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Ukraine and Russia on the Brink

Tensions between Ukraine and Russia continue to dominate headlines, with the situation evolving daily.

Our regional expert Rostyslav Vergeles is on the ground in Ukraine, currently working as the head of security at British American Tobacco’s location in-country. He shares insight on the current situation and covers meaningful topics such as economic and commodity impacts, business continuity and how the unrest affects others.

 See below for his professional analysis.

What is the current situation between Ukraine and Russia, and will it get better over the next few months?

  • An analysis of open sources in Ukraine, Russia, and in many other countries show that the situation in mainland Ukraine, save for separatist controlled breakaway areas in two Ukrainian cities of Donetsk and Luhansk, will remain calm and quiet.
  • The situation around Ukraine seems to get worse, but to a certain extent, this is not an open war. The latest build-up is of Russian troops is in Crimea and a few locations, some 200 km off the Ukraine border.
        • There is an increased Russian naval presence, with fleet units in the Black Sea, which seems to keep intensifying. Russia is believed to keep maintaining a high level of risk.
        • There is the potential of a land invasion. In addition, Russia has aircrafts and missiles that can be used against Ukraine’s military bases and command centers, without crossing the border. If this does occur, the Black Sea waters and the airspace above it will likely be closed, which may endanger business as usual (BAU) for sea and air carriers.
  • In Ukraine’s society, the stance towards Russia’s threats is very firm: people trust that the armed forces (some 250k troops) and veterans that have passed through war actions in Ukraine’s East (some 400k people) are able to withstand any incursion of a small Russian contingent, deemed to be 100k+ by most domestic and foreign analysts.
        • Massive supplies of weaponry from Western countries, such as anti-tank launchers and other materials is highly appreciated by locals. It is common for many Ukrainians to possess hunting and self-defense long barrel rifles, which is also deemed by analysts as a serious factor that will disable Russian occupants and easily deal with the potential guerilla war.
  • The above amount of Russian military manpower is not enough to conquer Ukraine. What is even more important, it is not enough to effectively control any given Ukrainian region.
        • In general, there are 27 administrative regions in Ukraine. Two of them, Crimea and the city of Sevastopol, are not controlled by the government right now.
        • Smaller parts of the Donetsk and Luhansk regions are controlled by pro-Russia separatists, but the front line between Ukraine’s army and Russia’s supported “militia” is very much controlled by Ukraine’s forces. It is believed that the Russian army will not be able to control occupied areas, if an incursion does happen.
  • There are currently no reports that say Russia is setting occupation administrative bodies that would gain control over the occupied territories in Ukraine, nor does it call upon reservists to seriously inflate its on-land armed forces which, according to Russian military analysts, are just 300k – enough to back breakaway areas in Ukraine’s east, but insufficient to conquer its territory to the full extent.
  • There are no attempts from top Russian state officials to form a so-called, “government in exile” consisting of former Ukrainian politicians who defected for Russia in 2014.
  • The common impression is that Russia will continue to threaten an invasion.
        • This could possibly intensify to an exchange of fire across the frontline in the war-torn city of Donbas. In turn, this action may be used to instigate separatist actions in Russian-speaking southern regions of Ukraine such as Odessa, Mykolaiv, Kherson, and Donetsk.
        • Russia will do its best to ensure areas in eastern Ukraine, which are already controlled by their proxies as of 2014, remain loyal to Russia. This is in spite of a serious economic downturn, which is obvious to everyone in the area.
  • We cannot rule out attempts from Russia to “chop through” the corridor from annexed Crimea to the Dnieper River. The intent here is to get supplies to Crimea, as it suffers from chronic water shortages ever since the country was annexed by Russia in 2014. This would also give them control over Ukraine’s seaport in Mariupol. However, such attempts will face a serious resistance from Ukraine’s armed forces and wide condemnation from Western states.
  • No significant terrorist attacks have taken place in Ukraine since 2015.
        • It is noteworthy to say that Russia attempts to undermine peace and order in Ukraine via anonymous calls informing law enforcement of explosive devices allegedly planted in different places such as subways, malls, business centers, etc. There are also continued attempts to attack IT infrastructures connected with public bodies.
  • Pro-Russia factions and groups among society were fairly active and influential before the latest Russian aggression between 2013 and 2015 and have since become marginal. Currently, there is no visible pro-Russia movement in place at all.
        • There are a few “opposing” members of Ukraine’s Parliament who try to explore a pro-Russia agenda. To a certain extent, this is mostly aimed at the elderly, but they are considered to be rather “freaks” by most of the locals. Apparently, the relatively weak pro-Russia stance in Ukraine’s society will continue to fade away. This is a very serious sign of the firm pro-West and anti-Russia sentiments among people supported by a reportedly intense economic growth, in spite of the difficulties many locals face and deal with daily.
  • Ukrainian and foreign analysts, think tanks, and public bodies have been closely watching the following indicators for evacuation and contingency planning.
        • Foreign governments evacuate diplomatic staff from Kyiv, advise their citizens to leave and warn of limited evacuation options.
        • Websites of Ukrainian government ministries suffer outages (this did happen in mid-January, but everything recovered pretty rapidly).
        • Russia alleges that the U.S. or Ukraine is planning a sabotage attack against its forces, or that Ukraine is planning a major offensive to recapture separatist-held territory in Donbas.
        • Ukraine’s President calls up reservists and Ukraine’s Parliament implements martial law countrywide.
        • Russia closes Kerch Strait Bridge and issues Navigational Telex for the Black Sea.
        • Ambulances leave hospitals in Russia and head toward border positions, with the intent to carry blood to field medical units that are already rolled out in a relatively close vicinity to the Ukrainian border.
        • Reports from the Organization for Security and Cooperation in Europe (OSCE) stating there are unusually high-traffic levels into the occupied territory of Donbas.
        • It is confirmed that the ground in eastern Ukraine has fully frozen, which is unlikely, given the relatively soft winter weather throughout Ukraine.
  • Of the indicators above, only the first has gone live. Five embassies thus far have allowed diplomats to leave Ukraine and the relocation of families who are in-country is mandatory.
        • On January 23, the U.S. issued a travel advisory to Ukraine. On January 24, as a precaution, the S. Embassy stated that non-essential employees may leave Ukraine and all families of staff are to leave Ukraine.
  • Some international companies are also said to prepare for the evacuation of expats. Expat evacuation readiness has been a normal practice in Ukraine since 2013 and the temporary removal of foreign specialists from the country brings no panic from society.
        • The “work from home” method, which has been utilized by most foreign businesses since March 2020, allows many to continue working without any significant impact to these companies. However, many locals consider this a disturbing sign of potential aggravation between Ukraine and Russia.

