Ukraine’s Next Crisis? Economic Disaster

Tyler Durden's picture

Submitted by Robert Bensch via,

Ukraine’s next crisis will be a devastatingly economic one, as violent conflict destroys critical infrastructure in the east and brings key industry to a halt, furthering weakening the energy sector by crippling coal-based electricity production.

The Ukrainian military’s showdown with separatists in the industrial east has forced coal mines to severely cut production or close down entirely. This has led to an electricity crisis that can only be staunched by cutting domestic production along with exports to Europe, Crimea, and Belarus -- or worse, getting more imports from Russia.

In the coal centers of Ukraine’s industrial east—Luhansk and Donetsk—fighting has forced the full closure of an estimated 50 percent of coal mines, while overall coal production has fallen 22 percent over the same period last year.

Key industry sources say they will potentially run out of coal in less than three weeks.

For Ukraine, the second largest producer of coal in Europe, this will have a devastating impact on the energy sector, which is in a state of emergency, unable to get coal to thermal power plants that provide some 40 percent of the entire country’s electricity.

In the wider energy picture, the halt of coal production sets Ukraine back a decade. The plan was to rely more on coal in order to reduce dependence on Russian natural gas.

But the new reality has insiders wondering how Ukraine will produce more of its own natural gas, after the implementation earlier this month of an amended tax code that targets private gas producers with a tax so high that they will significantly reduce production through the end of the year and beyond that is anyone’s guess. (Full disclosure: my firm, Pelicourt LLC, is the majority shareholder of Ukraine’s third-largest gas producer, Cub Energy, and I have advised the U.S. and Canadian governments on the potential harm the new tax will cause.)

Economically, the conflict in the east is a disaster for Ukraine, which has traditionally been a net exporter of thermal coal for power generation. Now it will have to increase imports of fuel to make up for the loss. But even then, the destruction of supply routes makes this challenging.

Not only have coal supply routes been destroyed in the conflict, but other critical infrastructure has taken a hit as well, threatening other industries.

Across the board, Ukraine’s industrial heartland is reeling from cut-off supply and shipping chains that threaten to destroy as much as 5 percent of Ukraine’s gross domestic product in the second half of this year.

In the meantime, observers can be forgiven their confusion over various measures Kiev has taken since the intensification of the conflict. Indeed, the signals coming out of Kiev have been mixed, at best.

While parliament has passed a bill allowing for sanctions against Russia, the state-run Naftogaz leadership has been quick to point out that we probably shouldn’t expect sanctions against Russian gas giant Gazprom, and the new bill doesn’t implement sanctions of any kind—it simply makes it legal to slap sanctions on Russian individuals should Kiev decide to do so. Another paper tiger.

Parliament has also adopted a bill approving the joint-venture lease of Ukraine’s gas-transit facilities with Western firms.

At the same time, however, Kiev passed a new amendment to the tax code that doubles taxes for private gas producers and promises to keep Western investors as far away from Ukraine as they can get.

Each move is designed to negate the other. The economy is being destroyed, yet Kiev is itself destroying any chance of bringing in Western investment to prop it up. Western firms are invited to invest in Ukraine, while at the same time Ukraine makes a mockery of transparency and ensures that the investment climate is suddenly even less attractive than it was two weeks ago. Lip service is paid to developing more resources to build energy independence, but a new tax doubles costs for private producers who will stop producing and pick up stakes.  

It’s hard not to conclude that Energy Minister Yuriy Prodan is working hard to discourage new investment in the energy sector.

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Latina Lover's picture

The Ukraine is a joke that gets funnier each time you tell it.

Recently, Forbes rated the Ukraine as 1 of the 10 worst economies in the world.

Spitzer's picture

But the mainstream fuckwits won't ever make the connection that Ukraine hit the dire straights when it aligned itself with the US puppet 

ZerOhead's picture

Looks like in addition to getting the NeoNazi leadership we picked for them they also got a crew of the same fucknut economists that are running things into the ground over here.

