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Tuesday, May 13, 2014 12:44 PM


Ukraine in "Undeclared War" with Russia says Defense Minister; Mish says "Russia Won't Invade"


The civil war in Ukraine took a bloody turn for the worse today as separatists killed six Ukrainian soldiers and wounded eight others in an ambush near Kramatorsk in the Donetsk region.

In response to the ambush, the Ukrainian defense minister proclaimed Ukraine in "Undeclared War" With Russia.

“In our eastern regions we have an undeclared war,” acting Defense Minister Mykhaylo Koval told reporters in Kiev today. “Our neighboring country unleashed the war, sending special forces and saboteurs into our territory.”

If Donetsk and Luhansk secede, Ukraine would lose about a fifth of its economic output, Bank of America analyst Vadim Khramov wrote in an e-mailed report today. As for Russia, the tension may cost it $115 billion, or about 3 percent of annual output, and exacerbate recessionary pressure, said Nariman Behravesh, chief economist at consultancy IHS Inc. (IHS), said in an e-mail today.

“While Russia could end up paying a very heavy economic price for its annexation of Crimea and its ongoing conflict with Ukraine, the negative impacts on other parts of the world, notably Europe, will also be hard to avoid,” Behravesh said.

A majority of Ukrainians, or 56 percent, believe their country is at war with Russia, according to a poll by the Kiev-based Razumkov Center published today.

About 53 percent want to join the EU -- ousted President Viktor Yanukovych’s refusal to sign an EU association agreement triggered the crisis -- whereas two thirds see Russia as “brotherly” and “friendly” according to the April 25-29 poll of 2,012 people. It had a margin of error of three percentage points.
Rather Curious Poll

56% say Ukraine is at war with Russia but 67% say Russia is brotherly and friendly. That does not make a lot of sense. I would like to see the poll questions.

Official Denial

The defense minister's statement regarding an undeclared war with Russia sounds curiously like an official denial of Civil War. Ukraine does not want to admit the truth.

Renewed Diplomatic Push in Ukraine

The Financial Times reports Renewed Diplomatic Push in Ukraine Crisis
A new diplomatic push to resolve the crisis in Ukraine is under way even after two of its regions declared independence and sought to join Russia, with European mediators pushing for “round table” reconciliation talks.

German foreign minister Frank-Walter Steinmeier, spearheading the diplomatic initiative, flew into Ukraine on Tuesday on a visit aimed at narrowing the gap between the interim government and pro-Russia separatists in the east.

Berlin has played a central role in promoting a mediating role for the Organisation for Security and Co-operation in Europe, and its current chairman, Swiss president Didier Burkhalter – and securing backing from Moscow for the idea.

The OSCE road map includes a ceasefire by all sides, disarming illegally armed groups, a “national dialogue” on constitutional reforms, and holding free and fair presidential elections across the country on May 25 as planned.
Another Failure Likely ... Unless

The new OSCE road map is identical to the old OSCE road map. Thus, these new talks are likely to fail unless the separatists are at the table. Unfortunately, Kiev does want separatist leaders at the table, just as before.

Holding Russia responsible for a group it has no direct control over seems ludicrous, yet that is about to happen, again. And if the talks fail, more counterproductive sanctions will be on the way.

Why Russia Won't Invade

Long-term, I am optimistic. Somewhere along the line, I expect all parties will sit at the table and talk. A neutral Ukraine, with more autonomy for Eastern and Southern Ukraine is the most likely result.

Russia will retain Crimea.

Behravesh commented "Russia could end up paying a very heavy economic price for its annexation of Crimea ..." I rather doubt it.

Winning Crimea was a long-term strategic victory, and repercussions will blow away within a year.

If Russia attempts a takeover of other regions, which I still doubt, then there could be a heavy price.

And although the recent vote for independence suggests otherwise, other polls have shown majority of the citizens in Donetsk prefer an association of some sort with Kiev.

Unlike Crimea, there is little reward for Russian annexation of other areas. Feuds and sanctions would simmer for years.

Why would Russia want that? I suggest Russia doesn't, and that is why it hasn't (and won't) invade Eastern or Southern Ukraine.

Ultimately, diplomacy will succeed. In the meantime, civil war, not a war with Russia, lingers on.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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