Ukraine Quarterly Digest: October–December 2021

BY ANDRIAN PROKIP

The last quarter of 2021 was an unusually intense period in Ukrainian internal and external affairs. Internally, the political situation was dominated by (1) leakage of the Pandora Papers, suggesting involvement of some members of the president’s entourage in offshore banking activities to protect assets, (2) “Wagnergate,” a botched sting operation against Russian mercenaries who participated in the Donbas war, (3) President Volodymyr Zelensky’s war on the oligarchs, and, finally, (4) the expectations of an energy crisis in the winter of 2021–2022, and questions as to how the administration would deal with it. The key trends in foreign affairs, national security, and defense were all connected to two major themes: preparing for a Russian attack on Ukraine and further attempts to press for integration with the EU and NATO.

1. INTERNATIONAL AFFAIRS

Risk of a Russian Military Escalation against Ukraine
The last quarter of 2021 was replete with statements and counterstatements concerning Russia’s military intentions toward Ukraine. Beginning in late October, numerous Western media reported Russian troops gathering on the Ukrainian border, and pointed to the risk of a significant attack on Ukraine (see here or here). Ukrainian officials initially denied the reports of a troop buildup but later pivoted, confirming the troops’ presence and the risk of a major attack in early 2022.

Russian officials, for their part, despite denying any plans to attack, nonetheless issued provocative statements. Russia’s Security Council secretary Nikolai Patrushev said that a “fire might swallow” Ukraine soon that would lead to millions of refugees fleeing the country. Vladimir Putin’s spokesperson Dmitry Peskov said Ukraine was planning a military operation to retake the Donbas—a conclusion reached, in the Kremlin’s tortuous logic, because Kyiv had not implemented the Minsk agreements.

Ukraine’s foreign affairs minister Dmytro Kuleba denied any plans for military operations in the Donbas and stressed that Ukraine was devoted to seeking political and diplomatic ways to resolve the conflict.

Despite heated debates in October–December 2021, the Kremlin’s real intentions with respect to Ukraine remain unclear: is the troop buildup part of preparations for an invasion or is it designed to put political pressure on Kyiv? Or is Putin testing the resolve of the West? The governments of the Western nations repeatedly warned the Russian leadership against invading Ukraine and threatened an unprecedented set of sanctions should it do so. On December 9, U.S. president Joe Biden held a virtual summit with Vladimir Putin to lessen the escalation, and three weeks later he had an additional phone call with the Russian leader to discuss the same issue. These talks were conducted in parallel with frequent communications between Presidents Biden and Zelensky.

By the end of December 2021 the threat had not dissipated, but the situation did not seem as grave. As the secretary of Ukraine’s Security and Defense Council said on December 29, the Russian army troops massed near the border with Ukraine had reached numbers, around 120,000, significantly less than needed to launch a full-scale attack on Ukraine. Nonetheless, the security situation in the region remains extremely tense.

In January 2022, the situation became even more complicated as a results of the protests in Kazakhstan. Focus Ukraine will be covering this issue in upcoming blogs.

Ukraine and NATO
In December, the Russian Ministry of Foreign Affairs addressed NATO, demanding that the organization cancel its commitment of 2008 welcoming Ukraine’s and Georgia’s aspirations to join the treaty. Similar ideas were enumerated in Russia’s proposal on security guarantees. NATO chief Jens Stoltenberg rejected Russia’s demand, saying that NATO allies and Ukraine would decide on Ukraine’s membership in a security organization, not Russia. Later, Vladimir Putin said that Russia would consider different options if the West failed to meet the Kremlin’s push for security guarantees that would preclude NATO's expansion to Ukraine. On December 16, NATO’s Parliamentary Assembly adopted a statement reaffirming support for Ukraine in the face of Russia’s continuing military buildup.

Ukraine and Germany
In early October, President Zelensky met with his German counterpart, President Frank-Walter Steinmeier, in Kyiv at the eightieth commemoration of the massacre at Babyn Yar. The parties discussed issues related to the Nord Stream 2 pipeline and corresponding security guarantees for Ukraine, as well as the future of the peace talks in the Normandy Four format, intended to find a diplomatic path out of the impasse in Ukraine’s East.

