Ukraine: The Real Energy Crisis Starts in June

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Yves here. Readers are likely to beg to differ with this post’s assessment of the newly elected president of Ukraine. However, the key part of this analysis is the degree to which his support and authority comes under pressure when Gazprom insists it gets paid or else. I’m updating this post about a half hour after its release to include this comment from Ilari’s post earlier today:

Ukraine has a new president, or at least someone, Petro Poroshenko, who claims to be. One of the first things to come out of his mouth was that he doesn’t recognize Crimea as being a part of Russia. Still, the good listener knows there were no Ukraine presidential elections in Crimea either on Sunday. So Crimea is supposedly still a part of Ukraine, despite a referendum in which 89% of Crimeans chose not to be, and they get no vote in who gets to be their president either? What does all that mean?

Poroshenko also vowed to bring peace to east Ukraine, something he aims to achieve through violence, as yesterday’s 100 deaths can bear silent witness to. Ukraine has a new president and the first thing he orders, even before being inaugurated, is the killing of more of his own citizens. Petro P. had lofty words about wanting a good working relationship with Russia, but those were only words; why, or even how, would Moscow want to talk to someone who has not even officially been elected yet but already wants to kill ethnic Russians who happen to live just across the border from Russia because of a map redrawn pretty much at random 60 years ago? What about that map permits Ukrainians in one part of the country to kill fellow Ukrainians who live in another part?

If Russia would withdraw its troops, chances are there would be a massacre, if not a genocide. That it cannot do. It cannot allow it either. So what is Poroshenko’s idea? That if he can kill enough eastern Ukrainians the rest will submit to anything he wants? And that Putin will let him? Neither seems even remotely likely, and the president-to-be knows it. What then is behind this? Is he even his own man?

By Robert Bensh, an energy and energy security expert with over 13 years of experience leading oil and gas companies in Ukraine. He has been involved in various roles in finance, capital markets, mergers and acquisitions and government for the past 25 years and is currently the Managing Director and partner with Pelicourt LLC, a private equity firm focused on energy and natural resources in Ukraine. Cross posted from OilPrice

Kiev is feeling emboldened by the successful election of a new Ukrainian president and a bloody surge against separatists in the east, but in just a few days, Russia says it will twist the gas spigot, and there’s very little Kiev can do to stop that.

On June 3, Russia plans to reduce the gas supply to Ukraine — and hence, to Europe — if Kiev has failed to pay in advance for next month’s gas deliveries, the price for which has been doubled as a result of the political crisis.

Interim Ukrainian Prime Minister Arseniy Yatsenyuk is trying to play hardball with Moscow, suggesting that gas talks cannot move forward until Russia addresses the issue of $1 billion in gas it stole when it annexed Crimea.

Yatsenyuk may be riding high on the sense of stability the recent presidential election has brought, not to mention the unleashing of the Ukrainian military on pro-Russian separatists in Donetsk, but the “stolen gas” gambit is a losing one—a bunch of bluster that certainly won’t make Moscow go away.

Ukraine owes $500 million just for May gas deliveries, on top of a whopping $3.5 billion in outstanding gas debt (according to Moscow). If at least part of this debt is not paid, there won’t be any negotiating over price. Gazprom says Ukraine had agreed to pay $2 billion of its debt this week, but Kiev is instead talking about stolen Crimea gas.

What is promising in all of this is the election of Petro Poroshenko as Ukraine’s new president, by a wide margin and with more than 60 percent voter turnout. Ukraine has new, legitimate leadership that Russia, the United States and the European Union have all agreed to recognize.

The new president immediately pledged to deal with the separatists in Donetsk and Lugansk, establish a working relationship with Russia and hold early parliamentary elections, which undoubtedly is an attempt to capitalize on the current political good will and further weaken a parliament dominated by former Regions politicians, Fatherland and business interests.

What the presidential elections give Kiev is a bit more strength and a more united force to deal with its energy crisis, as well as with Moscow.

In the coming days, Russia will recognise Poroshenko’s legitimacy and remind him that June 3 is right around the corner. By next week, we could see the disruption of gas supplies to Europe, Russia’s largest and most profitable market.

If this happens, an acute energy crisis in Ukraine is all but certain. Ukraine stockpiles its gas supply for the winter heating months during the summer. With current low supplies and higher prices expected for this summer, Russia will walk all over Kiev.

Short of handing Gazprom a cashier’s check, there is no way to avoid the present crisis.

In the medium-to-long term, however, some hard decisions are going to have to be made—decisions that former Ukrainain vice prime minister and energy minister Yuri Boyko would have liked to make some time ago. These include selling off the state-run gas companies, Ukrnafta and Ukrgasproduction.

So we find ourselves reliving 2006 and 2009, when Russia cut off gas supplies to Ukraine and Europe. And if Ukraine hopes to stop reliving these desperate years over and over again, it’s going to have to start selling off assets and rolling out the transparency.

