Ukraine: Current Issues and U.S. Policy

Ukraine: Current Issues and U.S. Policy Steven Woehrel Specialist in European Affairs September 4, 2014February 12, 2015 Congressional Research Service 7-5700 www.crs.gov RL33460 Ukraine: Current Issues and U.S. Policy Summary After a failed effort to violently disperse pro-European Union protests, the government of A pro-reform, pro-Western government has emerged in Ukraine after the collapse of the government of Ukrainian President Viktor Yanukovych collapsed on February 21, 2014. The Ukrainian parliament approved a new pro-Western government in February. Russia responded Russia responded to the change of government in Kyiv by seizing Ukraine’s Crimea region and annexing it on March 18, 2014. Since April 2014. In April and May, armed pro-Russian separatists have seized areasparts of the Donbas region of eastern Ukraine, which was made possible by men, weaponry, and leadership from Russia. Ukrainian forces regrouped and made substantial gains against the separatists in July and August, but in late August and early September, U.S. and NATO officials say Russia stepped up its support to the separatists, including by deploying several thousand Russian troops to fight in Ukraine. Both the Russian troops and the separatists have been supplied with hundreds of tanks, armored personnel carriers, artillery, surface-to-air missiles, and other military equipment from Russia. As a result, Ukrainian forces have lost ground and may lose more if Russia continues to press its offensive Russia. A cease-fire agreement signed in Minsk, Belarus, in September 2014 failed to halt the fighting. After a summit meeting of the leaders of Russia, Ukraine, France, and Germany in Minsk, the sides agreed on February 12 on a new cease-fire to take effect on February 15. Ukraine has long-standing problems in attracting foreign investment, in part due to rampant corruption and other shortcomings in the rule of law. The war has added to these problems, including the destruction of infrastructure in the Donbas region and a steep drop in the value of Ukraine’s currency. The Ukrainian government has received the first two installments of a $17 billion IMF loan designed to stabilize its finances. However, the IMF has warned that if the war continues, Ukraine could need another $19 billion in financing. The European Union unveiled an 11.1 billion Euro (about $15.5 billion) aid package for Ukraine. The EU has imposed sanctions on over 70 persons from Ukraine and Russia held responsible for undermining Ukraine’s sovereignty and territorial integrity, as well as key state-owned firms in Russia. The Administration requested and received funding from Congress for $1 billion in loan guarantees for Ukraine. The Administration says that the United States is providing over $184 million in aid to Ukraine this year (not including the $1 billion loan guarantee) to help Ukraine carry out political and economic reforms. The Administration strongly condemned Russian’s annexation of Crimea and its incursion into eastern Ukraine. The United States has imposed sanctions against 64 Russian individuals and On February 12, 2015, the International Monetary Fund (IMF) and Ukraine agreed on a new loan package of $17.5 billion to Ukraine, bringing the total IMF commitment to Ukraine to $22 billion over four years. In 2014, the European Union unveiled an 11.1-billionEuro (about $15.5 billion) aid package for Ukraine and is considering further funding. The IMF estimates that the total commitment to Ukraine could come to $40 billion, when money from the European Union (EU), the United States, and other sources is included. In February 2015, the Administration said that the United States has provided over $355 million in aid to Ukraine over the previous year to help the new government in Kyiv carry out political and economic reforms and bolster the capabilities of its security sector, including its army. In addition, in May 2014 the United States provided a $1-billion loan guarantee to Ukraine. The Administration has strongly condemned Russia’s annexation of Crimea and its incursion into eastern Ukraine. The United States and the European Union have imposed sanctions against Russian individuals and key firms for destabilizing Ukraine. Congressional action has focused on providing assistance to the new Ukrainian government and supporting sanctions against Russia for its occupation of Crimea. On March 27, the Senate approved an amended version of H.R. 4152, which required the U.S. government to assist Ukraine to recover assets stolen by the previous regime through corruption; authorized $50 million in U.S. aid in FY2015 and efforts to destabilize Ukraine. H.R. 4152 authorized aid to help Ukraine carry out political and economic reforms; authorized $100 million in security assistance forreforms; authorized security assistance to Ukraine and other Central and Eastern European countries for FY2015-FY2017; and required the President to impose visa bans and asset seizures against persons in Ukraine and Russia who are responsible for violence or undermining the peace, security, stability, sovereignty, or territorial integrity of Ukraine. The bill also “encourages” the President to impose these sanctions on Russian figures responsible for corruption in Russia and requires an annual report by the Secretary of Defense on military and security developments involving the Russian Federation. On April 1, the House passed the Senate-amended version of H.R. 4152 by a vote of 378-34. On April 3, President Obama signed H.R. 4152 into law, as well as S. 2183, a related bill requiring Radio Free Europe-Radio Liberty and Voice of America to increase broadcasting in eastern Ukraine, Crimea, and Moldova integrity of Ukraine. On April 3, 2014, President Obama signed H.R. 4152 into law, as well as S. 2183, a related bill requiring Radio Free Europe-Radio Liberty and Voice of America to increase broadcasting in eastern Ukraine, Crimea, and Moldova. The FY2015 omnibus appropriations bill (P.L. 113-235) appropriated aid for Ukraine. On December 18, 2014, President Obama signed H.R. 5859, the Ukraine Freedom Support Act. The measure permits the President to impose sanctions on Russian defense, energy, and other firms and foreign persons; authorizes increased military and economic assistance for Ukraine; authorizes funding for U.S. Russian-language broadcasting in the region; authorizes support for Russian civil society and democracy organizations; and requires a report on Russian noncompliance with the Intermediate Nuclear Forces (INF) Treaty. Some Members of Congress are urging the President to provide defensive weaponry to Ukraine. Congressional Research Service Ukraine: Current Issues and U.S. Policy Contents Background ...................................................................................................................................... 1 The EuroMaidan and the Collapse of the Yanukovych Regime ................................................ 1 Russia’s Seizure of Crimea and Support for Insurgents in Eastern Ukraine ............................. 2 Ukraine’s Current Political Situation ............................................................................................................... 3 4 Current Economic Situation............................................................................................................. 45 Ukraine’s Foreign Policy ................................................................................................................. 56 Russia ........................................................................................................................................ 6 Energy Issues....................................................................................................................... 89 European Union ......................................................................................................................... 9 U.S. Policy 10 EU Aid to Ukraine ............................................................................................................. 10 EU Sanctions ..................................................................................................................... 11 U.S. Policy .............................. 10 Reaction to the Russian Annexation of Crimea and Efforts to Destabilize Other Parts of Ukraine ............................................................................................................................. 11.. 12 U.S. Sanctions Against Russia................................................................................................. 13 Congressional Response .......................................................................................................... 1314 U.S. Aid to Ukraine ........................................................................................................... 1314 Other Legislation ............................................................................................................... 15 Congressional Debate........................................................................................................ 17 Figures Figure 1. Ukraine ........................................................................................................................... 1718 Contacts Author Contact Information........................................................................................................... 18 Congressional Research Service Ukraine: Current Issues and U.S. Policy Background Ukraine, comparable in size and population to France, is a large, important, European state. It occupies the sensitive position between Russia and NATO North Atlantic Treaty Organization (NATO) member states Poland, Slovakia, Hungary, and Romania. Many Russian politicians, as well as ordinary citizens, have never been fully reconciled to Ukraine’s independence from the Soviet Union in 1991, and feel that the country belongs in Russia’s political and economic orbit. The U.S. and European view (particularly in Central and Eastern Europe) is that a strong, independent Ukraine is an important part of building a Europe whole, free, and at peace. Since Ukraine achieved independence in 1991, Ukraine’s political scene has been dominated by “oligarchs” (powerful, politically well-connected businessmen, mainly based in eastern and southern Ukraine), which have divided up the country’s economic assets among themselves and raided the government budget for their own profit. President Viktor Yanukovych, who was elected in February 2010, drew his main support from oligarchs from the Donets Basin (Donbas) region of eastern Ukraine. His government was criticized for massive high-level corruption, in part committed by Yanukovych’s own family and close associates. U.S. and EU European Union (EU) officials expressed strong concern over the government’s human rights record, especially the targeting of opposition leaders for selective prosecution. In the most prominent case, Yuliya Tymoshenko, Yanukovych’s opponent in the 2010 presidential vote, was convicted of abuse of power in 2011 arising out of her role in signing a natural gas supply agreement with Russia and sentenced to seven years in prison. leaders for selective prosecution. The EuroMaidan and the Collapse of the Yanukovych Regime Many observers have believed that, despite growing dissatisfaction with the government, there was little likelihood of public unrest in Ukraine, given widespread disillusionment with the political class as a whole. However, in November 2013, the government made a last-minute decision to not sign an Association Agreement with the European Union that would have aligned Ukraine more toward Europe, at least in the areas of economics and trade, due to Russian pressure. The about-face sparked anti-government demonstrations. On November 30, Ukrainian special police attacked peaceful protestors (many of them young people) in Kyiv’s central Maidan Nezalezhnosti, or Independence Square. The action outraged many Ukrainians, and resulted in a massive upsurge in participation in the protests in Kyiv. Smaller protests occurred in other Ukrainian cities, mainly in opposition strongholds in western and central Ukraine. Observers noted that demonstrators were not just protesting against Ukraine’s failure to sign the Association Agreement, but against the government’s lack of respect for the basic human dignity of Ukraine’s citizens. Through the next three months, the Yanukovych government alternated between attempted crackdowns and conciliatory gestures. On February 18, the government embarked on its most violent crackdown attempt against the Maidan, one that quickly resulted in the regime’s own demise. Elite “Berkut” riot police attempted to clear protestors from the Maidan and other areas of Kyiv, with the support of roving gangs of street thugs hired by the government. Over 100 persons were killed. Many hundreds more were injured. Many casualties were caused by firearms, mainly used by the police, including by snipers. The death toll may have caused support in the Ukrainian parliament, which was controlled by pro-government Parliamentarians, for the for the crackdown and the regime to collapse. On February 20, it approved a resolution calling for the pullout of the Interior Ministry and military forces from Kyiv to their bases and a ban on the use Congressional Research Service 1 Ukraine: Current Issues and U.S. Policy of firearms. Once the police and military complied with the resolution, groups of protestors seized key government buildings. Yanukoyvch and many of his supporters in the government and parliament fled the capital by February 21. Ex-President Yanukovych and dozens of other top officials of the former regime are being sought by police for their part in killing and injuring Maidan protestors and other regime opponents, even though he and some of his closest supporters are currently in Russia. Many of them are currently being harbored by Russia. Congressional Research Service 1 Ukraine: Current Issues and U.S. Policy After Yanukovych and his supporters fled Ukraine, the Ukrainian parliament, now composed