By EDWARD W. WALKER, EURASIAN GEOPOLITICS
Participant of Crimean "walrus" club bathes in the Black sea in the Crimea city of Yevpatoriya on January 7, 2015.
The Ukraine crisis is a complex drama with multiple dimensions, theaters and actors, which makes tracking, explaining, and predicting where it is headed particularly difficult.
Its various parts are, however, interrelated. So while each dimension is important in its own right, it also impacts, and is impacted by, the others.
In what follows, I disaggregate the crisis to five dimensions and offer my take on what is likely to happen in each in 2015. In doing so, I will try to take into account the crisis’s various “systemic” properties.
The Donbas In 2015
It is highly unlikely that there will be a full implementation of the September 5 Minsk Protocol and its follow-on memorandum (henceforth “the Minsk agreement”) in 2015. This is particularly true of the provision calling for “the withdrawal of armed groups, military equipment, as well as fighters and mercenaries.”
Combatants who win on the battlefield and control territory rarely put down their weapons, withdraw, or cede sovereignty to a defeated enemy. This is all the more likely to be the case for the Donbas separatists because of the absence of a unified command structure or coherent political leadership.
For similar reasons, it is very unlikely that the OSCE monitoring mission in Ukraine will be able to operate freely in the conflict zone and monitor force deployments in separatist-controlled areas or monitor the delivery of military supplies and troops across the border from Russia, two other provisions in the Minsk agreement.
The Kremlin is hoping to eventually achieve its objectives by maintaining military, economic, and political pressure on Ukraine well past 2105.
Kiev claims that there are as many as 20,000 separatist fighters in the east, of whom 7,500 are Russian regulars. Regardless of whether these numbers are correct there is little chance that the OSCE is going to be able to confirm or refute them with any confidence.
Finally, it is very unlikely that we will see the implementation of those provisions that entail a measure of restored sovereignty for Kiev. The current Ukrainian law on “decentralization,” and any amendments to it, will be ignored by the separatists.
That is true, too, of any amendments to Ukraine’s current language law. Finally, there is very little likelihood that new elections will be held by the separatists that Kyiv considers legitimate.
As a result, calls by some Western analysts and officials to lift sanctions on condition that Russia fully implements the Minsk agreement should be received with skepticism. If there is a measured rapprochement with Moscow or easing of sanctions, it will have to come despite a failure to fully implement the Minsk agreement, not because of it.
The basic problem, as I have argued since the crisis broke out, is that Moscow’s goals in Ukraine have very little, if anything, to do with the rights of Russia’s “compatriots” in the east, language rights, or decentralization.
Rather, they are driven by the Kremlin’s broad geopolitical objectives. Above all, the Kremlin wants to prevent what might be called a “Polish” outcome for Ukraine – that is, a Ukraine that is part of the West, hostile to Russia, able to defend itself, and a member of the EU and especially of NATO. Sanctions and economic troubles are not going to make Moscow change those objectives in 2015 – they might eventually, but not for several years.
Accordingly, Moscow needs to maintain maximum pressure on Kiev, which means that it will not agree to anything that puts the survival of the DPR and LPR at risk.
It will not stop providing military assistance to the separatists, and it will not agree to any kind of constraints on the delivery of humanitarian or economic assistance to the breakaway region. Neither will it accept measures that make it difficult to surge its forces if more troops or supplies are needed to keep the LPR or DPR from falling.
Moreover, I doubt that Moscow has the capacity at this point to fully enforce the implementation of the Minsk agreement even if it wanted to. It can order the withdrawal of regular troops and covert operatives, but it cannot force non-regulars from Russia to leave the region, lay down their weapons, or agree to any kind of sovereignty for Kiev.
As a result, what will probably happen at some point is that those in the West who advocate rapprochement with Moscow and lifting of sanctions will argue that, while the Minsk Agreement has not been fully implemented, Moscow cannot control what is happening inside the separatist zone and has held up its side of the bargain.
That argument will be undermined by evidence that Russia is still very much active in the region. But that will be hard to prove.
At any rate, Moscow will not accept an outcome that leaves the separatists in place but vulnerable. Political chaos, ongoing fighting along the line of contact, and economic hardships are almost certainly going to make the separatists even more unpopular with the civilian population than they already are.
