Ukraine is a particularly important country for Russia and will remain so for the foreseeable future. The two countries are united not only by history and religion, but also by structural social and economic ties inherited from the Soviet era. In fact, those ties account for a double-digit percentage of the countries’ respective GDPs. However, Russian-Ukrainian interdependence has been decreasing since 2004 due to choices made by the Ukrainian elite and continuing political instability in Ukraine. Russia believes that the hostile regime in Ukraine will remain in power for a long time. This factor has forced Russia to continue reducing its dependence on Ukraine. It is in the interests of both countries to ensure that the process of reducing interdependence is both gradual and carefully thought out.
Although the Soviet Union broke up peacefully in 1991, the process was ill-conceived and hasty. Significantly, jurisdiction over the Soviet Union’s common assets was not resolved after the country’s collapse. Some of Russia’s strategic assets remained on the territories of other post-Soviet states; post-Soviet economies continued to operate as a single organism; and the problems of borders and population exchanges remained unsolved. The political unity of post-Soviet countries collapsed, which led to the disintegration of their economies, followed by a sharp fall in standards of living, which most countries sought to cushion. The geographical dispersion of interrelated production facilities across the former Soviet Union and the fragile balance of post-Soviet production chains made it possible for Russia to avoid drastic changes in its relations with neighbors, contacts with which were strategic for the Russian economy.
In the early 2000s, Russia chose a path of slow but steady growth and avoided becoming entangled in costly conflicts. That is why Russia never initiated revisions of the status quo along its borders. Instead, Russia was the last to intervene and did so only when its vital interests were at stake; for instance in Georgia in 2008 and in Ukraine in 2014.
Russia and Ukraine: Strong Together, Weak Apart
Even if the hostile regime in Ukraine persists, the goal of progressive economic growth means Russia will remain interested in the stability and integrity of Ukraine. The two countries are linked more than any other post-Soviet states. Before the referendum in Crimea, Russia’s vital interest was the deployment of its Black Sea Fleet on the peninsula. Now Russia wants a militarily neutral Ukraine, transit of energy resources via its territory, and the safety of more than 10 million ethnic Russians living in Ukrainian territory, most of whom view Russia as a defender of their rights.
Russian capital in Ukrainian companies amounts to a double-digit percentage of the entire economy. Labor migration from Ukraine to Russia used to stand at six million people per year. Humanitarian ties between the two countries are strong because they rest on mixed families and a common culture and religion. According to Russian data, to maintain this interest Russia subsidized the Ukrainian economy to the tune of U.S. $10-12 billion annually by providing discounts on natural gas, offering loans, placing orders, and granting trade preferences to the detriment of Russian producers. It would not be an exaggeration to say that Russia has always been—and still is—the main external guarantor of Ukraine’s stability, and this interest is vital. Critics of the Ukraine policy believe that Russia is seeking to undermine the Ukrainian economy by forcing a war. This might have been the case except for the fundamental economic interdependence of the two countries, which makes Russia interested in the stability of Ukraine.
Their mutual ties are so significant that even the war in Donbass has a limited impact on those relations.
Russian banks play an important role in Ukraine’s financial system and are placed fifth (Prominvest Bank), eighth (Sberbank) and ninth (Alfa Bank) in terms of total assets among banks operating in Ukraine. In 2013, direct investments from Russia stood at 6.8 percent of all foreign direct investments in Ukraine, but a significant part of Russian money comes via Cyprus—33.4 percent. In 2014, these figures decreased to 5.9 and 29.9 percent, respectively.
In the spring of 2014, the Russian Ministry of Industry and Trade estimated the total portfolio of Russian orders placed with Ukrainian companies at U.S. $15 billion (8.2 percent of Ukrainian GDP). These were largely orders for hundreds of industrial enterprises cooperating with Russian companies in high-tech production (space rockets, ships, aircraft, helicopters, turbines, etc.).
