May 23, 2010

Tilting Toward Russia?

Published: May 20, 2010
Dmitri Medvedev managed to get half-way through his presidency without ever visiting Kiev. That was before Viktor Yanukovich replaced the Kremlin's bête noire, Viktor Yushchenko, as Ukrainian president in February. Since then, high-level meetings have taken place almost weekly, culminating in Mr. Medvedev's state visit to Kiev this week. Mr. Medvedev has even taken to advertising his part-Ukrainian grandmother from Belgorod.
Mr. Yanukovich has now signed a huge number of agreements with Russia, most notably the deal to swap an extra 25 years for the Russian Black Sea Fleet in Crimea for a 30 percent reduction in the price of gas. Ukraine has also agreed to big deals on cooperation in the nuclear industry and in aviation, a 10-year economic cooperation plan, and common positions on Transnistria and security in the Black Sea region that have disturbed neighbors like Moldova and Georgia. And Mr. Yanukovich has backed Mr. Medvedev's pet European Security Initiative and its goal to "eliminate the dangerous dividing lines that have appeared in the European region over the past decade."

A recently leaked strategy paper written by Russia's foreign minister, Sergei Lavrov, defines Russia's overall aim as nothing less than "to actively draw Ukraine into an orbit of economic cooperation with Russia."

This new Ukrainian foreign policyis something of a mystery. Even some old hands are wondering why Ukraine is huddling so close to Russia, and why it has conceded so much so quickly.

Four possible explanations suggest themselves.

One is that Ukraine is still in economic trouble and the rapprochement with Russia is all about cheap gas. The gas discount obviated the need for harsh spending cuts, and Kiev thinks a budget deficit under 6 percent of gross domestic product will bring the International Monetary Fund back to the table. Standard & Poor's has upgraded Ukraine's credit rating from B- to B.

In the short term, the gas deal is also the one thing that pleases both competing wings of Mr. Yanukovich's Party of the Regions. The Dmitry Firtash group runs several chemical plants; Rinat Akhmetov's main business is steel. Together, they consume almost half of all Ukraine's gas imports.

However, the I.M.F. is well-aware that hard choices and fiscal retrenchment have been postponed, possibly only for a matter of months. Moreover, Ukraine is still paying $230 per 1,000 cubic meters for gas — the price may have fallen, but only to levels common elsewhere in Europe.

So if economic trouble is the explanation, Russia cannot bail out the whole economy. Ukraine will come back to the Western table soon enough. The European Union in particular should reiterate that the deal that Ukraine signed but never implemented in 2009, promising substantial Western investment if Ukraine reformed its gas sector, can still be revived.

The second possibility is that Mr. Yanukovich's priority is to strengthen himself internally. Playing closer to Russia makes this easier, as Russia is not likely to object to recent moves to chip away at media freedom and pack the judiciary. But a stronger Yanukovich might be a more prickly partner in the long run — not just for the West but for Russia as well. If this is the case, the West should avoid giving the impression that it is so fed up with the years of chaotic "Orange" government that it will allow Mr. Yanukovich to undercut freedoms won by the Orange Revolution in 2004 in the name of restoring "stability."

The third possible explanation is corruption. Local elites are quick learners. The main current scam involves Ukraine's internal gas distributors buying cheaper "gas for households" and selling it to higher-paying industrial customers. The cut in the overall Russian gas supply price reduces the pressure from the European Union for market pricing across the board, which would close these gaps.

But the world is paying more attention since the gas crisis in January 2009. And some of Ukraine's oligarchs may split from Mr. Yanukovich soon enough if the "gas lobby" gains too much power in the new government. The Ukrainian oligarchs are also interested in concessions from the Russian side, such as opening up access to Central Asian gas.

The fourth possibility is that Ukraine shares some of Russia's analysis of rapidly changing world events. Mr. Yanukovich's team may also think that the United States is preoccupied with other things, and that the E.U. is in long-term decline and is too busy with the euro crisis in the short-term to pay much attention to Eastern Europe. Ukraine might also believe that the global economic crisis will replace flat "globalization" with lumpy "regionalization," and Ukraine should throw in its lot with Russia as it seeks to consolidate "its" region.

If that is the case, encouraging the Ukrainian pendulum to swing Westward again will be much harder this time.

Andrew Wilson is a senior policy fellow at the European Council on Foreign Relations and the author of "The Ukrainians: Unexpected Nation."