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A long hot Autumn/Winter – Ukraine

August 30, 2015

If the summer has not been hot enough, both by way of weather and political, diplomatic, economic and military engagement, the Autumn is likely to get far hotter even as the summer sun fades.

31st August will see the constitutional amendments relating to “decentralisation” strong-armed through the Rada, delivering nothing like the outcome The Kremlin envisaged.  It’s interpretation of what Minsk II required of Ukraine being roundly rejected by Ukraine, the USA and the Europeans alike.

The current up-tick in fighting on the Donbas front line, the most visible and widely reported of the numerous “hot fronts” being employed to display Kremlin displeasure.  Whilst it may be able to console itself that the “separate law” the constitutional amendments mention with regard the Donbas is still in some way to play for, if a strong Ukraine emerges over the next 5 years or so, legislatively it is far easier to repeal the “separate law” than it is to change the constitution again to remove any detailed constitutional status for the Donbas.

It is a matter of processes and Rada numbers when it comes to the ease of legislatively doing things – or indeed, and far more to the point, undoing things at a later date.

It remains to be seen whether the envisaged 1st September ceasefire will hold or not.  Recent history would suggest not, but sooner or later one will (more or less) occur.  Nevertheless, as it is far from certain that it will hold, the remainder of this entry will be written in line with consistent recent historical ceasefire failures.  (To be blunt, either prior to immediately after any ceasefire takes hold, we could perhaps expect to see Zakharchenko “sidelined” somehow and replaced.)

Presumably the release of the MH17 report in mid-October will be met by a defiant, albeit perhaps brief, up-tick in violence by the Kremlin and Kremlin sponsored proxy forces – as well as a renewed diplomatic and “troll” effort to mislead and misinterpret anything the Kremlin finds distasteful/unhelpful within the text.  By now it will have an advanced copy of the report, thus its spin and rebuttal strategy is likely to be well advanced too.

Ukraine will also have an advanced copy of the report (as will other capitals), is Ukraine (or other capitals) as PR/media/diplomatically prepared for its publication as The Kremlin will be?

Skipping past the local elections and the opportunities for Kremlin subterfuge and sabotage to insure Ukraine appears unchanged by way of democratic progress, and loudly condemning any democratic failures (imaginary or real) internationally – perhaps sabotaging the election process is not necessary considering the vested interests in Ukraine that will corrupt the process for the sake of their own survival and/or influence – the next “hot issue” will be a resolution to gas prices and pricing to and through Ukraine as brokered with the EU.

220px-Gazprom-Logo.svg

With oil currently dropping and no significant increase anticipated for quite some time, Ukraine will be keen on getting a gas price of less than $200 per unit after transit fees to Europe have been deducted.

Oil and gas pricing has a certain linkage within the Kremlin petro-state machinery – and both Russian gas and oil State companies are seeking subsidies and loans from the Kremlin.  Anything approaching a current market price, considering the grotesque mismanagement of Messrs Sechin and Miller, would dictate actual losses once corruption, managerial ineptitude and Kremlin politicking with their business unit economics take their collimative effect.

How good a gas deal is reached remains to be seen.  On the one hand, The Kremlin can spin any good deal for Ukraine as a market driven business transaction free of political linkage to its domestic constituency.  On the other, all know that Gazprom, Rozneft et al., are simply extensions of the Kremlin/State and are often little more than tools on the political tool kit.  Their economic wellbeing secondary to Kremlin realpolitik.

It is claimed by those who (should) know, a deal will be reached by the end of October/early November.  We will see.  Whether the lead up to, and aftermath of the gas deal negotiations is accompanied by increased military front line engagement will depend upon the Kremlin desire to separate what can be feasibly spun as an entirely business arrangement from the politicking over Ukrainian future direction out of the Kremlin orbit.

Any “Normandy Four” or “Contact Group” meetings will continue to see the preceding and following notable up-tick in front-line engagements and attempts at diplomatic framing.  It would appear that the Kremlin still believes an up-tick in the violence and threats via its proxies of taking more ground, constitutes it “negotiating from a position of strength”.  It also appears to believe that when those negotiations do not reach its desired outcomes, punishment at the front line will weaken rather than entrench the Ukrainian negotiating position.

