ANALYSIS

3 July 2000

Russia:Ukraine Squeeze

Taras Kuzio for Oxford Analytica

The election of Vladimir Putin in March has changed Russia’s relations with Ukraine in two strategic areas, economics and security policy. Putin will end any special status or benefits Ukraine obtained previously through the personal relationship between President Leonid Kuchma and former President Borys Yeltsin. Putin’s tougher, more pragmatic policy towards Ukraine and the CIS will lead to difficulties for Ukraine which has sought to play off Russia and the US and thereby win concessions from both sides. Russian policies towards Ukraine will become less ideological, more pragmatic and tougher on economic relations. On the eve of the visit by Putin and Kuchma to Sevastopol in April the commander of the Black Sea Fleet, Admiral Vladimir Komoyedov, said that the Russian-Ukrainian "strategic partnership is a mere slogan, devoid of any real content". This adequately described the Yeltsin decade. Putin’s priority will be to fill this strategic partnership with concrete substance, something that will be bad news for Ukraine which has sought to balance between the West and the CIS and avoid taking sides. Such a multi-vector foreign policy is becoming increasingly untenable.

Economic

Putin is no longer willing to allow Ukraine to build up large energy debts and steal gas from the pipelines crossing its territory. Gazprom chief R.Vyakhirev claimed that Ukraine stole 7 billion cubic metres of gas in 1999 and 2 billion this year. The illegal theft of gas, unofficial siphoning of gas by Ukrainian official companies and the unclear division of official and unofficial companies involved in importing gas into Ukraine lead to different estimates by both sides of the size of the debt ($2.1 or $1.4 billion). On his visit to Ukraine in April President Putin threatened to send gas in future through pipelines under construction that go through Belarus, thereby avoiding Ukraine all together.

At the same time, Ukraine’s continued indebtedness to Russia for energy is strategically advantageous to Russia. It allows Russia to apply political pressure on questions such as NATO-Ukrainian co-operation. Putin has expressed a hope that Ukraine would join the Russian-Belarusian union and moderate his pro-Western foreign policy. US Secretary of State Madeleine Albright visited Kyiv only a few days prior to Putin to persuade Kuchma to not make too many concessions to Russia and to stop exchanging assets for energy debts. Ukraine continues to complain at the fact that it pays the highest price of any of Russia’s customers for gas. Whereas Ukraine pays $80 per 1000 cubic metres, Western European customers pay $77.50 and Belarus a mere $26.90. Both sides have still to work out a system of repaying the current Ukrainian debt, the price Ukraine should pay for gas, the price Russia should pay for transit of gas across Ukraine and how to reduce barter as a means of payment.

Putin will also try and breathe some life into the 1998 Ukrainian-Russian ten year economic co-operation treaty which is not being implemented by both sides. In 1999 the Ukrainian-Russian trade turnover declined by 17 per cent compared to 1998. Expanding trade is impossible as long as Russia continues to exempt 300 types of goods from the Ukrainian-Russian free trade agreement, to levy VAT based on country of origin criteria and to impose surcharges on exports of oil. Much to Ukraine’s continued disappointment, Putin has continued to argue for the exclusion of energy from a CIS Free Trade Area as this would be not in Russia’s national interests. Russian policies continue to promote an exchange of Ukrainian assets for energy debts. Russia is particularly interested in obtaining control over key sectors of the Ukrainian economy that earn it hard currency through exports (i.e. fuel and energy, ferrous and non-ferrous metals and chemicals). Russia’s Siberian Aluminium company recently took control of 66 per cent of the Mykolaiv Alumina plant and Russia’s Alfa Group has expressed an interest in the Linos oil refinery, Lysychansk, and Oriana chemical plant, Kalush. Other Russian companies seek to take over the Kharkiv-based Turboatom. While Kuchma has ruled out the exchange of Ukrainian companies for its energy debts he cannot prevent the takeover of Ukrainian companies by private Russian capitol, especially as Ukraine is likely to fail to generate the projected $540 million from privatisation this year.

Putin is perturbed at five areas of Ukrainian security policy which Russia has targeted. Firstly, in the aftermath of the Kosovo conflict last year he has continued to reiterate in a more forceful manner that future waves of NATO enlargement should not enter the post-Soviet space. This is particularly directed at the pro-NATO regional group within the CIS GUUAM (Georgia, Ukraine, Uzbekistan, Azerbaidzhan, Moldova) and the three Baltic states. These eight former Soviet states all have close co-operative relations multilaterally with NATO and bilaterally with leading Western countries such as the USA. Georgia, Azerbaidzhan and the three Baltic states have openly stated their intention of seeking NATO membership.

Ukraine has continued to develop close relations with NATO and its goal is to achieve the compatibility of troops and command bodies at the operational and strategic levels. This years Ukrainian government budget includes a separate item for the first time devoted to NATO co-operation. NATO claims that Ukraine has achieved 11 out of 27 compatibility goals. Ukraine’s relationship with NATO resembles an "insurance policy" that could be cashed in if Russia were to seek to undermine Ukrainian independence. President Kuchma has therefore been more cautious than his GUUAM or Baltic allies and rules out Ukraine’s application to join NATO at the present time. He has instead looked towards Associate Membership of the EU.