My guess is that the thermal coal and electricity reductions that are causing their economic collapse are just a part of Obama's new anti-CO2 global warming initiative...

TheFourthStooge-ing's picture

The Banderatards doing the dirty work of the Kiev Yatzi Junta aren't even trying to directly engage the Novorussian militias. Their tactics all along have been to target the civilian population and infrastructure. I guess they never thought about the need for coal before they started shelling the coal mines.

But hey, someone defaced scumlord Bandera's grave in Munich, so I guess Yats will take Merkel hostage when she visits Kiev this weekend. At least we have that to look forward to.

Latina Lover's picture

Energy Minister Yuriy Prodan policies are deliberate. He works for two of the most vicious Oligarchs, Kolomoisky and Akmentov, who want everything destroyed so that they can buy it for literally nothingThen, courtesy of the USSA, they can borrow money and hire USSA contracters to build it up again, and stick the Ukies with the bill.

Unfortunately for them, Putin has stuck a spanner into their evil workings.  Rumor has it that Kolomoisky has made private threats against Putin. If true, I would suggest that K. stop sniffing the white stuff and get his head out of his ass before Putin keeps it there permanently.

JuliaS's picture

Prodan better watch what goes into his tea.

BlindMonkey's picture

I am thinking that there are much better ways to go about business now. Polonium poison is so '90s.

JuliaS's picture

I wonder if they have any tea plants in Prypiat.

TheFourthStooge-ing's picture


I am thinking that there are much better ways to go about business now. Polonium poison is so '90s.

It's also more of a British thing. Or at the very least, an anti-Russian, London-based crime syndicate oligarch thing.

I never even knew until a few weeks ago that neither Litvinenko's father or brother believe that the Russian government was behind his polonium poisoning.

Interesting times we're living in.

JuliaS's picture

It was easier to believe Putin was behind everything in pre-Ukraine days. Now that the Western propaganda machine has been exposed any statement coming from either of the sides is taken with a grain of salt. I'm not so sure about Litvinenko either, but who other than Putin's crew would have the motif? It might've not been issued as an executive order (pun intended), but I mean... who else?

Looking at Khodorkovsky also it becomes quite obvious that Putin does not tolerate any degree of personal threats, but unlike the US presidents, he takes a trageted approach to his disagreements instead of carpet-boming entire countries out of existence.

Anusocracy's picture

I don't believe anything from the US government unless they are threatening to do harm.

conscious being's picture

Khordorkovsky was a genuine crook. A swindler of the common people. He's lucky to be out of jail.


JuliaS's picture

The biggest mystery is why Putin let him out in first place with nobody forcing his hand.

As for Khordorkovsky being a crook - who knows. That's how he's presented by the Putin regime, as he was a direct rival to Putin. In reality - hard to tell. He was a smart Jew (not meant as an insult) who was familiar with international banking ahead of the collapse of the USSR. As soon as opportunity presented himself, he set up a banking cartel, using all of the business practices standard in the US. Using the money earned he went straight for asset aquisition. Being among the first peopel to do things, he was simply ahead of the game.

His mistake was in becoming somewhat arrogant. I don't know whether he actually made any attempts at challenging Putin, or if it's hearsay, but I know he had a vision of "his Russia", which might've been enough.

A close friend of mine attended his lectures, when he was traveling on a charitable tour, right before imprisonment. He was described as an intelligent and well informed man. His ideas resonated with people, and that made him dangerous. Even if he wasn't directly challenging the power structure, he was successful at winning hearts and minds or ordinary people.

But Russians have a very short attention span. When the smear campaign began, the sentiment turned on a dime.

TheFourthStooge-ing's picture


I'm not so sure about Litvinenko either, but who other than Putin's crew would have the motif? It might've not been issued as an executive order (pun intended), but I mean... who else?

Ummmm, the article to which I posted a link pretty much spells all that out.

Your questions are worded with the implicit premise that Putin and/or his crew, whoever that might entail, had a motive to kill Litvinenko. Can you shed any light on what that motive might be? Thanks.