Economic complications between Ukraine, Russia and Belarus are likely to remain in place for a long time and will not affect inter-countries relations any more than it did before.

  • All border check points on the Ukraine/Belarus and Ukraine/Russia borders are open. There are no reports of any complications for people and vehicles to move. An influx of Russian males aged 18-60 is not forbidden (there is still a visa-free regime between the three countries), however, since 2014 the Ukrainian border control administration conducts thorough checks on why they are arriving in the country.
  • Transportation of goods across borders are not in any danger right now. There have been no passenger aircraft connections between Ukraine and Russia for the last few years and chances of this changing is close to zero in the near future. Trains and buses continue to move in both directions.
  • Joint Belarus/Russia military maneuvers named, Союзная решимость 2022” (“Union’s Determination” 2022), are scheduled for February and are not believed to seriously aggravate the security situation in Ukraine’s adjacent territories for now but may endanger air space thereafter. It is not known how many troops will participate in this exercise.
        • The Russian military only reveals that two units of S-400 missile systems (which were used on July 17, 2014, to down the MH-17 air vessel), one unit of Anti-Aircraft Missiles and Cannon Complex named, “Pantsyr” (“Shell”), and one squadron of 12 SU-35C fighters will be sent to Belarus to participate in maneuvers and strengthen the Joint Air Defense System of the joint Belarus and Russia armed forces.
  • The so-called “administrative partition line” (not a border, according to Ukrainian legislation, as it does not consider Crimea a territory of Russia) which runs between mainland Ukraine and annexed Crimea is transparent in both directions.
        • Any travelers who visited the occupied Crimea and bypassed Ukraine check points located at this line, before their arrival in Ukraine via other check points, will be banned from entering Ukraine regardless of their nationality.
        • The Ukrainian government established a special protocol for foreign citizens to visit said peninsula; if one intends to travel to Crimea, they must obtain a special clearance from a special Ukrainian agency and do it from Ukraine’s mainland only.