In April 2015, the gross external debt of Ukraine stood at U.S. $126 billion, of which about U.S. $50 billion was the Ukrainian state debt. This portfolio included U.S. $25 billion of Russian state and private banks, which placed their money in Ukrainian sovereign bonds. Another U.S. $4 billion is the Ukrainian state debt owed to Russia, including U.S. $3 billion in Russian bonds that had to be paid back before the end of 2015. As the key creditor, Russia can easily trigger a default in Ukraine, since the latest loan was made in 2013 on condition that it is paid off before maturity if the external debt exceeded 60 percent of GDP (in the middle of 2015 Ukraine’s external debt stood at 96.5 percent).
Russian capital is also present in Ukrainian power distribution networks—VS Energy International owns 27 regional electricity suppliers. In addition, since 2014, Ukraine has been buying Russian electricity in the amount of 1,500 megawatts (total consumption is 26,000 MW). In December 2014, Russia began supplying Ukraine with 50,000 tons of coal per day without pre-payment and at Russian domestic prices. The supplies helped Ukraine avoid an energy crisis in the winter of 2014-2015. The energy blockade of Crimea in November 2015 led to the cessation of coal supplies from Russia and the Donetsk People’s Republic.
In the field of nuclear energy, Russia and Ukraine developed their strategic partnership for decades. Ukraine inherited four nuclear power plants from the Soviet Union with 15 reactors (including Europe’s largest nuclear power plant in Zaporozhye), the fuel for which was supplied by Russia. Ukraine planned to build a fuel plant in the Kirovograd region with Russia’s assistance, but the crisis has stalled this work.
In 2014, the Ukrainian gas market consumed 42.6 billion cubic meters of gas, thus placing fourth in Europe after Germany (86.2 billion), Great Britain (78.7 billion), and Italy (68.7 billion). In 2015, consumption was expected to decrease to 34 billion cubic meters. In 2013, Russian gas supplies accounted for 85 percent of gas consumption in Ukraine, but in 2014 Ukraine cut gas imports from Russia, replacing them with reverse flow deliveries of Russian gas from Slovakia, Poland, and Hungary. In mid-2015, the gas price for Ukraine stood at $247 per 1,000 cubic meters, which was less than Russian gas cost for the majority of consumers in the European Union. However, Ukraine demanded a further decrease in the price to $200 per 1,000 cubic meters. The unresolved dispute resulted in Russia stopping gas supplies to Ukraine twice in 2015.
Half of Russian gas supplies to EU countries go via Ukraine, which makes gas transit through Ukraine a vital interest for Russia, at least until an alternative gas pipeline across the Black or Baltic Sea is put into operation. An agreement with Ukraine on gas supplies for the heating season of 2014 was reached only thanks to direct cooperation between Russian and EU officials.
Transit risks in Ukraine are increasing and this does not apply only to pipelines. At risk is the security of transportation by road and rail, and cargo deliveries via Ukrainian ports. Russia has to change routes for the supply of its goods to Central and Southern Europe.
Industrial production was a major area of Russian-Ukrainian interdependence, especially in the defense sector. Ukrainian components were used in 186 models of Russian-made weapons and military equipment. The crisis led to the end of cooperation between the two countries in the defense industry. Russia now has to urgently revise its 2020 rearmament program.
In 2013, Russia was Ukraine’s largest trading partner (27.3 percent), second only to the EU (31.2%). In 2014, Russian-Ukrainian trade collapsed, falling by U.S. $18 billion (40.2 percent) from 2013. Simultaneously, Ukraine’s trade with the EU increased 12 percent, which, however, did not cover Ukrainian losses on the Russian market.
The new Ukrainian authorities have proposed cancelling the visa-free regime with Russia as part of their concept of building a “wall” along the Russian border. This move will lead to a reduction in remittances from Ukrainians working in Russia and will undoubtedly cause significant economic damage to Ukraine, affecting most strongly its citizens’ personal consumption. Russian experts estimate possible losses of Ukrainians from earnings losses in Russia at U.S. $11-13 billion a year (seven percent of GDP).
These figures show the depth of the economic interdependence between Russia and Ukraine. In addition to the Soviet industrial legacy and economic ties, from the very beginning the economy of independent Ukraine developed with significant Russian participation. The destruction of this interdependence will lead to a systemic decline of GDP by 20-30 percent in Ukraine, and by 3-5 percent in Russia.
