2017: challenges and opportunites

1. 5 Foreword - Victor Andrusiv 7 Forecast Limits to Sustainability: Scenarios for the World and Ukraine in 2017 Yuriy Romanenko Global Politics 39 Risk Scenarios for Russia Pavlo Shchelin 46 Growing imbalances in the EU and consequences for Ukraine Nadiya Koval 56 Destabilization of the Middle East Abu Ali Hassen 65 Erdogan's Authoritarian Modernization and Turkey's Growing Regional Influence Nadiya Koval 71 Ukraine and South Caucasus: New Realities Karen Madoyan Domestic Policy 78 Development Scenarios for Minsk-2 in 2017 Igor Tyshkevish 88 Gas and Oil in 2017. Key Trends for Ukraine Igor Tyshkevish Economy 97 Economy of Ukraine: 2016 Overall Results and Forecast for 2017 Anatoliy Amelin, Yana Lavryk and Olga Khomenko Law Enforcement and Judicial System 116 Development of the Ukrainian Judicial System in 2017 Oleksandr Yevseyev 126 Challenges in Law Enforcement Area - 2017 Denys Monastyrskyi 142 Memorandum of the UIF Founders 3

3. FOREWORD Victor Andrusiv Executive Director of the Ukrainian Institute for the Future The year 2016 proved unpredictable and presented a series of unexpected events that brought the world further into turbulence. Brexit and Donald Trumps victory were the least predictable events and their effects have yet to be fully analyzed and assessed. Looking back at the past year, it is safe to state two new realities: global transformations gained new speed and forecasting has become an even more thankless task. What will 2017 bring? We try to answer this question in the publication you are holding in your hands. Considering the unpredictability of the previous year, we abstained from providing final conclusions in our forecast. Instead, we offer key scenarios for what might happen in 2017. Scenario forecasting allows readers to see the logic of behavior of political players according to their conditions. Over the next year everyone will be able to understand which scenario arises for the world overall and Ukraine in particular by the results of specific events. For instance, the victory of a candidate with pro-Russian rhetoric in the presidential elections in France will lead to cancellation of sanctions against Russia and reduced support for Ukraine, which in turn will affect developments in our country. The main message of our forecast is that 2017 will be a stress test. This applies both to the world and Ukraine. It is about the stability of the existing system of relationships and approaches to solving issues such as Brexit, Donald Trump, elections in France and Germany, conflict in Syria, ISIS, and the aggressive behavior of Russia these and other developments pose a serious challenge to the functioning of the EU and NATO. Some of these changes sug- gest a transformation Euro-Atlantic relations, however, can it be possible to preserve the unity of values that Europe and the US have demonstrated for over 100 years? For Ukraine, 2017 will be a real test of stability. Although, as long as the war in Donbas and occupation of Crimea are taking place, each new year is another challenge for us. Ho- wever, the next year will become a real challenge to our independence and sustainability. Since the Revolution of Dignity we have managed to muddle through crises thanks to significant support from the West, and without its help it would be extremely difficult to maintain overall stability. Our forecast shows that in 2017 the international situation is extremely unfavorable for Ukraine. Therefore we will have to rely mainly on our own strength in the face of a formi- dable and insatiable enemy. The stability of Ukraine in 2017 primarily depends on the ability to overcome internal challenges. The world looks at the ability of the Ukrainian government to carry out effective reforms and defeat corruption with increasing distrust, and this only strengthens those voices calling to achieve a quick compromise with Russia on the conflict in Donbas and Crimea. Against this background external financial aid can decline, which currently remains significant despite the first shoots of economic growth. But the biggest challenge of next year may be early parliamentary elections. Our forecast shows that reformatting of the government is in line not only with the interests of certain domestic political players, but also with outside ones. Overall, the forecast prepared by the Ukrainian Institute for the Future (UIF) is a highly comprehensive work, which co- vers a wide range of political and economic spheres glo- bally. In this publication you will find a thorough analysis of the situation in the Middle East, domestic political risks in Russia, growing authoritarianism in Turkey, proliferation of conflicts in the South Caucasus, scenarios for Minsk-2 implementation, construction of gas pipelines bypassing 5

4. Ukraine, analysis and forecast of key economic indicators, law enforcement and judiciary reforms. This will help you capture the widest possible picture of the coming year and to plan or make decisions in an appropriate manner. In conclusion, I would like to thank those people without whom our forecast had no chance to be born. First of all these are UIF founders: Ihor Liski, Anatoly Amelin, Oleksiy Skrypnyk, Anton Gerashchenko, Taras Berezovets, and Yuri Romanenko. It is through their expertise and financial support you have an opportunity to learn about the challenges and aspirations of 2017. I also wish to thank Denis Semenov and Andriy Zablocki, who reviewed the early ideas of key scenarios and gave their critical comments and remarks. 6

5. Considering the possible scenarios for Ukraine in 2017, we need to determine the underlying factors that determine the course of processes in the country and the world. It is impossible to understand the prospects of Ukraine outside the global context because our country is deeply integrated into the global system. Moreover, the severe economic crisis has dramatically increased Ukraines dependence on foreign aid, which in turn enables external donors to dictate terms of such aid, based on their own interests. 7 LIMITS TO SUSTAINABILITY: SCENARIOS FOR THE WORLD AND UKRAINE IN 2017 Yuriy Romanenko Program Director: International and Domestic Policy, Ukrainian Institute for the Future Factors determining the stability of the state system of Ukraine in 2017 1. Legitimacy 2. Resources 3. External support through various types of aid Note: external legitimacy does not imply external support. For instance, falling legitimacy of the current political regime in 2016 in the US and Europe did not prevent providing external support, i.e. credits and technical assistance External Internal USA Europe Russia China other players Elites Masses Resources may be developed unequally, and lack of economic resources can be compensated by organization or ideology, increasing operational efficiency of what is available. Or vice versa, poor organization may be offset by significant economic resources spent on power block. Example of such a country is Russia Economic Power Organizational Ideological Therefore, in order to show the logic of certain scenarios in Ukraine, we must first outline the key factors that determine the balance of the state system in Ukraine. We identify three key factors setting the framework of scenarios for Ukraine:

6. 1.Legitimacy // http://iphras.ru/elib/1641.html 2. Rapallo Treaty // https://uk.wikipedia.org/wiki/%D0%A0%D0%B0%D0%BF%D0%B0%D0%BB%D0%BB%D1%8C%D1%81%D1%8C%D0%BA%D0%B8%D0%B9_%D0%B4% D0%BE%D0%B3%D0%BE%D0%B2%D1%96%D1%80_(1922) 3. Economic resources // http://abc.informbureau.com/html/yeiiiiexaneea_danodnu.html 8 For Ukraine it is crucial to have external legitimacy from the United States, Russia, Europe, China, and to a lesser extent from regional players such as Turkey, India, Japan and others. Second key factor: Resources. We divide resources into several types: economic, power, organizational, and ideological. Economic resources are a set of tangible and intangible factors and means to ensure the smooth functioning of social production and reproduction. There are the following types: natural (raw materials, geographic); labor (human capital); capital (physical capital); working capital; financial capital; entrepreneurial skills; intellectual potential, etc3 . Power resources are a set of various tools that a political regime can use to protect its interests. Organizational resources are systems for reporting, plan- ning, control, and informal relationships within a social organization, aimed at the most efficient use of economic and other resources. Ideological resources are a system of ideas that define the relationships within a particular society and political regime as well as its relations with the outside world. These types of resources form a set of resources that define the internal stability of the political regime. One type of resources can offset the other type. First factor: Legitimacy. The legitimacy (from the Latin: Legitimus agreed with the law, legal, lawful) legitimacy of the regime, politicians and leaders, reflecting features that derive not only from for- mal laws and decrees, but from social consent and acceptance of them as legitimate, i.e., matching the values of citizens. Legitimacy is a long-term agreement of the majority to accept the reign of a certain class, hierarchies, and power as legitimate1 . Legitimacy is divided into internal and external. In turn, internal legitimacy can be divided into the legitimacy of the political regime in terms of the masses and legitimacy in terms of elites. A political regime can be highly legitimate in the eyes of the masses, but low in the eyes of the elites, and vice versa. Simultaneously, high or low legitimacy in the eyes of the elites and the masses is one of the criteria for high or low stability of a political regime. External legitimacy reflects the legitimacy of the political regime in the eyes of foreign actors. Example: The Soviet Union initially had low external but high internal legitimacy. The Soviets were trying to constantly expand external legitimacy, making deft diplomatic maneuvers, as in the case of the Rapallo Treaty in 19222 , which established diplomatic relations between the RSFSR and Weimar Germany.