Moscow will not want to risk having moderates assume power in the DPR and LPR who then seek a compromise with Kiev that ignores the Kremlin’s preferences. There is also a risk that full implementation of the Minsk Agreement would eventually make the DPR and LPR vulnerable to a renewed offensive by Kiev.
In short, full implementation of the Minsk agreement is not a good outcome for the Kremlin, so I very much doubt it will happen in 2015, or indeed ever.
Don't expect a real ceasefire
What is possible – although I think still unlikely – is a partial implementation of the agreement in the form of a stable ceasefire and the withdrawal of “heavy weapons” from the 30km buffer zone, as provided for in the September 19 follow-on memorandum.
There are, however, at least five reasons why a stable ceasefire is unlikely this year: (1) the line of contact is very long; (2) it is for the most part without natural borders; (3) it is still very contested and confused; (4) the Minsk Agreement calls for the withdrawal of heavy weapons only from the buffer zone, while a stable ceasefire will require a drawback by all forces at least some distance along the line of contact; and (5) and most importantly, I do not believe the Kremlin sees a stable “frozen conflict” as in its interests.
For Moscow, the problem is that a truly “frozen conflict” – like that in Transnistria, for example, where there is a separation of forces, a stable ceasefire, and joint patrolling on the buffer zone by Russian, Moldovan, and Transnistrian forces – is not going to prevent a “Polish outcome” for Ukraine.
It will not keep Kiev from gradually getting its domestic house in order, improving its defenses with Western assistance, or proceeding with its plans to eventually join the EU. Nor would it give the Kremlin the kind of institutionalized guarantee it is seeking against Ukraine joining NATO. And as with Abkhazia and South Ossetia, a stable frozen conflict would leave Moscow more-or-less responsible for supporting the region’s economy.
For similar reasons, I don’t think that Russia will unilaterally dispatch a full “peacekeeping” force into the region in 2015. Again, doing so would saddle Moscow with the burden of establishing order in the Donbas, enforcing a ceasefire, and restoring its devastated economy.
To put it starkly, Moscow wants to use the Donbas for leverage, but it does not want to own it. It is seeking a DPR and LPR that are de jure part of Ukraine but de facto sovereign with an institutionalized right to veto Ukraine’s alliances and foreign orientation.
And it wants Ukraine and the West, not Russia, to pay for restoring its destroyed economy. Short of that, it wants a long period of internal disorder and economic contraction in Ukraine that keeps the country weak and divided, that proves expensive for and divisive in the West, and that might eventually bring a pro-Russian government back to power in Kiev.
There is, however, very little chance that the Kremlin is going to get what it wants in Ukraine in 2015. It might eventually, depending on how things play out in Europe but that will take time. Kiev is nowhere near capitulating, and the West will not, and probably cannot, force Kiev to accept the legitimacy of the DPR and LPR or give them any kind of veto over Kiev national policies.
I suspect that the Kremlin realizes this, and it is thinking several years ahead.
It is hoping to eventually achieve its objectives by maintaining military, economic, and political pressure on Ukraine well past 2105. It is particularly hopeful that the European project unravels and that divisions emerge within NATO over a military response to Russian pressure.
In short, the Kremlin believes it can weather its economic travails and that it will eventually be able to force Kyiv to cry uncle – if not this year, then perhaps the next, or the year after that. Ukraine would agree to “federalize” in a way that keeps the DPR and LPR in place with veto powers over Ukraine’s foreign alliances and particularly EU and NATO membership.
For all these reasons, my guess is that the most likely outcome for the conflict zone in 2015 is continued low-level fighting along the line of contact – what might be called an “unfrozen” or “not quite frozen” conflict scenario. I also think it is likely that the extent of violence will fluctuate, enough to keep Kiev on its heels but not enough to mean a significant increase in the territory controlled by the separatists.
The War continues as it has
There already has been a significant escalation of violence in the past week. Ukrainian sources are reporting that the number of attacks has increased from an average of 10 per day in November and December to around 40 per day in January. The OSCE has likewise reported a spike in violence, and there is clear evidence that Moscow has been introducing more sophisticated weapons into the conflict zone.
My guess, then, is that the surge in attacks does not presage a major offensive directed a taking significant territory but intensified efforts to secure the Donetsk airport and other strategic sites such that the separatists have more defensible front lines. It also suggests that fighting may continue to wax and wane over the course of the year.
