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Chances For Diplomatic Solution To Ukraine Conflict "Slim", Soc Gen Says

Depending on which side of the story you believe, the crisis in Ukraine represents either an attempt by the Kremlin to realize territorial ambition and reassert Russian dominance in the Baltics by violating other countries’ sovereignty or it represents yet another attempt by Washington to prop up puppet governments with financial and military support in order to advance US foreign policy aims even if that means risking armed conflict. As is usually the case, the truth likely lies somewhere in the middle, although one has to admit that recent events seem to validate the Russian security council’s claims that “the armed forces are considered as the basis of US national security and military superiority is considered a major factor in the American world leadership.” NATO war games along the Russian border and the recent House vote to provide Kiev with lethal aid seem to support Moscow’s assessment, and the dramatic collapse of the Yemeni government is a vivid example of how things can go horribly awry when Washington hijacks the political process in order to install “friendly” leaders in countries The White House deems “strategic” for whatever reason.

That said, it’s in Russia’s best interest to keep geopolitical tensions just high enough to support oil prices (which works right up until other powerful nations decide to use energy prices as leverage in a bid to bring about regime change in Syria) and Moscow is itself famous for sabre rattling. Whatever the case, the conflict in Ukraine has made an impact on the lives of everyday Russians as Western sanctions squeeze the Russian economy. To let Soc Gen tell it however, the Russian people remain, for the most part, resolute in their support not only for President Putin, but for Russia’s position vis-a-vis the rebels in Ukraine. 

Here’s Soc Gen on why economic sanctions may become a fixture of Russian life:

Western sanctions have exerted a broad-based negative impact on Russian businesses. The cost of borrowing has climbed considerably not just for sanctioned institutions, but also for other Russian entities. Risk management departments across global enterprises are likely to continue erring on the side of caution, continually assessing the risk of sanctions materializing for counterparties in Russia. Normalization of business practices may only reemerge long after the removal of sanctions. Although this does not mean completely avoiding interactions with Russian entities, businesses and investors are increasingly cautious and selective in their participation…

 

Western sanctions against Russia may persist indefinitely. Some locals believe in the likelihood of de-escalation later this year, pointing to the lack of political cohesion and unanimity among Europe’s political leaders, and increasing calls for easing of sanctions. Russian businesses believe that escalation of sanctions may be hard to implement, given that they will also hurt European counterparties. Some local asset managers are optimistic on the performance of Russian assets later this year, based on a perceived high likelihood of improvement in geopolitics. Although locals differ in their assessment of the timeline when sanctions may be lifted, they appear united in their support and admiration of President Putin. Few care to speculate on President Putin’s ultimate game plan, or whether one exists, citing the opacity of the situation. With that said, locals broadly concur that Russia would never (again) relinquish Crimea. In this light, Western sanctions against Russia based on its annexation of Crimea may persist indefinitely…

Unsurprisingly, Russians view the conflict in Ukraine in an entirely different light than observers in the West: 

The local population’s interpretation of events unfolding in Ukraine and of Russia’s role in the current geopolitical turmoil differs incomprehensibly from the Western or US perspective, with virtually no middle ground. In the hotel where we stayed, over the three days of our visit, Russian state television played a continuous loop of repeated UK- and US negative stories, and those that reflected poorly on the Ukrainian administration. The vast majority of the Russian population believes the official state-sponsored story – that President Putin is pursuing the best possible course of action in defending the rights of Russian speakers everywhere, that the President is not an aggressor and has no territorial ambitions, that the US impinged upon Russia’s national security – and furthermore, that personal financial sacrifices during these difficult times are a source of honour in defence of the country’s national interests. Many locals express conviction that Europe and Russia’s interests are aligned, asserting that both sides desire de-escalation of injurious economic sanctions. Locals further highlight that the US and Ukraine are the sole parties insistent on aggravating the situation – the US by nature of its fundamental antipathy toward Russia, and Ukraine by virtue of its desperate reliance on funding from the international community. The logic goes that Ukrainians need to perpetuate havoc and chaos on the situation, as absent a crisis, funding will dry up for Ukraine. 

 

Chances for a diplomatic solution to current geopolitical tensions appear slim. The irreconcilable characterizations inside and outside of Russia of current geopolitical stress lead us to believe that it is unlikely that understanding / compromise between political parties involved can be achieved via diplomacy. Too much has been invested in shaping the public’s perspective. In turn, this suggests that notwithstanding the lack of political unanimity / cohesion among squabbling European leaders, there is a risk that Western economic sanctions on Russia may remain in place for the foreseeable future. 

And the President’s iron grip on the country isn’t likely to loosen any time soon:

President Putin personifies power in Russia. Notably, there are no clear successors to replace the president, as broadly agreed by local sources, with Russia arguably exposed to an over-concentration of power invested in one single individual. Indeed, President Putin is the personification of power in Russia. Not only is there a glaring deficit in checks and balances to President Putin’s political power, there is furthermore no succession plan. Strikingly, although locals are less than thrilled about President Putin’s personal consolidation of power, they are terrified of the prospect of his disappearance from Russian political life, and fear the worst for the country in such a scenario.

 

There is no obvious, credible challenger to the president thus far. An uprising of political opposition forces surged following the 2011 Duma (State Assembly) elections, amidst strong sentiment that the election results were heavily manipulated. Procedural irregularities persisted in the subsequent 2012 presidential election, in which Vladimir Putin won a third, non-consecutive term as President. However, since then, opposition forces have failed to gain traction with the public, presenting no credible alternative. Currently, President Putin enjoys a sky-high public approval rating of 88%, according to the latest polls.

 

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So, far from any "de-escalation," it appears a diplomatic solution is becoming increasingly unlikely as both Russia and the West are now pot committed in terms of the enormous effort expended to demonize the other side.