Caspian Basin: Ukrainian Geopolitical Shift Could Have Energy Export Implications

New Ukrainian President Viktor Yanukovych recently paid a visit to Moscow, during which he vowed to reorient Kyiv's foreign policy in the "right direction" toward Moscow. The budding revival of a special relationship between Russia and Ukraine could have significant economic ramifications for energy exports from the Caspian Basin to the European Union.

Yanukovich has stated that Ukraine remains intent on seeking a greater level of integration with the EU, and he has also expressed interest in developing strong bilateral ties with the United States. Nevertheless, it's clear that his top foreign-policy priority is reestablishing close strategic and economic ties with Russia.

"I see my objective in making a sharp turn in relations between Russia and Ukraine, in the right direction," Yanukovych said during his March 5 visit to Moscow.

EurasiaNet sat down with Mykhailo Gonchar, director of energy programs at Ukraine's Nomos Center, to evaluate the potential ramifications of Ukraine's pending geopolitical shift. The biggest impact is likely to be felt in the energy sphere, Gonchar indicated.

EurasiaNet: Right after his election, Yanukovych fulfilled a campaign promise by announcing that he will lobby for a gas transportation consortium with Russia and the EU to ensure reliable gas transits to European consumers. What was his intention with this proposal?

Gonchar: Politically - it is an attempt to show Moscow that Ukraine, under his leadership, is ready to play by Russia's rules. The idea of a consortium to manage the [trans-European] gas transportation system belongs to Russia.
EurasiaNet: Are there any other pro-Russian moves in the energy-export sphere that Yanukovych may make?

Gonchar: The main vector of [Yanukovych's] efforts is the creation of a consortium in exchange for a reduced gas export price for Ukraine. But Russia is also interested in the domestic market, because Gazprom, as a monopolist, forced [Prime Minister Yulia] Timoshenko's government to agree on a high price, which exceeds the European one. With the decline in European gas consumption, the Ukrainian market is today very attractive for Gazprom.

EurasiaNet: If Yanukovych keeps making concessions on bilateral energy issues, might Russia be willing to revise, or even scrap its concept for the South Stream pipeline. [For background see the Eurasia Insight archive]. One important rationale for building South Stream, after all, was Ukraine's unreliability as a transit state. [For background see the Eurasia Insight archive].

Gonchar: We should not expect that Russia will give up so easily on South Stream. The Energy Strategy of Russia clearly states ? [Moscow's intention] to bypass Ukraine through the North Stream and South Stream gas pipelines. In my opinion, Russia can offer the EU a convergence of South Stream with Nabucco. [For background see the Eurasia Insight archive].

EurasiaNet: Do you think a new gas war between Russia and Ukraine could break out in the future?

Gonchar: Unfortunately, new gas wars cannot be excluded. Ukraine was not the initiator of [previous] gas wars. But Russia is obsessed with its expansion. Look at the Energy Strategy of Russia: "Russia's pipeline infrastructure will become an integral part of the energy bridge between Europe and Asia, and Russia - a key center for its management." Who allows Russia to take this role? ? If it happens that the Ukrainian gas transport system falls under Russia's control, then those in Europe who believe that [such a development] can appease Moscow will be profoundly mistaken. Because then it will be the turn of Poland, Slovakia and Romania. This is the logic of expansion. To [neutralize Russia's efforts] to use energy as a political tool, it's necessary to agree at a pan-European level on an Energy Transparency Regime.