The good news – such as it is – is that a major escalation by Moscow – for example, an effort to seize a land corridor to Crimea or a full-blown assault on Ukrainian military assets – is now less likely than it was at various moments in 2014. I suspect the Kremlin now realizes that taking more territory just makes for more problems, particularly if doing so requires attacking well-defended urban areas. But a major Russian offensive in 2015 is still possible.
As for internal conditions in the separatist zone, the already acute humanitarian crisis there is certain to get worse over the course of the winter. Moscow will continue with its humanitarian convoys. But these are by no means sufficient to meet the needs of some 3 million people.
Once spring arrives, conditions should improve and I expect we will then see more economic integration of the separatist region with Russia. But it will be years before conditions in the region return to something approaching normal.
The rest of Ukraine in 2015
Without doubt, 2015 is going to be a very difficult year for Kiev and the Ukrainian people. With luck, foreign assistance will help Kiev avoid a default. But that will mean rather less immediate pain and better prospects for recovery down the road, not an imminent recovery.
Even with foreign assistance and well-designed internal reforms, the economy is going to continue to contract in 2015, after having declined by some 8.5% this year. This week, the World Bank revised its forecast for 2015 GDP from -1% to -2.3%.
A destroyed house following what locals say was overnight shelling by Ukrainian forces is seen in the eastern Ukrainian town of Slaviansk on June 10, 2014.
There is, however, no guarantee that Kiev will proceed with the internal reforms that international lenders are demanding and that the economy desperately needs. (Ukraine is currently in a “never waste a crisis” moment, but the problem is that, not unusually, structural reforms tend to concentrate pain but disperse, and delay, gain.) If not, the prospects for recovery will dim.
Regardless, the EU, the United States, the IMF, and other multilateral financial assistance entities are going to face some very difficult choices about how much economic assistance to provide, how to share the burden, and whether to make assistance contingent on deeper internal reforms.
Nonetheless, I expect the EU and the US to come up with enough funding to avoid a default and allow the IMF to disburse the remainder of its current $17 billion Stand-By Agreement (SBA) with Ukraine. I also expect the IMF to offer another SBA of perhaps $15-20 billion by the end of the year.
There is simply too much at stake for Western governments, and much less money at risk than with the bailout of Greece, for example, to allow the Ukrainian economy to collapse completely.
As for internal order, the recent series of explosions in Odesa, Kharkiv, and elsewhere suggest that the next phase of the Kremlin’s “hybrid” war in Ukraine is going to include efforts to destabilize more of southern and eastern Ukraine.
I doubt, however, that these efforts will succeed in provoking mass disturbances in Odesa, Kharkiv, or elsewhere. What they will do is keep the pot boiling, and remind Kiev that Russia may at some point intervene to defend its “compatriots” outside the Donbas.
The Kremlin will also continue to use its economic leverage, including natural gas deliveries, to pressure Kiev, although I am not sure how this very complicated game will play out since Moscow needs to continue to sell gas to its western customers for financial reasons and also wants to woo supporters in the EU.
Continued fighting in the Donbas, an economy in crisis, and the sheer difficulty of successfully implementing an effective reform program (no small undertaking under the best of circumstances), will mean growing public dissatisfaction with Poroshenko and the Yatsenyuk government, as well as increased public disappointment with the West for failing to provide enough economic assistance.
Ukraine's President Petro Poroshenko speaks during a ceremony to hand over weapons, military equipment and aircraft to the army at a firing range outside Zhytomyr on Jan. 5, 2015.
Nonetheless, I think the annexation of Crimea and Russia’s role in destabilizing the country, as well as lessons learned from mistakes made after the 2004 Orange Revolution, will keep internal divisions in check and enable Poroshenko and the Yatsenyuk government to make it through the year.
If the current leadership survives, if structural reforms are implemented, if the West comes up with a reasonable assistance package, and above all if there is no major escalation of fighting in the east or south, the economy will likely flatten out in 2015 and start growing again, perhaps by the end of the year.
Indeed, there is a good chance that once it takes off, the country will grow rapidly, given its very low starting point and huge catch-up potential.
But those are a lot of “ifs.”