The “elections” within the “DNR” and “LNR” will naturally not be recognised by anybody – perhaps not even The Kremlin  officially.   It may simply “take note” of the results and try to use them to try and force Kyiv (or have other capitals try and force Kyiv) to enter direct dialogue.  Either way it seems entirely unlikely Kyiv will enter into direct negotiations from elections that are not conducted in accordance with Ukrainian law – quite rightly too.  This unless, as inferred in yesterday’s entry, a special electoral law is to appear for the Donbas which would naturally therefore be according to Ukrainian law (or at least a law of Ukraine) that ultimately then facilitates direct dialogue.

A defiant up-tick in front line engagement once Kyiv (and everybody else) refuse to recognise those elections would appear probable if/when any 1st September ceasefire fails.

Another issue will be the $3 billion bond due to The Kremlin at the year end, a bond that Ukraine seeks to restructure.

At the time of writing, it is particularly difficult to see The Kremlin agreeing to this, for no other reason than its domestic audience expects Russian “victories” rather than the Kremlin handing “victories”, no matter how small, to Ukraine.  Notwithstanding that, the war the Kremlin is conducting against Ukraine is not just military.  It is political, diplomatic and economic.

For all the fluffy thinking about various ways to delay the Ukrainian payment – for example not paying and reducing the $3 billion from the war reparation claims Ukraine has and continues to submit against Russia etc., the bond is legally due.

If restructuring is not an option, Ukraine will either pay – or not.

If it pays the Kremlin, then there will be the perverse situation of financing a war against itself.  If it doesn’t and defaults, the question is how markets and other lenders will react.

There is then the key dates of 31st December 2015 and 1st January 2016.

At the time of writing there seems very little likelihood of The Kremlin meeting the Minsk II agreement terms.  It has shown no desire to do so thus far – its only interest in Minsk II being that Ukraine unilaterally meets all conditions that favour Kremlin outcomes in the hope of pocketing them and then making yet further onerous demands, or simply failing to deliver its side of the agreement.

Few realistically believe (or have ever believed) that control of the internationally recognised Ukrainian border will returned to Ukraine by the year end, particularly in light of the failure of the Kremlin to force its interpretation, and thus desired outcomes, into the new text of the Constitution of Ukraine.

Thus the year end in all probability (although it cannot be ruled out that there may be a rapid change of policy by somebody somewhere) will come and go, and the date within the Minsk II agreement pass without successful conclusion.

An increase in front line violence seems very likely in an effort to try and force new concessions from Ukraine in a Minsk III agreement, yet there seems very little likelihood that any Minsk III would gain further concessions from Ukraine.  It no longer needs to buy time by conceding space.

A major offensive by the Kremlin, despite posturing, does not seem particularly likely either – although it cannot be ruled out.

Thus any negotiations regarding Minsk II when deadlines expire will probably related to new deadlines (that will probably come and go once more) and a heated front line during those negotiations.

It should be noted that despite the numerous mentions of increased military action at the front line, that does not necessarily translate into territorial gains – or indeed the desire for territorial gains from a Kremlin perspective.  It does not want or need The Donbas for any other reason than to use it as a Trojan Horse within Ukraine to control, or at the very least, frustrate the Ukrainian future and stop the trajectory from Moscow’s orbit.

Thus far that plan is failing.

Hot

The other major deadline that will arrive, without any major concessions to The Kremlin will be the full implementation of the EU-Ukraine AA/ DCFTA on 1st January.  This seems very likely to see The Kremlin simply put a ban on (almost) all imports from Ukraine in retaliation – probably simultaneously.

Whilst the Ukrainian military is charged with holding the line against Russian troops and Kremlin proxies, the next three months (and into early 2016) are going to be defined by a significant battle of governance and the holding of political nerve.

All of that being said, the biggest battles for Ukraine still remain the internal battles – Rule of law, structure and sustainability.

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