Ukraine & Russia: Sovok Players, Sovok Tactics, Sovok Results

Ukraine has shocked many Europeans and dismayed many Ukrainians, by announcing that it will suspend preparations to enter into an Association Agreement with the EU.  Russia was violently opposed to such an agreement that would have moved Ukraine away from Russia and towards Europe.  Hence, this is viewed as another “diplomatic” triumph for Putin.

It’s not really that shocking, or that much of a triumph.  If you think of the correlation of forces (to use the Soviet military term), it decidedly favored the Russians. There is geographic proximity.  There is the fact that the Ukrainian economy is a basket case, and extremely vulnerable to Russian pressure-pressure which Putin had been exerting for months, and would only have intensified had Ukraine gone along with the Europeans.  There is the fact that the Ukrainian political and economic elite has a lot to lose if Europe insists on reforms that open up the economy and increased transparency.  There is the fact that Old Europe was decidedly lukewarm about the prospect of drawing closer to a corrupt, dysfunctional, and bankrupt country that could become another money sink.  Europe also insisted on the freeing of Ukrainian President Yakunovich’s arch rival and predecessor, Yulia Tymoshenko, which could be extremely perilous for Yakunovich.  Countries on the front line with Russia-notably the Poles and Baltic States, but also the Swedes, who are seeing repeated Russian aerial intrusions and other indications of Russian aggressiveness-were pushing this, but they aren’t the main forces in the EU. In contrast to tepid European interest, Ukraine is a near obsession with Putin.

And then there is money and corruption. Days before the Ukrainians hit the brakes, Yakunovich traveled to Russia. There were conflicting reports about whether he even met with Putin, and if he did, where, and what was discussed in the meetings (if they occurred). Also, in the midst of one of the repeated standoffs between Gazprom and the Ukrainians over gas, it was announced that Gazprom would sell gas at a large discount to Ukrainian oligarch Firtash.  Firtash had been the intermediary in shady gas deals between Russia and Ukraine in the past, but had been cut out by Tymoshenko. Now he’s back, and will deliver gas to Ukraine. Since Firtash is an ally of Yakunovich, the opposition immediately charged that this was a corrupt bargain that will put money into Yakunovich’s pocket, and bankroll his reelection campaign. Putin, in other words, could make deals that the Europeans could not hope to match.

Putin, in other words, had all the cards. Only overweening European self-regard about the obvious superiority of their system could have deluded them into believing that the odds were on their side.

Putin, of course, couldn’t resist chewing the scenery, joining Lavrov in accusing the Europeans of blackmailing Ukraine. Of course Putin was the one really doing the blackmailing-and the bribing. He had the sticks.  He had the carrots. He used them both, and thereby cajoled the Ukrainian ass to turn its back on the EU.

Sovok players. Sovok tactics. Sovok results. Is this really surprising?

About Craig Pirrong 228 Articles

Affiliation: University of Houston

Dr Pirrong is Professor of Finance, and Energy Markets Director for the Global Energy Management Institute at the Bauer College of Business of the University of Houston. He was previously Watson Family Professor of Commodity and Financial Risk Management at Oklahoma State University, and a faculty member at the University of Michigan, the University of Chicago, and Washington University.

Professor Pirrong's research focuses on the organization of financial exchanges, derivatives clearing, competition between exchanges, commodity markets, derivatives market manipulation, the relation between market fundamentals and commodity price dynamics, and the implications of this relation for the pricing of commodity derivatives. He has published 30 articles in professional publications, is the author of three books, and has consulted widely, primarily on commodity and market manipulation-related issues.

He holds a Ph.D. in business economics from the University of Chicago.

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