The big freeze in Russian-Ukrainian relations

Monday, 30 January 2006
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The recent conflict between Ukraine and Russia over the price of gas brought to the surface the contradictions in the Ukraine, a country which is being pulled towards the western sphere of influence. That was what the so-called Orange Revolution was about. Now the Ukraine people are disillusioned as they watch an international conflict for control of resources that stretches right across the former Soviet Union and beyond.

On January 1 Russia took over the presidency of the G8 group of industrialized nations. The top item on the agenda this year is energy security. By this the Kremlin means Russia’s ability to supply Europe and the US with greater gas exports, in particular a pipeline under the Baltic Sea to export gas to Germany and the extraction of gas from a huge field in the Barents Sea that will be shipped from Murmansk to the US like oil after being turned into liquefied natural gas.

And on January 1 Russia also turned off the supply of gas to Ukraine, and therefore Europe since the Ukrainian government used gas that was bound for Europe for domestic consumption. This blockade was the culmination of Gazprom, Russia’s state owned gas monopoly, pressing for price rises to former Soviet states, which buy gas at below world market prices, and Ukraine’s Neftegaz refusing to cough up, asking in turn for a higher price for the transit of Russian gas through its territory to European markets. It argued that it bought Turkmen gas for domestic consumption while Russian gas was re-exported to Europe and therefore shouldn’t pay Gazprom more. Gazprom did a deal with Turkmenistan whose gas passes through Gazprom’s pipelines in Russia, and, following the reaction in Europe which forced Gazprom back to the negotiating table, resumed supplies on January 3, with Ukraine agreeing to pay $95 per 1000 cubic metres for Turkmen gas (details about the price Neftegaz will pay for Russian or Uzbek gas have still to be agreed on.).

None of this has anything to do with Gazprom’s commercial interests although the ratings agency Fitch recommended investors buy Gazprom shares, which rose by 20%, sending the company into the top ten with a capitalization of $192bn on January 18. But it will not benefit from higher prices, which will go to a trading company called “RosUkrEnergo.” In fact the dispute may damage Gazprom, which had the reputation of a reliable supplier during the Cold War. Now European politicians are calling for a greater diversity of gas supply, particularly importing liquefied natural gas from Qatar and Algeria, as well as promoting renewable sources of energy. This is not because they think Russia will turn off the taps and blockade Europe. On the contrary they know (unless they are stupid enough to believe their own propaganda) that Gazprom depends on its supplies to Europe, just as it did during the Cold War.

The question is therefore not one of economics but of the foreign policy of Russia and the west, which is also the domestic policy of the Ukrainian elite. It is one of the balance of power in the former Soviet Union, and the rivalry between Russia in the west for resources, strategic interests and spheres of influence on the one hand, and of the aftershocks of the so-called “orange revolution” on relations between Russia and the west on the other hand. Clearly these two sides of the question are linked, as the coming to power of President Yushchenko in Ukraine a year ago was the latest example of US backed regime change under the veneer of democracy first applied in Belgrade October 2000 against Milosevic and then in Georgia in December 2003.

Contradictions between Russia and the West

Russia and the west are both keen to have good relations. It is not only the charming personalities of world leaders that explains why President Putin is a loyal personal friend of theirs but also a recognition of Russia’s weakened position in world affairs. Former German President Shroeder is the chairman of the consortium set up to build the Baltic pipeline, and a similar arrangement with Berlusconi is being muted for a southern European project, extending a pipeline that goes under the Black sea to Turkey on to Greece and Italy. He is also a good friend of George Bush, supporting the US invasion of Afghanistan and did not lift a finger to help Iraq against American imperialism. He even offered a plum job at Rosneft to George Evans, a close friend of GW Bush.

Such nepotism underlines that Europe and the US are interested in reducing their dependence on the Middle East and that Russia is happy to increase its exports, having a quarter of world reserves and a third of gas extraction, as well as being the second largest oil exporter after Saudi Arabia. (There are also plans to open up eastern Siberia to fuel China, Japan and Korea, the second, third and fourth largest importers of oil after the US.) But the west does not want to strengthen Russia in its relations with former Soviet republics yet these relations are largely based on Gazprom’s control of gas supplies. If Europe increases its level of gas imports from Russia it will strengthen Russia’s position versus her eastern European neighbours, precisely when the EU (and America) are stepping up their drive into Russia’s former sphere of influence. In particular, new EU member states like Poland, as well as Ukraine, which depend on the transit of Russian gas for much needed revenue, would see their ability to win concessions from Russia disappear if the pipeline under the Baltic to Germany is built.

The US wants to have its cake and eat it. It wants to increase energy imports from Russia (and for Russia to liberalise its energy prices domestically) but has officially condemned Russia for increasing gas prices and bullying Ukraine. The hypocrisy here is astonishing, coming from the US, who trebled gas prices in Iraq and was a cheerleader of liberalizing prices in Russia in the 1990s.

