The Ukrainian economy has no chance of improvement due to the consequences of the war, the failed reforms and corruption. The hryvnia becomes depreciated.
Aggravation of the Ukrainian crisis: Moscow carries on with its plans for a new state called Novorossiya in the eastern regions and the Black Sea coast of Ukraine. Hostilities between the separatists and the Ukrainian army resume. “Little green men” cross the border from Transnistria into the Odessa Region with the aim of destabilizing it. The Minsk peace plan and Poroshenko’s peace initiatives are doomed. Anti-Russian sentiments in the Ukrainian government and parliament become more radical. NATO begins deliveries of modern arms to Ukraine. Russia sends weapons to the separatists. The West imposes stricter sanctions on Russia, barring Russian banks from using the SWIFT monetary transactions network and making financial operations with Russia impossible. Russia closes its air space for Western air carriers and stops gas deliveries to Ukraine, despite the upcoming winter, thereby delivering a strong blow on Kiev’s economy. Russia withdraws from the Intermediate Range Nuclear Forces Treaty (INF). The West expands NATO further towards Russia’s borders and holds regular military exercises in Ukraine. Russia deploys shorter-range missiles in the Kaliningrad Region. Russia is excluded from the G20 and withdraws from the Council of Europe. A new and even more ruthless “war of values” begins. The Russian government restricts Russians’ ability to travel abroad. A new Cold War erupts.
Collapse of Ukraine’s economy: The Ukrainian economy has no chance of improvement due to the consequences of the war, the failed reforms and corruption. The hryvnia becomes depreciated. The West helps Ukraine with loans from the IMF, the World Bank and even the European Financial Stability Facility (EFSF), but its inherent weakness prevents the EU from providing comprehensive assistance to Ukraine. The Ukrainian government attempts to nationalize oligarchs’ property, which leads to a silent war of the oligarchs with the government and between oligarchs themselves. The middle class holds new protests on Maidan against the oligarchs and the government. The police and special forces brutally suppress them. The West dissociates itself from Ukraine. Radical right-wing parties seize power in western Ukraine and try to overthrow the government and the president. This creates a new political stalemate. Russia works to ensure that other eastern regions join the autonomous Donbas region. Ukraine moves rapidly towards a split into the northwestern “core” and the southeastern Novorossiya. The Baltic countries and Poland join the confrontation with Russia and demand harsher sanctions against it, accusing Moscow of provocations. The EU is busy dealing with the issue of Ukrainian refugees, which EU’s social system is unable to manage.
The status quo is maintained: Moscow continues to quietly support the autonomous Donbas region. Kiev quietly lets the rebellious regions off the hook. This becomes a frozen conflict similar to the situation in Transnistria, Abkhazia and South Ossetia. Russia approves the deployment of the OSCE peacekeeping forces in the disengagement zone between Donbas and the rest of Ukraine. Poroshenko’s standing grows stronger after the parliamentary election. Russia and Ukraine agree on a market gas price; Russia pledges to ensure an uninterrupted supply of energy resources. The West admits the need for cooperation between the EU and the Eurasian Union in the event of stabilization in Ukraine. Ukraine’s association agreement with the EU is not spearheaded against Russia. The third sanctions package against Russia remains in place to punish Moscow for violating international law, but a further escalation of tensions is prevented. Russia is not invited back into the G8. Pressured by the Baltic countries and Poland, NATO signs a non-binding cooperation (not membership) agreement with Ukraine. Russia focuses on creating the Eurasian Union and reorienting its economy towards Asia. Ukraine opens its market to European and US investors. The Ukrainian gas transportation system becomes the possession of a trilateral consortium of Ukraine, the EU and the United States. The EU prevents the South Stream project and forces Russia to continue transporting gas to the EU via Ukraine.
Readjustment of the European security system: The West understands that Ukraine, which is being torn apart by internal differences, must not be forced to choose between the EU and Russia. The West accepts the need to cooperate with Russia in a much more dangerous conflict in the Middle East (with the Islamic State) and is willing to take Russia’s security interests into account when considering future NATO and EU expansion plans. Ukraine’s nonaligned status is sealed in a new Budapest agreement. Russia announces that the Eurasian Union is proceeding without Ukraine. The OSCE plays a bigger role in protecting minorities’ rights in eastern Ukraine. Poroshenko and the Verkhovna Rada transform the country into a federation. Moscow and Kiev negotiate a new gas price. The West closes its eyes to the annexation of Crimea. Russia is invited to a Ukraine donor conference. All sides in the conflict agree to cooperate to stabilize the country. The third sanctions package is taken back. Russia resumes trade with the West. “Old” European countries take the upper hand over the “new” European countries, rejecting the containment policy with regard to Russia and starting a second OSCE peace process, which leads to the readjustment of the European security system and the strengthening of the OSCE. The EU and the Eurasian Union develop a common strategy of good-neighborhood until 2025, including a free trade zone and a common economic space within the WTO.
Ukraine as a model democracy: Using the advantages of associate membership of the EU, and US assistance, Ukraine quickly modernizes its public institutions and reforms the economy. The Ukrainian oligarchs exit the political stage. The government initiates a support program for the middle class, recognizes foreigners’ unlimited property rights and opens its market to Western banks. Ukraine creates conditions for becoming a low production cost country for the neighboring EU states. Some regions of Ukraine become more attractive for foreign investors, in part because they have eradicated corruption and introduced Western legislation. Ukraine’s liberal system becomes a magnet for the pro-European Russian middle class, which detests Putin’s authoritarian rule. Ukraine overhauls its economy in accordance with the EU standards. The divide between Ukraine and Russia grows. Ukraine breaks out of its energy dependence on Russia. Locally-produced shale gas and imported liquefied natural gas gradually replace Russia’s pipeline gas. The Ukrainian market with its 43-million-strong population comes to mean more for the West than a mere replacement of the Russian market, which it partly lost due to the Ukrainian crisis and because Russia reoriented its energy policy and economy towards Asia. A political movement for reunification with Ukraine gains momentum in the Donetsk autonomy and Crimea.
Ukraine again orients itself toward Russia: New elections are held after the Ukrainian government fails to reform the economy. Poroshenko is defeated by a politician from eastern Ukraine. The new president seeks Russia’s economic assistance. He reaffirms Ukraine’s nonaligned status and urges the EU to hold trilateral talks between Brussels, Kiev and Moscow on a common economic space and collective security arrangements. Russia shakes off the consequences of the economic sanctions. Growing energy prices boost Russia’s economy, while the European space weakens. Kiev only honors those conditions of the EU association agreement that do not affect its trade with Russia. The new president turns the country into a federation, allows the eastern regions to make Russian an official language and initiates the policy of association with the Eurasian Union. The autonomous Donbas region reunites with Ukraine as a strong federal member. A trilateral consortium of Naftogaz, Gazprom and several European companies assumes responsibility for gas transit to Europe. Russia creates a special economic zone in Crimea with incentives for Ukrainian investors. Moscow pays the Ukrainian government EUR 80 billion in compensation for the annexation of Crimea and its energy resources. Discontent with the new Ukrainian president’s policy grows in western Ukraine.
