Ukraine's two-faced president

By bne IntelliNews February 9, 2011

Tim Gosling in Moscow -

With hearty encouragement from Ukraine's deposed opposition, the West has fixed on a crude sketch of President Viktor Yanukovych as a Moscow stooge since he came to power a year ago. But which way does he really swing?

Yanukovych hardly helped cut the puppet strings some envisage when he signed a deal to extend the presence of the Russian Black Sea Fleet in return for a discount on gas within his first two months in office. However, his hand was clearly forced by Ukraine's chronic lack of cash.

Yanukovych spent the remainder of his first 12 months in office repeating the mantra that his top priority is to join the EU - although little actual progress has been made - and warding off Russian pressure for a merger between state gas firm Naftogaz Ukrainy and Gazprom, which would hand Moscow control of the country's strategic gas transit system (GTS).

He made his independence from Russian policy even clearer at the Davos World Economic Forum in late January by announcing a deal to carry Azeri oil to Europe, while also complaining bitterly about two planned Russian gas pipelines - Nord Stream and South Stream - that will transport gas to Europe without crossing Ukrainian soil, so avoiding the paying of transit fees.

Most notably, Yanukovych directly aligned himself with Poland's stance on the pipelines. Until a recent thaw, Warsaw had one of the very worst relationships with Moscow amongst EU capitals, and has criticized the planned pipelines as politically motivated. "South Stream is directly related to Ukraine and here I share the position of Poland," Reuters quoted Yanukovych as saying. "If this is a way to exert pressure and not a commercial project, then of course serious questions arise about how we should build our relations today, let alone in the future."

Whilst neither the Azeri oil deal nor Yanukovych's feisty words will ruffle Moscow's feathers too much, they certainly don't reflect its interests. Yanukovych is Ukraine's man - or rather, a certain section of Ukrainians. "Yanukovych is not guided by ideology," says Lilit Geovargyan of IHS Global Insight, "but by the economic interests of his country, and more narrowly, by the commercial interests of those oligarchs who backed his candidacy during the last presidential race."

Ukraine's strategic position between Russia and the EU means that those interests are best served by playing both sides. Kyiv butters up Brussels using buzzwords such as "democracy" and "energy security," while trying to tempt it to help out with upgrading its decrepit GTS in a three-way tie-up with Russia. Europe is putting little if any cash on the table, whilst Ukraine makes selections out of a rash of deals offered by Moscow.

Brigham Marriott of Phoenix Capital suggests that Yanukovych and his backers understand that a balanced foreign policy is the only way to maintain control. "Lean too far east and Moscow will be calling the shots. Lean too far west and a new political ideology could take over, or even worse, Ukrainian oligarchs may have to start playing by western rules," she says.


The sharp ideological divide in Ukraine's restive domestic politics also supports a policy of non-alignment. Yanukovych has so far enjoyed the most stable political environment in the country since 2004's Orange Revolution, but large protests are still common. He needs to avoid radicalizing heavily pro-European western Ukraine, or provoking his power base in the Russian-speaking east.

Protecting the country's strategic role piping energy between Russia and Europe - which is also a foundation stone of the economy - is a central plank. It's the one ace that Kyiv can play - as it does time and time again - and it won't be given away. "Ukrainians are inclined to believe that losing control of the country's gas transportation system is a potential threat to their sovereignty, whereas having Russia's navy stationed within their territory improves their security," notes Marriott.

Diversification of energy suppliers and transit deals is the defence strategy to resist Russian pressure to hand over control of the GTS. Hence, recent negotiations with countries in the Caucasus and North Africa to ship liquefied natural gas, or LNG, to a planned terminal at Odessa; the reversal of the Odessa-Brody oil pipeline to pump Venezuelan crude to Belarusian refineries - which is part of Minsk's similar diversification strategy; and the Azeri oil transit deal. "Serving as a bridge between Russia and EU is what Yanukovych declared after his election," recalls Geovargyan. "That's as close as he gets to having an ideology."

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