Ukraine Vs. Russia

It has been more than a month since the UKR army began to make military inroads against the
separatist rebels in the east. I have kept on eye on this because the UKR forces have been
operating close to the Russian border in an effort to interdict or shut down supply lines to the
rebels from Russia. The catastrophic downing of MH 17 drew attention away from the ongoing
campaign, but UKR military progress has been a surprise to many and it has in turn prompted
Russia to put up to a dozen fully outfitted infantry battalions along the border in the contested
area. Now Russia may only have been drawing the UKR forces in close to have the option
to conduct a cross -border combat operation that does not strain logistics and also wears down
the UKR military.

The Ukraine economy is still suffering and Kiev is become more unsettled politically. On the
other hand, Russia is experiencing a little economic rebound after businesses there over-
estimated the negative effects of sanctions imposed to date upon demand. Exports remain
understandably weak, but Russian authorities are not under immediate pressure to escalate
military activity to keep the populace distracted from observing the continuing failure of
economic policy to curb the deterioration of the Russian economy.

The situation could turn more serious if the UKR military keeps progressing in breaking up
the separatists' hold in the east and is able to seal off more of the border.This would raise the
cost of an eventual Russian incursion into the Ukraine considerably and it may lead Putin
to exercise the option of limited invasion to force the UKR military back.

It is hard to say how much the action in eastern Ukraine has bothered the major markets in
the weeks since the UKR military began offensive operations. But now that Russia has
moved fully combat ready units to the border, and is preparing its own sanctions program
against the West, the situation may command a little bit more attention.