Russia/Ukraine: Facing a turbulent 2015

As death toll rises, economies plunge into freefall

President Putin entered 2014 on a high: the movement against the falsification of elections in Moscow in 2012-3 was led into a political dead-end by the pro-western liberals, was finished off using minor concessions and more serious repression. Internationally, growing tension between the western imperialist powers and the Russian imperialism saw the latter winning tactical victories, particularly in Syria. The Sochi Olympics, the most expensive games in history, were used as a showcase to temporarily divert attention from the huge corruption eating away at the Russian economy.

The only major problem, it seemed, for Putin was neighbouring Ukraine, which the EU, US and NATO have been trying, for some time, to use as a bulwark against Russia. The mass opposition to the authoritarian Yanukovich-Azarov government was fuelled by poverty and corruption. But in the absence of a left alternative the protests fell under the leadership of pro-European business people and the far right. The overthrow of the Yanukovich-Azarov regime, with western backing, was a blow to the Russian ruling elite. The Kremlin used the genuine fear of the Russian-speaking population – that their language, political and economic rights were threatened by the Kiev government – to step up support for pro-Russian separatists. Crimea has now returned to Russia and war continues to simmer in Donetsk and Lugansk. Thousands have now died and up to a million refugees have fled the region.

2015 started with no apparent improvement in the situation. The death toll in east Ukraine is already creeping up again, with shootings and artillery strikes in the disputed regions and bomb attacks in cities such as Dnepropetrovsk and Odessa continue. The head of the ‘Lugansk republic’, Igor Plotninsky, at the Kremlin’s behest, has launched a brutal struggle for control of the armed forces there, alongside the far-right led “Batman” battalion and with the “Almighty Don Host” – a Cossack band which says it is restoring the Russian empire. While the warlords fight amongst themselves, the population is increasingly desperate. Residents of the Kalininskii region of Donetsk have sent a petition to the republican head demanding the use of artillery in their region is stopped, as it just provokes return fire from the Kiev side.

As long as the situation remains unresolved, none of the other serious problems facing the two countries can even begin to be solved. But the peace negotiations that started last summer in Minsk are making no progress. A session due to take place on 25th December broke down. Last week’s planned talks in Kazakhstan were cancelled, as Merkel said she saw no point in attending because of Russia’s intransigence. She made no comment on the Ukrainian Rada’s (parliament) decision to drop the country’s “neutrality”, stating it wanted to join NATO and launching a new conscription of 200,000 soldiers.

The only part of the earlier agreement to be partially implemented has been an exchange of prisoners. Russia, in words, claims to want a settlement but continues to support the rebels, although as the recent killings in Lugansk demonstrate, the Kremlin is having difficulty controlling them. The leaders of the two rebel republics have their own agendas, at the top of which is a refusal to simply go back into Ukraine.

Both Russia and Ukraine are facing economic meltdown. Ukraine’s GDP fell by 7.5% last year and the currency, the hryvnia, by 42%. The aid promised by the EU has not been delivered, and the country’s needs have become even greater. In a session that lasted until 3 o’clock in the morning on 30 December, the Rada finally passed the budget for 2015. This predicts a further 4-5% GDP drop, a slashing of social expenditures by 10% while, at the same time, military and defence expenditures which have mushroomed by five times, will now consume 20-25% of the country’s income. With the collapse of the coal industry in the east, Kiev now has to buy coal from South Africa. Thirty two mines are to be closed, 24 are to face temporary closure and another 37 are to be privatised. Even the usually tame Trade Union of Education and Scientific workers has warned that over 100,000 teachers will lose their jobs, and threatens to organise a national strike.

Ruble tumbles

The Russian ruble lost 40% of its value in 2014 and a further 13% in the first two weeks of 2015. Even the Economics Ministry is predicting a further 5% drop in GDP in 2015, although a government meeting last week even considered a scenario in which there is a 10% fall. This comes after a period of stagnation, when real wages have not been able to keep up with prices. “Ideal storm”, “badly wounded”, “banking crisis”, “default” and “vicious spiral” are the sort of words used to describe the situation on the business pages.

President Putin blames the crisis on the west’s attempts to put the “Russian bear” on a chain. “As soon as they succeed in doing so they will tear out its fangs and claws” he says. The western powers do desperately want to limit the strength of the new Russian imperialism. But the truth is that the reasons for the economic crisis are rooted in the Russian economy itself. The economy was stagnant even before the Ukrainian crisis and 40% of the huge outflow of capital in 2014, which reached $125-130 billion, took place before sanctions were imposed.

