Ukraine: Hanging Her Out To Dry

Actually, it’s probably over.  The West has, essentially, hung Ukraine out to dry.  Our military aid of ready-to-eat meals probably won’t deter the 40,000 Russian troops camped on the border, nor will the entire contingent 29,630 US army troops spread throughout all of Europe (we had to count the 95 GI’s in Turkey, the 9 in Greece, the 21 in Spain and the 2 in Portugal to come up with that total).  So it is Ukraine with essentially no allies, against Russia with some very formidable allies — that would be all of the industrial Nato members who are engaged in heavy trade with Russia.  They are fighting sanctions as though they were a Moscow-based lobby.

Sanctions won’t be effective without strong German support and that doesn’t look likely.  Approximately a third of Germany’s oil and gas comes from Russia and Russia is the market for tons of Germany’s exports.  In fact, Germany represents a third of the EU’s total exports to Russia.  At $48 billion annually, Putin is Germany’s 11th-biggest export customer.  It is estimated that 300,000 German jobs depend on trade with Russia, and there are 6,200 German-owned companies doing serious business in Russia.  While some of these companies are small family owned businesses, there are also some very major players trading with Russia such as Daimler, BMW and Volkswagen, as well as chemical giant BASF, and Siemens, which builds locomotives for the Russian state railway.

Russia’s strategy seems pretty clear.  We might call it the Crimea Strategy. Turn loose the pro-Russian separatists in eastern Ukraine, have armed and often hooded thugs (what else might we call them) take over the main public buildings in key cities, call for an illegal plebiscite, and then immediately recognize the newly independent republic that emerges (or, more aptly put, is gouged) from Ukraine.

Sadly, multiple polls show that only about 20% to 30% of the citizens of eastern Ukraine want to become part of Russia, but we’d wager that that 20% to 30% would represent a disproportionate share of those who choose to vote in an illegal referendum such as that which has been called for May 11^th.  So if the referendum takes place, which is far from certain, we could have a 25% turnout that votes 90% for independence from Ukraine.  Could such a thing happen?  Anyone check the voter turnout in the last New York City election for Mayor? In any event, you can bet Russia would recognize the “newly independent” eastern Ukraine before the last voter returned home from the polls.  The game plan, of course, will then be for “newly independent” Eastern Ukraine to immediately request federation with Russia.

The Ukrainian government in Kiev sees the writing on the wall and, as we go to press, is launching a last ditch military effort to dislodge the well-armed separatists from their encampments in the east’s major cities.  It is a brave and rather solitary confrontation and one in which Kiev knows that no one has its back.

The Geneva Accords of 2014, which to us seemed to channel the Munich Accords of 1938, have produced equally unimpressive results.  Already, Russian President Vladimir Putin has declared that Ukraine’s legitimate attempt to protect its territorial integrity, “effectively destroyed the last hope for the implementation of the Geneva agreements.”  Two Ukrainian helicopters were immediately downed by sophisticated surface-to-air missiles presumably fired by unsophisticated pro-Russian civilians armed with clubs and small arms they keep in their homes.

Kiev’s military move is pretty gutsy. After all, it came only 24 hours after Putin demanded that Ukraine withdraw its military from the eastern and southern regions of the country.  Now, that’s the Putin our most recent Presidents have all come to trust as they gazed into his eyes and either saw his soul (Bush 43) or promised greater flexibility after the election (Obama 1).  This is the Putin who has massed tens of thousands of troops along the Ukrainian border as it warns Ukraine’s military not to move against his agents in the east.

This is very serious stuff. Kiev has re-instituted universal conscription, and as we write this essay the battle has been joined around the eastern Ukrainian city of Slavyansk, where the Ukrainian Security Service says it is fighting “highly skilled foreign military men.”

Not far away, pro-Russian agents stormed government buildings in Donetsk, the capital of eastern Ukraine.  The separatists now hold several public buildings including the city council building and the public prosecutor’s office.  This is all, of course, a repeat of the Crimea playbook, and we think we will probably see more of the same in the eastern region of Moldova and, as we predicted a month ago, Odessa is now in the eye of the storm.

Pro-Russian protestors who had barricaded themselves in Odessa’s trade union building were killed when the building was attacked and engulfed in flames.  Pro Russian spokesmen said the victims were unarmed, but Kiev’s Interior Ministry retorted that the pro-Russian protesters had attacked the pro-government crowd before retreating to the trade union headquarters. Then, according to government spokesmen they began shooting at the pro-Ukranian crowd and threw the petrol bombs that caused the blaze.   Odessa, which is quite far from the eastern region and which has been relatively quiet, is now in play.

Meanwhile, Ukraine is being squeezed on all sides — Russia, of course, from the east; a lack of real support from the west, and the IMF is now rethinking its desperately needed loan to Kiev because of the looming threat to eastern Ukraine’s industrial base.

Russia, of course, has to keep an eye on its own economic stability, which isn’t in the greatest shape right now.  The IMF thinks Russia is already in recession and Standard and Poor’s has downgraded Russian debt to just a notch above junk.   A month ago the IMF lowered its growth projections for Russia to 1.3%, and as we write this essay IMF has again lowered its growth projection for Russia to, well, zip.  All of this uncertainty has caused a huge flight of capital from Russia with the IMF predicting a net outflow of about $100 billion by year’s end.

As we have written in recent essays, the Russian/Ukraine relationship is complex and a product of a long and tortured history.  Nonetheless, Ukraine has, for more than 20 years, been a free and independent country. Its dismemberment harkens back to a very dark period in European history, and suggests a very turbulent and troubled future.

A regimen of really tough and swift sanctions, and a meaningful transfer of arms with which Ukraine’s army could better defend itself would have sent a message that made Russia think twice about these territorial grabs in Ukraine.  Instead, we have refused virtually all of Ukraine’s requests for military aid (even for night vision goggles) and we have largely targeted Russian Oligarchs for sanctions instead of the broad Russian economy.

The weak response, thus far, from the United States and the West hasn’t caused Russia to question the wisdom of her ways.  If anything it has caused her to ask, “If not now, when?”
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