Consequences of the Unexpected Break in Relations in 2014
Formerly, the close interdependence between Russia and Ukraine caused the two neighboring countries to separate politics and the economy. However, during the current crisis the countries have tied them closely together and are on the verge of severing their relations. Ukraine’s new National Security Strategy describes Russia as a “long-term strategic threat,” while Ukraine is called an outpost of the West in the struggle against Russia.
Russia, too, is moving towards a break in its dependence on Ukraine. Russian Prime Minister Dmitry Medvedev said that “Russia plans to firmly follow its own national interest. While building relations in the new environment, we will put emotions and family sentiment aside. We will no longer support the Ukrainian economy. This is disadvantageous to us. And, frankly, we’ve had enough of it.”
In the past, Russia pursued three different strategies towards Ukraine, depending on that country’s readiness to cooperate. The first strategy was for a friendly Ukraine that sought to integrate into a common economic space of the Commonwealth of Independent States and jointly develop on the basis of the Soviet economic legacy. The second—and longer—strategy was applied to a hesitant Ukraine inclined towards neutrality. In this scenario, Russia sought to form a tripartite economic regime with Ukraine and the EU with a view to building a “bridge” on the territory of Ukraine.
Finally, the third strategy, pursued in 2004-2008 and again since 2014, deals with a hostile Ukraine, on which Russia continues to depend quite heavily. In this case, Russia seeks to gradually reduce this dependence, bring its interests out from under Ukraine’s influence and create conditions for that by maintaining the stability of Ukraine.
The twenty-five years of Russian attempts to establish friendly relations with Ukraine have failed.
Today Russia believes that no achievement will be lasting if it continues to rely on the present Ukrainian political class. This understanding has lowered Russia’s goals in Ukraine. Indeed, priority has shifted from integration to the preservation of Ukraine’s stability and neutrality.
Russia’s current Ukraine strategy is not to interfere, if possible, and limit the damage the Ukrainian processes can inflict upon Russia.
Sources of Ukrainian Instability: The Struggle Among Elite Groups and Involvement of External Forces
Russia, Belarus, and Kazakhstan are countries with strong central governments, efficient consolidation and distribution of resources by the central authorities, developed administrative apparatuses, and, most importantly, consensus between elites and society on national interest. By contrast, the political trajectory of Ukraine has produced a different result.
Over its years of independence, Ukraine has failed to form a consolidated political class and in its politics private interests have priority over state interests. Ukraine’s political system suggests that the winner of elections receives absolute power in the country. This is why new elites changed not only the ruling clique in Kiev with loyal people each time there was a new administration, but also the heads of all 24 administrative districts of Ukraine. This practice has resulted in the emergence of a political system where the logic of checks and balances does not work and where the winner takes all. Since the stakes are too high, any national elections lead to a crisis.
The weakness and instability of the position of each new ruling group caused Ukrainian elites to use all available resources, including populism and nationalism, to struggle against each other. Moreover, the political class of Ukraine actually stimulated the interference of outside forces in Ukrainian affairs.
Taken together, these factors did not allow the Ukrainian political class to reach a consensus about the country’s national interest, which made it impossible to devise a long-term development strategy based on the protection of sovereignty from outside interference. Over time, Ukraine stopped viewing itself as an equal player responsible for its decisions, and began to use external interference in Ukrainian affairs in its own interests. This situation exacerbated the instability of the political system of Ukraine and thwarted Russia’s efforts to establish a stable and close partnership with Kiev.
The West Goes East: Ukraine in Chancery
When Russia saw that it was impossible to build a constructive partnership with Ukraine, the Russian leadership abandoned attempts to integrate its neighbor into the Eurasian Economic Union—not least because a final choice between Russia and the EU would have been fatal for such a fragile country as Ukraine. However, the EU kept trying to bring Ukraine into its area of influence. At the same time, the EU’s economic and regulatory expansion to the east forced Eastern European countries to make a definitive choice between the West and Russia. Recently, the West has been increasingly insistent in demanding that Ukraine make a choice.
