15 February 2016

* Ukraine's Conflict, Rumors of Compromise Grow

February 11, 2016
Recent developments show that previously deadlocked U.S.-Russia talks over the standoff in Ukraine could advance.
A broad deal to end the Ukraine crisis is unlikely, but progress in areas such as cease-fire observations, heavy weaponry pullouts and local elections in separatist regions cannot be ruled out.
Russia's worsening economy, the conflict in Syria and other factors will ultimately shape the extent to which Moscow and the West are willing to compromise.

The United States and Russia may be moving closer to an understanding on the conflict in Ukraine. In recent weeks, diplomatic activity between U.S. and Russian officials has resumed at a frenzied pace. There are rumors of a political reshuffle in the separatist territories of Donetsk and Luhansk. Ukrainian and Russian media have even reported that a "secret deal" is in the works that would serve as a compromise between the political and security demands of the separatists and Moscow, on one hand, and Kiev and its Western backers on the other.
Yet there are plenty of reasons to be skeptical of such rumors. Ukrainian officials have made unequivocal statements that there would be no political concessions from Kiev until Moscow completely implemented the security provisions of last year's Minsk agreement. These provisions include the withdrawal of all foreign - meaning Russian - troops in eastern Ukraine as well as the restoration of control of the border between the separatist territories and Russia to Ukraine. Meanwhile, Moscow has reiterated that Kiev must pass key constitutional changes that would grant greater autonomy to the separatist regions before the security components of Minsk are implemented.
The Ukrainian conflict has already had its fair share of fruitless negotiations and cease-firebreakdowns. Simply continuing the status quo would understandably be more likely. But the drop in global oil prices and the subsequent weakening of the Russian economy, as well as Russia's extensive involvement in Syria, could be giving new life to negotiations among Kiev, Moscow and the West. A grand bargain over Ukraine is far from near, but there may be room for compromise over what so far have been intractable issues.

Toward Negotiations

Talk of a potential deal began when U.S. Assistant Secretary of State Victoria Nuland held an unannounced meeting with Russian presidential adviser Vladislav Surkov on Jan. 15. Nuland, who was at the time in the middle of a tour of EU and NATO countries in Eastern Europe, flew to the border of Lithuania and the Russian exclave of Kaliningrad to meet with Surkov. The meeting, which reportedly lasted over four hours, immediately led to speculation of a "secret agreement" between the United States and Russia over Ukraine. The details of what the deal would entail have varied from source to source. Some outlets claimed the separatist Donbas region would formally be part of Ukraine's territory but would be given special status and allowed to conduct its own foreign policy. Others reported that Russia would concede on granting Ukraine control of its border with the separatist territories. Some even suggested that Russia was considering replacing current leaders of the Donetsk and Luhansk separatist territories with figures who are more cooperative with Kiev in a bid to move negotiations forward.
U.S. Secretary of State John Kerry then met with Russian Foreign Minister Sergei Lavrov in Zurich on Jan. 20. Just two days later, Kerry said at the World Economic Forum in Davos that U.S. sanctions against Russia could be lifted "within months" if the Minsk agreement were fully implemented. The statement was notable, since the United States has taken a hard line relative to European countries on maintaining sanctions against Russia. But while the European Union recently voted to extend sanctions on Russia for six months, several European officials have made it clear that they wish to lift EU sanctions on Russia when they come under review in July and have pressured Moscow and Kiev to do more on implementing Minsk protocols.

For Russia, getting sanctions removed is paramount. The drastic drop in global oil prices has caused Russia's budget, which depends on energy revenues, to shrink and its deficit to explode, and the ruble is becoming more volatile. Oil prices could continue to fall, but even if not, sustained low oil prices over the next year or two put Moscow in a precarious position. Thus, Moscow is reconsidering its position on Ukraine, perhaps becoming more accommodating with Kiev and the West, as Surkov's meeting with Nuland would suggest.

A Stratfor Intelligence Report.

"In Ukraine's Conflict, Rumors of Compromise Grow" was originally published by Stratfor and is reprinted with permission.

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