On the eve

06.08.2015

We present an interim analysis with elements of forecast drafted by leading experts of the Gorshenin Institute. The team that has prepared the text included: Vadym Omelchenko, Viktor Sokolov, Oleksii Leschenko, Yevhen Kurmashov, Oleg Bazar, Kostiantyn Vinokurov, Dmytro Ostroushko and Christine Dugoin-Clement.

A year and a half after the Revolution of Dignity, Ukraine is again facing the main challenge of its recent history, which is to how to secure subjectness. The question is whether the country, which has been formally independent since 1991 and has had two revolutions since, can become truly independent from the external will of its eastern or western neighbours, or whether it is to finally lose any chance of determining its present and future on its own.

Фото: EPA/UPG

The victory of the revolution, the heroism of troops in the antiterrorist operation and the dedication of volunteers, all of this built the confidence that Ukraine was up for long-term subjectness. The democratic elections of the president and parliament, the victory of parties running under patriotic banners and the fact that they formed the ruling coalition in parliament allowed for a hope that a power subject would emerge which would not need the country to carve it up, but would appreciate it as it is. However, in our opinion, this subjectness is at risk once again.

This article seeks to analyse whether these hopes have materialized and to make certain assumptions on a possible development of the situation in Ukraine.

Competing paces

Ukrainians' most popular question for the past 18 months now has been: "What's next?" People who are not involved in politics and representatives of the ruling class, as well as journalists, experts and observers, all ponder possible scenarios of developments in Ukraine. No-one has an accurate answer. A forecast on the situation in which Ukraine has found itself usually boils down to a simple conclusion: "It depends on many factors".

This is true. Therefore these factors should be analysed and each should be examined separately. The analysis should reflect the challenges on today's agenda. Further development of the situation will be determined by a competition of several paces and will depend on which ones of them become defining.

1. The pace of Western economic sanctions taking their toll on Russia and their resulting impact on the conflict in east Ukraine. 

Фото: Maks Levin

The policy of sanctions against Russia over the annexation of Crimea and the war in east Ukraine is of paramount importance to further developments. Western countries' involvement in the process back in 2014 was very difficult at the start. However, despite difficulties in working out a single position, the EU and the USA after all managed to sync their sanctions when rolling out every new round of sanctions. Perhaps, it was the main result of the past year that Moscow's titanic efforts to drive a wedge between EU member-states and the allies on both sides of the Atlantic, the USA and the EU, were to no avail. Sometimes, when a compromise was required, many formulations were softened while the most radical initiatives like, for example, disconnecting Russia from SWIFT were delayed indefinitely.

One should not be misled by senior Russian officials ignoring the sanctions or speaking about them in public with disdain. The sanctions are there and they are having the needed effect. Ukrainians longing to see the Kremlin stop the war over Russia's economic hardships can certainly be unhappy with the pace of sanctions. However one must clearly understand that the "Ukraine issue" is not the single reason for the West to put pressure on Russia. We can say for sure that by now the key Western players (the USA, Germany and France) have worked out a single approach to the Russian leadership (not Russia as a whole). If we sum up what we know, this approach can be formulated as follows: the West considers the current Russian authorities not open to dialogue, aggressive, corrupt and dangerous. Therefore it should be replaced. However it can only be replaced in the course of evolution. This understanding is the foundation of the policy of sanctions which is guided namely by the evolution scenario of changes in Russia. Besides, the West is not interested in Russia plunging into crisis or chaos and seeks to prevent any catastrophic scenarios. Also, the West would not mind taking advantage of the situation to redistribute global markets of energy and arms and strengthen its own military alliances.

We have noticed a certain evolution in approaches too. For example, whereas during the initial stage of the Russian aggression the West followed the strategy of "tough words and as few as possible specific actions", today, according to our observations, the strategy made a U-turn to "softer words and tougher 'invisible' sanctions having a significant weakening effect on the vital sectors of Russia's economy". We have drawn this conclusion after analysing the actions of the Russian leadership and seeing that the West's tough rhetoric and threats are used by the Russian leadership to step up propaganda and consolidate the Russian society around anti-Western sentiments.