The trick will be for Poroshenko and a newly appointed energy minister to work with both Russia and Europe to secure new pricing and to foster energy independence while at the same time being mindful of one very important fact: Ukraine’s westward drift toward the EU is what led Russia to annex Crimea in the first place.

Russia will continue to use Russian nationalist movements in eastern Ukraine to stir discontent and to sow chaos, striving to keep Kiev off balance as Moscow works to use gas as a weapon to ensure a compliant Europe. It’s a hard balance to maintain, especially as some Central European countries are seeing the light at the end of the independence tunnel.

Poroshenko is a highly pragmatic businessman, which is what Ukraine needs. But neither he nor those around him know energy, or Russia. From the energy crisis standpoint, it is the appointment of a new energy minister that will change the real balance of power.

There are very few figures in Ukraine who know the West, Russia and enough about energy to do what needs to be done. Because of that, Poroshenko’s pick for energy minister should be the smartest choice, not the most popular one.

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48 comments

  1. John

    If the US and Europe were so high minded they would pay off Ukraine’s gas bill debts. Don’t count on it.

    1. Jim Haygood

      Uncle Sucker already guaranteed a $1 billion Ukrainian bond issue on a bilateral basis, despite the IMF’s work on a much larger multilateral program:

      The U.S. Treasury Department is using experience gained over years of supporting Middle East countries in transition to deliver financial aid to the latest hot spot: Ukraine.

      Among the lifelines Treasury Secretary Jacob J. Lew offered within days of Russia’s move into Crimea was a guarantee of debt sold by the new government in Kiev. Similar U.S. support has been used in recent years by Jordan, Tunisia and Egypt.

      The first foreign debt guarantee by the U.S. since Jordan sold $1.25 billion of seven-year bonds in October is part of a financial arsenal the Treasury uses to buttress American foreign policy.

      http://www.bloomberg.com/news/2014-03-11/treasury-s-lew-dips-into-mideast-toolkit-to-back-ukrainian-bonds.html

      ————

      Amazing how generous one can be with other people’s money, ain’t it? Without the U.S. guarantee, these would be freaking junk bonds.

      1. Gaianne

        The US paid $5 Billion to overthrow the democratic government and install the Nazis. One billion is nothing.

        –Gaianne

        1. Veri

          That is just the beginning payment. Expect another $70-$240 billion in Western costs, over the next decade, to absorb Ukraine. By then, Ukraine will be a wholly owned subsidiary of Western Finance, Inc. With the real industrial prize in Eastern Ukraine.

          As fot the IMF loan, that money is – mostly – US taxpayer dollars. So, your $1 billion dollars is already off. Also, the criminals in Kiev are authorized to issue government bonds backed by The US taxpayer. Which they will default on. Another $1 billion added to the tab.

          Planners want Russian-speaking Ukrainians massacred, in order to trigger an intervention by Russian Army. The neo-con dream.

          $1 billion is nothing. $240 billion of taxpayer money is a lot of profit. The cost of a limited engagement along military lines, say as in Western forces into Western Ukraine… Trillions in war profiteering.

  2. MrFailSauce

    “some hard decisions are going to have to be made…These include selling off the state-run gas companies, Ukrnafta and Ukrgasproduction”

    What is the benefit of selling the state gas companies? Selling other state assets in post soviet countries has just led to a new class of oligarchs.

    Even ignoring the poor track record of state asset sales in Eastern Europe, I don’t see how there is even a sound theoretical basis for the sale. The problem with state run companies is primarily monopoly, and for a utility there isn’t a sound reason to believe private ownership will end the monopoly; simply transfer the rents from the public to the private.

    Is the benefit that it raises money to pay the immediate gas bill? That seems a pretty poor trade, A short term payoff in exchange for the loss of a public asset that would have paid dividends into perpetuity.

    1. Ned Ludd

      Q: “What is the benefit of selling the state gas companies?”

      A: “Selling other state assets in post soviet countries has just led to a new class of oligarchs.”

      The goal is always looting. They are con men, and they earn people’s confidence by pretending to make hard choices for the benefit of the country. But, like other confidence artists, the real goal is to enrich themselves at the expense of their marks.

  3. Michael G

    So far Putin has played a smart game, inflicting maximum pain on Ukraine at minimum cost. At little inconvenience, he can continue to keep Eastern Ukraine ungovernable, and can turn off the gas at will. It is frustrating to hear Western leaders repeating and repeating how they will get very very cross and that there will be very very serious repercussions, instead of addressing what is going to happen, and deciding how they will deal with it. The potential benefit for the West will be that the rump of Ukraine will be strongly anti-Russian, but to take any advantage would cost the West real money. I suppose talking pointlessly may be less effective, but it is much cheaper.

