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Want To Understand Russia-Ukraine Relations? Follow The Money

Russia's Vladimir Putin Right) meets with Ukrainian President Viktor Yanukovych in March -- despite expectations, relations have not become as close as many predicted.
Russia's Vladimir Putin Right) meets with Ukrainian President Viktor Yanukovych in March -- despite expectations, relations have not become as close as many predicted.
When Viktor Yanukovych became president of Ukraine in January 2010, it seemed inevitable that Kyiv would drift increasingly into Moscow's orbit.

And it has -- but only to a degree.

Just three months after Yanukovych took office, he and then-Russian President Dmitry Medvedev signed an agreement that allows the Russian Black Sea Fleet to keep its base in Crimea until at least 2042.

Kyiv also renounced its previous ambition to join NATO. And in August 2012, Ukraine passed a law granting so-called regional languages -- most importantly, Russian -- official status, a symbolic move that Moscow had long been urging.

But Yanukovych appears unwilling -- or unable -- to deliver on one of the Kremlin's key demands: that it join a Moscow-led customs union that unites Russia, Belarus, and Kazakhstan. Moscow has pushed the project as the foundation of what would essentially be an alternative European Union for former Soviet states.

Yanukovych and many of the oligarchs who support him are unwilling to shut the door completely on further integration with the EU, even though relations with the West have been virtually put on hold over the perceived politically motivated prosecution of former Prime Minister Yulia Tymoshenko, Yanukovych's main political rival.

Many Ukrainian oligarchs, analyst say, are also fearful of being dominated by Russian commercial and political interests.

When Putin pushed the Commonwealth of Independent States Customs Union proposal at a summit in Yalta in July, Yanukovych was polite, but coy. "Any integration only brings about advantages. We are offered to join this [customs union] integration process," he said. "First of all, we are very grateful for the invitation. It is very good. When it comes to the future, we shall see."

Elsewhere Yanukovych has said Ukraine might join the customs union, but it would have to amend its constitution before it could do so.

In A Pickle

The main carrot -- and stick -- at Moscow's disposal in this standoff is, of course, natural-gas prices. Ukrainian Prime Minister Mykola Azarov said earlier this month that Moscow had "put forward conditions: join the customs union and tomorrow you will receive gas at $160" per 1,000 cubic meters. Currently, Ukraine pays $420 per 1,000 cubic meters.

Andrew Wilson, a senior fellow at the European Council on Foreign Relations, says that although some Ukrainian oligarchs -- particularly those in the energy sector -- favor closer ties with Russia, others see their economic interests to the west.

"Clearly there are those [Ukrainian oligarchs] who trade with Europe or who already have assets in Europe or who are listed on European stock exchanges who want to keep the relationship [with the EU] at least open or at least prevent any further deterioration in that relationship," Wilson notes.

And those oligarchs are pushing Yanukovych not to give in to Russia on this point. "Structurally, there were always things that were going to get in the way of the [Moscow-Kyiv] relationship," Wilson says. "Yanukovych stands all fours on his defense of the local oligarchs -- some of whom are Russian partners; the so-called gas lobby has seen its power increase under Yanukovych. But most are rivals with Russian interests and Yanukovych is first and foremost an oligarch-pickled president."

The Cold War Continues

There was a time when, outwardly at least, Moscow seemed willing to tolerate close ties between former Soviet states and the EU, while merely insisting that they refrain from joining NATO. However, Wilson says, that changed with the EU's 2009 Eastern Partnership initiative. That Poland-sponsored scheme potentially envisaged strategic relations and free-trade agreements with Armenia, Azerbaijan, Belarus, Georgia, Moldova, and Ukraine.

And that was too much for Moscow, which viewed the effort as a Western effort to encroach on what Russia considers its sphere of influence. The EU program "didn't turn out to be what Russia really feared -- Russia tends to interpret these things through its own modus operandi -- but the Eastern Partnership wasn't really a geopolitical move to take over these countries," Wilson says.

Russian political analyst Sergei Markov, a former State Duma deputy from the ruling United Russia party, says Moscow considers ties between Ukrainian oligarchs and the West a major obstacle to improved relations with Kyiv.

"In Ukraine the oligarchic groups are too strong and their influence on the authorities is quite strong. And they, first of all, also receive their instructions from the West, where most of their bank accounts and real-estate holdings are located," Markov says. "They even own their Ukraine properties through offshore companies. And they are afraid to disagree with their Western bosses and so they also are working so that relations between Ukraine and Russia are not good."

Moreover, he adds, Ukrainian oligarchs are afraid of competition from their Russian counterparts. "They are afraid that Russian oligarchs will be able to rely on the Russian state and bring them a serious defeat on their own home territory," Markov says.

Ultimately, though, he sees the stalling of relations between Moscow and Kyiv in traditional, East-West geopolitical terms. "We can't say that Ukraine's foreign policy is independent today," Markov says. "It is extremely dependent on the United States, on countries of the European Union -- that is, on NATO countries -- which are doing everything possible to not allow an improvement of relations between Russian and Ukraine."

But Kyiv-based political analyst Yuriy Ruban says relations have boiled down to a virtual ultimatum. Moscow will not discuss anything else with Kyiv until Ukraine joins the customs union. And that demand, he says, is driven by Russia's desire to dominate Ukraine politically and economically.

"The very existence of Ukraine as an independent country is viewed -- to use Vladimir Putin's words -- as 'the biggest geopolitical catastrophe of the 20th century.' Russian policy is oriented toward rebuilding the 'Russia world,'" Ruban says. "In addition to the ideological dimension, there are also completely pragmatic interests that include major Russian capital, which now holds power and seeks new markets."

RFE/RL Ukrainian Service correspondent Iryna Stelmakh contributed to this report from Kyiv

RFE/RL has been declared an "undesirable organization" by the Russian government.

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