Eight Oracles for 2015: Since ancient times, people have always been interested in knowing the future. For example, the famous Oracle of Delphi was known for its accuracy is predicting the fate of the fledging Greek democracy. While Delphi is 2000 kilometers away from Kyiv and hasn’t offered oracles since the 4th century, we have turned to the Oracle of the Dnipro for guidance in the New Year. Instead of a pretty young maiden in a white robe inhaling nitrous oxide fumes to prognosticate, the Oracle of the Dnipro is a 40 year old man in a navy sports coat who spent much time on the Maidan while occasionally inhaling tear gas during the events of Euromaidan. In addition to proper prognostication, proper interpretation of oracles is critical. Take the 5th Century BC Lydian King Croesus who created an incredibly wealthy kingdom and frequently made use of the Oracle of Delphi. In 547 BC he interpreted an omen from the Oracle of Delphi that if he “goes to war he will destroy a great empire” as confirmation of his desire to attack the Persian King Cyrus. What he didn’t realize was that the kingdom to be destroyed would be his own. Defeated in battle, captured, chained and laying on a burning funeral pyre, Croesus last words were “Solon, Solon” in reference to the philosopher who told him, “Count no man happy until the end is known”. Thus, while the Oracle of the Dnipro offers his predictions for 2015, remember that these are gauged by percentage probabilities based on the situation as of January 1, 2015 and subject to change. Solon’s wisdom to “Count no man happy until the end is known” is as true today in Ukraine as it was in western Turkey 2500 years ago. Thus, without further ado, here are “Eight Oracles for 2015”:
1. The Donbass Remains a Frozen Conflict: sometimes oracles give predictions that the recipient doesn’t like. When a million-man Persian army threatened Greece in 480 BC, the Athenians consulted the Oracle of Delphi only to hear, “now your statues are standing and pouring sweat. They shiver with dread. The black blood drips from the highest rooftops. They have seen the necessity of evil. Get out…and drown your spirits in woe”. The second consultation was also dire but it at least contained a sliver of a solution (“a wall of wood alone shall be…a boon to you and your children”) which led Themistocles to use the Greek’s wooden navy to ultimately defeat the Persians. Unfortunately, until the situation fundamentally changes, the Donbass is de facto a “frozen conflict” and no oracle can offer a favorable prognostication at this time. In fact, there is almost nothing that Kyiv can do to change the situation at the moment as there is not a military option (who outside of NATO can defeat the Russians in combat?), not an economic option (since the economy is in recession and Kyiv has no extra money to “lure” the Donbass back), and not a diplomatic option that can appease all the stakeholders (Russia holds a veto). Russia holds the cards and until their lust subsides, the Donbass will remain occupied and in political purgatory. That solution may come in early 2016 (see #7 below) but until then, the Chance of the Donbass Remaining a Frozen Conflict” is 80%.
2. Expect Greater Tension Between the Government and Kolomoyskyi: Last year’s hero can often become this year’s goat – and given that 2015 is the year of the goat on the Chinese calendar, it is even more appropriate. Kolomoyskyi’s financing of the army was critical to the war effort which made him “Public Enemy #1” with the Kremlin. At the same time, his business expansion and practices in 2014 made him “Public Enemy #1” with most of Ukraine’s other oligarchs (Akhmetov, Pinchuk, Yeremeyev, etc.). Poroshenko and Yatsenyuk needed Kolomoyskyi when there was an active phase of the war, but now see him as weighty cargo that needs to be jettisoned before Ukraine can arrive in Europe. Tensions are already on the increase as Kolomoyskyi’s faction (Economic Development) didn’t vote for the budget last week. It’s only a matter of time before Kolomoyskyi goes into open opposition against the reforms that Kyiv is pushing. However, Kolomoyskyi maintains one huge “get out of jail free” card as Governor of Dnipropetrovsk since he has kept the oblast solidly in Ukraine’s camp and prevented separatist sentiments from prospering. The trick for Poroshenko and Yatsenyuk will be how to contain Kolomoyskyi to Dnipropetrovsk while taming his ambitions in other regions. Therefore, the chance of greater tensions between the government and Kolomoyskyi is 75%.