    1. EoinW

      Why is it always Russia or Putin responsible for eastern Ukraine being ungovernable? Let’s see. the man the entire east voted for President was overthrown in a coup. Are they going to just be happy about that and accept the new “government”? Consider that the new government is made up of anti-Russian neo-nazis. Do you still think Russian speakers in eastern Ukraine need Putin to motivate them to rebel?

      I do not see how an anti-Russian Ukraine benefits anyone in the west. Except for those in the West who are already anti-Russian and, forget the consequences, hating Russia is all that matters.

    2. Abe, NYC

      Ukraine as a whole is already strongly anti-Russia and anti-Putin. What benefit it is to the West I have no idea, just like I have no idea what would have been achieved by keeping a US fleet in the Black Sea, which Russian TV scares the children to bed with. Left to itself, Russia would just self-destroy like it’s done a couple of times already, but if it’s trying to impose its brotherly love on its neighbors it must be counteracted.

      I suppose talking pointlessly may be less effective, but it is much cheaper.

      Given time the sanctions will suck the life out of Russian economy. But it will cost real money, it is already.

    1. OIFVet

      What a paean to … what exactly? It has the tone of a paean, it glorifies the right sort of people (revolutionaries!) for standing up to the evils of the usual suspects (Berkut! Russia!), includes the obligatory Nulandian shot at the EU except it is in that Canadian-nice passive-aggressive sort of way. I just can’t wrap my mind around the glaring contradiction between the claim that “Kiev is now using Brussels as a game piece rather than the other way around” and the reality that “These incidents of identifying and punishing the Titushki highlights fears over how much control the new leadership really has over security…” Are we to believe that Ukraine is a newly-born geopolitical juggernaut that moves the insignificant EU pawn as it pleases even as it has no control over its own internal security and its neo-nazis? Good lord!!!

      1. Moneta

        The writer grew up in Canada and the US, and is of Ukrainian descent.

        There are a lot of players with many conflicting dreams and ideals and I thought the article did a great jobs of showing us how multi-dimensional the whole conflict is.

        1. OIFVet

          I don’t know how seriously I can take an article which speaks about Putin-appeasement. The thinly veiled comparison to Hitler is simply too propagandistic to swallow, and has a call to arms quality to it in spite of the author’s insistence that the Ukrainians “are adamant about not being dragged into war with Russia.” If so they had better reconsider whether being a US puppet doing its best to bait Russia into attacking is a smart move, and deal with their neo-nazis, and fast. Yes, the author does delve into the ideals of the Maidan and very reluctantly acknowledges the nazi nature of the Right Sector, but I see no multi-dimensional analysis in a piece which does not mention US involvement even once and uncritically blames Russia, Putin, and the Berkut for everything.

      2. Moneta

        Actually, I liked how the article approached the conflict and mess from the revolutionary’s point of view and not Russia’s or the West’s.

        1. Working Class Nero

          Revolutionary neoliberalism?

          From the same author

          The driving factor for any energy investor in Ukraine is the pricing environment. There is nowhere else in Europe—or some would even argue in the world—where you are going to get significant access to resources and potential resources for the price. Gas is selling at $13.66/Mcf, while it costs $4-$5 to produce and operate. That means producers are netting anywhere between $8 and $9/Mcf.

          Whether it likes it or not, kicking and screaming, Ukraine will have to transform its energy sector, if it hopes to see promised IMF money. Kiev will have to start selling off assets and making the industry much more transparent. Greater transparency coupled with an already-favorable gas price environment, will make Ukraine one of the best places to be over the next 5-7 years.

          While everyone is now closely watching the campaigns unfold in the run-up to 25 May presidential elections, in the end who wins the presidency—and even the energy ministry—will determine not if, but how fast the country moves to transform its energy sector.
          The crucial next step is a psychological one: Ukraine’s new leaders must come to the realization that their energy assets, particularly the pipeline system, are not strategic assets, rather they are valuable commercial assets. Privatizing these assets could raise $50 billion.

          Right now, the pipeline system is nothing but a conduit for Russian gas into Europe. It could be much more. The pipeline system, and the state-run company that manages it, should be turned into a transparent public company in London, for instance. The sale of 50% of the company could generate sizable profits—half of which could be used to pay down debt to Russia, while the other half could be invested in modernization, turning a potentially valuable assets into a commercially realistic one.

          http://robertbensh.com/2014/04/02/by-robert-bensh-the-most-profitable-gas-in-the-world/

          Note the term transparency; that’s the same subject that Hunter Biden is working on.

          Google Robert Bensh – Special Forces, his story is very interesting.

