Ash morning on Ukraine, Sep 5, 2014

Putin may have won the battle, but he has probably lost the war and the peace
in Ukraine, as there is no way back for Ukraine and Ukrainians to a scenario
where they fall under Russian domination.

LONDON, Sep 5, 2014 (UBO) Standard Bank chief emerging market economist Timothy
Ash provided the following commentary on recent events in Ukraine at 08:50, Sep 5:

Really important day. At least both sides are talking about the need for a ceasefire, and
this is probably the closest we have come to a proper ceasefire at any point during this
recent conflict.

Putin has probably got what he wants for the time-being, i.e. a frozen conflict on the
ground, and a position of strength from which to negotiate on his core longer term
objectives - No NATO, No EU and No Maidan for Ukraine. The Ukrainian military probably
need to regroup after recent setbacks, and a ceasefire might also serve their purposes in
the short term.

For Poroshenko the challenge in the short term is squaring off the differences between his
own ceasefire proposals (disarming rebels, withdrawal of foreign troops/fighters, and re-
establishment of Ukrainian control over his borders) and Putin's seven point plan. Putin is
unlikely to back disarming rebel fighters until he gets concessions on his long run
objectives, e.g. Agreement on a Federal structure for Ukraine., no NATO, et al.
Unfortunately such proposals would be totally unacceptable for most Ukrainians, and if
Poroshenko tried to deliver these he would risk destabilising domestic politics in Ukraine,
raising the spectre of a Maidan II.

The ceasefire is probably an opportunity for the Ukrainian side to regroup, after recent
military setbacks. If it lasts for an extended period of time, it might just enable
parliamentary elections to be held across Ukraine at the end of October. The problem
therein is that these elections are likely to see the Ukrainian population totally reject any
closer ties with Moscow, as Ukrainian statehood parties are expected to take over 90% of
votes. In effect, Russian leverage over the domestic political scene will have more or less
collapsed - Putin may have won the battle, but he has probably lost the war and the peace
in Ukraine, as there is no way back for Ukraine and Ukrainians to a scenario where they
fall under Russian domination. This does obviously raise the question as to whether Russia
will still strive to disrupt those elections, or ensure they do not happen in Donbas, which
might see further strains appearing in any ceasefire, assuming it lasts that long.

Interestingly, at the NATO summit, Poroshenko indicated that lethal support for Ukraine
was likely to be forthcoming from individual states. NATO was pretty quiet on this one, but
is probably aiming to keep any such supplies "under the Radar". But I do now expect
Ukraine to secure arms supplies from individuals NATO countries on a bilateral basis. The
aim will be to shore up Ukraine's defences against future (unfortunately quite likely)
Russian incursions.

In any event, will a ceasefire be signed today? - possibly, but equally I would not be
surprised if the talks just collapsed. Can a ceasefire hold? Previous ceasefires have come
and gone, and the underlying problem still is in terms of a long term solution and therein
the two sides are still miles apart, indeed diametrically opposed, with little sign of any easy
way to bridge the gaps.

We could just be seeing the creation of another Northern Cyprus, South Ossetia, Trans-
Dniestr, Abkhazia, Kosovo, Nagorno-Karabakh and many more similar scenarios, as Russia
seems unlikely to surrender territory it now de facto controls, unless it is forced to.






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The Ash commentary above represents a personal view, is not investment advice or
Standard Bank research, but may contain extracts from published research.