Фото: EPA/UPG

The sanctions will certainly be gradually stepped up. Unlike a year ago, the West is fully aware of the risk to its own peace of mind in the short term and it is not even about Ukraine any longer, but about the strategic interests of the EU and the USA. That is why in the recent months Poland has been seriously preparing for a possible invasion from the east as, in the worst-case scenario, it will become the first outpost of NATO and Europe on the path of Russian troops.

Also, the USA has recently decided to station its heavy arms in Eastern Europe, including in Poland. The USA is sending the arms to several bases in Poland, Baltic countries, Romania and Bulgaria, explaining that it is acting in response to Russia's policy. A total of 250 tanks, APCs and artillery systems are being sent to Eastern Europe. These arms will be used by brigades of 3,500 to 5,000 soldiers.

Back in 2014, Poland announced that it would spend 7bn euros to urgently beef up its air defence. This decision was taken with a view to what was happening in east Ukraine. Lithuanian President Dalia Grybauskaite and her Latvian counterpart Raimonds Vejonis recently said that their countries would be able to cooperate in the purchase of arms to develop their joint military potential. According to their statement, they are discussing a joint purchase of an air defence system, with both Lithuania and Latvia looking forward to Poland and Estonia, also members of NATO, joining them. These four countries should jointly buy arms to lower the cost and boost their combat capabilities. Vilnius and Riga may benefit from the Polish government's plans to set up a special defence fund with a goal of strengthening regional military interaction. The fund will help the allies to buy arms using government, bank and export loans.

One should not forget that apart from the Western sanctions, the complete pullout of Western investors from the Russian market, soaring unemployment and sharply shrinking consumer capacity, Russia has also faced the worst foreign economic situation in the decade this year.

Фото: EPA/UPG

First, the Federal Reserve System has set course for a higher key interest rate, which should draw to a close the policy of cheap money and notably improve the dollar exchange rate as soon as this autumn. Many financial analysts expect the implementation of this policy to take off in a month, which will certainly affect other currencies. This decision can send the rouble into a new downward spin.

Second, the Chinese economy is having problems. After the recent crash, Beijing channelled 483bn dollars into saving its stock market. International analysts believe the Chinese economy has run out of internal growth factors. The debts of Chinese companies now make 160 per cent of its GDP. Volatile China is a serious factor jeopardizing the prospects of Russian gas supplies there.

Finally, the most important factor is the return of Iranian oil to international markets. In mid-July, the first tanker with Iranian oil set sail for Far East. On 20 July 2015, the UN officially lifted sanctions on Iran. By now, the price of oil has already gone down below 50 dollars per barrel. Washington's role in this was so essential that, although it cannot be interpreted as a planned anti-Russian special operation, the "Iran deal" may well be considered one of the links in a chain of indirect sanctions.

In addition to the Iranian factor, the price of oil is also under the influence of the US decision to unlock domestic production. This is allegedly being done to finance medical research projects. It is possible that when the Russian leadership expresses its concerns about the decision, Americans simply shrug off and say they need money for social projects. Maybe that is the way. Moscow cannot complain although the US actions broadly affect the Russian economy.

Фото: freesmi.by

Using this logic, we may suggest that Russian energy, mining and metal exports to Europe can be made subject to quotas in the medium term. In this case it will not be a great problem for the EU to replace Russian oil and rolled metal because supplies of the latter, for example, can be replaced with those from China, India and Brazil. Any preferences for them will also weaken the Russian strategy with regard to these countries.

2. The pace of military escalation

The second pace largely influencing further development of the situation in Ukraine is a possible escalation of the war in Donbas, the probability of which has significantly increased over the past weeks.

The Minsk agreements and the commitments undertaken by both sides of the conflict have been gradually turning into a roadmap applicable to one side only, which is Ukraine. If you check the daily updates from the security operation area for the past month, it will become obvious that the amassing of weapons and manoeuvring by militants mean only thing: they are preparing a massive attack in 3-4 directions. And this will happen really soon.

Pace No 1, which is the effect of sanctions on the Russian economy and to what extent it will outpace or lag behind Pace 2, which is the escalation of the Donbas war, is very important in this regard. A number of Ukrainian experts, politicians and journalists believe that these two paces go hand in hand as the deeper Russia's economic nosedive as a result of the Western sanctions is, the higher is the chance that Kremlin-sponsored militants and Russian troops will leave Donbas and the conflict in east Ukraine will be settled. 

