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Ukraine Needs a Political Deal at Home to Defend Against Russia

Bringing oligarchs on board is vital for reform efforts.

By , the director of analytical development at the Newlines Institute in Washington.
Ukrainian President Volodymyr Zelensky speaks.
Ukrainian President Volodymyr Zelensky speaks in Berlin on July 12, 2021. Stefanie Loos/Pool/Getty Images

Ukraine Border Crisis

The United States and its European allies can and should help Ukraine protect itself militarily from Russia. But only Ukraine itself can accomplish this. To do that, it needs a strong and functioning state, not one marred by internecine power struggles and rampant corruption. The Biden administration and friends of Ukraine in Europe must work closely with the country’s political and economic leadership to help them forge national cohesion based on the rule of law—a prerequisite to a resilient nation state capable of withstanding malign Russian actions.

Current intensified diplomacy underway between U.S. President Joe Biden’s White House and the Kremlin might defuse heightened military tensions. However, Russia will not give up on its efforts to pull Ukraine back into its orbit. From Moscow’s point of view, Ukraine is the most significant piece of geopolitical real estate in its entire strategic environment. It both insulates Russia’s core from the West and allows the Kremlin to project power and influence westward. That’s why Russian President Vladimir Putin, whose years in power have been all about reviving Russia as a great power, remains obsessed with Ukraine. Ultimately, any military assistance, while necessary, might be insufficient to protect Ukraine. Without domestic cohesion, Kyiv cannot withstand military and economic pressure from Moscow.

The Ukrainians desperately need a state with robust institutions, which cannot happen unless intra-elite rivalries are contained. Here is where politicians and corporate leaders must find common ground. Large- and medium-sized businesses account for 73 percent of Ukraine’s GDP—and are mostly controlled by a small group of oligarchs. The problem is Ukrainian President Volodymyr Zelensky came to power in 2019 vowing to fight oligarchs, following his career as a comedian and actor.

The United States and its European allies can and should help Ukraine protect itself militarily from Russia. But only Ukraine itself can accomplish this. To do that, it needs a strong and functioning state, not one marred by internecine power struggles and rampant corruption. The Biden administration and friends of Ukraine in Europe must work closely with the country’s political and economic leadership to help them forge national cohesion based on the rule of law—a prerequisite to a resilient nation state capable of withstanding malign Russian actions.

Current intensified diplomacy underway between U.S. President Joe Biden’s White House and the Kremlin might defuse heightened military tensions. However, Russia will not give up on its efforts to pull Ukraine back into its orbit. From Moscow’s point of view, Ukraine is the most significant piece of geopolitical real estate in its entire strategic environment. It both insulates Russia’s core from the West and allows the Kremlin to project power and influence westward. That’s why Russian President Vladimir Putin, whose years in power have been all about reviving Russia as a great power, remains obsessed with Ukraine. Ultimately, any military assistance, while necessary, might be insufficient to protect Ukraine. Without domestic cohesion, Kyiv cannot withstand military and economic pressure from Moscow.

The Ukrainians desperately need a state with robust institutions, which cannot happen unless intra-elite rivalries are contained. Here is where politicians and corporate leaders must find common ground. Large- and medium-sized businesses account for 73 percent of Ukraine’s GDP—and are mostly controlled by a small group of oligarchs. The problem is Ukrainian President Volodymyr Zelensky came to power in 2019 vowing to fight oligarchs, following his career as a comedian and actor.

COVID-19 forced Zelensky’s hand, and he reached for the oligarchs’ assistance to help the country cope with the pandemic. The oligarchs reached into their deep pockets and provided masks, tests, new ambulances, and ventilators for hospitals as well as financial assistance for the government.