The meeting took place at a time when the politicians of both countries were reacting to information spread by the German newspaper Das Bild that Chancellor Angela Merkel had earlier blocked the supply of military hardware to Ukraine. Ukraine’s MFA appealed to the new cabinet in Berlin to provide Ukraine with military support, but the German official position seems to be unchanged.

Ukraine and the U.S.
In late 2021 the U.S. embassy in Ukraine described bilateral relations as stronger than ever. On November 10, Foreign Affairs Minister Dmytro Kuleba and U.S. Secretary of State Antony Blinken chaired a session of the Ukraine-U.S. Strategic Partnership Commission after three years of inactivity; the U.S. reaffirmed further defense assistance to Ukraine and support for reforms. Later in December, at the OSCE Ministerial Council meeting in Stockholm, both discussed a package of deterrents to prevent a new round of potential Russian military aggression.

In October, U.S. Secretary of Defense Lloyd Austin paid an official visit to Kyiv and met Ukrainian Defense Ministry officials. The parties discussed the implementation of the U.S.-Ukraine Strategic Defense Framework, signed earlier in Washington. Secretary Austin named Russia responsible for the war in the east of Ukraine and called on Russia to stop destabilizing the Black Sea region and territories along Ukraine's borders. In November, Ukrainian defense minister Oleksii Reznikov visited Washington to continue talks on preventing Russia from engaging in further military aggression.

In October and November, Ukraine received the third and fourth installments of defense aid from the U.S., part of President Biden’s August 2021 commitment of $60 million in additional security aid to Ukraine. Matériel include anti-tank weapons, ammunition, medical equipment, and two more guard-patrol boats. In December, the U.S. Congress approved the large annual National Defense Authorization Act for 2022, which stipulates another $300 million in security assistance to Ukraine.

The U.S. government has also staunchly supported Ukraine’s fight against corruption. In December, the U.S. imposed sanctions on Oleksandr Tupytsky, chairman of the Constitutional Court of Ukraine (he was described as “former Chairman,” but from the perspective of the Ukrainian legal system, Tupytsky remains the head of the Constitutional Court), and his wife for engaging in significant acts of corruption, including allegedly accepting bribes. In the same mode, the U.S. Treasury Department imposed sanctions against Andriy Portnov, a former Ukrainian government official and former president Viktor Yanukovych’s controller of Ukraine's judiciary, for allegedly buying influence among Ukraine’s judicial and law enforcement branches. These sanctions were parsed by the U.S. as contributing both to national security and to global security, and signaled a strong interest in upholding the rule of law through a judiciary free of influence.

Ukraine and the EU
Ukraine remains focused on European integration, despite many obstacles.

The 23rd EU-Ukraine Summit was held in Kyiv on October 12, with the participation of top officials from both sides. The parties reaffirmed their continued commitment to strengthening the political association and economic integration of Ukraine with the EU; support for Ukraine's independence, sovereignty, and territorial integrity; and a clear sanctions policy toward Russia. In addition, they recognized Ukraine’s substantial progress on reforms. However, the Joint Statement of the 23rd EU-Ukraine Summit was vague on prospects for Ukraine’s EU membership beyond the existing Association Agreement and the Deep and Comprehensive Free Trade Area agreement.

Later, European Commission official representatives assessed the bilateral cooperation positively but noted that the EU is not ready to take further steps toward advancing the Ukrainian European Perspective, an initiative by several European parliaments working cooperatively with Ukraine to promote the European integration of Ukraine. Meanwhile, in December, Croatia and Slovenia officially supported Ukraine's EU integration prospects. Five other EU member states—Poland, Lithuania, Latvia, Estonia, and Slovakia—had earlier expressed their support for Ukrainian aspirations to join the EU. In this way, Ukraine continues to gather support for its EU membership.

President Zelensky is committed to persuading all EU member states in bilateral talks to support Ukraine’s European Perspective. Moreover, EU integration is broadly favored by the populace: according to November polls, 62 percent of Ukrainians support joining the EU.

EU aid. In late October, Ukraine received €600 million in EU macrofinancial assistance to cope with the aftereffects of the pandemic.

