06/28/2014 11:26 am ET Updated Aug 28, 2014

Ukraine - the Next Phase

Friday 27 of June 2014 Ukraine's President Poroshenko signed the association agreement with EU that his predecessor, Yanukovych, abruptly aborted in November 2013 starting the chain of events seen since. A similar agreement was signed by Georgia and Moldova.

The agreement promises free access to a European market of 504 million people, which should boost exports with more than Euro 1 billion. This gain may be partly nullified if Russia implements threats of imposing tariffs, but the European market is expanding and offers highly developed economies, while the Russian market looks less promising with falling population, economic stagnation and very little sophistication.

Russia and President Putin has made their opposition known - vociferously and abundantly so. That may explain why the EU and Ukraine did not incorporate what is customary in association agreements namely future membership. From Kremlin's point of view this is neither palliative nor mitigating, but it dispels accusations that EU and Ukraine exploits circumstances without heeding warnings. Russia cannot claim the agreement as a sure way of Ukraine as full member of the EU and even less connoting NATO membership.

For Ukraine as well as for the EU it was and is of paramount importance to show that Russia's anxiety is not irrelevant and the agreement not inimical to Russia, but sovereign countries cannot be blocked from pursuing their own foreign policy. Russia cannot be granted a veto. This is very much a game of perceptions. Who is the nice guy and who is the bad guy?

Now the ball lies at the foot of all three main players -- Ukraine, the EU and Russia.

For Ukraine the lessons from a large number of conflicts and upheavals around the globe clearly tells that military operations are not likely to hold the country together. Where soldiers go, they unavoidably bring along death and misery. You cannot win the hearts of the people living in Eastern Ukraine by sending in soldiers. Loyalty must be won by offering firm and credible prospects of a better life. So far the attitude of the large majority of people living in these areas has been let us call it neutral or maybe even apathy without commitment to neither side. It may well be that armed gangs wholly or partly sponsored by Russia can dominate some of the territory, but let us see whether they also bring along a better life -- almost certainly not. They may appeal for a short while to nationalism, but basically people are interested in bread and butter, not waving the flag. So from Ukraine's point of view go slow on the military side while stepping up whatever measures are available to help the citizens and reach out to the citizens in a tangible way.

The predicament is that so far very little of Ukraine's political and economic structure gives any promises of success. Ukraine is not a modern society, but in the grips of oligarchs like in Russia laying their hands of whatever economic growth there has been. They are probably still sufficiently powerful to stand in the way of distributing economic benefits to the people. If allowed to continue to do so, reforms will stall and the effort by EU may be in vain. Russia and President Putin will triumph in the sense that Ukraine will not take off to be a new Poland; we can be sure that President Putin will do his utmost to make Ukraine a failed state. It is positive that the association agreement contains a number of provisions to ensure transparency and steer the country away from the oligarch model. The question is whether they will be implemented and here the EU must show its muscle, stand firm and not tergiversate by giving way to half-hearted measures and empty promises.

Russia has already bared its teeth, which was to be expected without giving any clue to what it might do. Most likely wait and see for a while combined with destabilizing manoeuvres to complicate life for Ukraine.

Neither Ukraine nor EU should be intimidated by such polices or threats of whatever kind may be forthcoming. Stick doggedly to the course mapped out, pay no attention to noises from the Kremlin and maintain the economic parameter as the battleground.

Sanctions will not be effective; we know that from history, albeit they may annoy Putin and his inner circle, but the long term prospect of EU turning away from Russian gas and oil combined with shale gas and oil coming on the market augurs a dismal economic future. With 88 percent of its export coming from oil, gas and minerals this should worry President Putin even if he is ready to pay any economic price to prevent Ukraine from succeeding. As it looks now Ukraine may succeed while Russia's economy is undermined by the costs of subsidizing Crimea, higher defence expenditures, a rundown Russian energy infrastructure & production machinery and a far from it promising outlook for future export of oil and gas. What is Russia going to live off?

EU and US is not seeing eye to eye on the issue of sanctions. It may be a blessing in disguise. An EU policy of let us call it soft sanctions not biting and an American attitude of harsher sanctions may the kind of ambiguity and uncertainty that deepens President Putin's dilemma.

Assuming that a policy as outlined above is implemented and offers hope of success what can he do? It puts him in the uncomfortable position of having to choose between escalating with unknown and incalculable risks or accepting, grudgingly, what is taking place. Maybe he will be adventurous enough to choose the first course. You never know. Annexing Crimea did not change Russia's global standing. But the large majority of countries will feel that a real nasty Russian action against Ukraine may not be palatable. It will depict Russia as an unpredictable country, a nation-state that plays a disrupting game, and many of its trading partners outside the Western circle may ask themselves whether Russia is a reliable partner.

This policy precept is based upon analysing similar events over the last 30-40 years. Any case, as we know, is different, but certain principles are not. For Ukraine there are two conditions that if not fulfilled will turn a potential success story into disaster. First, that the government in Kiev loses loyalty of the majority of people in Eastern Ukraine. Second, that the oligarch regime is allowed to continue. In a way they form the two sides of the same coin.

Joergen Oerstroem Moeller
Visiting Senior Research Fellow, Institute of Southeast Asia.
Adjunct Professor Singapore Management University & Copenhagen Business School and Honorary Alumnus, University of Copenhagen.
Former State-Secretary, Royal Danish Foreign Ministry.