Pro-Russian militia in the building of the Kramatorsk town administration
Фото: EPA/UPG
Pro-Russian militia in the building of the Kramatorsk town administration

It is difficult to argue the statement on the close connection between the two paces. However the general conclusion is questionable. Analysts from the Gorshenin Institute are of the opposite opinion: the worse the economic situation in Russia is, the fewer resources there are available for keeping the economy afloat, the stronger the trend for redistributing available resources from various economic sectors in favour of the military and industrial complex is going to be. Taking into account the fact that Putin as a player is still in full control of the situation in Donbas and is the key policymaker in the situation which he had created in east Ukraine, he will try to speed up Pace No 2 at any cost. In other words, he will try to offset the impact of the Western sanctions on the Russian economy and population by means of war. For Putin, war has the opposite sense: to cut the Gordian knot of economic problems, to delay self-identification of the nation and elite with regard to him and his team.

Considering that the war in Donbas is an absolutely irrational and hybrid project which was a reaction to the failure to meet the goals set with regard to Ukraine using political means, its resolution is outside the framework of sound logic. On the contrary, the need for mobilization inside Russia in case of a catastrophic shortage of resources will allow for very many expenditures, which Russia could afford in 2003-2013, to be dropped. First of all, this concerns social care, infrastructure projects, flirting with innovations, state support for entire economic sectors and so on. In the meantime, the project aimed at undermining and ruining the Ukrainian statehood and sovereignty will continue until all resources are exhausted. Once again, the West, which entered into a strategic counterplay with Moscow, is well prepared to wait until they run out. However it would cost Ukraine an arm and a leg to wait until Russia exhausts its resources. The price it would have to pay can be different, from a cardinal change of border to thousands of lives.

Is it possible to lower the number of victims while keeping the border where the current "exclusion zone" runs? Yes, it is. However it depends in particular on a number of paces inside Ukraine and on the ability of the Ukrainian elite to close ranks behind the key idea of finishing the war and not losing the country at this.

Фото: donbas-ukraina.info

We consciously abstained from analysing the so-called Minsk agreements and their impact on the situation. How do we see the Minsk agreements? It is certainly a product of the Putin diplomacy seeking to reinstate Donetsk and Luhansk regions in Ukraine's electoral and economic domain with the right to veto foreign policy decisions and other preferences. The West agrees to this format but, as we have said, this does not make the global game easier for Putin and his team. At the same time, the strategy of the Ukrainian authorities with regard to the Minsk agreements is also obvious: they will be buying time while manoeuvring and creating certain obstacles to the implementation of these agreements. And this strategy is correct and is itself a pace of a kind, the pace of protracting the implementation of the Minsk agreements to allow for other paces to take place.

3. The pace of Saakashvili-zation of Ukraine

The next pace is the so-called Saakashvili-zation. Let us explain what we mean by this. The situation in Georgia during Saakashvili's presidency had two aspects. The first was a serious PR project, the "Georgian miracle", during which a certain image was planted in public mind, in particular by reforming the most visible sectors of government machinery such as the State Automobile Inspectorate. The second one was the true state of affairs in the country, the structure of Mikheil Saakashvili's personal power and relations between the authorities and Georgian society.

Although there was an appearance of democracy and reforms, Saakashvili's regime in fact had a lot in common with autocracy while the president enjoyed nearly full monopoly control of uniformed agencies, prosecution, courts and mass media. Any true opposition was marginalized and labelled as "pro-Russian" and "anti-patriotic". The place of true opposition was taken by the pet, virtual opposition which was to demonstrate Georgia's democracy and pluralism to the West. Some experts suggested that the Georgian opposition was a project of Saakashvili back then. As a result, President Saakashvili had an absolutely manageable situation in the Georgian parliament with the handy opposition.

Фото: rian.com.ua

Over nearly 10 years of its rule, Saakashvili has built the rigid vertical of power. Simultaneously with the badly needed and relatively successful reforms in the sectors most exposed to the public – in the police, army, tax and licensing systems – scores of dissidents were arrested and intimidated while a jail term for potentially disloyal persons became a common element of political fight which affected many Georgian adults. The authorities found ways to "suspend" the most active part of the country, securing loyalty with fear.