Ukraine and the IMF
In November, Ukraine updated the IMF Memorandum of Economic and Financial Policies on the current Stand-by Arrangement for Ukraine in 2020–2021, which was extended until mid-2022. Key Ukrainian commitments included preserving the independence of the National Bank of Ukraine and moving forward with privatization of state-owned banks, continuing efforts to reform the judiciary and tackle corruption, achieving better control of funds spent to cope with COVID-19, and reducing the state’s role in business. After the update, the Ukrainian government received a tranche of $699 million from the IMF.

Eastern Partnership Summit
The Sixth Eastern Partnership Summit was held in Brussels on December 14–15, 2021. Traditionally, Ukraine has considered the Eastern Partnership, comprising Ukraine, Georgia, Moldova, Azerbaijan, Armenia, and Belarus, as instrumental to gaining EU membership, and President Zelensky reaffirmed this in his statement at the summit. Brussels, however, considers the Eastern Partnership to fall under the rubric of a neighborhood alliance, and thus not providing an enhanced pathway to EU membership. As a result, the final statement of the summit did not advance EU membership prospects for Ukraine. The summit was, however, important in showing pan-European support for Ukraine’s security.

Ukraine and Russia
In addition to the risks of a military escalation on the Russia-Ukraine border, there were other developments between the two countries. In October, President Zelensky signed a decree introducing sanctions related to illegal elections in September in annexed Crimea to the State Duma of the Russian Federation and against four companies associated with the Russian military. The Duma elections in the non-controlled republics represent another move on the part of Moscow to peel away from Ukraine a Russian-affined population, but Kyiv frowns on Ukrainian citizens in the unceded territories voting in another country’s elections.

Russian elites continued issuing statements harmful to relations between the two nations. For example, former Russian president and prime minister Dmitri Medvedev, who is currently deputy chair of Russia’s Security Council, published a rant on Ukraine holding that negotiations with Ukraine’s current government—which he characterized as a “vassal” of the U.S.—made no sense and should be deferred until new leadership was in place; Medvedev also expressed some misplaced antisemitic views on the current Ukrainian leadership.

At approximately the same time, the Security Service of Ukraine reported that the Russian government was involved in supporting the anti-vaccination movement in Ukraine and in fueling public protests against the authorities.

In an ongoing Russian government effort to put pressure on the Ukrainian minority in Russia, another Ukrainian cultural organization in Russia was banned.

Ukraine and Belarus
Relations between official Minsk and Kyiv continued to worsen. For example, Belarusian president Aleksandr Lukashenko declared that he would visit the Crimean Peninsula and that this act would mean that Crimea had become Russian. According to Ukrainian legislation, however, foreigners visiting Crimea need to have the approval of the Ukrainian government, and such a visit by Lukashenko would be in direct violation of Ukrainian law.

Despite political tensions, economic ties still exist between the two countries. Ukraine needs electricity imports from Belarus to cope with the possible energy crisis in Ukraine this winter, as discussed in detail below, and Belarus is happy to have a market for energy generated by its new nuclear power plant.

Ukraine and Georgia
Although Euroatlantic aspirations unite Ukraine and Georgia, one particular issue is responsible for tension between Kyiv and Tbilisi. In October 2021, former Georgian president Mikhail Saakashvili was arrested in Georgia after entering the country illegally following an eight-year absence. Because Saakashvili holds Ukrainian citizenship, Kyiv insists that he be released from detention and returned to Ukraine. At the time of his arrest and imprisonment, Saakashvili was head of the executive committee of Ukraine’s National Reform Council, an advisory position. Based on this and on Saakashvili’s checkered history with governments in both Ukraine and Georgia, it is unclear to what extent he can lead reform efforts in Ukraine. He is being held by Georgia on an outstanding warrant after having been convicted in absentia of abuse of office in 2018; Tbilisi is annoyed that Ukraine effectively provided Saakashvili with refuge and appointed him a government official when he was a wanted man in Georgia.