7. 9 tem of Ukraine, lets focus on defining scenarios at the global level, as Ukraines dependence on external factors makes it extremely sensitive to a particular configuration that may arise in 2017. First, we must consider the motivation of leading players whose interests influence the Ukrainian processes or are important in terms of impact on the motivation of other geopolitical actors who have interests in Ukraine. Motivations of key geopolitical actors US: its motivation is of strategic defensive nature, but tactically Washingtons steps might be offensive on a number of regional geopolitical grounds. America is interested to maintain its current status as the most powerful country in the world that has a preferred position in the military, political, financial, economic and technological spheres. But the recent presidential elections in the US have shown that America is experiencing imperial strain, which is mostly the fatigue from multiple costs for maintaining global hegemony. This led to the American white middle class to support Trump, who pointed to the need of returning to iso- lationism. What is the difference between the viewpoints on foreign policy of Hillary Clinton and Donald Trump? Democrats in the US supported the need to preserve the global infrastructure (US dominance) as a key element of their power and wealth. From this point of view, Hillary Clin- tons position can be described as global conservatism. Donald Trump made a program of radical conservative iso- lationism, aimed to solve the problems of restarting the US economy and a sharp reduction of expenditures on foreign policy by rearrangement of them to allies4 . This does not mean that Trumps foreign policy will be less active than his predecessors. It is hardly possible, given the depend- Example 1: The emergence of the state of Israel in 1948 was characterized by the absence of strong economic and power resources, which were offset by a strong presence of social organization and ideology that helped to mobilize the social power of the Jewish people and promptly turn Israel into a powerful state in economic, military, and political terms. Example 2: Modern Russia is an example of a combination of vast economic and power resources with weak organizational and powerful ideological resources. Although Rus- sia is very inefficient in spending its economic resources due to corruption and poor quality of public management, but the huge amount of resources allows to compensate for the lack of organization in order to maintain a high level of military and political power and a sophisticated person- alized propaganda machine (Ruskiy Mir, spiritual ties between Church and state, etc.) Resources are dynamic, and the balance between them can vary in one direction or another. Third key factor: External Support. External support for a political regime is a set of actions aimed at ensuring its stability through economic, ideological, organizational, and security resources. External support is different than external legitimacy as a political regime can have relatively low external legitimacy, but receive external support. Ukraine is an example in 2016, when the external support of the political regime of Petro Poroshenko by the US and Europe continued despite a fall of credibility. Global Scenarios For 2017 Once we have described (albeit in a very simplified manner) the key factors determining the balance of the state sys-

8. 4. Trumps program for the first 100 days of presidency https://www.facenews.ua/columns/2016/310207/ 10 calating a conflict with the West as its critically dependent on access to the markets of the US, EU and Japan with a trillion dollar turnover. In addition, China has no control over global communications, so cannot enter conflict with the US, as it will be immediately cut off from markets and raw materials for its products. This threatens collapse of Chinas economy and internal shocks. Therefore China keeps a conservative and restrained policy in the regions where it has no basic interests. Strategically Russia holds a defensive, but tactically very aggressive policy. The Kremlins goals are in maintaining control over its periphery, which includes Ukraine, to ensure security in case of a worsening of the global crisis and internal turbulence. Russia considers the strengthening of the US and Europe on its periphery as a potential threat. This is some kind of psychological complex, resulting from Russian history when an absence of external geographic boundaries led to the appearance of conquerors. That is why Russia feels permanently claustrophobic. Now the logic of Putins actions is intended to conclude a big deal with the West that would guarantee the division of spheres of influence and restoring economic exchange. The Kremlin must balance its relations with the West, as Russia depends critically on access to European markets. EU countries buy about 74% of Russian exports of oil. How- ever the drop in oil prices has created a huge hole in the Russian budget, which threatens to drive Russia into a debt trap already in 2018-2019, if the situation does not change. So this requires reconciliation with the United States and Europe, which have sufficient tools to influence the price of oil and gas. This is especially true in the context of Trumps promises to dramatically increase oil and gas production in the US that can fix oil prices at the relatively low level of about 40-60 dollars despite OPECs efforts to increase the price by reducing production. ence of the US on access to raw materials and markets for its products, and simply for reasons of national security. But Trump will drastically reduce expenditures in areas to be selected as secondary. The European Union takes a defensive position in both strategy and tactics. The fiscal crisis weakens its economic strength and unity, while the problem of migrants increases pressure on political regimes in a number of key EU countries. The Brexit vote in July 2016 became a vivid expression of this trend, which can be strengthened during the French presidential elections and parliamentary elections in Ger- many. Therefore Europe is afraid of new risks that might lead to a loss of control and unity of the EU. So most EU countries policies will be conservative and aimed at overcoming the growing imbalances. Thus, Europe falls into itself, making its foreign policy more and more passive. . China: strategically its foreign policy has an offensive character, but tactically Beijing may take a pause in a number of regions, not to get into conflicts in which it is not interested. Theres a clear understanding in China that if processes develop by linear logic, then in 20-30 years it will become too large for its interests to be ignored by the US and Europe. So China avoids conflicts that can change its model, which is also under increasing pressure because of rising global turbulence and conflict in relations with the US. It is known that Trump outlined China as one of the key problems for the US, so the Washington-Beijing relationship may be substantially revised after several decades of improving cooperation, made possible after the historic visit of Nixon and Kissinger in the 1970s. By this logic, Bei- jing occasionally supports Russia which it uses to intimi- date the West with a possible alliance with Moscow. However, at this stage China is not really interested in es-

9. 11 We believe that in the following year there are three basic global scenarios that provide a framework for maneuvers by Kyiv, forming three basic conditions for internal scenarios in Ukraine. Lets consider the global scenarios first: Scenario G1 Peacemaker Scenario G2 Pragmatic Scenario G3 Confrontation If Putin manages to agree with the new US administration on key issues (division of spheres of influence and withdrawal of conflict issues from the agenda), it is possible that the US and Europe may try to create a strategic alliance that will focus on Asia as the main competitor of the three Christian key blocs, and restrain the Islamic bloc. On the contrary, Russia is extremely interested in how to break the Euro-Atlantic ties between Europe and the US, if it fails to normalize relations with Washington. Then the Kremlin will seek to strengthen relations with key European states (Germany, France, and Italy) using their real internal difficulties or engineering such issues through a combination of political, military-political, and economic instruments. In summary, it is easy to see that all the key global actors aim to maintain their current against a backdrop of global instability, trying to shift costs to others. Only China has a strategic offensive position, but it is limited in its maneuvers because of dependence on the West. Russia, as the weakest player in this global Quartet, is in- clined to play the most risky game, especially in relations with the US and Europe. After raising the stakes, Putin is trying to strengthen his bargaining position, compensating for a lack of other resources. Putin plays a joker, going to bluff in order to enter the most profitable bargaining position with the West and China, but they both are well aware of Russian limitations. In this case it is hard to say that todays key global players are really interested in each others collapse because they are afraid of the associated risks. The interests of other geopolitical actors are important for Ukraine, but we will not consider them specifically in this section for the sake of brevity and compactness of the report.

10. Scenario G1 Peacemaker The Peacemaker scenario implies that the US and Europe focus on domestic issues, reaching agreement with Russia on key issues: the Middle East, Ukraine and Eastern Europe, oil prices, sanctions, counter-terrorism, and the fight against illegal migration. Finally, the parties can come to agreement on strategic opposition to China. 12 "Peacemaker" scenario for 2017 Motives of players on Ukraine: Russia: change balance in Ukraine EU: change balance US: change balance !!! Basic options for Ukraine The threat of conflict in Ukraine because of DPR/LPR status, and requirements from other regions on the same rights Sectoral and Donbas sanctions are cancelled. Arrangements on oil prices. Expansion of spheres of influence to the Middle East. Ukraine in the Russia's sphere of influence. Possible arrangements on China. "The Hawks" from Trump's surrounding are blocked The weakening of NATO, the EU is beginning to create Defense Forces The weakening of transatlantic trade Guarantees to Assad, Syria's transformation into a federal or confederal republic. Joint struggle against ISIS Struggle against ISIS together with Russia and the US Providing financial aid for the reconstruction of Iraq and Syria No money No lethal weapons The joint struggle against the ISIS, reformatting Syria and Iraq, and distancing from Saudits Israel is a key partner in the Middle East OSCE as a key element of stabilization in the Donbas Technical aid for Donbas of $0.5-1.5 billion, visa-free regime, credits Russia opens the market, reducing gas prices, and freezes debts Minsk-2 in Moscow interpretation Package 1. Predominate interests of the US and Europe Package 2. Predominate interests of Russia and Europe Linking the economy to the political forces in Ukraine that are loyal to Russia De facto Crimea remains Russian, whereas de jure it is recognized for Ukraine by the US. Attempt to reload Russian economy in spirit of Perestroika 2.0 Strengthening of trade after the cancellation of sanctions ! ! Marine Le Pen or Francois Fillon winning French presidency SPD victory in Germany state elections and strengthening of the "Alternative's" position The strengthening of Right Forces in Europe Implementing Minsk-2 in full Constitutional Reform Parlamenarly elections if reform's failed Reelection of president whih does not fit in the new balance of powers UKRAINE MIDDLE EAST RUSSIAUSA ISRAEL Relationships on the security line Relationships on the economy line US Actions: Donald Trump directs his main vector of efforts at domestic policy. With the Republican majority in the Sen- ate and Congress, the White House launches large-scale tax cuts, creates a legal framework for return of American business to the US. Overall, Trump begins to implement key provisions of his program. Along with Putin, Trump achieves a number of strategic agreements on the Middle East and Ukraine. For the US, the main thing is the first package: on the Middle East, where interests of Washington and its allies dominate (first of all, Israel). For Russia, the second package Is crucial: on Ukraine, where the interests of Russia and Europe will pre- vail.