Saakashvili was an absolutely pro-Western president. He spared no expense on PR and lobbying in the USA and the EU to support his image of a "pro-Western democrat". Thanks to this, the West turned a blind eye to problems with democracy and authoritarian trends in Georgia. Maybe it was done on purpose or maybe the West considered them as the price one has to pay during the reform period.

Thus, the characteristics of the Saakashvili-zation are:

  • monopolization of influence on uniformed agencies;
  • monopolization of mass media;
  • marginalization of true opposition and creation of virtual, pet opposition;
  • building of positive reputation in the West to prevent the opposition from appealing to the USA and the EU.

Only a month ago, the pace of the Saakashvili-zation was one of the defining ones in Ukraine. However we tend to believe that the pace has been slowing down recently. One of the reasons is that the parliamentary coalition is still significant and necessary, therefore attempts to fully monopolize the bloc of uniformed agencies have failed. On the other hand, foot soldiers in uniformed agencies are demotivated because they have learned the lesson of the past years: the authorities may change, but it is foot soldiers who will be held accountable for "orders" after all. Attempts to impose control over courts have not been fully successful either, with judges still fighting for their corruption independence and missing the privileged status they used to have under the previous authorities.

Фото: Yulia Sushchenko

The growing rating of the Opposition Bloc reinstates it as a player, at least in several important frontline areas of east Ukraine. Therefore the presidential administration finds it necessary to build some format of interaction and find a compromise with both its allies and the opposition.

4. The pace of revanche

The political agenda was dominant during the 2014 parliamentary election. It laid the groundwork for parties with national patriotic rhetoric. As a result, these parties received two thirds of all parliament seats. The Opposition Bloc, a successor to the Party of Region, managed to claim less than 10 per cent of seats despite its victory in eastern regions.

The military and political agenda has been giving way to social and economic issues. Besides, there are a number of processes which, judging by quantitative and qualitative estimates, directly influence citizens' relations towards the authorities and have started to affect the ratings of political parties. These are medical reform, the lack of true fight against corruption, mass conscription into the army affecting hundreds of thousands of people and so on. (By the way, the Ukrainian authorities do not understand that when discussing our country, the European Parliament is focusing not on the Minsk agreements, but on the situation in the Prosecutor-General's Office.) And while the People's Front and recently Solidarity have been losing, the rating of the Opposition Bloc, especially in a number of eastern regions, is tipped to be on the rise. In some regions and population centres the Opposition Bloc can win the majority of seats in local councils. As a result, for example, governor Saakashvili may end up with the opposition majority in the Odessa regional council.

The significance of local authorities notably increases with decentralization. Therefore by winning the "administration" of some eastern and southern regions, the Opposition Bloc will have leverage to blackmail the central authorities. They may demand an early parliamentary election as soon as in the spring 2016 to repeat the 2006 scenario by riding the wave of growing disappointment with the central authorities in order to increase their presence in parliament. As a result, we may expect Ukraine to leave the path of European integration and tilt towards Russia, which means abandoning the subjectness. Clearly, should the Opposition Bloc and its satellite projects achieve a revanche, local power in strategically important areas of Ukraine will return to pro-Russian forces.

Фото: Maks Trebukhov

As we have already said, it is wrong to believe that the West is settling scores with Russia because of Ukraine. The Ukrainian authorities motivate the West by saying that in case of Ukraine's defeat, Russia will be a hair's breadth away from NATO. Ukraine asks for loans and military help while her strategies remain incomprehensible. We consider this communication strategy to be a mistake. In our opinion, it would be far more effective to persuade the West that Ukraine is economically attractive as far as the strategic bid of the humankind is concerned. This communication strategy and proposal could be based on reviewing Ukraine's mission in the modern world.

Ukraine's mission. What does Ukraine have to offer its own society and the global world?

An attempt to suggest that Ukraine should catch up and outpace industrially developed economies in terms of technology does not make any sense and could work against it. So are the attempts to return to the industrial age by "reviving" Ukrainian industry.

Nevertheless, Ukraine enjoys some unique competitive advantages and its own mission which can become not only a source of wealth for the Ukrainian society, but also a reliable protection tool in the turbulent world of the early 2000s. These advantages line up along the following three aspects: first, human resources; second, fertile soil and a favourable climate for arable farming; and, third, a significant geographical transit potential.

