(Stratfor Report)

01/15/2011 | Hadjibei
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Russia has increased its leverage in its near abroad over the past few years, allowing Moscows foreign policy to evolve into something more flexible and nuanced, particularly in how it handles countries in its periphery. Its relationship with Ukraine is a case in point. With a pro-Russian government in power in Kiev, Russia no longer feels the need to strong-arm Ukraine into cooperation. It has secured its position in the strategic country while preventing the West from gaining a foothold.

Over the past few years, Russia has re-established its influence in much of its former Soviet territory. Moscow gained strength in its periphery through its military defeat of Georgia in August 2008, the formation of a customs union with Belarus and Kazakhstan at the start of 2010 and the April 2010 counterrevolution which brought a pro-Russian government into power in Kyrgyzstan.

As a result, Moscows strategy has evolved. Rather than strong-arming the states in its near abroad into submission, Russia has become more nuanced and flexible in interacting with its periphery as well as the wider world. One country that is a key component and target of this evolved foreign policy is Ukraine.
Ukraines Importance to Russia

Russia considers Ukraine the most strategic former Soviet state for several reasons. Ukrainian and Russian economic and industrial heartlands are virtually integrated. Roughly 80 percent of Russias natural gas exports to Europe transit through Ukraine, and Ukraines Crimean Peninsula provides access to Russias strategic warm-water port of Sevastopol in the Black Sea. Perhaps most important, Ukraines geographical position (abutting Russias heartland) means that a Ukraine that is adversarial to Russia or allied with Moscows enemies is an existential threat to Russian national security. When Ukraine was swept into the pro-Western camp in the 2004 Orange Revolution and made EU and NATO membership a national strategy, it caused concern in the Kremlin as only few other events could.

Immediately after Ukraines swing toward the West, Russia truly began its geopolitical resurgence. In the 2010 presidential elections, Russia managed to reverse the Orange Revolution when pro-Russian candidate Viktor Yanukovich defeated the original Orangists, incumbent President Viktor Yushchenko and then-Prime Minister Yulia Timoshenko.

In the year since Yanukovich took office as president, Moscow has made considerable gains in all matters most relevant to Russias strategic interest. One of Yanukovichs first acts as president was to outlaw Ukraines entrance into any military alliance, including NATO. In April 2010, Ukraine and Russia signed a landmark deal that extended the latters lease of its Black Sea naval base by 25 years, in exchange for a lower price for Russias natural gas exports to Ukraine. There has been a reconciliation of Russias Federal Security Services with the Security Service of Ukraine (SBU), and the United States has replaced Russia as the SBUs primary target for intelligence gathering. The natural gas cutoffs that were a mainstay of Russias policy toward Ukraine under Yushchenko have abated; in fact, Ukraine was used as an alternative route to Europe when Russia cut off natural gas to neighboring Belarus.
Russias Comfort Level and Ukrainian Policy

These gains have left Russia more comfortable with its position in both Ukraine and the wider region. Russia no longer feels the need to pressure Ukraine unilaterally and aggressively. The years of pressure tactics and manipulation leading up to Yanukovichs presidency have allowed Russia to be more flexible toward Ukraines foreign and domestic policies.

In foreign policy, Ukraine has continued its economic and political cooperation with the European Union. Yanukovich has even said that obtaining EU membership remains one of Ukraines leading priorities, exemplified by Yanukovichs making his first presidential visit to Brussels rather than Moscow and Ukraines accession to the European Energy Community in September 2010. Russian leadership has not spoken nor acted against any of these moves. This is partly because Moscow knows Kiev is not getting into the European Union anytime soon (if ever), but also because a more relaxed role has many advantages for Russia, including economic benefits and improved relations with important EU countries such as Germany and Poland.

Russia has also been more pragmatic and cooperative with Ukraine in terms of energy. In addition to Russia lowering the price it charged Ukraine for natural gas from $350 per thousand cubic meters (tcm) to $250 per tcm saving Ukraine an estimated $4 billion per year Moscow and Kiev have agreed to several joint energy projects ranging from nuclear production to electricity. However, Russia has also called for a merger of Russian state energy behemoth Gazprom with Ukraines state energy firm, Naftogaz. Ukraine has rejected such a deal up to this point (knowing full well that it would essentially be Gazprom swallowing up control and ownership of Naftogaz). While Russian Prime Minister Vladimir Putin continues to publicly speak in favor of the merger, many in Russia actually do not want to obtain direct ownership of a company that is as financially and organizationally dysfunctional as Naftogaz. It may actually be more beneficial for Russia to have indirect control over the company.

Russias flexibility has also applied to Ukraines domestic politics. Many Western-leaning former political leaders, energy officials and oligarchs have been replaced with officials more loyal to Yanukovich. More recently, high-profile figures have been either put on trial (like Timoshenko and former Interior Minister Yuri Lutsenko) or exposed for questionable activities (like one of Ukraines richest oligarchs, Dmitri Firtash). From the Wests perspective, this has moved Ukraine a step back from democratic reforms; indeed, the U.S. government issued a rare direct statement on the politically motivated prosecution of Yanukovichs opponents. But these actions have played into Moscows hands. Under Yushchenkos administration, Ukraine was constantly at odds with itself and difficult for Russia to navigate as the Kremlin tried to exploit the political rivalries to its own benefit. Now, Yanukovich has strengthened his control over the country, which has created a more coherent and consolidated leadership. Democratic questions aside, this unified authority makes it easier for Ukraine to organize and proceed with reforms at home, and makes it easier for Moscow to negotiate with Kiev.

Russias new, nuanced approach has also extended to Ukraines domestic energy policy traditionally the most important but most dangerous policy area to navigate. Ukraines energy policy is treacherous because the people in charge of Ukraines energy sector have made moves for personal and financial gain rather than out of a sense of state interest or strategic security. But beginning Jan. 1, Ukraine cut off a small volume of energy supplies to Poland, following legislation requiring the natural gas produced in Ukraine to only be used for domestic needs. This is a logical business decision. It accounts for domestic consumption before exports and increases the cash flow for Russia (which will supply Poland with more natural gas) and Ukraine (which will transit more supplies while consuming cheaper domestic natural gas). For Ukraine to make this move, regardless of its relatively small impact, is telling and could lead to more energy stability between Russia and Europe.

Despite all of Russias successes, Yanukovich and the Ukrainian government still do not see eye-to-eye with Moscow on all matters, and Kiev has not handed over its sovereignty to the Kremlin. But complete control of Ukraine is not Moscows goal; Russia has made all the strategic gains it has needed to and has blocked the West from holding a solid position in Ukraine. Moscow has become more nuanced and multidimensional in how it handles its relationship with Kiev, just as its approach to other countries in its periphery and around the world has become more complex.

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