11. Agreements on the Middle East between the US and Rus- sia would include the definition of the state system in Syria after the war, which will turn into a federation or a con- federation, where key players will fix control over their re- sponsibilities. Key ethno-confessional groups Syria will receive a particular type of autonomy. Turkey will control the buffer area in northern Syria to prevent the expansion of Kurdish influence. Assad receives guarantees of immu- nity in exchange for joint action against the Islamic State. Washington and Moscow also may agree to coordinate counteracting ISIS. It is clear that in this case the role of Is- rael will increase. Having a close relationship with Wash- ington and Moscow, Israel will use new opportunities for strengthening its security in the fight against terrorism and Islamic radicals. Most likely this scenario will cool down US relations with Saudi Arabia. Trump is unlikely to follow the line of foreign policy of Barack Obama, who blocked lawsuits by US citizens against Saudi Arabia, whose citizens were involved in the 9/11 attacks. In this scenario, Trump will follow the logic he outlined during the election campaign: optimization of foreign policy expenditures supporting allies in the region5 . Therefore, the new administration will pay less attention to NATO, pushing Europe to spend more for security, or will try to keep NATO demanding increased funding from European security pro- grams. This process is already being seen6 . The EU Actions: Europe remains in deep crisis, which is linked to the strengthening of Eurosceptic position after Brexit. In the presidential elections in France in April 2017 Francois Fillon or Marine Le Pen will win, which will strengthen Russias position in the negotiations on Ukraine. The Social Democratic Party of Germany will win the autumn parliamentary elections in Germany under strengthening position of pro-Russian ArD Alternatives, which will also strengthen Russias positions. The weakening of the EU will be accompanied by the intensification of dialogue between Moscow and national governments. Re- sults of the December referendum in Italy show that the probability of incoming political forces supporting cancellation of sanctions against Russia is very high7 . Europe will participate in the Trumps deal with Putin as one of the key players of package deals. The EU will support granting financial aid to Syria for restoration after the war. However, the position of Europe in this area will depend directly on what territory will remain under Assad, as well as the issue of the postwar Syrian regime. Europeans have already warned that if Moscow keeps supporting Assad, then restoration of Syria is to be at Russias cost8 . 13 5 Trump promises to stop the intervention policy // http://www.dw.com/ru/%D1%82%D1%80%D0%B0%D0%BC%D0%BF-%D0%BE%D0%B1%D0%B5%D1%89%D0%B0%D0%B5%D1%82- %D0%BF%D1%80%D0%B5%D0%BA%D1%80%D0%B0%D1%82%D0%B8%D1%82%D1%8C- %D0%BF%D0%BE%D0%BB%D0%B8%D1%82%D0%B8%D0%BA%D1%83-%D0%B8%D0%BD%D1%82%D0%B5%D1%80%D0%B2%D0%B5%D0%BD%D1%86 %D0%B8%D0%B9/a-36673698 6. The EU will dramatically increase defense spending // http://ru.golos.ua/suspilstvo/evrosoyuz_rezko_uvelichit_rashodyi_na_oboronu__smi_ 7. Battle for Europe. Referendum in Italy // http://hvylya.net/analytics/geopolitics/bitva-za-yevropu-referendum-v-italiyi.html 8. Russia should foot Syria reconstruction bill, European leaders say // https://www.theguardian.com/world/2016/nov/29/russia-should- foot-syria-reconstruction-bill-european-leaders-say

12. Europeans will also participate in an anti-ISIS coalition, as it directly meets their interests to combat Islamist terrorism in Europe itself. This will require strengthening of the EU defense structures. This trend will gain strength against the backdrop of France and Germanys attempts to create self-defense forces that will satisfy Trumps logic, who would welcome more independent actions of European partners in their area of responsibility, be it the Maghreb or Eastern Europe. Besides, Trumps protectionism may lead to declining trade between the US and the EU. However, this is unlikely to happen quickly (even during 2017) because it takes time for business to respond to new conditions. Such approaches in relations between the US and Europe will determine the format of the agreement with Russia on Ukraine. Putin will demand concessions on Ukraine after his own concessions on the Middle East. That is how US-European deals with Russia will seem in the case of the Peacemaker scenario. The US and Europe will agree to shift the Crimean issue beyond the conflict between Russia and Ukraine. De facto, Crimea will be recognized as Russian, whereas de jure it remains Ukrainian. Sanctions for the annexation of Crimea will remain, but sectoral sanctions imposed after the Donbas conflict will be canceled as soon as the Minsk agreement is implemented. Putin will try to promote Minsk-2 on his own terms, but may soften his stance on secondary issues. In this format, Rus- sia will promise the West to take part of the costs associated with the restoration of Donbas. In addition, Russia will take on the commitment to open its market for Ukraine to eliminate the threat of economic collapse in Ukraine. How- ever, Russia will probably tie these steps to changing of political regime in Kyiv, so that political forces that would support such a course could obtain carte blanche. In this case Russia will probably agree to a number of economic concessions for Ukraine (cancellation of sanctions on Ukrainian products, reduced gas prices, deferred credit and so on). Withdrawal of most sanctions on Russia will help to inten- sify its economic relations with Europe, which will help to stabilize the economy of Russia, and thats what Putin seeks. Basic options for Ukraine in case of this scenario: First, Ukraine will not receive financial aid from the US. Un- like the Democrats, Donald Trump will demand thorough undertaking of obligations by Ukraine. The initiative to provide credit guarantees to Ukraine came personally from Vice President Joseph Biden. In 2017 Ukraine will be deprived of this resource that adversely affects the ability to maintain a positive trade balance in the following year9 . We re- mind that in 2016 it remained positive due to support from the US, which provided credit guarantees. Second, Ukraine will not receive lethal weapons from the United States, and financial aid in the amount of 350 million dollars for the Armed Forces in 2017 may be reduced. Third, Ukraine could receive technical assistance from the EU to restore Donbas in the amount of 0.5-1.5 billion USD. In addition, perhaps, a visa-free regime with the EU and As- sociation Agreement will get started. Ukraine may count on credit support from the European countries. It is unlikely to be large, but it may be enough for the Ukrainian economy to maintain a quasi-stable state of stagnation. Fourth, the conditions for reformatting the post-Maidan political regime emerge in Ukraine, because implementa- 14 9. http://ubr.ua/finances/macroeconomics-ukraine/platejnyi-bal- ans-ukrainy-sveden-s-proficitom-452630

13. tion of agreements between the US, Europe and Russia to resolve the crisis in the Donbas requires appropriate actions from the President, Government and Parliament. The US, Europe and Russia demand the following steps to be done by Ukraine: 1. To implement Minsk-2 in full. 2. Preliminarily to carry out constitutional reform. 3. To conduct parliamentary elections if reform is impossible within the existing parliament. 4. To conduct presidential elections if antagonistic relations with the new Verkhovna Rada arise (we will consider this scenario below). 5. The OSCE will play a key role in mediating de-escalation of the situation in the Donbas. This logic is directly tied to the motivation of the big three key players in this scenario: Russia is interested in the full reformatting of the post- Maidan balance of power in Ukraine, stopping Ukraine from implementing agreements with foreign partners. Europe is interested in changing the balance of power in Ukraine, if the agreement with Russia will not be executed. For this it may limit the aid that could be very necessary for Ukraine next year. That is why former US Ambassador to Ukraine Steven Pifer called on Ukraine not to leave the Minsk-210 . The US will not interfere; especially not provide any support, if Russia and Europe will keep pressing on Ukraine for meeting the conditions necessary for a big deal. Thus, Ukraine will appear in circumstances where it would be forced to fulfil an agreement which is not supported by a significant part of the elite and the population. However, Ukraines critical dependence on external support remains. It follows that there are emerging conditions for a sharp escalation of the conflict in Ukraine on the implementation of Minsk-2 or the consequences of such implementation when other regions may require extension of their powers for the occupied territories of Donbas. Well consider vari- ations of the situation within internal scenarios below. 15 10. Steven Pifer about Ukraine and Minsk-2// https://politeka.net/375508-chto-budet-s-ukrainoy-v-sluchae- otkaza-ot-minskikh-soglasheniy/