Ukraine’s integration and co-operation with NATO is worrying to Putin because Ukraine is moving out of Russia’s sphere of influence. In addition, as the leading country within GUUAM its example is followed by other CIS states. GUUAM, for example, is building up its co-operation within the military and security spheres, which is an alternative to the CIS Collective Security Treaty.

Secondly, Russia has complained about Ukrainian, Azeri and Georgian alleged support for Chechen separatists. Russia has officially protested at the creation of numerous Chechen information centres around Ukraine and demonstrations against Russian military actions in Chechnya. Russian presidential aide Sergei Yastrzhembsky said in May that, "The proliferation of the so-called Chechen information centres in Ukraine, which are popping up like mushrooms, does not promote relations between the two brotherly countries". The Federal Command in Chechnya complained in May of 100 mercenaries arriving from Ukraine, including 15 women snipers. Similar complaints were made during the first Chechen conflict of 1994-1995 of paramilitaries from the extreme right Ukrainian National Assembly fighting alongside Chechens.

In June the Russian Foreign Ministry sent an official note to their Ukrainian counterparts complaining about "anti-Russian" actions in Ukraine, particularly in L’viv. Such actions included retaliatory attacks on coffee houses where Russians gather. They came after the death of the 45 year old Ukrainian singer Ihor Bilozir on 28 May after he was beaten up for refusing to stop singing Ukrainian songs in one of these coffee houses. In addition, the Russian note of protest complained at the alleged "large-scale offensive on Russian language and culture" in Ukraine. Putin and the Russian Foreign Ministry have earlier raised the question of alleged discrimination against the Russian language in Ukraine after the Ukrainian Constitutional Court and Government outlined plans in December 1999 for expanding the use of Ukrainian among government officials and in the media. A decline in Russian language use is seen by Putin as leading to a simultaneous decline in Russian influence in the CIS and he is promoting the Belarusian and Kyrgyz examples for other CIS countries to emulate. In June Kyrgyzstan elevated Russian to a second state language. Kazakhstan may be second

Thirdly, Russia is attempting to induce Ukraine away from its Westward-leaning security policy by putting forward compromises in the military-technical sphere and expanding co-operation between both states in this field. On his visit to Ukraine on his way back from the UK in April, Putin offered to co-ordinate their activity on the international arms market, where both countries had been competing since the mid 1990s. Putin also offered to repair Ukraine’s air force and air defence forces (these facilities are based in Russia). Ukraine is an Associate Member of the CIS Collective Air Defence Agreement and will participate this year for the first time in its "Commonwealth-2000" exercises.

Fourthly, Putin and Kuchma visited Sevastopol during the Russian leaders visit to Ukraine. Putin went out of his way to acknowledge Ukraine’s title to the Crimea and Sevastopol and to promote naval co-operation. Such co-operation has been seen by Russia as a counter-weight to Ukraine’s annual participation in NATO’s Partnership for Peace (PfP) and "In the Spirit of PfP" naval exercises. The Ukrainian Minister of Defence also attended the CIS Ministers of Defence meeting in Moscow on 21 December of last year as an observer and agreed to 50 joint military activities this year, 21 more than last year. The Ukrainian Ministry of Defence also agreed to expoand Ukrainian-Russian military-technical co-operation. This growing Russian-Ukrainian military détente is of concern to the USA.

Putin would like to resolve a number of questions surrounding the Black Sea Fleet. He has suggested that the Russian Fleet remain in Sevastopol indefinitely beyond the year 2017, when the twenty year lease expires. This would contradict the Ukrainian constitution which bans foreign bases except on a "temporary basis". Putin also complained about Ukraine’s demands for the payment of arrears by the Fleet for energy and other utilities, at a time when Ukraine itself has large energy debts to Russia (in 1999 the Fleet paid 54.1 million hryvni into the Ukrainian budget). The Ukrainian side has also placed severe restrictions on the use by Russian naval aviation of Ukrainian airspace, its demand to inspect airplanes in order that they are not capable of carrying nuclear weapons and limitations on the replacement of outdated weapons systems (i.e. SU-17 for SU-24 fighters which can carry nuclear bombs). These restrictions are seen as Ukraine restricting the manoeuvrability of the Black Sea Fleet at the behest of NATO and Western countries.

Finally, Ukraine and Russia continue to be unable to resolve other outstanding issues. Although both houses of the Russian parliament ratified the Ukrainian-Russian treaty in December 1998 and February 1999 the border delimitation and demarcation process is proceeding very slowly. The biggest problem is in the Kerch Straits and Sea of Azov because of the closeness of the Crimea and the oil and gas deposits in the vicinity. Ukraine continues to insist that the large amount of deposits of Ukrainian citizens deposited in the Soviet era in the Moscow Sverbank and Vnesheconombank banks be returned. When the USSR disintegrated these deposits were nationalised by Russia. The division of former Soviet buildings abroad, also taken over unilaterally by Russia, continue to be brought up by Ukrainian officials. The arrival of Putin in Russia indicates a tightening of the screws both domestically, as seen in Chechnya and in his re-centralisation of power, and in the foreign arena. Ukraine will play a key role in his strategy to revive Russia as a great power. Putin will no longer allow Ukraine to integrate in the political-security field with the West while reaping economic benefits from Russia by being allowed to build up large energy debts. Ukraine’s much vaunted multi-vector foreign policy may no longer prove tenable in the face of such Russian pressure.