Ukraine 101:

• Ukraine's central bank is to ask the Auditing Chamber of Ukraine to delist the local unit of PwC, a move that would effectively strip the global accounting firm of the ability to audit companies in Ukraine. The move on July 24 comes days after the central bank withdrew PwC's right to audit Ukrainian banks, as punishment for what the central bank says was PwC's failure to flag risky lending practices at the country's largest lender, PrivatBank.  PwC audited PrivatBank, which Ukraine took over in December after finding a capital shortfall of more than $5.5 billion. The central bank estimated that 97% of PrivatBank's corporate loans had gone to companies linked to its shareholders, who include tycoon Ihor Kolomoisky, Ukraine's second-richest man according to Forbes magazine. Government spending to shore up PrivatBank recently reached 5% of Ukraine's gross domestic product, according to the National Bank. (Reuters, 07.24.17, Wall Street Journal, 07.21.17)

West’s leverage over Russia:

• The White House has indicated that President Donald Trump would sign a sweeping Russia sanctions measure that requires him to get Congress’ permission before lifting or easing the economic penalties against Moscow. The House of Representatives was scheduled to consider the sanctions package as early as July 25, and the bill could be sent to Trump before Congress breaks for the August recess. The legislation is aimed at punishing Moscow for meddling in the 2016 presidential election and its military aggression in Ukraine and Syria. According to the bill, Trump is required to send Congress a report explaining why he wants to suspend or terminate a particular set of sanctions. Lawmakers would then have 30 days to decide whether to allow the move or reject it. (AP, 07.24.17)
  • The bill, if passed and signed into law, would restrict U.S. firms from partnering with sanctioned Russian firms on projects in which those Russians owned at least a 33% stake. (The Washington Post, 07.24.17)
  • The Kremlin said on July 24 it was worried that proposed new U.S. sanctions against Moscow could hurt major investment projects with European partners, but said it was premature to say if and how it would retaliate. (Reuters, 07.24.17)
  • The European Commission is concerned about new U.S. sanctions on Russia that could impact Europe's energy security and has activated "all diplomatic channels" to resolve the issue. For Brussels, the potential ramifications are far more than economic. An internal commission note, prepared for a July 26 meeting and seen by the Financial Times, warns of “serious risks of detrimental political spillovers.” (Reuters, 07.24.17, Financial Times, 07.24.17)
• A European Union court on July 21 lifted an interim ban that prevented Gazprom from exporting higher amounts of natural gas through the Baltic Sea, just as the Russian energy giant seeks to double capacity on the route—a move that is dividing the EU and threatens a major source of Ukraine's revenue. (Wall Street Journal, 07.21.17)

Russia’s leverage over West:

• No significant developments.

Russia’s leverage over Ukraine:

• No significant developments.

Casualties and costs for Russia, West and Ukraine:

• Ukrainian President Petro Poroshenko on July 21 blamed Russia for the recent deaths of eight Ukrainian soldiers in its eastern regions of Luhansk and Donetsk, where Moscow-backed separatists have intensified shelling of Ukrainian forces. Poroshenko called Russia "an aggressor country," and claimed that "11,000 Ukrainians were killed" in the ongoing military conflicts in Luhansk and Donetsk, where some districts have been controlled by pro-Russia separatists since April 2014. (RFE/RL, 07.21.17)
• Intensified fighting on July 19 to July 21 saw an uptick in casualties. From July 18 to July 25, a total of 16 Ukrainian soldiers were killed and 18 were wounded in action in the Donbas, the press center of the Anti-Terrorist Operation (ATO) headquarters has reported. The ATO headquarters also reports that from July 17 to July 23, 16 separatist fighters were hospitalized and 7 killed at Svitlodarska Duha bulge. (UNIAN, 07.24.17, 07.24.17, 07.21.17, 07.20.17, 07.19.17)
• The U.S. Treasury Department says it is slapping Exxon Mobil Corp. with a $2 million fine for violating Russia sanctions while Secretary of State Rex Tillerson was the oil company's CEO. (AP, 07.20.17)
• Germany’s flagship manufacturing firm Siemens has suspended cooperation with Russian state companies following reports that its electricity turbines were delivered to Crimea in violation of European Union sanctions. (The Moscow Times, 07.21.17)

Impact of Russia’s actions vis-à-vis Ukraine on other countries:

• In Eastern Europe this month, 45,000 troops from the U.S. and 23 other countries were staging war rehearsals for a Russian invasion. Eighteen exercises are underway this summer in the Black Sea region. U.S. military leaders do not expect an imminent invasion, but they understand why countries along the Russian border are jittery. These exercises should help them prepare to fight back if Russia threatens them, said Lt. Gen. Ben Hodges, commander of U.S. Army Europe, in a July 18 webcast from Bulgaria. (Real Clear Defense , 07.19.17)

Red lines and tripwires:

• No significant developments.