14. Scenario G2 Pragmatic This scenario follows logically from the Scenario G1 in case the original agreement between the US and Russia has not worked for months because they cannot be implemented at lower levels. 16 Scenario "Pragmatic" 2017 Motives of players on Ukraine: Russia: change balance in Ukraine EU: wait / change US: wait / act carefully !!! Basic options for Ukraine Military coup attept in the form of martial law Return to Scenario A Confrontation under Scenario C Sanctions remain in its current form. Increased oil and gas production in the US makes the price pressure on Russia. After successful negotiations at the primary level, the parties may not proceed to implement because of the conflict of interest of 2-3 level players. Stalemates as a result. "The Hawks" from Trump's surrounding are gaining power Negotiations on the relations format Washington reinforces its European allies in NATO, while France and Germany are stagnating Further support of Assad, expanding Russian military contingent in Syria, attempts to strengthen relations with Iraq, periodic aggravation with the US and other enemies of Assad Supporting insurgents and Iraqi Kurds, attempt to negotiate with Turkey on refugees No money Lethal weapon for Ukraine before the year's end. Arming the opponents of Assad and ISIS, support for Israel and other allies in the Middle East OSCE acts as a weak observer, as it is now Minimal aid. Visa-free regime is delayed, and the Association with the EU goes bad Market is closed for Ukraine Periodic escalation in the Donbas as on fall'16 and even more Time is a key factor: the longer is the uncertainty for Russia, the less resources for its economy. So Putin'd rush in order to enter the negotiations with the most powerful position. Russia's stake will be on rolling the situation in Ukraine combined with the escalation in the Donbass, and support any forces playing for destabilization Alain Juppe or Francois Fillon winning French presidency Merkel's possible winning of the elections in Germany with a slight advantage The deepening crisis in the EU, strengthening of the right forces and populists Lack of resources Parlamentarly elections as a way to let off the steam Inability to reform because of parliament conflicts "Neither war, nor peace" situation as in 2016 UKRAINE EU MIDDLE EARTH RUSSIAUSA Relationships on the security line Relationships on the economy line This primarily relates to the situation in the Middle East, where huge numbers of people and social groups are involved in the war in Syria and Iraq. And also its very often that interests of a regional or global player stand behind a particular group. By this logic, agreements between the US, Europe and Russia on the Middle East will not result in Saudi Arabia or Qatar stopping support for rebels in Syria, based on their concerns about the growing influence of Iran in the region. Moreover, if under the Trump administration relations between the US and Saudis will become cooler, their motivation to support anti-Assad groups might even increase. Basically, it would be the same situation as agreements between the US and Russia on Aleppo in 2016. As everyone could see, agreements were quickly violated by both sides in Syria and the war continued with renewed vigor.

15. Exactly the same situation emerges in Ukraine, where any attempts to push Minsk-2 in the new edition of a Munich conspiracy, would lead to polarization of Ukrainian society and influence groups among the elite, as we can conclude considering Scenario G1. There will be a stalemate on both sites (the Middle East and Ukraine), which can be overcome with a limited escalation by Russia. The factor of time becomes crucial for Russia because stabilization funds are exhausted and the search for resources for saving the stability of the regime in Russia becomes vital. Russia has already made doubled cuts in funding of defense within its three-year budget until 202011 . That is why Putin should hurry up to make an agreement with the West, such as considered in the Scenario G1. For this pur- pose, he will use the context of parliamentary elections in Germany (elections in France have already been completed before the G2 scenario starts), so to force Europe to agreement through pressure on its weak. We cannot exclude a possibility of new wave of refugees from Syria to Europe, which weakened the position of Angela Merkel in the context of parliamentary elections in Germany. Obviously, this will be preceded by heavy clashes in Syria that will provoke this wave of refugees. However Turkey, pursuing their interests in the negotiations with the European Union, can contribute to the displacement of another wave of the refugees to southern Europe. But a key role in achieving Putins goals is still to be played by Ukraine, where he will apply the tools of destabilization of the political system together with escalation of the situation in the Donbas. Russia will also maintain its economic blockade of Ukraine and perhaps even expand it. Before the Kremlin achieves the goal of reformatting the post-Maidan balance of power in Ukrainian politics, the realization of its plans for a big deal with the West will be difficult. Thus, the situation will remain as neither war nor peace, as in the years of 2015-2016. But, provoking an escalation in the Middle East and Ukraine, Putin risks strengthening the position of Hawks in Donald Trumps administration as well as in the Senate and the US Con- gress. Hawks will stand aside at the first stage, when Trump will enter the Oval Office and try to implement plans on improving relations with Russia. However, with delay in implementation of scenario G1, their influence will increase and the US stance will be strengthened. US actions: By this logic, US actions under Scenario G2 will look like the following. Sanctions on Russia will remain. Eu- rope will also keep theirs in summer 2017. Trump will boost production of oil and gas or keep prices at current levels, or not allow them to rise too high after OPEC decided to reduce oil production on 30 November 201612 . In relations with Europe the US will strengthen the security of its allies in Eastern and South-Eastern Europe, with Ger- many and France stagnating against the backdrop of nu- merous challenges. Poland, Romania, and the Baltic countries may receive additional assistance from the US e.g. loans for upgrading their armies, and redeployment of additional small contingents of the US Army in these countries. There is no doubt that the UK will actively support such steps. 17 11. Demilitarization of the budget http://www.ng.ru/economics/2016-10-31/4_6848_budget.html 12. OPEC decided to cut oil production. //

16. In the Middle East the US will contribute to initiatives of its allies, especially Israel. Washington may also renew arms supplies to the rebels in Syria, and continue air strikes on ISIS, helping to strengthen the multifarious anti-ISIS coalition in Iraq. At the same time the US will not support Ukraine financially, but by the end of 2017 Ukraine can get lethal weapons. This likelihood will increase as far as Russia amplifies efforts to undermine the situation in Donbas, which will strengthen the positions and arguments of Republican Hawks. The EU Actions: G2 scenario in Europe will be enabled by Alain Juppes win in elections in France; Juppe holds a much tougher stance than Francois Fillon, not to mention na- tionalist Marine Le Pen. In Germany under this scenario an uncertain victory of An- gela Merkel is possible, however with little advantage. Merkel will not have a stable position forcing her to compromise with other political forces in Germany. The irony is the fact that Merkel will actually become a key player of the Euro-Atlantic camp in Europe in conditions when its rather instable after Trump has won. Europes relations with Russia in the G2 scenario will be unstable. Sanctions against Russia, as we have already mentioned above, will remain at least before early 2017. However, some European countries begin to restore economic relations with Russia bypassing sanctions. In the Middle East, Europe will try to negotiate with Turkey to prevent a new destabilizing wave of refugees. Support for the rebels will be renewed in case of further escalation in Syria. Europe will also support efforts to neutralize ISIS. Europe will provide minimal aid to Ukraine. The visa-free regime with the EU will be delayed until the determination of the political architecture in France and Germany after the elections. Association with the EU will also work intermittently. Motivations of key players regarding Ukraine will look like as follows: Russia: change the balance of power in Ukraine as soon as possible by instruments of destabilization of the political situation. Large-scale conflict is unlikely. Europe: will wait until the situation changes for the better. Support for Ukraine is minimal. USA: will wait, keeping an eye on situation, however providing limited assistance in case of escalation in the Donbas. Hence the basic options for Ukraine under G2 scenario for 2017 are as follows: First, the lack of resources to cover all the payments. This will contribute to undermining the state in the face of rising mass discontent and conflict of interest between different groups of elites. Second, this implies the need for early elections to the Verkhovna Rada to release accumulated social pressure. But this is a risky step that may weaken the position of President Poroshenko and start the process of redistribu- tion of spheres of influence by a new parliamentary coalition. As a result, the inability to conduct any reforms will remain until the conflict is resolved. This is a stalemate. Third, understanding that the elections to the Verkhovna Rada lead to stalemate therefore deepens the crisis and creates the motivation to try new tactics by the President, through the introduction of martial law against the background of escalation in the Donbas, and for his opponents through organizing street protests or a coup using the security forces. These options we will consider further into the interior scenarios. 18

17. Based on the above, the conclusion is that after escala- tions in Ukraine and the Middle East within the G2 scenario, the big three, i.e. US, Europe, Russia, will reach a cross- roads where they would either have to return to the scenario G1, or move to the scenario G3, which is the scenario of confrontation. Scenario G3 Confrontation The big three entering in the scenario of confrontation is unlikely in 2017, since its deployment takes time, but it logically follows the scenarios G1 and G2, so the probability of its realization in late 2017 with the transfer in 2018. 19 Scenario "Confrontation" 2017 Basic options for Ukraine Motives of players on Ukraine: Russia: change balance in Ukraine EU: save current regime US: save current regime !!! Alternative: return to scenarios 1 and 2 Deployment of LNG terminals, decreasing dependence on Russian gas Reformatting of NATO, transition to flexible alliances with the Eastern Europe countries Confrontation, increasing military presence in Syria, repetition of incidents as in Turkey in November 2016 Confrontation refugees Financial and other aid Lethal weapons Confrontation, support for allies with weapons and finance Lethal weapons from Britain, Poland and Romania Technical and, possibly, financial support Blocking the economic relations Aggravation that goes into a new wave of invading Ukraine Russia's stake on the collapse of the political regime in Ukraine under the sharp increase of the pressure (power, economic) EU disintegration Dividing into the "healthy core (Germany + Benelux) + crisis South + crisis East looking for support from the US and UK The collapse of the existing model due to lack of resources Transition to the authoritarian regime. Martial law Support with weapons the threat of war Russian invasion to the Baltic States in the format of "little green men" to demonstrate NATO's inability to perform paragraph 5 of the Agreement. Conflict between the US and old Europe Sanctions Fixing a new status quo after escalation - as Korea in 1953 Return to scenarios A and B Consolidation of the EU to external challenges Strengthening Euro-Atlantic polictics. Merkel stays UKRAINE EU MIDDLE EAST RUSSIAUSA 1. 2. BALTICS Relationships on the security line Relationships on the economy line

