues that link the regions to both nations, not just militarily, but also, for instance, as Crimea’s main water supply comes through Ukraine (Dnieper River).

However, Ukraine evacuated all military personnel from Crimea, a day after Russia declared it was annexing the peninsula, while mobilizing troops near Ukraine’s eastern border.

Sevastopol is a military base for Russia’s Black Sea Fleet, by virtue of a leasing agreement which was drawn up to allow the fleet to continue operating from there, in exchange for Russia supplying discounted natural gas. This is stated clearly in the TACA Agreement from 1997. But Russia deployed its army out of the territory of its military bases, taking power over the autonomous Republic, by even taking control over key installations.

This constituted a violation of International Law, including the UN Charter, as Russia recognized undoubtedly Ukraine and its borders. According to the Agreement, Russian forces’ major movements required consultation with the Ukrainian authorities and the agreed force levels cannot be increased unilaterally.

                               

By now, Russian forces had already seized a naval base at Feodosia, the last military base under Ukrainian control in the region.

NATO’s eye is now in Moldova and its small pro-Russian enclave, Trans-Dniester, as an escalation of “Russia’s expansion” will have serious implications for the security and stability of the Euro-Atlantic area as a whole.

International reaction

Russia and the US have been on opposite sides during the Ukraine crisis, which the US, along with the EU, backing the opposition. China, on its side, is calling for dialogue and negotiation, while expressing understanding of Russia’s analysis on the causes of the crisis in Ukraine.

The EU on 21 March signed the political chapters of an Association Agreement with Ukraine, while expanding its list of sanctioned Russian officials, a response that is milder than the US one (list here: http://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20140320_33.aspx ). So far, the suspension of talks on closer economic cooperation between the EU and Russia, and the preparations for the G8 Summit in Sochi had been two of the actions taken.

Germany is trying to act as a broker in the conflict and to assuage Russian fears that it will be threatened if Ukraine moves closer to the EU. Some German government MPs have called for swift financial aid to Ukraine, possibly involving the International Monetary Fund.

For the EU and the US, the main focus will be to reinforce their political and financial support for the government in Kiev, maybe complementing with funds an IMF Stand-By Agreement.

It is important to bear in mind that Russia’s rouble has fallen to a fresh all-time low against both the dollar and the euro after the political turmoil intensified.

If Russia withdrew its offer of purchasing Ukraine’s debt, the debate in Berlin is whether the EU could replace the Russian money and how that might affect relations with Moscow.

Plus, Russia appears unfazed by the prospect of being expelled from the G8. If the G7 decide to meet in Brussels in June, so be it.

                                                

The Russian reaction is calculated, as it is not escalating further, at least, not immediately. Maybe this is because “winning” Crimea was enough as a political victory, or the fear of an escalation of US sanctions including key state companies, or maybe it is due to Russia’s huge control over Ukranian trade and gas supplies.

Russia’s interests in the area, namely; a Ukranian President whom it can work with or a higher level of decentralization in the country, suggest that Russia will keep “playing the card” of its influence in the East and military threat, although the probability of a further Russian invasion is not to be discarded at all.

Further actions might involve the restriction to Russian banks and corporations to finance access or the introduction of direct economic sanctions, as import/export bans. Imports to the EU from Russia are dominated by crude oil (84%) and gas (76%), for which state-owned energy giant Gazprom would be high on the list if specific firms are to be targeted.

But it is not to be forgotten that those are two-way processes, and any financial shock in Russia will impact on the EU’s and the US’ banking systems and gas prices/ companies ties and interests.

In short, the crisis is now entering a period of relative stability, even if tensions remain high.

Documents :

http://www.president.gov.ua/en/content/constitution.html Ukraine’s Constitution

http://eeas.europa.eu/statements/docs/2013/131121_04_en.pdf 21 Nov. 2013 EU Statement

http://eeas.europa.eu/images/top_stories/140912_eu-ukraine-associatin-agreement-quick_guide.pdf Guide to the EU-Ukraine Association Agreement

http://www.auswaertiges-amt.de/cae/servlet/contentblob/671350/publicationFile/190027/140221-UKR_Erklaerung.pdf Agreement on the Settlement of Crisis in Ukraine

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