3. US-Russia Relations will not significantly improve: Obama and Kerry’s back channel attempts to improve United States-Russian relations will not produce any major successes in 2015. Having lost both Houses of Congress, Obama has entered the lame duck stage of his presidency as the daily speculation on a Bush-Clinton dynastic matchup increases. Even attempts to separate the annexation of Crimea from the war in the Donbass will yield little results as they are easier to do on paper than in practice. Putin, for his part, isn’t particularly warming towards closer ties with the White House – despite his new economic woes. Instead Putin is likely to begin building and renewing relationships with the incoming foreign policy teams in both the Bush and Clinton camps rather than try to strike a deal with Obama (who may not be able to get the measure passed by Congress). That is not to say that Obama might not unilaterally lift some sanctions against Russia (see #5 below), but public perceptions of one another will remain at their worst since the Cold War. Thus, the Chance of US-Russian relations NOT significantly improving is 65%.
4. Local Elections in October Will Produce Many New Regional Leaders and Parties: Ukraine is set to hold National Local Elections in October 2015. While the exact election system remains in limbo, the mood of the electorate is such that a tidal wave of change is likely to occur since the election comes on the heels of revolution, war and recession. The potential for decentralization leading to local budget control and decision making (see #7 below) will encourage new leaders to enter politics. The success of Samopomich and the Opposition Bloc in the October elections also is a sign that new parties have real opportunities to score breakthroughs in the mayoral and city council races. While some incumbents such as Sadoviy in Lviv, Klitchko in Kyiv, and Odarych in Cherkasy are likely to win re-election, they will be the exception rather than the rule. Therefore the Chance of Local Elections Producing Many New Regional Leaders is 60%.
5. Russian Sanctions May Be Relaxed: while US-Russian relations are not likely to improve in 2015 due to domestic political considerations in the United States, (which US presidential candidate wants to be “pals with Putin”?), there is a decent chance that some of the sanctions may be relaxed or removed – specifically those on Russian businesses imposed due to the war in the Donbass. The Obama administration and the Europeans have been reluctant from the beginning to impose the sanctions and have been sending signals for months that the sanctions can be relaxed at the slightest gesture from the Kremlin. While both the US and Europe will keep the Crimea related sanctions in place as they cannot accept or recognize the annexation, they are ready and willing to remove/relax the Donbass related sanctions. If the Donbass stays “mostly” quiet for the next few months, Putin plays nice on the playground, pulls back some of his troops from the border, and makes some conciliatory gestures like promising not to supply the terrorists in the Donbass with more weapons (wink, nudge), expect the West to melt like butter and embrace Vlad like the “Prodigal Son”. Sanctions against individuals are likely to stay in place but for economic reasons, the others will begin to be lifted. The West will pat itself on the back at having stood up to Putin while Putin will chuckle about how Westerners are so naïve. Thus, the Chance of Russian Sanctions Being Relaxed is 50%.
6. Expect Snap-Parliamentary Elections in 2016: even though these are predictions for 2015, there is already regular discussion about this Parliament “not lasting long” and snap elections being held in 2016 as a compromise to end the standoff in the Donbass. Since the Party of Regions and many Donbass parliamentarians boycotted the October 2014 elections as well as the fact that the occupying Russian forces prevented the holding of elections in 16 eastern districts, there is talk among the political elites of holding new elections in 2016. After holding Parliamentary elections just three months ago, why is there already credible discussion of such a matter? The theory goes like this: the public will tire of the current government in 2015 due to the economic woes the country is facing. Even with reforms, the effects won’t be felt by ordinary citizens any time soon. Russia is holding one trump card which they can play at any time to settle the Donbass debate and that card is “new elections”. Just as new elections were a way out of the 2007 deadlock between Yushchenko and parliament and the 2014 snap elections were a way to break the post-Yanukovych impasse, the precedent for snap elections has been set. The Kremlin knows that the West is almost certain to jump at the prospect of new elections (and subsequently pressure Kyiv) to potentially settle the Donbass situation and (presumably) return it to Ukraine’s control (albeit in a more decentralized manner if not a federalized manner). Thus, after stirring the pot of resentment towards the Ukrainian government due to the economic recession (ironically created by Yanukovych’s looting and the Kremlin’s war on the Donbass), the Kremlin will play its “new elections” trump card in late 2015 to force new Parliamentary elections in early 2016. The official rhetoric will be about empowering the east to ensure representation and bringing an end to the war. However the real endgame will be about securing a more Kremlin friendly Parliament than currently exists. Politics, just like gambling, is about timing. You truly have to “know when to hold em and know when to fold em”. The Kremlin simply folded on 2014’s election but is planning to “double down” on the elections in 2016. While new Parliamentary elections are not an exciting prospect at the moment, it does reduce the chance of the Donbass becoming a permanent “frozen conflict” from 85% (see #1 above) to potentially 25%. Thus, the chance of snap Parliamentary elections in 2016 is 45%.