1. Human potential

Ukraine ranks seventh in Europe by the size of its population, an eleventh of that of the EU.

According to UNESCO, Ukraine is a top-10 most literate country. The country's research and development potential can hardly be overestimated. For instance, in 2011, every 11th space launch involved a Ukrainian rocket carrier.

Фото: vpk.name

Whereas the basic figures of human potential stand high, another indicator, which is the human development index which depends on living standards and quality, literacy, education and length of life, leaves Ukraine 76th out of 187 countries of the world. This striking difference speaks of a huge potential for growth.

2. Bread basket of Europe and the world

One of the key problems of the humankind listed in the UN Millennium Declaration is hunger. The number of people suffering from hunger exceeded 1bn people in 2015. Every minute 11 children die of hunger!

Food shortage is typical not only of poor countries where people starve or not eat enough, but also in industrially developed countries for which the quality of food is a nagging problem.

According to UN expert forecasts, the world population is likely to run over 9bn people in 40 years while the global demand for food will almost double. By the same 2050, the level of urbanization of the world will have reached 70 per cent, with the number of people engaged in agriculture sharply decreasing amid a rapid rise in the demand for farming products.

This is Ukraine's chance. Currently, in addition to feeding its own people, Ukraine supplies food to over 150m people around the world, ranking as one of the largest global food exporters alongside China, the USA, Argentina and Brazil. Ukraine is the world's exporter No 1 of sunflower oil, No 3 of wheat and corn, No 4 of barley, and Nos 7 and 8 of soy and chicken meat. Even with the current level of farming, Ukraine can feed around 400m people.

Фото: 21food.com

Thus, with a proper approach and smart government policy, the farming sector can guarante Ukraine's economic flourishing and high living standards for Ukrainians. After all, land is the joint capital of the entire Ukrainian society.

What is most important is that the country which will be critical to ensuring the food security of the planet will automatically acquire subjectness and top protection from external threats. This is because all key geopolitical players will be interested in the security of this element.

3. Transit potential

Five international transport corridors cross Ukraine to connect the Black and Baltic seas, Europe and Asia. Cargo flows from west to east and from north to south and backwards. International corridors involve all kinds of transport: railway, sea, automobile, river and pipeline. The share of transit cargo in the total volume of Ukraine's transport sector stood at 50 per cent recently, meaning every other tonne was of cargo in transit. Thanks to its geographical position, well-developed transport infrastructure and warm-water ports, Ukraine's potential to service cargo transit is extremely high. For example, Poland, which has lower territorial capacity, earns almost 4bn dollars from haulage annually.

Ukraine's developed pipeline network and Europe's largest underground gas storage facilities play an important role in ensuring the energy security of European states. Until recently, over half of Russian gas exports to Europe had gone through Ukraine. Provided that the state carries out the right policy, Ukraine should be actively involved in projects to develop international transport and communications networks, including on the delivery of Caspian energy resources to home and international markets.

Фото: rian.com.ua

Some conclusions

First, the short-term outlook for the situation in Ukraine is defined by four key competing paces described above. It should be noted that the list of paces is not exhaustive. However we have made an attempt to outline the main ones.

Second, the Ukraine factor is not defining in relations between the West and Russia, however Ukraine is no longer a buffer zone and will not be it. (It should be noted that Putin does not understand this, neither his strategies take this into account. Ukraine is no longer his trump card and neither is his participation in fight against Islamic State.).

Therefore it makes sense for Ukraine to urgently revise its own mission, which, in turn, would increase its chance of securing subjectness.

Third, the election trends attest to a high probability of a revanche by the pro-Russian opposition in east Ukraine and, consequently, to changes in the domestic political situation and agenda.

This analysis should not be considered as giving exhaustive answers to all questions, however it may be offering a new angle and is an invitation to expert colleagues to join a discussion on the issues raised here. You are welcome to have your say on the LB.ua and Gorshenin Institute websites or on our Facebook pages. 

Authors: Vadym Omelchenko, Viktor Sokolov, Oleksii Leschenko, Yevhen Kurmashov, Oleg Bazar, Kostiantyn Vinokurov, Dmytro Ostroushko and Christine Dugoin-Clement.

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