Between Putin and the People

Yesterday saw a renewal of the massive protests in Kiev.  Indeed, they were arguably larger than those that occurred last weekend.  Organizers called for 1 million Ukrainians to meet at Maidan.  Crowd counts are notoriously unreliable, and it is doubtful that a million actually protested, but the photographs and videos of the events demonstrate that the demonstrations were massive.

So where from here?  Yakunovich added fuel to the fires that are inching towards him by meeting with Putin in Sochi.  Edward Lucas might have fueled the flames even further when he tweeted that a deal had been struck, with Yakunovich securing $15 billion from Putin, along with a substantial cut in gas prices, in exchange for a promise that Ukraine would join Putin’s simulacrum USSR, the Eurasian Economic Union, in 2015.  Lucas was quickly criticized for being too quick on the tweet, as it were, and spreading a thinly sourced rumor.  Putin’s Carney Peskov said the EEU had not even been discussed, that no deal was done, and that further discussions would take place at a technical level.  But the Ukrainian PM Azarov (who makes Yakunovich look like a real charmer) said that a big deal is in the works.

But remember: they’re all Sovoks, so absolutely nothing they say is worth the air of the breath that carries the words.

A hamfisted crackdown in November was an inflection point in the crisis: the attack turned what had been a somewhat forlorn protest into a much more intense national movement.  (Well, semi-national: protests are massive in western Ukraine, and muted, at best, in the east of the country.)  This is no doubt making Yakunovich abstain from further violence.  The very size of the crowds, and the international attention they are getting, are also a deterrent.  There have been ominous signs-the surrounding of a TV station by the Berkut, warnings to evacuate government buildings some protestors have occupied-that force might be used, but so far the government has been restrained.

So Yakunovich will likely try to wait out the protests, in the hope that they will peter out.  This is probably a futile hope.  He made a similar calculation in 2004, and we know how that worked out.  If anything, the opposition is even more motivated today, as the stakes are perceived to be higher.  2004 was about a corrupt election.  2013 has been framed as a choice of tomorrows, between a humane European future with normal people in a normal country living normal lives on the one hand, and a return to a bleak past as a Russian satrapy.

What’s more, Yakunovich does not have the luxury of time.  Ukraine’s economic situation is desperate.  The country’s foreign reserves are down to about 2 months of imports.  Its interest rates are among the highest in the world.  It needs money, and it needs it now, or it risks fiscal collapse. The IMF has offered money, but on terms that make Yakunovich, his cronies, and his oligarch allies blanch.  Putin is apparently offering money, but on terms that would make a substantial part of the country, and virtually the entire western part, even more furious than it already is.  Yesterday’s massive demonstrations were a response to a rumor of deal: think of the reaction to the reality of one.

Yakunovich, in other words, is caught between Putin and the people.  But it’s worse than that.  Neither trust him.  Both will think that if he sides with them, he is more than capable of reversing course later.

And he has to make his choice soon.

Putin has the cash.  Putin can offer other resources-notably, support to the security services.  Covert, preferably, but overt if necessary.

Putin may have an interest in getting Yakunovich to crack down on the protests.  Once that happens, the Ukrainian president will have nowhere to turn for support.  He will be totally dependent on Putin.  The primary consideration that may lead Putin to want to avoid a violent outcome is that it would inevitably be associated with him and Russia, and could lead to boycotts of the Sochi Olympics, or at least a drumbeat of stories that would detract from what Putin is trying to achieve with the games.

Although he doesn’t have a lot of time, given Ukraine’s parlous economic circumstances, since he has no good immediate moves to make, my guess is that Yakunovich will play for time and pray for a miracle.  When that doesn’t come, he will probably choose Putin, because that gives him at least a chance at survival.  And when he makes that choice, the possibility for a violent outcome is very real.

The eventual outcome depends in large part on whether Yakunovich can rely on the military.  The Berkut (his interior forces) are presumably reliable, but will the army stand idly by if Yakunovich attempts a Tiananmen solution?  (Remember the situation in Romania in 1989, where the military refused to fire on revolutionary crowds.  Similarly, during the coup in 1991, Soviet military units, notably a division of paratroopers under Lebed, refused to obey orders to surround the White House where Yeltsin was leading the resistance.)  In violent situations, those who control the resources with the greatest potential for organized violence prevail.

I have no idea what the situation inside the Ukrainian military is.  No doubt the Russians have penetrated it, especially at senior levels.  But whether it is a reliable force, or one that could turn on Yakunovich, I don’t know.  And sadly, even though this is arguably the most important determinant of where things go from here, the media is totally uncurious about it.  They are too wrapped up in the romance of what is going on in the streets to pay attention to the historical reality that what goes on in the barracks is far more important in determining how revolutions play out-or don’t.

One last word.  The Obama administration has been-again-MIA.  Yes, the loathsome Samantha Power tweeted support for the protestors, but as in Iran in 2009 the administration has been notable mainly for its absence on this issue. It should step up to the plate on this.  Because it’s the right thing, and because it could take Putin down a few pegs.

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About Craig Pirrong 238 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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