7. Constitutional Reform and Decentralization Face an Uphill Battle: technically the parliamentary coalition has the 301 votes needed to pass any Constitutional changes including decentralization of powers to the regions. In practice, as the budget vote last week showed when it received just 233 votes (seven more than the minimum), the coalition is fragile and influenced by a variety of financial and political interests. Changing Ukraine’s Constitution and decentralizing power are keys to reforming the country. Yet, finding the votes to do it will present a major challenge in 2015 as the effects of the economic recession are felt by ordinary Ukrainians. The government is almost certainly likely to have a lower approval rating than now when the bills are voted on sometime prior to October. Thus, with lower approval ratings, the government will have a more difficult time to keep the governing coalition together as well as sway and/or accommodate rogue MP’s and factions.
Even if the governing coalition can get every member of the three semi-cohesive factions (Poroshenko Bloc, People’s Front, and Samopomich) to support the reforms, that only gives them 264 votes which is 37 short of the needed amount. That means that the governing coalition must persuade and/or cajole two of the other four factions (excluding the Opposition Bloc which is almost certain to be opposed) to get the needed votes for reform. If we assume that the pragmatic Ihor Yeremeyev (People’s Will faction) might be the “low hanging fruit” on the persuasion tree, that still means that achieving the final needed votes rests in the hands of Ihor Kolomoyskyi, Dmitro Firtash and/or Yuliya Tymoshenko – none of which have reputations for being particularly amicable negotiators. Given that none of those factions voted for the budget, we can be confident that they will extract concessions of Biblical proportions in exchanging for supporting the Constitutional reforms. Constitutional reform is desperately needed as the current Constitution with the 2004 Amendments has created a system of “confusion and blocks” rather than “checks and balances”. Outside of keeping the peace, passing Constitutional reform will be the single biggest test of whether Poroshenko can call 2015 “successful”. As of now, the Chance of Constitutional Reform and Decentralization Passing is 40%.
8. Putin Renews the War against Ukraine: this is the question which everyone wants to know but only one person truly knows: Mister Putin himself. In fact, he may not even know right now but will decide later. You might as well ask, “How deep is the ocean?” However, given that the battles in the Donbass have lessened since early September and Russia’s new economic woes relating to the collapse of the ruble and the price of oil, the general consensus is that the war is winding down. However Putin has excelled in doing the unexpected in 2014 and nothing in his character suggests he has had a change of heart about anything. Therefore, will Putin increase the shelling of Ukrainian forces in the Donbass in 2015 as a negotiating tactic? Probably. Will Putin invade eastern and southern Ukraine? Probably not. Nonetheless, what analyst predicted Saddam Hussein’s invasion of Kuwait in August 1991? Thus, the Chance of Putin Renewing the War Against Ukraine in 2015? 30%
The Budget Vote: at 4:24 AM on December 29 the Parliament of Ukraine passed the budget for 2015. The new government’s budget received 233 votes, seven more than the minimum but far short of the 300 plus votes in the parliamentary majority. President Poroshenko went to Parliament to personally appeal to his faction members to support the budget and 120 out of 150 voted in the affirmative. Yatsenyuk’s People’s Front demonstrated the greatest party vote discipline with 81 of 82 members voting in the affirmative. Lyashko’s Radical Party surprised everyone with 17 of 22 members voting “yes”. Conversely, the surprise disappointment was with Samopomich which mustered only 10 of 32 members to support the 2015 budget. In politics, “good” is not the enemy of “perfect” and while this budget was obviously largely dictated by IMF requirements, it was the best Ukraine has seen in years and it will have the effect of keeping Ukraine’s financial lifeline afloat.
What was interesting was who didn’t vote for the budget. Kolomoyskyi’s “Economic Development, Yeremeyev’s “People’s Will”, Tymoshenko’s “Motherland” and the Opposition Bloc factions were all unanimous in not supporting the budget. They were joined by 34 of 39 independent lawmakers. Poroshenko Bloc’s Serhiy Leshchenko (and 29 other faction members) also refused to vote for the budget complaining that he didn’t have time to read it. However it was common knowledge that many of the “star” MP’s had decided in advance not to vote for the budget to be able to distance themselves from potential economic effects later while simultaneously insisting that their lesser known colleagues vote the party line.
Dates to Watch:
· January 8: IMF Resumes Work in Ukraine: with passage of the budget, the IMF will now consider doubling their pledged financial assistance to Ukraine. Had the budget not passed this would not even be a consideration.
· January 13: First Voting Session of Parliament in 2015
· October: National Local Elections