Russia may finally be ready to put the Ukrainian conflict on ice. But don’t expect a thaw in its relations with Kiev tomorrow
You’d be hard pressed to come across an asset bubble in Ukraine. A cash-strapped state, persistent corruption and elusive structural reforms continue to keep investors at bay. But it's a more common type of bubble that you may soon struggle to find across the country. Ukraine yesterday launched criminal proceedings against Coca-Cola and Pepsi after these published a map on their website showing Crimea as a part of Russia. It probably won't sugar-coat the penalty.
The tough stance reflects a hardening of Ukraine’s position over the conflict bubbling along its eastern border. On Wednesday, the country's finance minister told reporters that 2016 “will be the year we really begin pressing forward on a process to return Crimea”. One of its key representatives added that elections in two regions due to be granted autonomy were impossible without border control. That followed a press conference during which president Petro Poroshenko stated that “Ukrainian sovereignty over the occupied territories must be restored this year.”
But efforts to crank up the pressure go further than words. Two days ago, Ukraine added 70 more products to a list of embargoed goods from Russia. The move was a response to similar actions by Moscow on 1 January, the latest moves in a trade war between the two countries. But Kiev has recently used other economic tools to chastise its bigger neighbour. These have included halting government payments to citizens in Eastern Ukraine after the summer and, since November, cutting power to the Crimean peninsula.
The measures are having an exacting effect. Forced to live up to its claim that it supports self-determination in eastern Ukraine, Russia has picked up the tab. It can’t afford it: Western sanctions and collapsing oil prices are already taking a severe toll on its economy. And its ongoing military involvement in the Donbass is costing it dearly. With no change of government in Kiev and the rebels it backs gaining little ground, the whole Donbass project is starting to look like an expensive failure for Moscow.
This may explain why it now seems readier than ever to negotiate. The past few days have seen a flurry of meetings between Russia and the US, in part focused on resolving the situation in Ukraine. These have involved people of a calibre rarely seen during previous efforts to break the deadlock. That’s especially true of Russia: last Friday, US assistant secretary of state Victoria Nuland was lucky enough to speak with Putin favourite Vladislav Surkov – rather than Grigory Karasin, her counterpart.
The diplomatic push carried on this week, with Sergei Lavrov and John Kerry – the Russian and American foreign ministers – meeting for a five-hour “brainstorming” in Zurich on Wednesday. Little has transpired since on what was discussed during these sessions. But Kremlin experts reckon the lack of official chatter – or even leaks to the press – suggests something real is in progress. They say a compromise over the Minsk II peace agreement, signed in February 2015 but still to be implemented, may be in the cards.
Or it may not. The agreement calls for a bilateral ceasefire in eastern Ukraine, followed by constitutional changes in Kiev providing for the self-governance of pro-Russian regions. Ukraine would in exchange be given back full control of its border with Russia. But Kiev’s rhetoric of late suggests it wants its territorial integrity restored first. Its parliament is due to meet to discuss the constitution soon, but Russia complains that what Ukraine has written so far is just part of a transitional law. Donbass’ self-proclaimed republics, it says, just won't accept it.
Among other potential deal spoilers are the Russian people. Two years of media coverage of Moscow’s “war against fascists” in Kiev won’t be easy to rewind. A humble retreat from Ukraine would also contrast with the brazen nationalistic statements Russian leaders have repeatedly been airing in TV. The country will still seek to put a brave face on the conflict, so as to distract from the war’s human and economic cost at a time when the economy is tanking. But it will be a hard one to pull off, and it will limit the extent to which Moscow can compromise. It won't help that Kiev is refusing to pay for $3 billion worth of gas purchases it made last year.
In the event all the above is resolved, a more local obstacle to peace may linger. As Russia has learnt the hard way before, proxies can at times be rather unruly: it is unclear whether Russia’s injunctions will be followed on the ground once rebels understand Moscow is giving up the fight. Still, getting to that stage would already be a sizeable leap towards success. That may even be worth drinking a toast to – with Coca-Cola or else.