            1. Working Class Nero

              The more intriguing possibility is that he wasn’t lying at all and the military sites are just useful idiots. I mean considering all the fallout from the Nuland-Kagan tapes, would you really want one of your key players with Delta Force, Rangers, ex-DEA prominently displayed on their CV? It might lead people to the wrong (right) conclusion about whom he is really working for. So the whole inflating credentials scandal might have been a ruse to allow him to clean his CV. And most international players would be clued in enough to understand what was going on.

  4. EoinW

    That was an awful peace. Useful for creating talking points because the readers here are too intelligent to buy into such propaganda. But this is the crap that goes out from the MSM and nearly all westerners believe it. Thus the article serves as a helpful “shot across the bow” for the people at NC who can think for themselves.

    The neat thing about Ukraine is that it’s so easy to spot the bias. Just the comment that Russia has doubled the price of their gas does it. An objective writer wishing to represent reality would describe it as Russia ending its discounted gas to Ukraine. Alas, for some writers charging market price is Russia using energy as a weapon. Doubtless the people of Fallujah would have loved America to use energy as a weapon, rather than what they did use.

    Good luck finding energy wise people. All the neo-nazis he has to choose from only know how to hate anything Russian. If he manages to find a technocrat for energy minster, they’re very wise when it comes to neo-liberal rape. Nice options!

    1. Banger

      I don’t know–I found the piece interesting. Berish is part of the energy and security world and thus a part of the system so, if he intends to keep working, he can’t attack the system that pays his bills. Everybody involved in the situation has his or her angle.

    2. Moneta

      Something tells me that Europe is such a mess that if you asked many people their interpretation of what was going on, you’d get many different versions.

      There are so many undercurrents flowing through Ukraine, it’s dizzying.

  5. EoinW

    Woe to Ukraine! Why would anyone want such a basketcase? Can’t help but be struck how different leadership acts. When Greece went belly up financially you would have thought the sensible thing was for the EU to let it go. Why would they want such an economic nightmare? Yet the EU was terrified at that prospect. Contrast that to Putin who appears to be prepared to let Ukraine leave the Russian orbit. Is the difference simply the EU’s position of weakness(the union can’t survive even Greece leaving) compared to Russia’s position of strength? Perhaps it’s just the neo-liberal mindset? One must always have growth – endless growth. Even the EU must grow! grow! grow! at all cost. Well they can grow some more by adding Ukraine. And these are our financial titans running the West?

  6. Banger

    The gas situation in Ukraine is kind of humorous–there is one obvious choice that, of course, is seldom made, diplomacy. Europe, the U.S., Russia and Ukraine could sit down and negotiate a good deal. Really there is no reason to hassle over this. Russia needs security guarantees that Ukraine will not become another outpost for NATO expansion, virtual or otherwise. Europe needs gas and Ukraine needs a governable country. It is only the U.S. that has an interest in causing trouble here.

    The U.S. goal is to weaken the EU while appearing to be friendly thus making the EU dependent on the U.S. which is the guarantor of Middle Eastern oil supplies and international security. While the current administration in Washington is considered “weak” by critics it still is strong by comparison of European leaders–and as sheeplish as Americans are Europeans, who aren’t as profoundly ignorant about political affairs, are beginning to appear to almost beat out Americans in their compliant behavior. Europeans must recognize that the don’t need the U.S. any more. The Soviet Union is long gone and Russia while a powerful country, is no threat to anyone. It continues to act, internationally, in a sensible manner, Lavrov and Putin are statesmen and not like von Ribbentrop and Hitler even though the American propagandists who seem to dominate not only the U.S. media but Euro media are telling the world.

    The USG deliberately maintained the Cold War well beyond the time it was necessary to feed the dominant military-intelligence-Congressional-industrial complex in the style they are used to and has, in my view, either manufactured conflicts or do their best to inflame nascent conflicts whether in Eastern Europe, the Middle East or Central Asia. This should be glaringly obvious to anyone who cares to look at the record. Europe, interestingly, after following along with U.S.foreign policy no matter how viscous, lying over like beaten dogs when Wall Street and the City looted the financial system, now wants to create a little U.S. with privatized everything and neofeudalism. To Euro-readers–is this what you want just so you can rest in the arms of Uncle Sam? Fortunately there are many signs that point in the right direction for Europe in moving away from the glories of hot or cold war.

    1. Synopticist

      You know all that, and so do most NC readers, but sadly we’re in a small minority. I no longer know what is to be done.

  7. Lafayette

    May I suggest this view of Poroshenko here from the Guardian, which is a bit more upbeat than the usual “they’re all kleptocrats!”

    Excerpt:

    Journey into politics

    Born near Odessa, in south-west Ukraine, Poroshenko launched himself as a business consultant in the 1990s after studying economics in Kiev. (He met his wife, Maryna, a cardiologist, at a university disco; they have four children.) Poroshenko took over state confectionery plants and transformed them into a lucrative empire.

