A woman enters a bank which re-opened near a barricade in central Kiev on 25 February, 2014. Photograph: Getty Images.
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Investors hesitate as Ukraine teeters on the precipice

In recent days Ukrainian bonds suffered the worst selloff on record and the stock index fell 2.8 per cent

As central Kiev has descended further into violence, the complexity of the divisions - beyond a simple fissure between east and west - have become apparent.

The focal point of the Orange Revolution of 2004-05 was simple: Viktor Yushchenko was the legitimate winner of the presidential election and the people went onto the street to protest the rigged ballot that gave Yanukovych the presidency. Protests were peaceful, the movement had a single figurehead and the objective was clear.

The situation in 2014 is far more complex. Demonstrations were triggered by Yanukovych’s decision not to sign a wide-ranging association agreement with the European Union - a decision the western media attributed to pressure from Russia.

This obviates the role ill-informed EU policy played. In demanding a final, all or nothing, response from Ukraine, a country in need of emergency funding, Yanukovych was left with little room for manoeuvre. President Vladimir Putin was offering cash. The EU was making promises and in so doing, Brussels misplayed its hand.

Branding Yanukovych as "pro-Russia" ignores the competing pressures within Ukrainian politics, particularly when he has taken significant steps to strengthen relations with the west. Ukraine is one of Europe’s most promising energy frontiers and hosts Europe’s third largest shale gas reserves. In November 2013 Kiev signed a production sharing agreement (PSA) with Chevron of the US, worth up to USD 10 billion, to explore for and produce shale gas in the Oleska field in western Ukraine. This was followed in January 2014, with the signing of a similar deal with Royal Dutch Shell for the Yuzivska field in the east of the country.

Conventional oil and gas exploration deals are also being signed. Ukraine agreed a PSA with an ExxonMobil-led consortium to exploit a field of the western coast of the Black Sea.

The signing of such deals with western oil majors is a significant departure from what has gone before. Even under Yushchenko’s pro-western leadership after the Orange Revolution, western companies were largely shut out the country’s energy sector, or put off by uncertain legislation.

Yanukovych, who became president in 2010, in contrast, has been more pragmatic in terms of opening the hydrocarbons production to the west. Efforts have also been made to significantly improve the legislative environment.

Despite this evolution, Ukraine has limited room for political and economic manoeuvre, a fact the EU appears to have ignored during negotiations. Irrespective of the international orientation of its leaders, the Ukraine remains heavily dependent on Moscow for its gas supply, with Russian imports accounting for 60 per cent of consumption. In retaliation for the Orange Revolution, Moscow raised gas prices and cut off supplies in 2006 and 2009, amid pricing disputes. The agreement that ended the 2009 cut-off left Ukraine paying some of the highest prices in Europe.

Unless Ukraine is able to develop its shale gas reserves and wean itself off dependence on Russian energy this cycle of economic vulnerability will continue.

Investors are ditching assets; punishing Ukraine for the protests. In recent days Ukrainian bonds suffered the worst selloff on record and the stock index fell 2.8 per cent. Yields on government bonds maturing in June reached an all-time high of 34 per cent, trading a yield on the 2014 note traded a record 23 per cent about the rate on debt maturing in April 2023.

Ukraine is grappling with a record current-account deficit and foreign reserves are at the lowest level since 2006. The country has USD17 billion of liabilities coming due, excluding interest, through the end of 2015 and at the time of writing Moscow has delayed a USD2 billion purchase of Eurobonds citing "technical delays".

The EU is threatening sanctions, a move that will have limited short-term impact and will do little to end the bloodshed, particularly if Putin opens his cheque book.

In the medium term, Ukraine’s gas reserves and agricultural output have the potential to make it a relatively wealthy country. In the short term, investors are panicking, sending the economy to the brink of a precipice.

