Trade War Drives Fresh Wedge between Ukraine and Rebels

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It was always an uncomfortable paradox for Ukraine's warring sides: while Kiev and Russian-backed rebels battled each other for nearly three years, trade kept flowing across the frontline.

Now even those tenuous links have finally ruptured after Ukraine's leader Petro Poroshenko ordered a halt to all goods deliveries to the eastern separatist regions, ramping up tensions in the festering conflict. 

The move was a last resort for Kiev, as coal from their former industrial heartland remains a key energy source and authorities are reluctant to sever the few threads binding the insurgent fiefdoms to Ukraine. 

But Poroshenko's hand was forced after irate nationalist protesters imposed their own trade blockade and the rebels responded by seizing Ukrainian enterprises on their turf and stopping supplies to government areas.

"Thanks to the joint efforts of those behind the blockade and the terrorists, Ukraine lost its businesses and this created a whole new reality," Poroshenko told security chiefs on Wednesday.  

"The decision that we have had to take is not an easy one."

The sudden collapse in trade ties between the two sides has sparked fears among Kiev's Western allies that it will now be even harder to make peace in Ukraine, with a European-brokered plan to end the conflict long stalled. 

EU ambassador Hugues Mingarelli said that Poroshenko's decision "is not going in this direction" towards reconciliation. 

The Kremlin -- which Ukraine and the West see as the puppetmaster of the rebellion -- blasted Kiev for trying to wreck the peace deal.

"Such actions aimed at cutting off whole regions of the country will lead to a further escalation of tensions," spokesman Dmitry Peskov said. 

- 'Not going anywhere' -

Poroshenko's nationalist opponents hailed his decision as a victory after they forced him into a corner by maintaining their own blockade of rail and road links since January.  

"We welcome the decision by the president," Sergiy Akimovich, one of the blockade leaders, told AFP.

"But we are not going anywhere yet and will carry on."

Kiev resisted using force to shift the protesting military veterans and nationalist politicians despite it disrupting vital fuel supplies and drawing ire from both Kiev and the rebels.

This week they dispatched police to break up the demos but after the operation turned violent, protests broke out elsewhere around the country and Poroshenko backed off, accusing his opponents of wanting to stir bloodshed.

But it wasn't just the protesters that pushed Kiev to act. 

While the authorities were struggling with the blockade, the rebels on the other side were taking their own unilateral measures in response. 

As work at major enterprises on their territory ground to a halt, they began seizing control of dozens of Ukrainian-owned firms still operating there.

Poroshenko said the takeovers -- which mainly targeted the businesses of Ukraine's richest man Rinat Akhmetov -- have cost the country "billions of dollars."

For some observers, that meant Kiev no longer had the incentive to maintain trade ties. 

"While Ukraine could collect taxes and foreign currency earnings from the companies located in the rebel-held regions, it was worth protecting them," columnist Oleg Gavrysh wrote in Novoye Vremya magazine.

- Rebels look to Russia -

Across the de facto border in rebel-held territory, the separatist leadership has insisted that Ukraine's decision will not hit those living under their rule too hard. 

Insurgency chief Alexander Zakharchenko claimed on Friday that more than 84 percent of imports into the self-proclaimed Donetsk People's Republic already come from Russia.

Now they will look to bolster trade as well in the other direction to make up.

"There will be some difficulties on this path but the process is already started and is developing intensively," Zakharchenko said. 

At a market in the de facto rebel capital of Donetsk biscuit trader Igor, 22, told AFP that residents already rely mainly on Russian products. 

"In general we don't bring anything from Ukraine, most imports come from Russia," he said. 

"That means the blockade can be remedied -- people are like cockroaches, they can adjust to anything."