The Ukrainian-Russian Gas Conflicts: International And Domestic Factors

In light of the recent Russia-Ukraine gas dispute, much attention has been paid to the role of transit countries in reliably delivering gas to the European market. It has become clear that to ensure security of gas supply, it is of great importance to have multiple suppliers and multiple transit routes. However, this requirement has numerous implications on foreign policy, international law, economics and infrastructure construction. What factors influence the behavior of Ukraine? International or domestic? What factors exacerbate or mitigate the foreign policy effects of gas dependency? For defining which factors domestic or international influence the foreign policy making of the Ukraine first, we research how the European Union and NATO influence the relations between Russia and Ukraine. Despite its many problems, Ukraine clearly aspires to draw closer to the West. Russia is and will remain too weak to use coercive means to force any kind of "regathering" of purportedly Russian lands. Ukraine's relationship with these institutions, and particularly the European Union (EU) and NATO, is mixed. Kyiv has repeatedly stated that its long-term strategic goal is integration with Europe. That Ukraine has the right to join the Alliance is not disputed—even by Russia. However, Ukrainian membership in NATO presents special challenges for several reasons.This paper also explores the issue of policy choices in the context of post-Soviet transformation processes and, in particular, why have various post-Soviet bloc states dealt with their gas dependency on Russia in different ways. The question is analyzed through an examination of the of the management of energy dependency on Russia, one of the most crucial issues in the domestic and foreign policy situation of the East Central European transformation states. Using Ukraine in the 1995-2004 period as case study, the connection between, on the one hand, ways of managing energy dependency and, on the other, the domestic system of power is analyzed.The first chapter"Overview of Russia-Ukraine gas trade relations"is about gas trade relations between Russia and Ukraine, from the early post-Soviet period till 2009.At that time a cycle of problems between Russia and Ukraine persisted through the 1990s: large-scale deliveries to Ukraine of relatively cheap gas– used, as it was in Russia, to sustain a perilously weak state in the face of potential social upheavals and a perceived threat of collapse; accumulation of Ukrainian debts to Russia, linked to domestic non-payment; theft of gas from the transit system; and Russian pressure on Ukraine to hand over infrastructure in return for debts. The problem of debts was exacerbated by the predominance of barter arrangements, i.e. mainly payment by Russia with gas for transit services, but also payment e.g. by Ukraine with manufactured goods for central Asian gas.Over the last 20 years Ukraine has moved away from Russia both politically and economically, both sides are stuck with the physical reality: Russia's gas export pipelines, built in Soviet times, run through Ukraine, and Russia is dependent on Ukraine's provision of gas transit services. These dependencies– Ukraine's on Russian gas, Russia's on Ukrainian transit– are important causes of the series of disputes over gas.The second section of this chapter is about the"gas wars"between Russia and Ukraine, the underlying difficulties of Ukraine's natural gas sector that have fuelled them, and how these difficulties might be addressed, in the context of broader economic and political changes.The"gas wars"were, in the first place, a dispute about how, when and at whose expense the differential between Ukrainian import prices and"European netback"levels would be closed. The"gas wars"were not of course a price dispute alone. A second cause was political, and arose from the Orange revolution of December 2004. Prior to it, the political leadership in Moscow– which saw President Leonid Kuchma of Ukraine as an ally, albeit a difficult one at times– was unwilling to turn its perennial gas dispute with Kiev into a confrontation. Afterwards, Moscow's attitude shifted.These two main causes of the"gas wars", commercial and political, often became intertwined with a complex set of issues about arrangements for gas to be imported and transported, and the companies involved.In the second chapter"International factors influencing energy relations between Russia and Ukraine"we describe how such international factors as the Ukrainian pursuit of membership in the EU and NATO influence Ukraine-Russia gas trade relations and the foreign policy making of Ukraine.For the first five years after independence in 1991 EU-Ukrainian relations were on a low key. But already in 1994 Ukraine was the first CIS state to sign its PCA. Things began to change however when President Kuchma announced Ukraine's'European choice'as a strategic objective in a speech in 1996. Then in June 1998, only three months after the entry into force of the PCA, Kuchma issued a decree entitled'Strategy on Ukraine's Integration with the European Union'. This announced the long-term objective of full membership of the EU, and led to more detailed programs of work for the administration. Throughout this period there had been rumbling discontent coming from both Russian and Ukrainian sources over negotiations on the price of Russian gas supplies. This led to the famous turning off of the tap on January 1, 2006.The Ukrainian pursuit of membership in NATO also is likely to be strongly opposed by Moscow. Because, First, Ukrainian membership would cross an important political red line and bring NATO directly into former Soviet territory. Second, Ukraine has a long border with Russia. Ukrainian membership in NATO thus raises the question whether NATO is prepared to offer an Article 5 security guarantee to Ukraine and would be willing to undertake an obligation to militarily defend Ukraine's borders. Thus, the Ukrainian pursuit of membership in the EU and NATO was strongly opposed by Russia. Sometimes Russia used the Ukrainian dependence on Russian gas to influence foreign policy of Ukraine.Third chapter"Domestic factors influencing energy policymaking in Ukraine"looks at whether the Orange Revolution changed Ukraine's foreign policy. Ukraine's relations with Russia and the West before the Orange Revolution are addressed in order to determine where Ukraine was orientated geopolitically before 2004. After the Orange Revolution, President Yushchenko failed in his vision to position Ukraine geopolitically with the west and therefore left Ukraine still stuck between east and west.Ukraine's post-independence political system is a semi-authoritarian system.? While somewhat different energy policies were followed in 1991-1995? and 2000-2001, the basic characteristics of the Ukrainian system of power have not changed since 1995. It is characterized by a system of informal balances between strong business-administrative groups ("clans"), with President Kuchma playing an important balancing role for purposes of remaining in power. This"balancing"has economic as well as political aspects: central to it is the executive's allocation of patronage appointments, administrative benefits and licensing rights that allow these groups to enrich themselves, in exchange for returning a portion of the profits, recycled by the executive into regime-maintenance and election-preparation activities. Kuchma's positive rhetoric on European integration during his first term was not matched by his actions and he became increasingly isolated in Europe towards the end of his Presidency. As a result of corruption scandals domestically Kuchma orientated Ukraine geopolitically towards Russia. The main feature of Russo-Ukrainian relations during the period addressed in this chapter was the struggle for Ukraine to assert its newly realized independence over its Russian neighbour.Thus, we conclude that domestic factors influence the foreign policy making of Ukraine. Institutions also matter. The way Ukraine has been affected by changes in the international energy environment and in its energy relationship with Russia cannot be explained simply by looking at the state-to-state relationship between both actors. Rather, the relationship is mediated by Ukraine's domestic institutional environment.