You are here

Sanctions-hit Russia in risky bet on Ukraine talks

Thursday, January 15, 2015 - 13:57

[KIEV] It seems to have played out exactly as Western powers hoped: sanctions and falling oil prices have hit Russia hard, presumably making Moscow more willing to compromise on the conflict in Ukraine.

But as is often the case with Russian President Vladimir Putin, the reality is far more complex.

Despite its economic woes Russia still holds a number of trump cards in the Ukraine crisis and may be betting on the fact that the ex-Soviet republic to its west is in even worse straits, analysts say.

"If it's a race to the bottom, then Ukraine will get there much faster than Russia... as they see it," said John Lough, Russia specialist at London-based think tank Chatham House.

It is a dilemma Western nations have faced throughout the crisis in Ukraine, which is badly in need of financial assistance and has struggled to institute the kinds of reforms that could eventually put it on a sound footing. Corruption remains a major problem.

The longer the war in the country's east goes on, the more it will drain Kiev's resources - and the more help it is likely to require from the West.

The International Monetary Fund has warned that Ukraine may need a further US$15 billion from world lenders this year, on top of a US$17 billion loan the IMF approved in April.

Ukrainians may also lose faith if the conflict drags on, said Vadym Karasyov, director of the Institute of Global Strategies in Kiev.

"Putin wants Europe to get tired of Ukraine and lose interest," he said, warning of the risk of renewed unrest in other areas of Ukraine in the case of a protracted war.

But Russia too would seem to be engaged in a risky gamble, apparently banking on European nations wavering on sanctions and oil prices making a recovery even as economists predict a deep recession.

The latest setbacks to a peace deal came this week, when a planned summit was postponed due to a lack of progress in talks between ministers in Berlin and a new wave of violence rocked Ukraine's east.

On Tuesday, 12 civilians were killed when a rocket hit a bus southwest of Donetsk, with both sides trading blame.

It was the deadliest attack on civilians since a September truce that only partially stemmed the fighting between Ukrainian forces and Moscow-backed rebels.

The war in eastern Ukraine is part of the fallout from a crisis that began in late 2013 with mass anti-government protests that eventually forced out Russian-backed president Viktor Yanukovych.

Russia labeled his ouster a Western-orchestrated coup and in March 2014 annexed the Crimea peninsula from Ukraine, putting the worst strain on relations with the West since the Cold War.

The rebellion in the eastern Donetsk and Lugansk regions, which has killed over 4,700 people, broke out the following month.

It was unclear whether the renewed violence this week was linked to the mooted peace talks between the leaders of Russia, France, Germany and Ukraine, for which a date has yet to be set.

Putin, meanwhile, has declined to play a direct role in mediation. He has also denied arming the rebels and sending troops into the war zone despite witness claims to the contrary.

"That's why compromise is impossible: Russia does not consider itself a side in the conflict, and the West believes it is responsible for the fact that the conflict can't be resolved," said Maria Lipman, a Moscow-based analyst.

Some analysts say Putin could withstand the economic fallout from the Western sanctions and low oil prices for longer than expected, thanks to Russia's substantial reserves.

In the meantime, the sanctions are making life more difficult for European nations that export to Russia.

Moscow also has leverage linked to a US$3 billion loan to Ukraine to be paid back by December. It has threatened to ask for an early payback, which would tighten the screws on Kiev.

"They are in difficulty, but they have room for manoeuvre," Philippe Migault, research director at the Institute for International and Strategic Relations in France, said of Russia.

But Russia must tread carefully, with the United States standing firm on sanctions. Putin also risks damaging his popularity at home if he is unable to contain the economic crisis.

For Lough of Chatham House, Russia may see the standoff in Ukraine as "an opportunity to establish a frozen conflict that cannot be resolved without Russian intervention", but says Moscow may have gotten more than it bargained for.

A short-term solution is likely the best to hope for at the moment, such as creating self-governing zones in the east, while a comprehensive peace is discussed.

"It will not last long, it will not be a type of state model that would be acceptable for Ukraine forever, but as a temporary solution, it could be fine," said Vasyl Filipchuk, chairman of the International Center for Policy Studies in Kiev.

AFP