Monday, May 3, 2010

Russia, Ukraine, Natural Gas, and the Black Sea Fleet

This is a guest post from our IISS-US intern, Madeleine Foley, talking about the recent agreement between Russia and Ukraine on gas transit and Crimean Naval Bases.  As Europe continues to rely on Russian Gas to meet its climate targets, this will continue to remain an important focal area for climate and energy security. 

On 21 April, Ukrainian-Russian relations took an uncharacteristically pragmatic turn with the signing of two loosely linked agreements that, together, have become known as the gas-for-fleet deal. The first of the agreements, signed in Kharkiv, Ukraine by Russian President Dimitri Medvedev and Ukrainian President Viktor Yanukovich, extends Russia’s lease of one of its oldest and most politically important naval installations, the Black Sea Fleet, at Sevastopol in the Crimean Sea for 25 years until 2042. The symbolic value of the Black Sea Fleet (see picture) to Russians is important because maintaining an installation in Ukraine is a nod to Russia’s presence in Ukraine, going back to Catherine the Great's 18th Century wars to gain access to a warm water port on the Black Sea. It is also an acknowledgment of Russia’s sense of propriety over the large Russian population in Eastern Ukraine. The material value of the lease extension is questionable, however, when compared to what Russia offered Ukraine in exchange.

In return for the lease extension, the second agreement established what amounts to a $40 billion discount on natural gas over 10 years. Ukraine’s role as a bridge and energy transit route between Europe and Russia put it in a precarious, but critical position over the last decade. The Timoshenko-Putin years were characterized by tense relations between Ukraine and Russia. Ukraine’s perceived abandonment of their long standing ally to the east in favor of deeper economic, political and ideological ties with the European Union provoked Russia to end a long standing gas subsidy to Ukraine, quadrupling the price from $50 to $230 per 1000 cubic meters last year.

In a press conference following the signing on April 21st, the two Presidents framed the agreement as a first step in repairing their very important relations. Ukraine will free up $40 billion for public spending over the next 10 years and Russia will maintain its presence in the Black Sea and be able to conduct business through Ukraine with fewer restrictions. Moreover, the boost that the Ukrainian economy will receive from Russia’s $40 billion investment will make it eligible for additional IMF loans for the first time since its $16 million loan in 2008.

Opposition to the deal has been fierce throughout Ukraine, however. Upon adoption of the agreement in the Ukrainian Rada this week, a brawl broke out between nationalists and proponents of the deal complete with eggs, head locks and smoke bombs. Similarly fervent displays of the democratic process were noticeably absent in the Russian Duma, where the agreement was adopted without issue.

Domestic politics aside, the Ukrainian opposition seems to be suffering from a vacuum of self-awareness. By attempting to shirk off its responsibility as a ‘bridge’ between the EU and Russia, it is making itself less valuable and less attractive to its Western friends and allies. Ukraine’s role as a political, economic and physical bridge between the EU and Russia is not a temporary charge, it is a geostrategic reality. Until it learns to grow legs, pick itself up and plop itself down somewhere between Denmark and Germany, Ukraine should get used to playing the role of mediator. This latest agreement is less a sign of President Yanukovich’s willingness to drag Ukraine kicking and screaming into the arms of Mother Russia than an indication that he recognizes Ukraine’s unique geostrategic limitations. The Ukrainian opposition should recognize the potential benefits of Russia’s willingness to pay so handsomely for continued recognition of its political and historical legacy in Ukraine.

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