mainly of opposition deputies, rapidly passed sweeping measures. The parliament deposed Yanukovych as Presidentpresident on February 22 for abandoning his duties. On the same day, Yuliya Tymoshenko was released from prison. Oleksandr Turchynov, a long-timelongtime top aide of Yuliya Tymoshenko, was elected as speaker of the parliament and made acting president until new presidential elections were held on May 25. The parliament restored the provisions of the 2004 Ukrainian constitution, eliminating changes made by Yanukovych to strengthen the presidency. On February 27, the Ukrainian parliament approved a new government, headed by Arseniy Yatsenyuk, a former Prime Minister and leader of the Fatherland Party, which was founded by Tymoshenko. The government includes members of Fatherland, as well as Freedom, a far-right nationalist party, and Maidan activists, but no Yatsenyuk, a former prime minister. The government included no key figures from the former ruling regime. Nevertheless, many Maidan protestors view the new governing parties veryviewed the new government skeptically, suspecting that they are nearly as opportunistic and corrupt as the Yanukovych regime. Russia’s Seizure of Crimea and Support for Insurgents in Eastern Ukraine Russia responded to the change of government in Kyiv by seizing Ukraine’s Crimean peninsula. Starting on February 27, heavily armed Russian-speaking troops poured into Crimea, seizing airports and other key installations throughout the peninsula. At the time, Russian President Vladimir Putin claimed that the troops were not Russian Federation military forces, but only local Crimean self-defense forces. In April 2014, Putin admitted that Russian Federation military forces did in fact invade Crimea. On March 16, the Crimean authorities held a referendum on Crimea’s annexation to Russia. According to Crimean officials, Crimea’s union with Russia was allegedly approved by 96.77% of those voting, with a turnout of 83.1%. Ukraine, the United States, the European Union, and other countries denounced the referendum as illegal and not held in a free or fair manner. Russian President Vladimir Putin signed a “treaty” with Crimean leaders on March 18 formally incorporating Crimea into Russia. In addition to Russia’s annexation of Crimea, the Ukrainian government has been struggling to establish struggled to establish control over eastern and southern Ukraine. In March 2014, thousands of pro-Russian protestors protestors demonstrated in the region, especially in the cities of Donetsk and Luhansk in the Donbas region and in Kharkiv. Some demonstrators favorfavored union with Russia, others only greater autonomy autonomy from the government in Kyiv. Demonstrators seized government buildings. They also faced off against pro-Maidan demonstrators. Unrest in eastern Ukraine soon took an even more ominous ominous turn in April 2014. Armed men stormed and occupied key government buildings and broadcast broadcast facilities in the key cities of Donetsk and Luhansk, as well as in Slovyansk and more than a dozen other towns in the Donbas region. The Ukrainian government says it has arrested Russian intelligence agents that it accuses of orchestratingsaid Russian intelligence agents orchestrated the separatists’ attacks and has and released video, photographs, and audio recordings allegedly identifying othersthem. Senior U.S. officials and NATO Supreme Allied Commander Congressional Research Service 2 Ukraine: Current Issues and U.S. Policy General Philip Breedlove have also said that they believe Russia is playing a leading role in the activities of the armed separatist groups in eastern Ukraine. One striking factor early in the conflict noted by Ukrainian leaders was the repeated failure of Ukrainian police and security forces to maintain or restore order in eastern and southern Ukraine. They admitted that local police in Donetsk and Luhansk regions were “helpless” against separatist forces and have to be rebuilt from scratch. Explanations given for this phenomenon include low morale, corruption, and a lack of professionalism; alleged covert political games played by oligarchs affiliated with the previous regime; and sympathy for the separatists. Efforts by supposedly elite security forces to restore order were often met with humiliating failure and substantial casualties. Moreover, both Ukrainian and Western experts believe Ukrainian intelligence and security forces are thoroughly penetrated by Russian agents. Ukrainian leaders have used armed volunteers to supplement the regular security forces. On May 11, the armed separatist forces, in the guise of the “Donetsk People’s Republic” and the “Luhansk People’s Republic” held “referendums” on their “sovereignty.” According to the organizers, the question was approved by 89% of those voting in Donetsk region, and by 96% in Luhansk region, with a turnout of 75%. No international observers monitored the vote, and witnesses reported rampant irregularities. The leaders of the “Donetsk People’s Republic” and the “Luhansk People’s Republic” declared their entities to be sovereign states after the vote. The Ukrainian government denounced the referendums as illegal. Acting President Turchynov said the real turnout for the vote was 32% in Donetsk region and 24% in Luhansk. In doing so, however, Turchynov may have tacitly conceded that the “republics” and/or independence may be supported by a significant minority of people in these regions, which is in fact consistent with public opinion polls. Such public opinion polls have repeatedly shown that the overwhelming majority of people in eastern Ukraine do not support separation from Ukraine or annexation by Russia. However, polls also show great distrust in eastern Ukraine for the current government in Kyiv, in part, some analysts say, due to a massive propaganda effort in Russian media. The destruction of parts of the Donbas in the fighting may also harden feelings against Kyiv among some inhabitants. The day after the vote, the leader of the Donetsk “republic” called on Russia to annex his “country.” Current Political Situation On May 25, 2014, Ukraine held a presidential election. The winner, Petro Poroshenko, took 54.7% of the vote. Poroshenko is a pro-Western billionaire whose holdings include Roshen, a leading chocolate brand in the region. His nearest competitor, former Prime Minister Yuliya Tymoshenko, won 12.81%. Voter turnout for Ukraine as a whole was 60.29%. The lowest turnout was in Donetsk region (15.37%) and Luhansk region (38.94%), where Russian-backed separatist gunmen seized polling places and used threats, kidnappings, and other forms of intimidation to stop the vote. An International Election Monitoring Mission, which included several Members of Congress, observed the elections. A preliminary statement from the mission said that the vote was “largely in line with international commitments and with a respect for fundamental freedoms in the vast majority of the country” despite the “hostile security environment” in Donetsk and Luhansk. President Poroshenko faces many difficult challenges. In addition to stabilizing the economy, perhaps the most urgent task is to restore order in the parts of the Donetsk and Luhansk regions Congressional Research Service 3 Ukraine: Current Issues and U.S. Policy that have been seized by armed separatists. After taking office, President Poroshenko announced a peace plan to end the conflict, which included a cease-fire, the laying down of arms by the separatists, and the opening of “humanitarian corridors” so that civilians may leave the conflict areas. Poroshenko initially supported amnesty for the separatists, except those involved in serious crimes, and the repatriation of fighters who came from Russia. Poroshenko said he favors decentralizing Ukraine’s currently highly centralized governing system and guaranteeing free use of the Russian language in Ukraine. On June 20, President Poroshenko declared a ceasefire to give time for the implementation of his plan. Reportedly under pressure from France and Germany, Ukraine reversed its former vow not to negotiate with “terrorists” and held talks with separatist leaders on June 23, some of whom agreed to abide by the ceasefire. The separatists rejected Poroshenko’s peace plan, and demanded the withdrawal of Ukrainian forces from their “republics.” Separatist forces did not respect the ceasefire throughout its 10-day duration, and repeatedly attacked Ukrainian troops. They also continued to receive armed personnel and weapons from Russia. Finally, on June 30, Ukraine restarted its “anti-terrorist operation.” In July and August, Ukraine scored the most significant successes of its campaign so far by routing some of the most professional of the separatist forces from strongholds in Slovyansk, Kramatorsk, and other towns, as well as besieging separatist forces in the key cities of Donetsk and Luhansk. However, in late August and early September, U.S. and NATO officials said that Russia stepped up its support to the separatists, including by deploying several thousand Russian troops to fight in Ukraine. Both the Russian troops and the separatists have been supplied with hundreds of tanks, armored personnel carriers, artillery, surface-to-air missiles, and other military equipment from Russia. As a result, Ukrainian forces have lost ground and may lose more if Russia continues to press its offensive. Perhaps in recognition of that fact, on September 4, President Poroshenko said that he was ordering his military to prepare for a cease-fire on the 5th, if a bilateral cease-fire between the two sides is agreed to at a meeting in Minsk, Belarus on that day. Poroshenko said the cease-fire would be followed by the “gradual” introduction of a peace plan. Such a cease-fire, if it occurs, could lead to a “frozen conflict” in which pro-Russian separatists have de facto independence and receive formal or informal support and recognition from their Russian patrons, such has occurred in Transnistria in Moldova, and Abkhazia and South Ossetia in Georgia. On August 25, President Poroshenko dissolved Ukraine’s parliament, and set new parliamentary elections for October 26. However, the old parliament is meeting for several sessions in September in order to attempt to pass key legislation, including ratification of Ukraine’s Association Agreement with the EU. Current Economic Situation Ukraine is much poorer than other European countries, despite advantages such as rich soil, a strategic location, and a substantial heavy industrial sector. However, foreign companies often cite such issues as rampant corruption and serious shortcomings in the rule of law (including a weak judiciary) as key stumbling blocks to foreign investment. Ukraine’s currency, the hryvnia, has slid by over 50% this year. The fall in Ukraine’s currency has increased Ukraine’s real debt burden (which is denominated in foreign currencies) and has hurt ordinary Ukrainians, in part Congressional Research Service 4 Ukraine: Current Issues and U.S. Policy because it makes imported consumer items more expensive. In addition, the war in the Donbas has stopped production and damaged infrastructure in this vital industrial region. It is unclear what economic links will exist between this region and the rest of Ukraine when the fighting ends. Ukraine’s Gross Domestic Product (GDP) dropped by 4.7% in the second quarter of 2014, according to the country’s statistical office. The IMF estimates that GDP for the year will decline by at least 6%. On April 30, 2014, the IMF approved a $17 billion loan for Ukraine. Including the IMF loan, the accord is expected to unlock $27 billion in international aid to Ukraine over two years. Ukraine has received the first two tranches of the loan. Given the deterioration in the economy caused by the war, the IMF has agreed to combine the third and fourth loan tranches, which Ukraine hopes to receive by the end of the year. Moreover, the IMF has warned that if the war continues, Ukraine could need another $19 billion in financing from the international community. One of the main goals features of the IMF-supported reform plan is to reduce Ukraine’s deficits. The budget deficit and the deficit of the state-owned gas firm Naftogaz would have reached a combined 12% of GDP this year, according to the IMF. The reform plan will involve significant expenditure cuts, including cancelling wage and pension increases, cutting government employment and social spending, and cutting corruption through a new government procurement law. Revenue increases are also envisioned, including ending tax evasion schemes and other frauds. Naftogaz’s deficit (7.5% of GDP in 2012) is targeted for elimination by 2018, partly by reforming the company, and partly by substantial increases in currently heavily subsidized domestic natural gas prices. Prime Minister Yatsenyuk has said that his is a “kamikaze” government, given the political unpopularity of some of the decisions that are required as part of the IMF-mandated reform program. Ukraine’s government has already announced sharp increases in utility prices for domestic consumers. IMF officials claim that the amount of fiscal consolidation required of Ukraine by the program is moderate; under the plan budget deficits are permitted to increase this year over last year, due to the poor performance of Ukraine’s economy, before being required to head down in 2015.1 Ukraine’s Foreign Policy The Ukrainian government’s main foreign policy priorities are to secure international support for Ukraine’s sovereignty and territorial integrity, including non-recognition of Russia’s annexation of Crimea, as well as international assistance to ameliorate the country’s dire economic situation. The government is reevaluating the former government’s renunciation of NATO membership aspirations, but has not done so yet. Some political forces in Ukraine are calling for Ukraine to seek NATO membership, given Russia’s aggression against Ukraine, while others are more cautious, perhaps out of concern about further Russian aggression or the belief that NATO is unlikely to accept Ukraine as a member anytime soon in any case. 