RUSSIA/UKRAINE, PUTIN'S SCORECARD

30.07.14


Commentary & Analysis, by Timothy Ash, Standard Bank
London, UK, Wednesday, July 30, 2013

LONDON ----- It was notable a few months back, in the immediate aftermath of the Russian annexation of Crimea, that Putin was being hailed both domestically and overseas as the supreme tactician, consistently out-playing the West across the globe and specifically over Ukraine, Iraq and Syria.

At that point in time he was riding high in domestic opinion polls as the arch defender of Russian interests, and having returned Crimea to the Russian fold, putting right the perceived injustice of the Soviet era when Crimea was according to the script, unjustly prised from Russian control and placed under Ukraine.

The move into Crimea was seen as a brilliant tactical play, having being seized with only a few shots fired, and a handful of casualties on the Ukrainian military side. Ukraine’s strategic withdrawal from Crimea – Ukraine’s “Dunkirk” – was seen as having laid bare the weak state of the Ukrainian army, the resurgence of Russian military might, opening the way to a larger scale Russian military incursion into South East Ukraine, perhaps as far as Trans-dniestr.

The on-set then of separatist unrest in Donetsk and Luhansk, had from a Russian perspective at least exposed the naïve nature of Western regional geopolitical plays, as by forcing Ukraine to decide between East and West, it appeared set to split the Ukraine nation, threatening civil war, ensuring further economic collapse, and the eventual failure of the new Maydan administration in Kyiv.

Surely it was only a matter of time before the Ukrainian population tired of the Western integration drive, as the West would inevitably fail to deliver either on promises of EU membership or aid, and the call would soon go back out to Russia to deliver cheap gas and loans to put the economy back on its feet.

Ukrainians would surely eventually be forced to ask Russians to come to their aid, and this would eventually see Putin’s vision of Ukraine at the heart of a Russian-dominated CIS Customs/Eurasian Union resurrect itself from the ashes. The West’s miscalculations over Ukraine, and Putin’s brilliant tactical play would surely see Russia resurgent, marking Putin’s place in Russian history as a great leader.

Only a few months on and the landscape looks much less rosy from a Russian perspective, and Putin’s tactical game plan/strategy for Ukraine appears to have gone off the rails, and very significantly. Indeed, from a position of Putin appearing always one step ahead of the game, he now appears to be back on the defensive trying to avoid outright defeat (or checkmate) with the best option now perhaps appearing as a stalemate or draw.

Just tallying up the score card:

•    Russia seems to be losing the ground war in Ukraine, as the Ukrainian military has regrouped, retrained and re-armed, with the effective use of air superiority over the rebels bringing significant gains in territory and losses inflicted on the other side. Separatist fighters appear at risk of being encircled in Donetsk and Luhansk with the prospect of being cut off from re-supply from Russia itself. A heavy toll has been inflicted on the separatists themselves.

     Russia’s ability to further re-supply and re-arm the separatists with ever more sophisticated military kit has been stalled somewhat by the increased international oversight which has followed the downing of the Malaysian Airlines jet. Hence Russia faces near total defeat on the ground, and thereafter the prospect of a Ukrainian military being tilted back around to counter the now perceived threat from Russia. Indeed, whereas Ukraine never previously harboured any strong convictions to join NATO, public and institutional support for Ukraine’s NATO membership is now building.            

•    Not only is Russia losing the ground war in Ukraine, but it appears to be losing the battle for “hearts and minds” in Ukraine itself. Indeed, opinion polls show a strengthening in support for Ukrainian statehood against what is perceived as Russian aggression. The “irregular” nature of separatist forces deployed has hardly helped with indiscipline against the local community showing signs of wearing thin local support – always important to ensure such localised insurgencies succeed.

     While Russia perhaps hoped that the separatist insurgencies would quickly win support from the local population, gaining momentum, and perhaps then enabling the call for a more formal intervention, this has simply not happened on a scale to enable the insurgency to take and hold large swathes of territory. 

•    Ukraine successfully held presidential elections in May, electing Petro Poroshenko by a landslide vote. Poroshenko has proved effective and assured in office, helped by the weight of political capital delivered in the presidential elections. Poroshenko looks set to build on this by moving to call early parliamentary elections in October whereupon parties representing a Ukrainian statehood view are expected to win a large majority.

