Poroshenko said he had “granted a request by Ihor Kolomoysky” to be relieved as governor of Dnipropetrovsk, in what appeared to be a face-saving gesture after an explosive row between them over one of the country’s most important companies.

The row erupted after Poroshenko passed a new law allowing the state to take back its rights as majority owner of oil refiner Ukrnafta. State officials trying to enter Ukrnafta’s offices after the bill passed were blocked by Kolomoysky’s armed security guards, leading the president to warn that he wouldn’t tolerate any ‘pocket armies’.

The bill could redress a number of scandals where state-owned companies have been manipulated by well-connected tycoons over the years. Poroshenko’s supporters say it will tame the oligarchs and reduce corruption. Kolomoysky’s supporters say it will just be used to benefit other private interests.

Kolomoysky is a uniquely important and highly controversial figure in the fissile politics of Ukraine, being owner of the country’s largest bank, Privat, and of an influential TV channel. He lent crucial support first to the Orange Revolution in 2005 and then to Poroshenko in the aftermath of the ousting of Viktor Yanukovych last year.

Poroshenko parachuted him into the governorship of Dnipropetrovsk last year in order to stabilize the situation after Russia annexed Crimea and sponsored revolts by separatists in the country’s industrial heartland in the east. He is believed to have bankrolled at least one battalion of militia fighting the separatists and their Russian backers out of his personal fortune.

Facing defeat on the battlefield, and a severe economic crisis, Poroshenko has to strike a balance between keeping the most powerful tycoons loyal, and carrying out the kind of reforms that the International Monetary Fund and others are insisting on in return for bailing it out. Those reforms center on reducing corruption and improving the judicial system–two issues that have plagued Ukraine since its independence from the Soviet Union, and which were also the key demands of the protesters who ousted Yanukovych.

Lawmakers such as Mustafa Nayyem, who supported Poroshenko’s bill, say it could prove a watershed moment.

“In reality, after the dismissal of Ihor Kolomoysky, the president, government and parliament have no option but to declare war on all the remaining oligarchs,” Nayyem said in a blog post.

However, he warned that “it’s clear that the former governor’s team isn’t prepared to simply surrender,” saying that he expected Kolomoysky to undermine Poroshenko and press for new elections.

Any sign of division within Ukraine’s ranks may also encourage the Russian-backed rebels to abandon a shaky ceasefire that has held since last month, and launch more opportunistic attacks. Sergey Markov, head of a Kremlin-sponsored working group on international diplomacy, said on his Facebook account Monday that Novorossiya (the Russian term for the separatist regions) must have a plan for the contingency of a sharp weakening of the junta.”

“This plan has to include rapid attacks by the armies of Novorossiya” on territories that have so far stayed loyal to Kyiv, including the port city of Mariupol, Ukraine’s second city Kharkiv, and Odessa.

Pro-Russian sentiment in Odessa and Kharkov has tended to be strong in the past, but forces loyal to Kyiv kept the upper hand there last year in violent clashes that, at their worst, saw dozens of pro-Russian demonstrators killed. Kharkov, meanwhile, has been the site of a string of terrorist attacks recently that the authorities say are attempts to destabilize the situation there.

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