2. INTERNAL AFFAIRS

The Pandora Papers and Ukrainian Officials
The leak of the documents known as the Pandora Papers connected some top Ukrainian officials to offshore companies and bank accounts, presumably to protect assets. Among them allegedly were President Zelensky, Ivan Bakanov, head of the Security Service, and some other members of the president’s team. This was one of the key factors damaging Zelensky’s presidential rating.

The recent revelations of the Pandora Papers continue a sad story that started in 2016 with the leak of information, also contained in the Pandora Papers, on then president Petro Poroshenko’s offshore accounts. According to recent surveys, 77 percent of Ukrainians consider top officials’ ownership of offshore accounts or accounts in foreign banks unacceptable.

President Zelensky’s Clash with Rinat Akhmetov
The anti-oligarchic policies of President Zelensky have created problems for Ukrainian oligarchs, which have inevitably led to clashes between the president’s team and the clans. After the Verkhovna Rada passed the law against oligarchs and an act that increases certain tax rates for the wealthiest businessmen, antagonistic relations between President Zelensky’s administration and the richest Ukrainian tycoon, Rinat Akhmetov, began playing out in the media. The media outlets owned by Akhmetov started supporting Zelensky’s political competitors, who attacked Zelensky personally, while the president publicly alluded to Akhmetov’s alleged involvement in a possible coup. Wagnergate featured prominently among the various issues used by the opposition and the oligarch-controlled media to attack the president and his staff.

In response, representatives of the ruling team started putting pressure on Akhmetov and his businesses. In mid-November, for example, a state-owned enterprise did not pay 3 billion UAH (approx. 110 million USD) owed in feed-in tariffs to Akhmetovʼs energy companies, while others were paid. Later in November the Verkhovna Rada amended the Tax Code to increase rents for iron ore production, thus damaging Akhmetov’s key business interests. In early December the general prosecutor announced about 200 criminal proceedings against companies related to the tycoon. But by the end of 2021, the conflict seemed to have settled down a bit. Akhmetov remains a powerful opponent, with many resources at his disposal, and Zelensky continues an uphill battle to rein in the oligarchs. In one assessment, Zelensky’s moves against the oligarchs “are more insulting than ruinous for the men who consider themselves the owners of Ukraine.”

Petro Poroshenko Subject of High Treason Investigation
If conflict with Akhmetov eased somewhat, the conflict with another oligarch heated up. In late December, law enforcement agencies officially announced that former president Petro Poroshenko (2014–2019), an oligarch and leader of the opposition party European Solidarity, was being investigated on suspicion of having committed high treason through helping fund the separatists in Ukraine’s East. However, detectives were not able to arrest him as Poroshenko had fled abroad. Along with Viktor Medvedchuk, Poroshenko was accused of facilitating sales to Kyiv of coal from the non-controlled territories of the Donbas in 2014–2015, an action that allegedly bolstered the coffers of the armed forces of the separatists. Volodymyr Demchyshyn, energy minister during Poroshenko’s presidency, was arrested by the court on the same charges.

Poroshenko has promised to return to Ukraine and continue the political struggle.

Other Developments Concerning Oligarchs
The administration’s anticorruption efforts continued on other fronts. President Zelensky approved new sanctions against TV channels recently launched by Viktor Medvedchuk, which became a second iteration of the banning of allegedly Medvedchuk-related channels earlier in 2021; the most recent sanctions were similarly issued without relevant court proceedings. Viktor Medvedchuk remains under house arrest on suspicion of high treason.

Wagnergate
Wagnergate was among the hottest political topics in November. The scandal concerns a failed July–August 2020 operation of the Ukrainian secret services aimed at arresting Russian mercenaries (including some from the Russian private military group the Wagner Group) who participated in the Donbas war on the side of the separatists. The political chatter was ignited by the November 2021 publication of the results of Bellingcat’s investigation and later fueled by classified documents leaked by security officers to a Ukrainian journalist. As information became public, President Zelensky said he had not approved the operation because he suspected it would pose a risk to civilians who presumably would be on the same airplane carrying the mercenaries as it passed briefly through Ukrainian airspace—thus making the mercenaries detainable and prosecutable for violent crimes committed in Ukraine—after departing Minsk, and because the operation would likely provoke an international outcry. As it happened, the planned departure from Minsk was delayed, and the entire operation was foiled. Lukashenko feared outside agitators creating a Maidan on the eve of the presidential elections, and Belarusian KGB arrested the men in their hotel rooms. The mercenaries, charged with plotting to overthrow the Minsk government, were eventually released to Russia, though Ukraine also sought their extradition.