    In 1998 he entered politics, winning a seat in Ukraine’s lower house, the Verkhovna Rada, representing the Social Democrats. Two years later he founded his own Solidarity party.

    Poroshenko’s ambition quickly manifested itself, as did a political flexibility which strikes some as slippery. He co-founded the Party of Regions – the eastern-based party of Yanukovych. Soon afterwards, in 2002, he joined the Our Ukraine group of Yanukovych’s pro-western rival Viktor Yushchenko. Poroshenko played a leading role in the Orange Revolution which prevented Yanukovych from fraudulently claiming victory in the 2004 presidential elections.

    Yushchenko won a re-run vote, and Poroshenko became secretary to the council on national security and defence. He harboured hopes of becoming prime minister but instead the job went to Tymoshenko. Soon, though, this Orange coalition fell apart. Yushchenko fired Tymoshenko and Poroshenko, amid allegations of corruption, which he denied. Poroshenko remains close to Yushchenko, who is godfather to his daughters.

    But after exiting government, Poroshenko bounced back. He served as foreign minister in 2009-10 and accepted an offer by Yanukovych – by this time president – to become minister of economic development. Poroshenko negotiated with the International Monetary Fund. Currently, he is an independent deputy without his own proper political party. (He has agreed an electoral pact with Klitschko’s Udar party; Klitschko, the early front-runner, pulled out of the presidential race to support Poroshenko.)

    According to Alexander Temerko, a London-based Russian businessman, Poroshenko is driven by deep religious convictions. He is a member of Ukraine’s Orthodox church, and has financed the restoration of its buildings and monasteries. In high-level meetings he is often seen fiddling with a crucifix.

    “Religion is important to many Ukrainians,” Temerko said. “This gives him a fantastic advantage over other candidates, especially among simple people. Like Greece, Ukraine is a country of Christianity.”

    Following years of oligarchic misrule, does Ukraine really need another rich man in charge? “I think he has this feeling of public service in him,” said Orysia Lutsevych, a research fellow with Chatham House’s Russia and Eurasia programme. Lutsevych acknowledged that Poroshenko was wealthy, with his own business interests. But she added: “His business looks legitimate. It wasn’t built on corrupt trade in gas and oil with Russia.” Unlike other Ukrainian politicians “he was never involved in any big scandals”.

    Poroshenko made his own money – Forbes puts his net wealth at $1.3bn – from his chocolates, earning him the nickname of “the chocolate king”. His other business interests include shipbuilding, construction and media.

    What the future holds

    So what would a Poroshenko presidency hold? A champion of European integration, Poroshenko is seen by many voters as the best person to reform the country’s failing economy.

    He can be under no illusions as to the grave challenges ahead. “If a country is to deal with Russia as an equal, it must be strong,” he said last weekend. In the space of two breathless months, Russian president Vladimir Putin has annexed Crimea and fomented an armed uprising in the Russophone east and south. One of the Poroshenko’s activists was brutally beaten up in Makiyivka, a town near Donetsk. In Luhansk, next to the Russian border, other members representing him on the local election commission were taken hostage.

    After equivocating for weeks, the Donetsk-based oligarch Rinat Akhmetov has finally denounced the separatist uprising in the east. Still, not much voting will take place here on Sunday, with the possible exception of northern parts of Luhansk Oblast, under government control. Pro-Russian leaders have declared independence from Kiev, and have vowed not to recognise Sunday’s elections. Masked gunmen are already seizing ballot boxes, including on Tuesday in the town of Artyomovsk.

    On the campaign trail, Poroshenko has cast himself as the man who can rescue Ukraine from its numerous afflictions: break-up, corruption, a rampant shady economy and lousy governance. His long-term goal is to transform his nation of 46 million into a modern European state. He wants to decentralise power, amend the constitution and sign the latest chapter in the EU association deal, which he personally drafted as foreign minister. The European path will help Ukraine modernise, he argues, and – as his campaign slogan puts it – “to live in a new way”.

    But the spectre of a Yugoslav-style collapse remains. Poroshenko takes a hardline against pro-Moscow separatists. “What language do we have to speak with terrorists? That’s right, the language of force,” he told an election rally last week, according to the Kyiv Post. But the details remain fuzzy. The Ukrainian army is already skirmishing with Russian-backed rebels around the town of Slavyansk; casualties on both sides growing; results inconclusive.

    Meanwhile, Tymoshenko has accused her old rival of secretly cosying up to Russia. In March, Poroshenko and Klitschko met with billionaire Dmitry Firtash in Austria. Firtash made his fortune from murky intermediary gas pipeline deals with Gazprom; he is fighting attempts by the US to extradite him on corruption charges. It is well known he has close Kremlin contacts.

    Putin’s view of Poroshenko – an implacable foe or a man he may be able to do business with – is unclear. Some believe that recent de-escalatory moves by Russia suggest the Kremlin may view him as an acceptable interlocutor.