1 See https://www.imf.org/external/pubs/ft/survey/so/2014/new043014a.htm. For more on the economic situation in Ukraine, see CRS Report IN10066, Economic Crisis in Ukraine, by Rebecca M. Nelson Congressional Research Service 5 Ukraine: Current Issues and U.S. Policy Ukraine has requested assistance from NATO for its military. At the September 2014 NATO summit in Wales, the Alliance agreed to set up four trust funds to help Ukraine’s military in such areas as logistics, command and control, military personnel issues (including wounded soldiers), and cyberdefense.2 NATO is leaving the issue of supplying weapons and other possible lethal and non-lethal aid to Ukraine’s armed forces to individual member countries. Russia In some ways, recent Russian actions in Ukraine are the culmination of long-standing Russian resentment of the outcome of the Cold War. In 2005, Russian President Vladimir Putin called the eastern Ukraine. On May 11, the armed separatist forces, in the guise of the “Donetsk People’s Republic” and the “Luhansk People’s Republic,” held “referendums” on their “sovereignty.” According to the organizers, the question was approved by 89% of those voting in Donetsk region, and by 96% in Luhansk region, with a turnout of 75%. No international observers monitored the vote, and witnesses reported rampant irregularities. The leaders of the “Donetsk People’s Republic” and the Congressional Research Service 2 Ukraine: Current Issues and U.S. Policy “Luhansk People’s Republic” declared their entities to be sovereign states after the vote. The Ukrainian government denounced the referendums as illegal. After a brief unilateral cease-fire by Ukraine in late June failed to lead to progress on a peace plan put forward by newly elected Ukrainian President Petro Poroshenko, Ukraine restarted its “antiterrorist operation” against the separatist forces. In July and August, Ukraine routed the gunmen from strongholds in Slovyansk, Kramatorsk, and other towns, and besieged separatist forces in the key cities of Donetsk and Luhansk. However, in late August and early September, U.S. and NATO officials said that Russia massively stepped up its support to the separatists, including by deploying thousands of Russian troops to fight in Ukraine. Both the Russian troops and the separatists were supplied with hundreds of tanks, armored personnel carriers, artillery, surface-to-air missiles, and other military equipment from Russia. As a result, Ukrainian forces lost ground and suffered heavy casualties. Perhaps fearing further casualties and lost territory, Ukraine agreed to a 12-point ceasefire plan during talks with separatist representatives and Russian officials in Minsk, Belarus on September 5. Among other provisions, the plan calls for a cease-fire along the then-current lines of control, an exchange of hostages and/or prisoners, the monitoring of the cease-fire and of the RussianUkrainian border by the Organization for Security and Cooperation in Europe (OSCE), and the withdrawal of “illegal armed groups, militants, as well as militants and mercenaries from the territory of Ukraine.” The Minsk agreement also called for Ukraine to adopt a law on amnesty for those involved in the war in the Donbas; a law on “special status” for separatist-held areas that will allow them greater self-rule for three years; the organization of local elections in those areas; and plan for the economic recovery of the region.1 The signing of the agreement led to the end of the massive Russian-led offensive on Ukrainian forces. However, none of the points of the Minsk protocol has been implemented fully. Sporadic, sometime intense, fighting has continued, resulting in over 1,300 deaths since the Minsk protocol was signed. (According to U.N. officials, over 5,500 persons have died in the fighting since the conflict began in April 2014.) Ukrainian officials have said that the separatists had seized over 500 sq. km of Ukrainian territory since the Minsk protocol’s signature. In January 2015, President Poroshenko said Russia had 9,000 troops inside Ukraine, along with hundreds of tanks, armored fighting vehicles, and artillery pieces.2 The United States and the European Union made its full implementation of the Minsk protocol a precondition for easing their sanctions on Russia. A particularly violent flare-up of attacks by the pro-Russian gunmen against Ukrainian-held territory in late January and early February 2015 led the United States and the EU to warn Russia that it faced possible additional sanctions for its military intervention in Ukraine. 1 For an English-language translation of the Minsk protocol, see http://www.kyivpost.com/opinion/op-ed/osce-releasesthe-12-point-protocol-agreements-reached-between-ukraine-russia-and-separatists-in-minsk-363816.html. For the Russian-language original, see http://www.osce.org/ru/home/123258?download=true. 2 Some experts believe Russian troop levels in Ukraine are significantly lower. U.S. Ambassador to NATO Douglas Lute has said Russian troops in Ukraine are mainly intelligence officers serving a command and control function and Russian servicemen operating highly sophisticated, specialized equipment, such as that used for electronic warfare and air defense. See http://www.reuters.com/article/2015/02/04/us-ukraine-crisis-nato-usa-idUSKBN0L81S220150204. Congressional Research Service 3 Ukraine: Current Issues and U.S. Policy The presidents of France, Russia, and Ukraine and Chancellor Merkel of Germany met in Minsk on February 11 in Minsk to try to secure an agreement to stop the fighting. On February 12, a cease-fire agreement was signed, to take effect on February 15. The agreement calls on both sides to pull back their heavy weapons to create a “security zone” of 50 to 70 km, depending on the range of the weapons system and OSCE monitoring of the cease-fire. The separatists apparently will remain in effective control of the areas they have seized since the first Minsk agreement was signed in September. The agreement calls for local elections in rebel-held regions and legal and constitutional reforms to be negotiated with the rebels to give a special status to the region. The elections and reforms are to be implemented before the end of this year. The return of control to Ukraine of the RussiaUkraine border is conditioned on the carrying out of these decentralization reforms agreed with the separatists. Ukraine is also required to resume financial flows to the rebel-held regions. Foreign forces and equipment, mercenaries, and illegal armed groups are supposed to be removed, under OSCE monitoring. (It should be noted that Russia still contends that none of its forces and equipment are in Ukraine, despite overwhelming evidence to the contrary.)3 The terms of the agreement are similar to those of the original Minsk protocol last September. Some observers have expressed skepticism about whether this agreement is more likely to be implemented than the previous one was. Ukraine’s Current Political Situation Since the fall of the Yanukovych regime, Ukraine has elected a new pro-Western president and a parliament with a pro-Western majority. On May 25, 2014, Ukraine held a presidential election. The winner, Petro Poroshenko, took 54.7% of the vote. Poroshenko is a pro-Western billionaire whose holdings include Roshen, a leading chocolate brand in the region. His nearest competitor, former Prime Minister Yuliya Tymoshenko, won 12.81%. Voter turnout for Ukraine as a whole was 60.29%. The lowest turnout was in Donetsk region (15.37%) and Luhansk region (38.94%), where Russian-backed separatist gunmen seized polling places and used threats, kidnappings, and other forms of intimidation to stop the vote. An International Election Monitoring Mission, which included several Members of Congress, observed the elections. A preliminary statement from the mission said that the vote was “largely in line with international commitments and with a respect for fundamental freedoms in the vast majority of the country” despite the “hostile security environment” in Donetsk and Luhansk. Ukraine held an early parliamentary election on October 26, 2014. The result was a victory for forces in favor of closer ties with the EU and the United States. Half of the seats were allocated by voting for party lists, the rest by voting in individual districts. However, due to the inability to hold elections in districts held by Russian-backed separatists, 29 of the 450 seats in the parliament will remain unfilled. The results were an overwhelming victory for pro-Western forces. The main victors were the Petro Poroshenko Bloc with 132 seats and the People’s Front, led by outgoing Prime Minister Viktor Yatsenyuk, with 82 seats. In a surprise, the pro-reform Samopomich (self-help) Union won 33 seats. The unpredictable, populist Radical Party of Oleh Liashko won 22, while Batkivshchina, the party of former Prime Minister Yuliya Tymoshenko, 3 For an unofficial translation of the Russian-language original, see, for example, http://www.ft.com/intl/cms/s/0/ 21b8f98e-b2a5-11e4-b234-00144feab7de.html#axzz3RXfwD5VC. Congressional Research Service 4 Ukraine: Current Issues and U.S. Policy won 19. The Opposition Bloc, composed of supporters of the Yanukovych regime, won 29 seats. Far-right groups, often held up by Russian propaganda as dominant in Ukraine, did very poorly. One key group, Svoboda, won only six seats, while another, Right Sector, won only one. On December 2, the new parliament approved a new government led by Yatsenyuk, who returned as prime minister. Figures selected by the Poroshenko Bloc, People’s Front, Samopomich, and Batkivshchina are represented in the new government. The government has the support of over 300 seats, which will enable it to pass amendments to the Ukrainian constitution. Prime Minister Yatsenyuk has said Ukraine’s main goal was to adopt European standards, with the ultimate objective of European Union membership for Ukraine. He called for sharp budget cuts, including in social programs, but increases in defense spending. He said a key focus of the new government would be to fight corruption, including by reducing government regulation and the size of the bureaucracy. He said Ukraine would cut the number of taxes it collects and would devolve more budgetary power to local authorities. In an important symbolic move, Natalie Jaresko, a U.S. citizen and former State Department official who has lived in Ukraine for over two decades, is Ukraine’s finance minister. The economy minister is a Lithuanian citizen, and the health minister is from Georgia. These moves may have been meant to signal that the new government is dedicated to moving the country toward the West and that these key figures are not from what many Ukrainians believe is the country’s morally compromised political elite. The government is currently setting up an Anti-Corruption Bureau that will investigate corruption among government officials. New anti-corruption laws passed last year, including stricter provisions against bribery and conflicts of interest, and require annual disclosures of income by public officials. Nevertheless, opinion polls have shown that public skepticism is high about the new government will make a serious impact in fighting the country’s deeply ingrained, crippling problem with corruption. Current Economic Situation Some observers have warned that Ukraine is close to economic collapse. Ukraine’s currency, the hryvnia, has plummeted by more than 50% against the dollar in the past year. This has increased Ukraine’s real debt burden (which is denominated in foreign currencies) and has hurt ordinary Ukrainians, in part because it makes imported consumer items more expensive. Ukraine’s gross domestic product (GDP) dropped by 8.2% in 2014, according to the World Bank. The World Bank projects a drop in GDP of 2.3% in 2015. Ukraine’s government statistics office estimated inflation in 2014 at 24.7%. The economic situation in the rebel-held regions is also poor, due to the disruption caused by the conflict. Ukraine’s decision to cut off financial flows (including pensions) to the region in order to avoid subsidizing the rebellion has also had a negative impact, as has Ukraine’s increasingly strict controls over movement into and out of the rebel-held areas to prevent the movement of spies and saboteurs into the rest of Ukraine. For its part, aside from “humanitarian convoys” staged for public effect, Russia has so far appeared unwilling to offer massive subsidies to the rebel-held areas itself, instead insisting that Kyiv restore its financial flows to the region. Indeed, the February 2015 cease-fire agreement contains such a provision. Some observers claim that this effectively requires Kyiv to subsidize the forces that are trying to break Ukraine apart. Congressional Research Service 5 Ukraine: Current Issues and U.S. Policy In April 2014, the IMF approved a $17 billion loan for Ukraine, but Kyiv only received $4.5 billion of the amount. On February 12, 2015, the IMF and Ukraine agreed on a new loan package of $17.5 billion, bringing the total IMF commitment to Ukraine to $22 billion over four years. The IMF estimates that the total international commitment to Ukraine could come to $40 billion when money from the EU, the United States, and other sources is included. In announcing the agreement, the IMF noted that Ukraine has shown strong fiscal discipline— cutting the budget deficit to 4.6% of GDP, maintaining a flexible exchange rate for its currency, and increasing household gas prices to 56% of the import price and heating prices to about 40% of the import price in 2014. The IMF pointed out areas where Ukraine has committed to make rapid progress on reforms, including further energy price increases, bank restructuring, governance reforms of state-owned enterprises, and legal changes to implement the anticorruption and judicial reforms.4 Ukraine’s Foreign Policy The Ukrainian government’s main foreign policy priorities are to secure international support for Ukraine’s sovereignty and territorial integrity, including non-recognition of Russia’s annexation of Crimea, as well as international assistance to ameliorate