Factors and scenarios that could cause resumption of large-scale hostilities or lead to accident between Western and Russian forces in Europe:

• Kurt Volker, the new U.S. special envoy for Ukraine peace negotiations, said he was stunned by the number of cease-fire violations in the ex-Soviet nation’s war-torn east after making his first visit to the region. (RFE/RL, 07.24.17)

Arming and training of Ukrainian forces by Western countries:

• U.S. special envoy to Ukraine Kurt Volker has told Current Time TV that the White House is considering providing "defensive arms" to Ukraine. Speaking in Paris on July 25, he said such a move would enable Ukraine to defend itself "if Russia were to take further steps against Ukrainian territory." (RFE/RL, 07.25.17)
• The naval piece of this summer’s U.S.-European combat rehearsal in the Black Sea region is called Sea Breeze, co-hosted by the United States and Ukraine. Air, land, sea and amphibious forces from 17 nations will simulate maritime interdiction operations, air defense, anti-submarine warfare, damage control tactics, search and rescue and amphibious warfare. (Real Clear Defense, 07.19.17)

Strategies and actions recommended:

• In his new Brookings Marshall Paper, Brookings senior fellow Michael O’Hanlon argues that now is the time for Western nations to negotiate a new security architecture for neutral countries in Eastern Europe to stabilize the region and reduce the risks of war with Russia. He believes NATO expansion has gone far enough. The core concept of this new security architecture would be one of permanent neutrality. (Brookings Institute, Summer 2017)
• Andrew Foxall, director of the Russia Studies Centre at The Henry Jackson Society, writes: “NATO’s recent reassurance measures are necessary to enhance deterrence of Russian military adventurism in Eastern Europe, but they should be supplemented with robust measures to mitigate the risks should an incident occur as a result of Russia’s aggressions near the alliance’s skies. These measures could include increased military-to-military communication and greater public and private messaging, as well additional diplomatic and economic incentives.” (The National Interest, 07.23.17)
• Katrina vanden Heuvel, editor of The Nation, writes: “As U.S.-Russian relations have deteriorated, the risk of a nuclear catastrophe, including the danger posed by a nuclear-armed North Korea, has risen to its highest level since the end of the Cold War. Given these significant threats, the escalation of tensions with Russia, rather than de-escalation, serves neither the national interest nor our national security.” (The Washington Post, 07.18.17)

Analysis:

• Dmitri Trenin, director of the Carnegie Moscow Center, writes: “Clearly, implementing Minsk would have led Ukrainian leaders to commit political suicide. It would be impossible for Ukrainian leadership—simultaneously egged-on and challenged by nationalists—to abandon the idea of acceding to the U.S.-led Atlantic alliance; transform a unitary Ukraine into a federation, some of whose members might look to Russia; exonerate those whom Kiev called terrorists and welcome them all the way to the Verkhovna Rada (parliament); allow Donbas to become a focal point of opposition to the post-Maidan authorities; and finally, be responsible for pensions and other social transfers to Donbas with its population largely disloyal to Kiev.” (Carnegie Moscow Center, 07.20.17)

Other important news:

• The German government says Germany, France, Russia and Ukraine have agreed on a number of "immediate measures" to push forward with a peace deal brokered in 2015 to end the bloody fighting in eastern Ukraine. The government in Berlin said late on July 24 that the so-called Normandy Group called for the immediate halt to all violations of the cease-fire in eastern Ukraine, where Russia-backed separatists are fighting forces of the central government in Kiev. A statement after a two-hour phone conversation between the leaders of the four countries said separating Ukrainian troops and Russia-aligned fighters and the withdrawal of heavy weapons are also priorities. Earlier, a round of talks aimed at fostering implementation of a cease-fire and peace deal for the conflict in eastern Ukraine was held in Minsk, Belarus. OSCE Ambassador Martin Sajdik said that there had been some progress in implementing aspects of the 2015 Minsk accords, in particular on prisoner exchanges between Russia-backed separatists and Ukrainian government forces. (RFE/RL, 07.24.17, RFE/RL, 07.19.17)
• U.S. President Donald Trump in a tweet on July 25 said that Ukraine attempted to sabotage his 2016 election campaign in favor of Democratic candidate Hillary Clinton. “Ukrainian efforts to sabotage Trump campaign – ‘quietly working to boost Clinton.’ So where is the investigation A.G.,” Trump wrote. The Ukrainian embassy in Washington denied the accusations. (CNBC, 07.25.17, Ukrinform, 07.25.17)
• Separatists in eastern Ukraine claimed July 18 to have founded a new country—Malorossiya, meaning "Little Russia" in English—that they hope will eventually overtake Ukraine. “Overall, the whole hype regarding the declaration of the state of Malorossiya is useful,” said Vladislav Surkov, Russian President Vladimir Putin’s point man for Ukraine issues in talks with the U.S. (Financial Times, 07.22.17, The Washington Post, 07.19.17)