In 2013, Russia proposed holding tripartite consultations with the EU and Ukraine to discuss the latter’s Association Agreement with the European Union. However, instead of building a “bridge” in Ukraine between Russia and the EU, amid the crisis of 2014 Western countries rejected Russia’s proposal for dialogue and supported Ukrainian political forces that sought to turn Ukraine into an outpost of the West’s confrontation with Russia. Unrest in Ukraine and external pressure resulted in the overthrow of legitimately elected President Victor Yanukovich and the formation of a “government of winners” in Ukraine. These developments triggered a chain reaction in the south and east of Ukraine, putting the country on the brink of civil war.
Western interference in the internal affairs of Ukraine during the Euromaidan protests made many people in Russia think that such action was intended to undermine Russia’s interests by enlarging NATO to include Ukraine and ousting Russia’s fleet from Crimea.
Despite the U.S. administration’s statements that Russia’s actions in Crimea and Donbass had caught the U.S. by surprise, few people in Russia believed that. In fact, Russia had repeatedly stated its interests in Crimea and Ukraine to U.S. and European elites in no uncertain terms. There are grounds to believe that the U.S. government correctly understood the Russian signals. Cables published by WikiLeaks from the U.S. Embassy in Moscow in February and May 2008 contained an in-depth analysis of Russia’s stance on the Ukraine issue:
“[Russian government] officials publicly and privately do not hide that their endgame is the status quo. Russia has accepted Ukraine’s westward orientation, including its possible accession to the EU and closer ties with NATO, but NATO membership and the establishment of a U.S. or NATO base in Ukraine remain clear redlines. Ideally, Russia aims to secure a written neutrality pledge from Ukraine.”
Another cable provided a forecast for possible Russian actions:
“Experts tell us that Russia is particularly worried that the strong divisions in Ukraine over NATO membership, with much of the ethnic-Russian community against membership, could lead to a major split, involving violence or at worst civil war. In that eventuality, Russia would have to decide whether to intervene; a decision Russia does not want to have to face.”
On the grounds of this information, Russia brushed off the possibility that the U.S. did not realize the consequences of its policy of supporting the Euromaidan protests. The prevailing opinion in Russia, repeatedly expressed by its top officials and president, is that the U.S. deliberately sought to force Russia into defending its interests in Ukraine, and thus to draw it into an exhausting conflict.
It can be argued that the issue of Ukraine’s accession to NATO was not on the agenda. However, it is more important how the Ukrainians viewed this issue in 2014—Euromaidan supporters advocated a “European future,” which they saw in Ukraine’s membership in NATO and the EU, while their opponents were opposed to Western influence and defended ties with Russia. NATO membership remains a source of deep divisions in Ukraine even after Crimea’s secession and the beginning of the war in Donbass. According to the Kiev-based International Institute of Sociology, 37 percent of Ukrainians supported NATO membership in June 2015, and 36 percent were against it.
Major Social Groups in Ukraine: Nationalists, Russians, and Statists
The incumbent Ukrainian government has given up its strategy of balancing between Russia and the West. Thus, it has abandoned the concept of Ukraine as a fragile and multi-component state located at the junction of two centers of power. The logic of action by the “government of winners” is to use this historic opportunity to “turn the country towards the West,” despite the possible costs, including the possibility of the country’s division and disintegration.
The current situation may not be final. Several systemic political conflicts are taking place in Ukraine that involve central authorities, regional groups, major oligarchs, and non-systemic paramilitary groups.
Social discontent over the government’s inefficiency is increasing. This discontent is expressed in the very low popularity rating of the authorities and occasional protests. The situation is aggravated by public discussions in the country that proceed along three major lines, two of which are radical.
Representatives of the mainstream—the largest and best-organized group that is present in the media—advocate a nationalist program known as “Ukraine for Ukrainians” and see Ukraine in the forefront of the West’s struggle with Russia. This group seeks to build in Ukraine a nation state of people with Ukrainian identity. The size of this group is estimated on the basis of public opinion polls: 47 percent of Ukrainians support the antiterrorist operation in Donbass and 24 percent support the settlement of the conflict in the east of the country by force. Also, the nationalists are ready to take drastic measures, such as displacement of the disloyal population and even secession of territories with “alien” values from Ukraine (above all, Donetsk and Lugansk).