    In reality, though, there’s little evidence Poroshenko is a Russian patsy. The businessman has paid a high price already for his outspoken pro-western views. Last summer Moscow banned chocolates from his Roshen factory in Lipetsk, southern Russian, supposedly on health grounds. In March riot police shut down the plant and seized its warehouse. Poroshenko also lost his shipyard in the Crimean port of Sevastopol when Russian troops overran the Black Sea peninsula. He has vowed to use all levers to get Crimea back.

    The US and EU already appear to regard Poroshenko’s victory as the most likely outcome. In late March Poroshenko visited London, together with Klitschko. They held talks with David Cameron and William Hague, the foreign secretary, and agreed a deal to make it easier for Ukrainians to get long-term British visas.

    Outside Downing Street the pair chatted to pro-Ukrainian demonstrators. Poroshenko posed with the Ukrainian flag, a symbol that has practically vanished from much of the east.

    With Ukraine’s future as a sovereign state in doubt, and Russian troops on the border, Poroshenko will need all the international help he can get. Plus the bravery he demonstrated on the Maidan. Nobody has quite forgotten what happened to Yushchenko, who was mysteriously poisoned while on the campaign trail in 2004. “He is a very determined person. There is a physical risk to Petro,” Temerko said. “He is a brave guy.”

    Created in 1996, Poroshenko’s company Roshen produces more than 300 kinds of sweets, cakes and biscuits at factories in Ukraine, Russia, Lithuania and Hungary. But if Poroshenko becomes president, he will take the politics out of chocolate for good: he has declared he will sell his company if he is elected on Sunday.

    1. Fiver

      And good Christian that he is, his first move was to OK the slaughter of up to 100 “separatists” in the east using fighter planes, tanks, artillery and helicopters vs small arms rather than allowing for time, a controlled wind-down of tensions and return to normalcy do the job for him peacefully. Anyone with so little imagination or sense of human worth at the helm is just the man to do the US smash & looters bidding, no matter how much it costs ordinary Ukrainians. Anyone show shifts sides so frequently may be an individual ‘survivor’, but it entirely useless from the perspective of the public interest.

      1. Lafayette

        Anyone with so little imagination or sense of human worth at the helm is just the man to do the US smash & looters bidding, no matter how much it costs ordinary Ukrainians.

        This morning a Ukrainian helicopter was shot down killing 25 soldiers being ferried off-duty. There’s a war going on in the east.

        Perhaps you’ve not noticed?

        Yours is not the most objective post in this thread. Not by a long shot ….

    2. Jackrabbit

      The Guardian has not been a paradigm of independent journalism where Ukraine is concerned. They might be a smidgen better than some other MSM outlets, but that’s not saying much.

      1. Lafayette

        One must look at a number of different news-sources in order to get a balanced opinion.

        Do you only read the Daily Mail? Or maybe the Daily Telegraph or Financial Times?

  8. Eureka Springs

    Although I am often easily amazed I find myself amazed anyone with so much as basic knowledge of the events ever considered this election controlled by a coup-mob owned by foreigners and local oligarchs to be legitimate… and now everyone just carries on as if Willie Wonka is legitimate. I was thinking this way before Illargi demonstrated so clearly how a first day after an ‘election’ without real choice or any sort of a majority support except perhaps in a few western Ukrainian areas the chocolate mafia man should already be arrested for a number of monstrous intents/actions.

    But then I’ve been amazed for months that the west isn’t outraged and holding the U.S. neoliberalcon leadership in a jail cell for ushering through yet another coup, fomenting bloody chaos upon another 50 million people half way around the world. And continues to do so… acts of undeclared, unprovoked war, for and with nazis for goddess sake.

    So I sit here amazed at the lawlessness and the similarities of all our monsters…. the world needs a focused Bastille Storm much more than we need to just let the same mistakes remain credible and unpunished over and over again.

    1. OIFVet

      Check out Pepe Escobar’s latest article at http://rt.com/op-edge/161664-elections-in-eu-ukraine/. ” Few in Europe would have noticed how this process is so far away from “democracy” –instead enshrining intolerance and an ideology of blind confrontation, as represented by this “debate” in Kiev driven by a clueless Yale historian.” Indeed.

      1. Lafayette

        And how, pray tell, would YOU have done it better?

        C’mon, show us how “fair-minded people” would have conducted the Ukrainian election that transpired last weekend.

        Btw, where was your disgust when the pro-Russians held their mock-election in Donetsk?

    2. Moneta

      I’m not even sure if the term neoliberal has even made it to Canada, apart from pockets here an there. That’s how detached the general population is from what is happening.

