Summary
Ukraine is involved in negotiations with Russia on natural gas prices and joining Russia’s Customs Union, even as Kiev is discussing an association agreement and free trade agreement with the European Union. Ukraine’s seemingly contradictory moves involving Europe and Russia are part of Kiev’s larger strategy of reaching out to — but not committing to — both the West and Russia in an attempt to maintain balance. However, Ukraine’s relative weakness could result in Kiev’s loss of leverage in relations with the Europeans and the Russians.
Analysis
Ukrainian Prime Minister Nikolai Azarov said Oct. 19 that Ukraine would consider joining Russia’s Customs Union and advised the country’s Economics Ministry to review the bloc’s technical regulations. That same day, Azarov said Ukraine is committed to signing a free trade agreement with the European Union. These statements come as several important issues regarding Ukraine’s relationship with Russia and the European Union, including Ukraine’s natural gas negotiations with Russia and talks on signing agreements with the European Union, are expected to heat up.
As both sets of negotiations approach their conclusions, Kiev appears to have made several contradictory moves. However, this maneuvering is reflective of Ukraine’s strategic imperative to balance between Europe and Russia — and its limited ability to do so.
Russia and Europe’s Positions on Ukraine
Of the three players in the Ukraine-Russia-European Union political triangle, Russia has the clearest plan for Ukraine: to pull it closer to Russia and away from Europe. Russia thus has not hidden its desire to integrate Ukraine into its Customs Union (which would align Ukraine’s tariff system and much of its economic structure with Russia’s) and has called for a merger of Naftogaz with Gazprom (which would essentially allow Russia to absorb Ukraine’s energy transit system). Russia also has consistently spoken against Ukraine’s integration efforts with the European Union, saying this would necessarily exclude cooperation with Russia and that Moscow could take retaliatory measures, such as increasing trade barriers, accordingly. It is not that Russia thinks Ukraine, like Belarus, will completely isolate itself from the West. Rather, Russia wants to control and limit how close Ukraine can get to Europe.
The Europeans’ position on Ukraine is not as clear, though Kiev’s desire for cooperation with the bloc is obvious. The European Union traditionally has been far better economically positioned than Russia to entice countries to want to join the bloc, or at least integrate with it more closely by signing free trade agreements — something that certainly applies to Ukraine. This is because the European Union offers a larger and more diversified market of 500 million people and has the investment, technology and financial assistance to go along with it, and Europe’s economic cooperation has fewer overt political strings attached to it than Russia’s.
However, the problem with the European Union is that it speaks with 27 voices, not one — and on the Ukraine issue, the union is clearly split between Western Europe and the newer member states in Central Europe. Moreover, the bloc has been consumed with an ongoing financial crisis, and Ukraine is far from the top of the Europeans’ overall priority list. The Ukraine issue is also being evaluated in the context of Europe’s relationship with Russia. Still, the European Union does have a broader interest in Ukraine, but the requirements for Ukraine to get closer to the bloc (standards regarding democracy, human rights and other issues) have proven to be considerable obstacles.
Ukraine’s Stance
Ukraine’s stance toward Russia and Europe is even less clear. Ukraine is the smallest, poorest and weakest of the three and therefore seemingly has the most complicated decision-making process. But the impetus behind Ukrainian decision-making is not as complex as many believe. Fundamentally, the Ukrainian government is interested in the preservation of power, while the Ukrainian economic elite (the oligarchs) are interested in shielding their businesses from competition (whether domestic, Russian, European or otherwise). What complicates the picture is that the Ukrainian government and the economic elite cannot be neatly separated from one another. There are many ties between politics and business and mutual dependence between politicians and oligarchs. Often times this muddles the application of policies.
For instance, Ukrainian President Viktor Yanukovich’s administration has said integration with the European Union is its top priority and has set a deadline to sign an association agreement and free trade agreement with the bloc by the end of the year. However, amid these negotiations former Ukrainian Prime Minister and leading opposition figure Yulia Timoshenko was put on trial on charges of abuse of power connected to the signing of a natural gas deal with Russia in 2009 and was eventually sentenced to seven years in prison. Jailing opposition figures is clearly not in line with EU norms, and EU leaders repeatedly warned Yanukovich that Ukraine’s agreements with the bloc would be jeopardized if Timoshenko were jailed and removed as a political force. Indeed, according to STRATFOR sources, Germany’s parliament is not likely to approve the Ukrainian free trade agreement, and ratification of this agreement requires parliamentary approval from all 27 EU member states.
However, it is possible that Timoshenko will not have to serve jail time, as the parliament will consider decriminalizing the action for which she was convicted. This could salvage talks between Kiev and the Europeans. But it is still clear that Yanukovich is playing a political game as he maneuvers between the EU agreements and the elimination of Timoshenko as a political threat.
Another example of Ukraine’s seemingly contradictory policy is its ongoing natural gas negotiations with Russia. Ukraine has asked Russia to charge the country less for natural gas than it pays under the agreement made by Timoshenko. However, Kiev has resisted the terms that Russia has outlined for lowering prices, rejecting Gazprom’s call for a merger with Naftogaz and, until recently, membership in Russia’s Customs Union. In the meantime, the Ukrainian government has announced its interest in several diversification projects — such as building a liquefied natural gas facility and boosting domestic production. However, these projects directly challenge Russia and would not solve its pricing problem in the short term.
Ukraine also has announced that it will restructure Naftogaz, which is something that the European Union has supported (and is also important if Ukraine is to receive much-needed financing from the International Monetary Fund). However, this move runs counter to the interests of Ukraine’s energy-sector oligarchs, who are not truly interested in reforming the sector and opening it up to competition. Therefore the Yanukovich administration’s desire to conduct reforms — just like its desire to sign the EU agreements — is questionable at best, and is part of a larger strategy.
These examples illustrate the Ukrainian government’s maneuvers between the European Union and Russia, entertaining expanding cooperation with one or the other but never completely cutting off either, in order to maintain leverage and ultimately preserve power. But as Ukraine is a relatively weak player, success in this regard is far from guaranteed. Ultimately, Ukraine could be stripped of its leverage and exposed to the amount of external influence it has been trying to avoid.