The second group includes people with Russian identity, such as Ukrainians, ethnic Russians, and other ethnic groups that do not share the goals and values ??of the Maidan, and who view Russia as an important actor in Ukrainian politics. Many of them have despaired of finding protection for their interests among Ukrainian politicians and are now at a loss as to why Russia is not protecting their interests, as it did in Crimea. This group is not as large as the first one; at least, it is much less present in the media. This is not surprising since its members are under political pressure and in some cases are persecuted. Many of them have developed an underground mentality and their movement may become radicalized. The size of this group can be determined from the results of an opinion poll in which people were asked about the vector of Ukraine’s foreign policy: 19 percent of respondents openly supported the idea of Ukraine’s joining the Customs Union. Also, 39 percent spoke against the antiterrorist operation.
The third group of Ukrainian elites includes supporters of inclusive statehood as a condition for Ukraine’s territorial integrity. Statists give the main priority to the preservation of the vast Soviet legacy of Ukraine, ranging from territory to geo-economic ties and multiethnic population. They understand that Ukraine must choose the policy of neutrality and sovereignty in order to preserve state unity. After the victory of the Euromaidan protests, some members of this group proposed renouncing radicalism to prevent Crimea’s secession from Ukraine. Statists also advocate concessions on the ethnic issue; they reject radicalism and promote an ideology of state interest. They are in the majority in the Opposition bloc and are present in the Pyotr Poroshenko Bloc. Unfortunately, this group is clearly in the minority. Paradoxically, supporters of the mainstream often describe members of this group as “vatniks,” that is, people with pro-Russian jingoistic views.
Russia’s Force Majeure Policy Towards Ukraine
In the twenty-five years since the end of the Cold war, Russia had never initiated fundamental changes along its borders, either peacefully or by force, even if the status quo was not favorable. Why then did the Kremlin decide to violate this principle in Ukraine in 2014?
Russia was the last to join in the destruction of the status quo and it did so only after it had realized that the other actors had violated the rules of the game. The EU and the U.S. were the first to intervene in Ukrainian internal affairs when they supported one of the two political parties that sought a change of power by force. The coup in Kiev drastically changed the status quo, and the West did not try to integrate the new Ukrainian opposition into the established system or heed Russia’s interests.
After the overthrow of Yanukovich, the situation in Crimea left Russia with little room for maneuver. The Crimean population had for decades sought to come out from under the sovereignty of Ukraine and reunite with Russia. However, during the 1990s and the 2000s, Russia was opposed to such a move because it wanted to build friendly relations with Ukraine. The Russian Black Sea Fleet was based in Sevastopol and the total number of Russian troops on the peninsula stood at 13,000 (with the limit set at 25,000). Simultaneously, Sevastopol also served as a base for the Ukrainian Navy, which numbered up to 11,000 personnel.
The rough military parity between the two navies made the situation in Crimea particularly tense. Importantly, both navies’ personnel included mostly Crimeans, whose sympathies were with Russia. However, this circumstance would not have prevented bloodshed if Russia had not taken the initiative. The plan was to avoid violence: as soon as the Crimean elites, supported by the people, expressed their desire to come under Russian jurisdiction, Russia took measures to ensure the security of the referendum in Crimea.
If Russia had not intervened, the pro-Russian sentiment of the Crimeans would not have disappeared anyway. Ukraine would not have put up with Crimea’s desire to secede and would have used force, as it did in Donbass. Ukrainian troops would have attempted to block Russian bases and prevent their personnel’s movement. That would inevitably have been followed by guerrilla warfare, involving local militia and individual Russian servicemen from Crimea. Volunteers from Russia would also have come. Russian military bases might have come under intentional or unintentional fire. In such circumstances, Russia would have been accused of interfering in Ukrainian affairs and hard-pressed to withdraw its base and fleet from Crimea. Anyway, in the case of Crimea, the choice between supporting the referendum and having to withdraw the fleet was a choice between two bad options.
