End game in Ukraine – Russia wins

At the time of the negotiation of the Minsk Agreement in February we said that the international part of the Ukrainian crisis appeared to be past its peak.  Our precise words were:

The conflict in Ukraine itself will grind on, probably until the government currently in power in Kiev falls, which will surely happen sooner or later. However, as a crisis in international relations, following the talks in Moscow and Minsk, it appears its peak has passed.

That this was so became clearer in May, when the Russians disclosed the Europeans were prepared to discuss changes to Ukraine’s association agreement with the EU, which had caused the original crisis.

‘Normandy Four’ talks in Paris on Oct 2, 2015 with leaders of Russia, Germany, France, Ukriane (photo from website of Office of President of Russia)

What we said in the first months of the year, is now the general consensus. It is now widely recognised, since the last Normandy Four meeting in Paris, that the Ukrainian crisis is winding down.

False Western media accounts

Before discussing this in detail, it is necessary to correct a false account of recent events that is being spread by some parts of the Western media. According to this account "Putin” has "tired of his Ukrainian adventure”, and is winding the conflict down, as he looks for ways to extricate himself from "the Ukrainian quagmire”. According to some over-heated commentary, Russia’s military intervention in Syria is part of a cunning plan by "Putin” to "divert attention” from Ukraine and end his "pariah status”.

This stands reality on its head. The Russians have always sought a negotiated solution to the Ukrainian conflict. They pressed for this in discussions with the U.S. in the spring of 2014, directly following the Maidan coup, obtaining apparent U.S. agreement in the form of the April 17, 2014 Geneva Statement [of the U.S. State Department].

They pressed for this in discussions with Angela Merkel that began with the first Normandy Four meeting in June 2014, which led to the setting up of the Contact Group and the Berlin Declaration of 3rd July 2014, which called for an unconditional ceasefire. They dictated the terms of the Minsk Protocol of September 2014, which brought the first round of fighting to an end, and which set out a road map for a peace settlement. They also dictated the terms of the Minsk Agreement of February 2015, which everyone now pretends to be following.

It is the Ukrainians who – egged on by their Western backers – have repeatedly sought war. Ignoring the Geneva Statement of April 2014, they first tried to crush resistance with what they called an "anti-terrorist operation”.  When that failed, they doubled down, launching a full-scale military offensive on 30th June 2014, which ended in disaster.

They then reneged on the terms of the first Minsk Protocol, and launched another offensive in January 2015. When that too ended in disaster they agreed – under pressure from Merkel – the Agreement that was reached in Minsk in February 2015.

So, far from the Europeans acting as a force for restraint throughout all this, they blatantly took sides, backing the Ukrainians to the hilt even as the Ukrainians repeatedly reneged on promises they had made. In July 2014, shortly after the Ukrainians began their offensive, the Europeans – using the MH17 tragedy as cover – imposed sectoral sanctions on Russia.  In September 2014, after the Minsk Protocol was agreed, they tightened the sanctions even more.  In June 2015, despite the Ukrainians reneging on the Minsk Agreement, they extended the sanctions until the end of the year

In light of this, to say that it is the Russians who are "calling off their aggression” in Ukraine to extricate themselves from a "quagmire”, is not merely false; it is absurd.

Patrick Armstrong, that most insightful of commentators of Russian affairs, predicted at the start of the Ukrainian crisis that (1) Ukraine as it existed in the summer of 2013 is gone forever; and (2) when the failure of their adventure in Ukraine became clear, Western governments would declare victory and withdraw. He is proving right on both counts.

Ukraine has failed to wreck Minsk-2 agreement

So what did happen in Paris a week ago [October 2]? The starting point is the agreement that was reached in Minsk last February. That agreement required direct negotiations between the two sides to amend the Ukrainian constitution so as to provide a broad measure of autonomy to the people of the Donbas. In the interim, until the constitutional changes were agreed, the two sides were supposed to agree an interim law granting special status to the two territories of the two people’s republics.  An annex to the Minsk agreement set out the minimum requirements to be met by that law.

The Ukrainians reneged on this agreement. They refused to negotiate directly with the leaders of the two people’s republics.  They did not agree with them a law granting the territories of the two people’s republics special status, or discuss with them the constitutional changes.

Instead, they sought to enact unilaterally proposals that would have actually increased rather than reduced the Ukrainian Presidency’s control of the regions.

In public comments, Poroshenko has gone further still, saying he intends to remove all references to "special status” from the Ukrainian constitution, abolishing a legal status that in Minsk in February he agreed to grant to the territories of the two people’s republics.