the country’s dire economic situation. In December 2014, the Ukrainian parliament overwhelming renounced Ukraine’s former neutral, “non-bloc” status. President Poroshenko has said that Ukraine will eventually seek NATO membership but will first embark on needed reforms to become a viable membership candidate, culminating in a public referendum on joining NATO at the end of this decade. Many observers have noted that key European NATO countries are opposed to NATO membership for Ukraine, or even a key stepping stone to membership, a Membership Action Plan for Ukraine. They reportedly fear that such a move would further provoke Russia. Ukraine has requested assistance from NATO for its military. At the September 2014 NATO summit in Wales, the alliance agreed to set up four trust funds to help Ukraine’s military in such areas as logistics, command and control, military personnel issues (including wounded soldiers), and cyberdefense.5 NATO is leaving the issue of supplying weapons and other possible lethal and non-lethal aid to Ukraine’s armed forces to individual member countries. NATO as an organization hasn’t provided lethal military aid to Ukraine, leaving that to each member state to decide for itself. France and Germany have expressed opposition to providing arms to Ukraine. However, some experts believe other European countries may provide such assistance, but only if the United States does so first. Russia In some ways, recent Russian actions in Ukraine are the culmination of long-standing Russian resentment of the outcome of the Cold War. In 2005, Russian President Vladimir Putin called the 4 See https://www.imf.org/external/np/sec/pr/2015/pr1550.htm. For more on NATO’s response to the Ukraine crisis, see CRS Report R43478, NATO: Response to the Crisis in Ukraine and Security Concerns in Central and Eastern Europe, coordinated by Paul Belkin. See also http://www.nato.int/cps/en/natohq/news_112695.htm. 5 Congressional Research Service 6 Ukraine: Current Issues and U.S. Policy collapse of the Soviet Union “a major geopolitical disaster.” Russian leaders have also asserted that the post-Soviet region is an area of privileged interests of Russia. Part of the justification for that assertion is an alleged right to protect Russian citizens and “compatriots” (persons deemed to be linked to Russia by language, culture, or ethnicity). Moreover, Ukraine has a particularly important place in Russian psychology, according to many experts. Putin has referred to Ukrainians as “brothers” of the Russian people. Eastern Orthodox civilization, in which Russians see themselves as the leading force, got its start in Kievan Rus (a state centered on what is now part of Ukraine) when Prince Vladimir converted to Christianity in 988. Russians often point out that their ancestors spilled a great deal of blood to incorporate Crimea and most of the rest of Ukraine into the Russian empire, and a great deal more to keep it within the empire (and its successor, the Soviet Union) through many wars. Ethnic Russians make up 17.3% of Ukraine’s population, according to the 2001 Ukrainian census. They are concentrated in the southern and eastern parts of the country. They make up 58.3% of the population in the Crimea (a peninsula in the Black Sea in southern Ukraine). In addition, many ethnic Ukrainians in the east and south also tend to be Russian-speaking, are suspicious of Ukrainian nationalism, and support close ties with Russia. Soviet leaders concentrated important heavy industries (including defense industry) in eastern Ukraine, which tied the region to Russia economically and fostered what many analysts have viewed as a lingering Soviet-style mindset there. This is particularly true of the Donbas region, on the border with Russia. Until the collapse of the Yanukovych regime in February 2014, Putin preferred using indirect methods of influence in Ukraine. These included “carrots,” such as lucrative business deals with Ukrainian politicians and oligarchs, but also “sticks,” such as de facto economic sanctions and using Russian media (which are very popular in Ukraine) to attack uncooperative leaders. Russia reacted with great hostility to the emergence of a new, more pro-Western leadership in Ukraine Ukraine in February 2014. A Russian foreign ministry statement on February 24 claimed that “terroristic methods” were being used to suppress dissent in the Russian-speaking regions of the country. The statement also criticized “Western partners” for acting not out of concern for the people of Ukraine, but out of “unilateral geopolitical considerations.” Russian forces invaded occupied Ukraine’s Crimea region in late February and annexed it in March. 2 For more on NATO’s response to the Ukraine crisis, see CRS Report R43478, NATO: Response to the Crisis in Ukraine and Security Concerns in Central and Eastern Europe, coordinated by Paul Belkin. See also http://www.nato.int/cps/en/natohq/news_112695.htm Congressional Research Service 6 Ukraine: Current Issues and U.S. Policy Russia has also made strident demands on the subject of Ukraine’s political future. Russian Foreign Minister Lavrov has called for making Russia the second official language in Ukraine; and constitutional reforms that would confirm Ukraine’s neutral status. Moscow has also insisted on “federalization” of Ukraine under which the various regions would have wide autonomy in the areas of the economy, finances, culture, language, education, and external economic and cultural ties with neighboring countries or regions. Russia’s federalization proposal appears to many analysts to be an effort to permanently cripple the central government in Kyiv, giving forces in eastern Ukraine under Moscow’s sway a veto power over important decisions, including on Ukraine’s current pro-Western orientation. Russia’s plan appears to be broadly similar to the Dayton Peace Accords in Bosnia or the Kozak Memorandum, a 2003 Russian federalization proposal for Moldova. Federalization could also be used to give Russia enhanced control over key economic assets in the east, including defense industries. Moscow has so far declined to recognize the Donetsk and Luhansk “people’s republics” as independent countries or annex them to Russia. However, Russian official statements maintain that Moscow is asserting that the “people’s republics” are a legitimate expression of the public will in the Donbas and that their “leaders” are legitimate interlocutors for Kyiv in determining the future of Ukraine. On the other hand, some of Russia’s actions may speak louder than words: men, money, and equipment (including tanks, armored personal carriers, trucks, anti-aircraft missiles, and artillery) continue to cross over the border from Russia. Some observers have explained the apparent variance between Russia’s words and deeds as Putin’s attempt to test how far he can go in destabilizing Ukraine while avoiding the imposition of additional sanctions by the EU and United States. If Moscow cannot pressure Kyiv to agree to its federalization plans, once some form of negotiations to end the crisis begin, some analysts believe Russia may use the same tactics it has used in other former Soviet territories, including Transnistria in Moldova, and South Ossetia and Abkhazia in Georgia, to support and protect these self-declared independent states, leaving open the option of recognizing it later or even incorporating it into Russia. Even if Russia does not recognize the separatist entities or send in “peacekeeping” troops to protect them, the chaos created by the Moscow-backed groups could still serve Russian goals. Russia could gain by discrediting a government that came to power by means of a popular revolution against a corrupt regime (an unwelcome precedent for Russia itself perhaps). The disorder could also cripple Ukraine’s efforts toward European integration, a key Russian goal. Russia has taken other steps against Ukraine, including imposing some de facto trade sanctions against Ukrainian imports. Russia could decide to expand these sanctions into economic warfare against Ukraine, perhaps after Ukraine’s parliament ratifies the Association Agreement with the EU. Ukrainian government servers have been hit by sophisticated cyberattacks, which may have come from Russia, although no proof of this has been publicly disclosed so far. Russia could harass or expel some of the large number of Ukrainian citizens living and working in Russia. Congressional Research Service 7 Ukraine: Current Issues and U.S. Policy Energy Issues Energy is a key factor in Ukraine’s relations with Russia as Ukraine is heavily dependent on Russia for its energy supplies. In 2012, 63% of Ukraine’s natural gas consumption came from Russia as well as nearly three-quarters of its oil and other liquid fuels.3 However, Ukraine’s vulnerability to Russian pressure has been mitigated by the fact that the main oil and natural gas pipelines to Central and Western Europe transit its territory. In 2012, according to EU Energy Commissioner Gunter Oettinger, about 60% of Russian natural gas destined for Europe transited Ukraine. Past Russian efforts to greatly increase gas prices for Ukraine provoked a crisis that resulted in a cutoff of Russian gas to Western Europe for several days in January 2006. A second gas crisis occurred in January 2009, resulting in a gas cutoff of nearly three weeks. Russia had long sought control of Ukraine’s natural gas pipelines and storage facilities. Moscow’s efforts have been unsuccessful, even with friendly governments in Kyiv, due to Kyiv’s refusal to cede control of one of its key economic assets. This fact, as well as the 2006 and 2009 gas cutoffs, has led Russia and some European countries to plan and build pipelines to bypass Ukraine. Gazprom has developed gas pipelines under the Baltic Sea (called Nord Stream) and through the Balkans (called South Stream) to Western Europe. Nord Stream made its first gas deliveries in 2011. In June 2014, Bulgaria stopped work on South Stream, at least temporarily, due to objections from the European Commission about the project’s compliance with EU energy regulations. Ukraine’s reduced share of gas transport to Europe may have led Russia to feel it would have a freer hand to put greater pressure on Ukraine on other issues, including political ones. Key western European countries may also feel they have less of a stake in Ukraine’s future, if they, like Russia, were no longer dependent on Ukrainian gas transport infrastructure. Indeed, in March 2014, Oettinger indicated that the EU’s overall natural gas consumption attributed transit from Russia via Ukraine, had in fact, declined and that fact, along with increased gas storage facilities and pipeline interconnections in EU countries, has diminished Russia’s leverage over the EU in any possible future gas crisis. If relations between the EU and Russia continue to deteriorate, European countries could take more serious steps to find alternatives to Russian gas, although they would not be able to replace all of that gas with currently available alternative sources. Russia had raised the natural gas price for Ukraine from $268 per thousand cubic meters (tcms) while President Yanukovych was in power to $485 per tcm of gas currently, an increase of about 80%. This has become a major strain on Ukraine’s economic growth forecast. Ukraine has thus far refused to pay the increased amount and is demanding a new gas contract with a lower price. On June 16, Gazprom cut off gas supplies to Ukraine, due to its nonpayment of outstanding debts. Russian gas continues to flow to European countries despite the cutoff against Ukraine, but Russian officials have warned the Europeans that Ukraine may siphon off Russian gas supplies meant for Europe. This has not occurred yet. Ukraine claims to have enough gas in storage to last until late this year. However, Ukrainian leaders concede that Ukraine will have to purchase additional gas supplies in the next few months in order to maintain enough pressure in the pipeline system to supply gas to Europe this winter. If it cannot, Europe may undergo its third gas crisis in less than a decade. 