Ukraine was hit by the twin blows today: a fire at a huge military ammunition dump (138,000 tons of munitions) in Eastern Ukraine, and the assassination of a former Russian MP in downtown Kyiv. The Ukrainian government has blamed Russian involvement in both.

The Ukrainian authorities likely will argue that this is just the latest stage in Russia’s battle to bring Ukraine back within its geopolitical orbit and perhaps is a reflection of Moscow’s dwindling influence/leverage over Ukraine and hence a degree of desperation.

Denis Voronenkov, a former Russian Duma deputy, and his wife Maria Maksakova, a former Russian opera singer and lawmaker, posed for photographs last month in Kyiv. He leaves a 10-month-old son. (UNIAN: Alexander Sinistsa)

Russia Loses Influence in Ukraine

Indeed, since the Euromaidan, and the conflict in Donbas, there has been a marked decline in trade, energy, and financial ties between Russia and Ukraine.

For example, only 4-5 years ago Russia still accounted for around 40% of Ukraine’s total trade turnover, which is currently down to around 10%, and set to go lower again this year. Five years ago Ukraine was still importing 20 billion cu meters of gas from Russia – close to half consumption – last year it was close to zero. Overall Ukrainian gas imports have gone down to around 10 bcm, from 40+ bcm 10 years ago.

Make Moscow Pay Bills for Secessionist Areas

The recent battle over trade flows to DPR and LPR have seen Kyiv put additional pressure on the remaining Russian banks operating in Ukraine, which have now been levied with sanctions which are just likely to accelerate their exit.

In the military field, while the talk is of a frozen conflict in Donbas, the reality is that the Ukrainian economy has learned to live with the status quo, as reflected in the 2.3% real GDP growth posted last year, and expectations – pre-blockade of 2.5-3%+ growth this year, and broader macro stabilization.

Any economic leverage which DPR and LPR exerted has been reduced over time. Kyiv’s decision now to cut off trade to DPR/LPR suggests a decision to adapt a worse-case scenario, and put the cost of maintaining DPR and LPR onto Moscow directly -- as is the case with Crimea, Trans-Dniestr, Abhazia and South Ossetia.

In downtown Kyiv,on Thursday, investigators studied the crime scene outside the Premier Palace Hotel, at the intersection of Pushkinska Street and Taras Shevechenko Boulevard. (photo: James Brooke)

New Chapter for Russia-Ukraine Conflict?

Do these latest developments mark another shift in the Russo-Ukraine conflict?

The murder of the former Russian MP in downtown Kyiv will come as a particular shock to the domestic and foreign business community, which is a regular user of this particular hotel. Kyiv has been a relatively safe place to do business in recent years – after the somewhat Wild West years of the 1990s across the CIS when such attacks were unfortunately all too common.

The question is: is this latest attack, and the attack on the ammo dump, related to the state of relations with Russia or to other explanations? If the former, it potentially marks a worrying development indeed.It has been noticeable in recent weeks considerable flux in Ukrainian domestic politics, around the blockade in DPR/LPR, and on-going high profile legal cases (Nasirov and Firtash), plus uncertainty over the position of the Trump administration over Russo-Ukraine relations. This all dovetails also with the one-year anniversary of the Grosyman administration – a no confidence motion seems inevitable – and also some disappointment now over the delayed release of the latest IMF credit tranche.

Lots of moving parts now in Ukraine - fitting these together is proving difficult.

Timothy Ash is a senior sovereign strategist at BlueBay Asset Management, London

Slider photo: Massive explosions and fires burned Thursday military ammunition arsenal in the Kharkiv Region, (UNIAN)

Posted March 23, 2017

Ex-Russian Lawmaker Who Turned on Putin Shot Dead in Kyiv

By Kateryna Choursina and Daryna Krasnolutska

(Bloomberg) -- A former Russian lawmaker who fled Moscow for Ukraine and likened life under President Vladimir Putin to Nazi Germany was shot dead in Kyiv.

Denis Voronenkov, 45, was killed Thursday at 11:40 a.m. near the Premier Palace hotel in the center of Ukraine’s capital, local police said. His bodyguard, who was injured in the shooting, wounded the assailant and both are under guard in the hospital, police said. Ukraine blamed the killing on Russia, linking it to testimony by Voronenkov against Viktor Yanukovych, the Kremlin-backed Ukrainian leader who was ousted three years ago in street protests.

The assassination carries the “obvious signature of Russian special services,” President Petro Poroshenko, said via Facebook. “Voronenkov was a key witness of Russian aggression against Ukraine.”

Larysa Sargan, spokeswoman for Ukraine’s Prosecutor General, said: “Voronenkov was one of the key witnesses against
Yanukovych, It was a demonstrative execution of a witness.”

Already at their worst since the Soviet Union collapsed, the murder further shatters ties between the two countries. Russia annexed Ukraine’s Black Sea region of Crimea in 2014 and the government in Kiev blames Putin for instigating the three-year insurgency on the nations’ shared border. Yanukovych, who now lives in Russia, stands accused of treason for inviting Russian troops into Ukraine, allegations he denies.

Fled Russia in October

Voronenkov left for Ukraine in 2016 after his failure to win re-election annulled his parliamentary immunity and exposed him to criminal charges over a building dispute. He’d campaigned for the Communist Party against foreign ownership of local media and Russian companies’ offshore structures. He was joined in Kiev by his wife, an opera singer and ex-legislator for Putin’s party. They received Ukrainian citizenship last month.

Kremlin spokesman Dmitry Peskov dismissed as absurd suggestions that Russia was involved in the killing, the Interfax news service reported. He said the killing showed Ukraine was unable to ensure Voronenkov’s safety.

Ex-Russian opposition lawmaker Ilya Ponomarev said on Facebook that Voronenkov had been on his way to meet him when he was shot. “Voronenkov isn’t a crook -- he’s an investigator of mortal danger to Russia’s security services,” he said.

The murder is the latest in a string of fatal attacks in Kiev. Most recently, a Belarusian journalist who made his career in Russia was assassinated in a car bomb last summer. The perpetrators remain at large.

Poroshenko also accused Russia of involvement in a fire Thursday at a Ukrainian arms depot that required the evacuation of almost 20,000 residents.

To contact the reporters on this story:
Kateryna Choursina in Kiev at kchoursina@bloomberg.net;
Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net