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IFRI: The Opacity of Russian-Ukrainian Energy Relations

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A relatively new report has been released by the French Institute on International Relations (L’Institut français des relations internationales – IFRI) containing an interesting analysis of the corruption underscoring Gazprom’s relationship with certain interests in the Ukrainian government. While much of the paper is descriptive, there are also some valuable comments. The full paper, “The Opacity of Russian-Ukrainian Energy Relations” by Arnaud Dubien can be downloaded here. Below are the concluding remarks from the paper (emphasis mine).

Fifteen years after the collapse of the USSR, the gas issue is central to the domestic and external challenges which Ukraine faces. The country’s economic modernization, the condition of its rapprochement with the EU requires above all an in-depth reform of its production system, which is the world’s most energy-hungry. At the political level, the perpetuation of gas management models based on opacity fuels corruption within the leading elites and constitutes one of the principal obstacles in breaking with the post-Soviet heritage. Finally, the Ukrainian foreign and security politics is and undoubtedly will continue to be durably conditioned by the country’s vulnerability in terms of hydrocarbons supply. In this respect, the Russian factor is obviously central. Often analyzed through the prism of Moscow’s neo-imperial ambitions, the protagonists of the Ukraine policy instead relates more to a multiplicity interests and logics. It is obvious that the Kremlin has made energy one of the privileged vectors of its strategy for influence. Yet it is more difficult to clearly separate Russian state interests from those of Gazprom or those of concerned individuals. Keeping the trader RosUkrEnergo as the required intermediary of gas relations between Ukraine and Russia, in disregard of any economic rationality, is the most striking illustration of this ambiguous, if not incestuous, symbiosis. The moderation Gazprom has shown in the fall of 2006 has certainly something to do with the position taken by Ukrainian Prime Minister Viktor Yanukovich on NATO, which tends to confirm a linkage between energy issues and broader strategic issues. On the contrary, the alignment of gas prices on international tariffs, envisioned for 2008, is witness to a certain trivialization of Ukraine in Russian perception and to an autonomisation of the gas question. As if the Kremlin was at Gazprom’s service and not the reverse. Can the changes in Turkmenistan after Saparmurat Niyazov’s death and the new political crisis in Kyiv at the beginning of April have an impact on the country’s energy issues? The new Turkmen President, Gurbanguly Berdymukhammedov, does not appear eager to call into question the agreements signed in 2003 with Gazprom. A situation which thus a priori excludes Kyiv from again joining direct bilateral gas relations, but which offers Ukraine certain guarantees as for the volume of its supplies, which could be called into question should Ashkhabad carry out the project of exporting gas to China or the Indian subcontinent. The show of force between Viktor Yushchenko and Viktor Yanukovich concerning the Parliament’s dissolution is not directly related to gas issues, even if the systematic lock the various clans surrounding the Prime Minister have of the energy sector has undoubtedly weighed on the report of the “usurpation of power” stressed by the President to justify his decision. A return of Yulia Timoshenko, if her party were to gain possible anticipated legislative elections, would undoubtedly have for consequence a complete overhaul short of a cleanup of gas relations between Ukraine and Russia.