Everyone Loses: The Ukraine Crisis and the Ruinous Contest for Post-Soviet Eurasia

In the meantime, the US and the EU stepped up support for the newly installed authorities in Kyiv. Days after the revolution, NATO agreed on measures to bolster its partnership with Ukraine. Obama received Yatsenyuk at the White House, a first for a Ukrainian prime minister, and pledged backing for his government, including a US$1bn loan guarantee and nearly US$200m in aid. Vice President Biden soon flew to Kyiv, the first of several visits, to reinforce US support for Ukraine as the government mounted the counter-attack against the separatists.

The EU granted Ukraine preferential access to its markets, a unilateral implementation of the EU’s commitments to lower tariffs under the DCFTA. By removing 95% of EU customs duties on imports of industrial goods from Ukraine and all tariffs on agricultural produce, Brussels was effectively granting hundreds of millions of euros of assistance. The EU also provided significant transfers to the Ukrainian government budget. By the end of June, Kyiv had signed the AA. Most importantly, the International Monetary Fund (IMF) approved US$17bn in loans for Ukraine.[42] A first instalment of more than US$3bn was made available immediately, shoring up the country’s accounts.

The declared strategic goal of all of this support was to create a reformed, secure and Western-integrated Ukraine. In other words, the plan was to deepen previous policies in order to create what the Kremlin would inevitably consider a geopolitical and geo-economic defeat in Ukraine. From the Kremlin’s perspective, in the aftermath of the Crimean annexation the US and EU had declared their intention to recreate the very conditions that led Moscow to invade the peninsula in late February.

Concurrently, the West and Russia began a sanctions war. There was a diplomatic push to isolate Russia, including by kicking the country out of the G8 grouping, shutting down the NATO–Russia Council and suspending EU–Russia summits. The day after the Crimea referendum, the US and the EU (followed soon afterwards by Norway, Switzerland, Canada and Australia) began the first in a series of economic-sanction designations for individuals and corporate entities.[43] The individuals’ assets were frozen, transactions with them were made unlawful and they were banned from travel to the sanctioning country or group of countries. The individuals sanctioned included several groups: a range of Russian officials, military officers, MPs and tycoons considered close to Putin; Russian-appointed functionaries in Crimea; members of the former Yanukovych government; and leaders of the DNR and LNR. Sanctioned entities – initially Crimea-based firms and a range of companies, including several banks, majority-owned by sanctioned individuals – had their assets frozen, and sanctioning-country-based firms were barred from doing business with them. The list of sanctioned individuals and entities grew into the triple digits by 2016. Within a week of the first sanctions announcement, the now G7 and the EU threatened to move to general sector-wide restrictions on Russia if Moscow continued to destabilise eastern Ukraine.[44] Markets and investors were forced to price in the risk that governments would act on the threat. The rouble and the Russian stock-market index dropped precipitously. The US subsequently announced a suspension of licensing for exports and re-exports to Russia of defence and dual-use items.[45]