Ukraine: More Than Gas at Stake

"Russia shoots itself in the foot" was the headline of a New York Times editorial on the 48-hour cutoff of natural gas to Ukraine, which also had an adverse impact on European natural gas supplies, most of which go through Ukraine on their way from Russia to European customers. The editorial lamented that the cutoff undermined Russia’s credibility as a reliable energy supplier to Europe, which was "not a great start for Mr. Putin’s turn at the head of the Group of 8, especially since energy security was to be his theme song.

But what if Russia’s interest was not in being seen as a reliable energy supplier at all, but as a potentially unreliable supplier – or at least a supplier willing to cut off energy supplies to make a geopolitical point? What if the action was designed not so much to punish Ukraine but to pressure European countries into taking what Russian leaders still consider Russia’s legitimate interests in Ukraine into consideration in the future? If that was the purpose, Russia’s move on natural gas suppliers could be seen as a remarkable success – though we won’t know for sure until we see how Europeans act in the future.

The United States has some interest in the outcome, as principal cheerleader for Ukraine’s recent "Orange Revolution," which installed the nominally pro-Western Viktor Yushchenko as president of Ukraine. Yushchenko faces parliamentary elections in March and his popularity has been declining as the people notice (as is the case with most politicians) that he hasn’t delivered on promises. For geopolitical and bargaining on other issues reasons, the United States would like to shore him up, increasing his independence from Russia. But it has few bargaining chips.

POLITICAL ENERGY

The dispute between Russia and Ukraine over natural gas arises from arrangements designed by Moscow to influence the outcome of Ukraine’s 2004 presidential elections. Russia agreed to supply Ukraine natural gas at $50 per 1,000 cubic meters. Russia charges central and western European customers $230 for the same amount of gas, and (given that most of the entities involved are mostly state-owned and therefore not real market players) that’s probably close to a market price. The $50 price amounted to a huge subsidy, quite possibly, some commentators think, actually below the cost of extraction and transportation.

As things worked out, whether any or all of it was above-boards and handled according to scrupulously honest electoral procedures, while Russia’s candidate, Viktor Yanukovich, won the first contested election, Moscow’s nemesis, Yushchenko, came out ahead in the second contested election and actually assumed office. Continuing subsidies to that ungrateful (from Moscow’s perspective) country no longer seemed appropriate. So Russia’s natural gas monopoly (51 percent owned by the state) demanded that Ukraine start paying $230 per 1,000 cubic meters. When negotiations broke down, Russia reduced the pressure in the gas pipelines, theoretically just enough to supply European customers. Ukraine probably bled some of that off, and European customers soon were complaining about reduced supplies and wondering if their reserves would be sufficient.

After a couple of days a new deal was worked out. Natural gas for the five years of the contract will be a mix of Russian gas and gas from the central Asian states of Turkmenistan, Uzbekistan and Kazakhstan, with the mix priced at $95 per 1,000 cubic meters. To maintain face, gas that actually came from Russia’s Gazprom would be priced at $230.

From a strictly economic, commercial standpoint, it seemed like not a bad deal for all parties. Ukraine, which had to know it wasn’t going to get gas at $50 forever, had the price "only" double rather than increase almost fivefold. The Central Asians, who had previously been able to sell only in Russia’s highly subsidized market at cut-rate prices, acquired another customer at somewhat higher prices. European gas supplies have been reestablished, and talk about going after alternative sources is likely to subside.

STRATEGIC MANEUVERING

But the geopolitical implications. As Peter Zeihan wrote in recent analysis for stratfor.com, Russia’s real purposes were not commercial but geostrategic. Russian leaders see Ukraine as essential to maintaining Russia’s political power and perhaps even to maintaining the state itself:

"Viewed from any angle, Ukraine is critical to the long-term defense and survival of the Russian state. This is not about ethnic kin, although eastern Ukraine does host the largest Russian community in the world outside of Russia. Even before the Soviet era, Ukraine was integrated into the industrial and agricultural heartland of Russia; today, it is not only the transit point for Russian natural gas to Europe, but actually is a connecting point for nearly all the country’s meaningful infrastructure between East and West – whether of the pipe, road, power or rail variety.

"Politically and militarily, a Russia denied Ukraine cannot easily project power into the Northern Caucasus. Nor could Moscow reliably exert control over Belarus, since that country’s primary water transport route, the Dnieper, flows south to Ukraine, and it is nearly as well linked into Poland and the Baltics as it is to Russia proper. That geographic reality means that, should anything happen to the government of pro-Russian President Alexander Lukashenko, Minsk’s geopolitical orientation could quite easily shift to match Ukraine’s."

It doesn’t seem likely in the near future that European armies will march on Russia as they have in recent centuries. But the possibility is ever in the back of many Russian minds. But Ukraine is not only a buffer against possible invasion. It is Russia’s most significant link not only to Europe but to the Caucasus (where there’s an insurgency) and a key to control over Belarus. Most Russians believe that if Ukraine is in the Russian orbit Russia has a chance of someday regaining superpower status, and that without it Russia’s status even as a regional power is tenuous.

A great deal of rhetorical and quite a bit of more concrete backing for Ukraine’s Orange Revolution that installed Viktor Yushchenko came from the United States. Backing Ukraine right up until December 31 was a low-risk-high-reward tactic for the U.S., which gets not a droplet of natural gas from Russia. Most of Europe has essentially been an observer, pleased in a general way that Ukraine seemed to be westernizing but not putting a lot of resources into backing the new Ukrainian regime.

As Peter Zeihan puts it, however, "When natural gas supplies dropped on Jan. 1, Europeans were left wondering exactly what it was that they were supposed to get out of this revolution that the Americans were so excited about."

The Russian hope, apparently, is that Europe will take Russian concerns about Ukraine more seriously. That’s likely to happen. Thus a wedge will be driven not only between Europe and Ukraine’s new regime, but between Europe and the United States. And there is little in the way of effective counter-pressure the United States is in a position to apply.

The U.S. is certainly unlikely to try to activate NATO on Ukraine’s behalf; NATO is in any case working these days to persuade Russia that an expanded NATO is not threat at all. It doesn’t have troops available, but using them would be remarkably obtuse even if it did. Although he might criticize here and there, President Bush does not want to antagonize Russia or Vladimir Putin. The U.S. is certainly not in a position to ensure natural gas supplies to Europe – Iran is the only likely alternative supplier – if Russia should cut them off or reduce them.

So Russia, under recently-appointed first deputy prime minister Dimitry Medvedev (who doubles as chairman of Gazprom, a cozy coincidence), has pulled off what looks to be a shrewd geopolitical maneuver that bolsters its chances to survive and perhaps even to increase its regional influence. That doesn’t make it likely to regain superpower status anytime soon if ever, or anything resembling a real threat to the United States. But it’s capable of influencing events at the margin, even if the wedge between Europe and the United States over Ukrainian natural gas is only a thin one just now, and seems determined to maintain or improve its status as a regional power.

Read more by Alan Bock

Author: Alan Bock

Get Alan Bock’s Waiting
to Inhale: The Politics of Medical Marijuana
(Seven Locks Press, 2000).

Alan Bock is senior essayist at the Orange
County Register
. He is the author of Ambush
at Ruby Ridge
(Putnam-Berkley, 1995).