Global Contingencies and the Consequences of the War for Russia and Ukraine

Global Contingencies and the Consequences of the War for Russia and Ukraine

By Jökull Johannesson

Image Attribute: Russia-backed rebel armored fighting vehicles convoy near Donetsk, Eastern Ukraine, May 30, 2015, / Source: Wikimedia Commons

Image Attribute: Russia-backed rebel armored fighting vehicles convoy near Donetsk, Eastern Ukraine, May 30, 2015, / Source: Wikimedia Commons

Russia’s aggression towards Ukraine has not been a smooth sailing for Moscow and the question is what is the riddle? How come a great superpower has not easily and fast overtaken the much smaller Ukraine. The author proposes several plausible explanations to this riddle below. The explanations are neither supposed to be a complete list of explanations nor the only explanations but, the ones he has mentioned, provide a different perspective than commonly expressed in the public media and academic literature reviewed above and they include military, economic, diplomatic and geopolitical contingencies limiting Russia’s options in Ukraine.

The pro-Russian forces have failed to gain complete control of Donetsk and Lugansk districts and their further advances into Ukraine have been stopped by the Ukrainian forces, which came as a surprise to the Russian generals after the easy victory in the Crimea. The fierce resistance by the Ukrainian army, best demonstrated by the 242-day battle for the Donetsk Airport, upset the Russian plans for total domination of the Donbass basin and left the airport worth $860 million in complete ruin. In addition, the Russian military must consider the Ukraine’s substantial military capabilities, such as a large conventional weapons stockpile and biological, chemical, nuclear and radiological weapons potential as analyzed by [1]. 

The economic consequences for the Russian economy have been severe. The Russian ruble has taken a beating on foreign exchange markets and lost 50 percent of its value since January of 2014, partially due to international sanctions over the Ukraine conflict. To add to this problem, Russia suffered a capital flight of $151 billion in 2014 and $114 billion 2015 with the foreign currency reserves reaching a low of $356 billion in May of 2015. Such capital flight cannot be sustained for long and the Russian government responded with a two-prong strategy of limiting capital outflows and encouraging Russians and Russian companies to repatriate capital to Russia. These measures were partially successful and Russia’s foreign currency reserves rose to $418 billion in late 2017. Still, this is more than $104 billion lower than the reserves stood in October 2013 when the Euromaidan protest began in Kiev [2].

Similarly, Russian trade sanctions on Ukraine have hurt the Russian economy as much needed components for the Russian military-industrial complex manufactured in Ukraine has dried up. The Ukrainian components facilitated Russia’s export of contracted military equipment such as the AN140 tactical airplane and Mi-38 transport helicopter, the Ka-52 and Mi-28 attack helicopters. These helicopters are designed to use engines made by Ukraine’s Motor Sich plant [3]. Also, Ukraine was one of Russia’s biggest trade partners before the conflict. For example, Ukraine was the largest buyer of Russian gas as it purchased 60 billion cubic meters of gas in 2012 which dwarfs Germany’s purchases of 38 billion cubic meters, the second largest customer for Russian gas. Also, Ukraine was a reliable and cheap supplier of agricultural products to Russia which imported meat, gains, milk, vegetables, fruit and processed food products from Ukraine. Hence the Russian sanctions on Ukraine hurt Russia greatly from an economic point of view and Russia’s aspirations for further integration with the European Union appears to be out of the questions [4].

Another blow to the Russian economy was the collapse of the price of oil from over $100 in 2013 to as low as $28 in 2015 and a low $50 s in 2017. This must be a great concern for Russia as one half of its export revenue is energy related. The state-run media has alleged that the collapse of the price of oil is engineered by the USA with aid from Saudi Arabia to punish Russia for its interference in Ukraine [5]. Both President Putin and the Rosneft Chief Executive Officer Igor Sechin has echoed those allegations [6] [7]. True or not, President Putin is likely to be aware that it was a similar collapse in oil prices that caused Russia to default on its debt in 1998 and ultimately resulted in the resignation of President Yeltsin. Additional contingencies for Russian decision-makers are diplomatic isolation, unfavorable world media, and the additional sanctions. Particularity, the H.R. 3364 - Countering America’s Adversaries Through Sanctions Act of 2017 and H.R. 1644 which will, if passed by the US Senate and signed by President Trump, will put enormous pressure on Russia.

