Ukraine: (Relative) Calm Before the Storm

The situation in Ukraine has taken a turn, but not necessarily for the better.  Although the prospect for a major confrontation on the streets in Kiev has abated due to Yanukovych’s decision to repeal the anti-protest laws and offer a form of conditional amnesty to protestors, the opposition has not been appeased.  Moreover, the government has seemingly shifted tactics, targeting individual leaders of the protest movement rather than threatening to assault the barricades.

The most appalling case is that of Dmytro Bulatov, one of the leaders of AutoMaidan, a group that launches quick-strike protests in automobiles.  He was disappeared for a week, turning up yesterday horribly beaten and mutilated: his tormenters cut off an ear, and he claims they “crucified” him.  After he was released, the militia attempted to arrest him in the hospital, where they were thwarted by quick thinking protestors.  But warrants have been issued for other AutoMaidan leaders, and there are report of a rising tide of arrests on the streets.

Furthermore, the regime appears to be relying more on “titushki” thugs who are roaming the streets looking for, and attacking, oppositionists.

Moreover, the opposition is deeply suspicious-and rightly so-of the amnesty, because it is conditional on the protesters evacuating the buildings they have occupied and the barricades on the street.  In other words, the government is saying: give up all your leverage, and trust us.  Needless to say, trust is in short supply and the opposition has rejected this.  Trust is further undermined by the arrests, disappearances and beatings.

And Russia-and Putin-loom overhead, casting a broad shadow.  I was wrong that Azarov was Putin’s man-he has decamped to Austria after having resigned as PM.  But it is clear that Putin is still pulling the strings.  There are continued rumors that Russian forces are on the ground in Ukraine: Bulatov claims that those who abducted him spoke “with Russian accents.”

Mixed signals emerged from Russia after Yanukovych sacked the government. Putin played his typical double game.  Initially Russia claimed that the the departure of Azarov would lead it to revocation of December’s aid package.  Then Putin came out and instructed the government to “honor its agreements to lend Ukraine $15 billion to Ukraine and cut the price of gas it sells to its crisis-hit neighbor.”  But the very same day he said that the $15 billion plus cut rate gas deal would be put on hold until Ukraine formed a new government, a process that could take 60 days.  One has to parse Putin’s statements very carefully.  He will often state a broad principal (“Russia will honor its agreements”) and then walk it back by adding conditions and caveats. This is one of those cases.

Then there was a more ominous statement emerging from Moscow:

An adviser to Russia’s president Vladimir Putin has warned that Ukraine’s president, Viktor Yanukovich, risks losing power unless he suppresses the “insurgency” in the country.

. . . .

Mr Yanukovich “is now in a situation of creeping revolution, and to some extent he functions as the guarantee of the constitution, security and integrity of Ukraine, therefore the president has no choice,” Mr Glaziev said in an interview with the corporate magazine of Russian state gas company, Gazprom, published on the editor’s blog on Friday.

“Either he protects Ukrainian statehood and suppresses the insurgency, which is provoked and financed by external forces, or he risks losing power, and then Ukraine faces growing chaos and internal conflict from which no exit is visible.”

Add to this that the army has issued a similar warning:

After two months of unrest, Ukraine’s army got involved in the ongoing political crisis, when the Ministry of Defense unexpectedly issued  a Jan. 31 statement, asking President Viktor Yanukovych to “apply measures for stabilizing of situation in the country.”

The commanders called protesters’ occupation of government buildings “inadmissible” and said that “further escalation of confrontation threatens to integrity of the country.”

The decision to send Yanukovych a special letter was made at a general meeting of the ministry’s office the day before and, according to Anatoliy Hrytsenko, an opposition lawmaker and former defense minister, the officers had been pressured to support Yanukovych.

“I know for sure that officers, who were not agreeing to the ‘common approval’ are now being pressured by their commanders and chiefs,” Hrytsenko said on his Facebook page. In its separate statement, the Defense Ministry also denied the reports that army was allegedly involved in assisting the police during the ongoing political crisis.

This report suggests that the army is divided, but is under pressure from the top.  And the top is no doubt under pressure from Moscow.

All this suggests to me that a full-blown crackdown is being held in abeyance until the end of Sochi.  In the meantime, the regime will wage a guerrilla war against the opposition.  The opposition-and especially its leadership-will be terrorized by nightriders and roving gangs and “law enforcement.”  Putin will give Yanukovych his marching orders.  And sometime in late February, expect things to come to a climax.  What we see now is a relative calm before a storm.

And what will the storm winds blow?  I fear civil war, largely on regional lines, but not completely.  Even parts of eastern Ukraine are restive.  And if it comes to that, Putin will no doubt find a pretext for a more direct intervention, reprising the role of Nicholas I, “the gendarme of Europe,” who intervened to crush rebellions in Poland and the Hapsburg Empire. I do not think that Yanukovych has the forces to subjugate a country as large as Ukraine, especially if those forces are largely conscripts who will not be enthusiastic about attacking-and killing-their friends and family.  I don’t know if Putin does either, but I cannot see him sitting idly by while Ukraine spins out of control.

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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