The largest amount was donated by one of Ukraine’s richest men Rinat Akhmetov—about $18 million. Ukrainian businessman Victor Pinchuk gave $10 million. Oligarchs used not only their money but also their influence and contacts. But the president eventually returned to his election promises to fight the oligarchs—and acted against one of them, Viktor Medvedchuk, known for his pro-Russian orientation. He didn’t stop there. Other business leaders are in his scopes while oligarchs friendly to the president—such as Ihor Kolomoisky, who backed Zelensky’s election campaign—walk free.

However, with Russian troops amassing at the border, Zelensky needs all the support he can get. He certainly cannot afford to go after Ukrainian businesspeople if his country is to resist a hostile Russia. Their interests are concentrated in Ukraine and oriented toward the West. They have a deep incentive to defend their holdings and country from the Kremlin’s transgressions.

Take Akhmetov, who owns thermal power plants and mines. Russian coal is much cheaper than Ukraine’s exhausted deposits. Akhmetov owns the country’s largest private energy company, but gas is far more expensive to produce in Ukraine than in Russia. Renewable energy, in which Akhmetov’s company DTEK invested heavily, and which is crucial for Ukraine’s energy independence, is unpopular in Russia. Since the Ukrainian energy system is still integrated with Russia and Belarus, Akhmetov’s business may be swallowed by Russian sharks. But this can be prevented when Ukraine disconnects from Russia and integrates with the European Union energy grid.

Akhmetov has scores to settle with the Russians. In 2014, he lost his assets in Crimea, and by early 2017, he also lost control over holdings in the so-called Donetsk People’s Republic and Luhansk People’s Republic—enclaves controlled by pro-Russian forces. From 2013 (before the war) to 2019, Akhmetov’s fortune has shrunk from more than $18 billion to less than $8 billion. His enterprises in the Russian-controlled Donbass were expropriated. A miner’s son who diligently built his industrial empire, Akhmetov is unlikely to forgive the Russians for this expropriation.

Massive Western financial and military assistance to Ukraine, in excess of $25 billion since 2014, gives the United States and Europe considerable influence in Kyiv. Washington has a rare opportunity to steer Ukraine’s elites toward a new national compact. There is much talk about the need for reforms in Ukraine, but the key question is how it gets from where the country currently stands to its desired future. Ukraine has a popularly elected pro-Western government in Kyiv, which remains internally weak due to elite infighting. What these political and financial factions have in common though is a shared opposition to Russian hegemony.

This is the starting point a better future can be built on—one that expands the present common denominators to include establishing a new political economic system. Oligarchs have an interest in the creation of an order under which national political economic development takes place. They know all-too well that without it, their business goals remain imperiled. The Americans and the Europeans should push the ruling class to finally enact much-needed reforms to level the economic playing field, creating a healthy business environment conducive for foreign investment.

In the absence of a social contract though, the oligarchs will continue to assume a Hobbesian state of nature and proceed accordingly. Left to their own devices, the Ukrainian elite, especially with the Russians on their doorstep, are unlikely to agree on the terms of engagement. But with close Western support, they can be steered toward enabling the much-needed reforms process. In Ukraine, oligarchs are a reality and reform an imperative. There is no way to achieve the latter without a modus vivendi that includes the former. Without buy-in from these powerful factions, the goal of political economic reforms will remain elusive—and with it, Ukrainian sovereignty and nationhood.

The United States can do its best to support this by encouraging Zelensky and the business elite to cooperate. Ukraine’s political and financial leaders must work together to build a political and economic system that overtime can increasingly become resistant to Russian encroachment and become a model for Russia itself.

Correction, Jan. 6, 2022: The original version of this piece incorrectly characterized the scope of Victor Pinchuk’s business dealings. We regret the error. It also made a price comparison on Russian and Ukrainian pipes that was wrong.

Kamran Bokhari is the director of analytical development at the Newlines Institute in Washington. He is also a national security and foreign-policy specialist at the University of Ottawa’s Professional Development Institute. Bokhari has served as the coordinator for Central Asia studies at the U.S. State Department’s Foreign Service Institute.

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