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By Peter Zeihan
During the past few weeks, Russia and Ukraine have been arguing over the terms of their natural gas supply contracts.
Under previous arrangements -- struck in efforts by Moscow to influence the outcome of Ukraine's presidential election in 2004 -- Russia's state-owned monopoly Gazprom supplied Ukraine with natural gas at the rate of $50 per 1,000 cubic meters. But Russia's preferred presidential candidate, Viktor Yanukovich, lost the 2004 election to the pro-Western Viktor Yushchenko. That loss, combined with Russia's hopes of raising income levels in general (or, switching "to a market basis," in Gazprom-speak) prompted Moscow to demand payments of $230 per 1,000 cubic meters from Ukraine -- terms Kiev refused. Gazprom then sliced its exports to Ukraine on Jan. 1, triggering a European uproar. Because Europe also depends heavily on Russian natural gas -- with 80 percent of those supplies transiting Ukraine -- the Russian cutoff hurt Europe rather than Kiev.
On Jan. 4, Moscow and Kiev settled the matter by agreeing to a compromise five-year contract. Under terms of that deal, natural gas from the Central Asian states of Turkmenistan, Uzbekistan and Kazakhstan will be transported through Russia, making up a mix that would supply Ukraine at a rate of $95 per 1,000 cubic meters. Any Russian gas fed into that mix will be sold at Gazprom's full rate of $230.
From a strictly commercial standpoint, all now seems right with the world. The Central Asians, who previously were able to sell natural gas only to the heavily subsidized Russian market, now have gained a significant export market for their supplies; the Ukrainians have substituted a mere doubling in prices for what would have been a fourfold increase; and the Europeans have their natural gas supplies re-established.
But that is not the really interesting -- much less important -- part of what has just occurred. When the crisis first erupted, it centered on Russia's desire to reassert influence directly in Ukraine; but as the game has played out, it has come to center on Russia's ability to use Europe as a lever.
The Ukrainian Keystone
From the beginning, the natural gas spat has been about much more than a few (billion) dollars in annual energy sales. This squabble is over the orientation of Ukraine between West and East, and ultimately over the ability of Russia to regenerate its geopolitical fortunes.
Ukraine's “Orange Revolution” was a seminal event in the Russian mind -- a jarring development that ranks second only to the dissolution of the Soviet Union in December 1991. Russians view the Soviet collapse as the day they lost their empire, and they fear that history may mark the Orange Revolution as the day that Russia degraded past the point of no return.
Viewed from any angle, Ukraine is critical to the long-term defense and survival of the Russian state. This is not about ethnic kin, although eastern Ukraine does host the largest Russian community in the world outside of Russia. Even before the Soviet era, Ukraine was integrated into the industrial and agricultural heartland of Russia; today, it not only is the transit point for Russian natural gas to Europe, but actually is a connecting point for nearly all the country's meaningful infrastructure between East and West -- whether of the pipe, road, power or rail variety.
Politically and militarily, a Russia denied Ukraine cannot easily project power into the Northern Caucasus. Nor could Moscow reliably exert control over Belarus, since that country's primary water transport route, the Dnieper, flows south to Ukraine, and it is nearly as well linked into Poland and the Baltics as it is to Russia proper. That geographic reality means that, should anything happen to the government of pro-Russian President Alexander Lukashenko, Minsk's geopolitical orientation could quite easily shift to match Ukraine's.
And of course, taking the long view, it is easy to see why the Russians are so nervous. Ukraine pushes deep into the former Soviet territory, with borders a mere 300 miles from either Volgograd or Moscow, and the Ukrainian port of Sevastopol on the Black Sea has long been Russia's only deep, warm-water port. There are no European armies prepared to march east now, nor are there likely to be anytime soon, but throughout history -- apart from the Soviet period -- Europe has profited from Russian weakness. Without meaningful influence over Ukraine, Russia has no reliable links to Europe, no reliable control over Belarus, a pinched supply line to the Caucasus -- where an insurgency rages -- no navy to speak of and, most importantly for a country with no natural borders, significantly less strategic depth.
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