The real story on the “de-escalation” in Ukraine

From Sean Goldsmith in The S&A Digest:

Ukraine elected a new president over the weekend… But the country’s troubles are far from over.

We begin today’s Digest with an update from S&A Global Contrarian editor Kim Iskyan…

As expected, Petro Poroshenko won the presidential seat in Ukraine. There was little doubt he was going to win… the only question was whether he’d get an absolute majority of votes to prevent a runoff with the second-place candidate.

Parts of eastern Ukraine that declared self-rule in a recent referendum were unable to vote, in part due to security. So the president-elect has a mandate, but it’s a weaker one than he would have had if parts of the country weren’t under the control of rebel forces.

Meanwhile, Kim says, Russia has softened its stance, and seems to be trying to de-escalate tensions over Ukraine…

Russia’s foreign minister said that Russia is ready to talk with Poroshenko… and attacks on him on Russian television have diminished substantially. While Moscow didn’t endorse the results of the election, at least Russia is no longer questioning the constitutionality of the presidential election.

And this isn’t the first time that Russia has made conciliatory sounds. Weeks ago, Putin promised to move tens of thousands of troops away from Russia’s border with Ukraine… but nothing happened. Poroshenko is in a difficult position. He’ll have to find a middle ground between fulfilling his campaign promises and not making things worse with Russia.

Russia’s main objective in Ukraine is to prevent it from joining the European Union and NATO. As long as there’s conflict in Ukraine – and doubts that the country will remain territorially intact – the country’s government will be too distracted to move…

Taking steps to join the European Union was one of Poroshenko’s central campaign promises… so something will have to give. And Russia meddling in Ukraine is only one of his problems. He also has to tackle Ukraine’s financial situation. The country is living off of handouts from the World Bank and International Monetary Fund. 

Russia has threatened to turn off the gas in early June. Ukraine is so far behind in paying Russian gas giant Gazprom that it has been forced to pre-pay for its energy.

Furthermore, military tension is still high in parts of Ukraine. On Monday, Ukrainian forces launched air strikes and sent troops to the airport in Donetsk, a large city in eastern Ukraine, to take it back from pro-Russian militants. This problem isn’t going away any time soon. It may fade from the headlines in coming weeks… But Ukraine’s deep structural challenges – and risks – will remain.”

Today, news broke that Ukraine had killed “dozens” of pro-Russian rebels, according to Interior Minister Arsen Avakov. In total, Ukrainian soldiers killed 40 and injured 31 more.

“The anti-terrorist operation is in an active phase now,” First Deputy Prime Minister Vitaliy Yarema told reporters today. “We’ll continue this operation until there are no terrorists on Ukraine’s territory.”

So Putin may be using “de-escalation” rhetoric for now… But after this news, we doubt it will continue…

Crux note: To see why Kim is our “go-to” investment expert on the crisis in Ukraine, click here.


More on the Ukrainian crisis:

Top energy analyst: The surprising way the U.S. is making the Ukrainian crisis much worse

Russia warns: Ukraine “as close to civil war as you can get”

Ron Paul: What does the U.S. really want in Ukraine?

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