The Hefty Price Tag on Sevastopol

Sevastopol042910.JPGSo to the surprise of approximately no one, the Kremlin finally reaped its first post-election rewards in Ukraine, when they bought themselves an extension of the lease for the naval base at Sevastopol in exchange for a cheap gas package for their faithful loyalist President Viktor Yanukovych.  They were so happy about how easy it was, that Vladimir Putin made some tongue-in-cheek comments about how he doesn’t want all kinds of countries coming forward and offering him military bases for similar energy gifts, as though he were swatting away all of his new fast friends. 

Although about 60% of Ukrainians are in favor of hosting the base, the Rada exploded this week in an embarrassing show of what stands for parliamentary protocol.  Some say it was a passionate display that at least democracy still exists in Ukraine, even if it is dysfunctional and chaotic.

Some journalists are looking for the whole “opposite” angle to the story of base, arguing that in fact Russia is the one who got the bad deal.  Jackson Diehl of the Washington Post wrote on his blog thatPutin will end up the loser in this deal,” while Alexander Golts argued that “Yanukovych has already made the Kremlin a hostage to his hold on power.

I don’t really buy this argument, and if in fact if being overly invested in Yanukovych is the only price to pay for retaining influence over Kiev, then I am sure the Kremlin is happy to pay it in order to retain a critical geostrategic foothold on the Black Sea.  But in fact, this move actually costs much, much more to the Russian taxpayers – a point raised quite compellingly at the end of this article in the Economist:

Yet the true value of Sebastopol to the Russians is symbolic. A cityof Russian glory built by Catherine the Great, it has a big place in thenational psyche. Withdrawal from Sebastopol, which was besieged andsuffered grievously in the Crimean and “great patriotic” wars, would be ahumiliation. Russia’s presence in the Russian-speaking city is also asymbol of wider influence across the post-Soviet space.

This deal is not cheap for Russia. Its cost will be borne by Russiantaxpayers rather than by Gazprom, as the discount in gas prices toUkraine will be provided by a cut in export duty paid by Gazprom to theRussian state. Gazprom also benefits from guaranteed gas supplies toUkraine. The recent fall in gas prices and exports, and the prospect ofcompetition from shale gas, are big worries for Gazprom. To enticeUkraine to sign contracts, Gazprom will allow it to re-export any gas itdoes not consume domestically. But if shale gas starts to replacenatural gas in Europe, all these plans could go up in smoke. One featureof Russian agreements with Ukraine is how often and how easily they arerevised or broken.