ukraine blockade railway
© AFP
A blockade by nationalist Ukrainian lawmakers and veterans of the ongoing war in the east has caused almost all rail traffic in the Donetsk and Luhansk regions to cease.
UPDATE: Part 2 added below

Starting at midnight, March 1st, the republics of Donbass introduced external management at Ukrainian enterprises. In the Donetsk People's Republic alone, more than 40 enterprises fall under the new rule. And we are dealing with rather large and, in rarer cases, mid-range facilities.

The question of transferring oligarchic property over to republican management is one of the most acute and important issues in the republics. Therefore, let us pay attention to the background of this matter.

Oligarchy is a phenomenon of the modern capitalist world. These are the owners of large fortunes whose influence is not limited to mere financial power. In accordance with Karl Marx's formula, oligarchs convert economic power into political power (although the emergence of oligarchy in the former USSR was the opposite: access to political power opened up the opportunity for enrichment). Following President Putin's rise to power in Russia, the oligarchs were subjected (albeit not completely) to the state. In Ukraine, the oligarchs proved stronger than the state. Their money organized the Euromaidan coup d'etat from the very beginning, after which the oligarch media-mogul Poroshenko became the head of state.

In the Donbass region, even in comparison to the rest of Ukraine, the oligarchs played an extremely significant and even decisive role. It is well known that the Party of Regions was in fact the political institution of the Donetsk-based financial-industrialist group. An especially important role was played by the uncrowned "King of Donbass", Rinat Akhemtov, the single wealthiest Ukrainian oligarch. With regards to the situation in the Lugansk region, we can speak of the backstage role of Alexander Efremov, the head of the Party of Regions faction in the Verkhovna Rada, and it is also worth mentioning Alexander Taruta, the head of the Industrial Union of Donbass and the ex-governor of the Donetsk region.

The preservation of the oligarchs' property contradicted the slogans of the "Russian Spring" (as well as the Euromaidan). The question of nationalizing the Ukrainian oligarchs' property arose already at the initial stage of the formation of Donbass' independent state organs. In particular, the author of this article asked the chairman of the People's Council of the DPR, Pushilin, in April 2014 about plans for nationalizing the oligarchs' property, in particular the enterprises of Rinat Akhmetov (the owner of a whole chain of metallurgical enterprises and mines in the DPR). In practice, the republics' leaderships were eventually compelled to show increasing loyalty to the business interests of the Ukrainian oligarchs.

The maintenance of the Ukrainian oligarchs' large properties in the DPR and LPR means that one cannot speak about the republics wielding genuine, fully-fledged sovereignty. Ukrainian oligarchs' enterprises, according to expert surveys conducted by us, make up around 50% of all large enterprises in the DPR (there is no such available data for the LPR). However, these have been paying taxes into the Ukrainian budget and, as follows, are financing the war against the people of Donbass.

According to the testimony of the leaders of the Russian Spring in the DPR with whom the author has had close contact, already at the first stage of the republic's founding there was some kind of tacit agreement with Ukraine that the enterprises would pay taxes into the Ukrainian budget and, in turn, Ukraine would pay out pensions and other social benefits to DPR and LPR citizens. The ratio of paid taxes and social payments would be approximately 2:1.

But soon enough, this principle was violated as Ukraine refused to pay pensions and social benefits to the residents of the "terrorist" DPR and LPR. Then the bank deposits of Donbass residents were frozen. Thus, continuing to allow taxes to be paid to Ukraine contradicted all the moral and logical principles of the existence of the People's Republics. They were in effect continuing to finance the war against themselves.

According to big businessmen in the DPR and LPR whom we have surveyed, such a situation can be explained by two reasons: (1) the presence in the leadership of the republics of proteges of the Ukrainian oligarchs (in particular of Akhmetov); and (2) more complex issues related to the organization of labor, the supply of raw materials and investments, and subsequent market sales. We hope to prepare a separate article on this subject by interviewing representatives of the Donbass business elite.

The events tied to the blockade of the Donbass republics by Ukrainian neo-Nazi battalions has suddenly given impetus to the process of nationalization, breaking the deadlock so to speak. It has correctly been said that in so doing, the Donbass republics have effectively gone on the offensive.

The decision to enforce external management at Ukrainian enterprises is not only a most important step in the economic policies of the DPR and LPR, but also a move capable of leading to far-reaching changes in the political space of present-day Ukraine. We will devote the second part of our article to this aspect.

Behind the Donbass "Economic Offensive" - Part 2

The blockade of the railway tracks along which flows trade between Ukraine and the republics of Donbass began back in December. It is no coincidence that the blockade started with railways. First of all, such a blockade hits hardest of all the large enterprises belonging to Ukrainian oligarchs. Rinat Akhmetov's businesses are suffering worst of all. But President Poroshenko himself has also been struck by all of this.

