Sabre rattling vs progress towards peace in Ukraine

By bne IntelliNews September 2, 2014

Ben Aris in Moscow -


September 1 saw more sabre rattling in Berlin and Brussels with more demands that "Russia must be made to pay," while in the Belarusian capital Ukrainian rebel leaders made a few key concessions necessary for an eventual peace.

German Chancellor Angela Merkel was strident in her comments that Russia would not be allowed to get away with its aggression in Ukraine. However, the pragmatic Merkel suggested that an EU-Ukraine-EEU deal was possible, before going on to say that these bodies remain "largely incompatible."

Following the Minsk summit last week - attended by Russia, Ukraine, the heads of the other Custom Union members and a high-level delegation from the EU - rebel leaders are continuing talks with the Kyiv authorities in the Belarusian capital.

Representatives of the self-proclaimed Donetsk and Luhansk People's Republics (DPR and LPR) said on Monday they will make every effort to preserve Ukraine's unity if Kyiv accepts their demands at a meeting of the Contact Group on Ukraine. The Contact Group is made up of Ukraine’s former president Leonid Kuchma, Russian Ambassador to Ukraine Mikhail Zurabov, and representative of the OSCE chairperson-in-office on Ukraine Heidi Tagliavini. Taking part in the consultations are vice premier of the self-proclaimed DPR Andrei Purgin and the chairman of the Supreme Council of the LPR Valery Karyakin.

The rebel leaders said: “Equal talks are the only acceptable means for the settlement of the conflict and restoration of peace,” reported Tass. They said that a resolution should be reached in the framework of the principles worked out at the Geneva meeting of representatives from Russia, the US, the EU and Ukraine on April 17.

Vice-Premier of the DPR Andrei Purgin told reporters in Minsk that the rebels have "eight or nine points" on their list of demands for a peace deal that would bring the fighting to an end. But he was pessimistic about the likely outcome. “This is an initial stage. It can hardly end with something drastically big,” he told Tass.

The leaders of Luhansk and Donetsk are seeking greater autonomy on trade and security, and official status for the Russian language. Shortly after taking over from ousted president Viktor Yanukovych, the new Kyiv government floated a draft law to ban Russian from officialdom – an idea that was quickly nixed as it was a highly inflammatory move.

However, the rebels did concede a pledge to preserve the unity of Ukraine and not seek independence or a merger with the Russian Federation. This is the key concession; without maintaining the unity of Ukraine a deal would be unthinkable for Ukrainian President Petro Poroshenko.

The rebels also called for an amnesty for all participants in the conflict currently raging in eastern Ukraine, as <i>bne</i> predicted in an op-ed in the Financial Times ahead of the Minsk summit, as well as special status for their military units and right to appoint judges and prosecutors.

But despite the concessions a deal is unlikely, as the rebels are also asking for "special foreign economic status" that would in effect create a country within the country and allow the regions to sign autonomous deals with Russia and join its Customs Union. This would be a victory for Putin and make Ukraine's accession to the EU impossible.

Gas worries

While European diplomats may be hoping for the best, they are still preparing for the worst. Brussels said September 1 that it was preparing an emergency plan to deal with gas shortages if the conflict results in Russia turning off gas supplies to Western Europe, as the heating season gets underway.

The strip of countries closest to Russia's border with Europe are heavily dependent on Russian gas and will struggle to find alternative supplies of energy. One option is to ship in more liquefied natural gas (LNG) to the 20 or so LNG terminals along Europe's coast. But European buyers often resell those cargoes for higher prices rather than pump it into the European gas network. A source at the EU commission told Reuters it was considering a ban on reselling LNG in order to maintain the continents gas reserves.

"In the short term, we are very worried about winter supplies in southeast Europe," a source told Reuters, who has direct knowledge of the Commission's energy emergency plans. "Our best hope in case of a cut is emergency measure 994/2010 which could prevent LNG from leaving Europe as well as limit industrial gas use in order to protect households," the source said.

European utilities have been preparing for a possible gas war with Russia by building up reserves and pumping as much gas as possible into storage. The region's storage facilities are filled to 90%, or 70bn cubic metres (cm), but this is equivalent to only 15% of Europe's annual demand. Whatever the bloc does, it will struggle to meet demand if Russian gas stops coming to Europe, political and industry sources say. Gas prices have risen 35% since July due to this threat.

A full-on gas war remains the "nuclear option" that would probably plunge both Europe and Russia into recession and possibly spark a third wave of the economic crisis.

In the meantime, if there is not visible progress towards peace, another round of sanctions is becoming increasingly likely. The White House has been relatively quiet since the Minsk summit and the subsequent blatant escalation by Russia to the point where it is no longer even attempting to hide his direct involvement in military operations on Ukrainian territory. However, the US is likely to propose another round of even tougher sanctions this week unless the Kremlin makes some real concessions to help halt the fighting.

Already in the wings is a threat by the UK to cut Russia off from the SWIFT international messaging service that is an integral part of the international financial system. While this would not prevent Russian banks from making international transfers, it would cause chaos and make business much more difficult. It would also represent another step up in the level of financial sanctions being imposed on an already weak Russian economy.

Interestingly, Russia's foreign minister, Sergey Lavrov, repeated an earlier proposal by the Kremlin saying that the creation of a "greater Europe" that would stretch from Brussels to Vladivostok was still on the table. This is Russian President Vladimir Putin's preferred option, his vision for the future of Europe. It would in effect mean Russia more closely aligns with the EU. Russia's request to join the EU was rejected out of hand by Brussels when Putin proposed it shortly after taking over as president in 2000. As a result, Putin decided to set up his rival Eurasian Economic Union instead. He sent the draft laws for its creation on January 1, 2016 for approval to the Duma on September 1.

Expect tougher rhetoric is expected this week as Nato is due to start its summit in Wales on September 3.

Meanwhile talks in Minsk at the Contact group will continue for the rest of this week.


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