At the same time, the Ukrainians continue to call the leaders of the people’s republics "terrorists”, and have refused to enact an amnesty law, as they had also agreed to do.

Though the Minsk Agreement envisages the disarming of the various volunteer militias that have proliferated in Ukraine since the Maidan coup (save for a security force the two people’s republics would be allowed to keep), no attempt to do so has been made. One small militia group, the so-called "Tornado” force, has been dispersed – apparently as a result of an intra oligarch factional quarrel. The others have simply been given official status by being formally incorporated in Ukraine’s security structures or – as in the case of Right Sector – have been left alone to rampage as before.

Instead of carrying out the provisions of the Minsk Agreement, as it was required to do, the Ukrainian government used the break in the fighting to rebuild its army through repeated conscription drives. By the start of August 2015, it claimed to have 90,000 men under arms.

All the indications at the start of August pointed to an imminent Ukrainian offensive. Heavy weapons that were supposed to have been withdrawn were brought back to the front line.  Shelling of the Donbas resumed with a vengeance (it had never ceased completely). Probing attacks were launched on militia positions.

Poroshenko, meanwhile, made increasingly belligerent speeches – including one that spoke of war without end.

In the event, the Ukrainian offensive never happened. The reasons for this were two.

Firstly, the militia – which has grown significantly in strength and organisation – had no difficulty repulsing the Ukrainian attacks.

Secondly – and for the first time in the conflict – Merkel acted decisively to prevent it. At a meeting with Poroshenko at the end of August, she told him to stick to the Minsk Agreement, and warned him off an offensive. Given the extent to which Ukraine depends on European support, Poroshenko had no choice but to agree.

The result is the quietest period Donbas has known since the start of the conflict in April 2014.  Though sporadic clashes still happen, shelling has largely stopped, and for the first time it is possible to talk about a genuine ceasefire.

It is important to say that the reason Merkel acted in August to prevent the Ukrainian offensive taking place is not because she has suddenly become converted to the justice of the Donbas’ cause. It is because Merkel knows that another Ukrainian offensive will result in another Ukrainian defeat. That might put the whole existence of the Ukrainian state in jeopardy, and lead to demands on the part of its Western backers for greater escalation. With her sanctions policy visibly failing, and German public opinion strongly opposing calls for further escalation, this is a situation Merkel wants to avoid at all costs.

As for the Ukrainians, if their gamble was that the prospect of defeat would firm up Western support to the point of delivering them victory, then they miscalculated badly and have lost. The proof of that has been what has happened since.

France and Germany put Kyiv regime in its place

Both at the summit in August and at the Normandy Four meeting in Paris on October 2, the Europeans have made clear that Kiev must stick to the Minsk Agreement and strictly adhere to its terms.

Ukrainian suggestions that the Minsk Agreement be ditched and a new agreement reflecting their positions be substituted in its place have been firmly rebuffed. Instead, the deadlines for carrying out the terms of the Minsk Agreement have been extended into 2016, with the Ukrainians being told that this time they must adhere to them, with a French drafted timetable for their implementation that would lead to elections in the people’s republics in March 2016 in accordance with a law granting the people’s republics special status, as originally envisaged in the Agreement agreed in February 2015 in Minsk.

Ominously for the Ukrainians, in comments made after the Paris meeting and undoubtedly agreed in advance with Merkel, Hollande repeatedly used the words "special status” – the status Poroshenko says he wants to abolish.

Reports of the private discussions between Putin and Merkel in Paris say Merkel agreed that Crimea is and will remain Russian, and that the main topic was not Ukraine at all, but Syria.

The dynamic of the Paris negotiations is shown clearly in the photographs of the plenary meeting. They show Putin sitting directly across the table from Merkel, flanked by Lavrov on his right and Hollande on his left – almost as if Hollande was part of Putin’s negotiating team.

Poroshenko sits opposite Hollande, to Merkel’s right, with German foreign minister Steinmeier sitting to Merkel’s left. It is as if Poroshenko has been relegated to a part in Merkel’s negotiating team, even though it is the fate of his country which is being discussed.

To those who say that I am reading too much into these seating arrangements, the short answer is that in diplomatic negotiations seating arrangements are extremely important and are always agreed (sometimes after lengthy discussions) in advance. If it were intended to give Poroshenko equal status to the other three, a round or oval table would have been used, as has happened before and as was used in the less formal non-plenary sessions. Or, Poroshenko would have been positioned directly opposite Putin, which would be logical, since this is supposed to be a Russian Ukrainian conflict and it is the fate of Ukraine – the country Poroshenko leads – which is being discussed.

In all the photographs, Poroshenko looks unhappy and distracted – as he also did at the UN General Assembly session held shortly before in New York.

