Sunday, January 01, 2006

Russian Gas Influence Part 1 - Ukraine

Since the early 90s the Soviet Union has gone through immense change. For one it is no more. Two three former countries are in the EU(Latvia Lithuania and Estonia). But some things do not change. It still seems that the Kremlin still want to maintain some control over the former members of the Union. Where during the Cold War it was the Red Army that kept every one in check now it seems Russia is trying to use economic forces to keep everyone in check. According to ZN in a closed session of the Russian Duma (Dail/Parliament) Russia Sergei Lavrov (Foreign Minister) promised to employ “all available means of economic pressure” on the “disobedient” neighbours. (Source Orange Ukraine Blog well worth a read.) How he defines disobedient neighbours is unclear but I doubt he is referring to recent oppression in Uzbekistan.

The old ways in Russia are not quiet gone. With the fall of the Soviet Union it seemed that it was possible that Russia would move to a free market, democratic country. With people like the First Prime Minster Yegor Gaidar calling for economic reforms. However now this is not the case. The media is mainly state controlled and the opposition is in taters. The progress towards a free market started in the 90s is going backwards. The government has pretty much nationalizing the energy industry. The government has a 51% stake in Gasprom the worlds largest gas company and company involved in the latest controversy. Recently Economic adviser Andrei Illarionov resigned stating “When I took the job, we spoke about conducting a liberal economic policy. Now, the state has evolved in quite the opposite direction,” He also has said that Russia has “Saudi Disease”. Which he says is Russia is using it energy supplies to pressure other states or in other words it is “a weapon”.

Russia has seen it influence weaken across the region. With the Baltic states joining the EU they have seen those states possibly lost for ever. They don’t want the Ukraine and Georgia going the same way. Parts of Georgia (Abkhazia and South Ossetia) have broken away and Russia is seeking that they join Russia. Also the on going bitter conflict in Chechnya shows that Russia does not want to cede anymore territory. It now holds the G8 presidency and with it moves in Iran over the Nuclear production it seems to be trying to excrete greater influence on the world stage. Its gas and oil reserves will form much of its power.

Russia is coming more closed. Recently the Russian-language radio broadcasts of the BBC and Deutsche Welle (DW) were taken of the air. Due to there reporting on the situation in Belarus. Sergei Yastrzhembsky Putin’s guy in charge of relations to the EU claimed that they were using “methods from the Cold War arsenal.” And they could not tolerate “interference in the affairs of a sovereign state”. This would hardly have been the happened if the BBC were reporting about Estonia so it must be seen as Russia trying to keep Belarus already a close ally free of any Orange Revolution type shenanigans.

That might explain why Russia has not hit Belarus with a gas price hike. On Tuesday Belarus and Russia agreed a $46.68 per 1,000 cubic meters price for the gas. While they wish to charge Ukraine $230. The Ukraine economy is in a poor state inflation is running at 13.9% (From The Economist) Certainly Ukraine is not in a situation where it can afford to pay the same price for gas as the rest of the EU can. The Ukraine imports 30% percent of its gas from Russia 45% from Turkmenistan and produces 23% of its needs itself. A deal with Turkmenistan has already been agreed. But the Turkmen gas flows via Russia. If the Ukraine decided to stop the Russian gas flowing to the EU market as punishment for increasing the price of gas. The Russia could also stop the Turkman gas. Victor Yushchenko, has described $80 as a fair price, But he said Gazprom was adjusting prices according to the customer —- $120 for the Baltic states, $110 for ex-Soviet Caucasus states and $47 for pro-Russian Belarus. “A price of $230 is unacceptable not because it is high, but because there are no economic grounds for it,” he said. If that is true then it is clear that this is not simply an issue of Gasprom wanting to get the market rate for its gas. If you go by Mr Yushchenko figures Gasprom are charging countries based on ability to pay with every other country save the Ukraine and Romania (Romanian pays US$280 which is higher the EU. I have no idea why)

So what is Russia hoping to obtain from this price hike. In March Ukraine goes to the polls. The country is basically spilt in 3 between the Pro Russian Mr Yanukovych and the Pro-Western Mr. Yushchenko and Ms Tymoshenko. Yushchenko and Tymoshenko were part of the Orange Revolution and they are now opposed (Yushchenko sacked Tymoshenko in September) with Tymoshenko claiming a betrayal of democratic ideals.

Yanukovych power base would suffer the most as is based in the heavily industrialized regions. Yet he has not sided with Yushchenko on this one. Either he doesn’t care about his electorate or maybe knows if he is elected Russia will drop the price on gas boasting the economy and cementing his leadership of the country. Sending a message to the people, that only a pro-Russian agenda can work in the Ukraine.

In the last election Yanukovych won 40% of the vote. So it would not take a lot more support for him to top the poll. This gas cut will hit Ukrainian industry hard in an already poor country. With Yushchenko’s year in power been dogged with errors it would probably finally topple him. The Kremlin’s hope may be that the economic degradation brought by the high gas price may result in Yanukovych being returned to power and Ukrainians desire to join the EU and NATO dashed for ever. Resulting in Ukraine returning to the Russian fold. I can’t see this happening .

The passion that the Orange Revolution brought will not be diminished. I used to share a flat with a Ukrainian and the pride he had about participating in the Orange Revolution is not the kind of passion that can be easily quailed. In fact this apparent undue influence on the Ukraine by Russia could in fact bolster anti-Russian sentiment in the country and make any prospect of the Ukraine returning to the Russian fold even more unlikely. While Yushchenko may not get the same support or even a majority as he got the last time. His party and Ms Tymoshenko break away party will be able to find enough common ground to create a coalition even if that common ground is just to keep Yanukovych out of power.

Russian Gas Influence Part 2 – European Union and Us


Anonymous said...

I think you've got a good point there at the end about antagonising 'the common Ukrainian' - making it less likely that the country will return to Russia's sphere of influence.

But the implication for the EU and other European countries would not have been overlooked and can't be unexpected. I think it's old dogs and old tricks but with new toys over in the Kremlin.

Anonymous said...

Here you go -

I think some of the subtext to comments regarding oil conflicts is that Ukraine and Russia are likely to face increasingly rough times ahead - but if the EU is also denied its gas, so could we.