Why Ukraine Must Bargain with Russia
Vice President Joe Biden traveled to Kyiv last week for
his third visit to Ukraine’s capital in the
past seven months. He arrived bearing gifts: additional nonlethal military aid
for the embattled Ukrainian government, including body armor, helmets, night-vision goggles, and countermortar
radar. The first three of 20 promised countermortar radar systems were flown
to Ukraine aboard a cargo plane accompanying Air Force Two the day the U.S. vice president
arrived. Following the Nov. 3 separatist “elections” reports
of Russian tanks rolling across the border, and with the Minsk cease-fire agreements in
tatters and almost
1,000 dead in the past two and a half months, this quite literal “deliverable”
for Biden’s visit — combined with some tough
words in public for Russian President Vladimir Putin (“Do what you agreed to do, Mr.
Putin”) — is certainly appropriate. But let’s hope that the new kit and
bravado gave Biden the public cover needed to make a far more important point
to President Petro Poroshenko: Ukraine needs to make a deal with Russia if it
wants to survive this crisis.
A political
settlement would be far more important for Ukraine in the short to medium term
than Western support — even more important than the lethal aid that Sen. John McCain is demanding,
let alone the helmets and body armor that Biden delivered. And while the EU-Ukraine
Association Agreement might be critical for charting a reform path for Ukraine’s
future, the lack of a deal with Russia could easily render it irrelevant. That
document was negotiated based on an assumption that economic ties with Russia
would continue uninterrupted. Compensating Ukraine for the severing of those
ties was not something Brussels ever contemplated.
Ukraine’s economy is highly dependent on Russia across a
range of sectors, a legacy of its key role in Soviet-era production chains. The
most oft-discussed dependency is, of course, natural gas, the critical energy input for
Ukrainian industry and the primary heating fuel for Ukrainians’ homes. In 2013
alone, Ukraine imported 27 billion cubic meters of Russian gas and paid approximately $11 billion
for it. And there is no feasible alternative to gas from Russia in the short to
medium term — both for heating Ukraine through the winter and for powering
its major industrial enterprises in the metals and chemical industries. Even if
all possible pipelines were operating at full capacity, reverse flow from
Europe could provide at most 12 billion cubic meters. And the gas relationship with Moscow is
also a key source of fiscal stability for Kyiv. The Ukrainian coffers received
approximately $3 billion to $3.1 billion from Gazprom in transit fees in 2013 — a
critical cash injection given the ballooning budget deficit and national debt.
But Ukraine’s dependency on Russia is certainly not limited
to gas imports: A third of its 2013 exports went to Russia (about the same as
went to the European Union). That amount will certainly be lower in 2014, and the EU’s
share will certainly be higher as a result of Brussels’s May 2014 decision to
lower barriers to Ukrainian imports. However, the structure of Ukraine’s
exports to the two markets differs dramatically. Europe mostly buys metal ore, ferrous
metals, grain, and other agricultural goods from Ukraine. Russia, by contrast,
imports machinery, transport services, and industrial products — i.e.
value-added goods and services that tend to provide not only more jobs but also
higher-paying ones.
Furthermore, millions of Ukrainians work in Russia and send
money home to support their families. For 2013, the National Bank of Ukraine calculated remittances
sent from Russia at $2.62 billion, but that number counts only formal bank
transfers and money sent through international transfer services. Given the
ease of crossing back and forth, presumably Ukrainians working in Russia bring
home in cash or in goods at least as much if not more than what passes through
the banking system. In other words, remittances from Russia were probably
around 3 percent of GDP in 2013.
Putin has used the conflict in Ukraine’s eastern Donetsk and
Luhansk regions (aka the Donets Basin, or the Donbas) to put the screws on Kyiv, and
he could dial up the instability there at will. But the conflict in the Donbas also
provides him with additional economic leverage. Before the conflict, the Donetsk and Luhansk regions combined accounted for 15 percent of Ukraine’s
population, 16 percent of its GDP, 25 percent of its industrial output, and 27
percent of its exports. In short, Ukraine without the Donbas would be in
an even more unsustainable economic position than it already is today. And
the only way for Ukraine to regain full control of it is through an agreement
with Russia.
So, from an economic standpoint alone, a lasting political
settlement between Moscow and Kyiv is clearly necessary. So why isn’t a process
to make one happen even on the agenda?
On one level, the answer is straightforward: Key conditions needed for a productive
conflict resolution process are utterly absent. These include some overlap in the parties’ goals,
allowing for a potential negotiated outcome that all sides can claim as a
victory; a degree of flexibility in negotiating positions; an overriding shared
interest in getting a deal; and domestic support for compromise.
Let’s examine the parties’ goals. There has been a lot of
speculation about Russia’s aims in Ukraine, ranging from accusations of new
Anschluss to allegations of a manufactured war intended
to boost domestic approval ratings. But actually, Moscow’s objectives were made
clear very early in the crisis: On March 15, the day before the so-called “referendum”
in Crimea, Russian Foreign Minister Sergei Lavrov handed U.S. Secretary of
State John Kerry a draft text of a “Friends of Ukraine” international
action plan. The Russian Ministry of Foreign Affairs published
the proposal online two days later. The key demands in the document are neutrality,
nonexclusive geoeconomic arrangements, and decentralization of authority from
Kyiv to the regions.
