Development / Economics / Politics

The Ukrainian Crisis: Consequences for Ukraine and Post-Soviet States

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On the 22nd of November 2014, Ukrainians around the world celebrated the anniversary of the Revolution of Dignity, as the Euromaidan Revolution is commonly referred to. Since the seizure of Crimea, instability and insecurity within the country precipitated a form of hybrid war with Eastern Ukraine, the consequences of which stretch beyond the borders of the country.

Forming a geopolitical bridge between Russia and the rest of Europe, Ukraine has yet to choose its affiliation and pave its developoment path. While the Euromaidan revolution demonstrates the will of the Ukrainian people for integration with the EU, common ties are also to be found between Ukraine and Russia. Geographical proximity, energy interdependence, economic trade are all factors which make cooperation between the two countries necessary. The lack of a diplomatic solution regarding the conflict in Eastern Ukraine has affected the nature of their alliance. With Moscow refusing to recognize its involvement in the war and Ukraine not striving for negotiation with the pro-Russian insurgency in Eastern Ukraine, the situation has now reached a deadlock.

Political instability and the annexation of Crimea saw the triggering of a deep economic crisis in Ukraine. While economic issues can partly be attributed to the existing hybrid war, they also remain the result of large-scaled corruption stemming from previous kleptocratic rule. The Ukrainian economy currently finds itself on the verge of default. Conflict in Eastern Ukraine has led to destruction of the country’s infrastructure, especially within the metal and coal industries, which are mainly concentrated on the territory of the Donbass. Certain mines have been destroyed, whilst others have simply ceased to operate.[1] To put this into context, the Ukrainian Ministry of Energy notes that for the last months Ukraine has lost approximately 12 million tons of coal.[2] Now Ukraine is in the unfortunate position of having to import coal, due to the shortage of resources, which causes it to become even more energy dependent on Russia.

Another implication of the conflict is reflected in the dispute over gas between Russia and Ukraine. Since Russia has been acting as the principal supplier of natural gas for Ukraine and forms one of the biggest suppliers for the EU through Ukraine, it now exerts constraints on Ukraine as a response to the EU association agreement, where cutting off access to gas is used as a political tool. Nonetheless, it should be remembered that Russia’s economy is similarly dependent on transit of natural gas to Europe through Ukraine’s pipelines. Hence, the economies of both states find themselves dependent on the transit of Russian gas to the EU. Irrespective of the sanctions imposed by the West on the Russian Federation, experts suggest that the EU will remain a priority partner for Russia when it comes to gas sales. Sanctions and recent economic isolation saw cooperation emerging between Russia and its long-term ally – China. Consequently, the signing of a thirty year contract between Gazprom and the China National Petroleum Corporation, which is set to supply gas for China from 2018 offers a viable economic alternative to the Russian Federation.[3]

Nonetheless, the sanctions imposed on the Kremlin damage the country’s economy. In response, Russia has been imposing counter-sanctions on the EU and the US, albeit such actions may derail its economy even further, owing to possible extra transaction costs of finding new suppliers. With Russia banning EU imports, it is likely that the latter’s member states will face slight economic slowdown. Still, it is possible that Serbia, Turkey and other CIS economies may in fact take advantage of the current situation by becoming alternative partners in trade with Russia.[4]

Recent decline in oil prices as dictated by the USA and Saudi Arabia also affects the economy of the Russian Federation. During his last press conference, Putin made promises that the Russian economy would recover within two years’ time, despite not indicating concrete measures and feasible steps for recovery. In the interim, Kremlin does not accept that Russia is facing a crisis, although the value of the rouble has significantly decreased. There is ongoing debate over and speculation concerning Russia’s economic crisis and whether it might indeed be the tool to change Putin’s foreign policy towards Eastern Ukraine. Meanwhile, Russia continues its supply of heavy weaponry and troops to the regions of Donetsk and Luhansk, with the clear intention of invading and destabilizing the region. This indicates that even sanctions which greatly affect the Russian economy are not sufficient incentives to holding the Kremlin back from continuing its hybrid war against Ukraine.

A political reality arising out of the Ukrainian crisis is the weak unity and poor consolidation of EU member states, as well as the Euro sceptic feeling spreading within Eastern European countries. EU states choose to apply light sanctions on the Russian economy, instead of taking a strong stance by condemning the annexation of Crimea and the resulting conflict in Donbas. While this is economically understandable due to the EU’s dependency on natural gas supply from Russia to Europe, this prioritization of economic interests is likely to affect and undermine the national security of Eastern European states as well NATO’s capabilities. The Ukrainian crisis has become an indicator for Western powers that Russia is capable of shifting borders in Eastern Europe unilaterally, even when such actions lack legitimacy and compliance with international law.