Now the collapse of the world oil price from $115 a barrel in June 2014 to $46 demonstrates, once again, the volatility or chaotic nature of the world’s capitalist economies. Goldman-Sachs predicts the price will stay at $42 for 6 months. The oil company, BP, predict it will hover at $50 for the next three years. On top of this, the sanctions are having an effect by limiting even further investment. Putin sees this as an opportunity to boost domestic production. This happened after the 1998 ruble collapse, but then there were two other factors involved – Russian oil output increased over 10 years by 60% and the world oil price grew to record levels. This, plus the excess industrial capacity still remaining from Soviet times, allowed for an increase in domestic production. These factors are absent today.

The government argues that with about $150 billion in its stability fund, it has enough to get through the crisis. But in 2014 it spent $83billion propping up the ruble alone. Now experts predict that apart from further support to the ruble, $50 billion a year is needed to compensate for the budget deficit. Significant amounts will be needed to bail out banks and maybe bankrupt companies and to compensate the oligarchs for sanctions. The country has currency reserves, but once it starts eating into those, panic may set in and the suggestions made by some economists that Russia faces default, at some stage, seem credible.


Nor are things going well in the Crimea. The peninsular has faced widespread electricity blackouts as the Ukrainian network has failed to supply sufficient power. Quoting “security fears” the Ukrainian authorities have blocked all bus, train and freight transport to the Crimea. With Russian air-companies suspending flights because of the lack of profitability this is causing real problems. Some reports also indicate that budget sector workers (teachers, health workers etc.,) were told that the long New Year holiday will be at “their own expense” – that is with a 30% pay cut for January. These economic hardships are on top of the new restrictions on democratic rights – apart from the extension of Russia’s harsh “anti-extremist” and “anti-LGBT” legislation, only 83 of the Crimea’s 3,000 mass media outlets have been recognised under Russia’s restrictive media laws.

Last year’s referendum in Crimea, followed by its incorporation into Russia, gave a huge boost to Putin’s popularity in Russia. He consistently blames Russia’s woes on foreign influence and sanctions. In response to attempts by the western powers to step up the isolation of Russia and to move NATO activities closer to its borders, Putin has tried to extend Russian influence in other parts of the world. But with the ‘BRIC’ countries and others like oil-producing Venezuela facing their own economic difficulties, Putin’s foreign policy offers no real hope of improving the economic situation in Russia. His support for the pro-Russian separatists in eastern Ukraine has raised the alarm bells amongst the ruling elites of traditional allies, like Belarus and Kazakhstan. The leaders of the two countries, Lukashenko and Nazarbayev, demonstrated open opposition to the Russian intervention.

Russian opposition

At home, Putin used this period to renege on the small concessions he was forced to make after the 2012-3 protests. The liberal pro-capitalist opposition has been significantly weakened by the events of the past year. Part of it supported Putin’s policy in Ukraine, as have all the official parties. The large protest planned for 15th January , the day that the sentence against Alexei Navalny (the best known of the liberal leaders) was due to be announced, was derailed when the judge brought forward the announcement by three weeks and suspended the three and a half year sentence. A few hundred tried to protest but were quickly rounded up by the police. The liberal strategy is not based on a conscious attempt to mobilise people against the government but in the hope that a crisis in the government will spark off a Russian version of Euromaidan. Such a protest movement can only, at most, change the ruling elites but will not aim to tackle poverty and corruption. Putin uses these very negative features consequences of events in Ukraine to warn against supporting the opposition. Only a mass movement led by a genuine working-class party can force out the region’s authoritarian regimes and create a worker’s government that introduces socialist policies to transform the lives of the majority.

But other issues are coming to the fore that will make it increasingly difficult to avoid protests. At the forefront is the question of budget cuts, with the announcement last autumn that up to half of Moscow’s hospitals are to close or be merged. On 14 January, a 10% cross-the-board cut in state budget expenditure, except of course in defence and security, was announced. A number of angry demonstrations took place at the end of last year. High profile industries are also in difficulty. With the market for new cars expected to drop by 25% a year, the CEO of Renault Nissan predicts a “bloodbath for everybody”.

The question is now whether a coordinated fight-back against the attacks on workers’ living standards can be organised but there is the danger that independent trade unions will not give the firm lead to maintain the momentum needed to resist the closures. It is necessary for a wide campaign to be built involving those who work in the public sector and those who use it – whether students or patients, as well as those living in the affected areas, to resist all closures and redundancies and to fight for those who have already lost their jobs to be given new jobs without loss of pay or status.

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January 2015