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The last quarter of 2018 started relatively quietly in Ukraine. Preparations for the March 2019 presidential elections proceeded apace as candidates unofficially began making themselves known to the voters. Disagreements with Hungary, based on positions each country had staked out over the past several months, continued to simmer. The organization of autocephaly for the Ukrainian Orthodox Church went forward, and negotiations continued promisingly with the IMF.

In late November, however, the status quo was abruptly altered when Russian forces attacked Ukrainian military vessels in the Sea of Azov and took control of the Ukrainian crews. In response to increasing tensions with Russia, martial law was introduced by presidential decree for the first time ever in Ukraine.

Also in November the Donbas separatists held elections in the unrecognized Donetsk People’s Republic and Luhansk People’s Republic, apparently as part of the ruling groups’ efforts to legitimize themselves. These elections were illegal under Ukrainian law and contrary to the Minsk Agreements, to which both Russia and Ukraine are signatories.


Russian Aggression in the Sea of Azov

During the fall, Russia continued lengthy inspections of ships passing through the Kerch Strait on their way to or from Ukrainian ports—an intervention that amounted to something close to a blockade of the Sea of Azov, with economic ramifications for the ports. Ukraine had earlier decided to strengthen its military forces in the region to prevent possible attacks on the port cities of Berdyansk and Mariupol. Ukrainian officials and experts had also warned that the situation had the potential to escalate into a new military conflict between Russia and Ukraine.

In late October the UN called on the parties to avoid driving up the risk of armed confrontation in the Azov region. Representatives of the European Parliament, during debates on the topic, expressed the opinion that Russia’s action in the region could precipitate a new conflict. The European Parliament adopted a resolution on the situation in Sea of Azov recognizing Russia’s actions as a violation of international maritime law and calling for an end to the intensive and discriminatory inspections of vessels (more about these developments can be read in another Focus Ukrainepiece).

Despite Russia’s actions in the sea thus coming under an international spotlight, an unprecedented act of aggression took place in the Sea of Azov on November 25, 2018, when Russian border guard forces attacked two Ukrainian artillery boats and a tugboat near the Kerch Strait (the full chronology of developments is available here). The three vessels were seized and twenty-four Ukrainian sailors and security service officers were conveyed to Moscow for court proceedings.

The Ukrainian National Defense and Security Council recognized the attack as an act of aggression and proposed to President Petro Poroshenko that he introduce a state of martial law, which was implemented for thirty days to avoid an overlap with the official campaign season, a constitutional requirement.

Termination of the Friendship Treaty with Russia  

On December 6, 2018, the Verkhovna Rada voted against continuing the Treaty on Friendship, Cooperation and Partnership between Ukraine and the Russian Federation. The treaty was to end and simultaneously automatically renew for another ten years on April 1, 2019. President Poroshenko initiated its suspension, and parliament gave its approval in December 2018. Thus the treaty will terminate on April 1 of this year.

Relations with Hungary: Diplomat Expulsions and a Passport Row

On October 4, the Ukrainian Ministry for Foreign Affairs announced the decision to expel a Hungarian diplomat. This marked another episode in the recent history of tensions between two countries, which exploded in earnest when Ukraine introduced a new policy for the language of school instruction for minorities, followed by Hungary issuing passports to Ukrainian citizens in the predominantly ethnic Hungarian region of Zakarpattya (Transcarpathia). Under Ukraine’s constitution, Ukrainian citizens may not hold dual citizenship with another country. In response to Ukraine’s decision, Budapest expelled the first secretary of the Ukrainian embassy in Budapest and repeated its threat to block Ukraine’s EU and NATO integration.

A new Hungarian ambassador was subsequently accepted by Ukraine. However, Budapest changed the title of the position to that of ministerial commissioner in charge of Transcarpathian developments, a move perceived by Kyiv as disrespecting Ukraine’s sovereignty. Thus, although tensions between Ukraine and Hungary eased somewhat by the end of the year, their final resolution is not yet in sight.

Ukrainian Political Prisoners in Russia: #FreeSentsov

On October 5, Oleg Sentsov, a Ukrainian filmmaker from Crimea and a political prisoner in Russia, was forced to abandon a hunger strike he had sustained for 145 days. His health was failing, and the prison administration decided to force-feed him. The Ukrainian commissioner for human rights said Sentsov was in critical condition.

