The war that Ukraine (and the West) can win

Essay submitted for the November 2014 edition of the MindSketch competition organized by VoxUkraine.

For those who deluded themselves that the Minsk agreements of September 5 and 19 would lead to “de-escalation” of the war in Ukraine, events of the past weeks have dispelled any remaining illusions. The ceasefire is not respected – almost 1,000 people have been killed since the signature of the Protocol –, Russia is still sending weapons and troops to support separatists in Eastern Ukraine and after the organization of elections by the self-proclaimed People’s Republics of Donetsk and Luhansk in violation with the content of the Minsk agreements, the Ukrainian government decided to cancel the law adopted a few weeks earlier and granting extensive self-administration powers to these regions.

Although the Organization for Security and Co-operation in Europe (OSCE) officially maintains that the Minsk agreements “are the door on the road to peace in eastern Ukraine”, off the record experts from the same institution admit that chances for peace in the region are “bleak”. More pessimist observers even claim that we have never been so close to an open and general war in Ukraine as Anthony Blinken, currently Deputy National Security Advisor for the American President Barack Obama and candidate for the position of Deputy Secretary of State, has declared during his hearing at the Senate last week that the US government may reconsider its position on providing Ukraine with defensive but nonetheless lethal weapons.

While NATO gave to understand during the Newport summit in September that it would not endorse the supply of any kind of weapon to the Ukrainian army, several Allied countries, including the United States, stepped in to provide on a bilateral basis non-lethal military equipment like night vision googles or bulletproof vests. The possible shift of the American position towards a more decisive type of support has met with a very harsh response from Moscow, which may use this move as a pretext to take off the mask and engage in a full-blown war with Ukraine.

Despite the courage of Ukrainian fighters and even with an increased participation of the West through weapon supplies, it would be quite irrealistic to think that Ukraine on her own can defeat Russia in a military confrontation, and even more irrealistic to believe that Western countries would commit in a deeper way in the conflict by sending soldiers. Not only their public opinions would probably oppose such a decision, but competing threats on the international security agenda, especially the Islamic State, have already been driving away decision makers’ attention and material resources from the Ukrainian crisis.

Competing threats on the international security agenda

In Ukraine itself, after less than nine months of activity, the so-called “anti-terrorist operation” (ATO) has already shown some signs of fatigue. For reasons of loyalty, young men drawn to the regular army mainly come from distant provinces in the west and center of the country, where a growing part of the population is wondering whether it is worth risking their lives for Donbass. Though richly endowed with energy resources and industries, this region is sometimes perceived as the main cause of the conflict and a burden for the rest of Ukraine to develop peacefully and further integrate with the European Union (EU).

One should not forget that the Euromaidan movement, which started one year ago, precisely started with this consideration in mind. Demands for more radical changes in the Ukrainian political system became clearly stated only after the unexpected refusal of then President Viktor Yanukovych to sign the Association Agreement with the EU at the Vilnius summit and his order to crush peaceful protests.

Although most Ukrainian people are certainly aware that later events, especially the loss of Crimea and the war in Donbass, result from decisions taken not in Kiev but in Moscow, one may wonder how long they will remain determined to wage a very costly war they have not wanted and with limited chances of victory. On the other side, there is less doubt that Russia can count both on a wide public support and on comfortable financial reserves to hold a state of siege in isolation from the international community.

It is indeed little to say that Ukraine is on the verge of bankruptcy – the same situation was observed in December 2013, when Viktor Yanukovych had to fly to Moscow and beg President Vladimir Putin for economic “assistance”. In the meantime, political change at the head of the state has improved Ukraine’s credibility in the eyes of Western lenders who unlocked their own financial aid programme, notably a $17 billion bailout from the International Monetary Fund (IMF). However the war effort, the end of “preferential” gas prices so far applied by Gazprom and missing tax revenues from “lost” territories have delivered a serious hit to the Ukrainian economy.

Ukraine on the verge of bankruptcy

Only in October, foreign currency reserves have fallen by 25% to $12.6 billion – in January, they were above $20 billion. Ukrainian hryvnias are now being exchanged at a rate of around 19 per euro, against 11:1 in January. According to the World Bank, Ukraine’s real domestic output is to shrink by 8% this year while budget deficit will reach 5.8% of GDP. The rapid devaluation of the hryvnia can but exacerbate the problem of indebtedness for the state itself as well as for Naftogaz, the national oil and gas company which is said to owe Gazprom over $5 billion – in comparison, Ukraine’s entire GDP in 2013 amounted $177.4 billion.

When taking to the streets last year, many people did not mean first and foremost to make a geopolitical choice between the European Union and Russia but rather to reform the system they had been living in, rotten with omnipresent corruption, abuse of power and fewer economic opportunities. This is what the Association Agreement has been mainly associated with, even though the EU itself has little power to cure these diseases in Ukraine.

If these expected changes fail to materialize, whatever the explanation is, a high risk exists that last year’s protesters, at least the most motivated, will go on streets again whereas the others will get disappointed and lose readiness for painful but nonetheless necessary reforms, like the phase-out of energy subsidies. In this case, Ukraine might find itself in a trap of permanent political instability and even more serious economic hardship, as it will be able to count nor on the “rescuing” hand of Russia, nor on reform-oriented Western creditors. This in turn will confirm the Kremlin’s view that Ukraine is a ungovernable state which cannot stand on its own feet without the help of a “big brother”, an opinion also shared by people in Ukraine who have chosen to join Russia or its puppet republics.

