Russia, Ukraine and Shameless Self Promotion

I am again woefully behind the times on this — the entire world is thinking about British elections, Greek debt and American oil — but I would be remiss if I didn’t make some comments on developments between Russia and Ukraine. Specifically, for those who have forgotten, Russia gave Ukraine a (dubious) discount on natural gas, while Ukraine gave Russia a 25-30 extension on its Black Sea Fleet naval base and, apparently, a large swathe of Ukrainian industry.

I have — and here’s the shameless self promotion — been talking about this for some time, most prominently in interviews with Bloomberg and the Ukrainian newspaper День. The really interesting interview, though, is the one I didn’t get to give. A couple of days after the deal was announced, the radio station Эхо Москвы called and asked who I thought ‘won’. My answer, in true passive-aggressive fashion, was ‘no one’. They said they’d call me back for an on-air session if they needed that point of view, but they never called. I guess they needed a winner.

The fact is, there is no winner in this deal, at least not in real terms. In the short term, both sides get something. Yanukovich gets a closer-to-balanced budget and thus better terms for negotiations with the IMF (this works really well in Russian — он променял ВМФ на МВФ) and higher profits for his corporate buddies in eastern Ukraine, while Russia gets a cheap geo-political victory over the US and NATO and, apparently, a lot of sway in Kiev. But none of that is going to last.

For one thing, if we have learned anything over the last few years, it’s not to count on the sanctity of contracts with Russia involving gas; when markets turn, the Kremlin gets antsy. So, the fiscal benefit for Ukraine may not last long. And while Yanukovich has the votes to pull this out in the short term, in the longer run this deal so completely alienates the opposition that he may even accomplish what his adversaries could not: the creation of a united front against his rule. Depending on how things go in the Verkhovna Rada, Ukraine will have elections sooner or later (and possibly sooner), and Yanukovich will pay a price.

The result, however, may undermine the benefit for Moscow even more than for Kiev. If Yanukovich has any political sense, as soon as his fortunes at home turn sour he’ll pick a fight with Moscow. And if he loses, his opponents will certainly pick a fight with Moscow. And they’ll all have plenty of reason. The Kremlin, remember, has spent the last decade criticizing the West for taking advantage of Russia when times were bad, extracting deals they wouldn’t have agreed to in other circumstances. Russia’s current obstreperousness is portrayed (rightfully, often) as comeuppance. But now Moscow is doing exactly the same thing to Kiev: in dire fiscal straits, Ukraine has almost no choice but to sell whatever can turn a profit. Eventually, however, Ukraine’s economic situation will turn around and it will gain political strength. When that happens, the bill will be laid at the Kremlin’s door.


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