Tilting towards Russia?

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 policy is 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.

This piece first appeared in the International Herald Tribune