What about the Ukrainian and Western goals? Nominally, the
EU-U.S. strategic goal for Ukraine, shared by the current government in Kyiv,
is both straightforward and breathtakingly ambitious: to create a
Western-oriented, Western-integrated, prosperous, territorially integral, secure,
and democratic Ukraine.
This examination of the parties’ goals paints a rather bleak picture. The goals of the parties to
any future settlement to this crisis have only one thing in common: Achieving
one side’s goals necessarily entails undermining the other side’s.
Meanwhile, Russian
and Ukrainian leaders are preparing their publics for confrontation, not
compromise. As Poroshenko recently tweeted, “We are prepared for
a scenario of total war.” Moreover, in Ukraine, compromise with Russia is
nearly akin to treason. While talking to Kyiv is not as taboo in Moscow, it
would be politically impossible for any Russian government, and particularly
Putin’s government, to be seen to have “lost” in what is portrayed
there as a battle for Ukraine.
If we imagine a negotiation between Putin and Poroshenko
conducted in a political vacuum, without the historical legacy of the EU
Association process, the war, the Crimea annexation, etc., it is not
inconceivable that they could reach a deal. The contours of the compromise
would likely include: reaffirmation of the reality of Ukraine’s non-alignment;
mutually satisfactory trade arrangements among Russia, Ukraine, and the EU;
implementation of decentralization plan somewhat more ambitious than Poroshenko’s
June proposals, but significantly less far-reaching than Russia’s March
proposals; a return of full Ukrainian control over its border with Russia,
perhaps with an international peacekeeping force on the ground in the Donbas;
and so on.
The events of the past year, and particularly Russia’s
brazen actions in Ukraine, make this scenario seem more like a fairy tale than
a historical counterfactual. The problem for Ukraine and its Western partners
is that the Kremlin does not need a deal to achieve its baseline objectives in
this conflict. It could do so by bringing Ukraine to its knees economically or
by continuing to sow instability in the east of the country, which effectively
makes it impossible for the government in Kyiv to pursue Putin’s nightmare of a
Ukraine in NATO and the EU. Moscow would prefer a negotiated settlement over
these scenarios, if only because it would be far less costly. But it does not
need one. The same cannot be said for Ukraine.
Notwithstanding Kyiv’s sometimes triumphalist rhetoric, Ukraine clearly
needs a deal.
For Western policymakers, it is this factor — Russia’s
strong bargaining position, relative both to Ukraine and the West — that ultimately
makes this crisis so different from others in the post-Cold War period. Never
before have they faced a major nuclear power as an adversary in a regional
dispute occurring in that power’s backyard. In Kosovo, Russia was an opponent,
but Kosovo barely registered in the hierarchy of Russian national-security
imperatives. Ukraine, by contrast, ranks just short of national survival. And
eastern Ukraine is one of a few places beyond Russia’s borders in which Moscow
can deliver the assets required to sustain an insurgency. Even if it were to
receive the much-ballyhooed lethal military assistance from the United States,
Ukraine cannot defeat such an insurgency if Russia remains determined to
prevent it from doing so.
In all the bad news about the breakdown of the Minsk
agreements in recent weeks, it’s easy to miss the silver lining. First, Putin,
and Poroshenko demonstrated that they could in fact negotiate a deal;
apparently, they hammered out the parameters of what became the first Minsk
agreement through direct talks. That two countries embroiled in a bitter
conflict would have difficulty implementing their first attempt at a negotiated
settlement should be no surprise; it would have been truly shocking if they had
succeeded to go from war to partnership overnight. Second, despite all the
public rancor, joint work on some Minsk-related activities continues: a Joint
Center for Control and Co-ordination, manned by Russian and Ukrainian military
officers, continues to demarcate the line of contact and facilitate the
ceasefire.
The challenge for the West is to couple support for Ukraine
with a diplomatic strategy to help Kyiv build on the remnants of Minsk to achieve
broader and better-functioning arrangements with Moscow in order to deescalate
this crisis. The United States should be encouraging and facilitating talks
with just as much, if not more, gusto as it delivers military assistance.
Constructive involvement and advice from senior U.S. diplomats might have led
to more a robust first attempt than the Minsk agreements. But thus far
Washington seems more interested in delivering body armor than deploying special
envoys.
Showing up in Kyiv with a public emphasis on encouraging
Ukraine to make a new deal with Russia would have been politically impossible
for the U.S. vice president. So let’s hope that the radar airdrop gave Biden
the leverage to be his usual blunt self during his closed-door meetings with
Ukraine’s leaders. For Ukraine to survive this crisis, it needs a settlement.
There is no alternative.
Photo by SERGEI SUPINSKY/AFP/Getty Images