The Russia-NATO military dynamic
It strikes me that a reasonably effective division of labor has emerged, at least for the time being, among Western powers in responding to the Ukraine crisis. The EU, led by Germany, has taken the lead on the diplomatic front and on economic assistance to Ukraine; the United States and NATO have taken the lead on the military front; and the EU and US have coordinated on sanctions on Russia.
However, this division of labor may not hold up, particularly when decisions have to be made about reinstituting EU sanctions once they begin expiring in July.
At any rate, the US and NATO have taken significant steps to improve NATO’s defenses along its eastern flank. Most importantly, there is now a “rotational” NATO ground force presence in the Baltic states, which is to last at least until the end of the year and I suspect will end up as a permanent “rotational” force.
There has also been a significant increase in the size of the Baltic Air Policing mission, from 4 to 12 rotational fighter jets. NATO’s presence in the Baltic states may be beefed up further over the course of the year, but regardless I think there is now a reasonably effective and stabilizing tripwire-type deterrent in Estonia, Latvia, and Lithuania.
As a result, the likelihood of a Russian military incursion into Latvia or Estonia, which was never very high, is now even lower.
The US sent about 600 soldiers to Poland and the three Baltic states for infantry exercises last year, one of its highest-profile steps yet to reassure NATO allies after Russia's seizure of Crimea.
Meanwhile, NATO is proceeding with plans to increase the Alliance’s rotational presence elsewhere along its eastern flank. It is also enhancing its ability to surge forces there if need be, and it is increasing the frequency and scale of military exercises with its eastern members and improving their defense capabilities.
As the year proceeds, it will implement its “Readiness Action Plan” as agreed to at its Wales summit late last year, including establishing its Very High Readiness Joint Task Force. Individual members, above all the United States, will also continue to preposition more military equipment, including armor, in the east.
Without doubt, the Kremlin views these developments as a threat to its vital national security interests and as new encroachments on its rightful sphere of influence. Nonetheless, the Kremlin is going to see its security situation deteriorate further over the course of 2015, as Ukraine moves closer to the West and significant NATO forces move east for the first time since the end of the Cold War.
There is, however, nothing the Kremlin can do to stop these developments. The more Moscow threatens to respond with its own force dispositions, saber rattling, and brinkmanship, the more its neighbors and near-neighbors, including Finland and Sweden, react by asking for more, not less, military assistance from the United States and NATO. And in the case of Sweden and Finland, the more public support there is for joining NATO.
Moscow will, however, react asymmetrically to NATO’s “pivot to the east.” It will continue its brinksmanship along NATO borders; continue efforts to destabilize and intimidate the Baltic republics; establish its new airbase and otherwise increase its military presence in Belarus; solidify its military position in Abkhazia and South Ossetia, and proceed with plans to build up its Black Sea and Baltic Fleets and new Artic command.
In short, Russia will do its best to implement its ambitious military buildup. However, fiscal restraints are going to force it to back off on at least some of its military spending plans.
Finally, I would not be surprised to see Moscow suspend or abandon the INF treaty (and if not, Washington may do so) and announce that it was deploying nuclear-armed Iskander ballistic or cruise missiles in Crimea and Kaliningrad this year. It might also announce plans to build intermediate range ballistic missiles that could target not only Europe but also China. Deploying nuclear-armed missiles that can target Europe would doubtless increase public pressure on Western governments to try to reach new arms control agreements with Russia.
The Economic side
The Ukraine crisis is contributing to sharply deteriorating economic conditions in Ukraine, Russia, and the European Union. Objectively, the contraction is worst in Ukraine, followed by Russia, and then the EU.
However, pain thresholds are also very different – high in Ukraine and Russia, but very low in Europe.
What might be called “growth legacies” are also different in all three cases. Putin is still benefiting politically from having presided over a remarkable period of growth from 2000 to 2008, for which the Russian public still affords him credit.
That is not true of Poroshenko and Yatsenyuk, who have assumed office in the midst of a dire and accelerating economic crisis. But neither is it true of most European leaders, with the partial exception of Merkel and Cameron (who has other problems).
German Chancellor Angela Merkel welcomes Ukrainian Prime Minister Arseniy Yatsenyuk in Berlin for his two-day visit, on Jan. 8, 2015.