18. Implementation of this scenario is possible, if all the parties cannot come to a major agreement in terms of limited escalation in areas 1 (Middle East) and 2 (Ukraine). As we have already mentioned, limited resources make Vladimir Putin raise the stakes against the United States and Europe, while possessing the initiative. Trumps course for isolation and criticism of NATO could push Putin to make a symbolic strike on NATO, particularly, on the Alliances ability to fulfill Article 5 on providing assistance to its members. This means that Russia will go for provocation in the Baltics with invasion using little green men (Russian unmarked troops). This option does not include the seizure of the Baltic by the Russian army, but the main goal is to show NATOs organizational failure in terms of responding to the call. Appearance of little green men in Latvia, Lithuania or Estonia in a popular uprising or mass riots would threaten state control in these countries, and put NATO together with the EU and the United States before a problem of how to react. It is important for Vladimir Putin to provoke a conflict between the US and Europe for reaction to the situation. There is no doubt that many European countries will try to find exactly the same arguments for the invasion of Baltic States, as in the case of Ukraine. Give us the arguments, its not the Russian army invading, but the rebellion of the local Russian-speaking population, lets try to negotiate with Russia, it is entitled to represent its interest in the region these and other similar reasons in Berlin, Rome, Paris, Madrid, and other European capitals would waste time when a decision must be made very quickly. An important element of this scenario is that the invasion of Baltic countries will be accompanied by increasing escalation in Donbas and the Middle East. In Donbas, Russia may try to organize an attack on Ukraine from occupied territories using heavy weapons to reach the administrative borders of Luhansk and Donetsk regions, and possibly more. Nor can we exclude that Putin can preliminarily redeploy additional troops to Syria, for another aggravation that could lead to a repetition of dangerous incidents such as the destruction of a Russian Su-24 by the Turkish Air Force. For Putin the Baltics are not as important as the Middle East, so the logic of a strike is to offer exchange two sites (the Baltic and ME) which are more important for the US and Europe, for one Ukraine and then return to scenario G1. In this situation the reaction of the US and Donald Trump is crucial. The US response to this challenge will determine the fate of the entire global infrastructure of America, which is based on its strength. Trump may not respond to calls for help from NATO, as Barack Obama did, when Turkey shot down the Russian Su-24 in November 2015, and the resulting conflict with Russia further prompted Recep Erdogan into tactical rapprochement with Russia. If this situation is repeated on a larger scale in the Baltic countries, this would break trust in Washington and NATO may simply fall apart. The US will lose its status of first among equals and the world will slide to multi-state conflict, as in the Con- gress of Vienna in the XIX century, after the Napoleonic wars. There will be a very dangerous situation, because the same logic led the German strategists in 1914 and Adolf Hitler in 1939. In 1914, Germany believed that Britain would not support Belgium following the German invasion. But Britain did. 20

19. In 1939, Hitler thought that France and Britain will refrain from declaring war on the Third Reich after the invasion of Poland, hoping to repeat the Czechoslovak scenario. These hopes also fell apart, and Germany lost. Therefore, logic will push the US government to respond to the challenge. But, due to the presence of nuclear weapons on both sides, the tactic is to localize the conflict before full-frontal collision. US Actions: increased sanctions with a possible shutdown of the SWIFT system, as well as the introduction of an oil embargo against Russia. By the way, it could play very much in favor of the United States because rising oil prices may help the United States to make sales due to the disap- pearance of supplies from Russia. Hawks will get the top positions in the United States. The US will reformat NATO, with a significant expansion of military assistance to Eastern Europe, to where additional contingents of troops are to be redeployed (primarily Poland and Romania). Special Forces from the United States and Britain are likely to be deployed in the Baltic States to counter the green men. In the economic sphere, the United States will accelerate the construction of LNG-terminals network in Europe to reduce its dependence on gas supplies from the east, and increase the role of US energy companies in the EU. Washington would also support its allies in the Middle East and will introduce additional restrictions against Bashar Assads regime in Syria, not excluding sea and air block- ades. The situation will encourage the US to ensure the rapprochement with Turkey so to stop Ankaras drift towards rapprochement with Russia, which became noticeable in summer 2016. It is important that in this case Ukraine has good chances to get both lethal weapons and financial aid from the US. EU Actions: In confrontation with Russia, the implications for Europe can develop in two ways. First: Europe is consolidated against an external threat. In- creased defense expenditures reinvigorate NATO. The Euro- Atlantic camp would strengthen its positions in the political arena of Europe. The EU supports tough economic sanctions against Russia. Also the EU provides financial and possibly even military and political support to Ukraine and EU allies in the Middle East. The second means actually disintegration of the EU into a healthy core (Germany + Benelux + possibly, France + some Nordic countries) + Eastern Europe in security crisis supported by the US and UK + economically failed South of credit lovers (Greece Italy, Spain, and Portugal)). In this case, Europe will be a case of integration at different speeds. Each country will determine its stance towards Russia, because some countries will support tough sanctions, but others will avoid harsh maneuvers. Motives of players on Ukraine in the G3 scenario: Russia: elimination of existing political regime in Ukraine through a massive escalation. Europe: full or partial support for current regime in Ukraine (Poland, UK, Sweden, etc.) or non-intervention policy (Italy, Greece, France and possibly Germany). US: support for existing regime in Ukraine as an element of containment for Russia. For Ukraine, the G3 scenario will have the most serious consequences, because Russia actually will not bet on sup- 21

20. pression, but on the collapse of the political regime as soon as possible. Therefore, there is a risk that the combination of three basic factors: fiscal crisis, geopolitical pressure, and social discontent could destroy the Ukrainian state at an early stage when Western aid has not yet to come up in the re- quired amount. Basic options for Ukraine under this scenario: 1. The collapse of existing model due to lack of resources to maintain sustainability - Poland 1939 version 2. Transition to a more authoritarian regime in terms of external aggression, when the country will be able to survive through the mobilization of domestic resources and strong external support. This is a version of South Korea in 1950- 1953. The scenario of confrontation has two possible endings: 1. Upgrade the new status quo in the region and in the world, due to the fact that Russia is rapidly weakened through tough economic sanctions and will be forced to make concessions. 2. Return to scenarios G1, G2 after a brief confrontation. Scenarios for Ukraine in 2017 As we have mentioned above, external factors will have a decisive influence on the situation in Ukraine in 2017. The critical dependence of Ukraine on external aid and the threat of escalation by Russia make our country a hostage to the actions of other players. But this does not mean that Ukraine should obediently do what Washington and Moscow order. You will find this from our further consid- erations. We believe that there are three basic scenarios for Ukraine in 2017: 1. Stability. 2. Controlled destabilization. 3. Uncontrollable destabilization. Before we begin to describe them, we should get back to the three factors determining balance in the state system, which we covered at the beginning of the report. Those three factors are legitimacy, resources, external support. Now we will organize them into a chart for ease of understanding which configuration is crucial for a particular scenario. Scenarios definition Stability: Scenario is possible if the internal and external legitimacy is positive or negative. Resources are plenty or little. External support is present. Political regime is very persistent if all indicators are positive in all factors in the table above (1.1 + 1.2 + 2 + 3 +). An example of this is the political regime is Norway or Switzer- land. The second version of a stable regime is when it has a negative internal but positive external legitimacy, also with powerful mechanisms of compensation such as significant resources and external support. An example of this political regime is Ukraine in times of Yushchenko from 2006 to 2008. The third version of a stable regime is when it has high internal legitimacy but low external, with the presence of significant resources base and lack of external support. This is the Soviet Union in the 20s of the last century or todays Russia under Putin. 22