A global campaign calling for the release of Sentsov is ongoing. The EU reiterated its demand that Russia free Sentsov and other Ukrainian citizens who have been illegally detained in Russia and on the Crimean Peninsula. On October 25 the European Parliament awarded Sentsov the 2018 Sakharov Prize for Freedom of Thought, in recognition of the great symbolism of his case for the defense of human rights everywhere in the world.

Another Ukrainian prisoner, Volodymyr Balukh, who went on a hunger strike in late March 2018, also decided to end his hunger strike a few days after Sentsov ended his.

Russia Updates Sanctions against Ukraine

During the last quarter of 2018 Russia twice updated its list of Ukrainian citizens and companies subject to sanctions, on November 1 and again on December 25. Currently Russia has imposed sanctionsagainst 567 Ukrainians and 75 companies. Most of the individuals placed under sanction are Ukrainian politicians and representatives of big business.

In addition, on December 29, Russia updated the list of goods banned from import from Ukraine. Among them are foods, strong beverages, and different kinds of machinery and equipment. Representatives of the National Bank of Ukraine and the government said that the sanctions would not have any effect on Ukraine’s economy.


State of Martial Law

After Russian forces attacked and seized Ukrainian vessels in the Sea of Azov on November 25, the Ukrainian National Defense and Security Council proposed introducing a state of martial law. This proposal had to be approved by the Verkhovna Rada.

Initially President Poroshenko asked parliament to introduce martial law for sixty days in all oblasts of Ukraine. However, after deliberating, the Verkhovna Rada did not endorse it: the opposition factions thought that the sixty-day period could mean deferral of the presidential elections slated for March 31, 2019. Poroshenko and the parliament agreed on a compromise, namely, to introduce martial law for thirty days in the ten oblasts bordering Russia, Transnistria, and the Azov and Black Seas.

Martial law was thus in force from November 26 through December 26, 2018, during which time Ukrainian authorities increased security measures in the selected oblasts (for more on the introduction of martial law in Ukraine, please see this piece in the Kennan Institute’s Focus Ukraine blog).

Ukrainian Orthodox Church’s Autocephaly

In response to an initiative of President Poroshenko and the Verkhovna Rada, on November 2, 2018, the Ecumenical Patriarch Bartholomew of Constantinople canceled a centuries-old arrangement whereby the Kyiv Orthodox Church metropolitan was accountable to the Moscow Orthodox patriarch, a hierarchical arrangement in place since 1686. That was the first step toward granting the Ukrainian Orthodox Church autocephaly. On October 11 the Synod of the Constantinople Patriarchate confirmed the patriarch’s decision.

On December 15, another synod was held to unite the different Ukrainian Orthodox Churches in a single autocephalic church. Representatives of two existing churches, the Ukrainian Orthodox Church of Kyiv Patriarchate and the Ukrainian Autocephalic Orthodox Church, were present at the synod; the Ukrainian Orthodox Church of Moscow Patriarchate (UOC MP) was represented by two bishops. The synod elected its Metropolitan Epifaniy to the position of primate (leader) of the new united church. Subsequently the Ecumenical Patriarch Bartholomew signed a letter confirming the independence of the newly established joint church on January 5, 2019, the day before the Orthodox Christmas Eve.

The UOC MP did not recognize the establishment of the new church. The Verkhovna Rada issued a law requiring this church to rename itself and make explicit its connection with the Russian Orthodox Church. The UOC MP has appealed to the Russian Constitutional Court, questioning the legitimacy of this law.

There was some risk that the process of acquiring autocephaly could have caused conflicts between and even within parishes, depending on parishioners’ allegiances and the amount of meddling from Russia. So far, however, the process seems to have proceeded peacefully at the parish level.


Increasing Gas Prices

On October 19 the Ukrainian government decided to increase gas prices for households by 23 percent. Even after the increase, prices for households remain lower than for industry. Ukraine is on track to establish a competitive gas market—a requirement of the IMF, and an important precondition for further economic development—and equal prices for all gas consumers in the country. To achieve those equal prices, the price paid by households would have increased by 60 percent (for more on this, please see another piece in the Kennan Institute’s Focus Ukraine blog).

