Ukraine Crisis: Summary and Explanation

How Ukraine's Crisis Threatens the EU

Ukraine soldier
Oleg, one of 200 Ukrainian soldiers at the Belbek military base, kisses his girlfriend Svetlana on March 3, 2014 in Lubimovka. Russian troops ordered the Ukrainians to surrender at 4pm. The deadline passed, and locals feared a Russian attack tonight. Photo by Sean Gallup/Getty Images

On September 12, 2014, Ukraine approved a trade deal between it and the European Union. The deal removes export tariffs.  It agreed to delay its implementation a year to avoid further Russian energy sanctions and even attacks. Ukraine President Poroshenko wanted to maintain the cease-fire. NATO has not protected Ukraine, since it is not a member. (Source: "EU Deal Triggers Backlash in Kiev," The Wall Street Journal, Sept 15, 2014.)

On April 7, 2016, a Netherlands referendum rejected the deal.  It was not binding since the Dutch Parliament already ratified the deal. But it does signal declining confidence in the EU itself. (Source: "Netherlands Rejects EU-Ukraine Deal," BBC, April 7, 2016. "Europe Awaits Dutch Vote on Ukraine Pact," The Wall Street Journal, April 5, 2016.)

Explanation

Both sides are following President Vladimir Putin's seven-point plan. It gives eastern Ukrainian rebels time to regroup. It is highly unlikely that Ukraine can defeat the Russian-armed separatists. It is more likely that eastern Ukraine will more aligned with Moscow, even though it won't secede. (Source: "Putin Announces 7-Point Plan," The New York Times, September 3, 2014.)

Earlier that month, NATO revealed satellite photos showing Russia's invasion of Ukraine's eastern border. An EU emergency meeting added further sanctions on Russia's oil and banking sectors.

That occurred shortly after Russia sent a convoy of trucks over the border. They were bearing aid to Ukraine's eastern cities, held by pro-Russian rebels. But several of those trucks entered without approval. A few days later, Ukraine reported that several military vehicles were near the Russian border at the port of Azov.

It claimed that Russia was creating a second front for the rebels. Russia also wanted a land access through southern Ukraine. It wanted a shorter route to Crimea.

Ukraine had also destroyed a convoy of Russian military vehicles. They were bringing arms to the rebels. It was the first time that Ukraine attacked Russian forces directly. (Source: "Ukraine Forces Destroy Russian Military Vehicles," The Washington Post, August 15, 2014.)

In July, Russia built up its military force on the border. There were 19,000 to 21,000 troops, 14 advanced surface-to-air missile units, and 30 artillery batteries. It was a battle-ready force that could launch an attack into eastern Ukraine at a moment's notice. Russia had already launched rockets across the border in support of Ukrainian rebels. (Source: "Build Up Makes Russia Battle Ready for Ukraine," The New York Times, August 5, 2014.)

Putin responded to the February 23 overthrow of his ally Viktor Yanukovych. The pro-West faction of Ukraine's Parliament took over the government. It set up new elections for May 25, 2014. It installed Oleksandr Turchynov as the country's temporary leader.

The crisis occurred because Yanukovych mismanaged the budget. He forced Ukraine to ask for financial help.

First, it appealed to the EU, then Russia. The political unrest occurred at this point. Those who want to be closer to the EU objected when that solution was abandoned. Russia's military strike supported Yanukovych's return to Kiev and closer ties to Russia.

Sanctions Against Russia

The United States and the EU extended sanctions against Russia on July 29, 2014. They wanted to convince Putin to stop supporting those in eastern Ukraine who want to break up the country. The United Stated had proof that Russia supplied separatists that shot down a Malaysia Airlines commercial jet over eastern Ukraine on July 17, killing 298 people.

The sanctions severely limit five out of the six major Russian banks' ability to obtain medium and long term financing from Europe. The United States also restricted technology exports to Russia's deep-water Arctic offshore or  shale oil production.

Russia had already been ousted from the Group of Eight.

As a result of U.S. sanctions, BP is worried about its profits. Bank of America cut its exposure to Russia by 40 percent.  Boeing and United Technologies started hoarding titanium. Russia's VSMPO is the world's largest producer of this rare metal. 

In response, Russia banned imports of U.S. and European foods for one year. This included $300 million of U.S. poultry products. 

After the sanctions, foreign direct investment in Russia dropped by $75 billion. That's roughly 4 percent of the country's gross domestic product. Its stock market plummeted 20 percent. Its currency, the ruble, fell percent. To head off inflation, Russia's central bank raised interest rates (Source: "Russia's Economy," The Economist, May 3, 2014.)

Sanctions Caused Russia's Recession

The International Monetary Fund cut its 2014 growth forecast for Russia from 3.8 percent to 0.2 percent. Even though Putin continues to be popular at home, these sanctions are hurting the country's economy. (Source: Wall Street Journal, U.S., EU Significantly Expand Sanctions, July 30, 2014)

Many small countries bordering Russia worried that if Ukraine falls, they would be next. The EU is unlikely to defend them, since it depends on Russia for half of its gas. Many European businesses have profitable operations in Russia. Others sympathize with Putin, who is defending Russia's borders from encroachment by NATO.

Why Is Ukraine So Important to Putin?

Putin's standoff over Ukraine boosted his popularity rating to 80 percent. This support strengthened when Russia extended its grip over Ukraine in April 2014. It supported local rebels who took over city halls and police stations throughout the east. That area is home to ethnic Russians who don't want to be part of the EU. But those Russians were moved there by Joseph Stalin 50 years ago to strengthen the Soviet Republic's hold on the area. (Source: "Ukraine Crisis: What Is Happening Where?" BBC, April 14, 2014.)

This follows Russia's annexation of the Crimean peninsula in March. Russia claimed it was protecting its port access to the Black Sea. Putin estimated it would cost Russia more than $20 billion through 2020 to integrate the area. Ukraine planned to develop Crimea's natural gas reserves in two years in a partnership with U.S. companies. If Ukraine did this, Russia would have lost one of its largest customers.

But annexation worries 260,000 Muslim Tatars in Crimea. They were subjected to ethnic cleansing during the Soviet rule. They were forced to move to Central Asia, where half of them died. Crimean Tatars peacefully supported Ukraine's Orange Revolution. (Source: "Crimea's Tatars Try to Keep Their Resistance Peaceful," The Wall Street Journal, March 11, 2013.  "Interview with former Georgia President Saakashvili," Fox Business News, March 4, 2014.)

Russia is one of the emerging markets that suffered a currency meltdown in 2014. Forex traders abandoned these markets when the Federal Reserve began tapering its quantitative easing program. That reduced credit around the world.

Russia waged wars in Chechnya in the early 2000s. Putin annexed Ossetia in Georgia in 2008, and the Western world didn't really intervene. He also successfully launched a cyber-attack on Estonia. But Ukraine is larger and borders the EU directly. (Source: "Interview with Chairman of House Intelligence Committee Mike Rogers (R-Mich.)," CNN.)