Latina Lover's picture

If Putin wanted to get rid of Litvinenko, he could have had the fuck murdered during a seemingly botched robbery, or while Litvinenko was molesting boys. Polonium poisoning is too tricky,odd and costly if all you wanted to do was eliminate someone.  Find out who really benefited from Lits demise, and start from there.



frankisinca's picture

My readings say that US oligrachs are using the world bank to get Ukranian resources at a discount, by using NATO protection as a carrot. That point makes sense to me as the US was the initiator of this fiasco aka Nouland. Why, is it so hard for us US'ers to believe our bankers and some leaders are caught up in a proclivity of world domination and buying at bottom prices and owning all that is available. AN example is the failure to release info on why the US won't return the German's gold stored in US vaults is typical. Nothing is better than explanation which leads to lies and paying the price. Another example is in Max Keisers latest episode calling for explanation of a government report on fracking, that is redacted in paragraphs and pages to hide the truth of what is going on. We are being victums of a propaganda machine financed by the corporate and Oligrachic power of media influence to ease/hide their agendas which are opposed to the public good.

Kirk2NCC1701's picture

Yuriy Prodan?  PRODAN!?  Is he for real, or using a fake/stage name?


Latina Lover's picture

And Kolomoiski first name is IHOR,  LOL

At least the Ukies don't hide what they are.

GEM_Warrior's picture

This is one of VERY FEW thorough analyses in the Western financial community Webportals about unbiased situation in Ukraine. So my genuine respect for that. I can only add that Ukraine has also been the 5th largest global wheat exporter, and due to hryvna devaluation, lack of diesel fuel nurmally consumed by the agricultural techniques but this time around seeped away by the tanks and other armed vehicles, Ukraine would be deprived of its 15% of hard currency budget revenue, while global wheat prices will go up.

sushi's picture

Plus you can expect some level of famine / food shortage in Ukraine as they fail to supply enough to meet domestic needs and import prices rise. Not to mention the significant problems winter will bring due to reduced energy stocks and higher transport costs.

Much of this destruction is due to the fact that a key reason for the rejection of Russia and attachment to the EU is that once Ukraine joins the EU the populace can migrate west to seek paid employment and leave the rubble behind them.

Second reason is the IMF mandated Ukraine put down the rebel revolt in order to secure financing. Doesn't matter to the IMF what damage is done to the country.

What does not make sense is the degree to which the EU is playing USSA lapdog. NSA must have collected some powerful dirt.


crazzziecanuck's picture

Truth be told, I would say that the poor economic foresight of the nation allowed for it to be hijacked.  That is, Ukraine's problems did not start with Yanukovitch being Yanukovitch'd.  They began earlier and the USA/EU simply exploited the opennings and funded Nazi stooges to make regime change happen.

Keyser's picture

Correct... You have just elaborated US foreign policy for the last 70 years... 

Kirk2NCC1701's picture

I made the very same observation weeks ago, that the US Regime and its EU/Kiev puppets are deliberately destroying the E. Ukraine infrastructure, with the intent of having a Scorched Earth policy displace the inhabitants and create an excessive humanitarian crisis for Russia, which weakens them economically and weaken Putin politically.

The Kiev junta and their Oligarchs then get to take over the land and resources with their own people:  Zionism North, in Ukraine.

Latina Lover's picture

except in the lies spewed by governments. 

Magnix's picture

Just got my fourth raise in 2 years yesterday. Shrinking, really???

grunk's picture

That's because you're special.

BlindMonkey's picture

I got a 75% bump on a job switch last year so it is possible.

Karl von Bahnhof's picture

So you finally earn 15 bucks a day?

Latina Lover's picture

At 5 cents per post, it add up, you know.

BlindMonkey's picture

Don't hate the player fellas.

i_call_you_my_base's picture

You must be a statistician, they make all the money.

Vampyroteuthis infernalis's picture

Just got my fourth raise in 2 years yesterday. Shrinking, really???

