Watching The World: Ukraine's 'fleet for gas' deal

May 3, 2010
Ukraine's opposition politicians were on the attack even before ink was dry on a new agreement between Kiev and Moscow for heavily discounted supplies of natural gas.

Ukraine's opposition politicians were on the attack even before ink was dry on a new agreement between Kiev and Moscow for heavily discounted supplies of natural gas.

Under the agreement, Moscow will sell gas to Kiev at a 30% discount in exchange for guarantees that Russia's Black Sea Fleet will be allowed to extend its base on Ukraine's Crimean Peninsula, at least until 2042. Russia's fleet has been based in Crimea for centuries, but under a post-Ukrainian independence agreement signed by former Russian President Boris Yeltsin, it would have had to leave in 2017.

To some observers, the so-called "fleet-for-gas" agreement was the clearest sign of the new cohesion between Moscow and Kiev since Russia-friendly President Viktor Yanukovych took power in February from his Western-leaning predecessor, Viktor Yushchenko.

'National treason'

That's also how it must have appeared to several thousand Ukrainians led by former Prime Minister Yulia Tymoshenko, who rallied together in front of parliament on Apr. 24 to protest the naval base deal.

According to Tymoshenko and other opposition leaders, the agreement amounted to abdicating control over Ukraine's territory. Tymoshenko even called it an "unprecedented step of national treason and shame."

The vehement criticism from Ukraine's political opposition to the "fleet-for-gas" deal has focused on its political aspect: the 25-year extension to the lease for Russia's fleet.

Even Russian media seemed to see the agreement in those terms, too, gloating over the monkey wrench that Moscow apparently had thrown into the works—and plans—of the North Atlantic Treaty Organization.

According to a report by Russia's official Itar-Tass news agency, politically this step is a very telling one. "First and foremost, Ukraine's road into NATO will be blocked for decades ahead," the agency said.

Wishful thinking

Well, that turns out not to be true, regardless of the wishful thinking in Moscow, as NATO Sec.-Gen. Anders Fogh Rasmussen said the arrangement is "a bilateral agreement and it will not have an impact on our relationship neither with Russia nor with Ukraine."

Ukraine, meanwhile, said the agreement does improve its income as Moscow rents the naval facilities for $93 million/year. Not least, according to the Yanukovych camp, the rental from the lease will go up to $100 million/year in cash after 2017.

But even that could be a will o' the wisp as Belarus's President Alexander Lukashenka criticized Russia for failure to pay rent for its two Belarus-hosted military bases.

With all the political hoopla over the agreement, little was said about the actual commercial terms—a point noted by analyst IHS Global Insight. Once again, IHS said, political considerations "have trumped commercial concerns in the Russia-Ukraine gas relationship, demonstrating precisely why efforts to establish a true market-based relationship between Gazprom and Naftogaz appear doomed to fail."

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