3 U.S. Energy Information Agency Country Brief: Ukraine, http://www.eia.gov/todayinenergy/detail.cfm?id=15411. Congressional Research Service 8 Ukraine: Current Issues and U.S. Policy Ukraine has few short-term alternatives to Russian natural gas. The best hope is to import cheaper gas from Central Europe, using the former Soviet gas transit pipelines in “reverse flow” mode. Ukraine has begun to import small amounts of gas from Poland, Hungary, and Slovakia this way. However, Ukrainian officials admit that “reverse flow” supplies alone will not suffice to meet demand in Ukraine this winter. In the long term, Ukraine could develop its own shale gas deposits and improve exploitation of its conventional gas reserves; import liquefied natural gas; or import gas from Azerbaijan, Central Asia, and elsewhere via pipelines through the EU’s planned Southern Energy Corridor. Ukraine will also to have to make much greater strides in energy conservation. European Union The European Union’s main instrument to promote European values and deepen economic ties with Ukraine is the Association Agreement. The agreement includes a free trade agreement with the EU, formally known as a Deep and Comprehensive Free Trade Agreement (DCFTA). Although the DCFTA further opens potentially lucrative EU markets to Ukraine, it also requires it to adopt EU legislation and standards and to gradually expose its own firms to tough competition from EU imports. Approximation to EU norms could also lead to increased foreign investment in Ukraine. Under intense pressure from Russia, which strongly opposed Ukraine’s intention to sign the AA, the Ukrainian government announced on November 21 that it would not sign the agreement, the first in a series of events that led to the regime’s demise three months later. The collapse of the Yanukovych regime has improved prospects for a closer relationship with the EU. The EU and Ukraine signed the parts of Ukraine’s Association Agreement dealing with political issues in March 2014, and the parts dealing with economic issues (including the DCFTA) were signed on June 27. However, the EU has already lifted tariffs from almost all Ukrainian imports at least through November 2014, when it is hoped the economic parts of the DCFTA will have come into force. On March 5, the European Commission unveiled an 11.1 billion Euro (about $15.5 billion) aid package for Ukraine. The package includes Beginning in April 2014, Russian intelligence operatives and other Russian troops have been involved in fighting in eastern Ukraine. Russia has also supplied separatist forces with artillery, tanks, and other heavy weaponry. Nevertheless, Russia continues to deny that it has intervened militarily in eastern Ukraine. Many experts on Russia have speculated that Putin’s key objective in Ukraine is to weaken and discredit the pro-Western government in Kyiv and Western policy generally. A successful, proWestern Ukraine could pose unwelcome comparisons with the authoritarian, kleptocratic regime at home in Russia. Moscow has so far declined to recognize the Donetsk and Luhansk “people’s republics” as independent countries or annex them to Russia. However, Russian official statements and the February 2015 cease-fire agreement view the separatist regimes as legitimate interlocutors for Kyiv in determining the future of Ukraine. Russia has made also strident demands on the subject of Ukraine’s political future. Russian Foreign Minister Lavrov has called for making Russian the second official language in Ukraine and for constitutional reforms that would confirm Ukraine’s neutral status. Moscow has also insisted on “federalization” of Ukraine, under which the various Congressional Research Service 7 Ukraine: Current Issues and U.S. Policy regions would have wide autonomy in the areas of the economy, finances, culture, language, education, and external economic and cultural ties with neighboring countries or regions. Like its military support for the separatists, Russia’s federalization proposal appears to many analysts to be an effort to permanently cripple the central government in Kyiv, giving forces in eastern Ukraine under Moscow’s sway a veto power over important decisions, including on Ukraine’s current pro-Western orientation. Russia’s plan appears to be broadly similar to the Dayton Peace Accords in Bosnia or the Kozak Memorandum, a 2003 Russian federalization proposal for Moldova. Federalization could also be used to give Russia enhanced control over economic assets in the east. However, it appears highly unlikely that Ukrainian leaders or the public would accept the constitutional changes needed to create such a federation. It is unclear whether the “decentralization” called for in the February 2015 cease-fire agreement will be more acceptable to Ukrainians. Some analysts believe that official Russian rhetoric about an alleged “party of war” in Kyiv centered around Prime Minister Yatsenyuk may indicate another possible strategy— to pit the prime minister and President Poroshenko against each other and perhaps bully or cajole President Poroshenko into enter into an accommodation with Moscow. What has largely disappeared from official Russian rhetoric in recent months is the concept of “Novorossiya;” that is, expanding the Russian-controlled area to include most of eastern and southern Ukraine, perhaps linking Russian-controlled areas in southern Ukraine with Crimea. This goal may have seemed easily achievable to Putin last spring when he first used the term. Since then, however, Ukrainian forces have become somewhat more capable, and it may appear to Putin than such an objective would now likely require a massive, and perhaps politically unacceptable, infusion of Russian military forces to realize. There may also be financial considerations. Moscow has so far provided very meager financial support for the regions in eastern Ukraine that it has effectively seized. This may signal that Russia doesn’t want to incur major new expenses in the current economic environment created by falling oil prices and Western sanctions. Possible concern about intensified sanctions in the event of a more massive intervention could also be a factor. Nevertheless, given Putin’s past unpredictability, even this scenario cannot be ruled out. If Russia does not want to continue the war in eastern Ukraine indefinitely, it could genuinely implement the military provisions of the February 2015 cease-fire, thereby creating a “frozen conflict,” as it has done in Moldova’s Transnistria region and Georgia’s Abkhazia and South Ossetia regions. The outcome would likely at best amount to a cease-fire in place with Russia continuing to have control over the Russia-Ukraine border, given the unlikelihood of an agreement between Kyiv and the separatists on elections and decentralization. Such an outcome could still provide Moscow with leverage over Kyiv but might not afford the same opportunity to destabilize Ukraine as continuing the war would. On the other hand, an effective cease-fire could provide an opening for Putin to secure an easing of sanctions in a few months, particularly from sympathetic European countries. Russia has taken other steps against Ukraine, including imposing some de facto trade sanctions against Ukrainian imports. Russia could decide to expand these sanctions into economic warfare against Ukraine. Ukrainian government servers have been hit by sophisticated cyberattacks, which may have come from Russia, although no proof of this has been publicly disclosed so far. Russia could harass or expel some of the large number of Ukrainian citizens living and working in Russia. Congressional Research Service 8 Ukraine: Current Issues and U.S. Policy Energy Issues Energy is a key factor in Ukraine’s relations with Russia as Ukraine is heavily dependent on Russia for its energy supplies. In 2012, 63% of Ukraine’s natural gas consumption came from Russia, as well as nearly three-quarters of its oil and other liquid fuels.6 However, Ukraine’s vulnerability to Russian pressure has been mitigated by the fact that the main oil and natural gas pipelines to Central and Western Europe transit its territory. In 2014, about 40% of Russian natural gas destined for Europe transited Ukraine. (Just two years earlier, the figure had been about 60%.) Past Russian efforts to greatly increase gas prices for Ukraine provoked a crisis that resulted in a cutoff of Russian gas to Western Europe for several days in January 2006. A second gas crisis occurred in January 2009, resulting in a gas cutoff of nearly three weeks. Until recently, Russia had long sought control of Ukraine’s natural gas pipelines and storage facilities. Moscow’s efforts were unsuccessful, even with friendly governments in Kyiv, due to Kyiv’s refusal to cede control of one of its key economic assets. This fact, as well as the 2006 and 2009 gas cutoffs, has led Russia and some European countries to plan and build pipelines to bypass Ukraine. Gazprom has developed gas pipelines under the Baltic Sea (called Nord Stream) and through the Balkans (called South Stream) to Western Europe. Nord Stream made its first gas deliveries in 2011. On the other hand, Russia cancelled the South Stream project in December 2014, annoyed by EU objections that the project as planned violated EU rules. Russia now plans to build a pipeline through Turkey to the Greek border (dubbed Turkish Stream), leaving the EU the task of transporting gas on EU territory. Gazprom says that it will phase out gas transit via Ukraine by 2020, but many experts are skeptical as to whether this is feasible. Russia has also used gas prices as a tool in its policy toward Ukraine. Russia had raised the natural gas price for Ukraine from $268 per thousand cubic meters (tcm) while President Yanukovych was in power to $485 per tcm of gas when Ukraine’s new government took power, an increase of about 80%. Ukraine refused to pay the increased amount and demanded a new gas contract with a lower price. Russia responded in June 2014 by cutting off natural gas supplies to Ukraine for non-payment of debts. (Ukraine continued to allow gas destined for Western Europe to transit its territory.) In October 2014, the EU brokered a deal between Gazprom and Ukraine on gas supplies at a lower price through March 2015 in exchange for Ukraine’s repayment of some of its debts to Gazprom. Ukrainian leaders acknowledge that the current deal with Gazprom is only a temporary expedient. In order to avoid likely future Russian efforts to use energy supplies as a political weapon, Ukraine has to sharply reduce its dependence on Russian gas. However, Ukraine has few shortterm alternatives. Ukraine began last year to import significant amounts of gas from Poland, Hungary, and Slovakia. However, Ukrainian officials admit that these “reverse flow” supplies alone will not suffice to meet demand in Ukraine. In the long term, Ukraine could develop its own shale gas deposits and improve exploitation of its conventional gas reserves; import liquefied natural gas; or import gas from Azerbaijan, Central Asia, and elsewhere via pipelines through the EU’s planned Southern Energy Corridor. Ukraine will also to have to make much greater strides in energy conservation, which has required a steep and politically unpopular hike in natural gas prices, including for households. 6 U.S. Energy Information Agency Country Brief: Ukraine, http://www.eia.gov/todayinenergy/detail.cfm?id=15411. Congressional Research Service 9 Ukraine: Current Issues and U.S. Policy European Union The European Union’s main instrument to promote European values and deepen economic ties with Ukraine is the Association Agreement. The agreement includes a free trade agreement with the EU, formally known as a Deep and Comprehensive Free Trade Agreement (DCFTA). Although the DCFTA further opens potentially lucrative EU markets to Ukraine, it also requires Ukraine to adopt EU legislation and standards and to gradually expose Ukrainian firms to tough competition from EU imports. Approximation to EU norms could also lead to increased foreign investment in Ukraine. Under intense pressure from Russia, which strongly opposed Ukraine’s intention to sign the AA, the Ukrainian government announced on November 21 that it would not sign the agreement, the first in a series of events that led to the regime’s demise three months later. The collapse of the Yanukovych regime improved prospects for a closer relationship with the EU. The EU and Ukraine signed the parts of Ukraine’s Association Agreement dealing with political issues in March 2014, and the parts dealing with economic issues (including the DCFTA) were signed on June 27. Ratification of the pact was delayed due to Russian threats to block Ukrainian imports from its markets unless the pact was modified to protect Russia’s interests. The EU and Ukraine refused to do so, and the European Parliament and the Ukrainian parliament ratified the accord on September 16. However, the EU and Ukraine did appear to bow to Russian threats by agreeing to postpone implementation of the DCFTA until 2016. Ukraine will continue to enjoy unilateral trade preferences from the EU until then. As part of an international effort involving international financial institutions, the United States, and other countries, the EU has also offered substantial assistance to Ukraine to reform its political and economic system and to shore up its finances. In addition, the EU has imposed sanctions on Russia and separatists in Ukraine in conjunction with the United States and other countries. Although the sanctions are supposed to help persuade Russia to agree to a peace settlement in Ukraine, the EU as an organization does not play a major role in brokering peace talks. Instead, EU member states Germany and France have taken the lead in that effort. EU Aid to Ukraine On March 5, 2014, the European Commission unveiled an 11.1-billion-Euro (about $15.5 billion) aid package for Ukraine. The package included 1.6 billion Euro (about $2.2 billion) in macro financial assistance loans to support Ukraine’s government finances. The EU will also provide 1.565 billion Euro (about $2.17 billion) in grant aid between 2014 and 2020 to assist Ukraine’s reform efforts. The package includes up to 3 billion Euro (about $4.16 billion) in loans from the European Investment Bank and 5 billion Euro (nearly $7 billion) from the European Bank for Reconstruction and Development. In addition, the EU will establish a High Level Investment Forum/Task Force; help modernize Ukraine’s natural gas transit system and work on reversing the flow of pipelines through Slovakia so that Ukraine can receive gas from the west; acceleration ofaccelerate its Visa Liberalisation Action Plan; and provide technical assistance on a number of areas from constitutional to judicial reform and preparation of elections.4 On March 17, 7 7 See http://europa.eu/rapid/press-release_MEMO-14-159_en.htm. Congressional Research Service 10 Ukraine: Current Issues and U.S. Policy The war in eastern Ukraine and the sharply negative impact it has had on Ukraine’s economy has led the EU to consider additional aid to Ukraine. The EU is reportedly considering providing as much as 2.5 billion Euro ($2.8 billion) in additional macrofinancial assistance loans this year, depending on whether Ukraine can reach a new loan agreement with the IMF and keep reforms on track. EU Sanctions On March 17, 2014, the day after Crimean authorities held a referendum on joining Russia, the European Union imposed a visa ban and an asset freeze on 21 figures from Ukraine and Russia who played roles in Russia’s seizure of Crimea. On March 21, the EU imposed sanctions on 12 additional Russian leading figures, after President Putin signed an agreement with Crimean 4 See http://europa.eu/rapid/press-release_MEMO-14-159_en.htm. Congressional Research Service 9 Ukraine: Current Issues and U.S. Policy leaders incorporating the region into Russia.5 On April 28, the EU added 15 more names to the list. On May 12, 2014, the EU added 13 additional names of Russian officials, and two companies based in Crimea. The EU list included some senior government officials and members of the Russian