The insurance market has all but closed its books to new Ukrainian risk. While there is relative optimism around Ukraine’s prospects over a six month time horizon, in the immediate term underwriters and investors want to minimise their exposures.

It is unclear where the protests go from here. Yanukovych won a relatively free and fair election and it could be considered a loss for democracy if he is forced from office. If he succumbs to pressure who should replace him? The opposition, unlike 2004-05, cannot offer an undisputed successor. It is a disparate grouping with several figureheads, radical elements and no clear leadership.

The departure of Yanuckovych does not provide a viable solution. There is widespread concern in Ukraine about the level of corruption in government. Even if Yanukovych is removed from office corruption will not necessarily diminish. A big question is how intrinsically entrenched Russian business interests are within Ukrainian politics and commerce, as these systemic flaws pose the greatest threat to the development of a democratic system.

JLT Head of Credit & Political Risk Advisory

GETTY
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Cabinet audit: what does the appointment of Andrea Leadsom as Environment Secretary mean for policy?

The political and policy-based implications of the new Secretary of State for Environment, Food and Rural Affairs.

A little over a week into Andrea Leadsom’s new role as Secretary of State for Environment, Food and Rural Affairs (Defra), and senior industry figures are already questioning her credentials. A growing list of campaigners have called for her resignation, and even the Cabinet Office implied that her department's responsibilities will be downgraded.

So far, so bad.

The appointment would appear to be something of a consolation prize, coming just days after Leadsom pulled out of the Conservative leadership race and allowed Theresa May to enter No 10 unopposed.

Yet while Leadsom may have been able to twist the truth on her CV in the City, no amount of tampering will improve the agriculture-related side to her record: one barely exists. In fact, recent statements made on the subject have only added to her reputation for vacuous opinion: “It would make so much more sense if those with the big fields do the sheep, and those with the hill farms do the butterflies,” she told an audience assembled for a referendum debate. No matter the livelihoods of thousands of the UK’s hilltop sheep farmers, then? No need for butterflies outside of national parks?

Normally such a lack of experience is unsurprising. The department has gained a reputation as something of a ministerial backwater; a useful place to send problematic colleagues for some sobering time-out.

But these are not normal times.

As Brexit negotiations unfold, Defra will be central to establishing new, domestic policies for UK food and farming; sectors worth around £108bn to the economy and responsible for employing one in eight of the population.

In this context, Leadsom’s appointment seems, at best, a misguided attempt to make the architects of Brexit either live up to their promises or be seen to fail in the attempt.

At worst, May might actually think she is a good fit for the job. Leadsom’s one, water-tight credential – her commitment to opposing restraints on industry – certainly has its upsides for a Prime Minister in need of an alternative to the EU’s Common Agricultural Policy (CAP); a policy responsible for around 40 per cent the entire EU budget.

Why not leave such a daunting task in the hands of someone with an instinct for “abolishing” subsidies  thus freeing up money to spend elsewhere?

As with most things to do with the EU, CAP has some major cons and some equally compelling pros. Take the fact that 80 per cent of CAP aid is paid out to the richest 25 per cent of farmers (most of whom are either landed gentry or vast, industrialised, mega-farmers). But then offset this against the provision of vital lifelines for some of the UK’s most conscientious, local and insecure of food producers.

The NFU told the New Statesman that there are many issues in need of urgent attention; from an improved Basic Payment Scheme, to guarantees for agri-environment funding, and a commitment to the 25-year TB eradication strategy. But that they also hope, above all, “that Mrs Leadsom will champion British food and farming. Our industry has a great story to tell”.

The construction of a new domestic agricultural policy is a once-in-a-generation opportunity for Britain to truly decide where its priorities for food and environment lie, as well as to which kind of farmers (as well as which countries) it wants to delegate their delivery.

In the context of so much uncertainty and such great opportunity, Leadsom has a tough job ahead of her. And no amount of “speaking as a mother” will change that.

India Bourke is the New Statesman's editorial assistant.