The Ukrainian crisis is inexorably linked to national security for other post-Soviet states. If before the annexation of Crimea, the Turkish sea fleet dominated the region of the Black Sea, the 2014 events gave leeway to Russia’s fleet to take over in a hegemonic capacity. Putin’s idea of creating a Novorossiya encompassing regions of whole Eastern and Southern Ukraine and Transnistria is another plan we need to be wary of. Implementing this expansionist policy would allow Putin to supply gas directly to the EU. Moreover, Russia would thus gain full and uncontested control over countries of the Eastern Partnership and the Black Sea region. Baltic States also expressed concerns regarding their security due to the vocal presence of Russian-speaking minorities.

Currently, Russia still exercises control over occupied territories within three states of Eastern Europe, namely Georgia, Moldova and Ukraine, all of which strive to join the EU and NATO in the future. The Ukrainian crisis once again shows that Russia wants to maintain its hegemonic position in the region and dictate its game rules to Post-Soviet countries. The Ukrainian crisis begs the question of whether Eastern Partnership states are indeed able to decide their own vectors of development without prior Russian consent. Georgia, Moldova and Ukraine have already chosen pro-Western paths by signing economic and political association agreements with the EU. As a corollary, this infuriated Putin which triggered an even more aggressive policy towards the above mentioned states.

Beyond doubt, Russia covets the Post-Soviet countries to join the Eurasian Customs Union, an economic bloc competing with the EU. The Eurasian Customs Union is Putin’s project which would help Kremlin not only in upholding its dominant position in the region by controlling its member states, but also by ramping up Russian power. Since 2 December 2015 the Eurasian Economic Union (EEU) will start to function as a replacement of the Eurasian Customs Union. Armenia, Belarus, Kazakhstan and Russia are all members of the EEU. As Georgia, Moldova and Ukraine strive in the future to accede to the EU, it is likely that cooperation between Russia and these countries will gradually decrease in certain spheres. An example of this is the export of goods from Ukraine to Russia which has dropped considerably over the last decade.

Many experts draw a parallel between the EEU and CIS, where the latter has never been seen as a full-functioning organization. Many doubt the effectiveness of the EEU due to the fact that its members pursue their own national interests, which often do not align with the interests of the Kremlin. For instance, Kazakhstan aims to join the WTO. It is highly plausible that Russia will exercise pressure over EEU members to introduce customs duties and export quotas for Ukrainian commodities. It should be noted that Belarus and Kazakhstan as well as Russia remain important trade markets for Ukraine. In return, Belarus and Kazakhstan acknowledge the significance of diplomatic and economic relations with Ukraine given Ukrainian key exports to their markets such as machinery and mechanical equipment, iron and steel and so forth. Thus on 21-22 December 2014, Lukashenko and Nazarbayev paid a visit to Kyiv to emphasize the importance of cooperation with Ukraine. The visit saw Kazakhstan and Ukraine reaching agreement over the delivery of Kazakh coal to Ukraine, whereas Lukashenko expressed his support of the integrity of Ukraine and his willingness to help the Ukrainian crisis come to an end.

Ukraine has signed the Deep and Comprehensive Free Trade Agreement (DCFTA) with the EU and the task of its current government is to tailor Ukrainian legislation towards fulfilling the requirements of the EU, by implementing necessary reforms. If this process is carried out effectively, Ukraine will manage to break away from Russia’s pressure over the Eastern European arena. However, the conflict in Donbas complicates this reformation process. It is pivotal for the country to strive and maintain peace in Eastern Ukraine whilst overcoming its existing humanitarian crisis. The hybrid war should not be a reason to evade the much needed political reformation.

 

Olena Guz

 

[1] Kononczuk W. ‘Ukraine Facing Harsh Winter Due To Coal Shortages’, Oilprice, 26 October 2014,  http://oilprice.com/Energy/Coal/Ukraine-Facing-Harsh-Winter-Due-To-Coal-Shortages.html

[2] ‘Ukraine may reduce electricity rates at night’, UNIAN, 12 December 2014, http://www.unian.info/economics/1021109-ukraine-may-reduce-electricity-rates-at-night.html

[3] Kramer A. E. ‘Gazprom Makes a New Gas Deal with China’, The New York Times, 10 November 2014, http://www.nytimes.com/2014/11/11/business/international/gazprom-makes-a-new-gas-deal-with-china.html?_r=0

[4] World Economic Situation and Prospects 2015, report of the United Nations (UN/DESA, UNCTAD & others.), at p. 26.

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