parliament, but also fairly low-level figures directly involved in the Crimea operation and efforts to destabilize Ukraine. In contrast to the United States, the EU has stopped short of sanctioning Putin’s “inner circle” or key firms associated with them.68 However, the political mood in many EU countries changed after 298 people (mainly EU citizens) were killed as a result of the July 17 shootdown of Malaysian Airlines flight MH17 over separatist-held territory. On July 22, EU foreign ministers agreed to expand Ukraine-related sanctions against Russia by adding individuals and companies to the existing travel ban and asset freeze list, including some persons in Putin’s inner circle. On July 29, the EU agreed to impose sanctions on Russia's financial, defense, and energy sectors. The measures barred buying or selling debt, equity, or other financial instruments issued by five Russian state-owned banks with a maturity of over 90 days; banned future EU arms sales and imports from Russia; prohibited the sale of “dual-use” goods and technology to Russian military end-users; barred the sale of some oil exploration equipment and technology, for uses such as arctic, deep water or shale oil exploration. However, observers have noted that the sanctions were crafted to reduce the economic harm to EU countries, for example by not targeting the sensitive natural gas sector; the sale of dual use technologies to civilian firms; or France’s planned (now at least temporarily postponed) delivery of two Mistral amphibious assault ships. Press reports indicate that the EU is considering new sanctions in response to Russia’ increasingly brazen intervention in Ukraine. The sanctions could be announced as soon as September 5. U.S. Policy During Ukraine’s political upheaval in late 2013 and early 2014, Obama Administration officials urged Ukrainian leaders and the protestors to find a peaceful, democratic solution to the crisis. President Obama and Administration officials tried unsuccessfully to reassure Russia that the United States was not in a geopolitical competition with Moscow over Ukraine. The Administration reacted positively, but cautiously, to the collapse of the Yanukovych regime. A statement released by the White House on February 22 said that that day’s developments “could” move Ukraine toward the U.S. goals of a “de-escalation of violence, constitutional change, a coalition government, and early elections.” It stressed that “(t)he unshakeable principle guiding events must be that the people of Ukraine determine their own future.” 5 See http://www.consilium.europa.eu/homepage/highlights/council-condemns-the-illegal-referendum-in-crimea?lang= en. 6’s financial, defense, and energy sectors. These sanctions were strengthened in September, in response to a massive Russian-supported offensive in Ukraine. The sanctions barred EU nationals and companies from providing loans to five major Russian state-owned banks and barred trade in new bonds, equity, or similar financial instruments with a maturity exceeding 30 days, issued by the same banks. The same restrictions were also extended to three major Russian defense companies and three major energy companies. The EU banned certain services necessary for deep water oil exploration and production, Arctic oil exploration or production, and shale oil projects in Russia. The EU has also banned exporting dual use goods and technology for military use in Russia. The EU also added new persons to its travel ban and asset freeze list. In December 2014, the EU banned or restricted most European investment, trade, and tourism with Russian-occupied Crimea. As of January 2015, the EU has sanctions on 132 persons and 28 entities. The EU is currently considering additional sanctions in response to Russian support for a separatist offensive in eastern Ukraine in January and February 2015. 8 For the sanctions decision and the initial list of names, see http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri= CELEX:32014D0145&rid=5. For the March 21 additions, see http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/? uri=CELEX:32014D0151&rid=2. For the April 28 additions, see http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/? uri=CELEX:32014D0238&rid=1. For the May 12 additions, see http://eur-lex.europa.eu/legal-content/EN/TXT/?uri= uriserv:OJ.L_.2014.137.01.0009.01.ENG. Congressional Research Service 1011 Ukraine: Current Issues and U.S. Policy Reaction to the Russian Annexation of Crimea and Efforts to Destabilize Other Parts of Ukraine The United States has strongly condemned the Russian military invasion of Crimea and Russia’s ongoing efforts to destabilize eastern Ukraine. On March 3, President Obama said “the world is largely united in recognizing that the steps Russia has taken are a violation of Ukraine’s sovereignty, Ukraine’s territorial integrity; that they’re a violation of international law ... ” President Obama acknowledged Russian ties to Ukraine, adding that “all of those interests I think can be recognized. But what cannot be done is for Russia, with impunity, to put its soldiers on the ground and violate basic principles that are recognized around the world.”7 President Obama has warned that there will be continuing costs for Russia for its ongoing actions in Ukraine. The United States has suspended most bilateral cooperation with Russia. On April 2, the Administration announced that it was suspending several projects planned under the aegis of the However, observers have noted that the sanctions have been crafted to reduce the economic harm to EU countries, for example by not targeting the sensitive natural gas sector; the sale of dual use technologies to civilian firms; or France’s planned (now indefinitely postponed) delivery of two Mistral amphibious assault ships. Observers have also noted that the sanctions were imposed for a one-year period only. It is therefore possible that EU countries sympathetic to Russia could block renewal of sanctions as they come up for consideration this year. In January 2015, the EU decided to extend the sanctions on individuals and entities until September 2015. Key sectoral sanctions do not expire until July.9 U.S. Policy During the upheaval in Ukraine in the past year, Administration officials have tried unsuccessfully to reassure Russia that the United States was not in a geopolitical competition with Moscow over Ukraine. The United States has strongly condemned the Russian military invasion of Crimea and Russia’s ongoing efforts to destabilize eastern Ukraine as violations of international law. Over the past year, the United States, in coordination with the EU and other countries, has imposed sanctions against Russia to increase the costs to Russia of its aggression, with the objective of pressing it to implement a genuine political settlement with Ukraine. However, the Administration has appeared leave the leading role in negotiating such a settlement to France and Germany, whose representatives have met with those of Russia, Ukraine, and the rebels in the so-called “Normandy format,” named after the place where they first occurred last year. Nevertheless, President Obama and Administration officials have been in regular contact with the main figures in the talks, including President Putin, President Poroshenko, German Chancellor Merkel, and President Hollande of France. Another focus of U.S. efforts has been to support Ukraine’s efforts to reform and increase its cooperation and integration with the European Union. The United States, in cooperation with the EU and international financial institutions, is providing financial and technical assistance to Ukraine. The United States has also provided non-lethal aid to Ukraine’s security sector, including its army, but has declined so far provide weapons to Ukraine, out of concern of escalating the conflict and making a political settlement less likely. Nevertheless, President Obama said in February 2015 that providing defense weapons to Ukraine is an option the Administration is considering if diplomatic efforts fail. Secretary of State John Kerry issued a statement on February 12 expressing support for the ceasefire agreement reached in Minsk earlier that day. He said that the United States would consider rolling back sanctions against Russia when the agreement (and the previous Minsk agreement of September 2014) are fully implemented.10 9 For more on the EU’s policy on Ukraine, see CRS Report IN10129, U.S.-EU Cooperation on Ukraine and Russia, by Kristin Archick and Derek E. Mix. 10 See http://www.state.gov/secretary/remarks/2015/02/237439.htm. Congressional Research Service 12 Ukraine: Current Issues and U.S. Policy U.S. Sanctions Against Russia The United States has suspended most bilateral cooperation with Russia. On April 2, the Administration announced that it was suspending several projects planned under the aegis of the U.S.-Russia Bilateral Presidential Commission as well as some law enforcement cooperation activities and planned to use that funding for aid instead to Ukraine. The United States has also placed additional restrictions on defense-related exports to Russia. On March 6, the Administration issued an Executive Orderexecutive order imposing visa bans and asset freezes against persons who “undermine democratic processes and institutions in Ukraine; threaten its peace, security, stability, sovereignty, and territorial integrity; and contribute to the misappropriation of its assets.... ”811 On March 17, the Administration announced visa bans and asset freezes against several senior figures from Russia and the secessionist Crimean government. On March 16 and 20, after Russia moved to annex Crimea, the Administration issued two additional Executive Ordersexecutive orders expanding the scope of sanctions. They permit the Administration to freeze the assets of persons working in key areas of the Russian economy, including “financial services, energy, metals and mining, engineering, and defense and related materiel.” On March 20, the Administration announced asset freezes on 16 high-ranking Russian government officials and members of parliament. Four additional persons, all wealthy businessmen, were sanctioned as members of Putin’s “inner circle.” One bank, Bank Rossiya, was also sanctioned due to its role as the personal bank of senior Russian officials.912 On April 28, the Administration imposed asset freezes on an additional seven senior Russian officials. They include Igor Sechin, the president of Rosneft, Russia’s leading oil company, and former chief of staff to Putin. The Administration also sanctioned 17 entities, including banks and other businesses. The companies appear to have been chosen due to their links to sanctioned persons in Putin’s inner circle, such as energy trader Genneddy Timchenko and bankers Arkady and Boris Rotenberg, or to Bank Rossiya.10 Due to privacy laws, the names of those receiving 7 For a text of the press conference, see http://www.whitehouse.gov/the-press-office/2014/03/03/remarks-presidentobama-and-prime-minister-netanyahu-bilateral-meeting. 8 See http://www.whitehouse.gov/the-press-office/2014/03/06/executive-order-blocking-property-certain-personscontributing-situation. 9 For a list of Russian figures sanctioned in March, see http://www.treasury.gov/press-center/press-releases/Pages/ jl23331.aspx. For the text of the Executive Order greatly expanding the scope of sanctions, see http://www.whitehouse.gov/the-press-office/2014/03/20/executive-order-blocking-property-additional-personscontributing-situat. 10 For a list of Russian figures sanctioned in April, see http://www.treasury.gov/press-center/press-releases/Pages/ (continued...) Congressional Research Service 11 Ukraine: Current Issues and U.S. Policy visa bans have not been made public, but it is likely that they include those persons under asset freezes. In a press conference in the Philippines on April 28, President Obama said the goal of the sanctions was to “change [Putin’s] calculus with respect to how the current actions that he’s engaging in in Ukraine could have an adverse impact on the Russian economy over the long haul, and to encourage him to actually walk the walk and not just talk the talk when it comes to diplomatically resolving the crisis in Ukraine.” He added that “... Russia has not yet chosen to move forward, and these sanctions represent the next stage in a calibrated effort to change Russia’s behavior. We don’t yet know whether it’s going to work. And that’s why the next phase if, in fact, we saw further Russian aggression towards Ukraine could be sectoral sanctions, less narrowly targeted, addressing sectors like banking or the defense industry.”11 The sanctions imposed so far appear to have had little effect on Russian behavior. Indeed, Russian-supported gunmen accelerated their seizures of buildings in the Donbas after the sanctions were imposed. Administration officials condemned the May 11 “referendums” held by the separatists in eastern Ukraine as illegal and invalid. President Obama and Administration officials warned that the United States will impose additional sanctions on Russia if it disrupts Ukraine’s May 25 presidential election. On May 25, President Obama congratulated the people of Ukraine on holding the presidential election despite threats from Russian-backed separatists, and on May 26, Obama congratulated Poroshenko on his victory. President Obama met with President-elect Poroshenko in Warsaw on June 4. The two leaders discussed Poroshenko’s plans for reforms, including in economic reform, improving the investment climate, fighting corruption, and reducing energy dependence on Russia. They also discussed a package of additional U.S assistance to Ukraine to support reforms in these areas, as well as training and equipment for Ukraine’s law enforcement bodies and armed forces to help them deal with the crisis in eastern Ukraine. Vice President Biden attended President Poroshenko’s inauguration on June 7. At the G7 summit in Brussels on June 5, the United States and its key allies sharply condemned Russia’s “illegal annexation of Crimea and actions to destabilize eastern Ukraine.” In the summit communique, the G7 leaders “urge[d] Russia to recognize the results of Ukraine’s presidential election; complete the withdrawal of its military forces on the border with Ukraine, stop the flow of weapons and militants across the border and to exercise its influence among armed separatists to lay down their weapons and renounce violence.” Despite listing these seemingly robust demands, the G7 leaders were more cautious on the subject of what they would do if they were not met, saying merely that they “stand ready” to impose additional sanctions “should events so require.”12 On June 22, Biden called President Poroshenko and expressed support for Ukraine’s unilateral ceasefire and talks with “civic leaders in eastern Ukraine.” The Vice President noted that the (...continued) jl2369.aspx. 11 Please see http://www.whitehouse.gov/the-press-office/2014/04/28/remarks-president-obama-and-president-benignoaquino-iii-philippines-joi. For more on the sanctions on Russia, see CRS Report IN10048, U.S. Sanctions on Russia in Response to Events in Ukraine, coordinated by Dianne E. Rennack. 