At any rate, the bottom line is that the trends noted in earlier posts have accelerated in recent months. The US economy continues to pick up steam, while conditions in Ukraine, Russia, and the EU have gotten even worse.
Ukraine’s recession has been very acute and began over a year ago, but as I argued above, there is a chance it could start growing again by the end of the year. Russia, in contrast, is only at the start of its recession, although the economy has been slowing since early 2013.
As a result, the domestic political fallout from the recession and a long term “growth crisis” in Russia is not going to come for months and will probably not really set in until 2016 and beyond.
Indeed, the news for Russia’s economy has been very bad. Oil prices are continuing to decline, with Brent Crude falling yesterday to a six-year low of $47 per barrel, from $117 in June. The ruble is now trading at around 63 to the dollar, off its low of over 80 last month, but after a brief recovery it has resumed declining again.
Most forecasts have GDP declining from between 4.5% and 5% this year, but that may prove optimistic if oil prices don’t recover more than expected. Yesterday Goldman Sachs forecast an average price for Brent Crude in 2015 of $50 per barrel, falling to around $40 per barrel before rebounding to around $70 per barrel by the end of the year.
If those forecasts are correct, the Russian economy is headed for even more trouble than expected in 2015. Russia still has very large foreign currency reserves (a little under $400 billion, compared to a now critical $8.5 billion for Ukraine).
Those reserves have been falling, however. Meanwhile, Russian companies, including many that are partially or wholly state-owned, have a good deal more than $400 billion in dollar-denominated debt, which will come due over the next several years.
With sanctions making it difficult or impossible to get credit from Western banks, the financial pressure on Russia is increasing, and there is a risk of more panics, runs on the ruble, and possibly of default, all of which would have very adverse impacts on the Russian standard of living.
Finally there is Europe, where the pain threshold is low, where growth has been meager for well over a decade, where unemployment in many countries is sky high, and where the prospects for a significant economic improvement are poor and getting worse.
Again, the news for Europe last week was awful. Aside from the tragic events in France and the threat that homegrown Islamist militants would carry out more acts of terror, Europe is increasingly aware that it is facing major security challenges in North Africa, the Middle East, and Russia.
As Carl Bildt tweeted earlier this week, “A decade or two ago we worked for a Europe surrounded by a ring of friends. Now we find ourselves surrounded by a ring of fire.”
As for the economy, the World Bank forecast growth at 1.1% for 2015, but that may prove optimistic if deflation sets in across the Eurozone. Alarms were going off around the continent when numbers came in for December showing that prices had fallen in the eurozone for the first time since the currency was established.
Wolfgang Münchau, expressing views that I think are pretty standard among macroeconomists, explained the implications of the data in The Financial Times as follows:
[The cause of deflation in the eurozone] is a series of policy errors over several years — the interest rate increase in 2011, the failure to act when inflation rates dropped off a cliff in 2013 and the pursuit of austerity in a recession.
If the European Central Bank had met its inflation target of “close to but below 2 per cent,” the oil price collapse would have been harmless. Inflation would have fallen from 2 per cent to 1 per cent at most. Central bankers would have been right to ignore it. But if you start at close to zero, you get deflation.
A year ago it was said that the eurozone was only one shock away from deflation. Since then, we have had two: Russia’s aggression against Ukraine and the fall in the oil price. Shocks happen…
My baseline scenario continues to be one of secular stagnation. We have repeated each mistake Japan made in the 1990s — and then added some of our own. It is a tragedy that economic history has no traction on European policy makers. This is the real reason deflation is back.
Even in Britain, where the economy is growing smartly and which has its own currency and Central Bank, inflation is well below the 2% target, and there are widespread fears that falling oil prices and contagion from the Eurozone risk are going to drive the country into a deflationary vortex. If there is a risk of that in the UK, the risk is all the greater in the eurozone.
The wider geopolitical struggle
There are a number of key countries to watch in 2015 along Russia’s borders other than Ukraine.
In Lithuania, Latvia, and Estonia, there is a potential for some kind of crisis when Russia proceeds with plans to carry out major military exercises in the vicinity of the Baltic republics. NATO may respond by dispatching its rapid reaction forces or otherwise surging its presence in the region.
