Ukrainian Crisis Enters New And Dangerous Phase

BMI View: The Ukrainian crisis entered a new and dangerous phase over the weekend, after the Ukrainian government vowed to unleash a large-scale anti-terrorist operation against armed pro-Russian separatists in the eastern oblasts of the country. Russia's alleged support of separatists is pushing the country towards civil war: a strategy designed to coerce the Ukrainian government into accepting a federalised country rather than face an economic and political meltdown. While the Ukrainian government is unwilling to discuss the possibility of a federalised state granting significant autonomy to the eastern and southern oblasts, the situation is deteriorating so rapidly that this may eventually become the least unattractive option.

The situation in eastern Ukraine has deteriorated significantly after pro-Russian demonstrators in Dontesk, Kharkov, and Lugansk seized government buildings and announced their intention to hold referendums on self-determination. The Ukrainian government responded with a threat to use lethal force against the armed protestors if they had not surrendered their positions by April 14, using military as well as law enforcement agencies to crush the separatists, although we note that security services have been conspicuously absent during recent seizures of government buildings, suggesting local powers may be at work. In particular, it seems probable that the situation could not have developed without the support of local oligarchs, which may suggest they are interested in gaining some form of autonomy in the region in order to guarantee the safety of their assets.

While the central government in Kiev has until this point resisted open discussions of force again separatist movements for fear of provoking a military invasion by Russia on the pretext of defending ethnic Russians living in Ukraine, their announcement is intended to send a clear signal to Russia that it will not tolerate a repeat of the Crimea scenario. Nonetheless, recent events have shown just how weak the control of central government is over local power organs in the eastern and southern oblasts. If the government tackles the situation with force, then it would open itself up to two major risks. The first risk is that by crushing separatist movements with force, it could generate more anti-Kiev sentiment; leading to greater support for what at present is widely believed to be a Russian-sponsored movement of no more than a few thousand people lacking widespread public support.

On The Brink Of Economic Collapse
Ukraine - UAH/USD Exchange Rate

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This article is tagged to:
Sector: Country Risk
Geography: Ukraine, Russia

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