12 See http://www.whitehouse.gov/the-press-office/2014/06/05/brussels-g-7-summit-declaration. Congressional Research Service 12 Ukraine: Current Issues and U.S. Policy United States was working with other G7 countries on possible sanctions if Russia did not meet the conditions laid out in the G7 summit communique.13 On June 23, in a telephone conversation with President Putin, President Obama called upon Putin to “press the separatists to recognize and abide by the ceasefire and to halt the flow of weapons and materiel across its border into Ukraine. The President emphasized that words must be accompanied by actions and that the United States remains prepared to impose additional sanctions should circumstances warrant, in coordination with our allies and partners.”14 The Administration has been reluctant to impose unilateral U.S. sanctions against Russia, noting that it continues to work with EU and other countries on the issue. Press reports claim that U.S. business groups with interests in Russia have lobbied heavily against unilateral sanctions, warning that European competitors could take advantage of them to squeeze out U.S. firms. However, on July 16, 2014, the United States imposed sanctions unilaterally on key firms in Russia’s financial, energy, and military technology sectors—including Gazprombank, Vnesheconombank (VEB), Novatek, and Rosneft. U.S. firms and persons are barred from dealing in new equity or loans of greater than 90 days maturity for these companies. After the Malaysian airlines tragedy on the 17th, the EU largely matched and even in some cases went beyond these sanctions. On July 27, the Administration responded by adding Bank of Moscow, VTB Bank, and Russian Agricultural Bank to the list of companies with restricted access to U.S. capital markets. In addition, the U.S. assets of United Shipbuilding Company were frozen. As a result of Russia’s surge in support for separatists in eastern Ukraine in August and September (including the direct involvement of thousands of Russian troops), U.S. officials said that the United States was considering additional sanctions against Russia, in coordination with the EU. The additional sanctions could be announced as early as September 5. Congressional Response U.S. Aid to Ukraine According to the USAID “Greenbook” website, the United States obligated over $4 billion in aid to Ukraine from FY1990 through FY2012. According to other State Department figures, the United States allocated $92.391 million in aid for Ukraine in FY2013 and $86.125 million in FY2014. In its FY2015 Congressional Budget Justification, likely drafted before the crisis in Ukraine, the Administration requested $57 million in Economic Support Fund assistance for Ukraine. According to the document U.S. assistance will “help to strengthen democratic institutions and processes; enhance government accountability; support civil society, independent media, judicial reform, and anti-corruption efforts; improve conditions for investment, economic growth and competiveness; improve energy security and clean energy investment; and help bring the damaged Chornobyl nuclear facility to an environmentally safe and stable condition and properly 13 See http://www.whitehouse.gov/the-press-office/2014/06/22/readout-vice-presidents-call-ukrainian-president-petroporoshenko. 14 See http://www.whitehouse.gov/the-press-office/2014/06/23/readout-president-s-call-president-putin-russia. Congressional Research Service 13 Ukraine: Current Issues and U.S. Policy store its nuclear waste.” However, the document notes that given the recent changes in Ukraine, the “longer-term specifics of the program will be reviewed in light of changing circumstances.” Ukraine is also expected to receive $6.5 million in USAID Global Health funding, $22 million in State Global Health Funding, $2.5 million in INCLE law enforcement aid, $1.9 in IMET military training assistance, and $2 million in Foreign Military Financing. In March, the Administration unveiled the first details of an aid package for the new Ukrainian government. It included $1 billion in loan guarantees in order to help “insulate vulnerable Ukrainians from the effects of reduced energy subsidies.” A reduction in energy subsidies is one of the most politically sensitive conditions the IMF put on its loan to Ukraine. The United States is also providing technical advisors to help the Ukrainian government deal with its financial crisis and to implement energy sector reforms. Other technical assistance would be provided to help Ukraine recover assets stolen by the previous regime and fight corruption. The United States also provided help so that Ukraine can hold free and fair presidential elections in May 2014. The United States would provide technical assistance on how Ukraine can use its rights as a WTO member to combat potential Russian trade sanctions. The Administration package would also provide advice and financing to help Ukrainian firms find new export markets and to enhance Ukraine’s energy efficiency, so that it can reduce its dependence on Russia.15 On April 21, the Administration unveiled a new aid package totaling $50 million. Of this amount, $11.4 million is being used to help Ukraine hold free and fair elections on May 25 and send experts to Ukraine on such issues as constitutional reform, local governance, public participation, and judiciary reform. The Administration package includes additional technical assistance to Ukraine to help the country on economic reform issues. In addition to three banking advisors already in Kyiv, the Administration said it would send additional advisors in such areas as public debt management, macroeconomic policy, and budget and tax administration. U.S. experts are advising Ukraine on securing reverse flows of natural gas from Poland, Hungary, and Slovakia; increasing its domestic conventional gas supply; implementing contracts signed in 2013 for shale gas development in Ukraine; and improving energy efficiency. The United States will expand technical help to Ukraine on fighting corruption and will help coordinate international efforts to repatriate to Ukraine funds stolen by members of the Yanukovych regime. To improve people to people ties, the United States plans to extend the validity of visas for businesspeople and tourists to 10 years from the current 5.16 In March 2014, Ukraine requested military aid from the United States. A full list of what Ukraine is seeking has not been disclosed, but press reports claim that Ukraine has asked for arms and ammunition, communications gear, intelligence support, aviation fuel, night-vision goggles, mine-clearing equipment, vehicles, medical gear, and other items. The Administration has declined so far to send lethal military aid to Ukraine, out of concern that it could make a diplomatic settlement of the crisis more difficult. In an April 2014 fact sheet, the White House detailed an $18 million security assistance package for Ukraine. The amount included 300,000 Meals Ready to Eat (MREs) to Ukraine in March, at a cost of about $3 million. The Administration is also providing an additional nearly $7 million in 15 For a fact sheet detailing proposed U.S. aid for Ukraine, see http://www.whitehouse.gov/the-press-office/2014/03/04/ fact-sheet-international-support-ukraine. 16 For a fact sheet detailing the $50 million aid package, see http://www.whitehouse.gov/the-press-office/2014/04/21/ fact-sheet-us-crisis-support-package-ukraine. Congressional Research Service 14 Ukraine: Current Issues and U.S. Policy health and welfare assistance to Ukraine’s armed forces. An additional $8 million in non-lethal includes explosive ordinance disposal equipment and handheld radios for Ukraine’s military and engineering equipment, communications equipment, vehicles, and non-lethal individual tactical gear for Ukraine’s border guards. The Administration says it is “actively reviewing” other Ukrainian requests.17 On June 4, the Administration announced an additional $5 million in security assistance to Ukraine. The funding will pay for body armor, night vision goggles, and communications equipment. The Administration also noted that senior U.S. defense officials met with their Ukrainian counterparts in April and early June to discuss U.S. support for Ukraine’s defense reform and military-to-military cooperation.18 On June 7, the Administration announced an additional $48 million in aid for Ukraine, pending consultation with Congress. The package will support economic reforms; assist constitutional reform, decentralization, and confidence-building in eastern Ukraine; strengthen Ukraine’s border guards; support the fight against corruption; help diversity Ukraine’s trade and increase its energy security. In June, the Administration said that, added together with previously budgeted funds, the United States is providing over $184 million in aid to Ukraine this year, not including the $1 billion loan guarantee.19 (In May 2014, Ukraine issued the $1 billion loan made possible by the U.S. loan guarantees. Ukraine was able to price the five-year bonds at 28 basis points over Treasury bonds.) The Administration has notified Congress of its intent to use $19 million in Global Security Contingency Fund (GSCF) authority to train and equip four companies and one tactical headquarters of the Ukrainian National Guard, as part of their efforts to build their capacity for internal defense. The training would take place in 2015 at a Ukrainian training site in Yavoriv, in western Ukraine. As of August 2014, the United States has obligated or notified $52 million in security assistance to Ukraine since the start of the crisis in March. The FY2015 foreign operations appropriations bill (H.R. 5013), approved by the House Appropriations Committee on June 24, contains $215 million above the President’s pre-crisis request in aid for Ukraine and other former Soviet countries facing Russian aggression. The Senate committee version of the bill, approved by the Senate Appropriations Committee on June 19, contains $100 million in additional funds for this purpose. Other Legislation The 113th Congress has passed legislation in response to the current political crisis in Ukraine. On January 7, 2014, the Senate passed S.Res. 319. Among other provisions, the resolution sponsored by Senator Murphy urges the United States and EU to work together to promote a peaceful resolution of the crisis that moves Ukraine toward a future in the Euro-Atlantic community; encourages all parties to avoid violence and engage in dialogue; and states that, in the event of further government violence against peaceful protestors, the President and Congress 17 See http://www.whitehouse.gov/the-press-office/2014/04/21/fact-sheet-us-crisis-support-package-ukraine. See http://www.whitehouse.gov/the-press-office/2014/06/04/fact-sheet-us-security-assistance-ukraine. 19 See http://www.whitehouse.gov/the-press-office/2014/06/07/fact-sheet-us-assistance-ukraine. 18 Congressional Research Service 15 Ukraine: Current Issues and U.S. Policy should consider whether to apply targeted sanctions, including visa bans and asset freezes, against individuals responsible for ordering or 13 Due to privacy laws, the names of those receiving visa bans have not been made public, but it is likely that they include those persons under asset freezes. On July 16, 2014, the United States imposed sanctions unilaterally on key firms in Russia’s financial, energy, and military technology sectors—including Gazprombank, Vnesheconombank (VEB), Novatek, and Rosneft. U.S. firms and persons are barred from dealing in new equity or loans of greater than 90 days maturity for these companies. After the Malaysian airlines tragedy on the 17th, the EU largely matched and even in some cases went beyond these sanctions. On July 27, the Administration responded by adding Bank of Moscow, VTB Bank, and Russian Agricultural Bank to the list of companies with restricted access to U.S. capital markets. In addition, the U.S. assets of United Shipbuilding Company were frozen. 11 See http://www.whitehouse.gov/the-press-office/2014/03/06/executive-order-blocking-property-certain-personscontributing-situation. 12 For a list of Russian figures sanctioned in March, see http://www.treasury.gov/press-center/press-releases/Pages/ jl23331.aspx. For the text of the executive order greatly expanding the scope of sanctions, see http://www.whitehouse.gov/the-press-office/2014/03/20/executive-order-blocking-property-additional-personscontributing-situation. 