Ukraine refrained from using force in Crimea since it would have led to a direct military confrontation with Russia. The situation in Donbass, however, was different, and Ukrainian President Petro Poroshenko chose to start a military operation. Russia repeatedly urged Ukraine not to use force against the protesters. It was only after three months of armed clashes, which claimed hundreds of lives and caused a flow of refugees into Russia, that Russia decided to support the insurgents.
The domination of nationalists in the Ukrainian mainstream stands in the way of preserving the territorial integrity of Ukraine. Influenced by them, Ukraine does not seek to fulfill the political part of the Minsk accords of February 12, 2015. The Ukrainian authorities are ready to sacrifice “pro-Russian” Donbass in order to consolidate the other territories under their control.
Russia insists on a deep settlement. Therefore Russia wants to ensure that the rights of Donbass and other potentially unstable regions of Ukraine are guaranteed in a renewed Ukrainian Constitution. The West is suspicious of these initiatives since it views them as Russia’s desire to intervene in Ukrainian affairs.
However, the West is not interested in Ukraine’s internal divisions unless they manifest themselves. Russia would like to ensure that these divisions never come to the surface.
Ukraine is not ready for a compromise with Donbass and continues its attempts to resolve the crisis unilaterally. However, whereas earlier Poroshenko planned to achieve his goals militarily, now he seeks to reduce Kiev’s dependence on Donetsk and Lugansk by isolating them from the rest of Ukraine. Poroshenko wants to impose an economic blockade on those regions and encircle the territory controlled by the insurgents with fortifications. If implemented, this plan will make a political settlement in Donbass impossible. Over time, Donetsk and Lugansk will become established as autonomous entities and de-facto states. Apparently, Kiev is ready to pay this price for maintaining unchallenged control over the rest of the country.
The freezing of the conflict in Donbass harms the interests of Russia, which seeks to normalize its relations with Ukraine in the new conditions. The main consequence of unresolved differences over Donbass will be a further weakening of Russian-Ukrainian economic interdependence.
Russia’s New Ukraine Policy: Gradual Reduction of Interdependence
More concerned about its own growth, a decade ago Russia initiated a new Ukraine policy that was based not on the concept of “brotherhood at any cost,” but on the idea of reducing Ukrainian influence over Russia’s vital interests. As part of this policy, Russia built the Nord Stream gas pipeline, which was to be followed by the South Stream project, launched the construction of a new Black Sea Fleet base in Novorossiysk, and began to reallocate defense orders from Ukrainian to Russian companies. It would have taken a long time to implement these projects, but Russia was planning to peacefully “let Ukraine go” if the latter so desired during the next 20 years.
The forced changes as a result of the February 2014 coup in Kiev hit Russia’s vital interests hard. The threat that the Black Sea Fleet would be ousted from Crimea and that Ukraine would join NATO caused Russia to encourage the secession of Crimea and Sevastopol from Ukraine. Thus, Russia showed that it was ready to act resolutely to protect its vital interests and warned of consequences if the new authorities in Kiev continued to encroach on them.
In all other spheres, though, Russia stands for the preservation of the status quo in the fullest sense of the word. This is why Russia has recognized the new authorities in Kiev, ignoring the demands for interference from the resistance leaders in eastern Ukraine; continued to sell natural gas to Ukraine at a 25-40 percent discount; refrained from instrumentally using the Ukrainian debt problem; and displayed unusual tolerance towards an attack on the Russian Embassy in Kiev in June 2014. Russia does not want to exacerbate the damage to its interests and has proposed measures to preserve the integrity of Ukraine within its present borders through decentralization.
Russia’s support for stability in Ukraine is conditioned on mutual understanding with the new authorities in Kiev on gas prices, unimpeded transit of energy resources to the EU, the trade regime in the Russia-Ukraine-EU triangle, and inviolability of the property of Russian companies.