According to the testimony of the president's former friend and deputy of the Verkhovna Rada, Alexander Onishchenko, trade with the DPR and LPR is directly controlled by Petro Poroshenko's entourage. As follows, Poroshenko himself reaps in considerable profit from trading with the "separatists." This has drawn indignation from the militants of the neo-Nazi battalions and the UAF units who have joined them. The state is officially waging a war against the DPR-LPR "terrorists", yet unofficially the head of this state (and commander in chief of the UAF) is profiting from trade with them.

Questions are also being raised on the other side of the border. On October 18th, 2015, the Ministry of State Security (intelligence and counter-intelligence) of the LPR arrested the republic's Minister for the Coal Industry, Dmitry Lyamin. According to the security ministry, Lyamin had from January to September 2015 illegally sold more than 3.3 million tons of coal products to Ukraine. This is more than 88% of the total coal produced and used by the republic. Literally the next day, Lyamin was released on the personal order of the LPR's leader, Igor Plotnitsky, and the Ministry of State Security head was removed from office.

Lugansk's security services have been unable to break the backbone of this criminal trade being conducted between local oligarchs and Ukraine. A year and a half later on the other side of the border, Ukrainian neo-Nazis are now trying to stop trading with the enemy.

Poroshenko's regime has been forced to respond to these provocative actions by the "blockaders." There are two reasons for this. First of all, there is the economic motive, since without Donbass anthracite within a month and a half or two months Ukrainian energy stations would cease working, thus leading to the collapse of the Ukrainian energy system, production halts, and shortages of lighting and heating in homes. The second reason is political in nature and boils down to a simple formula: the government, by being afraid of dispersing the "blockaders," is openly succumbing to the neo-Nazi gangs. This offers an occasion to increase pressure on the government by gradually increasing the ultimative quality of their demands. Both of these factors could lead to a collapse of the government.

Therefore, the authorities of Ukraine are faced with the painful, but alternative-less choice of dispersing the blockade by force.

The ultimatum to lift the blockade in the shortest possible time simultaneously put forth by the DPR and LPR is a brilliant strategy in the spirit of the Chinese general and philosopher of war, Sun Tzu. The republics have managed to pit two enemies against each other. Thus, the Poroshenko regime in one way or another will be forced to disperse the blockaders by force. But now any attempt at dispersal would look like a fulfillment of the DPR and LPR's ultimatum.

Perhaps for this reason the government is in no hurry to opt for the forceful lifting of the blockade. The Poroshenko regime is now left with two bad options: allowing the blockade to continue, or breaking it up - or attempting to break it up by proxy, but this was already attempted. On February 28th, people allegedly hired by Akhmetov (the oligarch possesses not only dozens of enterprises, but also a private army of hooligans and fighters). The attempt proved unsuccessful. Plus, new forces, including UAF units from the ATO zone, came to the aid of the blockade. Further confrontation could increase the chances of the use of firearms, which could in turn lead to the beginning of a civil war and armed rebellion against the Kiev junta.

The Ukrainian government is thus stuck in a Zugzwang position. Any move will have negative consequences.

On the other hand, the Donbass republics have very successfully taken advantage of the enemy's weakness. In another situation, it would have been difficult to expect such a quick and positive decision to introduce control over enterprises belonging to Ukrainian oligarchs. And now this problem (half of the republics' economy belongs to the Ukrainian oligarchs, so DPR and LPR citizens are paying taxes to Kiev, funding the war against themselves!) is known far beyond Donbass' borders. Although my sources in the DPR and LPR doubt a full nationalization of oligarch property, a redistribution of property is now in the very least inevitable. And all of this is thanks to the actions of the enemy himself!

What is the Ukrainian government left with? Besides two extremes (accepting the neo-Nazis' ultimatum or breaking up the blockade), there is a number of compromises that could be made, including bribing the blockade's organizers or partially recognizing their demands. But these options seem to be very unlikely.

There is yet another option which is very radical: the Kiev government could unleash war in Donbass in the form of at least a local conflict similar to the fighting from January 29th to February 3rd. In this case, the presence of armed men would prevent the waging of combat operations. Then Commander-in-Chief Poroshenko would try to send the blockade participants into the thick of the fighting never to return - in other words, try to destroy one enemy at the hands of another enemy.

Meanwhile, the news has just come in from the chief of staff of the economic blockade, Sergey Akimovich, that a second phase has commenced: roads are now being blockaded too. The blockaders are on the offensive, and the government is quickly running out of time and space for maneuver.