  9. 6th generation Texan

    In the grand scheme of things, the current world situation is just the latest version of the classic land power vs naval power conflict that has replayed over thousands of years, from the Peloponnesian Wars to the Napoleonic Wars to both World Wars and the Cold War. In most cases the naval power has prevailed (a combination of massive hubris, greed and stupidity finally did in the Athenians — ring any bells regarding the current situation…??)

    Many analysts have dubbed the current struggle to control Eurasian resources as the “Energy Wars”, being fought primarily over access to those riches. These “Pipeline Wars” lie behind US/NATO aggression from the 1990s Balkan War to the present conflicts in Syria and Ukraine in time, and cover most of the Eurasian land mass in space.

    The West is decisively losing the Pipeline Wars. A vast internal network linking Central Asian producers (including Russia and Iran) to hungry markets in the Far East, India and Europe is well under construction, bypassing the sea lanes that the West controls via the US Navy and its carrier battle groups. As this process proceeds at an ever-increasing pace, it will eventually undermine the basis of America’s claim to world hegemony: the Petrodollar.

    When the Petrodollar dies, so does the Amerikan Empire. The vital question: how will the rulers of that Empire react when that moment finally confronts them? Will they slide into the dustbin of history quietly — or take the world with them in a nuclear Gotterdammerung ?

    Given their track record of making increasingly desperate/inept/psychopathic decisions in recent years, the likely answer scares the living hell out of me.

    1. Lafayette

      When the Petrodollar dies, so does the Amerikan Empire.

      You’ve got your geography all wrong.

      The “petrodollars” are in the banks in Riyadh awaiting placement in T-Notes and Eurobonds …

  10. Jackrabbit

    Thanks for the warning, Yves. Sifting for gold in raw sewage. I wish you had just excerpted.

    1. Yves Smith Post author

      Nah, not that hard. The stuff on the elections is not wanting to depart much from party line, but the sayin’ Russia is about to push the new prez through the wringer is pretty straight talk. And as John pointed out at the top of the thread, the US won’t be writing a big check to its new buddy in Kiev when Gazprom wants its bills paid.

      1. Kurt Sperry

        What leverage does Russia have here though? Short of bombs and tanks, what can they do besides turn off the pipelines and lose billions in revenues, while at the same time also losing any leverage they possess to move the west and the EU? The EU’s dependence on Russian energy is Putin’s ultimate trump card, he can’t really risk that one by burning it I would think. The threat of doing so is a powerful lever, once the threat is followed through with he and Russia become nearly irrelevant.

        Given the constraints imposed by reality it’s actually hard to realistically image a better outcome than what took place with Poposhenko’s unambiguous landslide victory and the demolition of the extreme right at the polls. His assault on the airport seems to me hardly unreasonable as conceding possession of a major transportation/communications hub like a large airport to a band of armed separatists would be incompatible with any sort of national sovereignty existing. When you want to play soldier and commandeer an airport using force you can hardly complain when you are answered with force. No country could allow such a thing to stand on their territory. Once the separatists took the military path they became legitimate military targets.

        1. Fiver

          That was a massacre at the airport, and not justifiable under any circumstances. A thug move and giant turd in the very regions he needs if he has any real intention of even trying to re-unite the country. On the other hand, if he merely wants to preside over the asset-stripping of the Ukraine and further impoverishment of his people, what are a hundred bodies here or another hundred there in such a noble enterprise.

        2. Lafayette

          What leverage does Russia have here though?

          Not much. Putin’s achieved what he could (in Georgia and Crimea) and will soon be turning his attention elsewhere.

          Russia has an economic growth that has diminished by half in the past three years. It is presently around 2%. The Winter Olympics were a diversion for taking the Crimea that was in planning stages since early this year.

          It’s all theatrics on his part, because Putin is playing actually with a weak hand. He has spent a lot of money on the Russian Army, but still has a second-class war-machine.

          If he’s lucky, he’ll make it until the end of his term then silently disappear. The next guy up is going to have a hard time meeting the expectations of the younger Russians. The older ones only care that their meager retirement funds are paid every month. Which Putin has been doing diligently with his petroleum export revenues.

          The younger Russians have had a taste of western-style living and wont want to give it up.

          But the problem is that the Russian economy was living on borrowed-time. Meaning that it was employing production capacity that was idle prior to Yeltsin coming to power. That idle capacity is now exhausted, and Russia must find new investments to expand.

          But from where? There is, supposedly, little left over as regards petroleum export revenue funds once present costs (Defense, Retirement, Operational) are met. Russia adopted a flat tax-rate in order to have income to be reinvested. But the Klever-Kleptocrats have put much of their earned-income abroad.

          Will they bring it back and reinvest in Russia?

          Zat iz ze trill-yun rooble kwestchun – they aren’t buying up London real-estate helter-skelter because they like to vacation there …

  11. ToivoS

    Two comments:

    First Bensch writes: On June 3, Russia plans to reduce the gas supply to Ukraine — and hence, to Europe

    This I do not understand. Russia and Germany built the Nord Stream pipeline under the Baltic to by-pass Ukraine. That has been online since 2012. It was designed to have sufficient capacity.

