US tone hardens on Ukraine-Russia tensions

US tone hardens on Ukraine-Russia tensions
Donald Trump has adopted a firmer line on Ukraine crisis.
By Sergei Kuznetsov in Kyiv February 17, 2017

The Ukrainian leadership appears to have won some relief as the new US administration under President Donald Trump signals that the crisis in this post-Soviet nation remains a foreign policy priority and that Russia must return its ill-gotten gains.

On February 14, White House press secretary Sean Spicer said Trump expects Russia to de-escalate violence in Ukraine and return the Crimean peninsular, which was seized and annexed by the Kremlin in 2014, to Kyiv’s control.

“At the same time, he fully expects to and wants to be able to get along with Russia, unlike previous administrations, so that we can solve many problems together facing the world, such as the threat of ISIS and terrorism,” Spicer added during a briefing in Washington.

While Russia reacted with a curt “no discussion” about Crimea, Spicer’s statement was immediately welcomed by officials in Kyiv. Svytoslav Tsegolko, the spokesman of Ukrainian President Petro Poroshenko, called the US stance “good”, and also reiterating his country’s position that Russia “should return Crimea to Ukraine”.

Over the past months, the Ukrainian leadership became increasingly alarmed that Trump’s election victory could see a sharp reduction of US political, diplomatic and financial support to Kyiv in its political, economic and still unrecognised military conflict with Russia. These worries were fuelled on the eve of Trump’s inauguration when the new US leader said he might seek an end to the Western sanctions against Russia in return for a nuclear arms reduction deal.

“It is highly likely that the US position will be modified during the negotiations with the Russians. In fact, Russia has its arguments reasoning why Crimea should remain part of Russia, and these arguments will soon be tabled in Washington,” Pavlo Rudiakov, head of the Kyiv-based Perspective information and political think-tank, wrote in a column published by UNIAN news agency. “Ukraine must present its own arguments as soon as possible.”

“Russophobic paranoia”

The change in the White House’s tone on the Ukrainian crisis could be explained by Trump’s desire to dampen US media criticism that he is too willing to cosy up to Moscow and his Russian counterpart Vladimir Putin. The shift also coincides with the resignation on February 13 of US national security advisor Michael Flynn over allegations of secretly discussing sanctions with Russia’s ambassador to Washington before the Trump took office.

Officials in Moscow dismissed the US furore over the claims as “Russophobic paranoia”. 

“Flynn ‘resigned’ [on February 13] not because of his little mistake [with the Russian ambassador], but thanks to an aggressive campaign,” Alexey Pushkov, a member of the Defence and Security Committee in the Federation Council upper chamber of parliament, said on his Twitter account. “It’s nothing but paranoia and a witch hunt,” Pushkov added.

“Even willingness to engage in dialogue with the Russia is perceived by the hawks in Washington as thought crime,” Konstantin Kosachev, head of the council’s International Affairs Committee, wrote on Facebook, adding that Flynn’s departure could signal that Trump was already “backed into a corner”.

After Flynn repeatedly denied discussing sanctions with Russian Ambassador Sergei Kislyak before Trump’s inauguration on January 20, he suddenly changed his mind and filed a resignation request.

“Was Obama too soft?”

Moreover, the Crimea debate provided an opportunity to attack the Democratic administration of Barack Obama, who had provided significant support for Kyiv. “Crimea was taken by Russia during the Obama administration. Was Obama too soft on Russia?” Trump tweeted caustically on February 15.

Moscow’s reaction to the White House position voiced by Spicer was predictable. “As for Crimea’s return, this issue will not be discussed as it cannot be discussed,” Kremlin spokesman Dmitry Peskov said, adding that the issue of the peninsular’s status was also not discussed during the phone conversation between Trump and Putin on January 28.

Russian Foreign Ministry spokesperson Maria Zakharova also said on February 15 that Moscow will not transfer Crimea back to Ukraine because Russia does not “give our territories back”.

Spicer also underlined that the US ambassador to the United Nations Nikki Haley had also taken a tough line on Russia’s actions in Ukraine when she addressed the UN Security Council on February 3.

“We do want to better our relations with Russia,” Haley said in her testimony. “However, the dire situation in eastern Ukraine is one that demands clear and strong condemnation of Russian actions,” she said, referring to the separatist conflict that Russia has supported since 2014.

Economic dimension

Meanwhile, the Ukrainian economy is starting to show signs of revival after the meltdown of 2014-2015. GDP growth in October-December accelerated to 4.7% y/y compared with 2% y/y growth in the third quarter.

However, the Kyiv-based consultancy Investment Capital Ukraine (ICU) believe the results of the US election limit the prospects for accelerating global economic growth.

“Hence, there is little chance for Ukraine’s net trade position - which is still in deficit after the sizable currency devaluation of 2014-15 - to turn into a meaningful surplus anytime soon,” ICU wrote in its special report published after Trump’s victory in November.

For that to happen, it would require another sizeable devaluation of the domestic currency, the hryvnia. “This step would be a no-go politically for Ukraine’s policymakers,” the reports reads. “And that is why, in our view, they will stick with relatively restrictive monetary and fiscal policies for the near term. This implies Ukraine’s central bank will be reluctant to aggressively cut the policy rate.”

In late October, the National Bank of Ukraine (NBU) cut the rate from 15% to 14%, attributing the move to the further alleviation of risks affecting price stability in Ukraine. However, in January, the regulator announced that it will keep the rate unchanged at 14% with the aim inflation risks hampering the achievement of inflation targets in 2017-2018.