Furthermore, the Russian commitment to the war in Syria is another contingency that puts more demands on Russia’s military and economic resources as the end of that war is nowhere in sight. Moreover, the diplomatic and military danger of being in direct conflict with military elements that may be receiving active support from the United States sets the stage for an accidental war with NATO countries. A case in point is the Turkish downing of the Russian fighter airplane on 24/11 2015 is a case in point [8] and the Wall Street Journal reports that Russian airplanes in Syria had bombed a base used by U.S. special forces on the 16 June 2016 only a day after it had been vacated [5] . Likewise, the escalation of tensions on the Korean peninsula prompted Russia to move additional military forces to the North Korean border further reducing the military forces available for the Ukraine war. And, Kim Jong Un’s threat to fire missiles at Guam on August 15, 2017, raised the risk of war in the Pacific to crisis level leading to further dispersal of Russian military resources, thus, limiting the military resources available to fight the war with Ukraine. Although the acquisition of Crimea was well received by the Russian public and raised President Putin’s approval rating, a total war with the brothers in Ukraine is unlikely to be well received by the Russian public concerned about multiple threats to world security. Next, I will discuss the consequence of the war for Ukraine.

There is significant evidence Russia’s war with Ukraine, employing hybrid tactics, is having a significant negative impact on Ukraine. The Ukrainian currency - Hryvnia has collapsed in value; in the first two months of 2015, the hryvnia lost 40% of its value prompting international rating services to downgrade the country’s sovereign debt to Ca, which means an imminent risk of default [9] [10]. Ukraine has de facto defaulted on its sovereign foreign debt, the GDP has declined by as much as a quarter, hyperinflation has doubled the price of basic food, while electricity, water and gas prices rose 553% in 2015 [11]. The Crimea is lost and the critical Donbass basin, one of the key industrial engines of the Ukrainian economy, is lost or devastated. Sixty-five coal mines have been lost resulting in severe coal shortages for the coal-fired electricity plants, which produce 38% of Ukraine’s electricity and most of the coal-fired district heating plants in major cities. In the fall of 2015, only a two-week supply of coal was in stock and three months’ supply of gas was in storage with little signs of further external supplies [12] [13]. How the Kiev government managed to keep the lights and heat on during the 2015/16 and 2016/7 winters is a mystery. The official story, circulated in the Ukrainian media, is that reverse flow of gas from the EU has made up the shortage but, the share volume of gas consumed by Ukraine, which is about twice the total German imports of natural gas from Russia, makes this explanation doubtful. A more likely explanation is that a secret deal has been made where the EU pays for or guarantees the payments for Ukrainian gas imports from Russia. The annexation of Crimea and loss of some of the Donbass industries had a severe impact on Ukrainian banks because of non-performing loans from these regions. The borrowers from the Ukrainian banks didn’t pay their debts but, they collected or transferred their bank balances in the Ukrainian banks. More than 20 Ukrainian banks went into liquidation or receivership in the first two years of the crisis [14] [15] and, by 2017 the Ukrainian government owned 55% of the banking system after the country’s largest bank, Privat Bank, had to be saved by the government. Also, Russia was one of Ukraine’s biggest export markets, which has been closed by Russian sanctions and the Ukrainian counter-sanctions. The combined economic shocks of hyperinflation, loss of the Donbass and Crimea, cost of the war in Donbass, export restrictions to Russia, banking crisis and the collapse in the value of the Ukraine hryvnia have devastated the Ukrainian economy.

On the diplomatic front, Russia has scored significant victories with the Minsk 1 and Minsk 2 agreements, which stipulated semi-autonomous status for Lugansk and Donetsk regions as this was a de facto capitulation by the Poroshenko government. Although Russian information warfare tactics attempt to undermine the support for the Kiev government both in Ukraine and worldwide, the Ukraine’s government survived a no-confidence vote on 16 February 2016. However, the Ukrainian Prime Minister Arseniy Yatsenyuk resigned on the 10 April 2016 because of corruption allegations. His resignation may have strengthened the position of President Poroshenko and may ultimately lead to more unified and effective government in Ukraine. This dire situation in Ukraine is partially offset by favorable world media and help from the EU, USA, IMF and other international institutions. This includes a 40$ billion IMF bailout package negotiated in late 2015, which is to be implemented in tranches coinciding with the implementation of economic and governance reforms by the Ukraine government.

