President Poroshenko’s appearance at the NATO Summit in Wales over the weekend came at a critical moment for the Ukrainian state.  With increasingly overt Russian backing, the separatists in the east of the country have made significant gains over the last two weeks, opening a new front along the Black Sea coast and threatening to take the strategic port city of Mariupol.   The ceasefire announced by Poroshenko on the first day of the summit, locks in those gains and is a tacit acknowledgement of the weakness of Ukraine’s military position.  Russian President Putin’s reported boast, in a phone call with European Commission President Jose Barroso, that Russian troops could be in Kiev within two weeks if he wanted, is emblematic of the current balance of forces in eastern Ukraine.

Despite strong communique language condemning Russian actions and pledging solidarity with Ukraine, the NATO Summit confirmed that the West’s response to the crisis in Ukraine will continue to be limited to economic measures.  The military measures announced by NATO leaders in Wales, including the adoption of a Readiness Action Plan, were designed to reassure newer member states that border Russia by signalling that the Allies take their collective security commitments to each other seriously. Ukraine is not a member of NATO and therefore is not covered by those commitments.

The spotlight now shifts back to EU and US sanctions.  EU member states agreed to a new set of “enhanced measures” before the NATO Summit but left themselves room not to put those measures into force if there was significant progress on the ground.  According to a joint letter released by Barroso and President of the European Council Herman Van Rompuy on September 5, the measures relate to “access to capital markets, defence, dual use goods and sensitive technologies” and build on an initial set of sectoral sanctions adopted by the EU at the end of July.  In addition, a “new list of individuals” would be added to those subject to existing EU sanctions.

A decision on whether or not to implement the new measures is to be taken by EU member states by written procedure today.  With the ceasefire in eastern Ukraine in fragile condition, and no apparent sign that Russia is pulling back the equipment and personnel widely suspected to be assisting the separatists, it seems likely that the new EU measures will go into effect.  If that happens, a further round of US sanctions may follow in quick succession.  Russian Prime Minister Medvedev has already threatened an “asymmetrical response” to any new Western sanctions.  The business climate for western investors in Russia therefore looks set to become still more complicated over the coming weeks.