If reckless and aggressive forces prevail in Kiev, Russia will have to deter threats coming from Ukraine. However, Russia will not seek to settle its differences with Ukraine by force, for this would be too expensive and unreliable. An escalation of the civil conflict in eastern Ukraine is also disadvantageous to Russia because it creates security threats: violation of cross-border trade, growing numbers of refugees, migration of combatants between the two countries, casual and intentional military damage to Russia’s assets, and increased railroad and air travel risks. Therefore, the only goal of the Russian support for insurgents in Donbass is to show Ukraine that the conflict cannot be resolved militarily, and to induce Ukraine to sit down at the negotiating table with Donbass.
A negative scenario for Russia’s policy will look different. Russia will develop alternative routes for energy supplies to the EU, block its investment in the Ukrainian economy, revise preferential trade and visa regimes, and limit labor migration. And, more importantly, Russia will stop subsidizing gas prices for Ukraine. Together, these measures will bring about an economic crisis in Ukraine and, at the same time, will damage Russia’s interests, since such action will slow down its annual GDP growth.
Russia will seek to avoid this scenario, but it will not try to dodge it if Ukraine leaves it with no choice. Russia will invest resources formerly used to support its neighbor in domestic production. As the gap in development grows, Russia will become more attractive for Russian-speaking migrants from Ukraine. The policy of reducing Ukraine’s influence on Russia’s vital interests will be stepped up.
Russia’s new Ukraine policy will be aimed at “normalizing” relations with Ukraine by terminating politically motivated economic assistance and developing commercial and industrial relations with it on a non-preferential basis.
After a significant decline, bilateral relations will reach a “new norm” on the basis of a new economic balance. In the long term, the pragmatization of relations will lead to their recovery and pave the way for a trilateral trade regime among the Russian Federation, Ukraine, and the EU.
Ukraine—a Common Problem or a Battlefield for Russia and the EU?
Instability brings changes everywhere and Ukraine is no exception. In the past, it was Russia, rather than the EU, that provided strategic conditions for Ukrainian economic growth. Ukraine’s exit from the free trade area with Russia and the deterioration of bilateral relations caused Russia to stop guaranteeing Ukraine’s stability on its own, for this is exactly what Ukraine desired itself. The need to stop the conflict, stabilize Ukraine, and ensure its future growth will require joint efforts from the EU and Russia, which are closely united by a common goal of localizing damage from the crisis in Ukraine. Brussels understands that an energy crisis in the EU may be the next stage in the Ukrainian drama and wants to prevent it.
One can imagine a scenario envisaging steps towards solving structural problems in Ukraine. But this will require above all the strengthening of the state governance system and the removal of oligarchic groups from power. Ukraine should seek to become a bridge between Russia and the EU, rather than an anti-Russian outpost in Eastern Europe. As such a bridge, Ukraine will guarantee its own neutrality and support the normalization of trade relations in the Russia-EU-Ukraine triangle. This will return Russian investment and create favorable conditions for trade, which, in turn, will prompt a new round of industrialization of Ukraine and create new jobs.
However, there is little chance such an optimistic scenario will prevail. The good intentions of both the West and Russia for various reasons do not materialize into a joint program of assistance to Ukraine. Without such a program, Ukraine will experience a 20-30 percent decline in GDP from the 2013 level, deindustrialization of its eastern and southern regions, the loss of jobs, and mass migration of the able-bodied population to Russia and the EU.
Right now, there is no clear long-term solution to the Ukrainian crisis. The EU does not realize the amount of annual subsidies that stabilization in Ukraine will require if it comes out from under Russia’s patronage and is not ready to provide them. The U.S. is not playing the role of a stabilizing force yet, while Russia is seeking to insure risks and take its assets out of jeopardy.
The motivation to make a deal will emerge only when the EU feels a painful blow to its energy security.
All external actors in the Ukrainian crisis must take into account the possibility of its new round during the electoral cycle in 2018. A scenario similar to the Euromaidan protests may again take place and threaten to turn the crisis into an international one. It is in our common interest not to turn Ukraine into a battlefield between Russia and the West, but to encourage it to become a “bridge” between them.
Originally published at Russia in Global Affairs
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