Jamestown Foundation
www.jamestown.org
Eurasia Daily Monitor
Volume 3, Number 4
January 6, 2006
KREMLIN ENERGY POLICY IN UKRAINE: UNWIELDY COMBINATION OF STRATEGIC OBJECTIVES AND PRIVATE INTERESTS
By Igor Torbakov
The controversial deal that brought an end, at least for now, to the acrimonious gas dispute between Russia and Ukraine (see EDM, January 5) appears to reflect a contradictory mix of interests that shape Kremlin energy policies. While Russia failed to attain most of the strategic goals that provoked the spat in the first place, a group of powerful handlers managing Gazprom -- the country's state-run energy monopoly -- seems to have fared much better, some independent energy analysts contend.
A number of Russian experts enthusiastically hailed the gas compromise, billing it as Moscow's indisputable win. The Russian-Ukrainian agreement on gas supplies "is Russia's great victory," argues Ruslan Grinberg, director of the Institute of Economics at the Russian Academy of Sciences, adding, "Such an agreement has a big economic benefit." Grinberg and other like-minded commentators go out of their way to emphasize that "Gazprom's fundamental demand that there be a switch to objective market prices in gas transactions with Ukraine was met during the talks."
Other Russian experts believe, quite rightly, that there is no reason to feel too ecstatic about the gas deal. They note, in a rather reserved manner, that although Kyiv will be paying $95 per 1,000 cubic meters for imported gas instead of $230, as Gazprom demanded before reaching a final compromise, the terms of the new agreement are "definitely no worse" than those of the previous one, which, in the words of one commentary, were a "complete anachronism." The terms that used to define the energy relations between Russia and Ukraine prior to the Orange Revolution were only intended to be temporary: they were meant to further encourage the growing "geopolitical loyalty" of the Kuchma regime and create a favorable economic environment for the Russian companies operating in Ukraine. The emergence of the new Western-leaning Ukrainian government following the 2004 political upheaval clearly made the principles regulating the energy relations between the two Slavic neighbors obsolete.
But the end-result of the January 4 Russian-Ukrainian gas negotiations would seem even less significant if seen against the backdrop of what appears to be the goals pursued by the Kremlin within the framework of its new "grand strategy" in the post-Soviet lands.
In the course of the past year, Kremlin strategists arrived at two principal conclusions. First, the geopolitical trajectories of the Commonwealth of Independent States member countries have diverged to such an extent that the organization Russia aspires to lead exists just on paper. In fact, two political groupings have emerged in that territory -- a pro-Moscow one and a pro-Western one. Second, the Russian pundits seem to be convinced that the West, which they perceive as a true mastermind of the "color revolutions" in the post-Soviet Eurasia, will persist in its policy of "spreading democracy" that will inevitably lead to more countries being "torn out of Russia's ambit." To prevent the further erosion of Moscow's sphere of influence, the Kremlin opted for a policy shift. The essence of the new strategy is to convert Russia's economic clout in the post-Soviet space into political influence.
The Kremlin has made perfectly clear to its neighbors that those who choose a pro-Russian orientation will retain economic privileges, including subsidized energy supplies. By the same token, the countries that seek to integrate into Western structures should be prepared to pay "world-level prices" for imported Russian oil and gas and bear the potentially dire consequences of their geopolitical choice.
It is not an accident that Moscow chose Kyiv as the principal object of its "offensive," since Ukraine, for many Russian political thinkers and security analysts, "is critical to the long-term defense and survival of the Russian state."
However, Moscow's "gas attack" against Ukraine obviously failed to reach the main objectives. Russia did not succeed in splitting the Ukrainian population ahead of the country's parliamentary elections in March. It equally failed to force Kyiv to cede control over the national gas transportation system to Gazprom
The achieved result -- the relatively moderate revision of prices for the gas Russia supplies to Ukraine -- is too modest an outcome after the weeks of vitriolic anti-Ukrainian propaganda campaign waged by Moscow, personal involvement by Russian President Vladimir Putin, and, ultimately, the brief disruption of gas supplies to Russia's European customers.
Russia's national interests likely suffered a blow in this affair, a number of independent analysts suggest. But not the interests of several very influential Russian individuals associated with Gazprom. At the heart of the Russian-Ukrainian deal is the role of the shady intermediary, RosUkrEnergo, whose significance has been tremendously enhanced: under the terms of the agreement, the Swiss-based Gazprom joint venture will become the "exclusive distributor" for all gas imports to Ukraine. This company, like a number of its predecessors, has been created with the sole purpose of skimming off profits from Gazprom. As one knowledgeable Moscow source notes, it is a "more or less private business" operating in the interests of the Gazprom senior management and in those of the Kremlin leadership.
If anything, the latest episode of the Russian-Ukrainian gas war lays bare the thorough blurring of the line dividing private and public interests at the top of Russian power structures as well as the completely opaque nature of "strategic" decision-making.
(Polit.ru, Bloomberg, January 5; Dow Jones Newswires, Itar-Tass, RIA-Novosti, Gazeta.ru, NEWSru.com, Politcom.ru, January 4; Kommersant, December 30).