21. 23 Factors Stability Controlled destabilization Uncontrolled destabilization 1 Internal legitimacy 1 External legitimacy Positive + or negative Positive or negative Negative, low Positive or negative, low Negative, low Negative, low 2 Resources Present + Not enough + or absent + Absent 3 External support Present + Minimal + or Absent Very stable regime 1+ 1+ 2+ 3+ Stable 1 1+ 2+3+ 1 + 1- 2+3- 1 + 1+ 2-3+ Scenarios of the situation in Ukraine in 2017 The fourth version of a stable regime is under the presence of positive internal and external legitimacy with a lack of resources but with strong external support. This is South Korea during the war in 1950-1953 or Singapore after gaining independence. Controlled destabilization: Internal legitimacy is low. Exter- nal legitimacy is slightly positive with a tendency to decline or be even negative with a number of geopolitical partners. Resources are not enough so dependence on external support increases greatly. Therefore, foreign players are able to dictate the terms of obtaining aid. The absence of external support or lack of it leads to the collapse of the state and transition to scenario 3 (uncontrolled destabilization). This was a path of the Tsarist Russia in 1917. However, with external support domestic players from ruling class retain room for maneuver and impose their will on weaker social groups. Such a political regime is beneficial for foreign players only, because it has to take into account their interests to the detriment of the national ones. Examples are the Latin American regimes in 60-80s. Domestic players can reduce external dependence through reforms to enhance the legitimacy and internal resource base. It makes a political regime more stable and creates conditions for transition to scenario 1. Uncontrollable destabilization: All the factors are negative. Such a political regime is illegitimate in the eyes of the people and foreign players; it has exhausted resource capa- bilities and has no external support. In fact a collapse of the state undergoes because of internal or external conflict, or because of their combination. American macro-so- ciologist Randall Collins describes the collapse as a result

22. 14. Sergiy Datsyuk. "The essence of the current political crisis" http://blogs.pravda.com.ua/authors/datsuk/56b9c58c2ec90/ 15. Vitaly Kulik Oligarchic Consensus and Cartel Party http://glavred.info/avtorskie_kolonki/oligarhicheskiy-konsensus-i-kartelnaya- partiya-373091.html of a combination of fiscal crisis, when the state is unable to perform basic functions. It coincides with the geopolitical complications followed by uprisings. This is Austria- Hungary in 1918, the modern Somalia, Ottoman Empire in 1918, Hetmanat of Pavlo Skoropadsky in Ukraine in 1918, Directorate of Ukraine in 1919. Now, having given the scenarios description, lets get to consideration of their probability in 2017 in Ukraine. Scenario 1. Stability To implement a scenario of stability in 2017, Ukraine lacks several key factors. First, we see the low credibility of the key state institutions, which keeps declining. None of the political players have ratings above 12-15%, and most fluctuate around 4-7%. Ratings of ruling parties either already have fallen to zero (Narodnyi Front), or decreased to 10% (Petro Poroshenko Bloc). Secondly, we see a decrease in the legitimacy of the ruling coalition in the face of Ukraines Western partners who are tired of corruption scandals and minor successes in re- forming the state system. Now it is approaching a critical point and can be shaken by a new wave of corruption scandals and economic problems in Ukraine. Third, there is exhaustion of the resource base of the Ukrainian Second Republic, when after three years of ob- jective factors Ukraine has lost half of export earnings (falling commodity prices of Ukrainian exports) and sub- jective factors (war with Russia, which caused a collapse in trade and rising costs for defense that reached 5% of GDP) costs only increased instability of the economy. It deepens with populism which resulted in adoption of doubled mini- mum wages however it does not meet the real possibili- ties of the economy. In 2016, Ukraine managed to achieve a positive trade balance only through IMF credits and credit guarantees from the US. However, in 2017 the possibility of obtaining credits is yet smaller because of the election results in the US, France, and Germany. Fourth: as we said above, the probability of external support from the US and Europe will decrease due to the changes in key administrations of the Western countries. However, this support is directly tied to the ability of Ukraine to remain relevant in the wake of agreements between the new US president Donald Trump and Vladimir Putin. However, the attempt to implement the Minsk-2 in line with Putins proposals will result in problems for Petro Poroshenko in domestic politics, so he will try to delay a decision. This calls the international aid into question reducing the stability of the Ukrainian economy. The President of Ukraine can bet on an attempt to conduct the liquidation of one or two business groups to gain access to their resources under the banner of justice. No doubt, this can lead to increased internal legitimacy in the eyes of the masses, but can ruin a wobbly post-Maidan oligarchic consensus14 , which brought Petro Poroshenko to the presidency15 . Oligarchs will receive the motivation to fight the president, which can quickly throw the country into chaos of destabilization in the absence of external support for Poroshenko. Therefore, a stabilization scenario seems unlikely in 2017. There are no internal or external conditions for it. So we estimate its probability at 5-10%. 24

23. 25 Scenario 2. Controlled Destabilization This scenario implies an active search by external and internal players of such a configuration that will protect their interests to greatest extent. In this case, entering this scenario, most players believe that they will have control over the situation or will receive it on exit. This scenario implies a motivation for change in the conditions of resource base exhaustion. So this scenario has the greatest chance to be implemented in 2017. First we need to look at the motivation of political forces. We took all parliamentary and non-parliamentary parties that have hypothetical chances to get into Parliament in case of possible re-election. Political forces Motivation for maintenance or change the balance of powers Petro Poroshenko Bloc Peoples Front Fatherland Self-Reliance Opposition Bloc Radical Party Freedom Mikheil Saakashvili Party UKROP Democratic Alliance Revival Peoples Will Parliamentary Group Rabinovich and Murayev Party Civic Position of Anatoliy Grytsenko Maintenance Maintenance Change Maintenance Partly change (Lyovochkin, Firtash), partly maintenance (Akhmetov) Rather maintenance Change Change Rather change Change Maintenance Maintenance Change Change These political forces can be easily divided by two key features: representation in Parliament and risen / fallen rating, and immediately it becomes clear why they have such motivation.

24. Political forces in the left column have falling ratings and are thus afraid of losing, but have control over the government institutions or are satisfied with the current position because of a fear that a change in balance would be not in their favor. Political forces in the right column are gaining ratings or hope that rebalancing expands their influence. So situational alliances are formed arising from the motivation to keep / change balance. Thus the political forces in the left column can change their position and flow to the right. For example, if in 2017 Petro Poroshenko under pressure from the US, Europe and Rus- sia will try to make changes to the Constitution of Ukraine regarding Minsk-2, Self-Reliance can move into tougher opposition. The Radical Party will also carefully monitor the changing balance, to avoid being in the camp of losers. Today the Radical Party plays in conjunction with the Petro Poroshenko Bloc against Tymoshenko, but tomorrow the situation may change to the opposite. Thus, the political processes are affected by three groups of subjects with their own motivations: external, internal and masses. Masses are influenced by political organiza- tions, but in times of crisis, when we see the fall of the legitimacy of state institutions and political parties, the masses can act spontaneously and bring additional chaos to the game of political players. Motivation for maintenance Motivation for change Faction in the Parliament (number of representatives) Rating Petro Poroshenko Bloc: 143 Peoples Front: 81 Self-Reliance: 26 Radical Party: 21 Peoples Will Parliamentary Group: 19 Revival: 24 RatingFaction in the Parliament (number of representatives) 10-12% decreasing 2% absent 6-7% stable 6-7% stable majoritarian conglomerate Ratnig absent, majoritarian positions Opposition Bloc: 43 Fatherland: 21 Freedom: 4-5 UKROP: 15-20 people i n the influence area but no fraction Democratic Alliance, no fraction Mikheil Saakashvili Party, no fraction Rabinovich and Murayev Party: 2 Civic Position of Anatoliy Grytsenko, no fraction 7-10% increasing 10-14% increasing 3-4% varies Minimal 0,6 to 1% 6 to 7% 3 to 7% 2% to 4% 26

25. nounced the availability of recordings of conversations with President Poroshenko, which allegedly contain the facts of corruption, de facto there is a Black Swan which later can match the Kuchma tape scandal in 2000-2001. We do not know what information these records contain and whether they exist at all, but Onishcenko has said that he passed the records to US law enforcement agencies. In addition, we cannot exclude that the records also have been passed to the Russian security services, given the fact that On- ishchenko visited Moscow recently. In any case, if On- ishchenko really passed any records to a third party, then Poroshenko could be blackmailed to perform the global agreement between the US and Russia within the G1 scenario. But the President is well aware that if he fulfils Minsk-2, then hed face strong criticism from his opponents inside the country, and this situation may lead to loss of control. He can appeal to Washington and Berlin that Minsk-2 cannot be fulfilled because of lack of configuration in Parlia- ment for changing the Constitution. But then external partners may force Poroshenko go for early parliamentary elections so to create a new parliamentary coalition that will take responsibility for Minsk-2. Chances for early elections to the Verkhovna Rada are increasing against the emerging black swans like the tragic incident in Knjazhichi on December 4, when five policemen were killed in a shootout between police units caused by an error. Immediately the opposition demand to dismiss Arsen Avakov, Head of the Interior Ministry. But it is difficult for the President to make such a step because Avakovs resignation may lead to the collapse of coalition. Poroshenko cannot replace Avakov with an equivalent player from the Peoples Front. Furthermore, even if the decision was taken, it would be extremely difficult to push it through Par- liament, as other factions and deputy groups will start bargaining on preferences for themselves. If this crisis is superimposed on the tape scandal with Onishchenko or Therefore, within a controlled destabilization scenario we see three basic variants which, in turn, include sub-variants: Variant : Early parliamentary elections Variant B: Mass protests Variant : Military coup Variant : Early Parliamentary Elections The survey made by the Ukrainian Institute for the Future in 21-28 November, 2016, shows that 23.9% of Ukrainians believe that 2017 will be marked with early parliamentary elections. 17.2% of respondents are confident about an early presidential election in Ukraine. However, only 7.2% of Ukrainians believe in the possibility of forced removal of President Poroshenko. An interesting fact is that only 37.7% of Ukrainians believe that Ukraine needs early parliamentary elections, while 45.4% consider them unnecessary. Another 16.9% have not decided. Early parliamentary elections are not favorable for the current President Petro Poroshenko as well as for the ruling coalition. The President understands that he will not have the same controlled Parliament reelected, as it is today. All the opinion polls show that only 7-9 political parties can get seats in the Parliament after early parliamentary elections. The President understands that the new Parliament is likely to be more antagonistic to him. So he will delay approval of a decision on fresh elections to Parliament as much as possible. However, Petro Poroshenko, who is currently the strongest player in Ukrainian politics, begins to feel more and more pressure from internal and external players. Ratings of Poroshenko and his party are gradually reduced, and after fugitive MP and gas oligarch Oleksandr Onishchenko an- 27