13 For a list of Russian figures sanctioned in April, see http://www.treasury.gov/press-center/press-releases/Pages/ jl2369.aspx. Congressional Research Service 13 Ukraine: Current Issues and U.S. Policy In September 2014, in response to a separatist offensive in Ukraine massively supported by Russian combat troops, the United States imposed sanctions against additional key Russian companies, including Transneft, Lukoil, Gazprom Neft, Rostec, Surgutneftegaz, and Sberbank.14 On December 19, 2014, the President issued an executive order to bar any U.S. person from participating in new investment in Crimea; imports from and exports to the Crimea region; and any financing, facilitation, or guarantee of any related transaction by a U.S. person.15 Congressional Response U.S. Aid to Ukraine According to the U.S. Aid for International Development (USAID) “Greenbook” website, the United States obligated over $4 billion in aid to Ukraine from FY1990 through FY2012.16 According to other State Department figures, the United States allocated $92.4 million in aid for Ukraine in FY2013 and $88.1 million in FY2014. According to a State Department statement on February 5, 2015, the United States has provided over $355 million in U.S. aid to Ukraine over the previous year. In addition, the United States provided a $1 billion loan guarantee to Ukraine. The government of Ukraine issued the bond in May 2014. Ukraine was able to price the five-year bonds at 28 basis points over Treasury bonds. Ukraine has committed to using the loan to compensate about 2 million vulnerable households from the impact of increases in gas and heating prices.17 U.S. technical assistance has been aimed at helping Ukraine stabilize its financial sector; carry out reforms in the agricultural sector; improve the business climate; help Ukraine hold free and fair parliamentary and presidential elections; support constitutional reforms; bolster civil society to participate and monitor the reform process; and support independent media. Assistance is also devoted to helping Ukraine develop laws and regulations to fight corruption, one of Ukraine’s biggest challenges. Technical assistance is also being used to improve its energy security, including by enhancing energy efficiency. U.S. aid also provides humanitarian assistance to Ukraine in cooperation with the U.N. High Commissioner for Refugees (UNHCR) and other international organizations to improve Ukraine’s ability to assist internally displaced persons (IDP.) U.S. aid has been used by Radio Free Europe/Radio Liberty and Voice of America to produce Russian-language news broadcasts that are aired in Ukraine. U.S. aid has also gone into helping bolster Ukraine’s security sector. Over $120 million has been allocated for this purpose. The assistance includes providing body armor, helmets, vehicles, night 14 See http://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20140912.aspx. For more on U.S. sanctions on Russia, see CRS Report IN10048, U.S. Sanctions on Russia in Response to Events in Ukraine, coordinated by Dianne E. Rennack. For more on the economic impact of sanctions on Russia, see CRS Report R43895, U.S. Sanctions on Russia: Economic Implications, by Rebecca M. Nelson. 16 See https://eads.usaid.gov/gbk/. 17 See http://www.state.gov/r/pa/prs/ps/2015/02/237203.htm. 15 Congressional Research Service 14 Ukraine: Current Issues and U.S. Policy and thermal vision devices, heavy engineering equipment, advanced radios, patrol boats, rations, tents, counter-mortar radars, uniforms, and first aid equipment and supplies.18 In February 2015, Lt. Gen. Ben Hodges announced that a U.S. Army battalion would begin training Ukrainian forces in Poland, including on how to operate against Russian electronic warfare and how to protect themselves from Russian and rebel artillery. However, some critics have claimed that this aid has been slow to arrive in Ukraine due to bureaucratic impediments. Moreover, some Members of Congress have expressed support for going beyond the non-lethal support given by the United States so far to provide “defensive weapons” such as man-portable anti-tank weapons. Other suggested assistance includes additional non-lethal items, such as secure communications equipment, reconnaissance drones, and radars capable of tracking longer-range heavy artillery, not just mortars. 19 The FY2015 omnibus appropriations bill (P.L. 113-235) appropriates aid for Ukraine. The bill includes $47 million in Foreign Military Financing (FMF) and $139.283 million in Economic Support Fund (ESF) aid, which can be used for technical assistance and for additional loan guarantees for Ukraine. In addition to this amount, Ukraine will likely also receive a portion of Europe and Eurasia regional funding to fight Russian aggression, including $502 million in ESF; $15.8 million in International Narcotics Control and Law Enforcement (INCLE) aid; $5.85 million from the Nonproliferation, Anti-Terrorism, Demining, and Related Programs (NADR) account; and $29.55 million in FMF funding.20 In its FY2016 Congressional Budget Justification, the Administration requested $154.1 million in ESF funding for Ukraine in its base request. The Administration also requested $31.615 million in Global Health funding; and $2.9 million in IMET military training funds. The Administration requested an additional $275 million in ESF from the Overseas Contingency Operations (OCO) account to fund possible additional loan guarantees for Ukraine. The Administration request also includes $42.3 million in FMF aid for Ukraine from the OCO account.21 In January 2015, Secretary of the Treasury Jack Lew announced Administration plans to provide another $1 billion in loan guarantees in the first half of 2015, if Ukraine makes progress on reforms. He also said that the Administration would also seek Congressional approval for yet another $1 billion guarantee, making $3 billion in loan guarantees in all.22 Other Legislation The 113th Congress passed legislation in response to the crisis in Ukraine. On January 7, 2014, the Senate passed S.Res. 319. Among other provisions, the resolution sponsored by Senator Murphy urges the United States and EU to work together to promote a peaceful resolution of the crisis that moves Ukraine toward a future in the Euro-Atlantic community; encourages all parties to avoid 18 See http://www.whitehouse.gov/the-press-office/2014/11/21/fact-sheet-us-assistance-ukraine. For a report by former senior U.S. officials advocating U.S. defensive arms for Ukraine, see http://www.thechicagocouncil.org/sites/default/files/UkraineReport_February2015_FINAL.pdf. 20 See the Explanatory Statement on H.R. 83 at https://www.congress.gov/congressional-record/2014/12/11/housesection/article/H9307-1. 21 http://www.state.gov/documents/organization/236395.pdf 22 See http://www.treasury.gov/press-center/press-releases/Pages/jl9751.aspx. 19 Congressional Research Service 15 Ukraine: Current Issues and U.S. Policy violence and engage in dialogue; and states that, in the event of further government violence against peaceful protestors, the President and Congress should consider whether to apply targeted sanctions, including visa bans and asset freezes, against individuals responsible for ordering or carrying out the violence. On February 10, 2014, the House passed H.Res. 447 by a vote of 381-2. The resolution, introduced by Representative Eliot Engel on December 16, 2013, contains provisions broadly similar to those of S.Res. 319, including raising the possibility of sanctions against Ukrainian leaders if they use violence against protestors. The House Foreign Affairs Committee approved an amended version of H.Res. 447 on January 29. The new version takes into account the events that that had occurred since the resolution’s introduction. The resolution expresses support for the visa bans that the United States has already imposed on Ukrainian officials responsible for violence against protestors, and urges the Administration to consider additional sanctions against those responsible for the use of force. On March 11, the House of Representatives approved H.Res. 499 by a vote of 402-7. Among other provisions, the resolution calls on NATO allies and European Union member states to immediately suspend military cooperation with Russia, including arms sales; calls for the United States and its allies to adopt visa, financial, trade, and other sanctions on senior Russian Federation officials, Russian and Ukrainian oligarchs, and others complicit in Russia’s intervention and interference in Ukraine, majority state-owned banks and commercial organizations, and other state agencies, as appropriate; and calls on the United States to work with its allies and other countries to aid Ukraine’s economic recovery efforts. On March 6, the House passed H.R. 4152 by a vote of 385-23. The bill funds the loan guarantees requested by the Administration for Ukraine from the amounts appropriated for FY2014 for the Economic Support Fund, and from unobligated balances for State Department and Foreign Operations funding for prior years. On March 27, the Senate approved an amended version of H.R. 4152 by voice vote. The bill includes the loan guarantees for Ukraine, but also provisions of S. 2124, which had been approved by the Senate Foreign Relations Committee on March 12. These portions of the Senatepassed version of H.R. 4152 require the U.S. government to assist Ukraine to recover assets stolen by the previous regime through corruption; authorize $50 million in U.S. aid in FY2015 to help Ukraine carry out political and economic reforms; authorize $100 million in security assistance for Ukraine and other Central and Eastern European countries for FY2015-FY2017; and require the President to impose visa bans and asset seizures against persons in Ukraine and Russia who are responsible for violence or undermining the peace, security, stability, sovereignty, or territorial integrity of Ukraine. The bill also “encourages” the President to impose these sanctions on Russian figures responsible for corruption in Russia and requires an annual report by the Secretary of Defense on military and security developments involving the Russian Federation. On April 1, the House passed the Senate-amended version of H.R. 4152 by a vote of 378-34. Representative Royce, who introduced a broadly similar bill (H.R. 4278) passed by the House on March 27, expressed his preference for the “more comprehensive” H.R. 4278, but supported passage of the Senate version of H.R. 4152 to “demonstrate bipartisan support for Ukraine.” President Obama signed the bill into law on April 3. On April 1, the House also passed S. 2183, which requires Radio Free Europe-Radio Liberty and Voice of American to start a programming “surge” to provide accurate information to eastern Congressional Research Service 16 Ukraine: Current Issues and U.S. Policy Ukraine, Crimea, and Moldova in order to counteract inflammatory Russian propaganda. The bill Congressional Research Service 16 Ukraine: Current Issues and U.S. Policy authorizes up to $10 million in appropriations for this effort. The provisions of S. 2183 were originally part of H.R. 4278, and were passed by the Senate as a separate bill on March 27 by unanimous consent. President Obama also signed S. 2183 into law on April 3. On May 14, 2014, the House Armed Services Committee reported the FY2015 National Defense Authorization Act (H.R. 4435), which would prohibit U.S. funding for military-to-military cooperation, information sharing, and cooperative threat reduction and other nonproliferation activities with Russia. Figure 1. Ukraine Congressional Research Service 17 Ukraine: Current Issues and U.S. Policy December 11, the House passed H.R. 5859, the Ukraine Freedom Support Act. The Senate passed the bill on December 13, and the bill was signed by the President on December 18 (P.L. 113-272). On December 18, 2014, President Obama signed H.R. 5859, the Ukraine Freedom Support Act. The measure permits the President to impose sanctions on Russian defense, energy, and other firms and foreign persons; authorizes increase military and economic assistance for Ukraine; authorizes funding for U.S. Russian-language broadcasting in the region; authorizes support for Russian civil society and democracy organizations; and requires a report on Russian noncompliance with the Intermediate Nuclear Forces (INF) Treaty. The FY2015 National Defense Authorization Act (P.L. 113-291) bars the use of Department of Defense funds for military cooperation with Russia until the President certifies that Russia has ended its aggression against Ukraine; requires detailed reports by the Administration on U.S. military assistance to Ukraine; and authorizes $75 million in security assistance to Ukraine as part of the European Reassurance Initiative. Congressional Debate One issue that has sparked significant Congressional debate in recent months has been whether the United States should supply defensive weapons to Ukraine. On February 3, 2015, a bipartisan group of 15 Senators sent a letter to President Obama urging him to act on the authorization provided by the Ukrainian Freedom Support Act to supply an “immediate infusion of effective defensive military equipment and financial aid to thwart Putin’s naked aggression. Defensive military assistance—such as anti-tank weapons, counter-battery radars, armored Humvees, and increased training—are all critical to ensuring Ukraine has the capabilities to defend its territory and its citizens.” 23 Advocates of arming Ukraine say that sanctions alone are unlikely to stop Russian aggression and that boosting Ukraine’s defense capabilities are essential to stop further Russian conquest of Ukrainian territory and to pressure Putin to agree to a genuine peace agreement. Those opposed to arming Ukraine say that Putin could use the move as an excuse to escalate the conflict beyond our desire to respond, thereby increasing the level of violence. Some experts say escalation could even result in a new Cold War, eliminating the possibility for U.S.-Russian cooperation on key issues elsewhere. It could also split Western unity on Russia policy, they claim, as France and Germany are strongly opposed to arming the Ukrainians.24 23 See http://www.durbin.senate.gov/newsroom/press-releases/durbin-portman-lead-bipartisan-senators-calling-forincreased-military-assistance-to-ukraine. 24 See for example http://www.brookings.edu/research/opinions/2015/02/06-aiding-ukrainian-military-goad-putin-wargaddy-hill. Congressional Research Service 17 Ukraine: Current Issues and U.S. Policy Figure 1. Ukraine Author Contact Information Steven Woehrel Specialist in European Affairs swoehrel@crs.loc.gov, 7-2291 Congressional Research Service 18