Ukraine: The Seen and the Unseen

Although the focus in Ukraine is the drama in Maidan, the matter will be decided by what happens in the barracks and the counsels of oligarchs.  Here are a couple of interesting articles analyzing how the oligarchs are leaning.  They suggest that the oligarchs would feel more secure in a more European country than a Russian one.  For a variety of reasons.  Because they fear being caught in a new Belarus, cut off from the ability to travel to their European homes.  Because they fear that once Ukraine is firmly in the Russian orbit, they would quickly be displaced by Russians.  Because they feel that their wealth, ill-gotten as it is, would be more secure if Ukraine became more European and less Russian: such is the logic of primitive capitalist accumulation.

This is all plausible, but one must also apply a little game theory.  There are multiple oligarchs, and if any one steps out alone he is vulnerable.  Yanukovich can isolate that individual, and perhaps get the other oligarchs to turn on him by promising them a piece of his empire if they support the government.  The collective action problem may well prevent the oligarchs from turning decisively on Yanukovich.  But no doubt there are communications going on behind the scenes.  Each is attempting to figure out what the others are thinking.  There are likely furtive efforts to conspire.  Whether they will be able to overcome the collective action problem, and unite against the government, remains to be seen.

I mentioned two decisive factors: the oligarchs and the army (including other security forces, especially those in the Interior Ministry).  These are not independent.  Money can buy armies.  Or at least units of armies.  Buying off army officers may provide the most bang (literally) for the oligarchic buck (or the Hryvna, as it were). We are talking about Sovok land here.  Everything-most notably the military and its weapons-is for sale.  (In the Chechen Wars, Russian army officers notoriously sold their units’ arms.  In some cases, to the Chechens.)

So what is going on for all the world to see in Maidan is important, and affects the dynamic, what is happening behind the scenes, is likely more important still.

Speaking of Maidan, yesterday the police engaged in some aggressive actions against the protestors.  Moving in, dismantling barricades, etc.  But then they withdrew.  The opposition rejoiced.

One interpretation is that the police lost their nerve, and were overawed by the size of the crowd and its refusal to be cowed.  But I wonder if perhaps something else is going on.  Whether these were probing actions, designed to test reactions, gather intelligence, and so on.  Let’s just say that I would not get too giddy about the apparent hesitation by the security forces.  Again: The unseen-what is going on inside the security forces-is as or more important than what is seen on the streets.

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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