The gas price has predictably evolved into a hot-button political issue. It is routinely raised by some of the presidential candidates, who have promised to lower the price paid by end-users should they win (read more about it here). Nonetheless, all the major candidates wish to uphold cooperation with the IMF, which places those vowing lower gas prices in an awkward position.

Extended Moratorium on Agricultural Land Sales 

The Verkhovna Rada extended the moratorium on agricultural land sales for an additional year. This means no legal land market will be possible in Ukraine in 2019.

The IMF requested the launch of a land market as one of the conditions for further collaboration with Ukraine. Currently large tracts of agricultural land are divided into smaller subplots and leased, which results in low economic productivity and disinterest on the part of foreign investors. The moratorium was first established in 2001. Its one-year prolongation is seen by some agrarian associations as a positive, allowing time to ensure the protection of land rights and the establishment of legal and financial procedures to protect smallholders.

Collaboration with the IMF

On October 19 the IMF announced a staff-level agreement with Ukrainian authorities for a new fourteen-month Stand-By Arrangement. This replaces the financing arrangement under the Extended Fund Facility, approved in March 2015 and set to expire in March 2019.

The new agreement gives the Ukrainian government access to U.S. $3.9 billion in stand-by financing and provides an anchor for the authorities’ economic policies during 2019. Under the agreement, Ukraine is to continue focusing on fiscal consolidation, reducing inflation, and implementing reforms to strengthen tax administration, the financial sector, and the energy sector.

The agreement was approved by the IMF board on December 18, and three days later the Ukrainian government received the first tranche of funding. The new aid program strengthens Ukraine’s foreign exchange reserves and should help increase investors’ confidence in Ukraine.

Progress According to the Doing Business Ranking

During 2018 Ukraine improved its position in the World Bank’s Doing Business 2019 ranking, moving up five positions. This was mainly the result of amended tax legislation, positive changes in the ease of conducting international trade in the country (with respect to the time and costs associated with the logistics of exporting and importing goods), and improved protections for minority investors. The report estimated the ease of doing business in Ukraine at 68.25 points out of a possible 100 points. With this latest improvement, Ukraine has now moved up twenty-four positions over the five-year period beginning in 2014.


Legislation on the Donbas

On October 4, the Verkhovna Rada extended the law on the special status of, and specific conditions for local governance within, the noncontrolled parts of Donbas and Luhansk oblasts for an additional year. It has been in effect since 2014, in accordance with the Minsk Agreements.

According to the original 2014 act, Ukraine (1) guaranteed that participants in the conflict in the Donbas would not be criminally prosecuted, (2) established specific procedures for appointing judges and prosecutors in the noncontrolled regions (the local government must participate in the process), and (3) established people’s militias to maintain control and provide law and order. However, the one-year extension stipulated that the full implementation of the 2014 law would start after the complete exit of illegal military forces and troops from the region.

Illegal Elections in the Donbas

On November 11, illegal “elections” of the “heads of the republics” and “people’s councils” were held in the noncontrolled areas of Donbas and Luhansk. The results of these elections, as well as the elections themselves, were not recognized by most of the participants in the peacemaking process, including Ukraine, the United States, Germany, and France. Russia likewise did not recognize these elections but treated them “with respect for the will of local populations.” The EU and U.S. governments called the elections a “sham.”

The elections seemingly were part of the leading Russia-aligned political factions’ efforts in Donbas and Luhansk to shore up local support and establish some sort of legitimacy. The Kremlin also needs to establish a regular electoral cycle in the region, featuring hand-picked proxies, to increase Russian influence and smooth the path to greater absorption into Russia.

Thus, even as the last quarter of 2018 saw improvements both domestically and in relations with the IMF and most of Ukraine’s European neighbors, hostilities between Ukraine and Russia took a turn for the worse. The long game here is very serious and becoming increasingly militarized, with Russia moving on multiple fronts to ramp up security threats to Ukraine.

About the Author

Andrian Prokip

Andrian Prokip

Senior Associate, Ukraine;
Energy Expert, Ukrainian Institute for the Future
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Kennan Institute

The Kennan Institute is the premier U.S. center for advanced research on Russia and Eurasia and the oldest and largest regional program at the Woodrow Wilson International Center for Scholars. The Kennan Institute is committed to improving American understanding of Russia, Ukraine, and the region though research and exchange.  Read more