The Ukrainian-Russian gas dispute has been a big deal in the media lately, and there was plenty of coverage from all the media outlets, even in the Seattle papers. Today, with the fight seemingly over for now, Russia Blog will take a closer look at what has happened.
First of all, I'll address the concern voiced by major media outlets regarding the "unfair deal" where Belarus and Kazakhstan get the same gas for 25% of the price Moscow is demanding that Kiev pay. Kazakhstan and Belarus are strategically the closest Russian allies; either Russian troops are stationed in these countries, or Russia performs nuclear tests in these countries, launches space craft from the Baikonur Cosmodrome in Kazakhstan, etc. These former Soviet republics are not going to join the EU or NATO anytime soon, and they don't really claim to have free markets.
At the same time, the new Ukrainian government decided that everything Russian is bad, and the free market future of Ukraine lies within EU and NATO. The most popular slogan these days in Russia was, "If you paid for the revolution, pay for the gas!"
Europe has also not been supportive of Ukraine, because now, when Ukraine is targeting the European market, lower gas prices make Ukrainian products and services cheaper than competing European goods. That doesn't encourage the EU to defend the Ukrainian "price deal". The EU is urging Ukraine to accept higher prices. By the way, the old price for 1,000 cubic meters of gas was $50, now it will be $230.
Without subsidized gas many Ukrainian businesses will collapse, because there is no free market in the former Soviet republics, and international prices and regulations will work and reward businesses with profits only if the corrupt governments, tax officials, police officers and mafia will stop pocketing the cash that could be paid in taxes and in salaries to the Ukrainians. This statement is valid not only for Ukraine but for Russia, Belarus and other former Soviet republics as well. By the way, maybe if the businesses paid honest taxes, $230 (which Europe pays) wouldn't be that much to argue about.
Finally, why should Russia subsidize Europe, NATO and India? It's India that owns a large part of Ukrainian natural resource corporations, and it's Europe that benefits from the cheap Ukrainian labor. And why is the Russian evening news reporting that Ukraine these days is almost cluttered with American intelligence agents advising the Ukrainians in their dispute with Russia?
The New York Times has an excellent article that covers other nuances of the dispute, and fairly states that:
Some Ukrainian officials appeared almost giddy today after staring down Russia in the dispute, even though the country will now pay higher gas tariffs. "The price of freedom just went up a little bit," said one official... Yet the elevated role of RosUkrEnergo troubled others in Ukraine's turbulent political class."The point was to eliminate a suspicious intermediary," Grigory Nemurya, an adviser to Yulia Tymoshchenko, a former prime minister and leader of the Orange Revolution who fell out with President Viktor Yushchenko last fall. "Now Ukraine depends on this company even more."
The deal settled economic and political turmoil in the dispute, but failed to address widespread corruption in the gas business in the former Soviet states, he said. "It's another time bomb that could explode later, further down the road"
As a bottom line, I will stick with my opinion from few weeks ago, which basically states that things cost a certain amount of money, and if a person or a government wants to buy them, it has to pay the price; in modern world it would be correct to say "the market price".
Many are labeling Russia’s pressure on Ukraine to pay market prices for natural gas as “Cold War†tactics. Of course, the Ukrainian government is paying the full price for their anti-Russian rhetoric and pro-Western orientation. Russia is flexing the only muscles she has: natural resources. But, it’s not so much a message to the Ukraine as to the West. And it’s not so much “Cold War†as Realist geo-politics.
Putin quickly realized that Russia only has one card to play in today’s world of growing demand for natural resources. Domestically, this realization became clear with the takeover of the Yukos oil company. Disguised as retribution for legal transgressions, Putin removed the threat of a western-oriented Yukos
by imprisoning its managers, and paved the way for a predictable government takeover of Russia’s oil industry. Today, it is not so clear what the rules of oil investment are (i.e. no foreigner shall hold majority stock in a Russian oil company), but it is very clear who makes the rules.