The extra 5 cents per week does not help pay the bills Magnix!

RafterManFMJ's picture

Since my 3 top years in 2007-2009 my income has steadily declined to where I'm earning 30-35% less than my peak years - despite working more hours.

Were it not for steadily raising my rental rates my CSI (combined source income) would be even lower, prolly around 40%.

I'm at the Honda dealership ATM dreading their verdict on my venerable Element, becoming progressively more ill from the insipid drivel dripping like electronic gonorrhea from the waiting room idiot box.

BlindMonkey's picture

On my first read I thought you were saying your car got the clap. :)

JustObserving's picture

That's what you get for being America's bitch.  What happened to the $5 billion that the US spent destabilizing it?

That's what you get for lovin' me
That's what you get for lovin' me
Ev'ry thing you had is gone
As you can see
That's what you get for lovin' me 
I ain't the kind to hang around
With any new love that I found
'Cause movin' is my stock in trade
I'm movin' on
I won't think of you when I'm gone. 

trulz4lulz's picture

What happened to the $5 billion that the US spent destabilizing it?

Oh thats gone long gone. Obombya will eat Yellins puss puss though and get a quick payday loan soon.

lasvegaspersona's picture

and Merle Haggard can thank Gordon Lightfoot for that one...

grunk's picture

Obama doesn't want you to use coal, so it's for your own good.

ShrNfr's picture

"Key industry sources say they will potentially run out of coal in less than three weeks." But Al Gorge and Steyer assure me that this is a good thing for the planet.

Joe Tierney's picture

It's ok - the euros and the U.S. are drowning in cash, so U-Crane will have all the rebuild money they need.

Jack Burton's picture

"soldiers transferred to Trans-Carpathia to put an end to seperatist desires there." "1,200 soldiers are being sent today."

This news just came across on a very reliable Canadian Twitter Feed. It caught my attention because just two days ago the same Twitter account linked a video speech given by Russian Speaking and Hungarian Speaking representitives of the local government there. In the dual language speech. it was made clear that this Trans-Carpathian region of Ukraine would no longer send it's young men to Kiev's military draft call up. Mentioning that 100 local boys are already listed as killed in combat, with Kiev demanding 80,000 local young men report for the war!

They went on to declare Kiev a fascist state with no right to rule, and that as of two days ago, Trans-Carpathia will NOT accept dictates or secret police attacks from Kiev.

In the 10 minute speech, The Russian and Hungarin ethincs vowed that they had lived in peace for 1,000 years and would unite together to fight the Kiev Fascist EU coup government.

Anyone expecting Ukraine to settle down, is not following events! Now Kiev has reacted sending armed Army units to attack the people in Trans-Carpathia. A second front is now opened!

The USA and EU will condem the people of Trans-Carpathia as terrorists and aid Kiev in killing them. My thought's on this. Is fuck the EU and Fuck Obama and his Washington DC Neocon murder gangs.

ebworthen's picture

Good catch Jack, and on the South-Western flank of Ukraine:

Mercedes's picture

Seriously?  You quote a 2009 article that acknowldges that Ruthenians exist?  Ruthenians / Rusyns are well assimulated and have zero interest these days in their own state.  Another example of crazy pro-Russian B.S. on ZH!

Latina Lover's picture

Don't you have a bridge to hide under? Did the Ukie army blow up your home?


The Ruthenians want their own state, because their language is distinct and the Ukie economy is literally imploding.


Mercedes's picture

They know full well that their small state would not be viable.  My Rusyn relatives are happy in Slovakia, thank-you very much.  I saw no evidence of any interest in sepatration when I was recently in Uzhhorrod.  Go ahead, keep on making up stuff.

Latina Lover's picture

Their small state would be much more viable trading with local neighbors than subject to one of the 10 worst performing economies in the world, or having their sons  sent to die in battles to make USSA controlled Oligarchs richer.

I'll bet YOU won't be sending your children to die in novorossiya, so why should they?