Poroshenko’s sombre appearance led to some catty stories in the Russian press that he was stopped from boarding a plane to Moscow because he was blind drunk.  That is certainly untrue.

Did the Russians make any concessions? They did agree that the local elections the two people’s republics had called for the end of October and the beginning of November should be called off.

Those elections were called because of Ukraine’s failure to agree a law on special status as agreed in the Minsk Agreement.  That law was supposed to be followed by elections, the terms of which were to be set out in the law. Since the Ukrainians never negotiated or agreed the terms of the law – as the Minsk Agreement required them to do – the leaders of the two people’s republics said they would go ahead with elections by themselves.

These elections were called by the people’s republics in agreement with Moscow to put pressure on the Europeans. The Europeans were in effect told that if the Ukrainians did not abide by the terms of the Minsk Agreement and agree with the leaders of the people’s republics on a law for the special status of the territories of their republics, then the people’s republics would go their own way, holding elections without reference to Kiev and start the process of secession from Ukraine and union with Russia.

Stories that circulated of a referendum being planned in the people’s republics on Crimean lines for secession from Ukraine and union with Russia drove the point home.

Since this is, for the Europeans, the nightmare scenario, which would not only reignite the international aspect of the crisis – which they are desperate to end – but which would also expose in the most humiliating way the total failure of their sanctions policy, they responded by piling on the pressure on Poroshenko to go back to what was agreed in Minsk. The result is that the Ukrainians have not only been told to do what they promised to do in February in Minsk, but the failure to do it previously is now being blamed on them.

Agreeing to postpone the elections in the Donbas was therefore for the Russians no concession at all.  It was a diplomatic play that worked.

Mending Russia-Europe relations

As the Europeans have moved to close down the international aspect of the Ukrainian crisis, they are also taking steps to mend their relations with Russia. That this is so is made clear by the steps the Europeans have taken to settle the two issues that are key for Russia: sanctions and gas supplies.

As German exports – especially of engineering goods – have contracted, the German business community has increasingly signalled its wish to see the sanctions ended. The call has been taken up by no less a person than Germany’s Economics Minister and Vice Chancellor, Sigmar Gabriel, who is also the leader of the SDP, and who undoubtedly has ambitions to become Chancellor one day.

Support for sanctions elsewhere in Europe is melting away.  In France, they are deeply unpopular with the powerful agricultural lobby, whilst the French government for its part found an elegant solution to the Mistral debacle by paying the Russians a refund and selling the ships with Russia’s agreement to Russia’s ally Egypt.

As to the gas conflict, recent developments have been more interesting still. The threat Russia might increasingly redirect its gas supplies away from Europe caused dismay in Germany, whose industry has come to rely increasingly on Russian gas. The result was negotiations leading to the announcement of the North Stream 2 pipeline, essentially replacing South Stream, and reducing Russia’s interest in Turk Stream, which is therefore being scaled down.

It goes without saying that North Stream 2 could only have been agreed with the approval of the German government. It includes an asset swap whereby Gazprom has finally achieved its ambition to acquire significant ownership of pipeline assets downstream within the European pipeline network – something the Europeans have previously resisted.

Meanwhile, in order to secure their supplies through Ukraine this winter, the Europeans have also agreed to do something they have always resisted doing previously, which is agree to pay Russia for Ukraine’s gas. The Europeans appeared to agree to this last winter, with talk of a comfort letter being given to the Ukrainians guaranteeing that the Europeans would pay for their gas imports from Russia. In the event, the comfort letter never materialised, and the Ukrainians were left to pay for their gas and clear their arrears to Russia by themselves. That almost exhausted their foreign currency reserves, provoking a crash of their currency, leading to capital controls, which are still in place.

This time, the Europeans have provided the Russians with a formal protocol, agreeing to pay the Russians $500 million for gas they will supply to Ukraine, thereby removing any incentive to Ukraine to siphon off gas intended for Europe. That almost certainly will not be enough, but it establishes an important principle and means the Europeans and the Russians are now negotiating directly with each other over gas supplies, with the Ukrainians once again relegated to a secondary role.

Negotiations are also underway to settle the anti-trust case the European Commission has brought against Gazprom.

The Financial Times has sought to portray these moves to settle the various gas conflicts as concessions by Russia and Gazprom to save their position in the European gas market (as for example: "Gazprom seeks peace after long fight with Brussels”). That once again stands reality on its head. Germany’s agreement to North Stream 2, which increases Europe’s dependence on Russian gas, is a victory for Russia not a defeat. It brings forward the day when Ukraine finally loses its position as a gas transit state, a fact of which the Ukrainians are fully aware, as shown by the way they have angrily denounced North Stream 2 as a "betrayal”.

