Friday, December 30, 2005

Chilly in Ukraine

Things are getting hot in the Ukraine. Or rather, they're about to get very cold:
Russian authorities refused to ease their tough stance in a politically charged dispute with Ukraine over gas prices Friday, issuing a stern new threat to halt supplies to its neighbor on New Year's Day and criticizing Kiev's call for more time reach a deal.
Last year Russian President Vladimir Putin, who supported Viktor Yanukvych, was embarrassed by Viktor Yushchenko's victorious Orange Revolution. Yushchenko enjoyed widespread Western support, pushing for economic and media liberalization and for Ukrainian membership in NATO. The Kremlin backed Yanukvych who has close ties to the Russian government. After three elections and a bout with dioxin that malformed the previously handsome prime minister, Yushchenko was declared Ukraine's new President.

Putin has come under increasing fire for nationalizing Russian industries, clamping down on free media and jailing journalists, and most saliently for essentially throwing out foreign NGOs. Russia is once again breaking from the West, and is determined to take the old Orthodox Soviet states with it (Ukraine's 48 million people are just over half Christian Orthodox with slightly less than half being Protestant, Catholic, or Jewish). As the 2004 election showed, Ukraine is pretty evenly split, with the country's western half supporting liberal reform and the east half backing closer relations with Russia. Yushchenko, of course, represents the former.

In response to Ukraine's slide westward, Russia's state-owned Gazprom is letting the country know that if it likes Europe more, so be it:
Russian authorities are demanding that Ukraine pay $230 -- more than four times the current price of $50 -- per 1,000 cubic meters of gas. Ukraine wants a more gradual increase that would bring what it pays closer to world prices and says $75 to $80 is a fair price for now. The price Russia wants Ukraine to pay is far higher than it is charging other former Soviet republics, even those that are seeking, like Ukraine, to shake off Russian influence and integrate with the West.
Instead, the price is in line with what Gazprom charges most of Europe. If that isn't enough, Russia recently signed a deal with nearby Turkmenistan (as well as with Kazahkstan and Uzbekistan) to purchase gas from Turkmenistan to limit available supply to Ukraine, which gets a third of its natural gas from Russia and 45% from Turkmenistan.

Yushchenko's administration has had a rough year, suffering allegations of corruption and internal bickering. Economic growth, which has been stellar for the last half decade is teetering and such a shock in the dead of winter could be devastating.

There are parliamentary elections coming up in March. Russia is timing this to hurt Yushchenko's block at the polls with the ultimate goal of putting him out of power and someone with an affinity for the Kremlin back in.

The Clash of Civilizations is upon us. Russia, who will get the rotating G8 leadership position in 2006, is asserting itself as a major player in the heart of Eurasia, distinct from the Sinic East and liberal West. It wants to exert its influence on its cultural brethren in the Balkans and other former states of the Soviet Union, and economic coercion is one way to do it.

Of course, Russia has its share of problems. It's enormous natural resource base remains underdeveloped yet still comprises 80% of the country's economy leaving the country vulnerable to abrupt price swings, its fertility rate is well below replenishment at 1.27 births per woman, and rampant alcoholism and disease contribute to an average life expectancy of only 67 years (among the lowest in the world outside of Africa).

Currently, Yushshenko is flouting Gazprom's demands by threatening to restrict use of the gas lines that run through eastern Ukraine. If the winds shift in favor of those close to Russia, it is likely that the Kremlin will bring back the substantially discounted prices it gives to other former Soviet states. This is what Putin is hoping will happen.

If fissure becomes realistic, the West should back western Ukraine in splitting with the east. The gas pipelines, however, make this seem farfetched.


1 comment:

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