Ukraine, to coin a phrase, is a far way country of which we know little. Its geographic misfortune is to be the buffer state between western Europe and Russia. With all eyes on Iran, too little attention is being paid to the fact that Ukraine is being forced back under the control of the Kremlin.
This week’s events send a very negative signal to western investors who had hoped to develop Ukraine’s extensive shale gas resources both for local use and for export to other parts of eastern and central Europe. The assertion of Russian power over President Viktor Yanukovich and Prime Minister Mykola Azarov will also send a shiver across the other former Soviet satellite states in eastern Europe. Some, like Poland and Romania, are safely within the EU. Many others are not, to say nothing of the major energy producers around the Caspian Sea, such as Azerbaijan and Kazakhstan.
Energy is at the heart of the current dispute and of Russia’s desire to keep the ties between Ukraine and the EU to a minimum. Russia does not want to see its gas market across Europe eroded any further. Gas exports from Russia provide jobs, revenue and personal wealth. Mr Putin clearly understands the threat to Gazprom’s interests from shale gas in particular but also from the breaking of the price link between gas and oil. Existing contracts are under threat and gas-to-gas competition in Europe could push prices down by as much as a third over the next few years. Gazprom is already being squeezed in the German market. The development of shale gas and power in Ukraine would further threaten export markets which Russia has taken for granted for decades. If Ukraine were within the EU, or on a long path towards membership, Gazprom’s stranglehold would be that much more likely to be threatened, not least because the prospect of accession would reduce the risks for potential investors.
At a moment of American weakness, this assertion of Russian interests is hardly a surprise. Nor is the popular protest at Russian interference, especially in the west of the country. The question is whether Europe is ready to stand up for Ukraine or any of the other former satellite states. Immediate membership of the EU is not on the table. Ukraine is not ready and Europe has learnt to its costs about the negative consequences of expanding too rapidly. The whole debate around the euro centres on the desire to return to a central core based on common rules. In terms of security it is hard to see European governments making commitments to defend Ukraine. As must be very obvious to Mr Putin, defence cuts across Europe are forcing a reconsideration of all existing commitments and there is no appetite to take on more.
But if Europe does nothing and allows a Russian anschluss in Kiev, the risks of other dominoes falling is high. Mr Putin has described the collapse of the Soviet Union as a disaster, and whatever the lines drawn on the maps after 1991 there is a sense that, from Moscow, the whole of the Commonwealth of Independent States is still seen as Russia’s natural sphere of influence.
To assert power over the government in Kiev is one thing. The real challenge from Moscow could come further south in the Caspian region, where the uncontrolled development of fresh resources of oil and gas into the world market poses a direct challenge to Russian interests. American interest in creating a corridor of development through central Asia has clearly waned. There, as in the Middle East, one can almost hear the sound of the bugle as America retreats.
Behind all of this is a very simple calculation. Russia, which has failed to find any serious alternative development model, remains dependent on oil and gas exports. Mr Putin has thrived because oil and gas prices have been high over the past decade. He does not want them to fall. In a world where supplies are growing thanks to new technology and new discoveries the only way to keep prices up is to constrain supply. The logic is simple and the implied actions entirely rational. But for those who thought that the end of communism marked the beginning of a new era of freedom in the former Soviet states, and for those who have invested on the back of that belief, the outlook is decidedly bleak.