European Leadership NetworkThe European Leadership Network, a London-based think tank, cataloged perilous incidents between Russia and the West. High risk incidents are shown in red; serious in yellow; near-routine in blue; miscellaneous in green.
Given Russia’s brinksmanship in the region, there is a risk that an accidental military clash could spin out of control, which would be particularly dangerous if Russia were conducting military exercises in its Central Military District at the time and if NATO surged forces in response.
Georgia is also a potential hot spot, although given that the current government in Tbilisi has been quite careful in its dealings with Moscow, I doubt there will be a crisis there this year.
Another country to watch is Belarus, which is Russia’s last ally, albeit a difficult one, on its western borders.
There are a great many Russian speakers in Belarus, cultural and economic ties with Russia are even deeper than in Ukraine, Belarus and Russia have been part of a “union state” (albeit mostly in name) since early 2000, Russia’s power ministries have very close ties to their Belarussian counterparts, and Russian security services have doubtless deeply penetrated the Belarussian military and government.
At the same time, Belarus has also been hit hard by Russia’s economic difficulties. Moreover, Belarus’s autocratic leader, Aleksandr Lukashenko, has taken a surprisingly independent position on the Ukraine crisis, refusing to recognize Russia’s annexation of Crimea, turning a blind eye to the smuggling of banned Western products through Belarus into Russia, and calling for reconciliation between Moscow and Kiev.
At some point, albeit probably not in 2015, there may be some kind of political crisis in Belarus, which might provoke another crisis in Russia’s relations with the West. No doubt the Kremlin is very aware of this, and it doubtless has contingency plans in place to ensure that that does not happen.
It is also possible that at some point the Kremlin will move preemptively in Belarus, perhaps promoting its own “colored revolution” and precipitating a palace coup that removes Lukashenko in favor of someone more pliable and more committed to the “union state.”
Wikimedia CommonsThe European Court of Auditors.
That said, the main geopolitical front for the Ukraine crisis in 2015 is going to be Europe.
The EU is in trouble, the European project is in trouble, and individual European governments are in trouble.
Nativism, and left and especially right-wing populism, are becoming increasingly potent politically, thanks to a very long period of economic stagnation and high unemployment.
And there can be no doubt that a key part of the Kremlin’s response to NATO’s pivot to the east and Ukraine’s pivot to the west will be to seek advantage from, and accentuate, Europe’s difficulties.
Europe’s economic and political troubles are also going to impact EU policy toward Ukraine and Russia in the coming year. The EU’s economic and political challenges will make it more difficult for Europe’s leaders to provide Ukraine with the kind of financial assistance ($50 billion) that George Soros argued for in a recent article in The New York Review of Books. (I think there is very little chance that the West is going to come up with that amount of money for Ukraine.)
They will also result in increased pressure from European business and other interests not to renew sanctions on Russia when they begin to expire in July, not to take additional steps to reinforce NATO’s eastern defenses, and to seek a rapprochement with Moscow.
My guess, however, is that Merkel is going to resist this pressure successfully. But that is by no means certain, and much depends on Germany’s, and Europe’s, economic performance.
If current forecasts are correct, and if Merkel can convince the German electorate to back off on austerity and shoulder more of the burden of getting Europe growing again, I suspect that the EU will, yet again, muddle through.
But if Germany continues to insist on fiscal and especially monetary austerity, and if as a result Europe enters into a deflationary spiral, all bets are off.
Indeed, there is nothing more important to the Kremlin’s geopolitical ambitions than Europe’s economic performance and political evolution.
I suspect that Putin believes that while the Russian economy will suffer over the next several years, the Russian people are prepared to tighten their belts and support the Kremlin’s defense of Russia’s “Great Power” status.
I also suspect that Putin believes that Russia will be successful in finding new allies in Europe, and that the European project may in any case unravel.
If so, and if nativist parties begin to win at the polls, the Kremlin has reason to expect divisions to deepen within NATO as well. In fact, that is the only way that I can imagine Russia emerging as a net winner from the current crisis, despite what looks like a terribly weak hand at the moment.
In sum, I believe the big story in 2015 will be Europe, the European economy, and the European project. If the latter collapses, which is unlikely but possible, the geopolitical opportunities for Russia, in its zero-sum contest with the West, will be far greater than if Europe can, finally, get back on the right track.