Zelensky’s political opponents, especially Petro Poroshenko, used this case to demand an investigation of Zelensky and his entourage for high treason, mostly because, in Poroshenko’s view, Zelensky had let the mercenaries slip back to Russia and evade prosecution in Ukraine. Some street protests demanding his impeachment also took place but failed to garner strong public support.

Is an Energy Crisis Coming?
In late 2021, all Ukrainian thermal power stations experienced coal shortages: stocks were four times less than needed to operate the plants and produce steam heat. Among the key reasons cited for this shortfall were overregulation of the electricity market, the lack of a true energy market, and a heavy demand for coal power generation in previous months, which exhausted the stock before the onset of winter.

In late October, Russia suspended exports of anthracite coal to Ukraine, and later it blocked coal transit from Kazakhstan through Russian territory. Today, only about 20 percent of the coal used in Ukraine to produce steam is imported, but the lion’s share of that traditionally came from Russia, which in 2020 accounted for 92 percent of all energy imported. With the loss of high-quality Russian-sourced energy supplies, Ukraine faces the complicated logistics of import reductions and higher prices during a coal price rally after pandemic-related lows.

In winter, thermal power stations work in a “hand to mouth” scenario, using supplies as soon as they become available, a situation that is freighted with risk, whether from potential power shortages or from reliance on uncertain electricity imports from Belarus and Russia. Though Ukraine anticipates being integrated into the European grid by the end of 2023, it is currently still part of the Russia-Belarus-Ukraine grid, and its dependence on Russia and Belarus for energy supplies could be used to blackmail Kyiv and push Zelensky into negotiating sensitive issues.

However, President Zelensky and Prime Minister Denys Shmyhal denied any supply problems, the possibility of an energy crisis, or even the realistic scenario of power shortages in winter, perhaps in this way simply hoping none of these things will occur.

The future of gas transit was another energy topic discussed in Ukraine. If Nord Stream 2 is launched, Ukraine expects a possible termination of gas transit from Russia, and with it the loss of budget revenue. Traditionally, the president has called the pipeline a dangerous geopolitical weapon, and this characterization may indeed play out in some form.

Political Ratings
During the last four months of the year, President Zelensky saw drops in his popularity and public trust ratings, the latter a major source of his political legitimacy in the fight against the oligarchic clans and opposition groups. Nonetheless, recent polls show that even though only 26 percent of respondents approve of the president’s activities (while 58 percent disapprove) and 66 percent describe the situation in Ukraine as one of “degradation and chaos,” President Zelensky remains the most popular leading politician. His rating dropped from 33 percent in early September to 26 percent in December, leaving him still substantially ahead of former president Petro Poroshenko (supported by 16 percent), former minister of energy Yuriy Boiko (9 percent), and Yulia Tymoshenko (9 percent). Projections of the next presidential elections indicate that Zelensky currently stands the best chance to win against any opposition figure.

Government Reshuffling, Redux
The end of 2021 was marked by more reshuffling of the Rada and the cabinet. On October 7, parliament dismissed Speaker Dmytro Razumkov, who had been among Zelensky’s closest allies at the beginning of the presidential term but had pivoted to become his rival in 2021. Zelensky suspected Razumkov of having his own plans for the future and took measures to sack a possible opponent. Razumkov became a rising star of the opposition (up to 6 percent in the polls), created his own MP group in the Rada, and became a popular guest on Akhmetovʼs TV channels.

In early November, parliament approved changes in the minister of environmental protection, minister of the economy, minister for strategic industries, defense minister, and the minister for reintegration of the temporarily occupied territories, who shortly thereafter was appointed defense minister.