    Second (in response to Ilari) Poroshenko is not responsible for the current fighting in eastern Ukraine. That was ordered and directed by the current coup regime in Kiev. Poroshenko will not be taking office until next week. Hopefully, he will remove the neo-nazi Svoboda Party ministers who hold the internal security and defense portfolios and have been directing the fighting. We can judge him after he approves a new government. So far his statements have been mixed (he is not called slippery for nothing) but among the things he has said is that he wants the fighting in the east to end ‘not in weeks, not in days but in hours’.

    1. Fiver

      Did Poroshenko disown the attack at the airport? Has he denounced it? News to me. If he does not come out publicly and deny his involvement, one must assume he is in accord with what was a brutal massacre that could readily have been avoided.

      If he is to have any real credibility, he has to do what Russia has been demanding from Day 1, and that is investigate with zeal everyone involved in the violence at least as far back as weeks before the coup. It is vitally important to know who ordered snipers to kill protesters and police, who murdered all those people in Donetsk, and Maruipol, and who specifically was responsible for this airport attack. There are of course hundreds of other violent incidents that also require investigation. When Poroshenko credibly does that, and those responsible are brought to justice – then I’ll have another look.

  12. Jackrabbit

    I would caution against assuming/expecting too much. Each side is playing for advantage. I’d expect this to go on for some time. Recently we hear things like:

    Ukraine must work with Russia?
    No. Ukraine must pay its gas bill. Ukraine will try to re-gain or renegotiate a discount for Russian gas (work with us, comrades!). Ukraine (and other European countries) will frack – T I N A ! US energy countries will be happy.

    Ukraine will go through a mini-depression. Lots of people will leave. Westerners will get bargains.

    Speculative: if jews could be convinced to emigrate to Ukraine in large numbers (while many Ukrainians are leaving), perhaps Israel would (eventually) gain a pro-Israel state in the region? (Look at a map.) Note: EU states are not nearly as friendly as the US.

    Putin blinked / has given up on Ukraine / ‘got what he wanted’ when he ‘annexed’ Crimea
    Putin’s offer to provide humanitarian assistance to East Ukrainians is another great move. And an example that Russia remains engaged. Don’t get distracted by MSM knee-jerking.

    Poroshenko is a moderate.
    As described in this post, Poroshenko is businessman. His outlook is almost certainly a pro-EU/US/West neolib. I don’t know much about him but what I’ve indictates that this is so. He speaks of a unitary Ukraine (no Federalism) and rules out Findlandization (formal neutrality). Until the price of Russian gas is negotiated, he will likely say and do things that show Russia a carrot and stick.

  13. Fiver

    The last thing Ukraine needs is an IMF-led global asset stripping. It’s hard to believe anyone would seriously suggest it as ‘good’ for Ukrainians. First on the block is the gas distribution system (still strategic for EU/Germany, Russia and Ukraine, btw) then the oil/gas rights, then the agricultural land. The Greeks are auctioning off everything, including huge chunks of prized public beaches to sell to the global rich.

    Ukraine should not sell a nickel’s worth of its assets in pursuit of an EU or ‘Western’ dream which will turn to ashes on waking.

  14. Lafayette

    From the NYT (27 May):

    While roughly 70 percent of Ukraine’s land is considered suitable for agriculture, it has not been fully cultivated. The country’s yield per hectare of grain is about half that of the United States, according to the World Bank.. Agriculture once accounted for nearly 20 percent of the gross domestic product; it is now roughly 10 percent.

    Once upon a time, the Ukraine was Russia’s breadbasket. It has fertile soil and ample rain. Unfortunately, its cereal production has been halved from its peak and farmland is beset with a classic post-Soviet problem. The Ukraine was once Communist and all farming was collective.

    Farmland since has been divided into little slivers of ownership, the collectives having been divided and apportioned to all the families that once worked them. Meaning, they are no longer “collectives” that can benefit from large-scale farming techniques – as is the case in the US. The collectives are now an agglomeration of “sliver-like plots” of land each belonging to a different family owner. They have to be re-agglomerated in order for large-scale farming techniques to work – as they do in the US and elsewhere. (At present, Ukrainian cereal yields per acre are half those of the US.)

    That cadastral problem must be fixed for the Ukraine to bring in modern farming techniques and climb back up the production ladder. Apparently, rationalizing agricultural production is a matter of highest importance that the new prez will have to tackle up-front and right-away.

    In the east is found much of the Ukraine’s productive capacity. Maybe it can be enticed by EU-investments? That could do the trick of turning them around, because turning to Russia for new investment funding is likely to be problematic.

    We shall see …

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