In the wake of the massacre of pro-Russia demonstrators in Odessa last weekend, German officials have been making a concerted effort to renew negotiations with Moscow to ease tensions on the ground.
*** Our understanding is that Moscow is indicating that the military option on its end is at least for now off the table, barring any significant deterioration in the facts on the ground. Even as military operations directed from Kiev continue in the East of Ukraine, knowledgeable sources have pointed out to us that there has been no threatening troop movement or military exercises across the border of Ukraine in Russia, either as a warning sign to Kiev or to the West after Odessa and the “anti-terror” operations. This restraint and today’s promise to pull back troops from the border in the face of rising tensions is a very deliberate signal from Moscow. ***
*** We believe there are now significant new diplomatic initiatives underway that may ease near term tensions in the ten week-old Ukrainian crisis. ***
*** Within the Kremlin there is also a shift underway to allow the May 25 Ukrainian presidential elections to proceed as scheduled, even if under protest and with little turnout in the eastern regions. It is almost certain that the billionaire confectionary magnate Petro Poroshenko will face a run-off election with Yulia Tymoshenko, and he is expected as things stand to win. Whether Russia and eastern Ukrainians extend the protest to efforts to undermine the outcome will depend on whether there is significant movement on the constitutional side and whether other demands are met. ***
*** Russia’s President Vladimir Putin has – in a press conference following his meeting with Swiss President and OSCE Chair Didier Burkhalter – also within the last hour distanced himself from the attempts by the “People’s Republic of Donetsk” rebels to hold a referendum on independence on May 11. This is an extremely significant signal to Washington and the EU for the May 25 elections, and one which confirms our information. ***
In parallel the IMF has explicitly given the nod to Kiev to pay Gazprom’s bills out of its aid money. While this financial daisy chain was always clearly implied to be part of the game plan – and the EU and Washington and even Moscow for their part have all along been very careful not to threaten the gas relationship – the timing of this announcement, we believe, is very significant.
And on that front, little noticed, Gazprom has from what we understand also hinted that it just might reconsider the 81% recent hike of gas prices to Ukraine from the highly subsidized levels of the Yanukovich era to the current $485 price, back to something perhaps in between.
Russia’s proposals to bolster a policing force with the OSCE, the fourth bullet in the policy document we circulated in SGH 4/30/14, “Ukraine: Threatening the Elections” has been rejected by the EU and Washington and, not surprisingly, Kiev out of hand as one step too far in pushing Ukraine toward what may seem like a failed state status with perceived negative implications for its sovereignty. Moscow from what we understand will not be pressing this proposal any further at this time.
Attempts on all sides in Ukraine appear now to be on the search for common ground for demilitarization and stability, at least in the near term, even as the longer term prospects remain extremely challenging. Moscow will now expect the EU and US to exert pressure on Kiev to scale back military activities, open a dialogue with the eastern Ukrainians, and pay more than lip service to the issue of constitutional reform. Any distancing by the Western governments from the far right parties of Ukraine would be an added bonus.