Specialized Anti-Corruption Prosecutor's Office
Ukraine’s recent memorandum with the IMF prescribes the appointment of a head of the Specialized Anti-Corruption Prosecutor's Office (SAPO) by December 2021. But the selection committee failed to choose a candidate even after two potential winners emerged from the now concluded selection process. The position, critical to fighting corruption, has been vacant since August 2020. The Western missions to Ukraine expressed regret over the situation. Critics blame the presidential administration for attempting to control SAPO and its desire to have SAPO’s chief be a staunch ally of Zelensky. However, SAPO’s failure to meet its commitment to the IMF in timely fashion likely has degraded international trust in Ukraine and affected the country’s image abroad.

3. PROGRESS IN REFORMS AND SUCCESS STORIES

Even as the administration steps up its fight with the oligarchs, corruption on a grand scale appears to continue unchecked. More than half of Ukrainians consider fighting corruption to be among the most important goals for Zelensky’s administration. Another poll revealed that 50 percent of Ukrainians have not seen any positive changes in battling corruption, while 37 percent think the situation has worsened. This is a factor that could stymie further reform efforts, many of which require buy-in from the general Ukrainian population.

Reforms in the energy sphere have a brighter prospect. The European Energy Community has approved certification of the Ukrainian transmission system operator Ukrenergo, which is a necessary condition for further disconnecting the Ukrainian power system from Russia and Belarus and integration into EU energy networks in 2023.

4. THE SITUATION IN THE DONBAS

The security situation in the Donbas has worsened, according to OSCE monitoring. Also, the population, as the polls show, does not see any improvement in the Donbas: more than half of respondents do not think the situation in the Donbas improved in 2021, while 34 percent think it worsened.

During the last three months of 2021, the Kremlin often accused Ukraine of planning military provocations against the occupied territories of the Donbas and armed attempts to regain control over the region, with Moscow promising a military response to “protect Russian citizens” living in the region. Meanwhile, Kyiv kept denying any attempts to resolve the situation other than peacefully. Western government through their officials (such as U.S. secretary of defense Lloyd Austin, German ambassador to Ukraine Anka Feldhuzen, or head of the US mission to the OSCE Courtney Ostrien) stressed support for Ukraine in the Donbas war and in the conflict with Russia.

In November, President Putin issued a decree ordering curbs on the export and import of goods between Russia and the unrecognized republics in Ukraine’s East to be lifted. Kyiv called this an interference and a violation of international law.

Despite the Kremlin’s official position, at least one Russian court has recognized the presence of the Russian army in the Donbas. After the decision became known to the public, the court ruling was deleted from public access, and the Kremlin continued to deny the presence of Russian troops in non-controlled areas of the Donbas. Meanwhile Ukraine’s intelligence informed that about 600–800 high-ranking Russian military officers were stationed in the non-controlled Donbas to command separatist units.

Also, Russia increased ammunition supplies to the Donbas in the fall of 2021: from October 9 to November 11, Russia supplied forty rail-tank cars with fuel, eight railcars with ammunition, and nineteen motor convoys with arms and ammunition. In December, the OSCE Special Monitoring Mission observed gathering military forces in the non-controlled territories, in violation of the Minsk agreements (see here for an example).

As news spread of a new round of actual or potential military actions in the Donbas, inhabitants of the non-controlled territories began leaving the region, with most going to Russia. At the same time, Russia-backed militants blocked corridors connecting the non-controlled and controlled territories of the Donbas: as of the end of 2021, five of seven existing corridors were blocked.

At the same time, the Kremlin has increased pressure on the West and Kyiv to try to force implementation of the Minsk agreements. The recent saber-rattling by the Kremlin may be just one more attempt to forward implementation of Minsk II. President Zelensky, during his conversation with U.S. president Biden, pointed out that Ukraine is ready to implement the Minsk agreements to the degree that they accord with Ukraine’s national security interests. Yet the Minsk agreements, if implemented, would create many new security risks for Ukraine. Indeed, the Minsk agreements carry the seeds of a Trojan Horse scenario by allowing representation of the Donbas separatists, presumably under Russian control, in Ukraine’s parliament. For this reason, Zelensky does not rule out holding a referendum on how to stop the war in the Donbas.

We will continue to monitor developments in Ukraine and report back to you at the end of the first quarter of 2022.

The opinions expressed in this article are those solely of the authors and do not reflect the views of the Kennan Institute.