The proposal the Europeans pay the bill for Ukraine’s gas has been made repeatedly by the Russians ever since the first Russian Ukrainian gas war in 2006.  It is the Europeans who have resisted it. There is no evidence the Russians have made any substantive concessions in return.

Importantly, the Financial Times has omitted mention of the single biggest concession the Europeans have made: their agreement to pay the Russians the bill for Ukraine’s gas.

As for the edition where the Financial Times claims Gazprom is making concessions – its supposed "dogmatic insistence” in linking gas prices to oil prices – the link is made by the market, not Gazprom, because of the weight of the oil price in determining the price of energy products like gas. Nothing the EU Commission or Gazprom pretend to agree with each other will change it.  The reality, anyway, is that it is unlikely Gazprom has actually made any significant concessions on this issue.

Here, once again, we see another example of Patrick Armstrong’s prediction coming true: the West beats a retreat at the same time as its media declares victory.

EU-Ukraine ‘association’ agreement

It is not all plain sailing.  The Ukrainians have successfully wrecked the European and Russian attempt to renegotiate the association agreement. They did this by slapping a huge number of sanctions on Russian companies, essentially closing Ukraine off from Russian companies, and ending the trade links between the two countries.

That the purpose of the sanctions by Ukraine was to kill the renegotiation of the association agreement was pointed out by Russian Economics Minister Ulyukaev, though it is a fact that seems otherwise to have gone unnoticed.

A cynic’s response is that since the Europeans no longer care about Ukraine, they are no longer concerned to help Ukraine’s economy by preserving its access to the Russian market, whilst the Russians realised some time ago that preserving their trade relationship with Ukraine is impossible so long as the present government remains in power.

Since both sides are now working to remove Ukraine as an issue of contention between them, with the Europeans abandoning their geopolitical play to attach Ukraine to the West, the association agreement has lost its relevance, with the Ukrainian people once more being left to pay the price as their country’s economy loses its preferential position in the Russian market.

It is perhaps not a coincidence that as this has happened, the credit ratings agencies, despite the recent debt restructuring agreement, have downgraded Ukraine to a state of technical default, effectively closing off its access to capital markets.

Calls for rapprochement

As steps are taken to bring Europe’s relations with Russia back on an even keel, statements calling for a rapprochement are coming from both sides.

The first was the call for the lifting of sanctions by German Vice Chancellor Sigmar Gabriel.

This was followed by a call from former Soviet President Gorbachev – made almost certainly with the agreement of the Russian government – for a Russian German alliance.  The Russian authorities know that Gorbachev is still popular in Germany, and they sometimes use him to make such calls.

The clearest call of all has however come from an unexpected quarter, from European Commission President Jean-Claude Juncker.  On 9th October 2015 he was reported assaying:

We must make efforts towards a practical relationship with Russia. It is not sexy but that must be the case, we can’t go on like this….. Russia must be treated decently … We can’t let our relationship with Russia be dictated by Washington.

Not only is this a call for a rapprochement with Russia.  It is the strongest and most public criticism of Washington’s anti-Russian policy made by a senior European official to date.

In summary, the signs that the international aspect of the Ukrainian crisis is ending – which still looked tentative in the spring – are now unmistakable. It would now require a major effort by the hardliners in Washington to put all this into reverse, and doing so would risk a serious crisis in relations between Europe and the U.S. A further thaw in relations, and a probable lifting of sanctions at some point in the next few months, now looks a virtual certainty.

In return, the Russians have conceded nothing, and they look set to achieve in Ukraine their objectives: autonomy for the people of the people of the Donbas together with the exclusion of Ukraine from NATO and the EU.

No end in sight to Ukraine’s crisis

In saying this, however, it is important to reiterate a point we have made before. The end of the international aspect of the Ukrainian crisis does not mean the end of the crisis in Ukraine. There, things continue to go from bad to worse.

The economic situation continues to worsen, with the IMF downgrading its forecasts for Ukraine and predicting an even worse recession this year than it had forecast before. It remains a virtual certainty that Ukraine will default in December on the $3 billion debt it owes Russia.

There is no evidence – and no possibility – that the hardliners in the Maidan movement will ever reconcile themselves to the Minsk-2 Agreement, or will agree to grant the territories of the two people’s republics the sort of autonomy that the Minsk Agreement envisages.

The government’s popularity continues to plunge, and the stand-off with Right Sector shows its uncertain grip on the internal situation.

If the international aspect of the Ukrainian crisis is drawing to a close, the internal crisis has barely begun.

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