     Of particular resonance to Russia though support for the former Regions of Ukraine (RU) ruling party, and also the Communist Party of Ukraine (CPU) has all but collapsed – both parties were as conduits for Russia to express is interests in Ukraine – and are now unlikely to even pass the 5% threshold required to secure parliamentary representation. Russia hence faces a much more Western oriented, and arguably more anti-Russian political establishment than prior to the annexation of Crimea – his levers of  influence in Ukraine have hence been eroded very significantly.                                                                     

•    Ukraine has signed the Association Agreement and Deep and Comprehensive Free Trade Agreement (AA/DCFTA) with the EU, with ratification expected to follow. By Ukraine signing the AA/DCFTA, Russia’s hopes of forging a large and effective rival trading block around the CIS Customs and Eurasian Union appear to have been dashed – there is simply no CIS Customs and Eurasian

Union without Ukraine, it would simply lack the required economic clout and political standing.                                                   

•    Ukraine has also thus far avoided falling into default, helped by Western financial assistance centred on a new USD17bn IMF programme. The Yatsenyuk administration is still paying pensions and wages on time – preventing social pressure from building to undermine domestic political stability.    

•    The oligarchic elites, with which Russia previously extended influence in Ukraine are on the back foot – either in self-imposed exile, or on the back foot against various legal/regulatory/fiscal initiatives.                    

•    Russian pressure in the energy sector has been resisted – Ukraine has toughed it out over paying a higher gas import bill, and referred the 2009 gas price agreement to international arbitration in the Stockholm courts. Thus far restrictions on the supply of gas to Ukraine by Russia have had limited impact as Ukraine built up stocks earlier in the year, has benefited from reverse transit from Europe, and there is evidence of significantly reduced domestic consumption a reflection of the weak state of the economy and moves to energy price liberalisation.

     Ukraine is talking about restructuring the energy sector, with potential for privatisation, but given strategic concerns any such sales will likely be structured to ensure that Russian interests do not dominate. Russia seems a world apart now from gaining strategic control over gas and energy infrastructure, which has been central it the Putin agenda over the past decade and a half.                                                                

•    Overall therefore, Ukraine’s whole political, economic and strategic axis has shifted now decisively Westwards - some would argue because of aggression by/from Russia – and that Russia may have permanently lost Ukraine as a result.   

•    Meanwhile, in response to the perception of Russia’s less than  constructive approach towards Ukraine, the West has rolled out a set of successively more painful sanctions against Russia, targeting individuals, corporates and latterly sectors of the Russian economy. While there is debate about the effectiveness of these Western sanctions, what is perhaps undisputable is that they are not positive developments for Russia – a view recently accepted by Russia’s respected former Minister of Finance, Alexei Kudrin.

     Western sanctions serve to underscore the poor relationship between Russia and the West, and they will further deter investment and financing into and of Russia, undermining the economy’s growth trajectory. Economic growth and development, and rising living standards has been central to Putin’s popularity over his 15 years in power, and perhaps for the first time during his long stay in office. This is a significant challenge now to Putin – let alone his goal of doubling Russian GDP over the next decade.

ON THE PLUS SIDE
On the plus side, Putin did deliver Crimea to Russia, after a 60-odd year Soviet-inspired absence. While this came with great national celebration in Russia back in April, in reality this seems a very small gain now, and particularly as in effect Russia already had near de-facto control of the peninsula via the basing the Russian Black Sea Fleet, assured via the 2009 agreement over its location, and also reflected in the ease with which the Russian military moved to take-over the peninsula.

Meanwhile, the Crimea brings little real benefit to the Russian economy, with just 2 million people and a GDP of only around 0.2% of Russian GDP – the costs of reconstructing Crimea are also likely to be very significant, and not helped by Western sanctions imposed on Crimean entities and those Russian entities involved in reconstruction efforts. Anecdotal evidence already suggests that the Crimean economy is struggling with a poor tourism season and the loss of key markets in Ukraine for food and agricultural produce.

The obvious question and key to determining the outlook now for Russia and also Ukraine, does Putin accept the score card as above, and is he able/willing to accept defeat in Ukraine. Can he walk away from this and still sell his Ukraine policy as being worthwhile, for the receipt of Crimea – however disputed – back into the Russian fold.

 

Or will he look to continue the fight for Ukraine, with further challenges to the West and the authorities in Ukraine. If so, the assumption has to be that these will be met with a further sanctions response from the West and hence further damage to the Russian economy.



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