26. ble government, not able to make quick strategic and tactical decisions. As a result, we observe constant bargaining that enhances stalemate. After 3-4 months it will be obvious for internal and external players that the system does not work and in the second half of 2017 we come to a new round of political crisis, not only on the issue of parliaments incapacity, but also of the Presidents toxicity. This situation will resemble events in Ukraine in 1993-1994. Then there will be another bifurcation: 1. To carry out early parliamentary and (or) presidential elections in early 2018. 2. Military coup attempt from the either side. For example, the President may introduce martial law, using the escalation in the East as a reason. More details in the variants C1 and C2. 3. There will conditions for the conclusion of a new social contract through a pact between elites, as happened in Tunisia 2013. In this case, the Constitutional Assembly (Con- stitutional Convention) is announced and a technocratic government is established for the transition period. 2. Parliament & Government against the President As a result of early elections to the Verkhovna Rada, an anti-presidential majority is formed, creating their own government. So it may become a repetition of the situation in 2007, when Tymoshenko headed the government. In this case, there is a possibility that she will do it again. However, it is unlikely that this coalition will be very stable because it is doubtful that two political forces could gain more than 20% of votes. If this miracle happens, then the Prime Minister and the government will feel more confident. But if not, it will be difficult for them to push through other corruption-scandal story, then the President is in a very weak position. If he will bend once on Avakov, he will be forced to concede on other issues and, as a result, lose control in the Parliament. This, again, makes the prospect of early elections to the Verkhovna Rada more and more possible. This example demonstrates that in conditions when the state system of Ukraine is extremely unbalanced, one unpredictable event may ruin the delicate balance between key political groups, so the power struggle escalates. Therefore, in a situation of growing pressure from internal and external players and dissatisfied masses (lets not for- get of the people), Poroshenko can come to the conclusion that parliamentary elections are a lesser evil than further delaying the situation. This option is already possible in the spring of 2017. Early parliamentary elections may lead to two results of elections to the Verkhovna Rada. Lets designate them as variants A1 and A2. 1. Going Short Understanding how difficult it would be to get a majority in the new Parliament, Petro Poroshenko goes short on positions of all the key opponents. An example is the situation with a rating of Lviv mayor Andriy Sadovyi, which turned critically low due to the garbage scandal in summer 2016. In this scenario, the President will try to reduce the rating of Yulia Tymoshenko and other antagonists, using spoiler parties. By this logic Poroshenko, for example, will benefit if Mikheil Saakashvili goes into opposition and takes seg- ments of the protest electorate that could vote for Ty- moshenko and other players who are trying to mobilize this group. And it does not matter whether Saakashvili plays alone or together with Poroshenko. If this strategy works, then Ukraine will get a feeble parliament with lots of small factions. Its going to be an unsta- 28

27. Thus, the number of Ukrainians who see the threat of a social explosion in the country almost doubled. Therefore, the conditions for social protests do really exist. This variant can be realized if: 1. Poroshenko will not allow early elections to the Verkhovna Rada in the face of the deteriorating political situation and growing external pressure within global scenarios G1 or G2. 2. The stalemate in variants A1-A2 occurs, when the Presi- dent will block the actions of the opposition or antagonistic coalition. Within this scenario repetition of the winter 2013-2014 situation is possible, when street protests on Maidan led to the overthrow of the Viktor Yanukovych regime. Although the government successfully localized the protests launched by Tymoshenko, Rabinovich and Murayev Party and other political forces whose interests coincide on the third anniversary of Maidan, conditions for street protests in Ukraine still have not disappeared. And given the black swans (accidents, corruption scandals, Russian subversive activities, etc.), which we have described above, the probability that motivated players like Fatherland and Opposition Bloc would try to use social discontent, begins to increase dramatically. The algorithm of actions within this scenario looks some- thing like the following. After some Event (public figure murder, brutal violence against innocent, corruption scandal, infrastructure collapse, or defeat in the east resulted from aggravation of the situation within the global scenario G2 and G3) street protests begin, and turning into a tough confrontation with their decisions. Since Tymoshenko or another figure will at- tract smaller partners with consequences for stability arising from such a construction. For example, if Tymoshenko heads the government, then she would probably try to implement Minsk-2 because of the need for external support. However, she would immediately face the position of the President, who will insist on the fact that Ukraine should not follow the conditions of- fered by the West and Russia. And this is only one of the key issues. Therefore, we can confidently say that in the A2 variant well see a hard conflict between the Cabinet of Ministers, Pres- ident, and the Parliament. The result would be a final drop in rating of the President, as happened to Yushchenko in 2007-2009. The stalemate will lead to the same bifurcation as the variant A1. Variant . Mass Protests The survey made by the Ukrainian Institute for the Future on 21-28 November, 2016, shows that the country is experiencing social tension that threatens a social explosion. Thus, 39.2% of Ukrainians believe that there is a high probability for a social explosion in Ukraine. Another 29.1% of respondents said that they see a low probability of such a scenario. 21.0% of respondents believe that this version is impossible today, and 10.1% are undecided. It should be noted that there was a significant increase in the number of those who believe that there is a high probability of a social explosion in Ukraine, compared with the survey of November 2016. In late May, 2016 only 22.4% of respondents saw a great threat of social explosion, and 41.5% were confident that it has a low probability. 30% have been convinced that theres a zero threat of a social explosion in Ukraine, and only 5.9% were undecided. 29

28. in the scheme that Yulia Tymoshenko Bloc and Party of Re- gions were trying to implement in the spring and summer of 2009, when they agreed on a broad coalition and divided zones of influence for 25 years ahead. In this scheme, the Prime Ministers post could be given to Serhiy Lyovochkin or Serhiy Taruta (as a compromise), and Tymoshenko would claim the presidency, or vice versa. In addition to considerable anxiety of the elite, Ty- moshenkos problem is in her low legitimacy (and other key Ukrainian politicians) in the eyes of the people. For example, our survey of 21-28 November shows that she is now supported by only 8.4% of Ukrainians, while Poroshenko gets 9.4%, i.e. they are almost equal. If you consider the per- centage of respondents ready to come to the elections, Ty- moshenko and Poroshenko could gain around 15-17%. Along with 23% undecided of respondents, 34.2% of respondents said they would not actually come to the presidential elections! Another interesting point from the UIF November survey: 84.9% of Ukrainians do not believe that Tymoshenko lives on deputys salary, as she stated in her e-declaration. So overcoming the distrust of masses and elites may become the Achilles heel for Yulia Tymoshenko. However, if the Ukrainian stakeholders could not reach consensus on Tymoshenko and ways for overcoming the crisis about her even under the pressure of external players, then a bet on another figure can be played. This NoName figure is currently unknown to the general public, and will pop up like a Jack-in-the-box. It will be re- quired to have charisma and a high potential for the legitimacy during elections under the tacit support of elites and external players or part them. If you look at recent history, this is the scheme played by Leonid Kuchma, who has turned himself from hardly known director of Pivdenmash factory into a figure of the first order in 1992-1993. In our opinion, this option would be the most logical in this situation, both in terms of external and internal players. MIA and SSU. If the situation does not turn directly into the military scenario C1-C2, which well consider further on, then the President loses control because protesters seize the capital, and the Parliament is to reformat the parliamentary majority which selects a new government and de- prives the President of control over the military bloc. This would be possible if the current President of Ukraine leaves or is arrested, or resigns under pressure from external players. The last option is a repetition of the situation in Ukraine in 2004 during the first Maidan when Leonid Kuchma refused to continue the struggle for power under pressure from the West, after receiving guarantees of im- munity for himself and his family. Another example is the resignation of Boris Yeltsin on 31 December 1999 under the pressure of inner circle due to his health problems. Then the presidential elections take place, which are greatly influenced by external players - the US, Russia, Eu- rope (especially Germany). Their interference can dramatically exacerbate the situation in the context of the presidential election against the backdrop of global scenarios G2 and G3. Growing tension can lead to variants C1 and C2, i.e. attempts of a military coup against the background of a new wave of social protests or escalation in eastern Ukraine. On the other hand, if they reach a consensus on the status of Ukraine in geopolitical scenario G1, then they can support a consolidated candidate. The key question in this situation: which candidate will receive support from both external players and the domestic elite. At first glance, Yulia Tymoshenko has a good chance and probably will receive support from Russia and Germany for nonresistance to US. But Tymoshenko causes huge fear in Ukrainian elites which know her indomitable character. She may appear in a large conspiracy of the elite, for example 30