As Ukraine (and the West) are very unlikely to defeat Russia on military grounds, for lack of means or political will, they should concentrate their efforts and resources on a more favourable battlefield. The West, especially the European Union, boasts itself to be more effective at exerting soft power, therefore it should carry on a war to win the hearts and minds of those who may become disappointed by the aftermath of Euromaidan but also, in the longer run, of those who have not believed in it from the very beginning and have turned to Russia.

Winning hearts and minds, including in “lost” territories

It is no secret that energy has been one of the key issues in Ukraine over the past years. Being the symbol of “friendly” deals with Moscow along with political influence, economic dependence and considerable waste and inefficiencies, energy has also had a very important social dimension. The country was stuck in economic stagnation, infrastructure underwent alarming decapitalization due to poor maintenance and investment, but the majority of people would live in warm houses, sometimes even overheated.

Contrary to what it may seem, this kind of policy is not “social”. In fact, according to the World Bank, gas subsidies for households, which represent around 7% of GDP, are in majority captured by the richest who consume more energy[1]. Because of the bad state of infrastructure – leaking district heating networks or buildings –, a lot of energy is purely and simply lost in the air, not improving anybody’s comfort but still costing money which ends up in Gazprom’s pocket (or is added to Naftogaz’s debt).

Overall, Ukraine consumes yearly about 60 billion cubic meters of gas and two thirds of needs are covered by imports. In comparison, Poland, which is slightly less populated than Ukraine but with similar weather conditions and the same rate of dependence on imports, consumes four times less gas for a three times higher GDP. Yet Poland is still considered as one of the less energy-efficient countries in the European Union. This shows how great the potential of energy savings is in Ukraine.

The increase of gas price in Ukraine is now unavoidable, both because Gazprom will no longer be willing to charge Naftogaz at “friendly” tariffs and because the Ukrainian state cannot afford anymore to spend 15% of its budget on subsidies – against 6% for military expenditure[2]. Moreover, the phase-out of energy subsidies is one of the conditions set by the IMF for its assistance. Does it necessarily mean that households’ energy bills will skyrocket?

Compensate more expensive gas by lower consumption

No, if simultaneous works are undertaken to modernize district heating networks and improve energy efficiency of residential and public buildings. Rising prices could this way be compensated by lower consumption without comfort deterioration for inhabitants and users. If carried out on a large scale, such an operation would relieve the state budget of a heavy financial burden and help reducing Ukraine’s energy dependence and trade deficit with Russia. It can also quickly generate a lot of low- and middle-skilled jobs in the construction sector that can help the Ukrainian economy to go through the ongoing adjustment period and limit social discontent.

Last but not least, one year before the UN climate summit in Paris where hopefully a global and binding agreement will be adopted by the international community, a success story of modernizing Ukraine’s infrastructure will have a huge demonstration effect on how technology can contribute at the same time to reduce greenhouse gas emissions, create employment and be economically profitable. Ukraine is indeed one of the 20 biggest GHG emitters in the world in spite of a medium population size and level of development.

What should be done to trigger this plan? A lot of energy audits have already been realized and some modernization projects have even been initiated thanks to the Joint Implementation Mechanism created by the Kyoto Protocol. However, mismanagement during the past years has frozen works that could be completed at a low cost for significant impact.

A “Marshall plan” for energy efficiency

The European Union, the United States, but also Japan, being one of the world champions in the realm of energy efficiency and a major donor of development aid, could set up a common financial mechanism with the contribution of companies active in this sector (Saint Gobain, Siemens, TEPCO...) and private banks. This instrument would offer to work directly with Ukrainian local authorities through expertise sharing, loans, grants or performance contracts – depending on the type of project – in order to deliver quick and tangible results. This would at the same time accelerate the process of strengthening administrative capabilities at the local level, in line with the general objective of enhancing decentralization in Ukraine.

Though it does not mean that the Ukrainian government should give up arms altogether, the most cost-effective option in the short term is to limit military involvement to what is strictly needed to defend territories still under control, including Mariupol and Dnipropetrovsk, consolidate lines where it is suitable and not attempt to launch counter-offensives which are, in the current balance of forces, very likely to be deadly and unsuccessful.

True, a part of the Ukrainian public opinion may consider it as an unacceptable retreat and would pressure to pursue or even intensify the fight. Yet one of the features of a mature and responsible state is to understand the spirit of the moment and to behave accordingly, with as much idealism as it can but as much realism as it must.

Ukraine would be fool to count on a strong support from the West in its military confrontation with Russia, and it cannot win it on its own. At the same time, the West would be equally fool to ignore the opportunity window that has opened to rally Ukraine and make demonstration of its transformative power. When people in Donbass and Crimea will realize that they would have been better off staying in Ukraine, they will undoubtably return – and looking at Russia’s economic prospects, it is quite clear that they will. Unless Ukraine and the West do not pass the test of time.

[1] World Bank (2013), Ukraine. Special Focus: Residential Gas and District Heating Tariffs in Ukraine.

[2] Stockholm International Peace Research Institute (2014), SIPRI Military Expenditure Database.