Potential continuity of business issues for those located in Ukraine

  • Local and foreign businesses enjoy more freedoms in their BAU than before; the state prefers to not interfere in the operations of big companies with dawn raids or unreasoned administrative, economic and criminal proceedings unless necessary. There are still some sporadic scandals reported in connection with raider activities of some actors, but big foreign businesses in general are not touched.
  • There is no intensive mobilization of Ukrainian nationals currently, therefore, businesses do not suffer from a shortage of personnel. Ukrainian armed forces mainly use contracted staff and only contracted military personnel may be used with pro-Russian separatists in the east.
  • In spite of the fact that an all-vehicle fleet, owned by all business entities, can be mobilized and used by the army as foreseen by local legislation, this is not reported at all. If a martial law is declared, this can’t be ruled out but to a certain extent only, as reports say.
  • Attacks on IT infrastructure happen from time-to-time allegedly from Russia and Belarus, which normally only touch public bodies. Businesses in Ukraine do not seem to suffer from such attempts to destabilize public peace and order, or undermine government authority, in the eyes of the population.
  • Inflation is believed to be on the rise in 2022 but the currency exchange rate is said to be stable. Managers expect an increase in their number of employees and a moderate increase in the production of goods and services.
  • Adoptive COVID-19 quarantine is prolonged until April 2022. No movement restrictions are applied to passengers and transportation of goods, save for necessity to have valid vaccination certificates in certain situations.
  • When carrying out activities in 2022, it should be taken into account that from January 1, 2022, the minimum wage is UAH 6.5k per month, which translates to approximately $226.58 USD per month.
        • In connection with the increase in minimum wage, there will be an increase in the rate of tax on real estate other than land.
  • Legalization of virtual assets in Ukraine: corresponding law, that was considered by Ukraine’s Parliament in September 2021, was not signed by the President who returned the Law on Virtual Assets with his proposals to Parliament for further consideration. Therefore, one may expect that Parliament will consider the revised draft law in 2022.
  • In 2022, the issue of legalizing virtual assets remains relevant; in connection with the increase in the number of cryptocurrencies, businesses will continue to look for opportunities to legalize cryptocurrency. As the attention of law enforcement officers will focus on IT companies and cryptocurrency mining, the number of searches will increase.
  • The newly created Bureau for Economic Security (BES), set in 2021, is believed to start functioning soon.
        • According to the legislator’s plans, the BES should concentrate all law enforcement agency functions that have previously investigated criminal proceedings in the economic sphere. It should be noted that BES does not yet have sufficient resources and necessary specialists. The process of establishing it as a law enforcement agency is still ongoing, so we will hear more about their work and the initial results no earlier than next spring.
  • The tax police will continue its activities until the end of the year, but their activity will decrease. After the tax police cease to exist, the BES will start its full operations. In the spring, the BES staff number is believed to increase by 8-10 times. Its pressure on entrepreneurs is believed to be on the rise, given the necessity to ensure state revenues permanently grow.
  • The registration of new criminal proceedings will be complicated, primarily due to the organizational processes of transferring open criminal proceedings to the BES. When looking into tax police work and their results, in view of the statistics of court decisions, one can talk about the inefficiencies of this law enforcement agency over the past year.
        • In particular, according to the open Unified State Register of Judgments, the number of acquittals under Art. 212 of the Criminal Code of Ukraine has tripled in comparison to 2021. This raises questions on the quality of the investigative work of the tax police
        • From the other side, it is a good sign for Ukraine courts of law to become more independent from the influence of prosecutor offices – a widely known problem remaining in place after the collapse of the former USSR “judicial” system.
  • There will be those who want to take advantage of the tax amnesty and declare their assets by September 1, 2022, the origin of which they can’t explain.
  • There is also a high probability that next year Parliament may adopt in the second reading the draft law №3196-d on the reform of the Security Service of Ukraine. As a result, this important law agency will finally relinquish its functions to the secret service and focus exclusively on counterintelligence, the fight against terrorism, the protection of state sovereignty and territorial integrity.