The result of asset stripping and lack of investment was an energy blackout in Moscow last May. In December Anatoly Chubais, the architect of Russia’s privatisation theft and head of electricity giant UES, admitted another blackout was possible if it reached –25 degrees with power generation unable to meet increased demand. Although it reached -37 in Moscow last week this did not happen. But people weren’t confident in the system. We’re asked to pay more only to get less. Clearly higher energy prices will be a disaster for the people in Ukraine, as well as in Iraq and Russia, just as workers in any country cannot trust American imperialism to help them, or Russian imperialism, or their own government, which are all only interested in their own narrow interests.

The Caspian

As part of its strategy to reduce its dependence on the Middle East the US is also looking with hungry eyes at the Caspian region, with its huge reserves of oil and gas and an oil pipeline from Baku in Azerbaijan through Georgia to Djehan in Turkey, by-passing Russia, which is set to be operational later this year. Their backing of the “rose revolution” in Georgia, a key US ally, explains why it was necessary to strengthen Georgia versus Russia and resolve territorial disputes that led to wars in the early 1990s in the South Caucasus and could undermine the security of the pipeline. At the moment Georgia is massing troops on the border of South Ossetia, one of the break-away enclaves whose pro-Russian President drew up a plan for peace to pre-empt an invasion. His plan was basically the same as the one Georgian President Saakashvili presented to the UN and which was endorsed unanimously by the OECD. Russia’s backing may indicate a tactical retreat, withdrawing from South Ossetia to consolidate its position in the pro-Russian republic of Abkhazia that Georgia also has a territorial claim over. US protection also extends to Azerbaijan and Kazakhstan, whose shipments of additional oil across the Caspian are vital to make the pipeline profitable, tacitly supporting the leadership of both countries in elections at the end of last year as a reward for services rendered. The US is planning to allocate them $130m in training, infrastructure and equipment under its programme “Caspian watch.” A radar surveillance station has already been built in Azerbaijan to monitor Iran and Russia.

The only pro-Russian state in the region is Armenia, which fought a bitter war with Azerbaijan over Nagorno-Karabakh, an area with an Armenian population situated in Azerbaijan in the Soviet period. Like Ukraine, Moldova and Georgia, Armenia is also having to pay more for its gas at $110 per 1000 cubic metres. Since this is the same price as Georgia, which is officially opposed to Moscow, doubts are being raised as to what Armenia would lose by improving ties with the US. The sabotage to electricity and gas supplies to Georgia that took place on January 22 is likely to have been a reminder to Armenia of what would happen without Russian support just as President Robert Kocharyan was flying to Moscow to negotiate what he could offer in return for cheaper gas. Since Gazprom and Russian capital already control the key assets in the economy he has little choice in what he could offer. Accordingly unconfirmed reports suggesting that Gazprom wants a (possibly majority) stake in a new gas pipeline from Iran cannot be excluded.

Central Asia

By contrast US influence has become weaker in central Asia. The spontaneous overthrow of the Akaev regime in Kyrgyzstan was a cause for concern for other, even more dictatorial leaders in the area, who are suspicious of US calls for “democracy.” The drift of these countries into the orbit of Russia was strengthened by the repressive shooting down of an insurrectionary movement in Andijan in Uzbekistan. Unlike their hypocritical American “partners” Russian politicians pointedly did not criticize former Soviet leader and current President Karimov. Following Andijan, Karimov kicked the Americans out of Khanabad, an air-base they had been using to fly in supplies in big cargo planes from NATO bases in Europe to forces in Afghanistan. Now they depend on the Hansi base in Kyrgyzstan (which borders Manas civilian airport). The government is demanding the rent be increased from $2m to $200m and this could be the prelude to following Karimov’s example, in line with the position of the Shanghai Cooperation Council which called in July for an end to the US presence in member states.

Given that the US transports 90% of its supplies to Afghanistan by air and that the war is by no means over, with the fundamentalists copying guerrilla methods from Iraq, the loss of US presence in former Soviet central Asian republics would be a serious setback for US imperialism. It would certainly not be able to transfer its bases to Turkmenistan or Tadjikistan, two other pro-Russian member states of the Shanghai Cooperation Council. The Turkmen leader, whose plans to collaborate with Iran have been cut across by the new Iranian leadership which does not want to divide the spoils of their hydrocarbon sector with him, is trading gas with Russia (rather than Ukraine) in exchange for Russian support for his army and navy. Tadjikistan is even more pro-Russian, being the only central Asian republic to have a Russian military base. It also depends on money sent home from migrant workers in Russia for up to a quarter of its national income and has received some Russian investment in its hydro-electricity generation and an aluminium plant. This is an area where Russia actually appeared to have a defined post-Soviet foreign policy, rubbing its clumsy hands in anticipation of the dividends of securing the transit of oil and gas through this region to growing markets in India and China. The courting of Asian markets explains why President Putin attended the conference of Muslim states in Malaysia as an observer, despite the war in Chechnya.