Moreover, the armed forces of Ukraine have gained moral and material support from abroad. A Ukrainian-Polish-Lithuanian brigade has been established and negotiations are underway to establish a Ukraine, Romania and Bulgaria joint brigade [16]. NATO has given Ukraine a comprehensive package of aid in the security and defense sector [17] and, Ukraine has received material support and training from the USA and UK. Canada has chipped in and it is providing military training to the Ukraine army and, the two countries have signed a free trade agreement. Additionally, the Ukraine armed forces co-operation and competence was strengthened by co-hosting the 17th Sea Breeze fleet exercises in the Black Sea in July 2017, in which 17 NATO nations participated. The co-hosting of all arms exercises by the USA and Ukraine is a clear indication of the commitment NATO has made to the defense of Ukraine [18].

Even with intense efforts by Russia, Ukraine survived the annexation of Crimea and the military onslaught on the Donbass and fought the military situation to a stalemate and, after more than three years of conflict, Ukraine has not collapsed into the Russia’s hands.

Publication Details:

This article is an excerpt taken from a research article titled - "Russia-Ukraine War Is Not a Simple Riddle" published in  Open Journal of Social Sciences, 5, 139-147. doi: 10.4236/jss.2017.510013.

Copyright © 2017 by author and Scientific Research Publishing Inc. This work is licensed under the Creative Commons Attribution International License (CC BY 4.0).

References:

[1] Johannesson, J. (2017) Russia-Ukraine Balance of Military Power. International Studies, 10, 63-73.

[2]  Central Bank of the Russian Federation (CBR) (2017) International Reserves of the Russian Federation. 
http://www.cbr.ru/eng/hd_base/default.aspx?Prtid=mrrf_m

[3]  Litovkin, N. (2016) Russia Launches New Engine Production for Military Helicopters. UPI. 
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[4] Johannesson, J., Palona, I., Salazar Guillen, J.F. and Fock, M. (2012) UK, Russia, Kazakhstan and Cyprus Governance Compared. Corporate Governance: The International Journal of Business in Society, 12, 226-242. 
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[5]    Entous, A. and Barnes, J.E. (2015) Deal with Saudis Paved Way for Syrian Airstrikes. Talks with Saudi Arabia Were Linchpin in U.S. Efforts to Get Arab States into Fight against Islamic State. Wall Street Journal, 24 September 2014. 
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[6]   Sheppard, D. and Bousso, R. (2015) Putin’s Oil Tsar Slams OPEC and U.S. Launches Broadside at Price Crash. Reuters, February 10, 2015. 
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[8]   Karadeniz, T. and Kiselyova, M. (2015) Turkey downs Russian Warplane near Syria border, Putin Warns of “Serious Consequences”. Reuters, 24/11 2015. 
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[9] Moody’s (2015) Rating Action: Moody’s Downgrades Ukraine’s Sovereign Ratings to Ca; Outlook Remains Negative. Global Credit Research 24 March 2015. 
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[10]    Olearchyk, R. (2015) War-Torn Ukraine’s Currency Collapses. Financial Times, February 5, 2015. 
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[11]    Klikushin, M. (2015) Ukraine Spirals into the Abyss: Pensioner Suicides and Open Talk of Default. Observer: International Observer News. 23 July 2015. 
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[12]    Varfolomeyev, O. (2015) Ukraine Runs Out of Coal, May Run Out of Gas. Eurasia Daily Monitor, Vol. 12, No. 148.

[13]    EUROCOAL (2015) Ukraine. 
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[14]    National Bank of Ukraine (NBU) (2015) Reorganization and Liquidation. 
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[15]    Moody’s (2015) Rating Action: Moody’s Takes Rating Actions on 9 Ukrainian Banks and One Leasing Company. Global Credit Research 26 March 2015. 
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[16]    President of Ukraine (PoU) (2016) Meeting between Presidents of Ukraine and Romania: Ukraine, Romania, and Bulgaria Discuss Opportunity to Create Joint Brigade. 
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[17]    President of Ukraine (PoU) (2016) Ukraine-NATO Commission: Ukraine and NATO Enhance Cooperation. Complex Package of Aid in Security and Defense Sector Has Been Approved. 
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[18]    US 6th Fleet (2017) Sea Breeze. 
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