Did the unrest in Belarus in Q3 2020, and more recently in Kazakhstan this year, take pressure off the situation in Ukraine or increase tensions with other countries and organizations?

  • Thousands of Belarus nationals left for Ukraine after the anti-Lukashenko protests were suppressed. They form no significant politically active groups, instead preferring to live a normal life – a usual posture for Belarussians who are seen by many as the “calmest” type among Slavic people.
  • Thus far, Ukrainian top authorities have not acknowledged the self-declared “President” Lukashenko and it is apparent that they do not plan to do so in the future.
        • Lukashenko often harshly criticizes the Ukrainian government for whatever they do, especially for their pro-West and pro-NATO rhetoric and stance but takes no aggressive steps such as sanctions or deployment of additional Russian armed forces next to Ukrainian borders. This may change if the Russians progress in reinforcing their military component in Belarus, in addition to a few air bases that exist there since the collapse of the former USSR.
        • In general, the Belarus armed forces are 65k – merely a way too modest amount of people who are mainly deployed along their Poland and Lithuania borders. They cannot just be thrown toward Ukraine’s border to pose a real threat out there.
  • No significant influx of those who ran protest activities in Kazakhstan are present in Ukraine as well. There are a couple of activists who left for Ukraine and some anti-regime statements in mass media, but these have resulted in no serious consequences for the traditionally friendly connections between the two countries.
  • Given all of the above, one can state that no negative influence of the anti-government activities in Belarus and Kazakhstan are seen or are believed to happen in Ukraine.
  • There are no threats posed by other neighboring countries seen or discussed in Ukraine.
        • The only thing worth noting is a common (among experts) dissatisfaction with the allegedly pro-Kremlin, as many think, position of Hungarian top state authorities, but this creates no additional tensions or anti-Hungarian sentiments among locals.
        • In general, it is of wide understanding that Romania, Slovakia and Poland, let alone Moldova, do support Ukraine in its fighting for a real independence from Russia. The situation on the borders around these countries is calm and quiet, and the movement of people and transportation is not threatened.

  What, if any, are the potential commodity impacts?

  • There is no shortage of any commodities in place or prognosed throughout Ukraine. The latest developments of the situation around Ukraine resulted in no panic among locals, following the massive buying of goods from shops.
  • People do tolerate high living prices, although the general impression is that the President and the government do not address the crisis with the economy.
    • There are long lasting expectations from the Russians that the ever-growing prices in gas, benzine and diesel, which hit Ukraine after the events in 2014, would make Ukrainian society “blow up” and return to being under Russia’s rule. This has been to no avail.
  • No demonstrations against the worsening of living conditions have happened in a long time. It is a normal situation when certain groups of protesters, for instance, small entrepreneurs or other categories of people, may gather in a central precinct of Kyiv to voice their demands.
        • As a rule, this happens either near the Parliament or the Cabinet of Ministers, which are situated some 200 meters from each other. Protesters condemn certain economic initiatives of the members of Parliament or government officials, but these rallies were – and are – linked with no violation.

About Rostyslav Vergeles

Rostyslav Vergeles currently works as the Head of Security at British American Tobacco (BAT) in Ukraine, where his focus is on the continuity of business and on people, asset, information safety.

He has nearly 30 years of experience in security and previously served as the Head of National Central Bureau (NCB) Interpol in Ukraine. Prior to that, he worked as a supervising prosecutor at the Vinnytsia Regional Prosecutor’s Office and as an investigator and senior detective at the Vinnytsia Regional Police Directorate. There, he was responsible for investigating theft, robbery, extortion, fraud, and embezzlement.

In addition, Mr. Vergeles has international police experience, serving on deployments to Croatia and East Timor on United Nations Civilian Police missions.

Mr. Vergeles is from the Vinnytsia region and holds degrees in geomorphology and law from Kyiv Shevchenko University. He is fluent in Ukrainian, English, Polish and Russian.