29. Specifically, only 17.9% of Ukrainians believe that the majority of the population would support a military coup, and another 22.6% believe that such an option would receive support of a half the population. 36.5% of respondents believe that a military coup would be supported only by a minority of Ukrainians; 8.6% - no one would support the coup, and 14.4% did not decide. These figures correlate with responses to another question: Whether you agree that today Ukraine needs a dictatorship with a tough leader as a head of the state. This idea is supported by 34.5% of respondents, whereas 48.8% of respondents are against this, and 16.6% hesitated to answer. No less interesting is that Ukrainians do not change their position, even with the caveat that dictatorship can bring prosperity. In particular, they were asked the following question: Do you support a military dictatorship if it will provide real growth of living standards, fight corruption, and stability? An affirmative answer was given by only 32.4% of Ukrainians, and negative by 50.7%, 16.9% undecided. These results may cause cautious optimism, despite the fact that over one third of Ukrainians would support a dictatorship, but a majority still supports the democratic development of the country. However, if we take a look at the dynamics, we see dis- turbing trends. In the May survey of the Ukrainian Institute for the Future the number of respondents believing that majority of Ukrainians would support a military coup was almost twice lower 9.8%. In spring another 19.4% (22.6% in November 2016) of Ukrainians were sure that a military coup would be supported by half of the population, 39.1% believed that the coup would be supported by minority (36.5% in November). Finally, in May 21.5% were sure that no one would support a coup, (8.6% in November). 10.2% in May and 14.4% in November were undecided. Finally, the third alternative to early presidential elections is variant B, where a well-known figure serves as a compromise within an unstable balance of power. This is the version of Yuriy Yekhanurov as Prime Minister in 2005-2006. In this case the president has no support in Parliament, and therefore much depends on the balance of power in it. However, this does not mean that the presidency would be given to a weak figure because, having gained real power, the new president can reveal his ambitions. In the words of political scientist Dmitro Vydrin, the presidency is a boxing glove, which can be stretched by the hand which puts it on. By this logic, no matter who gets the presidency, he (or she, in the case of Tymoshenko) will try to conduct parliamentary elections (demanded by external players in order to complete an agreement on Ukraine within the scenario G1), as Petro Poroshenko did in autumn 2014. Thus a strong president may still try to conduct a referendum on the new Constitution of Ukraine during parliamentary re-elections. However, the order of amendments to the Constitution of Ukraine will be prescribed in accordance with the agreements reached between the US, Russia and Europe, if by the time relations between the major players will remain within the scenario G1. Thus, this variant comes in close connection with scenarios G1 (Peacemaker) or G2 (Pragmatic). Variant . Military Coup Today, there is much talk about feelings that public order could be demolished by force and dictatorship be established. The radicalization of moods leads to demand for authoritarian action. Our survey of 21-28 November 2016 showed that a desire for dictatorship does exist, but the majority of Ukrainians still believe that Ukraine should develop as a democratic state. 31

30. long conflict in Donbas and skepticism about the central power but that clashes with rebels and the Russian army remains the one factor that keeps the AFU in focus. Volunteer Battalions as a possible military destabilizing factor was largely reduced by their inclusion into the Armed Forces or National Guard. So today they are at a much greater level of controllability than in 2014. Charismatic commanders of volunteer battalions such as former commander of Right Sector Dmitry Yarosh and commander of the Azov regiment Andriy Biletsky made it clear that they have chosen the political path for changing the state, not violence. The rhetoric of both indicates that in the current environment they consider an attempted coup as a threat to national security. This raises the question: who then has the real possibility to undertake a military-driven version of destabilization? In our opinion, there are not so many such players: 1. First, its the President of Ukraine, which has the constitutional authority for the imposition of martial law. In particular, Article 10 of the Law on the Martial Law Legal Regime, adopted by the Parliament on 12 May 2015, provides that during a period of martial law the powers of the Pres- ident of Ukraine cannot be stopped or even limited. In particular, according to the new law, military and civil authorities are entrusted to prohibit peaceful gatherings, to introduce a curfew, restrict the movement of citizens, and ban political parties. It is impossible to dismiss the Prime Minister with Cabinet and dissolve the Parliament16 . So, after six months there was a significant reduction in those who held a peaceful position, and the number of Ukrainians who perceive the coup as an acceptable way out of the situation dramatically increased. This is another proof that the revolutionary situation, i.e. request for a radical renewal of the state system and changing of social relations has not disappeared, but got deeper and is smoldering in the depths of society, ready to explode at any moment. Lets consider, under what circumstances the military scenario can be implemented in Ukraine, by what forces, and if its possible in 2017. In our opinion it is important to note that today in Ukraine there are no preconditions for the Egyptian revolution scenario for 2013 or the coup in Chile in 1973. This requires the existence of the army as an institution that reproduces itself, but this condition in todays Ukraine is missing. The Ukrainian army increases its subjectivity, i.e. the military is beginning to realize its specified mission and role in the functioning of the state, but the process will still require at least several years. Thus the Armed Forces have one of the highest levels of trust from the Ukrainian people. As shown by the November survey of the Ukrainian Institute of Fu- ture, the Ukrainian army is trusted by 39.9% of respondents, trust as much as dont trust 35.1%. 20.1% of respondents do not trust the AFU. For comparison, the President of Ukraine is trusted by only 9.7% of Ukrainians and 56.7% of them do not trust him. For Parliament trust is only 5.2%. 58.1% of respondents do not trust to the Cabinet of Minis- ters of Ukraine, while 6.6% of them do trust it. However the army remains under the political supervision of the President of Ukraine, and today there is no reason to say that he may lose it. Poroshenko has direct contact with many military commanders. First of all, with the most combat-ready, so to maintain their loyalty. And it is not a secret that on the forefront there is certain tiredness from the 16. Rada adopted a new law on the martial law regime http://www.unian.net/politics/1077004-vr-prinyala-zakon-o- pravovom-rejime-voennogo-polojeniya.html 32

31. 1. Effective control over the force unit, which fulfill the or- ders. Loyalty of the army. 2. Quickly establishing control over the regions, including through involvement of regional elites. 3. Quick imprisonment of the odious members of the Yanukovych regime or post-Maidan administration. 4. Strengthening internal legitimacy from the masses who perceive punishment as an act of justice. 5. Acceptance and support of such actions by external players. In this situation the crucial factor is the position of the United States. Without legitimacy from the external players it would be extremely difficult for the political regime to get the aid which is urgently needed. Conducting a military coup in tandem with Russia and with the tacit approval of the USA would lead to a split of Ukraine and will transfer the situation into an uncontrolled destabilization scenario, which well discuss further. Success of this option for the incumbent president is increased in case of a threat of confrontation with Russia within scenario G3. In the absence of confrontation, the incumbent president has a limited period of time to implement this option because as support from society and elites decreases, it will be difficult to ensure the legitimacy of such action. It is logical that the likelihood of this option will be higher by the end of 2017, when formats A1-A2-B are exhausted. Or if there wont be any black swan as in the case of Maidan or destruction of the Malaysian Boeing by Russian troops in the summer of 2014. But there is one option when the military coup attempt makes sense already in February-March 2017. This option may be acceptable to the Russians at the moment when Donald Trump just becomes president officially. At this point it is quite logical to quickly try to overthrow the political regime of Petro Poroshenko using variant B tools (mass protests) followed by street clashes. This variant is possible if it is quick and without Washington interfering, It means that the President gets real levers of holding power in case of a threat to his removal from office. Here we should mention that the introduction of martial law by the President should be approved by the Parliament within two days. That means that the Head of State should have a majority in Parliament, which would agree to support such a radical measure. Otherwise, such a step may be considered as usurpation of power and rapidly lead to failure with the low legitimacy of the President and limited resource base. 2. Military coup within a scenario of controlled destabilization can be started by a player or coalition of players able to: a) concentrate sufficient number of security forces for taking control of key state institutions in low legitimacy; b) find resources to retain power at the first stage; c) confident of external support. Now lets consider two possible versions for a military coup in Ukraine in 2017: Version 1: Successful coup Version 2: Unsuccessful coup 1. Successful coup The President introduces martial law in terms of either a threat of losing power because of protests or loss of control over processes in the country in the situations described in the variants A1-A2-B. This may be preceded by an escalation in Donbas, real or provoked within scenarios G2-G3. In contrast, a subject competing with the current government may attempt to take power by force. The President or any other subject

2017: challenges and opportunites

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