Ukrainian domestic politics

These geopolitical factors are the context to the conflict between Russia and Ukraine. If Ukraine could negotiate with Turkmenistan as well as Gazprom, the Russian monopoly’s position would be weaker. The same would apply if a gas pipeline was built under the Black Sea, cutting Ukraine’s dependence on Russian gas. But in the short term as far as Ukraine is concerned the current crisis is about the run-up to key parliamentary elections in March after which executive power will pass from the President to a cabinet formed on the basis of a parliamentary majority.

At the moment there is no clear favourite. The pro-western groups that united in the “orange” revolution a year ago split in government over how to redistribute assets handed out to favourites of the previous Kuchma regime. This led Yushchenko to sack Yulia Timoshenko from her post as Prime Minister in the summer and appoint Yurii Yekhanurov in her place, a politician prepared to negotiate with the Kremlin. Yushchenko’s accusations that Timoshenko’s populism undermined the economy and her counter-accusations that his entourage was corrupt highlighted the clash between the propaganda and the reality of the new government. On the other hand the pro-Russian party of the regions led by Viktor Yanukovich was unable to capitalise on the crisis in the camp of the reformers. Some of his supporters wanted to do a deal with the government while another wing opposed to the government crystallized in a bloc led by Natalya Vitrenko. It is possible that neither side will win the elections, leading to a fragile coalition government vulnerable to back-stabbing, character assassination and more back-stabbing.

The current stand-off has created even more uncertainty in the situation. On the one hand, Timoshenko has criticized the government for giving in to Russia, leading to a vote of no confidence in the cabinet and another example of the rivalry between her bloc and Yushchenko’s. On the other hand opposition to Russia could provide them with a point of reference, allowing them to put the blame on the internal problems of their big neighbour. Given that Yushchenko’s bloc, which was headed by the pragmatic Yekhanurov, had been open to negotiating with pro-Russian groups, the present conflict could create significant obstacles in Russia’s ability to find a common language with the Ukrainian elite in the future.

Yanukovich also criticized Yushchenko during the crisis, arguing that pro-Russian politicians like himself would be able to win concessions from Russia. The example of Belarus shows this is possible though unlikely – given all the fighting talk about market prices it would be difficult for Gazprom to back down, even if it wanted to. Regardless of who makes up the next government, higher gas prices will undermine Ukrainian industry, which will not be able to compete without cheap gas. And Ukrainian industry is based precisely in the east of the country that seeks close ties with Russia, hitting those groups in Ukraine that back Russia rather than those who back the west. The problem for Russian capital here is not their pangs of conscience for their Ukrainian counterparts. On the contrary, they reason that in crushing Ukrainian competition in the metal sector they will be able to increase their own share of world markets. But if these assets are no longer profitable in the hands of pro-Russian business they might well find themselves in the hands of western capital, whose main bone of contention with Kuchma was his refusal to let foreign capital participate in the privatisation process. The sale of the giant Kryvorozhstal steel plant to Lakshmi Mittal for over $4bn could be a glimpse of things to come, which the Russian elite would rather not contemplate.

It is therefore difficult to predict the configuration of forces that will come out of the elections. In fact it is difficult to predict how the gas conflict itself will develop. It has already led to Ukraine seizing a lighthouse in the Crimea, sparking off a war of words among the military, and to a ban of Russian imports of Ukrainian meat and milk products on the pretext that meat was re-exported from Ukraine   even though cream and cheeses were not   originally imported from a third country. But events can develop a logic of their own. The lives of the population are of no concern to the elite of Russia, which only sees the corridors of power and the next hand it can play in the gas war, increasing gas prices further after six months.

The impasse of capitalism

The fact is that higher gas prices are against the interests of industry in Russia as well as Ukraine but the government is pressing forward with price liberalization here as well as in transport, electricity and housing. Despite all the twists and turns of the domestic and foreign policy of Russia and her former Soviet satellites the picture everywhere is the same – lying politicians, lower living standards and life expectancy, and industry and oligarchs that cannot compete with western capital. The main reason that Russia’s sphere of influence in central Asia is not unravelling as it is in the Caspian area is the crisis of American imperialism globally. While the collapse of the Soviet Union gave western imperialism a temporary boost the underlying impasse of global capitalism is clear for all to see. None of this is in the interests of the people of any country, who are instinctively disgusted by leaders who viciously carve up the world and then smile and shake hands across a table at international summits.

The USSR was a caricature of socialism. The chauvinism of its national bureaucracies exploded in wars in the Caucasus and in Central Asia as well as in Yugoslavia. But now imperialist rivalry is intensifying national tensions throughout the former USSR at the same time that the ruling class in every country is carrying out the same anti-working class policies domestically. Beneath the indifference to bourgeois politics in Russia and elsewhere, the ugly reality of wars, plunder, price hikes, unemployment and cuts in health and education is creating new conditions for a reaction to imperialism and the necessity of solidarity, working class unity and socialism, with resources and industry owned collectively by the working class, like in the USSR, but controlled democratically, using the internet and modern technology. This is the only future worth fighting for.

January 25, 2006