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Ukraine's Downward Spiral

In his 1946 speech, Winston Churchill spoke of the "iron curtain" descending across the continent of Europe. The Cold War has been over for more than two decades, and yet Russia's influence on the continent is as pronounced as ever as order unravels in neighboring Ukraine due to botched negotiations between the Ukrainian President, Viktor Yanukovich, and the European Union. The situation is a diplomatic nightmare, with great urgency as the already dismal economic outlook worsens for Ukraine each day that the capital, Kiev, remains in unrest. The spotlight should not necessarily be on the European Union, or even perhaps Ukraine; Russia has acted as the catalyst here, and it is worth wondering at what cost the Kremlin will let the downward spiral continue in order to keep the Yanukovich Administration on their side of the economic "iron curtain."

The ongoing crisis is a good opportunity to examine the post-Cold War problems associated with the former Soviet Union. Since gaining independence in 1991, Ukraine has had time to rediscover its own identity, and separate that from its former identity as part of the Soviet bloc. While culturally Ukraine blossomed over the past two decades, taking greater pride in its nationalist self, economically it did not fare as well. As the second largest economy within the Soviet Union (after Russia), Ukraine had heavy industry, which supported the production needs of the Soviets during the cold war. However, there was so little structural reform after gaining independence, that Ukraine was caught in the unfortunate trap of being a sovereign entity that continued to rely on Russia for natural resources to fuel their outdated industrial sector. Today, Russia provides about 75 percent of fossil fuels to Ukraine, and 100 percent of their nuclear energy needs, at steep prices despite Ukrainian attempts at achieving some sort of discount.

Despite a failing economy, Ukraine has done little to distance itself from Russia. But talks with the European Union on strengthening ties were seen by the Ukrainian public as a beacon of hope for not only working to revitalize the economy, but to become a more integrated part of Europe and therefore out from under the influence of Russia. This is why it came as a shock to the Ukrainian people, and much of the world, when President Yanukovich declined a deal with the E.U. and publicly acknowledged his goal of actually strengthening trade relations with Russia. It is obvious that pressure was applied by Russia to influence this decision, given that without the natural resource imports coming in from Russia, the Ukrainian industrial sector would collapse.

And thus, here we are. President Yanukovich's decision to remain tethered to Russia has, and will continue to have severe consequences, the least of which are the displeasure of the Ukrainian people. In fact, they are no strangers to protest, and neither is Yanukovich: in 2004, Yanukovich won a widely rigged presidential election in Ukraine, which resulted in the Orange Revolution -- mass peaceful protests by the Ukrainian people, which evidently resulted in Yanukovich being taken out of power and his opponent, Yulia Tymoshenko becoming president. Yanukovich came back and won in the 2006 election; it is worth noting that Tymoshenko is currently serving a lengthy prison sentence on opaque charges, which has caused an outcry of opposition from global human rights groups.

Ukraine's image in the eyes of the world has also been damaged by recent weeks' events. In a move disturbingly reminiscent of Russia's tactics, Ukrainian police cracked down severely on peaceful protestors in Kiev's Independence Square two nights ago, drawing the ire of the United States and the E.U., and bringing surprisingly harsh criticism from Secretary of State John Kerry. The subsequent Russian statement including outlandish accusations that the West is interfering, and that protestors are attempting to destabilize Ukraine, only exacerbated the backlash from the international community.

Furthermore, the economy, which could potentially have been stabilized with the support of the IMF and the strengthening of ties with the E.U., will continue to plummet. With $4 billion in gas bills to Russia and other debt reimbursements due in the first three months of 2014, the Central Bank released figures on Friday citing only enough foreign currency to support two months of imports. The cost of insuring Ukrainian debt is at a four-year high, and bond prices have dropped sharply in the past several weeks. It is certainly not out of the realm of possibilities for Ukraine to slide into bankruptcy at this rate.

What does Russia gain from all of this? Their natural resource exports to Ukraine certainly bring in considerable cash, but as the situation deteriorates, it is unclear how much longer the Ukraine will be able to sustain the financing of these resources. In a country sharply divided between the Eastern, Russian-speaking population loyal to Russia and the Western, Ukrainian-speaking population yearning for greater independence, internal tension and bellicosity will do no one good. It is in the best interest of every party involved, including Russia, to work on a compromise that will foster economic development within Ukraine, decrease their independence on natural resources, and strengthen ties between Ukraine and the E.U. Without such a compromise, Ukraine may slide further into chaos, and Russia may be left with much less than they had hoped for.

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