Energy and Politics - The Love-Hate Relationship between Russia and Ukraine

Russia and Ukraine resemble nothing so much as Siamese twins that have grown up, now detest each other, but share organs difficult, if not impossible, to separate.
 
The two issues that unite and divide Russia and Ukraine are simple – energy and military issues.
 
The former – Russia’s need of Ukraine’s Soviet-era skein of natural gas pipelines that supply Moscow’s most lucrative European markets.
 
Military issues? One word – Sevastopol, the Black Sea’s finest natural harbor, now uneasily shared between the Ukrainian Navy and the Russian Federation’s remnants of the USSR’s Black Sea Fleet.
 
Two decades after the implosion of the USSR, the two sides frequently seem farther apart than ever, but no surgeons from Kiev or Moscow have yet to come up with a solution for clean divisions.
 
Ukraine can rightly be argued to be the cradle of Slavic orthodox culture, as Grand Duke Vladimir of Kiev chose Christianity as the state religion in 988 AD.
 
But three centuries later, Mongolian armies sweeping in from the east across Ukraine’s broad steppe destroyed Kievan culture, as what up to then had been a minor principality sheltered in Russia’s deep forests began a slow and relentless rise to power. The name of the town?
 
Moscow.
 
As Moscow’s ascendancy to Eurasian power grew, Ukraine’s power waned, as the country became an area of fierce struggle between not only Muscovy, but the Ottoman Empire, Poland and Lithuania.
 
The early 19th century saw Russian domination of the country nearly complete, as Russia was drawn by Ukraine’s rich resources, not least the zhernozem, Ukraine’s fertile “black earth,” whose cultivation led Russia by the end of the century to become Europe’s leading exporter of wheat.
 
But the 20th century brutalized Ukraine, as first Lenin’s Bolsheviks and later, in 1941, Hitler’s Wehrmacht fought over the region’s reserves.
 
Beginning in the 1970s, Ukraine began to be crisscrossed by a skein of natural gas and oil pipelines – while many were designed to fulfill the requirements of both the USSR and its Eastern Europe allies, but ultimately European Gazprom clients as well.
 
The energy-poor Ukrainian Soviet Socialist Republic’s role then was as a transit country, after its energy needs were met.
 
After 1991, Moscow wanted two things – continued access to Ukraine’s pipelines to continue providing its affluent European clientele, and oh, by the way, Kiev to pay ever higher natural gas prices.
 
And so things trundled along for several years, until Ukraine’s mounting gas debts caused Moscow to propose a swap – Ukraine’s multi-billion dollar gas debt for the Ukrainian pipeline network.
 
Kiev refused, and so began several years of Gazpron attempting to apply pressure by reducing gas supplies during the winter months, causing much shivering in Kiev and nervousness amongst Gazprom’s European clients, for whom, the fundamental question amid the relentless brinkmanship between Moscow and Kiev is between spending significant money to improve Ukraine's pipeline infrastructure through which they receive 42 percent of their Russian gas imports, or swallowing hard and digging deeper to build alternative lines.
 
Eurocrats might recall the warning that Putin delivered on 23 December 2009, before the Ukrainian dispute flared up, "The era of cheap energy resources, of cheap gas, is, of course, coming to an end."
 
And so, Ukraine remains what it was in the time of Genghis Khan – a highway to Europe, except in this case it is Russian energy invading Europe, not hordes of Asiatic warriors.
 
Accordingly, both the EU and Russia need Ukraine. What neither side has understood up to now is that lessening their efforts to pull Ukraine into their respective gravitational orbits might in fact be a good thing.
 
Three years ago, in April 2008 at the NATO summit in Bucharest, the Bush administration assiduously pressured its NATO allies to fast-track both Ukraine and Georgia for NATO membership. The Europeans baulked at Washington’s pressure and the wisdom of their caution was proved four months later when a brief but brutal conflict erupted between Georgia and the Russian Federation.
 
Accordingly, 20 years after the collapse of Communism, Brussels should recognize that Ukraine represents a “red line” for the Kremlin for extending military influence, while the Russia should in turn realize that Europe’s primary interest in Ukraine is in fact its ability to transit energy, whatever NATO’s 800-lb gorilla, Washington, might want.
 
Geography and history bind Ukraine and Russia to a deeper relationship than many neighboring nations – if Europe is serious about the long-term security of its energy supplies, then it should stop following Washington’s lead to inveigle Kiev into military relationships and instead, like China, concentrate exclusively on economic issues. As for Russia, it should stop regarding Ukraine as a potential covert stalking horse for outside military powers seeking to encircle Russia, and stop trying to squeeze each and every kopeck out of Kiev by both low-balling the transit fees it pays to use Ukraine’s pipelines while relentlessly raising natgas prices.
 
Neutrality is not always a dirty word.
 
And Sevastopol? Another tale for another time.

By. John C.K. Daly for OilPrice.com