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Kiev capitulates to ultra right radicals, legalises Donbass blockade

The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of this site. This site does not give financial, investment or medical advice.

Weeks after ultra right radicals began blocking coal deliveries to Ukraine from Donbass, and after weeks of calling on the radicals to end the blockade, Ukraine’s government in the form of Ukraine’s National Defence and Security Council has legalised it, declaring all transport links with Ukraine blocked as of this afternoon.

The statement signed off by the Council’s head Alexander Turchinov, the hardline Ukrainian official who as Acting President of Ukraine launched the so-called “anti-terrorist operation” (“ATO”) to suppress the Donbass back in early 2014, attempts to link the legalisation of the blockade to the Donetsk and Lugansk People’s Republics’ retaliatory nationalisation of Ukrainian enterprises on their territories.

The statement reads in part as follows:

Taking into consideration that Ukraine’s enterprises have been seized and the security situation has worsened in the zone of the anti-terrorist operation, the National Security and Defense Council has made a decision to suspend movement of cargos through the contact line.  Following a decision by the National Security and Defense Council, all highways and railroads leading to the line of disengagement will be blocked today at 1pm (2pm Moscow Time) by the National Police and the National Guard.

This is a pathetically weak decision.  As everyone knows the reason the Donetsk and Lugansk People’s Republics nationalised Ukrainian enterprises on their territories was because of the illegal blockade imposed on them by Ukraine’s ultra radicals.  Yet instead of ending that blockade – which is causing severe damage to Ukraine’s economy – as it has repeatedly intimated it wanted to do, the government has instead legalised it.  By doing so it has exposed its inability to control the radicals, upon whom it increasingly relies for its existence, and has exposed the extent to which it has lost the political initiative to them.

As for the Donbass, the Ukrainian blockade will undoubtedly cause short-term hardship.   However it also will speed the integration of Donbass’s economy into Russia’s.  Since Russia’s economy is vastly bigger and richer than Ukraine’s, that can only be to Donbass’s not so long term economic advantage.

In their reactions to Ukraine’s announcement today the Russians have pointed out that Ukraine’s action directly violates the Minsk II Agreement.  Boris Gryzlov, Russia’s representative on the Contact Group – the body which is supposed to be searching for ways to end the conflict in Ukraine – had this to say

“The Kiev authorities’ inability to fight against the outrage of nationalists affects Ukraine itself. This is especially dangerous as the tendency is confirmed by other steps of officials,” Gryzlov said.

The envoy also said that “instead of restoring the financial system in Donbass, in line with the Minsk agreements, the Ukrainian authorities are destroying their own banking system.”

Gryzlov’s reference to Ukraine’s commitment to “restore the financial system in Donbass” refers to a commitment Ukraine’s President Poroshenko made at the meeting in Minsk in February 2015 where the Minsk II Agreement was agreed to restore full operation of the financial system in Donbass.   As Gryzlov essentially says, the Ukrainians have never carried out that commitment any more than they have carried out any of their commitments they made in Minsk.

Gryzlov’s reference to “the Ukrainian authorities destroying their own banking system” refers to action Ukraine is now contemplating against Russian banks operating on Ukrainian territory.  This follows protests by Ukrainian ultra right radicals who since 13th March 2017 have blocking access to the central office in Kiev of the local branch of Sberbank, Russia’s biggest bank.

Gryzlov’s claim that the action Ukraine is contemplating against Russian banks operating in Ukraine would destroy Ukraine’s banking system may be overstated.  Russian banks account for roughly 10% of Ukraine’s banking sector, supposedly holding $425 million in private customer deposits and a further $276 million in deposits held on behalf of business customers.  Though these are large sums, they do not look large enough to cripple the Ukrainian economy as a whole, even if the money in the deposits were to disappear along with the banks, which of course is unlikely.

Having said this, launching an assault on Russian banks just 3 months after Ukraine nationalised PrivatBank, its own largely bank, hardly looks like a good idea, and at a time of economic crisis it is certainly not a move best calculated to inspire confidence in Ukraine’s banking system even if talk of it triggering a cascade effect may be overstated.

However in Ukraine ideology invariably wins any battle against rational economic good sense, and the coal blockade, extended and legalised today, and the pending attack on the Russian banks, are just further examples of this.


The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of this site. This site does not give financial, investment or medical advice.

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